Founders' Subscription Agreement
This Founders' Subscription Agreement (this "Subscription Agreement") is
made as of February 3, 1998 among Xxxxxxx X. XxXxxxx and Xxxxxx X. Xxxxxx
(individually, a "Founder" and collectively, the "Founders"), Baron Capital
Trust, a Delaware business trust (the "Trust"), and Baron Capital Properties,
L.P., a Delaware limited partnership (the "Partnership").
Recitals:
A. Prior to the effective date of this Subscription Agreement, the Founders
organized the Trust and the Partnership (the "Organization") to own and manage
multi-family residential properties in an UPREIT (umbrella partnership real
estate investment trust) business and tax structure.
B. The Founders intend to pursue Federal and State registration of an
initial public offering (the "Cash Offering") by which the Trust will offer
2,500,000 common shares of beneficial interest (the "Common Shares") to the
public at $10.00 per share in order to raise up to $25,000,000 in new capital,
and simultaneously pursue a second similarly registered offering (the "Exchange
Offering") by which the Partnership will offer to exchange up to 2,500,000 units
of limited partnership interest (the "Units") with an initial assigned value of
$10.00 per unit for limited partnership interests held by investors in limited
partnerships owning real property or real property interests of a type
attractive to the Trust. Outstanding Units will be freely exchangeable by their
holders into Common Shares on a one-for-one basis.
C. The Partnership will own and manage all of the real estate assets
acquired by the Organization. The Trust will invest the net proceeds of the Cash
Offering in the Partnership in exchange for a number of Units equal to the
number of Common Shares sold in the Cash Offering, and will be the initial
general partner of the Partnership. Day-to-day operations of the Trust will be
managed by Baron Advisors, Inc. (the "Managing Shareholder"), which is wholly
owned by Xx. XxXxxxx.
D. The Founders own Strategic Management, Inc. ("SMI"), a real estate
management company which has entered into contracts to manage selected real
estate properties; which has a highly experienced management staff; and which
has been presented the opportunity to manage substantially all of the
multi-family residential property controlled or available for control by the
Founders, totaling more than 4,000 potential units. The national model for
multi-family residential property management contracts provides for an annual
management fee in an amount equal to 5% of gross revenues from the property and
a fixed annual fee of approximately $500 per residential unit for bookkeeping or
other financial services. Property management companies are typically valued at
four times annualized gross revenues.
Xx. XxXxxxx is the sole shareholder of approximately 48 corporate general
partners of limited partnerships that directly or beneficially own equity or
debt interests in real property ("Affiliate Partnerships"). In substantially all
cases, the corporate general partner owns 1% of
the total partnership interest in a particular Affiliate Partnership. In
addition, under the respective agreements of limited partnership, each of the
corporate general partners of the Affiliate Partnerships is generally entitled
to receive: (i) an annual administrative fee; (2) disposition and other fees
resulting from a capital transaction; and (3) upon the limited partners
receiving an aggregate return in an amount equal to their original investment
and a preferred return, up to 100% of the distributable cash from ongoing
operations and capital events (the "Residual Economic Benefits").
NOW THEREFORE, in consideration of the mutual promises, conditions and
covenants as hereinafter set forth, the parties hereto agreee as follows:
1. The Founders hereby each subscribe for 601,080 Units of the Partnership.
Under the Declaration of Trust of the Trust and the Agreement of Limited
Partnership of the Partnership, all or a portion of such Units are exchangeable
by a Founder into an equivalent number of Common Shares at any time and from
time to time. For purposes of this Subscription Agreement, such Units, together
with Common Shares into which any such Units may have been exchanged as of any
given time, are referred to herein as "Founders' Units." If the Cash Offering
and Exchange Offering are pursued and fully subscribed, the Founders' Units
would represent 19% in the aggregate (or 9.5% for each of the Founders) of the
total Common Shares outstanding after completion of the Cash Offering and
exchange by the Partnership of 2,500,000 of its Units for units of limited
partnership interest in real estate limited partnerships (including any exchange
completed pursuant to the Exchange Offering), calculated on a fully diluted
basis assuming all then outstanding Units (other than those to be acquired by
the Trust) have been exchanged into an equivalent number of Common Shares. If,
however, as of May 14, 1999 (the "Share Determination Date"), the Organization
has completed the Cash Offering and/or the Exchange Offering, and the number of
Founders' Units subscribed for hereunder represent a percentage greater than 19%
of the then outstanding Common Shares in the aggregate, calculated on a fully
diluted basis assuming all then outstanding Units (other than those to be
acquired by the Trust) have been exchanged into an equivalent number of Common
Shares, each Founder agrees to return to the Partnership one-half of any such
excess Founders' Units and the same shall be canceled and deemed null and void.
The procedure for cancellation and the method for determining if excess
Founders' Units have been issued is set forth in the Security Escrow Agreement
referenced below.
2. Certificates evidencing the Founders' Units shall contain appropriate
legends indicating that the Founders' Units: (i) are subject to the terms of a
Security Escrow Agreement; (ii) are not registered when issued; (iii) are not
permitted to be registered for at least 12 months following release from the
escrow established thereunder; and (iv) are subject in part to cancellation
under the terms and conditions of the Security Escrow Agreement.
3. The Founder Units shall be issued after execution of a Security Escrow
Agreement among the Founders, the Trust, the Partnership and an institutional
escrow agent, and certificates representing the Founders' Units shall be
delivered directly to the Escrow
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Agent thereunder. All of the terms and conditions of the Security Escrow
Agreement are incorporated in and made a part of this Subscription Agreement. A
copy of the Security Escrow Agreement is attached hereto as Exhibit 1.
4. Each of the Founders agrees to contribute up to $50,000 to the capital
of the Partnership prior to the completion of the Cash Offering.
5. The Founders agree to cause SMI to terminate without any fee or expense
payable or reimbursable in SMI's favor, any property management contract
concerning a property in which the Partnership acquires an interest and which
the Partnership has the desire and capability to manage. The Founders agree to
cause SMI to permit the Partnership to hire any employee of SMI which the
Partnership desires. The Founders agree to cause SMI to deliver to the
Partnership financial books and records of account in SMI's possession
pertaining to any property to which the Partnership provides management
services, and to cause SMI to provide the Partnership at no expense with any
training or know-how concerning technology or management software which may be
useful to the Partnership. The Founders agree that SMI will not compete for nor
interfere with any business prospects of the Partnership. The Founders further
agree not to sell SMI as an ongoing business, nor sell any proprietary
information, contracts or contract rights that may be used in any competitive
respect against the Partnership.
6. The Founders agree to afford the Partnership the first opportunity to
purchase and manage any multi-family residential property which the Founders
individually or collectively own or control. In circumstances where a property
controlled by a Founder is self-managed, the Founders agree to use their best
efforts to cause such property to use the resources of the Partnership to
accomplish self-management and reimburse the Partnership for the use of such
resources, on a fair and equitable basis; provided, however, that the
Partnership in each such case shall be required to agree that the cost for use
of the Partnership resources shall not on an annual basis exceed 5% of the gross
revenues generated by the property plus an amount equal to $500 times the number
of units located at the property.
7. Subject to paragraph 8 below, the Founders agree that in each instance
where the Partnership acquires at least a majority limited partnership interest
in a real estate partnership in which the corporate general partner is owned by
a Founder, that such Founder will do one or more of the following as directed by
the Board of the Trust: (i) deliver an irrevocable voting proxy for all of his
shares in such corporation to the Board of the Trust; (ii) elect the Board of
the Trust as the board of directors of the corporation; or (iii) in respect of
any material decision to be made by the corporate general partner seek direction
from the Board of the Trust and act upon its directive, or take such other
action as may be deemed desirable by the Board of the Trust in its sole
discretion.
8. Where permitted under applicable agreements, in lieu of paragraph 7
hereof, the Founders agree to transfer to the Partnership, for the purchase
price of $100) the general partnership interest or the stock of the corporate
general partner in each case where the
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Partnership has acquired at least a 90% limited partnership interest in a real
estate limited partnership, and the corporate general partner is owned by a
Founder. The form of the transfer shall be at the election of the Partnership.
Any such transfer shall be made immediately upon request of the Partnership.
9. In each case where the Partnership has acquired at least a majority
limited partnership interest in a real estate limited partnership, and the
corporate general partner of such partnership is owned by a Founder, the Founder
shall cause the corporate general partner to waive the right to receive annual
administrative fees, disposition fees or any other type of fees to which the
corporate general partner is entitled under the terms of the applicable
partnership agreement; provided, however, that the Partnership may in lieu of
such waiver request and receive an assignment of any such rights. In addition,
the Founder shall cause such corporate general partner to assign for the benefit
of the Partnership all Residual Economic Benefits to which such corporate
general partner is entitled under the applicable partnership agreement.
10. This Agreement is binding upon the parties and their respective
successors and assigns.
11. This Agreement is effective as of the day first above written, and
memorializes undertakings made at or before such date. Delaware law shall govern
this Agreement. Venue for enforcement or interpretation of the terms hereof
shall lie exclusively in the State or Federal Courts located in Palm Beach
County, Florida.
12. Each Founder acknowledges that he has acquired the Founders' Units for
investment purposes only.
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IN WITNESS WHEREOF, the undersigned have signed this Subscription Agreement
on their own behalf or on behalf of the undersigned entity, as the case may be,
as of the date first above written.
FOUNDERS:
/s/ Xxxxxxx X. XxXxxxx
---------------------------------
Xxxxxxx X. XxXxxxx
/s/ Xxxxxx X. Xxxxxx
---------------------------------
Xxxxxx X. Xxxxxx
TRUST:
BARON CAPITAL TRUST
By /s/ Xxxxxxx X. XxXxxxx
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Xxxxxxx X. XxXxxxx
Chief Executive Officer
PARTNERSHIP:
BARON CAPITAL PROPERTIES, L.P.
By /s/ Xxxxxxx X. XxXxxxx
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Xxxxxxx X. XxXxxxx
Chief Executive Officer
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