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EXHIBIT 10.14
FC VENTURE I, LLC
LIMITED LIABILITY COMPANY AGREEMENT
Table of Contents
Page
ARTICLE 1. RECITALS AND DEFINITIONS 1
1.1 Recitals 1
1.2 Definitions 1
ARTICLE 2. FORMATION OF VENTURE 5
2.1 Organization 5
2.2 Venture Name 5
2.3 Representations and Warranties 6
2.4 Purposes and Powers 6
2.5 Principal Business Office, Registered Office and Registered Agent 6
2.6 Qualification in Other Jurisdictions 6
2.7 Powers 6
2.8 Venturers 6
2.9 Units 7
ARTICLE 3. CAPITALIZATION 7
3.1 Initial Capital Contributions 7
3.2 Initial Venturer Interests 7
3.3 Capital Contributions for Unanticipated Needs 7
3.4 Capital Accounts 9
3.5 Capital Contributions for Additional Properties 9
ARTICLE 4. BOOKS; ACCOUNTING; TAX ELECTIONS; REPORTS 10
4.1 Books and Records 10
4.2 Financial Statements 10
4.3 Property Budget 11
4.4 Insurance Program 11
4.5 Business Plan 12
4.6 Right to Information 12
4.7 Filing of Returns 12
4.8 Tax Matters Partner 12
4.9 Fiscal and Taxable Year 13
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4.10 Accountants 13
4.11 Annual Appraisal 13
4.12 Taxation as Partnership 13
ARTICLE 5. ALLOCATION OF INCOME AND LOSS 13
5.1 Allocation of Net Income 13
5.2 Allocation of Net Loss 14
5.3 Loss Limitation 15
5.4 Guaranteed Payment 15
5.5 Minimum Gain Chargebacks and Nonrecourse Deductions 16
5.6 Qualified Income Offset 16
5.7 Gross Income Allocation 17
5.8 Curative Allocations 17
5.9 Compliance with Code Section 704(b) 17
5.10 Other Allocation Provisions 17
5.11 Distributions of Nonrecourse Liability Proceeds 18
5.12 Information as to Allocation of Debt 18
ARTICLE 6. DISTRIBUTIONS 18
6.1 Definitions Relating to Distributions 18
6.2 Operating Distributions 20
6.3 Distributions Upon Liquidation 20
6.4 No Deficit Restoration by Venturers 21
6.5 Withholding 21
ARTICLE 7. RIGHTS AND OBLIGATIONS OF VENTURERS 21
7.1 Limited Liability 21
7.2 Authority 21
ARTICLE 8. RIGHTS AND OBLIGATIONS OF ADMINISTRATIVE AGENT AND MANAGEMENT OF THE VENTURE 21
8.1 General Responsibilities 21
8.2 Operation in Accordance with Plans 22
8.3 ERISA Matters 22
8.4 UBTI Matters 22
8.5 REIT Matters 23
8.6 Contracts with Affiliates 27
8.7 Employees and Contractors 28
8.8 Financing 28
8.9 Compensation and Expense Reimbursement 29
8.10 Environmental Auditing 29
8.11 Continued Involvement Requirements 29
8.12 Indemnification of Administrative Agent and Venturers 29
8.13 Authorization of Certain Actions 31
8.14 Actions Requiring Approval of Venturers 31
8.15 Restrictions on Other Business 34
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8.16 Acquisition of Additional Properties 35
8.17 Use of Separate Entities to Hold Properties 35
ARTICLE 9. TRANSFERS OF VENTURE INTERESTS 36
9.1 Prohibition of Transfers 36
9.2 Investor Permitted Transfers 36
9.3 Developer Permitted Transfers 36
9.4 Admission of New Venturer 36
9.5 Non-Recognition of Certain Transfers 37
9.6 Withdrawal 37
ARTICLE 10. DEVELOPER DEFAULTS; TERMINATION 37
10.1 Default 37
10.2 Certain Investor Remedies 39
10.3 Funding Following Developer Default 40
10.4 Dissolution 40
10.5 Application of Assets 41
10.6 Replacement of Administrative Agent 41
ARTICLE 11. FORCED SALE 41
11.1 Sale to Third Party 41
11.2 Marketing 42
11.3 Administrative Agent Responsibilities 42
11.4 Option to become Co-Administrative Agent 43
11.5 Cooperation 43
ARTICLE 12. RIGHT OF FIRST OFFER 43
12.1 First Offer 43
12.2 Calculation of Price for Venture Interest 44
12.3 Deposit 44
12.4 Closing 44
12.5 Brokerage 44
12.6 Tax-Free Exchange 44
ARTICLE 13. MISCELLANEOUS 45
13.1 Notices 45
13.2 Successor and Assigns 46
13.3 Applicable Law 46
13.4 Severability 46
13.5 Counterparts 46
13.6 Entire Agreement 47
13.7 Titles 47
13.8 Further Assurances 47
13.9 Consent to Jurisdiction 47
13.10 Amendments 47
13.11 Limitation on Liability of Venturers 47
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13.12 Waiver of Jury Trial 47
13.13 Confidentiality 47
Schedule 1.1 Description of Initial Properties
Schedule 2.3 Representations and Warranties
Schedule 2.8 Venturers
Schedule 3.1 Properties and Contracts to be Contributed to the Venture and Permitted Cost Reimbursement
Schedule 4.2 Financial Statements
Schedule 4.3A Property Budget
Schedule 4.4 Insurance Plan
Schedule 4.5 Business Plan
Schedule 8.6 Management Agreement
Schedule 8.13 Contracts and Instruments Authorized to be Entered Into
Schedule 8.15 Qualified Properties for Acquisition by Captec Affiliates
Schedule 8.16 Acquisition Checklist
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FC VENTURE I, LLC
LIMITED LIABILITY COMPANY AGREEMENT
1. RECITALS AND DEFINITIONS
1.1 Recitals. This Agreement (this "Agreement") is entered into
as of March 31, 1999 by and between FCV NO. 1, INC. (the "Developer"), a
Delaware corporation with a business address at c/o Captec Net Lease Realty,
Inc., 24 ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Drive, Lobby L, 4th Floor, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇ and ▇▇▇▇▇ NO. 17 LLC, a Delaware limited liability company (the
"Investor") with an address c/o Fidelity Management Trust Company, ▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇. Developer and the Investor
are hereinafter each individually referred to as "Venturer" and together as
"Venturers."
Developer has acquired the right to purchase certain real property more
particularly described in Schedule 1.1 (the "Initial Properties") pursuant to
written purchase contracts (the "Purchase Contracts") identified in Schedule
3.1. The parties have entered into this Agreement for the purpose of forming a
limited liability company (the "Venture") under the Delaware Limited Liability
Company Act (as amended from time to time, the "Act") to acquire, finance, own,
lease and sell the Initial Properties and any Additional Properties hereafter
acquired by the Venture, all on the terms provided herein. The Venture shall
have an agent (the "Administrative Agent") which shall have the authority and
duties specified in this Agreement. The Developer shall serve as the initial
Administrative Agent under this Agreement subject to the right of the Investor
to designate a replacement Administrative Agent under certain circumstances.
1.2 Definitions. Capitalized terms used in this Agreement shall
have the meanings set forth or referred to below.
"Act" - See Section 1.1.
"Additional Properties" - See Section 8.16.
"Adjusted Capital Account" - See Section 5.3.
"Administrative Agent" - See Section 1.1.
"Agreement" - See Section 1.1.
"Approve," "Approved," or "Approval" shall refer to a proposed
decision, action, report, budget, election, or any other matter that is required
to receive and has received the written approval by both Venturers.
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"Asset Manager" - means the property manager or managers for the
Venture responsible for managing the improvements located at the Properties. The
initial Asset Manager shall be the Developer as described in Section 8.6.
"Authorized Financing" shall mean any financing by the Venture or by a
Subsidiary with an institutional lender, to the extent such financing has
specifically been Approved.
"Business Day" means any day excluding a Saturday, Sunday and any other
day during which there is no trading on the New York Stock Exchange or its
successor.
"Business Plan" - See Section 4.5.
"Capital Account" - See Section 3.4.
"Capital Call Notice" - See Section 3.3(a).
"Capital Contribution Cap" means the respective maximum aggregate
amount of contributions of capital which each Venturer may be required to
contribute to the Venture pursuant to Sections 3.1 and 3.5. The Capital
Contribution Cap for Developer shall be Seven Million Dollars ($7,000,000) and
the Capital Contribution Cap for Investor shall be Twenty-Four Million Dollars
($24,000,000).
"Capital Transaction" means the sale, financing, refinancing, total or
partial destruction, condemnation or other recapitalization or disposition of
one or more Properties or any substantial asset of the Venture or any
Subsidiary.
"Captec" means Captec Net Lease Realty, Inc., a Delaware corporation
and the 100% shareholder of Developer, and its successors.
"Captec Affiliates" - means (i) Captec Franchise Capital Partners, L.P.
III, a Delaware limited partnership, (ii) Captec Franchise Capital Partners ▇.▇.
▇▇, a Delaware limited partnership, and (iii) any other Related Party of Captec
or the Developer.
"Certificate" - See Section 2.1.
"Closing Date" - See Section 12.4.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and, to the extent applicable, regulations promulgated thereunder.
"Contributions" means Qualified Capital Contributions and any other
amounts contributed by the Venturers to the capital of the Venture pursuant to
the terms of this Agreement.
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"Conversion Agreement" means that certain Stock Purchase Option
Agreement of even date herewith by and between Captec and Investor.
"Developer" - See Section 1.1.
"Entity" means any general partnership, limited partnership,
corporation, limited liability company, limited liability partnership, joint
venture, trust, business trust, cooperative or association or other comparable
business entity.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulations promulgated thereunder.
"Event of Default" - See Section 10.1.
"Initial Capital Contributions" - See Section 3.1.
"Initial Properties" - See Section 1.1.
"Initial Ownership Percentage" means, as to the Series A Unitholders
77.4%, and as to the Series B Unitholders 22.6%.
"Insurance Program" - See Section 4.4.
"Interest Value" - See Section 12.2.
"Investment Period" - The period commencing on the date of this
Agreement and ending September 30, 1999.
"Investment Guidelines" - See Schedule 4.5.
"Investor" - See Section 1.1.
"Lease" shall mean an Approved lease between the Venture or any
Subsidiary as landlord and a Third Party as tenant demising all or substantially
all of a Property.
"Management Agreement" - See Section 8.6.
"Net Capital Proceeds" - See Section 6.1.
"Nonrecourse Deductions" - See Section 5.5(b).
"Offer Notice" - See Section 12.1.
"Offered Price" - See Section 12.1.
"Operating Cash Flow" - See Section 6.1.
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"Person" means any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person
where the context so permits.
"Properties" means the Initial Properties and the Additional Properties
owned, directly or indirectly, by the Venture as of a given time.
"Property" means a separate parcel of land with the improvements
thereon from time to time owned, directly or indirectly, by the Venture.
"Property Budget" - See Section 4.3.
"Purchase and Sale Agreement" - See Section 1.1.
"Qualified Capital Contributions" means the Initial Capital
Contributions, together with any funds provided to the Venture by the Venturers
in accordance with their respective Initial Ownership Percentages pursuant to
Sections 3.3(a) or 3.5.
"Qualified Property" - See Section 8.15.
"REIT Tax Provisions" means Parts II and III of Subchapter M of Chapter
1 of Subtitle A of the Code, as now enacted or hereafter amended, and other
provisions of the Code referred to or incorporated in, or referring to or
incorporating any other provisions of, said Parts II and III, or similar
provisions or successor statutes, and applicable regulations under and rulings
with respect to the aforesaid provisions of the Code.
"Related Party" means, with respect to any Venturer, any person or
entity who directly or indirectly through one or more intermediaries controls,
is controlled by, or is under common control with, such Venturer. "Control"
means the power, directly or indirectly, to direct the management, operations or
business of another entity.
"Response Period" - See Section 12.1.
"Restaurant Property" - See Section 8.9.
"Sale Notice" - See Section 11.1.
"Sales Period" - See Section 11.1(c).
"Series A Units" - See Section 2.9.
"Series B Units" - See Section 2.9.
"Subsidiary" - See Section 8.17.
"Third Party" means any Person who is not a Venturer, or a Related
Party of any Venturer.
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"Treasury Regulations" means the Income Tax Regulations and Procedure
and Administration Regulations promulgated under the Code, as amended from time
to time.
"UBTI" - See Section 8.4.
"Undertaking of Captec" means that certain letter agreement between
Captec and Investor of even date herewith.
"Unreturned Capital Contributions" means the amount equal to the
balance as of a particular date of an account which shall be maintained for each
Venturer and calculated as follows: all Qualified Capital Contributions by such
Venturer shall be added to the balance of such account, and all distributions to
such Venturer pursuant to Section 6.2(b) (with respect to the holders of the
Series A Units) or Section 6.2(c) (with respect to the holders of the Series B
Units) shall be deducted from the balance of such account.
"Venture" - See Section 1.1.
"Venture Minimum Gain" - See Section 5.5(a).
"Venturer" - See Section 1.1.
"Venturer Representative" - See Section 8.14.
2. FORMATION OF VENTURE
2.1 Organization. The Venture has been formed by the filing of
its Certificate of Organization with the Delaware Secretary of State pursuant
to the Act. The Certificate of Organization may be restated by the
Administrative Agent as provided in the Act or amended by the Administrative
Agent to change the address of the office of the Venture in Delaware and the
name and address of its resident agent in Delaware or to make corrections
required by the Act. The Certificate of Organization, as so amended from time
to time, is referred to herein as the "Certificate." The Administrative Agent
shall deliver a copy of the Certificate and any amendment thereto to any
Venturer who so requests.
2.2 Venture Name. The name of the Venture shall be FC Venture I,
LLC. The business of the Venture shall be conducted solely under such name.
2.3 Representations and Warranties. As an inducement to each
Venturer to enter into this Agreement, in addition to the representations and
warranties contained in this Agreement, the parties make the additional
representations and warranties contained in Schedule 2.3 attached hereto and
made a part hereof.
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2.4 Purposes and Powers. The principal business activity and
purposes of the Venture shall be to acquire, improve, finance, hold, own, lease,
redevelop, sell, mortgage, pledge, exchange, convey, or otherwise dispose of the
Properties, directly or indirectly through one or more wholly-owned
Subsidiaries, and to engage in all actions necessary, convenient or incidental
thereto. The Venture shall not engage in any other business or activity.
2.5 Principal Business Office, Registered Office and Registered
Agent. The principal business office of the Venture shall be located at 24 ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ Drive, Lobby L, 4th Floor, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The principal
business office of the Venture may be changed from time to time by the
Administrative Agent. The Administrative Agent shall promptly notify the
Venturers of any change in such principal business office. The registered office
of the Venture in the State of Delaware shall be c/o The Corporation Trust
Company, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇. The agent for services
of process on the Venture pursuant to the Act shall be The Corporation Trust
Company, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇. The registered agent
and registered office of the Venture may be changed by the Administrative Agent
from time to time. The Administrative Agent shall promptly notify the Venturers
of any such change.
2.6 Qualification in Other Jurisdictions. The Administrative
Agent shall cause the Venture to be qualified or registered under applicable
laws in any state in which a Property is located and in any other jurisdiction
in which the Venture transacts business sufficient to require registration and
shall be authorized to execute, deliver and file any certificates and documents
necessary to effect such qualification or registration, including without
limitation the appointment of agents for service of process in such
jurisdictions.
2.7 Powers. In furtherance of its purposes, but subject to all of
the provisions of this Agreement, the Venture shall have and exercise all of the
powers and rights which can be conferred upon limited liability companies formed
pursuant to the Act.
2.8 Venturers. The Venturers of the Venture and their addresses
shall be listed on Schedule 2.8 and said schedule shall be amended from time to
time by the Administrative Agent to reflect the withdrawal of Venturers or the
admission of additional Venturers pursuant to this Agreement. The Venturers
shall constitute a single class or group of Venturers of the Venture for all
purposes of the Act, unless otherwise explicitly provided herein. The
Administrative Agent shall notify the Venturers of changes in Schedule 2.8,
which shall constitute the record list of the Venturers for all purposes of this
Agreement.
2.9 Units. The membership interests in the Venture shall consist
of units (each a "Unit") of interest in the Venture. Initially, the Units shall
be comprised of the Series A Units and the Series B Units, each of which shall
have the rights, privileges
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and obligations specified in this Agreement. Each of the Series A and Series B
Units shall represent one dollar ($1.00) of Capital Contribution to the Venture.
3. CAPITALIZATION
3.1 Initial Capital Contributions. Upon execution and delivery of
this Agreement, the Investor shall contribute to the Venture $77.4% of Initial
Capital with the result that the initial Capital Account balance of the Investor
shall be $8,204,400.00. Upon execution and delivery of this Agreement, the
Developer shall contribute to the Venture $22.6% of Initial Capital. The
Developer shall also transfer to the Venture the contracts and property referred
to in Schedule 3.1, which the Developer represents to Investor and the Venture
are owned by it free and clear of any lien, security interest or encumbrance of
any kind, unless otherwise stated on Schedule 3.1. The Developer shall not be
deemed to have made any additional capital contribution to the Venture as a
result of the transfer of such contracts and property to the Venture, with the
result that the initial Capital Account balance of the Developer shall be
$2,395,600.00. The Venture shall reimburse the Developer in the amounts shown in
Schedule 3.1 for out-of-pocket costs and expenses incurred by the Developer or
its affiliates in entering into such contracts or obtaining such property.
Except as provided in Section 3.4, no Venturer shall be obligated to make any
further contributions to the Venture. Funds provided by the Venturers pursuant
to this Section 3.1 are referred to as the "Initial Capital Contributions."
3.2 Initial Venturer Interests. Upon making the Initial Capital
Contributions specified in Section 3.1, each Venturer shall be entitled to the
number of Units set forth for such Venturer in Schedule 2.8. The Units issued to
the Investor shall consist of "Series A Units." The Units issued to the
Developer shall consist of "Series B Units".
3.3 Capital Contributions for Unanticipated Needs. (a) If the
Venture requires additional funds beyond the funds made available pursuant to
Sections 3.1 and 3.5 to meet its existing obligations or to conduct its business
in accordance with the Consolidated Property Budget or to fund the payment of
regularly scheduled debt service obligations, real estate taxes, utility costs
and/or insurance premiums and/or other costs and expenses reasonably necessary
to prevent imminent harm to persons or property damage at a Property, and such
funds are not available from third party sources upon terms to which the
Venturers agree, then either Venturer may so notify the Administrative Agent, in
which event the Administrative Agent shall promptly give written notice (a
"Capital Call Notice") to the Venturers indicating the amount required by the
Venture and the purpose for which such funds are required. Within ten (10)
business days of receipt of such Capital Call Notice, each Venturer shall give
notice to the Administrative Agent indicating whether or not it agrees to make
an additional capital contribution to the Venture of the required funds in the
form of Qualified Capital Contributions. If both parties elect to make such
Qualified Capital Contributions, then each Venturer shall make such capital
contributions within five (5) business days following the first date as of
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which both Venturers shall have made such election, and the Administrative Agent
shall cause the Venture to issue the corresponding number of additional Series A
Units and Series B Units to the Investor and the Developer, respectively.
(b) If either Venturer does not so elect to make such Qualified Capital
Contributions, then neither Venturer shall make such capital contributions, and
either Venturer may at any time thereafter as long as the Venture continues to
require such additional funds indicated in the Capital Call Notice and without
the requirement that the Administrative Agent deliver another Capital Call
Notice with respect to such required funds, give written notice (an "Optional
Funding Notice") to the other that it is prepared to make all or a portion of
the required funds available to the Venture and stating the terms (the "Optional
Funding Terms") on which the Venturer is prepared to provide funds, including
the rate and priority of return and whether the Venturer requires that the other
Venturer provide a portion of the funds. No Venturer shall propose Optional
Funding Terms that are materially less favorable to the Venture than the terms
of any proposed third party financing for such uses previously disapproved by
such Venturer. Any Venturer receiving an Optional Funding Notice shall elect
either (i) to permit the Venture to accept funds on the terms proposed in such
Optional Funding Notice, in which event such Venturer shall also have the right
to provide up to its pro rata share, based on Initial Ownership Percentages, of
such funds on such terms as set forth below, or (ii) to offer to provide the
required funds on terms more favorable to the Venture (e.g., at a lower rate of
interest or return). Any such response shall be delivered to the Venturer which
delivered the Optional Funding Notice within fifteen (15) days after receipt
thereof and shall state (i) if the Venturer delivering such notice offers to
provide the funds on terms more favorable to the Venture, the terms on which the
Venturer delivering such notice is prepared to make the required funds available
to the Venture or (ii) if such Venturer is permitting the Venture to accept
funds on the terms proposed in the Optional Funding Notice, the extent to which
such Venturer will provide any portion of such funds on such terms. If a
Venturer fails to respond to an Optional Funding Notice within fifteen (15) days
after receipt thereof, it shall be deemed to have agreed to permit the Venture
to accept funds on the terms proposed in the Optional Funding Notice. If the
Venturer receiving an Optional Funding Notice offers to provide the required
funds on terms more favorable to the Venture, the Venture shall accept funds on
such terms. In either event, each Venturer shall be entitled to provide up to
its pro rata share, based on Initial Ownership Percentages, of the required
funds by contributing such funds to the Venture not later than thirty (30) days
after the later of the Optional Funding Notice or the election by the Venturer
who received it to provide funds on terms more favorable to the Venture. Each
Venturer acknowledges that the failure to participate in any funding pursuant to
this Section 3.3(b) may result in a dilution of its interest and rights in the
Venture. If funds are provided pursuant to this Section 3.3(b), then this
Agreement shall be amended, and the Venture shall issue additional Units which
shall constitute a separate class or classes of Units, as required to implement
the terms and conditions on which the Venturers have agreed to provide new funds
to the Venture.
(c) No Venturer shall be obligated to provide funds pursuant to
subsections (a) or (b) of this Section 3.3. Notwithstanding anything to the
contrary in this Section 3.3,
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without the prior written consent of the Investor, no Venturer shall be entitled
to require the Venture to accept funds, and the Venture shall not accept funds,
until the Investor shall have determined to its reasonable satisfaction that the
terms on which such funds are provided will not cause any income allocated to
the Investor by the Venture to constitute UBTI.
3.4 Capital Accounts. A separate capital account (each, a "Capital
Account") shall be maintained for each Venturer in accordance with the rules of
Treasury Regulations Section 1.704-1(b)(2)(iv), and this Section 3.4 shall be
interpreted and applied in a manner consistent therewith. Whenever the Venture
would be permitted to adjust the Capital Accounts of the Venturers pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(f) to reflect revaluations of
Venture property, the Venture shall so adjust the Capital Accounts of the
Venturers. In the event that the Capital Accounts of the Venturers are adjusted
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f) to reflect
revaluations of Venture property, (i) the Capital Accounts of the Venturers
shall be adjusted in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv)(g) for allocations of depreciation, depletion, amortization
and gain or loss, as computed for book purposes, with respect to such property,
(ii) the Venturers' distributive shares of depreciation, depletion, amortization
and gain or loss, as computed for tax purposes, with respect to such property
shall be determined so as to take account of the variation between the adjusted
tax basis and book value of such property in the same manner as under Code
Section 704(c) and (iii) the amount of upward and/or downward adjustments to the
book value of the Venture property shall be treated as income, gain, deduction
and/or loss for purposes of applying the allocation provisions of Article 5. In
the event that Code Section 704(c) applies to Venture property, the Capital
Accounts of the Venturers shall be adjusted in accordance with Treasury
Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of depreciation,
depletion, amortization and gain and loss, as computed for book purposes, with
respect to such property.
3.5 Capital Contributions for Additional Properties. If the
Investor approves the acquisition by the Venture of one or more Properties in
addition to the Initial Properties, then upon satisfaction or waiver by the
Investor of the conditions to each such acquisition contemplated by Section
8.16, the Investor and the Developer shall each contribute their respective
share, in the form of Qualified Capital Contributions, up to the amount of
equity approved for investment in such acquisition by the Investor pursuant to
Section 8.16, but in no event shall a Venturer be required to contribute capital
which would result in such Venturer exceeding its respective Capital
Contribution Cap. Any such contribution shall be made pursuant to escrow
arrangements satisfactory to the Investor which ensure that the funds shall only
be used for such acquisition, and the funds will not be released from escrow
unless such acquisition closes. Notwithstanding the foregoing, capital
contributions made by the Venturers under this Section 3.5 shall be deemed to
have been contributed to the Venture as of the time of delivery into the escrow.
Such contributions shall occur not more frequently than once per month, and in
increments of not less than $3,000,000 with respect to the Investor and $875,000
with respect to the Developer. In connection with any contributions made by the
Venturers under this Section 3.5, Schedule 2.8 of this Agreement shall be
amended to reflect such
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contributions and the issuance by the Venture of a corresponding number of
additional Series A Units and Series B Units to the respective Venturers.
4. BOOKS; ACCOUNTING; TAX ELECTIONS; REPORTS
4.1 Books and Records. The Administrative Agent shall keep
complete and accurate books and records of the Venture. The books of the Venture
shall be kept on the accrual method of accounting (used for federal income tax
purposes) in accordance with the rules of Treasury Regulations Section
1.704-1(b)(2)(iv) (i.e., on the so-called "section 704(b) book basis" which
takes into account the book value, rather than the adjusted tax basis, of
Venture assets where there is a difference). The books of the Venture shall at
all times be maintained or made available at the principal business office of
the Venture. A current list of the full name and last known business address of
each Venturer, set forth in alphabetical order, a copy of the Certificate of
Organization and all amendments thereto, executed copies of all powers of
attorney pursuant to which the Certificate of Organization or any certificate of
amendment has been executed, copies of the Venture's federal, state and local
income tax returns and reports, if any, for the three most recent years, copies
of this Agreement and of any financial statements of the Venture for the three
most recent years and all other records required to be maintained pursuant to
the Act shall be maintained at the principal business office of the Venture.
4.2 Financial Statements. The Administrative Agent shall cause to
be prepared and furnish to each Venturer (i) within sixty (60) days after the
end of each Venture tax year, a copy of the annual financial statements for such
tax year accurately reflecting the financial condition of the Venture and the
results of the Venture's operations containing, without limiting the foregoing,
balance sheets, statements of changes in Venture's capital, profit and loss
statement and statements of changes in financial condition, all prepared by the
Venture's accountants, and (ii) within ninety (90) days after the end of each
Venture tax year, the certification of the Venture's accountants as to the
accuracy of the information provided pursuant to clause (i) (including any
relevant updates or revisions thereto). The Administrative Agent shall cause to
be prepared by the Asset Manager and furnish to the Investor (x) within twenty
(20) days after the end of each calendar quarter the items listed in Schedule
4.2, and (y) within twenty (20) days after the end of each calendar month an
updated rent roll for each Property and a report of any deviations during such
month from the Consolidated Budget and the most recent quarterly report. The
Administrative Agent will promptly provide any additional information that any
Venturer may reasonably request so it may fully understand the financial
performance of the Venture and the Properties, to the extent that such
information is readily available upon the exercise of commercially reasonable
efforts. All such financial statements and other information shall be certified
as accurate in all material respects by the Administrative Agent, subject, in
the case of any interim financial statements, to any items that might be
disclosed in footnotes or normal year-end adjustments.
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4.3 Property Budget. At least sixty (60) days prior to the end of
each year, the Administrative Agent shall prepare or cause the Asset Manager to
prepare and submit for approval by the Venturers (i) for each Property, a
complete and detailed revision and update of the Property Budget in the form of
satisfactory to the Venturers setting forth the projected income, expenses,
capital expenditures and financing needs of the Venture with respect to the
operation and management of the Property during the following year, and (ii) a
complete and detailed revision and update of the Consolidated Property Budget
setting forth the projected income, expenses, capital expenditures and financing
needs of the Venture relating to the operation and management of the Venture
(including projected costs and expenses to be incurred by the Administrative
Agent in performing its duties hereunder) during the following year. "Property
Budget" means, for any period and Property, the budget for expenditures by the
Venture (including expenditures by the respective Subsidiary) approved by the
Venturers for such period and Property. "Consolidated Property Budget" means,
for any period, the budget for expenditures by the Venture (including
expenditures by all Subsidiaries) for all Properties approved by the Venturers
for such period. The Developer and the Investor hereby approve as the initial
Property Budgets for the Initial Properties the budgets attached hereto as
Schedule 4.3A for the period from the commencement of the Venture until the end
of the calendar year in which the Venture is formed. With respect to any
Property under construction, during the development and construction of such
Property, in lieu of a Property Budget there shall be a Construction Budget
prepared by the Administrative Agent and Approved by the Venturers in form and
substance. At least sixty (60) days prior to the completion of construction of
any such Property, the Administrative Agent shall prepare and submit for
approval by the Venturers an initial Property Budget. Upon the approval of a
budget by the Venturers, such budget shall become the "Property Budget" for the
period for which it is approved. If the Venturers do not approve a proposed
budget submitted by the Administrative Agent, the Property Budget, if any, for
the prior period with respect to good faith operating expense items (but not
capital expenditures including, without limitation, tenant improvements) shall
be deemed to continue in effect for the current period. The Administrative Agent
shall submit to the Venturers in conjunction with each provision of the Property
Budget such information regarding proposed capital expenditures to be incurred
by the Venture as either Venturer may reasonably request, including plans and
specifications, proposed construction schedule, proposed disbursement
arrangements and description of arrangements for administration of work to be
performed.
4.4 Insurance Program. At least sixty (60) days prior to the end
of each year, the Administrative Agent shall prepare or cause the Asset Manager
to prepare and submit for approval by the Venturers a revision and update of the
Insurance Program for the Venture and the Properties for the following calendar
year. "Insurance Program" means the program for insurance described in Schedule
4.4 until such time as a new Insurance Program is approved pursuant to this
Section 4.4 and thereafter the most recent Insurance Program so approved or, if
the Venturers require changes in an Insurance Program, the Insurance Program
with such changes as the Venturers may request.
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4.5 Business Plan. At least sixty (60) days prior to the end of
each year, the Administrative Agent shall submit to the Venturers for approval a
complete and detailed revision and update of the Business Plan for the following
year for the Venture and for each Property which shall include (i) plans for
leasing space that is vacant or anticipated to become vacant, (ii) guidelines
for lease terms and selection of tenants, (iii) a narrative description of
preventative maintenance activities and capital improvements and related
required expenditures to be undertaken by the Venture, and (iv) such other
projections, plans and information relevant to the operation of the Venture as
is reasonably required for the Venturers to evaluate anticipated operations of
the Properties and the Venture. The Business Plan shall include guidelines for
leasing space at each Property (other than Properties already under lease)
consisting of rental rates, length of lease terms, credit requirements, tenant
improvement allowances and concessions, and, if applicable, revisions or
replacements to the standard form of lease to be used by the Venture and such
additional information as either of the Venturers may reasonably require. The
Business Plan shall also include a description of the Venture's activities with
respect to the construction of any tenant improvements or any other construction
or development at any of the Properties, and shall include each of the contracts
for any such design and construction. The "Business Plan" means the Business
Plan to be reasonably agreed to by the Venturers within thirty (30) days of this
Agreement and which will be attached hereto as Schedule 4.5 upon such agreement
until such time as a new Business Plan is approved pursuant to this Section 4.5
and thereafter the most recent Business Plan so approved.
4.6 Right to Information. Each Venturer shall have the right at
all reasonable times during usual business hours to examine and make copies of
or extracts from the books of account and records of the Venture and to have
such materials audited. The Administrative Agent shall promptly furnish to the
Venturers such other information bearing on the financial condition and
operations of the Venture or the status of the Property as either of the
Venturers may from time to time reasonably request, to the extent that such
information is readily available upon the exercise of commercially reasonable
efforts.
4.7 Filing of Returns. The Administrative Agent shall cause the
preparation and timely filing of all Venture tax returns and shall, on behalf of
the Venture, timely file all other writings required by any governmental
authority having jurisdiction. The Administrative Agent shall cause a draft of
the Venture's tax return to be delivered to each of the Venturers for such
Venturer's review and, if applicable, comment at least ten (10) business days
prior to the filing thereof.
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4.8 Tax Matters Partner. The Administrative Agent shall be the
"tax matters partner" for purposes of Section 6231 of the Code. The tax matters
partner shall keep the Venturers fully apprised of any action required to be
taken or which may be taken by the tax matters partner for the Venture and shall
not take any such action which (i) could result in any direct or indirect holder
of an equity interest in the Investor being allocated income of the Venture
which would constitute UBTI or in any manner affect the taxation of any direct
or indirect holder of an equity interest in the Investor with respect to any
such income without the prior written approval of the Investor or (ii) which
could cause the Venture to fail to comply with the provisions of Section 8.5
without the prior written approval of the Developer. With regard to any matter
which could result in any direct or indirect holder of an equity interest in the
Investor being allocated income of the Venture which would constitute UBTI or in
any manner affect the taxation of any direct or indirect holder of an equity
interest in the Investor with respect to any income, the tax matters partner
shall take such actions or omit to take such actions as the Investor may direct.
With regard to any matter which could cause the Venture to fail to comply with
the provisions of Section 8.5, the tax matters partner shall take such actions
or omit to take such actions as the Developer may direct.
4.9 Fiscal and Taxable Year. The fiscal year of the Venture shall
be the same as the taxable year of the Venture. The taxable year of the Venture
shall be the same as the taxable year of the Investor, unless and until the
Investor shall be the holder of less than a majority of all issued and
outstanding Units of the Venture, following which the taxable year of the
Venture shall be the taxable year of the Venturer that in the aggregate holds a
majority of all issued and outstanding Units of the Venture. The taxable year of
the Investor currently ends on December 31.
4.10 Accountants. The Venture shall retain a firm of independent
certified public accountants satisfactory to the Venturers to perform the
functions specified in this Agreement. Notwithstanding the foregoing, at any
time the Investor may require that the Venture select a so-called "Big 5"
accounting firm to act as the accountants for the Venture. The Venturers hereby
approve PriceWaterhouse Coopers LLP as the initial accountants for the Venture.
4.11 Annual Appraisal. Investor shall have the right from time to
time, but in no event more frequently than once in any 12-month period unless
there has occurred and is continuing to be an Event of Default on the part of
the Developer, to require that the Properties be appraised by an independent
appraiser who is qualified to appraise real estate assets of the same type and
scope as that of the Property and is otherwise approved by the Investor. The
cost of any such appraisal shall be borne by the Venture.
4.12 Taxation as Partnership. The Venturers agree that the Venture
will be taxed as a partnership, and the Administrative Agent shall use all
reasonable efforts to ensure that the Venture is treated as a partnership for
tax purposes.
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5. ALLOCATION OF INCOME AND LOSS
5.1 Allocation of Net Income. After giving effect to the
guaranteed payment provided in Section 5.4 and the special allocations set forth
in Sections 5.5 through 5.8, net income for any fiscal year or portion thereof
shall be allocated among the Venturers in the following order and priority:
A. First, to each Venturer until the aggregate allocations of
net income to each Venturer pursuant to this Section 5.1(a) for all fiscal
years or portions thereof are equal to the aggregate allocations of net loss to
each Venturer pursuant to Section 5.3 for all fiscal years or portions thereof,
in the reverse order of, and in proportion to, the prior allocations of net
loss to the Venturers pursuant to Section 5.3;
B. Second, 50% to the holders of the Series A Units pro rata
among such holders and 50% to the holders of the Series B Units pro rata among
such holders until the aggregate allocations of net income pursuant to this
Section 5.1(b) for all fiscal years or portions thereof are equal to the
aggregate allocations of net loss pursuant to Section 5.2(d) for all fiscal
years or portions thereof;
C. Third, 100% to the holders of the Series A Units pro rata
among such holders until the aggregate allocations of net income to the holders
of the Series A Units pursuant to this Section 5.1(c) for all fiscal years or
portions thereof are equal to the aggregate allocations of net loss to the
holders of the Series A Units pursuant to Section 5.2(c) for all fiscal years or
portions thereof;
D. Fourth, 100% to the holders of the Series B Units pro rata
among such holders until the aggregate allocations of net income to the holders
of the Series B Units pursuant to this Section 5.1(d) for all fiscal years or
portions thereof are equal to the aggregate allocations of net loss to the
holders of the Series B Units pursuant to Section 5.2(b) for all fiscal years or
portions thereof;
E. Fifth, 100% to the holders of the Series B Units pro rata
among such holders until the aggregate allocations of net income to the holders
of the Series B Units pursuant to this Section 5.1(e) for all fiscal years or
portions thereof are equal to a nominal 15% return, compounded monthly, on such
holders' Unreturned Capital Contributions; and
F. Thereafter, 50% to the holders of the Series A Units pro rata
among such holders and 50% to the holders of the Series B Units pro rata among
such holders.
5.2 Allocation of Net Loss. After giving effect to the guaranteed
payment provided in Section 5.4 and the special allocations set forth in
Sections 5.5 through 5.8 and subject to Section 5.3, net loss for any fiscal
year or portion thereof shall be allocated among the Venturers in the following
order and priority:
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1. First, 50% to the holders of the Series A Units pro rata
among such holders and 50% to the holders of the Series B Units pro rata among
such holders until the aggregate allocations of net loss to the Venturers
pursuant to this Section 5.2(a) for all fiscal years or portions thereof are
equal to the aggregate allocations of net income to the Venturers pursuant to
Section 5.1(e) for all fiscal years or portions thereof;
2. Second, 100% to the holders of the Series B Units pro rata
among such holders until the aggregate allocations of net loss to the holders of
the Series B Units pursuant to this Section 5.2(b) for all fiscal years or
portions thereof are equal to the sum of (i) the Qualified Capital Contributions
made by the holders of the Series B Units and (ii) the aggregate allocations of
net income to the holders of the Series B Units pursuant to Section 5.1(d) for
all fiscal years or portions thereof;
3. Third, 100% to the holders of the Series A Units pro rata
among such holders until the aggregate allocations of net loss to the holders of
the Series A Units pursuant to this Section 5.2(c) for all fiscal years or
portions thereof are equal to the sum of (i) the Qualified Capital Contributions
made by the holders of the Series A Units and (ii) the aggregate allocations of
net income to the holders of the Series A Units pursuant to Section 5.1(c) for
all fiscal years or portions thereof; and
4. Thereafter, 50% to the holders of the Series A Units pro rata
among such holders and 50% to the holders of the Series B Units pro rata among
such holders.
5.3 Loss Limitation. Net loss allocated pursuant to Section 5.2
shall not exceed the maximum amount of net loss that can be allocated without
causing or increasing a deficit balance in a Venturer's Adjusted Capital
Account. A Venturer's "Adjusted Capital Account" balance shall mean such
Venturer's Capital Account balance increased by such Venturer's obligation to
restore a deficit balance in its Capital Account, including any deemed
obligation pursuant to the penultimate sentences of Treasury Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5), and decreased by the amounts described
in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6). In the
event that one but not both of the Venturers would have a deficit balance in its
Adjusted Capital Account as a consequence of an allocation of net loss pursuant
to Section 5.2 in excess of the amount, if any, permitted under the first
sentence of this Section 5.3, the limitation set forth in this Section 5.3 shall
be applied by allocating 100% of the remaining net loss to the other Venturer
until the Adjusted Capital Account of such other Venturer is zero.
5.4 Guaranteed Payment. Prior to computing the net income or net
loss of the Venture for any fiscal year or portion thereof, each holder of the
Series A Units shall be credited (on a pro rata basis) with a guaranteed payment
in amount equal to a nominal 15% return, compounded monthly, on such holder's
Unreturned Capital Contributions, less any prior guaranteed payments to such
holder pursuant to this Section 5.4. Amounts credited to the holder of the
Series A Units pursuant to this Section 5.4 are intended to constitute
"guaranteed payments" within the meaning of Code Section 707(c). Distributions
to such holder of Series A Units pursuant to Section 6.2(a) shall be treated
20
as a payment of the guaranteed payment (rather than a distribution reducing such
holder's Capital Account balance) to the extent of any guaranteed payment
credited in such period, and any guaranteed payment credited to a holder of
Series A Units in excess of distributions to such holder pursuant to Section
6.2(a) in such period shall be deemed to have been paid to such holder and then
contributed to the Venture. Such deemed contribution pursuant to this Section
5.4 shall be taken into account for the purpose of determining the Capital
Account of the holder of Series A Units but shall not be treated as a Capital
Contribution for purposes of this Agreement.
5.5 Minimum Gain Chargebacks and Nonrecourse Deductions.
A. Venture Minimum Gain Chargeback. Notwithstanding any other
provision of this Agreement, in the event there is a net decrease in Venture
Minimum Gain during a fiscal year, the Venturers shall be allocated items of
income and gain in accordance with Treasury Regulations Section 1.704-2(f). For
purposes of this Agreement, the term "Venture Minimum Gain" shall have the
meaning for partnership minimum gain set forth in Treasury Regulations Section
1.704-2(b)(2), and any Venturer's share of Venture Minimum Gain shall be
determined in accordance with Treasury Regulations Section 1.704-2(g)(1). This
Section 5.5(a) is intended to comply with the minimum gain chargeback
requirement of Treasury Regulations Section 1.704-2(f) and shall be interpreted
and applied in a manner consistent therewith.
B. Nonrecourse Deductions. Notwithstanding any other provision
of this Agreement, Nonrecourse Deductions shall be allocated 100% to the
holders of the Series B Units pro rata among such holders. For purposes of this
Agreement, the term "Nonrecourse Deductions" shall have the meaning set forth
in Treasury Regulations Section 1.704-2(b)(1). This Section 5.5(b) is intended
to comply with Treasury Regulations Section 1.704-2(e) and shall be interpreted
and applied in a manner consistent therewith.
C. Venturer Nonrecourse Debt. Notwithstanding any other
provision of this Agreement, to the extent required by Treasury Regulations
Section 1.704-2(I), any items of income, gain, loss or deduction of the Venture
that are attributable to a nonrecourse debt of the Venture that constitutes
Venturer Nonrecourse Debt (including chargebacks of Venturer Nonrecourse Debt
Minimum Gain) shall be allocated in accordance with the provisions of Treasury
Regulations Section 1.704-2(i). For purposes of this Agreement, the term
"Venturer Nonrecourse Debt" shall have the meaning for partner nonrecourse debt
set forth in Treasury Regulations Section 1.704-2(b)(4), and the term "Venturer
Nonrecourse Debt Minimum Gain" shall have the meaning for partner nonrecourse
debt minimum gain set forth in Treasury Regulations Section 1.704-2(I)(2). This
Section 5.5(c) is intended to satisfy the requirements of Treasury Regulations
Section 1.704-2(I) (including the partner nonrecourse debt minimum gain
chargeback requirement) and shall be interpreted and applied in a manner
consistent therewith.
5.6 Qualified Income Offset. Any Venturer who unexpectedly
receives an adjustment, allocation or distribution described in Treasury
Regulations Section
21
1.704-1(b)(2)(ii)(d)(4), (5) or (6) that causes or increases a deficit balance
in its Capital Account in excess of any obligation to restore a deficit balance
in its Capital Account (including any deemed deficit restoration obligation
pursuant to the penultimate sentences of Treasury Regulations Sections
1.704-2(g)(1) and (i)(5), and adjusted as provided in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)) shall be allocated items of income and gain in an
amount and a manner sufficient to eliminate, to the extent required by the
Treasury Regulations, such deficit balance as quickly as possible. This Section
5.6 is intended to comply with the alternate test for economic effect set forth
in Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
and applied in a manner consistent therewith.
5.7 Gross Income Allocation. In the event any Venturer has a
deficit Capital Account at the end of any fiscal year which is in excess of the
sum of (i) the amount such Venturer is obligated to restore pursuant to any
provision of this Agreement, and (ii) the amount such Venturer is deemed to be
obligated to restore pursuant to the penultimate sentences of Treasury
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Venturer shall
be specially allocated items of Venture income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 5.7 shall be made only if and to the extent that such Venturer would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Article 5 have been made as if Section 5.6 and this Section
5.7 were not in the Agreement.
5.8 Curative Allocations. The allocations set forth in Sections
5.5 through 5.7 (the "Regulatory Allocations") are intended to comply with the
requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2.
Notwithstanding any other provisions of this Article 5 (other than the
Regulatory Allocations), the Regulatory Allocations shall be taken into account
in allocating other items of income, gain, deduction and loss among the
Venturers so that, to the extent possible, the net amount of such allocations of
other items and the Regulatory Allocations to each Venturer shall be equal to
the net amount that would have been allocated to each such Venturer if the
Regulatory Allocations had not occurred. This Section 5.8 shall be interpreted
and applied in such a manner and to such extent as is reasonably necessary to
eliminate, as quickly as possible, permanent economic distortions that would
otherwise occur as a consequence of the Regulatory Allocations in the absence of
this Section 5.8.
5.9 Compliance with Code Section 704(b). The allocation
provisions contained in this Article 5 are intended to comply with Code
Section 704(b) and the Treasury Regulations promulgated thereunder and shall be
interpreted and applied in a manner consistent therewith.
5.10 Other Allocation Provisions. In the event it becomes
necessary to make any other elections or decisions relating to the allocations
of Venture items of income, gain, loss, deduction or credit, the Administrative
Agent shall call such elections or decisions to the attention of the Investor
and if any such matter could result in the Investor's (including any tax-exempt
indirect investors in the Investor) being subject to
22
tax on any income of the Venture or affect the manner in which the Investor
(including any tax-exempt indirect investors in the Investor) is taxed on any
such income, the Investor shall be entitled to make such elections or decisions
in such manner as the Investor determines to be necessary in order to minimize
the recognition of UBTI to the Investor (including any tax-exempt indirect
investors in the Investor) and otherwise reflect the purpose and intention of
this Agreement and, subject to Section 8.4 and to the foregoing provisions of
this Section 5.10, if any matter could result in the failure of the Venture to
comply with Section 8.5, the Developer shall be entitled to make such elections
or decisions in such manner to cause the Venture to comply with the provisions
of Section 8.5 and otherwise reflect the purpose and intention of this
Agreement.
5.11 Distributions of Nonrecourse Liability Proceeds. If, during a
fiscal year, the Venture makes a distribution to any Venturer that is allocable
to the proceeds of any nonrecourse liability of the Venture that is allocable to
an increase in Venture Minimum Gain pursuant to Treasury Regulations Section
1.704-2(h), then the Venture shall elect, to the extent permitted by Treasury
Regulations Section 1.704-2(h)(3), to treat such distribution as a distribution
that is not allocable to an increase in Venture Minimum Gain.
5.12 Information as to Allocation of Debt. The Administrative
Agent will report to the Venturers, with each monthly report provided pursuant
to Section 4.2, both the outstanding principal amount and any accrued, but
unpaid, interest with respect to any indebtedness of the Venture (broken down by
creditor), all calculated as of the first day of such calendar month and done on
a basis consistent with federal income tax accounting rules. The Administrative
Agent will also indicate the portion of any indebtedness which is nonrecourse
and/or recourse within the meaning of Code Section 752 and the portion of each
such type of indebtedness allocable to each Venturer. The Developer agrees that
indebtedness of the Venture shall be allocated among the Venturers, as
reasonably approved by the Investor, under Code Section 752, and the Investor
shall have sole authority in its reasonable discretion as to all allocations
and/or decisions under Code Section 752 it being understood that it is the
intention of the Venturers to allocate as much debt as possible to the Developer
to the extent that the Investor is satisfied that there is an adequate basis for
such position under applicable authority. The Administrative Agent also agrees
to provide the Venturers with all other information, including, but not limited
to, taxable income and loss of the Venture, the basis of property of the
Venture, and the highest amount of acquisition indebtedness in the twelve-month
period preceding any sale or disposition of property of the Venture, which the
Investor believes it needs to calculate any UBTI under Code Sections 511 et seq.
For purposes of allocating excess nonrecourse liabilities among the Venturers
pursuant to Treasury Regulations Section 1.752-3(a)(3), the Developer's interest
in Venture profits shall be 100% and the Investor's interest in profits shall be
0%.
6. DISTRIBUTIONS
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6.1 Definitions Relating to Distributions. The following terms
have the meanings indicated:
"Operating Cash Flow" shall mean, for any period, the excess, if any,
of (a) the aggregate, consolidated sum of the gross receipts during such period
of any kind and description but excluding (x) gross receipts received in
connection with a Capital Transaction and (y) Contributions, over (b) the sum of
the following cash expenditures paid or reserves made or established by the
Venture or any Subsidiary during such period (other than cash expenditures paid
from gross receipts in connection with a Capital Transaction or included in the
calculation of Net Capital Proceeds or cash expenditures paid from
Contributions): (i) all cash expenditures for acquisition/development Costs and
for operating expenses including, without limitation, all operating expenses
paid by the Venture related to the ownership of the Properties, (ii) debt
service payments made on any Authorized Financing, (iii) cash expenditures for
capital improvements and other expenses of a capital nature with respect to any
Property, (iv) additions to reserves as may be Approved from time to time, and
(v) any contributions, loans or other payments made by the Venture to or for the
benefit of any Subsidiary, Operating Cash Flow shall be calculated to avoid
double counting of payments to and from reserves. In no event shall any
deduction be made for non-cash expenses such as depreciation, amortization or
the like. It is the intention of the parties that all available cash held by any
Subsidiary be distributed to the Venture so that the available cash from all
Properties will be consolidated and result in gross receipts to the Venture.
Cash expenditures made by a Subsidiary will be excluded from the calculation of
Operating Cash Flow unless paid directly by the Venture. No item of income or
expense included in the calculation of Net Capital Proceeds shall be included in
the calculation of Operating Cash Flow.
"Net Capital Proceeds" means the gross receipts of the Venture in
connection with a Capital Transaction or resulting from a Capital Transaction
(and, if in connection with the liquidation of the Venture, any other property
available for distribution) following deduction of the following, to the extent
paid out of such proceeds: (i) any reasonable expenses incurred in connection
with the transaction giving rise to such proceeds or paid out of such proceeds
(including fees, costs and expenses such as points, loan fees, rate lock fees,
interest rate protections, brokerage fees and all legal fees and expenses), (ii)
any amounts set aside for the establishment or replenishment of reasonable
reserves as permitted under this Agreement, (iii) payment of any indebtedness,
and (iv) with respect to casualty insurance proceeds or eminent domain awards,
amounts required to be applied to restoration of improvements pursuant to the
applicable Lease. Any balance in a reserve set aside pursuant to clause (ii) and
(iv) above remaining after the payment of sums necessary to satisfy the purpose
for which such reserve was created subsequently released from such reserve shall
be deemed Net Capital Proceeds.
"Series A Priority Return" means, with respect to any period, the
amount required to provide to the holders of the Series A Units, pro rata among
such holders, cumulative distributions equal to the cumulative guaranteed
payment credited to the holders of the Series A Units pursuant to Section 5.4.
24
"Series B Priority Return" means, with respect to any period, the
amount required to provide to the holders of the Series B Units, pro rata among
such holders, an amount equal to a nominal 15% return, compounded monthly, on
such holders' Unreturned Capital Contributions.
"Undistributed Accrued Priority Return" means, with respect to either
the holders of the Series A Units or the Series B Units, as of any date, the
amount equal to the balance as of such date of an account which shall be
maintained and calculated for such respective holders as follows: as of the
commencement of the Venture, such account shall be zero. There shall be added to
such account the accrued Series A Priority Return (with respect to holders of
the Series A Units) or accrued Series B Priority Return (with respect to holders
of the Series B Units) during the period commencing on the day the balance of
such account was last calculated and ending on the day the balance of the
account is deemed calculated. There shall be deducted from the balance of such
account, as and when made, all distributions to such holders pursuant to Section
6.2(a). No distributions shall be deducted from the balance of such account to
the extent such deduction would create a negative balance.
6.2 Operating Distributions. Operating Cash Flow shall be
distributed monthly as soon as practicable, and in any event, within fifteen
(15) days after the end of each calendar month. Net Capital Proceeds, if any,
shall be distributed as soon as reasonably practicable, and in any event within
ten (10) days after the same become available for distribution. Except as
provided in Section 6.3, all distributions shall be made in the following order
and priority:
A. Priority Return. First, to the Venturers, pro rata and in
proportion to their respective Undistributed Accrued Priority Returns, until
their Undistributed Accrued Priority Returns are reduced to zero;
B. Series A Return of Capital. Third, 100% to the holders of the
Series A Units pro rata among such holders until the Unreturned Capital
Contributions of the holders of the Series A Units have been reduced to zero;
C. Series B Return of Capital. Fourth, 100% to the holders of
the Series B Units pro rata among such holders until the Unreturned Capital
Contributions of the holders of the Series B Units have been reduced to zero;
and
D. Residuals. Thereafter, 50% to the holders of the Series A
Units pro rata among such holders and 50% to the holders of the Series B Units
pro rata among such holders.
6.3 Distributions Upon Liquidation. In the event the Venture (or
any Venturer's interest therein) is "liquidated" within the meaning of Treasury
Regulations Section 1.704-1(b)(2)(ii)(g), then any distributions shall be made
pursuant to this Section 6.3 to the Venturers (or such Venturer, as appropriate)
in accordance with their positive
25
Capital Account balances in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(2), after taking into account all contributions,
distributions and allocations of items under Article 5 for all taxable years or
portions thereof.
6.4 No Deficit Restoration by Venturers. No Venturer shall be
required to contribute capital to the Venture to restore a deficit balance in
its Capital Account upon liquidation or otherwise.
6.5 Withholding. If the Venture is required by law or regulation
to withhold and pay to any taxing or other governmental authority any amount
otherwise distributable to a Venturer, the Venture shall be entitled to withhold
such amount and the amount so withheld shall for all purposes of this Agreement
be treated as if distributed to such Venturer.
7. RIGHTS AND OBLIGATIONS OF VENTURERS
7.1 Limited Liability. Except as otherwise provided in the Act,
no Venturer of the Venture shall be obligated personally for any debt,
obligation or liability of the Venture or of any other Venturer, whether
arising in contract, tort or otherwise, solely by reason of being a Venturer of
the Venture.
7.2 Authority. Except as otherwise provided in this Agreement,
unless specifically authorized by both Venturers, no Venturer shall be an agent
of the Venture or have any right, power or authority to act for or to bind the
Venture or to undertake or assume any obligation or responsibility of the
Venture or of any other Venturer.
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8. RIGHTS AND OBLIGATIONS OF
ADMINISTRATIVE AGENT AND MANAGEMENT OF THE VENTURE
8.1 General Responsibilities. The Developer is hereby appointed
to serve as the initial Administrative Agent of the Venture. The name and
address of the Administrative Agent shall be listed on Schedule 2.8 and said
schedule and the Certificate shall be amended from time to time by the
Administrative Agent to reflect the resignation or removal of the
Administrative Agent or the appointment of new or additional Administrative
Agents pursuant to this Agreement. An Administrative Agent of the Venture may
be either a member or a non-member as determined by the Venturers. The
Administrative Agent shall perform the duties specified herein and shall carry
out the decisions made by the Venturers from time to time, and in such capacity
except as otherwise provided herein, shall have the authority to act on behalf
of the Venturers with respect to day-to-day management and control of the
business and affairs of the Venture for the purposes stated in this Agreement.
Except as expressly provided to the contrary herein, all actions and decisions
of the Venture shall be subject to the mutual agreement of the Venturers. The
Administrative Agent shall not take any of the actions specified in Section
8.14 without first obtaining the approval of the Venturers and shall not take
any action which is inconsistent with or not contemplated by the Business
Plans, the Property Budgets or the Consolidated Property Budget (unless within
any discretionary limits explicitly provided in Section 8.14). In circumstances
where this Agreement authorizes either Venturer to require the Venture to take
certain actions, the Administrative Agent shall use diligent efforts to cause
the Venture to take such actions.
8.2 Operation in Accordance with Plans. The Administrative Agent
shall exercise diligent efforts to cause the Venture to be operated in all
material respects in compliance with the Business Plans and the Property Budgets
and the Consolidated Property Budget, to cause the Property to be leased to
tenants in accordance with leases consistent with the guidelines included in the
Business Plans and to maintain in effect the insurance required by the Insurance
Program. The Administrative Agent shall exercise diligent efforts to obtain
financing approved by the Venturers, and to close on the acquisition of the
Properties under Approved purchase contracts, but shall not incur Venture
obligations or exercise any right or election to waive any right under any such
purchase contracts or arrangements for financing without the prior Approval of
the Venturers.
8.3 ERISA Matters. The Administrative Agent shall, if requested
by the Investor, exercise diligent efforts to obtain from any lender, tenant or
other party with which the Venture does business such certificate or other
evidence as the Investor may request in order to determine that the transaction
with such party does not constitute a non-exempt prohibited transaction for
purposes of ERISA.
8.4 UBTI Matters. The Developer acknowledges that it has been
advised that certain indirect investors in the Investor are qualified
organizations within the meaning of Code Section 514(c)(9)(C) which are not
generally required to pay federal income tax on interest, certain real property
rents and certain other types of income and
27
agrees that the business and affairs of the Venture will be managed with a view
to minimizing the amount of income of the Venture that will constitute unrelated
business taxable income ("UBTI") to a qualified organization under Section 511
et seq. of the Code. The Developer agrees that the Investor shall be entitled to
exercise any consent, election or other right under this Agreement with a view
to avoiding any UBTI to the Investor or any of its members and without regard to
whether conducting the business of the Venture in such manner will maximize
either pre-tax or after-tax profit of the Venture to a Venturer who is not such
a qualified organization. Without the prior written consent of the Investor
which specifically refers to the requirement of a consent under this Section
8.4, the Venture shall not (i) incur any indebtedness which would be treated as
"acquisition indebtedness" under Code Section 514(c) (unless such indebtedness
is allocated entirely to the Developer pursuant to Section 5.12), (ii) enter
into any lease which provides for contingent rental payments unless based upon
the tenant's gross receipts, (iii) enter into any lease or other arrangement
pursuant to which it receives rents from personal property or payment for the
performance of services which would constitute UBTI, or (iv) otherwise engage in
any transactions which would result in UBTI for the Investor or any of the
holders of direct or indirect equity interests in the Investor. Nothing in this
Section 8.4 is intended to authorize the Venture or the Developer to enter into
any transaction which would not be permitted under the Business Plan. This
Section 8.4 is intended to require specific approval of transactions which would
otherwise be permitted by the Business Plan.
8.5 REIT Matters.
(a) The Investor acknowledges that Captec is a real estate
investment trust (a "REIT") within the meaning of Code Section 856 et
seq., which generally is not subject to federal income taxation on net
income if it complies with the applicable asset composition, source of
income, shareholder diversification, distribution, and other
requirements of the Code necessary for a corporation to qualify as a
REIT and to avoid federal income taxation on its undistributed income.
The Investor agrees that the business and affairs of the Venture will
be managed with a view to avoiding activities or income of the Venture
that would result in disqualification of Captec as a REIT or cause it
to incur any federal income tax liability, each determined as if the
Venture were the sole investment of the REIT. The Investor agrees that
the Developer shall be entitled to exercise its duties as
Administrative Agent and exercise any consent, election, or other right
under this Agreement in accordance with the preceding sentence and
without regard to whether conducting the business of the Venture in
such a manner will maximize either pre-tax or after-tax profit of the
Venture to a Venturer that is not a REIT. Nothing in this Section 8.5
is intended to authorize the Venture or the Developer to enter into any
transaction which would not be permitted under the Business Plan. This
Section 8.5 is intended to provide that the Administrative Agent will
avoid causing the Venture to enter into transactions which would
otherwise be permitted by the Business Plan.
28
(b) In particular, for so long as Captec is a REIT (or unless
applicable law is changed to permit the following activities by a
REIT), it is the intention of the Venturers that the Venture shall be
managed as follows:
(i) For each taxable year, the gross income of the
Venture (for purposes of the income tests set forth in Section
856(c)(2) and (3) of the Code, and excluding gross income from
"prohibited transaction" as defined in Section 857(b)(6)(B)) (such
allocation of gross income, the "REIT Gross Income") that fails to
qualify as one of the following shall not exceed twenty-five percent
(25%) of the gross income of the Venture; (a) "rents from real
property" within the meaning of Section 856(d) of the Code (determined
with respect to the Venture as if the Venture were a REIT for federal
income tax purposes, subject to the modifications set forth below), (b)
interest on obligations secured by mortgages on real property or on
interests in real property, (c) gain from the sale or other disposition
of real property (including interests in real property and interests in
mortgages on real property) which is not described in Section 1221(l)
of the Code, (d) dividends or other distributions on, and gain from the
sale or other disposition of transferable shares in qualifying REIT's,
or (e) amounts described in Sections 856(c)(3)(E) through 856(c)(3)(I)
of the Code.
(ii) For each taxable year, the gross income of the
Venture that fails to qualify as one of the following shall not exceed
five percent (5%) of the gross income of the Venture: (a) the items of
income described in paragraph (i) hereof (other than those described in
Section 856(c)(3)(I) of the Code), (b) gain realized from the sale or
other disposition of stock or securities which are not property
described in Section 1221(l) of the Code, (c) interest, (d) dividends,
or (e) income derived from payments to the Venture on interest rate
swap or cap agreements, options futures contracts, forward rate
agreement or other similar financial instruments entered into to reduce
the interest rate risks with respect to any indebtedness incurred or to
be incurred to acquire or carry real estate assets, or gain from the
sale or other disposition of such an investment.
(iii) As of the end of the last day of each quarter
of each of the Venture's taxable years, not more than twenty-five
percent (25%) of the total assets of the Venture (for purposes of the
seventy-five percent (75%) asset test set forth in Section 856(c)(4) of
the Code) will fail to qualify as one of the following: (a) real estate
assets within the meaning of Section 856(c)(5) of the Code, (b) cash
and cash items (including receivables which arise in the ordinary
course of the Venture's operations, but not including receivables
purchased from another person), or (c) Government securities.
(iv) The Venture will not own, directly or
indirectly, more than ten percent (10%) of the voting securities (as
defined for purposes of Section 856(c)(4)(B) of the Code) of any issuer
that is treated as a corporation for federal income tax purposes.
29
(v) The Venture will not hold, directly or
indirectly, any (a) stock in trade or other property of a kind which
would properly be includable in inventory at hand at the close of a
taxable year or (b) property held primarily for sale to customers in
the ordinary course of a trade or business, unless the disposition of
such property is expected to result in the recognition of no more than
de minimis gains by the Venture.
(vi) The Venture will not hold, directly or
indirectly (as determined for purposes of Section 860E of the Code) any
REMIC residual interests.
(vii) The activities of the Venture will be conducted
in accordance with the Agreement, and the Venture will not be properly
classified as a corporation for federal income tax purposes. The
Venture shall not elect to be taxed as a corporation for federal income
tax purposes or otherwise take or omit to take any action that
reasonably could be expected to cause the Venture to be a corporation,
or to be treated as an association taxable as a corporation, for
federal income tax purposes.
(viii) The Venture will, as an when requested, make
available to the Developer a list of all entities that the Venture (and
any entity that is treated as a partnership or disregarded entity for
federal tax purposes in which the Venture hods, or is treated as
holding, an interest) uses to provide services to tenants or with
respect to the properties in which the Venture owns a direct or
indirect interest the Venture is treating as an "independent
contractor" (within the meaning of Section 856(d)(3) of the Code and
Treasury Regulation Section 1.856-4(b)(5)(iii)) for purposes of
determining compliance with the covenants set forth in clauses (i) and
(ii) above. At least ten (10) days prior to entering into any contract
or other arrangement with a party whose status as an independent
contractor with respect to the Developer could affect the
characterization of amount received or accrued, directly or indirectly,
by the Venture as "rents from real property" when allocated to the
Developer, the Venture shall provide the Developer with written notice
of the identity of such party. The Venture shall not, directly or
indirectly, enter into any contract or other arrangement that involves
or would require treating as an "independent contractor" for these
purposes any person identified by the Developer in a written notice to
the Venture; provided that any such restriction shall be solely for the
purpose of maintaining the REIT status of Captec. If such contracts or
other arrangements are already in place at the time the written notice
is provided by the Developer, then the Venture shall take all
commercially reasonable steps to terminate such contracts or other
arrangements.
(ix) The Venture shall use commercially reasonable
efforts to make distributions to its Partners in accordance with
Article VI, in amounts large enough such that the Developer will
receive an amount sufficient to permit Captec (assuming hypothetically
that it were a REIT and that its interests
30
in the Venture constituted its only asset) to satisfy the distribution
requirements for REIT status and to avoid the imposition of any taxes
under Section 857 or 4981 of the Code with respect to the taxable year
of the Venture to which the Developer's request relates. Further, the
Venture shall be obligated to make distributions in the amounts
contemplated by Section 8.5(b)(ix) only upon the written request of the
Developer, accompanied by a certificate signed by an officer of Captec
as general partner of the Developer stating that Captec and the
Developer have made all commercially reasonable efforts to obtain
sufficient funds from other sources. The Venture shall not be required
to borrow funds to fulfill any obligations to make distributions to the
Developer without the prior written consent of all Venturers.
(x) Without the prior written consent of the
Developer, the Venture will not, directly or indirectly, acquire
securities issued by, or otherwise enter into any arrangement which
will cause the Venture directly or indirectly to derive income from any
person identified by the Developer on a written notice provided to the
Venture prior to the acquisition of such securities or the entering
into of such arrangement; provided that any such restriction shall be
solely for the purpose of maintaining the REIT status of Captec.
(c) For purposes of the covenants in this Section 8.5, the
assets and gross income of the Venture will be determined as if the
Venture were a REIT. Thus, the Venture will be deemed to own its
proportionate share (determined in accordance with Treasury Regulations
ss. 1.856-3(g)) of each of the assets of each entity that is treated as
a partnership or disregarded entity for federal tax purposes in which
the Venture holds, or is treated as holding, an interest and will be
deemed to derive directly the income of such entities attributable to
such share. Notwithstanding the foregoing, the determination of
compliance with these covenants shall be made by reference to Captec as
the REIT, and the Venture will not be treated as a REIT (i) for
purposes of determining whether a subsidiary of the Venture is a
"qualified REIT subsidiary" within the meaning of Section 856(I) of the
Code, (ii) for purposes of determining whether amounts received from a
tenant of the Venture would be "related party rent" as described in
Section 856(d)(2)(B) of the Code (except that no tenant shall be
considered a "related party tenant" for such purposes if the Venture
does not own, directly or indirectly, any interest in that tenant
unless the Developer has notified the Venture in writing that such
tenant would be considered to be a "related party tenant" as to the
Developer or the REIT), and (iii) for purposes of determining whether
an entity or person that provides services to tenants of the Venture
meets the definition of an "independent contractor," as set forth in
Section 856(d)(3) of the Code and Treasury Regulation Section
1.856-4(b)(5)(iii).
(d) So long as the provisions of Section 8.5(b) remain in
effect, the Venture shall deliver to the Developer, at such times as
may be requested by the Developer upon reasonable notice to the
Venture, a certificate, or certificates signed by an authorized person
to the effect that the Venture has complied with
31
the covenants set forth in Section 8.5(b) through the date of such
certificate or certificates and that such person anticipates that the
Venture will continue to comply with such covenants. Such certificate
or certificates also will contain such other certifications, in a form
and substance reasonably satisfactory to the Developer, as the
Developer shall reasonably request, that relate to matters involving
the Venture that reasonably could be anticipated to bear upon Captec's
status as a REIT. In addition, the Venture shall cooperate (including,
without limitation, by providing information and documents relating to
the income and assets of the Venture) with the Developer, even if the
Developer at such time no longer holds an interest in the Venture, in
addressing issues raised by any taxing authority in any audit or
similar proceeding relating to the Developer or any of its affiliates
that relate to or arise out of the Developer's investment in the
Venture.
(e) This Section 8.5 is for the exclusive benefit of the
Developer and Captec, their direct and indirect owners and
subsidiaries, and any successor or assign of all or substantially all
of the assets of the Developer or its general partner (in which case
references hereto to the Developer or Captec shall be treated as
references to such successors or assignees), provided that such
succession or assignment is otherwise permitted by the terms of this
Agreement. The provisions of this Section 8.5 may be waived by the
Developer in its sole discretion.
(f) For purposes of this Section 8.5 and certifications
made by the Venture hereunder, the Venture will not treat as "rent from
real property" any of the following:
(i) rent attributable to personal property, except
where the personal property is leased under, or in connection with, the
rental of real property where the average of the adjusted bases of the
personal property at the beginning and at the end of the taxable year
does not exceed fifteen percent (15%) of the average of the aggregate
adjusted bases of the real property and the personal property leased
under such lease at the beginning and at the end of such taxable year
within the meaning of Section 856(d)(1) of the Code;
(ii) any rent received or accrued, directly or
indirectly, where the determination of the amount of rent depends on
the income or profits of any person from the property, except where
rent is based on a fixed percentage or percentages of receipts or sales
within the meaning of Section 856(d)(2)(A) of the Code; and
(iii) any rent (or any other consideration under a
lease) received or accrued, directly or indirectly, from any person on
which the Developer or its general partner owns, directly or
indirectly, (a) in the case of a corporation, ten percent (10%) or more
of the total combined voting power of all classes of stock entitled to
vote, or ten percent (10%) or more of the total number of shares of all
classes of stock, or (b) in the case of an entity other than a
corporation, an interest of ten percent (10%) or more in the assets or
net profit of
32
such entity. For purposes of this paragraph, ownership will be
determined by taking into account the constructive ownership rules of
Section 318(a) of the Code (as modified by Section 856(d)(5) of the
Code).
(g) For purposes of this Section 8.5 and certifications
made by the Venture hereunder, the Venture will not treat as "interest"
any interest received or accrued, directly or indirectly, where the
determination of the amount of interest depends on the income or
profits of any person, except where interest is based on a fixed
percentage or percentages of receipts or sales within the meaning of
Section 856(f)(1)(A) of the Code (or to the extent otherwise treated as
interest under Section 856(f)(1)(B) of the Code and the Treasury
Regulations promulgated thereunder.
(h) The foregoing provisions of this Section 8.5 shall
in no event preclude a liquidation of the Venture or the sale of the
Properties or Subsidiaries or other assets of the Venture in accordance
with the provisions of this Agreement (without regard to Section 8.5)
or affect the terms thereof.
8.6 Contracts with Affiliates. Promptly after formation of the
Venture, the Venture shall enter into an asset management, development services
and leasing services agreement (the "Management Agreement") with Captec (the
"Asset Manager") in the form approved by the Venturers and attached hereto as
Schedule 8.6 for the required management of the improvements existing at the
Properties, development services for Properties under construction, and leasing
services for the Properties. The Investor shall have the sole and exclusive
right to direct in good faith the Venture's and the Subsidiary's actions with
regard to such contract and any other contracts between the Venture or a
Subsidiary and the Developer or any Captec Affiliate, including proposing or
approving any amendment or modification of such contracts, exercising any
consent, waiver, approval or election thereunder, enforcing any remedies,
including termination thereof and taking any and all other actions under or with
respect to such agreements as owner. The Venturers shall not unreasonably
withhold, condition or delay any such consent or approval contemplated by the
Management Agreement, but shall have no obligation to consent to or approve any
modification or amendment of the Management Agreement. The Management Agreement
shall at no time delegate the authority to undertake any of the actions
enumerated in Section 8.14 or otherwise act on behalf of the Venture to the
Asset Manager without the approval of the Venturers. Neither the Venture nor any
Subsidiary shall modify, amend or terminate the Management Agreement without the
specific prior written approval of the other Venturer. Except as otherwise
provided in this Section 8.6, neither the Venture nor any Subsidiary shall enter
into any other contracts with any Venturer or any other individual or entity
affiliated with any Venturer or modify, amend or terminate any agreement between
the Venture and any Venturer or any individual or entity affiliated with any
Venturer without the specific prior written approval of the other Venturer.
8.7 Employees and Contractors. The Venture shall conduct its
business exclusively through independent contractors and shall not hire any
employees.
33
The Administrative Agent shall supervise and administer all services rendered to
the Venture by independent contractors. If the Management Agreement shall be
terminated, the Administrative Agent shall select qualified contractors approved
by the Venturers which are unaffiliated with any Venturer to perform the
development services, property management, leasing and other services required
by the Venture.
8.8 Financing. The Administrative Agent shall use diligent
efforts to identify favorable financing for the Venture. After the Venturers
have approved financing for the Venture, the Administrative Agent shall use
diligent efforts to close such financing and to enter into all incidental
arrangements relating thereto, including satisfying the requirements of
prospective lenders, and entering into interest rate protection agreements and
other ancillary arrangements approved by the Venturers. The Developer agrees to
incur such obligations to lenders to the Venture with respect to environmental
liabilities associated with the Properties and guaranties for other so-called
nonrecourse carve outs as are customarily required by lenders providing
financing for comparable entities purchasing comparable assets. The Venture
shall indemnify the Developer with respect to any such liabilities to lenders
of the Venture incurred in connection with Approved Financing. The
Administrative Agent shall not enter into any arrangements for financing or pay
any commitment or application or other fees for financing without the prior
written Approval of the Venturers. The Developer acknowledges that the Investor
may elect not to approve financing which would adversely affect the Venture's
ability to dispose of any Property or which might require the Venture to pay a
prepayment premium at a time at which the Investor may desire to liquidate its
interest in the Venture.
8.9 Compensation and Expense Reimbursement. The Administrative
Agent shall not receive any compensation for serving as Administrative Agent.
The Venture shall reimburse the Investor's and the Developer's reasonable
out-of-pocket costs, including fees of attorneys and consultants, incurred in
negotiating this Agreement and purchasing and financing the Properties. The
Venture shall also reimburse the Administrative Agent's reasonable third party
out-of-pocket costs incurred in fulfilling its obligations as Administrative
Agent under this Agreement, provided that (i) no such costs shall have been paid
to any Captec Affiliate and (ii) such costs are consistent with the Consolidated
Property Budget. Upon the closing of the acquisition by the Venture of any
Property which includes a restaurant (each, a "Restaurant Property"), the
Venture shall reimburse the Developer for any fees paid by the Developer or
Captec in connection with such Restaurant Property acquisition to Captec
Financial Group Inc., a Michigan corporation, not to exceed three percent (3%)
of the gross acquisition price of such Restaurant Property. The Investor shall
be entitled to reimbursement for reasonable out-of-pocket expenses incurred by
it in administering its investment in the Venture, including fees of counsel and
the fees and expenses of an engineer retained by an Investor to monitor any
construction which may be undertaken at the Properties from time to time. If
there is an Event of Default by the Developer under this Agreement, the Investor
shall be entitled, subject to the restrictions against contracting with
affiliates set forth in Section 8.6, to cause the Venture to retain such service
providers as the Investor may
34
deem appropriate and to have the Venture pay their charges and expenses. The
Asset Manager shall be entitled to compensation as provided in the Management
Agreements.
8.10 Environmental Auditing. With respect to each Property, to the
extent that the tenant pursuant to the applicable Lease is not made responsible
for environmental liabilities and compliance with environmental laws and
regulations, the Administrative Agent shall cause the Asset Manager to implement
and maintain an ongoing environmental auditing program satisfactory to the
Venturers. Upon the request of any Venturer, the Administrative Agent shall
cause the Asset Manager to conduct investigations regarding the compliance of
activities at any Property with applicable environmental laws, and the existence
of and potential for contamination. The results of such environmental audit
shall be provided to the Venturers promptly after receipt by the Asset Manager.
8.11 Continued Involvement Requirements. The Venture shall not
enter into any agreement or other arrangement with any third party requiring the
continued ownership, control, employment, or other involvement by any Venturer
or any Affiliate of any Venturer with the Venture, any Subsidiary or any
Property, without the specific prior written consent of the other Venturer. To
the extent that the Venture does enter into any such agreement or arrangement,
the Developer covenants not to take any action or refrain from taking any action
which would constitute a breach of such requirement or which would trigger any
such right or obligation.
8.12 Indemnification of Administrative Agent and Venturers. To the
extent permitted by law, the Administrative Agent shall be entitled to be
indemnified by the Venture to the extent of the assets of the Venture for
liabilities, costs and expenses including, without limitation, amounts paid in
satisfaction of judgments, settlements, fines, penalties and counsel fees
reasonably incurred in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, pending or threatened,
before any court or administrative or legislative body incurred by it in its
capacity as Venturer or as guarantor of any obligations of the Venture so long
as the same was not the result of fraud, gross negligence or willful misconduct
of the Administrative Agent or any affiliate of the Administrative Agent, a
material breach of this Agreement on the part of the Administrative Agent or any
affiliate of any Administrative Agent, or any material breach of the Undertaking
of Captec by Captec.
The following provisions shall apply to the indemnification of the
Venturers and persons or entities affiliated with any Venturer, other than any
Venturer acting (or whose Affiliate is acting) as the Administrative Agent:
A. "Investor Indemnified Parties" means the Investor, any
manager or other agent of the Investor, any direct or indirect holder of
equity in the Investor, Fidelity Real Estate Partners III Corp. ("FREP"), any
entity controlling, controlled by or under common control with FREP, any
investment manager for any holder of equity in the Investor, each of the
officers, directors and employees of any of the preceding persons or entities,
and any other person who serves at the request of any of the preceding persons
or
35
entities as an officer, director, trustee, manager or agent of an
entity in which the Venture has an interest as an owner, security holder,
creditor or otherwise.
B. "Developer Indemnified Parties" means the Developer, Captec,
any officer, director, employee or other agent of the Developer or Captec, any
direct or indirect holder of equity in the Developer or Captec, any entity
controlling, controlled by or under common control with the Developer or Captec,
each of the officers, directors and employees of any of the preceding persons or
entities, and any other person who serves at the request of any of the preceding
persons or entities as an officer, director, trustee, manager or agent of an
entity in which the Venture has an interest as an owner, security holder,
creditor or otherwise.
C. Except as otherwise required by applicable law, no Investor
or Developer Indemnified Party shall be liable to the Venture or any person or
entity holding an equity interest in the Venture for any loss suffered by the
Venture which arises out of any action or inaction of any Investor or Developer
Indemnified Party as long as such Investor or Developer Indemnified Party acted
in good faith and in a manner reasonably believed to be in, or not opposed to,
the best interests of the Venture and which action or inaction does not
constitute a material breach of this Agreement.
D. The Venture shall indemnify, to the extent permitted by
applicable law and to the extent of its assets, each Investor and Developer
Indemnified Party against all liabilities, losses and expenses incurred by any
of them in connection with any matter relating to the Venture or any entity in
which the Venture has any interest as an owner, security holder, creditor or
otherwise, including but not limited to amounts paid in satisfaction of
judgments, settlements, fines, penalties and counsel fees reasonably incurred in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, pending or threatened, before any court
or administrative or legislative body, in which such Investor or Developer
Indemnified Party may be or may have been involved as a party or otherwise or
with which such Investor or Developer Indemnified Party may be or may have been
threatened. Notwithstanding the foregoing, indemnification shall not be paid to
any Investor or Developer Indemnified Party with respect to any matter as to
which such Investor or Developer Indemnified Party shall have been finally
adjudicated to have committed an act or omission involving willful misconduct,
fraud or bad faith or material breach of this Agreement.
Amounts required to be paid by the Venture to an indemnified party pursuant to
this Section 8.12 in reimbursement of judgments, settlements, fines, penalties,
counsel fees and other costs actually incurred by such indemnified party shall
be paid together with interest thereon at the "base rate" announced by
BankBoston, N.A. (or if such rate is no longer available, at such other
comparable prime or base lending rate announced from time to time by an
institutional lender selected by the Investor) plus three percent (3%) per annum
from the date such amounts were paid by the indemnified party.
36
8.13 Authorization of Certain Actions. The Venturers hereby
authorize the Administrative Agent on behalf of the Venture to enter into the
contracts and instruments referred to in Schedule 8.13 in the form approved by
the Venturers.
8.14 Actions Requiring Approval of Venturers. Notwithstanding
anything provided in this Agreement to the contrary, the Venture shall not take
or permit any Subsidiary to take, nor delegate to the Asset Manager under the
Management Agreement, any of the following actions, whether or not consistent
with the Business Plan, without the prior approval of each Venturer of the
specific action, including the form of instrument, parties involved or any other
matter relating to such action:
A. borrow money or amend the terms and conditions of any
financing or make elections with respect to interest periods, interest rates,
prepayment or other material provisions under any financing;
▇. ▇▇▇▇▇ any mortgage, security interest or any other lien;
C. subject all or any part of any Property to a condominium
statute;
D. sell all or any portion of any Property (it being understood
that sale of all of the Properties is permitted pursuant to Articles 11, 12 and
13 in certain circumstances);
E. enter into or amend any contract for the design, construction,
management or leasing of the Property, or make any material change in the plans
for the development of any Property;
F. seek or consent to any change in the zoning or other land use
regulations affecting the Property or any permits or approvals granted
thereunder (except to the extent required pursuant to the terms of the
applicable Lease);
G. rebuild or reconstruct the improvements on any Property if
they are substantially damaged by a fire or other casualty (except to the
extent required pursuant to the terms of the applicable Lease);
H. file or defend lawsuits or other proceedings except for the
defense by insurers of insured claims;
I. engage counsel to advise the Venture on any matter;
J. acquire any real property (other than the Initial Properties
as provided herein) or any interest in any entity;
K. modify in any material respect the form of lease used for
leasing space at any Property;
37
L. modify, amend or terminate any existing lease of any portion
of the Property, or enter into any new lease of any portion of any Property;
M. make material alterations to any Property other than as
expressly permitted by the applicable Business Plan (or unless such alterations
consist of nonstructural tenant improvements to be performed under the
applicable Lease);
N. change the Venture's or any Subsidiary's accounting method,
either for financial or tax reporting purposes;
O. make any material change in the plans and specifications for
any construction at any Property;
P. amend or fail to obtain any insurance coverage contemplated by
the Insurance Program;
Q. incur any obligation which would exceed the applicable annual
line item in the Consolidated Property Budget by more than the lesser of $20,000
or ten percent (10%) of such annual line item or which would cause the total of
all annual line items in the Consolidated Property Budget to be exceeded by more
than $50,000; provided, however, that if an emergency arises which threatens
imminent harm to property or injury to persons and prior communication with the
Investor with respect to such emergency is not practicable, the Developer may
expend such funds as may reasonably be necessary to avert such harm or injury as
long as it gives notice to the Investor on the next business day after such
expenditure of the nature of such emergency and provides such additional
information as the Investor may reasonably request in connection therewith;
R. dissolve the Venture or any Subsidiary;
S. enter into any merger, consolidation or restructuring of the
Venture;
T. take any other action which pursuant to any provision of this
Agreement requires the approval of any Venturer or which materially affects the
Venture or the Property;
U. incur any obligation which would exceed the applicable line
item in any Construction Budget unless (i) such obligation is less than the
lesser of (a) $25,000 or (b)aten percent (10%) of such line item and (ii) such
obligation either is offset by savings in other line items of such budget or is
covered by amounts moved from the contingency line item in the Construction
Budget consistent with the immediately following sentence. The approval of the
38
Venturers shall in any event be required for use of any amounts provided in the
contingency line item in the Construction Budget once the Administrative Agent
has used 50% of such contingency amount. The approval of the Venturers shall be
required for use of any amounts provided in the contingency line item in the
Construction Budget for any Property under construction; or
V. modify in any material respect the organizational documents of
any Subsidiary, transfer or issue additional ownership interests in any
Subsidiary, or dissolve any Subsidiary.
The Administrative Agent shall be entitled to rely upon the written approval
from any individual which is designated as a representative of each respective
Venturer (a "Venturer Representative") for the purposes of any approvals
required of the Venturers under this Section 8.14. The initial Venturer
Representatives for the Investor shall be ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇.
The initial Venturer Representatives for the Developer shall be ▇▇▇▇▇▇▇ ▇. Beach
and W. ▇▇▇▇ ▇▇▇▇▇▇. Each Venturer may change its respective Venturer
Representatives at any time by giving written notice to such effect to the
Administrative Agent.
Each Venturer acknowledges and agrees that in exercising all of its approval,
consent and other rights as a Venturer hereunder, it is acting solely on its own
behalf in its capacity as a member of the Venture and not on behalf of the other
Venturer. The Investor further acknowledges and agrees that it will conduct an
independent review of all proposals and recommendations advanced by the
Developer, the Administrative Agent and the Asset Manager (to the extent that
the Developer is not the Administrative Agent or the Asset Manager), including
without limitation proposals relating to proposed Additional Properties,
proposed Property Budgets, Insurance Programs and Business Plans, proposals
relating to particular leases, financings or dispositions and any other
proposals or recommendations. The Investor further acknowledges that in
developing such proposals or recommendations neither the Developer nor the
Administrative Agent is acting to meet the specific needs of the Investor and
that such recommendations or proposals will not serve as a primary basis for the
decisions made by the Investor with regard to such matters.
8.15 Restrictions on Other Business. (a) Except as provided in
subsection (b) of this Section 8.15 and Section 8.16, during the Investment
Period neither Captec nor Developer shall develop, own, lease, acquire, operate
or otherwise directly or indirectly participate in any Qualified Property or any
venture formed for the purpose of developing and/or acquiring Qualified
Properties, and shall not permit any Captec Affiliate to engage in any such
activities. "Qualified Property" means any real property meeting the Investment
Guidelines, but shall be deemed to exclude properties owned by Captec or any
Captec Affiliate as of the date of this Agreement. Except as provided in this
Section 8.15, no Venturer shall be prohibited from engaging in or possessing an
interest in any other business ventures of any kind or description, or have any
responsibility to account to the Venture for the income or profits from any such
enterprises.
(b) During the Investment Period, Captec and the Captec Affiliates may
acquire Qualified Properties, provided that:
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1. Developer shall provide prior written notice to Investor of
the intended acquisition of a Qualified Property by Captec or any Captec
Affiliate, including the closing date, price and other economic terms of each
such acquisition.
2. Acquisitions of Qualified Properties by Captec during the
Investment Period shall be limited to the properties listed on Schedule 8.15
and shall not exceed $20,000,000 of acquisition price in the aggregate.
3. Acquisitions of Qualified Properties by Captec Affiliates
during the Investment Period shall not exceed $12,000,000 of acquisition price
in the aggregate.
4. the Developer shall propose Qualified Properties for
acquisition by the Venture pursuant to Section 8.16 such that Qualified
Properties that are proposed to the Venture are of comparable risk and return
parameters to the Qualified Properties proposed for acquisition by Captec and
the Captec Affiliates. Developer shall also propose sufficient Qualified
Properties for acquisition by the Venture such that the aggregate purchase
prices of Qualified Properties that are proposed to the Venture shall not be
less than 76% of the aggregate purchase prices of Qualified Properties proposed
for acquisition by the Venture, Captec and by the Captec Affiliates during the
Investment Period.
(c) Developer shall indemnify, defend and hold harmless the Venture and
the Investor Indemnified Parties from and against any loss, cost or expense
resulting from any allegation, holding or decision to the effect that the
Developer or Captec shall have violated any fiduciary duties owed to Captec, any
Captec Affiliates, or any affiliated entity of either of them, on account of the
terms and conditions of this Section 8.15.
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8.16 Acquisition of Additional Properties. During the Investment
Period, the Developer shall identify and propose to the Investor the acquisition
of Qualified Properties by the Venture ("Additional Properties") having
aggregate required equity investments of approximately $31,000,000 (but not less
than $28,000,000). For each proposed Additional Property that the Developer
recommends for acquisition by the Venture, the Developer shall prepare and
submit to the Investor a package of the materials listed in Schedule 8.16, with
respect to such Additional Property. The Venture shall not incur any cost,
expense or liability with respect to the evaluation or proposed acquisition of
any Additional Property. The Developer acknowledges that the Investor shall have
absolute discretion as to whether to approve the acquisition by the Venture of
any Additional Property and that the Investor may impose such requirements as a
condition to any such acquisition as it may determine to be appropriate. The
Developer shall not rely upon the Venture to purchase any Additional Property
unless the Developer has obtained written approval from the Investor to have the
Venture enter into or assume an agreement for such acquisition in a form
approved by the Investor. In connection with any acquisition of an Additional
Property, the Developer shall arrange for the Venture to have property and
liability insurance as required by the then current Insurance Program and title
insurance in form acceptable to the Investor and containing no exceptions which
would not be acceptable to prudent mortgage lenders or prudent institutional
investors. If the Investor disapproves a Qualified Property proposed by the
Developer for acquisition by the Venture, then such Qualified Property may be
acquired, on substantially similar terms as those offered to the Venture, by
Captec or a Captec Affiliate and thereafter such Qualified Property shall not be
included in the calculation of aggregate acquisitions by Captec or the Captec
Affiliates pursuant to subsections 8.15(b)(ii)-(iii). Furthermore, once the
Venture has acquired Restaurant Properties having an aggregate purchase price of
at least $33,300,000, then Captec and the Captec Affiliates may acquire
Restaurant Properties without regard to the restrictions set forth in
subsections 8.15(b)(i)-(iii).
8.17 Use of Separate Entities to Hold Properties. The Venture may
hold one or more Properties in separate limited liability entities, including,
without limitation, limited partnerships or limited liability companies. The
Administrative Agent shall form such entities and, if necessary, qualify them to
do business in the states in which they own property or operate. All such
entities (each a "Subsidiary") must be wholly owned, directly or indirectly, by
the Venture. Prior to forming any Subsidiary, the Administrative Agent shall
seek the Approval of the Venturers for the organizational documents for such
Subsidiary. The Administrative Agent will consult with counsel and structure
Subsidiaries to minimize state, local and federal taxes. The Administrative
Agent shall advise the Investor if it is unable to obtain assurance from counsel
that any Subsidiary will not be treated as a pass-through entity and therefore
not subject to state, federal and local taxes, and shall not form any Subsidiary
without the approval of the Venturers if it has been unable to obtain such
assurance. For purposes of determining whether a Subsidiary so qualifies, its
organizational documents shall specify as the annual valuation period for
purposes of such regulations, the 90 day period commencing each December 1. It
is the intention of the Venturers that the use of the Subsidiaries not alter the
rights of
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approval and control of the Investor herein and references in this agreement to
the Venture shall include the Subsidiaries as appropriate to accomplish that
intent.
9. TRANSFERS OF VENTURE INTERESTS
9.1 Prohibition of Transfers. Except as provided in Section 9.2,
no Venturer shall suffer or permit any transfer of or encumbrance upon such
Venturer's interest in the Venture or any transfer of or encumbrance on any
direct or indirect interest in such Venturer without the prior written approval
of the Investor, in the case of transfers of interests of or in the Developer or
transferees of the Developer, or the Developer, in the case of transfers of or
in the Investor or transferees of the Investor.
9.2 Investor Permitted Transfers. Notwithstanding the provisions
of Section 9.1, (a) any holder of a direct or indirect interest in the Investor
shall be permitted to transfer all or any portion of its direct or indirect
interest in the Investor without the consent of any Venturer, (b) the Investor
shall be permitted to transfer all or any portion of its interest in the Venture
without the consent of any Venturer, provided, however, that the Investor shall
not transfer its interest to any entity (other than Captec) which is a real
estate investment trust specializing in fully net-leased properties. In the
event that any portion of the Investor's interest in the Venture is transferred
to any Person, including the Developer or Captec, then, for purposes of
complying with the provisions of Articles 5 and 6 of this Agreement, the
Investor's Capital Account shall be allocated pro rata between the Investor and
such transferee.
9.3 Developer Permitted Transfers. (a) For as long as Captec's
stock is listed and publicly traded on a nationally recognized stock exchange,
for purposes of this Article 9, the sale, exchange or transfer of stock in
Captec shall not be deemed a transfer subject to the restrictions of section
9.1.
(b) Captec may transfer its interest in Developer, in each case
pursuant to any merger, reorganization or similar transaction; provided the
surviving entity is a real estate investment trust and immediately following
such transaction former members of Captec's Board of Directors constitute a
majority of the members of the Board of Directors of the surviving entity.
9.4 Admission of New Venturer. No person or entity to which an
interest in the Venture is transferred by the Developer shall be admitted as a
substitute member without the prior written consent of the Investor, which
consent may be withheld in its sole and absolute discretion. Transferees of the
Investor's interest in accordance with Section 9.2 shall be admitted as a member
and shall have the rights of the Investor under this Agreement.
9.5 Non-Recognition of Certain Transfers. Any transfer or
assignment of any interest in the Venture not permitted by this Agreement shall
be ineffective and shall not be recognized by the Venture.
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9.6 Withdrawal. Except upon the permitted transfer by a Venturer
of its entire interest in the Venture and the admission of such Venturer's
transferee as a substituted member in compliance with the terms of this
Agreement, no Venturer shall have the right to withdraw from the Venture without
the prior approval of all of the Venturers. No Venturer shall be entitled to the
return of such Venturer's capital upon withdrawal.
10. DEVELOPER DEFAULTS; TERMINATION
10.1 Default. The occurrence of any of the events set forth below
shall constitute an "Event of Default" on the part of the Developer. For the
purposes of this Section 10.1, the term "Developer" shall be deemed to include
any Administrative Agent which is an affiliate of the Developer.
A. the occurrence and continuance beyond any applicable grace
period of any default on the part of the Developer or any person or entity
affiliated with the Developer pursuant to the terms of the Management Agreement
or any other contract between the Venture or any Subsidiary and the Developer or
any person or entity affiliated with the Developer;
B. violation by or on behalf of the Developer or Captec of the
transfer restrictions set forth in Article 9;
C. initiation by the Developer of proceedings of any nature
under the federal Bankruptcy Code, or any similar state or federal law for the
relief of debtors;
D. a general assignment by the Developer for the benefit of
creditors;
E. the initiation against the Developer of a proceeding under
any section or chapter of the federal Bankruptcy Code, or any similar federal
or state law for the relief of debtors, which proceeding is not dismissed or
discharged within a period of sixty (60) days after the filing thereof;
F. admission by the Developer in writing of its inability to pay
its debts as they mature or to perform its obligations under this Agreement;
G. attachment or execution or other judicial seizure of all or
any substantial part of the Developer's assets or of its interest in the
Venture, or any part thereof, which remains undismissed or undischarged for a
period of sixty (60) days after levy thereof;
H. the occurrence of any of the acts or events described in (c)
through (g) above with respect to Captec, the Venture or any Subsidiary;
43
I. the breach or inaccuracy in any material respect of any
representation, warranty or statement made by or on behalf of the Developer in
this Agreement or in any certificate or statement furnished pursuant to this
Agreement, or by or on behalf of any person or entity affiliated with the
Developer, including without limitation the breach or inaccuracy in any material
respect of the representations, warranties or agreements of Captec pursuant to
the Undertaking of Captec;
J. any other material default in the performance of or failure
to comply with, any other agreements, obligations, or undertakings of the
Developer (or any Captec Affiliate) contained herein or in any agreement
between the Venture or any Subsidiary and the Developer or any such Captec
Affiliate, which default or failure continues for ten (10) days following
notice thereof given by the Investor; provided, however, that if such default
cannot with diligent efforts be cured within such ten (10)-day period but the
Developer (or such affiliate of the Developer) commences such cure within such
ten (10)-day period, thereafter diligently and continuously prosecutes such
cure, and such default is reasonably susceptible to cure within sixty (60)
days, such ten (10)-day period shall be extended for the time reasonably
required to effect such cure, but in no event for more than an additional fifty
(50) days (i.e. 60 days total);
K. the exercise by any lender to the Venture or any Subsidiary
of any right to declare a default and demand repayment of its loan to the
Venture or any Subsidiary;
L. the failure by any construction lender with respect to a
Property to make an advance required to pay construction costs for the Property
within sixty (60) days after the submission of the requisition for such costs;
M. any knowing or intentional act on the part of the Developer
or Captec which gives rise to an event or circumstance which would permit any
lender to the Venture or any Subsidiary to declare an event of default and
demand repayment of its loan; and
N. the inability of the Venture or any Subsidiary to pay its
debts when due.
Upon the occurrence of any Event of Default, the Investor shall be
entitled to (i) unilaterally cause a sale of the assets of the Venture (without
the obligation to comply with the provisions of Articles 11-12), provided that
such sale shall be conducted in an orderly manner and the Properties shall not
be sold to an Investor Related Party, and thereafter to dissolve the Venture
(ii) terminate any agreement between the Venture or any Subsidiary and the
Developer or any Captec Affiliate (such remedy shall not, however, be deemed to
permit Investor to unilaterally terminate this Agreement), (iii) obtain specific
performance of the Developer's (or any affiliate's) obligations under this
Agreement, and/or (iv) unilaterally exercise any other right or remedy provided
for in this Agreement, and if the Investor so elects, continue the operation of
the Venture's business
44
and appoint itself or an entity the sole Administrative Agent for the Venture
pursuant to Section 10.6.
10.2 Certain Investor Remedies Prior to Default. (a) Upon the
occurrence of any one or more of the following events, Investor shall have the
remedies set forth in subsection (b) below:
(i) the occurrence of any event or circumstance which permits any
lender to the Venture or any Subsidiary to declare a default and to
demand repayment of its loan prior to its scheduled maturity;
(ii) failure by any construction lender with respect to a Property
to make an advance required to pay construction costs for such Property
within thirty (30) days after the submission of the requisition for
such costs;
(iii) notice from any construction lender with respect to a
Property that there has occurred any event or circumstance which
permits such lender to withhold further advances to the Venture.
(b) Upon the occurrence of any of the events listed in subsection (a),
Investor shall have the right to unilaterally designate itself or any Investor
Related Party as a replacement Administrative Agent. If the Investor exercises
such right to designate itself the replacement Administrative Agent, the
Developer (or any affiliate of Developer which is serving as Administrative
Agent) shall automatically, without need for the execution and delivery of any
instrument other than notice by the Investor to the Developer that it has
exercised such right, cease to be the Administrative Agent and the Investor or
the entity so designated by the Investor shall become the sole Administrative
Agent of the Venture with all rights and responsibilities of the Administrative
Agent set forth in this Agreement, including without limitation the requirement
to obtain consent of the Venturers for certain acts as set forth in Section 8.14
(unless there shall have occurred an Event of Default, in which case Investor
shall have the remedies set forth in this Agreement, including without
limitation those set forth in Sections 10.1, 10.2 and 10.6). At any time
following the replacement of Developer as Administrative Agent under this
Section 10.2, the Investor shall have the right, in its sole discretion, to
reappoint Developer as the Administrative Agent, following which Developer shall
undertake all of the obligations of the Administrative Agent provided in this
Agreement.
10.3 Funding Following Developer Default. If the Investor
determines that the Venture requires funds following an Event of Default, the
Investor shall give a Capital Call Notice to the Developer indicating the amount
of funds required by the Venture and the purpose for which such funds are
required, whereupon the Venturers shall have the option to provide such funds as
provided in Section 3.3. If all of the required funds are not so provided by
either or both of the Venturers as set forth in Section 3.3, then the Investor
shall also have the right to issue interests in the Venture to new Venturers
which are not affiliates of the Investor, which interests may be of a different
class, and which will dilute existing Venturers pro rata and which may be
45
entitled to priority returns. The Investor may specify such terms in its sole
discretion, but each Venturer shall be entitled to provide up to its pro rata
share of such funds, based on Initial Ownership Percentages, by giving notice to
the Investor of its election to provide such funds within fifteen (15) days of
receipt of notice from the Investor of the proposed terms. The failure by any
Venturer to contribute funds in response to such solicitation within fifteen
(15) days shall constitute an election not to participate in providing funds.
Each Venturer acknowledges that the failure to participate in any funding
pursuant to this Section 10.3 may result in a dilution of its interest and
rights in the Venture. If funds are provided pursuant to this Section 10.3, this
Agreement shall be amended as required to implement the terms and conditions on
which such new funds have been provided to the Venture and each Venturer
appoints the Investor its attorney-in-fact for purposes of executing and
delivering any such amendment.
10.4 Dissolution. The Venture shall be dissolved upon the
occurrence of any of the following events:
A. unanimous written consent by the Venturers to dissolve the
Venture;
B. the sale of all of the Properties;
C. the bankruptcy, dissolution, resignation or expulsion of any
Venturer; provided that the Venture may be continued with the consent of all of
the remaining Venturers if such consent is given within ninety (90) days
following such event;
D. the entry of a decree of judicial dissolution under Section
44 of the Act; or
E. a consolidation or merger of the Venture in which it is not
the resulting or surviving entity.
Dissolution of the Venture shall be effective on the day on which the
event occurs giving rise to the dissolution, but the Venture shall not terminate
until the assets of the Venture have been distributed as provided herein and a
certificate of cancellation of the Venture has been filed with the Secretary of
State of Delaware.
10.5 Application of Assets. In the event of dissolution, the
Venture shall conduct only such activities as are necessary to wind up its
affairs, including a sale of the assets of the Venture in an orderly manner, and
the assets of the Venture shall be applied in the manner and in the priority set
forth in Section 6.3. If the Administrative Agent in good faith determines that
reserves are required to be established for any contingent or unmatured
liabilities of the Venture, the amount of such reserves shall be subject to the
reasonable approval of the Venturers, and such reserve shall be released and
distributed as set forth in Section 6.3 at such time as they are no longer
reasonably required.
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10.6 Replacement of Administrative Agent. The Investor may at any
time (i) during a continuing Event of Default of the Developer, or (ii)
following the contribution of additional capital pursuant to Section 3.3 (unless
such contribution is a Qualified Capital Contribution), in its sole discretion,
unilaterally designate itself or an entity controlled by the Investor or persons
directly or indirectly owning the Investor as a replacement Administrative
Agent. If the Investor exercises such right to become the replacement
Administrative Agent pursuant to this Section 10.6, the Developer (or any
affiliate of Developer which is serving as Administrative Agent) shall
automatically, without need for the execution and delivery of any instrument
other than notice by the Investor to the Developer that it has exercised such
right, cease to be the Administrative Agent and the Investor or the entity so
designated by the Investor shall become the sole Administrative Agent of the
Venture with all rights and responsibilities of the Administrative Agent set
forth in this Agreement, and with authority to undertake any of the actions set
forth in Section 8.14 or any other management activities provided for in this
Agreement on behalf of the Venture without the requirement of obtaining the
consent of any other Venturer. The Developer shall execute such amendments to
this Agreement and execute and file such amendments to the certificate of
organization of the Venture as may be required to effect such appointment of the
Investor (or its designated affiliate) as the Administrative Agent and Developer
hereby appoints the Investor its attorney-in-fact, with full power of
substitution, to execute and deliver any such amendments or other instruments in
the event that Developer shall fail to promptly execute any such amendment as
directed by the Investor, as may be required in such circumstances.
11. FORCED SALE
11.1 Sale to Third Party. (a) At any time following the first to
occur of: (i) any transfer of the Developer's interest in the Venture pursuant
to Section 9.3(b), or (ii) the second (2nd) anniversary of the date of this
Agreement, Investor may deliver a written notice (a "Sale Notice") to the
Developer indicating that the Investor intends to exercise its right to force a
sale of all of the Properties by the Venture, whereupon Developer shall have the
right to deliver an Offer Notice pursuant to Section 12.1. If Investor has not
previously delivered a Sale Notice for all purposes under this Agreement, the
Investor shall be deemed to have delivered a Sale Notice as of the earliest to
occur of (x) the closing of a "75% Conversion" under the Stock Purchase
Agreement or (y) the fourth (4th) anniversary of the date of this Agreement.
(b) If the Investor shall deliver (or be deemed to have delivered) a
Sale Notice pursuant to this Section 11.1, and the Developer fails to deliver an
Offer Notice within the Response Period, or if Developer delivers an Offer
Notice to which the Investor responded with an Acceptance Notice and the
Developer fails to close the transaction for any reason, the Investor may,
without the further consent of the Developer, unilaterally cause the Venture to
sell the Properties to a Third Party, either as a portfolio or on a Property by
Property basis, or both Venturers to sell their interests in the Venture on
terms acceptable to the Investor in its sole discretion.
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(c) If the Investor shall deliver (or be deemed to have delivered) a
Sale Notice and the Developer shall deliver an Offer Notice pursuant to Article
12, and the Investor shall decline to accept the offer contained in the
Developer's Offer Notice, either by written notice of its refusal or by failure
to deliver an Acceptance Notice, then the Investor shall have all of the rights
provided in paragraph (b) of this Section 11.1, except that any such sale of the
Properties or of the Venturers' interests in the Venture during the twelve (12)
month period (the "Sales Period") beginning the fifteenth (15th) day following
the delivery of the Offer Notice, shall be upon economic terms not materially
less favorable to the Venture than a hypothetical sale of the Properties for the
Offer Price set forth in the Developer's Offer Notice. As used herein, "not
materially less favorable" shall be deemed to mean a sale of one or more of the
Properties for a gross purchase price, either on a portfolio or a Property by
Property basis, which is not less than ninety-five percent (95%) of the Offer
Price (or, if a Property is sold individually, the respective Property valuation
set forth in the Developer's Offer Notice). If the sale is of the Venturers'
interests in the Venture, then "not materially less favorable" shall mean not
less than the amount that the Venturers would have received if the Properties
were sold for ninety-five percent (95%) of the Offer Price (or, if a Property is
sold individually, the respective Property valuation set forth in the
Developer's Offer Notice), taking into account the assumptions described in
subparagraphs (a)-(c) of Section 12.2.
11.2 Marketing. During the Sales Period, either Venturer may
require the Venture (i) to incur reasonable and customary expenses in connection
with the marketing of the Properties, such as the preparation of studies and
brochures and legal fees to prepare and negotiate agreements and (ii) to retain
on a nonexclusive basis one or more brokers designated by such Venturer. Neither
Venturer may require the Venture to enter into an exclusive brokerage agreement
without the written consent of the other Venturer. If both Venturers elect to
undertake efforts to market the Properties, they shall attempt in good faith to
coordinate their efforts to avoid duplication and to present a consistent
position to the market. Each Venturer shall provide to the other, upon request,
copies of all proposals received from any brokers or prospective buyers and
shall keep the other informed of all developments relating to the potential sale
of the Properties.
11.3 Administrative Agent Responsibilities. The Administrative
Agent shall, when directed by either Venturer, exercise reasonable efforts to
enter into any arrangement and take any action that such Venturer is entitled to
require pursuant to this Article 11. The Administrative Agent shall arrange for
property tours, inspections and studies of the Properties and obtain title
commitments, environmental and construction reports, market studies or other
materials to facilitate the marketing and sale of the Properties as requested by
either Venturer.
11.4 Option to become Co-Administrative Agent. In connection with
any sale of the Properties or the interests of the Venturers pursuant to this
Article 11, the Investor may, by giving written notice to Developer, elect to
become a Co-Administrative Agent, whereupon the Investor shall be admitted as an
additional Administrative Agent. In such event, Developer shall execute such
amendments to this
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Agreement and execute and file such amendments to the Certificate as may be
required to effect the appointment of the Investor or its nominee as
Administrative Agent. Developer hereby appoints the Investor its
attorney-in-fact, with full power of substitution, to execute and deliver any
such amendments or other instruments in the event that Developer shall fail to
promptly execute any such amendment as directed by the Investor, as may be
required in such circumstances.
11.5 Cooperation. So long as Developer is the Administrative
Agent, Developer agrees to execute and deliver in connection with any
arrangement to sell the Properties or all the interests in the Venture such
customary representations and warranties and other certificates and instruments
as the Investor may reasonably request. In connection with any arrangement to
sell the Properties or all the interests in the Venture, the Investor agrees to
execute and deliver customary certificates evidencing its authority to consent
to or to bring about such sale. Each Venturer agrees to cooperate with the
other Venturer in such manner as the other Venturer may reasonably request to
facilitate the sale of the Properties pursuant to the provisions of this
Agreement. If the Investor arranges to sell all of the interests in the
Venture, the Developer agrees to execute and deliver a purchase and sale
agreement and upon Closing an assignment of its interest, with customary
warranties of ownership and absence of security interest or claims.
12. RIGHT OF FIRST OFFER
12.1 First Offer. Upon the delivery (or deemed delivery) of a Sale
Notice to Developer pursuant to Section 11.1, the Developer shall have the
right, within thirty (30) days following delivery (or deemed delivery) of such
Sale Notice (the "Response Period"), to make an offer to purchase all of the
Investor's interests in the Venture by delivering a written offer ("Offer
Notice") to the Investor stating the Developer's valuation (the "Offer Price")
of the Venture's entire portfolio of Properties, including a breakdown of
allocated value on a Property by Property basis. The Investor may elect, in its
sole discretion, to sell all of its interests in the Venture to the Developer
for the Interest Value (as defined in Section 12.2) by giving written notice
thereof to the Developer ("Acceptance Notice") within fifteen (15) days
following its receipt of an Offer Notice, in which case the Developer shall
deposit with the Investor an amount equal to 2.5% of the Interest Value within
five (5) days after the receipt of an Acceptance Notice and at which time the
Developer shall be irrevocably obligated to purchase, and the Investor shall be
irrevocably obligated to sell, the Investor's interest in the Venture for the
Interest Value.
49
12.2 Calculation of Price for Venture Interest. The price to be
paid for the Investor's interest in the Venture upon a sale pursuant to this
Article 12 shall be the amount (the "Interest Value") that would be distributed
by the Venture to the Investor in connection with a hypothetical sale by the
Venture of all of the Properties for a gross purchase price equal to the Offer
Price. Calculation of the Interest Value shall be based upon the following
assumptions:
A. each Property would be sold as of the Closing Date, subject
to reasonable closing prorations and adjustments consistent with real estate
closing practices that are customary in the jurisdiction where the Property is
located (including, without limitation, proration of fees to the Asset Manager
pursuant to the Management Agreement);
B. any financing encumbering each Property would be paid off at
its par value, and there are no other costs or expenses to be paid by or on
behalf of the Venture in connection with such sale; and
C. all of the net proceeds of the sale are distributed to the
Venturers, as a liquidating distribution, in accordance with the terms of this
Agreement.
12.3 Deposit. In the event that the Developer fails to proceed with
the Closing, the Investor shall retain the deposit. The Investor shall then also
be entitled to unilaterally bring about a sale of the Properties pursuant to the
provisions of Section 11.1(b) and Sections 11.2-11.5.
12.4 Closing. The Closing of any sale of the Investor's interest
in the Venture pursuant to this Article 12 shall be held on the date which is
fifteen (15) days following the date on which the Investor delivers an
Acceptance Notice to Purchaser agreeing to accept the Offered Price (the
"Closing Date"). Closing shall be held at such location in the greater Boston
area as the Investor may designate at least three (3) days prior to the Closing
Date. At the Closing, the purchase price to be payable to the Investor shall be
paid by wire transfer of immediately available federal funds, and the Investor
shall assign its Venture interest free and clear of any security interests.
Developer may nominate Captec to be the assignee upon Closing of the Investor's
Venture interest.
12.5 Brokerage. No brokerage fees or commissions shall be payable
by the Venture in connection with any purchase pursuant to this Article 12 and
each Venturer shall indemnify and hold harmless the Venture and the other
Venturer from and against any such claims made based upon the actions of such
Venturer, including any fees and expenses in defending any such claims.
12.6 Tax-Free Exchange. Either Venturer will, at the request of
the other, cooperate in structuring a sale of all of the Properties as a
tax-free exchange so long as there is no adverse effect, liability or cost or
expense which must be suffered or incurred by the Venturer receiving such a
request and such Venturer receives, upon the closing, cash in the same amount
as it would have received in an all-cash sale.
50
13. MISCELLANEOUS
13.1 Notices. Any and all notices, consents, approvals and other
communications required or permitted under this Agreement shall be deemed
adequately given only if in writing delivered either in hand, by mail or by
expedited commercial carrier which provides evidence of delivery or refusal,
addressed to the recipient, postage prepaid and registered with return receipt
requested, if by mail, or with all freight charges prepaid, if by commercial
carrier. All notices and other communications shall be deemed to have been given
for all purposes of this Agreement upon the date of receipt or refusal. All such
notices and other communications shall be addressed to the Venturers at their
respective addresses set forth below or at such other addresses as any of them
may designate by notice to the other Venturers.
Notices to the Investor shall be addressed to:
▇▇▇▇▇ No. 17, LLC
c/o Fidelity Management Trust Company
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone: 617/▇▇▇-▇▇▇▇
Facsimile: 617/476-7774
and copies to:
Fidelity Management Trust Company
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Mail Zone 15E
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telephone: 617/▇▇▇-▇▇▇▇
Facsimile: 617/476-7250
and
▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, P.C.
Telephone: 617/▇▇▇-▇▇▇▇
Facsimile: 617/227-8591
51
Notices to the Developer shall be addressed to:
FCV No. 1, Inc.
Captec Net Lease Realty, Inc.
Lobby L, 4th Floor
24 ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. Beach
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
3200 National City Center
▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
13.2 Successor and Assigns. The agreements contained herein shall
be binding upon and inure to the benefit of the permitted successors and assigns
of the respective parties hereto.
13.3 Applicable Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware. In the event of
any conflict between any provision of this Agreement and any non-mandatory
provision of the Act, the provision of this Agreement shall control.
13.4 Severability. If for any reason any provision of this
Agreement is determined to be invalid, or unenforceable in any circumstance,
such invalidity or unenforceability shall not impair the effectiveness of the
other provisions in this Agreement or, to the extent permissible, the
effectiveness of such provision in other circumstances.
13.5 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original of this Agreement
binding on the parties hereto.
13.6 Entire Agreement. This Agreement and the schedules attached
hereto constitute the entire agreement between the parties hereto with respect
to the transactions contemplated herein and supersede all prior understandings
or agreements between the parties.
52
13.7 Titles. Titles of provisions of this Agreement are for
descriptive purposes only and shall not control or alter the meanings of this
Agreement as set forth in the text.
13.8 Further Assurances. The Venturers shall execute and deliver
such further instruments and do such further acts and things as may be required
to carry out the intent and purposes of this Agreement.
13.9 Consent to Jurisdiction. The Developer consents to the
personal jurisdiction of the federal and state courts of the Commonwealth of
Massachusetts and agrees that service of process may be made upon the Developer
by certified mail, return-receipt requested, or in any other manner permitted by
law. The Developer agrees not to assert in any action brought in any such court
that such action is brought in an inconvenient forum, or otherwise make any
objection to venue or jurisdiction.
13.10 Amendments. Except as otherwise provided in this Agreement,
no amendment or modification of this Agreement shall be effective unless
reflected in a document executed and delivered by all of the Venturers.
13.11 Limitation on Liability of Venturers. The liability of the
Investor hereunder shall be limited solely to the interest of the Investor in
the Venture. The Developer agrees not to seek to recover against any person or
entity other than the Investor with respect to any claim or circumstance arising
out of or relating to the Venture or the Property and not to seek to recover on
any claim against the Investor against any asset other than the Investor's
interest in the Venture. The liability of the Developer hereunder shall be
limited solely to the interest of the Developer in the Venture. With the
exception of recourse to Captec pursuant to the Undertaking of Captec, the
Investor agrees not to seek to recover against any person or entity other than
the Developer with respect to any claim or circumstance arising out of or
relating to the Venture or the Properties and not to seek to recover on any
claim against the Developer against any asset other than the Developer's
interest in the Venture.
13.12 Waiver of Jury Trial. Each of the parties hereto waives trial
by jury in any litigation, suit or proceeding between them in any court with
respect to, in connection with or arising out of this Agreement, or the
validity, interpretation or enforcement thereof.
13.13 Confidentiality. Without the Investor's prior approval, which
approval may be withheld in its absolute discretion, neither the Developer nor
any Captec Affiliate shall issue any press release or otherwise make any public
announcement naming the Investor or any of its direct or indirect beneficial
owners, advisors or other agents, or indicating any of their involvement with
the Developer, the Venture or the Properties. The foregoing restriction shall
not be applicable to a disclosure which is required by applicable law.
53
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
INVESTOR:
▇▇▇▇▇ NO. 17, LLC:
By: Fidelity Management Trust Company, as
agent and not individually
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
DEVELOPER:
FCV NO. 1, INC.
By: /s/ W. ▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
54
SCHEDULE 2.3
REPRESENTATIONS AND WARRANTIES
Capitalized terms used in this schedule which are not defined are used
with the meanings indicated in the Agreement to which this schedule is attached.
Whenever in this schedule a warranty is made "to the
knowledge" of a person, it means that such person has no actual knowledge that
the statement is false. It does not imply that the person has a sufficient basis
for believing that the statement is true, nor does it require or imply any
independent investigation, review or inquiry on the part of the person to whose
knowledge the statement is made. References to "the knowledge of Developer"
shall mean to the knowledge of (i) the principal analyst or `Documentation
Specialist' or `Document Manager' assigned by Captec with respect to the
relevant Property,(ii) ▇▇▇▇ ▇. ▇▇▇▇▇▇ (or successor Vice President of Captec),
(iii) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (or successor Vice President of Captec), and (iv) W. ▇▇▇▇
▇▇▇▇▇▇ (or successor Executive Vice President and CFO of Captec).
Representations and Warranties of the Investor.
1. Representations and Warranties of the Investor.
-----------------------------------------------
(a) The Investor is a limited liability company duly organized
and validly existing under the laws of the State of Delaware, with full power
and authority and legal right to be a Venturer of the Venture and to carry on
its business in the manner and in the locations in which such business has been
and is now being conducted by it, to execute and deliver this Agreement and to
perform its obligations hereunder.
(b) No consent of any third party is required as a condition to
the entering into of this Agreement by the Investor other than such consent as
has been previously obtained.
(c) The execution and delivery of this Agreement has been duly
authorized and executed by the Investor and this Agreement constitutes the valid
and binding obligation and agreement of the Investor, enforceable in accordance
with its terms (subject to the effect of bankruptcy, insolvency or creditor's
rights generally, and to limitations imposed by general principles of equity).
(d) Neither the execution and delivery of this Agreement, nor
compliance with the terms and provisions thereof, will result in any breach of
the terms, conditions or provisions of, or conflict with or constitute a default
under, or result in the creation of any lien, charge or encumbrance upon any
property or assets of the Investor pursuant to the terms of any indenture,
mortgage, deed of trust, not, evidence of indebtedness, agreement or other
instrument to which the Investor may be party or by which it or they or any of
its properties or assets may be bound, or violate any provision of law, or any
applicable order, writ, injunction, judgment or decree of any court, or any
order or
55
other public regulation of any governmental commission, bureau or administrative
agency.
(e) There are no judgements presently outstanding and unsatisfied
against the Investor or any of its assets and neither the Investor nor any of
its assets is involved in any litigation at law or in equity, or in any
proceeding before any court, or by or before any governmental or administrative
agency, which judgment, litigation or proceeding could reasonably be anticipated
to have a material adverse effect on the Investor, the Venture or the
Properties, and no such material judgment, litigation or proceeding is, to the
best of the Investor's knowledge, threatened against the Investor or any of its
assets, and to the best of the Investor's knowledge, no investigation looking
toward such a proceeding has begun or is contemplated.
(f) No order, permission, consent, approval, license,
authorization, registration or validation of, or filing with, or exemption by,
any governmental agency, commission, board or public authority is required to
authorize, or is required in connection with the execution, delivery and
performance by the Investor of this Agreement or the taking of any action
thereby contemplated, which has not been obtained, other than any such order,
permission, consent, approval, license, authorization, registration or
validation of, or filing with, or exemption by, any governmental agency,
commission, board or public authority required in connection with the ownership
or the development of the Properties or with the other operations of the
Venture.
(g) To the best of the Investor's knowledge, all information,
documents and materials provided by the Investor or any Related Party to the
Developer, or the Developer's employees, agents or consultants, in connection
with the formation of the Venture are complete and accurate in all material
respects.
(h) Investor is owned, in part, by employee benefit plans (the
"Plans") as defined in section 3(3) of ERISA. The control and disposition of the
assets of Investor are subject to the discretionary authority of Fidelity
Management Trust Company (the "Investment Advisor"), and Investor is an
investment fund as defined in section V(b) of Prohibited Transaction Exemption
84-14, 49 Federal Register 9494 (March 13, 1984), as amended by 50 Federal
Register 41430 (October 10, 1985) (the "PTE"). Investment Advisor is a qualified
professional asset manager as defined in section V(a) of PTE. Investment Advisor
has acknowledged in a written agreement(s) that it is a fiduciary with respect
to each Plan. Neither Investment Advisor nor any affiliate thereof (as defined
in section V(d) of PTE), nor any owner, direct or indirect, of a 5% or more
interest in Investment Advisor, is a person who, within the immediately
preceding 10 years, has been either convicted or released from imprisonment,
whichever is later, as a result of: (i) any felony involving abuse or misuse of
such person's employee benefit plan position or employment, or position or
employment with a labor organization; (ii) any felony arising out of the conduct
of the business of a broker, dealer, investment adviser, bank, insurance company
or fiduciary; (iii) income tax evasion; (iv) any felony involving the larceny,
theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment,
embezzlement, fraudulent conversion or misappropriation of funds or securities;
(v) conspiracy or
56
attempt to commit any such crimes or a crime in which any of the foregoing
crimes is an element; or (vi) any other crime described in section 411 of ERISA.
Not more than 20% of the total client assets managed by Investment Advisor are
comprised of the following assets under its management: (x) assets of all Plans
having an ownership interest in Investor; and (y) assets of other plans
established or maintained by the same employer (or any affiliate thereof as
defined in section V(c)(1) of PTE) or employee organization that established or
maintains the Plans described in clause (x) hereof. Investment Advisor will
exercise all rights and powers of Investor with respect to Venture. The
representations and warranties set forth above are true as of the date Investor
first acquires an interest in Venture and will continue to be true so long as
any Plan owns any portion of Investor.
2. Representations and Warranties of the Developer.
------------------------------------------------
(a) The Developer is a corporation duly organized and validly
existing under the laws of the State of Delaware, with full power and authority
and legal right to be a Venturer of the Venture and to carry on its business in
the manner and in the locations in which such business has been and is now being
conducted by it, to execute and deliver this Agreement and to perform its
obligations hereunder.
(b) No consent of any third party is required as a condition to
the entering into of this Agreement by the Developer other than such consent as
has been previously obtained.
(c) The execution and delivery of this Agreement has been duly
authorized and executed by the Developer and this Agreement constitutes the
valid and binding obligation and agreement of the Developer, enforceable in
accordance with its terms (subject to the effect of bankruptcy, insolvency or
creditor's rights generally, and to limitations imposed by general principals of
equity).
(d) Neither the execution and delivery of this Agreement, nor
compliance with the terms and provisions hereof, will result in any breach of
the terms, conditions or provisions of, or conflict with or constitute a default
under, or result in the creation of any lien, charge or encumbrance upon any
property or assets of the Developer pursuant to the terms of any indenture,
mortgage, deed of trust, note, evidence of indebtedness, agreement or other
instrument to which the Developer may be party or by which it or they or any of
its properties or assets may be bound, or violate any provision of law, or any
applicable order, writ, injunction, judgment or decree of any court, or any
order or other public regulation of any governmental commission, bureau or
administrative agency.
(e) Except as in each instance previously disclosed to the
Investor in writing, there are no judgments presently outstanding and
unsatisfied against the Developer or any of its assets and neither the Developer
nor any of its assets is involved in any litigation at law or in equity, or in
any proceeding before any court, or by or before any governmental or
administrative agency, which judgment, litigation or proceeding
57
could reasonably be anticipated to have a material adverse effect on the
Developer, the Venture or the Properties and no such material judgment,
litigation or proceeding is, to the best of the Developer's knowledge,
threatened against the Developer or any of its facilities, and to the best of
the Developer's knowledge, no investigation looking toward such a proceeding has
begun or is contemplated.
(f) No order, permission, consent, approval, license,
authorization, registration or validation of, or filing with, or exemption by,
any governmental agency, commission, board or public authority is required to
authorize, or is required in connection with the execution, delivery and
performance by the Developer of this Agreement or the taking of any action
thereby contemplated, which has not been obtained, other than any such order,
permission, consent, approval, license, authorization, registration or
validation of, or filing with, or exemption by, any governmental agency,
commission, board or public authority required in connection with the ownership
or the development of the Properties or with the other operations of the
Venture.
(g) To the best of the Developer's knowledge, all information,
documents and materials provided by the Developer or any Related Party to the
Investor, or the Investor's employees, agents or consultants, in connection with
the formation of the Venture are complete and accurate in all material respects.
(h) Neither Developer nor any Captec Affiliate has employed or
dealt with any broker or finder in connection with the admission of the Investor
to the Venture other than Prudential Securities, Inc. to whom the Venture will
be obligated to pay an estimated brokerage commission of $960,000 which is
payable pro rata with the Investor's contribution of capital to the Venture at a
rate of four percent (4%) of the Investor's contributions of capital.
(i) To the knowledge of the Developer, there is no material
information regarding Developer, Captec, any Captec Affiliates, the Venture or
the Properties that has not been disclosed to the Investor which is material to
the purchase of one or more of the Properties or to the construction, operation
or leasing of one or more of the Properties or otherwise material to the
proposed operations of the Venture.
(j) All Venture funds, whether from capital contributions or any
other source, have been used in one or more of the following ways and only in
such ways: (i) to pay Qualified Costs (as certified to Investor in the
respective Due Diligence Certifications), and (ii) to fund the balance of the
Venture's bank accounts as of the date of formation of the Venture, and (iii) to
fund escrows for use in paying the purchase price and closing adjustments for
the acquisition of the Properties. No such funds have been distributed or paid
to the Developer or to any person affiliated with the Developer.
(k) Neither Developer nor Captec is a foreign corporation,
foreign partnership, foreign limited liability company, foreign trust or
foreign estate (as those terms are used in Sections 1445 and 1446 of the
Internal Revenue Code and Income Tax Regulations). The Developer's United
States Employer Identification Number is
58
and the Developer's office address is 24 ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
Drive, Lobby L, 4th Floor, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The Developer understands
that the Investor intends to rely on the foregoing representations in connection
with applying the United States Foreign Investment in Real Property Tax Act and
any other withholding provisions of the Internal Revenue Code, and the Developer
understands that this certification may be disclosed to the Internal Revenue
Service by the Investor.
(l) As of the date of this Agreement, the date of each
transaction contemplated under this Agreement and during the one (1) year period
immediately preceding any such date, none of the Developer nor any "affiliate"
of Developer, as such term is defined in Part V(c) of Prohibited Transaction
Class Exemption 84-14, has the authority to (i) appoint or terminate Fidelity
Management Trust Company as investment manager with respect to the assets of any
of the ERISA pension trusts listed in Exhibit 2.3(l) or (ii) negotiate the terms
of the investment management agreement with Fidelity Management Trust Company on
behalf of any such trust.
59
SCHEDULE 4.2
Financial Statements
The following documentation will be furnished to the Investor within
twenty (20) days after the end of the calendar quarter in a format acceptable to
Investor:
Property Reporting Provided by Administrative Agent as Indicated in Section 4.3
-------------------------------------------------------------------------------
of the Property Management Agreement.
-------------------------------------
1. Transmittal letter which highlights key operational, leasing and financial
matters including comments on the financial and physical condition of the
property. Included in the letter should be a brief discussion of any income or
expense line item with a negative variance for the quarter of greater than 5%.
2. Balance sheet prepared on an accrual basis reflecting the
operating results of the Property.
3. Income and expense statements prepared on an accrual basis
reflecting the operating results of the Property. Statement should contain
actual and budget current quarter and cumulative year-to-date figures along with
a variance column.
4. Current rent roll for the Property. Rent roll should include
tenant name, Property location, security deposits, prepaid rent, lease
expiration and other information specified by any Venturer.
5. A status report on any capital improvements, tenant
improvements and lease commissions paid or to be paid by the Venture including
an analysis of expenditures to date, costs to complete and expected completion
date.
6. A calculation of the Management Fee.
7. A cash flow statement reconciling from net income to net cash
flow on a quarterly and year-to-date basis and a statement showing the
calculation of the monthly transfer of funds to the Owner pursuant to Section
4.6 of the Management Agreement.
8. If the Property has commercial or retail tenants, include a
calculation of lease commissions paid by the Venture during the quarter.
9. If the Property includes retail users paying any percentage
rent, include a report of tenant sales and percentage rent with a comparison
against last year.
10. Construction Budget Variance Report.
60
Ownership Entity Reporting Provided by Administrative Agent
-----------------------------------------------------------
1. Balance sheet prepared on an accrual basis reflecting the
operating results of the Venture.
2. Income and expense statements prepared on an accrual basis
reflecting the operating results of the Venture.
3. A statement showing the calculation of the Distributions
pursuant to Article 6 of the Venture Agreement.