<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1996
REGISTRATION NO. 333-8163
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
ARDEN REALTY GROUP, INC.
(Exact Name of Registrant as Specified in its Governing Instruments)
------------------------
9100 Wilshire Boulevard
East Tower, Suite 700
Beverly Hills, California 90212
(310) 271-8600
(Address of principal executive offices)
------------------------
Richard S. Ziman
9100 Wilshire Boulevard
East Tower, Suite 700
Beverly Hills, California 90212
(310) 271-8600
(Name and Address of Agent for Service)
------------------------
COPIES TO:
William J. Cernius J. Warren Gorrell, Jr.
Latham & Watkins Joseph G. Connolly, Jr.
650 Town Center Drive Hogan & Hartson L.L.P.
Suite 2000 Columbia Square
Costa Mesa, California 92626 555 Thirteenth Street, N.W.
(714) 540-1235 Washington, D.C. 20004-1109
(202) 637-5600
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________________.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value per share....... 21,674,500 $20.00 $433,490,000 $149,479(3)
</TABLE>
(1) Includes 2,827,000 shares which the Underwriters have the option to purchase
solely to cover overallotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Of this amount, $148,504 was previously paid and $976 is being paid
herewith.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS Subject to Completion, dated September 16, 1996
18,847,500 SHARES
G ARDEN REALTY GROUP, INC.
COMMON STOCK
----------------
Arden Realty Group, Inc. (the "Company") is a Maryland corporation which was
formed on May 1, 1996 to continue and expand the real estate business of Arden
Realty Group, Inc., a California corporation, formed on March 22, 1991, and
certain affiliated entities which are engaged in owning, acquiring, managing,
leasing and renovating office properties in Southern California. Upon completion
of the offering (the "Offering"), the Company will own 24 office properties
containing approximately 4.0 million rentable square feet, all of which are
located in Southern California. The Company will be a fully integrated,
self-administered and self-managed real estate company and expects to qualify as
a real estate investment trust ("REIT") for federal income tax purposes.
All of the shares of the Company's common stock (the "Common Stock") offered
hereby are being sold by the Company and will represent approximately 86.69% of
all outstanding shares of the Company's Common Stock (or interests exchangeable
for Common Stock). The remaining approximately 13.31% of the equity will be held
by officers and directors of the Company and certain other parties,
substantially all of which is in the form of limited partnership interests ("OP
Units") of Arden Realty Group Limited Partnership, a Maryland limited
partnership (the "Operating Partnership"). To assist the Company in complying
with certain qualification requirements applicable to REITs, the Company's
charter provides that no stockholder or group of affiliated stockholders may
actually or constructively own more than 9.0% of the outstanding Common Stock,
subject to certain specified exceptions. See "Capital Stock -- Restrictions on
Transfer."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be between
$19.00 and $21.00 per share. See "Underwriting" for information relating to the
factors to be considered in determining the initial public offering price. The
Common Stock has been approved for listing on the New York Stock Exchange,
subject to official notice of issuance, under the symbol "ARI."
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING:
- The possibility that the consideration paid by the Company for the
Properties and other assets contributed to the Company in its formation may
exceed their fair market value; no third-party appraisals were obtained by
the Company regarding these Properties and other assets;
- The possibility that the Company may not be able to refinance outstanding
debt (initially expected to be approximately $104 million) upon maturity,
that indebtedness might be refinanced on less favorable terms, and that
interest rates might increase on variable rate indebtedness (including
amounts drawn under the Company's proposed $100 million credit facility);
and the lack of limitations in the Company's organizational documents on the
amount of indebtedness which the Company may incur;
- Real estate investment and property management risks such as the need to
renew leases or relet space upon lease expirations, the instability of cash
flows and changes in the value of office properties owned by the Company due
to economic and other conditions;
- Concentration of the Properties in Southern California which increases the
risk of the Company being adversely affected by a downturn in the Southern
California economy or office markets;
- Conflicts of interest in connection with the transactions relating to the
formation of the Company and material benefits to officers and directors of
the Company, including receipt of an aggregate of approximately 2,740,718 OP
Units and stock options to purchase an aggregate of 868,500 shares of the
Common Stock, special allocations of interest deductions of approximately
$12.6 million and repayment of approximately $398 million of indebtedness;
- The lack of operating history of the Properties under the management of the
Company; the majority of the Properties have been owned by the Company for
less than one year;
- The possibility that the Board of Directors of the Company may in the future
amend or revise the investment, financing, borrowing, distribution and
conflicts of interest policies of the Company, without a vote of the
Company's stockholders;
- Taxation of the Company as a regular corporation if it fails to qualify as a
REIT, taxation of the Operating Partnership as a corporation if it fails to
qualify as a partnership and the resulting decrease in cash available for
distribution; and
- Risks that certain types of losses, such as from earthquakes, could exceed
the Company's insurance coverage which currently includes earthquake
coverage for all of the Properties.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public and Commissions (1) Company (2)
<S> <C> <C> <C>
Per Share................................... $ $ $
Total (3)................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $6,224,750 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
2,827,000 additional shares of Common Stock on the same terms and conditions
as set forth above solely to cover overallotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the shares
will be made at the offices of Lehman Brothers Inc., New York, New York on or
about , 1996.
---------------------------
LEHMAN BROTHERS
ALEX.BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
SMITH BARNEY INC.
EVEREN SECURITIES, INC. LEGG MASON WOOD WALKER RAYMOND JAMES & ASSOCIATES, INC.
INCORPORATED
, 1996
<PAGE>
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
[Graphics--To Come]
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PROSPECTUS SUMMARY........................................................ 1
The Company............................................................. 1
Risk Factors............................................................ 2
Business and Growth Strategies.......................................... 4
The Properties.......................................................... 5
Structure and Formation of the Company.................................. 7
Financing Policies...................................................... 11
Mortgage Financing, CMBS Offering and Credit Facility................... 11
The Offering............................................................ 12
Distributions........................................................... 12
Tax Status of the Company............................................... 12
Summary Selected Combined Financial Data................................ 13
RISK FACTORS.............................................................. 16
Price to be Paid for Properties and Other Assets May Exceed Their Fair
Market Value........................................................... 16
Formation Transactions Not Arm's Length................................. 16
Real Estate Financing Risks............................................. 16
No Limitation on Debt................................................... 17
Real Estate Investment Risks............................................ 17
Concentration of Properties in Southern California...................... 19
Conflicts of Interests in the Formation Transactions and the Business of
the Company............................................................ 19
Risk Associated with the Recent Acquisition of Many of the New
Properties; Lack of Operating History.................................. 20
Changes in Policies Without Stockholder Approval........................ 21
Risk of Acquisition, Renovation and Development Activities.............. 21
Adverse Consequences of Failure to Qualify as a REIT; Other Tax
Liabilities............................................................ 22
Failure of the Operating Partnership to Qualify as a Partnership for
Federal Income Tax Purposes............................................ 22
Insurance............................................................... 22
Dependence on Key Personnel............................................. 23
Limits on Changes in Control............................................ 23
Historical Losses....................................................... 24
Possible Environmental Liabilities...................................... 24
Effect on Common Stock Price of Shares Available for Future Sale........ 25
Effect on Holders of Common Stock of an Issuance of Preferred Stock..... 25
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Immediate and Substantial Dilution...................................... 26
Absence of Prior Public Market for Common Stock......................... 26
Influence of Executive Officers, Directors and Principal Stockholders... 26
Risks of Fee Management Business........................................ 26
Effect of Market Interest Rates on Price of Common Stock................ 26
THE COMPANY............................................................... 27
BUSINESS AND GROWTH STRATEGIES............................................ 29
Business Strategies..................................................... 29
Growth Strategies....................................................... 30
USE OF PROCEEDS........................................................... 33
Mortgage Debt to be Repaid.............................................. 34
DISTRIBUTIONS............................................................. 34
CAPITALIZATION............................................................ 39
DILUTION.................................................................. 40
SELECTED COMBINED FINANCIAL DATA.......................................... 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 44
Overview................................................................ 44
Results of Operations................................................... 44
Pro Forma Operating Results............................................. 49
Liquidity and Capital Resources......................................... 50
Cash Flows.............................................................. 52
Inflation............................................................... 52
SOUTHERN CALIFORNIA ECONOMY AND OFFICE MARKETS............................ 53
Southern California Economy............................................. 53
Southern California Office Markets...................................... 55
BUSINESS AND PROPERTIES................................................... 58
General................................................................. 58
Properties.............................................................. 58
Tenants................................................................. 60
Tenant Diversification.................................................. 60
Lease Distributions..................................................... 60
Lease Expirations - Portfolio Total..................................... 61
Lease Expirations - Property by Property................................ 62
Tenant Retention and Expansions......................................... 67
Historical Lease Renewals............................................... 67
</TABLE>
i
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<TABLE>
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PAGE
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Historical Tenant Improvements and Leasing Commissions.................. 68
Historical Capital Expenditures......................................... 69
Historical Occupancy.................................................... 69
OFFICE SUBMARKETS AND PROPERTY INFORMATION................................ 69
Los Angeles County Office Market and Properties......................... 71
Los Angeles West Office Market Sector................................... 72
Los Angeles North Office Market Sector.................................. 76
Los Angeles South Office Market Sector.................................. 80
Orange County Office Market and Properties.............................. 83
San Diego County Office Market and Property............................. 85
C&W Market Study........................................................ 87
Competition............................................................. 88
Insurance............................................................... 88
Environmental Regulations............................................... 88
Legal Proceedings....................................................... 89
Employees............................................................... 89
MANAGEMENT................................................................ 90
Directors and Executive Officers........................................ 90
Committees of the Board of Directors.................................... 92
Compensation of Directors............................................... 93
Executive Compensation.................................................. 93
Employment Agreements................................................... 94
Stock Incentive Plan.................................................... 94
401(k) Plan............................................................. 95
Limitation of Liability and Indemnification............................. 95
STRUCTURE AND FORMATION OF THE COMPANY.................................... 96
The Operating Entities of the Company................................... 96
The Formation Transactions.............................................. 97
Consequences of the Offering and the Formation Transactions............. 98
Determination and Valuation of Ownership Interests...................... 98
Benefits of the Formation Transactions and the Offering to Affiliates of
the Company............................................................ 99
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES............................... 100
Investment Policies..................................................... 100
Dispositions............................................................ 101
Financing Policies...................................................... 101
Conflict of Interest Policies........................................... 102
Policies with Respect to Other Activities............................... 102
<CAPTION>
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CERTAIN TRANSACTIONS...................................................... 103
Formation Transactions.................................................. 103
Partnership Agreement; Redemption/ Exchange Rights...................... 103
Registration Rights..................................................... 103
Certain Transactions Involving Director Nominee......................... 103
PARTNERSHIP AGREEMENT..................................................... 104
Management.............................................................. 104
Transferability of Interests............................................ 104
Capital Contributions................................................... 105
Redemption/Exchange Rights.............................................. 105
Issuance of Additional OP Units, Common Stock or Convertible
Securities............................................................. 105
Tax Matters............................................................. 106
Operations.............................................................. 106
Duties and Conflicts.................................................... 106
Certain Voting Rights of Limited Partners............................... 106
Term.................................................................... 106
Indemnification......................................................... 106
PRINCIPAL STOCKHOLDERS.................................................... 107
CAPITAL STOCK............................................................. 108
General................................................................. 108
Common Stock............................................................ 108
Preferred Stock......................................................... 108
Power to Issue Additional Shares of Common Stock and Preferred Stock.... 109
Transfer Agent and Registrar............................................ 109
Restrictions on Transfer................................................ 109
CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S CHARTER AND BYLAWS... 111
Board of Directors - Number, Classification, Vacancies.................. 111
Removal of Directors.................................................... 112
Business Combinations................................................... 112
Control Share Acquisitions.............................................. 112
Amendment to the Charter................................................ 113
Dissolution of the Company.............................................. 113
Advance Notice of Director Nominations and New Business................. 113
Anti-takeover Effect of Certain Provisions of Maryland Law and of the
Charter and Bylaws..................................................... 113
Rights to Purchase Securities and Other Property........................ 113
</TABLE>
ii
<PAGE>
<TABLE>
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PAGE
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<S> <C>
SHARES AVAILABLE FOR FUTURE SALE.......................................... 114
General................................................................. 114
Registration Rights..................................................... 115
FEDERAL INCOME TAX CONSEQUENCES........................................... 115
Taxation of the Company................................................. 115
Failure to Qualify...................................................... 120
Taxation of Taxable U.S. Stockholders Generally......................... 120
Backup Withholding...................................................... 121
Taxation of Tax-Exempt Stockholders..................................... 121
Taxation of Non-U.S. Stockholders....................................... 122
Tax Aspects of the Operating Partnership................................ 124
Other Tax Consequences.................................................. 126
<CAPTION>
PAGE
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<S> <C>
ERISA CONSIDERATIONS...................................................... 126
Employment Benefit Plans, Tax-Qualified Pension, Profit Sharing or Stock
Bonus Plans and IRAs................................................... 127
Status of the Company and the Operating Partnership under ERISA......... 127
UNDERWRITING.............................................................. 129
EXPERTS................................................................... 130
LEGAL MATTERS............................................................. 131
ADDITIONAL INFORMATION.................................................... 131
GLOSSARY.................................................................. 132
</TABLE>
CAUTIONARY STATEMENT
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" RELATING TO, WITHOUT LIMITATION, FUTURE ECONOMIC PERFORMANCE, PLANS
AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS AND PROJECTIONS OF REVENUE
AND OTHER FINANCIAL ITEMS, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE"
OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE
TERMINOLOGY. THE CAUTIONARY STATEMENTS SET FORTH UNDER THE CAPTION "RISK
FACTORS" AND ELSEWHERE IN THE PROSPECTUS IDENTIFY IMPORTANT FACTORS WITH RESPECT
TO SUCH FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES,
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH
FORWARD-LOOKING STATEMENTS.
iii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS INDICATED OTHERWISE, THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES
THAT (I) THE INITIAL PUBLIC OFFERING PRICE IS $20.00 PER SHARE (THE MIDPOINT OF
THE PRICE RANGE SET FORTH ON THE COVER PAGE OF THIS PROSPECTUS), (II) THE
UNDERWRITERS' OVERALLOTMENT OPTION IS NOT EXERCISED, (III) THE TRANSACTIONS
DESCRIBED UNDER "STRUCTURE AND FORMATION OF THE COMPANY" ARE CONSUMMATED AND
(IV) NONE OF THE OP UNITS REDEEMABLE FOR CASH OR, AT THE ELECTION OF THE
COMPANY, EXCHANGEABLE FOR COMMON STOCK HAVE BEEN SO REDEEMED OR EXCHANGED.
ALTHOUGH THE COMPANY AND THE OPERATING PARTNERSHIP ARE SEPARATE ENTITIES, FOR
EASE OF REFERENCE AND UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES IN
THIS PROSPECTUS TO THE "COMPANY" REFER TO THE COMPANY AND THE OPERATING
PARTNERSHIP, COLLECTIVELY. ALL REFERENCES IN THIS PROSPECTUS TO THE HISTORICAL
ACTIVITIES OF THE COMPANY REFER TO THE ACTIVITIES OF THE ARDEN PREDECESSORS. SEE
"GLOSSARY" FOR THE DEFINITIONS OF CERTAIN TERMS USED IN THIS PROSPECTUS.
THE COMPANY
The Company has been formed to continue and expand the real estate business
of Arden Realty Group, Inc., a California corporation ("Arden"), and certain
affiliated entities (collectively, the "Arden Predecessors") which are engaged
in owning, acquiring, managing, leasing and renovating office properties in
Southern California. The Company's founders, Richard S. Ziman and Victor J.
Coleman, along with the other five senior officers at the Company, have an
average of more than 18 years of experience in the real estate industry. Upon
completion of the Offering, the Company will own 24 office properties (the
"Properties") containing approximately 4.0 million rentable square feet. All of
the Properties are located in Southern California, with 21 in suburban Los
Angeles County, two in Orange County and one in San Diego County. As of August
1, 1996, the Properties had a weighted average occupancy rate of approximately
89%. Arden currently manages 22 of the Properties. Upon completion of the
Offering, the Company will manage all of the Properties and four additional
properties containing approximately 325,000 rentable square feet which are
currently managed by Arden for institutional investors and other third-party
owners. The Company will be a fully integrated, self-administered and
self-managed real estate company and expects to qualify as a REIT for federal
income tax purposes.
The Company believes that all of the Properties are located in strong
submarkets which generally have significant rent growth potential due to
employment growth, declining vacancy rates, limited new construction activity
and existing rental rates at levels significantly below those required to make
new construction economically feasible. The Company's portfolio is comprised
primarily of Class A suburban office properties. The Company generally considers
Class A suburban office properties to be those which have desirable locations
and high quality finishes, are well maintained and professionally managed and
are capable of achieving rental and occupancy rates which are typically above
those prevailing in their respective markets. Of the Company's 24 Properties, 20
Properties have been built since 1980 and 14 Properties, including all four
built prior to 1980, have been substantially renovated within the last three
years.
The Company believes that certain economic fundamentals in Southern
California provide an attractive environment for owning, acquiring and operating
Class A suburban office properties. According to AMERICA'S OFFICE ECONOMY
prepared by Cognetics, Inc., Metropolitan Los Angeles (which includes Los
Angeles and Orange Counties), in which 23 of the Company's 24 Properties are
located, is projected to be the number one market in the United States for
primary office employment growth during the period from 1995 to 2005. In
addition, the Economic Development Corporation of Los Angeles County (the "Los
Angeles EDC") has forecast that economic activity will increase twice as fast in
Los Angeles County than in the nation as a whole during 1996 and 1997, with
inflation-adjusted gross product growing at a rate of 5.2% and 5.0% in Los
Angeles County as compared to 2.5% and 2.4% for 1996 and 1997 for the nation as
a whole. Finally, since 1992, there has been very limited construction of new
office properties in the Southern California region. The Company believes that
this limited construction of office properties coupled with a growing economy
will continue to result in increased demand for office space and positive net
absorption in the Southern California region, and particularly in the selected
submarkets where most of the Properties are located. See "Southern California
Economy and Office Markets."
1
<PAGE>
Richard S. Ziman, the Chairman and Chief Executive Officer of the Company,
has been involved in the real estate business for over 25 years. In 1979, Mr.
Ziman co-founded, as managing general partner, Pacific Financial Group ("PFG"),
whose primary focus was to acquire underperforming office buildings in good
locations and then actively manage, lease and renovate the properties to
increase cash flow and enhance their value. During the early and mid 1980's, PFG
acquired over 4.0 million square feet of commercial office space almost
exclusively in Los Angeles County and Orange County. In order to capitalize on
the escalation of prices for Southern California office properties in the late
1980's, PFG sold substantially all of its interests in its office properties
portfolio at a gain prior to the general downturn in the real estate market in
Southern California.
In 1993, in anticipation of a recovery in the Southern California real
estate market, the Company began to selectively acquire commercial office
properties located in suburban Los Angeles County. In assembling its existing
portfolio and as part of its operating strategy, the Company primarily acquired
office properties that were located in submarkets with growth potential, were
underperforming or needed renovation and which offered opportunities for the
Company to implement its value-added strategy to increase cash flow. This
strategy includes active management and aggressive leasing efforts, a focused
renovation and refurbishment program for underperforming assets, reduction and
containment of operating costs and emphasis on tenant satisfaction (including
efforts to maximize tenant retention at lease expiration and programs to
relocate tenants to other spaces within the Company's portfolio). The Company's
commitment to tenant satisfaction and retention is evidenced by its retention
rate of approximately 82% (based on square feet renewed) from 1993 through
August 1, 1996 and management's on-going relationships with multi-site tenants
such as McDonnell Douglas, Merrill Lynch, Imperial Bank, Smith Barney and GTE
California.
The Company believes that it has been successful in implementing its
value-added strategy as evidenced by increased occupancy rates and rental
revenue at the Properties. As of August 1, 1996, the Properties owned by the
Company for more than one year had a weighted average occupancy rate of
approximately 88%, compared to a weighted average occupancy of approximately 80%
as of the respective dates such Properties were acquired by the Company. In
addition, the Company's occupancy rates at many of its Properties are above
market averages in the applicable submarkets based on information included in a
market study prepared by Cushman & Wakefield of California, Inc. ("C&W") for the
Company (the "C&W Market Study"). As of August 1, 1996, the weighted average
occupancy rate of the 21 Properties located in Los Angeles County was
approximately 90%, compared to weighted average occupancy rates, as of December
31, 1995, of approximately 81% for all office properties throughout Los Angeles
County and approximately 84% for all office properties in the Los Angeles County
submarkets in which such Properties are located (based in each case on the C&W
Market Study).
RISK FACTORS
An investment in the Common Stock involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to an investment in the Company. Such risks include, among others:
- the possibility that the consideration to be paid by the Company for the
Properties and the other assets contributed to the Company in its
formation may exceed their fair market value; no third-party appraisals
were obtained by the Company regarding these Properties and other assets;
- the possibility that the Company may not be able to refinance outstanding
indebtedness upon maturity (including the $104 million interim Mortgage
Financing (as defined below) and the proposed $100 million Credit Facility
(as defined below) which will mature in one year and two years,
respectively), that interest rates might increase on variable rate
indebtedness, including any amounts outstanding under the Credit Facility,
and that such indebtedness might be refinanced at higher interest rates or
otherwise on terms less favorable to the Company than existing
indebtedness, which could adversely affect the Company's ability to make
expected distributions to stockholders and its ability to qualify as a
REIT, and the lack of limitations in the Company's organizational
documents on the amount of indebtedness which the Company may incur;
2
<PAGE>
- real estate investment and property management risks such as the need to
renew leases or relet space upon lease expirations and, at times, to pay
renovation and reletting costs in connection therewith, the effect of
economic and other conditions on office property cash flows and values,
the ability of tenants to make lease payments, the ability of a property
to generate revenue sufficient to meet operating expenses, including
future debt service, and the illiquidity of real estate investments, all
of which may adversely affect the Company's ability to make expected
distributions to stockholders;
- concentration of all of the Properties in Southern California, and the
dependence of the Properties on the conditions of the economy and the
office markets of Southern California and, particularly, Los Angeles
County, which increases the risk of the Company being adversely affected
by a downturn in the Southern California or Los Angeles County economy or
office markets;
- conflicts of interests in connection with the Formation Transactions and
the acquisition and refinancing of the Properties, including conflicts
relating to material benefits to officers, directors and affiliates of the
Company which include receipt of an aggregate of approximately 2,740,718
OP Units and stock options to purchase an aggregate of 868,500 shares of
Common Stock, special allocations of interest deductions of approximately
$12.6 million and repayment of approximately $398 million of indebtedness,
a substantial portion of which represents the repayment of mortgage debt
to an affiliate of the lead managing underwriter of the Offering out of
the net proceeds of the Offering;
- conflicts of interest involving management of the Company and certain
members of the Board of Directors in business decisions regarding the
Company, including conflicts associated with any prepayment of debt
secured by the Properties that may arise due to the more adverse tax
consequences of such prepayment to certain members of management and of
the Board of Directors as holders of OP Units;
- the risks that, given the Company's recent acquisition of many of the
Properties and the lack of operating history of such Properties under the
Company's management (3 1/2 years or less for all Properties and less than
one year for a majority of the Properties), newly acquired properties may
have characteristics or deficiencies unknown to the Company affecting the
value or revenue potential thereof, may fail to perform as expected, or
may be difficult to integrate into the Company's existing management
operations;
- the possibility that the Board of Directors of the Company may in the
future amend or revise the investment, financing, borrowing, distribution
and conflicts of interest policies of the Company without a vote of the
Company's stockholders;
- taxation of the Company as a corporation if it fails to qualify as a REIT
for federal income tax purposes, treatment of the Operating Partnership as
an association taxable as a corporation if it fails to qualify as a
partnership for federal income tax purposes (and the resulting failure of
the Company to qualify as a REIT), the Company's liability for certain
federal, state and local income taxes in such event and the resulting
decrease in cash available for distribution;
- risks that certain types of losses, such as from earthquakes, could exceed
the Company's insurance coverage which currently includes earthquake
coverage for all of the Properties;
- dependence on certain key personnel;
- anti-takeover effect of limiting actual or constructive ownership of
Common Stock of the Company by a single person to 9.0% of the outstanding
capital stock, subject to certain specified exceptions, and of certain
other provisions contained in the organizational documents of the Company
and the Operating Partnership, which may discourage a change in control
and limit the opportunity for stockholders to receive a premium over the
then-current market price for their Common Stock;
- existence of net losses of the Arden Predecessors, on a combined basis, of
approximately $2.1 million for the six months ended June 30, 1996 and
approximately $576,000 for the year ended December 31, 1995;
3
<PAGE>
- possible environmental liabilities in connection with the Company's
ownership and/or operation of the Properties;
- effect of shares available for future sale on the price of the Common
Stock;
- immediate and substantial dilution in the net tangible book value per
share of the shares of Common Stock purchased in the Offering; and
- absence of a prior public market for the Common Stock.
BUSINESS AND GROWTH STRATEGIES
The Company's primary business objectives are to maximize growth in cash
flow and to enhance the value of its portfolio in order to maximize total return
to its stockholders. The Company believes it can achieve these objectives by
continuing to implement its business strategies and capitalize on the external
and internal growth opportunities described below. The Company also believes,
based on its evaluation of market conditions, that a number of factors will
enhance its ability to achieve its business objectives, including (i) the
continuing improvement in the Southern California economy; (ii) the limited
construction of new office properties in the Southern California region due to
the substantial cost to develop new office properties compared to current
acquisition prices and substantial building construction limitations in many
submarkets, which provides opportunities to maximize occupancy rates, rental
rates and overall portfolio value; and (iii) the limited availability of
conventional real estate financing for new construction of office properties in
Southern California.
BUSINESS STRATEGIES
The Company's primary business strategies are to (i) acquire and renovate
underperforming office properties or properties which provide attractive yields
with stable cash flow in submarkets where it can utilize its local market
expertise and extensive real estate experience; (ii) actively manage its
portfolio; and (iii) selectively provide real estate management services to
third parties. When market conditions permit, the Company may also develop new
properties in submarkets where it has local market expertise.
Based on its historical activities and its knowledge of the local
marketplace, the Company believes that (i) the Southern California region offers
growth opportunities for companies like the Company that are well-capitalized,
experienced owners of real estate with extensive local market expertise and (ii)
being a public company will enhance its ability to obtain acquisition financing,
to take advantage of opportunities to acquire additional office properties at
attractive prices and to develop office properties, when feasible, at attractive
returns. Through four regional offices, the Company implements its business
strategies by: (i) emphasizing tenant satisfaction and retention and employing
intensive property marketing programs; (ii) utilizing a multidisciplinary
approach to acquisition, management, leasing and renovation activities that is
designed to coordinate decision-making and enhance responsiveness to market
opportunities and tenant needs; and (iii) implementing cost control management
and systems that capitalize on economies of scale arising from the size and
location of the Company's portfolio. The Company believes that the
implementation of these operating practices has led to the increased occupancy
rates and rental revenue of its existing portfolio.
GROWTH STRATEGIES
EXTERNAL GROWTH: Based on its own historical activities and its knowledge
of the local marketplace, the Company believes that opportunities continue to
exist to acquire additional office properties that: (i) provide attractive
initial yields with significant potential for growth in cash flow; (ii) are in
desirable locations within submarkets which the Company believes have economic
growth potential; and (iii) are underperforming or need renovation, and which
therefore provide opportunities for the Company to increase the cash flow and
value of such properties through active management and aggressive leasing.
The Company intends to continue to acquire office properties within
submarkets in Southern California which the Company believes present
opportunities for long-term stable and rising rental rates due to employment
growth, population movements within the region and restrictions on new
development. The
4
<PAGE>
Company generally targets properties which are underperforming or need
renovation and offer opportunities for the Company to implement its value-added
strategy to increase cash flow. For example, as of August 1, 1996, the
Properties owned by the Company for more than one year had a weighted average
occupancy rate of approximately 88%, compared to approximately 80% as of the
respective dates such Properties were acquired by the Company. Upon completion
of the Offering, the Company will have a debt-to-total market capitalization
ratio of approximately 19.3% and expects to finance acquisitions through its
proposed $100 million Credit Facility, although it may employ other financing
alternatives.
In addition, the Company will seek to acquire properties at a significant
discount to replacement cost in the relevant office submarkets. Since the
beginning of 1993, the Company has acquired its Properties in suburban Los
Angeles County at a cost which the Company believes is significantly below
replacement cost based on estimates of replacement costs of Class A office
buildings included in the C&W Market Study. See "Southern California Economy and
Office Markets."
The Company believes it has certain competitive advantages which enhance its
ability to identify and capitalize on acquisition opportunities, including: (i)
management's significant local market expertise, experience and knowledge of
properties, submarkets and potential tenants within the Southern California
region; (ii) management's long-standing relationships with tenants, real estate
brokers and institutional and other owners of commercial real estate; (iii) its
fully integrated real estate operations which allow the Company to respond
quickly to acquisition opportunities and enable it to provide real estate
management services to third parties as a means of identifying such
opportunities; (iv) its access to capital as a public company, including the
Company's proposed $100 million Credit Facility; (v) its ability to acquire
properties in exchange for OP Units or Common Stock if the sellers so desire;
and (vi) management's reputation as an experienced purchaser of office
properties in Southern California which has the ability to effectively close
transactions.
The Company also may seek to take advantage of management's development
expertise to develop office space when market conditions support office building
development. The Company believes, however, that opportunities exist for it to
continue to acquire office properties within selected submarkets in Southern
California at less than replacement cost and, therefore, currently intends to
focus on acquisitions rather than development.
INTERNAL GROWTH: The Company believes that opportunities exist to increase
cash flow from its existing portfolio and that such opportunities will be
enhanced as the Southern California office market continues to improve. The
Company intends to pursue internal growth by (i) continuing to maintain and
improve occupancy rates through active management and aggressive leasing; (ii)
realizing fixed contractual base rental increases or increases tied to indices
such as the Consumer Price Index (the "CPI"); (iii) re-leasing expiring leases
at increasing market rents which are expected to result, over time, from
increased demand for office space in Southern California; (iv) controlling
operating expenses through the implementation of cost control management and
systems; (v) capitalizing on economies of scale arising from the size of its
portfolio; and (vi) increasing revenue generated from parking facilities at
certain Properties where the Company is currently offering free parking as an
amenity or charging below market rates.
THE PROPERTIES
Upon completion of the Offering, the Company will own 24 office properties
containing approximately 4.0 million rentable square feet. The Properties
consist primarily of Class A suburban office properties and individually range
from approximately 49,000 to 540,000 rentable square feet. The Company believes
that the Properties have desirable locations within established business
communities and are well-maintained. Of the Company's 24 Properties, 20
Properties have been built since 1980 and 14 Properties, including all four
built prior to 1980, have been substantially renovated within the last three
years. The average age of the buildings is approximately 12.6 years.
Management believes that the location and quality of construction of the
Properties, as well as the Company's reputation for providing a high level of
tenant service, have enabled the Company to attract and retain a diverse tenant
base. As of August 1, 1996, the Properties were leased to over 540 tenants.
Major
5
<PAGE>
tenants in the Company's portfolio, based on square feet leased, include:
McDonnell Douglas, GTE California, Pepperdine University, Merrill Lynch, Earth
Technology, Grey Advertising, The Hearst Corporation, Smith Barney and Deloitte
& Touche. As of August 1, 1996, no single tenant accounted for more than
approximately 3.3% of the aggregate Annualized Base Rent of the Company's
portfolio and only 16 tenants individually represented more than 1% of such
aggregate Annualized Base Rent.
The following table sets forth certain information about each of the
Properties as of August 1, 1996:
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
APPROXIMATE PORTFOLIO
YEAR BUILT/ RENTABLE RENTABLE PERCENT
SUBMARKET/PROPERTY LOCATION RENOVATED SQUARE FEET SQUARE FEET LEASED
- ------------------------------------------------ -------------------- --------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
LOS ANGELES COUNTY
- ------------------------------------------------
LOS ANGELES WEST
BEVERLY HILLS/CENTURY CITY
9665 Wilshire Beverly Hills 1972/92-3 158,684 3.9% 95.1%
Beverly Atrium Beverly Hills 1989 61,314 1.5 100.0
Century Park Center Los Angeles 1972/94 243,404 6.0 83.2
WESTWOOD/WEST LOS ANGELES
Westwood Terrace Los Angeles 1988 135,943 3.4 82.3
1950 Sawtelle Los Angeles 1988/95 103,772 2.6 77.5
MARINA AREA/CULVER CITY/LAX
400 Corporate Pointe Culver City 1987 164,598 4.1 90.2
Bristol Plaza Culver City 1982 84,014 2.1 78.6
Skyview Center Los Angeles 1981,87/95(3) 391,675 9.7 86.0
PARK MILE/WEST HOLLYWOOD
The New Wilshire Los Angeles 1986 202,704 5.0 83.9
LOS ANGELES NORTH
SIMI/CONEJO VALLEY
5601 Lindero Canyon Westlake 1989 105,830 2.6 100.0
Calabasas Commerce Center Calabasas 1990 123,121 3.1 100.0
WEST SAN FERNANDO VALLEY
Woodland Hills Financial Center Woodland Hills 1972/95 224,955 5.6 89.8
CENTRAL SAN FERNANDO VALLEY
16000 Ventura Blvd. Encino 1980/96 174,841 4.3 84.1
EAST SAN FERNANDO VALLEY/TRI-CITIES
425 West Broadway Glendale 1984 71,589 1.8 95.9
303 Glenoaks (4) Burbank 1983/96 175,449 4.3 97.4
70 South Lake Pasadena 1982/94 100,133 2.5 81.4
LOS ANGELES SOUTH
LONG BEACH
4811 Airport Plaza Drive Long Beach 1987/95 121,610 3.0 100.0
4900/10 Airport Plaza Drive Long Beach 1987/95 150,403 3.7 100.0
5000 East Spring Long Beach 1989/95 163,358 4.0 89.6
100 West Broadway Long Beach 1987/96 191,727 4.7 90.0
CERRITOS/NORWALK
12501 East Imperial Highway (4) Norwalk 1978/94 122,175 3.0 94.7
ORANGE COUNTY
- ------------------------------------------------
WEST COUNTY
5832 Bolsa Avenue Huntington Beach 1985 49,355 1.2 100.0
TRI-FREEWAY AREA
Anaheim City Centre Anaheim 1986/91 175,391 4.3 93.0
SAN DIEGO COUNTY
- ------------------------------------------------
SAN DIEGO MARKET
Imperial Bank Tower San Diego 1982/96 540,413 13.4 82.2
------------ ----- -----
Total/Weighted Average 4,036,458 100.0% 88.9%
Weighted Average Rent Per Leased Square Foot - Full Service Gross Leases
Weighted Average Rent Per Leased Square Foot - Net Leases
Weighted Average Rent Per Leased Square Foot - All Leases
<CAPTION>
ANNUALIZED ANNUALIZED
EFFECTIVE RENT BASE RENT
PER LEASED PER LEASED
SUBMARKET/PROPERTY SQUARE FOOT (1) SQUARE FOOT (2)
- ------------------------------------------------ --------------- ---------------
<S> <C> <C>
LOS ANGELES COUNTY
- ------------------------------------------------
LOS ANGELES WEST
BEVERLY HILLS/CENTURY CITY
9665 Wilshire $ 31.91 $ 31.45
Beverly Atrium 22.65 22.83
Century Park Center 21.72 21.38
WESTWOOD/WEST LOS ANGELES
Westwood Terrace 24.83 25.30
1950 Sawtelle 20.15 20.02
MARINA AREA/CULVER CITY/LAX
400 Corporate Pointe 23.42 19.91
Bristol Plaza 18.24 18.10
Skyview Center 17.53 17.01
PARK MILE/WEST HOLLYWOOD
The New Wilshire 20.63 20.35
LOS ANGELES NORTH
SIMI/CONEJO VALLEY
5601 Lindero Canyon 10.94 11.15
Calabasas Commerce Center 17.16 17.14
WEST SAN FERNANDO VALLEY
Woodland Hills Financial Center 21.89 22.29
CENTRAL SAN FERNANDO VALLEY
16000 Ventura Blvd. 20.48 20.21
EAST SAN FERNANDO VALLEY/TRI-CITIES
425 West Broadway 18.87 19.35
303 Glenoaks (4) 20.79 20.35
70 South Lake 20.02 20.80
LOS ANGELES SOUTH
LONG BEACH
4811 Airport Plaza Drive 9.30 8.64
4900/10 Airport Plaza Drive 8.40 7.80
5000 East Spring 20.50 18.76
100 West Broadway 21.90 20.42
CERRITOS/NORWALK
12501 East Imperial Highway (4) 15.47 16.27
ORANGE COUNTY
- ------------------------------------------------
WEST COUNTY
5832 Bolsa Avenue 13.38 13.35
TRI-FREEWAY AREA
Anaheim City Centre 16.47 15.07
SAN DIEGO COUNTY
- ------------------------------------------------
SAN DIEGO MARKET
Imperial Bank Tower 19.47 18.31
------ ------
Total/Weighted Average
Weighted Average Rent Per Leased Square Foot - F $ 20.63(5) $ 20.03(5)
Weighted Average Rent Per Leased Square Foot - N $ 12.24 $ 11.52
Weighted Average Rent Per Leased Square Foot - A $ 19.28 $ 18.70
</TABLE>
- -----------------
(1) Annualized Effective Rent is calculated for each lease in effect at August
1, 1996. For leases in effect at the time the relevant Property was
acquired, Annualized Effective Rent is calculated by dividing the remaining
lease payments under the lease by the number of months remaining under the
lease and multiplying the result by 12. For leases entered into after the
relevant Property was acquired, Annualized Effective Rent is calculated by
dividing all lease payments under the lease by the number of months in the
lease and multiplying the result by 12. For 303 Glenoaks, 100 West Broadway
and 12501 East Imperial Highway, each of which either has only recently been
acquired or will be acquired at the closing of the Formation Transactions,
Annualized Effective Rent is calculated by dividing the remaining lease
payments by the remaining months in the lease measured from January 1, 1995
and multiplying the result by 12.
(2) Annualized Base Rent is the monthly contractual base rent under existing
leases as of August 1, 1996 multiplied by 12.
(3) Skyview Center consists of two Class A 11- and 12-story office towers
completed in 1981 and 1987, respectively, which were both renovated in 1995.
(4) Acquisition Property to be acquired concurrently with the Offering.
(5) The weighted average rent per leased square foot is calculated based only on
rent which is received from tenants under full service gross leases, which
represent approximately 84% of the total portfolio leased square feet.
Excluded are 5601 Lindero Canyon, 4811 Airport Plaza Drive, 4900/10 Airport
Plaza Drive, 5832 Bolsa Avenue, 55.6% of leased space at 400 Corporate
Pointe leased to Pepperdine University, and 48.3% of leased space at
Calabasas Commerce Center leased to two net tenants.
6
<PAGE>
STRUCTURE AND FORMATION OF THE COMPANY
FORMATION TRANSACTIONS
Concurrently with the consummation of the Offering, the Company and the
Operating Partnership, together with the partners and members of the Arden
Predecessors and other parties which hold ownership interests in certain of the
Properties (collectively, the "Participants"), will engage in certain formation
transactions (the "Formation Transactions"). The Formation Transactions have
been designed to (i) enable the Company to raise the necessary capital to
acquire the Properties and repay certain mortgage debt relating thereto, (ii)
provide a vehicle for future acquisitions, (iii) enable the Company to comply
with certain requirements under the federal income tax laws and regulations
relating to REITs, (iv) facilitate potential securitized mortgage financings and
(v) preserve certain tax advantages for certain Arden Predecessors. The
Formation Transactions are as follows:
- The Company will sell shares of Common Stock in the Offering.
- Pursuant to separate option agreements (the "Option Agreements"), the
Company will acquire for cash from certain Participants (not including
Messrs. Ziman and Coleman who will not receive cash in the Formation
Transactions) the interests owned by such Participants in certain of the
Arden Predecessors and in certain of the Properties. The Company will pay
approximately $26.8 million from the net proceeds of the Offering for such
interests which represent 31.7% of the ownership interests in the
Properties to be acquired by the Company.
- The Company will contribute (i) the interests in the Arden Predecessors
and in the Properties acquired pursuant to the Option Agreements and (ii)
the net proceeds from the Offering (after payment of the cash
consideration to certain Participants as described above) to the Operating
Partnership in exchange for a 86.69% general partner interest in the
Operating Partnership.
- Pursuant to separate contribution agreements (the "Contribution
Agreements"), the following additional contributions will be made to the
Operating Partnership in exchange for OP Units representing limited
partner interests: (i) certain Participants will contribute the remaining
interests in the Arden Predecessors and in certain of the Properties
(I.E., all interests not acquired by the Company pursuant to the Option
Agreements) and (ii) Arden will contribute certain of its assets,
including management contracts relating to certain of the Properties and
the contract rights to purchase the Acquisition Properties (303 Glenoaks
and 12501 East Imperial Highway). The Participants making such
contributions (a total of seven individuals and entities including Arden
and Messrs. Ziman and Coleman), will receive an aggregate of 2,889,071 OP
Units, with an estimated value of approximately $57.8 million based on the
assumed initial public offering price of the Common Stock.
- The Company, through the Operating Partnership, will borrow approximately
$104 million aggregate principal amount under a one year interim loan (the
"Mortgage Financing") which will be non-recourse to the Company and the
Operating Partnership and secured by fully cross-collateralized and
cross-defaulted first mortgage liens on nine of the Properties (the
"Mortgage Financing Properties"). The Mortgage Financing will require
monthly payments of interest only, with all principal due on the first
anniversary of the closing of the Mortgage Financing.
- Approximately $35 million of the net proceeds of the Offering and the
Mortgage Financing will be used by the Operating Partnership to purchase
the Acquisition Properties.
- Approximately $398 million of the net proceeds of the Offering and the
$103 million net proceeds of the Mortgage Financing will be used by the
Operating Partnership to repay certain mortgage debt secured by the
Properties and indebtedness outstanding under lines of credit to be
assumed by the Operating Partnership in the Formation Transactions.
- The Company, through the Operating Partnership, expects to enter into the
proposed $100 million Credit Facility at or shortly after the closing of
the foregoing Formation Transactions.
Additional information regarding the Formation Transactions is set forth
under "Structure and Formation of the Company."
7
<PAGE>
Upon completion of the Formation Transactions, the Operating Partnership
will hold substantially all of the assets of the Company, including 100% of the
interests in all of the Properties. Based on the assumed initial public offering
price of the Common Stock, (i) the purchasers of Common Stock in the Offering
will own substantially all of the outstanding Common Stock (or 86.69% assuming
exchange of all OP Units for shares of Common Stock), (ii) the Company will be
the sole general partner of the Operating Partnership and will own 86.71% of the
interests in the Operating Partnership and (iii) Messrs. Ziman and Coleman will
beneficially own, directly or indirectly through affiliates (including Arden),
2,204,584 OP Units (representing a 10.14% limited partner interest in the
Operating Partnership). Pursuant to the partnership agreement governing the
Operating Partnership (the "Partnership Agreement"), the Participants receiving
OP Units in the Formation Transactions will have certain rights, beginning one
year after consummation of the Offering, to cause the Operating Partnership to
redeem their OP Units for cash or, at the election of the Company, to exchange
their OP Units for shares of Common Stock (on a one-for-one basis). See
"Underwriting" for certain transfer restrictions applicable to the OP Units held
by Messrs. Ziman and Coleman and to shares of Common Stock issued in exchange
for such OP Units.
The aggregate estimated value of the cash and OP Units to be paid by the
Company and the Operating Partnership for the interests in the Arden
Predecessors, the direct interests in certain of the Properties and the assets
of Arden is approximately $84.6 million. The aggregate book value of the
interests and assets to be transferred to the Company and the Operating
Partnership is approximately $14.1 million, of which approximately $2,000
constitutes the aggregate book value of the interests and assets to be
transferred to the Operating Partnership by Messrs. Ziman and Coleman.
No independent third-party appraisals, valuations or fairness opinions have
been obtained by the Company in connection with the Formation Transactions.
Accordingly, there can be no assurance that the value of the OP Units and cash
received by the Participants in the Formation Transactions is equivalent to the
fair market value of the interests and assets acquired by the Company and
contributed to the Operating Partnership. See "Risk Factors -- Price to be Paid
for Properties and Other Assets May Exceed Their Fair Market Value."
STRUCTURE OF THE COMPANY
The Company will be the sole general partner of the Operating Partnership.
The Company will conduct substantially all of its business through the Operating
Partnership, which will hold all of the Company's interests in the Properties.
As the sole general partner of the Operating Partnership, the Company will have
exclusive power to manage and conduct the business of the Operating Partnership,
subject to certain limited exceptions. See "Structure and Formation of the
Company -- The Operating Entities of the Company" and "Partnership Agreement --
Management." In connection with the refinancing of the Mortgage Financing, the
Company expects that it will form financing subsidiaries into which the Mortgage
Financing Properties will be transferred. See "-- Mortgage Financing and Credit
Facility."
The following diagram depicts the ownership structure of the Company and the
Operating Partnership upon completion of the Offering and the Formation
Transactions:
STRUCTURE OF THE COMPANY UPON
COMPLETION OF THE OFFERING AND THE FORMATION TRANSACTIONS
The chart entitled "Structure of the Company Upon Completion of the Offering
and the Formation Transactions" depicts the following:
(i) Arden Realty Group, Inc. (the "Company") is owned 100% by the public
stockholders;
(ii) the Company holds on 86.32% General Partner Interest in Arden Realty
Group Limited Partnership (the "Operating Partnership");
(iii) Richard S. Zimon and Victor J. Coleman collectively hold a 10.28%
Limited Partner Interest in the Operating Partnership; and
8
<PAGE>
(iv) the Other Participants in the Formation Transactions held an aggregate
3.40% Limited Partner Interest in the Operating Partnership.
BENEFITS TO RELATED PARTIES
Certain affiliates of the Company will realize certain material benefits in
connection with the Formation Transactions, including the following:
- In exchange for their respective ownership interests in the Arden
Predecessors and the assets of Arden, Messrs. Ziman and Coleman will
become beneficial owners of a total of 2,204,584 OP Units, with a total
value of approximately $44.1 million based on the assumed initial public
offering price of the Common Stock, which compares to a book value of such
interests and assets of approximately $2,000 as of June 30, 1996. The
Company does not believe that the book values of the interests and assets
exchanged are equivalent to the fair market values of such interests and
assets.
- Approximately $398 million of indebtedness secured by the Properties and
indebtedness outstanding under lines of credit, and the related additional
and accrued interest thereon, to be assumed by the Operating Partnership
will be repaid in the Formation Transactions.
- Pursuant to the Partnership Agreement, certain Participants who hold OP
Units, including Messrs. Ziman and Coleman, will receive special
allocations of interest deductions of approximately $12.6 million relating
to the repayment of mortgage debt on certain of the Properties.
- Messrs. Ziman and Coleman will serve as directors and officers of the
Company and the Operating Partnership and will enter into employment
agreements providing for annual salaries, bonuses, severance packages,
participation in the Company's Stock Incentive Plan and other benefits for
their services.
- So long as he is Chief Executive Officer, Mr. Ziman will have certain
proportional purchase rights in connection with future issuances of Common
Stock by the Company or OP Units by the Operating Partnership which will
enable him to maintain his overall percentage ownership of the combined
equity of the Company and the Operating Partnership.
- Certain Participants including Messrs. Ziman and Coleman will have
registration rights with respect to shares of Common Stock issued in
exchange for OP Units.
Additional information regarding these and certain other benefits to be
received by affiliates of the Company in connection with the Formation
Transactions is set forth under "Structure and Formation of the Company --
Benefits of the Formation Transactions and the Offering to Affiliates of the
Company," and "Management -- Employment Agreements." See "Risk Factors --
Conflicts of Interest in Formation Transactions and the Business of the Company
- -- Benefits from the Formation Transactions" and "Certain Transactions."
DETERMINATION AND VALUATION OF OWNERSHIP INTERESTS
The Company's percentage interest in the Operating Partnership was
determined based upon the percentage of estimated Cash Available for
Distribution (as defined herein) required to pay estimated cash distributions
resulting in an annual distribution rate equal to 8% of the assumed initial
public offering price of the Common Stock. The ownership interest in the
Operating Partnership allocated to the Company is equal to this percentage of
estimated Cash Available for Distribution and the remaining interest in the
Operating Partnership will be allocated to the Participants receiving OP Units
in the Formation Transactions. The parameters and assumptions used in deriving
the estimated Cash Available for Distribution are described under
"Distributions."
The Company did not obtain appraisals with respect to the market value of
any of the Properties or other assets that the Company will own immediately
after consummation of the Offering and the Formation Transactions or an opinion
as to the fairness of the allocation of shares to the purchasers in the
Offering. The initial public offering price has been determined based upon the
estimated Cash Available for Distribution and the factors discussed under
"Underwriting," rather than a property-by-property valuation based on
9
<PAGE>
historical cost or current market value. This methodology has been used because
management believes it is appropriate to value the Company as an ongoing
business rather than with a view to values that could be obtained from a
liquidation of the Company or of individual properties owned by the Company.
RESTRICTIONS ON TRANSFER
Under the Partnership Agreement, the Participants in the Formation
Transactions are prohibited from transferring their OP Units, except under
certain limited circumstances. Messrs. Ziman and Coleman have agreed not to sell
any shares of Common Stock acquired by them upon exchange of OP Units for a
period of two years after the completion of the Offering without the consent of
Lehman Brothers Inc. See "Partnership Agreement -- Transferability of Interests"
and "Underwriting."
RESTRICTIONS ON OWNERSHIP OF COMMON STOCK
Due to limitations on the concentration of ownership of stock of a REIT
imposed by the Internal Revenue Code of 1986, as amended (the "Code"), the
charter of the Company (the "Charter") prohibits any stockholder from actually
or constructively owning more than 9.0% of the outstanding shares of Common
Stock (the "Ownership Limit"), except that Mr. Ziman and certain family members
and affiliates may actually and constructively own up to 13.0% of the
outstanding shares of Common Stock. See "Risk Factors -- Limits on Changes in
Control" and "Capital Stock -- Restrictions on Transfer."
FINANCING POLICIES
As a general policy, the Company intends, but is not obligated, to limit its
debt to total market capitalization ratio to no more than 50%. Since such ratio
is based upon market values of equity, it will fluctuate with changes in the
price of the Common Stock; however, the Company believes that this ratio
provides an appropriate indication of leverage for a company whose assets are
primarily real estate. The Company's debt to total market capitalization ratio
at the time of the Offering will be approximately 19.3% (17.6% if the
Underwriters' overallotment option is exercised in full). See "Policies With
Respect To Certain Transactions -- Financing Policies."
MORTGAGE FINANCING, CMBS OFFERING AND CREDIT FACILITY
MORTGAGE FINANCING. The Company has received a commitment for an interim
loan (the "Mortgage Financing") in the amount of $104 million from an affiliate
of Lehman Brothers Inc. The Mortgage Financing is expected to have a maturity of
one year and bear interest at a floating rate equal to one-month LIBOR plus
1.50% for the first six months increasing to one-month LIBOR plus 2.00%
thereafter through maturity. The proceeds of the Mortgage Financing will be used
primarily to refinance a portion of the Company's existing mortgage
indebtedness. The Mortgage Financing will be non-recourse and secured by fully
cross-collateralized and cross-defaulted first mortgage liens on the nine
Mortgage Financing Properties. The Mortgage Financing will require monthly
payments of interest only, with all principal due on the first anniversary of
the closing of the Mortgage Financing.
The Company intends to refinance the Mortgage Financing through an offering
of commercial mortgage-backed securities (the "CMBS Offering") in an amount of
approximately $104 million with a term of seven years. The CMBS offering is
expected to bear interest at a floating rate based on one-month LIBOR. The
Company intends to enter into a swap agreement in the notional amount of $104
million upon completion of this Offering and the Formation Transactions or
shortly thereafter (the "Swap Agreement"). The Swap Agreement will result in
effective fixed interest payments equal to the yield on U.S. Treasury Notes with
a maturity of seven years plus a spread which, if determined on the date hereof,
would result in an interest rate of 7.51%. The CMBS Offering is expected to
require monthly payments of interest only with all principal due in a balloon
payment at maturity. The Company expects to pursue the CMBS Offering promptly
after the closing of this Offering and the Formation Transactions, although
there can be no assurance that the Company will complete a CMBS Offering or
enter into a Swap Agreement.
THE CREDIT FACILITY. The Company is currently negotiating with a commercial
bank, the terms of a two-year, $100 million revolving credit facility, with a
one-year extension option (the "Credit Facility"). The
10
<PAGE>
Credit Facility will be used, among other things, to finance the acquisition of
properties, provide funds for tenant improvements and capital expenditures, and
provide for working capital and other corporate purposes. The Company intends to
enter into the Credit Facility contemporaneously with the Offering or shortly
thereafter, although there can be no assurance that the Company will enter into
the Credit Facility.
THE OFFERING
All of the shares of Common Stock being offered in the Offering are being
offered by the Company.
Common Stock Offered by the Company... 18,847,500 shares
Common Stock Outstanding After the
Offering (1)........................ 18,852,500 shares
Use of Proceeds....................... Payments to certain Participants (not
including Messrs. Ziman and Coleman
who will not receive cash in the
Formation Transactions) for their
interests in the Arden Predecessors
and in certain of the Properties,
repayment of mortgage debt on the
Properties, including accrued and
additional interest on such mortgage
debt, purchase of the Acquisition
Properties, tenant improvements and
capital expenditure reserves, and for
working capital purposes. See "Use of
Proceeds," "Capitalization," and
"Management's Discussion and Analysis
of Financial Condition and Results of
Operations -- Liquidity and Capital
Resources."
New York Stock Exchange Symbol........ "ARI"
- ------------------------
(1) Assumes no OP Units are exchanged for Common Stock. If all OP Units were
exchanged for Common Stock, there would be 21,741,571 shares of Common Stock
outstanding after the Offering.
DISTRIBUTIONS
The Company intends to make regular quarterly distributions to its
stockholders. The Company intends to pay a PRO RATA distribution with respect to
the period commencing on the closing of the Offering and ending on December 31,
1996, based upon $0.40 per share for a full quarter. On an annualized basis,
this would be $1.60 per share (of which $0.22 may represent a return of capital
for tax purposes), or an annual distribution rate of 8%, based on the assumed
initial public offering price per share of $20.00. The Company intends initially
to distribute annually approximately 94.5% of estimated Cash Available for
Distribution. The Company established this distribution rate based upon an
estimate of Cash Available for Distribution that will be available for
distributions after the Offering. See "Distributions" for information as to how
this estimate was derived. The Company intends to maintain its initial
distribution rate for the twelve-month period following consummation of the
Offering unless actual results of operations, economic conditions or other
factors differ materially from the assumptions used in its estimate.
Distributions by the Company will be determined by the Board of Directors and
will be dependent upon a number of factors. The Company believes that its
estimate of Cash Available for Distribution constitutes a reasonable basis for
setting the initial distribution; however, no assurance can be given that the
estimate will prove accurate, and actual distributions may therefore be
significantly different from the expected distributions. In addition, in order
to maintain its qualification as a REIT under the Code, the Company is required
to distribute currently 95% of its taxable income. See "Distributions." The
Company does not intend to reduce the expected distribution per share if the
Underwriters' overallotment option is exercised.
11
<PAGE>
TAX STATUS OF THE COMPANY
The Company intends to elect to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year ending December 31,
1996, and believes its organization and proposed method of operation will enable
it to meet the requirements for qualification as a REIT. To maintain REIT
status, an entity must meet a number of organizational and operational
requirements, including a requirement that it currently distribute at least 95%
of its taxable income to its stockholders. As a REIT, the Company generally will
not be subject to federal income tax on net income it distributes currently to
its stockholders. If the Company fails to qualify as a REIT in any taxable year,
it will be subject to federal income tax at regular corporate rates. See
"Federal Income Tax Considerations" and "Risk Factors -- Adverse Consequences of
Failure to Qualify as a REIT; Other Tax Liabilities." Even if the Company
qualifies for taxation as a REIT, the Company may be subject to certain federal,
state and local taxes on its income and property.
SUMMARY SELECTED COMBINED FINANCIAL DATA
The following sets forth selected combined financial and operating
information on a pro forma basis for the Company and on a combined historical
basis for the Arden Predecessors. The following information should be read in
conjunction with the financial statements and notes thereto of the Company and
of the Arden Predecessors included elsewhere in this Prospectus. The selected
combined historical financial and operating information of the Arden
Predecessors at December 31, 1995 and 1994, and for the years ended December 31,
1995, 1994 and 1993, has been derived from the historical combined financial
statements audited by Ernst & Young LLP, independent auditors, whose report with
respect thereto is included elsewhere in this Prospectus. The selected combined
financial and operating information for the six months ended June 30, 1996 and
June 30, 1995 has been derived from the unaudited combined financial statements
of the Arden Predecessors included elsewhere in this Prospectus.
The unaudited selected pro forma financial and operating information for the
six months ended June 30, 1996 and the year ended December 31, 1995 is presented
as if the Offering, the Formation Transactions (including the purchase of the
Acquisition Properties), and the acquisitions of the Properties acquired during
1996 prior to the Offering (the "1996 Acquired Properties") and the Properties
acquired during 1995 (the "1995 Acquired Properties") had all occurred by June
30, 1996 for the combined balance sheet and at the beginning of the period
presented for the combined statements of operations. The pro forma balance sheet
information also gives effect to the recording of minority interests for OP
Units, as if these transactions occurred on June 30, 1996. The pro forma
financial information is not necessarily indicative of what the actual financial
position or results of the Company would have been as of and for the periods
indicated, nor does it purport to represent the Company's future financial
position or results of operations.
12
<PAGE>
THE COMPANY (PRO FORMA) AND
ARDEN PREDECESSORS (COMBINED HISTORICAL)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
COMBINED
PRO FORMA HISTORICAL
--------- ------------------
1996 1996 1995
--------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
OPERATING DATA:
Revenue:
Rental.................................. $33,493 $ 19,404 $ 2,822
Tenant reimbursements................... 1,967 1,425 177
Parking................................. 3,090 2,121 220
Other................................... 1,305 1,521 649
--------- -------- --------
Total revenue......................... 39,855 24,471 3,868
EXPENSES:
Property operating expenses............. 12,787 8,252 934
General and administrative expenses..... 1,900 830 684
Depreciation and amortization........... 5,773 3,036 638
Interest expense........................ 4,058 14,741 1,403
--------- -------- --------
Total expenses........................ 24,518 26,859 3,659
--------- -------- --------
Equity in net income (loss) of noncombined
entities................................ -- (94) 108
Income (loss) before extraordinary loss
and minority interests.................. 15,337 (2,482) 317
Extraordinary loss........................ -- -- --
--------- -------- --------
Income (loss) before minority interests... 15,337 (2,482) 317
Minority interests........................ (2,039) 344 (7)
--------- -------- --------
Net income (loss)......................... $13,298 $ (2,138) $ 310
--------- -------- --------
--------- -------- --------
Net income per common share............... $ .71
---------
---------
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
COMBINED HISTORICAL
-------------------------------------------
THE
PERIOD
MARCH
22,
1991
PRO FORMA TO
--------- DECEMBER
1995 1995 1994 1993 1992 31, 1991
--------- --------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rental.................................. $66,691 $ 8,832 $ 5,157 $ 3,034 $-- $--
Tenant reimbursements................... 2,952 403 217 35 -- --
Parking................................. 5,895 750 382 279 -- --
Other................................... 2,441 1,707 796 314 324 11
--------- --------- -------- -------- ----- -----
Total revenue......................... 77,979 11,692 6,552 3,662 324 11
EXPENSES:
Property operating expenses............. 28,288 3,339 2,055 1,480 -- --
General and administrative expenses..... 3,800 1,377 689 386 471 7
Depreciation and amortization........... 11,549 1,898 1,143 646 2 --
Interest expense........................ 8,076 5,537 1,673 499 9 --
--------- --------- -------- -------- ----- -----
Total expenses........................ 51,713 12,151 5,560 3,011 482 7
--------- --------- -------- -------- ----- -----
Equity in net income (loss) of noncombined
entities................................ -- (116) 201 4 -- --
Income (loss) before extraordinary loss
and minority interests.................. 26,266 (575) 1,193 655 (158) 4
Extraordinary loss........................ -- -- (136) -- --
--------- --------- -------- -------- ----- -----
Income (loss) before minority interests... 26,266 (575) 1,057 655 (158) 4
Minority interests........................ (3,493) (1) 1 -- -- --
--------- --------- -------- -------- ----- -----
Net income (loss)......................... $22,773 $ (576) $ 1,058 $ 655 $(158) $4
--------- --------- -------- -------- ----- -----
--------- --------- -------- -------- ----- -----
Net income per common share............... $ 1.21
---------
---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
JUNE 30, 1996
---------------------- COMBINED HISTORICAL
COMBINED -----------------------------------------
PRO FORMA HISTORICAL 1995 1994 1993 1992 1991
--------- ---------- -------- -------- ------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Commercial office properties -- net of
accumulated depreciation................... $410,160 $254,749 $160,874 $ 34,977 $25,404 $-- $--
Total assets................................. 436,581 286,165 182,379 46,090 27,911 134 10
Mortgage loans payable and unsecured lines of
credit..................................... 104,000 265,959 168,451 32,944 24,356 250 --
Total liabilities............................ 111,468 277,917 174,163 34,148 25,190 287 5
Minority interest............................ 43,231 718 100 99 -- -- --
Owners'/Stockholders' equity................. 281,882 7,530 8,116 11,843 2,721 (153) 5
</TABLE>
13
<PAGE>
THE COMPANY (PRO FORMA) AND
ARDEN PREDECESSORS (COMBINED HISTORICAL)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
COMBINED
PRO FORMA HISTORICAL
--------- ------------------
1996 1996 1995
--------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER
SHARE DATA, PERCENTAGES AND
NUMBER OF PROPERTIES)
OTHER DATA:
Funds from Operations (1):
Income (loss) before extraordinary items
and minority interests................ $15,337 $ (2,482) $ 317
Depreciation and amortization........... 5,773 3,036 638
--------- -------- --------
Funds from Operations................... 21,110 554 955
Company's Share Percentage................ 86.69%
Company's Share of Funds from
Operations.............................. 18,300 554 955
--------- -------- --------
Cash flows from operating activities...... -- 2,013 458
Cash flows from investing activities...... -- (96,827) (5,578)
Cash flows from financing activities...... -- 94,937 4,550
Number of Properties owned at period
end..................................... 24 21 10
Gross rentable square feet of Properties
owned at period end..................... 4,036 3,547 1,408
Occupancy at period end of Properties
owned at period end..................... 89% 88% 84%
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
COMBINED HISTORICAL
-------------------------------------------
THE
PERIOD
MARCH
22,
1991
PRO FORMA TO
--------- DECEMBER
1995 1995 1994 1993 1992 31, 1991
--------- --------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations (1):
Income (loss) before extraordinary items
and minority interests................ $26,266 $ (575) $ 1,193 $ 655 $(158) $4
Depreciation and amortization........... 11,549 1,898 1,143 646 2 --
--------- --------- -------- -------- ----- -----
Funds from Operations................... 37,815 1,323 2,336 1,301 (156) 4
Company's Share Percentage................
Company's Share of Funds from
Operations.............................. 32,782 1,323 2,336 1,301 (156) 4
--------- --------- -------- -------- ----- -----
Cash flows from operating activities...... -- 2,830 834 1,186 (258) 7
Cash flows from investing activities...... -- 123,358 (17,921) (25,965) -- --
Cash flows from financing activities...... -- 120,707 16,845 25,632 250 1
Number of Properties owned at period
end..................................... 24 17 8 3 -- --
Gross rentable square feet of Properties
owned at period end..................... 4,036 2,634 1,130 530 -- --
Occupancy at period end of Properties
owned at period end..................... 89% 88% 82% 84% -- --
</TABLE>
- ---------------
(1) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 (the "White Paper") defines Funds from Operations as net income
(loss) (computed in accordance with GAAP), excluding gains (or losses) from
debt restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Management considers Funds from Operations
an appropriate measure of performance of an equity REIT because it is
predicated on cash flow analyses. The Company computes Funds from Operations
in accordance with standards established by the White Paper which may differ
from the methodology for calculating Funds from Operations utilized by other
equity REITs and, accordingly, may not be comparable to such other REITs.
Funds from Operations should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indicator of the Company's
financial performance or to cash flow from operating activities (determined
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make distributions.
14
<PAGE>
RISK FACTORS
An investment in the Common Stock involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained in this Prospectus before making a decision
to purchase Common Stock in the Offering.
PRICE TO BE PAID FOR PROPERTIES AND OTHER ASSETS MAY EXCEED THEIR FAIR MARKET
VALUE
No independent third-party valuations, appraisals or fairness opinions were
obtained by the Company in connection with the Formation Transactions.
Accordingly, there can be no assurance that the prices paid by the Company will
not exceed the fair market value of the interests in the Arden Predecessors, the
Properties and the other assets to be acquired by the Company in the Formation
Transactions. The initial public offering price has been determined by Messrs.
Ziman and Coleman and the Underwriters based upon a capitalization of estimated
Cash Available for Distribution and the factors discussed under "Structure and
Formation of the Company -- The Formation Transactions -- Determination and
Valuation of Ownership Interests" and "Underwriting," rather than an
asset-by-asset valuation based on historical cost or current market value. In
determining the initial public offering price of the Common Stock certain
assumptions were made concerning the estimate of revenue to be derived from the
Properties. See "Distributions." This methodology has been used because
management believes it is appropriate to value the Company as an ongoing
business, rather than with a view to values that could be obtained from a
liquidation of the Company or of individual assets owned by the Company. There
can be no assurance that there will not be discrepancies between assumed results
and actual results which could lead to a reduction in actual distributions
compared to assumed distributions. It is possible that the initial public
offering price per share of Common Stock may exceed the per share fair market
value of the Company's assets.
FORMATION TRANSACTIONS NOT ARM'S LENGTH
The Formation Transactions are not the result of arm's-length negotiations.
The Participants (including Messrs. Ziman and Coleman, who are founders of Arden
and the Arden Predecessors and executive officers and members of the Board of
Directors of the Company) have preexisting ownership interests in Arden and the
Arden Predecessors. The ownership interests of such individuals differ in
proportion and amount. Messrs. Ziman and Coleman have negotiated the purchase
price for the assets to be acquired by the Company in the Formation Transactions
and each of these individuals will receive substantial economic benefits as a
result of such transactions. There can be no assurance that the fair market
value of the Properties and the other assets to be acquired by the Company will
equal or exceed the sum of the value of the OP Units issued and the amount of
cash paid to the Participants in the Formation Transactions.
REAL ESTATE FINANCING RISKS
ABILITY TO REPAY OR REFINANCE INDEBTEDNESS AT MATURITY. Upon consummation
of this Offering and the Formation Transactions, the Company will enter into the
one-year interim Mortgage Financing in the aggregate principal amount of $104
million. The Company intends to refinance the Mortgage Financing prior to
maturity through the CMBS Offering. The Company also intends to enter into and,
over time, make borrowings under the Credit Facility. The Company will be
subject to risks normally associated with debt financing, including the risk
that the Company's cash flow will be insufficient to meet required payments of
principal and interest, the risk that any indebtedness will not be able to be
refinanced or that the terms of any such refinancing will not be as favorable as
the terms of such indebtedness.
RISK OF FAILURE TO COVER DEBT SERVICE UNDER THE MORTGAGE FINANCING AND CMBS
OFFERING. Concurrently with the Offering, the Company, through the Operating
Partnership, will borrow approximately $104 million in principal amount under
the Mortgage Financing and intends to refinance the Mortgage Financing prior to
maturity through the CMBS Offering. The payment and other obligations under the
Mortgage Financing will be (and under the CMBS Offering are expected to be)
secured by fully cross-collateralized and cross-defaulted first mortgage liens
on the nine Mortgage Financing Properties. The Mortgage Financing will require
monthly payments of interest only, with all principal due on the first
anniversary of the Mortgage Financing. If the Company is unable to meet its
obligations under the Mortgage Financing (or under the CMBS Offering), the
Mortgage Financing Properties securing such debt could be foreclosed on, which
16
<PAGE>
would have a material adverse effect on the Company and its ability to make
expected distributions and could threaten the continued viability of the
Company. See "Policies With Respect to Certain Transactions -- Financing
Policies."
POTENTIAL EFFECT OF RISING INTEREST RATES ON COMPANY'S VARIABLE RATE
DEBT. Upon or shortly after consummation of the Offering and the Formation
Transactions, the Company intends to enter into the proposed $100 million Credit
Facility. See "Policies With Respect to Certain Activities -- Financing
Policies." Advances under the Credit Facility will bear interest at a variable
rate. In addition, the Company may incur other variable rate indebtedness in the
future. Increases in interest rates on such indebtedness would increase the
Company's interest expense (e.g., assuming the entire $100 million available
under the Credit Facility is outstanding, the Company would incur an additional
$250,000 in interest expense for each 0.25% increase in interest rates), which
could adversely affect the Company's cash flow and its ability to pay expected
distributions to stockholders. In addition, although the Mortgage Financing (and
CMBS Offering) will bear interest at a variable rate, the Company expects to
enter into the Swap Agreement or other hedging transactions to further limit its
exposure to rising interest rates as appropriate and cost effective, although
there can be no assurance that it will be able to do so on terms acceptable to
the Company. The Swap Agreement or other hedging transactions also may expose
the Company to the risk that the counter party may not perform, which could
cause the Company to lose the benefits of the hedging transaction. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
NO LIMITATION ON DEBT
Upon completion of the Offering and the Formation Transactions, the
Company's debt to total market capitalization ratio will be approximately 19.3%
(17.6% if the Underwriters' overallotment option is exercised in full). The
Company currently has a policy of incurring debt only if upon such incurrence
the debt to total market capitalization ratio would be 50% or less, but the
organizational documents of the Company do not contain any limitation on the
amount of indebtedness the Company may incur. Accordingly, the Board of
Directors could alter or eliminate this policy. If this policy were changed, the
Company could become more highly leveraged, resulting in an increase in debt
service that could adversely affect the Company's cash flow and, consequently,
the amount available for distribution to stockholders and could increase the
risk of default on the Company's indebtedness.
The Company has established its debt policy relative to the total market
capitalization of the Company rather than relative to the book value of its
assets. The Company has used total market capitalization because it believes
that the book value of its assets (which to a large extent is the depreciated
original cost of real property, the Company's primary tangible assets) does not
accurately reflect its ability to borrow and to meet debt service requirements.
The market capitalization of the Company, however, is more variable than book
value, and does not necessarily reflect the fair market value of the underlying
assets of the Company at all times. The Company also will consider factors other
than market capitalization in making decisions regarding the incurrence of
indebtedness, such as the purchase price of properties to be acquired with debt
financing, the estimated market value of its properties upon refinancing and the
ability of particular properties and the Company as a whole to generate cash
flow to cover expected debt service.
REAL ESTATE INVESTMENT RISKS
REAL ESTATE OWNERSHIP RISKS. Real property investments are subject to
varying degrees of risk. The yields available from equity investments in real
estate depend in large part on the amount of income generated and expenses
incurred. If the Properties do not generate revenue sufficient to meet operating
expenses, including debt service, tenant improvements, leasing commissions and
other capital expenditures, the Company may have to borrow additional amounts to
cover fixed costs and the Company's cash flow and ability to make distributions
to its stockholders will be adversely affected.
The Company's revenue and the value of its properties may be adversely
affected by a number of factors, including the national economic climate; the
local economic climate; local real estate conditions; the perceptions of
prospective tenants of the attractiveness of the property; the ability of the
Company to
17
<PAGE>
manage and maintain the Properties and secure adequate insurance; and increased
operating costs (including real estate taxes and utilities). In addition, real
estate values and income from properties are also affected by such factors as
applicable laws, including tax laws, interest rate levels and the availability
of financing.
RISK THAT COMPANY MAY BE UNABLE TO RETAIN TENANTS OR RENT SPACE UPON LEASE
EXPIRATIONS. The Company will be subject to the risks that upon expiration,
leases may not be renewed, the space may not be relet or the terms of renewal or
reletting (including the cost of required renovations) may be less favorable
than current lease terms. Leases on a total of approximately 13% and 51% of the
occupied space in the Properties will expire through the end of 1997 and 2000,
respectively. During 1997, the re-leasing of the Company's expiring leases may
result in a net decrease in cash flow from the leases due to the number of
leases expected to expire during such period which are above current market
rents. If the Company is unable to promptly relet or renew leases for all or a
substantial portion of this space, if the rental rates upon such renewal or
reletting are significantly lower than expected, the Company's cash flow and
ability to make expected distributions to stockholders could be adversely
affected.
RESTRAINTS ON COMPANY'S FLEXIBILITY TO LIQUIDATE REAL ESTATE. Equity real
estate investments are relatively illiquid. Such illiquidity will tend to limit
the ability of the Company to vary its portfolio promptly in response to changes
in economic or other conditions. In addition, the Code limits a REIT's ability
to sell properties held for fewer than four years, which may affect the
Company's ability to sell properties without adversely affecting returns to
holders of Common Stock.
IMPACT OF COMPETITION ON OCCUPANCY LEVELS AND RENTS CHARGED. Numerous
office properties compete with the Properties in attracting tenants to lease
space. Some of the competing properties may be newer, better located or owned by
parties better capitalized than the Company. The number of competitive
commercial properties in a particular area could have a material adverse effect
on (i) the ability to lease space in the Properties (or at newly acquired or
developed properties) and (ii) the rents charged.
POTENTIAL INCREASES IN CERTAIN TAXES AND REGULATORY COMPLIANCE
COSTS. Because increases in income, service or transfer taxes are generally not
passed through to tenants under leases, such increases may adversely affect the
Company's cash flow and its ability to make distributions to stockholders. The
Properties are also subject to various federal, state and local regulatory
requirements, such as requirements of the Americans with Disabilities Act (the
"ADA") and state and local fire and life safety requirements. Failure to comply
with these requirements could result in the imposition of fines by governmental
authorities or awards of damages to private litigants. The Company believes that
the Properties are currently in substantial compliance with all such regulatory
requirements. However, there can be no assurance that these requirements will
not be changed or that new requirements will not be imposed which would require
significant unanticipated expenditures by the Company and could have an adverse
effect on the Company's cash flow and expected distributions.
IMPACT OF FINANCIAL CONDITION AND SOLVENCY OF TENANTS ON COMPANY'S CASH
FLOW. At any time, a tenant of the Properties may seek the protection of
bankruptcy laws, which could result in rejection and termination of such
tenant's lease and thereby cause a reduction in cash flow available for
distribution by the Company. Although the Company has not experienced material
losses from tenant bankruptcies, no assurance can be given that tenants will not
file for bankruptcy protection in the future or, if any tenants file, that they
will affirm their leases and continue to make rental payments in a timely
manner. In addition, a tenant from time to time may experience a downturn in its
business which may weaken its financial condition and result in the failure to
make rental payments when due. If tenant leases are not affirmed following
bankruptcy or if a tenant's financial condition weakens, the Company's income
may be adversely affected.
AMERICANS WITH DISABILITIES ACT COMPLIANCE COSTS. Under the ADA, all public
accommodations and commercial facilities are required to meet certain federal
requirements related to access and use by disabled persons. These requirements
became effective in 1992. Compliance with the ADA requirements could require
removal of access barriers and non-compliance could result in imposition of
fines by the U.S. government or an award of damages to private litigants.
Although the Company believes that the Properties are substantially in
compliance with these requirements, the Company may incur additional costs to
comply
18
<PAGE>
with the ADA. Although the Company believes that such costs will not have a
material adverse effect on the Company, if required changes involved a greater
expenditure than the Company currently anticipates, the Company's ability to
make expected distributions could be adversely affected.
FINANCIAL DEPENDENCY AND MANAGEMENT CONFLICTS ASSOCIATED WITH PARTNERSHIP
AND JOINT VENTURE PROPERTY OWNERSHIP STRUCTURES. The Company will own its
interests in the Properties through the Operating Partnership. In addition, the
Company may also participate with other entities in property ownership through
joint ventures or partnerships in the future. While the Company currently does
not have any plans to invest in joint ventures or partnerships with affiliates
or promoters of the Company, Mr. Arthur Gilbert, a director of the Company, owns
one office property in Southern California that the Company may consider
acquiring in the future. Partnership or joint venture investments may, under
certain circumstances, involve risks not otherwise present, including the
possibility that the Company's partners or co-venturers might become bankrupt,
that such partners or co-venturers might at any time have economic or other
business interests or goals which are inconsistent with the business interests
or goals of the Company, and that such partners or co-venturers may be in a
position to take action contrary to the Company's instructions or requests or
contrary to the Company's policies or objectives, including the Company's policy
with respect to maintaining its qualification as a REIT. The Company will,
however, seek to maintain sufficient control of such partnerships or joint
ventures to permit the Company's business objectives to be achieved. There is no
limitation under the Company's organizational documents as to the amount of
available funds that may be invested in partnerships or joint ventures.
CONCENTRATION OF PROPERTIES IN SOUTHERN CALIFORNIA
All of the Company's Properties are located in Southern California, with 21
of the 24 Properties located in suburban Los Angeles County. Los Angeles County
just recently began to recover from an economic recession which affected
Southern California generally and Los Angeles County in particular since the
early 1990s. The Company's revenue and the value of its Properties may be
affected by a number of factors, including the local economic climate (which may
be adversely impacted by business layoffs or downsizing, industry slowdowns,
changing demographics and other factors) and local real estate conditions (such
as oversupply of or reduced demand for office and other competing commercial
properties). Therefore, the Company's performance and its ability to make
distributions to stockholders will likely be dependent, to a large extent, on
the economic conditions in this market area.
CONFLICTS OF INTERESTS IN THE FORMATION TRANSACTIONS AND THE BUSINESS OF THE
COMPANY
BENEFITS FROM FORMATION TRANSACTIONS. Participants receiving OP Units in
the Formation Transactions (including Messrs. Ziman and Coleman, who are
executive officers and directors of the Company, and Mr. Arthur Gilbert, who is
a director nominee of the Company, and Ms. Michele Byer, who is an executive
officer of the Company), will realize certain benefits from the Formation
Transactions that will not generally be received by other persons participating
in the formation of the Company, including receipt of an aggregate of
approximately 2,740,718 OP Units, and options to purchase an aggregate of
690,000 shares of Common Stock under the Stock Incentive Plan. Messrs. Ziman and
Coleman will beneficially own, directly or indirectly through affiliates
(including Arden), 2,204,584 OP Units (representing an 10.14% limited partner
interest in the Operating Partnership) in exchange for the transfer of interests
and assets having an aggregate book value of approximately $2,000 to the
Operating Partnership by Messrs. Ziman and Coleman. In addition, Messrs. Ziman
and Coleman will enter into employment agreements with the Company. See
"Structure and Formation of the Company -- Benefits of the Formation
Transactions and the Offering to Affiliates of the Company" and "Management --
Employment Agreements." Because these persons were involved in structuring the
Formation Transactions, they had the ability to influence the type and level of
benefits they received. As such, these persons may have interests that conflict
with the interests of others participating in the Formation Transactions and
with the interests of persons acquiring Common Stock in the Offering. As a
result, the type and level of benefits these persons received may have been
different if they had not participated in structuring the Formation
Transactions.
REPAYMENT OF CERTAIN DEBT. After giving effect to its participation in the
Mortgage Financing, Lehman Brothers Holdings Inc., an affiliate of Lehman
Brothers Inc., the lead managing underwriter for the
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Offering, will receive a net amount of approximately $202 million of the net
proceeds of the Offering as repayment of indebtedness and related additional and
accrued interest expected to be outstanding upon consummation of the Offering.
See "Underwriting."
FAILURE TO ENFORCE TERMS OF FORMATION AGREEMENTS. As partners and members
in the Arden Predecessors (which have owned the Properties), owners of Arden,
and recipients of cash and OP Units in the Formation Transactions, certain
members of the Company management, including Messrs. Ziman, Coleman and Gilbert
and Ms. Byer, will have a conflict of interest with respect to their obligations
as directors or executive officers of the Company in enforcing the terms
(including customary representations and warranties as to ownership and
operation) of the agreements relating to the transfer to the Company of their
interests in the Properties and the Arden assets. The failure to enforce the
material terms of those agreements, particularly the indemnification provisions
for breaches of representations and warranties, could result in a monetary loss
to the Company, which loss could have a material adverse effect on the Company's
financial condition or results of operations. In addition, the aggregate
liability of Messrs. Ziman and Coleman and Arden under those agreements is
limited to approximately $43.5 million (the initial value of the OP Units
received by them in the Formation Transactions based on the assumed initial
offering price of the Common Stock offered hereby), and each such party is
severally liable, up to the initial value of the OP Units received by such
party, only for breaches of such party's respective representations and
warranties. The Company therefore will have no right of recovery as to any
damages in excess of such aggregate or individual amounts that may result from
breaches of such representations and warranties.
TAX CONSEQUENCES UPON ANY PREPAYMENT OF MORTGAGE FINANCING. Certain Limited
Partners, including Messrs. Ziman, Coleman and Gilbert and Ms. Byer, may incur
adverse tax consequences upon the repayment of mortgage indebtedness relating to
the Mortgage Financing Properties which are different from the tax consequences
to the Company and persons who purchase shares of Common Stock in the Offering.
Consequently, such Limited Partners may have different objectives regarding the
appropriate timing of any such repayment. While the Company will have the
exclusive authority under the Partnership Agreement to determine whether, when,
and on what terms to repay such mortgage indebtedness, any such decision would
require the approval of the Board of Directors. Messrs. Ziman, Coleman and
Gilbert and Ms. Byer will have substantial influence with respect to any such
decision, and such influence could be exercised in a manner not consistent with
the interests of some, or a majority, of the Company's stockholders including in
a manner which could prevent repayment of such mortgage indebtedness.
LIMITATION UPON SALE OR REFINANCING OF CENTURY PARK CENTER. Due to the
potential adverse consequences to certain Limited Partners which may result from
a sale of Century Park Center, for a period of seven years following the
Offering, any sale of Century Park Center (other than in connection with the
sale of all or substantially all of the assets of the Company or a merger of the
Company) requires the consent of a majority of the Limited Partners, which may
cause the Company to be unable to sell this Property in circumstances in which
it would be advantageous to do so.
OTHER REAL ESTATE INTERESTS. Messrs. Ziman, Coleman and Gilbert hold
certain real estate interests which are not being contributed to the Company as
part of the Formation Transactions. Except for one property owned by Mr.
Gilbert, none of such real estate interests relate to properties that are office
properties. Subsequent to the consummation of this Offering, the Company may
consider the acquisition of the office property owned by Mr. Gilbert.
RISKS ASSOCIATED WITH THE RECENT ACQUISITION OF MANY OF THE NEW PROPERTIES; LACK
OF OPERATING HISTORY
After giving effect to the Formation Transactions, the Company will own 24
Properties, consisting of approximately 4.0 million rentable square feet. All of
the Properties have been under the Company's management for 3 1/2 years or less
and a majority of the Properties have been owned for less than one year (11
Properties) or will be acquired at the closing of this Offering (2 Properties).
The most recently acquired of the Properties may have characteristics or
deficiencies unknown to the Company affecting their valuation or revenue
potential, and it is also possible that the operating performance of the most
recently acquired Properties may decline under the Company's management.
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The Company is currently experiencing a period of rapid growth. As the
Company acquires additional properties, the Company will be subject to risks
associated with managing new properties, including lease-up and tenant
retention. In addition, the Company's ability to manage its growth effectively
will require it to successfully integrate its new acquisitions into its existing
management structure. No assurances can be given that the Company will be able
to succeed with such integration or effectively manage additional properties or
that newly acquired properties will perform as expected.
CHANGES IN POLICIES WITHOUT STOCKHOLDER APPROVAL
The investment, financing, borrowing and distribution policies of the
Company and its policies with respect to all other activities, including growth,
debt, capitalization and operations, will be determined by the Board of
Directors. Although the Board of Directors has no present intention to do so,
these policies may be amended or revised at any time and from time to time at
the discretion of the Board of Directors without a vote of the stockholders of
the Company. In addition, the Board of Directors may change the Company's
policies with respect to conflicts of interest provided that such changes are
consistent with applicable legal requirements. A change in these policies could
adversely affect the Company's financial condition, results of operations or the
market price of the Common Stock. See "Policies with Respect to Certain
Transactions."
RISK OF ACQUISITION, RENOVATION AND DEVELOPMENT ACTIVITIES
The Company intends to continue acquiring office properties. See "Business
and Growth Strategies -- Business Strategies." Acquisitions of office properties
entail risks that investments will fail to perform in accordance with
expectations. Estimates of renovation costs and costs of improvements to bring
an acquired property up to standards established for the market position
intended for that property may prove inaccurate. In addition, there are general
investment risks associated with any new real estate investment.
The Company intends to expand and/or renovate its Properties from time to
time. Expansion and renovation projects generally require expenditure of capital
as well as various government and other approvals, the receipt of which cannot
be assured. While policies with respect to expansion and renovation activities
are intended to limit some of the risks otherwise associated with such
activities, the Company will nevertheless incur certain risks, including
expenditures of funds on, and devotion of management's time to, projects which
may not be completed.
The Company anticipates that future acquisitions and renovations will be
financed through a combination of advances under the Credit Facility, other
lines of credit and other forms of secured or unsecured financing. If new
developments are financed through construction loans, there is a risk that, upon
completion of construction, permanent financing for newly developed properties
may not be available or may be available only on disadvantageous terms.
While the Company has generally limited its acquisition, renovation,
management and leasing business primarily to the Southern California market, it
is possible that the Company will in the future expand its business to new
geographic markets. The Company will not initially possess the same level of
familiarity with new markets outside of Southern California, which could
adversely affect its ability to acquire, develop, manage or lease properties in
any new localities.
Changing market conditions, including competition from other purchasers of
Class A suburban office properties, may diminish the Company's opportunities for
attractive additional acquisitions.
The Company also intends to review from time to time the possibility of
developing and constructing office buildings and other commercial properties in
accordance with the Company's development and underwriting policies. See
"Business and Growth Strategies -- Business Strategies." Risks associated with
the Company's development and construction activities may include: abandonment
of development opportunities; construction costs of a property exceeding
original estimates, possibly making the property uneconomical; occupancy rates
and rents at a newly completed property may not be sufficient to make the
property profitable; financing may not be available on favorable terms for
development of a property; and construction and lease-up may not be completed on
schedule, resulting in increased debt service expense and construction costs. In
addition, new development activities, regardless of whether they would
ultimately
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be successful, typically require a substantial portion of management's time and
attention. Development activities would also be subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy, and other required governmental permits and authorizations.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT; OTHER TAX LIABILITIES
TAX LIABILITIES AS A CONSEQUENCE OF FAILURE TO QUALIFY AS A REIT. The
Company intends to operate so as to qualify as a REIT under the Code, commencing
with its taxable year ending December 31, 1996. Although management believes
that it will be organized and will operate in such a manner, no assurance can be
given that the Company will be organized or will be able to operate in a manner
so as to qualify or remain so qualified. Qualification as a REIT involves the
satisfaction of numerous requirements (some on an annual and quarterly basis)
established under highly technical and complex Code provisions for which there
are only limited judicial and administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within
the Company's control. For example, in order to qualify as a REIT, at least 95%
of the Company's gross income in any year must be derived from qualifying
sources and the Company must pay distributions to stockholders aggregating
annually at least 95% of its REIT taxable income (excluding capital gains). The
complexity of these provisions and of the applicable Treasury Regulations that
have been promulgated under the Code is greater in the case of a REIT that holds
its assets in partnership form. No assurance can be given that legislation, new
regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualification as a REIT or the
federal income tax consequences of such qualification. The Company is relying on
the opinion of Latham & Watkins, counsel to the Company, regarding various
issues affecting the Company's ability to qualify, and continue to qualify, as a
REIT. See "Federal Income Tax Considerations -- Taxation of the Company." Such
legal opinion is based on various assumptions and factual representations by the
Company regarding the Company's ability to meet the various requirements for
qualification as a REIT, and no assurance can be given that actual operating
results will meet these requirements. Such legal opinion is not binding on the
IRS or any court.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Moreover, unless entitled to relief under certain statutory provisions, the
Company also would be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost. This treatment
would significantly reduce the net earnings of the Company available for
investment or distribution to stockholders because of the additional tax
liability to the Company for the years involved. In addition, distributions to
stockholders would no longer be required to be made. See "Federal Income Tax
Considerations -- Taxation of the Company -- Requirements for Qualification."
OTHER TAX LIABILITIES. Even if the Company qualifies for and maintains its
REIT status, it will be subject to certain federal, state and local taxes on its
income and property. If the Company has net income from a prohibited
transaction, such income will be subject to a 100% tax. See "Federal Income Tax
Considerations."
FAILURE OF THE OPERATING PARTNERSHIP TO QUALIFY AS A PARTNERSHIP FOR FEDERAL
INCOME TAX PURPOSES
The Company will receive an opinion of Latham & Watkins, tax counsel to the
Company, at the closing of the Formation Transactions to the effect that the
Operating Partnership is properly treated as a partnership for federal income
tax purposes. Such opinion is not binding on the IRS or the courts. If the IRS
were to successfully challenge the tax status of the Operating Partnership as a
partnership for federal income tax purposes, the Operating Partnership would be
treated as an association taxable as a corporation. In such event, the character
of the Company's assets and income would change, which would preclude the
Company from satisfying the REIT asset tests and possibly the income tests (as
set forth in the Code) and, in turn, would prevent the Company from qualifying
as a REIT. The imposition of a corporate tax on the Operating Partnership would
also reduce the amount of cash available for distribution to the Company and its
stockholders. See "Federal Income Tax Considerations -- Tax Aspects of the
Operating Partnership."
INSURANCE
The Operating Partnership carries comprehensive liability, fire, extended
coverage and rental loss insurance covering all of the Properties, with policy
specifications and insured limits which the Company
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believes are adequate and appropriate under the circumstances. The Operating
Partnership also carries earthquake insurance on all of the Properties. There
are, however, certain types of losses that are not generally insured because it
is not economically feasible to insure against such losses. Should an uninsured
loss or a loss in excess of insured limits occur, the Operating Partnership
could lose its capital invested in the property, as well as the anticipated
future revenue from the property and, in the case of debt which is with recourse
to the Operating Partnership, would remain obligated for any mortgage debt or
other financial obligations related to the property. Any such loss would
adversely affect the Company. Moreover, as a general partner of the Operating
Partnership, the Company will generally be liable for any unsatisfied
obligations other than non-recourse obligations. The Company believes that the
Properties are adequately insured. In addition, in light of the California
earthquake risk, California building codes since the early 1970's have
established construction standards for all newly built and renovated buildings,
including office buildings, the current and strictest construction standards
having been adopted in 1984. Of the 24 Properties, 13 have been built since
January 1, 1985 and the Company believes that all of the Properties were
constructed in full compliance with the applicable standards existing at the
time of construction. While earthquakes have occurred in Southern California,
the only loss the Company has experienced as a result of earthquakes was minor
damage to three of its buildings due to the Northridge earthquake, which
resulted in $601,000 of damage in the year ended December 31, 1994. No assurance
can be given that material losses in excess of insurance proceeds will not occur
in the future.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers,
particularly Messrs. Ziman and Coleman. The loss of their services could have a
material adverse effect on the operations of the Company. Prior to the
consummation of the Offering, each of Messrs. Ziman and Coleman will enter into
an employment agreement with the Company. See "Management -- Employment
Agreements."
LIMITS ON CHANGES IN CONTROL
Certain provisions of the Charter and bylaws of the Company (the "Bylaws")
may have the effect of delaying, deferring or preventing a third party from
making an acquisition proposal for the Company and may thereby inhibit a change
in control of the Company. For example, such provisions may (i) deter tender
offers for the Common Stock, which offers may be attractive to the stockholders,
or (ii) deter purchases of large blocks of Common Stock, thereby limiting the
opportunity for stockholders to receive a premium for their Common Stock over
then-prevailing market prices. See "Capital Stock" and "Certain Provisions of
Maryland Law and the Company's Charter and Bylaws." These provisions include the
following:
LIMITS ON OWNERSHIP OF COMMON STOCK. In order for the Company to maintain
its qualification as a REIT, not more than 50% in value of the outstanding
shares of Common Stock of the Company may be owned, actually or constructively,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year (other than the first year for
which the election to be treated as a REIT has been made). In addition, if the
Company, or an owner of 10% or more of the Company, actually or constructively
owns 10% or more of a tenant of the Company (or a tenant of any partnership in
which the Company is a partner), the rent received by the Company (either
directly or through any such partnership) from such tenant will not be
qualifying income for purposes of the REIT gross income tests of the Code. See
"Federal Income Tax Considerations -- Taxation of the Company." In order to
protect the Company against the risk of losing REIT status due to the
concentration of ownership among its stockholders, the Ownership Limit included
in the Charter limits actual or constructive ownership of the outstanding shares
of Common Stock by any single stockholder to 9.0% of the total of the then
outstanding shares of Common Stock. See "Capital Stock -- Restrictions on
Transfer." Although the Board of Directors presently has no intention of doing
so (except as described below), the Board of Directors could waive this
restriction with respect to a particular stockholder if it were satisfied, based
upon the advice of tax counsel, that ownership by such stockholder in excess of
the Ownership Limit would not jeopardize the Company's status as a REIT and the
Board of Directors otherwise decided such action would be in the best interests
of the Company. Actual or constructive ownership of shares of Common Stock in
excess of the Ownership Limit will cause the violative transfer or ownership to
be void with respect to the transferee or owner as to that number of shares in
excess of the Ownership Limit and such shares will be automatically transferred
to a trust for the benefit of a
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qualified charitable organization. Such transferee or owner shall have no right
to vote such shares or be entitled to dividends or other distributions with
respect to such shares. The Board of Directors has waived the Ownership Limit
with respect to Mr. Ziman and certain family members and affiliates and
permitted such parties to actually and constructively own up to 13.0% of the
outstanding shares of Common Stock. See "Capital Stock -- Restrictions on
Transfer" for additional information regarding the Ownership Limit.
PREFERRED STOCK. The Charter authorizes the Board of Directors to cause the
Company to issue authorized but unissued shares of Common Stock or Preferred
Stock and to classify or reclassify any unissued shares of Preferred Stock and
to set the preferences, rights and other terms of such classified or
unclassified shares. See "Capital Stock -- Preferred Stock." Although the Board
of Directors has no such intention at the present time, it could establish a
series of Preferred Stock that could, depending on the terms of such series,
delay, defer or prevent a transaction or a change in control of the Company that
might involve a premium price for the Common Stock or otherwise be in the best
interest of the stockholders.
STAGGERED BOARD. The Company's Board of Directors is divided into three
classes of directors. The initial terms of the first, second and third classes
will expire in 1997, 1998 and 1999, respectively. Beginning in 1997, directors
of each class will be chosen for three-year terms upon the expiration of their
current terms and each year one class of directors will be elected by the
stockholders. The staggered terms of directors may reduce the possibility of a
tender offer or an attempt to change control of the Company even though a tender
offer or change in control might be in the best interest of the stockholders.
See "Certain Provisions of Maryland Law and the Company's Charter and Bylaws --
Board of Directors - Number, Classification, Vacancies."
HISTORICAL LOSSES
The Arden Predecessors had a combined historical net loss of approximately
$2.1 million for the six months ended June 30, 1996 and approximately $576,000
for the year ended December 31, 1995. These net losses reflect the substantial
interest expense associated with the acquisition financing of the Properties and
certain non-cash charges such as depreciation and amortization. See "Selected
Combined Financial Data" and the financial statements and accompanying notes
included in this Prospectus. These historical results may not be indicative of
future results. Nonetheless, there can be no assurance that the Company will not
incur net losses in the future.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property and may be held liable to a governmental
entity or to third parties for property damage and for investigation and
clean-up costs incurred by such parties in connection with the contamination.
Such laws typically impose clean-up responsibility and liability without regard
to whether the owner knew of or caused the presence of the contaminants, and the
liability under such laws has been interpreted to be joint and several unless
the harm is divisible and there is a reasonable basis for allocation of
responsibility. The costs of investigation, remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure properly to remediate the contamination on such property, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances at a disposal or treatment facility also may be
liable for the costs of removal or remediation of a release of hazardous or
toxic substances at such disposal or treatment facility, whether or not such
facility is owned or operated by such person. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs incurred in connection with the contamination. Finally, the
owner of a site may be subject to common law claims by third parties based on
damages and costs resulting from environmental contamination emanating from such
site.
Certain federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of asbestos-containing materials ("ACM")
when such materials are in poor condition or in the event of construction,
remodeling, renovation or demolition of a building. Such laws may impose
liability for release of ACM and may provide for third parties to seek recovery
from owners or operators of real
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properties for personal injury associated with ACM. In connection with its
ownership and operation of the Properties, the Company may be potentially liable
for such costs. ACM has been detected through sampling by environmental
consultants at 70 South Lake, 16000 Ventura Boulevard and 9665 Wilshire. The
non-friable ACM was found in certain floor tiles and pipe wrappings at 16000
Ventura Boulevard and 70 South Lake and in vinyl floor tiles, carpet mastic,
drywall mud/tape, textured ceiling material, core insulation material and
fireproofing at 9665 Wilshire. The non-friable ACM found at these Properties is
not expected to present a risk as long as it continues to be properly managed.
The environmental consultants recommended no further ACM sampling or removal
action at any of the Properties.
In the past two years, independent environmental consultants have conducted
or updated Phase I Environmental Assessments ("Phase I Assessments") at the
Properties. These Phase I Assessments have included, among other things, a
visual inspection of the Properties and the surrounding area and a review of
relevant state, federal and historical documents. No invasive techniques such as
soil or groundwater sampling were performed.
The Company's Phase I Assessments of the Properties have not revealed any
environmental liability that the Company believes would have a material adverse
effect on the Company's business, assets or results of operations taken as a
whole, nor is the Company aware of any such material environmental liability.
Nevertheless, it is possible that the Company's Phase I Assessments do not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Moreover, there can be no assurance
that (i) future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties (such as the presence of
underground storage tanks), or by third parties unrelated to the Company.
The Company believes that the Properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances or petroleum products, except as noted
above. The Company has not been notified by any governmental authority, and is
not otherwise aware, of any material noncompliance, liability or claim relating
to hazardous or toxic substances or petroleum products in connection with any of
its present Properties, other than as noted above.
EFFECT ON COMMON STOCK PRICE OF SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices of
the Common Stock. In connection with the formation of the Company, 2,899,071 OP
Units, in addition to Common Stock sold by the Company in the Offering, will be
issued. See "Structure and Formation of the Company." Messrs. Ziman and Coleman
have agreed to certain restrictions on the dispositions of the shares of Common
Stock issued upon exchange of OP Units. See "Underwriting." When such
restrictions lapse, Common Stock issued upon the exchange of OP Units may be
sold in the public market pursuant to registration rights that the Company has
granted to the Participants or available exemptions from registration. In
addition, 1,500,000 shares of Common Stock will be reserved for issuance
pursuant to the Company's Stock Incentive Plan, and these shares will be
available for sale in the public markets from time to time pursuant to
exemptions from registration requirements or upon registration. Options to
purchase a total of 868,500 shares of Common Stock will be granted and stock
bonus awards for a total of 5,000 shares have been granted to certain executive
officers, employees and directors upon the closing of the Offering. See
"Management -- Compensation of Directors," "-- Executive Compensation" and "--
Stock Incentive Plan." No prediction can be made about the effect that future
sales of Common Stock will have on the market prices of shares.
EFFECT ON HOLDERS OF COMMON STOCK OF AN ISSUANCE OF PREFERRED STOCK
The Board of Directors is empowered by the Company's Charter to designate
and issue from time to time one or more classes or series of Preferred Stock
without stockholder approval. The Board of Directors may determine the relative
rights, preferences and privileges of each class or series of Preferred Stock so
issued. See "Capital Stock -- Preferred Stock." Because the Board of Directors
has the power to establish the preferences and rights of each class or series of
Preferred Stock, it may afford the holders in any series or
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class of Preferred Stock preferences, distributions, powers and rights, voting
or otherwise, senior to the rights of holders of Common Stock. The issuance of
Preferred Stock could also have the effect of delaying or preventing a change in
control of the Company. See "-- Limits on Changes in Control."
IMMEDIATE AND SUBSTANTIAL DILUTION
As set forth more fully under "Dilution," the pro forma net tangible book
value per share of the assets of the Company after the Offering will be
substantially less than the initial public offering price per share in the
Offering. Accordingly, purchasers of the Common Stock offered hereby will
experience immediate and substantial dilution of $5.24 per share in the net
tangible book value of the Common Stock from the initial public offering price.
See "Dilution."
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained or that shares of Common Stock will be resold at or above the initial
public offering price. The initial public offering price of the Common Stock has
been determined by agreement among the Company and the Underwriters and may not
be indicative of the market price for the Common Stock after the Offering. See
"Underwriting." The market value of the Common Stock could be substantially
affected by general market conditions, including changes in interest rates.
Moreover, numerous other factors, such as governmental regulatory action and
changes in tax laws, could have a significant impact on the future market price
of the Common Stock.
INFLUENCE OF EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
Upon completion of the Offering, all directors and executive officers of the
Company as a group will beneficially own approximately 94% of the OP Units
which, commencing one year after consummation of the Offering, will be
redeemable by the holder for cash or, at the option of the Company, exchangeable
for shares of Common Stock on a one-for-one basis. Assuming the exchange of all
of these OP Units for shares of Common Stock, all directors and executive
officers as a group would beneficially own approximately 12.61% of the total
issued and outstanding shares. Mr. Ziman currently serves as Chairman and Chief
Executive Officer and will be, along with Mr. Coleman, who currently serves as
President and Chief Operating Officer, and Mr. Gilbert (a director nominee) on
the initial Board of Directors of the Company. Accordingly, such persons will
have substantial influence on the Company, which influence might not be
consistent with the interests of other stockholders, and may in the future have
a substantial influence on the outcome of any matters submitted to the Company's
stockholders for approval if all of their OP Units are exchanged for Common
Stock. In addition, although there is no current agreement, understanding or
arrangement for those Participants who received OP Units to act together on any
matter, the Participants could be in a position to exercise significant
influence over the affairs of the Company if they were to act together in the
future. See "Principal Stockholders."
RISKS OF FEE MANAGEMENT BUSINESS
The Company, through the Operating Partnership, intends to pursue
selectively the management of properties owned by third parties. Risks
associated with the management and leasing of properties owned by third parties
include the risk that the management and leasing contracts (which are typically
cancelable upon 15 to 60 days' notice or upon certain events, including sale of
the property) will be terminated by the property owner or will be lost in
connection with a sale of such property, that contracts may not be renewed upon
expiration or may not be renewed on terms consistent with current terms and that
the rental revenues upon which management and leasing fees are based will
decline as a result of general real estate market conditions or specific market
factors affecting properties managed or leased by the Operating Partnership,
resulting in decreased management or leasing fee income.
EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK
One of the factors that will influence the market price of the Common Stock
in public markets will be the annual distribution rate on the shares. Increasing
market interest rates may lead prospective purchasers of the Common Stock to
demand a higher annual distribution rate from future distributions. Such an
increase in the required distribution rate may adversely affect the market price
of the Common Stock.
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THE COMPANY
The Company has been formed to continue and expand the real estate business
of Arden and the other Arden Predecessors which are engaged in owning,
acquiring, managing, leasing and renovating office properties in Southern
California. The Company's founders, Richard S. Ziman and Victor J. Coleman,
along with the other five senior officers at the Company, have an average of
more than 18 years of experience in the real estate industry. Upon completion of
the Offering, the Company will own 24 office properties (the "Properties")
containing approximately 4.0 million rentable square feet. All of the Properties
are located in Southern California, with 21 in suburban Los Angeles County, two
in Orange County and one in San Diego County. As of August 1, 1996, the
Properties had a weighted average occupancy rate of approximately 89%. Arden
currently manages 22 of the Properties. Upon completion of the Offering, the
Company will manage all of the Properties and four additional properties
containing approximately 325,000 rentable square feet which are currently
managed by Arden for institutional investors and other third-party owners. The
Company will be a fully integrated, self-administered and self-managed real
estate company and expects to qualify as a REIT for federal income tax purposes.
The Company believes that all of the Properties are located in strong
submarkets which generally have significant rent growth potential due to
employment growth, declining vacancy rates, limited new construction activity
and existing rental rates at levels significantly below those required to make
new construction economically feasible. The Company's portfolio is comprised
primarily of Class A suburban office properties. The Company generally considers
Class A suburban office properties to be those which have desirable locations
and high quality finishes, are well maintained and professionally managed and
are capable of achieving rental and occupancy rates which are typically above
those prevailing in their respective markets. Of the Company's 24 Properties, 20
Properties have been built since 1980 and 14 Properties, including all four
built prior to 1980, have been substantially renovated within the last three
years. The Properties are leased to over 540 tenants which engage in a wide
variety of businesses, including financial services, entertainment, health care
services, accounting, law, computer technology, education and publishing. Major
tenants in the Company's portfolio, based on square feet leased, include:
McDonnell Douglas, GTE California, Pepperdine University, Merrill Lynch, Earth
Technology, Grey Advertising, The Hearst Corporation, Smith Barney and Deloitte
& Touche. As of August 1, 1996, no single tenant accounted for more than
approximately 3.3% of the aggregate Annualized Base Rent of the Company's
portfolio and only 16 tenants individually represented more than 1% of such
aggregate Annualized Base Rent.
The Company believes that certain economic fundamentals in Southern
California provide an attractive environment for owning, acquiring and operating
Class A suburban office properties:
- According to AMERICA'S OFFICE ECONOMY prepared by Cognetics, Inc.,
Metropolitan Los Angeles (which includes Los Angeles County and Orange
County), in which 23 of the Company's 24 Properties are located, is
projected to be the number one market in the United States for primary
office employment growth during the period from 1995 to 2005;
- According to statistics released by the U.S. Bureau of Labor Statistics,
the unemployment rate in the Los Angeles/Long Beach Primary Metropolitan
Statistical Area (the "Los Angeles PMSA"), in which 21 of the 24
Properties are located, has decreased significantly over the past four
years, falling from an average of 9.8% during 1992 to 7.9% during 1995;
- The Los Angeles EDC has forecast that economic activity will increase
twice as fast in Los Angeles County than in the nation as a whole during
1996 and 1997, with inflation-adjusted gross product growing at a rate of
5.2% and 5% in Los Angeles County as compared to 2.5% and 2.4% in 1996 and
1997 for the nation as a whole; and
- Since 1992, there has been very limited construction of new office
properties in the Southern California region. The Company believes that
this limited construction of office properties coupled with a growing
economy will continue to result in increased demand for office space and
positive net absorption in the Southern California region, and
particularly in the selected submarkets where most of the Properties are
located. See "Southern California Economy and Office Markets."
27
<PAGE>
Richard S. Ziman, the Chairman and Chief Executive Officer of the Company,
has been involved in the real estate business for over 25 years. In 1979, Mr.
Ziman co-founded, as managing general partner, PFG, whose primary focus was to
acquire underperforming office buildings in good locations and then actively
manage, lease and renovate the properties to increase cash flow and enhance
their value. During the early and mid 1980's, PFG acquired over 4.0 million
square feet of commercial office space almost exclusively in Los Angeles County
and Orange County. In order to capitalize on the escalation of prices for
Southern California office properties in the late 1980's, PFG sold substantially
all of its interests in its office properties portfolio at a gain prior to the
general downturn in the real estate market in Southern California.
In 1993, in anticipation of a recovery in the Southern California real
estate market, the Company began to selectively acquire commercial office
properties located in suburban Los Angeles County. In assembling its existing
portfolio and as part of its operating strategy, the Company primarily acquired
office properties that were located in submarkets with growth potential, were
underperforming or needed renovation and which offered opportunities for the
Company to implement its value-added strategy to increase cash flow. This
strategy includes active management and aggressive leasing efforts, a focused
renovation and refurbishment program for underperforming assets, reduction and
containment of operating costs and emphasis on tenant satisfaction (including
efforts to maximize tenant retention at lease expiration and programs to
relocate tenants to other spaces within the Company's portfolio). The Company's
commitment to tenant satisfaction and retention is evidenced by its retention
rate of approximately 82% (based on square feet renewed) from 1993 through
August 1, 1996 and management's on-going relationships with multi-site tenants
such as McDonnell Douglas, Merrill Lynch, Imperial Bank, Smith Barney and GTE
California.
The Company believes that it has been successful in implementing its
value-added strategy as evidenced by increased occupancy rates and rental
revenue at the Properties. As of August 1, 1996, the Properties owned by the
Company for more than one year had a weighted average occupancy rate of
approximately 88%, compared to a weighted average occupancy of approximately 80%
as of the respective dates such Properties were acquired by the Company. In
addition, the Company's occupancy rates at many of its Properties are above
market averages in the applicable submarkets based on information included in
the C&W Market Study. As of April 30, 1996, the weighted average occupancy rate
of the 21 Properties located in Los Angeles County was approximately 90%,
compared to weighted average occupancy rates, as of December 31, 1995, of
approximately 81% for office properties throughout Los Angeles County and
approximately 84% for office properties in the Los Angeles County submarkets in
which such Properties are located (based in each case on the C&W Market Study).
The Company believes that the submarkets in which the Properties are
located, as well as certain additional submarkets within the Southern California
region, present opportunities for the Company to continue to acquire Class A
suburban office properties at attractive yields and for prices significantly
below replacement costs. To date, the Company has acquired its Properties at a
cost which the Company believes is significantly below replacement cost based on
estimates of replacement costs of Class A office buildings included in the C&W
Market Study. As part of its growth strategy to pursue such acquisitions, the
Company has acquired five properties in 1996 and will use approximately $35
million of the net proceeds from the Offering to acquire the two Acquisition
Properties concurrently with the Offering. The Acquisition Properties contain a
total of approximately 298,000 rentable square feet and are located in suburban
Los Angeles County. The Company believes that these acquisitions demonstrate its
ability, through its local market expertise, to identify and, with respect to
the 1996 acquired properties, to complete acquisitions in selected submarkets
within Southern California at prices significantly below replacement cost based
on estimates of replacement costs of Class A office buildings included in the
C&W Market Study. See "Business and Growth Strategies." To capitalize on future
acquisition opportunities, the Company is negotiating a $100 million Credit
Facility which the Company expects to use for acquiring properties and for
general corporate purposes, although there can be no assurance that the Company
will enter into the Credit Facility.
Upon completion of the Offering, the founders and executive officers of the
Company will beneficially own approximately 12.61% of the Company, assuming the
exchange of all of their OP Units for Common Stock and excluding shares of
Common Stock subject to options granted under the Company's 1996 Stock Incentive
Plan (the "Stock Incentive Plan").
28
<PAGE>
The Company is a Maryland corporation incorporated on May 1, 1996. The
Company's executive offices are located at 9100 Wilshire Boulevard, East Tower,
Suite 700, Beverly Hills, California 90212 and its telephone number is (310)
271-8600.
BUSINESS AND GROWTH STRATEGIES
The Company's primary business objectives are to maximize growth in cash
flow and to enhance the value of its portfolio in order to maximize total return
to its stockholders. The Company believes it can achieve these objectives by
continuing to implement its business strategies and capitalize on the external
and internal growth opportunities described below. The Company also believes,
based on its evaluation of market conditions, that a number of factors will
enhance its ability to achieve its business objectives, including (i) the
continuing improvement in the Southern California economy; (ii) the limited
construction of new office properties in the Southern California region due to
the substantial cost to develop new office properties compared to current
acquisition prices and substantial building construction limitations in many
submarkets, which provides opportunities to maximize occupancy rates, rental
rates and overall portfolio value; and (iii) the limited availability of
conventional real estate financing for new construction of office properties in
Southern California.
BUSINESS STRATEGIES
The Company's primary business strategies are to (i) acquire and renovate
underperforming office properties or properties which provide attractive yields
with stable cash flow in submarkets where it can utilize its local market
expertise and extensive real estate experience; (ii) actively manage its
portfolio; and (iii) selectively provide real estate management services to
third parties. When market conditions permit, the Company may also develop new
properties in submarkets where it has local market expertise.
Based on its own historical activities and its knowledge of the local
marketplace the Company believes that (i) the Southern California region offers
opportunities for companies like the Company that are well-capitalized,
experienced owners of real estate with extensive local market expertise and (ii)
being a public company will enhance its ability to take advantage of
opportunities to acquire additional office properties at attractive prices and
develop office properties, when feasible, at attractive returns. Through four
regional offices, the Company implements its business strategies by: (i)
emphasizing tenant satisfaction and retention and employing intensive property
marketing programs; (ii) utilizing a multidisciplinary approach to acquisition,
management, leasing and renovation activities that is designed to coordinate
decision-making and enhance responsiveness to market opportunities and tenant
needs; and (iii) implementing cost control management and systems that
capitalize on economies of scale arising from the size and location of the
Company's portfolio. The Company believes that the implementation of these
operating practices has led to the increased occupancy rates and rental revenue
of its existing portfolio.
AGGRESSIVE LEASING. The Company utilizes its market position and
relationships with a broad array of brokers and tenants to implement its
aggressive leasing efforts and monitor and understand the current and future
space needs of office tenants in its various submarkets. Since the Company
retains several different brokerage companies as leasing agents (at least nine
different companies across the four regions and 24 Properties) to implement its
leasing program, it has a high profile in the brokerage community. This strategy
enables the Company to attract and place tenants throughout all of the
Properties, thereby improving the Company's penetration in the tenant community.
The Company believes that not only does the breadth of its submarket presence
permit it to offer a wide variety of space alternatives to prospective tenants
and to existing tenants whose facility requirements change over time, but also
its leasing agents are
given incentives to locate tenants to Properties where they are not the leasing
agent.
INTEGRATED DECISION-MAKING AND RESPONSIVENESS. In addition to the location
and quality of the Properties, management generally credits its ability to
maintain its Properties at above-average market occupancy levels to the
coordination of its decision-making team. Acquisition, renovation and leasing
activities are coordinated to enhance responsiveness to market opportunities and
tenant needs. The Company's renovation and construction executive plays an
integral role in both its leasing and acquisition activities. The acquisition,
leasing and renovation teams work closely with the Company's senior management
from the
29
<PAGE>
initial meetings with prospective tenants or sellers, and throughout the
negotiation process. This integrated approach permits the Company to analyze the
economic terms and costs (including tenant build-out and retrofitting costs) for
each lease on a timely and efficient basis throughout lease negotiations. With
respect to acquisitions, the Company can quickly analyze the costs of upgrades
and lease-up potential. The Company is able to commit to leasing and acquisition
terms quickly, facilitate timely deal execution and build-out of space for
prospective tenants and minimize downtime between lease rollovers.
COST CONTROL OPERATING EFFICIENCIES. The size and geographic location of
the Company's portfolio permit it to enhance portfolio value by lowering
operating costs and expenses, compared to single-site ownership and management.
The Company seeks to capitalize on economies of scale resulting from the
Southern California geographic focus of the portfolio and the maintenance of a
centralized state of the art accounting system for cost control at each of the
Properties. The Company also strives to minimize overhead by controlling
corporate general and administrative expenses and assigning responsibility for
multiple submarkets to its four regional offices.
GROWTH STRATEGIES
EXTERNAL GROWTH: Based on its own historical activities and its knowledge
of the local marketplace, the Company believes that opportunities continue to
exist to acquire additional office properties that: (i) provide attractive
initial yields with significant potential for growth in cash flow; (ii) are in
desirable locations within submarkets which the Company believes have economic
growth potential; and (iii) are underperforming or need renovation, and which
therefore provide opportunities for the Company to increase the cash flow and
value of such properties through active management and aggressive leasing.
The Company intends to continue to acquire office properties within
submarkets in Southern California which the Company believes present
opportunities for long-term stable and rising rental rates due to employment
growth, population movements within the region and restrictions on new
development. Upon or shortly after completion of the Offering the Company will
have a debt-to-total market capitalization ratio of approximately 19.3% and
expects to finance acquisitions through its proposed $100 million Credit
Facility, although it may employ other financial alternatives. The Company
generally targets properties which are underperforming or need renovation and
offer opportunities for the Company to implement its value-added strategy to
increase cash flow. For example, as of August 1, 1996, the Properties owned by
the Company for more than one year had a weighted average occupancy rate of
approximately 88%, compared to approximately 80% as of the respective dates such
Properties were acquired by the Company. The Company also targets properties
which provide attractive yields with stable cash flow.
In addition, the Company will seek to acquire properties at a significant
discount to replacement cost in the relevant submarket. Since the beginning of
1993, the Company has acquired its Properties in suburban Los Angeles County at
a cost which the Company believes is significantly below replacement cost based
on estimates of replacement costs of Class A office buildings included in the
C&W Market Study. See "Southern California Economy and Office Markets."
The Company believes it has certain competitive advantages which enhance its
ability to identify and capitalize on acquisition opportunities, including: (i)
management's significant local market expertise, experience and knowledge of
properties, submarkets and potential tenants within the Southern California
region; (ii) management's long-standing relationships with tenants, real estate
brokers and institutional and other owners of commercial real estate; (iii) its
fully integrated real estate operations which allow the Company to respond
quickly to acquisition opportunities and enable it to provide real estate
management services to third parties as a means of identifying such
opportunities; (iv) its access to capital as a public company, including the
Company's proposed $100 million Credit Facility; (v) its ability to acquire
properties in exchange for OP Units or Common Stock if the sellers so desire;
and (vi) management's reputation as an experienced purchaser of office
properties in Southern California which has the ability to effectively close
transactions.
Recent examples of the Company's ability to identify attractive acquisition
opportunities include the two Acquisition Properties, 303 Glenoaks and 12501
East Imperial Highway. The Property at 303 Glenoaks is a ten-story, 175,449
square foot, Class A building situated in the Burbank Civic Center area. The
Company
30
<PAGE>
believes that the Burbank market, which is adjacent to the very low vacancy
Burbank Media District market, affords it an opportunity to capitalize on the
Burbank market tightness by maximizing rental rates at levels below those
achieved in the Burbank Media District and benefiting from the spill-over of
tenants from the Burbank Media District who either cannot find space there or
who do not wish to pay the full Burbank Media District rents. In addition, the
Company plans a common area renovation in order to become even more attractive
to its existing and potential tenant base. Similarly, the Property at 12501 East
Imperial Highway is a 122,175 square foot, six-story building located
immediately off Interstate 5, the primary central, north-south artery of
California. Located between downtown Los Angeles and Orange County, this
Property is occupied by major tenants, such as IBM, Mead Corporation, which runs
a training facility, and GTE California, which runs a teleconferencing facility
on site. In addition to taking advantage of its portfolio-wide operating
efficiencies, the Company plans to decrease operating expenses at this Property
by furnishing management services from its Property in Anaheim rather than
having an on-site manager.
The Company may also seek to take advantage of management's development
expertise to develop office space when market conditions support office building
development. The Company believes, however, that opportunities exist for it to
continue to acquire office properties within selected submarkets in Southern
California at less than replacement cost and, therefore, currently intends to
focus on acquisitions rather than development.
INTERNAL GROWTH: The Company believes that opportunities exist to increase
cash flow from its existing portfolio and that such opportunities will be
enhanced as the Southern California office market continues to improve. The
Company intends to pursue internal growth by (i) continuing to maintain and
improve occupancy rates through active management and aggressive leasing; (ii)
realizing fixed contractual base rental increases or increases tied to indices
such as the CPI; (iii) re-leasing expiring leases at increasing market rents
which are expected to result, over time, from increased demand for office space
in Southern California; (iv) controlling operating expenses through the
implementation of cost control management and systems; (v) capitalizing on
economies of scale arising from the size of its portfolio; and (vi) increasing
revenue generated from parking facilities at certain Properties where the
Company is currently offering free parking as an amenity or charging below
market rates.
(i) MAINTAINING AND IMPROVING OCCUPANCY RATES: The Company believes that
it has been successful in attracting, expanding and retaining a diverse tenant
base by actively managing its office properties with an emphasis on tenant
retention and satisfaction. The Company strives to be responsive to the needs of
individual tenants through its on-site professional management staff and by
providing tenants with alternative space within the Company's portfolio to
accommodate their changing space requirements. The Company's success in
maintaining and improving occupancy rates is demonstrated, in part, by the
number of existing tenants which have renewed or released their space, leased
additional space to support their extension needs, or moved to other space
within the Company's portfolio. The Company has achieved a tenant retention rate
of approximately 82% (based on square feet renewed) from inception through
August 1, 1996. See "Business and Properties -- Tenant Retention and
Expansions." The Company also seeks to improve occupancies by aggressively
marketing available space within its portfolio. As of August 1, 1996,
approximately 446,000 rentable square feet were unleased within the Company's
portfolio.
(ii) CONTRACTUAL BASE RENTAL INCREASES: The Company expects to achieve
internal growth in cash flow through leases which contain provisions for fixed
contractual rental increases (including increases from free or partial rent to
full rent) or increases which are tied to indices such as the CPI. Between June
30, 1996 and July 31, 1997, the contractual base rents under leases in the
Company's portfolio are expected to increase by an aggregate of approximately
$1.2 million on an annual basis due to fixed contractual rent increases (not
including increases from free or partial rent to full rent or increases which
are tied to indices such as the CPI).
(iii) RE-LEASING EXPIRING LEASES TO INCREASING MARKET RENTS: Although
there can be no assurances in this regard, the Company believes that as the
commercial real estate market in Southern California continues to improve, there
will be increasing demand for office space and declining vacancies which are
expected to
31
<PAGE>
result, over time, in increasing market rents. The Company believes it would
have significant opportunities to increase cash flow during such periods of
increasing market rents by renewing or re-leasing expiring leases at the
increased market rents.
(iv) COST CONTROL MANAGEMENT AND SYSTEMS: The Company seeks to lower
operating expenses by implementing cost control management that capitalizes on
economies of scale opportunities resulting from the size and location of the
Company's portfolio. The Company focuses on cost control in various areas of
operations. For example, the Company is seeking to significantly lower its
utility costs, which constitute over 25% of the operating costs of most of the
Properties, through the portfolio-wide installation of energy enhancement
technologies, which include lighting retrofit, replacement of heating,
ventilation and air conditioning systems, and computer-driven energy management
systems which monitor and react to the climatic requirements of individual
Properties. The energy enhancement program is expected to be implemented
throughout the Properties over the next six months.
(v) CAPITALIZING ON ECONOMIES OF SCALE: In order to capitalize on
economies of scale arising from the size of the Company's portfolio, the
Company's property and asset managers are responsible for several Properties,
which spreads administrative costs over such Properties and reduces per square
foot administrative expense. In addition, the Company believes that insurance
coverage, parking operations, building and other services and tenant
improvements purchased on a portfolio-wide basis will facilitate further
economies of scale savings.
(vi) REVENUE FROM PARKING FACILITIES: The Company owns or leases parking
facilities which are attached or adjacent to many of the Properties. The Company
currently provides free parking to tenants at six of the Properties as an
amenity and charges tenants at the remaining Properties at or below market rates
for parking. If the demand for Southern California office space increases and
occupancy rates rise, which the Company believes is the trend, the Company
believes that there may be opportunities to generate additional revenue from the
parking facilities associated with its Properties by charging for parking which
is currently provided for free, increasing below market rates and maintaining
its arrangements with a limited number of third-party operators of the Company's
parking facilities.
32
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after deducting the
estimated underwriting discounts and commissions and estimated expenses of the
Offering, are estimated to be approximately $347 million (approximately $400
million if the Underwriters' overallotment option is exercised in full),
assuming a public offering price of $20.00 per share. The net cash proceeds of
the Offering will be used by the Company as follows: approximately $26.8 million
for payments to certain Participants (not including Messrs. Ziman and Coleman
who will not receive any cash in the Formation Transactions) for their interests
in the Arden Predecessors and in certain of the Properties and the balance
(approximately $320.2 million) will be contributed to the Operating Partnership
in exchange for the Company's general partner interest therein. The Operating
Partnership will subsequently use the proceeds received from the Company along
with the net cash proceeds of approximately $103 million from the Mortgage
Financing borrowed concurrently with the Offering and approximately $19.3
million in restricted cash that will be available upon conclusion of the
Formation Transactions, as follows: approximately $397 million for repayment of
mortgage debt on the Properties (which was incurred to acquire the Properties)
and unsecured lines of credit and the related additional and accrued interest
thereon, approximately $35 million for payment of the purchase price for the
Acquisition Properties, and the remaining net proceeds will be used for tenant
improvements, capital expenditure reserves and working capital purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
If the Underwriters' overallotment option to purchase 2,827,000 shares of
Common Stock is exercised in full, the Company expects to use the additional net
proceeds (which will be approximately $52.6 million) to acquire additional
office properties and for working capital.
Pending application of net proceeds, the Company will invest such portion of
the net proceeds in interest-bearing accounts and short-term, interest-bearing
securities, which are consistent with the Company's intention to qualify for
taxation as a REIT.
The following table sets forth certain information regarding the debt to be
repaid upon completion of the Offering and the Mortgage Financing, which
consists primarily of mortgage or secured debt encumbering certain of the
Properties. The mortgages and other indebtedness to be repaid upon completion of
the Offering had a weighted average interest rate of approximately 8.541% before
consideration of additional interest and any lenders' participation and a
weighted average remaining term to maturity of approximately 2.86 years as of
June 30, 1996.
33
<PAGE>
MORTGAGE DEBT TO BE REPAID
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
OF DEBT TO BE
REPAID UPON
CONSUMMATION
OF THE OFFERING
AND THE MORTGAGE
FINANCING (1)
-------------------
(IN THOUSANDS)
<S> <C>
PROPERTY
- ----------------------------------------------------------------------
9665 Wilshire......................................................... $ 30,716
Beverly Atrium........................................................ 15,631
Century Park Center................................................... 25,170
Westwood Terrace...................................................... 20,514
1950 Sawtelle......................................................... 10,200
400 Corporate Pointe.................................................. 21,885
Bristol Plaza......................................................... 5,200
Skyview Center........................................................ 40,242
The New Wilshire...................................................... 21,494
5601 Lindero Canyon................................................... 10,161
Calabasas Commerce Center............................................. 11,527
Woodland Hills Financial.............................................. 22,612
16000 Ventura Blvd.................................................... 17,151
425 West Broadway..................................................... 5,000
70 South Lake......................................................... 10,741
4811 Airport Plaza Drive.............................................. 14,261
4910 Airport Plaza Drive.............................................. (2)
5000 East Spring...................................................... 10,922
100 Broadway.......................................................... 20,250
5832 Bolsa............................................................ 4,618
Anaheim City Centre................................................... 9,880
Imperial Bank Tower................................................... 41,451
--------
Total............................................................. $369,626
--------
--------
</TABLE>
- ------------------------
(1) Exact repayment amounts may differ due to amortization. These figures are
estimated as of September 1, 1996 and exclude (a) accrued and additional
interest estimated to be approximately $25 million in the aggregate and (b)
$3.26 million under lines of credit to be assumed by the Operating
Partnership.
(2) Included in amount listed above for 4811 Airport Plaza Drive.
DISTRIBUTIONS
Subsequent to the Offering, the Company intends to make regular quarterly
distributions to the holders of its Common Stock. The Company intends to cause
the Operating Partnership initially to distribute annually approximately 94.5%
of estimated Cash Available for Distribution. The Company intends to pay a pro
rata distribution with respect to the period commencing on the closing of the
Offering and ending on December 31, 1996 based upon $0.40 per share for a full
quarter. On an annualized basis, this would be $1.60 per share (of which $0.22
may represent a return of capital for tax purposes), or an annual distribution
rate of approximately 8% based on the assumed initial public offering price per
share of $20.00. The Company does not intend to reduce the expected distribution
per share if the Underwriters' overallotment option is exercised. The following
discussion and the information set forth in the table and footnotes below should
be read in connection with the financial statements and notes thereto, the pro
forma financial information and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" included elsewhere in this Prospectus.
34
<PAGE>
The Company's estimate of the Cash Available for Distribution after the
Offering is based upon pro forma Funds from Operations for the 12 months ended
June 30, 1996, with certain adjustments based on the items described below. To
estimate Cash Available for Distribution for the 12 months ended July 31, 1997,
pro forma Funds from Operations for the 12 months ended June 30, 1996 was
adjusted (a) without giving effect to any changes in working capital resulting
from changes in current assets and current liabilities (which changes are not
anticipated to be material) or the amount of cash estimated to be used for (i)
investing activities for development, acquisition and other activities (other
than a reserve for capital expenditures and tenant improvements for renewing
space) and (ii) financing activities, (b) for certain known events and/or
contractual commitments that either occurred subsequent to June 30, 1996 or
during the 12 months ended June 30, 1996 but were not effective for the full 12
months and (c) for certain non-GAAP adjustments consisting of (i) revising
historical rent estimates from a GAAP basis to amounts currently being paid or
due from tenants and (ii) an estimate of amounts anticipated for recurring
tenant improvements, leasing commissions and capital expenditures. The estimate
of Cash Available for Distribution is being made solely for the purpose of
setting the initial distribution and is not intended to be a projection or
forecast of the Company's results of operations or its liquidity, nor is the
methodology upon which such adjustments were made necessarily intended to be a
basis for determining future distributions. Future distributions by the Company
will be at the discretion of the Board of Directors. There can be no assurance
that any distributions will be made or that the estimated level of distributions
will be maintained by the Company.
The Company anticipates that its distributions will exceed earnings and
profits for income tax reporting purposes due to non-cash expenses, primarily
depreciation and amortization, to be incurred by the Company. Therefore,
approximately 13.6% (or $0.22 per share) of the distributions anticipated to be
paid by the Company for the first 12 months subsequent to the Offering are
expected to represent a return of capital for federal income tax purposes and in
such event will not be subject to federal income tax under current law to the
extent such distributions do not exceed a stockholder's basis in his or her
Common Stock. The nontaxable distributions will reduce the stockholder's tax
basis in the Common Stock and, therefore, the gain (or loss) recognized on the
sale of such Common Stock or upon liquidation of the Company will be increased
(or decreased) accordingly. The percentage of stockholder distributions that
represents a nontaxable return of capital may vary substantially from year to
year.
Federal income tax law requires that a REIT distribute annually at least 95%
of its REIT taxable income. See "Federal Income Tax Considerations -- Taxation
of the Company." The amount of distributions on an annual basis necessary to
maintain the Company's REIT status based on pro forma taxable income of the
Operating Partnership for the 12 months ended June 30, 1996 as adjusted for
certain items in the following table would have been approximately $28.6
million. The estimated Cash Available for Distribution is anticipated to be in
excess of the annual distribution requirements applicable to REITs. Under
certain circumstances, the Company may be required to make distributions in
excess of Cash Available for Distribution in order to meet such distribution
requirements. For a discussion of the tax treatment of distributions to holders
of Common Stock see "Federal Income Tax Considerations."
The Company believes that its estimate of Cash Available for Distribution
constitutes a reasonable basis for setting the initial distribution, and the
Company expects to maintain its initial distribution rate for the 12 months
subsequent to the Offering unless actual results of operations, economic
conditions or other factors differ from the assumptions used in the estimate.
The Company's actual results of operations will be affected by a number of
factors, including the revenue received from the Properties, the operating
expenses of the Company, interest expense, the ability of tenants of the
Properties to meet their obligations and unanticipated capital expenditures.
Variations in the net proceeds from the Offering as a result of a change in the
initial public offering price or the exercise of the Underwriters' overallotment
option may affect the Cash Available for Distribution and the payout ratio of
Cash Available For Distribution and available reserves. No assurance can be
given that the Company's estimate will prove accurate. Actual results may vary
substantially from the estimate.
35
<PAGE>
The following table describes the calculation of pro forma Funds from
Operations for the 12 months ended June 30, 1996 and the adjustments to pro
forma Funds from Operations for the 12 months ended June 30, 1996 in estimating
initial Cash Available for Distribution for the 12 months ended July 31, 1997
(amounts in thousands except share data, per share data, square footage data and
percentages):
<TABLE>
<S> <C>
Pro forma income before minority interests for the year ended December
31, 1995............................................................ $26,266
Pro forma income before minority interests for the six months ended
June 30, 1995....................................................... (13,192)
Pro forma income before minority interests for the six months ended
June 30, 1996....................................................... 15,337
-------
Pro forma income before minority interests for the 12 months ended
June 30, 1996....................................................... 28,411
Plus pro forma real estate depreciation for the 12 months ended
June 30, 1996 (1)................................................... 10,459
Plus pro forma amortization of leasing commissions and tenant
improvements for the 12 months ended June 30, 1996 (2).............. 1,053
-------
Pro forma Funds from Operations for the 12 months ended June 30,
1996................................................................ 39,923
Adjustments:
Provision for assumed expiring leases (3)........................... (1,110)
Incremental pro forma lease adjustment (4).......................... 3,554
Increase in tenant reimbursements (5)............................... 722
Net increase in property operating expenses relating to new leases
(6)................................................................ (267)
Contractual increase in parking income and other income (7)......... 63
-------
Estimated pro forma Funds from Operations for the 12 months ended July
31, 1997............................................................ 42,885
Net effect of straight lining of rents (8).......................... (2,130)
Estimated recurring non-revenue enhancing tenant improvements and
leasing commissions (9)............................................ (3,217)
Estimated recurring non-revenue enhancing capital expenditures
(10)............................................................... (727)
-------
Total estimated Cash Available for Distribution for the 12 months
ended July 31, 1997................................................. $36,811
Total estimated cash distributions.................................... $34,786
Less: Minority interests' share of estimated Cash Available for
Distribution........................................................ 4,627
-------
Estimated cash distributions to stockholders of the Company (11)...... $30,159
Estimated initial cash distribution per share (12).................... $ 1.60
Estimated Cash Available for Distribution payout ratio (13)........... 94.5%
</TABLE>
- ------------------------
(1) Pro forma depreciation for the year ended December 31, 1995 of $10,866 plus
pro forma depreciation for the six months ended June 30, 1996 of $5,020
minus pro forma depreciation for the six months ended June 30, 1995 of
$5,427.
(2) Pro forma amortization of leasing commissions and tenant improvements for
the year ended December 31, 1995 of $683 plus pro forma amortization of
leasing commissions and tenant improvements for the six months ended June
30, 1996 of $753 minus pro forma amortization of leasing commissions and
tenant improvements for the three months ended June 30, 1995 of $383.
(3) The provision for assumed expiring leases represents adjustments for a
possible reduction in occupancy and in rental rates and consists of (i) a
reduction of $763 which represents 30% of the rent payable under all leases
expiring from August 16, 1996 through July 31, 1997 assuming that 30% of
such expiring leases will not be renewed (and for the period that such
leases will not generate rent during the 12 months ended July 31, 1997) and
(ii) a reduction of $347 for the 70% of leases assumed to be renewed between
August 16, 1996 and July 31, 1997 assuming that such leases renew at the
lower of the contractual rental rate of the lease at the time of its
expiration or the Company's analysis of the market rate. The Company's
historical renewal rate, based on square footage, from inception through
August 1, 1996 is 82%.
36
<PAGE>
(4) Reflects rental increases and decreases from 1995 and 1996 completed leasing
transactions relating to the Properties and consists of (i) a net increase
of $2,726 representing additional minimum rent from new leases and renewals
executed between June 30, 1996 and August 16, 1996 to the extent such leases
generate additional minimum rents for the 12 months ended July 31, 1997,
(ii) a decrease of $137 representing the decrease in rental revenue for
leases that expired between June 30, 1996 and August 16, 1996 to the extent
such leases generated rent for the 12 months ended June 30, 1996 and (iii) a
net amount of $965 representing the full year minimum rent in effect for
existing leases on which rent is only partially reflected in the historical
financial statements of the Arden Predecessors for the 12 months ended June
30, 1996 and the decrease in rental revenue for leases expired during the 12
months ended June 30, 1996 to the extent rental revenue was included in
rental revenue for the 12 months ended June 30, 1996.
(5) Represents the contractual increase in tenant reimbursements attributable to
leases executed prior to June 30, 1996 based upon the estimated expenses to
be reimbursed by the tenants for the 12 months ended July 31, 1997 in excess
of the estimated base year amounts.
(6) Represents the estimated net increase in operating expenses based on the net
increase in the occupancy of space for leases signed during the 12 months
ended June 30, 1996, and between June 30, 1996 and August 16, 1996, offset
by the decrease in occupancy from actual lease terminations through June 30,
1996 and for the provision for expiring leases (See (3) above) as if such
increases and decreases were in effect for the full 12 months ended July 31,
1997.
(7) Represents net additional parking revenue of $12 to be received for the 12
months ended July 31, 1997, relating to leases signed subsequent to June 30,
1996 and the increase in management fee revenue of $51 for the 12 months
ending July 31, 1997 relating to three third-party property management
contracts pursuant to which the Company began receiving fees subsequent to
June 30, 1996. The Company believes that it can manage the additional
properties with its existing resources and, accordingly, there will be no
additional increase in its operating expenses attributable to these new
contracts. The management contracts are terminable upon 15 to 60 days'
notice although the Company is not aware of any intention to cancel any of
these management contracts.
(8) Represents the effect of adjusting straight-line rental revenue included in
pro forma net income for the 12 months ended July 31, 1997 from the
straight-line accrual basis to amounts currently being paid or due from
tenants. Following is a table which shows the adjustments to straight-line
revenue for 1997-2001 related to leases in place at August 1, 1996.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$1,199 $164 $(602) $(1,305) $(1,651)
</TABLE>
37
<PAGE>
(9) Reflects non-revenue enhancing tenant improvements ("TI") and leasing
commissions ("LC") for the Properties for the 12 months ended July 31, 1997
based on the weighted average TI and LC expenditures per square foot for
renewed and re-tenanted space at the Properties since 1993 multiplied by the
average annual square feet of leased space for which leases expire during
the five year period ending December 31, 2001 (400,000 square feet).
<TABLE>
<CAPTION>
JANUARY
1-
YEAR ENDED DECEMBER 31, AUGUST
----------------------- 1, WEIGHTED
1993 1994 1995(I) 1996 AVERAGE
----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C>
RENEWAL
TI per square foot................................ $3.58 $2.23 $ 4.67 $5.46 $4.19
LC per square foot................................ $ .09 $3.44 $ 1.11 $2.39 $2.37
----- ----- ------ ------ ------
Total TI and LC per square foot............... $3.67 $5.67 $ 5.78 $7.85 $6.56
----- ----- ------ ------ ------
----- ----- ------ ------ ------
RE-TENANTED (ii)
TI per square foot................................ $2.22 $9.04 $ 9.82 $7.04 $8.38
LC per square foot................................ $ .31 $2.72 $ 3.05 $3.66 $3.12
----- ----- ------ ------ ------
Total TI and LC per square foot............... $2.53 $11.76 $12.87 $10.70 $11.50
----- ----- ------ ------ ------
----- ----- ------ ------ ------
</TABLE>
---------------------
(i) Excludes tenant improvement and leasing commission costs relating to
one lease signed at Anaheim City Centre for which the Company
incurred substantial renovation costs in connection with a full floor
retrofit. Tenant improvement costs for all leases renewed in 1995
equaled $8.05 per square foot.
(ii) Does not include shell space build out for 187,703 square feet.
Shell space remaining at the Properties is less than 2% of the
aggregate rentable square footage of the Properties.
<TABLE>
<CAPTION>
THREE YEAR AVERAGE ANNUAL
WEIGHTED SQUARE FOOTAGE RATE OF
AVERAGE TI AND EXPIRING IN RENEWALS/ TOTAL
LC PER SQUARE FOOT 1997-2001 RE-TENANTED COST
------------------ --------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Renewal................................. $ 6.56 x 400,000 x 70%(i) = $ 1,837
Re-tenanted............................. $11.50 x 400,000 x 30% = 1,380
----------
$ 3,217
----------
----------
</TABLE>
---------------------
(i) The historical weighted average renewal rate for the Company from
January 1, 1993 is 82%.
(10) The reserve for recurring non-revenue enhancing capital expenditures for
the 12 months ended July 31, 1997 was based upon an annual cost per square
foot of $.18. The Company has calculated this reserve based upon its
estimates of replacement or renovation costs and actual lives of: parking
lots, roofs, heating, ventilation and air conditioning systems, elevators
and mechanical systems, lobbies, restrooms and corridors.
(11) The Company's share of estimated cash distributions is based on its
approximately 86.71% ownership of the aggregate equity capitalization of the
Operating Partnership.
(12) Based on a total of 18,852,500 shares to be outstanding following
consummation of the Offering. The Company estimates that approximately 13.6%
of the estimated cash distributions for the 12 months ended July 31, 1997
will represent a return of capital for federal income tax purposes.
(13) Calculated as the total estimated cash distributions divided by the total
estimated Cash Available for Distribution for the 12 months ended July 31,
1997. The payout ratio of estimated pro forma Funds from Operations equals
81.1%.
38
<PAGE>
CAPITALIZATION
The following table sets forth the combined historical capitalization of the
Arden Predecessors and the pro forma combined capitalization of the Company as
of June 30, 1996, as adjusted to give effect to the Formation Transactions, the
Offering and use of the net proceeds from the Offering and from the concurrent
Mortgage Financing as set forth under "Use of Proceeds." The information set
forth in the table should be read in connection with the financial statements
and notes thereto, the pro forma financial information and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------
PRO FORMA
COMBINED AS
HISTORICAL ADJUSTED
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Mortgage Loans (1).................................................. $263,492 $104,000
Line of Credit...................................................... 2,467 --
Minority interests in Operating Partnership........................... 718 43,231
Stockholders' equity:
Preferred Stock, $.01 par value, 20,000,000 shares authorized; none
issued and outstanding............................................. -- --
Common Stock, $.01 par value; 100,000,000 shares authorized;
18,852,500 issued and outstanding (2).............................. -- 189
Additional Paid-in Capital.......................................... -- 281,693
Owners' Equity...................................................... 7,530 --
-------- ---------
Total Owners'/Stockholders' Equity................................ 7,530 281,882
-------- ---------
Total Capitalization............................................ $274,207 $429,113
-------- ---------
-------- ---------
</TABLE>
- ------------------------
(1) See note 4 of the notes to the combined financial statements of the Arden
Predecessors for information relating to the indebtedness.
(2) Includes shares of Common Stock to be issued in the Offering and 5,000
shares issued to employees of the Company as a stock bonus. See "Management
-- Executive Compensation." Does not include (i) 2,889,071 shares of Common
Stock that may be issued upon the exchange of OP Units issued in connection
with the Formation Transactions, (ii) 2,827,000 shares of Common Stock
subject to the Underwriters' overallotment option or (iii) shares of
Common Stock subject to options granted under the Company's Stock Incentive
Plan.
39
<PAGE>
DILUTION
At June 30, 1996, the Company had a net tangible book value of approximately
$6.6 million. After giving effect to (i) the sale of the shares of Common Stock
offered hereby (at an assumed initial public offering price of $20.00 per share)
and the receipt by the Company of approximately $347 million in net proceeds
from the Offering, after deducting underwriting discounts and commissions and
estimated Offering expenses, (ii) the repayment of approximately $398 million of
indebtedness under mortgage debt and unsecured lines of credit (including
approximately $25 million of accrued, deferred and additional interest, of which
approximately $20 million was not accrued as of June 30, 1996 on the combined
balance sheet of the Arden Predecessors), the pro forma net tangible book value
at June 30, 1996 would have been $321 million, or $14.76 per share of Common
Stock. This amount represents an immediate increase in net tangible book value
of $12.48 per share to the existing holders of OP Units and an immediate
dilution in pro forma net tangible book value of $2.28 per share of Common Stock
to new investors. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $20.00
Net tangible book value per share prior to the Offering (1)......... $2.28
Increase in net tangible book value per share attributable to the
Offering (2)....................................................... $12.48
Pro forma net tangible book value after the Offering (3).............. $14.76
------
Dilution in net tangible book value per share of Common Stock to new
investors (4)....................................................... $ 5.24
------
------
</TABLE>
- ------------------------
(1) Net tangible book value per share prior to the Offering is determined by
dividing net tangible book value of the Company (based on the June 30, 1996
net book value of the assets less net book value of prepaid financing and
leasing costs to be contributed in connection with the Formation
Transactions, net of liabilities to be assumed) by the number of shares of
Common Stock issuable upon the exchange of all OP Units to be issued to the
Participants in connection with the Formation Transactions.
(2) Based on an assumed initial public offering price of $20.00 per share of
Common Stock and after deducting Underwriters' discounts and commissions and
estimated Offering expenses.
(3) Based on total pro forma net tangible book value of $321 million divided by
the total number of shares of Common Stock. There is no impact on dilution
attributable to the issuance of Common Stock in exchange for OP Units to be
issued to the Participants since such OP Units would be exchanged for Common
Stock on a one-for-one basis.
(4) Dilution is determined by subtracting net tangible book value per share of
Common Stock after the Offering from the assumed initial public offering
price for a share of Common Stock.
The following table summarizes, on a pro forma basis giving effect to the
Offering and the Formation Transactions, the number of shares of Common Stock to
be sold by the Company in the Offering and the number of OP Units to be issued
to the Participants in connection with the Formation Transactions, the net
tangible book value as of June 30, 1996 of the assets contributed in the
Formation Transactions and the net tangible book value of the average
contribution per share based on total contributions.
<TABLE>
<CAPTION>
COMMON SHARES/ BOOK VALUE OF BOOK VALUE OF
OP UNITS ISSUED CONTRIBUTIONS AVG.
--------------- ----------------- CONTRIBUTION
SHARES PERCENT $ PERCENT PER SHARE/UNIT
------ ------- -------- ------- --------------
(IN THOUSANDS EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
New investors in the Offering......................................... 18,848 86.69% $376,950 98.28% $20.00(3)
OP Units and Common Shares issued to Continuing Investors (1)......... 2,894 13.31% $ 6,589(2) 1.72% $ 2.28
------ ------- -------- -------
Total............................................................... 21,742 100.00% $383,539 100.00%
------ ------- -------- -------
------ ------- -------- -------
</TABLE>
- ------------------------
(1) Common Shares represents 5,000 shares to be issued upon completion of the
Offering as a Common Stock Bonus to two officers of the Company.
(2) Based on the June 30, 1996 net book value of the assets less net book value
of prepaid financing and leasing costs to be contributed in connection with
the Formation Transactions, net of liabilities to be assumed.
(3) Before deducting underwriting discounts and commissions and estimated
expenses of the Offering.
40
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The following sets forth selected combined financial and operating
information on a pro forma basis for the Company and on a combined historical
basis for the Arden Predecessors. The following information should be read in
conjunction with the financial statements and notes thereto of the Company and
of the Arden Predecessors included elsewhere in this Prospectus. The selected
combined historical financial and operating information of the Arden
Predecessors at December 31, 1995 and 1994, and for the years ended December 31,
1995, 1994 and 1993, has been derived from the historical combined financial
statements audited by Ernst & Young LLP, independent auditors, whose report with
respect thereto is included elsewhere in this Prospectus. The selected combined
financial and operating information for the six months ended June 30, 1996 and
June 30, 1995 has been derived from the unaudited combined financial statements
of the Arden Predecessors included elsewhere in this Prospectus.
The unaudited pro forma financial and operating information for the six
months ended June 30, 1996 and the year ended December 31, 1995 is presented as
if the Offering, the Formation Transactions (including the purchase of the
Acquisition Properties), and the acquisitions of the 1996 Acquired Properties
and the 1995 Acquired Properties had all occurred by June 30, 1996 for the
combined balance sheet and at the beginning of the period presented for the
combined statements of operations. The pro forma balance sheet information also
gives effect to the recording of minority interest for OP Units, as if these
transactions occurred on June 30, 1996. The pro forma financial information is
not necessarily indicative of what the actual financial position or results of
the Company would have been as of and for the periods indicated, nor does it
purport to represent the Company's future financial position or results of
operations.
41
<PAGE>
THE COMPANY (PRO FORMA) AND
ARDEN PREDECESSORS (COMBINED HISTORICAL)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
COMBINED
PRO FORMA HISTORICAL
--------- ------------------
1996 1996 1995
--------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
OPERATING DATA:
Revenue:
Rental.................................. $33,493 $ 19,404 $ 2,822
Tenant reimbursements................... 1,967 1,425 177
Parking................................. 3,090 2,121 220
Other................................... 1,305 1,521 649
--------- -------- --------
Total revenue......................... 39,855 24,471 3,868
EXPENSES:
Property operating expenses............. 12,787 8,252 934
General and administrative expenses..... 1,900 830 684
Depreciation and amortization........... 5,773 3,036 638
Interest expense........................ 4,058 14,741 1,403
--------- -------- --------
Total Expenses........................ 24,518 26,859 3,659
--------- -------- --------
Equity in net income (loss) of noncombined
entities................................ -- (94) 108
Income (loss) before extraordinary loss
and minority interests.................. 15,337 (2,482) 317
Extraordinary loss........................ -- -- --
--------- -------- --------
Income (loss) before minority interests... 15,337 (2,482) 317
Minority interests........................ (2,039) 344 (7)
--------- -------- --------
Net income (loss)......................... $13,298 $ (2,138) $ 310
--------- -------- --------
--------- -------- --------
Net income per common share............... $ .71
---------
---------
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
COMBINED HISTORICAL
-------------------------------------------
THE
PERIOD
MARCH
22,
1991
TO
PRO FORMA DECEMBER
--------- 31,
1995 1995 1994 1993 1992 1991
--------- --------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rental.................................. $66,691 $ 8,832 $ 5,157 $ 3,034 $-- $--
Tenant reimbursements................... 2,952 403 217 35 -- --
Parking................................. 5,895 750 382 279 -- --
Other................................... 2,441 1,707 796 314 324 11
--------- --------- -------- -------- ----- -----
Total revenue......................... 77,979 11,692 6,552 3,662 324 11
EXPENSES:
Property operating expenses............. 28,288 3,339 2,055 1,480 -- --
General and administrative expenses..... 3,800 1,377 689 386 471 7
Depreciation and amortization........... 11,549 1,898 1,143 646 2 --
Interest expense........................ 8,076 5,537 1,673 499 9 --
--------- --------- -------- -------- ----- -----
Total Expenses........................ 51,713 12,151 5,560 3,011 482 7
--------- --------- -------- -------- ----- -----
Equity in net income (loss) of noncombined
entities................................ -- (116) 201 4 -- --
Income (loss) before extraordinary loss
and minority interests.................. 26,266 (575) 1,193 655 (158) 4
Extraordinary loss........................ -- -- (136) -- --
--------- --------- -------- -------- ----- -----
Income (loss) before minority interests... 26,266 (575) 1,057 655 (158) 4
Minority interests........................ (3,493) (1) 1 -- -- --
--------- --------- -------- -------- ----- -----
Net income (loss)......................... $22,773 $ (576) $ 1,058 $ 655 $(158) $4
--------- --------- -------- -------- ----- -----
--------- --------- -------- -------- ----- -----
Net income per common share............... $ 1.21
---------
---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
JUNE 30, 1996
---------------------- COMBINED HISTORICAL
COMBINED -----------------------------------------
PRO FORMA HISTORICAL 1995 1994 1993 1992 1991
--------- ---------- -------- -------- ------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Commercial office properties -- net of
accumulated depreciation................... $410,160 $254,749 $160,874 $ 34,977 $25,404 $-- $--
Total assets................................. 436,581 286,165 182,379 46,090 27,911 134 10
Mortgage loans payable and unsecured lines of
credit..................................... 104,000 265,959 168,451 32,944 24,356 250 --
Total liabilities............................ 111,468 277,917 174,163 34,148 25,190 287 5
Minority interest............................ 43,231 718 100 99 -- -- --
Owners'/Stockholders' equity................. 281,882 7,530 8,116 11,843 2,721 (153) 5
</TABLE>
42
<PAGE>
THE COMPANY (PRO FORMA) AND
ARDEN PREDECESSORS (COMBINED HISTORICAL)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
COMBINED
PRO FORMA HISTORICAL
--------- ------------------
1996 1996 1995
--------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER
SHARE DATA, PERCENTAGES AND
NUMBER OF PROPERTIES)
OTHER DATA:
Funds from Operations (1):
Income (loss) before extraordinary items
and minority interests................. $15,337 $ (2,482) $ 317
Depreciation and amortization........... 5,773 3,036 638
--------- -------- --------
Funds from Operations................. 21,110 554 955
Company's Share Percentage................ 86.69%
Company's Share of Funds from
Operations.............................. 18,300 554 955
--------- -------- --------
Cash flows from operating activities...... -- 2,013 458
Cash flows from investing activities...... -- (96,827) (5,578)
Cash flows from financing activities...... -- 94,937 4,550
Number of Properties owned at period
end..................................... 24 21 10
Gross rentable square feet of Properties
owned at period end..................... 4,036 3,547 1,408
Occupancy at period end of Properties
owned at period end..................... 89% 88% 84%
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
COMBINED
HISTORICAL
-------------------------------------------
THE
PERIOD
MARCH
31,
1991
TO
PRO FORMA DECEMBER
--------- 31,
1995 1995 1994 1993 1992 1991
--------- --------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Funds from Operations (1):
Income (loss) before extraordinary items
and minority interests................. $26,266 $ (575) $ 1,193 $ 655 $(158) $4
Depreciation and amortization........... 11,549 1,898 1,143 646 2 --
--------- --------- -------- -------- ----- -----
Funds from Operations................. 37,815 1,323 2,336 1,301 (156) 4
Company's Share Percentage................
Company's Share of Funds from
Operations.............................. 32,782 1,323 2,336 1,301 (156) 4
--------- --------- -------- -------- ----- -----
Cash flows from operating activities...... -- 2,830 834 1,186 (258) 7
Cash flows from investing activities...... -- (123,358) (17,921) (25,965) -- --
Cash flows from financing activities...... -- 120,707 16,845 25,632 250 1
Number of Properties owned at period
end..................................... 24 17 8 3 -- --
Gross rentable square feet of Properties
owned at period end..................... 4,036 2,634 1,130 530 -- --
Occupancy at period end of Properties
owned at period end..................... 89% 88% 82% 84% -- --
</TABLE>
- ---------------
(1) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 (the "White Paper") defines Funds from Operations as net income
(loss) (computed in accordance with GAAP), excluding gains (or losses) from
debt restructuring and sales of property, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Management considers Funds from Operations
an appropriate measure of performance of an equity REIT because it is
predicated on cash flow analyses. The Company computes Funds from Operations
in accordance with standards established by the White Paper which may differ
from the methodology for calculating Funds from Operations utilized by other
equity REITs and, accordingly, may not be comparable to such other REITs.
Funds from Operations should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indicator of the Company's
financial performance or to cash flow from operating activities (determined
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make distributions.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with Selected
Financial Data and the financial statements appearing elsewhere in this
Prospectus. Where appropriate, the following discussion includes analysis of the
effects of the Formation Transactions and the Offering, including the Mortgage
Financing and the purchase of the Acquisition Properties. These effects are
reflected in the pro forma condensed combined financial statements located
elsewhere in this Prospectus.
The Company receives income primarily from rental revenue (including tenant
reimbursements) and parking revenue from commercial office properties, and to a
lesser extent, from the management of certain properties owned by third parties.
The Company has acquired its current portfolio over the last three years, with
approximately 16% of the Properties (as a percentage of pro forma rental revenue
for the six months ended June 30, 1996) acquired in calendar year 1993,
approximately 13% of the Properties acquired in 1994, approximately 39% acquired
in 1995, and the balance (32%) acquired as of June 30, 1996. As a result of the
Company's aggressive acquisition program, the financial data shows significant
increases in total revenue from year to year, largely attributable to the
acquisitions during each such year and the benefit of a full period of effective
rental and other revenue for Properties acquired in the preceding year. For the
foregoing reasons, the Company does not believe its year to year and quarter to
quarter financial data are comparable.
The Company expects that the more significant part of its revenue growth in
the next one to two years will come from additional acquisitions and contractual
rent increases rather than from occupancy and market rent increases in its
current portfolio. On the other hand, the Company believes that if the Southern
California office rental market continues to improve, then rental rate increases
will become a more substantial part of its revenue growth over time. See
"Business and Growth Strategies -- Growth Strategies."
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30,
1995. During the first half of 1996, the Arden Predecessors purchased four
Properties resulting in an increase in real estate investments of approximately
$95 million.
Rental revenue increased by $16.6 million or 588% for the six months ended
June 30, 1996 compared to the six months ended June 30, 1995. The increase in
rental revenue resulted principally from a full six months of rental revenue
from Properties acquired during calendar year 1995, six of which were acquired
after June 30, 1995, and rental revenue from Properties acquired during the six
months ended June 30, 1996. Rental revenue from the calendar year 1995 acquired
Properties increased to $10.0 million for the six months ended June 30, 1996,
representing a full six months of rental revenue, from $83,000 in the prior
period. Rental revenue associated with the 1996 acquired Properties added an
additional approximately $6.7 million to rental revenue during the six months
ended June 30, 1996.
Tenant reimbursements and other revenue increased by $2.1 million or 257%
for the six months ended June 30, 1996 compared to the six months ended June 30,
1995. The increase in tenant reimbursements and other revenue resulted
principally from a full six months of tenant reimbursements from Properties
acquired during calendar year 1995 and tenant reimbursements from Properties
acquired during the six months ended June 30, 1996. Tenant reimbursements from
the calendar year 1995 acquired Properties added an additional $745,000 for the
six months ended June 30, 1996, representing a full six months of tenant
reimbursements. Tenant reimbursements associated with the 1996 acquired
Properties added an additional $457,000 to revenue during the six months ended
June 30, 1996. Other revenue, representing primarily management fees from
third-party owned properties, increased by 134% for the six months ended June
30, 1996 compared to the prior period.
Parking revenue increased by $1.9 million or 864% for the six months ended
June 30, 1996 compared to the six months ended June 30, 1995. The increase
resulted principally from a full six months of parking revenue from Properties
acquired during calendar year 1995 and parking revenue from Properties acquired
during the six months ended June 30, 1996. Parking revenue from the calendar
year 1995 acquisition
44
<PAGE>
Properties increased to $1.3 million for the six months ended June 30, 1996,
representing a full six months of parking revenue, from $0 in the prior period.
Parking revenue associated with the 1996 acquired Properties added an additional
$597,000 to parking revenue during the six months ended June 30, 1996.
The Arden Predecessors hold noncontrolling investments in various entities,
the noncombined entities, which own commercial office properties. These entities
are accounted for in the financial statements of the Arden Predecessors using
the equity method. Equity in net income of noncombined entities decreased by
$202,000 for the six months ended June 30, 1996 compared to the six months ended
June 30, 1995. This 215% decrease is due principally to significant large
tenants vacating space in the first quarter of 1996 at two of the properties.
The following is a comparison of certain expenses of the Arden Predecessors
for the six months ended June 30, 1996 to the six months ended June 30, 1995:
<TABLE>
<CAPTION>
DOLLAR PERCENT
JUNE 30, 1996 JUNE 30, 1995 CHANGE CHANGE
------------- --------------- --------- -----------
<S> <C> <C> <C> <C>
Certain Expenses
Property operating and maintenance......... $ 4,998 $ 754 $ 4,244 563%
Real estate taxes.......................... 1,291 138 1,153 836%
Insurance.................................. 1,503 42 1,461 3,479%
Ground rent................................ 460 -- 460 --
------ ----- --------- -----
Total certain expenses................... $ 8,252 $ 934 $ 7,318 784%
------ ----- --------- -----
------ ----- --------- -----
</TABLE>
For the six months ended June 30, 1996 and 1995, total certain expenses were
$8.3 million, or 40% of rental revenue and tenant reimbursements, and $934,000,
or 31% of rental revenue and tenant reimbursements, respectively. The increase
in total certain expenses is primarily attributable to the Properties acquired
during calendar year 1995 and during the six months ended June 30, 1996 and the
expenses associated with the absorption of vacant rentable space. The increase
in total certain expenses from the six months ended June 30, 1995 to the six
months ended June 30, 1996 resulting from the acquisition of Properties during
the six months ended June 30, 1996 was approximately $3.1 million. In addition,
total certain expenses increased by $4.2 million as a result of a full six
months of operations for the Properties acquired in 1995, and the
above-described increase in occupancy at the Properties owned at both June 30,
1996 and 1995. Total certain expenses related to Properties owned by the Company
for the entire six months ended June 30, 1995 and 1996 decreased 4.2% or
$20,000.
General and administrative expenses increased by $146,000 or 21% for the six
months ended June 30, 1996 compared to the six months ended June 30, 1995.
However, general and administrative expenses during the 1996 period fell to 3.4%
of total revenue compared to 17.7% of total revenue during the 1995 period due
to the economies of scale associated with adding additional properties. The
Company believes that because it will not need to hire significant new staff to
manage its current portfolio and to acquire new properties, general and
administrative expenses as a percentage of total revenue should continue to
fall.
Interest expense includes interest at the contractual current pay rate of
the mortgage loans, amortization of the loan fees paid at origination, and
accrual of additional interest due upon the retirement of the debt. Interest
expense for the six months ended June 30, 1996 was approximately $14.7 million,
including interest payable upon the retirement of certain mortgage loans.
Interest expense increased by approximately $13.3 million or 951% for the six
months ended June 30, 1996 compared to the six months ended June 30, 1995,
primarily as a result of the increase in mortgage loans payable to fund the
calendar year 1995 acquisitions and the acquisitions that occurred during the
six months ended June 30, 1996. The interest expense associated with the
mortgage loans originated during the six months ended June 30, 1996 was
approximately $4.7 million. In addition, the six months ended June 30, 1996
included a full six months of interest expense for Properties acquired during
calendar year 1995, which increased interest expense by approximately $8.5
million.
Depreciation and amortization increased by $2.4 million or 376% primarily
due to the calendar year 1995 acquisitions and the acquisitions during the six
months ended June 30, 1996.
45
<PAGE>
As a result of the foregoing, the Company had a net loss of $2.1 million for
the six months ended June 30, 1996 compared to net income of $310,000 for the
prior period.
The following is a comparison of property operating data for the Properties
("Same Store Properties") that were owned for the entire six months ended June
30, 1995 and June 30, 1996:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995
-------------- --------------
<S> <C> <C>
Revenue:
Rental.............................................................. $2,713,000 $2,739,000
Tenant reimbursements............................................... 224,000 176,000
Parking............................................................. 246,000 220,000
Other............................................................... 87,000 26,000
-------------- --------------
Total revenue..................................................... $3,270,000 $3,161,000
-------------- --------------
-------------- --------------
Expenses:
Property operating, taxes, insurance and ground rent................ $ 900,000 $ 919,000
-------------- --------------
-------------- --------------
</TABLE>
For the six months ended June 30, 1996, tenant reimbursements and other
income increased by $109,000 over the same period in 1995. In addition,
operating expenses including taxes, insurance, ground rent for these Same Store
Properties decreased by $19,000 for the six months ended June 30, 1996 over the
same period in the prior year due to the economies of scale that the Company
achieved by owning a larger portfolio of properties and the reassessment of
property taxes. The Company was able to obtain certain discounts by utilizing
its greater purchasing power.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31,
1994. During 1995, the Arden Predecessors purchased seven Properties resulting
in an increase in real estate investments of approximately $126 million.
Rental revenue increased by $3.7 million or 71% for the year ended December
31, 1995 compared to the year ended December 31, 1994. The increase in rental
revenue resulted principally from a full year of rental revenue from the
property acquired in 1994 and partial year rental revenue from Properties
acquired in 1995. Rental revenue from the 1994 acquisition property increased to
$1.2 million for the year ended December 31, 1995, representing a full year of
rental revenue, from $977,000 for such property in the prior year. Rental
revenue associated with the 1995 acquisition Properties added an additional
approximately $5.4 million to rental revenue in 1995.
Tenant reimbursements and other revenue increased by $1.1 million or 108%
for the year ended December 31, 1995 compared to the year ended December 31,
1994. Other revenue increased by $912,000, primarily representing management
fees from third party-owned properties. The increase in tenant reimbursements
and other revenue resulted principally from a full year of tenant reimbursements
from the property acquired during 1994 and partial year tenant reimbursements
from Properties acquired during the year ended December 31, 1995 as well as the
addition of one new third party property management agreement during 1995.
Tenant reimbursements from the calendar year 1994 acquisition property increased
to $239,000 for the year ended December 31, 1995, representing a full year of
tenant reimbursements, from $182,000 in the prior year. Tenant reimbursements
associated with the 1995 acquisition Properties added an additional
approximately $150,000 to tenant reimbursements during the year ended December
31, 1995.
Parking revenue increased by $368,000 or 96% for the year ended December 31,
1995 compared to the year ended December 31, 1994. The increase resulted
principally from a full year of parking revenue from the property acquired
during calendar year 1994 and partial year parking revenue from Properties
acquired during the year ended December 31, 1995. Parking revenue associated
with the 1995 acquisition properties, added an additional $319,000 to parking
revenue during the year ended December 31, 1995.
At December 31, 1994 the Arden Predecessors held noncontrolling investments
in various entities, the noncombined entities, which own commercial office
properties. During 1995, the Arden Predecessors made an investment in an
additional entity which owns commercial office properties. These entities are
accounted for in the financial statements of the Arden Predecessors using the
equity method. Equity in net income of
46
<PAGE>
noncombined entities decreased by $317,000 for the year ended December 31, 1995
compared to the year ended December 31, 1994. This 273% decrease is due
principally to significant tenant losses in the 1995 investment.
The following is a comparison of certain expense of the Arden Predecessors
for the year ended December 31, 1995 to the year ended December 31, 1994:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DOLLAR PERCENT
1995 1994 CHANGE CHANGE
------------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Certain Expenses
Property operating and maintenance......... $ 2,539 $ 1,733 $ 806 47%
Real estate taxes.......................... 502 272 230 85%
Insurance.................................. 279 50 229 458%
Ground rent................................ 19 -- 19 --
------ ------ --------- ---
Total certain expenses................... $ 3,339 $ 2,055 $ 1,284 62%
------ ------ --------- ---
------ ------ --------- ---
</TABLE>
Total certain expenses were $3.3 million, or 36% of rental revenue and
tenant reimbursements, and $2.1 million, or 38% of rental revenue and tenant
reimbursements, for the years ended December 31, 1995 and December 31, 1994,
respectively. The increase in total certain expenses is primarily attributable
to a full year of operations for the 1994 acquisition property, the partial year
of operations for the 1995 Acquisition Properties and the expenses associated
with the absorption of vacant rentable space across the portfolio. The increase
in total certain expenses from 1994 to 1995 resulting from the 1995 acquisitions
was approximately $1.4 million. In addition, total certain expenses increased by
$1.9 million for the year ended December 31, 1995 as a result of a full year of
operations for the property acquired in 1994, and the above-described increase
in occupancy at the Properties owned at both December 31, 1994 and 1995.
General and administrative expenses increased by $688,000 or 100% for the
year ended December 31, 1995, compared to the year ended December 31, 1994,
primarily due to additional employees required to manage the increased portfolio
of Properties. General and administrative expenses as a percentage of total
revenue was 12% and 11% during 1995 and 1994, respectively. The Company believes
that because it will not need to hire significant new staff to manage its
current portfolio and to acquire new properties, general and administrative
expenses as a percentage of total revenue should begin to fall in subsequent
years.
Interest expense includes interest at the contractual current pay rate of
the mortgage loans, amortization of the loan fees paid at origination, and
accrual of additional interest due upon the retirement of the debt. Interest
expense for the year ended December 31, 1995 was approximately $5.5 million,
including interest payable of $1.1 million upon the retirement of certain
mortgage loans. Interest expense increased by $3.9 million, or 231% for the year
ended December 31, 1995 compared to the year ended December 31, 1994 primarily
as a result of the increase in mortgage loans incurred to fund the 1995
acquisitions. The interest expense associated with the 1995 mortgage loans was
$2.7 million. In addition, 1995 included a full year of interest expense for
debt incurred to acquire the property in 1994, which increased interest expense
by approximately $466,000.
Depreciation and amortization increased by $755,000 or 66% primarily due to
the 1995 acquisitions and the full year effect of the 1994 acquisitions.
As a result of the foregoing, the Company had a net loss of $576,000 for the
year ended December 31, 1995 compared to net income of $1.1 million for the
prior year.
47
<PAGE>
The following is a comparison of the property operating data for the Same
Store Properties that were owned for the entire year ended December 31, 1994 and
December 31, 1995:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Revenue:
Rental.............................................................. $ 4,417,000 $4,180,000
Tenant reimbursements............................................... 15,000 36,000
Parking............................................................. 431,000 382,000
Other............................................................... 152,000 108,000
------------ ------------
Total revenue..................................................... 5,015,000 4,706,000
------------ ------------
------------ ------------
Certain expenses:
Property operating, taxes, insurance and ground rent................ $ 1,724,000 $1,849,000
------------ ------------
------------ ------------
</TABLE>
For the year ended December 31, 1995, occupancy increased from 82% at
December 31, 1994 to 89% at December 31, 1995. In addition, contractual base
rent and amortization of free rent periods contributed to an increase in
revenue. Operating expenses before depreciation and amortization, and interest
including taxes, insurance, ground rent expenses for these Same Store Properties
decreased by $125,000 for the year ended December 31, 1995 over the prior year
due to the economies of scale that the Company obtained by owning a larger
portfolio of Properties. The Company was able to allocate its personnel among
more of its Properties and obtain certain discounts by utilizing its greater
purchasing power.
COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED 1993. During 1994,
the Arden Predecessors purchased one Property resulting in an increase in
investments in Properties of approximately $8.7 million.
Rental revenue increased by $2.1 million 70% for the year ended December 31,
1994 compared to the year ended December 31, 1993. The increase in rental
revenue resulted principally from a full year of rental revenue from the
property acquired in 1993 and partial year rental revenue from the property
acquired in 1994. Rental revenue from the 1993 acquisition property increased to
$4.2 million for the year ended December 31, 1994, representing a full year of
rental revenue from that property, from $3.0 million in the prior year. Rental
revenue associated with the 1994 acquisition property added an additional
$977,000 to rental revenue in 1994.
Tenant reimbursements and other revenue increased by $664,000 or 191% for
the year ended December 31, 1994 compared to the year ended December 31, 1993.
Tenant reimbursement increases represented $183,000 of this increase, and other
revenue, primarily representing management fees from third party-owned
properties, represented $481,000 of this increase. The increase in tenant
reimbursements resulted principally from a full year of tenant reimbursements
from the property acquired during 1993 and partial year tenant reimbursements
from the property acquired during 1994. Tenant reimbursements from the calendar
year 1993 acquisition property increased to $36,000 for the year ended December
31, 1994, representing a full year of such revenue, from $35,000 in the prior
year. Tenant reimbursements associated with the 1994 acquisition Properties
added an additional approximately $182,000 to such revenue during 1994. The
increase in property management fees resulted primarily from a full year of
property management fees in 1994 for third party-owned properties managed for
part of the year in the prior period.
Parking revenue increased by $103,000 or 37% for the year ended December 31,
1994 compared to the year ended December 31, 1993. The increase resulted
primarily from a full year of parking revenue from the property acquired during
calendar year 1993 and partial year parking revenue from the property acquired
during the year ended December 31, 1994. Parking revenue from the calendar year
1993 acquisition property increased to $382,000 for the year ended December 31,
1994, representing a full year of such revenue, from $279,000 in the prior year.
At December 31, 1993, the Arden Predecessors held a noncontrolling
investment in one joint venture which owns two commercial office properties.
During 1994, the Arden Predecessors made investments in two additional
noncombined entities which own commercial office properties. These entities are
accounted
48
<PAGE>
for in the financial statements of the Arden Predecessors using the equity
method. Equity in net income of noncombined entities increased by $197,000, from
$4,000 to $201,000, for the year ended December 31, 1994 compared to the year
ended December 31, 1993. This increase is due principally to significant income
generated from the additional properties.
The following is a comparison of certain expenses of the Arden Predecessors
for the year ended December 31, 1994 to the year ended December 31, 1993:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DOLLAR PERCENT
1994 1993 CHANGE CHANGE
------------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Certain Expenses
Property operating and maintenance......... $ 1,733 $ 1,324 $ 409 31%
Real estate taxes.......................... 272 107 165 154%
Insurance.................................. 50 49 1 2%
Ground rent................................ -- -- -- --
------ ------ --------- ---
Total certain expenses................... $ 2,055 $ 1,480 $ 575 39%
------ ------ --------- ---
------ ------ --------- ---
</TABLE>
Total certain expenses were $2.1 million, or 38% of rental revenue and
tenant reimbursements, and $1.5 million, or 48% of rental revenue and tenant
reimbursements, for the years ended December 31, 1994 and 1993, respectively.
The increase in total certain expenses is primarily attributable to the addition
of the 1994 acquisition property and the expenses associated with the absorption
of vacant rentable space across the portfolio. The increase in total certain
expenses from 1993 to 1994 resulting from the 1994 acquisition was approximately
$206,000. In addition, total certain expenses increased by $315,000 as a result
of a full year of operations for the property acquired in 1993, and the
increases in the occupancy at such property.
General and administrative expenses increased $303,000 or 79% in 1994
compared to 1993 primarily due to an increase in payroll of $210,000 required by
the Company to manage its increased portfolio. General and administrative
expenses as a percentage of total revenue remained unchanged at 11% from 1994
and 1993.
Interest expense in 1994 increased by $1.0 million, or 159%, compared to
1993. The increase was primarily due to a full year of interest on debt incurred
in 1993, as well as the interest due on a $6.7 million loan used to fund the
1994 acquisition. The interest expense associated with the 1994 property
acquisition debt was approximately $491,000. Interest expense increased by
$516,000 as a result of a full year of interest expense for debt incurred to
acquire the property in 1993.
Depreciation and amortization increased by $644,000 or 129% primarily due to
the 1994 acquisition and the full year effect of the 1993 acquisition.
As a result of the Northridge earthquake, the Company had some minor damage
to three of its buildings, resulting in an extraordinary loss of $136,000 in the
year ended December 31, 1994.
As a result of the foregoing, the Company had net income of $1.1 million for
the year ended December 31, 1994 compared to net income of $655,000 for the
prior year.
PRO FORMA OPERATING RESULTS
SIX MONTHS ENDED JUNE 30, 1996. On a pro forma basis, combined income
(before deduction of minority interests) would have been $15.3 million for the
six months ended June 30, 1996, or $13.3 million combined net income of the
Company (after deduction of minority interests), comparing positively to the
historical net loss of $2.1 million for the six months ended June 30, 1996. This
positive comparison results from a significant reduction in interest expense
based on the effects of the proposed Offering as well as a substantial increase
in total revenue, due to the benefit of a pro forma full six months of revenue
from the Properties acquired (and to be acquired) in 1996.
49
<PAGE>
Pro forma total revenue is $39.9 million representing a $15.4 million
increase over historical 1996, resulting primarily from an increase of $6.0
million in rental revenue associated with Properties acquired (and to be
acquired) in 1996. Pro forma revenue from tenant reimbursements and parking is
$5.1 million, representing a $1.5 million increase over historical results.
The historical 1996 interest expense of $14.7 million decreased
substantially to $4.1 million on a pro forma basis. Correspondingly, interest
expense as a percentage of total revenue dropped substantially, from 60% of
total revenue in historical 1996 to 10% of total revenue on a pro forma basis.
YEAR ENDED DECEMBER 31, 1995. On a pro forma basis, combined income (before
deduction of minority interests) would have been $26.3 million for the year
ended December 31, 1995, or $22.8 million combined net income of the Company
(after deduction of minority interests), comparing positively to the historical
net loss of $(576,000) for the year ended December 31, 1995. This positive
comparison results from a significant reduction in interest expense as well as a
substantial increase in total revenue, due to the benefit of a pro forma full
year of revenue from the Properties acquired in 1995, and pro forma revenue from
the 1996 acquisitions.
Pro forma total revenue is $78.0 million representing a $66.3 million
increase over historical 1995, resulting primarily from an increase of $23.7
million in rental revenue associated with Properties acquired (and to be
acquired) in 1996, combined with a full year of rental revenue from the
Properties acquired in 1995 totaling $16.6 million. Revenue from tenant
reimbursements and parking also increased on a pro forma basis over historical
1995 primarily due to $3.0 million of such revenue generated at the Properties
acquired or to be acquired in 1996.
LIQUIDITY AND CAPITAL RESOURCES
MORTGAGE FINANCING. The Company is currently negotiating an interim loan
(the "Mortgage Financing") in the amount of $104 million with an affiliate of
Lehman Brothers. The Mortgage Financing will have a maturity of one year and
bear interest at a floating rate equal to one month LIBOR plus 1.50% for the
first six months increasing to 2.00% through maturity. The proceeds of the
Mortgage Financing will be used primarily to refinance a portion of the
Company's existing mortgage indebtedness. The Mortgage Financing will be
non-recourse and secured by fully cross-collateralized and cross-defaulted first
mortgage liens on the nine Mortgage Financing Properties. The Mortgage Financing
will require monthly payments of interest only, with all principal due on the
first anniversary of the closing of the Mortgage Financing.
The Company intends to refinance the Mortgage Financing through an offering
of commercial mortgage-backed securities (the "CMBS Offering") in an amount of
approximately $104 million with a term of seven years. The CMBS Offering is
expected to bear interest at a floating rate based on one-month LIBOR. The
Company intends to enter into a swap agreement in the notional amount of $104
million upon completion of this Offering and the Formation Transactions or
shortly thereafter (the "Swap Agreement"). The Swap Agreement will result in
effective fixed interest payments equal to the yield on U.S. Treasury Notes with
a maturity of seven years plus a spread which, if determined on the date hereof,
would result in an interest rate of 7.51%. The CMBS Offering is expected to
require monthly payments of interest only with all principal due in a balloon
payment at maturity. The Company expects to pursue the CMBS Offering promptly
after the closing of this Offering and the Formation Transactions, although
there can be no assurance that the Company will complete a CMBS Offering or
enter into the Swap Agreement.
THE CREDIT FACILITY. The Company is currently negotiating with a commercial
bank, the terms of a two-year, $100 million revolving credit facility, with a
one-year extension option (the "Credit Facility"). The Credit Facility will be
used, among other things, to finance the acquisition of properties, provide
funds for tenant improvements and capital expenditures and provide for working
capital and other corporate purposes. The Company intends to enter into the
Credit Facility contemporaneously with the Offering or shortly thereafter.
The Credit Facility will have two tranches: an unsecured tranche of up to
$50 million, subject to the Company's ownership of an unencumbered pool of
qualifying properties with values (calculated as provided in the Credit
Facility) of at least 100% of the Company's unsecured liabilities, and a secured
tranche of up to
50
<PAGE>
$100 million, subject to a borrowing base. Aggregate outstanding loans may not
exceed $100 million. The lenders must approve the properties securing the
facility and qualifying properties which are included in the unencumbered pool.
Outstanding loans will bear interest based on the LIBOR rate or the bank's base
rate, at the Company's option. The Credit Facility will be subject to customary
conditions to closing and borrowing, and contain representations and warranties
and defaults customary in REIT financings. The Credit Facility is also
anticipated to contain financial covenants, including requirements for a minimum
tangible net worth, maximum liabilities to asset values, and minimum interest,
unsecured interest and fixed charge coverage ratios (all calculated as defined
in the Credit Facility) and requirements to maintain a pool of unencumbered
properties approved by the lenders and meeting certain defined characteristics.
The Credit Facility will also contain restrictions on, among other things,
indebtedness, investments, distributions, liens, and mergers, and will require
Mr. Ziman to maintain certain ownership interests and management roles in the
Company. There can be no assurance that the Company will be able to enter into
the Credit Facility on terms satisfactory to it. If it is not able to enter into
the Credit Facility it will have to find alternative means to finance its future
acquisitions of Properties.
ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES. The Company believes the
Offering and the Formation Transactions will improve its financial performance
through changes to its capital structure, principally the substantial reduction
in its overall debt and its debt to equity ratio. Through the Formation
Transactions, the Company will repay all of its existing mortgage debt and
replace it with secured floating rate debt in the principal amount of $104
million pursuant to the Mortgage Financing. Thus, total secured debt after the
Formation Transactions (assuming no advances under the Credit Facility) will be
reduced by approximately $266 million in principal. This will result in a
significant reduction of annual mortgage interest expense as a percentage of
total revenue (10.4% on a pro forma basis as compared to 47% for the historical
year ended December 31, 1995). Thus, cash from operations required to fund
interest expenses will decrease substantially, although such reduction will be
offset by the use of cash from operations to meet annual REIT distribution
requirements. In addition, the Offering and Formation Transactions, together
with the Mortgage Financing and the Credit Facility, will produce a lower
leveraged capital structure. The market capitalization of the Company, based on
the assumed initial public offering price of the issued and outstanding shares
of Common Stock and OP Units (assuming all OP Units are exchanged for shares of
Common Stock) and the debt outstanding at the completion of the Offering, is
expected to be approximately $538.7 million with total debt (exclusive of
accounts payable and accrued expenses) of approximately $104 million. As a
result, the Company's debt to total market capitalization ratio will be
approximately 19.3% (17.6% if the Underwriters' overallotment option is
exercised in full). The Credit Facility combined with this lower leveraged
capital structure should enhance the Company's ability to take advantage of
acquisition opportunities as well as provide, if necessary, working capital for
funding commitments to construct tenant leasehold improvements and payment of
leasing commissions associated with new leasing activity.
After the Offering, the Company expects to have approximately $100 million
available under the Credit Facility. The Company anticipates that the Credit
Facility will be used primarily to acquire additional properties and for general
working capital needs.
The Mortgage Financing matures in 1997. Since the Company anticipates that
none of the principal of its mortgage indebtedness will be amortized prior to
maturity and the Company will not have sufficient funds on hand to repay such
indebtedness at maturity, it will be necessary for the Company to refinance such
debt either through additional debt financings secured by individual properties
or groups of properties, by unsecured private or public debt offerings or
additional equity offerings. See "Risk Factors -- Real Estate Financing Risks."
The Company currently expects to refinance the Mortgage Financings through the
CMBS Offering.
The Company expects to make distributions from Cash Available for
Distribution, which the Company believes will exceed Cash Available for
Distribution historically available as a result of the reduction in debt service
expected to result from the repayment of indebtedness described above. Amounts
accumulated for distribution will be invested by the Company primarily in
short-term investments that are collateralized by securities of the United
States government or any of its agencies, high-grade commercial paper and bank
deposits. See "Distributions."
51
<PAGE>
The Company expects to meet its short-term liquidity requirements generally
through its initial working capital and net cash provided by operations. The
Company believes that its net cash provided by operations will be sufficient to
allow the Company to make any distributions necessary to enable the Company to
continue to qualify as a REIT. The Company also believes that the foregoing
sources of liquidity will be sufficient to fund its short-term liquidity needs
for the foreseeable future, including recurring non-revenue enhancing capital
expenditures, tenant improvements and leasing commissions.
The Company expects to meet certain long-term liquidity requirements such as
property acquisitions, scheduled debt maturities, renovations, expansions and
other non-recurring capital improvements through long-term secured and unsecured
indebtedness and the issuance of additional equity securities. The Company also
expects to use funds available under the Credit Facility to fund acquisitions,
development activities and capital improvements on an interim basis.
CASH FLOWS
COMPARISON FOR THE SIX MONTHS ENDED JUNE 30, 1996 TO THE SIX MONTHS ENDED
JUNE 30, 1995. The increase in cash and cash equivalents of $872 from June 30,
1995 to June 30, 1996 is due to the excess of cash provided by financing
activities over cash used in operating activities and investing activities. Net
cash provided by operating activities increased by $1.6 million from $458,000 to
$2.0 million primarily due to an increase in rental revenue offset by higher
mortgage interest. Net cash used in investing activities increased by $91.2
million from $5.6 million to $96.8 million mainly due to an increase in the
amount of real estate assets purchased during 1996 compared to 1995. Net cash
provided by financing activities increased by $90.3 million from $4.6 million to
$94.9 million due primarily to proceeds received on mortgage loans.
COMPARISON FOR THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER
31, 1994. The increase in cash and cash equivalents of $179,000 from December
31, 1994 to December 31, 1995 is due to the excess of cash provided by operating
and financing activities over cash used in investing activities. Net cash
provided by operating activities increased by $2.0 million from $834,000 million
to $2.8 million primarily due to the additional cash flow generated by the
increase in the number of Properties owned. Net cash used in investing
activities increased by $105.5 million from $17.9 million to $123.4 million
mainly due to an increase in the amount of real estate assets purchased during
1995 compared to 1994. Net cash provided by financing activities increased by
$103.9 million from $16.8 million to $120.7 million due to proceeds received on
mortgage notes offset in part by increases in mortgage loans repaid and
restricted cash.
COMPARISON FOR THE YEAR ENDED DECEMBER 31, 1994 TO THE YEAR ENDED DECEMBER
31, 1993. The decrease in cash and cash equivalents of $242,000 from December
31, 1993 to December 31, 1994 is due to distributions from one Arden Predecessor
to its owners of $1.4 million and the acquisition of improvements and Properties
in excess of financing activities. These uses were partially offset by owner
contributions. Net cash provided by operating activities decreased by $352,000
from $1.2 million to $834,000 primarily due to an increase in rents and other
receivables, deferred rents prepaid financing and leasing costs and prepaid
expenses and other assets offset by an increase in depreciation and amortization
and net income. Net cash used in investing activities decreased by $8.1 million
from $26.0 million to $17.9 million mainly due to a decrease in the value of
real estate assets purchased during 1994 compared to 1993. Net cash provided by
financing activities decreased by $8.8 million from $25.6 million to $16.8
million due to a decrease in the amount proceeds received on mortgage notes
incurred to finance real estate acquisitions offset in part by an increase in
owners' contributions.
INFLATION
Substantially all of the office leases provide for separate escalations of
real estate taxes and operating expenses over a base amount. In addition, many
of the office leases provide for fixed base rent increases or indexed
escalations (based on the CPI or other measures). The Company believes that
inflationary increases in expenses will be offset by the expense reimbursements
and contractual rent increases described above.
The Credit Facility is expected to bear interest at a variable rate, which
will be influenced by changes in short-term interest rates, and will be
sensitive to inflation.
52
<PAGE>
SOUTHERN CALIFORNIA ECONOMY AND OFFICE MARKETS
The Company believes that current and forecast trends affecting Southern
California have created and will continue to create a favorable economic
environment in the suburban Southern California office markets where
substantially all of the Company's Properties are located. First, the Company
believes that the supply of Class A office space in Southern California has
stabilized and is unlikely to increase over the short term in large part because
it is not economically feasible to develop new Class A office space based on
rental rates currently attainable in Southern California office markets as set
forth in the C&W Market Study. Second, the recent economic restructuring of many
of Southern California's primary office-using sectors including the
entertainment, export/import, managed health care, high technology,
telecommunications, and civilian and military aerospace and defense industries
has caused growth in demand for office space. Third, demand for Class A office
space relative to the level of supply has led to higher occupancy rates and a
trend towards higher rental rates which are supportable in the office markets
where the Company's Properties are located. Finally, patterns of residential
relocation to suburban areas due in part to the public perception of greater
personal security and to the availability of greater recreational and
residential amenities in suburban areas, coupled with a heightened preference
for living in close proximity to work and employers' resultant access to a
broader, more skilled local labor force have fueled growth of suburban office
property demand. The Company believes that these factors and other specific
economic indicators discussed below suggest a general strengthening of the
Southern California economy. Given the quality and location of its Properties,
the Company believes it is competitively positioned to capitalize on these
economic trends and the resulting demand for suburban Class A office space. In
addition, the Company believes that the suburban Los Angeles County submarkets
in which its Properties are located will outperform the Downtown/CBD, which has
not begun to recover from the real estate downturn.
SOUTHERN CALIFORNIA ECONOMY
OVERVIEW. The Company believes that the office markets in Southern
California, and particularly suburban Los Angeles County, have improved and will
be excellent markets in which to own and operate office properties over the long
term.
The three-county region in which the Company's Properties are located
includes Los Angeles, Orange and San Diego counties which collectively comprise
approximately 45% of the statewide population and employment base in California.
Data from the U.S. Bureau of Labor Statistics indicates that the unemployment
rate in these counties peaked in 1993 during the height of the 1990 to 1993
recessionary period in Southern California. Recently, however, these counties
experienced a gradual economic recovery marked by falling unemployment rates
beginning in 1994 which, according to THE 1995 ECONOMIC REPORT OF THE GOVERNOR
OF CALIFORNIA (the "1995 ECONOMIC REPORT"), was precipitated by growth in the
services and trade employment sectors, among others, and a less pronounced rate
of decline in defense related activities in Southern California. For instance,
the unemployment rate for the Los Angeles PMSA has been declining since 1993 and
dropped below 8% in 1995 for the first time since 1990. Similar trends of
decreasing unemployment rates were also experienced in Orange and San Diego
counties. The graph below illustrates unemployment trends for the United States,
California and the three counties in which the Company's Properties are located.
53
<PAGE>
HISTORICAL ANNUAL AVERAGE UNEMPLOYMENT RATES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
UNEMPLOYMENT RATE
<S> <C> <C> <C> <C> <C>
California Los Angeles County Orange County San Diego County U.S.
1991 7.7% 8.2% 5.2% 6.2% 6.7%
1992 9.3% 9.8% 6.6% 7.3% 7.4%
1993 9.4% 9.8% 6.7% 7.8% 6.8%
1994 8.6% 9.4% 5.8% 7.2% 6.1%
1995 7.8% 7.9% 5.3% 6.5% 5.6%
</TABLE>
- ------------------------
Source: U.S. Bureau of Labor Statistics
The U.S. Bureau of Economic Analysis has forecast a total increase in
non-farm employment for the period from 1993 to 2005 of 14.2% for Los Angeles
County, 35.3% for Orange County and 30.7% for San Diego County, representing
average annual growth rates of 1.1%, 2.5% and 2.3%, respectively.
A driving factor in the forecast employment growth within the three counties
in which the Company operates is strong population growth, which, over the next
five years is expected to outpace the population growth in the United States as
shown below:
<TABLE>
<CAPTION>
POPULATION
POPULATION GROWTH
GROWTH 1995-2000
AREA 1990-1995(1) PROJECTED(2)
- -------------------------------------------------- ---------- -----------
<S> <C> <C>
Los Angeles County................................ 3.1% 5.8%
Orange County..................................... 6.4% 11.1%
San Diego County.................................. 5.8% 12.1%
California........................................ 6.2% 9.1%
United States..................................... 5.6% 5.1%
</TABLE>
- ------------------------
(1) Source: U.S. Bureau of the Census. 1990 population from 1990 Census and 1995
population from July 1, 1995 estimate of the U.S. Bureau of the Census.
(2) Source: 1995 population--U.S. Bureau of the Census. 2000 projected
population--Bureau of Economic Analysis (U.S. Department of Commerce).
As primary office employment grows, office demand is expected to increase.
According to AMERICA'S OFFICE ECONOMY prepared by Cognetics, Inc., Metropolitan
Los Angeles (which includes Los Angeles County and Orange County), in which 23
of the Company's 24 Properties are located, is projected to be the number one
market in the United States for primary office employment growth from 1995 to
2005, and San Diego is ranked 18th.
54
<PAGE>
TOP 20 MARKETS FOR PRIMARY OFFICE
EMPLOYMENT GROWTH (1995-2005)
<TABLE>
<C> <S>
1. LOS ANGELES
2. Atlanta
3. San Francisco-Oakland-San Jose
4. Washington, DC-MD-VA
5. Dallas-Ft. Worth
6. Chicago
7. Phoenix
8. New York
9. Houston-Galveston
10. Tampa-St. Petersburg
11. Minneapolis-St. Paul
12. Denver-Boulder
13. Boston
14. Orlando
15. Seattle
16. Philadelphia
17. Miami-Ft. Lauderdale
18. SAN DIEGO
19. Detroit
20. Kansas City
</TABLE>
- ------------------------
Source: Cognetics, Inc.
A significant factor for primary office employment growth in Los Angeles,
Orange and San Diego counties is a trend within these local economies to become
more services-oriented. Data from the U.S. Bureau of Labor Statistics indicates
a trend over the past six years of growth in the services and government sector
(large office space users), and a decline in the manufacturing, finance,
insurance and real estate (FIRE) and trade sectors, with the other employment
sectors remaining stable in proportion to total non-farm employment. Employment
in the service sector in the Los Angeles PMSA increased to 32% of total non-farm
employment in 1995 from 29% in 1990. Both Orange County and San Diego County
experienced a similar trend in the employment shift towards services.
In addition to becoming a more diversified economy with a stronger emphasis
on the services and government sectors, according to the Los Angeles EDC, Los
Angeles County ranked number one in the nation in the number of business
establishments by county in 1992 and is a major center of international trade.
According to the 1995 ECONOMIC REPORT, Los Angeles County is also the nation's
leading manufacturing center. Los Angeles County comprises over 40% of the
nondurable manufacturing employment, 95% of the motion picture employment and
56% of the aerospace employment in California. The Los Angeles PMSA is the
largest PMSA in the United States (larger than both the New York City PMSA and
the Chicago PMSA) and accounts for approximately 28% of California's population
and employment base. Demand for office space in Los Angeles County is expected
to remain strong as a result of these characteristics.
International trade is another major component of the Los Angeles economy
and while growth in international trade is difficult to attribute to specific
employment sectors, it is an indicator of the general strength of the local
economy. In 1994 the Los Angeles Customs District (which is primarily comprised
of the Los Angeles/Long Beach port complex and the Los Angeles International
Airport) surpassed New York/ New Jersey as the nation's leading port. According
to the California Department of Finance, from 1987 to 1995 international trade
passing through the Los Angeles Customs District has increased from
approximately $77.6 billion in 1987 to approximately $164.2 billion in 1995.
SOUTHERN CALIFORNIA OFFICE MARKETS
OVERVIEW. The Company believes that the Los Angeles, Orange and San Diego
County office markets are attractive markets in which to own and operate office
properties. Specifically, the Los Angeles County market, in which 21 of the 24
Properties are located, has the following favorable market characteristics
according to the C&W Market Study: (i) the Los Angeles County suburban
submarkets have experienced three years of positive net absorption and five
years of declining direct vacancy rates; (ii) there has been virtually no new
additions to supply to the Los Angeles County suburban office market since 1992;
and (iii) new speculative office development is unlikely at the current time,
primarily because new construction is not economically feasible given current
market rental rates and also because of governmental constraints and zoning
restrictions in certain markets.
55
<PAGE>
INCREASING DEMAND FOR OFFICE SPACE. In the past three years the underlying
fundamentals of supply and demand in the suburban Los Angeles County, Orange
County and downtown San Diego office markets have improved. The peak in
available supply occurred near the midpoint of the recession. Since that time,
the local economies have been recovering and the relationship between supply and
demand has resulted in declining direct vacancy rates and positive net
absorption in these markets. According to the C&W Market Study, as of December
31, 1995, the direct vacancy rate for the suburban Los Angeles County office
market, the Orange County office market and the downtown San Diego office market
was 17.0%, 15.5% and 17.9%, respectively, as compared to 19.2%, 19.5% and 19.4%
as of December 31, 1991, respectively.
HISTORICAL YEAR-END DIRECT VACANCY RATES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DIRECT VACANCY RATE
<S> <C> <C> <C> <C>
U.S. Los Angeles County (suburban) Orange County Downtown San Diego
1991 17.5% 19.2% 19.5% 19.4%
1992 18.2% 18.9% 19.1% 20.7%
1993 17.2% 18.4% 17.1% 19.4%
1994 15.3% 17.3% 17.2% 19.8%
1995 14.0% 17.0% 15.5% 17.9%
</TABLE>
- ------------------------
Source: C&W Market Study
Note: U.S. vacancy is the weighted average of 44 markets.
PROJECTED DECLINING DIRECT VACANCY RATES. The C&W Market Study projects
that aggregate direct vacancy rates in the suburban Los Angeles County office
market would decline to 14.4% as of December 31, 1998 assuming (i) no additions
to the supply of office space inventory that existed in such office markets as
of December 3, 1995 and (ii) annual positive net absorption of direct
availabilities of 1,000,000 square feet. C&W's projection of such absorption and
declining direct vacancy rates was based on recent historical positive net
absorption experienced in the suburban Los Angeles County office market. No
assurance can be made that such absorption of direct availabilities will occur
in the future or that the current supply of office space inventory will not
increase, and therefore that direct vacancy rates will decline as outlined in
the graph below.
PROJECTED DIRECT VACANCY RATES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DIRECT VACANCY %
<S> <C>
1995 (A) 17.0%
1996 (P) 16.1%
1997 (P) 15.2%
1998 (P) 14.4%
</TABLE>
- ------------------------
Source: C&W Market Study
NO NEW SUPPLY OF OFFICE SPACE. According to the C&W Market Study, there has
been virtually no new office development in Los Angeles County and Orange County
since 1992. Similarly, there has been no new office development in downtown San
Diego since 1991. Based on the C&W Market Study, the addition of
56
<PAGE>
any new speculative office space to these markets is unlikely at the current
time, primarily because speculative new construction is not economically
feasible given current market rental rates and also because of governmental
constraints and zoning restrictions in certain markets.
POTENTIAL REVENUE INCREASE AT REPLACEMENT COST RENTS. The Company believes
that all of its Properties have been purchased at a substantial discount from
replacement cost and have the potential for significant internal revenue growth
as rental rates for office properties in their respective submarkets recover to
levels ("Replacement Cost Rents") that would provide a reasonable return on
investment to a developer of a new Class A multi-tenant office building.
According to the C&W Market Study, market rental rates in Los Angeles County are
currently below the levels required to justify new Class A office development.
Based on estimates provided in the C&W Market Study, Replacement Cost Rents
required to justify new construction would be equal to approximately $35 per
square foot for excellent quality Class A office buildings and $24 per square
foot for average quality Class A office buildings. By comparison, the current
weighted average annual base rental rate (full service gross leases only,
excluding leases subject to net lease provisions) received by the Company in
each of its Properties which ranges from $15.07 per square foot to $31.45 per
square foot with a total weighted average annual base rental rate of $20.07 per
square foot and the weighted average annual asking rents for competitive office
properties in their respective submarkets are substantially below Replacement
Cost Rents. This is confirmed by the fact that according to the C&W Market Study
there has been extremely limited office development (375,000 square feet out of
a total 83,533,998 square feet in the submarkets where the Company's Properties
are located) and no speculative office development in the Los Angeles submarkets
where the Company operates Properties in the past four years.
The costs and implied Replacement Cost Rents outlined above exclude any
value attributable to underlying land, which, if purchased in connection with a
new development would imply that higher Replacement Cost Rents would be required
to justify the increased costs of development resulting from the land
acquisition costs. There can be no assurance as to when, if, and the extent to
which the Properties owned and operated by the Company will experience an
increase in rental rates.
57
<PAGE>
BUSINESS AND PROPERTIES
GENERAL
Upon completion of the Offering, the Company will own 24 office properties
containing approximately 4.0 million rentable square feet. The Properties
consist primarily of Class A suburban office properties and individually range
from approximately 49,000 to 540,000 rentable square feet. All of the Properties
are located in Southern California, with 21 located in suburban Los Angeles
County, two in Orange County, and one in San Diego County. The Company believes
that the Properties have desirable locations within established business
communities and are well-maintained. Of the Company's 24 Properties, 20
Properties have been built since 1980 and 14 Properties, including all four
built prior to 1980, have been substantially renovated within the last three
years. The average age of the buildings is approximately 12 years. The
Properties offer an array of various amenities including security, parking,
conference facilities, on-site management, food services and health clubs.
Management believes that the location, quality of construction and building
amenities, as well as the Company's reputation for providing a high level of
tenant service, have enabled the Company to attract and retain a diverse tenant
base. As of August 1, 1996, the Properties had a weighted average occupancy rate
of approximately 89% (compared to the C&W Peer Group weighted average occupancy
rate of approximately 83% as of April 30, 1996) and were leased to over 540
tenants. Major tenants, based on square feet leased, include McDonnell Douglas,
GTE California, Pepperdine University, Merrill Lynch, Earth Technology, Grey
Advertising, The Hearst Corporation, Smith Barney and Deloitte & Touche. As of
August 1, 1996, no one tenant represented more than approximately 3.3% of the
aggregate Annualized Base Rent of the Company's portfolio and only 16 tenants
individually represented more than 1% of such Annualized Base Rent.
The Properties are leased to a variety of local, national and foreign
businesses. Leases are typically structured for terms of three, five or 10
years. Most of the Company's leases are full service, gross leases under which
tenants typically pay for all real estate taxes and operating expenses above
those for an established base year or expense stop. Leases typically contain
provisions permitting tenants to renew at prevailing market rates. Under the
leases, the landlord is generally responsible for structural repairs. Most
leases do not permit early termination; however, certain leases permit the
tenant to terminate upon six months' notice after the third year of a five-year
lease or the fifth year of a 10-year lease, subject to the tenant's obligation
to pay all unamortized tenant improvements and leasing commissions, a penalty of
three to six months of additional rent, and any rent concessions provided,
depending on the lease terms. Finally, tenants generally pay directly (without
regard to a base year or expense stop) for overtime use of air conditioning and
for onsite monthly employee and visitor parking.
Although the Company primarily utilizes gross leases (which represented
approximately 84% of the total portfolio leased square feet as of August 1,
1996), it also has triple net leases with a number of tenants. In general, the
triple net leases require the tenants to pay all real property taxes, insurance
and expenses of maintaining the leased space or Property and have renewal and
termination provisions similar to those described above.
The Company's Properties are regionally managed under active central
control. All administration (including the formation and implementation of
policies and procedures), leasing, capital expenditures and construction
decisions are centrally administered at the Company's corporate office. The
Company employs asset managers to oversee and direct the day-to-day operations
of the Properties, as well as the on-site personnel, which may include a
manager, assistant manager and other necessary staff. Asset managers communicate
daily with the Company's corporate offices to implement the Company's policies
and procedures.
The on-site staffing of each Property is dictated by each Property's size,
tenant profile, number of tenants and location. The Company contracts with third
parties for cleaning services, day porters, engineers and any other personnel
necessary to operate each Property.
PROPERTIES
The following table sets forth certain information regarding each of the
Properties as of August 1, 1996:
58
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENT
TOTAL LEASED
APPROXIMATE PORTFOLIO (AS OF ANNUALIZED
YEAR BUILT/ RENTABLE RENTABLE AUG. 1, BASE RENT
SUBMARKET/PROPERTY LOCATION RENOVATED SQUARE FEET SQUARE FEET 1996) ($000S)
- ---------------------------------------- ---------------- ------------- ----------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
LOS ANGELES COUNTY
- ----------------------------------------
LOS ANGELES WEST
BEVERLY HILLS/CENTURY CITY
9665 Wilshire Beverly Hills 1972/92-3 158,684 3.9% 95.1% $ 4,745
Beverly Atrium Beverly Hills 1989 61,314 1.5 100.0 1,400
Century Park Center Los Angeles 1972/94 243,404 6.0 83.2 4,331
WESTWOOD/WEST LOS ANGELES
Westwood Terrace Los Angeles 1988 135,943 3.4 82.3 2,829
1950 Sawtelle Los Angeles 1988/95 103,772 2.6 77.5 1,609
MARINA AREA/CULVER CITY/LAX
400 Corporate Pointe Culver City 1987 164,598 4.1 90.2 2,954
Bristol Plaza Culver City 1982 84,014 2.1 78.6 1,195
Skyview Center Los Angeles 1981,87/95(4) 391,675 9.7 86.0 5,730
PARK MILE/WEST HOLLYWOOD
The New Wilshire Los Angeles 1986 202,704 5.0 83.9 3,458
<CAPTION>
LOS ANGELES NORTH
<S> <C> <C> <C> <C> <C> <C>
SIMI/CONEJO VALLEY
5601 Lindero Canyon Westlake 1989 105,830 2.6 100.0 1,180
Calabasas Commerce Center Calabasas 1990 123,121 3.1 100.0 2,111
WEST SAN FERNANDO VALLEY
Woodland Hills Financial Center Woodland Hills 1972/95 224,955 5.6 89.8 4,501
CENTRAL SAN FERNANDO VALLEY
16000 Ventura Blvd. Encino 1980/96 174,841 4.3 84.1 2,970
EAST SAN FERNANDO VALLEY/TRI-CITIES
425 West Broadway Glendale 1984 71,589 1.8 95.9 1,328
303 Glenoaks(5) Burbank 1983/96 175,449 4.3 97.4 3,477
70 South Lake Pasadena 1982/94 100,133 2.5 81.4 1,695
<CAPTION>
LOS ANGELES SOUTH
<S> <C> <C> <C> <C> <C> <C>
LONG BEACH
4811 Airport Plaza Drive Long Beach 1987/95 121,610 3.0 100.0 1,051
4900/10 Airport Plaza Drive Long Beach 1987/95 150,403 3.7 100.0 1,173
5000 East Spring Long Beach 1989/95 163,358 4.0 89.6 2,747
100 West Broadway Long Beach 1987/96 191,727 4.7 90.0 3,523
CERRITOS/NORWALK
12501 East Imperial Highway (5) Norwalk 1978/94 122,175 3.0 94.7 1,882
<CAPTION>
ORANGE COUNTY
- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WEST COUNTY
5832 Bolsa Avenue Huntington Beach 1985 49,355 1.2 100.0 659
TRI-FREEWAY AREA
Anaheim City Centre Anaheim 1986/91 175,391 4.3 93.0 2,458
<CAPTION>
SAN DIEGO COUNTY
- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SAN DIEGO MARKET
Imperial Bank Tower San Diego 1982/96 540,413 13.4 82.2 8,136
----------- ------ ------- ----------
Total/Weighted Average 4,036,458 100.0% 88.9% $67,142
Weighted Average Rent Per Leased Square Foot - Gross Leases
Weighted Average Rent Per Leased Square Foot - Net Leases
Weighted Average Rent Per Leased Square Foot - All Leases
<CAPTION>
ANNUAL
EFFECTIVE
PERCENTAGE OF RENT PER ANNUALIZED
PORTFOLIO LEASED BASE RENT PER C&W PEER GROUP
ANNUALIZED NUMBER SQUARE LEASED RENT PER
SUBMARKET/PROPERTY BASE RENT OF LEASES FOOT (1) SQUARE FOOT (2) SQUARE FOOT(3)
- ---------------------------------------- ------------- ---------- --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
LOS ANGELES COUNTY
- ----------------------------------------
LOS ANGELES WEST
BEVERLY HILLS/CENTURY CITY
9665 Wilshire 7.1% 18 31$.91 $31.45 $28.32
Beverly Atrium 2.1 11 23.65 22.83 28.32
Century Park Center 6.5 80 21.72 21.38 22.80
WESTWOOD/WEST LOS ANGELES
Westwood Terrace 4.1 21 24.83 25.30 27.19
1950 Sawtelle 2.4 30 20.15 20.02 18.42
MARINA AREA/CULVER CITY/LAX
400 Corporate Pointe 4.4 14 23.42 19.91 17.52
Bristol Plaza 1.8 19 18.24 18.10 17.54
Skyview Center 8.5 49 17.53 17.01 19.23
PARK MILE/WEST HOLLYWOOD
The New Wilshire 5.2 31 20.63 20.35 21.97
LOS ANGELES NORTH
<S> <C> <C> <C> <C> <C>
SIMI/CONEJO VALLEY
5601 Lindero Canyon 1.8 2 10.94 11.15 19.03
Calabasas Commerce Center 3.1 11 17.16 17.14 19.16
WEST SAN FERNANDO VALLEY
Woodland Hills Financial Center 6.7 59 21.89 22.29 22.74
CENTRAL SAN FERNANDO VALLEY
16000 Ventura Blvd. 4.4 39 20.48 20.21 21.33
EAST SAN FERNANDO VALLEY/TRI-CITIES
425 West Broadway 2.0 13 18.87 19.35 20.11
303 Glenoaks(5) 5.2 22 20.79 20.35 21.57
70 South Lake 2.5 10 20.02 20.80 24.38
LOS ANGELES SOUTH
<S> <C> <C> <C> <C> <C>
LONG BEACH
4811 Airport Plaza Drive 1.6 1 9.30 8.64 24.54
4900/10 Airport Plaza Drive 1.7 1 8.40 7.80 24.54
5000 East Spring 4.1 26 20.50 18.76 24.67
100 West Broadway 5.2 26 21.90 20.42 19.55
CERRITOS/NORWALK
12501 East Imperial Highway (5) 2.8 4 15.47 16.27 18.40
ORANGE COUNTY
- ----------------------------------------
<S> <C> <C> <C> <C> <C>
WEST COUNTY
5832 Bolsa Avenue 1.0 1 13.38 13.35 16.06
TRI-FREEWAY AREA
Anaheim City Centre 3.7 13 16.47 15.07 19.29
SAN DIEGO COUNTY
- ----------------------------------------
<S> <C> <C> <C> <C> <C>
SAN DIEGO MARKET
Imperial Bank Tower 12.1 42 19.47 18.31 21.71
------ --- --------- ------- -------
Total/Weighted Average 100.0% 543
Weighted Average Rent Per Leased Square 20$.63(6) $20.03(6) $21.61
Weighted Average Rent Per Leased Square 12$.24 $11.52
Weighted Average Rent Per Leased Square 19$.28 $18.70
</TABLE>
- ----------------------------------------
(1) Annualized Effective Rent is calculated for each lease in effect at August
1, 1996. For leases in effect at the time the relevant Property was
acquired, Annualized Effective Rent is calculated by dividing the remaining
lease payments under the lease by the number of months remaining under the
lease and multiplying the result by 12. For leases entered into after the
relevant Property was acquired, Annualized Effective Rent is calculated by
dividing all lease payments under the lease by the number of months in the
lease and multiplying the result by 12. For 303 Glenoaks, 100 West Broadway
and 12501 East Imperial Highway, each of which either has only recently been
acquired or will be acquired at the closing of the Formation Transactions,
Annualized Effective Rent is calculated by dividing the remaining lease
payments by the remaining months in the lease measured from January 1, 1995
and multiplying the result by 12.
(2) Annualized Base Rent is the monthly contractual base rent under existing
leases as of August 1, 1996 and multiplied by 12.
(3) Represents the mid-point of the range of the weighted average annual asking
rents (for full service gross leases only, excluding leases subject to net
lease provisions) for the respective C&W Peer Group properties as of April
30, 1996.
(4) Skyview Center consists of two Class A 11- and 12-story office towers
completed in 1981 and 1987, respectively.
(5) Acquisition Property acquired concurrently with the Offering.
(6) The weighted average rent per leased square foot is calculated based only on
rent which is received from tenants under gross leases, which represent
approximately 84% of the total portfolio leased square feet. Excluded are
5601 Lindero Canyon, 4811 Airport Plaza Drive, 4900/10 Airport Plaza Drive,
5832 Bolsa Avenue, 55.6% of leased space at 400 Corporate Pointe leased to
Pepperdine University, and 48.3% of leased space at Calabasas Commerce
Center leased to two tenants.
59
<PAGE>
TENANTS
The Properties are leased to over 540 tenants which are engaged in a variety
of businesses, including financial services, entertainment, health care
services, accounting, law, computer technology, education and publishing. The
following table sets forth information regarding the Company's leases with its
20 largest tenants based upon Annualized Base Rent as of August 1, 1996:
TENANT DIVERSIFICATION
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF AGGREGATE
NUMBER REMAINING AGGREGATE AGGREGATE ANNUALIZED PORTFOLIO
OF LEASE TERM IN RENTABLE LEASED SQUARE BASE RENT ANNUALIZED
LEASES MONTHS SQUARE FEET FEET ($000S) BASE RENT
------ ------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
McDonnell Douglas....................... 2 111 272,013 7.58% $ 2,224 3.31%
GTE California.......................... 2 38 113,127 3.15% 1,653 2.46%
Pepperdine University................... 2 75 82,441 2.30% 1,628 2.42%
Logicon, Inc............................ 1 71 74,174 2.07% 1,575 2.35%
Merrill Lynch........................... 2 51 47,818 1.33% 1,317 1.96%
Imperial Bank Realty Co................. 2 46 38,855 1.08% 1,275 1.90%
Earth Techonology....................... 2 80 44,122 1.23% 1,138 1.70%
Latham & Watkins........................ 1 91 56,425 1.57% 1,045 1.56%
Grey Advertising........................ 2 111 50,152 1.40% 993 1.48%
DiC Entertainment....................... 1 76 51,708 1.44% 993 1.48%
The Hearst Corporation.................. 1 45 25,731 0.72% 932 1.39%
NME Hospitals........................... 1 41 24,069 0.67% 829 1.24%
Gruntal & Company....................... 1 10 15,321 0.43% 739 1.10%
Intracorp............................... 1 24 54,179 1.51% 691 1.03%
Smith Barney, Inc....................... 2 66 24,736 0.69% 678 1.01%
XIRCOM, Inc............................. 1 11 46,321 1.29% 673 1.00%
Crawford & Company...................... 1 19 20,347 0.57% 623 0.93%
Candle Corporation...................... 1 74 52,130 1.45% 601 0.89%
JB Oxford Holdings...................... 1 74 18,796 0.52% 595 0.89%
Deloitte & Touche....................... 1 53 30,279 0.84% 581 0.87%
--
--- ----------- ----- ---------- -----
TOTAL/WEIGHTED AVERAGE.............. 28 71 (1) 1,142,744 31.83% $ 20,782 30.95%
</TABLE>
- ------------------------------
(1) Weighted average calculation based on aggregate rentable square footage
leased by each tenant.
LEASE DISTRIBUTIONS
The following table sets forth information relating to the distribution of
the Company's leases, based on rentable square feet under lease, as of August 1,
1996:
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE PERCENTAGE OF
PORTFOLIO AGGREGATE
NUMBER PERCENT LEASED ANNUALIZED PORTFOLIO
SQUARE FEET OF OF ALL TOTAL LEASED SQUARE BASE RENT ANNUALIZED
UNDER LEASE LEASES LEASES SQUARE FEET FEET ($000S) BASE RENT
- ---------------------------------------- ------ ------- ------------ ------------ ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
2,500 or Less........................... 252 46.41 % 337,740 9.41% $ 6,350 9.46%
2,501--5,000............................ 114 20.99 % 400,329 11.15% 7,608 11.33%
5,001--7,500............................ 51 9.39 % 322,644 8.99% 6,382 9.51%
7,501--10,000........................... 39 7.18 % 340,700 9.49% 6,870 10.23%
10,001--20,000.......................... 54 9.94 % 777,549 21.66% 16,400 24.43%
20,001--40,000.......................... 20 3.68 % 508,278 14.16% 10,940 16.29%
40,001+................................. 13 2.39 % 903,137 25.15% 12,592 18.75%
------ ------- ------------ ------ ---------- ------
TOTAL............................... 543 100.00 % 3,590,377 100.00% $ 67,142 100.00%
</TABLE>
60
<PAGE>
LEASE EXPIRATIONS -- PORTFOLIO TOTAL
The following table sets forth a summary schedule of the lease expirations
for the Properties for leases in place as of August 1, 1996, assuming that none
of the tenants exercise renewal options or termination rights, if any, at or
prior to the scheduled expirations:
<TABLE>
<CAPTION>
YEAR OF NUMBER OF SQUARE FOOTAGE PERCENTAGE OF ANNUALIZED BASE PERCENTAGE OF
LEASE LEASES OF EXPIRING TOTAL LEASED RENT OF EXPIRING ANNUALIZED BASE RENT OF
EXPIRATION EXPIRING LEASES SQUARE FEET LEASES ($000S) EXPIRING LEASES
- --------------- --------------- -------------- --------------- ----------------- -------------------------
<S> <C> <C> <C> <C> <C>
1996 (1) 53 128,941 3.59% $ 2,514 3.74%
1997 93 336,683 9.38% 7,851 11.69%
1998 101 440,697 12.27% 8,561 12.75%
1999 89 429,673 11.97% 7,972 11.87%
2000 79 484,401 13.49% 10,290 15.33%
2001 55 310,952 8.66% 5,651 8.42%
2002 24 588,165 16.38% 10,601 15.79%
2003 13 132,428 3.69% 2,711 4.04%
2004 13 195,075 5.43% 3,595 5.35%
2005 14 416,441 11.60% 4,708 7.01%
2006 5 91,279 2.54% 1,973 2.94%
2008 3 28,238 0.79% 535 0.80%
2010 1 7,404 0.21% 179 0.27%
--- -------------- ------ ------- ------
TOTAL 543 3,590,377 100.00% $ 67,142 100.00%
</TABLE>
- ------------------------------
(1) Represents lease expirations data from August 1, 1996 to December 31, 1996.
61
<PAGE>
LEASE EXPIRATIONS - PROPERTY BY PROPERTY
The following table sets forth detailed lease expiration information for
each of the Properties for leases in place as of August 1, 1996, assuming that
none of the tenants exercise renewal options or termination rights, if any, at
or prior to the scheduled expirations.
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 2003
- ---------------------------------------- -------- ---------- -------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9665 WILSHIRE
Square Footage of Expiring Leases....... 1,151 33,586 8,362 19,296 35,869 1,296 34,117
Percentage of Total Leased Sq. Ft....... 0.76% 22.26% 5.54% 12.79% 23.77% 0.86% 22.61%
Annualized Base Rent of Expiring
Leases................................. $ 31,077 $1,457,826 $228,195 $489,933 $1,061,873 $ 33,437 $1,064,071
Percentage of Total Annualized Base
Rent................................... 0.65% 30.72% 4.81% 10.32% 22.38% 0.70% 22.42%
Number of Leases Expiring............... 1 3 2 2 6 1 2
BEVERLY ATRIUM
Square Footage of Expiring Leases....... 4,800 2,608 13,015 4,290 6,261 18,489
Percentage of Total Leased Sq. Ft....... 7.83% 4.25% 21.23% 7.00% 10.21% 30.15%
Annualized Base Rent of Expiring
Leases................................. $ 97,920 $ 63,739 $250,027 $124,317 $ 159,511 $399,362
Percentage of Total Annualized Base
Rent................................... 7.00% 4.55% 17.86% 8.88% 11.40% 28.53%
Number of Leases Expiring............... 1 1 2 2 2 1
CENTURY PARK CENTER
Square Footage of Expiring Leases....... 13,341 24,615 28,060 26,623 46,782 6,963 32,298 8,754
Percentage of Total Leased Sq. Ft....... 6.59% 12.15% 13.85% 13.14% 23.09% 3.44% 15.94% 4.32%
Annualized Base Rent of Expiring
Leases................................. $275,282 $ 532,553 $545,857 $553,555 $1,242,862 $ 88,212 $539,718 $167,702
Percentage of Total Annualized Base
Rent................................... 6.36% 12.30% 12.60% 12.78% 28.69% 2.04% 12.46% 3.87%
Number of Leases Expiring............... 14 16 15 13 8 5 3 3
WESTWOOD TERRACE
Square Footage of Expiring Leases....... 186 6,307 7,123 25,940 58,623 5,128 8,524
Percentage of Total Leased Sq. Ft....... 0.17% 5.64% 6.37% 23.20% 52.42% 4.59% 7.62%
Annualized Base Rent of Expiring
Leases................................. $ 2,902 $ 119,425 $144,011 $525,439 $1,743,193 $ 99,780 $194,347
Percentage of Total Annualized Base
Rent................................... 0.10% 4.22% 5.09% 18.57% 61.62% 3.53% 6.87%
Number of Leases Expiring............... 1 3 2 6 6 2 1
1950 SAWTELLE
Square Footage of Expiring Leases....... 4,150 24,457 40,032 775 7,624 1,853
Percentage of Total Leased Sq. Ft....... 5.16% 30.43% 49.81% 0.96% 9.49% 2.31%
Annualized Base Rent of Expiring
Leases................................. $ 87,230 $ 501,323 $792,397 $ 13,950 $ 150,955 $ 29,087
Percentage of Total Annualized Base
Rent................................... 5.42% 31.17% 49.26% 0.87% 9.38% 1.81%
Number of Leases Expiring............... 4 9 9 1 4 2
<CAPTION>
YEAR OF LEASE EXPIRATION 2004 2005 2006 2008 2010 TOTAL
- ---------------------------------------- ---------- ------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
9665 WILSHIRE
Square Footage of Expiring Leases....... 17,222 150,899
Percentage of Total Leased Sq. Ft....... 11.41% 100%
Annualized Base Rent of Expiring
Leases................................. $ 379,005 $4,745,417
Percentage of Total Annualized Base
Rent................................... 7.99% 100%
Number of Leases Expiring............... 1 18
BEVERLY ATRIUM
Square Footage of Expiring Leases....... 4,447 7,404 61,314
Percentage of Total Leased Sq. Ft....... 7.25% 12.08% 100%
Annualized Base Rent of Expiring
Leases................................. $ 125,405 $179,400 $1,399,681
Percentage of Total Annualized Base
Rent................................... 8.96% 12.82% 100%
Number of Leases Expiring............... 1 1 11
CENTURY PARK CENTER
Square Footage of Expiring Leases....... 11,938 3,207 202,581
Percentage of Total Leased Sq. Ft....... 5.89% 1.58% 100%
Annualized Base Rent of Expiring
Leases................................. $ 310,504 $75,044 $4,331,289
Percentage of Total Annualized Base
Rent................................... 7.17% 1.73% 100%
Number of Leases Expiring............... 2 1 80
WESTWOOD TERRACE
Square Footage of Expiring Leases....... 111,831
Percentage of Total Leased Sq. Ft....... 100%
Annualized Base Rent of Expiring
Leases................................. $2,829,097
Percentage of Total Annualized Base
Rent................................... 100%
Number of Leases Expiring............... 21
1950 SAWTELLE
Square Footage of Expiring Leases....... 1,476 80,367
Percentage of Total Leased Sq. Ft....... 1.84% 100%
Annualized Base Rent of Expiring
Leases................................. $ 33,653 $1,608,595
Percentage of Total Annualized Base
Rent................................... 2.09% 100%
Number of Leases Expiring............... 1 30
</TABLE>
- ----------------------------------
(1) Represents lease expirations data from August 1, 1996 to December 31, 1996.
62
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- ----------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
400 CORPORATE POINTE
Square Footage of Expiring Leases.............. 1,994 8,856 23,544 4,328 14,253 81,708
Percentage of Total Leased Sq. Ft.............. 1.34% 5.97% 15.87% 2.92% 9.61% 55.07%
Annualized Base Rent of Expiring Leases........ $ 39,349 $ 131,377 $ 675,670 $ 61,459 $ 217,783 $1,614,521
Percentage of Total Annualized Base Rent....... 1.33% 4.45% 22.87% 2.08% 7.37% 54.66%
Number of Leases Expiring...................... 2 3 3 2 2 1
BRISTOL PLAZA
Square Footage of Expiring Leases.............. 1,565 3,909 23,874 14,027 12,113 10,527
Percentage of Total Leased Sq. Ft.............. 2.37% 5.92% 36.16% 21.25% 18.35% 15.95%
Annualized Base Rent of Expiring Leases........ $ 22,800 $ 91,442 $ 470,786 $ 221,947 $ 187,246 $ 200,820
Percentage of Total Annualized Base Rent....... 1.91% 7.65% 39.39% 18.57% 15.67% 16.80%
Number of Leases Expiring...................... 1 3 6 3 5 1
SKYVIEW CENTER
Square Footage of Expiring Leases.............. 4,878 26,259 22,447 14,481 16,989 20,939 95,753
Percentage of Total Leased Sq. Ft.............. 1.45% 7.79% 6.66% 4.30% 5.04% 6.21% 28.42%
Annualized Base Rent of Expiring Leases........ $ 83,556 $ 452,873 $ 355,775 $ 209,263 $ 217,936 $ 314,404 $1,886,193
Percentage of Total Annualized Base Rent....... 1.46% 7.90% 6.21% 3.65% 3.80% 5.49% 32.92%
Number of Leases Expiring...................... 3 9 11 8 4 4 2
THE NEW WILSHIRE
Square Footage of Expiring Leases.............. 24,056 25,219 28,415 6,652 25,452
Percentage of Total Leased Sq. Ft.............. 14.15% 14.84% 16.72% 3.91% 14.98%
Annualized Base Rent of Expiring Leases........ $ 338,570 $ 527,241 $ 724,442 $ 119,830 $ 564,201
Percentage of Total Annualized Base Rent....... 9.79% 15.25% 20.95% 3.47% 16.32%
Number of Leases Expiring...................... 4 11 7 3 3
5601 LINDERO CANYON
Square Footage of Expiring Leases.............. 105,830
Percentage of Total Leased Sq. Ft.............. 100.00%
Annualized Base Rent of Expiring Leases........ $1,180,498
Percentage of Total Annualized Base Rent....... 100.00%
Number of Leases Expiring...................... 2
<CAPTION>
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 2008 2010 TOTAL
- ----------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
400 CORPORATE POINTE
Square Footage of Expiring Leases.............. 13,696 148,379
Percentage of Total Leased Sq. Ft.............. 9.23% 100%
Annualized Base Rent of Expiring Leases........ $ 213,658 $2,953,817
Percentage of Total Annualized Base Rent....... 7.23% 100%
Number of Leases Expiring...................... 1 14
BRISTOL PLAZA
Square Footage of Expiring Leases.............. 66,015
Percentage of Total Leased Sq. Ft.............. 100%
Annualized Base Rent of Expiring Leases........ $1,195,041
Percentage of Total Annualized Base Rent....... 100%
Number of Leases Expiring...................... 19
SKYVIEW CENTER
Square Footage of Expiring Leases.............. 34,603 40,089 34,145 26,334 336,917
Percentage of Total Leased Sq. Ft.............. 10.27% 11.90% 10.13% 7.82% 100%
Annualized Base Rent of Expiring Leases........ $ 651,495 $ 486,983 $ 446,617 $ 624,816 $5,729,911
Percentage of Total Annualized Base Rent....... 11.37% 8.50% 7.79% 10.90% 100%
Number of Leases Expiring...................... 3 2 1 2 49
THE NEW WILSHIRE
Square Footage of Expiring Leases.............. 12,513 47,652 169,959
Percentage of Total Leased Sq. Ft.............. 7.36% 28.04% 100%
Annualized Base Rent of Expiring Leases........ $ 240,250 $ 943,510 $3,458,044
Percentage of Total Annualized Base Rent....... 6.95% 27.28% 100%
Number of Leases Expiring...................... 2 1 31
5601 LINDERO CANYON
Square Footage of Expiring Leases.............. 105,830
Percentage of Total Leased Sq. Ft.............. 100%
Annualized Base Rent of Expiring Leases........ $1,180,498
Percentage of Total Annualized Base Rent....... 100%
Number of Leases Expiring...................... 2
</TABLE>
- ----------------------------------
(1) Represents lease expirations data from August 1, 1996 to December 31, 1996.
63
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002
- --------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CALABASAS COMMERCE CENTER
Square Footage of Expiring Leases............ 9,128 59,477 4,413 18,249 11,770 10,841
Percentage of Total Leased Sq. Ft............ 7.41% 48.31% 3.58% 14.82% 9.56% 8.81%
Annualized Base Rent of Expiring Leases...... $ 228,930 $ 863,606 $ 110,798 $ 325,385 $ 196,357 $ 208,147
Percentage of Total Annualized Base Rent..... 10.85% 40.92% 5.25% 15.42% 9.30% 9.86%
Number of Leases Expiring.................... 1 2 1 3 2 1
WOODLAND HILLS FINANCIAL CENTER
Square Footage of Expiring Leases............ 13,903 14,718 39,969 33,534 37,245 33,454
Percentage of Total Leased Sq. Ft............ 6.89% 7.29% 19.80% 16.61% 18.45% 16.57%
Annualized Base Rent of Expiring Leases...... $ 266,048 $ 327,937 $ 875,336 $ 703,753 $ 946,244 $ 684,216
Percentage of Total Annualized Base Rent..... 5.91% 7.29% 19.45% 15.64% 21.02% 15.20%
Number of Leases Expiring.................... 6 9 12 13 10 6
16000 VENTURA BLVD.
Square Footage of Expiring Leases............ 12,374 45,342 29,564 35,411 3,478 20,783
Percentage of Total Leased Sq. Ft............ 8.42% 30.85% 20.12% 24.10% 2.37% 14.14%
Annualized Base Rent of Expiring Leases...... $ 294,056 $1,062,848 $ 576,922 $ 561,993 $ 63,710 $ 410,569
Percentage of Total Annualized Base Rent..... 9.90% 35.78% 19.42% 18.92% 2.15% 13.82%
Number of Leases Expiring.................... 5 10 8 8 2 6
425 WEST BROADWAY
Square Footage of Expiring Leases............ 5,749 22,259 29,540 4,308 6,780
Percentage of Total Leased Sq. Ft............ 8.38% 32.43% 43.04% 6.28% 9.88%
Annualized Base Rent of Expiring Leases...... $ 106,546 $ 434,241 $ 573,892 $ 90,468 $ 123,209
Percentage of Total Annualized Base Rent..... 8.02% 32.69% 43.20% 6.81% 9.28%
Number of Leases Expiring.................... 2 4 4 1 2
303 GLENOAKS
Square Footage of Expiring Leases............ 739 2,700 8,570 5,418 35,045 54,527 51,708
Percentage of Total Leased Sq. Ft............ 0.43% 1.58% 5.01% 3.17% 20.51% 31.91% 30.26%
Annualized Base Rent of Expiring Leases...... $ 8,868 $ 55,053 $ 192,508 $ 105,280 $ 708,116 $1,164,262 $ 992,794
Percentage of Total Annualized Base Rent..... 0.26% 1.58% 5.54% 3.03% 20.37% 33.49% 28.55%
Number of Leases Expiring.................... 1 1 3 2 7 5 1
<CAPTION>
YEAR OF LEASE EXPIRATION 2003 2004 2005 2006 2008 2010 TOTAL
- --------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CALABASAS COMMERCE CENTER
Square Footage of Expiring Leases............ 9,243 123,121
Percentage of Total Leased Sq. Ft............ 7.51% 100%
Annualized Base Rent of Expiring Leases...... $ 177,466 $2,110,689
Percentage of Total Annualized Base Rent..... 8.41% 100%
Number of Leases Expiring.................... 1 11
WOODLAND HILLS FINANCIAL CENTER
Square Footage of Expiring Leases............ 19,600 489 8,983 201,895
Percentage of Total Leased Sq. Ft............ 9.71% 0.24% 4.45% 100%
Annualized Base Rent of Expiring Leases...... $ 505,680 $ 36,600 $ 155,226 $4,501,040
Percentage of Total Annualized Base Rent..... 11.23% 0.81% 3.45% 100%
Number of Leases Expiring.................... 1 1 1 59
16000 VENTURA BLVD.
Square Footage of Expiring Leases............ 146,952
Percentage of Total Leased Sq. Ft............ 100%
Annualized Base Rent of Expiring Leases...... $2,970,098
Percentage of Total Annualized Base Rent..... 100%
Number of Leases Expiring.................... 39
425 WEST BROADWAY
Square Footage of Expiring Leases............ 68,636
Percentage of Total Leased Sq. Ft............ 100%
Annualized Base Rent of Expiring Leases...... $1,328,356
Percentage of Total Annualized Base Rent..... 100%
Number of Leases Expiring.................... 13
303 GLENOAKS
Square Footage of Expiring Leases............ 1,039 11,142 170,888
Percentage of Total Leased Sq. Ft............ 0.61% 6.52% 100%
Annualized Base Rent of Expiring Leases...... $ 19,949 $ 229,971 $3,476,801
Percentage of Total Annualized Base Rent..... 0.57% 6.61% 100%
Number of Leases Expiring.................... 1 1 22
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 2003
- ------------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
70 SOUTH LAKE
Square Footage of Expiring Leases.......... 8,394 31,886 40,054 1,150
Percentage of Total Leased Sq. Ft.......... 10.30% 39.13% 49.16% 1.41%
Annualized Base Rent of Expiring Leases.... $ 151,092 $ 736,461 $ 783,166 $ 24,150
Percentage of Total Annualized Base Rent... 8.91% 43.45% 46.21% 1.42%
Number of Leases Expiring.................. 1 4 4 1
4811 AIRPORT PLAZA DRIVE
Square Footage of Expiring Leases..........
Percentage of Total Leased Sq. Ft..........
Annualized Base Rent of Expiring Leases....
Percentage of Total Annualized Base Rent...
Number of Leases Expiring..................
4900/10 AIRPORT PLAZA DRIVE
Square Footage of Expiring Leases..........
Percentage of Total Leased Sq. Ft..........
Annualized Base Rent of Expiring Leases....
Percentage of Total Annualized Base Rent...
Number of Leases Expiring..................
5000 EAST SPRING
Square Footage of Expiring Leases.......... 13,269 4,843 2,877 29,199 49,931 23,521 6,654 13,588
Percentage of Total Leased Sq. Ft.......... 9.06% 3.31% 1.96% 19.94% 34.10% 16.06% 4.54% 9.28%
Annualized Base Rent of Expiring Leases.... $ 289,048 $ 113,326 $ 51,786 $ 600,554 $ 948,059 $ 311,328 $ 128,555 $ 255,998
Percentage of Total Annualized Base Rent... 10.52% 4.13% 1.88% 21.86% 34.51% 11.33% 4.68% 9.32%
Number of Leases Expiring.................. 4 1 2 5 6 5 1 1
100 WEST BROADWAY
Square Footage of Expiring Leases.......... 1,725 8,147 17,012 8,434 4,806 17,222 47,184 20,385
Percentage of Total Leased Sq. Ft.......... 1.00% 4.72% 9.86% 4.89% 2.79% 9.98% 27.35% 11.82%
Annualized Base Rent of Expiring Leases.... $ 26,910 $ 231,712 $ 278,539 $ 140,105 $ 70,104 $ 270,081 $ 829,892 $ 463,465
Percentage of Total Annualized Base Rent... 0.76% 6.58% 7.91% 3.98% 1.99% 7.67% 23.56% 13.16%
Number of Leases Expiring.................. 1 2 5 5 2 3 3 2
<CAPTION>
YEAR OF LEASE EXPIRATION 2004 2005 2006 2008 2010 TOTAL
- ------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
70 SOUTH LAKE
Square Footage of Expiring Leases.......... 81,484
Percentage of Total Leased Sq. Ft.......... 100%
Annualized Base Rent of Expiring Leases.... $1,694,869
Percentage of Total Annualized Base Rent... 100%
Number of Leases Expiring.................. 10
4811 AIRPORT PLAZA DRIVE
Square Footage of Expiring Leases.......... 121,610 121,610
Percentage of Total Leased Sq. Ft.......... 100.00% 100%
Annualized Base Rent of Expiring Leases.... $1,050,710 $1,050,710
Percentage of Total Annualized Base Rent... 100.00% 100%
Number of Leases Expiring.................. 1 1
4900/10 AIRPORT PLAZA DRIVE
Square Footage of Expiring Leases.......... 150,403 150,403
Percentage of Total Leased Sq. Ft.......... 100.00% 100%
Annualized Base Rent of Expiring Leases.... $1,173,143 $1,173,143
Percentage of Total Annualized Base Rent... 100.00% 100%
Number of Leases Expiring.................. 1 1
5000 EAST SPRING
Square Footage of Expiring Leases.......... 2,532 146,414
Percentage of Total Leased Sq. Ft.......... 1.73% 100%
Annualized Base Rent of Expiring Leases.... $ 48,614 $2,747,268
Percentage of Total Annualized Base Rent... 1.77% 100%
Number of Leases Expiring.................. 1 26
100 WEST BROADWAY
Square Footage of Expiring Leases.......... 37,494 3,352 6,730 172,491
Percentage of Total Leased Sq. Ft.......... 21.74% 1.94% 3.90% 100%
Annualized Base Rent of Expiring Leases.... $1,034,834 $ 60,336 $ 117,000 $3,522,978
Percentage of Total Annualized Base Rent... 29.37% 1.71% 3.32% 100%
Number of Leases Expiring.................. 1 1 1 26
</TABLE>
- ----------------------------------
(1) Represents lease expirations data from August 1, 1996 to December 31, 1996.
65
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1996(1) 1997 1998 1999 2000 2001 2002 2003
- ---------------------------------------- --------- --------- --------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12501 EAST IMPERIAL HIGHWAY
Square Footage of Expiring Leases....... 27,913 63,772 23,986
Percentage of Total Leased Sq. Ft....... 24.13% 55.13% 20.74%
Annualized Base Rent of Expiring
Leases................................. $ 497,410 $ 993,778 $ 390,593
Percentage of Total Annualized Base
Rent................................... 26.43% 52.81% 20.76%
Number of Leases Expiring............... 1 1 2
5832 BOLSA AVENUE
Square Footage of Expiring Leases....... 49,355
Percentage of Total Leased Sq. Ft....... 100.00%
Annualized Base Rent of Expiring
Leases................................. $ 658,830
Percentage of Total Annualized Base
Rent................................... 100.00%
Number of Leases Expiring............... 1
ANAHEIM CITY CENTRE
Square Footage of Expiring Leases....... 4,732 56,397 48,768 12,477 32,373
Percentage of Total Leased Sq. Ft....... 2.90% 34.59% 29.91% 7.65% 19.85%
Annualized Base Rent of Expiring
Leases................................. $ 79,480 $ 730,269 $ 777,623 $ 212,144 $ 408,922
Percentage of Total Annualized Base
Rent................................... 3.23% 29.71% 31.64% 8.63% 16.64%
Number of Leases Expiring............... 2 2 4 2 2
IMPERIAL BANK TOWER
Square Footage of Expiring Leases....... 21,682 35,159 28,457 15,702 43,243 34,053 73,527 35,498
Percentage of Total Leased Sq. Ft....... 4.88% 7.91% 6.40% 3.53% 9.73% 7.66% 16.55% 7.99%
Annualized Base Rent of Expiring
Leases................................. $ 421,572 $1,133,019 $ 475,210 $ 253,268 $ 723,785 $ 522,359 $1,361,766 $ 666,911
Percentage of Total Annualized Base
Rent................................... 5.18% 13.93% 5.84% 3.11% 8.90% 6.42% 16.74% 8.20%
Number of Leases Expiring............... 4 6 5 3 4 4 5 3
PORTFOLIO TOTALS
Square Footage of Expiring Leases....... 128,941 336,683 440,697 429,673 484,401 310,952 588,165 132,428
Percentage of Total Leased Sq. Ft....... 3.59% 9.38% 12.27% 11.97% 13.49% 8.66% 16.38% 3.69%
Annualized Base Rent of Expiring
Leases................................. $2,514,118 $7,851,326 $8,561,271 $7,971,955 $10,290,028 $5,650,999 $10,600,639 $2,711,251
Percentage of Total Annualized Base
Rent................................... 3.74% 11.69% 12.75% 11.87% 15.33% 8.42% 15.79% 4.04%
Number of Leases Expiring............... 53 93 101 89 79 55 24 13
<CAPTION>
YEAR OF LEASE EXPIRATION 2004 2005 2006 2008 2010 TOTAL
- ---------------------------------------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
12501 EAST IMPERIAL HIGHWAY
Square Footage of Expiring Leases....... 115,671
Percentage of Total Leased Sq. Ft....... 100%
Annualized Base Rent of Expiring
Leases................................. $1,881,781
Percentage of Total Annualized Base
Rent................................... 100%
Number of Leases Expiring............... 4
5832 BOLSA AVENUE
Square Footage of Expiring Leases....... 49,355
Percentage of Total Leased Sq. Ft....... 100%
Annualized Base Rent of Expiring
Leases................................. $ 658,830
Percentage of Total Annualized Base
Rent................................... 100%
Number of Leases Expiring............... 1
ANAHEIM CITY CENTRE
Square Footage of Expiring Leases....... 8,310 163,057
Percentage of Total Leased Sq. Ft....... 5.10% 100%
Annualized Base Rent of Expiring
Leases................................. $ 249,300 $2,457,738
Percentage of Total Annualized Base
Rent................................... 10.14% 100%
Number of Leases Expiring............... 1 13
IMPERIAL BANK TOWER
Square Footage of Expiring Leases....... 78,838 56,641 21,508 444,308
Percentage of Total Leased Sq. Ft....... 17.74% 12.75% 4.84% 100%
Annualized Base Rent of Expiring
Leases................................. $1,155,718 $1,004,432 $ 418,116 $8,136,156
Percentage of Total Annualized Base
Rent................................... 14.20% 12.35% 5.14% 100%
Number of Leases Expiring............... 3 3 2 42
PORTFOLIO TOTALS
Square Footage of Expiring Leases....... 195,075 416,441 91,279 28,238 7,404 3,590,377
Percentage of Total Leased Sq. Ft....... 5.43% 11.60% 2.54% 0.79% 0.21% 100%
Annualized Base Rent of Expiring
Leases................................. $3,594,665 $4,708,227 $1,972,852 $ 535,116 $ 179,400 $67,141,847
Percentage of Total Annualized Base
Rent................................... 5.35% 7.01% 2.94% 0.80% 0.27% 100%
Number of Leases Expiring............... 13 14 5 3 1 543
</TABLE>
- ----------------------------------------
(1) Represents lease expirations data from August 1, 1996 to December 31, 1996.
66
<PAGE>
TENANT RETENTION AND EXPANSIONS
The Company believes that its relationship with tenants contributes in large
part to its success in attracting, expanding and retaining its quality and
diverse tenant base. The Company strives to develop and maintain good
relationships with tenants through its active management style and by being
responsive to individual tenants' needs. The Company services tenants primarily
through its on site, professional management staff. Management believes that
tenant satisfaction fosters long-term tenant relationships and creates expansion
opportunities, which, in turn, enhance the Company's ability to maintain and
increase occupancy rates. The Company's success in this area is demonstrated in
part by the number of existing tenants which have re-leased their space, leased
additional space to support their expansion needs or moved to other space within
the Company's portfolio. During 1994 and 1995, the Company expanded 10 tenants
by a total of over 12,400 square feet. Recently, the Company was able to expand
and move California Pizza Kitchen from approximately 17,224 square feet in
Westwood Terrace to approximately 21,579 square feet in Skyview Center. Another
example of the Company's ability to capitalize on relocation and expansion
opportunities is the relocation of Stanford Business Systems from 400 Corporate
Pointe to expanded space with its new parent company at Skyview Center, which
also allowed the Company to accommodate a 7,311 square foot expansion at 400
Corporate Pointe by Pepperdine University, the largest tenant at 400 Corporate
Pointe.
HISTORICAL LEASE RENEWALS
The following table sets forth certain historical information regarding
tenants at the Properties who renewed an existing lease at or prior to the
expiration of the existing lease:
<TABLE>
<CAPTION>
TOTAL/
JAN. 1 WEIGHTED
TO AUGUST 1 AVERAGE
1993 1994 1995 1996 1993-1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of leases expired during calendar year........... 3 28 33 47 111
Number of lease renewals................................ 3 20 21 39 83
Percentage of leases renewed............................ 100% 71% 64% 83% 75%
Aggregate rentable square footage of expiring leases.... 2,870 112,539 99,577 134,520 349,506
Aggregate rentable square footage of lease renewals..... 2,870 92,057 75,213 116,699 286,839
Percentage of expiring rentable square footage
renewed............................................... 100% 82% 76% 87% 82%
</TABLE>
67
<PAGE>
HISTORICAL TENANT IMPROVEMENTS AND LEASING COMMISSIONS
The following table sets forth certain historical information regarding
Tenant Improvement ("TI") and Leasing Commission ("LC") costs for tenants at the
Properties. Based on square footage, the majority of leases signed relate to
Renewals and Re-tenanted Space (73%), while leases signed relating to Shell
Space comprised 27%. Shell Space remaining at the Properties is less than 2% of
the aggregate rentable square footage of the Properties.
<TABLE>
<CAPTION>
JANUARY 1 TOTAL/
TO AUGUST 1 WEIGHTED
1993 1994 1995 1996 AVERAGE
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RENEWALS
Number of Leases 3 20 20(i) 38 83
Square Feet of Renewals 2,870 92,057 75,213 116,699 286,839
TI per square foot.............................. $ 3.58 $ 2.23 $ 4.67(i) $ 5.46 $ 4.19
LC per square foot.............................. $ 0.09 $ 3.44 $ 1.11 $ 2.38 $ 2.37
--------- --------- --------- ----------- -----------
Total TI and LC per square foot............. $ 3.67 $ 5.67 $ 5.78(i) $ 7.84 $ 6.56
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
RE-TENANTED SPACE (II)
Number of Leases 7 13 47 33 100
Square Feet of Re-tenanted Space 9,910 22,265 108,430 81,367 221,972
TI per square foot.............................. $ 2.22 $ 9.04 $ 9.82 $ 7.04 $ 8.38
LC per square foot.............................. $ 0.31 $ 2.72 $ 3.05 $ 3.36 $ 3.12
--------- --------- --------- ----------- -----------
Total TI and LC per square foot............. $ 2.53 $11.76 $12.87 $10.70 $11.50
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
SHELL SPACE (III)
Number of Leases 5 8 10 17 40
Square Feet of Shell Space 17,389 16,130 53,878 100,308 187,703
TI per square foot.............................. $31.22 $36.25 $26.29 $21.17 $24.87
LC per square foot.............................. $ 3.65 $ 7.19 $ 4.83 $ 6.17 $ 5.64
--------- --------- --------- ----------- -----------
Total TI and LC per square foot............. $34.87 $43.44 $31.12 $27.34 $30.51
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
TOTAL
Number of Leases 15 41 78 89 223
Square Feet 30,169 130,452 237,519 298,374 696,514
TI per square foot.............................. $19.06 $ 7.60 $12.99 $11.17 $11.30
LC per square foot.............................. $ 2.22 $ 3.78 $ 3.21 $4.01 $ 3.54
--------- --------- --------- ----------- -----------
Total TI and LC per square foot............. $21.28 $11.38 $16.20 $15.18 $14.84
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
- ------------------------
(i)
Excludes tenant improvement and leasing commission costs relating to one
lease signed at Anaheim City Centre for which the Company incurred
substantial renovation costs in connection with a full floor retrofit.
(ii)
Does not include Shell Space build-out for 187,703 square feet.
(iii)
Shell Space remaining at the Properties is less than 2% of the aggregate
rentable space footage of the Properties.
68
<PAGE>
HISTORICAL CAPITAL EXPENDITURES
The following table sets forth information relating to the historical
capital expenditures of the Company's Properties:
<TABLE>
<CAPTION>
1993 1994 1995
--------- ---------- ----------
<S> <C> <C> <C>
Number of Properties (1)..................................................... 3 8 10
Number of Square Feet........................................................ 529,673 1,129,855 2,634,057
Capital Expenditures Incurred................................................ $ 9,470 $ 51,592 $ 200,848
Weighted Average Capital Expenditures per square foot (2).................... $ 0.02 $ 0.06 $ 0.15
Three Year Weighted Average per square foot.................................. $ 0.10
</TABLE>
- ------------------------
(1) Represents the actual number of Properties for which capital expenditures
were incurred during the year.
(2) For those Properties owned less than a full year, computes the per square
foot amount by annualizing the capital expenditures amount to a pro forma
full year cost.
HISTORICAL OCCUPANCY
The table below sets forth the weighted average occupancy rates, based on
square feet leased, of the Properties owned by the Company at the indicated
dates:
<TABLE>
<CAPTION>
APPROXIMATE AGGREGATE PERCENTAGE OF RENTABLE
DATE RENTABLE SQUARE FEET SQUARE FEET OCCUPIED
- ------------------------------------------------ --------------------- -------------------------
<S> <C> <C>
December 31, 1993............................... 529,673 84%
June 30, 1994................................... 635,503 87%
December 31, 1994............................... 1,129,855 82%
June 30, 1995................................... 1,408,468 84%
December 31, 1995............................... 2,634,057 88%
June 30, 1996................................... 3,547,107 89%
</TABLE>
OFFICE SUBMARKETS AND PROPERTY INFORMATION
The Company owns and operates 24 Properties comprising approximately 4.0
million rentable square feet in suburban Los Angeles County, Orange County and
San Diego County. The following map shows the relative geographic location of
Los Angeles County, Orange County and San Diego County.
Map depicting Los Angeles County, Orange County and San Diego County.
69
<PAGE>
The Properties are located in a number of office market sectors and
submarkets within these counties as outlined in the table below:
PROPERTY MARKET SECTORS AND SUBMARKETS
PROPERTY STATISTICS
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
TOTAL OF
APPROXIMATE PORTFOLIO ADJUSTED PORTFOLIO
NUMBER OF RENTABLE RENTABLE BASE RENT ANNUALIZED
PROPERTIES SQUARE FEET SQUARE FEET ($000S) BASE RENT
---------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
LOS ANGELES COUNTY
LOS ANGELES WEST OFFICE MARKET SECTOR
West Los Angeles and Adjacent Submarkets...... 6 905,821 22.4% 18,372 27.4%
Culver City/Century Blvd. Submarkets.......... 3 640,287 15.9 9,879 14.7
LOS ANGELES NORTH OFFICE MARKET SECTOR
Simi/Conejo Valley Submarkets................. 2 228,951 5.7 3,291 4.9
West and Central San Fernando Valley
Submarkets................................... 2 399,796 9.9 7,471 11.1
East San Fernando Valley/Tri Cities
Submarkets................................... 3 347,171 8.6 6,500 9.7
LOS ANGELES SOUTH OFFICE MARKET SECTOR
Long Beach and Cerritos/Norwalk Submarkets.... 5 749,273 18.6 10,376 15.5
ORANGE COUNTY
Anaheim Submarket............................. 1 175,391 4.3 2,458 3.7
Huntington Beach Submarket.................... 1 49,355 1.2 659 1.0
SAN DIEGO COUNTY
Central City (downtown San Diego) Submarket... 1 540,413 13.4 8,136 12.1
--
----------- ----- ---------- -----
TOTAL......................................... 24 4,036,458 100.0% $ 67,142 100.0%
--
--
----------- ----- ---------- -----
----------- ----- ---------- -----
</TABLE>
70
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET AND PROPERTIES
According to the C&W Market Study, the Los Angeles County office market
contained office space inventory of approximately 168 million rentable square
feet which, as of December 31, 1995, had a direct vacancy rate of 18.7%. The Los
Angeles County office market is divided by C&W into the following four sectors:
Los Angeles West, Los Angeles North, Los Angeles South/South Bay and Los Angeles
Central/ Downtown, with each of the sectors in turn composed of numerous
submarkets as illustrated on the map below.
Map of Los Angeles County showing location
of Los Angeles North, Los Angeles West, Los Angeles Central and
Los Angeles South office market sectors.
During 1995, 272,154 square feet of office space was absorbed on a net basis
in the four Los Angeles County sectors inclusive of the Los Angeles
Central/Downtown sector which had net negative absorption of 711,752 square
feet. Excluding the net negative absorption of the Los Angeles Central/Downtown
sector, the remaining three sectors absorbed approximately 984,000 square feet.
The direct vacancy rate for Los Angeles County excluding the Los Angeles
Central/Downtown sector was 17.0% as of December 31, 1995, as compared to 17.3%
in 1994. Set forth below is detailed market information regarding the four
sectors within the Los Angeles County office market:
LOS ANGELES COUNTY
OFFICE MARKET STATISTICS
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
DIRECT NET WTD. AVG.
NUMBER DIRECT VACANCY ABSORPTION ASKING
MARKET INVENTORY OF BLDGS AVAILABILITIES* RATE YTD 1995 RENTAL RATE
- ---------------------------------------- ----------- -------- --------------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
LOS ANGELES WEST........................ 50,014,880 367 9,289,766 18.6% 419,123 $20.93
LOS ANGELES NORTH....................... 39,355,810 467 5,682,217 14.4% 196,129 $20.80
LOS ANGELES SOUTH/SOUTH BAY............. 27,336,900 240 4,813,583 17.6% 368,654 $18.14
LOS ANGELES CENTRAL/ DOWNTOWN........... 51,544,706 243 11,610,517 22.5% (711,752) $18.44
----------- -------- --------------- ------- ---------- -----------
TOTAL............................... 168,252,296 1,317 31,396,083 18.7% 272,154 $19.56
----------- -------- --------------- ------- ---------- -----------
----------- -------- --------------- ------- ---------- -----------
</TABLE>
- ------------------------
Source: C&W Market Study
* Does not include currently leased but available sublease space.
71
<PAGE>
LOS ANGELES WEST OFFICE MARKET SECTOR
The Los Angeles West office market sector contains several distinct office
submarkets, including, among others, the Beverly Hills, Century City, Westwood,
West Los Angeles, Marina Area, Culver City, LAX, Hollywood and West Hollywood
office submarkets. According to the C&W Market Study, there are approximately
50,014,880 square feet of office space inventory in the Los Angeles West office
market sector which comprises approximately 31% of the office space inventory in
Los Angeles County. As of December 31, 1995, the direct vacancy rate in the Los
Angeles West office market sector was 18.6%. Collectively, the office submarkets
within the Los Angeles West office market sector had weighted average asking
rents of $20.93 per square foot as of December 31, 1995.
Map of Los Angeles West office market sector.
<TABLE>
<S> <C>
1. 9665 WILSHIRE 6. 400 CORPORATE POINTE
2. BEVERLY ATRIUM 7. BRISTOL PLAZA
3. CENTURY PARK CENTER 8. SKYVIEW CENTER
4. WESTWOOD TERRACE 9. THE NEW WILSHIRE
5. 1950 SAWTELLE
</TABLE>
Several of the office submarkets in the Los Angeles West office market
sector, including Westwood, Beverly Hills, and Century City are considered among
the most prestigious and desirable office locations in Los Angeles County and
command premium rental rates, with average annual asking rents, as of December
31, 1995, of $28.32, $25.08 and $23.28 per square foot, respectively. The Golden
Triangle area of Beverly Hills has quoted annual asking rents ranging from
$19.80 to $42.00 with a predominant range of $24.00 to $36.00 per square foot.
The tenant base of office space users in the Los Angeles West office market
sector is primarily composed of firms in the entertainment, advertising,
professional and financial services, legal, accounting, insurance and real
estate industries.
The Company owns nine Properties located in the Los Angeles West office
market sector that collectively contain approximately 1,546,108 net rentable
square feet which represents approximately 38% of the total rentable square
footage of the Properties. The Properties are located in the office submarkets
of Beverly Hills, Century City, Westwood, West Los Angeles, Culver
City/Westchester, LAX and the 6000 Block of Wilshire Boulevard (a segment of the
Miracle Mile office submarket adjacent to Beverly Hills). No new development of
mid-rise or high-rise properties is permitted in the Beverly Hills office
submarket as the City of Beverly Hills has enacted zoning limitations that
impose a three-story height limit for all new commercial development. Set forth
below is detailed submarket information regarding the Los Angeles West sector:
72
<PAGE>
LOS ANGELES WEST
OFFICE SUBMARKET STATISTICS
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
DIRECT NET WTD. AVG.
NUMBER DIRECT VACANCY ABSORPTION ASKING
SUBMARKET INVENTORY OF BLDGS AVAILABILITIES(1) RATE YTD 1995 RENTAL RATE
- ---------------------------------------- ---------- -------- ----------------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BEVERLY HILLS/CENTURY CITY.............. 14,351,740 89 2,340,143 16.3% 317,263 $24.12
Beverly Hills....................... 5,499,685 63 1,100,405 20.0% 143,812 $25.08
Century City........................ 8,852,055 26 1,239,738 14.0% 173,451 $23.28
WESTWOOD/WEST LOS ANGELES............... 17,304,111 139 2,924,088 16.9% 67,888 $23.88
Westwood............................ 4,084,735 21 579,241 14.2% 172,706 $28.32
West Los Angeles.................... 3,798,977 34 821,453 21.6%(2) (120,211) $18.84
Brentwood........................... 3,254,337 23 399,587 12.3% 148,907 $24.84
Santa Monica........................ 6,005,655 58 1,087,661 18.1% (141,470) $25.20
Pacific Palisades................... 160,407 3 36,146 22.5% 7,956 $20.64
MARINA AREA/CULVER CITY/ LAX............ 8,959,927 63 1,912,170 21.3% 223,275 $14.85
Culver City/Westchester............. 3,643,649 32 537,237 14.7% 52,844 $17.28
Los Angeles Airport (LAX)........... 4,211,847 20 1,232,354 29.3%(3) 77,496 $13.20
Marina Del Rey/Venice/MarVista...... 1,104,431 11 142,579 12.9% 92,935 $19.92
PARK MILE/WEST HOLLYWOOD................ 9,399,102 76 2,113,365 22.5% (189,303) $18.80
Miracle Mile........................ 4,444,716 20 1,140,562 25.7% (242,985) $19.47
Park Mile........................... 1,079,452 11 252,993 23.4% 23,958 $16.23
Hollywood........................... 2,576,475 30 488,686 19.0% 43,438 $15.72
West Hollywood...................... 1,298,459 15 231,124 17.8% (13,714) $24.84
TOTAL............................... 50,014,880 367 9,289,766 18.6% 419,123 $20.93
</TABLE>
- ------------------------
Source: C&W Market Study
(1) Does not include currently leased but available sublease space.
(2) The marginally higher vacancy in this office submarket is partially
attributable to the loss of a major tenant (Aurora, formerly Executive Life)
which previously occupied over 300,000 square feet in two properties.
(3) The 29.3% direct vacancy rate for the LAX office submarket compared to other
office submarkets in the Los Angeles West office market sector reflects the
fact that of the 20 buildings in such submarket, only seven buildings
comprising 22.2% of such submarket's rentable square feet are classified in
the C&W Market Study as Class A office properties (all of which were
completed between 1981 and 1987), with the remaining 13 properties
classified as Class B or Class C properties. The Class B and Class C
properties do not directly compete with the newer and higher quality Skyview
Centers I and II and the other Class A properties in the LAX office
submarket. The direct vacancy level for Class A properties in the LAX office
submarket was 25.0% as of December 31, 1995.
PROPERTIES LOCATED IN THE BEVERLY HILLS OFFICE SUBMARKET:
9665 WILSHIRE. 9665 Wilshire is a ten-story office tower located in the
Golden Triangle of Beverly Hills completed in 1972 and substantially renovated
in 1992 and 1993. The Property contains 158,684 rentable square feet and 444
parking spaces. As of August 1, 1996 the Property was 95.1% leased with an
average Annualized Base Rent per leased square foot of $31.45. According to the
C&W Market Study, as of April 30, 1996, the 9665 Wilshire Boulevard Peer Group
(the term "Peer Group" as used herein with respect to each of the Properties has
the meaning set forth in the Glossary) contained approximately 1,807,958 square
feet of office space inventory in 17 buildings and had weighted average annual
asking rental rates ranging from $27.14 to $29.49 per square foot with a direct
vacancy rate of 28.7%. Primary tenants at this Property include Sotheby's, Inc.
(17,222 square feet), Merrill Lynch (15,363 square feet), Smith Barney (15,321
square feet), Gruntal & Co. (15,321 square feet), J.B. Oxford Holdings (15,321
square feet) and Sutro & Co. (11,437 square feet). Aggregate square footage of
leases expiring in 1996, 1997, and 1998 represent 0.8%, 22.3% and 5.5% of the
Property's occupied square footage, respectively.
73
<PAGE>
BEVERLY ATRIUM. Beverly Atrium is a 3-story office complex completed in
1989 of steel frame construction with a stone and brick exterior. The Property
contains 61,314 rentable square feet and 245 parking spaces. The Property is
located immediately south of the Golden Triangle area. As of August 1, 1996, the
Property was 100% leased with an average Annualized Base Rent per leased square
foot of $22.83. According to the C&W Market Study, as of April 30, 1996, the
Beverly Atrium Peer Group contained approximately 1,807,958 square feet of
office space inventory in 17 buildings and had weighted average annual asking
rental rates ranging from $27.14 to $29.49 per square foot with a direct vacancy
rate of 28.7%. Primary tenants at this Property include GE Commercial Finance
(18,489 square feet), Islands Restaurant (7,404 square feet) and Unigem
International (10,281 square feet). Aggregate square footage of leases expiring
in 1996, 1997, and 1998 represent 7.8%, 4.3% and 21.2% of the Property's
occupied square footage, respectively.
PROPERTY LOCATED IN THE CENTURY CITY OFFICE SUBMARKET:
CENTURY PARK CENTER. Century Park Center contains a 15-story office tower
and an adjacent three story office building completed in 1972. The Property
contains approximately 243,404 rentable square feet with 674 parking spaces. The
building was renovated during 1994, which included redesigning the full-length
glass facade, refilming all of the curtain wall spandrels and installing tenemic
metal to highlight the exterior window frames. In addition, the building's
security and energy management systems and facilities were upgraded, lighting
was retrofitted, and all common areas were renovated. As of August 1, 1996, the
Property was 83.2% leased with an average Annualized Base Rent per leased square
foot of $21.38. According to the C&W Market Study, as of April 30, 1996, the
Century Park Center Peer Group contained approximately 3,649,937 square feet of
office space inventory in 11 buildings and had weighted average annual asking
rental rates ranging from $20.64 to $24.96 per square foot with a direct vacancy
rate of 21.8%. The Property is primarily tenanted with numerous professional and
medical related tenants ranging predominantly in size from 1,000 square feet to
3,000 square feet. The largest tenant at this Property is NME Hospitals (24,069
square feet) which occupies approximately 10% of the rentable square feet.
Aggregate square footage of leases expiring in 1996, 1997, and 1998 represent
6.6%, 12.2% and 13.9% of the Property's occupied square footage, respectively.
PROPERTY LOCATED IN THE WESTWOOD OFFICE SUBMARKET:
WESTWOOD TERRACE. Westwood Terrace is a 5-story office building completed
in 1988 of steel frame construction with a white precast concrete panel and
blue-green continuous ribbon glass exterior with layered terraces on each story.
The Property contains approximately 135,943 rentable square feet and 450 parking
spaces. As of August 1, 1996, the Property was 82.3% leased with an average
Annualized Base Rent per leased square foot of $25.30. According to the C&W
Market Study, as of April 30, 1996, the Westwood Terrace Peer Group contained
approximately 1,004,079 square feet of office space inventory in six buildings
and had weighted average annual asking rental rates ranging from $22.50 to
$31.87 per square foot with a direct vacancy rate of 11.2%. Primary tenants at
this Property include The Hearst Corporation (25,731 square feet) and Blue Cross
of California (15,261 square feet). Aggregate square footage of leases expiring
in 1996, 1997, and 1998 represent 0.2%, 5.6% and 6.4% of the Property's occupied
square footage, respectively.
PROPERTY LOCATED IN THE WEST LOS ANGELES OFFICE SUBMARKET:
1950 SAWTELLE. 1950 Sawtelle is a three-story, office building completed in
1988, of steel frame construction with a brick exterior. The Property, which was
renovated in 1995, contains approximately 103,772 rentable square feet and has
254 parking spaces. As of August 1, 1996, the Property was 77.5% leased with an
average Annualized Base Rent per leased square foot of $20.02. According to the
C&W Market Study, as of April 30, 1996, the 1950 Sawtelle Peer Group contained
approximately 1,814,375 square feet of office space inventory in 10 buildings
and had weighted average annual asking rental rates ranging from $17.74 to
$19.09 per square foot with a direct vacancy rate of 25.8%. The Property's
tenant base is largely comprised of numerous small and medium sized service,
medical and other professional tenants who occupy tenant suites that
predominantly range in size from 1,500 square feet to 3,000 square feet. The
largest tenant at this Property, Integrated Decisions (10,635 square feet),
occupies approximately 10% of the Property's aggregate rentable square feet.
Aggregate square footage of leases expiring in 1996, 1997, and 1998 represent
5.2%, 30.4% and 49.8% of the Property's occupied square footage, respectively.
74
<PAGE>
PROPERTIES LOCATED IN THE CULVER CITY/WESTCHESTER OFFICE SUBMARKET:
400 CORPORATE POINTE. 400 Corporate Pointe is an eight-story office
building completed in 1987 of steel-framed construction with a dark glass and
concrete panel exterior. The Property contains approximately 164,598 rentable
square feet with 588 parking spaces. The Property is within 1/2 mile of the
I-405 and I-90 Freeways and La Cienega Boulevard, a major north-south artery. As
of August 1, 1996, the Property was 90.2% leased with an average Annualized Base
Rent per leased square foot of $19.91. According to the C&W Market Study, as of
April 30, 1996, the 400 Corporate Pointe Peer Group contained approximately
1,792,632 square feet of office space inventory in 14 buildings and had weighted
average annual asking rental rates ranging from $17.22 to $17.81 per square foot
with a direct vacancy rate of 26.9%. Primary tenants at this Property include
Pepperdine University (89,752 square feet) which is subject to a triple net
lease expiring in the year 2002, and Crawford & Co. (20,347). Aggregate square
footage of leases expiring in 1996, 1997, and 1998 represent 1.3%, 6.0% and
15.9% of the Property's occupied square footage, respectively.
BRISTOL PLAZA. Bristol Plaza is a four-story office building completed in
1982 of steel-frame construction with a brushed aluminum and reflective glass
exterior. The Property contains 84,014 rentable square feet and 320 parking
spaces. The Property is within 1/2 mile of the I-405 and I-90 Freeways and La
Cienega Boulevard, a major north-south artery. As of August 1, 1996, the
Property was 78.6% leased with an average Annualized Base Rent per leased square
foot of $18.10. According to the C&W Market Study, as of April 30, 1996, the
Bristol Plaza Peer Group contained approximately 1,873,463 square feet of office
space inventory in 14 buildings and had weighted average annual asking rental
rates ranging from $17.24 to $17.83 per square foot with a direct vacancy rate
of 25.6%. Primary tenants at this Property include Bristol A/R (12,163 square
feet) and the State of California (10,527 square feet). No other tenant
comprises more than 8% of the Property's aggregate square footage. Aggregate
square footage of leases expiring in 1996, 1997, and 1998 represent 2.4%, 5.9%
and 36.2% of the Property's occupied square footage, respectively.
PROPERTY LOCATED IN THE LAX OFFICE SUBMARKET:
SKYVIEW CENTER. Skyview Center consists of two 11-and 12-story office
towers completed in 1981 and 1987, respectively, of steel frame construction
with a reflective glass and painted metal mullions exterior. The buildings were
renovated in 1995. The Property contains approximately 391,675 rentable square
feet with 393 parking spaces. Adjacent to the Property is a 14.4 acre surface
parking lot containing approximately 2,000 parking spaces that are utilized as
short and long term airport parking. Each building comprises approximately 50%
of the total rentable area. As of August 1, 1996, the Property was 86.0% leased
with an average Annualized Base Rent per leased square foot of $17.01. According
to the C&W Market Study, as of April 30, 1996, the Skyview Center Peer Group
contained approximately 2,449,177 square feet of office space inventory in 10
buildings located along the Century Boulevard and in El Segundo with weighted
average annual asking rental rates ranging from $17.70 to $20.75 per square foot
with a direct vacancy rate of 13.8%. Primary tenants at this Property include
Logicon, Inc. (74,174 square feet), Learning Tree International (34,145 square
feet) and American Tours International (32,586 square feet). Aggregate square
footage of leases expiring in 1996, 1997, and 1998 represent 1.4%, 7.8% and 6.7%
of the Property's occupied square footage, respectively.
75
<PAGE>
PROPERTY LOCATED IN THE 6000 BLOCK OF WILSHIRE BOULEVARD OFFICE MICROMARKET(1):
THE NEW WILSHIRE. The New Wilshire is a 16-story office tower completed in
1986 of steel frame construction with a tempered vision and spandrel glass
curtain wall exterior. The Property contains approximately 202,704 rentable
square feet and 398 parking spaces. As of August 1, 1996 the Property was
83.9% leased with an average Annualized Base Rent per leased square foot of
$20.35. According to the C&W Market Study, as of April 30, 1996, The New
Wilshire Peer Group contained approximately 3,098,886 square feet of office
space inventory in seven buildings and had weighted average annual asking
rental rates ranging from $20.04 to $23.90 per square foot with a direct
vacancy rate of 19.9%. Primary tenants at this Property include Grey
Advertising (50,152 square feet), Muse Cordero (15,551 square feet) and
Hallmark Entertainment (12,453 square feet). Aggregate square footage of
leases expiring in 1996, 1997, and 1998 represent 14.2%, 14.8% and 16.7% of
the Property's occupied square footage, respectively.
- ------------------------
(1) The Company defines the geographical location where this Property is
located as a separate office micromarket. While the C&W Market Study
defines this location as a segment of the Miracle Mile office submarket,
the Company believes that this location functions as a separate office
micromarket which is independent of the overall Miracle Mile office
submarket. The Company further believes that the 6000 Block of Wilshire
Boulevard office micromarket is primarily influenced by, and is a
peripheral or satellite micromarket of, the adjacent Beverly Hills office
submarket.
LOS ANGELES NORTH OFFICE MARKET SECTOR
The Los Angeles North office market sector, as defined by the C&W Market
Study, encompasses four market areas located primarily in the San Fernando
Valley, Santa Clarita Valley, and Conejo Valley areas of Los Angeles County, and
portions of southeastern Ventura County. The four primary markets in the Los
Angeles North office market sector include: Simi/Conejo Valley, West San
Fernando Valley, Central San Fernando Valley, and East San Fernando Valley/Tri
Cities, with each of these office markets in turn composed of several office
submarkets.
Map of Los Angeles North office market sector.
<TABLE>
<S> <C>
10. 5601 LINDERO CANYON 14. 425 WEST BROADWAY
11. CALABASAS COMMERCE CENTER 15. 303 GLENOAKS
12. WOODLAND HILLS FINANCIAL
CENTER 16. 70 SOUTH LAKE
13. 16000 VENTURA BLVD.
</TABLE>
The distinct office submarkets within the Los Angeles North sector are
indicated in the table below. According to the C&W Market Study, there are
approximately 39,400,000 square feet of office space inventory in the Los
Angeles North office market sector which comprise approximately 23% of the
office space inventory in Los Angeles County. As of December 31, 1995 the
collective submarkets within the Los Angeles North office market sector had a
direct vacancy rate of 14.4%, with weighted average annual asking rents of
$20.80 per square foot.
The Company owns seven Properties located in the Los Angeles North office
market sector that collectively contain approximately 975,918 rentable square
feet which represents approximately 24% of the total rentable square footage of
the Properties. The Properties are located in the office submarkets of Westlake
Village, Calabasas, Woodland Hills, Encino, Glendale, Burbank City Center and
Pasadena. Set forth below is detailed submarket information regarding the Los
Angeles North sector.
76
<PAGE>
LOS ANGELES NORTH
OFFICE SUBMARKET STATISTICS
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
DIRECT NET WTD. AVG.
NUMBER DIRECT VACANCY ABSORPTION ASKING
SUBMARKET INVENTORY OF BLDGS AVAILABILITIES(1) RATE YTD 1995 RENTAL RATE
- ------------------------------ ---------- -------- ------------------ ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
SIMI/CONEJO VALLEY............ 4,537,562 87 510,332 11.2% 243,948 $18.36
Simi Valley................. 196,326 6 28,401 14.5% 32,363 $14.64
Thousand Oaks/Newbury
Park....................... 701,607 14 239,761 34.2% (597) $19.80
Westlake Village............ 1,735,399 32 149,247 8.6% 176,534 $17.16
Agoura Hills................ 497,672 10 40,588 8.2% (7,747) $15.48
Calabasas................... 1,406,558 25 52,335 3.7% 43,395 $19.32
WEST SAN FERNANDO VALLEY...... 8,487,933 96 1,404,681 16.5% 209,106 $21.60
Northridge/Reseda........... 266,000 5 14,408 5.4% 110,394 $16.92
Tarzana..................... 508,929 10 95,615 18.8% 11,998 $19.08
Canoga Park/Chatsworth...... 1,316,333 24 279,918 21.3% (109,904) $16.32
Warner Center............... 5,325,021 39 887,559 16.7% 164,899 $23.88
Woodland Hills.............. 1,071,650 18 127,181 11.9% 31,719 $18.84
CENTRAL SAN FERNANDO VALLEY... 8,525,170 111 1,528,178 17.9% (181,315) $19.68
Encino...................... 3,910,209 39 627,549 16.0% (90,048) $21.36
Sherman Oaks................ 2,264,136 27 429,972 19.0% (7,327) $20.40
Van Nuys.................... 1,442,363 27 293,101 20.3% (38,627) $17.16
Park City/Granada/Mission
Hills...................... 386,090 7 64,839 16.8% (27,904) $15.84
Valencia/Newhall............ 522,372 11 112,717 21.6% (17,409) $17.04
EAST SAN FERNANDO VALLEY/TRI-
CITIES....................... 17,805,145 173 2,239,026 12.6% (75,610) $21.61
Burbank-Media District...... 2,043,350 15 31,937 1.6% 87,406 $28.43
Burbank-City Center......... 1,710,879 23 242,563 14.2% (26,003) $18.83
Glendale.................... 5,052,071 44 799,750 15.8% (151,308)(2) $23.16
Pasadena.................... 5,542,296 57 732,964 13.2% (105,482) $21.47
Pasadena East............... 574,421 6 206,210 35.9% (4,418) $18.69
Studio City/Universal
City....................... 1,763,500 15 79,999 4.5% 56,744 $25.20
North Hollywood............. 1,118,628 13 145,603 13.0% 67,451 $19.08
---------- --- ---------- ------- ------------ -----------
TOTAL..................... 39,355,810 467 5,682,217 14.4% 196,129 $20.80
---------- --- ---------- ------- ------------ -----------
---------- --- ---------- ------- ------------ -----------
</TABLE>
- ------------------------
Source: C&W Market Study
(1) Does not include currently leased but available sublease space.
(2) The negative absorption in the Glendale office submarket during 1995
primarily reflects the activity of one building, where the Bank of America
vacated approximately 200,000 square feet, and is in contrast to the
positive absorption experienced in 1993 and 1994. During the first quarter
of 1996 two major entertainment tenants, Walt Disney and Turner Animation,
entered into leases in the Glendale office submarket of 150,000 square feet
and 70,000 square feet, respectively, both of which are located in the
premises vacated in 1995 by Bank of America.
PROPERTY LOCATED IN THE WESTLAKE VILLAGE OFFICE SUBMARKET:
5601 LINDERO CANYON. 5601 Lindero Canyon is a two-story office building
completed in 1989 of tilt up concrete construction with a white concrete and
black glass facade. The Property contains approximately 105,830 rentable
square feet and 415 parking spaces. As of August 1, 1996, the building was
100% triple net leased with an average Annualized Base Rate per leased
square foot of $11.15. According to the C&W Market Study, as of April 30,
1996, the 5601 Lindero Canyon Peer Group
77
<PAGE>
contained approximately 630,451 square feet of office space inventory in 9
buildings and had a weighted average annual asking rental rate of $19.03 per
square foot with a direct vacancy rate of 4.7%. The Property has two
tenants, Hewlett-Packard (53,700 square feet) and Candle Corporation (52,130
square feet), both of which operate under triple net leases that expire in
2002.
PROPERTY LOCATED IN THE CALABASAS OFFICE SUBMARKET:
CALABASAS COMMERCE CENTER. Calabasas Commerce Center is comprised of four,
one- and two-story office buildings completed in 1990. The Property contains
approximately 123,121 rentable square feet and 464 surface parking spaces.
As of August 1, 1996, the Property was 100% leased with an average
Annualized Base Rent per leased square foot of $17.14. According to the C&W
Market Study, as of April 30, 1996, the Calabasas Commerce Center Peer Group
contained approximately 371,634 square feet of office space inventory in
five buildings and had a weighted average annual asking rental rate of
$19.16 per square foot with a direct vacancy rate of 5.4%. Primary tenants
at this Property include the City of Calabasas (9,243 square feet), Wyle
Laboratories (10,841 square feet), Novalogic Inc.(13,932 square feet), Fort
Dearborn Life Insurance (9,128 square feet) and Breath Assure (8,613 square
feet). One tenant, XIRCOM, Inc. leases an entire building comprising
approximately 46,321 square feet. XIRCOM, Inc. vacated the property in 1994
in order to relocate to another office building that could accommodate its
expansion requirements. To date, XIRCOM, Inc. has continued to meet all of
its rental payment obligations under its lease, which expires in 1997, and
is currently attempting to sublease its space. Aggregate square footage of
leases expiring in 1996, 1997 and 1998 represent 7.4%, 48.3% and 3.6% of the
Property's occupied square footage, respectively.
PROPERTY LOCATED IN THE WOODLAND HILLS OFFICE SUBMARKET:
WOODLAND HILLS FINANCIAL CENTER. Woodland Hills Financial Center is a
12-story office tower with an adjacent four-story office building completed
in 1972 and renovated in 1995. The Property contains approximately 224,955
rentable square feet and 510 parking spaces. As of August 1, 1996, the
building was 89.8% leased with an average Annualized Base Rent per leased
square foot of $22.29. According to the C&W Market Study, as of April 30,
1996, the Woodland Hills Financial Center Peer Group contained approximately
854,004 square feet of office space inventory in six buildings and had
weighted average annual asking rental rates ranging from $22.50 to $22.97
per square foot with a direct vacancy rate of 10.0%. Primary tenants at this
Property include Presidential Mortgage (19,600 square feet), Dennison,
Bennet & Press (14,386 square feet), Pacific Homes (13,989 square feet) and
Wells Fargo Bank (8,983 square feet). Aggregate square footage of leases
expiring in 1996, 1997 and 1998 represent 6.9%, 7.3%, and 19.8% of the
Property's occupied square footage, respectively.
PROPERTY LOCATED IN THE ENCINO OFFICE SUBMARKET:
16000 VENTURA BOULEVARD. 16000 Ventura Boulevard is a 12-story office tower
completed in 1980 of steel reinforced concrete with a blue glass exterior.
The building was renovated in 1996. The Property contains approximately
174,841 rentable square feet and 630 parking spaces. As of August 1, 1996,
the building was 84.1% leased with an average Annualized Base Rent per
leased square foot of $20.21. According to the C&W Market Study, as of April
30, 1996, the 16000 Ventura Boulevard Peer Group contained approximately
2,418,206 square feet of office space inventory in 12 buildings and had
weighted average annual asking rental rates ranging from $20.21 to $22.45
per square foot with a direct vacancy rate of 15.0%. Primary tenants at this
Property include Barrister Executive Suites (16,142 square feet),
Information Technology (8,638 square feet), Greenberg & Bass (8,814 square
feet) and Cohen & Steinbrech (8,199 square feet). Aggregate square footage
of leases expiring in 1996, 1997 and 1998 represent 8.4%, 30.9% and 20.1% of
the Property's occupied square footage, respectively.
PROPERTY LOCATED IN THE GLENDALE OFFICE SUBMARKET:
425 WEST BROADWAY. 425 West Broadway is a four story office building
completed in 1984 of steel reinforced concrete with a concrete panel and
reflective glass exterior. The building was renovated in 1996. The Property
contains approximately 71,589 rentable square feet with 205 parking spaces.
As of August 1, 1996, the Property was 95.9% leased with an average
Annualized Base Rent per leased square foot of $19.35. According to the C&W
Market Study, as of April 30, 1996, the 425 West Broadway Peer
78
<PAGE>
Group contained approximately 409,078 square feet of office space inventory
in four buildings and had weighted average annual asking rental rates
ranging from $19.78 to $20.43 per square foot with a direct vacancy rate of
11.0%. Primary tenants at this Property include Glendale News (18,189 square
feet) and TIB Insurance (14,075 square feet). No leases expire in 1996 and
the aggregate square footage of leases expiring in 1997 and 1998 represent
8.4% and 32.4% of the Property's occupied square footage,
respectively.
PROPERTY LOCATED IN THE BURBANK CITY CENTER OFFICE SUBMARKET:
303 GLENOAKS. 303 Glenoaks is a 10-story office tower completed in 1983 of
steel frame construction with a black glass curtain wall exterior. The
Property, which was renovated in 1996, contains approximately 175,449
rentable square feet with 526 parking spaces. As of August 1, 1996, the
Property was 97.4% leased with an average Annualized Base Rent per leased
square foot of $20.35. According to the C&W Market Study, as of April 30,
1996, the 303 Glenoaks Peer Group contained approximately 452,850 square
feet of office space inventory in 6 buildings and had weighted average
annual asking rental rates ranging from $21.28 to $21.85 per square foot
with a direct vacancy rate of 17.5%. Primary tenants at this Property
include DiC Entertainment (51,708 square feet), Insurance Company of the
West (23,450 square feet), New Wave Entertainment (18,639 square feet), NCI
(11,142 square feet) and Lockheed Finance Corporation (10,319 square feet).
Aggregate square footage of leases expiring in 1996, 1997 and 1998 represent
0.4%, 1.6% and 5.0% of the Property's occupied square footage, respectively.
PROPERTY LOCATED IN THE PASADENA OFFICE SUBMARKET:
70 SOUTH LAKE. 70 South Lake is an 11-story office tower completed in 1982
of steel frame construction with concrete panelled curtain wall, aluminum
spandrel and glass exterior. The building was renovated in 1994. The
Property contains approximately 100,133 rentable square feet and 329 parking
spaces. As of August 1, 1996, the Property was 81.4% leased with an average
Annualized Base Rent per leased square foot of $20.80. According to the C&W
Market Study, as of April 30, 1996, the 70 South Lake Peer Group contained
approximately 1,651,840 square feet of office space inventory in eight
buildings and had weighted average annual asking rental rates ranging from
$23.04 to $25.71 per square foot with a direct vacancy rate of 9.2%. Primary
tenants at this Property include Countrywide Funding Corporation (16,726
square feet), Union Bank (14,326 square feet) and Smith Barney (9,415 square
feet). No leases expire in 1996 or 1997 and 10.3% of the Property's occupied
square footage expires in 1998.
79
<PAGE>
LOS ANGELES SOUTH OFFICE MARKET SECTOR
The Los Angeles South office market sector, as defined by the C&W Market
Study, encompasses three market areas located primarily in the South Bay area of
Los Angeles County and is the smallest office market sector in Los Angeles
County. The Los Angeles South office market sector is composed of three primary
office markets: El Segundo, Torrance and Long Beach, with each of the office
markets in turn composed of a number of submarkets.
[LOGO]
<TABLE>
<S> <C>
17. 4811 AIRPORT PLAZA DRIVE 20. 100 WEST BROADWAY
18. 4900/10 AIRPORT PLAZA 21. 12501 EAST IMPERIAL
DRIVE HIGHWAY
19. 5000 EAST SPRING
</TABLE>
The Los Angeles South office market sector contains nine distinct office
submarkets as outlined in the table below. According to the C&W Market Study,
there are approximately 27,336,900 square feet of office space inventory in the
Los Angeles South office market sector which comprise approximately 16% of the
office space inventory in Los Angeles County. As of December 31, 1995 the
collective office submarkets within the Los Angeles South office market sector
had a direct vacancy rate of 17.6%, with weighted average annual asking rents of
$18.14 per square foot.
The Company owns five Properties located in the Los Angeles South office
market sector that collectively contain approximately 749,273 rentable square
feet, which represents approximately 19% of the total rentable square footage of
the Properties. The Properties within the Los Angeles South office market sector
are all located in the Long Beach office market. The Long Beach office market is
located south of El Segundo and Torrance and north of Huntington Beach. The Long
Beach office market is composed of five office submarkets: Long Beach Airport/
I-405 Freeway Corridor, North Long Beach, Downtown Long Beach, Long Beach
Marina, and Cerritos/Norwalk. The Long Beach market is one of the more
prestigious office markets in the Los Angeles South office market sector.
According to the C&W Market Study, as of December 31, 1995 the Long Beach office
market had an office space inventory of approximately 10,500,161 square feet in
89 buildings with a direct vacancy rate of 17.6% and weighted average annual
asking rents of $18.64, down from a direct vacancy rate of 17.3% with weighted
average annual asking rents of $19.20 per square foot as of December 31, 1994.
Set forth below is detailed submarket information regarding the Los Angeles
South sector:
80
<PAGE>
LOS ANGELES SOUTH
OFFICE SUBMARKET STATISTICS
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
DIRECT NET WTD. AVG.
NUMBER DIRECT VACANCY ABSORPTION ASKING
SUBMARKET INVENTORY OF BLDGS AVAILABILITIES(1) RATE YTD 1995 RENTAL RATE
- ------------------------------ ---------- -------- ------------------ ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
EL SEGUNDO.................... 9,424,153 69 1,471,128 15.6% 326,730 $17.88
TORRANCE...................... 7,412,586 82 1,490,376 20.1% (307,739) $17.76
LONG BEACH.................... 10,500,161 89 1,852,079 17.6% 349,663 $18.64
Long Beach Airport/I-405
Fwy. Corridor.............. 2,130,258 19 319,077 15.0% 419,823 $18.48
North Long Beach............ 1,020,376 13 222,907 21.8% (46) $15.00
Downtown Long Beach......... 3,811,553 20 999,351 26.2% (129,899) $19.92
Long Beach Marina........... 457,018 6 55,247 12.1% 19,419 $18.96
Cerritos/Norwalk............ 3,080,956 31 255,497 8.3% 40,366 $16.95
---------- --- ---------- ------- ------------ -----------
TOTAL..................... 27,336,900 240 4,813,583 17.6% 368,654 $18.14
---------- --- ---------- ------- ------------ -----------
---------- --- ---------- ------- ------------ -----------
</TABLE>
- ------------------------
Source: C&W Market Study
(1) Does not include currently leased but available sublease space.
PROPERTIES LOCATED IN THE LONG BEACH AIRPORT/I-405 FREEWAY CORRIDOR OFFICE
SUBMARKET:
4811 AIRPORT PLAZA DRIVE. 4811 Airport Plaza Drive is a six-story office
building completed in 1987 of steel frame construction and red granite and
reflective glass exterior. The building was renovated in 1995. The Property
contains approximately 121,610 rentable square feet with 707 parking spaces
and is subject to a ground lease with the City of Long Beach which expires
in 2055. As of August 1, 1996, the building was 100% triple net leased to
McDonnell Douglas at an Annualized Base Rent per leased square foot of
$8.64. According to the C&W Market Study, as of April 30, 1996, the 4811
Airport Plaza Drive Peer Group contained approximately 1,230,855 square feet
of office space inventory in 9 buildings and had weighted average annual
asking rental rates ranging from $22.81 to $26.26 per square foot with a
direct vacancy rate of 4.9%. The McDonnell Douglas lease expires in 2005.
4900 AND 4910 AIRPORT PLAZA DRIVE. 4900 and 4910 Airport Plaza Drive are
two three-story, connected office buildings completed in 1987 of steel frame
construction with granite and reflective glass exteriors. The buildings were
renovated in 1995. The Property contains approximately 150,403 rentable
square feet. The Property has the use of 520 parking spaces and is subject
to a ground lease with the City of Long Beach which expires in 2055. As of
August 1, 1996, the Property was 100% triple net leased to McDonnell Douglas
at an Annualized Base Rent per leased square foot of $7.80. According to the
C&W Market Study, as of April 30, 1996, the 4900 and 4910 Airport Plaza
Drive Peer Group contained approximately 1,202,062 square feet of office
space inventory in nine buildings and had weighted average annual asking
rental rates ranging from $22.81 to $26.26 per square foot with a direct
vacancy rate of 5.1%. The McDonnell Douglas lease expires in 2005.
5000 EAST SPRING. 5000 East Spring is an eight-story office building
completed in 1989 of steel framed construction with a travertine marble and
reflective glass exterior. The building was renovated in 1995. The Property
contains 163,358 net rentable square feet and 2,504 parking spaces. The
Property is subject to a long term ground lease with the City of Long Beach
(master lessor) which expires in 2032. As of August 1, 1996, the building
was 89.6% leased with an average Annualized Base Rent per leased square foot
of $18.76. According to the C&W Market Study, as of April 30, 1996, the 5000
East Spring Peer Group contained approximately 1,189,107 square feet of
office space inventory in nine buildings and had weighted average annual
asking rental rates ranging from $22.74 to $26.60 per square foot with a
direct vacancy rate of 4.6%. Primary tenants at this Property include PSI
Engineers, Inc. (13,896 square feet), Medical Eye Service (13,588 square
feet), Coast Federal Bank (11,646 square feet), Auto Insurance Specialists
(10,583 square feet), Sea-Land Service (9,112 square feet), Payless
Shoesource
81
<PAGE>
(9,680 square feet) and IDS Financial Services (7,486 square feet).
Aggregate square footage of leases expiring in 1996, 1997 and 1998 represent
9.1%, 3.3% and 2.0% of the Property's occupied square footage, respectively.
PROPERTY LOCATED IN THE DOWNTOWN LONG BEACH OFFICE SUBMARKET:
100 WEST BROADWAY. 100 West Broadway is a six-story office building
completed in 1987 of steel frame construction with a concrete and reflective
glass exterior. The building was renovated in 1996. The Property contains
approximately 191,727 rentable square feet and 645 parking spaces. As of
August 1, 1996 the Property was 90.0% leased with an average Annualized Base
Rent per leased square foot of $20.42. According to the C&W Market Study, as
of April 30, 1996, the 100 West Broadway Peer Group contained approximately
1,561,223 square feet of office space inventory in 10 buildings and had a
weighted average annual asking rental rates ranging from $18.77 to $20.32
per square foot with a direct vacancy rate of 34.4%. Primary tenants at this
Property include Earth Technology Corporation (44,122 square feet), Inchcape
(28,925 square feet), the General Services Administration (16,738 square
feet) and Pacific Maritime (15,338 square feet). Aggregate square footage of
leases expiring in 1996, 1997 and 1998 represent 1.0%, 4.7% and 9.9% of the
Property's occupied square footage, respectively.
PROPERTY LOCATED IN THE CERRITOS/NORWALK OFFICE SUBMARKET:
12501 EAST IMPERIAL HIGHWAY. 12501 East Imperial Highway is a six-story
office building completed in 1978. The building was renovated in 1994. The
Property contains approximately 122,175 rentable square feet and 515 parking
spaces. As of August 1, 1996, the Property was 94.7% leased with an average
Annualized Base Rent per leased square foot of $16.27. According to the C&W
Market Study, as of April 30, 1996, the 12501 East Imperial Highway Peer
Group contained approximately 1,889,992 square feet of office space
inventory in 16 buildings and had a weighted average annual asking rental
rates ranging from $18.32 to $18.47 per square foot with a direct vacancy
rate of 18.5%. Primary tenants at this Property include GTE California
(63,772 square feet), Mead Corporation (27,913 square feet) and IBM (20,620
square feet). No leases expire in 1996 and 1997 and 24.1% of the Property's
occupied square footage expires in 1998.
82
<PAGE>
ORANGE COUNTY OFFICE MARKET AND PROPERTIES
The Orange County office market contains several distinct office markets,
including, among others, the West County, Tri-Freeway Area, Central County,
Greater Airport Area, South County, and North County office markets, which are
in turn, composed of numerous submarkets. According to the C&W Market Study,
there are approximately 52,668,350 square feet of office space inventory in the
Orange County office market. As of December 31, 1995 the collective submarkets
within the Orange County office market had a direct vacancy rate of 15.5%, with
weighted average annual asking rents of $17.28 per square foot.
[LOGO]
22. 5832 BOLSA AVENUE, HUNTINGTON BEACH
23. ANAHEIM CITY CENTRE
The Orange County office market is currently in the midst of a recovery from
the recent real estate recession. Direct vacancy levels, which were in excess of
19.5% in 1991, have declined to 15.5% as of December 31, 1995. The Orange County
office market is driven by the Greater Airport Area office market which
comprises approximately 48% of the office space inventory in Orange County. The
Company owns two Properties in Orange County in the Huntington Beach and Anaheim
Stadium Area office submarkets that collectively contain 224,746 rentable square
feet representing approximately 6% of the total rentable square footage of the
Properties. Set forth below is detailed market information regarding the Orange
County office market.
83
<PAGE>
ORANGE COUNTY
OFFICE MARKET AND SUBMARKET STATISTICS
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
DIRECT NET WTD. AVG.
NUMBER DIRECT VACANCY ABSORPTION ASKING
SUBMARKET INVENTORY OF BLDGS AVAILABILITIES(1) RATE YTD 1995 RENTAL RATE
- ------------------------------ ---------- -------- ------------------ ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
WEST COUNTY................... 3,901,199 64 696,122 17.8% (93,203) $15.12
Seal Beach.................. 295,019 4 17,646 6.0% 4,077 $24.96
Westminster................. 205,700 4 29,638 14.4% (11,482) $15.00
Huntington Beach............ 1,014,519 18 219,035 21.6% 21,131 $15.48
Fountain Valley............. 549,912 9 80,134 14.6% (11,189) $15.84
Garden Grove................ 893,809 12 213,168 23.8% (54,632) $14.28
Los Alamitos/Stanton........ 266,502 5 85,580 32.1% (20,233) $12.36
Cypress..................... 675,738 12 50,921 7.5% (20,875) $17.04
TRI-FREEWAY AREA.............. 9,523,392 107 2,023,109 21.2% 85,793 $16.56
Parkcenter Area............. 2,598,284 41 444,188 17.1% 72,936 $14.40
Anaheim Stadium Area........ 2,472,409 36 414,147 16.8% (45,422) $15.48
The City Area............... 2,291,191 15 627,817 27.4% 9,677 $17.16
Main Place Area............. 2,161,508 15 536,957 24.8% 48,602 $18.36
CENTRAL COUNTY................ 5,656,141 102 1,049,902 18.6% 8,065 $14.04
GREATER AIRPORT AREA.......... 24,992,997 252 3,333,179 13.3% 235,485 $19.32
SOUTH COUNTY.................. 4,979,988 100 595,528 12.0% 71,259 $18.12
NORTH COUNTY.................. 3,614,633 54 442,671 12.2% 27,940 $16.20
---------- --- ---------- ------- ------------ -----------
TOTAL..................... 52,668,350 679 8,140,511 15.5% 335,339 $17.28
---------- --- ---------- ------- ------------ -----------
---------- --- ---------- ------- ------------ -----------
</TABLE>
- ------------------------
Source: C&W Market Study
* Does not include currently leased but available sublease space.
PROPERTY LOCATED IN THE HUNTINGTON BEACH OFFICE SUBMARKET:
5832 BOLSA AVENUE. 5832 Bolsa Avenue is a two-story office building
completed in 1985 of steel frame construction with a concrete and glass
panel exterior. The Property contains approximately 49,355 rentable square
feet and 380 parking spaces. As of August 1, 1996, the building was 100%
leased to GTE California at an Annualized Base Rent per leased square foot
of $13.35. According to the C&W Market Study, as of April 30, 1996, the 5832
Bolsa Avenue Peer Group contained approximately 860,277 square feet of
office space inventory in 12 buildings and had weighted average annual
asking rental rates ranging from $15.68 to $16.43 per square foot with a
direct vacancy rate of 21.8%. The GTE California lease expires on April 30,
2000.
PROPERTY LOCATED IN THE ANAHEIM STADIUM AREA OFFICE SUBMARKET:
ANAHEIM CITY CENTRE. Anaheim City Centre is a 10-story office tower
completed in 1986 of steel reinforced concrete construction with a red
travertine marble and black reflective glass exterior. The building was
renovated in 1991. The Property contains approximately 175,391 rentable
square feet and 679 parking spaces. The parking structure is subject to a
long term ground lease with the City of Anaheim that expires in 2034. As of
August 1, 1996, the Property was 93.0% leased with an average Annualized
Base Rent per leased square foot of $15.07. According to the C&W Market
Study, as of April 30, 1996, the Anaheim City Centre Peer Group contained
approximately 3,165,279 square feet of office space inventory in 10
buildings and had weighted average annual asking rental rates ranging from
$19.26 to $19.32 per square foot with a direct vacancy rate of 12.1%.
Primary tenants at this Property include Intracorp (54,179 square feet),
Computer Learning (22,042 square feet) and McGladrey Pullen (18,032 square
feet). No leases expire in 1996 and the aggregate square footage of leases
expiring in 1997 and 1998 represent 2.9% and 34.6% of the Property's
occupied square footage, respectively.
84
<PAGE>
SAN DIEGO COUNTY OFFICE MARKET AND PROPERTY
The San Diego County office market contains eight distinct office
submarkets, including South Bay, Central City (which includes Downtown San
Diego), East County, Mission Valley/Kearny Mesa, La Jolla/ Morena, North City
(which includes the University Towne Center), the I-15 Corridor and the North
Coast. According to the C&W Market Study, there is approximately 58,325,238
square feet of office space inventory in the San Diego County office market. As
of December 31, 1995 the collective submarkets within the San Diego County
office market had a direct vacancy rate of 14.6%. The San Diego County office
market is recovering from an office market recession, having experienced five
straight years of positive absorption and increasing occupancy, with the direct
vacancy rate decreasing 4.8% over this period from the 1991 direct vacancy rate
of 19.4%.
[LOGO]
24. IMPERIAL BANK TOWER
The two focal points of the San Diego County office market are Downtown San
Diego, which is considered to be the primary component of the Central City
office submarket, and University Towne Center which is the most significant
component of the North City office submarket. Each of the office submarkets in
San Diego County has developed along the path of the San Diego County's freeway
system. Each office submarket's building type and tenant appeal has generally
corresponded to its proximity to Downtown San Diego and University Towne Center,
with predominantly mid-rise and high-rise office buildings within a 15 mile
radius of Downtown San Diego and low rise office buildings in business parks in
the outlying submarkets. Historically, most development moved east and north
from these focal points. The Downtown San
85
<PAGE>
Diego portion of the Central City office submarket is considered to be the
primary office submarket in San Diego County, with its main competition being
the La Jolla and North City (University Towne Center) office submarkets. Set
forth below is detailed submarket information regarding the San Diego County
submarket:
SAN DIEGO COUNTY
OFFICE SUBMARKET STATISTICS
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
DIRECT
DIRECT VACANCY NET ABSORPTION
SUBMARKET INVENTORY AVAILABILITIES* RATE YTD 1995
- ------------------------------------------------------------ ---------- --------------- ------- --------------
<S> <C> <C> <C> <C>
SAN DIEGO MARKET
South Bay................................................. 2,176,580 195,528 9.0% (41,224)
Central City (includes Downtown San Diego)................ 16,059,577 2,689,327 16.7% 270,856
East County............................................... 2,143,941 284,809 13.3% 11,990
Mission Valley/Kearny Mesa................................ 12,558,657 2,160,842 17.2% (38,105)
La Jolla/Morena........................................... 2,400,630 334,533 13.9% 87,849
North City (University Towne Center)...................... 12,801,915 1,584,187 12.4% 98,473
I-15 Corridor............................................. 4,768,885 669,841 14.0% 25,512
North Coast............................................... 5,415,053 622,373 11.5% 73,735
---------- --------------- ------- -------
TOTAL................................................... 58,325,238 8,541,440 14.6% 489,086
---------- --------------- ------- -------
---------- --------------- ------- -------
</TABLE>
- ------------------------
Source: C&W Market Study
* Does not include currently leased but available sublease space.
PROPERTY LOCATED IN THE DOWNTOWN SAN DIEGO PORTION OF THE CENTRAL CITY OFFICE
SUBMARKET:
IMPERIAL BANK TOWER. Imperial Bank Tower is a 24-story office building
completed in 1982 and renovated in 1996. As of March 31, 1996, Imperial Bank
Tower had a book value equal to or greater than 10% of the total assets of
the Company. The Property contains approximately 540,413 rentable square
feet and 382 parking spaces in an adjacent parking structure. The Property
is located in downtown San Diego's financial district approximately 1/2 mile
from Interstate 5. The building is situated on approximately 30,056 square
feet of land and includes a five-story atrium located on a 4,792 square foot
parcel subject to a ground lease expiring in 2069. The Company has an option
to purchase this parcel at fair market value. The adjacent 382-stall parking
garage is situated on a 24,829 square foot parcel subject to a ground lease
expiring in 2076, which may be purchased by the Company after 2032 at fair
market value. Additional parking is provided on a lot east of the building
that is subject to a ground lease expiring in the year 2000. The average
occupancy rate of the building was 89.4%, 89.4%, 85.5%, 81.9% and 83.0% for
the years 1991 to 1995, respectively. The net effective annual rent per
square foot of the building for the same period, from 1991 to 1995, was
$18.26, $15.96, $19.00, $18.76 and $17.72, respectively. As of August 1,
1996, the building was 82.2% leased with an average Annualized Base Rent per
leased square foot of $18.31. According to the C&W Market Study, as of April
30, 1996, the Imperial Bank Tower Peer Group contained approximately
4,087,971 square feet of office space inventory in 11 buildings and had
weighted average annual asking rental rates ranging from $18.53 to $24.89
per square foot with a direct vacancy rate of 11.9%. Primary tenants include
Latham & Watkins (56,425 square feet), Imperial Bank Realty Corp. (38,855
square feet), Merrill Lynch (32,455 square feet), Deloitte & Touche (30,279
square feet), Arthur Anderson & Co. (18,754 square feet) and three agencies
of the United States government. Latham & Watkins, a law firm, is the only
tenant which
occupies ten percent or more of the rentable square footage of the building.
Pursuant to the terms of its lease, Latham & Watkins pays annual base rent
of approximately $1.05 million increasing to approximately $1.33 million in
1999 for the remainder of the lease term which expires in 2004. In addition,
Latham & Watkins has two renewal options of five years each, three options
to expand and two termination options exercisable on December 31, 1998 and
May 1, 2001, respectively. Aggregate square footage of leases expiring in
1996, 1997 and 1998 represent 4.9%, 7.9%, 6.4% of the Property's occupied
square footage, respectively.
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<PAGE>
The following table sets forth a schedule of lease expirations as of August
1, 1996 for Imperial Bank Tower, assuming no tenants elect to renew their leases
at their scheduled expirations or elect to terminate their leases prior to their
scheduled expirations:
<TABLE>
<CAPTION>
SQUARE FOOTAGE PERCENTAGE OF ANNUALIZED BASE PERCENTAGE OF
NUMBER OF OF EXPIRING AGGREGATE PORTFOLIO RENT OF EXPIRING AGGREGATE PORTFOLIO
YEAR OF LEASE EXPIRATION LEASES EXPIRING LEASES LEASED SQUARE FEET LEASES ANNUALIZED BASE RENT
- ------------------------ --------------- -------------- ------------------- ------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1996(1)................. 4 21,682 0.60% $ 421,572 0.6%
1997.................... 6 35,159 0.98 1,133,019 1.7
1998.................... 5 28,457 0.79 475,210 0.7
1999.................... 3 15,702 0.44 253,268 0.4
2000.................... 4 43,243 1.20 723,785 1.1
2001.................... 4 34,053 0.95 522,359 0.8
2002.................... 5 73,527 2.05 1,361,766 2.0
2003.................... 3 35,498 0.99 666,911 1.0
2004.................... 3 78,838 2.20 1,155,718 1.7
2005.................... 3 56,641 1.58 1,004,432 1.5
2008 and thereafter..... 2 21,508 0.60 418,116 0.6
--
------- ----- ------------------- -----
TOTAL............... 42 444,308 12.37% $ 8,136,154 12.12%
--
--
------- ----- ------------------- -----
------- ----- ------------------- -----
</TABLE>
- ------------------------
(1) Represents lease expirations data from August 1, 1996 to December 31, 1996.
C&W MARKET STUDY
The C&W Market Study was prepared for the Company by Cushman & Wakefield of
California, Inc., which is a real estate service firm with significant
experience and expertise relating to the Southern California office markets and
the various submarkets therein. The information in the C&W Market Study reflects
data available at December 31, 1995 and does not reflect data or changes
subsequent to that date (except that C&W Peer Group information reflects data
available as of April 30, 1996). The information contained in the C&W Market
Study has been gathered by C&W from sources assumed to be reliable, including
publicly available records. Because records of all transactions are not readily
available, the information contained in the C&W Market Study may not reflect all
transactions occurring in the geographic area discussed in the C&W Market Study.
In addition, transactions that are reported may not be described accurately or
completely in the publicly available records. C&W shall not be responsible for
and does not warrant the accuracy or completeness of any such information
derived from such publicly available records (or information relating to
transactions that were not reported).
In connection with the C&W Market Study, C&W made numerous assumptions with
respect to industry performance, general business and economic conditions, and
other matters. Any estimates or approximations contained therein could
reasonably be subject to different interpretations by other parties. Because
predictions of future events are inherently subject to uncertainty, none of C&W,
the Company or any other person can assume that such predicted rental rates,
absorption, or other events will occur as outlined or predicted in the C&W
Market Study. Reported asking rental rates of properties, Replacement Cost Rents
or estimated replacement costs do not purport to necessarily reflect the rental
rates at which properties may actually be rented, actual rents required to
support new development or the actual cost of replacement. In many instances,
asking rents and actual rental rates differ significantly.
Changes in local, national and international economic conditions will affect
the markets described in the C&W Market Study. Therefore, C&W can give no
assurance that occupancy and absorption levels and rental rates as of the date
of the C&W Market Study will continue or that such occupancy levels and rental
rates will be attained at any time in the future. Forecasts of absorption rates,
rental activity, Replacement Cost Rents and replacement costs are C&W's
estimates as of the date of the C&W Market Study. Actual future market
conditions may differ materially from the forecasts and projections contained
therein.
C&W is a part of a national network of affiliated companies providing real
estate services. As such, from time to time, C&W and its affiliates have
provided and in the future may provide real estate related services, including
brokerage and leasing agent services, to the Company or its principals, or may
represent the Company, its principals or others doing business with the Company.
C&W received compensation of approximately $39,000 from the Company in
connection with C&W's preparation of the C&W Market Study.
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<PAGE>
COMPETITION
The Company may be competing with other owners and developers that have
greater resources and more experience than the Company. Additionally, the number
of competitive properties in any particular market in which the Company's
Properties are located could have a material adverse effect on both the
Company's ability to lease space at the Properties or any newly-acquired
property and on the rents charged at the Properties. The Company believes that
the Offering, the Credit Facility and its access as a public company to the
capital markets to raise funds during periods when conventional sources of
financing may be unavailable or prohibitively expensive will provide the Company
with substantial competitive advantages. Further, the Company believes that the
number of real estate developers has decreased as a result of the recessionary
market conditions and tight credit markets during the early 1990's as well as
the reluctance on the part of more conventional financing sources to fund
development and acquisition projects.
INSURANCE
The Operating Partnership carries comprehensive liability, fire, extended
coverage and rental loss insurance covering all of the Properties, with policy
specifications and insured limits which the Company believes are adequate and
appropriate under the circumstances. The Operating Partnership also carries
earthquake insurance on all of the Properties. There are, however, certain types
of losses that are not generally insured because they are either uninsurable or
not economically feasible to insure. Should an uninsured loss or a loss in
excess of insured limits occur, the Operating Partnership could lose its capital
invested in the Property, as well as the anticipated future revenues from the
Property and, in the case of debt which is with recourse to the Operating
Partnership, would remain obligated for any mortgage debt or other financial
obligations related to the Property. Any such loss would adversely affect the
Company. Moreover, as a general partner of the Operating Partnership, the
Company will generally be liable for any unsatisfied obligations other than
non-recourse obligations. The Company believes that the Properties are
adequately insured. In addition, in light of the California earthquake risk,
California building codes since the early 1970's have established construction
standards for all newly built and renovated buildings, including office
buildings, the current and strictest construction standards having been adopted
in 1984. Of the 24 Properties, 13 have been built since January 1, 1985 and the
Company believes that all of the Properties were constructed in full compliance
with the applicable standards existing at the time of construction. While
earthquakes have occurred in Southern California, the only loss the Company has
experienced as a result of earthquakes was minor damage to three of its
buildings due to the Northridge earthquake, which resulted in $601,000 of damage
in the year ended December 31, 1994. No assurance can be given that material
losses in excess of insurance proceeds will not occur in the future.
ENVIRONMENTAL REGULATIONS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property and may be held liable to a governmental
entity or to third parties for property damage and for investigation and
clean-up costs incurred by such parties in connection with the contamination.
Such laws typically impose clean-up responsibility and liability without regard
to whether the owner knew of or caused the presence of the contaminants, and the
liability under such laws has been interpreted to be joint and several unless
the harm is divisible and there is a reasonable basis for allocation of
responsibility. The costs of investigation, remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to properly remediate the contamination on such property, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances at a disposal or treatment facility also may be
liable for the costs of removal or remediation of a release of hazardous or
toxic substances at such disposal or treatment facility, whether or not such
facility is owned or operated by such person. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs incurred in connection with the contamination. Finally, the
owner of a site may be subject to common law claims by third parties based on
damages and costs resulting from environmental contamination emanating from such
site.
Certain federal, state and local laws, regulations and ordinances govern the
removal, encapsulation or disturbance of ACM when such materials are in poor
condition or in the event of construction, remodeling,
88
<PAGE>
renovation or demolition of a building. Such laws may impose liability for
release of ACM and may provide for third parties to seek recovery from owners or
operators of real properties for personal injury associated with ACM. In
connection with its ownership and operation of the Properties, the Company may
be potentially liable for such costs. ACM has been detected through sampling by
environmental consultants at 70 South Lake, 16000 Ventura Boulevard and 9665
Wilshire. The non-friable ACM was found in certain floor tiles and pipe
wrappings at 16000 Ventura Boulevard and 70 South Lake and in vinyl floor tiles,
carpet mastic, drywall mud/tape, textured ceiling material, core insulation
material and fireproofing at 9665 Wilshire. The non-friable ACM found at these
Properties is not expected to present a risk as long as it continues to be
properly managed. The environmental consultants recommended no further ACM
sampling or removal action at any of the Properties.
In the past two years, independent environmental consultants have conducted
or updated Phase I Assessments at the Properties. These Phase I Assessments have
included, among other things, a visual inspection of the Properties and the
surrounding area and a review of relevant state, federal and historical
documents. No invasive techniques such as soil or groundwater sampling were
performed. The environmental consultants who conducted the Phase I Assessment at
the Imperial Bank Tower recommended that a Phase II study be conducted with
respect to the possible presence of an underground storage tank situated under
the Property's adjacent parking garage, which is leased by the Company. The
Company does not believe that the environmental consultants' findings support
its recommendation and, therefore, has elected not to conduct a Phase II study
at the Imperial Bank Tower. While the Company is not aware of any release of
hazardous materials or environmental contamination at the Property's adjacent
parking garage relating to the possible previous or current presence thereunder
of underground storage tanks, or otherwise, if such a release of environmental
contamination has occurred or were to occur, and the lessor, who has primary
environmental liability as owner of the underlying land, has insufficient
financial resources to satisfy its potential environmental liability or any
indemnification obligations it owes the Company under the Company's lease of the
Property, the Company may incur remediation expenses that could adversely affect
the Company's ability to make expected distributions.
The Company's Phase I Assessments of the Properties have not revealed any
environmental liability that the Company believes would have a material adverse
effect on the Company's business, assets or results of operations taken as a
whole, nor is the Company aware of any such material environmental liability.
Nevertheless, it is possible that the Company's Phase I Assessments do not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Moreover, there can be no assurance
that (i) future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties (such as the presence of
underground storage tanks), or by third parties unrelated to the Company.
The Company believes that the Properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances or petroleum products, except as noted
above. The Company has not been notified by any governmental authority, and is
not otherwise aware, of any material noncompliance, liability or claim relating
to hazardous or toxic substances or petroleum products in connection with any of
its present Properties, other than as noted above.
LEGAL PROCEEDINGS
As a result of its acquisition of the Properties, the Company will become a
successor party-in-interest to certain legal proceedings arising in the ordinary
course of business of the Arden Predecessors. The Company does not expect that
these proceedings, in the aggregate, will have a material adverse effect on the
Company.
EMPLOYEES
Upon consummation of the Offering and the Formation Transactions, the
Company will employ approximately 50 persons, including 7 senior officers and
personnel in the areas of acquisition and business development (3), property
management (27), financial services (11) and legal affairs (1).
89
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Company will be expanded immediately following
consummation of the Offering to include the director nominees named below, each
of whom has been nominated for election and consented to serve. Upon election of
the director nominees, there will be a majority of directors who are not
employees or affiliates of the Company. Pursuant to the Charter, the Board of
Directors is divided into three classes of directors. The initial terms of the
first, second and third classes will expire in 1997, 1998 and 1999,
respectively. Beginning in 1997, directors of each class will be chosen for
three-year terms upon the expiration of their current terms and each year one
class of directors will be elected by the stockholders. The Company believes
that classification of the Board of Directors will help to assure the continuity
and stability of the Company's business strategies and policies as determined by
the Board of Directors. Holders of shares of Common Stock will have no right to
cumulative voting in the election of directors. Consequently, at each annual
meeting of stockholders, the holders of a majority of the shares of Common Stock
will be able to elect all of the successors of the class of directors whose
terms expire at that meeting.
The following table sets forth certain information with respect to the
directors, director nominees and executive officers of the Company immediately
following the consummation of this Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION TERM
- -------------------- --- ------------------------------------------------------------------- ---------
<S> <C> <C> <C>
Richard S. Ziman 53 Chairman of the Board and Chief Executive Officer 1999
Victor J. Coleman 35 President, Chief Operating Officer and Director 1999
Diana M. Laing 41 Chief Financial Officer
Michele Byer 50 Chief Accounting Officer and Secretary
Brigitta B. Troy 56 Executive Vice President and Director of Acquisitions
Andrew J. Sobel 37 Executive Vice President and Director of Leasing
Herbert L. Porter 58 Senior Vice President and Director of Construction and Capital
Improvements
Jerry Asher 62 Director Nominee 1997
Carl D. Covitz 57 Director Nominee 1997
Kenneth B. Roath 60 Director Nominee 1997
Arthur Gilbert 83 Director Nominee 1998
Steven C. Good 54 Director Nominee 1998
</TABLE>
The following is a biographical summary of the experience of the directors,
director nominees and executive officers of the Company:
RICHARD S. ZIMAN. Mr. Ziman has served as the Chairman and Chief Executive
Officer of the Company and as a Director of the Company since its formation. He
has been involved in the real estate industry for over 25 years. In 1990, Mr.
Ziman formed Arden and has served as its Chairman of the Board and Chief
Executive Officer since its inception. In 1979 he co-founded Pacific Financial
Group, a diversified real estate investment and development firm headquartered
in Beverly Hills, of which he was the Managing General Partner. Mr. Ziman
received his Bachelor's Degree and his Juris Doctor Degree from the University
of Southern California and practiced law as a partner of the law firm of Loeb &
Loeb from 1971 to 1980, specializing in transactional and financing aspects of
real estate.
VICTOR J. COLEMAN. Mr. Coleman has served as the President and Chief
Operating Officer of the Company and as a Director of the Company since its
formation. He is also the President, Chief Operating
90
<PAGE>
Officer and co-founder of Arden. From 1987 to 1989, Mr. Coleman was Vice
President of Los Angeles Realty Services, Inc. and earlier in his career from
1985 to 1987 was Director of Marketing/Investment Advisor of Development Systems
International and an associate at Drexel Burnham Lambert specializing in private
placements with institutional and individual investors. Mr. Coleman received his
Bachelor's Degree from the University of California at Berkeley and received his
Master of Business Administration from Golden Gate University.
DIANA M. LAING. Ms. Laing will serve as Chief Financial Officer of the
Company. Prior to joining the Company, Ms. Laing served, from 1985 to 1996, as
Executive Vice President and Chief Financial Officer of South West Property
Trust, Inc., a publicly traded apartment properties real estate investment
trust, and its predecessor Southwest Realty, Ltd. Ms. Laing also served from
1982 to 1985 as Controller, Treasurer and Vice President-Finance of Southwest
Realty, Ltd. From 1981 to 1982, Ms. Laing was Controller of Crawford Energy,
Inc. and she served as a member of the audit staff of Arthur Andersen & Company
from 1978 to 1981. Ms. Laing is a Certified Public Accountant and a member of
the American Institute of CPAs and the Texas Society of Public Accountants. She
is also a Director of Sterling House Corporation, a publicly traded operator of
assisted living centers. Ms. Laing received her Bachelor of Science in
Accounting from Oklahoma State University.
MICHELE BYER. Ms. Byer has served as Chief Accounting Officer and Secretary
of the Company since its formation. Ms. Byer has 28 years of experience in the
real estate industry, of which the last 13 have been with Arden and Pacific
Financial Group. Prior to joining Pacific Financial Group and the Company, Ms.
Byer was a practicing CPA with the firm Kenneth Leventhal & Company which
specialized in real estate. She received her Bachelor's Degree from the
University of California at Los Angeles.
BRIGITTA B. TROY. Ms. Troy has served as Executive Vice President and
Director of Acquisitions of the Company since its formation. She joined Arden in
1993 and was Director of Acquisitions for Pacific Financial Group from 1982 to
1989. During the period from 1989 to 1993, she was a principal of Esquire
Investment Partners, a real estate advisory company. A graduate of Radcliffe
College, Ms. Troy received her Juris Doctor Degree from the University of
Southern California Law School and a Master of Business Administration from UCLA
Graduate School of Management. Ms. Troy has over 15 years experience in the
commercial real estate business.
ANDREW J. SOBEL. Mr. Sobel has served as Executive Vice President and
Director of Leasing of the Company since its formation. He joined Arden in 1992.
Mr. Sobel is an attorney admitted to the State Bar of California in 1985 with 11
years of experience in the practice of real estate law. From 1990 to 1992, Mr.
Sobel was a sole practitioner. From 1987 to 1990 he was an attorney with the law
firm of Pircher, Nichols & Meeks specializing in all aspects of its real estate
transactional practice including acquisitions, leasings and financings. Mr.
Sobel received his Bachelor's Degree from State University of New York at Oswego
and his Juris Doctor Degree from the University of California at Berkeley (Boalt
Hall).
HERBERT L. PORTER. Mr. Porter is a Senior Vice President and Director of
Construction and Capital Improvements of the Company. He joined Arden in 1993.
Prior to joining Arden from 1973 to 1992, Mr. Porter was a partner/owner in his
own real estate development and property management company specializing in
medium to high-rise commercial office buildings. Mr. Porter's 23 years in
commercial office development include planning, financing, acquisition,
entitlements and approvals, design, construction, marketing, leasing, tenant
improvements and outright sale. Mr. Porter received his Bachelor's Degree from
the University of Southern California.
JERRY ASHER. Mr. Asher has agreed to serve as a member of the Board of
Directors of the Company commencing upon the consummation of the Offering. For
the past 27 years, Mr. Asher has been employed by CB Commercial Real Estate
Group, Inc. ("CB Commercial") where he has served in various capacities
involving the Southern California real estate industry. Most recently, since
1994, Mr. Asher has served as Executive Vice President, Director of Business
Development of CB Commercial with responsibility for implementing its business
development and marketing activities in both domestic and international markets.
Mr. Asher has also served in the following capacities, among others, since he
joined CB Commerical in 1969: Executive Vice President, Regional Manager for
Southern California (1991 to 1994); Southern
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<PAGE>
California Regional Manager and Senior Vice President (1984 to 1991); and
National Director of Investment Properties (1983 to 1984). Mr. Asher is
currently the Chairman of the Cedars Sinai Medical Center - Real Estate Industry
Division. He received his Bachelor of Science in Real Estate and Finance from
the University of Southern California.
CARL D. COVITZ. Mr. Covitz has agreed to serve as a member of the Board of
Directors of the Company commencing upon the consummation of the Offering. For
18 of the past 23 years, Mr. Covitz has served as the owner and President of
Landmark Capital, Inc., a national real estate development and investment
company involved in the construction, financing, ownership and management of
commercial, residential, and warehouse properties. Mr. Covitz has also
previously served, from 1990 to 1993, as Secretary of the Business,
Transportation & Housing Agency of the State of California as well as Under
Secretary and Chief Operating Officer of the U.S. Department of Housing and
Urban Development from 1987 to 1989. Mr. Covitz is currently the Chairman of the
Board of Directors of Century Housing Corporation and is the past Chairman of
the Board of several organizations including the Federal Home Loan Bank of San
Francisco and the Los Angeles City Housing Authority. Mr. Covitz received his
Bachelor's Degree from the Wharton School at the University of Pennsylvania and
his Master of Business Administration from the Columbia University Graduate
School of Business.
KENNETH B. ROATH. Mr. Roath has agreed to serve as a member of the Board of
Directors of the Company commencing upon the consummation of the Offering. Mr.
Roath is currently Chairman, President and Chief Executive Officer of Health
Care Property Investors, Inc., a leader in the health care REIT industry. Prior
to joining Health Care Property Investors, Inc. at its inception in 1985, Mr.
Roath was employed for 17 years by Pacific Holding Corporation of Los Angeles,
the last four of which he served as President and Chief Operating Officer. Mr.
Roath is the immediate past Chairman of NAREIT and also serves as a member of
the Board of Governors and Executive Committee of NAREIT. He is a director of
Franchise Finance Corporation of America. Mr. Roath received his Bachelor's
Degree in accounting from San Diego State University.
ARTHUR GILBERT. Mr. Gilbert has agreed to serve as a member of the Board of
Directors of the Company commencing upon the consummation of the Offering. Mr.
Gilbert has been involved in the real estate business for over 50 years and has
developed over 6 million square feet of office, industrial and retail properties
located primarily in Southern California. He is an Honorary Trustee of the
National Board of Directors of American Technion Society.
STEVEN C. GOOD. Mr. Good has agreed to serve as a member of the Board of
Directors of the Company commencing upon the consummation of the Offering. Mr.
Good is the senior partner in the firm of Good Swartz & Berns, an accountancy
corporation which evolved from the firm of Block, Good and Gagerman which he
founded in 1976. Prior to 1976, Mr. Good was a partner first at Laventhol &
Horwath, a national accounting firm, and later at Horowitz & Good. Mr. Good is a
founder and past Chairman of CU Bancorp where he directed the bank's operations
from 1982 through 1989. For the past seven years he has been a member of the
Board of Directors of Opto Sensors, Incorporated. Mr. Good received his Bachelor
of Science in Business Administration from the University of California at Los
Angeles and attended UCLA's Graduate School.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. Promptly following the consummation of the Offering, the
Board of Directors will establish an Audit Committee. The Audit Committee will
make recommendations concerning the engagement of independent public
accountants, review with the independent public accountants the scope and
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls. The Audit Committee
will initially consist of two or more non-employee directors.
EXECUTIVE COMMITTEE. Promptly following the consummation of the Offering,
the Board of Directors will establish an Executive Committee. Subject to the
Company's conflict of interest policies, the Executive
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Committee will be granted the authority to acquire and dispose of real property
and the power to authorize, on behalf of the full Board of Directors, the
execution of certain contracts and agreements, including those related to the
borrowing of money by the Company (and, consistent with the Partnership
Agreement of the Operating Partnership, to cause the Operating Partnership to
take such actions). The Executive Committee will include at least two
non-employee directors.
COMPENSATION COMMITTEE. Promptly following the consummation of the
Offering, the Board of Directors will establish a Compensation Committee to
establish remuneration levels for executive officers of the Company and
implement the Company's Stock Incentive Plan and any other incentive programs.
The Compensation Committee will initially consist of two or more non-employee
directors.
The Board of Directors may from time to time establish certain other
committees to facilitate the management of the Company.
COMPENSATION OF DIRECTORS
The Company intends to pay its non-employee directors annual compensation of
$18,000 for their services. In addition, non-employee directors will receive a
fee of $1,000 for each Board of Directors meeting attended. Non-employee
directors attending any committee meetings will receive an additional fee of
$1,000 for each committee meeting attended, unless the committee meeting is held
on the day of a meeting of the Board of Directors. Non-employee directors will
also be reimbursed for reasonable expenses incurred to attend director and
committee meetings. Officers of the Company who are directors will not be paid
any directors' fees. Non-employee directors will receive, upon initial election
to the Board of Directors, an option to purchase 10,000 shares of Common Stock
which will vest over four years.
EXECUTIVE COMPENSATION
Prior to the Offering, the Company did not pay any compensation to its
officers. The following table below sets forth the annual base salary rates and
other compensation expected to be paid in 1996 to the Company's Chief Executive
Officer and each of the Company's five other most highly compensated executive
officers (the "Named Executive Officers").
<TABLE>
<CAPTION>
1996 BASE OPTIONS STOCK
NAME TITLE SALARY RATE ALLOCATED(1) BONUS
- -------------------- ----------------------------------------------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Richard S. Ziman Chairman of the Board and Chief Executive Officer $ 300,000 400,000 --
Victor J. Coleman President, Chief Operating Officer and Director 250,000 250,000 --
Diana M. Laing Chief Financial Officer 195,000 50,000 --
Michele Byer Chief Accounting Officer and Secretary 125,000 40,000 --
Herbert L. Porter Senior Vice President and Director of Construction
and Capital Improvements 120,000 30,000 1,250(2)
Andrew J. Sobel Executive Vice President and Director of Leasing 110,000 40,000 3,750(2)
</TABLE>
- ------------------------
(1) All options will vest over three years (i.e., one-third of each executive's
options will vest and be exercisable on the first, second and third
anniversaries, respectively, of the closing of the Offering) and will be
exercisable at a price per share equal to the initial public offering price
per share of Common Stock offered hereby.
(2) Represents a one time Common Stock bonus.
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EMPLOYMENT AGREEMENTS
Each of Messrs. Ziman and Coleman will enter into an employment agreement
with the Company which will be effective as of the consummation of the Offering.
The employment agreements of Messrs. Ziman and Coleman will have an initial term
of three years and will be subject to automatic one-year extensions following
the expiration of the initial term. For the first year of the term, the
employment agreements of Messrs. Ziman and Coleman provide for an initial annual
base compensation in the amounts set forth in the Executive Compensation table
with the amount of any initial bonus to be determined by the Compensation
Committee. For subsequent years, both the amount of the base compensation and
any bonus will be determined by the Compensation Committee.
In addition, Ms. Laing has entered into an employment agreement with the
Company effective August 1, 1996 which has an initial term of one year and is
subject to automatic one-year extensions following the expiration of the initial
term. Ms. Laing's employment agreement provides for an initial annual base
compensation in the amount set forth in the Executive Compensation table and
entitles her to an initial cash bonus in an amount to be determined by the
Compensation Committee but not to exceed 20% of her initial annual base
compensation. For any subsequent years in which the employment agreement is
extended beyond the initial term, the amount of Ms. Laing's base compensation
and any bonus will be determined by the Compensation Committee.
The employment agreements of Messrs. Ziman and Coleman and Ms. Laing entitle
the executives to participate in the Company's Stock Incentive Plan (each
executive will initially be allocated the number of stock options set forth in
the Executive Compensation table) and to receive certain other insurance and
pension benefits. In addition, in the event of a termination by the Company
without "cause," a termination by the executive for "good reason," or a
termination pursuant to a "change in control" of the Company (as such terms are
defined in the respective employment agreements), the terminated executive will
be entitled to (i) a single severance payment (the "Severance Amount") and (ii)
continued receipt of certain benefits including medical insurance, life and
disability insurance and participation in all pension, 401(k) and other employee
plans and benefits established by the Company for its executive employees for a
specified period of time following the date of termination (collectively, the
"Severance Benefits"). The Severance Amount of Messrs. Ziman and Coleman is
equal to the sum of two times the executive's average annual base compensation
and two times the highest annual bonus received during the preceding thirty-six
month period. The Severance Amount of Ms. Laing is equal to the executive's
annual base compensation for the preceding 12 month period. Receipt of the
Severance Benefits shall continue for two years commencing on the date of
termination in the case of Messrs. Ziman and Coleman and for one year commencing
on the date of termination in the case of Ms. Laing.
As part of their employment agreements, each of Messrs. Ziman and Coleman
will be bound by a non-competition covenant with the Company which prohibits
them from engaging in (i) the acquisition, renovation, management or leasing of
any office properties in the Los Angeles, Orange and San Diego counties of
Southern California and (ii) any active or passive investment in or reasonably
relating to the acquisition, renovation, management or leasing of office
properties in the Los Angeles, Orange and San Diego counties of Southern
California for a period of one year following the date of such executive's
termination, unless such termination was without cause.
STOCK INCENTIVE PLAN
Prior to the consummation of the Offering, the Company intends to adopt the
Stock Incentive Plan for the purpose of attracting and retaining executive
officers, directors and employees.
The Stock Incentive Plan will be qualified under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Stock
Incentive Plan will be administered by the Compensation Committee and provide
for the granting of stock options, stock appreciation rights or restricted stock
with respect to up to 1,500,000 shares of Common Stock to executive or other key
employees of the Company. Stock options may be granted in the form of "incentive
stock options," as defined in Section 422 of the Code,
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or non-statutory stock options and are exercisable for up to 10 years following
the date of grant. The exercise price of each option will be set by the
Compensation Committee; provided, however, that the price per share must be
equal to or greater than the fair market value of the Common Stock on the grant
date.
The Stock Incentive Plan also provides for the issuance of stock
appreciation rights which will generally entitle a holder to receive cash or
stock, as determined by the Compensation Committee, at the time of exercise
equal to the difference between the exercise price and the fair market value of
the Common Stock. In addition, the Stock Incentive Plan permits the Company to
issue shares of restricted stock to executive or other key employees upon such
terms and conditions as shall be determined by the Compensation Committee.
401(K) PLAN
Effective upon the consummation of the Offering, the Company intends to
establish the Arden Realty Group Section 401(k) Savings/Retirement Plan (the
"401(k) Plan") to cover eligible employees of the Company and any designated
affiliate.
The 401(k) Plan will permit eligible employees of the Company to defer up to
15% of their annual compensation, subject to certain limitations imposed by the
Code. The employees' elective deferrals are immediately vested and
non-forfeitable upon contribution to the 401(k) Plan. The Company currently does
not intend to make matching contributions to the 401(k) Plan; however, it
reserves the right to make matching contributions or discretionary profit
sharing contributions in the future.
The 401(k) Plan is designed to qualify under Section 401 of the Code so that
contributions by employees or by the Company to the 401(k) Plan, and income
earned on plan contributions, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that contributions by the Company, if any, will be
deductible by the Company when made.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL.
The Charter authorizes it, to the maximum extent permitted by Maryland law,
to obligate itself to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer or (b) any individual who, while a director of the Company
and at the request of the Company, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, partner or trustee of such corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise from and against
any claim or liability to which such persons may incur by reason of his status
as a present or former stockholder, director or officer of the Company. The
Bylaws of the Company obligate it, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (a) any present or former director or
officer who is made a party to the proceeding by reason of his service in that
capacity or (b) any individual who, while a director of the Company and at the
request of the Company, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity against any
claim or liability to which he may become subject by reason of such service. The
Charter and the Bylaws also permit the Company to indemnify and advance expenses
to any person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor of
the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the
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defense of any proceeding to which he is made a party by reason of his service
in that capacity. The MGCL permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation. In addition, the MGCL requires the Company, as a
condition to advancing expenses, to obtain (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Company as authorized by the Bylaws
and (b) a written statement by or on his behalf to repay the amount paid or
reimbursed by the Company if it shall ultimately be determined that the standard
of conduct was not met.
The Partnership Agreement also provides for indemnification and advance of
expenses of the Company and its officers and directors to the same extent
indemnification and advance of expenses is provided to officers and directors of
the Company in the Charter, and limits the liability of the Company and its
officers and directors to the Operating Partnership and its partners to the same
extent liability of officers and directors of the Company to the Company and its
stockholders is limited under the Charter. See "Partnership Agreement --
Indemnification."
STRUCTURE AND FORMATION OF THE COMPANY
THE OPERATING ENTITIES OF THE COMPANY
Following the consummation of the Offering and the Formation Transactions,
the operations of the Company will be carried on through the Operating
Partnership. The Formation Transactions were designed to (i) enable the Company
to raise the necessary capital to acquire the Properties and repay certain
mortgage debt relating thereto, (ii) provide a vehicle for future acquisitions,
(iii) enable the Company to comply with certain requirements under the federal
income tax code and regulations relating to REITs, (iv) facilitate potential
securitized mortgage financings and (v) preserve certain tax advantages for
certain Arden Predecessors.
THE OPERATING PARTNERSHIP
Following the closing of the Offering and the Formation Transactions,
substantially all of the Company's assets will be held by, and its operations
conducted through, the Operating Partnership, of which the Company will be the
sole general partner. The Company's interest in the Operating Partnership will
entitle it to share in cash distributions from, and in the profits and losses
of, the Operating Partnership in proportion to the Company's percentage
ownership, which initially will be approximately 86.69%. Certain Participants,
including Messrs. Ziman, Coleman and Gilbert, Ms. Byer and Arden, will own the
remaining OP Units. Beginning one year after the consummation of the Offering,
any holder of OP Units may cause the Operating Partnership to redeem such OP
Units for cash or, at the election of the Company, exchange such OP Units for
shares of Common Stock of the Company (on a one-for-one basis), subject to
certain limitations. See "Partnership Agreement -- Redemption/Exchange Rights."
With each redemption or exchange of OP Units, the Company's percentage interest
in the Operating Partnership will increase.
As the sole general partner of the Operating Partnership, the Company will
generally have the exclusive power under the Partnership Agreement to manage and
conduct the business of the Operating Partnership, subject to certain limited
exceptions. See "Partnership Agreement -- Management." The Board of Directors
will manage the affairs of the Company by directing the affairs of the Operating
Partnership. The Operating Partnership cannot be terminated (except in
connection with a sale of all or substantially all of the assets of the Company,
a business combination or as the result of judicial decree or the redemption of
all of the OP Units held by the limited partners) until the year 2096 without a
vote of the partners of the Operating Partnership. For further information
regarding the Operating Partnership, see "Partnership Agreement."
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THE FORMATION TRANSACTIONS
OWNERSHIP OF THE PROPERTIES PRIOR TO THE FORMATION TRANSACTIONS
The Arden Predecessors own 16 of the Properties directly through fee simple
interests and four Properties which are subject to long term ground leases and
hold an undivided tenancy in common interest in two other Properties, which are
also partially owned by unrelated third parties who will participate in the
Formation Transactions. The two Acquisition Properties are owned by unrelated
third parties who have entered into agreements to sell the respective
Acquisition Properties to Arden. Each of the Arden Predecessors was formed at
various times over the last 3 1/2 years, generally in connection with the
initial acquisition of a Property or an interest in the Property by such Arden
Predecessor. The Arden Predecessors, which directly own the Properties or
interests in the Properties, are comprised primarily of partnerships and limited
liability companies which are owned by Messrs. Ziman and Coleman, and certain of
their relatives and affiliates and by other third parties. In addition, all of
the properties are managed by Messrs. Ziman and Coleman directly or through
affiliates of the Arden Predecessors.
Arden has been engaged in the property management, leasing and renovation
business for over five years and, in connection therewith, has provided services
to 22 of the Properties and to properties owned by third parties. After the
consummation of the Offering and the Formation Transactions, the Operating
Partnership will continue to carry on the property management, leasing and
renovation business with respect to the Properties carried on by Arden prior
thereto.
PRE-FORMATION TRANSACTIONS
- The Company filed its Charter in the State of Maryland on May 1, 1996.
- The Operating Partnership was formed effective May 20, 1996 with the
Company as the sole general partner and Mr. Coleman as the sole limited
partner.
- All of the Participants have entered into an Option Agreement with the
Company and/or a Contribution Agreement with the Operating Partnership to
transfer their ownership interests in the Arden Predecessors, in certain
of the Properties or, with respect to Arden, in certain of its assets, to
the Operating Partnership in exchange for OP Units or to the Company for
cash. See "Risk Factors -- Conflicts of Interests in the Formation
Transactions and the Business of the Company."
FORMATION TRANSACTIONS
Concurrently with the consummation of the Offering, the Company, the
Operating Partnership and the Participants will engage in the following
Formation Transactions.
- The Company will sell shares of Common Stock in the Offering.
- Pursuant to the Option Agreements, the Company will acquire for cash from
certain Participants (other than Messrs. Ziman and Coleman who will
receive no cash from the Formation Transactions) the interests owned by
such Participants in certain of the Arden Predecessors and in certain of
the Properties. The Company will pay approximately $26.8 million from the
net proceeds of the Offering for such interests which represent 31.7% of
the ownership interests in the Properties to be acquired by the Company.
- The Company will contribute (i) the interests in the Arden Predecessors
and in the Properties acquired pursuant to the Option Agreements and (ii)
the net proceeds from the Offering (after payment of the cash
consideration to certain Participants as described above) to the Operating
Partnership in exchange for a 86.69% general partner interest in the
Operating Partnership.
- Pursuant to the Contribution Agreements, the following additional
contributions will be made to the Operating Partnership in exchange for OP
Units representing limited partners interests: (i) certain Participants
will contribute the remaining interests in the Arden Predecessors and in
certain of the Properties ( I.E., all interests not acquired by the
Company pursuant to the Option Agreements) and (ii) Arden will contribute
certain of its assets, including management contracts relating to certain
of the Properties and the contract rights to purchase the Acquisition
Properties. The Participants
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making such contributions (a total of seven individuals and entities
including Messrs. Ziman, Coleman and Gilbert and Ms. Byer) will receive an
aggregate of 2,889,071 OP Units, with an estimated value of approximately
$57.8 million based on the assumed initial public offering price of the
Common Stock. The aggregate book value of the interests and assets to be
transferred to the Company and the Operating Partnership is approximately
$14.1 million of which $2,000 constitutes the aggregate book value of the
interest and assets to be transferred to the Operating Partnership by
Messrs. Ziman and Coleman.
- The Company, through the Operating Partnership, will borrow approximately
$104 million aggregate principal amount pursuant to the Mortgage Financing
which will be secured by fully cross-collateralized, cross-defaulted first
mortgage liens on the Mortgage Financing Properties.
- Approximately $35 million of the net proceeds of the Offering and the
Mortgage Financing will be used by the Operating Partnership to purchase
the Acquisition Properties.
- Approximately $398 million of the net proceeds of the Offering and the
Mortgage Financing will be used by the Operating Partnership to repay
certain mortgage debt secured by the Properties and indebtedness
outstanding under lines of credit, and the related additional and accrued
interest thereon, to be assumed by the Operating Partnership in the
Formation Transactions.
- The Company, through the Operating Partnership, is expected to enter into
the $100 million Credit Facility at or shortly after the closing of the
foregoing Formation Transactions.
CONSEQUENCES OF THE OFFERING AND THE FORMATION TRANSACTIONS
The Offering and the Formation Transactions will result in the following
consequences:
- The Operating Partnership will directly or indirectly own all of the
Properties by virtue of the Operating Partnership's acquisition of 100% of
the interests in the Arden Predecessors, the Property interests
contributed by certain Participants and the assets contributed by Arden.
In connection with the CMBS Offering it is expected that the Operating
Partnership will transfer the Mortgage Financing Properties to a financing
subsidiary.
- The purchasers of the Common Stock offered in the Offering will own all of
the outstanding Common Stock.
- The Company will be the sole general partner of, and own 86.71% of the
ownership interests in, the Operating Partnership.
If all limited partners of the Operating Partnership were to exchange their
OP Units for Common Stock immediately after completion of the Offering
(notwithstanding the provision of the Partnership Agreement which prohibits such
exchange prior to the first anniversary of the consummation of the Offering),
but subject to the Common Stock Ownership Limit, then the Participants would
beneficially own approximately 13.29% of the outstanding Common Stock (of which
6.61%, 3.52%, 2.32% and 0.15% would be beneficially owned by Messrs. Ziman,
Coleman, Gilbert and Ms. Byer, respectively).
See "Risk Factors -- Conflicts of Interests in the Formation Transactions
and the Business of the Company; Benefits from Formation Transactions,"
"Partnership Agreement -- Redemption/Exchange Rights" and "Principal
Stockholders."
DETERMINATION AND VALUATION OF OWNERSHIP INTERESTS
The Company's percentage interest in the Operating Partnership was
determined based upon the percentage of estimated Cash Available for
Distribution required to pay expected cash distributions on the shares of Common
Stock to be issued in the Offering resulting in an annual distribution rate,
assuming one annual distribution period, equal to 8% of the assumed initial
public offering price of the Common Stock. The ownership interest in the
Operating Partnership allocated to the Company is equal to this percentage of
estimated Cash Available for Distribution and the remaining interest in the
Operating Partnership was
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allocated to the Participants receiving OP Units in the Formation Transactions.
The parameters and assumptions used in deriving the estimated Cash Available for
Distribution are described under "Distributions."
Based on the issuance of 18,847,500 shares of Common Stock in the Offering,
the Company will hold a 86.71% ownership interest in the Operating Partnership
and the Participants will hold a 13.29% ownership interest in the Operating
Partnership. If the Underwriters' overallotment option is exercised in full, the
Company will hold a 88.24% ownership interest in the Operating Partnership and
the Participants will hold a 11.76% ownership interest in the Operating
Partnership.
The Company did not obtain appraisals with respect to the market value of
any of the assets that the Company will own immediately after the consummation
of the Offering and the Formation Transactions or an opinion as to the fairness
of the allocation of shares to the purchasers in the Offering. The initial
public offering price of the Company has been determined based primarily upon
the estimated Cash Available for Distribution of the Company and the factors
discussed under "Underwriting," rather than a property-by-property valuation
based on historical cost, book value or current market value. This methodology
has been used because management believes it is appropriate to value the Company
as an ongoing business rather than with a view to values that could be obtained
from a liquidation of the Company or of individual properties owned by the
Company. See "Underwriting."
BENEFITS OF THE FORMATION TRANSACTIONS AND THE OFFERING TO AFFILIATES OF THE
COMPANY
Certain affiliates of the Company will realize certain material benefits in
connection with the Formation Transactions, including the following:
- In exchange for their respective ownership interests in the Arden
Predecessors and the assets of Arden, Messrs. Ziman, Coleman and Gilbert
and Ms. Byer will become beneficial owners of a total of 2,740,718 OP
Units, with a total value of $54.8 million based on the assumed initial
public offering price of the Common Stock, which compares to a book value
of such interests and assets of approximately $6.8 million as of June 30,
1996. The Company does not believe that the book values of the interests
and assets exchanged (which reflects the depreciated historical cost of
such interests and assets) are equivalent to the fair market values of
such interests and assets based on the valuation criteria described under
"-- Determination and Valuation of Ownership Interests."
- The Participants will realize an immediate accretion in the net tangible
book value of their investment in the Company of $12.48 per share of
Common Stock representing an aggregate accretion amount of $36.1 million .
- The Participants will own interests in the Operating Partnership which
will be more liquid after restrictions on transfer expire than their
current interests in the Arden Predecessors which own the Properties prior
to consummation of the Formation Transactions.
- Approximately $398 million of indebtedness secured by the Properties and
indebtedness outstanding under lines of credit to be assumed by the
Operating Partnership will be repaid in the Formation Transactions.
- Pursuant to the Partnership Agreement, certain Participants who hold OP
Units, including Messrs. Ziman, Coleman, Gilbert and Ms. Byer, will
receive special allocations of interest deduction of approximately $12.6
million in the aggregate relating to the repayment of mortgage debt on
certain of the Properties.
- Messrs. Ziman and Coleman will serve as directors and officers of the
Company and the Operating Partnership and will enter into agreements
providing for annual salaries, bonuses, participation in the Company's
Stock Incentive Plan and other benefits for their services.
- So long as he is Chief Executive Officer, Mr. Ziman will have certain
proportional purchase rights which will enable him to maintain his overall
percentage ownership, assuming the exchange of all OP Units for Common
Stock, of the combined equity of the Company and the Operating Partnership
in the event there are future issuances of Common Stock or any convertible
securities by the Company
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or future issuances of OP Units by the Operating Partnership. In each
event, Mr. Ziman's proportional purchase rights may be exercised at a
price per share or other trading unit of such Common Stock, convertible
securities, or OP Units, as the case may be, to be received by the Company
or the Operating Partnership in such issuance, less any underwriting
discounts and commissions, and otherwise on the same terms as may be
applicable to such issuance. These proportional purchase rights will not
apply to transactions under any Company stock plan (such as the Stock
Incentive Plan), pursuant to an exchange of an OP Unit for a share of
Common Stock or in connection with any issuance of Common Stock or OP
Units incident to an acquisition of properties, assets or a business.
- Commencing on the first anniversary of the Offering certain Participants
including Messrs. Ziman, Coleman and Gilbert and Ms. Byer will have
registration rights with respect to shares of Common Stock issued in
exchange for OP Units.
See "Risk Factors -- Conflicts of Interests in the Formation Transactions
and the Business of the Company," "Dilution," "Partnership Agreement --
Redemption/Exchange Rights," "Management" and "Certain Transactions."
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Company's
Board of Directors and may be amended or revised from time to time by the Board
of Directors without a vote of the stockholders, except that (i) the Company
cannot change its policy of holding its assets and conducting its business only
through the Operating Partnership and its affiliates without the consent of the
holders of OP Units as provided in the Partnership Agreement, and (ii) changes
in certain policies with respect to conflicts of interest must be consistent
with legal requirements.
INVESTMENT POLICIES
INVESTMENT IN REAL ESTATE OR INTERESTS IN REAL ESTATE. The Company will
conduct all of its investment activities through the Operating Partnership and
its affiliates. The Company's investment objectives are to provide quarterly
cash distributions and achieve long-term capital appreciation through increases
in the value of the Company. For a discussion of the Properties and the
Company's acquisition and other strategic objectives, see "Business and
Properties" and "Business and Growth Strategies."
The Company expects to pursue its investment objectives primarily through
the direct ownership by the Operating Partnership of the Properties and other
acquired office properties. The Company currently intends to invest primarily in
existing improved properties but may, if market conditions warrant, invest in
development projects as well. Furthermore, the Company currently intends to
invest in or develop commercial properties in Southern California, and primarily
in suburban Los Angeles County. However, future investment or development
activities will not be limited to any geographic area or product type or to a
specified percentage of the Company's assets. While the Company intends to
diversify in terms of property locations, size and market, the Company does not
have any limit on the amount or percentage of its assets that may be invested in
any one property or any one geographic area. The Company intends to engage in
such future investment or development activities in a manner which is consistent
with the maintenance of its status as a REIT for federal income tax purposes. In
addition, the Company may purchase or lease income-producing commercial and
other types of properties for long-term investment, expand and improve the real
estate presently owned or other properties purchased, or sell such real estate
properties, in whole or in part, when circumstances warrant.
The Company may also participate with third parties in property ownership,
through joint ventures or other types of co-ownership. Such investments may
permit the Company to own interests in larger assets without unduly restricting
diversification and, therefore, add flexibility in structuring its portfolio.
While the Company currently does not have any plans to invest in joint ventures
or partnerships with affiliates or
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promoters of the Company, Mr. Gilbert, a director of the Company, owns one
office property in Southern California that the Company may consider in the
future. The Company will not, however, enter into a joint venture or partnership
to make an investment that would not otherwise meet its investment policies.
Equity investments may be subject to existing mortgage financing and other
indebtedness or such financing or indebtedness as may be incurred in connection
with acquiring or refinancing these investments. Debt service on such financing
or indebtedness will have a priority over any distributions with respect to the
Common Stock. Investments are also subject to the Company's policy not to be
treated as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act").
INVESTMENTS IN REAL ESTATE MORTGAGES. While the Company's current portfolio
consists of, and the Company's business objectives emphasize, equity investments
in commercial real estate, the Company may, in the discretion of the Board of
Directors, invest in mortgages and other types of equity real estate interests
consistent with the Company's qualification as a REIT. The Company does not
presently intend to invest in mortgages or deeds of trust, but may invest in
participating or convertible mortgages if the Company concludes that it may
benefit from the cash flow or any appreciation in value of the property.
Investments in real estate mortgages run the risk that one or more borrowers may
default under such mortgages and that the collateral securing such mortgages may
not be sufficient to enable the Company to recoup its full investment.
SECURITIES OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUERS. Subject to the percentage of ownership
limitations and gross income tests necessary for REIT qualification, the Company
also may invest in securities of other REITs, other entities engaged in real
estate activities or securities of other issuers, including for the purpose of
exercising control over such entities.
DISPOSITIONS
The Company does not currently intend to dispose of any of the Properties,
although it reserves the right to do so if, based upon management's periodic
review of the Company's portfolio, the Board of Directors determines that such
action would be in the best interests of the Company. The tax consequences of
the disposition of the Properties may, however, influence the decision of
certain directors and executive officers of the Company who hold OP Units as to
the desirability of a proposed disposition. See "Risk Factors -- Conflicts of
Interests in the Formation Transactions and the Business of the Company."
Any decision to dispose of a Property will be made by the Company and
approved by a majority of the Board of Directors. In addition, under the
Partnership Agreement, the consent of a majority of the Limited Partners of the
Operating Partnership must approve any sale of Century Park Center (other than
in connection with the sale of all or substantially all of the assets of the
Company or a merger of the Company) for a period of seven years from the closing
of the Offering.
FINANCING POLICIES
As a general policy, the Company intends to limit its total consolidated
indebtedness incurred so that at the time any debt is incurred, the Company'
debt to total market capitalization ratio does not exceed 50%. Upon completion
of the Offering and the Formation Transactions, the debt to total market
capitalization ratio of the Company will be approximately 19.3% (17.6% if the
Underwriters' overallotment option is exercised in full). The Charter and Bylaws
do not, however, limit the amount or percentage of indebtedness that the Company
may incur. In addition, the Company may from time to time modify its debt policy
in light of current economic conditions, relative costs of debt and equity
capital, market values of its Properties, general conditions in the market for
debt and equity securities, fluctuations in the market price of its Common
Stock, growth and acquisition opportunities and other factors. Accordingly, the
Company may increase or decrease its debt to total market capitalization ratio
beyond the limits described above. If these policies were changed, the Company
could become more highly leveraged, resulting in an increased risk of default on
its obligations and a related increase in debt service requirements that could
adversely affect the financial condition and results of operations of the
Company and the Company's ability to make distributions to stockholders.
The Company has established its debt policy relative to the total market
capitalization of the Company computed at the time the debt is incurred, rather
than relative to the book value of such assets, a ratio that is
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frequently employed, because it believes that the book value of its assets
(which to a large extent is the depreciated value of real property, the
Company's primary tangible asset) does not accurately reflect its ability to
borrow and to meet debt service requirements. Total market capitalization,
however, is subject to greater fluctuation than book value, and does not
necessarily reflect the fair market value of the underlying assets of the
Company at all times. Moreover, due to fluctuations in the value of the
Company's portfolio of Properties over time, and since any measurement of the
Company's total consolidated indebtedness to total market capitalization is made
only at the time debt is incurred, the debt to total market capitalization ratio
could exceed the 50% level.
The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.
Although the Company will consider factors other than total market
capitalization in making decisions regarding the incurrence of debt (such as the
purchase price of properties to be acquired with debt financing, the estimated
market value of properties upon refinancing, and the ability of particular
properties and the Company as a whole to generate sufficient cash flow to cover
expected debt service), there can be no assurance that the debt to total market
capitalization ratio, or any other measure of asset value, at the time the debt
is incurred or at any other time will be consistent with any particular level of
distributions to stockholders. See "Risk Factors -- No Limitations on Debt,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
CONFLICT OF INTEREST POLICIES
The Company has adopted certain policies and entered into agreements with
Messrs. Ziman and Coleman designed to eliminate or minimize potential conflicts
of interest. These agreements include non-competition provisions that generally
prohibit Messrs. Ziman and Coleman from engaging in the acquisition, management,
leasing or renovation of any office properties in the Los Angeles, Orange and
San Diego counties of Southern California and from engaging in any active or
passive investment in or reasonably relating to the acquisition, renovation,
management or leasing of any office properties in the Los Angeles, Orange and
San Diego counties of Southern California for a period of one year following the
date of termination of such executive's employment. See "Management --
Employment Agreements." The Company's Board of Directors is subject to certain
provisions of Maryland law, which are designed to eliminate or minimize certain
potential conflicts of interest. However, there can be no assurance that these
policies always will be successful in eliminating the influence of such
conflicts, and if they are not successful, decisions could be made that might
fail to reflect fully the interests of all stockholders.
POLICIES APPLICABLE TO ALL DIRECTORS. The Company has adopted a policy
that, without the approval of a majority of the non-employee directors, it will
not (i) acquire from or sell to any director, officer or employee of the
Company, or any entity in which a director, officer or employee of the Company
beneficially owns more than a 1% interest, or acquire from or sell to any
affiliate of any of the foregoing, any of the assets or other property of the
Company, (ii) make any loan to or borrow from any of the foregoing persons or
(iii) engage in any other transaction with any of the foregoing persons.
Pursuant to Maryland law, each director will be subject to restrictions on
misappropriation of corporate opportunities. In addition, under Maryland law, a
contract or other transaction between the Company and a Director or between the
Company and any other corporation or other entity in which a Director is a
director or has a material financial interest is not void or voidable solely on
the grounds of such interest, the presence of the Director at the meeting at
which the contract or transaction is approved or the Director's vote in favor
thereof if (a) the transaction or contract is approved or ratified, after
disclosure of the common directorship or interest, by the affirmative vote of a
majority of disinterested directors, even if the disinterested directors
constitute less than a quorum, or by a majority of the votes cast by
disinterested stockholders, or (b) the transaction or contract is fair and
reasonable to the Company.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company has authority to offer Common Stock, Preferred Stock or options
to purchase stock in exchange for property and to repurchase or otherwise
acquire its Common Stock or other securities in the open market or otherwise and
may engage in such activities in the future. As described under "The
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Partnership Agreement -- Redemption/Exchange Rights," the Company expects (but
is not obligated) to issue Common Stock to holders of OP Units in the Operating
Partnership upon exercise of their redemption/ exchange rights. Except in
connection with the Formation Transactions, the Company has not issued Common
Stock, OP Units or any other securities in exchange for property or any other
purpose, and the Board of Directors has no present intention of causing the
Company to repurchase any Common Stock. The Company may issue Preferred Stock
from time to time, in one or more series, as authorized by the Board of
Directors without the need for stockholder approval. See "Capital Stock --
Preferred Stock." The Company has not engaged in trading, underwriting or agency
distribution or sale of securities of other issuers other than the Operating
Partnership, nor has the Company invested in the securities of other issuers
other than the Operating Partnership for the purposes of exercising control, and
does not intend to do so. At all times, the Company intends to make investments
in such a manner as to qualify as a REIT, unless because of circumstances or
changes in the Code (or the Treasury Regulations), the Board of Directors
determines that it is no longer in the best interest of the Company to qualify
as a REIT and such determination is approved by a two thirds vote of the
Company's stockholders as required by the Charter. The Company has not made any
loans to third parties, although it may in the future make loans to third
parties, including, without limitation, to joint ventures in which it
participates. The Company intends to make investments in such a way that it will
not be treated as an investment company under the 1940 Act. The Company's
policies with respect to such activities may be reviewed and modified or amended
from time to time by the Company's Board of Directors without a vote of the
stockholders.
CERTAIN TRANSACTIONS
FORMATION TRANSACTIONS
The terms of the acquisitions of interests in the Properties and in Arden by
the Operating Partnership are described in "Structure and Formation of the
Company -- The Formation Transactions."
PARTNERSHIP AGREEMENT; REDEMPTION/EXCHANGE RIGHTS
The Company will enter into the Partnership Agreement with the Participants
receiving OP Units. Among other things, the Partnership Agreement provides such
holders of OP Units with the right to cause the Operating Partnership to redeem
OP Units for cash or, at the election of the Company, exchange such OP Units for
shares of Common Stock of the Company (on a one-for-one basis). See "Risk
Factors -- Conflicts of Interests in the Formation Transactions and the Business
of the Company; Benefits from Formation Transactions," "Policies With Respect to
Certain Transactions -- Conflict of Interest Policies" and "Partnership
Agreement -- Redemption/Exchange Rights."
REGISTRATION RIGHTS
For a description of certain registration rights held by the Participants,
see "Shares Available for Future Sale -- Registration Rights."
CERTAIN TRANSACTIONS INVOLVING DIRECTOR NOMINEE
Mr. Jerry Asher, one of the Company's director nominees, is employed by CB
Commercial which has provided, from time to time, third-party leasing brokerage
services to the Company with respect to certain of its Properties. As of July
31, 1996, the Company had paid approximately $293,000 in leasing commissions to
CB Commercial for leasing brokerage services rendered during 1995 and 1996.
While the Company may engage CB Commercial in the future to provide additional
leasing brokerage services, it is not currently under any contractual obligation
to do so. Furthermore, Mr. Asher, as Director of Business Development at CB
Commercial, has no direct involvement in CB Commercial's leasing brokerage
services and does not have any personal interest in any leasing commissions
received by CB Commercial from the Company.
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PARTNERSHIP AGREEMENT
THE FOLLOWING SUMMARY OF THE PARTNERSHIP AGREEMENT, INCLUDING THE
DESCRIPTIONS OF CERTAIN PROVISIONS SET FORTH ELSEWHERE IN THIS PROSPECTUS, IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PARTNERSHIP AGREEMENT, WHICH IS
FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A
PART.
MANAGEMENT
The Operating Partnership has been organized as a Maryland limited
partnership pursuant to the terms of the Partnership Agreement. Generally,
pursuant to the Partnership Agreement, the Company, as the sole general partner
of the Operating Partnership, will have full, exclusive and complete
responsibility and discretion in the management and control of the Operating
Partnership, subject to certain limited exceptions. The limited partners of the
Operating Partnership (the "Limited Partners") will have no authority in such
capacity to transact business for, or participate in the management activities
or decisions of, the Operating Partnership. See
"-- Certain Voting Rights of Limited Partners."
TRANSFERABILITY OF INTERESTS
Except for a transaction described in the following two paragraphs the
Partnership Agreement provides that the Company may not voluntarily withdraw
from the Operating Partnership, or transfer or assign its interest in the
Operating Partnership, without the consent of the holders of 60% of the OP Units
representing limited partner interests. Pursuant to the Partnership Agreement,
the Limited Partners have agreed not to transfer, assign, sell, encumber or
otherwise dispose of, without the consent of the Company, their interest in the
Operating Partnership, other than to Affiliates (as defined in the Partnership
Agreement) who agree to assume the obligations of the transferor under the
Partnership Agreement. Messrs. Ziman and Coleman and certain other Participants
are subject to additional restrictions on their ability to transfer shares of
Common Stock. See "Underwriting."
The Company may not engage in any merger, consolidation or other combination
with or into another person, sale of all or substantially all of its assets or
any reclassification, recapitalization or change of its outstanding equity
interests ("Termination Transaction"), unless the Termination Transaction has
been approved by holders of at least 66 2/3 of the OP Units and in connection
with which all Limited Partners either will receive, or will have the right to
elect to receive, for each OP Unit an amount of cash, securities, or other
property equal to the product of the number of shares of Common Stock into which
each OP Unit is then exchangeable and the greatest amount of cash, securities or
other property paid to the holder of one share of Common Stock in consideration
of one share of Common Stock at any time during the period from and after the
date on which the Termination Transaction is consummated. If, in connection with
the Termination Transaction, a purchase, tender or exchange offer shall have
been made to and accepted by the holders of more than fifty (50%) of the
outstanding shares of Common Stock, each holder of OP Units will receive, or
will have the right to elect to receive, the greatest amount of cash,
securities, or other property which such holder would have received had it
exercised its right to redemption and received shares of Common Stock in
exchange for its OP Units immediately prior to the expiration of such purchase,
tender or exchange offer and had thereupon accepted such purchase, tender or
exchange offer. In addition, unless a consent from holders of 50% of the OP
Units representing limited partner interests has been obtained, no more than 49%
of the equity securities of the acquired person in such Termination Transaction
may be owned, after consummation of such Termination Transaction, by the Company
or affiliates of the Operating Partnership or the Company immediately prior to
the date of which the Termination Transaction is consummated.
Notwithstanding the foregoing paragraph, the Company may merge, or otherwise
combine its assets, with another entity if, immediately after such merger or
other combination, substantially all of the assets of the surviving entity,
other than OP Units held by the Company, are contributed to the Operating
Partnership as a capital contribution in exchange for OP Units with a fair
market value, as reasonably determined by the Company, equal to the agreed value
of the assets so contributed.
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In respect of any transaction described in the preceding two paragraphs, the
Company is required to use its commercially reasonable efforts to structure such
transaction to avoid causing the Limited Partners to recognize gain for federal
income tax purposes by virtue of the occurrence of or their participation in
such transaction.
CAPITAL CONTRIBUTIONS
If the Operating Partnership requires additional funds at any time or from
time to time in excess of funds available to the Operating Partnership from
borrowings or capital contributions, and the Company borrows such funds from a
financial institution or other lender then the Company will lend such funds to
the Operating Partnership on comparable terms and conditions as are applicable
to the Company's borrowing of such funds. The Company may contribute the amount
of any required funds not loaned to the Operating Partnership as an additional
capital contribution to the Operating Partnership. If the Company so contributes
additional capital to the Operating Partnership, the Company's partnership
interest in the Operating Partnership will be increased on a proportionate basis
based upon the amount of such additional capital contributions and the value of
the Operating Partnership at the time of such contributions. Conversely, the
partnership interests of the Limited Partners will be decreased on a
proportionate basis in the event of additional capital contributions by the
Company. The Company's rights to make loans or additional capital contributions
to the Operating Partnership are generally subject to Mr. Ziman's right to
receive notice thereof and to fund the loan or capital contribution on a pro
rata basis so long as Mr. Ziman is the Company's Chief Executive Officer.
REDEMPTION/EXCHANGE RIGHTS
Limited Partners will receive rights which will enable them to require the
Operating Partnership to redeem part or all of their OP Units for cash (based
upon the fair market value of an equivalent number of shares of Common Stock at
the time of such redemption) or, at the election of the Company, exchange such
OP Units for shares of Common Stock (on a one-for-one basis, subject to
adjustment in the event of stock splits, stock dividends, issuance of certain
rights, certain extraordinary distributions and similar events) from the
Company, subject to the Ownership Limit and certain limitations on resale of
shares. The Company presently anticipates that it will elect to issue Common
Stock in exchange for OP Units in connection with each such redemption request,
rather than having the Operating Partnership pay cash. With each such redemption
or exchange, the Company's percentage ownership interest in the Operating
Partnership will increase. This redemption/exchange right may be exercised by
Limited Partners from time to time, in whole or in part, subject to the
limitations that such right may not be exercised (i) prior to the expiration of
one year following the consummation of the Offering or (ii) at any time to the
extent such exercise would result in such Limited Partner actually or
constructively owning common stock in excess of the Common Stock Ownership
Limit, assuming Common Stock was issued in such exchange.
ISSUANCE OF ADDITIONAL OP UNITS, COMMON STOCK OR CONVERTIBLE SECURITIES
As general partner of the Operating Partnership, the Company has the ability
to cause the Operating Partnership to issue additional OP Units. In addition,
the Company may, from time to time, issue additional shares of Common Stock or
convertible securities. In each event, Mr. Ziman will have proportional purchase
rights which will enable him to maintain his overall percentage ownership of the
combined equity of the Company and the Operating Partnership, assuming the
exchange of all OP Units for Common Stock. Mr. Ziman's proportional purchase
rights may be exercised, in his sole discretion, at a price per share or other
trading unit of such OP Units, Common Stock or convertible securities, as the
case may be, to be received by the Company or the Operating Partnership in such
issuance, less any underwriting discounts and commissions, and otherwise on the
same terms as may be applicable to such issuances. These proportional purchase
rights will not apply to transactions under any Company stock plan (such as the
Stock Incentive Plan), pursuant to an exchange of an OP Unit for a share of
Common Stock or in connection with any issuance of Common Stock or OP Units
incident to an acquisition of properties, assets or a business.
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TAX MATTERS
Pursuant to the Partnership Agreement, the Company will be the tax matters
partner of the Operating Partnership and, as such, will have authority to make
tax elections under the Code on behalf of the Operating Partnership.
The net income or net loss of the Operating Partnership will generally be
allocated to the Company and the Limited Partners in accordance with their
respective percentage interests in the Operating Partnership, subject to special
allocations to certain Limited Partners of interest deductions and income from
the discharge of indebtedness attributable to loans transferred by Arden
Predecessors to the Operating Partnership and to compliance with the provisions
of Sections 704(b) and 704(c) of the Code and the regulations promulgated
thereunder. See "Federal Income Tax Considerations -- Tax Aspects of the
Operating Partnership."
OPERATIONS
The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT and to avoid any federal income tax liability.
The Partnership Agreement provides that the net operating cash revenues of
the Operating Partnership, as well as the net sales and refinancing proceeds,
will be distributed from time to time (but at least quarterly) as determined by
the Company pro rata in accordance with the partners' percentage interests.
Pursuant to the Partnership Agreement, subject to certain exceptions, the
Operating Partnership will also assume and pay when due, or reimburse the
Company for payment of all costs and expenses relating to the operations of the
Company.
DUTIES AND CONFLICTS
The Partnership Agreement provides that all business activities of the
Company, including all activities pertaining to the acquisition and operation of
office properties, must be conducted through the Operating Partnership.
CERTAIN VOTING RIGHTS OF LIMITED PARTNERS
So long as the Limited Partners own at least 5% of the outstanding OP units,
the Company shall not, on behalf of the Operating Partnership, take any of the
following actions without the prior consent of Limited Partners holding at least
50% of the OP Units: (1) dissolve the Operating Partnership, other than incident
to a merger or sale of substantially all of the Company's assets; or (2) prior
to the expiration of seven years from the completion of the Offering, sell
Century Park Center, other than incident to a merger or sale of substantially
all of the Company's assets.
TERM
The Operating Partnership will continue in full force and effect until
December 31, 2096, or until sooner dissolved upon the bankruptcy, dissolution,
withdrawal or termination of the Company as general partner (unless the Limited
Partners other than the Company elect to continue the Operating Partnership),
the election of the Company and the Limited Partners, on entry of decree of
judicial dissolution, or the sale or other disposition of all or substantially
all the assets of the Operating Partnership or redemption of all OP Units.
INDEMNIFICATION
To the extent permitted by law, the Partnership Agreement provides for
indemnification and advance of expenses of the Company and its officers and
directors to the same extent indemnification and advance of expenses is provided
to officers and directors of the Company in its Charter, and limits the
liability of the Company and its officers and directors to the Operating
Partnership and its partners to the same extent liability of officers and
directors of the Company is limited under the Charter. See "Management --
Limitation of Liability and Indemnification."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock (or Common Stock for which OP Units are exchangeable)
by each director and director nominee, by each Named Executive Officer
identified on the table on page 93, by all directors (including director
nominees) and officers of the Company as a group and by each person who is
expected to be the beneficial owner of 5% or more of the outstanding shares of
Common Stock immediately following the completion of the Offering. Except as
indicated below, all of such Common Stock is owned directly, and the indicated
person has sole voting and investment power.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK,
ASSUMING FULL
EXCHANGE OF OP PERCENTAGE OF COMMON
NAME AND ADDRESS(1) UNITS(2) STOCK OUTSTANDING(2)
- ---------------------------------------------------------------------- ------------------- ---------------------
<S> <C> <C>
Richard S. Ziman...................................................... 2,099,474(3) 7.09%
Victor J. Coleman..................................................... 1,576,015(4) 3.90%
Diane M. Laing........................................................ -- --
Michele Byer.......................................................... 31,747 *
Andrew J. Sobel....................................................... 3,750 *
Herbert L. Porter..................................................... 1,250 *
Jerry Asher........................................................... -- --
Carl D. Covitz........................................................ -- --
Kenneth B. Roath...................................................... -- --
Arthur Gilbert........................................................ 1,576,015(5) 2.42%
Steven C. Good........................................................ -- --
All directors and officers as a group (11 persons).................... 2,708,200 12.56%
</TABLE>
- ------------------------------
* Less than one percent.
(1) The address for each of the persons listed is 9100 Wilshire Boulevard, East
Tower, Suite 700, Beverly Hills, California 90212.
(2) Except for Messrs. Sobel and Porter, who hold shares of Common Stock,
beneficial ownership of Common Stock is currently held 100% in the form of
OP Units. In addition, amounts for individuals assume that all OP Units held
by the person are exchanged for shares of Common Stock and that none of the
OP Units held by other persons are exchanged for shares of Common Stock.
Amounts for all directors and officers as a group assume all OP Units are
exchanged for shares of Common Stock. See "Capital Stock -- Restrictions on
Transfer."
(3) Includes (a) 1,287,768 shares held by entities in which Messrs. Ziman and
Coleman have shared voting and investment power, of which shares Mr. Ziman
disclaims beneficial ownership in the 40% of such shares in which he has no
pecuniary interest, (b) 631,667 shares owned by entities directly and
indirectly owned 100% by Mr. Ziman, (c) 136,674 shares owned by a family
partnership of Mr. Ziman, in which Mr. Ziman has shared voting and
investment power and of which Mr. Ziman is a 20% general partner and
disclaims beneficial ownership of the remaining 80% in which he has no
pecuniary interest, and (d) 43,365 shares owned by an entity in which
Messrs. Ziman, Coleman and Gilbert have shared voting and investment power,
of which shares Mr. Ziman disclaims beneficial ownership of the 82% of such
shares in which he has no pecuniary interest.
(4) Includes (a) 1,287,768 shares held by entities in which Messrs. Ziman and
Coleman have shared voting and investment power, of which shares Mr. Coleman
disclaims beneficial ownership of the 60% of such shares in which he has no
pecuniary interest, (b) 244,882 shares owned by an entity owned 100% by Mr.
Coleman and (c) 43,365 shares owned by an entity in which Messrs. Ziman,
Coleman and Gilbert have shared voting and investment power, of which shares
Mr. Coleman disclaims beneficial ownership of the 88% of such shares in
which he has no pecuniary interest.
(5) Includes (a) 436,601 shares owned by the Arthur Gilbert and Rosalinde
Gilbert 1982 Trust, of which Mr. Gilbert is a trustee and (b) 43,365 shares
owned by an entity in which Messrs. Ziman, Coleman and Gilbert have shared
voting and investment power, of which shares Mr. Gilbert disclaims
beneficial ownership of the 30% of such shares in which he has no pecuniary
interest.
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CAPITAL STOCK
The following summary of the terms of the stock of the Company does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Company's Charter and Bylaws, copies of which are exhibits to
the Registration Statement of which this Prospectus is a part. See "Additional
Information."
GENERAL
The Charter provides that the Company may issue up to 100,000,000 shares of
Common Stock and 20,000,000 shares of preferred stock, $.01 par value per share
("Preferred Stock"). Upon completion of the Offering, 18,852,500 shares of
Common Stock will be issued and outstanding and no shares of Preferred Stock
will be issued and outstanding. Under Maryland law, stockholders generally are
not liable for the corporation's obligations solely as a result of their status
as stockholders.
COMMON STOCK
All shares of Common Stock offered hereby will be duly authorized, validly
issued, fully paid and nonassessable. Subject to the preferential rights of any
other shares or series of stock and to the provisions of the Charter regarding
the restrictions on transfer of stock, holders of shares of Common Stock are
entitled to receive dividends on such stock if, as and when authorized and
declared by the Board of Directors of the Company out of assets legally
available therefor and to share ratably in the assets of the Company legally
available for distribution to its stockholders in the event of its liquidation,
dissolution or winding up after payment of or adequate provision for all known
debts and liabilities of the Company.
Subject to the provisions of the Charter regarding the restrictions on
transfer of stock, each outstanding share of Common Stock entitles the holder to
one vote on all matters submitted to a vote of stockholders, including the
election of directors and, except as provided with respect to any other class or
series of stock, the holders of such shares will possess the exclusive voting
power. There is no cumulative voting in the election of directors, which means
that the holders of a majority of the outstanding shares of Common Stock can
elect all of the directors then standing for election and the holders of the
remaining shares will not be able to elect any directors.
Holders of shares of Common Stock have no preference, conversion, exchange,
sinking fund, redemption or appraisal rights and, with the exception of Mr.
Ziman's proportional purchase rights, have no preemptive rights to subscribe for
any securities of the Company. Subject to the provisions of the Charter
regarding the restrictions on transfer of stock, shares of Common Stock will
have equal dividend, liquidation and other rights.
Under the MGCL, a corporation generally cannot dissolve, amend its charter,
merge, sell all or substantially all of its assets, engage in a share exchange
or engage in similar transactions outside the ordinary course of business unless
approved by the affirmative vote of stockholders holding at least two-thirds of
the votes entitled to be cast on the matter unless a greater or lesser
percentage (but not less than a majority of all of the votes to be cast on the
matter) is set forth in the corporation's charter. The Company's Charter does
not provide for a lesser percentage in such situations.
PREFERRED STOCK
The Charter authorizes the Board of Directors to classify any unissued
shares of Preferred Stock and to reclassify any previously classified but
unissued shares of any series, as authorized by the Board of Directors. Prior to
issuance of shares of each series, the Board is required by the MGCL and the
Charter of the Company to set, subject to the provisions of the Charter
regarding the restrictions on transfer of stock, the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such series. Thus, the Board could authorize the issuance of
shares of Preferred Stock with terms and conditions which could have the effect
of delaying, deferring or preventing a transaction or a change in control of the
Company that might involve a premium price for holders of Common Stock or
otherwise be in their best interest. As of the date hereof, no shares of
Preferred Stock are outstanding and the Company has no present plans to issue
any Preferred Stock.
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POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK
The Company believes that the power of the Board of Directors to issue
additional authorized but unissued shares of Common Stock or Preferred Stock and
to classify or reclassify unissued shares of Preferred Stock and thereafter to
cause the Company to issue such classified or reclassified shares of stock will
provide the Company with increased flexibility in structuring possible future
financings and acquisitions and in meeting other needs which might arise. The
additional classes or series, as well as the Common Stock, will be available for
issuance without further action by the Company's stockholders, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which the Company's securities may be listed or
traded. Although the Board of Directors has no intention at the present time of
doing so, it could authorize the Company to issue a class or series that could,
depending upon the terms of such class or series, delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for holders of Common Stock or otherwise be in their best interest.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Bank of New
York.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding shares of stock may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year for which an election to be treated as a REIT has been made). In addition,
if the Company, or an owner of 10% or more of the Company, actually or
constructively owns 10% or more of a tenant of the Company (or a tenant of any
partnership in which the Company is a partner), the rent received by the Company
(either directly or through any such partnership) from such tenant will not be
qualifying income for purposes of the REIT gross income tests of the Code. A
REIT's stock must also be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of twelve months or during a proportionate part
of a shorter taxable year (other than the first year for which an election to be
treated as a REIT has been made).
Because the Company expects to qualify as a REIT, the Charter contains
restrictions on the ownership and transfer of Common Stock which are intended to
assist the Company in complying with these requirements. The Charter provides
that, subject to certain specified exceptions, no person or entity may own, or
be deemed to own by virtue of the applicable constructive ownership provisions
of the Code, more than 9.0% (by number or value, whichever is more restrictive)
of the outstanding shares of Common Stock (the "Ownership Limit"). The
constructive ownership rules are complex, and may cause shares of Common Stock
owned actually or constructively by a group of related individuals and/or
entities to be owned constructively by one individual or entity. As a result,
the acquisition of less than 9.0% of the shares of Common Stock (or the
acquisition of an interest in an entity that owns, actually or constructively,
Common Stock) by an individual or entity, could, nevertheless cause that
individual or entity, or another individual or entity, to own constructively in
excess of 9.0% of the outstanding Common Stock and thus subject such shares to
the Ownership Limit. The Board of Directors may, but in no event will be
required to, waive the Ownership Limit with respect to a particular stockholder
if it determines that such ownership will not jeopardize the Company's status as
a REIT. As a condition of such waiver, the Board of Directors may require
opinions of counsel satisfactory to it and/or undertakings or representations
from the applicant with respect to preserving the REIT status of the Company.
The Board of Directors has obtained such undertakings and representations from
Mr. Ziman and, as a result, has waived the Ownership Limit with respect to the
Ziman family and certain affiliated entities, including the Operating
Partnership. The Ziman family and such entities will be permitted to own in the
aggregate, actually or constructively, up to 13% (by number of shares or by
value, whichever is more restrictive) of the Common Stock.
The Charter further prohibits (a) any person from actually or constructively
owning shares of stock of the Company that would result in the Company being
"closely held" under Section 856(h) of the Code or otherwise cause the Company
to fail to qualify as a REIT and (b) any person from transferring shares of
stock of the Company if such transfer would result in shares of stock of the
Company being owned by fewer than 100 persons. Any person who acquires or
attempts or intends to acquire actual or constructive
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ownership of shares of stock of the Company that will or may violate any of the
foregoing restrictions on transferability and ownership is required to give
notice immediately to the Company and provide the Company with such other
information as the Company may request in order to determine the effect of such
transfer on the Company's status as a REIT. The foregoing restrictions on
transferability and ownership will not apply if the Board of Directors
determines that it is no longer in the best interest of the Company to attempt
to qualify, or to continue to qualify, as a REIT and such determination is
approved by a two thirds vote of the Company's stockholders as required by the
Charter.
If any purported transfer of Common Stock of the Company or any other event
would otherwise result in any person violating the Ownership Limit or the
Charter, then any such purported transfer will be void and of no force or effect
with respect to the purported transferee (the "Prohibited Transferee") as to
that number of shares in excess of the Ownership Limit and the Prohibited
Transferee shall acquire no right or interest (or, in the case of any event
other than a purported transfer, the person or entity holding record title to
any such shares in excess of the Ownership Limit (the "Prohibited Owner") shall
cease to own any right or interest) in such excess shares. Any such excess
shares described above will be transferred automatically, by operation of law,
to a trust, the beneficiary of which will be a qualified charitable organization
selected by the Company (the "Beneficiary"). Such automatic transfer shall be
deemed to be effective as of the close of business on the Business Day (as
defined in the Charter) prior to the date of such violative transfer. Within 20
days of receiving notice from the Company of the transfer of shares to the
trust, the trustee of the trust (who shall be designated by the Company and be
unaffiliated with the Company and any Prohibited Transferee or Prohibited Owner)
will be required to sell such excess shares to a person or entity who could own
such shares without violating the Ownership Limit, and distribute to the
Prohibited Transferee an amount equal to the lesser of the price paid by the
Prohibited Transferee for such excess shares or the sales proceeds received by
the trust for such excess shares. In the case of any excess shares resulting
from any event other than a transfer, or from a transfer for no consideration
(such as a gift), the trustee will be required to sell such excess shares to a
qualified person or entity and distribute to the Prohibited Owner an amount
equal to the lesser of the fair market value of such excess shares as of the
date of such event or the sales proceeds received by the trust for such excess
shares. In either case, any proceeds in excess of the amount distributable to
the Prohibited Transferee or Prohibited Owner, as applicable, will be
distributed to the Beneficiary. Prior to a sale of any such excess shares by the
trust, the trustee will be entitled to receive in trust for the Beneficiary, all
dividends and other distributions paid by the Company with respect to such
excess shares, and also will be entitled to exercise all voting rights with
respect to such excess shares. Subject to Maryland law, effective as of the date
that such shares have been transferred to the trust, the trustee shall have the
authority (at the trustee's sole discretion) (i) to rescind as void any vote
cast by a Prohibited Transferee prior to the discovery by the Company that such
shares have been transferred to the trust and (ii) to recast such vote in
accordance with the desires of the trustee acting for the benefit of the
Beneficiary. However, if the Company has already taken irreversible corporate
action, then the trustee shall not have the authority to rescind and recast such
vote. Any dividend or other distribution paid to the Prohibited Transferee or
Prohibited Owner (prior to the discovery by the Company that such shares had
been automatically transferred to a trust as described above) will be required
to be repaid to the trustee upon demand for distribution to the Beneficiary. In
the event that the transfer to the trust as described above is not automatically
effective (for any reason) to prevent violation of the Ownership Limit, then the
Charter provides that the transfer of the excess shares will be void.
In addition, shares of stock of the Company held in the Trust shall be
deemed to have been offered for sale to the Company, or its designee, at a price
per share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Trust (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on
the date the Company, or its designee, accepts such offer. The Company shall
have the right to accept such offer until the Trustee has sold the shares of
stock held in the Trust. Upon such a sale to the Company, the interest of the
Charitable Beneficiary in the shares sold shall terminate and the Trustee shall
distribute the net proceeds of the sale to the Prohibited Owner.
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All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.
Under the Charter, every owner of a specified percentage (or more) of the
outstanding shares of Common Stock must file a completed questionnaire with the
Company containing information regarding their ownership of such shares, as set
forth in the Treasury Regulations. Under current Treasury Regulations, the
percentage will be set between 0.5% and 5.0%, depending upon the number of
record holders of the Company's shares. In addition, each stockholder shall upon
demand be required to disclose to the Company in writing such information as the
Company may request in order to determine the effect, if any, of such
stockholder's actual and constructive ownership of Common Stock on the Company's
status as a REIT and to ensure compliance with the Ownership Limit.
These ownership limits could delay, defer or prevent a transaction or a
change in control of the Company that might involve a premium price for the
Common Stock or otherwise be in the best interest of stockholders.
CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S CHARTER AND BYLAWS
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND BYLAWS OF THE COMPANY DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT
TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MARYLAND LAW AND THE CHARTER
AND BYLAWS OF THE COMPANY, COPIES OF WHICH ARE EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
The Charter and the Bylaws of the Company contain certain provisions that
could make more difficult the acquisition of the Company by means of a tender
offer, a proxy contest or otherwise. These provisions are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the Company to negotiate first
with the Board of Directors. The Company believes that the benefits of these
provisions outweigh the potential disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals might result in an
improvement of their terms. The description set forth below is intended as a
summary only and is qualified in its entirety by reference to the Charter and
the Bylaws, which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part. See also "Capital Stock -- Restrictions on
Transfer."
BOARD OF DIRECTORS - NUMBER, CLASSIFICATION, VACANCIES
The Bylaws provide that the number of directors of the Company may be
established by the Board of Directors but may not be fewer than five nor more
than 11. Any vacancy will be filled, at any regular meeting or at any special
meeting called for that purpose, by a majority of the remaining directors,
except that a vacancy resulting from an increase in the number of directors must
be filled by a majority of the entire Board of Directors.
The Company's Board of Directors is divided into three classes of directors.
The initial terms of the first, second and third classes will expire in 1997,
1998 and 1999, respectively. Beginning in 1997, directors of each class will be
chosen for three-year terms upon the expiration of their current terms and each
year one class of directors will be elected by the stockholders. The staggered
terms of directors may reduce the possibility of a tender offer or an attempt to
change control of the Company even though a tender offer or change in control
might be in the best interest of the stockholders.
The classified board provision could have the effect of making the
replacement of incumbent directors more time consuming and difficult. At least
two annual meetings of stockholders, instead of one, will generally be required
to effect a change in a majority of the Board of Directors. Thus, the classified
board provision could increase the likelihood that incumbent directors will
retain their positions. The staggered terms of directors may reduce the
possibility of a tender offer or an attempt to change control of the Company,
even though a tender offer or change in control might be in the best interest of
the stockholders.
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REMOVAL OF DIRECTORS
The Charter provides that a director may be removed only for cause (as
defined in the Charter) and only by the affirmative vote of at least two-thirds
of the votes entitled to be cast in the election of directors. This provision,
when coupled with the provision in the Bylaws authorizing the Board of Directors
to fill vacant directorships, precludes stockholders from removing incumbent
directors except upon the existence of cause for removal and a substantial
affirmative vote and filling the vacancies created by such removal with their
own nominees.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the
then-outstanding voting stock of the corporation (an "Interested Stockholder")
or an affiliate of such an Interested Stockholder are prohibited for five years
after the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, any such business combination must be
recommended by the board of directors of such corporation and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding shares of voting stock of the corporation and (b) two-thirds of
the votes entitled to be cast by holders of voting stock of the corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Stockholder for its
shares. These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The Company's Board of Directors has resolved to opt out
of the business combination provisions of the MGCL.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation. "Control shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
the acquiror or in respect of which the acquiror is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquiror to exercise voting power in electing directors within
one of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
or more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as the result of having previously obtained
stockholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote,
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all other stockholders may exercise appraisal rights. The fair value of the
shares as determined for purposes of such appraisal rights may not be less than
the highest price per share paid by the acquiror in the control share
acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation.
The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of the
Company's shares of stock. There can be no assurance that such provision will
not be amended or eliminated at any time in the future.
AMENDMENT TO THE CHARTER
The Charter, including its provisions on classification of the Board of
Directors and removal of directors, may be amended only by the affirmative vote
of the holders of not less than two thirds of all of the votes entitled to be
cast on the matter.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than two thirds of all of the votes entitled to be cast
on the matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (a) with respect to an annual meeting
of stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(i) pursuant to the Company's notice of the meeting, (ii) by the Board of
Directors or (iii) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws and (b)
with respect to special meetings of the stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders and nominations of persons for election to the Board of
Directors may be made only (i) pursuant to the Company's notice of the meeting,
(ii) by the Board of Directors or (iii) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by a stockholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER
AND BYLAWS
The business combination provisions and the control share acquisition
provisions of the MGCL, in each case if they ever became applicable to the
Company, the provisions of the Charter on classification of the Board of
Directors and removal of directors and the advance notice provisions of the
Bylaws could delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for holders of Common Stock or
otherwise be in their best interest.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The Charter authorizes the Board of Directors to create and issue rights
entitling the holders thereof to purchase from the Company shares of stock or
other securities or property. The times at which and terms upon which such
rights are to be issued would be determined by the Board of Directors and set
forth in the contracts or instruments that evidence such rights. This provision
is intended to confirm the Board of Directors' authority to issue share purchase
rights, which may have terms that could impede a merger, tender offer or other
takeover attempt, or other rights to purchase shares or securities of the
Company or any other corporation.
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SHARES AVAILABLE FOR FUTURE SALE
GENERAL
Upon the completion of the Offering, the Company will have outstanding
18,852,500 shares of Common Stock (24,568,571 shares if the Underwriters'
overallotment option is exercised in full). In addition, 2,889,071 shares of
Common Stock are reserved for issuance upon exchange of OP Units. The shares of
Common Stock issued in the Offering will be freely tradeable by persons other
than "affiliates" of the Company without restriction under the Securities Act,
subject to the limitations on ownership set forth in the Charter. See "Capital
Stock -- Restrictions on Transfer." The shares of Common Stock owned by the
Participants or acquired by any Participant in redemption of OP Units (the
"Restricted Shares") will be "restricted" securities under the meaning of Rule
144 promulgated under the Securities Act ("Rule 144") and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including exemptions contained in Rule 144. As
described below under "-- Registration Rights," the Company has granted certain
holders registration rights with respect to their shares of Common Stock.
In general, under Rule 144 as currently in effect, if two years have elapsed
since the later of the date of acquisition of Restricted Shares from the Company
or any "affiliate" of the Company, as that term is defined under the Securities
Act, the acquiror or subsequent holder thereof is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock or the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the date on which
notice of the sale is filed with the SEC. Sales under Rule 144 are also subject
to certain manner of sales provisions, notice requirements and the availability
of current public information about the Company. If three years have elapsed
since the date of acquisition of Restricted Shares from the Company or from any
"affiliate" of the Company, and the acquiror or subsequent holder thereof is
deemed not to have been an affiliate of the Company at any time during the 90
days preceding a sale, such person is entitled to sell such shares in the public
market under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.
The Commission has proposed to amend the holding period required by Rule 144
to permit sales of "restricted securities" after one year rather than two years
(and two years rather than three years for "non-affiliates" who desire to sell
such shares under Rule 144(k)). If such proposed amendment were enacted, the
"restricted securities" would become freely tradeable (subject to any applicable
contractual restrictions) at these earlier dates.
In connection with the Offering, Messrs. Ziman and Coleman have agreed not
to sell any shares of Common Stock acquired by them upon exchange of OP Units
for a period of two years after the completion of the Offering without the
consent of Lehman Brothers Inc. Such restriction will not apply to any OP Units
or other shares of Common Stock purchased or otherwise acquired by Messrs. Ziman
or Coleman following consummation of the Offering. See "Underwriting."
The Company has established the Stock Incentive Plan for the purpose of
attracting and retaining directors, executive officers and other key employees.
See "Management -- Stock Incentive Plan" and "-- Compensation of Directors." The
Company intends to issue options to purchase approximately 868,500 shares of
Common Stock to directors, executive officers and certain key employees prior to
the completion of the Offering and has reserved 631,500 additional shares for
future issuance under the Stock Incentive Plan. Prior to the expiration of the
initial 12-month period following consummation of the Offering, the Company
expects to file a registration statement on Form S-8 with the SEC with respect
to the shares of Common Stock issuable under the Stock Incentive Plan, which
shares may be resold without restriction, unless held by affiliates.
Prior to the Offering, there has been no public market for the Common Stock.
Trading of the Common Stock on the New York Stock Exchange is expected to
commence immediately following the completion of the Offering. No prediction can
be made as to the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Stock (including
shares issued upon the exercise of Options), or the perception that
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such sales occur, could adversely affect prevailing market prices of the Common
Stock. See "Risk Factors -- Absence of Prior Public Market for Common Stock --
Effect on Common Stock Price of Shares Available for Future Sale" and
"Partnership Agreement -- Transferability of Interests."
REGISTRATION RIGHTS
The Company has granted the Participants who received OP Units in the
Formation Transactions certain registration rights with respect to the shares of
Common Stock owned by them or acquired by them in connection with the exercise
of the Redemption/Exchange Rights under the Partnership Agreement. These
registration rights require the Company to register all such shares of Common
Stock effective on the first anniversary of the consummation of the Offering.
The Company will bear expenses incident to its registration requirements under
the registration rights, except that such expenses shall not include any
underwriting discounts or commissions or transfer taxes, if any, relating to
such shares.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of material federal income tax consequences regarding
the Company and the Offering is based on current law, is for general information
only and is not tax advice. The information set forth below, to the extent that
it constitutes matters of law, summaries of legal matters or legal conclusions
is the opinion of Latham & Watkins, tax counsel to the Company. This discussion
does not purport to deal with all aspects of taxation that may be relevant to
particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders subject to special treatment
under the tax laws, including without limitation insurance companies, financial
institutions or broker-dealers, tax-exempt organizations (except to the extent
discussed under the heading "Taxation of Tax-Exempt Stockholders") or foreign
corporations and persons who are not citizens or residents of the United States
(except to the extent discussed under the heading "Taxation of Non-U.S.
Stockholders"). In addition, the summary below does not consider the effect of
any foreign, state, local or other tax laws that may be applicable to
prospective stockholders.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP
AND SALE OF THE COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. The Company plans to make an election to be taxed as a REIT under
Sections 856 through 860 of the Code, commencing with its taxable year ending
December 31, 1996. The Company believes that, commencing with its taxable year
ending December 31, 1996, it will be organized and will operate in such a manner
as to qualify for taxation as a REIT under the Code commencing with such taxable
year, and the Company intends to continue to operate in such a manner, but no
assurance can be given that it will continue to operate in such a manner so as
to qualify or remain qualified.
These sections of the Code and the corresponding Treasury Regulations, are
highly technical and complex. The following sets forth the material aspects of
the sections that govern the federal income tax treatment of a REIT and its
stockholders.
Latham & Watkins has acted as tax counsel to the Company in connection with
the Offering and the Company's election to be taxed as a REIT. In the opinion of
Latham & Watkins, commencing with the Company's taxable year ending December 31,
1996, the Company will be organized in conformity with the requirements for
qualification as a REIT, and its proposed method of operation will enable it to
meet the requirements for qualification and taxation as a REIT under the Code.
It must be emphasized that this opinion is based upon certain representations
made by the Company as to factual matters relating to the organization and
operation of the Company and the Operating Partnership. In addition, this
opinion is based upon the factual representations of the Company concerning its
business and properties as set forth in this Prospectus and assumes that the
actions described in this Prospectus are completed in a timely fashion.
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Moreover, such qualification and taxation as a REIT depends upon the Company's
ability to meet (through actual annual operating results, distribution levels
and diversity of stock ownership) the various qualification tests imposed under
the Code discussed below, the results of which will not be reviewed by Latham &
Watkins. Accordingly, no assurance can be given that the actual results of the
Company's operation for any particular taxable year will satisfy such
requirements. Further, the anticipated income tax treatment described in this
Prospectus may be changed, perhaps retroactively, by legislative, administrative
or judicial action at any time. See " -- Failure to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
federal income tax as follows: First, the Company will be taxed at regular
corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fifth, if the Company should fail to satisfy the 75% gross income test or the
95% gross income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which the Company fails the 75% or
95% test multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, with respect to any asset (a "Built-In Gain
Asset") acquired by the Company from a corporation which is or has been a C
corporation (I.E., generally a corporation subject to full corporate-level tax)
in a transaction in which the basis of the Built-In Gain Asset in the hands of
the Company is determined by reference to the basis of the asset in the hands of
the C corporation, if the Company recognizes gain on the disposition of such
asset during the ten-year period (the "Recognition Period") beginning on the
date on which such asset was acquired by the Company, then, to the extent of the
Built-In Gain (i.e., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
regular corporate rate pursuant to Internal Revenue Service ("IRS") regulations
that have not yet been promulgated. The results described above with respect to
the recognition of Built-In Gain assume that the Company will make an election
pursuant to IRS Notice 88-19.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) which would be
taxable as a domestic corporation, but for Sections 856 through 859 of the Code;
(iv) which is neither a financial institution nor an insurance company subject
to certain provisions of the Code; (v) the beneficial ownership of which is held
by 100 or more persons; (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) to (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335 days of a taxable year of twelve
months, or during a proportionate part of a taxable year of less than twelve
months. Conditions (v) and (vi) will not apply until after the first taxable
year for which an election is made to be taxed as a REIT. For purposes of
conditions (v) and (vi), pension funds and certain other tax-exempt entities are
treated as individuals, subject to a "look-through" exception in the case of
condition (vi).
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The Company believes that it will have issued sufficient shares of Common
Stock with sufficient diversity of ownership pursuant to the Offering to allow
it to satisfy conditions (v) and (vi). In addition, the Company's Charter
provides for restrictions regarding the transfer and ownership of shares, which
restrictions are intended to assist the Company in continuing to satisfy the
share ownership requirements described in (v) and (vi) above. Such ownership and
transfer restrictions are described in "Capital Stock -- Restrictions on
Transfer." These restrictions, however, may not ensure that the Company will, in
all cases, be able to satisfy the share ownership requirements described above.
If the Company fails to satisfy such share ownership requirements, the Company's
status as a REIT will terminate. See " -- Failure to Qualify."
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. The Company will have a calendar taxable year.
OWNERSHIP OF A PARTNERSHIP INTEREST. In the case of a REIT which is a
partner in a partnership, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership and will
be deemed to be entitled to the income of the partnership attributable to such
share. In addition, the character of the assets and gross income of the
partnership shall retain the same character in the hands of the REIT for
purposes of Section 856 of the Code, including satisfying the gross income tests
and the asset tests. Thus, the Company's proportionate share of the assets and
items of income of the Operating Partnership (including the Operating
Partnership's share of such items of any subsidiary partnerships) will be
treated as assets and items of income of the Company for purposes of applying
the requirements described herein. A summary of the rules governing the federal
income taxation of partnerships and their partners is provided below in " -- Tax
Aspects of the Operating Partnership." The Company has direct control of the
Operating Partnership and intends to operate it consistent with the requirements
for qualification as a REIT.
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, short-term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions and gain on the sale or
other disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions) for each taxable year. For purposes of applying the 30% gross
income test, the holding period of Properties acquired by the Operating
Partnership in the Formation Transactions will be deemed to have commenced on
the date of acquisition.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an actual or constructive owner of 10% or more of
the REIT, actually or constructively owns 10% or more of such tenant (a "Related
Party Tenant"). Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." Finally, for rents
received to qualify as "rents from real property," the REIT generally must not
operate or manage the property or furnish or render services to the tenants of
such property, other than through an independent contractor from whom the REIT
derives no revenue. The REIT may, however, directly perform certain services
that are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered "rendered to the
occupant" of the property. The Company
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does not and will not (i) charge rent for any property that is based in whole or
in part on the income or profits of any person (except by reason of being based
on a percentage of receipts or sales, as described above), (ii) rent any
property to a Related Party Tenant (unless the Board of Directors determines in
its discretion that the rent received from such Related Party Tenant is not
material and will not jeopardize the Company's status as a REIT), (iii) derive
rental income attributable to personal property (other than personal property
leased in connection with the lease of real property, the amount of which is
less than 15% of the total rent received under the lease), or (iv) perform
services considered to be rendered to the occupant of the property, other than
through an independent contractor from whom the Company derives no revenue.
The Company expects to receive fees in exchange for the performance of
certain management activities for third parties with respect to properties in
which the Company does not own an interest. Such fees will result in
nonqualifying income to the Company under the 95% and 75% gross income tests.
The Company believes that the aggregate amount of nonqualifying income in any
taxable year, including such fees, will not exceed the limit on nonqualifying
income under the gross income tests.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income tests
because nonqualifying income that the Company intentionally incurs exceeds the
limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. If these relief provisions
are inapplicable to a particular set of circumstances involving the Company, the
Company will not qualify as a REIT. As discussed above in "-- Taxation of the
Company -- General," even if these relief provisions apply, a tax would be
imposed with respect to the excess net income. No similar mitigation provision
provides relief if the Company fails the 30% income test. In such case, the
Company would cease to qualify as a REIT.
Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business (including the Company's share of any such gain realized by
the Operating Partnership) will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Such prohibited transaction
income may also have an adverse effect upon the Company's ability to satisfy the
income tests for qualification as a REIT. Under existing law, whether property
is held as inventory or primarily for sale to customers in the ordinary course
of a trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Operating
Partnership intends to hold the Properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating the Properties (and other properties) and to make such
occasional sales of the Properties as are consistent with the Operating
Partnership's investment objectives. There can be no assurance, however, that
the IRS might not contend that one or more of such sales is subject to the 100%
penalty tax.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets (including its allocable
share of the assets held by the Operating Partnership) must be represented by
real estate assets including (i) its allocable share of real estate assets held
by partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company,
cash, cash items and government securities. Second, not more than 25% of the
Company's total assets may be represented by
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securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class, the value of any one issuer's securities owned
by the Company may not exceed 5% of the value of the Company's total assets and
the Company may not own more than 10% of any one issuer's outstanding voting
securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter (including as a result of the
Company increasing its interest in the Operating Partnership), the failure can
be cured by disposition of sufficient nonqualifying assets within 30 days after
the close of that quarter. The Company intends to maintain adequate records of
the value of its assets to ensure compliance with the asset tests and to take
such other actions within 30 days after the close of any quarter as may be
required to cure any noncompliance. If the Company fails to cure noncompliance
with the asset tests within such time period, the Company would cease to qualify
as a REIT.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. In addition, if the Company disposes of any Built-In
Gain Asset during its Recognition Period, the Company will be required, pursuant
to Treasury Regulations which have not yet been promulgated, to distribute at
least 95% of the Built-in Gain (after tax), if any, recognized on the
disposition of such asset. Such distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax thereon at regular ordinary and capital gain corporate tax rates.
The Company intends to make timely distributions sufficient to satisfy these
annual distribution requirements. In this regard, the Partnership Agreement
authorizes the Company, as general partner, to take such steps as may be
necessary to cause the Operating Partnership to distribute to its partners an
amount sufficient to permit the Company to meet these distribution requirements.
It is expected that the Company's REIT taxable income will be less than its
cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it will
generally have sufficient cash or liquid assets to enable it to satisfy the
distribution requirements described above. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet these distribution requirements due to timing differences between (i)
the actual receipt of income and actual payment of deductible expenses and (ii)
the inclusion of such income and deduction of such expenses in arriving at
taxable income of the Company. In the event that such timing differences occur,
in order to meet the distribution requirements, the Company may find it
necessary to arrange for short-term, or possibly long-term, borrowings or to pay
dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, the Company would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed.
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FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the Company's failure to qualify as a REIT
would significantly reduce the cash available for distribution by the Company to
its stockholders. In addition, if the Company fails to qualify as a REIT, all
distributions to stockholders will be taxable as ordinary income, to the extent
of the Company's current and accumulated earnings and profits, and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.
TAXATION OF TAXABLE U.S. STOCKHOLDERS GENERALLY
As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership, or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, or (iii) is an estate or trust the income
of which is subject to United States federal income taxation regardless of its
source.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Stockholders as ordinary income. Such distributions will not be
eligible for the dividends received deduction in the case of U.S. Stockholders
that are corporations. Distributions made by the Company that are properly
designated by the Company as capital gain dividends will be taxable to taxable
U.S. Stockholders as long-term capital gains (to the extent that they do not
exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which a U.S. Stockholder has held his shares of Common
Stock. U.S. Stockholders that are corporations may, however, be required to
treat up to 20% of certain capital gain dividends as ordinary income. To the
extent that the Company makes distributions (not designated as capital gain
dividends) in excess of its current and accumulated earnings and profits, such
distributions will be treated first as a tax-free return of capital to each U.S.
Stockholder, reducing the adjusted basis which such U.S. Stockholder has in his
shares of Common Stock for tax purposes by the amount of such distribution (but
not below zero), with distributions in excess of a U.S. Stockholder's adjusted
basis in his shares taxable as capital gains (provided that the shares have been
held as a capital asset). Dividends declared by the Company in October,
November, or December of any year and payable to a stockholder of record on a
specified date in any such month shall be treated as both paid by the Company
and received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by the Company on or before January 31 of the
following calendar year. Stockholders may not include in their own income tax
returns any net operating losses or capital losses of the Company.
Distributions made by the Company and gain arising from the sale or exchange
by a U.S. Stockholder of shares of Common Stock will not be treated as passive
activity income, and, as a result, U.S. Stockholders generally will not be able
to apply any "passive losses" against such income or gain. Distributions made by
the Company (to the extent they do not constitute a return of capital) generally
will be treated as investment income for purposes of computing the investment
income limitation. Gain arising from the sale or other disposition of Common
Stock, however, will not be treated as investment income unless the U.S.
Stockholder elects to reduce the amount of such U.S. Stockholder's total net
capital gain eligible for the 28% maximum capital gains rate by the amount of
such gain with respect to such Common Stock.
Upon any sale or other disposition of Common Stock, a U.S. Stockholder will
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares of Common Stock for tax purposes. Such gain or
loss will be capital gain or loss if the shares have
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been held by the U.S. Stockholder as a capital asset, and will be long-term gain
or loss if such shares have been held for more than one year. In general, any
loss recognized by a U.S. Stockholder upon the sale or other disposition of
shares of Common Stock that have been held for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of distributions received by such U.S. Stockholder from the
Company which were required to be treated as long-term capital gains.
BACKUP WITHHOLDING
The Company will report to its U.S. Stockholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such holder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
A U.S. Stockholder that does not provide the Company with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status to the Company. See " -- Taxation of Non-U.S.
Stockholders."
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt stockholder
(except certain tax-exempt stockholders described below) has not held its shares
of Common Stock as "debt financed property" within the meaning of the Code and
such shares are not otherwise used in a trade or business, the dividend income
from the Company will not be UBTI to a tax-exempt stockholder. Similarly, income
from the sale of Common Stock will not constitute UBTI unless such tax-exempt
stockholder has held such shares as "debt financed property" within the meaning
of the Code or has used the shares in a trade or business.
For tax-exempt stockholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
Sections 501 (c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their own tax advisors concerning these
"set aside" and reserve requirements.
Notwithstanding the above, however, the Omnibus Budget Reconciliation Act of
1993 (the "1993 Act") provides that, effective for taxable years beginning in
1994, a portion of the dividends paid by a "pension held REIT" shall be treated
as UBTI as to any trust which (i) is described in Section 401(a) of the Code,
(ii) is tax-exempt under Section 501(a) of the Code, and (iii) holds more than
10% (by value) of the interests in the REIT. Tax-exempt pension funds that are
described in Section 401(a) of the Code are referred to below as "qualified
trusts."
A REIT is a "pension held REIT" if (i) it would not have qualified as a REIT
but for the fact that Section 856(h)(3) of the Code (added by the 1993 Act)
provides that stock owned by qualified trusts shall be treated, for purposes of
the "not closely held" requirement, as owned by the beneficiaries of the trust
(rather than by the trust itself), AND (ii) EITHER (a) at least one such
qualified trust holds more than 25% (by value) of the interests in the REIT, OR
(b) one or more such qualified trusts, each of which owns more than 10% (by
value) of the interests in the REIT, hold in the aggregate more than 50% (by
value) of the interests in the REIT. The percentage of any REIT dividend treated
as UBTI is equal to the ratio of (i) the UBTI earned by the REIT (treating the
REIT as if it were a qualified trust and therefore subject to tax on UBTI) to
(ii) the total gross income of the REIT. A DE MINIMIS exception applies where
the percentage is less than 5% for any year. The provisions requiring qualified
trusts to treat a portion of REIT distributions as UBTI will not apply if the
REIT is able to satisfy the "not closely held" requirement without relying upon
the "look-through"
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exception with respect to qualified trusts. As a result of certain limitations
on transfer and ownership of Common Stock contained in the Charter, the Company
does not expect to be classified as a "pension held REIT."
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Stockholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
federal income tax and does not address state, local or foreign tax consequences
that may be relevant to a Non-U.S. Stockholder in light of its particular
circumstances. In addition, this discussion is based on current law, which is
subject to change, and assumes that the Company qualifies for taxation as a
REIT. Prospective Non-U.S. Stockholders should consult with their own tax
advisers to determine the impact of federal, state, local and foreign income tax
laws with regard to an investment in Common Stock, including any reporting
requirements.
DISTRIBUTIONS. Distributions by the Company to a Non-U.S. Stockholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of the
Company. Such distributions ordinarily will be subject to withholding of United
States federal income tax on a gross basis (that is, without allowance of
deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Stockholder of a United States trade
or business. Dividends that are effectively connected with such a trade or
business will be subject to tax on a net basis (that is, after allowance of
deductions) at graduated rates, in the same manner as domestic stockholders are
taxed with respect to such dividends and are generally not subject to
withholding. Any such dividends received by a Non-U.S. Stockholder that is a
corporation may also be subject to an additional branch profits tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations, not currently in effect, however, a Non-U.S.
Stockholder who wished to claim the benefit of an applicable treaty rate would
be required to satisfy certain certification and other requirements. Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to dividends from a REIT, such as the Company. Certain certification
and disclosure requirements must be satisfied to be exempt from withholding
under the effectively connected income exemption discussed above.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Stockholder to the extent that
they do not exceed the adjusted basis of the stockholders's Common Stock, but
rather will reduce the adjusted basis of such stock. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Stockholder's Common
Stock, they will give rise to gain from the sale or exchange of his stock, the
tax treatment of which is described below. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in excess
of current or accumulated earnings and profits, the distribution will generally
be treated as a dividend for withholding purposes. However, amounts thus
withheld are generally refundable by the IRS if it is subsequently determined
that such distribution was, in fact, in excess of current or accumulated
earnings and profits of the Company.
Distributions to a Non-U.S. Stockholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States federal income taxation, unless (i) investment
in the Common Stock is effectively connected with the Non-U.S. Stockholder's
United States trade or business, in which case the Non-U.S. Stockholder will be
subject to the same treatment as domestic stockholders with
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respect to such gain (except that a stockholder that is a foreign corporation
may also be subject to the 30% branch profits tax, as discussed above), or (ii)
the Non-U.S. Stockholder is a nonresident alien individual who is present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains.
Distributions to a Non-U.S. Stockholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
cause the Non-U.S. Stockholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. Non-U.S.
Stockholders would thus generally be taxed at the same rates applicable to
domestic stockholders (subject to a special alternative minimum tax in the case
of nonresident alien individuals). Also, such gain may be subject to a 30%
branch profits tax in the hands of a Non-U.S. Stockholder that is a corporation,
as discussed above. The Company is required to withhold 35% of any such
distribution. That amount is creditable against the Non-U.S. Stockholder's
United States federal income tax liability.
SALE OF COMMON STOCK. Gain recognized by a Non-U.S. Stockholder upon the
sale or exchange of shares of Common Stock generally will not be subject to
United States taxation unless such shares constitute a "United States real
property interest" within the meaning of FIRPTA. The Common Stock will not
constitute a "United States real property interest" so long as the Company is a
"domestically controlled REIT." A "domestically controlled REIT" is a REIT in
which at all times during a specified testing period less than 50% in value of
its stock is held directly or indirectly by Non-U.S. Stockholders. The Company
believes that at the closing of the Offering it will be a "domestically
controlled REIT," and therefore that the sale of shares of Common Stock will not
be subject to taxation under FIRPTA. However, because the shares of Common Stock
will be publicly traded, no assurance can be given that the Company will
continue to be a "domestically-controlled REIT." Notwithstanding the foregoing,
gain from the sale or exchange of shares of Common Stock not otherwise subject
to FIRPTA will be taxable to a Non-U.S. Stockholder if the Non-U.S. Stockholder
is a nonresident alien individual who is present in the United States for 183
days or more during the taxable year and has a "tax home" in the United States.
In such case, the nonresident alien individual will be subject to a 30% United
States withholding tax on the amount of such individual's gain.
If the Company does not qualify as or ceases to be a
"domestically-controlled REIT," whether gain arising from the sale or exchange
by a Non-U.S. Stockholder of shares of Common Stock would be subject to United
States taxation under FIRPTA as a sale of a "United States real property
interest" will depend on whether the shares are "regularly traded" (as defined
by applicable Treasury Regulations) on an established securities market (E.G.,
the New York Stock Exchange) and on the size of the selling Non-U.S.
Stockholder's interest in the Company. If gain on the sale or exchange of shares
of Common Stock were subject to taxation under FIRPTA, the Non-U.S. Stockholder
would be subject to regular United States income tax with respect to such gain
in the same manner as a U.S. Stockholder (subject to any applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident alien
individuals and the possible application of the 30% branch profits tax in the
case of foreign corporations), and the purchaser of the stock would be required
to withhold and remit to the IRS 10% of the purchase price.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Stockholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Stock by or through a foreign office of a foreign
broker. Information reporting (but not backup withholding) will apply, however,
to a payment of the proceeds of a sale of Common Stock by a foreign office of a
broker that (a) is a United States person, (b) derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States or (c) is a "controlled foreign corporation" (generally, a foreign
corporation controlled by United States stockholders) for United States tax
purposes, unless the broker has documentary evidence in
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its records that the holder is a Non-U.S. Stockholder and certain other
conditions are met, or the stockholder otherwise establishes an exemption.
Payment to or through a United States office of a broker of the proceeds of a
sale of Common Stock is subject to both backup withholding and information
reporting unless the stockholder certifies under penalty of perjury that the
stockholder is a Non-U.S. Stockholder, or otherwise establishes an exemption. A
Non-U.S. Stockholder may obtain a refund of any amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
IRS.
The United States Treasury has recently issued proposed regulations
regarding the withholding and information reporting rules discussed above. In
general, the proposed regulations do not alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify and modify reliance standards. If finalized in their
current form, the proposed regulations would generally be effective for payments
made after December 31, 1997, subject to certain transition rules.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
GENERAL. Substantially all of the Company's investments will be held
indirectly through the Operating Partnership. In general, partnerships are
"pass-through" entities which are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company will include in its income its proportionate share of
the foregoing partnership items for purposes of the various REIT income tests
and in the computation of its REIT taxable income. Moreover, for purposes of the
REIT asset tests, the Company will include its proportionate share of assets
held by the Operating Partnership. See "-- Taxation of the Company."
ENTITY CLASSIFICATION. The Company's interest in the Operating Partnership
involves special tax considerations, including the possibility of a challenge by
the IRS of the status of the Operating Partnership as a partnership (as opposed
to an association taxable as a corporation) for federal income tax purposes. If
the Operating Partnership were treated as an association, it would be taxable as
a corporation and therefore be subject to an entity-level tax on its income. In
such a situation, the character of the Company's assets and items of gross
income would change and preclude the Company from satisfying the asset tests and
possibly the income tests (see "-- Taxation of the Company -- Asset Tests" and
"-- Income Tests"), and in turn would prevent the Company from qualifying as a
REIT. See "-- Taxation of the Company -- Failure to Qualify" above for a
discussion of the effect of the Company's failure to meet such tests for a
taxable year. In addition, a change in the Operating Partnership's status for
tax purposes might be treated as a taxable event in which case the Company might
incur a tax liability without any related cash distributions.
An organization formed as a partnership will be treated as a partnership for
federal income tax purposes rather than as a corporation only if it has no more
than two of the four corporate characteristics that the Treasury Regulations use
to distinguish a partnership from a corporation for tax purposes. These four
characteristics are (i) continuity of life, (ii) centralization of management,
(iii) limited liability and (iv) free transferability of interests. The Company
has not requested, and does not intend to request, a ruling from the IRS that
the Operating Partnership will be treated as a partnership for federal income
tax purposes. However, Latham & Watkins will deliver an opinion to the Company
stating that based on the provisions of the Partnership Agreement and certain
factual assumptions and representations described in the opinion, the Operating
Partnership will be treated as a partnership for federal income tax purposes
(and not as an association or a publicly traded partnership taxable as a
corporation). Unlike a private letter ruling, an opinion of counsel is not
binding on the IRS, and no assurance can be given that the IRS will not
challenge the status of the Operating Partnership as a partnership for federal
income tax purposes. If such challenge were sustained by a court, the Operating
Partnership could be treated as a corporation for federal income tax purposes.
Recently proposed Treasury Regulations (the "Proposed Regulations"), if
finalized in their present form, would eliminate the four factor test described
above and, in its place, permit a partnership or limited liability company to
elect to be taxed as a partnership for federal income tax purposes without
regard to the number of corporate characteristics possessed by such entity. The
Proposed Regulations are proposed to apply for tax periods beginning on or after
the date that final regulations are published by the IRS. Until that
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time, the existing regulations will continue to apply. The Proposed Regulations
provide that the IRS will not challenge the classification of an existing
partnership or limited liability company for tax periods to which the existing
Treasury Regulations apply if (1) the entity had a reasonable basis for its
claimed classification, (2) the entity claimed that same classification in all
prior years, and (3) as of the date that the proposed regulations were
published, neither the entity nor any member of the entity had been notified in
writing that the classification of the entity is under examination by the IRS.
PARTNERSHIP ALLOCATIONS. Although a partnership agreement will generally
determine the allocation of income and loss among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations promulgated
thereunder require that partnership allocations respect the economic arrangement
of the partners.
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The Operating Partnership's allocations of
taxable income and loss are intended to comply with the requirements of Section
704(b) of the Code and the Treasury Regulations promulgated thereunder.
The Partnership Agreement provides that net income or net loss of the
Operating Partnership will generally be allocated to the Company and the Limited
Partners in accordance with their respective percentage interests in the
Operating Partnership. Notwithstanding the foregoing, such agreement provides
that certain interest deductions and income from the discharge of certain
indebtedness of the Operating Partnership, attributable to loans transferred to
the Operating Partnership by Arden Predecessors, will be allocated
disproportionately to the Limited Partners. In addition, allocations of net
income or net loss will be subject to compliance with the provisions of Sections
704(b) and 704(c) of the Code and the Treasury Regulations promulgated
thereunder.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property (such as the Properties) that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted tax
basis of such property at such time (a "Book-Tax Difference"). Such allocations
are solely for federal income tax purposes and do not affect the book capital
accounts or other economic or legal arrangements among the partners. The
Operating Partnership was formed by way of contributions of appreciated property
(including the Properties). Consequently, the Partnership Agreement requires
that such allocations be made in a manner consistent with Section 704(c) of the
Code.
In general, the Limited Partners of the Operating Partnership will be
allocated depreciation deductions for tax purposes which are lower than such
deductions would be if determined on a pro rata basis. In addition, in the event
of the disposition of any of the contributed assets which have a Book-Tax
Difference, all income attributable to such Book-Tax Difference will generally
be allocated to such limited partners, and the Company will generally be
allocated only its share of capital gains attributable to appreciation, if any,
occurring after the closing of the Formation Transactions. This will tend to
eliminate the Book-Tax Difference over the life of the Operating Partnership.
However, the special allocation rules of Section 704(c) do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands the Operating Partnership may cause the Company
to be allocated lower depreciation and other deductions, and possibly an amount
of taxable income in the event of a sale of such contributed assets in excess of
the economic or
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book income allocated to it as a result of such sale. This may cause the Company
to recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution requirements.
See " -- Taxation of the Company -- Annual Distribution Requirements."
Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the "traditional method" or the election of certain
methods which would permit any distortions caused by a Book-Tax Difference to be
entirely rectified on an annual basis or with respect to a specific taxable
transaction such as a sale. The Operating Partnership and the Company have not
yet selected a method to account for Book-Tax Differences with respect to the
Properties initially contributed to the Operating Partnership.
With respect to any property purchased by the Operating Partnership
subsequent to the admission of the Company to the Operating Partnership, such
property will initially have a tax basis equal to its fair market value, and
Section 704(c) of the Code will not apply.
BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's adjusted tax basis
in its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) will be increased by (a) its allocable share of
the Operating Partnership's income and (b) its allocable share of indebtedness
of the Operating Partnership and (iii) will be reduced, but not below zero, by
the Company's allocable share of (a) losses suffered by the Operating
Partnership, (b) the amount of cash distributed to the Company and (c) by
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has adjusted tax
basis in its interest in the Operating Partnership. To the extent that the
Operating Partnership's distributions, or any decrease in the Company's share of
the indebtedness of the Operating Partnership (such decreases being considered a
constructive cash distribution to the partners), exceeds the Company's adjusted
tax basis, such excess distributions (including such constructive distributions)
constitute taxable income to the Company. Such taxable income will normally be
characterized as a capital gain, and if the Company's interest in the Operating
Partnership has been held for longer than the long-term capital gain holding
period (currently one year), such distributions and constructive distributions
will constitute long-term capital gain.
OTHER TAX CONSEQUENCES
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
ERISA CONSIDERATIONS
THE FOLLOWING IS A SUMMARY OF MATERIAL CONSIDERATIONS ARISING UNDER ERISA
AND THE PROHIBITED TRANSACTIONS PROVISIONS OF SECTION 4975 OF THE CODE THAT MAY
BE RELEVANT TO A PROSPECTIVE PURCHASER (INCLUDING WITH RESPECT TO THE DISCUSSION
CONTAINED IN " -- STATUS OF THE COMPANY AND THE OPERATING PARTNERSHIP UNDER
ERISA," TO A PROSPECTIVE PURCHASER THAT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT
TO ERISA, ANOTHER TAX-QUALIFIED PENSION, PROFIT SHARING OR STOCK BONUS PLAN, OR
AN INDIVIDUAL RETIREMENT ACCOUNT OR ANNUITY ("IRA")). THE DISCUSSION DOES NOT
PURPORT TO DEAL WITH ALL ASPECTS OF ERISA OR SECTION 4975 OF THE CODE THAT MAY
BE RELEVANT TO PARTICULAR PROSPECTIVE PURCHASERS (INCLUDING EMPLOYEE BENEFIT
PLANS SUBJECT TO ERISA, OTHER TAX-QUALIFIED PLANS AND IRAS) OR MATERIAL
CONSIDERATIONS RELATING TO PROSPECTIVE PURCHASERS THAT ARE GOVERNMENTAL PLANS,
CHURCH PLANS OR OTHER EMPLOYEE BENEFIT PLANS THAT ARE EXEMPT FROM ERISA OR
SECTION 4975 OF THE CODE BUT THAT MAY BE SUBJECT TO STATE LAW REQUIREMENTS IN
LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
A FIDUCIARY MAKING THE DECISION TO INVEST IN SHARES OF THE COMMON STOCK ON
BEHALF OF A PROSPECTIVE PURCHASER WHICH IS AN EMPLOYEE BENEFIT PLAN SUBJECT
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TO ERISA, A TAX-QUALIFIED PENSION, PROFIT SHARING OR STOCK BONUS PLAN, AN IRA, A
CHURCH PLAN OR A GOVERNMENTAL PLAN IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR
REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE
CODE, AND STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR SALE OF SHARES
OF THE COMMON STOCK BY SUCH PLAN OR IRA.
EMPLOYMENT BENEFIT PLANS, TAX-QUALIFIED PENSION, PROFIT SHARING OR STOCK BONUS
PLANS AND IRAS
Each fiduciary of an employee benefit plan subject to ERISA (an "ERISA
Plan") should carefully consider whether an investment in the Common Stock is
consistent with its fiduciary responsibilities under ERISA. In particular, the
fiduciary requirements of Part 4 of Title I of ERISA require an ERISA Plan's
investments to be (i) prudent and in the interests of the participants and
beneficiaries of the ERISA Plan, (ii) diversified in order to minimize the risk
of large losses, unless it is clearly prudent not to do so and (iii) authorized
under the terms of the governing documents of the ERISA Plan. In addition, a
fiduciary of an ERISA Plan should not cause or permit to enter into transactions
prohibited under Section 406 of ERISA or Section 4975 of the Code. In
determining whether an investment in the Common Stock is prudent for purposes of
ERISA, the appropriate fiduciary of an ERISA Plan should consider all of the
facts and circumstances, including whether the investment is reasonably
designed, as a part of the ERISA Plan's investment portfolio for which the
fiduciary has responsibility, to meet the objectives of the ERISA Plan, taking
into consideration the risk of loss and opportunity for gain (or other return)
from the investment, the diversification, cash flow and funding requirements of
the ERISA Plan, and the liquidity and current return of the ERISA Plan's
investment portfolio. A fiduciary should also take into account the nature of
the Company's business, the length of the Company's operating history, the terms
of the Management Agreements, the fact that certain investment properties may
not have been identified yet, other matters described under "Risk Factors" and
the possibility of UBTI. See "Federal Income Tax Considerations -- Taxation of
Stockholders."
The fiduciary of an ERISA Plan, an IRA or a qualified pension, profit
sharing or stock bonus plan not subject to ERISA (a "Non-ERISA Plan") should be
subject to Section 4975 of the Code ("Other Plans") should ensure that the
purchase of Common Stock will not constitute a prohibited transactions under
ERISA or the Code.
STATUS OF THE COMPANY AND THE OPERATING PARTNERSHIP UNDER ERISA
THE FOLLOWING SECTION DISCUSSES CERTAIN PRINCIPLES THAT APPLY IN DETERMINING
WHETHER THE FIDUCIARY REQUIREMENTS OF ERISA AND THE PROHIBITED TRANSACTION
PROVISIONS OF ERISA AND THE CODE APPLY TO AN ENTITY BECAUSE ONE OR MORE
INVESTORS IN THE ENTITY'S EQUITY INTERESTS IS AN ERISA PLAN OR OTHER PLAN. AN
ERISA PLAN FIDUCIARY SHOULD ALSO CONSIDER THE RELEVANCE OF THESE PRINCIPLES TO
ERISA'S PROHIBITION ON IMPROPER DELEGATION OF CONTROL OVER OR RESPONSIBILITY FOR
"PLAN ASSETS" AND ERISA'S IMPOSITION OF CO-FIDUCIARY LIABILITY ON A FIDUCIARY
WHO PARTICIPATES IN, PERMITS (BY ACTION OR INACTION) THE OCCURRENCE OF, OR FAILS
TO REMEDY A KNOWN BREACH BY ANOTHER FIDUCIARY.
If the assets of the Company are deemed to be assets of an ERISA Plan or
Other Plan ("plan assets"), (i) the prudence standards and other provisions of
Part 4 of Title I of ERISA and the prohibited transaction provisions of ERISA
and the Code would be applicable to any transactions involving the Company's
assets and (ii) persons who exercise any authority or control over the Company's
assets, or who provide investment advice to the Company, would be (for purposes
of ERISA and the Code) fiduciaries of ERISA Plans and Other Plans that acquire
Common Stock. The Department of Labor (the "DOL"), which has certain
administrative responsibility over ERISA Plans and Other Plans, has issued a
regulation defining plan assets for certain purposes (the "DOL Regulation"). The
DOL Regulation generally provides that when an ERISA Plan or Other Plan acquires
a security that is an equity interest in an entity and that security is neither
a "publicly-offered security" nor a security issued by an investment company
registered under the 1940 Act, the assets of the ERISA Plan or Other Plan
include both the equity interest and an undivided interest in each of the
underlying assets of the entity, unless it is established either that the entity
is an "operating company" (as defined in the DOL Regulation) or that equity
participation in the entity by "benefit plan investors" is not "significant."
The DOL Regulation defines a "publicly-offered security" as a security that
is "widely held," "freely transferable" and either part of a class of securities
registered under the Exchange Act, or sold pursuant to an effective registration
statement under the Securities Act (provided the securities are registered under
the
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Exchange Act within 120 days, or such later time as may be allowed by the SEC
(the "registration period"), after the end of the fiscal year of the issuer
during which the offering occurred). The Common Stock is being sold in an
offering registered under the Securities Act and the Company intends to register
the Common Stock under the Exchange Act within the registration period.
The DOL Regulation provides that a security is "widely-held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. A security will not fail to be "widely held"
because the number of independent investors falls below 100 subsequent to the
initial public offering as a result of events beyond the issuer's control. The
Company expects the Common Stock to be "widely held" upon completion of the
Offering.
The DOL Regulation provides that whether a security is "freely transferable"
is a factual question to be determined on the basis of all relevant facts and
circumstances. The DOL Regulation further provides that where a security is part
of an offering in which the minimum investment is $10,000 or less, certain
restrictions ordinarily will not, alone or in combination, affect a finding that
such securities are "freely transferable." The Offering will not impose a
minimum investment requirement. The restrictions on transfer enumerated in the
DOL Regulation as ordinarily not affecting a finding that the securities are
"freely transferable" include: (i) any restriction on or prohibition against any
transfer or assignment that would result in a termination or reclassification of
the Company for federal or state tax purposes, or that would otherwise violate
any state or federal law or court order, (ii) any requirement that advance
notice of a transfer or assignment be given to the Company, (iii) any
requirement that either the transferor or transferee, or both, execute
documentation setting forth representations as to compliance with any
restrictions on transfer that are among those enumerated in the DOL Regulation
as not affecting free transferability, (iv) any administrative procedure that
establishes an effective date, or an event (such as completion of the Offering)
prior to which a transfer or assignment will not be effective, (v) any
prohibition against transfer or assignment to an ineligible or unsuitable
investor, and (vi) any limitation or restriction on transfer or assignment that
is not imposed by the issuer or a person acting on behalf of the issuer. The
Company believes that the restrictions imposed under the Charter on the transfer
of Common Stock are of the type of restrictions on transfer generally permitted
under the DOL Regulation or are not otherwise material and should not result in
the failure of the Common Stock to be "freely transferable" within the meaning
of the DOL Regulation. See "Capital Stock -- Restrictions on Transfer." The
Company also believes that certain restrictions on transfer that derive from the
securities laws, from contractual arrangements with the Underwriters in
connection with the Offering and from certain provisions should not result in
the failure of the Common Stock to be "freely transferable." See "Underwriting"
and "Certain Provisions of Maryland Law and the Company's Charter and Bylaws."
Furthermore, the Company is not aware of any other facts or circumstances
limiting the transferability of the Common Stock that are not included among
those enumerated as not affecting their free transferability under the DOL
Regulation, and the Company does not expect to impose in the future (or to
permit any person to impose on its behalf) any other limitations or restrictions
on transfer that would not be among the enumerated permissible limitations or
restrictions.
Assuming that the Company registers the Common Stock under the Exchange Act
within the registration period, the Common Stock will be "widely held" and that
no facts and circumstances other than those referred to in the preceding
paragraph exist that restrict transferability of the Common Stock, the Company
believes that, under the DOL Regulation, the Common Stock should be
"publicly-offered securities" and, therefore, that the assets of the Company
should not be deemed to be plan assets of any ERISA Plan or Other Plan that
invests in the Common Stock.
The DOL Regulation will also apply in determining whether the assets of the
Operating Partnership will be deemed to be plan assets. The partnership
interests in the Operating Partnership will not be publicly offered securities.
Nevertheless, if the Common Stock constitutes publicly offered securities, the
Company believes that the indirect investment in the Operating Partnership by
ERISA Plans or Other Plans through their ownership of the Common Stock will not
cause the assets of the Operating Partnership to be treated as plan assets.
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UNDERWRITING
The underwriters of the Offering (the "Underwriters"), for whom Lehman
Brothers Inc., Alex. Brown & Sons Incorporated, Dean Witter Reynolds Inc., A.G.
Edwards & Sons, Inc., Smith Barney Inc., EVEREN Securities, Inc., Legg Mason
Wood Walker, Incorporated and Raymond James & Associates, Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
conditions contained in the Underwriting Agreement (the form of which is filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part), to purchase from the Company and the Company has agreed to sell to each
Underwriter, the aggregate number of shares of Common Stock set forth opposite
the name of each such Underwriter.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- -------------------------------------------------------------------------------- ------------
<S> <C>
Lehman Brothers Inc.............................................................
Alex. Brown & Sons Incorporated.................................................
Dean Witter Reynolds Inc........................................................
A.G. Edwards & Sons, Inc........................................................
Smith Barney Inc................................................................
EVEREN Securities, Inc..........................................................
Legg Mason Wood Walker, Incorporated............................................
Raymond James & Associates, Inc.................................................
------------
Total......................................................................... 18,847,500
------------
------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to certain
conditions, and that if any of the shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all of the shares agreed to
be purchased by the Underwriters under the Underwriting Agreement must be so
purchased.
The Company has been advised that the Underwriters propose to offer shares
of Common Stock directly to the public initially at the public offering price
set forth on the cover page of this Prospectus, and to certain selected dealers
who may include the Underwriters at such public offering price less a selling
concession not in excess of $ per share. The selected dealers may reallow a
concession not in excess of $ per share to certain brokers or dealers.
After the Offering, the public offering price, the concession to selected
dealers, and the reallowance may be changed by the Representatives.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
the payments they may be required to make in respect thereto.
The Company has granted to the Underwriters an option to purchase up to an
additional 2,827,000 shares of Common Stock, at the public offering price, less
the aggregate underwriting discounts and commissions, shown on the cover page of
this Prospectus, solely to cover overallotments, if any. Such option may be
exercised at any time within 30 days after the date of the Underwriting
Agreement. To the extent that such option is exercised, each Underwriter will be
committed, subject to certain conditions, to purchase a number of the additional
shares of Common Stock proportionate to such Underwriter's initial commitment as
indicated in the preceding table.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined through negotiations
between the Company and the Representatives. Among the factors to be considered
in such negotiations, in addition to prevailing market conditions, are
distribution rates and financial characteristics of publicly traded REITs that
the Company and the Representatives believe to be comparable to the Company, the
expected results of operations of the Company (which are based on the results of
operations of the Properties and the fee management business in recent periods),
estimates of future business potential and earnings prospects of the Company as
a whole and the current state of the real estate market in the Company's primary
markets and the economy as a whole. The initial
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price per share to the public set forth on the cover page of this Prospectus
should not, however, be considered an indication of the actual value of the
Common Stock. Such price is subject to change as a result of market conditions
and other factors.
The Underwriters do not intend to confirm sales of Common Stock to any
account over which they exercise discretionary authority.
After giving effect to Mortgage Financing, Lehman Brothers Holdings Inc., an
affiliate of Lehman Brothers Inc., will receive approximately $202 million of
the net proceeds from the Offering as repayment of indebtedness and related
interest expected to be outstanding upon consummation of the Offering. See "Use
of Proceeds."
In connection with the Offering, Messrs. Ziman and Coleman have agreed not
to sell any shares of Common Stock acquired by them upon exchange of OP Units
for a period of two years after the completion of the Offering without the
consent of Lehman Brothers Inc. Such restrictions will not apply to any OP Units
or other shares of Common Stock purchased or otherwise acquired by Messrs. Ziman
or Coleman following consummation of the Offering.
The Company has agreed for a period of 180 days from the date of this
Prospectus, not to, directly or indirectly, offer for sale, sell or otherwise
dispose of (or enter into any transaction or device which is designed to, or
could be expected to, result in the disposition by any person at any time in the
future of) shares of Common Stock (other than the shares offered hereby and
shares issued pursuant to the Stock Incentive Plan existing on the date hereof
and any OP Units or shares of Common Stock that may be issued in connection with
any acquisition of a property) or sell or grant options, rights or warrants with
respect to any shares of Common Stock (other than the grant of options pursuant
to the Stock Incentive Plan existing on the date hereof), without the prior
written consent of Lehman Brothers Inc.
The Company has agreed to pay Lehman Brothers Inc. an advisory fee equal to
.50% of the gross proceeds received from the sale of Common Stock of the
Offering for advisory services rendered in connection with the evaluation,
analysis and structuring of the Company's formation and the Offering.
Although the Conduct Rules of the National Association of Securities
Dealers, Inc. exempt REITs from the conflict of interest provisions thereof,
because an affiliate of Lehman Brothers Inc. will receive more than 10% of the
net proceeds of the Offering in repayment of currently outstanding indebtedness,
the Underwriters have determined to conduct the Offering in accordance with the
applicable provisions of Rule 2710(c)(8)2720 of the Conduct Rules. In accordance
with these requirements, Dean Witter Reynolds Inc. (the "Independent
Underwriter") is assuming the responsibilities of acting as "qualified
independent underwriter," and will recommend the maximum initial public offering
price for the shares of Common Stock in compliance with the requirements of the
Conduct Rules. In connection with the Offering, the Independent Underwriter is
performing due diligence investigations and is reviewing and participating in
the preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. The initial public offering price of the Common Stock
will be no higher than the price recommended by the Independent Underwriter.
The Underwriters have reserved for sale at the public offering price up to
500,000 shares of Common Stock to directors, officers and employees of the
Company, their business affiliates and related parties who have expressed an
interest in purchasing shares. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered by the Underwriters
to the general public on the same basis as the other shares offered hereby.
EXPERTS
The combined financial statements of the Arden Predecessors as of December
31, 1995 and 1994 and for each of the three years in the period ended December
31, 1995, the statements of revenues and certain expenses for 16000 Ventura;
1950 Sawtelle; Westwood Terrace, Skyview Center, 4811 and 4900/10 Airport Plaza
Drive and New Wilshire; 70 South Lake and Calabasas Commerce Center; the 1996
Acquired
130
<PAGE>
Properties, the Acquisition Properties, and the balance sheet of Arden Realty
Group, Inc., a Maryland Corporation as of May 1, 1996, all appearing in this
Prospectus and Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
The C&W Market Study was prepared for the Company by Cushman & Wakefield of
California, Inc., which is a real estate service firm with significant
experience and expertise relating to the Southern California office markets and
the various submarkets therein. C&W is a part of a national network of
affiliated companies providing real estate related services. The statistical and
other information from the C&W Market Study appearing in this Prospectus and
Registration Statement has been included herein in reliance on C&W's expertise
as a real estate services firm, with respect to the Southern California office
markets.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Latham & Watkins and certain legal matters will be
passed upon for the Underwriters by Hogan & Hartson L.L.P. Latham & Watkins will
rely upon the opinion of Ballard Spahr Andrews & Ingersoll as to all matters of
Maryland law.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-11 (of which this Prospectus is a
part) under the Securities Act with respect to the securities offered hereby.
This Prospectus does not contain all information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the SEC. Statements contained in this Prospectus as to the
content of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference and the exhibits and schedules
hereto. For further information regarding the Company and the Common Stock
offered hereby, reference is hereby made to the Registration Statement and such
exhibits and schedules, which may be obtained from the SEC as its principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the
fees prescribed by the SEC. The SEC maintains a website at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding registrants, including the Company, that file electronically with the
SEC. In addition, the Common Stock will be listed on the New York Stock Exchange
("NYSE") and similar information concerning the Company can be inspected and
copied at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company intends to furnish its stockholders with annual reports
containing audited combined financial statements and a report thereon by
independent certified public accountants.
131
<PAGE>
GLOSSARY
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus:
"1940 ACT" means the Investment Company Act of 1940, as amended.
"1993 ACT" means the Omnibus Budget Reconciliation Act of 1993.
"1995 ACQUIRED PROPERTIES" means the nine commercial office properties
located in Southern California which were acquired by the Arden Predecessors in
1995.
"1996 ACQUIRED PROPERTIES" means the five commercial office properties
located in Southern California which were acquired or are scheduled to be
acquired by the Arden Predecessors in 1996.
"401(K) PLAN" means the Arden Realty Group Section 401(k) Savings/Retirement
Plan.
"ACM" means asbestos-containing materials.
"ACQUISITION PROPERTIES" means the two additional Properties (303 Glenoaks
and 12501 East Imperial Highway) that will be acquired by the Company
concurrently with the Offering.
"ADA" means the Americans with Disabilities Act.
"ANNUALIZED BASE RENT" means the monthly contractual base rent under the
applicable lease(s) (e.g., relating to a tenant, a Property or all of the
Properties, as applicable) as of a specified date multiplied by 12.
"AFFILIATES" means with respect to any individual or entity, any other
individual or entity directly or indirectly controlling, controlled by or under
common control with such individual or entity.
"ARDEN" means Arden Realty Group, Inc., a California corporation.
"ARDEN PREDECESSORS" means Arden and certain Arden affiliated entities which
are engaged in owning, acquiring, managing, leasing and renovating office
properties in Southern California.
"BENEFICIARY" means a qualified charitable organization selected by the
Company to receive in trust any excess shares resulting from a transfer of
Common Stock in violation of the Ownership Limit or the Charter.
"BOOK-TAX DIFFERENCE" means the difference between the fair market value of
contributed property at the time of contribution and the adjusted tax basis of
such property at such time.
"BUILT-IN GAIN ASSET" means any asset acquired by the Company from a
corporation which is or has been a C corporation.
"BYLAWS" means the bylaws of the Company.
"C&W" means Cushman & Wakefield of California, Inc.
"C&W MARKET STUDY" means the Office Market Study of Three Southern
California Counties (Los Angeles, Orange, and San Diego Counties) prepared for
the Company by Cushman & Wakefield as of December 31, 1995.
"CHARITABLE BENEFICIARY" means a qualified charitable organization selected
by the Company which will be the beneficiary of a trust created to hold any
excess shares.
"CHARTER" means the charter of the Company.
"CMBS OFFERING" means an offering of commercial mortgage-backed securities
in an amount of approximately $104 million which the Company intends to engage
in to refinance the Mortgage Financing.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means shares of the Company's Common Stock, $.01 par value
per share.
132
<PAGE>
"COMPANY" means Arden Realty Group, Inc., a Maryland corporation. While the
Company and the Operating Partnership are separate entities, for ease of
reference and unless the context otherwise requires, all references in this
Prospectus to the "Company" refer to the Company and the Operating Partnership.
"CONTRIBUTION AGREEMENTS" means separate contribution agreements between (i)
the Operating Partnership and certain Participants whereby certain interests in
the Arden Predecessors and in certain of the Properties held by such
Participants will be contributed to the Operating Partnership in exchange for OP
Units and (ii) the Operating Partnership and Arden whereby Arden will contribute
certain of its assets to the Operating Partnership in exchange for OP Units.
"CONTROLLED FOREIGN CORPORATION" means generally a foreign corporation
controlled by United States stockholders.
"CREDIT FACILITY" means the proposed $100 million credit facility being
restructured by the Company.
"CPI" means the Consumer Price Index.
"CUSHMAN & WAKEFIELD" means Cushman & Wakefield of California, Inc.
"DOL" means the Department of Labor.
"DOL REGULATION" means the regulation issued by the DOL defining Plan Assets
for certain purposes.
"DOMESTICALLY CONTROLLED REIT " means a REIT in which at all times during a
specified testing period less than 50% in value of its stock is held directly or
indirectly by Non-U.S. Stockholders.
"DOUBLE TAXATION" means taxation at the corporate and stockholder levels
that generally results from investment in a corporation.
"DOWNTOWN/CBD" means the Los Angeles central business district.
"ENVIRONMENTAL LAWS" means the various Federal, state and local laws,
ordinances and regulations relating to the protection of the environment.
"ERISA PLAN" means an employee benefit plan subject to ERISA.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles.
"INDEPENDENT UNDERWRITER" means Dean Witter Reynolds Inc. which will act as
qualified independent underwriter and will recommend the maximum initial public
offering price for the shares of Common Stock.
"INTERESTED STOCKHOLDER" means any person who beneficially owns ten percent
or more of the voting power of a corporation's shares.
"IRA" means an individual retirement account or annuity.
"IRS" means the Internal Revenue Service.
"LC" means leasing commissions.
"LEASED" refers to space for which leases have been executed and have
commenced as of the specified date.
"LIMITED PARTNERS" means the limited partners of the Operating Partnership.
"LOS ANGELES EDC" means the Los Angeles Economic Development Corporation.
"LOS ANGELES PMSA" means the Los Angeles/Long Beach Primary Metropolitan
Statistical Area.
"LOS ANGELES PMSA" means the Los Angeles Primary Metropolitan Statistical
Area.
"MGCL" means the Maryland General Corporation Law, as amended.
"MORTGAGE FINANCING" means the one year interim loan of approximately $104
million to the Company.
133
<PAGE>
"MORTGAGE FINANCING PROPERTIES" means the following nine Properties: Skyview
Center, 9665 Wilshire, Westwood Terrace, 425 West Broadway, 5000 East Spring,
Anaheim City Centre, 16000 Ventura Blvd., Imperial Bank Tower and 1950 Sawtelle.
"NAMED EXECUTIVE OFFICERS" means the Company's six most highly compensated
executive officers including the Chief Executive Officer.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"NON-ERISA PLAN" means an IRA or a qualified pension, profit sharing or
stock bonus plan not subject to ERISA.
"NON-U.S. STOCKHOLDERS" means the persons that are, for purposes of United
States federal income taxation, nonresident alien individuals, foreign
corporations, foreign partnerships or foreign estates or trusts.
"NYSE" means the New York Stock Exchange, Inc..
"OFFERING" means the Offering of shares of Common Stock of the Company
pursuant to and as described in this Prospectus.
"OPERATING PARTNERSHIP" means Arden Realty Group Limited Partnership, a
Maryland limited partnership.
"OPTION AGREEMENTS" means separate option agreements between the Company and
certain Participants whereby certain interests in the Arden Predecessors and in
certain of the Properties held by such Participants will be transferred to the
Company in exchange for cash.
"OP UNITS" means the limited and general partner interests in the Operating
Partnership.
"OWNERSHIP LIMIT" means the Company's Charter provision prohibiting any
stockholder or group of affiliated stockholders from owning more than 9.0% of
the outstanding Common Stock.
"PARTNERSHIP AGREEMENT" means the agreement of limited partnership of the
Operating Partnership.
"PARTICIPANTS" means the parties participating in the Formation Transactions
including the Company and the Operating Partnership, together with the partners
and members of the Arden Predecessors and other parties which hold ownership
interests in certain of the Properties.
"PEER GROUP" means the group of properties identified in the C&W Market
Study that are most similar in terms of quality, market position and tenant
appeal to each of the Company's Properties.
"PFG" means Pacific Financial Group, a California limited partnership.
"PHASE I ASSESSMENTS" means Phase I Environmental Assessments conducted by
environmental consultants.
"PLAN ASSETS" means the assets of the Company which are deemed to be assets
of an ERISA Plan or other plan.
"PREFERRED STOCK" means the $.01 par value preferred stock of the Company.
"PROHIBITED OWNER" means the person or entity holding record title to shares
of the Company in excess of the Ownership Limit.
"PROHIBITED TRANSFEREE" means any transfer of Common Stock of the Company
whereby the purported transfer would result in any person violating the
Ownership Limit.
"PROPERTIES" means the 24 office properties referred to herein which
comprise the Company's portfolio of Southern California office properties.
"PROPOSED REGULATIONS" means Treasury Regulations proposed by the IRS which
have not been issued in permanent form.
134
<PAGE>
"PUBLICLY-OFFERED SECURITY" means a security that is widely held, freely
transferable and either part of a class of securities registered under the
Exchange Act, or sold pursuant to an effective registration statement under the
Securities Act (provided the securities are registered under the Exchange Act
within 120 days, or such later time as may be allowed by the SEC (the
registration period), after the end of the fiscal year of the issuer during
which the offering occurred).
"RECOGNITION PERIOD" means the ten-year period beginning on the date a
Built-In Gain Asset is acquired by the Company.
"REIT" means real estate investment trust as defined by Sections 856 through
860 of the Code and applicable Treasury Regulations.
"RELATED PARTY TENANT" means a tenant actually or constructively owned 10%
or more by the REIT or an owner of 10% or more of the REIT.
"REPLACEMENT COST RENTS" as defined in the C&W Market Study means the rental
rates that would be required to provide a reasonable return on investment to a
developer of a new Class A multi-tenant office building.
"REPRESENTATIVES" means Lehman Brothers Inc., Alex. Brown & Sons
Incorporated, Dean Witter Reynolds Inc., A.G. Edwards & Sons, Inc., Smith Barney
Inc., EVEREN Securities, Inc., Legg Mason Wood Walker Incorporated and Raymond
James & Associates, Inc.
"RESTRICTED SHARES" means the shares of Common Stock acquired by any
Participant in exchange for OP Units which will be restricted securities under
the meaning of Rule 144 promulgated under the Securities Act.
"RULE 144" means Rule 144 promulgated under the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SAME STORE PROPERTIES" means those Properties that were owned by the
Company for the entire six months ended June 30, 1995 and June 30, 1996.
"SFAS" means Statements of Financial Accounting Standards.
"STOCK INCENTIVE PLAN" means the 1996 Stock Incentive Plan of Arden Realty
Group, Inc. and Arden Realty Group, Ltd.
"SWAP AGREEMENT" means the forward swap agreement in the notional amount of
$104 million which the Company intends to enter into with an affiliate of Wells
Fargo Bank at the time of this Offering and the Formation Transactions or
shortly thereafter.
"TI" means tenant improvements.
"UBTI" means unrelated business taxable income.
"UNDERWRITERS" means the underwriters of the Offering for whom Lehman
Brothers Inc., Alex. Brown & Sons Incorporated, Dean Witter Reynolds Inc., A.G.
Edwards & Sons, Inc., Smith Barney Inc., EVEREN Securities, Inc., Legg Mason
Wood Walker Incorporated, and Raymond James & Associates, Inc. are acting as
representatives.
"U.S. STOCKHOLDER" means a holder of shares of Common Stock who (for United
States federal income tax purposes) (i) is a citizen or resident of the United
States, (ii) is a corporation, partnership, or other entity created or organized
in or under the laws of the United States or of any political subdivision
thereof, or (iii) is an estate or trust the income of which is subject to United
States federal income taxation regardless of its source.
"UST" means underground storage tank.
"WHITE PAPER" means the White Paper on Funds from Operations approved by the
Board of Governors of the NAREIT in March of 1995.
135
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ARDEN REALTY GROUP, INC.
Pro Forma Condensed Combined Financial Statements (Unaudited):............................................ F-3
Pro Forma Condensed Combined Balance Sheet as of June 30, 1996.......................................... F-4
Pro Forma Condensed Combined Statement of Operations for the Six Months Ended June 30, 1996............. F-5
Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 1995............... F-6
Notes to Pro Forma Condensed Combined Financial Statements.............................................. F-7
Historical:
Report of Independent Auditors.......................................................................... F-10
Balance Sheet as of May 1, 1996 and June 30, 1996 (Unaudited)........................................... F-11
Notes to Balance Sheet.................................................................................. F-12
ARDEN PREDECESSORS
Combined Financial Statements:
Report of Independent Auditors.......................................................................... F-15
Combined Balance Sheets as of June 30, 1996 (Unaudited) and December 31, 1995 and 1994.................. F-16
Combined Statements of Operations for the Six Months ended June 30, 1996 and 1995 (Unaudited) and the
Years Ended December 31, 1995, 1994 and 1993........................................................... F-17
Combined Statements of Owners' Equity for the Six Months ended June 30, 1996 (Unaudited) and the Years
Ended December 31, 1995, 1994 and 1993................................................................. F-18
Combined Statements of Cash Flows for the Six Months ended June 30, 1996 and 1995 (Unaudited) and the
Years Ended December 31, 1995, 1994 and 1993........................................................... F-19
Notes to Combined Financial Statements.................................................................. F-20
Schedule III - Commercial Office Properties and Accumulated Depreciation................................ F-29
16000 VENTURA
Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................................................... F-31
Statement of Revenue and Certain Expenses for the Period January 1, 1995 to March 15, 1995.............. F-32
Notes to Statement of Revenue and Certain Expenses...................................................... F-33
1950 SAWTELLE
Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................................................... F-34
Statement of Revenue and Certain Expenses for the Period January 1, 1995 to June 14, 1995............... F-35
Notes to Statement of Revenue and Certain Expenses...................................................... F-36
WESTWOOD TERRACE, SKYVIEW CENTER, 4811 AND 4900/10 AIRPORT PLAZA DRIVE AND NEW WILSHIRE
Combined Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................................................... F-37
Combined Statement of Revenue and Certain Expenses for the Period December 1, 1994 to November 22,
1995................................................................................................... F-38
Notes to Combined Statement of Revenue and Certain Expenses............................................. F-39
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
70 SOUTH LAKE AND CALABASAS COMMERCE CENTER
<S> <C>
Statement of Revenue and Certain Expenses:
Report of Independent Auditors.......................................................................... F-41
Statement of Revenue and Certain Expenses for the Period January 1, 1995 to November 22, 1995........... F-42
Notes to Statement of Revenue and Certain Expenses...................................................... F-43
1996 ACQUIRED PROPERTIES
Combined Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................................................... F-45
Combined Statements of Revenue and Certain Expenses for the 1996 Interim Period Prior to Acquisition
(Unaudited) and the Year Ended December 31, 1995....................................................... F-46
Notes to Combined Statements of Revenue and Certain Expenses............................................ F-47
ACQUISITION PROPERTIES
Combined Statements of Revenue and Certain Expenses:
Report of Independent Auditors.......................................................................... F-49
Combined Statements of Revenue and Certain Expenses for the Six Months Ended June 30, 1996 and 1995
(Unaudited) and the Year Ended December 31, 1995....................................................... F-50
Notes to Combined Statements of Revenue and Certain Expenses............................................ F-51
</TABLE>
F-2
<PAGE>
ARDEN REALTY GROUP, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma financial and operating information for the six
months ended June 30, 1996 and the year ended December 31, 1995 is presented as
if the Offering, the Formation Transactions (including the purchase of the
Acquisition Properties), and the acquisitions of the Properties acquired during
1996 prior to the Offering (the "1996 Acquired Properties") and the Properties
acquired during 1995 (the "1995 Acquired Properties") all had occurred by the
date of the June 30, 1996 combined balance sheet and at the beginning of the
period presented for the combined statements of operations. The pro forma June
30, 1996 balance sheet information also gives effect to the recording of
minority interests for OP Units, as if these transactions occurred on June 30,
1996.
The pro forma financial statements are not necessarily indicative of what
the Company's financial position or results of operations would have been
assuming the completion of the Formation Transactions and the Offering on such
date or at the beginning of the period indicated, nor does it purport to project
the Company's financial position or results of operations at any future date or
for any future period.
F-3
<PAGE>
ARDEN REALTY GROUP, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL INVESTMENTS
ARDEN IN NONCOMBINED PRO FORMA COMPANY
PREDECESSORS ENTITIES ADJUSTMENTS PRO FORMA
------------ --------------- ----------- -----------
<S> <C> <C> <C> <C>
Commercial office properties-net.................. $ 254,749 $ 91,555 $ 54,831(E) $ 410,160
8,673(B)
352(I)
Cash and cash equivalents......................... 913 496 347,433(A) 12,658
(26,777)(B)
102,216(C)
(358,002)(D)
(54,831)(E)
1,210(G)
Restricted cash................................... 17,334 1932 (19,266)(D) --
Rents and other receivables....................... 2,577 167 -- 2,744
Deferred rents.................................... 2,996 1,761 -- 4,757
Prepaid financing and leasing costs-net........... 1,659 1,588 (757)(F) 4,274
1085(C)
699(C)
Prepaid expenses and other assets................. 2,868 330 (1,210)(G) 1,988
Investments in noncombined entities............... 3,069 (3,069) -- --
------------ ------- ----------- -----------
Total assets.................................. $ 286,165 $ 94,760 $ 55,656 $ 436,581
------------ ------- ----------- -----------
------------ ------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage loans payable............................ $ 263,492 $ 86,421 $ 104,000(C) $ 104,000
(349,913)(D)
Unsecured lines of credit......................... 2,467 0 (2,467)(D) --
Accounts payable and accrued expenses............. 4,726 1,398 (1,397)(D) 4,727
Deferred interest................................. 5,318 281 (5,599)(D) --
Security deposits................................. 1,914 827 -- 2,741
------------ ------- ----------- -----------
Total liabilities............................. 277,917 88,927 (255,376) 111,468
------------ ------- ----------- -----------
Minority interests................................ 718 (718) 43,231(I) 43,231
Owners' Equity.................................... 7,530 6,551 (14,081)(H) --
Stockholders' Equity:
Common Stock.................................... -- -- 189(A) 189
Additional paid-in capital...................... -- -- 347,244(A) 281,693
(9,175)(B)
(757)(F)
5,599(D)
14,081(H)
(23,491)(D)
(42,879)(I)
(8,929)(B)
------------ ------- ----------- -----------
Total stockholders' equity.................... -- -- 281,882 281,882
------------ ------- ----------- -----------
Total liabilities and equity.................. $ 286,165 $ 94,760 $ 55,656 $ 436,581
------------ ------- ----------- -----------
------------ ------- ----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
ARDEN REALTY GROUP, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
EQUITY IN PRE-ACQUISITION
HISTORICAL NET (LOSS) OF PERIOD FOR
ARDEN NONCOMBINED 1996 ACQUIRED ACQUISITION PRO FORMA COMPANY
PREDECESSORS ENTITIES PROPERTIES PROPERTIES ADJUSTMENTS PRO FORMA
------------ ------------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Rental.................................. $ 19,404 $ 7,937 $ 3,923 $ 2,101 $ 128(J) $ 33,493
Tenant reimbursements................... 1,425 308 258 58 (82)(K) 1,967
Parking................................. 2,121 574 308 87 3,090
Other................................... 1,521 167 144 174 (701)(L) 1,305
------------ ------ ------ ----------- ----------- -----------
Total revenue......................... 24,471 8,986 4,633 2,420 (655) 39,855
------------ ------ ------ ----------- ----------- -----------
EXPENSES
Property operating, taxes, insurance and
ground rent............................ 8,252 3,293 1,489 1,021 (1,337)(M) 12,787
69(N)
General and administrative.............. 830 435 -- -- 635(O) 1,900
Interest................................ 14,741 4,317 -- -- (15,000)(P) 4,058
Depreciation and amortization........... 3,036 1,672 -- -- 1,065(Q) 5,773
------------ ------ ------ ----------- ----------- -----------
Total expenses........................ 26,859 9,717 1,489 1,021 (14,568) 24,518
------------ ------ ------ ----------- ----------- -----------
Equity in net (loss) of noncombined
entities................................. (94) 94 -- -- -- --
------------ ------ ------ ----------- ----------- -----------
(Loss) income before minority interests... (2,482) (637) 3,144 1,399 13,913 15,337
Minority interests........................ 344 (344) -- -- (2,039) (R) (2,039)
------------ ------ ------ ----------- ----------- -----------
Net (loss) income......................... $ (2,138) $ (981) $ 3,144 $ 1,399 $ 11,874 $ 13,298
------------ ------ ------ ----------- ----------- -----------
------------ ------ ------ ----------- ----------- -----------
Pro forma common shares outstanding before
conversion of OP units................... 18,853
-----------
-----------
Net income per share...................... $.71
-----------
-----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
ARDEN REALTY GROUP, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
EQUITY IN
NET (LOSS) PRE-ACQUISITION
HISTORICAL OF PERIOD FOR 1996
ARDEN NONCOMBINED 1995 ACQUIRED ACQUIRED ACQUISITION PRO FORMA
PREDECESSORS ENTITIES PROPERTIES PROPERTIES PROPERTIES ADJUSTMENTS
------------ ------------ -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Rental............................... $ 8,832 $ 15,610 $ 16,564 $ 19,391 $ 4,280 $ 2,014(J)
Tenant reimbursements................ 403 419 1,073 961 54 42(K)
Parking.............................. 750 915 2,238 1,859 133
Other................................ 1,707 777 877 350 85 (1,355)(L)
------------ ------------ ------- ----------- ----------- -----------
Total revenue...................... 11,692 17,721 20,752 22,561 4,552 701
------------ ------------ ------- ----------- ----------- -----------
EXPENSES
Property operating, taxes, insurance
and ground rent..................... 3,339 6,927 7,813 8,848 2,228 (1,803)(M)
936(N)
General and administrative........... 1,377 831 -- -- -- 1,592(O)
Interest............................. 5,537 8,243 -- -- -- (5,704)(P)
Depreciation and amortization........ 1,898 2,475 -- -- -- 7,176(Q)
------------ ------------ ------- ----------- ----------- -----------
Total expenses..................... 12,151 18,476 7,813 8,848 2,228 2,197
------------ ------------ ------- ----------- ----------- -----------
Equity in net (loss) of noncombined
entities.............................. (116) 116 -- -- -- --
------------ ------------ ------- ----------- ----------- -----------
(Loss) income before minority
interests............................. (575) (639) 12,939 13,713 2,324 (1,496)
Minority interests..................... (1) 1 -- -- -- (3,493)(R)
------------ ------------ ------- ----------- ----------- -----------
Net (loss) income...................... $ (576) $ (638) $ 12,939 $ 13,713 $ 2,324 $ (4,989)
------------ ------------ ------- ----------- ----------- -----------
------------ ------------ ------- ----------- ----------- -----------
Pro forma common shares outstanding
before conversion of OP units.........
Net income per share...................
<CAPTION>
COMPANY
PRO FORMA
-----------
<S> <C>
REVENUE
Rental............................... $ 66,691
Tenant reimbursements................ 2,952
Parking.............................. 5,895
Other................................ 2,441
-----------
Total revenue...................... 77,979
-----------
EXPENSES
Property operating, taxes, insurance
and ground rent..................... 28,288
General and administrative........... 3,800
Interest............................. 8,076
Depreciation and amortization........ 11,549
-----------
Total expenses..................... 51,713
-----------
Equity in net (loss) of noncombined
entities.............................. --
-----------
(Loss) income before minority
interests............................. 26,266
Minority interests..................... (3,493)
-----------
Net (loss) income...................... $ 22,773
-----------
-----------
Pro forma common shares outstanding
before conversion of OP units......... 18,853
-----------
-----------
Net income per share................... $1.21
-----------
-----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
ARDEN REALTY GROUP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
1. ADJUSTMENTS TO THE PRO FORMA CONDENSED COMBINED BALANCE SHEET
The adjustments to the Pro Forma Condensed Combined Balance Sheet as of June
30, 1996 are as follows:
<TABLE>
<S> <C> <C>
(A) Sale of 18,752 shares of common stock in the offering
Proceeds from offering.............................................. $ 376,950
Costs associated with offering...................................... (29,517)
----------
Net proceeds...................................................... $ 347,433
----------
----------
Par value of common stock to be issued.............................. $ 189
Additional paid in capital from proceeds of sale of common stock.... 347,244
----------
$ 347,433
----------
----------
(B) Acquisition of certain interests of the Participants for cash
Reduction in additional paid-in capital for book value of interests
acquired........................................................... $ 9,175
Reduction in additional paid-in capital for distributions to
affiliates of cash paid in excess of book value of interests....... 8,929
Purchase price in excess of book value of interests in the
properties purchased from nonaffiliates............................ 8,673
----------
$ 26,777
----------
----------
(C) Mortgage financing and line of credit commitment fees
Proceeds from new debt.............................................. $ 104,000
Costs associated with new debt origination.......................... (1,085)
Prepaid commitment fees............................................. (699)
----------
$ 102,216
----------
----------
(D) Repayment of certain mortgage loans and unsecured lines of credit of the
Arden Predecessors
Payment of mortgage loans........................................... $ 349,913
Payment of unsecured lines of credit................................ 2,467
Payment of additional interest on debt (includes deferred interest
of $5,599 which was accrued as of June 30, 1996, and $17,892 of
additional interest currently due as a result of the prepayment)... 23,491
Payment of accrued interest......................................... 1,397
Release of restricted cash to repay mortgage loans.................. (19,266)
----------
$ 358,002
----------
----------
(E) Purchase price and actual and estimated additional closing costs of 100
Broadway and Acquisition Properties...................................... $ 54,831
----------
----------
(F) Write off of unamortized loan fees........................................ $ (757)
----------
----------
(G) Reclassification of offering costs paid by the Arden Predecessors......... $ (1,210)
----------
----------
(H) Elimination of owners' equity............................................. $ (14,081)
----------
----------
</TABLE>
F-7
<PAGE>
ARDEN REALTY GROUP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
1. ADJUSTMENTS TO THE PRO FORMA CONDENSED COMBINED BALANCE SHEET (CONTINUED)
<TABLE>
<S> <C> <C>
(I) To establish minority interests in Operating Partnership based on units
issued................................................................... $ 43,231
Excess of fair value over book value related to issuance of Operating
Partnership units to nonaffiliates....................................... (352)
----------
$ 42,879
----------
----------
Total Equity before percentage allocable to minority interests....................... $ 325,113
Percentage allocable to minority interests........................................... 13.30%
----------
$ 43,231
----------
----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Minority OP Units................................................ 2,891 13.30%
Total Shares Issued.............................................. 18,853 86.70%
--------- ---------
Total............................................................ 21,744 100.00%
--------- ---------
--------- ---------
</TABLE>
2. ADJUSTMENTS TO THE PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
The pro forma adjustments reflected in the Pro Forma Condensed Combined
Statements of Operations for the six months ended June 30, 1996 and the year
ended December 31, 1995 are set forth below:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C> <C>
(J) Increase in rental revenue to adjust the 1995 Acquired Properties, the
1996 Acquired Properties and the Acquisition Properties to straight
line rental revenue based on the acquisition date of the Arden
Predecessors.......................................................... $ 128 $ 2,014
-------------- --------
-------------- --------
(K) (Decrease) increase in tenant reimbursements due to the reassessment of
property taxes and changes in insurance and property and general
administrative costs.................................................. $ (82) $ 42
-------------- --------
-------------- --------
(L) Decrease in other income to eliminate non-recurring construction
management fees....................................................... $ (701) $ (1,355)
-------------- --------
-------------- --------
(M) Decrease in property operating, taxes, insurance and ground rent due to
the reassessment of property taxes and reduction of insurance costs... $ (1,337) $ (1,803)
-------------- --------
-------------- --------
(N) Increase in property general and administrative related to additional
property payroll costs relating to the 1995 Acquired Properties, the
1996 Acquired Properties and the Acquisition Properties............... $ 69 $ 936
-------------- --------
-------------- --------
(O) Increase in general and administrative expense related to expected
level of operations as a public real estate investment trust.......... $ 635 $ 1,592
-------------- --------
-------------- --------
</TABLE>
F-8
<PAGE>
ARDEN REALTY GROUP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
2. ADJUSTMENTS TO THE PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C> <C>
(P) Decrease in interest expense
Decrease in interest expense due to repayment of mortgage
loans........................................................... $ (19,058) $ (13,780)
Increase in interest expense related to the newly originated
non-amortizing debt with an interest rate of 7.72% due in seven
years........................................................... 3,864 7,688
Increase in amortization of finance costs related to the newly
originated debt................................................. 194 388
-------------- --------
Net decrease in interest expense............................... $ (15,000) $ (5,704)
-------------- --------
-------------- --------
(Q) Increase in depreciation expense to reflect a full period of
depreciation for the 1995 Acquired Properties, the 1996 Acquired
Properties and the Acquisition Properties utilizing a 40 year useful
life for buildings and a 10 year useful life for improvements......... $ 936 $ 6,918
Increase in depreciation due to the fair value of units or cash paid in
excess of book value of interests in the properties acquired from the
nonaffiliates......................................................... 129 258
-------------- --------
Net increase in depreciation expense........................... $ 1,065 $ 7,176
-------------- --------
-------------- --------
Historical depreciation of the Arden Predecessors...................... $ 4,708 $ 4,373
Additional depreciation of the 1995 and 1996 Acquired Properties based
upon the REIT's basis................................................. 528 6,102
Depreciation on the Acquisition Properties............................. 408 816
Depreciation on the price in excess of book value...................... 129 258
-------------- --------
$ 5,773 $ 11,549
-------------- --------
-------------- --------
(R) To reflect adjustment for minority interests of 13.30% in the Operating
Partnership........................................................... $ 2,039 $ 3,493
-------------- --------
-------------- --------
</TABLE>
F-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Arden Realty Group, Inc.
We have audited the accompanying balance sheet of Arden Realty Group, Inc.,
a Maryland corporation, as of May 1, 1996. This balance sheet is the
responsibility of the management of Arden Realty Group, Inc. Our responsibility
is to express an opinion on the balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet presents fairly, in all material respects,
the financial position of Arden Realty Group, Inc., a Maryland corporation, as
of May 1, 1996 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
May 1, 1996
F-10
<PAGE>
ARDEN REALTY GROUP, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MAY 1, 1996
-------------- JUNE 30, 1996
--------------
(UNAUDITED)
<S> <C> <C>
ASSETS........................................................................... $ -- $ --
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Commitments and contingencies.................................................... $ -- $ --
-------------- --------------
Preferred stock, $.01 par value, 20,000,000 shares authorized, none issued and
outstanding..................................................................... -- --
-------------- --------------
Common stock, $.01 par value, 100,000,000 shares authorized, 100 shares issued
and outstanding as of June 30, 1996 (unaudited)................................. -- --
-------------- --------------
$ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-11
<PAGE>
ARDEN REALTY GROUP, INC.
NOTES TO BALANCE SHEET
1. ORGANIZATION
Arden Realty Group, Inc. (the "Company") is a Maryland corporation which was
formed on May 1, 1996, to acquire a portfolio of office properties (the
"Properties") and continue the real estate business of Arden Realty Group, Inc.,
a California corporation, its principals and certain affiliates and affiliated
partnerships. Substantial ownership interests in the entities (the "Arden
Predecessors") that own interests in the Properties are held by Richard Ziman,
Victor Coleman, Arthur Gilbert and their affiliates, consisting of related
individuals and entities controlled by them. The Arden Predecessors are engaged
in owning, acquiring, managing, leasing and renovating office properties in
Southern California.
The Company will be the sole general partner of a newly formed limited
partnership (the "Operating Partnership"). The Company will initially hold an
aggregate of 86.7% of the ownership interests in the Operating Partnership. The
Operating Partnership will initially hold all the interests in the Properties.
It is expected that in connection with the Mortgage Financing discussed below
the Operating Partnership will transfer the particular Mortgage Financing
Properties to a financing subsidiary. The Company will conduct substantially all
of its business through the Operating Partnership. As the sole general partner
of the Operating Partnership, the Company will have exclusive power to manage
and conduct the business of the Operating Partnership, subject to certain
limited exceptions.
Concurrently with the consummation of a proposed public offering of the
Company's Common Stock (the "Offering"), the Company and the Operating
Partnership, together with the partners and members of the Arden Predecessors
including certain unaffiliated investors (collectively, the "Participants"),
will engage in certain formation transactions (the "Formation Transactions").
The Formation Transactions have been designed to (i) enable the Company to raise
the necessary capital to acquire the Properties and repay certain mortgage debt
relating thereto, (ii) provide a vehicle for future acquisitions, (iii) enable
the Company to comply with certain requirements under the federal income tax
laws and regulations relating to real estate investment trusts, (iv) facilitate
potential securitized mortgage financings, and (v) preserve certain tax
advantages for certain Arden Predecessors and unaffiliated participants. The
Formation Transactions are as follows:
- The Company will sell shares of Common Stock in the Offering.
- Pursuant to separate option agreements (the "Option Agreements"), the
Company will acquire for cash from certain Participants the interests
owned by such Participants in certain of the Arden Predecessor entities
and in certain of the Properties. The Company will pay approximately $26.7
million from the net proceeds of the Offering for such interests.
- The Company will contribute (i) the interests in the Arden Predecessors
and in the Properties acquired pursuant to the Option Agreements and (ii)
the net proceeds from the Offering (after payment of the cash
consideration to certain Participants as described above) to the Operating
Partnership in exchange for a 86.7% general partner interest in the
Operating Partnership.
- Pursuant to separate contribution agreements (the "Contribution
Agreements"), the following additional contributions will be made to the
Operating Partnership in exchange for OP Units representing limited
partner interests: (i) certain Participants will contribute the remaining
interests in the Arden Predecessors and in certain of the Properties
(I.E., all interests not acquired by the Company pursuant to the Option
Agreements) and (ii) Arden will contribute certain of its assets,
including management contracts relating to certain of the Properties and
the contract rights to purchase the Acquisition Properties (303 Glenoaks
Blvd. and 12501 East Imperial Highway). The Participants making such
contributions (including Messrs. Ziman, Coleman and Gilbert) will receive
an aggregate of 2,889,071 OP Units, with an estimated value of
approximately $57.8 million based on the assumed initial public offering
price of the Common Stock.
F-12
<PAGE>
ARDEN REALTY GROUP, INC.
NOTES TO BALANCE SHEET -- (CONTINUED)
1. ORGANIZATION (CONTINUED)
- The Company, through the Operating Partnership, will borrow approximately
$104 million aggregate principal amount (the "Mortgage Financing") which
will be secured by cross-collateralized and cross-defaulted first mortgage
liens on nine of the Properties (the "Mortgage Financing Properties").
- Approximately $35 million of the net proceeds of the Offering and the
Mortgage Financing will be used by the Operating Partnership to purchase
the Acquisition Properties.
- Approximately $398 million of the net proceeds of the Offering and the
Mortgage Financing will be used by the Operating Partnership to repay
certain mortgage debt secured by the Properties and indebtedness
outstanding under lines of credit to be assumed by the Operating
Partnership in the Formation Transactions.
- The Company, through the Operating Partnership, will enter into a $100
million Credit Facility.
- The transfer of the properties and operating interests of Messrs. Ziman,
Coleman, Gilbert and their affiliates to the Operating Partnership for
cash or ownership units in the Operating Partnership will be accounted for
at the historical cost of their interests in the Arden Predecessors
similar to a pooling of interests. All transfers by nonaffiliates will be
accounted for at the fair value of the units issued and/ or cash
consideration paid.
2. COMMITMENTS AND CONTINGENCIES
The Company will become a party to various legal actions resulting from the
operating activities to be transferred to the Operating Partnership. These
actions are incidental to the transferred business and management does not
believe that these actions will have a material adverse effect on the Company.
Pursuant to the Operating Partnership's limited partnership agreement,
beginning one year after consummation of the Offering, the OP Units issued
concurrently with the Offering are redeemable (at the election of the holder)
for cash or, at the option of the Company, exchangeable for shares of Common
Stock of the Company on a one-for-one basis.
3. RISKS AND UNCERTAINTIES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
4. INCOME TAXES
After the Offering, the Company intends to make an election to be taxed as a
real estate investment trust ("REIT") under Sections 586 through 860 of the
Internal Revenue Code. As a REIT, the Company generally will not be subject to
federal income tax if it distributes at least 95% of its taxable income for each
tax year to its stockholders. REITs are subject to a number of organizational
and operational requirements. If the Company fails to qualify as a REIT in any
taxable year, the Company will be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
tax rates. Even if the Company qualifies for taxation as a REIT, the Company may
be subject to state and local income taxes and to federal income tax and excise
tax on its undistributed income.
5. STOCK INCENTIVE PLAN
The Company intends to adopt a Stock Incentive Plan to provide incentives to
attract and retain officers, key employees and outside directors.
F-13
<PAGE>
ARDEN REALTY GROUP, INC.
NOTES TO BALANCE SHEET -- (CONTINUED)
5. STOCK INCENTIVE PLAN (CONTINUED)
The Stock Incentive Plan will be qualified under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the"Exchange Act"). The Stock
Incentive Plan will be administered by the Compensation Committee and provide
for the granting of stock options, stock appreciation rights or restricted stock
with respect to up to 1,500,000 shares of Common Stock to executive or other key
employees of the Company. Stock options may be granted in the form of "incentive
stock options," as defined in Section 422 of the Code, or non-statutory stock
options and are exercisable for up to 10 years following the date of grant. The
exercise price of each option will be established by the Compensation Committee;
provided, however, that the price per share must be equal to or greater than the
fair market value of the Common Stock on the grant date.
The Stock Incentive Plan also provides for the issuance of stock
appreciation rights which will generally entitle a holder to receive cash or
stock, as determined by the Compensation Committee, at the time of exercise
equal to the difference between the exercise price and the fair market value of
the Common Stock. In addition, the Stock Incentive Plan permits the Company to
issue shares of restricted stock to executive or other key employees upon such
terms and conditions as shall be determined by the Compensation Committee.
During 1995 an accounting pronouncement was issued by the Financial
Accounting Standards Board that applies to the Company, Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." This new standard will become effective for the Company's 1996
fiscal year. SFAS No. 123 establishes a fair value method for accounting for
stock-based compensation, such as option plans, but does not require that the
new method be adopted. The Company may elect to continue following the
methodology in APB Opinion No. 25, "Accounting for Stock Issued to Employees",
whereby the compensation expense is measured as the difference between the
exercise price of the option and the stock price on the measurement date with
the fair value of options disclosed in the footnotes in the financial
statements. SFAS No. 123 is not expected to adversely affect the Company's
future reported results.
F-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Owners of the Arden Predecessors
We have audited the accompanying combined balance sheets of the Arden
Predecessors, as defined in Note 1, as of December 31, 1995 and 1994, and the
related combined statements of operations, owners' equity and cash flows for
each of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule III, commercial office properties and
accumulated depreciation. These financial statements and schedule are the
responsibility of the management of the Arden Predecessors. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Arden
Predecessors as of December 31, 1995 and 1994, and the combined results of their
operations and cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Ernst & Young LLP
Los Angeles, California
April 10, 1996
F-15
<PAGE>
ARDEN PREDECESSORS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
JUNE 30, ---------- ---------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Commercial office properties, net of accumulated depreciation of $6,248,
$3,296 and $1,530, respectively.............................................. $ 254,749 $ 160,874 $ 34,977
Cash and cash equivalents..................................................... 913 790 611
Restricted cash............................................................... 17,334 12,249 600
Rents and other receivables................................................... 2,577 1,095 21
Deferred rents................................................................ 2,996 1,778 1,106
Prepaid financing and leasing costs, net of accumulated amortization of $408,
$421 and $112, respectively.................................................. 1,659 1,359 746
Prepaid expenses and other assets............................................. 2,868 1,071 446
Investments in noncombined entities........................................... 3,069 3,163 7,583
----------- ---------- ---------
Total assets.............................................................. $ 286,165 $ 182,379 $ 46,090
----------- ---------- ---------
----------- ---------- ---------
LIABILITIES AND OWNERS' EQUITY
Mortgage loans payable........................................................ $ 263,492 $ 167,638 $ 32,196
Unsecured lines of credit..................................................... 2,467 813 748
Accounts payable and accrued expenses......................................... 4,726 3,398 897
Deferred interest............................................................. 5,318 884 --
Security deposits............................................................. 1,914 1,430 307
----------- ---------- ---------
Total liabilities......................................................... 277,917 174,163 34,148
Minority interests............................................................ 718 100 99
Owners' equity................................................................ 7,530 8,116 11,843
----------- ---------- ---------
Total liabilities and owners' equity...................................... $ 286,165 $ 182,379 $ 46,090
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
See accompanying notes.
F-16
<PAGE>
ARDEN PREDECESSORS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FOR THE YEARS ENDED
JUNE 30, DECEMBER 31,
--------------- ------------------------
1996 1995 1995 1994 1993
------- ------ ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE
Rental.................................................... $19,404 $2,822 $ 8,832 $ 5,157 $3,034
Tenant reimbursements..................................... 1,425 177 403 217 35
Parking................................................... 2,121 220 750 382 279
Other..................................................... 1,521 649 1,707 796 314
------- ------ ------- ------- ------
Total revenue......................................... 24,471 3,868 11,692 6,552 3,662
------- ------ ------- ------- ------
EXPENSES
Property operating and maintenance........................ 4,998 754 2,539 1,733 1,324
Real estate taxes......................................... 1,291 138 502 272 107
Insurance................................................. 1,503 42 279 50 49
Ground rent............................................... 460 -- 19 -- --
General and administrative................................ 830 684 1,377 689 386
Interest.................................................. 14,741 1,403 5,537 1,673 646
Depreciation and amortization............................. 3,036 638 1,898 1,143 499
------- ------ ------- ------- ------
Total expenses........................................ 26,859 3,659 12,151 5,560 3,011
------- ------ ------- ------- ------
Equity in net (loss) income of noncombined entities......... (94) 108 (116) 201 4
------- ------ ------- ------- ------
(Loss) income before extraordinary loss and minority
interests.................................................. (2,482) 317 (575) 1,193 655
Extraordinary loss.......................................... -- -- -- (136) --
------- ------ ------- ------- ------
(Loss) income before minority interests..................... (2,482) 317 (575) 1,057 655
Minority interests.......................................... 344 (7) (1) 1 --
------- ------ ------- ------- ------
Net (loss) income........................................... $(2,138) $ 310 $ (576) $ 1,058 $ 655
------- ------ ------- ------- ------
------- ------ ------- ------- ------
</TABLE>
See accompanying notes.
F-17
<PAGE>
ARDEN PREDECESSORS
COMBINED STATEMENTS OF OWNERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at January 1, 1993........................................................ $ (153)
<S> <C>
Owners' contributions........................................................... 2,680
Owners' distributions........................................................... (460)
Net income - 1993............................................................... 655
---------
Balance at December 31, 1993...................................................... 2,722
Owners' contributions........................................................... 9,452
Owners' distributions........................................................... (1,389)
Net income - 1994............................................................... 1,058
---------
Balance at December 31, 1994...................................................... 11,843
Owners' contributions........................................................... 7,427
Owners' distributions........................................................... (10,578)
Net (loss) - 1995............................................................... (576)
---------
Balance at December 31, 1995...................................................... 8,116
Owners' contributions (unaudited)............................................... 2,500
Owners' distributions (unaudited)............................................... (948)
Net (loss) - six months ended June 30, 1996 (unaudited)......................... (2,138)
---------
Balance at June 30, 1996 (unaudited).............................................. $ 7,530
---------
---------
</TABLE>
See accompanying notes.
F-18
<PAGE>
ARDEN PREDECESSORS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS FOR THE YEARS ENDED DECEMBER
ENDED JUNE 30, 31,
------------------ ----------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income..................................................... $ (2,138) $ 310 $ (576) $ 1,058 $ 655
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Equity in net loss (income) of noncombined entities............... 94 (108) 116 (201) (4)
(Loss) income allocable to minority interests..................... (344) 7 1 (1) --
Depreciation and amortization..................................... 3,036 638 1,898 1,143 499
Amortization of loan costs and fees............................... 102 94 211 21 1
(Increase) decrease in rents and other receivables................ (1,482) (58) (1,074) 198 (98)
Increase in deferred rents........................................ (1,218) (247) (672) (746) (360)
Increase in prepaid financing and leasing costs................... (575) (70) (633) (582) (271)
(Increase) decrease in prepaid expenses and other assets.......... (1,709) 266 (947) (428) (21)
Increase (decrease) in accounts payable and accrued expenses...... 1,328 (501) 2,501 267 582
Increase in deferred interest..................................... 4,434 23 884 -- --
Increase in security deposits..................................... 485 104 1,121 105 203
-------- -------- -------- -------- --------
Net cash provided by operating activities............................. 2,013 458 2,830 834 1,186
-------- -------- -------- -------- --------
INVESTING ACTIVITIES
Acquisitions and improvements to commercial office properties......... (96,827) (9,466) (127,663) (10,622) (25,885)
Decrease (increase) in investments in noncombined entities............ -- 3,888 4,305 (7,299) (80)
-------- -------- -------- -------- --------
Net cash used in investing activities................................. (96,827) (5,578) (123,358) (17,921) (25,965)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES
Proceeds from mortgage loans.......................................... 100,092 10,125 142,501 8,139 24,058
Repayments of mortgage loans.......................................... (4,238) (30) (7,060) -- --
Proceeds from unsecured lines of credit............................... 3,657 1,316 3,310 1,240 298
Repayments of unsecured lines of credit............................... (2,003) (1,275) (3,244) (791) (250)
(Increase) decrease in restricted cash................................ (5,085) (1,113) (11,649) 94 (694)
Contributions from minority interests................................. 1,000 -- -- 100 --
Distributions to minority interests................................... (38) -- -- -- --
Owners' contributions................................................. 2,500 1,474 7,427 9,452 2,680
Owners' distributions................................................. (948) (5,947) (10,578) (1,389) (460)
-------- -------- -------- -------- --------
Net cash provided by financing activities............................. 94,937 4,550 120,707 16,845 25,632
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents.................. 123 (570) 179 (242) 853
Cash and cash equivalents at beginning of period...................... 790 611 611 853 --
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period............................ $ 913 $ 41 $ 790 $ 611 $ 853
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Cash paid during the period for interest, net of interest
capitalized......................................................... $ 9,640 $ 1,367 $ 4,022 $ 1,547 $ 521
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
See accompanying notes.
F-19
<PAGE>
ARDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION
The entities below are currently engaged in owning, acquiring, managing,
leasing and renovating office properties in Southern California. Substantial
ownership interests in the entities (the "Arden Predecessors") that own
interests in the properties are held by Richard Ziman, Victor Coleman, Arthur
Gilbert and their affiliates consisting of related individuals and entities
controlled by them.
The partners and members of the Arden Predecessors, which collectively
represent the "Participants", will, concurrently with a proposed public
offering, enter into a series of transactions with Arden Realty Group, Inc., a
Maryland corporation, to form a real estate investment trust (the "REIT") to
continue and expand the business of the Arden Predecessors. All of the
properties owned by the entities (the "Properties") have been managed by Arden
Realty Group, Inc., a California corporation, since their acquisition by the
Arden Predecessors.
In those instances where the financial interests held by Messrs. Ziman,
Coleman, Gilbert and their affiliates are controlling interests, the entities
have been combined in the accompanying financial statements. Where controlling
interests are not held by these affiliated Participants, the entities are
accounted for as investments in noncombined entities utilizing equity
accounting.
<TABLE>
<CAPTION>
PREDECESSORS
- -----------------------------------------------------------------------------------------------------------------
ENTITY NAME PROPERTY NAME CITY ACQUISITION DATE
- --------------------------------------- ---------------------------------- ------------------ ----------------
<S> <C> <C> <C>
COMBINED ENTITIES
- -----------------------------------------------------------------------------------------------
Arden Realty Group, Inc., a California
corporation Operating Management Company -- --
Century Center Tenancy in Common Century Park Center Los Angeles March 1993
1950 Sawtelle Associates, L.P. 1950 Sawtelle Los Angeles June 1995
Arden LAOP IV, LLC 70 South Lake Pasadena November 1995
New Wilshire Los Angeles November 1995
Calabasas Commerce Center Calabasas November 1995
Westwood Terrace Los Angeles November 1995
Skyview Center Los Angeles November 1995
5601 Lindero Canyon Westlake Village March 1994
4811 Airport Plaza Drive Long Beach November 1995
4900/10 Airport Plaza Drive Long Beach November 1995
Arden LAOP V, LLC (Note 9) 5832 Bolsa Huntington Beach February 1996
400 Corporate Pointe Culver City February 1996
9665 Wilshire Beverly Hills February 1996
Imperial Bank Tower San Diego February 1996
Arden Broadway Associates, LLC 100 West Broadway Long Beach July 1996
INVESTMENTS IN NONCOMBINED ENTITIES
- -----------------------------------------------------------------------------------------------
Beverly Ventura Associates, L.P. Beverly Atrium Beverly Hills December 1993
Woodland Hills Financial Woodland Hills December 1993
Bristol Encino Associates, LLC Bristol Plaza Culver City August 1994
16000 Ventura Blvd. Encino March 1995
222 Harbor Associates, LLC Anaheim City Centre Anaheim November 1994
425 West Broadway Glendale December 1994
5000 Spring Associates Tenancy in
Common 5000 East Spring Long Beach December 1994
REIT ACQUISITION PROPERTIES
- -----------------------------------------------------------------------------------------------
- -- 303 Glenoaks Blvd. Burbank To be acquired
- -- 12501 East Imperial Highway Norwalk To be acquired
</TABLE>
F-20
<PAGE>
ARDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION (CONTINUED)
All significant balances and transactions between the Arden Predecessors
have been eliminated in the combined financial statements.
PROPOSED TRANSACTIONS
Concurrently with the consummation of an initial public offering of the
REIT's Common Stock (the "Offering"), which is expected to be completed in 1996,
the REIT and a newly formed limited partnership (the "Operating Partnership"),
together with the Participants will engage in certain formation transactions
(the "Formation Transactions"). The Formation Transactions are designed to (i)
enable the REIT to raise the necessary capital to acquire the Properties and
repay certain mortgage debt relating thereto, (ii) provide a vehicle for future
acquisitions, (iii) enable the REIT to comply with certain requirements under
the federal income tax laws and regulations relating to real estate investment
trusts, (iv) facilitate potential securitized mortgage financings and (v)
preserve certain tax advantages for certain Participants.
The operations of the REIT will be carried on primarily through the
Operating Partnership and its subsidiaries in order to assist the REIT and the
Participants in forming the REIT under the Internal Revenue Code of 1986.
The REIT will be the sole general partner in the Operating Partnership and
the Participants will transfer their property and operating interests in the
Arden Predecessors in exchange for limited partnership interests in the
Operating Partnership and/or cash.
The transfer of the properties and operating interests of Messrs. Ziman,
Coleman, Gilbert and their affiliates to the Operating Partnership for cash or
ownership units in the Operating Partnership will be accounted for at the
historical cost of their interests in the Arden Predecessors similar to a
pooling of interests. All transfers by nonaffiliates will be accounted for at
the fair value of the ownership units issued and/or cash consideration paid.
2. SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES
RISKS AND UNCERTAINTIES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
COMMERCIAL OFFICE PROPERTIES AND FURNITURE, FIXTURES AND EQUIPMENT
The properties are recorded at cost less accumulated depreciation. During
1995, the Arden Predecessors adopted the new accounting pronouncement, Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
Under this standard, if impairment conditions exist, the Arden Predecessors make
an assessment of the recoverability of the carrying amounts of the properties by
estimating the future undiscounted cash flows, excluding interest charges. If
the carrying amount exceeds the aggregate future cash flows, the Arden
Predecessors would recognize an impairment loss to the extent the carrying
amount exceeds the fair value of the property. Any long-lived assets to be
disposed of are to be valued at estimated fair value less costs to sell. Based
on such periodic assessments, no impairments have been determined and,
therefore, no real estate carrying amounts have been adjusted.
Repairs and maintenance are expensed as incurred. Replacements and
betterments in excess of $500 are capitalized and depreciated over their
estimated useful lives.
F-21
<PAGE>
ARDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation is calculated using the straight-line method and forty year
lives for buildings and ten year lives for building improvements. Amortization
of tenant improvements is calculated using the straight-line method over the
estimated term of the related lease.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less when acquired.
RESTRICTED CASH
Restricted cash consists of cash held as collateral to provide credit
enhancement for certain mortgage loans payable and cash reserves for capital
expenditures, tenant improvements, security deposits and property taxes. All
restricted cash is controlled directly or indirectly by the related mortgage
lenders.
PREPAID COSTS
Prepaid leasing costs are amortized on a straight-line basis over the term
of the related lease.
Fees and costs incurred in obtaining long-term financing are amortized over
the terms of the related loan agreements.
REVENUE RECOGNITION
Minimum rent, including rental abatements and contractual fixed increases
attributable to operating leases, is recognized on a straight-line basis over
the term of the related lease. Amounts expected to be received in later years
are included in deferred rents. Property operating cost reimbursements due from
tenants for common area maintenance, real estate taxes and other recoverable
costs are recognized in the period the expenses are incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The mortgage loans payable of the Arden Predecessors consist primarily of
mortgage loans with loan to value ratios in excess of conforming loans generally
offered by financial institutions. The loans provide for variable indexed rates
and, in most cases, significant additional interest due at maturity.
Accordingly, management believes it is not practical to determine fair values
due to the lack of availability of current market information for similar
financial instruments. Other than the mortgage loans payable, the Arden
Predecessors believe the carrying amounts of their financial instruments
approximate their fair values.
INCOME TAXES
The combined and noncombined entities that make up the Arden Predecessors
consist of a Subchapter S corporation, limited liability companies and
partnerships. Taxable income is recorded on the separate tax returns of the
membership unit holders and individual partners and, accordingly, no provision
for income taxes has been recorded in the accompanying financial statements.
PER SHARE DATA
Per share data is not relevant since the Arden Predecessors represents a
presentation of the operations of a group of companies and partnerships.
UNAUDITED INTERIM STATEMENTS
The combined financial statements as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 are unaudited. In the opinion of management, such
financial statements reflect all adjustments necessary for a fair presentation
of the results of the respective interim periods. All such adjustments are of a
normal, recurring nature.
F-22
<PAGE>
ARDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. COMMERCIAL OFFICE PROPERTIES
The commercial office properties were acquired from nonaffiliated third
parties and consist of office buildings and related parking facilities, as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land................................................................... $ 24,216 $ 9,789
Buildings.............................................................. 125,252 23,313
Building improvements.................................................. 12,896 1,358
Tenant improvements.................................................... 1,806 2,047
---------- ---------
164,170 36,507
Accumulated depreciation............................................... (3,296) (1,530)
---------- ---------
$ 160,874 $ 34,997
---------- ---------
---------- ---------
</TABLE>
The Arden Predecessors capitalize interest and taxes related to buildings
under construction and renovation, including tenant improvements, to the extent
such assets qualify for capitalization. Total interest capitalized was $8,000,
$265,000, and $319,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
All commercial office properties are encumbered by mortgages (Note 5).
Office space in the properties is generally leased to tenants under lease
terms which provide for the tenants to pay for increases in operating expenses
in excess of specified amounts.
Noncancelable operating leases with tenants expire on various dates through
2011. The future minimum lease payments to be received under leases existing as
of December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996................................................... $41,928,000
1997................................................... 37,636,000
1998................................................... 31,743,000
1999................................................... 28,054,000
2000................................................... 23,069,000
Thereafter............................................. 64,872,000
</TABLE>
The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.
The Arden Predecessors lease the land underlying the office buildings and
parking structures of 4811 Airport Plaza Drive and 4900/10 Airport Plaza Drive
from the city of Long Beach.
Future minimum ground lease payments due under existing ground leases,
including properties acquired subsequent to December 31, 1995 (Note 9), are as
follows:
<TABLE>
<S> <C>
1996................................................... $1,294,000
1997................................................... 1,297,000
1998................................................... 1,297,000
1999................................................... 1,340,000
2000................................................... 942,000
Thereafter............................................. 60,307,000
</TABLE>
F-23
<PAGE>
ARDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS IN NONCOMBINED ENTITIES
The following are the Arden Predecessors' investments in various entities
which own commercial office properties in which Messrs. Ziman, Coleman, Gilbert
and their affiliates do not own controlling financial interests. These
investments are accounted for utilizing the equity method of accounting. Under
such accounting method, the net equity investment of the Arden Predecessors is
reflected on the combined balance sheets, and the combined statements of
operations include the Arden Predecessors' share of net income or loss from the
entities. The Arden Predecessors' stated ownership interest in each entity is as
follows:
<TABLE>
<CAPTION>
ARDEN PREDECESSORS'
ENTITY OWNERSHIP %
- -------------------------------------------------------------------------- ---------------------
<S> <C>
Bristol Encino Associates, LLC............................................ 20.9%
222 Harbor Associates, LLC................................................ 26.3%
Beverly Ventura Associates, L.P........................................... 50.0%
5000 Spring Associates Tenancy in Common.................................. 77.5%
</TABLE>
Condensed combined balance sheets and operating information is presented
below for all noncombined entities.
CONDENSED COMBINED BALANCE SHEETS OF NONCOMBINED ENTITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
JUNE 30,
1996
-----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Assets:
Commercial office properties, net........................ $ 91,555 $ 91,208 $ 71,158
Other assets............................................. 6,273 7,220 3,389
----------- --------- ---------
Total assets........................................... $ 97,828 $ 98,428 $ 74,547
----------- --------- ---------
----------- --------- ---------
Liabilities and owners' equity:
Mortgage loans payable................................... $ 86,420 $ 85,545 $ 61,487
Other liabilities........................................ 2,506 3,248 1,445
Arden Predecessors' equity............................... 3,069 3,163 7,583
Other owners' equity..................................... 5,833 6,472 4,032
----------- --------- ---------
Total liabilities and owners' equity................... $ 97,828 $ 98,428 $ 74,547
----------- --------- ---------
----------- --------- ---------
</TABLE>
F-24
<PAGE>
ARDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS IN NONCOMBINED ENTITIES (CONTINUED)
CONDENSED COMBINED STATEMENTS OF OPERATIONS OF NONCOMBINED ENTITIES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue....................................... $ 8,985 $ 8,355 $ 17,720 $ 7,736 $ 132
--------- --------- --------- --------- ---------
Expenses:
Property operating expenses................. 3,728 3,369 7,758 2,865 36
Interest.................................... 4,317 3,777 8,243 3,436 26
Depreciation and amortization............... 1,673 1,257 2,475 1,041 30
--------- --------- --------- --------- ---------
Total expenses............................ 9,718 8,403 18,476 7,342 92
--------- --------- --------- --------- ---------
Extraordinary loss............................ -- -- -- (466) --
--------- --------- --------- --------- ---------
Net (loss) income......................... $ (733) $ (48) $ (756) $ (72) $ 40
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The significant accounting policies used by the noncombined entities are
similar to those used by the Arden Predecessors.
COMMERCIAL OFFICE PROPERTIES OF NONCOMBINED ENTITIES
The commercial office properties consist of office buildings and related
parking facilities, as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................................... $ 16,229 $ 12,709
Buildings............................................................... 73,416 58,546
Building Improvements................................................... 1,960 10
Tenant Improvements..................................................... 2,957 939
--------- ---------
94,562 72,204
Accumulated Depreciation................................................ (3,354) (1,046)
--------- ---------
$ 91,208 $ 71,158
--------- ---------
--------- ---------
</TABLE>
MORTGAGE LOANS PAYABLE OF NONCOMBINED ENTITIES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
MORTGAGE LOANS DUE TO MORTGAGE BANKERS
Two mortgage loans, dated December 23, 1993, secured by two cross-
collateralized first trust deeds on real property, bearing interest at the
lender's composite commercial rate, which was 5.53% at December 31, 1995, plus
a margin of 3.25%. Interest only payments are due monthly and principal
payments are due periodically based on a portion of operating cash flows from
the property. Unpaid principal and interest of $22,283,000 is due on December
31, 1998. The remaining balance of $15,571,000 is due on December 31, 2000. $ 37,854,000 $ 36,747,000
</TABLE>
F-25
<PAGE>
ARDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS IN NONCOMBINED ENTITIES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
MORTGAGE LOANS DUE TO BANKS
Two mortgage loans, dated March 15, 1995, secured by two cross-collateralized
first trust deeds on real property, bearing interest at LIBOR plus 4.5%.
Interest only payments are due monthly, and all principal and interest is due
on March 15, 1997. This loan has an additional interest requirement of
$434,000 or approximately 2.0% of the principal balance to be deferred and
paid at maturity. At December 31, 1995, the borrower had recorded $172,000 of
additional interest, resulting in an effective interest rate of 11.5%. The
borrower is required to maintain a debt service coverage ratio, as defined in
the Loan Agreement, of 1.20:1.0. 22,351,000 --
A mortgage loan, dated December 23, 1994, secured by a first trust deed,
$12.09 million of the balance bearing interest at LIBOR plus 3.75% or a
periodic fixed rate, the remaining $2.79 million bearing interest at LIBOR
plus 4.0% at the option of the borrower. Interest only payments are due
monthly, and the principal and all unpaid interest is due on December 23,
1997. 14,880,000 14,880,000
A mortgage loan, dated December 14, 1994, secured by a first trust deed,
bearing interest at the Eleventh District Monthly Weighted Average Cost of
Funds Rate, as calculated by the Federal Home Loan Bank of San Francisco,
which was 5.059% at December 31, 1995, plus 3.75%. Interest only payments are
due monthly, and principal and all unpaid interest are due on January 1, 2005. 10,460,000 9,860,000
------------- -------------
Total Mortgage Loans Payable $ 85,545,000 $ 61,487,000
------------- -------------
------------- -------------
</TABLE>
5. MORTGAGE LOANS PAYABLE AND UNSECURED LINES OF CREDIT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
-------------- -------------
<S> <C> <C>
MORTGAGE LOANS DUE TO LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS
INC. (LEHMAN)
A mortgage loan, dated November 20, 1995, secured by seven first trust deeds
and one second trust deed on real property, bearing interest at LIBOR (with a
floor on LIBOR of 5.5%) plus 3.0%. Interest only payments are to be made
monthly and all principal and unpaid interest is due on November 20, 1998.
The loan agreement provides for additional interest to be deferred and paid
at maturity in the amount of $10,560,000 (Tier I Additional Interest) which
increases the day after each of the first and second anniversary dates of the
loan by $2,640,000, or 2% of the original principal balance (Tier II and Tier
III Additional Interest, respectively). At December 31, 1995, the Arden
Predecessors had recorded $586,000 of additional interest, resulting in an
effective interest rate of approximately 11.3%. Effective on the first
anniversary date of the loan, the Arden Predecessors are required to maintain
a debt service coverage ratio of 1.25:1.0. $ 132,000,000 $ 6,741,000
</TABLE>
F-26
<PAGE>
ARDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. MORTGAGE LOANS PAYABLE AND UNSECURED LINES OF CREDIT (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
-------------- -------------
<S> <C> <C>
A mortgage loan, dated June 13, 1995, secured by a first trust deed on real
property, bearing interest at LIBOR plus 4.5%. Interest only payments are due
monthly and all principal and unpaid interest is due on June 13, 1997. The
loan agreement provides for additional interest of $1,100,000 to be deferred
and repaid at maturity (Tier I Additional Interest). If the loan is extended
for an additional twelve months, the Arden Predecessors are to pay an
additional interest amount of $600,000 (Tier II Additional Interest). As of
December 31, 1995, the Arden Predecessors had recorded $298,000 of additional
interest, resulting in an effective interest rate of 15.6%. Effective on the
first anniversary date of the loan, the Arden Predecessors are required to
maintain a debt service coverage ratio 1.15:1.0. 10,200,000 --
MORTGAGE LOANS DUE TO BANKS
A mortgage loan, dated March 1, 1993, secured by a first trust deed on real
property, bearing interest, at the Arden Predecessor's option, at LIBOR plus
a margin of 1.0%, the treasury rate plus a margin of 1.75%, or the Prime Rate
plus 0.25%. Interest only payments are due monthly. Monthly payments of
principal begin March 1, 1996. The mortgage loan matures March 1, 2003. 25,438,000 25,455,000
-------------- -------------
Total mortgage loans payable $ 167,638,000 $ 32,196,000
-------------- -------------
-------------- -------------
</TABLE>
The LIBOR rate was 5.72% at December 31, 1995.
One mortgage loan provides for additional funds to be drawn for qualified
and approved tenant improvements, leasing commissions and capital improvements.
The amount of funds available for disbursement from this lending institution is
$3,500,000. As of December 31, 1995, total funds drawn for these purposes was
$2,713,000, and the undisbursed portion was $787,000.
The Arden Predecessors have three unsecured lines of credit, with a total
commitment of $2,713,000, from two domestic banks. The aggregate outstanding
balance was $813,000 at December 31, 1995. The lines accrue interest at the
Prime Rate. The undisbursed portion at December 31, 1995 was $1,900,000.
As of December 31, 1995, the scheduled principal payments for the mortgage
loans payable and unsecured lines of credit are as follows:
<TABLE>
<S> <C>
1996 $ 1,490,000
1997.................................................. 10,975,000
1998.................................................. 132,836,000
1999.................................................. 901,000
2000.................................................. 734,000
Thereafter............................................ 21,515,000
-----------
$168,451,000
-----------
-----------
</TABLE>
6. EXTRAORDINARY LOSS
During 1994, the Arden Predecessors incurred losses on Century Park Center
as a result of an earthquake in Los Angeles, California.
F-27
<PAGE>
ARDEN PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
CONCENTRATION OF CREDIT RISK
The Arden Predecessors maintain their cash and cash equivalents at financial
institutions. The combined account balances at each institution periodically
exceed FDIC insurance coverage, and, as a result, there is a concentration of
credit risk related to amounts on deposit in excess of FDIC insurance coverage.
Management of the Arden Predecessors believes that the risk is not significant.
OFFICE RENT EXPENSE
The Arden Predecessors lease office space for its corporate offices. The
future minimum rental payments due under the terms of the lease are $123,000 for
each of the next four years and $62,000 in the final year. The lease expires
June 30, 2000. The Arden Predecessors have the right to renew the lease for two,
one-year terms prior to expiration of the initial lease term.
LITIGATION
Management of the Arden Predecessors does not believe there is any
litigation threatened against the Arden Predecessors other than routine
litigation arising out of the ordinary course of business, some of which is
expected to be covered by liability insurance and all of which is not expected
to have a material adverse effect on the combined financial statements of the
Arden Predecessors.
8. RELATED PARTY TRANSACTIONS
Included in other income are management fees of $95,000, $213,000 and
$137,000 for 1995, 1994, and
1993, respectively, from various affiliated partnerships.
Included in accounts receivable are $28,000, $58,000 and $56,000 at December
31, 1995, 1994, and 1993, respectively, from various affiliated partnerships.
9. PROPERTY ACQUISITIONS
Subsequent to December 31, 1995, the Arden Predecessors purchased additional
properties from nonaffiliated third parties for an aggregate purchase price of
$94,665,000. The Participants incurred $100,000,000 of debt from an affiliate of
Lehman Brothers, Inc. as a result of financing the purchase, of which $5,335,000
was retained in a restricted cash account to be used for tenant improvements,
capital improvements and leasing commissions.
F-28
<PAGE>
ARDEN PREDECESSORS
SCHEDULE III
COMMERCIAL OFFICE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SQUARE FOOT DATA)
<TABLE>
<CAPTION>
COSTS
CAPTIALIZED
INITIAL COSTS SUBSEQUENT TO TOTAL COSTS
------------------------ ACQUISITION ------------------------
SQUARE BUILDINGS AND ----------------- BUILDINGS AND
COMBINED ENTITIES FOOTAGE LAND IMPROVEMENTS IMPROVEMENTS (4) LAND IMPROVEMENTS
- ----------------------------------------------- --------- --------- ------------- ----------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
PROPERTY NAME
- -----------------------------------------------
Century Park Center............................ 243,404 $ 7,189 $ 16,742 $ 4,472 $ 7,189 $ 21,214
1950 Sawtelle.................................. 103,772 1,988 7,263 107 1,988 7,370
70 South Lake.................................. 100,133 1,360 9,097 -- 1,360 9,097
New Wilshire................................... 202,704 1,200 19,902 4 1,200 19,906
Calabasas Commerce Center...................... 123,121 1,262 9,725 -- 1,262 9,725
Westwood Terrace............................... 135,943 2,103 16,850 37 2,103 16,887
Skyview Center................................. 391,675 6,514 33,701 -- 6,514 33,701
5601 Lindero Canyon............................ 105,830 2,600 6,067 1,535 2,600 7,602
4811 Airport Plaza Drive and 4900/10 Airport
Plaza Drive................................... 272,013 -- 14,452 -- -- 14,452
--------- --------- ------------- ------- --------- -------------
1,678,595 $ 24,216 $ 133,799 $ 6,155 $ 24,216 $ 139,954
--------- --------- ------------- ------- --------- -------------
--------- --------- ------------- ------- --------- -------------
NONCOMBINED ENTITIES
- -----------------------------------------------
PROPERTY NAME
- -----------------------------------------------
Beverly Atrium................................. 61,314 $ 4,127 $ 11,513 $ 600 $ 4,127 $ 12,113
Woodland Hills Financial....................... 224,955 6,566 14,754 1,715 6,566 16,469
Bristol Plaza.................................. 84,014 1,820 3,380 185 1,820 3,565
16000 Ventura Blvd............................. 174,841 1,700 17,189 571 1,700 17,760
Anaheim City Centre............................ 175,391 515 11,199 240 515 11,439
425 West Broadway.............................. 71,589 1,500 4,436 187 1,500 4,623
5000 East Spring............................... 163,358 -- 11,658 707 -- 12,365
--------- --------- ------------- ------- --------- -------------
955,462 $ 16,228 $ 74,129 $ 4,205 $ 16,228 $ 78,334
--------- --------- ------------- ------- --------- -------------
--------- --------- ------------- ------- --------- -------------
<CAPTION>
ACCUMULATED YEAR
COMBINED ENTITIES TOTAL DEPRECIATION (1) ENCUMBRANCES BUILT
- ----------------------------------------------- --------- ----------------- ------------- -----
<S> <C> <C> <C> <C>
PROPERTY NAME
- -----------------------------------------------
Century Park Center............................ $ 28,403 $ 2,357 $ 25,438 1972
1950 Sawtelle.................................. 9,358 131 10,200 1988
70 South Lake.................................. 10,457 33 11,000(3) 1982
New Wilshire................................... 21,106 72 22,000(3) 1989
Calabasas Commerce Center...................... 10,987 42 11,800(3) 1990
Westwood Terrace............................... 18,990 67 21,000(3) 1988
Skyview Center................................. 40,215 128 41,200(3) 1981
5601 Lindero Canyon............................ 10,202 427 10,400(3) 1989
4811 Airport Plaza Drive and 4900/10 Airport
Plaza Drive................................... 14,452 39 14,600(3) 1987
--------- ------ -------------
$ 164,170 $ 3,296 $ 167,638
--------- ------ -------------
--------- ------ -------------
NONCOMBINED ENTITIES
- -----------------------------------------------
PROPERTY NAME
- -----------------------------------------------
Beverly Atrium................................. $ 16,240 $ 790 $ 15,570(2) 1989
Woodland Hills Financial....................... 23,035 1,177 22,284(2) 1972
Bristol Plaza.................................. 5,385 114 5,200 1982
16000 Ventura Blvd............................. 19,460 313 17,151 1980
Anaheim City Centre............................ 11,954 437 9,880 1986
425 West Broadway.............................. 6,123 163 5,000 1984
5000 East Spring............................... 12,365 360 10,460 1989
--------- ------ -------------
$ 94,562 $ 3,354 $ 85,545
--------- ------ -------------
--------- ------ -------------
</TABLE>
(1) The depreciable life for buildings and improvements ranges from ten to forty
years.
(2) Each of these properties is collateral for both loans.
(3) All of these properties are collateral for a mortgage loan totaling
$132,000,000. The encumbrance allocated to an individual property is based
on the related individual release price.
(4) Includes total capitalized interest of $628,000.
F-29
<PAGE>
A summary of activity of combined commercial office properties and
accumulated depreciation is as follows:
<TABLE>
<CAPTION>
COMMERCIAL OFFICE PROPERTIES
--------------------------------
DECEMBER 31,
--------------------------------
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period........................................ $ 36,507 $ 25,885 $ --
Improvements.......................................................... 2,245 1,955 1,954
Acquisition of land, building and improvements........................ 125,418 8,667 23,931
---------- --------- ---------
Balance at end of period.............................................. $ 164,170 $ 36,507 $ 25,885
---------- --------- ---------
---------- --------- ---------
<CAPTION>
ACCUMULATED DEPRECIATION
--------------------------------
DECEMBER 31,
--------------------------------
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of period............................................... $ 1,530 $ 481 $ --
Depreciation expense......................................................... 1,766 1,049 481
--------- --------- ---------
Balance at end of period..................................................... $ 3,296 $ 1,530 $ 481
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Arden Realty Group, Inc.
We have audited the accompanying statement of revenue and certain expenses
of 16000 Ventura for the period January 1, 1995 to March 15, 1995. This
statement of revenue and certain expenses is the responsibility of the
management of 16000 Ventura. Our responsibility is to express an opinion on the
statement of revenue and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenue and certain expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11 of
Arden Realty Group, Inc. Certain expenses (described in Note 1) that would not
be comparable to those resulting from the proposed future operations of the
property are excluded and the statement is not intended to be a complete
presentation of the revenue and expenses of the property.
In our opinion, the statement of revenue and certain expenses presents
fairly, in all material respects, the revenue and certain expenses, as defined
above, of 16000 Ventura for the period January 1, 1995 to March 15, 1995.
Ernst & Young LLP
Los Angeles, California
April 10, 1996
F-31
<PAGE>
16000 VENTURA
STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
FOR THE PERIOD JANUARY 1, 1995 TO MARCH 15, 1995
<TABLE>
<S> <C>
REVENUE:
Rental............................................................................. $ 674
Tenant reimbursements.............................................................. 24
Parking............................................................................ 36
Other.............................................................................. 7
---------
Total revenue.................................................................... 741
---------
CERTAIN EXPENSES:
Property operating and maintenance................................................. 192
Real estate taxes.................................................................. 77
---------
Total certain expenses........................................................... 269
---------
Excess of revenue over certain expenses........................................ $ 472
---------
---------
</TABLE>
See accompanying notes to statement of revenue and certain expenses.
F-32
<PAGE>
16000 VENTURA
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE PERIOD JANUARY 1, 1995 TO MARCH 15, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying statement of revenue and certain expenses includes the
operations of 16000 Ventura, a 174,841 square foot commercial office property
located in Encino, California. 16000 Ventura was acquired by Bristol Encino
Associates, LLC on March 15, 1995 for $18,889,000. Substantial ownership
interests in the entity that owns the property are held by Richard Ziman, Victor
Coleman, Arthur Gilbert, and related individuals and entities controlled by
them, (the "Arden Predecessors"). The Arden Predecessors, along with other
unrelated parties which collectively represent the "Participants" will,
concurrently with a proposed public offering, enter into a series of
transactions with Arden Realty Group, Inc., a Maryland corporation, to form a
real estate investment trust (the "REIT") to continue and expand the business of
the Arden Predecessors. 16000 Ventura has been managed by Arden Realty Group,
Inc., a California corporation, since its acquisition by the Arden Predecessors.
16000 Ventura was purchased from a nonaffiliated third party.
BASIS OF PRESENTATION
The accompanying statement was prepared to comply with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
registration statement on Form S-11 of Arden Realty Group, Inc., a Maryland
corporation (the "Company").
The accompanying statement is not representative of the actual operations
for the period presented as certain expenses that may not be comparable to the
expenses expected to be incurred by the Company in the future operations of
16000 Ventura have been excluded. Excluded expenses consist of interest,
depreciation and amortization and property general and administrative costs not
directly comparable to the future operations of the 16000 Ventura.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the terms of the
related leases.
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amount of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
2. COMMERCIAL OFFICE PROPERTIES
The future minimum lease payments to be received under existing operating
leases as of March 15, 1995 are as follows:
<TABLE>
<S> <C>
1996............................................................ $2,790,000
1997............................................................ 2,132,000
1998............................................................ 1,275,000
1999............................................................ 602,000
2000............................................................ 282,000
Thereafter...................................................... --
</TABLE>
The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses.
Office space in 16000 Ventura is generally leased to tenants under lease
terms which provide for the tenants to pay for increases in operating expenses
in excess of specified amounts.
F-33
<PAGE>
Map of California showing the locations of Arden Realty Group, Inc.
properties in Los Angeles County (including a blow up of Los Angeles County),
Orange County and San Diego County.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or any of the Underwriters. This
Prospectus does not constitute an offer of any securities other than those to
which it relates or an offer to sell, or a solicitation of an offer to buy, to
any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof.
---------------------
SUMMARY TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---
<S> <C>
Prospectus Summary................................. 1
Risk Factors....................................... 16
The Company........................................ 27
Business and Growth Strategies..................... 29
Use of Proceeds.................................... 33
Distributions...................................... 34
Capitalization..................................... 39
Dilution........................................... 40
Selected Combined Financial Information............ 41
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 44
Southern California Economy and Office Markets..... 53
Business and Properties............................ 58
Office Submarkets and Property Information......... 69
Management......................................... 90
Structure and Formation of the Company............. 96
Policies With Respect to Certain Transactions...... 100
Certain Transactions............................... 103
Partnership Agreement.............................. 104
Principal Stockholders............................. 107
Capital Stock...................................... 108
Certain Provisions of Maryland law and the
Company's Charter and Bylaws..................... 111
Shares Available for Future Sale................... 114
Federal Income Tax Considerations.................. 115
ERISA Considerations............................... 126
Underwriting....................................... 129
Experts............................................ 130
Legal Matters...................................... 131
Additional Information............................. 131
Glossary........................................... 132
Index to Financial Statements...................... F-1
</TABLE>
---------------------
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the securities offered hereby, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
18,847,500 SHARES
ARDEN REALTY GROUP, INC.
COMMON STOCK
-------------------
PROSPECTUS
, 1996
---------------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
SMITH BARNEY INC.
EVEREN SECURITIES, INC.
LEGG MASON WOOD WALKER
INCORPORATED
RAYMOND JAMES &
ASSOCIATES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration Fee - Securities and Exchange Commission......... $ 150,344.00
NASD Fee...................................................... $ 30,500.00
New York Stock Exchange Listing Fee........................... $ 84,600.00
Transfer Agent and Registrar's Fees........................... $ 20,000.00
Printing and Engraving Expenses............................... $ 300,000.00
Legal Fees and Expenses (other than Blue Sky)................. $1,500,000.00
Accounting Fees and Expenses.................................. $1,800,000.00
Blue Sky Fees and Expenses.................................... $ 50,000.00
Miscellaneous Expenses........................................ $ 404,556.00
------------
Total..................................................... $4,340,000.00
------------
------------
</TABLE>
- ------------------------
* To be completed by Amendment.
ITEM 31. SALES TO SPECIAL PARTIES.
See Item 32.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
As part of the Formation Transactions an aggregate of 2,889,071 OP Units
will be issued to certain Participants in return for (i) the contribution of
certain interests in the Arden Predecessors and in certain of the Properties to
the Operating Partnership and (ii) the contribution by Arden of certain of its
assets, including management contracts relating to certain of the Properties and
the contract rights to purchase the Acquisition Properties. The issuance of the
OP Units will be effected in reliance upon an exemption from registration under
Section 4(2) of the Securities Act as a transaction by an issuer not involving a
public offering. The descriptions of the foregoing transactions in the
Prospectus under the headings "Formation Transactions," "Management" and
"Certain Transactions" are incorporated herein by reference.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter of the
Company contains such a provision which eliminates such liability to the maximum
extent permitted by Maryland law.
The Charter of the Company authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise from and against any claim or liability to which such person may
incur by reason of his status as a present or former stockholder, director or
officer of the Company. The Bylaws of the Company obligate it, to the maximum
extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director of officer who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has served
another corporation, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and who is made a party to the proceeding by reason of his service in
that capacity against any claim or liability to which he may become subject by
reason of such
II-1
<PAGE>
service. The Charter and Bylaws also permit the Company to indemnify and advance
expenses to any person who served a predecessor of the Company in any of the
capacities described above and to any employee or agent of the Company or a
predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his services in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation. In
addition, the MGCL requires the Company, as a condition to advancing expenses,
to obtain (a) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the Company as authorized by the Bylaws and (b) a written statement by or on his
behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
ARDEN REALTY GROUP, INC.
Pro Forma Condensed Combined Financial Statements (Unaudited)
Pro Forma Condensed Combined Balance Sheet as of June 30, 1996
(Unaudited)
Pro Forma Condensed Combined Statement of Operations for the Six
Months Ended June 30, 1996 (Unaudited)
Pro Forma Condensed Combined Statement of Operations for the Year
Ended December 31, 1995 (Unaudited)
Notes to Pro Forma Condensed Combined Financial Statements
(Unaudited)
Historical:
Report of Independent Auditors
Balance Sheet as of May 1, 1996 and June 30, 1996 (Unaudited)
Notes to Balance Sheet
ARDEN PREDECESSORS
Combined Financial Statements:
Report of Independent Auditors
Combined Balance Sheets as of June 30, 1996 (Unaudited) and
December 31, 1995 and 1994
Combined Statements of Operations for the Six Months ended June
30, 1996 and 1995 (Unaudited) and the Years Ended December 31,
1995, 1994 and 1993
II-2
<PAGE>
Combined Statements of Owners' Equity for the Six Months ended
June 30, 1996 (Unaudited) and the Years Ended December 31, 1995,
1994 and 1993
Combined Statements of Cash Flows for the Six Months ended June
30, 1996 and 1995 (Unaudited) and the Years Ended December 31,
1995, 1994 and 1993
Notes to Combined Financial Statements
Schedule III -- Commercial Office Properties and Accumulated
Depreciation
16000 VENTURA
Statement of Revenue and Certain Expenses:
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the Period January
1, 1995 to March 15, 1995
Notes to Statement of Revenue and Certain Expenses
1950 SAWTELLE
Statement of Revenue and Certain Expenses:
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the Period January
1, 1995 to June 14, 1995
Notes to Statement of Revenue and Certain Expenses
WESTWOOD TERRACE, SKYVIEW CENTER, 4811 AND 4900/10 AIRPORT PLAZA DRIVE
AND NEW WILSHIRE
Combined Statement of Revenue and Certain Expenses:
Report of Independent Auditors
Combined Statement of Revenue and Certain Expenses for the Period
December 1, 1994 to November 22, 1995
Notes to Combined Statement of Revenue and Certain Expenses
70 SOUTH LAKE AND CALABASAS COMMERCE CENTER
Statement of Revenue and Certain Expenses:
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the Period January
1, 1995 to
November 22, 1995
Notes to Statement of Revenue and Certain Expenses
1996 ACQUIRED PROPERTIES
Combined Statements of Revenue and Certain Expenses:
Report of Independent Auditors
Combined Statements of Revenue and Certain Expenses for the 1996
Interim Period Prior to Acquisition (Unaudited) and the Year End
December 31, 1995
Notes to Combined Statements of Revenue and Certain Expenses
II-3
<PAGE>
ACQUISITION PROPERTIES
Combined Statements of Revenue and Certain Expenses:
Report of Independent Auditors
Combined Statements of Revenue and Certain Expenses for the Six
Months Ended June 30, 1996 and 1995 (Unaudited) and the Year Ended
December 31, 1995
Notes to Combined Statements of Revenue and Certain Expenses
(b) Schedules Included in Part II: None.
All other schedules have been omitted because they are either not applicable
or the information required has been disclosed in the financial statements and
related notes included in this Prospectus.
(c) Exhibits.
<TABLE>
<C> <S>
1.1+ Form of Underwriting Agreement between the Company and the Representatives.
3.1 Articles of Amendment and Restatement of the Company's Charter.
3.2 Bylaws of the Company.
3.3 Specimen of certificate representing shares of Common Stock.
5.1+ Opinion of Latham & Watkins regarding the validity of the securities being
registered.
8.1+ Opinion of Latham & Watkins regarding tax matters.
10.1 Form of Agreement of Limited Partnership of the Operating Partnership.
10.2+ 1996 Stock Option and Incentive Plan.
10.3 Form of Officers and Directors Indemnity Agreement.
10.5 Commitment Letter regarding Mortgage Financing.
10.6+ Employment Agreement between the Company and Mr. Ziman.
10.7+ Employment Agreement between the Company and Mr. Coleman.
10.8 Employment Agreement between the Company and Ms. Laing.
10.9+ Miscellaneous Rights Agreement among the Company, the Operating Partnership and
Mr. Ziman.
10.10 Ground lease for Imperial Bank Tower.
10.11 Ground lease for parking structure at Imperial Bank Tower.
10.12 Master Ground Lease for Long Beach Airport Business Park.
10.13 Ground lease for parking structure at the Anaheim City Centre.
10.14+ Option Agreement with Broad Base Investments Two, LLC.
10.15 Option Agreement with CIC Equities, Inc.
10.16 Option Agreement with TJB Investments, Inc.
10.17 Contribution Agreement with Richard S. Ziman.
10.18 Contribution Agreement with Victor J. Coleman.
10.19 Contribution Agreement with Michele Byer.
10.20 Contribution Agreement with Arden Century Associates.
10.21 Contribution Agreement with Arden LAOP Two, LLC.
10.22 Contribution Agreement with Arden Sawtelle Associates.
10.23 Contribution Agreement with Coleman Enterprises, Inc.
10.24 Partnership Interest Contribution Agreement with Arthur Gilbert and Rosalinde
Gilbert 1982 Trust.
10.25 Contribution Agreement with Intercity Building Associates.
10.26 Contribution Agreement with Metropolitan Falls Partners.
10.27 Contribution Agreement with Montour Realty Associates.
10.28 Contribution Agreement with Ziman Realty Partners.
10.29 Contribution Agreement with Arthur Gilbert and Rosalinde Gilbert 1982 Trust.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.30 Contribution Agreement with Arden Realty Group, Inc.
10.31 Office Market Study Prepared by Cushman & Wakefield of California, Inc.
21.1* Subsidiary of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Cushman & Wakefield of California, Inc.
23.3+ Consent of Latham & Watkins (contained in Exhibits 5.1 and 8.1).
23.4* Consent of Carl D. Covitz.
23.5* Consent of Kenneth B. Roath.
23.6* Consent of Arthur Gilbert.
23.7* Consent of Steven C. Good.
23.8 Consent of Jerry Asher.
24. Power of Attorney (see Page II-6).
27. Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed.
+ To be filed by Amendment.
ITEM 36. UNDERTAKINGS.
The undersigned Company hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 33 above, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a Director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
Director, Officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Company hereby undertakes that:
(1) For the purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in the form of
Prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-11 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California on the 16th day of September, 1996.
ARDEN REALTY GROUP, INC.
By: /s/ RICHARD S. ZIMAN
-----------------------------------
Richard S. Ziman
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Richard S. Ziman or Victor J. Coleman or
any one of them, his or her attorneys-in-fact and agents, each with full power
of substitution and resubstitution for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this Registration
Statement or a Registration Statement prepared in accordance with Rule 462 of
the Securities Act, and to file the same, with exhibits thereto and other
documents in connection herewith or in connection with the registration of the
Common Stock under the Securities Exchange Act of 1934, as amended, with the
Securities and Exchange Commission, granting unto each of such attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary in connection with such matters and hereby
ratifying and confirming all that each of such attorneys-in-fact and agents or
his or her substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
indicated on September 16, 1996.
TITLE
-------------------------
Chairman of the Board of
/s/ RICHARD S. ZIMAN Directors and
- ----------------------------------- Chief Executive Officer
Richard S. Ziman (Principal Executive
Officer)
/s/ VICTOR J. COLEMAN President, Chief
- ----------------------------------- Operating Officer and
Victor J. Coleman Director
/s/ DIANA M. LAING Chief Financial Officer
- ----------------------------------- (Principal Financial
Diana M. Laing Officer)
Chief Accounting Officer
/s/ MICHELE BYER and Secretary
- ----------------------------------- (Principal Accounting
Michele Byer Officer)
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. EXHIBIT NUMBERED PAGE
- --------- ---------------------------------------------------------------------------------------- ---------------------
<S> <C> <C>
1.1+ Form of Underwriting Agreement between the Company and the Representatives.
3.1 Articles of Amendment and Restatement of the Company's Charter.
3.2 Bylaws of the Company.
3.3 Specimen of certificate representing shares of Common Stock.
5.1+ Opinion of Latham & Watkins regarding the validity of the securities being registered.
8.1+ Opinion of Latham & Watkins regarding tax matters.
10.1 Form of Agreement of Limited Partnership of the Operating Partnership.
10.2+ 1996 Stock Option and Incentive Plan.
10.3 Form of Officers and Directors Indemnity Agreement.
10.5 Mortgage Financing Agreement.
10.6+ Employment Agreements between the Company and Mr. Ziman.
10.7+ Employment Agreement between the Company and Mr. Coleman.
10.8 Employment Agreement between the Company and Ms. Laing.
10.9+ Miscellaneous Rights Agreement among the Company, the Operating Partnership and Mr.
Ziman.
10.10 Ground lease for Imperial Bank Tower.
10.11 Ground lease for parking structure of Imperial Bank Tower.
10.12 Master Ground Lease for Long Beach Airport Business Park.
10.13 Ground lease for parking structure at the Anaheim City Centre.
10.14+ Option Agreement with Broad Base Investments Two, LLC.
10.15 Option Agreement with CIC Equities, Inc.
10.16 Option Agreement with TJB Investments, Inc.
10.17 Contribution Agreement with Richard S. Ziman.
10.18 Contribution Agreement with Victor J. Coleman.
10.19 Contribution Agreement with Michele Byer.
10.20 Contribution Agreement with Arden Century Associates.
10.21 Contribution Agreement with Arden LAOP Two, LLC.
10.22 Contribution Agreement with Arden Sawtelle Associates.
10.23 Contribution Agreement with Coleman Enterprises, Inc.
10.24 Partnership Interest Contribution Agreement with Arthur Gilbert and Rosalinde Gilbert
1982 Trust.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. EXHIBIT NUMBERED PAGE
- --------- ---------------------------------------------------------------------------------------- ---------------------
10.25 Contribution Agreement with Intercity Building Associates.
<S> <C> <C>
10.26 Contribution Agreement with Metropolitan Falls Partners.
10.27 Contribution Agreement with Montour Realty Associates.
10.28 Contribution Agreement with Ziman Realty Partners.
10.29 Contribution Agreement with Arthur Gilbert and Rosalinde Gilbert 1982 Trust.
10.30 Contribution Agreement with Arden Realty Group, Inc.
10.31 Office Market Study Prepared by Cushman & Wakefield of California, Inc.
21.1* Subsidiary of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Cushman & Wakefield of California, Inc.
23.3+ Consent of Latham & Watkins (contained in Exhibits 5.1 and 8.1).
23.4* Consent of Carl D. Covitz.
23.5* Consent of Kenneth B. Roath.
23.6* Consent of Arthur Gilbert.
23.7* Consent of Steven C. Good.
23.8 Consent of Jerry Asher.
24. Power of Attorney (see Page II-6).
27. Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed.
+ To be filed by Amendment.
<PAGE>
ARDEN REALTY GROUP, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST: Arden Realty Group, Inc., a Maryland corporation (the
"Corporation"), desires to amend and restate its charter (the "Charter") as
currently in effect and as hereinafter amended.
SECOND: The following provisions are all the provisions of the
Charter currently in effect and as hereinafter amended:
ARTICLE I
INCORPORATOR
The undersigned, James J. Hanks, Jr., whose address is c/o Ballard
Spahr Andrews & Ingersoll, 300 East Lombard Street, Baltimore, Maryland 21202,
being at least 18 years of age, does hereby form a corporation under the general
laws of the State of Maryland.
ARTICLE II
NAME
The name of the corporation (the "Corporation") is:
Arden Realty Group, Inc.
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed are to engage in any
lawful act or activity (including, without limitation or obligation, engaging in
business as a real estate investment trust under the Internal Revenue Code of
1986, as amended, or any successor statute (the "Code")) for which corporations
may be organized under the general laws of the State of Maryland as now or
hereafter in force. For purposes of these Articles, "REIT" means a real
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estate investment trust under Sections 856 through 860 of the Code.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the State of
Maryland is c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard Street,
Baltimore, Maryland 21202, Attention: James J. Hanks, Jr. The name of the
resident agent of the Corporation in the State of Maryland is James J. Hanks,
Jr., whose post address is c/o Ballard Spahr Andrews & Ingersoll, 300 East
Lombard Street, Baltimore, Maryland 21202. The resident agent is a citizen of
and resides in the State of Maryland.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 5.1 NUMBER AND CLASSIFICATION OF DIRECTORS. The business and
affairs of the Corporation shall be managed under the direction of the Board of
Directors. The number of directors of the Corporation initially shall be 7,
which number may be increased or decreased pursuant to the Bylaws, but shall
never be less than the minimum number required by the Maryland General
Corporation Law. The names of the directors who shall serve until the first
annual meeting of stockholders and until their successors are duly elected and
qualify are:
Richard S. Ziman
Victor J. Coleman
Jerry Asher
Carl D. Covitz
Kenneth B. Roath
Arthur Gilbert
Steven C. Good
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These directors may increase the number of directors and may fill any vacancy,
whether resulting from an increase in the number of directors or otherwise, on
the Board of Directors prior to the first annual meeting of stockholders in the
manner provided in the Bylaws.
The Corporation's Board of Directors (other than any director elected
solely by holders of one or more series of Preferred Stock) is divided into
three classes of directors, as nearly equal in number as possible, one class to
hold office initially for a term expiring at the next succeeding annual meeting
of stockholders, another class to hold office initially for a term expiring at
the second succeeding annual meeting of stockholders and another class to hold
office initially for a term expiring at the third succeeding annual meeting of
stockholders, with the members of each class to hold office until their
successors are duly elected and qualify. At each annual meeting of the
stockholders, the successors to the class of directors whose term expires at
such meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election.
Section 5.2 EXTRAORDINARY ACTIONS. Except as specifically provided
in Article VIII, notwithstanding any provision of law permitting or requiring
any action to be taken or authorized by the affirmative vote of the holders of a
greater number of votes, any such action shall be effective and valid if taken
or authorized by the affirmative vote of holders of shares entitled to cast a
majority of all the votes entitled to be cast on the matter.
Section 5.3 AUTHORIZATIONS BY BOARD OF STOCK ISSUANCE. The Board of
Directors may authorize the issuance from time to time of shares of stock of the
Corporation of any class or series, whether now or hereafter authorized, or
securities or rights convertible into shares of its stock of any class or
series, whether now or hereafter authorized, for such consideration as the Board
of Directors may deem advisable (or without consideration in the case of a stock
split
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or stock dividend), subject to such restrictions or limitations, if any, as may
be set forth in the Charter or the Bylaws.
Section 5.4 PREEMPTIVE RIGHTS. Except as may be provided by the
Board of Directors in setting the terms of classified or reclassified shares of
stock pursuant to Section 6.4, no holder of shares of stock of the Corporation
shall, as such holder, have any preemptive right to purchase or subscribe for
any additional shares of stock of the Corporation or any other security of the
Corporation which it may issue or sell unless the Corporation agrees to grant
such holder preemptive rights pursuant to a written contract.
Section 5.5 INDEMNIFICATION. The Corporation shall have the power,
to the maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (a) any individual who is a
present or former director or officer of the Corporation who is made a party to
a proceeding by reason of his service in that capacity or (b) any individual
who, while a director of the Corporation and at the request of the Corporation,
serves or has served as a director, officer, partner or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his status as a
present or former director or officer of the Corporation. The Corporation shall
have the power, with the approval of the Board of Directors, to provide such
indemnification and advancement of expenses to a person who served a predecessor
of the Corporation in any of the capacities described in (a) or (b) above and to
any employee or agent of the Corporation or a predecessor of the Corporation;
provided, however, that such indemnification shall not be provided with respect
to any liability such person is
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determined to have, by virtue of an agreement or a final, non-appealable
judgment of a court, under any contribution agreement dated as of June 17, 1996
between such person and Arden Realty Group Limited Partnership. Neither the
amendment nor repeal of this Section 5.5, nor the adoption or amendment of any
other provision of the Bylaws or Charter of the Corporation inconsistent with
this Section 5.5, shall apply to or affect in any respect the applicability of
the foregoing with respect to any act or failure to act which occurred prior to
such amendment, repeal or adoption.
Section 5.6 DETERMINATIONS BY BOARD. The determination as to any
of the following matters, made in good faith by or pursuant to the direction of
the Board of Directors consistent with the Charter and in the absence of actual
receipt of an improper benefit in money, property or services or active and
deliberate dishonesty established by a court, shall be final and conclusive and
shall be binding upon the Corporation and every holder of shares of its stock:
the amount of the net income of the Corporation for any period and the amount of
assets at any time legally available for the payment of dividends, redemption of
its stock or the payment of other distributions on its stock; the amount of
paid-in surplus, net assets, other surplus, annual or other net profit, net
assets in excess of capital, undivided profits or excess of profits over losses
on sales of assets; the amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves or charges
shall have been created shall have been paid or discharged); the fair value, or
any sale, bid or asked price to be applied in determining the fair value, of any
asset owned or held by the Corporation; and any matters relating to the
acquisition, holding and disposition of any assets by the Corporation.
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Section 5.7 REIT QUALIFICATION. The Board of Directors shall use its
reasonable best efforts to take such actions as are necessary or appropriate to
preserve the status of the Corporation as a REIT; however, the Board of
Directors may determine that compliance with any restriction or limitation on
stock ownership and transfers set forth in Article VII is no longer required for
REIT qualification.
Section 5.8 REMOVAL OF DIRECTORS. Subject to the rights of one or
more classes or series of Preferred Stock to elect one or more directors, any
director, or the entire Board of Directors, may be removed from office at any
time, but only for cause and then only by the affirmative vote of the holders of
at least two thirds of the votes entitled to be cast in the election of
directors. For the purpose of this paragraph, "cause" shall mean with respect
to any particular director a final judgment of a court of competent jurisdiction
holding that such director caused demonstrable, material harm to the Corporation
through bad faith or active and deliberate dishonesty.
Section 5.9 ADVISOR AGREEMENTS. Subject to such approval of
stockholders and other conditions, if any, as may be required by any applicable
statute, rule or regulation, the Board of Directors may authorize the execution
and performance by the Corporation of one or more agreements with any person,
corporation, association, company, trust, partnership (limited or general) or
other organization whereby, subject to the supervision and control of the Board
of Directors, any such other person, corporation, association, company, trust,
partnership (limited or general) or other organization shall render or make
available to the Corporation managerial, investment, advisory and/or related
services, office space and other services and facilities (including, if deemed
advisable by the Board of Directors, the management or supervision of the
investments of the Corporation) upon such terms and conditions as may be
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provided in such agreement or agreements (including, if deemed fair and
equitable by the Board of Directors, the compensation payable thereunder by
the Corporation).
ARTICLE VI
STOCK
Section 6.1 AUTHORIZED SHARES. The Corporation has authority to
issue 100,000,000 shares of Common Stock, $.01 par value per share ("Common
Stock"), and 20,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock"). The aggregate par value of all authorized shares of
stock having par value is $1,200,000.
Section 6.2 COMMON STOCK. Subject to the provisions of Article
VII, each share of Common Stock shall entitle the holder thereof to one
vote. The Board of Directors may reclassify any unissued shares of Common
Stock from time to time in one or more classes or series of stock.
Section 6.3 PREFERRED STOCK. The Board of Directors may
classify any unissued shares of Preferred Stock and reclassify any
previously classified but unissued shares of Preferred Stock of any series
from time to time, in one or more series of stock.
Section 6.4 CLASSIFIED OR RECLASSIFIED SHARES. Prior to
issuance of classified or reclassified shares of any class or series, the
Board of Directors by resolution shall: (a) designate that class or series
to distinguish it from all other classes and series of stock of the
Corporation; (b) specify the number of shares to be included in the class
or series; (c) set or change, subject to the provisions of Article VII and
subject to the express terms of any class or series of stock of the
Corporation outstanding at the time, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to transferability,
dividends or other distributions, qualifications and terms and conditions
of redemption for each class or series;
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and (d) cause the Corporation to file articles supplementary with the State
Department of Assessments and Taxation of Maryland ("SDAT"). Any of the
terms of any class or series of stock set or changed pursuant to clause (c)
of this Section 6.4 may be made dependent upon facts or events
ascertainable outside the Charter (including determinations by the Board of
Directors or other facts or events within the control of the Corporation)
and may vary among holders thereof, provided that the manner in which such
facts, events or variations shall operate upon the terms of such class or
series of stock is clearly and expressly set forth in the articles
supplementary filed with the SDAT.
Section 6.5 CHARTER AND BYLAWS. All persons who shall acquire
stock in the Corporation shall acquire the same subject to the provisions
of the Charter and the Bylaws.
ARTICLE VII
RESTRICTIONS ON OWNERSHIP AND TRANSFER TO PRESERVE TAX BENEFIT
Section 7.1 DEFINITIONS. For the purposes of this Article VII,
the following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Common Shares by a
Person who is or would be treated as an owner of such Common Shares either
actually or constructively through the application of Section 544 of the
Code, as modified by Section 856(h)(1)(B) of the Code. The terms
"Beneficial Owner," "Beneficially Own," "Beneficially Owns" and
"Beneficially Owned" shall have the correlative meanings.
"Charitable Beneficiary" shall mean one or more beneficiaries of
the Trust as determined pursuant to Section 7.3(f) of this Article VII.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
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"Common Shares" shall mean shares of the Corporation's Common
Stock.
"Constructive Ownership" shall mean ownership of Common Shares by
a Person who is or would be treated as an owner of such Common Shares
either actually or constructively through the application of Section 318 of
the Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructive Owner," "Constructively Own," "Constructively Owns" and
"Constructively Owned" shall have the correlative meanings.
"Initial Public Offering" shall mean the sale of Common Shares
pursuant to the Corporation's first effective registration statement for
such Common Shares filed under the Securities Act of 1933, as amended.
"IRS" means the United States Internal Revenue Service.
"Market Price" shall mean the last reported sales price reported
on the New York Stock Exchange of the Common Shares on the trading day
immediately preceding the relevant date, or if the Common Shares are not
then traded on the New York Stock Exchange, the last reported sales price
of the Common Shares on the trading day immediately preceding the relevant
date as reported on any exchange or quotation system over which the Common
Shares may be traded, or if the Common Shares are not then traded over any
exchange or quotation system, then the market price of the Common Shares on
the relevant date as determined in good faith by the Board of Directors of
the Corporation.
"Ownership Limit" shall mean 9.0% (by value or by number of
shares, whichever is more restrictive) of the outstanding Common Shares of
the Corporation.
"Partnership Agreement" shall mean the Agreement of Limited
Partnership of Arden Realty Group Limited Partnership, of which the
Corporation is the sole general partner, dated as of September ___, 1996,
as such agreement may be amended from time to time.
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"Person" shall mean an individual, corporation, partnership,
limited liability company, estate, trust (including a trust qualified under
Section 401(a) or 501(c)(17) of the Code), a portion of a trust permanently
set aside for or to be used exclusively for the purposes described in
Section 642(c) of the Code, association, private foundation within the
meaning of Section 509(a) of the Code, joint stock company or other entity;
but does not include an underwriter acting in a capacity as such in a
public offering of the Common Shares provided that the ownership of Common
Shares by such underwriter would not result in the Corporation being
"closely held" within the meaning of Section 856(h) of the Code, or
otherwise result in the Corporation failing to qualify as a REIT.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer which results in a transfer to a Trust, as provided in
Section 7.2(b) of this Article VII, the purported beneficial transferee or
owner for whom the Purported Record Transferee would have acquired or owned
Common Shares, if such Transfer had been valid under Section 7.2(a) of this
Article VII.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer which results in a transfer to a Trust, as provided in
Section 7.2(b) of this Article VII, the record holder of the Common Shares
if such Transfer had been valid under Section 7.2(a) of this Article VII.
"REIT" shall mean a real estate investment trust under Section
856 through 860 of the Code.
"Restriction Termination Date" shall mean the first day after the
date of the Initial Public Offering on which the Board of Directors of the
Corporation determines that it is no longer in the best interests of the
Corporation to attempt to, or continue to, qualify as a
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REIT.
"Transfer" shall mean any sale, transfer, gift, assignment,
devise or other disposition of Common Shares, including (i) the granting of
any option or entering into any agreement for the sale, transfer or other
disposition of Common Shares or (ii) the sale, transfer, assignment or
other disposition of any securities (or rights convertible into or
exchangeable for Common Shares), whether voluntary or involuntary, whether
of record or beneficially or Beneficially or Constructively (including but
not limited to transfers of interests in other entities which results in
changes in Beneficial or Constructive Ownership of Common Shares), and
whether by operation of law or otherwise.
"Trust" shall mean each of the trusts provided for in Section 7.3
of this Article VII.
"Trustee" shall mean the Person unaffiliated with the
Corporation, the Purported Beneficial Transferee, and the Purported Record
Transferee, that is appointed by the Corporation to serve as trustee of the
Trust.
7.2 RESTRICTION ON OWNERSHIP AND TRANSFERS.
(a) From the date of the Initial Public Offering and prior
to the Restriction Termination Date:
(i) except as provided in Section 7.9 of this
Article VII, no Person shall Beneficially Own Common Shares in excess of
the Ownership Limit;
(ii) except as provided in Section 7.9 of this
Article VII, no Person shall Constructively Own in excess of 9.8% (by value
or by number of shares, whichever is more restrictive) of the outstanding
Common Shares of the Corporation; and
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(iii) no Person shall Beneficially or
Constructively Own Common Shares to the extent that such Beneficial or
Constructive Ownership would result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code, or otherwise failing to
qualify as a REIT (including but not limited to ownership that would result
in the Corporation owning (actually or Constructively) an interest in a
tenant that is described in Section 856(d)(2)(B) of the Code if the income
derived by the Corporation (either directly or indirectly through one or
more partnerships) from such tenant would cause the Corporation to fail to
satisfy any of the gross income requirements of Section 856(c) of the
Code).
(b) If, during the period commencing on the date of the
Initial Public Offering and prior to the Restriction Termination Date, any
Transfer (whether or not such Transfer is the result of a transaction
entered into through the facilities of the New York Stock Exchange
("NYSE")) or other event occurs that, if effective, would result in any
Person Beneficially or Constructively Owning Common Shares in violation of
Section 7.2(a) of this Article VII, (1) then that number of Common Shares
that otherwise would cause such Person to violate Section 7.2(a) of this
Article VII (rounded up to the nearest whole share) shall be automatically
transferred to a Trust for the benefit of a Charitable Beneficiary, as
described in Section 7.3, effective as of the close of business on the
business day prior to the date of such Transfer or other event, and such
Purported Beneficial Transferee shall thereafter have no rights in such
Common Shares or (2) if, for any reason, the transfer to the Trust
described in clause (1) of this sentence is not automatically effective as
provided therein to prevent any Person from Beneficially or Constructively
Owning Common Shares in violation of Section 7.2(a) of this Article VII,
then the Transfer of that number of Common Shares that otherwise would
cause any Person to violate Section 7.2(a) shall be void AB INITIO, and the
Purported
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Beneficial Transferee shall have no rights in such Common Shares.
(c) Notwithstanding any other provisions contained herein,
during the period commencing on the date of the Initial Public Offering and
prior to the Restriction Termination Date, any Transfer of Common Shares
(whether or not such Transfer is the result of a transaction entered into
through the facilities of the NYSE) that, if effective, would result in the
capital stock of the Corporation being beneficially owned by less than 100
Persons (determined without reference to any rules of attribution) shall be
void AB INITIO, and the intended transferee shall acquire no rights in such
Common Shares.
(d) It is expressly intended that the restrictions on
ownership and Transfer described in this Section 7.2 of Article VII shall
apply to the redemption/exchange rights provided in Section 8.6 of the
Partnership Agreement. Notwithstanding any of the provisions of the
Partnership Agreement to the contrary, a partner of Arden Realty Group
Limited Partnership shall not be entitled to effect an exchange of an
interest in Arden Realty Group Limited Partnership for Common Shares to the
extent the actual or beneficial or Beneficial or Constructive ownership of
such Common Shares would be prohibited under the provisions of this Article
VII.
Section 7.3 TRANSFERS OF COMMON SHARES IN TRUST
(a) Upon any purported Transfer or other event described in
Section 7.2(b) of this Article VII, such Common Shares shall be deemed to
have been transferred to the Trustee in his capacity as trustee of a Trust
for the exclusive benefit of one or more Charitable Beneficiaries. Such
transfer to the Trustee shall be deemed to be effective as of the close of
business on the business day prior to the purported Transfer or other event
that results in a transfer to the Trust pursuant to Section 7.2(b). The
Trustee shall be appointed by the
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Corporation and shall be a Person unaffiliated with the Corporation,
any Purported Beneficial Transferee, and any Purported Record Transferee.
Each Charitable Beneficiary shall be designated by the Corporation as
provided in Section 7.3(f) of this Article VII.
(b) Common Shares held by the Trustee shall be issued and
outstanding Common Shares of the Corporation. The Purported Beneficial
Transferee or Purported Record Transferee shall not benefit economically
from ownership of any Common Shares held in trust by the Trustee, shall
have no rights to dividends and shall not possess any rights to vote or
other rights attributable to the Common Shares held in the Trust.
(c) The Trustee shall have all voting rights and rights to
dividends with respect to Common Shares held in the Trust, which rights
shall be exercised for the exclusive benefit of the Charitable Beneficiary.
Any dividend or distribution paid prior to the discovery by the Corporation
that the Common Shares have been transferred to the Trustee shall be paid
to the Trustee upon demand, and any dividend or distribution declared but
unpaid shall be paid when due to the Trustee with respect to such Common
Shares. Any dividends or distributions so paid over to the Trustee shall
be held in trust for the Charitable Beneficiary. The Purported Record
Transferee and Purported Beneficial Transferee shall have no voting rights
with respect to the Common Shares held in the Trust and, subject to
Maryland law, effective as of the date the Common Shares have been
transferred to the Trustee, the Trustee shall have the authority (at the
Trustee's sole discretion) (i) to rescind as void any vote cast by a
Purported Record Transferee prior to the discovery by the Corporation that
the Common Shares have been transferred to the Trustee and (ii) to recast
such vote in accordance with the desires of the Trustee acting for the
benefit of the Charitable Beneficiary; provided, however, that if the
Corporation has already taken irreversible corporate action, then the
Trustees shall not have
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the authority to rescind and recast such vote. Notwithstanding the provisions
of this Article VII, until the Corporation has received notification that the
Common Shares have been transferred into a Trust, the Corporation shall be
entitled to rely on its share transfer and other stockholder records for
purposes of preparing lists of stockholders entitled to vote at meetings,
determining the validity and authority of proxies and otherwise conducting votes
of stockholders.
(d) Within 20 days of receiving notice from the Corporation
that Common Shares have been transferred to the Trust, the Trustee of the
Trust shall sell the Common Shares held in the Trust to a person,
designated by the Trustee, whose ownership of the Common Shares will not
violate the ownership limitations set forth in Section 7.2(a). Upon such
sale, the interest of the Charitable Beneficiary in the Common Shares sold
shall terminate and the Trustee shall distribute the net proceeds of the
sale to the Purported Record Transferee and to the Charitable Beneficiary
as provided in this Section 7.3(d). The Purported Record Transferee shall
receive the lesser of (1) the price paid by the Purported Record Transferee
for the Common Shares in the transaction that resulted in such transfer to
the Trust (or, if the event which resulted in the transfer to the Trust did
not involve a purchase of such Common Shares at Market Price, the Market
Price of such Common Shares on the day of the event which resulted in the
transfer of the Common Shares to the Trust) and (2) the price per share
received by the Trustee (net of any commissions and other expenses of sale)
from the sale or other disposition of the Common Shares held in the Trust.
Any net sales proceeds in excess of the amount payable to the Purported
Record Transferee shall be immediately paid to the Charitable Beneficiary
together with any dividends or other distributions thereon. If, prior to
the discovery by the Corporation that such Common Shares have been
transferred to the
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Trustee, such Common Shares are sold by a Purported Record Transferee then
(i) such Common Shares shall be deemed to have been sold on behalf of the
Trust and (ii) to the extent that the Purported Record Transferee received
an amount for such Common Shares that exceeds the amount that such
Purported Record Transferee was entitled to receive pursuant to this
subparagraph A(3)(d), such excess shall be paid to the Trustee upon demand.
(e) Common Shares transferred to the Trustee shall be
deemed to have been offered for sale to the Corporation, or its designee,
at a price per share equal to the lesser of (i) the price paid by the
Purported Record Transferee for the Common Shares in the transaction that
resulted in such transfer to the Trust (or, if the event which resulted in
the transfer to the Trust did not involve a purchase of such Common Shares
at Market Price, the Market Price of such Common Shares on the day of the
event which resulted in the transfer of the Common Shares to the Trust) and
(ii) the Market Price on the date the Corporation, or its designee, accepts
such offer. The Corporation shall have the right to accept such offer
until the Trustee has sold the Common Shares held in the Trust pursuant to
Section 7.3(d). Upon such a sale to the Corporation, the interest of the
Charitable Beneficiary in the Common Shares sold shall terminate and the
Trustee shall distribute the net proceeds of the sale to the Purported
Record Transferee and any dividends or other distributions held by the
Trustee with respect to such Common Shares shall thereupon be paid to the
Charitable Beneficiary.
(f) By written notice to the Trustee, the Corporation shall
designate one or more nonprofit organizations to be the Charitable
Beneficiary of the interest in the Trust such that (i) the Common Shares
held in the Trust would not violate the restrictions set forth in Section
7.2(a) in the hands of such Charitable Beneficiary and (ii) each Charitable
Beneficiary is an organization described in Sections 170(b)(1)(A),
170(c)(2) and 501(c)(3) of
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the Code.
Section 7.4 REMEDIES FOR BREACH. If the Board of Directors,
or a committee thereof (or other designees if permitted by Maryland law)
shall at any time determine in good faith that a Transfer or other event
has taken place in violation of Section 7.2 of this Article VII or that a
Person intends to acquire, has attempted to acquire or may acquire
beneficial ownership (determined without reference to any rules of
attribution), Beneficial Ownership or Constructive Ownership of any Common
Shares of the Corporation in violation of Section 7.2 of this Article VII,
the Board of Directors, or a committee thereof (or other designees if
permitted by Maryland law) shall take such action as it deems advisable to
refuse to give effect or to prevent such Transfer, including, but not
limited to, causing the Corporation to redeem Common Shares, refusing to
give effect to such Transfer on the books of the Corporation or instituting
proceedings to enjoin such Transfer; provided, however, that any Transfers
(or, in the case of events other than a Transfer, ownership or Constructive
Ownership or Beneficial Ownership) in violation of Section 7.2(a) of this
Article VII, shall automatically result in the transfer to a Trust as
described in Section 7.2(b) and any Transfer in violation of Section 7.2(c)
shall automatically be void AB INITIO irrespective of any action (or non-
action) by the Board of Directors.
Section 7.5 NOTICE OF RESTRICTED TRANSFER. Any Person who
acquires or attempts to acquire Common Shares in violation of Section 7.2
of this Article VII or any Person who is a Purported Transferee such that
an automatic transfer to a Trust results under Section 7.2(b) of this
Article VII, shall immediately give written notice to the Corporation of
such event and shall provide to the Corporation such other information as
the Corporation may request in order to determine the effect, if any, of
such Transfer or attempted Transfer on the
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Corporation's status as a REIT.
Section 7.6 OWNERS REQUIRED TO PROVIDE INFORMATION. From the
date of the Initial Public Offering and prior to the Restriction
Termination Date each Person who is a beneficial owner or Beneficial Owner
or Constructive Owner of Common Shares and each Person (including the
shareholder of record) who is holding Common Shares for a Beneficial Owner
or Constructive Owner shall provide to the Corporation such information
that the Corporation may request, in good faith, in order to determine the
Corporation's status as a REIT.
Section 7.7 REMEDIES NOT LIMITED. Nothing contained in this
Article VII (but subject to Section 7.12 of this Article VII and Section
5.7 of the Charter) shall limit the authority of the Board of Directors to
take such other action as it deems necessary or advisable to protect the
Corporation and the interests of its shareholders by preservation of the
Corporation's status as a REIT.
Section 7.8 AMBIGUITY. In the case of an ambiguity in the
application of any of the provisions of Sections 7.2 through 7.9 of this
Article VII, including any definition contained in Section 7.1, the Board
of Directors shall have the power to determine the application of the
provisions of Sections 7.2 through 7.9 with respect to any situation based
on the facts known to it (subject, however, to the provisions of Section
7.12 of this Article VII). In the event any of Sections 7.2 through 7.9
requires an action by the Board of Directors and these Amended and Restated
Articles of Incorporation fail to provide specific guidance with respect to
such action, the Board of Directors shall have the power to determine the
action to be taken so long as such action is not contrary to the provisions
of such Sections 7.2 through 7.9 of this Article VII. Absent a decision to
the contrary by the Board of Directors (which the
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Board may make in its sole and absolute discretion), if a Person would have
(but for the remedies set forth in Section 7.2(b)) acquired Beneficial or
Constructive Ownership of Common Shares in violation of Section 7.2(a) such
remedies (as applicable) shall apply first to the Common Shares which, but
for such remedies, would have been actually owned by such Person, and
second to Common Shares which, but for such remedies, would have been
Beneficially Owned or Constructively Owned (but not actually owned) by such
Person, pro rata among the Persons who actually own such Common Shares
based upon the relative number of the Common Shares held by each such
Person.
Section 7.9 EXCEPTIONS.
(a) Subject to Section 7.2(a)(iii), the Board of Directors,
in its sole discretion, may exempt a Person from the limitation on a Person
Beneficially Owning Common Shares in excess of the Ownership Limit if the
Board of Directors obtains such representations and undertakings from such
Person as are reasonably necessary to ascertain that no individual's
Beneficial Ownership of such Common Shares will violate the Ownership Limit
or that any such violation will not cause the Corporation to fail to
qualify as a REIT under the Code, and agrees that any violation of such
representations or undertaking (or other action which is contrary to the
restrictions contained in Section 7.2 of this Article VII) or attempted
violation will result in such Common Shares being transferred to a Trust in
accordance with Section 7.2(b) of this Article VII.
(b) Subject to Section 7.2(a)(iii), the Board of Directors,
in its sole discretion, may exempt a Person from the limitation on a Person
Constructively Owning Common Shares in excess of 9.8% (by value or by
number of Common Shares, whichever is more restrictive) of the outstanding
Common Shares of the Corporation, if such Person does
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not and represents that it will not own, actually or Constructively, an
interest in a tenant of the Corporation (or a tenant of any entity owned in
whole or in part by the Corporation) that would cause the Corporation to
own, actually or Constructively more than a 9.8% interest (as set forth in
Section 856(d)(2)(B) of the Code) in such tenant and the Corporation
obtains such representations and undertakings from such Person as are
reasonably necessary to ascertain this fact and agrees that any violation
or attempted violation will result in such Common Shares being transferred
to a Trust in accordance with Section 7.2(b) of this Article VII.
Notwithstanding the foregoing, the inability of a Person to make the
certification described in this Section 7.9(b) shall not prevent the Board
of Directors, in its sole discretion, from exempting such Person from the
limitation on a Person Constructively Owning Common Shares in excess of
9.8% of the outstanding Common Shares if the Board of Directors determines
that the resulting application of Section 856(d)(2)(B) of the Code would
affect the characterization of less than 0.5% of the gross income (as such
term is used in Section 856(c)(2) of the Code) of the Corporation in any
taxable year, after taking into account the effect of this sentence with
respect to all other Common Shares to which this sentence applies.
(c) Prior to granting any exception pursuant to Section
7.9(a) or (b) of this Article VII, the Board of Directors may require a ruling
from the Internal Revenue Service, or an opinion of counsel, in either case in
form and substance satisfactory to the Board of Directors in its sole
discretion, as it may deem necessary or advisable in order to determine or
ensure the Corporation's status as a REIT.
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Section 7.10 LEGEND. Each certificate for Common Shares shall
bear substantially the following legend:
"The Corporation is authorized to issue two classes of capital
stock which are designated as Common Shares and Preferred Shares.
The Board of Directors is authorized to determine the
preferences, limitations and relative rights of the Preferred
Shares before the issuance of any Preferred Shares. The
Corporation will furnish, without charge, to any shareholder
making a written request therefor, a copy of the Corporation's
Charter and a written statement of the designations, relative
rights, preferences and limitations applicable to each such class
of stock. Requests for such written statement may be directed to
Victor J. Coleman, the President of the Company, at the Company's
principal office.
The shares represented by this certificate are subject to
restrictions on Beneficial and Constructive Ownership and
Transfer for the purpose of the Corporation's maintenance of its
status as a Real Estate Investment Trust under the Internal
Revenue Code of 1986, as amended (the "Code"). Subject to
certain further restrictions and except as expressly provided in
the Corporation's Charter, (i) no Person may Beneficially Own in
excess of 9.0% of the outstanding Common Shares of the
Corporation (by value or by number of shares, whichever is more
restrictive); (ii) no Person may Constructively Own in excess of
9.8% of the outstanding Common Shares of the Corporation (by
value or by number of shares, whichever is more restrictive);
(iii) no Person may Beneficially or Constructively Own Common
Shares that would result in the Corporation being "closely held"
under Section 856(h) of the Code or otherwise cause the
Corporation to fail to qualify as a REIT; and (iv) no Person may
Transfer Common Shares if such Transfer would result in the
capital stock of the Corporation being owned by fewer than 100
Persons. Any Person who Beneficially or Constructively Owns or
attempts to Beneficially or Constructively Own Common Shares
which causes or will cause a Person to Beneficially or
Constructively Own Common Shares in excess of the above
limitations must immediately notify the Corporation. If any of
the restrictions on transfer or ownership are violated, the
Common Shares represented hereby will be automatically
transferred to a Trustee of a Trust for the benefit of one or
more Charitable Beneficiaries. In addition, the Corporation may
redeem shares upon the terms and conditions specified by the
Board of Directors in its sole discretion if the Board of
Directors determines that ownership or a Transfer or other event
may violate the restrictions described above. Furthermore, upon
the occurrence of certain events, attempted Transfers in
violation of the restrictions described above may be void AB
INITIO. All capitalized terms in this legend have the meanings
defined in the Charter of the Corporation, as the same may be
amended from time to time, a copy of
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which, including the restrictions on transfer and ownership, will be
furnished to each holder of Common Shares on request and without
charge. Requests for such a copy may be directed to Victor J.
Coleman, the President of the Company, at the Company's principal
office."
Section 7.11 SEVERABILITY. If any provision of this Article
VII or any application of any such provision is determined to be invalid by
any Federal or state court having jurisdiction over the issues, the
validity of the remaining provisions shall not be affected and other
applications of such provision shall be affected only to the extent
necessary to comply with the determination of such court.
Section 7.12 TERMINATION OF REIT STATUS. The Board of
Directors shall take no action to terminate the Corporation's status as a
REIT or to amend the provisions of this Article VII until such time as (i)
the Board of Directors adopts a resolution recommending that the
Corporation terminate its status as a REIT or amends this Article VII, as
the case may be, (ii) the Board of Directors presents the resolution at an
annual or special meeting of the stockholders and (iii) such resolution is
approved by at least two thirds of all votes entitled to be cast on the
matter.
Section 7.13 NYSE. Nothing in this Article VII shall preclude
the settlement of any transaction entered into through the facilities of
the NYSE. The fact that the settlement of any transaction is so permitted
shall not negate the effect of any other provision of this Article VII and
any transferee in such a transaction shall be subject to all the provisions
and limitations of this Article VII.
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ARTICLE VIII
AMENDMENTS AND TRANSACTIONS OUTSIDE
THE ORDINARY COURSE OF BUSINESS
The Corporation reserves the right from time to time to make any
amendment to its Charter, now or hereafter authorized by law, including any
amendment altering the terms or contract rights, as expressly set forth in
this Charter, of any shares of outstanding stock. All rights and powers
conferred by the Charter on stockholders, directors and officers are
granted subject to this reservation. Any amendment to Article VI of the
Charter shall be valid only if approved by the affirmative vote of holders
of shares entitled to cast a majority of all votes entitled to be cast on
the matter. Any other amendment to the Charter, including, without
limitation, amendments to Article V and VII, shall be valid only if
approved by the affirmative vote of the holders of not less than two-thirds
of all the votes entitled to be cast on the matter. In addition, the
Corporation shall not dissolve, merge, sell all or substantially all of its
assets, engage in a share exchange or engage in similar transactions
outside the ordinary course of business unless approved by the affirmative
vote of the holders of not less than two-thirds of all the votes entitled
to be cast on the matter.
ARTICLE IX
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to
time permits limitation of the liability of directors and officers of a
Corporation, no director or officer of the Corporation shall be liable to
the Corporation or its stockholders for money damages. Neither the
amendment nor repeal of this Article IX, nor the adoption or amendment of
any other provision of the Charter or Bylaws inconsistent with this Article
IX, shall apply to or
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affect in any respect the applicability of the preceding sentence with
respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption.
THIRD: The amendment to and restatement of the Charter as
hereinabove set forth has been duly advised by the Board of Directors and
approved by the stockholders of the Corporation as required by law.
FOURTH: The current address of the principal office of the
Corporation is as set forth in Article IV of the foregoing amendment and
restatement of the Charter.
FIFTH: The name and address of the Corporation's current
resident agent is as set forth in Article IV of the foregoing amendment and
restatement of the Charter.
SIXTH: The number of directors of the Corporation and the names
of those currently in office are as set forth in Article V of the foregoing
amendment and restatement of the Charter.
SEVENTH: The undersigned Chairman of the Board acknowledges
these Articles of Amendment and Restatement to be the corporate act of the
Corporation and as to all matters or facts required to be verified under
oath, the undersigned Chairman of the Board acknowledges that to the best
of his knowledge, information and belief, these matters and facts are true
in all material respects and that this statement is made under the
penalties for perjury.
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IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment and Restatement to be signed in its name and on its behalf by its
Chairman of the Board and attested to by its Secretary on this _____ day of
____________, 1996.
ATTEST: ARDEN REALTY GROUP, INC.
By: (SEAL)
------------------------ ---------------------
Secretary Chairman of the Board
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ARDEN REALTY GROUP, INC.
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation
shall be located at such place or places as the Board of Directors may
designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional
offices at such places as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
principal office of the Corporation or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for
the election of directors and the transaction of any business within the powers
of the Corporation shall be held on a date and at the time set by the Board of
Directors during the month of May in each year, unless the Board of Directors
elects to hold the meeting in any other month.
Section 3. SPECIAL MEETINGS. The president, chief executive officer or
Board of Directors may call special meetings of the stockholders. Special
meetings of stockholders shall also be called by the secretary of the
Corporation upon the written request of the holders of shares entitled to cast
not less than a majority of all the votes entitled to be cast at such meeting.
Such request shall state the purpose of such meeting and the matters proposed to
be acted on at such meeting. The secretary shall inform such stockholders of
the reasonably estimated cost of preparing and mailing notice of the meeting
and, upon payment to the Corporation by such stockholders of such costs, the
secretary shall give notice to each stockholder entitled to notice of the
meeting.
Section 4. NOTICE. Not less than 10 nor more than 90 days before each
meeting of stockholders, the secretary shall give to each stockholder entitled
to vote at such meeting and to each stockholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as otherwise may
be required by any statute, the purpose for which the meeting is called, either
by mail or by presenting it to such stockholder personally or by leaving it at
his residence or usual place of business. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to the
stockholder at his post office address as it appears on the records of the
Corporation, with postage thereon prepaid.
<PAGE>
Section 5. SCOPE OF NOTICE. Any business of the Corporation may be
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of stockholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of stockholders, the
chairman of the board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the chairman of the board, one of the
following officers present shall conduct the meeting in the order stated: the
vice chairman of the board, if there be one, the president, the vice presidents
in their order of rank and seniority, or a chairman chosen by the stockholders
entitled to cast a majority of the votes which all stockholders present in
person or by proxy are entitled to cast, shall act as chairman, and the
secretary, or, in his absence, an assistant secretary, or in the absence of both
the secretary and assistant secretaries, a person appointed by the chairman
shall act as secretary.
Section 7. QUORUM. At any meeting of stockholders, the presence in
person or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter of the
Corporation for the vote necessary for the adoption of any measure. If,
however, such quorum shall not be present at any meeting of the stockholders,
the stockholders entitled to vote at such meeting, present in person or by
proxy, shall have the power to adjourn the meeting from time to time to a date
not more than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted. A majority of the votes cast at a meeting of stockholders duly called
and at which a quorum is present shall be sufficient to approve any other matter
which may properly come before the meeting, unless more than a majority of the
votes cast is required by statute or by the charter of the Corporation. Unless
otherwise provided in the charter, each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders.
Section 9. PROXIES. A stockholder may vote the stock owned of record
by him, either in person or by proxy executed in writing by the stockholder or
by his duly authorized attorney in fact. Such proxy shall be filed with the
secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
Section 10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the
Corporation registered in the name of a corporation, partnership, trust or other
entity, if entitled to be voted, may be voted by the president or a vice
president, a general partner or trustee
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thereof, as the case may be, or a proxy appointed by any of the foregoing
individuals, unless some other person who has been appointed to vote such stock
pursuant to a bylaw or a resolution of the governing body of such corporation or
other entity or agreement of the partners of a partnership presents a certified
copy of such bylaw, resolution or agreement, in which case such person may vote
such stock. Any director or other fiduciary may vote stock registered in his
name as such fiduciary, either in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time,
unless they are held by it in a fiduciary capacity, in which case they may be
voted and shall be counted in determining the total number of outstanding shares
at any given time.
The Board of Directors may adopt by resolution a procedure by which a
stockholder may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.
Notwithstanding any other provision of the charter of the Corporation
or these Bylaws, Title 3, Subtitle 7 of the Corporations and Associations
Article of the Annotated Code of Maryland (or any successor statute) shall not
apply to any acquisition by any person of shares of stock of the Corporation.
This section may be repealed, in whole or in part, at any time, whether before
or after an acquisition of control shares and, upon such repeal, may, to the
extent provided by any successor bylaw, apply to any prior or subsequent control
share acquisition.
Section 11. INSPECTORS. At any meeting of stockholders, the chairman of
the meeting may appoint one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares represented at
the meeting based upon their determination of the validity and effect of
proxies, count all votes, report the results and perform such other acts as are
proper to conduct the election and voting with impartiality and fairness to all
the stockholders.
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Each report of an inspector shall be in writing and signed by him or
by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be PRIMA FACIE evidence thereof.
Section 12. NOMINATIONS AND STOCKHOLDER BUSINESS
(a) ANNUAL MEETINGS OF STOCKHOLDERS. (1) Nominations of persons for
election to the Board of Directors and the proposal of business to be considered
by the stockholders may be made at an annual meeting of stockholders
(i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction
of the Board of Directors or (iii) by any stockholder of the Corporation who was
a stockholder of record both at the time of giving of notice provided for in
this Section 12(a) and at the time of the annual meeting, who is entitled to
vote at the meeting and who complied with the notice procedures set forth in
this Section 12(a).
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of
paragraph (a)(1) of this Section 12, the stockholder must have given timely
notice thereof in writing to the secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to the secretary at the principal
executive offices of the Corporation not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 30 days or delayed by more than 60 days from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
90th day prior to such annual meeting and not later than the close of business
on the later of the 60th day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such meeting is
first made. Such stockholder's notice shall set forth (i) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (ii) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (y) the number of shares of each class of stock of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 12 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation
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at least 70 days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 12(a) shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 12(b), who is entitled to vote at the meeting and
who complied with the notice procedures set forth in this Section 12(b). In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be) for election to such
position as specified in the Corporation's notice of meeting, if the
stockholder's notice containing the information required by paragraph (a)(2) of
this Section 12 shall be delivered to the secretary at the principal executive
offices of the Corporation not earlier than the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
(c) GENERAL. (1) Only such persons who are nominated in accordance
with the procedures set forth in this Section 12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 12. The presiding officer of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Section 12 and, if any proposed nomination or business is not in
compliance with this Section 12, to declare that such defective nomination or
proposal be disregarded.
(2) For purposes of this Section 12, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 12,
a stockholder shall also comply with all applicable requirements of state law
and of the Exchange Act and the rules and regulations thereunder with respect to
the matters set forth in this Section 12. Nothing in this Section 12 shall be
deemed to affect any rights of stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
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Section 13. VOTING BY BALLOT. Voting on any question or in any
election may be VIVA VOCE unless the presiding officer shall order or any
stockholder shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular
meeting or at any special meeting called for that purpose, a majority of the
entire Board of Directors may establish, increase or decrease the number of
directors, provided that the number thereof shall not be less than 5 (or, if the
Maryland General Corporation Law ("MGCL") requires a number of directors greater
than 5, the minimum number required by the MGCL), nor more than 11, and further
provided that the tenure of office of a director shall not be affected by any
decrease in the number of directors.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
Board of Directors shall be held immediately after and at the same place as the
annual meeting of stockholders, no notice other than this Bylaw being necessary.
The Board of Directors may provide, by resolution, the time and place, either
within or without the State of Maryland, for the holding of regular meetings of
the Board of Directors without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the chairman of the board,
president or by a majority of the directors then in office. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Maryland, as the place for
holding any special meeting of the Board of Directors called by them.
Section 5. NOTICE. Notice of any special meeting of the Board of
Directors shall be delivered personally or by telephone, facsimile transmission,
United States mail or courier to each director at his business or residence
address. Notice by personal delivery, by telephone or a facsimile transmission
shall be given at least two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting and shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. Telephone notice shall be deemed to be given when the director
is personally given such notice in a telephone call to which he is a party.
Facsimile transmission notice shall be deemed to be given upon completion of the
transmission of the message to the number given to the Corporation by the
director and receipt of a completed answer-back indicating receipt. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the Board of Directors need be stated in the notice, unless
specifically required by statute or these Bylaws.
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Section 6. QUORUM. A majority of the directors shall constitute a
quorum for transaction of business at any meeting of the Board of Directors,
provided that, if less than a majority of such directors are present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice, and provided further that if, pursuant to the
charter of the Corporation or these Bylaws, the vote of a majority of a
particular group of directors is required for action, a quorum must also include
a majority of such group.
The Board of Directors present at a meeting which has been
duly called and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors
present at a meeting at which a quorum is present shall be the action of the
Board of Directors, unless the concurrence of a greater proportion is required
for such action by applicable statute.
Section 8. TELEPHONE MEETINGS. Directors may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the Board of Directors.
Section 10. VACANCIES. If for any reason any or all the directors
cease to be directors, such event shall not terminate the Corporation or affect
these Bylaws or the powers of the remaining directors hereunder (even if fewer
than five directors remain). Any vacancy on the Board of Directors for any
cause other than an increase in the number of directors shall be filled at any
regular meeting or at any special meeting called for that purpose by a majority
vote of the remaining directors, although such majority may be less than a
quorum. Any vacancy in the number of directors created by an increase in the
number of directors may be filled by a majority vote of the entire Board of
Directors. Any individual so elected as director shall hold office until the
next annual meeting of stockholders and until his successor is elected and
qualifies.
Section 11. COMPENSATION. Directors shall not receive any stated
salary for their services as directors but, by resolution of the Board of
Directors, may receive fixed sums per year and/or per meeting and/or per visit
to real property or other facilities owned or leased by the Corporation and for
any service or activity they performed or engaged in as directors. Directors
may be reimbursed for expenses of attendance, if any, at each annual, regular or
special meeting of the Board of Directors or of any committee thereof and for
their expenses, if any, in connection with each property visit and any other
service or activity they performed or engaged in as directors; but nothing
herein contained shall be construed to preclude any directors from serving the
Corporation in any other capacity and receiving compensation therefor.
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Section 12. LOSS OF DEPOSITS. No director shall be liable for any
loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or stock
have been deposited.
Section 13. SURETY BONDS. Unless required by law, no director
shall be obligated to give any bond or surety or other security for the
performance of any of his duties.
Section 14. RELIANCE. Each director, officer, employee and agent
of the Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the adviser, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
Section 15. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS. The directors shall have no responsibility to devote their full time to
the affairs of the Corporation. Any director or officer, employee or agent of
the Corporation, in his personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business
interests and engage in business activities similar to or in addition to or in
competition with those of or relating to the Corporation.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of
Directors may appoint from among its members an Executive Committee, an Audit
Committee, a Compensation Committee, and other committees, composed of one or
more directors, to serve at the pleasure of the Board of Directors.
Section 2. POWERS. The Board of Directors may delegate to
committees appointed under Section 1 of this Article any of the powers of the
Board of Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given
in the same manner as notice for special meetings of the Board of Directors. A
majority of the members of the committee shall constitute a quorum for the
transaction of business at any meeting of the committee. The act of a majority
of the committee members present at a meeting shall be the act of such
committee. The Board of Directors may designate a chairman of any committee,
and such chairman or any two members of any committee may fix the time and place
of its meeting unless the Board shall otherwise provide. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint another director to act in
the place of such absent member. Each committee shall keep minutes of its
proceedings.
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Section 4. TELEPHONE MEETINGS. Members of a committee of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Participation in a meeting by
these means shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board
of Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation
shall include a chief executive officer, a president, a secretary and a
treasurer and may include a chairman of the board, a vice chairman of the board,
one or more vice presidents, a chief operating officer, a chief financial
officer, one or more assistant secretaries and one or more assistant treasurers.
In addition, the Board of Directors may from time to time appoint such other
officers with such powers and duties as they shall deem necessary or desirable.
The officers of the Corporation shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of stockholders, except that the chief executive officer may appoint
one or more vice presidents, assistant secretaries and assistant treasurers. If
the election of officers shall not be held at such meeting, such election shall
be held as soon thereafter as may be convenient. Each officer shall hold office
until his successor is elected and qualifies or until his death, resignation or
removal in the manner hereinafter provided. Any two or more offices except
president and vice president may be held by the same person. In its discretion,
the Board of Directors may leave unfilled any office except that of president,
treasurer and secretary. Election of an officer or agent shall not of itself
create contract rights between the Corporation and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
Corporation may be removed by the Board of Directors if in its judgment the best
interests of the Corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the Corporation may resign at any time by giving written notice of
his resignation to the Board of Directors, the chairman of the board, the
president or the secretary. Any resignation shall take effect at any time
subsequent to the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. The
acceptance of a resignation shall not be necessary to make it effective unless
otherwise stated in the resignation. Such resignation shall
9
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be without prejudice to the contract rights, if any, of the Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by
the Board of Directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may
designate a chief executive officer. In the absence of such designation, the
chairman of the board shall be the chief executive officer of the Corporation.
The chief executive officer shall have general responsibility for implementation
of the policies of the Corporation, as determined by the Board of Directors, and
for the management of the business and affairs of the Corporation.
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may
designate a chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may
designate a chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 7. CHAIRMAN OF THE BOARD. The Board of Directors shall
designate a chairman of the board. The chairman of the board shall preside over
the meetings of the Board of Directors and of the stockholders at which he shall
be present. The chairman of the board shall perform such other duties as may be
assigned to him or them by the Board of Directors.
Section 8. PRESIDENT. The president or chief executive officer,
as the case may be, shall in general supervise and control all of the business
and affairs of the Corporation. In the absence of a designation of a chief
operating officer by the Board of Directors, the president shall be the chief
operating officer. He may execute any deed, mortgage, bond, contract or other
instrument, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the Corporation or shall be required by law to be otherwise executed;
and in general shall perform all duties incident to the office of president and
such other duties as may be prescribed by the Board of Directors from time to
time.
Section 9. VICE PRESIDENTS. In the absence of the president or in
the event of a vacancy in such office, the vice president (or in the event there
be more than one vice president, the vice presidents in the order designated at
the time of their election or, in the absence of any designation, then in the
order of their election) shall perform the duties of the president and when so
acting shall have all the powers of and be subject to all the restrictions upon
the president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Board of Directors. The Board of
Directors may designate one or more vice presidents as executive vice president,
senior vice president or as vice president for particular areas of
responsibility.
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Section 10. SECRETARY. The secretary shall (a) keep the minutes of
the proceedings of the stockholders, the Board of Directors and committees of
the Board of Directors in one or more books provided for that purpose; (b) see
that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (c) be custodian of the corporate records and of
the seal of the Corporation; (d) keep a register of the post office address of
each stockholder which shall be furnished to the secretary by such stockholder;
(e) have general charge of the share transfer books of the Corporation; and
(f) in general perform such other duties as from time to time may be assigned to
him by the chief executive officer, the president or by the Board of Directors.
Section 11. TREASURER. The treasurer shall have the custody of the
funds and securities of the Corporation and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. In the absence of a designation of a chief financial officer by
the Board of Directors, the treasurer shall be the chief financial officer of
the Corporation.
The treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and Board of Directors, at the
regular meetings of the Board of Directors or whenever it may so require, an
account of all his transactions as treasurer and of the financial condition of
the Corporation.
If required by the Board of Directors, the treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, moneys and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or treasurer, respectively,
or by the president or the Board of Directors. The assistant treasurers shall,
if required by the Board of Directors, give bonds for the faithful performance
of their duties in such sums and with such surety or sureties as shall be
satisfactory to the Board of Directors.
Section 13. SALARIES. The salaries and other compensation of the
officers shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he is also a director.
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ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any
officer or agent to enter into any contract or to execute and deliver any
instrument in the name of and on behalf of the Corporation and such authority
may be general or confined to specific instances. Any agreement, deed,
mortgage, lease or other document executed by one or more of the directors or by
an authorized person shall be valid and binding upon the Board of Directors and
upon the Corporation when authorized or ratified by action of the Board of
Directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or agent of the
Corporation in such manner as shall from time to time be determined by the Board
of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may designate.
ARTICLE VII
STOCK
Section 1. CERTIFICATES. Each stockholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him in the Corporation. Each certificate
shall be signed by the chief executive officer, the president or a vice
president and countersigned by the secretary or an assistant secretary or the
treasurer or an assistant treasurer and may be sealed with the seal, if any, of
the Corporation. The signatures may be either manual or facsimile.
Certificates shall be consecutively numbered; and if the Corporation shall, from
time to time, issue several classes of stock, each class may have its own number
series. A certificate is valid and may be issued whether or not an officer who
signed it is still an officer when it is issued. Each certificate representing
shares which are restricted as to their transferability or voting powers, which
are preferred or limited as to their dividends or as to their allocable portion
of the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. If the Corporation has authority to issue stock of more than one
class, the certificate shall contain on the face or back a full statement or
summary of the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class of stock and, if the Corporation is authorized to issue any preferred or
special class in series, the differences in the relative rights and preferences
between the shares of each series to the extent they have been set and the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series. In lieu of such statement or summary, the certificate may
state that the
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<PAGE>
Corporation will furnish a full statement of such information to any stockholder
upon request and without charge. If any class of stock is restricted by the
Corporation as to transferability, the certificate shall contain a full
statement of the restriction or state that the Corporation will furnish
information about the restrictions to the stockholder on request and without
charge.
Section 2. TRANSFERS. Upon surrender to the Corporation or the
transfer agent of the Corporation of a stock certificate duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of
record of any share of stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of Maryland.
Notwithstanding the foregoing, transfers of shares of any
class of stock will be subject in all respects to the charter of the Corporation
and all of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the
Board of Directors may direct a new certificate to be issued in place of any
certificate previously issued by the Corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing the
issuance of a new certificate, an officer designated by the Board of Directors
may, in his discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or the owner's
legal representative to advertise the same in such manner as he shall require
and/or to give bond, with sufficient surety, to the Corporation to indemnify it
against any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
The Board of Directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or determining stockholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a
determination of stockholders for any other proper purpose. Such date, in any
case, shall not be prior to the close of business on the day the record date is
fixed and shall be not more than 90 days and, in the case of a meeting of
stockholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of stockholders of record is to
be held or taken.
In lieu of fixing a record date, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
not longer than 20 days. If the stock transfer books are closed for the purpose
of determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.
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If no record date is fixed and the stock transfer books are
not closed for the determination of stockholders, (a) the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day on which the notice of
meeting is mailed or the 30th day before the meeting, whichever is the closer
date to the meeting; and (b) the record date for the determination of
stockholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the directors, declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, except when (i) the
determination has been made through the closing of the transfer books and the
stated period of closing has expired or (ii) the meeting is adjourned to a date
more than 120 days after the record date fixed for the original meeting, in
either of which case a new record date shall be determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its
principal office or at the office of its counsel, accountants or transfer agent,
an original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of
Directors may issue fractional stock or provide for the issuance of scrip, all
on such terms and under such conditions as they may determine. Notwithstanding
any other provision of the charter or these Bylaws, the Board of Directors may
issue units consisting of different securities of the Corporation. Any security
issued in a unit shall have the same characteristics as any identical securities
issued by the Corporation, except that the Board of Directors may provide that
for a specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix
the fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon
the stock of the Corporation may be authorized and declared by the Board of
Directors, subject to the provisions of law and the charter of the Corporation.
Dividends and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter.
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Section 2. CONTINGENCIES. Before payment of any dividends or
other distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation, the Board
of Directors may from time to time adopt, amend, revise or terminate any policy
or policies with respect to investments by the Corporation as it shall deem
appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption of
a seal by the Corporation. The seal shall contain the name of the Corporation
and the year of its incorporation and the words "Incorporated Maryland." The
Board of Directors may authorize one or more duplicate seals and provide for the
custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the word
"(SEAL)" adjacent to the signature of the person authorized to execute the
document on behalf
of the Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCES FOR EXPENSES
To the maximum extent permitted by Maryland law in effect from time to
time, the Corporation, without requiring a preliminary determination of the
ultimate entitlement to indemnification, shall indemnify and shall pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any individual who is a present or former director or officer of the
Corporation and who is made a party to the proceeding by reason of his service
in that capacity or (b) any individual who, while a director of the Corporation
and at the request of the Corporation, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, partner or trustee of such
15
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corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and who is made a party to the proceeding by reason of his service in
that capacity. The Corporation may, with the approval of its Board of
Directors, provide such indemnification and advance for expenses to a person who
served a predecessor of the Corporation in any of the capacities described in
(a) or (b) above and to any employee or agent of the Corporation or a
predecessor of the Corporation.
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or charter of the Corporation
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter of the
Corporation or these Bylaws or pursuant to applicable law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at nor the purpose of any
meeting need be set forth in the waiver of notice, unless specifically required
by statute. The attendance of any person at any meeting shall constitute a
waiver of notice of such meeting, except where such person attends a meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power to adopt, alter or
repeal any provision of these Bylaws and to make new Bylaws.
16
<PAGE>
EXHIBIT 3.3
Number *0* Shares *0*
ARI See Reverse for
Important Notice
on Transfer Restrictions
and other Information
THIS CERTIFICATE IS TRANSFERABLE CUSIP 039793 10 4
IN THE CITIES OF _______________
ARDEN REALTY GROUP, INC.
a Corporation Formed Under the Laws of the State of Maryland
THIS CERTIFIES THAT **Specimen**
is the owner of **Zero (0)**
fully paid and nonassessable shares of Common Stock, $.01 par value per share,
of
ARDEN REALTY GROUP, INC.
(the "Corporation") transferable on the books of the Corporation by the
holder hereof in person or by its duly authorized attorney, upon surrender of
this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be held subject to all of the
provisions of the charter of the Corporation (the "Charter") and the Bylaws
of the Corporation and any amendments thereto. This Certificate is not valid
unless countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed on its behalf by its duly authorized officers.
DATED ______________________
Countersigned and Registered:
Transfer Agent ________________(SEAL)
and Registrar President
By:_______________________________ ______________________
Authorized Signature Secretary
<PAGE>
The Corporation is authorized to issue two classes of capital stock
which are designated as Common Shares and Preferred Shares. The Board of
Directors is authorized to determine the preferences, limitations and
relative rights of the Preferred Shares before the issuance of any
Preferred Shares. The Corporation will furnish, without charge, to any
shareholder making a written request therefor, a copy of the
Corporation's Charter and a written statement of the designations,
relative rights, preferences and limitations applicable to each such
class of stock. Requests for such written statement may be directed to
Victor J. Coleman, the President of the Company, at the Company's
principal office.
The shares represented by this certificate are subject to restrictions
on Beneficial and Constructive Ownership and Transfer for the purpose of
the Corporation's maintenance of its status as a Real Estate Investment
Trust under the Internal Revenue Code of 1986, as amended (the "Code").
Subject to certain further restrictions and except as expressly provided
in the Corporation's Charter, (i) no Person may Beneficially Own in
excess of 9.0% of the outstanding Common Shares of the Corporation (by
value or by number of shares, whichever is more restrictive); (ii) no
Person may Constructively Own in excess of 9.8% of the outstanding
Common Shares of the Corporation (by value or by number of shares,
whichever is more restrictive; (iii) no Person may Beneficially or
Constructively Own Common Shares that would result in the Corporation
being "closely held" under Section 856(h) of the Code or otherwise cause
the Corporation to fail to qualify as a REIT; and (iv) no Person may
Transfer Common Shares if such Transfer would result in the capital
stock of the Corporation being owned by fewer than 100 Persons. Any
Person who Beneficially or Constructively Owns or attempts to
Beneficially or Constructively Own Common Shares which causes or will
cause a Person to Beneficially or Constructively Own Common Shares
in excess of the above limitations must immediately notify the
Corporation. If any of the restrictions on transfer or ownership are
violated, the Common Shares represented hereby will be automatically
transferred to a Trustee of a Trust for the benefit of one or more
Charitable Beneficiaries. In addition, the Corporation may redeem shares
upon the terms and conditions specified by the Board of Directors in its
sole discretion if the Board of Directors determines that ownership or a
Transfer or other event may violate the restrictions described above.
Furthermore, upon the occurrence of certain events, attempted Transfers
in violation of the restrictions described above may be void AD INITIO.
All capitalized terms in this legend have the meanings defined in the
Charter of the Corporation, as the same may be amended from time to
time, a copy of which, including the restrictions on transfer and
ownership, will be furnished to each holder of Common Shares on request
and without charge. Requests for such a copy may be directed to Victor
J. Coleman, the President of the Company, at the Company's principal
office.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN
OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A
CONDITION OF THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
_________________________________
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT ______________ Custodian ___________
TEN ENT - as tenants by the entireties (Custodian) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors Act of
of survivorship and not as tenants __________________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE __________
________________________________________________________________________________
(Please Print or Typewrite Name and Address, Including Zip Code of Assignee)
_____________________ (_______________) shares of Common Stock of the
Corporation represented by this Certificate shares of Common Stock on the
books of the Corporation, with full power of substitution in the premises.
Dated___________________ _____________________________________________
NOTICE: The Signature To This Assignment Must
Correspond With The Name As Written Upon The
Face Of The Certificate In Every Particular,
Without Alteration Or Enlargement Or Any
Change Whatever.
<PAGE>
_______________________________________________
AGREEMENT OF LIMITED PARTNERSHIP
OF
ARDEN REALTY GROUP LIMITED PARTNERSHIP
_______________________________________________
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 - DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 - ORGANIZATIONAL MATTERS . . . . . . . . . . . . . . . . . . . . . 15
Section 2.1 Organization . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.3 Resident Agent; Principal Office . . . . . . . . . . . . 15
Section 2.4 Power of Attorney. . . . . . . . . . . . . . . . . . . . 15
Section 2.5 Term . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.6 Number of Partners . . . . . . . . . . . . . . . . . . . 17
ARTICLE 3 - PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.1 Purpose and Business . . . . . . . . . . . . . . . . . . 17
Section 3.2 Powers . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.3 Partnership Only for Purposes Specified. . . . . . . . . 18
Section 3.4 Representations and Warranties by the Parties. . . . . . 18
ARTICLE 4 - CAPITAL CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . 20
Section 4.1 Capital Contributions of the Partners. . . . . . . . . . 20
Section 4.2 Loans by Third Parties . . . . . . . . . . . . . . . . . 20
Section 4.3 Additional Funding and Capital Contributions . . . . . . 20
Section 4.4 Stock Plan . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.5 Other Contribution Provisions . . . . . . . . . . . . . . . 23
ARTICLE 5 - DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.1 Requirement and Characterization of Distributions. . . . 24
Section 5.2 Distributions in Kind. . . . . . . . . . . . . . . . . . 24
Section 5.3 Distributions Upon Liquidation . . . . . . . . . . . . . 24
Section 5.4 Distributions to Reflect Issuance of Additional
Partnership Interests. . . . . . . . . . . . . . . . . . 24
ARTICLE 6 - ALLOCATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.1 Timing and Amount of Allocations of Net Income and Net
Loss . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.2 General Allocations. . . . . . . . . . . . . . . . . . . 25
Section 6.3 Additional Allocation Provisions . . . . . . . . . . . . 25
Section 6.4 Tax Allocations. . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 7 - MANAGEMENT AND OPERATIONS OF BUSINESS. . . . . . . . . . . . . . 28
Section 7.1 Management . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.2 Certificate of Limited Partnership . . . . . . . . . . . 32
Section 7.3 Restrictions on General Partner's Authority. . . . . . . 32
Section 7.4 Reimbursement of the General Partner . . . . . . . . . . 34
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Section 7.5 Outside Activities of the General Partner. . . . . . . . 35
Section 7.6 Contracts with Affiliates. . . . . . . . . . . . . . . . 36
Section 7.7 Indemnification. . . . . . . . . . . . . . . . . . . . . 36
Section 7.8 Liability of the General Partner . . . . . . . . . . . . 38
Section 7.9 Other Matters Concerning the General Partner . . . . . . 39
Section 7.10 Title to Partnership Assets. . . . . . . . . . . . . . . 40
Section 7.11 Reliance by Third Parties. . . . . . . . . . . . . . . . 40
ARTICLE 8 - RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS . . . . . . . . . . . 40
Section 8.1 Limitation of Liability. . . . . . . . . . . . . . . . . 40
Section 8.2 Management of Business . . . . . . . . . . . . . . . . . 41
Section 8.3 Outside Activities of Limited Partners . . . . . . . . . 41
Section 8.4 Return of Capital. . . . . . . . . . . . . . . . . . . . 41
Section 8.5 Rights of Limited Partners Relating to the Partnership . 41
Section 8.6 Redemption Rights. . . . . . . . . . . . . . . . . . . . 42
ARTICLE 9 - BOOKS, RECORDS, ACCOUNTING AND REPORTS . . . . . . . . . . . . . 44
Section 9.1 Records and Accounting . . . . . . . . . . . . . . . . . 44
Section 9.2 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.3 Reports. . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 10 - TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 10.1 Preparation of Tax Returns . . . . . . . . . . . . . . . 45
Section 10.2 Tax Elections. . . . . . . . . . . . . . . . . . . . . . 45
Section 10.3 Tax Matters Partner. . . . . . . . . . . . . . . . . . . 46
Section 10.4 Organizational Expenses. . . . . . . . . . . . . . . . . 47
Section 10.5 Withholding. . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE 11 - TRANSFERS AND WITHDRAWALS . . . . . . . . . . . . . . . . . . . 48
Section 11.1 Transfer . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 11.2 Transfer of General Partner's Partnership Interest . . . 48
Section 11.3 Limited Partners' Rights to Transfer . . . . . . . . . . 49
Section 11.4 Substituted Limited Partners . . . . . . . . . . . . . . 51
Section 11.5 Assignees. . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.6 General Provisions . . . . . . . . . . . . . . . . . . . 51
ARTICLE 12 - ADMISSION OF PARTNERS . . . . . . . . . . . . . . . . . . . . . 53
Section 12.1 Admission of Successor General Partner . . . . . . . . . 53
Section 12.2 Admission of Additional Limited Partners . . . . . . . . 54
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership. . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 13 - DISSOLUTION AND LIQUIDATION . . . . . . . . . . . . . . . . . . 55
Section 13.1 Dissolution. . . . . . . . . . . . . . . . . . . . . . . 55
Section 13.2 Winding Up . . . . . . . . . . . . . . . . . . . . . . . 55
Section 13.3 Compliance with Timing Requirements of Regulations . . . 56
Section 13.4 Deemed Distribution and Recontribution . . . . . . . . . 57
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Page
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Section 13.5 Rights of Limited Partners . . . . . . . . . . . . . . . 57
Section 13.6 Notice of Dissolution. . . . . . . . . . . . . . . . . . 57
Section 13.7 Cancellation of Certificate of Limited Partnership . . . 58
Section 13.8 Reasonable Time for Winding-Up . . . . . . . . . . . . . 58
Section 13.9 Waiver of Partition. . . . . . . . . . . . . . . . . . . 58
ARTICLE 14 - AMENDMENT OF PARTNERSHIP AGREEMENT; . . . . . . . . . . . . . . 58
Section 14.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . 58
Section 14.2 Action by the Partners . . . . . . . . . . . . . . . . . 59
ARTICLE 15 - GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . 59
Section 15.1 Addresses and Notice . . . . . . . . . . . . . . . . . . 59
Section 15.2 Titles and Captions. . . . . . . . . . . . . . . . . . . 60
Section 15.3 Pronouns and Plurals . . . . . . . . . . . . . . . . . . 60
Section 15.4 Further Action . . . . . . . . . . . . . . . . . . . . . 60
Section 15.5 Binding Effect . . . . . . . . . . . . . . . . . . . . . 60
Section 15.6 Creditors. . . . . . . . . . . . . . . . . . . . . . . . 60
Section 15.7 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 15.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . 60
Section 15.9 Applicable Law . . . . . . . . . . . . . . . . . . . . . 61
Section 15.10 Invalidity of Provisions . . . . . . . . . . . . . . . . 61
Section 15.11 Limitation to Preserve REIT Status . . . . . . . . . . . 61
Section 15.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . 62
Section 15.13 No Rights as Stockholders. . . . . . . . . . . . . . . . 62
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<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
ARDEN REALTY GROUP LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP, dated as of _________, 1996, is
entered into by and among Arden Realty Group, Inc., a Maryland corporation (the
"REIT"), as the General Partner and the Persons whose names are set forth on
Exhibit A attached hereto, as the Limited Partners, together with any other
Persons who become Partners in the Partnership as provided herein.
ARTICLE 1
DEFINED TERMS
Section 1.1 DEFINITIONS.
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"ACT" means the Maryland Revised Uniform Limited Partnership Act, as
it may be amended from time to time, and any successor to such statute.
"ADDITIONAL FUNDS" shall have the meaning set forth in Section 4.3.A.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 12.2 hereof and who is
shown as such on the books and records of the Partnership.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant fiscal year, after giving effect to the following adjustments:
(i) decrease such deficit by any amounts which such Partner is
obligated to restore pursuant to this Agreement or is deemed to
be obligated to restore pursuant to Regulations Section 1.704-
1(b)(2)(ii)(c) or the penultimate sentence of each of Regulations
Sections 1.704-2(i)(5) and 1.704-2(g); and
(ii) increase such deficit by the items described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Regulations Section 1.704-
1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
<PAGE>
"ADJUSTMENT DATE" means, with respect to any Capital Contribution, the
close of business on the Business Day last preceding the date of the Capital
Contribution, PROVIDED, THAT if such Capital Contribution is being made by the
General Partner in respect of the proceeds from the issuance of REIT Shares (or
the issuance of the General Partner's securities exercisable for, convertible
into or exchangeable for REIT Shares), then the Adjustment Date shall be as of
the close of business on the Business Day last preceding the date of the
issuance of such securities.
"AFFILIATE" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under common control with such Person.
"AGREED VALUE" means (i) in the case of any Contributed Property set
forth in Exhibit A and as of the time of its contribution to the Partnership,
the Agreed Value of such property as set forth in Exhibit A; (ii) in the case of
any Contributed Property not set forth in Exhibit A and as of the time of its
contribution to the Partnership, the fair market value of such property or other
consideration as determined by the General Partner, reduced by any liabilities
either assumed by the Partnership upon such contribution or to which such
property is subject when contributed; and (iii) in the case of any property
distributed to a Partner by the Partnership, the fair market value of such
property as determined by the General Partner at the time such property is
distributed, reduced by any liabilities either assumed by such Partner upon such
distribution or to which such property is subject at the time of the
distribution as determined under Section 752 of the Code and the Regulations
thereunder.
"AGREEMENT" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"APPRAISAL" means with respect to any assets, the opinion of an
independent third party experienced in the valuation of similar assets, selected
by the General Partner in good faith, such opinion may be in the form of an
opinion by such independent third party that the value for such property or
asset as set by the General Partner is fair, from a financial point of view, to
the Partnership.
"ASSIGNEE" means a Person to whom one or more Partnership Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5.
"AVAILABLE CASH" means, with respect to any period for which such
calculation is being made, (i) the sum of:
a. the Partnership's Net Income or Net Loss (as the case may
be) for such period,
b. Depreciation and all other noncash charges deducted in
determining Net Income or Net Loss for such period,
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c. the amount of any reduction in reserves of the Partnership
referred to in clause (ii)(f) below (including, without limitation,
reductions resulting because the General Partner determines such
amounts are no longer necessary),
d. the excess of the net proceeds from the sale, exchange,
disposition, or refinancing of Partnership property for such period
over the gain (or loss, as the case may be) recognized from any such
sale, exchange, disposition, or refinancing during such period
(excluding Terminating Capital Transactions), and
e. all other cash received by the Partnership for such period
that was not included in determining Net Income or Net Loss for such
period;
(ii) less the sum of:
a. all principal debt payments made during such period by the
Partnership,
b. capital expenditures made by the Partnership during such
period,
c. investments in any entity (including loans made thereto) to
the extent that such investments are not otherwise described in
clauses (ii)(a) or (b),
d. all other expenditures and payments not deducted in
determining Net Income or Net Loss for such period,
e. any amount included in determining Net Income or Net Loss
for such period that was not received by the Partnership during such
period,
f. the amount of any increase in reserves established during
such period which the General Partner determines are necessary or
appropriate in its sole and absolute discretion, and
g. the amount of any working capital accounts and other cash or
similar balances which the General Partner determines to be necessary
or appropriate in its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or take into account any disbursements
made or reserves, established, after commencement of the dissolution and
liquidation of the Partnership.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to be closed.
"CAPITAL ACCOUNT" means, with respect to any Partner, the Capital
Account maintained for such Partner in accordance with the following provisions:
3
<PAGE>
(a) To each Partner's Capital Account there shall be added such
Partner's Capital Contributions, such Partner's share of Net Income and any
items in the nature of income or gain which are specially allocated pursuant to
Section 6.3 hereof, and the amount of any Partnership liabilities assumed by
such Partner or which are secured by any property distributed to such Partner.
(b) From each Partner's Capital Account there shall be subtracted the
amount of cash and the Gross Asset Value of any property distributed to such
Partner pursuant to any provision of this Agreement, such Partner's distributive
share of Net Losses and any items in the nature of expenses or losses which are
specially allocated pursuant to Section 6.3 hereof, and the amount of any
liabilities of such Partner assumed by the Partnership or which are secured by
any property contributed by such Partner to the Partnership.
(c) In the event any interest in the Partnership is transferred in
accordance with the terms of this Agreement (which does not result in a
termination of the Partnership for federal income tax purposes), the transferee
shall succeed to the Capital Account of the transferor to the extent it relates
to the transferred interest.
(d) In determining the amount of any liability for purposes of
subsections (a) and (b) hereof, there shall be taken into account Code section
752(c) and any other applicable provisions of the Code and Regulations.
(e) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and
applied in a manner consistent with such Regulations. In the event the General
Partner shall determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership, the
General Partner, or the Limited Partners) are computed in order to comply with
such Regulations, the General Partner may make such modification, PROVIDED THAT
it is not likely to have a material effect on the amounts distributable to any
Person pursuant to Article 13 of the Agreement upon the dissolution of the
Partnership. The General Partner also shall (i) make any adjustments that are
necessary or appropriate to maintain equality between the Capital Accounts of
the Partners and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b) or Section 1.704-2.
"CAPITAL CONTRIBUTION" means, with respect to any Partner, the amount
of money and the initial Gross Asset Value of any property (other than money)
contributed to the Partnership by such Partner.
"CASH AMOUNT" means, with respect to any Partnership Units subject to
a Redemption, an amount of cash equal to the Deemed Partnership Interest Value
attributable to such Partnership Units.
4
<PAGE>
"CERTIFICATE" means the Certificate of Limited Partnership relating to
the Partnership filed in the office of the Maryland State Department of
Assessments and Taxation, as amended from time to time in accordance with the
terms hereof and the Act.
"CHARTER" means the Articles of Incorporation of the General Partner
filed with the Maryland State Department of Assessments and Taxation on May 1,
1996, as amended or restated from time to time.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time or any successor statute thereto, as interpreted by the applicable
regulations thereunder. Any reference herein to a specific section or sections
of the Code shall be deemed to include a reference to any corresponding
provision of future law.
"CONSENT" means the consent to, approval of, or vote on a proposed
action by a Partner given in accordance with Article 14 hereof.
"CONSENT OF THE LIMITED PARTNERS" means the Consent of a Majority In
Interest of the Limited Partners, which Consent shall be obtained prior to the
taking of any action for which it is required by this Agreement and may be given
or withheld by a Majority in Interest of the Limited Partners, unless otherwise
expressly provided herein, in their sole and absolute discretion.
"CONSENT OF THE PARTNERS" means the Consent of Partners holding
Percentage Interests that are greater than 662/3% of the aggregate Percentage
Interests of all Partners, which Consent shall be obtained prior to the taking
of any action for which it is required by this Agreement and may be given or
withheld by such Partners, in their sole and absolute discretion.
"CONSTRUCTIVELY OWN" means ownership under the constructive ownership
rules described in Exhibit C.
"CONTRIBUTED PROPERTY" means each property or other asset, in such
form as may be permitted by the Act, but excluding cash, contributed or deemed
contributed to the Partnership (or deemed contributed to the Partnership on
termination and reconstitution thereof pursuant to Section 708 of the Code).
"DEBT" means, as to any Person, as of any date of determination,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services; (ii) all amounts owed by such Person to
banks or other Persons in respect to reimbursement obligations under letters of
credit, surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (iv) lease obligations of such Person
which, in accordance with generally accepted accounting principles, should be
capitalized.
5
<PAGE>
"DEEMED PARTNERSHIP INTEREST VALUE" means, as of any date with respect
to any class of Partnership Interests, the Deemed Value of the Partnership
Interests of such class multiplied by the applicable Partner's Percentage
Interest of such class.
"DEEMED VALUE OF THE PARTNERSHIP INTERESTS" means, as of any date with
respect to any class of Partnership Interests, (i) the total number of shares of
capital stock of the General Partner corresponding to such class of Partnership
Interests (as provided for in Sections 4.1 and 4.3.D) issued and outstanding as
of the close of business on such date (excluding any treasury shares) multiplied
by the Fair Market Value of a share of such capital stock on such date;
(ii) DIVIDED BY the Percentage Interest of the General Partner in such class of
Partnership Interests on such date.
"DEPRECIATION" means, for each fiscal year or other period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; PROVIDED, HOWEVER, that if the federal income tax
depreciation, amortization or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the General Partner.
"EFFECTIVE DATE" means the date of closing of the initial public
offering of REIT Shares, upon which contributions set forth on Exhibit A that
are to be effective on the Effective Date shall become effective.
"ELECTION NOTICE" shall have the meaning set forth in Section 4.3.F.
"FAIR MARKET VALUE" means, with respect to any share of capital stock
of the General Partner, the average of the daily market price for the ten (10)
consecutive trading days immediately preceding the date with respect to which
"Fair Market Value" must be determined hereunder or, if such date is not a
Business Day, the immediately preceding Business Day. The market price for each
such trading day shall be: (i) if such shares are listed or admitted to trading
on any securities exchange or the Nasdaq National Market, the closing price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, (ii) if such shares are
not listed or admitted to trading on any securities exchange or the Nasdaq
National Market, the last reported sale price on such day or, if no sale takes
place on such day, the average of the closing bid and asked prices on such day,
as reported by a reliable quotation source designated by the General Partner, or
(iii) if such shares are not listed or admitted to trading on any securities
exchange or the Nasdaq National Market and no such last reported sale price or
closing bid and asked prices are available, the average of the reported high bid
and low asked prices on such day, as reported by a reliable quotation source
designated by the General Partner, or if there shall be no bid and asked prices
on such day, the average of the high bid and low asked prices, as so reported,
on the most recent day (not more than 10 days prior to the date in question) for
which prices have been so
6
<PAGE>
reported; PROVIDED THAT, if there are no bid and asked prices reported during
the 10 days prior to the date in question, the Fair Market Value of such shares
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate. In the event the REIT Shares Amount for such shares
includes rights that a holder of such shares would be entitled to receive, then
the Fair Market Value of such rights shall be determined by the General Partner
acting in good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate; and PROVIDED FURTHER THAT,
in connection with determining the Deemed Value of the Partnership Interests for
purposes of determining the number of additional Partnership Units issuable upon
a Capital Contribution funded by an underwritten public offering of shares of
capital stock of the General Partner, the Fair Market Value of such shares shall
be the public offering price per share of such class of capital stock sold.
"FUNDING DEBT" means the incurrence of any Debt by or on behalf of the
General Partner for the purpose of providing funds to the Partnership.
"FUNDING NOTICE" shall have the meaning set forth in Section 4.3.B.
"GENERAL PARTNER" means the REIT or its successors as general partner
of the Partnership.
"GENERAL PARTNER INTEREST" means a Partnership Interest held by the
General Partner. A General Partner Interest may be expressed as a number of
Partnership Units.
"GENERAL PARTNER LOAN" shall have the meaning set forth in
Section 4.3.C.
"GENERAL PARTNER PAYMENT" shall have the meaning set forth in
Section 15.11.
"GROSS ASSET VALUE" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such asset,
as determined by the contributing Partner and the General Partner (as set forth
on Exhibit A attached hereto, as such Exhibit may be amended from time to time);
PROVIDED THAT, if the contributing Partner is the General Partner then, except
with respect to the General Partner's initial Capital Contribution which shall
be determined as set forth on Exhibit A, or capital contributions of cash, REIT
Shares or other shares of capital stock of the General Partner, the
determination of the fair market value of the contributed asset shall be
determined by (i) the price paid by the General Partner if the asset is acquired
by the General Partner contemporaneously with its contribution to the
Partnership and (ii) by Appraisal, if otherwise acquired by the General Partner.
(b) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined by
the General Partner using such reasonable method of valuation as it may adopt,
PROVIDED HOWEVER, that for such purpose, the net value of all of the Partnership
assets, in the aggregate, shall be equal to the Deemed Value
7
<PAGE>
of the Partnership Interests of all classes of Partnership Interests then
outstanding, regardless of the method of valuation adopted by the General
Partner, as of the times listed below:
(i) the acquisition of an additional interest in the Partnership by a
new or existing Partner in exchange for more than a de minimis
Capital Contribution, if the General Partner reasonably
determines that such adjustment is necessary or appropriate to
reflect the relative economic interests of the Partners in the
Partnership;
(ii) the distribution by the Partnership to a Partner of more than a
de minimis amount of Partnership property as consideration for an
interest in the Partnership if the General Partner reasonably
determines that such adjustment is necessary or appropriate to
reflect the relative economic interests of the Partners in the
Partnership;
(iii) the liquidation of the Partnership within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g); and
(iv) at such other times as the General Partner shall reasonably
determine necessary or advisable in order to comply with
Regulations Sections 1.704-1(b) and 1.704-2.
(c) The Gross Asset Value of any Partnership asset distributed to a
Partner shall be the gross fair market value of such asset on the date of
distribution as determined by the distributee and the General Partner, or if the
distributee and the General Partner cannot agree on such a determination, by
Appraisal.
(d) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); PROVIDED, HOWEVER, that
Gross Asset Values shall not be adjusted pursuant to this subparagraph (d) to
the extent that the General Partner reasonably determines that an adjustment
pursuant to subparagraph (b) is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
subparagraph (d).
(e) If the Gross Asset Value of a Partnership asset has been
determined or adjusted pursuant to subparagraph (a), (b) or (d), such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into account
with respect to such asset for purposes of computing Net Income and Net Losses.
"HOLDER" means either the Partner or Assignee owning a Partnership
Unit.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
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"IMMEDIATE FAMILY" means, with respect to any natural Person, such
natural Person's estate or heirs or current spouse, parents, parents-in-law,
children, siblings and grandchildren and any trust or estate, all of the
beneficiaries of which consist of such Person or such Person's spouse, parents,
parents-in-law, children, siblings or grandchildren.
"INCAPACITY" or "INCAPACITATED" means, (i) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating him or her incompetent to manage his or her Person or
his or her estate; (ii) as to any corporation which is a Partner, the filing of
a certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; (iii) as to any partnership which is a Partner, the
dissolution and commencement of winding up of the partnership; (iv) as to any
estate which is a Partner, the distribution by the fiduciary of the estate's
entire interest in the Partnership; (v) as to any trustee of a trust which is a
Partner, the termination of the trust (but not the substitution of a new
trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (a) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (b) the Partner is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within 120 days after the commencement thereof, (g) the
appointment without the Partner's consent or acquiescence of a trustee, receiver
of liquidator has not been vacated or stayed within 90 days of such appointment,
or (h) an appointment referred to in clause (g) is not vacated within 90 days
after the expiration of any such stay.
"INDEMNITEE" means (i) any Person made a party to a proceeding by
reason of his or her status as (A) the General Partner or (B) a director or
officer of the Partnership or the General Partner, and (ii) such other Persons
(including Affiliates of the General Partner or the Partnership) as the General
Partner may designate from time to time, in its sole and absolute discretion.
"LIMITED PARTNER" means any Person named as a Limited Partner in
Exhibit A attached hereto, as such Exhibit may be amended from time to time, or
any Substituted Limited Partner or Additional Limited Partner, in such Person's
capacity as a Limited Partner in the Partnership.
"LIMITED PARTNERSHIP INTEREST" means a Partnership Interest of a
Limited Partner representing a fractional part of the Partnership Interests of
all Limited Partners and includes any and all benefits to which the holder of
such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
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provisions of this Agreement. A Limited Partnership Interest may be expressed
as a number of Partnership Units.
"LIQUIDATING EVENTS" shall have the meaning set forth in Section 13.1.
"LIQUIDATOR" shall have the meaning set forth in Section 13.2.A.
"MAJORITY IN INTEREST OF THE LIMITED PARTNERS" means Limited Partners
(other than any Limited Partner 50% or more of whose equity is owned, directly
or indirectly, by the General Partner) holding Percentage Interests that are
greater than fifty percent (50%) of the aggregate Percentage Interests of all
Limited Partners (other than any Limited Partner 50% or more whose equity is
owned, directly or indirectly, by the General Partner).
"MAJORITY OF REMAINING PARTNERS" means Partners other than the General
Partner owning (i) greater than fifty percent (50%) of the profits interests in
the Partnership held by all Partners other than the General Partner, determined
and allocated based on any reasonable estimate of profits from the relevant date
to the projected termination of the Partnership and taking into account present
and future allocations of profits under this Agreement as it is in effect on the
relevant date, and (ii) greater than fifty percent (50%) of the capital
interests in the Partnership, determined as of the relevant date under this
Agreement, owned by all the Partners other than the General Partner.
"MISCELLANEOUS RIGHTS AGREEMENT" means the Miscellaneous Rights
Agreement dated ___________ __, 1996 by and among the General Partner and
certain Limited Partners including the Specified Limited Partner, as such
agreement may be amended, modified or restated from time to time.
"NET INCOME" or "NET LOSS" means for each fiscal year of the
Partnership, an amount equal to the Partnership's taxable income or loss for
such fiscal year, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Net Income or Net Loss
pursuant to this definition of Net Income or Net Loss shall be added to such
taxable income or loss;
(b) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Net Income or Net Loss pursuant to this definition of Net Income or
Net Loss shall be subtracted from such taxable income or loss;
(c) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraph (b) or subparagraph (c) of the definition of
Gross Asset Value, the
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amount of such adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Net Income or Net Loss;
(d) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such fiscal year;
(f) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution other
than in liquidation of a Partner's interest in the Partnership, the amount of
such adjustment shall be treated as an item of gain (if the adjustment increases
the basis of the asset) or loss (if the adjustment decreases the basis of the
asset) from the disposition of the asset and shall be taken into account for
purposes of computing Net Income or Net Loss; and
(g) Notwithstanding any other provision of this definition of Net
Income or Net Loss, any items which are specially allocated pursuant to Section
6.3 hereof shall not be taken into account in computing Net Income or Net Loss.
The amounts of the items of Partnership income, gain, loss, or deduction
available to be specially allocated pursuant to Section 6.3 hereof shall be
determined by applying rules analogous to those set forth in this definition of
Net Income or Net Loss.
"NEW SECURITIES" means (1) any rights, options, warrants or
convertible or exchangeable securities having the right to subscribe for or
purchase REIT Shares or other shares of capital stock of the General Partner,
excluding grants under any Stock Plan, or (ii) any Debt issued by the General
Partner that provides any of the rights described in clause (i).
"NONRECOURSE DEDUCTIONS" shall have the meaning set forth in
Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for
a Partnership Year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"NONRECOURSE LIABILITY" shall have the meaning set forth in
Regulations Section 1.752-1(a)(2).
"NOTICE OF REDEMPTION" means the Notice of Redemption substantially in
the form of Exhibit B to this Agreement.
"PARTNER" means a General Partner or a Limited Partner, and "PARTNERS"
means the General Partner and the Limited Partners.
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"PARTNER MINIMUM GAIN" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"PARTNER NONRECOURSE DEBT" shall have the meaning set forth in
Regulations Section 1.704-2(b)(4).
"PARTNER NONRECOURSE DEDUCTIONS" shall have the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations
Section 1.704-2(i)(2).
"PARTNERSHIP" means the limited partnership formed under the Act and
pursuant to this Agreement, and any successor thereto.
"PARTNERSHIP INTEREST" means, an ownership interest in the Partnership
of either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement. There may be one or
more classes of Partnership Interests as provided in Section 4.3. A Partnership
Interest may be expressed as a number of Partnership Units. Unless otherwise
expressly provided for by the General Partner at the time of the original
issuance of any Partnership Interests, all Partnership Interests (whether of a
Limited Partner or a General Partner) shall be of the same class.
"PARTNERSHIP MINIMUM GAIN" shall have the meaning set forth in
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in Partnership Minimum Gain, for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
"PARTNERSHIP RECORD DATE" means the record date established by the
General Partner for the distribution of Available Cash pursuant to Section 5.1
hereof which record date shall be the same as the record date established by the
General Partner for a distribution to its stockholders of some or all of its
portion of such distribution.
"PARTNERSHIP UNIT" means, with respect to any class of Partnership
Interest, a fractional, undivided share of such class of Partnership Interest
issued pursuant to Sections 4.1 and 4.3. The ownership of Partnership Units may
be evidenced by a certificate for units substantially in the form of Exhibit D
hereto or as the General Partner may determine with respect to any class of
Partnership Units issued from time to time under Section 4.1 and 4.3.
"PARTNERSHIP YEAR" means the fiscal year of the Partnership, which
shall be the calendar year.
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"PERCENTAGE INTEREST" means, as to a Partner holding a class of
Partnership Interests, its interest in the Partnership as determined by dividing
the Partnership Units of such class owned by such Partner by the total number of
Partnership Units of such class then outstanding as specified in Exhibit A
attached hereto, as such Exhibit may be amended from time to time.
"PERSON" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"PLEDGE" shall have the meaning set forth in Section 11.3.A.
"PROPERTIES" means such interests in real property and personal
property including without limitation, fee interests, interests, in ground
leases, interests in joint ventures, interests in mortgages, and Debt
instruments as the Partnership may hold from time to time.
"PRO RATA CONTRIBUTION" shall have the meaning set forth in
Section 4.3.F.
"PRO RATA PARTICIPATION" shall have the meaning set forth in
Section 4.3.F.
"QUALIFIED REIT SUBSIDIARY" means any Subsidiary of the General
Partner that is a "qualified REIT subsidiary" within the meaning of
Section 856(i) of the Code.
"QUALIFIED TRANSFEREE" means an "Accredited Investor" as defined in
Rule 501 promulgated under the Securities Act.
"REDEMPTION" shall have the meaning set forth in Section 8.6.A.
"REGULATIONS" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REGULATORY ALLOCATIONS" shall have the meaning set forth in Section
6.3.A(viii) of this Agreement.
"REIT" means a real estate investment trust under Section 856 of the
Code.
"REIT REQUIREMENTS" shall have the meaning set forth in Section 5.1.
"REIT SHARE" means a share of common stock of the General Partner.
"REIT SHARES AMOUNT" means, as of any date, an aggregate number of
REIT Shares equal to the number of Tendered Units, as adjusted pursuant to
Section 7.5 (in the event the General Partner acquires material assets, other
than on behalf of the Partnership) and for stock dividends and distributions,
stock splits and subdivisions, reverse stock splits and combinations,
distributions of rights, warrants or options, and distributions of evidences of
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indebtedness or assets relating to assets not received by the General Partner
pursuant to a PRO RATA distribution by the Partnership.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
"SECURITIES EXCHANGE ACT" means the Securities Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
"SPECIFIED LIMITED PARTNER" means Richard S. Ziman so long as Mr.
Ziman serves as the Chief Executive Officer of the General Partner.
"SPECIFIED REDEMPTION DATE" means the day of receipt by the General
Partner of a Notice of Redemption.
"STOCK PLAN" means any stock incentive, stock option, stock ownership
or employee benefits plan of the General Partner.
"SUBSIDIARY" means, with respect to any Person, any corporation or
other entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"SUBSIDIARY PARTNERSHIP" means any partnership that is a Subsidiary of
the Partnership.
"SUBSTITUTED LIMITED PARTNER" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4.
"TAX ITEMS" shall have the meaning set forth in Section 6.4.A.
"TENANT" means any tenant from which the General Partner derives rent
either directly or indirectly through partnerships, including the Partnership.
"TENDERED UNITS" shall have the meaning set forth in Section 8.6.A.
"TENDERING PARTNER" shall have the meaning set forth in Section 8.6.A.
"TERMINATING CAPITAL TRANSACTION" means any sale or other disposition
of all or substantially all of the assets of the Partnership or a related series
of transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
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ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 ORGANIZATION
The Partnership is a limited partnership formed pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. Except as expressly provided herein, the rights and obligations of
the Partners and the administration and termination of the Partnership shall be
governed by the Act. The Partnership Interest of each Partner shall be personal
property for all purposes.
Section 2.2 NAME
The name of the Partnership is Arden Realty Group Limited Partnership.
The Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Limited Partners of such change in the next regular communication to the
Limited Partners.
Section 2.3 RESIDENT AGENT; PRINCIPAL OFFICE
The name and address of the resident agent of the Partnership in the
State of Maryland are The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202. The address of the principal office of the
Partnership in the State of Maryland is c/o The Corporation Trust Incorporated
at such address. The principal office of the Partnership is located at 9100
Wilshire Boulevard, East Tower, Suite 700, Beverly Hills, California 90212, or
such other place as the General Partner may from time to time designate by
notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Maryland as the General
Partner deems advisable.
Section 2.4 POWER OF ATTORNEY
A. Each Limited Partner and each Assignee constitutes and appoints
the General Partner, any Liquidator, and authorized officers and attorneys-in-
fact of each, and each of those acting singly, in each case with full power of
substitution, as its true and lawful agent and attorney-in-fact, with full power
and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and
other instruments (including, without limitation, this Agreement
and the Certificate and all amendments or restatements thereof)
that the General Partner or the Liquidator deems appropriate or
necessary to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a
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partnership in which the Limited Partners have limited liability)
in the State of Maryland and in all other jurisdictions in which
the Partnership may conduct business or own property; (b) all
instruments that the General Partner or any Liquidator deems
appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with
its terms; (c) all conveyances and other instruments or documents
that the General Partner or any Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement, including,
without limitation, a certificate of cancellation; (d) all
instruments relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other events
described in, Article 11, 12 or 13 hereof or the Capital
Contribution of any Partner; and (e) all certificates, documents
and other instruments relating to the determination of the
rights, preferences and privileges of Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of
the General Partner or any Liquidator, to make, evidence, give,
confirm or ratify any vote, consent, approval, agreement or other
action which is made or given by the Partners hereunder or is
consistent with the terms of this Agreement or appropriate or
necessary, in the sole discretion of the General Partner or any
Liquidator, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article 14
hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, in recognition of the fact
that each of the Partners will be relying upon the power of the General Partner
and any Liquidator to act as contemplated by this Agreement in any filing or
other action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or any Liquidator, acting in good faith pursuant to such power
of attorney; and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or any Liquidator, within 15 days after receipt of the General
Partner's or Liquidator's request therefor, such further designation, powers of
attorney and other instruments as the General Partner or the Liquidator, as the
case may be, deems necessary to effectuate this Agreement and the purposes of
the Partnership.
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Section 2.5 TERM
The term of the Partnership commenced on May 20, 1996 and shall
continue until December 31, 2096 unless it is dissolved sooner pursuant to the
provisions of Article 13 or as otherwise provided by law.
Section 2.6 NUMBER OF PARTNERS
The Partnership shall not at any time have more than 100 partners
(including as partners those persons indirectly owning an interest in the
Partnership through a partnership, limited liability company, S corporation or
grantor trust (such entity, a "flow through entity"), but only if substantially
all of the value of such person's interest in the flow through entity is
attributable to the flow through entity's interest (direct or indirect) in the
Partnership).
ARTICLE 3
PURPOSE
Section 3.1 PURPOSE AND BUSINESS
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act, PROVIDED, HOWEVER, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner at all times to be classified as a REIT for federal income tax
purposes, unless the General Partner ceases to qualify as a REIT for reasons
other than the conduct of the business of the Partnership, (ii) to enter into
any partnership, joint venture or other similar arrangement to engage in any
business described in the foregoing clause (i) or to own interests in any entity
engaged, directly or indirectly, in any such business and (iii) to do anything
necessary or incidental to the foregoing. In connection with the foregoing, and
without limiting the General Partner's right in its sole discretion to cease
qualifying as a REIT, the Partners acknowledge that the General Partner's
current status as a REIT inures to the benefit of all the Partners and not
solely the General Partner.
Section 3.2 POWERS
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, full power and authority, directly or through its ownership interest
in other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness, whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire and develop real
property, and lease, sell, transfer and dispose of real property; PROVIDED,
HOWEVER, that the Partnership shall not take, or refrain from taking, any action
which, in the judgment of the General Partner, in its sole and absolute
discretion, (i) could adversely affect the ability of the General Partner to
continue to qualify as a REIT, (ii) could subject the General Partner to any
taxes under Section 857 or Section 4981
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of the Code, or (iii) could violate any law or regulation of any governmental
body or agency having jurisdiction over the General Partner or its securities,
unless any such action (or inaction) under (i), (ii) or (iii) shall have been
specifically consented to by the General Partner in writing.
Section 3.3 PARTNERSHIP ONLY FOR PURPOSES SPECIFIED
The Partnership shall be a partnership only for the purposes specified
in Section 3.1 hereof, and this Agreement shall not be deemed to create a
partnership among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 hereof. Except as otherwise provided in this Agreement, no Partner
shall have any authority to act for, bind, commit or assume any obligation or
responsibility on behalf of the Partnership, its properties or any other
Partner. No Partner, in its capacity as a Partner under this Agreement, shall
be responsible or liable for any indebtedness or obligation of another Partner,
nor shall the Partnership be responsible or liable for any indebtedness or
obligation of any Partner, incurred either before or after the execution and
delivery of this Agreement by such Partner, except as to those responsibilities,
liabilities, indebtedness or obligations incurred pursuant to and as limited by
the terms of this Agreement and the Act.
Section 3.4 REPRESENTATIONS AND WARRANTIES BY THE PARTIES
A. Each Partner that is an individual represents and warrants to
each other Partner that (i) such Partner has the legal capacity to enter into
this Agreement and perform such Partner's obligations hereunder, (ii) the
consummation of the transactions contemplated by this Agreement to be performed
by such Partner will not result in a breach or violation of, or a default under,
any agreement by which such Partner or any of such Partner's property is or are
bound, or any statute, regulation, order or other law to which such Partner is
subject, (iii) such Partner is neither a "foreign person" within the meaning of
Section 1445(f) of the Code nor a "foreign partner" within the meaning of
Section 1446(e) of the Code, and (iv) this Agreement is binding upon, and
enforceable against, such Partner in accordance with its terms.
B. Each Partner that is not an individual represents and warrants to
each other Partner that (i) all transactions contemplated by this Agreement to
be performed by it have been duly authorized by all necessary action, including
without limitation, that of its general partner(s), committee(s), trustee(s),
beneficiaries, directors and/or stockholder(s), as the case may be, as required,
(ii) the consummation of such transactions shall not result in a breach or
violation of, or a default under, its partnership agreement, trust agreement,
charter or by-laws, as the case may be, any agreement by which such Partner or
any of such Partner's properties or any of its partners, beneficiaries, trustees
or stockholders, as the case may be, is or are bound, or any statute,
regulation, order or other law to which such Partner or any of its partners,
trustees, beneficiaries or stockholders, as the case may be, is or are subject,
(iii) such Partner is neither a "foreign person" within the meaning of Section
1445(f) of the Code nor a "foreign partner" within the meaning of Section
1446(e) of the Code, and (iv) this Agreement is binding upon, and enforceable
against, such Partner in accordance with its terms.
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C. Each Partner represents, warrants and agrees that it has acquired
and continues to hold its interest in the Partnership for its own account for
investment only and not for the purpose of, or with a view toward, the resale or
distribution of all or any part thereof, nor with a view toward selling or
otherwise distributing such interest or any part thereof at any particular time
or under any predetermined circumstances. Each Partner further represents and
warrants that it is a sophisticated investor, able and accustomed to handling
sophisticated financial matters for itself, particularly real estate
investments, and that it has a sufficiently high net worth that it does not
anticipate a need for the funds it has invested in the Partnership in what it
understands to be a highly speculative and illiquid investment.
D. Each Partner further represents, warrants and agrees as follows:
(i) Except as provided in Exhibit E, it does not and will not,
without the prior written consent of the General Partner, actually own or
Constructively Own (a) with respect to any Tenant that is a corporation, any
stock of such Tenant, and (b) with respect to any Tenant that is not a
corporation, any interests in either the assets or net profits of such Tenant;
PROVIDED, HOWEVER, that so long as there are fewer than 20 Partners, each
Partner may own or Constructively Own (x) with respect to any Tenant that is a
corporation, stock of such Tenant possessing up to, but not more than, one-half
of one percent (0.5%) of the total combined voting power of all classes of stock
entitled to vote and one-half of one percent (0.5%) of the total number of
shares of all classes of stock of such Tenant and (y) with respect to any Tenant
that is not a corporation, interests in such Tenant representing up to, but not
more than, one-half of one percent (0.5%) of the assets and one-half of one
percent (0.5%) of the net profits of such Tenant, so long as such actual or
Constructive Ownership otherwise permitted under clause (x) or (y) would not
cause the General Partner to receive amounts described in Section 856 (d)(2)(B)
of the Code.
(ii) Except as provided in Exhibit F, it does not, and agrees
that it will not without the prior written consent of the General Partner,
actually own or Constructively Own, any stock in the General Partner, other than
any REIT Shares or other shares of capital stock of the General Partner such
Partner may acquire (a) as a result of an exchange of Tendered Units pursuant to
Section 8.6, (b) upon the exercise of options granted or delivery of REIT Shares
pursuant to any Stock Plan or (c) pursuant to the Miscellaneous Rights
Agreement.
(iii) Upon request of the General Partner, it will disclose
to the General Partner the amount of REIT Shares or other shares of capital
stock of the General Partner that it actually owns or Constructively Owns.
(iv) It understands that if, for any reason, (a) the
representations, warranties or agreements set forth in D(i) or (ii) above are
violated, or (b) the Partnership's actual or Constructive ownership of REIT
Shares or other shares of capital stock of the General Partner violates the
limitations set forth in the Charter, then (1) some or all of the Redemption
rights of the Partners may become non-exercisable, and (2) some or all of the
REIT Shares owned by the Partners may be automatically transferred to a trust
for the benefit of a charitable beneficiary, as provided in the Charter.
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E. The representations and warranties contained in Sections 3.4.A,
3.4.B, 3.4.C and 3.4.D hereof shall survive the execution and delivery of this
Agreement by each Partner and the dissolution and wind up of the Partnership.
F. Each Partner hereby acknowledges that no representations as to
potential profit, cash flows, funds from operations or yield, if any, in respect
of the Partnership or the General Partner have been made by any Partner or any
employee or representative or Affiliate of any Partner, and that projections and
any other information, including, without limitation, financial and descriptive
information and documentation, which may have been in any manner submitted to
such Partner shall not constitute any representation or warranty of any kind or
nature, express or implied.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS
At the time of their respective execution of this Agreement, the
Partners shall make Capital Contributions as set forth in Exhibit A to this
Agreement. The Partners shall own Partnership Units of the class and in the
amounts set forth in Exhibit A and shall have a Percentage Interest in the
Partnership as set forth in Exhibit A, which Percentage Interest shall be
adjusted in Exhibit A from time to time by the General Partner to the extent
necessary to reflect accurately exchanges, redemptions, Capital Contributions,
the issuance of additional Partnership Units or similar events having an effect
on a Partner's Percentage Interest. Except as required by law or as otherwise
provided in Sections 4.3, 4.4 and 10.5, no Partner shall be required or
permitted to make any additional Capital Contributions or loans to the
Partnership. Unless otherwise specified by the General Partner at the time of
the creation of any class of Partnership Interests, the corresponding class of
capital stock for any Partnership Units issued shall be REIT Shares.
Section 4.2 LOANS BY THIRD PARTIES
Subject to Section 4.3, the Partnership may incur Debt, or enter into
other similar credit, guarantee, financing or refinancing arrangements for any
purpose (including, without limitation, in connection with any further
acquisition of Properties) with any Person that is not the General Partner upon
such terms as the General Partner determines appropriate; PROVIDED THAT, the
Partnership shall not incur any Debt that is recourse to the General Partner,
except to the extent otherwise agreed to by the General Partner in its sole
discretion.
Section 4.3 ADDITIONAL FUNDING AND CAPITAL CONTRIBUTIONS
A. GENERAL. The General Partner may, at any time and from time to
time determine that the Partnership requires additional funds ("Additional
Funds") for the acquisition of additional Properties or for such other
Partnership purposes as the General Partner may determine. Additional Funds may
be raised by the Partnership, at the election of the General
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Partner, in any manner provided in, and in accordance with, the terms of this
Section 4.3. No Person shall have any preemptive, preferential or similar right
or rights to subscribe for or acquire any Partnership Interest, except as set
forth in this Section 4.3.
B. FUNDING NOTICE. The General Partner shall give written notice
(the "Funding Notice") to the Specified Limited Partner of the need for
Additional Funds and the anticipated source(s) thereof. No notice shall be
given to any Partners with respect to Capital Contributions pursuant to Section
4.4 below.
C. GENERAL PARTNER LOANS. Upon delivery of a Funding Notice to the
Specified Limited Partner, the General Partner, subject to Section 4.3.F below,
may enter into a Funding Debt, including, without limitation, a Funding Debt
that is convertible into REIT shares, and lend the Additional Funds to the
Partnership (a "General Partner Loan"); PROVIDED, HOWEVER, that the General
Partner shall not be obligated to lend the net proceeds of any Funding Debt to
the Partnership in a manner that would be inconsistent with the General
Partner's ability to remain qualified as a REIT. If the General Partner enters
into such a Funding Debt, the General Partner Loan will consist of the net
proceeds from such Funding Debt and will be on comparable terms and conditions,
including interest rate, repayment schedule and costs and expenses, as shall be
applicable with respect to or incurred in connection with such Funding Debt.
D. ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS. Upon delivery of a
Funding Notice to the Specified Limited Partner, the General Partner, in its
sole and absolute discretion, may raise all or any portion of the Additional
Funds by accepting additional Capital Contributions, subject to Section 4.3.F in
the event additional Capital Contributions are made in cash. In connection with
any such additional Capital Contributions (of cash or property), the General
Partner is hereby authorized to cause the Partnership from time to time to issue
to Partners (including the General Partner) or other persons (including, without
limitation, in connection with the contribution of property to the Partnership)
additional Partnership Units or other Partnership Interests in one or more
classes, or one or more series of any of such classes, with such designations,
preferences and relative, participating, optional or other special rights,
powers, and duties, including rights, powers, and duties senior to then existing
Limited Partnership Interests, all as shall be determined by the General Partner
in its sole and absolute discretion subject to Maryland law, including without
limitation, (i) the allocations of items of Partnership income, gain, loss,
deduction, and credit to such class or series of Partnership Interests; (ii) the
right of each such class or series of Partnership Interests to share in
Partnership distributions; and (iii) the rights of each such class or series of
Partnership Interests upon dissolution and liquidation of the Partnership;
PROVIDED THAT no such additional Partnership Units or other Partnership
Interests shall be issued to the General Partner unless either (a) the
additional Partnership Interests are issued in connection with the grant, award,
or issuance of shares of the General Partner pursuant to Section 4.3.E below,
which shares have designations, preferences, and other rights (except voting
rights) such that the economic interests attributable to such shares are
substantially similar to the designations, preferences and other rights of the
additional Partnership Interests issued to the General Partner in accordance
with this Section 4.3.D, or (b) the additional Partnership Interests are issued
to all Partners holding Partnership Interests in the same class in proportion to
their respective Percentage Interests in such class.
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In the event that the Partnership issues additional Partnership Interests
pursuant to this Section 4.3.D, the General Partner shall make such revisions to
this Agreement (including but not limited to the revisions described in Section
5.5, Section 6.2.B, and Section 8.6) as it determines are necessary to reflect
the issuance of such additional Partnership Interests.
E. ISSUANCE OF REIT SHARES OR OTHER SECURITIES BY THE GENERAL
PARTNER. The General Partner shall not issue any additional REIT Shares (other
than REIT Shares issued pursuant to Section 8.6 hereof or pursuant to a dividend
or distribution (including any stock split) of REIT Shares to all of its
stockholders), other shares of capital stock of the General Partner or New
Securities unless (i) the General Partner shall make a Capital Contribution of
the net proceeds from the issuance of such additional REIT Shares, other shares
of capital stock or New Securities, as the case may be, and from the exercise of
the rights contained in such additional New Securities, as the case may be, and
(ii) except with respect to securities to be issued pursuant to any Stock Plan
or dividend reinvestment plan, the General Partner shall have delivered to the
Specified Limited Partner a Funding Notice regarding the securities to be
issued.
F. PARTICIPATION RIGHTS OF SPECIFIED LIMITED PARTNER. The Funding
Notice delivered by the General Partner prior to its making or accepting (on
behalf of the Partnership) any additional cash Capital Contributions pursuant to
Section 4.3.D or 4.3.E hereof herein shall contain the total amount of
additional Capital Contributions sought to be made to the Partnership, and the
terms and conditions pertaining thereto. Provided that the Specified Limited
Partner is then holding a Limited Partner Interest, the Specified Limited
Partner may elect to make an additional Capital Contribution not to exceed the
product of (i) the total amount of additional Capital Contributions being
sought, and (ii) the Specified Limited Partner's Percentage Interest (with such
product deemed the "Pro Rata Contribution"). For purposes of determining the
Specific Limited Partner's Pro Rata Contribution (or the Pro Rata Participation
(as defined below)), the Specified Limited Partner's Percentage Interest shall
mean the Percentage Interest with respect to the class of Partnership Interests
issued to the Specified Limited Partner on the Effective Date, whether the
Partnership proposes to issue the same class or a new class of Partnership
Interests in connection with such additional Capital Contributions. The Funding
Notice delivered by the General Partner prior to its making any loans to the
Partnership pursuant to Section 4.3.C herein shall contain the total amount of
the loan to be made to the Partnership. Provided that the Specified Limited
Partner is then holding a Limited Partner Interest, the Specified Limited
Partner may elect to participate in such loan in an amount not to exceed the
product of (i) the total amount of the loan, and (ii) the Specified Limited
Partner's Percentage Interest (with such product deemed the "Pro Rata
Participation"). Either such election shall be made, if at all, by providing
written notice thereof (the "Election Notice") to the General Partner within
five (5) days after delivery of the Funding Notice. Failure to respond to such
Funding Notice shall be deemed to be an election by the Specified Limited
Partner not to make such Capital Contribution or participate in such loan. Such
Election Notice shall contain the amount of the additional Capital Contribution
or the loan participation, if any, the Specified Limited Partner is to make
(such additional Capital Contribution not to exceed the Pro Rata Contribution
and such loan participation not to exceed the Pro Rata Participation) equal to
all or any portion of its Pro Rata Contribution or Pro Rata Participation.
Notwithstanding anything in this Section 4.3.F to the contrary, (a) the Pro Rata
Contribution right and the Pro Rata Participation right of the Specified Limited
Partner under this Section 4.3.F shall be reduced to the extent that the
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Specified Limited Partner has exercised rights under the Miscellaneous Rights
Agreement with respect to the issuance of REIT Shares or other shares of capital
stock of the General Partner that has resulted in an additional Capital
Contribution by the General Partner; and (b) if, at any time, the Specified
Limited Partner ceases to serve as the Chief Executive Officer of the General
Partner, then effective as of such time, the Specified Limited Partner shall no
longer be entitled to the Pro Rata Contribution right or the Pro Rata
Participation right under this Section 4.3.F. or entitled to receive Funding
Notices pursuant to Sections 4.3.B. or 4.3.C.
G. PERCENTAGE INTEREST ADJUSTMENTS IN THE CASE OF CAPITAL
CONTRIBUTIONS FOR PARTNERSHIP UNITS. Upon the acceptance of additional Capital
Contributions in exchange for Partnership Units, the Percentage Interest related
thereto shall be equal to a fraction, the numerator of which is equal to the
amount of cash and the Agreed Value of the Property contributed as of the
Business Day immediately preceding the date on which the additional Capital
Contributions are made (an "Adjustment Date") and the denominator of which is
equal to the sum of (i) the Deemed Value of the Partnership Interests of such
class (computed as of the Business Day immediately preceding the Adjustment
Date) and (ii) the aggregate amount of additional Capital Contributions
contributed to the Partnership on such Adjustment Date in respect of such class
of Partnership Interests. The Percentage Interest of each other Partner holding
Partnership Interests of such class not making a full PRO RATA Capital
Contribution shall be adjusted to equal to a fraction, the numerator of which is
equal to the sum of (i) the Deemed Partnership Interest Value of such Limited
Partner of such class (computed as of the Business Day immediately preceding the
Adjustment Date) and (ii) the amount of additional Capital Contributions made by
such Partner to the Partnership in respect of such class of Partnership
Interests as of such Adjustment Date, and the denominator of which is equal to
the sum of (i) the Deemed Value of the Partnership Interests of such class
(computed as of the Business Day immediately preceding the Adjustment Date),
PLUS (ii) the aggregate amount of additional Capital Contributions contributed
by all Partners and/or third parties to the Partnership on such Adjustment Date
in respect of such class. Provided, however, solely for purposes of calculating
a Partner's Percentage Interest pursuant to this Section 4.3.G, cash Capital
Contributions by the General Partner will be deemed to equal the cash
contributed by the General Partner plus, in the case of cash contributions
funded by an offering of any capital stock of the General Partner, the offering
costs attributable to the cash contributed to the Partnership. The General
Partner shall promptly give each Partner written notice of its Percentage
Interest, as adjusted.
Section 4.4 STOCK PLAN
If at any time or from time to time the General Partner sells REIT
Shares pursuant to any Stock Plan, the General Partner shall contribute the
proceeds therefrom to the Partnership as an additional Capital Contribution
pursuant to Section 4.3 in exchange for an amount of additional Partnership
Units equal to the number of REIT Shares so sold. The General Partner's Capital
Account shall be increased by the amount of cash so contributed.
Section 4.5 OTHER CONTRIBUTION PROVISIONS
In the event that any Partner is admitted to the Partnership and is
given a Capital Account in exchange for services rendered to the Partnership,
such transaction shall be treated
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by the Partnership and the affected Partner as if the Partnership had
compensated such Partner in cash, and the Partner had contributed such cash to
the capital of the Partnership. In addition, with the consent of the General
Partner, one or more Limited Partners may enter into contribution agreements
with the Partnership which have the effect of providing a guarantee of certain
obligations of the Partnership.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS
The General Partner shall cause the Partnership to distribute
quarterly all, or such portion as the General Partner may in its discretion
determine, of Available Cash generated by the Partnership during such quarter to
the Partners who are Partners on the Partnership Record Date with respect to
such quarter, (1) first, with respect to any Partnership Interests that are
entitled to any preference in distribution, in accordance with the rights of
such class of Partnership Interests (and within such class, pro rata in
proportion to the respective Percentage Interests on such Partnership Record
Date), and, (2) second, with respect to Partnership Interests that are not
entitled to any preference in distribution, pro rata to each such class in
accordance with the terms of such class (and within each such class, pro rata in
proportion with the respective Percentage Interests on such Partnership Record
Date). Unless otherwise expressly provided for herein or in an agreement at the
time a new class of Partnership Interests is created in accordance with Article
4 hereof, no Partnership Interest shall be entitled to a distribution in
preference to any other Partnership Interest. The General Partner shall take
such reasonable efforts, as determined by it in its sole and absolute discretion
and consistent with its qualification as a REIT, to cause the Partnership to
distribute sufficient amounts to enable the General Partner to pay stockholder
dividends that will (a) satisfy the requirements for qualifying as a REIT under
the Code and Regulations ("REIT Requirements"), and (b) avoid any federal income
or excise tax liability of the General Partner.
Section 5.2 DISTRIBUTIONS IN KIND
No right is given to any Partner to demand and receive property other
than cash. The General Partner may determine, in its sole and absolute
discretion, to make a distribution in kind to the Partners of Partnership
assets, and such assets shall be distributed in such a fashion as to ensure that
the fair market value is distributed and allocated in accordance with
Articles 5, 6 and 10.
Section 5.3 DISTRIBUTIONS UPON LIQUIDATION
Proceeds from a Terminating Capital Transaction shall be distributed
to the Partners in accordance with Section 13.2.
Section 5.4 DISTRIBUTIONS TO REFLECT ISSUANCE OF ADDITIONAL
PARTNERSHIP INTERESTS. In the event that the Partnership issues additional
Partnership Interests to the General Partner or
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any Additional Limited Partner pursuant to Section 4.3.D or 4.4 hereof, the
General Partner shall make such revisions to this Article 5 as it determines are
necessary to reflect the issuance of such additional Partnership Interests.
ARTICLE 6
ALLOCATIONS
Section 6.1 TIMING AND AMOUNT OF ALLOCATIONS OF NET INCOME AND NET
LOSS
Net Income and Net Loss of the Partnership shall be determined and
allocated with respect to each fiscal year of the Partnership as of the end of
each such year. Subject to the other provisions of this Article 6, an
allocation to a Partner of a share of Net Income or Net Loss shall be treated as
an allocation of the same share of each item of income, gain, loss or deduction
that is taken into account in computing Net Income or Net Loss.
Section 6.2 GENERAL ALLOCATIONS
A. IN GENERAL. Except as otherwise provided in this Article 6, Net
Income and Net Loss shall be allocated to each of the Partners holding the same
class of Partnership Interests in accordance with their respective Percentage
Interest of such class.
B. ALLOCATIONS TO REFLECT ISSUANCE OF ADDITIONAL PARTNERSHIP
INTERESTS. In the event that the Partnership issues additional Partnership
Interests to the General Partner, the Specified Limited Partner or any
Additional Limited Partner pursuant to Section 4.3 or 4.4 hereof, the General
Partner shall make such revisions to this Section 6.2 as it determines are
necessary to reflect the terms of the issuance of such additional Partnership
Interests, including making preferential allocations to certain classes of
Partnership Interests.
C. Notwithstanding Section 6.2.A., but subject to the other
provisions of this Article 6, the following special allocations shall be made:
(i) The deduction attributable to the Partnership's payment of
specified interest under certain loans made to predecessor entities, which
were assumed or taken subject to by the Partnership, shall be allocated as
set forth in Exhibit G.
(ii) The cancellation of indebtedness income of the Partnership
attributable to the repayment of certain loans made to predecessor
entities, which were assumed or taken subject to by the Partnership, shall
be allocated as set forth in Exhibit H.
Section 6.3 ADDITIONAL ALLOCATION PROVISIONS
Notwithstanding the foregoing provisions of this Article 6:
A. REGULATORY ALLOCATIONS.
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(i) MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Regulations Section 1.704-2(f), notwithstanding the provisions of Section
6.2 of the Agreement, or any other provision of this Article 6, if there is
a net decrease in Partnership Minimum Gain during any fiscal year, each
Partner shall be specially allocated items of Partnership income and gain
for such year (and, if necessary, subsequent years) in an amount equal to
such Partner's share of the net decrease in Partnership Minimum Gain, as
determined under Regulations Section 1.704-2(g). Allocations pursuant to
the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Partner pursuant thereto. The items to be
allocated shall be determined in accordance with Regulations Sections
1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3.A(i) is intended to
qualify as a "minimum gain chargeback" within the meaning of Regulation
Section 1.704-2(f) which shall be controlling in the event of a conflict
between such Regulation and this Section 6.3.A(i).
(ii) PARTNER MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Regulations Section 1.704-2(i)(4), and notwithstanding the
provisions of Section 6.2 of the Agreement, or any other provision of this
Article 6 (except Section 6.3.A(i)), if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any fiscal
year, each Partner who has a share of the Partner Minimum Gain attributable
to such Partner Nonrecourse Debt, determined in accordance with Regulations
Section 1.704-2(i)(5), shall be specially allocated items of Partnership
income and gain for such year (and, if necessary, subsequent years) in an
amount equal to such Partner's share of the net decrease in Partner Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to
the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each General Partner and Limited Partner
pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This
Section 6.3.A(ii) is intended to qualify as a "chargeback of partner
nonrecourse debt minimum gain" within the meaning of Regulation Section
1.704-2(i) which shall be controlling in the event of a conflict between
such Regulation and this Section 6.3.A(ii).
(iii) NONRECOURSE DEDUCTIONS AND PARTNER NONRECOURSE
DEDUCTIONS. Any Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Partners in accordance with their Percentage
Interests. Any Partner Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Partner(s) who bears the economic risk of loss
with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable, in accordance with Regulations
Sections 1.704-2(b)(4) and 1.704-2(i).
(iv) QUALIFIED INCOME OFFSET. If any Partner unexpectedly
receives an adjustment, allocation or distribution described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income
and gain shall be allocated, in accordance with Regulations Section 1.704-
1(b)(2)(ii)(d), to the Partner in an amount and manner sufficient to eliminate,
to the extent required by such Regulations, the Adjusted Capital Account Deficit
of the Partner as quickly as possible provided that an allocation
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pursuant to this Section 6.3.A(iv) shall be made if and only to the extent
that such Partner would have an Adjusted Capital Account Deficit after all
other allocations provided in this Article 6 have been tentatively made as
if this Section 6.3.A(iv) were not in the Agreement. It is intended that
this Section 6.3.A(iv) qualify and be construed as a "qualified income
offset" within the meaning of Regulations 1.704-1(b)(2)(ii)(d), which shall
be controlling in the event of a conflict between such Regulations and this
Section 6.3.A(iv).
(v) GROSS INCOME ALLOCATION. In the event any Partner has a
deficit Capital Account at the end of any fiscal year which is in excess of
the sum of (1) the amount (if any) such Partner is obligated to restore to
the Partnership, and (2) the amount such Partner is deemed to be obligated
to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-
2(i)(5), each such Partner shall be specially allocated items of Partnership
income and gain in the amount of such excess as quickly as possible, PROVIDED
THAT an allocation pursuant to this Section 6.3.A(v) shall be made if and only
to the extent that such Partner would have a deficit Capital Account in excess
of such sum after all other allocations provided in this Article 6 have been
tentatively made as if this Section 6.3.A(v) and Section 6.3.A(iv) were not in
the Agreement.
(vi) LIMITATION ON ALLOCATION OF NET LOSS. To the extent any
allocation of Net Loss would cause or increase an Adjusted Capital Account
Deficit as to any Partner, such allocation of Net Loss shall be reallocated
among the other Partners in accordance with their respective Percentage
Interests, subject to the limitations of this Section 6.3.A(vi).
(vii) SECTION 754 ADJUSTMENT. To the extent an adjustment to
the adjusted tax basis of any Partnership asset pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to
be taken into account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of his interest in the
Partnership, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis) and such gain or
loss shall be specially allocated to the Partners in accordance with their
interests in the Partnership in the event that Regulations Section 1.704-1
(b)(2)(iv)(m)(2) applies, or to the Partners to whom such distribution was
made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(viii) CURATIVE ALLOCATION. The allocations set forth in
Sections 6.3.A(i), (ii), (iii), (iv), (v), (vi), and (vii) (the "Regulatory
Allocations") are intended to comply with certain regulatory requirements,
including the requirements of Regulations Sections 1.704-1(b) and 1.704-2.
Notwithstanding the provisions of Sections 6.1 and 6.2, the Regulatory
Allocations shall be taken into account in allocating other items of
income, gain, loss and deduction among the Partners so that, to the extent
possible, the net amount of such allocations of other items and the
Regulatory Allocations to each Partner
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shall be equal to the net amount that would have been allocated to each
such Partner if the Regulatory Allocations had not occurred.
B. For purposes of determining a Partner's proportional share of the
"excess nonrecourse liabilities" of the Partnership within the meaning of
Regulations Section 1.752-3(a)(3), each Partner's interest in Partnership
profits shall be such Partner's Percentage Interest.
Section 6.4 TAX ALLOCATIONS
A. IN GENERAL. Except as otherwise provided in this Section 6.4,
for income tax purposes each item of income, gain, loss and deduction
(collectively, "Tax Items") shall be allocated among the Partners in the same
manner as its correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Sections 6.2 and 6.3.
B. ALLOCATIONS RESPECTING SECTION 704(C) REVALUATIONS.
Notwithstanding Section 6.4.A, Tax Items with respect to Partnership property
that is contributed to the Partnership by a Partner shall be shared among the
Partners for income tax purposes pursuant to Regulations promulgated under
Section 704(c) of the Code, so as to take into account the variation, if any,
between the basis of the property to the Partnership and its initial Gross Asset
Value. With respect to Partnership property that is initially contributed to
the Partnership upon its formation pursuant to Section 4.1, such variation
between basis and initial Gross Asset Value shall be taken into account under
the "_____________ method" as described in Regulations Section 1.704-3. With
respect to properties subsequently contributed to the Partnership, the
Partnership shall account for such variation under any method approved under
Section 704(c) of the Code and the applicable regulations as chosen by the
General Partner. In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraph (b) of the definition of Gross Asset Value
(provided in Article 1 of this Agreement), subsequent allocations of Tax Items
with respect to such asset shall take account of the variation, if any, between
the adjusted basis of such asset and its Gross Asset Value in the same manner as
under Section 704(c) of the Code and the applicable regulations consistent with
the requirements of Regulations Section 1.704-1(b)(2)(iv)(g) using any method
approved under 704(c) of the Code and the applicable regulations as chosen by
the General Partner.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 MANAGEMENT
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are
exclusively vested in the General Partner, and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause, except with the consent of the
General Partner. In addition to the powers now or hereafter granted a general
partner of a limited partnership under applicable law or which are granted to
the General Partner under any
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other provision of this Agreement, the General Partner, subject to the other
provisions hereof including Section 7.3, shall have full power and authority to
do all things deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in Section 3.2 hereof and to
effectuate the purposes set forth in Section 3.1 hereof, including, without
limitation:
(1) the making of any expenditures, the lending or borrowing of money
(including, without limitation, making prepayments on loans and
borrowing money to permit the Partnership to make distributions
to its Partners in such amounts as will permit the General
Partner (so long as the General Partner has determined to qualify
as a REIT) to avoid the payment of any federal income tax
(including, for this purpose, any excise tax pursuant to Section
4981 of the Code) and to make distributions to its stockholders
sufficient to permit the General Partner to maintain REIT
status), the assumption or guarantee of, or other contracting
for, indebtedness and other liabilities, the issuance of
evidences of indebtedness (including the securing of same by
mortgage, deed of trust or other lien or encumbrance on the
Partnership's assets) and the incurring of any obligations it
deems necessary for the conduct of the activities of the
Partnership;
(2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies
having jurisdiction over the business or assets of the
Partnership;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership or the
merger or other combination of the Partnership with or into
another entity;
(4) the mortgage, pledge, encumbrance or hypothecation of any assets
of the Partnership, and the use of the assets of the Partnership
(including, without limitation, cash on hand) for any purpose
consistent with the terms of this Agreement and on any terms it
sees fit, including, without limitation, the financing of the
conduct or the operations of the General Partner or the
Partnership, the lending of funds to other Persons (including,
without limitation, the General Partner (if necessary to permit
the financing or capitalization of a subsidiary of the General
Partner or the Partnership) or any Subsidiaries of the
Partnership) and the repayment of obligations of the Partnership,
any of its Subsidiaries and any other Person in which it has an
equity investment;
(5) the negotiation, execution, and performance of any contracts,
leases, conveyances or other instruments that the General Partner
considers useful or necessary to the conduct of the Partnership's
operations or the implementation of the General Partner's powers
under this Agreement;
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(6) the distribution of Partnership cash or other Partnership assets
in accordance with this Agreement;
(7) the selection and dismissal of employees of the Partnership
(including, without limitation, employees having titles such as
"president," "vice president," "secretary" and "treasurer"), and
agents, outside attorneys, accountants, consultants and
contractors of the Partnership, the determination of their
compensation and other terms of employment or hiring, including
waivers of conflicts of interest and the payment of their
expenses and compensation out of the Partnership's assets;
(8) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or
appropriate;
(9) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it deems
desirable (including, without limitation, the acquisition of
interests in, and the contributions of property to any Subsidiary
and any other Person in which it has an equity investment from
time to time); PROVIDED THAT, as long as the General Partner has
determined to continue to qualify as a REIT, the Partnership may
not engage in any such formation, acquisition or contribution
that would cause the General Partner to fail to qualify as a
REIT;
(10) the control of any matters affecting the rights and obligations
of the Partnership, including the conduct of litigation and the
incurring of legal expense and the settlement of claims and
litigation, and the indemnification of any Person against
liabilities and contingencies to the extent permitted by law;
(11) the undertaking of any action in connection with the
Partnership's direct or indirect investment in any Person
(including, without limitation, contributing or loaning
Partnership funds to, incurring indebtedness on behalf of, or
guarantying the obligations of any such Persons);
(12) subject to the other provisions in this Agreement, the
determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of
valuation as it may adopt, PROVIDED THAT such methods are
otherwise consistent with requirements of this Agreement;
(13) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property or
improvements owned by the Partnership or any Subsidiary of the
Partnership or any Person in which the Partnership has made a
direct or indirect equity investment;
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(14) holding, managing, investing and reinvesting cash and other
assets of the Partnership;
(15) the collection and receipt of revenues and income of the
Partnership;
(16) the exercise, directly or indirectly through any attorney-in-fact
acting under a general or limited power of attorney, of any
right, including the right to vote, appurtenant to any asset or
investment held by the Partnership;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with
any Subsidiary of the Partnership or any other Person in which
the Partnership has a direct or indirect interest, or jointly
with any such Subsidiary or other Person;
(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the
Partnership does not have an interest pursuant to contractual or
other arrangements with such Person; and
(19) the making, execution and delivery of any and all deeds, leases,
notes, deeds to secure debt, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties,
indemnities, waivers, releases or legal instruments or agreements
in writing necessary or appropriate in the judgment of the
General Partner for the accomplishment of any of the powers of
the General Partner enumerated in this Agreement.
B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the partners, notwithstanding any other provisions of this Agreement
(except as provided in Section 7.3), the Act or any applicable law, rule or
regulation. The execution, delivery or performance by the General Partner or
the Partnership of any agreement authorized or permitted under this Agreement
shall not constitute a breach by the General Partner of any duty that the
General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner
may cause the Partnership to obtain and maintain (i) casualty, liability and
other insurance on the properties of the Partnership and (ii) liability
insurance for the Indemnities hereunder.
D. At all times from and after the date hereof, the General Partner
may cause the Partnership to establish and maintain working capital reserves in
such amounts as the General Partner, in it sole and absolute discretion, deems
appropriate and reasonable from time to time.
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E. In exercising its authority under this Agreement, the General
Partner may, but shall be under no obligation to, take into account the tax
consequences to any Partner (including the General Partner) of any action taken
by it. The General Partner and the Partnership shall not have liability to a
Partner under any circumstances as a result of an income tax liability incurred
by such Limited Partner as a result of an action (or inaction) by the General
Partner pursuant to its authority under this Agreement.
Section 7.2 CERTIFICATE OF LIMITED PARTNERSHIP
To the extent that such action is determined by the General Partner to
be reasonable and necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate and do all the things to
maintain the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Maryland
and each other state, the District of Columbia or other jurisdiction, in which
the Partnership may elect to do business or own property. Subject to the terms
of Section 8.5.A(4) hereof, the General Partner shall not be required, before or
after filing, to deliver or mail a copy of the Certificate or any amendment
thereto to any Limited Partner. The General Partner shall use all reasonable
efforts to cause to be filed such other certificates or documents as may be
reasonable and necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of Maryland, any other
state, or the District of Columbia or other jurisdiction, in which the
Partnership may elect to do business or own property.
Section 7.3 RESTRICTIONS ON GENERAL PARTNER'S AUTHORITY
A. The General Partner may not take any action in contravention of
an express prohibition or limitation of this Agreement, including, without
limitation:
(1) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise
provided in this Agreement;
(2) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except
as otherwise provided in this Agreement;
(3) admit a Person as a Partner, except as otherwise provided in this
Agreement;
(4) perform any act that would subject a Limited Partner to liability
as a general partner in any jurisdiction or any other liability
except as provided herein or under the Act; or
(5) enter into any contract, mortgage, loan or other agreement that
expressly prohibits or restricts the ability of a Limited Partner
to exercise its rights
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to a Redemption in full, except with the written consent of such
Limited Partner.
B. The General Partner shall not, without the prior Consent of the
Partners, undertake, on behalf of the Partnership, any of the following actions
or enter into any transaction which would have the effect of such transactions:
(1) except as provided in Section 7.3.C, amend, modify or terminate
this Agreement other than to reflect the admission, substitution,
termination or withdrawal of partners pursuant to Article 12
hereof;
(2) make a general assignment for the benefit of creditors or appoint
or acquiesce in the appointment of a custodian, receiver or
trustee for all or any part of the assets of the Partnership;
(3) institute any proceeding for bankruptcy on behalf of the
Partnership;
(4) confess a judgment against the Partnership;
(5) approve or acquiesce to the transfer of the Partnership Interest
of the General Partner to any Person other than the Partnership;
or
(6) admit into the Partnership any Additional or Substitute General
Partners.
C. Notwithstanding Section 7.3.B, the General Partner shall have the
exclusive power to amend this Agreement as may be required to facilitate or
implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;
(2) to reflect the issuance of additional Partnership Interests
pursuant to Section 4.3.D or the admission, substitution,
termination, or withdrawal of Partners in accordance with this
Agreement;
(3) to reflect a change that is of an inconsequential nature and does
not adversely affect the Limited Partners in any material
respect, or to cure any ambiguity, correct or supplement any
provision in this Agreement not inconsistent with law or with
other provisions, or make other changes with respect to matters
arising under this Agreement that will not be inconsistent with
law or with the provisions of this Agreement;
(4) to satisfy any requirements, conditions, or guidelines contained
in any order, directive, opinion, ruling or regulation of a
federal or state agency or contained in federal or state law;
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(5) to reflect such changes as are reasonably necessary for the
General Partner to maintain status as a REIT, including changes
which may be necessitated due to a change in applicable law (or
an authoritative interpretation thereof) or a ruling of the IRS;
and
(6) to modify, as set forth in the definition of "Capital Account,"
the manner in which Capital Accounts are computed.
The General Partner will provide notice to the Limited Partners when any action
under this Section 7.3.C is taken.
D. Notwithstanding Section 7.3.B and 7.3.C hereof, this Agreement
shall not be amended with respect to any Partner adversely affected, and no
action may be taken by the General Partner, without the Consent of such Partner
adversely affected if such amendment or action would (i) convert a Limited
Partner's interest in the Partnership into a general partner's interest (except
as the result of the General Partner acquiring such interest), (ii) modify the
limited liability of a Limited Partner, (iii) alter rights of the Partner to
receive distributions pursuant to Article 5 or Section 13.2.A(4), or the
allocations specified in Article 6 (except as permitted pursuant to Section 4.3
and Section 7.3.C(3) hereof), (iv) materially alter or modify the rights to a
Redemption or the REIT Shares Amount as set forth in Section 8.6, and related
definitions hereof or (v) amend this Section 7.3.D. Further, no amendment may
alter the restrictions on the General Partner's authority set forth elsewhere in
this Section 7.3 without the Consent specified in such section. This Section
7.3D does not require unanimous consent of all Partners adversely affected
unless the amendment is to be effective against all partners adversely affected.
E. So long as the Limited Partners own at least 5% of the aggregate
Percentage Interests of the Partnership, the General Partner shall not, on
behalf of the Partnership, take any of the following actions without the prior
Consent of the Limited Partners:
(1) dissolve the Partnership, other than incident to a sale,
disposition, conveyance or other transfer of all or substantially
all of the assets of the Partnership, in one or a series of
related transactions (an "Asset Sale"); or
(2) prior to the expiration of seven (7) years from the Effective
Date, sell, dispose, convey or otherwise transfer or refinance
the Partnership's property located at 9911 West Pico Boulevard,
Los Angeles, California and commonly known as Century Park
Center, other than incident to a merger, consolidation,
reorganization or other business combination to which the
Partnership is a party or an Asset Sale.
Section 7.4 REIMBURSEMENT OF THE GENERAL PARTNER
A. Except as provided in this Section 7.4 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments and allocations
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to which it may be entitled), the General Partner shall not be compensated for
its services as general partner of the Partnership.
B. Subject to Section 15.11, the General Partner shall be reimbursed
on a monthly basis, or such other basis as the General Partner may determine in
its sole and absolute discretion, for all expenses it incurs relating to the
ownership of interests in and operation of, or for the benefit of, the
Partnership. The Limited Partners acknowledge that the General Partner's sole
business is the ownership of interests in and operation of the Partnership and
that such expenses are incurred for the benefit of the Partnership; PROVIDED
THAT, the General Partner shall not be reimbursed for expenses it incurs
relating to the organization of the Partnership and the General Partner or the
initial public offering or subsequent public offerings of REIT Shares, other
shares of capital stock or Funding Debt by the General Partner, but shall be
reimbursed for expenses it incurs with respect to any other issuance of
additional Partnership Interests pursuant to the provisions hereof. Such
reimbursements shall be in addition to any reimbursement to the General Partner
as a result of indemnification pursuant to Section 7.7 hereof.
C. If and to the extent any reimbursements to the General Partner
pursuant to this Section 7.4 constitute gross income of the General Partner (as
opposed to the repayment of advances made by the General Partner on behalf of
the Partnership), such amounts shall constitute guaranteed payments within the
meaning of Section 707(c) of the Code, shall be treated consistently therewith
by the Partnership and all Partners, and shall not be treated as distributions
for purposes of computing the Partners' Capital Accounts.
Section 7.5 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER
A. Except in connection with a transaction authorized in Section
11.2 hereof, without the Consent of the Limited Partners, the General Partner
shall not, directly or indirectly, enter into or conduct any business, other
than in connection with the ownership, acquisition and disposition of
Partnership Interests as a General Partner and the management of the business of
the Partnership, its operation as a public reporting company with a class (or
classes) of securities registered under the Exchange Act, its operation as a
REIT and such activities as are incidental to the same. Without the Consent of
the Limited Partners, the General Partner shall not, directly or indirectly,
participate in or otherwise acquire any interest in any real or personal
property, except its General Partner Interest, its minority interest in any
Subsidiary Partnership(s) (held directly or indirectly through a Qualified REIT
Subsidiary) that the General Partner holds in order to maintain such Subsidiary
Partnership's status as a partnership, and such bank accounts, similar
instruments or other short-term investments as it deems necessary to carry out
its responsibilities contemplated under this Agreement and the Charter. Any
Limited Partner Interests acquired by the General Partner, whether pursuant to
exercise by a Limited Partner of its right of Redemption, or otherwise, shall be
automatically converted into a General Partner Interest comprised of an
identical number of Partnership Units of the same class. If, at any time, the
General Partner acquires material assets (other than on behalf of the
Partnership) the definition of "REIT Shares Amount" shall be adjusted, as
reasonably agreed to by the General Partner and the Limited Partners, to reflect
the relative Fair Market Value of a share of capital stock of the General
Partner relative to the Deemed Partnership Interest Value of the related
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Partnership Unit. The General Partner's General Partner Interest in the
Partnership, its minority interest in any Subsidiary Partnership(s) (held
directly or indirectly through a Qualified REIT Subsidiary) that the General
Partner holds in order to maintain such Subsidiary Partnership's status as a
partnership, and interests in such short-term liquid investments, bank accounts
or similar instruments as the General Partner deems necessary to carry out its
responsibilities contemplated under this Agreement and the Charter are interests
which the General Partner is permitted to acquire and hold for purposes of this
Section 7.5.A.
B. In the event the General Partner exercises its rights under the
Charter to purchase REIT Shares, then the General Partner shall cause the
Partnership to purchase from it a number of Partnership Units of the appropriate
class as determined based on the REIT Shares Amount equal to the number of REIT
Shares so purchased on the same terms that the General Partner purchased such
REIT Shares.
Section 7.6 CONTRACTS WITH AFFILIATES
A. The Partnership may lend or contribute to Persons in which it has
an equity investment, and such Persons may borrow funds from the Partnership, on
terms and conditions established in the sole and absolute discretion of the
General Partner. The foregoing authority shall not create any right or benefit
in favor of any Person.
B. Except as provided in Section 7.5.A, the Partnership may transfer
assets to joint ventures, other partnerships, corporations or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions consistent with this Agreement and applicable law.
C. The General Partner, in its sole and absolute discretion and
without the approval of the Limited Partners, may propose and adopt on behalf of
the Partnership employee benefit plans funded by the Partnership for the benefit
of employees of the General Partner, the Partnership, Subsidiaries of the
Partnership or any Affiliate of any of them in respect of services performed,
directly or indirectly, for the benefit of the Partnership, the General Partner,
or any of the Partnership's Subsidiaries. The General Partner also is expressly
authorized to cause the Partnership to issue to it Partnership Units
corresponding to REIT Shares issued by the General Partner pursuant to any Stock
Plan or any similar or successor plan and to repurchase such Partnership Units
from the General Partner to the extent necessary to permit the General Partner
to repurchase such REIT Shares in accordance with such plan.
D. The General Partner is expressly authorized to enter into, in the
name and on behalf of the Partnership, a right of first opportunity arrangement
and other conflict avoidance agreements with various Affiliates of the
Partnership and the General Partner, on such terms as the General Partner, in
its sole and absolute discretion, believes are advisable.
Section 7.7 INDEMNIFICATION
A. The Partnership shall indemnify an Indemnitee from and against
any and all losses, claims, damages, liabilities, joint or several, expenses
(including legal fees and
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expenses), judgments, fines, settlements, and other amounts arising from any and
all claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, that relate to the operations of the
Partnership as set forth in this Agreement in which any Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, unless it is
established that: (i) the act or omission of the Indemnitee was material to the
matter giving rise to the proceeding and either was committed in bad faith or
was the result of active and deliberate dishonesty; (ii) the Indemnitee actually
received an improper personal benefit in money, property or services; or
(iii) in the case of any criminal proceeding, the Indemnitee had reasonable
cause to believe that the act or omission was unlawful. Without limitation, the
foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to
a loan guaranty or otherwise, for any indebtedness of the Partnership or any
Subsidiary of the Partnership (including, without limitation, any indebtedness
which the Partnership or any Subsidiary of the Partnership has assumed or taken
subject to), and the General Partner is hereby authorized and empowered, on
behalf of the Partnership, to enter into one or more indemnity agreements
consistent with the provisions of this Section 7.7 in favor of any Indemnitee
having or potentially having liability for any such indebtedness. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth in this Section 7.7.A. The termination of any proceeding by
conviction or upon a plea of nolo contendere or its equivalent, or any entry of
an order of probation prior to judgment, creates a rebuttable presumption that
the Indemnitee acted in a manner contrary to that specified in this Section
7.7.A. Any indemnification pursuant to this Section 7.7 shall be made only out
of the assets of the Partnership.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding may be paid or reimbursed by the Partnership in advance of the final
disposition of the proceeding upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7.A has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.
D. The Partnership may purchase and maintain insurance, on behalf of
the Indemnities and such other Persons as the General Partner shall determine,
against any liability that may be asserted against or expenses that may be
incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
E. For purposes of this Section 7.7, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on
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an Indemnitee with respect to an employee benefit plan pursuant to applicable
law shall constitute fines within the meaning of Section 7.7; and actions taken
or omitted by the Indemnitee with respect to an employee benefit plan in the
performance of its duties for a purpose reasonably believed by it to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of the
Indemnities, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
I. If and to the extent any reimbursements to the General Partner
pursuant to this Section 7.7 constitute gross income of the General Partner (as
opposed to the repayment of advances made by the General Partner on behalf of
the Partnership) such amounts shall constitute guaranteed payments within the
meaning of Section 707(c) of the Code, shall be treated consistently therewith
by the Partnership and all Partners, and shall not be treated as distributions
for purposes of computing the Partners' Capital Accounts.
J. Any indemnification hereunder is subject to, and limited by, the
provisions of Section 10-107 of the Act.
Section 7.8 LIABILITY OF THE GENERAL PARTNER
A. Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable or accountable in damages or
otherwise to the Partnership, any Partners or any Assignees for losses
sustained, liabilities incurred or benefits not derived as a result of errors in
judgment or mistakes of fact or law or any act or omission if the General
Partner acted in good faith.
B. The Limited Partners expressly acknowledge that the General
Partner is acting for the benefit of the Partnership, the Limited Partners and
the General Partner's stockholders collectively, that the General Partner is
under no obligation to give priority to the separate interests of the Limited
Partners or the General Partner's stockholders (including,
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without limitation, the tax consequences to Limited Partners or Assignees or to
stockholders) in deciding whether to cause the Partnership to take (or decline
to take) any actions and that the General Partner shall not be liable to the
Partnership or to any Partner for monetary damages for losses sustained,
liabilities incurred, or benefits not derived by Limited Partners in connection
with such decisions, PROVIDED THAT the General Partner has acted in good faith.
C. Subject to its obligations and duties as General Partner set
forth in Section 7.1.A hereof, the General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by it in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 OTHER MATTERS CONCERNING THE GENERAL PARTNER
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion of such Persons as to matters which such General Partner
reasonably believes to be within such Person's professional or expert competence
shall be conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
C. The General Partner shall have the right, in respect of any of
its powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and authority to do and perform all and every act and duty which
is permitted or required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or any
non-mandatory provision of the Act, any action of the General Partner on behalf
of the Partnership or any decision of the General Partner to refrain from acting
on behalf of the Partnership, undertaken in the good faith belief that such
action or omission is necessary or advisable in order (i) to protect the ability
of the General Partner to continue to qualify as a REIT or (ii) to avoid the
General Partner incurring any taxes under Section 857 or Section 4981 of the
Code, is
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expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
Section 7.10 TITLE TO PARTNERSHIP ASSETS
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partners, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement; PROVIDED,
HOWEVER, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the
property of the Partnership in its books and records, irrespective of the name
in which legal title to such Partnership assets is held.
Section 7.11 RELIANCE BY THIRD PARTIES
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority to encumber, sell or otherwise use in any
manner any and all assets of the Partnership and to enter into any contracts on
behalf of the Partnership, and such Person shall be entitled to deal with the
General Partner as if it were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing. In no event shall any Person dealing with the General
Partner or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the General Partner or its representatives. Each and
every certificate, document or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this Agreement and is binding
upon the Partnership.
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ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 LIMITATION OF LIABILITY
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement or under the Act.
Section 8.2 MANAGEMENT OF BUSINESS
No Limited Partner or Assignee (other than the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such) shall take part in the operations, management or control
(within the meaning of the Act) of the Partnership's business transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner, the Partnership or any of
their Affiliates, in their capacity as such, shall not affect, impair or
eliminate the limitations on the liability of the Limited Partners or Assignees
under this Agreement.
Section 8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS
Subject to any agreements entered into by a Limited Partner or its
Affiliates with the General Partner, Partnership or a Subsidiary, any Limited
Partner and any officer, director, employee, agent, trustee, Affiliate or
stockholder of any Limited Partner shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities in direct competition
with the Partnership or that are enhanced by the activities of the Partnership.
Neither the Partnership nor any Partners shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. Subject
to such agreements, none of the Limited Partners nor any other Person shall have
any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person, other than the
Limited Partners benefitting from the business conducted by the General Partner,
and such Person shall have no obligation pursuant to this Agreement to offer any
interest in any such business ventures to the Partnership, any Limited Partner
or any such other Person, even if such opportunity is of a character which, if
presented to the Partnership, any Limited Partner or such other Person, could be
taken by such Person.
Section 8.4 RETURN OF CAPITAL
Except pursuant to the rights of Redemption set forth in Section 8.6,
no Limited Partner shall be entitled to the withdrawal or return of his or her
Capital Contribution, except to the extent of distributions made pursuant to
this Agreement or upon termination of the Partnership as provided herein. No
Limited Partner or Assignee shall have priority over any
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other Limited Partner or Assignee either as to the return of Capital
Contributions, or otherwise expressly provided in this Agreement, as to
profits, losses, distributions or credits.
Section 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP
A. In addition to other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at the Partnership's expense:
(1) to obtain a copy of the most recent annual and quarterly reports
filed with the Securities and Exchange Commission by the General
Partner pursuant to the Securities Exchange Act, and each
communication sent to the stockholders of the General Partner;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers
of attorney pursuant to which this Agreement, the Certificate and
all amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services
contributed by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a
Partner.
B. The Partnership shall notify each Limited Partner in writing of
any adjustment made in the calculation of the REIT Shares Amount within 10
Business Days of the date such change becomes effective.
C. Notwithstanding any other provision of this Section 8.5, the
General Partner may keep confidential from the Limited Partners, for such period
of time as the General Partner determines in its sole and absolute discretion to
be reasonable, any information that (i) the General Partner believes to be in
the nature of trade secrets or other information the disclosure of which the
General Partner in good faith believes is not in the best interests of the
Partnership or (ii) the Partnership or the General Partner is required by law or
by agreements with unaffiliated third parties to keep confidential.
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Section 8.6 REDEMPTION RIGHTS
A. On or after the date one year after the Effective Date, each
Limited Partner shall have the right (subject to the terms and conditions set
forth herein) to require the Partnership to redeem all or a portion of the
Partnership Units held by such Limited Partner (such Partnership Units being
hereafter referred to as "Tendered Units") in exchange for the Cash Amount (a
"Redemption"); provided that the terms of such Partnership Units do not provide
that such Partnership Units are not entitled to a right of Redemption. Unless
otherwise expressly provided in this Agreement or in a separate agreement
entered into between the Partnership and the holders of such Partnership Units,
all Partnership Units shall be entitled to a right of Redemption hereunder. Any
Redemption shall be exercised pursuant to a Notice of Redemption delivered to
the General Partner by the Limited Partner who is exercising the right (the
"Tendering Partner"). The Cash Amount shall be delivered as a certified check
payable to the Tendering Partner within ten (10) days of the Specified
Redemption Date.
B. Notwithstanding Section 8.6.A above, if a Limited Partner has
delivered to the General Partner a Notice of Redemption then the General Partner
may, in its sole and absolute discretion, (subject to the limitations on
ownership and transfer of REIT Shares set forth in the Charter) elect to acquire
some or all of the Tendered Units from the Tendering Partner in exchange for the
REIT Shares Amount (as of the Specified Redemption Date) and, if the General
Partner so elects, the Tendering Partner shall sell the Tendered Units to the
General Partner in exchange for the REIT Shares Amount. In such event, the
Tendering Partner shall have no right to cause the Partnership to redeem such
Tendered Units. The General Partner shall promptly give such Tendering Partner
written notice of its election, and the Tendering Partner may elect to withdraw
its redemption request at any time prior to the acceptance of the cash or REIT
Shares Amount by such Tendering Partner.
C. The REIT Shares Amount, if applicable, shall be delivered as duly
authorized, validly issued, fully paid and nonassessable REIT Shares and, if
applicable, free of any pledge, lien, encumbrance or restriction, other than
those provided in the Charter, the Bylaws of the General Partner, the Securities
Act, relevant state securities or blue sky laws and any applicable registration
rights agreement with respect to such REIT Shares entered into by the Tendering
Partner. Notwithstanding any delay in such delivery (but subject to Section
8.6.D), the Tendering Partner shall be deemed the owner of such REIT Shares for
all purposes, including without limitation, rights to vote or consent, and
receive dividends, as of the Specified Redemption Date.
D. Notwithstanding the provisions of Section 8.6.A, 8.6.B, 8.6.C or
any other provision of this Agreement, a Limited Partner (i) shall not be
entitled to effect a Redemption for cash or an exchange for REIT Shares to the
extent the ownership or right to acquire REIT Shares pursuant to such exchange
by such Partner on the Specified Redemption Date would cause such Partner or any
other Person to violate the restrictions on ownership and transfer of REIT
Shares set forth in the Charter and (ii) shall have no rights under this
Agreement to acquire REIT Shares which would otherwise be prohibited under the
Charter. To the extent any attempted Redemption or exchange for REIT Shares
would be in violation of this Section 8.6.D, it shall be null and void AB INITIO
and such Limited Partner shall not acquire any rights or
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economic interest in the cash otherwise payable upon such Redemption or the REIT
Shares otherwise issuable upon such exchange.
E. Notwithstanding anything herein to the contrary (but subject to
Section 8.6.D), with respect to any Redemption or exchange for REIT Shares
pursuant to this Section 8.6:
(1) All Partnership Units acquired by the General Partner pursuant
thereto shall automatically, and without further action required,
be converted into and deemed to be General Partner Interests
comprised of the same number and class of Partnership Units.
(2) Without the consent of the General Partner, each Limited Partner
may not effect a Redemption for less than 500 Partnership Units
or, if the Limited Partner holds less than 500 Partnership Units,
all of the Partnership Units held by such Limited Partner.
(3) Without the consent of the General Partner, each Limited Partner
may not effect a Redemption during the period after the
Partnership Record Date with respect to a distribution and before
the record date established by the General Partner for a
distribution to its stockholders of some or all of its portion of
such distribution.
(4) The consummation of any Redemption or exchange for REIT Shares
shall be subject to the expiration or termination of the
applicable waiting period, if any, under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
(5) Each Tendering Partner shall continue to own all Partnership
Units subject to any Redemption or exchange for REIT Shares, and
be treated as a Limited Partner with respect to such Partnership
Units for all purposes of this Agreement, until such Partnership
Units are transferred to the General Partner and paid for or
exchanged on the Specified Redemption Date. Until a Specified
Redemption Date, the Tendering Partner shall have no rights as a
stockholder of the General Partner with respect to such Tendering
Partner's Partnership Units.
F. In the event that the Partnership issues additional Partnership
Interests to any Additional Limited Partner pursuant to Section 4.3.D hereof,
the General Partner shall make such revisions to this Section 8.6 as it
determines are necessary to reflect the issuance of such additional Partnership
Interests.
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ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 RECORDS AND ACCOUNTING
The General Partner shall keep or cause to be kept at the principal
office of the Partnership appropriate books and records with respect to the
Partnership's business, including without limitation, all books and records
necessary to provide to the Limited Partners any information, lists and copies
of documents required to be provided pursuant to Section 9.3 hereof. Any
records maintained by or on behalf of the Partnership in the regular course of
its business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device, PROVIDED
THAT the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
Section 9.2 FISCAL YEAR
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 REPORTS
A. As soon as practicable, but in no event later than 105 days after
the close of each Partnership Year, or such earlier date as they are filed with
the Securities and Exchange Commission, the General Partner shall cause to be
mailed to each Limited Partner as of the close of the Partnership Year, an
annual report containing financial statements of the Partnership, or of the
General Partner if such statements are prepared solely on a consolidated basis
with the General Partner, for such Partnership Year, presented in accordance
with generally accepted accounting principles, such statements to be audited by
a nationally recognized firm of independent public accountants selected by the
General Partner.
B. As soon as practicable, but in no event later than 45 days after
the close of each calendar quarter (except the last calendar quarter of each
year), or such earlier date as they are filed with the Securities and Exchange
Commission, the General Partner shall cause to be mailed to each Limited Partner
as of the last day of the calendar quarter, a report containing unaudited
financial statements of the Partnership, or of the General Partner, if such
statements are prepared solely on a consolidated basis with the applicable law
or regulation, or as the General Partner determines to be appropriate.
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ARTICLE 10
TAX MATTERS
Section 10.1 PREPARATION OF TAX RETURNS
The General Partner shall arrange for the preparation and timely
filing of all returns of Partnership income, gains, deductions, losses and other
items required of the Partnership for federal and state income tax purposes and
shall use all reasonable efforts to furnish, within 90 days of the close of each
taxable year, the tax information reasonably required by Limited Partners for
federal and state income tax reporting purposes.
Section 10.2 TAX ELECTIONS
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code, including the election under Section 754 of the Code. The
General Partner shall have the right to seek to revoke any such election
(including without limitation, any election under Section 754 of the Code) upon
the General Partner's determination in its sole and absolute discretion that
such revocation is the best interests of the Partners.
Section 10.3 TAX MATTERS PARTNER
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6223(c) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address and profit interest of each of the
Limited Partners and Assignees; PROVIDED, HOWEVER, that such information is
provided to the Partnership by the Limited Partners and Assignees.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Partner
for income tax purposes (such administrative proceedings being
referred to as a "tax audit" and such judicial proceedings being
referred to as "judicial review"), and in the settlement
agreement the tax matters partner may expressly state that such
agreement shall bind all Partners, except that such settlement
agreement shall not bind any Partner (i) who (within the time
prescribed pursuant to the Code and Regulations) files a
statement with the IRS providing that the tax matters partner
shall not have the authority to enter into a settlement agreement
on behalf of such Partner or (ii) who is a "notice partner" (as
defined in Section 6231 of the Code) or a member of a "notice
group" (as defined in Section 6223(b)(2) of the Code);
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(2) in the event that a notice of a final administrative adjustment
at the Partnership level of any item required to be taken into
account by a Partner for tax purposes (a "final adjustment") is
mailed to the tax matters partner, to seek judicial review of
such final adjustment, including the filing of a petition for
readjustment with the Tax Court or the United States Claims
Court, or the filing of a complaint for refund with the District
Court of the United States for the district in which the
Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS
at any time and, if any part of such request is not allowed by
the IRS, to file an appropriate pleading (petition or complaint)
for judicial review with respect to such request;
(5) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to
be taken into account by a Partner for tax purposes, or an item
affected by such item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial review
proceeding to the extent permitted by applicable law or
regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its
services. All third party costs and expenses incurred by the tax matters
partner in performing his duties as such (including legal and accounting fees)
shall be borne by the Partnership. Nothing herein shall be construed to
restrict the Partnership from engaging an accounting firm to assist the tax
matters partner in discharging his duties hereunder, so long as the compensation
paid by the Partnership for such services is reasonable.
Section 10.4 ORGANIZATIONAL EXPENSES
The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a 60-month period as provided in
Section 709 of the Code.
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Section 10.5 WITHHOLDING
Each Limited Partner hereby authorizes the Partnership to withhold
from or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445 or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within 15 days after notice from the General Partner that
such payment must be made unless (i) the Partnership withholds such payment from
a distribution which would otherwise be made to the Limited Partner or (ii) the
General Partner determines, in its sole and absolute discretion, that such
payment may be satisfied out of the available funds of the Partnership which
would, but for such payment, be distributed to the Limited Partner. Any amounts
withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as
having been distributed to such Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Partnership Interest to secure such Limited Partner's
obligation to pay to the Partnership any amounts required to be paid pursuant to
this Section 10.5. In the event that a Limited Partner fails to pay any amounts
owed to the Partnership pursuant to this Section 10.5 when due, the General
Partner may, in its sole and absolute discretion, elect to make the payment to
the Partnership on behalf of such defaulting Limited Partner, and in such event
shall be deemed to have loaned such amount to such defaulting Limited Partner
and shall succeed to all rights and remedies of the Partnership as against such
defaulting Limited Partner (including, without limitation, the right to receive
distributions). Any amounts payable by a Limited Partner hereunder shall bear
interest at the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in the WALL STREET JOURNAL,
plus two percentage points (but not higher than the maximum lawful rate) from
the date such amount is due (I.E., 15 days after demand) until such amount is
paid in full. Each Limited Partner shall take such actions as the Partnership
or the General Partner shall request in order to perfect or enforce the security
interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 TRANSFER
A. The term "transfer," when used in this Article 11 with respect to
a Partnership Interest, shall be deemed to refer to a transaction by which the
General Partner purports to assign its General Partner Interest to another
Person or by which a Limited Partner purports to assign its Limited Partnership
Interest to another Person, and includes a sale, assignment, gift (outright or
in trust), pledge, encumbrance, hypothecation, mortgage, exchange or any other
disposition by law or otherwise. The term "transfer" when used in this Article
11 does not include any Redemption or exchange for REIT Shares pursuant to
Section 8.6. No part of the interest of a Limited Partner shall be subject to
the claims of any creditor, any spouse for
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alimony or support, or to legal process, and may not be voluntarily or
involuntarily alienated or encumbered except as may be specifically provided for
in this Agreement.
B. No Partnership Interest shall be transferred, in whole or in
part, except in accordance with the terms and conditions set forth in this
Article 11. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article 11 shall be null and void.
Section 11.2 TRANSFER OF GENERAL PARTNER'S PARTNERSHIP INTEREST
A. Except in connection with a transaction described in Section
11.2.B or Section 11.2.C, the General Partner shall not withdraw from the
Partnership and shall not transfer all or any portion of its interest in the
Partnership (whether by sale, statutory merger or consolidation, liquidation or
otherwise) without the consent of all of the Limited Partners, which may be
given or withheld by each Limited Partner in its sole and absolute discretion,
and only upon the admission of a successor General Partner pursuant to Section
12.1. Upon any transfer of a Partnership Interest in accordance with the
provisions of this Section 11.2, the transferee shall become a Substitute
General Partner for all purposes herein, and shall be vested with the powers and
rights of the transferor General Partner, and shall be liable for all
obligations and responsible for all duties of the General Partner, once such
transferee has executed such instruments as may be necessary to effectuate such
admission and to confirm the agreement of such transferee to be bound by all the
terms and provisions of this Agreement with respect to the Partnership Interest
so acquired. It is a condition to any transfer otherwise permitted hereunder
that the transferee assumes, by operation of law or express agreement, all of
the obligations of the transferor General Partner under this Agreement with
respect to such transferred Partnership interest, and no such transfer (other
than pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor General Partner are assumed by a successor
corporation by operation of law) shall relieve the transferor General Partner of
its obligations under this Agreement without the Consent of the Limited
Partners, in their reasonable discretion. In the event the General Partner
withdraws from the Partnership, in violation of this Agreement or otherwise, or
otherwise dissolves or terminates, or upon the Incapacity of the General
Partner, all of the remaining Partners may elect to continue the Partnership
business by selecting a Substitute General Partner in accordance with the Act.
B. Except as otherwise provided in Section 11.2.C, the General
Partner shall not engage in any merger, consolidation or other combination with
or into another person, sale of all or substantially all of its assets or any
reclassification, recapitalization or change of its outstanding equity interests
("Termination Transaction"), unless the Termination Transaction has been
approved by a Consent of the Partners and in connection with which all Limited
Partners either will receive, or will have the right to elect to receive, for
each Partnership Unit an amount of cash, securities, or other property equal to
the product of the REIT Shares Amount and the greatest amount of cash,
securities or other property paid to a holder of one REIT Share in consideration
of one REIT Share at any time during the period from and after the date on which
the Termination Transaction is consummated; PROVIDED THAT, if, in connection
with the Termination Transaction, a purchase, tender or exchange offer shall
have been made to and accepted by the holders of more than fifty percent (50%)
of the outstanding REIT Shares, each
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holder of Partnership Units shall receive, or shall have the right to elect
to receive, the greatest amount of cash, securities, or other property which
such holder would have received had it exercised its right to Redemption (as
set forth in Section 8.6) and received REIT Shares in exchange for its
Partnership Units immediately prior to the expiration of such purchase,
tender or exchange offer and had thereupon accepted such purchase, tender or
exchange offer; and, PROVIDED FURTHER THAT, unless a Consent of the Limited
Partners has been obtained, no more than forty-nine percent (49%) of the
equity securities of the acquired Person in such Termination Transaction
shall be owned, after consummation of such Termination Transaction, by the
General Partner or Persons who are Affiliates of the Partnership or the
General Partner immediately prior to the date on which the Termination
Transaction is consummated.
C. Notwithstanding Section 11.2.B, the General Partner may merge, or
otherwise combine its assets, with another entity if, immediately after such
merger or other combination, substantially all of the assets of the surviving
entity, other than Partnership Units held by such General Partner, are
contributed to the Partnership as a Capital Contribution in exchange for
Partnership Units with a fair market value, as reasonably determined by the
General Partner, equal to the Agreed Value of the assets so contributed.
D. In connection with any transaction permitted by Section 11.2.B or
Section 11.2.C hereof, the General Partner shall use its commercially reasonable
efforts to structure such Termination Transaction to avoid causing the Limited
Partners to recognize gain for federal income tax purposes by virtue of the
occurrence of or their participation in such Termination Transaction.
Section 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER
A. Prior to the first anniversary of the closing of the initial
public offering of REIT Shares, no Limited Partner shall transfer all or any
portion of its Partnership Interest to any transferee without the consent of the
General Partner, which consent may be withheld in its sole and absolute
discretion; PROVIDED, HOWEVER, that any Limited Partner may, at any time
(whether prior to or after such first anniversary), without the consent of the
General Partner, (i) transfer all or any portion of its Partnership Interest to
the General Partner, (ii) transfer all or any portion of its Partnership
Interest to an Affiliate, another original Limited Partner or to an Immediate
Family member, subject to the provisions of Section 11.6, (iii) transfer all or
any portion of its Partnership Interest to a trust for the benefit of a
charitable beneficiary or to a charitable foundation, subject to the provisions
of Section 11.6, and (iv) subject to the provisions of Section 11.6, pledge (a
"Pledge") all or any portion of its Partnership Interest to a lending
institution, which is not an Affiliate of such Limited Partner, as collateral or
security for a bona fide loan or other extension of credit, and transfer such
pledged Partnership Interest to such lending institution in connection with the
exercise of remedies under such loan or extension or credit. After such first
anniversary, each Limited Partner or Assignee (resulting from a transfer made
pursuant to clauses (i)-(iv) of the proviso of the preceding sentence) shall
have the right to transfer all or any portion of its Partnership Interest,
subject to the provisions of Section 11.6 and the satisfaction of each of the
following conditions (in addition to the right of each such Limited Partner or
Assignee to continue to make any such transfer permitted by clauses (i)-(iv) of
such proviso without satisfying either of the following conditions):
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(a) GENERAL PARTNER RIGHT OF FIRST REFUSAL. The transferring Partner
shall give written notice of the proposed transfer to the General
Partner, which notice shall state (i) the identity of the
proposed transferee, and (ii) the amount and type of
consideration proposed to be received for the transferred
Partnership Units. The General Partner shall have ten (10) days
upon which to give the transferring Partner notice of its
election to acquire the Partnership Units on the proposed terms.
If it so elects, it shall purchase the Partnership Units on such
terms within ten (10) days after giving notice of such election.
If it does not so elect, the transferring Partner may transfer
such Partnership Units to a third party, on economic terms no
more favorable to the transferee than the proposed terms, subject
to the other conditions of this Section 11.3.
(b) QUALIFIED TRANSFEREE. Any transfer of a Partnership Interest
shall be made only to Qualified Transferees.
It is a condition to any transfer otherwise permitted hereunder that
the transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such transferred Partnership Interest and no such transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor Partner are assumed by a successor corporation by
operation of law) shall relieve the transferor Partner of its obligations under
this Agreement without the approval of the General Partner, in its reasonable
discretion. Notwithstanding the foregoing, any transferee of any transferred
Partnership Interest shall be subject to any and all ownership limitations
contained in the Charter and the representations in Section 3.4.D. Any
transferee, whether or not admitted as a Substituted Limited Partner, shall take
subject to the obligations of the transferor hereunder. Unless admitted as a
Substitute Limited Partner, no transferee, whether by a voluntary transfer, by
operation of law or otherwise, shall have rights hereunder, other than the
rights of an Assignee as provided in Section 11.5.
B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator, or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate, and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer otherwise permitted
under Section 11.3 by a Limited Partner of his or her Partnership Units if, in
the opinion of legal counsel to the Partnership, such transfer would require the
filing of a registration statement under the Securities Act by the Partnership
or would otherwise violate any federal or state securities laws or regulations
applicable to the Partnership or the Partnership Unit.
D. No transfer by a Limited Partner of his or her Partnership Units
(including any Redemption or exchange for REIT Shares pursuant to Section 8.6)
may be made to any person if (i) in the opinion of legal counsel for the
Partnership, it would result in the Partnership
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being treated as an association taxable as a corporation, or (ii) such transfer
is effectuated through an "established securities market" or a "secondary market
(or the substantial equivalent thereof)" within the meaning of Section 7704 of
the Code.
E. No transfer of any Partnership Units may be made to a lender to
the Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership whose loan
constitutes a Nonrecourse Liability, without the consent of the General Partner,
in its sole and absolute discretion; PROVIDED THAT, as a condition to such
consent, the lender will be required to enter into an arrangement with the
Partnership and the General Partner to redeem or exchange for the REIT Shares
Amount any Partnership Units in which a security interest is held simultaneously
with the time at which such lender would be deemed to be a partner in the
Partnership for purposes of allocating liabilities to such lender under Section
752 of the Code.
Section 11.4 SUBSTITUTED LIMITED PARTNERS
A. No Limited Partner shall have the right to substitute a
transferee as a Limited Partner in his or her place (including any transferee
permitted by Section 11.3). The General Partner shall, however, have the right
to consent to the admission of a transferee of the interest of a Limited Partner
pursuant to this Section 11.4 as a Substituted Limited Partner, which consent
may be given or withheld by the General Partner in its sole and absolute
discretion. The General Partner's failure or refusal to permit a transferee of
any such interests to become a Substituted Limited Partner shall not give rise
to any cause of action against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited
Partner in accordance with this Article 11 shall have all the rights and powers
and be subject to all the restrictions and liabilities of a Limited Partner
under this Agreement. The admission of any transferee as a Substituted Limited
Partner shall be subject to the transferee executing and delivering to the
Partnership an acceptance of all of the terms and conditions of this Agreement
(including without limitation, the provisions of Section 2.4 and such other
documents or instruments as may be required to effect the admission).
C. Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A to reflect the name, address, number of
Partnership Units, and Percentage Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.
Section 11.5 ASSIGNEES
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Limited Partner, as described in Section 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement. An Assignee shall be
entitled to all the rights of an assignee of a limited partnership interest
under the Act, including the right to receive distributions from the Partnership
and the share of Net Income, Net Losses, gain and loss attributable to the
Partnership Units assigned to
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such transferee, the rights to transfer the Partnership Units provided in this
Article 11, and the right of Redemption provided in Section 8.6, but shall not
be deemed to be a holder of Partnership Units for any other purpose under this
Agreement, and shall not be entitled to effect a Consent with respect to such
Partnership Units on any matter presented to the Limited Partners for approval
(such Consent remaining with the transferor Limited Partner). In the event any
such transferee desires to make a further assignment of any such Partnership
Units, such transferee shall be subject to all the provisions of this Article 11
to the same extent and in the same manner as any Limited Partner desiring to
make an assignment of Partnership Units.
Section 11.6 GENERAL PROVISIONS
A. No Limited Partner may withdraw from the Partnership other than
as a result of (i) a permitted transfer of all of such Limited Partner's
Partnership Units in accordance with this Article 11 and the transferee(s) of
such Units being admitted to the Partnership as a Substituted Limited Partner or
(ii) pursuant to the exercise of its right of Redemption of all of such Limited
Partner's Partnership Units under Section 8.6.
B. Any Limited Partner who shall transfer all of such Limited
Partner's Partnership Units in a transfer permitted pursuant to this Article 11
where such transferee was admitted as a Substituted Limited Partner or pursuant
to the exercise of its rights of Redemption of all of such Limited Partner's
Partnership Units under Section 8.6 shall cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on the
first day of a fiscal quarter of the Partnership, unless the General Partner
otherwise agrees.
D. If any Partnership Interest is transferred, assigned or redeemed
during any quarterly segment of the Partnership's fiscal year in compliance with
the provisions of this Article 11 or transferred pursuant to Section 8.6, on any
day other than the first day of a Partnership Year, then Net Income, Net Losses,
each item thereof and all other items attributable to such interest for such
fiscal year shall be divided and allocated between the transferor Partner and
the transferee Partner by taking into account their varying interests during the
fiscal year in accordance with Section 706(d) of the Code, using the interim
closing of the books method. Except as otherwise required by Section 706(d) of
the Code, solely for purposes of making such allocations, each of such items for
the calendar month in which the transfer, assignment or redemption occurs shall
be allocated to the Person who is a Partner as of midnight on the last day of
said month and none of such items for the calendar month in which a redemption
occurs will be allocated to the redeeming Partner. All distributions of
Available Cash with respect to which the Partnership Record Date is before the
date of such transfer, assignment or redemption shall be made to the transferor
Partner, and all distributions of Available Cash thereafter, in the case of a
transfer or assignment other than a redemption, shall be made to the transferee
Partner.
E. In addition to any other restrictions on transfer herein
contained, including without limitation the provisions of this Article 11 and
Section 2.6, in no event may any transfer or assignment of a Partnership
Interest by any Partner (including by way of a Redemption) be
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made (i) to any person or entity who lacks the legal right, power or capacity to
own a Partnership Interest; (ii) in violation of applicable law; (iii) of any
component portion of a Partnership Interest, such as the Capital Account, or
rights to distributions, separate and apart from all other components of a
Partnership Interest; (iv) if in the opinion of legal counsel to the Partnership
such transfer would cause a termination of the Partnership for federal or state
income tax purposes (except as a result of the Redemption or exchange for REIT
Shares of all Partnership Units held by all Limited Partners or pursuant to a
transaction expressly permitted under Section 11.2); (v) if in the opinion of
counsel to the Partnership such transfer would cause the Partnership to cease to
be classified as a partnership for federal income tax purposes (except as a
result of the Redemption or exchange for REIT Shares of all Partnership Units
held by all Limited Partners); (vi) if such transfer would cause the Partnership
to become, with respect to any employee benefit plan subject to Title I of
ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA) or a
"disqualified person" (as defined in Section 4975(c) of the Code); (vii) if such
transfer would, in the opinion of counsel to the Partnership, cause any portion
of the assets of the Partnership to constitute assets of any employee benefit
plan pursuant to Department of Labor Regulations Section 2510.2-101; (viii) if
such transfer requires the registration of such Partnership Interest pursuant to
any applicable federal or state securities laws; (ix) if such transfer is
effectuated through an "established securities market" or a "secondary market"
(or the substantial equivalent thereof) within the meaning of Section 7704 of
the Code or such transfer causes the Partnership to become a "Publicly Traded
Partnership," as such term is defined in Sections 469(k)(2) or 7704(b) of the
Code; (x) if such transfer subjects the Partnership to be regulated under the
Investment Company Act of 1940, the Investment Advisors Act of 1940 or the
Employee Retirement Income Security Act of 1974, each as amended; (xi) if the
transferee or assignee of such Partnership Interest is unable to make the
representations set forth in Section 3.4.D or such transfer could otherwise
adversely affect the ability of the General Partner to remain qualified as a
REIT; or (xii) if in the opinion of legal counsel for the Partnership such
transfer would adversely affect the ability of the General Partner to continue
to qualify as a REIT or subject the General Partner to any additional taxes
under Section 857 or Section 4981 of the Code.
F. The General Partner shall monitor the transfers of interests in
the Partnership to determine (i) if such interests are being traded on an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code, and (ii)
whether additional transfers of interests would result in the Partnership being
unable to qualify for at least one of the "safe harbors" set forth in
Regulations Section 1.7704-1 (or such other guidance subsequently published by
the IRS setting forth safe harbors under which interests will not be treated as
"readily tradable on a secondary market (or the substantial equivalent thereof)"
within the meaning of Section 7704 of the Code) (the "Safe Harbors"). The
General Partner shall take all steps reasonably necessary or appropriate to
prevent any trading of interests or any recognition by the Partnership of
transfers made on such markets and, except as otherwise provided herein, to
insure that at least one of the Safe Harbors is met.
ARTICLE 12
ADMISSION OF PARTNERS
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Section 12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER
A successor to all of the General Partner's General Partner Interest
pursuant to Section 11.2 hereof who is proposed to be admitted as a successor
General Partner shall be admitted to the Partnership as the General Partner,
effective upon such transfer. Any such transferee shall carry on the business
of the Partnership without dissolution. In each case, the admission shall be
subject to the successor General Partner executing and delivering to the
Partnership an acceptance of all of the terms and conditions of this Agreement
and such other documents or instruments as may be required to effect the
admission. In the case of such admission on any day other than the first day of
a Partnership Year, all items attributable to the General Partner Interest for
such Partnership Year shall be allocated between the transferring General
Partner and such successor as provided in Article 11 hereof.
Section 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS
A. After the admission to the Partnership of the initial Limited
Partners on the date hereof, a Person who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the General
Partner (i) evidence of acceptance in form satisfactory to the General Partner
of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 2.4 hereof and (ii) such
other documents or instruments as may be required in the discretion of the
General Partner in order to effect such Person's admission as an Additional
Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the receipt of the Capital Contribution in respect of such Limited
Partner and the consent of the General Partner to such admission. If any
Additional Limited Partner is admitted to the Partnership on any day other than
the first day of a Partnership Year, then Net Income, Net Losses, each item
thereof and all other items allocable among Partners and Assignees for such
Partnership Year shall be allocated among such Limited Partner and all other
Partners and Assignees by taking into account their varying interests during the
Partnership Year in accordance with Section 706(d) of the Code, using the
interim closing books method. Solely for purposes of making such allocations,
each of such items for the calendar month in which an admission of an Additional
Limited Partner occurs shall be allocated among all the Partners and Assignees
including such Additional Limited Partner. All distributions of Available Cash
with respect to which the Partnership Record Date is before the date of such
admission shall be made solely to Partners and Assignees other than the
Additional Limited Partner (other than in its capacity as an Assignee) and,
except as otherwise agreed to by the Additional Limited Partners and the General
Partner, all distributions of Available Cash thereafter shall be made to all
Partners and Assignees including such Additional Limited Partner.
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Section 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED
PARTNERSHIP
For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4 hereof.
ARTICLE 13
DISSOLUTION AND LIQUIDATION
Section 13.1 DISSOLUTION
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner (selected
as described in Section 13.1.B below) shall continue the business of the
Partnership. The Partnership shall dissolve, and its affairs shall be wound up,
upon the first to occur of any of the following ("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5 hereof;
B. an event of withdrawal of the General Partner, as defined in the
Act, unless, within 90 days after the withdrawal, all of the remaining Partners
agree in writing, in their sole and absolute discretion, to continue the
business of the Partnership and to the appointment, effective as of the date of
withdrawal, of a substitute General Partner;
C. subject to compliance with Section 7.3.E(1) an election to
dissolve the Partnership made by the General Partner, in its sole and absolute
discretion,
D. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
E. the sale of all or substantially all of the assets and properties
of the Partnership for cash or marketable securities;
F. the Incapacity of the General Partner, unless all of the
remaining Partners in their sole and absolute discretion agree in writing to
continue the business of the Partnership and to the appointment, effective as of
a date prior to the date of such Incapacity, of a substitute General Partner; or
G. the Redemption or exchange for REIT Shares of all Partnership
Units (other than those of the General Partner).
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Section 13.2 WINDING UP
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner (or, in the event there is no remaining General Partner, any
Person elected by a Majority in Interest of the Limited Partners (the
"Liquidator")) shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include shares of stock in the General Partner) shall be applied and distributed
in the following order:
(1) First, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than the Partners;
(2) Second, to the payment and discharge of all of the Partnership's
debts and liabilities to the General Partner;
(3) Third, to the payment and discharge of all of the Partnership's
debts and liabilities to the other Partners; and
(4) The balance, if any, to the General Partner and Limited Partners
in accordance with their positive Capital Account balances,
determined after taking into account all Capital Account
adjustments for the Partnership taxable year during which the
liquidation occurs (other than those made as a result of the
liquidating distribution set forth in this Section 13.2.A(4)).
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13 other than reimbursement of its
expenses as provided in Section 7.4.
B. Notwithstanding the provisions of Section 13.2.A hereof which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
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such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
Section 13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).
If any Partner has a deficit balance in his or her Capital Account (after giving
effect to all contributions, distributions and allocations for the taxable
years, including the year during which such liquidation occurs), such Partner
shall have no obligation to make any contribution to the capital of the
Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever. In the discretion of the General Partner, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:
A. distributed to a trust established for the benefit of the General
Partner and Limited Partners for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership, and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership. The assets of any
such trust shall be distributed to the General Partner and Limited Partners from
time to time, in the reasonable discretion of the General Partner, in the same
proportions and the amount distributed to such trust by the Partnership would
otherwise have been distributed to the General Partner and Limited Partners
pursuant to this Agreement; or
B. withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, PROVIDED THAT such withheld
amounts shall be distributed to the General Partner and Limited Partners as soon
as practicable.
Section 13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION
Notwithstanding any other provision of this Article 13, in the event
the Partnership is liquidated within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership's property
shall not be liquidated, the Partnership's liabilities shall not be paid or
discharged, and the Partnership's affairs shall not be wound up. Instead, the
Partnership shall be deemed to have distributed the Partnership property in kind
to the General Partner and Limited Partners, who shall be deemed to have assumed
and taken such property subject to all Partnership liabilities, all in
accordance with their respective Capital Accounts. Immediately thereafter, the
General Partner and Limited Partners shall be deemed to have recontributed the
Partnership property in kind to the Partnership, which shall be deemed to have
assumed and taken such property subject to all such liabilities.
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Section 13.5 RIGHTS OF LIMITED PARTNERS
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of his Capital
Contribution and shall have no right or power to demand or receive property from
the General Partner. No Limited Partner shall have priority over any other
Limited Partner as to the return of his Capital Contributions, distributions or
allocations.
Section 13.6 NOTICE OF DISSOLUTION
In the event a Liquidating Event occurs or an event occurs that would,
but for provisions of Section 13.1, result in a dissolution of the Partnership,
the General Partner shall, within 30 days thereafter, provide written notice
thereof to each of the Partners and to all other parties with whom the
Partnership regularly conducts business (as determined in the discretion of the
General Partner) and shall publish notice thereof in a newspaper of general
circulation in each place in which the Partnership regularly conducts business
(as determined in the discretion of the General Partner).
Section 13.7 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP
Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2 hereof, the Partnership shall be terminated
and the Certificate and all qualifications of the Partnership as a foreign
limited partnership in jurisdictions other than the State of Maryland shall be
cancelled and such other actions as may be necessary to terminate the
Partnership shall be taken.
Section 13.8 REASONABLE TIME FOR WINDING-UP
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.9 WAIVER OF PARTITION
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS
Section 14.1 AMENDMENTS
A. The actions requiring consent or approval of Limited Partners
pursuant to this Agreement, including Section 7.3, or otherwise pursuant to
applicable law, are subject to the procedures in this Article 14.
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B. Amendments to this Agreement may be proposed by the General
Partner or by any Limited Partner. Following such proposal, the General Partner
shall submit any proposed amendment to the Limited Partners. The General
Partner shall seek the written consent of the Limited Partners on the proposed
amendment or shall call a meeting to vote thereon and to transact any other
business that it may deem appropriate. For purposes of obtaining a written
consent, the General Partner may require a response within a reasonable
specified time, but not less than 15 days, and failure to respond in such time
period shall constitute a consent which is consistent with the General Partner's
recommendation (if so recommended) with respect to the proposal; PROVIDED, THAT,
an action shall become effective at such time as requisite consents are received
even if prior to such specified time.
Section 14.2 ACTION BY THE PARTNERS
A. Meetings of the Partners may be called by the General Partner and
shall be called upon the receipt by the General Partner of a written request by
Limited Partners holding 25 percent or more of the Partnership Interests held by
Limited Partners. The call shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than seven days nor more than 30 days prior to the date of such meeting.
Partners may vote in person or by proxy at such meeting. Whenever the vote or
Consent of the Limited Partners or of the Partners is permitted or required
under this Agreement, such vote or Consent may be given at a meeting of Partners
or may be given in accordance with the procedure prescribed in Section 14.1
hereof.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by the percentage as is expressly required by this
Agreement for the action in question. Such consent may be in one instrument or
in several instruments, and shall have the same force and effect as a vote of
the Percentage Interests of the Partners (expressly required by this Agreement).
Such consent shall be filed with the General Partner. An action so taken shall
be deemed to have been taken at a meeting held on the effective date so
certified.
C. Each Limited Partner may authorize any Person or Persons to act
for him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of 11 months
from the date thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the Limited Partner executing it.
D. Each meeting of Partners shall be conducted by the General
Partner or such other Person as the General Partner may appoint pursuant to such
rules for the conduct of the meeting as the General Partner or such other Person
deems appropriate.
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ARTICLE 15
GENERAL PROVISIONS
Section 15.1 ADDRESSES AND NOTICE
Any notice, demand, request or report required or permitted to be
given or made to a Partner or Assignee under this Agreement shall be in writing
and shall be deemed given or made when delivered in person or when sent by first
class United States mail or by other means of written communication to the
Partner or Assignee at the address set forth in Exhibit A or such other address
as the Partners shall notify the General Partner in writing.
Section 15.2 TITLES AND CAPTIONS
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3 PRONOUNS AND PLURALS
Whenever the context may require, any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
Section 15.4 FURTHER ACTION
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6 CREDITORS
Other than as expressly set forth herein with respect to Indemnitees,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.
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Section 15.7 WAIVER
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon any breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement or condition.
Section 15.8 COUNTERPARTS
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9 APPLICABLE LAW
This Agreement shall be construed in accordance with and governed by
the laws of the State of Maryland, without regard to the principles of conflicts
of law.
Section 15.10 INVALIDITY OF PROVISIONS
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
Section 15.11 LIMITATION TO PRESERVE REIT STATUS
To the extent that any amount paid or credited to the General Partner
or its officers, directors, employees or agents pursuant to Section 7.4 or
Section 7.7 would constitute gross income to the General Partner for purposes of
Sections 856(c)(2) or 856(c)(3) of the Code (a "General Partner Payment") then,
notwithstanding any other provision of this Agreement, the amount of such
General Partner Payments for any fiscal year shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a) 4.17% of the
General Partners' total gross income (but not including the
amount of any General Partner Payments) for the fiscal year which
is described in subsections (A) through (H) of Section 856(c)(2)
of the Code over (b) the amount of gross income (within the
meaning of Section 856(c)(2) of the Code) derived by the General
Partner from sources other than those described in subsections
(A) through (H) of Section 856(c)(2) of the Code (but not
including the amount of any General Partner Payments); or
(ii) an amount equal to the excess, if any, of (a) 25% of the General
Partners' total gross income (but not including the amount of any
General Partner Payments) for the fiscal year which is described
in subsections (A) through (I) of Section 856(c)(3) of the Code
over (b) the amount of gross
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income (within the meaning of Section 856(c)(3) of the Code)
derived by the General Partner from sources other than those
described in subsections (A) through (I) of Section 856(c)(3) of
the Code (but not including the amount of any General Partner
Payments);
PROVIDED, HOWEVER, that General Partner Payments in excess of the amounts set
forth in subparagraphs (i) and (ii) above may be made if the General Partner, as
a condition precedent, obtains an opinion of tax counsel that the receipt of
such excess amounts would not adversely affect the General Partner's ability to
qualify as a REIT. To the extent General Partner Payments may not be made in a
year due to the foregoing limitations, such General Partner Payments shall carry
over and be treated as arising in the following year, PROVIDED, HOWEVER, that
such amounts shall not carry over for more than five years, and if not paid
within such five year period, shall expire; PROVIDED FURTHER, that (i) as
General Partner Payments are made, such payments shall be applied first to carry
over amounts outstanding, if any, and (ii) with respect to carry over amounts
for more than one Partnership Year, such payments shall be applied to the
earliest Partnership Year first.
Section 15.12 ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement among
the Partners with respect to the subject matter hereof and supersedes any other
prior written or oral understandings or agreements among them with respect
thereto.
Section 15.13 NO RIGHTS AS STOCKHOLDERS
Nothing contained in this Agreement shall be construed as conferring
upon the holders of Partnership Units any rights whatsoever as stockholders of
the General Partner, including without limitation any right to receive dividends
or other distributions made to stockholders of the General Partner or to vote or
to consent or to receive notice as stockholders in respect of any meeting of
stockholders for the election of directors of the General Partner or any other
matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
ARDEN REALTY GROUP LIMITED
PARTNERSHIP
By: Arden Realty Group, Inc.,
a Maryland corporation
Its General Partner
By:_______________________________
Title:____________________________
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LIMITED PARTNERS:
By: Arden Realty Group, Inc.
Attorney-in-Fact for the
Limited Partners
By:_______________________________
Title:____________________________
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EXHIBIT A
PARTNERS, CONTRIBUTIONS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
I. Initial Contributions
Agreed Value of Percentage
Name and Address Cash Contributed Gross Asset Total Partnership Interest
of Partner Contributions Property* Value Contributions Units ----------
---------------- ------------- ---------- ----- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
[1]
GENERAL PARTNER
Arden Realty Group, Inc. [$1.00] - [$1.00]
____________________
____________________
____________________
LIMITED PARTNERS
Arden Realty Group, Inc. [$1.00] - [$1.00] [1]
Attorney-in-Fact for the
Limited Partners
____________________
____________________
____________________
* Net of Debt (if any)
II. Contributions To Be Made On Effective Date
Agreed Value of
Name and Address Cash Contributed Gross Asset Total Partnership Percentage
of Partner Contributions Property* Value Contributions Units Interest
---------------- ------------- ---------- ----- ------------- ----------- ----------
GENERAL PARTNER
Arden Realty Group, Inc.
Limited Partners
________________________
________________________
* Net of Debt (if any)
</TABLE>
A-1
<PAGE>
EXHIBIT B
NOTICE OF REDEMPTION
The undersigned hereby [irrevocably] (i) exchanges ____________ Limited
Partnership Units in Arden Realty Group Limited Partnership in accordance with
the terms of the Limited Partnership Agreement of Arden Realty Group Limited
Partnership and the rights of Redemption referred to therein, (ii) surrenders
such Limited Partnership Units and all right, title and interest therein, and
(iii) directs that the cash (or, if applicable, REIT Shares) deliverable upon
Redemption or exchange be delivered to the address specified below, and if
applicable, that such REIT Shares be registered or placed in the name(s) and at
the address(es) specified below.
Dated: ---------------------------
Name of Limited Partner:
----------------------------------
(Signature of Limited Partner)
----------------------------------
(Street Address)
----------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
----------------------------------
Issue REIT Shares to:
Please insert social security or identifying number:
Name:
B-1
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EXHIBIT C
CONSTRUCTIVE OWNERSHIP DEFINITION
The term "Constructively Owns" means ownership determined through the
application of the constructive ownership rules of Section 318 of the Code, as
modified by Section 856(d)(5) of the Code. Generally, these rules provide the
following:
a. an individual is considered as owning the Ownership Interest that
is owned, directly or constructively, by or for his spouse, his children, his
grandchildren, and his parents;
b. an Ownership Interest that is owned, directly or constructively,
by or for a partnership or estate is considered as owned proportionately by its
partners or beneficiaries;
c. an Ownership Interest that is owned, directly or constructively,
by or for a trust is considered as owned by its beneficiaries in proportion to
the actuarial interest of such beneficiaries (provided, however, that in the
case of a "grantor trust" the Ownership Interest will be considered as owned by
the grantors);
d. if 10 percent or more in value of the stock in a corporation is
owned, directly or constructively, by or for any person, such person shall be
considered as owning the Ownership Interest that is owned, directly or
constructively, by or for such corporation in that proportion which the value of
the stock which such person so owns bears to the value of all the stock in such
corporation;
e. an Ownership Interest that is owned, directly or constructively,
by or for a partner of a partnership or a beneficiary of an estate or trust
shall be considered as owned by the partnership, estate, or trust (or, in the
case of a grantor trust, the grantors);
f. if 10 percent or more in value of the stock in a corporation is
owned, directly or constructively, by or for any person, such corporation shall
be considered as owning the Ownership Interest that is owned, directly or
constructively, by or for such person;
g. if any person has an option to acquire an Ownership Interest
(including an option to acquire an option or any one of a series of such
options), such Ownership Interest shall be considered as owned by such person;
h. an Ownership Interest that is constructively owned by a person by
reason of the application of the rules described in paragraphs (a) through (g)
above shall, for purposes of applying paragraphs (a) through (g), be considered
as directly owned by such person provided, however, that (i) an Ownership
Interest constructively owned by an individual by reason of paragraph (a) shall
not be considered as owned by him for purposes of again applying paragraph (a)
in order to make another the constructive owner of such Ownership Interest, (ii)
an Ownership Interest constructively owned by a partnership, estate, trust, or
corporation by reason of the application of paragraphs (e) or (f) shall not be
considered as owned by it for purposes of applying paragraphs (b), (c), or (d)
in order to make another the constructive owner of such Ownership Interest,
(iii) if an Ownership Interest may be considered as owned by an individual under
paragraphs (a) or (g), it shall be considered as owned by him under paragraph
(g), and (iv) for purposes of the above described rules, an S corporation shall
be treated as a partnership and any stockholder of the S corporation shall be
treated as a partner of such partnership except that this rule shall not apply
for purposes of determining whether stock in the S corporation is constructively
owned by any person.
i. For purposes of the above summary of the constructive ownership
rules, the term "Ownership Interest" means the ownership of stock with respect
to a corporation and, with respect to any other type of entity, the ownership of
an interest in either its assets or net profits.
C-1
<PAGE>
EXHIBIT D
FORM OF PARTNERSHIP UNIT CERTIFICATE
CERTIFICATE FOR PARTNERSHIP UNITS OF
ARDEN REALTY GROUP LIMITED PARTNERSHIP
No.______________ ______________ COMMON UNITS
Arden Realty Group, Inc., as the General Partner of Arden Realty Group
Limited Partnership, a Maryland limited partnership (the "Operating
Partnership"), hereby certifies that________________________________________ is
a Limited Partner of the Operating Partnership whose Partnership Interests
therein, as set forth in the Agreement of Limited Partnership of Arden Realty
Group Limited Partnership, (the "Partnership Agreement"), under which the
Operating Partnership is existing and as filed in the office of the Maryland
State Department of Assessments and Taxation (copies of which are on file at the
Operating Partnership's principal office at 9100 Wilshire Boulevard, East Tower,
Suite 700, Beverly Hills, California 90212, represent _____________ units of
limited partnership interest in the Operating Partnership.
THE COMMON UNITS REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION COMPLIES WITH THE PROVISIONS OF THE PARTNERSHIP AGREEMENT AS OF
______________, 1996 AS IT MAY BE AMENDED FROM TIME TO TIME (A COPY OF WHICH IS
ON FILE WITH THE OPERATING PARTNERSHIP). EXCEPT AS OTHERWISE PROVIDED IN SUCH
AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE OP UNITS REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT
(A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR (B) IF THE OPERATING PARTNERSHIP HAS BEEN
FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH
TRANSFER, SALE ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT
FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN
EFFECT THEREUNDER.
DATED: _____________________, 1996.
ARDEN REALTY GROUP, INC..
General Partner of
Arden Realty Group Limited Partnership
ATTEST:
By: _________________________________ By:___________________________________
D-1
<PAGE>
EXHIBIT E
SCHEDULE OF PARTNERS' OWNERSHIP
WITH RESPECT TO TENANTS
E-1
<PAGE>
EXHIBIT F
SCHEDULE OF REIT SHARES
ACTUALLY OR CONSTRUCTIVELY OWNED BY LIMITED PARTNERS
OTHER THAN THOSE ACQUIRED PURSUANT TO AN EXCHANGE
F-1
<PAGE>
EXHIBIT G
SPECIAL ALLOCATIONS OF DEDUCTIONS
ATTRIBUTABLE TO THE REPAYMENT OF SPECIFIED INTEREST
[Add Description of Each Loan]
Total Interest Deduction to be Specially Allocated $_______
Allocation of Deduction to Partners:
[Name of Partners] $_______
$_______
$_______
G-1
<PAGE>
EXHIBIT H
SPECIAL ALLOCATIONS OF CANCELLATION
OF INDEBTEDNESS INCOME
[Add Description of Each Loan]
Total COD Income $_______
Allocation of Income to Partners:
[Name of Partners] $_______
$_______
$_______
H-1
<PAGE>
Exhibit 10.3
INDEMNITY AGREEMENT
This Indemnification Agreement, dated effective as of
, 1996, is made by and between Arden Realty Group, Inc., a Maryland
corporation (the "Company"), and ______________ (the "Indemnitee").
RECITALS
A. The Company is a corporation organized under the General Laws of
the State of Maryland;
B. The charter of the Company (the "Charter") provides that the
Company has the power, to the maximum extent permitted by Maryland law in effect
from time to time, to obligate itself to indemnify the directors, officers and
employees of the Company;
C. The bylaws of the Company (the "Bylaws") provide that each
officer and director of the Company shall be indemnified by the Company to the
maximum extent permitted by Maryland law in effect from time to time; and
D. Indemnitee has been elected as of the
Company and the Company desires to fulfill its obligations to indemnify the
officers and directors to the maximum extent permitted by the Charter and the
Bylaws.
NOW, THEREFORE, the parties hereto are entering into this
Indemnification Agreement (the "Agreement") as of the date hereof to evidence
the obligation of the Company to indemnify the Indemnitee.
Section.1. DEFINITIONS. In this Agreement the following words have
the meanings indicated.
(1) "Company" includes any domestic or foreign predecessor entity of
the Company in a merger, consolidation or other transaction in which the
predecessors existence ceased upon consummation of the transaction.
(2) "Director" means any person who is or was a director of the
Company and any person who, while a director of the Company, is or was serving
at the request of the Company as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, other enterprise, or employee benefit plan.
(3) "Expenses" include attorneys' fees.
<PAGE>
(4) "Official Capacity" means the following:
(i) When used with respect to a Director, the office of director
in the Company;
(ii) When used with respect to a person other than a Director as
contemplated in Section 9, the elective or appointive office in the Company held
by the officer, or the employment or agency relationship undertaken by the
employee or agent on behalf of the Company; and
(iii) "Official Capacity" does not include service for any
other foreign or domestic corporation or any partnership, joint venture, trust,
other enterprise, or employee benefit plan.
(5) "Party" includes a person who was, is or is threatened to be made
a named defendant or respondent in a proceeding.
(6) "Proceeding" means any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative.
Section 2. INDEMNIFICATION OF DIRECTOR.
(1) Provided the determination required under Section 5 has been
made, the Company shall indemnify any Director made a Party to any Proceeding by
reason of service in that Director's Official Capacity unless it is established
that:
(i) The act or omission of the Director was material to the
matter giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate dishonesty; or
(ii) The Director actually received an improper personal benefit
in money, property, or services; or
(iii) In the case of any criminal proceeding, the Director
had reasonable cause to believe that the act or omission was unlawful.
(2) (i) Indemnification shall be against judgments, penalties,
fines, settlements, and reasonable Expenses actually incurred by the Director in
connection with the Proceeding.
(ii) However, if the Proceeding was one by, or in the right of,
the Company, indemnification shall be made only against reasonable Expenses and
may not be made in respect of any liability to the Company.
2
<PAGE>
(3) (i) The termination of any Proceeding by judgment, order, or
settlement does not create a presumption that the Director did not meet the
requisite standard of conduct set forth in this Section 2.
(ii) The termination of any Proceeding by conviction, or a plea
of nolo contendere or its equivalent, or an entry of an order of probation prior
to judgment, creates a rebuttable presumption that the Director did not meet the
requisite standard of conduct set forth in this Section 2.
Section 3. NO INDEMNIFICATION OF DIRECTOR LIABILITY FOR IMPROPER
PERSONAL BENEFIT. A Director shall not be indemnified under Section 2 in
respect of any Proceeding charging improper personal benefit to the Director,
whether or not involving action in the Director's Official Capacity, in which
the Director was adjudged to be liable on the basis that personal benefit was
improperly received.
Section 4. REQUIRED INDEMNIFICATION AGAINST EXPENSES INCURRED IN
SUCCESSFUL DEFENSE.
(1) A Director who has been successful, on the merits or otherwise,
in the defense of any Proceeding shall be indemnified against reasonable
Expenses incurred by the Director in connection with the Proceeding.
(2) Nothing in this Agreement shall limit the power of a court of
appropriate jurisdiction to order indemnification of a Director to the maximum
extent permitted by Maryland law in effect from time to time, including the
right to recover the Expenses of securing such reimbursement.
Section 5. DETERMINATION THAT INDEMNIFICATION WAS PROPER.
(1) Indemnification for a specific Proceeding under Section 2 shall
not be made by the Company unless such indemnification is authorized for the
specific Proceeding after a determination has been made that indemnification of
the Director is permissible in the circumstances because the Director has met
the standard of conduct set forth in Section 2.
(2) Such determination shall be made:
(i) By the Board of Directors of the Company (the "Board") by a
majority vote of a quorum consisting of Directors not, at the time, Parties to
the Proceeding, or, if such a quorum cannot be obtained, then by a majority vote
of a committee of the Board consisting solely of two or more Directors not, at
the time, Parties to such Proceeding and who were fully designated to act in the
matter by a majority vote of the full Board in which the designated Directors
who are Parties may participate;
(ii) By special legal counsel selected by the Board or a
committee of the Board by vote as set forth in subparagraph (i) of this
paragraph, or, if the requisite quorum of the full Board cannot be obtained
therefor and the committee cannot be established, by a majority vote of the full
Board in which Directors who are Parties may participate; or
(iii) By the stockholders.
3
<PAGE>
(3) Authorization of indemnification and determination as to
reasonableness of Expenses shall be made in the same manner as the determination
that indemnification is permissible. However, if the determination that
indemnification is permissible is made by the special legal counsel,
authorization of indemnification and determination as to the unreasonableness of
Expenses shall be made in the manner specified in subparagraph (ii) of paragraph
(2) of this Section 5 for selection of such counsel.
(4) Shares held by Directors who are Parties to the Proceeding shall
not be voted on the subject matter under this Section 5.
Section 6. PAYMENT OF EXPENSES IN ADVANCE OF FINAL DISPOSITION OF
ACTION.
(1) Reasonable Expenses incurred by a Director who is a Party to a
Proceeding shall be paid or reimbursed by the Company in advance of the final
disposition of the Proceeding, upon receipt by the Company of:
(i) A written affirmation by the Director of the Director's good
faith belief that the standard of conduct necessary for indemnification by the
Company as authorized in this Agreement has been met; and
(ii) A written undertaking by or on behalf of the Director to
repay the amount if it shall ultimately be determined that the standard of
conduct has not been met.
(2) The undertaking required by subparagraph (ii) of paragraph (1) of
this Section 6 shall be an unlimited general obligation of the Director but need
not be secured and may be accepted without reference to financial ability to
make the repayment.
Section 7. REIMBURSEMENT OF DIRECTOR'S EXPENSES INCURRED WHILE
APPEARING AS WITNESS. The Company shall pay or reimburse Expenses incurred by a
Director in connection with an appearance as a witness in a Proceeding at a time
when the Director has not been made a named defendant or respondent in the
Proceeding.
Section 8. DIRECTOR'S SERVICE TO EMPLOYEE BENEFIT PLAN. For purposes
of this Agreement:
(1) The Company shall be deemed to have requested a Director to serve
an employee benefit plan where the performance of the Director's duties to the
Company also imposes duties on, or otherwise involves services by, the Director
to the plan or participants or beneficiaries of the plan.
(2) Excise taxes assessed on a Director with respect to an employee
benefit plan pursuant to applicable law shall be deemed fines; and
(3) Action taken or omitted by the Director with respect to an
employee benefit plan in the performance of the Director's duties for a purpose
reasonably believed by the Director to be in the interest of the participants
and beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Company.
4
<PAGE>
Section 9. OFFICER, EMPLOYEE OR AGENT.
(1) The Company shall indemnify and advance Expenses to an officer,
employee, or agent of the Company to the same extent that it shall indemnify
Directors under this Agreement.
Section 10. NON-EXCLUSIVITY. The indemnification and advancement of
Expenses provided or authorized by this Agreement may not be deemed exclusive of
any other rights by indemnification or otherwise, to which a Director may be
entitled under the Charter, the Bylaws, a resolution of stockholders or
directors, an agreement or otherwise, both as to action in an Official Capacity
and as to action in another capacity while holding office.
Section 11. INSURANCE. The Company may purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee,
or agent of the Company, or who, while a Director, officer, employee, or agent
of the Company, is or was serving at the request of the Company as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's position, whether or not
the Company would have the power to indemnify against liability under the
provisions of this Agreement or under Maryland law in effect from time to time.
Section 12. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Maryland applicable to
agreements to be made and to be performed entirely within such State.
Section 13. CAPTIONS. The captions assigned to provisions of this
Agreement are for convenience only and shall be disregarded in construing this
Agreement.
Section 14. NUMBER AND GENDER. Use of the singular in this Agreement
includes the plural, use of the plural includes the singular, and use of one
gender includes both genders, as the context may require.
Section 15. CROSS REFERENCES AND EXHIBITS. Any reference in this
Agreement to a "Section" or "paragraph" shall be construed, respectively, as
referring to a Section of this Agreement, or a paragraph of the Section of this
Agreement in which the reference appears.
Section 16. SUCCESSORS. This Agreement shall be binding upon and
inure to the benefit of the successors of the Company.
Section 17. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity of any other
provision, and all other provisions shall remain in full force and effect.
5
<PAGE>
Section 18. ENTIRE AGREEMENT. This Agreement, the Charter and the
Bylaws contain the entire agreement between the parties as to the rights granted
and the obligations assumed in this instrument. This Agreement may be amended
only by a subsequent written instrument signed by both parties.
Section 19. NON-ASSIGNABILITY. This Agreement may not be assigned by
either party hereto, and any purported assignment of this Agreement shall be
null and void.
Section 20. WAIVER. Any forbearance by a party to this Agreement in
exercising any right or remedy under this Agreement or otherwise afforded by
applicable law shall not be a waiver of or preclude the exercise of that or any
other right or remedy.
The parties hereto have entered into this Agreement effective as of
the date first above written.
COMPANY: INDEMNITEE:
ARDEN REALTY GROUP, INC.
a Maryland corporation ________________________________________
________________________________________
(Print Name)
By:_____________________________
Name:___________________________
Title:__________________________
6
<PAGE>
[LETTERHEAD]
September 13, 1996
Mr. Victor Coleman
President
Arden Realty Group, Inc.
9100 Wilshire Boulevard
Beverly Hills, CA 90212
Dear Victor,
This letter shall outline Lehman Brothers' ("Lender") commitment to extend to
Arden Realty Group, Inc. ("Borrower") an interim loan (the "Interim Loan")
subject to the terms and conditions outlined below and the completion of
mortgage loan and other transaction documentation (the "Transaction
Documentation") satisfactory to Lehman Brothers. The terms and conditions
outlined below are not all inclusive and will be supplemented by the Transaction
Documentation.
Loan Amount: $104,000,000
Interest Rate: Months 1-6: One month LIBOR + 1.50 %
Months 7-12: One month LIBOR +2.00%
Term: One Year
Extension Option: None
Earthquake Insurance: Earthquake insurance coverage equal to the probable
maximum loss of the Subject Properties. To the extent
the earthquake insurance policy encompasses other
properties owned by Borrower, Borrower will assign to
Lender a "preference" towards all proceeds receivable
under Borrower's earthquake insurance policy, up to the
probable maximum loss of the Subject Properties.
Borrower's counsel will deliver to Lender an opinion of
counsel opining that Lender has a perfected security
interest in all such insurance proceeds.
<PAGE>
Page Two
Recourse:4 The loan will be non-recourse to the Borrower, secured
only by first lien mortgages on the Subject Properties
Origination Fee: 0.50% origination fee due at repayment of the Interim
Loan. The origination fee shall be fully credited
against any placement agency fee of 0.50% related to
any offering of commercial mortgage-backed securities
completed by Borrower in the 13 months following the
origination of the Interim Loan.
Expenses: Borrower shall reimburse Lender for all of Lender's
reasonable out of pocket expenses relating to the
Interim Loan and the CMBS offering up to a maximum of
$25,000 and for all of Lender's legal costs associated
with the Interim Loan and the CMBS Offering up to an
amount of $175,000.
Collateral The Interim Loan shall be secured by newly originated,
fully cross-collateralized and cross-defaulted first
lien mortgages on the following properties (the
"Subject Properties"):
1.) 9665 Wilshire Boulevard;
2.) Skyview Center,
3.) 1600 Ventura Boulevard
4.) 1640 Sepulveda Boulevard
5.) 1950 Sawtelle
6.) 222 So. Harbor Boulevard
7.) 425 West Broadway
8.) Imperial Bank Tower
9.) 5000 East Spring Street
CMBS Offering: Borrower acknowledges that Lender is extending the
Interim Loan with the understanding that Borrower will
utilize its best efforts to expeditiously refinance the
Interim Loan through an offering of commercial mortgage
backed securities (the "CMBS Offering") to be sole
managed by an affiliate of Lender. Borrower will
cooperate fully with Lender in working with Lender and
any credit rating agency to achieve investment grade
ratings of AA, A and BBB relating to the CMBS offering.
<PAGE>
Page Three
Reporting Requirements: Borrower will deliver to lender within 45 days of each
calendar quarter end copies of quarterly unaudited
financial statements and rent rolls for each of the
Subject Properties. Borrower will deliver to Lender
unaudited annual financial statements relating to the
Subject Properties within 45 days of any calendar year
end during the term of the Interim Loan.
The above summary of terms and conditions is not intended to be, and should not
be construed as an attempt to establish all of the terms and conditions around
which the loan documents will be structured and is not intended to preclude
negotiations within the general scope of these terms and conditions. The loan
documents containing these and other terms and conditions shall be negotiated in
a manner satisfactory to Lender and Lender's counsel.
Sincerely,
Ali Elam
Senior Vice President
ACKNOWLEDGED AND AGREED
ARDEN REALTY GROUP, INC.
A MARYLAND CORPORATION
- ---------------------------- -----------------
Victor J. Coleman Date
President
<PAGE>
DRAFT
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
August 1, 1996, by and between ARDEN REALTY GROUP, L.P., a Maryland limited
partnership (the "Company"), and DIANA M. LAING ("Executive").
1. EMPLOYMENT
The Company hereby employs Executive and Executive hereby accepts
employment upon the terms and conditions set forth below.
2. TERM AND RENEWAL
2.1 TERM. The term of this Agreement shall commence on the date of this
Agreement (the "Effective Date"), and shall continue for one year from the
Effective Date (the "Original Employment Term"), on the terms and conditions set
forth below, unless sooner terminated as provided in Section 5.
2.2 EXTENSION. Following the expiration of the Original Employment Term
and provided that this Agreement has not been terminated pursuant to Section 5,
and every year thereafter, the Agreement shall be automatically renewed for an
additional 12-month period, effective on each anniversary date of the Effective
Date.
3. COMPENSATION
3.1 BASE COMPENSATION. For the services to be rendered by Executive under
this Agreement, Executive shall be entitled to receive, commencing as of the
Effective Date, an initial annual base compensation ("Base Compensation") of
$195,000, payable in substantially equal semi-monthly installments. The Base
Compensation shall be reviewed and adjusted annually as determined by the
Compensation Committee (the "Compensation Committee") of the Board of Directors
(the "Board") of Arden Realty Group, Inc., a Maryland corporation and the
Company's general partner (the "General Partner"), but in no event will the
annual Base Compensation be less than the initial amount set forth above.
3.2 BONUS COMPENSATION. For services to be rendered by Executive during
the first year of the Original Employment Term, Executive shall receive a cash
bonus equal to up to
<PAGE>
20% of the Base Compensation for such year (the amount up to 20% to be
determined by the Compensation Committee), which cash bonus, if any, shall be
paid within 60 days following the first anniversary of the Effective Date.
Thereafter, at least annually, the Compensation Committee shall review
Executive's performance and cause the Company to award Executive a cash bonus
which the Compensation Committee shall reasonably determine as fairly
compensating and rewarding Executive for services rendered to the Company and/or
as an incentive for continued service to the Company. The amount of such cash
bonus shall be dependent on, among other things, the achievement of certain
performance levels by the Company, including growth in funds from operations,
and Executive's performance and contribution to increasing the Company's funds
from operations. The amount, if any, of such bonus for any year beginning after
the first year of the Original Employment Term shall be determined in the sole
and absolute discretion of the Compensation Committee.
3.3 STOCK OPTIONS. For services to be rendered by Executive under this
Agreement, the Company shall cause the General Partner to grant Executive
options to acquire 50,000 shares of common stock of the General Partner at an
exercise price per share equal to the initial public offering price per share of
common stock of the General Partner. Such options shall be granted pursuant to
the 1996 Stock Incentive Plan of the General Partner and vest over five years
(i.e. options for 10,000 shares shall vest and become exercisable upon each
anniversary of this Agreement unless previously terminated). If the initial
public offering of the General Partner's common stock does not occur by December
31, 1996, the options will be cancelled.
3.4 BENEFITS.
(a) MEDICAL INSURANCE. The Company shall provide to Executive,
Executive's spouse and children, at its sole cost, such health, dental and
optical insurance as the Company may from time to time make available to its
other executive employees.
(b) LIFE AND DISABILITY INSURANCE. The Company shall provide
Executive such disability and/or life insurance as the Company in its sole
discretion may from time to time make available to its other executive
employees.
(c) PENSION PLANS, ETC. The Company shall be entitled to participate
in all pension, 401(k) and other employee plans and benefits established by the
Company on at least the same terms as other executive employees of the Company.
3.5 AUTOMOBILE ALLOWANCE. The Company shall provide Executive with a
reasonable automobile allowance during the term of Executive's employment with
the Company.
2
<PAGE>
3.6 RELOCATION EXPENSES. Subject to an aggregate collective cap on such
expenses of $112,000, the Company shall reimburse Executive within 10 days after
receipt of appropriate supporting documentation for all costs of Executive's
relocation to Los Angeles, California, including, but not limited to per diem
housing costs while Executive searches for a home in Los Angeles, California,
financing fees and other costs incidental to any mortgage Executive may obtain
for a home in Los Angeles, California, real estate broker fees for the sale of
Executive's home in Irving, Texas, any loss on sale of Executive's home in
Irving, Texas (based on the appraised value of such home) and all packing and
moving costs.
3.7 METHOD OF PAYMENT. The monetary compensation payable and any benefits
due to Executive hereunder may be paid or provided in whole or in part, from
time to time, by the Company, the General Partner and/or their respective
subsidiaries and affiliates, but shall at all times remain the responsibility of
the Company.
4. POSITION AND DUTIES
4.1 POSITION. Executive shall serve as Chief Financial Officer of the
Company. The Company agrees that the duties that may be assigned Executive
shall be the usual and customary duties of the offices of Chief Financial
Officer. Executive shall have such executive power and authority as shall
reasonably be required to enable Executive to discharge the duties of such
offices. At the request of the Board, subject to shareholder approval when
required, Executive shall also serve as a director and/or officer of the General
Partner, provided that Executive shall be required to serve only in offices and
capacities with the General Partner that are substantially equivalent, with
respect to title, duties and authority, to the offices and capacities in which
Executive serves the Company. Executive may, at Executive's discretion, serve
the Company, the General Partner and/or their respective subsidiaries and
affiliates in other offices and capacities in addition to the foregoing, but
shall not be required to do so. In the event the Company and Executive mutually
agree that Executive shall terminate Executive's service in any one or more of
the aforementioned capacities, or Executive's service in one or more of the
aforementioned capacities is terminated, Executive's compensation, as specified
in this Agreement, shall not be diminished or reduced in any manner.
4.2 DEVOTION OF TIME AND EFFORT. Executive shall use Executive's good
faith best efforts and judgment in performing Executive's duties as required
hereunder and to act in the best interests of the Company. Executive shall
devote such time, attention and energies to the business of the Company as are
reasonably necessary to satisfy Executive's required responsibilities and duties
hereunder.
3
<PAGE>
4.3 VACATION. It is understood and agreed that Executive shall be
entitled to three weeks vacation per year. During such vacation periods,
Executive shall not be relieved of Executive's duties under this Agreement and
there will be no abatement or reduction of Executive's compensation hereunder.
4.4 BUSINESS EXPENSES. The Company shall promptly, but in no event later
than 10 days after submission of a claim of expenditure, reimburse Executive for
all reasonable business expenses incurred by Executive in connection with the
business of the Company, the General Partner and/or their respective
subsidiaries and affiliates, upon presentation to the Company of written
receipts for such expenses. Such reimbursement shall include, but not be
limited to, reimbursement for all reasonable travel expenses, including all
airfare, hotel and rental car expenses, incurred by Executive in travelling in
connection with the business of the Company.
4.5 COMPANY OBLIGATIONS. The Company shall provide Executive with any and
all necessary or appropriate current financial information and access to current
information and records regarding all material transactions involving the
Company, the General Partner and/or their representative subsidiaries and
affiliates, including but not limited to acquisition of assets, personnel
contracts, dispositions of assets, service agreements and registration
statements or other state or federal filings or disclosures, reasonably
necessary for Executive to carry out Executive's duties and responsibilities
hereunder. In addition, the Company agrees to provide Executive, as a condition
to Executive's services hereunder, such staff, equipment and office space as is
reasonably necessary for Executive to perform Executive's duties hereunder.
5. TERMINATION
5.1 BY COMPANY WITHOUT CAUSE. The Company may terminate this Agreement
without "cause" (as hereinafter defined) at any time following the first
anniversary of the Effective Date, provided that the Company first delivers to
Executive the Company's written election to terminate this Agreement at least 90
days prior to the effective date of termination.
5.2 SEVERANCE PAYMENT.
(a) AMOUNT. In the event the Company terminates Executive's services
hereunder pursuant to Section 5.1, Executive shall continue to render services
to the Company pursuant to this Agreement until the date of termination and
shall continue to receive compensation, as provided hereunder, through the
termination date. In addition to other compensation payable to Executive for
services rendered through the termination date, the Company shall pay Executive
no later than the date of such termination, as a single severance payment, an
amount equal to Executive's Base Compensation paid hereunder for the preceding
4
<PAGE>
12 month period (or, if Executive has been employed less than 12 months, the
average annual Base Compensation for the period employed) (collectively, the
"Severance Amount").
(b) BENEFITS. In the event Executive's employment hereunder is
terminated by the Company without cause pursuant to Section 5.1 or by Executive
pursuant to Section 5.4 or 5.6, then in addition to paying Executive the
Severance Amount, the Company shall continue to provide to Executive and
Executive's spouse and children, as applicable, all of the benefits described in
Section 3.4 for a period of one year commencing on the date of such termination
(the "Severance Benefits").
(c) LIMITATION. The foregoing notwithstanding, the total of such
severance payments shall be reduced to the extent that the payment of such
amount would cause Executive's total termination benefits (as determined by
Executive's tax advisor) to constitute an "excess" parachute payment under
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and
by reason of such excess parachute payment Executive would be subject to an
excise tax under Section 4999(a) of the Code, but only if Executive determines
that the after-tax value of the termination benefits calculated with the
foregoing restriction exceed those calculated without the foregoing restriction.
5.3 BY THE COMPANY FOR CAUSE. The Company may terminate Executive for
cause at any time, upon written notice to Executive. For purposes of this
Agreement, "cause" shall mean:
(a) Executive's conviction for commission of a felony or a crime
involving moral turpitude;
(b) Executive's willful commission of any act of theft,
embezzlement or misappropriation against the Company which, in any
such case, is materially and demonstrably injurious to the Company;
(c) Executive's death or Disability (as hereinafter defined); or
(d) Executive's willful and continued failure to substantially
perform Executive's duties hereunder (other than such failure
resulting from Executive's incapacity due to physical or mental
illness), which failure is not remedied within a reasonable time after
demand for substantial performance is delivered by the Company which
specifically identifies the manner in which the Company believes that
Executive has not substantially performed Executive's duties.
5
<PAGE>
In the event Executive is terminated for cause pursuant to this Section
5.3, Executive shall have the right to receive Executive's compensation as
otherwise provided under this Agreement through the effective date of
termination. Executive shall have no further right to receive compensation or
other consideration from the Company, or have any other remedy whatsoever
against the Company, as a result of this Agreement or the termination of
Executive pursuant to this Section 5.3, except as set forth below with respect
to a termination due to Executive's Disability.
In the event Executive is terminated by reason of Executive's Disability
(but not death), the Company shall immediately pay Executive a single severance
payment equal to the Severance Amount. Said payment shall be in addition to any
disability insurance payments to which Executive is otherwise entitled and any
other compensation earned by Executive hereunder. For purposes of this
Agreement, the term "Disability" shall mean a physical or mental incapacity as a
result of which Executive becomes unable to continue the proper performance of
Executive's duties hereunder for six consecutive calendar months or for shorter
periods aggregating 180 business days in any 12 month period, but only to the
extent that such definition does not violate the Americans with Disabilities
Act.
5.4 BY EXECUTIVE FOR GOOD REASON. Executive may terminate this Agreement
for good reason upon at least 10 days prior written notice to the Company (such
right to terminate shall expire on the 90th day following the date that any
event described in clauses (a) through (d) below occurs). For purposes of this
Agreement, "good reason" shall mean:
(a) the Company's material breach of any of its obligations hereunder
and either such breach is incurable or, if curable, has not been cured
within 15 days following receipt of written notice by Executive to the
Company of such breach by the Company;
(b) any removal of Executive from one or more of the offices
specified in the first sentence of Section 4.1 without cause and without
Executive's prior written consent;
(c) any material decrease in Executive's authority or
responsibilities hereunder without Executive's prior written consent; or
(d) the failure by the General Partner to effect the initial public
offering of shares of its common stock by not later than December 31, 1996.
In the event that Executive timely terminates this Agreement for good
reason pursuant to this Section 5.4, Executive shall have the right to receive
Executive's compensation as provided hereunder through the effective date of
termination and shall also have the same rights and remedies against the Company
as Executive would have had if the Company had terminated
6
<PAGE>
Executive's employment without cause pursuant to Section 5.1 (including the
right to receive the Severance Amount payable and the Severance Benefits to be
provided under Section 5.2).
5.5 EXECUTIVE'S VOLUNTARY TERMINATION. Executive may, at any time,
terminate this Agreement without good reason upon written notice delivered to
the Company at least 90 days prior to the effective date of termination. In the
event of such voluntary termination of this Agreement by Executive: (i)
Executive shall have the right to receive Executive's compensation as provided
hereunder through the effective date of termination, and (ii) the Company and
Executive shall not have any further right or remedy against one another except
as provided in Sections 6, 7 and 8 hereof which shall remain in full force and
effect.
5.6 CHANGE OF CONTROL. Executive may terminate this Agreement, upon at
least 10 days' prior written notice to the Company, at any time within one year
after a "change in control" (as hereinafter defined) of the Company; provided,
however, that if Executive is offered the position of Chief Financial Officer by
the Company or any successor to the Company in a transaction described in clause
(a) or (c) below, then Executive shall not be permitted to terminate this
Agreement. In the event Executive terminates this Agreement within one year
after a change in control pursuant to this Section 5.6, (i) Executive shall
continue to render services pursuant hereto and shall continue to receive
compensation, as provided hereunder, through the termination date, (ii) the
Company shall pay Executive no later than the date of such termination, as a
single severance payment, an amount equal to the Severance Amount and (iii)
following such termination, the Company shall provide the Severance Benefits as
required by Section 5.2. For purposes of this Agreement, a "change in control"
shall mean the approval by the stockholders of the General Partner of:
(a) a merger, consolidation, share exchange or reorganization
involving the General Partner, unless
(1) the stockholders of the General Partner, immediately
before such merger, consolidation, share exchange or
reorganization, own, directly or indirectly immediately following
such merger, consolidation, share exchange or reorganization, at
least 80% of the combined voting power of the outstanding voting
securities of the corporation that is the successor in such
merger, consolidation, share exchange or reorganization (the
"Surviving Company") in substantially the same proportion as
their ownership of the Voting Securities immediately before such
merger, consolidation, share exchange or reorganization;
(2) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for
such
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merger, consolidation, share exchange or reorganization
constitute at least two-thirds of the members of the board of
directors of the Surviving Company;
(b) a complete liquidation or dissolution of the General
Partner; or
(c) an agreement for the sale or other disposition of all or
substantially all of the assets of the Company or the General
Partner.
6. CONFIDENTIALITY
During the term of Executive's employment under this Agreement, Executive
will have access to and become acquainted with various information relating to
the Company's business operations, marketing data, business plans, strategies,
employees, contracts, financial records and accounts, projections and budgets,
and similar information. Executive agrees that to the extent such information
is not generally available to the public and gives the Company an advantage over
competitors who do not know of or use such information, such information and
documents constitute "trade secrets" of the Company. Executive further agrees
that all such information and documents relating to the business of the Company,
whether they are prepared by Executive or come into Executive's possession in
any other way, are owned by the Company and shall remain the exclusive property
of the Company. Executive shall not misuse, misappropriate or disclose any
trade secrets of the Company, directly or indirectly, or use them for
Executive's own benefit, either during the term of this Agreement or at any time
thereafter, except as may be necessary or appropriate in the course of
Executive's employment with the Company, unless such action is either previously
agreed to in writing by the Company or required by law.
7. NON-SOLICITATION
For a period of one year following the date Executive's employment
hereunder is terminated, Executive shall not solicit or induce any of the
Company's employees, agents or independent contractors to end their relationship
with the Company, or recruit, hire or otherwise induce any such person to
perform services for Executive, or any other person, firm or company. The
restrictions set forth in this Section 7 shall not apply if Executive's
employment is terminated pursuant to Section 5.1, 5.4 or 5.6.
8
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8. NON-COMPETITION AFTER TERMINATION
For a period of one year following the date Executive's employment
hereunder is terminated, Executive shall not engage in the acquisition,
renovation, management or leasing of any office properties in Los Angeles,
Orange and San Diego Counties in the State of California. In addition,
Executive shall not engage in any active or passive investment in or reasonably
relating to the acquisition, renovation, management or leasing of office
properties in Los Angeles, Orange and San Diego Counties in the State of
California for a period of one year following the date of termination, with the
exception of the ownership of up to one percent of the securities of any
publicly-traded companies involved in such activities. Nothing herein shall
relieve or limit Executive's obligation to comply with Sections 6 and 7. The
restrictions set forth in this Section 8 shall not apply if Executive's
employment is terminated pursuant to Section 5.1, 5.4 or 5.6.
9. INDEMNIFICATION
To the fullest extent permitted under applicable law, the Company shall
indemnify, defend and hold Executive harmless from and against any and all
causes of action, claims, demands, liabilities, damages, costs and expenses of
any nature whatsoever (collectively, "Damages") directly or indirectly arising
out of or relating to Executive discharging Executive's duties hereunder on
behalf of the Company, the General Partner and/or their respective subsidiaries
and affiliates, so long as Executive acted in good faith within the course and
scope of Executive's duties with respect to the matter giving rise to the claim
or Damages for which Executive seeks indemnification.
10. GENERAL PROVISIONS
10.1 ASSIGNMENT; BINDING EFFECT. Neither the Company nor Executive may
assign, delegate or otherwise transfer this Agreement or any of their respective
rights or obligations hereunder without the prior written consent of the other
party. Any attempted prohibited assignment or delegation shall be void. This
Agreement shall be binding upon and inure to the benefit of any permitted
successors or assigns of the parties and the heirs, executors, administrators
and/or personal representatives of Executive.
10.2 NOTICES. All notices, requests, demands and other communications
that are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method with electronic confirmation of receipt; the day after it is sent, if
sent for next-day delivery to a domestic address by recognized overnight
delivery
9
<PAGE>
service (E.G., FEDEX); and upon receipt, if sent by certified or registered
mail, return receipt requested. In each case notice shall be sent to:
If to the Company: Arden Realty Group, L.P.
9100 Wilshire Boulevard
East Tower, Suite 700
Beverly Hills, CA 90212
Attention: President
Facsimile: (310) 274-6218
If to Executive: Diana M. Laing
7424 Summit View Drive
Irving, Texas 75063
Any party may change its address for the purpose of this Section 10.2 by
giving the other party written notice of its new address in the manner set forth
above.
10.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties, and supersedes all prior agreements, understandings and
negotiations, whether written or oral, between the Company and Executive with
respect to the employment of Executive by the Company.
10.4 AMENDMENTS; WAIVERS. This Agreement may be amended or modified, and
any of the terms and covenants may be waived, only by a written instrument
executed by the parties hereto, or, in the case of a waiver, by the party
waiving compliance. Any waiver by any party in any one or more instances of any
term or covenant contained in this Agreement shall neither be deemed to be nor
construed as a further or continuing waiver of any such term or covenant of this
Agreement.
10.5 PROVISIONS SEVERABLE. In case any one or more provisions of this
Agreement shall be invalid, illegal or unenforceable, in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not, in any way, be affected or impaired thereby. If any provision
hereof is determined by any court of competent jurisdiction to be invalid or
unenforceable by reason of such provision extending the covenants and agreements
contained herein for too great a period of time or over too great a geographical
area, or being too extensive in any other respect, such provision shall be
interpreted to extend only over the maximum period of time and geographical
area, and to the maximum extent in all other respects, as to which it is valid
and enforceable, all as determined by such court in such action.
10
<PAGE>
10.6 ATTORNEY'S FEES. If any legal action, arbitration or other
proceeding, is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach or default in connection with any of the provisions of
this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs incurred in that action or proceeding, including
any appeal of such action or proceeding, in addition to any other relief to
which that party may be entitled.
10.7 GOVERNING LAW. This Agreement shall be construed, performed and
enforced in accordance with, and governed by the laws of the State of California
without giving effect to the principles of conflict of laws thereof.
10.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
THE COMPANY: EXECUTIVE:
ARDEN REALTY GROUP, L.P., a
Maryland limited partnership
By: ARDEN REALTY GROUP, INC., ---------------------------
a Maryland corporation Diana M. Laing
Its General Partner
By:
------------------------
Victor J. Coleman
President and
Chief Operating Officer
<PAGE>
EXHIBIT 10.10
AMENDMENT AND RESTATEMENT OF LEASE
By
MARJORIE FLEMING HUTCHINSON
and GEORGE ADAIR FLEMING,
As Landlord
And
CROW PARKADE,
a Texas limited partnership,
As Tenant
Dated as of October 1, 1980
<PAGE>
TABLE OF CONTENTS
Article Page
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I Leased Premises 2
II Term 4
III Rent 4
IV Utilities and Taxes 7
V Condition of Title 10
VI Use 11
VII Maintenance of Premises 12
VIII Construction of Improvements 12
IX Leasehold Mortgage 16
X Public Liability and Insurance 24
XI Fire Insurance and Destruction of Premises 26
XII Default by Tenant 31
XIII No Merger 34
XIV Estoppel Certificates 34
XV Eminent Domain 35
XVI Litigation 40
XVII Subletting and Assignment 41
XVIII Landlord's Right of Entry 42
XIX Waiver by Landlord 42
XX Notice 43
XXI Surrender of Possession by Tenant 44
XXII Memorandum of Lease 45
XXIII Conveyance by Landlord; Right of
First Refusal 45
i.
<PAGE>
Article Page
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XXIV Option to Purchase 47
XXV Time of the Essence; Binding Effect 50
XXVI Appraisal 50
XXVII Quiet Enjoyment 52
XXVIII Miscellaneous 53
ii.
<PAGE>
AMENDMENT AND RESTATEMENT OF LEASE
This Amendment and Restatement of Lease is entered into as of October
1, 1980, by MARJORIE FLEMING HUTCHINSON, dealing with her separate property as
to an undivided one-half interest, and GEORGE ADAIR FLEMING, dealing with his
separate property as to an undivided one-half interest (collectively,
"Landlord"), and CROW PARKADE, a Texas limited partnership ("Tenant"), with
respect to the following facts:
A. On September 18, 1970, Landlord entered into a lease with Evan V.
Jones ("Jones"), as tenant, with respect to the real property hereinbelow
described. Such lease was recorded in the Office of the Recorder of San Diego
County, California, on January 3, 1980, under Recorder's File Number 80-001307.
B. Pursuant to an assignment executed by Jones and Sally Jones
recorded in the Office of the Recorder of San Diego County, California, on
January 13, 1975, under Recorder's File Number 75-008249, Jones assigned his
rights and obligations under such lease to Metropolitan Garages, Inc., a
California corporation ("Metropolitan Garages"). Pursuant to an assignment
executed by Metropolitan Garages recorded in the Office of the Recorder of San
Diego County, California, on December 31, 1979, under Recorder's File
<PAGE>
Number 79-544364, Metropolitan Garages assigned its rights and obligations under
such lease to Tenant.
C. The parties now desire to further amend and completely restate
such lease, effective as of October 1, 1980. Such lease, as amended and
restated hereby, is referred to herein as "this Lease."
NOW, THEREFORE, such lease, as heretofore amended, modified and
assigned, is hereby amended and restated in its entirety, effective as of
October 1, 1980, by this instrument (which, as of such date, supersedes entirely
the provisions of such lease as heretofore amended and modified), to read in
full as follows:
ARTICLE I
LEASED PREMISES
(a) Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the following described real property:
Lot D in Block 20 of Horton's Addition to the City of San Diego, in
the City of San Diego, County of San Diego, State of California,
according to the official map thereof on file in the Office of the
County Recorder of said county,
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together with all easements, rights and appurtenances in connection
therewith or thereunto belonging (the "Land").
(b) The term "Improvements" shall mean all buildings, structures and
improvements now existing or hereafter constructed on the Land during the term
of this Lease and any addition, restoration or replacement of such buildings,
structures or improvements. The Land and the Improvements, together with all
such easements, rights and appurtenances are referred to herein collectively
as the "Premises."
(c) It is contemplated that certain improvements to be constructed
upon the Land will tie in with, be used in connection with, or form part of an
office building, a parking garage and/or related improvements located or to be
located on certain adjacent land. The improvements on such adjacent land
together with any restoration, addition to or replacement thereof are
hereinafter collectively referred to as the "Adjacent Improvements." The term
"Improvements" shall mean only those improvements or portion thereof actually
located on the Land and shall not include any of the Adjacent Improvements,
notwithstanding the fact that the Adjacent Improvements may tie in with, be
used in connection with, or form a part of the buildings, structures and/or
other improvements existing on the Land. Landlord shall have no interest
whatsoever in or with respect to any of the Adjacent Improvements.
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<PAGE>
ARTICLE II
TERM
The term of this Lease commenced as of October 1, 1970, and shall end
September 30, 2069, at midnight, unless sooner terminated as hereinafter
provided. Notwithstanding the foregoing, for all purposes of this Amendment and
Restatement of Lease, the term shall be deemed to have commenced as of October
1, 1980.
ARTICLE III
RENT
(a) Tenant agrees to pay a basic monthly rental of $1,443. 60,
subject to adjustment as hereinafter provided, for use and occupancy of the
Premises, in advance, on or before the first day of each and every calendar
month during the term hereof, without demand, setoff or deduction, in lawful
money of the United States of America. One-half of the rent shall be paid to
Marjorie Fleming Hutchinson, her heirs, legatees, successors and assigns, or as
she directs in writing, and the other half shall be paid to George Adair
Fleming, his heirs, legatees, successors and assigns, or as he directs in
writing. Rent shall be paid to such persons at the respective addresses therefor
set forth in Article XX hereof or such other address as may from time to time be
designated by Landlord pursuant to this Lease. Any rent payable hereunder with
respect to any
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portion of a month shall he prorated by multiplying the monthly rental by a
fraction, the numerator of which is the number of days of such month in which
this Lease is in effect and the denominator of which is the total number of days
in such month.
(b) At the beginning of the second Lease Year (as hereinafter
defined) and the beginning of each Lease Year thereafter, the basic rental set
forth in paragraph (a) above shall be adjusted in accordance with changes in the
Consumer Price Index published by the Bureau of Labor Statistics of the United
States Department of Labor for Urban Wage Earners and Clerical Workers ("all
items") for the Los Angeles-Long Beach-Anaheim metropolitan area (the "Price
Index"). The rental adjustment shall be made in accordance with the following
provisions:
(i) The Price Index for the month of August, 1980 shall be
designated the "Base Price Index."
(ii) At the beginning of the second Lease Year and the
beginning of each Lease Year thereafter, the rental shall be adjusted so that
the ratio of the Price Index for the month of August immediately preceding the
first month of such Lease Year to the adjusted rental shall be the same as the
ratio of the Base Price Index to the basic rental set forth in paragraph (a)
above.
Notwithstanding the foregoing, (i) no such adjustment shall reduce the annual
rental below the basic rental set forth in
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<PAGE>
paragraph (a) above, and (ii) increases shall be made only to the extent which
would result in an increase of the rental for any Lease Year not in excess of
15% over the rental for the prior Lease Year.
As used herein, the term "Lease Year" shall mean the 12-month period
ending September 30, 1981 and each succeeding 12-month period thereafter.
In the event that the Price Index shall hereafter be converted to a
different standard reference base or otherwise revised the determination of the
rental adjustment described above shall be made with the use of such conversion
factor, formula or table for converting the Price Index as may be published by
the Bureau of Labor Statistics or, if such Bureau shall not publish the same,
then with the use of such conversion factor, formula or table as may be
published by Prentice Hall, Inc. or failing such publication, by any other
nationally recognized publisher of similar statistical information. In the
event that the Price Index shall cease to be published, there shall be
substituted for the Price Index such other index as Landlord and Tenant shall
agree upon, and, if they are unable to agree within 90 days after the Price
Index ceases to be published, such matter shall be determined in the City of Los
Angeles by arbitration in accordance with the Rules of the American Arbitration
Association.
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<PAGE>
Landlord shall furnish Tenant as soon as available during each Lease Year a
billing statement stating the increase in the rental pursuant to the adjustment
described above and setting forth the computation of such adjustment.
ARTICLE IV
UTILITIES AND TAXES
It is the intention of the parties to this Lease that the rent to be
paid hereunder by Tenant shall be absolutely net to Landlord, without any
deduction or expense whatsoever to Landlord. Tenant agrees to pay, before the
same become delinquent, all charges for gas, electricity, heat, light, power,
sewerage, water, telephone and other similar or dissimilar public services
or commodities furnished to the Premises during the term of this Lease,
including all installation, connection and disconnection charges. Tenant
further agrees to pay before the same become delinquent, all taxes and
assessments of whatsoever kind or nature which may be imposed upon the Land or
any improvements, facilities or personal property thereon, including all so-
called special assessments, and every other charge, lien or expense accruing or
payable during the term of this Lease in connection with the Premises, and also
all taxes, license fees or charges on account of any use which may be made of
the Premises or any activity thereon during the term hereof. Tenant may pay
taxes or assessments in
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<PAGE>
installments when allowed by applicable law. Tenant shall furnish to Landlord
promptly when available official receipts of the appropriate taxing authority,
or other proof satisfactory to Landlord, evidencing the payment of all taxes,
assessments or like charges required to be paid by Tenant. If at any time
during the term of this Lease any tax or excise on rents or other tax, however
described, is levied or assessed by any authority, federal, state or local,
against Landlord on account of rent reserved hereunder as a substitute in whole
or in part for taxes on land or buildings, Tenant likewise shall pay and
discharge such tax or excise to the extent that it is assessed or imposed as a
direct result of Landlord's ownership of the Premises or of rentals accruing
under this Lease. Nothing in this Lease contained shall require Tenant to pay
any franchise, estate, gift, inheritance, succession, capital levy or transfer
tax of Landlord or any income, excess profits or revenue tax or any other tax,
assessment, charge or levy upon the rent payable by Tenant under this Lease
except to the extent provided in the preceding sentence.
All taxes or assessments for any fraction of a tax fiscal year at the
end of the term hereof, as the same may be extended or renewed, shall be
appropriately prorated between the parties.
Tenant shall have the right to dispute in good faith the legality or
amount of any tax or assessment by
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<PAGE>
appropriate legal proceedings, provided that Tenant shall pay such tax or
assessment promptly upon a final determination of the legality or amount
thereof, shall protect Landlord and the Premises against any sale for nonpayment
thereof, and shall furnish to Landlord on demand such bond or other security as
shall be reasonably satisfactory to Landlord in an amount not exceeding 110% of
the total amount of the tax assessment in dispute. Landlord shall, upon the
written request of Tenant, join in any such proceedings, provided that it is
necessary for Landlord to do so in order for Tenant to maintain properly such
proceedings and provided that Tenant indemnifies Landlord against all
expenses incurred in such proceedings.
If, except as provided in the foregoing paragraph, Tenant shall fail
to pay prior to delinquency any amount required hereby to be paid by Tenant,
Landlord, provided it shall have first given Tenant and any Leasehold Mortgagee,
as defined in Article IX, notice of such failure and such payment shall not have
been made within 30 days after such notice, may, but shall not be required to,
pay the same together with any and all interest and penalties, in which case the
amount so paid by Landlord together with interest thereon at the rate of 8% per
annum shall be immediately due and payable by Tenant to Landlord as additional
rent hereunder. The certificate, advice or bill of the payment of any tax,
assessment or charge shall be prima facie evidence
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<PAGE>
as between Landlord and Tenant that such tax, assessment or charge is due and
unpaid at the time of the making or issuance of such certificate, advice or
bill.
ARTICLE V
CONDITION OF TITLE
The Premises are leased hereby subject to existing municipal
ordinances and regulations, restrictions, rights of way and easements of record,
real estate taxes for the current tax fiscal year, and all street, lighting and
other special assessments; otherwise Landlord warrants title to the Land and the
Premises to be free of all liens and and encumbrances at the commencement of
the term hereof.
ARTICLE VI
USE
Tenant shall have the right to use the Premises for any lawful
purpose. Tenant agrees not to do or suffer any affirmative or permissive waste
upon the Land nor use nor permit to be used any part of the Premises for any
dangerous, noxious, unlawful or offensive trade or business and will not cause,
maintain or permit any nuisance in, at or on the Premises.
Tenant shall have the right to contest by appropriate proceedings
diligently conducted in good faith
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<PAGE>
without cost or expense to Landlord, the validity or application of any law,
ordinance, order, rule, or regulations of the nature referred to in this
Article. If compliance with any such law, ordinance, order, rule, or regulation
may legally be delayed pending the prosecution of any such proceeding without
the incurrence of any lien, charge or liability of any kind against the Premises
or Tenant's interest therein and without subjecting Tenant or Landlord to any
liability, civil or criminal, for failure so to comply therewith, Tenant may
delay compliance therewith until the final determination of such proceeding.
Even if such lien, charge or civil liability would be incurred by reason of any
such delay, Tenant may contest as aforesaid and delay as aforesaid, provided
that such contest or delay does not subject Landlord to criminal liability,
damages or expense and provided that Tenant (i) furnishes to Landlord security
reasonably satisfactory to Landlord against any loss or injury by reason of such
contest or delay, and (ii) prosecutes the contest with due diligence.
Landlord shall, upon the written request of Tenant, join in any such
proceedings referred to in this Article, or permit the same to be brought in its
name, provided that it is necessary for Landlord to do so in order for Tenant to
maintain properly such proceedings and provided that Tenant shall pay all
expenses in connection therewith, and indemnify Landlord against all costs and
expenses
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<PAGE>
arising therefrom. Tenant may delegate the right to bring any such proceedings
to any person or entity having interest in the Premises or any part thereof.
ARTICLE VII
MAINTENANCE OF PREMISES
Tenant agrees that it will at its own expense throughout the entire
term of this Lease maintain the premises in a clean, safe, sanitary and sightly
condition and in good repair, reasonable wear and tear excepted. Tenant further
agrees to make at its own expense any and all additions, alterations or changes
in the Premises which may at any time be required by any lawful authority.
Tenant agrees that, except as may be expressly provided in this Lease, no
destruction of or damage to the Improvements at any time located upon the Land
shall cause the termination of this Lease or give Tenant any right to terminate
this Lease.
ARTICLE VIII
CONSTRUCTION OF IMPROVEMENTS
Tenant shall have the right to grade, fill or otherwise alter the
contour of the Land and to construct, place, demolish, remodel, repair, remove
and alter any Improvements thereon from time to time as Tenant deems fit (all of
which operations are referred to as "work" in this
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<PAGE>
Article), it being understood and agreed that such Improvements may tie in with,
be used in connection with and/or form a part of improvements to be located on
adjacent land as described in Article I(c) above, on the following terms and
conditions:
(a) Before commencing any work on the Premises, the total cost of
which including all related contracts can reasonably be expected to exceed
$5,000, Tenant shall notify Landlord in writing of its intention to perform
such work, specifying the intended commencement date thereof, not less than
ten days prior to commencement thereof, in order to enable Landlord to post
notices of nonresponsibility.
(b) In the case of any work, including all related contracts, the
total cost of which can reasonably be expected to exceed $10,000, before
commencing such work Tenant shall furnish Landlord, without cost to
Landlord, either (1) a contract indemnity bond issued by a recognized and
reputable bonding corporation doing business in the State of California,
indemnifying Landlord against any loss resulting from the failure of Tenant to
complete or cause to be completed such work in accordance with the terms of
this Lease or (2) such other security as shall be reasonably satisfactory to
Landlord.
(c) Tenant shall cause all work to be performed in a good, workmanlike
and first class manner and in accordance with all applicable laws and
regulations, shall obtain
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<PAGE>
all necessary permits before commencing or permitting the commencing of any
work, shall protect adjacent property against damage resulting from the
performance of any work, and Landlord shall join in the application for such
permits or authorizations whenever such action is necessary, provided,
however, that Landlord shall not incur and Tenant hereby indemnifies and agrees
to hold harmless Landlord against and from, any liability or expense in
connection therewith, and shall indemnify and hold Landlord and the Premises
harmless against any and all liens or liability in any way arising out of the
performance of work or the furnishing of labor, skill, materials or power in
connection therewith. Tenant shall have the right to contest any claim of lien
in good faith by appropriate judicial or arbitration proceedings, provided that
Tenant protects the Premises against foreclosure thereof or sale thereunder,
pays any amount finally determined to be due promptly upon such final
determination being made, and provides Landlord, during the time that Tenant is
contesting such claim, with an indemnity bond or other security reasonably
satisfactory to Landlord in an amount not exceeding 110% of the claim. If
Tenant shall fail to perform as required in this Article, Landlord, provided it
shall have first given Tenant and any Leasehold Mortgagee, as defined in Article
IX, notice of such failure and such failure shall not have been cured within 30
days after such notice (or if not curable within such 30-day
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<PAGE>
period, such Tenant or Leasehold Mortgagee shall not be proceeding diligently to
effect such cure), may, but shall not be required to pay the amount of any such
lien or claim together with any and all interest, costs and penalties in
connection therewith, and the amount so paid with interest at 8% per annum shall
become immediately due and payable by Tenant to Landlord as additional rent
hereunder.
(d) Tenant shall have title during the term of this Lease to all
Improvements made by it. All Improvements shall, at the expiration or prior
termination of the term hereof, automatically be and become the property of the
owners of the fee interest in the Land without the payment of any consideration
therefor, and without the necessity of any bill of sale; provided that if any of
the Improvements shall at that time tie in with, be used in connection with or
form a part of the Adjacent Improvements, then after the expiration or prior
termination of the term hereof Tenant shall have the obligation either to
demolish the Improvements and remove all debris resulting from such demolition
and restore the Land as nearly as practicable to its condition as it generally
existed prior to the construction of the Improvements, at Tenant's own expense
and provided such demolition can be undertaken under, and that such work shall
be conducted in accordance with, all applicable laws and governmental
regulations, or to purchase the Land in accordance with Article XXIV hereof
(disregarding the time period
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set forth therein for Tenant's exercise of the option to purchase) as if Tenant
had exercised its option to purchase the Land pursuant to such Article.
ARTICLE IX
LEASEHOLD MORTGAGE
Tenant shall have the right without Landlord's prior consent at any
time and from time to time during the term of this Lease to encumber Tenant's
leasehold interest hereunder and its interest in the Improvements with a
mortgage or deed of trust ("Leasehold Mortgage"), including in connection
therewith an assignment of the leasehold interest hereunder, in favor of any
insurance company, bank, trust company, savings and loan association, or other
institutional lender, or pension fund, welfare fund, retirement fund, endowment
fund, fraternal organization, college, university or charitable organization, or
any combination thereof ( "Leasehold Mortgagee" ) . No Leasehold Mortgage shall
create a lien upon the fee of the Land or upon Landlord's interest therein. It
is agreed between Landlord and Tenant, in the event any Leasehold Mortgage is
given by Tenant, as follows:
(a) If Tenant or any Leasehold Mortgagee shall have delivered to
Landlord prior written notice of the address of any Leasehold Mortgagee,
together with a copy of the Leasehold Mortgage, Landlord will mail to the
Leasehold
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Mortgagee a copy of any notice or other communication from Landlord to Tenant
under this Lease at the time of giving such notice or communication to Tenant,
and no termination of this Lease, or of Tenant's right to possession of the
Premises or any reletting of the Premises by Landlord predicated on the giving
of such notice, shall be effective unless Landlord gives to the Leasehold
Mortgagee written notice, or a copy of its notice to Tenant, of such termination
at the time of service of such notice upon Tenant. All notices and written
communications between Landlord and the Leasehold Mortgagee shall be mailed by
certified or registered mail, postage prepaid, return receipt requested.
(b) In the event of any default by Tenant under any of the provisions
of this Lease, the Leasehold Mortgage, will have the same grace period as is
given Tenant for remedying such default or causing it to be remedied, if any,
plus, in each case, an additional period of 30 days after the expiration thereof
or after Landlord has served notice, or a copy of its notice to Tenant, of such
default upon the Leasehold Mortgagee, whichever is later.
(c) In the event Tenant defaults under any of the provisions of this
Lease, irrespective of whether the same consists of a failure to pay rent or a
failure to do any other thing which Tenant is required to do hereunder, the
Leasehold Mortgagee, without prejudice to any of its rights against Tenant,
shall have the right to cure such default
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hereunder within the applicable grace period provided for in the preceding
subparagraph (b), and Landlord shall accept such performance on the part of the
Leasehold Mortgagee as though the same had been performed by Tenant; and for
such purpose Landlord and Tenant hereby authorize the Leasehold Mortgagee to
enter upon the Premises and to exercise any of Tenant's rights and powers under
this Lease.
(d) The term "Incurable Default" as used herein means a default which
cannot reasonably be cured by a Leasehold Mortgagee by the payment of money or
within the time period allowed for the cure of such default. The term "Curable
Default" means any default under this Lease which is not an Incurable Default.
In the event of any Curable Default by Tenant under any of the provisions of
this Lease and if prior to the expiration of the applicable grace period the
Leasehold Mortgagee shall give Landlord written notice that it intends to
undertake the curing of such default, or to cause the same to be cured, or to
exercise its rights to acquire the interest of Tenant in the Lease by
foreclosure or otherwise, and shall immediately commence and then proceed with
all due diligence to do so, whether by performance on behalf of Tenant of its
obligations under this Lease or by entry on the Premises by foreclosure or
otherwise, then Landlord will not terminate or take any action to effect a
termination of this Lease or
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reenter, take possession of or relet the Premises or otherwise enforce
performance of this Lease so long as the Leasehold Mortgagee is with all due
diligence and in good faith engaged in effecting such foreclosure or in the
curing of such default, and so long as any monetary defaults are cured by the
Leasehold Mortgagee in the event of such foreclosure and the Leasehold Mortgagee
continues to fulfill any monetary obligations of Tenant hereunder within the
time periods provided to Tenant hereunder, provided that the Leasehold Mortgagee
shall not be required to cure or commence to cure any lien, charge or
encumbrance against Tenant's interest in the Premises which is junior in pri-
ority to the lien of the Leasehold Mortgage, and provided further that the
Leasehold Mortgagee shall not be required to continue such possession or
continue such foreclosure proceedings after such default is cured and this Lease
shall thereupon continue in full force and effect as though Tenant had not
defaulted. In the event the nature of any Curable Default is such that the
Leasehold Mortgagee must take possession of the Premises in order to cure such
default, the running of all applicable grace periods shall be tolled so long as
the Leasehold Mortgagee is diligently attempting to obtain such possession.
Nothing herein shall preclude Landlord from terminating this Lease with respect
to any additional default which may occur during the aforesaid period of
forbearance and is not remedied within the period
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of grace, if any, applicable to any such additional default, except that the
Leasehold Mortgagee shall have the same rights specified in this paragraph with
respect to any such additional defaults.
(e) In the event of termination of this Lease by reason of either an
Incurable Default or a Curable Default or in the event Tenant's interest under
this Lease shall be sold, assigned or transferred pursuant to the exercise of
any remedy of the Leasehold Mortgagee, or pursuant to judicial proceedings, and
in the event that within 30 days thereafter the Leasehold Mortgagee shall have
paid, or arranged to the reasonable satisfaction of Landlord to cure any
Curable Default of Tenant under this Lease, then Landlord, within 30 days after
receiving a written request therefor from the Leasehold Mortgagee, which shall
be given within 60 days after the Leasehold Mortgagee receives notice of such
termination or within 60 days of such transfer and upon payment to Landlord of
all expenses, including reasonable attorneys' fees, incident thereto (less the
net income of Landlord from the date of termination to the date of commencement
of the term of the new lease, "net income" for purposes hereof being defined as
all rents and revenues hereunder or from the Premises collected by Landlord
during such period less all expenses relating to the Premises paid by
Landlord during such period), will execute and deliver to the Leasehold
Mortgagee or its nominee or to the purchaser,
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assignee or transferee, as the case may be, a new lease of the Premises. In
the event that there is more than one Leasehold Mortgagee at the time such new
lease is to be executed and delivered, the Leasehold Mortgagee which is
first in lien priority shall be entitled to such new lease. Such new lease
shall be for a term equal to the remainder of the term of this Lease before
giving effect to such termination, shall contain the same covenants,
agreements, provisions, conditions and limitations as this Lease, shall be
superior to all rights, liens and interests intervening between the date of
this Lease and the date of such new lease, and shall be free of any and all
rights of Tenant under this Lease. Upon the execution and delivery of such new
lease, the new tenant, in its own name or in the name of Landlord, may take all
appropriate and lawful steps as may be necessary to remove Tenant from the
Premises, but Landlord shall not be subject to any liability for the payment of
any fees (including attorneys' fees), costs or expenses in connection
therewith, nor shall the execution and delivery of the new lease by Landlord be
construed as a guaranty that the Leasehold Mortgagee or the new tenant properly
obtained the leasehold estate of Tenant. The new tenant shall pay all such
fees, including reasonable attorneys' fees, costs and expenses or, on
demand, make reimbursement therefor to Landlord. In such event the ownership
of all Improvements shall be deemed to have been transferred
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directly to such transferee of Tenant's interest in this Lease and the
provisions of Section (b) of Article VIII hereof causing such Improvements to
become the property of Landlord in the event of a termination of this Lease
shall be ineffective as applied to any such termination. Landlord shall
execute such deed or other instrument of conveyance as may be necessary for
title to the Improvements to be insured in such transferee of Tenant's
interest. Any new lease made pursuant to this Article shall be prior to any
mortgage or other lien, charge or encumbrance on the fee of the Land created by
Landlord. All liens, charges or other encumbrances on the fee of the Land
created by Landlord shall contain express provisions to the effect that (i)
such lien, charge or encumbrance shall be subordinate to any such new lease,
and (ii) the mortgagee or other beneficiary thereof shall, upon request,
confirm to the tenant under the new lease and any Leasehold Mortgagee such
subordination.
(f) In the event a default under the Leasehold Mortgage shall have
occurred, the Leasehold Mortgagee may exercise with respect to the Premises any
right, power or remedy under the Leasehold Mortgage which is not in conflict
with any of the provisions of this Lease.
(g) There shall be no merger of the leasehold estate created under
this Lease with the fee estate in the Premises by reason of the fact that the
leasehold estate may be held directly or indirectly by or for the account of
any person who shall also hold the fee estate, or any interest
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in such fee estate, nor shall there be any such merger by reason of the fact
that all or any part of the leasehold estate may be conveyed or mortgaged to a
Leasehold Mortgagee who shall also hold the fee estate, or any part thereof,
or any interest of Landlord or Tenant under this Lease.
(h) No acceptance by Landlord of a voluntary surrender of this
Lease, or any amendment or modification of this Lease, shall be effective or
binding unless the written consent of any Leasehold Mortgagee is first
obtained. The exercise by Landlord of any right of termination pursuant and
subject to the terms of this Lease, however, shall not be deemed a "voluntary
surrender," nor shall anything herein require that Landlord obtain the consent
of any Leasehold Mortgagee before commencing any action or proceeding based
upon default hereunder by Tenant, provided that Landlord shall have given
prior notice thereof to the Leasehold Mortgagee
(i) Landlord hereby consents to the inclusion of a provision in the
Leasehold Mortgage for the assignment of rents from subtenants of the Premises
to the Leasehold Mortgagee.
(j) This Lease may be assigned by an assignment in lieu of
foreclosure of a Leasehold Mortgage or pursuant to a foreclosure sale or sale
pursuant to power of sale under a Leasehold Mortgage and may be further
assigned by the assignee or purchaser without the prior consent of
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Landlord, provided the assignee assumes Tenant's obligations under this Lease
and an executed counterpart of such assumption is delivered to Landlord. If
the Leasehold Mortgagee or any insurance company, bank or similar lending
institution shall be the assignee of this Lease, its liability under such
assumption agreement shall be limited to the period it is in possession or
ownership of the leasehold estate created hereby, provided that the party to
whom this Lease is assigned by the Leasehold Mortgagee or such insurance
company, bank or lending institution executes and delivers to Landlord at the
time of such assignment a like assumption agreement, and provided that the
assignee of such Leasehold Mortgagee, insurance company, bank or lending
institution has a net worth exceeding $1,000,000.
(k) In the event of any inconsistency between the provisions of this
Article and any other provisions of this Lease, the provisions of this Article
shall supersede such other inconsistent provisions to the extent of such
inconsistency.
ARTICLE X
PUBLIC LIABILITY AND INSURANCE
This Lease is made upon the express condition that Landlord is to be
free from all liability and claims for damages by reason of any injury to any
person or persons, including Tenant, or property of any kind whatsoever and to
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whomsoever belonging, including Tenant's property, from any cause or causes
whatsoever, in, upon, or in any way connected with the Premises or the
sidewalks, streets, alleys, parking lots, and premises adjacent thereto or the
use or occupancy thereof during the term of this Lease or any extension hereof
or any occupancy hereunder, Tenant hereby covenanting and agreeing to indemnify
and save harmless Landlord from all liability, loss, cost and obligations on
account or arising out of any such injuries or losses, however occurring.
Notwithstanding the foregoing, Tenant shall not be obligated to indemnify
Landlord against the results of wrongful acts or omissions of Landlord or
Landlord's employees or agents. Tenant agrees to maintain during the term
hereof, without expense to Landlord, comprehensive general liability insurance
in the name of Tenant naming Landlord (and if required by any Leasehold
Mortgage, the Leasehold Mortgagee) as an additional assured on an "occurrence
basis" against claims for "personal injury", including without limitation,
bodily injury, death or property damage upon, in or about the Premises in an
amount not less than $200,000 to indemnify against the claim of one person and
not less than $500,000 against the claims of two or more persons, and not less
than $100,000 for damage to property, or such greater amounts as may from time
to time be carried by owners of similar properties in the same area. True
copies of said policies or certificates thereof showing the premium thereon to
have been paid shall
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be delivered to Landlord upon request. All such policies shall provide that
they shall not be cancelable by the insurer without first giving at least ten
days written notice to Landlord. In the event Tenant fails to procure and
keep in force such insurance, Landlord, provided it shall have first given
Tenant and any Leasehold Mortgagee notice of such failure and such failure
shall not have been cured within 30 days after such notice, may procure it, and
the cost thereof with interest at 8% per annum shall be payable by Tenant to
Landlord as additional rent hereunder on the first day of the month next
following. Any insurance required by this Article or by Article XI may be
provided by a blanket policy.
ARTICLE XI
FIRE INSURANCE AND DESTRUCTION OF PREMISES
(a) Tenant agrees, at Tenant's own expense, to maintain in full
force and effect throughout the entire term of this Lease, insurance against
loss or damage by fire and lightning and against loss or damage by other risks
embraced by coverage of the type now known as the broad form of extended
coverage on all Improvements at any time located on the Land (but specifically
excluding the Adjacent Improvements) with insurance companies licensed to do
business in the State of California and approved by Landlord in amounts
sufficient to prevent Landlord or Tenant from becoming a co-insurer under
the terms of the applicable policies, but in any event in an amount not less
than 100% of the then
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full replacement cost of the Improvements (exclusive of the cost of
excavations, foundations and footings below the lowest basement floor).
Copies of all such insurance policies or certificates thereof endorsed to show
payment of the premium shall be delivered to Landlord upon request. In the
event Tenant at any time fails to procure such insurance or to maintain it in
effect, Landlord, provided it shall have first given Tenant and any Leasehold
Mortgagee notice of such failure and such failure shall not have been cured
within 30 days after such notice, shall have the right, but shall not be
obligated, to procure such insurance and the cost thereof, together with
interest thereon at 8% per annum, shall be paid by Tenant to Landlord as
additional rent hereunder on the first day of the month next following.
(b) In the event of any damage to or destruction of the
Improvements, Tenant promptly shall repair, restore or replace the same so
that after such restoration, repair or replacement, the Improvements are not
less valuable (without considering in determining such valuation the value,
effect or existence of the Adjacent Improvements, if any) than those upon the
Land immediately prior to such damage or destruction, but Tenant shall not be
obligated to expend more than the amount of insurance proceeds available for
the purpose. Tenant shall be entitled to have any proceeds of insurance held
in trust and disbursed as progress payments as the work of repair, restoration
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or replacement progresses, to be used solely for paying for such work, and upon
completion of such work free and clear of liens any remaining balance of such
insurance proceeds shall be paid to Tenant. If Tenant fails to proceed
diligently with the work of such repair, restoration or replacement, and if
Landlord shall have declared Tenant in default hereunder, Landlord shall be
entitled to assume performance of such work and all remaining insurance
proceeds shall be made available to Landlord for such purpose. The provisions
of Article VIII hereof shall be applicable to all work done pursuant to this
Article. Landlord shall have no interest whatsoever in any insurance
proceeds with respect to any damage to any Adjacent Improvements.
(c) Notwithstanding the foregoing, if the Improvements are damaged
or destroyed by casualty occurring during the last five years of the term of
this Lease to such an extent that the cost of repairing, replacing or restoring
the same would amount to 25% or more of the fair market value of the
Improvements immediately prior to such damage or destruction, then Tenant may
terminate this Lease at its option by giving written notice thereof to Landlord
not later than 60 days after the occurrence of such damage or destruction;
provided that, if any Leasehold Mortgage is then in effect with respect to the
Premises, the written consent of the Leasehold Mortgagee shall be required as a
condition to the effectiveness of such termination. All
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insurance proceeds payable by reason of such damage or destruction shall be
paid to Landlord, subject to the rights of any Leasehold Mortgagee.
(d) Each policy of insurance required to be furnished pursuant
to this Article XI shall contain an agreement by the insurer that such policy
shall not be canceled without at least 20 days prior notice by registered or
certified mail to Landlord and to any Leasehold Mortgagee.
(e) All policies of insurance required to be furnished by Tenant
pursuant to this Article XI may have attached thereto the Lender's Loss Payable
Endorsement (Form 438BFU NS) or its equivalent, for the benefit of any
Leasehold Mortgagee.
(f) All policies of insurance provided for in this Article XI shall
provide for loss thereunder to be payable to the Leasehold Mortgagee, so long
as Metropolitan Life Insurance Company is the Leasehold Mortgagee, or to a
California bank or trust company selected by Tenant and Leasehold Mortgagee
(subject to Landlord's reasonable approval), as trustee (hereinafter
referred to as the "Insurance Trustee") in the event Metropolitan Life
Insurance Company is not the Leasehold Mortgagee, to be disbursed by
Metropolitan Life Insurance Company or the Insurance Trustee, as the case may
be, as provided below. Any and all charges of any Insurance Trustee (other
than Metropolitan Life Insurance Company) shall be paid by Tenant.
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(g) If the proceeds of any insurance policies provided for in this
Article XI are paid to the Insurance Trustee, the following provisions shall be
applicable, subject to the terms of any Leasehold Mortgage:
(i) The Insurance Trustee is hereby made and constituted
a trustee to hold such proceeds and to deposit such proceeds in its
own banking department or elsewhere, at its sole discretion, and to
pay out such proceeds as provided in this Lease. The Insurance
Trustee shall not be obligated hereunder in any manner except to
receive and pay out any money that is received by it as such
trustee, together with such interest, if any, as is paid by the
Insurance Trustee at the time upon like trusts of like amount. As
between Landlord and Tenant, such interest on trust funds shall
be deemed to be the income of the Tenant, to be held by the
Insurance Trustee subject to the terms and conditions of the trust.
Tenant shall pay all taxes upon such income and indemnify
Landlord against and agrees to save Landlord harmless from all
liability, loss, cost, damage or expense, including
reasonable attorneys' fees, in connection therewith. The
Insurance Trustee (provided it is not Metropolitan Life Insurance
Company) is authorized to retain from the trust fund the necessary
expenses incidental to the collection of any such funds, and a
reasonable amount for its services in connection with the trust.
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(ii) All insurance money received by the Insurance
Trustee shall be held by the Insurance Trustee to secure the
performance by Tenant of its obligation under this Lease to repair,
replace or reconstruct any Improvements that have been damaged or
destroyed, or to pay any rent or debt charges hereunder.
(iii) As Tenant proceeds with the work of repair or
reconstruction of the Property, the insurance money held by
the Insurance Trustee shall be paid in accordance with this Article
XI.
(iv) If any default by Tenant results in the
termination of this Lease as elsewhere provided herein, all
insurance proceeds and all other money or other assets then in said
insurance trust shall be delivered by the Insurance Trustee to
Landlord promptly. If this Lease is terminated for any reason other
than the default of Tenant, the Insurance Trustee shall hold and
dispose of the trust fund in accordance with the instructions of
Landlord, Tenant and any Leasehold Mortgagee subject to the
provisions of Article XI(c) and except as otherwise provided herein.
ARTICLE XII
DEFAULT BY TENANT
Tenant agrees that should default be made hereunder in the payment of rent and
should such default continue for a period of 15 days after written notice
thereof
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to Tenant, or should Tenant fail to faithfully perform or observe any other
agreement or condition herein contained on the part of Tenant to be performed,
and should such default continue for a period of 30 days after written notice
thereof (extended for any period during which Tenant is prevented from curing
it by conditions beyond Tenant's reasonable control), or should the Premises be
vacated or abandoned, then Landlord, subject to the terms and provisions of
Articles IX and XXVII hereof, may at Landlord's option exercise the right:
(a) to terminate this Lease, immediately and without prior
notice, and recover (i) the unpaid rent which had been earned at the time of
termination, plus interest at 10% per annum thereon, (ii) the unpaid rent which
would have been earned during the period from the date of termination until the
time of award, less such rental loss as Tenant proves could have been
reasonably avoided during said period, plus interest at 10% per annum thereon,
(iii) the worth at the time of award of the amount by which the unpaid rent for
the balance of the term after the time of award exceeds the amount of rental
loss that Tenant proves could be reasonably avoided, said excess to be
discounted by the rate specified in Section 1951.2(b) of the California Civil
Code, and (iv) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this
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Lease or which, in the ordinary course of things, would be likely to result
therefrom, including costs of litigation and attorneys' fees, costs of securing
a new tenant, and costs of making the Premises ready for a new tenant. In the
event of any termination, Landlord shall have the option, without notice or
demand, to enter upon and repossess the Premises and remove any personal
property of Tenant from the Premises and store it in any public warehouse at
the risk and expense of Tenant. Tenant hereby waives all claims for damages
which may be caused by the reentry of Landlord and taking possession of the
Premises or removing or storing the furniture and property as herein provided,
and will save Landlord harmless from any loss, costs or damages occasioned
Landlord thereby, and no such reentry shall be considered or construed to be a
forcible entry; or
(b) to continue this Lease in full force and effect, including
Tenant's right to possession and Landlord's right to collect rental as it
becomes due, provided Landlord may, at Landlord's option, elect at any time
thereafter while Tenant remains in default to terminate this Lease, and may
without terminating this Lease, take any action necessary or appropriate,
including entering upon the Premises, to cure any breach, in which event the
reasonable costs to Landlord for such cure, including attorneys' fees, shall
become immediately due and payable by Tenant as additional rental hereunder,
and shall bear interest at the
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rate of 10% per annum. Any installment of rent or other payment which is not
paid when due shall bear interest at the same rate until paid.
In the event of any breach of this Lease, Landlord may pursue any of
the foregoing remedies, or Landlord may consecutively and concurrently
therewith pursue any other remedy or enforce any right to which Landlord may be
by law entitled.
ARTICLE XIII
NO MERGER
No termination of this Lease shall cause a merger of the estates of
Landlord and Tenant, and any termination shall, subject to the rights of any
Leasehold Mortgagee, act as an assignment to Landlord of Tenant's interest in
any sublease then in effect, Landlord agreeing to recognize any sublease then
in effect so long as the sublessee is not in default thereunder.
ARTICLE XIV
ESTOPPEL CERTIFICATES
Each party agrees at any time and from time to time within 15 days
after written request therefor to execute, verify and deliver to the other
party a certificate that this Lease is unmodified and in full force and effect
(or if modified, stating the modifications and that it is in
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full force and effect as so modified), stating the current rate of rent,
stating the date to which rent has been paid, stating whether or not any party
is in default hereunder, and if either party is in default stating in what
particulars, and stating any other matters reasonably requested by the parties
relating to the status of this Lease and the performance of the parties under
this Lease. It is intended that any such certificate may be relied upon by any
prospective purchaser of the fee interest in the Land or assignee of this
Lease, or any person contemplating accepting a lien on the Premises or this
Lease as security. Landlord shall also deliver such certificate if so
requested by any Lease hold Mortgagee.
ARTICLE XV
EMINENT DOMAIN
In the event that at any time or times prior to the termination of
this Lease, the Premises, or any part thereof, shall be condemned or shall be
voluntarily sold for a purpose which, in the absence of such voluntary sale,
the same could be acquired by the purchaser pursuant to condemnation or other
eminent domain proceedings (a "taking"), the rights and obligations of
Landlord and Tenant shall be determined, subject to the rights of any Leasehold
Mortgagee, as follows:
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(a) In the event of a partial taking of the Premises where the
extent of such taking is such that the portion of the Premises remaining is not
unsuitable for Tenant's use, then in such event this Lease shall continue in
full force and effect notwithstanding such taking; provided, however, that if
the portion remaining is not suitable for Tenant's use, Tenant may terminate
this Lease within 30 days after the date of taking by giving written notice
thereof to Landlord, subject to the rights of any Leasehold Mortgagee. In the
event that Tenant terminates this Lease on such 30 days' notice by reason of
such taking, the award therefor shall be distributed as provided in Section (b)
below. In the event that the use or occupancy of the Premises or any part
thereof shall be temporarily requisitioned by any governmental authority, civil
or military, then in such event provided that Tenant is not in default
hereunder (i) this Lease shall continue in full force and effect
notwithstanding such requisition, and (ii) Tenant shall be entitled to receive
for itself the entire net award payable by reason thereof during the remainder
of the term of this Lease. After any such partial taking not involving the
termination of this Lease, or any such requisition, and at its expense, Tenant
shall repair and restore any damage caused by any such taking or requisition in
conformity with the requirements of this Lease so that after the completion of
such restoration the Premises shall be, as
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nearly as possible, in a condition as good as the condition thereof immediately
prior to such taking or requisition. In the event of any such partial taking
the net award therefor after deduction of costs, fees and expenses incurred by
Landlord, Tenant and any Leasehold Mortgagee in the collection thereof shall
be deposited with the Leasehold Mortgagee, if any, or if none, with Landlord.
The Leasehold Mortgagee or Landlord, as the case may be, shall then make
available to Tenant so much of said award as is necessary to effect such
restoration. Upon completion of such restoration, the balance, if any, of the
award then remaining shall be payable, subject to the rights of any Leasehold
Mortgagee, as follows in the following priority:
i) In the event the judgment, order or decree entered in the
condemnation proceedings shall make separate awards to Landlord and Tenant as
compensation for the taking or requisition of their respective interests,
then
(A) first to Landlord up to the amount of its separate
award; and
(B) any amount remaining to Tenant (subject to the terms
of any Leasehold Mortgage), less, however, the amount of any
indebtedness then owing by Tenant to Landlord under the provisions of
this Lease. Such separate awards as determined shall be conclusive and
binding upon Landlord and
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Tenant and any person claiming by, through or under either of them.
(ii) In the event, however, that there shall be a single lump
sum award for the respective interests of Tenant and Landlord taken or
requisitioned as aforesaid, without allocation between the respective interests
of Landlord and Tenant, and subject to the rights of any Leasehold Mortgagee,
then
(A) first to Landlord as compensation for its entire
interest thus taken or requisitioned, the sum equal to the value of
its interest in the Land as encumbered by this Lease to be determined
by Landlord and Tenant with respect to all relevant facts existing at
the time of such taking or requisition, and the reversionary interest
of Landlord in the Improvements, if any. If Landlord and Tenant cannot
agree on such value, the value shall be determined by appraisal in
accordance with the provisions of Article XXVI; and
(B) any amount remaining to Tenant (subject to the terms
of any Leasehold Mortgage), less, however, the amount of any
indebtedness then owing by Tenant to Landlord under the provisions of
this Lease.
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<PAGE>
If, as a result of such taking the area of the Land shall be reduced, then in
such event, from the date of taking, the monthly rent reserved hereunder shall
be reduced in proportion to the ratio that the square footage of the portion
of the Land taken bears to the square footage of the Land prior to such taking.
If the cost of any repairs required to be made by Tenant pursuant to this
Article shall exceed the amount of the net award, the deficiency shall be paid
by Tenant.
(b) In the event of a total taking of the Premises, then this Lease
shall terminate as of the date of such taking. In such event, and in the event
this Lease is terminated on 30 days' notice from Tenant to Landlord upon a
partial taking as provided in Section (a) above, the net collection thereof,
shall be payable in the same manner and priority as provided in subsections (a)
(i) and (a) (ii) of Section (a) above.
(c) For the purposes of this Article, all amounts paid pursuant to
any agreement with any condemning authority which has been made in settlement
of or under threat of any condemnation or other eminent domain proceeding
affecting the Premises shall be deemed to constitute an award made in such
proceeding.
(d) In the event that Tenant's interest under this Lease is subject
to a Leasehold Mortgage, all amounts payable to Tenant pursuant to this Article
shall be paid to
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<PAGE>
the Leasehold Mortgagee to be applied by the Leasehold Mortgagee to restoration
as required of Tenant hereunder, and the balance may be applied in accordance
with the Leasehold Mortgage. Such Leasehold Mortgagee shall have the right to
participate in any condemnation proceedings affecting the Premises.
(e) Landlord shall have no rights whatsoever in any condemnation
award with respect to the Adjacent Improvements or the land on which they are
situated or any easements or other appurtenances with respect thereto;
provided, however, that the foregoing shall not be construed so as to prevent
Landlord from recovering for a loss of other easements or appurtenances in
which Landlord may have an interest.
ARTICLE XVI
LITIGATION
If Landlord is made a party without Landlord's fault to any
litigation brought by or against Tenant, Tenant agrees to pay Landlord's costs,
expenses and reasonable attorneys' fees. In the event of any litigation
between the parties hereto, the prevailing party in such litigation shall be
entitled to recover from the other party its costs, expenses and reasonable
attorneys' fees therein incurred.
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<PAGE>
ARTICLE XVII
SUBLETTING AND ASSIGNMENT
Tenant shall have the right to sublet all or any portion of the
Premises from time to time for terms not extending beyond the expiration date
of this Lease. Tenant also shall have the right to make a voluntary
assignment (other than for the benefit of creditors generally) of this Lease,
provided Tenant is not then in default hereunder, to an assignee who agrees
in a writing duly executed and acknowledged by such assignee and delivered
forthwith to Landlord to abide by and be bound by all terms, covenants and
provisions of this Lease as fully as though such assignee had signed this
Lease in the first instance. No such assignment shall relieve Tenant of any
obligations hereunder unless Landlord shall so agree in writing, but
Landlord shall not withhold such agreement upon a showing that the assignee
has a net worth exceeding $1,000,000. Neither this Lease nor any interest
herein shall be assignable, except as expressly provided herein, whether by
act of law, including bankruptcy, both voluntary and involuntary, or
otherwise, and no trustee, sheriff, creditor or purchaser at any judicial
sale, or any officer of any court or receiver shall acquire any right under
this Lease or to the possession or use of the Premises or any part thereof
without the prior written consent of Landlord. Any violation of the terms of
this Article shall at the option of
-41-
<PAGE>
Landlord be deemed a breach of this Lease. Notwithstanding any of the
foregoing provisions, Tenant may assign its interest in this Lease to
Crow-Met-Parkade, a California partnership to be formed and to be composed of
Crow Parkade, a Texas limited partnership, and Metropolitan Life Insurance
Company, a New York corporation.
ARTICLE XVIII
LANDLORD'S RIGHT OF ENTRY
Landlord and Landlord's agents may enter upon the Premises at any
reasonable time to post such notices as Landlord may deem necessary to exempt
Landlord and Landlord's title from responsibility on account of any work done
by or for Tenant upon or in connection with the Premises, or to inspect and
examine the Premises and see that the covenants hereof are being kept and
performed, or to exhibit the Premises to prospective purchasers thereof or
lenders.
ARTICLE XIX
WAIVER BY LANDLORD
Any waiver by Landlord of any breach of any one or more of the terms,
covenants or conditions of this Lease shall not be a waiver of any subsequent
or other breach of the same or of any other term, covenant or condition of this
Lease nor shall any failure of Landlord to require or exact
-42-
<PAGE>
full and complete compliance with any of the terms, covenants or conditions of
this Lease be construed as changing the terms hereof, or estop Landlord from
enforcing the full provisions hereof, nor shall the terms of this Lease be
changed or altered in any way whatsoever other than by written agreement. All
remedies herein provided are cumulative, and in addition to any other remedies
granted by law.
ARTICLE XX
NOTICE
Whenever Landlord or Tenant shall desire to give or serve upon the
other any notice, payment, demand, request or other communication with respect
to this Lease or with respect to the Property each such notice, payment,
demand, request or other communication shall be in writing and shall not be
effective for any purpose unless the same shall be given or served to the party
or parties to whom such notice, payment, demand, request or other communication
is directed by mailing the same to such party or parties by certified or
registered mail, postage prepaid, return receipt requested addressed as follows:
If to Landlord at:
Marjorie Fleming Hutchinson
c/o George Adair Fleming
3433 Las Palmas Avenue
Glendale, California 91208
and
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<PAGE>
George Adair Fleming
3433 Las Palmas Avenue
Glendale, California 91208
If to Tenant at:
17991 Fitch
Irvine, California 92714
or at such other address or addresses as Landlord or Tenant may from time to
time designate by notice given in the manner set forth above
Every notice, demand, request or communication hereunder shall be
deemed to have been given or served as of the date indicated on the return
receipt or on such date when delivery of such notice was refused.
ARTICLE XXI
SURRENDER OF POSSESSION BY TENANT
Tenant agrees upon the expiration or termination of this Lease
peaceably to yield up and surrender the Premises in the condition specified in
Article VII hereof. Tenant hereby waives notice to quit or vacate. If Tenant
shall hold over after the expiration of this Lease for any cause with the
consent of Landlord, such holding over shall be deemed a tenancy from month to
month only, otherwise upon the same terms, conditions and provisions as
contained in this Lease and the rent for such period of holding over shall be
prorated on a monthly basis and paid in advance.
-44-
<PAGE>
ARTICLE XXII
MEMORANDUM OF LEASE
At the request of Tenant, Landlord shall execute all instruments and
documents and take all acts and actions necessary or required in order to
permit this Lease, or a Memorandum of Lease with respect thereto, to be
recorded in the office of the San Diego County Recorder. Upon any termination
of this Lease, or upon its expiration, Tenant shall execute, acknowledge and
deliver to Landlord a quitclaim deed or other recordable document evidencing
the termination of Tenant's interest in the Premises.
ARTICLE XXIII
CONVEYANCE BY LANDLORD; RIGHT OF FIRST REFUSAL
Landlord may, subject to Tenant's right of first refusal set forth in
this Article, and Tenant's option to purchase the Land set forth in Article
XXIV, encumber or convey the Premises or its interest in this Lease at any
time, but such encumbrance or conveyance shall be subject to the leasehold
estate of Tenant created hereby.
In the event that Landlord shall decide to sell, assign, transfer or
otherwise dispose of (other than by way of granting a mortgage or deed of trust
to secure indebtedness of Landlord) the Premises (collectively, a
"Disposition"), or any interest therein or portion thereof to a third party, or
shall receive an acceptable, bona fide offer
-45-
<PAGE>
to acquire any interest in the Premises through a Disposition, from a third
party, Landlord shall notify Tenant of that fact, specifying the name of such
third party, if known, and the price and terms of the proposed transaction, and
shall submit to Tenant with such notice a copy of such offer. Tenant shall
have the right for a period of 20 days following receipt of such notice to
elect to purchase or acquire such other interest in the Premises at the price
and on the terms specified in such notice; provided, however, that all time
periods specified in such offer for satisfaction of conditions, for closing
the transaction, and for similar matters shall not commence to run until
Tenant exercises such option. If Tenant does not exercise such option,
Landlord may make such Disposition at any time within 120 days thereafter at a
price and on terms and conditions not more favorable to such third party than
those specified in such notice. If the price or terms are modified in a
manner favorable to such third party, Landlord shall notify Tenant in writing
of such modification and the modified price and terms, and Tenant shall have a
period of 20 days after receipt of such notice in which to elect to purchase or
acquire such other interest in the Premises at such modified price and terms;
provided, however, that all time periods specified in such offer for
satisfaction of conditions, for closing the transaction, and for similar
matters shall not commence to run until Tenant exercises such option. If
-46-
<PAGE>
Tenant does not notify Landlord of its election to purchase or acquire such
other interest in the Premises within said 20 days, Landlord may proceed with
such Disposition at such modified price and upon such modified terms. If such
Disposition is not made within the aforesaid 120-day time period, Tenant's
right of first refusal shall thereupon be reinstated as to any Disposition by
Landlord, whether to the same or any other party. No failure by Tenant to make
any such election to purchase or acquire such other interest in the Premises
with respect to any particular proposed Disposition by Landlord shall affect
Tenant's right at a later time to make such an election with respect to a
subsequent proposed Disposition.
ARTICLE XXIV
OPTION TO PURCHASE
Provided that there is not then a default by Tenant hereunder which
has not been cured, Tenant shall have an option to purchase the Land during
the period of time and in the manner hereinafter specified. The period
during which such option may be exercised shall commence upon the death of
the survivor of MARJORIE FLEMING HUTCHINSON and GEORGE ADAIR FLEMING, and
shall expire on the later of (i) that date 90 days after receipt by Tenant of
notice from the then Landlord of the death of the survivor thereof, or (ii)
September 30, 2005. Such option shall be exercisable by
-47-
<PAGE>
Tenant whether or not Marjorie Fleming Hutchinson or George Adair Fleming, or
any of their respective heirs, devisees, or personal representatives have any
interest in the Land immediately prior to the commencement of such option.
This option shall be exercised by giving, within such period prescribed for
such exercise, written notice of exercise to the then Landlord in the manner
provided in Article XX hereof. The purchase price of the Land upon exercise of
the option shall be the fair market value of Landlord's interest in the Land at
the time of exercise of such option exclusive of any Improvements, as shall be
agreed upon by the parties, but in no event less than $100,000. To the extent
that rental value is taken into account in determining such fair market value,
such rental value shall be calculated without reference to the rental under
this Lease.
In the event the parties are unable to agree upon such purchase price
based upon such fair market value within 45 days after exercise of such option,
the same shall be determined by appraisal in accordance with the provisions of
Article XXVI hereof.
Within 30 days following final determination of the purchase price,
whether by agreement or by appraisal, the parties shall open an escrow for the
purchase of the property with Title Insurance and Trust Company, San Diego,
California, or such company as may be the successor to its escrow business, or
such other escrow agency as the parties
-48-
<PAGE>
may then agree upon. The escrow shall be conditioned to close within 30 days
thereafter. Tenant, upon opening such escrow, shall deposit the entire
purchase price in the escrow in cash. If Tenant as buyer fails to join in the
opening of an escrow or fails to deposit the entire purchase price in the
escrow in cash as herein provided, Tenant shall be deemed to have forfeited its
option to purchase the Land and shall not thereafter have or exercise any
further or other option with respect thereto. Before the time agreed upon for
close of the aforesaid escrow, the then Landlord shall deposit therein a duly
executed Grant Deed conveying title to the Land to Tenant or its nominee
free and clear of all liens, encumbrances, covenants, conditions, restrictions
and easements, except those which exist on the date hereof or which have been
created by or through Tenant, and shall do everything else necessary and proper
in order to convey the Land in such condition. Landlord shall furnish to Tenant
a policy of title insurance in the then customary form, in the face amount of
the purchase price insuring that title is vested in Tenant free and clear of
all liens and encumbrances, except property taxes, assessments and encumbrances
created by or through Tenant. The parties shall divide the cost of escrow in
the manner which is then customary in San Diego County, California.
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<PAGE>
ARTICLE XXV
TIME OF THE ESSENCE; BINDING EFFECT
Time is of the essence of each and all of the terms and conditions of
this Lease. The provisions hereof shall inure to the benefit of and be binding
upon the parties hereto, their heirs, devisees, personal representatives,
successors and assigns as fully and to the same extent as though specifically
mentioned in each instance.
ARTICLE XXVI
APPRAISAL
If it shall become necessary, for purposes of Article XV or Article
XXIV hereof, to seek an independent determination of the fair market value of
the Land or if Landlord and Tenant have elsewhere in this Lease specifically
and expressly agreed that the appraisal procedures set forth in this Article
XXVI shall be utilized, either party may, by notice to the other, appoint a
disinterested person who is a Member of the American Institute of Real Estate
Appraisers (or if such Institute is not in existence at the time in question, a
member of a similar or successor organization) (an "M.A.I.") and whose office
is located in the County of San Diego as one of the appraisers. Within 30
days thereafter the other party shall, by written notice to the party
appointing the first appraiser, appoint another disinterested person who is an
M.A.I. and whose office is
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<PAGE>
located in the County of San Diego as a second appraiser. The appraisers thus
appointed shall appoint a third disinterested person who is an M.A.I. and
whose office is located in the County of San Diego and such three appraisers
shall as promptly as possible determine such value, provided, however, that:
(a) if the second appraiser shall not have been appointed as
aforesaid, the first appraiser shall proceed to determine such value; and
(b) if, within 15 days after the appointment of the second
appraiser, the two appraisers appointed by the parties shall be unable to agree
upon the appointment of a third appraiser, they shall give written notice of
such failure to agree to the parties, and, if the parties fail to agree upon
the selection of such third appraiser within 15 days after the appraisers
appointed by the parties gave notice as aforesaid, then within 15 days
thereafter either of the parties upon written notice to the other party hereto
may apply for such appointment to the Superior Court for the County of San
Diego, State of California or to any other court having jurisdiction and
exercising functions similar to those now exercised by the Superior Court for
the County of San Diego, State of California.
Landlord and Tenant shall each be entitled to present evidence and
argument to the appraisers and to be represented by counsel.
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<PAGE>
The determination of the majority of the appraisers or of the sole
appraiser, as the case may be, shall be conclusive upon the parties and
judgment upon the same may be entered in any court having jurisdiction thereof.
The appraisers shall give written notice to the parties stating their
determination, and shall furnish to each party a copy of such determination
signed by them.
Each party shall pay the fees and expenses of the appraiser selected
by such party, and the fees and expenses of the third appraiser shall be shared
equally by both parties.
In the event of the failure, refusal or inability of any appraiser to
act, a new appraiser shall be appointed in his stead, which appointment shall
be made in the same manner as hereinbefore provided for the appointment of the
appraiser so failing, refusing or unable to act.
ARTICLE XXVII
QUIET ENJOYMENT
Landlord covenants and agrees that Tenant upon payment of the rent,
and all other charges hereunder provided for and observing and keeping all
covenants, agreements and conditions of this Lease on its part to be observed
and kept, shall quietly have and enjoy the Premises during the term of this
Lease without hindrance or molestation by anyone claiming by or through
Landlord, subject,
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<PAGE>
however, to the exceptions, reservations and conditions of this Lease.
ARTICLE XXVIII
MISCELLANEOUS
(a) This Lease shall be construed and enforced in accordance with
the laws of the State of California.
(b) This instrument may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. No amendment or modification hereof
shall be effective for any purpose unless in a writing signed by the party to
be charged.
(c) Any provision of this Lease which is prohibited or
unenforceable in any jurisdiction shall as to such jurisdiction be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
IN WITNESS WHEREOF, Landlord and Tenant, have executed this Amendment
and Restatement of Lease as of the day and year first above written.
LANDLORD: TENANT:
/s/ Marjorie Fleming Hutchinson CROW PARKADE, a Texas
- ---------------------------------- limited partnership
MARJORIE FLEMING HUTCHINSON
/s/ George Adair Fleming By /s/ Donald Russell
- ---------------------------------- ----------------------------------
GEORGE ADAIR FLEMING General Partner
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<PAGE>
11/12/80
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
Robert A. Kendall, Esq.
Rhodes, Kendall & Harrington
4299 MacArthur Boulevard, Suite 105
Newport Beach, California 92660
MEMORANDUM
OF
AMENDMENT AND RESTATEMENT OF LEASE
THIS MEMORANDUM OF AMENDMENT AND RESTATEMENT OF LEASE is entered
into as of October 1, 1980, by MARJORIE FLEMING HUTCHINSON, dealing with her
separate property as to an undivided one-half interest and GEORGE ADAIR
FLEMING, dealing with his separate property as to an undivided one-half
interest, as Landlord (collectively, "Landlord"), and CROW PARKADE, a Texas
limited partnership, as Tenant ("Tenant"), with respect to the following facts:
A. On September 18, 1970, Landlord entered into a lease with Evan V.
Jones ("Jones"), as tenant, with respect to the real property described
below. Such lease was recorded in the Office of the Recorder of San Diego
County, California, on January 3, 1980, under Recorder's File No.
80-001307.
<PAGE>
B. Pursuant to an assignment executed by Jones and Sally Jones and
recorded in the Office of the Recorder of San Diego County, California,
on January 13, 1975, under Recorder's File No. 75-008249, Jones
assigned his rights and obligations under such lease to Metropolitan
Garages, Inc., a California corporation ("Metropolitan Garages").
Pursuant to an assignment executed by Metropolitan Garages and
recorded in the Office of the Recorder of San Diego County, California,
on December 31, 1979, under Recorder's File No. 79-544364, Metropolitan
Garages assigned its rights and obligations under such lease to Tenant.
C. The parties now desire to further amend and completely restate
such lease, effective as of October 1, 1980.
NOW, THEREFORE, Landlord and Tenant hereby agree as follows:
1. Such lease, as heretofore assigned and amended, is hereby further
amended and restated in its entirety, effective as of October 1, 1980, pursuant
to the covenants, terms and conditions set forth in that certain unrecorded
Amendment and Restatement of Lease between Landlord and Tenant dated as of
October 1, 1980 (the "Lease"), which, as of such date, supersedes entirely the
provisions of such lease as heretofore amended and modified. The covenants,
terms and conditions contained in the
-2-
<PAGE>
Lease are hereby incorporated herein in their entirety by this reference with
the same force and effect as though set forth in full herein. Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the following described
real property located in the City of San Diego, County of San Diego, State of
California:
Lot D in Block 20 of Horton's Addition to the City
of San Diego, County of San Diego, State of California,
according to the Map thereof made by L. L. Lockling filed
June 21, 1871 in Book 13, page 522 of Deeds, as filed in
the Office of the County Recorder of said County,
together with all easements, rights and appurtenances in connection therewith
or thereunto belonging (the "Land) pursuant to all the terms, conditions and
covenants of the Lease.
2. Among other things, the Lease provides:
"The term 'Improvements' shall mean all buildings,
structures and improvements now existing or hereafter
constructed on the Land during the term of the Lease and
any addition, restoration or replacement of such
buildings, structures or improvements. The Land and the
Improvements, together with all such easements, rights
and appurtenances are referred to herein collectively
as the 'Premises'.
"It is contemplated that certain improvements to be
constructed upon the Land will tie in with, be used in
connection with, or form part of an office building, a
parking garage and/or related improvements located or to
be located on certain adjacent land.
-3-
<PAGE>
The improvements on such adjacent land together with any
restoration, addition to or replacement thereof are
hereinafter collectively referred to as the 'Adjacent
Improvements.' The term 'Improvements' shall mean only
those improvements or portion thereof actually located on
the Land and shall not include any of the Adjacent
Improvements, notwithstanding the fact that the Adjacent
Improvements may tie in with, be used in connection with,
or form a part of the buildings, structures and/or other
improvements existing on the Land. Landlord shall have
no interest whatsoever in or with respect to any of the
Adjacent Improvements."
3. The Lease provides for a term commencing October 1, 1970, and
continuing until September 30, 2069, at midnight, unless sooner terminated as
provided therein. Notwithstanding the foregoing, for all purposes of the Lease,
the term thereof shall be deemed to have commenced as of October 1, 1980.
4. Landlord may, subject to Tenant's right of first refusal
contained in Article XXIII of the Lease, and Tenant's option to purchase the
Land contained in Article XXIV of the Lease, encumber or convey the Premises or
Landlord's interest in the Lease at any time, but such encumbrance shall be
subject to the leasehold estate of Tenant created hereby and by the Lease.
5. In the event that Landlord shall decide to sell, assign, transfer
or otherwise dispose of (other than by way of granting a mortgage or deed of
trust to secure indebtedness of Landlord) the Premises (collectively, a
-4-
<PAGE>
"Disposition"), or any interest therein or portion thereof to a third party, or
shall receive an acceptable, bona fide offer to acquire any interest in the
Premises through a Disposition, from a third party, Tenant shall have the
right to elect to purchase or acquire such interest in the Premises, in
accordance with and upon the terms and conditions set forth in Article XXIII of
the Lease.
6. Landlord hereby grants to Tenant the right and option to
purchase the Land. Such option may be exercised at any time during the period
commencing upon the death of the survivor of Marjorie Fleming Hutchinson
and George Adair Fleming, and expiring on the later of (i) that date 90 days
after receipt by Tenant of notice from the then landlord of the death of the
survivor thereof, or (ii) September 30, 2005, in accordance with and upon and
subject to the terms and conditions set forth in Article XXIV of the Lease.
-5-
<PAGE>
7. In the event of any inconsistency or conflict between the terms
of this instrument and the Lease incorporated by reference herein, the terms of
the Lease shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed this
Memorandum of Amendment and Restatement of Lease as of the date first set
forth above.
LANDLORD: /s/ Marjorie Fleming Hutchinson
-------------------------------------
Marjorie Fleming Hutchinson
/s/ George Adair Fleming
-------------------------------------
George Adair Fleming
TENANT: CROW PARKADE,
a Texas limited partnership
By /s/ Donald Russell
----------------------------------
General Partner
-6-
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On November 10, 1980, before me, the undersigned, a Notary Public in
and for said State, personally appeared Donald Russell, known to me to be one of
the general partners of CROW PARKADE, the partnership that executed the within
instrument, known to me to be the person who executed the within instrument
on behalf of such partnership, and acknowledged to me that such
partnership executed the same.
WITNESS my hand and official seal.
(SEAL) /s/ Heather Baillie
-------------------------------------
Notary Public
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN DIEGO )
On November 21, 1980, before me, the undersigned, a Notary Public in
and for said State, personally appeared MARJORIE FLEMING HUTCHINSON, known to
me to be the person whose name is subscribed to the within instrument and
acknowledged to me that she executed the same.
WITNESS my hand and official seal.
(SEAL) /s/ Karen E. Dolkas
-------------------------------------
Notary Public
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN DIEGO )
On November 21, 1980, before me, the undersigned, a Notary Public in
and for said State, personally appeared GEORGE ADAIR FLEMING, known to me to
be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same.
WITNESS my hand and official seal.
(SEAL) /s/ Karen E. Dolkas
-------------------------------------
Notary Public
<PAGE>
EXHIBIT 10.11
4/30/80
AMENDMENT AND RESTATEMENT OF LEASE
By
CROW PARKADE,
a Texas limited partnership
And
METROPOLITAN GARAGES, INC.,
a California corporation
Dated as of January 1, 1980
----------
<PAGE>
AMENDMENT AND RESTATEMENT OF LEASE BETWEEN
METROPOLITAN GARAGES, INC.
AND CROW PARKADE
TABLE OF CONTENTS
Article Page
I Leased Premises 2
II Term 3
III Rent 3
IV Utilities and Taxes 7
V Use 10
VI Maintenance of Premises 12
VII Improvements and Alterations 13
VIII Encumbrance or Conveyance by Landlord 17
IX Indemnification and Insurance 18
X Fire Insurance and Destruction of Premises 19
XI Default by Tenant 22
XII No Merger 25
XIII Certificate 26
XIV Eminent Domain 26
XV Litigation 31
XVI Subletting and Assignment 31
XVII Landlord's Right of Entry 32
XVIII Waiver by Landlord 33
XIX Notice 33
XX Surrender of Possession by Tenant 34
<PAGE>
Article Page
XXI Memorandum of Lease 34
XXII Existing Tenancies 35
XXIII Parking Operations 35
XXIV Leasehold Mortgage 38
XXV Liability of Partners 45
XXVI Option to Purchase 46
XXVII Time of the Essence 48
-ii-
<PAGE>
AMENDMENT AND RESTATEMENT OF LEASE
This Amendment and Restatement of Lease is executed June 2, 1980,
by CROW PARKADE, a Texas limited partnership ("Tenant") and METROPOLITAN
GARAGES, INC., a California corporation ("Landlord"), in light of the
following facts:
A. On July 1, 1979, Landlord entered into a lease with M. H. Golden
Construction Company, a California corporation ("Golden"), as tenant, with
respect to the real property hereinbelow described. Such lease was recorded
in the Office of the Recorder of San Diego County, California, on January 3,
1980, under Recorder's File No. 80-001308.
B. By instrument entitled "Assignment and First Amendment to
Lease", executed on December 31, 1979, Golden assigned its rights and
obligations under such lease to Tenant, Tenant accepted such assignment, and
Landlord consented thereto and released Golden from liability, and such lease
was amended in various particulars. Such Assignment and First Amendment to
Lease was recorded January 3, 1980, in the Office of the Recorder of San Diego
County, California, as Document/File No. 80-001309.
C. The term of such lease, as so amended and assigned, commenced
January 1, 1980.
<PAGE>
D. The parties now desire to further amend and completely restate
such lease, effective as of January 1, 1980.
NOW, THEREFORE, such lease, as heretofore assigned and amended, is
hereby further amended and restated in its entirety, effective as of January 1,
1980, by this instrument which, as of January 1, 1980, supersedes entirely
such original lease and such Assignment and First Amendment to Lease:
ARTICLE I
LEASED PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the land located in the City of San Diego, County of San Diego, State
of California, described as follows:
"Lots E, F, G, H, and I in Block 20 of Horton's Addition
in the City of San Diego, County of San Diego, State of
California, according to map thereof made by L. L. Lockling
on file in the Office of the County Recorder of San Diego
County,"
(the "Land"), and the parking garage now located thereon and all other
buildings, structures and improvements now existing or hereafter constructed
on the Land during the term of this Lease and any addition, restoration or
replacement of such
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parking garage and of any such buildings, structures and improvements (the
"Improvements"), together with all easements, rights and appurtenances in
connection therewith or thereunto belonging. The Land and the Improvements
together with all such easements, rights and appurtenances are referred to
herein collectively as the "Premises." Such parking garage now located on the
Land is sometimes referred to herein individually as the "Garage."
ARTICLE II
TERM
The term of this Lease shall commence January 1, 1980, and shall
expire December 31, 2076 A.D. at midnight unless earlier terminated as
hereinafter set forth.
ARTICLE III
RENT
(a) Tenant agrees to pay a basic rental for the Premises of $30,000
per month in lawful money of the United States of America (the "Basic
Rental"), which Basic Rental shall be payable in advance on the first day of
each month for the term of this Lease, at such address as Landlord may
designate. Tenant's Basic Rental obligation for any fractional portion of a
month at the beginning or end of the term of this Lease shall be a similar
fraction of the rental due for an entire month. Such rent shall be paid to
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Landlord without notice or demand and without abatement, deduction or set-off,
except as otherwise expressly provided in this Lease.
(b) On January 1, 1987, and upon January 1 of each fifth year
thereafter during the term of this Lease, the Basic Rental set forth in
Section (a) of this Article shall be changed to an amount that bears the same
relationship to the original Basic Rental of $30,000 per month which the
Consumer Price Index for All Urban Consumers for Los Angeles-Long
Beach-Anaheim published monthly by the United States Department of Labor (the
"Index") for the month of September prior to the month in which said
adjustment occurs bears to the Index for September, 1979; provided, however,
that in no event shall the rent be reduced below the original Basic Rental of
$30,000 per month; and provided further that in no event shall the Basic
Rental be increased by more than 10% per year for each year between
commencement of this Lease and the date of such adjustment. If the Index is no
longer published at the adjustment rate, the determination of the adjustment
to the Basic Rental shall be made by reference to conversion tables, if any,
included in any new index published by the United States Government in
replacement of the Index, or if no such conversion tables exist, the parties
shall agree upon another source of information to determine changes in
purchasing power, or if they are unable to agree, such source of information
shall be deter-
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mined by arbitration pursuant to the provisions of the California Code of
Civil Procedure or other applicable law.
(c) On January 1, 2002, and upon January 1 of each fifth year
thereafter during the term of this Lease, at the request of either party made
by written notice to the other party not less than six months prior to such
date, the Premises shall be appraised to determine the fair rental value
thereof. If the fair rental value so determined is within 20% of the Basic
Rental as adjusted in Section (b) of this Article, such Basic Rental as
adjusted shall be the rent then payable. If the fair rental value determined
by such appraisal differs from such Basic Rental as adjusted in Section (b) by
20% or more of such Basic Rental as adjusted, such fair rental value
determined by appraisal shall be the rent then payable; provided, however,
that in no event shall the rent be reduced below the original Basic Rental of
$30,000 per month.
If either party requests appraisal, Landlord and Tenant shall
endeavor to agree upon a single appraiser to make the appraisal. If they are
unable to so agree, within sixty days following the date of request for
appraisal each party shall appoint one appraiser, the two appointed shall
appoint a third, and the fair rental value of the property shall be deemed to
be the arithmetic mean of the fair rental values determined by each of the
three appraisers. All fees and expenses of the appraisers shall be paid by the
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party requesting the appraisal. All appraisers shall be professional real
estate appraisers having offices in the City of San Diego.
(d) In the event that the rent is determined to be the fair rental
value by appraisal pursuant to Section (c) above, then on any subsequent date
on which the rent is to be adjusted, if no appraisal is then requested, the
rent shall be the Basic Rental as adjusted in Section (b) of this Article,
except that the following changes shall be made in the formula for adjustment
provided in Section (b): (i) the most recent rental determined by appraisal as
the fair rental value of the Premises shall be deemed the "Basic Rental" for
purposes of adjustment, and (ii) the Index for the month of September prior to
the month in which such most recent rental by appraisal became effective shall
be substituted for the Index of September, 1979.
(e) For purposes of Section (c) of this Article, so long as the
Garage remains in existence without major changes in its dimensions or
structure, the fair rental value of the Premises shall be determined by
considering the value of the Land and Garage and by considering only uses for
which the Garage is suitable. In the event the Garage is either voluntarily
demolished or major changes are made in its dimensions or structure, the fair
rental value of the Premises thereafter shall be whichever of the following is
the greater:
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(i) the fair rental value of the Land valued at its highest
and best use, but without regard to any Improvements; or
(ii) what would be the then fair rental value of the Land and
the Garage, if the Garage still existed upon the Land and were maintained in
the condition of repair required by the terms of this Lease, considering only
uses for which the Garage would be suitable.
In the event the Garage is involuntarily demolished, then the fair
rental value of the Premises thereafter shall be the fair rental value of the
Land valued at its highest and best use, but without regard to any
Improvements, plus, in the event a building substantially similar in size and
use to the Garage is constructed upon the Land from the proceeds of insurance
required to be maintained pursuant to the terms of this Lease, or
condemnation proceeds or award, the fair rental value of the building so
constructed.
The term "involuntarily demolished" shall mean the destruction,
seizure, requisition, or condemnation of the Garage or the destruction of the
Garage under threat or imminence of requisition or condemnation, whether such
condemnation would constitute the exercise of eminent domain or otherwise.
ARTICLE IV
UTILITIES AND TAXES
(a) It is the intention of this Lease that the
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rent to be paid hereunder by Tenant shall be absolutely net to Landlord,
without any deduction or expense whatsoever to Landlord. Tenant agrees to pay,
before the same shall become delinquent, all charges for gas, electricity,
heat, light, power, sewerage, water, telephone and other similar or dissimilar
public services or commodities furnished to the Premises during the term of
this Lease, including all installation, connection and disconnection charges.
Tenant further agrees to pay before the same become delinquent, all taxes and
assessments of whatsoever kind or nature which may be imposed upon the
Premises or any improvements, facilities or personal property thereon,
including all so-called special assessments, and every other charge, lien or
expense accruing or payable during the term of this Lease in connection with
the Premises, and also all taxes, licenses, fees or charges on account of any
use which may be made of the Premises or any activity thereon during the
term hereof. Tenant may pay taxes or assessments in installments when allowed
by applicable laws. Promptly on demand by Landlord, Tenant agrees to furnish
to Landlord for its inspection official receipts of the appropriate taxing
authority, or other proof satisfactory to Landlord, evidencing the payment of
any assessment or charge required to be paid by Tenant. If at any time during
the term of this Lease any tax or excise on rent or other tax, however
described, is levied or assessed by the State of California
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or any other political entity against Landlord specifically on account of rent
reserved hereunder, Tenant likewise shall pay and discharge such tax or excise
to the extent that it is assessed or imposed as a direct result of Landlord's
ownership of the Premises or of rentals accruing under this Lease, but this
provision shall not be construed in such manner as to require Tenant to pay
any net income tax of Landlord as income taxes are understood at the time of
execution hereof. If any special tax or assessment is at any time levied on
parking spaces or facilities, Tenant shall pay it. All taxes or assessments
for any fraction of a tax fiscal year at the beginning or end of the term
hereof, as the same may be extended or renewed, shall be appropriately
prorated between the parties.
(b) Tenant shall have the right to dispute in good faith the
legality or amount of any tax or assessment by appropriate legal proceedings,
provided that Tenant shall pay such tax or assessment promptly upon a final
determination of the legality or amount thereof, shall protect Landlord and
the Premises against any sale for non-payment thereof, and shall, unless the
proceedings operate to prevent a sale of the Premises or Tenant otherwise
prevents a sale of the Premises, furnish to Landlord on demand such bond or
other security as Landlord may require in an amount not exceeding the total
amount of the tax or assessment in dispute, plus all reasonably foreseeable
interest and penalties thereon. Landlord shall, upon written request of
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Tenant, join in any such proceedings if such joinder is necessary, provided
Tenant indemnifies Landlord against all expenses incurred in the proceedings.
If, except as provided in the foregoing paragraph hereof, Tenant
shall fail to pay before delinquency any amount required hereby to be paid by
Tenant, Landlord may, but shall not be required to, pay the same together with
any and all interest and penalties, in which case the amount so paid by
Landlord together with interest thereon at the rate of 10% per annum shall be
immediately due and payable by Tenant to Landlord as additional rent
hereunder. The certificate, advice or bill of the public official designated
by law to make or issue the same or receive payment of any tax, assessment or
charge shall be prima facie evidence as between Landlord and Tenant that such
tax, assessment or charge is due and unpaid at the time of the making or
issuance of such certificate, advice or bill.
ARTICLE V
USE
(a) Tenant shall have the right to use the Premises for any lawful
purpose which is not inconsistent with applicable zoning, or in violation of
any covenants or restrictions of record on the date hereof pertaining to the
use of the Premises. Tenant agrees not to do or suffer any affirmative or
permissive waste upon the property nor to use nor permit to be used any part
of the Premises for any
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dangerous, noxious, unlawful or offensive trade or business and will not
cause, maintain or permit any nuisance in, at, or on the Premises.
(b) Tenant shall have the right to contest by appropriate
proceedings diligently conducted in good faith, in the name of Tenant or
Landlord or both, without cost or expense to Landlord, the validity or
application of any law, ordinance, order, rule, or regulation of the nature
referred to in this Article. If compliance with any such law, ordinance,
order, rule, or regulation may legally be delayed pending the prosecution of
any such proceeding without the incurrence of any lien, charge or liability of
any kind against the Premises or Tenant's interest therein and without
subjecting Tenant or Landlord to any liability, civil or criminal, for failure
so to comply therewith, Tenant may delay compliance therewith until the final
determination of such proceeding. Even if such lien, charge or civil liability
would be incurred by reason of any such delay, Tenant may, with the prior
written consent of Landlord, contest as aforesaid and delay as aforesaid,
provided that such contest or delay does not subject Landlord to criminal
liability, damages or expense and provided that Tenant (i) furnishes to
Landlord security, reasonably satisfactory to Landlord, against any loss or
injury by reason of such contest or delay, and (ii) prosecutes the contest
with due diligence.
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(c) Landlord shall not be required to join in any proceedings
referred to in this Article unless the provisions of any applicable law, rule
or regulation at the time in effect shall require that such proceeding be
brought by and/or in the name of Landlord, in which event Landlord shall join
in the proceedings or permit the same to be brought in its name if Tenant
shall pay all expenses in connection therewith. Tenant may delegate the right
to bring any such proceeding to any person or entity having an interest in the
Leased Premises or any part thereof.
ARTICLE VI
MAINTENANCE OF PREMISES
Tenant agrees that it will, at its own expense throughout the entire
term of this Lease, maintain the Premises and all Improvements in a clean,
safe, sanitary and sightly condition and in good repair. Tenant further agrees
to make at its own expense any and all additions, alterations or changes in
the Premises or the Improvements which may at any time be required by any
lawful authority. Tenant agrees that no destruction of or damage to any
Improvements shall cause the termination of this Lease or give Tenant any
right to terminate this Lease. Tenant waives any and all rights provided by
law entitling it to make repairs at the expense of Landlord, or to deduct the
cost of repairs from rent.
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ARTICLE VII
IMPROVEMENTS AND ALTERATIONS
Tenant shall not have the right to make any improvements to or
alterations of the Premises which would materially change the usability or
structure of the Premises without the prior written consent of Landlord, which
will not be withheld unreasonably. Landlord shall be deemed to have consented
to any changes, alterations or new Improvements as to which Landlord does not
object by written notice to Tenant within thirty (30) days after plans
depicting such work in reasonable detail have been delivered to Landlord.
Landlord's consent shall not be required for any changes, alterations or new
Improvements which are required by any governmental authority having
jurisdiction over the Premises. It is specifically understood that Tenant
will be providing connections between the Garage and an office complex Tenant
proposes to construct on adjacent premises, and improving the appearance of
the Garage. It is also recognized that, during the term of this Lease, the
Garage may become obsolete and require replacement.
In the event that with Landlord's consent, Tenant undertakes to make
any changes, alterations or new Improvements, the following terms and
conditions shall apply:
(a) Tenant agrees to notify Landlord in writing
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of its intention to perform any work upon the Premises, specifying the
intended commencement date thereof, in order to enable Landlord to post
notices of nonresponsibility, in any case in which the total cost of the work
to be performed, including all related contracts, amounts to $25,000 or more.
(b) In the case of any work, including all related contracts, the
total cost of which can reasonably be expected to exceed $25,000, before
commencing such work Tenant shall (if requested in writing at such time to do
so) furnish Landlord, without cost to Landlord, an indemnity bond issued by a
recognized and reputable bonding corporation doing business in the State of
California, guaranteeing completion of such work and indemnifying Landlord
against the cost thereof, and against any and all liens or liability in
connection therewith, which bond shall be in a face amount not less than the
estimated cost of all such work.
(c) Tenant shall cause all work to be performed in a good,
workmanlike and first class manner and in accordance with all applicable laws
and regulations, shall obtain all necessary permits before commencing or
permitting the commencing of any work (and Landlord shall join in the
application for such permits or authorizations whenever such action is
necessary, provided, however, that Landlord shall incur no liability or
expense in connection therewith).
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Tenant shall protect the adjacent property against damage resulting from the
performance of any work, and shall indemnify and hold Landlord and the leased
premises harmless against any and all liens or liability in any way arising
out of the performance of work or the furnishing of labor, skill, materials or
power in connection therewith. Tenant shall have the right to contest any
claim of lien in good faith by appropriate judicial or arbitration
proceedings, provided that Tenant protects the Premises against foreclosure
thereof or sale thereunder, pays any amount finally determined to be due
promptly upon such final determination being made, and provides Landlord,
during the time that Tenant is contesting such claim, with an indemnity bond
or other security satisfactory to Landlord in an amount not less than 150% of
the claim. If Tenant shall fail to perform as required in this Section,
Landlord may, but shall not be required to, pay the amount of any such lien or
claim together with any and all interest, costs and penalties in connection
therewith, and the amount so paid with interest at 10% per annum shall become
immediately due and payable by Tenant to Landlord as additional rent
hereunder.
(d) Any and all Improvements at any time constructed or placed on
the Premises shall be so designed and constructed that they are capable of
being operated and used for their intended purpose independently of any other
premises. They shall contain independent electrical, water,
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sewerage, and heating, shall have their own entrances, halls, and stairs, and
shall have their own adequate access to public streets or highways. This
provision shall not be construed to prohibit physical connection of
Improvements on the Premises with improvements on other premises, provided
such connections are of a type that can be closed off or severed at minimum
expense. Upon any termination of this Lease, Tenant shall, on demand of
Landlord, close off or sever any such connections. If Tenant fails to do so
on demand, Landlord may do so and the cost thereof with interest at 10% per
annum shall be immediately due and payable by Tenant to Landlord.
The provisions of this Section (d) shall not apply to that portion
of Lot I of Block 20 of the Premises which lies westerly of the outside wall
of the spiral automobile downramp structure now existing on such Lot I, and
Tenant may remove (and Landlord hereby consents to such removal of) the
one-story automobile parking structure now existing on such Lot I, and
construct a portion of a larger building in such area.
(e) Tenant shall have title during the term of this Lease to all
Improvements made by it. All Improvements located on the Premises at the
expiration or prior termination of the term hereof, to the extent they do not
already belong to Landlord shall automatically at that time be and become the
property of Landlord without the payment of any
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consideration therefor, and without the necessity of any bill of sale.
ARTICLE VIII
ENCUMBRANCE OR CONVEYANCE BY LANDLORD
Landlord may encumber or convey the Premises or its interest in this
Lease at any time, but such encumbrance or conveyance shall be subject to the
leasehold estate of Tenant created hereby.
In the event that Landlord shall decide to sell the Premises to an
unrelated third party, or shall receive an acceptable, bona fide offer to
purchase the Premises from an unrelated third party, Landlord shall notify
Tenant of that fact, specifying the name of the prospective purchaser, if
known, and the price and terms. Tenant shall have the right for a period of
thirty days following receipt of such notice to elect to purchase the Premises
at the price and on the terms specified in such notice. If Tenant does not
exercise such option, Landlord may sell the Premises at any time within one
year thereafter at a price and on terms and conditions not more favorable to
the purchaser than those specified in such notice. If the price or terms are
modified in a manner favorable to the purchaser, Landlord shall notify Tenant
in writing of such modification and the modified price and terms, and Tenant
shall have a period of three business days after receipt of such notice in
which to elect to purchase the Premises at such modified price and terms. If
Tenant does not notify Landlord of its
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election to purchase within said three days, Landlord may proceed to sell the
Premises at the modified price and terms.
ARTICLE IX
INDEMNIFICATION INSURANCE
This Lease is made upon the express condition that Landlord is to be
free from all liability and claims for damages by reason of any injury to any
person or persons, including Tenant, or property of any kind whatsoever and to
whomsoever belonging, including Tenant's property, from any cause or causes
whatsoever, in, upon, or in any way connected with the Premises or the
sidewalks, streets, alleys, parking lots, and premises adjacent thereto or the
use or occupancy thereof during the term of this Lease or any extension hereof
or any occupancy hereunder, Tenant hereby covenanting and agreeing to
indemnify and save harmless Landlord from all liability, loss, cost and
obligations on account of or arising out of any such injuries or losses,
however occurring. Notwithstanding the foregoing, Tenant shall not be
obligated to indemnify Landlord against the results of wrongful acts or
omissions of Landlord or Landlord's employees or agents. Tenant agrees to take
out and keep in force during the term hereof, without expense to Landlord,
insurance in the name of Tenant naming Landlord as an additional assured
against any liability for injury to or death of persons resulting
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from any occurrence in or about the Premises in an amount not less than
$1,000,000 to indemnify against the claim of one or more persons and not less
than $100,000 for damage to property, or such greater amounts as may from time
to time be customary with respect to similar properties in the same area. True
copies of said policies or certificates thereof showing the premium thereon to
have been paid shall be delivered to Landlord upon request. All such policies
shall provide that they shall not be cancellable by the insurer without first
giving at least fifteen days written notice to Landlord. In the event Tenant
fails to procure and keep in force such insurance, Landlord may procure it,
and the cost thereof with interest at 10% per annum shall be payable
immediately by Tenant to Landlord as additional rent. In the event that the
beneficiary of any deed of trust at any time constituting a lien upon the
Premises shall require that it be named as an additional assured upon any such
insurance policy, Tenant shall cause said beneficiary to be so named and
furnish said beneficiary with evidence thereof. Any insurance required by this
Article or by Article X may be provided by a blanket policy.
ARTICLE X
FIRE INSURANCE AND DESTRUCTION OF PREMISES
Tenant agrees, at Tenant's own expense, to maintain in full force
and effect throughout the entire term of
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this Lease, fire insurance with broad form coverage or such other broader
coverage as may from time to time be customary, on the Improvements with
insurance companies licensed to do business in the State of California. Such
insurance shall be in a face amount equal to the full replacement cost of the
Improvements. In the event Tenant at any time fails to procure such insurance
or to maintain it in effect, Landlord shall have the right, but shall not be
obligated, to procure such insurance and the cost thereof, together with
interest thereon at 10% per annum, shall be paid by Tenant to Landlord as
additional rent hereunder on the first day of the month next following.
All policies of fire insurance shall be payable to a bank or trust
company doing business in the County of San Diego agreed upon by the parties,
or if the parties fail to agree, to Bank of America National Trust and Savings
Association.
In the event of any damage to or destruction of the Improvements,
Tenant promptly shall repair, restore or replace the same so that after such
repair, restoration, or replacement, the Improvements are not less valuable
than immediately prior to such damage or destruction. Tenant shall be entitled
to have any insurance proceeds held in trust and disbursed as progress
payments as the work of repair, restoration or replacement progresses, to be
used solely for paying for such work, and upon completion of such
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work, free and clear of liens, any remaining balance of the insurance proceeds
shall be paid to Tenant. The provisions of Article VII hereof shall be
applicable to all work done pursuant to this Article.
Notwithstanding the foregoing, if the Improvements are damaged or
destroyed by casualty occurring during the last twenty years of the term of
this Lease to such an extent that the cost of repairing, replacing or
restoring the same would amount to 25% or more of the fair market value of the
Improvements immediately prior to such damage or destruction, then Tenant may
terminate this Lease at its option by giving written notice thereof to
Landlord not later than 60 days after the occurrence of such damage or
destruction; provided that, if any Leasehold Mortgage is then in effect with
respect to the Premises, the written consent of the Leasehold Mortgagee shall
be required as a condition to the effectiveness of such termination. In the
event Tenant exercises this option, with the consent of the Leasehold
Mortgagee, the entire insurance proceeds shall be paid to and belong to
Landlord. Unless this Lease is so terminated, there shall be no reduction or
abatement of rent by reason of damage or destruction.
If at any time during the term of this Lease, the Improvements
(including the Garage) existing at the commencement of the term hereof are
replaced by new Improvements, and such new Improvements are damaged or
destroyed by
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casualty, the proceeds of insurance on such new Improvements may be made
available, to the extent necessary for the purpose, for application as a
payment on any obligation secured by a Leasehold Mortgage, and, to that
extent, need not be paid or disbursed in the manner provided in this Article X.
As to any insurance at any time maintained by Tenant under this
Lease, any Leasehold Mortgagee may be named as an additional insured so long
as proceeds from any policies covering damage to the Premises are made
available for repairing or restoring the Improvements on the Premises in
accordance with Tenant's obligations under this lease.
Any Leasehold Mortgagee may be named in a lender's loss payable
endorsement (Form 43BFU-NS or equivalent) as to Tenant's interest under the
policy and any Leasehold Mortgagee shall be entitled to require that any
insurance proceeds in excess of the amount required for restoration or repair
of the Premises and otherwise payable hereunder to Tenant be paid instead to
such Leasehold Mortgagee to be applied in reduction of the loan secured by
such Leasehold Mortgage.
ARTICLE XI
DEFAULT BY TENANT
Tenant agrees that if it defaults hereunder in the payment of rent
and such default continues for a period
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of ten days after written notice thereof, or if Tenant fails to faithfully
perform or observe any other agreement or condition herein to be performed by
Tenant, and if such default continues for a period of thirty days after
written notice thereof (except in the case of a default which by its nature
cannot be cured within said period, if Tenant fails to commence to cure the
default within said period or fails thereafter to proceed with diligence to
complete the cure), or if the Premises are vacated except for reasonable
periods of time for construction of improvements or remodeling, or are
abandoned, or if any proceedings are commenced by or for Tenant under any
bankruptcy law, or if Tenant is adjudged insolvent by any court, or if Tenant
makes an assignment for the benefit of creditors, or if Tenant enters a
general extension agreement with creditors, or if Tenant's leasehold interest
is sold under execution, then such events shall constitute a breach of this
Lease and Landlord may, at Landlord's option, exercise any one or more of the
rights available to a landlord under the laws of the State of California,
consecutively or concurrently, including, without limitation, the right:
(a) to terminate this Lease, immediately and without prior notice,
and recover (i) the unpaid rent which had been earned at the time of
termination, plus interest at 10% per annum thereon, (ii) the unpaid rent
which would have been earned during the period from the date of termina-
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tion until the time of award, less such rental loss as Tenant proves could
have been reasonably avoided during said period, plus interest at 10% per
annum thereon, (iii) the worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of rental loss that Tenant proves could be reasonably avoided, said
excess to be discounted by the rate specified in Section 1951.2(b) of the
California Civil Code, and (iv) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform Tenant's obligations under this Lease or which, in the ordinary course
of things, would be likely to result therefrom, including costs of litigation
and attorneys' fees, cost of securing a new tenant, and costs of making the
Premises ready for a new tenant. In the event of any termination, Landlord
shall have the option, without notice or demand, to enter upon and repossess
the Premises and remove any personal property of Tenant from the Premises and
store it in any public warehouse at the risk and expense of Tenant. Tenant
hereby waives all claims for damages which may be caused by the re-entry of
Landlord and taking possession of the Premises or removing or storing the
furniture and property as herein provided, and will save Landlord harmless
from any loss, costs or damages occasioned Landlord thereby, and no such
re-entry shall be considered or construed to be a forcible entry; or
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(b) to continue this Lease in full force and effect, including
Tenant's right to possession and Landlord's right to collect rental as it
becomes due, provided Landlord may, at Landlord's option, elect at any time
thereafter while Tenant remains in default to terminate this Lease, and may
without terminating this Lease, take any action necessary or appropriate,
including entering upon the Premises, to cure any breach, in which event the
reasonable costs to Landlord for such cure, including attorneys' fees, shall
become immediately due and payable by Tenant as additional rental hereunder,
and shall bear interest at the rate of 10% per annum. Any installment of rent
or other payment which is not paid when due shall bear interest at the same
rate until paid; and
(c) to seek such equitable or other relief as may be appropriate.
It is specifically agreed that if, at any time during the term of
this Lease, applicable laws grant or allow to Landlord other or greater
remedies for default, Landlord shall be entitled to such other or greater
remedies.
ARTICLE XII
NO MERGER
No termination of this Lease shall cause a merger of the estates of
Landlord and Tenant unless Landlord so
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elects, and any such termination shall, at the option of Landlord, either work
a termination of any sublease then in effect or act as an assignment to
Landlord of Tenant's interest in any such sublease.
ARTICLE XIII
CERTIFICATE
Each party agrees at any time and from time to time within fifteen
days after written request therefor to execute, verify and deliver to the
other party a certificate that this Lease is unmodified and in full force and
effect (or if modified, stating the modifications and that it is in full force
and effect as so modified), stating the current rate of rent, stating the date
to which rent has been paid, stating whether or not Tenant is in default
hereunder, and if Tenant is in default, stating in what particulars. It is
intended that any such certificate may be relied upon by any prospective
purchaser of the fee, any person contemplating accepting a lien on the
property or leasehold as security, or any prospective assignee of this Lease.
Landlord also shall deliver such a certificate if so requested by any
Leasehold Mortgagee.
ARTICLE XIV
EMINENT DOMAIN
(a) In the event of a partial taking of the
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Premises in or by condemnation or other eminent domain proceedings pursuant
to any law, general or special, where the extent of such taking is such that
the portion of the Premises remaining is not unsuitable for Tenant's use,
then in such event this Lease shall continue in full force and effect
notwithstanding such taking; provided, however, that if the portion remaining
is not suitable for Tenant's use, Tenant may terminate this Lease within
thirty days thereafter by giving written notice thereof to Landlord. In the
event that Tenant terminates this Lease on such thirty days' notice by reason
of such taking, the award therefor shall be distributed as provided in
Section (b) below. In the event that the use or occupancy of the Premises or
any part thereof shall be temporarily requisitioned by any governmental
authority, civil or military, then in such event this Lease shall continue in
full force and effect notwithstanding such requisition. Tenant shall after
any such partial taking not involving the termination of this Lease or any
such requisition and at its expense, repair and restore any damage caused by
any such taking or requisition in conformity with the requirements of this
Lease so that after the completion of such restoration the Premises shall be,
as nearly as possible, in a condition as good as the condition thereof
immediately prior to such taking or requisition. In the event of any such
partial taking the net award therefor after deduction of costs, fees and
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expenses incurred by Landlord, Tenant and any Leasehold Mortgagee in the
collection thereof shall be deposited with the Leasehold Mortgagee, if any,
or, if none, with Landlord. The Leasehold Mortgagee or Landlord, as the case
may be, shall then make available to Tenant so much of said award as is
necessary to effect such restoration. Upon completion of such restoration,
the balance, if any, of the award then remaining shall be payable as follows
in the following priority:
(i) In the event the judgment, order or decree entered in the
condemnation proceedings shall make separate awards to Landlord and Tenant as
compensation for the taking or requisition of their respective interests, then
(A) first to Landlord up to the amount of its separate award;
and
(B) any amount remaining to Tenant (subject to the terms of
any Leasehold Mortgage), less, however, the amount of any indebtedness
then owing by Tenant to Landlord under the provisions of this Lease.
Such separate awards as determined shall be conclusive and binding upon
Landlord and Tenant and any person claiming by, through or under either
of them.
(ii) In the event, however, that there shall be a single lump sum
award for the respective interests of Tenant and Landlord taken or
requisitioned as aforesaid, without allocation between the respective
interests of Landlord and Tenant, then
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(A) first to Landlord as compensation for its entire interest
thus taken or requisitioned, the sum equal to the value of its interest
in the Premises as encumbered by this Lease to be determined by Landlord
and Tenant with respect to all relevant facts existing at the time of
such taking or requisition. If Landlord and Tenant cannot agree on such
value, the value shall be determined by appraisers who shall be experienced
in appraising property in San Diego County, California. Landlord and
Tenant shall each appoint one appraiser and the two appraisers so appointed
shall appoint a third. The determination of a majority of the appraisers
shall be binding; and
(B) any amount remaining to Tenant (subject to the terms of any
Leasehold Mortgage), less, however, the amount of any indebtedness then
owing by Tenant to Landlord under the provisions of this Lease.
If, as a result of such taking the interior area of the Garage or such other
Improvements which may have replaced the Garage shall be reduced, then in such
event, after restoration, the monthly Basic Rental reserved hereunder shall be
reduced by the same ratio as the reduction in such interior area resulting
from such taking. In the event of any temporary requisition, Tenant shall be
entitled to receive the entire net award payable by reason of such temporary
requisition. If the cost of any repairs required
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to be made by Tenant pursuant to this Article shall exceed the amount of the
net award, the deficiency shall be paid by Tenant. No payments shall be made
to Tenant pursuant to this Article if any default shall have happened and be
continuing under this Lease unless and until such default shall have been
cured or removed.
(b) In the event of a total taking of the Premises, then this Lease
shall terminate as of the date of such taking. In such event, and in the
event this Lease is terminated on thirty days' notice from Tenant to Landlord
upon a partial taking as provided in Section (a) above, the net award after
deduction of costs, fees and expenses incurred by Landlord, Tenant and any
Leasehold Mortgagee in the collection thereof, shall be payable in the same
manner and priority as provided in subsections (a)(i) and (a)(ii) of Section (a)
above.
(c) For the purposes of this Article, all amounts paid pursuant to
any agreement with any condemning authority which has been made in settlement
of or under threat of any condemnation or other eminent domain proceeding
affecting the Premises shall be deemed to constitute an award made in such
proceeding.
(d) In the event that Tenant's interest under this Lease is subject
to a Leasehold Mortgage, all amounts payable to Tenant pursuant to this Article
shall be paid to the Leasehold Mortgagee to be applied by the Leasehold
Mortgagee in accordance with the Leasehold Mortgage. Such
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Leasehold Mortgagee shall have the right to participate in any condemnation
proceeding affecting the Premises.
ARTICLE XV
LITIGATION
If Landlord is made a party without Landlord's fault to any
litigation brought by or against Tenant, Tenant agrees to pay Landlord's
costs, expenses and reasonable attorneys' fees. In the event of any
litigation between the parties hereto, the prevailing party in such litigation
shall be entitled to recover from the other party its costs, expenses and
reasonable attorneys' fees therein incurred.
ARTICLE XVI
SUBLETTING AND ASSIGNMENT
Tenant shall have the right to sublet all or any portion of the
Premises for periods not extending beyond the final expiration of this Lease.
Tenant shall not have the right to assign this Lease or any interest herein
without the prior written consent of Landlord, which will not be withheld
unreasonably upon a showing that the proposed assignee has adequate financial
strength to perform its obligations hereunder and assumes and agrees in
writing with Landlord to be bound by this Lease. No assignment shall relieve
Tenant of any obligations hereunder unless Landlord expressly shall so agree
in writing. No consent to any
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assignment shall constitute a waiver of this provision or a consent to any
other assignment. Neither this Lease nor any interest herein shall be
assignable, except as expressly provided hereinabove and in Article XXIV,
whether by act of law, including bankruptcy, both voluntary and involuntary,
or otherwise, and no Trustee, Sheriff, creditor or purchaser at any judicial
sale, or any officer of any court or receiver shall acquire any right under
this Lease or to the possession or use of the Premises or any part thereof
without the prior written consent of Landlord. Any violations of the terms of
this Article shall, at the option of Landlord, be deemed a breach of this
Lease.
ARTICLE XVII
LANDLORD'S RIGHT OF ENTRY
Landlord and Landlord's agents may enter upon the Premises at any
reasonable time to post such notices as Landlord may deem necessary to exempt
Landlord and Landlord's title from responsibility on account of any work done
by or for Tenant upon or in connection with the Premises, or to inspect and
examine the Premises and see that the covenants hereof are being kept and
performed, and to exhibit the Premises to prospective purchasers thereof or
lenders.
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ARTICLE XVIII
WAIVER BY LANDLORD
Any waiver by Landlord of any breach of any one or more of the
terms, covenants or conditions of this Lease shall not be a waiver of any
subsequent or other breach of the same or of any other term, covenant or
condition of this Lease nor shall any failure of Landlord to require or exact
full and complete compliance with any of the terms, covenants or conditions
of this Lease be construed as changing the terms hereof, or estop Landlord
from enforcing the full provisions hereof, nor shall the terms of this Lease
be changed or altered in any way whatsoever other than by written agreement.
All remedies herein provided are cumulative, and in addition to any others
granted by law.
ARTICLE XIX
NOTICE
Notice or demand hereunder from Landlord to Tenant shall be mailed,
registered or certified mail, postage prepaid, addressed to Tenant at 17991
Fitch, Irvine, California 92714, or such other address as Tenant shall have
specified by written notice to Landlord. Notice or demand hereunder from
Tenant to Landlord may be mailed, registered or certified mail, postage
prepaid, addressed to Landlord at 770 "B" Street, Suite 207, San Diego,
California 92101, or at such other address as Landlord shall have specified by
written notice to Tenant.
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ARTICLE XX
SURRENDER OF POSSESSION BY TENANT
Tenant agrees, upon the expiration or termination of this Lease,
peaceably to yield up and surrender the Premises in good order, condition and
repair, except for reasonable wear and tear. Tenant hereby waives notice to
quit or vacate. If Tenant shall hold over after the expiration of this Lease
for any cause with the consent of Landlord, such holding over shall be deemed
a tenancy from month to month only, otherwise upon the same terms, conditions
and provisions as contained in this Lease and the rent for such period of
holding over shall be prorated on a monthly basis and paid in advance.
ARTICLE XXI
MEMORANDUM OF LEASE
At the request of either party, the parties shall execute all
instruments and documents and take all acts and actions necessary or required
in order to permit this Lease, or a memorandum of Lease with respect thereto,
to be recorded in the office of the San Diego County Recorder. Upon any
termination of this Lease, or upon its expiration, Tenant shall execute,
acknowledge and deliver to Landlord a quitclaim deed or other recordable
document evidencing the termination of Tenant's interest in the Premises.
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ARTICLE XXII
EXISTING TENANCIES
On the date of execution of this Lease, portions of the ground
floor of the Garage are leased by Landlord to commercial tenants. A complete
list as of such date of all leases, tenancies, rental agreements, and
concession agreements affecting the Premises is attached hereto as Exhibit A,
each of which Landlord warrants will be subordinate to the Lease. Landlord
hereby assigns to Tenant all of Landlord's right, title and interest upon the
commencement of this Lease, in and to all of such leases, tenancies, rental
agreements and concession agreements. Rent from such leases shall be
prorated between the parties as of the commencement date of this Lease.
Percentage rental based upon sales of tenants under such leases, if
calculated or averaged over a period extending beyond the commencement date
of this Lease, shall be prorated between the parties on the basis of the
respective number of days in the period on the basis of which percentage rent
is calculated falling before or after the commencement date of this Lease.
ARTICLE XXIII
PARKING OPERATIONS
Landlord is in the business of operating parking facilities and is
affiliated with other operators of parking facilities. The parties hereby
agree that Landlord or
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another person or entity designated by Landlord ("Landlord's designee") shall
be the operator of the parking facility located upon the Premises throughout
the term of this Lease so long as:
(a) A parking facility is operated on the Premises;
(b) Landlord or Landlord's designee is a professional operator of
parking facilities in the City of San Diego;
(c) Landlord or Landlord's designee performs its functions as
parking facility operator in a manner consistent with good professional
practices as they exist from time to time and are commonly applied in other
major parking facilities in the downtown San Diego area;
(d) Landlord or Landlord's designee is willing to contract to
operate such facility on a financial basis which is competitive (within 10% of
customary charges of responsible and comparable operators) with that which
other reputable operators of major parking facilities in the City of San Diego
would be willing to accept;
(e) Landlord or Landlord's designee shall have entered into a
management agreement with Tenant which is reasonably acceptable to Tenant (the
"Management Agreement") providing for operation of such parking facility
and there shall be no default thereunder; and
(f) Tenant shall have the right and power to establish the
operating policies pursuant to the Management Agreement to be followed by
Landlord or its designee in
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the operation of the parking facility including, but not limited to, the hours
of operation, the types of parking, i.e. transient, daily, weekly or monthly,
and the parking rates, including the right to designate all or any portion of
the parking spaces for the exclusive use of the tenants in the building to be
constructed on adjacent premises, with or without cost therefor.
At the commencement of the term of this Lease, the Management
Agreement shall provide for a management fee of $1,250 per month. The
operator may use, rent free, the offices at 1111 Seventh Avenue.
Landlord names Ace Auto Parks, Inc., a California corporation, as
Landlord's designee. Landlord may change such designation by written notice
to Tenant, but no change of designation shall be effective earlier than the
earliest date thereafter on which Tenant is entitled to terminate the
Management Agreement then in effect, pursuant to the terms of such Management
Agreement.
In the event of default by Landlord or Landlord's designee under the
Management Agreement, Tenant shall have the right to dismiss Landlord or
Landlord's designee as operator of the parking facility located on the
Premises. If for any reason Landlord or Landlord's designee shall no longer
be the operator of such parking facility, the leasehold estate of Tenant
created by this Lease shall not
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thereby be impaired or affected; and the terms and provisions of this Lease
shall continue in full force and effect notwithstanding the fact that Landlord
or Landlord's designee shall no longer be the operator of such parking
facility for any reason.
ARTICLE XXIV
LEASEHOLD MORTGAGE
Tenant shall have the right without Landlord's prior consent to
encumber this Lease and Tenant's leasehold interest in the Premises in any
manner consistent with the leasehold estate created hereby. Any such
encumbrance, whether by mortgage, deed of trust, assignment of lease, or
otherwise, is referred to herein as a "Leasehold Mortgage" and the party
granted security thereby is referred to herein as a "Leasehold Mortgagee." No
Leasehold Mortgage shall create a lien upon the fee of the Premises or upon
Landlord's interest therein. It is agreed between Landlord and Tenant, in the
event any Leasehold Mortgage is given by Tenant, as follows:
(i) If Tenant or any Leasehold Mortgagee shall have
delivered to Landlord prior written notice of the address of
any Leasehold Mortgagee, Landlord will mail to the Leasehold
Mortgagee a copy of any notice or other communication from
Landlord to Tenant under this Lease at the time of giving such
notice or communication to Tenant, and
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no termination of this Lease, or of Tenant's right to possession of
the Premises or any reletting of the Premises by Landlord
predicated on the giving of such notice, shall be effective unless
Landlord gives to the Leasehold Mortgagee written notice, or a copy
of its notice to Tenant, of such termination at the time of service
of such notice upon Tenant.
(ii) In the event of any default by Tenant under any of
the provisions of this Lease, the Leasehold Mortgagee will have the
same grace period as is given Tenant for remedying such default or
causing it to be remedied, plus, in each case, an additional period
of 60 days after the expiration thereof or after Landlord has
served notice, or a copy of its notice to Tenant, of such default
upon the Leasehold Mortgagee, whichever is later.
(iii) In the event Tenant defaults under any of the
provisions of the Lease, irrespective of whether the same consists
of a failure to pay rent or a failure to do any other thing which
Tenant is required to do hereunder, the Leasehold Mortgagee,
without prejudice to any of its rights against Tenant, shall have
the right to cure such default hereunder within the applicable
grace period
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provided for in the preceding subparagraph (ii), and Landlord shall
accept such performance on the part of the Leasehold Mortgagee as
though the same has been performed by Tenant; and for such purpose
Landlord and Tenant hereby authorize the Leasehold Mortgagee to
enter upon the Leased Premises and to exercise any of Tenant's
rights and powers under this Lease.
(iv) The term "Incurable Default" as used herein means a
default which cannot reasonably be cured by a Leasehold Mortgagee
by the payment of money or within the time period allowed for the
cure of such default. The term "Curable Default" means any default
under this Lease which is not an Incurable Default. In the event of
any Curable Default by Tenant under any of the provisions of this
Lease and if prior to the expiration of the applicable grace period
the Leasehold Mortgagee shall give Landlord written notice that it
intends to undertake the curing of such default, or to cause the
same to be cured, or to exercise it's rights to acquire the
interest of Tenant in the Lease by foreclosure or otherwise, and
shall immediately commence and then proceed with all due diligence
to do so, whether by performance on behalf of Tenant of its
obligations under this Lease or by entry on the Premises by
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foreclosure or otherwise, then Landlord will not terminate or take
any action to effect a termination of this Lease or reenter, take
possession of or relet the Premises or otherwise enforce
performance of this Lease so long as the Leasehold Mortgagee is
with all due diligence and in good faith engaged in effecting such
foreclosure or in the curing of such default and so long as any
monetary defaults are cured by the Leasehold Mortgagee in the event
of such foreclosure; provided that the Leasehold Mortgagee shall
not be required to continue such possession or continue such
foreclosure proceedings after such default is cured. Nothing herein
shall preclude Landlord from terminating this Lease with respect to
any additional default which may occur during the aforesaid period
of forbearance and is not remedied within the period of
grace, if any, applicable to any such additional default.
(v) In event of termination of this Lease by reason of an
Incurable Default of Tenant hereunder or in the event Tenant's
interest under this Lease shall be sold, assigned or transferred
pursuant to the exercise of any remedy of the Leasehold Mortgagee,
or pursuant to judicial proceedings, and in the event that within
30 days thereafter the Leasehold Mortgagee shall have paid, or
arranged to the reasonable satisfaction of Landlord for the payment
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of, all rent and other charges which but for such termination would
have become so due and payable from the date of such termination
through the 60th day thereafter, and shall have arranged to the
reasonable satisfaction of Landlord for the curing of any Curable
Default on the part of Tenant, then Landlord, within 30 days after
receiving a written request therefor given any time prior to such
60th day and upon payment of all expenses (including reasonable
attorneys' fees), will execute and deliver to the Leasehold
Mortgagee or its nominee or to the purchaser, assignee or
transferee, as the case may be, a new lease of the Leased Premises.
Such new lease shall be for a term equal to the remainder of the
term of this Lease before giving effect to such termination, shall
contain the same covenants, agreements, conditions and limitations
as this Lease, and shall be subject only to encumbrances and other
matters existing as of the date hereof and acts done or suffered by
Tenant and such new lease shall have priority over matters
occurring after the date hereof. Upon the execution and delivery
of such new lease, the new tenant, in its own name or in the name
of Landlord, may take all appropriate steps as may be necessary to
remove Tenant from the
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Premises, but Landlord shall not be subjected to any liability for
the payment of any fees (including counsel fees), costs or expenses
in connection therewith. The new tenant shall pay all such fees,
including reasonable counsel fees, costs and expenses or, on
demand, make reimbursement therefor to Landlord. In such event the
ownership of all Improvements shall be deemed to have been
transferred directly to such transferee of Tenant's interest in
this Lease and the provisions of Section (e) of Article VII hereof
causing such Improvements to become the property of Landlord in the
event of a termination of this Lease shall be ineffective as
applied to any such termination.
(vi) In the event a default under the Leasehold Mortgage shall
have occurred, the Leasehold Mortgagee may exercise with respect to
the Leased Premises any right, power or remedy under the Leasehold
Mortgage which is not in conflict with any of the provisions of this
Lease.
(vii) There shall be no merger of the leasehold estate created
under this Lease with the fee estate in the Leased Premises by
reason of the fact that the leasehold estate may be held directly or
indirectly by or for the account of any person who shall also hold
the fee estate, or any interest
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in such fee estate, nor shall there be any such merger by reason of
the fact that all or any part of the leasehold estate may be
conveyed or mortgaged to a Leasehold Mortgagee who shall also hold
the fee estate, or any part thereof, or the leasehold estate, or
any part thereof, or any interest of Landlord or Tenant under this
Lease.
(viii) No acceptance by Landlord of a voluntary surrender of
this Lease, or any amendment or modification of this Lease, shall
be effective or binding unless the written consent of any Leasehold
Mortgagee is first obtained. The exercise by Landlord of any right
of termination pursuant to the terms of this Lease, however, shall
not be deemed a "voluntary surrender," nor shall anything herein
require that Landlord obtain the consent of any Leasehold Mortgagee
before commencing any action or proceeding based upon a default
hereunder by Tenant.
(ix) Landlord hereby consents to the inclusion of a provision
in the Leasehold Mortgage for the assignment of rents from
subtenants of the Leased Premises to the Leasehold Mortgagee.
(x) This Lease may be assigned by an assignment in lieu of
foreclosure of a Leasehold Mortgage or pursuant to a foreclosure
sale or sale pursuant
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to power of sale under a Leasehold Mortgage and may be further
assigned by the assignee or purchaser without the prior consent of
Landlord, provided the assignee assumes the Tenant's obligations
under this Lease and an executed counterpart of such assumption is
delivered to Landlord. If the Leasehold Mortgagee or any insurance
company, bank or similar lending institution shall be the assignee
of this Lease, its liability under such assumption agreement shall
be limited to the period it is in possession or ownership of the
leasehold estate created hereby, provided that the party to whom
this Lease is assigned by the Leasehold Mortgagee or such insurance
company, bank or lending institution executes and delivers to
Landlord at the time of such assignment a like assumption
agreement, but without limitation, as to duration of liability.
ARTICLE XXV
LIABILITY OF PARTNERS
Landlord agrees that no General Partner of Tenant shall have any
personal or individual liability under this Lease for any rent accruing or
other obligations falling due hereunder more than seven (7) years after the
commencement of the term hereof. As to obligations accruing after that date,
Landlord will look solely to the assets of Tenant, which Landlord understands
initially will be a limited
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partnership.
In the event of the death of any individual General Partner of
Tenant prior to the expiration of said seven (7) years, Landlord agrees to
waive as to that General Partner and his estate liability for rent accruing
or other obligations falling due after the date of such death, provided that
there are other General Partners then remaining liable under this Lease whose
assets and income are sufficient in Landlord's reasonable opinion to provide
reasonable security to Landlord for the payment of rent and performance of
other obligations during the balance of said initial seven (7) year period,
or such rent and other obligations are otherwise adequately secured.
ARTICLE XXVI
OPTION TO PURCHASE
At any time following the expiration of fifty (50) years from the
commencement of the term hereof, provided Tenant is not then in default
hereunder, Tenant shall have the right and option to purchase the Premises
for the fair market value thereof. The option shall be exercised by Tenant
giving to Landlord notice of desire to purchase. Upon the giving of such
notice, the parties shall attempt in good faith to negotiate and agree upon
the then fair market value of the property. The value shall be determined
without considering the effect thereon of this Lease, and
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exclusive of the value of any structural improvements placed on the property
by Tenant, except improvements at least 80% of the cost of which was paid
with insurance proceeds or condemnation award or proceeds resulting from
damage or taking of the Garage or other Improvement replacing the Garage.
In the event that, within ninety (90) days, they are unable to agree upon
such value, they shall attempt to agree upon a single professional real
estate appraiser to determine the value. If they are unable to so agree,
they shall each appoint one professional real estate appraiser, and the two
so appointed shall appoint a third, and each of the three shall determine
what, in his opinion, is the then fair market value of the property. The
arithmetic mean of the determinations of the said appraisers shall be deemed
to be the fair market value of the property, and both Landlord and Tenant
shall be notified of that fact. Within sixty (60) days after such
notification, Tenant may give notice to Landlord that Tenant is unwilling to
complete the purchase, in which event Tenant shall pay the entire cost of the
appraisal, but otherwise the cost of the appraisal shall be borne equally by
Landlord and Tenant. Unless Tenant so indicates its desire not to go
forward, the parties shall proceed promptly with the opening of an escrow
with a reputable escrow company doing business in San Diego, California, or
otherwise shall take such action as is then customary in San Diego,
California, for the consummation of the purchase.
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The purchase price shall be paid in cash within ninety (90) days following
the determination of the fair market value of the property as hereinabove set
forth, unless the parties shall otherwise agree. Taxes and other items which
are then customarily prorated shall be prorated, and the expenses of the
escrow or other method of sale shall be divided between the parties in the
manner which is then customary in San Diego, California. In the event that
the parties are unable to agree on any of the matters which, other than
value, are to be agreed upon between them or determined as is customary, such
matters shall be subject to arbitration in the same manner as is provided for
herein with respect to value.
ARTICLE XXVII
TIME OF THE ESSENCE
Time is of the essence of each and all of the terms and conditions
of this Lease. The provisions hereof shall inure to the benefit of and be
binding upon the parties hereto, their successors and assigns as fully and to
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the same extent as through specifically mentioned herein in each instance.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as
of the day and year first above written.
METROPOLITAN GARAGES, INC.,
Landlord
By:
-------------------------------------
President
By:
-------------------------------------
Secretary
CROW PARKADE,
Tenant
By:
-------------------------------------
General Partner
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RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
Robert A. Kendall, Esq.
RHODES, KENDALL & HARRINGTON
A Professional Law Corporation
4299 MacArthur Boulevard
Suite 105
Newport Beach, California 92660
WE HEREBY CERTIFY THAT THIS IS A FULL,
TRUE AND CORRECT COPY OF THE ORIGINAL
DOCUMENT AS THE SAME APPEARS IN THE
OFFICE OF THE COUNTY RECORDER OF
__________________ COUNTY, STATE OF
CALIFORNIA, RECORDED ON __________________
IN BOOK ________________ OF OFFICIAL RECORDS
AT PAGE ________________ SERIAL NO. _________________
SAFECO TITLE INSURANCE COMPANY
By
------------------------------
- --------------------------------------------------------------------------------
(Above Space for Recorder's Use Only)
MEMORANDUM OF AMENDMENT AND
RESTATEMENT OF LEASE
This Memorandum of Amendment and Restatement of Lease (this
"Memorandum") is executed as of January 1, 1980, by Crow Parkade, a Texas
limited partnership ("Tenant"), and Metropolitan Garages, Inc., a California
corporation ("Landlord"), with respect to the land located in the City of San
Diego, County of San Diego, State of California, described as follows:
"Lots E, F, G, H and I in Block 20 of Horton's
Addition in the City of San Diego, County of
San Diego, State of California, according to
map thereof made by L.L. Lockling on file in
the office of the County Recorder of San Diego
County,"
(the "Land"), and the parking garage now located thereon and all other
buildings, structures and improvements now existing or hereafter constructed
on the Land during the term of this Memorandum, and any addition, restoration
or replacement of such parking garage and of any such buildings, structures
and improvements (the "Improvements"), together with all easements, rights
and appurtenances in connection therewith or thereunto belonging. The Land
and the Improvements together with all such easements, rights and
appurtenances are referred herein collectively as the "Premises."
This Memorandum is executed with respect to the following facts:
<PAGE>
A. On July 1, 1979, Landlord entered into a lease with M.H. Golden
Construction Company, a California corporation ("Golden"), as tenant, with
respect to the Premises. Such lease was recorded in the Office of the
Recorder of San Diego County, California, on January 3, 1980, as
Document/File No. 80-001308.
B. By instrument entitled "Assignment and First Amendment to
Lease," executed on December 31, 1979, Golden assigned its rights and
obligations under such lease to Tenant, Tenant accepted such assignment, and
Landlord consented thereto and released Golden from liability, and such lease
was amended to various particulars. Such Assignment and First Amendment to
Lease was recorded January 3, 1980, in the office of the Recorder of San
Diego County, California, as Document/File No. 80-001309.
C. The term of such lease, as so amended and assigned, commenced
January 1, 1980.
D. The parties now desire to further amend the completely restate
such lease, effective as of January 1, 1980.
NOW, THEREFORE, such lease, as heretofore assigned and amended, is
hereby further amended and restated in its entirety, effective as of January 1,
1980, by that certain unrecorded Amendment and Restatement of Lease dated
January 1, 1980, (the "Lease"), which as of January 1, 1980, supersedes
entirely such original lease and such Assignment and First Amendment to Lease:
1. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Premises, for a term commencing January 1, 1980, and expiring at
midnight December 31, 2076, upon the subject to all of the terms and
conditions set forth in the Lease.
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2. Landlord hereby grants to Tenant the right and option to
purchase the Premises, at any time following the expiration of 50 years from
the commencement of the term hereof, upon and subject to the terms and
conditions set forth in Article XXVI of the Lease.
3. All of the terms and conditions of the Lease, including but
not limited to the terms and conditions of Article XXVI, are incorporated
herein by this reference.
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Memorandum as of the day and year first above written.
METROPOLITAN GARAGES, INC.,
Landlord
By
-------------------------------------
President
By
-------------------------------------
Secretary
CROW PARKADE,
Tenant
By
-------------------------------------
General Partner
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<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN DIEGO )
On JUNE 2, 1980, before me, the undersigned, a Notary Public in and for
said State, personally appeared EVAN V. JONES, known to me to be the
_____________ President, and SCOTT A. JONES, known to me to be the _____________
Secretary of the corporation that executed the within instrument, and known to
me to be the persons who executed the within instrument on behalf of the
corporation therein named, and acknowledged to me that such corporation executed
the within instrument pursuant to its by-laws or a resolution of its board of
directors.
WITNESS my hand and official seal.
/s/ Yvonne L. Carlson
-------------------------------------
Notary Public in and for
said State
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On MAY 20, 1980, before me, the undersigned, a Notary Public in and for
said State, personally appeared DONALD RUSSELL, known to me to be a general
partner of the partnership that executed the within instrument, and
acknowledged to me that such partnership executed the same.
WITNESS my hand and official seal.
/s/ Culana M. Murray
-------------------------------------
Notary Public in and for
said State
<PAGE>
EXHIBIT 10.12
LEASE AGREEMENT
(Parcel 6 of Parcel Map No. 15307 of Business Park)
-----
By and Between
CITY OF LONG BEACH,
a municipal corporation
"City"
and
LONG BEACH AIRPORT BUSINESS PARK,
a California general partnership
"Developer"
CITY OF LONG REACH, CALIFORNIA
<PAGE>
TABLE OF CONTENTS
Page
----
1. SUBJECT OF LEASE1
1.1 Purpose of Lease....................................................1
1.2 Lease of Premises...................................................1
1.3 Lease of Adjacent Premises..........................................2
1.4 Option to Lease.....................................................2
1.5 Parties to the Agreement............................................2
1.5.1 City........................................................2
1.5.2 Developer...................................................2
1.5.3 Association by Developer....................................2
1.6 Definition of Terms.................................................2
1.6.1 Premises....................................................3
1.6.2 Business Park...............................................3
1.6.3 Project.....................................................3
2. TERM.....................................................................3
3. RENT.................................................................... 4
3.1 Minimum Lease Payment...............................................4
3.2 Rental Adjustment...................................................4
3.3 Additional Rental Adjustments.......................................6
4. ENCUMBRANCES.............................................................9
4.1 Right to Encumber...................................................9
4.2 Lender's Rights.....................................................9
4.3 Lender Defined.....................................................11
4.4 Notice.............................................................12
4.5 Request for Not....................................................12
4.6 New Lease..........................................................12
4.7 Consent of Lend....................................................13
4.8 No Merger..........................................................14
4.9 Lender's Liability.................................................14
5. ASSIGNMENT and SUBLETTING...............................................15
5.1 Assignment.........................................................15
5.1.1 Developer................................................15
5.1.2 Approval by City.........................................15
5.1.3 Other Transfers..........................................16
5.1.4 Assignment Invalid.......................................17
5.1.5 No Release...............................................17
5.1.6 Additional Restrictions..................................17
5.2 Subletting.........................................................18
5.2.1 Restrictions on Sublease.....................................19
5.2.2 Consent to Sublease..........................................20
5.3 Sale of Buildings..................................................20
6. INDEMNITY, INSURANCE, CASUALTY DAMAGE...................................21
6.1 Indemnification and Hold Harmless..................................21
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Page
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6.2 Insurance..........................................................21
6.2.1 Liability Insurance..........................................21
6.2.2 Fire and Extended Cover......................................22
6.2.3 General Requirements.........................................22
6.2.4 Miscellaneous................................................22
6.2.5 Blanket Policies.............................................23
6.2.6 Self-Insurance...............................................23
6.3 Damage or Destruction..............................................23
6.3.1 Restoration of Premises......................................23
6.3.2 Right to Terminate...........................................24
6.3.3 No Reduction in Rent.........................................24
7. DEVELOPMENT OF THE PROJECT..............................................25
7.1 Scope of Development...............................................25
7.2 Phase Development..................................................25
7.3 Performance and Payment Bonds......................................25
7.3.1 Agreement to Provide.......................................25
7.3.2 Term of the Bond...........................................26
7.3.3 Penal Sum..................................................26
7.4 Construction.......................................................26
7.4.1 Costs of Construction......................................26
7.4.2 Right to Improve...........................................26
7.4.3 Construction Schedule......................................27
7.4.4 City and Other Government
Agency Permits...........................................27
7.4.5 Rights of Access...........................................27
7.4.6 Local, State and Federal Laws..............................27
7.4.7 Anti-Discrimination During Construction....................28
7.4.8 Responsibilities of City and Developer.....................28
7.4.9 Responsibilities of City...................................28
7.4.10 Maintenance................................................29
7.4.11 Acceptance of Premises.....................................29
8. USE.................................................................... 29
8.1 Government Use Control.............................................29
8.1.1 Zoning.....................................................29
8.1.2 Federal Aviation Administration............................29
8.1.3 Rental Adjustment..........................................30
8.1.4 No Waiver of Remedies......................................31
8.1.5 Notice of Default..........................................31
8.2 Inspection.........................................................32
9. LIENS...................................................................32
9.1 Developer's Responsibility.........................................32
9.2 Notice of Work.....................................................32
9.3 Discharge of Liens.................................................32
9.4 City's Right to Pay................................................32
9.5 Reimbursement of City..............................................33
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Page
----
10. CONDEMNATION............................................................33
10.1 Definition of Terms.............................................33
10.1.1 Total Taking..........................................33
10.1.2 Partial Taking........................................33
10.1.3 Taking................................................33
10.1.4 Date of Taking........................................34
10.1.5 Leased Land...........................................33
10.2 Effect of Taking................................................33
10.3 Allocation of Award.............................................34
10.3.1 City's Share..........................................34
10.3.2 Developer's Share.....................................34
10.4 Reduction of Rent on Partial Taking.............................34
10.5 Temporary Taking................................................34
11. ALTERATIONS BY DEVELOPER................................................35
12. TAXES AND ASSESSMENTS...................................................35
12.1 Payment by Developer............................................35
12.2 Installment Payments............................................35
12.3 Proration.......................................................36
12.4 Right to Contest................................................36
13. CERTIFICATES BY DEVELOPER AND CITY......................................36
13.1 Developer to Provide............................................36
13.2 City to Provide.................................................36
14. QUIET ENJOYMENT -- TITLE INSURANCE - ACCESS.............................37
14.1 Quiet Enjoyment.................................................37
14.2 Title Policy....................................................37
15. TERMINATION AND FURTHER LEASING.........................................37
15.1 Termination.....................................................37
15.2 Termination by City.............................................37
16. EXPIRATION OF LEASE AND SUBSEQUENT LEASING..............................38
16.1 Continuation of Use.............................................38
16.2 Valuation.......................................................38
16.3 Developer's Rights..............................................38
16.3.1 New Lease.............................................38
16.3.2 Salvage of Improvements...............................38
17. GENERAL PROVISIONS......................................................39
17.1 Good Faith Deposit..............................................39
17.1.1 Receipt by City....................................39
17.1.2 Return of Deposit..................................40
17.1.3 Retention of Deposit by City.......................40
17.2 Notices, Demands and Communications Between Parties.............41
17.3 Conflict of Interest............................................41
17.4 Enforced Delay: Extension of Time of Performance................41
17.5 Audit...........................................................42
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Page
----
17.6 Defaults and Remedies..............................................42
17.6.1 Defaults - General....................................42
17.6.2 Adjacent Parcel
Lease Exceptions......................................42
17.6.3 Institution of Legal Actions..........................44
17.6.4 Applicable Law........................................44
17.6.5 Service of Process....................................45
17.6.6 Rights and Remedies Are Cumulative....................45
17.6.7 Inaction Not a Waiver of Default......................45
17.6.8 Remedies..............................................45
17.6.9 Arbitration - Declaratory
Relief................................................46
17.7 Developer's Inability to Commence or
Complete Construction..............................................46
17.7.1 Developer's Right to Terminal.........................46
17.7.2 City's Exercise of Remedies...........................46
17.7.3 Payment to Developer..................................47
17.7.4 Delivery of Plans.....................................48
17.8 Right to Contest Laws...........................................48
17.9 Trade Fixtures..................................................48
17.10 Continued Possession of Tenant..................................49
17.11 Utilities.......................................................49
17.12 Surrender.......................................................49
17.13 Partial Invalidity..............................................49
17.14 Section Headings................................................49
17.15 Short Form Lease................................................50
17.16 Entire Agreement, Waivers and Amendments........................50
17.17 Waivers.........................................................50
17.18 Approvals.......................................................50
17.19 Successors in Interest..........................................50
17.20 Litigation and Attorney's Fees..................................50
17.21 Right of First Refusal to Purchase..............................50
17.22 Subject to Declarations.........................................51
ACKNOWLEDGEMENTS
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THE FOLLOWING ITEMS ARE ATTACHED TO THE LEASE:
l. Exhibit "A" - Legal Description of the Premises
2. Exhibit "B" - Site Plan of the Premises
3. Exhibit "C" - Legal Description of the Property Demised
by the Adjacent Property Lease
4. Exhibit "D" - Agreement of Non-Disturbance (Parcel 6 of
Parcel Map No.15307 of Business Park)
-----
5. Exhibit "E" - Incremental Development Rider
6. Exhibit "F" - Construction Requirements
7. Exhibit "G" - Exhibit "G" has intentionally been left blank
8. Exhibit "H" - FAA Required Lease Provisions
9. Exhibit "I" - Exhibit "I" has intentionally been left blank
10. Exhibit "J" - Short Form Ground Lease (Parcel 6 of
Parcel Map No. 15307 of Business Park)
-----
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<PAGE>
LEASE AGREEMENT
(Parcel 6 of Parcel Map No.15307 of Business Park)
-----
THIS LEASE AGREEMENT (Parcel 6 of Parcel Map No. 15307 of
Business Park) ("Lease") is made as of the 10th day of March , 1983 (but
shall be deemed at all times mentioned herein and for all purposes mentioned
herein to relate back to April 23, 1981, the date of the Master Ground Lease
described in Section 1.1 below), by and between LONG BEACH AIRPORT BUSINESS
PARK, a California general partnership composed of CARLTON BROWNE AND
COMPANY, INCORPORATED, a California corporation ("CB&C"), and SIGNAL.
DEVELOPMENT CORPORATION, a California corporation ("SDC"), which general
partnership is hereinafter referred to as "Developer" and the CITY OF LONG
BEACH, a municipal corporation (hereinafter referred to as "City"). City
and Developer hereby agree as follows:
1. SUBJECT OF LEASE:
1.1 PURPOSE OF LEASE. The purpose of this Lease is to
provide for the lease and improvement of certain premises, hereinafter
described (the "Premises"), as a portion of a business park. The business
park and a certain Fixed Base Operations facility located next to the
business park are hereinafter collectively referred to as the "Project".
This Lease is intended to replace and supersede as to the Premises only that
certain unrecorded Lease Agreement dated April 23, 1981, executed by the
Developer and the City (the "Master Ground Lease"), a short form of which
Master Ground Lease was recorded on August 6, 1982, as Instrument No.
82-795499 of the Official Records of the Los Angeles County, California
Recorder. This Lease shall have the same priority as to title with respect
to the Premises described on attached Exhibit "A" as the Master Ground
Lease. Any and all subleases entered into by Developer with respect to the
Premises shall automatically be subject and subordinate to this Lease.
Exhibit "E" to the Master Ground Lease provides for the segregation of the
Master Ground Lease. This Lease (which might be thought of as a mini master
ground lease) is intended to segregate the Premises from the Master Ground
Lease in accordance with said Exhibit "E". This Lease is entered into in
order to develop such portion of the Project and not for speculation in land
holding. The development of such portion of the Project pursuant to and as
contemplated by this Lease is in the vital and best interests of City and in
accord with the public purposes and provisions of applicable State and local
laws and requirements under which the Project is to be undertaken.
1.2 LEASE OF PREMISES. City hereby leases to Developer and
Developer takes and hires from City the Premises which are legally described
on Exhibit "A" and illustrated and
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<PAGE>
designated on the site map of the Project as Exhibit "B", both of which are
attached hereto and made a part hereof, upon the terms and conditions
hereinafter set forth.
1.3 LEASE OF ADJACENT PREMISES. As of April 23, 1981, City
leased to Developer certain real property known as the Fixed Base Operations
parcels, which real property is legally described in the attached Exhibit
"C". Said lease is hereinafter referred to as the "Adjacent Parcel Lease".
1.4 0PTION TO LEASE. This Lease, the Adjacent Parcel
Lease, the Master Ground Lease (as well as all other mini master ground
leases into which the Master Ground Lease has been or will be segregated)
have been executed and delivered pursuant to and as contemplated by that
certain Option and Lease Agreement dated April 23, 1981 by and between City
and Developer (the "Option") and are intended to modify and replace said
Option and the rights and obligations of the parties thereto.
1.5 PARTIES TO THE AGREEMENT.
1.5.1 CITY. City is a municipal corporation organized
and existing under the laws of the State of California. The principal office
of City is located at City Hall, 333 West Ocean Boulevard, Long Beach,
California 90802. The term "City" as used in this Lease includes the City
of Long Beach, California, and any assignee of or successor to its rights,
powers and responsibilities.
1.5.2 DEVELOPER. Developer is a general partnership
consisting of SDC, with a principal place of business at 17890 Skypark
Circle, Irvine California 92714, and CB&C, with a principal place of business
at 3191-A Airport Loop Drive, Costa Mesa, California 92626. The principle
place of business of Developer is 17890 Skypark Circle, Irvine California
92714.
A General Partnership Agreement has been executed by SDC
and CB&C, an executed copy of which has been delivered to City. SDC and CB&C
agree, upon request, to provide City with any amendments to this General
Partnership Agreement made and entered into during the term of this Lease, so
long as Long Beach Airport Business Park, a California general partnership,
is the party acting as Developer under this Lease. SDC and CB&C represent
and acknowledge that each one is jointly and severally liable to City under
this Lease.
1.5.3 ASSOCIATION BY DEVELOPER. Notwithstanding any
other provision hereof, Developer reserves the right, at its discretion, to
join and associate with other entities in joint ventures, partnerships or
otherwise for the
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<PAGE>
purpose of acquiring and developing the Premises, and may assign this Lease to
any such entity; provided that Developer continues to manage the development and
operation of the Premises and will remain fully responsible to the City as
provided in this Agreement, unless released from liability under Section 5.1
below. As used herein, manage shall mean to direct or supervise the operation
and execution of the development of the Premises and to have authority to act
for and bind the entity in all dealings with the City under this Lease. This
definition shall not be deemed to require Developer to retain absolute
discretion or policy making authority.
1.6 DEFINITION OF TERMS.
1.6.1 PREMISES. The term "Premises" as used in
this Lease means those certain premises legally described on Exhibit "A,"
attached hereto and illustrated and designated on the site map attached
hereto as Exhibit "B".
1.6.2 BUSINESS PARK. The term "business park"
as used in this Lease means that certain real property of approximately
42.6l acres legally described as Parcels 1 through 12, inclusive, of Parcel
Map No. 15307, in the City of Long Beach, County of Los Angeles, State of
California, as filed in Book 159, pages 50 through 53, inclusive, of Parcel
Maps of Los Angeles County, except therefrom, all oil, gas and other
hydrocarbons in and under said land, but without the right to use the
surface, or subsurface of said land above a depth of 100 feet, as reserved
by Bixby Land Company, a corporation, in deeds recorded in Book 18884, page
347, in Book 24554, page 211, in Book 28612, page 328, in Book 38790, page
367, in Book 46180, page 52, in Book 49399, page 406, in Book D-721, page
156 and in Book 37202, page 308, all of Official Records, and as reserved by
Wheeler F. Chase in deed recorded in Book 41754, page 423, Official Records
of said county.
1.6.3 PROJECT. The term "Project" as used in
this Lease means the business park as well as a certain Fixed Base
Operations facility located next to the business park. The Fixed Base
Operations facility contains an area of approximately 10.00 acres and is
legally described on Exhibit "C" attached hereto.
2. TERM:
The term of this Lease shall commence on the 8th
day of July, 1982, and shall continue thereafter for a period of fifty (50)
years.
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<PAGE>
3. RENT:
The rent provision contained in this Article 3 was
originally contained in the Master Ground Lease and it applied to the entire
business park portion of the Project. (The business park does not include
the Fixed Base Operations parcels.) In segregating the Master Ground Lease,
City and Developer have agreed that the rent for the segregated Premises
described on attached Exhibit "A" shall be a percentage of the rent
originally contained in the Master Ground Lease for the entire business
park. Thus, notwithstanding anything to the contrary hereinafter contained
in this Article 3 or otherwise in this Lease, City and Developer hereby
agree that the rent under this Lease is and shall be 61/100 percent (.61%) of
all rent provided for in this Article 3 and otherwise in this Lease.
3.1 MINIMUM LEASE PAYMENT. From commencement of
the term of this Lease, the basic rental payment shall be as follows:
(a) First year: ONE HUNDRED SIXTY-SEVEN
THOUSAND THREE HUNDRED THIRTY DOLLARS ($167,330.00), payable in installments
on the last day of each calendar quarter.
(b) Second year: THREE HUNDRED THIRTY-FOUR
THOUSAND SIX HUNDRED SIXTY DOLLARS ($334,660.00), payable in installments on
the last Day of each calendar quarter.
(c) Third year: FIVE HUNDRED ONE THOUSAND
NINE HUNDRED NINETY DOLLARS ($501,990.00), payable in installments on the
last day of each calendar quarter.
(d) Fourth through fourteenth years,
inclusive: SIX HUNDRED SIXTY-NINE 'THOUSAND THREE HUNDRED TWENTY DOLLARS
($669,320.00), payable in installments on the last day of each calendar
quarter. The term "calendar quarter" as used herein shall mean the calendar
quarters ending on the last days of March, June, September and December of
each calendar year. Rental and rental adjustments applicable to only a
portion of a calendar quarter shall be appropriately prorated on a per diem
basis.
3. 2 RENTAL ADJUSTMENT.
(a) Beginning on the fifteenth (15th)
anniversary of the first day of the term of this Lease, the base rental
payable for the business park shall be adjusted in the manner provided in
the formula set forth herein. Thereafter, rental adjustments shall occur on
the fifth (5th) anniversary of said initial rental adjustment. Said dates
shall be referred to for convenience as "adjustment dates".
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<PAGE>
(b) At each rental adjustment date, the rental paid the
previous year shall be adjusted to reflect the sum of the annual increases
and/or decreases in the United States Department of Labor, Bureau of Labor
Statistics, All Urban Consumers, Consumer Price Index, Subgroup, "All Items",
for the Los Angeles-Long Beach-Anaheim Area (1967 equals 100), during the
adjustment period, provided, however, that the maximum increase or decrease
in any given year shall be eight percent (8%). The sum of the annual
increases and decreases during the adjustment period shall be added to the
rental paid in the previous year. The resulting total shall be the cumulative
rental.
(c) Said adjustment shall be based upon the formula R = S + (T
x U), where R equals the annual rental payable following each such rental
adjustment, S equals the annual rental payable for the business park
immediately prior to the rental adjustment date, for which such adjustment is
being made, T equals the annual rental payable immediately prior to the first
such rental adjustment date, and U equals the sum of said percentage
increases and/or decreases; provided that such adjustment for the first
rental adjustment date shall be based upon the formula R = S + ($167,330 x
VI) + ($334,660 x V2) + ($501,990 x V3) + (T x V4), where VI equals the said
percentage increase or decrease for the first twelve (12) month period, V2
equals the said percentage increase or decrease for the second twelve (12)
month period, V3 equals the said percentage increase or decrease for the
third twelve (12) month period, and V4 equals the sum of said percentage
increases and/or decreases for the fourth through the fourteenth such twelve
(12) month periods. For example, the maximum annual rental payable from and
after the first rental adjustment date shall be $669,320 + $13,386 + $26,773
+ $40,159 + $589,002 = $1,338,640. Continuing with this example, if the
annual rental for the business park payable following the first rental
adjustment date is $1,338,640 per annum and if the said Consumer Price Index
for the first twelve (12) month period following such rental adjustment date
increases by ten percent (10%), for the second twelve (12) month period
following such date decreases by two percent (2%), for the third twelve (12)
month period following such date increases by seven percent (7%), for the
fourth twelve (12) month period following such date increases by nine percent
(9%), and for the fifth twelve (12) month period following such date
increases by thirteen percent (13%), the annual rental payable would be
$1,338,640 + [$669,320 x 8% - 2% + 7% + 8% + 8%)] ~ $1,532,743. Changes in
the said Consumer Price Index for any twelve (12) month period shall be
computed by comparing the said Index figure for the month preceding the
commencement of said twelve (12) month period.
(d) If the said Consumer Price Index ceases to exist, the
parties shall substitute any official index published by the Bureau of Labor
Statistics, or successor or similar governmental agency, as may then be in
existence and
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shall be most nearly equivalent thereto. If any such central adjustment cannot
be computed as of a rent adjustment date, Developer shall continue to pay the
annual rental theretofore payable until such central adjustment can be computed,
at which time an appropriate adjustment shall be made between the parties in
order to effectuate such central adjustment as of said rental adjustment date.
3.3 ADDITIONAL RENTAL ADJUSTMENTS. The Basic Minimum Rent payable
for the Project shall be subject to further adjustments and/or temporary
abatements as follows:
(a) The EIGHT HUNDRED THOUSAND DOLLAR ($800,000) annual
minimum base rent provided for the Project under the Option (a portion of which
has been allocated to the business park by this Lease) has been computed
based upon the following assumptions regarding the permitted uses of the
Project:
Use Units Planned
--- -------------
Financial/restaurant 38,333 sq.ft.
Garden office 197,498 sq.ft.
Hotel rooms 200 rooms
Airport-oriented office 9,951 sq.ft
Multi-use space 211,039 sq.ft
Tie-downs and Hangar Space Equivalent of 150
spaces for single
engine aircraft
In the event (i) that Developer is unable to obtain any of the discretionary
governmental permits and/or approvals for the improvement of the Premises
required to construct the above-described improvements within the Project,
and, as a result thereof, it is delayed and/or prevented from the
construction of such improvements upon the Premises; or (ii) that such
discretionary permits and/or approvals are subject to terms and conditions
imposed by City other than pursuant to agreements with or to comply with the
laws of the State of California and the United States, in addition to those
contemplated by the PD-2 Ordinance applicable to the Project first enacted by
the City of Long Beach prior to the commencement of the term of this Lease
(references in this Lease to a PD-2 Ordinance shall be deemed a reference to
the PD-2 Ordinance enacted by City during the term of the Option, but prior
to the commencement of the term of this Lease, or to any zoning ordinance
enacted in replacement of such PD-2 Ordinance), that increase Developer's
costs, the base minimum rent shall be equitably reduced based upon the
proportionate reduction in the fair market value of the Premises valued for
the types and quantities of uses that Developer is permitted to develop
within the Premises, as compared to the fair market value
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valued for the types and quantities of uses contemplated above, in the case
of (i) above, or based upon the additional development costs resulting in
reduction of the fair rental value of the Premises below the rental for the
fourth lease year as set out in Section 3.1 and the effect of such costs upon
the fair market value of the Premises in the case of (ii) above. In the case
of (i) above, such adjustment shall become effective upon the first to occur
of the date Developer is denied any such governmental permit or approval and
such denial becomes final or the date the applicable PD-2 Ordinance or other
governmental law, rule and/or regulation preventing the construction of the
types and quantities of improvements upon the Premises described above
becomes effective. In the case of (ii) above, such adjustment shall become
effective upon Developer's incurring the additional development costs as a
result of the matters described therein. For example, in the event that that
portion of the Project to be improved with a two hundred (200) room hotel can
only be improved with a one hundred fifty (150) room hotel and a five
thousand (5,000) square foot office building by reason of an amendment to the
applicable PD-2 Ordinance, that portion of the minimum rental applicable to
such portion of the Project shall be reduced if necessary in the proportion
that the fair market value of such portion of the Project, valued for uses
permitted by the applicable PD-2 Ordinance and this Lease bears to the fair
market value of such portion of the Project valued as though the applicable
PD-2 Ordinance permitted the construction of a two hundred (200) room hotel,
such adjustment to become effective upon the date that such amendment to the
applicable PD-2 Ordinance becomes effective. Any computation of the portion
of the minimum rental to be allocated to such portion of the Project shall be
made pursuant to the attached Exhibit "E". For the purposes of this Lease
any Fixed Rate Operation buildings constructed upon the premises demised by
the Adjacent Parcel Lease, shall be included within the use category
designated as "Multi-use space" above, but airplane hangar space shall not
constitute a portion of the 211,039 square feet described above. An
appropriate adjustment shall be made to Section 17.1 in the event that the
rental payable hereunder is adjusted pursuant to subclause (i) of this
paragraph.
In the event City and Developer are unable to reach agreement upon the
amount of any rental adjustment to be made pursuant to this Section 3.3(a),
the matter shall be determined by submitting the dispute to arbitration in
accordance with the rules of the American Arbitration Association. Pending
the determination of such dispute, through such arbitration proceedings,
Developer shall continue to pay the rent otherwise payable hereunder,
provided that upon the determination of such central adjustment, any
overpayment of rent shall be reimbursed Developer, upon demand.
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(b) In the event that Developer's improvement and development
of the Premises, in whole or in part, is delayed by reason of any
governmental moratoriums, or by reason of any legal actions or other
proceedings instituted to challenge or contest the validity and/or issuance
of any governmental permits or approvals required by Developer, or by reason
of any default hereunder on the part of City, the Basic Minimum Rent payable
under Section 3.1 above shall be equitably abated in a reasonable manner,
while such delay continues in effect. Notwithstanding the foregoing, should
any delay resulting from legal actions or other proceedings instituted to
challenge or contest the validity and/or issuance of any such governmental
permit occur during the lease term, including delays from acts occurring
during the option period under the Option: (1) the rental abatement
otherwise permitted by this paragraph (b) shall be reduced by one-half (1/2)
if such delay is in excess of six (6) months (as measured from the date
rentals hereunder or option payments under the Option attributable to the
Premises are abated by reason of such delay) such reduction to begin on the
commencement of the seventh month of such delay; (2) such one-half (1/2) of
the rental adjustment so payable as provided for in (1) above shall be paid
into an interest-bearing escrow account for a period not to exceed three (3)
years. Developer may terminate this Lease at its option at any time prior to
the end of such third year while such delay continues. Upon the last day of
said third year, Developer shall elect to resume paying the full amount of
rental due as specified in Section 3.1 hereof, or shall terminate this Lease
as of that date as to the affected portion of the Premises. Developer shall
advise City of its election to pay rent or terminate on or before the last
day of said third year. Termination by Developer hereunder shall be
accomplished by giving written notice of such termination to City and in such
event, such portion of the Premises shall be reconveyed to City, together
with and subject to any rights, powers and easements established by any
"Declaration" as defined in the attached Exhibit "E", provided that Developer
complies with all conditions set forth in said Exhibit "E" to the division of
this Lease into two separate new leases, one of which new leases would demise
the portion of the Premises with respect to which this Lease is being
terminated. If Developer elects to continue this Lease and resume paying the
full rental then due, all monies in the above-described escrow account,
including interest thereon, shall be paid to City. If Developer elects to
terminate this Lease as to the affected portion of the Premises any time
permitted by this Section 3.3(b), all monies in said escrow account,
including interest thereon, shall be returned to Developer, less City's
reasonable expenses incurred in defending any legal action causing the delay
described herein upon any such termination, any portion of the security
deposit Described in Section 17.1.1 below applicable to such terminated
portion of the Premises shall be returned to Developer and the Basic Minimum
Rent payable hereunder shall be reduced by the amount of the Basic Minimum
Rent
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attributable to the portion of the Premises with respect to which this Lease
is being terminated, computed as provided in the attached Exhibit "E".
4. ENCUMBRANCES:
4.1 RIGHT TO ENCUMBER. During the term of this Lease, Developer
may mortgage, pledge, assign or encumber, for security purposes only,
Developer's interest under this Lease and the leasehold estate hereby created
to a "lender on the security of the leasehold estate", as defined in Section
4.3 below, and in that connection may perform any and all acts and execute
any and all instruments necessary and proper to consummate any loan, or other
secured transactions and perfect the security therefor to be given such
lender on the security of the leasehold estate.
4.2 LENDER'S RIGHTS. Any such lender on the security of the
leasehold estate shall have the right at any time during the term hereof:
(a) To do any act or thing required of Developer hereunder
and all such acts or things done and performed shall be as effective to
prevent a forfeiture or termination of Developer's rights hereunder as if
done by the Developer.
(b) To realize on the security afforded by the leasehold
estate and to acquire and succeed to the interest of Developer hereunder by
judicial foreclosure or by private power of sale proceedings under any
mortgage or deed of trust and to convey or assign the title to the leasehold
estate created hereby to any purchaser at a foreclosure or trustee's sale and
to acquire title in its own name or in the name of its nominee by assignment
in lieu of foreclosure.
(c) Pending any foreclosure of its lien, to take possession
of and operate the Premises performing all obligations performable by
Developer.
(d) In the event of a default by Developer in the payment of
an installment of rent hereunder, to pay such rent to City and such rent
payments alone, without further requirement, shall be sufficient to prevent a
termination or forfeiture of the leasehold estate created hereby or of
Developer's right to possession; provided, however, that such right to cure
such default and thereby prevent such termination or forfeiture shall exist
only for a period of ninety (90) days after notice of such default has been
given by City to such lender and only as to those lenders who have notified
City of their respective interests in the Premises, as provided in Section
4.4 hereof.
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(e) In the case of any other default by Developers, City will
take no action to effect a termination of this Lease or of Developer's right
to possession by reason thereof until City shall have given to each such
lender having so notified City as provided in Section 4.4 below a reasonable
time after the expiration of Developer's grace period for curing such default
within which either (i) to cure such default, if such default is susceptible
of being cured by the lender without such lender's obtaining possession of
the Premises, or (ii) to obtain possession of the Premises (including
Possession by a receiver) and to cute such default, in the case of a default,
which is susceptible of being cured by the lender only when the lender has
obtained possession thereof, or (iii) to institute foreclosure proceedings
and to complete such foreclosure proceedings or otherwise acquire Developer's
interest under this Lease with reasonable and continuous diligence in the
case of a default which is not susceptible of being cured by such lender;
provided, however, that any such lender shall not be required to continue
such possession or continue such foreclosure proceedings if the default which
prompted the service of such a notice has been cured.
(f) The time available to any lender entitled to such notice
from City to initiate foreclosure or power of sale proceedings as aforesaid
shall be deemed extended by the number of days of delay occasioned by other
circumstances beyond the lender's control, but such extension shall not
release such lender from the requirement that it cure rental defaults, as
herein provided, to prevent City's termination of this Lease.
(g) During the period that any such lender shall be in
possession of the Premises and/or during the pendency of any foreclosure
proceedings instituted by any lender, the lender shall pay or cause to be
paid the rent specified in Article 3 above and all other charges of
whatsoever nature payable by Developer hereunder which have been accrued and
are unpaid and which will thereafter accrue during said period (subject to
the sixty [60] day notice and right to cure provision provided in Section
17.6.1 below which shall be applicable to any failure by such lender to pay
such sums). Such lender shall not, however, be required to pay the rent or
other charges under the Adjacent Parcel Lease, or any new lease into which
the Adjacent Parcel Lease may be divided pursuant to Paragraph 13 of the
Miscellaneous Addendum attached to the Adjacent Parcel Lease. Following the
acquisition of Developer's leasehold estate by the lender, or its designee,
or any third party either as a result of judicial foreclosure or trustee sale
proceedings or acceptance of an assignment in lieu of foreclosure, the lender
or party acquiring title to Developer's leasehold estate shall, within thirty
(30) days, commence the cure of all defaults hereunder to be cured and
thereafter diligently process such cure to comple-
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tion, except such defaults which cannot, in the exercise of reasonable
diligence, be cured or performed by the lender or party acquiring title to
Developer's leasehold estate (and also except any defaults under the Adjacent
Parcel Lease, or any new lease into which the Adjacent Parcel Lease may be
divided pursuant to Paragraph 13 of the Miscellaneous Addendum attached to
the Adjacent Parcel Lease), whereupon City's right to effect a termination of
this Lease based upon the default in question shall be deemed waived. Any
default not susceptible of being cured by the lender or party acquiring title
to Developer's leasehold estate shall be, and shall be deemed to have been,
waived by City upon completion of the foregoing proceedings or acquisition of
Developer's interest in this Lease by any purchaser (who may, but need not
be, any lender) at the foreclosure or trustee's sale, or who otherwise
acquires Developer's interest by virtue of the lender's exercise of its
remedies, except that, if the default is curable by action of the City, City
may, upon thirty (30) days' prior written notice to Developer at its sole
option, enter into the property and cure the default and charge any cost of
such action to Developer. Notwithstanding the foregoing, any defaults by
Developer in the performance of its indemnification and hold-harmless
covenants under this Lease and defaults under the Adjacent Parcel Lease, or
any new lease into which the Adjacent Parcel Lease may be divided, shall be
deemed to be defaults not susceptible of being cured by the lender or party
acquiring title to Developer's leasehold estate and City may not cure any
such default and charge the cost of such action to any such lender or other
party acquiring title through judicial or trustee's sale proceedings or by
deed in lieu of assignment, their successors or assigns, or acquiring a new
leasehold under Section 4.6, but may recover said costs from any of the
parties liable hereunder. City may not recover costs from the Developer
under this Lease which are incurred to cure defaults under any other lease in
effect as a result of the segregation procedure set forth in Section 2 of
Exhibit E to the Master Ground Lease.
(h) All notices by City to any lender shall be given by
registered or certified mail, return receipt requested, addressed to the
lender at the address last specified in writing to City by the lender.
(i) However, if any such lender shall fail or refuse to
comply with any and all of the conditions of this Section, then and thereupon
City shall be released from its covenant of forbearance with such lender
herein contained.
4.3 LENDER DEFINED. The term "lender on the security of the
leasehold estate" or "lender" as used in this lease shall mean the mortgagee
under any mortgage, or the beneficiary under any deed of trust encumbering
the leasehold estate of Developer or Developer's interests therein (including
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the assignee or successor of any such mortgagee, or trustee of any such
mortgage or deed of trust and the holder of any promissory note, bond or
other evidence of indebtedness or agreement secured thereby), and delivered
for the purpose of securing to such mortgagee, trustee or beneficiary payment
of any indebtedness incurred by Developer and/or the performance of any
obligation to be performed by Developer and secured by such mortgage or deed
of trust. Such terms may include the beneficiary under a purchase money deed
of trust and other secured parties coming within the above definition,
whether or not they have loaned funds to Developer.
4.4 NOTICE. City's obligations to observe its covenants of
forbearance in this Article for the benefit of any lender on the security of
the leasehold estate, except as may be otherwise provided by law, shall be
conditioned upon there having been first delivered to the Airport Manager of
the City of Long Beach, a written notice of such encumbrance which shall
state the name and address of such lender for the purpose of enabling notices
to be given under Section 4.2 above.
4.5 REQUEST FOR NOTICE. Upon and immediately after the recording
of any trust deed encumbering Developer's leasehold estate, Developer, at
Developer's expense, shall cause to be recorded in the Office of the Recorder
of Los Angeles County, California, a written request for notice under Section
2924(b) of the California Civil Code that a copy of any notice of default and
a copy of any notice of sale under such deed of trust be delivered to City as
provided for under Section 2924(b) of the California Civil Code. Such
request shall be executed by City. Concurrently with Developer's forwarding
such notice to City for execution, Developer shall furnish to City a complete
copy of the trust deed and the note secured thereby, together with the name
and address of the holder thereof.
4.6 NEW LEASE. In the event that this Lease is terminated or
canceled for any reason, any lender on the security of the leasehold estate
holding a Deed of Trust that is a first and senior lien upon Developer's
leasehold estate shall have the right, within sixty (60) days of receipt of
notice of such termination, to demand a new lease to replace this Lease
covering the Premises for a term to commence on the date of procurement by
City of possession of the Premises and to expire on the same date as this
Lease would have expired if it had otherwise continued uninterrupted until
its scheduled date of termination, and containing all of the same rights,
terms, unexpired options, covenants, considerations and obligations as set
forth in this Lease. Such new lease shall be executed and delivered by City
to such lender within sixty (60) days after receipt by City of written notice
from the lender of such election and upon payment by such lender of all sums
owing by Developer under the provisions of this Lease (less the rent and
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other income actually collected by City in the meantime from any subtenants
or other occupants of the Premises and exclusive of any sums owing under the
Adjacent Parcel Lease or any new lease into which the Adjacent Parcel Lease
or any new lease into which the Adjacent Parcel Lease may be divided pursuant
to Paragraph 13 of the Miscellaneous Addendum attached to the Adjacent Parcel
Lease) and upon performance by the lender of all other obligations of
Developer under the provisions of this Lease with respect to which
performance is then due and which are susceptible of being cured by the
lender. After such termination or cancellation of this Lease and prior to
the expiration of the period within which any such lender may elect to obtain
such new lease from City, and following any such election to obtain such a
new lease, City shall refrain from terminating any existing sublease and from
executing any new subleases or otherwise encumbering the real property
demised hereby without the prior written consent of lender and City shall
account to such lender for all rent collected from subtenants during such
period. Any new lease granted any such lender shall enjoy the same priority
in time and in right as this Lease over any lien, encumbrance or other
interest, power and privileges of Developer hereunder in and to the Premises,
including specifically, without written limitation, the assignment of
Developer's interest in and to all then existing subleases and sublease
rentals and (subject to Sections 5.3 and 17.9) the automatic vesting of title
to all buildings, improvements and appurtenances, as well as to all
equipment, fixtures and machinery therein until the expiration or termination
of the term thereof. Such new lease shall provide with respect to each and
every sublease which immediately prior to the termination of the term of this
Lease was superior to the lien of the lender executing the new lease as
tenant, or as to which such lender has executed a non-disturbance agreement,
that such tenant thereunder shall be deemed to have recognized the subtenant
under the sublease pursuant to the terms of the sublease, as modified by any
applicable non-disturbance or attornment agreement, as though the sublease had
never terminated, but had continued in full force and effect after the
termination of the term of this Lease, and to have assumed all of the
obligations of the sublessor under the sublease accruing from and after the
termination of the term of this Lease, except that the obligation of the new
tenant, as sublessor, under any covenant of quiet enjoyment, express or
implied, contained in any such sublease, shall be limited to the acts of such
tenant and those claiming by, under and through such tenant.
4.7 CONSENT OF LENDER. Without the prior consent of any lender on
the security of the leasehold estate having given City notice of its interest
in the Premises under Section 4.4 above, this Lease shall not be surrendered,
canceled, terminated or amended (except with respect to termination pursuant
to any eminent domain proceedings concerning the whole of the Premises, as
provided in Article 10 and except pursuant to
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Section 17.6.8 after compliance with the requirements of Section 4.2) and no
agreement purporting to surrender, cancel, terminate or amend this Lease
shall be valid or effective unless such lender shall first have consented
thereto. In order to facilitate any financing or refinancing by Developer
which involves the hypothecation of Developer's leasehold estate and rights
hereunder, City, if requested so to do by Developer, agrees to join in
executing any and all instruments which legal counsel for any lender which is
or may become the holder of a lien that is a first lien and charge upon the
leasehold estate of Developer may reasonably require in order: (i) to grant
to the lender or prospective lender the right to act for Developer in
enforcing or exercising any of Developer's rights, options or remedies under
this Lease; (ii) to amend the provisions of this Lease which relate to the
application of Developer's portion of any insurance proceeds or condemnation
award as may reasonably be requested by any lender; and (iii) to more fully
assure the lender's right to secure the hypothecation of the leasehold estate
of Developer, provided that in no event shall City be required to incur any
personal liability for the repayment of any obligations secured by any such
hypothecation of the leasehold estate of Developer not to subordinate the
City's rights and reversionary interests in and to the Premises to any such
hypothecation.
4.8 NO MERGER. No merger of Developer's leasehold estate into
City's fee title shall result by reason of the ownership of City's or
Developer's estates by the same party or by reason of any other
circumstances, without the prior consent of any and all lenders on the
security of the leasehold estate.
4.9 LENDER'S LIABILITY. In the event that any lender on the
security of the leasehold estate obtains title to the leasehold estate or to
any part thereof by sale through judicial or trustee's sale foreclosure
proceedings or by deed given in lieu of foreclosure, such lender may
thereafter (i) assign this Lease one time without City's approval and such
lender and any person or entity acquiring the Developer's interest hereunder
from such lender shall be liable to perform the obligations imposed on
Developer by this Lease only during the period such person has ownership of
the leasehold estate created hereby or possession of the Premises, and (ii)
sublet the Premises free of the restrictions in Section 5.2.1 of this Lease.
Thereafter, any assignment shall be invalid unless City shall have first
consented thereto in accordance with Section 5.1 below. Such consent shall
not be unreasonably withheld. Any assignee of such lender shall, however, be
subject to the terms and provisions of Sections 5.1 and 5.2.1 below. The
rights and privileges under this Lease of any lender on the security of the
leasehold estate shall be subject to the rights and privileges of any other
lender on the security of the leasehold estate which lien has priority over
the lien of such lender.
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5. ASSIGNMENT AND SUBLETTING:
5.1 ASSIGNMENT.
5.1.1 DEVELOPER. The qualifications and identities of Developer
are of particular concern to City. It is because of those qualifications and
identities that City has entered into this Lease with Developer. No
voluntary or involuntary successor in interests shall acquire any rights or
powers under this Agreement except pursuant to an assignment or transfer made
with City's consent or expressly permitted by this Lease to be made without
City's consent.
5.1.2 APPROVAL BY CITY. Developer may assign this Lease and its
rights hereunder pursuant to Section 1.5.3 above provided that the assignee
is a partnership or joint venture in which either Developer, or if Developer
is a partnership or joint venture, either all of its partners or venturers,
or both CB&C and SDC is/are general partners or joint venturers and provided
that Developer continues to manage the Premises as required by Section 1.5.3
above. Except for the specific assignment permitted by the preceding
sentence and the assignment by a lender permitted by Section 4.9 above,
Developer may not assign this Lease or any interest herein without first
obtaining the written consent of City, which consent, subject to Section
5.1.6 below, shall not unreasonably be withheld. City may condition such
consent upon any such assignee's, concurrently with such assignment,
executing and delivering to City an agreement assuming and agreeing to
perform the obligations of Developer under this Lease. Promptly following
any such assignment, Developer shall deliver to City a copy of such
assignment, together with a statement setting forth the following information:
(i) The name and address of the assignee for the purpose of
enabling notices to be given under Section 17.2 below.
(ii) Whether the assignee is an individual, a corporation
or a partnership or a joint venture, and, if such assignee be a corporation,
the names of such corporation's principal officers and of its directors and
State of incorporation, and, if such assignee be a partnership or joint
venture, the names and addresses of the members of such partnership or
venture.
The provisions of this Section 5.1.2 shall not be applicable to assignments
or transfers of the type described in subparagraphs (i) through (viii) of
Section 5.1.3 below, which shall not require the consent of City.
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5.1.3 OTHER TRANSFERS. In the event that Developer is a
partnership, joint venture or corporation, any assignment of fifty percent
(50%) or more of the partnership or joint venture interests or outstanding
capital stock of such an entity shall constitute an assignment by Developer
of this Lease for the purposes of this Article and shall not be permitted to
occur without first obtaining the written consent of City, which consent
shall not unreasonably be withheld. The provisions of this Section shall not
be applicable to the following types of assignments and transfers, which
shall be permitted without the prior consent of City.
(i) Assignments resulting from the death or mental or
physical incapacity of an individual.
(ii) A transfer or assignment in trust for the benefit of a
spouse, children, grandchildren or other family members.
(iii) Any other transfer by operation of law.
(iv) A transfer to an "Affiliated Corporation" as
hereinafter defined. An "Affiliated Corporation" shall be (1) any
corporation which owns fifty-one percent (51%) or more of the outstanding
capital stock of the assigning corporation; or (2) any corporation, fifty-one
percent (51%) or more of the outstanding capital stock of which is owned by
the assigning corporation; or (3) any corporation, fifty-one percent (51%) or
more of the outstanding capital stock of which is owned by a shareholder who
also owns at least fifty-one percent (51%) of the outstanding capital stock
of the assigning corporation.
(v) A transfer of stock resulting from or in connection
with a reorganization as contemplated by the provisions of the Internal
Revenue Code of 1954, as amended or otherwise, in which the ownership
interests of a corporation are assigned directly or by operation of law to a
person or persons, firm or corporation which acquires the control of the
voting capital stock of such corporation or all or substantially all of the
assets of such corporation.
(vi) A transfer of stock in a publicly held corporation or
of the beneficial interest in any publicly held partnership or real estate
investment trust.
(vii) A transfer or assignment from one partner or joint
venturer in Developer to another or if Developer is a corporation, from one
shareholder to another; provided that the assignee assumes personal liability
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for the obligations of the transferring or assigning partner, joint venturer
or shareholder under this Lease.
(viii) A transfer by a partner or venturer to a partnership or
joint venture in which the assignor is a general partner or venturer.
5.1.4 ASSIGNMENT INVALID. Any transfer or assignment to which
City's consent is required by this Section 5.1 shall be void and shall confer
no right or occupancy upon the assignee unless and until such consent of City
is obtained.
5.1.5 NO RELEASE. Notwithstanding any assignment by Developer
permitted by Section 5.1 with City's consent and notwithstanding any
assignment by a partner or joint venturer of Developer permitted by Section
5.1.3 with City's consent or made without City's consent under Section 5.1.3
(vii) above, the assigning party, including, without limitation, Developer
and CB&C and SDC shall remain fully liable for the performance of all of the
covenants to be performed by Developer under this Lease to be performed prior
to the effective date of such assignment or the "Completion Date", as defined
hereinbelow, whichever last occurs, but shall be released from liability with
respect to the performance of such covenants to be performed after the last
to occur of such dates. City's approval or consent to any such assignment or
transfer shall not be a waiver of any right to object to further or future
assignments, but the consent to each such successive assignment must be first
obtained in writing from City.
The term "Completion Date," as used herein, shall mean the date that Developer
completes its proposed construction of building improvements upon the
Premises and certificates of occupancy with respect to such building
improvements have been obtained. Developer shall be deemed to have completed
its proposed construction of building improvements if ninety percent (90%) of
the building square footage required to be constructed upon the Premises by
this Lease have been completed upon the Premises and no
unimproved building pads remain to be completed upon the Premises.
5.1.6 ADDITIONAL RESTRICTIONS. City may withhold its consent to any
assignment of this Lease to an assignee, when such consent is required by
Section 5.1.1 above, unless the Adjacent Parcel Lease, and all new leases
into which the Adjacent Parcel Lease may have been divided pursuant to
Paragraph 13 of the Miscellaneous Addendum attached to the Adjacent Parcel
Lease, are assigned to the same assignee concurrently therewith. City may
further withhold its consent to any assignment of this Lease to an assignee,
when such consent is required by Section 5.1.1 above, unless the assignor's
interest
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in all new leases then in effect as a result of the segregation procedure set
forth in Section 2 of Exhibit E to the Master Ground Lease, is similarly
assigned or transferred to the same assignee. Provided, however, this
Section 5.1.6 shall not be applicable to the one-time lender assignment
permitted in Section 4.9 hereof or to subsequent assignments
involving the premises which are the subject of such one-time lender
assignment.
5.2 SUBLETTING. Subject to Section 5.2.1 below, Developer shall be
entitled, without the prior written consent of City, to sublet the whole or
any portion of the Premises or the improvements constructed thereon by or
under Developer and, without limiting the foregoing, may establish a
leasehold condominium regime on the Premises, or portions thereof, in
accordance with the provisions of California law, including California Civil
Code Sections 783 and 1350-1360. Developer shall, at all times, remain liable
for the performance of all of the covenants on its part to be so performed,
notwithstanding any subletting. None of the restrictions on assignments in
Section 5.1 above shall be construed as being applicable to assignments or
transfers by subtenants. Each sublease shall be subject and subordinate not
only to this Lease, but also to any replacement lease made by City as
provided in Section 4.6 above. If the term of this Lease shall end while any
such sublease is in effect, City may, at its option, for a period of ninety
(90) days thereafter, either terminate the said sublease or succeed to all of
the rights of Developer thereunder. Where any sublease which is consistent
with this Lease is approved by City, City shall grant to the subtenant, under
such an approved sublease entered into in good faith and for reasonable
consideration, a right of quiet enjoyment in recordable form (a
"non-disturbance agreement") during the term of the sublease, notwithstanding
the expiration, termination or cancellation of this Lease; provided that (i)
the term of the sublease, plus extension or renewal options, does not extend
beyond the term of this Lease, (ii) such subtenant agrees that in the event
this Lease expires, terminates or is canceled during the term of the
sublease, the sublease shall be deemed a direct lease between City and such
subtenant and to attorn to City. In the event that City objects to any
proposed non-disturbance agreement or sublease, City agrees to notify
Developer in writing of such objection and of its reasons for such objection
within twenty (20) days of its receipt of the proposed non-disturbance
agreement and sublease. Subject to the foregoing provisions of this Section
5.2, City hereby approves generally of the form of non-disturbance agreement
attached hereto as Exhibit "D" and agrees not to unreasonably withhold its
approval to any modifications to such agreement required by any subtenant to
conform to the provisions of its sublease or otherwise reasonably required by
any subtenant. Any approvals or grants of quiet enjoyment given or made by
City pursuant to this Section 5.2 shall be binding upon City, its successors
or assigns, including, without limitation,
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any person or entity succeeding to the interest of City by way of judicial
foreclosure or trustee's sale proceedings pursuant to any mortgage or deed of
trust, the lien or charge of which is subject and subordinate to this Lease.
The following provision is added to this Lease as required by Exhibit "E",
Section 2(d)(xiii) of the Master Ground Lease: If this Lease is for an
industrial/commercial planned unit development or condominium development,
the City's obligation to execute a non-disturbance agreement with respect to
any ground sublease with an owners association of a parcel or parcels
restricted to common area usages shall not be affected because such ground
sublease provides for the payment of a rental amount agreed upon by City and
Developer which rent shall be allocated to this Lease (under which such
parcel or parcels are sublet to the owners association).
Any sublease, with respect to which City agrees to execute a
non-disturbance agreement pursuant to this Section 5.2, may be a sublease
pursuant to which the subtenant is responsible for the construction of the
building improvements upon the subleased premises (a "Ground Sublease"
herein). Any Ground Sublease may contain a hypothecation provision similar
to Article 4 of this Lease for the benefit of the holder of any mortgage or
deed of trust constituting a lien on the subleasehold estate created by
virtue of the Ground Sublease. Any non-disturbance agreement executed and
delivered by City for the benefit of the sublessee under a Ground Sublease
shall specifically recite that it is for the benefit of any such holder of a
deed of trust or mortgage constituting a lien on the subleasehold estate
created by such Ground Sublease; that the term "sublease" as used in the
non-disturbance agreement shall be deemed to include any new sublease
executed and delivered to any such holder of a first deed of trust or first
mortgage following a termination of the sublease pursuant to a provision in
the sublease similar to Section 4.6 of this Lease, and that the term
"sublessee" under the non-disturbance agreement shall be deemed to include
any encumbrancer or other party succeeding to the sublessee under the Ground
Sublease by virtue of judicial or private power of sale foreclosure
proceedings or by delivery of an assignment in lieu of foreclosure, or
otherwise. Where City agrees to execute a non-disturbance agreement for the
benefit of the sublessee under any Ground Sublease, such agreement shall be
subject to the obligations of the sublessee thereunder being no less than the
obligations of Developer hereunder with respect to the subleased premises.
5.2.1 RESTRICTIONS ON SUBLEASE. Developer shall obtain City's
prior written approval of the proposed sublessee of any proposed Ground
Sublease for any subleased premises containing ten thousand (10,000) or more
square feet of land area. Such approval shall not be required for a sublease
in connection with a sale of a condominium unit or building space
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containing less than ten thousand (10,000) square feet, or to the subleasing
by any owner's association of common area portions in a planned unit
development. Developer shall also obtain City's prior written approval of any
assignee or sublessee of any Ground Sublease approved by City pursuant to
this Section, except in the case of an assignment or sublease of the type
Developer is permitted to enter by this Lease without City's consent or
approval. Any request for City to approve a sublessee (including such an
assignee or sub-sublessee) shall be accompanied by information identifying
the proposed sublessee, financial information and a resume of relevant
business experience sufficient for City to evaluate such person or entity
proposed as the sublessee, and a copy of the proposed Ground Sublease,
instrument of assignment or sublease. City shall either approve or
disapprove the proposed sublessee in writing within fifteen (15) days after
receipt of the request and the required information. If such proposed
sublessee is not approved, the reasons therefor shall be stated in the
written notice of disapproval. If City fails to act within said fifteen (15)
day period, City shall be deemed to have approved said proposed sublessee.
City's approval when required by this Section shall not unreasonably be
withheld.
5.2.2 CONSENT TO SUBLEASE. The approval of City to any
sublease shall not be unreasonably withheld. Prior to review of any proposed
sublease, the following information and assurances shall be provided to City:
(a) The name and address of the sublessee for the
purpose of enabling notices to be given.
(b) Whether the sublessee is an individual, a
corporation or a partnership, and if such sublessee be a corporation, the
names of such corporation's principal officers and its directors and State of
incorporation, and if such sublessee be a partnership, the names and
addresses of the members of such partnership.
(c) Copies of any proposed non-disturbance or
attornment agreements.
5.3 SALE OF BUILDINGS. Developer shall have the right to sell
condominium units, buildings and other improvements constructed pursuant to
the terms of this Lease, provided however, that such condominium units,
buildings and other improvements shall be and remain subject to the terms and
conditions of this Lease and shall be used and developed exclusively in
accordance herewith. No sale of such buildings shall be valid unless this
requirement is expressly included in the deed.
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6. INDEMNITY, INSURANCE, CASUALTY DAMAGE:
6.1 INDEMNIFICATION AND HOLD HARMLESS. Developer expressly agrees to
defend, protect, indemnify and hold harmless the City, its officers, agents
and employees free and harmless from and against any and all claims, demands,
damages, expenses, losses or liability of any kind or nature whatsoever which
City, its officers, agents or employees may sustain or incur or which may be
imposed upon them or any of them for injury to or death of persons or damage
to property arising out of or resulting from the alleged acts or omissions of
Developer, its officers, agents or employees or in any manner connected with
this Lease or with the occupancy, use or misuse of the Premises by Developer,
its officers, agents, employees, subtenants, licensees, patrons or visitors
and Developer agrees to defend at its own cost, expense and risk all claims
or legal actions that may be instituted against Developer or City, and
Developer agrees to pay settlements entered into with Developer's approval
and to satisfy any judgment that may be rendered against either Developer or
City as a result of any injuries or damages which are alleged to have
resulted from or be connected with this Lease or the occupancy or use of the
Premises by Developer or its officers, agents, employees, subtenants,
licensees, patrons or visitors, except to the extent resulting from the
negligent or willful acts of City or any such indemnitee. This
indemnification shall be applicable both from and after the commencement
date of the Lease term and prior to such date from and after the execution
and delivery of the Option.
6.2 INSURANCE.
6.2.1 LIABILITY INSURANCE. At all times during the term of this
Lease, Developer shall obtain and maintain or cause to be obtained and
maintained bodily injury and property damage insurance by a combined single
limit policy in an amount of at least ONE MILLION FIVE HUNDRED THOUSAND
DOLLARS ($1,500,000.00) naming the City of Long Beach and its officers,
members, agents and employees as co-insureds with Developer and others
designated by Developer. Developer shall also maintain worker's compensation
insurance in the amount required by statute. Developer shall furnish City
with duplicate originals or certificates of such insurance. Said liability
and property damage insurance policy shall either contain a broad form of
contractual liability, or it shall have attached thereto an endorsement
providing for such coverage.
Prior to entry upon the Premises, Developer shall deliver the
policies of insurance required by this Section 6.2, or certified photostatic
copies thereof, to the City of Long Beach Airport Manager for approval as to
sufficiency and for approval as to form by the City Attorney. When said
policies of insurance have been so approved, Developer shall
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substitute a certificate of insurance issued by the insurance company or
companies issuing such policies certifying that said insurance coverage is in
full force and effect and upon the filing of said certificate, the policies
will be returned by City to Developer, if Developer has deposited the
original policies with City. Said liability and property damage insurance
policy shall contain a provision substantially as follows:
"The inclusion hereof of any person or entity as an insured shall not affect
any right such person or entity would have as a claimant hereunder if not so
included."
Notwithstanding any other provision to the contrary contained in
this Lease, Developer shall not have the right to enter upon the Premises for
any purpose whatsoever until such certificate has been filed with the Airport
Manager and with City.
6.2.2 FIRE AND EXTENDED COVERAGE. Developer shall, at no cost or
expense to City, keep insured for the benefit of Developer and City, and such
other parties, having an insurable interest, as Developer may designate, the
improvements constructed by or under Developer upon the Premises against loss
or damage by fire and lightning and risks customarily covered by extended
coverage endorsement, in amounts not less than one hundred percent (100%) of
the actual replacement cost of said improvements, exclusive of the cost of
excavations, foundations and footings. City shall be named as an insured
under any such policy. Such fire and extended coverages shall also be
required to be furnished by Developer during the construction of improvements
on the Premises as contemplated by Article 7 below. Any loss payable under
such insurance shall be payable to Developer and such other parties having an
insurable interest in the property as Developer may designate and may be
endorsed with a standard mortgagee's loss payable endorsement in favor of the
holder of any first trust deed on Developer's leasehold estate or on any
Ground Sublease subleasehold estate.
6.2.3 GENERAL REQUIREMENTS.
6.2.4 MISCELLANEOUS. The insurance policies to be secured by
Developer pursuant to this Section 6.2 shall be obtained from insurers having
a rating in Best's Insurance Guide of A-10, or better, (or a comparable
rating in any similar Guide, if Best's Guide is no longer published), and
shall require that the insurer give City notice of any modification,
termination or cancellation of any policy of insurance no less than thirty
(30) days prior to the effective date of such modification, termination or
cancellation. In addition, Developer shall notify City of any modification,
termination or cancellation of any policy of insurance secured by Developer
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pursuant to this Section 6.2 as soon as Developer learns of any such
modification, termination or cancellation. The policy of public liability
and property damage insurance to be obtained under Section 6. 2. 1 above
shall stipulate that said policy provides primary coverage and is not
subordinate to nor contributing with any other insurance coverage held or
maintained by City. The procuring of any such policy of insurance shall not
be construed to be a limitation upon Developer's liability or its full
performance on Developer's part of the indemnification and hold harmless
provisions of this Lease; and Developer understands and agrees that,
notwithstanding any such policy of insurance, Developer's obligation to
protect, indemnify and hold harmless City under this Lease is for the full
and total amount of any damage, injuries, loss, expense, costs or liabilities
caused by or in any manner connected with or attributed to the acts or
omissions of Developer, its officers, agents, employees, licensees, patrons
or visitors, or the operations conducted by Developer, or Developer's use or
misuse of the Premises, except to the extent resulting from the negligent or
willful acts of City or any such indemnitee.
6.2.5 BLANKET POLICIES. Nothing contained in this Article shall
prevent Developer from requiring its subtenants, or any of them, or any other
third party, to provide the insurance required by this Article 6, nor prevent
Developer, or any of its subtenants, or any such third party from taking out
insurance of the kind provided for under this Article under a blanket
insurance policy or policies which cover other personal and real property
owned or operated by Developer or any subtenant provided that the protection
afforded City and Developer under any policy of blanket insurance hereunder
shall be no less than that which would have been afforded under a separate
policy or policies relating only to the Premises.
6.2.6 SELF-INSURANCE. If a subtenant is self-insured as a matter
of such subtenant's usual and customary business policy and such
self-insurance is accepted by institutional lenders, Developer may request
City to waive the insurance requirement and to consent and permit such
subtenant to self-insure. Such request shall be accompanied by information
deemed necessary by City to review the request. Consent to self-insure shall
not be unreasonably withheld.
6.3 DAMAGE OR DESTRUCTION.
6.3.1 RESTORATION OF PREMISES. If any building or improvement on
the Premises is totally or partially destroyed or damaged as a result of any
casualty, Developer shall either promptly repair, replace or rebuild such
building or other improvement at least to the extent of its value immediately
prior to such occurrence, subject, however, to delays resulting from force
majeure, the cancellation of existing leases
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due to such casualty, settling with insurers and/or negotiating new financing
if necessary, or remove all damaged or destroyed improvements and place the
portions of the Premises from which improvements are removed in a clean and
level condition following which all insurance proceeds attributable to such
destruction or damage shall be the property of Developer. After the
commencement of such repair, replacement or rebuilding, Developer shall
continue such work with reasonable diligence until completion. Developer may
cause any such work to be performed by or under its subtenants. In no event
shall City be liable to Developer for any damages resulting to Developer from
the happening of any such fire or other casualty or from the repair or
reconstruction of the Premises or from the termination of this Lease as
provided in Section 6.3.2 below.
6.3.2 RIGHT TO TERMINATE. Notwithstanding the provisions of Section
6.3.1 above, if the buildings and improvements on the Premises shall be
damaged or destroyed as a result of a hazard against which Developer is not
required to carry insurance to an extent in excess of twenty-five percent
(25%), or more, of their then insurable value, or if any such uninsured
damage or destruction shall occur at any time after the fortieth (40th)
anniversary of the commencement date of the term of this Lease, then
Developer shall have the right to elect to cancel this Lease by giving
written notice thereof to City within three hundred sixty-five (365) days
after the date of any such damage or destruction. Upon such termination, it
will be the obligation of Developer to remove all damaged or destroyed
improvements and to place the portions of the Premises from which
improvements are removed in a clean and level condition. If the cost of
restoration exceeds twenty-five percent (25%) of the then replacement value
of the Premises destroyed and occurs during the first forty (40) lease years,
and if Developer elects to terminate this Lease pursuant to this paragraph,
City, within fifteen (15) days after receiving Developer's notice to
terminate, can elect to prevent such termination from becoming effective by
agreeing to pay to Developer the difference between such twenty-five percent
(25%) of the value and the actual cost of restoration, in which case
Developer shall restore the Premises, and City shall deposit an amount equal
to the estimated cost of such difference with Developer's construction
lender, upon request, prior to Developer's commencement of such work of
restoration. Upon any such termination, the rents and other charges payable
hereunder shall be prorated and paid or reimbursed to and from the date of
termination. Developer shall forthwith surrender the Premises to City and
City shall refund to Developer the security deposit provided for in Section
17.1.
6.3.3 NO REDUCTION IN RENT. In case of destruction of all or any of
the improvements on the Premises, except as provided in Section 6.3.2, there
shall be no abatement or reduction of rent.
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7. DEVELOPMENT OF THE PROJECT:
7.1 SCOPE OF DEVELOPMENT. The Project will be a business
pack limited to commercial uses and a Fixed Base Operations
facility. It is contemplated by the parties that the Project will be
constructed to include approximately the following: 38,333 square feet of
restaurant and financial space, 197,498 square feet of garden office space, a
hotel of 200 rooms, airport-oriented office space of 89,951 square feet, multi-
use space of 211,039 square feet, and an improved area sufficient for 150
single-engine aircraft tie-down spaces (whether or not designed and used for
single-engine aircraft) based on utilization of ten (10) acres of the Property
demised by the Adjacent Parcel Lease for tie-down and/or hangar space. The
precise amounts and proportions of the various elements of the development of
the Premises shall be based upon and consistent with the PD-2 Zoning Ordinance
to be adopted for the Project, and any amendment or replacement thereof.
7.2 PHASE DEVELOPMENT. In order to facilitate the phase
development of the Project by Developer, the terms and provisions of
the incremental development rider attached hereto as Exhibit "E" are
hereby incorporated herein by reference.
7.3 PERFORMANCE AND PAYMENT BONDS.
7.3.1 AGREEMENT TO PROVIDE. On or before the date of
commencement of construction of any building, structure, or other
improvements on the Premises having an estimated cost of ONE HUNDRED
THOUSAND DOLLARS ($100,000) or greater, Developer shall file or cause
to be filed with City a performance bond and labor and material payment
bond executed by Developer or Developer's subtenant or any contractor
performing such work, as principal, and by a surety authorized to do
business in the State of California, as surety, conditioned upon the
contractor's performance of its construction contract with Developer
and payment of all claimants for labor and materials used or reasonably
required for use in the performance of such contract, in a form and
with a surety reasonably acceptable to City. Said bond shall name or
be endorsed to name City as a joint obligee with Developer, such
subtenant and/or their lender. City agrees to either approve or
disapprove of any such proposed bond submitted to City for approval
within ten (10) days of City's receipt thereof. Any notice of
disapproval shall specify the reasons for disapproval and the
modifications required to secure City's approval. City's failure to
expressly so disapprove of any such bond within said ten (10) day
period shall constitute City's approval of the form of such bond and of
the surety issuing such bond. The requirements of this Section shall
not be applicable to any such work performed by or under a subtenant
having a net worth greater than four (4) times the
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estimated cost of such work, provided, however, that nothing contained
herein shall be deemed to release Developer from the responsibility to
keep the Premises free and clear of all liens.
7.3.2 TERM OF THE BOND. The term of both bonds shall
commence on or before the date of filing with City. The Performance
Bond shall remain in effect until the date of completion of the work to
the reasonable satisfaction of City's City Manager or his designate.
The Payment Bond shall remain in effect until the expiration of the
period of filing a claim of lien as provided in Title 15 of Part 4 of
the California Civil Code, and as hereafter amended, or if a claim of
lien is filed, the expiration of the period for filing an action to
foreclose such lien, or until the Premises are freed from the effect of
such claim of lien and any action brought to foreclose such lien
pursuant to the provisions of said Title 15 of Part 4 of the lien is
otherwise discharged.
7.3.3 PENAL SUM. The Performance Bond shall be in the amount and
provide a penalty of one hundred percent (100%) of the valuation of the
improvements to be constructed. The Payment Bond shall be in the amount
and provide a penalty of one hundred percent (100%) of the valuation of the
improvements to be constructed.
7.4 CONSTRUCTION.
7.4.1 COSTS OF CONSTRUCTION. The entire cost and expense
of constructing any and all improvements on the Premises, including,
without limitation, any and all on and off-site improvements required by
applicable governmental authorities under applicable zoning ordinances or
as a condition to parcel or final map approvals, shall be borne and paid
by Developer, or its subtenants, and Developer shall hold and save City
and the Premises harmless from any liability whatsoever on account thereof.
7.4.2 RIGHT TO IMPROVE. Developer shall have the right to
construct buildings and other improvements upon the Premises and shall
have the right to change the grade of the Premises and/or to demolish and
remove any and all structures, foliage and trees situated upon the
Premises as of the date of this Lease as may reasonably be required for
the purpose of improving the same incidental to Developer's use of the
Premises; provided, that such work shall be performed in accordance with
the applicable requirements of this Article 7, and such laws of any
governmental entity as may be applicable thereto. Any and all such
improvements, subject to Section 17.9 below, shall be owned by Developer
or its successors or assigns during the term of this Lease and, unless
removed by Developer upon the expiration of the term of this lease as
permitted by Section 17.12 below, shall become a pact of the realty and the
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absolute property of Landlord upon the expiration or earlier termination
of the term of this Lease.
7.4.3 CONSTRUCTION SCHEDULE. Attached hereto as Exhibit
"F" is a Construction Schedule setting forth the dates by which Developer
shall have commenced and completed the construction of certain minimum
building and other improvements. Developer covenants and agrees to
satisfy the construction requirements set forth in the said Schedule
within the times therein specified. Notwithstanding the foregoing, the
dates by which Developer is required to commence and complete any
construction pursuant to the attached Exhibit "F" shall be extended by a
period of time equal to the number of days during which the commencement
or completion of such construction is delayed unavoidably by strikes,
lockouts, Acts of God, governmental restrictions, moratoriums, or other
governmental acts or inactions, acts of construction contractors or
subcontractors, failure or inability to secure materials or labor by
reason of priority or similar regulations or order of any governmental or
regulatory body, enemy action, civil disturbance, fire, unavoidable
casualties or any other cause beyond the reasonable control of Developer,
excluding, however, the inability or failure of Developer to obtain any
financing which may be necessary to commence and complete such
construction.
7.4.4 CITY AND OTHER GOVERNMENTAL AGENCY PERMITS. Before
commencement of construction or development of any buildings, structures,
or other work or improvements upon the Premises, Developer shall, at its
own expense, secure or cause to be secured any and all permits which may
be required by the City of Long Beach or any other governmental agency
having authority over such construction, development or work.
7.4.5 RIGHTS OF ACCESS. For the purposes of assuring
compliance with this Lease, representatives of City, in addition to those
conducting inspections required by City, shall have the right of access to
the Premises without charges or fees, at normal construction hours, during
the period of construction for the purposes of this Lease, including, but
not limited to, the inspection of the work being performed in constructing
the improvements required by this Lease. Such representatives of City
shall be those who are so identified in writing by the City Manager of
City, except that those employees conducting inspections required by law
need not be so identified.
7.4.6 LOCAL, STATE AND FEDERAL LAWS. Developer shall carry
out or cause to be carried out the construction of any buildings,
structures or other work of improvement upon the Premises in conformity
with all applicable laws, including, without limitation, zoning ordinances.
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7.4.7 ANTI-DISCRIMINATION DURING CONSTRUCTION. Developer for
itself and its successors and assigns agrees that, in the construction of
any improvements provided for in this Lease, Developer will not
discriminate against any employee or applicant for employment because of
age, sex, marital status, race, handicaps, color, religion, creed,
ancestry or national origin.
7.4.8 RESPONSIBILITIES OF CITY AND DEVELOPER.
7.4.9 RESPONSIBILITIES OF CITY. City will assist and
cooperate with Developer in connection with requests by Developer for lot
line adjustments, tentative or final, parcel or tract map approval,
condominium plan approval, variances and any other governmental approvals
necessary for the development of the Premises, pursuant to this Lease and
in connection with the formation of and/or annexation of portions of the
Premises to such improvement and/or special assessment districts as
Developer may desire to have formed to construct or acquire improvements
benefiting the Premises, including, without limitation, the execution of
documents required to dedicate or offer for dedication or restrict or
otherwise encumber or subdivide by parcel or final maps or condominium
plans portions of the Premises as may be required by applicable
governmental authorities. City agrees to join with Developer in execution
of a Declaration of Project Restrictions for any condominium regime
established by Developer, as required by Section 1355 of the California
Civil Code, or a similar instrument reasonably required to establish a
so-called commercial and/or industrial planned unit development, which
Declaration or instrument may include provisions, consistent with other
first class commercial industrial condominium projects or planned unit
development projects in the Southern California area, where such
instrument is approved by City, which approval shall not unreasonably be
withheld. City further agrees to join in granting or dedicating such
public or private utility company easements as may be required for the
development of the Premises, for which no consideration is given. City
shall not be responsible for any on site or off-site improvements in
connection with the Premises. City shall have responsibility for
maintaining public rights-of-way, sewers and storm drains after dedication
of same to City by Developer. City agrees to accept the same for
maintenance purposes. City further agrees to assist with Developer's
financing of the development of the Premises by cooperating reasonably
with Developer and using reasonable efforts to sell or to cause any
appropriate agency of the City to sell industrial development bonds as a
source for such financing, if such action is legally permissible; by
granting to or for the benefit of the holders of any special assessment or
district bonds constituting a first lien on Developer's leasehold estate
or their trustee the rights of a "lender on the security of the leasehold
estate"
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having a first mortgage or deed of trust of Developer's leasehold estates
as provided in this Lease, by written agreement in recordable form in a
form reasonably satisfactory to legal counsel for the underwriters and/or
purchasers of said bond. Such rights may include rights under Section 4.6,
provided that the sixty (60) day period specified in Section 4.6 shall be
increased to seventy-five (75) days for such holders and/or their
trustees, it being understood, however, that the lender on the security of
the leasehold estate whose security is next in priority shall have the
exclusive right to exercise the rights of a lender on the security of the
leasehold estate having a first mortgage or deed of trust lien on
Developer's leasehold estate under Section 4.6 during the sixty (60) day
period provided for in Section 4.6, provided that as an additional
condition to receiving a new lease, such lender and/or its nominee shall
subject and encumber its leasehold estate to a first lien securing the
repayment of said bonds on the same terms and conditions as the first lien
securing such repayment on Developer's leasehold estate created by this
Lease.
7.4.10 MAINTENANCE. In addition to the responsibilities
mentioned herein, Developer shall have sole and exclusive responsibility
for maintaining the Premises and all building structures and improvements
which may be constructed upon the Premises in good condition and repair,
at no cost or expense to City, reasonable wear and tear excepted.
7.4.11 ACCEPTANCE OF PREMISES. Developer accepts the
Premises in an "as-is" condition and acknowledges that Developer has not
received and City has not made any warranty express or implied as to the
condition of the Premises. Developer agrees to bear all expenses incurred
in the development, operation and maintenance of the Premises.
8. USE:
8.1 GOVERNMENT USE CONTROL.
8.1.1 ZONING. Use of the Premises shall conform to and be
limited by applicable zoning regulations, any conditions lawfully imposed
by Duly empowered governmental authorities having jurisdiction over the
Premises and the terms, covenants, conditions and restrictions imposed by
this Lease. The Premises may not be used for Fixed Base Operations nor
shall the Premises have access to the Long Beach Municipal Airport, other
than access in common with the public, at public access points.
8.1.2 FEDERAL AVIATION ADMINISTRATION. The improvement of
the Premises shall be subject to the conditions contained in the language
mandated by the FAA
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and set out in Exhibit "H", which is attached hereto and made a part
hereof.
The provisions set out in Exhibit "H" are applicable to the Premises and
binding upon the parties only to the extent that such provisions are
mandated by applicable laws, rules or regulations of the United States
Government or any contract or agreement entered into by and between City
and the United States Government and/or agencies thereof.
8.l.3 RENTAL ADJUSTMENT. In the event of any closure or
significant modification of the Long Beach Municipal Airport which results
in a significant adverse effect upon the fair market value of those
portions of the business park used for hotel purposes, the rent payable by
Developer for such portion of the business park shall be equitably
adjusted. Such adjustment rental shall be so calculated as to consider any
reduction in value of the improvements on the subject portions of the
business park as an element thereof. In computing such rental adjustment,
any alternative uses for such portions of the business park then permitted
by this Lease or by City and under applicable laws, rules and regulations,
including zoning ordinances, taking into account the remaining term of
this Lease, and the costs and time required to commence such alternative
use shall be given consideration, provided that such rent as so adjusted
shall not be greater than but may be less than the amount paid by
Developer prior to the action resulting in such adjustment. If the City
of Long Beach commences proceedings to rezone such portions of the
business park within two (2) months of the receipt of notice from
Developer of Developer's intent to claim a rental adjustment under this
Section, the computation of the rent adjustment shall be postponed for a
period of up to six (6) months from the giving of such notice in order to
reflect any such new zoning in the computation of such rental adjustment,
but any such rental adjustment shall be applied retroactively to the date
City receives such notice from Developer, in any event. In the event
Developer, in its sole discretion, determines to redevelop the hotel use
property in accordance with such alternative uses permitted by applicable
zoning and this Lease, the rental paid for such portion of the leasehold
devoted to such alternative use shall be adjusted, effective upon issuance
to Developer of a Certificate of Occupancy for such alternative use
facilities to reflect such alternative use. The rent payable shall be the
difference between the fair rental value of the portion of the leased land
valued for such alternative use without considering the rental adjustment
factors described above and the leased land valued for the use being made
of such portion by Developer immediately preceding such closure or
modification as described in this Section 8.1.3, added to the rental being
paid by Developer for such portion of the leased land immediately prior to
such closure or modification, less the portion of the rental
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adjustment computed in this Section attributed to the reduction in value
of the improvements. City will cooperate upon request by Developer in
agreeing upon the adjusted rent for such alternative use proposed by
Developer at any time after any such closure or modification thereto as
described in this Section. In the event of a dispute between the parties
as to any matter set out in this Section 8.1.3, such dispute shall be
determined by submitting the matter to arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. If
any such closure or significant modification of the Long Beach Municipal
Airport, as described herein, occurs during the last ten (10) years of the
term of this Lease, and if, as a result thereof, any hotel constructed
upon the business park is no longer suitable for any uses producing other
than minimal and insubstantial income taking into account any alterations
or additions Developer will agree to make, either City or Developer may
elect to terminate this Lease, insofar as this Lease affects such hotel,
together with and subject to any rights, powers and easements established
by any "Declaration", as defined in the attached Exhibit "E", provided
that the party electing to terminate this Lease complies with all
conditions set forth in said Exhibit "E" to the division of this Lease
into two (2) separate new leases, one of which new leases will demise the
portion of the business park with respect to which this Lease is being
terminated, and provided further that if City so elects to terminate this
Lease, City pays to Developer a sum equal to the present discounted value
of the difference between the then fair rental value of the portion of the
business park with respect to which this Lease is being terminated and the
rental payable hereunder attributable to such portion of the business park
after the rental adjustment required by this Section. Any sums payable to
Developer pursuant to this Section shall be subject to the rights of any
lender on the security of the leasehold estate and Developer's right to
terminate this Lease under this Section shall be subject to Developer's
obtaining the approval of any lender on the security of the leasehold
estate.
8.l.4 NO WAIVER OF REMEDIES. Nothing herein shall be deemed
to alter any right of Developer to claim damages in inverse condemnation
resulting from actions described in Section 8.1.3 above and litigate such
claim, nor shall it be deemed any limitation in City's right to defend any
such litigation instituted by Developer.
8.1.5 NOTICE OF DEFAULT. In the event that any governmental
agency notifies City of a default by Developer or by anyone occupying or
using the Premises by or under Developer of any of the provisions set
forth in Exhibit "H", City shall promptly notify Developer of such
allegation of default and, if requested to do so by Developer, shall
cooperate in any administrative proceeding available to contest such
default.
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8.2 INSPECTION. Nothing herein shall be deemed to
prohibit the City of Long Beach in its governmental capacity from entering
the premises to enforce applicable codes and ordinances.
9. LIENS.
9.1 DEVELOPER'S RESPONSIBILITY. Developer shall not
permit any liens to be enforced against City's interests in and to the
land comprising the Premises, nor against Developer's leasehold interest
therein by reason of work, labor, services or materials supplied or claimed
to have been supplied to Developer or anyone holding the Premises, or any
part thereof, through or under Developer, and Developer agrees to indemnify
City against such liens.
9.2 NOTICE OF WORK. Before any buildings, structures or
other improvements or additions thereof, having a cost in excess of ONE
HUNDRED THOUSAND DOLLARS ($100,000) are constructed or reconstructed upon
the Premises, Developer shall serve written notice upon City in the manner
specified in this Lease of Developer's intention to perform such work for
the purpose of enabling City to post notices of non-responsibility under
the provisions of Section 3094 of the Civil Code of the State of
California, or any other similar notices which may be required by law.
9.3 DISCHARGE OF LIENS. If any mechanics' liens or other
liens are filed of record against the Developer's or City's interests in
and to the Premises by reason of work, labor, services or materials
supplied or claimed to have been supplied to Developer or anyone holding
the Premises, or any part thereof, through or under developer, Developer
shall cause the same to be discharged of record within sixty (60) days
after notice to Developer of the filing thereof, or otherwise free the
Premises from the effect of such claim of lien and any action brought to
foreclose such lien within such sixty (60) day period, or Developer,
within such sixty (60) day period, shall promptly furnish to City a bond
in an amount and issued by a surety company satisfactory to City securing
Developer against payment of such lien and against any and all loss or
damage whatsoever in any way arising from the failure of Developer to
discharge such lien.
9.4 CITY'S RIGHT TO PAY. In the event Developer fails to perform
its obligations under Section 9.3 above with respect to any lien within the
sixty (60) day period specified in Section 9.3 above, City may, but shall not
be obligated to, pay the amount thereof inclusive of any interest thereon,
and any costs assessed against Developer in said litigation, or may discharge
such lien by contesting its validity or by any other lawful means.
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9.5 REIMBURSEMENT OF CITY. Any amount paid by City for
any of the expenses described in Section 9.4 above, and all reasonable
legal and other expenses of City, including reasonable counsel fees, and
costs of suit, in defending any such action or in connection with
procuring the discharge of such lien, with all necessary disbursements in
connection therewith, together with interest thereon at the rate provided
by law from the date of payment, shall be repaid by Developer to City on
demand.
10. CONDEMNATION:
10.1 DEFINITION OF TERMS. The following definitions shall
govern interpretation of this Section.
10.1.1 TOTAL TAKING. The term "total taking" as used in this
Section 10 means the taking of the entire Premises under the power of
eminent domain or the taking of so much thereof as will in Developer's
judgment prevent or substantially impair the use of the Premises for the
uses and purposes then being made or proposed to be made by Developer of
the Premises.
10.1.2 PARTIAL TAKING. The term "partial taking" means the
taking of a portion only of the Premises which does not constitute a total
taking as defined above.
10.1.3 TAKING. The term "taking" shall include a voluntary
conveyance by City to an agency, authority or public utility under threat
of a taking under the power of eminent domain in lieu of formal
proceedings.
10.1.4 DATE OF TAKING. The term "date of taking" shall be
the date title to the Premises or portion thereof passes and vests in the
condemnor or the date of entry of an order for immediate possession by a
court of competent jurisdiction in connection with any judicial
proceedings in eminent domain or the date physical possession of the
Premises is taken or interfered with, whichever first occurs.
10.1.5 LEASED LAND. The term "leased land" means the real
property demised hereby, but exclusive of any and all improvements
situated upon the Premises at the commencement of the lease term and also
exclusive of all improvements constructed or placed thereon by or under
Developer and exclusive of any grading and other site work performed by or
under Developer. This definition shall also apply to Section 8.1.3.
10.2 EFFECT OF TAKING. If during the term hereof there
shall be a total or partial taking under the power
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of eminent domain, then the leasehold estate of Developer in and to the
Premises, in the event of a total taking, or the portion thereof taken, in
the event of a partial taking, shall cease and terminate, as of the date
of taking thereof. If this Lease is so terminated in whole or in part,
all rentals and other charges payable by Developer to City hereunder and
attributable to the Premises, or portion thereof taken, shall be paid by
Developer up to and prorated through the date of taking by the condemnor.
Any portion of the security deposit provided for in Section 17.1 fairly
attributable to the terminated portion of the leasehold estate shall be
repaid by Developer and the parties shall thereupon be released from all
further liability in relation thereto.
10.3 ALLOCATION OF AWARD. All compensation and damages
awarded in connection with a total or partial taking of the Premises,
including all improvements thereon, shall be allocated as follows:
10.3.1 CITY'S SHARE. City shall be entitled to that portion
of the award attributable to the fair market value of the leased land, or
the portion taken, valued at the date of the taking and for the use then
being made of the leased land by Developer. In determining such fair
market value the provisions of this Lease, including, without limitation,
the rent payable hereunder over the remaining terra of this Lease, shall
be taken into account.
10.3.2 DEVELOPER' S SHARE. Developer shall be entitled to
the amount remaining of the total award after deducting therefrom the sums
to be paid to City pursuant to the preceding Paragraph 10. 3.1.
10.4 REDUCTION OF RENT ON PARTIAL TAKING. In the event of
a partial taking, the rent payable by Developer shall be adjusted from
the date of taking to the date of expiration of the term of this Lease.
Such rental adjustment will be made by reducing the rental payable by
Developer based on the ratio between the fair market value of the leased
land at the date of taking and the fair market value of the leased land
remaining immediately thereafter, valued for the use being made of the
leased land by Developer prior to such taking.
10.5 TEMPORARY TAKING. If all or any portion of the
Premises shall be taken by any competent authority for temporary use or
occupancy, this Lease, at the option of Developer, shall continue in full
force and effect without reduction or abatement of rent, notwithstanding
any other provision of this Lease, statute or rule of law to the contrary,
and Developer shall, in such event, be entitled to the entire award for
such taking to the extent that the same shall be applicable to the period
of such temporary use or occupancy included in the
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term of this Lease and City shall be entitled to the remainder thereof.
11. ALTERATIONS BY DEVELOPER:
Developer shall have the right at any time and from time to time
during the lease term to make, at its sole cost and expense, such changes and
alterations, structural or otherwise, in or to the improvements constructed
upon the Premises as Developer shall deem necessary or desirable, including,
without limitation, the right to remove and/or demolish buildings and other
improvements whether or not other buildings or improvements are constructed
in their place. The rights granted by this paragraph shall be limited to and
their exercise shall comply with the terms of Paragraph 7 hereof.
12. TAXES AND ASSESSMENTS:
12.1 PAYMENT BY DEVELOPER. Developer shall pay prior to
delinquency all real estate taxes and assessments on the Premises and/or
Developer's possessory interests therein levied during the term of this
Lease. Developer shall not place or allow to be placed on the Premises, or
any part thereof, any mortgage, trust deed, encumbrance or lien unauthorized
by this Lease. Developer shall remove or have removed any levy or attachment
made on any of the Premises, or any part thereof, or assure the satisfaction
thereof within a reasonable time, but in any event prior to a sale thereof.
Nothing herein contained shall be deemed to prohibit Developer from
contesting the validity or amounts of any tax, assessment, encumbrance or
lien, nor to limit the remedies available to Developer in respect thereto.
12.2 INSTALLMENT PAYMENTS. If any real estate, special tax or
assessments are at any time during the term of this Lease, levied or assessed
against the Premises or Developer's leasehold estate hereunder, which, upon
exercise of any option permitted by the assessing authority, may be paid in
installments or converted to an installment payment basis (irrespective of
whether interest shall accrue on unpaid installments), Developer may elect to
pay such taxes or assessments in installments with accrued interest thereon.
In the event of such election, Developer shall be liable only for those
installments on such tax or assessment which become payable during the term
of this Lease, and Developer shall not be required to pay any such
installment which becomes due and payable after the expiration of the term of
this Lease. City shall execute whatever documents may be necessary to
convert any such taxes or assessments to such an installment payment basis if
requested so to do by Developer and if such action is authorized by law then
in effect.
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12.3 PRORATION. Any real estate taxes and assessments which are
payable by Developer hereunder shall be prorated between City and Developer
at the expiration or earlier termination of the term of this Lease if such
real estate taxes and assessments relate to a fiscal period of the levying
authority which extends beyond the expiration or earlier termination of the
term hereof.
12.4 RIGHT TO CONTEST. Developer and any subtenant, with
Developer's consent, shall have the right to contest the amount or validity
of any real estate taxes and assessments, in whole or in part, by appropriate
administrative and legal proceedings, without any cost or expense to City,
and Developer may postpone payment of any such contested real estate taxes
and assessments pending the prosecution of such proceedings and any appeals
so long as such proceedings shall operate to prevent the collection of such
real estate taxes and the sale of the Premises to satisfy any lien arising
out of the non-payment of the same, provided, however, that if at any time
payment of the whole or any part thereof shall become necessary in order to
prevent the termination of the right of redemption of any property affected
thereby, or if there is to be an eviction of Developer because of non-payment
thereof, Developer shall pay the same in order to prevent such termination of
the right of redemption or such eviction. City shall execute and deliver to
Developer whatever documents may be within its legal authority necessary or
proper to permit Developer or any subtenant, with Developer's consent, to so
contest any real estate taxes or which may be necessary to secure payment of
any refund which may result from any such proceedings. Any such contest
shall be at no cost or expense to City. Each refund of any tax or assessment
so contested shall be paid to Developer.
13. CERTIFICATES BY DEVELOPER AND CITY:
13.1 DEVELOPER TO PROVIDE. Developer agrees upon not less than
twenty (20) days' notice to City to execute, acknowledge and deliver to City
a statement in writing certifying (i) that this Lease is unmodified and in
full force and effect (or if there have been modifications that the same is
in full force and effect as modified and stating the modifications); (ii)
whether or not to the best knowledge of Developer there are then existing any
offsets or defenses against the enforcement of any of the terms, covenants,
or conditions hereof upon the part of Developer to be performed and, if so,
specifying same; and (iii) the dates to which the rent and other charges have
been paid, it being intended that any such statement delivered pursuant to
this Section may be relied upon by any prospective purchaser of the fee of
the real property comprising the Premises.
13.2 CITY TO PROVIDE. City agrees upon not less than twenty (20)
days' prior notice by Developer, to
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execute, acknowledge and deliver to Developer a statement in writing
certifying (i) that this Lease is unmodified and in full force and effect (or
if there have been modifications, that the same is in full force and effect
as modified and stating the modifications); (ii) the dates to which the rent
and other charges have been paid; (iii) stating whether or not, to the best
knowledge of City, Developer is in default in performance of any covenant,
agreement or condition contained in this Lease and, if so, specifying each
such default of which City may have knowledge; (iv) whether or not there are,
to City's best knowledge, any offsets or defenses claimed by and/or available
to Developer to the payment of rental; and (v) that all improvements then
existing on the Premises have been completed to the satisfaction of the City,
it being intended that any such statement delivered pursuant to this Section
may be relied upon by any prospective assignee or subtenant of the whole or
any portion of the Premises, or by any lender extending credit on the
security of Developer's leasehold estate.
14. QUIET ENJOYMENT - TITLE INSURANCE - ACCESS:
14.1 QUIET ENJOYMENT. City covenants that Developer, upon the
performance of the covenants and agreements herein contained on Developer's
part to be performed, shall and may at all times, for itself and its
subtenants peaceably and quietly have, hold and enjoy the Premises during the
term of this Lease.
14.2 TITLE POLICY. Upon the commencement of the lease term, City
shall cause Transamerica Title Insurance Company, or another reputable title
company selected by Developer, to issue a standard form CLTA leasehold policy
of title insurance, with a liability of SIX MILLION SIX HUNDRED NINETY-THREE
THOUSAND TWO HUNDRED DOLLARS ($6,693,200.00), insuring marketable title to
the leasehold estate to the business park portion of the Project vested in
Developer free and clear of monetary liens and/or encumbrances and subject
only to the easements and other matters shown as exceptions on Transamerica
Title Insurance Company's Preliminary Title Report No. 14-51 510239 dated as
of August 12, 1980. This Section shall not be construed to constitute
Developer's approval of said exceptions.
15. TERMINATION AND FURTHER LEASING:
15.1 TERMINATION. Subject to Section 4.7, this Lease may be
terminated at any time by mutual agreement of the parties.
15.2 TERMINATION BY CITY. City may terminate this Lease pursuant
to Section 17.6 below, but subject to Section 4 above, under the following
circumstances:
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(a) Developer assigns this Lease in violation of Section 5.1.
(b) Failure of Developer to construct Improvements permitted
by the PD-2 Zone Ordinance, and required by the Schedule attached as Exhibit
"F".
(c) Failure of Developer to provide the good faith deposit
required by this Lease.
(d) Bankruptcy of Developer.
Provided, however, that in all cases, City shall give Developer the sixty
(60) days' notice required by Section 17.6.1 and Developer shall have an
opportunity to cure the defect during the time provided by Section 17.6.1
before such circumstance constitutes a default for the purposes of this
Lease. The bankruptcy of Developer shall be deemed to have occurred only
when the adjudication of Developer as a bankrupt becomes final or upon
Developer's filing of a voluntary petition in bankruptcy.
16. EXPIRATION OF LEASE AND SUBSEQUENT LEASES:
16.1 CONTINUATION OF USE. Prior to the expiration of this Lease,
City shall determine whether the then existing uses of the Premises shall be
retained.
16.2 VALUATION. If the City determines that the uses existing on
the Premises at the time of completion of the Lease should be continued, and
that it wishes to continue to lease the property, it shall determine the fair
lease value of the land and improvements thereon.
16.3 DEVELOPER'S RIGHTS.
16.3.1 NEW LEASE. Upon determination of the fair lease value
of the property, City shall offer Developer the right, prior to making any
offer to any other party, to enter into a new lease at the value established
by the City. If Developer does not agree to enter into a new lease with
City, within thirty (30) days from the date of notification by City of its
right to do so, all rights of Developer to enter into a new lease pursuant to
this Section shall terminate and the property shall revert to City after
expiration of the Lease. The terms of this clause shall not take effect
unless City determines to continue to lease the Premises and terminate with
the end of this Lease.
16.3.2 SALVAGE OF IMPROVEMENTS. If Developer does not agree
to enter into a new lease with City pursuant to the terms of this Section,
Developer may salvage any or all of the improvements pursuant to Section
17.12 below. All
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remaining improvements shall become the property of City which may use or
demolish same at its sole discretion, provided, however, that any structure
left by Developer shall be left in good condition and repair, reasonable wear
and tear excepted, and provided further that in the event Developer removes
any portion or appurtenances to any building or other structure, Developer
shall not leave such building or structure in a damaged, unsafe or
economically unusable condition by reason of such removal.
17. GENERAL PROVISIONS:
17.1 GOOD FAITH DEPOSIT.
17.1.1 RECEIPT BY CITY. Developer has, prior to the
execution and delivery of this Lease and the other mini master ground leases
into which the Master Ground Lease has been segregated to date, delivered to
City a good faith deposit in the form of a bond in the amount of SIX HUNDRED
SIXTY-NINE THOUSAND THREE HUNDRED TWENTY DOLLARS ($669,320.00) as security
for the performance of the obligations of Developer to be performed following
the commencement of the term and prior to the return of the deposit to
Developer, or its retention by City in accordance with the provisions of this
Lease and all other mini master ground leases into which the Master Ground
Lease has been segregated to date.
(a) The good faith deposit, at the option of Developer,
may be in the form of (i) cash; or (ii) cashier's or certified check; or
(iii) negotiable certificates of deposit, or a non-negotiable certificate of
deposit if City is the named depositor thereon, issued by a federal or state
bank or savings and loan association; or (iv) an irrevocable letter of credit
in favor of City issued by an established lending institution approved by
City; or (v) a bond in a form and with a surety reasonably satisfactory to
City providing for payment to City amounts that may from time to time become
payable to City under this Lease from this good faith deposit. Developer may
change the form of the deposit from time to time, at its option, to any other
of the permitted forms of deposit. The deposit, in case or certified or
cashier's check, shall be deposited in an interest-bearing account of City in
a bank, savings and loan association or trust company selected by Developer
and approved by City, which approval shall not unreasonably be withheld.
Developer shall have the right to specify the type of account in which such
funds are from time to time to be deposited.
(b) City shall be under no obligation to pay or earn
interest on the deposit, but if interest shall accrue or be payable thereon
such interest, when received by City, shall be promptly paid to Developer.
City agrees, but not more often than quarterly, upon receipt of
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request from Developer, to cause any such interest so accrued on such deposit
to be paid to City by the bank, savings and loan association or trust company
with which said sums have been deposited.
(c) If a bond is posted to satisfy the requirements in
(a) above with a fixed term and if such bond expires prior to the date
Developer is entitled to have the security deposit returned, Developer shall
provide City with either (i) evidence of the renewal of such bond for an
additional period, or (ii) a new security deposit satisfying the requirements
of this Section 17.1.1 in one of the forms authorized by (a) above,
including, without limitation, a new bond, not less than twenty (20) days
prior to the expiration of the bond posted to satisfy the requirement in (a)
above, or City may require that Developer provide such security deposit by a
cash payment to City upon demand.
17.1.2 RETURN OF DEPOSIT. Promptly upon Developer's
completion of the construction of any building improvements upon the Premises
and the issuance of a Certificate of Occupancy for such improvements, City
shall release and return to Developer a portion of the deposit described in
Section 17.1.1 based upon the ratio between the number of square feet of
building floor area (as measured from the exterior of exterior building
walls) within such completed building improvements to 488,500 square feet of
building area, and the balance of such deposit, if any, with accrued interest
shall be returned to Developer upon the occurrence of the Completion Date,
which term, for the purposes of this Section 17.1.2, shall mean the date that
Developer completes its proposed construction of building improvements on the
business park portion of the Project and certificates of occupancy with
respect to such building improvements have been obtained. Developer shall be
deemed to have completed its proposed construction of building improvements
if ninety percent (90%) of the building square footage required to be
constructed upon the business park portion of the Project has been completed
on the business park portion of the Project and no unimproved building pads
remain to be completed upon the business park portion of the Project.
17.1.3 RETENTION OF DEPOSIT BY CITY. In the event that this
Lease is terminated by Developer, in whole or in part, under Section 17.7.1
below, or in the event that Developer elects not to permit City to terminate
this Lease by reason of Developer's failure to commence and complete the
construction of building improvements upon the business park portion of the
Project as required by this Lease, said deposit, less interest accrued
thereon through the date of such termination and also less any portion of
such deposit to be returned to Developer under Section 17.1.2 above, shall be
retained by City as provided in Section 17.7 below.
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17.2 NOTICES, DEMANDS AND COMMUNICATIONS BETWEEN THE PARTIES.
Written notices, demands, and communications between the City and Developer
shall be sufficiently given if personally served or if dispatched by
registered or certified mail, postage prepaid, return receipt requested, to
the principal offices of City or Developer, as set forth in Section 1.5 of
this Lease. Any such notice, demand or communication so given by mailing to
City shall be mailed attention of the City Manager. Copies of any such
notice, demand or communication to be given to Developer pursuant to this
Lease shall be given to CB&C and to SDC concurrently with the giving of such
notice or document to Developer by personal service or by mailing the same,
as required by this Section, to such party, at the address for such party set
forth in Section 1.5 above. Any such notice, demand or communication so
given by mailing to Developer shall be mailed Attention: Roland Wedemeyer.
Either City or Developer may from time to time by written notice to the other
designate a different address or addresses or party or parties to whom
copies of notices, demands and communications are to be delivered or to whose
attention notices, demands and communications are to be addressed which shall
be substituted for the addresses and/or names above specified. If any
notice, demand or communication is sent by registered or certified mail, as
aforesaid, the same shall be deemed to have been sufficiently given
forty-eight (48) hours after the mailing thereof as above provided.
17.3 CONFLICT OF INTEREST. No member, official or employee of
City shall have any personal interest, direct or indirect, in this Lease, nor
shall any such member, official or employee participate in any decision
relating to this Lease which affects his personal interests or the interests
of any corporation, partnership or association in which he is, directly or
indirectly, interested. No member, official or employee of City shall be
personally liable to Developer, or any successor in interest, in the event of
any default or breach by City or for any amount which may become due to
Developer or successor or on any obligations under the terms of this Lease.
17.4 ENFORCED DELAY: EXTENSION OF TIME OF PERFORMANCE. In
addition to specific provisions of this Lease, performance by either party
hereunder shall not be deemed to be in default where delays or defaults are
due to war; insurrection; strikes, lock-outs; riots, floods; inclement
weather; earthquakes; fires; casualties; Acts of God; acts of the public
enemy; epidemics; quarantine restrictions; freight embargoes; lack of
transportation; governmental restrictions or priority; litigation including
eminent domain proceedings or related legal proceedings; inability to secure
necessary labor, materials or tools; delays of any contractor, subcontractor
or supplier; acts or failure to act of the other party; acts or failure to
act of any public or governmental agency or entity; or any other cause beyond
the reasonable control of the party charged with such
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performance, and the time for such performance shall be extended for a period
equal to the time of the delay resulting from any such cause.
17.5 AUDIT. The City Auditor and City Manager, or their
designated representatives, shall be permitted with or without prior
notification to examine and review Developer's records at all reasonable
times during Developer's regular business hours in a manner causing as little
inconvenience as possible to Developer, for the purpose of determining
compliance with this Lease.
17.6 DEFAULTS AND REMEDIES.
17.6.1 DEFAULTS - GENERAL. Subject to the extensions of time
set forth in Section 17.4. above, failure by either party to perform any term
or provision of this Lease constitutes a default under this Lease, if not
cured within sixty (60) days of the receipt of a written notice from the
other party specifying the default claimed; provided that, if such default
cannot reasonably be cured within such sixty (60) day period, the party
receiving such notice of default shall not be in default under this Lease if
such party commences the cure of such default within such sixty (60) day
period and thereafter diligently prosecutes the curing of such default to
completion. Any default by the lessee under any other lease for the business
park portion of the Project (except for a default under the lease for Parcel
3 of Parcel Map No. 15307) shall constitute a default hereunder, if, but only
if, the party or parties acting as the "Developer" hereunder are the same
party or parties acting as the "Developer" under such other lease, which
default hereunder shall constitute a default not susceptible of being cured
by a lender on the security of the leasehold estate for the purposes of
Sections 4.2 and 4.6 of this Lease. Subject to Section 17.6.2 below, any
default by the lessee under the Adjacent Parcel Lease, or any new lease into
which the Adjacent Parcel Lease may be divided pursuant to Paragraph 13 of
the Miscellaneous Addendum attached to the Adjacent Parcel Lease, shall
constitute a default under this Lease if, but only if, the party or parties
acting as the "Tenant" under the Adjacent Parcel Lease or any such new lease
are the same party or parties acting as the "Developer" under this Lease,
which default under such Adjacent Parcel Lease or any such new lease shall
constitute a default not susceptible of being cured by a lender on the
security of the leasehold estate for the purposes of Section 4.2 and 4.6 of
this Lease.
17.6.2 ADJACENT PARCEL LEASE EXCEPTIONS. Subject to the
termination of the effectiveness of this paragraph as provided hereinbelow,
notwithstanding the provisions of Section 17.6.1 above to the contrary, a
default by the lessee under the Adjacent Parcel Lease, or any new lease into
which the Adjacent Parcel Lease may be divided pursuant to
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Paragraph 13 of the Miscellaneous Addendum attached to the Adjacent Parcel
Lease, in the performance of its obligations under Paragraph 1 of the
Construction Addendum attached to the Adjacent Parcel Lease shall constitute a
default under this Lease whether or not the party or parties acting as the
"Tenant" under the Adjacent Parcel Lease, or any such new lease, are the same
party or parties acting as the "Developer" under this Lease, but, City's sole
remedy for such a default, if said parties are not the same, shall be to
terminate this Lease and to recover rent and other charges payable hereunder
through the date of such termination. The provisions of this paragraph shall
become null and void and of no further force or effect upon the first to occur
of (a) the occurrence of each of the following events: (i) the issuance of a
building permit or permits required for the construction required by Paragraph 1
of the Construction Addendum attached to the Adjacent Parcel Lease (the "FBO
Phase I Improvements"), (ii) the lessee under the Adjacent Parcel Lease delivers
to City a fully executed construction contract between it and a
licensed general contractor for the construction of the FBO Phase I
Improvements, which contract requires that such work be commenced within thirty
(30) days, subject to force majeure, (iii) City receives the performance, labor
and material bond for the FB0 Phase I Improvements as required by Section 4 of
the Adjacent Parcel Lease, and (iv) City receives reasonable evidence of the
financial ability of the lessee under the Adjacent Parcel Lease to pay for the
costs of the construction of the FBO Phase I Improvements (a construction loan
commitment in the usual form from a bank, savings and loan association or other
institutional lender shall constitute reasonably satisfactory evidence of such
financial ability), or (b) the FBO Phase I Improvements have been substantially
completed.
City agrees to promptly execute and deliver to Developer written
confirmation that the provisions in the first paragraph of this Section
17.6.2 have terminated and are of no further force or effect upon the first
to occur of the said two events, which written confirmation may be relied
upon by Developer and/or any party acquiring any interest in and to this
Lease and/or the premises demised hereby, through or under Developer and/or
any party extending credit to Developer.
Subject to the termination of the effectiveness of this paragraph as
provided hereinbelow, notwithstanding the provisions of Section 17.6.1 above
to the contrary, a default by the lessee under the Adjacent Parcel Lease, or
any new lease into which the Adjacent Parcel Lease may be divided pursuant to
Paragraph 13 of the Miscellaneous Addendum attached to the Adjacent Parcel
Lease, in the performance of its obligations under Paragraph 2 of the
Construction Addendum attached to the Adjacent Parcel Lease shall constitute
a default under this Lease whether or not the party or parties acting as the
"Tenant" under the Adjacent Parcel Lease, or any such new lease, are the same
party or parties acting as
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the "Developer" under this Lease, but, City's sole remedy for such a default,
if said parties are not the same, shall be to terminate this Lease and to
recover rent and other charges payable hereunder through the date of such
termination. The provisions of this paragraph shall become null and void and
of no further force or effect upon the first to occur of (a) the commencement
of the construction of building improvements upon the Premises (but shall be
effective as to any new lease entered into pursuant to the attached Exhibit
"D" demising any portion of the Premises for which such construction
condition has not been satisfied, other than a new lease of a common area lot
or parcel within a planned unit development or condominium project upon which
development or project the construction of building improvements has been
commenced), or (b) the completion of the construction required by Paragraph 2
of the Construction Addendum attached to the Adjacent Parcel Lease.
City agrees to promptly execute and deliver to Developer written
confirmation that the provisions in the first paragraph of this Section
17.6.2 have terminated and are of no further force or effect upon the first
to occur of the said two events, which written confirmation may be relied
upon by Developer and/or any party acquiring any interest in and to this
Lease and/or the premises demised hereby, through or under Developer and/or
any party extending credit to Developer.
The provisions of Section 17.7.2 of this Lease shall be applicable to
defaults hereunder resulting from defaults under the Construction Addendum
attached to the Adjacent Parcel Lease, or any new lease into which the
Adjacent Parcel Lease may be divided, and any sum paid or released to the
lessor under the Adjacent Parcel Lease, or any new lease, under Paragraph 5.2
of the Default-Termination Addendum attached thereto by reason of any such
default, shall apply as a credit against the sum payable under Section 17.7.2
below to prevent the termination of this Lease by reason of such default.
17.6.3 INSTITUTION OF LEGAL ACTIONS. In addition to any other
rights or remedies, either party may institute legal action to cure, correct,
or remedy any default, to recover damages for any default, or to obtain any
other remedy consistent with the purpose of this Agreement. Such legal
actions must be instituted in the South Branch of the Superior Court of the
County of Los Angeles, State of California, in an appropriate municipal court
in the County, or in the Federal District Court in the Central District of
California.
17.6.4 APPLICABLE LAW. The laws of the State of California
shall govern the interpretation and enforcement of this Lease.
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17.6.5 SERVICE OF PROCESS. In the event any legal
action is commenced by Developer against City, service of process of City
shall be made by personal service upon the City Manager of City, or in such
other manner as may be provided by law.
In the event that any legal action is commenced by City against
Developer, service of process on Developer shall be made as provided by law
and shall be valid whether made within or without the State of California, or
in such manner as may be provided by law.
17.6.6 RIGHTS AND REMEDIES ARE CUMULATIVE. Except as
otherwise expressly stated in this Lease, the rights and remedies of the
parties are cumulative, and the exercise by either party of one or more of
such rights or remedies shall not preclude the exercise by it, at the same or
different times, of any other rights or remedies for the same default or any
other default by the other party.
17.6.7 INACTION NOT A WAIVER OF DEFAULT. Any failures
or delays by either party in asserting any of its rights and remedies as to
any default shall not operate as a waiver of any default or of any such
rights or remedies or deprive either such party of its right to institute and
maintain any actions or proceedings which it may deem necessary to protect,
assert or enforce any such rights or remedies.
17.6.8 REMEDIES. In the event of a default during the
lease term by Developer, City, without further notice to Developer, may
declare this Lease and/or Developer's right of possession at an end and may
re-enter the Premises by process of law, in which event, City shall have the
right to recover from Developer:
(a) The worth at the time of award of the
unpaid rent which has been earned at the time of termination, plus interest;
(b) The worth at the time of award of the
amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that Developer proves could have been reasonably avoided, plus interest; and
(c) The worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss for the same period that
Developer proves could be reasonably avoided, plus interest thereon.
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The remedies of City as hereinabove provided are subject to the other
provisions of this Lease, including Article 4 hereof.
17.6.9 ARBITRATION - DECLARATORY RELIEF. In the event
that Developer, in good faith, disputes the existence of any claimed default
of which Developer receives written notice from City, other than a default in
the payment of Basic Minimum Rent, Developer may contest the existence
thereof by arbitration by referring the dispute to the American Arbitration
Association in California or by instituting an action for declaratory relief
within sixty (60) days after receipt by Developer of said written notice from
City and, in such event, no such default shall be deemed to exist if either
(i) within sixty (60) days after a final determination that such default does
in fact exist, Developer commences the cure of such default and thereafter
diligently prosecutes such cure to completion, or (ii) Developer receives a
final determination that no such default exists. This provision shall not
apply to disputes relating to rent and rent adjustments.
17.7 DEVELOPER'S INABILITY TO COMMENCE OR COMPLETE CONSTRUCTION.
17.7.1 DEVELOPER'S RIGHT TO TERMINATE. Developer shall
have the right, at its option, with the prior written approval of any lender
on the security of the leasehold estate, to cancel and terminate this Lease
be giving written notice of such termination to City, at any time prior to
the construction of building improvements upon the Premises demised hereby by
or under Developer. Upon any such termination of this Lease, the rents and
other sums payable hereunder shall be prorated and paid or reimbursed to the
date of such termination, Developer and City shall execute and record a
quitclaim deed sufficient to remove the cloud of this lease and the short
form of this Lease from record title to the Premises and Landlord shall be
entitled to retain the deposit described in Section 17.1 above, less any
interest accrued on such deposit and also less any portion of such deposit
payable to Developer under Section 17.1.2 above, which sums shall be paid to
Developer by City.
17.7.2 CITY'S EXERCISE OF REMEDIES. In the event of a
default by Developer in the performance of any of its obligations to commence
and complete the construction of building and other improvements within the
times required by Article 7 of this Lease and in the further event that City
elects to exercise its remedy to terminate this Lease by reason of such
default by Developer, Developer may, for a period of thirty (30) days
following its receipt of written notice from City of City's election to
terminate this Lease by reason of such default, elect to prevent such
termination from becoming effective by releasing and paying to City a portion
of the good faith deposit held by City under Section 17.1, which portion
shall be equal to the
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lesser of (i) the amount of such deposit so held by City; or (ii) an amount
equal to the product on ONE DOLLAR AND SIXTY CENTS ($1.60) per square foot
times the number of square feet of building area the failure to commence or
complete the construction of which has caused the subject default.
17.7.3 PAYMENT TO DEVELOPER. In the event that this
Lease is terminated under Section 17.7.1 or Section 17.7.2 above, or under
Section 3.3(b) above and in the further event that Developer has constructed
streets, utilities and/or other off-site improvements of grading improvements
upon the Project prior to such termination of this Lease, City shall,
pursuant to its responsibilities under state law, use its best efforts to
resell or relet the Premises, or any portion thereof, as soon and in such
manner as City shall find feasible and consistent with the objectives of such
law to a qualified and responsible party or parties (as determined by City)
who will assume the obligation of making or completing the improvements
required of Developer under this Lease or such other improvements in their
stead as shall be satisfactory to City and in accordance with the uses
specified for the Premises in this Lease. Upon such resale or reletting of
the Premises, or any portion thereof, the proceeds thereof shall be applied.
(a) First, to reimburse City for all costs and
expenses incurred, including, but not limited to, salaries to personnel, in
connection with the recapture, management, and resale or reletting of the
Premises, or part thereof (but less any income derived by City from the
Premises, or part thereof, in connection with such management); all taxes,
assessments, and water and sewer charges with respect to the Premises, or
part thereof (or, in the event that the Premises are exempt from taxation or
assessment or such charges during the period of ownership thereby by City, an
amount, if paid, equal to such taxes, assessments, or charges
[as determined by the appropriate assessing official] as would have been
payable if the Premises were not so exempt); any payments made or necessary
to be made to discharge any encumbrances or liens existing on the Premises,
or part thereof, at the time of revesting of title thereto in City or to
discharge or prevent from attaching or being made any subsequent encumbrances
or liens due to obligations, defaults, or acts of Developer, its successors
or transferees; any expenditures made or obligations incurred with respect to
the making or completion of the improvements or any part thereof on the
Premises, or part thereof; and any amounts otherwise owing City by Developer
and its successors or transferee;
(b) Second, in the case of a reletting, to pay
to City an amount equal to the rentals and other payments payable to City
hereunder that City would have received if this Lease had not been
terminated; or, if the
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premises are resold, to reimburse City an amount equal to FOUR DOLLARS ($4.00)
per square foot times the number of square feet within the Premises;
(c) Third, to reimburse Developer, its
successors or transferees, a sum up to the amount equal to the sum of (i) the
costs incurred for the development of the Project, prorated to the Premises,
if the Premises are less than all of the Project, on a square foot basis, and
for the improvements existing on the Premises at the time of the re-entry and
repossession by City, less (ii) any gains or income withdrawn or made by
Developer from the Premises or the improvements thereon; and
(d) Any balance remaining after such
reimbursement shall be retained by City as its property. In the event that
such street, utility and/or other off-site improvements have been constructed
by or the costs of such construction paid or reimbursed by an improvement or
special assessments district, the provisions of this Section shall be
applicable to the costs for such improvements if payment of the bonds issued
by such district have been guaranteed by Developer or by security, in
addition to the leasehold estate created hereby, or paid by Developer, but
only to the extent of such payment by Developer or of payment from the
proceeds of such guarantee.
17.7.4 DELIVER OF PLANS. In the event that this Lease
is terminated for any reason whatsoever, Developer shall deliver to City one
set of all plans and data in its possession concerning the Premises.
17.8 RIGHT TO CONTEST LAWS. Developer shall have the right, after
notice to City, to contest or to permit its subtenants to contest by
appropriate legal proceedings, without cost or expense to City, the validity
of any law, ordinance, order, rule, regulation or requirement to be complied
with by Developer under this Lease and to postpone compliance with the same;
provided such contest shall be promptly and diligently prosecuted at no
expense to City and so long as City shall not thereby suffer any civil or be
subjected to any criminal penalties or sanctions, and Developer shall protect
and save harmless City against any liability and claims for any such
noncompliance or postponement of compliance.
17.9 TRADE FIXTURES. All trade fixtures, furnishings, equipment
and signs installed by or under Developer or subtenants shall be and remain
the property of the person, firm or corporation installing the same and shall
be removable at any time during the term of this lease. The removal of any
such trade fixtures, furnishings, equipment and signs shall be at the expense
of the person, firm or corporation removing the same, who
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shall repair any damage or injury to the Premises and all improvements
thereto occasioned by the removal thereof. In the event that any subtenant
acquires any furniture, trade fixtures, signs and/or equipment to be used in
connection with its subleased premises from an equipment lessor or from an
equipment seller under a security agreement, City agrees to execute such
documents as may reasonably be required by the equipment lessor or creditor
in order to assure such party of its prior rights in and to any such
equipment, furniture, signs and/or trade fixtures and of its right to remove
any such equipment, furniture, signs and/or trade fixtures from the subleased
premises for a period of not to exceed forty-five (45) days from and after
notice to such party of the termination or expiration of the sublease of the
subject subtenant-lessee or subtenant-debtor.
17.10 CONTINUED POSSESSION OF TENANT. If Developer shall hold
over the Premises after the expiration of the term hereof with the consent of
City, either express or implied, such holding over shall be construed to be a
tenancy from month-to-month, subject to all the covenants, rental conditions
and obligations hereof and terminable by either party as provided by law.
17.11 UTILITIES. Developer shall pay or cause to be paid all
charges for gas, electricity, water and other utilities furnished to the
Premises during the term of this Lease and all sewer use charges or similar
charges or assessments for utilities levied against the Premises for any
period included within the term of this Lease.
17.12 SURRENDER. Upon the expiration of the term of this Lease,
as provided herein, or sooner termination of this Lease, Developer, subject
to Section 17.9, shall surrender to City all and singular the Premises,
including any buildings and all improvements constructed by or under
Developer then situated upon the Premises, and Developer shall execute,
acknowledge and deliver to City within ten (10) days after written request
from City to Developer, any Quitclaim Deed or other document required by any
reputable title company to remove the cloud of this Lease from the Premises.
Notwithstanding the foregoing provisions of this Section to the contrary,
Developer shall have the right, at any time prior to the expiration of the
term of this Lease and for a period of sixty (60) days following the
expiration of the term, to remove all or any portion of the buildings and
other improvements constructed by or under Developer upon the Premises.
17.13 PARTIAL INVALIDITY. If any term or provision of this Lease
or the application thereof to any party or circumstances shall, to any
extent, be held invalid or unenforceable, the remainder of this Lease, or
the application of such term or provision, to persons or circumstances other
than
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<PAGE>
those as to whom or which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
17.14 SECTION HEADINGS. The Section and Article headings of this
Lease are inserted as a matter of convenience and reference only and in no
way define, limit or describe the scope or intent of this Lease or in any way
affect the terms and provisions hereof.
17.15 SHORT FORM LEASE. Concurrently with the delivery of this
Lease, City and Developer have executed, acknowledged and caused to be
recorded a short form of this Lease in the form attached hereto as Exhibit "J".
17.16 ENTIRE AGREEMENT, WAIVERS AND AMENDMENTS. This Lease is
executed in two (2) duplicate originals, each of which is deemed to be an
original. This Lease includes fifty-four (54) pages and ten (10) attachments
marked Exhibits "A" through "J" which constitutes the entire understanding
and agreement of the parties. This Lease integrates all the terms and
conditions mentioned herein or incidental hereto, and supersedes all
negotiations or previous agreements between the parties with respect to all
or any part of the subject matter hereof.
17.17 WAIVERS. All waivers of the provisions of this Lease must
be in writing by the appropriate authorities of City or Developer, and all
amendments hereto must be in writing by the appropriate authorities of City
and Developer.
17.18 APPROVALS. In all circumstances where under this Lease
either party is required to approve or disapprove any matter, approval shall
not be unreasonably withheld.
17.19 SUCCESSORS IN INTEREST. The provisions of this Lease shall
be binding upon and shall inure to the benefit of the heirs, executors,
assigns and successors in interest of the parties hereto.
17.20 LITIGATION AND ATTORNEYS' FEES. In the event of any dispute
between the parties hereto involving the covenants and provisions herein
contained or arising out of the subject matter of this Lease, the parties
reserve, each to themselves, the right to litigate such dispute. The
prevailing party in any action commenced pursuant to this Lease shall be
entitled to recover reasonable expenses, attorneys' fees and costs.
17.21 RIGHT OF FIRST REFUSAL TO PURCHASE. If City shall determine
during the term of this Lease that it is lawful and in the public interest to
sell the Premises, or any
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portion thereof, City shall, prior to making the property available for sale
to any other party, provide Developer the opportunity to purchase said
property at its fair market value, as determined by an appraisal obtained by
City. If Developer has not entered into an agreement to purchase said
property within ninety (90) days of the date it is first offered for sale to
Developer at the price theretofore determined by City to be the fair market
value, all rights of Developer created by this Section 17.21 shall cease and
be of no further force and effect. The determination whether such property
shall be made available for sale is and shall be within the sole and
exclusive discretion of City. City shall determine the legality of such
action prior to making a determination to sell on the basis of the law then
in effect.
17.22 SUBJECT TO DECLARATIONS. This Lease is and shall be subject
and subordinate to the terms and provisions of that certain Maintenance
Declaration dated January 31, 1983 and recorded on March 8, 1983, as
Instrument No. 83-256290 of the Official Records of the Los Angeles County,
California Recorder and to the terms and provisions of that certain
Declaration of Covenants, Conditions, and Restrictions dated January 31, 1983
and recorded on March 9, 1983, as Instrument No. 83-252462 of the Official
Records of the Los Angeles County, California Recorder (collectively the
"Declarations"); provided, however, that the Developer's obligation to pay
rent hereunder shall not be affected in any way because of such
subordinations. The terms and provisions of the Declarations include certain
granted and reserved easements. This Lease is and shall be further subject
and subordinate to any instrument recorded against the Premises to establish
a condominium or planned unit development regime.
IN WITNESS WHEREOF, City and Developer have signed this Lease as of
the date first written above.
CITY OF LONG BEACH,
a municipal corporation
By: /s/ John E. Dever
------------------------------------
John E. Dever, City Manager
"City"
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<PAGE>
LONG BEACH AIRPORT BUSINESS PARK,
a California general partnership
By: SIGNAL DEVELOPMENT CORPORATION,
a California corporation,
a general partner
By:
-------------------------------
President (Title)
By:
-------------------------------
(Title)
By: CARLTON BROWNE AND COMPANY,
INCORPORATED,
a California corporation,
a general partner
By: /s/ Richard C. Browne
-------------------------------
Richard C. Browne (Title)
President
By:
-------------------------------
Asst. Secretary (Title)
"Developer"
This Lease Agreement is approved as to form this 29 day of March,
1983.
ROBERT W. PARKIN, City Attorney
By: /s/ Roger P. Freeman
------------------------------------
Roger P. Freeman, Deputy
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<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On March 30, 1983, before me, the undersigned, a Notary Public in
and for said State, personally appeared JOHN E. DEVER, personally known to me
to be the person who executed this instrument as CITY MANAGER of the City of
Long Beach, a municipal corporation and acknowledged to me that the municipal
corporation executed it.
WITNESS my hand and official seal.
SIGNATURE: /s/ Jo Ann Burns
------------------------------
(SEAL)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On March 16, 1983, before me, the undersigned, a Notary Public in
and for said State, personally appeared , and
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the persons who executed the within instrument as President
and Secretary, respectively, of SIGNAL DEVELOPMENT CORPORATION, the
corporation that executed the within instrument, said persons being known to
me to be the persons who executed the within instrument on behalf of said
corporation, said corporation being known to me to be one of the general
partners of LONG BEACH AIRPORT BUSINESS PARK, the general partnership that
executed the within instrument and acknowledged to me that such corporation
executed the same both individually and as a general partner of said general
partnership and that such general partnership also executed the same.
WITNESS my hand and official seal.
/s/ Mae Ostlind
----------------------------------------
Notary Public
(SEAL)
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<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On March 18, 1983, before me, the undersigned, a Notary Public
in and for said state, personally appeared and
personally known to me (or proved to me on the basis of satisfactory evidence).
to be the persons who executed the within instrument as President and
Assistant Secretary, respectively, of CARLTON BROWNE & COMPANY, INCORPORATED,
the corporation that executed the within instrument, said persons being known
to me to be the persons who executed the within instrument on behalf of said
corporation, said corporation being known to me to be one of the general
partners of LONG BEACH AIRPORT BUSINESS PARK, the general partnership that
executed the within instrument and acknowledged to me that such corporation
executed the same both individually and as a general partner of said general
partnership and that such general partnership also executed the same.
WITNESS my hand and official seal.
/s/ Jeanne M. Cadwell
----------------------------------------
Notary Public
(SEAL)
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<PAGE>
Exhibit "A"
Description of the Premises
Parcel 6 of Parcel Map No. 15307, in the City of Long Beach, County of Los
Angeles, State of California, as filed in Book 159, pages 50 through 53,
inclusive, of Parcel Maps of Los Angeles County, also being portions of Parcel
Map No. 14943 as filed in Book 154, pages 68-71, inclusive, of Parcel Maps of
Los Angeles County.
EXCEPT THEREFROM, ALL OIL, GAS AND OTHER HYDROCARBONS IN AND UNDER SAID LAND,
BUT WITHOUT THE RIGHT TO USE THE SURFACE, OR SUBSURFACE OF SAID LAND ABOVE A
DEPTH OF 100 FEET, AS RESERVED BY BIXBY LAND COMPANY, A CORPORATION, IN DEEDS
RECORDED IN BOOK 18884 PAGE 347, IN BOOK 24554 PAGE 211, IN BOOK 28612 PAGE 328,
IN BOOK 38790 PAGE 367, IN BOOK 46180 PAGE 52, IN BOOK 49399 PAGE 406, IN BOOK
D-721 PAGE 156 AND IN BOOK 37202 PAGE 308 ALL OF OFFICIAL RECORDS, AND AS
RESERVED BY WHEELER F. CHASE IN DEED RECORDED IN BOOK 41754 PAGE 423 OFFICIAL
RECORDS OF SAID COUNTY.
EXCEPTING AND RESERVING therefrom to the extent applicable a non-exclusive
underground utility easement appurtenant to the real property legally described
in the attached Exhibit "C" beneath the strip of land legally described in
Exhibit "A-1". Developer shall have the right to improve the surface of said
servient tenement with driveway and parking lot improvements, including, without
limitation, sidewalks and landscaping. Any damage to improvements upon the
servient tenement resulting from the improvement, maintenance and/or use of said
easement shall be the responsibility of City, provided that to the extent that
City has obtained the agreement of the lessee under the Adjacent Parcel Lease,
or any new lease into which the Adjacent Parcel Lease may be divided, for the
benefit of Developer, to be responsible for such damage, City shall not be
responsible for any such damages while such Lease or new lease is in effect.
ALSO EXCEPTING AND RESERVING therefrom to the extent applicable a
non-exclusive easement for the ingress and egress of pedestrian and motor
vehicles appurtenant to the real property legally described in the attached
Exhibit "C" over and across the strip of land legally described in the
attached Exhibit "A-2". Developer shall have the right to improve the
surface of the servient tenement with driveways and traffic lanes, including,
without limitation, the right to modify and/or alter any improvements
constructed upon the servient tenement by the holders of this easement. Once
Developer constructs any such improvements, such improvements shall not be
altered or modified by the holders of the easement, except to the extent
reasonably necessary for use of the easement for such ingress and egress. It
shall be a condition to the use of such easement that the holder of such
easement construct and maintain a lock gate across the access point to such
easement from its premises satisfying the airport security requirements of
the Federal Aviation Administration and the Long Beach Municipal Airport.
City will cooperate reasonably with Developer in relocating the above easements,
if Developer obtains the approval of the lessee under the Adjacent Parcel Lease,
or any such new lease subject to said easement to such relocation.
<PAGE>
LEGAL DESCRIPTION
The strip of land subject to the utility easement will be a strip of land ten
feet (10') wide commencing at the Northeasterly or Southeasterly boundary of
that portion of the real property described in the attached Exhibit "C"
described therein as Parcel 2 of Parcel Map No. 14943 and extending in a
Southeasterly and/or Northeasterly direction to intersect with utility
company and/or public utility easements within the dominant tenement. The
location of such easement shall be specifically located by Developer (or by
City if this Lease is terminated prior to Developer's location of said
easement); provided that if Developer (or City) has not specifically located
said easement by recording a specific legal description for said easement in
the Office of the County Recorder, Los Angeles County, California, by July 1,
1983, said easement may be specifically located by the lessee under the
Adjacent Parcel Lease (or by the fee owner of the property demised thereby if
such lessee fails to locate said easement prior to the termination of the
Adjacent Parcel Lease) by recording a precise legal description of the
location of such easement in the Office of the County Recorder, Los Angeles
County, California.
Exhibit "A-1"
<PAGE>
LEGAL DESCRIPTION
The strip of land subject to the ingress and egress easement will be a strip
of land twenty feet (20') in width commencing at the Northeasterly boundary
of that portion of the real property described in the attached Exhibit "C"
described therein as Parcel 2 of Parcel Map No. 14943 and extending in a
Northeasterly and/or Southeasterly direction to intersect with Spring Street
and/or Clark Avenue. The location of such easement shall be specifically
located by Developer (or by City if this Lease is terminated prior to
Developer's location of said easement); provided that if Developer (or City)
has not specifically located said easement by recording a specific legal
description for said easement in the Office of the County Recorder, Los
Angeles County, California, by July 1, 1983, said easement may be
specifically located by the lessee under the Adjacent Parcel Lease (or by the
fee owner of the property demised thereby if such lessee fails to locate said
easement prior to the termination of the Adjacent Parcel Lease) by recording
a precise legal description of the location of such easement in the Office of
the County Recorder, Los Angeles County, California.
Exhibit "A-2"
<PAGE>
[Long Beach Airport Business Park Map]
<PAGE>
Exhibit "C"
Legal Description Of The Property
Demised By The Adjacent Parcel Lease
Parcels 2 and 3 of Parcel Map No. 14943, in the City of Long Beach,
County of Los Angeles, State of California, as filed in Parcel Map Book 154,
pages 68-71, records of Los Angeles County.
EXCEPT THEREFROM, ALL OIL, GAS AND OTHER HYDROCARBONS IN AND UNDER SAID LAND,
BUT WITHOUT THE RIGHT TO USE THE SURFACE, OR SUBSURFACE OF SAID LAND ABOVE A
DEPTH OF 100 FEET, AS RESERVED BY BIXBY LAND COMPANY, A CORPORATION, IN DEEDS
RECORDED IN BOOK 18884 PAGE 347, IN BOOK 24554 PAGE 211, IN BOOK 28612 PAGE
328, IN BOOK 38790 PAGE 367, IN BOOK 46180 PAGE 52, IN BOOK 49399 PAGE 406, IN
BOOK D-721 PAGE 156 AND IN BOOK 37202 PAGE 308 ALL OF OFFICIAL RECORDS, AND AS
RESERVED BY WHEELER F. CHASE IN DEED RECORDED IN BOOK 41754 PAGE 423 OFFICIAL
RECORDS OF SAID COUNTY.
A non-exclusive easement for underground utility purposes appurtenant to Parcel
2 and Parcel 3 above beneath that certain strip of land legally described in the
attached Exhibit "C-1". There is excepted from said easement the right for
Developer, as City's lessee, to construct parking lot improvements upon the
easement area, including, without limitation, sidewalks and landscaping.
A non-exclusive easement for the ingress and egress of pedestrians and motor
vehicles appurtenant to Parcel 2 and Parcel 3 above over and across that
certain strip of land legally described in the attached Exhibit "C-2". There is
excepted from said easement the right for Developer, as City's lessee, to
construct driveway and traffic isle improvements within the easement area and to
modify and/or alter any such improvements constructed within the easement area
by the lessee under the Adjacent Parcel Lease. The lessee under the Adjacent
Parcel Lease shall not have the right to modify and/or alter any such
improvements so constructed upon the easement area by Developer, except to the
extent such alterations and/or modifications may reasonably be required for such
lessee's use of said easement for such ingress and egress. As a condition to
such lessee's use of such easement, such lessee shall construct and maintain a
lock gate across the access point to such easement from its premises satisfying
the airport security requirements of the Federal Aviation Administration and the
Long Beach Municipal Airport.
<PAGE>
LEGAL DESCRIPTION
The precise location of the strip of land subject to the utility easement
shall be determined in the manner set forth in the attached Exhibit "A-1".
Exhibit "C-1"
<PAGE>
LEGAL DESCRIPTION
The precise location of the strip of land subject to the ingess and egress
easement shall be determined in the manner provided in the attached
Exhibit "A-2".
Exhibit "C-2"
<PAGE>
AGREEMENT OF NON-DISTURBANCE
(Parcel 6 of Parcel Map No. 15307 of Business Park)
THIS AGREEMENT OF NON-DISTURBANCE (Parcel 6 of Parcel Map No. 15307 of
Business Park) is made as of the ______ day of, _________ 198_, by and among
________________________________________, hereinafter called "Ground Lessor";
________________________________, hereinafter called "Tenant"; and ___________
___________________________ hereinafter called "Subtenant".
P R E L I M I N A R Y
A. Ground Lessor and Tenant have entered into a Lease Agreement (Parcel
6 of Parcel Map No. 15307 of Business Park) dated March 10, 1983,
hereinafter referred to as the "Ground Lease") pursuant to which Ground
Lessor has demised and leased to Tenant certain real property located in the
City of Long Beach, County of Los Angeles, State of California, (including
the real property) described in Exhibit "A" attached hereto and incorporated
herein. A short form of the Ground Lease was recorded _______________________,
198_ (is being recorded concurrently herewith) in the Official Records of said
County.
B. Tenant, as sublessor, and Subtenant, as sublessee, have entered into
a Sublease dated _____________________, 198_, (hereinafter referred to as the
"Sublease") which demises to Subtenant (a portion or all) of the premises
demised by the Ground Lease (and grants to Subtenant certain rights with
respect to other portions of the premises demised by the Ground Lease). A
short form of the Sublease is being recorded concurrently
-1-
Exhibit "D"
<PAGE>
herewith in the Official Records of said County, which short form of Sublease
describes the premises demised thereby (and the rights of Subtenant with
respect to the real property described in the attached Exhibit "A").
C. The parties hereto now desire to enter into this Agreement so as to
clarify their rights, duties and obligations under the Ground Lease and the
Sublease and to further provide for various contingencies as hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreement of the parties hereto to the terms and conditions hereinafter
contained, the parties hereto agree as follows:
1. In the event Tenant shall default in the payment of any sum or
performance of any covenant or condition of the Ground Lease, all as provided
therein, or in the event of any termination or expiration of the term of the
Sublease as provided in the Sublease, (other than a termination of the Ground
Lease only as to portions of the premises demised thereby not described in
the attached Exhibit "A" then Ground Lessor, Tenant and Subtenant do hereby
agree that the Sublease, and all terms, provisions, covenants and agreements
thereof shall survive any such default or defaults in, or termination occurs
as a result of, or arising out of, any such default or defaults, or
otherwise, and
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<PAGE>
the Sublease (subject to the right of any "lender on the security of the
leasehold estate" as defined in the Ground Lease to enter into a replacement
lease with Ground Lessor upon the same terms and conditions and having the
same priority as the Ground Lease, pursuant to Section 4.6 of the Ground
Lease) shall continue in force and effect in accordance with and subject to
all of its terms, provisions, agreements and covenants as a direct lease with
Ground Lessor, as lessor, and Subtenant, as lessee. Subtenant agrees, in
such event, to attorn to Ground Lessor and to recognize Ground Lessor as the
lessor under the Sublease. Ground Lessor shall, in such event, exercise and
undertake all of the rights, obligations and duties of Tenant in and under
said Sublease and thereafter shall be entitled to collect all rents and
payments due and payable under said Sublease, including the right to collect
any sums being due and payable thereunder prior to the termination or
expiration of the Ground Lease which are accrued and unpaid by Subtenant on
the date of termination of the Ground Lease. Subtenant agrees not to prepay
rentals under the Sublease without the prior written consent of Ground Lessor.
2. Ground Lessor agrees that, prior to terminating the Ground Lease or
taking any proceedings to enforce any such termination thereof for any reason
other than the expiration of the term of the Ground Lease as provided
therein, Ground Lessor shall give Subtenant thirty (30) days' notice in
writing prior to the effective date of such termination, specifying the
reason for such termination. Such notice shall be given to Subtenant at
_________________________________________________________________.
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<PAGE>
3. Ground Lessor hereby approves of the Sublease and of the rights and
privileges granted to Subtenant thereunder and agrees that, for and during
the term of the Sublease and any extensions thereof, Ground Lessor shall not
take any action, directly or indirectly, to disturb or otherwise affect
Sub-tenant's occupancy of and/or rights and privileges with respect to the
premises demised by the Ground Lease and described on the attached Exhibit
"A" so long as Subtenant is not in default under the Sublease, nor shall
Subtenant's exercise of any such rights or privileges constitute a default
under the Ground Lease, notwithstanding any provisions to the contrary
contained in the Ground Lease.
4. No provision contained herein shall be deemed an amendment or
modification of any provisions contained in the Sublease, including, without
limiting the generality of the foregoing, any rights given thereunder to
Tenant to terminate the Sublease.
5. In the event that the Ground Lease is divided, in accordance with
its terms, into two (2) or more new leases, the term "Ground Lease", as used
herein, shall be deemed to refer to the said new lease leasing and demising
the subleased premises.
6. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their successors, transferees and assigns.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first hereinabove set forth.
------------------------------
------------------------------
"Ground Lessor"
------------------------------
------------------------------
"Tenant"
------------------------------
------------------------------
"Subtenant"
This Agreement is hereby approved as to form this ____ day of _________,
198__.
ROBERT W. PARKIN, City Attorney
By
----------------------------
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<PAGE>
INCREMENTAL DEVELOPMENT RIDER
1. DECLARATION:
City acknowledges that Developer may record an instrument or
instruments establishing reciprocal easements for ingress, egress and parking
and imposing certain restrictions and covenants relating to the improvement,
use and operation of the Project, or portions thereof, consistent with a
first class commercial development, which instrument may contain provisions
concerning the following types of matters: (1) the designation of portions
of the business park portion of the Project as building sites and other
portions as common areas for ingress, egress and parking; (ii) the
restriction of the use of the property subject thereto to commercial
purposes; (iii) the restriction of the use of certain building sites against
the sale of specific goods or the conduct of specific types of businesses;
(iv) the limitation of building heights and floor area, and/or architectural
styles, and/or the imposition of architectural review standards; (v) the
restriction of the use of common areas to parking, ingress, egress and
incidental purposes including drive-through and/or loading and unloading
docks adjacent to building sites; (vi) the designation of employee parking
areas; (vii) the appointment of an Operator to operate, maintain and repair
the common and parking areas, together with the imposition of an obligation
upon owners of leasehold interests in and to the property subject thereto (or
the fee owner or owners of portions of such property no longer demised by
this Lease or any new lease of the business park portion of the Project
entered into pursuant to Paragraph 2 below) to reimburse the Operator a pro
rata share of the costs and expenses of such operation and maintenance, based
upon the buildable area within each owner's portion of such property, which
costs and expanses to be reimbursed shall include public liability and
property damage insurance premiums and a management fee based upon a
percentage of such other costs and expenses of operation and maintenance;
(viii) provisions relating to the maintenance and repair of building
structures and the restoration or removal of casualty damage; (ix)
restrictions on signs and the establishment of sign criteria; and (x) such
other matters as may be necessary to conform to the requirements in subleases
or deemed appropriate by Developer. Any such instrument is hereinafter
referred to as the "Declaration". City agrees upon request to execute a
consent or consents to any such Declaration and/or to subordinate its
interest in and to the Premises to such Declaration, provided that City
approves of the terms and provisions of the proposed Declaration. City
hereby agrees that the decision to approve any such Declaration shall be
based upon consideration of whether the terms and provisions thereof are
commercially reasonable and substantially similar to the terms and provisions
in similar instruments used in compar-
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<PAGE>
able first class commercial developments in the State of California. City
shall either approve or disapprove of any proposed Declaration by giving
written notice to Developer within thirty (30) days of City's receipt of the
proposed Declaration, which notice shall specify the modifications required
for approval, if the proposed Declaration is disapproved. City's failure to
expressly so disapprove of any such proposed Declaration within said thirty
(30) day period shall constitute City's approval of the proposed Declaration.
In the event of a dispute between City and Developer arising out of the
provisions of this paragraph, either party may have the dispute settled by
submitting the matter to arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrators
in any such proceedings shall be individuals familiar with the requirements
of commercial lenders and commercial development reciprocal easement
agreements.
2. SEGREGATION:
2.1 SEPARATE INDIVIDUAL LEASES. Subject to the provisions of this
Section 2.1, Developer shall have the right, at any time and from time to
time during the term of this Lease, to require that City enter into two (2)
new leases, which new leases collectively shall supplant this Lease and cover
the Premises. City's obligations pursuant to this Section 2.1 shall be
subject to each of the following:
(a) Developer's satisfying the requirements of the
California Subdivision Map Act and any local ordinances applicable to each
such a division of this Lease.
(b) Each new lease shall have the same parties as the
parties to the Lease being supplanted by the new lease.
(c) The real property to be leased and demised by each of
the new leases shall be subject and subordinate to the Declaration in a form
approved by City pursuant to Paragraph 1 above.
(d) Each new lease shall contain the same terms, covenants,
provisions, conditions and agreements as those contained in this Lease,
including the right to further divide the new leases under this Section 2.1,
except that:
(i) The definition of Developer in Section 1.5.2 of
this Lease shall be modified as may be appropriate and references to SDC and
CB&C shall be modified as may be appropriate. Section 1.1 shall be modified
to clarify that the premises demised by the new lease are a portion only of
the Project.
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<PAGE>
(ii) Each new lease shall provide by its terms that it
shall serve to release from this Lease, or any other lease being supplanted
by said new lease, the portion of the Premises covered by such new lease.
(iii) Each new lease shall provide in Section 2 that its
term commenced on the date the term of this Lease commenced and set forth the
expiration date of the term of such new lease.
(iv) The total Minimum Base Rent payable for use of the
Premises shall be allocated to any such new lease as the parties may agree,
provided that if the parties are unable to reach agreement upon such
allocation within thirty (30) days of the date that Developer submits to City
a proposed allocation for such rental, such allocation shall be determined
through appraisal pursuant to Section 3 below. City shall be deemed to have
approved of any such proposed rental allocation proposed by Developer, unless
City notifies Developer in writing within twenty (20) days of its receipt of
such proposal of its disapproval thereof and of the rental allocation
proposed by City. Any such proposed allocation made by Developer shall
include the legal descriptions of the property to be demised by each such new
lease, together with a copy of the Declaration or proposed Declaration. Said
appraisal shall determine the respective fair market values of the property
to be subject to each new lease, appraised for the use then being made of
such property by Developer, and/or to the extent no such use is then being
made, for the uses permitted by each such new lease and the Declaration.
Such appraisal shall take into account the effect of the Declaration. In the
event that either City or Developer elect to submit any dispute concerning
the terms and provisions of the Declaration to arbitration, pursuant to
Paragraph 1 above, the appraisal contemplated by this subparagraph (but not
the appointment of the arbitrators) shall be postponed until any such dispute
has been settled. Upon the determination of the respective fair market
values of the said property to be subject to each such new lease, the Minimum
Base Rent shall be allocated in proportion to the ratios between said
respective fair market values. An appropriate modification shall be made to
the dollar amounts used as examples in Section 3.2. Nothing herein shall be
deemed to alter the total amount of Minimum Base Rent to be paid to City for
use of the Premises.
(v) Each such new lease shall recite that it is subject
and subordinate to the Declaration, as well as to any instrument recorded on
the property subject to the new lease to establish a condominium or planned
unit development regime with City's approval pursuant to this Lease, and
grant and lease to Developer and reserve to City any reciprocal easements
established in the Declaration or any such instrument, for the benefit of or
burdening the real property
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<PAGE>
demised by such new lease. To the extent reasonably required, such
Declaration and/or other instrument shall establish easements for ingress and
egress, utilities and reciprocal parking required for the property demised by
each new lease.
(vi) The amount of the deposit described in Section
17.1.1 shall be allocated between the new leases in the same proportions as
Minimum Base Rent is allocated.
(vii) The Scope of Development described in Section 7.1
and the construction schedule attached to this Lease as Exhibit "F" shall be
modified to indicate only those portions of the required construction that
Developer elects to include in each such new lease, provided that the
description of the Scope of the Development and of the construction required
in Exhibit "F", in each new lease, when aggregated, shall include all of the
work described in Section 7.1 of this Lease and in Exhibit "F" to this Lease
and the times within which such work is to be commenced and completed shall
not be extended.
(viii) The option to lease provisions shall be deleted,
including Exhibit "C", Sections 2.2 and 2.3 and other references to such
option, as may be appropriate.
(ix) The square footage amount in Section 17.1.2 shall
be allocated as the parties may agree, but in the absence of such an
agreement in the same proportions as Minimum Base Rent is allocated. The
parties agree to cooperate reasonably in allocating such square footage
amount in a manner consistent with the anticipated building areas on the real
property to be subject to each new lease.
(x) The real property to be subject to each new lease
shall include a buildable area for not less than one (1) freestanding
building or not less than one (1) legal lot, parcel or condominium unit.
Condominium units and/or lots in a planned unit development improved in a
single phase shall be leased and demised under a single new lease, unless the
creation of separate new leases for each such unit or lot is necessary to
prevent the reassessment of the possessory interest in all such units or lots
upon the sublease of a single such unit or lot under Article XIII A of the
California Constitution and/or statutes, rules and regulations adopted to
implement such Article. All such new leases, including leases into which any
such new lease may be divided, shall contain provisions sufficient to
prohibit the creation of greater than the number of total new leases
permitted by this Paragraph (x).
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<PAGE>
(xi) Each such new lease shall provide that City may
withhold its consent to any assignment under Section 5.1.1 unless the
assignor's interest in all new leases, then in effect, is similarly assigned
or transferred to the same assignee.
(xii) Each such new lease shall provide that any default
by the lessee under any such other new lease shall constitute a default under
such new lease, if, but only if, the party or parties acting as the
"Developer" under such new lease are the same party or parties acting as the
"Developer" under such other new lease, which default under such new lease
shall constitute a default not susceptible of being cured by a lender on the
security of the leasehold estate for the purposes of Sections 4.2 and 4.6 of
this Lease. Section 4.2(g) in any new lease shall not permit City to recover
costs from the Developer under such new lease incurred to cure defaults under
any other new lease.
(xiii) Any such new lease for an industrial/commercial
planned unit development or condominium development shall provide, with
respect to any Ground Sublease with an owners' association of lots or parcels
restricted to common area usages, that City's obligation to execute a
non-disturbance agreement shall not be affected by reason of such Ground
Sublease providing for the payment of a nominal fixed rental payable
hereunder shall be allocated to any such new lease leasing and demising such
common area lots and/or parcels, only, to be sublet to such an owners'
association.
(e) Developer shall not then be in default hereunder.
(f) The segregation of this Lease into two (2) separate new
leases shall constitute the substitution of said new leases for this Lease
and each new lease and the easements provided for therein, if any, shall have
the same priority of title as this Lease and any and all subleases entered
into by Developer shall automatically be subject and subordinate to each such
new lease, to the extent affected thereby.
2.2 SHORT FORM NEW LEASE. Concurrently with the execution and delivery
of any new lease pursuant to Paragraph 2.1 above, the parties shall execute
and record two short form leases each evidencing one such lease, which short
form leases shall contain the following recitals:
(a) That the short form lease is subject to the terms,
covenants and provisions of the lease evidenced thereby.
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<PAGE>
(b) That the short form lease and the lease evidenced
thereby are subject and subordinate to the Declaration.
(c) That the short form lease and the lease evidenced
thereby have been executed and delivered pursuant to this Exhibit "E" in
order to substitute the terms, covenants and provisions of the lease
evidenced thereby for those of this lease, as required by and in accordance
with the terms of this Lease, and that the said lease evidenced thereby shall
have the same priority of title as though executed and delivered at the time
of execution and delivery of this Lease on the date first written above and
as though such short form lease was recorded concurrently with the short form
of this Lease.
3. APPRAISALS.
Any value to be determined by appraisal shall be determined by
appraisal as follows:
Each party hereto shall appoint a qualified and experienced MAI or
equivalent appraiser to complete an appraisal within sixty (60) days. If the
appraisers, so appointed by the parties, agree upon the value of the
property, the appraisal figure agreed upon shall be the value of said
property. If the appraisals differ, but not by more than five percent (5%),
they shall be deemed to be in agreement, and the appraisals shall be averaged
to determine the fair market value of the property. If the appraisers
selected by the parties, whose appraisals are used for the purpose herein
stated, are unable to agree upon the value of the property within said sixty
(60) days, said appraisers shall immediately appoint a third qualified and
experienced MAI or equivalent real estate appraiser to complete an appraisal
within thirty (30) days. The parties agree for the purpose of calculating
the value to be determined by appraisal, the appraised value shall be deemed
to be that amount which is determined by taking the average of the two (2)
appraisal figures which are closest to each other. The parties agree to
share equally in the cost of the third appraisal.
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<PAGE>
CONSTRUCTION REQUIREMENTS
1. Subject to force majeure as defined in Section 17.4 and to Section
7.4.3, Developer agrees to commence the construction of 150,000 square feet
of building improvements, upon the business park portion of the Project
within one (1) year of the commencement date of the lease term and to
thereafter diligently prosecute such construction to completion.
2. Subject to force majeure as defined in Section 17.4 and to Section
7.4.3, Developer agrees to commence the construction of the balance of the
building improvements required to be constructed upon the business park
portion of the Project either prior to or as soon as is reasonably possible
following the completion of the construction and marketing of the phase one
construction described in Paragraph 1 above, taking into consideration
financing constraints and the economic feasibility of development, provided
that subject only to such force majeure and to Section 7.4.3, such
construction shall be commenced on or before the expiration of the tenth
lease year.
3. The building improvements that Developer is required to construct
upon the business park portion of the Project will be the lesser of (i)
488,500 square feet of building improvements, or (ii) eighty percent (80%) of
the building improvements permitted to be constructed upon the business park
portion of the Project under the applicable PD-2 Ordinance.
EXHIBIT "F"
<PAGE>
EXHIBIT "G"
Exhibit "G" has intentionally been left blank.
<PAGE>
FAA REQUIRED LEASE PROVISIONS
1. Lessee agrees to comply with the notification and review
requirements covered in Part 77 of the Federal Aviation Regulations in the
event that future construction of a building is planned for the leased
premises, or in the event of any plan modification or alteration of any
present or future building or structure situated on the leased premises.
<PAGE>
EXHIBIT "I"
Exhibit "I" has intentionally been left blank.
<PAGE>
SHORT FORM GROUND LEASE
(Parcel 6 of Parcel Map No. 15307 of Business Park)
- -----
THIS SHORT FORM GROUND LEASE (Parcel 6 of Parcel Map No. 15307 of
- -----
Business Park) ("Short Form Ground Lease") is made and entered into as of
this 10th day of March , 1983 (but shall be deemed at all times
------- --------- -
mentioned herein and for all purposes mentioned herein to relate back to
August 6, 1982, the date of recordation (as Instrument No. 82-795499) in the
Official Records of the Los Angeles County Recorder of that certain Short
Form Ground Lease referred to below (the "Master Short Form")), by and
between City of Long Beach, a municipal corporation ("City") and Long Beach
Airport Business Park, a California general partnership ("Developer"). This
Short Form Ground Lease and the Lease Agreement (Parcel 6 of Parcel Map No.
-
15307 of Business Park) dated March 10 , 1983 (the "Ground Lease")
- ----- ----------- -
evidenced by this Short Form Ground Lease have been executed and delivered
pursuant to Exhibit "E" to that certain Lease Agreement dated April 23, 1981
between City and Developer (the "Master Ground Lease") in order to substitute
the terms, covenants, and provisions of the Ground Lease for those of the
Master Ground Lease, as required by and in accordance with the Master Ground
Lease. The Ground Lease shall have the same priority of title as though
executed and delivered at the time of execution and delivery of the Master
Ground Lease on April 23, 1981 and as though this Short Form Ground Lease was
recorded concurrently with The Master Short Form.
R E C I T A L S:
- - - - - - - -
City does hereby lease and demise to Developer that certain real
property in the City of Long Beach, County of Los Angeles, State of
California, more particularly described in Exhibit "A" attached hereto and
all rights, privileges and easements appurtenant thereto ("Premises" herein)
pursuant to and upon all of the terms, covenants and provisions set forth in
the unrecorded Ground Lease, the terms, covenants and provisions of which are
hereby incorporated herein and made a part hereof by reference.
NOW, THEREFORE, the parties hereby agree as follows:
l. The commencement date of the lease term is July 8, 1982.
2. The term of the Ground Lease shall continue for fifty (50)
years, subject to earlier termination as provided in the Ground Lease.
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EXHIBIT "J"
<PAGE>
3. The Ground Lease grants to Developer the right to subdivide
the Premises and to divide the Ground Lease into two (2) or more leases, each
of which shall supplant the Ground Lease provided that any such new lease
(hereinafter "new lease") shall have the same priority of title as this Short
Form Ground Lease and all subleases entered into by Developer, as a
sublessor, shall be subject and subordinate thereto, to the extent affected
thereby. Any such division shall be effectuated by recordation of a new
short form ground lease as to each such new lease, which new short form
ground lease shall relate back to August 6, 1982 (the date on which the
Master Short Form was originally recorded) and recite that it has been
executed and recorded in order to substitute the terms, covenants and
provisions of the new lease, evidenced thereby, for the terms, covenants and
provisions of the Master Ground Lease and the Ground Lease, insofar as such
new lease affects the real property demised by the Ground Lease and to
release and cancel the Ground Lease insofar as the Ground Lease affects the
real property demised by the said new lease, evidenced by such new short form
ground lease, all as provided for in accordance with the terms and provisions
of the Ground Lease.
4. This Short Form Ground Lease and the Ground Lease are and
shall be subject and subordinate to (1) that certain Maintenance Declaration
(Long Beach Airport Business Park) dated January 31, 1983 and recorded on
March 8, l983 as Instrument No. 83-256290 in the Official Records of the Los
Angeles County, California Recorder and to (2) that certain Declaration of
Covenants, Conditions, and Restrictions dated January 31, 1983 and recorded
on March 9, 1983 as Instrument No. 83-252462 in the Official Records of the
Los Angeles County, California Recorder; provided, however, that Developer's
obligation to pay rent under the Ground Lease shall not be affected in any
way because of such subordinations.
5. City shall have the right to encumber its reversionary
interest in and to the real property demised by the Ground Lease and/or the
rentals and profits accruing under the Ground Lease provided that any such
encumbrance shall be subject and subordinate to any replacement ground lease
delivered to a "lender on the security of the leasehold estate" as defined in
and pursuant to Section 4.6 of the Ground Lease upon a termination or
cancellation of the Ground Lease, and to any new lease resulting from any
division of the Ground Lease described in Paragraph 3 above and provided
further that any such encumbrance requires, by its terms, that the holder or
beneficiary thereof agree to execute any instrument reasonably required in
order to subordinate the lien or charge thereof to any such replacement lease
or new leases or to any restriction, encumbrance, dedication, Declaration,
conveyance, lot split or other matter executed or consented to by Landlord
pursuant to Section 7.4.9 and/or Paragraph 1 of Exhibit "E" of the Ground
Lease and to execute any
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<PAGE>
agreement required by Section 5.2 of the Ground Lease by such holder or
beneficiary.
6. Developer shall pay the real property taxes and assessments
against the Premises during the term hereof, as more specifically provided in
the Ground Lease.
7. Notwithstanding that the ownership of City's and Developer's
estates in and to the Premises may become vested in the same party for any
reason, no merger of Developer's leasehold estate into City's fee title shall
result or be deemed to result thereby, as provided in Section 4.8 of the
Ground Lease, provided that this provision shall not be deemed applicable to
a termination of Developer's leasehold estate by reason of Developer's
default or a taking under the power of eminent domain pursuant to the Ground
Lease, or otherwise pursuant to the terms of the Ground Lease.
8. The Ground Lease grants to Developer the right to enter upon
the Premises demised thereby for a period of sixty (60) days following the
expiration of the term of the Ground Lease in order to remove any or all of
the buildings and other improvements constructed upon said Premises by or
under Developer.
9. The Ground Lease grants to Developer the right to sell any
buildings from time to time constructed upon the Premises, provided that such
buildings shall be and remain subject to the terms and conditions of the
Ground Lease and shall be used and developed only in accordance with the
Ground Lease.
IN WITNESS WHEREOF, the parties have executed this Short Form
Ground Lease as of the day and year first above written.
CITY OF LONG BEACH,
a municipal corporation
By
-------------------------------------
John E. Dever, City Manager
"City"
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<PAGE>
Long Beach Airport Business Park,
a California general partnership
By: Signal Development Corporation,
a California corporation
(General Partner)
By:
-------------------------------
(Title)
By:
-------------------------------
(Title)
By: Carlton Browne and Company,
Incorporated,
a California corporation
(General Partner)
By:
-------------------------------
(Title)
By:
-------------------------------
(Title)
"Developer"
This Short Form Ground Lease is hereby approved as to form this ____ day of
____________ 198_.
ROBERT W. PARKIN,
City Attorney
By
--------------------------------
Roger P. Freeman, Deputy
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<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On ____________________________________, before me, the undersigned,
a Notary Public in and for said State, personally appeared JOHN E. DEVER,
personally known to me to be the person who executed the within instrument as
CITY MANAGER of the City of Long Beach, a municipal corporation and
acknowledged to me that the municipal corporation executed it.
WITNESS my hand and official seal.
SIGNATURE:
----------------------------------
(SEAL)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On _______________, 198_, before me, the undersigned, a Notary
Public in and for said State, personally appeared _____________, and
_________________ personally known to me (or proved to me on the basis of
satisfactory evidence) to be the persons who executed the within instrument
as _______________________ and ___________________, respectively, of SIGNAL
DEVELOPMENT CORPORATION, the corporation that executed the within instrument,
said persons being known to me to be the persons who executed the within
instrument on behalf of said corporation, said corporation being known to me
to be one of the general partners of LONG BEACH AIRPORT BUSINESS PARK, the
general partnership that executed the within instrument and acknowledged to
me that such corporation executed the same both individually and as a general
partner of said general partnership and that such general partnership also
executed the same.
WITNESS my hand and official seal.
----------------------------------------
Notary Public
(SEAL)
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<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ____________________, 198_, before me, the undersigned, a Notary
Public in and for said State, personally appeared _________________________ and
____________________________ personally known to me (or proved to me on the
basis of satisfactory evidence) to be the persons who executed the within
instrument as _________________ and ________________________, respectively,
of CARLTON BROWNE & COMPANY, INCORPORATED, the corporation that executed the
within instrument, said persons being known to me to be the persons who
executed the within instrument on behalf of said corporation, said
corporation being known to me to be one of the general partners of LONG BEACH
AIRPORT BUSINESS PARK, the general partnership that executed the within
instrument and acknowledged to me that such corporation executed the same
both individually and as a general partner of said general partnership and
that such general partnership also executed the same.
WITNESS my hand and official seal.
----------------------------------------
Notary Public
(SEAL)
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<PAGE>
9.5 REIMBURSEMENT OF CITY. Any amount paid by City
for any of the expenses described in Section 9.4 above, and all reasonable
legal and other expenses of City, including reasonable counsel fees, and
costs of suit, in defending any such action or in connection with procuring
the discharge of such lien, with all necessary disbursements in connection
therewith, together with interest thereon at the rate provided by law from
the date of payment, shall be repaid by Developer to City on demand.
10. CONDEMNATION:
10.1 DEFINITION OF TERMS. The following definitions
shall govern interpretation of this Section.
10.1.1 TOTAL TAKING. The term "total taking" as used in
this Section 10 means the taking of the entire Premises under the power of
eminent domain or the taking of so much thereof as will in Developer's
judgment prevent or substantially impair the use of the Premises for the uses
and purposes then being made or proposed to be made by Developer of the
Premises.
10.1.2 PARTIAL TAKING. The term "partial taking" means
the taking of a portion only of the Premises which does not constitute a
total taking as defined above.
10.1.3 TAKING. The term "taking" shall include a
voluntary conveyance by City to an agency, authority or public utility under
threat of a taking under the power of eminent domain in lieu of formal
proceedings.
10.1.4 DATE OF TAKING. The term "date of taking" shall
be the date title to the Premises or portion thereof passes and vests in the
condemnor or the date of entry of an order for immediate possession by a
court of competent jurisdiction in connection with any judicial proceedings
in eminent domain or the date physical possession of the Premises is taken or
interfered with, whichever first occurs.
10.1.5 LEASED LAND. The term "leased land" means the
real property demised hereby, but exclusive of any and all improvements
situated upon the Premises at the commencement of the lease term and also
exclusive of all improvements constructed or placed thereon by or under
Developer and exclusive of any grading and other site work performed by or
under Developer. This definition shall also apply to Section 8.1.3.
10.2 EFFECT OF TAKING. If during the term hereof there
shall be a total or partial taking under the power
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of eminent domain, then the leasehold estate of Developer in and to the
Premises, in the event of a total taking, or the portion thereof taken, in
the event of a partial taking, shall cease and terminate, as of the date of
taking thereof. If this Lease is so terminated in whole or in part, all
rentals and other charges payable by Developer to City hereunder and
attributable to the Premises, or portion thereof taken, shall be paid by
Developer up to and prorated through the date of taking by the condemnor.
Any portion of the security deposit provided for in Section 17.1 fairly
attributable to the terminated portion of the leasehold estate shall be
repaid by Developer and the parties shall thereupon be released from all
further liability in relation thereto.
10.3 ALLOCATION OF AWARD. All compensation and damages
awarded in connection with a total or partial taking of the Premises,
including all improvements thereon, shall be allocated as follows:
10.3.1 CITY'S SHARE. City shall be entitled
to that portion of the award attributable to the fair market value of the
leased land, or the portion taken, valued at the date of the taking and for
the use then being made of the leased land by Developer. In determining such
fair market value the provisions of this Lease, including, without
limitation, the rent payable hereunder over the remaining term of this Lease,
shall be taken into account.
10.3.2 DEVELOPER'S SHARE. Developer shall be
entitled to the amount remaining of the total award after deducting therefrom
the sums to be paid to City pursuant to the preceding Paragraph 10.3.1.
10.4 REDUCTION OF RENT ON PARTIAL TAKING. In the event
of a partial taking, rent payable by the Developer shall be adjusted from the
date of taking to the date of expiration of the term of this Lease. Such
rental adjustment will be made by reducing the rental payable by Developer
based on the ratio between the fair market value of the leased land at the
date of taking and the fair market value of the leased land remaining
immediately thereafter, valued for the use being made of the leased land by
Developer prior to such taking.
10.5 TEMPORARY TAKING. If all or any portion of the
Premises shall be taken by any competent authority for temporary use or
occupancy, this Lease, at the option of Developer, shall continue in full
force and effect without reduction or abatement of rent, notwithstanding any
other provision of this Lease, statute or rule of law to the contrary, and
Developer shall, in such event, be entitled to the entire award for such
taking to the extent that the same shall be applicable to the period of such
temporary use or occupancy included in the
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term of this Lease and City shall be entitled to the remainder thereof.
11. ALTERATIONS BY DEVELOPER:
Developer shall have the right at any time and from time to time
during the lease term to make, at its sole cost and expense, such changes and
alterations, structural or otherwise, in or to the improvements constructed
upon the Premises as Developer shall deem necessary or desirable, including,
without limitation, the right to remove and/or demolish buildings and other
improvements whether or not other buildings or improvements are constructed
in their place. The rights granted by this paragraph shall be limited to and
their exercise shall comply with the terms of Paragraph 7 hereof.
12. TAXES AND ASSESSMENTS:
12.1 PAYMENT BY DEVELOPER. Developer shall pay prior to
delinquency all real estate taxes and assessments on the Premises and/or
Developer's possessory interests therein levied during the term of this
Lease. Developer shall not place or allow to be placed on the Premises, or
any part thereof, any mortgage, trust deed, encumbrance or lien unauthorized
by this Lease. Developer shall remove or have removed any levy or attachment
made on any of the Premises, or any part thereof, or assure the satisfaction
thereof within a reasonable time, but in any event prior to a sale thereof.
Nothing herein contained shall be deemed to prohibit Developer from
contesting the validity or amounts of any tax, assessment, encumbrance or
lien, nor to limit the remedies available to Developer in respect thereto.
12.2 INSTALLMENT PAYMENTS. If any real estate, special tax or
assessments are at any time during the term of this Lease, levied or assessed
against the Premises or Developer's leasehold estate hereunder, which, upon
exercise of any option permitted by the assessing authority, may be paid in
installments or converted to an installment payment basis (irrespective of
whether interest shall accrue on unpaid installments), Developer may elect to
pay such taxes or assessments in installments with accrued interest thereon.
In the event of such election, Developer shall be liable only for those
installments on such tax or assessment which become payable during the term
of this Lease, and Developer shall not be required to pay any such
installment which becomes due and payable after the expiration of the term of
this Lease. City shall execute whatever documents may be necessary to
convert any such taxes or assessments to such an installment payment basis if
requested so to do by Developer and if such action is authorized by law then
in effect.
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12.3 PRORATION. Any real estate taxes and assessments which are
payable by Developer hereunder shall be prorated between City and Developer
at the expiration or earlier termination of the term of this Lease if such
real estate taxes and assessments relate to a fiscal period of the levying
authority which extends beyond the expiration or earlier termination of the
term hereof.
12.4 RIGHT TO CONTEST. Developer and any subtenant, with
Developer's consent, shall have the right to contest the amount or validity
of any real estate taxes and assessments, in whole or in part, by appropriate
administrative and legal proceedings, without any cost or expense to City,
and Developer may postpone payment of any such contested real estate taxes
and assessments pending the prosecution of such proceedings and any appeals
so long as such proceedings shall operate to prevent the collection of such
real estate taxes and the sale of the Premises to satisfy any lien arising
out of the non-payment of the same, provided, however, that if at any time
payment of the whole or any part thereof shall become necessary in order to
prevent the termination of the right of redemption of any property affected
thereby, or if there is to be an eviction of Developer because of non-payment
thereof, Developer shall pay the same in order to prevent such termination of
the right of redemption or such eviction. City shall execute and deliver to
Developer whatever documents may be within its legal authority necessary or
proper to permit Developer or any subtenant, with Developer's consent, to so
contest any real estate taxes or which may be necessary to secure payment of
any refund which may result from any such proceedings. Any such contest shall
be at no cost or expense to City. Each refund of any tax or assessment so
contested shall be paid to Developer.
13. CERTIFICATES BY DEVELOPER AND CITY:
13.1 DEVELOPER TO PROVIDE. Developer agrees upon not less than
twenty (20) days notice to City to execute, acknowledge and deliver to City
a statement in writing certifying (i) that this Lease is unmodified and in
full force and effect (or if there have been modifications that the same is
in full force and effect as modified and stating the modifications); (ii)
whether of not to the best knowledge of Developer there are then existing any
offsets or defenses against the enforcement of any of the terms, covenants,
or conditions hereof upon the part of Developer to be performed and, if so,
specifying same; and (iii) the dates to which the rent and other charges have
been paid, it being intended that any such statement delivered pursuant to
this Section may be relied upon by any prospective purchaser of the fee of the
real property comprising the Premises.
13.2 CITY TO PROVIDE. City agrees upon not less than twenty (20)
days' prior notice by Developer, to
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execute, acknowledge and deliver to Developer a statement in writing
certifying (i) that this Lease is unmodified and in full force and effect (or
if there have been modifications, that the same is in full force and effect
as modified and stating the modifications); (ii) the dates to which the rent
and other charges have been paid; (iii) stating whether or not, to the best
knowledge of City, Developer is in default in performance of any covenant,
agreement or condition contained in this Lease and, if so, specifying each
such default of which City may have knowledge; (iv) whether or not there are,
to City's best knowledge, any offsets or defenses claimed by and/or available
to Developer to the payment of rental; and (v) that all improvements then
existing on the Premises have been completed to the satisfaction of the City,
it being intended that any such statement delivered pursuant to this Section
may be relied upon by any prospective assignee or subtenant of the whole or
any portion of the Premises, or by any lender extending credit on the
security of Developer's leasehold estate.
14. QUIET ENJOYMENT - TITLE INSURANCE - ACCESS:
14.1 QUIET ENJOYMENT. City covenants that Developer, upon the
performance of the covenants and agreements herein contained on Developer's
part to be performed, shall and may at all times, for itself and its
subtenants peaceably and quietly have, hold and enjoy the Premises during the
term of this Lease.
4.2 TITLE POLICY. Upon the commencement of the lease term, City
shall cause Transamerica Title Insurance Company, or another reputable title
company selected by Developer, to issue a standard form CLTA leasehold policy
of title insurance, with a liability of SIX MILLION SIX HUNDRED NINETY-THREE
THOUSAND TWO HUNDRED DOLLARS ($6,693,200.00), insuring marketable title to
the leasehold estate to the business park portion of the Project vested in
Developer free and clear of monetary liens and/or encumbrances and subject
only to the easements and other matters shown as exceptions on Transamerica
Title Insurance Company's Preliminary Title Report No. 14-51 510239 dated as
of August 12, 1980. This Section shall not be construed to constitute
Developer's approval of said exceptions.
15. TERMINATION AND FURTHER LEASING:
15.1 TERMINATION. Subject to Section 4.7, this Lease may be
termination at any time by mutual agreement of the parties.
15.2 TERMINATION BY CITY. City may terminate this Lease pursuant
to Section 17.6 below, but subject to Section 4 above, under the
following circumstances:
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(a) Developer assigns this Lease in violation of Section 5.1.
(b) Failure of Developer to construct Improvements permitted
by the PD-2 Zone Ordinance, and required by the Schedule attached as
Exhibit "F".
(c) Failure of Developer to provide the good faith deposit
required by this Lease.
(d) Bankruptcy of Developer.
Provided, however, that in all cases, City shall give Developer the sixty
(60) days' notice required by Section 17.6.1 and Developer shall have an
opportunity to cure the defect during the time provided by Section 17.6.1
before such circumstance constitutes a default for the purposes of this
Lease. The bankruptcy of Developer shall be deemed to have occurred only
when the adjudication of Developer as a bankrupt becomes final or upon
Developer's filing of a voluntary petition in bankruptcy.
16. EXPIRATION OF LEASE AND SUBSEQUENT LEASES:
16.1 CONTINUATION OF USE. Prior to the expiration of this Lease,
City shall determine whether the then existing uses of the Premises shall be
retained.
16.2 VALUATION. If the City determines that the uses existing on
the Premises at the time of completion of the Lease should be continued, and
that it wishes to continue to lease the property, it shall determine the fair
lease value of the land and improvements thereon.
16.3 DEVELOPER'S RIGHTS.
6.3.1 NEW LEASE. Upon determination of the fair lease value
of the property, City shall offer Developer the right, prior to making any
offer to any other party, to enter into a new lease at the value established
by the City. If Developer does not agree to enter into a new lease with City,
within thirty (30) days from the date of notification by City of its right to
do so, all rights of Developer to enter into a new lease pursuant to this
Section shall terminate and the property shall revert to City after
expiration of the lease. The terms of this clause shall not take effect
unless City determines to continue to lease the Premises and terminate with
the end of this Lease.
16.3.2 SALVAGE OF IMPROVEMENTS. If Developer does not agree
to enter into a new lease with City pursuant to the terms of this Section,
Developer may salvage any or all of the improvements pursuant to Section
17.12 below. All
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remaining improvements shall become the property of City which may use or
demolish same at its sole discretion, provided, however, that any structure
left by Developer shall be left in good condition and repair, reasonable wear
and tear excepted, and provided further that in the event Developer removes
any portion or appurtenances to any building or other structure, Developer
shall not leave such building or structure in a damaged, unsafe or
economically unusable condition by reason of such removal.
17. GENERAL PROVISIONS:
17.1 GOOD FAITH DEPOSIT.
17.1.1 RECEIPT BY CITY. Developer has, prior to the
execution and delivery of this Lease, the Mini-Master Ground Lease, and the
other ground leases into which the Master Ground Lease has been segregated to
date, delivered to City a good faith deposit in the form of a bond in the
amount of SIX HUNDRED SIXTY-NINE THOUSAND THREE HUNDRED TWENTY DOLLARS
($669,320.00) as security for the performance of the obligations of Developer
to be performed following the commencement of the term and prior to the
return of the deposit to Developer, or its retention by City in accordance
with the provisions of this Lease, the Mini-Master Ground Lease and all other
ground leases into which the Master Ground Lease has been segregated to date.
(a) The good faith deposit, at the option of Developer,
may be in the form of (i) cash; or (ii) cashier's or certified check; or
(iii) negotiable certificates of deposit, or a non-negotiable certificate of
deposit if City is the named depositor thereon, issued by a federal or state
bank or savings and loan association; or (iv) an irrevocable letter of credit
in favor of City issued by an established lending institution approved by
City; or (v) a bond in a form and with a surety reasonably satisfactory to
City providing for payment to City amounts that may from time to time become
payable to City under this Lease from this good faith deposit. Developer may
change the form of the deposit from time to time, at its option, to any other
of the permitted forms of deposit. The deposit, in case of certified or
cashier's check, shall be deposited in an interest-bearing account of City in
a bank, savings and loan association or trust company selected by Developer
and approved by City, which approval shall not unreasonably be withheld.
Developer shall have the right to specify the type of account in which such
funds are from time to time to be deposited.
(b) City shall be under no obligation to pay or earn
interest on the deposit, but if interest shall accrue or be payable thereon
such interest, when received by City, shall be promptly paid to Developer.
City agrees, but not more often than quarterly, upon receipt of
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request from Developer, to cause any such interest so accrued on such deposit
to be paid to City by the bank, savings and loan association or trust company
with which said sums have been deposited.
(c) If a bond is posted to satisfy the requirements in
(a) above with a fixed term and if such bond expires prior to the date
Developer is entitled to have the security deposit returned, Developer shall
provide City with either (i) evidence of the renewal of such bond for an
additional period, or (ii) a new security deposit satisfying the requirements
of this Section 17.1.1 in one of the forms authorized by (a) above,
including, without limitation, a new bond, not less than twenty (20) days
prior to the expiration of the bond posted to satisfy the requirement in (a)
above, or City may require that Developer provide such, security deposit by a
cash payment to City upon demand.
17.1.2 RETURN OF DEPOSIT. Promptly upon Developer's
completion of the construction of any building improvements upon the Premises
and the issuance of a Certificate of Occupancy for such improvements, City
shall release and return to Developer a portion of the deposit described in
Section 17.1.1 based upon the ratio between the number of square feet of
building floor area (as measured from the exterior of exterior building
walls) within such completed building improvements to 488,500 square feet of
building area, and the balance of such deposit, if any, with accrued interest
shall be returned to Developer upon the occurrence of the Completion Date,
which term, for the purposes of this Section 17.1.2, shall mean the date that
Developer completes its proposed construction of building improvements on the
business park portion of the Project and certificates of occupancy with
respect to such building improvements have been obtained. Developer shall be
deemed to have completed its proposed construction of building improvements
if ninety percent (90%) of the building square footage required to be
constructed upon the business park portion of the Project has been completed
on the business park portion of the Project and no unimproved building pads
remain to be completed upon the business park portion of the Project.
17.1.3 RETENTION OF DEPOSIT BY CITY. In the event that this
Lease is terminated by Developer, in whole or in part, under Section 17.7.1
below, or in the event that Developer elects not to permit City to terminate
this Lease by reason of Developer's failure to commence and complete the
construction of building improvements upon the business park portion of the
Project as required by this Lease, said deposit, less interest accrued
thereon through the date of such termination and also less any portion of
such deposit to be returned to Developer under Section 17.1.2 above, shall be
retained by City as provided in Section 17.7 below.
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17.2 NOTICES, DEMANDS AND COMMUNICATIONS BETWEEN THE PARTIES.
Written notices, demands, and communications between the City and Developer
shall be sufficiently given if personally served or if dispatched by
registered or certified mail, postage prepaid, return receipt requested, to
the principal offices of City or Developer, as set forth in Section 1.5 of
this Lease. Any such notice, demand or communication so given by mailing to
City shall be mailed attention of the City Manager. Copies of any such
notice, demand or communication to be given to Developer pursuant to this
Lease shall be given to CB&C and to SDC concurrently with the giving of such
notice or document to Developer by personal service or by mailing the same,
as required by this Section, to such party, at the address for such party set
forth in Section 1.5 above. Any such notice, demand or communication so
given by mailing to Developer shall be mailed Attention: Roland Wedemeyer.
Either City or Developer may from time to time by written notice to the other
designate a different address or addresses or party or parties to whom copies
of notices, demands and communications are to be delivered or to whose
attention notices, demands and communications are to be addressed which shall
be substituted for the addresses and/or names above specified. If any
notice, demand or communication is sent by registered or certified mail, as
aforesaid, the same shall be deemed to have been sufficiently given
forty-eight (48) hours after the mailing thereof as above provided.
17.3 CONFLICT OF INTEREST. No member, official or employee of
City shall have any personal interest, direct or indirect, in this Lease, nor
shall any such member, official or employee participate in any decision
relating to this Lease which affects his personal interests or the interests
of any corporation, partnership or association in which he is, directly or
indirectly, interested. No member, official or employee of City shall be
personally liable to Developer, or any successor in interest, in the event of
any default or breach by City or for any amount which may become due to
Developer or successor on any obligations under the terms of this Lease.
17.4 ENFORCED DELAY: EXTENSION OF TIME OF PERFORMANCE. In
addition to specific provisions of this Lease, performance by either party
hereunder shall not be deemed to be in default where delays or defaults are
due to war; insurrection; strikes, lock-outs; riots, floods; inclement
weather; earthquakes; fires; casualties; Acts of God; acts of the public
enemy; epidemics; quarantine restrictions; freight embargoes; lack of
transportation; governmental restrictions or priority; litigation including
eminent domain proceedings or related legal proceedings; inability to secure
necessary labor, materials or tools; delays of any contractor, subcontractor
or supplier; acts or failure to act of the other party; acts or failure to
act of any public or governmental agency or entity; or any other cause beyond
the reasonable control of the party charged with such
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performance, and the time for such performance shall be extended for a period
equal to the time of the delay resulting from any such cause.
17.5 AUDIT. The City Auditor and City Manager, or their
designated representatives, shall be permitted with or without prior
notification to examine and review Developer's records at all reasonable
times during Developer's regular business hours in a manner causing as little
inconvenience as possible to Developer, for the purpose of determining
compliance with this Lease.
17.6 DEFAULTS AND REMEDIES.
17.6.1 DEFAULTS - GENERAL. Subject to the extensions of time
set forth in Section 17.4. above, failure by either party to perform any term
or provision of this Lease constitutes a default under this Lease, if not
cured within sixty (60) days of the receipt of a written notice from the
other party specifying the default claimed; provided that, if such default
cannot reasonably be cured within such sixty (60) day period, the party
receiving such notice of default shall not be in default under this Lease if
such party commences the cure of such default within such sixty (60) day
period and thereafter diligently prosecutes the curing of such default to
completion. Any default by the lessee under any other lease for the business
park portion of the Project (except for a default under the lease for Parcel
3 of Parcel Map No. 15307) shall constitute a default hereunder, if, but only
if, the party or parties acting as the "Developer" hereunder are the same
party or parties acting as the "Developer" under such other lease, which
default hereunder shall constitute a default not susceptible of being cured
by a lender on the security of the leasehold estate for the purposes of
Sections 4.2 and 4.6 of this Lease. Subject to Section on 17.6.2 below, any
default by the lessee under the Adjacent Parcel Lease, or any new lease into
which the Adjacent Parcel Lease may be divided pursuant to Paragraph 13 of
the Miscellaneous Addendum attached to the Adjacent Parcel Lease, shall
constitute a default under this Lease, if, but only if, the party or parties
acting as the "Tenant" under the Adjacent Parcel Lease or any such new lease
are the same party or parties acting as the "Developer" under this Lease,
which default under such Adjacent Parcel Lease or any such new lease shall
constitute a default not susceptible of being cured by a lender on the
security of the leasehold estate for the purposes of Section 4.2 and 4.6 of
this Lease.
17.6.2 ADJACENT PARCEL LEASE EXCEPTIONS. Subject to the
termination of the effectiveness of this paragraph as provided hereinbelow,
notwithstanding the provisions of Section 17.6.1 above to the contrary, a
default by the lessee under the Adjacent Parcel Lease, or any new lease into
which the Adjacent Parcel Lease may be divided pursuant to
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Paragraph 13 of the Miscellaneous Addendum attached to the Adjacent Parcel
Lease, in the performance of its obligations under Paragraph 1 of the
Construction Addendum attached to the Adjacent Parcel Lease shall constitute
a default under this Lease whether or not the party or parties acting as the
"Tenant" under the Adjacent Parcel Lease, or any such new lease, are the same
party or parties acting as the "Developer" under this Lease, but, City's sole
remedy for such a default, if said parties are not the same, shall be to
terminate this Lease and to recover rent and other charges payable hereunder
through the date of such termination. The provisions of this paragraph shall
become null and void and of no further force or effect upon the first to
occur of (a) the occurrence of each of the following events: (i) the
issuance of a building permit or permits required for the construction
required by Paragraph 1 of the Construction Addendum attached to the Adjacent
Parcel Lease (the "FBO Phase I Improvements"), (ii) the lessee under the
Adjacent Parcel Lease delivers to City a fully executed construction contract
between it and a licensed general contractor for the construction of the FBO
Phase I Improvements, which contract requires that such work be commenced
within thirty (30) days, subject to force majeure, (iii) City receives the
performance, labor and material bond for the FBO Phase I Improvements as
required by Section 4 of the Adjacent Parcel Lease, and (iv) City receives
reasonable evidence of the financial ability of the lessee under the Adjacent
Parcel Lease to pay for the costs of the construction of the FBO Phase I
Improvements (a construction loan commitment in the usual form from a bank,
savings and loan association or other institutional lender shall constitute
reasonably satisfactory evidence of such financial ability), or (b) the FBO
Phase I Improvements have been substantially completed.
City agrees to promptly execute and deliver to Developer written
confirmation that the provisions in the first paragraph of this Section
17.6.2 have terminated and are of no further force or effect upon the first
to occur of the said two events, which written confirmation may be relied
upon by Developer and/or any party acquiring any interest in and to this
Lease and/or the premises demised hereby, through or under Developer and/or
any party extending credit to Developer.
Subject to the termination of the effectiveness of this paragraph as
provided hereinbelow, notwithstanding the provisions of Section 17.6.1 above
to the contrary, a default by the lessee under the Adjacent Parcel Lease, or
any new lease into which the Adjacent Parcel Lease may be divided pursuant to
Paragraph 13 of the Miscellaneous Addendum attached to the Adjacent Parcel
Lease, in the performance of its obligations under Paragraph 2 of the
Construction Addendum attached to the Adjacent Parcel Lease shall constitute
a default under this Lease whether or not the party or parties acting as the
"Tenant" under the Adjacent Parcel Lease, or any such new lease, are the
same party or parties acting as
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the "Developer" under this Lease, but, City's sole remedy for such a default,
if said parties are not the same, shall be to terminate this Lease and to
recover rent and other charges payable hereunder through the date of such
termination. The provisions of this paragraph shall become null and void and
of no further force or effect upon the first to occur of (a) the commencement
of the construction of building improvements upon the Premises (but shall be
effective as to any new lease entered into pursuant to the attached Exhibit
"D" demising any portion of the Premises for which such construction
condition has not been satisfied, other than a new lease of a common area lot
or parcel within a planned unit development or condominium project upon which
development or project the construction of building improvements has been
commenced), or (b) the completion of the construction required by Paragraph 2
of the Construction Addendum attached to the Adjacent Parcel Lease.
City agrees to promptly execute and deliver to Developer written
confirmation that the provisions in the first paragraph of this Section
17.6.2 have terminated and are of no further force or effect upon the first
to occur of the said two events, which written confirmation may be relied
upon by Developer and/or any party acquiring any interest in and to this
Lease and/or the premises demised hereby, through or under Developer and/or
any party extending credit to Developer.
The provisions of Sections 17.7.2 of this Lease shall be applicable to
defaults hereunder resulting from defaults under the Construction Addendum
attached to the Adjacent Parcel Lease, or any new lease into which the
Adjacent Parcel Lease may be divided, and any sum paid or released to the
lessor under the Adjacent Parcel Lease, or any new lease, under Paragraph 5.2
of the Default-Termination Addendum attached thereto by reason of any such
default, shall apply as a credit against the sum payable under Section 17.7.2
below to prevent the termination of this Lease by reason of such default.
17.6.3 INSTITUTION OF LEGAL ACTIONS. In addition to any
other rights or remedies, either party may institute legal action to cure,
correct, or remedy any default, to recover damages for any default, or to
obtain any other remedy consistent with the purpose of this Agreement. Such
legal actions must be instituted in the South Branch of the Superior Court of
the County of Los Angeles, State of California, in an appropriate municipal
court in the County, or in the Federal District in the Central District of
California.
17.6.4 APPLICABLE LAW. The laws of the State of California
shall govern the interpretation and enforcement of this Lease.
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17.6.5 Service of Process. In the event any
legal action is commenced by Developer against City, service of process of
City shall be made by personal service upon the City Manager of City, or in
such other manner as may be provided by law.
In the event that any legal action is commenced by City
against Developer, service of process on Developer shall be made as provided
by law and shall be valid whether made within or without the State of
California, or in such manner as may be provided by law.
17.6.6 RIGHTS AND REMEDIES ARE CUMULATIVE.
Except as otherwise expressly stated in this Lease, the rights and remedies
of the parties are cumulative, and the exercise by either party of one or
more of such rights or remedies shall not preclude the exercise by it, at the
same or different times, of any other rights or remedies for the same default
or any other default by the other party.
17.6.7 INACTION NOT A WAIVER OF DEFAULT. Any
failures or delays by either party in asserting any of its rights and
remedies as to any default shall not operate as a waiver of any default or of
any such rights or remedies or deprive either such party of its right to
institute and maintain any actions or proceedings which it may deem necessary
to protect, assert or enforce any such rights or remedies.
17.6.8 REMEDIES. In the event of a default
during the lease term by Developer, City, without further notice to
Developer, may declare this Lease and/or Developer's right of possession at
an end and may re-enter the Premises by process of law, in which event, City
shall have the right to recover from Developer:
(a) The worth at the time of award of
the unpaid rent which has been earned at the time of termination, plus
interest;
(b) The worth at the time of award of
the amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that Developer proves could nave been reasonably avoided, plus interest; and
(c) The worth at the time of award of
the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of such rental loss for the same period that
Developer proves could be reasonably avoided, plus interest thereon.
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<PAGE>
The remedies of City as hereinabove provided are subject to the other
provisions of this Lease, including Article 4 hereof.
17.6.9 ARBITRATION - DECLARATORY RELIEF. In
the event that Developer, in good faith, disputes the existence of any
claimed default of which Developer receives written notice from City, other
than a default in the payment of Basic Minimum Rent, Developer may contest
the existence thereof by arbitration by referring the dispute to the American
Arbitration Association in California or by instituting an action for
declaratory relief within sixty (60) days after receipt by Developer of said
written notice from City and, in such event, no such default shall be deemed
to exist if either (i) within sixty (60) days after a final determination
that such default does in fact exist, Developer commences the cure of such
default and thereafter diligently prosecutes such cure to completion, or (ii)
Developer receives a final determination that no such default exists. This
provision shall not apply to disputes relating to rent and rent adjustments.
17.7 DEVELOPER'S INABILITY TO COMMENCE OR COMPLETE
CONSTRUCTION.
17.7.1 DEVELOPER'S RIGHT TO TERMINATE.
Developer shall have the right, at its option, with the prior written
approval of any lender on the security of the leasehold estate, to cancel and
terminate this Lease by giving written notice of such termination to City, at
any time prior to the construction of building improvements upon the Premises
demised hereby by or under Developer. Upon any such termination of this
Lease, the rents and other sums payable hereunder shall be prorated and paid
or reimbursed to the date of such termination, Developer and City shall
execute and record a quitclaim deed sufficient to remove the cloud of this
Lease and the short form of this Lease from record title to the Premises and
Landlord shall be entitled to retain the deposit described in Section 17.1
above, less any interest accrued on such deposit and also less any portion of
such deposit payable to Developer under Section 17.1.2 above, which sums
shall be paid to Developer by City.
17.7.2 CITY'S EXERCISE OF REMEDIES. In the
event of a default by Developer in the performance of any of its obligations
to commence and complete the construction of building and other improvements
within the times required by Article 7 of this lease and in the further event
that City elects to exercise its remedy to terminate this Lease by reason of
such default by Developer, Developer may, for a period of thirty (30) days
following its receipt of written notice from City of City's election to
terminate this Lease by reason of such default, elect to prevent such
termination from becoming effective by releasing and paying to City a portion
of the good faith deposit held by City under Section 17.1, which portion
shall be equal to the
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lesser of (i) the amount of such deposit so held by City; or (ii) an amount
equal to the product on ONE DOLLAR AND SIXTY CENTS ($1.60) per square foot
times the number of square feet of building area the failure to commence or
complete the construction of which has caused the subject default.
17.7.3 PAYMENT TO DEVELOPER. In the event
that this Lease is terminated under Section 17.7.1 or Section 17.7.2 above,
or under Section 3.3(b) above and in the further event that Developer has
constructed streets, utilities and/or other off-site improvements or grading
improvements upon the Project prior to such termination of this Lease, City
shall, pursuant to its responsibilities under state law, use its best efforts
to resell or relet the Premises, or any portion thereof, as soon and in such
manner as City shall find feasible and consistent with the objectives of such
law to a qualified and responsible party or parties (as determined by City)
who will assume the obligation of making or completing the improvements
required of Developer under this Lease or such other improvements in their
stead as shall be satisfactory to City and in accordance with the uses
specified for the Premises in this Lease. Upon such resale or reletting of
the Premises, or any portion thereof, the proceeds thereof shall be applied:
(a) First, to reimburse City for all
costs and expenses incurred, including, but not limited to, salaries to
personnel, in connection with the recapture, management, and resale or
reletting of the Premises, or part thereof (but less any income derived by
City from the Premises, or part thereof, in connection with such management);
all taxes, assessments, and water and sewer charges with respect to the
Premises, or part thereof (or, in the event that the Premises are exempt from
taxation or assessment or such charges during the period of ownership thereby
by City, an amount, if paid, equal to such taxes, assessments, or charges [as
determined by the appropriate assessing official] as would have been payable
if the Premises were not so exempt); any payments made or necessary to be
made to discharge any encumbrances or liens existing on the Premises, or part
thereof, at the time of revesting of title thereto in City or to discharge or
prevent from attaching or being made any subsequent encumbrances or liens
due to obligations, defaults, or acts of Developer, its successors or
transferees; any expenditures made or obligations incurred with respect to
the making or completion of the improvements or any part thereof on the
Premises, or part thereof and any amounts otherwise owing City by Developer
and its successors or transferee;
(b) Second, in the case of a
reletting, to pay City an amount equal to the rentals and other payments
payable to City hereunder that City would have received if this Lease had not
been terminated; or, if the
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<PAGE>
Premises are resold, to reimburse City an amount equal to FOUR DOLLARS
($4.00) per square foot times the number of square feet within the Premises;
(c) Third, to reimburse Developer, its
successors or transferees, a sum up to the amount equal to the sum of (i) the
costs incurred for the development of the Project, prorated to the Premises,
if the Premises are less than all of the Project, on a square foot basis, and
for the improvements existing on the Premises at the time of the re-entry and
repossession by City, less (ii) any gains or income withdrawn or made by
Developer from the Premises or the improvements thereon; and
(d) Any balance remaining after such
reimbursement shall be retained by City as its property. In the event that
such street, utility and/or other offsite improvements have been
constructed by or the costs of such construction paid or reimbursed by an
improvement or special assessments district, the provisions of this Section
shall be applicable to the costs for such improvements if payment of the
bonds issued by such district have been guaranteed by Developer or by
security, in addition to the leasehold estate created hereby, or paid by
Developer, but only to the extent of such payment by Developer or of payment
from the proceeds of such guarantee.
17.7.4 DELIVERY OF PLANS. In the event that
this Lease is terminated for any reason whatsoever, Developer shall deliver
to City one set of all plans and data in its possession concerning the
Premises.
17.8 RIGHT TO CONTEST LAWS. Developer shall have the
right, after notice to City, to contest or to permit its subtenants to
contest by appropriate legal proceedings, without cost or expense to City,
the validity of any law, ordinance, order, rule, regulation or requirement to
be complied with by Developer under this Lease and to postpone compliance
with the same; provided such contest shall be promptly and diligently
prosecuted at no expense to City and so long as City shall not thereby suffer
any civil or be subjected to any criminal penalties or sanctions, and
Developer shall protect and save harmless City against any liability and
claims for any such noncompliance or postponement of compliance.
17.9 TRADE FIXTURES. All trade fixtures, furnishings,
equipment and signs installed by or under Developer or subtenants shall be
and remain the property of the person, firm or corporation installing the
same and shall be removable at any time during the term of this Lease. The
removal of any such trade fixtures, furnishings, equipment and signs shall be
at the expense of the person, firm or corporation removing the same, who
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<PAGE>
shall repair any damage or injury to the Premises and all improvements
thereto occasioned by the removal thereof. In the event that any subtenant
acquires any furniture, trade fixtures, signs and/or equipment to be used in
connection with its subleased premises from an equipment lessor or from an
equipment seller under a security agreement, City agrees to execute such
documents as may reasonably be required by the equipment lessor or creditor
in order to assure such party of its prior rights in and to any such
equipment, furniture, signs and/or trade fixtures and of its right to remove
any such equipment, furniture, signs and/or trade fixtures from the subleased
premises for a period of not to exceed forty-five (45) days from and after
notice to such party of the termination or expiration of the sublease of the
subject subtenant-lessee or subtenant-debtor.
17.10 CONTINUED POSSESSION OF TENANT. If Developer
shall hold over the Premises after the expiration of the term hereof with the
consent of City, either express or implied, such holding over shall be
construed to be a tenancy from month-to-month, subject to all the covenants,
rental conditions and obligations hereof and terminable by either party as
provided by law.
17.11 UTILITIES. Developer shall pay or cause to be
paid all charges for gas, electricity, water and other utilities furnished to
the Premises during the term of this Lease and all sewer use charges or
similar charges or assessments for utilities levied against the Premises for
any period included within the term of this lease.
17.12 SURRENDER. Upon the expiration of the term of
this Lease, as provided herein, or sooner termination of this Lease,
Developer, subject to Section 17.9, shall surrender to City all and singular
the Premises, including any buildings and all improvements constructed by or
under Developer then situated upon the Premises, and Developer shall execute,
acknowledge and deliver to City within ten (10) days after written request
from City to Developer, any Quitclaim Deed or other document required by any
reputable title company to remove the cloud of this Lease from the Premises.
Notwithstanding the foregoing provisions of this Section to the contrary,
Developer shall have the right, at any time prior to the expiration of the
term of this Lease and for a period of sixty (60) days following the
expiration of the term, to remove all or any portion of the buildings and
other improvements constructed by or under Developer upon the Premises.
17.13 PARTIAL INVALIDITY. If any term or provision of
this Lease or the application thereof to any party or circumstances shall, to
any extent, be held invalid or unenforceable, the remainder of this Lease, or
the application of such term or provision, to persons or circumstances other
than
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<PAGE>
those as to whom or which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
17.14 SECTION HEADINGS. The Section and Article
headings of this Lease are inserted as a matter of convenience and reference
only and in no way define, limit or describe the scope or intent of this
Lease or in any way affect the terms and provisions hereof.
17.15 SHORT FORM LEASE. Concurrently with the delivery
of this Lease, City and Developer have executed, acknowledged and caused to
be recorded a short form of this Lease in the form attached hereto as Exhibit
"J".
17.16 ENTIRE AGREEMENT, WAIVERS AND AMENDMENTS. This
Lease is executed in two (2) duplicate originals, each of which is deemed to
be an original. This Lease includes fifty-four (54) pages and ten (10)
attachments marked Exhibits "A" through "J" which constitutes the entire
understanding and agreement of the parties. This Lease integrates all the
terms and conditions mentioned herein or incidental hereto, and supersedes
all negotiations or previous agreements between the parties with respect to
all or any part of the subject matter hereof.
17.17 WAIVERS. All waivers of the provisions of this
Lease must be in writing by the appropriate authorities of City or Developer,
and all amendments hereto must be in writing by the appropriate authorities
of City and Developer.
17.18 APPROVALS. In all circumstances where under this
Lease either party is required to approve or disapprove any matter, approval
shall not be unreasonably withheld.
17.19 SUCCESSORS IN INTEREST. The provisions of this
Lease shall be binding upon and shall inure to the benefit of the heirs,
executors, assigns and successors in interest of the parties hereto.
17.20 LITIGATION AND ATTORNEYS' FEES. In the event of
any dispute between the parties hereto involving the covenants and
provisions herein contained or arising out of the subject matter of this
Lease, the parties reserve, each to themselves, the right to litigate such
dispute. The prevailing party in any action commenced pursuant to this Lease
shall be entitled to recover reasonable expenses, attorneys' fees and costs.
17.21 RIGHT OF FIRST REFUSAL TO PURCHASE. If City shall
determine during the term of this Lease that it is lawful and in the public
interest to sell the Premises, or any
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<PAGE>
portion thereof, City shall, prior to making the property available for sale
to any other party, provide Developer the opportunity to purchase said
property at its fair market value, as determined by an appraisal obtained by
City. If Developer has not entered into an agreement to purchase said
property within ninety (90) days of the date it is first offered for sale to
Developer at the price theretofore determined by City to be the fair market
value, all rights of Developer created by this Section 17.21 shall cease and
be of no further force and effect. The determination whether such property
shall be made available for sale is and shall be within the sole and
exclusive discretion of City. City shall determine the legality of such
action prior to making a determination to sell on the basis of the law then
in effect.
17.22 SUBJECT TO DECLARATIONS. This Lease is and shall
be subject and subordinate to the terms and provisions of that certain
Maintenance Declaration dated January 31, 1983 and recorded on March 8, 1983,
as Instrument No. 83-256290 of the Official Records of the Los Angeles
County, California Recorder and to the terms and provisions of that certain
Declaration of Covenants, Conditions, and Restrictions dated January 31, 1983
and recorded on March 9, 1983, as Instrument No. 83-262462 of the Official
Records of the Los Angeles County, California Recorder (collectively the
"Declarations"); provided, however, that the Developer's obligation to pay
rent hereunder shall not be affected in any way because of such
subordinations. The terms and provisions of the Declarations include certain
granted and reserved easements. This Lease is and shall be further subject
and subordinate to any instrument recorded against the Premises to establish
a condominium or planned unit development regime.
IN WITNESS WHEREOF, City and Developer have signed this Lease as of
the date first written above.
CITY OF LONG BEACH,
a municipal corporation
By:
-------------------------------------
John E. Dever, City Manager
"City"
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<PAGE>
LONG BEACH AIRPORT BUSINESS PARK,
a California general partnership
By: SIGNAL DEVELOPMENT CORPORATION,
a California corporation,
a general partner
By: /s/
-------------------------------------
President
(Title)
By: /s/ Barbara Steck
-------------------------------------
Assistant Secretary
(Title)
By: CARLTON BROWNE AND COMPANY,
INCORPORATED,
a California corporation,
a general partner
By: /s/
-------------------------------------
Chairman of the Board
(Title)
By:
-------------------------------------
President
(Title)
"Developer"
This Lease Agreement is approved as to form this _______________ day of
____________________, 1986.
John R. Calhoun, City Attorney
By:
-------------------------------------
Roger P. Freeman, Deputy
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<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On _________________, 1986, before me, the undersigned, a Notary Public
in and for said State, personally appeared JOHN E. DEVER, personally known to
me to be the person who executed this instrument as CITY MANAGER of the City
of Long Beach, a municipal corporation and acknowledged to me that the
municipal corporation executed it.
WITNESS my hand and official seal.
SIGNATURE:
-------------------------
(SEAL)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On January 20, 1986, before me, the undersigned, a Notary Public in and
for said State, personally appeared R. C. WEDEMEYER, and BARBARA STECK
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the persons who executed the within instrument as
PRESIDENT and ASSISTANT SECRETARY, respectively, of SIGNAL DEVELOPMENT
CORPORATION, the corporation that executed the within instrument, said
persons being known to me to be the persons who executed the within
instrument on behalf of said corporation, said corporation being known to me
to be one of the general partners of LONG BEACH AIRPORT BUSINESS PARK, the
general partnership that executed the within instrument and acknowledged to
me that such corporation executed the same both individually and as a general
partner of said general partnership and that such general partnership
executed the same.
WITNESS my hand and official seal.
/s/ Wanda Silver
------------------------------
Notary Public
(Seal)
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On January 28, 1986, before me, the undersigned, a Notary Public in and
for said State, personally appeared Robert Lee Harris II, and R. C. Browne
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the persons who executed the within instrument as PRESIDENT
and CHAIRMAN OF THE BOARD respectively, of CARLTON BROWNE & COMPANY,
INCORPORATED, the corporation that executed the within instrument, said
persons being known to me to be the persons who executed the within
instrument on behalf of said corporation, said corporation being known to me
to be one of the general partners of LONG BEACH AIRPORT BUSINESS PARK, the
general partnership that executed the within instrument and acknowledged to
me that such corporation executed the same both individually and as a
general partner of said general partnership and that such general partnership
also executed the same.
WITNESS my hand and official seal.
/s/ Dorothy F. Cook
------------------------------
Notary Public
(SEAL)
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<PAGE>
EXHIBIT "A"
DESCRIPTION OF THE PREMISES
Parcel 5 of Parcel Map No. 17454, in the City of Long Beach, County of
Los Angeles, State of California, as filed in Book ___, pages ___ through
___, inclusive, of Parcel Maps of Los Angeles County, also being portions of
Parcel Map No. 15307 as filed in Book 159, pages 50 through 53, inclusive, of
Parcel Maps of Los Angeles County and of Parcel Map No. 14943 as filed in
Book 154, pages 68-71, inclusive, of Parcel Maps of Los Angeles County.
EXCEPT THEREFROM, ALL OIL, GAS AND OTHER HYDROCARBONS IN AND UNDER SAID
LAND, BUT WITHOUT THE RIGHT TO USE THE SURFACE, OR SUBSURFACE OF SAID
LAND ABOVE A DEPTH OF 100 FEET, AS RESERVED BY BIXBY LAND COMPANY, A
CORPORATION, IN DEEDS RECORDED IN BOOK 18884 PAGE 347, IN BOOK 24554
PAGE 211, IN BOOK 28612 PAGE 328, IN BOOK 38790 PAGE 367, IN BOOK 46180
PAGE 52, IN BOOK 49399 PAGE 406, IN BOOK D-721 PAGE 156 AND IN BOOK
37202 PAGE 308 ALL OF OFFICIAL RECORDS, AND AS RESERVED BY WHEELER F.
CHASE IN DEED RECORDED IN BOOK 41754 PAGE 423 OFFICIAL RECORDS OF SAID
COUNTY.
EXCEPTING AND RESERVING therefrom to the extent applicable a
non-exclusive underground utility easement appurtenant to the real property
legally described in the attached Exhibit "C" beneath the strip of land
legally described in Exhibit "A-1", Developer shall have the right to improve
the surface of said servient tenement with driveway and parking lot
improvements, including, without limitation, sidewalks and landscaping. Any
damage to improvements upon the servient tenement resulting from the
improvement, maintenance and/or use of said easement shall be the
responsibility of City, provided that to the extent that City has obtained
the agreement of the lessee under the Adjacent Parcel Lease, or any new lease
into which the Adjacent Parcel Lease may be divided, for the benefit of
Developer, to be responsible for such damage, City shall not be responsible
for any such damage while such Lease or new lease is in effect.
ALSO EXCEPTING AND RESERVING therefrom to the extent applicable a
non-exclusive easement for the ingress and egress of pedestrian and motor
vehicles appurtenant to the real property legally described in the attached
Exhibit "C" over and across the strip of land legally described in the
attached Exhibit "A-2", Developer shall have the right to improve the surface
of the servient tenement with driveways and traffic lanes, including, without
limitation, the right to modify and/or alter any
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EXHIBIT "A"
<PAGE>
LEGAL DESCRIPTION
The strip of land subject to the utility easement will be a strip of land ten
feet (10') wide commencing at the Northeasterly or Southeasterly boundary of
that portion of the real property described in the attached Exhibit "C"
described therein as Parcel 2 of Parcel Map No. 14943 and extending in a
Southeasterly and/or Northeasterly direction to intersect with utility
company and/or public utility easements within the dominant tenement. The
location of such easement shall be specifically located by Developer (or by
City if this Lease is terminated prior to Developer's location of said
easement); provided that if Developer (or City) has not specifically located
said easement by recording a specific legal description for said easement in
the Office of the County Recorder, Los Angeles County, California, by July 1,
1983, said easement may be specifically located by the lessee under the
Adjacent Parcel Lease (or by the fee owner of the property demised thereby if
such lessee fails to locate said easement prior to the termination of the
Adjacent Parcel Lease) by recording a precise legal description of the
location of such easement in the Office of the County Recorder, Los Angeles
County, California.
EXHIBIT "A-1"
<PAGE>
improvements constructed upon the servient tenement by the holders of this
easement. Once Developer constructs any such improvements, such improvements
shall not be altered or modified by the holders of the easement, except to
the extent reasonably necessary for use of the easement for such ingress and
egress. It shall be a condition to the use of such easement that the holder
of such easement construct and maintain a lock gate across the access point
to such easement from its premises satisfying the airport security
requirements of the Federal Aviation Administration and the Long Beach
Municipal Airport.
City will cooperate reasonably with Developer in relocating the above
easements, if Developer obtains the approval of the lessee under the Adjacent
Parcel Lease, or any such new lease subject to relocation.
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<PAGE>
LEGAL DESCRIPTION
The strip of land subject to the ingress and egress easement will be a strip
of land twenty feet (20') in width commencing at the Northeasterly boundary
of that portion of the real property described in the attached Exhibit "C"
described therein as Parcel 2 of Parcel Map No. 14943 and extending in a
Northeasterly and/or Southeasterly direction to intersect with Spring Street
and/or Clark Avenue. The location of such easement shall be specifically
located by Developer (or by City if this Lease is terminated prior to
Developer's location of said easement); provided that if Developer (or City)
has not specifically located said easement by recording a specific legal
description for said easement in the Office of the County Recorder, Los
Angeles County, California, by July 1, 1983, said easement may be
specifically located by the lessee under the Adjacent Parcel Lease (or by the
fee owner of the property demised thereby if such lessee fails to locate said
easement prior to the termination of the Adjacent Parcel Lease) by recording
a precise legal description of the location of such easement in the Office of
the County Recorder, Los Angeles County, California.
EXHIBIT "A-2"
<PAGE>
[Long Beach Business Park Map]
<PAGE>
EXHIBIT "C"
LEGAL DESCRIPTION OF THE PROPERTY
DEMISED BY THE ADJACENT PARCEL LEASE
Parcels 2 and 3 of Parcel Map No. 14943, in the City of Long Beach,
County of Los Angeles, State of California, as filed in Parcel Map Book 154,
pages 68-71, records of Los Angeles County.
EXCEPT THEREFROM, ALL OIL, GAS AND OTHER HYDROCARBONS IN AND UNDER SAID LAND,
BUT WITHOUT THE RIGHT TO USE THE SURFACE, OR SUBSURFACE OF SAID LAND ABOVE A
DEPTH OF 100 FEET, AS RESERVED BY BIXBY LAND COMPANY, A CORPORATION, IN DEEDS
RECORDED IN BOOK 18884 PAGE 347, IN B00K 24554 PAGE 211, IN BOOK 28612 PAGE
328, IN BOOK 38790 PAGE 367, IN BOOK 46180 PAGE 52, IN BOOK 49399 PAGE 406,
IN BOOK D-721 PAGE 156 AND IN BOOK 37202 PAGE 308 ALL OF OFFICIAL RECORDS,
AND AS RESERVED BY WHEELER F. CHASE IN DEED RECORDED IN BOOK 41754 PAGE 423
OFFICIAL RECORDS OF SAID COUNTY.
A non-exclusive easement for underground utility purposes appurtenant to
Parcel 2 and Parcel 3 above beneath that certain strip of land legally
described in the attached Exhibit "C-1". There is excepted from said
easement the right for Developer, as City's lessee to construct parking lot
improvements upon the easement area, including, without limitation, sidewalks
and landscaping.
A non-exclusive easement for the ingress and egress of pedestrians and motor
vehicles appurtenant to Parcel 2 and Parcel 3 above over and across that
certain strip of land legally described in the attached Exhibit "C-2". There
is excepted from said easement the right for Developer, as City's lessee, to
construct driveway and traffic isle improvements within the easement area and
to modify and/or alter any such improvements constructed within the easement
area by the lessee under the Adjacent Parcel Lease. The lessee under the
Adjacent Parcel Lease shall not have the right to modify and/or alter any
such improvements so constructed upon the easement area by Developer, except
to the extent such alterations and/or modifications may reasonably be
required for such lessee's use of said easement for such ingress and egress.
As a condition to such lessee's use of such easement, such lessee shall
construct and maintain a lock gate across the access point to such easement
from its premises satisfying the airport security requirements of the Federal
Aviation Administration and the Long Beach Municipal Airport.
EXHIBIT "C"
<PAGE>
LEGAL DESCRIPTION
The precise location of the strip of land subject to the utility easement
shall be determined in the manner set forth in the attached Exhibit "A-1".
EXHIBIT "C-1"
<PAGE>
LEGAL DESCRIPTION
The precise location of the strip of land subject to the ingress and egress
easement shall be determined in the manner provided in the attached
Exhibit "A-2".
EXHIBIT "C-2"
<PAGE>
AGREEMENT OF NON-DISTURBANCE
(Parcel 5 of Parcel Map No. 17454 of Business Park)
(Portion of Parcel 8 of Parcel Map No. 15307)
THIS AGREEMENT OF NON-DISTURBANCE (Parcel 5 of Parcel Map No. 17454 of
Business Park) (Portion of Parcel 8 of Parcel Map No. 15307) is made as of
the ________ day of ______, 198__, by and among ______________, hereinafter
called "Ground Lessor"; ____________________, hereinafter called "Tenant";
and __________ hereinafter called "Subtenant".
PRELIMINARY
A. Ground Lessor and Tenant have entered into a Lease Agreement (Parcel
5 of Parcel Map No. 17454 of Business Park) (Portion of Parcel 8 of Parcel
Map No. 15307) dated __________, 198__, hereinafter referred to as the
"Ground Lease") pursuant to which Ground Lessor has demised and leased to
Tenant certain real property located in the City of Long Beach, County of Los
Angeles, State of California, (INCLUDING THE REAL PROPERTY) described in
Exhibit "A" attached hereto and incorporated herein. A short form of the
Ground Lease was recorded ___, 198__ (IS BEING RECORDED CONCURRENTLY
HEREWITH) in the Official Records of said County.
B. Tenant, as sublessor, and Subtenant, as sublessee, have entered into
a Sublease dated ______ , 198__, (hereinafter referred to as the "Sublease")
which demises
-1-
EXHIBIT "D"
Building G
<PAGE>
to Subtenant (A PORTION OR ALL) of the premises demised by the Ground Lease
(AND GRANTS TO SUBTENANT CERTAIN RIGHTS WITH RESPECT TO OTHER PORTIONS OF THE
PREMISES DEMISED BY THE GROUND LEASE). A short form of the Sublease is being
recorded concurrently herewith in the Official Records of said County, which
short form of Sublease describes the premises demised thereby (AND THE RIGHTS
OF SUBTENANT WITH RESPECT TO THE REAL PROOERTY DESCRIBED IN THE ATTACHED
EXHIBIT "A").
C. The parties hereto now desire to enter into this Agreement so as to
clarify their rights, duties and obligations under the Ground Lease and the
Sublease and to further provide for various contingencies as hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreement of the parties hereto to the terms and conditions hereinafter
contained, the parties hereto agree as allows:
1. In the event Tenant shall default in the payment of any sum or
performance of any covenant or condition of the Ground Lease, all as provided
therein, or in the event of any termination or expiration of the Ground Lease
for any reason whatsoever prior to the expiration of the term of the Sublease
as provided in the Sublease, (OTHER THAN A TERMINATION OF THE GROUND LEASE
ONLY AS TO PORTIONS OF THE PREMISES DEMISED THEREBY NOT DESCRIBED IN THE
ATTACHED EXIBIT "A" then Ground Lessor, Tenant
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<PAGE>
and Subtenant do hereby agree that the Sublease, and all terms, provisions,
covenants and agreements thereof shall survive any such default or defaults
in, or termination or expiration of the Ground Lease, whether such
termination occurs as a result of, or arising out of, any such default or
defaults, or otherwise, and the Sublease (subject to the right of any "lender
on the security of the leasehold estate" as defined in the Ground Lease to
enter into a replacement lease with Ground Lessor upon the same terms and
conditions and having the same priority as the Ground Lease, pursuant to
Section 4.6 of the Ground Lease) shall continue in force and effect, in
accordance with and subject to all of its terms, provisions, agreements and
covenants as a direct lease with Ground Lessor, as lessor, and Subtenant, as
lessee. Subtenant agrees, in such event, to attorn to Ground Lessor and to
recognize Ground Lessor as the lessor under the Sublease. Ground Lessor
shall, in such event, exercise and undertake all of the rights, obligations
and duties of Tenant in and under said Sublease and thereafter shall be
entitled to collect all rents and payments due and payable under said
Sublease, including the right to collect any sums being due and payable
thereunder prior to the termination or expiration of the Ground lease which
are accrued and unpaid by Subtenant on the date of termination of the Ground
Lease. Subtenant agrees, not to prepay rentals under the Sublease without the
prior written consent of Ground Lessor.
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<PAGE>
2. Ground Lessor agrees that, prior to terminating the Ground Lease or
taking any proceedings to enforce any such termination thereof for any reason
other than the expiration of the term of the Ground Lease as provided
therein, Ground Lessor shall give Subtenant thirty (30) days' notice in
writing prior to the effective date of such termination, specifying the
reason for such termination. Such notice shall be given to Subtenant at
____________ .
3. Ground Lessor hereby approves of the Sublease and of the rights and
privileges granted to Subtenant thereunder and agrees that, for and during
the term of the Sublease and any extensions thereof, Ground Lessor shall not
take any action, directly or indirectly, to disturb or otherwise affect
Sub-tenant's occupancy of and/or rights and privileges with respect to the
premises demised by the Ground Lease and described on the attached Exhibit
"A" so long as Subtenant is not in default under the Sublease, nor shall
Subtenant's exercise of any such rights or privileges constitute a default
under the Ground Lease, notwithstanding any provisions to the contrary
contained in the Ground Lease.
4. No provision contained herein shall be deemed an amendment or
modification of any provisions contained in the Sublease, including, without
limiting the generality of the foregoing, any rights given thereunder to
Tenant to terminate the Sublease.
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<PAGE>
5. In the event that the Ground Lease is divided, in accordance with
its terms, into two (2) or more new leases, the term "Ground Lease", as used
herein, shall be deemed to refer to the said new lease leasing and demising
the subleased premises.
6. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their successors, transferees and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first hereinabove set forth.
---------------------------------------
---------------------------------------
"Ground Lessor"
---------------------------------------
---------------------------------------
"Tenant"
---------------------------------------
---------------------------------------
"Subtenant"
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<PAGE>
This Agreement is hereby approved as to form this ____ day of ______, 198_.
John R. Calhoun, City Attorney
By
-------------------------------------
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<PAGE>
INCREMENTAL DEVELOPMENT RIDER
1. DECLARATION:
City acknowledges that Developer may record an instrument or
instruments establishing reciprocal easements for ingress, egress and parking
and imposing certain restrictions and covenants relating to the improvement,
use and operation of the Project, or portions thereof, consistent with a
first class commercial development, which instrument may contain provisions
concerning the following types of matters: (1) the designation of portions
of the business park portion of the Project as building sites and other
portions as common areas for ingress, egress and parking; (ii) the
restriction of the use of the property subject thereto to commercial
purposes; (iii) the restriction of the use of certain building sites against
the sale of specific goods or the conduct of specific types of businesses;
(iv) the limitation of building heights and floor area, and/or architectural
styles, and/or the imposition of architectural review standards; (v) the
restriction of the use of common areas to parking, ingress, egress and
incidental purposes including drive-through and/or loading and unloading
docks adjacent to building sites; (vi) the designation of employee parking
areas; (vii) the appointment of an Operator to operate, maintain and repair
the common and parking areas, together with the imposition of an obligation
upon owners of leasehold interests in and to the property subject thereto (or
the fee owner or owners of portions of such property no longer demised by
this Lease or any new lease of the business park portion of the Project
entered into pursuant to Paragraph 2 below) to reimburse the Operator a pro
rata share of the costs and expenses of such operation and maintenance, based
upon the buildable area within each owner's portion of such property, which
costs and expenses to be reimbursed shall include public liability and
property damage insurance premiums and a management fee based upon a
percentage of such other costs and expenses of operation and maintenance;
(viii) provisions relating to the maintenance and repair of building
structures and the restoration or removal of casualty damage; (iv)
restrictions on signs and the establishment of sign criteria; and (x) such
other matters as may be necessary to conform to the requirements in subleases
or deemed appropriate by Developer. Any such instrument is herein after
referred to as the "Declaration". City agrees upon request to execute a
consent or consents to any such Declaration and/or to subordinate its
interest in and to the Premises to such Declaration, provided that City
approves of the terms and provisions of the proposed Declaration. City
hereby agrees that the decision to approve any such Declaration shall be
based upon consideration of whether the terms and provisions thereof are
commercially reasonable and substantially similar to
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EXHIBIT "E"
<PAGE>
the terms and provisions in similar instruments used in comparable first
class commercial developments in the State of California. City shall either
approve or disapprove of any proposed Declaration by giving written notice to
Developer within thirty (30) days of City's receipt of the proposed
Declaration, which notice shall specify the modifications required for
approval, if the proposed Declaration is disapproved. City's failure to
expressly so disapprove of any such proposed Declaration within said thirty
(30) day period shall constitute City's approval of the proposed Declaration.
In the event of a dispute between City and Developer arising out of the
provisions of this paragraph, either party may have the dispute settled by
submitting the matter to arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrators
in any such proceedings shall be individuals familiar with the requirements
of commercial lenders and commercial development reciprocal easement
agreements.
2. SEGREGATION:
2.1 SEPARATE INDIVIDUAL LEASES. Subject to the provisions of this
Section 2.1, Developer shall have the right, at any time and from time to
time during the term of this Lease, to require that City enter into two (2)
or more new leases, which new leases collectively shall supplant this Lease
and cover the Premises. City's obligations pursuant to this Section 2.1 shall
be subject to each of the following:
(a) Developer's satisfying the requirements of the California
Subdivision Map Act and any local ordinances applicable to each such a
division of this lease.
(b) Each new lease shall have the same parties as the
parties to the Lease being supplanted by the new lease.
(c) The real property to be leased and demised by each of the
new leases shall be subject and subordinate to the Declaration in a form
approved by City pursuant to Paragraph 1 above.
(d) Each new lease shall contain the same terms, covenants,
provisions, conditions and agreements as those contained in this Lease,
including the right to further divide the new leases under this Section 2.1,
except that:
(i) The definition of Developer in Section 1.5.2 of this
Lease shall be modified as may be
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<PAGE>
appropriate and references to SDC and CB&C shall be modified as may be
appropriate. Section 1.1 shall be modified to clarify that the premises
demised by the new lease are a portion only of the Project.
(ii) Each new lease shall provide by its terms that it
shall serve to release from this Lease, or any other lease being supplanted
by said new lease, the portion of the Premises covered by such new lease.
(iii) Each new lease shall provide in Section 2 that its
term commenced on the date the term of this Tease commenced and set forth the
expiration date of the term of such new lease.
(iv) The total Minimum Base Rent payable for use of the
Premises shall be allocated to any such new lease as the parties may agree,
provided that if the parties are unable to reach agreement upon such
allocation within thirty (30) days of the date that Developer submits to City
a proposed allocation for such rental, such allocation shall be determined
through appraisal pursuant to Section 3 below. City shall be deemed to have
approved of any such proposed rental allocation proposed by Developer, unless
City notifies Developer in writing within twenty (20) days of its receipt of
such proposal of its disapproval thereof and of the rental allocation
proposed by City. Any such proposed allocation made by Developer shall
include the legal descriptions of the property to be demised by each such new
lease, together with a copy of the Declaration or proposed Declaration. Said
appraisal shall determine the respective fair market values of the property
to be subject to each new lease, appraised for the use then being made of
such property by Developer, and/or to the extent no such use is then being
made, for the uses permitted by each such new lease and the Declaration.
Such appraisal shall take into account the effect of the Declaration. In the
event that either City or Developer elect to submit any dispute concerning
the terms and provisions of the Declaration to arbitration, pursuant to
Paragraph 1 above, the appraisal contemplated by this subparagraph (but not
the appointment of the arbitrators) shall be postponed until any such dispute
has been settled. Upon the determination of the respective fair market
values of the said property to be subject to each such new lease, the Minimum
Base Rent shall be allocated in proportion to the ratios between said
respective fair market values. An appropriate modification shall be made to
the dollar amounts used as examples in Section 3.2. Nothing herein shall be
deemed to alter the total amount of Minimum Base Rent to be paid to City for
use of the Premises.
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<PAGE>
(v) Each such new lease shall recite that it is subject
and subordinate to the Declaration, as well as to any instrument recorded on
the property subject to the new lease to establish a condominium or planned
unit development regime with City's approval pursuant to this Lease, and
grant and lease to Developer and reserve to City any reciprocal easements
established in the Declaration or any such instrument, for the benefit of or
burdening the real property demised by such new lease. To the extent
reasonably required, such Declaration and/or other instrument shall establish
easements for ingress and egress, utilities and reciprocal parking required
for the property demised by each new lease.
(vi) The amount of the deposit described in Section
17.1.1 shall be allocated between the new leases in the same proportions as
Minimum Base Rent is allocated.
(vii) The scope of Development described in Section 7.1
and the construction schedule attached to this Lease as Exhibit "F" shall be
modified to indicate only those portions of the required construction that
Developer elects to include in each such new lease, provided that the
description of the Scope of the Development and of the construction required
in Exhibit "F", in each new lease, when aggregated, shall include all of the
work described in Section 7.1 of this Lease and in Exhibit "F" to this Lease
and the times within which such work is to be commenced and completed shall
not be extended.
(viii) The option to lease provisions shall be deleted,
including Exhibit "C", Sections 2.2 and 2.3 and other references to such
option, as may be appropriate.
(ix) The square footage amount in Section 17.1.2 shall
be allocated as the parties may agree, but in the absence of such an
agreement in the same proportions as Minimum Base Rent is allocated. The
parties agree to cooperate reasonably in allocating such square footage
amount in a manner consistent with the anticipated building areas on the real
property to be subject to each new lease.
(x) The real property to be subject to each new lease
shall include a buildable area for not less than one (1) freestanding building
or not less than one (1) legal lot, parcel or condominium unit. Condominium
units and/or lots in, a planned unit development improved in a single phase
shall be leased and demised under a single new '.ease, unless creation of
separate new leases for each such unit or lot is necessary to D event the
reassessment of the possessory inter in all such units or 1ots upon the
sublease of a single such unit.
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<PAGE>
or lot under Article XIII A of the California Constitution and/or statutes,
rules and regulations adopted to implement such Article. All such new
leases, including leases into which any such new lease may be divided, shall
contain provisions sufficient to prohibit the creation of greater than the
number of total new leases permitted by this Paragraph (x).
(xi) Each such new lease shall provide that City may
withhold its consent to any assignment under Section 5.1.1 unless the
assignor's interest in all new leases, then in effect, is similarly assigned
or transferred to the same assignee.
(xii) Each such new lease shall provide that any default
by the lessee under any such other new lease shall constitute a default under
such new lease, if, but only if, the party or parties acting as the
"Developer" under such new lease are the same party or parties acting as the
"Developer" under such other new lease, which default under such new lease
shall constitute a default not susceptible of being cured by a lender on the
security of the leasehold estate for the purposes of Sections 4.2 and 4.6 of
this Lease. Section 4.2(g) in any new lease shall not permit City to recover
costs from the Developer under such new lease incurred to cure defaults under
any other new lease.
(xiii) Any such new lease for an industrial/commercial
planned unit development or condominium development shall provide, with
respect to any Ground Sublease with an owners' association of lots or parcels
restricted to common area usages, that City's obligation to execute a
non-disturbance agreement shall not be affected by reason of such Ground
Sublease providing for the payment of a nominal fixed rental payable
hereunder shall be allocated to any such new lease leasing and demising such
common area lots and/or parcels, only, to be sublet to such an owners'
association.
(e) Developer shall not then be in default hereunder.
(f) The segregation of this Lease into two (2) or more
separate new leases shall constitute the substitution of said new leases for
this Lease and each new lease and the easements provided for therein, if any,
shall have the same priority of title as this Lease and any and all subleases
entered into by Developer shall automatically be subject and subordinate to
each such new lease, to the extent affected thereby.
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<PAGE>
2.2 SHORT FORM NEW LEASE. Concurrently with the execution and
delivery of any new lease pursuant to Paragraph 2.1 above, the parties shall
execute and record two or more short form leases, each evidencing one such
lease, which short form leases shall contain the following recitals:
(a) That the short form lease is subject to the terms,
covenants and provisions of the lease evidenced thereby.
(b) That the short form lease and the lease evidenced
thereby are subject and subordinate to the Declaration.
(c) That the short form lease and the lease evidenced
thereby have been executed and delivered pursuant to this Exhibit "E" in
order to substitute the terms, covenants and provisions of the lease
evidenced thereby for those of this lease, as required by and in accordance
with the terms of this Lease, and that the said lease evidenced thereby shall
have the same priority of title as though executed and delivered at the time
of execution and delivery of this Lease on the date first written above and
as though such short form lease was recorded concurrently with the short form
of this Lease.
3. APPRAISAL.
Any value to be determined by appraisal shall be determined by
appraisal as follows:
Each party hereto shall appoint a qualified and experienced MAI or
equivalent appraiser to complete an appraisal within sixty (60) days. If the
appraisers, so appointed by the parties, agree upon the value of the
property, the appraisal figure agreed upon shall be the value of said
property. If the appraisals differ, but not by more than five percent (5%),
hey shall be deemed to be in agreement, and the appraisals shall be averaged
to determine the fair market value of the property. If the appraisers selected
by the parties, whose appraisals are used for the purpose herein stated, are
unable to agree upon the value of the property within said sixty (60) days,
said appraisers shall immediately appoint a third qualified and experienced
MAI or equivalent real estate appraiser to complete an appraisal within
thirty (30) days. The parties agree for he purpose of calculating the value
to be determined by appraisal, the appraised value shall be deemed to be
that amount which is determined by taking the average of the two (2)
appraisal figures which are closest to each other. The parties agree
to share equally in the cost of the third appraisal.
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<PAGE>
CONSTRUCTION REQUIREMENTS
1. Subject to force majeure as defined in Section 17.4 and to Section
7.4.3, Developer agrees to commence the construction of 150,000 square feet
of building improvements, upon the business park portion of the Project
within one (1) year of the commencement date of the lease term and to
thereafter diligently prosecute such construction to completion.
2. Subject to force majeure as defined in Section 17.4 and to Section
7.4.3, Developer agrees to commence the construction of the balance of the
building improvements required to be constructed upon the business park
portion of the Project either prior to or as soon as is reasonably possible
following the completion of the construction and marketing of the phase one
construction described in Paragraph 1 above, taking into consideration
financing constraints and the economic feasibility of development, provided
that subject only to such force majeure and to Section 7.4.3, such
construction shall be commenced on or before the expiration of the tenth
lease year.
3. The building improvements that Developer is required to construct
upon the business park portion of the Project will be the lesser of (i)
488,500 square feet of building improvements, or (ii) eighty percent (80%) of
the building improvements permitted to be constructed upon the business park
portion of the Project under the applicable PD-2 Ordinance.
EXHIBIT "F"
<PAGE>
9.5 REIMBURSEMENT OF CITY. Any amount paid by City for
any of the expenses described in Section 9.4 above, and all reasonable legal
and other expenses of City, including reasonable counsel fees, and costs of
suit, in defending any such action or in connection with procuring the
discharge of such lien, with all necessary disbursements in connection
therewith, together with interest thereon at the rate provided by law from
the date of payment, shall be repaid by Developer to City on demand.
10. CONDEMNATION:
10.1 DEFINITION OF TERMS. The following definitions
shall govern interpretation of this Section.
10.1.1 TOTAL TAKING. The term "total taking"
as used in this Section 10 means the taking of the entire Premises under the
power of eminent domain or the taking of so much thereof as will in
Developer's judgment prevent or substantially impair the use of the Premises
for the uses and purposes then being made or proposed to be made by Developer
of the Premises.
10.1.2 PARTIAL TAKING. The term "partial
taking" means the taking of a portion only of the Premises which does not
constitute a total taking as defined above.
10.1.3 TAKING. The term "taking" shall include
a voluntary conveyance by City to an agency, authority or public utility
under threat of a taking under the power of eminent domain in lieu of formal
proceedings.
10.1.4 DATE OF TAKING. The term "date of
taking" shall be the date title to the Premises or portion thereof passes and
vests in the condemnor or the date of entry of an order for immediate
possession by a court of competent jurisdiction in connection with any
judicial proceedings in eminent domain or the date physical possession of the
premises is taken or interfered with, whichever first occurs.
10.1.5 LEASED LAND. The term "leased land"
means the real property demised hereby, but exclusive of any and all
improvements situated upon the Premises at the commencement of the lease term
and also exclusive of all improvements constructed or placed hereon by or
under Developer and exclusive of any grading and other site work performed by
or under Developer. This definition shall also apply to Section 8.1.3.
10.2 EFFECT OF TAKING. If during the term thereof there
shall be a total or partial taking under the power
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<PAGE>
of eminent domain, then the leasehold estate of Developer in and to the
Premises, in the event of a total taking, or the portion thereof taken, in
the event of a partial taking, shall cease and terminate, as of the date of
taking thereof. If this Lease is so terminated in whole or in part, all
rentals and other charges payable by Developer to City hereunder and
attributable to the Premises, or portion thereof taken, shall be paid by
Developer up to and prorated through the date of taking by the condemnor.
Any portion of the security deposit provided for in Section 17.1 fairly
attributable to the terminated portion of the leasehold estate shall be
repaid by Developer and the parties shall thereupon be released from all
further liability in relation thereto.
10.3 ALLOCATION OF AWARD. All compensation and
damages awarded in connection with a total or partial taking of the Premises,
including all improvements thereon, shall be allocated as follows:
10.3.1 CITY'S SHARE. City shall be entitled
to that portion of the award attributable to the fair market value of the
leased land, or the portion taken, valued at the date of the taking and for
the use then being made of the leased land by Developer. In determining such
fair market value the provisions of this Lease, including, without
limitation, the rent payable hereunder over the remaining term of this Lease,
shall be taken into account.
10.3.2 DEVELOPER'S SHARE. Developer shall be
entitled to the amount remaining of the total award after deducting therefrom
the sums to be paid to City pursuant to the preceding Paragraph 10.3.1.
10.4 REDUCTION OF RENT ON PARTIAL TAKING. In the
event of a partial taking, the rent payable by Developer shall be adjusted
from the date of taking to the date of expiration of the term of this Lease.
Such rental adjustment will be made by reducing the rental payable by
Developer based on the ratio between the fair market value of the leased land
at the date of taking and the fair market value of the leased land remaining
immediately thereafter, valued for the use being made of the leased land by
Developer prior to such taking.
10.5 TEMPORARY TAKING. If all or any portion of the
Premises shall be taken by any competent authority for temporary use or
occupancy, this Lease, at the option of Developer, shall continue in full
force and effect without reduction or abatement of rent, notwithstanding any
other provision of this Lease, statute or rule of law to the contrary, and
Developer shall, in such event, be entitled to the entire award for such
taking to the extent that the same shall be applicable to the period of such
temporary use of occupancy included in the
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<PAGE>
EXHIBIT "G"
Exhibit "G" has intentionally been left blank.
EXHIBIT "G"
<PAGE>
FAA REQUIRED LEASE PROVISIONS
1. Lessee agrees to comply with the notification and review
requirements covered in Part 77 of the Federal Aviation Regulations in the
event that future construction of a building is planned for the leased
premises, or in the event of any plan modification or alteration of any
present or future building or structure situated on the leased premises.
EXHIBIT "H"
<PAGE>
EXHIBIT "I"
Exhibit "I" has intentionally been left blank.
EXHIBIT "I"
<PAGE>
SHORT FORM GROUND LEASE
(Parcel 5 of Parcel Map No. 17454 of Business Park)
(Portion of Parcel 8 of Parcel Map No. 15307)
THIS SHORT FORM GROUND LEASE (Parcel 5 of Parcel Map No. 17454 of
Business Park) (Portion of Parcel 8 of Parcel Map No. 15307) ("Short Form
Ground Lease") is made and entered into as of this __________ day of
____________, 19___ (but shall be deemed at all times mentioned herein and
for all purposes mentioned herein to relate back to August 6, 1982, the date
of recordation (as Instrument No. 82-795499) in the Official Records of the
Los Angeles County Recorder of that certain Short Form Ground Lease referred
to below (the "Master Short Form")), by and between City of Long Beach, a
municipal corporation ("City") and Long Beach Airport Business Park, a
California general partnership ("Developer"). This Short Form Ground Lease
and the Lease Agreement (Parcel 5 of Parcel Map No. 17454 of the Business
Park) (Portion of Parcel 8 of Parcel Map No. 15307) dated ____________, 19 __
(the "Ground Lease") evidenced by this Short Form Ground Lease have been
executed and delivered pursuant to Exhibit "E" to that certain Lease
Agreement dated April 23, 1981 between City and Developer (the "Master Ground
Lease") and pursuant to Exhibit "E" to that certain Lease Agreement between
City and Developer dated March 10, 1983 a short form of which was recorded on
May 13, 1983 as Instrument No. 83-539457 of the Official Records of the Los
Angeles County Recorder's Office (the "Mini-Master Ground Lease") in order to
substitute the terms, covenants, and provisions of the Ground Lease for those
of the Master Ground Lease and the Mini-Master Ground Lease, as required by
and in accordance with the Master Ground Lease and the Mini-Master Ground
Lease. The Ground Lease shall have the same priority of title as though
executed and delivered at the time of execution and delivery of the Master
Ground Lease on April 23, 1981 and as though this Short Form Ground Lease was
recorded concurrently with the Master Short Form.
R E C I T A L S
City does hereby lease and demise to Developer that certain real
property in the City of Long Beach, County of Los Angeles, State of
California, more particularly described in Exhibit "A" attached hereto and all
rights, privileges and easements appurtenant thereto ("Premises" herein)
pursuant to and upon all of the terms, covenants and provisions set forth in
the unrecorded Ground Lease, the terms, covenants and provisions of which are
hereby incorporated herein and made a part hereof by reference.
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EXHIBIT "J"
Building C
<PAGE>
NOW, THEREFORE, the parties hereby agree as follows:
1. The commencement date of the lease term is July 8, 1982.
2. The term of the Ground Lease shall continue for fifty (50)
years, subject to earlier termination as provided in the Ground Lease.
3. The Ground Lease grants to Developer the right to subdivide
the Premises and to divide the Ground Lease into two (2) or more leases, each
of which shall supplant the Ground Lease provided that any such new lease
(hereinafter "new lease") shall have the same priority of title as this Short
Form Ground Lease and all subleases entered into by Developer, as a
sublessor, shall be subject and subordinate thereto, to the extent affected
thereby. Any such division shall be effectuated by recordation of a new
short form ground lease as to each such new lease, which new short form
ground lease shall relate back to August 6, 1982 (the date on which the
Master Short Form was originally recorded) and recite that it has been
executed and recorded in order to substitute the terms, covenants and
provisions of the Master Ground Lease, the Mini-Master Ground Lease and the
Ground Lease, insofar as such new lease affects the real property demised by
the Ground Lease and to release and cancel the Ground Lease insofar as the
Ground Lease affects the real property demised by the said new lease,
evidenced by such new short form ground lease, all as provided for in
accordance with the terms and provisions of the Ground Lease.
4. This Short Form Ground Lease and the Ground Lease are and
shall be subject and subordinate to (1) that certain Maintenance Declaration
(Long Beach Airport Business Park) dated January 31, 1983 and recorded on
March 8, 1983 as Instrument No. 83-256290 in the Official Records of the Los
Angeles County, California Recorder and to (2) that certain Declaration of
Covenants, Conditions, and Restrictions dated January 31, 1983 and recorded
on March 9, 1983 as Instrument No. 83-262462 in the Official Records of the
Los Angeles County, California Recorder; provided, however, that Developer's
obligation to pay rent under the Ground Lease shall not be affected in any
way because of such subordinations.
5. City shall have the right to encumber its reversionary
interest in and to the real property demised by the Ground Lease and/or the
rentals and profits accruing under the Ground Lease provided that any such
encumbrance shall be subject and subordinate to any replacement ground lease
delivered to a "lender on the security of the leasehold estate" as defined in
and pursuant to Section 4.6 of the Ground Lease upon a termination or
cancellation of the Ground Lease, and to any new lease resulting from any
division of the Ground Lease described
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<PAGE>
in Paragraph 3 above and provided further that any such encumbrance requires,
by its terms, that the holder or beneficiary thereof agree to execute any
instrument reasonably required in order to subordinate the lien or charge
thereof to any such replacement lease or new leases or to any restriction,
encumbrance, dedication, Declaration, conveyance, lot split or other matter
executed or consented to by Landlord pursuant to Section 7.4.9 and/or
Paragraph 1 of Exhibit "E" of the Ground Lease and to execute any agreement
required by Section 5.2 of the Ground Lease by such holder or beneficiary.
6. Developer shall pay the real property taxes and assessments
against the Premises during the term hereof, as more specifically provided in
the Ground Lease.
7. Notwithstanding that the ownership of City's and Developer's
estates in and to the Premises may become vested in the same party for any
reason, no merger of Developer's leasehold estate into City's fee title shall
result or be deemed to result thereby, as provided in Section 4.8 of the
Ground Lease, provided that this provision shall not be deemed applicable to
a termination of Developer's leasehold estate by reason of Developer's
default or a taking under the power of eminent domain pursuant to the Ground
Lease, or otherwise pursuant to the terms of the Ground Lease.
8. The Ground Lease grants to Developer the right to enter upon
the Premises demised thereby for a period of sixty (60) days following the
expiration of the term of the Ground Lease in order to remove any or all of
the buildings and other improvements constructed upon said Premises by or
under Developer.
9. The Ground Lease grants to Developer the right to sell any
buildings from time to time constructed upon the premises, provided that such
buildings shall be and remain subject to the terms and conditions of the
Ground Lease and shall be used and developed only in accordance with the
Ground Lease.
IN WITNESS WHEREOF, the parties have executed this Short Form
Ground Lease as of the day and year first above written.
CITY OF LONG BEACH,
a municipal corporation
By:
-------------------------------------
John E. Dever, City Manager
"City"
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<PAGE>
LONG BEACH AIRPORT BUSINESS PARK,
a California general partnership
By: SIGNAL DEVELOPMENT CORPORATION,
a California corporation
(General Partner)
By:
---------------------------------
(Title)
By:
---------------------------------
(Title)
By: CARLTON BROWNE AND COMPANY,
INCORPORATED,
a California corporation,
(General Partner)
By:
---------------------------------
(Title)
By:
---------------------------------
(Title)
"Developer"
This Short Form Ground Lease is herby approved as to form this ________ day
of ______________, 198___.
John R. Calhoun, City Attorney
By:
---------------------------------
Roger P. Freeman, Deputy
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<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On ________________, 198___, before me, the undersigned, a Notary Public
in and for said State, personally appeared JOHN E. DEVER, personally known to
me to be the person who executed this instrument as CITY MANAGER of the City
of Long Beach, a municipal corporation and acknowledged to me that the
municipal corporation executed it.
WITNESS my hand and official seal.
SIGNATURE:
---------------------------
(SEAL)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On _________________, 198___, before me, the undersigned, a Notary
Public in and for said State, personally appeared _________________, and
_________________ personally known to me (or proved to me on the basis of
satisfactory evidence) to be the persons who executed the within instrument
as ___________ and _____________, respectively, of SIGNAL DEVELOPMENT
CORPORATION, the corporation that executed the within instrument, said
persons being known to me to be the persons who executed the within
instrument on behalf of said corporation, said corporation being known to me
to be one of the general partners of LONG BEACH AIRPORT BUSINESS PARK, the
general partnership that executed the within instrument and acknowledged to
me that such corporation executed the same both individually and as a general
partner of said general partnership and that such general partnership also
executed the same.
WITNESS my hand and official seal.
------------------------------
Notary Public
(SEAL)
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<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On ____________, 198___, before me, the undersigned, a Notary Public in
and for said State, personally appeared ____________, and ______________
personally known to me (or proved to me on the basis of satisfactory
evidence) to be the persons who executed the within instrument as
_____________ and ____________, respectively, of CARLTON BROWNE & COMPANY,
INCORPORATED, the corporation that executed the within instrument, said
persons being known to me to be the persons who executed the within
instrument on behalf of said corporation, said corporation being known to me
to be one of the general partners of LONG BEACH AIRPORT BUSINESS PARK, the
general partnership that executed the within instrument and acknowledged to
me that such corporation executed the same both individually and as a general
partner of said general partnership and that such general partnership also
executed the same.
WITNESS my hand and official seal.
------------------------------
Notary Public
(SEAL)
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<PAGE>
EXHIBIT 10.13
PARCEL "PA" LEASE
AND
LIMITED OPTION TO PURCHASE
by and between
THE ANAHEIM REDEVELOPMENT AGENCY
(Agency)
and
FIRST INTERSTATE MORTGAGE COMPANY
(Lessee)
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TABLE OF CONTENTS
PAGE
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I. [Section 100] SUBJECT 0F LEASE.............................. 1
A. [Section 101] Purpose of the Lease; Lease Appurtenant
to Adjacent Property......................... 1
B. [Section 102] The Redevelopment Plan........................ 1
C. [Section 103] The Parking Facility; the Retail Space;
and the Post Office.......................... 2
D. [Section 104] Access Easement/Lot Line Adjustment........... 3
E. [Section l05] Parties to the Lease.......................... 4
1. [Section l06] Agency........................................ 4
2. [Section l07] Lessee........................................ 4
II. [Section 200] LEASE OF THE PARKING FACILITY................. 4
A. [Section 201] Lease......................................... 4
B. [Section 202] Term of the Lease............................. 4
C. [Section 203] Memorandum of Lease........................... 5
III. [Section 300] RENT.......................................... 5
A. [Section 301] Annual Rent for the Parking Facility.......... 5
l. [Section 302] First Eighteen Lease Years of Term............ 5
2. [Section 303] Final Twenty-Five Lease Years of Term......... 5
3. [Section 304] Payment of Fixed Annual Rent-Parking Facility. 7
B. [Section 305] Additional Rent for the Parking Facility...... 7
C. [Section 306] Additional Rent vis Associations.............. 8
D. [Section 307] Net Lease..................................... 9
E. [Section 308] Delinquency in Rental Payment; Collection
of Rents..................................... 10
IV. [Section 400] USE AND OPERATION OF THE PARKING FACILITY..... 11
A. [Section 401] Use of the Parking Facility................... 11
B. [Section 402] Management of the Parking Facility............ 11
C. [Section 403] Limitations on Use of the Parking Facility.... 12
1. [Section 404] Cancellation of Insurance; Increase in
Insurance Rates.............................. 12
2. [Section 405] Compliance with Laws.......................... 13
3. [Section 406] Waste; Nuisance............................... 13
4. [Section 407] Overloading................................... 13
D. [Section 408] Obligation to Refrain from Discrimination..... 13
E. [Section 409] Form of Nondiscrimination and Nonsegregation
Clauses...................................... 14
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F. [Section 410] Rights of Access - Public Improvements
and Facilities............................... 15
G. [Section 411] Quiet Enjoyment............................... 15
H. [Section 412] Subject to Reciprocal Easement Agreement...... 15
I. [Section 413] Use of the Parking Facility by the Public
and Community Groups Without Charge.......... 16
J. [Section 414] Expansion of the Parking Facility............. 16
V. [Section 500] TAXES, ASSESSMENTS AND OTHER CHARGES.......... 17
A. [Section 501] Utilities..................................... 17
B. [Section 502] Impositions (Including Taxes and Assessments). 17
1. [Section 503] Payment Generally............................. 17
2. [Section 504] Payment of Impositions in Installments........ 18
3. [Section 505] Agency Right to Cure.......................... 18
4. [Section 506] Tax Receipts.................................. 19
5. [Section 507] Limits of Tax Liability....................... 19
6. [Section 508] Permitted Contests............................ 19
7. [Section 509] Notice of Possessory Interest; Payment
of Taxes and Assessments on Value of
Entire Property.............................. 20
C. [Section 510] Other Liens................................... 21
VI. [Section 600] MAINTENANCE................................... 21
A. [Section 601] Maintenance and Repair of Improvements........ 21
B. [Section 602] Accounting for Maintenance Costs.............. 23
VII. [Section 700] ALTERATION OF PARKING FACILITY................ 23
VIII. [Section 800] DAMAGE OR DESTRUCTION......................... 24
A. [Section 801] Duty to Restore or Rebuild.................... 24
B. [Section 802] Existing Condition; Construction Performance
and Labor and Material (Payment) Bonds;
Indemnification.............................. 25
C. [Section 803] Exceptions to Duty to Restore................. 26
D. [Section 804] Provision of Alternate Parking................ 27
IX. [Section 900] ASSIGNMENT, SUBLETTING, TRANSFER
AND ENCUMBRANCE.............................. 28
A. [Section 901] Prohibition Against Voluntary Assignment,
Subletting, and Encumbering; No Fee
Subordination by Agency...................... 28
B. [Section 902] Leasing of Retail Space....................... 30
C. [Section 903] Involuntary Assignment........................ 30
X. [Section 1000] INDEMNIFICATION AND INSURANCE................. 31
A. [Section 1001] Indemnification............................... 31
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PAGE
----
B. [Section 1002] Required Insurance............................ 32
C. [Section 1003] Definition of "Full Insurable Value".......... 33
D. [Section 1004] General Insurance Provisions.................. 34
E. [Section 1005] Failure to Maintain Insurance................. 35
F. [Section 1006] Disposition of Insurance Proceeds Resulting
from Loss or Damage to Improvements.......... 36
XI. [Section 1100] EMINENT DOMAIN................................ 36
A. [Section 1101] Definitions vis Takings....................... 36
B. [Section 1102] Parties Rights and Obligations to be Governed
by Lease..................................... 37
C. [Section 1103] Total Taking.................................. 37
D. [Section 1104] Partial Taking................................ 37
E. [Section 1105] Effect on Fixed Annual Rent-Parking Facility.. 37
F. [Section 1106] Waiver of CCP Section 1265.130................ 38
G. [Section 1107] Restoration of Premises....................... 38
H. [Section 1108] Temporary Abatement........................... 38
I. [Section 1109] Award - Distribution.......................... 38
XII. [Section 1200] DEFAULTS, REMEDIES AND TERMINATION............ 39
A. [Section 1201] Defaults - General............................ 39
B. [Section 1202] Legal Actions................................. 39
l. [Section 1203] Institution of Legal Actions.................. 39
2. [Section 1204] Applicable Law................................ 39
3. [Section 1205] Acceptance of Service of Process.............. 39
4. [Section 1206] Attorney's Fees and Court Costs............... 40
C. [Section 1207] Rights and Remedies are Cumulative............ 40
D. [Section 1208] Damages....................................... 40
E. [Section 1209] Specific Performance.......................... 40
F. [Section 1210] Additional Remedies of Agency................. 41
G. [Section 1211] Remedies and Rights of Termination............ 42
H. [Section 1212] Enforced Delay in Performance for Causes
Beyond Control of Party...................... 44
I. [Section 1213] Remedies and Rights of Termination by Lessee.. 44
XIII. [Section 1300] OPTION TO PURCHASE............................ 45
A. [Section 1301] Grant of Option............................... 45
B. [Section 1302] Term of Option................................ 45
C. [Section 1303] Option Price.................................. 45
D. [Section 1304] Condition of Title............................ 46
E. [Section 1305] Exercise of Option............................ 47
F. [Section 1306] Automatic Termination of Option............... 47
G. [Section 1307] Assignment or Encumbrance of Option........... 47
XIV. [Section 1400] GENERAL PROVISIONS............................ 48
A. [Section 1401] Notices, Demands and Communications between
the Parties.................................. 48
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PAGE
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B. [Section 1402] Time of Essence............................... 48
C. [Section l403] Conflict of Interests......................... 48
D. [Section 1404] Nonliability of Agency Officials
and Employees................................ 48
E. [Section 1405] Inspection of Books and Records............... 48
F. [Section 1406] No Partnership................................ 49
G. [Section 1407] Compliance with Law........................... 49
H. [Section 1408] Surrender of Property......................... 49
I. [Section 1409] Severability.................................. 49
J. [Section 1410] Binding Effect................................ 50
K. [Section 1411] Captions...................................... 50
L. [Section 1412] Approvals..................................... 50
M. [Section 1413] Certain Definitions........................... 50
N. [Section 1414] Dispute Resolution............................ 51
XV. [Section 1500] ENTIRE AGREEMENT, WAIVERS AND AMENDMENTS...... 51
ATTACHMENTS:
1 - Legal Description of the Office Building Parcel
2 - Plan Indicating the "Excess Area"
3A - Form of Assumption by Assignee
3B - Form of Assumption by Encumbrancer
4 - List of Approved Uses of Retail Space
5 - Form of Notice of Exercise of Option
6 - Form of Quitclaim Deed
7 - Arbitration Rider
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<PAGE>
LEASE
AND
LIMITED OPTION TO PURCHASE
THIS LEASE AND LIMITED OPTION TO PURCHASE (the "Lease") is made by and
between the ANAHEIM REDEVELOPMENT AGENCY, a public body, corporate and
politic ("Agency"), and FIRST INTERSTATE MORTGAGE COMPANY, a California
corporation ("Lessee").
I. [Section 100] SUBJECT OF LEASE
A. [Section 101] PURPOSE OF THE LEASE; LEASE APPURTENANT TO ADJACENT
PROPERTY
The purpose of this Lease is to provide for the lease to Lessee of the
hereinafter defined Parking Facility, excluding the Retail Space (as defined
in Section 103 below), for the use of the tenants and other occupants of, and
visitors to, the office building located at 222 South Harbor Boulevard,
Anaheim, California (the "Office Building"). The lease of the Parking
Facility, and the fulfillment generally of this Lease, are consistent with
and are in furtherance of the safety, morals, and welfare of the residents of
the City of Anaheim, and are in accord with the public purposes and
provisions of applicable federal, state and local laws and requirements.
That certain real property on which the Office Building is situated
("Acquisition Parcel 'A'") is legally described in Attachment No. 1 attached
hereto and incorporated herein by reference. This Lease is appurtenant to
Acquisition Parcel "A"; there shall be, at all times during the term of this
Lease, even identity between the owner of fee title to Acquisition Parcel "A"
and Lessee; and this Lease shall be terminable by Agency in the event the
Office Building is Abandoned or is no longer used for Office Purposes, as
those terms are defined in Section 1413 below.
B. [Section 102] THE REDEVELOPMENT PLAN
This Lease is made in accordance with and subject to the Redevelopment
Plan for Redevelopment Project Alpha (the "Redevelopment Plan") which was
approved and adopted by the City Council of the City of Anaheim by Ordinance
No. 3190 on July 19, 1973. The Redevelopment Plan was amended by a First
Amendment to the Redevelopment Plan adopted by the City Council on July 20,
1976 by Ordinance No. 3567, again amended by a Second Amendment to the
Redevelopment Plan adopted by the City Council on November 30, 1976 by
Ordinance No. 3631, and further amended by a Third Amendment to the
Redevelopment Plan adopted by the City Council on January 12,
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<PAGE>
1982 by Ordinance No. 4300. Said Ordinances and Redevelopment Plan, as
amended, are incorporated herein by reference and made a part hereof as
though fully set forth herein.
C. [Section 103] THE PARKING FACILITY; THE RETAIL SPACE; AND THE
POST OFFICE
The "Parking Facility" is that certain parking garage containing 679
parking spaces and bank drive-through tellers, all located in the airspace
(herein, the "Parking Parcel") shown as Parcel 1 on Parcel Map No. 86-142 in
the City of Anaheim, County of Orange, State of California (the "Parcel
Map"). The "Retail Space" is that certain retail space of approximately
6,000 gross square feet located in the same structure as the Parking Facility
but in the airspace shown as Parcel 8 on the Parcel Map. The "Additional
Retail Space" is retail space which may in the future be constructed in the
airspace shown as Parcel 9 and/or Parcel 10 on the Parcel Map. The Parking
Facility currently includes portions of Parcels 9 and 10 as shown on the
Parcel Map, and in the event of the construction of all of the Additional
Retail Space, a total of 19 parking spaces currently located in the Parking
Facility would be lost. The "Post Office" is that certain intended
improvement to be located on that certain parcel of land ("Acquisition Parcel
'8B'") located at the northwest corner of Broadway and Clementine Street,
which parcel is adjacent to and easterly of the easterly end of the Parking
Facility, and which improvement is anticipated will be leased to the United
States of America for use as a U.S. Postal Service branch.
This Lease confers no rights with regard to the airspace above the
Parking Facility, nor in the Retail Space or the Post Office.
Of the 679 parking spaces currently located in the Parking Facility,
Agency reserves the right to use of 26 spaces on a non-reserved, non-
designated basis for employees of tenants in the Retail Space and the
Post Office. Lessee shall cause monthly parking privilege passes (in such
form as Lessee or its parking operator may prescribe from time to time) for
as many of said 26 spaces as may be requested by Agency or its property
manager for the Retail Space to be issued, without additional charge, to
employees of tenants in the Retail Space and the Post Office. Each holder of
such a pass shall, as a condition to the continued right to use the same,
comply with all applicable parking rules and regulations reasonably imposed
on a non-discriminatory basis upon the users of the Parking Facility from
time to time by Lessee or its parking operator. In addition, Lessee shall
issue, without additional charge, validations (in such form as Lessee may
determine from time to time) for distribution to the patrons of the Retail
Space and the Post Office for 1,032 hours of transient
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parking each month (or for 1,239 hours per month during any period in which
fees for parking in the Parking Facility are collected from the public 6 days
a week, or for 1,445 hours per month during any period in which such fees are
collected 7 days a week), the same being agreed to be the equivalent of full
time use of 6 parking spaces. The validations shall be in 20-minute
increments.
In view of the forgoing, it is understood and agreed that there are
effectively available to Lessee, for its own purposes as contemplated herein,
only 647 of the parking spaces currently located in the Parking facility. In
the event that all of the Additional Retail Space is constructed, Lessee
would have the effective use of only 628 of the parking spaces currently
located in the Parking Facility. However, in no event and at no time shall
Lessee have the right to use fewer parking spaces than are then required by
law for the use and occupancy of the entire Office Building for professional
and general office use, with financial institution and/or retail usage of the
ground floor space.
D. [Section 104] ACCESS EASEMENT/LOT LINE ADJUSTMENT
Lessee acknowledges that the Parking Parcel extends easterly beyond the
easterly end of the Parking Facility by approximately 18 feet, more or less.
The portion of the Parking Parcel lying easterly of the most easterly limit
of the Parking Facility (such portion being herein referred to as the "Excess
Area") is shown as the hatch-marked area on the drawing attached hereto as
Attachment No. 2. Lessee agrees that it does not require the use of the
Excess Area in connection with the normal use and operation of the Parking
Facility; however, both Agency and Lessee acknowledge and agree that Lessee
may require the occasional right of access to and use of the Excess Area for
purposes of maintaining the exterior of the easterly portion of the Parking
Facility and other similarly occasional needs, including the erection of such
temporary scaffolding as may be appropriate under the circumstances.
Accordingly, Lessee hereby consents to a lot line adjustment or other the
realignment of the boundary line between the Parking Parcel and Acquisition
Parcel "8B" the effect of which is to move that boundary line to any point
between its current position and the most easterly extension of the Parking
Facility, PROVIDED that an easement is retained over the Excess Area in form
and content reasonably acceptable to Lessee. Alternatively, Lessee hereby
consents to the granting of a non-exclusive easement for ingress and egress
over the Excess Area for the benefit of the holder from time to time of
Acquisition Parcel "8B", PROVIDED that Lessee reasonably approves the form
and content of the same as not conflicting with Lessee's occasional need to
gain access to and use the Excess Space.
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E. [Section 105] PARTIES TO THE LEASE
1. [Section 106] AGENCY
Agency is a public body, corporate and politic, exercising governmental
functions and powers and organized and existing under the Community
Redevelopment Law of the State of California.
The principal office of Agency is located at 200 South Anaheim
Boulevard, Anaheim, California 92805.
"Agency," as used in this Lease, includes the Anaheim Redevelopment
Agency and any assignee of or successor to its rights, powers and
responsibilities.
2. [Section 107] LESSEE
Lessee is First Interstate Mortgage Company, a California corporation,
or its assignee.
For the purpose of this Lease, the office of Lessee is located at 633
West Fifth Street, 10th Floor, Los Angeles, California 90071.
II. [Section 200] LEASE OF THE PARKING FACILITY
A. [Section 201] LEASE
For and in consideration of the payment of rents and the performance of
all the conditions, covenants and agreements set forth herein, Agency hereby
leases the Parking Facility to Lessee and Lessee does hereby take and lease
the Parking Facility from Agency.
B. [Section 202] TERM OF THE LEASE
The term of this Lease (the "Term") shall be the period commencing as
of July 1, 1991 (the "Commencement Date"), and expiring June 30, 2034, or on
the date resulting from an earlier termination as hereinafter set forth.
Agency may terminate this Lease in the event the Office Building is Abandoned
or no longer used for Office Purposes, if, after ninety (90) days' written
notice to Lessee of Lessor's intent to terminate this Lease for that reason,
the Office Building remains abandoned or it continues not to be used for
Office Purposes. The Commencement Date shall be memorialized by Lessee
signing and dating a memorandum acknowledging receipt of delivery of this
Lease.
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The Term, only for purposes of determination of rent and for reference
to certain specific parts of the Term, shall be divided into forty-three (43)
"Lease Years." Each Lease Year shall be a consecutive twelve (12) month
period from July 1 through June 30 immediately following the preceding Lease
Year. Lease Year 1 shall commence on July 1, 1991.
C. [Section 203] MEMORANDUM OF LEASE
The parties hereto shall execute and cause to recorded in the Official
Records of Orange County, California a sufficient memorandum of this Lease to
place all third parties on constructive notice hereof.
III. [Section 300] RENT
A. [Section 301] ANNUAL RENT FOR THE PARKING FACILITY
1. [Section 302] FIRST EIGHTEEN LEASE YEARS OF TERM
For the first eighteen (18) Lease Years of the Term, Lessee covenants
and agrees to pay to Agency, at Agency's address set forth in Section 106
hereof or at such place or to such person as Agency may designate in writing
by notice to Lessee, in such coin or currency of the United States as shall
at the time of payment be legal tender far the payment of all debts, public
or private, fixed annual rental for the Parking Facility (hereinafter
referred to as the "Fixed Annual Rent-Parking Facility") pursuant to the
following schedule:
Fixed Annual Rent
Lease Year (Per Lease Year)
---------- -----------------
1-3, inclusive 7/1/91 - 6/30/94 $ 63,842.00
4-8, inclusive 7/1/94 - 6/30/99 $128,706.00
9-13, inclusive 7/1/99 - 6/30/04 $l73,753.00
14-18, inclusive 7/1/04 - 6/30/09 $234,506.00
2. [Section 303] FINAL TWENTY-FIVE LEASE YEARS OF TERM
The Fixed Annual Rent-Parking Facility for Lease Years 19 through 43,
inclusive, shall be determined by an appraisal process every five (5) Lease
Years. The quinquennial appraisal process shall commence three (3) months
prior to expiration of the preceding five (5) Lease Year period and shall
proceed as follows:
a. STEP NO. 1 - Agency and Lessee shall attempt to agree on the
Fixed Annual Rent-Parking Facility for the succeeding five (5) Lease Year
period. For such attempt, Agency and
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Lessee shall use the same approach as would the appraiser(s) pursuant to Step
No. 4 below. If Agency and Lessee cannot agree on the Fixed Annual Rent-
Parking Facility for the succeeding five (5) Lease Years within ten (10) days,
then Agency and Lessee shall proceed to Step No. 2.
b. STEP NO. 2 - The Executive Director of Agency or his designee
and Lessee shall attempt to agree on an M.A.I. appraiser within ten (10)
days. If the Executive Director of Agency or his designee and Lessee agree
on an M.A.I. appraiser within ten (10) days, then the fee of said appraiser
shall be borne equally by the parties and Agency and Lessee shall proceed to
Step No. 4. If the Executive Director of Agency or his designee and Lessee
do not agree on an M.A.I. appraiser within ten (10) days, then Agency and
Lessee shall proceed to Step No. 3.
c. STEP NO. 3 - The Executive Director of Agency or his designee
and Lessee shall each appoint, at their own cost and expense, an M.A.I.
appraiser within ten (10) days. Within ten (10) days of their selection, the
two (2) M.A.I. appraisers shall select a third M.A.I. appraiser. If the two
(2) M.A.I. appraisers cannot agree on a third, then the Executive Director of
Agency or his designee or Lessee may apply to the Presiding Judge of the
Superior Court of Orange County for the appointment of a third. The fee of
the third appraiser shall be borne equally by Agency and Lessee.
d. STEP NO. 4 - The M.A.I. appraiser(s) shall be instructed to
ascertain, to the best of his or her ability, the average gross receipts per
parking stall per year realized by owners and operators of comparable parking
structures that were constructed without benefit of government subsidies,
land write-down, etc., and that are located within a radius of ten (10) miles
of the Parking Facility. The appraiser(s) is (are) to include gross receipts
from parking only I.E., transient, daily, weekly, monthly parking charges)
and not from ancillary services such as food or car care concessions. The
appraiser(s) shall report his (her) (their) findings within thirty (30) days.
If three (3) appraisers have been hired, then the average gross receipts per
parking stall per year shall be the median of the three (3) findings.
The Fixed Annual Rent-Parking Facility for Lease Years 19 through 23,
inclusive, shall be the greater of: (a) $234,506.00, or (b) the product of
multiplying the average gross receipts per parking stall per year as
determined by the appraiser(s) by six hundred forty-seven (647) (or by such
lesser number of parking spaces in the Parking Facility effectively available
to Lessee if all or any portion of the Additional Retail Space has been
constructed). However, in no event shall the Fixed Annual Rent-Parking
Facility for Lease Years 19 through 23, inclusive, be more
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than $304,858.00, which represents an increase of thirty percent (30%) over
the Fixed Annual Rent-Parking Facility for the immediately preceding five (5)
Lease Year period. For each five (5) Lease Year period thereafter, the Fixed
Annual Rent-Parking Facility shall be the greater of: (a) the Fixed Annual
Rent-Parking Facility for the immediately preceding five (5) Lease Year
period, or (b) the product of multiplying the average gross receipts per
parking stall per year as then determined by the appraiser(s) by six hundred
forty-seven (647) (or by such lesser number of parking spaces in the Parking
Facility effectively available to Lessee if all or any portion of the
Additional Retail Space has been constructed). However, in no event shall
the Fixed Annual Rent-Parking Facility for any succeeding five (5) Lease Year
period be more than one hundred thirty percent (130%) of the Fixed Annual
Rent-Parking Facility for the immediately preceding five (5) Lease Year
period.
3. [Section 304] PAYMENT OF FIXED ANNUAL RENT-PARKING FACILITY
The Fixed Annual Rent-Parking Facility shall be paid in advance in
twelve (12) equal monthly rental payments by the first day of each month each
Lease Year.
B. [Section 305] ADDITIONAL RENT FOR THE PARKING FACILITY
Lessee shall pay to Agency as additional rent ("Additional Rent") an
amount equal to fifty percent (50%) of the Net Transient Income received by
Lessee from the operation of the Parking Facility. As used herein, "Net
Transient Income" shall mean the following:
(i) Gross receipts (Gross Revenue) from parking by transient users
(I.E., users paying on a daily or shorter basis), excluding any revenues
from ancillary services, such as food or car care concessions; LESS
(ii) All costs ("Operating Costs") incurred by Lessee in connection
with operating, maintaining, repairing and preserving the Parking Facility
to the full extent imposed upon Lessee under the terms of this Lease; and
ALSO LESS
(iii) The Fixed Annual Rent-Parking Facility paid by Lessee with
respect to the Lease Year in question.
Within sixty (60) days following the end of each calendar year, Lessee
shall submit to Agency a statement ("Lessee's Statement") in reasonable
detail showing Gross Revenues, Operating Costs, Fixed Annual Rent-Parking
Facility paid, and the resulting Net Transient Income. Each Lessee's
Statement shall be signed and
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certified to be true and complete by a responsible financial officer of
Lessee. Lessee shall keep full and accurate books, accounts, records, cash
receipts, and other pertinent data showing Lessee's financial operations with
respect to the Parking Facility, and shall maintain the same for a period of
four (4) years after the end of the calendar year to which the same pertain.
Agency shall be entitled during that four (4) year period, upon reasonable
notice as provided in Section 1405 below and during Lessee's normal business
hours, to inspect, examine and copy, at Agency's expense, Lessee's books,
accounts, records, cash receipts and other pertinent data as necessary or
appropriate for the purposes of this Lease. Lessee shall cooperate fully,
but without expense to it, in Agency's making the inspection and copies.
Agency shall also be entitled, at Agency's expense, once during each
calendar year, to cause an independent audit of Lessee's books, accounts,
records, cash receipts, and other pertinent data for any calendar year within
the previous four (4) years which has not theretofore been audited, by a firm
of certified public accountants to be selected by Agency and reasonably
approved by Lessee. It is specifically agreed that any one of the "big six"
accounting firms, or their successors, or the accounting firm which has most
recently performed the annual audit for the City of Anaheim or Agency, shall
be acceptable to Lessee, but it is acknowledged that the firm of certified
public accountants chosen need not come from within that group so long as the
firm chosen meets with Lessee's reasonable approval. Any such audit shall be
conducted during Lessee's normal business hours. If the audit shows that
there is a deficiency in the payment of Additional Rent, the deficiency shall
become immediately due and payable to Agency plus interest on such deficiency
at the rate specified in Section 308 below. If the deficiency in Additional
Rent with respect to any calendar year exceeds Three Thousand, Five Hundred
Dollars ($3,500.00) and is also greater than two percent (2%) of the total
Addition Rent for that calendar year, then Lessee shall reimburse Agency for
the cost of Agency's audit. If Agency has not audited Lessee hereunder with
respect to a particular calendar year within the specified four (4) year
period, or if Agency has not advised Lessee in writing of any exceptions
based upon such an audit within that four (4) year period, then Agency shall
be deemed to have waived its right to redetermine the Additional Rent under
this Section 305 for that calendar year.
C. [SECTION 306] ADDITIONAL RENT VIS ASSOCIATIONS
Pursuant to that certain Grant of Reciprocal Easements and Declaration
of Conditions, Restrictions and Covenants Running with the Land for Parcel
"PA/PC/G" Parking Garage (the "REA") recorded on April 4, 1989, as Instrument
No. 89-173893 in the Official Records of Orange County, California, Agency,
as owner of Parking
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Acquisition Parcel "PA" (which includes the Parking Parcel, as defined in
Section 104 hereof), is obligated to become a member of an association of
owners which, under the circumstances specified in the REA, will be
responsible, among other things, for various costs and expenses relating to
the Parking Facility. As a member of said association, when formed, Agency
will be obligated to contribute a portion of its costs and expenses. In
addition, Agency has caused Parking Acquisition Parcel "PA" to be annexed to
that certain Declaration of Covenants, Conditions, Restrictions and Easements
for Anaheim Center (the "CC&Rs") recorded on March 13, 1990, as Instrument
No. 91-246941 in the Official Records of Orange County, California, as
amended by that certain First Amendment thereto recorded on May 20, 1991, as
Instrument No. 91-246941 in the Official Records of Orange County,
California. Pursuant to the CC&Rs, Agency, as owner of Parking Acquisition
Parcel "PA", will become a member of another association, when formed, which
association will be responsible (among other things) for various costs and
expenses relating to the common areas within the properties subject to the
CC&Rs. As a member of that association, Agency will also be obligated to
contribute a portion of its costs and expenses. During the Term of this
Lease, Lessee shall pay, also as Additional Rent, any periodic and irregular
dues, costs, expenses, and regular and special assessments payable by Agency
to the associations contemplated in the REA and in the CC&Rs assessed after
the date hereof by reason of, but only by reason of, Agency's ownership of
the Parking Facility, it being expressly understood and agreed that Lessee
shall have no responsibility for any such items incurred by Agency with
respect to any other property, including but not limited to the Retail Space
and Acquisition Parcel "PC/G", the latter being the airspace parcel shown as
Parcel 11 on the Parcel Map. It is also understood that the foregoing shall
not apply to any amount assessed to or paid by Agency under the REA or the
CC&Rs prior to the execution of this Lease by Lessee and Agency; nor shall it
apply to any art assessment fee, or other fee or charge of any nature
measured by the cost or value of improvements on Agency's property, nor to
any development or other fee or charge relating to the installation of new
improvements (as distinguished from the repair or replacement of existing
improvements). The Additional Rent shall be due and payable to Agency at
such time as said payment of periodic and irregular dues, fees, charges,
costs, expenses, and regular and special assessments must be paid by Agency
to the respective association, but in no event less than 20 days after
receipt by Lessee from Agency of notice of the same.
D. [Section 307] NET LEASE
Agency and Lessee agree that Fixed Annual Rent-Parking Facility,
Additional Rent and all other sums of whatever kind and nature payable
hereunder to or on behalf of Agency, shall be paid
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without notice or demand (except as provided in Section 306 above with
respect to Additional Rent), and without setoff, counterclaim, abatement,
deferment, suspension, deduction or defense except as otherwise expressly
provided by the terms of this Lease.
E. [Section 308] DELINQUENCY IN RENTAL PAYMENT; COLLECTION OF RENTS
The failure of Lessee to pay the applicable rents by the due date shall
constitute a default. In the event Lessee fails to pay the applicable rents
on or before the due date, in addition to any other remedy provided by this
Lease, Lessee shall pay Agency the delinquent rent and interest on the total
delinquent rent at the rate of two percent (2%) over the Bank of America
reference rate on the due date, from the date of first delinquency. Said
interest shall accrue from the due date of the rent to the date the rent is
received by Agency. It is the intent of this provision that Agency shall be
compensated by such additional sums for loss resulting from rental delinquency,
including costs to Agency for servicing the delinquent account.
Lessee acknowledges that if any payment required under this Lease is
not paid when the same becomes due and payable, Agency will incur extra
administrative expenses (I.E., in addition to expenses incident to receipt of
timely payment) and the loss of the use of funds in connection with the
delinquency in payment. Because, from the nature of the case, the actual
damages suffered by Agency by reason of such extra administrative expenses
and loss of use of funds would be impracticable or extremely difficult to
ascertain, Lessee agrees that five percent (5%) of the amount of the
delinquent payment shall be the amount of damages to which Agency is
entitled, upon such breach, in compensation therefor. Therefore, Lessee
shall, in such event, without further notice, pay to Agency as the sole
monetary recovery to Agency to cover such extra administrative expenses and
loss of use of funds, liquidated damages in the amount of five percent (5%)
of the amount of such delinquent payment. The provisions of this paragraph
are intended to govern only the determination of damages in the event of a
breach in the performance of the obligation of Lessee to make timely payments
hereunder. Nothing in this Lease shall be construed as an express or implied
agreement by Agency to forbear in the collection of any delinquent payment,
or be construed as in any way giving Lessee the right, express or implied, to
fail to make timely payments hereunder, whether upon payment of such damages
or otherwise. The right of Agency to receive payment of such liquidation and
actual damages, and receipt therefor, are without prejudice to the right of
Agency to collect such delinquent payments and any other amounts provided to
be paid hereunder. If any suit or arbitration is instituted to enforced this
Lease, the prevailing party shall receive, in
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addition to its costs allowed by law, reasonable attorneys' fees in such suit
or action.
In case of default in payment of any part of the rents hereunder,
Agency shall have the privilege of separating its causes of action so as to
permit the institution of a separate suit or arbitration for the Fixed Annual
Rent-Parking Facility or the Additional Rent, and neither the institution of
any such suit, nor the entry of judgment therein for one, shall bar Agency
from bringing a subsequent suit for the others; it being the purpose of this
Lease expressly to provide that forbearance on the part of Agency in the
institution of any suit or in the entry of judgment for any part of the rent,
or to sue for, or to include in any such judgment the other rent then due,
shall in no way serve as a defense against, nor prejudice a subsequent action
for, such other rent. Lessee waives any right to claim a merger of such a
suit for other rent in any previous suit or in the judgment entered therein.
The claims for Fixed Annual Rent-Parking Facility and Additional Rent may be
regarded by Agency, if it so elects, as separate claims.
IV. [Section 400] USE AND OPERATION OF THE PARKING FACILITY
A. [Section 401] USE OF THE PARKING FACILITY
Lessee shall have the right and Lessee covenants and agrees to use the
Parking Facility only (except with the Agency's prior written consent) as a
commercial parking structure to provide parking for tenants and other
occupants of, and visitors to, the Office Building. Lessee may devote that
portion of the Parking Facility designed for use as a bank drive-through
teller to such use.
B. [Section 402] MANAGEMENT OF THE PARKING FACILITY
Lessee may hire an experienced, reputable third party commercial
parking lot operator to operate the Parking Facility in a prudent and
business-like manner. Alternatively, Lessee may elect to operate the Parking
Facility itself, through such employees or agents as Lessee may determine;
provided that in such event, if Agency believes that the Parking Facility is
not being properly operated by Lessee in accordance with typical professional
standards for the operation of similar facilities in the downtown areas of
Anaheim and the City of Orange, Agency may serve notice upon Lessee
specifying with particularity the respects in which Agency believes that the
operation is deficient; and if within thirty (30) days after Lessee's receipt
of Agency's notice, the deficiencies have not, in Agency's reasonable judg-
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ment, been remedied then, at Agency's request, the matter shall be submitted
to arbitration, the result of which may be a determination by the arbitrator
that either: (a) Lessee's operation of the Parking Facility is deficient, in
which case the arbitrator shall determine whether Lessee shall (i) make
specific corrections to its operating procedures, or (ii) retain a third
party commercial parking lot operator to operate the Parking Facility; or (b)
that Lessee's operation of the Parking Facility is adequate and appropriate
under the circumstances. The identity of any third party operator of the
Parking Facility, and the terms of any contract by and between Lessee and the
operator, shall be subject to the prior written approval of the Executive
Director of Agency, not to be unreasonably withheld or delayed. Failure of
the Executive Director of Agency to approve or disapprove of the identity of
the operator or any contract submitted to Agency in accordance with the
foregoing within 10 days after receipt by Agency thereof, shall be deemed an
approval, provided that the notice to Agency conspicuously indicates that the
failure to respond within the 10-day period shall be deemed an approval.
Lessee and the operator shall continuously use the Parking Facility for
the uses specified in this Lease and shall continuously operate the Parking
Facility during all usual business hours.
C. [Section 403] LIMITATIONS ON USE OF THE PARKING FACILITY
Lessee's use of the Parking Facility as provided in this Lease shall be
in accordance with the following:
l. [Section 404] CANCELLATION OF INSURANCE; INCREASE IN INSURANCE RATES
In the event Agency is required by the terms of this Lease to carry any
insurance covering the Parking Facility, Lessee shall not do, bring or keep
anything in or about the Parking Facility that will cause a cancellation of
any insurance covering the structure of which they are a part.
If the rate of any insurance required to be carried by Agency is
increased as a result of Lessee's use, Lessee shall pay to Agency within ten
(10) days before the date Agency is obligated to pay a premium on the
insurance, or within ten (10) days after Agency delivers to Lessee a
certified statement from Agency's insurance carrier stating that the rate
increase was caused solely by an activity of Lessee on the premises as
permitted in this Lease, whichever date is later, a sum equal to the
difference between the original premium and the increased premium.
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2. [Section 405] COMPLIANCE WITH LAWS
Lessee shall comply with all laws concerning the premises or Lessee's
use of the premises, including, without limitation, the obligation at
Lessee's cost to alter, maintain, or restore the premises in compliance and
conformity with all laws relating to the condition, use or occupancy of the
premises during the Term; except that the foregoing shall not be deemed to
apply to nor to include any alteration or improvement required in connection
with the Expansion (as defined in Section 414 below), and Agency hereby
indemnifies Lessee against, and shall hold Lessee harmless from, any and all
cost, liability or obligation of any nature in connection with the Expansion
and in connection with the use, operation and maintenance of the expanded
area. Lessee hereby indemnifies Agency and any third party owner of the
Expansion against, and shall hold each of them harmless from, any and all
cost, liability or obligation of any nature in connection with the use,
operation and maintenance of the Parking Facility except as and to the extent
otherwise contemplated in this Lease.
3. [Section 406] WASTE; NUISANCE
Lessee shall not use the premises in any manner that will constitute
waste, nuisance, or unreasonable annoyance (including, without limitation,
the use of loudspeakers or sound or light apparatus that can be heard or seen
outside the premises to owners or occupants of adjacent properties).
4. [Section 407] OVERLOADING
Lessee shall not do anything on the premises that will cause damage to
the premises.
The premises shall not be overloaded. No machinery, apparatus, or
other appliance shall be used or operated in or on the premises that will in
any manner injure, abnormally vibrate or shake the premises.
D. [Section 408] OBLIGATION TO REFRAIN FROM DISCRIMINATION
There shall be no discrimination against or segregation of any person,
or group of persons, on account of sex, marital status, race, color, creed,
religion, national origin or ancestry in the sale, lease, sublease, transfer,
use, occupancy, tenure or enjoyment of the premises or the improvements, and
neither Lessee itself nor any person claiming under or through it shall not
establish or permit any such practice or practices of discrimination, or
segregation with reference to the selection, location, number, use or
occupancy of tenants, lessees, subtenants, sublessees, or vendees of the
premises or any portion thereof.
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E. [Section 409] FORM OF NONDISCRIMINATION AND NONSEGREGATION CLAUSES
Lessee shall refrain from restricting the rental, sale or lease of the
premises or improvements thereon, or any portion thereof, on the basis of
sex, marital status, race, color, creed, religion, ancestry or national
origin of any person. All deeds, leases or contracts pertaining to the
foregoing matters shall contain or be subject to substantially the following
nondiscrimination or nonsegregation clauses:
l. In deeds: "The grantee herein covenants by and for itself, its
heirs, executors, administrators and assigns, and all persons claiming under
or through it, that there shall be no discrimination against or segregation
of, any person or group of persons on account of sex, marital status, race,
color, creed, religion, national origin or ancestry in the sale, lease,
sublease, transfer, use, occupancy, tenure or enjoyment of the land herein
conveyed, nor shall the grantee itself or any person claiming under or
through it, establish or permit any such practice or practices of
discrimination or segregation with reference to the selection, location,
number, use or occupancy of tenants, lessees, subtenants, sublessees or
vendees in the land herein conveyed. The foregoing covenants shall run with
the land."
2. In leases: "The lessee covenants by and for itself, its heirs,
executors, administrators and assigns, and all persons claiming under or
through it, and this lease is made and accepted upon and subject to the
following conditions:
"That there shall be no discrimination against or segregation of any
person or group of persons on account of sex, marital status, race,
color, creed, religion, national origin or ancestry, in the leasing,
subleasing, transferring, use, or enjoyment of the land herein leased
nor shall the lessee itself, or any person claiming under or through
it, establish or permit any such practice or practices of discrimination
segregation with reference to the selection, location, number, use or
occupancy, of tenants, lessees, sublessees, subtenants or vendees in the
land herein leased."
3. In contracts: "There shall be no discrimination against or
segregation of, any person or group of persons on account of sex, marital
status, race, color, creed, religion, national origin, or ancestry in the
sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the
land, nor shall the transferee itself or any person claiming under or through
it, establish or permit any such practice or practices of discrimina-
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tion or segregation with reference to the selection, location, number, use or
occupancy, of tenants, lessees, sublessees, sub-tenants, or vendees in the
land."
F. [Section 410] RIGHTS OF ACCESS - PUBLIC IMPROVEMENTS AND FACILITIES
Agency for itself, and other public agencies, at their sole risk and
expense, reserves the right to enter the premises or any part thereof at all
reasonable times and with as little interference as possible, for the
purposes of inspection, construction, reconstruction, maintenance, repair or
service of any public improvements or public facilities located on the
premises. Any such entry shall be made only after reasonable notice to
Lessee and in accordance with such reasonable conditions, requirements and
restrictions as Lessee may impose so as to assure the least practicable
interference with Lessee's use of the premises, including as matters of
example and not by way of limitation any requirement imposed by Lessee that
such activities be conducted under the observation and in the presence of a
representative of Lessee, or that they be conducted during non-business hours
if conducting them during normal business hours would create an inconvenience,
annoyance, disturbance or loss of business to Lessee. Agency or other public
agency hereby indemnifies Lessee, and hold Lessee harmless, from any claims or
liabilities pertaining to any entry. Any damage or injury to the premises
resulting from such entry shall be promptly repaired at the sole expense of
Agency or the public agency responsible for the entry. Agency or such other
public agencies shall not be liable to Lessee for any inconvenience, annoyance,
disturbance or loss of business caused by the performance of such work unless
occasioned by the negligence of Agency or such other public agencies or by their
respective agents, or unless Agency or such other public agencies or their
respective agents do not comply with the conditions, requirements and
restrictions imposed by Lessee. Agency and such other public agencies shall in
any event make all reasonable efforts to keep any inconvenience, annoyance,
disturbance or loss of business which is caused to a minimum.
G. [Section 411] QUIET ENJOYMENT
The parties hereto mutually covenant and agree that Lessee, by keeping
and performing the covenants herein contained, shall at all times during the
term of this Lease, peaceably and quietly have, hold and enjoy the premises
and the improvements.
H. [Section 412] SUBJECT TO RECIPROCAL EASEMENT AGREEMENT
This Lease is and shall be subject and subordinate to the REA and to
the CC&Rs. The requirements of the REA are for the
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express benefit of the "Association" and the "Owners," as those terms are
defined in the REA, if and when the Association shall come into existence as
contemplated in the REA. The requirements of the CC&Rs are for the express
benefit of the "Association" and the "Owners," as those terms are defined in
the CC&Rs. During the Term of this Lease, Lessee shall be entitled to all of
the rights and shall perform all of the obligations and duties of Agency (as
fee owner of the Parking Facility) under the REA and the CC&Rs with respect
to the Parking Facility, but not with respect to any other property in which
Agency holds any interest of any nature. In the event that any of the terms
and conditions of the REA or the CC&Rs are inconsistent with the terms and
conditions of this Lease, the REA or the CC&Rs shall control over this Lease.
That notwithstanding, with respect to entitlement to insurance proceeds,
condemnation proceeds, and any other rights under the REA or the CC&Rs, as
between Lessee and Agency, this Lease shall control.
I. [Section 413] USE OF THE PARKING FACILITY BY THE PUBLIC AND COMMUNITY
GROUPS WITHOUT CHARGE
As long as it does not interfere with use of the Parking Facility by
tenants and guests of the Office Building, Lessee shall, upon not less than
three (3) days' prior written request of the Executive Director of Agency,
open the Parking Facility for use by the public, including, without
limitation, community groups (but specifically excluding any for profit
business enterprises), during non-business hours without charge. That
notwithstanding, Lessee may impose an appropriate charge to cover its
incidental costs, such as the cost of a parking attendant, any necessary
security personnel, appropriate insurance coverage, utilities provided, and
the like.
J. [Section 414] EXPANSION OF THE PARKING FACILITY
Lessee acknowledges and agrees that the parking garage which currently
constitutes the Parking Facility has been designed, engineered and
constructed in a manner to permit its expansion by the addition of up to four
(4) upper levels (the "Expansion"). Therefore, Agency expressly reserves from
this Lease all rights on, under and over the Parking Facility for the purpose
of constructing the Expansion, including the access and egress facilities to
same from each to the other and adjacent parcels. Agency shall have the
right to assign such rights at its sole and absolute discretion.
Lessee further acknowledges that construction of the Expansion will
preclude Lessee's use of a portion of the Parking Facility for the period of
construction. Agency agrees to limit the area closed to Lessee for use to
that which is reasonably
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necessary to accommodate a normal construction schedule, and Agency agrees to
provide Lessee with alternate parking in the immediate vicinity of the Office
Building during the period that Lessee's use of the entire Parking Facility
is limited, such alternate parking to be for the number of cars equal to the
parking spaces not available to Lessee during the construction. Lessee hereby
consents to the closing of such portion of the Parking Facility for the
construction period. During the period in which such area is closed to
Lessee, the Fixed Annual Rent-Parking Facility shall be abated by a fraction,
the numerator of which is the number of parking spaces in the Parking
Facility unavailable for use, minus the number of any alternate parking
spaces in the immediate vicinity of the Building which are provided by Agency
as specified above, and the denominator of which is six hundred forty-seven
(647) (or by such lesser number of parking spaces in the Parking Facility
effectively available to Lessee if all or any portion of the Additional
Retail Space has been constructed).
V. [Section 500] TAXES, ASSESSMENTS AND OTHER CHARGES
A. [Section 501] UTILITIES
Lessee agrees to pay or cause to be paid, as and when they become due
and payable, all charges for water, gas, light, heat, telephone, electricity
and other utility and communication services rendered or used on or about the
Parking Facility at all times during the term of this Lease, but excluding
any of the same used in connection with the Retail Area or the Expansion,
which, as to the Retail Area (including any Retail Area hereafter built out),
shall be separately metered. If the Expansion is constructed, the allocation
of utility charges as between the Parking Facility as it currently exists and
the area within the Expansion shall be made as provided under the REA.
B. [Section 502] IMPOSITIONS (INCLUDING TAXES AND ASSESSMENTS)
1. [Section 503] PAYMENT GENERALLY
Lessee agrees to pay or cause to be paid, as and when they become due
and payable, and before any fine, penalty, interest or cost may be added
thereto, or become due or be imposed by operation of law for the nonpayment
thereof, all taxes, assessments, franchises, excises, license and permit
fees, and other governmental levies and charges, general and special,
ordinary and extraordinary, unforeseen and foreseen, of any kind and nature
whatsoever which at any time during the term of this Lease may be assessed,
levied, confirmed, imposed upon, or grow or become due and payable out of or
in respect of, or become a lien on: (1) the Parking Facility or any parts
thereof or any appurtenances
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thereto (but excluding the Retail Space and the Expansion); (2) the rent and
income received by Lessee from subtenants, quests or others for the use or
occupation of the Parking Facility and the improvements therein; or (3) this
transaction or any document to which Lessee is a party, creating or
transferring an interest or estate in the Parking Facility. All such taxes,
franchises, excises, license and permit fees, and other governmental levies
and charges shall hereinafter be referred to as "Impositions," and any of the
same shall hereinafter be referred to as an "Imposition." Nothing in the
foregoing shall require Lessee to pay any Imposition which relates to any
period of time not included within the term of this Lease. Any Imposition
relating to a fiscal period of the taxing authority, a part of which period
is included within the term of this Lease and a part of which is included in
a period of time after the expiration of the term of this Lease, shall
(whether or not such Imposition shall be assessed, levied, confirmed, imposed
upon, become a lien upon the Parking Facility, or shall become payable,
during the term of this Lease) be adjusted between Agency and Lessee as of
the expiration of the term of this Lease, so that Lessee shall pay that
portion of such Imposition which that part of such fiscal period included in
the period of time before the expiration of the term of this Lease bears to
such fiscal period, and Agency shall pay the remainder thereof. Lessee shall
not be entitled to receive any apportionment, if Lessee shall be in default
in the performance of any of Lessee's material covenants and agreements as
provided in this Lease.
2. [Section 504] PAYMENT OF IMPOSITIONS IN INSTALLMENTS
If, by law, any Imposition may at the option of the payor be paid in
installments (whether or not interest shall accrue on the unpaid balance of
such Imposition), Lessee may exercise the option to pay the same (and any
accrued interest on the unpaid balance of such Imposition) in installments
and, in such event, shall pay such installments as may become due during the
term of this Lease as the same respectively become due and before any fine,
penalty, further interest or cost may be added thereto; provided, however,
that the amount of all installments of any such Imposition which will be the
responsibility of Lessee pursuant to Section 503 hereinabove, and which are
to become due and payable after the expiration of the term of this Lease,
shall be deposited with Agency for such payment on the later of (a) ten (10)
business days after Lessee has received notice of the final determination of
the amount thereof, or (b) the date which shall be one (1) year immediately
prior to the date of such expiration.
3. [Section 505] AGENCY RIGHT TO CURE
If Lessee, in violation of the provisions of this Lease, shall fail to
pay and to discharge any Imposition, Agency may
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(but shall not be obligated to) pay or discharge it, and the amount paid by
Agency and the amount of all costs, expenses, interest and penalties
connected therewith, including, without limitation, attorneys' fees and
expenses, together with interest at the rate of two percent (2%) over the
Bank of America reference rate on the date payment is made by Agency, shall
be deemed to be and shall be payable by Lessee as additional rent and shall
be reimbursed to Agency by Lessee on demand, provided that Lessee shall have
failed to pay such Imposition within five (5) days after written notice from
Agency of its intention to pay.
4. [Section 506] TAX RECEIPTS
Lessee shall furnish to Agency, within forty-five (45) days after the
date when any Imposition would become delinquent official receipts of the
appropriate taxing authority or other evidence reasonably satisfactory to
Agency evidencing payment thereof.
5. [Section 507] LIMITS OF TAX LIABILITY
The provisions of this Lease shall not be deemed to require Lessee to
pay municipal, county, state or federal income or gross receipts or excess
profits taxes assessed against Agency, or municipal, county, state or federal
capital levy, estate, succession, inheritance, gift, or transfer taxes of
Agency, or corporation franchise taxes imposed upon any corporate owner of
the fee of the Parking Facility; except, however, that Lessee shall pay all
taxes assessed by any governmental authority by virtue of any operation by
Lessee conducted on or out of the Parking Facility. It is agreed that in the
event the State of California or any taxing authority thereunder changes or
modifies the system of taxing real estate so as to tax the rental income from
real estate in lieu of or in substitution (in whole or in part) for the real
estate taxes and so as to impose a liability upon Agency for the amount of
such tax, then Lessee shall be liable under this Lease for the payment of the
taxes so imposed during the term of this Lease to the same extent as though
the alternative tax was a tax upon the value of the Parking Facility. In
order to determine the amount of such alternative tax for which Lessee shall
be liable, the Parking Facility shall be considered as if it were the only
asset of Agency, and the rent paid hereunder shall be considered as if it
were the only income of Agency.
6. [Section 508] PERMITTED CONTESTS
Lessee shall have the right to contest the validity or the amount in
part or in full, of any Imposition which it is obligated to pay under the
provisions of this Lease. Lessee agrees that all such proceedings shall be
begun without undue delay
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after any contested item is imposed and shall be prosecuted to final
adjudication with reasonable dispatch.
Lessee shall give Agency prompt notice in writing of any such contest
at least ten (10) days before any delinquency occurs. Lessee may only
exercise its right to contest an Imposition hereunder if the subject legal
proceedings shall operate to prevent the collection from Agency of the
Imposition so contested, or the sale of the Parking Facility, or any parts
thereof, to satisfy the same, and only if Lessee shall, prior to the date
such Imposition is due and payable, have given such reasonable security if
and as may be required by Agency from time-to-time in order to insure the
payment of such Imposition to prevent any sale, foreclosure or forfeiture of
the Parking Facility, or any parts thereof, by reason of such nonpayment. In
the event of any such contest and the final determination thereof adversely
to Lessee, Lessee shall, before any fine, interest, penalty or cost may be
added thereto for nonpayment thereof, pay fully and discharge the amounts
involved in or affected by such contest, together with any penalties, fines,
interest, costs and expenses that may have accrued thereon or that may result
from any such contest by Lessee and, after such payment and discharge by
Lessee, Agency will promptly return to Lessee such security as Agency shall
have received in connection with such contest.
Agency shall cooperate reasonably in any such contest permitted by this
Section 508, and shall execute any documents or pleadings reasonably required
for such purpose. Any such proceedings to contest the validity or amount of
Imposition or to recover back any Imposition paid by Lessee shall be
prosecuted by Lessee at Lessee's sole cost and expense; and Lessee shall
indemnify and save harmless Agency against any and all loss, cost or expense
of any kind, including, but not limited to, reasonable attorneys' fees and
expenses, which may be imposed upon or incurred by Agency in connection
therewith.
7. [Section 509] NOTICE OF POSSESSORY INTEREST; PAYMENT OF TAXES AND
ASSESSMENTS ON VALUE OF ENTIRE PROPERTY
In accordance with California Revenue and Taxation Code Section 107.6(a),
Agency states that by entering into this Lease a possessory interest subject to
property taxes may be created. Lessee or such other party in whom the possessory
interest is vested may be subject to the payment of property taxes levied on
such interest.
Without limiting the foregoing, pursuant to California Health and Safety
Code Section 33673, the Parking Facility shall be assessed and taxed in the same
manner as privately owned
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property, and Lessee shall pay taxes upon the assessed value of the entire
Parking Facility and not merely the assessed value of its leasehold interest.
C. [Section 510] OTHER LIENS
Except as provided in Section 900 ET SEQ. of this Lease, Lessee shall
not, directly or indirectly, create or permit to be created or to remain, and
will promptly discharge, at its expense, any mortgage, lien, encumbrance or
charge on or pledge of the Parking Facility, or the improvements, or any
parts thereof, or Lessee's interest therein, or the Fixed Annual Rent-Parking
Facility, Additional Rent or other sums payable by Lessee under this Lease.
Lessee shall notify Agency promptly of any lien or encumbrance which has been
created on or attached to the Parking Facility or the improvements, or to
Lessee's leasehold estate therein, whether by act of Lessee or otherwise.
The existence of any mechanic's, laborer's, materialmen's, supplier's or
vendor's lien, or any right in respect thereof, shall not constitute a
violation of this Section if payment is not yet due upon the contract or for
the goods or services in respect of which any such lien has arisen.
However, Lessee may in good faith and at Lessee's own expense contest
the validity of any mechanic's, laborer's, materialmen's, supplier's or
vendor's lien, claim or demand, provided Lessee has furnished the bond
required by California Civil Code Section 3143 (or any comparable statute
hereafter enacted for providing a bond freeing the Parking Facility from the
effect of such a lien claim). Any such proceedings to contest the validity
or amount of any such lien shall be prosecuted by Lessee at Lessee's sole
cost and expense; and Lessee shall indemnify and save harmless Agency against
any and all loss, cost or expense of any kind, including, but not limited to,
reasonable attorneys' fees and expenses which may be incurred by Agency as a
result of Lessee's contest of such lien.
VI. [Section 600] MAINTENANCE
A. [Section 601] MAINTENANCE AND REPAIR OF IMPROVEMENTS
Lessee agrees to assume full responsibility for the operation and
maintenance of the Parking Facility, and the improvements and all elevators,
fixtures and furnishings thereon or therein, and all sidewalks, curbs and
paving, and all landscaping adjacent to the Parking Facility (but excluding
the Retail Space and the Expansion) and within the public right-of-way,
throughout the Term hereof without expense to Agency unless otherwise
specified herein, and to perform all repairs and replacements neces-
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sary to maintain and preserve the Parking Facility, and the improvements,
elevators, fixtures and furnishings, sidewalks, curbs and paving, and
landscaping, in a manner reasonably satisfactory to Agency and in compliance
with all applicable laws. Lessee agrees that Agency shall not be required to
perform any maintenance, repairs, or services or to assume any expense not
specifically assumed herein in connection with the Parking Facility, and the
improvements, elevators, fixtures and furnishings, sidewalks, curbs and
paving, and landscaping. Despite the foregoing, to defray the costs incurred
by Lessee by reason of the location of the Retail Space and the use of the
Parking Facility by patrons of the businesses to be located in the Retail
Space, Lessee shall be entitled to offset, against the next amounts otherwise
payable by Lessee to Agency hereunder, an amount equal to seven percent (7%)
of the costs incurred by Lessee for maintenance, repairs and services
relating to the Parking Facility and to all sidewalks, curbs, paving, and
landscaping adjacent to the Parking Facility, but EXCLUDING any costs
relating to the operation and maintenance of the drive-through bank tellers
located in a portion of Parking Facility structure, as well as the ingress
and egress to and from the same. If the construction of the Expansion is
undertaken, the portion of the costs to be offset as described above shall
thereafter be allocated between Lessee and the owner of the Expansion as
provided in the REA, and the offset shall also include seven percent (7%) of
Lessee's share thereof. If no amount remains to be paid by Lessee to Agency
hereunder, the amount that would otherwise be offset as set forth above shall
be paid by Agency to Lessee within 30 days after billing from Lessee to
Agency therefor. Lessee expressly and knowingly waives the provisions of
Civil Code Sections 1941 and 1942 with respect to Agency's obligations for
tenantability of the premises and Lessee's right to make repairs and deduct
the expenses of such repairs from rent.
Subject to ordinary wear and tear, the Parking Facility and the
improvements shall be maintained in first-class, high quality condition. In
the event Agency reasonably determines that the Parking Facility and/or the
improvements are not being so maintained, Agency shall notify Lessee in
writing of the determination. Within thirty (30) days of receipt of such
notice, Lessee shall submit to Agency for approval a plan to improve or
restore the condition of the premises to conform with the requirements of
this Section. Agency shall approve or disapprove the plan within twenty (20)
days after submission. Any disapproval shall state the reason for such
disapproval. Failure to disapprove within twenty (20) days shall be deemed an
approval, provided that the notice to Agency conspicuously indicates that the
failure to respond within the 20-day period shall be deemed an approval.
Promptly after approval of such plan, Lessee shall commence to
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carry out the plan and shall thereafter diligently prosecute such plan to
completion.
B. [Section 602] ACCOUNTING FOR MAINTENANCE COSTS
Within sixty (60) days following the end of each calendar year, Lessee
shall submit to Agency a summary statement showing the total amount of all
costs and expenses relating to the Parking Facility for the calendar year
then ended and with respect to which the seven percent (7%) offset specified
in Section 601 applies. Such statement shall be signed and certified by a
responsible officer of Lessee to be true and complete. Agency shall be
entitled, at Agency's expense, within four (4) years after receipt of each
such notice, to cause an independent audit of Lessee's books, accounts,
records, and other pertinent data relating to the expenses shown in such
statement, by a firm of certified public accountants to be selected by Agency
and reasonably approved by Lessee on the same basis, and the audit to be
conducted in the same manner, as set forth in the last paragraph of Section
305. In that event, the costs and expenses shown by the audit shall control,
and an adjustment shall be made between Lessee and Agency as appropriate to
reflect any variation. If the audit shows that the statement overstated the
costs and expenses subject to reimbursement by Agency by more than three
percent (3%) of the correct total, then Lessee shall reimburse Agency for the
cost of Agency's audit. If Agency has not audited Lessee hereunder with
respect to a particular calendar year within the specified four (4) year
period, then Agency shall be deemed to have waived its right to do so.
VII. [Section 700] ALTERATION OF PARKING FACILITY
Lessee shall not make any alterations to the Parking Facility costing
more than Fifty Thousand Dollars ($50,000), adjusted from time to time in
accordance with changes in the CPI (as defined in Section 1413 below) from
the Base CPI (as also defined in Section 1413 below) to the date in question,
without Agency's prior written approval. Any alterations made shall remain
on and be surrendered with the Parking Facility upon expiration or
termination of the Lease, except that, as to any alteration with respect to
which Agency's approval is required hereunder, Agency may condition its
approval (when the approval is granted) upon Lessee committing to remove the
alteration and returning the premises to their prior condition within thirty
(30) days after expiration of the Lease at Lessee's sole cost. Agency may
waive any such condition at any time by notice in writing to Lessee, the
effect of which shall be to permit Lessee to either leave or remove the
alteration and return the premises to their prior condition, at Lessee's
option.
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If Lessee makes any alterations to the Parking Facility as provided in
this Section, the alterations shall not be commenced until ten (10) days after
Agency has received notice from Lessee stating the date the installation of the
alterations is to commence so that Agency can post and record an appropriate
notice of nonresponsibility.
VIII. [Section 800] DAMAGE OR DESTRUCTION
A. [Section 801] DUTY TO RESTORE OR REBUILD
Subject to the terms of Section 803 below, if the Parking Facility is
totally or partially destroyed, Lessee shall diligently and promptly restore
the Parking Facility to substantially the same condition as it was in
immediately before destruction; or Lessee shall diligently and promptly clear
and remove from the site all debris resulting from said damage and rebuild
the Parking Facility in accordance with plans and specifications previously
submitted to and approved in writing by Agency. The same shall be at
Lessee's sole cast, except that Agency shall bear all costs associated with
(i) restoring the Retail Space (including the cost of restoring any wall
separating the Retail Space from the Parking Facility and any cost of
restoring utility services to the Retail Space), and (ii) the Expansion,
including providing the structural support required for the Expansion.
Agency's share of the costs shall include (but shall not be limited to) a
prorated share of all "soft costs," such as design costs, permit fees,
inspection fees, construction insurance and bond premiums, and other similar
or dissimilar costs incidental to the restoration but not directly in payment
of labor or materials incorporated into the work, such proration to be based
upon the ratio of "hard costs" allocable to the Parking Facility as compared
to those allocable to the Retail Space and the Expansion.
Except for promptly reviewing and commenting upon any plans and
specifications submitted by Lessee for Agency's approval, Agency shall not be
required to furnish any services or facilities in connection with the
restoration, nor be required to make any repairs or alterations of any kind
in or on the Parking Facility.
No deprivation, impairment, or limitation of use resulting from any
event or work contemplated by this Section shall entitle Lessee to any
termination or extension of the Term, nor (subject to the terms of Section
804 below) to any offset, abatement, or reduction in rent.
In determining whether Lessee has acted promptly as required by this
Section, one of the criteria to be considered is the availability of any
applicable insurance proceeds.
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B. [Section 802] EXISTING CONDITION; CONSTRUCTION PERFORMANCE AND LABOR
AND MATERIAL (PAYMENT) BONDS; INDEMNIFICATION
Lessee acknowledges and agrees that:
1. Lessee has made an investigation and inspection of the existing
condition of the Parking Facility and its furnishings and equipment, all to
Lessee's complete satisfaction, and Lessee either has full knowledge of the
condition thereof or has assumed the risk as to the same being different than
Lessee believes to be the case;
2. Lessee is leasing the Parking Facility solely in reliance upon
its own investigation and inspection, and no representations or warranties of
any kind whatsoever, express or implied, have been made by Agency; and
3. Lessee agrees to accept the Parking Facility in the condition
that it was as of the Commencement Date.
Notwithstanding the foregoing portion of this Section 802, Agency and
Lessee acknowledge the following conditions with respect to the Parking
Facility:
(i) Certain settling of the soil around the perimeter of the Parking
Facility has occurred and has caused the severance of an electrical conduit
and the rupture of a sewer line adjacent to the south side of the Parking
Facility. The cause of the settlement has been investigated by LeRoy
Crandall and Associates, geotechnical consultants, and various alternative
methods of dealing with the problem have been identified in its report dated
May 28, 1991, a copy of which has been received by both Lessee and Agency. As
of the execution of this Lease, repairs to the electrical conduit and the
sewer line have been made, but the required corrective work with respect to
the settlement of the soil has not been completed. The method of dealing with
the problem has been agreed to and will be completed as provided in a
separate agreement between Lessee and Agency.
(ii) There are certain cracks in the basement of the Parking
Facility. No representations or warranties with respect to those cracks have
been made by Agency, and Lessee accepts the Parking Facility with those
cracks and assumes all risk relating to the same, including the possibility
that the same may be of greater import than Lessee believes them to be.
Lessee agrees to hold Agency free and harmless from, and to indemnify
Agency against all claims, liabilities, costs and expenses asserted during
the Term of this lease for labor and
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materials in connection with all construction, repairs or alterations to or
on the Parking Facility and the improvements located therein (EXCEPT for any
such matters caused by Agency and the settling of the soil around the
perimeter of the Parking Facility referred to above, and in any event
excluding any of the same relating to the Retail Space or the Expansion, if
it is built), together with the cost of defending against such claims,
including reasonable attorneys' fees and Agency agrees to hold Lessee free
and harmless from, and to indemnify Lessee against all claims, liabilities,
costs and expenses incurred by reason of any defect in the Retail Space, the
Expansion (if constructed), and any of the improvements or equipment located
in either thereof, whether known or unknown, and for labor and materials in
connection with all construction, repairs or alterations to or on the Retail
Space or in connection with the Expansion and the improvements located in
either thereof (EXCEPT for any such matters caused by Lessee), together with
the cost of defending against such claims, including reasonable attorneys'
fees.
Upon the written request of the Executive Director of Agency or his
designee, Lessee agrees to procure, or cause the procurement of, contractors'
bonds covering labor, materials and faithful performance for construction,
repairs, or alterations on the Parking Facility. Each such bond shall be in
the amount equal to one hundred percent (100%) of the construction price in
the contract entered into by Lessee and its general contractor with respect
to the Parking Facility. Said bonds must first be approved in writing as to
the content and form by Agency. Agency shall not unreasonably withhold or
delay such approval. Lessee shall, prior to commencement of construction,
deliver to Agency a certificate or certificates from the bonding company(s)
issuing the aforesaid bonds, naming Agency an additional insured under said
bonds. The foregoing provisions of this Section shall be applicable to
construction, repairs or alterations to the Parking Facility at all times
during the Term.
Agency shall have the right to post and maintain on the Parking Facility
any notices of nonresponsibility provided for under applicable law.
C. [Section 803] EXCEPTIONS TO DUTY TO RESTORE
Lessee shall not be obligated to restore the Parking Facility in the
case of any substantial damage to the Parking Facility which is sustained
within the last two (2) Lease Years during the term of this Lease, nor in the
case of any damage (whether or not substantial) sustained during the last six
(6) months of the term of this Lease, except that Lessee shall in the latter
situation take such measures as may be necessary to make safe the continued
use of the undamaged portions of the Parking Facility, provided
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that each of the following conditions precedent to the foregoing shall be
satisfied: (a) Lessee shall not otherwise be in material default of its
obligations under this Lease; (b) notice of the election by Lessee not to
restore the Parking Facility shall be served upon Agency within sixty (60)
days after the damage has been sustained; and (c) possession of the Parking
Facility is tendered to Agency, together with a quitclaim of any interest of
Lessee therein, concurrently with the delivery of the notice referred to in
clause (b) above. In such event, the obligations of Lessee under this Lease
shall terminate except that the obligation of Lessee to pay Agency the Fixed
Annual Rent-Parking Facility shall continue unabated for the balance of the
Term, subject to the right of Agency to terminate this Lease upon notice to
Lessee, and upon Lessee's receipt of such a notice all obligations of Lessee
hereunder (including, without limitation, the payment of Fixed Annual
Rent-Parking Facility) shall terminate. In addition, at any time during the
term of this Lease that the Parking Facility has sustained substantial damage
which has not then been repaired, if the Office Building has also sustained
substantial damage, or if widespread damage has been sustained by other
properties in the immediate vicinity of the Office Building and the Parking
Facility, whether or not any such other damage was sustained in the same
event causing damage to the Parking Facility, then, if Lessee determines in
its reasonable judgment that it is not economically practical to restore the
Parking Facility, this Lease shall terminate upon notice to Agency of
Lessee's determination and Lessee shall not be obligated to restore the
Parking Facility. For the purposes hereof, the term "substantial damage"
shall mean any damage which would cost more than Five Hundred Thousand
Dollars ($500,000) to repair, such amount to be adjusted from time to time in
accordance with changes in the CPI from the Base CPI to the date in question.
In any situation specified in this Section where Lessee is not obligated to
restore the Parking Facility and does not elect to do so, any insurance
proceeds received shall be paid over to Agency, less only such amounts as
Lessee may have expended in making safe the continued use of the undamaged
portion of the Parking Facility.
D. [Section 804] PROVISION OF ALTERNATE PARKING
In the event of any substantial damage to the Parking Facility which
Lessee is obligated or elects to repair, during the period from the date of
the damage, or as soon thereafter as is practicable, through the date of
completion of the restoration, Agency shall cooperate with Tenant and assist
Tenant in attempting to obtain, for the use of the tenants and other
occupants of, and the visitors to, the Office Building, replacement parking
for those spaces in the Parking Facility which are rendered unavailable by
reason of the damage or the work of restoration.
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Agency does not warrant that replacement parking can or will be located, and
any out of pocket expense incurred in obtaining any replacement parking shall
be at Lessee's cost; but Agency shall not decline to make available to Lessee
for use as temporary replacement parking as contemplated in this Section any
appropriate space controlled by Agency (whether improved for parking purposes
or unimproved) which is not then legally committed to another use, so long as
Lessee (a) reimburses Agency for the actual out of pocket expense incurred by
Agency with respect thereto and properly allocable to the period of the
temporary use, and (b) pays Agency the fair market rental value of the spaces
during the period of the temporary use. For each day that any spaces in the
Parking Facility are not available, whether or not alternate parking as
contemplated above has been obtained, so long as Lessee is diligently
pursuing the restoration of the Parking Facility unless an express exception
to Lessee's obligation to do so exists under the terms of this Lease, all
rent and other payments of any nature required of Lessee under the terms of
this Lease shall be abated by a fraction, the numerator of which is the
number of parking spaces in the Parking Facility which have been rendered
unavailable for use, and the denominator of which is six hundred forty-seven
(647) (or by such lesser number of parking spaces in the Parking Facility
effectively available to Lessee if all or any portion of the Additional
Retail Space has been constructed).
IX. [Section 900] ASSIGNMENT, SUBLETTING, TRANSFER AND ENCUMBRANCE
A. [Section 901] PROHIBITION AGAINST VOLUNTARY ASSIGNMENT, SUBLETTING,
AND ENCUMBERING; NO FEE SUBORDINATION BY AGENCY
Lessee shall not voluntarily assign, collaterally assign or encumber
its interest in this Lease or in the Parking Facility, or sublease all or any
part of the Parking Facility, or allow any other person or entity (except
Lessee's authorized representatives, including, without limitation, the
operator of the Parking Facility) to occupy or use all or any part of the
Parking Facility, without first obtaining the prior written consent of the
Executive Director of Agency. The foregoing shall not apply to the rental of
parking spaces in the Parking Facility, whether on a reserved or a non-reserved
basis.
Inasmuch as this Lease is made appurtenant to Acquisition Parcel "A",
consent to such an assignment will only be given if: (a) the proposed
assignee will also acquire fee title to Acquisition Parcel "A", (b) Lessee
gives Agency no less than thirty (30) days prior written notice of the
proposed assignment with appropriate documentation as evidence that the
proposed assignee qual-
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ifies as a permitted assignee, (c) Lessee pays Agency the sum of One Thousand
Dollars ($1,000.00) to cover Agency's costs of reviewing the proposed
assignment, (d) the proposed assignee, in recordable form and content
reasonably satisfactory to the General Counsel of Agency, expressly assumes
all of the covenants and conditions of this Lease, (e) the proposed assignee
is a creditworthy purchaser with experience (or who has contracted with a
third party manager to operate the Office Building, which manager has
experience) in operating a successful class A office building, and (f) the
transfer occurs concurrently with the conveyance of fee title to Acquisition
Parcel "A".
Consent to such an encumbrance or to a collateral assignment will only
be given if: (a) the proposed encumbrancer or collateral assignee holds and
will continue to hold an encumbrance on Acquisition Parcel "A" to secure the
payment of money loaned solely on the security of Acquisition Parcel "A", (b)
the encumbrance held on Acquisition Parcel "A" will be cross-defaulted with
the proposed encumbrance or collateral assignment so that the proposed
encumbrance or collateral assignee will succeed to the interest of Lessee
upon becoming vested with fee title to Acquisition Parcel "A", (c) Lessee
gives Agency no less than thirty (30) days prior written notice of the
proposed encumbrance or collateral assignment with appropriate documentation
to evidence that the proposed encumbrancer or collateral assignee is a
commercial lender or is otherwise an encumbrancer or collateral assignee
which is reasonably acceptable to Agency, (d) Lessee pays Agency the sum of
One Thousand Dollars ($1,000.00) to cover Agency's costs of reviewing the
proposed assignment, and (e) the proposed encumbrancer or collateral
assignee, in form and content reasonably satisfactory to the General Counsel
of Agency, expressly agrees to assume all of the covenants and conditions of
this Lease if and when it succeeds to Lessee's interest in this Lease and for
so long as it holds that interest. Any assignment, encumbrance or sublease
without the consent of the Executive Director of Agency shall be voidable
and, at Agency's election, shall constitute a default. No consent to any
assignment, encumbrance, or sublease shall constitute a further waiver of the
provisions of this Section. Attachments 3A and 3B to this Lease are forms of
assumption which are satisfactory to Agency for use in connection with any
such assignment, it being expressly understood and agreed, however, that any
number of other forms to a similar effect would also be satisfactory.
Despite the foregoing, no consent of Agency shall be required for any
assignment of Lessee's interest in this Lease to any Affiliate (as defined in
Section 1413 below), but no such assignment shall relieve Lessee of its
obligations hereunder, and Lessee shall promptly advise Agency of any
assignment to an Affiliate.
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If Lessee is a partnership, a withdrawal or change, voluntary, involuntary,
or by operation of law, of any general partner, or the dissolution of the
partnership shall be deemed a voluntary assignment.
Lessee immediately and irrevocably assigns to Agency, as security for
Lessee's obligations under this Lease, all rent from any subletting of all or
a part of the Parking Facility as permitted by this Lease, and Agency, as
assignee and as attorney-in-fact for Lessee, or a receiver for Lessee
appointed on Agency's application, may collect such rent and apply it toward
Lessee's obligations under this Lease; except that, until the occurrence of
an act of default by Lessee, Lessee shall have the right to collect such rent.
Under no circumstances will Agency subordinate Agency's fee title to
the Parking Facility to any interest.
B. [Section 902] LEASING OF RETAIL SPACE
It is anticipated by the parties hereto that The Koll Company, or an
Affiliate of it, shall manage and be in control of the leasing of the Retail
Space at all times during the term of this Lease. If, at any time during the
term of this Lease, The Koll Company, or an Affiliate of it, does not manage
or is not in control of the leasing of the Retail Space, Lessee shall have
the right to approve the new manager and/or leasing agent, such approval not
to be unreasonably withheld or delayed by Lessee. All leases and subleases
entered into from time to time with respect to any portion of the Retail
Space during the term of this Lease either (a) shall be to occupants of good
reputation in the community and which will use the space exclusively for one
or more of the uses specified on schedule of approved uses contained in
Attachment 4 hereto, or (b) shall be subject to the prior written approval of
Lessee, which Lessee shall not unreasonably withhold or delay so long as the
proposed occupant and use of the portion of the Retail Space in question are
consistent with the use of the Office Building for Office Purposes and will
not detract from the attractiveness and competitive stature of the Office
Building. No use shall be made of the Retail Space, nor any signage
permitted for any occupant of the Retail Space, which would detract from the
quality or attractiveness of the Office Building.
C. [Section 903] INVOLUNTARY ASSIGNMENT
No interest of Lessee in this Lease shall be assignable by operation of
law (including without limitation, the transfer of this Lease by testacy or
intestacy). Each of the following acts shall be considered an involuntary
assignment:
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1. If Lessee is or becomes bankrupt or insolvent, makes an
assignment for the benefit of creditors, or institutes a proceeding under the
Bankruptcy Act in which Lessee is the bankrupt;
2. If a writ of attachment or execution is levied on this Lease
which is not released within ninety (90) days after the same has been levied;
3. If, in any proceeding or action to which Lessee is a party, a
receiver is appointed with authority to take possession of the Parking
Facility and such appointment is not terminated within ninety (90) days after
the appointment has been made.
An involuntary assignment shall constitute a default by Lessee and
Agency shall have the right to elect to terminate this Lease, in which case
this Lease shall not be treated as an asset of Lessee.
X. [Section 1000] INDEMNIFICATION AND INSURANCE
A. [Section 1001] INDEMNIFICATION
Lessee hereby indemnifies and holds Agency, its officers, employees,
agents and contractors harmless from and against all claims and demands for
loss or damage, including property damage, personal injury and wrongful
death, arising out of or in connection with the use or occupancy of the
Parking Facility and the improvements located therein, by Lessee or any other
person under Lessee, or any accident or fire in or on the Parking Facility
and the improvements located therein, or any nuisance made or suffered
thereon, or any failure by Lessee to keep the Parking Facility and/or those
improvements in a safe condition, and will reimburse Agency, its officers,
employees, agents and contractors for all of its costs and expenses, including
reasonable attorneys' fees incurred in connection with the defense of any
such claims, and will hold all goods, materials, furniture, fixtures,
equipment, machinery and other property whatsoever on the Parking Facility
and the improvements located therein at the sole risk of Lessee and save
Agency, its officers, employees, agents and contractors harmless from any
loss or damage thereto by any cause whatsoever.
Agency hereby indemnifies and holds Lessee, its officers, employees,
agents and contractors harmless from and against all claims and demands for
loss or damage, including property damage, personal injury and wrongful
death, arising out of or in connection with the use or occupancy of the
Retail Space or the Expansion and the improvements located therein, by Agency
or any other person under Agency, or any accident or fire in or on the Retail
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Space or the Expansion and the improvements located therein, or any nuisance
made or suffered thereon, or any failure by Lessee to keep the Retail Space
and the Expansion and/or those improvements in a safe condition, and will
reimburse Lessee, its officers, employees, agents and contractors for all of
its costs and expenses, including reasonable attorneys' fees incurred in
connection with the defense of any such claims, and will hold all goods,
materials, furniture, fixtures, equipment, machinery and other property
whatsoever on the Retail Space or the Expansion and the improvements located
therein at the sole risk of Lessee and save the Lessee, its officers,
employees, agents and contractors harmless from any loss or damage thereto by
any cause whatsoever. Despite the foregoing, if Agency conveys the Retail
Space or the Expansion to a transferee whose financial responsibility has
been reasonably approved by Lessee, and provided that the transferee shall
expressly assume Agency's obligations hereunder in a written instrument
reasonably approved by Lessee and delivered to Lessee, then Agency shall be
relieved of the indemnity obligation provided for in this Section 1001 with
respect to the property so transferred; and if Agency shall from time to time
temporarily surrender control of the Retail Space or the Expansion to a third
party operator, whether under the terms of a lease, a management agreement,
or other arrangement of whatever description, upon Lessee's reasonable
approval of the financial responsibility of the operator and the express
assumption by the operator of Agency's obligations hereunder in a written
instrument reasonably approved by Lessee, then Agency shall be relieved of
the indemnity obligation provided for in this Section 1001 with respect to
the area in question for so long as the approved operator shall be in control
thereof.
B. [Section 1002] REQUIRED INSURANCE
During the term of this Lease, Lessee at its sole cost and expense shall:
1. Keep or cause to be kept a policy or policies of insurance
against loss or damage to the Parking Facility resulting from fire,
earthquake (if available at a commercially reasonable cost as determined, if
necessary, by arbitration), windstorm, hail, lightning, vandalism, malicious
mischief, riot and civil commotion, and such other perils ordinarily included
in extended coverage fire insurance policies. Such insurance shall be
maintained in an amount not less than one hundred (100%) of the full
insurable value of the Parking Facility, as defined herein in Section 1003
(such value to include amounts spent for construction of the improvements,
architectural and engineering fees, and inspection and supervision).
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2. Maintain or cause to be maintained public liability insurance to
protect against loss from liability imposed by law for damages on account of
personal injury, including death therefrom, suffered or alleged to be
suffered by any person or persons whomsoever, resulting directly or
indirectly from any act or activities of Agency or Lessee or under their
respective control or direction, and also to protect against loss from
liability imposed by law for damages to any property of any person caused
directly or indirectly by or from the acts or activities, in connection with
the Parking Facility, of Lessee, or the invitees and sublessees of the
Lessee, or any person acting for Lessee, or under its control or direction.
Such property damage and personal injury insurance shall also provide
for and protect Agency, its officers, employees, agents and contractors
against incurring any legal cost in defending claims for alleged loss. Such
personal injury and property damage insurance shall be maintained in full
force and effect during the entire term of this Lease in the amount of at
least Three Million Dollars ($3,000,000) combined single limit naming Agency,
the City of Anaheim, and their officers, employees, agents and contractors,
as additional insureds.
Lessee agrees that provisions of this paragraph as to maintenance of
insurance shall not be construed as limiting in any way the extent to which
Lessee may be held responsible for the payment of damages to persons property
resulting from Lessee's activities, or activities of its invitees and
sublessees or the activities of any other person or persons for which Lessee
is otherwise responsible.
3. Maintain or cause to be maintained worker's compensation
insurance issued by a responsible carrier authorized under the laws of the
State of California to insure employers against liability for compensation
under the Worker's Compensation Insurance and Safety Act now in force in
California, or any act hereafter enacted as an amendment or supplement
thereto or in lieu thereof. Such worker's compensation insurance shall cover
all persons employed by Lessee in connection with the Parking Facility and
the improvements, and shall cover full liability for compensation under any
such act aforesaid, based upon death or bodily injury claims made by, for or
on behalf of any person incurring or suffering injury or death in connection
with the Parking Facility and the improvements, or the operation thereof by
Lessee.
C. [Section 1003] DEFINITION OF "FULL INSURABLE VALUE"
The term "full insurable value" as used in Section 1002 and elsewhere
in this Lease shall mean the actual replacement cost
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excluding the cost of excavation, foundation and footings below the ground
level of the improvements. To ascertain the amount of coverage required,
Lessee shall cause the full insurable value to be determined from
time-to-time by appraisal by the insurer or by any appraiser mutually
acceptable to Agency and Lessee, not less often than once each three (3)
years; except that no such appraisals shall be required if the policy is
written on a "replacement cost" basis.
D. [Section 1004] GENERAL INSURANCE PROVISIONS
All insurance provided under Section 1002 of this Lease shall be for
the benefit of Lessee and Agency.
All insurance provided under Section 1002 shall be periodically
reviewed by the parties for the purpose of mutually increasing or decreasing
the minimum limits of such insurance, from time-to-time, to amounts which may
be reasonable and customary for similar facilities of like size and
operation, and in the downtown areas of Anaheim and the City of Orange,
California.
All insurance herein provided for under Section 1002 shall be effected
under policies issued by insurers of recognized responsibility licensed or
permitted to do business in the State of California and reasonably approved
by Agency; provided that so long as Lessee meets such financial standards as
Agency may reasonably impose, with the consent of Agency, Lessee may
self-insure as to all or any portion of the matters for which insurance is
required hereunder.
Any insurance required to be maintained by Lessee pursuant to Section
1002 may be taken out under a blanket insurance policy or policies covering
other premises or properties, and other insureds in addition to the parties
hereto; provided, however, that in such event Lessee shall provide
supplemental written certification from the insurers under such policies,
which shall specify that the amount of insurance, and the coverage to be
provided, conform to the requirements of Section 1002, and provided further,
that in all other respects, any such blanket policy shall comply with the
other provisions of Section 1002.
All insurance policies shall provide that there shall be no exclusion
from coverage for cross-liability among the named insureds.
All policies or certificates of insurance shall provide that such
policies or certificates and the policies related thereto shall not be
canceled or materially changed without at least thirty (30) days prior
written notice to Agency. All policies
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shall be primary and non-contributing with any insurance that may be carried
by Agency.
Copies of such policies or certificates of insurance therefor shall be
deposited with Agency together with appropriate evidence of payment of the
premiums therefor; and, at least thirty (30) days prior to expiration of any
such policy, copies of renewal policies shall be so deposited.
The insurance required hereunder shall be at Lessee's cost, except that
to defray the costs incurred by Lessee by reason of the location of the
Retail Space and the use of the Parking Facility by patrons of the businesses
to be located in the Retail Space, Agency shall reimburse Lessee for seven
percent (7%) of the premiums paid by Lessee for such insurance relating to
the Parking Facility. If the construction of the Expansion is undertaken,
the insurance premiums shall be shared between Lessee and the owner of the
Expansion in accordance with the REA, and Agency shall reimburse Lessee for
seven percent (7%) of Lessee's share thereof. In the event that Lessee has
elected, with the consent of Agency as contemplated above, to self-insure as
to all or any portion of the matters as to which insurance is required
hereunder, Agency shall have the option, as to such risk(s), of either (i)
paying Lessee for the applicable portion of the premiums which would have
been incurred by Lessee had it not elected to self-insure, or (ii) becoming a
self-insurer in its own right as to its pro rata share of the risk(s) with
respect to which Lessee shall have elected to self-insure, such option to be
exercised by Agency at the time it consents to Lessee's self-insurance, and
if neither option is exercised at that time Agency shall be deemed to have
elected to become a self-insurer until such time as it shall notify Lessee
that it will begin paying Lessee for Agency's pro rata share of the premiums
that Lessee would have incurred.
E. [Section 1005] FAILURE TO MAINTAIN INSURANCE
If Lessee fails or refuses to procure or maintain insurance as required
by this Lease, and assuming Agency has not approved of Lessee's self-insuring
as to the risk(s) in question, Agency shall have the right, at Agency's
election, upon three (3) days' prior notice to Lessee, to procure and
maintain such insurance. The premiums paid by Agency shall be treated as
additional rent due from Lessee, to be paid (after deduction of Agency's pro
rata share) on the first day of the month following the date on which Agency
bills Lessee for the premiums paid. Agency shall give prompt notice of the
payment of such premiums, stating the amounts paid and the name of the
insured(s).
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F. [SECTION 1006] DISPOSITION OF INSURANCE PROCEEDS
RESULTING FROM LOSS OR DAMAGE TO IMPROVEMENTS
All proceeds of insurance with respect to loss or damage to the
improvements to be maintained and repaired by Lessee during the terms of this
Lease shall be payable, under the provisions of the policy of insurance,
jointly to Lessee and Agency, and except as provided below, said proceeds
shall constitute a trust fund to be used for the repair, restoration and
reconstruction of the Parking Facility in accordance with the provisions of
Section 800. To the extent that such proceeds exceed the cost of such
repair, restoration or reconstruction, then such proceeds shall be paid to
Agency.
XI. [SECTION 1100] EMINENT DOMAIN
A. [Section 1101] DEFINITIONS VIS TAKINGS
1. "Condemnation" means (a) the exercise of any
governmental power, whether by legal proceedings or otherwise, by a
Condemnor, and (b) a voluntary sale or transfer by Agency to any Condemnor,
either under threat of eminent domain or while legal proceedings for eminent
domain are pending.
2. "Date of Taking" means the date the Condemnor has the
right to possession of the property subject to Condemnation.
3. "Award" means all compensation, sums, or anything of
value awarded, paid, or received on a total or partial Condemnation.
4. "Condemnor" means any public or quasi-public authority,
or private corporation or individual, having the power of Condemnation.
5. "Replacement Parking" means reasonably comparable
parking in the immediate vicinity of the Office Building (and in any event
within reasonable walking distance thereof) for use by the occupants of and
visitors to the Office Building, covering sufficient parking spaces for the
Office Building to remain competitive with other similar office buildings in
the downtown areas of Anaheim and the City of Orange (but in no event
requiring the effective availability of more than 647 spaces for the
occupants of and visitors to the Office Building, including any remaining
spaces in the Parking Facility, plus any spaces added thereto through
restoration of the Parking Facility, minus any
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spaces allocated to use by occupants of and visitors to the Retail Space and the
Post Office).
6. "Severance Damages" means any damages awarded to the
owner of the Office Building to compensate it for the loss of use and
enjoyment of the Parking Facility caused by the Condemnation. However, if
either (a) the cost of restoration of the Parking Facility (if feasible) so
as to replace some or all of the parking spaces lost, or (b) the cost of
securing Replacement Parking, or the combination of (a) and (b), exceeds the
amount awarded to Lessee as severance damages, then Agency shall contribute
so much of the award received by Agency to cover such costs, except that
Agency shall in no event be required to contribute an amount in excess of the
portion of the award attributable to the excess of the market value of the
leasehold estate under this Lease over the net present value of the Rent
required to be paid hereunder. Any contribution so made by Agency in
accordance with the preceding sentence shall be deemed to be part of the
"Severance Damages."
B. [SECTION 1102] PARTIES RIGHTS AND OBLIGATIONS TO BE GOVERNED
BY LEASE
If, during the Term, there is any taking of all or any part of the
Parking Facility, or land of which they are a part, or any interest in this
Lease by Condemnation, the rights and obligations of the parties shall be
determined pursuant to Sections 1103 through 1109 of this Lease.
C. [SECTION 1103] TOTAL TAKING
If the Parking facility is totally taken by Condemnation, all
obligations of Lessee and Agency under this Lease shall terminate on the Date
of Taking, except for any obligation of Agency to contribute toward the
Severance Damages payable to Lessee as provided in Section 1101, clause 6,
and Section 1109.
D. [SECTION 1104] PARTIAL TAKING
If any portion of the Parking Facility is taken by Condemnation, this
Lease shall terminate as to the portion of the Parking Facility subject to
the Condemnation, but shall remain in effect as to the balance of the Parking
Facility, except that if Lessee determines that the remaining portion of the
Parking Facility after the Condemnation is unsuitable for Lessee's continued
use of the premises, Lessee may elect to terminate this Lease outright by
notice to Agency, such termination to be effective as of the later of the
Date of Taking or thirty (30) days after service of the notice upon Agency.
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E. [SECTION 1105] EFFECT ON FIXED ANNUAL RENT-PARKING FACILITY
In the event of any Condemnation which does not cause a termination
of this Lease, from the Date of Taking on, the required payment of Fixed
Annual Rent-Parking Facility shall be abated by a fraction, the numerator of
which is the number of parking spaces in the Parking Facility which have been
rendered unavailable for use, and the denominator of which is six hundred
forty-seven (647) (or by such lesser number of parking spaces in the Parking
Facility effectively available to Lessee if all or any portion of the
Additional Retail Space has been constructed) for so long as the spaces in
the Parking Facility remain unavailable.
F. [SECTION 1106] WAIVER OF CCP SECTION 1265.130
Each party waives the provisions of Code of Civil Procedure Section
1265.130 allowing either party to petition the superior court to terminate
this Lease in the event of a partial taking.
G. [SECTION 1107] RESTORATION OF PREMISES
If there is a partial taking of the premises and this Lease remains
in effect pursuant to Section 1104 of this Lease, Lessee shall accomplish all
necessary and reasonably feasible restoration, the object of the restoration
being to make the remainder of the Parking Facility functional and to
restore, to the extent practicable, the parking spaces lost by reason of the
Condemnation. Lessee shall bear the cost of the restoration up to the full
amount of the Severance Damages.
H. [SECTION 1108] TEMPORARY ABATEMENT
Fixed Annual Rent-Parking Facility shall be abated during the period
from the Date of Taking until the completion of restoration, but all other
obligations of lessee under this Lease shall remain in full force and effect.
The abatement of rent shall be based upon the extent to which the restoration
interferes with Lessee's use of the Parking Facility.
I. [SECTION 1109] AWARD - DISTRIBUTION
Any and all Award shall belong and be paid to Agency, except that all
Severance Damages shall be paid to Lessee and shall be utilized as
contemplated herein to the extent required hereunder to restore the Parking
Facility and/or secure Replacement Parking.
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XII. [SECTION 1200] DEFAULTS, REMEDIES AND TERMINATION
A. [SECTION 1201] DEFAULTS - GENERAL
Subject to the extensions of time set forth in Section 1212, failure
or delay by either party to perform any term or provision of this Lease
constitutes a default under this Lease. The party who fails or delays must
immediately commence to cure, correct, or remedy such failure or delay and
shall complete such cure, correction or remedy with reasonable diligence, and
during any period of curing shall not be in default.
The injured party shall give written notice of default to the party
in default, specifying the default complained of by the injured party.
Failure or delay in giving such notice shall not constitute a waiver of any
default, nor shall it change the time of default. Except as otherwise
expressly provided in this Lease, any failures or delays by either party in
asserting any of its rights and remedies as to any default shall not operate
as a waiver of any default or of any such rights or remedies. Delays by
either party in asserting any of its rights and remedies shall not deprive
either party of its right to institute and maintain any actions or
proceedings which it may deem necessary to protect, assert or enforce any
such rights or remedies.
B. [SECTION 1202] LEGAL ACTIONS
1. [SECTION 1203] INSTITUTION OF LEGAL ACTIONS
In addition to any other rights or remedies, but subject to the
dispute resolution provisions contemplated in Section 1414 below and
Attachment No. 7 hereto, either party may institute legal action to cure,
correct, or remedy any default, to recover damages for any default, or to
obtain any other remedy consistent with the purpose of this Lease. Such
legal actions must be instituted in the Superior Court of the County of
Orange, State of California, in any other appropriate court in that county,
or in the Federal District Court in the Central District of California.
2. [SECTION 1204] APPLICABLE LAW
The laws of the State of California shall govern the interpretation
and enforcement of this Lease.
3. [SECTION 1205] ACCEPTANCE OF SERVICE OF PROCESS
In the event that any legal action is commenced by Lessee against
Agency, service of process on Agency shall be made by personal service upon
the Executive Director or Chairman of Agency, or in such other manner as may
be provided by law.
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In the event that any legal action is commenced by Agency against
Lessee, service of process on Lessee shall be made by personal service upon
an officer of Lessee and shall be valid whether made within or without the
State of California, or in such manner as may be provided by law.
4. [SECTION 1206] ATTORNEY'S FEES AND COURT COSTS
In the event that either Agency or Lessee shall bring or commence an
action or an arbitration proceeding to enforce or to interpret the terms and
conditions of this Lease, or to obtain damages against the other party
arising from any default under or violation of this Lease, then the
prevailing party shall be entitled to and shall be paid reasonable attorneys'
fees and court costs therefor.
C. [SECTION 1207] RIGHTS AND REMEDIES ARE CUMULATIVE
Except with respect to rights and remedies expressly declared to be
exclusive in this Lease, the rights and remedies of the parties are
cumulative, and the exercise by either party of one or more of such rights or
remedies shall not preclude the exercise by it, at the same or different
times, of any other rights or remedies for the same default or any other
default by the other party.
D. [SECTION 1208] DAMAGES
If either party defaults with regard to any of the provisions of this
Lease, the nondefaulting party shall serve written notice of such default
upon the defaulting party. If the default is not commenced to be cured
within thirty (30) days after service of the notice of default and is not
cured promptly in a continuous and diligent manner within a reasonable period
of time after commencement, the defaulting party shall be liable to the
nondefaulting party for any damages caused by such default, and the
nondefaulting party may thereafter (but not before) commence an action for
damages against the defaulting party with respect to such default.
E. [SECTION 1209] SPECIFIC PERFORMANCE
If either party defaults with regard to any of the provisions of this
Lease, the nondefaulting party shall serve written notice of such default
upon the defaulting party. If the default is not commenced to be cured
within thirty (30) days after service of the notice of default and is not
cured promptly in a continuous and diligent manner within a reasonable period
of time after commencement, the nondefaulting party, at its option, may
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thereafter (but not before) commence an action for specific performance of the
terms of this Lease pertaining to such default.
F. [SECTION 1210] ADDITIONAL REMEDIES OF AGENCY
If Lessee defaults with regard to any of the provisions of this
Lease, Agency shall serve written notice of such default upon Lessee. If the
default is not commenced to be cured within thirty (30) days after service of
the notice of default and is not cured promptly in a continuous and diligent
manner within a reasonable period of time after commencement, Agency, at its
option, may thereafter (but not before):
1. Correct or cause to be corrected said default and charge
the costs therefor to the account of Lessee;
2. Correct or cause to be corrected said default and pay
the costs thereof from the proceeds of any insurance;
3. Continue this Lease and Lessee's right to possession in
effect and enforce its rights and remedies under the Lease, including the
right to recover rent as it becomes due, as provided in California Civil Code
Section 1951.4;
4. Have a receiver appointed to take possession of Lessee's
interest in the Parking Facility, with power in said receiver to administer
Lessee's interest therein, to collect all funds available to lessee in
connection with its operation and maintenance thereof; and to perform all
other acts consistent with Lessee's obligations under this Lease as the court
deems proper;
5. Maintain and operate the Parking Facility without
terminating the Lease.
6. Terminate the Lease pursuant to Section 1211 hereof, by
written notice to Lessee of its intention to do so.
Agency reserves and shall have the right at all reasonable times to
enter the Parking Facility for the purpose of viewing and ascertaining the
condition of the same, or to protect its interests in the Parking Facility or
to inspect the operations conducted thereon. Any such entry shall be made
only after reasonable notice to Lessee. In the event that such entry or
inspection by Agency discloses that the Parking Facility is not being
maintained in efficient and attractive condition (as required by Section
601), is damaged, or in disrepair, Agency shall have the right, after thirty
(30) days written notice to Lessee, (or, if it is not practicable to cure or
remedy such default within. such thirty (30) day period, if Lessee has not
commenced
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the curing or the remedying of such default within such thirty (30) day
period and thereafter diligently prosecuted such cure or remedy to
completion) to have any necessary maintenance or repair work done for and at
the expense of Lessee and Lessee hereby agrees to pay promptly any and all
costs incurred by Agency in having such necessary maintenance or repair work
done in order to assure that the Parking Facility is being maintained in
efficient and attractive condition (as required by Section 601). Further, if
at any time Agency determines that the Parking Facility is not being
maintained in efficient and attractive condition (as required by Section 601)
Agency may, at its sole option, without additional notice, (except for the
notice provided above), require Lessee to file with Agency immediately, but
in any event within 30 days, a faithful performance bond to assure prompt
correction of such unsatisfactory condition, provided in the opinion of
Agency correction of such unsatisfactory condition will cost more than Five
Thousand Dollars ($5,000) to correct. Said bond shall be in an amount
adequate in the opinion of the Executive Director of Agency to correct the
unsatisfactory condition. Lessee shall pay the cost of said bond.
The rights reserved in this Section 1210 shall not create any
obligations on Agency or increase obligations imposed on Agency elsewhere in
this Lease.
G. [SECTION 1211] REMEDIES AND RIGHTS OF TERMINATION
In the event that at any time during the Term of this Lease, and in
violation of this Lease, Lessee shall:
1. Use the Parking Facility for any purpose other than those provided
for in this Lease, or fail to use and operate the Parking Facility for such
purpose;
2. Fail or refuse to pay to Agency when due the applicable rents,
including, without limitation, Fixed Annual Rent-Parking Facility, Additional
Rent, and other sums required by this Lease to be paid by Lessee;
3. Fail or refuse to pay when due any taxes, assessments or other
Impositions as required by this Lease, except as expressly permitted herein;
4. Make or suffer to be made any voluntary or involuntary conveyance,
assignment, sublease, encumbrance or other transfer of the leasehold interest
in the Parking Facility, or any part thereof, or of the rights of lessee
under this Lease, except as expressly permitted herein;
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5. Commit or suffer to be committed any waste or impairment of the
Parking Facility, or any parts thereof;
6. Alter the Parking Facility in any manner except as expressly
permitted by this Lease;
7. Fail to maintain insurance as required by this Lease;
8. Fail to make repair and restoration of the Parking Facility in the
event of damage or destruction or condemnation, if required by this Lease;
9. Voluntarily file or have voluntarily filed against it any petition
under any bankruptcy or insolvency act or law, or be adjudicated a bankrupt,
or make a general assignment for the benefit of creditors;
10. Abandon or surrender possession of the Parking Facility or Lessee's
interest therein;
11. Fail to perform or comply with any other material term or provision
hereof;
and any such failure or violation shall not be cured or remedied within
thirty (30) days after the date Lessee received notice from Agency of such
failure or violation (or, if it is not practicable to cure or remedy such
failure or violation within such thirty (30) day period, if Lessee has not
commenced the curing or the remedying of such failure or violation within
such thirty (30) day period and thereafter diligently prosecuted such cure or
remedy to completion); then, in such event, Agency may, at its option and in
addition to any other remedy provided for in this Lease, terminate the Lease
and revest in Agency the leasehold interest theretofore transferred to
lessee, by written notice to Lessee of its intention to do so.
Upon termination of this Lease pursuant to this Section 1211, it shall
be lawful for Agency to re-enter and repossess the Parking Facility, without
process of law, and Lessee, in such event, does hereby waive any demand for
possession thereof, and agrees to surrender and deliver the Parking Facility
peaceably to Agency immediately upon such termination, in good order,
condition and repair, except for reasonable wear and tear.
No ejectment, re-entry or other act by or on behalf of Agency shall
constitute a termination unless Agency gives Lessee notice of termination in
writing. Such termination shall not relieve or release Lessee from any
obligation incurred pursuant to this Lease prior to the date of such
termination.
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Termination of the Lease under this Section 1211 shall not relieve
Lessee from the obligation to pay any sum due to Agency or from any claim for
damages against Lessee. Damages which Agency may recover in the event of
default under this Lease shall include, but are not limited to, the worth at
the time of award of the amount by which the unpaid rent for the balance of
the Term remaining after the time of award exceeds the amount of such rental
loss that Lessee proves could be reasonably avoided. The right of
termination provided by this Section 1211 is not exclusive and shall be
cumulative to all other rights and remedies possessed by Agency, and nothing
contained herein shall be construed so as to defeat any other rights or
remedies to which Agency may be entitled.
H. [SECTION 1212] ENFORCED DELAY IN PERFORMANCE FOR CAUSES
BEYOND CONTROL OF PARTY
For the purposes of any of the provisions of this Lease, neither Agency
nor Lessee, as the case may be, nor any successor in interest, shall be
considered in breach of, or default in, its obligations under this Lease
(exclusive of any obligations to pay money) as a result of the enforced delay
in the performance of such obligations due to causes beyond its reasonable
control and without its fault or negligence, including, but not limited to
any law, regulation, ordinance or order of any public agency, acts of public
agencies, acts of God, acts of the public enemy, acts of the Federal
Government, acts of the other party (including, but not limited to, delays in
performing such other party's obligations pursuant to this Lease), fires,
floods, epidemics, quarantine restrictions, strikes, labor disputes, freight
embargoes, inability to obtain materials or supplies or unusually severe
weather or delays of contractors or subcontractors due to such causes; it
being the purpose and intent of this provision that in the event of the
occurrence of any such enforced delay, the time or times for performance of
the obligations of Agency or Lessee, as the case may be, shall be extended
for the period of such enforced delay, and shall commence to run from the
time of the commencement of the cause. If, however, notice by the party
claiming such extension is sent to the other party more than thirty (30) days
after the commencement of the cause, the period shall commence to run only
thirty (30) days prior to the giving of such notice. Times for performance
under this Lease may also be extended in writing by Agency and Lessee.
I. [SECTION 1213] REMEDIES AND RIGHTS OF TERMINATION BY LESSEE
In the event that at any time during the Term of this Lease, and in
violation of this Lease, Agency shall have failed to perform or comply with
any material term or provision of this Lease and if any such default shall
not be cured or remedied within
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thirty (30) days after the date Agency received written Notice of Default (or
if it is not practicable to cure or remedy such default within such thirty
(30) day period, if Agency has not commenced the curing or remedying of such
default within such thirty (30) day period and is not diligently prosecuting
such cure or remedy to completion); then, in such event, Lessee may, at its
option and in addition to any other remedy provided for in this Lease,
including, but not limited to money damages, terminate the Lease by written
notice to Agency of its intention to do so. The rights specifically provided
for in this Section 1213 are not exclusive and shall be cumulative to all
other rights and remedies possessed by Lessee, and nothing contained herein
shall be construed so as to defeat any other rights or remedies to which
lessee may be entitled.
XIII. [SECTION 1300] OPTION TO PURCHASE
A. [SECTION 1301] GRANT OF OPTION
Agency grants to Lessee an option (the "Option") to purchase the
Parking Facility for the purchase price and on the terms and conditions
hereinafter provided.
B. [SECTION 1302] TERM OF OPTION
The term of the Option shall run concurrently with the Term of the
Lease.
C. [SECTION 1303] OPTION PRICE
At any given time the purchase price pursuant to this Option (the
"Option Price") shall be the greater of:
1. The then Fair Market Value (as defined in Section 1413 below) of
the Parking Facility, as determined by an appraisal process at the time of
the exercise of the Option; or
2. The original cost of constructing the Parking Facility and the
Retail Space, which original cost of construction is agreed by the parties to
be $6,605,097.00.
Determination of Fair Market Value shall proceed as follows:
1. STEP NO. 1 - Agency and Lessee shall attempt to agree on the
Fair Market Value. For such attempt, Agency and Lessee shall use the same
approach as would an appraiser. If Agency and Lessee cannot agree on the
Fair Market Value within ten (10) days, then Agency and Lessee shall proceed
to Step No. 2.
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2. STEP NO. 2 - The Executive Director of Agency or his designee
and Lessee shall attempt to agree on an M.A.I. appraiser within ten (10)
days. If the Executive Director of Agency or his designee and Lessee agree
on an M.A.I. appraiser within ten (10) days, then the fee of said appraiser
shall be borne equally by the parties and Agency and Lessee shall proceed to
Step No. 4. If the Executive Director of Agency or his designee and Lessee do
not agree on an M.A.I. appraiser within ten (10) days, then Agency and Lessee
shall proceed to Step No. 3.
3. STEP NO. 3 - The Executive Director of Agency or his designee
and Lessee shall each appoint, at their own cost and expense, an M.A.I.
appraiser within ten (10) days. Within ten (10) days of their selection, the
two (2) M.A.I. appraisers shall select a third M.A.I. appraiser. If the two
(2) M.A.I. appraisers cannot agree on a third, then the Executive Director of
Agency or his designee or Lessee may apply to the Presiding Judge of the
Superior Court of Orange County for the appointment of a third. The fee of
the third appraiser shall be borne equally by Agency and Lessee.
4. STEP NO. 4 - The M.A.I. appraiser(s) shall be instructed to
determine the Fair Market Value. The appraiser(s) shall report his or her
finding within thirty (30) days. If three (3) appraisers have been hired,
then the Fair Market Value shall be the median of the three findings.
The Option Price shall be payable all in cash or immediately available
funds at the close of escrow.
D. [SECTION 1304] CONDITION OF TITLE
If lessee exercises the Option, Agency shall convey its interest in
the Parking Facility, including the air rights parcel on which it is
situated, to Lessee free and clear of all title defects, liens, encumbrances,
deeds of trust, and mortgages, but subject to:
1. The REA and the CC&Rs; and
2. The exclusion therefrom (to the extent now validly excepted and
reserved by the parties named in deeds, leases and other documents of record)
of all oil, gas, hydrocarbon substances and minerals of every kind and
character lying more than 500 feet below the surface, together with the right
to drill into, through, and to use and occupy all parts of the site lying
more than 500 feet below the surface thereof for any and all purposes
incidental to the exploration for and production of oil, gas, hydrocarbon
substances or minerals from the site but, without, however, any right to use
either the surface of the site or
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any portion thereof within 500 feet of the surface for any purpose or
purposes whatsoever.
E. [SECTION 1305] EXERCISE OF OPTION
Provided Lessee is not in default under this Lease, Lessee may
exercise the Option at any time by delivering to Agency: (a) a signed Notice
of Exercise of Option to Agency, substantially in the form of Attachment No.
5, and (b) a bank cashier's or certified check in the amount of Seventy-Seven
Thousand, One Hundred Seventy-Five Dollars ($77,175.00) as a deposit towards
the Option Price. The amount of such deposit shall be increased every Lease
Year by five percent (5%).
F. [SECTION 1306] AUTOMATIC TERMINATION OF OPTION
The Option and all rights of Lessee under this Option shall
automatically and immediately terminate without further notice or action by
either party if Agency terminates this Lease for any reason permitted
hereunder.
Concurrently with the signing of this Lease, Lessee shall sign, have
acknowledged and deposit with Agency a quitclaim Deed (in the form of
Attachment No. 6) quitclaiming to Agency Lessee's interest in the Parking
Facility under this Option. Delivery of the Quitclaim Deed shall only become
effective if this Option shall terminate. If Lessee purchases the Parking
Facility, Agency shall return the Quitclaim Deed to Lessee through the escrow
for such purchase.
Upon the effective delivery of the Quitclaim Deed to Agency, Agency
shall have the immediate right to record the Quitclaim Deed in the official
records of the Orange County Recorder. Whether or not the Quitclaim Deed is
recorded, upon termination of this Option, Agency shall have no further
obligation to Lessee with respect to this Option and Lessee shall have no
further right or interest in the Parking Facility.
G. [SECTION 1307] ASSIGNMENT OR ENCUMBRANCE OF OPTION
The Option shall be appurtenant to this Lease and may not be
assigned or encumbered independent of assignment or encumbrance of this
Lease. Concomitantly, assignment or encumbrance of this Lease pursuant to
Section 900 ET SEQ. hereof shall automatically effect assignment or
encumbrance of this Option, and assumption of the terms and conditions of
this Option by the assignee or encumbrancers, except, however, an
encumbrancers or collateral assignee's assumption shall be conditional on its
succeeding to the interest of the Lessee. Any assignment or attempt to
assign, or encumbrance or attempt to encumber, which is not permitted
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<PAGE>
under this Option shall be voidable and, at Agency's election, shall
constitute a default under this Lease.
XIV. [SECTION 1400] GENERAL PROVISIONS
A. [SECTION 1401] NOTICES, DEMANDS AND COMMUNICATIONS BETWEEN THE
PARTIES
Formal notices, demands and communications between Agency and Lessee
shall be sufficiently given if personally delivered (including by any
commercial courier service) or if dispatched by registered or certified mail,
postage prepaid, return receipt requested, to the offices of Agency and of
Lessee as designated in Section 106 and Section 107 hereof, or at such other
location as the respective party hereto shall have designated by notice to
the other served in accordance herewith.
B. [SECTION 1402] TIME OF ESSENCE
Time is of the essence with respect to the performance of each of the
covenants and agreements contained in this Lease.
C. [SECTION 1403] CONFLICT OF INTERESTS
No member, official or employee of Agency shall have any personal
interest, direct or indirect, in this Lease, nor shall any such member,
official or employee participate in any decision relating to this Lease which
affects his or her personal interests or the interests of any corporation,
partnership or association in which he or she is directly or indirectly
interested.
Lessee warrants that it has not paid or given, and will not pay or
give, any third party any undisclosed money or other consideration for
obtaining this Lease.
D. [SECTION 1404] NONLIABILITY OF AGENCY OFFICIALS AND
EMPLOYEES
No member, official or employee of Agency shall be personally liable
to Lessee, or any successor in interest, in the event of any default or
breach by Agency or for any amount which may become due to Lessee or
successor or on any obligations under the terms of this Lease.
E. [SECTION 1405] INSPECTION OF BOOKS AND RECORDS
Agency has the right upon forty-eight (48) hours notice (excluding
weekends and holidays) at all reasonable times to inspect the books and
records of Lessee pertaining to the Parking Facil-
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<PAGE>
ity as pertinent to the purposes of this Lease. Lessee also has the right
upon forty-eight (48) hours notice (excluding weekends and holidays) at all
reasonable times to inspect the books and records of Agency pertaining to the
Parking Facility as pertinent to the purposes of this Lease.
F. [SECTION 1406] NO PARTNERSHIP
Neither anything in this Lease contained, nor any acts of Agency or
Lessee shall be deemed or construed by any person to create the relationship
of principal and agent, or of partnership, or of joint venture, or of any
association between Agency and Lessee.
G. [SECTION 1407] COMPLIANCE WITH LAW
Lessee agrees, at its sole cost and expense, to comply and secure
compliance with all the requirements now in force, or which may hereafter be
in force, of all municipal, county, state and federal authorities, pertaining
to the Parking Facility, as well as operations conducted thereon, and to
faithfully observe and secure compliance with, in the use of the Parking
Facility, all applicable county and municipal ordinances and state and
federal statutes now in force or which may hereafter be in force, including
all laws prohibiting discrimination or segregation in the use, sale, lease or
occupancy of the property. The judgment of any court of competent
jurisdiction, or the admission of lessee or any sublessee or permittee in any
action or proceeding against them or any of them, whether Agency be a party
thereto or not, that Lessee, sublessee or permittee has violated any such
ordinance or statute in the use of the Parking Facility shall be conclusive
of that fact as between Agency and Lessee.
H. [SECTION 1408] SURRENDER OF PROPERTY
Upon the expiration or termination of this Lease pursuant to the
terms hereof, it shall be lawful for Agency to reenter and repossess the
Parking Facility without process of law, and Lessee, in such event, does
hereby waive any demand for possession thereof, and agrees to surrender and
deliver the Parking Facility peaceably to Agency immediately upon such
expiration or termination in good order, condition and repair, except for
reasonable wear and tear.
I. [SECTION 1409] SEVERABILITY
If any provision of this Lease shall be adjudged invalid or
unenforceable by a court of competent jurisdiction, the remaining provisions
of this Lease shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law.
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<PAGE>
J. [SECTION 1410] BINDING EFFECT
This Lease, and the terms, provisions, promises, covenants and
conditions hereof, shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, legal representatives,
successors and assigns. Despite the foregoing, the named Lessee herein shall
be released from all cost, liability or obligation arising under the terms of
this Lease after its having sold the Office Building and assigned this Lease
to its successor in interest in accordance with the terms of the second
paragraph of Section 901, and provided that the transferee has expressly
assumed Lessee's obligations hereunder in a written instrument reasonably
approved by Agency.
K. [SECTION 1411] CAPTIONS
The captions contained in this Lease are merely a reference and shall
not be used to construe or limit the text.
L. [SECTION 1412] APPROVALS
All consents or approvals to be given by Lessee or Agency shall not be
unreasonably withheld or delayed unless this Lease expressly provides for the
discretion of the party in giving such consent or approval.
M. [SECTION 1413] CERTAIN DEFINITIONS
As used in this Lease, the following terms shall have the meanings
specified below:
i (i) "ABANDONED" shall mean a complete voluntary removal from
the Office Building by Lessee and all persons holding under Lessee,
without an intent to return to the Office Building, and may be
established by Agency in the manner contemplated in California Civil Code
Section 1951.3.
(ii) "AFFILIATE" means any entity which, through one or
more tiers of ownership, controls, is controlled by, or is under common
control with another entity (or person, in the case of being controlled
by another), with control being deemed to exist where there is more than
fifty percent (50%) ownership, through one or more tiers of ownership,
of the voting stock where the entity in question is a corporation, or of
the voting rights as to major decisions where the entity in question is
a partnership.
(iii) "BASE CPI" means the CPI for the month in which
the Term of this Lease commences.
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<PAGE>
(iv) "CPI" means the Consumer Price Index for All Urban
Consumers, Los Angeles-Anaheim-Riverside Consolidated Metropolitan
Statistical Area, All Items (1982-84 = 100), as published by the Bureau
of Labor Statistics of the United States Department of Labor, or if the
same shall no longer be published, then such substitute index as the
parties may select as being most closely comparable to the foregoing.
(v) "FAIR MARKET VALUE" means the price that a willing
buyer not compelled to purchase would pay, and a willing seller, not
compelled to sell would accept, for the Parking Facility considering its
highest and best use, but subject to its then existing physical and
legal condition, including (without limitation) the legal and economic
effect of all leases, covenants, easements and other encumbrances then
applicable. For purposes of reviewing comparable properties in
determining Fair Market Value, only similar projects in the downtown
areas of Anaheim and the City of Orange, California, and only
transactions within the previous 12 months shall be considered, unless
there are none; and, in any case, if projects beyond those geographic
limits or transactions occurring before that time frame are utilized,
appropriate adjustments shall be made to reflect differences in the
market.
(vi) "OFFICE PURPOSES" means use of a preponderant
portion of the rentable areas in the Office Building not located on the
ground floor for purposes other than retailing of merchandise,
manufacturing or assembly operations, or other such uses not typically
found in large concentrations in first class high rise office buildings
in Orange County, California, except that Lessee may let up to one full
floor in the Office Building (in addition to the ground floor) for
restaurant or club uses.
N. [SECTION 1414] DISPUTE RESOLUTION
Any dispute or controversy between the parties hereto under the terms of
this Lease which the parties are not able to resolve between themselves shall
be submitted to binding arbitration in accordance with Attachment No. 7
hereto upon the motion of either party.
XV. [Section 1500] ENTIRE AGREEMENT, WAIVERS AND AMENDMENTS
This Lease is executed in two (2) duplicate originals, each of which is
deemed to be an original. This Lease includes forty-four (44) pages of text
and five (5) attachments. Except for that certain letter agreement executed
concurrently herewith
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<PAGE>
relating to certain transition matters, this Lease contains the entire
agreement among the parties hereto with respect to the leasing of the Parking
Facility and expressly supersedes all prior understandings, written or oral,
with respect or in any way relating thereto.
All waivers of the provisions of this Lease must be in writing and signed
by the appropriate authorities of Agency or Lessee and all amendments hereto
must be in writing and signed by the appropriate authorities of Agency and
Lessee.
"Agency":
ANAHEIM REDEVELOPMENT AGENCY, a
public body, corporate and politic
By: [SIGNATURE ILLEGIBLE]
-----------------------------------
Chairman
Date: 2-21-92
-------------
APPROVED:
KING, WEISER, EDELMAN & BAZAR
- ---------------------------------
Agency Special Counsel
By: [SIGNTURE ILLEGIBLE]
------------------------------
"Lessee":
FIRST INTERSTATE MORTGAGE COMPANY,
a California corporation
By: [SIGNATURE ILLEGIBLE]
----------------------------------
Its: [SIGNATURE ILLEGIBLE]
---------------------------------
Date: [DATE ILLEGIBLE]
---------------------
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<PAGE>
ATTACHMENT NO. 1
(LEGAL DESCRIPTION)
(Anaheim City Center - Office Building Parcel)
THE LAND REFERRED TO HEREIN IS SITUATED IN THE COUNTY OF ORANGE, STATE OF
CALIFORNIA, AND IS DESCRIBED AS FOLLOW:
PARCEL 1 OF PARCEL MAP NO. 84-229, IN THE CITY OF ANAHEIM, COUNTY OF ORANGE,
STATE OF CALIFORNIA, AS PER MAP RECORDED IN B00K 194, PAGES 22 AND 23, OR
PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPTING THEREFROM ALL OIL, GAS, AND MINERAL SUBSTANCES, TOGETHER WITH THE
RIGHT TO EXPLORE FOR AND EXTRACT SUCH SUBSTANCES, PROVIDED THAT THE SURFACE
OPENING OF ANY WELL, HOLE, SHAFT, OR OTHER MEANS OF EXPLORING FOR, REACHING,
OR EXTRACTING SUCH SUBSTANCES SHALL NOT BE LOCATED WITHIN THE CITY OF ANAHEIM
REDEVELOPMENT PROJECT ALPHA AS RECORDED IN BOOK 10812, PAGE 27, OF OFFICIAL
RECORDS OF ORANGE COUNTY, CALIFORNIA, AND SHALL NOT PENETRATE ANY PART OR
PORTION OF SAID PROJECT AREA WITHIN 500 FEET OF THE SURFACE THEREOF, AS
EXCEPTED AND RESERVED IN THE DEED FROM ANAHEIM REDEVELOPMENT AGENCY RECORDED
DECEMBER 28, 1984, AS INSTRUMENT NO. 84-534435 OF OFFICIAL RECORDS AND AS
EXCEPTED AND RESERVED IN THE FINAL ORDER OF CONDEMNNATION RECORDED NOVEMBER
5, 1986, AS INSTRUMENT NO. 86-530706 OF OFFICIAL RECORDS.
ALSO EXCEPTING THEREFROM ALL WATER, CLAIMS OR RIGHTS TO WATER, IN OR UNDER
SAID LAND.
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<PAGE>
ATTACHMENT NO. 2
PLAN SHOWING EXCESS AREA OF PARKING PARCEL
The area shown by the hatch markings is the "Excess Area" as defined in
Section 104 of the Lease:
[MAP]
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<PAGE>
ATTACHMENT NO. 3A
(FORM OF ASSUMPTION BY ASSIGNEE)
To: Anaheim Redevelopment Agency
200 South Anaheim Boulevard
Anaheim, California 92805
The undersigned, as assignee of the interest of the Lessee under that
certain Parcel "PA" Lease and Limited Option to Purchase(the "Lease"), dated
______, 1991, executed by and between Anaheim Redevelopment Agency, a public
body corporate and politic, as "Agency," and First Interstate Mortgage
Company, a California corporation, as "Lessee," and conditioned upon
consummation of the assignment thereof to the undersigned, does hereby
expressly assume all of the covenants and conditions of the Lessee under the
Lease.
Dated:
-----------------
-------------------------------------
By: ---------------------------------
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<PAGE>
ATTACHMENT NO. 3B
(FORM OF ASSUMPTION BY ENCUMBRANCER)
To: Anaheim Redevelopment Agency
200 South Anaheim Boulevard
Anaheim, California 92805
The undersigned, as the collateral assignee or other encumbrancer of the
interest of the Lessee under that certain Parcel "PA" Lease and Limited
Option to Purchase (the "Lease"), dated _______, 1991, executed by and
between Anaheim Redevelopment Agency, a public body corporate and politic, as
"Agency," and First Interstate Mortgage Company, a California corporation, as
"Lessee," and conditioned upon succession by the undersigned to the interest
of the Lessee thereunder by foreclosure or transfer in lieu of foreclosure,
does hereby expressly assume all of the covenants and conditions of the
Lessee under the Lease for so long as the undersigned shall hold such
interest of the Lessee thereunder.
Dated:
-----------------
-------------------------------------
By: ---------------------------------
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<PAGE>
ATTACHMENT NO. 4
LIST OF PRE-APPROVED USES OF RETAIL SPACE
Art Shops Ice Cream Parlors
Bakeries Jewelry Stores (Costume)
Barber/Beauty Shops Jewelry Stores (Exclusive)
Books and Stationery Men's Clothing Stores
Candy Shops Men's Shoe Stores
Children's Clothing Stores Office Supply Stores
Computer Stores Optical Shops
Conciege Services Paint and Wallpaper Supply
Copy Services Stores
Delicatessen, Specialty Foods Phone Stores
Drug Stores (Individual) Photography Shops
Drug Stores (Prescription) Shoe Repair Shops
Dry Cleaning and Laundry Sporting Goods Stores
Fabric Stores Stock Brokerage
Florists Tobacco/Cigar Shops
Furniture Stores Toy Stores
Gift Shops Travel Agencies
Grocery Stores (Convenience) Women's Dress Shops
Hobby Shops Women's Shoe Stores
Hosiery and Knit Goods Stores Yogurt Parlors
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<PAGE>
ATTACHMENT NO. 5
(FORM OF NOTICE OF EXERCISE OF OPTION)
Date:
------------------------
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
NOTICE OF EXERCISE OF OPTION
TO: Executive Director
Anaheim Redevelopment Agency
-----------------------------
-----------------------------
Secretary
Anaheim Redevelopment Agency
200 South Anaheim Boulevard
Anaheim, California 92805
RE: Anaheim Redevelopment Project Alpha
You are hereby notified that the undersigned optionee exercises its
right to purchase the Parking Facility and the Retail Space described in
Section 103 of that certain Lease and Limited Option to Purchase dated April
___, 1991, (the "Lease"), between the undersigned optionee and the Anaheim
Redevelopment Agency, in accordance with the provisions of the Option set
forth in Section 1300 ET SEQ. of the Lease.
Enclosed please find our certified or cashier's check in the amount of
$___________ as the initial deposit towards the Option Price.
"Optionee"
By:
---------------------------------
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<PAGE>
ATTACHMENT NO. 6
(FORM OF QUITCLAIM DEED)
WHEN RECORDED RETURN AND
MAIL TAX STATEMENTS TO;
ANAHEIM REDEVELOPMENT AGENCY
200 South Anaheim Boulevard
Anaheim, California 92805
Attn: Executive Director
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
FIRST INTERSTATE MORTGAGE COMPANY, a California corporation, for itself, its
heirs, successors and assigns does hereby REMISE, RELEASE AND FOREVER
QUITCLAIM TO ANAHEIM REDEVELOPMENT AGENCY, a public body, corporate and
politic, the real property in the City of Anaheim, County of Orange, State of
California described in EXHIBIT A hereto.
Dated: April __, 1991.
FIRST INTERSTATE MORTGAGE COMPANY,
a California corporation
By:
---------------------------------------
Its:
-----------------------------------
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<PAGE>
ATTACHMENT NO. 7
Arbitration Rider
1. BINDING ARBITRATION. Upon the written request of any party served
upon all other interested parties, whether made before or after the
institution of any legal proceeding, any Dispute (as defined below), which is
now existing or hereafter arises between the parties, shall be resolved by
binding arbitration in accordance with the terms of this Rider. As used in
this Rider, the term "Dispute" means any action, dispute, claim, or
controversy of any kind, whether in contract or in tort, statutory or common
law, legal or equitable, or othe wise, which in any way pertains to, arises
out of, or in connection with (a) the agreement, document or instrument to
which this Rider is attached, or any related agreement, document, or
instrument (collectively, the "Documents"), (b) all past contracts,
agreements, or other transactions in any way relating to the Documents, (c)
any incidents, omissions, acts, practices, or occurrences causing injury to
either party whereby the other party or its agents, employees or
representatives may be liable, in whole or in part, and which relate in any
manner to the Documents or the transactions contemplated therein, or (d) any
aspect of the past or present relationships of the parties with respect to
the Documents or the transactions contemplated therein. Any party to a
Dispute may, by summary proceedings (for example, but not by way of
limitation, a plea in abatement or motion to stay further proceedings), bring
an action in court to compel arbitration of any Dispute.
2. GOVERNING RULES. All Disputes shall, at the request of either
party, be resolved by binding arbitration in accordance with the terms of
this Rider. Except to the extent that the parties to the Dispute might
otherwise agree in connection with any such arbitration, the arbitration
shall be conducted in accordance with the Commercial Arbitration Rules (the
"AAA Rules") of the American Arbitration Association (the "AAA") and, to the
maximum extent applicable, the Federal Arbitration Act, Title 9 of the,
United States Code (the "Statute"); EXCEPT that in no event shall the
arbitration actually be administered by, or performed under the auspices of,
the AAA, and any provision contained in the AAA Rules indicating to the
contrary (including the payment of any fee to the AAA) shall not be observed.
In the event of any inconsistency between this Rider and the AAA Rules or the
Statute, this Rider shall control; and in the event of any inconsistency
between the AAA Rules and the Statute, the AAA Rules shall control, EXCEPT as
specified in the last clause of the preceding sentence. Judgment upon the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction; however, nothing contained herein shall be deemed to be a
waiver by any party that is a bank of the protec-
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<PAGE>
tions afforded to it under 12 U.S.C. Section 91 or any similar provision of
any applicable state law; nor shall anything contained herein be deemed to be
a waiver of the provisions of the California Government Tort Claims Act,
Title 1 Division 3.6, Parts 1 through 9, inclusive, of the California
Government Code, by any party entitled to the benefits thereof.
3. SELECTION OF ARBITRATORS. Unless otherwise agreed by the parties
to a Dispute, all arbitrators shall be practicing attorneys licensed to
practice law in the State of California with at least 10 years in practice
and shall be knowledgeable in the subject matter of the Dispute. No
arbitrator shall have represented either party to the Dispute within the
preceding 10 years. In the event that the Dispute is one which is to be
resolved by a single arbitrator, as provided in paragraph 5 below, and if the
arbitrator is not agreed upon by all parties to the Dispute within 10
business days after service by the party initiating the arbitration upon the
other party(ies) to the Dispute of the written request for arbitration from
the party requesting arbitration, upon the motion of any party to the
Dispute, the arbitrator shall be appointed by the Presiding Judge of the
Superior Court for Los Angeles County, California (the "Presiding Judge").
In the event that the Dispute is one which is to be resolved by 3
arbitrators, as provided in paragraph 5 below, unless otherwise agreed
between the parties, each party to the Dispute shall prepare and submit to
each other party to the Dispute, within 10 business days after the service of
the notice initiating the arbitration, a list of 10 names of individuals each
of whom would qualify to act as arbitrators under the terms of this Rider.
Each of the parties to the Dispute shall, in rotating order, strike one name
from the combined lists (the order in which each party participates being
determined by randomly drawn lots) until only 2 names remain. The remaining
2 individuals shall thereupon become 2 of the 3 arbitrators; and the 2 of
them shall select the third by agreement among the 2 of them. If any party
to the Dispute shall fail to timely submit its list of 10 names, upon the
application of any other party to the Dispute, that party's list shall be
prepared by the Presiding Judge. If any party refuses to participate in the
process to eliminate the surplus names from the combined lists, upon the
application of any other party to the Dispute, the Presiding Judge shall do
so. In the event that the 2 arbitrators selected through the process
described herein are unable to agree upon the third arbitrator within 10
business days after their appointment, then upon the application of any party
to the Dispute the Presiding Judge shall name the third arbitrator. The third
arbitrator shall not be any of the individuals who were among the names on
the lists which were eliminated by any party to the Dispute in the process of
selecting the first 2 arbitrators, EXCEPT that it may be the last person so
eliminated, within the discretion of the other 2 arbitrators or the Presiding
Judge, as applicable.
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<PAGE>
4. NO WAIVER; PRESERVATION OF REMEDIES. No provision of, nor the
exercise of any rights under, this Rider shall limit the right of any party,
during any Dispute, to seek, use, and employ ancillary or preliminary
remedies, judicial or otherwise, for the purposes of realizing upon,
preserving, protecting, its interests. The foregoing shall include, without
limitation, rights and remedies relating to (a) exercising self-help remedies
(including setoff rights) or (b) obtaining provisional or ancillary remedies
such as injunctive relief, sequestration, attachment, garnishment, or the
appointment of a receiver from a court having jurisdiction before, during, or
after the pendency of any arbitration. The institution or maintenance of an
action for judicial relief or pursuit of provisional or ancillary remedies or
exercise of self-help remedies shall not constitute a waiver of the right of
any party including the plaintiff, to submit any Dispute to arbitration,
including but not limited to any Dispute in connection with which the same
may have been instituted or maintained; nor shall any of the same render
inapplicable the compulsory arbitration provisions hereof.
5. MONETARY DISPUTES. In Disputes involving indebtedness or other
monetary obligations, each party agrees that the other party may proceed
against all liable persons, jointly and severally, or against one or more of
them, less than all, without impairing rights against other liable persons.
No party shall be required to join the principal obligor or any other liable
persons (including but not limited to sureties or guarantors) in any
proceeding against a particular person. A party may release or settle with
one or more liable persons as the party deems fit without releasing or
impairing rights to proceed against any persons not so released. With
respect to a Dispute in which the claim or amount in controversy does not
exceed $250,000.00, whether or not there may also be non-monetary aspects to
the Dispute, a single arbitrator shall be chosen and shall decide the
Dispute. In such cases, the single arbitrator shall have authority to render
a maximum award of $250,000.00, including all damages of any kind, plus any
award for legal expenses as contemplated below, which award may cause the
total amount awarded to exceed $250,000.00. With respect to a Dispute in
which the claim or amount in controversy exceeds $250,000.00, the Dispute
shall be decided by a majority vote of 3 arbitrators; EXCEPT that, as to the
monetary aspects of the Dispute, if no 2 of the arbitrators are able to agree
upon an amount, then the amount awarded shall be the arithmetic average of
the amounts that would be awarded by each of the arbitrators; EXCEPT FURTHER
that if any of the amounts varies from the median amount by more than 10% of
the median amount, then the amount so varying from the median amount shall be
disregarded and the arithmetic average of the remaining 2 amounts shall be
the award, UNLESS both the highest and the lowest amount vary from the median
amount by more than 10% of the median amount, in which case
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<PAGE>
both the highest and the lowest amounts shall be disregarded and the award
shall be the median amount.
6. NON-MONETARY DISPUTES. Any Dispute in which the controversy does
not involve any dollar amount shall be treated for the purposes hereof as one
in which a maximum award of $250,000.00 could be awarded, and shall be
decided by a single arbitrator as provided in paragraph 5 above.
7. SCOPE OF AWARD; MODIFICATION OR VACATION OF AWARD; QUALIFICATIONS.
The arbitrator(s) shall resolve all aspects of any Dispute in accordance with
the terms hereof and applicable substantive law. The arbitrator(s) may grant
any remedy or relief that the arbitrator(s) deem(s) just and equitable and
within the scope of the terms of this Rider. The arbitrator(s) may also
grant such ancillary relief as is necessary to make effective the award. To
the extent permitted by applicable law, the arbitrator(s) shall have the
power to award recovery of all legal expenses (including, but not limited to
attorneys' fees, administrative fees, arbitrators' fees, and other
professional fees and expenses) to the prevailing party. However, the award
or potential award of legal expenses shall not be considered in determining
the amount in controversy for purposes of determining the appropriate number
of arbitrators for the Dispute. At the request of any party to the
arbitration, the arbitrators shall make specific, written findings of fact
and conclusions of law. In all arbitration proceedings in which the amount
in controversy exceeds, in the aggregate, $250,000.00 (but only in those
arbitration proceedings) the parties shall have in addition to the limited
statutory right to seek vacation or modification of an award pursuant to
applicable law, the right to seek vacation or modification of any award that
is based in whole, or in part, on an incorrect or erroneous ruling of law by
appeal to an appropriate court having jurisdiction; however any such
application for vacation or modification of an award base upon an incorrect
ruling of law must be filed in a court otherwise having jurisdiction over the
Dispute within 15 days after the date the award is rendered. The findings of
fact by the arbitrator(s) shall be binding upon all parties and shall not be
subject to further review, except as otherwise required by applicable law.
8. STATUTE OF LIMITATIONS. All statutes of limitation that would
otherwise be applicable shall apply to any arbitration proceeding.
9. OTHER POWERS OF ARBITRATORS. To the maximum extent practicable, the
arbitrator(s) shall cause any arbitration proceeding hereunder to be
concluded within 180 days after the request by the initiating party for
arbitration. To the extent consistent with the foregoing, the arbitrator(s)
may allow limited discovery as deemed appropriate under the circumstances, it
being understood,
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<PAGE>
however, that the express intent of the parties is to produce a prompt
resolution of any Dispute. Arbitration proceedings hereunder shall be
conducted in Orange County, California. The arbitrator(s) shall be empowered
to impose sanctions and to take such other actions as the arbitrator(s)
deem(s) necessary to the same extent a judge could pursuant to the Federal
Rules of Civil Procedure, the California Rules of Court, and applicable law.
10. MISCELLANEOUS. This Rider constitutes the entire agreement of the
parties with respect to its subject matter and supersedes all prior
discussions, arrangements, negotiations, and other communications on dispute
resolution. The provisions of this Rider shall survive any termination,
amendment, or expiration of the Documents, unless the parties otherwise
expressly agree in writing. The award for legal expenses shall not be
computed in accordance with any court schedule, but shall be as necessary to
fully reimburse all attorneys' fees and other legal expenses actually and
reasonably incurred in good faith, regardless of the size of the judgment, it
being the intention of the parties to fully compensate for all the attorneys'
fees and other legal expenses reasonably paid in good faith. This Rider may
be amended, changed, or modified only by the express provisions of a writing
which specifically refers to this Rider and which is signed by all the
parties to be bound thereby. If any term, covenant, condition or provision
of this Rider is found to be unlawful or invalid or unenforceable by any
court of competent jurisdiction, such illegality or invalidity or
unenforceability shall not affect the legality, validity or enforceability of
the remaining parts of this Rider, and all such remaining parts hereof shall
be valid and enforceable and have full force and effect as if the illegal,
invalid or unenforceable part had not been included. The captions or
headings in this Rider are for convenience of reference only and are not
intended to constitute any part of the body or text of this Rider. Each
party agrees to keep all Disputes and arbitration proceedings strictly
confidential, except for disclosures of information required in the ordinary
course of business of the parties or by applicable law or regulation.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE HEREUNDER DECIDED BY NEUTRAL ARBITRATION, AND YOU ARE GIVING UP ANY
RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER
AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY. YOU HAVE READ AND
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<PAGE>
UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES HEREUNDER TO NEUTRAL
ARBITRATION.
[INITIALS ILLEGIBLE] initials initials
- -------------------- -------- -------- ---------
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<PAGE>
ANAHEIM
[LOGO] REDEVELOPMENT
AGENCY
300 South Harbor Boulevard, Suite 900, Anaheim, CA 92805 - (714) 533-8750
- - FAX (714) 956-3926
- -------------------------------------------------------------------------------
STATE OF CALIFORNIA )
COUNTY OF ORANGE ) ss.
CITY OF ANAHEIM )
I, LEONORA N.SOHL, Secretary of the Anaheim Redevelopment Agency, do hereby
certify that, upon motion duly made and seconded, the attached Agreement with
the party(ies) named below was approved by the Anaheim Redevelopment Agency
at a regular meeting of said Agency on the date listed below:
DATE OF APPROVAL: December 10, 1991
CONTRACTING PARTY(IES): First Interstate Mortgage Company
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of
the Anaheim Redevelopment Agency on the Date of Approval above set forth.
/s/ LEONORA H. SOHL
---------------------------------------------
SECRETARY OF THE ANAHEIM REDEVELOPMENT AGENCY
(SEAL)
<PAGE>
RECORDING REQUESTED BY )
AND WHEN RECORDED MAIL TO: )
Anaheim Redevelopment Agency )
200 South Anaheim Boulevard )
Anaheim, California 92805 )
Attn: Mr. Robert Zur Schmiede )
- -------------------------------------------------------------------------------
MEMORANDUM OF LEASE
This MEMORANDUM OF LEASE ("Memorandum") effective as of November 15,
1994, is entered into between the Anaheim Redevelopment Agency, a public
body, corporate and politic ("Lessor") and First Interstate Mortgage Company
("Lessee").
RECITALS
A. Lessor is the owner of certain real property, namely an airspace
parcel consisting of a 679-space parking garage, retail and related
improvements (the "Premises") more particularly described in EXHIBIT "A"
attached hereto, which Premises are appurtenant to the office building
located at 222 South Harbor Boulevard in the City of Anaheim, County of
Orange, State of California, more particularly described in EXHIBIT "B"
attached hereto and incorporated herein by reference.
B. Lessor and Lessee executed that certain Parcel "PA" Lease and
Limited Option to Purchase dated as of February 21, 1992 (as amended, the
"Lease"), pursuant to which Lessor leased to Lessee and Lessee leased from
Lessor the aforementioned Premises for a term commencing on July 1, 1991 and
expiring on June 30, 2034 unless earlier terminated pursuant to the Lease. In
addition, as more particularly set forth in the Lease, Lessor granted to
Lessee an Option to Purchase the Premises. Lessee and Lessor entered into a
First Amendment to the Lease, effective as of November 15, 1994.
C. The parties desire to cause this Memorandum to be recorded in the
Official Records of Orange County in accordance with Section 203 of the Lease.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
ADEQUACY OF WHICH ARE HEREBY ACKNOWLEDGED, THE PARTIES AGREE AS FOLLOWS:
1. TERM. The Term of the Lease commenced on July 1, 1991 and will
expire on June 30, 2034 unless earlier terminated as provided in the Lease.
2. LEASE. Lessor hereby leases the Premises to Lessee, and Lessee
hereby leases the Premises from Lessor, upon all terms, covenants and
conditions contained in
<PAGE>
the aforementioned Lease made and entered into by and between Lessor and
Lessee showing date of execution by Lessor of February 21, 1992 and a date of
execution by Lessee of November 25, 1991.
3. LEASE TERMS. The lease of the Premises to Lessee is on all of the
terms and conditions of the Lease, which is incorporated in this Memorandum by
reference. The Lease includes, among other terms, an Option to Purchase the
Premises.
3. PURCHASE OPTION. Lessor grants Lessee an option to purchase the
Premises for the purchase price and on the terms and conditions specified in
the Lease.
4. BINDING ON SUCCESSORS AND ASSIGNS. The agreements, terms,
covenants and conditions herein shall bind and inure to the benefit of Lessor
and Lessee and their respective heirs, personal representatives, successors
in interest and assigns.
5. OTHER PROVISIONS. All provisions of the Lease, including those
pertaining to rental, are incorporated herein by reference, and shall bind
the parties to this Memorandum.
6. INCONSISTENCIES. If there is any inconsistency between the terms
of this Memorandum and the Lease, then as to such inconsistency, the
provisions of the Lease shall prevail.
7. COUNTERPARTS. This Memorandum may be executed in counterparts,
and all counterparts together shall be construed as one document.
IN WITNESS WHEREOF, the parties hereto have executed this Memorandum
as of the date first above written.
LESSOR LESSEE
the Anaheim Redevelopment Agency, First Interstate Mortgage Company, a
a public body, corporate and politic California Corporation
By: By:
------------------------------- -------------------------------
Its:
------------------------------- Its:
-------------------------------
Approved as to form:
Law Offices of Lance E. Garber
Anaheim Redevelopment Agency Special Counsel
- ---------------------------------
Lance E. Garber
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<PAGE>
EXHIBIT "A"
ALL PRESENT AND FUTURE ESTATE, RIGHT, TITLE AND INTEREST OF LESSEE TO
THE REAL PROPERTY DESCRIBED BELOW AND ANY OTHER REAL PROPERTY DEMISED
PURSUANT TO THAT CERTAIN GROUND LEASE. DATED AS OF FEBRUARY 21, 1992 BY AND
BETWEEN FIRST INTERSTATE MORTGAGE COMPANY, AS LESSEE, AND THE ANAHEIM
REDEVELOPMENT AGENCY, AS LESSOR, AS AMENDED BY THAT CERTAIN FIRST AMENDMENT
EFFECTIVE AS OF NOVEMBER 15, 1994, AND ALL PRESENT AND FUTURE AMENDMENTS,
EXTENSIONS, RENEWALS AND MODIFICATIONS THEREOF AND SUPPLEMENTS THERETO
(COLLECTIVELY, THE "GROUND LEASE"), ALL PRESENT AND FUTURE OPTIONS OF ANY
KIND (INCLUDING WITHOUT LIMITATION OPTIONS TO ACQUIRE FEE TITLE TO ANY PART
OF THE REAL PROPERTY DEMISED THEREBY), RIGHTS OF FIRST REFUSAL, PRIVILEGES
AND OTHER BENEFITS OF THE LESSEE UNDER THE GROUND LEASE, TOGETHER WITH ANY
GREATER ESTATE IN THE REAL PROPERTY DEMISED THEREBY (AS HEREINAFTER DEFINED)
NOW OWNED OR HEREAFTER ACQUIRED BY TRUSTOR, AND ALL PRESENT AND FUTURE
ESTATE, RIGHT, TITLE AND INTEREST OF THE LESSEE UNDER THE GROUND LEASE IN AND
TO ALL BUILDINGS, STRUCTURES OR IMPROVEMENTS OF ANY KIND WHATSOEVER NOW OR IN
THE FUTURE LOCATED ON THE REAL PROPERTY DEMISED THEREBY:
PARCEL 1 OF PARCEL MAP NO. 86-142 (THE "PARCEL MAP") IN THE CITY OF
ANAHEIM, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 232,
PAGES 15 THROUGH 19 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY.
EXCEPTING AND RESERVING TO THE OWNERS THEREOF ALL OIL, GAS AND MINERAL
SUBSTANCES, TOGETHER WITH THE RIGHT TO EXPLORE FOR AND EXTRACT SUCH
SUBSTANCES, PROVIDED THAT THE SURFACE OPENING OF ANY WELL, HOLE, SHAFT, OR
OTHER MEANS OF EXPLORING FOR, REACHING OR EXTRACTING SUCH SUBSTANCES SHALL
NOT BE LOCATED WITHIN THE CITY OF ANAHEIM REDEVELOPMENT PROJECT ALPHA AS
RECORDED IN BOOK 10812, PAGE 27, OF ORANGE COUNTY RECORDS, STATE OF
CALIFORNIA AND SHALL NOT PENETRATE ANY PART OR PORTION OF SAID PROJECT AREA
WITHIN 500 FEET OF THE SURFACE THEREOF.
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<PAGE>
EXHIBIT "B"
PARCEL 1 OF PARCEL MAP. NO. 84-229, IN THE CITY OF ANAHEIM, COUNTY OF
ORANGE, STATE OF CALIFORNIA, AS SHOWN ON A MAP FILED IN BOOK 194, PAGES 22
AND 23 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPT ALL OIL, GAS AND MINERAL SUBSTANCES, TOGETHER WITH THE RIGHT TO
EXPLORE FOR AND EXTRACT SUCH SUBSTANCES, PROVIDED THAT THE SURFACE OPENING OF
ANY WELL HOLE, SHAFT, OR OTHER MEANS OF EXPLORING FOR, REACHING, OR
EXTRACTING SUCH SUBSTANCES SHALL NOT BE LOCATED WITHIN THE CITY OF ANAHEIM
REDEVELOPMENT PROJECT ALPHA, AS RECORDED IN BOOK 10812, PAGE 27 OF ORANGE
COUNTY RECORDS, STATE OF CALIFORNIA, AND SHALL NOT PENETRATE ANY PART OR
PORTION OF SAID PROJECT AREA WITHIN 500 FEET OF THE SURFACE THEREOF, BY
INSTRUMENT NO. 86-530706, OFFICIAL RECORDS.
-4-
<PAGE>
STATE OF CALIFORNIA )
)ss.
COUNTY OF_________ )
On____________ , before me,____________ , personally appeared
________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name is subscribed to the
within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity and that by his/her signature on the instrument
the person(s) or the entity upon behalf of which the person acted, executed
the instrument.
WITNESS my hand and official seal.
Signature
----------------------------
(This area for official notarial seal)
STATE OF CALIFORNIA )
)ss.
COUNTY OF )
On ____________ , before me, _____________________ , personally appeared
___________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name is subscribed to the
within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity and that by his/her signature on the instrument
the person(s) or the entity upon behalf of which the person acted, executed
the instrument.
WITNESS my hand and official seal.
Signature
--------------------
(This area for official notarial seal)
-5-
<PAGE>
FIRST AMENDMENT TO LEASE AND
LIMITED OPTION TO PURCHASE
This First Amendment to Lease and Limited Option to Purchase ("First
Amendment") modifies that certain Lease and Limited Option to Purchase made
by and between the ANAHEIM REDEVELOPMENT AGENCY, a public body, corporate and
politic ("Agency"), and FIRST INTERSTATE MORTGAGE COMPANY, a California
corporation ("Lessee"), and dated February 21, 1991 (the "Lease") and is made
effective as of this 15th day of November, 1994 by and between Agency and
Lessee.
RECITALS
A. Agency and Lessee desire to amend and restate certain provisions of
the Lease as more particularly set forth in this First Amendment.
AGREEMENT
In consideration of the foregoing recitals and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto agree as follows:
1. AMENDMENT TO SECTION 901 OF THE LEASE. SECTION 901 OF THE LEASE
ENTITLED "PROHIBITION AGAINST VOLUNTARY ASSIGNMENT, SUBLETTING, AND
ENCUMBERING NO FEE SUBORDINATION BY AGENCY" is hereby amended in its entirety
as set forth below:
A. [SECTION 901]
ASSIGNMENT, SUBLETTING, AND ENCUMBERING
1. GENERAL PROHIBITION AGAINST ASSIGNMENT, SUBLETTING, AND ENCUMBERING
WITHOUT AGENCY CONSENT.
Lessee shall not voluntarily assign, collaterally assign or
encumber its interest in the Lease or in the Parking Facility, or
sublease all or any part of the Parking Facility, or allow any other
person or entity (except Lessee's authorized representatives, including,
without limitation, the operator of the Parking Facility) to occupy or
use all or any part of the Parking Facility, without first obtaining the
prior written consent of the Executive Director of Agency which shall
not be unreasonably withheld and shall be based on the criteria
enumerated below. The foregoing shall not apply to the rental of parking
spaces in the Parking Facility, whether on a reserved or a non-reserved
basis or to the Sublease of spaces contemplated by Article XVI below.
<PAGE>
Inasmuch as this Lease is made appurtenant to Acquisition Parcel
"A", consent to such an assignment will only be given if: (a) the
proposed assignee will also acquire fee title to Acquisition Parcel "A";
(b) Lessee gives Agency no less than thirty (30) days prior written
notice of the proposed assignment with appropriate documentation as
evidence that the proposed assignee qualifies as a permitted assignee;
(c) Lessee pays Agency the sum of One Thousand Dollars ($1,000) to cover
Agency's costs of reviewing the proposed assignment; (d) the proposed
assignee, in recordable form and content reasonably satisfactory to the
General Counsel of Agency, expressly assumes all of the covenants and
conditions of this Lease; (e) the proposed assignee is a creditworthy
purchaser with reasonably satisfactory experience (or who has contracted
with a third party manager to operate the Office Building, which manager
has reasonably satisfactory experience) in operating a successful class
A office building; and (f) the transfer occurs concurrently with the
conveyance of fee title to Acquisition Parcel "A".
Consent to such an encumbrance or to a collateral assignment
will only be given if: (a) the proposed encumbrancer or collateral
assignee holds and will continue to hold an encumbrance on Acquisition
Parcel "A" to secure the payment of money loaned solely on the security
of Acquisition Parcel "A"; (b) the encumbrance held on Acquisition
Parcel "A" will be cross-defaulted with the proposed encumbrance or
collateral assignment so that the proposed encumbrancer or collateral
assignee will succeed to the interest of Lessee upon becoming vested
with fee title to Acquisition Parcel "A"; (c) Lessee gives Agency no
less than thirty (30) days prior written notice of the proposed
encumbrance or collateral assignment with appropriate documentation to
evidence that the proposed encumbrancer or collateral assignee is a
commercial lender or is otherwise an encumbrancer or collateral assignee
which is reasonably acceptable to Agency; (d) Lessee Agency the sum of
One Thousand Dollars ($1,000) to cover Agency's costs of reviewing the
proposed assignment; and (e) the proposed encumbrancer or collateral
assignee, in form and content reasonably satisfactory to the General
Counsel of Agency, expressly agrees to assume all of the covenants and
conditions of this Lease if and when it succeeds to Lessee's interest in
this Lease and for so long as it holds that interest. Any assignment,
encumbrance or sublease without the consent of the Executive Director of
Agency shall be voidable and, at Agency's election, shall constitute a
default. No consent to any assignment, encumbrance, or sublease shall
constitute a further waiver of the provisions of this Section.
Attachments 3A and 3B to this Lease are forms of assumption which are
satisfactory to Agency for use in connection with any such assignment,
it being expressly understood and agreed, however, that any number of
other forms to a similar effect would also be satisfactory.
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<PAGE>
Despite the foregoing, no consent of Agency shall be
required for any assignment of Lessee's interest in this Lease to any
Affiliate (as defined in Section 1413 below), but no such assignment
shall relieve Lessee of its obligations hereunder, and Lessee shall
promptly advise Agency of any assignment to an Affiliate.
If Lessee is a partnership, a withdrawal or change,
voluntary, involuntary, or by operation of law, of any general partner,
or the dissolution of the partnership shall be deemed a voluntary
assignment.
Lessee immediately and irrevocably assigns to Agency, as
security for Lessee's obligations under this Lease, all rent from any
subletting of all or a part of the Parking Facility as permitted by this
Lease, and Agency, as assignee and as attorney-in-fact for Lessee, or a
receiver for Lessee appointed on Agency's application, may collect such
rent and apply it toward Lessee's obligations under this Lease; except
that, until the occurrence of an act of default by Lessee, Lessee shall
have the right to collect such rent.
Under no circumstances will Agency subordinate Agency's fee
title to the Parking Facility to any interest.
2. EXCEPTIONS TO GENERAL PROHIBITION.
Notwithstanding anything to the contrary contained in Section
IX A.1., above, Lessee shall have the right during the term of the Lease
to voluntarily assign, sublease, collaterally assign or encumber its
interest in this Lease or in the Parking Facility without first
obtaining the prior written consent of the Executive Director of Agency
subject to the terms and conditions contained in this Section IX A.2.
Lessee may voluntarily assign or sublease its interest in this
Lease without the prior written consent of the Executive Director of
Agency only if: (a) the proposed assignee will also acquire fee title to
Acquisition Parcel "A"; (b) Lessee gives Agency thirty (30) days prior
written notice of the proposed assignment with appropriate documentation
as evidence that proposed assignee qualifies as a permitted assignee
hereunder; (c) the proposed assignee, in recordable form and content,
expressly assumes all of the terms, covenants and conditions of this
Lease arising on or after such assumption; (d) the proposed assignee or
affiliates or principals of the proposed assignee have at least three
years experience (or have contracted with a third party manager who has
at least three years experience) in the operation of a class A office
building; and (e) the proposed assignee, following the assignment and
the conveyance of fee title to Acquisition Parcel "A", shall either (i)
have an Equity Interest (as hereinafter defined) on the proposed
transfer date in Acquisition Parcel "A" and the Leasehold interest in
the Parking Garage (collectively the "Project") equal to or greater than
twenty-five percent (25%) of the Purchase Price (as hereinafter
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<PAGE>
defined) for Acquisition Parcel "A" and this Lease or (ii) have a net
worth equal to or exceeding twenty-five percent (25%) of the Purchase
Price; and (f) concurrently with the transfer of Acquisition Parcel "A",
and as more particularly provided in Section 1614 of this Lease, the
assignee (other than a Qualified Lender upon foreclosure, Trustees sale
or deed in lieu of either of the foregoing) shall give the Agency a
security deposit equal to the current year's Fixed Annual Rent which
security deposit shall be invested in a separate money market account
with an insured financial institution with interest accruing for the
benefit of Lessee unless Lessor continues to hold a prior Lessee's
security deposit. For the purpose of this Section IX A.2. the term
"Purchase Price" as used herein, shall mean the total value of all
consideration to be paid by the proposed assignee for the purchase of
the Project. The term "Equity Interest" as used herein, shall mean the
sum equal to the Purchase Price minus the amount of all financing which
would be secured by the Project. By way of example, if the proposed
Purchase Price is ten million dollars ($10,000,000) and the financing to
be secured by the Project is seven million dollars ($7,000,000), then
the Equity of the proposed assignee would be equal to three million
dollars ($3,000,000) or thirty percent (30%) of the Purchase Price.
Lessee may voluntarily encumber or collaterally assign its interest
in the Lease without first obtaining the prior written consent of the
Executive Director of Agency if: (a) the proposed encumbrancer or
collateral assignee holds or will continue to hold an encumbrance on
Acquisition Parcel "A" and the Lease to secure the same obligation; (b)
the encumbrance held on the Lease will be cross-defaulted with the
proposed encumbrance or collateral assignment so that the proposed
encumbrancer or collateral assignee will succeed to the interest of
Lessee upon becoming vested with fee title to Acquisition Parcel "A";
(c) Lessee gives Agency no less than thirty (30) days prior written
notice of the proposed encumbrance or collateral assignment; (d) the
proposed encumbrancer, beneficiary under the deed of trust or collateral
assignee is a "Qualified Lender" (on behalf of itself or as agent,
advisor or trustee for another person(s) or entity(ies); and (e) the
proposed encumbrancer or collateral assignee, in recordable form and
content, shall assume all of the terms, covenants and conditions of this
Lease if and when it succeeds to Lessee's interest in this Lease but
only for and during the period it holds that interest. Attachments 3A
and 3B to this Lease are forms of assignment which are satisfactory to
Agency for use in connection with any such assignment, it being
expressly understood and agreed, however, that any number of other forms
to a similar effect would also be satisfactory. The term "Qualified
Lender" as used herein, shall mean any of the following persons or
entities: (i) any state or national bank; (ii) any foreign banking or
financial institution; (iii) any federal or state savings bank; (iv) any
federally or state chartered savings and loan association; (v) any
insurance company with gross assets or surplus in excess of $50,000,000
at the time the mortgage is extended; (vi) any person or entity holding
a commercial finance license (or any other license allowing commercial
loan activity) in the State of California; (vii) any pension fund
(whether directly or through an investment
-4-
<PAGE>
advisor); (viii) any broker/dealer including without limitation any
mutual fund or investment company registered under the Securities Act of
1934 as amended; (ix) any person or entity exempt from the usury
limitations imposed by the California Constitution; (x) any mortgage or
real estate investment trust with gross assets of not less than
$50,000,000; (xi) any college or university endowment fund with gross
assets of not less than $50,000,000; (xii) any other financial
institution (including without limitation any asset pool, mutual fund or
investment company) with gross assets of not less than $50,000,000;
(xiii) any special purpose partnership, corporation, trust or other
entity, formed for the purpose of issuing debt which debt is rated
investment grade quality (i.e. not less than "AA" by Standard & Poors or
a similar rating by another agency), upon issuance, by a nationally
recognized rating agency, (xiv) any affiliate of any of the foregoing
including without limitation any holding company; or (xv) any affiliate
of the Lessee. In the event that a mortgage is extended in favor of a
Qualified Lender such Qualified Lender shall not be limited in any
manner in selling, transferring or securitizing any indebtedness secured
by such mortgage, in whole or in part, and each and every purchaser or
holder of such indebtedness or any interest therein shall be deemed a
Qualified Lender.
3. HYPOTHECATION OF LEASEHOLD.
(a) Subject to the provisions of this Section IX A., Lessee
shall have the right at all times during the term of this Lease, without
the consent of Agency, to encumber the leasehold estate created by this
Lease by one or more mortgages, deeds of trust or other security
instruments, including, without limitation, assignments of the rents,
issues and profits from the Parking Facility, to secure repayment of any
loans, and associated obligations, made to Lessee, for any purpose
whatsoever. Any such mortgage, deed of trust, or other security
instrument, including without limitation, assignments of rents, issues
and profits from the Parking Facility, and all rights of the mortgagee,
beneficiary or security holder thereunder, shall be subject to all
terms, covenants and conditions of this Lease, as amended, and to all
rights and interest of Agency under this Lease, as amended. In no event
shall any Leasehold Mortgage constitute or be deemed to constitute a
lien upon the fee estate and reversionary interest of Agency.
(b) As used herein, "Leasehold Mortgage" shall mean any
mortgage, deed of trust or other security instrument, including, without
limitation, an assignment of the rents, issues and profits from the
Parking Facility, which constitutes a lien on the leasehold estate
created by this Lease. As used herein, "Lender" shall mean the holder or
holders of each Leasehold Mortgage.
(c) During the continuance of any Leasehold Mortgage and until
such time as the lien of any Leasehold Mortgage has been extinguished:
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<PAGE>
(i) Agency shall not agree to any mutual termination nor
accept any surrender of this Lease, nor shall Agency consent to any
amendment or modification of this Lease, without the prior written
consent of each Lender.
(ii) Notwithstanding any default by Lessee in the performance
or observance of any agreement, covenant or condition of this Lease on
the part of Lessee to be performed or observed, Agency shall have no
right to terminate this Lease unless an event of default shall have
occurred and be continuing, and Agency shall, subject to subparagraph
(vii) of this Section IX A.3.(c), have given each Lender written notice
of such event of default, and each or any Leader shall have failed to
remedy such default or acquire Lessee's leasehold estate created hereby
or commence foreclosure or other appropriate proceedings in the nature
thereof, all as set forth in, and within the time specified by, this
Section IX A.3.(c).
(iii) Any Lender shall have the right, but not the
obligation, at any time prior to termination of this Lease and without
payment of any penalty, to pay all of the rents due hereunder, to obtain
and place in effect any insurance, to pay any taxes and assessments, to
make any repairs and improvements, to do any other act or thing required
of Lessee hereunder, and to do any act or thing which may be necessary
and proper to be done in the performance and observance of the
agreements, covenants and conditions hereof to prevent termination of
this Lease. All payments so made and all things so done and performed by
any Lender shall be as effective to prevent a termination of this Lease
as the same would have been if made, done and performed by Lessee
instead of by such Lender. Any sublessee of the Parking Facility, and
any sublessee of such sublessee, and their respective possession and
use, shall not be disturbed by Agency in the event of any default
hereunder or termination of this Lease so long as (A) such sublessee
performs all obligations binding upon it under its sublease, (B) such
sublessee attorns to Agency, and (C) any default in the payment of any
monetary obligations of Lessee under this Lease is cured within the
period of time applicable to Lender hereunder, (D) such sublease is not
inconsistent with the terms of the Lease.
(iv) Should any event of default under this Lease occur and
such event of default not be cured or remedied by Lessee within the time
periods required under this Lease, any Lender shall have thirty (30)
days after receipt of notice from Agency, subject to subparagraph (vii)
of this Section IX A.3.(c), setting forth the nature of such uncured
event of default, and, if the default is such that possession of the
Parking Facility may be reasonably necessary to remedy the default, a
reasonable time after the expiration of such thirty (30) day period,
within which to remedy such default, provided that (A) the Lender shall
have fully cured any default in the payment of any monetary obligations
of Lessee under this Lease within such thirty (30) day period and shall
continue to pay or cause to be paid currently such monetary obligations
as and when the same are due and (B) the Lender shall have acquired
Lessee's leasehold
-6-
<PAGE>
estate created hereby or commenced foreclosure or other appropriate
proceedings in the nature thereof within such period, or prior thereto,
and is diligently prosecuting any such proceedings. All rights of Agency
to terminate this Lease as the result of the occurrence of any such
event of default shall be subject to, and conditioned upon, Agency,
subject to subparagraph (vii) of this Section IX A.3.(c), having first
given each Leader written notice of such default and such Lender having
failed to remedy such default or, acquire Lessee's leasehold estate
created hereby or commence foreclosure or other appropriate proceedings
in the nature thereof as set forth in and within the time specified by
this subparagraph IX A.3.(c)(iv).
(v) Any uncured event of default under this Lease which in the
nature thereof cannot be remedied by a Lender shall be deemed to be
remedied if (A) within thirty (30) days after receiving written notice
from Agency, subject to subparagraph (vii) of this Section IX A.3.(c),
setting forth the nature of such uncured event of default, or prior
thereto, the Lender shall have acquired Lessee's leasehold estate
created hereby or shall have commenced foreclosure or other appropriate
proceedings in the nature thereof, (B) the Lender shall diligently
prosecute any such proceedings to completion, and (C) the Lender shall
have fully cured any default in the payment of any monetary obligations
of Lessee hereunder which do not require possession of the Parking
Facility within such thirty (30) day period and shall thereafter
continue to faithfully perform all such monetary obligations which do
not require possession of the Parking Facility, and (D) after gaining
possession of the Parking Facility the Lender performs all other
obligations of Lessee hereunder (excepting however the cure or remedy of
such event or events of defaults which in the nature thereof cannot be
remedied by a Lender) arising on or after such possession as and when
the same are due.
(vi) If a Lender is prohibited by any process or injunction
issued by any court or by reason of any action by any court having
jurisdiction of any bankruptcy or insolvency proceeding involving Lessee
from commencing or prosecuting foreclosure or other appropriate
proceedings in the nature thereof, the times specified in subparagraph
IX A.3.(c)(iv) and (v) above for commencing or prosecuting such
foreclosure or other proceedings shall be extended for the period of
such prohibition; provided that the Lender shall have fully cured,
within the 30-day time periods set forth in subparagraphs IX A.4.(c)(iv)
and (v) above, any default in the payment of any monetary obligations of
Lessee under this Lease and shall continue to pay currently such
monetary obligations as and when the same fall due.
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<PAGE>
(vii) Agency shall mail or deliver to any Lender a duplicate
copy of any and all notices which Agency may from time to time give to
or serve upon Lessee pursuant to the provisions of this Lease, and such
copy shall be mailed or delivered to such Lender simultaneously with the
mailing or delivery of the same to Lessee. No notice by Agency to Lessee
hereunder shall be deemed to have been given unless and until a copy
thereof shall have been mailed or delivered to all Lenders as herein set
forth. Lessee (or, at a Lender's option, Lender) shall provide Agency
with written notice of the name, mailing address, street address and
telephone number of each Leader. Any Lender may directly provide such
information to Agency. Upon receipt of such information (unless
otherwise actually known to Agency), Agency shall thereupon become and
thereafter shall be bound to mail or deliver a duplicate copy of all
notices to the Lessee hereunder to each such Lender.
(viii) Notwithstanding anything to the contrary contained
herein, foreclosure of a Leasehold Mortgage, or any sale thereunder,
whether by judicial proceedings or by virtue of any power contained in
the Leasehold Mortgage, or any conveyance of the leasehold estate
created hereby from Lessee to a Lender through, or in lieu of,
foreclosure or other appropriate proceedings in the nature thereof shall
not require the consent or approval of Agency or constitute a breach of
any provision of or a default under this Lease, and upon such
foreclosure, sale or conveyance Agency shall recognize the Lender, or
any other foreclosure sale purchaser, as Lessee hereunder, as long as
the Lender, or any other foreclosure purchaser, has acquired both the
leasehold estate as created by this Lease and Acquisition Parcel "A." In
the event the Lender becomes Lessee under this Lease or any new lease
obtained pursuant to subparagraph IX A.3.(c)(ix) below, or in the event
the leasehold estate hereunder is purchased by any other party at a
foreclosure sale, the Lender, or such other foreclosure sale purchaser,
shall be bound to perform and satisfy the obligations of Lessee under
this Lease or such new lease; provided, however, that the personal
liability of the Lender, or such foreclosure sale purchaser, for the
obligations of Lessee under this Lease or such new lease shall exist
only with respect to obligations arising during the period of time that
the Lender or such other foreclosure sale purchaser remains lessee
thereunder, and the Lender's or such foreclosure sale purchaser's right
thereafter to assign this Lease or such new lease shall not be subject
to any restriction, except that the assignee or purchaser of this Lease
shall also simultaneously purchase or sublease Acquisition Parcel "A."
All subsequent purchasers or assignees of this Lease or the leasehold
interest created hereby shall be bound by and shall adhere to the
restrictions on assignment and subletting set forth in Section IX A.
hereof. In the event the Lender subsequently assigns or transfers its
interest under this Lease after acquiring the same by foreclosure or
deed in lieu of foreclosure or subsequently assigns or transfers its
interest under any new lease obtained pursuant to subparagraph IX
A.3.(c)(ix), and in connection with any such assignment or transfer the
Lender takes back a mortgage or deed of trust encumbering such leasehold
interest to secure a portion of the purchase price given to the Lender
for such assignment of transfer, then
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<PAGE>
such mortgage or deed of trust shall be considered a Leasehold Mortgage
as contemplated under this Section IX A.3. and the Lender shall be
entitled to receive the benefit of and enforce the provisions of this
Section IX A.3. and any other provisions of this Lease intended for the
benefit of the holder of a Leasehold Mortgage.
(ix) Should Agency terminate this Lease by reason of any
default by Lessee hereunder, or should Lessee terminate this Lease, or
attempt to do so, pursuant to Section 365(a) of the Bankruptcy Code, 11
U.S.C. Section 101 ET SEQ., then Agency shall, upon written request by
any Lender given within sixty (60) days after such termination (or
within thirty (30) days after such termination by any Lender which has
previously received notice from Agency of any uncured and uncontested
monetary default by Lessee hereunder and not elected, at its option, to
effect a cure thereof within the time periods set forth in subsection
(c) of this Section IX A.3.), immediately execute and deliver a new
lease of the Parking Facility to such Lender, or its nominee, purchaser,
assignee or transferee, for the remainder of the term of this Lease with
the same agreements, covenants and conditions (except for any
requirements which have been fulfilled by Lessee prior to termination) as
are contained herein and with priority equal to that hereof; provided,
however, as a precondition to obtaining such new lease the Lender shall
cure any defaults of Lessee susceptible to cure by a Lender; provided,
further, that Lender's personal liability under such new Lease shall
terminate upon an assignment of such lease in accordance with the terms
hereof. Upon execution and delivery of such new lease, Agency shall take
such action as shall be necessary to cancel and discharge this Lease and
to remove Lessee named herein from the Parking Facility.
(x) The name of any Lender may be added to the "Loss Payable
Endorsement" of any and all insurance policies required to be carried by
the Lessee hereunder provided that all insurance proceeds from insurance
carried by Lessee for the Parking Facility shall be deposited in a third
party escrow account to be used by Lessee solely for repair of the
Parking Facility in accordance with Section 801, et seq. of the Lease.
(xi) Ground Lessee or Lender, as a successor of Lessee, shall
not be prohibited from protesting or contesting any and all taxes, tax
valuations or tax assessments upon the Parking Facility and the
improvements thereon, and Agency agrees upon request to join in any such
protest or contest at Ground Lessee's or Lender's sole cost and expense
provided that Agency is not required to advocate the Lessee's position.
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<PAGE>
(xii) Agency agrees promptly after submission to execute,
acknowledge and deliver any agreements modifying this Lease reasonably
requested by any Lender, provided that such modification agreements do
not reduce the Rental, change the duration of the term, diminish the
Lessee's obligations, or in any way impair or reduce Agency's prior
rights as in this Lease expressly provided for or otherwise impair or
reduce Agency's security.
(xiii) Each Lender shall be given notice of any legal action
hereunder and shall have the right to intervene therein and be made a
party to such proceedings, and the parties hereto do hereby consent to
such intervention. In the event that any Lender shall not elect to
intervene or become a party to such proceedings, such encumbrancer or
collateral assignee shall receive notice of a copy of any award or
decision made in said proceedings.
(xiv) Nothing contained in this Article shall enlarge or
increase the rights or remedies available to Agency to terminate this
Lease prior to the expiration of the term hereof as such rights and
remedies are set forth in this Lease. The provisions of this Article are
intended by the parties to benefit any Lender.
4. ADDITION OF SECTION 1308 OF THE LEASE. The following is added to
the Lease as Section 1308:
[SECTION 1308] RESERVATION BY AGENCY.
Notwithstanding anything contained in this Article XIII to the
contrary, including, without limitation, the express provisions of
Section 1304, from the conveyance Agency shall have the right to reserve
a leasehold interest in the Parking Facility providing for rights to,
and obligations of, Agency consistent with, and on the same terms and
conditions as those set forth in Article XVI of this Lease. The term of
said leasehold interest shall be ninety-nine (99) years and the rent
therefor shall be the nominal sum of one ($1.00) per year.
5. ADDITION OF SECTION 1415 OF THE LEASE. The following is added to the
Lease as Section 1415:
O. [SECTION 1415] NO MERGER.
(a) There shall be no merger of the leasehold estate created by
this Lease with the fee estate in the Parking Facility by reason of the
fact that the same person may own or hold (i) the leasehold estate
created by this Lease or any interest in such leasehold estate and (ii)
the fee estate in the Parking Facility or any interest in such fee
estate; and no merger shall occur unless and until Agency, Lessee and
any Lender shall join in a written instrument effecting such merger and
shall duly record the same.
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<PAGE>
(b) Unless there has been a failure of Lender to cure a default
after expiration of notice and cure periods, no termination of this
Lease shall cause a merger of the estates of Agency and Lessee, unless
Agency and each Leader so elects, and any such termination shall, at the
option of Agency and any Lender, either work a termination of any
sublease in effect or act as an assignment to Agency of Lessee's
interest in any such sublease.
6. ADDITION OF SECTION 1416 OF THE LEASE. The following is added to
the Lease as Section 1416 of the Lease:
P. [SECTION 1416] ESTOPPEL CERTIFICATES. Lessee or Agency, as
the case may be, shall execute, acknowledge and deliver to the other
and/or to any Lender or proposed Assignee under Section 901 hereof,
promptly upon request, and in any event not later than fifteen (15)
business days following receipt of such request, but not more than once
to each party in each consecutive period of six calendar months (unless
any breach or default hereunder shall have occurred or be alleged in
writing to have occurred, in which case the foregoing semiannual
limitation shall not apply), its certificate certifying (a) that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect, as modified,
and stating the modifications), (b) the dates, if any, to which all
rental due hereunder has been paid, (c) whether there are then existing
any charges, offsets or defenses against the enforcement by Agency of
any agreement, covenant or condition hereof on the part of Lessee to be
performed or observed (and, if so, specifying the same), (d) whether
there are then existing any defaults (or facts which with notice or the
passage of time, or both could ripen into a default) by Lessee in the
performance or observance by Lessee of any agreement, covenant or
condition hereof on the part of Lessee to be performed or observed and
whether any notice has been given to Lessee of any default which has not
been cured (and, if so, specifying the same), and (e) whether Lessee has
exercised the option to purchase the Parking Facility. Any such
certificate may be relied upon by a prospective purchaser, mortgagee or
trustee or beneficiary under a deed of trust on the Parking Facility or
any part thereof. Failure to execute, acknowledge, and deliver, on
request, the certified statement described above within the specified
time shall constitute acknowledgement by the party failing to so deliver
the statement for the benefit of the party requesting the statement and
all persons entitled to rely on the statement that this Lease is
unmodified and in full force and effect and that the rent and other
charges have been duly and fully paid to and including the respective
due dates immediately preceding the date of the notice of request and
shall constitute a waiver, with respect to all persons entitled to rely
on the statement, of any defaults that may exist before the date of the
notice.
7. ADDITION OF ARTICLE XVI OF THE LEASE. The following is added to the
Lease as Article XVI:
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A. [SECTION 1601] RESERVATION OF RIGHTS TO AGENCY.
Notwithstanding anything contained in this Lease to the
contrary, Agency, from the grant to Lessee of the exclusive use,
occupancy and possession of the Parking Facility represented by this
Lease, and subject to the terms and conditions of this Article XVI,
reserves unto itself, the non-exclusive right to use, occupy and possess
the Parking Facility during any or all of the following days and times:
Monday through Friday 5:30 p.m. to 5:30 a.m. (next day)
Saturday 24 hours
Sunday 12:00 a.m. to 5:30 a.m. (Monday)
Holidays on which 12:00 a.m. to 5:30 a.m. (next day)
the office of the
Office Building is
closed
(collectively, the "Agency Times of Use").
B. [SECTION 1602] PRIORITY OF USE.
The use of the Parking Facility by the Agency or Agency's
Permittees ("Agency's Use") shall at all times be subordinate and
subject to the primary use of the Parking Facility which is to provide
City of Anaheim Municipal Code-required parking for the tenants,
employees, visitors, owners and guests of the Office Building and Agency
acknowledges and agrees that (1) some of the vehicles parked for such
business purposes will not have vacated the Parking Facility by 5:30
p.m. on Business Days, (2) some of the tenants of the Office Building have
regular operations during the Agency Times of Use, which operations
require parking in the Parking Facility by said tenants, their
employees, visitors and guests, and (3) some of the tenants of the
Office Building will make incidental use of the Parking Facility during
the Agency Times of Use. Accordingly, Agency covenants and agrees that
at all times during the Agency Times or Use, the Lessee's right to
provide parking for the tenants, employees, visitors and guests of the
Office Building in the Parking Facility and to set the terms and
conditions thereof shall be superior to the rights of Agency hereunder
to the extent of any conflict between the Lessee's use and Agency's Use.
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<PAGE>
C. [SECTION 1603] PRIOR NOTICE TO LESSEE.
If and when Agency elects to exercise its right to use, occupy
and possess the Parking Facility, it shall notify Lessee in writing of
the precise dates and times of such use, occupancy and possession. Said
notice shall be given not later than fifteen (15) business days prior to
the date on which Agency elects for such use to commence.
D. [SECTION 1604] OPERATION OF PARKING FACILITY.
There shall be a single operator for the Parking Facility to be
selected by Lessee (and reasonably acceptable to Agency). If the
operator selected by Lessee is not reasonably acceptable to Agency,
Agency (but not any assignee of Agency) may upon not less than thirty
(30) days prior written notice employ a single operator, for the Agency
Terms of Use; provided that such operator shall be subject to the prior
reasonable approval of Lessee, shall carry such insurance as Lessee may
reasonably require and shall operate the Parking Facility in accordance
with the provisions of the Lease. Agency at its sole cost and expense
shall bear all costs to operate the Parking Facility during all of the
portion of the Agency Times of Use for which Agency has elected to use,
occupy and possess the Parking Facility pursuant to notice given to
Lessee under Section 1603 above (the "Agency's Hours of Operation").
Agency's cost of operating the Parking Facility during the Agency's
Hours of Operation shall include, without limitation, all direct
operating costs ("Direct Cost") such as gatekeepers, security, increases
in insurance costs attributable to the Agency's Use and costs of the
parking operator but shall not include Operating Costs (defined below)
Maintenance Costs (defined below) or utilities, which costs shall be
allocated pursuant to Sections 1605 and 1608 below.
E. [SECTION 1605] MAINTENANCE AND REPAIRS OF IMPROVEMENTS.
Agency and Lessee acknowledge and agree that pursuant to
Section 601 of the Lease, Lessee has assumed full responsibility for the
operation and maintenance of the Parking Facility, and the improvements
and all elevators, fixtures and furnishings thereon or therein, and all
sidewalks, curbs and paving, and all landscaping adjacent to the Parking
Facility (but excluding the Retail Space and the Expansion) and within
the public right-of-way, throughout the Term of this Lease without
expense to Agency unless otherwise specified in this Lease, and to
perform all repairs and replacements necessary to maintain and preserve
the Parking Facility, and the improvements, elevators, fixtures and
furnishings, sidewalks, curbs and paving, and landscaping, in a manner
reasonably satisfactory to Agency and in compliance with all applicable
laws (collectively, the "Maintenance Costs"). In addition, Lessee is
also required to pay all taxes, insurance, association dues or
assessments and other costs of operating the Parking Facility
(collectively, the "Operating Costs")
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<PAGE>
Nothing contained in this Article XVI shall be deemed,
construed or interpreted to amend, alter, modify or diminish Lessee's
obligations under Section 601 of this Lease. However, to defray the costs
incurred by Lessee by reason of any use of the Parking Facility
authorized or permitted by Agency (or any assignee of Agency) 14 during
Agency Times of Use, Lessee shall be entitled to offset, against each
monthly payment of Fixed Annual Rent-Parking Facility, an amount equal
to the product obtained by multiplying (1) the sum of the Direct Costs
(unless previously paid by Agency), Maintenance Costs, utilities and
Operating Costs incurred by Lessee, during the immediately preceding
month (excluding any costs relating to the operation and maintenance of
the drive-through bank tellers located in a portion of the Parking
Facility structure) by (2) a fraction the numerator of which is the
total number of the Agency's Hours of Operation for said month and the
denominator of which is the total number of hours in the immediately
preceding month (E.G., 720 for a 30-day month).
If for any particular month the amount to be offset exceeds the
subject monthly payment of Fixed Annual Rent-Parking Facility, the
amount that would otherwise be offset as set forth above shall be paid
by Agency to Lessee within thirty (30) days after billing from Lessee to
Agency therefor. For the purposes of substantiating the Maintenance
Costs claimed by Lessee, Lessee shall make the reports and Agency shall
have the audit rights set forth in Section 305 of this Lease.
F. [SECTION 1606] USE.
During the Agency's Hours of Operation, Agency shall use the
Parking Facility to provide vehicular parking for the public, including,
without limitation, the owners, operators, tenants, customers,
employees, guests and invitees of area businesses and properties
(collectively, "Agency's Permittees") provided Agency shall in no manner
compete with or offer any parking to Lessee's tenants, or the employees,
visitors or guests of any of Lessee's tenants.
G. [SECTION 1607] PARKING RATES. POLICIES AND PROCEDURES.
During the Agency's Hours of Operation, Agency shall have the
right to set all parking rates and policies relating to parking charges
(E.G., time charges, if any, and the cost and availability of
validations, if any) for use of the Parking Facility by Agency's
Permittees. Agency shall be entitled to keep as its sole property all of
the parking revenues attributable to use of the Parking Facility by
Agency's Permittees during the Agency's Hours of Operation. Agency shall
use its best efforts to cause Agency's Permittees to follow all rules,
regulations and procedures established by the Lessee or the Parking
Operator, from time to time.
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<PAGE>
H. [SECTION 1608] UTILITIES AND SERVICES.
During the Agency's Hours of Operation, Lessee shall furnish to
the Parking Facility reasonable quantities of gas, water, electricity,
sewer and all other services and utilities as required for Agency's use.
The cost and expense of said utilities and services shall be paid by
Lessee and shall be included in the Maintenance Costs which Agency shall
pay pursuant to Section 1605 above.
I. [SECTION 1609] INDEMNIFICATION.
Notwithstanding anything contained in this Lease to the
contrary, Agency hereby indemnifies and holds Lessee, the Lender, and
the officers, members, employees, agents and contractors of either
Lessee or Lender harmless from and against all claims, costs, expenses,
liabilities and demands for loss or damage, including without limitation
any violation of law, property damage, personal injury, wrongful death,
arising out of or in connection with the use or occupancy of the Parking
Facility during the Agency's Hours of Operation, by Agency, Agency's
Permittees or any other person or entity becoming a successor or
assignee of Agency, other than for the negligent or wilful acts or
omissions of Lessee or its officers or employee's.
J. [SECTION 1610] OFFICE BUILDING COMPLIANCE.
To the extent that Agency's use of the Parking Facility or
reservation of rights hereunder results in the violation of any law,
rule, regulation or ordinance pertaining to the requirement to maintain
the specified number of parking spaces for the Office Building, it
shall be a pre-condition to Agency's Use that any such violation shall
be corrected by a variance, amendment or other appropriate governmental
order and that Agency shall indemnify Lessee and hold Lessee and its
members, officers and employees harmless from and against any and all
claims, costs, expenses, liabilities and damages in connection therewith.
K. [SECTION 1611] ASSIGNMENT.
Agency shall have the right to assign all or any portion of its
rights hereunder to use the Parking Facility during the Agency Times of
Use provided that:
(1) such assignee expressly assumes its prorata portion of the
obligations hereunder and agrees to be bound by the terms hereof (2)
Agency provides at least thirty (30) days prior written notice to
Lessee; and (3) such assignment shall not release Agency from any
obligations hereunder.
Agency shall have the right to collaterally assign or encumber
its rights hereunder subject to the condition that Agency provide at
least thirty (30) days prior written notice to Lessee. Upon the written
request of Agency, Lessee
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<PAGE>
agrees to make modifications to this Lease for the benefit and
protection of a secured lender similar to the lender protections set
forth in Sections 901.3, 1415 and 1416 of this Lease.
L. [SECTION 1612] SIGNS.
Agency at its sole cost and expense shall have the right to
place, post, construct and maintain in, on, or about the Parking
Facility such signs as Agency reasonably requires to enjoy use,
occupancy and possession of the Parking Facility during Agency's Hours
of Operation. That notwithstanding, Agency shall conform all new signs
to the design of the signage then existing in, on or about the Parking
Facility.
M. [SECTION 1613] DETERMINATION OF GROSS RECEIPTS.
For purposes of determining the Fixed Annual Rent for Lease
Years 19 through 23 under Section 303 of the Lease, the appraisal shall
only consider the gross receipts per parking stall per year attributable
to use by Lessee and the tenants, employees, visitor or guests of the
Office Building. All other references in the Lease to Gross Receipts or
Gross Revenues shall refer only to the revenues generated by Lessee's
use of the Parking Facility.
N. [SECTION 1614] SECURITY DEPOSIT.
If, pursuant to Section 901 of this Lease, Agency holds a
security deposit, and if Lessee is in Default under this Lease, Agency
shall have the right to use the security deposit, or any portion of it,
to cure the Default or to compensate Agency for all damage sustained by
Agency resulting from Lessee's Default. Lessee shall immediately on
demand pay to Agency a sum equal to the portion of the security deposit
expended or applied by Agency as provided in this paragraph so as to
maintain the security deposit in the sum initially deposited with
Agency. If Lessee is not in Default at the expiration or termination of
this Lease or upon an assignment in accordance with Section 901 of the
Lease as amended hereby, Agency shall return the security deposit to
Lessee. Agency's obligations with respect to the security deposit are
those of a debtor and not a trustee.
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<PAGE>
The security deposit may be in the form of cash or an
irrevocable, standby, documentary letter of credit negotiable at sight
in the Counties of Orange or Los Angeles, California. The letter of
credit bank shall have assets of at least $500 million. Draws on the
letter of credit shall require presentation by Agency to the bank of not
more than: (a) the original letter of credit, (b) a sight draft signed
by a person purporting to be the Executive director of Agency, and (c) a
statement signed by a person purporting to be the Executive Director of
Agency certifying that the Lessee under that certain Parcel "PA" Lease
and Limited Option to Purchase by and between the Anaheim Redevelopment
Agency and First Interstate Mortgage Company, as amended and assigned,
is in Default and the Anaheim Redevelopment Agency is therefore entitled
to the funds drawn.
The letter of credit shall have an expiration date of not
earlier than one (1) year from its date of issuance. Not later than
thirty (30) days prior to the expiration date of the letter of credit
(or thirty (30) days prior to the expiration date of any extension,
renewal or replacement thereof), the Lessee shall deliver to Agency an
extension, renewal or replacement of the letter of credit with an
expiration date not earlier than one (1) year hence. Agency shall give
Lessee at least three days prior notice of any draw on the Letter of
Credit.
If Lessee fails to deliver an extension, renewal or replacement
of the letter of credit not later than twenty (20) days prior to any
expiration date, the letter of credit shall give Agency the immediate
right to draw down the full amount thereof and treat it as a cash
security deposit until Lessee delivers such extension, renewal or
replacement, if ever.
O. [SECTION 1615] PRE-APPROVED USES OF RETAIL SPACE.
This list of pre-approved uses of the Retail Space attached to
this Lease Attachment No.4 is hereby amended by the addition thereto of the
following:
Fast Food Restaurant (w/o drive-in)
Sit-down Restaurant (w/or w/o the sale of alcoholic beverages for
onsite consumption only)
Theatre Box Office (ticket sales and services)
8. FULL FORCE AND EFFECT. Except as specifically provided in this
First Amendment, all terms, covenants and conditions of the Lease shall
remain unmodified and in full force and effect.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the date set forth above.
"Agency"
ANAHEIM REDEVELOPMENT AGENCY, a public
body, corporate and politic
By:
-----------------------------------
Its:
----------------------------------
Approved as to form:
Law Offices of Lance E. Garber
Anaheim Redevelopment Agency Special Counsel
- ---------------------------------
Lance E. Garber
"Lessee"
FIRST INTERSTATE MORTGAGE COMPANY,
a California corporation
By:
------------------------------------
Its:
-----------------------------------
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<PAGE>
RECORDING REQUESTED BY )
AND WHEN RECORDED MAIL TO: )
)
Whitman Breed Abbott & Morgan )
633 West Fifth Street, Suite 2100 )
Los Angeles, California 90071 )
Attn: Alisa J. Freundlich, Esq. )
- -------------------------------------------------------------------------------
ASSIGNMENT OF LEASE
This ASSIGNMENT OF LEASE ("Assignment") effective as of November 15,
1994, is made between First Interstate Mortgage Company, a California
Corporation ("Assignor") and 222 Harbor Associates, LLC, a Nevada Limited
Liability Company ("Assignee").
RECITALS
A. Anaheim Redevelopment Agency, a public body, corporate and politic
("Lessor"), as lessor, and Assignor, as Lessee, executed that certain Parcel
"PA" Lease and Limited Option to Purchase dated as of February 21, 1992 (as
amended, the "Lease"), pursuant to which Lessor leased to Lessee and Lessee
leased from Lessor certain real property, namely an airspace parcel
consisting of a 679-space parking garage, retail and related improvements
(the "Premises") more particularly described in EXHIBIT "A" attached hereto,
which Premises are appurtenant to the office building located at 222 South
Harbor Boulevard in the City of Anaheim, County of Orange, State of
California, more particularly described in EXHIBIT "B" attached hereto and
incorporated herein by reference, for a term commencing on July 1, 1991 and
expiring on June 30, 2034 unless earlier terminated pursuant to the Lease.
Assignor, as Lessee, and Lessor entered into a First Amendment to the Lease,
effective as of November 15, 1994.
B. In addition to the real property described in Exhibit A, Assignor has
certain appurtenant rights pursuant to the Grant of Reciprocal Easements and
Declaration of Conditions, Restrictions and Covenants Running With the Land
For Parcel PA/PC/G Parking Garage recorded April 4, 1989, in the Official
Records of Orange County, California as Instrument Number 89-173893 (the
"REA"), including rights to the Common Area in common with Lessor and others.
C. Assignor desires to assign the Lease and REA to Assignee, and
Assignee desires to accept and assume the assignment of the Lease and REA
from Assignor.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
ADEQUACY OF WHICH ARE ACKNOWLEDGED, ASSIGNOR AND ASSIGNEE AGREE AS FOLLOWS:
1. ASSIGNMENT. Assignor assigns and transfers to Assignee all right,
title, and interest in the Lease and REA and Assignee accepts from Assignor
all right, title, and interest in the Lease and REA, subject to the terms and
conditions set forth in this Assignment.
<PAGE>
2. ASSUMPTION OF LEASE OBLIGATIONS. Assignee assumes and agrees to
perform and fulfill all the terms, covenants, conditions, and obligations
required to be performed and fulfilled by Lessee under the Lease and REA.
3. ASSIGNOR'S COVENANTS. Assignor covenants that the Lease is
unmodified, in full force and effect and no defaults exist under the Lease,
nor any acts or events which, with the passage of time or the giving of
notice or both, could become defaults.
4. INDEMNIFICATION. Assignor indemnifies Assignee from and against any
loss, cost, or expense, including attorney fees and court costs relating to
the failure of Assignor to fulfill its obligations under the Lease, as
occurring prior to this Assignment becoming effective. Assignee indemnifies
Assignor from and against any loss, cost, or expense, including attorney fees
and court costs relating to the failure of Assignee to fulfill its
obligations under the Lease, accruing subsequent to the effective date of
this Assignment.
5. SUCCESSORS AND ASSIGNS. This Assignment and all agreements, terms,
covenants and conditions herein shall be binding on and inure to the benefit
of the parties to it, their heirs, executors, personal representatives,
administrators, successors in interest, and assigns.
6. GOVERNING LAW. This Assignment shall be governed by and construed
in accordance with California law.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment as
of the date first above written.
ASSIGNOR ASSIGNEE
First Interstate Mortgage Company, 222 Harbor Associates, LLC,
A California Corporation a Nevada Limited Liability Company
By: By: Arden LAOP Two, LLC,
-------------------------------- a Nevada limited liability company,
Its Manager
Its:
-------------------------------
By:
-------------------------------
Richard S. Ziman,
Managing Officer
By:
--------------------------------
Victor J. Coleman,
Executive Officer
Attachments: Exhibit A - Legal Description
Exhibit B - Legal Description
2
<PAGE>
EXHIBIT "A"
ALL PRESENT AND FUTURE ESTATE, RIGHT, TITLE AND INTEREST OF LESSEE TO
THE REAL PROPERTY DESCRIBED BELOW AND ANY OTHER REAL PROPERTY DEMISED
PURSUANT TO THAT CERTAIN GROUND LEASE DATED AS OF FEBRUARY 21, 1992 BY AND
BETWEEN FIRST INTERSTATE MORTGAGE COMPANY, AS LESSEE, AND THE ANAHEIM
REDEVELOPMENT AGENCY, AS LESSOR, AS AMENDED BY THAT CERTAIN FIRST AMENDMENT
DATED NOVEMBER 15, 1994, AND ALL PRESENT AND FUTURE AMENDMENTS, EXTENSIONS,
RENEWALS AND MODIFICATIONS THEREOF AND SUPPLEMENTS THERETO (COLLECTIVELY, THE
"GROUND LEASE"), ALL PRESENT AND FUTURE OPTIONS OF ANY KIND (INCLUDING
WITHOUT LIMITATION OPTIONS TO ACQUIRE FEE TITLE TO ANY PART OF THE REAL
PROPERTY DEMISED THEREBY), RIGHTS OF FIRST REFUSAL, PRIVILEGES AND OTHER
BENEFITS OF THE LESSEE UNDER THE GROUND LEASE, TOGETHER WITH ANY GREATER
ESTATE IN THE REAL PROPERTY DEMISED THEREBY (AS HEREINAFTER DEFINED) NOW
OWNED OR HEREAFTER ACQUIRED BY TRUSTOR, AND ALL PRESENT AND FUTURE ESTATE,
RIGHT, TITLE AND INTEREST OF THE LESSEE UNDER THE GROUND LEASE IN AND TO ALL
BUILDINGS, STRUCTURES OR IMPROVEMENTS OF ANY KIND WHATSOEVER NOW OR IN THE
FUTURE LOCATED ON THE REAL PROPERTY DEMISED THEREBY:
PARCEL 1 ON PARCEL MAP NO. 86-142 (THE "PARCEL MAP") IN THE CITY OF
ANAHEIM, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 232,
PAGES 15 THROUGH 19 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY.
EXCEPTING AND RESERVING TO THE OWNERS THEREOF ALL OIL, GAS AND MINERAL
SUBSTANCES, TOGETHER WITH THE RIGHT TO EXPLORE FOR AND EXTRACT SUCH
SUBSTANCES, PROVIDED THAT THE SURFACE OPENING OF ANY WELL, HOLE, SHAFT, OR
OTHER MEANS OF EXPLORING FOR, REACHING OR EXTRACTING SUCH SUBSTANCES SHALL
NOT BE LOCATED WITHIN THE CITY OF ANAHEIM REDEVELOPMENT PROJECT ALPHA AS
RECORDED IN BOOK 10812, PAGE 27, OF ORANGE COUNTY RECORDS, STATE OF
CALIFORNIA AND SHALL NOT PENETRATE ANY PART OR PORTION OF SAID PROJECT AREA
WITHIN 500 FEET OF THE SURFACE THEREOF.
3
<PAGE>
EXHIBIT "B"
PARCEL 1 OF PARCEL MAP. NO. 84-229, IN THE CITY OF ANAHEIM, COUNTY OF
ORANGE, STATE OF CALIFORNIA, AS SHOWN ON A MAP FILED IN BOOK 194, PAGES 22
AND 23 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPT ALL OIL, GAS AND MINERAL SUBSTANCES, TOGETHER WITH THE RIGHT TO
EXPLORE FOR AND EXTRACT SUCH SUBSTANCES, PROVIDED THAT THE SURFACE OPENING OF
ANY WELL, HOLE, SHAFT, OR OTHER MEANS OF EXPLORING FOR, REACHING, OR
EXTRACTING SUCH SUBSTANCES SHALL NOT BE LOCATED WITHIN THE CITY OF ANAHEIM
REDEVELOPMENT PROJECT ALPHA, AS RECORDED IN BOOK 10812, PAGE 27 OF ORANGE
COUNTY RECORDS, STATE OF CALIFORNIA, AND SHALL NOT PENETRATE ANY PART OR
PORTION OF SAID PROJECT AREA WITHIN 500 FEET OF THE SURFACE THEREOF, BY
INSTRUMENT NO. 86-530706, OFFICIAL RECORDS.
4
<PAGE>
STATE OF CALIFORNIA )
)ss.
COUNTY OF ___________________ )
On _________, before me, ________, personally appeared _______________
__________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name is subscribed to the
within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity and that by his/her signature on the instrument
the person(s) or the entity upon behalf of which the person acted, executed
the instrument.
WITNESS my hand and official seal.
Signature
-----------------------------
(This area for official notarial seal)
STATE OF CALIFORNIA )
)ss.
COUNTY OF ____________________ )
On _________, before me, ________, personally appeared _____________________
______________________, personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person(s) whose name is subscribed to the
within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity and that by his/her signature on the instrument
the person(s) or the entity upon behalf of which the person acted, executed
the instrument.
WITNESS my hand and official seal.
Signature
-----------------------------
(This area for official notarial seal)
5
<PAGE>
STATE OF CALIFORNIA )
)ss.
COUNTY OF ____________________ )
On _________, before me, ________, personally appeared ______________________
_______________________, personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person(s) whose name is subscribed to the
within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity and that by his/her signature on the instrument
the person(s) or the entity upon behalf of which the person acted, executed
the instrument.
WITNESS my hand and official seal.
Signature
-----------------------------
(This area for official notarial seal)
6
<PAGE>
EXHIBIT 10.15
ARDEN REALTY GROUP, INC.
9100 WILSHIRE BOULEVARD
SUITE 700 - EAST TOWER
BEVERLY HILLS, CALIFORNIA 90212
(310) 246-2941 FAX
(310) 271-8600
June 17, 1996
Robert Coleman
Sydney Coleman
CIC Equities, Inc.
1500 West Georgia Street, Suite 1750
Vancouver, British Columbia
Canada V6G 226
Re: Confidential Offer to Purchase Partnership Interests
----------------------------------------------------
Dear Robert and Sydney:
Arden Realty Group ("Arden") is currently engaged in the process of
forming a real estate investment trust known as Arden Realty Group, Inc. (the
"Company" or the "REIT") to continue and expand the real estate business of
Arden, its principals and their affiliates which are engaged in owning,
acquiring, renovating, managing and leasing office properties in Southern
California.
The Company will operate as a self-administered and self-managed real
estate investment trust ("REIT") and expects to qualify as a REIT for federal
income tax purposes. The operations of the Company will be carried on solely
through Arden Realty Group Limited Partnership (the "Operating Partnership"), of
which the Company will be the sole general partner.
The Company and its Operating Partnership have been formed to
consolidate the ownership of a portfolio of office properties (the
"Participating Properties") located in Southern California through a series of
transactions (the "Formation Transactions") whereby the Operating Partnership
will acquire direct interests in certain of the Participating Properties (the
"Property Interests") and all of the interests in certain limited partnerships,
certain limited liability companies and certain other entities (collectively the
"Participating Partnerships and LLCs") which currently own directly or
indirectly the Participating Properties (the "Consolidation").
The Company is currently engaged in finalizing the Formation
Transactions whereby (i) the owners of the Property Interests and the partners
and members of the Participating Partnerships and LLCs will either transfer
their Property Interests and interests
<PAGE>
June 17, 1996
Page 2
in the Participating Partnerships and LLCs to the Company in exchange for
cash (the "Cash Participants") or contribute such interests directly to the
Operating Partnership (the "OP Participants") in exchange for an interest in
the Operating Partnership ("OP Units") and (ii) Arden will contribute certain
of its assets and liabilities to the Operating Partnership in exchange for OP
Units. In addition, the Company will make a public offering (the "Public
Offering") of its common stock (the "REIT Shares" or "Common Stock") and use
the proceeds therefrom, either directly or through the Operating Partnership,
to effectuate the Consolidation, among other things. Beginning one year
after completion of the Public Offering, the OP Units will be redeemable for
cash (based upon the fair market value of an equivalent number of shares of
Common Stock of the Company at the time of such redemption) or, at the
election of the Company, exchangeable for shares of Common Stock on a
one-for-one basis.
The Company wishes to include in its Consolidation interests CIC
Equities, Inc. ("CIC Equities") owns in certain of the Participating
Partnerships and LLCs as set forth on Exhibit A of the attached Option Agreement
(the "Partnerships") which own directly or indirectly interests in certain of
the Participating Properties also as set forth on Exhibit A (the "Properties").
As such, the Company respectfully requests CIC Equities' cooperation in
effectuating the Consolidation and hereby offers to purchase for cash (the
"Offer"), on the terms and conditions described in more detail below, all of CIC
Equities' right, title and interest, as a partner (or member) of the
Partnerships, including, without limitation, all of CIC Equities' voting rights
and interests in the capital, profits and losses of the Partnerships or any
property distributable therefrom, constituting all of CIC Equities' interests in
the Partnerships (such right, title and interest are hereinafter collectively
referred to as the "Partnership Interest").
For the reasons set forth below, the Company and the General Partners
(and/or Managing Members as applicable) of the Partnerships believe that the
Offer is fair and recommend that CIC Equities accept the Offer.
In considering the Offer, the Arden principals and the Company
strongly encourage you to carefully read this confidential Offer and all
appendices hereto which are hereby incorporated by reference as if set forth
fully herein. If you have any questions concerning any of the matters addressed
in this confidential Offer, or would like to receive copies of the Partnerships'
limited partnership agreements (or limited liability company operating
agreements, as applicable) or other information, please feel free to contact
Victor Coleman of Arden Realty Group, Inc. at (310) 271-8600.
AFTER YOU HAVE CAREFULLY REVIEWED THIS CONFIDENTIAL OFFER AND ALL
APPENDICES HERETO, IF YOU DECIDE TO ACCEPT THE OFFER PLEASE SIGN THE ENCLOSED
OPTION AGREEMENT SIGNATURE PAGE (AT P. A-11 OF APPENDIX A) AND RETURN IT TO
ARDEN REALTY GROUP, INC. IN THE ENCLOSED POSTAGE-PAID, PRE-ADDRESSED ENVELOPE AS
SOON AS POSSIBLE, BUT IN NO EVENT LATER THAN JUNE 21, 1996.
2
<PAGE>
June 17, 1996
Page 3
THE OFFER AND THE OPTION AGREEMENT
The terms and conditions of the Offer are set forth in the Option
Agreement (the "Option Agreement") to be entered into by the Company (the
"Offeror") and you, as a partner (or member) of the Partnerships (the
"Offeree"). The discussion set forth below is a summary of such terms and
conditions. The Option Agreement is attached hereto as Appendix A and is hereby
incorporated by reference.
OPTION, PURCHASE PRICE AND TERMS OF OPTION. The Company, is offering
to acquire for the Option Fee (as defined below) an option (the "Option") to
purchase all of CIC Equities' Partnership Interest for a cash amount (the
"Purchase Price") equal to the "Total Minimum (and Managing Members, as
applicable) Consideration" figure indicated on Exhibit A. The Company and the
General Partners of the Partnerships believe that the Purchase Price represents
a fair value for CIC Equities' Partnership Interests. The Option will expire on
December 31, 1996. Upon CIC Equities' acceptance of the Offer, the Company will
pay you a nonrefundable option payment equal to $100.00 (the "Option Fee").
Upon the final closing following the Company's exercise of the Option, you will
receive the Purchase Price in exchange for CIC Equities' Partnership Interest
and the execution of an Assignment and Assumption Agreement in favor of the
Company.
CONDITIONS TO CLOSING ON THE OPTION. Exercise of the Option and
closing of the sale of the Partnership Interest pursuant to the Option will not
occur unless, among other things, (i) the Public Offering is consummated and the
net proceeds therefrom are sufficient to enable Offeror to consummate the
Formation Transactions including the acquisition of the Partnership Interest;
(ii) the transfer of the Partnership Interest and equity interests in the other
Participating Partnerships and LLCs is approved by their respective partners and
members to the extent such approval is required by the applicable limited
partnership agreements and LLC operating agreements; (iii) the absence of any
material breach of the parties' respective representations and warranties made
in the Option Agreement; (iv) the consent of certain third parties, including
certain lenders, to the Formation Transactions; and (v) the execution and
delivery by Offeree, directly or through the Attorney-in-Fact (see Article 5 of
the Option Agreement), of the Closing Documents. These conditions may be waived
in whole or in part by the Offeror.
CLOSING ON THE OPTION. If the Option is exercised, a place and time
for the closing of the purchase of Offeree's Partnership Interest will be set.
At an initial closing, Offeree will deliver, or have delivered on Offeree's
behalf through the Attorney-in-Fact, executed closing documents, including a
document that conveys to Offeror the Offeree's Partnership Interest (the
"Closing Documents"). If the Public Offering occurs and the other conditions to
closing are met, Offeree will receive the cash to which such Offeree is entitled
(i.e., the Purchase Price) and the purchase and sale of Offeree's Partnership
Interest will be complete.
3
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June 17, 1996
Page 4
POWER OF ATTORNEY AND PROXY. Among the provisions of the Option
Agreement is an irrevocable power of attorney and proxy giving each of Offeror
and its designee the authority to act on behalf of Offeree with respect to all
matters of the Partnerships related to the Formation Transactions, including:
(i) to vote the Offeree's Partnership Interest with respect to any matter
relating to the Formation Transactions, (ii) to provide information about the
Offer to the Securities and Exchange Commission (the "SEC") and/or to other
partners in the Partnerships and other partnerships or limited liability
companies being considered for participation in the Formation Transactions, and
(iii) to make, execute and deliver contracts, receipts and certificates in
connection with, and take all other actions necessary to carry out, the
transactions contemplated by the Option Agreement. Offeror intends to use the
proxy granted to it by each Offeree who accepts the Offer to vote all
Partnership Interests subject to the proxy in favor of the Formation
Transactions (and to amend the Partnerships' limited partnership agreements, if
required) and in favor of all actions by the Partnerships deemed necessary or
desirable by Offeror to consummate the Formation Transactions.
EFFECT OF ACCEPTANCE OF THE OFFER. Assuming the Option is exercised
and the sale of the Partnership Interest is completed, Offeree will receive the
Purchase Price for his Partnership Interest tendered, will no longer have any
interests in the Partnerships, and will not receive any interest in the
Operating Partnership. Offeree will recognize income or loss for federal income
tax purposes in connection with the sale of the Partnership Interest pursuant to
the Offer. See Appendix D, "Certain Federal Income Tax Consequences."
PURCHASE PRICE
Provided the entire Partnership Interest is transferred at Closing,
the Purchase Price will be a cash amount at least equal to the value of the
"Total Minimum Consideration" indicated on Exhibit A to the Option Agreement
which represents the sum of the minimum cash consideration values attributed to
each of the interests which collectively constitute the Partnership Interest to
be transferred upon the exercise of the Option.
If at Closing, the aggregate value of the cash available to all Cash
Participants exceeds the sum of the Total Minimum Consideration values (after
all adjustments set forth in the following paragraph) of all Cash Participants
(the "Additional Consideration"), then the Additional Consideration or a portion
thereof, if any, shall be allocated among the Cash Participants (including the
Offeree) based upon the relative values of the Offeree's Partnership Interest
and the interests contributed by each of the other Cash Participants, in each
case as determined in my sole discretion.
The Offeror reserves the right not to acquire any particular interest
that constitutes part of the Partnership Interest, if in good faith the Offeror
determines that the ownership of such interest or the underlying Properties
would be inappropriate for the Operating Partnership for any reason whatsoever.
In such an event, the Offeree's Total
4
<PAGE>
June 17, 1996
Page 5
Minimum Consideration may be reduced by an amount determined in my sole
discretion to reflect the reduction in total value of the Partnership
Interest ultimately transferred by the Offeree.
BENEFITS OF THE OFFER
Certain of the potential benefits to Offeree of the sale of its
Partnership Interest for cash are described below.
OPPORTUNITY TO LIQUIDATE INVESTMENT. The Offer will provide the
Offeree with an opportunity to liquidate its investment in the Partnerships for
cash. The Partnership Interest is a relatively illiquid investment. Generally,
the Partnership Interest cannot be sold except with the consent of the General
Partners of the Partnerships and an opinion of counsel for the Partnerships
stating that such sale is in compliance with all applicable laws, rules and
regulations of the federal and applicable state securities commissions and does
not jeopardize the Partnerships' tax status. Because the Partnership Interest
is not freely transferable, and because there is no public market for the
Partnership Interest, an investment in the Partnership Interest is not readily
convertible to cash. The Offer provides the opportunity for liquidity to the
Offeree. This is an opportunity that the General Partners cannot assure will be
available again in the foreseeable future. The availability to third-party
purchasers of attractive financing to acquire single-property real estate
investments remains limited under current market conditions. Traditional
sources of debt financing for single-property investments with traditionally
high levels of leverage have been reduced in recent years, in part because of
the difficulties encountered by financial institutions that made large numbers
of real estate loans in the past. The anticipated ability of Arden to undertake
the Public Offering puts it in a position to obtain equity financing to acquire
the Participating Properties for a combination of cash, OP Units and the
assumption or repayment of debt. No assurance can be made that the equity
markets will continue to be available in the future on terms that would make it
feasible to dispose of the Partnerships' Properties for the same consideration
proposed to be paid in the Formation Transactions.
ELIMINATION OF RISK OF REAL ESTATE OWNERSHIP. Ownership of the
Partnership Interest is subject to the risks inherent in the ownership of real
estate in general and office properties in particular, which include changes in
general or local economic conditions, changes in the supply of or demand for
competing properties in the area of the Partnerships' Properties, changes in
interest rates, the need to maintain the properties and to provide for
substantial costs of major repairs, replacements, improvements, and other
capital expenditures, and changes in the availability of mortgage funds (any or
all of which may render difficult the sale or refinancing of the Properties).
The Offer would enable Offerees to terminate their investments in the
Partnerships and thereby eliminate these risks.
5
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June 17, 1996
Page 6
ALTERNATIVES CONSIDERED
In reaching the conclusion to recommend that the Offeree accept the
Offer, the Company and Arden principals have considered the following
alternatives:
CONTINUATION OF THE PARTNERSHIPS. The Partnerships could continue
their operations, seeking to maximize the value of their properties. Continuing
the Partnerships without change would not allow them to seek other investment
opportunities in the foreseeable future, as cash flow is not sufficient to
permit the Partnerships to borrow funds for additional property acquisitions.
In addition, continuing the Partnerships would not relieve the Partnerships of
their existing debt obligations or provide their partners with liquidity.
SALE OF THE PROPERTIES TO OTHER PURCHASERS AND LIQUIDATION OF THE
PARTNERSHIPS. The Partnerships could seek other purchasers to acquire their
properties, repay their debts, and, after establishing required reserves,
distribute the balance of the sale proceeds to limited partners and general
partners in accordance with the distribution provisions of the Partnerships'
limited partnership agreements. However, the Arden principals have neither
solicited any third-party offers nor received any attractive third-party offers
to purchase the Partnerships' Properties.
MISCELLANEOUS
To assist you in considering the attractiveness of this confidential
Offer certain "Special Considerations" have been enumerated in Appendix B, a
disclosure of certain "Conflicts of Interest" is attached as Appendix C, and a
discussion of "Certain Federal Income Tax Consequences" of the proposed
transactions is attached as Appendix D.
PENDING THE PUBLIC ANNOUNCEMENT OF THE FORMATION TRANSACTIONS AND THE
PUBLIC OFFERING, IT IS IMPERATIVE THAT YOU KEEP ALL INFORMATION CONTAINED IN
THIS LETTER AND THE APPENDICES ATTACHED HERETO ABSOLUTELY CONFIDENTIAL.
We thank you in advance for CIC Equities' cooperation and careful
consideration of this liquidity opportunity as we move forward with the
formation of the REIT. As always, please do not hesitate to contact us if you
have any questions.
Sincerely,
Richard S. Ziman
Arden Realty Group, Inc.
6
<PAGE>
APPENDIX A
OPTION AGREEMENT
This Option Agreement (hereinafter referred to as the "OPTION
AGREEMENT") is made by and between Arden Realty Group, Inc., a Maryland
corporation ("OPTIONEE"), and CIC Equities, Inc., a British Columbia corporation
("OPTIONOR").
RECITALS
A. Arden Realty Group Limited Partnership, a Maryland limited
partnership (the "OPERATING PARTNERSHIP"), of which Optionee is the sole general
partner, desires to consolidate the ownership of a portfolio of office
properties (the "PARTICIPATING PROPERTIES") located in Southern California
through a series of transactions (the "FORMATION TRANSACTIONS") whereby the
Operating Partnership will acquire direct interests in certain of the
Participating Properties (the "PROPERTY INTERESTS") and all of the interests in
certain limited partnerships, certain limited liability companies and certain
other entities (collectively the "PARTICIPATING PARTNERSHIPS AND LLCS") which
currently own directly or indirectly the Participating Properties (the
"CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Optionee which will
operate as a self-administered and self-managed real estate investment trust
("REIT") and will be the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members
of the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. The Optionor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIPS") which
Partnerships own directly or indirectly interests in certain of the
Participating Properties also as set forth on EXHIBIT "A" (the "PROPERTIES").
E. The Optionee desires to acquire from Optionor, and Optionor
desires to grant to Optionee, an option to purchase on the terms and conditions
set forth herein all of Optionor's right, title and interest, as a partner (or
member) of the Partnerships, including, without limitation, all of its voting
rights and interests in the capital, profits and losses of the Partnerships or
any property distributable therefrom, constituting all of its interests in the
Partnerships (such right, title and interest are hereinafter collectively
referred to as the "PARTNERSHIP INTEREST").
A-1
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F. The parties acknowledge that Optionee's purchase of Optionor's
Partnership Interest is in connection with and subject to the consummation of
the Formation Transactions and the Public Offering.
NOW, THEREFORE, in consideration of payment of $100.00 in cash (the
"OPTION FEE"), the mutual covenants and conditions set forth herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Optionee and Optionor agree as follows:
ARTICLE I
THE OPTION
1.1 GRANT OF OPTION. Optionor hereby grants to Optionee an option to
purchase (the "PURCHASE OPTION") all right, title and interest of such Optionor
in all of Optionor's Partnership Interest on the terms and conditions set forth
herein.
1.2 TERM AND EXERCISE OF OPTION. The Purchase Option may be
exercised at any time through December 31, 1996 (the "OPTION TERMINATION DATE")
by notice by Optionee to Optionor. If Optionee does not exercise the Purchase
Option by the Option Termination Date, Optionor's Purchase Option shall
terminate, Optionor shall be entitled to retain the Option Fee, and neither
party shall have any further obligations hereunder.
1.3 PURCHASE PRICE AND PAYMENT. Subject to ARTICLES 1.4 AND 1.5
below, the purchase price for Optionor's Partnership Interest (the "PURCHASE
PRICE") upon the exercise of the Purchase Option will be an amount equal to the
value indicated on Exhibit A as Optionor's "TOTAL MINIMUM CONSIDERATION".
1.4 ADDITIONAL CONSIDERATION. Subject to ARTICLE 1.5 below, in the
event that, at Closing (as defined in ARTICLE 2.2 below) the aggregate value of
the cash available to all Cash Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.5) of all
Cash Participants (the "ADDITIONAL CONSIDERATION"), then the Additional
Consideration or a portion thereof, if any, shall be allocated among the Cash
Participants (including the Optionor) based upon the relative values of the
Optionor's Partnership Interest and the interests contributed by each of the
other Cash Participants, in each case as determined by Richard S. Ziman, in his
sole discretion.
1.5 ADJUSTED CONSIDERATION. The Optionee reserves the right not to
acquire any particular interest that constitutes part of the Partnership
Interest, if in good faith the Optionee determines that the ownership of such
interest or the underlying Properties would be inappropriate for the Operating
Partnership for any reason whatsoever. Optionor hereby agrees that, in such
event, the Optionor's Total Minimum Consideration may be reduced by an amount
determined by Richard S. Ziman, in his sole discretion, to reflect the reduction
in total value of the Partnership Interest ultimately transferred by Optionor.
A-2
<PAGE>
1.6 AUTHORIZATION. Optionor hereby authorizes Richard S. Ziman to
make any and all determinations to be made by him pursuant to ARTICLES 1.4 AND
1.5 hereof, and any and all such determinations shall be final and binding on
all parties.
1.7 CONTRIBUTION OF CERTAIN RIGHTS. Effective upon the Closing,
Optionor hereby assigns to the Optionee all of its rights and interests, if any,
including rights to indemnification in favor of the Optionor, if any, under the
agreements pursuant to which the Optionor or its affiliates initially acquired
the Partnership Interest transferred pursuant to this Option Agreement.
ARTICLE II
PURCHASE AND CLOSING
2.1 PURCHASE AND SALE. Optionee, in its sole discretion, may
exercise the Purchase Option to purchase all of Optionor's Partnership Interest.
Upon such exercise, Optionor shall sell, transfer, assign, and convey to
Optionee, and Optionee shall purchase, for the Purchase Price, all right, title
and interest of Optionor in such Partnership Interest free and clear of all
Encumbrances (as defined in ARTICLE 3.3).
2.2 CLOSING. In connection with or at any time after the exercise by
Optionee of the Purchase Option, Optionee will specify a date for the closing
(the "CLOSING") of the purchase and sale of the Partnership Interest. At or
before such Closing, which shall be held at a place and time determined by
Optionee in its sole discretion, Optionee and Optionor (itself or through the
Attorney-in-Fact (see ARTICLE 5)) will execute all closing documents (the
"CLOSING DOCUMENTS") required by Optionee including without limitation (i) an
Assignment and Assumption Agreement substantially in the form attached hereto as
EXHIBIT B, (ii) an individual quitclaim deed fully executed and duly
acknowledged from Optionor substantially in the form attached hereto as EXHIBIT
C, and (iii) any other documents deemed by Optionee to be necessary or desirable
to assign, transfer and convey Optionor's Partnership Interest, to confirm the
accuracy of Optionor's representations and warranties made hereby and the
compliance by Optionor of Optionor's covenants and agreements made hereby, and
to effectuate the transactions contemplated hereby. Subject to the Conditions
to Closing in ARTICLE 2.3 below, at Closing Optionee will pay to Optionor a cash
amount equal to the Purchase Price in consideration for the sale, transfer,
assignment and conveyance of the Partnership Interest.
2.3 CONDITIONS TO CLOSING. Optionee will purchase the Partnership
Interest only if (i) the Public Offering is consummated and the net proceeds
therefrom are sufficient to enable Optionee to consummate the Formation
Transactions including the acquisition of the Partnership Interest; (ii) the
transfer of the Partnership Interest and equity interests in the other
Participating Partnerships and LLCs is approved by their respective partners and
members to the extent such approval is required by the applicable limited
partnership agreements and LLC operating agreements; (iii) the absence of any
material breach of the parties' respective representations and warranties made
in the Option Agreement; (iv) the consent of certain third parties, including
certain lenders, to the Formation Transactions; and (v) the execution and
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<PAGE>
delivery by Optionor, directly or through the Attorney-in-Fact (see ARTICLE 5
hereof), of the Closing Documents. These conditions may be waived in whole or
in part by the Optionee.
2.4 TRANSFER TAXES. Optionee agrees to pay all transfer taxes
arising from the sale of Optionor's Partnership Interest pursuant to the
exercise by Optionee of the Purchase Option.
2.5 PRORATIONS. At the Closing, or as promptly as practicable
following the Closing, to the extent such matters are not the right or
responsibility of all tenants of a given Property, all revenue and all charges
that are customarily prorated in transactions of this nature, including accrued
rent currently due and payable, overpaid taxes or fees, real and personal
property taxes, common area maintenance charges and other similar periodic
charges payable or receivable with respect to such Property shall be ratably
prorated between the partners of the Partnership which holds such Property prior
to the Closing and the Optionee on and after the Closing, effective as of the
Closing. After providing for such prorations, (i) if any of the Partnerships
has a resultant cash surplus, the Purchase Price to be exchanged for Optionor's
Partnership Interest shall be increased in proportion to Optionor's ratable
share of such cash surplus and (ii) if any of the Partnerships has a resultant
cash deficit, the Purchase Price to be exchanged for Optionor's Partnership
Interest shall be reduced in proportion to Optionor's ratable share of such cash
deficit, unless such deficit is cured prior to Closing.
2.6 FURTHER ASSURANCES. Optionor will, from time to time, execute
and deliver to Optionee (or its designee) all such other and further instruments
and documents and take or cause to be taken all such other and further action as
Optionee (or its designee) may reasonably request in order to effect the
transactions contemplated by this Option Agreement, including instruments or
documents deemed necessary or desirable by Optionee (or its designee) to effect
and evidence the conveyance of Optionor's Partnership Interest in accordance
with the terms of this Option Agreement.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF OPTIONOR
Optionor hereby makes to Optionee each of the following
representations and warranties which are true as of the date hereof and will be
true as of the date of the Closing:
3.1 ORGANIZATION; AUTHORITY. The Optionor (A) if a natural
person, has the legal capacity to enter the Option Agreement; if not a natural
person, is duly formed, validly existing and in good standing (to the extent
applicable) under the laws of the jurisdiction of its formation, and (B) has all
requisite power and authority to own, lease or operate its property and to carry
on its business as presently conducted and, to the extent required under
applicable law, is qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
3.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Option Agreement by the Optionor has been duly and validly authorized by all
necessary action
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of the Optionor. This Option Agreement and each agreement, document and
instrument executed and delivered by or on behalf of Optionor pursuant to
this Option Agreement constitutes, or when executed and delivered will
constitute, the legal, valid and binding obligation of Optionor, each
enforceable against the Optionor in accordance with its terms.
3.3 TITLE TO PARTNERSHIP INTEREST. Optionor is the sole owner of the
Partnership Interest and owns beneficially and of record free and clear of any
claim, lien, pledge, voting agreement, option, charge, security interest,
mortgage, deed of trust, encumbrance, rights of assignment, purchase rights or
other rights of any nature whatsoever of any third party (collectively,
"ENCUMBRANCES"), and has full power and authority to convey free and clear of
any Encumbrances, its Partnership Interest and, upon payment for such
Partnership Interest, Optionee (or its designee) will acquire good and valid
title thereto, free and clear of any Encumbrances except Encumbrances created in
favor of Optionee by the transactions contemplated hereby. Optionor has no
equity interest, either direct or indirect, in the Properties or the
Partnerships except for the Partnership Interest which is the subject of this
Option Agreement.
3.4 CASH FLOW AND OPERATIONS DATA. Optionor has been provided
quarterly cash flow and operations data for the Properties (additional copies of
which have been made available by Optionee upon request) and has had the
opportunity to conduct its own independent valuation of the Properties.
3.5 CONSENTS AND APPROVALS. Optionor has full right, authority,
power and capacity, and no consent, waiver, approval or authorization of any
governmental entity, lender or other third party is required for Optionor:
(i) to enter into this Option Agreement and each agreement, document and
instrument to be executed and delivered by or on behalf of Optionor pursuant to
this Option Agreement; (ii) to carry out the transactions contemplated hereby
and thereby; and (iii) to transfer, sell and deliver all of Optionor's
Partnership Interest to Optionee (or its designee) upon exercise by Optionee of
the Purchase Option and payment therefor in accordance with this Option
Agreement.
3.6 NO VIOLATION. None of the execution, delivery or performance of
the Option Agreement and the transactions contemplated hereby does or will, with
or without the giving of notice, lapse of time, or both, (i) violate, conflict
with, result in a breach of, or constitute a default under or give to others any
right of termination or cancellation of (A) the organizational documents,
including the charters and bylaws, if any, of the Optionor, (B) any material
agreement, document or instrument to which the Optionor is a party or by which
the Optionor or its Partnership Interest is bound or (C) any term or provision
of any judgment, order, writ, injunction, or decree of any governmental or
regulatory authority binding on the Optionor or by which the Optionor or any of
its assets or properties are bound or subject or (ii) result in the creation of
any Encumbrance upon the Partnership Interest.
3.7 NON-FOREIGN STATUS. The Optionor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Internal Revenue Code of 1986, as amended and hereinafter
referred to as the "CODE"), and is, therefore,
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<PAGE>
not subject to the provisions of the Code relating to the withholding of
sales proceeds to foreign persons.
3.8 WITHHOLDING. The Optionor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withholding provisions, including those referred to in
ARTICLE 3.7 above and similar provisions under California law. If Optionor
fails to provide such certificates or affidavits, Optionee may withhold a
portion of the Purchase Price as required by the Code or California law.
3.9 LITIGATION. There is no litigation or proceeding, either
judicial or administrative, pending or threatened, affecting all or any portion
of Optionor's Partnership Interest or Optionor's ability to consummate the
transactions contemplated hereby.
3.10 NO OTHER AGREEMENTS TO SELL. Except for the Purchase Option
granted hereby, Optionor has made no agreement and has no obligation (absolute
or contingent) to sell, transfer or in any way encumber any of Optionor's
Partnership Interest or not to sell Optionor's Partnership Interest.
3.11 NO BROKERS. Neither the Optionor nor any of its officers,
directors or employees has employed or made any agreement with any broker,
finder or similar agent or any person or firm which will result in the
obligation of the Optionee or any of its affiliates to pay any finder's fee,
brokerage fees or commission or similar payment in connection with the
transactions contemplated by this Option Agreement.
3.12 COVENANT TO REMEDY BREACHES. Optionor covenants to use its best
efforts (i) to prevent the breach of any representation or warranty of Optionor
hereunder, (ii) to satisfy all covenants of Optionor hereunder and (iii) to
promptly cure any breach of a representation, warranty or covenant of Optionor
hereunder upon its learning of same.
ARTICLE IV
RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 4 shall
become effective only upon the Closing of the purchase and sale of the
Partnership Interest pursuant to ARTICLE 2 herein.
4.1 GENERAL RELEASE OF OPTIONEE. As of the Closing, Optionor
irrevocably waives, releases and forever discharges the Optionee and Optionee's
affiliates, executive officers (including Richard S. Ziman and Victor J.
Coleman), agents, attorneys, successors and assigns of and from, any and all
charges, complaints, claims, liabilities, damages, actions, causes of action,
losses and costs of any nature whatsoever (collectively, "OPTIONOR CLAIMS"),
known or unknown, suspected or unsuspected, arising out of or relating to any
partnership agreement or limited liability company operating agreement governing
the Partnership Interest (collectively, the "PARTNERSHIP AGREEMENTS"), this
Option Agreement or any other matter which exists at the
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Closing, except for Optionor Claims arising from the breach of any
representation, warranty, covenant or obligation under this Option Agreement.
4.2 GENERAL RELEASE OF OPTIONOR. As of the Closing, Optionee
irrevocably waives, releases and forever discharges the Optionor and Optionor's
agents, attorneys, successors and assigns of and from, any and all charges,
complaints, claims, liabilities, damages, actions, causes of action, losses and
costs of any nature whatsoever (collectively, "OPTIONEE CLAIMS"), known or
unknown, suspected or unsuspected, arising out of or relating to the Partnership
Agreements, this Option Agreement or any other matter which exists at the
Closing, except for Optionee Claims arising from the breach of any
representation, warranty, covenant or obligation under this Option Agreement.
4.3 WAIVER OF SECTION 1542 PROTECTIONS. As of the Closing, Optionor
and Optionee each expressly waives and relinquishes all rights and benefits
afforded by Section 1542 of the California Civil Code and do so understanding
and acknowledging the significance and consequence of such specific waiver of
Section 1542 which provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected the settlement with the
debtor.
4.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT. As of the Closing,
the Optionor waives and relinquishes all rights and benefits otherwise afforded
to Optionor under the Partnership Agreements including, without limitation, any
right to consent to or approve of the sale or contribution by the other partners
(or members) of the Partnerships of their partnership interests to the Company
or the Operating Partnership.
ARTICLE V
POWER OF ATTORNEY
5.1 GRANT OF POWER OF ATTORNEY. Optionor does hereby irrevocably
appoint Optionee (or its designee) and each of them individually and any
successor thereof from time to time (such Optionee or designee or any such
successor of any of them acting in his, her or its capacity as attorney-in-fact
pursuant hereto, the "ATTORNEY-IN-FACT") as the true and lawful attorney-in-fact
and agent of Optionor, to act in the name, place and stead of Optionor to make,
execute, acknowledge and deliver all such other contracts, orders, receipts,
notices, requests, instructions, certificates, consents, letters and other
writings (including without limitation the execution of any Closing Documents or
other documents relating to the acquisition by Optionee of Optionor's
Partnership Interest), to provide information to the Securities and Exchange
Commission and others about the transactions contemplated hereby and, in
general, to do all things and to take all actions which the Attorney-in-Fact in
its sole discretion may consider necessary or proper in connection with or to
carry out the transactions contemplated by this Option Agreement, as fully as
could Optionor if personally present and acting. Further, Optionor hereby
grants to Attorney-in-Fact a proxy (the "PROXY") to vote Optionor's Partnership
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Interest on any matter related to the Formation Transactions presented to the
Partnerships' partners for a vote, including, but not limited to, the transfer
of interests in the Partnerships by other partners.
Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable and
shall not be terminated by any act of Optionor, by operation of law or by the
occurrence of any other event or events, and if any other such act or events
shall occur before the completion of the transactions contemplated by this
Option Agreement, the Attorney-in-Fact shall nevertheless be authorized and
directed to complete all such transactions as if such other act or events had
not occurred and regardless of notice thereof. Optionor agrees that, at the
request of Optionee it will promptly execute a separate power of attorney and
proxy on the same terms set forth in this ARTICLE 5, such execution to be
witnessed and notarized. Optionor hereby authorizes the reliance of third
parties on each of the Power of Attorney and Proxy.
Optionor acknowledges that Optionee has, and any designee or successor
thereof acting as Attorney-in-Fact may have, an economic interest in the
transactions contemplated by this Option Agreement.
5.2 LIMITATION ON LIABILITY. It is understood that the Attorney-in-
Fact assumes no responsibility or liability to any person by virtue of the Power
of Attorney or Proxy granted by Optionor hereby. The Attorney-in-Fact makes no
representations with respect to and shall have no responsibility for the
Formation Transactions or the Public Offering, or the acquisition of the
Partnership Interest by Optionee and shall not be liable for any error or
judgment or for any act done or omitted or for any mistake of fact or law except
for its own gross negligence or bad faith. Optionor agrees to indemnify the
Attorney-in-Fact for and to hold the Attorney-in-Fact harmless against any loss,
claim, damage or liability incurred on its part arising out of or in connection
with it acting as the Attorney-in-Fact under the Power of Attorney or Proxy
created by Optionor hereby, as well as the cost and expense of investigating and
defending against any such loss, claim, damage or liability, except to the
extent such loss, claim, damage or liability is due to the gross negligence or
bad faith of the Attorney-in-Fact. Optionor agrees that the Attorney-in-Fact
may consult with counsel of its own choice (who may be counsel for Optionee or
its successors or affiliates), and it shall have full and complete authorization
and protection for any action taken or suffered by it hereunder in good faith
and in accordance with the opinion of such counsel. It is understood that the
Attorney-in-Fact may, without breaching any express or implied obligation to
Optionor hereunder, release, amend or modify any other power of attorney or
proxy granted by any other person under any related agreement.
ARTICLE VI
MISCELLANEOUS
6.1 AMENDMENT. Any amendment hereto shall be effective only against
those parties who have acknowledged in writing their consent to such amendment.
No waiver of any
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provisions of this Option Agreement shall be valid unless in writing and
signed by the party against whom enforcement is sought.
6.2 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Option
Agreement (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof, (b) may be executed in one or more
counterparts, each of which will be deemed an original and all of which shall
constitute but one and the same instrument and (c) shall be governed in all
respects by the laws of California without giving effect to the conflict of law
provisions thereof.
6.3 ASSIGNABILITY. Neither this Option Agreement nor any of the
rights or obligations hereunder may be assigned by Optionor without the prior
written consent of Optionee or by Optionee without the prior written consent of
Optionor, except that Optionee may, without such consent, assign such rights and
such obligations to any affiliate of Optionee, provided that such assignment
shall not affect Optionee's obligations hereunder.
6.4 SEVERABILITY. If any provision of this Option Agreement, or the
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Option Agreement and application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Option Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provision and
to execute any amendment, consent or agreement deemed necessary or desirable by
Optionee to effect such replacement.
6.5 EQUITABLE REMEDIES. The parties hereto agree that irreparable
damage would occur if any provision of this Option Agreement was not performed
in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Option Agreement and to enforce
specifically the terms and provisions hereof in any federal or state court
located in the California (as to which the parties agree to submit to
jurisdiction for the purposes of such action), this being in addition to any
other remedy to which they are entitled at law or in equity.
6.6 NOTICES; EXERCISE OF OPTIONOR'S PURCHASE OPTION. Any notice or
demand which must or may be given under this Option Agreement (including the
exercise by Optionee of the Purchase Option) or by law shall, except as
otherwise provided, be in writing and shall be deemed to have been given
(i) when physically received by personal delivery (which shall include the
confirmed receipt of a telecopied facsimile transmission), or (ii) three
business days after being deposited in the United States certified or registered
mail, return receipt requested, postage prepaid, or (iii) one business day after
being deposited with a nationally known commercial courier service providing
next day delivery service (such as Federal Express).
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Any such notice shall be addressed and delivered or telecopied (a) in
the case of a notice to Optionee at the following address and facsimile number:
Arden Realty Group, Inc.
9100 Wilshire Boulevard
East Tower, Suite 700
Beverly Hills, California 90212
Phone: (310) 271-8600
Facsimile: (310) 274-6218
Attn: President
and (b), in the case of a notice to Optionor, to the address and facsimile
number set forth on the Option Agreement Signature Page hereof.
6.7 SURVIVAL. It is the express intention and agreement of the
parties hereto that the representations, warranties and covenants of Optionor
set forth in this Option Agreement shall survive the consummation of the
transactions contemplated hereby.
6.8 INDEMNIFICATION. Optionee shall cause the Operating Partnership
to indemnify and hold harmless the Optionor and its partners, directors,
officers, employees, agents, representatives and affiliates (each of which is an
"INDEMNIFIED PARTY") from and against any and all claims, losses, damages,
liabilities and expenses, including without limitation, amounts paid in
settlement, reasonable attorneys' fees, costs of investigation and remediation,
costs of investigative judicial or administrative proceedings or appeals
therefrom and costs of attachment or similar bonds (collectively, "LOSSES")
asserted against, imposed upon or incurred by the Indemnified Party in
connection with: (i) any liabilities or obligations incurred, arising from or
out of, in connection with or as a result of any claims made or actions brought
by or against the Optionor, the Operating Partnership, the Property or an
Indemnified Party, that arise from or out of, in connection with or as a result
of any contamination or other environmental liability of the Property regardless
of when or how occurring; and fees, costs and expenses of the Operating
Partnership in connection with the transactions contemplated by the Option
Agreement, including without limitation any and all costs associated with the
transfers contemplated herein.
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<PAGE>
OPTION AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, each of the parties hereto has executed this
Option Agreement as of this __ day of June, 1996.
OPTIONOR
CIC EQUITIES, INC.,
a British Columbia corporation
By: /s/ Robert Coleman
-------------------------
Robert Coleman
Director
By: /s/ Sydney Coleman
-------------------------
Sydney Coleman
Director
OPTIONOR'S NOTICE ADDRESS
CIC Equities, Inc.
1500 West Georgia Street, Suite 1750
Vancouver, British Columbia
Canada V6G 226
Facsimile: (604) 669-4596
OPTIONEE
ARDEN REALTY GROUP, INC.,
a Maryland corporation
By: /s/ Richard S. Ziman
--------------------------
Richard S. Ziman
Chief Executive Officer
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<PAGE>
EXHIBIT A
TO
OPTION AGREEMENT
CONSTITUENT INTERESTS OF
OPTIONOR'S PARTNERSHIP INTEREST
<TABLE>
<CAPTION>
PROPERTIES HELD BY MINIMUM
PARTNERSHIPS PARTNERSHIPS CONSIDERATION
------------ ------------------ -------------
<S> <C> <C>
Century Center Associates, L.P. Century Park Center $ 616,842
-----------
Arden BV Associates, LLC Woodland Hills Financial Center
Beverly Atrium $ 421,393
-----------
TOTAL MINIMUM CONSIDERATION $ 1,038,235
-----------
-----------
</TABLE>
A-12
<PAGE>
EXHIBIT B
TO
OPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the undersigned hereby assigns, transfers, sells
and conveys to ARDEN REALTY GROUP, INC., a Maryland corporation (the "Company"),
its entire legal and beneficial right, title and interest in and to
______________________________, a __________________________________ [(the
"Partnership"/"LLC")], including, without limitation, all right, title and
interest, if any, of the undersigned in and to the [Partnership's/LLC's] assets
and the right to receive distributions of money, profits and other assets from
the [Partnership/LLC], presently existing or hereafter at any time arising or
accruing (such right, title and interest are hereinafter collectively referred
to as the ["Partnership Interest/LLC Interest"]), TO HAVE AND TO HOLD the same
unto the Company, its successors and assigns, forever.
Upon the execution and delivery hereof, the Company assumes all
obligations in respect of the [Partnership Interest/LLC Interest].
The [Partnership/LLC] owns certain real property as described in
Attachment "1" attached hereto.
Executed:_______________ __, 1996
By: /s/ Robert Coleman
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
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<PAGE>
EXHIBIT C
TO
OPTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- --------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $. . . . . . . . .
. . . . Computed on the
consideration or value
of property conveyed; OR
. . . . Computed on the
consideration or value
less liens or
encumbrances remaining
at time of sale.
--------------------------------------------
Signature of Declarant of Agent determining
tax - Firm Name
- -------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group, Inc., a Maryland corporation
the real property in the City of _______________, County of _________________,
State of California, described as
Dated ___________________________ /s/ Robert Coleman
--------------------------------
STATE OF CALIFORNIA } ________________________________
} ________________________________
COUNTY OF____________________ } ________________________________
On ____________________ before me, ________________________________
_________________________________,
personally appeared _____________
_________________________________
personally known to me (or proved
to me on the basis of satisfactory
evidence) to be the person(s) whose
names(s) is/are subscribed to the
within instrument and acknowledged
to me that he/she/they executed
the same in his/her/their
authorized capacity(ies), and that
by his/her/their signature(s) on
the instrument the person(s) or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
Signature (This area for official notarial seal)
---------------------------
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<PAGE>
APPENDIX B
SPECIAL CONSIDERATIONS
NO FAIRNESS OPINIONS OR APPRAISALS
No third-party fairness opinions of the transactions contemplated by
the Option Agreement were sought or obtained. In addition, no third-party
appraisals of the fair market value of the Partnership Interest, or the
Partnerships' Properties were sought or obtained. There can be no assurance
that the consideration paid in connection with the Offer is equivalent to the
fair market value of such Partnership Interest or Properties.
NO INDEPENDENT REPRESENTATIVE FOR PARTNERS OF THE PARTNERSHIPS
The terms of the Offer have been established by the Arden principals
on behalf of the REIT. The partners of the Partnerships were not separately
represented in structuring and negotiating the terms of such transactions,
either by representative groups of limited partners or outside experts and
consultants, such as investment bankers, legal counsel, accountants and
financial experts. Had independent representation been arranged for such
partners, the terms of such transactions might have been different and possibly
more favorable to such partners.
POTENTIAL DIFFERENCE IN VALUE RECEIVED BY OFFEREE AND THE OP PARTICIPANTS
Depending upon prevailing market conditions, the OP Participants who
will receive OP Units for their Partnership Interest, may receive greater value
(on the basis of the trading prices for the Offeror's common stock after the
Public Offering) for their Partnership Interest in the Formation Transactions
than the Offerees will receive for their Partnership Interest pursuant to the
Offer. In addition, the OP Participants will receive from the Operating
Partnership distributions of cash and allocations of income and loss, including
allocations of certain interest expenses attributable to loans which will be
transferred by the Partnerships to the Operating Partnership. The Offerees will
not receive such benefits. As holders of OP Units, however, the OP Participants
will own an investment with substantial limits on transferability for at least
one year during which the OP Units may not be transferred, or redeemed for cash
or REIT Shares and will bear the risk of fluctuations in value.
BENEFITS TO ARDEN PRINCIPALS RELATING TO THE FORMATION OF THE OPERATING
PARTNERSHIP
The Arden principals may realize substantial financial benefits from
their participation in the formation of the Operating Partnership and from the
consummation of the Formation Transactions. The Arden principals will receive
OP Units and cash in exchange for their interests in the Partnerships, other
Participating Partnerships and LLCs and the assets of Arden. Although the
consideration paid to the Arden principals in connection with the Formation
Transactions is intended to be based on the value of the assets contributed,
such consideration may not necessarily be indicative of the actual value of
these assets.
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TAX CONSEQUENCES TO OFFEREE
The sale of Partnership Interest will be a taxable transaction for the
Offeree. The Offeree will recognize gain or loss with respect to its
Partnership Interest equal to the difference between the "amount realized" with
respect to such Partnership Interest (which includes both the cash received and
the Offeree's share of the Partnerships' liabilities as determined for tax
purposes) and its adjusted tax basis in such Partnership Interest. Such gain
may exceed the Purchase Price. It is extremely important that each Offeree
consult with his tax advisor regarding the consequences of the Offer. See
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" in APPENDIX D.
LOSS OF OPPORTUNITY TO BENEFIT FROM POTENTIAL FUTURE APPRECIATION OF PROPERTY
The determination of the Purchase Price has been based in part on
current market conditions. There can be no assurance that the real estate
market in general will not improve following the Formation Transactions,
creating an environment for a more favorable disposition of the Properties or
Offeree's Partnership Interest in the future.
B-2
<PAGE>
APPENDIX C
CONFLICTS OF INTEREST
A number of conflicts of interest are inherent in the relationships
among the Arden principals, the Participating Partnerships and LLCs, the
Operating Partnership, the REIT and its directors and officers. Certain of
these conflicts of interest are summarized below.
COMMON GENERAL PARTNERS
State law in each of the jurisdictions in which the Participating
Partnerships and LLCs have been formed, including California and Nevada, imposes
certain fiduciary duties upon the general partners or managing members of each
of the Participating Partnerships and LLCs that go beyond the specific duties
and obligations imposed upon them under their respective limited partnership
agreements or LLC Operating Agreement. The general partners and managing
partners, in handling the affairs of each Participating Partnership and LLC, are
expected to exercise good faith, to use care and prudence and to act with an
undivided duty of loyalty to the limited partners of the respective
Participating Partnerships and LLCs. The Arden principals serve with others as
general partners or managing members for many of the Participating Partnerships
and LLCs. The general partners and managing members of each Participating
Partnership and LLC have an independent obligation to ensure that the
participation of the limited partners or members in the Option Agreement
transactions is fair and equitable. The Arden principals have sought to
discharge faithfully their fiduciary obligation to each of the Participating
Partnerships and LLCs, but it should be borne in mind that the Arden principals
who are the general partners of several of the Partnerships may serve in a
similar capacity with respect to each of the Participating Partnerships and
LLCs.
LACK OF INDEPENDENT REPRESENTATION
The Participating Partnerships and LLCs have not retained an
unaffiliated representative to negotiate the terms and conditions under which
their properties shall be transferred to the Operating Partnership. The Arden
principals, who are affiliates of the Operating Partnership and the REIT, have
acted on behalf of the Operating Partnership and the Participating Partnerships
and LLCs to structure the transactions and determine the Purchase Price.
Consequently, the terms of such transactions are not the result of arm's-length
negotiations, and no fairness opinion concerning the Offer has been obtained.
Further, because the Arden principals and their affiliates have a
significant financial interest in consummating the Formation Transactions and no
independent entity approved such Formation Transactions on behalf of the
Participating Partnerships and LLCs, there is an inherent conflict of interest
in the Arden principals' structuring of the terms and conditions of the
Formation Transactions.
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<PAGE>
SUBSTANTIAL BENEFITS TO THE ARDEN PRINCIPALS
The Arden principals have the following interests in the Formation
Transactions and the Public Offering, which may conflict with the interests of
the Offeree, the Participating Partnerships and their partners:
PARTNERS IN PARTICIPATING PARTNERSHIPS AND OWNERSHIP OF OP UNITS.
Certain of the partners in the Participating Partnerships and LLCs, including
in many cases the Arden principals and/or their affiliates, are contributing
their interests in the Participating Partnerships and LLCs to the Operating
Partnership in exchange for OP Units in tax free transactions. In addition,
Arden will contribute its assets to the Operating Partnership in exchange for OP
Units. The Arden principals, therefore, will hold substantial numbers of OP
Units following the Formation Transactions and thus may receive a long-term
direct financial benefit from the Formation Transactions.
IMPROVED FINANCIAL POSITION OF THE ARDEN PRINCIPALS. Aside from the
direct monetary benefits described above, following the consummation of the
Formation Transactions, certain of the Arden principals will (i) enter into
employment agreements with the Operating Partnership and will receive salary,
other compensation such as bonuses and benefit plan awards, and options to
acquire additional OP Units and/or REIT Shares; (ii) receive increased liquidity
of their interests in the Participating Partnerships and LLCs due to the
conversion of these interests to OP Units that may ultimately be converted into
cash or REIT Shares; (iii) receive increased diversification of their
investments; and (iv) receive the release of certain personal guarantees of
mortgage indebtedness on certain of these properties.
C-2
<PAGE>
APPENDIX D
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the federal income tax
consequences associated with the sale by the Offeree of its Partnership
Interest. It is impractical, however, to set forth in this confidential Offer
all aspects of federal tax law which may have tax consequences with respect to a
partner's participation in the Partnership Interest sale transaction. The
following discussion does not purport to deal with all aspects of taxation that
may be relevant to particular partners in light of their personal investment or
tax circumstances, or to certain types of partners (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) subject to special treatment under the federal income tax laws.
Furthermore, the discussion of various aspects of federal income taxation
discussed herein is based on the Code, existing laws, judicial decisions and
administrative regulations, rulings and practice, all of which are subject to
change at any time. Any such changes may be retroactive. Consequently, no
assurance can be given that the federal income tax consequences to a partner
described herein will not be altered in the future. This summary is not
intended to be a complete discussion of all tax consequences of the sale of the
Partnership Interest to the REIT or a substitute for careful tax planning, and
does not address the possible consequences to the Offeree under the tax laws of
the states and localities where the Offeree resides or otherwise does business
or where the Partnerships may operate. Further, the federal income tax
consequences to an Offeree may be affected by matters not discussed below. The
discussion set forth below is based upon the assumption that interests held by
the Offeree constitute capital assets in the hands of such investor. In
addition, this discussion assumes that each of the Partnerships is classified
for federal income tax purposes as a partnership rather than as an "association"
taxable as a corporation or a publicly traded partnership. EACH OFFEREE IS
URGED TO CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES TO HIM OF PARTICIPATING IN THE OFFER AND SALE OF
HIS PARTNERSHIP INTERESTS.
TAXATION OF OFFEREES RESULTING FROM THE SALE OF THEIR PARTNERSHIP INTERESTS
The sale of a Partnership Interest will be a taxable transaction for
the Offerees who accept the Offer. Upon the sale of a Partnership Interest for
cash, Offerees will recognize gain or, subject to certain limitations, loss with
respect to such Partnership Interest in an amount equal to the excess (or
deficit) of (i) their "amount realized" with respect to such Partnership
Interest, and (ii) their adjusted tax basis in such Partnership Interest. An
Offeree's "amount realized" with respect to a Partnership Interest for this
purpose will equal the sum of the cash consideration paid for such Partnership
Interest (I.E., the Purchase Price plus the Option Fee) plus the Offeree's
"share" (as determined for tax purposes) of the liabilities of the Partnerships.
Therefore, depending upon an Offeree's adjusted tax basis in the Partnership
Interest and his share of the Partnerships' liabilities, the gain recognized by
a particular Offeree may be in excess of the amount of cash received. Any gain
recognized on the sale of the Partnership Interest pursuant to the Offer
generally will constitute capital gain;
D-1
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provided, however, that to the extent the amount received for the Partnership
Interest is attributable to the Offeree's share of "substantially appreciated
inventory" or "unrealized receivables" (within the meaning of Section 751 of
the Code) of the Partnerships (including the Partnerships' previously allowed
depreciation and cost recovery deductions subject to recapture), the gain
resulting therefrom will be treated as ordinary income.
Any gain recognized by the Offerees who do not "materially
participate" (as defined in the Code) in a Participating Partnership in
connection with the sale of their Partnership Interests in such partnership will
constitute "passive activity income" for purposes of the "passive activity loss"
rules. Accordingly, such income generally may be offset by losses from all
sources, including suspended "passive activity losses" with respect to the
Partnerships, and "passive" or "active" losses from other activities. There are
exceptions to this rule, however, and each Offeree should consult with his or
her own tax advisor concerning whether, and the extent to which, he or she has
available suspended "passive" losses from either the Partnerships or other
investments that may be used to offset gain resulting from the sale of
Partnership Interests. Any gain recognized by an offeree who "materially
participates" (as defined in the Code) in a Participating Partnership may not be
offset by suspended "passive activity losses."
STATE AND OTHER TAX CONSIDERATIONS
Offerees who sell their Partnership Interests may be subject to other
taxes, such as state and local income taxes or transfer taxes that may be
imposed by various jurisdictions. Each Offeree is urged to consult with his own
tax advisor for advice as to state, local, or other taxes which may be payable
in connection with his acceptance of the Offer.
THE FOREGOING IS MERELY A SUMMARY OF CERTAIN OF THE FEDERAL
INCOME TAX CONSEQUENCES TO PARTICIPANTS IN THE SALE OF
PARTNERSHIP INTERESTS TO THE OFFEROR. IT DOES NOT PURPORT TO BE
EITHER A COMPLETE ANALYSIS OR A COMPETE LISTING OF ALL POTENTIAL
TAX CONSIDERATIONS OR TAX RISKS INHERENT IN THE OFFER AND SALE,
AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING. ACCORDINGLY,
OFFEREES ARE URGED TO CONSULT THEIR PERSONAL TAX ADVISORS WITH
RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF PARTICIPATING IN THE SALE OF THEIR PARTNERSHIP INTERESTS.
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EXHIBIT 10.16
ARDEN REALTY GROUP, INC.
9100 WILSHIRE BOULEVARD
SUITE 700 - EAST TOWER
BEVERLY HILLS, CALIFORNIA 90212
(310) 246-2941 FAX
(310) 271-8600
June 17, 1996
Robert Coleman
TJB Investments, Inc.
1500 W. Georgia Street, Suite 1750
Vancouver, British Columbia V6G226
Canada
Re: CONFIDENTIAL OFFER TO PURCHASE PARTNERSHIP INTERESTS
Dear Robert:
Arden Realty Group ("Arden") is currently engaged in the process of
forming a real estate investment trust known as Arden Realty Group, Inc. (the
"Company" or the "REIT") to continue and expand the real estate business of
Arden, its principals and their affiliates which are engaged in owning,
acquiring, renovating, managing and leasing office properties in Southern
California.
The Company will operate as a self-administered and self-managed real
estate investment trust ("REIT") and expects to qualify as a REIT for federal
income tax purposes. The operations of the Company will be carried on solely
through Arden Realty Group Limited Partnership (the "Operating Partnership"), of
which the Company will be the sole general partner.
The Company and its Operating Partnership have been formed to
consolidate the ownership of a portfolio of office properties (the
"Participating Properties") located in Southern California through a series of
transactions (the "Formation Transactions") whereby the Operating Partnership
will acquire direct interests in certain of the Participating Properties (the
"Property Interests") and all of the interests in certain limited partnerships,
certain limited liability companies and certain other entities (collectively the
"Participating Partnerships and LLCs") which currently own directly or
indirectly the Participating Properties (the "Consolidation").
The Company is currently engaged in finalizing the Formation
Transactions whereby (i) the owners of the Property Interests and the
partners and members of the Participating Partnerships and LLCs will either
transfer their Property Interests and interests
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June 17,1996
Page 2
in the Participating Partnerships and LLCs to the Company in exchange for
cash (the "Cash Participants") or contribute such interests directly to the
Operating Partnership (the "OP Participants") in exchange for an interest in
the Operating Partnership ("OP Units") and (ii) Arden will contribute certain
of its assets and liabilities to the Operating Partnership in exchange for OP
Units. In addition, the Company will make a public offering (the "Public
Offering") of its common stock (the "REIT Shares" or "Common Stock") and use
the proceeds therefrom, either directly or through the Operating Partnership,
to effectuate the Consolidation, among other things. Beginning one year
after completion of the Public Offering, the OP Units will be redeemable for
cash (based upon the fair market value of an equivalent number of shares of
Common Stock of the Company at the time of such redemption) or, at the
election of the Company, exchangeable for shares of Common Stock on a
one-for-one basis.
The Company wishes to include in its Consolidation interests TJB
Investments, Inc. ("TJB") owns in certain of the Participating Partnerships and
LLCs as set forth on Exhibit A of the attached Option Agreement (the
"Partnerships") which own directly or indirectly interests in certain of the
Participating Properties also as set forth on Exhibit A (the "Properties"). As
such, the Company respectfully requests your cooperation in effectuating the
Consolidation and hereby offers to purchase for cash (the "Offer"), on the terms
and conditions described in more detail below, all of TJB's right, title and
interest, as a partner (or member) of the Partnerships, including, without
limitation, all of TJB's voting rights and interests in the capital, profits and
losses of the Partnerships or any property distributable therefrom, constituting
all of TJB's interests in the Partnerships (such right, title and interest are
hereinafter collectively referred to as the "Partnership Interest").
For the reasons set forth below, the Company and the Managing Members
of the Partnerships believe that the Offer is fair and recommend that TJB accept
the Offer.
In considering the Offer, the Arden principals and the Company
strongly encourage you to carefully read this confidential Offer and all
appendices hereto which are hereby incorporated by reference as if set forth
fully herein. If you have any questions concerning any of the matters addressed
in this confidential Offer, or would like to receive copies of the Partnerships'
limited partnership agreements (or limited liability company operating
agreements, as applicable) or other information, please feel free to contact
Victor Coleman of Arden Realty Group, Inc. at (310) 271-8600.
AFTER YOU HAVE CAREFULLY REVIEWED THIS CONFIDENTIAL OFFER AND ALL
APPENDICES HERETO, IF YOU DECIDE TO ACCEPT THE OFFER PLEASE SIGN THE ENCLOSED
OPTION AGREEMENT SIGNATURE PAGE (AT P. A-11 OF APPENDIX A) AND RETURN IT TO
ARDEN REALTY GROUP, INC. IN THE ENCLOSED POSTAGE-PAID, PRE-ADDRESSED ENVELOPE AS
SOON AS POSSIBLE, BUT IN NO EVENT LATER THAN JUNE 21, 1996.
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June 17,1996
Page 3
THE OFFER AND THE OPTION AGREEMENT
The terms and conditions of the Offer are set forth in the Option
Agreement (the "Option Agreement") to be entered into by the Company (the
"Offeror") and you, as a partner (or member) of the Partnerships (the
"Offeree"). The discussion set forth below is a summary of such terms and
conditions. The Option Agreement is attached hereto as Appendix A and is hereby
incorporated by reference.
OPTION, PURCHASE PRICE AND TERMS OF OPTION. The Company, is offering
to acquire for the Option Fee (as defined below) an option (the "Option") to
purchase all of your Partnership Interest for a cash amount (the "Purchase
Price") equal to the "Total Minimum Consideration" figure indicated on Exhibit
A. The Company and the Managing Members of the Partnerships believe that the
Purchase Price represents a fair value for your Partnership Interests. The
Option will expire on December 31, 1996. Upon your acceptance of the Offer, the
Company will pay you a nonrefundable option payment equal to $100.00 (the
"Option Fee"). Upon the final closing following the Company's exercise of the
Option, you will receive the Purchase Price in exchange for your Partnership
Interest and the execution of an Assignment and Assumption Agreement in favor of
the Company.
CONDITIONS TO CLOSING ON THE OPTION. Exercise of the Option and
closing of the sale of the Partnership Interest pursuant to the Option will not
occur unless, among other things, (i) the Public Offering is consummated and the
net proceeds therefrom are sufficient to enable Offeror to consummate the
Formation Transactions including the acquisition of the Partnership Interest;
(ii) the transfer of the Partnership Interest and equity interests in the other
Participating Partnerships and LLCs is approved by their respective partners and
members to the extent such approval is required by the applicable limited
partnership agreements and LLC operating agreements; (iii) the absence of any
material breach of the parties' respective representations and warranties made
in the Option Agreement; (iv) the consent of certain third parties, including
certain lenders, to the Formation Transactions; and (v) the execution and
delivery by Offeree, directly or through the Attorney-in-Fact (see Article 5 of
the Option Agreement), of the Closing Documents. These conditions may be waived
in whole or in part by the Offeror.
CLOSING ON THE OPTION. If the Option is exercised, a place and time
for the closing of the purchase of Offeree's Partnership Interest will be set.
At an initial closing, Offeree will deliver, or have delivered on Offeree's
behalf through the Attorney-in-Fact, executed closing documents, including a
document that conveys to Offeror the Offeree's Partnership Interest (the
"Closing Documents"). If the Public Offering occurs and the other conditions to
closing are met, Offeree will receive the cash to which such Offeree is entitled
(i.e., the Purchase Price) and the purchase and sale of Offeree's Partnership
Interest will be complete.
3
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June 17,1996
Page 4
POWER OF ATTORNEY AND PROXY. Among the provisions of the Option
Agreement is an irrevocable power of attorney and proxy giving each of Offeror
and its designee the authority to act on behalf of Offeree with respect to all
matters of the Partnerships related to the Formation Transactions, including:
(i) to vote the Offeree's Partnership Interest with respect to any matter
relating to the Formation Transactions, (ii) to provide information about the
Offer to the Securities and Exchange Commission (the "SEC") and/or to other
partners in the Partnerships and other partnerships or limited liability
companies being considered for participation in the Formation Transactions, and
(iii) to make, execute and deliver contracts, receipts and certificates in
connection with, and take all other actions necessary to carry out, the
transactions contemplated by the Option Agreement. Offeror intends to use the
proxy granted to it by each Offeree who accepts the Offer to vote all
Partnership Interests subject to the proxy in favor of the Formation
Transactions (and to amend the Partnerships' limited partnership agreements, if
required) and in favor of all actions by the Partnerships deemed necessary or
desirable by Offeror to consummate the Formation Transactions.
EFFECT OF ACCEPTANCE OF THE OFFER. Assuming the Option is exercised
and the sale of the Partnership Interest is completed, Offeree will receive the
Purchase Price for his Partnership Interest tendered, will no longer have any
interests in the Partnerships, and will not receive any interest in the
Operating Partnership. Offeree will recognize income or loss for federal income
tax purposes in connection with the sale of the Partnership Interest pursuant to
the Offer. See Appendix D, "Certain Federal Income Tax Consequences."
PURCHASE PRICE
Provided the entire Partnership Interest is transferred at Closing,
the Purchase Price will be a cash amount at least equal to the value of the
"Total Minimum Consideration" indicated on Exhibit A to the Option Agreement
which represents the sum of the minimum cash consideration values attributed to
each of the interests which collectively constitute the Partnership Interest to
be transferred upon the exercise of the Option.
If at Closing, the aggregate value of the cash available to all Cash
Participants exceeds the sum of the Total Minimum Consideration values (after
all adjustments set forth in the following paragraph) of all Cash Participants
(the "Additional Consideration"), then the Additional Consideration or a portion
thereof, if any, shall be allocated among the Cash Participants (including the
Offeree) based upon the relative values of the Offeree's Partnership Interest
and the interests contributed by each of the other Cash Participants, in each
case as determined in my sole discretion.
The Offeror reserves the right not to acquire any particular interest
that constitutes part of the Partnership Interest, if in good faith the Offeror
determines that the ownership of such interest or the underlying Properties
would be inappropriate for the Operating Partnership for any reason whatsoever.
In such an event, the Offeree's Total
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June 17,1996
Page 5
Minimum Consideration may be reduced by an amount determined in my sole
discretion to reflect the reduction in total value of the Partnership
Interest ultimately transferred by the Offeree.
BENEFITS OF THE OFFER
Certain of the potential benefits to Offeree of the sale of its
Partnership Interest for cash are described below.
OPPORTUNITY TO LIQUIDATE INVESTMENT. The Offer will provide the
Offeree with an opportunity to liquidate its investment in the Partnerships for
cash. The Partnership Interest is a relatively illiquid investment. Generally,
the Partnership Interest cannot be sold except with the consent of the General
Partners of the Partnerships and an opinion of counsel for the Partnerships
stating that such sale is in compliance with all applicable laws, rules and
regulations of the federal and applicable state securities commissions and does
not jeopardize the Partnerships' tax status. Because the Partnership Interest
is not freely transferable, and because there is no public market for the
Partnership Interest, an investment in the Partnership Interest is not readily
convertible to cash. The Offer provides the opportunity for liquidity to the
Offeree. This is an opportunity that the General Partners cannot assure will be
available again in the foreseeable future. The availability to third-party
purchasers of attractive financing to acquire single-property real estate
investments remains limited under current market conditions. Traditional
sources of debt financing for single-property investments with traditionally
high levels of leverage have been reduced in recent years, in part because of
the difficulties encountered by financial institutions that made large numbers
of real estate loans in the past. The anticipated ability of Arden to undertake
the Public Offering puts it in a position to obtain equity financing to acquire
the Participating Properties for a combination of cash, OP Units and the
assumption or repayment of debt. No assurance can be made that the equity
markets will continue to be available in the future on terms that would make it
feasible to dispose of the Partnerships' Properties for the same consideration
proposed to be paid in the Formation Transactions.
ELIMINATION OF RISK OF REAL ESTATE OWNERSHIP. Ownership of the
Partnership Interest is subject to the risks inherent in the ownership of real
estate in general and office properties in particular, which include changes in
general or local economic conditions, changes in the supply of or demand for
competing properties in the area of the Partnerships' Properties, changes in
interest rates, the need to maintain the properties and to provide for
substantial costs of major repairs, replacements, improvements, and other
capital expenditures, and changes in the availability of mortgage funds (any or
all of which may render difficult the sale or refinancing of the Properties).
The Offer would enable Offerees to terminate their investments in the
Partnerships and thereby eliminate these risks.
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June 17,1996
Page 6
ALTERNATIVES CONSIDERED
In reaching the conclusion to recommend that the Offeree accept the
Offer, the Company and Arden principals have considered the following
alternatives:
CONTINUATION OF THE PARTNERSHIPS. The Partnerships could continue
their operations, seeking to maximize the value of their properties. Continuing
the Partnerships without change would not allow them to seek other investment
opportunities in the foreseeable future, as cash flow is not sufficient to
permit the Partnerships to borrow funds for additional property acquisitions.
In addition, continuing the Partnerships would not relieve the Partnerships of
their existing debt obligations or provide their partners with liquidity.
SALE OF THE PROPERTIES TO OTHER PURCHASERS AND LIQUIDATION OF THE
PARTNERSHIPS. The Partnerships could seek other purchasers to acquire their
properties, repay their debts, and, after establishing required reserves,
distribute the balance of the sale proceeds to limited partners and general
partners in accordance with the distribution provisions of the Partnerships'
limited partnership agreements. However, the Arden principals have neither
solicited any third-party offers nor received any attractive third-party offers
to purchase the Partnerships' Properties.
MISCELLANEOUS
To assist you in considering the attractiveness of this confidential
Offer certain "Special Considerations" have been enumerated in Appendix B, a
disclosure of certain "Conflicts of Interest" is attached as Appendix C, and a
discussion of "Certain Federal Income Tax Consequences" of the proposed
transactions is attached as Appendix D.
PENDING THE PUBLIC ANNOUNCEMENT OF THE FORMATION TRANSACTIONS AND THE
PUBLIC OFFERING, IT IS IMPERATIVE THAT YOU KEEP ALL INFORMATION CONTAINED IN
THIS LETTER AND THE APPENDICES ATTACHED HERETO ABSOLUTELY CONFIDENTIAL.
We thank you in advance for your cooperation and your careful
consideration of this liquidity opportunity as we move forward with the
formation of the REIT. As always, please do not hesitate to contact us if you
have any questions.
Sincerely,
Richard S. Ziman
Arden Realty Group, Inc.
6
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APPENDIX A
OPTION AGREEMENT
This Option Agreement (hereinafter referred to as the "OPTION
AGREEMENT") is made by and between Arden Realty Group, Inc., a Maryland
corporation ("OPTIONEE"), and TJB Investments, Inc., a Delaware corporation
("OPTIONOR").
RECITALS
A. Arden Realty Group Limited Partnership, a Maryland limited
partnership (the "OPERATING PARTNERSHIP"), of which Optionee is the sole general
partner, desires to consolidate the ownership of a portfolio of office
properties (the "PARTICIPATING PROPERTIES") located in Southern California
through a series of transactions (the "FORMATION TRANSACTIONS") whereby the
Operating Partnership will acquire direct interests in certain of the
Participating Properties (the "PROPERTY INTERESTS") and all of the interests in
certain limited partnerships, certain limited liability companies and certain
other entities (collectively the "PARTICIPATING PARTNERSHIPS AND LLCS") which
currently own directly or indirectly the Participating Properties (the
"CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Optionee which will
operate as a self-administered and self-managed real estate investment trust
("REIT") and will be the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members
of the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. The Optionor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIPS") which
Partnerships own directly or indirectly interests in certain of the
Participating Properties also as set forth on EXHIBIT "A" (the "PROPERTIES").
E. The Optionee desires to acquire from Optionor, and Optionor
desires to grant to Optionee, an option to purchase on the terms and conditions
set forth herein all of Optionor's right, title and interest, as a partner (or
member) of the Partnerships, including, without limitation, all of its voting
rights and interests in the capital, profits and losses of the Partnerships or
any property distributable therefrom, constituting all of its interests in the
Partnerships (such right, title and interest are hereinafter collectively
referred to as the "PARTNERSHIP INTEREST").
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F. The parties acknowledge that Optionee's purchase of Optionor's
Partnership Interest is in connection with and subject to the consummation of
the Formation Transactions and the Public Offering.
NOW, THEREFORE, in consideration of payment of $100.00 in cash (the
"OPTION FEE"), the mutual covenants and conditions set forth herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Optionee and Optionor agree as follows:
ARTICLE I
THE OPTION
1.1 GRANT OF OPTION. Optionor hereby grants to Optionee an option to
purchase (the "PURCHASE OPTION") all right, title and interest of such Optionor
in all of Optionor's Partnership Interest on the terms and conditions set forth
herein.
1.2 TERM AND EXERCISE OF OPTION. The Purchase Option may be
exercised at any time through December 31, 1996 (the "OPTION TERMINATION DATE")
by notice by Optionee to Optionor. If Optionee does not exercise the Purchase
Option by the Option Termination Date, Optionor's Purchase Option shall
terminate, Optionor shall be entitled to retain the Option Fee, and neither
party shall have any further obligations hereunder.
1.3 PURCHASE PRICE AND PAYMENT. Subject to ARTICLES 1.4 AND 1.5
below, the purchase price for Optionor's Partnership Interest (the "PURCHASE
PRICE") upon the exercise of the Purchase Option will be an amount equal to the
value indicated on Exhibit A as Optionor's "TOTAL MINIMUM CONSIDERATION".
1.4 ADDITIONAL CONSIDERATION. Subject to ARTICLE 1.5 below, in the
event that, at Closing (as defined in ARTICLE 2.2 below) the aggregate value of
the cash available to all Cash Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.5) of all
Cash Participants (the "ADDITIONAL CONSIDERATION"), then the Additional
Consideration or a portion thereof, if any, shall be allocated among the Cash
Participants (including the Optionor) based upon the relative values of the
Optionor's Partnership Interest and the interests contributed by each of the
other Cash Participants, in each case as determined by Richard S. Ziman, in his
sole discretion.
1.5 ADJUSTED CONSIDERATION. The Optionee reserves the right not to
acquire any particular interest that constitutes part of the Partnership
Interest, if in good faith the Optionee determines that the ownership of such
interest or the underlying Properties would be inappropriate for the Operating
Partnership for any reason whatsoever. Optionor hereby agrees that, in such
event, the Optionor's Total Minimum Consideration may be reduced by an amount
determined by Richard S. Ziman, in his sole discretion, to reflect the reduction
in total value of the Partnership Interest ultimately transferred by Optionor.
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1.6 AUTHORIZATION. Optionor hereby authorizes Richard S. Ziman to
make any and all determinations to be made by him pursuant to ARTICLES 1.4 AND
1.5 hereof, and any and all such determinations shall be final and binding on
all parties.
1.7 CONTRIBUTION OF CERTAIN RIGHTS. Effective upon the Closing,
Optionor hereby assigns to the Optionee all of its rights and interests, if any,
including rights to indemnification in favor of the Optionor, if any, under the
agreements pursuant to which the Optionor or its affiliates initially acquired
the Partnership Interest transferred pursuant to this Option Agreement.
ARTICLE II
PURCHASE AND CLOSING
2.1 PURCHASE AND SALE. Optionee, in its sole discretion, may
exercise the Purchase Option to purchase all of Optionor's Partnership Interest.
Upon such exercise, Optionor shall sell, transfer, assign, and convey to
Optionee, and Optionee shall purchase, for the Purchase Price, all right, title
and interest of Optionor in such Partnership Interest free and clear of all
Encumbrances (as defined in ARTICLE 3.3).
2.2 CLOSING. In connection with or at any time after the exercise by
Optionee of the Purchase Option, Optionee will specify a date for the closing
(the "CLOSING") of the purchase and sale of the Partnership Interest. At or
before such Closing, which shall be held at a place and time determined by
Optionee in its sole discretion, Optionee and Optionor (itself or through the
Attorney-in-Fact (see ARTICLE 5)) will execute all closing documents (the
"CLOSING DOCUMENTS") required by Optionee including without limitation (i) an
Assignment and Assumption Agreement substantially in the form attached hereto as
EXHIBIT B, (ii) an individual quitclaim deed fully executed and duly
acknowledged from Optionor substantially in the form attached hereto as EXHIBIT
C, and (iii) any other documents deemed by Optionee to be necessary or desirable
to assign, transfer and convey Optionor's Partnership Interest, to confirm the
accuracy of Optionor's representations and warranties made hereby and the
compliance by Optionor of Optionor's covenants and agreements made hereby, and
to effectuate the transactions contemplated hereby. Subject to the Conditions
to Closing in ARTICLE 2.3 below, at Closing Optionee will pay to Optionor a cash
amount equal to the Purchase Price in consideration for the sale, transfer,
assignment and conveyance of the Partnership Interest.
2.3 CONDITIONS TO CLOSING. Optionee will purchase the Partnership
Interest only if (i) the Public Offering is consummated and the net proceeds
therefrom are sufficient to enable Optionee to consummate the Formation
Transactions including the acquisition of the Partnership Interest; (ii) the
transfer of the Partnership Interest and equity interests in the other
Participating Partnerships and LLCs is approved by their respective partners and
members to the extent such approval is required by the applicable limited
partnership agreements and LLC operating agreements; (iii) the absence of any
material breach of the parties' respective representations and warranties made
in the Option Agreement; (iv) the consent of certain third parties, including
certain lenders, to the Formation Transactions; and (v) the execution and
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delivery by Optionor, directly or through the Attorney-in-Fact (see ARTICLE 5
hereof), of the Closing Documents. These conditions may be waived in whole or
in part by the Optionee.
2.4 TRANSFER TAXES. Optionee agrees to pay all transfer taxes
arising from the sale of Optionor's Partnership Interest pursuant to the
exercise by Optionee of the Purchase Option.
2.5 PRORATIONS. At the Closing, or as promptly as practicable
following the Closing, to the extent such matters are not the right or
responsibility of all tenants of a given Property, all revenue and all charges
that are customarily prorated in transactions of this nature, including accrued
rent currently due and payable, overpaid taxes or fees, real and personal
property taxes, common area maintenance charges and other similar periodic
charges payable or receivable with respect to such Property shall be ratably
prorated between the partners of the Partnership which holds such Property prior
to the Closing and the Optionee on and after the Closing, effective as of the
Closing. After providing for such prorations, (i) if any of the Partnerships
has a resultant cash surplus, the Purchase Price to be exchanged for Optionor's
Partnership Interest shall be increased in proportion to Optionor's ratable
share of such cash surplus and (ii) if any of the Partnerships has a resultant
cash deficit, the Purchase Price to be exchanged for Optionor's Partnership
Interest shall be reduced in proportion to Optionor's ratable share of such cash
deficit, unless such deficit is cured prior to Closing.
2.6 FURTHER ASSURANCES. Optionor will, from time to time, execute
and deliver to Optionee (or its designee) all such other and further instruments
and documents and take or cause to be taken all such other and further action as
Optionee (or its designee) may reasonably request in order to effect the
transactions contemplated by this Option Agreement, including instruments or
documents deemed necessary or desirable by Optionee (or its designee) to effect
and evidence the conveyance of Optionor's Partnership Interest in accordance
with the terms of this Option Agreement.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF OPTIONOR
Optionor hereby makes to Optionee each of the following
representations and warranties which are true as of the date hereof and will be
true as of the date of the Closing:
3.1 ORGANIZATION; AUTHORITY. The Optionor (A) if a natural
person, has the legal capacity to enter the Option Agreement; if not a natural
person, is duly formed, validly existing and in good standing (to the extent
applicable) under the laws of the jurisdiction of its formation, and (B) has all
requisite power and authority to own, lease or operate its property and to carry
on its business as presently conducted and, to the extent required under
applicable law, is qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
3.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Option Agreement by the Optionor has been duly and validly authorized by
all necessary action
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of the Optionor. This Option Agreement and each agreement, document and
instrument executed and delivered by or on behalf of Optionor pursuant to
this Option Agreement constitutes, or when executed and delivered will
constitute, the legal, valid and binding obligation of Optionor, each
enforceable in accordance with its terms.
3.3 TITLE TO PARTNERSHIP INTEREST. Optionor is the sole owner of the
Partnership Interest and owns beneficially and of record free and clear of any
claim, lien, pledge, voting agreement, option, charge, security interest,
mortgage, deed of trust, encumbrance, rights of assignment, purchase rights or
other rights of any nature whatsoever of any third party (collectively,
"ENCUMBRANCES"), and has full power and authority to convey free and clear of
any Encumbrances, its Partnership Interest and, upon payment for such
Partnership Interest, Optionee (or its designee) will acquire good and valid
title thereto, free and clear of any Encumbrances except Encumbrances created in
favor of Optionee by the transactions contemplated hereby. Optionor has no
equity interest, either direct or indirect, in the Properties or the
Partnerships except for the Partnership Interest which is the subject of this
Option Agreement.
3.4 CASH FLOW AND OPERATIONS DATA. Optionor has been provided
quarterly cash flow and operations data for the Properties (additional copies of
which have been made available by Optionee upon request) and has had the
opportunity to conduct its own independent valuation of the Properties.
3.5 CONSENTS AND APPROVALS. Optionor has full right, authority,
power and capacity, and no consent, waiver, approval or authorization of any
governmental entity, lender or other third party is required for Optionor:
(i) to enter into this Option Agreement and each agreement, document and
instrument to be executed and delivered by or on behalf of Optionor pursuant to
this Option Agreement; (ii) to carry out the transactions contemplated hereby
and thereby; and (iii) to transfer, sell and deliver all of Optionor's
Partnership Interest to Optionee (or its designee) upon exercise by Optionee of
the Purchase Option and payment therefor in accordance with this Option
Agreement.
3.6 NO VIOLATION. None of the execution, delivery or performance of
the Option Agreement and the transactions contemplated hereby does or will, with
or without the giving of notice, lapse of time, or both, (i) violate, conflict
with, result in a breach of, or constitute a default under or give to others any
right of termination or cancellation of (A) the organizational documents,
including the charters and bylaws, if any, of the Optionor, (B) any material
agreement, document or instrument to which the Optionor is a party or by which
the Optionor or its Partnership Interest is bound or (C) any term or provision
of any judgment, order, writ, injunction, or decree of any governmental or
regulatory authority binding on the Optionor or by which the Optionor or any of
its assets or properties are bound or subject or (ii) result in the creation of
any Encumbrance upon the Partnership Interest.
3.7 NON-FOREIGN STATUS. The Optionor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Internal Revenue Code of 1986, as amended and hereinafter
referred to as the "CODE"), and is, therefore,
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not subject to the provisions of the Code relating to the withholding of
sales proceeds to foreign persons.
3.8 WITHHOLDING. The Optionor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withholding provisions, including those referred to in
ARTICLE 3.7 above and similar provisions under California law. If Optionor
fails to provide such certificates or affidavits, Optionee may withhold a
portion of the Purchase Price as required by the Code or California law.
3.9 LITIGATION. There is no litigation or proceeding, either
judicial or administrative, pending or threatened, affecting all or any portion
of Optionor's Partnership Interest or Optionor's ability to consummate the
transactions contemplated hereby.
3.10 NO OTHER AGREEMENTS TO SELL. Except for the Purchase Option
granted hereby, Optionor has made no agreement and has no obligation (absolute
or contingent) to sell, transfer or in any way encumber any of Optionor's
Partnership Interest or not to sell Optionor's Partnership Interest.
3.11 NO BROKERS. Neither the Optionor nor any of its officers,
directors or employees has employed or made any agreement with any broker,
finder or similar agent or any person or firm which will result in the
obligation of the Optionee or any of its affiliates to pay any finder's fee,
brokerage fees or commission or similar payment in connection with the
transactions contemplated by this Option Agreement.
3.12 COVENANT TO REMEDY BREACHES. Optionor covenants to use its best
efforts (i) to prevent the breach of any representation or warranty of Optionor
hereunder, (ii) to satisfy all covenants of Optionor hereunder and (iii) to
promptly cure any breach of a representation, warranty or covenant of Optionor
hereunder upon its learning of same.
ARTICLE IV
RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 4 shall
become effective only upon the Closing of the purchase and sale of the
Partnership Interest pursuant to ARTICLE 2 herein.
4.1 GENERAL RELEASE OF OPTIONEE. As of the Closing, Optionor
irrevocably waives, releases and forever discharges the Optionee and Optionee's
affiliates, executive officers (including Richard S. Ziman and Victor J.
Coleman), agents, attorneys, successors and assigns of and from, any and all
charges, complaints, claims, liabilities, damages, actions, causes of action,
losses and costs of any nature whatsoever (collectively, "OPTIONOR CLAIMS"),
known or unknown, suspected or unsuspected, arising out of or relating to any
partnership agreement or limited liability company operating agreement governing
the Partnership Interest (collectively, the "PARTNERSHIP AGREEMENTS"), this
Option Agreement or any other matter which exists at the
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Closing, except for Optionor Claims arising from the breach of any
representation, warranty, covenant or obligation under this Option Agreement.
4.2 GENERAL RELEASE OF OPTIONOR. As of the Closing, Optionee
irrevocably waives, releases and forever discharges the Optionor and Optionor's
agents, attorneys, successors and assigns of and from, any and all charges,
complaints, claims, liabilities, damages, actions, causes of action, losses and
costs of any nature whatsoever (collectively, "OPTIONEE CLAIMS"), known or
unknown, suspected or unsuspected, arising out of or relating to the Partnership
Agreements, this Option Agreement or any other matter which exists at the
Closing, except for Optionee Claims arising from the breach of any
representation, warranty, covenant or obligation under this Option Agreement.
4.3 WAIVER OF SECTION 1542 PROTECTIONS. As of the Closing, Optionor
and Optionee each expressly waives and relinquishes all rights and benefits
afforded by Section 1542 of the California Civil Code and do so understanding
and acknowledging the significance and consequence of such specific waiver of
Section 1542 which provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected the settlement with the
debtor.
4.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT. As of the Closing,
the Optionor waives and relinquishes all rights and benefits otherwise afforded
to Optionor under the Partnership Agreements including, without limitation, any
right to consent to or approve of the sale or contribution by the other partners
(or members) of the Partnerships of their partnership interests to the Company
or the Operating Partnership.
ARTICLE V
POWER OF ATTORNEY
5.1 GRANT OF POWER OF ATTORNEY. Optionor does hereby irrevocably
appoint Optionee (or its designee) and each of them individually and any
successor thereof from time to time (such Optionee or designee or any such
successor of any of them acting in his, her or its capacity as attorney-in-fact
pursuant hereto, the "ATTORNEY-IN-FACT") as the true and lawful attorney-in-fact
and agent of Optionor, to act in the name, place and stead of Optionor to make,
execute, acknowledge and deliver all such other contracts, orders, receipts,
notices, requests, instructions, certificates, consents, letters and other
writings (including without limitation the execution of any Closing Documents or
other documents relating to the acquisition by Optionee of Optionor's
Partnership Interest), to provide information to the Securities and Exchange
Commission and others about the transactions contemplated hereby and, in
general, to do all things and to take all actions which the Attorney-in-Fact in
its sole discretion may consider necessary or proper in connection with or to
carry out the transactions contemplated by this Option Agreement, as fully as
could Optionor if personally present and acting. Further, Optionor hereby
grants to Attorney-in-Fact a proxy (the "PROXY") to vote Optionor's Partnership
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Interest on any matter related to the Formation Transactions presented to the
Partnerships' partners for a vote, including, but not limited to, the transfer
of interests in the Partnerships by other partners.
Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable and
shall not be terminated by any act of Optionor, by operation of law or by the
occurrence of any other event or events, and if any other such act or events
shall occur before the completion of the transactions contemplated by this
Option Agreement, the Attorney-in-Fact shall nevertheless be authorized and
directed to complete all such transactions as if such other act or events had
not occurred and regardless of notice thereof. Optionor agrees that, at the
request of Optionee it will promptly execute a separate power of attorney and
proxy on the same terms set forth in this ARTICLE 5, such execution to be
witnessed and notarized. Optionor hereby authorizes the reliance of third
parties on each of the Power of Attorney and Proxy.
Optionor acknowledges that Optionee has, and any designee or successor
thereof acting as Attorney-in-Fact may have, an economic interest in the
transactions contemplated by this Option Agreement.
5.2 LIMITATION ON LIABILITY. It is understood that the Attorney-in-
Fact assumes no responsibility or liability to any person by virtue of the Power
of Attorney or Proxy granted by Optionor hereby. The Attorney-in-Fact makes no
representations with respect to and shall have no responsibility for the
Formation Transactions or the Public Offering, or the acquisition of the
Partnership Interest by Optionee and shall not be liable for any error or
judgment or for any act done or omitted or for any mistake of fact or law except
for its own gross negligence or bad faith. Optionor agrees to indemnify the
Attorney-in-Fact for and to hold the Attorney-in-Fact harmless against any loss,
claim, damage or liability incurred on its part arising out of or in connection
with it acting as the Attorney-in-Fact under the Power of Attorney or Proxy
created by Optionor hereby, as well as the cost and expense of investigating and
defending against any such loss, claim, damage or liability, except to the
extent such loss, claim, damage or liability is due to the gross negligence or
bad faith of the Attorney-in-Fact. Optionor agrees that the Attorney-in-Fact
may consult with counsel of its own choice (who may be counsel for Optionee or
its successors or affiliates), and it shall have full and complete authorization
and protection for any action taken or suffered by it hereunder in good faith
and in accordance with the opinion of such counsel. It is understood that the
Attorney-in-Fact may, without breaching any express or implied obligation to
Optionor hereunder, release, amend or modify any other power of attorney or
proxy granted by any other person under any related agreement.
ARTICLE VI
MISCELLANEOUS
6.1 AMENDMENT. Any amendment hereto shall be effective only against
those parties who have acknowledged in writing their consent to such amendment.
No waiver of any provisions of this Option Agreement shall be valid unless in
writing and signed by the party against whom enforcement is sought.
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6.2 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Option
Agreement (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof, (b) may be executed in one or more
counterparts, each of which will be deemed an original and all of which shall
constitute but one and the same instrument and (c) shall be governed in all
respects by the laws of California without giving effect to the conflict of law
provisions thereof.
6.3 ASSIGNABILITY. Neither this Option Agreement nor any of the
rights or obligations hereunder may be assigned by Optionor without the prior
written consent of Optionee or by Optionee without the prior written consent of
Optionor, except that Optionee may, without such consent, assign such rights and
such obligations to any affiliate of Optionee, provided that such assignment
shall not affect Optionee's obligations hereunder.
6.4 SEVERABILITY. If any provision of this Option Agreement, or the
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Option Agreement and application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Option Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provision and
to execute any amendment, consent or agreement deemed necessary or desirable by
Optionee to effect such replacement.
6.5 EQUITABLE REMEDIES. The parties hereto agree that irreparable
damage would occur if any provision of this Option Agreement was not performed
in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Option Agreement and to enforce
specifically the terms and provisions hereof in any federal or state court
located in the California (as to which the parties agree to submit to
jurisdiction for the purposes of such action), this being in addition to any
other remedy to which they are entitled at law or in equity.
6.6 NOTICES; EXERCISE OF OPTIONOR'S PURCHASE OPTION. Any notice or
demand which must or may be given under this Option Agreement (including the
exercise by Optionee of the Purchase Option) or by law shall, except as
otherwise provided, be in writing and shall be deemed to have been given
(i) when physically received by personal delivery (which shall include the
confirmed receipt of a telecopied facsimile transmission), or (ii) three
business days after being deposited in the United States certified or registered
mail, return receipt requested, postage prepaid, or (iii) one business day after
being deposited with a nationally known commercial courier service providing
next day delivery service (such as Federal Express).
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Any such notice shall be addressed and delivered or telecopied (a) in
the case of a notice to Optionee at the following address and facsimile number:
Arden Realty Group, Inc.
9100 Wilshire Boulevard
East Tower, Suite 700
Beverly Hills, California 90212
Phone: (310) 271-8600
Facsimile: (310) 274-6218
Attn: President
and (b), in the case of a notice to Optionor, to the address and facsimile
number set forth on the Option Agreement Signature Page hereof.
6.7 SURVIVAL. It is the express intention and agreement of the
parties hereto that the representations, warranties and covenants of Optionor
set forth in this Option Agreement shall survive the consummation of the
transactions contemplated hereby.
6.8 INDEMNIFICATION. Optionee shall cause the Operating Partnership
to indemnify and hold harmless the Optionor and its partners, directors,
officers, employees, agents, representatives and affiliates (each of which is an
"INDEMNIFIED PARTY") from and against any and all claims, losses, damages,
liabilities and expenses, including without limitation, amounts paid in
settlement, reasonable attorneys' fees, costs of investigation and remediation,
costs of investigative judicial or administrative proceedings or appeals
therefrom and costs of attachment or similar bonds (collectively, "LOSSES")
asserted against, imposed upon or incurred by the Indemnified Party in
connection with: (i) any liabilities or obligations incurred, arising from or
out of, in connection with or as a result of any claims made or actions brought
by or against the Optionor, the Operating Partnership, the Property or an
Indemnified Party, that arise from or out of, in connection with or as a result
of any contamination or other environmental liability of the Property regardless
of when or how occurring; and fees, costs and expenses of the Operating
Partnership in connection with the transactions contemplated by the Option
Agreement, including without limitation any and all costs associated with the
transfers contemplated herein.
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<PAGE>
OPTION AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, each of the parties hereto has executed this
Option Agreement as of this __ day of June, 1996.
OPTIONOR
TJB INVESTMENTS, INC., a Delaware
corporation
By: /s/ Robert Coleman
------------------------------------
Robert Coleman
President
OPTIONOR'S NOTICE ADDRESS
1500 W. Georgia Street
Suite 1750
Vancouver, British Columbia V6G226
Canada
Facsimile: (604) 669-4596
OPTIONEE
ARDEN REALTY GROUP, INC.,
a Maryland corporation
By: /s/ Richard S. Ziman
------------------------------------
Richard S. Ziman
Chief Executive Officer
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EXHIBIT A
TO
OPTION AGREEMENT
CONSTITUENT INTERESTS OF
OPTIONOR'S PARTNERSHIP INTEREST
PROPERTIES HELD BY MINIMUM
PARTNERSHIPS PARTNERSHIPS CONSIDERATION
------------ ------------------ -------------
5000 Spring Associates, LLC 5000 E. Spring Street $169,566
--------
LAOP V, LLC 5832 Bolsa Avenue $630,000
The New Wilshire --------
9665 Wilshire Boulevard
Imperial Bank Tower
TOTAL MINIMUM CONSIDERATION $799,566
--------
--------
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<PAGE>
EXHIBIT B
TO
OPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the undersigned hereby assigns, transfers, sells
and conveys to ARDEN REALTY GROUP, INC. a Maryland corporation (the "Company"),
its entire legal and beneficial right, title and interest in and to
____________, a ____________ [(the "Partnership"/"LLC")], including, without
limitation, all right, title and interest, if any, of the undersigned in and to
the [Partnership's/LLC's] assets and the right to receive distributions of
money, profits and other assets from the [Partnership/LLC], presently existing
or hereafter at any time arising or accruing (such right, title and interest are
hereinafter collectively referred to as the ["Partnership Interest/LLC
Interest"]), TO HAVE AND TO HOLD the same unto the Company, its successors and
assigns, forever.
Upon the execution and delivery hereof, the Company assumes all
obligations in respect of the [Partnership Interest/LLC Interest].
The [Partnership/LLC] owns certain real property as described in
Attachment "1" attached hereto.
Executed: _____________ __, 1996
By: /s/ Robert Coleman
-----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
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EXHIBIT C
TO
OPTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- --------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $
---------------
Computed on the
----------- consideration or value
of property conveyed;
OR
Computed on the
----------- consideration or value
less liens or
encumbrances remaining
at time of sale.
--------------------------------------------
Signature of Declarant of Agent determining
tax - Firm Name
- --------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group, Inc., a Maryland corporation
the real property in the City of ____________, County of _____________, State of
California, described as
Dated _______________________________ /s/ Robert Coleman
---------------------------------------
STATE OF CALIFORNIA ) ________________________________________
) ________________________________________
COUNTY OF ______________________ ) ________________________________________
On ___________________________ before me, ____________________________________
_______________________________________,
personally appeared ____________________
________________________________________
personally known to me (or proved to
me on the basis of satisfactory
evidence) to be the person(s) whose
names(s) is/are subscribed to the within
instrument and acknowledged to me that
he/she/they executed the same in
his/her/their authorized capacity(ies),
and that by his/her/their signature(s)
on the instrument the person(s) or the
entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature (This area for official notarial seal)
-----------------------------
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<PAGE>
APPENDIX B
SPECIAL CONSIDERATIONS
NO FAIRNESS OPINIONS OR APPRAISALS
No third-party fairness opinions of the transactions contemplated by
the Option Agreement were sought or obtained. In addition, no third-party
appraisals of the fair market value of the Partnership Interest, or the
Partnerships' Properties were sought or obtained. There can be no assurance
that the consideration paid in connection with the Offer is equivalent to the
fair market value of such Partnership Interest or Properties.
NO INDEPENDENT REPRESENTATIVE FOR PARTNERS OF THE PARTNERSHIPS
The terms of the Offer have been established by the Arden principals
on behalf of the REIT. The partners of the Partnerships were not separately
represented in structuring and negotiating the terms of such transactions,
either by representative groups of limited partners or outside experts and
consultants, such as investment bankers, legal counsel, accountants and
financial experts. Had independent representation been arranged for such
partners, the terms of such transactions might have been different and possibly
more favorable to such partners.
POTENTIAL DIFFERENCE IN VALUE RECEIVED BY OFFEREE AND THE OP PARTICIPANTS
Depending upon prevailing market conditions, the OP Participants who
will receive OP Units for their Partnership Interest, may receive greater value
(on the basis of the trading prices for the Offeror's common stock after the
Public Offering) for their Partnership Interest in the Formation Transactions
than the Offerees will receive for their Partnership Interest pursuant to the
Offer. In addition, the OP Participants will receive from the Operating
Partnership distributions of cash and allocations of income and loss, including
allocations of certain interest expenses attributable to loans which will be
transferred by the Partnerships to the Operating Partnership. The Offerees will
not receive such benefits. As holders of OP Units, however, the OP Participants
will own an investment with substantial limits on transferability for at least
one year during which the OP Units may not be transferred, or redeemed for cash
or REIT Shares and will bear the risk of fluctuations in value.
BENEFITS TO ARDEN PRINCIPALS RELATING TO THE FORMATION OF THE OPERATING
PARTNERSHIP
The Arden principals may realize substantial financial benefits from
their participation in the formation of the Operating Partnership and from the
consummation of the Formation Transactions. The Arden principals will receive
OP Units and cash in exchange for their interests in the Partnerships, other
Participating Partnerships and LLCs and the assets of Arden. Although the
consideration paid to the Arden principals in connection with the Formation
Transactions is intended to be based on the value of the assets contributed,
such consideration may not necessarily be indicative of the actual value of
these assets.
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TAX CONSEQUENCES TO OFFEREE
The sale of Partnership Interest will be a taxable transaction for the
Offeree. The Offeree will recognize gain or loss with respect to its
Partnership Interest equal to the difference between the "amount realized" with
respect to such Partnership Interest (which includes both the cash received and
the Offeree's share of the Partnerships' liabilities as determined for tax
purposes) and its adjusted tax basis in such Partnership Interest. Such gain
may exceed the Purchase Price. It is extremely important that each Offeree
consult with his tax advisor regarding the consequences of the Offer. See
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" in APPENDIX D.
LOSS OF OPPORTUNITY TO BENEFIT FROM POTENTIAL FUTURE APPRECIATION OF PROPERTY
The determination of the Purchase Price has been based in part on
current market conditions. There can be no assurance that the real estate
market in general will not improve following the Formation Transactions,
creating an environment for a more favorable disposition of the Properties or
Offeree's Partnership Interest in the future.
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APPENDIX C
CONFLICTS OF INTEREST
A number of conflicts of interest are inherent in the relationships
among the Arden principals, the Participating Partnerships and LLCs, the
Operating Partnership, the REIT and its directors and officers. Certain of
these conflicts of interest are summarized below.
COMMON GENERAL PARTNERS
State law in each of the jurisdictions in which the Participating
Partnerships and LLCs have been formed, including California and Nevada, imposes
certain fiduciary duties upon the general partners or managing members of each
of the Participating Partnerships and LLCs that go beyond the specific duties
and obligations imposed upon them under their respective limited partnership
agreements or LLC Operating Agreement. The general partners and managing
partners, in handling the affairs of each Participating Partnership and LLC, are
expected to exercise good faith, to use care and prudence and to act with an
undivided duty of loyalty to the limited partners of the respective
Participating Partnerships and LLCs. The Arden principals serve with others as
general partners or managing members for many of the Participating Partnerships
and LLCs. The general partners and managing members of each Participating
Partnership and LLC have an independent obligation to ensure that the
participation of the limited partners or members in the Option Agreement
transactions is fair and equitable. The Arden principals have sought to
discharge faithfully their fiduciary obligation to each of the Participating
Partnerships and LLCs, but it should be borne in mind that the Arden principals
who are the general partners of several of the Partnerships may serve in a
similar capacity with respect to each of the Participating Partnerships and
LLCs.
LACK OF INDEPENDENT REPRESENTATION
The Participating Partnerships and LLCs have not retained an
unaffiliated representative to negotiate the terms and conditions under which
their properties shall be transferred to the Operating Partnership. The Arden
principals, who are affiliates of the Operating Partnership and the REIT, have
acted on behalf of the Operating Partnership and the Participating Partnerships
and LLCs to structure the transactions and determine the Purchase Price.
Consequently, the terms of such transactions are not the result of arm's-length
negotiations, and no fairness opinion concerning the Offer has been obtained.
Further, because the Arden principals and their affiliates have a
significant financial interest in consummating the Formation Transactions and no
independent entity approved such Formation Transactions on behalf of the
Participating Partnerships and LLCs, there is an inherent conflict of interest
in the Arden principals' structuring of the terms and conditions of the
Formation Transactions.
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SUBSTANTIAL BENEFITS TO THE ARDEN PRINCIPALS
The Arden principals have the following interests in the Formation
Transactions and the Public Offering, which may conflict with the interests of
the Offeree, the Participating Partnerships and their partners:
PARTNERS IN PARTICIPATING PARTNERSHIPS AND OWNERSHIP OF OP UNITS.
Certain of the partners in the Participating Partnerships and LLCs, including
in many cases the Arden principals and/or their affiliates, are contributing
their interests in the Participating Partnerships and LLCs to the Operating
Partnership in exchange for OP Units in tax free transactions. In addition,
Arden will contribute its assets to the Operating Partnership in exchange for OP
Units. The Arden principals, therefore, will hold substantial numbers of OP
Units following the Formation Transactions and thus may receive a long-term
direct financial benefit from the Formation Transactions.
IMPROVED FINANCIAL POSITION OF THE ARDEN PRINCIPALS. Aside from the
direct monetary benefits described above, following the consummation of the
Formation Transactions, certain of the Arden principals will (i) enter into
employment agreements with the Operating Partnership and will receive salary,
other compensation such as bonuses and benefit plan awards, and options to
acquire additional OP Units and/or REIT Shares; (ii) receive increased liquidity
of their interests in the Participating Partnerships and LLCs due to the
conversion of these interests to OP Units that may ultimately be converted into
cash or REIT Shares; (iii) receive increased diversification of their
investments; and (iv) receive the release of certain personal guarantees of
mortgage indebtedness on certain of these properties.
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<PAGE>
APPENDIX D
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the federal income tax
consequences associated with the sale by the Offeree of its Partnership
Interest. It is impractical, however, to set forth in this confidential Offer
all aspects of federal tax law which may have tax consequences with respect to a
partner's participation in the Partnership Interest sale transaction. The
following discussion does not purport to deal with all aspects of taxation that
may be relevant to particular partners in light of their personal investment or
tax circumstances, or to certain types of partners (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) subject to special treatment under the federal income tax laws.
Furthermore, the discussion of various aspects of federal income taxation
discussed herein is based on the Code, existing laws, judicial decisions and
administrative regulations, rulings and practice, all of which are subject to
change at any time. Any such changes may be retroactive. Consequently, no
assurance can be given that the federal income tax consequences to a partner
described herein will not be altered in the future. This summary is not
intended to be a complete discussion of all tax consequences of the sale of the
Partnership Interest to the REIT or a substitute for careful tax planning, and
does not address the possible consequences to the Offeree under the tax laws of
the states and localities where the Offeree resides or otherwise does business
or where the Partnerships may operate. Further, the federal income tax
consequences to an Offeree may be affected by matters not discussed below. The
discussion set forth below is based upon the assumption that interests held by
the Offeree constitute capital assets in the hands of such investor. In
addition, this discussion assumes that each of the Partnerships is classified
for federal income tax purposes as a partnership rather than as an "association"
taxable as a corporation or a publicly traded partnership. EACH OFFEREE IS
URGED TO CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES TO HIM OF PARTICIPATING IN THE OFFER AND SALE OF
HIS PARTNERSHIP INTERESTS.
TAXATION OF OFFEREES RESULTING FROM THE SALE OF THEIR PARTNERSHIP INTERESTS
The sale of a Partnership Interest will be a taxable transaction for
the Offerees who accept the Offer. Upon the sale of a Partnership Interest for
cash, Offerees will recognize gain or, subject to certain limitations, loss with
respect to such Partnership Interest in an amount equal to the excess (or
deficit) of (i) their "amount realized" with respect to such Partnership
Interest, and (ii) their adjusted tax basis in such Partnership Interest. An
Offeree's "amount realized" with respect to a Partnership Interest for this
purpose will equal the sum of the cash consideration paid for such Partnership
Interest (I.E., the Purchase Price plus the Option Fee) plus the Offeree's
"share" (as determined for tax purposes) of the liabilities of the Partnerships.
Therefore, depending upon an Offeree's adjusted tax basis in the Partnership
Interest and his share of the Partnerships' liabilities, the gain recognized by
a particular Offeree may be in excess of the amount of cash received. Any gain
recognized on the sale of the Partnership Interest pursuant to the Offer
generally will constitute capital gain;
D-1
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provided, however, that to the extent the amount received for the Partnership
Interest is attributable to the Offeree's share of "substantially appreciated
inventory" or "unrealized receivables" (within the meaning of Section 751 of
the Code) of the Partnerships (including the Partnerships' previously allowed
depreciation and cost recovery deductions subject to recapture), the gain
resulting therefrom will be treated as ordinary income.
Any gain recognized by the Offerees who do not "materially
participate" (as defined in the Code) in a Participating Partnership in
connection with the sale of their Partnership Interests in such partnership will
constitute "passive activity income" for purposes of the "passive activity loss"
rules. Accordingly, such income generally may be offset by losses from all
sources, including suspended "passive activity losses" with respect to the
Partnerships, and "passive" or "active" losses from other activities. There are
exceptions to this rule, however, and each Offeree should consult with his or
her own tax advisor concerning whether, and the extent to which, he or she has
available suspended "passive" losses from either the Partnerships or other
investments that may be used to offset gain resulting from the sale of
Partnership Interests. Any gain recognized by an offeree who "materially
participates" (as defined in the Code) in a Participating Partnership may not be
offset by suspended "passive activity losses."
STATE AND OTHER TAX CONSIDERATIONS
Offerees who sell their Partnership Interests may be subject to other
taxes, such as state and local income taxes or transfer taxes that may be
imposed by various jurisdictions. Each Offeree is urged to consult with his own
tax advisor for advice as to state, local, or other taxes which may be payable
in connection with his acceptance of the Offer.
THE FOREGOING IS MERELY A SUMMARY OF CERTAIN OF THE FEDERAL
INCOME TAX CONSEQUENCES TO PARTICIPANTS IN THE SALE OF
PARTNERSHIP INTERESTS TO THE OFFEROR. IT DOES NOT PURPORT TO BE
EITHER A COMPLETE ANALYSIS OR A COMPETE LISTING OF ALL POTENTIAL
TAX CONSIDERATIONS OR TAX RISKS INHERENT IN THE OFFER AND SALE,
AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING. ACCORDINGLY,
OFFEREES ARE URGED TO CONSULT THEIR PERSONAL TAX ADVISORS WITH
RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF PARTICIPATING IN THE SALE OF THEIR PARTNERSHIP INTERESTS.
D-2
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EXHIBIT 10.17
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- -------------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
by and between
RICHARD S. ZIMAN,
an individual
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP
a Maryland limited partnership
Dated as of June 17, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS. . . . . 2
1.1 Contribution Transaction . . . . . . . . . . . . . . . . . . . . . 2
1.2 Minimum Consideration and Exchange of OP Units . . . . . . . . . . 2
1.3 Additional Consideration . . . . . . . . . . . . . . . . . . . . . 2
1.4 Adjusted Consideration . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Contribution of Certain Rights . . . . . . . . . . . . . . . . . . 3
1.7 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Treatment as Contribution. . . . . . . . . . . . . . . . . . . . . 4
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Closing Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. . . . . . . . . . . . . 6
3.1 Representations and Warranties of the Operating Partnership. . . . 6
3.2 Representations and Warranties of Contributor. . . . . . . . . . . 7
3.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. COVENANTS OF CONTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . 7
5. RELEASES AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 General Release of Operating Partnership . . . . . . . . . . . . . 8
5.2 General Release of Contributor . . . . . . . . . . . . . . . . . . 9
5.3 Waiver of Section 1542 Protections . . . . . . . . . . . . . . . . 9
5.4 Waiver of Rights Under Partnership Agreement . . . . . . . . . . . 9
6. POWER OF ATTORNEY
6.1 Grant of Power of Attorney . . . . . . . . . . . . . . . . . . . . 9
6.2 Limitation on Liability. . . . . . . . . . . . . . . . . . . . . . 10
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
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EXHIBIT LIST
SECTION FIRST
EXHIBITS REFERENCED
------------
A Constituent Interests of Contributor's Partnership Interest . . .Recital D
B Contribution and Assumption Agreement . . . . . . . . . . . . . . . . 1.1
C Form of Quitclaim . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
D Representations and Warranties of Contributor . . . . . . . . . . . . 3.2
Attachment 1. . . . . . . . . . . . . . . . . List of Portfolio Agreements
ii
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (hereinafter referred to as the
"CONTRIBUTION AGREEMENT") is made and entered into as of June 17, 1996 by and
between Arden Realty Group Limited Partnership, a Maryland limited partnership
(the "OPERATING PARTNERSHIP"), and Richard S. Ziman, an individual (the
"CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership
of a portfolio of office properties (the "PARTICIPATING PROPERTIES") located
in Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct
interests in certain of the Participating Properties (the "PROPERTY
INTERESTS") and all of the interests in certain limited partnerships, certain
limited liability companies and certain other entities (collectively the
"PARTICIPATING PARTNERSHIPS AND LLCS") which currently own directly or
indirectly the Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial
public offering (the "PUBLIC OFFERING") of the common stock of Arden Realty
Group, Inc., a Maryland corporation (the "COMPANY"), which will operate as a
self-administered and self-managed real estate investment trust ("REIT") and
will be the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and
members of the Participating Partnerships and LLCs will either transfer their
Property Interests and interests in the Participating Partnerships and LLCs
to the Company in exchange for cash (the "CASH PARTICIPANTS") or contribute
such interests directly to the Operating Partnership in exchange for an
interest in the Operating Partnership (the "OP PARTICIPANTS").
D. The Contributor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIPS") which
Partnerships own directly or indirectly interests in certain of the
Participating Properties also as set forth on Exhibit A (the "PROPERTY" or
the "PROPERTIES"). As used herein, "PARTNERSHIP AGREEMENT" means the
partnership agreement or membership agreement, as applicable, under which
each such Partnership was formed.
E. The Contributor desires to, and the Operating Partnership
desires the Contributor to, contribute to the Operating Partnership, all of
its right, title and interest, as a partner (or member) of the Partnerships,
including, without limitation, all of its voting rights and interests in the
capital, profits and losses of the Partnerships or any property distributable
therefrom, constituting all of its interests in the Partnerships (such right,
title and interest are hereinafter collectively referred to as the
"PARTNERSHIP INTEREST"), in exchange for partnership units in the Operating
Partnership (the "OP UNITS"), on the terms and subject to the conditions set
forth herein.
<PAGE>
NOW, THEREFORE, for and in consideration of the foregoing premises, and
the mutual undertakings set forth below, the parties hereto agree as follows:
TERMS OF AGREEMENT
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS
1.1 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to
the terms and conditions contained in this Contribution Agreement, the
Contributor shall transfer to the Operating Partnership, absolutely and
unconditionally, all of its Partnership Interest (as such term is defined in
Recital B herein). The contribution of the Contributor's Partnership
Interest shall be evidenced by a "CONTRIBUTION AND ASSUMPTION AGREEMENT" for
each of the Partnerships in substantially the form of EXHIBIT "B" attached
hereto. Furthermore, the Contributor shall execute and have duly
acknowledged an individual quitclaim deed for each Property in the form of
EXHIBIT "C" quitclaiming to the Operating Partnership any direct or indirect
ownership interest in and to the Properties. The parties shall take such
additional actions and execute such additional documentation as may be
required by the Partnership Agreement and the Agreement of Limited
Partnership of the Operating Partnership (the "OP AGREEMENT") in order to
effect the transactions contemplated hereby.
1.2 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS.
Subject to ARTICLES 1.3 AND 1.4 below, the Operating Partnership
shall, in exchange for the Partnership Interest, transfer to the Contributor
the number of OP Units having a value, based on one OP Unit being equal in
value to the Public Offering price for one share of the Company's common
stock, equal to the value indicated on Exhibit A as Contributor's "Total
Minimum Consideration." The transfer of the OP Units to the Contributor shall
be evidenced by either an amendment (the "AMENDMENT") to the OP Agreement or
by certificates relating to such units (the "CERTIFICATES") in either case,
as shall be acceptable to the Contributor. The parties shall take such
additional actions and execute such additional documentation as may be
required by the Partnership Agreement and the OP Agreement in order to effect
the transactions contemplated hereby.
1.3 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.4 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.2) of the OP Units
available to all OP Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.4) of all
OP Participants (the "ADDITIONAL CONSIDERATION"), then the Additional
Consideration or a portion thereof, if any, shall be allocated among the OP
Participants (including the Contributor) based upon the relative values of
the Contributor's Partnership
2
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Interest and the interests contributed by each of the other OP Participants,
in each case as determined by Richard S. Ziman, in his sole discretion.
1.4 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular interest that constitutes part of the Partnership Interest, if in
good faith the Operating Partnership determines that the ownership of such
interest or the underlying Property would be inappropriate for the Operating
Partnership for any reason whatsoever. Contributor hereby agrees that, in
such event, the Contributor's Total Minimum Consideration may be reduced by
an amount determined by Richard S. Ziman, in his sole discretion, to reflect
the reduction in total value of the Partnership Interest ultimately
contributed by the Contributor.
1.5 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.3 AND 1.4 hereof, and
any and all such determinations shall be final and binding on all parties.
1.6 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to
the Operating Partnership all of its rights and interests, if any, including
rights to indemnification in favor of the Contributor, if any, under the
agreements pursuant to which the Contributor or its affiliates initially
acquired the Partnership Interest transferred pursuant to this Contribution
Agreement.
1.7 PRORATIONS
At the Closing, or as promptly as practicable following the
Closing, to the extent such matters are not the right or responsibility of
all tenants of a given Property, all revenue and all charges that are
customarily prorated in transactions of this nature, including accrued rent
currently due and payable, overpaid taxes or fees, real and personal property
taxes, common area maintenance charges and other similar periodic charges
payable or receivable with respect to such Property shall be ratably prorated
between the partners of the Partnership which holds such Property prior to
the Closing and the Operating Partnership on and after the Closing, effective
as of the Closing. After providing for such prorations, (i) if any of the
Partnerships has a resultant cash surplus, the value of the Contributor's
Partnership Interest shall be increased in proportion to Contributor's
ratable share of such cash surplus and additional OP Units (based on the
initial Public Offering price of the Company's common stock) shall be issued
to the Contributor as a valuation adjustment to the Contributor's Total
Minimum Consideration, and (ii) if any of the Partnerships has a resultant
cash deficit, the value of the Contributor's Partnership Interest shall be
reduced in proportion to Contributor's ratable share of such cash deficit,
and fewer OP Units shall be
3
<PAGE>
issued to the Contributor as a valuation adjustment to the Contributor's
Total Minimum Consideration, unless such deficit is cured prior to Closing.
1.8 TREATMENT AS CONTRIBUTION
The transfer, assignment and exchange of interests effectuated with
respect to the Operating Partnership, pursuant to this Contribution Agreement
shall constitute, a "Capital Contribution" pursuant to Article 4 of the OP
Agreement and is intended to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed
with the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to
this Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor
contained in this Contribution Agreement shall have been true and correct in
all material respects on the date such representations and warranties were
made, and shall be true and correct in all material respects on the Closing
Date as if made at and as of such date;
(b) Each of the obligations of the Contributor to be performed by
it shall have been duly performed by it on or before the Closing Date;
(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to
be delivered pursuant to SECTION 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
(f) No order, statute, rule, regulation, executive order,
injunction, stay, decree or restraining order shall have been enacted,
entered, promulgated or enforced by any
4
<PAGE>
court of competent jurisdiction or governmental or regulatory authority or
instrumentality that prohibits the consummation of the transactions
contemplated hereby, and no litigation or governmental proceeding seeking
such an order shall be pending or threatened;
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in any of the Partnerships'
businesses;
(h) All existing management agreements with respect to the
Properties shall have been contributed to the Operating Partnership prior to
or simultaneously with the Closing; and
(i) All management functions with respect to the Properties
presently conducted by Arden Realty Group, Inc., a Maryland corporation,
shall be assumed by the Operating Partnership.
The foregoing conditions may be waived by the Operating Partnership
in its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the
Public Offering from the underwriter(s), at 10:00 a.m. in the office of
Latham & Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California
(the "CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.1
AND 1.2 of this Contribution Agreement, and all closing deliveries, and the
consummation of the Public Offering, shall be deemed concurrent for all
purposes.
2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered through
the Attorney-in-Fact (see ARTICLE 6.1 below), the legal documents and other
items (collectively the "CLOSING DOCUMENTS") necessary to carry out the
intention of this Contribution Agreement, which Closing Documents and other
items shall include, without limitation, the following:
(i) A Contribution and Assumption Agreement for each Partnership;
(ii) An individual quitclaim deed for each Property fully executed and
duly acknowledged from each of the individual constituent partners and/or
members of the Contributor, as required by the Operating Partnership;
(iii) The Amendment or the Certificates evidencing the transfer of
OP Units to the Contributor;
5
<PAGE>
(iv) American Land Title Assurances ("ALTA") policies of title
insurance with appropriate endorsements and levels of reinsurance for the
Properties issued as of the Closing Date or endorsements or other
assurances that the existing policy or policies of title insurance are
sufficient for purposes of this Contribution Agreement, which the
Contributor shall cause the title company to issue to the Operating
Partnership in a form acceptable to the Operating Partnership (the "TITLE
POLICIES") including satisfaction by the Contributor of any and all title
company requirements applicable to it;
(v) The Partnerships' books and records and securities or other
evidences of ownership held by the Contributor; and
(vi) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number and
that the Contributor is not a foreign person pursuant to section 1445(b)(2)
of the Code and a comparable affidavit satisfying California and any other
withholding requirements.
2.4 CLOSING COSTS
The Operating Partnership shall pay any documentary transfer taxes,
escrow charges, title charges and recording taxes or fees incurred in
connection with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has been
duly formed and is validly existing with requisite power to enter this
Contribution Agreement and all agreements contemplated hereby. The persons
and entities executing this Contribution Agreement and all agreements
contemplated hereby on behalf of the Operating Partnership have the power
and authority to enter into this Contribution Agreement and such other
contemplated agreements; and
(b) DUE AUTHORIZATION. The execution, delivery and performance
by the Operating Partnership of its obligations under this Contribution
Agreement and all agreements contemplated hereby will not contravene any
provision of applicable law, the OP Agreement, charter, declaration of
trust or other constituent document of the Operating Partnership, or any
agreement or other instrument binding upon the Operating Partnership or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Operating Partnership, and no consent,
6
<PAGE>
approval, authorization or order of or qualification with any governmental
body or agency is required for the performance by the Operating Partnership
of its obligations under this Contribution Agreement and all other
agreements contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto, and
acknowledges and agrees to be bound by the indemnification provisions
contained therein.
3.3 INDEMNIFICATION
The Operating Partnership shall indemnify and hold harmless the
Contributor (the "INDEMNIFIED CONTRIBUTOR PARTY") from and against any and
all claims, losses, damages, liabilities and expenses, including without
limitation, amounts paid in settlement, reasonable attorneys' fees, costs of
investigation and remediation, costs of investigative judicial or
administrative proceedings or appeals therefrom and costs of attachment or
similar bonds (collectively, "LOSSES") asserted against, imposed upon or
incurred by the Indemnified Contributor Party in connection with: (i) any
breach of a representation or warranty of the Operating Partnership contained
in this Contribution Agreement; and (ii) all fees, costs and expenses of the
Operating Partnership in connection with the transactions contemplated by the
Contribution Agreement, including without limitation any and all costs
associated with the transfers contemplated herein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor
shall not:
(i) Sell or transfer all or any portion of the Partnership
Interest; or
(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Partnership Interest.
(b) From the date hereof through the Closing, the Contributor
shall permit each of the Partnerships to conduct its business in the ordinary
course, consistent with past practice, and shall not permit any of the
Partnerships to:
(i) Enter into any material transaction not in the ordinary
course of business;
(ii) Sell or transfer any assets of the Partnerships;
(iii) Mortgage, pledge or encumber (or permit to become
encumbered) any assets of the Partnerships, except (x) liens for taxes not
due,
7
<PAGE>
(y) purchase money security interests and (z) mechanics' liens being
disputed by any of the Partnerships in good faith and by appropriate
proceedings;
(iv) Amend, modify or terminate any material agreements or other
instruments to which any of the Partnerships are a party;
(v) Materially alter the manner of keeping the Partnerships'
books, accounts or records or the accounting practices therein reflected;
or
(vi) Make any distribution to its partners.
(c) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required to
effect the transactions contemplated by this Contribution Agreement.
5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of
the Partnership Interest pursuant to ARTICLES 1 AND 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman),
agents, attorneys, successors and assigns of and from, any and all charges,
complaints, claims, liabilities, damages, actions, causes of action, losses
and costs of any nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"),
known or unknown, suspected or unsuspected, arising out of or relating to any
of the Partnership Agreements, this Contribution Agreement or any other
matter which exists at the Closing, except for Contributor Claims arising
from the breach of any representation, warranty, covenant or obligation under
this Contribution Agreement.
5.2 GENERAL RELEASE OF CONTRIBUTOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges,
complaints, claims, liabilities, damages, actions, causes of action, losses
and costs of any nature whatsoever (collectively, "OPERATING PARTNERSHIP
CLAIMS"), known or unknown, suspected or unsuspected, arising out of or
relating to any of the Partnership Agreements, this Contribution Agreement or
any other matter which exists at the Closing, except for Operating
Partnership Claims arising from the breach of any representation, warranty,
covenant or obligation under this Contribution Agreement.
8
<PAGE>
5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership
each expressly waives and relinquishes all rights and benefits afforded by
Section 1542 of the California Civil Code and do so understanding and
acknowledging the significance and consequence of such specific waiver of
Section 1542 which provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected the settlement with the
debtor.
5.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT
As of the Closing, the Contributor waives and relinquishes all
rights and benefits otherwise afforded to Contributor under the Partnership
Agreements including, without limitation, any right to consent to or approve
of the sale or contribution by the other partners (or members) of the
Partnerships of their partnership interests to the Company or the Operating
Partnership.
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating
Partnership (or its designee) and each of them individually and any successor
thereof from time to time (such Operating Partnership or designee or any such
successor of any of them acting in his, her or its capacity as
attorney-in-fact pursuant hereto, the "ATTORNEY-IN FACT") as the true and
lawful attorney-in-fact and agent of Contributor, to act in the name, place
and stead of Contributor to make, execute, acknowledge and deliver all such
other contracts, orders, receipts, notices, requests, instructions,
certificates, consents, letters and other writings (including without
limitation the execution of any Closing Documents or other documents relating
to the acquisition by the Operating Partnership of Contributor's Partnership
Interest), to provide information to the Securities and Exchange Commission
and others about the transactions contemplated hereby and, in general, to do
all things and to take all actions which the Attorney-in-Fact in its sole
discretion may consider necessary or proper in connection with or to carry
out the transactions contemplated by this Contribution Agreement, as fully as
could Contributor if personally present and acting. Further, Contributor
hereby grants to Attorney-in-Fact a proxy (the "PROXY") to vote Contributor's
Partnership Interest on any matter related to the Formation Transactions
presented to the partners of any of the Partnerships for a vote, including,
but not limited to, the transfer of interests in any of the Partnerships by
the other partners.
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Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable
and shall not be terminated by any act of Contributor, by operation of law or
by the occurrence of any other event or events, and if any other such act or
events shall occur before the completion of the transactions contemplated by
this Contribution Agreement, the Attorney-in-Fact shall nevertheless be
authorized and directed to complete all such transactions as if such other
act or events had not occurred and regardless of notice thereof. Contributor
agrees that, at the request of Operating Partnership it will promptly execute
a separate power of attorney and proxy on the same terms set forth in this
ARTICLE 6, such execution to be witnessed and notarized. Contributor hereby
authorizes the reliance of third parties on each of the Power of Attorney and
Proxy.
Contributor acknowledges that the Operating Partnership has, and
any designee or successor thereof acting as Attorney-in-Fact may have, an
economic interest in the transactions contemplated by this Contribution
Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no
responsibility or liability to any person by virtue of the Power of Attorney
or Proxy granted by Contributor hereby. The Attorney-in-Fact makes no
representations with respect to and shall have no responsibility for the
Formation Transactions or the Public Offering, or the acquisition of the
Partnership Interest by the Operating Partnership and shall not be liable for
any error or judgement or for any act done or omitted or for any mistake of
fact or law except for its own gross negligence or bad faith. Contributor
agrees to indemnify the Attorney-in-Fact for and to hold the Attorney-in-Fact
harmless against any loss, claim, damage or liability incurred on its part
arising out of or in connection with it acting as the Attorney-in-Fact under
the Power of Attorney or Proxy created by Contributor hereby, as well as the
cost and expense of investigating and defending against any such loss, claim,
damage or liability, except to the extend such loss, claim, damage or
liability is due to the gross negligence or bad faith of the
Attorney-in-Fact. Contributor agrees that the Attorney-in-Fact may consult
with counsel of its own choice (who may be counsel for Operating Partnership
or its successors or affiliates), and it shall have full and complete
authorization and protection for any action taken or suffered by it hereunder
in good faith and in accordance with the opinion of such counsel. It is
understood that the Attorney-in-Fact may, without breaching any express or
implied obligation to Contributor hereunder, release, amend or modify any
other power of attorney or proxy granted by any other person under any
related agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other
actions and execute such additional documents following the Closing as the
Operating Partnership may reasonably request in order to effect the
transactions contemplated hereby.
10
<PAGE>
7.2 COUNTERPARTS. This Contribution Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed
by the internal laws of the State of California, without regard to the choice
of laws provisions thereof.
7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be
deemed communicated as of the date of personal delivery (including delivery
by overnight courier). Mailed notices shall be addressed as set forth below,
but any party may change the address set forth below by written notice to
other parties in accordance with this paragraph.
To the Contributor:
Richard S. Ziman
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Contribution
Agreement as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED
PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland Corporation,
general partner
By: /s/ Richard S. Ziman
---------------------------
Name: Richard S. Ziman
-------------------------
Title: Chairman/CEO
------------------------
"CONTRIBUTOR"
RICHARD S. ZIMAN,
an individual
By: /s/ Richard S. Ziman
--------------------------------
12
<PAGE>
EXHIBIT A
to
CONTRIBUTION AGREEMENT
CONSTITUENT INTERESTS OF CONTRIBUTOR'S PARTNERSHIP INTEREST
Properties Held by the Minimum
Partnerships Partnerships Consideration
- -------------------- -------------------------- ---------------
1950 Sawtelle 1950 Sawtelle $ 168,403
Associates, L.P. Boulevard
- -------------------- ---------------------------- ---------------
LAOP IV, LLC 5601 Lindero Canyon; $3,671,678
Westwood Terrace;
Calabasas Commerce Center;
The New Wilshire;
70 South Lake;
Skyview Center;
4811 Airport Plaza Drive;
4900/10 Airport Plaza Drive
- -------------------- ---------------------------- ---------------
LAOP V, LLC 5832 Bolsa Avenue; $ 979,670
400 Corporate Pointe;
9665 Wilshire Boulevard;
Imperial Bank Tower
- -------------------- ---------------------------- ---------------
Total Minimum
Consideration $4,819,751
---------------
---------------
A-1
<PAGE>
EXHIBIT B
to
CONTRIBUTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the undersigned hereby assigns, transfers,
contributes and conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland
limited partnership (the "Operating Partnership"), its entire legal and
beneficial right, title and interest in and to _______________________, a
________________________ (the "Partnership"), including, without limitation,
all right, title and interest, if any, of the undersigned in and to the
assets of the Partnership and the right to receive distributions of money,
profits and other assets from the Partnership, presently existing or
hereafter at any time arising or accruing (such right, title and interest are
hereinafter collectively referred to as the "Partnership Interest"), TO HAVE
AND TO HOLD the same unto the Operating Partnership, its successors and
assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership
assumes all obligations in respect of the Partnership Interest.
The Partnership owns certain real property as described in Attachment
"1" attached hereto.
Executed: _____ __, 1996
By:
--------------------------
Richard S. Ziman
B-1
<PAGE>
EXHIBIT C
to
CONTRIBUTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- -------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $ ....................
..... Computed on the consideration or value of
property conveyed; OR
..... Computed on the consideration or value
less liens or encumbrances remaining at
time of sale.
-----------------------------------------------
Signature of Declarant of Agent determining
tax - Firm Name
- -------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group Limited Partnership, a Maryland limited partnership
the real property in the City of ___________, County of ___________, State of
California, described as
Dated __________________________ ________________________________
STATE OF CALIFORNIA } ________________________________
}
COUNTY OF _________________ } ________________________________
On _________________ before me,
______________________________,
personally appeared ___________
_______________________________
personally known to me (or proved to me on
the basis of satisfactory evidence) to be
the person(s) whose names(s) is/are
subscribed to the within instrument and
acknowledged to me that he/she/they
executed the same in his/her/their
authorized capacity(ies), and that by
his/her/their signature(s) on the
instrument the person(s) or the entity upon
behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
Signature ___________________________ (This area for official notarial seal)
C-1
<PAGE>
EXHIBIT D
TO
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1 - ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the
meanings set forth below. Terms which are not defined below shall have the
meaning set forth for those terms as defined in the Contribution Agreement to
which this EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental
Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to
Knowledge, threatened that directly or indirectly affect any of the
Contributor, the Partnerships or the Properties.
CONTAMINATION: Means emissions, discharges, releases or threatened
releases of "Hazardous Materials," substances, pollutants, contaminants or
hazardous or toxic substances, materials or wastes whether solid, liquid or
gaseous in nature, into the air, surface water, ground water or land, or
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of substances, pollutants,
contaminants or hazardous or toxic substances, materials, or wastes, whether
solid, liquid or gaseous in nature.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
ENVIRONMENTAL LAW: Means all applicable statutes, regulations,
rules, ordinances, codes, licenses, permits, orders, demands, approvals,
authorizations and similar items of all governmental agencies, departments,
commissions, boards, bureaus or instrumentalities of the United States,
states and political subdivisions thereof and all applicable judicial,
administrative and regulatory decrees, judgments and orders relating to the
protection of human health or the environment as in effect on the Closing
Date, including all requirements as of the Closing Date, including but not
limited to those pertaining to reporting, licensing, permitting,
investigation, removal and remediation of Contamination, including without
limitation: (x) the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601 ET SEQ.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 ET SEQ.), the Clean Air Act (42
U.S.C. Section 7401 ET SEQ.), the Federal Water Pollution Control Act (33
U.S.C. Section 1251), the Safe Drinking Water Act (42 U.S.C. 300f ET SEQ.),
the Toxic Substances Control Act (15 U.S.C. 2601 ET SEQ.), the Endangered
Species Act (16 U.S.C. 1531 ET SEQ.), the Emergency Planning
D-1
<PAGE>
and Community Right-to-Know Act of 1986 (42 U.S.C: 11001 ET SEQ.), and (y)
applicable state and local statutory and regulatory schemes pertaining to
hazardous materials.
GOVERNMENTAL ENTITY: Means any government or agency, bureau,
board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state
or local, domestic or foreign.
HAZARDOUS MATERIAL: Means any substance:
(i) the presence of which requires investigation or remediation
under any Environmental Law action or policy, administrative request or
civil complaint under the foregoing or under common law; or
(ii) which is controlled, regulated or prohibited under any
Environmental Law as in effect as of the Closing Date, including the
Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. Section 9601 ET SEQ.) and the Resource Conservation and Recovery Act
(42 U.S.C. Section 6901 ET SEQ.); or
(iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and
as of the Closing Date is regulated by any governmental authority, agency,
department, commission, board, agency or instrumentality of the United
States, or any state or any political subdivision thereof having or
asserting jurisdiction over the Properties; or
(iv) the presence of which on, under or about, a Property poses a
hazard to the health or safety of persons on or about such Property; or
(v) which contains gasoline, diesel fuel or other petroleum
hydrocarbons, polychlorinated biphenyls (PCBs) or asbestos or
asbestos-containing materials or urea formaldehyde foam insulation; or
(vi) radon gas.
INDEMNIFYING PARTY: Means any party required to indemnify any
other party under ARTICLE 3.2 of this EXHIBIT D or under the indemnification
provisions substantially identical to ARTICLE 3.2 hereof in the other
Portfolio Agreements.
KNOWLEDGE: Means, with respect to any representation or warranty
so indicated, the actual knowledge, upon reasonable investigation and inquiry
in good faith, of the signatory to the Contribution Agreement.
KNOWN CONTAMINATION: Means Contamination currently existing on or
affecting the applicable Property as of the Closing, AND which such
Contamination is disclosed in
D-2
<PAGE>
environmental reports received by the Contributor or the Partnerships on or
before the Closing (the "ENVIRONMENTAL REPORTS");
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests,
restrictions, prior assignments, encumbrances, covenants, encroachments,
assessments, rights of others, licenses, easements, liabilities or claims of
any kind or nature whatsoever, direct or indirect, including, without
limitation, interests in or claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent
or the payment of which is actively being contested in good faith by
appropriate proceedings diligently pursued;
(b) Zoning laws and ordinances generally applicable to the
districts in which the Properties are located which are not violated by the
existing structures or present uses thereof;
(c) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due
or which are being contested in good faith by appropriate proceedings
diligently pursued;
(d) non-exclusive easements for public utilities, minor
encroachments, rights of access or other non-monetary matters that do not
have a material adverse effect upon, or materially interfere with the use of,
the Properties; and
(e) any exceptions contained in the Title Policies.
PERSON: Means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PORTFOLIO AGREEMENTS: Means the agreements, including the
Contribution Agreement, listed on ATTACHMENT "1" hereto, which contemplate
the transfer of partnership and/or limited liability company membership
interests in certain of the Participating Partnerships and LLCs from any
entity directly or indirectly owned by Contributor to the Company and the
Operating Partnership.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
D-3
<PAGE>
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating
Partnership as set forth below in this ARTICLE 2. Notwithstanding any other
provision of the Contribution Agreement or this EXHIBIT D, the Contributor
makes representations, warranties and indemnities only with respect to: (i)
the Properties identified on EXHIBIT A to the Contribution Agreement (the
"Property" or the "Properties"), and (ii) the interests in the Partnerships
to be transferred by the Contributor.
2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and
(B) has all requisite power and authority to own, lease or operate its
property and to carry on its business as presently conducted and, to the
extent required under applicable law, is qualified to do business and is in
good standing in each jurisdiction in which the nature of its business or the
character of its property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. This Contribution
Agreement and each agreement, document and instrument executed and delivered
by or on behalf of the contributor pursuant to this contribution Agreement
constitutes, or when executed and delivered will constitute, the legal, valid
and binding obligation of the Contributor, each enforceable against the
Contributor in accordance with its terms, as such enforceability may be
limited by bankruptcy or the application of equitable principles.
2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the
Contributor in connection with the execution, delivery and performance of the
Contribution Agreement and the transactions contemplated hereby, except any
of the foregoing that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE PARTNERSHIP INTERESTS. The Contributor is
the sole owner of the Partnership Interest and has good and valid title to
such Partnership Interest, free and clear of all Liens, other than Permitted
Liens.
2.5 PARTNERSHIP INTEREST. The Partnership Interest constitutes
all of the issued and outstanding interests owned by the Contributor in the
Partnerships. The Partnership Interest is validly issued, fully paid and
non-assessable, and was not issued in violation of any preemptive rights.
The Partnership Interest has been issued in compliance with applicable law
and the relevant Partnership Agreements (as then in effect). There are no
rights, subscriptions, warrants, options, conversion rights, preemptive
rights or agreements of any kind outstanding to purchase or to otherwise
acquire any of the interests which comprise the Partnership Interest or any
securities or obligations of any kind convertible into any of the interests
which comprise the Partnership Interest or other equity interests or profit
participation of any kind in the
D-4
<PAGE>
Partnerships. At the Closing, upon receipt of the consideration, the
Contributor will have transferred the Partnership Interest free and clear of
all security interests, mortgages, pledges, liens, encumbrances, claims and
equities to the Operating Partnership.
2.6 NO VIOLATION. None of the execution, delivery or performance
of the Contribution Agreement and the transactions contemplated hereby does
or will, with or without the giving of notice, lapse of time, or both, (i)
violate, conflict with, result in a breach of, or constitute a default under
or give to others any right of termination or cancellation of (A) the
organizational documents, including the charters and bylaws, if any, of the
Contributor, (B) any material agreement, document or instrument to which the
Contributor is a party or by which the Contributor or its Property is bound
or (C) any term or provision of any judgment, order, writ, injunction, or
decree of any governmental or regulatory authority binding on the Contributor
or by which the Contributor or any of its assets or properties are bound or
subject or (ii) result in the creation of any Lien, other than a Permitted
Lien, upon the Property or the Partnership Interest.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the
inapplicability of any federal or state withhoding provisions, including
those referred to in ARTICLE 2.7 above and similar provisions under
California law. If Contributor fails to provide such certificates or
affidavits, the Operating Partnership may withhold a portion of any payments
otherwise to be made to the Contributor as required by the Code or California
law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Contribution Agreement are intended to be exempt from
registration under the Securities Act of 1933, as amended and the rules and
regulations in effect thereunder (the "ACT"). In furtherance thereof, the
Contributor represents and warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not
as a nominee or agent for any other person and not with a view to, or for
offer or sale in connection with, any distribution of any thereof. The
Contributor agrees and acknowledges that he, she or it will not, directly or
indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of (hereinafter, "TRANSFER") any of the OP Units unless (i) the
Transfer is pursuant to an effective registration statement under the Act and
qualification or other compliance under applicable blue sky or state
securities laws, or (ii) counsel for the Contributor (which counsel shall be
reasonably acceptable to the Operating Partnership) shall have furnished the
Operating Partnership with an opinion, reasonably satisfactory in form and
substance to the Operating Partnership to the effect that no
D-5
<PAGE>
such registration is required because of the availability of an exemption
from registration under the Act and qualification or other compliance under
applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable,
sophisticated and experienced in business and financial matters; the
Contributor has previously invested in securities similar to the OP Units and
fully understands the limitations on transfer imposed by the Federal
securities laws and as described in the Contribution Agreement. The
Contributor is able to bear the economic risk of holding the OP Units for an
indefinite period and is able to afford the complete loss of his, her or its
investment in the OP Units; the Contributor has received and reviewed all
information and documents about or pertaining to the Company, the Operating
Partnership, the business and prospects of the Company and the Operating
Partnership and the issuance of the OP Units as the Contributor deems
necessary or desirable, and has been given the opportunity to obtain any
additional information or documents and to ask questions and receive answers
about such information and documents, the Company, the Operating Partnership,
the business and prospects of the Company and the Operating Partnership and
the OP Units which the Contributor deems necessary or desirable to evaluate
the merits and risks related to his, her or its investment in the OP Units;
and the Contributor understands and has taken cognizance of all risk factors
related to the purchase of the OP Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he,
she or it has been advised that (i) the OP Units and the common stock of the
Company into which the OP Units may be exchanged in certain circumstances
(the "COMMON STOCK") must be held indefinitely, and the Contributor must
continue to bear the economic risk of the investment in the OP Units (and any
Common Stock that might be exchanged therefor) unless they are subsequently
registered under the Act or an exemption from such registration is available,
(ii) a restrictive legend in the form hereafter set forth shall be placed on
the certificates representing the OP Units (and any Common Stock that might
be exchanged therefor), and (iii) a notation shall be made in the appropriate
records of the Operating Partnership (and the Company) indicating that the OP
Units (and any Common Stock that might be exchanged therefor) are subject to
restrictions on transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an
individual, such individual is an "accredited investor" (as such term is
defined in Rule 501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his
or her spouse, in excess of $1,000,000; or
(iii) had an individual annual adjusted gross income in
excess of $200,000 in each of the two most recent years and reasonably
expects to have annual adjusted gross income in excess of $200,000 in the
current year; or
D-6
<PAGE>
(iv) had a joint income with his spouse in excess of
$300,000 in each of the two most recent years and reasonably expects to have
an annual adjusted gross income, with his spouse, in excess of $300,000 in
the current year.
If the Contributor is not an individual, it is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
2.9.5 LEGENDING. Each certificate representing the OP Units
(and any Common Stock that might be exchanged therefor) shall bear the
following legend:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE
PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS.
In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT
TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
CORPORATION'S CHARTER, (1) NO PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY
OWN SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF 9.0% (BY VALUE OR
BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING
COMMON STOCK OF THE CORPORATION; (2) NO PERSON MAY BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK THAT WOULD RESULT IN THE CORPORATION BEING
"CLOSELY HELD" UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (3) NO PERSON MAY TRANSFER
COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE
CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO
BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO
BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK IN EXCESS OF THE ABOVE
D-7
<PAGE>
LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE
RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE COMMON STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A
TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN
ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS
SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF
DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY
VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE
OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS
DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS
LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE
RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF
COMMON STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY
BE DIRECTED TO THE SECRETARY OF THE CORPORATION.
2.10 COMPLIANCE WITH LAWS. In connection with the conduct of the
Properties, to Knowledge, the Partnerships have complied and on the date
hereof do substantially comply in all material respects with all applicable
laws, ordinances, rules and regulations, whether federal, state or local,
foreign, statutory or common, and neither the Partnerships nor, to Knowledge,
any third party have been informed of any material violation of any such
laws, rules or regulations, or that any investigation has been commenced or
is contemplated respecting any such possible violation.
2.11 EMINENT DOMAIN. There is no existing or, to Knowledge,
proposed or threatened condemnation, eminent domain or similar proceeding, or
private purchase in lieu of such a proceeding, which would affect the
Properties in any material respect and of which the Contributor has knowledge.
2.12 LICENSES AND PERMITS. To Knowledge, all material notices,
licenses, permits, certificates and authority required in connection with the
construction, use, occupancy, management, leasing and operation of the
Properties have been obtained, are in full force and effect, are in good
standing and (to the extent required pursuant to the transactions
contemplated hereby) are assignable to the Operating Partnership. Neither
the Partnerships, nor, to Knowledge, any third party has taken any action
that would (or failed to take any action the omission of which would) result
in the revocation of such notices, licenses, permits, certificates and
authority, that would have a material adverse effect, nor has any of them
received any written notice of violation from any Governmental Entity or
written notice of the intention of any entity to revoke any of them, that in
each case has not been cured or otherwise resolved to the satisfaction of
such Governmental Entity.
D-8
<PAGE>
2.13 TAXES. For federal income tax purposes, the Partnerships are,
and at all times during their existence have been, partnerships (rather than
associations or publicly traded partnerships taxable as corporations). The
Partnerships have filed all tax returns required to be filed by them and have
paid all taxes required to be paid by them. The transactions contemplated
hereby will not result in any tax liability to the Partnerships, the Company
or the Operating Partnership. No tax lien or other charge exists or will
exist upon consummation of the transactions contemplated hereby with respect
to any Property except such tax liens for which the tax is not due and has
been reserved for payment by the Partnerships or tax liens or other charges
which individually or in the aggregate are immaterial in amount.
2.14 MECHANICS' LIENS. All material bills and claims for labor
performed and materials furnished to or for the benefit of the Properties
have been paid in full (or otherwise provided for), and there are no material
mechanics' or materialmen's liens (whether or not perfected) affecting the
Properties.
2.15 REAL PROPERTY.
(a) None of the Contributor, the Partnerships, nor, to Knowledge, any
other party to any agreement affecting any portion of the Properties, has
given or received any notice of default with respect to any material term
or condition of any agreement affecting the Properties, including, without
limitation any ground lease which would have a material adverse effect,
and, no event has occurred or, to Knowledge, is threatened, which would
have a material adverse effect and which through the passage of time or the
giving of notice, or both, would constitute a material default thereunder
or would cause the acceleration of any material obligation of any party
thereto or the creation of a Lien upon any asset of the Contributor or the
Partnerships, except for Permitted Liens. For purposes of this ARTICLE
2.15, the term "material agreement" shall be defined with reference to the
Property to which such agreement relates, and shall include, without
limitation, any agreement which is not terminable by the Company upon 90
days prior written notice. To Knowledge, such agreements are valid and
binding and in full force and effect, have not been materially amended,
modified or supplemented since such time as such agreements were made
available to the Company, except for such amendments, modifications and
supplements delivered to the Company, and there are no other material
agreements with any third parties affecting the Properties which will
survive the Closing and be binding on the Company.
(b) All permits which are necessary for the operation of the
Properties upon the consummation of the transactions contemplated hereby in
all material respects (i) shall remain in full force and effect and (ii)
permit the Properties to be operated in compliance with all laws, rules,
codes and regulations.
(c) As presently conducted, the operation of the buildings, fixtures
and other improvements located on the Properties is not in violation in any
material respect of any applicable building code, zoning ordinance or other
law or regulation, except for any
D-9
<PAGE>
such violations which individually or in the aggregate would not have a
material adverse effect on the Operating Partnership.
(d) Except for Known Contamination (i) to Knowledge there is
presently no noncompliance, liability or other Claim (as defined herein) in
connection with Environmental Laws relating to the Properties; (ii) no
notices of any violation or alleged violation of any Environmental Laws
relating to the Properties or their use have been received by any present
owner, or, to Knowledge, by any prior owner, operator or occupant of the
applicable Property, and (iii) there are no writs, injunctions, decrees,
orders or judgments outstanding, or any Claims pending or threatened,
relating to the ownership, use, maintenance or operation of the Properties.
Any instances of noncompliance, notices of violations, and writs,
injunctions, decrees, orders or judgments which may exist or may be
outstanding are of the type that individually or in the aggregate would not
have a material adverse effect on the Operating Partnership.
(e) All material reports of environmental surveys, audits,
investigations and assessments relating to the Properties, including, but
not limited to, the Environmental Reports in the possession or control of
the Contributor or its affiliates have been disclosed to the Operating
Partnership.
(f) Except as has been disclosed in writing to the Operating
Partnership prior to the Closing, to Knowledge and except as would not have
a material adverse effect, all material permits and licenses required under
any Environmental Laws in respect of the operation of the Properties have
been obtained or are in the process of being obtained, and the Properties
are in compliance, in all material respects, with the terms and conditions
of such permits and licenses.
2.16 TRADEMARKS AND TRADENAMES; PROPRIETARY RIGHTS.
(a) There are no actions or other judicial or administrative
proceedings involving any of the Contributor, the Partnerships, or the
Properties pending, or to Knowledge, threatened, that concern any
copyrights, copyright application, trademarks, trademark registrations,
trade names, service marks, service mark registrations, trade names and
trade name registrations or any trade secrets being transferred to the
Operating Partnership hereunder (the "PROPRIETARY RIGHTS"). There are no
patents or patent applications relating to the operations of the Properties
as conducted prior to the Closing.
(b) The Contributor has the right and authority to use each
Proprietary Right necessary in connection with the operation of the
Properties in the manner in which it is currently used, and to convey such
right and authority to the Operating Partnership at the Closing. The
current use of the Proprietary Rights does not, and to Knowledge, such use
did not, conflict with, infringe upon or violate any copyright, trade
secret, trademark or registration of any other person.
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(c) There are no outstanding or, to Knowledge, threatened disputes or
disagreements with respect to any Proprietary Right or any license,
contract, agreement or other commitment, written or oral, relating to the
same.
2.17 LITIGATION AND CLAIMS.
(a) There are no Claims which could reasonably be anticipated to
result in damages in excess of $50,000 pending or, to Knowledge, threatened
that directly or indirectly affect the Contributor, the Partnerships, the
Properties or the Formation Transactions, nor has any such claim been
pending or, to Knowledge, threatened as of the Closing.
(b) None of the Contributor, the Partnerships or the Properties are
operating under, subject to or in default with respect to any decision,
order, writ, injunction or decree of any court or federal, state or
municipal entity or other Governmental Entity.
2.18 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in
the obligation of the Operating Partnership or any of its affiliates to pay
any finder's fee, brokerage fees or commissions or similar payment in
connection with the transactions contemplated by the Contribution Agreement.
2.19 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Partnership
Interest to the Operating Partnership.
2.20 NO MISREPRESENTATIONS. No representation, warranty or
statement made, or information provided, by the Contributor in the
Contribution Agreement or in any other document or instrument furnished or to
be furnished by or on behalf of the Contributor pursuant hereto or as
contemplated hereby (i) contains or will contain any untrue statement of a
material fact or (ii) omits or will omit to state a material fact necessary
to make the statements contained herein or therein not misleading. For
purposes of the preceding sentence, materiality shall be determined with
reference to the total portfolio of real properties and other interests to be
transferred pursuant to the Portfolio Agreements.
2.21 TITLE TO ASSETS. Upon consummation of the Formation
Transactions, the Operating Partnership's title to the Properties will be
free and clear of any Liens, encumbrances, debts, charges, liabilities or
obligations except for Permitted Liens.
2.22 PARTNERS/MEMBERS. The Contributor has made available to the
Operating Partnership a true and accurate list of all of the Partners or
members, as applicable, of the Partnerships that own, directly or indirectly,
an interest in any of the Properties, together with their percentage
interests in each Partnership.
D-11
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2.23 CONDITION OF PROPERTY. To Knowledge, and except as set forth
in the structural reports prepared for the Properties and delivered to the
Operating Partnership in connection with the Formation Transactions, there is
no material defect in the condition of any Property, the improvements
thereon, the structural elements thereof and the mechanical systems thereon,
nor any material damage from casualty or other cause, nor any soil condition
of any Property that will not support all of the improvements thereon without
the need for unusual or new subsurface excavations, fill, footings, caissons
or other installations, except for any such defect, damage or condition that
has been corrected or will be corrected in the ordinary course of the
business of the Property as part of its scheduled annual maintenance and
improvement program. To Knowledge, there have been no alterations to the
exteriors of any of the buildings or other improvements on any Property that
would render any surveys provided to the Company in connection with the
Formation Transactions grossly inaccurate or otherwise reflect a material
deficiency in title to such improvements.
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered
pursuant hereto shall survive the Closing.
(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this
EXHIBIT D or the Contribution Agreement for monetary damages (or otherwise)
for breach of any of its representations and warranties contained in this
EXHIBIT D or the Contribution Agreement, or in any Schedule, certificate or
affidavit delivered by it pursuant thereto, other than pursuant to the
succeeding provisions of this ARTICLE 3.
3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the
Operating Partnership, the Company, and their affiliates and each of their
respective directors, officers, employees, agents, representatives and
affiliates (each of which is an "INDEMNIFIED PARTY") from and against any and
all claims, losses, damages, liabilities and expenses, including, without
limitation, amounts paid in settlement, reasonable attorneys' fees, costs of
investigation and remediation, costs of investigative, judicial or
administrative proceedings or appeals therefrom, and costs of attachment or
similar bonds (collectively, "LOSSES"), asserted against, imposed upon or
incurred by the Indemnified Party in connection with or as a result of any
breach of a representation or warranty of the Contributor contained in the
Contribution Agreement or in any Schedule, certificate or affidavit delivered
by the Contributor pursuant to the Contribution Agreement.
D-12
<PAGE>
(b) The Contributor shall indemnify and hold harmless the
Indemnified Parties from and against any and all Losses, asserted against,
imposed upon or incurred by the Indemnified Parties in connection with or as
a result of:
(i) any liabilities or obligations (other than the liabilities
assumed by the Indemnified Parties under the Contribution Agreement)
incurred, arising from or out of, in connection with or as a result of any
Claims made or Actions brought by or against the Operating Partnership or
any Indemnified Party that arise from or out of, in connection with or as a
result of the operation or ownership of the Properties prior to the Closing
Date, to the extent that such Losses arise from or are related to events,
conditions, actions or omissions occurring prior to the Closing Date,
exclusive of any Losses resulting directly or indirectly from
Contamination;
(ii) all fees and expenses of the Contributor in connection
with the transactions contemplated by the Contribution Agreement;
(iii) any liabilities or obligations incurred, arising from
or out of, in connection with or as a result of the failure of the
Contributor to obtain all consents required to consummate the transactions
contemplated by the Contribution Agreement; or
(iv) any liabilities or obligations of the Contributor or the
Partnerships arising from or out of or in connection with or as a result of
the operation or ownership of any property or asset, other than the
Properties, including properties or assets which may have been owned and
sold by the Contributor or the Partnerships prior to the date hereof.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when
expenses are incurred) to an Indemnified Party of OP Units, subject to the
limits on ownership and transfer of REIT shares set forth in the Company's
articles of incorporation. Any OP Units delivered to an Indemnified Party
hereunder shall be valued based upon the initial public offering price of the
Company's Common Stock.
3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably
practicable after receipt by the Indemnified Party of notice of any liability
or claim incurred by or asserted against the Indemnified Party that is
subject to indemnification under this ARTICLE 3, the Indemnified Party shall
give notice thereof to the Contributor, including liabilities or claims to be
applied against the indemnification baskets established pursuant to ARTICLE
3.5 hereof. The Indemnified Party may at its option demand indemnity under
this ARTICLE 3 as soon as a claim has been threatened by a third party,
regardless of whether an actual Loss has been suffered, so long as the
Indemnified Party shall in good faith determine that such claim is not
frivolous and that the Indemnified Party may be liable for, or otherwise
incur, a Loss as a result thereof and shall give notice of such determination
to the Contributor. The Indemnified Party shall permit
D-13
<PAGE>
the Contributor, at its option and expense, to assume the defense of any such
claim by counsel selected by the Contributor and reasonably satisfactory to
the Indemnified Party, and to settle or otherwise dispose of the same;
PROVIDED, HOWEVER, that the Indemnified Party may at all times participate in
such defense at its expense; and PROVIDED FURTHER, HOWEVER, that the
Contributor shall not, in defense of any such claim, except with the prior
written consent of the Indemnified Party in its sole and absolute discretion,
consent to the entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the claimant or
plaintiff in question to the Indemnified Party and its affiliates a release
of all liabilities in respect of such claims, or that does not result only in
the payment of money damages. If the Contributor shall fail to undertake
such defense within 30 days after such notice, or within such shorter time as
may be reasonable under the circumstances, then the Indemnified Party shall
have the right to undertake the defense, compromise or settlement of such
liability or claim on behalf of and for the account of the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER
ARTICLE 3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the aggregate amount recoverable from Indemnifying Parties
under the indemnification provisions substantially identical to ARTICLE 3.2
in one or more of the Portfolio Agreements exceeds $200,000; PROVIDED,
HOWEVER, that once the total amount recoverable from Indemnifying Parties
under such provisions exceeds $200,000 in the aggregate, the Contributor's
obligation under ARTICLE 3.2 hereof shall be for the full amount of such
obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this
ARTICLE 3 with respect to any Property or Partnership Interest to the extent
such payments in the aggregate would exceed the value of the OP Units (based
upon the initial public offering price of the Common Stock) received by the
Contributor at the Closing. Notwithstanding anything contained herein to the
contrary, the Indemnified Parties shall look first to the Contributor's OP
Units for indemnification under this ARTICLE 3 and then to the Contributor's
other assets.
3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification
under ARTICLE 3.2 hereof must be asserted in writing by the Indemnified
Party, stating the nature of the Losses and the basis for indemnification
therefor:
(i) within one year after the Closing in the case of a claim
under ARTICLE 3.2 hereof (other than a claim under ARTICLE 3.2(a) based
upon a breach of the representations, and warranties of the Contributor set
forth in ARTICLE 2.13 hereof as specified below; and
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<PAGE>
(ii) prior to the expiration of the applicable statutes of
limitations in the case of a claim under ARTICLE 3.2(a) based upon a breach
of the representations and warranties of the Contributor set forth in
ARTICLE 2.13 hereof.
(b) If so asserted in writing prior to the applicable expiration
date, such claims for indemnification shall survive until resolved by mutual
agreement between the Contributor and the Indemnified Party or by judicial
determination. Any claim for indemnification not so asserted in writing
prior to the applicable expiration date shall not thereafter be asserted and
shall forever be waived.
3.7 RESERVATION OF CONTRIBUTOR RIGHTS.
Notwithstanding anything else in this Contribution Agreement or any
Portfolio Agreement to the contrary, the Contributor reserves unto itself all
rights and remedies (including rights to seek contribution) against any third
party indemnitors, prior property owners or occupants, and contributors to
any Contamination, for which the Partnerships have been indemnified by the
Contributor hereunder. To the extent the Contributor's rights against any
such third party owners, occupants, indemnitors or contributors may be
materially prejudiced by actions or inactions by any owner or occupant of the
Properties after the Closing, the Contributor's indemnity obligation shall be
reduced in accordance with the effect of the actions or inactions which so
prejudiced the Contributor's rights.
D-15
<PAGE>
ATTACHMENT 1 (TO EXHIBIT D)
PORTFOLIO AGREEMENTS
(1) That certain Contribution Agreement by and between Arden Century
Associates, a California general partnership, and Arden Realty Group
Limited Partnership, a Maryland limited partnership, dated as of June 17,
1996.
(2) That certain Contribution Agreement by and between Arden LAOP Two, LLC, a
Nevada limited liability company, and Arden Realty Group Limited
Partnership, a Maryland limited partnership, dated as of June 17, 1996.
(3) That certain Contribution Agreement by and between Arden Sawtelle
Associates, a California general partnership, and Arden Realty Group
Limited Partnership, a Maryland limited partnership, dated as of June 17,
1996.
(4) That certain Contribution Agreement by and between Intercity Buildings
Associates, a California general partnership, and Arden Realty Group
Limited Partnership, a Maryland limited partnership, dated as of June 17,
1996.
(5) That certain Contribution Agreement by and between Montour Realty
Associates, a California general partnership, and Arden Realty Group
Limited Partnership, a Maryland limited partnership, dated as of June 17,
1996.
(6) That certain Contribution Agreement by and between Metropolitan Falls
Partners, a California general partnership, and Arden Realty Group Limited
Partnership, a Maryland limited partnership, dated as of June 17, 1996.
(7) That certain Contribution Agreement by and between Ziman Realty Partners, a
California general partnership, and Arden Realty Group Limited Partnership,
a Maryland limited partnership, dated as of June 17, 1996.
(8) That certain Contribution Agreement by and between Richard S. Ziman and
Arden Realty Group Limited Partnership, a Maryland limited partnership,
dated as of June 17, 1996.
<PAGE>
EXHIBIT 10.18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
by and between
VICTOR J. COLEMAN,
an individual
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP
a Maryland limited partnership
Dated as of June 17, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
RECITALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS . . 2
1.1 Contribution Transaction. . . . . . . . . . . . . . . . . . . 2
1.2 Minimum Consideration and Exchange of OP Units. . . . . . . . 2
1.3 Additional Consideration. . . . . . . . . . . . . . . . . . . 2
1.4 Adjusted Consideration. . . . . . . . . . . . . . . . . . . . 3
1.5 Authorization . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Contribution of Certain Rights. . . . . . . . . . . . . . . . 3
1.7 Prorations. . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Treatment as Contribution . . . . . . . . . . . . . . . . . . 4
2. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Conditions Precedent. . . . . . . . . . . . . . . . . . . . . 4
2.2 Time and Place. . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Closing Deliveries. . . . . . . . . . . . . . . . . . . . . . 5
2.4 Closing Costs . . . . . . . . . . . . . . . . . . . . . . . . 6
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES . . . . . . . . . . 6
3.1 Representations and Warranties of the Operating Partnership . 6
3.2 Representations and Warranties of Contributor . . . . . . . . 7
3.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 7
4. COVENANTS OF CONTRIBUTOR . . . . . . . . . . . . . . . . . . . . . 7
5. RELEASES AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 General Release of Operating Partnership. . . . . . . . . . . 8
5.2 General Release of Contributor. . . . . . . . . . . . . . . . 9
5.3 Waiver of Section 1542 Protections. . . . . . . . . . . . . . 9
5.4 Waiver of Rights Under Partnership Agreement. . . . . . . . . 9
6. POWER OF ATTORNEY
6.1 Grant of Power of Attorney. . . . . . . . . . . . . . . . . . 9
6.2 Limitation on Liability . . . . . . . . . . . . . . . . . . . 10
7. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Further Assurances. . . . . . . . . . . . . . . . . . . . . . 11
7.2 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
<PAGE>
EXHIBIT LIST
SECTION FIRST
EXHIBITS REFERENCED
A Constituent Interests of Contributor's Partnership
Interest. . . . . . . . . . . . . . . . . . . . . . . . . , . Recital D
B Contribution and Assumption Agreement . . . . . . . . . . . . . , . 1.1
C Form of Quitclaim . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
D Representations and Warranties of Contributor. . . . . . . . . . . . 3.2
Attachment 1 . . . . . . . . . . . . . . . List of Portfolio Agreements
ii
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (hereinafter referred to as the
"CONTRIBUTION AGREEMENT") is made and entered into as of June 17, 1996 by and
between Arden Realty Group Limited Partnership, a Maryland limited partnership
(the "OPERATING PARTNERSHIP"), and Victor J. Coleman, an individual (the
"CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership of
a portfolio of office properties (the "PARTICIPATING PROPERTIES") located in
Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct interests
in certain of the Participating Properties (the "PROPERTY INTERESTS") and all of
the interests in certain limited partnerships, certain limited liability
companies and certain other entities (collectively the "PARTICIPATING
PARTNERSHIPS AND LLCS") which currently own directly or indirectly the
Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Arden Realty Group,
Inc., a Maryland corporation (the "COMPANY"), which will operate as a self-
administered and self-managed real estate investment trust ("REIT") and will be
the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members
of the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. The Contributor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIPS") which
Partnerships own directly or indirectly interests in certain of the
Participating Properties also as set forth on Exhibit A (the "PROPERTY" or the
"PROPERTIES"). As used herein, "PARTNERSHIP AGREEMENT" means the partnership
agreement or membership agreement, as applicable, under which each such
Partnership was formed.
E. The Contributor desires to, and the Operating Partnership desires
the Contributor to, contribute to the Operating Partnership, all of its right,
title and interest, as a partner (or member) of the Partnerships, including,
without limitation, all of its voting rights and interests in the capital,
profits and losses of the Partnerships or any property distributable therefrom,
constituting all of its interests in the Partnerships (such right, title and
interest are hereinafter collectively referred to as the "PARTNERSHIP
INTEREST"), in exchange for partnership units in the Operating Partnership (the
"OP UNITS"), on the terms and subject to the conditions set forth herein.
<PAGE>
NOW, THEREFORE, for and in consideration of the foregoing premises, and the
mutual undertakings set forth below, the parties hereto agree as follows:
TERMS OF AGREEMENT
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS
1.1 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to the
terms and conditions contained in this Contribution Agreement, the Contributor
shall transfer to the Operating Partnership, absolutely and unconditionally, all
of its Partnership Interest (as such term is defined in Recital B herein). The
contribution of the Contributor's Partnership Interest shall be evidenced by a
"CONTRIBUTION AND ASSUMPTION AGREEMENT" for each of the Partnerships in
substantially the form of EXHIBIT "B" attached hereto. Furthermore, the
Contributor shall execute and have duly acknowledged an individual quitclaim
deed for each Property in the form of EXHIBIT "C" quitclaiming to the Operating
Partnership any direct or indirect ownership interest in and to the Properties.
The parties shall take such additional actions and execute such additional
documentation as may be required by the Partnership Agreement and the Agreement
of Limited Partnership of the Operating Partnership (the "OP AGREEMENT") in
order to effect the transactions contemplated hereby.
1.2 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS.
Subject to ARTICLES 1.3 AND 1.4 below, the Operating Partnership
shall, in exchange for the Partnership Interest, transfer to the Contributor the
number of OP Units having a value, based on one OP Unit being equal in value to
the Public Offering price for one share of the Company's common stock, equal to
the value indicated on Exhibit A as Contributor's "Total Minimum Consideration."
The transfer of the OP Units to the Contributor shall be evidenced by either an
amendment (the "AMENDMENT") to the OP Agreement or by certificates relating to
such units (the "CERTIFICATES") in either case, as shall be acceptable to the
Contributor. The parties shall take such additional actions and execute such
additional documentation as may be required by the Partnership Agreement and the
OP Agreement in order to effect the transactions contemplated hereby.
1.3 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.4 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.2) of the OP Units
available to all OP Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.4) of all
OP Participants (the "ADDITIONAL CONSIDERATION"), then the Additional
Consideration or a portion thereof, if any, shall be allocated among the OP
Participants (including the Contributor) based upon the relative values of
the Contributor's Partnership
2
<PAGE>
Interest and the interests contributed by each of the other OP Participants,
in each case as determined by Richard S. Ziman, in his sole discretion.
1.4 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular interest that constitutes part of the Partnership Interest, if in
good faith the Operating Partnership determines that the ownership of such
interest or the underlying Property would be inappropriate for the Operating
Partnership for any reason whatsoever. Contributor hereby agrees that, in such
event, the Contributor's Total Minimum Consideration may be reduced by an amount
determined by Richard S. Ziman, in his sole discretion, to reflect the reduction
in total value of the Partnership Interest ultimately contributed by the
Contributor.
1.5 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.3 AND 1.4 hereof, and
any and all such determinations shall be final and binding on all parties.
1.6 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to the
Operating Partnership all of its rights and interests, if any, including rights
to indemnification in favor of the Contributor, if any, under the agreements
pursuant to which the Contributor or its affiliates initially acquired the
Partnership Interest transferred pursuant to this Contribution Agreement.
1.7 PRORATIONS
At the Closing, or as promptly as practicable following the Closing,
to the extent such matters are not the right or responsibility of all tenants of
a given Property, all revenue and all charges that are customarily prorated in
transactions of this nature, including accrued rent currently due and payable,
overpaid taxes or fees, real and personal property taxes, common area
maintenance charges and other similar periodic charges payable or receivable
with respect to such Property shall be ratably prorated between the partners of
the Partnership which holds such Property prior to the Closing and the Operating
Partnership on and after the Closing, effective as of the Closing. After
providing for such prorations, (i) if any of the Partnerships has a resultant
cash surplus, the value of the Contributor's Partnership Interest shall be
increased in proportion to Contributor's ratable share of such cash surplus and
additional OP Units (based on the initial Public Offering price of the Company's
common stock) shall be issued to the Contributor as a valuation adjustment to
the Contributor's Total Minimum Consideration, and (ii) if any of the
Partnerships has a resultant cash deficit, the value of the Contributor's
Partnership Interest shall be reduced in proportion to Contributor's ratable
share of such cash deficit, and fewer OP Units shall be
3
<PAGE>
issued to the Contributor as a valuation adjustment to the Contributor's
Total Minimum Consideration, unless such deficit is cured prior to Closing.
1.8 TREATMENT AS CONTRIBUTION
The transfer, assignment and exchange of interests effectuated with
respect to the Operating Partnership, pursuant to this Contribution Agreement
shall constitute, a "Capital Contribution" pursuant to Article 4 of the OP
Agreement and is intended to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed with
the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to this
Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor contained
in this Contribution Agreement shall have been true and correct in all material
respects on the date such representations and warranties were made, and shall be
true and correct in all material respects on the Closing Date as if made at and
as of such date;
(b) Each of the obligations of the Contributor to be performed by it
shall have been duly performed by it on or before the Closing Date;
(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to be
delivered pursuant to SECTION 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
(f) No order, statute, rule, regulation, executive order,
injunction, stay, decree or restraining order shall have been enacted,
entered, promulgated or enforced by any
4
<PAGE>
court of competent jurisdiction or governmental or regulatory authority or
instrumentality that prohibits the consummation of the transactions
contemplated hereby, and no litigation or governmental proceeding seeking
such an order shall be pending or threatened;
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in any of the Partnerships' businesses;
(h) All existing management agreements with respect to the Properties
shall have been contributed to the Operating Partnership prior to or
simultaneously with the Closing; and
(i) All management functions with respect to the Properties presently
conducted by Arden Realty Group, Inc., a Maryland corporation, shall be assumed
by the Operating Partnership.
The foregoing conditions may be waived by the Operating Partnership in
its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the Public
Offering from the underwriter(s), at 10:00 a.m. in the office of Latham &
Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California (the
"CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.1 AND 1.2
of this Contribution Agreement, and all closing deliveries, and the consummation
of the Public Offering, shall be deemed concurrent for all purposes.
2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered through the
Attorney-in-Fact (see ARTICLE 6.1 below), the legal documents and other items
(collectively the "CLOSING DOCUMENTS") necessary to carry out the intention of
this Contribution Agreement, which Closing Documents and other items shall
include, without limitation, the following:
(i) A Contribution and Assumption Agreement for each Partnership;
(ii) An individual quitclaim deed for each Property fully executed and
duly acknowledged from each of the individual constituent partners and/or
members of the Contributor, as required by the Operating Partnership;
(iii) The Amendment or the Certificates evidencing the transfer of
OP Units to the Contributor;
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<PAGE>
(iv) American Land Title Assurances ("ALTA") policies of title
insurance with appropriate endorsements and levels of reinsurance for the
Properties issued as of the Closing Date or endorsements or other
assurances that the existing policy or policies of title insurance are
sufficient for purposes of this Contribution Agreement, which the
Contributor shall cause the title company to issue to the Operating
Partnership in a form acceptable to the Operating Partnership (the "TITLE
POLICIES") including satisfaction by the Contributor of any and all title
company requirements applicable to it;
(v) The Partnerships' books and records and securities or other
evidences of ownership held by the Contributor; and
(vi) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number and
that the Contributor is not a foreign person pursuant to section 1445(b)(2)
of the Code and a comparable affidavit satisfying California and any other
withholding requirements.
2.4 CLOSING COSTS
The Operating Partnership shall pay any documentary transfer taxes,
escrow charges, title charges and recording taxes or fees incurred in connection
with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has been
duly formed and is validly existing with requisite power to enter this
Contribution Agreement and all agreements contemplated hereby. The persons
and entities executing this Contribution Agreement and all agreements
contemplated hereby on behalf of the Operating Partnership have the power
and authority to enter into this Contribution Agreement and such other
contemplated agreements; and
(b) DUE AUTHORIZATION. The execution, delivery and performance
by the Operating Partnership of its obligations under this Contribution
Agreement and all agreements contemplated hereby will not contravene any
provision of applicable law, the OP Agreement, charter, declaration of
trust or other constituent document of the Operating Partnership, or any
agreement or other instrument binding upon the Operating Partnership or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Operating Partnership, and no consent,
6
<PAGE>
approval, authorization or order of or qualification with any governmental
body or agency is required for the performance by the Operating Partnership
of its obligations under this Contribution Agreement and all other
agreements contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto, and
acknowledges and agrees to be bound by the indemnification provisions contained
therein.
3.3 INDEMNIFICATION
The Operating Partnership shall indemnify and hold harmless the
Contributor (the "INDEMNIFIED CONTRIBUTOR PARTY") from and against any and all
claims, losses, damages, liabilities and expenses, including without limitation,
amounts paid in settlement, reasonable attorneys' fees, costs of investigation
and remediation, costs of investigative judicial or administrative proceedings
or appeals therefrom and costs of attachment or similar bonds (collectively,
"LOSSES") asserted against, imposed upon or incurred by the Indemnified
Contributor Party in connection with: (i) any breach of a representation or
warranty of the Operating Partnership contained in this Contribution Agreement;
and (ii) all fees, costs and expenses of the Operating Partnership in connection
with the transactions contemplated by the Contribution Agreement, including
without limitation any and all costs associated with the transfers contemplated
herein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor shall
not:
(i) Sell or transfer all or any portion of the Partnership
Interest; or
(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Partnership Interest.
(b) From the date hereof through the Closing, the Contributor shall
permit each of the Partnerships to conduct its business in the ordinary course,
consistent with past practice, and shall not permit any of the Partnerships to:
(i) Enter into any material transaction not in the ordinary
course of business;
(ii) Sell or transfer any assets of the Partnerships;
(iii) Mortgage, pledge or encumber (or permit to become
encumbered) any assets of the Partnerships, except (x) liens for taxes not
due,
7
<PAGE>
(y) purchase money security interests and (z) mechanics' liens being
disputed by any of the Partnerships in good faith and by appropriate
proceedings;
(iv) Amend, modify or terminate any material agreements or other
instruments to which any of the Partnerships are a party;
(v) Materially alter the manner of keeping the Partnerships'
books, accounts or records or the accounting practices therein reflected;
or
(vi) Make any distribution to its partners.
(c) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required to
effect the transactions contemplated by this Contribution Agreement.
5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of the
Partnership Interest pursuant to ARTICLES 1 AND 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman), agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"), known or unknown,
suspected or unsuspected, arising out of or relating to any of the Partnership
Agreements, this Contribution Agreement or any other matter which exists at the
Closing, except for Contributor Claims arising from the breach of any
representation, warranty, covenant or obligation under this Contribution
Agreement.
5.2 GENERAL RELEASE OF CONTRIBUTOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "OPERATING PARTNERSHIP CLAIMS"), known or
unknown, suspected or unsuspected, arising out of or relating to any of the
Partnership Agreements, this Contribution Agreement or any other matter which
exists at the Closing, except for Operating Partnership Claims arising from the
breach of any representation, warranty, covenant or obligation under this
Contribution Agreement.
8
<PAGE>
5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership each
expressly waives and relinquishes all rights and benefits afforded by Section
1542 of the California Civil Code and do so understanding and acknowledging the
significance and consequence of such specific waiver of Section 1542 which
provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected the settlement with the
debtor.
5.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT
As of the Closing, the Contributor waives and relinquishes all rights
and benefits otherwise afforded to Contributor under the Partnership Agreements
including, without limitation, any right to consent to or approve of the sale or
contribution by the other partners (or members) of the Partnerships of their
partnership interests to the Company or the Operating Partnership.
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating Partnership
(or its designee) and each of them individually and any successor thereof from
time to time (such Operating Partnership or designee or any such successor of
any of them acting in his, her or its capacity as attorney-in-fact pursuant
hereto, the "ATTORNEY-IN FACT") as the true and lawful attorney-in-fact and
agent of Contributor, to act in the name, place and stead of Contributor to
make, execute, acknowledge and deliver all such other contracts, orders,
receipts, notices, requests, instructions, certificates, consents, letters and
other writings (including without limitation the execution of any Closing
Documents or other documents relating to the acquisition by the Operating
Partnership of Contributor's Partnership Interest), to provide information to
the Securities and Exchange Commission and others about the transactions
contemplated hereby and, in general, to do all things and to take all actions
which the Attorney-in-Fact in its sole discretion may consider necessary or
proper in connection with or to carry out the transactions contemplated by this
Contribution Agreement, as fully as could Contributor if personally present and
acting. Further, Contributor hereby grants to Attorney-in-Fact a proxy (the
"PROXY") to vote Contributor's Partnership Interest on any matter related to the
Formation Transactions presented to the partners of any of the Partnerships for
a vote, including, but not limited to, the transfer of interests in any of the
Partnerships by the other partners.
9
<PAGE>
Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable and
shall not be terminated by any act of Contributor, by operation of law or by the
occurrence of any other event or events, and if any other such act or events
shall occur before the completion of the transactions contemplated by this
Contribution Agreement, the Attorney-in-Fact shall nevertheless be authorized
and directed to complete all such transactions as if such other act or events
had not occurred and regardless of notice thereof. Contributor agrees that, at
the request of Operating Partnership it will promptly execute a separate power
of attorney and proxy on the same terms set forth in this ARTICLE 6, such
execution to be witnessed and notarized. Contributor hereby authorizes the
reliance of third parties on each of the Power of Attorney and Proxy.
Contributor acknowledges that the Operating Partnership has, and any
designee or successor thereof acting as Attorney-in-Fact may have, an economic
interest in the transactions contemplated by this Contribution Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no responsibility
or liability to any person by virtue of the Power of Attorney or Proxy granted
by Contributor hereby. The Attorney-in-Fact makes no representations with
respect to and shall have no responsibility for the Formation Transactions or
the Public Offering, or the acquisition of the Partnership Interest by the
Operating Partnership and shall not be liable for any error or judgement or for
any act done or omitted or for any mistake of fact or law except for its own
gross negligence or bad faith. Contributor agrees to indemnify the Attorney-in-
Fact for and to hold the Attorney-in-Fact harmless against any loss, claim,
damage or liability incurred on its part arising out of or in connection with it
acting as the Attorney-in-Fact under the Power of Attorney or Proxy created by
Contributor hereby, as well as the cost and expense of investigating and
defending against any such loss, claim, damage or liability, except to the
extend such loss, claim, damage or liability is due to the gross negligence or
bad faith of the Attorney-in-Fact. Contributor agrees that the Attorney-in-Fact
may consult with counsel of its own choice (who may be counsel for Operating
Partnership or its successors or affiliates), and it shall have full and
complete authorization and protection for any action taken or suffered by it
hereunder in good faith and in accordance with the opinion of such counsel. It
is understood that the Attorney-in-Fact may, without breaching any express or
implied obligation to Contributor hereunder, release, amend or modify any other
power of attorney or proxy granted by any other person under any related
agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other
actions and execute such additional documents following the Closing as the
Operating Partnership may reasonably request in order to effect the transactions
contemplated hereby.
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<PAGE>
7.2 COUNTERPARTS. This Contribution Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed by
the internal laws of the State of California, without regard to the choice of
laws provisions thereof.
7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
communicated as of the date of personal delivery (including delivery by
overnight courier). Mailed notices shall be addressed as set forth below, but
any party may change the address set forth below by written notice to other
parties in accordance with this paragraph.
To the Contributor:
Victor J. Coleman
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Contribution
Agreement as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland Corporation,
general partner
By: /s/ Richard S. Ziman
-------------------------------
Name: Richard S. Ziman
-----------------------------
Title: Chairman & CEO
----------------------------
"CONTRIBUTOR"
VICTOR J. COLEMAN,
an individual
By: /s/ Victor J. Coleman
------------------------------------
12
<PAGE>
EXHIBIT A
to
CONTRIBUTION AGREEMENT
CONSTITUENT INTERESTS OF CONTRIBUTOR'S PARTNERSHIP INTEREST
Properties Held by the Minimum
Partnerships Partnerships Consideration
- ------------------------------ ----------------------------- -------------
Arden LAOP Three, LLC 16000 Ventura Boulevard; $ 331,510
Bristol Plaza
- ------------------------------ ----------------------------- -------------
1950 Sawtelle Associates, L.P. 1950 Sawtelle Boulevard $ 112,269
- ------------------------------ ----------------------------- -------------
LAOP IV, LLC 5601 Lindero Canyon; $1,573,576
Westwood Terrace;
Calabasas Commerce Center;
The New Wilshire;
70 South Lake;
Skyview Center;
4811 Airport Plaza Drive;
4900/10 Airport Plaza Drive
- ------------------------------ ----------------------------- -------------
LAOP V, LLC 5832 Bolsa Avenue; $ 653,113
400 Corporate Pointe;
9665 Wilshire Boulevard;
Imperial Bank Tower
- ------------------------------ ----------------------------- -------------
Total Minimum
Consideration $2,670,468
-------------
-------------
A-1
<PAGE>
EXHIBIT B
to
CONTRIBUTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the undersigned hereby assigns, transfers, contributes
and conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland limited
partnership (the "Operating Partnership"), its entire legal and beneficial
right, title and interest in and to _______________________, a
________________________ (the "Partnership"), including, without limitation, all
right, title and interest, if any, of the undersigned in and to the assets of
the Partnership and the right to receive distributions of money, profits and
other assets from the Partnership, presently existing or hereafter at any time
arising or accruing (such right, title and interest are hereinafter collectively
referred to as the "Partnership Interest"), TO HAVE AND TO HOLD the same unto
the Operating Partnership, its successors and assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership assumes
all obligations in respect of the Partnership Interest.
The Partnership owns certain real property as described in Attachment "1"
attached hereto.
Executed: _____ __, 1996
By:
------------------------------------
Victor J. Coleman
B-1
<PAGE>
EXHIBIT C
to
CONTRIBUTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- --------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $
. . . . . .
Computed on the
. . . . . . consideration or value
of property conveyed;
OR
Computed on the
. . . . . . consideration or value
less liens or encumbrances
remaining at time of sale.
----------------------------------------
Signature of Declarant of Agent
determining tax - Firm Name
- --------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group Limited Partnership, a Maryland limited partnership
the real property in the City of ___________, County of ____________, State of
California, described as
Dated __________________ ________________________________
STATE OF CALIFORNIA } ________________________________
} ________________________________
COUNTY OF ________________________} _______________________________
On ____________________ before me,
___________________________________
personally appeared _______________
___________________________________
personally known to me (or
proved to me on the basis of
satisfactory evidence) to be the
person(s) whose names(s) is/are
subscribed to the within
instrument and acknowledged to
me that he/she/they executed
the same in his/her/their
authorized capacity(ies), and
that by his/her/their
signature(s) on the instrument
the person(s) or the entity upon
behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature (This area for official notarial seal)
-----------------------------
C-1
<PAGE>
EXHIBIT D
to
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1 - ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the meanings
set forth below. Terms which are not defined below shall have the meaning set
forth for those terms as defined in the Contribution Agreement to which this
EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to Knowledge,
threatened that directly or indirectly affect any of the Contributor, the
Partnerships or the Properties.
CONTAMINATION: Means emissions, discharges, releases or threatened
releases of "Hazardous Materials," substances, pollutants, contaminants or
hazardous or toxic substances, materials or wastes whether solid, liquid or
gaseous in nature, into the air, surface water, ground water or land, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of substances, pollutants, contaminants or
hazardous or toxic substances, materials, or wastes, whether solid, liquid or
gaseous in nature.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
ENVIRONMENTAL LAW: Means all applicable statutes, regulations, rules,
ordinances, codes, licenses, permits, orders, demands, approvals, authorizations
and similar items of all governmental agencies, departments, commissions,
boards, bureaus or instrumentalities of the United States, states and political
subdivisions thereof and all applicable judicial, administrative and regulatory
decrees, judgments and orders relating to the protection of human health or the
environment as in effect on the Closing Date, including all requirements as of
the Closing Date, including but not limited to those pertaining to reporting,
licensing, permitting, investigation, removal and remediation of Contamination,
including without limitation: (x) the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 ET SEQ.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 ET SEQ.), the Clean Air
Act (42 U.S.C. Section 7401 ET SEQ.), the Federal Water Pollution Control Act
(33 U.S.C. Section 1251), the Safe Drinking Water Act (42 U.S.C. 300f ET SEQ.),
the Toxic Substances Control Act (15 U.S.C. 2601 ET SEQ.), the Endangered
Species Act (16 U.S.C. 1531 ET SEQ.), the Emergency Planning
D-1
<PAGE>
and Community Right-to-Know Act of 1986 (42 U.S.C: 11001 ET SEQ.), and (y)
applicable state and local statutory and regulatory schemes pertaining to
hazardous materials.
GOVERNMENTAL ENTITY: Means any government or agency, bureau, board,
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state or local,
domestic or foreign.
HAZARDOUS MATERIAL: Means any substance:
(i) the presence of which requires investigation or remediation under
any Environmental Law action or policy, administrative request or civil
complaint under the foregoing or under common law; or
(ii) which is controlled, regulated or prohibited under any
Environmental Law as in effect as of the Closing Date, including the
Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. Section 9601 ET SEQ.) and the Resource Conservation and Recovery Act
(42 U.S.C. Section 6901 ET SEQ.); or
(iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and
as of the Closing Date is regulated by any governmental authority, agency,
department, commission, board, agency or instrumentality of the United
States, or any state or any political subdivision thereof having or
asserting jurisdiction over the Properties; or
(iv) the presence of which on, under or about, a Property poses a
hazard to the health or safety of persons on or about such Property; or
(v) which contains gasoline, diesel fuel or other petroleum
hydrocarbons, polychlorinated biphenyls (PCBs) or asbestos or
asbestos-containing materials or urea formaldehyde foam insulation; or
(vi) radon gas.
INDEMNIFYING PARTY: Means any party required to indemnify any other
party under ARTICLE 3.2 of this EXHIBIT D or under the indemnification
provisions substantially identical to ARTICLE 3.2 hereof in the other Portfolio
Agreements.
KNOWLEDGE: Means, with respect to any representation or warranty so
indicated, the actual knowledge, upon reasonable investigation and inquiry in
good faith, of the signatory to the Contribution Agreement.
KNOWN CONTAMINATION: Means Contamination currently existing on or
affecting the applicable Property as of the Closing, AND which such
Contamination is disclosed in
D-2
<PAGE>
environmental reports received by the Contributor or the Partnerships on or
before the Closing (the "ENVIRONMENTAL REPORTS");
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests, restrictions,
prior assignments, encumbrances, covenants, encroachments, assessments, rights
of others, licenses, easements, liabilities or claims of any kind or nature
whatsoever, direct or indirect, including, without limitation, interests in or
claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent or
the payment of which is actively being contested in good faith by appropriate
proceedings diligently pursued;
(b) Zoning laws and ordinances generally applicable to the districts
in which the Properties are located which are not violated by the existing
structures or present uses thereof;
(c) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings diligently
pursued;
(d) non-exclusive easements for public utilities, minor
encroachments, rights of access or other non-monetary matters that do not have a
material adverse effect upon, or materially interfere with the use of, the
Properties; and
(e) any exceptions contained in the Title Policies.
PERSON: Means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PORTFOLIO AGREEMENTS: Means the agreements, including the
Contribution Agreement, listed on ATTACHMENT "1" hereto, which contemplate the
transfer of partnership and/or limited liability company membership interests in
certain of the Participating Partnerships and LLCs from any entity directly or
indirectly owned by Contributor to the Company and the Operating Partnership.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
D-3
<PAGE>
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating Partnership
as set forth below in this ARTICLE 2. Notwithstanding any other provision of
the Contribution Agreement or this EXHIBIT D, the Contributor makes
representations, warranties and indemnities only with respect to: (i) the
Properties identified on EXHIBIT A to the Contribution Agreement (the "Property"
or the "Properties"), and (ii) the interests in the Partnerships to be
transferred by the Contributor.
2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and (B)
has all requisite power and authority to own, lease or operate its property and
to carry on its business as presently conducted and, to the extent required
under applicable law, is qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. This Contribution
Agreement and each agreement, document and instrument executed and delivered by
or on behalf of the contributor pursuant to this contribution Agreement
constitutes, or when executed and delivered will constitute, the legal, valid
and binding obligation of the Contributor, each enforceable against the
Contributor in accordance with its terms, as such enforceability may be limited
by bankruptcy or the application of equitable principles.
2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the Contributor
in connection with the execution, delivery and performance of the Contribution
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE PARTNERSHIP INTERESTS. The Contributor is the
sole owner of the Partnership Interest and has good and valid title to such
Partnership Interest, free and clear of all Liens, other than Permitted Liens.
2.5 PARTNERSHIP INTEREST. The Partnership Interest constitutes all
of the issued and outstanding interests owned by the Contributor in the
Partnerships. The Partnership Interest is validly issued, fully paid and
non-assessable, and was not issued in violation of any preemptive rights. The
Partnership Interest has been issued in compliance with applicable law and the
relevant Partnership Agreements (as then in effect). There are no rights,
subscriptions, warrants, options, conversion rights, preemptive rights or
agreements of any kind outstanding to purchase or to otherwise acquire any of
the interests which comprise the Partnership Interest or any securities or
obligations of any kind convertible into any of the interests which comprise the
Partnership Interest or other equity interests or profit participation of any
kind in the
D-4
<PAGE>
Partnerships. At the Closing, upon receipt of the consideration, the
Contributor will have transferred the Partnership Interest free and clear of
all security interests, mortgages, pledges, liens, encumbrances, claims and
equities to the Operating Partnership.
2.6 NO VIOLATION. None of the execution, delivery or performance of
the Contribution Agreement and the transactions contemplated hereby does or
will, with or without the giving of notice, lapse of time, or both, (i) violate,
conflict with, result in a breach of, or constitute a default under or give to
others any right of termination or cancellation of (A) the organizational
documents, including the charters and bylaws, if any, of the Contributor, (B)
any material agreement, document or instrument to which the Contributor is a
party or by which the Contributor or its Property is bound or (C) any term or
provision of any judgment, order, writ, injunction, or decree of any
governmental or regulatory authority binding on the Contributor or by which the
Contributor or any of its assets or properties are bound or subject or (ii)
result in the creation of any Lien, other than a Permitted Lien, upon the
Property or the Partnership Interest.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withhoding provisions, including those referred to in
ARTICLE 2.7 above and similar provisions under California law. If Contributor
fails to provide such certificates or affidavits, the Operating Partnership may
withhold a portion of any payments otherwise to be made to the Contributor as
required by the Code or California law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Contribution Agreement are intended to be exempt from
registration under the Securities Act of 1933, as amended and the rules and
regulations in effect thereunder (the "ACT"). In furtherance thereof, the
Contributor represents and warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not as
a nominee or agent for any other person and not with a view to, or for offer or
sale in connection with, any distribution of any thereof. The Contributor
agrees and acknowledges that he, she or it will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(hereinafter, "TRANSFER") any of the OP Units unless (i) the Transfer is
pursuant to an effective registration statement under the Act and qualification
or other compliance under applicable blue sky or state securities laws, or (ii)
counsel for the Contributor (which counsel shall be reasonably acceptable to the
Operating Partnership) shall have furnished the Operating Partnership with an
opinion, reasonably satisfactory in form and substance to the Operating
Partnership to the effect that no
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such registration is required because of the availability of an exemption
from registration under the Act and qualification or other compliance under
applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable,
sophisticated and experienced in business and financial matters; the Contributor
has previously invested in securities similar to the OP Units and fully
understands the limitations on transfer imposed by the Federal securities laws
and as described in the Contribution Agreement. The Contributor is able to bear
the economic risk of holding the OP Units for an indefinite period and is able
to afford the complete loss of his, her or its investment in the OP Units; the
Contributor has received and reviewed all information and documents about or
pertaining to the Company, the Operating Partnership, the business and prospects
of the Company and the Operating Partnership and the issuance of the OP Units as
the Contributor deems necessary or desirable, and has been given the opportunity
to obtain any additional information or documents and to ask questions and
receive answers about such information and documents, the Company, the Operating
Partnership, the business and prospects of the Company and the Operating
Partnership and the OP Units which the Contributor deems necessary or desirable
to evaluate the merits and risks related to his, her or its investment in the OP
Units; and the Contributor understands and has taken cognizance of all risk
factors related to the purchase of the OP Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he,
she or it has been advised that (i) the OP Units and the common stock of the
Company into which the OP Units may be exchanged in certain circumstances (the
"COMMON STOCK") must be held indefinitely, and the Contributor must continue to
bear the economic risk of the investment in the OP Units (and any Common Stock
that might be exchanged therefor) unless they are subsequently registered under
the Act or an exemption from such registration is available, (ii) a restrictive
legend in the form hereafter set forth shall be placed on the certificates
representing the OP Units (and any Common Stock that might be exchanged
therefor), and (iii) a notation shall be made in the appropriate records of the
Operating Partnership (and the Company) indicating that the OP Units (and any
Common Stock that might be exchanged therefor) are subject to restrictions on
transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an
individual, such individual is an "accredited investor" (as such term is defined
in Rule 501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his or
her spouse, in excess of $1,000,000; or
(iii) had an individual annual adjusted gross income in
excess of $200,000 in each of the two most recent years and reasonably expects
to have annual adjusted gross income in excess of $200,000 in the current year;
or
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(iv) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an annual
adjusted gross income, with his spouse, in excess of $300,000 in the current
year.
If the Contributor is not an individual, it is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
2.9.5 LEGENDING. Each certificate representing the OP Units
(and any Common Stock that might be exchanged therefor) shall bear the following
legend:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE
PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS.
In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT
TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
CORPORATION'S CHARTER, (1) NO PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY
OWN SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF 9.0% (BY VALUE OR
BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING
COMMON STOCK OF THE CORPORATION; (2) NO PERSON MAY BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK THAT WOULD RESULT IN THE CORPORATION BEING
"CLOSELY HELD" UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (3) NO PERSON MAY TRANSFER
COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE
CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO
BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO
BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK IN EXCESS OF THE ABOVE
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LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE
RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE COMMON STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A
TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN
ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS
SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF
DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY
VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE
OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS
DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS
LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE
RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF
COMMON STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY
BE DIRECTED TO THE SECRETARY OF THE CORPORATION.
2.10 COMPLIANCE WITH LAWS. In connection with the conduct of the
Properties, to Knowledge, the Partnerships have complied and on the date hereof
do substantially comply in all material respects with all applicable laws,
ordinances, rules and regulations, whether federal, state or local, foreign,
statutory or common, and neither the Partnerships nor, to Knowledge, any third
party have been informed of any material violation of any such laws, rules or
regulations, or that any investigation has been commenced or is contemplated
respecting any such possible violation.
2.11 EMINENT DOMAIN. There is no existing or, to Knowledge, proposed
or threatened condemnation, eminent domain or similar proceeding, or private
purchase in lieu of such a proceeding, which would affect the Properties in any
material respect and of which the Contributor has knowledge.
2.12 LICENSES AND PERMITS. To Knowledge, all material notices,
licenses, permits, certificates and authority required in connection with the
construction, use, occupancy, management, leasing and operation of the
Properties have been obtained, are in full force and effect, are in good
standing and (to the extent required pursuant to the transactions contemplated
hereby) are assignable to the Operating Partnership. Neither the Partnerships,
nor, to Knowledge, any third party has taken any action that would (or failed to
take any action the omission of which would) result in the revocation of such
notices, licenses, permits, certificates and authority, that would have a
material adverse effect, nor has any of them received any written notice of
violation from any Governmental Entity or written notice of the intention of any
entity to revoke any of them, that in each case has not been cured or otherwise
resolved to the satisfaction of such Governmental Entity.
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2.13 TAXES. For federal income tax purposes, the Partnerships are,
and at all times during their existence have been, partnerships (rather than
associations or publicly traded partnerships taxable as corporations). The
Partnerships have filed all tax returns required to be filed by them and have
paid all taxes required to be paid by them. The transactions contemplated
hereby will not result in any tax liability to the Partnerships, the Company or
the Operating Partnership. No tax lien or other charge exists or will exist
upon consummation of the transactions contemplated hereby with respect to any
Property except such tax liens for which the tax is not due and has been
reserved for payment by the Partnerships or tax liens or other charges which
individually or in the aggregate are immaterial in amount.
2.14 MECHANICS' LIENS. All material bills and claims for labor
performed and materials furnished to or for the benefit of the Properties have
been paid in full (or otherwise provided for), and there are no material
mechanics' or materialmen's liens (whether or not perfected) affecting the
Properties.
2.15 REAL PROPERTY.
(a) None of the Contributor, the Partnerships, nor, to Knowledge, any
other party to any agreement affecting any portion of the Properties, has
given or received any notice of default with respect to any material term
or condition of any agreement affecting the Properties, including, without
limitation any ground lease which would have a material adverse effect,
and, no event has occurred or, to Knowledge, is threatened, which would
have a material adverse effect and which through the passage of time or the
giving of notice, or both, would constitute a material default thereunder
or would cause the acceleration of any material obligation of any party
thereto or the creation of a Lien upon any asset of the Contributor or the
Partnerships, except for Permitted Liens. For purposes of this ARTICLE
2.15, the term "material agreement" shall be defined with reference to the
Property to which such agreement relates, and shall include, without
limitation, any agreement which is not terminable by the Company upon 90
days prior written notice. To Knowledge, such agreements are valid and
binding and in full force and effect, have not been materially amended,
modified or supplemented since such time as such agreements were made
available to the Company, except for such amendments, modifications and
supplements delivered to the Company, and there are no other material
agreements with any third parties affecting the Properties which will
survive the Closing and be binding on the Company.
(b) All permits which are necessary for the operation of the
Properties upon the consummation of the transactions contemplated hereby in
all material respects (i) shall remain in full force and effect and (ii)
permit the Properties to be operated in compliance with all laws, rules,
codes and regulations.
(c) As presently conducted, the operation of the buildings, fixtures
and other improvements located on the Properties is not in violation in any
material respect of any applicable building code, zoning ordinance or other
law or regulation, except for any
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such violations which individually or in the aggregate would not have a
material adverse effect on the Operating Partnership.
(d) Except for Known Contamination (i) to Knowledge there is
presently no noncompliance, liability or other Claim (as defined herein) in
connection with Environmental Laws relating to the Properties; (ii) no
notices of any violation or alleged violation of any Environmental Laws
relating to the Properties or their use have been received by any present
owner, or, to Knowledge, by any prior owner, operator or occupant of the
applicable Property, and (iii) there are no writs, injunctions, decrees,
orders or judgments outstanding, or any Claims pending or threatened,
relating to the ownership, use, maintenance or operation of the Properties.
Any instances of noncompliance, notices of violations, and writs,
injunctions, decrees, orders or judgments which may exist or may be
outstanding are of the type that individually or in the aggregate would not
have a material adverse effect on the Operating Partnership.
(e) All material reports of environmental surveys, audits,
investigations and assessments relating to the Properties, including, but
not limited to, the Environmental Reports in the possession or control of
the Contributor or its affiliates have been disclosed to the Operating
Partnership.
(f) Except as has been disclosed in writing to the Operating
Partnership prior to the Closing, to Knowledge and except as would not have
a material adverse effect, all material permits and licenses required under
any Environmental Laws in respect of the operation of the Properties have
been obtained or are in the process of being obtained, and the Properties
are in compliance, in all material respects, with the terms and conditions
of such permits and licenses.
2.16 TRADEMARKS AND TRADENAMES; PROPRIETARY RIGHTS.
(a) There are no actions or other judicial or administrative
proceedings involving any of the Contributor, the Partnerships, or the
Properties pending, or to Knowledge, threatened, that concern any
copyrights, copyright application, trademarks, trademark registrations,
trade names, service marks, service mark registrations, trade names and
trade name registrations or any trade secrets being transferred to the
Operating Partnership hereunder (the "PROPRIETARY RIGHTS"). There are no
patents or patent applications relating to the operations of the Properties
as conducted prior to the Closing.
(b) The Contributor has the right and authority to use each
Proprietary Right necessary in connection with the operation of the
Properties in the manner in which it is currently used, and to convey such
right and authority to the Operating Partnership at the Closing. The
current use of the Proprietary Rights does not, and to Knowledge, such use
did not, conflict with, infringe upon or violate any copyright, trade
secret, trademark or registration of any other person.
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(c) There are no outstanding or, to Knowledge, threatened disputes or
disagreements with respect to any Proprietary Right or any license,
contract, agreement or other commitment, written or oral, relating to the
same.
2.17 LITIGATION AND CLAIMS.
(a) There are no Claims which could reasonably be anticipated to
result in damages in excess of $50,000 pending or, to Knowledge, threatened
that directly or indirectly affect the Contributor, the Partnerships, the
Properties or the Formation Transactions, nor has any such claim been
pending or, to Knowledge, threatened as of the Closing.
(b) None of the Contributor, the Partnerships or the Properties are
operating under, subject to or in default with respect to any decision,
order, writ, injunction or decree of any court or federal, state or
municipal entity or other Governmental Entity.
2.18 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of the Operating Partnership or any of its affiliates to pay any
finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by the Contribution Agreement.
2.19 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Partnership
Interest to the Operating Partnership.
2.20 NO MISREPRESENTATIONS. No representation, warranty or statement
made, or information provided, by the Contributor in the Contribution Agreement
or in any other document or instrument furnished or to be furnished by or on
behalf of the Contributor pursuant hereto or as contemplated hereby (i) contains
or will contain any untrue statement of a material fact or (ii) omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading. For purposes of the preceding sentence, materiality
shall be determined with reference to the total portfolio of real properties and
other interests to be transferred pursuant to the Portfolio Agreements.
2.21 TITLE TO ASSETS. Upon consummation of the Formation
Transactions, the Operating Partnership's title to the Properties will be free
and clear of any Liens, encumbrances, debts, charges, liabilities or obligations
except for Permitted Liens.
2.22 PARTNERS/MEMBERS. The Contributor has made available to the
Operating Partnership a true and accurate list of all of the Partners or
members, as applicable, of the Partnerships that own, directly or indirectly, an
interest in any of the Properties, together with their percentage interests in
each Partnership.
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<PAGE>
2.23 CONDITION OF PROPERTY. To Knowledge, and except as set forth in
the structural reports prepared for the Properties and delivered to the
Operating Partnership in connection with the Formation Transactions, there is no
material defect in the condition of any Property, the improvements thereon, the
structural elements thereof and the mechanical systems thereon, nor any material
damage from casualty or other cause, nor any soil condition of any Property that
will not support all of the improvements thereon without the need for unusual or
new subsurface excavations, fill, footings, caissons or other installations,
except for any such defect, damage or condition that has been corrected or will
be corrected in the ordinary course of the business of the Property as part of
its scheduled annual maintenance and improvement program. To Knowledge, there
have been no alterations to the exteriors of any of the buildings or other
improvements on any Property that would render any surveys provided to the
Company in connection with the Formation Transactions grossly inaccurate or
otherwise reflect a material deficiency in title to such improvements.
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered pursuant
hereto shall survive the Closing.
(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this EXHIBIT
D or the Contribution Agreement for monetary damages (or otherwise) for breach
of any of its representations and warranties contained in this EXHIBIT D or the
Contribution Agreement, or in any Schedule, certificate or affidavit delivered
by it pursuant thereto, other than pursuant to the succeeding provisions of this
ARTICLE 3.
3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the Operating
Partnership, the Company, and their affiliates and each of their respective
directors, officers, employees, agents, representatives and affiliates (each of
which is an "INDEMNIFIED PARTY") from and against any and all claims, losses,
damages, liabilities and expenses, including, without limitation, amounts paid
in settlement, reasonable attorneys' fees, costs of investigation and
remediation, costs of investigative, judicial or administrative proceedings or
appeals therefrom, and costs of attachment or similar bonds (collectively,
"LOSSES"), asserted against, imposed upon or incurred by the Indemnified Party
in connection with or as a result of any breach of a representation or warranty
of the Contributor contained in the Contribution Agreement or in any Schedule,
certificate or affidavit delivered by the Contributor pursuant to the
Contribution Agreement.
D-12
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(b) The Contributor shall indemnify and hold harmless the Indemnified
Parties from and against any and all Losses, asserted against, imposed upon or
incurred by the Indemnified Parties in connection with or as a result of:
(i) any liabilities or obligations (other than the liabilities
assumed by the Indemnified Parties under the Contribution Agreement)
incurred, arising from or out of, in connection with or as a result of any
Claims made or Actions brought by or against the Operating Partnership or
any Indemnified Party that arise from or out of, in connection with or as a
result of the operation or ownership of the Properties prior to the Closing
Date, to the extent that such Losses arise from or are related to events,
conditions, actions or omissions occurring prior to the Closing Date,
exclusive of any Losses resulting directly or indirectly from
Contamination;
(ii) all fees and expenses of the Contributor in connection with
the transactions contemplated by the Contribution Agreement;
(iii) any liabilities or obligations incurred, arising from
or out of, in connection with or as a result of the failure of the
Contributor to obtain all consents required to consummate the transactions
contemplated by the Contribution Agreement; or
(iv) any liabilities or obligations of the Contributor or the
Partnerships arising from or out of or in connection with or as a result of
the operation or ownership of any property or asset, other than the
Properties, including properties or assets which may have been owned and
sold by the Contributor or the Partnerships prior to the date hereof.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when expenses
are incurred) to an Indemnified Party of OP Units, subject to the limits on
ownership and transfer of REIT shares set forth in the Company's articles of
incorporation. Any OP Units delivered to an Indemnified Party hereunder shall
be valued based upon the initial public offering price of the Company's Common
Stock.
3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably practicable
after receipt by the Indemnified Party of notice of any liability or claim
incurred by or asserted against the Indemnified Party that is subject to
indemnification under this ARTICLE 3, the Indemnified Party shall give notice
thereof to the Contributor, including liabilities or claims to be applied
against the indemnification baskets established pursuant to ARTICLE 3.5 hereof.
The Indemnified Party may at its option demand indemnity under this ARTICLE 3 as
soon as a claim has been threatened by a third party, regardless of whether an
actual Loss has been suffered, so long as the Indemnified Party shall in good
faith determine that such claim is not frivolous and that the Indemnified Party
may be liable for, or otherwise incur, a Loss as a result thereof and shall give
notice of such determination to the Contributor. The Indemnified Party shall
permit
D-13
<PAGE>
the Contributor, at its option and expense, to assume the defense of any such
claim by counsel selected by the Contributor and reasonably satisfactory to
the Indemnified Party, and to settle or otherwise dispose of the same;
PROVIDED, HOWEVER, that the Indemnified Party may at all times participate in
such defense at its expense; and PROVIDED FURTHER, HOWEVER, that the
Contributor shall not, in defense of any such claim, except with the prior
written consent of the Indemnified Party in its sole and absolute discretion,
consent to the entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the claimant or
plaintiff in question to the Indemnified Party and its affiliates a release
of all liabilities in respect of such claims, or that does not result only in
the payment of money damages. If the Contributor shall fail to undertake
such defense within 30 days after such notice, or within such shorter time as
may be reasonable under the circumstances, then the Indemnified Party shall
have the right to undertake the defense, compromise or settlement of such
liability or claim on behalf of and for the account of the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER ARTICLE
3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the aggregate amount recoverable from Indemnifying Parties
under the indemnification provisions substantially identical to ARTICLE 3.2 in
one or more of the Portfolio Agreements exceeds $200,000; PROVIDED, HOWEVER,
that once the total amount recoverable from Indemnifying Parties under such
provisions exceeds $200,000 in the aggregate, the Contributor's obligation under
ARTICLE 3.2 hereof shall be for the full amount of such obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this ARTICLE
3 with respect to any Property or Partnership Interest to the extent such
payments in the aggregate would exceed the value of the OP Units (based upon the
initial public offering price of the Common Stock) received by the Contributor
at the Closing. Notwithstanding anything contained herein to the contrary, the
Indemnified Parties shall look first to the Contributor's OP Units for
indemnification under this ARTICLE 3 and then to the Contributor's other assets.
3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification
under ARTICLE 3.2 hereof must be asserted in writing by the Indemnified Party,
stating the nature of the Losses and the basis for indemnification therefor:
(i) within one year after the Closing in the case of a claim
under ARTICLE 3.2 hereof (other than a claim under ARTICLE 3.2(a) based
upon a breach of the representations, and warranties of the Contributor set
forth in ARTICLE 2.13 hereof as specified below; and
D-14
<PAGE>
(ii) prior to the expiration of the applicable statutes of
limitations in the case of a claim under ARTICLE 3.2(a) based upon a breach
of the representations and warranties of the Contributor set forth in
ARTICLE 2.13 hereof.
(b) If so asserted in writing prior to the applicable expiration
date, such claims for indemnification shall survive until resolved by mutual
agreement between the Contributor and the Indemnified Party or by judicial
determination. Any claim for indemnification not so asserted in writing prior
to the applicable expiration date shall not thereafter be asserted and shall
forever be waived.
3.7 RESERVATION OF CONTRIBUTOR RIGHTS.
Notwithstanding anything else in this Contribution Agreement or any
Portfolio Agreement to the contrary, the Contributor reserves unto itself all
rights and remedies (including rights to seek contribution) against any third
party indemnitors, prior property owners or occupants, and contributors to any
Contamination, for which the Partnerships have been indemnified by the
Contributor hereunder. To the extent the Contributor's rights against any such
third party owners, occupants, indemnitors or contributors may be materially
prejudiced by actions or inactions by any owner or occupant of the Properties
after the Closing, the Contributor's indemnity obligation shall be reduced in
accordance with the effect of the actions or inactions which so prejudiced the
Contributor's rights.
D-15
<PAGE>
ATTACHMENT 1 (TO EXHIBIT D)
PORTFOLIO AGREEMENTS
(1) That certain Contribution Agreement by and between Arden Century
Associates, a California general partnership, and Arden Realty Group
Limited Partnership, a Maryland limited partnership, dated as of June 17,
1996.
(2) That certain Contribution Agreement by and between Arden LAOP Two, LLC, a
Nevada limited liability company, and Arden Realty Group Limited
Partnership, a Maryland limited partnership, dated as of June 17, 1996.
(3) That certain Contribution Agreement by and between Arden Sawtelle
Associates, a California general partnership, and Arden Realty Group
Limited Partnership, a Maryland limited partnership, dated as of June 17,
1996.
(4) That certain Contribution Agreement by and between Coleman Enterprises,
Inc., a California corporation, and Arden Realty Group Limited Partnership,
a Maryland limited partnership, dated as of June 17, 1996.
(5) That certain Contribution Agreement by and between Victor J. Coleman and
Arden Realty Group Limited Partnership, a Maryland limited partnership,
dated as of June 17, 1996.
<PAGE>
[LETTERHEAD]
June 20, 1996
BY FACSIMILE
- ------------
Mr. David Zimmerman, Esq.
Vice President and Associate General Counsel
National Hockey League
1251 Avenue of the Americas
New York, NY 10020
Re: Pledge of Interest in Kings by Roski
------------------------------------
Dear David:
As we discussed by telephone last week, in connection with the
development of a new arena in Los Angeles, Edward P. Roski, Jr. ("Roski")
will pledge and grant a security interest in both his limited partner
interest in The Los Angeles Kings Hockey Club, L.P. ("Club") and his stock in
Majestic L.A. Venture, Inc. ("Majestic L.A."), as security for a $2.5 million
loan to be made by affiliates of Philip F. Anschutz to affiliates of Roski.
Roski is a 48% limited partner of Club and owns 100% of the stock of Majestic
L.A. which is a 1% general partner of Club. Anschutz L.A. Venture, Inc.
("Anschutz L.A."), the beneficiary of the foregoing pledge, is a 49% general
partner and 2% limited partner of Club.
Attached as Exhibit A hereto is a form of consent letter pursuant to
which the NHL would grant its consent to the pledge and grant of security
interest in Roski's interest in Club to Anschutz L.A. A copy of the Security
Agreement pursuant to which the pledge by Roski will be effected is attached
as an exhibit to the form of consent letter.
<PAGE>
Jeffrey Pash
June 20, 1996
Page 2
If you have any questions regarding the proposed transaction or the form
of consent letter attached hereto, please call me at your earliest
convenience.
Very truly yours,
David B. Rogers
of LATHAM & WATKINS
cc: Jeffrey Pash
Edward P. Roski, Jr.
Robert J. Sanderman
G. Kevin Conwick
<PAGE>
EXHIBIT 10.19
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
by and between
MICHELE BYER,
an individual
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP
a Maryland limited partnership
Dated as of June 17, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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TABLE OF CONTENTS
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RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS. . . . . 2
1.1 Contribution Transaction . . . . . . . . . . . . . . . . . . . . . 2
1.2 Minimum Consideration and Exchange of OP Units . . . . . . . . . . 2
1.3 Additional Consideration . . . . . . . . . . . . . . . . . . . . . 2
1.4 Adjusted Consideration . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Contribution of Certain Rights . . . . . . . . . . . . . . . . . . 3
1.7 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Treatment as Contribution. . . . . . . . . . . . . . . . . . . . . 4
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Closing Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. . . . . . . . . . . . . 6
3.1 Representations and Warranties of the Operating Partnership. . . . 6
3.2 Representations and Warranties of Contributor. . . . . . . . . . . 7
3.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. COVENANTS OF CONTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . 7
5. RELEASES AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 General Release of Operating Partnership . . . . . . . . . . . . . 8
5.2 General Release of Contributor . . . . . . . . . . . . . . . . . . 9
5.3 Waiver of Section 1542 Protections . . . . . . . . . . . . . . . . 9
5.4 Waiver of Rights Under Partnership Agreement . . . . . . . . . . . 9
6. POWER OF ATTORNEY
6.1 Grant of Power of Attorney . . . . . . . . . . . . . . . . . . . . 9
6.2 Limitation on Liability. . . . . . . . . . . . . . . . . . . . . . 10
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
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EXHIBIT LIST
SECTION FIRST
EXHIBITS REFERENCED
-------------
A Constituent Interests of Contributor's Partnership Interest . . . Recital D
B Contribution and Assumption Agreement . . . . . . . . . . . . . . . . 1.1
C Form of Quitclaim . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
D Representations and Warranties of Contributor . . . . . . . . . . . . . 3.2
E Assignment and Assumption Agreement . . . . . . . . . . . . . . . . . . 1.1
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (hereinafter referred to as the "CONTRIBUTION
AGREEMENT") is made and entered into as of June 17, 1996 by and between Arden
Realty Group Limited Partnership, a Maryland limited partnership (the "OPERATING
PARTNERSHIP"), and Michele Byer, an individual (the "CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership of a
portfolio of office properties (the "PARTICIPATING PROPERTIES") located in
Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct interests
in certain of the Participating Properties (the "PROPERTY INTERESTS") and all of
the interests in certain limited partnerships, certain limited liability
companies and certain other entities (collectively the "PARTICIPATING
PARTNERSHIPS AND LLCS") which currently own directly or indirectly the
Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Arden Realty Group,
Inc., a Maryland corporation (the "COMPANY"), which will operate as a self-
administered and self-managed real estate investment trust ("REIT") and will be
the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members of
the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. The Contributor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIPS") which
Partnerships own directly or indirectly interests in certain of the
Participating Properties also as set forth on Exhibit A (the "PROPERTY" or the
"PROPERTIES"). As used herein, "PARTNERSHIP AGREEMENT" means the partnership
agreement or membership agreement, as applicable, under which each such
Partnership was formed.
E. The Contributor desires to, and the Operating Partnership desires the
Contributor to, contribute to the Operating Partnership, all of its right, title
and interest, as a partner (or member) of the Partnerships, including, without
limitation, all of its voting rights and interests in the capital, profits and
losses of the Partnerships or any property distributable therefrom, constituting
all of its interests in the Partnerships (such right, title and interest are
hereinafter collectively referred to as the "PARTNERSHIP INTEREST") and all of
its right, title and interest in a certain property management agreement as set
forth in ARTICLE 1.1 hereof, in
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exchange for partnership units in the Operating Partnership (the "OP UNITS"),
on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, for and in consideration of the foregoing premises, and
the mutual undertakings set forth below, the parties hereto agree as follows:
TERMS OF AGREEMENT
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS
1.1 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to the
terms and conditions contained in this Contribution Agreement, the Contributor
shall transfer to the Operating Partnership, absolutely and unconditionally,
all of its Partnership Interest (as such term is defined in Recital B herein)
and all of its right, title and interest in that certain Property Management
Agreement, dated as of December 14, 1994, by and among 5000 Spring Associates,
LLC, a Nevada limited liability company, Arthur Gilbert as Trustee of the
Arthur Gilbert and Rosalinde Gilbert 1982 Trust, and Contributor, as Owners
and Arden Realty Group, Inc., a California corporation, as Manager (the
"PROPERTY MANAGEMENT AGREEMENT"). The contribution of the Contributor's
Partnership Interest shall be evidenced by a "CONTRIBUTION AND ASSUMPTION
AGREEMENT" for each of the Partnerships in substantially the form of EXHIBIT
"B" attached hereto. The Contributor shall execute and have duly acknowledged
an individual quitclaim deed in the form of EXHIBIT "C" quitclaiming to the
Operating Partnership any direct or indirect ownership interest in and to the
Properties. Furthermore, the contribution of the Property Management Agreement
shall be evidenced by an "ASSIGNMENT AND ASSUMPTION AGREEMENT" in
substantially the form of EXHIBIT "E" attached hereto. The parties shall take
such additional actions and execute such additional documentation as may be
required by the Partnership Agreement and the Agreement of Limited Partnership
of the Operating Partnership (the "OP AGREEMENT") in order to effect the
transactions contemplated hereby.
1.2 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS.
Subject to ARTICLES 1.3 AND 1.4 below, the Operating Partnership
shall, in exchange for the Partnership Interest and Contributor's interest in
the Property Management Agreement, transfer to the Contributor the number of
OP Units having a value, based on one OP Unit being equal in value to the
Public Offering price for one share of the Company's common stock, equal to
the value indicated on Exhibit A as Contributor's "Total Minimum
Consideration." The transfer of the OP Units to the Contributor shall be
evidenced by either an amendment (the "AMENDMENT") to the OP Agreement or by
certificates relating to such units (the "CERTIFICATES") in either case, as
shall be acceptable to the Contributor. The parties shall take such
additional actions and execute such additional documentation as may be
2
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required by the Partnership Agreement and the OP Agreement in order to effect
the transactions contemplated hereby.
1.3 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.4 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.2) of the OP Units
available to all OP Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.4) of all
OP Participants (the "ADDITIONAL CONSIDERATION"), then the Additional
Consideration or a portion thereof, if any, shall be allocated among the OP
Participants (including the Contributor) based upon the relative values of the
Contributor's Partnership Interest and the interests contributed by each of
the other OP Participants, in each case as determined by Richard S. Ziman, in
his sole discretion.
1.4 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular interest that constitutes part of the Partnership Interest, if in
good faith the Operating Partnership determines that the ownership of such
interest or the underlying Property would be inappropriate for the Operating
Partnership for any reason whatsoever. Contributor hereby agrees that, in
such event, the Contributor's Total Minimum Consideration may be reduced by an
amount determined by Richard S. Ziman, in his sole discretion, to reflect the
reduction in total value of the Partnership Interest ultimately contributed by
the Contributor.
1.5 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.3 AND 1.4 hereof, and
any and all such determinations shall be final and binding on all parties.
1.6 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to the
Operating Partnership all of its rights and interests, if any, including
rights to indemnification in favor of the Contributor, if any, under the
agreements pursuant to which the Contributor or its affiliates initially
acquired the Partnership Interest transferred pursuant to this Contribution
Agreement.
1.7 PRORATIONS
At the Closing, or as promptly as practicable following the Closing,
to the extent such matters are not the right or responsibility of all tenants
of a given Property, all revenue and all charges that are customarily prorated
in transactions of this nature, including accrued rent currently due and
payable, overpaid taxes or fees, real and personal property
3
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taxes, common area maintenance charges and other similar periodic charges
payable or receivable with respect to such Property shall be ratably prorated
between the partners of the Partnership which holds such Property prior to the
Closing and the Operating Partnership on and after the Closing, effective as
of the Closing. After providing for such prorations, (i) if the Partnership
has a resultant cash surplus, the value of the Contributor's Partnership
Interest shall be increased in proportion to Contributor's ratable share of
such cash surplus and additional OP Units (based on the initial Public
Offering price of the Company's common stock) shall be issued to the
Contributor as a valuation adjustment to the Contributor's Total Minimum
Consideration, and (ii) if the Partnership has a resultant cash deficit, the
value of the Contributor's Partnership Interest shall be reduced in proportion
to Contributor's ratable share of such cash deficit, and fewer OP Units shall
be issued to the Contributor as a valuation adjustment to the Contributor's
Total Minimum Consideration, unless such deficit is cured prior to Closing.
1.8 TREATMENT AS CONTRIBUTION
The transfer, assignment and exchange of interests effectuated with
respect to the Operating Partnership, pursuant to this Contribution Agreement
shall constitute, a "Capital Contribution" pursuant to Article 4 of the OP
Agreement and is intended to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed with
the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to this
Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor contained
in this Contribution Agreement shall have been true and correct in all
material respects on the date such representations and warranties were made,
and shall be true and correct in all material respects on the Closing Date as
if made at and as of such date;
(b) Each of the obligations of the Contributor to be performed by it
shall have been duly performed by it on or before the Closing Date;
4
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(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to
be delivered pursuant to SECTION 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
(f) No order, statute, rule, regulation, executive order,
injunction, stay, decree or restraining order shall have been enacted,
entered, promulgated or enforced by any court of competent jurisdiction or
governmental or regulatory authority or instrumentality that prohibits the
consummation of the transactions contemplated hereby, and no litigation or
governmental proceeding seeking such an order shall be pending or threatened;
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in the Partnerships' businesses;
(h) All existing management agreements with respect to the
Properties shall have been contributed to the Operating Partnership prior to
or simultaneously with the Closing; and
(i) All management functions with respect to the Properties
presently conducted by Arden Realty Group, Inc., a Maryland corporation, shall
be assumed by the Operating Partnership.
The foregoing conditions may be waived by the Operating Partnership
in its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the
Public Offering from the underwriter(s), at 10:00 a.m. in the office of Latham
& Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California (the
"CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.1 AND 1.2
of this Contribution Agreement, and all closing deliveries, and the
consummation of the Public Offering, shall be deemed concurrent for all
purposes.
2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered through the
Attorney-in-Fact (see
5
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ARTICLE 6.1 below), the legal documents and other items (collectively the
"CLOSING DOCUMENTS") necessary to carry out the intention of this Contribution
Agreement, which Closing Documents and other items shall include, without
limitation, the following:
(i) A Contribution and Assumption Agreement for each of the
Partnerships;
(ii) An individual quitclaim deed for each Property fully executed
and duly acknowledged from each of the individual constituent partners
and/or members of the Contributor, as required by the Operating
Partnership;
(iii) An Assignment and Assumption Agreement duly executed and
delivered by the Contributor and the Operating Partnership, whereby the
Contributor assigns its rights under the Property Management Agreement to
the Operating Partnership;
(iv) The Amendment or the Certificates evidencing the transfer of OP
Units to the Contributor;
(v) An American Land Title Assurances ("ALTA") policy of title
insurance with appropriate endorsements and levels of reinsurance for the
Property issued as of the Closing Date or endorsements or other assurances
that the existing policy or policies of title insurance are sufficient for
purposes of this Contribution Agreement, which the Contributor shall cause
the tite company to issue to the Operating Partnership in a form acceptable
to the Operating Partnership (the "TITLE POLICIES") including satisfaction
by the Contributor of any and all title company requirements applicable to
it;
(vi) The Partnerships' books and records and securities or other
evidences of ownership held by the Contributor; and
(vii) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number
and that the Contributor is not a foreign person pursuant to section
1445(b)(2) of the Code and a comparable affidavit satisfying California
and any other withholding requirements.
2.4 CLOSING COSTS
The Operating Partnership shall pay any documentary transfer taxes,
escrow charges, title charges and recording taxes or fees incurred in
connection with the transactions contemplated hereby.
6
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3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has been
duly formed and is validly existing with requisite power to enter this
Contribution Agreement and all agreements contemplated hereby. The
persons and entities executing this Contribution Agreement and all
agreements contemplated hereby on behalf of the Operating Partnership have
the power and authority to enter into this Contribution Agreement and such
other contemplated agreements; and
(b) DUE AUTHORIZATION. The execution, delivery and performance
by the Operating Partnership of its obligations under this Contribution
Agreement and all agreements contemplated hereby will not contravene any
provision of applicable law, the OP Agreement, charter, declaration of
trust or other constituent document of the Operating Partnership, or any
agreement or other instrument binding upon the Operating Partnership or
any judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Operating Partnership, and no consent,
approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by the
Operating Partnership of its obligations under this Contribution
Agreement and all other agreements contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto, and
acknowledges and agrees to be bound by the indemnification provisions
contained therein.
3.3 INDEMNIFICATION
The Operating Partnership shall indemnify and hold harmless the
Contributor (the "INDEMNIFIED CONTRIBUTOR PARTY") from and against any and all
claims, losses, damages, liabilities and expenses, including without
limitation, amounts paid in settlement, reasonable attorneys' fees, costs of
investigation and remediation, costs of investigative judicial or
administrative proceedings or appeals therefrom and costs of attachment or
similar bonds (collectively, "LOSSES") asserted against, imposed upon or
incurred by the Indemnified Contributor Party in connection with: (i) any
breach of a representation or warranty of the Operating Partnership contained
in this Contribution Agreement; (ii) any liabilities or obligations incurred,
arising from or out of, in connection with or as a result of
7
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any claims made or actions brought by or against the Contributor, the
Partnerships, the Properties or an Indemnified Contributor Party, that arise
from or out of, in connection with or as a result of any Contamination (as
defined in Exhibit D hereto) of the Properties regardless of when or how
occurring, except to the extent, and only to the extent, such Losses arise
from or constitute a breach of a representation and warranty of Contributor
under Exhibit D; and (iii) all fees, costs and expenses of the Operating
Partnership in connection with the transactions contemplated by the
Contribution Agreement, including without limitation any and all costs
associated with the transfers contemplated herein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor shall
not:
(i) Sell or transfer all or any portion of the Partnership
Interest; or
(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Partnership Interest.
(b) From the date hereof through the Closing, the Contributor shall
permit each of the Partnerships to conduct its business in the ordinary course,
consistent with past practice, and shall not permit any of the Partnerships to:
(i) Enter into any material transaction not in the ordinary
course of business;
(ii) Sell or transfer any assets of the Partnerships;
(iii) Mortgage, pledge or encumber (or permit to become
encumbered) any assets of the Partnerships, except (x) liens for taxes
not due, (y) purchase money security interests and (z) mechanics' liens
being disputed by the Partnerships in good faith and by appropriate
proceedings;
(iv) Amend, modify or terminate any material agreements or other
instruments to which the Partnerships are a party;
(v) Materially alter the manner of keeping the Partnerships'
books, accounts or records or the accounting practices therein reflected;
or
(vi) Make any distribution to its partners.
(c) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required to
effect the transactions contemplated by this Contribution Agreement.
8
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5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of the
Partnership Interest pursuant to ARTICLES 1 AND 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman),
agents, attorneys, successors and assigns of and from, any and all charges,
complaints, claims, liabilities, damages, actions, causes of action, losses
and costs of any nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"), known
or unknown, suspected or unsuspected, arising out of or relating to any of the
Partnership Agreements, this Contribution Agreement or any other matter which
exists at the Closing, except for Contributor Claims arising from the breach
of any representation, warranty, covenant or obligation under this
Contribution Agreement.
5.2 GENERAL RELEASE OF CONTRIBUTOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges,
complaints, claims, liabilities, damages, actions, causes of action, losses
and costs of any nature whatsoever (collectively, "OPERATING PARTNERSHIP
CLAIMS"), known or unknown, suspected or unsuspected, arising out of or
relating to any of the Partnership Agreements, this Contribution Agreement or
any other matter which exists at the Closing, except for Operating Partnership
Claims arising from the breach of any representation, warranty, covenant or
obligation under this Contribution Agreement.
5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership each
expressly waives and relinquishes all rights and benefits afforded by Section
1542 of the California Civil Code and do so understanding and acknowledging
the significance and consequence of such specific waiver of Section 1542 which
provides:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected the
settlement with the debtor.
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5.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT
As of the Closing, the Contributor waives and relinquishes all rights
and benefits otherwise afforded to Contributor under the Partnership
Agreements including, without limitation, any right to consent to or approve
of the sale or contribution by the other partners (or members) of the
Partnerships of their partnership interests to the Company or the Operating
Partnership.
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating Partnership
(or its designee) and each of them individually and any successor thereof from
time to time (such Operating Partnership or designee or any such successor of
any of them acting in his, her or its capacity as attorney-in-fact pursuant
hereto, the "ATTORNEY-IN FACT") as the true and lawful attorney-in-fact and
agent of Contributor, to act in the name, place and stead of Contributor to
make, execute, acknowledge and deliver all such other contracts, orders,
receipts, notices, requests, instructions, certificates, consents, letters and
other writings (including without limitation the execution of any Closing
Documents or other documents relating to the acquisition by the Operating
Partnership of Contributor's Partnership Interest), to provide information to
the Securities and Exchange Commission and others about the transactions
contemplated hereby and, in general, to do all things and to take all actions
which the Attorney-in-Fact in its sole discretion may consider necessary or
proper in connection with or to carry out the transactions contemplated by
this Contribution Agreement, as fully as could Contributor if personally
present and acting. Further, Contributor hereby grants to Attorney-in-Fact a
proxy (the "PROXY") to vote Contributor's Partnership Interest on any matter
related to the Formation Transactions presented to the partners of any of the
Partnerships for a vote, including, but not limited to, the transfer of
interests in the Partnership by the other partners.
Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable
and shall not be terminated by any act of Contributor, by operation of law or
by the occurrence of any other event or events, and if any other such act or
events shall occur before the completion of the transactions contemplated by
this Contribution Agreement, the Attorney-in-Fact shall nevertheless be
authorized and directed to complete all such transactions as if such other act
or events had not occurred and regardless of notice thereof. Contributor
agrees that, at the request of Operating Partnership it will promptly execute
a separate power of attorney and proxy on the same terms set forth in this
ARTICLE 6, such execution to be witnessed and notarized. Contributor hereby
authorizes the reliance of third parties on each of the Power of Attorney and
Proxy.
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Contributor acknowledges that the Operating Partnership has, and any
designee or successor thereof acting as Attorney-in-Fact may have, an economic
interest in the transactions contemplated by this Contribution Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no responsibility
or liability to any person by virtue of the Power of Attorney or Proxy granted
by Contributor hereby. The Attorney-in-Fact makes no representations with
respect to and shall have no responsibility for the Formation Transactions or
the Public Offering, or the acquisition of the Partnership Interest by the
Operating Partnership and shall not be liable for any error or judgement or
for any act done or omitted or for any mistake of fact or law except for its
own gross negligence or bad faith. Contributor agrees to indemnify the
Attorney-in-Fact for and to hold the Attorney-in-Fact harmless against any
loss, claim, damage or liability incurred on its part arising out of or in
connection with it acting as the Attorney-in-Fact under the Power of Attorney
or Proxy created by Contributor hereby, as well as the cost and expense of
investigating and defending against any such loss, claim, damage or liability,
except to the extend such loss, claim, damage or liability is due to the gross
negligence or bad faith of the Attorney-in-Fact. Contributor agrees that the
Attorney-in-Fact may consult with counsel of its own choice (who may be
counsel for Operating Partnership or its successors or affiliates), and it
shall have full and complete authorization and protection for any action taken
or suffered by it hereunder in good faith and in accordance with the opinion
of such counsel. It is understood that the Attorney-in-Fact may, without
breaching any express or implied obligation to Contributor hereunder, release,
amend or modify any other power of attorney or proxy granted by any other
person under any related agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other
actions and execute such additional documents following the Closing as the
Operating Partnership may reasonably request in order to effect the
transactions contemplated hereby.
7.2 COUNTERPARTS. This Contribution Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed by
the internal laws of the State of California, without regard to the choice of
laws provisions thereof.
7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
communicated as of the date of personal delivery (including delivery by
overnight courier). Mailed notices shall be
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addressed as set forth below, but any party may change the address set forth
below by written notice to other parties in accordance with this paragraph.
To the Contributor:
Michele Byer
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
IN WITNESS WHEREOF, the parties have executed this Contribution Agreement
as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland Corporation,
general partner
By:
------------------------------
"CONTRIBUTOR"
MICHELE BYER,
an individual
By:
-------------------------------------
12
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EXHIBIT A
to
CONTRIBUTION AGREEMENT
CONSTITUENT INTERESTS OF CONTRIBUTOR'S PARTNERSHIP INTEREST
<TABLE>
<CAPTION>
Partnerships Property Held by the Minimum
and Management Agreement Partnerships Consideration
- ----------------------------- ---------------------------- --------------
<S> <C> <C>
1950 Sawtelle Associates, L.P. 1950 Sawtelle Boulevard $ 56,134
- ----------------------------- ---------------------------- -------------
5000 Spring Associates, LLC 5000 East Spring Street $ 33,917
- ----------------------------- ---------------------------- -------------
Arden LAOP Two, LLC Anaheim City Center; $ 2,408
425 West Broadway
- ----------------------------- ---------------------------- -------------
Arden LAOP Three, LLC 16000 Ventura Boulevard; $ 12,621
Bristol Plaza
- ----------------------------- ---------------------------- -------------
LAOP IV, LLC 5601 Lindero Canyon; $276,066
Westwood Terrace;
Calabasas Commerce Center;
The New Wilshire;
70 South Lake;
Skyview Center;
4811 Airport Plaza Drive;
4900/10 Airport Plaza Drive
- ----------------------------- ---------------------------- -------------
LAOP V, LLC 5832 Bolsa Avenue; $ 85,936
400 Corporate Pointe;
9665 Wilshire Boulevard;
Imperial Bank Tower
- ----------------------------- ---------------------------- -------------
Management Agreement for 5000 $ 34,376
East Spring Street
- ----------------------------- ---------------------------- -------------
Total Minimum
Consideration $501,458
</TABLE>
A-1
<PAGE>
EXHIBIT B
to
CONTRIBUTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the undersigned hereby assigns, transfers,
contributes and conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland
limited partnership (the "Operating Partnership"), its entire legal and
beneficial right, title and interest in and to 5000 Spring Associates, LLC, a
Nevada limited liability company (the "Partnership"), including, without
limitation, all right, title and interest, if any, of the undersigned in and
to the assets of the Partnership and the right to receive distributions of
money, profits and other assets from the Partnership, presently existing or
hereafter at any time arising or accruing (such right, title and interest are
hereinafter collectively referred to as the "Partnership Interest"), TO HAVE
AND TO HOLD the same unto the Operating Partnership, its successors and
assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership
assumes all obligations in respect of the Partnership Interest.
The Partnership owns certain real property as described in Attachment
"1" attached hereto.
Executed: _____ __, 1996
By: /s/ Michele Byer
----------------------
Michele Byer
B-1
<PAGE>
EXHIBIT C
to
CONTRIBUTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- --------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $ ...........
..... Computed on the consideration or
value of property conveyed; OR
..... Computed on the consideration or
value less liens or encumbrances
remaining at time of sale.
---------------------------------------
Signature of Declarant of Agent
determining tax - Firm Name
- --------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group Limited Partnership, a Maryland limited partnership
the real property in the City of ____________, County of ____________, State of
California, described as
Dated ______________________ _____________________________
STATE OF CALIFORNIA } _____________________________
} _____________________________
COUNTY OF ________________ } _____________________________
On ______________ before me,
___________________________,
personally appeared ________
____________________________
personally known to me (or proved to
me on the basis of satisfactory evidence)
to be the person(s) whose names(s) is/are
subscribed to the within instrument and
acknowledged to me that he/she/they
executed the same in his/her/their
authorized capacity(ies), and that by
his/her/their signature(s) on the
instrument the person(s) or the entity
upon behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
Signature ________________________ (This area for official notarial seal)
C-1
<PAGE>
EXHIBIT D
TO
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1- ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the meanings
set forth below. Terms which are not defined below shall have the meaning set
forth for those terms as defined in the Contribution Agreement to which this
EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to Knowledge,
threatened that directly or indirectly affect any of the Contributor, the
Partnerships or the Properties.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
KNOWLEDGE: Means, with respect to any representation or warranty so
indicated, the actual knowledge, upon reasonable investigation and inquiry in
good faith, of the signatory to the Contribution Agreement.
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests, restrictions,
prior assignments, encumbrances, covenants, encroachments, assessments, rights
of others, licenses, easements, liabilities or claims of any kind or nature
whatsoever, direct or indirect, including, without limitation, interests in or
claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent or
the payment of which is actively being contested in good faith by appropriate
proceedings diligently pursued;
(b) Zoning laws and ordinances generally applicable to the districts
in which the Properties are located which are not violated by the existing
structures or present uses thereof;
D-1
<PAGE>
(c) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings diligently
pursued;
(d) non-exclusive easements for public utilities that do not have a
material adverse effect upon, or interfere with the use of, the Properties; and
(e) any exceptions contained in the Title Policies.
PERSON: Means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating Partnership
as set forth below in this ARTICLE 2. Notwithstanding any other provision of
the Contribution Agreement or this EXHIBIT D, the Contributor makes
representations, warranties and indemnities only with respect to the interests
in the Partnerships to be transferred by the Contributor identified on EXHIBIT A
to the Contribution Agreement.
2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and (B)
has all requisite power and authority to own, lease or operate its property and
to carry on its business as presently conducted and, to the extent required
under applicable law, is qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. This Contribution
Agreement and each agreement, document and instrument executed and delivered by
or on behalf of the contributor pursuant to this contribution Agreement
constitutes, or when executed and delivered will constitute, the legal, valid
and binding obligation of the Contributor, each enforceable against the
Contributor in accordance with its terms, as such enforceability may be limited
by bankruptcy or the application of equitable principles.
D-2
<PAGE>
2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the Contributor
in connection with the execution, delivery and performance of the Contribution
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE PARTNERSHIP INTERESTS. The Contributor is the
sole owner of the Partnership Interest and has good and valid title to such
Partnership Interest, free and clear of all Liens, other than Permitted Liens.
2.5 PARTNERSHIP INTEREST. The Partnership Interest constitutes all
of the issued and outstanding interests owned by the Contributor in the
Partnerships. The Partnership Interest is validly issued, fully paid and
non-assessable, and was not issued in violation of any preemptive rights. The
Partnership Interest has been issued in compliance with applicable law and the
relevant Partnership Agreements (as then in effect). There are no rights,
subscriptions, warrants, options, conversion rights, preemptive rights or
agreements of any kind outstanding to purchase or to otherwise acquire any of
the interests which comprise the Partnership Interest or any securities or
obligations of any kind convertible into any of the interests which comprise the
Partnership Interest or other equity interests or profit participation of any
kind in the Partnerships. At the Closing, upon receipt of the consideration,
the Contributor will have transferred the Partnership Interest free and clear of
all security interests, mortgages, pledges, liens, encumbrances, claims and
equities to the Operating Partnership.
2.6 NO VIOLATION. None of the execution, delivery or performance of
the Contribution Agreement and the transactions contemplated hereby does or
will, with or without the giving of notice, lapse of time, or both, (i) violate,
conflict with, result in a breach of, or constitute a default under or give to
others any right of termination or cancellation of (A) the organizational
documents, including the charters and bylaws, if any, of the Contributor, (B)
any material agreement, document or instrument to which the Contributor is a
party or by which the Contributor or its Partnership Interest is bound or (C)
any term or provision of any judgment, order, writ, injunction, or decree of any
governmental or regulatory authority binding on the Contributor or by which the
Contributor or any of its assets or properties are bound or subject or (ii)
result in the creation of any Lien, other than a Permitted Lien, upon the
Partnership Interest.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withhoding provisions, including those referred to in
ARTICLE 2.7 above and similar provisions under California law. If Contributor
fails to provide such certificates or affidavits, the Operating
D-3
<PAGE>
Partnership may withhold a portion of any payments otherwise to be made to the
Contributor as required by the Code or California law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Agreement are intended to be exempt from registration under
the Securities Act of 1933, as amended and the rules and regulations in effect
thereunder (the "ACT"). In furtherance thereof, the Contributor represents
and warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not
as a nominee or agent for any other person and not with a view to, or for
offer or sale in connection with, any distribution of any thereof. The
Contributor agrees and acknowledges that he, she or it will not, directly or
indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of (hereinafter, "TRANSFER") any of the OP Units unless (i) the
Transfer is pursuant to an effective registration statement under the Act and
qualification or other compliance under applicable blue sky or state
securities laws, or (ii) counsel for the Contributor (which counsel shall be
reasonably acceptable to the Operating Partnership) shall have furnished the
Operating Partnership with an opinion, reasonably satisfactory in form and
substance to the Operating Partnership, to the effect that no such
registration is required because of the availability of an exemption from
registration under the Act and qualification or other compliance under
applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable,
sophisticated and experienced in business and financial matters; the
Contributor has previously invested in securities similar to the OP Units and
fully understands the limitations on transfer imposed by the Federal
securities laws and as described in the Contribution Agreement. The
Contributor is able to bear the economic risk of holding the OP Units for an
indefinite period and is able to afford the complete loss of his, her or its
investment in the OP Units; the Contributor has received and reviewed all
information and documents about or pertaining to the Company, the Operating
Partnership, the business and prospects of the Company and the Operating
Partnership and the issuance of the OP Units as the Contributor deems
necessary or desirable, and has been given the opportunity to obtain any
additional information or documents and to ask questions and receive answers
about such information and documents, the Company, the Operating Partnership,
the business and prospects of the Company and the Operating Partnership and
the OP Units which the Contributor deems necessary or desirable to evaluate
the merits and risks related to his, her or its investment in the OP Units;
and the Contributor understands and has taken cognizance of all risk factors
related to the purchase of the OP Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he,
she or it has been advised that (i) the OP Units and the common stock of the
Company into which the OP Units may be exchanged in certain circumstances (the
"COMMON STOCK") must be held indefinitely, and the Contributor must continue
to bear the economic risk of the investment in the OP Units (and any Common
Stock that might be exchanged therefor) unless they are subsequently
registered under the Act or an exemption from such registration is available,
(ii)
D-4
<PAGE>
a restrictive legend in the form hereafter set forth shall be placed on the
certificates representing the OP Units (and any Common Stock that might be
exchanged therefor), and (iii) a notation shall be made in the appropriate
records of the Operating Partnership (and the Company) indicating that the OP
Units (and any Common Stock that might be exchanged therefor) are subject to
restrictions on transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an
individual, such individual is an "accredited investor" (as such term is
defined in Rule 501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his or
her spouse, in excess of $1,000,000; or
(iii) had an individual annual adjusted gross income in
excess of $200,000 in each of the two most recent years and reasonably
expects to have annual adjusted gross income in excess of $200,000 in
the current year; or
(iv) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an annual
adjusted gross income, with his spouse, in excess of $300,000 in the
current year.
If the Contributor is not an individual, it is an "accredited investor"
(as such term is defined in Rule 501(a) of Regulation D under the Act).
2.9.5 LEGENDING. Each certificate representing the OP Units
(and any Common Stock that might be exchanged therefor) shall bear the
following legend:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE
PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS;
In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND
D-5
<PAGE>
TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS
A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE "CODE"). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND
EXCEPT AS EXPRESSLY PROVIDED IN THE CORPORATION'S CHARTER, (1) NO PERSON
MAY BENEFICIALLY OWN OR CONSTRUCTIVELY OWN SHARES OF THE CORPORATION'S
COMMON STOCK IN EXCESS OF 9.0% (BY VALUE OR BY NUMBER OF SHARES,
WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING COMMON STOCK OF THE
CORPORATION; (2) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON
STOCK THAT WOULD RESULT IN THE CORPORATION BEING "CLOSELY HELD" UNDER
SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE CORPORATION TO FAIL TO
QUALIFY AS A REIT; AND (3) NO PERSON MAY TRANSFER COMMON STOCK IF SUCH
TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE CORPORATION BEING OWNED
BY FEWER THAN 100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY
OWNS OR ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK WHICH
CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN
COMMON STOCK IN EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY
THE CORPORATION. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE
VIOLATED, THE COMMON STOCK REPRESENTED HEREBY WILL BE AUTOMATICALLY
TRANSFERRED TO A TRUSTEE OF A TRUST FOR THE BENEFIT OF ONE OR MORE
CHARITABLE BENEFICIARIES. IN ADDITION, THE CORPORATION MAY REDEEM SHARES
UPON THE TERMS AND CONDITIONS SPECIFIED BY THE BOARD OF DIRECTORS IN ITS
SOLE DISCRETION IF THE BOARD OF DIRECTORS DETERMINES THAT OWNERSHIP OR A
TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS DESCRIBED ABOVE.
FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS
IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO.
ALL CAPITALIZED TERMS IN THIS LEGEND HAVE THE MEANINGS DEFINED IN THE
CHARTER OF THE CORPORATION, AS THE SAME MAY BE AMENDED FROM TIME TO TIME,
A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP,
WILL BE FURNISHED TO EACH HOLDER OF COMMON STOCK ON REQUEST AND WITHOUT
CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE SECRETARY OF THE
CORPORATION.
2.10 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of the Operating Partnership or any of its affiliates to pay any
finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by the Contribution Agreement.
D-6
<PAGE>
2.11 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Partnership
Interest to the Operating Partnership.
2.12 NO MISREPRESENTATIONS. No representation, warranty or
statement made, or information provided, by the Contributor in the
Contribution Agreement or in any other document or instrument furnished or to
be furnished by or on behalf of the Contributor pursuant hereto or as
contemplated hereby (i) contains or will contain any untrue statement of a
material fact or (ii) omits or will omit to state a material fact necessary to
make the statements contained herein or therein not misleading.
2.13 TAXES. For federal income tax purposes, the Partnerships are,
and at all times during their existence have been, partnerships (rather than
associations or publicly traded partnerships taxable as corporations). The
Partnerships have filed all tax returns required to be filed by them and have
paid all taxes required to be paid by them. The transactions contemplated
hereby will not result in any tax liability to the Partnerships, the Company
or the Operating Partnership. No tax lien or other charge exists or will
exist upon consummation of the transactions contemplated hereby with respect
to any Property except such tax liens for which the tax is not due and has
been reserved for payment by the Partnerships or tax liens or other charges
which individually or in the aggregate would not have a material adverse
effect on the Operating Partnership.
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered pursuant
hereto shall survive the Closing.
(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this EXHIBIT
D or the Contribution Agreement for monetary damages (or otherwise) for breach
of any of its representations and warranties contained in this EXHIBIT D or the
Contribution Agreement, or in any Schedule, certificate or affidavit delivered
by it pursuant thereto, other than pursuant to the succeeding provisions of this
ARTICLE 3.
3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the Operating
Partnership, the REIT, and their affiliates and each of their respective
directors, officers, employees, agents, representatives and affiliates (each of
which is an "INDEMNIFIED PARTY") from and against any and all claims, losses,
damages, liabilities and expenses, including, without limitation, amounts paid
in settlement, reasonable attorneys' fees, costs of investigation and
remediation, costs of investigative, judicial or administrative proceedings or
appeals therefrom, and costs of
D-7
<PAGE>
attachment or similar bonds (collectively, "LOSSES"), asserted against,
imposed upon or incurred by the Indemnified Party in connection with or as a
result of any breach of a representation or warranty of the Contributor
contained in the Contribution Agreement or in any Schedule, certificate or
affidavit delivered by the Contributor pursuant to the Contribution Agreement.
(b) The Contributor shall indemnify and hold harmless the Indemnified
Parties from and against any and all Losses, asserted against, imposed upon or
incurred by the Indemnified Parties in connection with or as a result of:
(i) all fees and expenses of the Contributor in connection with
the transactions contemplated by the Contribution Agreement;
(ii) any liabilities or obligations incurred, arising from or out
of, in connection with or as a result of the failure of the Contributor to
obtain all consents required to consummate the transactions contemplated by
the Contribution Agreement.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when
expenses are incurred) to an Indemnified Party of OP Units, subject to the
limits on ownership and transfer of REIT shares set forth in the Company's
articles of incorporation. Any OP Units delivered to an Indemnified Party
hereunder shall be valued based upon the initial public offering price of the
Company's Common Stock.
3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably
practicable after receipt by the Indemnified Party of notice of any liability
or claim incurred by or asserted against the Indemnified Party that is subject
to indemnification under this ARTICLE 3, the Indemnified Party shall give
notice thereof to the Contributor, including liabilities or claims to be
applied against the indemnification baskets established pursuant to ARTICLE
3.5 hereof. The Indemnified Party may at its option demand indemnity under
this ARTICLE 3 as soon as a claim has been threatened by a third party,
regardless of whether an actual Loss has been suffered, so long as the
Indemnified Party shall in good faith determine that such claim is not
frivolous and that the Indemnified Party may be liable for, or otherwise
incur, a Loss as a result thereof and shall give notice of such determination
to the Contributor. The Indemnified Party shall permit the Contributor, at
its option and expense, to assume the defense of any such claim by counsel
selected by the Contributor and reasonably satisfactory to the Indemnified
Party, and to settle or otherwise dispose of the same; PROVIDED, HOWEVER, that
the Indemnified Party may at all times participate in such defense at its
expense; and PROVIDED FURTHER, HOWEVER, that the Contributor shall not, in
defense of any such claim, except with the prior written consent of the
Indemnified Party in its sole and absolute discretion, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in question
to the Indemnified Party and its affiliates a release of all liabilities in
respect of such claims, or that does not result only in the payment of money
damages. If the Contributor shall fail to undertake such defense within 30
days after such notice, or within such shorter time as may be reasonable under
the circumstances, then the Indemnified Party shall
D-8
<PAGE>
have the right to undertake the defense, compromise or settlement of such
liability or claim on behalf of and for the account of the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER
ARTICLE 3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the total amount recoverable by the Indemnified Parties under
ARTICLE 3.2 exceeds $200,000; PROVIDED, HOWEVER, that once the total amount
recoverable by the Indemnified Parties under ARTICLE 3.2 hereof exceeds $200,000
in the aggregate, the Contributor's obligation under ARTICLE 3.2 hereof shall be
for the full amount of such obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this ARTICLE
3 with respect to any Partnership Interest to the extent such payments in the
aggregate would exceed the value of the OP Units (based upon the initial public
offering price of the Common Stock) received by the Contributor at the Closing.
Notwithstanding anything contained herein to the contrary, the Indemnified
Parties shall look first to the Contributor's OP Units for indemnification under
this ARTICLE 3 and then to the Contributor's other assets.
3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification under
ARTICLE 3.2 hereof must be asserted in writing by the Indemnified Party, stating
the nature of the Losses and the basis for indemnification therefor:
(i) within one year after the Closing in the case of a claim
under ARTICLE 3.2 hereof (other than a claim under ARTICLE 3.2(A) based
upon a breach of the representations, and warranties of the Contributor set
forth in ARTICLE 2.13 hereof as specified below; and
(ii) prior to the expiration of the applicable statutes of
limitations in the case of a claim under ARTICLE 3.2(A) based upon a breach
of the representations and warranties of the Contributor set forth in
ARTICLE 2.13 hereof.
(b) If so asserted in writing within one year after the Closing, such
claims for indemnification shall survive until resolved by mutual agreement
between the Contributor and the Indemnified Party or by judicial determination.
Any claim for indemnification not so asserted in writing within one year after
the Closing shall not thereafter be asserted and shall forever be waived.
3.7 RESERVATION OF CONTRIBUTOR RIGHTS.
Notwithstanding anything else in this Contribution Agreement to the
contrary, the Contributor reserves unto itself all rights and remedies
(including rights to seek contribution)
D-9
<PAGE>
against any third party indemnitors and prior property owners or occupants for
which the Partnerships have been indemnified by the Contributor hereunder. To
the extent the Contributor's rights against any such third party indemnitors,
owners or occupants may be prejudiced by actions or inactions by any owner or
occupant of the Properties after the Closing, the Contributor's indemnity
obligation shall be reduced in accordance with the effect of the actions or
inactions which so prejudiced the Contributor's rights.
D-10
<PAGE>
EXHIBIT E
to
CONTRIBUTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the undersigned hereby assigns, transfers and
conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland limited
partnership (the "Operating Partnership"), its entire legal and beneficial
right, title and interest in and to that certain Property Management
Agreement, dated as of December 14, 1994, by and among 5000 Spring Associates,
LLC, a Nevada limited liability company, Arthur Gilbert as Trustee of the
Arthur Gilbert and Rosalinde Gilbert 1982 Trust, and Contributor, as Owners
and Arden Realty Group, Inc., a California corporation, as Manager, TO HAVE
AND TO HOLD the same unto the Operating Partnership, its successors and
assigns, forever.
Executed: __________ __, 1996 MICHELE BYER, an individual
By:
------------------------
E-1
<PAGE>
EXHIBIT 10.20
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
by and between
ARDEN CENTURY ASSOCIATES
a California general partnership
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP
a Maryland limited partnership
Dated as of June 17, 1996
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
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RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS. . . . . 2
1.1 Contribution Transaction . . . . . . . . . . . . . . . . . . . . . 2
1.2 Minimum Consideration and Exchange of OP Units . . . . . . . . . . 2
1.3 Additional Consideration . . . . . . . . . . . . . . . . . . . . . 2
1.4 Adjusted Consideration . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Contribution of Certain Rights . . . . . . . . . . . . . . . . . . 3
1.7 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Treatment as Contribution. . . . . . . . . . . . . . . . . . . . . 4
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Closing Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. . . . . . . . . . . . . 6
3.1 Representations and Warranties of the Operating Partnership. . . . 6
3.2 Representations and Warranties of Contributor. . . . . . . . . . . 7
3.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. COVENANTS OF CONTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . 7
5. RELEASES AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 General Release of Operating Partnership . . . . . . . . . . . . . 8
5.2 General Release of Contributor . . . . . . . . . . . . . . . . . . 9
5.3 Waiver of Section 1542 Protections . . . . . . . . . . . . . . . . 9
5.4 Waiver of Rights Under Partnership Agreement . . . . . . . . . . . 9
6. POWER OF ATTORNEY
6.1 Grant of Power of Attorney . . . . . . . . . . . . . . . . . . . . 9
6.2 Limitation on Liability. . . . . . . . . . . . . . . . . . . . . . 10
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
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EXHIBIT LIST
SECTION FIRST
EXHIBITS REFERENCED
- -------- -------------
A Constituent Interests of Contributor's Partnership Interest . . . Recital D
B Contribution and Assumption Agreement . . . . . . . . . . . . . . . . 1.1
C Form of Quitclaim . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
D Representations and Warranties of Contributor . . . . . . . . . . . . . 3.2
ii
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (hereinafter referred to as the
"CONTRIBUTION AGREEMENT") is made and entered into as of June 17, 1996 by and
between Arden Realty Group Limited Partnership, a Maryland limited
partnership (the "OPERATING PARTNERSHIP"), and Arden Century Associates, a
California general partnership (the "CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership
of a portfolio of office properties (the "PARTICIPATING PROPERTIES") located
in Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct
interests in certain of the Participating Properties (the "PROPERTY
INTERESTS") and all of the interests in certain limited partnerships, certain
limited liability companies and certain other entities (collectively the
"PARTICIPATING PARTNERSHIPS AND LLCs") which currently own directly or
indirectly the Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial
public offering (the "PUBLIC OFFERING") of the common stock of Arden Realty
Group, Inc., a Maryland corporation (the "COMPANY"), which will operate as a
self-administered and self-managed real estate investment trust ("REIT") and
will be the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and
members of the Participating Partnerships and LLCs will either transfer their
Property Interests and interests in the Participating Partnerships and LLCs
to the Company in exchange for cash (the "CASH PARTICIPANTS") or contribute
such interests directly to the Operating Partnership in exchange for an
interest in the Operating Partnership (the "OP PARTICIPANTS").
D. The Contributor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIP") which
Partnership owns directly or indirectly interests in certain of the
Participating Properties also as set forth on Exhibit A (the "PROPERTY" or
the "PROPERTIES"). As used herein, "PARTNERSHIP AGREEMENT" means the
partnership agreement or membership agreement, as applicable, under which the
Partnership was formed.
E. The Contributor desires to, and the Operating Partnership
desires the Contributor to, contribute to the Operating Partnership, all of
its right, title and interest, as a partner (or member) of the Partnership,
including, without limitation, all of its voting rights and interests in the
capital, profits and losses of the Partnership or any property distributable
therefrom, constituting all of its interests in the Partnership (such right,
title and interest are hereinafter collectively referred to as the
"PARTNERSHIP INTEREST"), in exchange for partnership units in the Operating
Partnership (the "OP UNITS"), on the terms and subject to the conditions set
forth herein.
<PAGE>
NOW, THEREFORE, for and in consideration of the foregoing premises,
and the mutual undertakings set forth below, the parties hereto agree as
follows:
TERMS OF AGREEMENT
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS
1.1 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to
the terms and conditions contained in this Contribution Agreement, the
Contributor shall transfer to the Operating Partnership, absolutely and
unconditionally, all of its Partnership Interest (as such term is defined in
Recital B herein). The contribution of the Contributor's Partnership
Interest shall be evidenced by a "CONTRIBUTION AND ASSUMPTION AGREEMENT" in
substantially the form of EXHIBIT "B" attached hereto. Furthermore, the
Contributor shall cause each of its individual constituent partners and/or
members (as applicable) to execute and have duly acknowledged an individual
quitclaim deed in the form of EXHIBIT "C" quitclaiming to the Operating
Partnership any direct or indirect ownership interest in and to the Property.
The parties shall take such additional actions and execute such additional
documentation as may be required by the Partnership Agreement and the
Agreement of Limited Partnership of the Operating Partnership (the "OP
AGREEMENT") in order to effect the transactions contemplated hereby.
1.2 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS.
Subject to ARTICLES 1.3 AND 1.4 below, the Operating Partnership
shall, in exchange for the Partnership Interest, transfer to the Contributor
the number of OP Units having a value, based on one OP Unit being equal in
value to the Public Offering price for one share of the Company's common
stock, equal to the value indicated on Exhibit A as Contributor's "Total
Minimum Consideration." The transfer of the OP Units to the Contributor
shall be evidenced by either an amendment (the "AMENDMENT") to the OP
Agreement or by certificates relating to such units (the "CERTIFICATES") in
either case, as shall be acceptable to the Contributor. The parties shall
take such additional actions and execute such additional documentation as may
be required by the Partnership Agreement and the OP Agreement in order to
effect the transactions contemplated hereby.
1.3 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.4 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.2) of the OP Units
available to all OP Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.4) of all
OP Participants (the "ADDITIONAL CONSIDERATION"), then the Additional
Consideration or a portion thereof, if any, shall be allocated among the OP
Participants
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(including the Contributor) based upon the relative values of the
Contributor's Partnership Interest and the interests contributed by each of
the other OP Participants, in each case as determined by Richard S. Ziman, in
his sole discretion.
1.4 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular interest that constitutes part of the Partnership Interest, if in
good faith the Operating Partnership determines that the ownership of such
interest or the underlying Property would be inappropriate for the Operating
Partnership for any reason whatsoever. Contributor hereby agrees that, in
such event, the Contributor's Total Minimum Consideration may be reduced by
an amount determined by Richard S. Ziman, in his sole discretion, to reflect
the reduction in total value of the Partnership Interest ultimately
contributed by the Contributor.
1.5 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.3 AND 1.4 hereof, and
any and all such determinations shall be final and binding on all parties.
1.6 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to
the Operating Partnership all of its rights and interests, if any, including
rights to indemnification in favor of the Contributor, if any, under the
agreements pursuant to which the Contributor or its affiliates initially
acquired the Partnership Interest transferred pursuant to this Contribution
Agreement.
1.7 PRORATIONS
At the Closing, or as promptly as practicable following the
Closing, to the extent such matters are not the right or responsibility of
all tenants of a given Property, all revenue and all charges that are
customarily prorated in transactions of this nature, including accrued rent
currently due and payable, overpaid taxes or fees, real and personal property
taxes, common area maintenance charges and other similar periodic charges
payable or receivable with respect to such Property shall be ratably prorated
between the partners of the Partnership which holds such Property prior to
the Closing and the Operating Partnership on and after the Closing, effective
as of the Closing. After providing for such prorations, (i) if the
Partnership has a resultant cash surplus, the value of the Contributor's
Partnership Interest shall be increased in proportion to Contributor's
ratable share of such cash surplus and additional OP Units (based on the
initial Public Offering price of the Company's common stock) shall be issued
to the Contributor as a valuation adjustment to the Contributor's Total
Minimum Consideration, and (ii) if the Partnership has a resultant cash
deficit, the value of the Contributor's Partnership Interest shall be reduced
in proportion to
3
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Contributor's ratable share of such cash deficit, and fewer OP Units shall be
issued to the Contributor as a valuation adjustment to the Contributor's
Total Minimum Consideration, unless such deficit is cured prior to Closing.
1.8 TREATMENT AS CONTRIBUTION
The transfer, assignment and exchange of interests effectuated with
respect to the Operating Partnership, pursuant to this Contribution Agreement
shall constitute, a "Capital Contribution" pursuant to Article 4 of the OP
Agreement and is intended to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed
with the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to
this Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor
contained in this Contribution Agreement shall have been true and correct in
all material respects on the date such representations and warranties were
made, and shall be true and correct in all material respects on the Closing
Date as if made at and as of such date;
(b) Each of the obligations of the Contributor to be performed by
it shall have been duly performed by it on or before the Closing Date;
(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to
be delivered pursuant to SECTION 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
4
<PAGE>
(f) No order, statute, rule, regulation, executive order,
injunction, stay, decree or restraining order shall have been enacted,
entered, promulgated or enforced by any court of competent jurisdiction or
governmental or regulatory authority or instrumentality that prohibits the
consummation of the transactions contemplated hereby, and no litigation or
governmental proceeding seeking such an order shall be pending or threatened;
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in the Partnership's businesses;
(h) All existing management agreements with respect to the
Property shall have been contributed to the Operating Partnership prior to or
simultaneously with the Closing; and
(i) All management functions with respect to the Property
presently conducted by Arden Realty Group, Inc., a Maryland corporation,
shall be assumed by the Operating Partnership.
The foregoing conditions may be waived by the Operating Partnership
in its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the
Public Offering from the underwriter(s), at 10:00 a.m. in the office of
Latham & Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California
(the "CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.1
AND 1.2 of this Contribution Agreement, and all closing deliveries, and the
consummation of the Public Offering, shall be deemed concurrent for all
purposes.
2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered through
the Attorney-in-Fact (see ARTICLE 6.1 below), the legal documents and other
items (collectively the "CLOSING DOCUMENTS") necessary to carry out the
intention of this Contribution Agreement, which Closing Documents and other
items shall include, without limitation, the following:
(i) A Contribution and Assumption Agreement for the Contributor's
Partnership Interest;
(ii) An individual quitclaim deed fully executed and duly acknowledged
from each of the individual constituent partners and/or members of the
Contributor, as required by the Operating Partnership;
5
<PAGE>
(iii) The Amendment or the Certificates evidencing the transfer of
OP Units to the Contributor;
(iv) An American Land Title Assurances ("ALTA") policy of title
insurance with appropriate endorsements and levels of reinsurance for the
Property issued as of the Closing Date or endorsements or other assurances
that the existing policy or policies of title insurance are sufficient for
purposes of this Contribution Agreement, which the Contributor shall cause
the title company to issue to the Operating Partnership in a form
acceptable to the Operating Partnership (the "TITLE POLICIES") including
satisfaction by the Contributor of any and all title company requirements
applicable to it;
(v) The Partnership's books and records and securities or other
evidences of ownership held by the Contributor; and
(vi) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number and
that the Contributor is not a foreign person pursuant to section 1445(b)(2)
of the Code and a comparable affidavit satisfying California and any other
withholding requirements.
2.4 CLOSING COSTS
The Operating Partnership shall pay any documentary transfer taxes,
escrow charges, title charges and recording taxes or fees incurred in
connection with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has
been duly formed and is validly existing with requisite power to enter this
Contribution Agreement and all agreements contemplated hereby. The persons
and entities executing this Contribution Agreement and all agreements
contemplated hereby on behalf of the Operating Partnership have the power
and authority to enter into this Contribution Agreement and such other
contemplated agreements; and
(b) DUE AUTHORIZATION. The execution, delivery and performance
by the Operating Partnership of its obligations under this Contribution
Agreement and all agreements contemplated hereby will not contravene any
provision of applicable law, the OP Agreement, charter, declaration of
trust or other constituent document of
6
<PAGE>
the Operating Partnership, or any agreement or other instrument binding
upon the Operating Partnership or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Operating
Partnership, and no consent, approval, authorization or order of or
qualification with any governmental body or agency is required for the
performance by the Operating Partnership of its obligations under this
Contribution Agreement and all other agreements contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto, and
acknowledges and agrees to be bound by the indemnification provisions
contained therein.
3.3 INDEMNIFICATION
The Operating Partnership shall indemnify and hold harmless the
Contributor and its directors, officers, employees, agents, representatives
and affiliates (each of which is an "INDEMNIFIED CONTRIBUTOR PARTY") from and
against any and all claims, losses, damages, liabilities and expenses,
including without limitation, amounts paid in settlement, reasonable
attorneys' fees, costs of investigation and remediation, costs of
investigative judicial or administrative proceedings or appeals therefrom and
costs of attachment or similar bonds (collectively, "LOSSES") asserted
against, imposed upon or incurred by the Indemnified Contributor Party in
connection with: (i) any breach of a representation or warranty of the
Operating Partnership contained in this Contribution Agreement; (ii) any
liabilities or obligations incurred, arising from or out of, in connection
with or as a result of any claims made or actions brought by or against the
Contributor, the Partnership, the Property or an Indemnified Contributor
Party, that arise from or out of, in connection with or as a result of any
Contamination (as defined in Exhibit D hereto) of the Property regardless of
when or how occurring, except to the extent, and only to the extent, such
Losses arise from or constitute a breach of a representation and warranty of
Contributor under Exhibit D; and (iii) all fees, costs and expenses of the
Operating Partnership in connection with the transactions contemplated by the
Contribution Agreement, including without limitation any and all costs
associated with the transfers contemplated herein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor shall
not:
(i) Sell or transfer all or any portion of the Partnership
Interest; or
(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Partnership Interest.
7
<PAGE>
(b) From the date hereof through the Closing, the Contributor
shall permit the Partnership to conduct its business in the ordinary course,
consistent with past practice, and shall not permit the Partnership to:
(i) Enter into any material transaction not in the ordinary
course of business;
(ii) Sell or transfer any assets of the Partnership;
(iii) Mortgage, pledge or encumber (or permit to become
encumbered) any assets of the Partnership, except (x) liens for taxes not
due, (y) purchase money security interests and (z) mechanics' liens being
disputed by the Partnership in good faith and by appropriate proceedings;
(iv) Amend, modify or terminate any material agreements or other
instruments to which the Partnership is a party;
(v) Materially alter the manner of keeping the Partnership's
books, accounts or records or the accounting practices therein reflected;
or
(vi) Make any distribution to its partners.
(c) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required to
effect the transactions contemplated by this Contribution Agreement.
5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of
the Partnership Interest pursuant to ARTICLES 1 AND 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman),
agents, attorneys, successors and assigns of and from, any and all charges,
complaints, claims, liabilities, damages, actions, causes of action, losses
and costs of any nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"),
known or unknown, suspected or unsuspected, arising out of or relating to the
Partnership Agreement, this Contribution Agreement or any other matter which
exists at the Closing, except for Contributor Claims arising from the breach
of any representation, warranty, covenant or obligation under this
Contribution Agreement.
8
<PAGE>
5.2 GENERAL RELEASE OF CONTRIBUTOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges,
complaints, claims, liabilities, damages, actions, causes of action, losses
and costs of any nature whatsoever (collectively, "OPERATING PARTNERSHIP
CLAIMS"), known or unknown, suspected or unsuspected, arising out of or
relating to the Partnership Agreement, this Contribution Agreement or any
other matter which exists at the Closing, except for Operating Partnership
Claims arising from the breach of any representation, warranty, covenant or
obligation under this Contribution Agreement.
5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership
each expressly waives and relinquishes all rights and benefits afforded by
Section 1542 of the California Civil Code and do so understanding and
acknowledging the significance and consequence of such specific waiver of
Section 1542 which provides:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected the
settlement with the debtor.
5.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT
As of the Closing, the Contributor waives and relinquishes all
rights and benefits otherwise afforded to Contributor under the Partnership
Agreement including, without limitation, any right to consent to or approve
of the sale or contribution by the other partners (or members) of the
Partnership of their partnership interests to the Company or the Operating
Partnership.
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating
Partnership (or its designee) and each of them individually and any successor
thereof from time to time (such Operating Partnership or designee or any such
successor of any of them acting in his, her or its capacity as
attorney-in-fact pursuant hereto, the "ATTORNEY-IN FACT") as the true and
lawful attorney-in-fact and agent of Contributor, to act in the name, place
and stead of Contributor to make, execute, acknowledge and deliver all such
other contracts, orders, receipts, notices, requests, instructions,
certificates, consents, letters and other writings (including without
limitation the execution of any Closing Documents or other documents relating
to the acquisition by the Operating Partnership of Contributor's Partnership
Interest), to provide
9
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information to the Securities and Exchange Commission and others about the
transactions contemplated hereby and, in general, to do all things and to
take all actions which the Attorney-in-Fact in its sole discretion may
consider necessary or proper in connection with or to carry out the
transactions contemplated by this Contribution Agreement, as fully as could
Contributor if personally present and acting. Further, Contributor hereby
grants to Attorney-in-Fact a proxy (the "PROXY") to vote Contributor's
Partnership Interest on any matter related to the Formation Transactions
presented to the Partnership's partners for a vote, including, but not
limited to, the transfer of interests in the Partnership by the other
partners.
Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable
and shall not be terminated by any act of Contributor, by operation of law or
by the occurrence of any other event or events, and if any other such act or
events shall occur before the completion of the transactions contemplated by
this Contribution Agreement, the Attorney-in-Fact shall nevertheless be
authorized and directed to complete all such transactions as if such other
act or events had not occurred and regardless of notice thereof. Contributor
agrees that, at the request of Operating Partnership it will promptly execute
a separate power of attorney and proxy on the same terms set forth in this
ARTICLE 6, such execution to be witnessed and notarized. Contributor hereby
authorizes the reliance of third parties on each of the Power of Attorney and
Proxy.
Contributor acknowledges that the Operating Partnership has, and
any designee or successor thereof acting as Attorney-in-Fact may have, an
economic interest in the transactions contemplated by this Contribution
Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no
responsibility or liability to any person by virtue of the Power of Attorney
or Proxy granted by Contributor hereby. The Attorney-in-Fact makes no
representations with respect to and shall have no responsibility for the
Formation Transactions or the Public Offering, or the acquisition of the
Partnership Interest by the Operating Partnership and shall not be liable for
any error or judgement or for any act done or omitted or for any mistake of
fact or law except for its own gross negligence or bad faith. Contributor
agrees to indemnify the Attorney-in-Fact for and to hold the Attorney-in-Fact
harmless against any loss, claim, damage or liability incurred on its part
arising out of or in connection with it acting as the Attorney-in-Fact under
the Power of Attorney or Proxy created by Contributor hereby, as well as the
cost and expense of investigating and defending against any such loss, claim,
damage or liability, except to the extend such loss, claim, damage or
liability is due to the gross negligence or bad faith of the
Attorney-in-Fact. Contributor agrees that the Attorney-in-Fact may consult
with counsel of its own choice (who may be counsel for Operating Partnership
or its successors or affiliates), and it shall have full and complete
authorization and protection for any action taken or suffered by it hereunder
in good faith and in accordance with the opinion of such counsel. It is
understood that the Attorney-in-Fact may, without breaching any express or
implied
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obligation to Contributor hereunder, release, amend or modify any other power
of attorney or proxy granted by any other person under any related agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other
actions and execute such additional documents following the Closing as the
Operating Partnership may reasonably request in order to effect the
transactions contemplated hereby.
7.2 COUNTERPARTS. This Contribution Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed
by the internal laws of the State of California, without regard to the choice
of laws provisions thereof.
7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be
deemed communicated as of the date of personal delivery (including delivery
by overnight courier). Mailed notices shall be addressed as set forth below,
but any party may change the address set forth below by written notice to
other parties in accordance with this paragraph.
To the Contributor:
Arden Century Associates
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
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IN WITNESS WHEREOF, the parties have executed this Contribution
Agreement as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland Corporation,
general partner
By: /s/ RICHARD S. ZIMAN
-----------------------------
Name: Richard S. Ziman
---------------------------
Title: Chairman/CEO
--------------------------
"CONTRIBUTOR"
ARDEN CENTURY ASSOCIATES,
a California general partnership
By: /s/ RICHARD S. ZIMAN
-----------------------------------
Richard S. Ziman
General Partner
By: /s/ VICTOR J. COLEMAN
-----------------------------------
Victor J. Coleman
General Partner
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EXHIBIT A
TO
CONTRIBUTION AGREEMENT
CONSTITUENT INTERESTS OF CONTRIBUTOR'S PARTNERSHIP INTEREST
Property Held by the Minimum
Partnership Partnership Consideration
--------------------- -------------------------- -----------------
Century Center Century Park Center $593,531
Associates, L.P.
- ----------------------- -------------------------- -----------------
Total Minimum
Consideration $593,531
-----------------
-----------------
A-1
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EXHIBIT B
TO
CONTRIBUTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the undersigned hereby assigns, transfers,
contributes and conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland
limited partnership (the "Operating Partnership"), its entire legal and
beneficial right, title and interest in and to Century Center Associates,
L.P., a California limited partnership (the "Partnership"), including,
without limitation, all right, title and interest, if any, of the undersigned
in and to the assets of the Partnership and the right to receive
distributions of money, profits and other assets from the Partnership,
presently existing or hereafter at any time arising or accruing (such right,
title and interest are hereinafter collectively referred to as the
"Partnership Interest"), TO HAVE AND TO HOLD the same unto the Operating
Partnership, its successors and assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership
assumes all obligations in respect of the Partnership Interest.
The Partnership owns certain real property as described in Attachment
"1" attached hereto.
Executed: ______ __, 1996
ARDEN CENTURY ASSOCIATES,
a California general partnership
By:
-----------------------------------
Richard S. Ziman
General Partner
By:
-----------------------------------
Victor J. Coleman
General Partner
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EXHIBIT C
TO
CONTRIBUTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- --------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $.............
........ Computed on the consideration
or value of property conveyed;
OR
........ Computed on the consideration
or value less liens or
encumbrances remaining at
time of sale.
---------------------------------------
Signature of Declarant of Agent
determining tax - Firm Name
- --------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group Limited Partnership, a Maryland limited partnership
the real property in the City of ___________, County of ______________, State of
California, described as
Dated
_____________________________ ________________________________
STATE OF CALIFORNIA } ________________________________
} ________________________________
COUNTY OF _______________} ________________________________
On ____________________ before me,
___________________________________,
personally appeared _______________
___________________________________
personally known to me (or proved
to me on the basis of
satisfactory evidence) to be the
person(s) whose names(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signature(s) on the
instrument the person(s) or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and official seal. (This area for official notarial
seal)
Signature
-------------------------
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EXHIBIT D
TO
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1 - ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the
meanings set forth below. Terms which are not defined below shall have the
meaning set forth for those terms as defined in the Contribution Agreement to
which this EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental
Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to
Knowledge, threatened that directly or indirectly affect any of the
Contributor, the Partnership or the Property.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
KNOWLEDGE: Means, with respect to any representation or warranty
so indicated, the actual knowledge, upon reasonable investigation and inquiry
in good faith, of the signatory to the Contribution Agreement.
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests,
restrictions, prior assignments, encumbrances, covenants, encroachments,
assessments, rights of others, licenses, easements, liabilities or claims of
any kind or nature whatsoever, direct or indirect, including, without
limitation, interests in or claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent
or the payment of which is actively being contested in good faith by
appropriate proceedings diligently pursued;
(b) Zoning laws and ordinances generally applicable to the
district in which the Property is located which are not violated by the
existing structures or present uses thereof;
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(c) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings diligently
pursued;
(d) non-exclusive easements for public utilities that do not have a
material adverse effect upon, or interfere with the use of, the Property;
(e) any exceptions contained in the Title Policies; and
(f) Liens created or imposed by that certain Construction Loan
Agreement by and among National Bank of Canada, a Canadian Chartered Bank acting
through its New York Branch and Canada Trustco International Limited, a limited
liability company incorporated in Barbados, as lenders, and Century Center
Associates, L.P., a California limited partnership, and Grampian Associates, a
California general partnership, as borrowers, dated as of March 1, 1993.
PERSON: Means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating Partnership
as set forth below in this ARTICLE 2. Notwithstanding any other provision of
the Contribution Agreement or this EXHIBIT D, the Contributor makes
representations, warranties and indemnities only with respect to the interests
in the Partnership to be transferred by the Contributor identified on EXHIBIT A
to the Contribution Agreement.
2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and (B)
has all requisite power and authority to own, lease or operate its property and
to carry on its business as presently conducted and, to the extent required
under applicable law, is qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. This Contribution
Agreement and each agreement, document and
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instrument executed and delivered by or on behalf of the contributor pursuant
to this contribution Agreement constitutes, or when executed and delivered
will constitute, the legal, valid and binding obligation of the Contributor,
each enforceable against the Contributor in accordance with its terms, as
such enforceability may be limited by bankruptcy or the application of
equitable principles.
2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the
Contributor in connection with the execution, delivery and performance of the
Contribution Agreement and the transactions contemplated hereby, except any
of the foregoing that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE PARTNERSHIP INTERESTS. The Contributor is
the sole owner of the Partnership Interest and has good and valid title to
such Partnership Interest, free and clear of all Liens, other than Permitted
Liens.
2.5 PARTNERSHIP INTEREST. The Partnership Interest constitutes
all of the issued and outstanding interests owned by the Contributor in the
Partnership. The Partnership Interest is validly issued, fully paid and
non-assessable, and was not issued in violation of any preemptive rights.
The Partnership Interest has been issued in compliance with applicable law
and the Partnership Agreement. There are no rights, subscriptions, warrants,
options, conversion rights, preemptive rights or agreements of any kind
outstanding to purchase or to otherwise acquire any of the interests which
comprise the Partnership Interest or any securities or obligations of any
kind convertible into any of the interests which comprise the Partnership
Interest or other equity interests or profit participation of any kind in the
Partnership. At the Closing, upon receipt of the consideration, the
Contributor will have transferred the Partnership Interest free and clear of
all security interests, mortgages, pledges, liens, encumbrances, claims and
equities to the Operating Partnership.
2.6 NO VIOLATION. None of the execution, delivery or performance
of the Contribution Agreement and the transactions contemplated hereby does
or will, with or without the giving of notice, lapse of time, or both, (i)
violate, conflict with, result in a breach of, or constitute a default under
or give to others any right of termination or cancellation of (A) the
organizational documents, including the charters and bylaws, if any, of the
Contributor, (B) any material agreement, document or instrument to which the
Contributor is a party or by which the Contributor or its Partnership
Interest is bound or (C) any term or provision of any judgment, order, writ,
injunction, or decree of any governmental or regulatory authority binding on
the Contributor or by which the Contributor or any of its assets or
properties are bound or subject or (ii) result in the creation of any Lien,
other than a Permitted Lien, upon the Partnership Interest.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
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2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the
inapplicability of any federal or state withholding provisions, including
those referred to in ARTICLE 2.7 above and similar provisions under
California law. If Contributor fails to provide such certificates or
affidavits, the Operating Partnership may withhold a portion of any payments
otherwise to be made to the Contributor as required by the Code or California
law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Agreement are intended to be exempt from registration under
the Securities Act of 1933, as amended and the rules and regulations in
effect thereunder (the "ACT"). In furtherance thereof, the Contributor
represents and warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not
as a nominee or agent for any other person and not with a view to, or for
offer or sale in connection with, any distribution of any thereof. The
Contributor agrees and acknowledges that he, she or it will not, directly or
indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of (hereinafter, "TRANSFER") any of the OP Units unless (i) the
Transfer is pursuant to an effective registration statement under the Act and
qualification or other compliance under applicable blue sky or state
securities laws, or (ii) counsel for the Contributor (which counsel shall be
reasonably acceptable to the Operating Partnership) shall have furnished the
Operating Partnership with an opinion, reasonably satisfactory in form and
substance to the Operating Partnership, to the effect that no such
registration is required because of the availability of an exemption from
registration under the Act and qualification or other compliance under
applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable,
sophisticated and experienced in business and financial matters; the
Contributor has previously invested in securities similar to the OP Units and
fully understands the limitations on transfer imposed by the Federal
securities laws and as described in the Contribution Agreement. The
Contributor is able to bear the economic risk of holding the OP Units for an
indefinite period and is able to afford the complete loss of his, her or its
investment in the OP Units; the Contributor has received and reviewed all
information and documents about or pertaining to the Company, the Operating
Partnership, the business and prospects of the Company and the Operating
Partnership and the issuance of the OP Units as the Contributor deems
necessary or desirable, and has been given the opportunity to obtain any
additional information or documents and to ask questions and receive answers
about such information and documents, the Company, the Operating Partnership,
the business and prospects of the Company and the Operating Partnership and
the OP Units which the Contributor deems necessary or desirable to evaluate
the merits and risks related to his, her or its investment in the OP Units;
and the Contributor understands and has taken cognizance of all risk factors
related to the purchase of the OP Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he,
she or it has been advised that (i) the OP Units and the common stock of the
Company into which the OP
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Units may be exchanged in certain circumstances (the "COMMON STOCK") must be
held indefinitely, and the Contributor must continue to bear the economic
risk of the investment in the OP Units (and any Common Stock that might be
exchanged therefor) unless they are subsequently registered under the Act or
an exemption from such registration is available, (ii) a restrictive legend
in the form hereafter set forth shall be placed on the certificates
representing the OP Units (and any Common Stock that might be exchanged
therefor), and (iii) a notation shall be made in the appropriate records of
the Operating Partnership (and the Company) indicating that the OP Units (and
any Common Stock that might be exchanged therefor) are subject to
restrictions on transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an
individual, such individual is an "accredited investor" (as such term is
defined in Rule 501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his or
her spouse, in excess of $1,000,000; or
(iii) had an individual annual adjusted gross income in excess
of $200,000 in each of the two most recent years and reasonably expects to have
annual adjusted gross income in excess of $200,000 in the current year; or
(iv) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an annual
adjusted gross income, with his spouse, in excess of $300,000 in the current
year.
If the Contributor is not an individual, it is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
2.9.5 LEGENDING. Each certificate representing the OP Units (and
any Common Stock that might be exchanged therefor) shall bear the following
legend:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE
PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS;
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In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT
TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
CORPORATION'S CHARTER, (1) NO PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY
OWN SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF 9.0% (BY VALUE OR
BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING
COMMON STOCK OF THE CORPORATION; (2) NO PERSON MAY BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK THAT WOULD RESULT IN THE CORPORATION BEING
"CLOSELY HELD" UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (3) NO PERSON MAY TRANSFER
COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE
CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO
BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO
BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK IN EXCESS OF THE ABOVE
LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE
RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE COMMON STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A
TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN
ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS
SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF
DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY
VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE
OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS
DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS
LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE
RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF
COMMON STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY
BE DIRECTED TO THE SECRETARY OF THE CORPORATION.
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2.10 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of the Operating Partnership or any of its affiliates to pay any
finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by the Contribution Agreement.
2.11 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Partnership
Interest to the Operating Partnership.
2.12 NO MISREPRESENTATIONS. No representation, warranty or statement
made, or information provided, by the Contributor in the Contribution Agreement
or in any other document or instrument furnished or to be furnished by or on
behalf of the Contributor pursuant hereto or as contemplated hereby (i) contains
or will contain any untrue statement of a material fact or (ii) omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading.
2.13 TAXES. For federal income tax purposes, the Partnership is, and
at all times during its existence has been, a partnership (rather than an
association or a publicly traded partnership taxable as a corporation). The
Partnership has filed all tax returns required to be filed by it and has paid
all taxes required to be paid by it. The transactions contemplated hereby will
not result in any tax liability to the Partnership, the Company or the Operating
Partnership. No tax lien or other charge exists or will exist upon consummation
of the transactions contemplated hereby with respect to any Property except such
tax liens for which the tax is not due and has been reserved for payment by the
Partnership or tax liens or other charges which individually or in the aggregate
would not have a material adverse effect on the Operating Partnership.
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered pursuant
hereto shall survive the Closing.
(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this EXHIBIT
D or the Contribution Agreement for monetary damages (or otherwise) for breach
of any of its representations and warranties contained in this EXHIBIT D or the
Contribution Agreement, or in any Schedule, certificate or affidavit delivered
by it pursuant thereto, other than pursuant to the succeeding provisions of this
ARTICLE 3.
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3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the Operating
Partnership, the REIT, and their affiliates and each of their respective
directors, officers, employees, agents, representatives and affiliates (each of
which is an "INDEMNIFIED PARTY") from and against any and all claims, losses,
damages, liabilities and expenses, including, without limitation, amounts paid
in settlement, reasonable attorneys' fees, costs of investigation and
remediation, costs of investigative, judicial or administrative proceedings or
appeals therefrom, and costs of attachment or similar bonds (collectively,
"LOSSES"), asserted against, imposed upon or incurred by the Indemnified Party
in connection with or as a result of any breach of a representation or warranty
of the Contributor contained in the Contribution Agreement or in any Schedule,
certificate or affidavit delivered by the Contributor pursuant to the
Contribution Agreement.
(b) The Contributor shall indemnify and hold harmless the Indemnified
Parties from and against any and all Losses, asserted against, imposed upon or
incurred by the Indemnified Parties in connection with or as a result of:
(i) all fees and expenses of the Contributor in connection with
the transactions contemplated by the Contribution Agreement;
(ii) any liabilities or obligations incurred, arising from or out
of, in connection with or as a result of the failure of the Contributor to
obtain all consents required to consummate the transactions contemplated by
the Contribution Agreement.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when expenses
are incurred) to an Indemnified Party of OP Units, subject to the limits on
ownership and transfer of REIT shares set forth in the Company's articles of
incorporation. Any OP Units delivered to an Indemnified Party hereunder shall
be valued based upon the initial public offering price of the Company's Common
Stock.
3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably practicable
after receipt by the Indemnified Party of notice of any liability or claim
incurred by or asserted against the Indemnified Party that is subject to
indemnification under this ARTICLE 3, the Indemnified Party shall give notice
thereof to the Contributor, including liabilities or claims to be applied
against the indemnification baskets established pursuant to ARTICLE 3.5 hereof.
The Indemnified Party may at its option demand indemnity under this ARTICLE 3 as
soon as a claim has been threatened by a third party, regardless of whether an
actual Loss has been suffered, so long as the Indemnified Party shall in good
faith determine that such claim is not frivolous and that the Indemnified Party
may be liable for, or otherwise incur, a Loss as a result thereof and shall give
notice of such determination to the Contributor. The Indemnified Party shall
permit the Contributor, at its option and expense, to assume the defense of any
such claim by counsel selected by the Contributor and reasonably satisfactory to
the Indemnified Party, and to settle or otherwise dispose of the same; PROVIDED,
HOWEVER, that the Indemnified Party may at all times
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participate in such defense at its expense; and PROVIDED FURTHER, HOWEVER,
that the Contributor shall not, in defense of any such claim, except with the
prior written consent of the Indemnified Party in its sole and absolute
discretion, consent to the entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff in question to the Indemnified Party and its affiliates
a release of all liabilities in respect of such claims, or that does not
result only in the payment of money damages. If the Contributor shall fail
to undertake such defense within 30 days after such notice, or within such
shorter time as may be reasonable under the circumstances, then the
Indemnified Party shall have the right to undertake the defense, compromise
or settlement of such liability or claim on behalf of and for the account of
the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER ARTICLE
3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the total amount recoverable by the Indemnified Parties under
ARTICLE 3.2 exceeds $200,000; PROVIDED, HOWEVER, that once the total amount
recoverable by the Indemnified Parties under ARTICLE 3.2 hereof exceeds $200,000
in the aggregate, the Contributor's obligation under ARTICLE 3.2 hereof shall be
for the full amount of such obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this ARTICLE
3 with respect to any Partnership Interest to the extent such payments in the
aggregate would exceed the value of the OP Units (based upon the initial public
offering price of the Common Stock) received by the Contributor at the Closing.
Notwithstanding anything contained herein to the contrary, the Indemnified
Parties shall look first to the Contributor's OP Units for indemnification under
this ARTICLE 3 and then to the Contributor's other assets.
3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification
under ARTICLE 3.2 hereof must be asserted in writing by the Indemnified
Party, stating the nature of the Losses and the basis for indemnification
therefor:
(i) within one year after the Closing in the case of a claim
under ARTICLE 3.2 hereof (other than a claim under ARTICLE 3.2(a) based
upon a breach of the representations, and warranties of the Contributor set
forth in ARTICLE 2.13 hereof as specified below; and
(ii) prior to the expiration of the applicable statutes of
limitations in the case of a claim under ARTICLE 3.2(a) based upon a breach
of the representations and warranties of the Contributor set forth in
ARTICLE 2.13 hereof.
(b) If so asserted in writing within one year after the Closing, such
claims for indemnification shall survive until resolved by mutual agreement
between the Contributor and
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the Indemnified Party or by judicial determination. Any claim for
indemnification not so asserted in writing within one year after the Closing
shall not thereafter be asserted and shall forever be waived.
3.7 RESERVATION OF CONTRIBUTOR RIGHTS.
Notwithstanding anything else in this EXHIBIT D or the Contribution
Agreement to the contrary, the Contributor reserves unto itself all rights
and remedies (including rights to seek contribution) against any third party
indemnitors and prior property owners or occupants for which the Partnership
has been indemnified by the Contributor hereunder. To the extent the
Contributor's rights against any such third party indemnitors, owners or
occupants may be prejudiced by actions or inactions by any owner or occupant
of the Property after the Closing, the Contributor's indemnity obligation
shall be reduced in accordance with the effect of the actions or inactions
which so prejudiced the Contributor's rights.
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EXHIBIT 10.21
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CONTRIBUTION AGREEMENT
by and between
ARDEN LAOP TWO, LLC,
a Nevada limited liability company
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP
a Maryland limited partnership
Dated as of June 17, 1996
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TABLE OF CONTENTS
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PAGE
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RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS. . . . . 2
1.1 Contribution Transaction . . . . . . . . . . . . . . . . . . . . . 2
1.2 Minimum Consideration and Exchange of OP Units . . . . . . . . . . 2
1.3 Additional Consideration . . . . . . . . . . . . . . . . . . . . . 2
1.4 Adjusted Consideration . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Contribution of Certain Rights . . . . . . . . . . . . . . . . . . 3
1.7 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Treatment as Contribution. . . . . . . . . . . . . . . . . . . . . 4
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Closing Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. . . . . . . . . . . . . 6
3.1 Representations and Warranties of the Operating Partnership. . . . 6
3.2 Representations and Warranties of Contributor. . . . . . . . . . . 7
3.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. COVENANTS OF CONTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . 7
5. RELEASES AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 General Release of Operating Partnership . . . . . . . . . . . . . 8
5.2 General Release of Contributor . . . . . . . . . . . . . . . . . . 9
5.3 Waiver of Section 1542 Protections . . . . . . . . . . . . . . . . 9
5.4 Waiver of Rights Under Partnership Agreement . . . . . . . . . . . 9
6. POWER OF ATTORNEY
6.1 Grant of Power of Attorney . . . . . . . . . . . . . . . . . . . . 9
6.2 Limitation on Liability. . . . . . . . . . . . . . . . . . . . . . 10
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
<PAGE>
EXHIBIT LIST
SECTION FIRST
EXHIBITS REFERENCED
- -------- -------------
A Constituent Interests of Contributor's Partnership Interest . . Recital D
B Contribution and Assumption Agreement . . . . . . . . . . . . . . . . 1.1
C Form of Quitclaim . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
D Representations and Warranties of Contributor . . . . . . . . . . . . 3.2
ii
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (hereinafter referred to as the "CONTRIBUTION
AGREEMENT") is made and entered into as of June 17, 1996 by and between Arden
Realty Group Limited Partnership, a Maryland limited partnership (the "OPERATING
PARTNERSHIP"), and Arden LAOP Two, LLC, a Nevada limited liability company (the
"CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership of a
portfolio of office properties (the "PARTICIPATING PROPERTIES") located in
Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct interests
in certain of the Participating Properties (the "PROPERTY INTERESTS") and all of
the interests in certain limited partnerships, certain limited liability
companies and certain other entities (collectively the "PARTICIPATING
PARTNERSHIPS AND LLCS") which currently own directly or indirectly the
Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Arden Realty Group,
Inc., a Maryland corporation (the "COMPANY"), which will operate as a self-
administered and self-managed real estate investment trust ("REIT") and will be
the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members of
the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. The Contributor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIP") which
Partnership owns directly or indirectly interests in certain of the
Participating Properties also as set forth on Exhibit A (the "PROPERTY" or the
"PROPERTIES"). As used herein, "PARTNERSHIP AGREEMENT" means the partnership
agreement or membership agreement, as applicable, under which the Partnership
was formed.
E. The Contributor desires to, and the Operating Partnership desires the
Contributor to, contribute to the Operating Partnership, all of its right, title
and interest, as a partner (or member) of the Partnership, including, without
limitation, all of its voting rights and interests in the capital, profits and
losses of the Partnership or any property distributable therefrom, constituting
all of its interests in the Partnership (such right, title and interest are
hereinafter collectively referred to as the "PARTNERSHIP INTEREST"), in exchange
for partnership units in the Operating Partnership (the "OP UNITS"), on the
terms and subject to the conditions set forth herein.
<PAGE>
NOW, THEREFORE, for and in consideration of the foregoing premises, and
the mutual undertakings set forth below, the parties hereto agree as follows:
TERMS OF AGREEMENT
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS
1.1 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to the
terms and conditions contained in this Contribution Agreement, the Contributor
shall transfer to the Operating Partnership, absolutely and unconditionally, all
of its Partnership Interest (as such term is defined in Recital B herein). The
contribution of the Contributor's Partnership Interest shall be evidenced by a
"CONTRIBUTION AND ASSUMPTION AGREEMENT" in substantially the form of EXHIBIT "B"
attached hereto. Furthermore, the Contributor shall cause each of its
individual constituent partners and/or members (as applicable) to execute and
have duly acknowledged an individual quitclaim deed for each Property in the
form of EXHIBIT "C" quitclaiming to the Operating Partnership any direct or
indirect ownership interest in and to the Properties. The parties shall take
such additional actions and execute such additional documentation as may be
required by the Partnership Agreement and the Agreement of Limited Partnership
of the Operating Partnership (the "OP AGREEMENT") in order to effect the
transactions contemplated hereby.
1.2 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS.
Subject to ARTICLES 1.3 AND 1.4 below, the Operating Partnership
shall, in exchange for the Partnership Interest, transfer to the Contributor
the number of OP Units having a value, based on one OP Unit being equal in value
to the Public Offering price for one share of the Company's common stock, equal
to the value indicated on Exhibit A as Contributor's "Total Minimum
Consideration." The transfer of the OP Units to the Contributor shall be
evidenced by either an amendment (the "AMENDMENT") to the OP Agreement or by
certificates relating to such units (the "CERTIFICATES") in either case, as
shall be acceptable to the Contributor. The parties shall take such additional
actions and execute such additional documentation as may be required by the
Partnership Agreement and the OP Agreement in order to effect the transactions
contemplated hereby.
1.3 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.4 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.2) of the OP Units
available to all OP Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.4) of all
OP Participants (the "ADDITIONAL CONSIDERATION"), then the Additional
Consideration or a portion thereof, if any, shall be allocated among the OP
Participants
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<PAGE>
(including the Contributor) based upon the relative values of the Contributor's
Partnership Interest and the interests contributed by each of the other OP
Participants, in each case as determined by Richard S. Ziman, in his sole
discretion.
1.4 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular interest that constitutes part of the Partnership Interest, if in
good faith the Operating Partnership determines that the ownership of such
interest or the underlying Property would be inappropriate for the Operating
Partnership for any reason whatsoever. Contributor hereby agrees that, in such
event, the Contributor's Total Minimum Consideration may be reduced by an amount
determined by Richard S. Ziman, in his sole discretion, to reflect the reduction
in total value of the Partnership Interest ultimately contributed by the
Contributor.
1.5 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.3 AND 1.4 hereof, and
any and all such determinations shall be final and binding on all parties.
1.6 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to the
Operating Partnership all of its rights and interests, if any, including rights
to indemnification in favor of the Contributor, if any, under the agreements
pursuant to which the Contributor or its affiliates initially acquired the
Partnership Interest transferred pursuant to this Contribution Agreement.
1.7 PRORATIONS
At the Closing, or as promptly as practicable following the Closing,
to the extent such matters are not the right or responsibility of all tenants of
a given Property, all revenue and all charges that are customarily prorated in
transactions of this nature, including accrued rent currently due and payable,
overpaid taxes or fees, real and personal property taxes, common area
maintenance charges and other similar periodic charges payable or receivable
with respect to such Property shall be ratably prorated between the partners of
the Partnership which holds such Property prior to the Closing and the Operating
Partnership on and after the Closing, effective as of the Closing. After
providing for such prorations, (i) if the Partnership has a resultant cash
surplus, the value of the Contributor's Partnership Interest shall be increased
in proportion to Contributor's ratable share of such cash surplus and additional
OP Units (based on the initial Public Offering price of the Company's common
stock) shall be issued to the Contributor as a valuation adjustment to the
Contributor's Total Minimum Consideration, and (ii) if the Partnership has a
resultant cash deficit, the value of the Contributor's Partnership Interest
shall be reduced in proportion to
3
<PAGE>
Contributor's ratable share of such cash deficit, and fewer OP Units shall be
issued to the Contributor as a valuation adjustment to the Contributor's Total
Minimum Consideration, unless such deficit is cured prior to Closing.
1.8 TREATMENT AS CONTRIBUTION
The transfer, assignment and exchange of interests effectuated with
respect to the Operating Partnership, pursuant to this Contribution Agreement
shall constitute, a "Capital Contribution" pursuant to Article 4 of the OP
Agreement and is intended to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed with
the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to this
Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor contained
in this Contribution Agreement shall have been true and correct in all material
respects on the date such representations and warranties were made, and shall be
true and correct in all material respects on the Closing Date as if made at and
as of such date;
(b) Each of the obligations of the Contributor to be performed by it
shall have been duly performed by it on or before the Closing Date;
(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to be
delivered pursuant to SECTION 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
4
<PAGE>
(f) No order, statute, rule, regulation, executive order,
injunction, stay, decree or restraining order shall have been enacted, entered,
promulgated or enforced by any court of competent jurisdiction or governmental
or regulatory authority or instrumentality that prohibits the consummation of
the transactions contemplated hereby, and no litigation or governmental
proceeding seeking such an order shall be pending or threatened;
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in the Partnership's businesses;
(h) All existing management agreements with respect to the
Properties shall have been contributed to the Operating Partnership prior to or
simultaneously with the Closing; and
(i) All management functions with respect to the Properties
presently conducted by Arden Realty Group, Inc., a Maryland corporation,
shall be assumed by the Operating Partnership.
The foregoing conditions may be waived by the Operating Partnership
in its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the Public
Offering from the underwriter(s), at 10:00 a.m. in the office of Latham &
Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California (the
"CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.1 AND 1.2
of this Contribution Agreement, and all closing deliveries, and the consummation
of the Public Offering, shall be deemed concurrent for all purposes.
2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered through the
Attorney-in-Fact (see ARTICLE 6.1 below), the legal documents and other items
(collectively the "CLOSING DOCUMENTS") necessary to carry out the intention of
this Contribution Agreement, which Closing Documents and other items shall
include, without limitation, the following:
(i) A Contribution and Assumption Agreement for the Contributor's
Partnership Interest;
(ii) An individual quitclaim deed for each Property fully executed
and duly acknowledged from each of the individual constituent partners
and/or members of the Contributor, as required by the Operating
Partnership;
5
<PAGE>
(iii) The Amendment or the Certificates evidencing the transfer of
OP Units to the Contributor;
(iv) American Land Title Assurances ("ALTA") policies of title
insurance with appropriate endorsements and levels of reinsurance for the
Properties issued as of the Closing Date or endorsements or other
assurances that the existing policy or policies of title insurance are
sufficient for purposes of this Contribution Agreement, which the
Contributor shall cause the title company to issue to the Operating
Partnership in a form acceptable to the Operating Partnership (the "TITLE
POLICIES") including satisfaction by the Contributor of any and all title
company requirements applicable to it;
(v) The Partnership's books and records and securities or other
evidences of ownership held by the Contributor; and
(vi) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number
and that the Contributor is not a foreign person pursuant to
section 1445(b)(2) of the Code and a comparable affidavit satisfying
California and any other withhoding requirements.
2.4 CLOSING COSTS
The Operating Partnership shall pay any documentary transfer
taxes, escrow charges, title charges and recording taxes or fees incurred in
connection with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has
been duly formed and is validly existing with requisite power to enter
this Contribution Agreement and all agreements contemplated hereby. The
persons and entities executing this Contribution Agreement and all
agreements contemplated hereby on behalf of the Operating Partnership have
the power and authority to enter into this Contribution Agreement and such
other contemplated agreements; and
(b) DUE AUTHORIZATION. The execution, delivery and
performance by the Operating Partnership of its obligations under this
Contribution Agreement and all agreements contemplated hereby will not
contravene any provision of applicable law, the OP Agreement, charter,
declaration of trust or other constituent document of
6
<PAGE>
the Operating Partnership, or any agreement or other instrument binding
upon the Operating Partnership or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Operating
Partnership, and no consent, approval, authorization or order of or
qualification with any governmental body or agency is required for the
performance by the Operating Partnership of its obligations under this
Contribution Agreement and all other agreements contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto, and
acknowledges and agrees to be bound by the indemnification provisions contained
therein.
3.3 INDEMNIFICATION
The Operating Partnership shall indemnify and hold harmless the
Contributor and its directors, officers, employees, agents, representatives and
affiliates (each of which is an "INDEMNIFIED CONTRIBUTOR PARTY" from and against
any and all claims, losses, damages, liabilities and expenses, including without
limitation, amounts paid in settlement, reasonable attorneys' fees, costs of
investigation and remediation, costs of investigative judicial or administrative
proceedings or appeals therefrom and costs of attachment or similar bonds
(collectively, "LOSSES") asserted against, imposed upon or incurred by the
Indemnified Contributor Party in connection with: (i) any breach of a
representation or warranty of the Operating Partnership contained in this
Contribution Agreement; (ii) any liabilities or obligations incurred, arising
from or out of, in connection with or as a result of any claims made or actions
brought by or against the Contributor, the Partnership, the Properties or an
Indemnified Contributor Party, that arise from or out of, in connection with or
as a result of any Contamination (as defined in Exhibit D hereto) of the
Properties regardless of when or how occurring, except to the extent, and only
to the extent, such Losses arise from or constitute a breach of a representation
and warranty of Contributor under Exhibit D; and (iii) all fees, costs and
expenses of the Operating Partnership in connection with the transactions
contemplated by the Contribution Agreement, including without limitation any and
all costs associated with the transfers contemplated herein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor
shall not:
(i) Sell or transfer all or any portion of the
Partnership Interest; or
(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Partnership Interest.
7
<PAGE>
(b) From the date hereof through the Closing, the Contributor
shall permit the Partnership to conduct its business in the ordinary course,
consistent with past practice, and shall not permit the Partnership to:
(i) Enter into any material transaction not in the
ordinary course of business;
(ii) Sell or transfer any assets of the Partnership;
(iii) Mortgage, pledge or encumber (or permit to become
encumbered) any assets of the Partnership, except (x) liens for taxes not
due, (y) purchase money security interests and (z) mechanics' liens being
disputed by the Partnership in good faith and by appropriate proceedings;
(iv) Amend, modify or terminate any material agreements
or other instruments to which the Partnership is a party;
(v) Materially alter the manner of keeping the
Partnership's books, accounts or records or the accounting practices
therein reflected; or
(vi) Make any distribution to its partners.
(c) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required to
effect the transactions contemplated by this Contribution Agreement.
5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of the
Partnership Interest pursuant to ARTICLES 1 AND 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman), agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"), known or unknown,
suspected or unsuspected, arising out of or relating to the Partnership
Agreement, this Contribution Agreement or any other matter which exists at the
Closing, except for Contributor Claims arising from the breach of any
representation, warranty, covenant or obligation under this Contribution
Agreement.
8
<PAGE>
5.2 GENERAL RELEASE OF CONTRIBUTOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "OPERATING PARTNERSHIP CLAIMS"), known or
unknown, suspected or unsuspected, arising out of or relating to the Partnership
Agreement, this Contribution Agreement or any other matter which exists at the
Closing, except for Operating Partnership Claims arising from the breach of any
representation, warranty, covenant or obligation under this Contribution
Agreement.
5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership each
expressly waives and relinquishes all rights and benefits afforded by
Section 1542 of the California Civil Code and do so understanding and
acknowledging the significance and consequence of such specific waiver of
Section 1542 which provides:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected the
settlement with the debtor.
5.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT
As of the Closing, the Contributor waives and relinquishes all rights
and benefits otherwise afforded to Contributor under the Partnership Agreement
including, without limitation, any right to consent to or approve of the sale or
contribution by the other partners (or members) of the Partnership of their
partnership interests to the Company or the Operating Partnership.
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating Partnership
(or its designee) and each of them individually and any successor thereof from
time to time (such Operating Partnership or designee or any such successor of
any of them acting in his, her or its capacity as attorney-in-fact pursuant
hereto, the "ATTORNEY-IN FACT") as the true and lawful attorney-in-fact and
agent of Contributor, to act in the name, place and stead of Contributor to
make, execute, acknowledge and deliver all such other contracts, orders,
receipts, notices, requests, instructions, certificates, consents, letters and
other writings (including without limitation the execution of any Closing
Documents or other documents relating to the acquisition by the Operating
Partnership of Contributor's Partnership Interest), to provide
9
<PAGE>
information to the Securities and Exchange Commission and others about the
transactions contemplated hereby and, in general, to do all things and to
take all actions which the Attorney-in-Fact in its sole discretion may
consider necessary or proper in connection with or to carry out the
transactions contemplated by this Contribution Agreement, as fully as could
Contributor if personally present and acting. Further, Contributor hereby
grants to Attorney-in-Fact a proxy (the "PROXY") to vote Contributor's
Partnership Interest on any matter related to the Formation Transactions
presented to the Partnership's partners for a vote, including, but not
limited to, the transfer of interests in the Partnership by the other
partners.
Each of the Power of Attorney and Proxy and all authority granted hereby
shall be coupled with an interest and therefore shall be irrevocable and shall
not be terminated by any act of Contributor, by operation of law or by the
occurrence of any other event or events, and if any other such act or events
shall occur before the completion of the transactions contemplated by this
Contribution Agreement, the Attorney-in-Fact shall nevertheless be authorized
and directed to complete all such transactions as if such other act or events
had not occurred and regardless of notice thereof. Contributor agrees that, at
the request of Operating Partnership it will promptly execute a separate power
of attorney and proxy on the same terms set forth in this ARTICLE 6, such
execution to be witnessed and notarized. Contributor hereby authorizes the
reliance of third parties on each of the Power of Attorney and Proxy.
Contributor acknowledges that the Operating Partnership has, and any
designee or successor thereof acting as Attorney-in-Fact may have, an economic
interest in the transactions contemplated by this Contribution Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no responsibility or
liability to any person by virtue of the Power of Attorney or Proxy granted
by Contributor hereby. The Attorney-in-Fact makes no representations with
respect to and shall have no responsibility for the Formation Transactions or
the Public Offering, or the acquisition of the Partnership Interest by the
Operating Partnership and shall not be liable for any error or judgement or
for any act done or omitted or for any mistake of fact or law except for its
own gross negligence or bad faith. Contributor agrees to indemnify the
Attorney-in-Fact for and to hold the Attorney-in-Fact harmless against any
loss, claim, damage or liability incurred on its part arising out of or in
connection with it acting as the Attorney-in-Fact under the Power of Attorney
or Proxy created by Contributor hereby, as well as the cost and expense of
investigating and defending against any such loss, claim, damage or
liability, except to the extend such loss, claim, damage or liability is due
to the gross negligence or bad faith of the Attorney-in-Fact. Contributor
agrees that the Attorney-in-Fact may consult with counsel of its own choice
(who may be counsel for Operating Partnership or its successors or
affiliates), and it shall have full and complete authorization and protection
for any action taken or suffered by it hereunder in good faith and in
accordance with the opinion of such counsel. It is understood that the
Attorney-in-Fact may, without breaching any express or implied
10
<PAGE>
obligation to Contributor hereunder, release, amend or modify any other power
of attorney or proxy granted by any other person under any related agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other actions
and execute such additional documents following the Closing as the Operating
Partnership may reasonably request in order to effect the transactions
contemplated hereby.
7.2 COUNTERPARTS. This Contribution Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed by
the internal laws of the State of California, without regard to the choice of
laws provisions thereof.
7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be
deemed communicated as of the date of personal delivery (including delivery
by overnight courier). Mailed notices shall be addressed as set forth below,
but any party may change the address set forth below by written notice to
other parties in accordance with this paragraph.
To the Contributor:
Arden LAOP Two, LLC
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
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IN WITNESS WHEREOF, the parties have executed this Contribution Agreement
as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland Corporation,
general partner
By: /s/ Richard S. Ziman
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
"CONTRIBUTOR"
ARDEN LAOP TWO, LLC,
a Nevada limited liability company
By: THE ARTHUR GILBERT AND ROSALINDE GILBERT
1982 TRUST
By: /s/ Arthur Gilbert
--------------------------------------
Arthur Gilbert
Trustee
By: MONTOUR REALTY ASSOCIATES,
a California general partnership
By: /s/ Richard S. Ziman
--------------------------------------
Richard S. Ziman
General Partner
By: /s/ Victor J. Coleman
-----------------------------------------
Victor J. Coleman
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EXHIBIT A
TO
CONTRIBUTION AGREEMENT
CONSTITUENT INTERESTS OF CONTRIBUTOR'S PARTNERSHIP INTEREST
Properties Held by the Minimum
Partnership Partnership Consideration
222 Harbor Associates, Anaheim City Center; $742,851
LLC 425 West Broadway
- ---------------------- -------------------- -------------
Total Minimum
Consideration $742,851
-------------
-------------
A-1
<PAGE>
EXHIBIT B
TO
CONTRIBUTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the undersigned hereby assigns, transfers,
contributes and conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland
limited partnership (the "Operating Partnership"), its entire legal and
beneficial right, title and interest in and to 222 Harbor Associates, LLC, a
Nevada limited liability company (the "Partnership"), including, without
limitation, all right, title and interest, if any, of the undersigned in and
to the assets of the Partnership and the right to receive distributions of
money, profits and other assets from the Partnership, presently existing or
hereafter at any time arising or accruing (such right, title and interest are
hereinafter collectively referred to as the "Partnership Interest"), TO HAVE
AND TO HOLD the same unto the Operating Partnership, its successors and
assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership
assumes all obligations in respect of the Partnership Interest.
The Partnership owns certain real property as described in
Attachment "1" attached hereto.
Executed: _____ __, 1996
ARDEN LAOP TWO, LLC,
a Nevada limited liability company
By: THE ARTHUR GILBERT AND
ROSALINDE GILBERT 1982 TRUST
By:
-------------------------------------------
Arthur Gilbert
Trustee
B-1
<PAGE>
By: MONTOUR REALTY ASSOCIATES,
a California general partnership
By:
-------------------------------------------
Richard S. Ziman
General Partner
By:
----------------------------------------------
Victor J. Coleman
B-2
<PAGE>
EXHIBIT C
TO
CONTRIBUTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- -------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $ . . . . .
. . Computed on the consideration or
value of property conveyed; OR
. . Computed on the consideration or
value less liens or encumbrances
remaining at time of sale.
____________________________________
Signature of Declarant of Agent
determining tax - Firm Name
- -------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group Limited Partnership, a Maryland limited partnership
the real property in the City of __________, County of __________, State of
California, described as
Dated ______________________ ______________________________________
STATE OF CALIFORNIA } ______________________________________
} ______________________________________
COUNTY OF _________________} ______________________________________
On ______________ before me, ______________________________________
___________________________,
personally appeared________ ______________________________________
___________________________
personally known to me (or
proved to me on the basis
of satisfactory evidence)
to be the person(s) whose
names(s) is/are subscribed
to the within instrument
and acknowledged to me that
he/she/they executed the
same in his/her/their
authorized capacity(ies),
and that by his/her/their
signature(s) on the
instrument the person(s) or
the entity upon behalf of
which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
Signature __________________ (This area for official notarial seal)
C-1
<PAGE>
EXHIBIT D
TO
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1- ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the meanings
set forth below. Terms which are not defined below shall have the meaning set
forth for those terms as defined in the Contribution Agreement to which this
EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to Knowledge,
threatened that directly or indirectly affect any of the Contributor, the
Partnership or the Properties.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
KNOWLEDGE: Means, with respect to any representation or warranty so
indicated, the actual knowledge, upon reasonable investigation and inquiry in
good faith, of the signatory to the Contribution Agreement.
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests, restrictions,
prior assignments, encumbrances, covenants, encroachments, assessments, rights
of others, licenses, easements, liabilities or claims of any kind or nature
whatsoever, direct or indirect, including, without limitation, interests in or
claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent or
the payment of which is actively being contested in good faith by appropriate
proceedings diligently pursued;
(b) Zoning laws and ordinances generally applicable to the districts
in which the Properties are located which are not violated by the existing
structures or present uses thereof;
D-1
<PAGE>
(c) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings diligently
pursued;
(d) non-exclusive easements for public utilities that do not have a
material adverse effect upon, or interfere with the use of, the Properties; and
(e) any exceptions contained in the Title Policies.
PERSON: Means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating Partnership
as set forth below in this ARTICLE 2. Notwithstanding any other provision of
the Contribution Agreement or this EXHIBIT D, the Contributor makes
representations, warranties and indemnities only with respect to the interests
in the Partnership to be transferred by the Contributor identified on EXHIBIT A
to the Contribution Agreement.
2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and (B)
has all requisite power and authority to own, lease or operate its property and
to carry on its business as presently conducted and, to the extent required
under applicable law, is qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. This Contribution
Agreement and each agreement, document and instrument executed and delivered by
or on behalf of the contributor pursuant to this contribution Agreement
constitutes, or when executed and delivered will constitute, the legal, valid
and binding obligation of the Contributor, each enforceable against the
Contributor in accordance with its terms, as such enforceability may be limited
by bankruptcy or the application of equitable principles.
D-2
<PAGE>
2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the Contributor
in connection with the execution, delivery and performance of the Contribution
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE PARTNERSHIP INTERESTS. The Contributor is the
sole owner of the Partnership Interest and has good and valid title to such
Partnership Interest, free and clear of all Liens, other than Permitted Liens.
2.5 PARTNERSHIP INTEREST. The Partnership Interest constitutes all
of the issued and outstanding interests owned by the Contributor in the
Partnership. The Partnership Interest is validly issued, fully paid and
non-assessable, and was not issued in violation of any preemptive rights. The
Partnership Interest has been issued in compliance with applicable law and the
Partnership Agreement. There are no rights, subscriptions, warrants, options,
conversion rights, preemptive rights or agreements of any kind outstanding to
purchase or to otherwise acquire any of the interests which comprise the
Partnership Interest or any securities or obligations of any kind convertible
into any of the interests which comprise the Partnership Interest or other
equity interests or profit participation of any kind in the Partnership. At the
Closing, upon receipt of the consideration, the Contributor will have
transferred the Partnership Interest free and clear of all security interests,
mortgages, pledges, liens, encumbrances, claims and equities to the Operating
Partnership.
2.6 NO VIOLATION. None of the execution, delivery or performance of
the Contribution Agreement and the transactions contemplated hereby does or
will, with or without the giving of notice, lapse of time, or both, (i) violate,
conflict with, result in a breach of, or constitute a default under or give to
others any right of termination or cancellation of (A) the organizational
documents, including the charters and bylaws, if any, of the Contributor, (B)
any material agreement, document or instrument to which the Contributor is a
party or by which the Contributor or its Partnership Interest is bound or (C)
any term or provision of any judgment, order, writ, injunction, or decree of any
governmental or regulatory authority binding on the Contributor or by which the
Contributor or any of its assets or properties are bound or subject or (ii)
result in the creation of any Lien, other than a Permitted Lien, upon the
Partnership Interest.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withhoding provisions, including those referred to in
ARTICLE 2.7 above and similar provisions under California law. If Contributor
fails to provide such certificates or affidavits, the Operating
D-3
<PAGE>
Partnership may withhold a portion of any payments otherwise to be made to
the Contributor as required by the Code or California law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Agreement are intended to be exempt from registration under the
Securities Act of 1933, as amended and the rules and regulations in effect
thereunder (the "ACT"). In furtherance thereof, the Contributor represents and
warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not as
a nominee or agent for any other person and not with a view to, or for offer or
sale in connection with, any distribution of any thereof. The Contributor
agrees and acknowledges that he, she or it will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(hereinafter, "TRANSFER") any of the OP Units unless (i) the Transfer is
pursuant to an effective registration statement under the Act and qualification
or other compliance under applicable blue sky or state securities laws, or (ii)
counsel for the Contributor (which counsel shall be reasonably acceptable to the
Operating Partnership) shall have furnished the Operating Partnership with an
opinion, reasonably satisfactory in form and substance to the Operating
Partnership, to the effect that no such registration is required because of the
availability of an exemption from registration under the Act and qualification
or other compliance under applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable,
sophisticated and experienced in business and financial matters; the Contributor
has previously invested in securities similar to the OP Units and fully
understands the limitations on transfer imposed by the Federal securities laws
and as described in the Contribution Agreement. The Contributor is able to bear
the economic risk of holding the OP Units for an indefinite period and is able
to afford the complete loss of his, her or its investment in the OP Units; the
Contributor has received and reviewed all information and documents about or
pertaining to the Company, the Operating Partnership, the business and prospects
of the Company and the Operating Partnership and the issuance of the OP Units as
the Contributor deems necessary or desirable, and has been given the opportunity
to obtain any additional information or documents and to ask questions and
receive answers about such information and documents, the Company, the Operating
Partnership, the business and prospects of the Company and the Operating
Partnership and the OP Units which the Contributor deems necessary or desirable
to evaluate the merits and risks related to his, her or its investment in the OP
Units; and the Contributor understands and has taken cognizance of all risk
factors related to the purchase of the OP Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he, she
or it has been advised that (i) the OP Units and the common stock of the Company
into which the OP Units may be exchanged in certain circumstances (the "COMMON
STOCK") must be held indefinitely, and the Contributor must continue to bear the
economic risk of the investment in the OP Units (and any Common Stock that might
be exchanged therefor) unless they are subsequently registered under the Act or
an exemption from such registration is available, (ii)
D-4
<PAGE>
a restrictive legend in the form hereafter set forth shall be placed on the
certificates representing the OP Units (and any Common Stock that might be
exchanged therefor), and (iii) a notation shall be made in the appropriate
records of the Operating Partnership (and the Company) indicating that the OP
Units (and any Common Stock that might be exchanged therefor) are subject to
restrictions on transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an individual,
such individual is an "accredited investor" (as such term is defined in Rule
501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his or
her spouse, in excess of $1,000,000; or
(iii) had an individual annual adjusted gross income in
excess of $200,000 in each of the two most recent years and reasonably expects
to have annual adjusted gross income in excess of $200,000 in the current year;
or
(iv) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an annual
adjusted gross income, with his spouse, in excess of $300,000 in the current
year.
If the Contributor is not an individual, it is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
2.9.5 LEGENDING. Each certificate representing the OP Units (and
any Common Stock that might be exchanged therefor) shall bear the following
legend:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE
PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS;
In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND
D-5
<PAGE>
TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS
AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"). SUBJECT TO CERTAIN FURTHER RESTRICTIONS
AND EXCEPT AS EXPRESSLY PROVIDED IN THE CORPORATION'S CHARTER, (1) NO
PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY OWN SHARES OF THE
CORPORATION'S COMMON STOCK IN EXCESS OF 9.0% (BY VALUE OR BY NUMBER OF
SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING COMMON STOCK
OF THE CORPORATION; (2) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY
OWN COMMON STOCK THAT WOULD RESULT IN THE CORPORATION BEING "CLOSELY
HELD" UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (3) NO PERSON MAY
TRANSFER COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL
STOCK OF THE CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY
PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO
BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK WHICH CAUSES OR WILL
CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK IN
EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE
CORPORATION. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE
VIOLATED, THE COMMON STOCK REPRESENTED HEREBY WILL BE AUTOMATICALLY
TRANSFERRED TO A TRUSTEE OF A TRUST FOR THE BENEFIT OF ONE OR MORE
CHARITABLE BENEFICIARIES. IN ADDITION, THE CORPORATION MAY REDEEM
SHARES UPON THE TERMS AND CONDITIONS SPECIFIED BY THE BOARD OF
DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF DIRECTORS DETERMINES
THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY VIOLATE THE
RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE OF
CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS
DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS
LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION, AS
THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING
THE RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH
HOLDER OF COMMON STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR
SUCH A COPY MAY BE DIRECTED TO THE SECRETARY OF THE CORPORATION.
2.10 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of the Operating Partnership or any of its affiliates to pay any
finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by the Contribution Agreement.
D-6
<PAGE>
2.11 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Partnership
Interest to the Operating Partnership.
2.12 NO MISREPRESENTATIONS. No representation, warranty or statement
made, or information provided, by the Contributor in the Contribution Agreement
or in any other document or instrument furnished or to be furnished by or on
behalf of the Contributor pursuant hereto or as contemplated hereby (i) contains
or will contain any untrue statement of a material fact or (ii) omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading.
2.13 TAXES. For federal income tax purposes, the Partnership is, and
at all times during its existence has been, a partnership (rather than an
association or a publicly traded partnership taxable as a corporation). The
Partnership has filed all tax returns required to be filed by it and has paid
all taxes required to be paid by it. The transactions contemplated hereby will
not result in any tax liability to the Partnership, the Company or the Operating
Partnership. No tax lien or other charge exists or will exist upon consummation
of the transactions contemplated hereby with respect to any Property except such
tax liens for which the tax is not due and has been reserved for payment by the
Partnership or tax liens or other charges which individually or in the aggregate
would not have a material adverse effect on the Operating Partnership.
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered pursuant
hereto shall survive the Closing.
(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this EXHIBIT
D or the Contribution Agreement for monetary damages (or otherwise) for breach
of any of its representations and warranties contained in this EXHIBIT D or the
Contribution Agreement, or in any Schedule, certificate or affidavit delivered
by it pursuant thereto, other than pursuant to the succeeding provisions of this
ARTICLE 3.
3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the Operating
Partnership, the REIT, and their affiliates and each of their respective
directors, officers, employees, agents, representatives and affiliates (each of
which is an "INDEMNIFIED PARTY") from and against any and all claims, losses,
damages, liabilities and expenses, including, without limitation, amounts paid
in settlement, reasonable attorneys' fees, costs of investigation and
remediation, costs of investigative, judicial or administrative proceedings or
appeals therefrom, and costs of
D-7
<PAGE>
attachment or similar bonds (collectively, "LOSSES"), asserted against,
imposed upon or incurred by the Indemnified Party in connection with or as a
result of any breach of a representation or warranty of the Contributor
contained in the Contribution Agreement or in any Schedule, certificate or
affidavit delivered by the Contributor pursuant to the Contribution Agreement.
(b) The Contributor shall indemnify and hold harmless the Indemnified
Parties from and against any and all Losses, asserted against, imposed upon or
incurred by the Indemnified Parties in connection with or as a result of:
(i) all fees and expenses of the Contributor in connection with
the transactions contemplated by the Contribution Agreement;
(ii) any liabilities or obligations incurred, arising from or out
of, in connection with or as a result of the failure of the Contributor to
obtain all consents required to consummate the transactions contemplated by
the Contribution Agreement.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when expenses
are incurred) to an Indemnified Party of OP Units, subject to the limits on
ownership and transfer of REIT shares set forth in the Company's articles of
incorporation. Any OP Units delivered to an Indemnified Party hereunder shall
be valued based upon the initial public offering price of the Company's Common
Stock.
3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably practicable
after receipt by the Indemnified Party of notice of any liability or claim
incurred by or asserted against the Indemnified Party that is subject to
indemnification under this ARTICLE 3, the Indemnified Party shall give notice
thereof to the Contributor, including liabilities or claims to be applied
against the indemnification baskets established pursuant to ARTICLE 3.5 hereof.
The Indemnified Party may at its option demand indemnity under this ARTICLE 3 as
soon as a claim has been threatened by a third party, regardless of whether an
actual Loss has been suffered, so long as the Indemnified Party shall in good
faith determine that such claim is not frivolous and that the Indemnified Party
may be liable for, or otherwise incur, a Loss as a result thereof and shall give
notice of such determination to the Contributor. The Indemnified Party shall
permit the Contributor, at its option and expense, to assume the defense of any
such claim by counsel selected by the Contributor and reasonably satisfactory to
the Indemnified Party, and to settle or otherwise dispose of the same; PROVIDED,
HOWEVER, that the Indemnified Party may at all times participate in such defense
at its expense; and PROVIDED FURTHER, HOWEVER, that the Contributor shall not,
in defense of any such claim, except with the prior written consent of the
Indemnified Party in its sole and absolute discretion, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in question
to the Indemnified Party and its affiliates a release of all liabilities in
respect of such claims, or that does not result only in the payment of money
damages. If the Contributor shall fail to undertake such defense within 30 days
after such notice, or within such shorter time as may be reasonable under the
circumstances, then the Indemnified Party shall
D-8
<PAGE>
have the right to undertake the defense, compromise or settlement of such
liability or claim on behalf of and for the account of the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER ARTICLE
3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the total amount recoverable by the Indemnified Parties
under ARTICLE 3.2 exceeds $200,000; PROVIDED, HOWEVER, that once the total
amount recoverable by the Indemnified Parties under ARTICLE 3.2 hereof
exceeds $200,000 in the aggregate, the Contributor's obligation under ARTICLE
3.2 hereof shall be for the full amount of such obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this
ARTICLE 3 with respect to any Partnership Interest to the extent such
payments in the aggregate would exceed the value of the OP Units (based upon
the initial public offering price of the Common Stock) received by the
Contributor at the Closing. Notwithstanding anything contained herein to the
contrary, the Indemnified Parties shall look first to the Contributor's OP
Units for indemnification under this ARTICLE 3 and then to the Contributor's
other assets.
3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification under
ARTICLE 3.2 hereof must be asserted in writing by the Indemnified Party, stating
the nature of the Losses and the basis for indemnification therefor:
(i) within one year after the Closing in the case of a claim
under ARTICLE 3.2 hereof (other than a claim under ARTICLE 3.2(A) based
upon a breach of the representations, and warranties of the Contributor set
forth in ARTICLE 2.13 hereof as specified below; and
(ii) prior to the expiration of the applicable statutes of
limitations in the case of a claim under ARTICLE 3.2(A) based upon a breach
of the representations and warranties of the Contributor set forth in
ARTICLE 2.13 hereof.
(b) If so asserted in writing within one year after the Closing, such
claims for indemnification shall survive until resolved by mutual agreement
between the Contributor and the Indemnified Party or by judicial determination.
Any claim for indemnification not so asserted in writing within one year after
the Closing shall not thereafter be asserted and shall forever be waived.
3.7 RESERVATION OF CONTRIBUTOR RIGHTS.
Notwithstanding anything else in this EXHIBIT D or the Contribution
Agreement to the contrary, the Contributor reserves unto itself all rights and
remedies (including rights to
D-9
<PAGE>
seek contribution) against any third party indemnitors and prior property
owners or occupants for which the Partnership has been indemnified by the
Contributor hereunder. To the extent the Contributor's rights against any
such third party indemnitors, owners or occupants may be prejudiced by
actions or inactions by any owner or occupant of the Properties after the
Closing, the Contributor's indemnity obligation shall be reduced in
accordance with the effect of the actions or inactions which so prejudiced
the Contributor's rights.
D-10
<PAGE>
EXHIBIT 10.22
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
by and between
ARDEN SAWTELLE ASSOCIATES,
a California general partnership
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP
a Maryland limited partnership
Dated as of June 17, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS. . . . . 2
1.1 Contribution Transaction . . . . . . . . . . . . . . . . . . . . . 2
1.2 Minimum Consideration and Exchange of OP Units . . . . . . . . . . 2
1.3 Additional Consideration . . . . . . . . . . . . . . . . . . . . . 2
1.4 Adjusted Consideration . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Contribution of Certain Rights . . . . . . . . . . . . . . . . . . 3
1.7 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Treatment as Contribution. . . . . . . . . . . . . . . . . . . . . 4
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Closing Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. . . . . . . . . . . . . 6
3.1 Representations and Warranties of the Operating Partnership. . . . 6
3.2 Representations and Warranties of Contributor. . . . . . . . . . . 7
3.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. COVENANTS OF CONTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . 7
5. RELEASES AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 General Release of Operating Partnership . . . . . . . . . . . . . 8
5.2 General Release of Contributor . . . . . . . . . . . . . . . . . . 9
5.3 Waiver of Section 1542 Protections . . . . . . . . . . . . . . . . 9
5.4 Waiver of Rights Under Partnership Agreement . . . . . . . . . . . 9
6. POWER OF ATTORNEY
6.1 Grant of Power of Attorney . . . . . . . . . . . . . . . . . . . . 9
6.2 Limitation on Liability. . . . . . . . . . . . . . . . . . . . . . 10
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
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EXHIBIT LIST
SECTION FIRST
EXHIBITS REFERENCED
- -------- ----------
A Constituent Interests of Contributor's Partnership Interest . . . Recital D
B Contribution and Assumption Agreement . . . . . . . . . . . . . . . . 1.1
C Form of Quitclaim . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
D Representations and Warranties of Contributor . . . . . . . . . . . . . 3.2
ii
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CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (hereinafter referred to as the
"CONTRIBUTION AGREEMENT") is made and entered into as of June 17, 1996 by and
between Arden Realty Group Limited Partnership, a Maryland limited
partnership (the "OPERATING PARTNERSHIP"), and Arden Sawtelle Associates, a
Califonia general partnership (the "CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership
of a portfolio of office properties (the "PARTICIPATING PROPERTIES") located
in Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct
interests in certain of the Participating Properties (the "PROPERTY
INTERESTS") and all of the interests in certain limited partnerships, certain
limited liability companies and certain other entities (collectively the
"PARTICIPATING PARTNERSHIPS AND LLCS") which currently own directly or
indirectly the Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Arden Realty Group,
Inc., a Maryland corporation (the "COMPANY"), which will operate as a
self-administered and self-managed real estate investment trust ("REIT") and
will be the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and
members of the Participating Partnerships and LLCs will either transfer their
Property Interests and interests in the Participating Partnerships and LLCs
to the Company in exchange for cash (the "CASH PARTICIPANTS") or contribute
such interests directly to the Operating Partnership in exchange for an
interest in the Operating Partnership (the "OP PARTICIPANTS").
D. The Contributor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIP") which
Partnership owns directly or indirectly interests in certain of the
Participating Properties also as set forth on Exhibit A (the "PROPERTY" or
the "PROPERTIES"). As used herein, "PARTNERSHIP AGREEMENT" means the
partnership agreement or membership agreement, as applicable, under which the
Partnership was formed.
E. The Contributor desires to, and the Operating Partnership
desires the Contributor to, contribute to the Operating Partnership, all of
its right, title and interest, as a partner (or member) of the Partnership,
including, without limitation, all of its voting rights and interests in the
capital, profits and losses of the Partnership or any property distributable
therefrom, constituting all of its interests in the Partnership (such right,
title and interest are hereinafter collectively referred to as the
"PARTNERSHIP INTEREST"), in exchange for partnership units in the Operating
Partnership (the "OP UNITS"), on the terms and subject to the conditions set
forth herein.
<PAGE>
NOW, THEREFORE, for and in consideration of the foregoing premises,
and the mutual undertakings set forth below, the parties hereto agree as
follows:
TERMS OF AGREEMENT
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS
1.1 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to
the terms and conditions contained in this Contribution Agreement, the
Contributor shall transfer to the Operating Partnership, absolutely and
unconditionally, all of its Partnership Interest (as such term is defined in
Recital B herein). The contribution of the Contributor's Partnership
Interest shall be evidenced by a "CONTRIBUTION AND ASSUMPTION AGREEMENT" in
substantially the form of EXHIBIT "B" attached hereto. Furthermore, the
Contributor shall cause each of its individual constituent partners and/or
members (as applicable) to execute and have duly acknowledged an individual
quitclaim deed in the form of EXHIBIT "C" quitclaiming to the Operating
Partnership any direct or indirect ownership interest in and to the Property.
The parties shall take such additional actions and execute such additional
documentation as may be required by the Partnership Agreement and the
Agreement of Limited Partnership of the Operating Partnership (the "OP
AGREEMENT") in order to effect the transactions contemplated hereby.
1.2 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS.
Subject to ARTICLES 1.3 AND 1.4 below, the Operating Partnership
shall, in exchange for the Partnership Interest, transfer to the Contributor
the number of OP Units having a value, based on one OP Unit being equal in
value to the Public Offering price for one share of the Company's common
stock, equal to the value indicated on Exhibit A as Contributor's "Total
Minimum Consideration." The transfer of the OP Units to the Contributor
shall be evidenced by either an amendment (the "AMENDMENT") to the OP
Agreement or by certificates relating to such units (the "CERTIFICATES") in
either case, as shall be acceptable to the Contributor. The parties shall
take such additional actions and execute such additional documentation as may
be required by the Partnership Agreement and the OP Agreement in order to
effect the transactions contemplated hereby.
1.3 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.4 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.2) of the OP Units
available to all OP Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.4) of all
OP Participants (the "ADDITIONAL CONSIDERATION"), then the Additional
Consideration or a portion thereof, if any, shall be allocated among the OP
Participants
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(including the Contributor) based upon the relative values of the
Contributor's Partnership Interest and the interests contributed by each of
the other OP Participants, in each case as determined by Richard S. Ziman, in
his sole discretion.
1.4 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular interest that constitutes part of the Partnership Interest, if in
good faith the Operating Partnership determines that the ownership of such
interest or the underlying Property would be inappropriate for the Operating
Partnership for any reason whatsoever. Contributor hereby agrees that, in
such event, the Contributor's Total Minimum Consideration may be reduced by
an amount determined by Richard S. Ziman, in his sole discretion, to reflect
the reduction in total value of the Partnership Interest ultimately
contributed by the Contributor.
1.5 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.3 AND 1.4 hereof, and
any and all such determinations shall be final and binding on all parties.
1.6 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to
the Operating Partnership all of its rights and interests, if any, including
rights to indemnification in favor of the Contributor, if any, under the
agreements pursuant to which the Contributor or its affiliates initially
acquired the Partnership Interest transferred pursuant to this Contribution
Agreement.
1.7 PRORATIONS
At the Closing, or as promptly as practicable following the
Closing, to the extent such matters are not the right or responsibility of
all tenants of a given Property, all revenue and all charges that are
customarily prorated in transactions of this nature, including accrued rent
currently due and payable, overpaid taxes or fees, real and personal property
taxes, common area maintenance charges and other similar periodic charges
payable or receivable with respect to such Property shall be ratably prorated
between the partners of the Partnership which holds such Property prior to
the Closing and the Operating Partnership on and after the Closing, effective
as of the Closing. After providing for such prorations, (i) if the
Partnership has a resultant cash surplus, the value of the Contributor's
Partnership Interest shall be increased in proportion to Contributor's
ratable share of such cash surplus and additional OP Units (based on the
initial Public Offering price of the Company's common stock) shall be issued
to the Contributor as a valuation adjustment to the Contributor's Total
Minimum Consideration, and (ii) if the Partnership has a resultant cash
deficit, the value of the Contributor's Partnership Interest shall be reduced
in proportion to
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Contributor's ratable share of such cash deficit, and fewer OP Units shall be
issued to the Contributor as a valuation adjustment to the Contributor's
Total Minimum Consideration, unless such deficit is cured prior to Closing.
1.8 TREATMENT AS CONTRIBUTION
The transfer, assignment and exchange of interests effectuated with
respect to the Operating Partnership, pursuant to this Contribution Agreement
shall constitute, a "Capital Contribution" pursuant to Article 4 of the OP
Agreement and is intended to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed with
the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to
this Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor contained
in this Contribution Agreement shall have been true and correct in all
material respects on the date such representations and warranties were made,
and shall be true and correct in all material respects on the Closing Date as
if made at and as of such date;
(b) Each of the obligations of the Contributor to be performed by
it shall have been duly performed by it on or before the Closing Date;
(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to
be delivered pursuant to SECTION 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
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(f) No order, statute, rule, regulation, executive order,
injunction, stay, decree or restraining order shall have been enacted,
entered, promulgated or enforced by any court of competent jurisdiction or
governmental or regulatory authority or instrumentality that prohibits the
consummation of the transactions contemplated hereby, and no litigation or
governmental proceeding seeking such an order shall be pending or threatened;
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in the Partnership's businesses;
(h) All existing management agreements with respect to the Property
shall have been contributed to the Operating Partnership prior to or
simultaneously with the Closing; and
(i) All management functions with respect to the Property presently
conducted by Arden Realty Group, Inc., a Maryland corporation, shall be
assumed by the Operating Partnership.
The foregoing conditions may be waived by the Operating Partnership
in its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the
Public Offering from the underwriter(s), at 10:00 a.m. in the office of
Latham & Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California
(the "CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.1
AND 1.2 of this Contribution Agreement, and all closing deliveries, and the
consummation of the Public Offering, shall be deemed concurrent for all
purposes.
2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered through
the Attorney-in-Fact (see ARTICLE 6.1 below), the legal documents and other
items (collectively the "CLOSING DOCUMENTS") necessary to carry out the
intention of this Contribution Agreement, which Closing Documents and other
items shall include, without limitation, the following:
(i) A Contribution and Assumption Agreement for the Contributor's
Partnership Interest;
(ii) An individual quitclaim deed fully executed and duly
acknowledged from each of the individual constituent partners and/or
members of the Contributor, as required by the Operating Partnership;
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(iii) The Amendment or the Certificates evidencing the transfer of
OP Units to the Contributor;
(iv) An American Land Title Assurances ("ALTA") policy of title
insurance with appropriate endorsements and levels of reinsurance for
the Property issued as of the Closing Date or endorsements or other
assurances that the existing policy or policies of title insurance
are sufficient for purposes of this Contribution Agreement, which the
Contributor shall cause the title company to issue to the Operating
Partnership in a form acceptable to the Operating Partnership (the
"TITLE POLICIES") including satisfaction by the Contributor of any
and all title company requirements applicable to it;
(v) The Partnership's books and records and securities or other
evidences of ownership held by the Contributor; and
(vi) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number
and that the Contributor is not a foreign person pursuant to section
1445(b)(2) of the Code and a comparable affidavit satisfying California
and any other withholding requirements.
2.4 CLOSING COSTS
The Operating Partnership shall pay any documentary transfer taxes,
escrow charges, title charges and recording taxes or fees incurred in
connection with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has been duly
formed and is validly existing with requisite power to enter this
Contribution Agreement and all agreements contemplated hereby. The
persons and entities executing this Contribution Agreement and all
agreements contemplated hereby on behalf of the Operating Partnership have
the power and authority to enter into this Contribution Agreement and such
other contemplated agreements; and
(b) DUE AUTHORIZATION. The execution, delivery and performance by the
Operating Partnership of its obligations under this Contribution Agreement
and all agreements contemplated hereby will not contravene any provision
of applicable law, the OP Agreement, charter, declaration of trust or
other constituent document of
6
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the Operating Partnership, or any agreement or other instrument binding
upon the Operating Partnership or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the
Operating Partnership, and no consent, approval, authorization or
order of or qualification with any governmental body or agency is
required for the performance by the Operating Partnership of its
obligations under this Contribution Agreement and all other agreements
contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto, and
acknowledges and agrees to be bound by the indemnification provisions
contained therein.
3.3 INDEMNIFICATION
The Operating Partnership shall indemnify and hold harmless the
Contributor and its directors, officers, employees, agents, representatives
and affiliates (each of which is an "INDEMNIFIED CONTRIBUTOR PARTY") from and
against any and all claims, losses, damages, liabilities and expenses,
including without limitation, amounts paid in settlement, reasonable
attorneys' fees, costs of investigation and remediation, costs of
investigative judicial or administrative proceedings or appeals therefrom and
costs of attachment or similar bonds (collectively, "LOSSES") asserted
against, imposed upon or incurred by the Indemnified Contributor Party in
connection with: (i) any breach of a representation or warranty of the
Operating Partnership contained in this Contribution Agreement; (ii) any
liabilities or obligations incurred, arising from or out of, in connection
with or as a result of any claims made or actions brought by or against the
Contributor, the Partnership, the Property or an Indemnified Contributor
Party, that arise from or out of, in connection with or as a result of any
Contamination (as defined in Exhibit D hereto) of the Property regardless of
when or how occurring, except to the extent, and only to the extent, such
Losses arise from or constitute a breach of a representation and warranty of
Contributor under Exhibit D; and (iii) all fees, costs and expenses of the
Operating Partnership in connection with the transactions contemplated by the
Contribution Agreement, including without limitation any and all costs
associated with the transfers contemplated herein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor shall
not:
(i) Sell or transfer all or any portion of the Partnership
Interest; or
(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Partnership Interest.
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<PAGE>
(b) From the date hereof through the Closing, the Contributor shall
permit the Partnership to conduct its business in the ordinary course,
consistent with past practice, and shall not permit the Partnership to:
(i) Enter into any material transaction not in the ordinary
course of business;
(ii) Sell or transfer any assets of the Partnership;
(iii) Mortgage, pledge or encumber (or permit to become
encumbered) any assets of the Partnership, except (x) liens for taxes
not due, (y) purchase money security interests and (z) mechanics' liens
being disputed by the Partnership in good faith and by appropriate
proceedings;
(iv) Amend, modify or terminate any material agreements or other
instruments to which the Partnership is a party;
(v) Materially alter the manner of keeping the Partnership's
books, accounts or records or the accounting practices therein
reflected; or
(vi) Make any distribution to its partners.
(c) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required
to effect the transactions contemplated by this Contribution Agreement.
5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of
the Partnership Interest pursuant to ARTICLES 1 AND 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman), agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"), known or unknown,
suspected or unsuspected, arising out of or relating to the Partnership
Agreement, this Contribution Agreement or any other matter which exists at the
Closing, except for Contributor Claims arising from the breach of any
representation, warranty, covenant or obligation under this Contribution
Agreement.
8
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5.2 GENERAL RELEASE OF CONTRIBUTOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges,
complaints, claims, liabilities, damages, actions, causes of action, losses
and costs of any nature whatsoever (collectively, "OPERATING PARTNERSHIP
CLAIMS"), known or unknown, suspected or unsuspected, arising out of or
relating to the Partnership Agreement, this Contribution Agreement or any
other matter which exists at the Closing, except for Operating Partnership
Claims arising from the breach of any representation, warranty, covenant or
obligation under this Contribution Agreement.
5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership
each expressly waives and relinquishes all rights and benefits afforded by
Section 1542 of the California Civil Code and do so understanding and
acknowledging the significance and consequence of such specific waiver of
Section 1542 which provides:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected the
settlement with the debtor.
5.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT
As of the Closing, the Contributor waives and relinquishes all
rights and benefits otherwise afforded to Contributor under the Partnership
Agreement including, without limitation, any right to consent to or approve
of the sale or contribution by the other partners (or members) of the
Partnership of their partnership interests to the Company or the Operating
Partnership.
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating
Partnership (or its designee) and each of them individually and any successor
thereof from time to time (such Operating Partnership or designee or any such
successor of any of them acting in his, her or its capacity as
attorney-in-fact pursuant hereto, the "ATTORNEY-IN FACT") as the true and
lawful attorney-in-fact and agent of Contributor, to act in the name, place
and stead of Contributor to make, execute, acknowledge and deliver all such
other contracts, orders, receipts, notices, requests, instructions,
certificates, consents, letters and other writings (including without
limitation the execution of any Closing Documents or other documents relating
to the acquisition by the Operating Partnership of Contributor's Partnership
Interest), to provide
9
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information to the Securities and Exchange Commission and others about the
transactions contemplated hereby and, in general, to do all things and to
take all actions which the Attorney-in-Fact in its sole discretion may
consider necessary or proper in connection with or to carry out the
transactions contemplated by this Contribution Agreement, as fully as could
Contributor if personally present and acting. Further, Contributor hereby
grants to Attorney-in-Fact a proxy (the "PROXY") to vote Contributor's
Partnership Interest on any matter related to the Formation Transactions
presented to the Partnership's partners for a vote, including, but not
limited to, the transfer of interests in the Partnership by the other
partners.
Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable
and shall not be terminated by any act of Contributor, by operation of law or
by the occurrence of any other event or events, and if any other such act or
events shall occur before the completion of the transactions contemplated by
this Contribution Agreement, the Attorney-in-Fact shall nevertheless be
authorized and directed to complete all such transactions as if such other
act or events had not occurred and regardless of notice thereof. Contributor
agrees that, at the request of Operating Partnership it will promptly execute
a separate power of attorney and proxy on the same terms set forth in this
ARTICLE 6, such execution to be witnessed and notarized. Contributor hereby
authorizes the reliance of third parties on each of the Power of Attorney and
Proxy.
Contributor acknowledges that the Operating Partnership has, and any
designee or successor thereof acting as Attorney-in-Fact may have, an
economic interest in the transactions contemplated by this Contribution
Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no responsibility
or liability to any person by virtue of the Power of Attorney or Proxy
granted by Contributor hereby. The Attorney-in-Fact makes no representations
with respect to and shall have no responsibility for the Formation
Transactions or the Public Offering, or the acquisition of the Partnership
Interest by the Operating Partnership and shall not be liable for any error
or judgement or for any act done or omitted or for any mistake of fact or law
except for its own gross negligence or bad faith. Contributor agrees to
indemnify the Attorney-in-Fact for and to hold the Attorney-in-Fact harmless
against any loss, claim, damage or liability incurred on its part arising out
of or in connection with it acting as the Attorney-in-Fact under the Power of
Attorney or Proxy created by Contributor hereby, as well as the cost and
expense of investigating and defending against any such loss, claim, damage
or liability, except to the extend such loss, claim, damage or liability is
due to the gross negligence or bad faith of the Attorney-in-Fact.
Contributor agrees that the Attorney-in-Fact may consult with counsel of its
own choice (who may be counsel for Operating Partnership or its successors or
affiliates), and it shall have full and complete authorization and protection
for any action taken or suffered by it hereunder in good faith and in
accordance with the opinion of such counsel. It is understood that the
Attorney-in-Fact may, without breaching any express or implied
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obligation to Contributor hereunder, release, amend or modify any other power
of attorney or proxy granted by any other person under any related agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other
actions and execute such additional documents following the Closing as the
Operating Partnership may reasonably request in order to effect the
transactions contemplated hereby.
7.2 COUNTERPARTS. This Contribution Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed
by the internal laws of the State of California, without regard to the choice
of laws provisions thereof.
7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be
deemed communicated as of the date of personal delivery (including delivery
by overnight courier). Mailed notices shall be addressed as set forth below,
but any party may change the address set forth below by written notice to
other parties in accordance with this paragraph.
To the Contributor:
Arden Sawtelle Associates
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
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IN WITNESS WHEREOF, the parties have executed this Contribution
Agreement as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland Corporation,
general partner
By: /s/ Richard S. Ziman
--------------------------------------
Name: Richard S. Ziman
------------------------------------
Title: Chairman & CEO
-----------------------------------
"CONTRIBUTOR"
ARDEN SAWTELLE ASSOCIATES,
a California general partnership
By: MONTOUR REALTY ASSOCIATES,
a California GENERAL PARTNERSHIP,
general partner
By: /s/ Richard S. Ziman
--------------------------------------
Richard S. Ziman
General Partner
By: COLEMAN ENTERPRISES, INC.,
a California corporation
By: /s/ Victor J. Coleman
--------------------------------------
Victor J. Coleman
President
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EXHIBIT A
to
CONTRIBUTION AGREEMENT
CONSTITUENT INTERESTS OF CONTRIBUTOR'S PARTNERSHIP INTEREST
Property Held by the Minimum
Partnership Partnership Consideration
1950 Sawtelle 1950 Sawtelle $561,344
Associates, L.P. Boulevard
- ---------------------- ----------------------- -----------------
Total Minimum
Consideration $561,344
-----------------
-----------------
A-1
<PAGE>
EXHIBIT B
to
CONTRIBUTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the undersigned hereby assigns, transfers,
contributes and conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland
limited partnership (the "Operating Partnership"), its entire legal and
beneficial right, title and interest in and to 1950 Sawtelle Associates, L.P., a
California] limited partnership (the "Partnership"), including, without
limitation, all right, title and interest, if any, of the undersigned in and to
the assets of the Partnership and the right to receive distributions of money,
profits and other assets from the Partnership, presently existing or hereafter
at any time arising or accruing (such right, title and interest are hereinafter
collectively referred to as the "Partnership Interest"), TO HAVE AND TO HOLD the
same unto the Operating Partnership, its successors and assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership
assumes all obligations in respect of the Partnership Interest.
The Partnership owns certain real property as described in Attachment
"1" attached hereto.
Executed: _____ __, 1996
ARDEN SAWTELLE ASSOCIATES,
a California general partnership
By: MONTOUR REALTY ASSOCIATES,
a California GENERAL PARTNERSHIP,
general partner
By:
-------------------------------------
Richard S. Ziman
General Partner
B-1
<PAGE>
By: COLEMAN ENTERPRISES, INC.,
a California corporation
By:
-------------------------------------
Victor J. Coleman
President
B-2
<PAGE>
EXHIBIT C
to
CONTRIBUTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- -------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $ . . . . . . .
. . . . Computed on the consideration or
value of property conveyed; OR
. . . . Computed on the consideration or
value less liens or encumbrances
remaining at time of sale.
------------------------------------------
Signature of Declarant of Agent
determining tax - Firm Name
- --------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group Limited Partnership, a Maryland limited partnership
the real property in the City of ____________, County of ____________, State of
California, described as
Dated _______________________________ _____________________________________
STATE OF CALIFORNIA } _____________________________________
} _____________________________________
COUNTY OF _________________________ } _____________________________________
On _______________________ before me,
_____________________________________,
personally appeared __________________
______________________________________
personally known to me (or proved to
me on the basis of satisfactory evidence)
to be the person(s) whose names(s) is/
are subscribed to the within instrument
and acknowledged to me that he/she/they
executed the same in his/her/their
authorized capacity(ies), and that by
his/her/their signature(s) on the
instrument the person(s) or the entity
upon behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
Signature (This area for official notarial seal)
-----------------------------
C-1
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EXHIBIT D
TO
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1- ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the meanings
set forth below. Terms which are not defined below shall have the meaning set
forth for those terms as defined in the Contribution Agreement to which this
EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to Knowledge,
threatened that directly or indirectly affect any of the Contributor, the
Partnership or the Property.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
KNOWLEDGE: Means, with respect to any representation or warranty so
indicated, the actual knowledge, upon reasonable investigation and inquiry in
good faith, of the signatory to the Contribution Agreement.
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests, restrictions,
prior assignments, encumbrances, covenants, encroachments, assessments, rights
of others, licenses, easements, liabilities or claims of any kind or nature
whatsoever, direct or indirect, including, without limitation, interests in or
claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent or
the payment of which is actively being contested in good faith by appropriate
proceedings diligently pursued;
(b) Zoning laws and ordinances generally applicable to the district
in which the Property is located which are not violated by the existing
structures or present uses thereof;
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(c) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings diligently
pursued;
(d) non-exclusive easements for public utilities that do not have a
material adverse effect upon, or interfere with the use of, the Property; and
(e) any exceptions contained in the Title Policies.
PERSON: Means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating Partnership
as set forth below in this ARTICLE 2. Notwithstanding any other provision of
the Contribution Agreement or this EXHIBIT D, the Contributor makes
representations, warranties and indemnities only with respect to the interests
in the Partnership to be transferred by the Contributor identified on EXHIBIT A
to the Contribution Agreement.
2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and (B)
has all requisite power and authority to own, lease or operate its property and
to carry on its business as presently conducted and, to the extent required
under applicable law, is qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. This Contribution
Agreement and each agreement, document and instrument executed and delivered by
or on behalf of the contributor pursuant to this contribution Agreement
constitutes, or when executed and delivered will constitute, the legal, valid
and binding obligation of the Contributor, each enforceable against the
Contributor in accordance with its terms, as such enforceability may be limited
by bankruptcy or the application of equitable principles.
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2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the Contributor
in connection with the execution, delivery and performance of the Contribution
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE PARTNERSHIP INTERESTS. The Contributor is the
sole owner of the Partnership Interest and has good and valid title to such
Partnership Interest, free and clear of all Liens, other than Permitted Liens.
2.5 PARTNERSHIP INTEREST. The Partnership Interest constitutes all
of the issued and outstanding interests owned by the Contributor in the
Partnership. The Partnership Interest is validly issued, fully paid and
non-assessable, and was not issued in violation of any preemptive rights. The
Partnership Interest has been issued in compliance with applicable law and the
Partnership Agreement. There are no rights, subscriptions, warrants, options,
conversion rights, preemptive rights or agreements of any kind outstanding to
purchase or to otherwise acquire any of the interests which comprise the
Partnership Interest or any securities or obligations of any kind convertible
into any of the interests which comprise the Partnership Interest or other
equity interests or profit participation of any kind in the Partnership. At the
Closing, upon receipt of the consideration, the Contributor will have
transferred the Partnership Interest free and clear of all security interests,
mortgages, pledges, liens, encumbrances, claims and equities to the Operating
Partnership.
2.6 NO VIOLATION. None of the execution, delivery or performance of
the Contribution Agreement and the transactions contemplated hereby does or
will, with or without the giving of notice, lapse of time, or both, (i) violate,
conflict with, result in a breach of, or constitute a default under or give to
others any right of termination or cancellation of (A) the organizational
documents, including the charters and bylaws, if any, of the Contributor, (B)
any material agreement, document or instrument to which the Contributor is a
party or by which the Contributor or its Partnership Interest is bound or (C)
any term or provision of any judgment, order, writ, injunction, or decree of any
governmental or regulatory authority binding on the Contributor or by which the
Contributor or any of its assets or properties are bound or subject or (ii)
result in the creation of any Lien, other than a Permitted Lien, upon the
Partnership Interest.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withholding provisions, including those referred to in
ARTICLE 2.7 above and similar provisions under California law. If Contributor
fails to provide such certificates or affidavits, the Operating
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Partnership may withhold a portion of any payments otherwise to be made to
the Contributor as required by the Code or California law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Agreement are intended to be exempt from registration under the
Securities Act of 1933, as amended and the rules and regulations in effect
thereunder (the "ACT"). In furtherance thereof, the Contributor represents and
warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not as
a nominee or agent for any other person and not with a view to, or for offer or
sale in connection with, any distribution of any thereof. The Contributor
agrees and acknowledges that he, she or it will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(hereinafter, "TRANSFER") any of the OP Units unless (i) the Transfer is
pursuant to an effective registration statement under the Act and qualification
or other compliance under applicable blue sky or state securities laws, or (ii)
counsel for the Contributor (which counsel shall be reasonably acceptable to the
Operating Partnership) shall have furnished the Operating Partnership with an
opinion, reasonably satisfactory in form and substance to the Operating
Partnership, to the effect that no such registration is required because of the
availability of an exemption from registration under the Act and qualification
or other compliance under applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable,
sophisticated and experienced in business and financial matters; the Contributor
has previously invested in securities similar to the OP Units and fully
understands the limitations on transfer imposed by the Federal securities laws
and as described in the Contribution Agreement. The Contributor is able to bear
the economic risk of holding the OP Units for an indefinite period and is able
to afford the complete loss of his, her or its investment in the OP Units; the
Contributor has received and reviewed all information and documents about or
pertaining to the Company, the Operating Partnership, the business and prospects
of the Company and the Operating Partnership and the issuance of the OP Units as
the Contributor deems necessary or desirable, and has been given the opportunity
to obtain any additional information or documents and to ask questions and
receive answers about such information and documents, the Company, the Operating
Partnership, the business and prospects of the Company and the Operating
Partnership and the OP Units which the Contributor deems necessary or desirable
to evaluate the merits and risks related to his, her or its investment in the OP
Units; and the Contributor understands and has taken cognizance of all risk
factors related to the purchase of the OP Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he, she
or it has been advised that (i) the OP Units and the common stock of the Company
into which the OP Units may be exchanged in certain circumstances (the "COMMON
STOCK") must be held indefinitely, and the Contributor must continue to bear the
economic risk of the investment in the OP Units (and any Common Stock that might
be exchanged therefor) unless they are subsequently registered under the Act or
an exemption from such registration is available, (ii)
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a restrictive legend in the form hereafter set forth shall be placed on the
certificates representing the OP Units (and any Common Stock that might be
exchanged therefor), and (iii) a notation shall be made in the appropriate
records of the Operating Partnership (and the Company) indicating that the OP
Units (and any Common Stock that might be exchanged therefor) are subject to
restrictions on transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an individual,
such individual is an "accredited investor" (as such term is defined in Rule
501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his or
her spouse, in excess of $1,000,000; or
(iii) had an individual annual adjusted gross income in
excess of $200,000 in each of the two most recent years and reasonably expects
to have annual adjusted gross income in excess of $200,000 in the current year;
or
(iv) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an annual
adjusted gross income, with his spouse, in excess of $300,000 in the current
year.
If the Contributor is not an individual, it is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
2.9.5 LEGENDING. Each certificate representing the OP Units (and
any Common Stock that might be exchanged therefor) shall bear the following
legend:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE
PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS;
In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND
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TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS
AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE "CODE"). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND
EXCEPT AS EXPRESSLY PROVIDED IN THE CORPORATION'S CHARTER, (1) NO
PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY OWN SHARES OF THE
CORPORATION'S COMMON STOCK IN EXCESS OF 9.0% (BY VALUE OR BY NUMBER
OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING COMMON
STOCK OF THE CORPORATION; (2) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY
OWN COMMON STOCK THAT WOULD RESULT IN THE CORPORATION BEING "CLOSELY HELD"
UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE CORPORATION TO
FAIL TO QUALIFY AS A REIT; AND (3) NO PERSON MAY TRANSFER COMMON STOCK
IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE CORPORATION
BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO BENEFICIALLY OR
CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN
COMMON STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK IN EXCESS OF THE ABOVE LIMITATIONS MUST
IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE RESTRICTIONS ON
TRANSFER OR OWNERSHIP ARE VIOLATED, THE COMMON STOCK REPRESENTED HEREBY
WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A TRUST FOR THE BENEFIT
OF ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE CORPORATION
MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS SPECIFIED BY THE BOARD
OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF DIRECTORS DETERMINES
THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS
DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS,
ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE
MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS LEGEND HAVE THE
MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION, AS THE SAME MAY BE
AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS
ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF COMMON
STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE
DIRECTED TO THE SECRETARY OF THE CORPORATION.
2.10 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of the Operating Partnership or any of its affiliates to pay any
finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by the Contribution Agreement.
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2.11 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Partnership
Interest to the Operating Partnership.
2.12 NO MISREPRESENTATIONS. No representation, warranty or statement
made, or information provided, by the Contributor in the Contribution Agreement
or in any other document or instrument furnished or to be furnished by or on
behalf of the Contributor pursuant hereto or as contemplated hereby (i) contains
or will contain any untrue statement of a material fact or (ii) omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading.
2.13 TAXES. For federal income tax purposes, the Partnership is, and
at all times during its existence has been, a partnership (rather than an
association or a publicly traded partnership taxable as a corporation). The
Partnership has filed all tax returns required to be filed by it and has paid
all taxes required to be paid by it. The transactions contemplated hereby will
not result in any tax liability to the Partnership, the Company or the Operating
Partnership. No tax lien or other charge exists or will exist upon consummation
of the transactions contemplated hereby with respect to any Property except such
tax liens for which the tax is not due and has been reserved for payment by the
Partnership or tax liens or other charges which individually or in the aggregate
would not have a material adverse effect on the Operating Partnership.
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered pursuant
hereto shall survive the Closing.
(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this EXHIBIT
D or the Contribution Agreement for monetary damages (or otherwise) for breach
of any of its representations and warranties contained in this EXHIBIT D or the
Contribution Agreement, or in any Schedule, certificate or affidavit delivered
by it pursuant thereto, other than pursuant to the succeeding provisions of this
ARTICLE 3.
3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the Operating
Partnership, the REIT, and their affiliates and each of their respective
directors, officers, employees, agents, representatives and affiliates (each of
which is an "INDEMNIFIED PARTY") from and against any and all claims, losses,
damages, liabilities and expenses, including, without limitation, amounts paid
in settlement, reasonable attorneys' fees, costs of investigation and
remediation, costs of investigative, judicial or administrative proceedings or
appeals therefrom, and costs of
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attachment or similar bonds (collectively, "LOSSES"), asserted against,
imposed upon or incurred by the Indemnified Party in connection with or as a
result of any breach of a representation or warranty of the Contributor
contained in the Contribution Agreement or in any Schedule, certificate or
affidavit delivered by the Contributor pursuant to the Contribution Agreement.
(b) The Contributor shall indemnify and hold harmless the Indemnified
Parties from and against any and all Losses, asserted against, imposed upon or
incurred by the Indemnified Parties in connection with or as a result of:
(i) all fees and expenses of the Contributor in connection with
the transactions contemplated by the Contribution Agreement;
(ii) any liabilities or obligations incurred, arising from or out
of, in connection with or as a result of the failure of the Contributor to
obtain all consents required to consummate the transactions contemplated by
the Contribution Agreement.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when expenses
are incurred) to an Indemnified Party of OP Units, subject to the limits on
ownership and transfer of REIT shares set forth in the Company's articles of
incorporation. Any OP Units delivered to an Indemnified Party hereunder shall
be valued based upon the initial public offering price of the Company's Common
Stock.
3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably practicable
after receipt by the Indemnified Party of notice of any liability or claim
incurred by or asserted against the Indemnified Party that is subject to
indemnification under this ARTICLE 3, the Indemnified Party shall give notice
thereof to the Contributor, including liabilities or claims to be applied
against the indemnification baskets established pursuant to ARTICLE 3.5 hereof.
The Indemnified Party may at its option demand indemnity under this ARTICLE 3 as
soon as a claim has been threatened by a third party, regardless of whether an
actual Loss has been suffered, so long as the Indemnified Party shall in good
faith determine that such claim is not frivolous and that the Indemnified Party
may be liable for, or otherwise incur, a Loss as a result thereof and shall give
notice of such determination to the Contributor. The Indemnified Party shall
permit the Contributor, at its option and expense, to assume the defense of any
such claim by counsel selected by the Contributor and reasonably satisfactory to
the Indemnified Party, and to settle or otherwise dispose of the same; PROVIDED,
HOWEVER, that the Indemnified Party may at all times participate in such defense
at its expense; and PROVIDED FURTHER, HOWEVER, that the Contributor shall not,
in defense of any such claim, except with the prior written consent of the
Indemnified Party in its sole and absolute discretion, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in question
to the Indemnified Party and its affiliates a release of all liabilities in
respect of such claims, or that does not result only in the payment of money
damages. If the Contributor shall fail to undertake such defense within 30 days
after such notice, or within such shorter time as may be reasonable under the
circumstances, then the Indemnified Party shall
D-8
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have the right to undertake the defense, compromise or settlement of such
liability or claim on behalf of and for the account of the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER ARTICLE
3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the total amount recoverable by the Indemnified Parties under
ARTICLE 3.2 exceeds $200,000; PROVIDED, HOWEVER, that once the total amount
recoverable by the Indemnified Parties under ARTICLE 3.2 hereof exceeds $200,000
in the aggregate, the Contributor's obligation under ARTICLE 3.2 hereof shall be
for the full amount of such obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this ARTICLE
3 with respect to any Partnership Interest to the extent such payments in the
aggregate would exceed the value of the OP Units (based upon the initial public
offering price of the Common Stock) received by the Contributor at the Closing.
Notwithstanding anything contained herein to the contrary, the Indemnified
Parties shall look first to the Contributor's OP Units for indemnification under
this ARTICLE 3 and then to the Contributor's other assets.
3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification under
ARTICLE 3.2 hereof must be asserted in writing by the Indemnified Party, stating
the nature of the Losses and the basis for indemnification therefor:
(i) within one year after the Closing in the case of a claim
under ARTICLE 3.2 hereof (other than a claim under ARTICLE 3.2(a) based
upon a breach of the representations, and warranties of the Contributor set
forth in ARTICLE 2.13 hereof as specified below; and
(ii) prior to the expiration of the applicable statutes of
limitations in the case of a claim under ARTICLE 3.2(a) based upon a breach
of the representations and warranties of the Contributor set forth in
ARTICLE 2.13 hereof.
(b) If so asserted in writing within one year after the Closing, such
claims for indemnification shall survive until resolved by mutual agreement
between the Contributor and the Indemnified Party or by judicial determination.
Any claim for indemnification not so asserted in writing within one year after
the Closing shall not thereafter be asserted and shall forever be waived.
3.7 RESERVATION OF CONTRIBUTOR RIGHTS.
Notwithstanding anything else in this EXHIBIT D or the Contribution
Agreement to the contrary, the Contributor reserves unto itself all rights and
remedies (including rights to
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seek contribution) against any third party indemnitors and prior property
owners or occupants for which the Partnership has been indemnified by the
Contributor hereunder. To the extent the Contributor's rights against any
such third party indemnitors, owners or occupants may be prejudiced by
actions or inactions by any owner or occupant of the Property after the
Closing, the Contributor's indemnity obligation shall be reduced in
accordance with the effect of the actions or inactions which so prejudiced
the Contributor's rights.
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EXHIBIT 10.23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
by and between
COLEMAN ENTERPRISES, INC.,
a California corporataion
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP
a Maryland limited partnership
Dated as of June 17, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
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RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS. . . . . 2
1.1 Contribution Transaction . . . . . . . . . . . . . . . . . . . . . 2
1.2 Minimum Consideration and Exchange of OP Units . . . . . . . . . . 2
1.3 Additional Consideration . . . . . . . . . . . . . . . . . . . . . 2
1.4 Adjusted Consideration . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Contribution of Certain Rights . . . . . . . . . . . . . . . . . . 3
1.7 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Treatment as Contribution. . . . . . . . . . . . . . . . . . . . . 4
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Closing Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. . . . . . . . . . . . . 6
3.1 Representations and Warranties of the Operating Partnership. . . . 6
3.2 Representations and Warranties of Contributor. . . . . . . . . . . 7
3.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. COVENANTS OF CONTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . 7
5. RELEASES AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 General Release of Operating Partnership . . . . . . . . . . . . . 8
5.2 General Release of Contributor . . . . . . . . . . . . . . . . . . 9
5.3 Waiver of Section 1542 Protections . . . . . . . . . . . . . . . . 9
5.4 Waiver of Rights Under Partnership Agreement . . . . . . . . . . . 9
6. POWER OF ATTORNEY
6.1 Grant of Power of Attorney . . . . . . . . . . . . . . . . . . . . 9
6.2 Limitation on Liability. . . . . . . . . . . . . . . . . . . . . . 10
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
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EXHIBIT LIST
SECTION FIRST
EXHIBITS REFERENCED
- -------- -------------
A Constituent Interests of Contributor's Partnership
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . Recital D
B Contribution and Assumption Agreement . . . . . . . . . . . . . . 1.1
C Form of Quitclaim . . . . . . . . . . . . . . . . . . . . . . . . 2.1
D Representations and Warranties of Contributor. . . . . . . . . . . 3.2
Attachment 1 . . . . . . . . . . . . . . .List of Portfolio Agreements
ii
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (hereinafter referred to as the
"CONTRIBUTION AGREEMENT") is made and entered into as of June 17, 1996 by and
between Arden Realty Group Limited Partnership, a Maryland limited partnership
(the "OPERATING PARTNERSHIP"), and Coleman Enterprises, Inc., a California
corporation (the "CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership of
a portfolio of office properties (the "PARTICIPATING PROPERTIES") located in
Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct interests
in certain of the Participating Properties (the "PROPERTY INTERESTS") and all of
the interests in certain limited partnerships, certain limited liability
companies and certain other entities (collectively the "PARTICIPATING
PARTNERSHIPS AND LLCS") which currently own directly or indirectly the
Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Arden Realty Group,
Inc., a Maryland corporation (the "COMPANY"), which will operate as a self-
administered and self-managed real estate investment trust ("REIT") and will be
the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members
of the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. The Contributor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIP") which
Partnership owns directly or indirectly interests in certain of the
Participating Properties also as set forth on Exhibit A (the "PROPERTY" or the
"PROPERTIES"). As used herein, "PARTNERSHIP AGREEMENT" means the partnership
agreement or membership agreement, as applicable, under which the Partnership
was formed.
E. The Contributor desires to, and the Operating Partnership desires
the Contributor to, contribute to the Operating Partnership, all of its right,
title and interest, as a partner (or member) of the Partnership, including,
without limitation, all of its voting rights and interests in the capital,
profits and losses of the Partnership or any property distributable therefrom,
constituting all of its interests in the Partnership (such right, title and
interest are hereinafter collectively referred to as the "PARTNERSHIP
INTEREST"), in exchange for partnership units in the Operating Partnership (the
"OP UNITS"), on the terms and subject to the conditions set forth herein.
<PAGE>
NOW, THEREFORE, for and in consideration of the foregoing premises, and the
mutual undertakings set forth below, the parties hereto agree as follows:
TERMS OF AGREEMENT
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS
1.1 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to the
terms and conditions contained in this Contribution Agreement, the Contributor
shall transfer to the Operating Partnership, absolutely and unconditionally, all
of its Partnership Interest (as such term is defined in Recital B herein). The
contribution of the Contributor's Partnership Interest shall be evidenced by a
"CONTRIBUTION AND ASSUMPTION AGREEMENT" in substantially the form of EXHIBIT "B"
attached hereto. Furthermore, the Contributor shall cause each of its
individual constituent partners and/or members (as applicable) to execute and
have duly acknowledged an individual quitclaim deed for each Property in the
form of EXHIBIT "C" quitclaiming to the Operating Partnership any direct or
indirect ownership interest in and to the Properties. The parties shall take
such additional actions and execute such additional documentation as may be
required by the Partnership Agreement and the Agreement of Limited Partnership
of the Operating Partnership (the "OP AGREEMENT") in order to effect the
transactions contemplated hereby.
1.2 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS.
Subject to ARTICLES 1.3 AND 1.4 below, the Operating Partnership
shall, in exchange for the Partnership Interest, transfer to the Contributor the
number of OP Units having a value, based on one OP Unit being equal in value to
the Public Offering price for one share of the Company's common stock, equal to
the value indicated on Exhibit A as Contributor's "Total Minimum Consideration."
The transfer of the OP Units to the Contributor shall be evidenced by either an
amendment (the "AMENDMENT") to the OP Agreement or by certificates relating to
such units (the "CERTIFICATES") in either case, as shall be acceptable to the
Contributor. The parties shall take such additional actions and execute such
additional documentation as may be required by the Partnership Agreement and the
OP Agreement in order to effect the transactions contemplated hereby.
1.3 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.4 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.2) of the OP Units
available to all OP Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.4) of all OP
Participants (the "ADDITIONAL CONSIDERATION"), then the Additional Consideration
or a portion thereof, if any, shall be allocated among the OP Participants
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<PAGE>
(including the Contributor) based upon the relative values of the Contributor's
Partnership Interest and the interests contributed by each of the other OP
Participants, in each case as determined by Richard S. Ziman, in his sole
discretion.
1.4 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular interest that constitutes part of the Partnership Interest, if in
good faith the Operating Partnership determines that the ownership of such
interest or the underlying Property would be inappropriate for the Operating
Partnership for any reason whatsoever. Contributor hereby agrees that, in such
event, the Contributor's Total Minimum Consideration may be reduced by an amount
determined by Richard S. Ziman, in his sole discretion, to reflect the reduction
in total value of the Partnership Interest ultimately contributed by the
Contributor.
1.5 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.3 AND 1.4 hereof, and
any and all such determinations shall be final and binding on all parties.
1.6 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to the
Operating Partnership all of its rights and interests, if any, including rights
to indemnification in favor of the Contributor, if any, under the agreements
pursuant to which the Contributor or its affiliates initially acquired the
Partnership Interest transferred pursuant to this Contribution Agreement.
1.7 PRORATIONS
At the Closing, or as promptly as practicable following the Closing,
to the extent such matters are not the right or responsibility of all tenants of
a given Property, all revenue and all charges that are customarily prorated in
transactions of this nature, including accrued rent currently due and payable,
overpaid taxes or fees, real and personal property taxes, common area
maintenance charges and other similar periodic charges payable or receivable
with respect to such Property shall be ratably prorated between the partners of
the Partnership which holds such Property prior to the Closing and the Operating
Partnership on and after the Closing, effective as of the Closing. After
providing for such prorations, (i) if the Partnership has a resultant cash
surplus, the value of the Contributor's Partnership Interest shall be increased
in proportion to Contributor's ratable share of such cash surplus and additional
OP Units (based on the initial Public Offering price of the Company's common
stock) shall be issued to the Contributor as a valuation adjustment to the
Contributor's Total Minimum Consideration, and (ii) if the Partnership has a
resultant cash deficit, the value of the Contributor's Partnership Interest
shall be reduced in proportion to
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<PAGE>
Contributor's ratable share of such cash deficit, and fewer OP Units shall be
issued to the Contributor as a valuation adjustment to the Contributor's Total
Minimum Consideration, unless such deficit is cured prior to Closing.
1.8 TREATMENT AS CONTRIBUTION
The transfer, assignment and exchange of interests effectuated with
respect to the Operating Partnership, pursuant to this Contribution Agreement
shall constitute, a "Capital Contribution" pursuant to Article 4 of the OP
Agreement and is intended to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed with
the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to this
Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor contained
in this Contribution Agreement shall have been true and correct in all material
respects on the date such representations and warranties were made, and shall be
true and correct in all material respects on the Closing Date as if made at and
as of such date;
(b) Each of the obligations of the Contributor to be performed by it
shall have been duly performed by it on or before the Closing Date;
(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to be
delivered pursuant to SECTION 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
4
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(f) No order, statute, rule, regulation, executive order, injunction,
stay, decree or restraining order shall have been enacted, entered, promulgated
or enforced by any court of competent jurisdiction or governmental or regulatory
authority or instrumentality that prohibits the consummation of the transactions
contemplated hereby, and no litigation or governmental proceeding seeking such
an order shall be pending or threatened;
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in the Partnership's businesses;
(h) All existing management agreements with respect to the Properties
shall have been contributed to the Operating Partnership prior to or
simultaneously with the Closing; and
(i) All management functions with respect to the Properties presently
conducted by Arden Realty Group, Inc., a Maryland corporation, shall be assumed
by the Operating Partnership.
The foregoing conditions may be waived by the Operating Partnership in
its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the Public
Offering from the underwriter(s), at 10:00 a.m. in the office of Latham &
Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California (the
"CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.1 AND 1.2
of this Contribution Agreement, and all closing deliveries, and the consummation
of the Public Offering, shall be deemed concurrent for all purposes.
2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered through the
Attorney-in-Fact (see ARTICLE 6.1 below), the legal documents and other items
(collectively the "CLOSING DOCUMENTS") necessary to carry out the intention of
this Contribution Agreement, which Closing Documents and other items shall
include, without limitation, the following:
(i) A Contribution and Assumption Agreement for the Contributor's
Partnership Interest;
(ii) An individual quitclaim deed for each Property fully executed and
duly acknowledged from each of the individual constituent partners and/or
members of the Contributor, as required by the Operating Partnership;
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(iii) The Amendment or the Certificates evidencing the transfer of
OP Units to the Contributor;
(iv) American Land Title Assurances ("ALTA") policies of title
insurance with appropriate endorsements and levels of reinsurance for the
Properties issued as of the Closing Date or endorsements or other
assurances that the existing policy or policies of title insurance are
sufficient for purposes of this Contribution Agreement, which the
Contributor shall cause the title company to issue to the Operating
Partnership in a form acceptable to the Operating Partnership (the "TITLE
POLICIES") including satisfaction by the Contributor of any and all title
company requirements applicable to it;
(v) The Partnership's books and records and securities or other
evidences of ownership held by the Contributor; and
(vi) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number and
that the Contributor is not a foreign person pursuant to section 1445(b)(2)
of the Code and a comparable affidavit satisfying California and any other
withholding requirements.
2.4 CLOSING COSTS
The Operating Partnership shall pay any documentary transfer taxes,
escrow charges, title charges and recording taxes or fees incurred in connection
with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has been
duly formed and is validly existing with requisite power to enter this
Contribution Agreement and all agreements contemplated hereby. The persons
and entities executing this Contribution Agreement and all agreements
contemplated hereby on behalf of the Operating Partnership have the power
and authority to enter into this Contribution Agreement and such other
contemplated agreements; and
(b) DUE AUTHORIZATION. The execution, delivery and performance
by the Operating Partnership of its obligations under this Contribution
Agreement and all agreements contemplated hereby will not contravene any
provision of applicable law, the OP Agreement, charter, declaration of
trust or other constituent document of
6
<PAGE>
the Operating Partnership, or any agreement or other instrument binding
upon the Operating Partnership or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Operating
Partnership, and no consent, approval, authorization or order of or
qualification with any governmental body or agency is required for the
performance by the Operating Partnership of its obligations under this
Contribution Agreement and all other agreements contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto, and
acknowledges and agrees to be bound by the indemnification provisions contained
therein.
3.3 INDEMNIFICATION
The Operating Partnership shall indemnify and hold harmless the
Contributor and its directors, officers, employees, agents, representatives and
affiliates (each of which is an "INDEMNIFIED CONTRIBUTOR PARTY") from and
against any and all claims, losses, damages, liabilities and expenses, including
without limitation, amounts paid in settlement, reasonable attorneys' fees,
costs of investigation and remediation, costs of investigative judicial or
administrative proceedings or appeals therefrom and costs of attachment or
similar bonds (collectively, "LOSSES") asserted against, imposed upon or
incurred by the Indemnified Contributor Party in connection with: (i) any breach
of a representation or warranty of the Operating Partnership contained in this
Contribution Agreement; (ii) any liabilities or obligations incurred, arising
from or out of, in connection with or as a result of any claims made or actions
brought by or against the Contributor, the Partnership, the Properties or an
Indemnified Contributor Party, that arise from or out of, in connection with or
as a result of any Contamination (as defined in Exhibit D hereto) of the
Properties regardless of when or how occurring, except to the extent, and only
to the extent, such Losses arise from or constitute a breach of a representation
and warranty of Contributor under Exhibit D; and (iii) all fees, costs and
expenses of the Operating Partnership in connection with the transactions
contemplated by the Contribution Agreement, including without limitation any and
all costs associated with the transfers contemplated herein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor shall
not:
(i) Sell or transfer all or any portion of the Partnership
Interest; or
(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Partnership Interest.
7
<PAGE>
(b) From the date hereof through the Closing, the Contributor shall
permit the Partnership to conduct its business in the ordinary course,
consistent with past practice, and shall not permit the Partnership to:
(i) Enter into any material transaction not in the ordinary
course of business;
(ii) Sell or transfer any assets of the Partnership;
(iii) Mortgage, pledge or encumber (or permit to become
encumbered) any assets of the Partnership, except (x) liens for taxes not
due, (y) purchase money security interests and (z) mechanics' liens being
disputed by the Partnership in good faith and by appropriate proceedings;
(iv) Amend, modify or terminate any material agreements or other
instruments to which the Partnership is a party;
(v) Materially alter the manner of keeping the Partnership's
books, accounts or records or the accounting practices therein reflected;
or
(vi) Make any distribution to its partners.
(c) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required to
effect the transactions contemplated by this Contribution Agreement.
5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of the
Partnership Interest pursuant to ARTICLES 1 AND 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman), agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"), known or unknown,
suspected or unsuspected, arising out of or relating to the Partnership
Agreement, this Contribution Agreement or any other matter which exists at the
Closing, except for Contributor Claims arising from the breach of any
representation, warranty, covenant or obligation under this Contribution
Agreement.
8
<PAGE>
5.2 GENERAL RELEASE OF CONTRIBUTOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "OPERATING PARTNERSHIP CLAIMS"), known or
unknown, suspected or unsuspected, arising out of or relating to the Partnership
Agreement, this Contribution Agreement or any other matter which exists at the
Closing, except for Operating Partnership Claims arising from the breach of any
representation, warranty, covenant or obligation under this Contribution
Agreement.
5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership each
expressly waives and relinquishes all rights and benefits afforded by Section
1542 of the California Civil Code and do so understanding and acknowledging the
significance and consequence of such specific waiver of Section 1542 which
provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected the settlement with the
debtor.
5.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT
As of the Closing, the Contributor waives and relinquishes all rights
and benefits otherwise afforded to Contributor under the Partnership Agreement
including, without limitation, any right to consent to or approve of the sale or
contribution by the other partners (or members) of the Partnership of their
partnership interests to the Company or the Operating Partnership.
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating Partnership
(or its designee) and each of them individually and any successor thereof from
time to time (such Operating Partnership or designee or any such successor of
any of them acting in his, her or its capacity as attorney-in-fact pursuant
hereto, the "ATTORNEY-IN FACT") as the true and lawful attorney-in-fact and
agent of Contributor, to act in the name, place and stead of Contributor to
make, execute, acknowledge and deliver all such other contracts, orders,
receipts, notices, requests, instructions, certificates, consents, letters and
other writings (including without limitation the execution of any Closing
Documents or other documents relating to the acquisition by the Operating
Partnership of Contributor's Partnership Interest), to provide
9
<PAGE>
information to the Securities and Exchange Commission and others about the
transactions contemplated hereby and, in general, to do all things and to take
all actions which the Attorney-in-Fact in its sole discretion may consider
necessary or proper in connection with or to carry out the transactions
contemplated by this Contribution Agreement, as fully as could Contributor if
personally present and acting. Further, Contributor hereby grants to Attorney-
in-Fact a proxy (the "PROXY") to vote Contributor's Partnership Interest on any
matter related to the Formation Transactions presented to the Partnership's
partners for a vote, including, but not limited to, the transfer of interests in
the Partnership by the other partners.
Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable and
shall not be terminated by any act of Contributor, by operation of law or by the
occurrence of any other event or events, and if any other such act or events
shall occur before the completion of the transactions contemplated by this
Contribution Agreement, the Attorney-in-Fact shall nevertheless be authorized
and directed to complete all such transactions as if such other act or events
had not occurred and regardless of notice thereof. Contributor agrees that, at
the request of Operating Partnership it will promptly execute a separate power
of attorney and proxy on the same terms set forth in this ARTICLE 6, such
execution to be witnessed and notarized. Contributor hereby authorizes the
reliance of third parties on each of the Power of Attorney and Proxy.
Contributor acknowledges that the Operating Partnership has, and any
designee or successor thereof acting as Attorney-in-Fact may have, an economic
interest in the transactions contemplated by this Contribution Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no responsibility
or liability to any person by virtue of the Power of Attorney or Proxy granted
by Contributor hereby. The Attorney-in-Fact makes no representations with
respect to and shall have no responsibility for the Formation Transactions or
the Public Offering, or the acquisition of the Partnership Interest by the
Operating Partnership and shall not be liable for any error or judgement or for
any act done or omitted or for any mistake of fact or law except for its own
gross negligence or bad faith. Contributor agrees to indemnify the Attorney-in-
Fact for and to hold the Attorney-in-Fact harmless against any loss, claim,
damage or liability incurred on its part arising out of or in connection with it
acting as the Attorney-in-Fact under the Power of Attorney or Proxy created by
Contributor hereby, as well as the cost and expense of investigating and
defending against any such loss, claim, damage or liability, except to the
extend such loss, claim, damage or liability is due to the gross negligence or
bad faith of the Attorney-in-Fact. Contributor agrees that the Attorney-in-Fact
may consult with counsel of its own choice (who may be counsel for Operating
Partnership or its successors or affiliates), and it shall have full and
complete authorization and protection for any action taken or suffered by it
hereunder in good faith and in accordance with the opinion of such counsel. It
is understood that the Attorney-in-Fact may, without breaching any express or
implied
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obligation to Contributor hereunder, release, amend or modify any other power of
attorney or proxy granted by any other person under any related agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other
actions and execute such additional documents following the Closing as the
Operating Partnership may reasonably request in order to effect the transactions
contemplated hereby.
7.2 COUNTERPARTS. This Contribution Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed by
the internal laws of the State of California, without regard to the choice of
laws provisions thereof.
7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
communicated as of the date of personal delivery (including delivery by
overnight courier). Mailed notices shall be addressed as set forth below, but
any party may change the address set forth below by written notice to other
parties in accordance with this paragraph.
To the Contributor:
Coleman Enterprises, Inc.
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
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IN WITNESS WHEREOF, the parties have executed this Contribution
Agreement as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED
PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland Corporation,
general partner
By: /s/ Richard S. Ziman
----------------------------
Name: Richard S. Ziman
--------------------------
Title: Chairman & CEO
-------------------------
"CONTRIBUTOR"
COLEMAN ENTERPRISES, INC.,
a California corporataion
By: /s/ Victor J. Coleman
----------------------------------
Victor J. Coleman
President
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EXHIBIT A
to
CONTRIBUTION AGREEMENT
----------------------
CONSTITUENT INTERESTS OF CONTRIBUTOR'S PARTNERSHIP INTEREST
Properties Held by the Minimum
Partnership Partnership Consideration
- -------------------- -------------- -------------
Arden BV Associates, Woodland Hills $1,190,496
LLC Financial Center;
Beverly Atrium
- ------------------- ------------------- ------------
Total Minimum
Consideration $1,190,496
-------------
-------------
A-1
<PAGE>
EXHIBIT B
to
CONTRIBUTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the undersigned hereby assigns, transfers, contributes
and conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland limited
partnership (the "Operating Partnership"), its entire legal and beneficial
right, title and interest in and to Arden BV Associates, LLC, a California
limited liability company (the "Partnership"), including, without limitation,
all right, title and interest, if any, of the undersigned in and to the assets
of the Partnership and the right to receive distributions of money, profits and
other assets from the Partnership, presently existing or hereafter at any time
arising or accruing (such right, title and interest are hereinafter collectively
referred to as the "Partnership Interest"), TO HAVE AND TO HOLD the same unto
the Operating Partnership, its successors and assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership assumes
all obligations in respect of the Partnership Interest.
The Partnership owns certain real property as described in Attachment "1"
attached hereto.
Executed: ________________ ___, 1996
COLEMAN ENTERPRISES, INC.,
a California corporataion
By:
------------------------
Victor J. Coleman
President
B-1
<PAGE>
EXHIBIT C
to
CONTRIBUTION AGREEMENT
----------------------
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- --------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $..................
...... Computed on the consideration or
value of property conveyed; OR
...... Computed on the consideration or
value less liens or encumbrances
remaining at time of sale
-----------------------------------------
Signature of Declarant of Agent
determining tax - Firm Name
- --------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group Limited Partnership, a Maryland limited partnership
the real property in the City of______________, County of ____________, State of
California, described as
Dated _________________________________ ___________________________________
STATE OF CALIFORNIA } ___________________________________
}
COUNTY OF ___________________________ } ___________________________________
On _________________________before me, ___________________________________
______________________________________,
personally appeared ___________________
_______________________________________
personally known to me (or proved to me
on the basis of satisfactory evidence)
to be the person(s) whose names(s)
is/are subscribed to the within
instrument and acknowledged to me that
he/she/they executed the same in
his/her/their authorized capacity(ies),
and that by his/her/their signature(s)
on the instrument the person(s) or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
(This area for official notarial seal)
Signature _____________________________
C-1
<PAGE>
EXHIBIT D
to
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1- ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the meanings
set forth below. Terms which are not defined below shall have the meaning set
forth for those terms as defined in the Contribution Agreement to which this
EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to Knowledge,
threatened that directly or indirectly affect any of the Contributor, the
Partnership or the Properties.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
INDEMNIFYING PARTY: Means any party required to indemnify any other
party under ARTICLE 3.2 of this EXHIBIT D or under the indemnification
provisions substantially identical to ARTICLE 3.2 hereof in the other Portfolio
Agreements.
KNOWLEDGE: Means, with respect to any representation or warranty so
indicated, the actual knowledge, upon reasonable investigation and inquiry in
good faith, of the signatory to the Contribution Agreement.
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests, restrictions,
prior assignments, encumbrances, covenants, encroachments, assessments, rights
of others, licenses, easements, liabilities or claims of any kind or nature
whatsoever, direct or indirect, including, without limitation, interests in or
claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
D-1
<PAGE>
PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent or
the payment of which is actively being contested in good faith by appropriate
proceedings diligently pursued;
(b) Zoning laws and ordinances generally applicable to the districts
in which the Properties are located which are not violated by the existing
structures or present uses thereof;
(c) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings diligently
pursued;
(d) non-exclusive easements for public utilities that do not have a
material adverse effect upon, or interfere with the use of, the Properties; and
(e) any exceptions contained in the Title Policies.
PERSON: Means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PORTFOLIO AGREEMENTS: Means the agreements, including the
Contribution Agreement, listed on ATTACHMENT "1" hereto, which contemplate the
transfer of partnership and/or limited liability company membership interests in
certain of the Participating Partnerships and LLCs from any entity directly or
indirectly owned by Contributor to the Company and the Operating Partnership.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating Partnership
as set forth below in this ARTICLE 2. Notwithstanding any other provision of
the Contribution Agreement or this EXHIBIT D, the Contributor makes
representations, warranties and indemnities only with respect to the interests
in the Partnership to be transferred by the Contributor identified on EXHIBIT A
to the Contribution Agreement.
D-2
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2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and (B)
has all requisite power and authority to own, lease or operate its property and
to carry on its business as presently conducted and, to the extent required
under applicable law, is qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. This Contribution
Agreement and each agreement, document and instrument executed and delivered by
or on behalf of the contributor pursuant to this contribution Agreement
constitutes, or when executed and delivered will constitute, the legal, valid
and binding obligation of the Contributor, each enforceable against the
Contributor in accordance with its terms, as such enforceability may be limited
by bankruptcy or the application of equitable principles.
2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the Contributor
in connection with the execution, delivery and performance of the Contribution
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE PARTNERSHIP INTERESTS. The Contributor is the
sole owner of the Partnership Interest and has good and valid title to such
Partnership Interest, free and clear of all Liens, other than Permitted Liens.
2.5 PARTNERSHIP INTEREST. The Partnership Interest constitutes all
of the issued and outstanding interests owned by the Contributor in the
Partnership. The Partnership Interest is validly issued, fully paid and
non-assessable, and was not issued in violation of any preemptive rights. The
Partnership Interest has been issued in compliance with applicable law and the
Partnership Agreement. There are no rights, subscriptions, warrants, options,
conversion rights, preemptive rights or agreements of any kind outstanding to
purchase or to otherwise acquire any of the interests which comprise the
Partnership Interest or any securities or obligations of any kind convertible
into any of the interests which comprise the Partnership Interest or other
equity interests or profit participation of any kind in the Partnership. At the
Closing, upon receipt of the consideration, the Contributor will have
transferred the Partnership Interest free and clear of all security interests,
mortgages, pledges, liens, encumbrances, claims and equities to the Operating
Partnership.
2.6 NO VIOLATION. None of the execution, delivery or performance of
the Contribution Agreement and the transactions contemplated hereby does or
will, with or without the giving of notice, lapse of time, or both, (i) violate,
conflict with, result in a breach of, or constitute a default under or give to
others any right of termination or cancellation of (A) the organizational
documents, including the charters and bylaws, if any, of the Contributor, (B)
any
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material agreement, document or instrument to which the Contributor is a party
or by which the Contributor or its Partnership Interest is bound or (C) any term
or provision of any judgment, order, writ, injunction, or decree of any
governmental or regulatory authority binding on the Contributor or by which the
Contributor or any of its assets or properties are bound or subject or (ii)
result in the creation of any Lien, other than a Permitted Lien, upon the
Partnership Interest.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withhoding provisions, including those referred to in
ARTICLE 2.7 above and similar provisions under California law. If Contributor
fails to provide such certificates or affidavits, the Operating Partnership may
withhold a portion of any payments otherwise to be made to the Contributor as
required by the Code or California law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Agreement are intended to be exempt from registration under the
Securities Act of 1933, as amended and the rules and regulations in effect
thereunder (the "ACT"). In furtherance thereof, the Contributor represents and
warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not as
a nominee or agent for any other person and not with a view to, or for offer or
sale in connection with, any distribution of any thereof. The Contributor
agrees and acknowledges that he, she or it will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(hereinafter, "TRANSFER") any of the OP Units unless (i) the Transfer is
pursuant to an effective registration statement under the Act and qualification
or other compliance under applicable blue sky or state securities laws, or (ii)
counsel for the Contributor (which counsel shall be reasonably acceptable to the
Operating Partnership) shall have furnished the Operating Partnership with an
opinion, reasonably satisfactory in form and substance to the Operating
Partnership, to the effect that no such registration is required because of the
availability of an exemption from registration under the Act and qualification
or other compliance under applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable,
sophisticated and experienced in business and financial matters; the Contributor
has previously invested in securities similar to the OP Units and fully
understands the limitations on transfer imposed by the Federal securities laws
and as described in the Contribution Agreement. The Contributor is able to bear
the economic risk of holding the OP Units for an indefinite period and is able
to afford the complete loss of his, her or its investment in the OP Units; the
Contributor has received and reviewed all information and documents about or
pertaining to the Company, the Operating Partnership, the business and prospects
of the Company and the Operating Partnership and the issuance of the OP Units as
the Contributor deems necessary or desirable, and has been
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<PAGE>
given the opportunity to obtain any additional information or documents and to
ask questions and receive answers about such information and documents, the
Company, the Operating Partnership, the business and prospects of the Company
and the Operating Partnership and the OP Units which the Contributor deems
necessary or desirable to evaluate the merits and risks related to his, her or
its investment in the OP Units; and the Contributor understands and has taken
cognizance of all risk factors related to the purchase of the OP Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he, she
or it has been advised that (i) the OP Units and the common stock of the Company
into which the OP Units may be exchanged in certain circumstances (the "COMMON
STOCK") must be held indefinitely, and the Contributor must continue to bear the
economic risk of the investment in the OP Units (and any Common Stock that might
be exchanged therefor) unless they are subsequently registered under the Act or
an exemption from such registration is available, (ii) a restrictive legend in
the form hereafter set forth shall be placed on the certificates representing
the OP Units (and any Common Stock that might be exchanged therefor), and (iii)
a notation shall be made in the appropriate records of the Operating Partnership
(and the Company) indicating that the OP Units (and any Common Stock that might
be exchanged therefor) are subject to restrictions on transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an individual,
such individual is an "accredited investor" (as such term is defined in Rule
501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his or
her spouse, in excess of $1,000,000; or
(iii) had an individual annual adjusted gross income in
excess of $200,000 in each of the two most recent years and reasonably expects
to have annual adjusted gross income in excess of $200,000 in the current year;
or
(iv) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an annual
adjusted gross income, with his spouse, in excess of $300,000 in the current
year.
If the Contributor is not an individual, it is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
2.9.5 LEGENDING. Each certificate representing the OP Units (and
any Common Stock that might be exchanged therefor) shall bear the following
legend:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
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SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS
TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT
THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE SKY"
LAWS;
In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT
TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
CORPORATION'S CHARTER, (1) NO PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY
OWN SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF 9.0% (BY VALUE OR
BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING
COMMON STOCK OF THE CORPORATION; (2) NO PERSON MAY BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK THAT WOULD RESULT IN THE CORPORATION BEING
"CLOSELY HELD" UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (3) NO PERSON MAY TRANSFER
COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE
CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO
BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO
BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK IN EXCESS OF THE ABOVE
LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE
RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE COMMON STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A
TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN
ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS
SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF
DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY
VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE
OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS
DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS
D-6
<PAGE>
LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE
RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF
COMMON STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY
BE DIRECTED TO THE SECRETARY OF THE CORPORATION.
2.10 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of the Operating Partnership or any of its affiliates to pay any
finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by the Contribution Agreement.
2.11 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Partnership
Interest to the Operating Partnership.
2.12 NO MISREPRESENTATIONS. No representation, warranty or statement
made, or information provided, by the Contributor in the Contribution Agreement
or in any other document or instrument furnished or to be furnished by or on
behalf of the Contributor pursuant hereto or as contemplated hereby (i) contains
or will contain any untrue statement of a material fact or (ii) omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading. For purposes of the preceding sentence, materiality
shall be determined with reference to the total portfolio of real properties and
other interests to be transferred pursuant to the Portfolio Agreements.
2.13 TAXES. For federal income tax purposes, the Partnership is, and
at all times during its existence has been, a partnership (rather than an
association or a publicly traded partnership taxable as a corporation). The
Partnership has filed all tax returns required to be filed by them and has paid
all taxes required to be paid by them. The transactions contemplated hereby
will not result in any tax liability to the Partnership, the Company or the
Operating Partnership. No tax lien or other charge exists or will exist upon
consummation of the transactions contemplated hereby with respect to any
Property except such tax liens for which the tax is not due and has been
reserved for payment by the Partnership or tax liens or other charges which
individually or in the aggregate would not have a material adverse effect on the
Operating Partnership.
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered pursuant
hereto shall survive the Closing.
D-7
<PAGE>
(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this EXHIBIT
D or the Contribution Agreement for monetary damages (or otherwise) for breach
of any of its representations and warranties contained in this EXHIBIT D or the
Contribution Agreement, or in any Schedule, certificate or affidavit delivered
by it pursuant thereto, other than pursuant to the succeeding provisions of this
ARTICLE 3.
3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the Operating
Partnership, the REIT, and their affiliates and each of their respective
directors, officers, employees, agents, representatives and affiliates (each of
which is an "INDEMNIFIED PARTY") from and against any and all claims, losses,
damages, liabilities and expenses, including, without limitation, amounts paid
in settlement, reasonable attorneys' fees, costs of investigation and
remediation, costs of investigative, judicial or administrative proceedings or
appeals therefrom, and costs of attachment or similar bonds (collectively,
"LOSSES"), asserted against, imposed upon or incurred by the Indemnified Party
in connection with or as a result of any breach of a representation or warranty
of the Contributor contained in the Contribution Agreement or in any Schedule,
certificate or affidavit delivered by the Contributor pursuant to the
Contribution Agreement.
(b) The Contributor shall indemnify and hold harmless the Indemnified
Parties from and against any and all Losses, asserted against, imposed upon or
incurred by the Indemnified Parties in connection with or as a result of:
(i) all fees and expenses of the Contributor in connection with
the transactions contemplated by the Contribution Agreement;
(ii) any liabilities or obligations incurred, arising from or out
of, in connection with or as a result of the failure of the Contributor to
obtain all consents required to consummate the transactions contemplated by
the Contribution Agreement.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when expenses
are incurred) to an Indemnified Party of OP Units, subject to the limits on
ownership and transfer of REIT shares set forth in the Company's articles of
incorporation. Any OP Units delivered to an Indemnified Party hereunder shall
be valued based upon the initial public offering price of the Company's Common
Stock.
3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably practicable
after receipt by the Indemnified Party of notice of any liability or claim
incurred by or asserted against the Indemnified Party that is subject to
indemnification under this ARTICLE 3, the Indemnified Party shall give notice
thereof to the Contributor, including liabilities or claims to be applied
against the indemnification baskets established pursuant to ARTICLE 3.5 hereof.
The Indemnified Party may at its option demand indemnity under this ARTICLE 3 as
soon as a claim
D-8
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has been threatened by a third party, regardless of whether an actual Loss has
been suffered, so long as the Indemnified Party shall in good faith determine
that such claim is not frivolous and that the Indemnified Party may be liable
for, or otherwise incur, a Loss as a result thereof and shall give notice of
such determination to the Contributor. The Indemnified Party shall permit the
Contributor, at its option and expense, to assume the defense of any such claim
by counsel selected by the Contributor and reasonably satisfactory to the
Indemnified Party, and to settle or otherwise dispose of the same; PROVIDED,
HOWEVER, that the Indemnified Party may at all times participate in such defense
at its expense; and PROVIDED FURTHER, HOWEVER, that the Contributor shall not,
in defense of any such claim, except with the prior written consent of the
Indemnified Party in its sole and absolute discretion, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in question
to the Indemnified Party and its affiliates a release of all liabilities in
respect of such claims, or that does not result only in the payment of money
damages. If the Contributor shall fail to undertake such defense within 30 days
after such notice, or within such shorter time as may be reasonable under the
circumstances, then the Indemnified Party shall have the right to undertake the
defense, compromise or settlement of such liability or claim on behalf of and
for the account of the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER ARTICLE
3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the aggregate amount recoverable from Indemnifying Parties
under the indemnification provisions substantially identical to ARTICLE 3.2 in
one or more of the Portfolio Agreements exceeds $200,000; PROVIDED, HOWEVER,
that once the total amount recoverable from Indemnifying Parties under such
provisions exceeds $200,000 in the aggregate, the Contributor's obligation under
ARTICLE 3.2 hereof shall be for the full amount of such obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this ARTICLE
3 with respect to any Partnership Interest to the extent such payments in the
aggregate would exceed the value of the OP Units (based upon the initial public
offering price of the Common Stock) received by the Contributor at the Closing.
Notwithstanding anything contained herein to the contrary, the Indemnified
Parties shall look first to the Contributor's OP Units for indemnification under
this ARTICLE 3 and then to the Contributor's other assets.
3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification under
ARTICLE 3.2 hereof must be asserted in writing by the Indemnified Party, stating
the nature of the Losses and the basis for indemnification therefor:
(i) within one year after the Closing in the case of a claim
under ARTICLE 3.2 hereof (other than a claim under ARTICLE 3.2(a) based
upon a breach of the
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representations, and warranties of the Contributor set forth in ARTICLE
2.13 hereof as specified below; and
(ii) prior to the expiration of the applicable statutes of
limitations in the case of a claim under ARTICLE 3.2(a) based upon a breach
of the representations and warranties of the Contributor set forth in
ARTICLE 2.13 hereof.
(b) If so asserted in writing within one year after the Closing, such
claims for indemnification shall survive until resolved by mutual agreement
between the Contributor and the Indemnified Party or by judicial determination.
Any claim for indemnification not so asserted in writing within one year after
the Closing shall not thereafter be asserted and shall forever be waived.
3.7 RESERVATION OF CONTRIBUTOR RIGHTS.
Notwithstanding anything else in this Contribution Agreement or any
Portfolio Agreement to the contrary, the Contributor reserves unto itself all
rights and remedies (including rights to seek contribution) against any third
party indemnitors and prior property owners or occupants for which the
Partnership has been indemnified by the Contributor hereunder. To the extent
the Contributor's rights against any such third party indemnitors, owners or
occupants may be prejudiced by actions or inactions by any owner or occupant of
the Properties after the Closing, the Contributor's indemnity obligation shall
be reduced in accordance with the effect of the actions or inactions which so
prejudiced the Contributor's rights.
D-10
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ATTACHMENT 1 (TO EXHIBIT D)
PORTFOLIO AGREEMENTS
(1) That certain Contribution Agreement by and between Arden Sawtelle
Associates, a California general partnership, and Arden Realty Group
Limited Partnership, a Maryland limited partnership, dated as of June 17,
1996.
(2) That certain Contribution Agreement by and between Coleman Enterprises,
Inc., a California corporation, and Arden Realty Group Limited Partnership,
a Maryland limited partnership, dated as of June 17, 1996.
D-11
<PAGE>
EXHIBIT 10.24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PARTNERSHIP INTEREST CONTRIBUTION AGREEMENT
by and between
ARTHUR GILBERT AND ROSALINDE GILBERT 1982 TRUST
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP
a Maryland limited partnership
Dated as of June 17, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS. . . . . 2
1.1 Contribution Transaction . . . . . . . . . . . . . . . . . . . . . 2
1.2 Minimum Consideration and Exchange of OP Units . . . . . . . . . . 2
1.3 Additional Consideration . . . . . . . . . . . . . . . . . . . . . 2
1.4 Adjusted Consideration . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Contribution of Certain Rights . . . . . . . . . . . . . . . . . . 3
1.7 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Treatment as Contribution. . . . . . . . . . . . . . . . . . . . . 4
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Closing Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. . . . . . . . . . . . . 6
3.1 Representations and Warranties of the Operating Partnership. . . . 6
3.2 Representations and Warranties of Contributor. . . . . . . . . . . 7
3.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. COVENANTS OF CONTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . 7
5. RELEASES AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 General Release of Operating Partnership . . . . . . . . . . . . . 8
5.2 General Release of Contributor . . . . . . . . . . . . . . . . . . 9
5.3 Waiver of Section 1542 Protections . . . . . . . . . . . . . . . . 9
5.4 Waiver of Rights Under Partnership Agreement . . . . . . . . . . . 9
6. POWER OF ATTORNEY
6.1 Grant of Power of Attorney . . . . . . . . . . . . . . . . . . . . 9
6.2 Limitation on Liability. . . . . . . . . . . . . . . . . . . . . . 10
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
<PAGE>
EXHIBIT LIST
Section First
Exhibits Referenced
- -------- -------------
A Constituent Interests of Contributor's Partnership Interest... Recital D
B Contribution and Assumption Agreement......................... 1.1
C Form of Quitclaim............................................. 2.1
D Representations and Warranties of Contributor................. 3.2
Attachment 1................................. List of Portfolio Agreements
ii
<PAGE>
CONTRIBUTION AGREEMENT
THIS PARTNERSHIP INTEREST CONTRIBUTION AGREEMENT (hereinafter referred
to as the "CONTRIBUTION AGREEMENT") is made and entered into as of June 17, 1996
by and between Arden Realty Group Limited Partnership, a Maryland limited
partnership (the "OPERATING PARTNERSHIP"), and the Arthur Gilbert and Roslinde
Gilbert 1982 Trust (the "CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership of
a portfolio of office properties (the "PARTICIPATING PROPERTIES") located in
Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct interests
in certain of the Participating Properties (the "PROPERTY INTERESTS") and all of
the interests in certain limited partnerships, certain limited liability
companies and certain other entities (collectively the "PARTICIPATING
PARTNERSHIPS AND LLCs") which currently own directly or indirectly the
Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Arden Realty Group,
Inc., a Maryland corporation (the "COMPANY"), which will operate as a self-
administered and self-managed real estate investment trust ("REIT") and will be
the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members
of the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. The Contributor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIP") which
Partnership owns directly or indirectly interests in certain of the
Participating Properties also as set forth on Exhibit A (the "PROPERTY" or the
"PROPERTIES"). As used herein, "PARTNERSHIP AGREEMENT" means the partnership
agreement or membership agreement, as applicable, under which the Partnership
was formed.
E. The Contributor desires to, and the Operating Partnership desires
the Contributor to, contribute to the Operating Partnership, all of its right,
title and interest, as a partner (or member) of the Partnership, including,
without limitation, all of its voting rights and interests in the capital,
profits and losses of the Partnership or any property distributable therefrom,
constituting all of its interests in the Partnership (such right, title and
interest are hereinafter collectively referred to as the "PARTNERSHIP
INTEREST"), in exchange for partnership
<PAGE>
units in the Operating Partnership (the "OP UNITS"), on the terms and subject
to the conditions set forth herein.
NOW, THEREFORE, for and in consideration of the foregoing premises, and the
mutual undertakings set forth below, the parties hereto agree as follows:
TERMS OF AGREEMENT
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS
1.1 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to the
terms and conditions contained in this Contribution Agreement, the Contributor
shall transfer to the Operating Partnership, absolutely and unconditionally, all
of its Partnership Interest (as such term is defined in Recital B herein). The
contribution of the Contributor's Partnership Interest shall be evidenced by a
"CONTRIBUTION AND ASSUMPTION AGREEMENT" in substantially the form of EXHIBIT "B"
attached hereto. Furthermore, the Contributor shall cause each of its
individual constituent partners and/or members (as applicable) to execute and
have duly acknowledged an individual quitclaim deed for each Property in the
form of EXHIBIT "C" quitclaiming to the Operating Partnership any direct or
indirect ownership interest in and to the Properties. The parties shall take
such additional actions and execute such additional documentation as may be
required by the Partnership Agreement and the Agreement of Limited Partnership
of the Operating Partnership (the "OP AGREEMENT") in order to effect the
transactions contemplated hereby.
1.2 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS.
Subject to ARTICLES 1.3 AND 1.4 below, the Operating Partnership
shall, in exchange for the Partnership Interest, transfer to the Contributor the
number of OP Units having a value, based on one OP Unit being equal in value to
the Public Offering price for one share of the Company's common stock, equal to
the value indicated on Exhibit A as Contributor's "Total Minimum Consideration."
The transfer of the OP Units to the Contributor shall be evidenced by either an
amendment (the "AMENDMENT") to the OP Agreement or by certificates relating to
such units (the "CERTIFICATES") in either case, as shall be acceptable to the
Contributor. The parties shall take such additional actions and execute such
additional documentation as may be required by the Partnership Agreement and the
OP Agreement in order to effect the transactions contemplated hereby.
1.3 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.4 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.2) of the OP Units
available to all OP Participants
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exceeds the sum of the Total Minimum Consideration values (after all
adjustments set forth in ARTICLE 1.4) of all OP Participants (the "ADDITIONAL
CONSIDERATION"), then the Additional Consideration or a portion thereof, if
any, shall be allocated among the OP Participants (including the Contributor)
based upon the relative values of the Contributor's Partnership Interest and
the interests contributed by each of the other OP Participants, in each case
as determined by Richard S. Ziman, in his sole discretion.
1.4 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular interest that constitutes part of the Partnership Interest, if in
good faith the Operating Partnership determines that the ownership of such
interest or the underlying Property would be inappropriate for the Operating
Partnership for any reason whatsoever. Contributor hereby agrees that, in such
event, the Contributor's Total Minimum Consideration may be reduced by an amount
determined by Richard S. Ziman, in his sole discretion, to reflect the reduction
in total value of the Partnership Interest ultimately contributed by the
Contributor.
1.5 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.3 AND 1.4 hereof, and
any and all such determinations shall be final and binding on all parties.
1.6 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to the
Operating Partnership all of its rights and interests, if any, including rights
to indemnification in favor of the Contributor, if any, under the agreements
pursuant to which the Contributor or its affiliates initially acquired the
Partnership Interest transferred pursuant to this Contribution Agreement.
1.7 PRORATIONS
At the Closing, or as promptly as practicable following the Closing,
to the extent such matters are not the right or responsibility of all tenants of
a given Property, all revenue and all charges that are customarily prorated in
transactions of this nature, including accrued rent currently due and payable,
overpaid taxes or fees, real and personal property taxes, common area
maintenance charges and other similar periodic charges payable or receivable
with respect to such Property shall be ratably prorated between the partners of
the Partnership which holds such Property prior to the Closing and the Operating
Partnership on and after the Closing, effective as of the Closing. After
providing for such prorations, (i) if the Partnership has a resultant cash
surplus, the value of the Contributor's Partnership Interest shall be increased
in proportion to Contributor's ratable share of such cash surplus and additional
OP Units (based on the initial Public Offering price of the Company's
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common stock) shall be issued to the Contributor as a valuation adjustment to
the Contributor's Total Minimum Consideration, and (ii) if the Partnership
has a resultant cash deficit, the value of the Contributor's Partnership
Interest shall be reduced in proportion to Contributor's ratable share of
such cash deficit, and fewer OP Units shall be issued to the Contributor as a
valuation adjustment to the Contributor's Total Minimum Consideration, unless
such deficit is cured prior to Closing.
1.8 TREATMENT AS CONTRIBUTION
The transfer, assignment and exchange of interests effectuated with
respect to the Operating Partnership, pursuant to this Contribution Agreement
shall constitute, a "Capital Contribution" pursuant to Article 4 of the OP
Agreement and is intended to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed with
the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to this
Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor contained
in this Contribution Agreement shall have been true and correct in all material
respects on the date such representations and warranties were made, and shall be
true and correct in all material respects on the Closing Date as if made at and
as of such date;
(b) Each of the obligations of the Contributor to be performed by it
shall have been duly performed by it on or before the Closing Date;
(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to be
delivered pursuant to Section 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
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(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
(f) No order, statute, rule, regulation, executive order, injunction,
stay, decree or restraining order shall have been enacted, entered, promulgated
or enforced by any court of competent jurisdiction or governmental or regulatory
authority or instrumentality that prohibits the consummation of the transactions
contemplated hereby, and no litigation or governmental proceeding seeking such
an order shall be pending or threatened;
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in the Partnership's businesses;
(h) All existing management agreements with respect to the Properties
shall have been contributed to the Operating Partnership prior to or
simultaneously with the Closing; and
(i) All management functions with respect to the Properties presently
conducted by Arden Realty Group, Inc., a Maryland corporation, shall be assumed
by the Operating Partnership.
The foregoing conditions may be waived by the Operating Partnership in
its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the Public
Offering from the underwriter(s), at 10:00 a.m. in the office of Latham &
Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California (the
"CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.1 AND 1.2
of this Contribution Agreement, and all closing deliveries, and the consummation
of the Public Offering, shall be deemed concurrent for all purposes.
2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered through the
Attorney-in-Fact (see ARTICLE 6.1 below), the legal documents and other items
(collectively the "CLOSING DOCUMENTS") necessary to carry out the intention of
this Contribution Agreement, which Closing Documents and other items shall
include, without limitation, the following:
(i) A Contribution and Assumption Agreement for the Contributor's
Partnership Interest;
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(ii) An individual quitclaim deed for each Property fully executed and
duly acknowledged from each of the individual constituent partners and/or
members of the Contributor, as required by the Operating Partnership;
(iii) The Amendment or the Certificates evidencing the transfer of
OP Units to the Contributor;
(iv) American Land Title Assurances ("ALTA") policies of title
insurance with appropriate endorsements and levels of reinsurance for the
Properties issued as of the Closing Date or endorsements or other
assurances that the existing policy or policies of title insurance are
sufficient for purposes of this Contribution Agreement, which the
Contributor shall cause the title company to issue to the Operating
Partnership in a form acceptable to the Operating Partnership (the "TITLE
POLICIES") including satisfaction by the Contributor of any and all title
company requirements applicable to it;
(v) The Partnership's books and records and securities or other
evidences of ownership held by the Contributor; and
(vi) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number and
that the Contributor is not a foreign person pursuant to section 1445(b)(2)
of the Code and a comparable affidavit satisfying California and any other
withholding requirements.
2.4 CLOSING COSTS
The Operating Partnership shall pay any documentary transfer taxes,
escrow charges, title charges and recording taxes or fees incurred in connection
with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has been
duly formed and is validly existing with requisite power to enter this
Contribution Agreement and all agreements contemplated hereby. The persons
and entities executing this Contribution Agreement and all agreements
contemplated hereby on behalf of the Operating Partnership have the power
and authority to enter into this Contribution Agreement and such other
contemplated agreements; and
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(b) DUE AUTHORIZATION. The execution, delivery and performance
by the Operating Partnership of its obligations under this Contribution
Agreement and all agreements contemplated hereby will not contravene any
provision of applicable law, the OP Agreement, charter, declaration of
trust or other constituent document of the Operating Partnership, or any
agreement or other instrument binding upon the Operating Partnership or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Operating Partnership, and no consent, approval,
authorization or order of or qualification with any governmental body or
agency is required for the performance by the Operating Partnership of its
obligations under this Contribution Agreement and all other agreements
contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto, and
acknowledges and agrees to be bound by the indemnification provisions contained
therein.
3.3 INDEMNIFICATION
The Operating Partnership shall indemnify and hold harmless the
Contributor and its directors, officers, employees, agents, representatives and
affiliates (each of which is an "INDEMNIFIED CONTRIBUTOR PARTY") from and
against any and all claims, losses, damages, liabilities and expenses, including
without limitation, amounts paid in settlement, reasonable attorneys' fees,
costs of investigation and remediation, costs of investigative judicial or
administrative proceedings or appeals therefrom and costs of attachment or
similar bonds (collectively, "LOSSES") asserted against, imposed upon or
incurred by the Indemnified Contributor Party in connection with: (i) any breach
of a representation or warranty of the Operating Partnership contained in this
Contribution Agreement; (ii) any liabilities or obligations incurred, arising
from or out of, in connection with or as a result of any claims made or actions
brought by or against the Contributor, the Partnership, the Properties or an
Indemnified Contributor Party, that arise from or out of, in connection with or
as a result of any Contamination (as defined in Exhibit D hereto) of the
Properties regardless of when or how occurring, except to the extent, and only
to the extent, such Losses arise from or constitute a breach of a representation
and warranty of Contributor under Exhibit D; and (iii) all fees, costs and
expenses of the Operating Partnership in connection with the transactions
contemplated by the Contribution Agreement, including without limitation any and
all costs associated with the transfers contemplated herein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor shall
not:
(i) Sell or transfer all or any portion of the Partnership
Interest; or
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(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Partnership Interest.
(b) From the date hereof through the Closing, the Contributor shall
permit the Partnership to conduct its business in the ordinary course,
consistent with past practice, and shall not permit the Partnership to:
(i) Enter into any material transaction not in the ordinary
course of business;
(ii) Sell or transfer any assets of the Partnership;
(iii) Mortgage, pledge or encumber (or permit to become
encumbered) any assets of the Partnership, except (x) liens for taxes not
due, (y) purchase money security interests and (z) mechanics' liens being
disputed by the Partnership in good faith and by appropriate proceedings;
(iv) Amend, modify or terminate any material agreements or other
instruments to which the Partnership is a party;
(v) Materially alter the manner of keeping the Partnership's
books, accounts or records or the accounting practices therein reflected;
or
(vi) Make any distribution to its partners.
(c) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required to
effect the transactions contemplated by this Contribution Agreement.
5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of the
Partnership Interest pursuant to ARTICLES 1 and 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman), agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"), known or unknown,
suspected or unsuspected, arising out of or relating to the Partnership
Agreement, this Contribution Agreement or any other matter which exists at the
8
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Closing, except for Contributor Claims arising from the breach of any
representation, warranty, covenant or obligation under this Contribution
Agreement.
5.2 GENERAL RELEASE OF CONTRIBUTOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "OPERATING PARTNERSHIP CLAIMS"), known or
unknown, suspected or unsuspected, arising out of or relating to the Partnership
Agreement, this Contribution Agreement or any other matter which exists at the
Closing, except for Operating Partnership Claims arising from the breach of any
representation, warranty, covenant or obligation under this Contribution
Agreement.
5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership each
expressly waives and relinquishes all rights and benefits afforded by Section
1542 of the California Civil Code and do so understanding and acknowledging the
significance and consequence of such specific waiver of Section 1542 which
provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected the settlement with the
debtor.
5.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT
As of the Closing, the Contributor waives and relinquishes all rights
and benefits otherwise afforded to Contributor under the Partnership Agreement
including, without limitation, any right to consent to or approve of the sale or
contribution by the other partners (or members) of the Partnership of their
partnership interests to the Company or the Operating Partnership.
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating Partnership
(or its designee) and each of them individually and any successor thereof from
time to time (such Operating Partnership or designee or any such successor of
any of them acting in his, her or its capacity as attorney-in-fact pursuant
hereto, the "ATTORNEY-IN FACT") as the true and lawful attorney-in-fact and
agent of Contributor, to act in the name, place and stead of Contributor to
make, execute, acknowledge and deliver all such other contracts, orders,
receipts, notices,
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requests, instructions, certificates, consents, letters and other writings
(including without limitation the execution of any Closing Documents or other
documents relating to the acquisition by the Operating Partnership of
Contributor's Partnership Interest), to provide information to the Securities
and Exchange Commission and others about the transactions contemplated hereby
and, in general, to do all things and to take all actions which the
Attorney-in-Fact in its sole discretion may consider necessary or proper in
connection with or to carry out the transactions contemplated by this
Contribution Agreement, as fully as could Contributor if personally present
and acting. Further, Contributor hereby grants to Attorney-in-Fact a proxy
(the "PROXY") to vote Contributor's Partnership Interest on any matter
related to the Formation Transactions presented to the Partnership's partners
for a vote, including, but not limited to, the transfer of interests in the
Partnership by the other partners.
Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable and
shall not be terminated by any act of Contributor, by operation of law or by the
occurrence of any other event or events, and if any other such act or events
shall occur before the completion of the transactions contemplated by this
Contribution Agreement, the Attorney-in-Fact shall nevertheless be authorized
and directed to complete all such transactions as if such other act or events
had not occurred and regardless of notice thereof. Contributor agrees that, at
the request of Operating Partnership it will promptly execute a separate power
of attorney and proxy on the same terms set forth in this ARTICLE 6, such
execution to be witnessed and notarized. Contributor hereby authorizes the
reliance of third parties on each of the Power of Attorney and Proxy.
Contributor acknowledges that the Operating Partnership has, and any
designee or successor thereof acting as Attorney-in-Fact may have, an economic
interest in the transactions contemplated by this Contribution Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no responsibility
or liability to any person by virtue of the Power of Attorney or Proxy granted
by Contributor hereby. The Attorney-in-Fact makes no representations with
respect to and shall have no responsibility for the Formation Transactions or
the Public Offering, or the acquisition of the Partnership Interest by the
Operating Partnership and shall not be liable for any error or judgement or for
any act done or omitted or for any mistake of fact or law except for its own
gross negligence or bad faith. Contributor agrees to indemnify the Attorney-in-
Fact for and to hold the Attorney-in-Fact harmless against any loss, claim,
damage or liability incurred on its part arising out of or in connection with it
acting as the Attorney-in-Fact under the Power of Attorney or Proxy created by
Contributor hereby, as well as the cost and expense of investigating and
defending against any such loss, claim, damage or liability, except to the
extend such loss, claim, damage or liability is due to the gross negligence or
bad faith of the Attorney-in-Fact. Contributor agrees that the Attorney-in-Fact
may consult with counsel of its own choice (who may be counsel for Operating
Partnership or its successors or affiliates),
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and it shall have full and complete authorization and protection for any
action taken or suffered by it hereunder in good faith and in accordance with
the opinion of such counsel. It is understood that the Attorney-in-Fact may,
without breaching any express or implied obligation to Contributor hereunder,
release, amend or modify any other power of attorney or proxy granted by any
other person under any related agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other
actions and execute such additional documents following the Closing as the
Operating Partnership may reasonably request in order to effect the transactions
contemplated hereby.
7.2 COUNTERPARTS. This Contribution Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed by
the internal laws of the State of California, without regard to the choice of
laws provisions thereof.
7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
communicated as of the date of personal delivery (including delivery by
overnight courier). Mailed notices shall be addressed as set forth below, but
any party may change the address set forth below by written notice to other
parties in accordance with this paragraph.
To the Contributor:
Arthur and Rosalinde Gilbert Trust
9536 Wilshire Boulevard, Suite 420
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
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IN WITNESS WHEREOF, the parties have executed this Contribution
Agreement as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED
PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland Corporation,
general partner
By: /s/ Richard S. Ziman
------------------------------
Name: Richard S. Ziman
------------------------
Title: Chairman/CEO
------------------------
"CONTRIBUTOR"
ARTHUR GILBERT AND ROSALINDE
GILBERT 1982 TRUST
By: /s/ Arthur Gilbert
------------------------------
Arthur Gilbert
Trustee
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EXHIBIT A
TO
CONTRIBUTION AGREEMENT
CONSTITUENT INTERESTS OF CONTRIBUTOR'S PARTNERSHIP INTEREST
Properties Held by the Minimum
Partnership Partnership Consideration
--------------- ---------------------- -----------------
LAOP V, LLC 5832 Bolsa Avenue; $2,970,000
400 Corporate Pointe;
9665 Wilshire
Boulevard;
Imperial Bank Tower
--------------- ---------------------- ----------------
Total Minimum
Consideration $2,970,000
----------------
----------------
A-1
<PAGE>
EXHIBIT B
TO
CONTRIBUTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the undersigned hereby assigns, transfers, contributes
and conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland limited
partnership (the "Operating Partnership"), its entire legal and beneficial
right, title and interest in and to LAOP V, LLC, a Nevada limited liability
company (the "Partnership"), including, without limitation, all right, title and
interest, if any, of the undersigned in and to the assets of the Partnership and
the right to receive distributions of money, profits and other assets from the
Partnership, presently existing or hereafter at any time arising or accruing
(such right, title and interest are hereinafter collectively referred to as the
"Partnership Interest"), TO HAVE AND TO HOLD the same unto the Operating
Partnership, its successors and assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership assumes
all obligations in respect of the Partnership Interest.
The Partnership owns certain real property as described in Attachment "1"
attached hereto.
Executed: _________ __, 1996
ARTHUR GILBERT AND
ROSALINDE GILBERT 1982
TRUST
By:
----------------------------------
Arthur Gilbert
Trustee
B-1
<PAGE>
EXHIBIT C
to
CONTRIBUTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- --------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $.............
........ Computed on the consideration
or value of property conveyed;
OR
........ Computed on the consideration
or value less liens or
encumbrances remaining at
time of sale.
---------------------------------------
Signature of Declarant of Agent
determining tax - Firm Name
- --------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group Limited Partnership, a Maryland limited partnership
the real property in the City of ___________, County of ______________, State of
California, described as
Dated
______________________________ ________________________________
STATE OF CALIFORNIA } ________________________________
} ________________________________
COUNTY OF ______________ } ________________________________
On ____________________ before me,
___________________________________,
personally appeared _______________
___________________________________
personally known to me (or proved
to me on the basis of
satisfactory evidence) to be the
person(s) whose names(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signature(s) on the
instrument the person(s) or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and official seal. (This area for official notarial
seal)
Signature
-------------------------
C-1
<PAGE>
EXHIBIT D
TO
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1- ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the meanings
set forth below. Terms which are not defined below shall have the meaning set
forth for those terms as defined in the Contribution Agreement to which this
EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to Knowledge,
threatened that directly or indirectly affect any of the Contributor, the
Partnership or the Properties.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
INDEMNIFYING PARTY: Means any party required to indemnify any other
party under ARTICLE 3.2 of this EXHIBIT D or under the indemnification
provisions substantially identical to ARTICLE 3.2 hereof in the other Portfolio
Agreements.
KNOWLEDGE: Means, with respect to any representation or warranty so
indicated, the actual knowledge, upon reasonable investigation and inquiry in
good faith, of the signatory to the Contribution Agreement.
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests, restrictions,
prior assignments, encumbrances, covenants, encroachments, assessments, rights
of others, licenses, easements, liabilities or claims of any kind or nature
whatsoever, direct or indirect, including, without limitation, interests in or
claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
D-1
<PAGE>
PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent or
the payment of which is actively being contested in good faith by appropriate
proceedings diligently pursued;
(b) Zoning laws and ordinances generally applicable to the districts
in which the Properties are located which are not violated by the existing
structures or present uses thereof;
(c) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings diligently
pursued;
(d) non-exclusive easements for public utilities that do not have a
material adverse effect upon, or interfere with the use of, the Properties; and
(e) any exceptions contained in the Title Policies.
PERSON: Means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PORTFOLIO AGREEMENTS: Means the agreements, including the
Contribution Agreement, listed on ATTACHMENT "1" hereto, which contemplate the
transfer of partnership and/or limited liability company membership interests in
certain of the Participating Partnerships and LLCs from any entity directly or
indirectly owned by Contributor to the Company and the Operating Partnership.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating Partnership
as set forth below in this ARTICLE 2. Notwithstanding any other provision of
the Contribution Agreement or this EXHIBIT D, the Contributor makes
representations, warranties and indemnities only with respect to the interests
in the Partnership to be transferred by the Contributor identified on EXHIBIT A
to the Contribution Agreement.
D-2
<PAGE>
2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and (B)
has all requisite power and authority to own, lease or operate its property and
to carry on its business as presently conducted and, to the extent required
under applicable law, is qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. This Contribution
Agreement and each agreement, document and instrument executed and delivered by
or on behalf of the contributor pursuant to this contribution Agreement
constitutes, or when executed and delivered will constitute, the legal, valid
and binding obligation of the Contributor, each enforceable against the
Contributor in accordance with its terms, as such enforceability may be limited
by bankruptcy or the application of equitable principles.
2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the Contributor
in connection with the execution, delivery and performance of the Contribution
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE PARTNERSHIP INTERESTS. The Contributor is the
sole owner of the Partnership Interest and has good and valid title to such
Partnership Interest, free and clear of all Liens, other than Permitted Liens.
2.5 PARTNERSHIP INTEREST. The Partnership Interest constitutes all
of the issued and outstanding interests owned by the Contributor in the
Partnership. The Partnership Interest is validly issued, fully paid and
non-assessable, and was not issued in violation of any preemptive rights. The
Partnership Interest has been issued in compliance with applicable law and the
Partnership Agreement. There are no rights, subscriptions, warrants, options,
conversion rights, preemptive rights or agreements of any kind outstanding to
purchase or to otherwise acquire any of the interests which comprise the
Partnership Interest or any securities or obligations of any kind convertible
into any of the interests which comprise the Partnership Interest or other
equity interests or profit participation of any kind in the Partnership. At the
Closing, upon receipt of the consideration, the Contributor will have
transferred the Partnership Interest free and clear of all security interests,
mortgages, pledges, liens, encumbrances, claims and equities to the Operating
Partnership.
2.6 NO VIOLATION. None of the execution, delivery or performance of
the Contribution Agreement and the transactions contemplated hereby does or
will, with or without the giving of notice, lapse of time, or both, (i) violate,
conflict with, result in a breach of, or constitute a default under or give to
others any right of termination or cancellation of (A) the organizational
documents, including the charters and bylaws, if any, of the Contributor, (B)
any
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material agreement, document or instrument to which the Contributor is a
party or by which the Contributor or its Partnership Interest is bound or (C)
any term or provision of any judgment, order, writ, injunction, or decree of any
governmental or regulatory authority binding on the Contributor or by which the
Contributor or any of its assets or properties are bound or subject or (ii)
result in the creation of any Lien, other than a Permitted Lien, upon the
Partnership Interest.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withhoding provisions, including those referred to in
ARTICLE 2.7 above and similar provisions under California law. If Contributor
fails to provide such certificates or affidavits, the Operating Partnership may
withhold a portion of any payments otherwise to be made to the Contributor as
required by the Code or California law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Agreement are intended to be exempt from registration under the
Securities Act of 1933, as amended and the rules and regulations in effect
thereunder (the "ACT"). In furtherance thereof, the Contributor represents and
warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not as
a nominee or agent for any other person and not with a view to, or for offer or
sale in connection with, any distribution of any thereof. The Contributor
agrees and acknowledges that he, she or it will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(hereinafter, "TRANSFER") any of the OP Units unless (i) the Transfer is
pursuant to an effective registration statement under the Act and qualification
or other compliance under applicable blue sky or state securities laws, or (ii)
counsel for the Contributor (which counsel shall be reasonably acceptable to the
Operating Partnership) shall have furnished the Operating Partnership with an
opinion, reasonably satisfactory in form and substance to the Operating
Partnership, to the effect that no such registration is required because of the
availability of an exemption from registration under the Act and qualification
or other compliance under applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable,
sophisticated and experienced in business and financial matters; the Contributor
has previously invested in securities similar to the OP Units and fully
understands the limitations on transfer imposed by the Federal securities laws
and as described in the Contribution Agreement. The Contributor is able to bear
the economic risk of holding the OP Units for an indefinite period and is able
to afford the complete loss of his, her or its investment in the OP Units; the
Contributor has received and reviewed all information and documents about or
pertaining to the Company, the Operating Partnership, the business and prospects
of the Company and the Operating Partnership and the issuance of the OP Units as
the Contributor deems necessary or desirable, and has been
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given the opportunity to obtain any additional information or documents and
to ask questions and receive answers about such information and documents,
the Company, the Operating Partnership, the business and prospects of the
Company and the Operating Partnership and the OP Units which the Contributor
deems necessary or desirable to evaluate the merits and risks related to his,
her or its investment in the OP Units; and the Contributor understands and
has taken cognizance of all risk factors related to the purchase of the OP
Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he, she
or it has been advised that (i) the OP Units and the common stock of the Company
into which the OP Units may be exchanged in certain circumstances (the "COMMON
STOCK") must be held indefinitely, and the Contributor must continue to bear the
economic risk of the investment in the OP Units (and any Common Stock that might
be exchanged therefor) unless they are subsequently registered under the Act or
an exemption from such registration is available, (ii) a restrictive legend in
the form hereafter set forth shall be placed on the certificates representing
the OP Units (and any Common Stock that might be exchanged therefor), and (iii)
a notation shall be made in the appropriate records of the Operating Partnership
(and the Company) indicating that the OP Units (and any Common Stock that might
be exchanged therefor) are subject to restrictions on transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an individual,
such individual is an "accredited investor" (as such term is defined in Rule
501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his or
her spouse, in excess of $1,000,000; or
(iii) had an individual annual adjusted gross income in
excess of $200,000 in each of the two most recent years and reasonably expects
to have annual adjusted gross income in excess of $200,000 in the current year;
or
(iv) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an annual
adjusted gross income, with his spouse, in excess of $300,000 in the current
year.
If the Contributor is not an individual, it is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
2.9.5 LEGENDING. Each certificate representing the OP Units (and
any Common Stock that might be exchanged therefor) shall bear the following
legend:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
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SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR
DELIVERS TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY,
TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE
EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE
SECURITIES OR "BLUE SKY" LAWS;
In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT
TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
CORPORATION'S CHARTER, (1) NO PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY
OWN SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF 9.0% (BY VALUE OR
BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING
COMMON STOCK OF THE CORPORATION; (2) NO PERSON MAY BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK THAT WOULD RESULT IN THE CORPORATION BEING
"CLOSELY HELD" UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (3) NO PERSON MAY TRANSFER
COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE
CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO
BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO
BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK IN EXCESS OF THE ABOVE
LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE
RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE COMMON STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A
TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN
ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS
SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF
DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY
VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE
OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS
DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS
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LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE
RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF
COMMON STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY
BE DIRECTED TO THE SECRETARY OF THE CORPORATION.
2.10 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of the Operating Partnership or any of its affiliates to pay any
finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by the Contribution Agreement.
2.11 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Partnership
Interest to the Operating Partnership.
2.12 NO MISREPRESENTATIONS. No representation, warranty or statement
made, or information provided, by the Contributor in the Contribution Agreement
or in any other document or instrument furnished or to be furnished by or on
behalf of the Contributor pursuant hereto or as contemplated hereby (i) contains
or will contain any untrue statement of a material fact or (ii) omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading. For purposes of the preceding sentence, materiality
shall be determined with reference to the total portfolio of real properties and
other interests to be transferred pursuant to the Portfolio Agreements.
2.13 TAXES. For federal income tax purposes, the Partnership is, and
at all times during its existence has been, a partnership (rather than an
association or a publicly traded partnership taxable as a corporation). The
Partnership has filed all tax returns required to be filed by them and has paid
all taxes required to be paid by them. The transactions contemplated hereby
will not result in any tax liability to the Partnership, the Company or the
Operating Partnership. No tax lien or other charge exists or will exist upon
consummation of the transactions contemplated hereby with respect to any
Property except such tax liens for which the tax is not due and has been
reserved for payment by the Partnership or tax liens or other charges which
individually or in the aggregate would not have a material adverse effect on the
Operating Partnership.
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered pursuant
hereto shall survive the Closing.
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(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this EXHIBIT
D or the Contribution Agreement for monetary damages (or otherwise) for breach
of any of its representations and warranties contained in this EXHIBIT D or the
Contribution Agreement, or in any Schedule, certificate or affidavit delivered
by it pursuant thereto, other than pursuant to the succeeding provisions of this
ARTICLE 3.
3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the Operating
Partnership, the REIT, and their affiliates and each of their respective
directors, officers, employees, agents, representatives and affiliates (each of
which is an "INDEMNIFIED PARTY") from and against any and all claims, losses,
damages, liabilities and expenses, including, without limitation, amounts paid
in settlement, reasonable attorneys' fees, costs of investigation and
remediation, costs of investigative, judicial or administrative proceedings or
appeals therefrom, and costs of attachment or similar bonds (collectively,
"LOSSES"), asserted against, imposed upon or incurred by the Indemnified Party
in connection with or as a result of any breach of a representation or warranty
of the Contributor contained in the Contribution Agreement or in any Schedule,
certificate or affidavit delivered by the Contributor pursuant to the
Contribution Agreement.
(b) The Contributor shall indemnify and hold harmless the Indemnified
Parties from and against any and all Losses, asserted against, imposed upon or
incurred by the Indemnified Parties in connection with or as a result of:
(i) all fees and expenses of the Contributor in connection with
the transactions contemplated by the Contribution Agreement;
(ii) any liabilities or obligations incurred, arising from or out
of, in connection with or as a result of the failure of the Contributor to
obtain all consents required to consummate the transactions contemplated by
the Contribution Agreement.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when expenses
are incurred) to an Indemnified Party of OP Units, subject to the limits on
ownership and transfer of REIT shares set forth in the Company's articles of
incorporation. Any OP Units delivered to an Indemnified Party hereunder shall
be valued based upon the initial public offering price of the Company's Common
Stock.
3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably practicable
after receipt by the Indemnified Party of notice of any liability or claim
incurred by or asserted against the Indemnified Party that is subject to
indemnification under this ARTICLE 3, the Indemnified Party shall give notice
thereof to the Contributor, including liabilities or claims to be applied
against the indemnification baskets established pursuant to ARTICLE 3.5 hereof.
The Indemnified Party may at its option demand indemnity under this ARTICLE 3 as
soon as a claim
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has been threatened by a third party, regardless of whether an actual Loss
has been suffered, so long as the Indemnified Party shall in good faith
determine that such claim is not frivolous and that the Indemnified Party may
be liable for, or otherwise incur, a Loss as a result thereof and shall give
notice of such determination to the Contributor. The Indemnified Party shall
permit the Contributor, at its option and expense, to assume the defense of
any such claim by counsel selected by the Contributor and reasonably
satisfactory to the Indemnified Party, and to settle or otherwise dispose of
the same; PROVIDED, HOWEVER, that the Indemnified Party may at all times
participate in such defense at its expense; and PROVIDED FURTHER, HOWEVER,
that the Contributor shall not, in defense of any such claim, except with the
prior written consent of the Indemnified Party in its sole and absolute
discretion, consent to the entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff in question to the Indemnified Party and its affiliates
a release of all liabilities in respect of such claims, or that does not
result only in the payment of money damages. If the Contributor shall fail
to undertake such defense within 30 days after such notice, or within such
shorter time as may be reasonable under the circumstances, then the
Indemnified Party shall have the right to undertake the defense, compromise
or settlement of such liability or claim on behalf of and for the account of
the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER ARTICLE
3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the aggregate amount recoverable from Indemnifying Parties
under the indemnification provisions substantially identical to ARTICLE 3.2 in
one or more of the Portfolio Agreements exceeds $200,000; PROVIDED, HOWEVER,
that once the total amount recoverable from Indemnifying Parties under such
provisions exceeds $200,000 in the aggregate, the Contributor's obligation under
ARTICLE 3.2 hereof shall be for the full amount of such obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this ARTICLE
3 with respect to any Partnership Interest to the extent such payments in the
aggregate would exceed the value of the OP Units (based upon the initial public
offering price of the Common Stock) received by the Contributor at the Closing.
Notwithstanding anything contained herein to the contrary, the Indemnified
Parties shall look first to the Contributor's OP Units for indemnification under
this ARTICLE 3 and then to the Contributor's other assets.
3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification under
ARTICLE 3.2 hereof must be asserted in writing by the Indemnified Party, stating
the nature of the Losses and the basis for indemnification therefor:
(i) within one year after the Closing in the case of a claim
under ARTICLE 3.2 hereof (other than a claim under ARTICLE 3.2(a) based
upon a breach of the
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representations, and warranties of the Contributor set forth in ARTICLE
2.13 hereof as specified below; and
(ii) prior to the expiration of the applicable statutes of
limitations in the case of a claim under ARTICLE 3.2(a) based upon a breach
of the representations and warranties of the Contributor set forth in
ARTICLE 2.13 hereof.
(b) If so asserted in writing within one year after the Closing, such
claims for indemnification shall survive until resolved by mutual agreement
between the Contributor and the Indemnified Party or by judicial determination.
Any claim for indemnification not so asserted in writing within one year after
the Closing shall not thereafter be asserted and shall forever be waived.
3.7 RESERVATION OF CONTRIBUTOR RIGHTS.
Notwithstanding anything else in this Contribution Agreement or any
Portfolio Agreement to the contrary, the Contributor reserves unto itself all
rights and remedies (including rights to seek contribution) against any third
party indemnitors and prior property owners or occupants for which the
Partnership has been indemnified by the Contributor hereunder. To the extent
the Contributor's rights against any such third party indemnitors, owners or
occupants may be prejudiced by actions or inactions by any owner or occupant of
the Properties after the Closing, the Contributor's indemnity obligation shall
be reduced in accordance with the effect of the actions or inactions which so
prejudiced the Contributor's rights.
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ATTACHMENT 1 (TO EXHIBIT D)
PORTFOLIO AGREEMENTS
(1) That certain Contribution Agreement by and between Arden LAOP Two, LLC, a
Nevada limited liability company, and Arden Realty Group Limited
Partnership, a Maryland limited partnership, dated as of June 17, 1996.
(2) That certain Partnership Interest Contribution Agreement by and between the
Arthur and Rosalinde Gilbert 1982 Trust and Arden Realty Group Limited
Partnership, a Maryland limited partnership, dated as of June 17, 1996.
(3) That certain Contribution Agreement by and between the Arthur and Rosalinde
Gilbert 1982 Trust and Arden Realty Group Limited Partnership, a Maryland
limited partnership, dated as of June 17, 1996.
(4) That certain Option Agreement by and between Broad Base Investments Two,
LLC, a Nevada limited liability company, and Arden Realty Group Limited
Partnership, a Maryland limited partnership, dated as of June 17, 1996.
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EXHIBIT 10.25
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
by and between
INTERCITY BUILDINGS ASSOCIATES,
a California general partnership
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP
a Maryland limited partnership
Dated as of June 17, 1996
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS. . . . 2
1.1 Contribution Transaction . . . . . . . . . . . . . . . . . . . . 2
1.2 Minimum Consideration and Exchange of OP Units . . . . . . . . . 2
1.3 Additional Consideration . . . . . . . . . . . . . . . . . . . . 2
1.4 Adjusted Consideration . . . . . . . . . . . . . . . . . . . . . 3
1.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Contribution of Certain Rights . . . . . . . . . . . . . . . . . 3
1.7 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Treatment as Contribution. . . . . . . . . . . . . . . . . . . . 4
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Closing Costs. . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. . . . . . . . . . . . 6
3.1 Representations and Warranties of the Operating Partnership. . . 6
3.2 Representations and Warranties of Contributor. . . . . . . . . . 7
3.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 7
4. COVENANTS OF CONTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . 7
5. RELEASES AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 General Release of Operating Partnership . . . . . . . . . . . . 8
5.2 General Release of Contributor . . . . . . . . . . . . . . . . . 9
5.3 Waiver of Section 1542 Protections . . . . . . . . . . . . . . . 9
5.4 Waiver of Rights Under Partnership Agreement . . . . . . . . . . 9
6. POWER OF ATTORNEY
6.1 Grant of Power of Attorney . . . . . . . . . . . . . . . . . . . 9
6.2 Limitation on Liability. . . . . . . . . . . . . . . . . . . . . 10
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
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EXHIBIT LIST
SECTION FIRST
EXHIBITS REFERENCED
- -------- -------------
A Constituent Interests of Contributor's Partnership Interest. . . Recital D
B Contribution and Assumption Agreement . . . . . . . . . . . . . . . . 1.1
C Form of Quitclaim . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
D Representations and Warranties of Contributor. . . . . . . . . . . . . 3.2
ii
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (hereinafter referred to as the
"CONTRIBUTION AGREEMENT") is made and entered into as of June 17, 1996 by and
between Arden Realty Group Limited Partnership, a Maryland limited partnership
(the "OPERATING PARTNERSHIP"), and Intercity Buildings Associates, a California
general partnership (the "CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership of
a portfolio of office properties (the "PARTICIPATING PROPERTIES") located in
Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct interests
in certain of the Participating Properties (the "PROPERTY INTERESTS") and all of
the interests in certain limited partnerships, certain limited liability
companies and certain other entities (collectively the "PARTICIPATING
PARTNERSHIPS AND LLCS") which currently own directly or indirectly the
Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Arden Realty Group,
Inc., a Maryland corporation (the "COMPANY"), which will operate as a self-
administered and self-managed real estate investment trust ("REIT") and will be
the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members
of the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. The Contributor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIP") which
Partnership owns directly or indirectly interests in certain of the
Participating Properties also as set forth on Exhibit A (the "PROPERTY" or the
"PROPERTIES"). As used herein, "PARTNERSHIP AGREEMENT" means the partnership
agreement or membership agreement, as applicable, under which the Partnership
was formed.
E. The Contributor desires to, and the Operating Partnership desires
the Contributor to, contribute to the Operating Partnership, all of its right,
title and interest, as a partner (or member) of the Partnership, including,
without limitation, all of its voting rights and interests in the capital,
profits and losses of the Partnership or any property distributable therefrom,
constituting all of its interests in the Partnership (such right, title and
interest are hereinafter collectively referred to as the "PARTNERSHIP
INTEREST"), in exchange for partnership units in the Operating Partnership (the
"OP UNITS"), on the terms and subject to the conditions set forth herein.
<PAGE>
NOW, THEREFORE, for and in consideration of the foregoing premises, and
the mutual undertakings set forth below, the parties hereto agree as follows:
TERMS OF AGREEMENT
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS
1.1 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to the
terms and conditions contained in this Contribution Agreement, the Contributor
shall transfer to the Operating Partnership, absolutely and unconditionally, all
of its Partnership Interest (as such term is defined in Recital B herein). The
contribution of the Contributor's Partnership Interest shall be evidenced by a
"CONTRIBUTION AND ASSUMPTION AGREEMENT" in substantially the form of EXHIBIT "B"
attached hereto. Furthermore, the Contributor shall cause each of its
individual constituent partners and/or members (as applicable) to execute and
have duly acknowledged an individual quitclaim deed for each Property in the
form of EXHIBIT "C" quitclaiming to the Operating Partnership any direct or
indirect ownership interest in and to the Properties. The parties shall take
such additional actions and execute such additional documentation as may be
required by the Partnership Agreement and the Agreement of Limited Partnership
of the Operating Partnership (the "OP AGREEMENT") in order to effect the
transactions contemplated hereby.
1.2 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS.
Subject to ARTICLES 1.3 AND 1.4 below, the Operating Partnership
shall, in exchange for the Partnership Interest, transfer to the Contributor the
number of OP Units having a value, based on one OP Unit being equal in value to
the Public Offering price for one share of the Company's common stock, equal to
the value indicated on Exhibit A as Contributor's "Total Minimum Consideration."
The transfer of the OP Units to the Contributor shall be evidenced by either an
amendment (the "AMENDMENT") to the OP Agreement or by certificates relating to
such units (the "CERTIFICATES") in either case, as shall be acceptable to the
Contributor. The parties shall take such additional actions and execute such
additional documentation as may be required by the Partnership Agreement and the
OP Agreement in order to effect the transactions contemplated hereby.
1.3 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.4 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.2) of the OP Units
available to all OP Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.4) of all OP
Participants (the "ADDITIONAL CONSIDERATION"), then the Additional Consideration
or a portion thereof, if any, shall be allocated among the OP Participants
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(including the Contributor) based upon the relative values of the Contributor's
Partnership Interest and the interests contributed by each of the other OP
Participants, in each case as determined by Richard S. Ziman, in his sole
discretion.
1.4 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular interest that constitutes part of the Partnership Interest, if in
good faith the Operating Partnership determines that the ownership of such
interest or the underlying Property would be inappropriate for the Operating
Partnership for any reason whatsoever. Contributor hereby agrees that, in such
event, the Contributor's Total Minimum Consideration may be reduced by an amount
determined by Richard S. Ziman, in his sole discretion, to reflect the reduction
in total value of the Partnership Interest ultimately contributed by the
Contributor.
1.5 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.3 AND 1.4 hereof, and
any and all such determinations shall be final and binding on all parties.
1.6 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to the
Operating Partnership all of its rights and interests, if any, including rights
to indemnification in favor of the Contributor, if any, under the agreements
pursuant to which the Contributor or its affiliates initially acquired the
Partnership Interest transferred pursuant to this Contribution Agreement.
1.7 PRORATIONS
At the Closing, or as promptly as practicable following the Closing,
to the extent such matters are not the right or responsibility of all tenants of
a given Property, all revenue and all charges that are customarily prorated in
transactions of this nature, including accrued rent currently due and payable,
overpaid taxes or fees, real and personal property taxes, common area
maintenance charges and other similar periodic charges payable or receivable
with respect to such Property shall be ratably prorated between the partners of
the Partnership which holds such Property prior to the Closing and the Operating
Partnership on and after the Closing, effective as of the Closing. After
providing for such prorations, (i) if the Partnership has a resultant cash
surplus, the value of the Contributor's Partnership Interest shall be increased
in proportion to Contributor's ratable share of such cash surplus and additional
OP Units (based on the initial Public Offering price of the Company's common
stock) shall be issued to the Contributor as a valuation adjustment to the
Contributor's Total Minimum Consideration, and (ii) if the Partnership has a
resultant cash deficit, the value of the Contributor's Partnership Interest
shall be reduced in proportion to
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Contributor's ratable share of such cash deficit, and fewer OP Units shall be
issued to the Contributor as a valuation adjustment to the Contributor's
Total Minimum Consideration, unless such deficit is cured prior to Closing.
1.8 TREATMENT AS CONTRIBUTION
The transfer, assignment and exchange of interests effectuated with
respect to the Operating Partnership, pursuant to this Contribution Agreement
shall constitute, a "Capital Contribution" pursuant to Article 4 of the OP
Agreement and is intended to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed with
the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to this
Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor contained
in this Contribution Agreement shall have been true and correct in all material
respects on the date such representations and warranties were made, and shall be
true and correct in all material respects on the Closing Date as if made at and
as of such date;
(b) Each of the obligations of the Contributor to be performed by it
shall have been duly performed by it on or before the Closing Date;
(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to be
delivered pursuant to SECTION 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
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(f) No order, statute, rule, regulation, executive order, injunction,
stay, decree or restraining order shall have been enacted, entered, promulgated
or enforced by any court of competent jurisdiction or governmental or regulatory
authority or instrumentality that prohibits the consummation of the transactions
contemplated hereby, and no litigation or governmental proceeding seeking such
an order shall be pending or threatened;
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in the Partnership's businesses;
(h) All existing management agreements with respect to the Properties
shall have been contributed to the Operating Partnership prior to or
simultaneously with the Closing; and
(i) All management functions with respect to the Properties presently
conducted by Arden Realty Group, Inc., a Maryland corporation, shall be assumed
by the Operating Partnership.
The foregoing conditions may be waived by the Operating Partnership in
its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the Public
Offering from the underwriter(s), at 10:00 a.m. in the office of Latham &
Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California (the
"CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.1 AND 1.2
of this Contribution Agreement, and all closing deliveries, and the consummation
of the Public Offering, shall be deemed concurrent for all purposes.
2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered through the
Attorney-in-Fact (see ARTICLE 6.1 below), the legal documents and other items
(collectively the "CLOSING DOCUMENTS") necessary to carry out the intention of
this Contribution Agreement, which Closing Documents and other items shall
include, without limitation, the following:
(i) A Contribution and Assumption Agreement for the Contributor's
Partnership Interest;
(ii) An individual quitclaim deed for each Property fully executed and
duly acknowledged from each of the individual constituent partners and/or
members of the Contributor, as required by the Operating Partnership;
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(iii) The Amendment or the Certificates evidencing the transfer of
OP Units to the Contributor;
(iv) American Land Title Assurances ("ALTA") policies of title
insurance with appropriate endorsements and levels of reinsurance for the
Properties issued as of the Closing Date or endorsements or other
assurances that the existing policy or policies of title insurance are
sufficient for purposes of this Contribution Agreement, which the
Contributor shall cause the title company to issue to the Operating
Partnership in a form acceptable to the Operating Partnership (the "TITLE
POLICIES") including satisfaction by the Contributor of any and all title
company requirements applicable to it;
(v) The Partnership's books and records and securities or other
evidences of ownership held by the Contributor; and
(vi) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number and
that the Contributor is not a foreign person pursuant to section 1445(b)(2)
of the Code and a comparable affidavit satisfying California or any other
withholding requirements.
2.4 CLOSING COSTS
The Operating Partnership shall pay any documentary transfer taxes,
escrow charges, title charges and recording taxes or fees incurred in connection
with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has been
duly formed and is validly existing with requisite power to enter this
Contribution Agreement and all agreements contemplated hereby. The persons
and entities executing this Contribution Agreement and all agreements
contemplated hereby on behalf of the Operating Partnership have the power
and authority to enter into this Contribution Agreement and such other
contemplated agreements; and
(b) DUE AUTHORIZATION. The execution, delivery and performance
by the Operating Partnership of its obligations under this Contribution
Agreement and all agreements contemplated hereby will not contravene any
provision of applicable law, the OP Agreement, charter, declaration of
trust or other constituent document of
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the Operating Partnership, or any agreement or other instrument binding
upon the Operating Partnership or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the
Operating Partnership, and no consent, approval, authorization or order
of or qualification with any governmental body or agency is required for
the performance by the Operating Partnership of its obligations under
this Contribution Agreement and all other agreements contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto, and
acknowledges and agrees to be bound by the indemnification provisions contained
therein.
3.3 INDEMNIFICATION
The Operating Partnership shall indemnify and hold harmless the
Contributor and its directors, officers, employees, agents, representatives and
affiliates (each of which is an "INDEMNIFIED CONTRIBUTOR PARTY") from and
against any and all claims, losses, damages, liabilities and expenses, including
without limitation, amounts paid in settlement, reasonable attorneys' fees,
costs of investigation and remediation, costs of investigative judicial or
administrative proceedings or appeals therefrom and costs of attachment or
similar bonds (collectively, "LOSSES") asserted against, imposed upon or
incurred by the Indemnified Contributor Party in connection with: (i) any breach
of a representation or warranty of the Operating Partnership contained in this
Contribution Agreement; (ii) any liabilities or obligations incurred, arising
from or out of, in connection with or as a result of any claims made or actions
brought by or against the Contributor, the Partnership, the Properties or an
Indemnified Contributor Party, that arise from or out of, in connection with or
as a result of any Contamination (as defined in Exhibit D hereto) of the
Properties regardless of when or how occurring, except to the extent, and only
to the extent, such Losses arise from or constitute a breach of a representation
and warranty of Contributor under Exhibit D; and (iii) all fees, costs and
expenses of the Operating Partnership in connection with the transactions
contemplated by the Contribution Agreement, including without limitation any and
all costs associated with the transfers contemplated herein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor shall
not:
(i) Sell or transfer all or any portion of the Partnership
Interest; or
(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Partnership Interest.
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(b) From the date hereof through the Closing, the Contributor shall
permit the Partnership to conduct its business in the ordinary course,
consistent with past practice, and shall not permit the Partnership to:
(i) Enter into any material transaction not in the ordinary
course of business;
(ii) Sell or transfer any assets of the Partnership;
(iii) Mortgage, pledge or encumber (or permit to become
encumbered) any assets of the Partnership, except (x) liens for taxes not
due, (y) purchase money security interests and (z) mechanics' liens being
disputed by the Partnership in good faith and by appropriate proceedings;
(iv) Amend, modify or terminate any material agreements or other
instruments to which the Partnership is a party;
(v) Materially alter the manner of keeping the Partnership's
books, accounts or records or the accounting practices therein reflected;
or
(vi) Make any distribution to its partners.
(c) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required to
effect the transactions contemplated by this Contribution Agreement.
5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of the
Partnership Interest pursuant to ARTICLES 1 AND 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman), agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"), known or unknown,
suspected or unsuspected, arising out of or relating to the Partnership
Agreement, this Contribution Agreement or any other matter which exists at the
Closing, except for Contributor Claims arising from the breach of any
representation, warranty, covenant or obligation under this Contribution
Agreement.
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5.2 GENERAL RELEASE OF CONTRIBUTOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "OPERATING PARTNERSHIP CLAIMS"), known or
unknown, suspected or unsuspected, arising out of or relating to the Partnership
Agreement, this Contribution Agreement or any other matter which exists at the
Closing, except for Operating Partnership Claims arising from the breach of any
representation, warranty, covenant or obligation under this Contribution
Agreement.
5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership each
expressly waives and relinquishes all rights and benefits afforded by Section
1542 of the California Civil Code and do so understanding and acknowledging the
significance and consequence of such specific waiver of Section 1542 which
provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected the settlement with the
debtor.
5.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT
As of the Closing, the Contributor waives and relinquishes all rights
and benefits otherwise afforded to Contributor under the Partnership Agreement
including, without limitation, any right to consent to or approve of the sale or
contribution by the other partners (or members) of the Partnership of their
partnership interests to the Company or the Operating Partnership.
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating Partnership
(or its designee) and each of them individually and any successor thereof from
time to time (such Operating Partnership or designee or any such successor of
any of them acting in his, her or its capacity as attorney-in-fact pursuant
hereto, the "ATTORNEY-IN FACT") as the true and lawful attorney-in-fact and
agent of Contributor, to act in the name, place and stead of Contributor to
make, execute, acknowledge and deliver all such other contracts, orders,
receipts, notices, requests, instructions, certificates, consents, letters and
other writings (including without limitation the execution of any Closing
Documents or other documents relating to the acquisition by the Operating
Partnership of Contributor's Partnership Interest), to provide
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information to the Securities and Exchange Commission and others about the
transactions contemplated hereby and, in general, to do all things and to
take all actions which the Attorney-in-Fact in its sole discretion may
consider necessary or proper in connection with or to carry out the
transactions contemplated by this Contribution Agreement, as fully as could
Contributor if personally present and acting. Further, Contributor hereby
grants to Attorney-in-Fact a proxy (the "PROXY") to vote Contributor's
Partnership Interest on any matter related to the Formation Transactions
presented to the Partnership's partners for a vote, including, but not
limited to, the transfer of interests in the Partnership by the other
partners.
Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable and
shall not be terminated by any act of Contributor, by operation of law or by the
occurrence of any other event or events, and if any other such act or events
shall occur before the completion of the transactions contemplated by this
Contribution Agreement, the Attorney-in-Fact shall nevertheless be authorized
and directed to complete all such transactions as if such other act or events
had not occurred and regardless of notice thereof. Contributor agrees that, at
the request of Operating Partnership it will promptly execute a separate power
of attorney and proxy on the same terms set forth in this ARTICLE 6, such
execution to be witnessed and notarized. Contributor hereby authorizes the
reliance of third parties on each of the Power of Attorney and Proxy.
Contributor acknowledges that the Operating Partnership has, and any
designee or successor thereof acting as Attorney-in-Fact may have, an economic
interest in the transactions contemplated by this Contribution Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no responsibility
or liability to any person by virtue of the Power of Attorney or Proxy granted
by Contributor hereby. The Attorney-in-Fact makes no representations with
respect to and shall have no responsibility for the Formation Transactions or
the Public Offering, or the acquisition of the Partnership Interest by the
Operating Partnership and shall not be liable for any error or judgement or for
any act done or omitted or for any mistake of fact or law except for its own
gross negligence or bad faith. Contributor agrees to indemnify the Attorney-in-
Fact for and to hold the Attorney-in-Fact harmless against any loss, claim,
damage or liability incurred on its part arising out of or in connection with it
acting as the Attorney-in-Fact under the Power of Attorney or Proxy created by
Contributor hereby, as well as the cost and expense of investigating and
defending against any such loss, claim, damage or liability, except to the
extend such loss, claim, damage or liability is due to the gross negligence or
bad faith of the Attorney-in-Fact. Contributor agrees that the Attorney-in-Fact
may consult with counsel of its own choice (who may be counsel for Operating
Partnership or its successors or affiliates), and it shall have full and
complete authorization and protection for any action taken or suffered by it
hereunder in good faith and in accordance with the opinion of such counsel. It
is understood that the Attorney-in-Fact may, without breaching any express or
implied
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obligation to Contributor hereunder, release, amend or modify any other power
of attorney or proxy granted by any other person under any related agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other
actions and execute such additional documents following the Closing as the
Operating Partnership may reasonably request in order to effect the transactions
contemplated hereby.
7.2 COUNTERPARTS. This Contribution Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed by
the internal laws of the State of California, without regard to the choice of
laws provisions thereof.
7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
communicated as of the date of personal delivery (including delivery by
overnight courier). Mailed notices shall be addressed as set forth below, but
any party may change the address set forth below by written notice to other
parties in accordance with this paragraph.
To the Contributor:
Intercity Buildings Associates
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
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IN WITNESS WHEREOF, the parties have executed this Contribution
Agreement as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland Corporation,
general partner
By: /s/ RICHARD S. ZIMAN
--------------------------------
Name: Richard S. Ziman
------------------------------
Title: Chairman/CEO
-----------------------------
"CONTRIBUTOR"
INTERCITY BUILDINGS ASSOCIATES,
a California general partnership
By: /s/ RICHARD S. ZIMAN
-------------------------------------
Richard S. Ziman
General Partner
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EXHIBIT A
TO
CONTRIBUTION AGREEMENT
CONSTITUENT INTERESTS OF CONTRIBUTOR'S PARTNERSHIP INTEREST
Properties Held by the Minimum
Partnership Partnership Consideration
LAOP IV, LLC 5601 Lindero Canyon; $744,558
Westwood Terrace;
Calabasas Commerce Center;
The New Wilshire;
70 South Lake;
Skyview Center;
4811 Airport Plaza Drive;
4900/10 Airport Plaza Drive
- -------------------- ----------------------------- ------------
Total Minimum
Consideration $744,558
------------
------------
A-1
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EXHIBIT B
TO
CONTRIBUTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the undersigned hereby assigns, transfers, contributes
and conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland limited
partnership (the "Operating Partnership"), its entire legal and beneficial
right, title and interest in and to LAOP IV, LLC, a Nevada limited liability
company (the "Partnership"), including, without limitation, all right, title and
interest, if any, of the undersigned in and to the assets of the Partnership and
the right to receive distributions of money, profits and other assets from the
Partnership, presently existing or hereafter at any time arising or accruing
(such right, title and interest are hereinafter collectively referred to as the
"Partnership Interest"), TO HAVE AND TO HOLD the same unto the Operating
Partnership, its successors and assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership assumes
all obligations in respect of the Partnership Interest.
The Partnership owns certain real property as described in Attachment "1"
attached hereto.
Executed: _____ __, 1996
INTERCITY BUILDINGS
ASSOCIATES,
a California general partnership
By:
------------------------------
Richard S. Ziman
General Partner
B-1
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EXHIBIT C
TO
CONTRIBUTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- --------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $.............
........ Computed on the consideration
or value of property conveyed;
OR
........ Computed on the consideration
or value less liens or
encumbrances remaining at
time of sale.
---------------------------------------
Signature of Declarant of Agent
determining tax - Firm Name
- --------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group Limited Partnership, a Maryland limited partnership
the real property in the City of ___________, County of ______________, State of
California, described as
Dated
_______________________________ ________________________________
STATE OF CALIFORNIA } ________________________________
} ________________________________
COUNTY OF _______________} ________________________________
On ____________________ before me,
___________________________________,
personally appeared _______________
___________________________________
personally known to me (or proved
to me on the basis of
satisfactory evidence) to be the
person(s) whose names(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signature(s) on the
instrument the person(s) or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and official seal. (This area for official notarial
seal)
Signature
-------------------------
C-1
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EXHIBIT D
TO
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1 - ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the meanings
set forth below. Terms which are not defined below shall have the meaning set
forth for those terms as defined in the Contribution Agreement to which this
EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to Knowledge,
threatened that directly or indirectly affect any of the Contributor, the
Partnership or the Properties.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
KNOWLEDGE: Means, with respect to any representation or warranty so
indicated, the actual knowledge, upon reasonable investigation and inquiry in
good faith, of the signatory to the Contribution Agreement.
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests, restrictions,
prior assignments, encumbrances, covenants, encroachments, assessments, rights
of others, licenses, easements, liabilities or claims of any kind or nature
whatsoever, direct or indirect, including, without limitation, interests in or
claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent or
the payment of which is actively being contested in good faith by appropriate
proceedings diligently pursued;
(b) Zoning laws and ordinances generally applicable to the districts
in which the Properties are located which are not violated by the existing
structures or present uses thereof;
D-1
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(c) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings diligently
pursued;
(d) non-exclusive easements for public utilities that do not have a
material adverse effect upon, or interfere with the use of, the Properties; and
(e) any exceptions contained in the Title Policies.
PERSON: Means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating Partnership
as set forth below in this ARTICLE 2. Notwithstanding any other provision of
the Contribution Agreement or this EXHIBIT D, the Contributor makes
representations, warranties and indemnities only with respect to the interests
in the Partnership to be transferred by the Contributor identified on EXHIBIT A
to the Contribution Agreement.
2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and (B)
has all requisite power and authority to own, lease or operate its property and
to carry on its business as presently conducted and, to the extent required
under applicable law, is qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. This Contribution
Agreement and each agreement, document and instrument executed and delivered by
or on behalf of the contributor pursuant to this contribution Agreement
constitutes, or when executed and delivered will constitute, the legal, valid
and binding obligation of the Contributor, each enforceable against the
Contributor in accordance with its terms, as such enforceability may be limited
by bankruptcy or the application of equitable principles.
D-2
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2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the Contributor
in connection with the execution, delivery and performance of the Contribution
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE PARTNERSHIP INTERESTS. The Contributor is the
sole owner of the Partnership Interest and has good and valid title to such
Partnership Interest, free and clear of all Liens, other than Permitted Liens.
2.5 PARTNERSHIP INTEREST. The Partnership Interest constitutes all
of the issued and outstanding interests owned by the Contributor in the
Partnership. The Partnership Interest is validly issued, fully paid and
non-assessable, and was not issued in violation of any preemptive rights. The
Partnership Interest has been issued in compliance with applicable law and the
Partnership Agreement. There are no rights, subscriptions, warrants, options,
conversion rights, preemptive rights or agreements of any kind outstanding to
purchase or to otherwise acquire any of the interests which comprise the
Partnership Interest or any securities or obligations of any kind convertible
into any of the interests which comprise the Partnership Interest or other
equity interests or profit participation of any kind in the Partnership. At the
Closing, upon receipt of the consideration, the Contributor will have
transferred the Partnership Interest free and clear of all security interests,
mortgages, pledges, liens, encumbrances, claims and equities to the Operating
Partnership.
2.6 NO VIOLATION. None of the execution, delivery or performance of
the Contribution Agreement and the transactions contemplated hereby does or
will, with or without the giving of notice, lapse of time, or both, (i) violate,
conflict with, result in a breach of, or constitute a default under or give to
others any right of termination or cancellation of (A) the organizational
documents, including the charters and bylaws, if any, of the Contributor, (B)
any material agreement, document or instrument to which the Contributor is a
party or by which the Contributor or its Partnership Interest is bound or (C)
any term or provision of any judgment, order, writ, injunction, or decree of any
governmental or regulatory authority binding on the Contributor or by which the
Contributor or any of its assets or properties are bound or subject or (ii)
result in the creation of any Lien, other than a Permitted Lien, upon the
Partnership Interest.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withhoding provisions, including those referred to in
ARTICLE 2.7 above and similar provisions under California law. If Contributor
fails to provide such certificates or affidavits, the Operating
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Partnership may withhold a portion of any payments otherwise to be made to
the Contributor as required by the Code or California law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Agreement are intended to be exempt from registration under the
Securities Act of 1933, as amended and the rules and regulations in effect
thereunder (the "ACT"). In furtherance thereof, the Contributor represents and
warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not as
a nominee or agent for any other person and not with a view to, or for offer or
sale in connection with, any distribution of any thereof. The Contributor
agrees and acknowledges that he, she or it will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(hereinafter, "TRANSFER") any of the OP Units unless (i) the Transfer is
pursuant to an effective registration statement under the Act and qualification
or other compliance under applicable blue sky or state securities laws, or (ii)
counsel for the Contributor (which counsel shall be reasonably acceptable to the
Operating Partnership) shall have furnished the Operating Partnership with an
opinion, reasonably satisfactory in form and substance to the Operating
Partnership, to the effect that no such registration is required because of the
availability of an exemption from registration under the Act and qualification
or other compliance under applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable,
sophisticated and experienced in business and financial matters; the Contributor
has previously invested in securities similar to the OP Units and fully
understands the limitations on transfer imposed by the Federal securities laws
and as described in the Contribution Agreement. The Contributor is able to bear
the economic risk of holding the OP Units for an indefinite period and is able
to afford the complete loss of his, her or its investment in the OP Units; the
Contributor has received and reviewed all information and documents about or
pertaining to the Company, the Operating Partnership, the business and prospects
of the Company and the Operating Partnership and the issuance of the OP Units as
the Contributor deems necessary or desirable, and has been given the opportunity
to obtain any additional information or documents and to ask questions and
receive answers about such information and documents, the Company, the Operating
Partnership, the business and prospects of the Company and the Operating
Partnership and the OP Units which the Contributor deems necessary or desirable
to evaluate the merits and risks related to his, her or its investment in the OP
Units; and the Contributor understands and has taken cognizance of all risk
factors related to the purchase of the OP Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he, she
or it has been advised that (i) the OP Units and the common stock of the Company
into which the OP Units may be exchanged in certain circumstances (the "COMMON
STOCK") must be held indefinitely, and the Contributor must continue to bear the
economic risk of the investment in the OP Units (and any Common Stock that might
be exchanged therefor) unless they are subsequently registered under the Act or
an exemption from such registration is available, (ii)
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a restrictive legend in the form hereafter set forth shall be placed on the
certificates representing the OP Units (and any Common Stock that might be
exchanged therefor), and (iii) a notation shall be made in the appropriate
records of the Operating Partnership (and the Company) indicating that the OP
Units (and any Common Stock that might be exchanged therefor) are subject to
restrictions on transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an individual,
such individual is an "accredited investor" (as such term is defined in Rule
501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his or
her spouse, in excess of $1,000,000; or
(iii) had an individual annual adjusted gross income in
excess of $200,000 in each of the two most recent years and reasonably expects
to have annual adjusted gross income in excess of $200,000 in the current year;
or
(iv) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an annual
adjusted gross income, with his spouse, in excess of $300,000 in the current
year.
If the Contributor is not an individual, it is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
2.9.5 LEGENDING. Each certificate representing the OP Units (and
any Common Stock that might be exchanged therefor) shall bear the following
legend:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE
PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS;
In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND
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<PAGE>
TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS
A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE"). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT
AS EXPRESSLY PROVIDED IN THE CORPORATION'S CHARTER, (1) NO PERSON MAY
BENEFICIALLY OWN OR CONSTRUCTIVELY OWN SHARES OF THE CORPORATION'S COMMON
STOCK IN EXCESS OF 9.0% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE
RESTRICTIVE) OF THE OUTSTANDING COMMON STOCK OF THE CORPORATION; (2) NO
PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK THAT WOULD
RESULT IN THE CORPORATION BEING "CLOSELY HELD" UNDER SECTION 856(H) OF THE
CODE OR OTHERWISE CAUSE THE CORPORATION TO FAIL TO QUALIFY AS A REIT; AND
(3) NO PERSON MAY TRANSFER COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN
THE CAPITAL STOCK OF THE CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS.
ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO
BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK WHICH CAUSES OR WILL CAUSE
A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK IN EXCESS OF
THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF
THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE COMMON STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A
TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN
ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS
SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF
DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY
VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE
OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS
DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS
LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE
RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF
COMMON STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY
BE DIRECTED TO THE SECRETARY OF THE CORPORATION.
2.10 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of the Operating Partnership or any of its affiliates to pay any
finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by the Contribution Agreement.
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2.11 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Partnership
Interest to the Operating Partnership.
2.12 NO MISREPRESENTATIONS. No representation, warranty or statement
made, or information provided, by the Contributor in the Contribution Agreement
or in any other document or instrument furnished or to be furnished by or on
behalf of the Contributor pursuant hereto or as contemplated hereby (i) contains
or will contain any untrue statement of a material fact or (ii) omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading.
2.13 TAXES. For federal income tax purposes, the Partnership is, and
at all times during its existence has been, a partnership (rather than an
association or a publicly traded partnership taxable as a corporation). The
Partnership has filed all tax returns required to be filed by it and has paid
all taxes required to be paid by it. The transactions contemplated hereby will
not result in any tax liability to the Partnership, the Company or the Operating
Partnership. No tax lien or other charge exists or will exist upon consummation
of the transactions contemplated hereby with respect to any Property except such
tax liens for which the tax is not due and has been reserved for payment by the
Partnership or tax liens or other charges which individually or in the aggregate
would not have a material adverse effect on the Operating Partnership.
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered pursuant
hereto shall survive the Closing.
(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this EXHIBIT
D or the Contribution Agreement for monetary damages (or otherwise) for breach
of any of its representations and warranties contained in this EXHIBIT D or the
Contribution Agreement, or in any Schedule, certificate or affidavit delivered
by it pursuant thereto, other than pursuant to the succeeding provisions of this
ARTICLE 3.
3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the Operating
Partnership, the REIT, and their affiliates and each of their respective
directors, officers, employees, agents, representatives and affiliates (each of
which is an "INDEMNIFIED PARTY") from and against any and all claims, losses,
damages, liabilities and expenses, including, without limitation, amounts paid
in settlement, reasonable attorneys' fees, costs of investigation and
remediation, costs of investigative, judicial or administrative proceedings or
appeals therefrom, and costs of
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attachment or similar bonds (collectively, "LOSSES"), asserted against,
imposed upon or incurred by the Indemnified Party in connection with or as a
result of any breach of a representation or warranty of the Contributor
contained in the Contribution Agreement or in any Schedule, certificate or
affidavit delivered by the Contributor pursuant to the Contribution Agreement.
(b) The Contributor shall indemnify and hold harmless the Indemnified
Parties from and against any and all Losses, asserted against, imposed upon or
incurred by the Indemnified Parties in connection with or as a result of:
(i) all fees and expenses of the Contributor in connection with
the transactions contemplated by the Contribution Agreement;
(ii) any liabilities or obligations incurred, arising from or out
of, in connection with or as a result of the failure of the Contributor to
obtain all consents required to consummate the transactions contemplated by
the Contribution Agreement.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when expenses
are incurred) to an Indemnified Party of OP Units, subject to the limits on
ownership and transfer of REIT shares set forth in the Company's articles of
incorporation. Any OP Units delivered to an Indemnified Party hereunder shall
be valued based upon the initial public offering price of the Company's Common
Stock.
3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably practicable
after receipt by the Indemnified Party of notice of any liability or claim
incurred by or asserted against the Indemnified Party that is subject to
indemnification under this ARTICLE 3, the Indemnified Party shall give notice
thereof to the Contributor, including liabilities or claims to be applied
against the indemnification baskets established pursuant to ARTICLE 3.5 hereof.
The Indemnified Party may at its option demand indemnity under this ARTICLE 3 as
soon as a claim has been threatened by a third party, regardless of whether an
actual Loss has been suffered, so long as the Indemnified Party shall in good
faith determine that such claim is not frivolous and that the Indemnified Party
may be liable for, or otherwise incur, a Loss as a result thereof and shall give
notice of such determination to the Contributor. The Indemnified Party shall
permit the Contributor, at its option and expense, to assume the defense of any
such claim by counsel selected by the Contributor and reasonably satisfactory to
the Indemnified Party, and to settle or otherwise dispose of the same; PROVIDED,
HOWEVER, that the Indemnified Party may at all times participate in such defense
at its expense; and PROVIDED FURTHER, HOWEVER, that the Contributor shall not,
in defense of any such claim, except with the prior written consent of the
Indemnified Party in its sole and absolute discretion, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in question
to the Indemnified Party and its affiliates a release of all liabilities in
respect of such claims, or that does not result only in the payment of money
damages. If the Contributor shall fail to undertake such defense within 30 days
after such notice, or within such shorter time as may be reasonable under the
circumstances, then the Indemnified Party shall
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<PAGE>
have the right to undertake the defense, compromise or settlement of such
liability or claim on behalf of and for the account of the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER ARTICLE
3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the total amount recoverable by the Indemnified Parties under
ARTICLE 3.2 exceeds $200,000; PROVIDED, HOWEVER, that once the total amount
recoverable by the Indemnified Parties under ARTICLE 3.2 hereof exceeds $200,000
in the aggregate, the Contributor's obligation under ARTICLE 3.2 hereof shall be
for the full amount of such obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this ARTICLE
3 with respect to any Partnership Interest to the extent such payments in the
aggregate would exceed the value of the OP Units (based upon the initial public
offering price of the Common Stock) received by the Contributor at the Closing.
Notwithstanding anything contained herein to the contrary, the Indemnified
Parties shall look first to the Contributor's OP Units for indemnification under
this ARTICLE 3 and then to the Contributor's other assets.
3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification under
ARTICLE 3.2 hereof must be asserted in writing by the Indemnified Party, stating
the nature of the Losses and the basis for indemnification therefor:
(i) within one year after the Closing in the case of a claim
under ARTICLE 3.2 hereof (other than a claim under ARTICLE 3.2(a) based
upon a breach of the representations, and warranties of the Contributor set
forth in ARTICLE 2.13 hereof as specified below; and
(ii) prior to the expiration of the applicable statutes of
limitations in the case of a claim under ARTICLE 3.2(a) based upon a breach
of the representations and warranties of the Contributor set forth in
ARTICLE 2.13 hereof.
(b) If so asserted in writing within one year after the Closing, such
claims for indemnification shall survive until resolved by mutual agreement
between the Contributor and the Indemnified Party or by judicial determination.
Any claim for indemnification not so asserted in writing within one year after
the Closing shall not thereafter be asserted and shall forever be waived.
3.7 RESERVATION OF CONTRIBUTOR RIGHTS.
Notwithstanding anything else in this EXHIBIT D or the Contribution
Agreement to the contrary, the Contributor reserves unto itself all rights and
remedies (including rights to
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seek contribution) against any third party indemnitors and prior property
owners or occupants for which the Partnership has been indemnified by the
Contributor hereunder. To the extent the Contributor's rights against any
such third party indemnitors, owners or occupants may be prejudiced by
actions or inactions by any owner or occupant of the Properties after the
Closing, the Contributor's indemnity obligation shall be reduced in
accordance with the effect of the actions or inactions which so prejudiced
the Contributor's rights.
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<PAGE>
EXHIBIT 10.26
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
by and between
METROPOLITAN FALLS PARTNERS,
a California general partnership
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP
a Maryland limited partnership
Dated as of June 17, 1996
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS. . . . 2
1.1 Contribution Transaction . . . . . . . . . . . . . . . . . . . . 2
1.2 Minimum Consideration and Exchange of OP Units . . . . . . . . . 2
1.3 Additional Consideration . . . . . . . . . . . . . . . . . . . . 2
1.4 Adjusted Consideration . . . . . . . . . . . . . . . . . . . . . 3
1.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Contribution of Certain Rights . . . . . . . . . . . . . . . . . 3
1.7 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Treatment as Contribution. . . . . . . . . . . . . . . . . . . . 4
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Closing Costs. . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. . . . . . . . . . . . 6
3.1 Representations and Warranties of the Operating Partnership. . . 6
3.2 Representations and Warranties of Contributor. . . . . . . . . . 7
3.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 7
4. COVENANTS OF CONTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . 7
5. RELEASES AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 General Release of Operating Partnership . . . . . . . . . . . . 8
5.2 General Release of Contributor . . . . . . . . . . . . . . . . . 9
5.3 Waiver of Section 1542 Protections . . . . . . . . . . . . . . . 9
5.4 Waiver of Rights Under Partnership Agreement . . . . . . . . . . 9
6. POWER OF ATTORNEY
6.1 Grant of Power of Attorney . . . . . . . . . . . . . . . . . . . 9
6.2 Limitation on Liability. . . . . . . . . . . . . . . . . . . . . 10
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
<PAGE>
EXHIBIT LIST
SECTION FIRST
EXHIBITS REFERENCED
- -------- -------------
A Constituent Interests of Contributor's Partnership Interest. . . Recital D
B Contribution and Assumption Agreement. . . . . . . . . . . . . . . . . 1.1
C Form of Quitclaim . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
D Representations and Warranties of Contributor. . . . . . . . . . . . . 3.2
Attachment 1 . . . . . . . . . . . . . . . . List of Portfolio Agreements
ii
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (hereinafter referred to as the
"CONTRIBUTION AGREEMENT") is made and entered into as of June 17, 1996 by and
between Arden Realty Group Limited Partnership, a Maryland limited partnership
(the "OPERATING PARTNERSHIP"), and Metropolitan Falls Partners, a California
general partnership (the "CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership of
a portfolio of office properties (the "PARTICIPATING PROPERTIES") located in
Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct interests
in certain of the Participating Properties (the "PROPERTY INTERESTS") and all of
the interests in certain limited partnerships, certain limited liability
companies and certain other entities (collectively the "PARTICIPATING
PARTNERSHIPS AND LLCS") which currently own directly or indirectly the
Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Arden Realty Group,
Inc., a Maryland corporation (the "COMPANY"), which will operate as a self-
administered and self-managed real estate investment trust ("REIT") and will be
the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members
of the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. The Contributor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIPS") which
Partnerships own directly or indirectly interests in certain of the
Participating Properties also as set forth on Exhibit A (the "PROPERTY" or the
"PROPERTIES"). As used herein, "PARTNERSHIP AGREEMENT" means the partnership
agreement or membership agreement, as applicable, under which each such
Partnership was formed.
E. The Contributor desires to, and the Operating Partnership desires
the Contributor to, contribute to the Operating Partnership, all of its right,
title and interest, as a partner (or member) of the Partnerships, including,
without limitation, all of its voting rights and interests in the capital,
profits and losses of the Partnerships or any property distributable therefrom,
constituting all of its interests in the Partnerships (such right, title and
interest are hereinafter collectively referred to as the "PARTNERSHIP
INTEREST"), in exchange for partnership units in the Operating Partnership (the
"OP UNITS"), on the terms and subject to the conditions set forth herein.
<PAGE>
NOW, THEREFORE, for and in consideration of the foregoing premises, and the
mutual undertakings set forth below, the parties hereto agree as follows:
TERMS OF AGREEMENT
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS
1.1 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to the
terms and conditions contained in this Contribution Agreement, the Contributor
shall transfer to the Operating Partnership, absolutely and unconditionally, all
of its Partnership Interest (as such term is defined in Recital B herein). The
contribution of the Contributor's Partnership Interest shall be evidenced by a
"CONTRIBUTION AND ASSUMPTION AGREEMENT" for each of the Partnerships in
substantially the form of EXHIBIT "B" attached hereto. Furthermore, the
Contributor shall cause each of its individual constituent partners and/or
members (as applicable) to execute and have duly acknowledged an individual
quitclaim deed for each Property in the form of EXHIBIT "C" quitclaiming to the
Operating Partnership any direct or indirect ownership interest in and to the
Properties. The parties shall take such additional actions and execute such
additional documentation as may be required by the Partnership Agreement and the
Agreement of Limited Partnership of the Operating Partnership (the "OP
AGREEMENT") in order to effect the transactions contemplated hereby.
1.2 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS.
Subject to ARTICLES 1.3 AND 1.4 below, the Operating Partnership
shall, in exchange for the Partnership Interest, transfer to the Contributor the
number of OP Units having a value, based on one OP Unit being equal in value to
the Public Offering price for one share of the Company's common stock, equal to
the value indicated on Exhibit A as Contributor's "Total Minimum Consideration."
The transfer of the OP Units to the Contributor shall be evidenced by either an
amendment (the "AMENDMENT") to the OP Agreement or by certificates relating to
such units (the "CERTIFICATES") in either case, as shall be acceptable to the
Contributor. The parties shall take such additional actions and execute such
additional documentation as may be required by the Partnership Agreement and the
OP Agreement in order to effect the transactions contemplated hereby.
1.3 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.4 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.2) of the OP Units
available to all OP Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.4) of all OP
Participants (the "ADDITIONAL CONSIDERATION"), then the Additional Consideration
or a portion thereof, if any, shall be allocated among the OP Participants
2
<PAGE>
(including the Contributor) based upon the relative values of the Contributor's
Partnership Interest and the interests contributed by each of the other OP
Participants, in each case as determined by Richard S. Ziman, in his sole
discretion.
1.4 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular interest that constitutes part of the Partnership Interest, if in
good faith the Operating Partnership determines that the ownership of such
interest or the underlying Property would be inappropriate for the Operating
Partnership for any reason whatsoever. Contributor hereby agrees that, in such
event, the Contributor's Total Minimum Consideration may be reduced by an amount
determined by Richard S. Ziman, in his sole discretion, to reflect the reduction
in total value of the Partnership Interest ultimately contributed by the
Contributor.
1.5 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.3 AND 1.4 hereof, and
any and all such determinations shall be final and binding on all parties.
1.6 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to the
Operating Partnership all of its rights and interests, if any, including rights
to indemnification in favor of the Contributor, if any, under the agreements
pursuant to which the Contributor or its affiliates initially acquired the
Partnership Interest transferred pursuant to this Contribution Agreement.
1.7 PRORATIONS
At the Closing, or as promptly as practicable following the Closing,
to the extent such matters are not the right or responsibility of all tenants of
a given Property, all revenue and all charges that are customarily prorated in
transactions of this nature, including accrued rent currently due and payable,
overpaid taxes or fees, real and personal property taxes, common area
maintenance charges and other similar periodic charges payable or receivable
with respect to such Property shall be ratably prorated between the partners of
the Partnership which holds such Property prior to the Closing and the Operating
Partnership on and after the Closing, effective as of the Closing. After
providing for such prorations, (i) if any of the Partnerships has a resultant
cash surplus, the value of the Contributor's Partnership Interest shall be
increased in proportion to Contributor's ratable share of such cash surplus and
additional OP Units (based on the initial Public Offering price of the Company's
common stock) shall be issued to the Contributor as a valuation adjustment to
the Contributor's Total Minimum Consideration, and (ii) if any of the
Partnerships has a resultant cash deficit, the value of the Contributor's
Partnership Interest shall be reduced in
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proportion to Contributor's ratable share of such cash deficit, and fewer OP
Units shall be issued to the Contributor as a valuation adjustment to the
Contributor's Total Minimum Consideration, unless such deficit is cured prior
to Closing.
1.8 TREATMENT AS CONTRIBUTION
The transfer, assignment and exchange of interests effectuated with
respect to the Operating Partnership, pursuant to this Contribution Agreement
shall constitute, a "Capital Contribution" pursuant to Article 4 of the OP
Agreement and is intended to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed with
the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to this
Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor contained
in this Contribution Agreement shall have been true and correct in all material
respects on the date such representations and warranties were made, and shall be
true and correct in all material respects on the Closing Date as if made at and
as of such date;
(b) Each of the obligations of the Contributor to be performed by it
shall have been duly performed by it on or before the Closing Date;
(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to be
delivered pursuant to SECTION 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
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(f) No order, statute, rule, regulation, executive order, injunction,
stay, decree or restraining order shall have been enacted, entered, promulgated
or enforced by any court of competent jurisdiction or governmental or regulatory
authority or instrumentality that prohibits the consummation of the transactions
contemplated hereby, and no litigation or governmental proceeding seeking such
an order shall be pending or threatened;
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in any of the Partnerships' businesses;
(h) All existing management agreements with respect to the Properties
shall have been contributed to the Operating Partnership prior to or
simultaneously with the Closing; and
(i) All management functions with respect to the Properties presently
conducted by Arden Realty Group, Inc., a Maryland corporation, shall be assumed
by the Operating Partnership.
The foregoing conditions may be waived by the Operating Partnership in
its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the Public
Offering from the underwriter(s), at 10:00 a.m. in the office of Latham &
Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California (the
"CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.1 AND 1.2
of this Contribution Agreement, and all closing deliveries, and the consummation
of the Public Offering, shall be deemed concurrent for all purposes.
2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered through the
Attorney-in-Fact (see ARTICLE 6.1 below), the legal documents and other items
(collectively the "CLOSING DOCUMENTS") necessary to carry out the intention of
this Contribution Agreement, which Closing Documents and other items shall
include, without limitation, the following:
(i) A Contribution and Assumption Agreement for each Partnership;
(ii) An individual quitclaim deed for each Property fully executed and
duly acknowledged from each of the individual constituent partners and/or
members of the Contributor, as required by the Operating Partnership;
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(iii) The Amendment or the Certificates evidencing the transfer of
OP Units to the Contributor;
(iv) American Land Title Assurances ("ALTA") policies of title
insurance with appropriate endorsements and levels of reinsurance for the
Properties issued as of the Closing Date or endorsements or other
assurances that the existing policy or policies of title insurance are
sufficient for purposes of this Contribution Agreement, which the
Contributor shall cause the title company to issue to the Operating
Partnership in a form acceptable to the Operating Partnership (the "TITLE
POLICIES") including satisfaction by the Contributor of any and all title
company requirements applicable to it;
(v) The Partnerships' books and records and securities or other
evidences of ownership held by the Contributor; and
(vi) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number and
that the Contributor is not a foreign person pursuant to section 1445(b)(2)
of the Code and a comparable affidavit satisfying California and any other
withholding requirements.
2.4 CLOSING COSTS
The Operating Partnership shall pay any documentary transfer taxes,
escrow charges, title charges and recording taxes or fees incurred in connection
with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has been
duly formed and is validly existing with requisite power to enter this
Contribution Agreement and all agreements contemplated hereby. The persons
and entities executing this Contribution Agreement and all agreements
contemplated hereby on behalf of the Operating Partnership have the power
and authority to enter into this Contribution Agreement and such other
contemplated agreements; and
(b) DUE AUTHORIZATION. The execution, delivery and performance
by the Operating Partnership of its obligations under this Contribution
Agreement and all agreements contemplated hereby will not contravene any
provision of applicable law, the OP Agreement, charter, declaration of
trust or other constituent document of
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the Operating Partnership, or any agreement or other instrument binding
upon the Operating Partnership or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the
Operating Partnership, and no consent, approval, authorization or order
of or qualification with any governmental body or agency is required for
the performance by the Operating Partnership of its obligations under
this Contribution Agreement and all other agreements contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto, and
acknowledges and agrees to be bound by the indemnification provisions contained
therein.
3.3 INDEMNIFICATION
The Operating Partnership shall indemnify and hold harmless the
Contributor and its directors, officers, employees, agents, representatives and
affiliates (each of which is an "INDEMNIFIED CONTRIBUTOR PARTY") from and
against any and all claims, losses, damages, liabilities and expenses, including
without limitation, amounts paid in settlement, reasonable attorneys' fees,
costs of investigation and remediation, costs of investigative judicial or
administrative proceedings or appeals therefrom and costs of attachment or
similar bonds (collectively, "LOSSES") asserted against, imposed upon or
incurred by the Indemnified Contributor Party in connection with: (i) any breach
of a representation or warranty of the Operating Partnership contained in this
Contribution Agreement; (ii) any liabilities or obligations incurred, arising
from or out of, in connection with or as a result of any claims made or actions
brought by or against the Contributor, the Partnerships, the Properties or an
Indemnified Contributor Party, that arise from or out of, in connection with or
as a result of any Contamination (as defined in Exhibit D hereto) of the
Properties regardless of when or how occurring, except to the extent, and only
to the extent, such Losses arise from or constitute a breach of a representation
and warranty of Contributor under Exhibit D; and (iii) all fees, costs and
expenses of the Operating Partnership in connection with the transactions
contemplated by the Contribution Agreement, including without limitation any and
all costs associated with the transfers contemplated herein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor shall
not:
(i) Sell or transfer all or any portion of the Partnership
Interest; or
(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Partnership Interest.
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(b) From the date hereof through the Closing, the Contributor shall
permit each of the Partnerships to conduct its business in the ordinary course,
consistent with past practice, and shall not permit any of the Partnerships to:
(i) Enter into any material transaction not in the ordinary
course of business;
(ii) Sell or transfer any assets of the Partnerships;
(iii) Mortgage, pledge or encumber (or permit to become
encumbered) any assets of the Partnerships, except (x) liens for taxes not
due, (y) purchase money security interests and (z) mechanics' liens being
disputed by any of the Partnerships in good faith and by appropriate
proceedings;
(iv) Amend, modify or terminate any material agreements or other
instruments to which any of the Partnerships are a party;
(v) Materially alter the manner of keeping the Partnerships'
books, accounts or records or the accounting practices therein reflected;
or
(vi) Make any distribution to its partners.
(c) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required to
effect the transactions contemplated by this Contribution Agreement.
5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of the
Partnership Interest pursuant to ARTICLES 1 AND 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman), agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"), known or unknown,
suspected or unsuspected, arising out of or relating to any of the Partnership
Agreements, this Contribution Agreement or any other matter which exists at the
Closing, except for Contributor Claims arising from the breach of any
representation, warranty, covenant or obligation under this Contribution
Agreement.
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5.2 GENERAL RELEASE OF CONTRIBUTOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "OPERATING PARTNERSHIP CLAIMS"), known or
unknown, suspected or unsuspected, arising out of or relating to any of the
Partnership Agreements, this Contribution Agreement or any other matter which
exists at the Closing, except for Operating Partnership Claims arising from the
breach of any representation, warranty, covenant or obligation under this
Contribution Agreement.
5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership each
expressly waives and relinquishes all rights and benefits afforded by Section
1542 of the California Civil Code and do so understanding and acknowledging the
significance and consequence of such specific waiver of Section 1542 which
provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected the settlement with the
debtor.
5.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT
As of the Closing, the Contributor waives and relinquishes all rights
and benefits otherwise afforded to Contributor under the Partnership Agreements
including, without limitation, any right to consent to or approve of the sale or
contribution by the other partners (or members) of the Partnerships of their
partnership interests to the Company or the Operating Partnership.
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating Partnership
(or its designee) and each of them individually and any successor thereof from
time to time (such Operating Partnership or designee or any such successor of
any of them acting in his, her or its capacity as attorney-in-fact pursuant
hereto, the "ATTORNEY-IN FACT") as the true and lawful attorney-in-fact and
agent of Contributor, to act in the name, place and stead of Contributor to
make, execute, acknowledge and deliver all such other contracts, orders,
receipts, notices, requests, instructions, certificates, consents, letters and
other writings (including without limitation the execution of any Closing
Documents or other documents relating to the
9
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acquisition by the Operating Partnership of Contributor's Partnership
Interest), to provide information to the Securities and Exchange Commission
and others about the transactions contemplated hereby and, in general, to do
all things and to take all actions which the Attorney-in-Fact in its sole
discretion may consider necessary or proper in connection with or to carry
out the transactions contemplated by this Contribution Agreement, as fully as
could Contributor if personally present and acting. Further, Contributor
hereby grants to Attorney-in-Fact a proxy (the "PROXY") to vote Contributor's
Partnership Interest on any matter related to the Formation Transactions
presented to the partners of any of the Partnerships for a vote, including,
but not limited to, the transfer of interests in any of the Partnerships by
the other partners.
Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable and
shall not be terminated by any act of Contributor, by operation of law or by the
occurrence of any other event or events, and if any other such act or events
shall occur before the completion of the transactions contemplated by this
Contribution Agreement, the Attorney-in-Fact shall nevertheless be authorized
and directed to complete all such transactions as if such other act or events
had not occurred and regardless of notice thereof. Contributor agrees that, at
the request of Operating Partnership it will promptly execute a separate power
of attorney and proxy on the same terms set forth in this ARTICLE 6, such
execution to be witnessed and notarized. Contributor hereby authorizes the
reliance of third parties on each of the Power of Attorney and Proxy.
Contributor acknowledges that the Operating Partnership has, and any
designee or successor thereof acting as Attorney-in-Fact may have, an economic
interest in the transactions contemplated by this Contribution Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no responsibility
or liability to any person by virtue of the Power of Attorney or Proxy granted
by Contributor hereby. The Attorney-in-Fact makes no representations with
respect to and shall have no responsibility for the Formation Transactions or
the Public Offering, or the acquisition of the Partnership Interest by the
Operating Partnership and shall not be liable for any error or judgement or for
any act done or omitted or for any mistake of fact or law except for its own
gross negligence or bad faith. Contributor agrees to indemnify the Attorney-in-
Fact for and to hold the Attorney-in-Fact harmless against any loss, claim,
damage or liability incurred on its part arising out of or in connection with it
acting as the Attorney-in-Fact under the Power of Attorney or Proxy created by
Contributor hereby, as well as the cost and expense of investigating and
defending against any such loss, claim, damage or liability, except to the
extend such loss, claim, damage or liability is due to the gross negligence or
bad faith of the Attorney-in-Fact. Contributor agrees that the Attorney-in-Fact
may consult with counsel of its own choice (who may be counsel for Operating
Partnership or its successors or affiliates), and it shall have full and
complete authorization and protection for any action taken or
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suffered by it hereunder in good faith and in accordance with the opinion of
such counsel. It is understood that the Attorney-in-Fact may, without
breaching any express or implied obligation to Contributor hereunder,
release, amend or modify any other power of attorney or proxy granted by any
other person under any related agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other
actions and execute such additional documents following the Closing as the
Operating Partnership may reasonably request in order to effect the transactions
contemplated hereby.
7.2 COUNTERPARTS. This Contribution Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed by
the internal laws of the State of California, without regard to the choice of
laws provisions thereof.
7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
communicated as of the date of personal delivery (including delivery by
overnight courier). Mailed notices shall be addressed as set forth below, but
any party may change the address set forth below by written notice to other
parties in accordance with this paragraph.
To the Contributor:
Metropolitan Falls Partners
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
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IN WITNESS WHEREOF, the parties have executed this Contribution
Agreement as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland Corporation,
general partner
By: /s/ RICHARD S. ZIMAN
--------------------------------
Name:
------------------------------
Title:
-----------------------------
"CONTRIBUTOR"
METROPOLITAN FALLS PARTNERS,
a California general partnership
By: /s/ RICHARD S. ZIMAN
-------------------------------------
Richard S. Ziman
Managing Partner
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EXHIBIT A
TO
CONTRIBUTION AGREEMENT
CONSTITUENT INTERESTS OF CONTRIBUTOR'S PARTNERSHIP INTEREST
Properties Held by the Minimum
Partnerships Partnerships Consideration
- ---------------- ----------------------------- ----------------
LAOP IV, LLC 5601 Lindero Canyon; $319,412
Westwood Terrace;
Calabasas Commerce Center;
The New Wilshire;
70 South Lake;
Skyview Center;
4811 Airport Plaza Drive;
4900/10 Airport Plaza Drive
- ----------------- ------------------------------ -----------------
LAOP V, LLC 5832 Bolsa Avenue; $900,000
400 Corporate Pointe;
9665 Wilshire Boulevard;
Imperial Bank Tower
- ----------------- ------------------------------ -----------------
Total Minimum
Consideration $1,219,412
-----------------
-----------------
A-1
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EXHIBIT B
TO
CONTRIBUTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the undersigned hereby assigns, transfers, contributes
and conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland limited
partnership (the "Operating Partnership"), its entire legal and beneficial
right, title and interest in and to _____________________, a
__________________________ (the "Partnership"), including, without limitation,
all right, title and interest, if any, of the undersigned in and to the assets
of the Partnership and the right to receive distributions of money, profits and
other assets from the Partnership, presently existing or hereafter at any time
arising or accruing (such right, title and interest are hereinafter collectively
referred to as the "Partnership Interest"), TO HAVE AND TO HOLD the same unto
the Operating Partnership, its successors and assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership assumes
all obligations in respect of the Partnership Interest.
The Partnership owns certain real property as described in Attachment "1"
attached hereto.
Executed: _____ __, 1996
METROPOLITAN FALLS
PARTNERS,
a California general partnership
By:
--------------------------------
Richard S. Ziman
Managing Partner
B-1
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EXHIBIT C
TO
CONTRIBUTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- --------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $.............
........ Computed on the consideration
or value of property conveyed;
OR
........ Computed on the consideration
or value less liens or
encumbrances remaining at
time of sale.
---------------------------------------
Signature of Declarant of Agent
determining tax - Firm Name
- --------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group Limited Partnership, a Maryland limited partnership
the real property in the City of ___________, County of ______________, State of
California, described as
Dated
______________________________ ________________________________
STATE OF CALIFORNIA } ________________________________
} ________________________________
COUNTY OF _______________} ________________________________
On ____________________ before me,
___________________________________,
personally appeared _______________
___________________________________
personally known to me (or proved
to me on the basis of
satisfactory evidence) to be the
person(s) whose names(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signature(s) on the
instrument the person(s) or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and official seal. (This area for official notarial
seal)
Signature
-------------------------
C-1
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EXHIBIT D
TO
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1- ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the meanings
set forth below. Terms which are not defined below shall have the meaning set
forth for those terms as defined in the Contribution Agreement to which this
EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to Knowledge,
threatened that directly or indirectly affect any of the Contributor, the
Partnerships or the Properties.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
KNOWLEDGE: Means, with respect to any representation or warranty so
indicated, the actual knowledge, upon reasonable investigation and inquiry in
good faith, of the signatory to the Contribution Agreement.
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests, restrictions,
prior assignments, encumbrances, covenants, encroachments, assessments, rights
of others, licenses, easements, liabilities or claims of any kind or nature
whatsoever, direct or indirect, including, without limitation, interests in or
claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent or
the payment of which is actively being contested in good faith by appropriate
proceedings diligently pursued;
(b) Zoning laws and ordinances generally applicable to the districts
in which the Properties are located which are not violated by the existing
structures or present uses thereof;
D-1
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(c) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings diligently
pursued;
(d) non-exclusive easements for public utilities that do not have a
material adverse effect upon, or interfere with the use of, the Properties; and
(e) any exceptions contained in the Title Policies.
PERSON: Means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating Partnership
as set forth below in this ARTICLE 2. Notwithstanding any other provision of
the Contribution Agreement or this EXHIBIT D, the Contributor makes
representations, warranties and indemnities only with respect to the interests
in the Partnerships to be transferred by the Contributor identified on EXHIBIT A
to the Contribution Agreement.
2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and (B)
has all requisite power and authority to own, lease or operate its property and
to carry on its business as presently conducted and, to the extent required
under applicable law, is qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. This Contribution
Agreement and each agreement, document and instrument executed and delivered by
or on behalf of the contributor pursuant to this contribution Agreement
constitutes, or when executed and delivered will constitute, the legal, valid
and binding obligation of the Contributor, each enforceable against the
Contributor in accordance with its terms, as such enforceability may be limited
by bankruptcy or the application of equitable principles.
D-2
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2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the Contributor
in connection with the execution, delivery and performance of the Contribution
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE PARTNERSHIP INTERESTS. The Contributor is the
sole owner of the Partnership Interest and has good and valid title to such
Partnership Interest, free and clear of all Liens, other than Permitted Liens.
2.5 PARTNERSHIP INTEREST. The Partnership Interest constitutes all
of the issued and outstanding interests owned by the Contributor in the
Partnerships. The Partnership Interest is validly issued, fully paid and
non-assessable, and was not issued in violation of any preemptive rights. The
Partnership Interest has been issued in compliance with applicable law and the
relevant Partnership Agreements (as then in effect). There are no rights,
subscriptions, warrants, options, conversion rights, preemptive rights or
agreements of any kind outstanding to purchase or to otherwise acquire any of
the interests which comprise the Partnership Interest or any securities or
obligations of any kind convertible into any of the interests which comprise the
Partnership Interest or other equity interests or profit participation of any
kind in the Partnerships. At the Closing, upon receipt of the consideration,
the Contributor will have transferred the Partnership Interest free and clear of
all security interests, mortgages, pledges, liens, encumbrances, claims and
equities to the Operating Partnership.
2.6 NO VIOLATION. None of the execution, delivery or performance of
the Contribution Agreement and the transactions contemplated hereby does or
will, with or without the giving of notice, lapse of time, or both, (i) violate,
conflict with, result in a breach of, or constitute a default under or give to
others any right of termination or cancellation of (A) the organizational
documents, including the charters and bylaws, if any, of the Contributor, (B)
any material agreement, document or instrument to which the Contributor is a
party or by which the Contributor or its Partnership Interest is bound or (C)
any term or provision of any judgment, order, writ, injunction, or decree of any
governmental or regulatory authority binding on the Contributor or by which the
Contributor or any of its assets or properties are bound or subject or (ii)
result in the creation of any Lien, other than a Permitted Lien, upon the
Partnership Interest.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withhoding provisions, including those referred to in
ARTICLE 2.7 above and similar provisions under California law. If Contributor
fails to provide such certificates or affidavits, the Operating
D-3
<PAGE>
Partnership may withhold a portion of any payments otherwise to be made to
the Contributor as required by the Code or California law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Agreement are intended to be exempt from registration under the
Securities Act of 1933, as amended and the rules and regulations in effect
thereunder (the "ACT"). In furtherance thereof, the Contributor represents and
warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not as
a nominee or agent for any other person and not with a view to, or for offer or
sale in connection with, any distribution of any thereof. The Contributor
agrees and acknowledges that he, she or it will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(hereinafter, "TRANSFER") any of the OP Units unless (i) the Transfer is
pursuant to an effective registration statement under the Act and qualification
or other compliance under applicable blue sky or state securities laws, or (ii)
counsel for the Contributor (which counsel shall be reasonably acceptable to the
Operating Partnership) shall have furnished the Operating Partnership with an
opinion, reasonably satisfactory in form and substance to the Operating
Partnership, to the effect that no such registration is required because of the
availability of an exemption from registration under the Act and qualification
or other compliance under applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable,
sophisticated and experienced in business and financial matters; the Contributor
has previously invested in securities similar to the OP Units and fully
understands the limitations on transfer imposed by the Federal securities laws
and as described in the Contribution Agreement. The Contributor is able to bear
the economic risk of holding the OP Units for an indefinite period and is able
to afford the complete loss of his, her or its investment in the OP Units; the
Contributor has received and reviewed all information and documents about or
pertaining to the Company, the Operating Partnership, the business and prospects
of the Company and the Operating Partnership and the issuance of the OP Units as
the Contributor deems necessary or desirable, and has been given the opportunity
to obtain any additional information or documents and to ask questions and
receive answers about such information and documents, the Company, the Operating
Partnership, the business and prospects of the Company and the Operating
Partnership and the OP Units which the Contributor deems necessary or desirable
to evaluate the merits and risks related to his, her or its investment in the OP
Units; and the Contributor understands and has taken cognizance of all risk
factors related to the purchase of the OP Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he, she
or it has been advised that (i) the OP Units and the common stock of the Company
into which the OP Units may be exchanged in certain circumstances (the "COMMON
STOCK") must be held indefinitely, and the Contributor must continue to bear the
economic risk of the investment in the OP Units (and any Common Stock that might
be exchanged therefor) unless they are subsequently registered under the Act or
an exemption from such registration is available, (ii)
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a restrictive legend in the form hereafter set forth shall be placed on the
certificates representing the OP Units (and any Common Stock that might be
exchanged therefor), and (iii) a notation shall be made in the appropriate
records of the Operating Partnership (and the Company) indicating that the OP
Units (and any Common Stock that might be exchanged therefor) are subject to
restrictions on transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an individual,
such individual is an "accredited investor" (as such term is defined in Rule
501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his or
her spouse, in excess of $1,000,000; or
(iii) had an individual annual adjusted gross income in excess of
$200,000 in each of the two most recent years and reasonably expects to have
annual adjusted gross income in excess of $200,000 in the current year; or
(iv) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an annual
adjusted gross income, with his spouse, in excess of $300,000 in the current
year.
If the Contributor is not an individual, it is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
2.9.5 LEGENDING. Each certificate representing the OP Units (and
any Common Stock that might be exchanged therefor) shall bear the following
legend:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE
PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS;
In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND
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<PAGE>
TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS
A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE "CODE"). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND
EXCEPT AS EXPRESSLY PROVIDED IN THE CORPORATION'S CHARTER, (1) NO PERSON
MAY BENEFICIALLY OWN OR CONSTRUCTIVELY OWN SHARES OF THE CORPORATION'S
COMMON STOCK IN EXCESS OF 9.0% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER
IS MORE RESTRICTIVE) OF THE OUTSTANDING COMMON STOCK OF THE CORPORATION;
(2) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK THAT
WOULD RESULT IN THE CORPORATION BEING "CLOSELY HELD" UNDER SECTION 856(H)
OF THE CODE OR OTHERWISE CAUSE THE CORPORATION TO FAIL TO QUALIFY AS A
REIT; AND (3) NO PERSON MAY TRANSFER COMMON STOCK IF SUCH TRANSFER WOULD
RESULT IN THE CAPITAL STOCK OF THE CORPORATION BEING OWNED BY FEWER THAN
100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR
ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK WHICH CAUSES
OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK
IN EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION.
IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE
COMMON STOCK REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A
TRUSTEE OF A TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES.
IN ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND
CONDITIONS SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF
THE BOARD OF DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER
EVENT MAY VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE
OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE
RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS
IN THIS LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION,
AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING
THE RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH
HOLDER OF COMMON STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A
COPY MAY BE DIRECTED TO THE SECRETARY OF THE CORPORATION.
2.10 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of the Operating Partnership or any of its affiliates to pay any
finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by the Contribution Agreement.
D-6
<PAGE>
2.11 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Partnership
Interest to the Operating Partnership.
2.12 NO MISREPRESENTATIONS. No representation, warranty or statement
made, or information provided, by the Contributor in the Contribution Agreement
or in any other document or instrument furnished or to be furnished by or on
behalf of the Contributor pursuant hereto or as contemplated hereby (i) contains
or will contain any untrue statement of a material fact or (ii) omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading.
2.13 TAXES. For federal income tax purposes, the Partnerships are,
and at all times during their existence have been, partnerships (rather than
associations or publicly traded partnerships taxable as corporations). The
Partnerships have filed all tax returns required to be filed by them and have
paid all taxes required to be paid by them. The transactions contemplated
hereby will not result in any tax liability to the Partnerships, the Company or
the Operating Partnership. No tax lien or other charge exists or will exist
upon consummation of the transactions contemplated hereby with respect to any
Property except such tax liens for which the tax is not due and has been
reserved for payment by the Partnerships or tax liens or other charges which
individually or in the aggregate would not have a material adverse effect on the
Operating Partnership.
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered pursuant
hereto shall survive the Closing.
(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this EXHIBIT
D or the Contribution Agreement for monetary damages (or otherwise) for breach
of any of its representations and warranties contained in this EXHIBIT D or the
Contribution Agreement, or in any Schedule, certificate or affidavit delivered
by it pursuant thereto, other than pursuant to the succeeding provisions of this
ARTICLE 3.
3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the Operating
Partnership, the REIT, and their affiliates and each of their respective
directors, officers, employees, agents, representatives and affiliates (each of
which is an "INDEMNIFIED PARTY") from and against any and all claims, losses,
damages, liabilities and expenses, including, without limitation, amounts paid
in settlement, reasonable attorneys' fees, costs of investigation and
remediation, costs of investigative, judicial or administrative proceedings or
appeals therefrom, and costs of
D-7
<PAGE>
attachment or similar bonds (collectively, "LOSSES"), asserted against,
imposed upon or incurred by the Indemnified Party in connection with or as a
result of any breach of a representation or warranty of the Contributor
contained in the Contribution Agreement or in any Schedule, certificate or
affidavit delivered by the Contributor pursuant to the Contribution Agreement.
(b) The Contributor shall indemnify and hold harmless the Indemnified
Parties from and against any and all Losses, asserted against, imposed upon or
incurred by the Indemnified Parties in connection with or as a result of:
(i) all fees and expenses of the Contributor in connection with
the transactions contemplated by the Contribution Agreement;
(ii) any liabilities or obligations incurred, arising from or out
of, in connection with or as a result of the failure of the Contributor to
obtain all consents required to consummate the transactions contemplated by
the Contribution Agreement.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when expenses
are incurred) to an Indemnified Party of OP Units, subject to the limits on
ownership and transfer of REIT shares set forth in the Company's articles of
incorporation. Any OP Units delivered to an Indemnified Party hereunder shall
be valued based upon the initial public offering price of the Company's Common
Stock.
3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably practicable
after receipt by the Indemnified Party of notice of any liability or claim
incurred by or asserted against the Indemnified Party that is subject to
indemnification under this ARTICLE 3, the Indemnified Party shall give notice
thereof to the Contributor, including liabilities or claims to be applied
against the indemnification baskets established pursuant to ARTICLE 3.5 hereof.
The Indemnified Party may at its option demand indemnity under this ARTICLE 3 as
soon as a claim has been threatened by a third party, regardless of whether an
actual Loss has been suffered, so long as the Indemnified Party shall in good
faith determine that such claim is not frivolous and that the Indemnified Party
may be liable for, or otherwise incur, a Loss as a result thereof and shall give
notice of such determination to the Contributor. The Indemnified Party shall
permit the Contributor, at its option and expense, to assume the defense of any
such claim by counsel selected by the Contributor and reasonably satisfactory to
the Indemnified Party, and to settle or otherwise dispose of the same; PROVIDED,
HOWEVER, that the Indemnified Party may at all times participate in such defense
at its expense; and PROVIDED FURTHER, HOWEVER, that the Contributor shall not,
in defense of any such claim, except with the prior written consent of the
Indemnified Party in its sole and absolute discretion, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in question
to the Indemnified Party and its affiliates a release of all liabilities in
respect of such claims, or that does not result only in the payment of money
damages. If the Contributor shall fail to undertake such defense within 30 days
after such notice, or within such shorter time as may be reasonable under the
circumstances, then the Indemnified Party shall
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<PAGE>
have the right to undertake the defense, compromise or settlement of such
liability or claim on behalf of and for the account of the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER
ARTICLE 3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the total amount recoverable by the Indemnified Parties under
ARTICLE 3.2 hereof exceeds $200,000; PROVIDED, HOWEVER, that once the total
amount recoverable by the Indemnified Parties exceeds $200,000 in the aggregate,
the Contributor's obligation under ARTICLE 3.2 hereof shall be for the full
amount of such obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this ARTICLE
3 with respect to any Partnership Interest to the extent such payments in the
aggregate would exceed the value of the OP Units (based upon the initial public
offering price of the Common Stock) received by the Contributor at the Closing.
Notwithstanding anything contained herein to the contrary, the Indemnified
Parties shall look first to the Contributor's OP Units for indemnification under
this ARTICLE 3 and then to the Contributor's other assets.
3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification under
ARTICLE 3.2 hereof must be asserted in writing by the Indemnified Party, stating
the nature of the Losses and the basis for indemnification therefor:
(i) within one year after the Closing in the case of a claim
under ARTICLE 3.2 hereof (other than a claim under ARTICLE 3.2(a) based
upon a breach of the representations, and warranties of the Contributor set
forth in ARTICLE 2.13 hereof as specified below; and
(ii) prior to the expiration of the applicable statutes of
limitations in the case of a claim under ARTICLE 3.2(a) based upon a breach
of the representations and warranties of the Contributor set forth in
ARTICLE 2.13 hereof.
(b) If so asserted in writing within one year after the Closing, such
claims for indemnification shall survive until resolved by mutual agreement
between the Contributor and the Indemnified Party or by judicial determination.
Any claim for indemnification not so asserted in writing within one year after
the Closing shall not thereafter be asserted and shall forever be waived.
3.7 RESERVATION OF CONTRIBUTOR RIGHTS.
Notwithstanding anything else in this Contribution Agreement to the
contrary, the Contributor reserves unto itself all rights and remedies
(including rights to seek contribution)
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<PAGE>
against any third party indemnitors and prior property owners or occupants
for which the Partnerships have been indemnified by the Contributor hereunder.
To the extent the Contributor's rights against any such third party indemnitors,
owners or occupants may be prejudiced by actions or inactions by any owner or
occupant of the Properties after the Closing, the Contributor's indemnity
obligation shall be reduced in accordance with the effect of the actions or
inactions which so prejudiced the Contributor's rights.
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<PAGE>
EXHIBIT 10.27
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- ------------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
by and between
MONTOUR REALTY ASSOCIATES,
a California general partnership
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP
a Maryland limited partnership
Dated as of June 17, 1996
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS. . . . 2
1.1 Contribution Transaction . . . . . . . . . . . . . . . . . . . . 2
1.2 Minimum Consideration and Exchange of OP Units . . . . . . . . . 2
1.3 Additional Consideration . . . . . . . . . . . . . . . . . . . . 2
1.4 Adjusted Consideration . . . . . . . . . . . . . . . . . . . . . 3
1.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Contribution of Certain Rights . . . . . . . . . . . . . . . . . 3
1.7 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Treatment as Contribution. . . . . . . . . . . . . . . . . . . . 4
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Closing Costs. . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. . . . . . . . . . . . 6
3.1 Representations and Warranties of the Operating Partnership. . . 6
3.2 Representations and Warranties of Contributor. . . . . . . . . . 7
3.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 7
4. COVENANTS OF CONTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . 7
5. RELEASES AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 General Release of Operating Partnership . . . . . . . . . . . . 8
5.2 General Release of Contributor . . . . . . . . . . . . . . . . . 9
5.3 Waiver of Section 1542 Protections . . . . . . . . . . . . . . . 9
5.4 Waiver of Rights Under Partnership Agreement . . . . . . . . . . 9
6. POWER OF ATTORNEY
6.1 Grant of Power of Attorney . . . . . . . . . . . . . . . . . . . 9
6.2 Limitation on Liability. . . . . . . . . . . . . . . . . . . . . 10
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
<PAGE>
EXHIBIT LIST
SECTION FIRST
EXHIBITS REFERENCED
- -------- -------------
A Constituent Interests of Contributor's Partnership Interest . . Recital D
B Contribution and Assumption Agreement . . . . . . . . . . . . . . . 1.1
C Form of Quitclaim . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
D Representations and Warranties of Contributor. . . . . . . . . . . . 3.2
Attachment 1 . . . . . . . . . . . . . . . . List of Portfolio Agreements
ii
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (hereinafter referred to as the
"CONTRIBUTION AGREEMENT") is made and entered into as of June 17, 1996 by and
between Arden Realty Group Limited Partnership, a Maryland limited partnership
(the "OPERATING PARTNERSHIP"), and Montour Realty Associates, a California
general partnership (the "CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership of
a portfolio of office properties (the "PARTICIPATING PROPERTIES") located in
Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct interests
in certain of the Participating Properties (the "PROPERTY INTERESTS") and all of
the interests in certain limited partnerships, certain limited liability
companies and certain other entities (collectively the "PARTICIPATING
PARTNERSHIPS AND LLCS") which currently own directly or indirectly the
Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Arden Realty Group,
Inc., a Maryland corporation (the "COMPANY"), which will operate as a self-
administered and self-managed real estate investment trust ("REIT") and will be
the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members
of the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. The Contributor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIPS") which
Partnerships own directly or indirectly interests in certain of the
Participating Properties also as set forth on Exhibit A (the "PROPERTY" or the
"PROPERTIES"). As used herein, "PARTNERSHIP AGREEMENT" means the partnership
agreement or membership agreement, as applicable, under which each such
Partnership was formed.
E. The Contributor desires to, and the Operating Partnership desires
the Contributor to, contribute to the Operating Partnership, all of its right,
title and interest, as a partner (or member) of the Partnerships, including,
without limitation, all of its voting rights and interests in the capital,
profits and losses of the Partnerships or any property distributable therefrom,
constituting all of its interests in the Partnerships (such right, title and
interest are hereinafter collectively referred to as the "PARTNERSHIP
INTEREST"), in exchange for partnership units in the Operating Partnership (the
"OP UNITS"), on the terms and subject to the conditions set forth herein.
<PAGE>
NOW, THEREFORE, for and in consideration of the foregoing premises, and the
mutual undertakings set forth below, the parties hereto agree as follows:
TERMS OF AGREEMENT
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS
1.1 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to the
terms and conditions contained in this Contribution Agreement, the Contributor
shall transfer to the Operating Partnership, absolutely and unconditionally, all
of its Partnership Interest (as such term is defined in Recital B herein). The
contribution of the Contributor's Partnership Interest shall be evidenced by a
"CONTRIBUTION AND ASSUMPTION AGREEMENT" for each of the Partnerships in
substantially the form of EXHIBIT "B" attached hereto. Furthermore, the
Contributor shall cause each of its individual constituent partners and/or
members (as applicable) to execute and have duly acknowledged an individual
quitclaim deed for each Property in the form of EXHIBIT "C" quitclaiming to the
Operating Partnership any direct or indirect ownership interest in and to the
Properties. The parties shall take such additional actions and execute such
additional documentation as may be required by the Partnership Agreement and the
Agreement of Limited Partnership of the Operating Partnership (the "OP
AGREEMENT") in order to effect the transactions contemplated hereby.
1.2 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS.
Subject to ARTICLES 1.3 AND 1.4 below, the Operating Partnership
shall, in exchange for the Partnership Interest, transfer to the Contributor the
number of OP Units having a value, based on one OP Unit being equal in value to
the Public Offering price for one share of the Company's common stock, equal to
the value indicated on Exhibit A as Contributor's "Total Minimum Consideration."
The transfer of the OP Units to the Contributor shall be evidenced by either an
amendment (the "AMENDMENT") to the OP Agreement or by certificates relating to
such units (the "CERTIFICATES") in either case, as shall be acceptable to the
Contributor. The parties shall take such additional actions and execute such
additional documentation as may be required by the Partnership Agreement and the
OP Agreement in order to effect the transactions contemplated hereby.
1.3 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.4 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.2) of the OP Units
available to all OP Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.4) of all OP
Participants (the "ADDITIONAL CONSIDERATION"), then the Additional Consideration
or a portion thereof, if any, shall be allocated among the OP Participants
2
<PAGE>
(including the Contributor) based upon the relative values of the Contributor's
Partnership Interest and the interests contributed by each of the other OP
Participants, in each case as determined by Richard S. Ziman, in his sole
discretion.
1.4 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular interest that constitutes part of the Partnership Interest, if in
good faith the Operating Partnership determines that the ownership of such
interest or the underlying Property would be inappropriate for the Operating
Partnership for any reason whatsoever. Contributor hereby agrees that, in such
event, the Contributor's Total Minimum Consideration may be reduced by an amount
determined by Richard S. Ziman, in his sole discretion, to reflect the reduction
in total value of the Partnership Interest ultimately contributed by the
Contributor.
1.5 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.3 AND 1.4 hereof, and
any and all such determinations shall be final and binding on all parties.
1.6 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to the
Operating Partnership all of its rights and interests, if any, including rights
to indemnification in favor of the Contributor, if any, under the agreements
pursuant to which the Contributor or its affiliates initially acquired the
Partnership Interest transferred pursuant to this Contribution Agreement.
1.7 PRORATIONS
At the Closing, or as promptly as practicable following the Closing,
to the extent such matters are not the right or responsibility of all tenants of
a given Property, all revenue and all charges that are customarily prorated in
transactions of this nature, including accrued rent currently due and payable,
overpaid taxes or fees, real and personal property taxes, common area
maintenance charges and other similar periodic charges payable or receivable
with respect to such Property shall be ratably prorated between the partners of
the Partnership which holds such Property prior to the Closing and the Operating
Partnership on and after the Closing, effective as of the Closing. After
providing for such prorations, (i) if any of the Partnerships has a resultant
cash surplus, the value of the Contributor's Partnership Interest shall be
increased in proportion to Contributor's ratable share of such cash surplus and
additional OP Units (based on the initial Public Offering price of the Company's
common stock) shall be issued to the Contributor as a valuation adjustment to
the Contributor's Total Minimum Consideration, and (ii) if any of the
Partnerships has a resultant cash deficit, the value of the Contributor's
Partnership Interest shall be reduced in
3
<PAGE>
proportion to Contributor's ratable share of such cash deficit, and fewer OP
Units shall be issued to the Contributor as a valuation adjustment to the
Contributor's Total Minimum Consideration, unless such deficit is cured prior
to Closing.
1.8 TREATMENT AS CONTRIBUTION
The transfer, assignment and exchange of interests effectuated with
respect to the Operating Partnership, pursuant to this Contribution Agreement
shall constitute, a "Capital Contribution" pursuant to Article 4 of the OP
Agreement and is intended to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed with
the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to this
Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor contained
in this Contribution Agreement shall have been true and correct in all material
respects on the date such representations and warranties were made, and shall be
true and correct in all material respects on the Closing Date as if made at and
as of such date;
(b) Each of the obligations of the Contributor to be performed by it
shall have been duly performed by it on or before the Closing Date;
(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to be
delivered pursuant to SECTION 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
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(f) No order, statute, rule, regulation, executive order, injunction,
stay, decree or restraining order shall have been enacted, entered, promulgated
or enforced by any court of competent jurisdiction or governmental or regulatory
authority or instrumentality that prohibits the consummation of the transactions
contemplated hereby, and no litigation or governmental proceeding seeking such
an order shall be pending or threatened;
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in any of the Partnerships' businesses;
(h) All existing management agreements with respect to the Properties
shall have been contributed to the Operating Partnership prior to or
simultaneously with the Closing; and
(i) All management functions with respect to the Properties presently
conducted by Arden Realty Group, Inc., a Maryland corporation, shall be assumed
by the Operating Partnership.
The foregoing conditions may be waived by the Operating Partnership in
its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the Public
Offering from the underwriter(s), at 10:00 a.m. in the office of Latham &
Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California (the
"CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.1 AND 1.2
of this Contribution Agreement, and all closing deliveries, and the consummation
of the Public Offering, shall be deemed concurrent for all purposes.
2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered through the
Attorney-in-Fact (see ARTICLE 6.1 below), the legal documents and other items
(collectively the "CLOSING DOCUMENTS") necessary to carry out the intention of
this Contribution Agreement, which Closing Documents and other items shall
include, without limitation, the following:
(i) A Contribution and Assumption Agreement for each Partnership;
(ii) An individual quitclaim deed for each Property fully executed and
duly acknowledged from each of the individual constituent partners and/or
members of the Contributor, as required by the Operating Partnership;
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(iii) The Amendment or the Certificates evidencing the transfer of
OP Units to the Contributor;
(iv) American Land Title Assurances ("ALTA") policies of title
insurance with appropriate endorsements and levels of reinsurance for the
Properties issued as of the Closing Date or endorsements or other
assurances that the existing policy or policies of title insurance are
sufficient for purposes of this Contribution Agreement, which the
Contributor shall cause the title company to issue to the Operating
Partnership in a form acceptable to the Operating Partnership (the "TITLE
POLICIES") including satisfaction by the Contributor of any and all title
company requirements applicable to it;
(v) The Partnerships' books and records and securities or other
evidences of ownership held by the Contributor; and
(vi) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number and
that the Contributor is not a foreign person pursuant to section 1445(b)(2)
of the Code and a comparable affidavit satisfying California and any other
withholding requirements.
2.4 CLOSING COSTS
The Operating Partnership shall pay any documentary transfer taxes,
escrow charges, title charges and recording taxes or fees incurred in connection
with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has been
duly formed and is validly existing with requisite power to enter this
Contribution Agreement and all agreements contemplated hereby. The persons
and entities executing this Contribution Agreement and all agreements
contemplated hereby on behalf of the Operating Partnership have the power
and authority to enter into this Contribution Agreement and such other
contemplated agreements; and
(b) DUE AUTHORIZATION. The execution, delivery and performance
by the Operating Partnership of its obligations under this Contribution
Agreement and all agreements contemplated hereby will not contravene any
provision of applicable law, the OP Agreement, charter, declaration of
trust or other constituent document of
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the Operating Partnership, or any agreement or other instrument binding
upon the Operating Partnership or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Operating
Partnership, and no consent, approval, authorization or order of or
qualification with any governmental body or agency is required for the
performance by the Operating Partnership of its obligations under this
Contribution Agreement and all other agreements contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto, and
acknowledges and agrees to be bound by the indemnification provisions contained
therein.
3.3 INDEMNIFICATION
The Operating Partnership shall indemnify and hold harmless the
Contributor and its directors, officers, employees, agents, representatives and
affiliates (each of which is an "INDEMNIFIED CONTRIBUTOR PARTY") from and
against any and all claims, losses, damages, liabilities and expenses, including
without limitation, amounts paid in settlement, reasonable attorneys' fees,
costs of investigation and remediation, costs of investigative judicial or
administrative proceedings or appeals therefrom and costs of attachment or
similar bonds (collectively, "LOSSES") asserted against, imposed upon or
incurred by the Indemnified Contributor Party in connection with: (i) any breach
of a representation or warranty of the Operating Partnership contained in this
Contribution Agreement; (ii) any liabilities or obligations incurred, arising
from or out of, in connection with or as a result of any claims made or actions
brought by or against the Contributor, the Partnerships, the Properties or an
Indemnified Contributor Party, that arise from or out of, in connection with or
as a result of any Contamination (as defined in Exhibit D hereto) of the
Properties regardless of when or how occurring, except to the extent, and only
to the extent, such Losses arise from or constitute a breach of a representation
and warranty of Contributor under Exhibit D; and (iii) all fees, costs and
expenses of the Operating Partnership in connection with the transactions
contemplated by the Contribution Agreement, including without limitation any and
all costs associated with the transfers contemplated herein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor shall
not:
(i) Sell or transfer all or any portion of the Partnership
Interest; or
(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Partnership Interest.
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(b) From the date hereof through the Closing, the Contributor shall
permit each of the Partnerships to conduct its business in the ordinary course,
consistent with past practice, and shall not permit any of the Partnerships to:
(i) Enter into any material transaction not in the ordinary
course of business;
(ii) Sell or transfer any assets of the Partnerships;
(iii) Mortgage, pledge or encumber (or permit to become
encumbered) any assets of the Partnerships, except (x) liens for taxes not
due, (y) purchase money security interests and (z) mechanics' liens being
disputed by any of the Partnerships in good faith and by appropriate
proceedings;
(iv) Amend, modify or terminate any material agreements or other
instruments to which any of the Partnerships are a party;
(v) Materially alter the manner of keeping the Partnerships'
books, accounts or records or the accounting practices therein reflected;
or
(vi) Make any distribution to its partners.
(c) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required to
effect the transactions contemplated by this Contribution Agreement.
5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of the
Partnership Interest pursuant to ARTICLES 1 AND 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman), agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"), known or unknown,
suspected or unsuspected, arising out of or relating to any of the Partnership
Agreements, this Contribution Agreement or any other matter which exists at the
Closing, except for Contributor Claims arising from the breach of any
representation, warranty, covenant or obligation under this Contribution
Agreement.
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5.2 GENERAL RELEASE OF CONTRIBUTOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "OPERATING PARTNERSHIP CLAIMS"), known or
unknown, suspected or unsuspected, arising out of or relating to any of the
Partnership Agreements, this Contribution Agreement or any other matter which
exists at the Closing, except for Operating Partnership Claims arising from the
breach of any representation, warranty, covenant or obligation under this
Contribution Agreement.
5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership each
expressly waives and relinquishes all rights and benefits afforded by Section
1542 of the California Civil Code and do so understanding and acknowledging the
significance and consequence of such specific waiver of Section 1542 which
provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected the settlement with the
debtor.
5.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT
As of the Closing, the Contributor waives and relinquishes all rights
and benefits otherwise afforded to Contributor under the Partnership Agreements
including, without limitation, any right to consent to or approve of the sale or
contribution by the other partners (or members) of the Partnerships of their
partnership interests to the Company or the Operating Partnership.
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating Partnership
(or its designee) and each of them individually and any successor thereof from
time to time (such Operating Partnership or designee or any such successor of
any of them acting in his, her or its capacity as attorney-in-fact pursuant
hereto, the "ATTORNEY-IN FACT") as the true and lawful attorney-in-fact and
agent of Contributor, to act in the name, place and stead of Contributor to
make, execute, acknowledge and deliver all such other contracts, orders,
receipts, notices, requests, instructions, certificates, consents, letters and
other writings (including without limitation the execution of any Closing
Documents or other documents relating to the
9
<PAGE>
acquisition by the Operating Partnership of Contributor's Partnership
Interest), to provide information to the Securities and Exchange Commission
and others about the transactions contemplated hereby and, in general, to do
all things and to take all actions which the Attorney-in-Fact in its sole
discretion may consider necessary or proper in connection with or to carry
out the transactions contemplated by this Contribution Agreement, as fully as
could Contributor if personally present and acting. Further, Contributor
hereby grants to Attorney-in-Fact a proxy (the "PROXY") to vote Contributor's
Partnership Interest on any matter related to the Formation Transactions
presented to the partners of any of the Partnerships for a vote, including,
but not limited to, the transfer of interests in any of the Partnerships by
the other partners.
Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable and
shall not be terminated by any act of Contributor, by operation of law or by the
occurrence of any other event or events, and if any other such act or events
shall occur before the completion of the transactions contemplated by this
Contribution Agreement, the Attorney-in-Fact shall nevertheless be authorized
and directed to complete all such transactions as if such other act or events
had not occurred and regardless of notice thereof. Contributor agrees that, at
the request of Operating Partnership it will promptly execute a separate power
of attorney and proxy on the same terms set forth in this ARTICLE 6, such
execution to be witnessed and notarized. Contributor hereby authorizes the
reliance of third parties on each of the Power of Attorney and Proxy.
Contributor acknowledges that the Operating Partnership has, and any
designee or successor thereof acting as Attorney-in-Fact may have, an economic
interest in the transactions contemplated by this Contribution Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no responsibility
or liability to any person by virtue of the Power of Attorney or Proxy granted
by Contributor hereby. The Attorney-in-Fact makes no representations with
respect to and shall have no responsibility for the Formation Transactions or
the Public Offering, or the acquisition of the Partnership Interest by the
Operating Partnership and shall not be liable for any error or judgement or for
any act done or omitted or for any mistake of fact or law except for its own
gross negligence or bad faith. Contributor agrees to indemnify the Attorney-in-
Fact for and to hold the Attorney-in-Fact harmless against any loss, claim,
damage or liability incurred on its part arising out of or in connection with it
acting as the Attorney-in-Fact under the Power of Attorney or Proxy created by
Contributor hereby, as well as the cost and expense of investigating and
defending against any such loss, claim, damage or liability, except to the
extend such loss, claim, damage or liability is due to the gross negligence or
bad faith of the Attorney-in-Fact. Contributor agrees that the Attorney-in-Fact
may consult with counsel of its own choice (who may be counsel for Operating
Partnership or its successors or affiliates), and it shall have full and
complete authorization and protection for any action taken or
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suffered by it hereunder in good faith and in accordance with the opinion of
such counsel. It is understood that the Attorney-in-Fact may, without
breaching any express or implied obligation to Contributor hereunder, release,
amend or modify any other power of attorney or proxy granted by any other
person under any related agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other
actions and execute such additional documents following the Closing as the
Operating Partnership may reasonably request in order to effect the transactions
contemplated hereby.
7.2 COUNTERPARTS. This Contribution Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed by
the internal laws of the State of California, without regard to the choice of
laws provisions thereof.
7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
communicated as of the date of personal delivery (including delivery by
overnight courier). Mailed notices shall be addressed as set forth below, but
any party may change the address set forth below by written notice to other
parties in accordance with this paragraph.
To the Contributor:
Montour Realty Associates
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
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IN WITNESS WHEREOF, the parties have executed this Contribution
Agreement as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland Corporation,
general partner
By: /s/ Richard S. Ziman
-----------------------------------
Name:
Title:
"CONTRIBUTOR"
MONTOUR REALTY ASSOCIATES,
a California general partnership
By: /s/ Richard S. Ziman
-----------------------------------
Richard S. Ziman
Managing Partner
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EXHIBIT A
TO
CONTRIBUTION AGREEMENT
CONSTITUENT INTERESTS OF CONTRIBUTOR'S PARTNERSHIP INTEREST
Properties Held by the Minimum
Partnerships Partnerships Consideration
Arden LAOP Three, 16000 Ventura $ 497,264
LLC Boulevard;
Bristol Plaza
-------------------- ---------------------- ------------------
5000 Spring 5000 East Spring $ 305,258
Associates, LLC Street
-------------------- ---------------------- ------------------
Century Center Century Park Center $1,028,069
Associates, L.P.
-------------------- ---------------------- ------------------
Arden BV Associates, Woodland Hills $1,785,743
LLC Financial Center;
Beverly Atrium
-------------------- ---------------------- ------------------
Total Minimum
Consideration $3,616,334
------------------
------------------
A-1
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EXHIBIT B
TO
CONTRIBUTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the undersigned hereby assigns, transfers, contributes
and conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland limited
partnership (the "Operating Partnership"), its entire legal and beneficial
right, title and interest in and to _____________________, a
__________________________ (the "Partnership"), including, without limitation,
all right, title and interest, if any, of the undersigned in and to the assets
of the Partnership and the right to receive distributions of money, profits and
other assets from the Partnership, presently existing or hereafter at any time
arising or accruing (such right, title and interest are hereinafter collectively
referred to as the "Partnership Interest"), TO HAVE AND TO HOLD the same unto
the Operating Partnership, its successors and assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership assumes
all obligations in respect of the Partnership Interest.
The Partnership owns certain real property as described in Attachment "1"
attached hereto.
Executed: _____ __, 1996
MONTOUR REALTY
ASSOCIATES,
a California general partnership
By: /s/ Richard S.Ziman
----------------------------------
Richard S. Ziman
Managing Partner
B-1
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EXHIBIT C
TO
CONTRIBUTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- --------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $
------------
.......... Computed on the consideration
or value of property conveyed;
OR
.......... Computed on the consideration
or value less liens or
encumbrances remaining at
time of sale.
----------------------------------------
Signature of Declarant of Agent
determining tax - Firm Name
- --------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group Limited Partnership, a Maryland limited partnership
the real property in the City of ________________, County of _______________,
State of California, described as
Dated
______________________________ ________________________________
STATE OF CALIFORNIA } ________________________________
} ________________________________
COUNTY OF _______________} ________________________________
On ____________ before me,
_________________________,
personally appeared _____
_________________________
personally known to me (or proved
to me on the basis of satisfactory
evidence) to be the person(s)
whose names(s) is/are subscribed
to the within instrument and
acknowledged to me that he/she/they
executed the same in his/her/their
authorized capacity(ies), and that
by his/her/their signature(s) on
the instrument the person(s) or
the entity upon behalf of which
the person(s) acted, executed
the instrument.
WITNESS my hand and official seal.
Signature (This area for official notarial seal)
-------------------------
C-1
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EXHIBIT D
TO
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1- ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the meanings
set forth below. Terms which are not defined below shall have the meaning set
forth for those terms as defined in the Contribution Agreement to which this
EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to Knowledge,
threatened that directly or indirectly affect any of the Contributor, the
Partnerships or the Properties.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
INDEMNIFYING PARTY: Means any party required to indemnify any other
party under ARTICLE 3.2 of this EXHIBIT D or under the indemnification
provisions substantially identical to ARTICLE 3.2 hereof in the other Portfolio
Agreements.
KNOWLEDGE: Means, with respect to any representation or warranty so
indicated, the actual knowledge, upon reasonable investigation and inquiry in
good faith, of the signatory to the Contribution Agreement.
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests, restrictions,
prior assignments, encumbrances, covenants, encroachments, assessments, rights
of others, licenses, easements, liabilities or claims of any kind or nature
whatsoever, direct or indirect, including, without limitation, interests in or
claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
D-1
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PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent or
the payment of which is actively being contested in good faith by appropriate
proceedings diligently pursued;
(b) Zoning laws and ordinances generally applicable to the districts
in which the Properties are located which are not violated by the existing
structures or present uses thereof;
(c) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings diligently
pursued;
(d) non-exclusive easements for public utilities that do not have a
material adverse effect upon, or interfere with the use of, the Properties;
(e) any exceptions contained in the Title Policies; and
(f) Liens created or imposed by that certain Construction Loan
Agreement by and among National Bank of Canada, a Canadian Chartered Bank acting
through its New York Branch and Canada Trustco International Limited, a limited
liability company incorporated in Barbados, as lenders, and Century Center
Associates, L.P., a California limited partnership, and Grampian Associates, a
California general partnership, as borrowers, dated as of March 1, 1993.
PERSON: Means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PORTFOLIO AGREEMENTS: Means the agreements, including the
Contribution Agreement, listed on ATTACHMENT "1" hereto, which contemplate the
transfer of partnership and/or limited liability company membership interests in
certain of the Participating Partnerships and LLCs from any entity directly or
indirectly owned by Contributor to the Company and the Operating Partnership.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating Partnership
as set forth below in this ARTICLE 2. Notwithstanding any other provision of
the Contribution Agreement or this EXHIBIT D, the Contributor makes
representations, warranties and indemnities only with
D-2
<PAGE>
respect to the interests in the Partnerships to be transferred by the
Contributor identified on EXHIBIT A to the Contribution Agreement.
2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and (B)
has all requisite power and authority to own, lease or operate its property and
to carry on its business as presently conducted and, to the extent required
under applicable law, is qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. This Contribution
Agreement and each agreement, document and instrument executed and delivered by
or on behalf of the contributor pursuant to this contribution Agreement
constitutes, or when executed and delivered will constitute, the legal, valid
and binding obligation of the Contributor, each enforceable against the
Contributor in accordance with its terms, as such enforceability may be limited
by bankruptcy or the application of equitable principles.
2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the Contributor
in connection with the execution, delivery and performance of the Contribution
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE PARTNERSHIP INTERESTS. The Contributor is the
sole owner of the Partnership Interest and has good and valid title to such
Partnership Interest, free and clear of all Liens, other than Permitted Liens.
2.5 PARTNERSHIP INTEREST. The Partnership Interest constitutes all
of the issued and outstanding interests owned by the Contributor in the
Partnerships. The Partnership Interest is validly issued, fully paid and
non-assessable, and was not issued in violation of any preemptive rights. The
Partnership Interest has been issued in compliance with applicable law and the
relevant Partnership Agreements (as then in effect). There are no rights,
subscriptions, warrants, options, conversion rights, preemptive rights or
agreements of any kind outstanding to purchase or to otherwise acquire any of
the interests which comprise the Partnership Interest or any securities or
obligations of any kind convertible into any of the interests which comprise the
Partnership Interest or other equity interests or profit participation of any
kind in the Partnerships. At the Closing, upon receipt of the consideration,
the Contributor will have transferred the Partnership Interest free and clear of
all security interests, mortgages, pledges, liens, encumbrances, claims and
equities to the Operating Partnership.
2.6 NO VIOLATION. None of the execution, delivery or performance of
the Contribution Agreement and the transactions contemplated hereby does or
will, with or without
D-3
<PAGE>
the giving of notice, lapse of time, or both, (i) violate, conflict with,
result in a breach of, or constitute a default under or give to others any
right of termination or cancellation of (A) the organizational documents,
including the charters and bylaws, if any, of the Contributor, (B) any
material agreement, document or instrument to which the Contributor is a
party or by which the Contributor or its Partnership Interest is bound or (C)
any term or provision of any judgment, order, writ, injunction, or decree of
any governmental or regulatory authority binding on the Contributor or by
which the Contributor or any of its assets or properties are bound or subject
or (ii) result in the creation of any Lien, other than a Permitted Lien, upon
the Partnership Interest.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withhoding provisions, including those referred to in
ARTICLE 2.7 above and similar provisions under California law. If Contributor
fails to provide such certificates or affidavits, the Operating Partnership may
withhold a portion of any payments otherwise to be made to the Contributor as
required by the Code or California law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Agreement are intended to be exempt from registration under the
Securities Act of 1933, as amended and the rules and regulations in effect
thereunder (the "ACT"). In furtherance thereof, the Contributor represents and
warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not as
a nominee or agent for any other person and not with a view to, or for offer or
sale in connection with, any distribution of any thereof. The Contributor
agrees and acknowledges that he, she or it will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(hereinafter, "TRANSFER") any of the OP Units unless (i) the Transfer is
pursuant to an effective registration statement under the Act and qualification
or other compliance under applicable blue sky or state securities laws, or (ii)
counsel for the Contributor (which counsel shall be reasonably acceptable to the
Operating Partnership) shall have furnished the Operating Partnership with an
opinion, reasonably satisfactory in form and substance to the Operating
Partnership, to the effect that no such registration is required because of the
availability of an exemption from registration under the Act and qualification
or other compliance under applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable,
sophisticated and experienced in business and financial matters; the Contributor
has previously invested in securities similar to the OP Units and fully
understands the limitations on transfer imposed by the Federal securities laws
and as described in the Contribution Agreement. The Contributor is able to bear
the economic risk of holding the OP Units for an indefinite period and is able
to afford the complete loss of his, her or its investment in the OP Units; the
Contributor has
D-4
<PAGE>
received and reviewed all information and documents about or pertaining to
the Company, the Operating Partnership, the business and prospects of the
Company and the Operating Partnership and the issuance of the OP Units as the
Contributor deems necessary or desirable, and has been given the opportunity
to obtain any additional information or documents and to ask questions and
receive answers about such information and documents, the Company, the
Operating Partnership, the business and prospects of the Company and the
Operating Partnership and the OP Units which the Contributor deems necessary
or desirable to evaluate the merits and risks related to his, her or its
investment in the OP Units; and the Contributor understands and has taken
cognizance of all risk factors related to the purchase of the OP Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he, she
or it has been advised that (i) the OP Units and the common stock of the Company
into which the OP Units may be exchanged in certain circumstances (the "COMMON
STOCK") must be held indefinitely, and the Contributor must continue to bear the
economic risk of the investment in the OP Units (and any Common Stock that might
be exchanged therefor) unless they are subsequently registered under the Act or
an exemption from such registration is available, (ii) a restrictive legend in
the form hereafter set forth shall be placed on the certificates representing
the OP Units (and any Common Stock that might be exchanged therefor), and (iii)
a notation shall be made in the appropriate records of the Operating Partnership
(and the Company) indicating that the OP Units (and any Common Stock that might
be exchanged therefor) are subject to restrictions on transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an individual,
such individual is an "accredited investor" (as such term is defined in Rule
501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his or
her spouse, in excess of $1,000,000; or
(iii) had an individual annual adjusted gross income in excess
of $200,000 in each of the two most recent years and reasonably expects to have
annual adjusted gross income in excess of $200,000 in the current year; or
(iv) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an annual
adjusted gross income, with his spouse, in excess of $300,000 in the current
year.
If the Contributor is not an individual, it is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
2.9.5 LEGENDING. Each certificate representing the OP Units (and
any Common Stock that might be exchanged therefor) shall bear the following
legend:
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<PAGE>
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE
PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS;
In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT
TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
CORPORATION'S CHARTER, (1) NO PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY
OWN SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF 9.0% (BY VALUE OR
BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING
COMMON STOCK OF THE CORPORATION; (2) NO PERSON MAY BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK THAT WOULD RESULT IN THE CORPORATION BEING
"CLOSELY HELD" UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (3) NO PERSON MAY TRANSFER
COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE
CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO
BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO
BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK IN EXCESS OF THE ABOVE
LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE
RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE COMMON STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A
TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN
ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS
SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF
DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY
VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE
OF CERTAIN EVENTS,
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ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY
BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS LEGEND HAVE THE MEANINGS
DEFINED IN THE CHARTER OF THE CORPORATION, AS THE SAME MAY BE AMENDED
FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER
AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF COMMON STOCK ON REQUEST
AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE
SECRETARY OF THE CORPORATION.
2.10 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of the Operating Partnership or any of its affiliates to pay any
finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by the Contribution Agreement.
2.11 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Partnership
Interest to the Operating Partnership.
2.12 NO MISREPRESENTATIONS. No representation, warranty or statement
made, or information provided, by the Contributor in the Contribution Agreement
or in any other document or instrument furnished or to be furnished by or on
behalf of the Contributor pursuant hereto or as contemplated hereby (i) contains
or will contain any untrue statement of a material fact or (ii) omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading. For purposes of the preceding sentence, materiality
shall be determined with reference to the total portfolio of real properties and
other interests to be transferred pursuant to the Portfolio Agreements.
2.13 TAXES. For federal income tax purposes, the Partnerships are,
and at all times during their existence have been, partnerships (rather than
associations or publicly traded partnerships taxable as corporations). The
Partnerships have filed all tax returns required to be filed by them and have
paid all taxes required to be paid by them. The transactions contemplated
hereby will not result in any tax liability to the Partnerships, the Company or
the Operating Partnership. No tax lien or other charge exists or will exist
upon consummation of the transactions contemplated hereby with respect to any
Property except such tax liens for which the tax is not due and has been
reserved for payment by the Partnerships or tax liens or other charges which
individually or in the aggregate would not have a material adverse effect on the
Operating Partnership.
D-7
<PAGE>
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered pursuant
hereto shall survive the Closing.
(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this EXHIBIT
D or the Contribution Agreement for monetary damages (or otherwise) for breach
of any of its representations and warranties contained in this EXHIBIT D or the
Contribution Agreement, or in any Schedule, certificate or affidavit delivered
by it pursuant thereto, other than pursuant to the succeeding provisions of this
ARTICLE 3.
3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the Operating
Partnership, the REIT, and their affiliates and each of their respective
directors, officers, employees, agents, representatives and affiliates (each of
which is an "INDEMNIFIED PARTY") from and against any and all claims, losses,
damages, liabilities and expenses, including, without limitation, amounts paid
in settlement, reasonable attorneys' fees, costs of investigation and
remediation, costs of investigative, judicial or administrative proceedings or
appeals therefrom, and costs of attachment or similar bonds (collectively,
"LOSSES"), asserted against, imposed upon or incurred by the Indemnified Party
in connection with or as a result of any breach of a representation or warranty
of the Contributor contained in the Contribution Agreement or in any Schedule,
certificate or affidavit delivered by the Contributor pursuant to the
Contribution Agreement.
(b) The Contributor shall indemnify and hold harmless the Indemnified
Parties from and against any and all Losses, asserted against, imposed upon or
incurred by the Indemnified Parties in connection with or as a result of:
(i) all fees and expenses of the Contributor in connection with
the transactions contemplated by the Contribution Agreement;
(ii) any liabilities or obligations incurred, arising from or out
of, in connection with or as a result of the failure of the Contributor to
obtain all consents required to consummate the transactions contemplated by
the Contribution Agreement.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when expenses
are incurred) to an Indemnified Party of OP Units, subject to the limits on
ownership and transfer of REIT shares set forth in the Company's articles of
incorporation. Any OP Units delivered to an Indemnified Party hereunder shall
be valued based upon the initial public offering price of the Company's Common
Stock.
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<PAGE>
3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably practicable
after receipt by the Indemnified Party of notice of any liability or claim
incurred by or asserted against the Indemnified Party that is subject to
indemnification under this ARTICLE 3, the Indemnified Party shall give notice
thereof to the Contributor, including liabilities or claims to be applied
against the indemnification baskets established pursuant to ARTICLE 3.5 hereof.
The Indemnified Party may at its option demand indemnity under this ARTICLE 3 as
soon as a claim has been threatened by a third party, regardless of whether an
actual Loss has been suffered, so long as the Indemnified Party shall in good
faith determine that such claim is not frivolous and that the Indemnified Party
may be liable for, or otherwise incur, a Loss as a result thereof and shall give
notice of such determination to the Contributor. The Indemnified Party shall
permit the Contributor, at its option and expense, to assume the defense of any
such claim by counsel selected by the Contributor and reasonably satisfactory to
the Indemnified Party, and to settle or otherwise dispose of the same; PROVIDED,
HOWEVER, that the Indemnified Party may at all times participate in such defense
at its expense; and PROVIDED FURTHER, HOWEVER, that the Contributor shall not,
in defense of any such claim, except with the prior written consent of the
Indemnified Party in its sole and absolute discretion, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in question
to the Indemnified Party and its affiliates a release of all liabilities in
respect of such claims, or that does not result only in the payment of money
damages. If the Contributor shall fail to undertake such defense within 30 days
after such notice, or within such shorter time as may be reasonable under the
circumstances, then the Indemnified Party shall have the right to undertake the
defense, compromise or settlement of such liability or claim on behalf of and
for the account of the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER ARTICLE
3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the aggregate amount recoverable from Indemnifying Parties
under the indemnification provisions substantially identical to ARTICLE 3.2 in
one or more of the Portfolio Agreements exceeds $200,000; PROVIDED, HOWEVER,
that once the total amount recoverable from Indemnifying Parties under such
provisions exceeds $200,000 in the aggregate, the Contributor's obligation under
ARTICLE 3.2 hereof shall be for the full amount of such obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this ARTICLE
3 with respect to any Partnership Interest to the extent such payments in the
aggregate would exceed the value of the OP Units (based upon the initial public
offering price of the Common Stock) received by the Contributor at the Closing.
Notwithstanding anything contained herein to the contrary, the Indemnified
Parties shall look first to the Contributor's OP Units for indemnification under
this ARTICLE 3 and then to the Contributor's other assets.
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<PAGE>
3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification under
ARTICLE 3.2 hereof must be asserted in writing by the Indemnified Party, stating
the nature of the Losses and the basis for indemnification therefor:
(i) within one year after the Closing in the case of a claim
under ARTICLE 3.2 hereof (other than a claim under ARTICLE 3.2(a) based
upon a breach of the representations, and warranties of the Contributor set
forth in ARTICLE 2.13 hereof as specified below; and
(ii) prior to the expiration of the applicable statutes of
limitations in the case of a claim under ARTICLE 3.2(a) based upon a breach
of the representations and warranties of the Contributor set forth in
ARTICLE 2.13 hereof.
(b) If so asserted in writing within one year after the Closing, such
claims for indemnification shall survive until resolved by mutual agreement
between the Contributor and the Indemnified Party or by judicial determination.
Any claim for indemnification not so asserted in writing within one year after
the Closing shall not thereafter be asserted and shall forever be waived.
3.7 RESERVATION OF CONTRIBUTOR RIGHTS.
Notwithstanding anything else in this Contribution Agreement or any
Portfolio Agreement to the contrary, the Contributor reserves unto itself all
rights and remedies (including rights to seek contribution) against any third
party indemnitors and prior property owners or occupants for which the
Partnerships have been indemnified by the Contributor hereunder. To the extent
the Contributor's rights against any such third party indemnitors, owners or
occupants may be prejudiced by actions or inactions by any owner or occupant of
the Properties after the Closing, the Contributor's indemnity obligation shall
be reduced in accordance with the effect of the actions or inactions which so
prejudiced the Contributor's rights.
D-10
<PAGE>
ATTACHMENT 1 (TO EXHIBIT D)
PORTFOLIO AGREEMENTS
(1) That certain Contribution Agreement by and between Arden LAOP Two, LLC, a
Nevada limited liability company, and Arden Realty Group Limited
Partnership, a Maryland limited partnership, dated as of June 17, 1996.
(2) That certain Contribution Agreement by and between Montour Realty
Associates, a California general partnership, and Arden Realty Group
Limited Partnership, a Maryland limited partnership, dated as of June 17,
1996.
D-11
<PAGE>
EXHIBIT 10.29
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
by and between
ZIMAN REALTY PARTNERS,
a California general partnership
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP
a Maryland limited partnership
Dated as of June 17, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS. . . . . 2
1.1 Contribution Transaction . . . . . . . . . . . . . . . . . . . . . 2
1.2 Minimum Consideration and Exchange of OP Units . . . . . . . . . . 2
1.3 Additional Consideration . . . . . . . . . . . . . . . . . . . . . 2
1.4 Adjusted Consideration . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Contribution of Certain Rights . . . . . . . . . . . . . . . . . . 3
1.7 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Treatment as Contribution. . . . . . . . . . . . . . . . . . . . . 4
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Closing Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. . . . . . . . . . . . . 6
3.1 Representations and Warranties of the Operating Partnership. . . . 6
3.2 Representations and Warranties of Contributor. . . . . . . . . . . 7
3.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. COVENANTS OF CONTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . 7
5. RELEASES AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 General Release of Operating Partnership . . . . . . . . . . . . . 8
5.2 General Release of Contributor . . . . . . . . . . . . . . . . . . 9
5.3 Waiver of Section 1542 Protections . . . . . . . . . . . . . . . . 9
5.4 Waiver of Rights Under Partnership Agreement . . . . . . . . . . . 9
6. POWER OF ATTORNEY
6.1 Grant of Power of Attorney . . . . . . . . . . . . . . . . . . . . 9
6.2 Limitation on Liability. . . . . . . . . . . . . . . . . . . . . . 10
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
<PAGE>
EXHIBIT LIST
<TABLE>
SECTION FIRST
EXHIBITS REFERENCED
-------------
<S> <C>
A Constituent Interests of Contributor's Partnership Interest.......... Recital D
B Contribution and Assumption Agreement................................ 1.1
C Form of Quitclaim.................................................... 2.1
D Representations and Warranties of Contributor........................ 3.2
Attachment 1....................................... List of Portfolio Agreements
</TABLE>
ii
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (hereinafter referred to as the
"CONTRIBUTION AGREEMENT") is made and entered into as of June 17, 1996 by and
between Arden Realty Group Limited Partnership, a Maryland limited partnership
(the "OPERATING PARTNERSHIP"), and Ziman Realty Partners, a California general
partnership (the "CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership of
a portfolio of office properties (the "PARTICIPATING PROPERTIES") located in
Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct interests
in certain of the Participating Properties (the "PROPERTY INTERESTS") and all of
the interests in certain limited partnerships, certain limited liability
companies and certain other entities (collectively the "PARTICIPATING
PARTNERSHIPS AND LLCS") which currently own directly or indirectly the
Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Arden Realty Group,
Inc., a Maryland corporation (the "COMPANY"), which will operate as a self-
administered and self-managed real estate investment trust ("REIT") and will be
the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members
of the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. The Contributor owns interests in certain of the Participating
Partnerships and LLCs as set forth on EXHIBIT "A" (the "PARTNERSHIPS") which
Partnerships own directly or indirectly interests in certain of the
Participating Properties also as set forth on Exhibit A (the "PROPERTY" or the
"PROPERTIES"). As used herein, "PARTNERSHIP AGREEMENT" means the partnership
agreement or membership agreement, as applicable, under which each such
Partnership was formed.
E. The Contributor desires to, and the Operating Partnership desires
the Contributor to, contribute to the Operating Partnership, all of its right,
title and interest, as a partner (or member) of the Partnerships, including,
without limitation, all of its voting rights and interests in the capital,
profits and losses of the Partnerships or any property distributable therefrom,
constituting all of its interests in the Partnerships (such right, title and
interest are hereinafter collectively referred to as the "PARTNERSHIP
INTEREST"), in exchange for partnership units in the Operating Partnership (the
"OP UNITS"), on the terms and subject to the conditions set forth herein.
<PAGE>
NOW, THEREFORE, for and in consideration of the foregoing premises, and the
mutual undertakings set forth below, the parties hereto agree as follows:
TERMS OF AGREEMENT
1. CONTRIBUTION OF PARTNERSHIP INTEREST AND EXCHANGE FOR OP UNITS
1.1 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to the
terms and conditions contained in this Contribution Agreement, the Contributor
shall transfer to the Operating Partnership, absolutely and unconditionally, all
of its Partnership Interest (as such term is defined in Recital B herein). The
contribution of the Contributor's Partnership Interest shall be evidenced by a
"CONTRIBUTION AND ASSUMPTION AGREEMENT" for each of the Partnerships in
substantially the form of EXHIBIT "B" attached hereto. Furthermore, the
Contributor shall cause each of its individual constituent partners and/or
members (as applicable) to execute and have duly acknowledged an individual
quitclaim deed for each Property in the form of EXHIBIT "C" quitclaiming to the
Operating Partnership any direct or indirect ownership interest in and to the
Properties. The parties shall take such additional actions and execute such
additional documentation as may be required by the Partnership Agreement and the
Agreement of Limited Partnership of the Operating Partnership (the "OP
AGREEMENT") in order to effect the transactions contemplated hereby.
1.2 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS.
Subject to ARTICLES 1.3 AND 1.4 below, the Operating Partnership
shall, in exchange for the Partnership Interest, transfer to the Contributor the
number of OP Units having a value, based on one OP Unit being equal in value to
the Public Offering price for one share of the Company's common stock, equal to
the value indicated on Exhibit A as Contributor's "Total Minimum Consideration."
The transfer of the OP Units to the Contributor shall be evidenced by either an
amendment (the "AMENDMENT") to the OP Agreement or by certificates relating to
such units (the "CERTIFICATES") in either case, as shall be acceptable to the
Contributor. The parties shall take such additional actions and execute such
additional documentation as may be required by the Partnership Agreement and the
OP Agreement in order to effect the transactions contemplated hereby.
1.3 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.4 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.2) of the OP Units
available to all OP Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.4) of all OP
Participants (the "ADDITIONAL CONSIDERATION"), then the Additional Consideration
or a portion thereof, if any, shall be allocated among the OP Participants
2
<PAGE>
(including the Contributor) based upon the relative values of the Contributor's
Partnership Interest and the interests contributed by each of the other OP
Participants, in each case as determined by Richard S. Ziman, in his sole
discretion.
1.4 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular interest that constitutes part of the Partnership Interest, if in
good faith the Operating Partnership determines that the ownership of such
interest or the underlying Property would be inappropriate for the Operating
Partnership for any reason whatsoever. Contributor hereby agrees that, in such
event, the Contributor's Total Minimum Consideration may be reduced by an amount
determined by Richard S. Ziman, in his sole discretion, to reflect the reduction
in total value of the Partnership Interest ultimately contributed by the
Contributor.
1.5 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.3 AND 1.4 hereof, and
any and all such determinations shall be final and binding on all parties.
1.6 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to the
Operating Partnership all of its rights and interests, if any, including rights
to indemnification in favor of the Contributor, if any, under the agreements
pursuant to which the Contributor or its affiliates initially acquired the
Partnership Interest transferred pursuant to this Contribution Agreement.
1.7 PRORATIONS
At the Closing, or as promptly as practicable following the Closing,
to the extent such matters are not the right or responsibility of all tenants of
a given Property, all revenue and all charges that are customarily prorated in
transactions of this nature, including accrued rent currently due and payable,
overpaid taxes or fees, real and personal property taxes, common area
maintenance charges and other similar periodic charges payable or receivable
with respect to such Property shall be ratably prorated between the partners of
the Partnership which holds such Property prior to the Closing and the Operating
Partnership on and after the Closing, effective as of the Closing. After
providing for such prorations, (i) if any of the Partnerships has a resultant
cash surplus, the value of the Contributor's Partnership Interest shall be
increased in proportion to Contributor's ratable share of such cash surplus and
additional OP Units (based on the initial Public Offering price of the Company's
common stock) shall be issued to the Contributor as a valuation adjustment to
the Contributor's Total Minimum Consideration, and (ii) if any of the
Partnerships has a resultant cash deficit, the value of the Contributor's
Partnership Interest shall be reduced in
3
<PAGE>
proportion to Contributor's ratable share of such cash deficit, and fewer OP
Units shall be issued to the Contributor as a valuation adjustment to the
Contributor's Total Minimum Consideration, unless such deficit is cured prior
to Closing.
1.8 TREATMENT AS CONTRIBUTION
The transfer, assignment and exchange of interests effectuated with
respect to the Operating Partnership, pursuant to this Contribution Agreement
shall constitute, a "Capital Contribution" pursuant to Article 4 of the OP
Agreement and is intended to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed with
the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to this
Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor contained
in this Contribution Agreement shall have been true and correct in all material
respects on the date such representations and warranties were made, and shall be
true and correct in all material respects on the Closing Date as if made at and
as of such date;
(b) Each of the obligations of the Contributor to be performed by it
shall have been duly performed by it on or before the Closing Date;
(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to be
delivered pursuant to SECTION 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
4
<PAGE>
(f) No order, statute, rule, regulation, executive order, injunction,
stay, decree or restraining order shall have been enacted, entered, promulgated
or enforced by any court of competent jurisdiction or governmental or regulatory
authority or instrumentality that prohibits the consummation of the transactions
contemplated hereby, and no litigation or governmental proceeding seeking such
an order shall be pending or threatened;
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in any of the Partnerships' businesses;
(h) All existing management agreements with respect to the Properties
shall have been contributed to the Operating Partnership prior to or
simultaneously with the Closing; and
(i) All management functions with respect to the Properties presently
conducted by Arden Realty Group, Inc., a Maryland corporation, shall be assumed
by the Operating Partnership.
The foregoing conditions may be waived by the Operating Partnership in
its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the Public
Offering from the underwriter(s), at 10:00 a.m. in the office of Latham &
Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California (the
"CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.1 AND 1.2
of this Contribution Agreement, and all closing deliveries, and the consummation
of the Public Offering, shall be deemed concurrent for all purposes.
2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered through the
Attorney-in-Fact (see ARTICLE 6.1 below), the legal documents and other items
(collectively the "CLOSING DOCUMENTS") necessary to carry out the intention of
this Contribution Agreement, which Closing Documents and other items shall
include, without limitation, the following:
(i) A Contribution and Assumption Agreement for each Partnership;
(ii) An individual quitclaim deed for each Property fully executed and
duly acknowledged from each of the individual constituent partners and/or
members of the Contributor, as required by the Operating Partnership;
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<PAGE>
(iii) The Amendment or the Certificates evidencing the transfer of
OP Units to the Contributor;
(iv) American Land Title Assurances ("ALTA") policies of title
insurance with appropriate endorsements and levels of reinsurance for the
Properties issued as of the Closing Date or endorsements or other
assurances that the existing policy or policies of title insurance are
sufficient for purposes of this Contribution Agreement, which the
Contributor shall cause the title company to issue to the Operating
Partnership in a form acceptable to the Operating Partnership (the "TITLE
POLICIES") including satisfaction by the Contributor of any and all title
company requirements applicable to it;
(v) The Partnerships' books and records and securities or other
evidences of ownership held by the Contributor; and
(vi) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number and
that the Contributor is not a foreign person pursuant to section 1445(b)(2)
of the Code and a comparable affidavit satisfying California and any other
withholding requirements.
2.4 CLOSING COSTS
The Operating Partnership shall pay any documentary transfer taxes,
escrow charges, title charges and recording taxes or fees incurred in connection
with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has been
duly formed and is validly existing with requisite power to enter this
Contribution Agreement and all agreements contemplated hereby. The persons
and entities executing this Contribution Agreement and all agreements
contemplated hereby on behalf of the Operating Partnership have the power
and authority to enter into this Contribution Agreement and such other
contemplated agreements; and
(b) DUE AUTHORIZATION. The execution, delivery and performance
by the Operating Partnership of its obligations under this Contribution
Agreement and all agreements contemplated hereby will not contravene any
provision of applicable law, the OP Agreement, charter, declaration of
trust or other constituent document of
6
<PAGE>
the Operating Partnership, or any agreement or other instrument binding
upon the Operating Partnership or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the
Operating Partnership, and no consent, approval, authorization or order
of or qualification with any governmental body or agency is required for
the performance by the Operating Partnership of its obligations under
this Contribution Agreement and all other agreements contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto, and
acknowledges and agrees to be bound by the indemnification provisions contained
therein.
3.3 INDEMNIFICATION
The Operating Partnership shall indemnify and hold harmless the
Contributor and its directors, officers, employees, agents, representatives and
affiliates (each of which is an "INDEMNIFIED CONTRIBUTOR PARTY") from and
against any and all claims, losses, damages, liabilities and expenses, including
without limitation, amounts paid in settlement, reasonable attorneys' fees,
costs of investigation and remediation, costs of investigative judicial or
administrative proceedings or appeals therefrom and costs of attachment or
similar bonds (collectively, "LOSSES") asserted against, imposed upon or
incurred by the Indemnified Contributor Party in connection with: (i) any breach
of a representation or warranty of the Operating Partnership contained in this
Contribution Agreement; (ii) any liabilities or obligations incurred, arising
from or out of, in connection with or as a result of any claims made or actions
brought by or against the Contributor, the Partnerships, the Properties or an
Indemnified Contributor Party, that arise from or out of, in connection with or
as a result of any Contamination (as defined in Exhibit D hereto) of the
Properties regardless of when or how occurring, except to the extent, and only
to the extent, such Losses arise from or constitute a breach of a representation
and warranty of Contributor under Exhibit D; and (iii) all fees, costs and
expenses of the Operating Partnership in connection with the transactions
contemplated by the Contribution Agreement, including without limitation any and
all costs associated with the transfers contemplated herein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor shall
not:
(i) Sell or transfer all or any portion of the Partnership
Interest; or
(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Partnership Interest.
7
<PAGE>
(b) From the date hereof through the Closing, the Contributor shall
permit each of the Partnerships to conduct its business in the ordinary course,
consistent with past practice, and shall not permit any of the Partnerships to:
(i) Enter into any material transaction not in the ordinary
course of business;
(ii) Sell or transfer any assets of the Partnerships;
(iii) Mortgage, pledge or encumber (or permit to become
encumbered) any assets of the Partnerships, except (x) liens for taxes not
due, (y) purchase money security interests and (z) mechanics' liens being
disputed by any of the Partnerships in good faith and by appropriate
proceedings;
(iv) Amend, modify or terminate any material agreements or other
instruments to which any of the Partnerships are a party;
(v) Materially alter the manner of keeping the Partnerships'
books, accounts or records or the accounting practices therein reflected;
or
(vi) Make any distribution to its partners.
(c) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required to
effect the transactions contemplated by this Contribution Agreement.
5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of the
Partnership Interest pursuant to ARTICLES 1 AND 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman), agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"), known or unknown,
suspected or unsuspected, arising out of or relating to any of the Partnership
Agreements, this Contribution Agreement or any other matter which exists at the
Closing, except for Contributor Claims arising from the breach of any
representation, warranty, covenant or obligation under this Contribution
Agreement.
8
<PAGE>
5.2 GENERAL RELEASE OF CONTRIBUTOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "OPERATING PARTNERSHIP CLAIMS"), known or
unknown, suspected or unsuspected, arising out of or relating to any of the
Partnership Agreements, this Contribution Agreement or any other matter which
exists at the Closing, except for Operating Partnership Claims arising from the
breach of any representation, warranty, covenant or obligation under this
Contribution Agreement.
5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership each
expressly waives and relinquishes all rights and benefits afforded by Section
1542 of the California Civil Code and do so understanding and acknowledging the
significance and consequence of such specific waiver of Section 1542 which
provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected the settlement with the
debtor.
5.4 WAIVER OF RIGHTS UNDER PARTNERSHIP AGREEMENT
As of the Closing, the Contributor waives and relinquishes all rights
and benefits otherwise afforded to Contributor under the Partnership Agreements
including, without limitation, any right to consent to or approve of the sale or
contribution by the other partners (or members) of the Partnerships of their
partnership interests to the Company or the Operating Partnership.
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating Partnership
(or its designee) and each of them individually and any successor thereof from
time to time (such Operating Partnership or designee or any such successor of
any of them acting in his, her or its capacity as attorney-in-fact pursuant
hereto, the "ATTORNEY-IN FACT") as the true and lawful attorney-in-fact and
agent of Contributor, to act in the name, place and stead of Contributor to
make, execute, acknowledge and deliver all such other contracts, orders,
receipts, notices, requests, instructions, certificates, consents, letters and
other writings (including without limitation the execution of any Closing
Documents or other documents relating to the
9
<PAGE>
acquisition by the Operating Partnership of Contributor's Partnership
Interest), to provide information to the Securities and Exchange Commission
and others about the transactions contemplated hereby and, in general, to do
all things and to take all actions which the Attorney-in-Fact in its sole
discretion may consider necessary or proper in connection with or to carry
out the transactions contemplated by this Contribution Agreement, as fully as
could Contributor if personally present and acting. Further, Contributor
hereby grants to Attorney-in-Fact a proxy (the "PROXY") to vote Contributor's
Partnership Interest on any matter related to the Formation Transactions
presented to the partners of any of the Partnerships for a vote, including,
but not limited to, the transfer of interests in any of the Partnerships by
the other partners.
Each of the Power of Attorney and Proxy and all authority granted
hereby shall be coupled with an interest and therefore shall be irrevocable and
shall not be terminated by any act of Contributor, by operation of law or by the
occurrence of any other event or events, and if any other such act or events
shall occur before the completion of the transactions contemplated by this
Contribution Agreement, the Attorney-in-Fact shall nevertheless be authorized
and directed to complete all such transactions as if such other act or events
had not occurred and regardless of notice thereof. Contributor agrees that, at
the request of Operating Partnership it will promptly execute a separate power
of attorney and proxy on the same terms set forth in this ARTICLE 6, such
execution to be witnessed and notarized. Contributor hereby authorizes the
reliance of third parties on each of the Power of Attorney and Proxy.
Contributor acknowledges that the Operating Partnership has, and any
designee or successor thereof acting as Attorney-in-Fact may have, an economic
interest in the transactions contemplated by this Contribution Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no responsibility
or liability to any person by virtue of the Power of Attorney or Proxy granted
by Contributor hereby. The Attorney-in-Fact makes no representations with
respect to and shall have no responsibility for the Formation Transactions or
the Public Offering, or the acquisition of the Partnership Interest by the
Operating Partnership and shall not be liable for any error or judgement or for
any act done or omitted or for any mistake of fact or law except for its own
gross negligence or bad faith. Contributor agrees to indemnify the Attorney-in-
Fact for and to hold the Attorney-in-Fact harmless against any loss, claim,
damage or liability incurred on its part arising out of or in connection with it
acting as the Attorney-in-Fact under the Power of Attorney or Proxy created by
Contributor hereby, as well as the cost and expense of investigating and
defending against any such loss, claim, damage or liability, except to the
extend such loss, claim, damage or liability is due to the gross negligence or
bad faith of the Attorney-in-Fact. Contributor agrees that the Attorney-in-Fact
may consult with counsel of its own choice (who may be counsel for Operating
Partnership or its successors or affiliates), and it shall have full and
complete authorization and protection for any action taken or
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<PAGE>
suffered by it hereunder in good faith and in accordance with the opinion of
such counsel. It is understood that the Attorney-in-Fact may, without
breaching any express or implied obligation to Contributor hereunder,
release, amend or modify any other power of attorney or proxy granted by any
other person under any related agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other
actions and execute such additional documents following the Closing as the
Operating Partnership may reasonably request in order to effect the transactions
contemplated hereby.
7.2 COUNTERPARTS. This Contribution Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed by
the internal laws of the State of California, without regard to the choice of
laws provisions thereof.
7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
communicated as of the date of personal delivery (including delivery by
overnight courier). Mailed notices shall be addressed as set forth below, but
any party may change the address set forth below by written notice to other
parties in accordance with this paragraph.
To the Contributor:
Ziman Realty Partners
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Contribution
Agreement as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland Corporation,
general partner
By: /s/ Richard S. Ziman
---------------------------------
Name:
-------------------------------
Title:
------------------------------
"CONTRIBUTOR"
ZIMAN REALTY PARTNERS,
a California general partnership
By: /s/ Richard S. Ziman
---------------------------------
Richard S. Ziman
General Partner
12
<PAGE>
EXHIBIT A
TO
CONTRIBUTION AGREEMENT
CONSTITUENT INTERESTS OF CONTRIBUTOR'S PARTNERSHIP INTEREST
<TABLE>
Properties Held by the Minimum
Partnerships Partnerships Consideration
- ------------------------------- ---------------------- ----------------
<S> <C> <C>
Century Center Associates, L.P. Century Park Center $1,028,069
- ------------------------------- ----------------------- ----------------
1950 Sawtelle Associates, L.P. 1950 Sawtelle Boulevard $ 212,772
- ------------------------------- ----------------------- ----------------
5000 Spring Associates, LLC 5000 East Spring Street $ 424,000
- ------------------------------- ----------------------- ----------------
Arden BV Associates, LLC Woodland Hills $ 421,393
Financial Center;
Beverly Atrium
- ------------------------------- ----------------------- ----------------
Total Minimum
Consideration $2,086,234
----------------
----------------
</TABLE>
A-1
<PAGE>
EXHIBIT B
TO
CONTRIBUTION AGREEMENT
CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the undersigned hereby assigns, transfers,
contributes and conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland
limited partnership (the "Operating Partnership"), its entire legal and
beneficial right, title and interest in and to __________________________, a
_____________________ (the "Partnership"), including, without limitation, all
right, title and interest, if any, of the undersigned in and to the assets of
the Partnership and the right to receive distributions of money, profits and
other assets from the Partnership, presently existing or hereafter at any
time arising or accruing (such right, title and interest are hereinafter
collectively referred to as the "Partnership Interest"), TO HAVE AND TO HOLD
the same unto the Operating Partnership, its successors and assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership
assumes all obligations in respect of the Partnership Interest.
The Partnership owns certain real property as described in Attachment
"1" attached hereto.
Executed: _____ __, 1996
ZIMAN REALTY PARTNERS,
a California general partnership
By:
------------------------------
Allan W. Ziman
Managing General Partner
B-1
<PAGE>
EXHIBIT C
TO
CONTRIBUTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- --------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $.............
........ Computed on the consideration
or value of property conveyed;
OR
........ Computed on the consideration
or value less liens or
encumbrances remaining at
time of sale.
---------------------------------------
Signature of Declarant of Agent
determining tax - Firm Name
- --------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group Limited Partnership, a Maryland limited partnership
the real property in the City of ___________, County of ______________, State of
California, described as
Dated
______________________________ ________________________________
STATE OF CALIFORNIA } ________________________________
} ________________________________
COUNTY OF _______________} ________________________________
On ____________________ before me,
___________________________________,
personally appeared _______________
___________________________________
personally known to me (or proved
to me on the basis of
satisfactory evidence) to be the
person(s) whose names(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signature(s) on the
instrument the person(s) or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and official seal. (This area for official notarial
seal)
Signature
-------------------------
C-1
<PAGE>
EXHIBIT D
TO
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1- ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the meanings
set forth below. Terms which are not defined below shall have the meaning set
forth for those terms as defined in the Contribution Agreement to which this
EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to Knowledge,
threatened that directly or indirectly affect any of the Contributor, the
Partnerships or the Properties.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
INDEMNIFYING PARTY: Means any party required to indemnify any other
party under ARTICLE 3.2 of this EXHIBIT D or under the indemnification
provisions substantially identical to ARTICLE 3.2 hereof in the other Portfolio
Agreements.
KNOWLEDGE: Means, with respect to any representation or warranty so
indicated, the actual knowledge, upon reasonable investigation and inquiry in
good faith, of the signatory to the Contribution Agreement.
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests, restrictions,
prior assignments, encumbrances, covenants, encroachments, assessments, rights
of others, licenses, easements, liabilities or claims of any kind or nature
whatsoever, direct or indirect, including, without limitation, interests in or
claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
D-1
<PAGE>
PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent or
the payment of which is actively being contested in good faith by appropriate
proceedings diligently pursued;
(b) Zoning laws and ordinances generally applicable to the districts
in which the Properties are located which are not violated by the existing
structures or present uses thereof;
(c) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings diligently
pursued;
(d) non-exclusive easements for public utilities that do not have a
material adverse effect upon, or interfere with the use of, the Properties;
(e) any exceptions contained in the Title Policies; and
(f) Liens created or imposed by that certain Construction Loan
Agreement by and among National Bank of Canada, a Canadian Chartered Bank acting
through its New York Branch and Canada Trustco International Limited, a limited
liability company incorporated in Barbados, as lenders, and Century Center
Associates, L.P., a California limited partnership, and Grampian Associates, a
California general partnership, as borrowers, dated as of March 1, 1993.
PERSON: Means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PORTFOLIO AGREEMENTS: Means the agreements, including the
Contribution Agreement, listed on ATTACHMENT "1" hereto, which contemplate the
transfer of partnership and/or limited liability company membership interests in
certain of the Participating Partnerships and LLCs from any entity directly or
indirectly owned by Contributor to the Company and the Operating Partnership.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating Partnership
as set forth below in this ARTICLE 2. Notwithstanding any other provision of
the Contribution Agreement or this EXHIBIT D, the Contributor makes
representations, warranties and indemnities only with
D-2
<PAGE>
respect to the interests in the Partnerships to be transferred by the
Contributor identified on EXHIBIT A to the Contribution Agreement.
2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and (B)
has all requisite power and authority to own, lease or operate its property and
to carry on its business as presently conducted and, to the extent required
under applicable law, is qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. This Contribution
Agreement and each agreement, document and instrument executed and delivered by
or on behalf of the contributor pursuant to this contribution Agreement
constitutes, or when executed and delivered will constitute, the legal, valid
and binding obligation of the Contributor, each enforceable against the
Contributor in accordance with its terms, as such enforceability may be limited
by bankruptcy or the application of equitable principles.
2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the Contributor
in connection with the execution, delivery and performance of the Contribution
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE PARTNERSHIP INTERESTS. The Contributor is the
sole owner of the Partnership Interest and has good and valid title to such
Partnership Interest, free and clear of all Liens, other than Permitted Liens.
2.5 PARTNERSHIP INTEREST. The Partnership Interest constitutes all
of the issued and outstanding interests owned by the Contributor in the
Partnerships. The Partnership Interest is validly issued, fully paid and
non-assessable, and was not issued in violation of any preemptive rights. The
Partnership Interest has been issued in compliance with applicable law and the
relevant Partnership Agreements (as then in effect). There are no rights,
subscriptions, warrants, options, conversion rights, preemptive rights or
agreements of any kind outstanding to purchase or to otherwise acquire any of
the interests which comprise the Partnership Interest or any securities or
obligations of any kind convertible into any of the interests which comprise the
Partnership Interest or other equity interests or profit participation of any
kind in the Partnerships. At the Closing, upon receipt of the consideration,
the Contributor will have transferred the Partnership Interest free and clear of
all security interests, mortgages, pledges, liens, encumbrances, claims and
equities to the Operating Partnership.
2.6 NO VIOLATION. None of the execution, delivery or performance of
the Contribution Agreement and the transactions contemplated hereby does or
will, with or without
D-3
<PAGE>
the giving of notice, lapse of time, or both, (i) violate, conflict with,
result in a breach of, or constitute a default under or give to others any
right of termination or cancellation of (A) the organizational documents,
including the charters and bylaws, if any, of the Contributor, (B) any
material agreement, document or instrument to which the Contributor is a
party or by which the Contributor or its Partnership Interest is bound or (C)
any term or provision of any judgment, order, writ, injunction, or decree of
any governmental or regulatory authority binding on the Contributor or by
which the Contributor or any of its assets or properties are bound or subject
or (ii) result in the creation of any Lien, other than a Permitted Lien, upon
the Partnership Interest.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withhoding provisions, including those referred to in
ARTICLE 2.7 above and similar provisions under California law. If Contributor
fails to provide such certificates or affidavits, the Operating Partnership may
withhold a portion of any payments otherwise to be made to the Contributor as
required by the Code or California law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Agreement are intended to be exempt from registration under the
Securities Act of 1933, as amended and the rules and regulations in effect
thereunder (the "ACT"). In furtherance thereof, the Contributor represents and
warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not as
a nominee or agent for any other person and not with a view to, or for offer or
sale in connection with, any distribution of any thereof. The Contributor
agrees and acknowledges that he, she or it will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(hereinafter, "TRANSFER") any of the OP Units unless (i) the Transfer is
pursuant to an effective registration statement under the Act and qualification
or other compliance under applicable blue sky or state securities laws, or (ii)
counsel for the Contributor (which counsel shall be reasonably acceptable to the
Operating Partnership) shall have furnished the Operating Partnership with an
opinion, reasonably satisfactory in form and substance to the Operating
Partnership, to the effect that no such registration is required because of the
availability of an exemption from registration under the Act and qualification
or other compliance under applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable,
sophisticated and experienced in business and financial matters; the Contributor
has previously invested in securities similar to the OP Units and fully
understands the limitations on transfer imposed by the Federal securities laws
and as described in the Contribution Agreement. The Contributor is able to bear
the economic risk of holding the OP Units for an indefinite period and is able
to afford the complete loss of his, her or its investment in the OP Units; the
Contributor has
D-4
<PAGE>
received and reviewed all information and documents about or pertaining to
the Company, the Operating Partnership, the business and prospects of the
Company and the Operating Partnership and the issuance of the OP Units as the
Contributor deems necessary or desirable, and has been given the opportunity
to obtain any additional information or documents and to ask questions and
receive answers about such information and documents, the Company, the
Operating Partnership, the business and prospects of the Company and the
Operating Partnership and the OP Units which the Contributor deems necessary
or desirable to evaluate the merits and risks related to his, her or its
investment in the OP Units; and the Contributor understands and has taken
cognizance of all risk factors related to the purchase of the OP Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he, she
or it has been advised that (i) the OP Units and the common stock of the Company
into which the OP Units may be exchanged in certain circumstances (the "COMMON
STOCK") must be held indefinitely, and the Contributor must continue to bear the
economic risk of the investment in the OP Units (and any Common Stock that might
be exchanged therefor) unless they are subsequently registered under the Act or
an exemption from such registration is available, (ii) a restrictive legend in
the form hereafter set forth shall be placed on the certificates representing
the OP Units (and any Common Stock that might be exchanged therefor), and (iii)
a notation shall be made in the appropriate records of the Operating Partnership
(and the Company) indicating that the OP Units (and any Common Stock that might
be exchanged therefor) are subject to restrictions on transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an individual,
such individual is an "accredited investor" (as such term is defined in Rule
501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his or
her spouse, in excess of $1,000,000; or
(iii) had an individual annual adjusted gross income in
excess of $200,000 in each of the two most recent years and reasonably expects
to have annual adjusted gross income in excess of $200,000 in the current year;
or
(iv) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an annual
adjusted gross income, with his spouse, in excess of $300,000 in the current
year.
If the Contributor is not an individual, it is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
2.9.5 LEGENDING. Each certificate representing the OP Units (and
any Common Stock that might be exchanged therefor) shall bear the following
legend:
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THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE
PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS;
In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT
TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
CORPORATION'S CHARTER, (1) NO PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY
OWN SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF 9.0% (BY VALUE OR
BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING
COMMON STOCK OF THE CORPORATION; (2) NO PERSON MAY BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK THAT WOULD RESULT IN THE CORPORATION BEING
"CLOSELY HELD" UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (3) NO PERSON MAY TRANSFER
COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE
CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO
BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO
BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK IN EXCESS OF THE ABOVE
LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE
RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE COMMON STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A
TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN
ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS
SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF
DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY
VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE
OF CERTAIN EVENTS,
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ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY
BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS LEGEND HAVE THE
MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION, AS THE SAME MAY BE
AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS
ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF COMMON
STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE
DIRECTED TO THE SECRETARY OF THE CORPORATION.
2.10 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of the Operating Partnership or any of its affiliates to pay any
finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by the Contribution Agreement.
2.11 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Partnership
Interest to the Operating Partnership.
2.12 NO MISREPRESENTATIONS. No representation, warranty or statement
made, or information provided, by the Contributor in the Contribution Agreement
or in any other document or instrument furnished or to be furnished by or on
behalf of the Contributor pursuant hereto or as contemplated hereby (i) contains
or will contain any untrue statement of a material fact or (ii) omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading. For purposes of the preceding sentence, materiality
shall be determined with reference to the total portfolio of real properties and
other interests to be transferred pursuant to the Portfolio Agreements.
2.13 TAXES. For federal income tax purposes, the Partnerships are,
and at all times during their existence have been, partnerships (rather than
associations or publicly traded partnerships taxable as corporations). The
Partnerships have filed all tax returns required to be filed by them and have
paid all taxes required to be paid by them. The transactions contemplated
hereby will not result in any tax liability to the Partnerships, the Company or
the Operating Partnership. No tax lien or other charge exists or will exist
upon consummation of the transactions contemplated hereby with respect to any
Property except such tax liens for which the tax is not due and has been
reserved for payment by the Partnerships or tax liens or other charges which
individually or in the aggregate would not have a material adverse effect on the
Operating Partnership.
D-7
<PAGE>
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered pursuant
hereto shall survive the Closing.
(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this EXHIBIT
D or the Contribution Agreement for monetary damages (or otherwise) for breach
of any of its representations and warranties contained in this EXHIBIT D or the
Contribution Agreement, or in any Schedule, certificate or affidavit delivered
by it pursuant thereto, other than pursuant to the succeeding provisions of this
ARTICLE 3.
3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the Operating
Partnership, the REIT, and their affiliates and each of their respective
directors, officers, employees, agents, representatives and affiliates (each of
which is an "INDEMNIFIED PARTY") from and against any and all claims, losses,
damages, liabilities and expenses, including, without limitation, amounts paid
in settlement, reasonable attorneys' fees, costs of investigation and
remediation, costs of investigative, judicial or administrative proceedings or
appeals therefrom, and costs of attachment or similar bonds (collectively,
"LOSSES"), asserted against, imposed upon or incurred by the Indemnified Party
in connection with or as a result of any breach of a representation or warranty
of the Contributor contained in the Contribution Agreement or in any Schedule,
certificate or affidavit delivered by the Contributor pursuant to the
Contribution Agreement.
(b) The Contributor shall indemnify and hold harmless the Indemnified
Parties from and against any and all Losses, asserted against, imposed upon or
incurred by the Indemnified Parties in connection with or as a result of:
(i) all fees and expenses of the Contributor in connection with
the transactions contemplated by the Contribution Agreement;
(ii) any liabilities or obligations incurred, arising from or out
of, in connection with or as a result of the failure of the Contributor to
obtain all consents required to consummate the transactions contemplated by
the Contribution Agreement.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when expenses
are incurred) to an Indemnified Party of OP Units, subject to the limits on
ownership and transfer of REIT shares set forth in the Company's articles of
incorporation. Any OP Units delivered to an Indemnified Party hereunder shall
be valued based upon the initial public offering price of the Company's Common
Stock.
D-8
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3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably practicable
after receipt by the Indemnified Party of notice of any liability or claim
incurred by or asserted against the Indemnified Party that is subject to
indemnification under this ARTICLE 3, the Indemnified Party shall give notice
thereof to the Contributor, including liabilities or claims to be applied
against the indemnification baskets established pursuant to ARTICLE 3.5 hereof.
The Indemnified Party may at its option demand indemnity under this ARTICLE 3 as
soon as a claim has been threatened by a third party, regardless of whether an
actual Loss has been suffered, so long as the Indemnified Party shall in good
faith determine that such claim is not frivolous and that the Indemnified Party
may be liable for, or otherwise incur, a Loss as a result thereof and shall give
notice of such determination to the Contributor. The Indemnified Party shall
permit the Contributor, at its option and expense, to assume the defense of any
such claim by counsel selected by the Contributor and reasonably satisfactory to
the Indemnified Party, and to settle or otherwise dispose of the same; PROVIDED,
HOWEVER, that the Indemnified Party may at all times participate in such defense
at its expense; and PROVIDED FURTHER, HOWEVER, that the Contributor shall not,
in defense of any such claim, except with the prior written consent of the
Indemnified Party in its sole and absolute discretion, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in question
to the Indemnified Party and its affiliates a release of all liabilities in
respect of such claims, or that does not result only in the payment of money
damages. If the Contributor shall fail to undertake such defense within 30 days
after such notice, or within such shorter time as may be reasonable under the
circumstances, then the Indemnified Party shall have the right to undertake the
defense, compromise or settlement of such liability or claim on behalf of and
for the account of the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER ARTICLE
3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the aggregate amount recoverable from Indemnifying Parties
under the indemnification provisions substantially identical to ARTICLE 3.2 in
one or more of the Portfolio Agreements exceeds $200,000; PROVIDED, HOWEVER,
that once the total amount recoverable from Indemnifying Parties under such
provisions exceeds $200,000 in the aggregate, the Contributor's obligation under
ARTICLE 3.2 hereof shall be for the full amount of such obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this ARTICLE
3 with respect to any Partnership Interest to the extent such payments in the
aggregate would exceed the value of the OP Units (based upon the initial public
offering price of the Common Stock) received by the Contributor at the Closing.
Notwithstanding anything contained herein to the contrary, the Indemnified
Parties shall look first to the Contributor's OP Units for indemnification under
this ARTICLE 3 and then to the Contributor's other assets.
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3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification under
ARTICLE 3.2 hereof must be asserted in writing by the Indemnified Party, stating
the nature of the Losses and the basis for indemnification therefor:
(i) within one year after the Closing in the case of a claim
under ARTICLE 3.2 hereof (other than a claim under ARTICLE 3.2(a) based
upon a breach of the representations, and warranties of the Contributor set
forth in ARTICLE 2.13 hereof as specified below; and
(ii) prior to the expiration of the applicable statutes of
limitations in the case of a claim under ARTICLE 3.2(a) based upon a breach
of the representations and warranties of the Contributor set forth in
ARTICLE 2.13 hereof.
(b) If so asserted in writing within one year after the Closing, such
claims for indemnification shall survive until resolved by mutual agreement
between the Contributor and the Indemnified Party or by judicial determination.
Any claim for indemnification not so asserted in writing within one year after
the Closing shall not thereafter be asserted and shall forever be waived.
3.7 RESERVATION OF CONTRIBUTOR RIGHTS.
Notwithstanding anything else in this Contribution Agreement or any
Portfolio Agreement to the contrary, the Contributor reserves unto itself all
rights and remedies (including rights to seek contribution) against any third
party indemnitors and prior property owners or occupants for which the
Partnerships have been indemnified by the Contributor hereunder. To the extent
the Contributor's rights against any such third party indemnitors, owners or
occupants may be prejudiced by actions or inactions by any owner or occupant of
the Properties after the Closing, the Contributor's indemnity obligation shall
be reduced in accordance with the effect of the actions or inactions which so
prejudiced the Contributor's rights.
D-10
<PAGE>
ATTACHMENT 1 (TO EXHIBIT D)
PORTFOLIO AGREEMENTS
(1) That certain Contribution Agreement by and between Ziman Realty Partners, a
California general partnership, and Arden Realty Group Limited Partnership,
a Maryland limited partnership, dated as of June 17, 1996.
(2) That certain Option Agreement by and between The Charles and Helen Ziman
Intervivos Trust, and Arden Realty Group Limited Partnership, a Maryland
limited partnership, dated as of June 17, 1996.
D-11
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EXHIBIT 10.29
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
by and between
ARTHUR GILBERT AND ROSALINDE GILBERT 1982 TRUST
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP
a Maryland limited partnership
Dated as of June 17, 1996
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. CONTRIBUTION OF PROPERTY AND EXCHANGE FOR OP UNITS. . . . . . . . . . 2
1.1 The Property . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Contribution Transaction . . . . . . . . . . . . . . . . . . . . 3
1.3 Minimum Consideration and Exchange of OP Units . . . . . . . . . 3
1.4 Additional Consideration . . . . . . . . . . . . . . . . . . . . 3
1.5 Adjusted Consideration . . . . . . . . . . . . . . . . . . . . . 4
1.6 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.7 Contribution of Certain Rights . . . . . . . . . . . . . . . . . 4
1.8 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.9 Treatment as Contribution. . . . . . . . . . . . . . . . . . . . 5
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Transfer Taxes and Other Closing Costs . . . . . . . . . . . . . 7
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. . . . . . . . . . . . 7
3.1 Representations and Warranties of the Operating Partnership. . . 7
3.2 Representations and Warranties of Contributor. . . . . . . . . . 8
3.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 8
4. COVENANTS OF CONTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . 8
5. RELEASES AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . 9
5.1 General Release of Operating Partnership . . . . . . . . . . . . 9
5.2 General Release of Contributor . . . . . . . . . . . . . . . . . 9
5.3 Waiver of Section 1542 Protections . . . . . . . . . . . . . . . 9
6. POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Grant of Power of Attorney . . . . . . . . . . . . . . . . . . . 10
6.2 Limitation on Liability. . . . . . . . . . . . . . . . . . . . . 10
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
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EXHIBIT LIST
A-1 Property of Contributor . . . . . . . . . . . . . . . . . Recital D
A-2 Legal Description of Property (Century Park Center) . . . Recital D
A-3 Legal Description of Property (5000 Spring) . . . . . . . Recital D
B-1 Form of Grant Deed. . . . . . . . . . . . . . . . . . . . 1.1
B-2 Form of Bill of Sale. . . . . . . . . . . . . . . . . . . 1.1
C Form of Quitclaim . . . . . . . . . . . . . . . . . . . . 2.3
D Representations and Warranties of Contributor . . . . . . 3.2
Attachment 1 . . . . . . . . . . . . . List of Portfolio Agreements
E Assignment and Assumption Agreement . . . . . . . . . . 2.3
ii
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (hereinafter referred to as the
"CONTRIBUTION AGREEMENT") is made and entered into as of June 17, 1996 by and
between Arden Realty Group Limited Partnership, a Maryland limited partnership
(the "OPERATING PARTNERSHIP"), and the Arthur Gilbert and Roslinde Gilbert 1982
Trust (the "CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership of
a portfolio of office properties (the "PARTICIPATING PROPERTIES") located in
Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct interests
in certain of the Participating Properties (the "PROPERTY INTERESTS") and all of
the interests in certain limited partnerships, certain limited liability
companies and certain other entities (collectively the "PARTICIPATING
PARTNERSHIPS AND LLCS") which currently own directly or indirectly the
Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Arden Realty Group,
Inc., a Maryland corporation (the "COMPANY"), which will operate as a self-
administered and self-managed real estate investment trust ("REIT") and will be
the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members
of the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. The Contributor owns interests in certain of the Participating
Properties as set forth on EXHIBIT "A-1" and as more particularly described on
EXHIBITS "A-2" AND "A-3", and certain of the buildings, structures and other
improvements, appurtenant rights, contractual rights and tangible and intangible
personal property located thereon or associated therewith.
E. The Contributor desires to, and the Operating Partnership desires
the Contributor to, contribute to the Operating Partnership, all of its right,
title and interest in and to the Properties (as defined in ARTICLE 1.1 hereof)
in exchange for partnership units in the Operating Partnership (the "OP UNITS"),
on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, for and in consideration of the foregoing premises, and the
mutual undertakings set forth below, the parties hereto agree as follows:
<PAGE>
TERMS OF AGREEMENT
1. CONTRIBUTION OF PROPERTY AND EXCHANGE FOR OP UNITS
1.1 THE PROPERTY.
As used in this Contribution Agreement, the "PROPERTY" or the
"PROPERTIES" shall mean:
(a) All of the Contributor's right, title and interest in and to
the real property as more particularly described on Exhibits A-2 and A-3 (the
"LAND").
(b) All of Contributor's right, title and interest in and to the
existing buildings, structures and other improvements located upon the land and
all other improvements of whatever kind which have previously been made,
installed or erected and are now located on any part of the Land (collectively,
the "IMPROVEMENTS").
(c) All of the Contributor's right, title and interest in and to
tangible personal property utilized in the operation of the Land, including,
without limitation, all of Contributor's right, title and interest in and to the
following tangible personal property: air conditioning equipment, heating
equipment, fixtures, including trade fixtures, furniture, furnishings,
equipment, machinery, tools, repair parts, appliances, goods, supplies,
communications and security equipment, motor vehicles, deposits and all other
tangible personal property of Contributor which is used, or which has been
acquired for use, in the operation of the Land (the "TANGIBLE PERSONAL
PROPERTY").
(d) All of Contributor's right, title and interest in and to all
appurtenances, rights, including reversionary rights, easements, and privileges
belonging to or running with the Land, including, without limitation, all
parking rights, all of Contributor's rights, title and interest in and to any
and all land laying in the bed of any street, road, cul-de-sac, alley or access
way, open or closed, existing, vacated or proposed, adjoining, adjacent to or
contiguous to the Land, all awards for damage to the Land or taking by eminent
domain or the change in the grade of any street adjoining the Land, all strips
and gores of land adjoining or surrounded by the Land, and all zoning and land
use entitlement and development rights pertaining to the Land (the
"APPURTENANCES").
(e) All intangible personal property now owned by Contributor,
or in which Contributor has any interest on the Closing Date (as defined
herein), which is used in, or which has been acquired for use in, the operation
of the Land, including by way of example and not by limitation, any permits,
approvals, entitlements, development rights, computer software, franchises,
licenses, trade names, trademarks and logos, leases, agreements relating to the
Property, commitments, contracts, warranties, rights to recovery of judgments,
books and records and telephone numbers (the "INTANGIBLE PROPERTY," and,
together with the Tangible Personal Property, the "PERSONAL PROPERTY").
2
<PAGE>
(f) The Contributor's interest in that certain Property
Management Agreement, dated as of December 14, 1994, by and among 5000 Spring
Associates, LLC, a Nevada limited liability company, Arthur Gilbert as Trustee
of the Arthur Gilbert and Rosalinde Gilbert 1982 Trust, and Contributor, as
Owners and Arden Realty Group, Inc., a California corporation, as Manager; and
that certain Property Management Agreement, dated as of March __, 1993, by and
between Grampian Associates, a California general partnership, as Owner and
Arden Pacific Management Group, a California corporation, as Manager; and (iii)
that certain First Amendment to Property Management Agreement, dated as of
December 30, 1993, by and between Arthur Gilbert and Rosalinde Gilbert 1982
Trust, as Owner and Arden Pacific Management Group, a California corporation, as
Manager (together, the "PROPERTY MANAGEMENT AGREEMENTS").
1.2 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to the
terms and conditions contained in this Contribution Agreement, the Contributor
shall transfer to the Operating Partnership, absolutely and unconditionally, all
of its interests in the Properties. The contribution of the Properties shall be
evidenced by Grant Deeds in substantially the form of EXHIBIT "B-1" attached
hereto and a Bill of Sale in substantially the form of EXHIBIT "B-2" attached
hereto. The Contributor shall cause each of its individual constituent partners
and/or members (as applicable) to execute and have duly acknowledged an
individual quitclaim deed in the form of EXHIBIT "C" quitclaiming to the
Operating Partnership any direct or indirect ownership interest in and to the
Properties. The parties shall take such additional actions and execute such
additional documentation as may be required by the Partnership Agreement and the
Agreement of Limited Partnership of the Operating Partnership (the "OP
AGREEMENT") in order to effect the transactions contemplated hereby.
1.3 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS.
Subject to ARTICLES 1.4 AND 1.5 below, the Operating Partnership
shall, in exchange for the Property, transfer to the Contributor the number of
OP Units having a value, based on one OP Unit being equal in value to the Public
Offering price for one share of the Company's common stock, equal to the value
indicated on Exhibit A-1 as Contributor's "Total Minimum Consideration." The
transfer of the OP Units to the Contributor shall be evidenced by either an
amendment (the "AMENDMENT") to the OP Agreement or by certificates relating to
such units (the "CERTIFICATES") in either case, as shall be acceptable to the
Contributor. The parties shall take such additional actions and execute such
additional documentation as may be required by the OP Agreement in order to
effect the transactions contemplated hereby.
1.4 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.5 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.3) of the OP Units
available to all OP Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.5) of all OP
Participants (the "ADDITIONAL CONSIDERATION"), then the Additional
3
<PAGE>
Consideration or a portion thereof, if any, shall be allocated among the OP
Participants (including the Contributor) based upon the relative values of the
Property and the interests contributed by each of the other OP Participants,
in each case as determined by Richard S. Ziman, in his sole discretion.
1.5 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular interest that constitutes part of the Property, if in good faith the
Operating Partnership determines that the ownership of such interest would be
inappropriate for the Operating Partnership for any reason whatsoever.
Contributor hereby agrees that, in such event, the Contributor's Total Minimum
Consideration may be reduced by an amount determined by Richard S. Ziman, in his
sole discretion, to reflect the reduction in total value of the Property
ultimately contributed by the Contributor.
1.6 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.4 AND 1.5 hereof, and
any and all such determinations shall be final and binding on all parties.
1.7 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to the
Operating Partnership all of its rights and interests, if any, including rights
to indemnification in favor of the Contributor, if any, under the agreements
pursuant to which the Contributor or its affiliates initially acquired the
Property transferred pursuant to this Contribution Agreement.
1.8 PRORATIONS
At the Closing, or as promptly as practicable following the Closing,
to the extent such matters are not the right or responsibility of all tenants of
a given Property, all revenue and all charges that are customarily prorated in
transactions of this nature, including accrued rent currently due and payable,
overpaid taxes or fees, real and personal property taxes, common area
maintenance charges and other similar periodic charges payable or receivable
with respect to such Property shall be ratably prorated between the Contributor
and the Operating Partnership on and after the Closing, effective as of the
Closing. After providing for such prorations, (i) if the Contributor has a
resultant cash surplus, additional OP Units (based on the initial Public
Offering price of the Company's common stock) shall be issued to the Contributor
as a valuation adjustment to the Contributor's Total Minimum Consideration in
proporation to Contributor's ratable share of such cash surplus, and (ii) if the
Contributor has a resultant cash deficit, fewer OP Units shall be issued to the
Contributor as a valuation adjustment to the Contributor's Total Minimum
Consideration in proporation to contributor's ratable share of such cash
surplus, unless such deficit is cured prior to Closing.
4
<PAGE>
1.9 TREATMENT AS CONTRIBUTION
The transfer, assignment and exchange of interests effectuated with
respect to the Operating Partnership, pursuant to this Contribution Agreement
shall constitute, a "Capital Contribution" pursuant to Article 4 of the OP
Agreement and is intended to be governed by Section 721(a) of the Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed with
the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to this
Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor contained
in this Contribution Agreement shall have been true and correct in all material
respects on the date such representations and warranties were made, and shall be
true and correct in all material respects on the Closing Date as if made at and
as of such date;
(b) Each of the obligations of the Contributor to be performed by it
shall have been duly performed by it on or before the Closing Date;
(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to be
delivered pursuant to SECTION 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
(f) No order, statute, rule, regulation, executive order, injunction,
stay, decree or restraining order shall have been enacted, entered, promulgated
or enforced by any court of competent jurisdiction or governmental or regulatory
authority or instrumentality that prohibits the consummation of the transactions
contemplated hereby, and no litigation or governmental proceeding seeking such
an order shall be pending or threatened;
5
<PAGE>
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in any of the Partnerships' businesses;
(h) All existing management agreements with respect to the Properties
shall have been contributed to the Operating Partnership prior to or
simultaneously with the Closing; and
(i) All management functions with respect to the Properties presently
conducted by Arden Realty Group, Inc., a Maryland corporation, shall be assumed
by the Operating Partnership.
The foregoing conditions may be waived by the Operating Partnership in
its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the Public
Offering from the underwriter(s), at 10:00 a.m. in the office of Latham &
Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California (the
"CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.2 AND 1.3
of this Contribution Agreement, and all closing deliveries, and the consummation
of the Public Offering, shall be deemed concurrent for all purposes.
2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be made, executed, acknowledged and delivered through the
Attorney-in-Fact (see ARTICLE 6.1 below), the legal documents and other items
(collectively the "CLOSING DOCUMENTS") necessary to carry out the intention of
this Contribution Agreement, which Closing Documents and other items shall
include, without limitation, the following:
(i) Grant deeds by the Contributor for the Properties, with respect
to California in substantially the form of EXHIBIT "B-1" hereto;
(ii) A Bill of Sale by the Contributor for all of the Personal
Property with respect to the Properties in substantially the form of
EXHIBIT "B-2" hereto;
(iii) An individual quitclaim deed for each of the Properties
fully executed and duly acknowledged from each of the individual
constituent partners and/or members of the Contributor, in substantially
the form of EXHIBIT "C" hereto;
(iv) An Assignment and Assumption Agreement, in substantially the form
of EXHIBIT "E" attached hereto, duly executed and delivered by the
Contributor and the Operating Partnership, whereby the Contributor assigns
its rights under the Property Management Agreements to the Operating
Partnership and the Operating
6
<PAGE>
Partnership assumes Cointributor's obligations under the Property
Management Agreements;
(v) The Amendment or the Certificates evidencing the transfer of OP
Units to the Contributor;
(vi) American Land Title Assurances ("ALTA") policies of title
insurance with appropriate endorsements and levels of reinsurance for the
Properties issued as of the Closing Date or endorsements or other
assurances that the existing policy or policies of title insurance are
sufficient for purposes of this Contribution Agreement, which the
Contributor shall cause the title company to issue to the Operating
Partnership in a form acceptable to the Operating Partnership (the "TITLE
POLICIES") including satisfaction by the Contributor of any and all title
company requirements applicable to it;
(vii) The Contributor's books and records and securities or other
evidences of ownership of the Properties;
(viii) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number and
that the Contributor is not a foreign person pursuant to section 1445(b)(2)
of the Code and a comparable affidavit satisfying California and any other
withholding requirements; and
(ix) Certificates of Insurance, evidencing insurance maintained for
the Properties.
2.4 TRANSFER TAXES AND OTHER CLOSING COSTS
The Operating Partnership shall be responsible for any sales taxes
that may be due by reason of the transfers provided hereunder. The Operating
Partnership shall pay any documentary transfer taxes, escrow charges, title
charges and recording taxes or fees incurred in connection with the transactions
contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES AND INDEMNITIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has been
duly formed and is validly existing with requisite power to enter this
Contribution Agreement and all agreements contemplated hereby. The persons
and entities executing this Contribution Agreement and all agreements
contemplated hereby on behalf of the Operating Partnership have the power
and authority to enter into this Contribution Agreement and such other
contemplated agreements; and
7
<PAGE>
(b) DUE AUTHORIZATION. The execution, delivery and performance
by the Operating Partnership of its obligations under this Contribution
Agreement and all agreements contemplated hereby will not contravene any
provision of applicable law, the OP Agreement, charter, declaration of
trust or other constituent document of the Operating Partnership, or any
agreement or other instrument binding upon the Operating Partnership or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Operating Partnership, and no consent, approval,
authorization or order of or qualification with any governmental body or
agency is required for the performance by the Operating Partnership of its
obligations under this Contribution Agreement and all other agreements
contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto, and
acknowledges and agrees to be bound by the indemnification provisions contained
therein.
3.3 INDEMNIFICATION
The Operating Partnership shall indemnify and hold harmless the
Contributor and its trustee, officers, employees, agents, representatives and
affiliates] (each of which is an "INDEMNIFIED CONTRIBUTOR PARTY") from and
against any and all claims, losses, damages, liabilities and expenses, including
without limitation, amounts paid in settlement, reasonable attorneys' fees,
costs of investigation and remediation, costs of investigative judicial or
administrative proceedings or appeals therefrom and costs of attachment or
similar bonds (collectively, "LOSSES") asserted against, imposed upon or
incurred by the Indemnified Contributor Party in connection with: (i) any breach
of a representation or warranty of the Operating Partnership contained in this
Contribution Agreement; (ii) any liabilities or obligations incurred, arising
from or out of, in connection with or as a result of any claims made or actions
brought by or against the Contributor, the Properties or an Indemnified
Contributor Party, that arise from or out of, in connection with or as a result
of any Contamination (as defined in Exhibit D hereto) of the Properties
regardless of when or how occurring, except to the extent, and only to the
extent, such Losses arise from or constitute a breach of a representation and
warranty of Contributor under Exhibit D; and (iii) all fees, costs and expenses
of the Operating Partnership in connection with the transactions contemplated by
the Contribution Agreement, including without limitation any and all costs
associated with the transfers contemplated herein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor shall
not:
(i) Sell or transfer all or any portion of the Property; or
(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Property.
8
<PAGE>
(b) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required to
effect the transactions contemplated by this Contribution Agreement.
5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of the
Properties pursuant to ARTICLES 1 AND 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman), agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"), known or unknown,
suspected or unsuspected, arising out of or relating to this Contribution
Agreement or any other matter which exists at the Closing, except for
Contributor Claims arising from the breach of any representation, warranty,
covenant or obligation under this Contribution Agreement.
5.2 GENERAL RELEASE OF CONTRIBUTOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "OPERATING PARTNERSHIP CLAIMS"), known or
unknown, suspected or unsuspected, arising out of or relating to this
Contribution Agreement or any other matter which exists at the Closing, except
for Operating Partnership Claims arising from the breach of any representation,
warranty, covenant or obligation under this Contribution Agreement.
5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership each
expressly waives and relinquishes all rights and benefits afforded by Section
1542 of the California Civil Code and do so understanding and acknowledging the
significance and consequence of such specific waiver of Section 1542 which
provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected the settlement with the
debtor.
9
<PAGE>
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating Partnership
(or its designee) and each of them individually and any successor thereof from
time to time (such Operating Partnership or designee or any such successor of
any of them acting in his, her or its capacity as attorney-in-fact pursuant
hereto, the "ATTORNEY-IN FACT") as the true and lawful attorney-in-fact and
agent of Contributor, to act in the name, place and stead of Contributor to
make, execute, acknowledge and deliver all such other contracts, orders,
receipts, notices, requests, instructions, certificates, consents, letters and
other writings (including without limitation the execution of any Closing
Documents or other documents relating to the acquisition by the Operating
Partnership of the Properties), to provide information to the Securities and
Exchange Commission and others about the transactions contemplated hereby and,
in general, to do all things and to take all actions which the Attorney-in-Fact
in its sole discretion may consider necessary or proper in connection with or to
carry out the transactions contemplated by this Contribution Agreement, as fully
as could Contributor if personally present and acting.
The Power of Attorney and all authority granted hereby shall be
coupled with an interest and therefore shall be irrevocable and shall not be
terminated by any act of Contributor, by operation of law or by the occurrence
of any other event or events, and if any other such act or events shall occur
before the completion of the transactions contemplated by this Contribution
Agreement, the Attorney-in-Fact shall nevertheless be authorized and directed to
complete all such transactions as if such other act or events had not occurred
and regardless of notice thereof. Contributor agrees that, at the request of
Operating Partnership it will promptly execute a separate power of attorney on
the same terms set forth in this ARTICLE 6, such execution to be witnessed and
notarized. Contributor hereby authorizes the reliance of third parties on the
Power of Attorney.
Contributor acknowledges that the Operating Partnership has, and any
designee or successor thereof acting as Attorney-in-Fact may have, an economic
interest in the transactions contemplated by this Contribution Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no responsibility
or liability to any person by virtue of the Power of Attorney granted by
Contributor hereby. The Attorney-in-Fact makes no representations with respect
to and shall have no responsibility for the Formation Transactions or the Public
Offering, or the acquisition of the Partnership Interest by the Operating
Partnership and shall not be liable for any error or judgement or for any act
done or omitted or for any mistake of fact or law except for its own gross
negligence or bad faith. Contributor agrees to indemnify the Attorney-in-Fact
for and to hold the Attorney-in-Fact harmless against any loss, claim, damage or
liability incurred on its part arising out of or in connection with it acting as
the Attorney-in-Fact under the Power of Attorney created by Contributor hereby,
as well as the cost and expense of investigating and
10
<PAGE>
defending against any such loss, claim, damage or liability, except to the
extent such loss, claim, damage or liability is due to the gross negligence
or bad faith of the Attorney-in-Fact. Contributor agrees that the
Attorney-in-Fact may consult with counsel of its own choice (who may be
counsel for Operating Partnership or its successors or affiliates), and it
shall have full and complete authorization and protection for any action
taken or suffered by it hereunder in good faith and in accordance with the
opinion of such counsel. It is understood that the Attorney-in-Fact may,
without breaching any express or implied obligation to Contributor hereunder,
release, amend or modify any other power of attorney or proxy granted by any
other person under any related agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other
actions and execute such additional documents following the Closing as the
Operating Partnership may reasonably request in order to effect the transactions
contemplated hereby.
7.2 COUNTERPARTS. This Contribution Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed by
the internal laws of the State of California, without regard to the choice of
laws provisions thereof.
7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
communicated as of the date of personal delivery (including delivery by
overnight courier). Mailed notices shall be addressed as set forth below, but
any party may change the address set forth below by written notice to other
parties in accordance with this paragraph.
To the Contributor:
Arthur and Rosalinde Gilbert Trust
9536 Wilshire Boulevard, Suite 420
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Contribution
Agreement as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland Corporation,
general partner
By: /s/ RICHARD S. ZIMAN
-------------------------------
Name: Richard S. Ziman
-----------------------------
Title: Chairman/CEO
----------------------------
"CONTRIBUTOR"
ARTHUR GILBERT AND ROSALINDE
GILBERT 1982 TRUST
By: /s/ ARTHUR GILBERT
------------------------------------
Arthur Gilbert
Trustee
12
<PAGE>
EXHIBIT A-1
TO
CONTRIBUTION AGREEMENT
PROPERTY OF CONTRIBUTOR
Minimum
Properties Held by the Partnership Consideration
46.15% Tenant in Common interest in $2,467,366
Century Park Center
- ----------------------------------- -------------
50.00% Tenant in Common interest in $1,695,858
5000 East Spring Street
- ----------------------------------- -------------
Total Minimum Consideration
$4,163,224
------------
------------
A-1
<PAGE>
EXHIBIT A-2
TO
CONTRIBUTION AGREEMENT
[Legal Description of Property (Century Park Center)]
A-2
<PAGE>
EXHIBIT A-3
TO
CONTRIBUTION AGREEMENT
[Legal Description of Property (5000 Spring)]
A-3
<PAGE>
EXHIBIT B-1
TO
CONTRIBUTION AGREEMENT
[Form of Grant Deed]
B-1
<PAGE>
EXHIBIT B-2
TO
CONTRIBUTION AGREEMENT
BILL OF SALE
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are
hereby acknowledged and acting pursuant to that certain Contribution Agreement
dated as of June 17, 1996 (the "Contribution Agreement"), by and between the
Arthur Gilbert and Roslinde Gilbert 1982 Trust and Arden Realty Group Limited
Partnership, a Maryland limited partnership, subject to the terms of the
Contribution Agreement, the Arthur Gilbert and Roslinde Gilbert 1982 Trust
hereby conveys, transfers, assigns, sells and delivers to Arden Reatly Group
Limited Partnership all of its right title and interest in and to the following
tangible and intangible assets:
(a) the Tangible Personal Property (as referred to in Section 1.1(c) of
the Contribution Agreement) set forth on Schedule 1 to this Bill of Sale; and
Dated effective as of June ____, 1996.
ARTHUR GILBERT AND ROSALINDE
GILBERT 1982 TRUST
By:
------------------------------
Its:
-----------------------------
B-2
<PAGE>
EXHIBIT C
TO
CONTRIBUTION AGREEMENT
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
- --------------------------------------------------------------------------------
MAIL TAX STATEMENTS TO: SPACE ABOVE THIS LINE FOR RECORDER'S USE
DOCUMENTARY TRANSFER TAX $.............
........ Computed on the consideration
or value of property conveyed;
OR
........ Computed on the consideration
or value less liens or
encumbrances remaining at
time of sale.
---------------------------------------
Signature of Declarant of Agent
determining tax - Firm Name
- --------------------------------------------------------------------------------
QUITCLAIM DEED
FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
do(es) hereby REMISE, RELEASE and FOREVER QUITCLAIM to
Arden Realty Group Limited Partnership, a Maryland limited partnership
the real property in the City of ___________, County of ______________, State of
California, described as
Dated
------------------------------- --------------------------------
STATE OF CALIFORNIA } --------------------------------
} --------------------------------
COUNTY OF _______________} --------------------------------
On ____________________ before me,
___________________________________,
personally appeared _______________
___________________________________
personally known to me (or proved
to me on the basis of
satisfactory evidence) to be the
person(s) whose names(s) is/are
subscribed to the within
instrument and acknowledged to me
that he/she/they executed the
same in his/her/their authorized
capacity(ies), and that by
his/her/their signature(s) on the
instrument the person(s) or the
entity upon behalf of which the
person(s) acted, executed the
instrument.
WITNESS my hand and official seal. (This area for official notarial
seal)
Signature
-------------------------
C-1
<PAGE>
EXHIBIT D
TO
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1- ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the meanings
set forth below. Terms which are not defined below shall have the meaning set
forth for those terms as defined in the Contribution Agreement to which this
EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to Knowledge,
threatened that directly or indirectly affect any of the Contributor or the
Properties.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
INDEMNIFYING PARTY: Means any party required to indemnify any other
party under ARTICLE 3.2 of this EXHIBIT D or under the indemnification
provisions substantially identical to ARTICLE 3.2 hereof in the other Portfolio
Agreements.
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests, restrictions,
prior assignments, encumbrances, covenants, encroachments, assessments, rights
of others, licenses, easements, liabilities or claims of any kind or nature
whatsoever, direct or indirect, including, without limitation, interests in or
claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent or
the payment of which is actively being contested in good faith by appropriate
proceedings diligently pursued;
(b) Zoning laws and ordinances generally applicable to the districts
in which the Properties are located which are not violated by the existing
structures or present uses thereof;
D-1
<PAGE>
(c) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings diligently
pursued;
(d) non-exclusive easements for public utilities that do not have a
material adverse effect upon, or interfere with the use of, the Properties; and
(e) any exceptions contained in the Title Policies.
(f) Liens created or imposed as a result of or pursuant to that
certain Construction Loan Agreement by and among National Bank of Canada, a
Canadian Chartered Bank acting through its New York Branch and Canada Trustco
International Limited, a limited liability company incorporated in Barbados, as
lenders, and Century Center Associates, L.P., a California limited partnership,
and Grampian Associates, a California general partnership, as borrowers, dated
as of March 1, 1993.
PERSON: Means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PORTFOLIO AGREEMENTS: Means the agreements, including the
Contribution Agreement, listed on ATTACHMENT "1" hereto, which contemplate the
transfer of partnership and/or limited liability company membership interests in
certain of the Participating Partnerships and LLCs from any entity directly or
indirectly owned by Contributor to the Company and the Operating Partnership.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating Partnership
as set forth below in this ARTICLE 2. Notwithstanding any other provision of
the Contribution Agreement or this EXHIBIT D, the Contributor makes
representations, warranties and indemnities only with respect to the interests
in the Properties to be transferred by the Contributor identified on EXHIBIT A-1
to the Contribution Agreement.
2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and (B)
has all requisite power and authority to own, lease or operate its
D-2
<PAGE>
property and to carry on its business as presently conducted and, to the
extent required under applicable law, is qualified to do business and is in
good standing in each jurisdiction in which the nature of its business or the
character of its property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. This Contribution
Agreement constitutes a legal, valid and binding obligation of the Contributor,
enforceable against the Contributor in accordance with its terms, as such
enforceability may be limited by bankruptcy or the application of equitable
principles.
2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the Contributor
in connection with the execution, delivery and performance of the Contribution
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE PROPERTIES; PROPERTY MANAGEMENT AGREEMENTS.
The Contributor is the sole owner of the Properties and has good and valid title
to such Properties, free and clear of all Liens, other than Permitted Liens.
The Properties are each subject to their respective Property Management
Agreements.
2.5 PROPERTY. There are no rights, subscriptions, warrants, options,
conversion rights, preemptive rights or agreements of any kind outstanding to
purchase or to otherwise acquire any interest in the Properties. At the
Closing, upon receipt of the consideration, the Contributor will have
transferred the Property free and clear of all security interests, mortgages,
pledges, liens, encumbrances, claims and equities to the Operating Partnership,
other than Permitted Liens.
2.6 NO VIOLATION. None of the execution, delivery or performance of
the Contribution Agreement and the transactions contemplated hereby does or
will, with or without the giving of notice, lapse of time, or both, (i) violate,
conflict with, result in a breach of, or constitute a default under or give to
others any right of termination or cancellation of (A) the organizational
documents, including the charters and bylaws, if any, of the Contributor, (B)
any material agreement, document or instrument to which the Contributor is a
party or by which the Contributor or its Properties are bound or (C) any term or
provision of any judgment, order, writ, injunction, or decree of any
governmental or regulatory authority binding on the Contributor or by which the
Contributor or any of its assets or properties are bound or subject or (ii)
result in the creation of any Lien, other than a Permitted Lien, upon the
Properties.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
D-3
<PAGE>
2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withhoding provisions, including those referred to in
ARTICLE 2.7 above and similar provisions under California law. If Contributor
fails to provide such certificates or affidavits, the Operating Partnership may
withhold a portion of any payments otherwise to be made to the Contributor as
required by the Code or California law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Agreement are intended to be exempt from registration under the
Securities Act of 1933, as amended and the rules and regulations in effect
thereunder (the "ACT"). In furtherance thereof, the Contributor represents and
warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not as
a nominee or agent for any other person and not with a view to, or for offer or
sale in connection with, any distribution of any thereof. The Contributor
agrees and acknowledges that he, she or it will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(hereinafter, "TRANSFER") any of the OP Units unless (i) the Transfer is
pursuant to an effective registration statement under the Act and qualification
or other compliance under applicable blue sky or state securities laws, or (ii)
counsel for the Contributor (which counsel shall be reasonably acceptable to the
Operating Partnership) shall have furnished the Operating Partnership with an
opinion, reasonably satisfactory in form and substance to the Operating
Partnership, to the effect that no such registration is required because of the
availability of an exemption from registration under the Act and qualification
or other compliance under applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable,
sophisticated and experienced in business and financial matters; the Contributor
has previously invested in securities similar to the OP Units and fully
understands the limitations on transfer imposed by the Federal securities laws
and as described in the Contribution Agreement. The Contributor is able to bear
the economic risk of holding the OP Units for an indefinite period and is able
to afford the complete loss of his, her or its investment in the OP Units; the
Contributor has received and reviewed all information and documents about or
pertaining to the Company, the Operating Partnership, the business and prospects
of the Company and the Operating Partnership and the issuance of the OP Units as
the Contributor deems necessary or desirable, and has been given the opportunity
to obtain any additional information or documents and to ask questions and
receive answers about such information and documents, the Company, the Operating
Partnership, the business and prospects of the Company and the Operating
Partnership and the OP Units which the Contributor deems necessary or desirable
to evaluate the merits and risks related to his, her or its investment in the OP
Units; and the Contributor understands and has taken cognizance of all risk
factors related to the purchase of the OP Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he, she
or it has been advised that (i) the OP Units and the common stock of the Company
into which the OP
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Units may be exchanged in certain circumstances (the "COMMON STOCK") must be
held indefinitely, and the Contributor must continue to bear the economic
risk of the investment in the OP Units (and any Common Stock that might be
exchanged therefor) unless they are subsequently registered under the Act or
an exemption from such registration is available, (ii) a restrictive legend in
the form hereafter set forth shall be placed on the certificates representing
the OP Units (and any Common Stock that might be exchanged therefor), and
(iii) a notation shall be made in the appropriate records of the Operating
Partnership (and the Company) indicating that the OP Units (and any Common Stock
that might be exchanged therefor) are subject to restrictions on transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an individual,
such individual is an "accredited investor" (as such term is defined in Rule
501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his or
her spouse, in excess of $1,000,000; or
(iii) had an individual annual adjusted gross income in excess
of $200,000 in each of the two most recent years and reasonably expects to have
annual adjusted gross income in excess of $200,000 in the current year; or
(iv) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an annual
adjusted gross income, with his spouse, in excess of $300,000 in the current
year.
If the Contributor is not an individual, it is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
2.9.5 LEGENDING. Each certificate representing the OP Units
(and any Common Stock that might be exchanged therefor) shall bear the following
legend:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE
PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS;
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In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT
TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
CORPORATION'S CHARTER, (1) NO PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY
OWN SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF 9.0% (BY VALUE OR
BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING
COMMON STOCK OF THE CORPORATION; (2) NO PERSON MAY BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK THAT WOULD RESULT IN THE CORPORATION BEING
"CLOSELY HELD" UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (3) NO PERSON MAY TRANSFER
COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE
CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO
BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO
BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK IN EXCESS OF THE ABOVE
LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE
RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE COMMON STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A
TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN
ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS
SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF
DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY
VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE
OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS
DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS
LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE
RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF
COMMON STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY
BE DIRECTED TO THE SECRETARY OF THE CORPORATION.
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2.10 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has employed or made any agreement with any
broker, finder or similar agent or any person or firm which will result in the
obligation of the Operating Partnership or any of its affiliates to pay any
finder's fee, brokerage fees or commissions or similar payment in connection
with the transactions contemplated by the Contribution Agreement.
2.11 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Properties to the
Operating Partnership.
2.12 NO MISREPRESENTATIONS. No representation, warranty or statement
made, or information provided, by the Contributor in the Contribution Agreement
or in any other document or instrument furnished or to be furnished by or on
behalf of the Contributor pursuant hereto or as contemplated hereby (i) contains
or will contain any untrue statement of a material fact or (ii) omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading. For purposes of the preceding sentence, materiality
shall be determined with reference to the total portfolio of real properties and
other interests to be transferred pursuant to the Portfolio Agreements.
2.13 TAXES. The Contributor has filed all tax returns required to be
filed by it and have paid all taxes required to be paid by it. The transactions
contemplated hereby will not result in any tax liability to the Company or the
Operating Partnership. No tax lien or other charge exists or will exist upon
consummation of the transactions contemplated hereby with respect to either
Property except such tax liens for which the tax is not due and has been
reserved for payment by the Contributor or tax liens or other charges which
individually or in the aggregate would not have a material adverse effect on the
Operating Partnership.
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered pursuant
hereto shall survive the Closing.
(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this EXHIBIT
D or the Contribution Agreement for monetary damages (or otherwise) for breach
of any of its representations and warranties contained in this EXHIBIT D or the
Contribution Agreement, or in any Schedule, certificate or affidavit delivered
by it pursuant thereto, other than pursuant to the succeeding provisions of this
ARTICLE 3.
3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the Operating
Partnership, the Company, and their affiliates and each of their respective
directors, officers, employees,
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agents, representatives and affiliates (each of which is an "INDEMNIFIED
PARTY") from and against any and all claims, losses, damages, liabilities and
expenses, including, without limitation, amounts paid in settlement,
reasonable attorneys' fees, costs of investigation and remediation, costs of
investigative, judicial or administrative proceedings or appeals therefrom,
and costs of attachment or similar bonds (collectively, "LOSSES"), asserted
against, imposed upon or incurred by the Indemnified Party in connection with
or as a result of any breach of a representation or warranty of the
Contributor contained in the Contribution Agreement or in any Schedule,
certificate or affidavit delivered by the Contributor pursuant to the
Contribution Agreement.
(b) The Contributor shall indemnify and hold harmless the Indemnified
Parties from and against any and all Losses, asserted against, imposed upon or
incurred by the Indemnified Parties in connection with or as a result of:
(i) all fees and expenses of the Contributor in connection with
the transactions contemplated by the Contribution Agreement;
(ii) any liabilities or obligations incurred, arising from or out
of, in connection with or as a result of the failure of the Contributor to
obtain all consents required to consummate the transactions contemplated by
the Contribution Agreement.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when expenses
are incurred) to an Indemnified Party of OP Units, subject to the limits on
ownership and transfer of REIT shares set forth in the Company's articles of
incorporation. Any OP Units delivered to an Indemnified Party hereunder shall
be valued based upon the initial public offering price of the Company's Common
Stock.
3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably practicable
after receipt by the Indemnified Party of notice of any liability or claim
incurred by or asserted against the Indemnified Party that is subject to
indemnification under this ARTICLE 3, the Indemnified Party shall give notice
thereof to the Contributor, including liabilities or claims to be applied
against the indemnification baskets established pursuant to ARTICLE 3.5 hereof.
The Indemnified Party may at its option demand indemnity under this ARTICLE 3 as
soon as a claim has been threatened by a third party, regardless of whether an
actual Loss has been suffered, so long as the Indemnified Party shall in good
faith determine that such claim is not frivolous and that the Indemnified Party
may be liable for, or otherwise incur, a Loss as a result thereof and shall give
notice of such determination to the Contributor. The Indemnified Party shall
permit the Contributor, at its option and expense, to assume the defense of any
such claim by counsel selected by the Contributor and reasonably satisfactory to
the Indemnified Party, and to settle or otherwise dispose of the same; PROVIDED,
HOWEVER, that the Indemnified Party may at all times participate in such defense
at its expense; and PROVIDED FURTHER, HOWEVER, that the Contributor shall not,
in defense of any such claim, except with the prior written consent of the
Indemnified Party in its sole and absolute discretion, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or
D-8
<PAGE>
plaintiff in question to the Indemnified Party and its affiliates a release
of all liabilities in respect of such claims, or that does not result only in
the payment of money damages. If the Contributor shall fail to undertake
such defense within 30 days after such notice, or within such shorter time as
may be reasonable under the circumstances, then the Indemnified Party shall
have the right to undertake the defense, compromise or settlement of such
liability or claim on behalf of and for the account of the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER ARTICLE
3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the aggregate amount recoverable from Indemnifying Parties
under the indemnification provisions substantially identical to ARTICLE 3.2 in
one or more of the Portfolio Agreements exceeds $200,000; PROVIDED, HOWEVER,
that once the total amount recoverable from Indemnifying Parties under such
provisions exceeds $200,000 in the aggregate, the Contributor's obligation under
ARTICLE 3.2 hereof shall be for the full amount of such obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this ARTICLE
3 with respect to any Properties to the extent such payments in the aggregate
would exceed the value of the OP Units (based upon the initial public offering
price of the Common Stock) received by the Contributor at the Closing.
Notwithstanding anything contained herein to the contrary, the Indemnified
Parties shall look first to the Contributor's OP Units for indemnification under
this ARTICLE 3 and then to the Contributor's other assets.
3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification under
ARTICLE 3.2 hereof must be asserted in writing by the Indemnified Party, stating
the nature of the Losses and the basis for indemnification therefor:
(i) within one year after the Closing in the case of a claim
under ARTICLE 3.2 hereof (other than a claim under ARTICLE 3.2(a) based
upon a breach of the representations, and warranties of the Contributor set
forth in ARTICLE 2.13 hereof as specified below; and
(ii) prior to the expiration of the applicable statutes of
limitations in the case of a claim under ARTICLE 3.2(a) based upon a breach
of the representations and warranties of the Contributor set forth in
ARTICLE 2.13 hereof.
(b) If so asserted in writing within one year after the Closing, such
claims for indemnification shall survive until resolved by mutual agreement
between the Contributor and the Indemnified Party or by judicial determination.
Any claim for indemnification not so asserted in writing within one year after
the Closing shall not thereafter be asserted and shall forever be waived.
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ATTACHMENT 1 (TO EXHIBIT D)
PORTFOLIO AGREEMENTS
(1) That certain Contribution Agreement by and between Arden LAOP Two, LLC, a
Nevada limited liability company, and Arden Realty Group Limited
Partnership, a Maryland limited partnership, dated as of June 17, 1996.
(2) That certain Contribution Agreement by and between Gilbert Trust and Arden
Realty Group Limited Partnership, a Maryland limited partnership, dated as
of June 17, 1996.
(3) That certain Option Agreement by and between Broad Base Investments Two,
LLC, a Nevada limited liability company, and Arden Realty Group Limited
Partnership, a Maryland limited partnership, dated as of June 17, 1996.
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EXHIBIT E
TO
CONTRIBUTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the undersigned hereby assigns, transfers and
conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland limited
partnership (the "Operating Partnership"), its entire legal and beneficial
right, title and interest in and to that certain Property Management Agreement,
dated as of December 14, 1994, by and among 5000 Spring Associates, LLC, a
Nevada limited liability company, Arthur Gilbert as Trustee of the Arthur
Gilbert and Rosalinde Gilbert 1982 Trust, and Contributor, as Owners and Arden
Realty Group, Inc., a California corporation, as Manager, TO HAVE AND TO HOLD
the same unto the Operating Partnership, its successors and assigns, forever.
Executed: __________ __, 1996 ARTHUR GILBERT AND ROSALINDE
GILBERT 1982 TRUST
By:
------------------------------
Arthur Gilbert
Trustee
By:
------------------------------
E-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
by and between
ARDEN REALTY GROUP, INC.,
a California corporation
and
ARDEN REALTY GROUP LIMITED PARTNERSHIP,
a Maryland limited partnership
Dated as of June 17, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TERMS OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1. CONTRIBUTION OF MANAGEMENT ASSETS AND EXCHANGE FOR OP UNITS. . . . . . . 2
1.1 Contribution Transaction. . . . . . . . . . . . . . . . . . . . . . 2
1.2 Minimum Consideration and Exchange of OP Units. . . . . . . . . . 2
1.3 Additional Consideration. . . . . . . . . . . . . . . . . . . . . 2
1.4 Adjusted Consideration. . . . . . . . . . . . . . . . . . . . . . 3
1.5 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Contribution of Certain Rights. . . . . . . . . . . . . . . . . . 3
1.7 Treatment as Contribution . . . . . . . . . . . . . . . . . . . . 3
2. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Time and Place. . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Closing Deliveries. . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Closing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 5
3.1 Representations and Warranties of the Operating Partnership . . . 5
3.2 Representations and Warranties of Contributor . . . . . . . . . . 6
4. COVENANTS OF CONTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . 6
5. RELEASES AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 General Release of Operating Partnership. . . . . . . . . . . . . 7
5.2 General Release of Optionor . . . . . . . . . . . . . . . . . . . 7
5.3 Waiver of Section 1542 Protections. . . . . . . . . . . . . . . . 8
6. POWER OF ATTORNEY
6.1 Grant of Power of Attorney. . . . . . . . . . . . . . . . . . . . 8
6.2 Limitation on Liability . . . . . . . . . . . . . . . . . . . . . 9
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7. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.1 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . 9
7.2 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ii
<PAGE>
EXHIBIT LIST
SECTION FIRST
EXHIBITS REFERENCED
- -------- -------------
A Management Assets to be Contributed. . . . . . . . . . . . . . Recital D
B Assignment and Assumption Agreement. . . . . . . . . . . . . . . . . 1.1
C Bill of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
D Representations and Warranties of Contributor. . . . . . . . . . . . 3.2
iii
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (hereinafter referred to as the
"CONTRIBUTION AGREEMENT") is made and entered into as of June 17, 1996 by and
between Arden Realty Group Limited Partnership, a Maryland limited partnership
(the "OPERATING PARTNERSHIP"), and Arden Realty Group, Inc., a California
corporation (the "CONTRIBUTOR").
RECITALS
A. The Operating Partnership desires to consolidate the ownership of
a portfolio of office properties (the "PARTICIPATING PROPERTIES") located in
Southern California through a series of transactions (the "FORMATION
TRANSACTIONS") whereby the Operating Partnership will acquire direct interests
in certain of the Participating Properties (the "PROPERTY INTERESTS") and all of
the interests in certain limited partnerships, certain limited liability
companies and certain other entities (collectively the "PARTICIPATING
PARTNERSHIPS AND LLCS") which currently own directly or indirectly the
Participating Properties (the "CONSOLIDATION").
B. The Formation Transactions relate to the proposed initial public
offering (the "PUBLIC OFFERING") of the common stock of Arden Realty Group,
Inc., a Maryland corporation (the "COMPANY"), which will operate as a
self-administered and self-managed real estate investment trust ("REIT")
and will be the sole general partner of the Operating Partnership.
C. The owners of the Property Interests and the partners and members
of the Participating Partnerships and LLCs will either transfer their Property
Interests and interests in the Participating Partnerships and LLCs to the
Company in exchange for cash (the "CASH PARTICIPANTS") or contribute such
interests directly to the Operating Partnership in exchange for an interest in
the Operating Partnership (the "OP PARTICIPANTS").
D. As part of the Formation Transactions, the Contributor desires
to, and the Operating Partnership desires the Contributor to, contribute to the
Operating Partnership, all of its right, title and interest, in certain assets,
personal property and management contracts as set forth on EXHIBIT "A" that
relate to its property management and leasing business (the "MANAGEMENT
BUSINESS")(such right, title and interest are hereinafter collectively referred
to as the "MANAGEMENT ASSETS"), in exchange for partnership units in the
Operating Partnership (the "OP UNITS"), on the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, for and in consideration of the foregoing premises, and the
mutual undertakings set forth below, the parties hereto agree as follows:
<PAGE>
TERMS OF AGREEMENT
1. CONTRIBUTION OF MANAGEMENT ASSETS AND EXCHANGE FOR OP UNITS
1.1 CONTRIBUTION TRANSACTION
At the Closing (as defined in ARTICLE 2.2 herein) and subject to the
terms and conditions contained in this Contribution Agreement, the Contributor
shall transfer to the Operating Partnership, absolutely and unconditionally, all
of its Management Assets (as such term is defined in Recital D herein and as
enumerated on Exhibit A attached hereto) which consist primarily of certain
property management agreements (the "Management Agreements"), contractual rights
to purchase certain office properties (the "Contractual Rights") and certain
office-use personal property assets (the "Office Personal Property"). The
contribution of the Contributor's Management Agreements and Contractual Rights
shall be evidenced by an "ASSIGNMENT AND ASSUMPTION AGREEMENT" in substantially
the form of EXHIBIT "B" attached hereto and the contribution of the
Contributor's Office Personal Property shall be evidenced by a "BILL OF SALE" in
substantially the form of EXHIBIT "C" attached hereto. The parties shall take
such additional actions and execute such additional documentation as may be
required by the Agreement of Limited Partnership of the Operating Partnership
(the "OP AGREEMENT") in order to effect the transactions contemplated hereby.
1.2 MINIMUM CONSIDERATION AND EXCHANGE OF OP UNITS
Subject to ARTICLES 1.3 AND 1.4 below, the Operating Partnership
shall, in exchange for the Partnership Interest, transfer to the Contributor the
number of OP Units having a value, based on one OP Unit being equal in value to
the Public Offering price for one share of the Company's common stock, equal to
the value indicated on Exhibit A as Contributor's "Total Minimum Consideration."
The transfer of the OP Units to the Contributor shall be evidenced by either an
amendment (the "AMENDMENT") to the OP Agreement or by certificates relating to
such units (the "CERTIFICATES") in either case, as shall be acceptable to the
Contributor. The parties shall take such additional actions and execute such
additional documentation as may be required by the OP Agreement in order to
effect the transaction contemplated hereby.
1.3 ADDITIONAL CONSIDERATION
Subject to ARTICLE 1.4 below, in the event that, at Closing the
aggregate value (determined as provided in ARTICLE 1.2) of the OP Units
available to all OP Participants exceeds the sum of the Total Minimum
Consideration values (after all adjustments set forth in ARTICLE 1.4) of all OP
Participants (the "ADDITIONAL CONSIDERATION"), then the Additional Consideration
or a portion thereof, if any, shall be allocated among the OP Participants
(including the Contributor) based upon the relative values of the Contributor's
Management
2
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Assets and the interests contributed by each of the other OP Participants, in
each case as determined by Richard S. Ziman, in his sole discretion.
1.4 ADJUSTED CONSIDERATION
The Operating Partnership reserves the right not to acquire any
particular asset that constitutes part of the Management Assets, if in good
faith the Operating Partnership determines that the ownership of such asset
would be inappropriate for the Operating Partnership for any reason whatsoever.
Contributor hereby agrees that, in such event, the Contributor's Total Minimum
Consideration may be reduced by an amount determined by Richard S. Ziman, in his
sole discretion, to reflect the reduction in total value of the Management
Assets ultimately contributed by the Contributor.
1.5 AUTHORIZATION
Contributor hereby authorizes Richard S. Ziman to make any and all
determinations to be made by him pursuant to ARTICLES 1.3 AND 1.4 hereof, and
any and all such determinations shall be final and binding on all parties.
1.6 CONTRIBUTION OF CERTAIN RIGHTS
Effective upon the Closing, the Contributor hereby contributes to the
Operating Partnership all of its rights and interests, if any, including rights
to indemnification in favor of the Contributor, if any, under the Management
Contracts and any agreements underlying the Contractual Rights transferred
pursuant to this Contribution Agreement.
1.7 TREATMENT AS CONTRIBUTION
The assignment and exchange of interests effectuated with respect to
the Operating Partnership, pursuant to this Contribution Agreement shall
constitute, a "Capital Contribution" pursuant to Article 4 of the OP Agreement
and is intended to be governed by Section 721(a) of the United States Internal
Revenue Code of 1986, as amended (the "CODE").
2. CLOSING
2.1 CONDITIONS PRECEDENT
The effectiveness of the Company's registration statement filed with
the Securities and Exchange Commission on Form S-11 (the "REGISTRATION
STATEMENT") is a condition precedent to the obligations of all parties to this
Contribution Agreement to effect the transactions contemplated by this
Contribution Agreement on the Closing Date (as defined below).
3
<PAGE>
The obligations of the Operating Partnership to effect the
transactions contemplated hereby shall be subject to the following additional
conditions:
(a) The representations and warranties of the Contributor contained
in this Contribution Agreement shall have been true and correct in all material
respects on the date such representations and warranties were made, and shall be
true and correct in all material respects on the Closing Date as if made at and
as of such date;
(b) Each of the obligations of the Contributor to be performed by it
shall have been duly performed by it on or before the Closing Date;
(c) Concurrently with the Closing, the Contributor shall have
executed and delivered to the Operating Partnership the documents required to be
delivered pursuant to ARTICLE 2.3 hereof;
(d) The Contributor shall have obtained all necessary consents or
approvals of governmental authorities or third parties to the consummation of
the transactions contemplated hereby;
(e) The Contributor shall not have breached any of its covenants
contained herein in any material respect;
(f) No order, statute, rule, regulation, executive order, injunction,
stay, decree or restraining order shall have been enacted, entered, promulgated
or enforced by any court of competent jurisdiction or governmental or regulatory
authority or instrumentality that prohibits the consummation of the transactions
contemplated hereby, and no litigation or governmental proceeding seeking such
an order shall be pending or threatened; and
(g) There shall not have occurred between the date hereof and the
Closing Date any material adverse change in the Contributor's Management
Business.
The foregoing conditions may be waived by the Operating Partnership in
its sole and absolute discretion.
2.2 TIME AND PLACE
The date, time and place of the transactions contemplated hereunder
shall be the day the Operating Partnership receives the proceeds from the Public
Offering from the underwriter(s), at 10:00 a.m. in the office of Latham &
Watkins, 633 West Fifth Street, Sixth Floor, Los Angeles, California (the
"CLOSING" or "CLOSING DATE"). The transfers described in ARTICLES 1.1 AND 1.2
of this Agreement, and all closing deliveries, and the consummation of the
Public Offering, shall be deemed concurrent for all purposes.
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2.3 CLOSING DELIVERIES
At the Closing, the parties shall make, execute, acknowledge and
deliver, or cause to be delivered, the legal documents and other items
(collectively the "CLOSING DOCUMENTS") necessary to carry out the intention of
this Contribution Agreement, which Closing Documents and other items shall
include, without limitation, the following:
(i) A Contribution and Assumption Agreement for the Contributor's
Management Assets;
(ii) The Amendment or the Certificates evidencing the transfer of OP
Units to the Contributor;
(iii) The Contributor's books and records and securities or other
evidences of ownership held by the Contributor; and
(iv) An affidavit from the Contributor, stating under penalty of
perjury, the Contributor's United States Taxpayer Identification Number and
that the Contributor is not a foreign person pursuant to section 1445(b)(2)
of the Code and a comparable affidavit satisfying California requirements.
2.4 CLOSING COSTS
The Operating Partnership shall pay any documentary transfer taxes,
escrow charges, title charges and recording taxes or fees incurred in connection
with the transactions contemplated hereby.
3. REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby represents and warrants to and
covenants with the Contributor that:
(a) ORGANIZATION; AUTHORITY. The Operating Partnership has been
duly formed and is validly existing with requisite power to enter this
Contribution Agreement and all agreements contemplated hereby. The persons
and entities executing this Contribution Agreement and all agreements
contemplated hereby on behalf of the Operating Partnership have the power
and authority to enter into this Contribution Agreement and such other
contemplated agreements; and
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(b) DUE AUTHORIZATION. The execution, delivery and performance
by the Operating Partnership of its obligations under this Contribution
Agreement and all agreements contemplated hereby will not contravene any
provision of applicable law, the OP Agreement, charter, declaration of
trust or other constituent document of the Operating Partnership, or any
agreement or other instrument binding upon the Operating Partnership or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Operating Partnership, and no consent, approval,
authorization or order of or qualification with any governmental body or
agency is required for the performance by the Operating Partnership of its
obligations under this Contribution Agreement and all other agreements
contemplated hereby.
3.2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR
The Contributor represents and warrants to and covenants with the
Operating Partnership as provided in EXHIBIT "D" attached hereto and
acknowledges and agrees to be bound by the indemnification provisions contained
therein.
4. COVENANTS OF CONTRIBUTOR
(a) From the date hereof through the Closing, the Contributor shall
not:
(i) Sell or transfer all or any portion of the Management
Business or Management Assets; or
(ii) Mortgage, pledge or encumber (or permit to become
encumbered) all or any portion of the Management Business or the Management
Assets.
(b) From the date hereof through the Closing, the Contributor shall
permit the Management Business to conduct its business in the ordinary course,
consistent with past practice, and shall not permit the Management Business to:
(i) Enter into any material transaction not in the ordinary
course of business;
(ii) Sell or transfer any assets of the Management Business;
(iii) Mortgage, pledge or encumber (or permit to become
encumbered) any assets of the Management Business except (x) liens for
taxes not due, (y) purchase money security interests and (z) mechanics'
liens being disputed by the Management Business in good faith and by
appropriate proceedings;
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(iv) Amend, modify or terminate any material agreements which
constitute Management Assets as defined herein or other instruments to
which the Management Business is a party except such agreements or
instruments that may terminate pursuant to their own terms prior to Closing
independent of any amendments or modifications;
(v) Materially alter the manner of keeping the Management
Business' books, accounts or records or the accounting practices therein
reflected; or
(vi) Make any distribution to its shareholders.
(c) The Contributor shall use its good faith diligent efforts to
obtain any approvals, waivers or other consents of third parties required to
effect the transactions contemplated by this Contribution Agreement.
5. RELEASES AND WAIVERS
Each of the releases and waivers enumerated in this ARTICLE 5 shall
become effective only upon the Closing of the contribution and exchange of the
Partnership Interest pursuant to ARTICLES 1 AND 2 herein.
5.1 GENERAL RELEASE OF OPERATING PARTNERSHIP
As of the Closing, the Contributor irrevocably waives, releases and
forever discharges the Operating Partnership and the Operating Partnership's
affiliates, partners (including Richard S. Ziman and Victor J. Coleman), agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "CONTRIBUTOR CLAIMS"), known or unknown,
suspected or unsuspected, arising out of or relating to this Contribution
Agreement or any other matter which exists at the Closing, except for
Contributor Claims arising from the breach of any representation, warranty,
covenant or obligation under this Contribution Agreement.
5.2 GENERAL RELEASE OF OPTIONOR
As of the Closing, the Operating Partnership irrevocably waives,
releases and forever discharges the Contributor and Contributor's agents,
attorneys, successors and assigns of and from, any and all charges, complaints,
claims, liabilities, damages, actions, causes of action, losses and costs of any
nature whatsoever (collectively, "OPERATING PARTNERSHIP CLAIMS"), known or
unknown, suspected or unsuspected, arising out of or relating to this
Contribution Agreement or any other matter which exists at the Closing, except
for Operating Partnership Claims arising from the breach of any representation,
warranty, covenant or obligation under this Contribution Agreement.
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5.3 WAIVER OF SECTION 1542 PROTECTIONS
As of the Closing, the Contributor and the Operating Partnership each
expressly waives and relinquishes all rights and benefits afforded by Section
1542 of the California Civil Code and do so understanding and acknowledging the
significance and consequence of such specific waiver of Section 1542 which
provides:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected the settlement with the
debtor.
6. POWER OF ATTORNEY
6.1 GRANT OF POWER OF ATTORNEY
Contributor does hereby irrevocably appoint the Operating Partnership
(or its designee) and each of them individually and any successor thereof from
time to time (such Operating Partnership or designee or any such successor of
any of them acting in his, her or its capacity as attorney-in-fact pursuant
hereto, the "ATTORNEY-IN FACT") as the true and lawful attorney-in-fact and
agent of Contributor, to act in the name, place and stead of Contributor to
make, execute, acknowledge and deliver all such other contracts, orders,
receipts, notices, requests, instructions, certificates, consents, letters and
other writings (including without limitation the execution of any Closing
Documents or other documents relating to the acquisition by the Operating
Partnership of Contributor's Management Assets), to provide information to the
Securities and Exchange Commission and others about the transactions
contemplated hereby and, in general, to do all things and to take all actions
which the Attorney-in-Fact in its sole discretion may consider necessary or
proper in connection with or to carry out the transactions contemplated by this
Contribution Agreement, as fully as could Contributor if personally present and
acting.
The Power of Attorney and all authority granted hereby shall be
coupled with an interest and therefore shall be irrevocable and shall not be
terminated by any act of Contributor, by operation of law or by the occurrence
of any other event or events, and if any other such act or events shall occur
before the completion of the transactions contemplated by this Contribution
Agreement, the Attorney-in-Fact shall nevertheless be authorized and directed to
complete all such transactions as if such other act or events had not occurred
and regardless of notice thereof. Contributor agrees that, at the request of
the Operating Partnership it will promptly execute a separate power of attorney
on the same terms set forth in this ARTICLE 6, such execution to be witnessed
and notarized. Contributor hereby authorizes the reliance of third parties on
the Power of Attorney.
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Contributor acknowledges that the Operating Partnership has, and any
designee or successor thereof acting as Attorney-in-Fact may have, an economic
interest in the transactions contemplated by this Contribution Agreement.
6.2 LIMITATION ON LIABILITY
It is understood that the Attorney-in-Fact assumes no responsibility
or liability to any person by virtue of the Power of Attorney granted by
Contributor hereby. The Attorney-in-Fact makes no representations with respect
to and shall have no responsibility for the Formation Transactions or the Public
Offering, or the acquisition of the Management Assets by the Operating
Partnership and shall not be liable for any error or judgement or for any act
done or omitted or for any mistake of fact or law except for its own gross
negligence or bad faith. Contributor agrees to indemnify the Attorney-in-Fact
for and to hold the Attorney-in-Fact harmless against any loss, claim, damage or
liability incurred on its part arising out of or in connection with it acting as
the Attorney-in-Fact under the Power of Attorney created by Contributor hereby,
as well as the cost and expense of investigating and defending against any such
loss, claim, damage or liability, except to the extend such loss, claim, damage
or liability is due to the gross negligence or bad faith of the
Attorney-in-Fact. Contributor agrees that the Attorney-in-Fact may consult with
counsel of its own choice (who may be counsel for Operating Partnership or its
successors or affiliates), and it shall have full and complete authorization and
protection for any action taken or suffered by it hereunder in good faith and in
accordance with the opinion of such counsel. It is understood that the
Attorney-in-Fact may, without breaching any express or implied obligation to
Contributor hereunder, release, amend or modify any other power of attorney
granted by any other person under any related agreement.
7. MISCELLANEOUS
7.1 FURTHER ASSURANCES. The Contributor shall take such other
actions and execute such additional documents following the Closing as the
Operating Partnership may reasonably request in order to effect the transactions
contemplated hereby.
7.2 COUNTERPARTS. This Contribution Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.3 GOVERNING LAW. This Contribution Agreement shall be governed by
the internal laws of the State of California, without regard to the choice of
laws provisions thereof.
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7.4 NOTICES. Any notice to be given hereunder by any party to the
other shall be given in writing by personal delivery or by registered or
certified mail, postage prepaid, return receipt requested, and shall be deemed
communicated as of the date of personal delivery (including delivery by
overnight courier). Mailed notices shall be addressed as set forth below, but
any party may change the address set forth below by written notice to other
parties in accordance with this paragraph.
To the Contributor:
Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
To the Operating Partnership:
Arden Realty Group Limited Partnership
c/o Arden Realty Group, Inc.
9100 Wilshire Boulevard, Suite 700E
Beverly Hills, CA 90212
IN WITNESS WHEREOF, the parties have executed this Contribution
Agreement as of the date first written above.
"OPERATING PARTNERSHIP"
ARDEN REALTY GROUP LIMITED PARTNERSHIP,
a Maryland limited partnership
By: ARDEN REALTY GROUP, INC.,
a Maryland corporation,
general partner
By:/s/Ziman
--------------------------------
"CONTRIBUTOR"
ARDEN REALTY GROUP, INC.,
a California corporation
By:/s/Ziman
-------------------------------------
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<PAGE>
EXHIBIT A
to
CONTRIBUTION AGREEMENT
MANAGEMENT ASSETS TO BE CONTRIBUTED
MANAGEMENT AGREEMENTS:
1. Management Agreement dated August 6, 1991 by and between HN REALTY
ASSOCIATES, L.P. and ARDEN PACIFIC MANAGEMENT GROUP regarding the operation
and management of 8631 Hayden Place, Culver City, California.
2. 9911 West Pico Boulevard First Amendment to Property Management Agreement
dated December 30, 1993 by and between THE ARTHUR GILBERT AND ROSALINDE
GILBERT 1982 TRUST, as successor in interest to GRAMPIAN ASSOCIATES, and
ARDEN PACIFIC MANAGEMENT GROUP, INC. regarding the operation and management
of Century Park Center, Los Angeles, California.
3. Property Management Agreement dated November 21, 1994 by and between 222
HARBOR ASSOCIATES, LLC and ARDEN PACIFIC MANAGEMENT GROUP, INC. regarding
the operation and management of 222 South Harbor Boulevard, Anaheim,
California.
4. 5000 East Spring Street Property Management Agreement dated December 14,
1994, by and among 5000 SPRING ASSOCIATES, LLC, ARTHUR GILBERT as TRUSTEE
OF THE ARTHUR GILBERT AND ROSALINDE GILBERT 1982 TRUST, ANAHEIM PROPERTIES
COMPANY, LLC and ARDEN REALTY GROUP, INC. regarding the operations and
management of 5000 East Spring Street, Long Beach, California.
5. Property Management Agreement dated December 23, 1994 by and between 222
HARBOR ASSOCIATES, LLC and ARDEN PACIFIC MANAGEMENT GROUP, INC. regarding
the operation and management of 425 West Broadway, Glendale, California.
6. Management Agreement dated March 27, 1996 by and between MED
PARTNERS/MULLIKIN, INC. and ARDEN REALTY GROUP, INC. regarding the
management of Building "B", 5001 Airport Plaza Drive, Long Beach
California.
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7. Management Agreement dated March 27, 1996 by and between BOARD OF DIRECTORS
OF THE AIRPORT PLAZA OWNERS ASSOCIATION and ARDEN REALTY GROUP, INC.
regarding the operations and management of the common area grounds and
parking facilities located at the Long Beach Airport Business Park, Airport
Plaza Drive, Long Beach, California.
8. Management Agreement dated April 29, 1996 by and between LONG BEACH AIRPORT
BUSINESS PARK II and ARDEN REALTY GROUP, INC. regarding the management of
Building "E", 4801 Airport Plaza Drive, Long Beach, California.
CONTRACTUAL RIGHTS (TO PURCHASE THE FOLLOWING PROPERTIES):
1. 303 North Glenoaks Boulevard, Burbank
2. 12501 East Imperial Highway, Norwalk
OFFICE PERSONAL PROPERTY:
1. Office Furniture and Equipment
2. Telephone System Equipment
3. Data Processing System and Equipment
4. Deposits
TOTAL MINIMUM CONSIDERATION $16,233,537
A-2
<PAGE>
EXHIBIT B
to
CONTRIBUTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, the undersigned hereby assigns, transfers and
conveys to ARDEN REALTY GROUP LIMITED PARTNERSHIP, a Maryland limited
partnership (the "Operating Partnership"), its entire legal and beneficial
right, title and interest in and to the Management Agreements and the
Contractual Rights (as described in Attachment "1" hereto), TO HAVE AND TO HOLD
the same unto the Operating Partnership, its successors and assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership
assumes all obligations in respect of the Management Agreements and the
Contractual Rights.
Executed: __________ __, 1996 ARDEN REALTY GROUP, INC., a
California corporation
By: ____________________________________
Name: __________________________________
Title: _________________________________
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<PAGE>
EXHIBIT C
to
CONTRIBUTION AGREEMENT
BILL OF SALE
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are
hereby acknowledged and acting pursuant to that certain Contribution Agreement
dated as of June 17, 1996 (the "Contribution Agreement"), by and between Arden
Realty Group, Inc., a California corporation and Arden Realty Group Limited
Partnership, a Maryland limited partnership, subject to the terms of the
Contribution Agreement, Arden Realty Group, Inc. hereby conveys, transfers,
assigns, sells and delivers to Arden Realty Group Limited Partnership all of its
right title and interest in and to the following tangible and intangible assets:
(a) the equipment and other Office Personal Property assets (as
referred to in Section 1.1 of the Contribution Agreement) set forth on Schedule
1 to this Bill of Sale; and
(b) the accounts receivable set forth on Schedule 2 to this Bill of
Sale.
Dated effective as of _______ ___, 1996.
ARDEN REALTY GROUP, INC.,
a California corporation
By:_____________________________
Its:____________________________
C-1
<PAGE>
EXHIBIT D
to
CONTRIBUTION AGREEMENT
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
ARTICLE 1 - ADDITIONAL DEFINED TERMS
For purposes of this EXHIBIT D, the following terms have the meanings
set forth below. Terms which are not defined below shall have the meaning set
forth for those terms as defined in the Contribution Agreement to which this
EXHIBIT D is attached:
ACTIONS: Means all actions, complaints, charges, accusations,
investigations, petitions, suits or other proceedings, whether civil or
criminal, at law or in equity, or before any arbitrator or Governmental Entity.
CLAIMS: Means claims, disputes, actions, suits, arbitrations,
proceedings or investigations (collectively "Claims") pending or, to Knowledge,
threatened that directly or indirectly affect the Contributor, the Management
Business or the Management Assets.
CONTRIBUTION AGREEMENT: Means the Contribution Agreement to which
this EXHIBIT D is attached.
KNOWLEDGE: Means, with respect to any representation or warranty so
indicated, the actual knowledge, upon reasonable investigation and inquiry in
good faith, of the signatory to the Contribution Agreement.
LIENS: Means, with respect to any real and personal property, all
mortgages, pledges, liens, options, charges, security interests, restrictions,
prior assignments, encumbrances, covenants, encroachments, assessments, rights
of others, licenses, easements, liabilities or claims of any kind or nature
whatsoever, direct or indirect, including, without limitation, interests in or
claims to revenues generated by such property.
OP UNITS: Shall have the meaning set forth in the OP Agreement.
PERMITTED LIENS: Means (a) Liens, or deposits made to secure the
release of such Liens, securing taxes, the payment of which is not delinquent or
the payment of which is actively being contested in good faith by appropriate
proceedings diligently pursued; and
(b) Liens imposed by laws, such as carriers', warehousemen's and
mechanics' liens, and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith by appropriate proceedings diligently
pursued.
D-1
<PAGE>
PERSON: Means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental entity.
PROSPECTUS: Means the Company's Form S-11 Registration Statement.
REIT SHARES: Shall have the meaning set forth in the OP Agreement.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTOR
The Contributor represents and warrants to the Operating Partnership
as set forth below in this ARTICLE 2. Notwithstanding any other provision of
the Contribution Agreement or this EXHIBIT D, the Contributor makes
representations, warranties and indemnities only with respect to the Management
Assets to be transferred by the Contributor identified on EXHIBIT A to the
Contribution Agreement.
2.1 ORGANIZATION; AUTHORITY. The Contributor (A) if a natural
person, has the legal capacity to enter the Contribution Agreement; if not a
natural person, is duly formed, validly existing and in good standing (to the
extent applicable) under the laws of the jurisdiction of its formation, and (B)
has all requisite power and authority to own, lease or operate its property and
to carry on its business as presently conducted and, to the extent required
under applicable law, is qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the character of its
property make such qualification necessary.
2.2 DUE AUTHORIZATION. The execution, delivery and performance of
the Contribution Agreement by the Contributor has been duly and validly
authorized by all necessary action of the Contributor. The Contribution
Agreement has been duly executed and delivered by the Contributor and
constitutes a legal, valid and binding obligation of the Contributor,
enforceable against the Contributor in accordance with its terms, as such
enforceability may be limited by bankruptcy or the application of equitable
principles.
2.3 CONSENTS AND APPROVALS. No consent, waiver, approval or
authorization of any third party is required to be obtained by the Contributor
in connection with the execution, delivery and performance of the Contribution
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been satisfied prior to the Closing Date.
2.4 OWNERSHIP OF THE MANAGEMENT ASSETS. The Contributor is the sole
owner of the Management Assets and has not pledged, assigned, hypothecated or
otherwise encumbered such Management Assets.
2.5 MANAGEMENT CONTRACTS. To the knowledge of the Contributor, a
true and correct copy of all of the contracts or other understandings, to which
the Contributor is a party or by which the Contributor is bound that relate to
its Management Business (as defined
D-2
<PAGE>
in Recital D), except for contracts or understandings that are not material to
the business and operations of the Management Business (collectively, the
"MANAGEMENT CONTRACTS") has been delivered to or made available to the Operating
Partnership. Each of the Management Contracts is valid and binding on the
Operating Partnership and is in full force and effect in all material respects.
To the knowledge of the Contributor, no party to the Management Contracts has
breached or defaulted under the terms of any Management Contract, except for
such breaches or defaults that would not have a material adverse effect on the
condition, financial or otherwise, or on the earnings, assets, business affairs
or business prospects of the Operating Partnership.
2.6 PERMITS. To the knowledge of the Contributor, the Contributor
has such franchises, certificates, licenses, permits and other authorizations
from government political subdivisions or regulatory authorities (collectively
"PERMITS") as are necessary for the ownership, use, operation and licensing of
the Management Business, except for any Permits for which the failure to possess
would not have a material adverse effect on the condition, financial or
otherwise, or on the earnings, assets, business affairs or business prospects of
the Operating Partnership, and the Contributor is not in violation of any Permit
in any material respect.
2.7 NON-FOREIGN STATUS. The Contributor is not a foreign person,
foreign corporation, foreign partnership, foreign trust or foreign estate (as
defined in the Code), and is, therefore, not subject to the provisions of the
Code relating to the withholding of sales proceeds to foreign persons.
2.8 WITHHOLDING. The Contributor shall execute at Closing such
certificates or affidavits reasonably necessary to document the inapplicability
of any federal or state withholding provisions, including those referred to in
ARTICLE 2.7 above and similar provisions under California law. If Contributor
fails to provide such certificates or affidavits, the Operating Partnership may
withhold a portion of any payments otherwise to be made to the Contributor as
required by the Code or California law.
2.9 INVESTMENT PURPOSES. The Contributor acknowledges his, her or
its understanding that the offering and sale of the OP Units to be acquired
pursuant to the Agreement are intended to be exempt from registration under the
Securities Act of 1933, as amended and the rules and regulations in effect
thereunder (the "ACT"). In furtherance thereof, the Contributor represents and
warrants to the Company as follows:
2.9.1 INVESTMENT. The Contributor is acquiring the OP Units
solely for his, her or its own account for the purpose of investment and not as
a nominee or agent for any other person and not with a view to, or for offer or
sale in connection with, any distribution of any thereof. The Contributor
agrees and acknowledges that he, she or it will not, directly or indirectly,
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of
(hereinafter, "TRANSFER") any of the OP Units unless (i) the Transfer is
pursuant to an effective registration statement under the Act and qualification
or other compliance under applicable blue sky or state securities laws, or (ii)
counsel for the Contributor (which counsel shall be reasonably acceptable to the
Operating Partnership) shall have furnished the Operating Partnership with an
opinion,
D-3
<PAGE>
reasonably satisfactory in form and substance to the Operating Partnership, to
the effect that no such registration is required because of the availability of
an exemption from registration under the Act and qualification or other
compliance under applicable blue sky or state securities laws.
2.9.2 KNOWLEDGE. The Contributor is knowledgeable, sophisticated
and experienced in business and financial matters; the Contributor has
previously invested in securities similar to the OP Units and fully understands
the limitations on transfer imposed by the Federal securities laws and as
described in the Contribution Agreement. The Contributor is able to bear the
economic risk of holding the OP Units for an indefinite period and is able to
afford the complete loss of his, her or its investment in the OP Units; the
Contributor has received and reviewed all information and documents about or
pertaining to the Company, the Operating Partnership, the business and prospects
of the Company and the Operating Partnership and the issuance of the OP Units as
the Contributor deems necessary or desirable, and has been given the opportunity
to obtain any additional information or documents and to ask questions and
receive answers about such information and documents, the Company, the Operating
Partnership, the business and prospects of the Company and the Operating
Partnership and the OP Units which the Contributor deems necessary or desirable
to evaluate the merits and risks related to his, her or its investment in the OP
Units; and the Contributor understands and has taken cognizance of all risk
factors related to the purchase of the OP Units.
2.9.3 HOLDING PERIOD. The Contributor acknowledges that he, she
or it has been advised that (i) the OP Units and the common stock of the Company
into which the OP Units may be exchanged in certain circumstances (the "COMMON
STOCK") must be held indefinitely, and the Contributor must continue to bear the
economic risk of the investment in the OP Units (and any Common Stock that might
be exchanged therefor) unless they are subsequently registered under the Act or
an exemption from such registration is available, (ii) a restrictive legend in
the form hereafter set forth shall be placed on the certificates representing
the OP Units (and any Common Stock that might be exchanged therefor), and (iii)
a notation shall be made in the appropriate records of the Operating Partnership
(and the Company) indicating that the OP Units (and any Common Stock that might
be exchanged therefor) are subject to restrictions on transfer.
2.9.4 ACCREDITED INVESTOR. If the Contributor is an individual,
such individual is an "accredited investor" (as such term is defined in Rule
501(a) of Regulation D under the Act) and as such:
(i) is a director or executive officer of the Company; or
(ii) has an individual net worth, or joint net worth with his or
her spouse, in excess of $1,000,000; or
(iii)had an individual annual adjusted gross income in excess of
$200,000 in each of the two most recent years and reasonably expects to have
annual adjusted gross income in excess of $200,000 in the current year; or
D-4
<PAGE>
(iv) had a joint income with his spouse in excess of $300,000 in
each of the two most recent years and reasonably expects to have an annual
adjusted gross income, with his spouse, in excess of $300,000 in the current
year.
If the Contributor is not an individual, it is an "accredited
investor" (as such term is defined in Rule 501(a) of Regulation D under the
Act).
2.9.5 LEGENDING. Each certificate representing the OP Units (and
any Common Stock that might be exchanged therefor) shall bear the following
legend:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE COMPANY
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE
PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS;
In addition, the Common Stock for which the OP Units might be
exchanged shall also bear a legend which generally provides the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE
CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT
TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
CORPORATION'S CHARTER, (1) NO PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY
OWN SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF 9.0% (BY VALUE OR
BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING
COMMON STOCK OF THE CORPORATION; (2) NO PERSON MAY BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK THAT WOULD RESULT IN THE CORPORATION BEING
"CLOSELY HELD" UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (3) NO PERSON MAY TRANSFER
COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE
CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO
BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR
CONSTRUCTIVELY OWN COMMON STOCK WHICH CAUSES OR WILL CAUSE A PERSON TO
BENEFICIALLY OR CONSTRUCTIVELY OWN COMMON STOCK IN EXCESS OF THE ABOVE
D-5
<PAGE>
LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE
RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE COMMON STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A
TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN
ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND CONDITIONS
SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF
DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY
VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE
OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS
DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS IN THIS
LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE
RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF
COMMON STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY
BE DIRECTED TO THE SECRETARY OF THE CORPORATION.
2.10 NO BROKERS. Neither the Contributor nor any of its respective
officers, directors or employees has incurred or will incur any liability for
any brokerage fees, commissions or finders' fees that have been paid or may
become payable by the Operating Partnership or any of its affiliates to any
broker or finder engaged by or on behalf of any of them or any of their
officers, directors or employees in connection with the transactions
contemplated by the Contribution Agreement.
2.11 COMPLIANCE WITH LAWS. The Contributor has not received any
written or other notice of any violation and, to the knowledge of the
Contributor, there are no such violations, of any applicable zoning regulation
or ordinance, or of any employment, environmental, or other regulatory law,
order, regulation, or requirement relating to the Management Business which,
individually or in the aggregate, would have a material adverse effect on the
condition, financial or otherwise, or on the earnings, assets, business affairs
or business prospects of the Operating Partnership.
2.12 INSURANCE. The Contributor currently has in place the public
liability, casualty and other insurance coverage with respect to the Management
Business as is customary for the conduct of similar businesses. To the
knowledge of the Contributor, each of the insurance policies with respect to the
Management Business is in full force and effect and all premiums due and payable
thereunder have been fully paid when due. The Contributor has not received from
any insurance company any notices of cancellation or intent to cancel any
insurance.
D-6
<PAGE>
2.13 TAXES. The Contributor has filed all tax returns required to be
filed by it and has paid all taxes required to be paid by it. The transactions
contemplated hereby will not result in any tax liability to the Company or the
Operating Partnership. No tax lien or other charge exists or will exist upon
consummation of the transactions contemplated hereby with respect to the
Property except such tax liens for which the tax is not due and has been
reserved for payment by the Contributor or tax liens or other charges which
individually or in the aggregate would not have a material adverse effect on the
Operating Partnership.
2.14 NO VIOLATION. None of the execution, delivery or performance of
the Contribution Agreement and the transactions contemplated hereby does or
will, with or without the giving of notice, lapse of time, or both, (i) violate,
conflict with, result in a breach of, or constitute a default under or give to
others any right of termination or cancellation of (A) the organizational
documents, including the charters and bylaws, if any, of the Contributor, (B)
any material agreement, document or instrument to which the Contributor is a
party or by which the Contributor or its Management Assets are bound or (C) any
term or provision of any judgment, order, writ, injunction, or decree of any
governmental or regulatory authority binding on the Contributor or by which the
Contributor or any of its assets or properties are bound or subject or (ii)
result in the creation of any Lien, other than Permitted Liens, upon the
Management Assets.
2.15 SOLVENCY. The Contributor has been and will be solvent at all
times prior to and immediately following the transfer of the Management Assets
to the Operating Partnership.
2.16 NO MISREPRESENTATIONS. No representation, warranty or statement
made, or information provided, by the Contributor in the Contribution Agreement
or in any other document or instrument furnished or to be furnished by or on
behalf of the Contributor pursuant hereto or as contemplated hereby (i) contains
or will contain any untrue statement of a material fact or (ii) omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading.
ARTICLE 3 - INDEMNIFICATION
3.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; REMEDY FOR BREACH.
(a) Subject to ARTICLE 3.6, all representations and warranties
contained in this EXHIBIT D or in any Schedule or certificate delivered pursuant
hereto shall survive the Closing.
(b) Notwithstanding anything to the contrary in the Contribution
Agreement or this EXHIBIT D, no party hereto shall be liable under this EXHIBIT
D or the Contribution Agreement for monetary damages (or otherwise) for breach
of any of its representations and warranties contained in this EXHIBIT D or the
Contribution Agreement, or in any Schedule,
D-7
<PAGE>
certificate or affidavit delivered by it pursuant thereto, other than pursuant
to the succeeding provisions of this ARTICLE 3.
3.2 GENERAL INDEMNIFICATION.
(a) The Contributor shall indemnify and hold harmless the Operating
Partnership, the REIT, and their affiliates and each of their respective
directors, officers, employees, agents, representatives and affiliates (each of
which is an "INDEMNIFIED PARTY") from and against any and all claims, losses,
damages, liabilities and expenses, including, without limitation, amounts paid
in settlement, reasonable attorneys' fees, costs of investigation and
remediation, costs of investigative, judicial or administrative proceedings or
appeals therefrom, and costs of attachment or similar bonds (collectively,
"LOSSES"), asserted against, imposed upon or incurred by the Indemnified Party
in connection with or as a result of any breach of a representation or warranty
of the Contributor contained in the Contribution Agreement or in any Schedule,
certificate or affidavit delivered by the Contributor pursuant to the
Contribution Agreement.
(b) The Contributor shall indemnify and hold harmless the Indemnified
Parties from and against any and all Losses, asserted against, imposed upon or
incurred by the Indemnified Parties in connection with or as a result of:
(i) all fees and expenses of the Contributor in connection with
the transactions contemplated by the Contribution Agreement;
(ii) any liabilities or obligations incurred, arising from or out
of, in connection with or as a result of the failure of the Contributor to
obtain all consents required to consummate the transactions contemplated by
the Contribution Agreement.
3.3 PAYMENT OF INDEMNIFICATION. The Contributor may satisfy its
obligations hereunder by the prompt delivery (paid promptly as and when expenses
are incurred) to an Indemnified Party of OP Units. Any OP Units delivered to an
Indemnified Party hereunder shall be valued based upon the initial public
offering price of the Company's Common Stock.
3.4 NOTICE AND DEFENSE OF CLAIMS. As soon as reasonably practicable
after receipt by the Indemnified Party of notice of any liability or claim
incurred by or asserted against the Indemnified Party that is subject to
indemnification under this ARTICLE 3, the Indemnified Party shall give notice
thereof to the Contributor, including liabilities or claims to be applied
against the indemnification baskets established pursuant to ARTICLE 3.5 hereof.
The Indemnified Party may at its option demand indemnity under this ARTICLE 3 as
soon as a claim has been threatened by a third party, regardless of whether an
actual Loss has been suffered, so long as the Indemnified Party shall in good
faith determine that such claim is not frivolous and that the Indemnified Party
may be liable for, or otherwise incur, a Loss as a result thereof and shall give
notice of such determination to the Contributor. The Indemnified Party shall
permit the Contributor, at its option and expense, to assume the defense of any
such claim by counsel
D-8
<PAGE>
selected by the Contributor and reasonably satisfactory to the Indemnified
Party, and to settle or otherwise dispose of the same; PROVIDED, HOWEVER, that
the Indemnified Party may at all times participate in such defense at its
expense; and PROVIDED FURTHER, HOWEVER, that the Contributor shall not, in
defense of any such claim, except with the prior written consent of the
Indemnified Party in its sole and absolute discretion, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff in question
to the Indemnified Party and its affiliates a release of all liabilities in
respect of such claims, or that does not result only in the payment of money
damages. If the Contributor shall fail to undertake such defense within 30 days
after such notice, or within such shorter time as may be reasonable under the
circumstances, then the Indemnified Party shall have the right to undertake the
defense, compromise or settlement of such liability or claim on behalf of and
for the account of the Contributor.
3.5 LIMITATIONS ON AND THRESHOLD FOR INDEMNIFICATION UNDER ARTICLE
3.2.
(a) The Contributor shall not be liable under ARTICLE 3.2 hereof
unless and until the total amount recoverable by the Indemnified Parties under
ARTICLES 3.2 hereof exceeds $200,000; PROVIDED, HOWEVER, that once the total
amount recoverable by the Indemnified Parties under ARTICLE 3.2 hereof exceeds
$200,000 in the aggregate, the Contributor's obligation under ARTICLE 3.2 hereof
shall be for the full amount of such obligation.
(b) Notwithstanding anything contained herein to the contrary, the
Contributor shall not be liable or obligated to make payments under this ARTICLE
3 with respect to any Management Assets to the extent such payments in the
aggregate would exceed the value of the OP Units (based upon the initial public
offering price of the Common Stock) received by the Contributor at the Closing.
Notwithstanding anything contained herein to the contrary, the Indemnified
Parties shall look first to the Contributor's OP Units for indemnification under
this ARTICLE 3 and then to the Contributor's other assets.
3.6 LIMITATION PERIOD.
(a) Notwithstanding the foregoing, any claim for indemnification
under ARTICLE 3.2 hereof must be asserted in writing by the Indemnified Party,
stating the nature of the Losses and the basis for indemnification therefor
within one year after the Closing.
(b) If so asserted in writing within one year after the Closing, such
claims for indemnification shall survive until resolved by mutual agreement
between the Contributor and the Indemnified Party or by judicial determination.
Any claim for indemnification not so asserted in writing within one year after
the Closing shall not thereafter be asserted and shall forever be waived.
D-9
<PAGE>
3.7 RESERVATION OF CONTRIBUTOR RIGHTS.
Notwithstanding anything else in this Contribution Agreement to the
contrary, the Contributor reserves unto itself all rights and remedies
(including rights to seek contribution) against any third party owner, occupier,
indemnitor or contributor arising from or occurring out of events relating to
any of the Management Assets prior to Closing for which the Operating
Partnership has been indemnified by the Contributor hereunder.
D-10
<PAGE>
EXHIBIT 10.31
- -------------------------------------------------------------------------------
OFFICE MARKET STUDY
Three Southern California Counties
Los Angeles, Orange, and San Diego Counties
- -------------------------------------------------------------------------------
PREPARED FOR:
ARDEN REALTY GROUP, INC.
9100 Wilshire Boulevard
Beverly Hills, California 90212
As of: December 31, 1995
PREPARED BY
CUSHMAN & WAKEFIELD OF CALIFORNIA, INC.
Valuation Advisory Services
555 South Flower Street, Suite 4200
Los Angeles, California 90071
<PAGE>
[LETTERHEAD]
June 30, 1996
Mr. Victor Coleman
ARDEN REALTY GROUP, INC.
9100 Wilshire Boulevard
Beverly Hills, California 90212
Re: Office Market Study
Three Southern California Counties
Los Angeles, Orange, and San Diego Counties
As Of: December 31, 1995
Dear Mr. Coleman:
At your request Cushman & Wakefield of California, Inc. has completed
the office market study covering the three Southern California counties of
Los Angeles, Orange, and San Diego. The information and analysis contained
in this market study is based on data available as of December 31, 1995, and
does not reflect data or changes subsequent to that date.
This information contained in this market study has been gathered from
sources assumed to be reliable, including publicly available records. Because
records of all transactions are not readily available, the information
contained in the market study may not reflect all transactions occurring in the
geographic area discussed in the market study. In addition, transactions that
are reported may not be described accurately or completely in the publicly
available records. Cushman & Wakefield of California, Inc. is not responsible
for and does not warrant the accuracy or completeness of any such information
derived from such publicly available records.
In connection with this market study, Cushman & Wakefield of California,
Inc. made numerous assumptions with respect to industry performance, general
business and economic conditions, and other matters. Any estimates or
approximations contained herein could reasonably be subject to different
interpretations by other parties. Because predictions of future events are
inherently subject to uncertainty, Cushman & Wakefield of California, Inc. or
any other person cannot assume that such predicted rental rates, absorption,
or other events will occur as outlined or predicted in this market study.
Reported asking rental rates of properties, replacement cost rents or
estimated replacement costs do not purport to necessarily reflect the rental
rates at which properties may actually be rented, actual rents required to
support new development or the actual cost of replacement. In many instances,
asking rents and actual rental rates differ significantly.
<PAGE>
Changes in local, national and international economic conditions will
affect the markets described in this market study. Therefore, Cushman &
Wakefield of California, Inc. can give no assurance that occupancy and
absorption levels and rental rates as of the date of this market study will
continue or that such occupancy levels and rental rates will be attained at
any time in the future. Forecasts of absorption rates, rental activity,
replacement cost rents and replacement costs are Cushman & Wakefield of
California Inc.'s estimates as of the date of this market study. Actual
future market conditions may differ materially from the forecasts and
projections contained herein.
Cushman & Wakefield of California, Inc. is part of a national network of
affiliated companies providing real estate services. As such, from time to
time, Cushman & Wakefield of California, Inc. and its affiliates have
provided and in the future may provide real estate related services,
including brokerage and leasing agent services, to Arden Realty Group, Inc.
or its principals, or may represent Arden Realty Group, Inc., its principals
or others doing business with Arden Realty Group, Inc.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF CALIFORNIA, INC.
James W. Myers, MAI
Senior Director
Valuation Advisory Services
<PAGE>
(Map of Southern California)
LEGEND
1 Los Angeles County
2 Orange County
3 San Diego County
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PAGE
LOS ANGELES COUNTY OFFICE MARKET . . . . . . . . . . . . . . . 1
Los Angeles County Office Market Overview . . . . . . . . . 1
Employment . . . . . . . . . . . . . . . . . . . . . . . . . 8
Services . . . . . . . . . . . . . . . . . . . . . . . . . . 9
LOS ANGELES COUNTY OFFICE MARKET SALES AND INVESTMENT
ACTIVITY . . . . . . . . . . . . . . . . . . . . . . . . . . 13
LOS ANGELES WEST OFFICE MARKET . . . . . . . . . . . . . . . . 14
West Los Angeles Markets . . . . . . . . . . . . . . . . . . 14
Westwood/West Los Angeles Market . . . . . . . . . . . . . . 15
Beverly Hills. . . . . . . . . . . . . . . . . . . . . . . . 20
Century City . . . . . . . . . . . . . . . . . . . . . . . . 22
Miracle Mile Market. . . . . . . . . . . . . . . . . . . . . 23
Culver City And Adjacent Markets . . . . . . . . . . . . . . 28
Los Angeles International Airport (LAX) Submarket (Century
Boulevard) . . . . . . . . . . . . . . . . . . . . . . . . . 30
Market Rental Rates - Westside Los Angeles Markets . . . . . 32
Gross Leasing Activity . . . . . . . . . . . . . . . . . . . 33
Westside Tenant Base . . . . . . . . . . . . . . . . . . . . 33
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . 33
LOS ANGELES NORTH OFFICE MARKET ANALYSIS . . . . . . . . . . . 35
Los Angeles North Office Market . . . . . . . . . . . . . . 35
Tri-City Office Market . . . . . . . . . . . . . . . . . . . 36
Central Valley Market. . . . . . . . . . . . . . . . . . . . 39
Competitive Office Supply and Vacancy - Encino Sherman
Oaks . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
West Valley Market . . . . . . . . . . . . . . . . . . . . . 42
Woodland Hills Market. . . . . . . . . . . . . . . . . . . . 44
Conejo Valley Submarket. . . . . . . . . . . . . . . . . . . 47
Calabasas Market . . . . . . . . . . . . . . . . . . . . . . 49
Westlake Village Market. . . . . . . . . . . . . . . . . . . 51
Conclusion - North Los Angeles Office Sector . . . . . . . . 53
LOS ANGELES SOUTH OFFICE MARKET ANALYSIS . . . . . . . . . . . 54
Los Angeles South Office Market . . . . . . . . . . . . . . 54
Long Beach Market. . . . . . . . . . . . . . . . . . . . . . 54
Long Beach Freeway Submarket . . . . . . . . . . . . . . . . 56
Leasing Activity/Absorption/Tenant Demand. . . . . . . . . . 56
ORANGE COUNTY OFFICE MARKET. . . . . . . . . . . . . . . . . . 59
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Net Office Absorption. . . . . . . . . . . . . . . . . . . . 60
Tri-Freeway Office Sector. . . . . . . . . . . . . . . . . . 61
West County Office Sector. . . . . . . . . . . . . . . . . . 64
SAN DIEGO OFFICE MARKET. . . . . . . . . . . . . . . . . . . . 70
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Regional Overview . . . . . . . . . . . . . . . . . . . . . 70
Downtown Office Market . . . . . . . . . . . . . . . . . . . 71
ADDENDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
<PAGE>
(Map of Southern California)
LEGEND
1 Los Angeles Central
2 Los Angeles West
3 Los Angeles North
4 Los Angeles South
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
LOS ANGELES COUNTY OFFICE MARKET OVERVIEW
SUPPLY AND TENANT DEMAND
According to Cushman & Wakefield's year-end 1995 survey the combined Los
Angeles County office market contained a total inventory of 168,252,296 square
feet. This figure excludes owner--user, medical, and government office
buildings.
The accompanying exhibit provides a statistical overview of the year-end
1995 office inventory for Los Angeles County, including a breakdown by markets.
The markets included in the sectors used in this report are summarized below.
Sector Markets
------ --------
Los Angeles Central/Downtown: Downtown Los Angeles
Mid-Wilshire Corridor
San Gabriel Valley
Los Angeles West: Hollywood/West Hollywood
Beverly Hills/Century City
Westwood/West L.A./Santa Monica
Marina Area/Culver City/LAX
Los Angeles South Bay: El Segundo
Long Beach
Torrance
Los Angeles North: Simi/Conejo Valleys
West San Fernando Valley
Central San Fernando Valley
East San Fernando Valley/Tri-Cities
Each market within the larger markets is comprised of a series of
submarkets. Although the markets and individual office markets compete to
varying degrees on a larger scale for the Los Angeles County tenant base, each
market is characterized independently in general terms by a typical targeted
tenant or industry type. The table below presents a general overview of the
tenant base for the markets.
- -------------------------------------------------------------------------------
1
<PAGE>
<TABLE>
<CAPTION>
LOS ANGELES COUNTY
MARKET & SUBMARKET STATISTICS
END OF THE 4TH QUARTER OF 1995
DIRECT
NUMBER DIRECT VACANCY OVERALL
MARKET/SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE AVAILABILITIES
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
LOS ANGELES 51,544,706 243 11,610,517 22.5% 12,730,532
- ------------------------------------------------------------------------------------------------------------------------------
1 Downtown Los Angeles 36,583,419 109 7,403,905 20.2% 8,378,418
2 Mis-Wilshire Corridor 8,160,278 47 2,612,146 31.9% 2,726,323
3 San Gabriel Valley 6,801,009 87 1,594,466 23.4% 1,625,791
- ------------------------------------------------------------------------------------------------------------------------------
WEST LOS ANGELES 50,014,880 367 9,289,766 18.6% 10,139,060
- ------------------------------------------------------------------------------------------------------------------------------
4 Park Mile/West Hollywoood 9,399,102 76 2,113,365 22.5% 2,218,481
5 Beverly Hills/Century City 14,351,740 89 2,340,143 16.3% 2,600,637
6 Westwood/West Los Angeles 17,304,111 139 2,924,088 16.9% 3,391,103
7 Marina Area/Culver City/LAX 8,959,927 63 1,912,170 21.3% 1,928,839
- ------------------------------------------------------------------------------------------------------------------------------
SOUTH LOS ANGELES 27,336,900 240 4,813,583 17.6% 5,679,308
- ------------------------------------------------------------------------------------------------------------------------------
8 El Segundo 9,424,153 69 1,471,128 15.6% 2,253,783
9 Torrance 7,412,586 82 1,490,376 20.1% 1,521,263
10 Long Beach 10,500,161 89 1,852,079 17.6% 1,904,262
- ------------------------------------------------------------------------------------------------------------------------------
NORTH LOS ANGELES 39,355,810 467 5,682,217 14.4% 6,775,557
- ------------------------------------------------------------------------------------------------------------------------------
11 Simi/Conejo Valley 4,537,562 87 510,332 11.2% 832,609
12 West Valley 8,487,933 96 1,404,681 18.5% 1,697,185
13 Central Valley 8,525,170 111 1,528,178 17.9% 1,729,033
14 East Valley/Tri-Cities 17,805,145 173 2,239,026 12.6% 2,516,730
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL 168,252,296 1,317 31,396,083 18.7% 35,324,457
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OVERALL
VACANCY NET ABSORPTION WTD. AVG.
MARKET/SUBMARKET RATE YTD 1995 RENTAL RATE
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
LOS ANGELES 24.7% (711,752) $18.44
- ----------------------------------------------------------------------------------------------
1 Downtown Los Angeles 22.9% (227,255) $19.40
2 Mis-Wilshire Corridor 33.3% (43,510) $15.98
3 San Gabriel Valley 23.9% (440,987) $18.04
- ----------------------------------------------------------------------------------------------
WEST LOS ANGELES 20.3% 419,123 $20.93
- ----------------------------------------------------------------------------------------------
4 Park Mile/West Hollywoood 23.6% (189,303) $18.80
5 Beverly Hills/Century City 18.1% 317,263 $24.12
6 Westwood/West Los Angeles 19.6% 67,888 $23.88
7 Marina Area/Culver City/LAX 21.5% 223,275 $14.85
- ----------------------------------------------------------------------------------------------
SOUTH LOS ANGELES 20.8% 368,654 $18.14
- ----------------------------------------------------------------------------------------------
8 El Segundo 23.9% 326,730 $17.88
9 Torrance 20.5% (307,739) $17.76
10 Long Beach 18.1% 349,663 $16.64
- ----------------------------------------------------------------------------------------------
NORTH LOS ANGELES 17.2% 196,129 $20.80
- ----------------------------------------------------------------------------------------------
11 Simi/Coejo Valley 18.3% 243,948 $18.36
12 West Valley 20.0% 209,106 $21.60
13 Central Valley 20.3% (181,315) $16.68
14 East Valley/Tri-Cities 14.1% (75,610) $21.61
- ----------------------------------------------------------------------------------------------
TOTAL 21.0% 272,154 $19.56
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
Sector Tenant Base
------ -----------
Los Angeles Central/Downtown Financial
Legal
Telecommunications
Energy
Accounting
Real Estate
Government/Quasi-Government
Los Angeles West: Legal
Accounting
Entertainment
Insurance
Real Estate
Financial Services
Advertising
Los Angeles South: Aerospace
High-Tech
Research & Development
Los Angeles North: Entertainment
Insurance
Legal
Accounting
Engineering
Considerable duplication exists within the office tenant base for the Los
Angeles County office markets. However, the office markets maintain separate
identities in terms of the primary tenancies and relative prestige and
corresponding relative rental rate structures for comparable buildings within
the separate markets. Legal and accounting firms provide considerable tenant
demand within each of the markets, for example, but the type and focus of these
professional firms is directed toward the business base within the sector.
Downtown Los Angeles law and accounting firms consist primarily of larger
national or regional firms oriented toward corporations and government for
example, while westside Los Angeles firms typically are smaller and specialize
in a particular field, such as entertainment law.
HISTORICAL OFFICE DEVELOPMENT
Fundamental shifts occurred in the greater Los Angeles office market
during the past decade. The most significant changes include the exodus of
major insurance companies and corporations from the Mid-Wilshire District to
more suburban locations such as Warner Center and Glendale during the 1980s,
and the movement of some entertainment firms from Hollywood and Beverly Hills
to areas such as Burbank (North Los Angeles), Woodland Hills/Warner Center
(North Los Angeles), or Culver City and Santa
- -------------------------------------------------------------------------------
2
<PAGE>
LOS ANGELES COUNTY
Construction History Chart of Class A and B Buildings
YEAR CENTRAL* WEST** NORTH*** SOUTH TOTAL
- --------------------------------------------------------------------------------
82 4,882,683 1,541,242 838,212 3,999,186 11,261,323
83 2,920,192 3,652,672 1,872,082 2,606,238 11,051,184
84 1,810,809 1,333,243 967,610 3,635,363 7,747,025
85 4,412,902 2,402,687 1,278,203 1,922,112 10,015,904
86 2,913,129 2,964,782 2,334,294 2,789,202 11,001,407
87 3,771,021 3,070,016 874,928 3,169,020 10,844,985
88 1,903,160 702,166 1,835,374 2,490,781 6,931,481
89 2,185,292 2,266,345 1,203,053 1,485,792 7,140,482
90 2,451,345 1,638,153 1,150,463 1,450,521 6,690,483
91 4,824,238 1,485,847 865,615 802,029 7,977,729
92 1,703,355 164,450 30,000 0 1,897,805
93 0 0 0 0 0
94 0 0 0 0 0
95 0 135,000 45,700 0 180,700
- --------------------------------------------------------------------------------
TOTAL 33,778,127 21,358,603 13,295,534 24,350,244 92,780,508
- --------------------------------------------------------------------------------
ANNUAL
AVG 2,412,723 1,525,472 949,681 1,739,303
- --------------------------------------------------
* Including Miracle Mile, Pasadena and Pasadena East
** Excluding Miracle Mile
*** Without Tri-Cities
ANNUAL OFFICE BUILDING
CONSTRUCTION TREND LINE
Los Angeles County
[GRAPH]
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
Monica (West Los Angeles). These shifts have involved relocations within the
Los Angeles County marketplace, and most of the current markets have emerged as
separate, viable office locations during the past decade. The established Los
Angeles County office markets as of 1980 consisted of downtown Los Angeles, the
Mid-Wilshire sector, Pasadena, Beverly Hills, Century City, and the Ventura
Boulevard corridor in the San Fernando Valley. Approximately 55% of the total
existing office development in Los Angeles County has been completed during the
period since 1982.
A number of the current major office markets or submarkets were
effectively created during roughly the past decade. Most of the development in
the following markets (total current supply in parenthesis) has been completed
since 1980: Warner Center (5,325,021 square feet) Burbank/Universal City
(5,517,729 square feet), Glendale (5,052,071 square feet), Brentwood (3,254,337
square feet), Culver City/Westchester (3,643,649 square feet), and Long Beach
(7,419,205 square feet). Much of the development in the Glendale, Burbank,
Culver City, and downtown Long Beach office markets was assisted to varying
degrees by government agencies, including redevelopment agencies. Significant
assistance (political and/or financial) by government agencies has also
increased the office development in previously established markets such as
downtown Los Angeles and Pasadena. Prior to about 1980 several of these
alternative office locations either did not exist or the available supply in
the market was not sufficient to represent serious competition for the
established office markets. The existence of a number of alternative office
market locations within the Los Angeles basin is a significant consideration in
analyzing historical vacancy and rental trends in the individual markets prior
to 1982 for the purpose of projecting future performance.
FUTURE COMPETITIVE SUPPLY
Future competitive office development in the Los Angeles County markets is
restricted by two primary factors: 1) economic conditions - the current
financial infeasibility of most new development and the absence of available
financing for office development of new office properties; and 2) political
conditions - the governmental restrictions limiting new development. Although
the economic factors limiting development, which are based on lending
restrictions and economic infeasibility under current leasing conditions and
effective rental rates, represent the primary reason for limited new
development in the recent, past and near future, the political constraints on
new development as the most significant factor limiting new competitive office
supply in a number of the markets and market for the long term.
1) ECONOMIC CONSTRAINTS
Market rental rates in Los Angeles County submarkets are currently below
(to varying degrees) the levels required to justify new Class A office
development. The current (year-end 1995) weighted average asking rental rate
for all direct office space availabilities in Los Angeles County is $19.56
per-square-foot annually, full service gross. The individual markets have
weighted average rental rates (asking) from $14.85 to $24.12 per-square-foot.
- -------------------------------------------------------------------------------
3
<PAGE>
SUMMARY OF DEVELOPMENT CONSTRAINTS (POLITICAL)
LOS ANGELES AREA OFFICE MARKETS
LOCATION DEVELOPMENT CONTROL
Suburban North
- --------------
Burbank Specific Plan
San Fernando Valley Specific Plan
Ventura Boulevard Specific Plan/Proposition U
Warner Center Specific Plan
Westside
- --------
Park Mile Specific Plan
Miracle Mile Interim Control Ordinance (ICO)
Beverly Hills Restrictive Zoning
Westwood Specific Plan and ICO
Brentwood Proposition U/Specific Plan and ICO
West Los Angeles Proposition U/Traffic Control Ordinances
Santa Monica Restrictive Zoning/Specific Plan
Century City Specific Plans and Traffic Control Ordinance
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
New construction costs for mid to high-rise office buildings vary by
market location and underlying land cost. The relative strength of the markets
in terms of tenant demand and the "spread" between the rents required support
new development and the current market rental levels in the various markets
fluctu-ates considerably, but virtually no new speculative office construction
has occurred in Los Angeles County markets since 1992. Refer to accompanying
exhibit for historical construction activity since 1980. Based on published
cost estimates from MARSHALL VALUATION SERVICE and the following assumptions,
the general Los Angeles area replacement cost for excellent and average quality
Class A office buildings and the corresponding rental rates required for new
development is summarized below.
Class A Office Building Quality
Cost Assumptions Excellent Average
---------------- --------- -------
Average Height: 20 stories 10 stories
Parking Ratio: 3/1000 SF 3/1,000 SF
Parking Facilities: Subterranean Above-Grade Structure
Average Commission: $10 PSF $9 PSF
"Soft" Costs/Traffic Fees $20 PSF $10 PSF
The rounded estimated costs and implied rental rates are shown below.
PSF
Class A Office Building Quality
Excellent Average
--------- -------
Construction Cost New*
(Excludes Land): $260 $160
Net Rent Implied for
10% Return: $ 26 $ 16
Annual Expenses: $ 10 $ 8
---- ----
Implied FSG Rent: $ 36 $ 24
Less: Parking Inc. PSF $ 3 $ 2
---- ----
Total Gross Income: $ 33 $ 22
Adjust for Vacancy
@ % 7.5%: $ 35 $ 24
Implied Replacement
Cost Rents (net of Parking) $ 35 $ 24
*includes parking facilities
The costs and rents above EXCLUDE any value attributable to
the underlying land. The current market rental rate range for
office buildings from "Excellent" to "Average" quality in Los
Angeles County markets is below the level required for new
construction. As
- -------------------------------------------------------------------------------
4
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
noted, the current quoted average ASKING rental range for directly available
space in Los Angeles area office buildings is $19.56 per-square-foot annually.
The highest rental rates for Class A space in Los Angeles County are achieved
in the prime westside markets of Century City, Westwood, and Santa Monica, and
in the Burbank Media District. The best quality buildings in the 20-story
height range in these locations achieve rental rates in the range of $27 to $30
per-square-foot annually on full service gross basis. The 17 to 30 percent
difference between current market rents of $27 to $30 per-square-foot and the
Implied Replacement Cost Rent of $35 per-square-foot annual-ly for excellent
quality office buildings shown in the previous chart provides an indication of
the "spike" in rents that would be required PRIOR TO LAND VALUE CONSIDERATIONS
before new con-struction could be economically justified. The costs and rents
chown in this analysis are illustrative and attempt to show certain
relationships. Other factors not considered here could still result in now
construction. For example, the most recent development activity on several
entitled sites for office devel-opment has involved considerably less dense
retail construction.
2) POLITICAL CONSTRAINTS
Other than the downtown market and the South Los Angeles market area,
nearly every sector of the City of Los Angeles and adjacent suburban cities
with a meaningful office market has implemented restrictions on new
development, tied to political factors, traffic mitigation and other
infrastructure issues. These restrictions will negatively impact the political
feasibility of significant amounts of new office construction under any future
economic office market scenario. The accompanying exhibit summarizes Los
Angeles area markets with meaningful political constraints on development
currently in place or pending. The specific plans are based on automobile
"trips" (costs associated with traffic mitigation costs) or other criteria
(typically tied to infrastructure). The political influence of the homeowner's
groups, which typically have active slow- or no-growth philosophies toward new
development, is strong and has increased considerably during the past decade.
In addition to typical zoning and planning issues, new development of
significant size and scope within specific plan areas will require substantial
additional entitlement fees to be paid prior to approval for new development.
The fees are usually based on the anticipated new traffic generated by a
proposed project, and the costs are assessed based on square footage and use.
The "prime" westside markets, including Westwood, Century City, Brentwood, and
Santa Monica have substantial fees for new development, as does the Miracle
Mile District, and the Ventura Boulevard corridor of the San Fernando Valley
(including Encino and Woodland Hills).
The most significant political constraint on new competitive office supply
in the City of Los Angeles markets has been Proposition U, which was passed in
1986 and down-zoned all Height District I properties in the City of Los
Angeles. Known also as Ordinance No. 161684, Proposition "U" amended the zoning
code for all areas of the City of Los Angeles to include height district
designations ranging from1 to 4, with much of the city downzoned to height
district No. 1. Properties within this designation are limited to a maximum of
3 stories or 45 feet in height. The "wave" in new high-rise construction during
- -------------------------------------------------------------------------------
5
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
the latter portion of the last decade (the 1980's) was in part accelerated by
developers and lenders who hurried high-rise office developments through the
planning and development stages before the sites were downzoned. Properties in
the downtown Los Angeles market area are not within this height classification,
but most other areas of the City have been impacted, including West Los Angeles
and the Ventura Boulevard corridor of the San Fernando Valley. The portions of
the City most directly effected by Proposition U and the specific plans
summarized on the chart are generally the most affluent, prestigious
residential areas, and office buildings in these locations have typically
commanded some of the highest rental rates in the County. These areas also
experienced some of the greatest levels of new development during the previous
decade (1980's). The concerns of the surrounding residential communities over
the increasing traffic and the decline in the overall quality of life has led
to the formation of a number of politically influential homeowner's groups that
can be described as actively anti-development. Although there are some
political and governmental controls on future development in the downtown
market area, the number of projects currently entitled for development or "in
the pipeline" for approval is substantial, and the surrounding residential base
is not as organized, active, or apparently as influential as the more affluent
communities situated in the west and north Los Angeles County markets.
PROBABLE FUTURE DEVELOPMENT ACTIVITY
As discussed above the economic and political constraints on new office
development have resulted in virtually no new office construction in Los
Angeles County markets since 1992. The "spread" between current market rental
rates and the rents required to justify new development varies from submarket
to submarket. The highest rental rates in the county are currently achieved in
the "Tri-Cities" markets and the "prime" westside Los Angeles markets. While
there are several potential speculative office development parcels in these
markets, new multi-tenant development appears to be two or more years in the
future. Owner-user projects such as the proposed Dreamworks animation facility
in Glendale or "redevelopment" projects such as the former Lockheed
"Skunkworks" facility in Burbank for a major entertainment industry tenant are
expected to commence during the second half of 1996. Build-to-suit activity for
Dreamworks studios and related businesses in the Playa Vista area of west Los
Angeles and Glendale may occur during 1997-1998. In terms of speculative
office development potential, however, several potential office sites in prime
locations have remained vacant for a number of years due to market conditions,
and market rental "spikes" will be required before new speculative office
develop-ment can occur.
VACANCY
The landlord-direct vacancy rate for Los Angeles County office markets was
18.7 percent, based on 31,396,083 square feet available for lease at the end of
1995. Our review of the data on a submarket by submarket basis indicates there
are isolated submarkets that experienced considerably lower direct vacancy
levels than the countywide figure, such as Universal City and the Burbank Media
District. Most markets within Los Angeles County, with the exception of the
Tri-Cities area, have direct vacancy rates above 15 percent, and several have
current direct vacancy levels in the range of 20 percent. The
- -------------------------------------------------------------------------------
6
<PAGE>
OFFICE MARKET VACANCY TRENDS
LOS ANGELES COUNTY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Including L.A. Central / Downtown Excluding L.A. Central / Downtown
VACANCY RATES VACANCY RATES
YEAR QUARTER DIRECT SUBLEASE OVERALL DIRECT SUBLEASE OVERALL
- ---------------- -------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1991 4th Qtr 19.0% 3.6% 22.6% 19.2% 3.3% 22.5%
- ---------------- -------------------------------------- ------------------------------------
1992 4th Qtr 19.4% 3.5% 22.9% 18.9% 2.7% 21.6%
- ---------------- -------------------------------------- ------------------------------------
1993 4th Qtr 18.8% 3.8% 22.5% 18.4% 3.0% 21.4%
- ---------------- -------------------------------------- ------------------------------------
1994 4th Qtr 18.7% 3.1% 21.8% 17.3% 2.3% 19.5%
- ---------------- -------------------------------------- ------------------------------------
1995 4th Qtr 18.7% 2.3% 21.0% 17.0% 2.4% 19.4%
- --------------------------------------------------------------------------------------------
</TABLE>
VACANCY RATIO BAR GRAPH
Excluding Los Angeles Central / Downtown Overall Vacancy Rate
[Graph]
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
previous Los Angeles County Office Market Statistics chart illustrates the
vacancy breakdown by sector.
Including sublease availabilities the OVERALL Los Angeles County office
market vacancy level was 21.0 percent as of year-end, 1995. The overall
vacancy level is down from unchanged from the 21.8 percent overall vacancy
level at the end of 1994. The sublease marketplace became a more important
component of the overall office leasing market during the first few years of
this decade, particularly within the downtown Los Angeles market, as the
national economic recession and other factors led to business consolidation and
mergers. Many types of businesses were affect-ed, including major law and
accounting firms, aerospace firms, high-tech firms, energy firms,
telecommunications companies, financial services firms, insurance companies,
and banks and savings and loans. The oversupply of office space during the
first portion of this decade led to additional sublease avail-abilities as
developers assumed existing tenant obligations for space in other buildings
prior to the termination of the tenant's previous lease. Although sublease
space was previously a second-ary competitive marketplace for short-term lease
requirements or tenants with questionable credit ratings, a few office markets
in Los Angeles County have sublease markets that compete effectively with
landlord direct space, which in turn applies additional downward pressure on
rents for direct office space. As shown the exhibit, "Office Market Vacancy
Trends", the overall Los Angeles County market has experienced a slow, gradual
improvement in direct and sublease vacancy levels during the period from fourth
quarter, 1992 through year-end, 1995.
NEAR-TERM VACANCY TRENDS
The Los Angeles Central office sector, which includes the "distressed"
downtown and Mid-Wilshire areas, experienced negative net absorption of 711,752
square feet during 1995. The total Los Angeles County net absorption during
1995 was POSITIVE 272,154 square feet including the impact of the negative
absorption in the Central Los Angeles sector. Excluding Los Angeles Central,
the remainder of the county (the West, South, and North markets) experienced
positive absorption of 983,906 square feet for an inventory of 116,707,590
square feet.
Excluding the Los Angeles Central sector, the chart below shows the
potential trend in overall vacancy levels (including sublease availabilities)
for the remainder of Los Angeles County for the three-year period 1996 through
1998 based on year-end 1995 data. The absorption projection is 1,000,000
(rounded) based on the 1995 figure excluding the Central Los Angeles negative
absorption.
SF Direct SF Net
Year end Inventory Available SF Vacancy Absorption
-------- ----------- ------------ ------- ----------
1995 116,707,590 19,785,566 17.0% ---
1996 116,707,590 18,785,566 16.1% 1,000,000
1997 116,707,590 17,785,566 15.2% 1,000,000
1998 116,707,590 16,785,566 14.4% 1,000,000
- -------------------------------------------------------------------------------
7
<PAGE>
SOUTHERN CALIFORNIA REGION
EMPLOYMENT DATA ('000's)
<TABLE>
<CAPTION>
Finance,
Insurance & Compound
Trans & Real Total Annual
Const. Mfg. Utilities Trade Estate Services Gov't Total Employment Change
- -----------------------------------------------------------------------------------------------------------------
LOS ANGELES
- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR 1980 153.0 938.6 214.1 934.3 382.6 1,134.3 508.0 4,264.9 4,319.0 --
1985 163.0 921.3 225.9 1,024.2 409.6 1,420.4 517.0 4,681.4 4,733.8 1.85%
1990 214.1 894.0 248.5 1,128.8 484.3 1,784.0 572.4 5,326.1 5,378.6 2.59%
1995 169.0 725.5 231.9 999.7 447.3 1,802.5 558.8 4,934.7 4,979.8 -1.53%
2000 169.7 724.1 227.5 990.2 465.2 1,905.6 566.1 5,048.4 5,092.5 0.45%
2010 165.1 717.1 221.4 985.2 499.2 2,100.5 590.6 5,279.1 5,322.7 0.44%
ORANGE
- ------
YEAR 1980 61.4 226.1 31.0 235.7 115.2 247.4 121.4 1,038.2 1,058.4 --
1985 66.4 249.6 39.0 294.6 135.4 354.2 126.1 1,265.3 1,288.2 4.01%
1990 92.6 261.3 45.1 361.4 173.6 486.5 142.7 1,563.2 1,590.9 4.31%
1995 74.0 231.2 45.8 348.9 177.4 538.0 133.5 1,548.8 1,575.5 -0.19%
2000 76.0 245.8 48.8 373.2 198.4 612.5 135.9 1,690.6 1,718.0 1.75%
2010 77.4 265.5 54.6 424.5 240.7 764.2 146.2 1,973.1 2,002.1 1.54%
RIVERSIDE
- ---------
YEAR 1980 16.3 27.0 9.4 53.4 24.7 59.8 50.0 240.6 262.8 --
1985 25.4 30.2 10.9 68.5 25.6 81.3 54.5 296.4 322.3 4.17%
1990 47.1 38.7 15.3 96.7 34.3 125.1 70.3 427.5 456.2 7.20%
1995 40.3 40.2 15.1 106.6 35.0 146.8 71.8 455.8 484.5 1.21%
2000 45.3 44.6 15.7 116.9 37.8 162.6 75.1 498.0 528.0 1.73%
2010 48.5 51.2 17.0 138.3 43.1 193.4 84.4 575.9 607.8 1.42%
SAN BERNARDINO
- --------------
YEAR 1980 19.5 39.9 20.0 73.1 26.9 73.8 80.5 333.7 343.4 --
1985 29.4 42.3 24.4 91.4 25.1 104.5 91.9 409.0 420.4 4.13%
1990 44.2 55.3 29.0 127.6 33.0 150.7 106.7 548.5 558.8 5.86%
1995 37.6 58.5 32.1 142.1 35.8 177.7 110.1 593.9 606.0 1.63%
2000 40.2 65.0 33.7 156.5 38.7 197.3 114.5 645.9 658.0 1.66%
2010 39.0 74.6 36.2 184.2 43.4 232.4 123.3 733.1 745.7 1.26%
SAN DIEGO
- ---------
YEAR 1980 46.5 112.2 31.8 174.6 84.1 217.8 282.7 949.7 979.5 --
1985 63.6 127.6 36.3 220.7 98.5 304.5 286.8 1,137.8 1,166.9 3.56%
1990 83.9 142.3 44.2 282.1 120.2 414.9 315.6 1,403.2 1,435.5 4.23%
1995 73.7 137.1 43.8 281.1 118.5 473.8 301.0 1,429.0 1,460.3 0.34%
2000 83.6 153.1 47.8 314.4 129.4 541.1 303.0 1,572.4 1,604.6 1.90%
2010 98.0 177.5 55.8 387.8 152.7 688.7 318.7 1,879.2 1,913.2 1.77%
VENTURA
- -------
YEAR 1980 11.0 24.9 7.4 43.3 18.7 46.5 45.7 197.5 219.8 --
1985 14.0 29.7 9.2 56.4 20.3 64.8 46.5 240.9 261.9 3.57%
1990 23.0 35.6 13.4 68.1 25.0 91.7 51.0 307.8 331.2 4.81%
1995 19.2 36.0 12.6 70.7 27.1 112.4 51.5 329.5 353.8 1.33%
2000 20.2 40.0 13.4 75.7 29.3 129.6 52.9 361.1 388.2 1.77%
2010 19.1 45.9 14.9 84.7 32.9 162.6 55.4 415.7 441.9 1.36%
</TABLE>
Source: Woods & Poole
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
The chart shows the potential for a continued, gradual decrease in vacancy
levels for the three markets of the county (excluding the Central sector). As
vacancy levels decline overall and within the most desirable submarkets, rental
rates for office space in these markets should logically increase.
The Los Angeles Central Sector, which includes downtown Los Angeles and
the Mid-Wilshire corridor, have experienced generally higher vacancy levels and
lower absorption during the past several years than the remainder of the
county. The historical vacancy trends exhibit includes a column which adjusts
the inventory and availabilities as of year-end 1991 through 1995 to exclude
the Los Angeles Central sector (which contained a combined 51,544,706 square
feet as of year-end 1995). The county-wide overall vacancy rate EXCLUDING these
markets was 19.4 percent, which compares with the 21.0 percent figures
including all markets as of year-end 1995. The direct vacancy rate was 17.0
percent excluding Central Los Angeles.
EMPLOYMENT
The chart on an accompanying page summarizes the employment base for the
six major counties in the Southern California area. Los Angeles County had an
average total employment of 4,979,800 positions in 1995, which accounted for 53
percent of the total employment within the six-county area. The most
significant employment markets in the county include services (36.2 percent),
wholesale/retail trade (20.0 percent), and manufacturing (14.6 percent). Los
Angeles County has a notably higher percentage of employment within the
services and manufacturing markets as compared to the other major counties in
Southern California, which reflects the important concentration of film,
television, and musical production/distribution companies in the region as well
as the ongoing work by major aerospace/defense companies in the Los Angeles
area.
From 1990 to 1995, Los Angeles County endured a 7.5 percent decline in
total employment, due in large part to the decrease of 18.8 percent in the
manufacturing sector which reflected the consolidation within the
aerospace/defense industry. Of the six major counties in Southern California,
only Los Angeles and Orange Counties suffered a decline in total employment
over this five-year period. The U.S. Labor Department reported the January
1996 national unemployment rate at 5.5 percent, which was essentially unchanged
from the year prior level of 5.4 percent. On a statewide basis, the
unemployment rate of 8.3 percent for California was generally unchanged from
the January 1995 level of 8.2 percent. The unemployment rate in Los Angeles
County was 8.2 percent in January 1996, which is notably decreased from the
year prior level and which continues the downward trend in the unemployment
rate for the county over the past 12 to 18 months. Regional economists project
that the unemployment rate on a countywide basis will continue to decline over
the next few years. The anticipated decline in the unemployment rate is based
on the fact that the downsizing by major aerospace/defense companies has been
largely completed and the growth in the services sector is expected to continue
over the next several years.
- -------------------------------------------------------------------------------
8
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
Total employment in Los Angeles County is projected by Woods & Poole to
increase at a compound rate of 0.45 percent per year from 1995 to 2000, which
is notably improved from the past few years but lags the projected employment
growth for the other major counties in Southern California. However, the
forecasted employment growth by Woods & Poole for Los Angeles County is fairly
conservative in comparison to recent projections by the California Employment
Development Department and the Los Angeles County Economic Development
Corporation. Each of these organizations has forecast job growth for Los
Angeles County in the range of 2.0 to 2.5 percent during 1996, with growth
during the period from 1995 to 2000 expected to outpace the national average
employment growth rate.
SERVICES
The services sector has shown the only significant growth in terms of
total employment from 1990 to 1995 in Los Angeles County and Southern
California as a whole. The services sector includes entertainment, healthcare,
business services, lodging, and personal services. Within the services sector,
the entertainment industry has experienced significant growth over the past few
years, both in terms of the worldwide demand for television/film product and
the level of employment. The entertainment industry has emerged as a growing
source of relatively high wage employment within the Los Angeles area and has
surpassed the defense industry in terms of countywide employment. A November
1995 report by the California Employment Development Department indicated that
the total countywide employment in the entertainment industry is estimated at
147,500 jobs, which is increased by nearly 12.5 percent from the July 1994
level of employment. A similar report by the California Department of Finance
estimated the entertainment industry employment figure at 172,000 positions.
The disparity in the reported entertainment employment figures provided by
these two agencies reflects the different methodologies used in collecting the
employment data. However, both sources of data support the very significant
growth within this industry and its increasing role as a catalyst for economic
growth in the Los Angeles area.
The local entertainment industry has recently been investing in new
production facilities in the Hollywood area, West Los Angeles, and the Cities
of Glendale and Burbank in an effort to meet the growing demand for multi-media
products and services. Such leading companies as Walt Disney Company and NBC
Studios in Burbank, MCA in Universal City, Sony Pictures in Culver City, and
the recently formed Dreamworks headed by Steven Spielberg, Jeffrey Katzenberg,
and David Geffen are creating multi-media divisions which will increase the
demand for computer/high technology-oriented positions in the Los Angeles area.
The level of entertainment employment is expected to increase due to the
strong international demand for film product and the ongoing evolution of the
cable television industry.
The second largest category of employment within the services sector is
the health services segment. The field of healthcare has been one of the more
stable industry segments in terms of employment changes over the past few
years. The Los Angeles area is home to some of the most advanced medical and
medical teaching facilities in the
- -------------------------------------------------------------------------------
9
<PAGE>
HISTORICAL NET ABSORPTION
LOS ANGELES COUNTY OFFICE SPACE
- -----------------------------------------------------------------------------
1989 to 1995
- -----------------------------------------------------------------------------
Year NOA (sqft) % Decrease
------ ----------- ------------
1990 8,258,928
1991 2,261,311 -72.6%
1992 (5,207) -100.2%
1993 (248,158) 4665.9%
1994 (997,235) 301.9%
1995 272,154 -127.3%
- ------------------------------------------------------------------------------
TOTAL 9,541,793
- ------------------------------------------------------------------------------
ANNUAL AVERAGE 1,590,299
- ------------------------------------------------------------------------------
HISTORICAL NET OFFICE ABSORPTION
[Graph]
<PAGE>
NET OFFICE ABSORPTION VS LEASING ACTIVITY
LOS ANGELES COUNTY
- -----------------------------------------------------------------------------
Net Office Leasing Net Absorption /
Absorption Activity (SF) Leasing Activity
- -----------------------------------------------------------------------------
1990 8,258,928 18,950,547 43.6%
1991 2,261,311 18,648,618 12.1%
1992 (5,207) 16,905,261 0.0%
1993 (248,158) 17,561,649 -1.4%
1994 (997,235) 17,459,183 -5.7%
1995 272,154 18,535,438 1.5%
- ------------------------------------------------------------------------------
ANNUAL AVERAGE 1,590,299 18,010,116 8.8%
- ------------------------------------------------------------------------------
NET OFFICE ABSORPTION VS LEASING ACTIVITY CHART
[Chart]
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
country, including Cedars-Sinai Medical Center, the City of Hope, and the
University of Southern California and the University of California at Los
Angeles schools of medicine. Reports by industry experts suggest that the Los
Angeles area has an overcapacity of local hospital facilities, which will
result in more consolidation within the industry and/or the closure of
underperforming hospitals over the next few years. However, the impact on total
employment within the county stemming from the anticipated consolidations is
uncertain at the present time.
Employment growth within the services sector is forecast by the Southern
California Association of Governments (SCAG) to be relatively strong from 1995
to 2000. SCAG forecasts the services segment of the employment base to
increase at a compound rate of 3.8 percent per year from 1995 to 2000 for Los
Angeles County, which compares favorably to the projected growth for the total
countywide employment base of 1.6 percent per year from 1995 to 2000. Within
the services sector, the motion picture industry is projected to grow at a
compound rate of 7.7 percent per year from 1995 to 2000, and the business
services segment is projected to grow at a compound rate of 5.2 percent per
year from 1995 to 2000. However, the finance, insurance and real estate sector
(FIRE), which is a separate employment category from the services sector, is
projected to grow at a more modest pace of 0.8 percent per year (compounded)
from 1995 to 2000.
GROSS LEASING ACTIVITY
Cushman & Wakefield defines gross leasing activity as the sum of all
completed leasing transactions including subleasing but excluding renewals.
The accompanying graph illustrates the pattern in net absorption and gross
leasing activity for the combined Los Angeles County office marketplace on a
annual basis since 1990. Over the past six years (1990 through 1995), gross
leasing activity has been relatively stable on an annual basis, averaging
approximately 18 million square feet. The leasing activity includes assumed
leases and other factors, and does not represent net absorption, which is one
indication of new demand.
NET ABSORPTION
Cushman & Wakefield calculates net absorption based on net change in
directly occupied office space. The chart on the accompanying page summarizes
the annual trends in net office absorption for Los Angeles County during the
period 1991 through 1995. A graph compares net office absorption with the
gross leasing activity summarized previously. Net absorption declined sharply
from 1990 to 1992, from positive absorption of 2.3 million square feet in 1991
to negative absorption in 1992. Following negative absorption in 1993 and 1994
county-wide net absorption increased to 272,154 square feet during 1995. The
Los Angeles Central office markets posted substantial negative net absorption
from 1992 to 1995. Excluding Los Angeles Central, the three remaining areas
(West, North and South County), experienced positive net absorption of 983,906
square feet during 1995.
The net absorption figures discussed above are based on the net change in
DIRECT OCCUPIED OFFICE SPACE. This calculation does not include changes in the
sublease
- -------------------------------------------------------------------------------
10
<PAGE>
OFFICE MARKET
NET ABSORPTION TRENDS
LOS ANGELES COUNTY
- -----------------------------------------------------------------------------
Including Los Angeles Excluding Los Angeles
Central / Downtown Central / Downtown
NET ABSORPTION (SF) NET ABSORPTION (SF)
YEAR YTD YTD
- -----------------------------------------------------------------------------
1991 2,261,311 882,518
- -----------------------------------------------------------------------------
1992 (5,207) 251,057
- -----------------------------------------------------------------------------
1993 (248,158) 55,268
- -----------------------------------------------------------------------------
1994 (997,235) 234,566
- -----------------------------------------------------------------------------
1995 272,154 983,906
- -----------------------------------------------------------------------------
NET ABSORPTION BAR CHART
Excluding Los Angeles Central / Downtown
[Chart]
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
availabilities. As discussed under the vacancy subheading the current sublease
availabilities in Los Angeles County total 3,928,374 square feet, or 11.1
percent of the Los Angeles County available (for lease) office supply.
Although several submarkets have substantial sublease availabilities, the
downtown Los Angeles Central Business District represents the greatest single
component of this supply, with approximately 975,000 square feet or 25 percent
of the countywide sublease space. The El Segundo market also has significant
sublease availabilities. As noted previously, however, the sublease supply has
decreased gradually from 3.6 percent at the end of fourth quarter, 1991 to 2.3
percent at the end of 1995.
The chart below shows the cumulative oversupply of office space added to
the Los Angeles County office market since 1990.
SF SF SF
YEAR NEW CONSTRUCTION NET ABSORPTION OVERSUPPLY
---- ---------------- -------------- ----------
1990 6,690,483 8,258,928 (1,568,445)
1991 7,977,729 2,261,311 5,716,418
1992 1,897,805 (5,207) 1,903,012
1993 0 (248,158) 248,158
1994 0 (997,235) 997,235
1995 180,700 272,154 (91,454)
Totals 16,746,717 9,541,793 7,204,924
CONCLUSIONS - LOS ANGELES COUNTY OFFICE MARKET
The commercial office real estate market in Los Angeles has experienced a
significant transformation during roughly the past 20-year period. Los Angeles
has grown from a regional (southern California) business center to a financial
center for the western United States and the international focus for trade and
financial relations with the Pacific Rim countries. The factors influencing
this transformation include global, national, and regional trends and events.
The national and regional economic recession during the period from
roughly the third quarter, 1990 through 1993 exacerbated the oversupply
conditions established during the past decade. The historically strong net new
demand for office space declined significantly, with most office markets
experiencing flat or negative office space absorption during the past few
years. Financing for new speculative developments was virtually unavailable,
but new development continued to 1992 based upon previous construction lending
commitments. About 10 million square feet of new office supply was completed
during 1991 and 1992.
- -------------------------------------------------------------------------------
11
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
Several submarkets in Los Angeles County office market provided signs of
recovery during 1993 and 1994, and have continued to tighten during 1995,
particularly the Tri-Cities and prime westside markets. The level of office
building investment activity increased substantially during the past 24 months
in Los Angeles County. Many submarkets experienced declining direct and
overall vacancy rates during 1994 and 1995. Gross leasing activity remained
stable on a countywide basis, and all markets excluding the Los Angeles Central
Sector experienced positive absorption during 1995. On a submarket by
submarket basis several individual markets appear to be steadily improving and
may experience relatively strong absorption, occupancy and value increases in
the near future.
As shown in previous charts, the Los Angeles County office market,
particularly when the poorly-performing Central sector is isolated from the
remainder of the county, has exhibited positive absorption during 1995 and
appears positioned for a continued, stable improvement in occupancy levels.
The employment growth in several markets, particularly the entertainment
industry includ-ing the film and recording industries), has enabled several
submarkets to outperform the county as a whole during the past several years.
The submarkets which have most directly benifit-ted from the growth of the
entertainment industry include Burbank and Glendale in the North Los Angeles
sector, and the westside markets of Beverly Hills, the Miracle Mile, Century
City, Santa Monica, West Los Angeles, and Culver City. The office locations
adjacent to these submarkets and Class "B" buildings in these submarkets have
benefited from "overflow" demand from entertain-ment industry tenants, and have
also attracted tenants from other businesses who have been driven from Class A
buildings in the prime submarkets by higher rental rates.
- -------------------------------------------------------------------------------
12
<PAGE>
LOS ANGELES COUNTY OFFICE MARKET SALES AND INVESTMENT ACTIVITY
- -------------------------------------------------------------------------------
Cushman & Wakefield tracks office building transactions in Los Angeles
County involving sales or arm's length acquisitions of properties in excess of
50,000 square feet. The table below summarizes the activity in this category
during the past three years.
LOS ANGELES COUNTY OFFICE BUILDING TRANSACTIONS
GREATER THAN 50,000 SF
No. Of Aggregate Average Rounded Average
Year Transactions Sales Price Price/Sale Price PSF
---- ------------ ------------- ------------- ---------------
1993 35 $480 million $13.7 million $84
1994 38 $305 million $ 8.0 million $65
1995 49 $910 million $18.6 million $90
The sales activity during each year included a wide cross section of
buildings in terms of quality, size, tenancy, and market location. The pace
and average pricing for transactions during 1995 demonstrated a substantial
increase above the two prior years, which accurately reflects the growth in the
number of well-capitalized investors interested in Los Angeles County office
product.
The 1995 transactions included 38 sales to investors, one sale to a REIT,
and 10 sales to user-buyers. The predominance of investors rather than
user-buyers represents a continuing trend following the owner-user dominated
marketplace during the first portion of this decade. The overall capitalization
rates (OAR's) for the investor transactions typically ranged from about 8% to
about 14%. These OAR's are calculated based on net operating income (prior to
deductions for commissions and tenant improve-ments) at the time of sale, using
contract rental rates from tenants in place. The substantial range in OAR's is
partially attributable to the differences in occupancy levels at sale and the
relationship between contract and market rent. The OAR range was based on
occupancy at sale, which fluctuates considerably for the transactions, and the
rollover profile for the tenants also has a substantial impact on OAR's.
"Rollover Profile" refers to the timing of the scheduled lease expirations for
the tenants in place.
Exhibits included in the Addenda summarize pertinent charac-teristics of a
cross section of office investment activity in the Los Angeles County West and
North markets during roughly the past year.
- -------------------------------------------------------------------------------
13
<PAGE>
[MAP]
<PAGE>
LOS ANGELES WEST OFFICE MARKET
- -------------------------------------------------------------------------------
WEST LOS ANGELES MARKETS
The Los Angeles West market is comprised of a number of submarkets within
four separate markets. These markets function, to a degree, independently of
one another, despite their close proximity.
The following chart shows the division of the four markets into the
submarkets. The statistics for the Park Mile and Miracle Mile submarkets are
tracked within the Central and the Los Angeles West office sectors by Cushman &
Wakefield's Market Research Group. Prior to 1995 the "Wilshire Center" or
"Mid-Wilshire" submarket was also included within the overall Los Angeles West
office sector, but this submarket was recategorized within the Los Angeles
Central office sector beginning 1995. The accompanying statistical overview of
the "Los Angeles West" sector includes the Miracle Mile and Park Mile
submarkets within the Hollywood/West Hollywood market area of Los Angeles West.
For this market study we have included the Los Angeles Interna-tional Airport
(LAX) submarket within the larger Los Angeles West market area. The LAX
submarket is situated immediately adjacent to the southerly boundary of the
Marina Area/Culver City sector of the Los Angeles West market. As discussed in
the following sections, the gradual tightening of the prime westside submarkets
is expected to result in "overflow" demand for more peripheral westside office
submarket locations such as the LAX area.
Market 1:
---------
1 - Park Mile
2 - Miracle Mile
3 - Hollywood
4 - West Hollywood
Market 2:
---------
5 - Beverly Hills
6 - Century City
Market 3:
---------
7 - Westwood
8 - Brentwood
9 - Santa Monica
10 - Pacific Palisades
11 - West Los Angeles
Market 4:
---------
12 - Marina Del Rey\Venice
13 - Culver City\Westchester\Fox Hills
14 - Los Angeles Airport/LAX
These markets are differentiated according to location and access, market
perception and tenant appeal, improvement quality, and rental rates. The
combined Los Angeles West market contained 50,014,880 square feet of office
area as of the end of 1995 (including LAX). There were 9,289,766 square feet
available for direct lease in the
- -------------------------------------------------------------------------------
14
<PAGE>
LOS ANGELES WEST
MARKET & SUBMARKET STATISTICS
END OF THE 4TH QUARTER OF 1995
<TABLE>
<CAPTION>
NUMBER DIRECT OVERALL NET
OF DIRECT VACANCY OVERALL VACANCY ABSORPTION WTD. AVG.
MARKET / SUBMARKET INVENTORY BLDGS AVAILABILITIES RATE AVAILABILITIES RATE YTD 1995 RENTAL RATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PARK MILE/WEST HOLLYWOOD 9,399,102 76 2,113,365 22.5% 2,218,481 23.6% (189,303) $18.80
- ------------------------------------------------------------------------------------------------------------------------------------
1 Park Mile 1,079,452 11 252,993 23.4% 283,971 26.3% 23,958 $16.23
2 Miracle Mile 4,444,716 20 1,140,562 25.7% 1,163,460 26.2% (242,985) $19.47
3 Hollywood 2,576,475 30 486,686 19.0% 529,186 20.5% 43,438 $15.72
4 West Hollywood 1,298,459 15 231,124 17.8% 241,864 18.6% (13,714) $24.84
- ------------------------------------------------------------------------------------------------------------------------------------
BEVERLY HILLS/CENTURY CITY 14,351,740 89 2,340,143 16.3% 2,600,637 18.1% 317,263 $24.12
- ------------------------------------------------------------------------------------------------------------------------------------
5 Beverly Hills 5,499,685 63 1,100,405 20.0% 1,175,009 21.4% 143,812 $25.08
6 Century City 8,852,055 26 1,239,738 14.0% 1,425,628 16.1% 173,451 $23.28
- ------------------------------------------------------------------------------------------------------------------------------------
WESTWOOD/WEST LOS ANGELES 17,304,111 139 2,924,088 16.9% 3,391,103 19.6% 67,888 $23.88
- ------------------------------------------------------------------------------------------------------------------------------------
7 Westwood 4,084,735 21 579,241 14.2% 618,245 15.1% 172,706 $28.32
8 Brentwood 3,254,337 23 399,587 12.3% 437,312 13.4% 148,907 $24.84
9 Santa Monica 6,005,655 58 1,087,661 18.1% 1,332,163 22.2% (141,470) $25.20
10 Pacific Palisades 160,407 3 36,146 22.5% 26,146 22.5% 7,958 $20.64
11 West Los Angeles 3,798,977 34 821,453 21.6% 967,237 25.5% (120,211) $18.84
- ------------------------------------------------------------------------------------------------------------------------------------
MARINA AREA/CULVER CITY/LAX 8,959,927 63 1,912,170 21.3% 1,928,839 21.5% 223,275 $14.85
- ------------------------------------------------------------------------------------------------------------------------------------
12 Marina Del Rey/Venice/
MarVista 1,104,431 11 142,579 12.9% 142,579 12.9% 92,935 $19.92
13 Culver City/Westchester 3,643,649 32 537,237 14.7% 545,453 15.0% 52,844 $17.28
14 Los Angeles Airport 4,211,847 20 1,232,354 29.3% 1,240,807 29.5% 77,496 $13.20
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 50,014,880 367 9,289,766 18.6% 10,139,060 20.3% 419,123 $20.93
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MARKET SIZE
AVAILABILITIES BAR GRAPH
COMPARISON CHART
[PIE CHART] [GRAPH]
SUBMARKET WEIGHTED AVERAGE
RENTAL RATE COMPARISON CHART
[GRAPH]
<PAGE>
LOS ANGELES WEST OFFICE MARKET
- -------------------------------------------------------------------------------
overall Los Angeles West office market, equating to an 18.6 percent vacancy
rate. Including sublease availabilities, the overall vacancy rate is 20.3
percent. Excluding the LAX submarket the direct and overall vacancy rates for
the Los Angeles West Market at year-end 1995 were 17.2% and 19.3% respectively.
The chart below summarizes the direct and overall vacancy trends as of the end
of the fourth quarter during the past five years. The figures below INCLUDE
the LAX submarket.
FOURTH QUARTER DIRECT VACANCY OVERALL VACANCY
-------------- -------------- ---------------
1991 20.3% 24.6%
1992 20.9% 23.4%
1993 20.6% 23.0%
1994 18.7% 20.3%
1995 18.6% 20.3%
The increase in vacancy stabilized during 1992 - 1993, with slight
declines in both direct and overall availabilities during this period. The
year-end 1995 direct vacancy level of 18.6 percent represents a 2.0 percent
improvement from year-end 1993.
The relevant competitive office submarkets are discussed on the following
pages. Refer to the accompanying map for submarket location.
WESTWOOD/WEST LOS ANGELES MARKET
The Westwood/West Los Angeles office sector includes the following
submarkets: Westwood, Brentwood, Santa Monica, West Los Angeles, and Pacific
Palisades. Quoted annual per-square-foot rents for current available direct
space within this sector have an overall weighted average of $23.88. Of the
total 17,304,111 square feet of existing office space in the overall
Westwood/West Los Angeles office market sector, 2,924,088 square feet of space
was available for lease as of the end of 1995, or 16.9 percent. The overall
vacancy rate including sublease space was 19.6 percent.
- -------------------------------------------------------------------------------
15
<PAGE>
LOS ANGELES WEST OFFICE MARKET
- -------------------------------------------------------------------------------
The breakdown of the current overall vacancy rates for the competitive
submarkets (all classes of office buildings) in this sector is summarized below.
VACANCY RATES
COMPETITIVE SUBMARKETS
YEAR-END 1995
Overall Direct
------- ------
Westwood: 15.1% 14.2%
Brentwood: 13.4% 12.3%
Santa Monica: 22.2% 18.1%
Santa Monica
excluding NME building: 18.1% 13.8%
Pacific Palisades: 22.5% 22.5%
West Los Angeles: 25.5% 21.6%
* Refer to text
The vacancy rates for Westwood and Brentwood have declined steadily during
the past two years, but the Santa Monica vacancy level has increased during
1995. The year-end 1995 direct vacancy rate of 18.1 percent for Santa Monica
compares with the year-end 1994 figure of 10.4 percent. This increase is
somewhat mislead-ing, however, as the data includes the addition of the former
NME headquarters building (2700 Colorado Avenue) to the supply. This
approximately 300,000 square-foot building was previously exclud-ed from the
inventory as it was fully occupied by the ownership (National Medical
Enterprises, now Tenet Healthcare). The addi-tional 300,000 square feet of
vacant space to the existing inventory represents approximately a 5.1 percent
increase in direct vacancy to the prior year's figures.
SANTA MONICA
The primary professional office locations for Class A buildings in Santa
Monica are the downtown submarket and the special office district. The
Wilshire Boulevard corridor extends through a portion of the downtown market,
and there is additional office supply along this corridor to the east of the
downtown submarket. The downtown Santa Monica office district is located
generally south of Wilshire Boulevard and north of Pico Boulevard, between
Ocean Avenue on the west and Lincoln Boulevard on the east. This area includes
several major Class A buildings as well as a number of "boutique" buildings
that have attracted entertainment, advertising, and law firm tenants. This
submarket benefits from the excellent retail and restaurant amenities in
downtown Santa Monica. The special office district has developed from a
primarily industrial neighborhood to a submarket that is dominated by major
low- to mid-rise office developments including the multi-phased 1 million
square foot MGM Plaza (Formerly Colorado Place) and the 665,000 square foot
Phase I of Water Garden. This district is located about one mile southeasterly
of the downtown submarket and the Pacific Ocean, in an area generally northwest
of the Santa Monica Freeway (I-10), and north of Olympic Boulevard between 14th
and 26th Streets.
- -------------------------------------------------------------------------------
16
<PAGE>
LOS ANGELES WEST OFFICE MARKET
- -------------------------------------------------------------------------------
The Class A buildings in this submarket have successfully attracted a number of
larger entertainment, law firm, and corporate tenants such as Aurora (formerly
Executive Life), MGM (200,000 square feet in the MGM Plaza), Candle Corporation
(150,000 square feet in Water Garden) and Haight Brown and Bonesteel (100,000
square feet in Water Garden). The floorplates are generally larger in this
submarket, and the buildings are competitive primarily for the larger tenants
in the market (typically in excess of 5,000 square feet). Entertainment
industry tenants in particular have recently located in the Santa Monica
market, and several entertainment firms are reportedly considering future
locations in this area. The expansion of the movie industry and the tightening
of the office markets in entertainment-dominated locations such as the Burbank
Media District has created substantial "overflow" demand for office space in
desirable demographic locations. The primary beneficiaries of this demand have
been the office markets of Burbank and Glendale in the north Los Angeles market
area, and several of the competitive westside markets, including Santa Monica,
West Los Angeles, Culver City, Westwood, Century City, Beverly Hills, and the
Miracle Mile.
WESTWOOD
The Westwood office market has historically been perceived as a
prestigious submarket within the overall Westwood\West Los Angeles office
market sector. As of year-end, 1995, Westwood contained a total office supply
of 4,084,735 square feet and was experiencing direct and overall vacancy levels
of 14.2 percent and 15.1 percent. The figures represent continued improvement
in comparison with recent years, and compare with a year-end 1993 overall
vacancy rate of approximately 26 percent, and a year-end 1994 overall vacancy
rate of 23.0 percent. The weighted average asking rental rate for direct
availabilities was $28.32 per-square foot, or the highest figure for any Los
Angeles West submarket.
Recent new tenants in the Westwood submarket include Saban Entertainment,
who relocated to 110,000 square feet in 10880 Wilshire Boulevard (renamed
"Saban Plaza" from the Burbank Media District in late 1995. Other significant
tenants in the Westwood market area include Polygram Records, the Jefferies
Group, The Capital Group, Kaufman Broad, and Oppenheimer, as well as a number
of law firms and tenancies related the University of California at Los Angeles
(UCLA), which is located in the Westwo-od submarket. UCLA purchased a major
high rise building in this market during 1993 for its own use.
BRENTWOOD
The Brentwood market is a relatively new office market located directly
west of Westwood and east of Santa Monica. The majority of the 3,254,337
square-foot office inventory has been completed since 1980. Most of the
development is situated along the Wilshire and San Vicente Boulevard corridors.
There were 437,312 square feet available for lease in this office market as of
year-end, 1995, indicating a 13.4 percent overall vacancy level. The direct
vacancy rate was 12.3 percent.
- -------------------------------------------------------------------------------
17
<PAGE>
LOS ANGELES WEST OFFICE MARKET
- --------------------------------------------------------------------------------
Class A buildings in the Brentwood submarket has attracted a number of
advertising tenants, including Needham Harper, Ketchem, and Tracey Locke, and
foreign consulate offices including the Swiss, British, German, Irish, and
Austrian consulates.
WEST LOS ANGELES
The West Los Angeles office submarket (distinguished from the overall Los
Angeles West office market sector) consists primarily of the Olympic Boulevard
corridor, which extends westward from the San Diego Freeway to Santa Monica.
The overall vacancy level in this submarket as of year-end, 1995 was 25.5
percent. The increase in vacancy is partially attributable to the loss of a
major tenant in this submarket (Executive Life, now known as Aurora, which
relocated to Santa Monica), who previously occupied roughly 300,000 square feet
in two Olympic corridor office buildings. In addition, a 150,000 square-foot
building along this corridor was vacated for a significant period due to
earthquake damage, but is still included in the data base for vacancy
calculations.
Also included in this submarket by Cushman & Wakefield's Market Research
Services are office buildings located along the north/south corridors of Bundy
Drive and Sawtelle Boulevard, which are situated west of the San Diego Freeway,
south of the Brentwood submarket. Sawtelle Boulevard parallels the San Diego
Freeway, and is situated between the Olympic Boulevard corridor of West Los
Angeles and the Wilshire Boulevard corridor of the Brentwood submarket. The
West Los Angeles office submarket also includes a number of buildings located
east of the San Diego Freeway, westerly of the Century City and Beverly Hills
submarkets.
The office supply along the Olympic corridor consists of a range of Class
A and Class B office product, while the Sawtelle and Bundy corridors contain
primarily Class B supply. Several of the Olympic Boulevard Class A buildings
were developed during the 1980's with commitments from "equity" tenants, who
signed long term leases in exchange for future participation in building value
increases. The tenant base in this market includes law firms (including several
larger equity tenants) and computer software firms such as Novell,
entertainment-related firms, and financial, real estate, and professional
tenants. Fox acquired a 175,000 square-foot building located on Bundy Drive in
West Los Angeles during 1994 in order to relocate their television studios from
Hollywood.
Several buildings in this submarket have experienced volatile changes in
occupancy and reclassification in the past two years, which has had a
corresponding impact on the vacancy and absorption figures. Some of the more
pertinent activity is discussed below.
Executive Life Insurance was a joint venture development partner and
anchor tenant in two major Class A office buildings along the Olympic Boulevard
corridor. Executive Life was seized by regulators during 1994, and
subsequently vacated its premesis in the two buildings. This activity resulted
in net negative absorption for these buildings of approximately 175,000 square
feet.
- --------------------------------------------------------------------------------
18
<PAGE>
LOS ANGELES WEST OFFICE MARKET
- --------------------------------------------------------------------------------
Olympic Center, which is situated on Olympic Boulevard immediately east of
the San Diego Freeway, was damaged in the Northridge earthquake of January,
1994 and was vacated for repairs during 1995. The 150,000 square-foot building
experienced an occupancy decline due to tenant loss during the repair period
from about 80 percent to 13 percent, or a net negative absorption of nearly
100,000 square feet.
The activity discussed above resulted in a negative absorption of
roughly 275,000 square feet for these three buildings. The impact on the West
Los Angeles submarket 1995 statistics from this activity was substantial. These
three major buildings represent about 16 percent of the total supply in the
West Los Angeles submarket, and the 1995 tenant loss due to a major bankruptcy
and earthquake damage resulted in negative absorption of approximately 275,000
square feet, or about 7.2 percent of the total market supply.
DEMAND/ABSORPTION - WESTWOOD/WEST LOS ANGELES
The chart on the accompanying page summarizes the office building
construction history for the competitive submarkets in this office sector. The
chart illustrates the dramatic increase in new office development that has
occurred in these submarkets since 1980. Prior to 1980 only 33 buildings with
a combined rentable area approximately 4.2 million square feet were completed
in these markets. These figures compare with 102 buildings totalling
approximately 12.9 million square feet that have been completed since 1980.
This dramatic increase in new office construction coincided with a period of
similar new office construction in secondary competitive submarkets throughout
the Los Angeles area. This office sector and several other markets emerged as
separate, identifiable office submarkets during the past decade.
The charts on the following pages summarize the net office space
absorption for the Westwood\West Los Angeles submarkets since 1984. While
absorption levels have slowed considerably during the first portion of the
current decade, however, the cessation in new construction has resulted in a
gradual improvement in the supply and demand balance during this period.
RECENT INVESTMENT ACTIVITY - WESTWOOD/WEST LOS ANGELES
A number of office properties were acquired during the past year in these
submarkets. Pertinent details are summarized in charts included in the Addenda.
Seven office properties ranging in size from about 85,000 to 650,000 square
feet were acquired in the Brentwood, West Los Angeles, Westwood, and Santa
Monica submarkets during the period from February, 1995 through March, 1996.
Per-square-foot prices ranged from about $90 to $250 for properties with
occupancy levels at sale from 75 percent to 97 percent. Estimated overall
capitalization rates ranged from approximately 8.5 percent to 11.7 percent,
based on contract rental rates at occupancy levels at the time of sale.
- --------------------------------------------------------------------------------
19
<PAGE>
HISTORICAL NET OFFICE ABSORPTION
WESTWOOD, BRENTWOOD, WEST LOS ANGELES & SANTA MONICA
- --------------------------------------------------------------------------------
YEAR SQUARE FEET
- --------------------------------------------------------------------------------
1984 1,174,000
1985 1,110,000
1986 578,650
1987 889,832
1988 724,276
1989 814,300
1990 286,600
1991 671,693
1992 371,031
1993 289,211
1994 (163,892)
1995 59,932
- --------------------------------------------------------------------------------
TOTAL SQUARE FEET 6,805,833
AVERAGE ANNUAL ABSORPTION
1984 - 1995 567,153
1990 - 1995 252,463
TOTAL ABSORPTION 6,805,833
- --------------------------------------------------------------------------------
HISTORICAL CHART
[GRAPH]
<PAGE>
WEST LOS ANGELES
OFFICE BUILDING CONSTRUCTION HISTORY
- -----------------------------------------------------------------------------
No. of Total Occupied
Year Buildings Area (SF) Area (SF)
------ ----------- ------------- -----------
1965-1969 2 126,000 120,789
1973-1976 4 470,316 396,458
1980-1989 24 2,899,023 2,033,803
1990-1995 4 303,638 280,690
- -----------------------------------------------------------------------------
TOTAL 34 3,798,977 2,831,740
- -----------------------------------------------------------------------------
AVERAGE PER PERIOD:
1980 - 1989 2.7 322,114 225,978
1990 - 1995 0.8 60,728 56,138
- -----------------------------------------------------------------------------
Proposed 1 97,929 0
CONSTRUCTION ACTIVITY CHART
[Chart]
<PAGE>
BRENTWOOD
OFFICE BUILDING CONSTRUCTION HISTORY
- -----------------------------------------------------------------------------
No. of Total Occupied
Year Buildings Area (SF) Area (SF)
------ ----------- ------------- -----------
1968 1 53,698 53,698
1970-1978 7 669,453 586,675
1981-1989 14 2,471,186 2,116,652
1990-1995 1 60,000 60,000
- -----------------------------------------------------------------------------
TOTAL 23 3,254,337 2,817,025
- -----------------------------------------------------------------------------
AVERAGE PER PERIOD:
1981 - 1989 1.8 308,898 264,582
1990 - 1995 0.2 12,000 12,000
CONSTRUCTION ACTIVITY CHART
[Chart]
<PAGE>
WESTWOOD
OFFICE BUILDING CONSTRUCTION HISTORY
- -----------------------------------------------------------------------------
No. of Total Occupied
Year Buildings Area (SF) Area (SF)
------ ----------- ------------- -----------
1965 1 271,082 232,034
1970-1972 4 1,246,405 1,080,416
1981-1989 15 2,291,248 1,982,274
1990-1995 1 276,000 171,766
- -----------------------------------------------------------------------------
TOTAL 21 4,084,735 3,466,490
- -----------------------------------------------------------------------------
AVERAGE PER PERIOD:
1981 - 1989 1.9 286,406 247,784
1990 - 1995 0.2 55,200 34,353
CONSTRUCTION ACTIVITY CHART
[Chart]
<PAGE>
SANTA MONICA
OFFICE BUILDING CONSTRUCTION HISTORY
- -----------------------------------------------------------------------------
No. of Total Occupied
Year Buildings Area (SF) Area (SF)
------ ----------- ------------- -----------
1930 1 63,774 55,700
1955 1 159,817 150,853
1961-1969 4 463,207 439,751
1974-1979 10 720,207 655,914
1980-1989 31 3,289,850 2,178,734
1990-1995 11 1,309,250 1,192,990
- -----------------------------------------------------------------------------
TOTAL 58 6,006,105 4,673,942
- -----------------------------------------------------------------------------
AVERAGE PER PERIOD:
1980 - 1989 3.4 365,539 242,082
1990 - 1995 2.2 261,850 238,598
- -----------------------------------------------------------------------------
Proposed 4 1,533,237 130,000
CONSTRUCTION ACTIVITY CHART
[Chart]
<PAGE>
LOS ANGELES WEST OFFICE MARKET
- --------------------------------------------------------------------------------
BEVERLY HILLS
COMPETITIVE SUPPLY -- BEVERLY HILLS
The existing Beverly Hills office inventory is situated in four primary
submarkets, delineated according to location.
* The East Wilshire area--buildings located between
8380 and 8920 Wilshire Boulevard.
* The Golden Triangle--buildings located in the area
bordered by Wilshire Boulevard, Canon Drive and
Santa Monica Boulevard, especially in the "Wilshire
Corridor" between 9301 and 9777 Wilshire Boulevard.
This is considered the most prestigious location in
Beverly Hills.
* The Central Wilshire area--buildings located
between 8920 and 9301 Wilshire Boulevard.
* The Beverly Hills-Peripheral area--buildings not
located in the Golden Triangle or on Wilshire
Boulevard, primarily in the northeast portion of the
Beverly Hills commercial market.
The Beverly Hills office market contains 5,499,685 square feet, and has an
overall vacancy rate of 21.4 percent (as of the end of 1995). The direct
vacancy rate (excluding sublease space) is 20.0 percent.
The "Golden Triangle" submarket of Beverly Hills is recognized as one of
the most desirable commercial locations in the United States. Other Beverly
Hills submarkets are considered less desirable than the Triangle, and office
and retail rental rates in the Triangle are among the highest in southern
California.
Buildings located in the Triangle achieve higher rental rates than
otherwise similar building located in other areas of Beverly Hills. An
accompanying exhibit provides an overview of the pertinent characteristics of
the 21 primary office buildings located in the Golden Triangle submarket of
Beverly Hills. The 21 buildings range in size from about 35,000 square feet to
212,000 square feet, with a combined rentable area of 2,131,946 square feet.
Quoted per-square-foot annual rental rates for direct space range from $16.20
to $42.00 full service gross. Excluding basement space and two less desirable
suites, quoted rents range from $19.80 to $42.00 annually, with a predominate
range from $24.00 to $36.00 per-square-foot. The overall occupancy level for
the 21 buildings in the Triangle submarket is 73.7 percent.
The accompanying chart summarizes the historical construction activity for
office buildings in Beverly Hills. Although a number of sites could potentially
be developed, no meaningful new office developments are currently planned in
the Beverly Hills market for the near future.
- --------------------------------------------------------------------------------
20
<PAGE>
"GOLDEN TRIANGLE" OF BEVERLY HILLS
COMPETITIVE OFFICE BUILDINGS
RENTAL AND OCCUPANCY SURVEY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Building Information Overall Quoted Occupancy
Item Building Name / No. of Area Avg. Flr. Year Available Space (SF) Availabilty Annual Rent Lease Ratio
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF) PSF PSF Type (Incl. SL)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Beverly Atrium 3 47,000 15,667 1989 Ground 0 0 88.6%
350 S. Beverly Drive 3 5,374 0 Total $27.60-$27.60 FSG
5,374 0 5,374
R-2 Wells Fargo Bank Bldg. 12 177,300 14,775 1972 Ground 0 0 74.9%
433 N. Camden Drive 4 - 9 44,491 0 Total $25.80-$28.20 FSG
R-3 Wilshire Rodeo Plaza South 3 70,000 23,333 1985 Ground 0 0 4105 75.1%
131 S. Rodeo Drive 2 - 3 17,438 0 Total $28.80-$29.40 FSG
17,438 0 17,438
R-4 Village On Canon 3 62,000 20,667 1989 Ground 0 0 77.7%
301 N. Canon Drive 2 - 3 2,784 11,052 Total $30.00-$30.00 FSG
2,784 11,052 13,836
R-5 450 N. Roxbury Dr. Bldg. 10 101,957 10,196 1972 Ground 7,023 0 $27.00-$29.40 FSG 50.3%
450 N. Roxbury Dr. 2 - 10 43,664 0 Total $27.00-$29.40 FSG
50,687 0 50,687
R-6 Bank of America Bldg. 8 74,069 9,259 1974 Ground 0 0 95.2%
9440 Santa Monica Blvd. 3 - 7 3,525 0 Total $29.40-$29.40 FSG
3,525 0 3,525
R-7 Wilshire At Elm 3 47,745 15,915 1989 Ground 0 0 100.0%
9320 Wilshire Blvd. 0 0 0 Total
0 0 0
R-8 Wilshire Crescent Building 4 108,452 27,113 1989 Ground 23,716 0 $29.40-$29.40 FSG 0.0%
9333 Wilshire Blvd. 1 - 3 84,736 0 Total $29.40-$29.40 FSG
108,452 0 108,452
R-9 Beverly Hills Financial Cntr. 12 127,000 10,583 1971 Ground 7,193 0 $42.00-$42.00 FSG 83.5%
9401 Wilshire Blvd. 5 - 12 13,810 0 Total $25.80-$27.60 FSG
21,003 0 21,003
R-10 Sterling Plaza 6 50,000 8,333 1950 Ground 13,000 0 $36.00-$36.00 FSG 34.0%
9441 Wilshire Blvd. renov. 1991 2 - 5 20,000 0 Total $36.00-$36.00 FSG
33,000 0 33,000
R-11 Glendale Federal Bldg. 11 155,270 14,115 1971 Ground 12,660 0 $26.40-$28.68 FSG 80.1%
6454 Wilshire Blvd. 2 - 9 18,312 0 Total $26.40-$28.68 FSG
30,972 0 30,972
R-12 Union Bank Bldg. 9 81,000 9,000 1960 Ground 0 0 97.7%
9460 Wilshire Blvd. 4 1,866 0 Total $16.80-$16.80 FSG
1,866 0 1,866
R-13 Wilshire Beverly Center 9 153,754 17,084 1962 Ground 0 0 22.0%
9465 Wilshire Blvd. 2 - 9 120,000 0 Total $24.00-$30.00 FSG
120,000 0 120,000
R-14 Wilshire Rodeo Plaza 5 48,000 9,600 1985 Ground 0 0 93.2%
9536 Wilshire Blvd. 2 - 4 3,276 0 Total $24.00-$26.40 FSG
3,276 0 3,276
R-15 9560 Wilshire Blvd. Bldg. 6 90,000 15,000 1982 Ground 0 0 100.0%
9560 Wilshire Blvd. 0 0 0 Total
0 0 0
R-16 Wallace Moir Bldg. 10 145,000 14,500 1972 Ground 14,034 0 $19.80-$19.80 FSG 86.1%
9595 Wilshire Blvd. 3 6,134 0 Total $19.80-$19.80 FSG
20,168 0 20,168
R-17 Heitman Centre 8 211,845 26,481 1962 Ground 7,373 0 $24.00-$27.00 FSG 94.2%
9601 Wilshire Blvd. 6 4,908 0 Total $24.00-$27.00 FSG
12,281 0 12,281
R-18 9665 Wilshire Blvd. Bldg. 10 138,000 13,800 1972 Ground 0 0 $27.00-$30.00 FSG 89.3%
9665 Wilshire Blvd. 5 - 10 7,240 7,500 Total $27.00-$30.00 FSG
7,240 7,500 14,740
R-19 One Roxbury Plaza 12 100,154 8,346 1973 Ground 3,079 0 $27.00-$30.00 FSG 59.2%
9701 Wilshire Blvd. 9 - 12 37,810 0 Total $27.00-$30.00 FSG
40,889 0 40,889
R-20 Home Federal Bldg. 8 35,900 4,488 1970 Ground 0 0 97.2%
9720 Wilshire Blvd. Bsmt 1,000 0 Total $16.20-$26.40 FSG
1,000 0 1,000
R-21 Imperial Bank Bldg. 10 107,500 10,750 1965 Ground 3,157 0 $27.00-$27.00 FSG 83.4%
9777 Wilshire Blvd. 6 - 9 14,644 0 Total $27.00-$27.00 FSG
17,801 0 17,801
- ------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 162 2,131,946 13,160 542,247 18,552 560,799 73.7%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
[Chart]
<PAGE>
LOS ANGELES WEST OFFICE MARKET
- --------------------------------------------------------------------------------
The City of Beverly Hills zoning laws impose a three-story height limit
for all new commercial development, so the existing mid- and high-rise office
buildings in this market are considered "legal, non-conforming uses".
LABOR BASE/ABSORPTION AND TENANT DEMAND - BEVERLY HILLS
The City of Beverly Hills ranks first among all cities and communities in
the Los Angeles metropolitan area in terms of percentage of homeowner,
executives, and professional workers. The upper range of purchasing power in
southern California is concentrated in Beverly Hills and the immediately
adjacent area. The 1995 average household income in Beverly Hills was
approximately $120,000. The labor base includes the world headquarters
location for 18 publicly held corporations. According to city offices, the
employment base in Beverly Hills is approximately 80,000, which compares with
the population of about 32,000.
The office tenant demand for Beverly Hills office space is dominated by
the services sector, with the financial, insurance, real estate and
entertainment industries representing the most significant sources of
employment and tenant demand. The entertainment industry represents a
substantial employer in Beverly Hills, including talent agencies (William
Morris, ICM, Creative Artists) and production firms as well as publishing
(Playboy and Flynt). Litton Industries/Western Atlas and Hilton Hotels have
corporate headquarters in Beverly Hills, and financial service/brokerage firms
in the market include Dean Witter, Merrill Lynch, Paine Webber, Shearson, and
Kennedy Cabot. Banks with offices in Beverly Hills include Bank of America,
City National, Glendale Federal, and Wells Fargo. The medical profession is
also well represented as an employer in Beverly Hills. Although there are no
hospitals within the city limits, Cedars-Sinai Medical Center (1,000 beds) is
located immediately adjacent to the eastern border of the city, and there are a
number of medical buildings situated throughout the Beverly Hills market.
The accompanying chart summarizes the net absorption figures for the total
Beverly Hills office market for the most recent 10 year period 1986 through
1995. When compared with the construction history exhibit, the chart indicates
the recent decline in demand for new office space in Beverly Hills during the
first portion of this decade followed a relatively significant amount of new
construction. The total oversupply of new space from 1990 through 1995
resulting from new construction and negative absorption was 489,647 square
feet. Beverly Hills experienced positive net absorption of 143,812 square feet
during 1995.
RECENT INVESTMENT ACTIVITY - BEVERLY HILLS
Five office properties ranging in size from about 65,000 to 260,000 square
feet were acquired in the Golden Triangle submarket during the period from
September, 1994 through February, 1996. Per-square-foot prices ranged from
about $175 to $310 for properties with occupancy levels at sale from 10 percent
to 95 percent. Estimated overall capitalization rates (excluding the 10 percent
occupied building) ranged from approximately 8.5 percent to 12 percent, based
on contract rental rates at occupancy levels at the time of sale, with most of
the overall rates in the range from 8.5 to 9.5 percent.
- --------------------------------------------------------------------------------
21
<PAGE>
BEVERLY HILLS
OFFICE BUILDING CONSTRUCTION HISTORY
- -------------------------------------------------------------------------------
NO. OF TOTAL OCCUPIED
YEAR BUILDINGS AREA (SF) AREA (SF)
------ ----------- ------------- -----------
1900 1 182,000 147,000
1920 1 40,000 40,000
1950-1958 7 265,078 218,163
1960-1969 18 1,341,759 971,277
1971-1978 14 2,024,498 1,644,262
1980-1989 18 1,307,025 998,852
1990-1995 4 339,325 305,122
- -----------------------------------------------------------------------------
TOTAL 63 5,499,685 4,324,676
- -----------------------------------------------------------------------------
AVERAGE PER PERIOD:
1980 - 1989 2.0 145,225 110,984
1990 - 1995 0.8 67,865 61,024
- -----------------------------------------------------------------------------
Proposed 4 118,810 10
CONSTRUCTION ACTIVITY CHART
[Chart]
BEVERLY HILLS
HISTORICAL NET OFFICE ABSORPTION
- ------------------------------------------------------------------
YEAR SQUARE FEET
- ------------------------------------------------------------------
1986 107,000
1987 127,000
1988 191,000
1989 262,400
1990 (279,780)
1991 (169,399)
1992 112,282
1993 (2,818)
1994 45,581
1995 143,812
- ------------------------------------------------------------------
TOTAL SQUARE FEET 537,078
AVERAGE ANNUAL ABSORPTION
1986 - 1995 53,708
1990 - 1995 -25,054
TOTAL ABSORPTION
1990 - 1995 -150,322
- ------------------------------------------------------------------
HISTORICAL CHART
[CHART]
<PAGE>
LOS ANGELES WEST OFFICE MARKET
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CENTURY CITY
COMPETITIVE SUPPLY - CENTURY CITY
The Century City office submarket contains 8,852,055 rentable square feet
of office space in 26 buildings, or the most of any submarket in the West Los
Angeles area. The size of this submarket combined with its desirable location
has made Century City the dominant Westside office market, both in terms of
rents and the quality of tenants. The market is dominated by law firm and
entertainment tenants.
The best office properties in the Century City submarket achieve the
highest per-square-foot rental rates of any buildings on the Westside. Quoted
annual per-square-foot rental rates within Century City average $23.28
per-square-foot annually. The direct vacancy rate for Century City office
properties as of the end of 1995 is 14.0 percent. Including sublease
availabilities the overall vacancy level is 16.1 percent. The year-end 1994
direct and overall vacancy levels were 16.4 percent and 17.8 percent,
respectively, which shows significant improvement for this submarket.
The Century City office market can be divided into three basic tiers: 1)
new Class A high rise buildings, 2) older Class A high rise buildings, and 3)
low rise buildings. The 2.2 million square-foot Century Plaza Towers is the
most prestigious of the older Class A high rise buildings, and is a Century
City landmark. The twin triangular towers are the tallest buildings in Century
City, and were regarded as the area's most desirable office location until the
construction of Fox Plaza in 1987. Fox Plaza and 1999 Avenue of the Stars are
currently the premier buildings in the Century City market, and have been
successful in drawing tenants from second tier Century City buildings.
The other major high rise projects include Century City North, Watt Plaza,
Northrop Plaza, the 1888 Building, Century Park Plaza. Low rise buildings
generally do not compete directly with high rise offices in this market, and
comprise only a small percentage of the total Century City office space.
HISTORICAL CONSTRUCTION ACTIVITY - CENTURY CITY
The chart on the accompanying page summarizes the historical construction
activity for major office buildings in Century City since 1963. Construction
activity averaged about 122,549 square feet per year over the last 31 years.
Development has been very erratic, however, ranging from a high of 1,925,000
square feet constructed in 1975 to no new construction in years 1965-1967,
1974, 1976, 1977-1980, 1982, 1985 to 1986, 1988, 1989, and 1991-95.
LABOR BASE/TENANT DEMAND AND ABSORPTION - CENTURY CITY
The Century City office market is dominated by the services sector,
including law firms and accounting firms, and entertainment industry tenants.
Major law firm tenants with premises over 50,000 square feet include O'Melveny
& Myers, Irell & Manella, Greenber Glusker et al, Gibson Dunn & Crutcher, Cox
Castle, Nicholson, Christensen, White et al, Sidley & Austin, and Stroock &
Stroock. Accounting firms with major offices in Century City include
Levanthal, Ernst & Young, Deloitte & Touche, Peat Marwick, and Price
- --------------------------------------------------------------------------------
22
<PAGE>
CENTURY CITY
OFFICE BUILDING CONSTRUCTION HISTORY
------------------------------------------------------------------
NO. OF TOTAL OCCUPIED
YEAR BUILDINGS AREA (SF) AREA (SF)
------------------------------------------------------------------
1963-1969 5 1,603,418 1,302,825
1970-1979 12 4,398,778 3,545,067
1981-1989 7 2,040,087 1,800,611
1990-1995 2 809,772 777,924
------------------------------------------------------------------
TOTAL 26 8,852,055 7,426,427
------------------------------------------------------------------
AVERAGE PER PERIOD:
1963 - 1979 5.8 1,878,342 1,524,392
1980 - 1995 7.1 2,094,072 1,852,473
------------------------------------------------------------------
Proposed 1 875,000 0
CONSTRUCTION ACTIVITY CHART
[CHART]
<PAGE>
CENTURY CITY
HISTORICAL NET OFFICE ABSORPTION
------------------------------------------------------
YEAR SQUARE FEET
------------------------------------------------------
1986 399,000
1987 358,000
1988 108,000
1989 (89,600)
1990 278,840
1991 126,859
1992 (258,913)
1993 48,648
1994 81,205
1995 173,451
------------------------------------------------------
TOTAL SQUARE FEET 1,225,490
AVERAGE ANNUAL ABSORPTION
1986 - 1995 122,549
1990 - 1995 75,015
TOTAL ABSORPTION
1990 - 1995 450,090
------------------------------------------------------
HISTORICAL CHART
[CHART]
<PAGE>
LOS ANGELES WEST OFFICE MARKET
- --------------------------------------------------------------------------------
Waterhouse. The major entertainment owner/tenant in this submarket is 20th
Century Fox, who owns a 53-acre parcel in the southerly portion of Century
City, and also leases in excess of 200,000 square feet in Fox Plaza. Fox has
obtained approvals for a major redevelopment and expansion of its existing
studio site in Century City, but the terms of the agreement prohibit
development for other tenants. Fox also recently acquired Prime Ticket (now
Prime Sports), which has a headquarters location in Century City. Other major
entertainment tenants in Century City include ABC, HBO, TNT, and Orion.
Corporate tenants include Northrop, with a world headquarters location in
Century City, Princess Cruises, and Herbalife International, which recently
relocated from the LAX market to Century City.
The average annual net absorption for Century City over the last 10 years
is 122,549 square feet. The historical net absorption for the Century City
market is summarized on an accompanying page. The submarket experienced
positive net absorption of 173,451 square feet during 1995.
DEVELOPMENT CONTROLS - CENTURY CITY
Development in Century City is controlled by the Century City Specific
Plans (North and South). These plans control development by regulating the
total number of automobile trips which can be generated by a new project. The
plan also increases street capacity by requiring developers to complete public
improvement projects for traffic mitigation and pedestrian flow. The plan is
divided into two phases (Phase I and II), and provides specific detail on a
parcel-by-parcel basis of existing and future development rights. The plan
permits (with limitations) the transfer of development rights between parcels,
but virtually all remaining trips (sufficient to develop an office tower of
approximately 800,000 square feet) are allocated to a single site as of
year-end 1995. Plans to develop an office tower on the property were submitted
in 1991, but no activity has occurred. The timing for the project, the
entitlement cost and the probability the property will eventually be developed
are not clear. Although this property represents the last potential high-rise
site in the "prime" westside markets, lower density retail uses may be the
eventual use for these remaining development rights.
MIRACLE MILE MARKET
The Miracle Mile submarket is generally considered a part of the larger
Wilshire District, which includes the Park Mile and Mid-Wilshire submarkets to
the east. Office buildings in this location compete most directly with other
comparable quality properties in the Miracle Mile. The Miracle Mile submarket
also competes to a lesser degree with office buildings located in the more
prestigious westside Los Angeles markets to the west, including Beverly Hills,
Century City, Westwood, Brentwood, and Santa Monica. The Miracle Mile benefits
from its proximity to Beverly Hills and the entertainment industry influences
associated with the nearby submarkets of Hollywood and West Hollywood, as well
as the CBS Television Studios, which are located in the Miracle Mile.
Buildings in this location can also compete for tenants located in the less
desirable submarkets located to the east of the Miracle Mile, including Park
Mile, and the Mid-Wilshire District.
- --------------------------------------------------------------------------------
23
<PAGE>
LOS ANGELES WEST OFFICE MARKET
- --------------------------------------------------------------------------------
The Wilshire District market consists primarily of office buildings
located along the Wilshire corridor in the area bounded generally by Melrose
Avenue on the north, Hoover Street on the east, Pico Boulevard on the south,
and by San Vicente Boulevard on the west. The Wilshire District is comprised
of three submarkets, with the following approximate boundaries: 1-
Mid-Wilshire/Wilshire Center (Hoover Street to Western Avenue); 2 -Park Mile
(Wilton Place to Highland Avenue); and 3-Miracle Mile (Highland Avenue to San
Vicente Boulevard). These three submarkets extend from downtown Los Angeles on
the east to Beverly Hills on the west.
MID-WILSHIRE/WILSHIRE CENTER
This submarket is located immediately west of downtown Los Angeles, and is
the second largest submarket in the larger westside Los Angeles office market
(Century City is first). The existing supply of office product in this market
consists primarily of fair to average quality buildings completed more than 20
years ago.
PARK MILE
The Park Mile location is unique in the westside Los Angeles office market
because of limitations that have historically been placed on development in
this area. Two primary factors have contributed to the limited development in
this district: 1- deed restrictions encumbered many properties and were
enforced prior to 1970 (although several mid-rise buildings were developed
under special conditions); and 2- the implementation of the Park Mile Specific
Plan in 1980. The specific plan was adopted with the stated objective of
protecting the character of the existing low density, single-family residential
development, and promoting a park-like setting which would contrast with the
adjoining Wilshire Center and Miracle Mile Districts. The significant
provisions of the plan for commercial development limit buildings to a
three-story, 45-foot height in conjunction with a 1.5:1 density and 50 percent
coverage (with some exceptions for subterranean parking and roof-top gardens).
The plan also 1) requires specific landscaping development, including shade
trees of specified minimum height, width, number, and location; 2) requires a
minimum of three parking spaces per 1,000 square feet of gross building area,
to be provided FREE OF CHARGE to tenants and visitors; and 3) includes specific
signage criteria for buildings. Buildings completed prior to the 1980 specific
plan are exempt from these requirements.
The Park Mile Specific Plan has successfully promoted the stated
objectives. The community includes the surrounding affluent residential areas
of Windsor Park, Hancock Park, and Fremont Place, and the predominantly
low-rise, good quality commercial/office development along the Wilshire
corridor in Park Mile contrasts sharply with the commercial and residential
development in the Wilshire Center District to the east and the Miracle Mile
District to the west. Many of the buildings in the market are occupied by the
owners, with Farmer's Insurance the largest single user.
MIRACLE MILE
The Miracle Mile submarket contains a total office inventory of 4,444,716
square feet. The overall vacancy level as of the end of the 1995 was 26.2
percent. Excluding sublease availabilities the direct vacancy level was 25.7
percent. The quoted rental range
- --------------------------------------------------------------------------------
24
<PAGE>
MIRACLE MILE
OFFICE BUILDING CONSTRUCTION HISTORY
- -----------------------------------------------------------------------------
No. of Total Occupied
Year Buildings Area (SF) Area (SF)
------ ----------- ------------- -----------
1929-1930 2 119,000 11,200
1950-1953 2 616,200 182,279
1960-1967 6 990,832 188,858
1970-1973 4 980,928 275,239
1986-1989 6 1,749,280 470,665
1990-1995 0 0 0
- -----------------------------------------------------------------------------
TOTAL 20 4,456,240 1,128,241
- -----------------------------------------------------------------------------
AVERAGE PER PERIOD:
1986 - 1989 2.0 583,093 156,888
1990 - 1995 0.0 0 0
CONSTRUCTION ACTIVITY CHART
[Chart]
- ---------------------------------------
DATA SOURCE: C&W LOS ANGELES WEST
<PAGE>
LOS ANGELES WEST OFFICE MARKET
- --------------------------------------------------------------------------------
for available office space has a weighted average asking rent of approximately
$19.47. The majority of the office supply in the Miracle Mile is located along
the Wilshire corridor.
As shown on the accompanying construction history exhibit, office
development has been quite cyclical in the Miracle Mile submarket. No new
development occurred in this market for 14 years following 1972, and the new
competitive supply completed since 1985 has consisted primarily of two major
developments: Wilshire Courtyard, a two-building polished granite development
consisting of nearly one million square feet of total rentable area, and 6500
Wilshire, a high-rise polished granite office tower located at the intersection
of Wilshire Boulevard and San Vicente Boulevard. Major tenants in these
buildings include Aaron Spelling Productions, Hartford Insurance, Firemans Fund
Insurance, Beneficial Life, and California Federal Bank (Wilshire Courtyard)
and Dow Jones & Company, and the New York Times (6500 Wilshire). Chubb
Insurance recently relocated from 6500 Wilshire to downtown Los Angeles.
A number of the older buildings in the Miracle Mile submarket have been
extensively renovated during the past five years, which has effectively
upgraded these buildings to Class A status in the leasing market. These
substantially renovated buildings include the 5055 Wilshire Boulevard building,
which was formerly the Carnation Company's headquarters prior to their
relocation to Glendale in 1990. This development is located at the extreme
easterly extent of the Miracle Mile submarket, which is considered less
desirable than the westerly portion of this submarket (west of Hauser). Museum
Square was acquired and renovated by the Snyder Company during the early
portion of the 1980's, and the Screen Actors Guild is currently a major tenant.
Other major projects by this developer in the Miracle Mile include Wilshire
Courtyard (referenced previously) and the recent renovation of the former
CalFed headquarters buildings, which was acquired vacant in 1990 and completely
renovated by the Snyder Company. Major tenants include E! Entertainment, the
Securities Exchange Commission, and Singapore Airlines. The 6300 Wilshire
Boulevard building (the former Ticor headquarters), was completely renovated
during the past two years. New York Life is a major tenant in this building.
The former Century Bank building, located at 6420 Wilshire Boulevard, was
acquired from the lender during the first quarter of 1992 by an owner user
buyer. The buyer (Peterson Publishing) renovated the building, including
completing a fire sprinkler system and other required capital work, and
currently uses the property as the Peterson Publishing headquarters. The
building, originally developed in 1972, contains 197,540 square feet in 19
stories.
The primary Class A competitive supply in this market consists of newer
and/or extensively renovated buildings located along Wilshire Boulevard,
generally in the western portion of the Miracle Mile between Hauser Boulevard
on the east and San Vicente Boulevard at the Beverly Hills border on the west.
The exhibit on an accompanying page summarizes the pertinent characteristics of
the primary Class A competitive buildings in the submarket. The eight buildings
(including the two-building Wilshire Courtyard development) have a combined
rentable area of 3,291,320 square feet, and a current direct occupancy
- --------------------------------------------------------------------------------
25
<PAGE>
LOS ANGELES WEST OFFICE MARKET
- --------------------------------------------------------------------------------
level of 79.8 percent. Including sublease availabilities, the overall occupancy
level is 72.3 percent. Substantial sublease availabilities were placed on the
market during the last half of 1995, particularly the former Chubb Insurance
space in 6500 Wilshire Boulevard and portions of the California Federal
"master lease" premises in Wilshire Courtyard.
ABSORPTION - MIRACLE MILE
The net absorption figures for the Miracle Mile during the past five years
are summarized below.
Year SF Net Absorption
---- -----------------
1991 234,846
1992 (49,885)
1993 (276,156)
1994 (28,524)
1995 (242,985)
Absorption levels in the Miracle Mile have been negative during four of
the past five years, and components of the recent negative absorption in this
submarket are substantially attributable to activity involving several specific
tenants. These tenants are discussed below.
A major advertising tenant (DDB Needham) leasing about 40,000 square feet
in 5900 Wilshire Boulevard to May, 2000 "bought out" its lease and vacated
during 1995. This tenant (or related entities) has space in several other
westside office buildings. The State of California vacated approximately
70,000 square feet of space in Museum Square and relocated to the Mid-Wilshire
submarket during 1995. These two tenants and a 20,000 square-foot tenant in
6300 Wilshire Boulevard who defaulted on its lease obligation in 1995
represented about 130,000 square feet of negative absorption for this market.
California Federal, an original development partner and master lessee for the
540,000 square-foot Wilshire Courtyard east building, also placed significant
sublease space on the market during 1995. This tenant originally leased on a
long-term basis approximately 500,000 square feet in this development in order
to facilitate the construction financing, although California Federal did not
actually require the entire premises. Significant portions of the master
leased premises has been subleased in recent years, but this sublease activity
is not included in the net absorption figures shown above, since sublease space
is excluded from the calculations.
FUTURE DEVELOPMENT - MIRACLE MILE
The current spread between market rental rates and the rents required to
economically justify new office construction in this market suggests no new
development will occur until a substantial increase in rents occurs.
Several proposed major office developments in the Miracle Mile
neighborhood have been abandoned, including a planned 800,000 (approximate)
square-foot office project proposed for a site at the northwest corner of
Fairfax Avenue and Wilshire Boulevard, and
- --------------------------------------------------------------------------------
26
<PAGE>
MIRACLE MILE ALONG WILSHIRE BOULEVARD
PRIMARY COMPETITIVE OFFICE BUILDINGS
RENTAL AND OCCUPANCY SURVEY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Building Information Overall Quoted Occupancy
Item Building Name / No. of Area Avg. Flr. Year Available Space (SF) Availabilty Annual Rent Lease Ratio
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF) PSF PSF Type (Incl. SL)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MM-1 5670 Wilshire Building 27 407,200 15,081 1965 Ground 0 0 89.7%
5670 Wilshire Boulevard Ren. 1992 6 - 27 41,939 0 Total $23.40-$28.80 FSG
41,939 0 41,939
MM-2 The Wilshire Courtyard-East 6 540,000 90,000 1987 Ground 8,424 2,942 $23.40-$23.40 FSG 84.5%
5700 Wilshire Boulevard 3 0 72,483 Total $23.40-$23.40 FSG
8,424 75,425 83,849
MM-3 The Wilshire Courtyard-West 6 452,243 75,374 1987 Ground 6,471 0 $27.00-$28.20 FSG 51.9%
5750 Wilshire Boulevard 2 - 6 122,797 88,352 Total $24.00-$28.20 FSG
129,268 88,352 217,620
MM-4 Museum Square 10 505,000 50,500 1950 Ground 35,018 0 $16.80-$23.40 FSG 66.4%
5757 Wilshire Boulevard Ren. 1982 2 - 9 134,596 0 Total $16.80-$23.40 FSG
169,614 0 169,614
MM-5 Mutual Benefit Life 32 407,500 12,734 1971 Ground 0 0 70.9%
5900 wilshire Boulevard 4 - 30 118,544 0 Total $18.60-$19.80 FSG
118,544 0 118,544
MM-6 The New Wilshire 16 192,434 12,027 1986 Ground 6,059 0 $21.00-$21.00 FSG 75.5%
6100 Wilshire Boulevard 2 - 16 41,169 0 Total $21.00-$21.00 FSG
47,228 0 47,228
MM-7 6300 Wilshire Building 21 361,904 17,234 1973 Ground 26,604 0 $21.00-$22.20 FSG 74.2%
6300 Wilshire Boulevard Ren. 1992 6 - 21 65,187 1,500 Total $18.00-$22.20 FSG
to 1993 91,791 1,500 93,291
MM-8 6500 Wilshire Building 23 425,039 18,480 1986 6 - 9 0 79,728 $15.00-$15.00 FSG 67.5%
6500 Wilshire Boulevard 4 - 23 58,313 0 Total $22.20-$23.40 FSG
58,313 79,728 138,041
- -----------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 141 3,291,320 23,343 665,121 245,005 910,126 72.3%
- -----------------------------------------------------------------------------------------------------------------------------------
$20.11-$23.70 Direct Wtd Avg Rent Rate
</TABLE>
OFFICE BUILDING ACTIVITY CHART
MIRACLE MILE ALONG WILSHIRE BOULEVARD
[Chart]
<PAGE>
LOS ANGELES WEST OFFICE MARKET
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a 300,000 square-foot high-rise development located about one-mile west of the
subject at 5601 Wilshire Boulevard (to have been called Wilshire Place). The
Fairfax/Wilshire development site foreclosed by the lender when the project was
not approved by the City and market conditions declined substantially during
1990-1991. The Wilshire Place project, which was entitled for a high-rise
office development, was abandoned, and the developer (J.H. Snyder Co.)
developed the site with a supermarket.
DEVELOPMENT CONTROLS - MIRACLE MILE WILSHIRE WEST INTERIM
CONTROL ORDINANCE (WWICO)
The Miracle Mile District of the City of Los Angeles is subject to an
interim control ordinance (No. 165470) which was passed in response to concerns
by citizens regarding the adequacy of existing transportation infrastructure to
handle increasing traffic congestion in the area. This ordinance provides for a
restriction on future development in the area pending the completion of a land
use/transportation specific plan for the Wilshire West area. The status of the
specific plan is uncertain, since the city planning entities feel the interim
ordinance currently serves to control and limit future growth in the area for
the near term.
The interim control ordinance regulates the issuance of building permits
and sets forth conditions that can require conditional use permits for most
developments. The City of Los Angeles Department of Transportation (LADOT) has
jurisdictional review and approval of project traffic impact and mitigation
measures. Under the terms of the ICO, any new project must include mitigation
measures which would reduce or eliminate any significant traffic impacts on
surrounding residential areas before receiving planning commission approval.
The ICO also supersedes the city zoning regulations in many cases by limiting
allowable commercial density (FAR) to 3.0:1 without approval and conditional
use permits by the planning department and the City Council. The city requires
a study of potentially impacted intersections within a range of five miles of
the site for any significant proposed development in the Miracle Mile District.
The LADOT calculates the impact on traffic caused by a proposed new
development by allocating a specific number of trips per square foot of
building area according to the type of use (office, retail, residential,
medical office, etc.) and the size range of the project. The trips are then
allocated to the morning and evening peak period, and whether traffic is coming
in or out of the project. Trip calculations by use are specified in the ICO.
Fees are charged under the ordinance are specified as $4,900 per additional NET
trip generated by the project, with $300 per trip to be paid at the time the
project is approved, and the remainder ($4,600) to be paid upon approval of the
specific plan for the area.
RECENT INVESTMENT ACTIVITY - MIRACLE MILE
Four office properties ranging in size from about 85,000 to 420,000 square
feet were acquired in the Miracle Mile or immediately adjacent submarkets
during the period from August, 1995 through March, 1996. Per-square-foot prices
ranged from about $50 for a 70 percent leased asset requiring significant
capital improvement to $135. Three of the four sales prices were in the range
from $95 to $135 per-square-foot.
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27
<PAGE>
LOS ANGELES WEST OFFICE MARKET
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CULVER CITY AND ADJACENT MARKETS
The Culver City office market has emerged as a separate submarket during
the past decade. The accompanying page chart summarizes the office building
construction history in this market, and approximately 90 percent of the total
supply has been completed since 1980.
The Culver City/Westchester submarket is the largest component of the
Marina Area/Culver City sector (number 4) of the overall West Los Angeles
market area. This market contained 3,643,649 square feet as of the end of the
fourth quarter, 1995. The direct and overall vacancy levels for the Culver
City/Westchester market were 14.7 percent and 15.0 percent, respectively. A
major phased development located in the Westchester submarket about one mile
westerly of Fox Hills, known as Howard Hughes Center, is also a significant
competitive project in this market. Two completed phases of this development,
located on Center Drive West adjacent to the San Diego Freeway, have a combined
rentable area of 420,000 square feet, or about 70 percent of the total
Westchester submarket. The total project contemplated for this 69-acre parcel
is proposed for 2.7 million square feet. No timetable or probability of
completion for the future office phases has been estimated.
Additional development parcels are the sites for the planned final phases
of the larger Corporate Pointe development. The total office buildout for
Corporate Pointe is approximately 1.55 million square feet including about
790,000 square feet planned in three buildings on the two parcels located in
the Corporate Pointe neighborhood. The primary Culver City existing
competitive office building supply as well as the Howard Hughes Center
buildings discussed above are summarized on the accompanying pages. The
buildings are designated by construction class, size, year built, and quoted
asking rental rates for current direct and sublease availabilities.
The upper end of the rental range for buildings in this market corresponds
to the existing buildings in the Corporate Pointe development in the Fox Hills
submarket of Culver City, particularly 600 and 400 Corporate Pointe, and the
Howard Hughes Phase I building.
LABOR BASE/TENANT DEMAND AND ABSORPTION - CULVER CITY
The current overall vacancy level of 15.0 percent for the Culver
City/Westchester market submarket reflects an improvement in comparison with
recent years.
The accompanying pages summarize the net absorption figures for the Culver
City office market since 1990. The Culver City office submarket has
experienced modest, but positive net absorption during 1990 through 1995. The
total net absorption for Culver City for the past six years has been 292,617
square feet, or an average of approximately 48,769 square feet annually.
The major employers in the area include the Brotman Medical Center, Sony
Pictures Entertainment, and the retail department stores that anchor the nearby
regional Fox Hills mall. The former Metro-Goldwyn-Mayer studio is the site for
the Columbia
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28
<PAGE>
CULVER CITY / WESTCHESTER
OFFICE BUILDING CONSTRUCTION HISTORY
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No. of Total Occupied
Year Buildings Area (SF) Area (SF)
------ ----------- ------------- -----------
N/A 1 460,000 460,000
1962-1964 2 78,860 78,860
1973-1979 6 249,795 202,033
1980-1989 21 2,651,394 2,195,498
1990-1995 2 203,600 161,805
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TOTAL 32 3,643,649 3,098,196
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AVERAGE PER PERIOD:
1980 - 1989 2.3 294,599 243,944
1990 - 1995 0.4 40,720 32,361
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Proposed 6 777,570 50,340
CONSTRUCTION ACTIVITY CHART
[Chart]
<PAGE>
CULVER CITY / WESTCHESTER
HISTORICAL NET OFFICE ABSORPTION
----------------------------------------------
YEAR SQUARE FEET
----------------------------------------------
1990 91,060
1991 62,814
1992 43,249
1993 40,569
1994 2,076
1995 52,844
----------------------------------------------
TOTAL SQUARE FEET 292,612
AVERAGE ANNUAL ABSORPTION
1990 - 1995 48,769
1993 - 1995 31,830
TOTAL ABSORPTION
1993 - 1995 95,489
----------------------------------------------
HISTORICAL CHART
[CHART]
<PAGE>
LOS ANGELES WEST OFFICE MARKET
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Entertainment division of Sony Entertainment expansion/relocation from its
existing Burbank location. Metro-Goldwyn-Mayer relocated from its Culver City
studio in 1993 year and leased approximately 200,000 square feet of new space
in another West Los Angeles office sub-market. Culver City has a reputation
for promoting business and development within the City limits. The most
significant agent of this positive business attitude in recent years has been
the Community Development Department, and specifically the Culver City
Redevelopment Agency. There are three redevelopment project areas in Culver
City: 1) the Slauson-Sepulveda Redevelopment Project No. 1, which includes the
subject properties: 2) the Overland Jefferson Avenue Project No. 2; and 3) the
Washington-Culver Redevelopment Project No. 3.
A major entertainment-industry drive development located in Playa Vista,
which is part of this market area, is expected to commence during the next two
years. The project is to be anchored by the Dreamworks Studio, led by the well
capitalized partnership of Steven Spielberg, Jeffrey Katzenberg, and David
Geffen. The development is planned for the approximate 1,000 acre Playa Vista
site located about two miles westerly of Corporate Pointe, on the former site
of Hughes Aircraft. The project will be a phased master-planned mixed use
development to include residential and commercial uses. The Dreamworks
component of the development will occur on about 100 acres of the larger site,
and is expected to create a "critical mass" of entertainment and related
high-tech uses. The development partnership includes the Dreamworks team and
the property partnership comprised of Maguire Thomas Partners and Howard Hughes
Corp. The Dreamworks portion of the project will include a new "state of the
art" movie studio, including 15 to 20 sound stages, a worldwide headquarters of
350,000 square feet, and an additional 725,000 square feet of studio and
production facilities. The related tenants are to include IBM (100,000 square
feet), GTE (50,000 square feet), Digital Domain (400,000 square feet of motion
picture and special effects uses), and Silicon Graphics (115,000 square feet).
The related business generated for these tenants by the Dreamworks studio and
the technical requirements of Playa Vista project itself are expected to
generate substantial tenant demand for this development. The development is
expected to occur in phase over a number of years, and employment is
anticipated to grow to 10,000. Although the project will represent direct
competition for major office tenants, the critical mass of entertainment and
technology firms in this market should ultimately enhance the desirability of
good quality office development in this location.
The Corporate Pointe area is located within the Fox Hills area of Culver
City, which has benefitted from the activities of the Redevelopment Agency.
The Fox Hills locations is considered a "secondary" westside Los Angeles market
area, and the westside market is generally recognized as the most desirable
business and residential location in the county. The subject location benefits
from this westside identity, but is considered peripheral to and less desirable
than Beverly Hills, Santa Monica, Century City, Brentwood, and West Los Angeles.
Positive factors associated with Culver City include the "pro" business
approach of the governmental agencies and the strong employment base generated
by the
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29
<PAGE>
LOS ANGELES WEST OFFICE MARKET
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entertainment industry (particularly Sony Corporation). This approach by the
city government and the planned Playa Vista development suggests that there are
not meaningful political controls currently in place to restrict alternative
projects when market conditions improve, however. The long-term prospects for
the area are positive. The approved Sony Studios expansion should generate
considerable new employment at the upper end of the wage base in the future,
and the pending Playa Vista phased development to the west should eventually
create a physical and market-perceived direct link between Culver City and the
more desirable areas of the westside Los Angeles commercial and residential
markets.
RECENT INVESTMENT ACTIVITY - CULVER CITY
Four office properties ranging in size from about 85,000 to 265,000 square
feet were acquired in the Culver City submarket during the period from August,
1994 through March, 1996. Per-square-foot prices ranged from about $50 to $135
and occupancy levels at the time of sale ranged from about 60 percent to 85
percent. '
LOS ANGELES INTERNATIONAL AIRPORT (LAX) SUBMARKET (CENTURY BOULEVARD)
The LAX submarket incorporates the region bounded by Manchester Avenue to
the north, La Brea Avenue to the east, El Segundo Boulevard to the south, and
the Los Angeles International Airport to the west. A significant portion of
the office product within this submarket is situated on or adjacent to Century
Boulevard, extending eastward from the airport to the San Diego Freeway
(I-405). This submarket benefits from excellent regional freeway access by way
of the San Diego Freeway and the Century Freeway (I-105), as well as the Metro
Green Line commuter rail. The charts on the accompanying pages provide a
breakdown of the existing inventory, direct and overall vacancy rates, and
recent leasing activity within the Long Beach Freeway submarket.
The LAX submarket contains 4,211,847 square feet of office product, with a
fourth quarter 1995 direct vacancy rate of 29.3 percent and an overall vacancy
rate of 29.5 percent. The LAX submarket comprises a relatively large office
market, and the average building size is nearly 210,000 square feet. The
direct vacancy rate for the LAX submarket has declined over the past few years,
from 34.1 percent at year-end 1992 to 29.3 percent at year-end 1995.
Similarly, the overall vacancy rate for the LAX submarket has declined over
the past few years, from 36.5 percent at year-end 1992 to 29.5 percent at
year-end 1995.
The relatively high direct and overall vacancy rates for the LAX submarket
compared to other markets in the Los Angeles West sector reflects the fact that
a significant portion of the office space in this submarket consists of Class B
and/or Class C product. The LAX submarket contains 20 buildings of which seven
buildings (or 22.2 percent of the rentable area) are Class A properties and 13
buildings (or 77.8 percent of the rentable area) are Class B or Class C
properties. The Class B and Class C buildings in the LAX submarket were
generally constructed from the early 1960s to the early 1980s, and these
buildings do not compete as directly with the relatively newer and higher
quality Class A buildings in this submarket, which include Skyview Centers I
and II, Royal Airport
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30
<PAGE>
HISTORICAL OFFICE LEASING ACTIVITY AND NET ABSORPTION
LOS ANGELES AIRPORT AREA
1990 - 1995
<TABLE>
<CAPTION>
Available Available Overall Gross
Direct Lse Sublease Vacancy Leasing Net
Inventory Sq. Ft. Sq. Ft. Rate Activity Absorption
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<S> <C> <C> <C> <C> <C> <C>
1990
1st Quarter 4,360,880 1,232,481 276,720 34.6% 63,117 (8,469)
2nd Quarter 4,364,403 1,569,848 191,372 40.4% 121,438 (195,313)
3rd Quarter 4,364,403 1,586,828 173,124 40.3% 62,775 (14,059)
4th Quarter 4,364,403 1,518,839 174,571 38.8% 74,214 57,989
- ------------------------------------------------------------------------------------------
YTD Total 321,544 (159,852)
1991
1st Quarter 4,364,403 1,523,686 92,545 37.0% 80,314 6,163
2nd Quarter 4,364,403 1,302,443 128,357 32.8% 43,498 (80,402)
3rd Quarter 4,364,403 1,353,276 136,432 34.1% 56,502 (107,676)
4th Quarter 4,364,403 1,324,378 125,192 33.2% 30,829 (29,964)
- ------------------------------------------------------------------------------------------
YTD Total 211,143 (211,879)
1992
1st Quarter 4,364,403 1,429,696 117,830 35.5% 132,460 (58,935)
2nd Quarter 4,364,403 1,393,273 106,345 34.4% 79,570 10,504
3rd Quarter 4,364,403 1,467,408 116,314 36.3% 48,749 (84,763)
4th Quarter 4,364,403 1,486,300 107,391 36.5% 79,993 (25,944)
- ------------------------------------------------------------------------------------------
YTD Total 340,772 (159,138)
1993
1st Quarter 4,344,247 1,521,086 191,914 39.4% 50,519 (25,205)
2nd Quarter 4,344,247 1,544,602 181,448 39.7% 113,435 (4,244)
3rd Quarter 4,344,247 1,556,584 171,433 39.8% 123,513 (2,691)
4th Quarter 4,344,247 1,597,429 152,829 40.3% 143,469 (70,068)
- ------------------------------------------------------------------------------------------
YTD Total 430,936 (102,208)
1994
1st Quarter 4,256,847 1,470,584 121,446 37.4% 164,262 110,318
2nd Quarter 4,256,847 1,472,466 131,994 37.7% 76,934 (74,742)
3rd Quarter 4,256,847 1,416,452 30,873 34.0% 192,676 39,864
4th Quarter 4,256,847 1,380,514 13,655 32.8% 126,341 52,468
- ------------------------------------------------------------------------------------------
YTD Total 560,213 127,908
1995
1st Quarter 4,211,847 1,395,039 28,377 33.8% 65,958 2,614
2nd Quarter 4,211,847 1,377,290 8,678 32.9% 78,503 22,246
3rd Quarter 4,211,847 1,269,004 8,453 30.3% 70,378 17,261
4th Quarter 4,211,847 1,232,354 8,453 29.5% 81,098 35,375
- ------------------------------------------------------------------------------------------
YTD Total 295,937 77,496
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</TABLE>
NOTES
*Includes all existing competitive office buildings consisting of 25,000 sf in
size or larger. Government, medical and owner-occupied buildings are not
included.
*Vacancy rates are calculated by space, available both directly and through
sublease, divided by the inventory.
SOURCE: CUSHMAN & WAKEFIELD OF CALIFORNIA LA SOUTH BAY RESEARCH SERVICES
GROUP - 1996
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<PAGE>
LOS ANGELES WEST OFFICE MARKET
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Center, and 9800 La Cienega Boulevard. The fourth quarter 1995 direct vacancy
level for the Class A buildings in the LAX submarket was 25.0 percent and the
overall vacancy rate was 25.3 percent, both of which are notably decreased from
35.6 percent and 37.5 percent, respectively, at year-end 1992.
The office market in the LAX area has been driven in large part by the
office requirements of travel related companies, international trading
companies, financial institutions, and aerospace/defense companies. The office
product in the LAX submarket consists of low to high-rise buildings, which
range in size from 50,000 to 472,500 square feet of rentable area. The Skyview
Center II building, located at 6053 W. Century Boulevard, was completed in 1987
and is the most recently completed office building within the LAX submarket.
All of the Class A product in the LAX submarket was completed between 1981 and
1987, while the Class B space in this submarket was completed between 1962 and
1982.
LEASING ACTIVITY/ABSORPTION/TENANT DEMAND - LAX
The chart on the accompanying page summarizes the recent trends in leasing
activity and net absorption for the submarket. From 1991 to 1995, the LAX
submarket achieved average annual leasing activity of 367,800 square feet.
After enduring four straight years of negative absorption from 1990 to 1993,
the LAX submarket achieved positive net absorption of 127,908 square feet in
1994 and 77,496 square feet in 1995.
The tenant base in the LAX submarket consists of a mix of travel related
companies, international trading companies, financial and business services
companies, and some high technology firms. According to local market sources,
the demand for office space in the LAX submarket is driven in part by market
conditions in the Westside markets of Culver City, Santa Monica, Westchester,
and West Los Angeles. The LAX submarket is expected to benefit from
"spillover" demand as the vacancy rates in the Westside markets decline over
the next few years with the anticipated influx of entertainment and multi-media
related companies in these areas. Major employers and users of office space in
the LAX area include Associated Financial, RDA/Logicon, Herbalife, Learning
Tree International, Rescom, and Trident Data. Herbalife is one of the larger
tenants in the LAX area as it leases approximately 70,000 square feet at 9800
So. La Cienega Boulevard, primarily for back-office uses. The company
relocated its executive offices to Century City in 1995. Learning Tree
International leases approximately 34,000 square feet at 6053 West Century
Boulevard and RDA/Logicon leases approximately 41,600 square feet at this same
building. Trident Data leases approximately 17,500 square feet at 5933 West
Century Boulevard.
FUTURE SUPPLY
The delivery of new office space to the LAX sub-market is expected to be
quite limited over the several few years due to the "spread" between current
rental rates and the economic rents required for new construction. In the LAX
sub-market, there are no new office developments either under construction or
planned for development.
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31
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LOS ANGELES WEST OFFICE MARKET
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CONCLUSIONS - LAX OFFICE SUBMARKET
The LAX office market contains a significant concentration of the mid to
high-rise office buildings. The LAX market provides a mix of Class A, Class B,
and Class C space which caters to the demands of relatively cost conscious
office users. The LAX submarket has rent levels which are at the low end of
range exhibited by the various submarkets within the Los Angeles West office
sector. Over the past several years, the LAX submarket has posted improvement
in the overall vacancy rate, which has declined from 37.9 percent at year-end
1992 to 25.3 percent at year-end 1995. The LAX submarket has proven to be a
viable location for travel related companies, international trading companies,
financial institutions, and business service firms due to the very good access
to outlying commercial markets, the trade related activity generated by the Los
Angeles International Airport, and the significant residential population and
labor pool in the greater airport area.
MARKET RENTAL RATES - WESTSIDE LOS ANGELES MARKETS
A general range in five-year effective rental rates for buildings in the
competitive westside markets is summarized below. "Effective Rental Rate" as
used in this chart is defined as the average per-square-foot rental rate
received over the term of the lease by the landlord. The effective rent
incorporates adjustments for free rent received by the tenant. The figures do
NOT include deductions for variances in tenant allowances, and do not include
any adjustments for the "time value" of funds received over the term of the
lease. Actual rents for office buildings fluctuate considerably within each
submarket based on building quality, specific location within the submarket and
numerous other factors. Rental rates are also "dynamic" and can increase or
decrease with changes in market conditions.
TYPICAL 5-YEAR EFFECTIVE FSG RENTAL RATES( ANNUAL PSF)
Competitive Trophy
Submarkets Class Class A Class B
----------- ------ ------- -------
Culver City N/A $16.20 - $17.40 $15.00
Olympic Corridor N/A $24.00 $17.00
Miracle Mile/East
Bev. Hills N/A $22.00 $16.00
Westwood $30.00 - $33.00 $24.00 - $27.00 $21.00
Brentwood $25.00 $24.00 $20.00
Bev. Hills Triangle N/A $27.00 - $28.00 $20.00
Century City $36.00 $24.00 $21.00
Santa Monica N/A $27.00 - $30.00 $21.00
LAX N/A $12.00 - $14.00 $10.00
The chart provides an overview of the "typical" market rental rates for
office buildings located in the competitive westside submarkets. The highest
rental rates for Class A buildings are achieved in the Century City, Beverly
Hills Triangle, Santa Monica, and Westwood submarkets. The peripheral
submarket locations in LAX, Culver City or the adjacent Howard Hughes Center,
or along the Olympic Boulevard corridor in West Los Angeles achieve
proportionately lower rental rates. The Miracle Mile district located
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32
<PAGE>
BUSINESS-FACTS: DAYTIME EMPLOYMENT REPORT
WEST LOS ANGELES
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1995
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<TABLE>
<S> <C> <C> <C>
Business Employment by Type No. of Businesses No. of Employees Employees per Business
- --------------------------- ------------------- ------------------ ------------------------
1 RETAIL TRADE 7,600 79,743 10.5%
Home Improvement Stores 171 1,756 10.3%
General Merchandise Stores 62 5,766 93.0%
Food Stores 528 7,994 15.1%
Auto Dealers & Gas Stations 392 5,780 14.7%
Apparel & Accessory Stores 1,076 6,204 5.8%
Furniture / Home Furnishings 1,131 8,953 7.9%
Eating & Drinking Places 1,926 30,508 15.8%
Miscellaneous Retail Stores 2,314 12,782 5.5%
2 FINANCE-INSURANCE-REAL ESTATE 3,402 41,432 12.2%
Banks, Savings & Lending
Institutions 549 6,988 12.7%
Securities Brokers & Investors 505 7,689 15.2%
Insurance Carriers & Agencies 646 10,410 16.1%
Real Estate - Trust - Holding Co. 1,702 16,345 9.6%
3 SERVICES 20,057 200,091 10.0%
Hotels & Lodging 188 9,716 51.7%
Personal Services 3,136 16,485 5.3%
Business Services 5,543 51,691 9.3%
Motion Picture & Amusement 1,515 19,264 12.7%
Health Services 4,348 50,073 11.5%
Legal Services 3,037 24,176 8.0%
Education Services 436 13,449 30.8%
Social Services 813 6,180 7.6%
Other Services 1,041 9,057 8.7%
4 AGRICULTURE 178 1,385 7.8%
5 MINING 31 563 18.2%
6 CONSTRUCTION 957 8,475 8.9%
7 MANUFACTURING 1,513 29,517 19.5%
8 TRANSPORTION, COMMUN/PUBLIC UTIL 820 12,382 15.1%
9 WHOLESALE TRADE 1,754 18,209 10.4%
10 GOVERNMENT 305 7,352 24.1%
- --------------------------- ------------------- ------------------ ------------------------
TOTAL BUSINESSES 36,617 399,149 10.9%
- --------------------------- ------------------- ------------------ ------------------------
Daytime Population 399,149
Residential Population 522,540
Daytime Population per Business 10.9%
Residential Population per Business 14.3%
- ------------------------------------------------------------------------------------------------------
</TABLE>
NUMBER OF BUSINESSES PER SECTOR NUMBER OF EMPLOYEES PER SECTOR
[Chart] [Chart]
<PAGE>
LOS ANGELES WEST OFFICE MARKET
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immediately east of Beverly Hills also includes several newer, very good
quality Class A buildings.
ASKING RENTAL SURVEYS AND COMPARABLE LEASE DATA
Included in the Addenda are charts detailing the pertinent characteristics
of the buildings within each of the competitive submarkets discussed
previously, as well as a representative cross section of the terms of signed
leases in the competitive submarkets. The data provides an overview of the
competitive westside Los Angeles office supply and the range in rental rates
for the respective submarkets.
GROSS LEASING ACTIVITY
The net absorption figures for the competitive westside submarkets were
summarized previously. The accompanying chart compares the net office
absorption for eight competitive submarkets from 1992 through 1995 with the
gross leasing activity during the same timeframe. Gross leasing activity
slowed during 1994 to an annual rate of 3.6 million square feet, while net
absorption levels declined overall to 81,052 square feet. The data for 1995
shows substantial improvement both in net absorption levels and gross leasing.
WESTSIDE TENANT BASE
The exhibit on the accompanying page provides an overview of the
components of the office employment base for westside Los Angeles office
workers. The exhibit includes the estimated employment breakdown by the number
of firms and by the total number of employees. The data indicate that the major
components of the office employment market in the westside include business,
services, and the entertainment industry. This tenant mix reflects the desire
of legal, entertainment, financial, and professional firms to locate in an area
with abundant amenities close to employees' homes. The entertainment industry
in particular has expanded in recent years, and current demands for space from
this industry has "driven" the leasing market in competitive westside
buildings. There are a number of entertainment tenants currently "in the
market" with substantial space requirements. The chart below summarizes a cross
section of these tenants.
Many of the entertainment industry tenants prefer a "campus" style
environment, with low-rise buildings, "operable" windows, and other amenities
not typically associated with more "institutional" buildings oriented toward
corporate tenants. There is a relatively limited amount of this type of
space, however, and the tenants have been flexible in satisfying space
requirements within the westside locational criteria.
CONCLUSIONS
The westside office market location is considered quite favorable, and the
steady decline in office vacancy rates in the prime westside markets during the
past three years has generated considerable investment market interest in
quality office properties. This market continues to be one of the most
desirable and prestigious office locations in southern California. The
surrounding upscale residential communities and demographics indicate this
perception should continue. The economic recession and prior overbuilding
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33
<PAGE>
PRIMARY COMPETITIVE WESTSIDE MARKETS
NET OFFICE ABSORPTION VS. GROSS LEASING ACTIVITY
SF OF NET SF OF GROSS NET PERCENTAGE
YEAR MARKET ABSORPTION LEASING OF TOTAL
1992 West Hollywood 59,192 88,835 66.6%
Miracle Mile (49,485) 598,744 -8.3%
Westwood (94,835) 364,593 -26.0%
Brentwood 15,286 363,480 4.2%
West Los Angeles (178,376) 340,721 -52.4%
Santa Monica 628,956 1,103,998 57.0%
Century City (258,913) 557,059 -46.5%
Culver City 43,249 279,440 15.5%
Beverly Hills 112,282 598,950 18.7%
Sub-total 1992: 277,356 4,295,920 6.5%
1993 West Hollywood (42,781) 127,682 -33.5%
Miracle Mile (28,524) 367,360 -7.4%
Westwood 166,823 316,167 52.8%
Brentwood 19,779 375,836 5.3%
West Los Angeles 177,068 491,426 36.0%
Santa Monica (74,459) 858,637 -11.3%
Century City 48,648 832,760 5.8%
Culver City 40,569 510,732 7.9%
Beverly Hills (2,818) 599,523 -0.5%
Sub-total 1993: 304,305 4,300,143 7.1%
1994 West Hollywood 53,552 192,036 27.9%
Miracle Mile 62,330 304,130 20.5%
Westwood 149,313 472,963 31.6%
Brentwood 37,078 316,825 11.7%
West Los Angeles (243,152) 244,735 -99.4%
Santa Monica (106,931) 560,465 -19.1%
Century City 81,205 722,317 11.2%
Culver City 2,076 214,441 1.0%
Beverly Hills 45,581 523,030 8.7%
Sub-total 1994: 81,052 3,550,942 2.3%
1995 West Hollywood (13,714) 242,202 -5.7%
Miracle Mile (242,985) 353,403 -68.8%
Westwood 172,706 1,172,008 14.7%
Brentwood 146,907 887,428 16.8%
West Los Angeles (120,211) 653,433 -18.4%
Santa Monica (141,470) 935,947 -15.1%
Century City 173,451 1,713,498 10.1%
Culver City 52,844 444,405 11.9%
Beverly Hills 143,812 1,071,170 13.4%
Sub-total 1995: 173,340 7,473,494 2.3%
Totals 836,053 19,820,499 4.3%
Annual Average 209,013 4,905,125 4.3%
* Westchester was added into the Culver City Submarket this year.
<PAGE>
LOS ANGELES WEST OFFICE MARKET
- -------------------------------------------------------------------------------
severely impacted the westside submarkets during the first portion of this
decade, but recent employment growth, driven by the expanding entertainment
industry, in conjunction with the halt of new construction, has created a more
favorable leasing and investment market.
The overall Los Angeles West market area including the 14 submarkets shown
in previous exhibits contains a total rentable area of 50,014,880 square feet,
and experienced a combined positive net absorption of 419,123 square feet
during 1995. The year-end 1995 direct vacancy rate was 18.6 percent. As
discussed in the preceding submarket discussions the net absorption level
during 1995 was affected by several specific buildings in the West Los Angeles
submarket. Excluding the earthquake damaged property and the two Executive
Life properties, which had an estimated 275,000 square feet in negative
absorption, the "adjusted" West Los Angeles net absorption from 1995 was
nearly 700,000 square feet for the 14 submarkets included in this analysis.
While projections of future office absorption within a market area can
fluctuate from year to year, the most recent trend in absorption and the
employment growth in the westside market suggest a near-term annual absorption
level of 700,000 square feet is a reasonable estimate. The chart below shows
the trend that would occur in the direct vacancy rate for the Los Angeles West
market for the next three years assuming an annual 700,000 square feet of net
absorption is achieved.
Year End Inventory Available SF SF Absorption Vacancy Rate
-------- --------- ------------ ------------- ------------
1995 50,014,880 9,289,766 419,123 18.6%
1996 50,014,880 8,589,766 700,000 17.2%
1997 50,014,880 7,889,766 700,000 15.8%
1998 50,014,880 7,189,766 700,000 14.4%
While submarkets other experience fluctuations in absorption from year to
year, the chart shows the overall west Los Angeles marketplace should continue
the recent trend toward tightening vacancy levels if this absorption level is
achieved, which in turn should result in rental increases.
- -------------------------------------------------------------------------------
34
<PAGE>
[MAP]
LEGEND
1 Simi Valley
2 West Valley
3 Central Valley
4 East Valley
<PAGE>
LOS ANGELES NORTH OFFICE MARKET ANALYSIS
- -------------------------------------------------------------------------------
LOS ANGELES NORTH OFFICE MARKET
The Los Angeles North office market encompasses four market areas located
primarily in the San Fernando Valley, Santa Clarita Valley, and Conejo Valley
areas of Los Angeles County. The Los Angeles North market also includes
several office locations in the southeastern portion of Ventura County. The
Los Angeles North office sector is the third largest sector in Los Angeles
County, behind the Downtown Los Angeles and West Los Angeles markets,
respectively. The North Los Angeles market is comprised of four submarkets:
Simi/Conejo Valley, West Valley, Central Valley, and East Valley/Tri-Cities.
The individual submarkets that comprise the overall North Los Angeles market
exhibit a wide range in construction quality, location, tenant based, and
corresponding rental rates. The chart on the accompanying page summarizes the
year-end 1995 statistics for Los Angeles North office sector and the submarkets
in this area.
As of year-end 1995, the Los Angeles North office market contained
39,355,810 square feet of Class A and B space, excluding owner/user, medical
and government buildings. The 22 individual submarkets that comprise the
overall competitive office market are differentiated according to access,
market perception, tenant appeal and improvement quality, and rental rates.
The office development in the Los Angeles North market is concentrated in two
major areas: Tri-Cities (Glendale, Burbank and Pasadena), and Warner
Center/Woodland Hills. Warner Center is the largest submarket in the Los
Angeles North area, with an existing inventory of 5,325,021 square feet of
office space or 13.5 percent of the total office product in the Los Angeles
North market. There is some "overlap" between the Central and North Los
Angeles Sectors, which each track portions of the Tri-City area.
As of the fourth quarter 1995, the Los Angeles North office market
exhibited a direct vacancy rate of 14.4 percent. The direct vacancy rate,
which does not include sublease availabilities, is steadily improved from the
17.5 percent direct vacancy level as of year-end 1992. The overall vacancy
rate for the Los Angeles North office market was 17.2 percent as of year-end
1995. The overall vacancy rate, which includes both direct and sublease
availabilities, was also notably improved from the 19.7 percent overall vacancy
level at year-end 1992. The overall vacancy rate for the Los Angeles North
market compares favorably to the corresponding figure of 21.0 percent for the
Los Angeles County office market. Overall vacancy rates for Los Angeles County
ranged from a low of 17.5 percent in the Los Angeles North market to a high of
24.7 percent in the Los Angeles Central market.
The East Valley/Tri-Cities and West Valley markets are the premier office
markets in the Los Angeles North area, due to the quality of the office
buildings and the surrounding amenities in these areas. The Tri-Cities market,
which includes the submarkets of Burbank, Glendale, Pasadena, Studio City, and
North Hollywood has a weighted average asking rental rate of $21.61 per square
foot per year, on a full service gross (FSG) basis, which is at the high end of
the weighted average asking rental rates for the other markets in the Los
Angles North office market. The West Valley market, which includes the
submarkets of Northridge/Reseda, Tarzana, Canoga Park/Chatsworth, Warner
Center, and Woodland Hills, has a weighted average asking rental rate of $21.60
per
- -------------------------------------------------------------------------------
35
<PAGE>
<TABLE>
<CAPTION>
LOS ANGELES NORTH
MARKET & SUBMARKET STATISTICS
END OF THE 4TH QUARTER OF 1995
DIRECT
NUMBER DIRECT VACANCY OVERALL
MARKET/SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE AVAILABILITIES
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
SIMI/CONEJO VALLEU 4,537,562 87 510,332 11.2% 832,609
- ---------------------------------------------------------------------------------------------------------------------------------
1 Simi Valley 196,326 6 28,401 14.5% 28,401
2 Thousand Oaks/Newbury Park 701,607 14 239,761 34.2% 239,761
3 Westlake Village 1,735,399 32 149,247 8.6% 322,190
4 Agoura Hills 497,672 10 40,588 8.2% 53,365
5 Calabasas 1,406,558 25 52,335 3.7% 188,892
- ---------------------------------------------------------------------------------------------------------------------------------
WEST VALLEY 8,487,933 96 1,404,681 16.5% 1,697,185
- ---------------------------------------------------------------------------------------------------------------------------------
6 Northridge/Reseda 266,000 5 14,408 5.4% 14,408
7 Tarzana 508,929 10 95,615 18.8% 97,047
8 Canoga Park/Chatsworth 1,316,333 24 279,918 21.3% 356,695
9 Warner Center 5,325,021 39 887,559 16.7% 1,095,539
10 Woodland Hills 1,071,650 18 127,181 11.9% 133,496
- ---------------------------------------------------------------------------------------------------------------------------------
CENTRAL VALLEY 8,525,170 111 1,528,178 17.9% 1,729,033
- ---------------------------------------------------------------------------------------------------------------------------------
11 Encino 3,910,209 39 627,549 16.0% 716,474
12 Sherman Oaks 2,264,136 27 429,972 19.0% 481,647
13 Van Nuys 1,442,363 27 293,101 20.3% 336,792
14 Park City/Granada/Mission Hills 386,090 7 64,839 16.8% 73,488
15 Valencia/Newhall 522,372 11 112,717 21.6% 120,632
- ---------------------------------------------------------------------------------------------------------------------------------
EAST VALLEY/TRI-CITIES 17,805,145 173 2,239,026 12.6% 2,516,730
- ---------------------------------------------------------------------------------------------------------------------------------
16 Burbank - Media District 2,043,350 15 31,937 1.6% 31,937
17 Burbank - City Center 1,710,879 23 242,563 14.2% 242,563
18 Glendale 5,052,071 44 799,750 15.8% 907,627
19 Pasadena 5,542,296 57 732,964 13.2% 826,271
20 Pasadena East 574,421 6 206,210 35.9% 216,210
21 Studio City/Universal City 1,763,500 15 79,999 4.5% 129,783
22 Norht Hollywood 1,118,628 13 145,603 13.0% 162,339
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL 39,355,810 467 5,682,217 14.4% 6,775,557
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OVERALL
VACANCY NET ABSORPTION WTD. AVG.
MARKET/SUBMARKET RATE YTD 1995 RENTAL RATE
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
SIMI/CONEJO VALLEU 18.3% 243,948 $18.36
- -----------------------------------------------------------------------------------------------
1 Simi Valley 14.5% 32,363 $14.64
2 Thousand Oaks/Newbury Park 34.2% (597) $19.80
3 Westlake Village 18.6% 176,534 $17.16
4 Agoura Hills 10.7% (7,747) $15.48
5 Calabasas 13.4% 43,395 $19.32
- -----------------------------------------------------------------------------------------------
WEST VALLEY 20.0% 209,106 $21.80
- -----------------------------------------------------------------------------------------------
6 Northridge/reseda 5.4% 110,394 $16.92
7 Tarzana 19.1% 11,998 $19.08
8 Canoga Park/CHatsworth 27.1% (109,904) $16.32
9 Warner Center 20.6% 164,899 $23.88
10 Woodland Hills 12.5% 31,719 $18.84
- -----------------------------------------------------------------------------------------------
CENTRAL VALLEY 20.3% (181,315) $19.68
- -----------------------------------------------------------------------------------------------
11 Encio 18.3% (90,048) $21.36
12 Sherman Oaks 21.3% (7,327) $20.40
13 Van Nuys 23.4% (38,627) $17.16
14 Park City/Granada/Mission Hills 19.0% (27,904) $15.64
15 Valancia/Newhall 23.1% (17,409) $17.04
- -----------------------------------------------------------------------------------------------
EAST VALLEY/TRI-CITIES 14.1% (75,610) $21.61
- -----------------------------------------------------------------------------------------------
16 Burbank - Media Center 1.6% 87,406 $28.43
17 Burbank - City Center 14.2% (26,003) $18.83
18 Glendale 18.0% (151,308) $23.16
19 Pasadena 14.9% (105,482) $21.47
20 Pasadena East 37.6% (4,418) $18.69
21 Studio City/Universal City 7.4% 56,744 $25.20
22 Norht Hollywood 14.5% 67,451 $19.08
- -----------------------------------------------------------------------------------------------
TOTAL 17.2% 196,129 $20.80
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
MARKET SIZE COMPARISON CHART AVAILABILITIES BAR GRAPH
[CHART] [CHART]
SUBMARKET WEIGHTED AVERAGE RENTAL RATE COMPARISON CHART
[CHART]
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
square foot per year (FSG), which was the second highest asking rental rate
among the four office markets in the Los Angeles North area.
The Tri-Cities and West Valley markets are distinguished by the relatively
strong demand for space from high profile tenants in several industries. The
East Valley market is characterized by the number of entertainment related
companies with operations in this area, including such organizations as The
Walt Disney Company/Disney Channel, MCA/Universal Studios, Warner Brothers, and
NBC Television. The West Valley market, and specifically the Warner Center
office market, is characterized by the number of finance and healthcare related
companies with operations in this area, including such companies as Blue Cross,
Health Net, Prudential Insurance, 20th Century Insurance, and City National
Bank.
TRI-CITY OFFICE MARKET
OVERVIEW
The Tri-City, or Ventura Corridor office market, consists of the combined
submarkets of Pasadena, Burbank/Universal City, and Glendale. Beginning the
first quarter, 1995, Cushman & Wakefield's Market Research Services Group has
also included the submarkets of Studio City and North Hollywood within this
Tri-Cities market sector. According to Cushman & Wakefield's year-end 1995
study, this sector includes 17,805,145 square feet of rentable office space in
approximately 173 buildings surveyed.
The majority of the office supply in the Tri-Cities market is situated in
buildings located within a few blocks of the Ventura Freeway. Burbank office
development is concentrated in the area surrounding Olive Avenue, between
Glenoaks and Hollywood Way, and includes the individual submarkets of Universal
City, the Burbank Media District, and City Center (downtown). The Glendale
office market is concentrated primarily along Brand Boulevard and Central
Avenue, extending from Glenoaks Boulevard to Colorado Boulevard and Broadway.
The Pasadena office market is located primarily south of the Foothill Freeway,
between Lake Avenue and Pasadena Avenue.
TENANT BASE
Each of the three primary submarkets has historically appealed to a
different tenant base, although there is some "overlap" in tenant demand. The
Burbank market has attracted tenants from the entertainment industry, including
Disney, Warner Brothers, and NBC, particularly within the Media District
submarket. The Glendale market has captured financial, insurance, corporate,
and real estate firms, as well as overflow entertainment tenants from the
Burbank Media District and engineering firms from Pasadena. Major tenants in
this market include Nestle, Allstate, Cigna, Turner, and Disney. The Pasadena
tenant base is dominated by service firms from the legal and medical
professions, as well as insurance, mortgage, and engineering firms. Major
tenants include Countrywide Mortgage and Continental Title, and Parsons
Engineering. The smaller submarkets of Universal/Studio City and to a lesser
degree North Hollywood are oriented toward the entertainment industry.
- -------------------------------------------------------------------------------
36
<PAGE>
[MAP]
LEGEND
1 Burbank
2 Glendale
3 Pasadena
<PAGE>
TRI-CITIES
MARKET & SUBMARKET STATISTICS
END OF THE 4TH QUARTER OF 1995
<TABLE>
<CAPTION>
WTD.
NUMBER DIRECT OVERALL NET AVG.
OF DIRECT VACANCY OVERALL VACANCY ABSORPTION RENTAL
MARKET / SUBMARKET INVENTORY BLDGS AVAILABILITIES RATE AVAILABILITIES RATE YTD 1995 RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
TRI-CITIES 17,805,145 173 2,239,026 12.6% 2,516,730 14.1% (75,610) $21.61
- -----------------------------------------------------------------------------------------------------------------------
Universal City/Studio City 1,736,500 15 79,999 4.5% 129,783 7.4% 56,744 $25.20
Burbank - Media District 2,043,350 15 31,937 1.6% 31,937 1.6% 87,406 $28.43
Burbank - City Center 1,710,879 23 242,563 14.2% 242,563 14.2% (26,003) $18.83
Glendale 5,052,071 44 799,750 15.8% 907,627 18.0% (151,308) $23.16
Pasadena 5,542,296 57 732,964 13.2% 826,271 14.9% (105,482) $21.47
Pasadena East 574,421 6 206,210 35.9% 216,210 37.6% (4,418) $18.69
North Holywood 1,118,628 13 145,603 13.0% 162,339 14.5% 67,451 $19.08
</TABLE>
SUBMARKET COMPARISON CHART AVAILABILITIES BAR GRAPH
[CHART] [BAR GRAPH]
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
OCCUPANCY LEVELS
The Tri-City office market has performed substantially better than most
other Los Angeles County office markets during the first half of the current
decade. The year-end 1995 direct and overall vacancy rates in the combined
Tri-City market was 12.6 percent (direct) and 14.1 percent (including sublease
space). As shown on the Market/Submarket Statistics exhibit the individual
submarkets have experienced a wide range in vacancy rates, with the
entertainment-driven Burbank Media District and Universal/Studio City
submarkets experiencing direct vacancy rates of 1.6 percent and 4.5 percent,
respectively, while the Pasadena East submarket had direct and overall vacancy
rates of 35.9 percent and 37.6 percent, respectively. The Pasadena East
submarket is the smallest component of the Tri-City market, with 574,421 square
feet in six buildings, and this supply consists primarily of low-rise Class B
office properties. Excluding this submarket the Tri-Cities contain 17,230,724
square feet of rentable office area, and have a combined direct vacancy rate
11.8 percent.
ABSORPTION
The chart on the accompanying page summarizes the annual net absorption
figures for the primary components of the Tri-City markets during the past five
years (1991 through 1995). The individual submarkets have experienced a
significant range in absorption, with Pasadena experiencing three years of
negative absorption (1992, 1994 and 1995), while Glendale has benefited from
three years of strong absorption, particularly during 1994. The Media District
and Universal City have had such low vacancy levels during the past five years
due to strong entertainment industry demand that the absorption has been
minimal because an insignificant amount of space has been available. The
existing tenants in these submarkets have been unable to satisfy additional
space demands.
The negative absorption figure of 151,308 square feet for Glendale during
1995 is somewhat misleading, since it reflects changes due primarily to a
single building. The Bank of America building, located at 601 North Brand
Boulevard in Glendale, contains approximately 420,000 square feet and was fully
occupied by the bank as of the beginning of 1995. The bank entered a joint
venture partnership with a major developer and vacated approximately 200,000
square feet of space in the building. During the first quarter, 1996 the
available space was leased to two major entertainment firms, Disney and Turner,
but the temporary vacancy of roughly 200,000 feet was still in effect as of
year-end 1995. The first quarter, 1996 date will reflect the substantial
positive absorption attributable to the two major leases in this building.
EXISTING OFFICE SUPPLY
Office buildings located in the Pasadena market compete most directly for
tenants with other buildings in Pasadena, but similar quality buildings in the
Burbank and Glendale markets also provide some direct competition. Pasadena is
the largest of the Tri-City submarkets, and is distinguished by the number of
major corporate headquarters located within the area.
- -------------------------------------------------------------------------------
37
<PAGE>
NET ABSORPTION
TRI-CITY AREA
MARKET AND SUBMARKET (EXCLUDING SUBLEASE ACTIVITY)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
MARKET 1991 1992 1993 1994 1995 AVERAGE
- ------ ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Universal Studio City 2,889 (55,562) 37,930 22,204 56,744 12,841
Burbank Media Dist. 163,283 (49,275) (143,557) 255,718 87,406 82,715
Burbank City Center 82,594 (38,229) (15,455) N/A* (26,003) 727
Glendale 101,144 (9,880) 117,186 226,005 (151,308) 56,673
Pasadena 131,427 (111,341) 140,433 (240,022) (105,482) (36,997)
Pasadena East (191,700) (1,044) (15,003) 102,503 (4,418) (21,932)
Total (SF) 289,637 (265,111) 121,534 366,408 (143,061) 74,027
- ----------------------------------------------------------------------------------------------------
</TABLE>
NET ABSORPTION TREND
[CHART]
1994 YEAR END FIGURES CONSOLIDATED THE BURBANK MEDIA DISTRICT
AND CITY CENTER SUBMARKETS
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
Pasadena developed as an office market with the construction of seven major
office buildings with a combined area of about 630,000 square feet from 1966
through 1972. The majority of the new office projects during the period 1972 to
1982 consisted of owner-user developments, including the 300,000 square-foot
Pacific Telephone regional headquarters, the Ralph M. Parsons world headquarters
(900,000 square feet in three phases from 1975 to 1982). Avery International's
85,000 square-foot office building completed in 1982, and the 140,000 square-
foot First Interstate Mortgage Building. Other prominent companies with
headquarter facilities in Pasadena include Bank America Center, Burroughs,
Digitran, Avon, Jacobs Engineering, Stuart Pharmaceutical, and Kaiser
Permanente.
Office development in Pasadena is concentrated primarily south of the
Foothill Freeway, between Lake and Pasadena Avenues. The most concentrated
markets of development have been along Lake and Los Robles Avenues, and Carson
and Chestnut Streets, which parallel the Foothill Freeway.
Pasadena (excluding the Pasadena East submarket) had a year-end 1995 total
of 5,542,296 square feet of office space in 57 building surveyed, of which about
1.4 million square feet was completed since 1988. The Pasadena office market
had a direct vacancy level of 13.2 percent as of the end of 1995. Including
sublease availabilities, the overall vacancy rate was 14.9 percent. These
figures represent an increase from year end 1993 direct and overall vacancy
rates of 8.6 percent and 12.0 percent, respectively.
The Glendale market, which is closest to the Media District and has
excellent quality Class A office space, has benefited from the inability of
Burbank Media District and Universal City landlords to accommodate tenant's
expansion requirements. The Glendale market has also tightened during 1994
however, and significant contiguous blocks of quality office space have become
quite limited in this market as well. The current direct and overall vacancy
rates for the Glendale office market are 15.8 percent and 18.0 percent,
respectively. A proposed 500,000 square-foot development in Glendale is
expected to be the first new speculative office development in Los Angeles
County in several years. Several tenants with substantial space requirements
have relocated to other Los Angeles area office market due to the lack of
quality office space in the Media District or in the Glendale office buildings.
Although the 400,000 square-foot Studio Plaza building in the Media District was
essentially vacated during 1994 by the master tenant Columbia Pictures (in order
to relocate to the Sony headquarters in Culver City), the tenant successfully
subleased nearly the entire building in less than one year to new tenants,
including major tenants Unihealth and Alliance Insurance. A major tenant in
another Media District building, 4000 Alameda (Saban Entertainment), which
contains about 110,000 square feet, vacated the building and relocate to 100,000
square feet of space in a Westwood building because there is no suitable space
remaining in the prime Media District submarket. The overflow from the
entertainment industry may benefit the Pasadena market indirectly, as
constraints in Glendale and Burbank availabilities will limit alternative for
Pasadena tenants.
- -------------------------------------------------------------------------------
38
<PAGE>
<TABLE>
<CAPTION>
CENTRAL VALLEY
MARKET & SUBMARKET STATISTICS
END OF THE 4TH QUARTER OF 1995
DIRECT OVERALL
NUMBER DIRECT VACANCY OVERALL VACANCY NET ABSORPTION WTD. AVG.
MARKET / SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE AVAILABILITIES RATE YTD 1995 RENTAL RATE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CENTRAL VALLEY 8,525,170 111 1,528,178 17.9% 1,729,033 20.3% (181,315) $19.68
- ---------------------------------------------------------------------------------------------------------------------------------
Encino 3,910,209 39 627,549 16.0% 716,474 18.3% (90,048) $21.36
Sherman Oaks 2,264,136 27 429,972 19.0% 481,647 21.3% (7,327) $20.40
Van Nuys 1,442,363 27 293,101 20.3% 336,792 23.4% (38,627) $17.16
Park City / Granada /
Mission Hills 386,090 7 64,839 16.8% 73,488 19.0% (27,904) $15.84
Valencia / Newhall 522,372 11 112,717 21.6% 120,632 23.1% (17,409) $17.04
</TABLE>
[GRAPH] [GRAPH]
SUBMARKET COMPARISON CHART AVAILABILITIES BAR GRAPH
Encino 45%
Sherman Oaks 27%
Van Nuys 17%
Park City / Granada /
Mission Hills 5%
Valencia / Newhall 6%
<PAGE>
[MAP]
LEGEND
1 Warner Center
2 Woodland Hills
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
RECENT INVESTMENT ACTIVITY - TRI-CITIES MARKETS
Five Class A buildings were purchased during the past year in the Tri City
office markets. The sales involved buildings ranging in size from about 100,000
to 430,000 square feet, and per-square-foot prices ranged from $60 to $230, with
four of the five prices from about $105 to $230 per-square-foot. The buildings
ranged in occupancy levels from 60 percent to 95 percent at the time of sale,
and overall capitalization rates, based on income in place at the time of sale,
ranged from about 8.2 percent to 12 percent.
CENTRAL VALLEY MARKET
The Central Valley office market contains a total of 8,525,170 square feet
of office space or 25.6 percent of the office product in the Los Angeles North
market. The Central Valley submarket is one of the varied office markets in the
Los Angeles North area as it contains the extensively developed areas of Van
Nuys, Sherman Oaks, and Encino, and extends further north to the less
intensively developed areas of Valencia and Newhall. As indicated on a
preceding chart, Encino is the major office sector in this area as it accounts
for approximately 45.9 percent of the office space in the Central Valley.
As of the fourth quarter 1995, direct and sublease availabilities in the
Central Valley submarket totalled 1,729,033 square feet for an overall vacancy
rate of 20.3 percent. The overall vacancy rate for the Central Valley was
notably higher than the overall vacancy rate for the Los Angeles North market
(17.2 percent). Within the Los Angeles North market, overall vacancy levels
ranged from a low of 14.1 percent in the East Valley market to a high of 20.3
percent in the Central Valley market. The recent vacancy rate for the Central
Valley market is significantly influenced by the supply of space which is
available on a direct or sublease basis in the Van Nuys submarket. Van Nuys has
an overall vacancy rate of 23.4 percent and the total space available within
this submarket accounts for 19.5 percent of the total direct and sublease
availabilities in the Central Valley market and 5.0 percent of the available
space in the Los Angeles North office market.
Within the Central Valley market, weighted average asking rental rates
range from a low of $15.84 per square foot per year (FSG) in Panorama
City/Granada/Mission Hills to a high of $20.40 per square foot per year (FSG) in
Sherman Oaks. The overall weighted average rental rate for the Central Valley
is $19.68 per square foot per year (FSG), which is in the middle of the range of
weighted average asking rental rates exhibited by the four markets within the
Los Angeles North sector. Since mid 1993, the weighted average asking rent in
the Central Valley market has declined by approximately 2.4 percent, which is
generally consistent with the decline in the weighted average rental rate for
the larger Los Angeles North market.
Within the Central Valley market, the decline in the weighted average
asking rental rate for individual submarkets ranged from a modest decrease from
1994 to 1995 of 1.1 percent in Encino to a more notable decline of 8.4 percent
in the northern submarket of Valencia/Newhall. The Encino area had a fourth
quarter 1995 weighted average asking rental rate of $21.36 per square foot per
year (FSG) which is significantly higher than the comparable rental rates for
most of the other submarkets within the Central Valley area.
- -------------------------------------------------------------------------------
39
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
The relatively high rental rate in the Encino submarket reflects the significant
concentration of office, retail, restaurant, and entertainment oriented
development along Ventura Boulevard, one of the premier commercial and traffic
corridors in the greater Los Angeles area. The primary users in the Encino
market include financial institutions, professional specialty firms such as
accounting and legal services, and investment/brokerage firms, which generally
prefer to be located in high quality buildings with adjacent amenities,
including retail, dining, and hotel facilities.
The Encino submarket has a weighted average asking rental rate of $21.36
per square foot per year (FSG) which is significantly higher than the comparable
rental rates for most of the other submarkets within the Central Valley area.
The relatively high rental rate in the Encino submarket reflects the significant
concentration of office, retail, restaurant, and entertainment oriented
development along Ventura Boulevard, one of the premier commercial and traffic
corridors in the greater Los Angeles area. The primary tenants in the Encino
market include financial institutions, professional specialty firms such as
accounting and legal services, and investment/brokerage firms, which generally
prefer to be located in high quality buildings with adjacent amenities,
including retail, dining, and hotel facilities.
COMPETITIVE OFFICE SUPPLY AND VACANCY - ENCINO SHERMAN OAKS
Encino is located within the Central Valley office market, which is
composed of the combined submarkets of Encino, Sherman Oaks, Van Nuys, Panorama
City, Granada Hills, Valencia, and Newhall. This Central Valley market contains
8,525,170 square feet of office space, excluding owner-user buildings. Of this
total space, approximately 60 percent is considered class "A" space, and the
majority of this Class A supply is concentrated in the Encino/Sherman Oaks
submarket. At the end of the 1995, 1,528,178 square feet was available for
lease in the Central Valley, indicating a vacancy rate of 17.9 percent. The
trend in (office) vacancy levels in the Central Valley, Encino, and Sherman Oaks
markets since 1992 is summarized on an accompanying page.
Each submarket has historically appealed to a different tenant base.
Sherman Oaks and Encino have attracted many of the Valley's financial, real
estate, accounting, attorneys, insurance and business service firms. These
companies are attracted to the Ventura Boulevard office corridor, concentrated
primarily between Van Nuys Boulevard in Sherman Oaks to Balboa Boulevard in
Encino. Sherman Oaks and Encino are typically considered as one larger
submarket due to their similar tenant base and quality of office supply. The
trend in recent years indicates the Encino/Sherman Oaks market is becoming
increasingly dominated by smaller tenants with some exceptions. Larger leases
to the Motion Picture Association of America for approximately 70,000 square
feet has retained a tenant already located in the Sherman Oaks market and a
government tenant (L.A. County Internal Services) also signed a new lease for
about 44,000 square feet in an Encino building. Additional major office leases
in this market include Mann Theatres (25,000 square feet), Pinkerton Security
(56,000 square feet), and a recent (1996) lease to Dreamworks.
- -------------------------------------------------------------------------------
40
<PAGE>
OVERALL OFFICE SPACE VACANCY TREND *
First quarter 1992 to fourth quarter 1995
LOCATION
Period Encino Sherman Oaks Central Valley**
1992
1st Qtr 20.6% 17.6% 21.0%
2nd Qtr 19.7% 17.5% 20.4%
3rd Qtr 18.6% 18.4% 20.5%
4th Qtr 17.8% 18.4% 20.2%
1993
1st Qtr 16.9% 18.4% 19.0%
2nd Qtr 16.8% 17.9% 18.9%
3rd Qtr 15.0% 21.0% 19.3%
4th Qtr 15.2% 18.4% 18.0%
1994
1st Qtr 13.0% 14.8% 15.7%
2nd Qtr 13.7% 15.5% 16.7%
3rd Qtr 16.7% 15.8% 19.2%
4th Qtr 16.9% 16.4% 20.5%
1995
1st Qtr 14.7% 20.5% 18.7%
2nd Qtr 16.7% 20.2% 19.8%
3rd Qtr 17.3% 21.8% 20.4%
4th Qtr 18.3% 21.3% 20.3%
Average 16.7% 18.4% 19.3%
* - "Overall Vacancy Rate" is defined as space, available both directly and
through sublease, divided by the inventory. Space in buildings under
construction is not included.
** - Central Valley includes Encino, Sherman Oaks, Van Nuys, Panorama City /
Granada Hills /Mission Hills and Valencia / Newhall.
VACANCY TRENDS
[GRAPH]
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
The majority of office buildings within the Sherman Oaks and Encino
submarkets are located along the Ventura Boulevard corridor, with secondary
office development located along Van Nuys, Sepulveda, and Balboa Boulevards. At
the end of 1995, Sherman Oaks had an inventory of 2,264,136 square feet of
office space, of which 429,972 square feet were available, equating to a 19.0
percent overall vacancy rate. Encino had a total inventory of 3,910,209 square
feet. There were 627,549 square feet available for lease at the end of 1995,
which equalled a 16.0 percent overall vacancy rate. The combined inventory of
these markets is 6,174,345 square feet, or 72 percent of the total Central
Valley supply. The direct vacancy rate for Sherman Oaks/Encino was 17.1
percent.
DEMAND/ABSORPTION - ENCINO/SHERMAN OAKS
The chart on the accompanying page summarizes the net absorption levels for
the Encino and Sherman Oaks submarkets during the period 1989 through 1995. The
net absorption levels for the combined submarkets have declined considerably
since 1989, and have resulted in negative net absorption for the past three
years. The Sherman Oaks submarket in particular has experienced a significant
negative net absorption level during the three years. As shown in a previous
exhibit, the 1995 absorption for these two submarkets has totalled (97,375)
square feet.
The Encino submarket absorption figure for 1995 reflects in part the
relocation of US Sales (about 60,000 square feet) to a building in another North
Los Angeles submarket. The previous US Sales premises was re-leased during the
first quarter, 1996 to the entertainment firm Dreamworks for a five-year lease.
This activity will be reflected in the first quarter, 1996 absorption data for
Encino.
A portion of the recent (1994) adjustments to vacancy and supply, as well
as absorption in the San Fernando Valley markets are attributable to the
inventory changes caused by damaged buildings in the January, 1994 earthquake.
Buildings have been temporarily or permanently closed, and tenants in some cases
have vacated the buildings and relocated elsewhere. Due to the uncertainty of
the supply figures the quantified absorption levels, particularly when compared
on a "same building" basis with prior year numbers, may not accurately reflect
the demand trends in this market.
FUTURE SUPPLY - ENCINO/SHERMAN OAKS
The most directly competitive office markets are impacted by the
Ventura/Cahuenga Boulevard Specific Plan (Ordinances 166229, 166560, and
166837), which was adopted by the City Council on January 14, 1991 and became
effective on February 16, 1991. The plan significantly limits development along
the Ventura Boulevard corridor from Leonara Drive to Woodrow Wilson Drive which
involves the five communities of Woodland Hills, Tarzana, Encino, Sherman Oaks
and Studio City. The five communities are divided into three categories
designated by the plan as Regional Commercial, Community Commercial and
Neighborhood/Office Commercial.
- -------------------------------------------------------------------------------
41
<PAGE>
NET ABSORPTION
ENCINO and SHERMAN OAKS
<TABLE>
<CAPTION>
MARKET 1989 1990 1991 1992 1993 1994 1995 AVERAGE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ENCINO 172,995 (16,909) (74,119) (30,300) 128,700 (18,990) (90,048) 10,190
SHERMAN OAKS (36,523) 99,037 13,501 (33,992) (118,491) (174,177) (7,327) (36,853)
TOTAL (SF) 136,472 82,128 (60,618) (64,292) 10,209 (193,167) (97,375) (26,663)
</TABLE>
NET ABSORPTION TREND
[GRAPH]
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
In addition to setting guidelines for building and site designs, Allowable
Floor Area Ratios are set by designated category and Net New Trips generated by
a proposed project. Each lot along the corridor has basic development rights of
0.35:1 Floor Area Ratio (FAR) in the Neighborhood/Office category, and a 0.5:1
FAR in the Regional Commercial and Community Commercial categories, provided
that the project does not generate more than 1.25 Net New Trips per 1,000 square
feet of lot area. The number of trips generated by a project are calculated
using trip generation schedules and each community has been set a ceiling for
total number of net new trips according to the following:
Studio City 5,196 net new trips
Sherman Oaks 2,844 net new trips
Encino 4,383 net new trips
Tarzana 4,747 net new trips
Woodland Hills 12,149 net new trips
--------------------
Corridor Total 29,310 net new trips
Maximum FAR is set by the following schedule despite possibly higher
allowances set by the trip schedule.
Neighborhood/Office Commercial: 1.00:1
Community Commercial:
Mixed Use Projects 1.25:1 + .25 bonus for mixed
Regional Commercial
East of I-405 Frwy: 1.50:1 with no FAR bonus
West of I-405 Frwy
(subject location) 1.25:1 + .25 bonus for mixed use projects
All future development along the corridor will be subject to the specific
plan provisions. The maximum allowable FAR's ranging from 1.00:1 to 1.50:1
prohibit any likely scenarios resulting in the future development of mid-rise to
high-rise projects.
The Ventura Boulevard Specific Plan includes "trip fees", which are to be
paid by developers of new projects based on the projected impact of new traffic
generated by a proposed development. The plan and the corresponding fees were
originally structured during more favorable economic times in this area, however
(the latter portion of the 1980's and the first year of the current decade).
Interviews with city planners and business press articles suggest that the
current fees may be reduced in the foreseeable future, and the current
development limitations may also be reviewed in the future.
WEST VALLEY MARKET
The West Valley office submarket contains a total of 8,487,933 square feet
of office space or 21.6 percent of the office product in the Los Angeles North
market. The West Valley submarket is one of the more prestigious office markets
in the Los Angeles North area due in large part to the high quality space and
work environment available at Warner Center. As indicated on a preceding chart,
Warner Center is the dominant office sector in
- -------------------------------------------------------------------------------
42
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
this area as it accounts for approximately 62.7 percent of the office space in
the West Valley.
As of the fourth quarter 1995, direct and sublease availabilities in the
West Valley submarket totalled 1,697,185 square feet for an overall vacancy rate
of 20.0 percent. The overall vacancy rate for the West Valley was notably
higher than the overall vacancy rate for the Los Angeles North market (17.2
percent). Within the Los Angeles North market, overall vacancy levels ranged
from a low of 14.1 percent in the East Valley market to a high of 20.3 percent
in the Central Valley market. The recent vacancy rate for the West Valley
market is significantly influenced by the supply of space which is available on
a direct or sublease basis in the Warner Center submarket. Warner Center has an
overall vacancy rate of 20.6 percent and the total space available within this
submarket accounts for 64.6 percent of the total direct and sublease
availabilities in the West Valley market and 16 percent of the available space
in the Los Angeles North office market. The recent overall vacancy rate for the
West Valley market is relatively unchanged from the 20.5 percent overall vacancy
rate as of year-end 1992.
Within the West Valley market, weighted average asking rental rates range
from a low of $16.32 per square foot per year (FSG) in Canoga Park/Chatsworth to
a high of $23.88 per square foot per year (FSG) in Warner Center. The overall
weighted average rental rate for the West Valley is $21.60 per square foot per
year (FSG), which is the second highest weighted average asking rental rate of
the four markets within the Los Angeles North sector behind the East Valley
market at $21.61 per square foot per (FSG). Since year-end 1993, the weighted
average asking rent in the West Valley market has declined by approximately 9.1
percent.
Each of the five submarkets within the West Valley office market
experienced declines in the weighted average asking rental rate from fourth
quarter 1993 to fourth quarter 1995. However, the downturn in asking rental
rates varied significantly by submarket. The Warner Center submarket, which
comprises approximately 65 percent of the total available space (direct and
sublease) in the West Valley, endured a 12.7 percent decrease in the asking
rental rate from 1993 to year-end 1995. The Tarzana submarket experienced a
relatively modest decrease of 1.2 percent in the asking rental rate over this
period. The Woodland Hills submarket experienced a 2.5 percent decline in the
weighted average asking rental rate from 1993 to year-end 1995, and the average
asking rental rate in this submarket was notably more stable than the larger
West Valley market as a whole and the neighboring submarket of Warner Center.
The Warner Center area has a weighted average asking rental rate of $23.88
per square foot per year (FSG) which is significantly higher than the comparable
rental rates for the other submarkets within the West Valley area. The
relatively high rental rate in the Warner Center market reflects the fact that
this submarket has the most significant concentration of Class A office product
in the West Valley area. The primary users in the subject market include
financial institutions, insurance companies, and brokerage firms,
- -------------------------------------------------------------------------------
43
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
which generally prefer to be located in high quality buildings with adjacent
amenities, including retail, dining, and hotel facilities.
WOODLAND HILLS MARKET
The Woodland Hills submarket is situated directly south of the larger
Warner Center submarket in the southwestern portion of the West Valley area.
The charts on the accompanying pages provide a breakdown of the existing
inventory, direct and overall vacancy rates, and recent leasing activity within
the Warner Center and Woodland Hills submarkets, and the combined area
incorporating both of these submarkets which we have labeled as the "Greater
Warner Center" area.
The Greater Warner Center area contains 6,396,671 square feet of office
product, with a fourth quarter 1995 direct vacancy rate of 15.9 percent and an
overall vacancy rate of 19.2 percent. The Woodland Hills submarket comprises an
average sized office market within the West Valley area, with an existing
inventory of slightly over one million square feet and an average building size
of approximately 60,000 square feet. The Woodland Hills submarket had a fourth
quarter 1995 direct vacancy rate of 11.9 percent and an overall vacancy rate of
12.5 percent, both of which compared favorably to the corresponding figures for
the Greater Warner Center area and the West Valley market. The direct vacancy
rate for the Woodland Hills submarket has declined significantly over the past
several years, from 26.1 percent at year-end 1990 to 11.9 percent at year-end
1995.
Approximately 83 percent of the office space in the Greater Warner Center
area is concentrated in Warner Center, which is the primary commercial influence
in the western San Fernando Valley. This 1,100-acre master planned community
was developed as part of the 1960's "centers" concept in urban planning, which
differs significantly from the "corridors" concept typified by Ventura or
Wilshire Boulevard. Warner Center is designated as the primary Urban Center for
the west San Fernando Valley, and the specific plan for the area was originally
adopted in 1971. The Los Angeles City Council approved in June 1993 the long-
awaited specific plan to guide development and traffic improvements for Warner
Center. The boundaries for this plan include Topanga Canyon Boulevard to the
west, the Ventura Freeway to the south, De Soto Avenue to the east, and Vanowen
Street to the north.
The primary goals of the Warner Center specific plan are as follows: 1) To
coordinate future land use and development in Warner Center with public transit
and transportation systems; 2) To mitigate transportation impacts of future
development: and 3) To establish a hierarchy of land use intensity to minimize
adverse impact upon adjacent residential neighborhoods. The Warner Center
specific plan will permit 35.7 million square feet of development in the 1,100-
acre center. However, the infrastructure costs associated with the plan would
add substantially to the cost of development in the form of higher fees.
Significant issues delineated in the plan include reduced FAR, transit and
housing linkage fees, trip fees, and mixed-use development requirements. The
effect of the plan on new
- -------------------------------------------------------------------------------
44
<PAGE>
[MAP]
LEGEND
1 Warner Center
1 Woodland Hills
<PAGE>
GREATER WARNER CENTER
MARKET & SUBMARKET STATISTICS
END OF THE 4TH QUARTER OF 1995
<TABLE>
<CAPTION>
DIRECT OVERALL
NUMBER DIRECT VACANCY OVERALL VACANCY NET ABSORPTION WTD. AVG.
MARKET / SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE AVAILABILITIES RATE 4TH QTR YTD 1995 RENTAL RATE
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GREATER WARNER CENTER 6,396,671 57 1,014,740 15.9% 1,229,035 19.2% 172,688 196,618 $23.25
- -----------------------------------------------------------------------------------------------------------------------------------
WARNER CENTER 5,325,021 39 887,559 16.7% 1,095,539 20.6% 168,903 164,899 $23.88
WOODLAND HILLS 1,071,650 18 127,181 11.9% 133,496 12.5% 3,785 31,719 $18.84
</TABLE>
SUBMARKET COMPARISON CHART AVAILABILITIES BAR GRAPH
[GRAPH] [GRAPH]
<PAGE>
GREATER WARNER CENTER
VACANCY RATES
ANNUAL TREND
<TABLE>
<CAPTION>
DIRECT VACANCY RATES
- ------------------------------------------------------------------------------------------
GREATER WARNER CENTER 1990 1991 1992 1993 1994 1995 AVERAGE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WARNER CENTER 22.6% 23.8% 20.2% 17.6% 17.8% 16.7% 19.8%
WOODLAND HILLS 26.1% 21.3% 20.9% 17.2% 16.4% 11.9% 19.0%
</TABLE>
DIRECT VACANCY RATES
LINE CHART
[GRAPH]
<PAGE>
GREATER WARNER CENTER
VACANCY RATES
ANNUAL TREND
<TABLE>
<CAPTION>
OVERALL VACANCY RATES
- ------------------------------------------------------------------------------------------
GREATER WARNER CENTER 1990 1991 1992 1993 1994 1995 AVERAGE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WARNER CENTER 24.4% 24.7% 21.9% 19.6% 22.7% 20.6% 22.3%
WOODLAND HILLS 27.7% 21.6% 21.6% 17.8% 17.1% 12.5% 19.7%
</TABLE>
OVERALL VACANCY RATES
LINE CHART
[GRAPH]
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
development will be to delay new projects until market conditions improve
sufficiently to create a "spike" in rental rates sufficient to justify the
additional new cost.
The emergence of the office market in Warner Center is due primarily to the
development during the past decade of several major Class A office developments
that have attracted a number of major institutional tenants to the marketplace.
These developments include the multi-phased Warner Center Plaza development by
the Voit Companies (now controlled by Copley), the two-phased Trillium
development, and Warner Corporate Center. These three developments contain a
combined rentable office area of just over 2.6 million square feet, or nearly 40
percent of the total office supply in the combined Woodland Hills/Warner Center
market.
LEASING ACTIVITY/ABSORPTION/TENANT DEMAND - WOODLAND HILLS
The charts on the accompanying pages summarize the recent trends in leasing
activity and net absorption for the Woodland Hills and Warner Center office
submarkets. From 1991 to 1995, the Greater Warner Center area achieved average
annual leasing activity of 789,321 square feet. The Warner Center submarket
accounted for 74.0 percent of the annual average leasing activity during this
period. However, the leasing activity in each submarket has been generated in
large part by significant tenant relocations from other office buildings within
these submarkets, rather than new tenants moving into the Greater Warner Center
area from outlying areas. For example, during 1994 both Warner Center and
Woodland Hills experienced negative net absorption due in part to tenant
relocations to outlying areas resulting from the January 1994 Northridge
earthquake. However, in 1995 both of these submarkets achieved positive net
absorption, with the Warner Center net absorption of approximately 165,000
square feet accounting for nearly 55 percent of the total net absorption for the
Los Angeles North office market.
The tenant base in the Woodland Hills and Warner Center submarkets consists
of a mix of financial services, business services, health care, and high-
technology related companies. Major employers and users of office space in the
Greater Warner Center area include Blue Cross of California, Prudential
Insurance, Health Net, 20th Century Insurance, Weyerhauser Mortgage, Zenith
Insurance, Data Products, City National Bank, Ernst & Young, and Aetna Life and
Casualty. Blue Cross of California occupies the eight-story office building
located at 21555 Oxnard Street in the Warner Center area and employs
approximately 3,800 persons at this facility. Prudential Insurance employs
approximately 1,500 persons at a low-rise campus development with approximately
400,000 square feet of space, which is situated at the northeast corner of
Canoga Avenue and Burbank Boulevard in the Warner Center area.
20th Century Insurance presently employs approximately 950 persons in three
adjacent mid-rise and high-rise office buildings on Owensmouth Avenue in the
Warner Center area. In early 1993, the company had announced plans to relocate
to the proposed/planned Warner Ridge development, a multi-building project to be
located adjacent to the northeast corner of DeSoto Avenue and Canoga Avenue in
Woodland Hills.
- -------------------------------------------------------------------------------
45
<PAGE>
GREATER WARNER CENTER
NET ABSORPTION (SF)
ANNUAL TREND
- --------------------------------------------------------------------------------
GREATER WARNER CENTER 1994 1995 AVERAGE
- --------------------------------------------------------------------------------
Warner Center (98,786) 164,899 33,057
Woodland Hills (6,951) 31,719 12,384
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUBMARKET TOTALS (105,737) 196,618 45,441
- --------------------------------------------------------------------------------
NET OFFICE ABSORPTION
BAR CHART
[BAR CHART]
<PAGE>
GREATER WARNER CENTER
GROSS LEASING ACTIVITY (SF)
ANNUAL TREND
- --------------------------------------------------------------------------------
GREATER WARNER CENTER 1991 1992 1993 1994 1995 AVERAGE
- --------------------------------------------------------------------------------
Warner Center 583,705 583,954 648,713 378,150 727,523 584,409
Woodland Hills 231,364 129,367 236,303 229,046 198,481 204,912
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUBMARKET TOTALS 815,069 713,321 885,016 607,196 926,004 789,321
- --------------------------------------------------------------------------------
GROSS LEASING ACTIVITY
LINE CHART
[LINE CHART]
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
However, the developer was unable to arrange financing for the development and
20th Century insurance subsequently withdrew its commitment to the project in
late 1993.
More recently, several new tenants have relocated to the Warner Center
and/or Woodland Hills areas. In the fourth quarter of 1995 the General Services
Administration, an agency of the United States government, moved into 60,000
square feet at Warner Corporate Park. Other companies or organizations which
have moved into the local area during the past year include La Verne University
(32,187 square feet at Warner Center Business Park), Kaufman & Broad Home
Corporation (23,529 square feet at Warner Center Plaza III), Swett & Crawford
insurance brokerage (12,500 square feet at Warner Center Plaza III), Amgen Inc.
(2,790 square feet at Warner Center Plaza VI), and Digital Equipment (2,126
square feet at Warner Center Business Park).
FUTURE SUPPLY - WOODLAND HILLS
The delivery of new office space to the West Valley market is expected to
be very limited over the next few years due to the significant amounts of
existing space currently available in most submarkets and the specific plans
impacting these markets.
Warner Center and the Ventura Boulevard corridor of Woodland Hills are each
subject to restrictive specific plans which include substantial fees for new
development. Although there are several potential sites for future competitive
office development, substantial increases in rental rates would be required in
order to economically justify new construction.
CONCLUSION - WOODLAND HILLS OFFICE MARKET
The West Valley market is one of the more diverse markets in the Los
Angeles North area. The West Valley offers prospective tenants the prestigious
and higher cost office space in Warner Center and Woodland Hills, while also
meeting lower cost space requirements of office users in the Canoga
Park/Chatsworth area. The Northridge/Reseda and Canoga Park/Chatsworth areas
provide cost competitive space in the form of low rise, Class B buildings, while
the Warner Center and Woodland Hills submarkets compete most directly for
tenants seeking higher quality, Class A office product.
The Greater Warner Center area, which includes Warner Center and Woodland
Hills, is an important office submarket within the larger West Valley area.
This combined submarket accounts for 75 percent of the office product in the
West Valley, and has rent levels which are at or near the upper end of the range
exhibited by the various submarkets within the West Valley area. Over the past
several years, the Woodland Hills submarket has achieved very steady improvement
in the overall vacancy rate, which has declined from 27.7 percent at year-end
1990 to 12.5 percent at year-end 1995. The larger and adjacent Warner Center
submarket has also posted a notable decline in the overall vacancy rate, which
has declined from a recent peak of 24.7 percent at year-end 1991 to 20.6 percent
at year-end 1995. The Woodland Hills and Warner Center submarkets have proven
to be a favored location for insurance companies, financial institutions, and
health
- -------------------------------------------------------------------------------
46
<PAGE>
[MAP]
LEGEND
1 Simi Valley
2 Thousand Oaks/Newbury Park
3 Westlake Village
4 Agoura Hills
5 Calabasas
<PAGE>
CONEJO VALLEY
MARKET & SUBMARKET STATISTICS
END OF THE 4TH QUARTER OF 1995
<TABLE>
<CAPTION>
DIRECT OVERALL
NUMBER DIRECT VACANCY OVERALL VACANCY NET ABSORPTION WTD. AVG.
MARKET / SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE AVAILABILITIES RATE 4TH QTR YTD 1995 RENTAL RATE
- ----------------------------------------------------------------------------------------------------------------------------------
CONEJO VALLEY 4,341,236 81 481,931 11.1% 804,208 18.5% 158,064 211,585 $18.57
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Thousand Oaks/Newbury Park 701,607 14 239,761 34.2% 239,761 34.2% 8,595 (597) $19.80
Westlake Village 1,735,399 32 149,247 8.6% 322,190 18.6% 138,133 176,534 $17.16
Agoura Hills 497,672 10 40,588 8.2% 53,365 10.7% (4,110) (7,747) $15.48
Calabasas 1,406,558 25 52,335 3.7% 188,892 13.4% 15,446 43,395 $19.32
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUBMARKET COMPARISON CHART AVAILABILITIES BAR GRAPH
[GRAPH] [GRAPH]
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
care companies, due to the high quality of the office product and the
surrounding amenities.
CONEJO VALLEY SUBMARKET
The Conejo Valley office submarket contains a total of 4,341,236 square
feet of office space or 11.0 percent of the office product in the Los Angeles
North market. The Conejo Valley submarket is a second tier office market within
the larger Los Angeles North area due in large part to the lesser concentration
of Class A product as compared to such markets as Warner Center/Woodland Hills,
Burbank, Glendale, and Studio City. As indicated on a preceding chart, Westlake
Village and Calabasas comprise the most significant office markets in the Conejo
Valley area with a combined inventory of 3,141,957 square feet or 72.4 percent
of the office space in the Conejo Valley.
As of the fourth quarter 1995, direct and sublease availabilities in the
Conejo Valley submarket totalled 804,208 square feet for an overall vacancy rate
of 18.5 percent. The overall vacancy rate for the Conejo Valley was slightly
higher than the overall vacancy rate for the Los Angeles North market (17.2
percent). The recent vacancy rate for the Conejo Valley market is significantly
influenced by the supply of space which is available on a direct or sublease
basis in the Thousand Oaks/Newbury Park submarket. The Thousand Oaks/Newbury
Park submarket has an overall vacancy rate of 34.2 percent and the total space
available within this submarket accounts for 29.8 percent of the total direct
and sublease availabilities in the Conejo Valley market and 3.5 percent of the
available space in the Los Angeles North office market. The recent overall
vacancy rate for the Conejo Valley market is notably decreased from the 22.6
percent overall vacancy rate as of year-end 1992.
Within the Conejo Valley market, weighted average asking rental rates range
from a low of $15.48 per square foot per year (FSG) in Agoura Hills to a high of
$19.80 per square foot per year (FSG) in Thousand Oaks/Newbury Park. The
overall weighted average rental rate for the Conejo Valley is $18.57 per square
foot per year (FSG), which is the towards the low end of the weighted average
asking rental rate of the markets within the Los Angeles North sector. Since
second quarter 1993, the weighted average asking rent in the Conejo Valley
market has increased by approximately 11.3 percent, which compared favorably to
the decline in the weighted average rental rate for the West Valley and Central
Valley markets and the relatively modest increase in the East Valley over this
period. The table below summarizes the trend in weighted average asking rental
rates on a per square foot basis for both Class A and B office space within the
Conejo Valley sector.
- -------------------------------------------------------------------------------
47
<PAGE>
CONEJO VALLEY
VACANCY RATES
ANNUAL TREND
DIRECT VACANCY RATES
- --------------------------------------------------------------------------------
CONEJO VALLEY 1990 1991 1992 1993 1994 1995 AVERAGE
- --------------------------------------------------------------------------------
Thousand Oaks/Newbury Park 20.9% 23.0% 20.0% 21.6% 28.5% 34.2% 24.7%
Westlake Village 26.3% 29.3% 23.9% 18.3% 14.4% 8.6% 20.1%
Agoura Hills 21.6% 20.3% 19.7% 18.5% 10.2% 8.2% 16.4%
Calabasas 21.0% 18.2% 15.9% 13.5% 8.7% 3.7% 13.5%
DIRECT VACANCY RATES
LINE CHART
[CHART]
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
CONEJO VALLEY SUBMARKET
WEIGHTED AVERAGE RENTAL RATES
ANNUAL PSF
1993* 1995* % Change
----- ----- --------
Conejo Submarket $16.68 $18.57 +11.3%
---------------- ------ ------ -----
- Thousand Oaks/
Newbury Park $15.52 $19.80 +27.6%
- Westlake Village $16.80 $17.16 +2.1%
- Agoura Hills $15.30 $15.48 +1.2%
- Calabasas $17.64 $19.32 +9.5%
* Data is as of the second quarter 1993 and the fourth quarter 1995.
The chart above illustrates the significant increase in asking rental rates
in the Conejo Valley submarket over the course of the past ten quarters. Each
of the submarkets within the Conejo Valley office market experienced increases
in the weighted average asking rental rate from second quarter 1993 to fourth
quarter 1995, although the change in asking rental rates varied by submarket
location. The overall increase of 11.3 percent for the Conejo Valley market is
largely attributable to the increase in asking rents within the Thousand
Oaks/Newbury Park submarket, which experienced a very significant increase of
27.6 percent in the weighted average asking rental rate. The positive growth in
the weighted average asking rental rate for the Conejo Valley is due in part to
the westward migration of office users from locations in the San Fernando
Valley, as well as growth within the high technology sector.
The Calabasas area has a weighted average asking rental rate of $19.32 per
square foot per year (FSG) which is towards the upper end of the range of
comparable rental rates for the other submarkets within the Conejo Valley area.
The relatively high rental rate in the Calabasas market reflects the fact that
this submarket has a relatively low overall vacancy rate of 13.4 percent as well
as the fact that most of the office product within this market was constructed
during the period from 1980 to 1990 and therefore is of relatively high quality
within the Conejo Valley area. The primary users in the Calabasas market
include financial institutions, insurance companies, and high-technology firms,
which generally prefer to be located in high quality buildings with convenient
freeway access and adjacent amenities.
The Westlake Village area has a weighted average asking rental rate of
$17.16 per square foot per year (FSG) which is towards the lower end of the
range of comparable rental rates for the other submarkets within the Conejo
Valley area. The relatively low rental rate in the Westlake Village market
reflects the fact that this submarket has a significant amount o sublease space
which increases the vacancy rate from 8.6 percent on a direct basis to 18.6
percent on an overall basis (direct plus sublease availabilities). The primary
users in the Westlake Village market include insurance companies,
- -------------------------------------------------------------------------------
48
<PAGE>
CONEJO VALLEY
VACANCY RATES
ANNUAL TREND
<TABLE>
<CAPTION>
OVERALL VACANCY RATES
- -----------------------------------------------------------------------------------------------------
CONEJO VALLEY 1990 1991 1992 1993 1994 1995 AVERAGE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thousand Oaks / Newbury Park 21.8% 24.4% 20.8% 21.8% 29.2% 34.2% 25.4%
Westlake Village 30.5% 31.5% 25.8% 21.3% 17.3% 18.6% 24.2%
Agoura Hills 23.0% 20.7% 20.0% 18.7% 10.2% 10.7% 17.2%
Calabasas 24.9% 20.2% 19.3% 18.8% 15.0% 13.4% 18.6%
</TABLE>
OVERALL VACANCY RATES
LINE CHART
[LINE CHART]
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
communications companies, and high-technology firms, which generally prefer
locations with good access to executive level housing, a substantial labor pool,
and adjacent amenities.
Office buildings in the Conejo Valley office market were impacted to
varying degrees by the January 1994 Northridge earthquake. Our recent
experience with office buildings in the Conejo Valley area indicates that
several tenants relocated from damaged buildings properties in the greater
Northridge area which has resulted in a short-term positive influence on leasing
activity and net absorption in the Conejo Valley area. However, our discussions
with local brokers indicate that a rent levels have not increased significantly
as a result of the earthquake related tenant relocations due to the ongoing
building repairs and general market recovery of the greater Northridge area
office market.
CALABASAS MARKET
The Calabasas submarket is situated in the southeastern region of the
larger Conejo Valley area. The Calabasas market contains 1,406,558 square feet
of office product or 32.4 percent of the office space within the Conejo Valley
area. The Calabasas submarket is the second largest market in the Conejo Valley
area, behind only the Westlake Village submarket which contains 1,735,399 square
feet and accounts for 40.0 percent of the office space in the Conejo Valley
area.
The Calabasas submarket had a fourth quarter 1995 direct vacancy rate of
3.7 percent and an overall vacancy rate of 13.4 percent, both of which compared
favorably to the corresponding figures for the Conejo Valley market and the
larger Los Angeles North market. The direct vacancy rate for the Calabasas
submarket has declined significantly over the past several years, from 21.0
percent at year-end 1990 to 3.7 percent at year-end 1995. Similarly, the
overall vacancy rate for the Calabasas submarket has declined from 24.9 percent
in 1990 to 13.4 percent in 1995
The growth of the office market in Calabasas is due in part to the
perceived high quality of life which is available to residents in the Calabasas
area. Calabasas is situated approximately five miles west of the Warner
Center/Woodland Hills area and has excellent freeway access to outlying areas by
way of the Ventura Freeway (SH-101). The area is relatively affluent in terms
of household and per capita income levels, and the Las Virgenes School District
is a very significant attraction for families with school-age children.
Initially developed as a suburban residential community, Calabasas experienced
significant commercial development during the mid to late 1980s as executives
relocated companies from more established and congested areas in the greater Los
Angeles region. Most of the existing office product in the Calabasas area
consists of low to mid-rise structures, many of which are situated within larger
business park developments.
LEASING ACTIVITY/ABSORPTION/TENANT DEMAND - CALABASAS
The charts on the accompanying pages summarize the recent trends in leasing
activity and net absorption for the submarkets within the Conejo Valley market.
From 1991 to 1995, the Calabasas submarket achieved average annual leasing
activity of 216,023
- -------------------------------------------------------------------------------
49
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
square feet. The Calabasas submarket accounted for 45.6 percent of the annual
average leasing activity in the Conejo Valley during this period. The Westlake
Village submarket achieved a similar average leasing activity of 216,760 square
feet per year from 1991 to 1995. However, the leasing activity in the Calabasas
submarket has been generated in part by significant tenant relocations from
other office buildings within this submarket, rather than new tenants moving
into the Calabasas area from outlying areas. From 1991 to 1995, Calabasas
achieved an average net absorption of 22,919 square feet per year or
approximately 19.2 percent of the average absorption achieved by the Conejo
Valley market over this four-year period. The most significant net absorption
was achieved by the Westlake Village submarket, which captured 64 percent of the
average annual absorption within the Conejo Valley market from 1992 to 1995.
The tenant base in the Calabasas submarket consists of a mix of financial
services, business services, and high-technology related companies. Major
employers and users of office space in the Calabasas area include Postal Insert
Press (PIP), Blue Cross, Xircom, Card Service International, Dynatech Microwave,
Telematics, Superior National Insurance, DuCommon Inc., Chase Manhattan Mortgage
Corporation, and Massachusetts Mutual Life Insurance. Dynatech Microwave is a
manufacture and distributor of microwave switches which employs approximately
100 persons at their facility located at 26665 Agoura Road in Calabasas. Card
Service International is a credit reporting company which employs nearly 200
persons at the company's offices at 26775 Malibu Hills Road in Calabasas. PIP
employs nearly 75 persons at the company's regional headquarters facility
located at 27001 Agoura Road in Calabasas.
More recently, several new tenants have relocated to the Calabasas area.
During the past 12 to 18 months the following companies have executed new leases
in the Calabasas area: 1) LDDS/Metromedia moved into 2,900 square feet at 2829
Towngate Road in Calabasas; 2) Motorola, Inc. moved into 4,930 square feet at
26635 Agoura Road in Calabasas; 3) Xylan Corporation moved into 8,300 square
feet at 26701 Agoura Road in Calabasas; and 4) Blue Cross moved into 15,000
square feet at 26565 Agoura Road in Calabasas.
FUTURE SUPPLY - CALABASAS
The delivery of new office space to the Conejo Valley market is expected to
be limited over the next few years due to the significant amounts of existing
space currently available in most submarkets. At the present time there are
several potential development sites for new office product in the greater
Calabasas area. One of the more important areas of new commercial development
in Calabasas is the Lost Hills Business Park, located approximately one quarter
mile south of the Ventura Freeway at the intersection of Agoura Road and Lost
Hills Road. This area has been developed with a mix of low-rise office,
research and development, and light industrial buildings over the past several
years and the last remaining parcels of undeveloped land are reportedly in
escrow to a developer. Although the timing and scope of future office
developments is quite uncertain, the current office leasing marketplace, as well
as the constraints on the capital markets for
- -------------------------------------------------------------------------------
50
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
construction financing and real estate investment indicate that new speculative
projects will not be developed until significant rental increases occur.
WESTLAKE VILLAGE MARKET
The Westlake Village submarket is situated in the central region of the
larger Simi/Conejo Valley area. The Westlake Village market contains 1,735,399
square feet of office product or 40.0 percent of the office space within the
Conejo Valley area. The Westlake Village submarket is the largest market in the
Conejo Valley area, and ranks slightly ahead of the Calabasas submarket which
contains 1,406,558 square feet or 32.4 percent of the office space in the Conejo
Valley area.
The Westlake Village submarket had a fourth quarter 1995 direct vacancy
rate of 8.6 percent and an overall vacancy rate of 18.6 percent. The Westlake
Village direct vacancy rate is notably lower than the direct vacancy level for
the larger Conejo Valley market. However, the Westlake Village area has a
significant supply of sublease availabilities and, as a result, the overall
vacancy rate for Westlake Village is slightly higher than the corresponding
figure for the Conejo Valley area. The direct vacancy rate for the Westlake
Village submarket has declined very steadily over the past several years, from a
recent peak of 29.3 percent at year-end 1991 to 8.6 percent at year-end 1995.
The overall vacancy rate for the Westlake Village has declined at a slightly
less rapid pace than the direct vacancy rate, as the overall vacancy level
decreased from 31.5 percent at year-end 1991 to 18.6 percent at year-end 1995.
The Westlake Village office market provides convenient access to major
commercial markets in Los Angeles and Ventura Counties. The City of Westlake
Village is situated in the westernmost region of Los Angeles County, adjacent to
the Los Angeles County border with Ventura County. Westlake Village is situated
at the approximate center of the "Conejo Valley Technology Corridor", which
generally extends along the Ventura Freeway (SH-101) from Calabasas on the east
to Thousand Oaks on the west. Westlake Village is a master-planned community,
and residential population is relatively affluent in terms of household and per
capita income levels. In addition, the Las Virgenes School District is a very
significant attraction for families with school-age children.
LEASING ACTIVITY/ABSORPTION/TENANT DEMAND - WESTLAKE VILLAGE
The charts on the accompanying pages summarize the recent trends in leasing
activity and net absorption for the submarkets within the Conejo Valley market.
From 1991 to 1995, the Westlake Village submarket achieved average annual
leasing activity of 216,760 square feet. The Westlake Village submarket
accounted for 45.8 percent of the annual average leasing activity in the Conejo
Valley during this period. The Calabasas submarket achieved a similar average
leasing activity of 216,023 square feet per year from 1991 to 1995. However,
the leasing activity in the Westlake Village submarket has been generated in
part by significant tenant relocations from other office buildings within this
submarket, rather than new tenants moving into the Westlake Village area from
outlying areas. From 1991 to 1995, Westlake Village achieved an average net
absorption of
- -------------------------------------------------------------------------------
51
<PAGE>
CONEJO VALLEY
NET ABSORPTION (SF)
ANNUAL TREND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
CONEJO VALLEY 1992 1993 1994 1995 AVERAGE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Thousand Oaks/Newbury Park 9,218 (30,795) 38,881 (597) 4,177
Westlake Village 86,344 4,528 71,852 176,534 84,815
Agoura Hills (10,380) 39,980 60,414 (7,747) 20,567
Calabasas 9,635 (40,174) 78,819 43,395 22,919
- ---------------------------------------------------------------------------------------------
SUBMARKET TOTALS 94,817 (26,461) 249,966 211,585 132,477
- ---------------------------------------------------------------------------------------------
</TABLE>
NET OFFICE ABSORPTION
LINE CHART
[CHART]
<PAGE>
CONEJO VALLEY
GROSS LEASING ACTIVITY (SF)
ANNUAL TREND
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
CONEJO VALLEY 1991 1992 1993 1994 1995 Average
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thousand Oaks / Newbury Park 97,761 34,182 159,132 70,097 N/A 90,293
Westlake Village 233,975 218,471 216,827 197,766 N/A 216,760
Agoura Hills 85,733 63,345 63,436 64,073 N/A 69,147
Calabasas 207,321 134,142 243,184 279,446 N/A 216,023
- -------------------------------------------------------------------------------------------------------
SUBMARKET TOTALS 624,790 450,140 682,579 611,382 0 473,778
- -------------------------------------------------------------------------------------------------------
</TABLE>
GROSS LEASING ACTIVITY
LINE CHART
[GRAPH]
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
84,815 square feet per year or approximately 64 percent of the average
absorption achieved by the Conejo Valley market over this four-year period.
The tenant base in the Westlake Village submarket consists of a mix of
insurance companies, distribution companies, high-technology companies, and
communications services companies. Major employers and users of office space in
the Westlake Village area include Dole Food Company, ComSystems, Hewlett
Packard, Candle Corporation, Amgen, and State Farm Insurance. Dole Food Company
is a distributor of fresh and packaged foods which employs approximately 300
persons at two facilities in the Westlake Village area, one at 31355 Oak Crest
Drive and a second location at 5795 Lindero Canyon Road. ComSystems is a long
distance telephone company which employs approximately 150 persons at their
operations at 2829 Townsgate Road in Westlake Village. State Farm Insurance
employs approximately 1,100 persons at their regional headquarters facility in
Westlake Village.
CONCLUSION - CONEJO VALLEY OFFICE MARKET
The Conejo Valley market is a relatively small office market within the
larger Los Angeles North area. The Conejo Valley offers prospective tenants the
relative new and higher quality office space in Calabasas and Westlake Village,
while also meeting lower cost space requirements of office users in the Agoura
Hills area. The Agoura Hills submarket provide cost competitive space in the
form of relatively small, garden-style, Class B buildings, while the Calabasas,
Thousand Oaks, and Westlake Village submarkets offer more institutional quality
space with a more varied mix of amenities.
The Calabasas submarket is an important office submarket within the larger
Conejo Valley area. This submarket accounts for 32.4 percent of the office
product in the Conejo Valley, and has rent levels which are near the upper end
of the range exhibited by the various submarkets within the Conejo Valley area.
Over the past several years, the Calabasas submarket has achieved very steady
improvement in the overall vacancy rate, which has declined from 24.9 percent
at year-end 1990 to 13.4 percent at year-end 1995. The Calabasas submarket has
proven to be a favored location for insurance companies, financial institutions,
and high-technology companies, due to the favorable quality of life available to
residents of the local area.
The Westlake Village submarket is an important office submarket within the
larger Conejo Valley area. This submarket accounts for 40.0 percent of the
office product in the Conejo Valley, and has rent levels which are near the
middle of the range exhibited by the various submarkets within the Conejo Valley
area. Over the past several years, the Westlake Village submarket has achieved
a significant improvement in the overall vacancy rate, which has declined from
31.5 percent at year-end 1991 to 18.6 percent at year-end 1995. The Westlake
Village submarket has proven to be a favored location for insurance companies,
distribution firms, and high-technology companies, due to the convenient access
to major commercial markets in Los Angeles and Ventura Counties, the range and
quality of executive level housing, and the attractive labor pool in the greater
Westlake Village area.
- -------------------------------------------------------------------------------
52
<PAGE>
LOS ANGELES NORTH OFFICE MARKET
- -------------------------------------------------------------------------------
CONCLUSION - NORTH LOS ANGELES OFFICE SECTOR
The North Los Angeles office sector, with a direct vacancy rate of 14.4
percent, includes several submarkets currently experiencing the lowest vacancy
rates in Los Angeles County. These markets include the Tri-City area in the
eastern portion of this sector and the submarkets of Calabasas and Westlake
Village in the western portion of this sector. Based on the 1995 net absorption
of 196,129 square feet for the North Los Angeles sector (rounded to 200,000
square feet), the chart below shows that even a fairly modest level of absorp
tion would, if achieved, result in vacancy rates below 13 percent on a market-
wide basis within three years:
Year end Inventory Available SF SF Absorption Vacancy
- -------- --------- ------------ ------------- -------
1995 39,355,810 5,682,217 196,129 14.4%
1996 39,355,810 5,482,217 200,000 13.9%
1997 39,355,810 5,282,217 200,000 13.4%
1998 39,355,810 5,082,217 200,000 12.9%
- -------------------------------------------------------------------------------
53
<PAGE>
LOS ANGELES SOUTH OFFICE MARKET ANALYSIS
- -------------------------------------------------------------------------------
LOS ANGELES SOUTH OFFICE MARKET ANALYSIS
LOS ANGELES SOUTH OFFICE MARKET
The Los Angeles South office market encompasses three market areas located
primarily in the South Bay area of Los Angeles County. The Los Angeles South
office sector is the smallest of the four office markets in Los Angeles County,
behind the Central Los Angeles, West Los Angeles, and Los Angeles North markets,
respectively. The Los Angeles South sector is comprised of three markets: El
Segundo, Torrance, and Long Beach. The individual submarkets that comprise the
overall Los Angeles South market exhibit a wide range in construction quality,
location, tenant based, and corresponding rental rates. The chart on the
accompanying page summarizes the Los Angeles South office sector and the
submarkets in this area. The LAX submarket is located on the boundary of the
West Los Angeles and South Los Angeles office sectors. For this market study,
we have included the LAX submarket within the West Los Angeles Office Sector,
since office buildings in this location compete with properties in the southerly
portion of the West Los Angeles area such as the Culver City/Westchester
submarket.
The Los Angeles South office market contained 27,336,900 square feet of
Class A and B space, excluding owner/user, medical and government buildings.
The office development in the Los Angeles South market is concentrated in three
major areas or Sectors: El Segundo, Torrance, and Long Beach. The individual
submarkets that comprise the overall competitive office market are
differentiated according to access, market perception, tenant appeal and
improvement quality, and rental rates.
As of the fourth quarter 1995, the Los Angeles South office market
exhibited a direct vacancy rate of 17.6 percent. The direct vacancy rate, which
does not include sublease availabilities, is generally consistent with the
direct vacancy rate for the larger Los Angeles County office market of 18.7
percent. The overall vacancy rate for the Los Angeles South market, which
includes both direct and sublease availabilities, was 20.8 percent as of fourth
quarter 1995. The overall vacancy rate for the Los Angeles South market is
similar to the corresponding figure of 21.0 percent for the Los Angeles County
office market.
The more significant office markets in the Los Angeles South area, in terms
of the quality and amount of office product, include El Segundo, Central
Torrance, the 190th Street Corridor, and Downtown Long Beach. The El Segundo
submarket, which is situated immediately south of and adjacent to the LAX
submarket, contains a significant concentration of high technology,
aerospace/defense, and business service companies. The office product in this
submarket ranges from multi-building business parks to high-rise space. The
Downtown Long Beach submarket contains an important concentration of accounting,
legal, and investment firms, which have been attracted to this submarket by the
high quality product in the downtown area as well as the growing volume of
international trade and related business generated by the Port of Los Angeles
and the Port of Long Beach.
LONG BEACH MARKET
The Long Beach office market contains a total of 10,500,161 square feet of
office space or 38 percent of the office product in the Los Angeles South
sector. The Long
- -------------------------------------------------------------------------------
54
<PAGE>
LOS ANGELES SOUTH
MARKET & SUBMARKET STATISTICS
END OF THE 4TH QUARTER OF 1995
<TABLE>
<CAPTION>
DIRECT OVERALL
NUMBER DIRECT VACANCY OVERALL VACANCY NET ABSORPTION WTD. AVG.
MARKET / SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE AVAILABILITIES RATE YTD 1995 RENTAL RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
EL SEGUNDO 9,424,153 69 1,471,128 15.6% 2,253,783 23.9% 326,730 $17.88
- ----------------------------------------------------------------------------------------------------------------------------------
1 El Segundo 9,424,153 69 1,471,128 15.6% 2,253,783 23.9% 326,730 $17.88
- ----------------------------------------------------------------------------------------------------------------------------------
TORRANCE 7,412,586 82 1,490,376 20.1% 1,521,263 20.5% (307,739) $17.76
- ----------------------------------------------------------------------------------------------------------------------------------
2 190th Street
Corridor 3,464,132 34 845,199 24.4% 863,950 24.9% (263,650) $17.28
3 Central Torrance 3,595,933 45 622,396 17.3% 634,532 17.8% (56,302) $18.36
4 San Pedro 352,521 3 22,781 6.5% 22,781 6.5% 12,213 $19.92
- -----------------------------------------------------------------------------------------------------------------------------------
LONG BEACH 10,500,161 89 1,852,079 17.6% 1,904,262 18.1% 349,663 $18.64
- -----------------------------------------------------------------------------------------------------------------------------------
5 Long Beach
Freeway 2,130,258 19 319,077 15.0% 335,981 15.8% 419,823 $18.48
6 North Long Beach 1,020,378 13 222,907 21.8% 222,907 21.8% (46) $15.00
7 Downtown Long
Beach 3,811,553 20 999,351 26.2% 1,040,380 27.3% (129,899) $19.92
8 Long Beach Marina 457,018 8 55,247 12.1% 55,247 12.1% 19,419 $18.96
9 Cerritos / Norwalk 3,080,956 31 255,497 8.3% 249,747 8.1% 40,366 $16.95
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 27,336,900 240 4,813,583 17.8% 5,679,308 20.8% 368,654 $18.14
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MARKET SIZE COMPARISON CHART AVAILABILITIES BAR GRAPH
[PIE CHART] [BAR CHART]
SUBMARKET WEIGHTED AVERAGE RENTAL RATE COMPARISON CHART
[BAR CHART]
<PAGE>
LOS ANGELES SOUTH OFFICE MARKET
- -------------------------------------------------------------------------------
Beach market is one of the more prestigious office markets in the Los Angeles
South area due primarily to the high quality space and work environment
available in the Downtown Long Beach area. As indicated on a preceding chart,
Downtown Long Beach is the largest submarket within the Long Beach area as it
accounts for approximately 36 percent of the office space in the Long Beach
area.
As of the fourth quarter 1995, direct and sublease availabilities in the
Long Beach market totalled 1,904,260 square feet for an overall vacancy rate of
18.1 percent. The overall vacancy rate for the Long Beach area was notably
lower than the overall vacancy rate for the Los Angeles South market (20.8
percent). Within the Los Angeles South market, overall vacancy levels ranged
from a low of 18.1 percent in the Long Beach market to a high of 23.9 percent in
the El Segundo market. The recent vacancy rate for the Long Beach market is
significantly influenced by the supply of space which is available on a direct
or sublease basis in the Downtown Long Beach submarket. Downtown Long Beach has
an overall vacancy rate of 27.3 percent and the total space available within
this submarket accounts for 54.6 percent of the total direct and sublease
availabilities in the Long Beach market and 18.3 percent of the available space
in the Los Angeles South office market.
Within the Long Beach market, weighted average asking rental rates range
from a low of $15.00 per square foot per year (FSG) in North Long Beach to a
high of $19.92 per square foot per year (FSG) in Downtown Long Beach. The
overall weighted average rental rate for the Long Beach is $18.64 per-square-
foot-per year (FSG), which is the highest weighted average asking rental rate
of the three markets within the Los Angeles South sector. The table below
summarizes the trend in weighted average asking rental rates on a per square
foot basis for both Class A and B office space within the Long Beach sector.
LONG BEACH MARKET
WEIGHTED AVERAGE RENTAL RATES
ANNUAL PSF
1993* 1995* % CHANGE
----- ----- --------
LONG BEACH MARKET $20.16 $18.72 -7.1%
----------------- ------ ------ -----
- Long Beach Freeway $20.52 $18.48 -9.9%
- North Long Beach $18.00 $15.00 -16.7%
- Downtown Long Beach $21.84 $19.92 -8.8%
- Long Beach Marina $17.16 $18.96 +10.5%
- Cerritos** $15.84 $16.80 +6.1%
* Data is as of the second quarter 1993 and the fourth quarter 1995.
** Data excludes Norwalk.
The chart above illustrates the change in asking rental rates in the Long
Beach market over the course of the ten quarters. The overall decrease of 7.1
percent is largely
- -------------------------------------------------------------------------------
55
<PAGE>
[MAP]
LEGEND
1 Long Beach Freeway (Airport Corridor)
2 North Long Beach
3 Downtown Long Beach
4 Long Beach Marina
5 Cerritos/Norwalk
<PAGE>
LONG BEACH
MARKET & SUBMARKET STATISTICS
END OF THE 4TH QUARTER OF 1995
<TABLE>
<CAPTION>
DIRECT OVERALL
NUMBER DIRECT VACANCY OVERALL VACANCY NET ABSORPTION WTD. AVG.
MARKET / SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE AVAILABILITIES RATE 4TH QTR YTD 1995 RENTAL RATE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG BEACH 9,913,986 87 1,763,329 17.8% 1,821,262 18.4% -67,301 349,663 $18.72
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Long Beach Freeway 2,130,258 19 319,077 15.0% 335,981 15.8% 29,585 419,823 $18.48
North Long Beach 1,020,376 13 222,907 21.8% 222,907 21.8% 1,511 -46 $15.00
Downtown Long Beach 3,811,553 20 999,351 26.2% 1,040,380 27.3% -138,538 -129,899 $19.92
Long Beach Marina 457,018 6 55,247 12.1% 55,247 12.1% 18,901 19,419 $18.96
Cerritos / Norwalk 2,494,781 29 166,747 6.7% 166,747 6.7% 21,240 40,366 $16.80
</TABLE>
SUBMARKET COMPARISON CHART AVAILABILITIES BAR GRAPH
[CHART] [GRAPH]
<PAGE>
LONG BEACH
VACANCY RATES
ANNUAL TREND
<TABLE>
<CAPTION>
DIRECT VACANCY RATES
- ------------------------------------------------------------------------------
LONG BEACH 1992 1993 1994 1995 AVERAGE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long Beach Freeway 18.8% 21.9% 19.5% 15.0% 18.8%
North Long Beach 25.3% 23.0% 17.2% 21.8% 21.8%
Downtown Long Beach 26.2% 23.0% 22.1% 26.2% 24.4%
Long Beach Marina 21.2% 19.8% 12.9% 12.1% 16.5%
Cerritos / Norwalk 20.8% 9.8% 7.7% 6.7% 11.2%
- -----------------------------------------------------------------------------
SUBMARKET TOTALS 22.6% 19.4% 17.3% 17.8% 19.3%
- -----------------------------------------------------------------------------
</TABLE>
DIRECT VACANCY RATES
LINE CHART
[CHART]
<PAGE>
LONG BEACH
VACANCY RATES
ANNUAL TREND
<TABLE>
<CAPTION>
OVERALL VACANCY RATES
- --------------------------------------------------------------------------------
LONG BEACH 1992 1993 1994 1995 AVERAGE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long Beach Freeway 21.8% 22.6% 21.0% 15.8% 20.3%
North Long Beach 25.3% 23.4% 17.6% 21.8% 22.0%
Downtown Long Beach 28.9% 26.8% 25.6% 27.3% 27.1%
Long Beach Marina 21.2% 20.2% 13.5% 12.1% 16.7%
Cerritos / Norwalk 20.8% 9.8% 7.7% 6.7% 11.2%
- --------------------------------------------------------------------------------
SUBMARKET TOTALS 23.6% 21.1% 19.1% 18.4% 20.5%
- --------------------------------------------------------------------------------
</TABLE>
OVERALL VACANCY RATES
LINE CHART
[CHART]
<PAGE>
LOS ANGELES SOUTH OFFICE MARKET
- -------------------------------------------------------------------------------
attributable to the decline in asking rents in the Downtown Long Beach area,
since this submarket comprises approximately 57.1 percent of the total available
space (direct and sublease) in the Long Beach area. Three of the five
submarkets within the Long Beach office market experienced declines in the
weighted average asking rental rate from second quarter 1993 to fourth quarter
1995, with the most significant decrease on a percentage basis occurring in the
North Long Beach submarket. The Long Beach Marina and Cerritos submarkets
posted increases in the range of six to ten percent in the weighted average
asking rental rate from 1993 to 1995.
LONG BEACH FREEWAY SUBMARKET
The Long Beach Freeway submarket incorporates the region bounded by the
Long Beach Freeway (I-710) to the west), the Downtown Long Beach submarket to
the south, the Los Angeles County border with Orange County to the east, and the
Cerritos submarket to the north. The Long Beach Freeway submarket is generally
concentrated near the Long Beach Municipal Airport with good access to the San
Diego Freeway (I-405). The charts on the accompanying pages provide a breakdown
of the existing inventory, direct and overall vacancy rates, and recent leasing
activity within the Long Beach Freeway submarket.
The Long Beach Freeway area contains 2,130,258 square feet of office
product, with a fourth quarter 1995 direct vacancy rate of 15.0 percent and an
overall vacancy rate of 15.8 percent. The Long Beach Freeway submarket
comprises an average sized office market within the Long Beach area, with an
existing inventory of 2,130,258 square feet and an average building size of
approximately 118,350 square feet. The direct vacancy rate for the Long Beach
Freeway submarket has declined notably over the past few years, from 21.9
percent at year-end 1993 to 15.0 percent at year-end 1995. Similarly, the
overall vacancy rate for the Long Beach Freeway submarket has declined over the
past few years, from 22.6 percent at year-end 1993 to 15.8 percent at year-end
1995.
The office market in Long Beach Freeway area has been driven in large part
by the office requirements of local aerospace/defense companies, most notably
McDonnell Douglas which operates a major assembly facility in the Long Beach
Airport area. Other significant users of space in this submarket include the
health services and business services markets. The office product in the Long
Beach Airport area consists of low to mid-rise buildings, several of which are
situated in larger business park environments. Two of the larger multi-building
business parks in the Long Beach Freeway market are the Long Beach Airport Plaza
Business Park, with five buildings and a total rentable area of approximately
485,000 square feet, and Kilroy Airport Center, with four buildings and a total
rentable area of 615,000 square feet. These two business parks comprise nearly
52 percent of the office inventory in the Long Beach Airport market.
LEASING ACTIVITY/ABSORPTION/TENANT DEMAND
The charts on the accompanying pages summarize the recent trends in leasing
activity and net absorption for the various office submarkets within the Long
Beach area. From 1992 to 1995, the Long Beach Freeway area achieved average
annual leasing
- -------------------------------------------------------------------------------
56
<PAGE>
LONG BEACH
NET ABSORPTION (SF)
ANNUAL TREND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
LONG BEACH 1992 1993 1994 1995 AVERAGE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long Beach Freeway 44,446 (94,444) 100,909 419,823 117,684
North Long Beach 51,022 18,635 21,350 (46) 22,740
Downtown Long Beach (81,613) 113,056 35,744 (129,899) (15,678)
Long Beach Marina (47,410) 9,351 36,923 19,419 4,571
Cerritos / Norwalk 32,679 156,446 52,908 40,366 70,600
- ------------------------------------------------------------------------------------
SUBMARKET TOTALS (876) 203,044 247,834 349,663 199,916
- ------------------------------------------------------------------------------------
</TABLE>
NET OFFICE ABSORPTION
LINE CHART
[CHART]
<PAGE>
LONG BEACH
GROSS LEASING ACTIVITY (SF)
ANNUAL TREND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
LONG BEACH 1992 1993 1994 1995 AVERAGE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long Beach Freeway 209,778 208,472 252,609 520,037 297,724
North Long Beach 107,512 60,964 66,861 46,738 70,519
Downtown Long Beach 351,677 385,884 294,774 376,208 352,136
Long Beach Marina 58,003 54,273 78,337 47,609 59,556
Cerritos / Norwalk 220,094 229,373 197,814 134,550 195,458
- ----------------------------------------------------------------------------------------
Submarket Totals 947,064 938,966 890,395 1,125,142 975,392
- ----------------------------------------------------------------------------------------
</TABLE>
GROSS LEASING ACTIVITY
LINE CHART
[CHART]
<PAGE>
LOS ANGELES SOUTH OFFICE MARKET
- -------------------------------------------------------------------------------
activity of 297,724 square feet. The Long Beach Freeway submarket accounted for
30.5 percent of the annual average leasing activity during this period and was
second in terms of annual leasing activity to the Downtown Long Beach submarket,
which accounted for 36.1 percent of the average annual leasing activity during
this period. Over the past few years, net absorption within the Long Beach area
has increased steadily although the net absorption has varied significantly by
submarket within this area. The Long Beach Freeway submarket achieved an
average annual net absorption of 117,584 square feet from 1992 to 1995, which
accounted for 58.9 percent of the total net absorption within the Long Beach
area during this period. The Long Beach Freeway submarket achieved net
absorption of nearly 420,000 square feet in 1995, which was the strongest
performance of any of the Long beach submarkets during the past four years and
which reflected the significant new leasing at Long Beach Airport Plaza Business
Park by McDonnell Douglas.
The tenant base in the Long Beach Freeway submarkets consists of a mix of
aerospace/defense, business services, and health care related companies. Major
employers and users of office space in the Long Beach Freeway area include
McDonnell Douglas, Mulliken Medical Center, DeVry Institute, and the Automobile
Club of Southern California. McDonnell Douglas executed leases on three
buildings at Long Beach Airport Plaza Business Park during 1995, with a total
rentable area of approximately 272,000 square feet. Mulliken Medical Center
employs approximately 250 persons at its facility at 5000 Airport Plaza Drive in
Long Beach. The DeVry Institute leases the entire building at 3880 Kilroy
Airport Way, a two-story 96,000 square foot building at the Kilroy Airport
Center.
In the first quarter 1996, SCAN Health Care and an affiliate company,
SmartCare, consolidated several Long Beach area offices into 45,000 square feet
at 3760 Kilroy Airport Way, a six-story office building located in the Kilroy
Airport Center business park. In addition, AHI Healthcare Systems announced in
the first quarter 1996 that it will double a lease commitment of 20,000 square
feet made in the summer of 1995 to 40,000 square feet at the 1501 Hughes Way
office building located in the Freeway Business Center, which is situated near
the northwest corner of the San Diego Freeway (I-405) and the Long Beach Freeway
(I-710). The Freeway Business Center is situated approximately 3.5 miles
northwest of the Long Beach Airport Plaza Business Park.
FUTURE SUPPLY
The delivery of new office space to the Long Beach market is expected to be
quite limited over the next few years due to the spread between current rental
rates and the economic rents required for new construction. There are no new
office developments either under construction or planned for development. The
most likely locations for new development in the Long Beach Freeway submarket
include additional phases of the Kilroy Airport Center business park and/or the
Long Beach Airport Plaza Business Park. Kilroy Airport Center consists of four
buildings ranging in size from 96,000 to 220,000 square feet and ranging in
height from two to eight stories. Long Beach Airport Plaza Business Park
consists of five buildings ranging in size from 50,000 to 165,000 square feet
and ranging in height from two to eight stories. Each of these business parks
has sites which could
- -------------------------------------------------------------------------------
57
<PAGE>
LOS ANGELES SOUTH OFFICE MARKET
- -------------------------------------------------------------------------------
accommodate new office development if sufficient market rental increases
occurred to justify new construction.
CONCLUSIONS - LONG BEACH FREEWAY OFFICE SUBMARKET
The Long Beach office market contains a significant concentration of the
existing office inventory in the larger Los Angeles South area. The Long Beach
market provides a mix of Class A high-rise office space in the Downtown Long
Beach area, low to mid-rise Class A space in the Long Beach Freeway submarket,
and relatively lower cost space in suburban markets in the greater Long Beach
area. Over the past few years, the Long Beach market has achieved a steady
increase in the annual net absorption which has been reflected in the declining
overall vacancy level from 1992 to 1995.
The Long Beach Freeway area, which includes the significant office
development located adjacent to the Long Beach Municipal Airport, is an
important office submarket within the larger Long Beach area. The Long Beach
Freeway submarket accounts for 21.5 percent of the office product in the Long
Beach area, and has rent levels which are near the middle of the range exhibited
by the various submarkets within the Long Beach area. Over the past several
years, the Long Beach Freeway submarket has posted improvement in the overall
vacancy rate, which has declined from 23.6 percent at year-end 1992 to 18.4
percent at year-end 1995. The Long Beach Freeway submarkets has proven to be a
favored location for aerospace/defense, medical services, and business services
companies due to the good quality product in this submarket, the very good
access and exposure to outlying commercial markets, and the significant
residential population and labor pool in the Long Beach area.
- -------------------------------------------------------------------------------
58
<PAGE>
[MAP]
<PAGE>
ORANGE COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
OVERVIEW
The Orange County Office Market consists of six separate markets which are
differentiated according to size, location, construction quality, tenant appeal,
and rental rates. The county has one primary and one secondary central business
district: the Greater Airport Area and the Tri-Freeway Area, respectively.
These two areas have emerged as the focal points of Orange County office
development activity in recent years. There is a total of approximately 52.7
million square feet of office space in Orange County, about half of which is in
the Greater Airport Area. The following chart shows the division of the six
markets into the 30 submarkets.
Sector 1 - South County
-----------------------
1 - Irvine Spectrum
2 - El Toro/Lake Forest
3 - Laguna Hills/Aliso Viejo
4 - Laguna Niguel
5 - Mission Viejo
6 - Dana Point/San Clemente/San Juan Capistrano
Sector 2 - Greater Airport Area
-------------------------------
7 - South Santa Ana
8 - Costa Mesa
9 - Newport Beach
10 - Irvine
Sector 3 - West County
----------------------
11 - Seal Beach
12 - Westminster
13 - Huntington Beach
14 - Fountain Valley
15 - Garden Grove
16 - Los Alamitos/Stanton
17 - Cypress
Sector 4 - Tri-Freeway Area
---------------------------
18 - Parkcenter Area
19 - Stadium Area
20 - The City Area
21 - Main Place Area
Sector 5 - Central County
-------------------------
22 - Tustin
23 - Santa Ana
24 - North/East Anaheim
25 - East Orange
26 - Civic Center Area
Sector 6 - North County
-----------------------
27 - Fullerton
28 - Brea/La Habra
29 - Placentia/Yorba Linda
30 - Buena Park/La Palma
- -------------------------------------------------------------------------------
59
<PAGE>
<TABLE>
<CAPTION>
ORANGE COUNTY
MARKET & SUBMARKET STATISTICS
END OF THE 4TH QUARTER OF 1995
DIRECT
NUMBER DIRECT VACANCY OVERALL
MARKET/SUBMARKET INVENTORY OF BLDGS AVAILABILITIES RATE AVAILABILITIES
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
SOUTH COUNTY 4,979,988 100 595,528 12.0% 632,367
- ------------------------------------------------------------------------------------------------------------------------------
1 Irvine Spectrum 1,995,437 31 204,383 10.2% 207,979
2 Lake Forest/R.S. Margarita 204,865 5 18,357 9.0% 20,305
3 Laguna Hills/Aliso Viejo 1,463,066 31 241,041 16.5% 270,835
4 Laguna Niguel/Laguna Beach 237,559 3 19,894 5.4% 19,894
5 Mission Viejo 955,707 27 111,853 11.7% 113,354
6 Dana Point/San Clemente/San 123,354 3 0 0.0% 0
Juan Capistrano
- ------------------------------------------------------------------------------------------------------------------------------
GREATER AIRPORT AREA 24,992,997 252 3,333,179 13.5% 3,919,640
- ------------------------------------------------------------------------------------------------------------------------------
7 South Santa Ana 1,458,865 7 163,890 11.2% 234,463
8 Costa Mesa 4,373,697 30 858,544 19.6% 996,915
9 Newport Beach 6,479,677 88 655,796 10.1% 694,894
10 Irvine (No Spectrum) 12,680,758 127 1,654,949 13.1% 1,993,368
- ------------------------------------------------------------------------------------------------------------------------------
WEST COUNTY 3,901,199 64 696,122 17.8% 696,122
- ------------------------------------------------------------------------------------------------------------------------------
11 Seal Beach 295,019 4 17,646 6.0% 17,646
12 Westminster 205,700 4 29,638 14.4% 29,638
13 Huntington Beach 1,014,519 18 219,035 21.6% 219,035
14 Fountain Valley 549,912 9 80,134 14.6% 80,134
15 Garden Grove 893,809 12 213,168 23.8% 213,168
16 Los Alamitos/Stanton 266,502 5 85,580 32.1% 85,580
17 Cypress 675,738 12 50,921 7.5% 50,921
- ------------------------------------------------------------------------------------------------------------------------------
TRI-FREEWAY AREA 9,523,392 107 2,023,109 21.2% 2,309,995
- ------------------------------------------------------------------------------------------------------------------------------
18 Parkcenter Area 2,598,284 41 444,188 17.1% 543,553
19 Stadium Area 2,472,409 36 414,147 16.8% 455,692
20 The City Area 2,291,191 15 627,817 27.4% 694,763
21 Main Place Area 2,161,508 15 536,957 24.8% 615,987
- ------------------------------------------------------------------------------------------------------------------------------
CENTRAL COUNTY 5,656,141 102 1,049,902 13.5% 1,147,393
- ------------------------------------------------------------------------------------------------------------------------------
22 Tustin 234,159 6 12,353 5.3% 18,353
23 Santa Ana 1,210,744 30 219,563 18.1% 231,316
24 North/East Anaheim 1,669,648 30 209,711 12.6% 289,449
25 East Orange 413,012 7 12,027 2.9% 12,027
26 Civic Center Area 2,128,578 29 596,248 26.0% 596,248
- ------------------------------------------------------------------------------------------------------------------------------
NORTH COUNTY 3,614,633 54 442,671 12.2% 476,115
- ------------------------------------------------------------------------------------------------------------------------------
27 Fullerton 990,825 17 143,447 14.5% 153,447
28 Brea/La Habra 1,716,054 23 196,763 11.5% 220,207
29 Placentia/Yorba Linda 188,540 5 25,552 13.6% 25,552
30 Buena Park/La Palma 719,214 9 76,909 10.7% 76,909
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL 52,668,350 679 8,140,511 15.5% 9,181,632
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OVERALL
VACANCY NET ABSORPTION WTD. AVG.
MARKET/SUBMARKET RATE YTD 1995 RENTAL RATE
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
SOUTH COUNTY 12.7% 71,259 $18.12
- -----------------------------------------------------------------------------------------
1 Irvine Spectrum 10.4% (23,011) $18.36
2 Lake Forest/R.S. Margarita 9.9% 20,711 $16.92
3 Laguna Hills/Aliso Viejo 18.5% (4,119) $18.36
4 Laguna Niguel/Laguna Beach 8.4% 13,968 $18.60
5 Mission Viejo 11.9% 63,710 $17.40
6 Dana Point/San Clemente/San 0.0% 0 N/A
Juan Capistrano
- -----------------------------------------------------------------------------------------
GREATER AIRPORT AREA 15.7% 235,485 $19.32
- -----------------------------------------------------------------------------------------
7 South Santa Ana 16.1% (11,387) $18.00
8 Costa Mesa 22.8% (33,822) $20.52
9 Newport Beach 10.7% 143,400 $19.92
10 Irvine (No Spectrum) 15.7% 137,294 $18.60
- -----------------------------------------------------------------------------------------
WEST COUNTY 17.8% (93,203) $15.12
- -----------------------------------------------------------------------------------------
11 Seal Beach 6.0% 4,077 $24.96
12 Westminster 14.4% (11,482) $15.00
13 Huntington Beach 21.6% 21,131 $15.48
14 Fountain Valley 14.6% (11,189) $15.84
15 Garden Grove 23.8% (54,632) $14.28
16 Los Alamitos/Stanton 32.1% (20,233) $12.36
17 Cypress 7.5% (20,875) $17.04
- -----------------------------------------------------------------------------------------
TRI-FREEWAY AREA 24.3% 86,793 $16.56
- -----------------------------------------------------------------------------------------
18 Parkcenter Area 20.9% 72,936 $14.40
19 Stadium Area 18.4% (45,422) $15.46
20 The City Area 30.3% 9,677 $17.16
21 Main Place Area 28.5% 48,602 $18.36
- -----------------------------------------------------------------------------------------
CENTRAL COUNTY 20.3% 8,065 $14.04
- -----------------------------------------------------------------------------------------
22 Tustin 7.8% 41,097 $11.88
23 Santa Ana 19.1% 29,658 $13.80
24 North/East Anaheim 17.3% 33,909 $15.00
25 East Orange 2.9% (45,427) $14.76
26 Civic Center Area 28.0% (51,172) $13.80
- -----------------------------------------------------------------------------------------
NORTH COUNTY 13.2% 27,940 $16.20
- -----------------------------------------------------------------------------------------
27 Fullerton 15.5% 53,171 $14.52
28 Brea/La Habra 12.8% (37,175) $17.64
29 Placentia/Yorba Linda 13.8% 5,173 $15.00
30 Buena Park/La Palma 10.7% 6,771 $16.44
- -----------------------------------------------------------------------------------------
TOTAL 17.4% 335,309 $17.28
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
MARKET SIZE COMPARISON AVAILABILITIES BAR GRAPH
[PIE CHART] [BAR GRAPH]
SUBMARKET WEIGHTED AVERAGE RENTAL RATE COMPARISON CHART
[GRAPH]
<PAGE>
ORANGE COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
According to Cushman & Wakefield's Orange County Market Research
Department, the combined Orange County office market contained a total of
52,668,351 square feet of office area at the end of the fourth quarter 1995.
Including sublease availabilities, the overall vacancy rate equals 17.4 percent.
The chart below summarizes the direct and overall historical vacancy trends from
1991 to through 1995.
HISTORICAL VACANCY RATES
1991 - 1995
ORANGE COUNTY
Direct Overall
Direct Vacancy Overall Vacancy
Period Inventory Availabilities Rate Availabilities Rate
------ ---------- -------------- ------- -------------- -------
4th Qtr. 1991 50,028,408 9,748,620 19.5% 11,217,474 22.4%
4th Qtr. 1992 49,883,126 9,521,609 19.1% 10,616,285 21.3%
4th Qtr. 1993 51,376,391 8,785,363 17.1% 9,779,840 19.0%
4th Qtr. 1994 51,434,552 8,821,226 17.2% 9,914,476 19.3%
4th Qtr. 1995 52,668,351 8,140,511 15.5% 9,181,632 17.4%
The figures above are based on non-medical office buildings within the
county excluding buildings below 30,000 prior to the first quarter 1995. The
survey parameters were revised as of the first quarter 1995 to include all
buildings above 25,000 square feet, resulting in an expanded inventory relative
to prior years.
The direct vacancy rates in the Orange County office market declined from
19.5 percent in the fourth quarter, 1991 to 15.5 percent in the fourth quarter
of 1995. Direct and overall vacancy levels remained fairly stable in the 19 and
20 percent range, respectively during the period from 1989 into 1993. The year-
end 1995 data indicates the lowest direct and overall vacancy levels in the
market since prior to 1989. The chart below summarizes the historical sublease
availabilities within the overall Orange County office market.
During the first two quarters of 1995 the supply of sublease availabilities
in the Orange County Market diminished substantially. However during the third
quarter 1995, Orange County experienced an increase in sublease availabilities.
According to the most recent data, total sublease availabilities equalled
1,103,478 square feet. This represents an increase of approximately 243,000
square feet in sublease availabilities.
NET OFFICE ABSORPTION
The chart on an accompanying page summarizes the historical net office
absorption for the Orange County Office Market since the first quarter 1991.
The chart breaks out net office absorption figures for the entire Orange County
Market, Greater Airport Area, and the Orange County Market EXCLUDING the Airport
Area figures. The analysis excluding the
- -------------------------------------------------------------------------------
60
<PAGE>
HISTORICAL NET ABSORPTION FIGURES
GREATER AIRPORT AREA AND ORANGE COUNTY
<TABLE>
<CAPTION>
ORANGE COUNTY GREATER AIRPORT AREA ORANGE COUNTY (EXCL. AIRPORT) ORANGE COUNTY (INCL. AIRPORT)
------------------- --------------------------- ----------------------------- -----------------------------
YEAR OVERALL VACANCY (SF) ABSORPTION % OF VACANT (SF) ABSORPTION % OF VACANT (SF) ABSORPTION % OF VACANT (SF)
- ----------- ------------------- --------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1991 11,217,474 1,008,809 9.0% 525,214 4.7% 1,534,023 13.7%
1992 10,616,285 244,869 2.3% (280,903) -2.6% (36,034) -0.3%
1993 9,779,840 878,298 9.0% 125,458 1.3% 1,003,756 10.3%
1994 9,914,476 291,926 2.9% (103,926) -1.0% 188,000 1.9%
1995 9,181,632 321,278 3.5% (26,221) -0.3% 295,057 3.2%
- ----------- ------------------- --------------------------- ----------------------------- -----------------------------
Totals 50,709,707 2,745,180 5.4% 2,244,806 4.4% 2,171,274 4.3%
- ----------- ------------------- --------------------------- ----------------------------- -----------------------------
- ----------- ------------------- --------------------------- ----------------------------- -----------------------------
5-Yr Avg 10,141,941 549,036 5.4% 47,924 0.5% 596,960 5.9%
2-Yr Avg 9,548,054 306,602 3.2% (65,074) -0.7% 241,529 2.5%
5-Yr Median 9,914,476 321,278 3.2% (26,221) -0.3% 295,057 3.0%
OVERALL VACANCY GREATER AIRPORT AREA ORANGE (EXCL. AIRPORT) ORANGE (INCL. AIRPORT)
ABSORPTION ABSORPTION ABSORPTION
[GRAPH] [GRAPH] [GRAPH] [GRAPH]
</TABLE>
<PAGE>
ORANGE COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
Airport data is relevant because the Orange County Office Market is "driven" by
the performance of the Greater Airport Area, which accounts for approximately 50
percent of the county office market. As illustrated on the chart, annual net
office absorption figures for all of Orange County peaked during 1991 at
1,534,023 square feet. Year end 1992 net office absorption for the county
equalled (36,034) square feet prior to a rebound in the market to 1,003,756
square feet of net office absorption during 1993. The 1994 net office
absorption for Orange County equalled 188,000 square feet followed by 295,927
square feet absorbed during 1995. The average annual net office absorption for
the county over the most recent five years (1991 through 1995) equals 596,960
square feet.
Isolating figures for the Greater Airport Area indicates that the majority
of net office absorption in the county has occurred within Airport Area office
buildings. Of the average annual absorption for the county of 596,960 square
feet, 549,036 square feet (92.0%) occurred within Airport Area office buildings.
Only 47,924 square feet, or 8.0 percent occurred within the remainder of the
County.
FUTURE SUPPLY
Office vacancy rates in Orange County in the 20 percent range during the
first three years of this decade stalled nearly all new planned office
developments. The most recently completed office building within the Orange
County Office Market is the build to suit headquarters for State Compensation
Fund, which added 216,000 square feet of office supply during the third quarter
1994. Current effective rental rates do not economically justify new
construction. There are numerous projects which were previously planned for
development within the Orange County Area. However, significant improvement in
market conditions and rental rates must occur in order for new construction to
become economically feasible and, as a result, development of these buildings
has been placed on hold indefinitely.
CONCLUSION-ORANGE COUNTY OFFICE MARKET
The Orange County Office Market is currently in the midst of a recovery
from the recent recession. Vacancy levels which were in excess of 20 percent
during 1991 and 1992 have declined and the county currently has a vacancy rate
of 15.5 percent on a direct basis. As a result, some of the well occupied local
markets, such as Newport Beach, South County, and Irvine are currently
experiencing escalating effective rental rates. Based on the most recent annual
absorption figure of 335,339 square feet for 1995 projected forward, the direct
vacancy level for the overall Orange County office market would decline to 13.5
percent by year-end 1998.
TRI-FREEWAY OFFICE SECTOR
The Tri-Freeway Area office sector comprises a portion of the central
Orange County area which is generally rectangular. The southerly boundary is
the east/west extension of Westminster Boulevard between Harbor Boulevard on the
west and Prospect Avenue and the SH-55 Freeway on the east. The northerly
boundary is a combination of East La Palma Avenue and State Highway 91. This
office sector is comprised of four submarket areas including: Parkcenter, The
Stadium Area, The City submarket, and Main
- -------------------------------------------------------------------------------
61
<PAGE>
ORANGE COUNTY
CONSTRUCTION HISTORY CHART OF CLASS A AND B BUILDINGS
YEAR TOTAL (SF)
1980 1,788,634
1981 3,743,809
1982 2,654,372
1983 2,195,481
1984 1,552,699
1985 4,555,292
1986 5,258,320
1987 4,769,568
1988 3,457,947
1989 4,306,218
1990 2,878,650
1991 2,434,713
1992 27,000
1993 216,156
1994 0
1995 0
TOTAL 39,838,859
ANNUAL AVG 2,489,929
ANNUAL OFFICE BUILDING CONSTRUCTION BAR GRAPH
ORANGE COUNTY
[GRAPH]
<PAGE>
TRI-FREEWAY OFFICE BUILDING CONSTRUCTION HISTORY
STADIUM AREA, THE CITY, & MAIN PLACE
<TABLE>
<CAPTION>
THE STADIUM AREA THE CITY MAIN PLACE
------------------------------------- ------------------------------------- -------------------------------------
YEAR # BLDGS. NRSF AVAIL. SF OCC. % # BLDGS. NRSF AVAIL. SF OCC. % # BLDGS. NRSF AVAIL. SF OCC. %
- ------- ------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1961 0 0 0 0.0% 0 0 0 0.0% 1 10,747 0 100.0%
1962 0 0 0 0.0% 0 0 0 0.0% 1 149,814 50,274 66.4%
1963 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1964 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1965 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1966 0 0 0 0.0% 0 0 0 0.0% 1 66,791 33,900 49.2%
1967 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1968 0 0 0 0.0% 0 0 0 0.0% 2 276,870 86,287 68.8%
1969 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
- ------- ------------------------------------- ------------------------------------- -------------------------------------
1970 1 28,300 0 100.0% 1 315,500 189,156 40.0% 0 0 0 0.0%
1971 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1972 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1973 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1974 2 47,391 0 100.0% 1 66,500 0 100.0% 1 185,000 29,311 84.2%
1975 0 0 0 0.0% 0 0 0 0.0% 1 204,000 64,754 68.3%
1976 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1977 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1978 2 68,000 8,125 88.1% 1 181,000 0 100.0% 1 100,000 0 100.0%
1979 3 134,156 22,725 83.1% 1 181,000 101,354 44.0% 0 0 0 0.0%
- ------- ------------------------------------- ------------------------------------- -------------------------------------
1980 9 369,524 29,222 92.1% 0 0 0 0.0% 0 0 0 0.0%
1981 10 220,528 50,073 77.3% 0 0 0 0.0% 0 0 0 0.0%
1982 4 201,241 103,102 48.8% 1 146,300 0 100.0% 0 0 0 0.0%
1983 1 39,233 8,574 78.1% 0 0 0 0.0% 0 0 0 0.0%
1984 0 0 0 0.0% 2 179,621 179,621 0.0% 0 0 0 0.0%
1985 1 47,000 0 100.0% 2 310,085 26,309 91.5% 5 575,785 246,506 57.2%
1986 5 528,564 62,100 88.3% 0 0 0 0.0% 1 39,656 3,170 92.0%
1987 2 127,298 86,317 32.2% 3 361,600 53,616 85.2% 1 212,542 21,016 90.1%
1988 3 573,971 52,236 90.9% 2 503,200 13,330 97.4% 1 350,069 80,769 76.9%
1989 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
- ------- ------------------------------------- ------------------------------------- -------------------------------------
1990 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1991 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1992 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1993 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1994 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
1995 0 0 0 0.0% 0 0 0 0.0% 0 0 0 0.0%
- ------- ------------------------------------- ------------------------------------- -------------------------------------
- ------- ------------------------------------- ------------------------------------- -------------------------------------
TOTALS 43 2,385,206 422,474 82.3% 14 2,244,806 563,386 74.9% 16 2,171,274 615,987 71.6%
- ------- ------------------------------------- ------------------------------------- -------------------------------------
PRE 80s 8 277,847 30,850 88.9% 4 744,000 290,510 61.0% 8 993,222 264,526 73.4%
80-85 25 877,526 190,971 78.2% 5 636,006 205,930 67.6% 5 575,785 246,506 57.2%
POST 85 10 1,229,833 200,653 83.7% 5 864,800 66,946 92.3% 3 602,267 104,955 82.6%
PRE 1980'S 1980 - 1985 POST 1985
[GRAPH] [GRAPH] [GRAPH]
</TABLE>
<PAGE>
ORANGE COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
Place submarket. The Parkcenter submarket is considered the least prestigious
with only one Class A office building (Bentall Executive Center), while The
City, The Stadium Area, and Maim Place submarkets include 10 Class A buildings.
The Stadium Area includes the highest concentration of Class A office space
followed by Main Place and The City.
The Tri-Freeway Office Sector is the second largest sector in Orange County
(the Greater Airport Area is the largest). There are roughly 9.52 million
square feet of office space included within this sector of which about 50
percent is considered class "A" and 50 percent class "B" space. Overall vacancy
rates in this market have decreased 2.0 percent to 24.3 percent (including
sublease space) during the fourth quarter, 1995. The quoted per-square-foot
weighted average rental rate for the sector decreased from $16.80 to $16.56 per-
square-foot annually or about 1.4 percent over the same three month period.
Primary market competition for this sector is from the Greater Airport Area
Office Sector, which contains over 76 percent Class A office space and is
generally recognized as a more prestigious office location. The Greater Airport
Area Office Sector was previously considered to be economically prohibitive for
the tenant base within the Tri-Freeway Area Office Sector, but an increase in
sublease availabilities during 1991-1993, resulted in a decline in rents for
direct space, which attracted tenants to this sector from other competitive
office markets.
The table below summarizes the trend in the asking per-square-foot weighted
average rental rates (direct availabilities) for both office space within the
Tri Freeway Area Office Sector during the past three years.
TRI-FREEWAY OFFICE SECTOR
WEIGHTED AVERAGE RENTAL RATES
ANNUAL PSF
1993 1994 93/94% 1995 94/95%
-------- ------ -------- ------ --------
Tri-Freeway Area $17.28 $17.04 (1.4%) $16.56 (2.8%)
Parkcenter Area $15.24 $15.00 (1.6%) $14.40 (4.0%)
Stadium Area $15.72 $16.44 4.6% $15.48 (5.8%)
The City Area $17.52 $17.16 (2.1%) $17.16 0.0%
Main Place Area $19.56 $19.08 (2.5%) $18.36 (3.8%)
COMPETITIVE SUPPLY AND DEMAND
The chart on an accompanying page summarizes the office building
construction history since 1970 for the three major submarkets in the Tri-
Freeway Area: The Stadium Area office submarket, The City submarket, and the
Main Place Area submarket.
- -------------------------------------------------------------------------------
62
<PAGE>
ORANGE COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
The chart indicates that construction activity in the Stadium and The City
submarkets has completely ceased since 1988. This trend is consistent with the
overall decline in new office development in southern California in general
since 1989. The existing oversupply of office space combined with a decline in
demand and effective rental rates created an environment in which new office
development is economically infeasible.
PRIMARY COMPETITIVE (CLASS A) PROPERTIES
There are few good quality Class A buildings in this market area. The
chart on the accompanying page summarized the rental and occupancy levels of the
11 Class A quality office buildings included within the Tri-Freeway office
sector. The buildings were completed during the period from 1986 through 1994
and have a combined total of 3,352,488 square feet. The most recently completed
project was the State Compensation Insurance Fund building, which totals
2126,156 square feet and is roughly 50 percent occupied by State Compensation
(overall occupancy is 99 percent.)
The tenant profile for most Class A buildings in this market area include
one major tenant occupying a large block of space and numerous smaller law
firms, and other professional firms occupying the remainder of the space.
The anchor tenants for a cross-section of these competitive buildings are
shown below:
Building Major Tenant
-------- ------------
City Tower (A-2) Liberty Mutual
Anaheim City Center (A-3) Cigna
Executive Tower (A-4) Santa Fe Pacific Pipeline
Lincoln Towne Center (A-5) Aetna
Nexus City Square (A-6) Nextel
Xerox Centre (A-7) Xerox
Bentall Executive (A-9) Liberty Mutual
Tri-Centre (A-10) Transamerica
Ten of the 11 buildings on the chart were completed during the period from
1986 through 1988, with 10 year prelease commitments from major multi-floor
tenants. Renewals are pending for many of these major tenants over the next two
to three years. Several of these tenants have downsized and or consolidated
over the past five to seven years and space requirements upon rollover are
anticipated to be more conservative than when leases were originally executed.
Specific examples include Admar which is currently in the process of renewing
its lease at Benthall Executive Center, and Liberty Mutual. In The City,
Transamerica which has vacated 100 percent (90,473 square feet) of its premises
at Tri Centre, and Disney which recently vacated roughly 100,000 square feet
within three buildings in favor of its new on-campus "Theme Building."
- -------------------------------------------------------------------------------
63
<PAGE>
COMPETITIVE ANAHEIM AREA (CLASS A) OFFICE BUILDINGS
RENTAL AND OCCUPANCY SURVEY FOR THE END OF 4TH QUARTER 1995
<TABLE>
<CAPTION>
BUILDING INFORMATION
ITEM BUILDING NAME / NO. OF AREA AVG. FLR. YEAR AVAILABLE SPACE (SF)
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(S) DIRECT SUBLEASE
- -----------------------------------------------------------------------------------------------------------------------------
ANAHEIM OFFICE SUBMARKET
CLASS A OFFICE PROPERTIES IN CENTRAL ORANGE COUNTY
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
A-1 KOLL CENTER ORANGE 14 275,865 19,705 1988 Ground 0 0
500 North State College Blvd. 2 - 12 54,850 0
Orange, CA ------ ------ ------
54,850 0
- -----------------------------------------------------------------------------------------------------------------------------
A-2 THE CITY TOWER 20 410,200 20,510 1988 Ground 0 0
333 City Boulevard West 4 - 21 89,305 0
Orange, CA ------ ------ ------
89,305 0
- -----------------------------------------------------------------------------------------------------------------------------
A-3 ANAHEIM CITY CENTER 10 187,209 18,721 1986 Ground 0 0
222 South Harbor Blvd. 3 - 10 9,611 12,806
Anaheim, CA ------ ------ ------
9,611 12,806
- -----------------------------------------------------------------------------------------------------------------------------
A-4 EXECUTIVE TOWER 16 360,059 22,504 1987 Ground 0 0
1100 Town & Country Rd. 4 - 16 30,494 0
Orange, CA ------ ------ ------
30,494 0
- -----------------------------------------------------------------------------------------------------------------------------
A-5 LINCOLN TOWN CENTER 10 212,542 21,254 1987 Ground 0 0
2677 N. Main Street 4 - 9 16,364 0
Santa Ana, CA ------ ------ ------
16,364 0
- -----------------------------------------------------------------------------------------------------------------------------
A-6 NEXUS CITY SQUARE 8 178,600 22,325 1987 Ground 0 0
750/70/90 The City Drive 4 93,000 23,250 2 - 8 53,750 0
Orange, CA 4 93,000 23,250 ------ ------ ------
364,600 53,750 0
- -----------------------------------------------------------------------------------------------------------------------------
A-7 XEROX CENTRE 14 305,230 21,802 1988 Ground 1,132 11,863
1851 E. First Street 7 - 15 38,408 0
Santa Ana, CA ------ ------ ------
39,540 11,863
- -----------------------------------------------------------------------------------------------------------------------------
A-8 STATE COMP. BUILDING 8 216,156 27,020 1994 Ground 0 0
1750 E. Fourth Street 6 0 2,658
Santa Ana, CA ------ ------ ------
0 2,658
- -----------------------------------------------------------------------------------------------------------------------------
A-9 BENTALL EXECUTIVE CENTER 10 196,461 19,646 1991 Ground 3,199 0
1551 North Tustin Avenue 4 - 9 2,183 15,956
Tustin, CA ------ ------ ------
5,382 15,956
- -----------------------------------------------------------------------------------------------------------------------------
A-10 TRI-CENTRE 10 203,599 20,360 1986 Ground 0 0
333 S. Anita 2 - 10 14,492 90,473
Orange, CA ------ ------ ------
14,492 90,473
- -----------------------------------------------------------------------------------------------------------------------------
A-11 STADIUM TOWERS PLAZA 12 255,967 21,331 1988 Ground 4,602 0
2400 E. Katella Avenue 2 - 10 74,871 21,980
Anaheim, CA ------ ------ ------
79,473 21,980
- -----------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 140 3,352,488 23,946 393,261 155,736
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
OVERALL QUOTED OVERALL PARKING
ITEM BUILDING NAME / AVAILABILTY ANNUAL RENT OCCUPANCY PER
NO. LOCATION (SF) PSF PSF RATIO 1,000 SF
- ----------------------------------------------------------------------------------------------------------------------------
ANAHEIM OFFICE SUBMARKET
CLASS A OFFICE PROPERTIES IN CENTRAL ORANGE COUNTY
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
A-1 KOLL CENTER ORANGE 80.1% 4.0
500 North State College Blvd. TOTAL $21.00 - $21.00
Orange, CA 54,850
- ----------------------------------------------------------------------------------------------------------------------------
A-2 THE CITY TOWER 78.2% 4.0
333 City Boulevard West TOTAL $19.20 - $19.20
Orange, CA 89,305
- ----------------------------------------------------------------------------------------------------------------------------
A-3 ANAHEIM CITY CENTER 88.0% 4.0
222 South Harbor Blvd. TOTAL $12.60 - $18.60
Anaheim, CA 22,417
- ----------------------------------------------------------------------------------------------------------------------------
A-4 EXECUTIVE TOWER 91.5% 3.5
1100 Town & Country Rd. TOTAL $21.00 - $21.00
Orange, CA 30,494
- ----------------------------------------------------------------------------------------------------------------------------
A-5 LINCOLN TOWN CENTER 92.3% 4.0
2677 N. Main Street TOTAL $18.00 - $18.00
Santa Ana, CA 16,364
- ----------------------------------------------------------------------------------------------------------------------------
A-6 NEXUS CITY SQUARE 85.3% 4.0
750/70/90 The City Drive TOTAL $17.40 - $17.40
Orange, CA 53,750
- ----------------------------------------------------------------------------------------------------------------------------
A-7 XEROX CENTRE $14.40 - $14.40 83.2% 4.0
1851 E. First Street TOTAL $19.80 - $19.80
Santa Ana, CA 51,403
- ----------------------------------------------------------------------------------------------------------------------------
A-8 STATE COMP. BUILDING 98.8% 4.0
1750 E. Fourth Street TOTAL $17.76 - $17.76
Santa Ana, CA 2,658
- ----------------------------------------------------------------------------------------------------------------------------
A-9 BENTALL EXECUTIVE CENTER $19.20 - $19.20 89.1% 4.0
1551 North Tustin Avenue TOTAL $13.80 - $19.20
Tustin, CA 21,338
- ----------------------------------------------------------------------------------------------------------------------------
A-10 TRI-CENTRE 48.4% 4.0
333 S. Anita TOTAL $17.40 - $18.00
Orange, CA 104,965
- ----------------------------------------------------------------------------------------------------------------------------
A-11 STADIUM TOWERS PLAZA N/A - N/A 60.4% N/A
2400 E. Katella Avenue TOTAL N/A - N/A
Anaheim, CA 101,453
- ----------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 548,997 83.6%
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
ANAHEIM OFFICE BUILDINGS
[CHART]
<PAGE>
ORANGE COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
More positive market trends include the recent lease to Santa Fe Pacific
Pipeline at Executive Tower. This 65,000 square foot tenant recently relocated
from a Los Angeles area submarket, resulting in a significant block of positive
net absorption to the area. Disney continues to expand its Orange County
operations, and the recently completed on-campus "Theme Building" reportedly
does not meet this tenant total space requirement.
TENANT DEMAND
The most recent historical gross leasing activity and net absorption levels
for the Tri-Freeway Office Sector is summarized below:
HISTORICAL GROSS LEASING ACTIVITY
TRI-FREEWAY AREA
SF SF
Period Gross Leasing Net Absorption
------ ------------- --------------
1994 930,894 (158,639)
1995 993,841 85,793
The chart shows that while total gross leasing activity has remained stable
during the past two years, the net absorption for the Tri-Freeway market area
improved from 1994 to 1995, from negative 158,639 square feet to positive
85,793 square feet.
RECENT INVESTMENT ACTIVITY - TRI-FREEWAY MARKET AREA
Four Class A office buildings in this market have been acquired during the
period from September, 1994 to September, 1995. The sales involved buildings
ranging in size from approximately 180,000 to 360,000 square feet, and per-
square-foot prices ranged from about $65 to $105. The occupancy levels at the
time of purchase ranged from about 60 percent to 90 percent and overall capital-
ization rates, based on contract income in place at the time of sale, ranged
from 8.3 percent to 13.0 percent.
WEST COUNTY OFFICE SECTOR
SUPPLY AND DEMAND TRENDS
The West County office sector of the larger Orange County Office Market
includes the areas/submarkets of Seal Beach, Westminster, Huntington Beach,
Fountain Valley, Garden Grove, Los Alamitos/Stanton, and Cypress.
- -------------------------------------------------------------------------------
64
<PAGE>
[MAP]
LEGEND
1 Seal Beach
2 Westminster
3 Huntington Beach
4 Fountain Valley
5 Garden Grove
6 Los Alamitos/Stanton
7 Cypress
<PAGE>
ORANGE COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
As of the end of the fourth quarter 1995, total inventory within this
office sector was 3,901,199 square feet or 7.4 percent of the overall Orange
County Office Market. Overall availabilities within the West County sector
totalled 696,122 square feet (including sublease space) for an overall vacancy
rate of 17.8 percent. This figure represents an increase of 2.3 percentage
points from the fourth quarter 1994. The historical vacancy rates for this
office sector are summarized below.
WEST COUNTY OFFICE SECTOR
HISTORICAL VACANCY RATES
1993 - 1995
Direct Overall
------ -------
1993 17.1% 17.5%
1994 15.1% 15.4%
1995 17.8% 17.8%
Vacancy rates in West County have remained fairly stable over the past
three years, within the range from 15.1 to 17.1 percent on a direct basis and
from 15.4 to 17.8 percent on an overall basis. The individual submarket direct
and overall vacancy rates which comprise the West County office sector are
summarized below.
WEST COUNTY OFFICE SECTOR
VACANCY RATES BY SUBMARKET
1995 YEAR END
Direct Overall
------ -------
Seal Beach 6.0% 6.0%
Westminster 14.4% 14.4%
Huntington Beach 21.6% 21.6%
Fountain Valley 14.6% 14.6%
Garden Grove 23.8% 23.8%
Los Alamitos/Stanton 32.1% 32.1%
Cypress 7.5% 7.5%
Direct and overall vacancy rates within the West County office sector are
identical within each submarket due to the absence of sublease availabilities.
As illustrated on the chart, submarket vacancy rates exhibit a range from 6.0
percent for the Seal Beach office submarket to 32.1 percent for the Los
Alamitos/Stanton office submarket. The Huntington Beach submarket is the
largest submarket within West County, and has a vacancy rate of 21.6 percent.
Demand to the West County office sector is driven primarily by larger
office uses such as Oakmont Development, Century 21, Freiden Alcatel, Great
Western Bank, United Security, Standard Oil, Aquatech, GTE, Pacific Care, Loma
Insurance Services, National
- -------------------------------------------------------------------------------
65
<PAGE>
ORANGE COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
Health Network, and Touchstone. Trends are for larger size requirements in this
market, with current activity strongest in the computer software, health
insurance, telecommunications, engineering, and data processing industries.
These firms are typically not high-rise office tenants, but tenants desiring
open bay space style floorplans, low density office buildouts, overstandard
parking, and heavy electrical and data processing capabilities.
Major employers in the City of Huntington Beach include McDonnell Douglas,
the City of Huntington Beach, Cambro, Lucky Stores, Golden West College,
Huntington Beach Medical Center, C&D Aerospace, Pacifica Hospital, The
Waterfront Hilton Beach Resort, and GTE. The largest employment sectors are
Manufacturing (14,369 jobs or about 25% of total employment) and retail trade
(15.069 jobs or about 25% of total employment).
McDonnell Douglas is the largest single employer in Huntington Beach, with
6,300 employees. The majority of these personnel are located at the McDonnell
Douglas Headquarters Building at 5301 Bolsa Avenue in the northwesterly portion
of the city. The owner-occupied headquarters building is an eight story Class A
mid-rise completed by McDonnell Douglas in 1988. The space is excellent
quality, but is not included in the office statistics, since it is 100 percent
owner occupied.
The historical gross leasing activity to the West County office sector is
summarized on the following chart:
WEST COUNTY OFFICE SECTOR
HISTORICAL GROSS LEASING ACTIVITY
1993 - 1995
Gross Leasing Activity
----------------------
1993 314,384 SF
1994 489,953 SF
1995 343,026 SF
-------------
Total 1,174,363 SF
Three Year Average 391,454 SF
- -------------------------------------------------------------------------------
66
<PAGE>
ORANGE COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
Gross leasing activity for the West County office sector totalled 1,174,363
square feet during the three years from 1993 through 1995 or an average of
391,454 square feet annually. This figure represents the sum of all direct
leasing within the sector excluding tenant lease renewals, which is often
significantly greater than net office absorption figures (new tenant demand).
The net absorption figures for the office sector are included on the chart
below:
WEST COUNTY OFFICE SECTOR
HISTORICAL NET OFFICE ABSORPTION
1993 - 1995
Net Office Absorption
---------------------
1993 (9,857) SF
1994 141,847 SF
1995 (93,203) SF
-----------
Total 38,787 SF
Three Year Average 12,929 SF
The net office absorption figures for the West County office sector varied
widely from year to year over the past three years. Total net office absorption
from 1993 through 1995 equals 38,787 square feet or an average of 12,929 square
feet annually. These figures reflect the slow, but continuing recovery of the
West County office sector from the historic high vacancy levels exhibited from
1990 through 1992 (near 20 percent).
The majority of the tenants who leave this market range in size from 3,000
square feet to 8,000 square feet. Some of these tenants have been relocating to
superior quality product in the Greater Airport Area and Tri Freeway office
markets over the past three to four years. Large tenants (in excess of 10,000
square feet), in the industries described previously, continue to lease space
within the West County office sector. These larger tenants do not require
higher-cost Class A office space, and are attracted to this market by the
relatively lower cost space available.
HUNTINGTON BEACH SUBMARKET
The Huntington Beach office submarket of the West County office sector
contains a total of 1,014,519 square feet of office space or 26.0 percent of the
total West County office sector. This submarket represents the largest of the
seven West County office submarkets (the next largest is Garden Grove with
865,806 square feet). As of the end of 1995, direct and overall availabilities
within this submarket equalled 219,035 square feet or 21.6 percent of total
inventory. This figure represents a decline of 2.0 vacancy percentage points
from the fourth quarter 1994 figure of 23.6 percent and a significant
improvement of 7.6 percentage points from year-end 1993 vacancy levels. The
historical direct and overall vacancy rates for the Huntington Beach office
submarket are shown below:
- -------------------------------------------------------------------------------
67
<PAGE>
ORANGE COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
HUNTINGTON BEACH OFFICE SUBMARKET
HISTORICAL VACANCY RATES
1993 - 1995
Direct Overall
------ -------
1993 28.7% 29.2%
1994 23.4% 23.6%
1995 21.6% 21.6%
The chart shows the Huntington Beach office submarket has improved
consistently over each of the past three years. The reduction in vacancy of 7.6
percent in the market over the past three years represents the most significant
improvement of any Orange County office submarket since the recession. As shown
on the chart below, the Huntington Beach submarket typically experiences the
largest share of gross leasing activity of the West County office sector,
contributing to the improvement in vacancy rates.
HUNTINGTON BEACH OFFICE SUBMARKET
HISTORICAL GROSS LEASING ACTIVITY
1993 - 1995
Gross Leasing Activity
----------------------
1993 92,863 SF (29.5% of West County)
1994 138,177 SF (28.2% of West County)
1995 162,108 SF (47.3% of West County)
----------
Total 393,148 SF
Three Year Average 131,049 SF
Total gross leasing activity within the Huntington Beach office submarket
equalled 393,148 square feet during the three year period from 1993 through 1995
or an average of 131,049 square feet per year. This figure represents 33.5
percent of the three year average gross leasing activity of 391,454 square feet
for all of the West County office sector. This is the largest share of gross
leasing activity of any submarket within the West County office sector. The
chart below summarizes the net office absorption figures for the Huntington
Beach submarket over the same period:
HUNTINGTON BEACH OFFICE SUBMARKET
HISTORICAL NET OFFICE ABSORPTION
1993 - 1995
Net Office Absorption
---------------------
1993 46,655 SF
1994 52,420 SF
1995 21,131 SF
----------
Total 120,206 SF
Three Year Average 40,069 SF
- -------------------------------------------------------------------------------
68
<PAGE>
ORANGE COUNTY OFFICE MARKET
- -------------------------------------------------------------------------------
The data illustrates that the Huntington Beach submarket has experienced
fairly strong positive net office absorption figures over the past three years.
This is particularly evident when comparing these figures to the larger West
County office sector which experienced negative absorption for two of the three
years. While the six other West County submarkets may be suffering in terms of
tenant demand, the Huntington Beach submarket is performing at a level above the
other submarkets in the West County Sector.
RENTAL RATES
The chart on the accompanying page summarizes a rental and occupancy survey
of 12 office buildings which comprise roughly 85 percent of the total inventory
for Huntington Beach. Eight of the 12 buildings are under five stories in
height, which is typical of the Huntington Beach office market. The four
projects which are rated Class A mid- to high-rise buildings are considered
"over improvements" for this marketplace relative to the existing base of tenant
demand. Consequently these buildings have fairly high levels of vacancy since
most tenants in this market are not interested in high cost/quality office
space.
Per-square-foot rental rates exhibit a range from $12.00 to $18.00 annually
on a full service gross basis. Parking is free at 4.0 per 1,000 square feet of
net rentable office area and is typically in surface facilities except for the
higher quality projects, which offer covered parking. Availabilities exhibit a
range in size from 456 to 11,101 square feet and most availabilities are under
3,000 square feet in this market. Typical five year effective rental rates for
the high quality office buildings range from $15.60 to $16.80 annually on a full
service gross basis. Ten year leases are rare, but when executed typically
exhibit per-square-foot rental rates from $18.60 to $19.20 annually on a full
service gross basis. Class B buildings exhibit lower rates, but not
significantly lower rates since the majority of the market is class B space.
Five year per-square-foot effective rental rates for this class of space are
usually in the range from $14.40 to $15.00 annually on a full service gross
basis. A cross section of signed leasing activity is included in the Addenda.
- -------------------------------------------------------------------------------
69
<PAGE>
COMPETITIVE HUNTINGTON BEACH OFFICE BUILDINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
BUILDING INFORMATION
ITEM BUILDING NAME / NO. OF AREA AVG. FLR. YEAR AVAILABLE SPACE (SF)
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(S) DIRECT
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
HUNTINGTON BEACH OFFICE SUBMARKET
ORANGE COUNTY
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
H-1 SEACLIFF OFFICE PARK #5 3 53,000 17,667 1989 Ground 1,249
2100 Main Street 2 2,067
- ------
Huntington Beach, CA 3,316
- ---------------------------------------------------------------------------------------------------
H-2 SEACLIFF OFFICE PARK #3 2 25,000 12,500 1981 Ground 4,225
2134 Main Street 2 2,439
- ------
Huntington Beach, CA 6,664
- ---------------------------------------------------------------------------------------------------
H-3 SEACLIFF OFFICE PARK #2 2 20,000 10,000 1979 Ground 3,084
2130 Main Street 2 1,376
- ------
Huntington Beach, CA 4,460
- ---------------------------------------------------------------------------------------------------
H-4 SEACLIFF OFFICE PARK #4 2 19,359 9,680 1979 Ground 5,704
2124 Main Street 2 12,374
- ------
Huntington Beach, CA 18,078
- ---------------------------------------------------------------------------------------------------
H-5 WIND RIVER PARK 3 33,000 11,000 1984 Ground 0
18141 Beach Boulevard 0 0
- -
Huntington Beach, CA 0
- ---------------------------------------------------------------------------------------------------
H-6 PETER'S LANDING 2 31,044 15,522 1979 Ground 0
16390 Pacific Coast Highway 2 1,206
- ------
Huntington Beach, CA 1,206
- ---------------------------------------------------------------------------------------------------
H-7 SEAVIEW PLAZA 4 35,555 8,889 1984 Ground 3,338
20422 Beach Boulevard 2 - 4 7,858
----- ------
Huntington Beach, CA 11,196
- ---------------------------------------------------------------------------------------------------
H-8 BEACH PLAZA 4 63,278 15,820 1981 Ground 0
19671 Beach Boulevard 2 - 4 17,067
----- ------
Huntington Beach, CA 17,067
- ---------------------------------------------------------------------------------------------------
H-9 ONE PACIFIC CENTER 12 188,150 15,679 1987 Ground 0
7755 Center Avenue 2 - 10 30,112
------ ------
Huntington Beach, CA 30,112
- ---------------------------------------------------------------------------------------------------
H-10 ONE PACIFIC PLAZA 6 94,897 15,816 1985 Ground 0
7711 Center Avenue 2 - 6 10,873
----- ------
Huntington Beach, CA 10,873
- ---------------------------------------------------------------------------------------------------
H-11 ONE PACIFIC PLAZA 6 93,024 15,504 1982 Ground 0
7777 Center Avenue 4 - 5 12,220
----- ------
Huntington Beach, CA 12,220
- ---------------------------------------------------------------------------------------------------
H-12 GUARDIAN CENTRE 14 203,970 14,569 1985 Ground 3,155
17011 Beach Boulevard 5 - 15 68,929
------ ------
Huntington Beach, CA 72,084
- ---------------------------------------------------------------------------------------------------
MARKET TOTALS 60 860,277 162,645 187,276
- ---------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
OVERALL QUOTED OVERALL PARKING
ITEM BUILDING NAME / AVAILABLE SPACE (SF) AVAILABILTY ANNUAL RENT OCCUPANCY PER
NO. LOCATION SUBLEASE (SF) PSF PSF RATIO 1,000 SF
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
HUNTINGTON BEACH OFFICE SUBMARKET
ORANGE COUNTY
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
H-1 SEACLIFF OFFICE PARK #5 0 $18.00 $18.00 93.7% 4.0
2100 Main Street 0 TOTAL $18.00 $18.00
-
Huntington Beach, CA 0 3,316
- ---------------------------------------------------------------------------------------------------
H-2 SEACLIFF OFFICE PARK #3 0 $15.60 $15.60 73.3% 4.0
2134 Main Street 0 TOTAL $15.60 $15.60
-
Huntington Beach, CA 0 6,664
- ---------------------------------------------------------------------------------------------------
H-3 SEACLIFF OFFICE PARK #2 0 $16.20 $16.20 77.7% 4.0
2130 Main Street 0 TOTAL $16.20 $16.20
-
Huntington Beach, CA 0 4,460
- ---------------------------------------------------------------------------------------------------
H-4 SEACLIFF OFFICE PARK #4 0 $15.60 $15.60 6.6% 4.0
2124 Main Street 0 TOTAL $15.60 $16.80
-
Huntington Beach, CA 0 18,078
- ---------------------------------------------------------------------------------------------------
H-5 WIND RIVER PARK 0 100.0% 4.0
18141 Beach Boulevard 0 TOTAL
-
Huntington Beach, CA 0 0
- ---------------------------------------------------------------------------------------------------
H-6 PETER'S LANDING 0 96.1% 4.0
16390 Pacific Coast Highway 0 TOTAL $18.00 $18.00
-
Huntington Beach, CA 0 1,206
- ---------------------------------------------------------------------------------------------------
H-7 SEAVIEW PLAZA 0 $13.20 $13.20 68.5% 4.0
20422 Beach Boulevard 0 TOTAL $13.20 $13.20
-
Huntington Beach, CA 0 11,196
- ---------------------------------------------------------------------------------------------------
H-8 BEACH PLAZA 0 73.0% 4.0
19671 Beach Boulevard 0 TOTAL $12.00 $12.00
-
Huntington Beach, CA 0 17,067
- ---------------------------------------------------------------------------------------------------
H-9 ONE PACIFIC CENTER 0 76.9% 4.0
7755 Center Avenue 13,262 TOTAL $13.80 $18.00
------
Huntington Beach, CA 13,262 43,374
- ---------------------------------------------------------------------------------------------------
H-10 ONE PACIFIC PLAZA 0 88.5% 4.0
7711 Center Avenue 0 TOTAL $16.20 $16.20
-
Huntington Beach, CA 0 10,873
- ---------------------------------------------------------------------------------------------------
H-11 ONE PACIFIC PLAZA 0 86.9% 4.0
7777 Center Avenue 0 TOTAL $16.20 $16.20
-
Huntington Beach, CA 0 12,220
- ---------------------------------------------------------------------------------------------------
H-12 GUARDIAN CENTRE 0 $17.40 $17.40 64.7% 4.0
17011 Beach Boulevard 0 TOTAL $17.40 $17.40
-
Huntington Beach, CA 0 72,084
- ---------------------------------------------------------------------------------------------------
MARKET TOTALS 13,262 200,538 76.7%
- ---------------------------------------------------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
HUNTINGTON BEACH OFFICE BUILDINGS
[BAR GRAPH]
<PAGE>
[MAP]
LEGEND
1 North City
2 North Coast
3 I-15 Corridor
4 South Bay
5 LaJolla/Marina
6 Mission Valley/Kearny Mesa
7 Central City
8 East County
9 Rancho California
<PAGE>
SAN DIEGO OFFICE MARKET
- -------------------------------------------------------------------------------
REGIONAL OVERVIEW
The San Diego County office market contains nine district areas, each
comprised of a series of submarkets. These areas are known as the North City,
(which includes UTC) North Coast, I-15 corridor, South Bay, La Jolla/Morena,
Kearny Mesa/Mission Valley, Central City, East County and Rancho California
office markets. The downtown office submarket is considered to be the primary
component of the Central City market area. The nine office market areas are
delineated according to location, amenities and overall image. Each area has
developed along the path of the County's freeway system, and the building type
and tenant appeal has generally corresponded with the proximity to downtown and
the University Towne Center (UTC). As these influences are situated in the
southwesterly portion of the County, the pattern of development has moved
easterly and northerly from these two focal points (with the exception of the
South Bay market). Good quality mid to high rise office construction is
centralized within a 15 mile radius of downtown San Diego, while low rise
business parks predominate in the outlying areas.
The total San Diego County office inventory (excluding owner-user
buildings) as of year-end 1995 was 58,325,238 square feet. The overall vacancy
level of 14.6 percent represents continued improvement from the year-end 1993
and 1994 vacancy rates of 15.9 percent and 15.0 percent, respectively. The
accompanying chart summarizes the year-end vacancy rates for the San Diego
County office market during the period 1986 through 1995.
The following table summarizes the county-wide absorption trends since
1989.
SAN DIEGO COUNTY ABSORPTION
San Diego County
Year Net Absorption (SF)
---- -------------------
1989 3,137,000 SF
1990 2,009,000 SF
1991 24,000 SF
1992 826,000 SF
1993 1,701,000 SF
1994 937,000 SF
1995 489,000 SF
The trend suggested by the absorption data and the absence of new
construction has contributed to the recent improvement in county-wide vacancy
rates described previously.
The La Jolla and University Town Center areas present the most significant
competition to the downtown office market. Located twelve miles north of
downtown, this area includes the beach community of La Jolla and the triangle
formed by the I-5 and I-805 Freeways, and Highway 52. The triangle is a master-
planned commercial center and residential community, designed to provide a mix
of land uses compatible with the long-term goals of the nearby University of
California at San Diego (UCSD). The presence of
- -------------------------------------------------------------------------------
70
<PAGE>
SAN DIEGO COUNTY
MARKET & SUBMARKET STATISTICS
END OF THE 4TH QUARTER OF 1995
DIRECT NET
DIRECT VACANCY ABSORPTION
MARKET / SUBMARKET INVENTORY AVAILABILITIES RATE YTD 1995
- --------------------------------------------------------------------------------
SAN DIEGO MARKET 58,325,238 8,541,440 14.6% 489,086
- --------------------------------------------------------------------------------
1 South Bay 2,176,580 195,528 9.0% (41,224)
2 Central City 16,059,577 2,689,327 16.7% 270,856
3 East County 2,143,941 284,809 13.3% 11,990
4 Mission Valley/Kearny Mesa 12,558,657 2,160,842 17.2% (38,105)
5 La Jolla/Morena 2,400,630 334,533 13.9% 87,849
6 North City 12,801,915 1,584,187 12.4% 98,473
7 I-15 Corridor 4,768,885 669,841 14.0% 25,512
8 North Coast 5,415,053 622,373 11.5% 73,735
- --------------------------------------------------------------------------------
TOTAL 58,325,238 8,541,440 14.6% 489,086
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUBMARKET SIZE COMPARISON CHART
[PIE CHART]
AVAILABILITIES BAR GRAPH
[CHART]
<PAGE>
- ------------------------------------------------------------------------------
INVENTORY / ABSORPTION / VACANCY
SAN DIEGO COUNTY OFFICE SPACE
- ------------------------------------------------------------------------------
1989 to 1995
- ------------------------------------------------------------------------------
YEAR ABSORPTION INVENTORY VACANCY OCCUPANCY %
---- ---------- ----------- ------- -----------
1989 3,137,843 52,698,740 8,150,454 84.5%
1990 2,009,952 54,835,805 9,532,741 82.6%
1991 24,220 57,141,662 11,083,110 80.6%
1992 826,544 57,888,025 10,795,125 81.4%
1993 1,700,696 57,907,188 9,283,036 84.0%
1994 936,681 58,180,491 8,700,508 85.0%
1995 489,086 58,325,238 8,541,440 85.4%
- -----------------------------------------------------------------------------
TOTAL 9,125,022 396,977,149 66,086,414 83.4%
- -----------------------------------------------------------------------------
ANNUAL AVG 1,303,575 56,711,021 9,440,916 83.4%
NET ABSORPTION
[BAR GRAPH]
INVENTORY BAR GRAPH
[BAR GRAPH]
<PAGE>
SAN DIEGO OFFICE MARKET
- -------------------------------------------------------------------------------
the University, several hospitals and health research facilities (including
Scripps Institute), and the proximity to the prestigious residential communities
of La Jolla, Del Mar, and Rancho Santa Fe, have provided an attractive
alternative to downtown as an office location. The existing office supply in
this market is 5.6 million square feet. With the exception of one building, all
office space within the UTC has been built since 1979, and the buildings are
generally of Class A quality. Although many of the developments are low to mid-
rise, the increasing land costs during the past decade created a trend toward
mid to high-rise construction. The office rental rates are higher than is
typical in downtown San Diego, and a number of national firms located within the
UTC submarket in recent years rather than downtown: Kodak, IBM, 3M, Nissan
Design, TRW, Science Applications Inc., FHP Inc., San Diego Financial and NCR.
Mission Valley and Kearny Mesa, located within 10 miles easterly of
downtown San Diego, are substantial office markets containing 12.5 million
square feet of office space. These markets provide average to good quality, less
expensive office space for tenants who do not desire a downtown location. The
year-end 1995 vacancy rates in these markets was 17.2 percent.
DOWNTOWN OFFICE MARKET
The downtown office market is the largest office submarket in San Diego
county. The current tenant mix includes regional headquarters for financial
institutions, law firms and accounting firms. A significant tenant demand has
also been from the city and county of San Diego. The downtown office market has
been developed in cycles, with the majority of the buildings constructed during
four periods in this century.
1890-1929: Nearly one million square feet of office space was
constructed during this period, including the first high rise
office buildings in San Diego. The San Diego Trust and Savings,
Home Federal, Centre City, and Fifth and Broadway buildings were
the most prominent projects constructed during this period. The
Great Depression halted nearly all office construction, and less
than 80,000 square feet of office space was built between 1930
and 1959.
1960-1966: Nearly 965,000 square feet of office space was
constructed during this period, including four new office towers:
California First Bank, Great Western (formerly Home Tower), the
Chamber, and the Executive Buildings.
1969-1975: Approximately 1.7 million square feet of space was
added to the downtown office inventory during this period,
including four new
- -------------------------------------------------------------------------------
71
<PAGE>
DOWNTOWN SAN DIEGO
CONSTRUCTION HISTORY CHART OF CLASS A AND B BUILDINGS
--------------------------------
--------------------------------
YEAR TOTAL (SF)
--------------------------------
1961 161,968
1963 167,928
1963 324,327
--------------------------------
1966 237,066
1969 426,747
1971 318,324
--------------------------------
1972 266,954
1974 331,411
1975 330,173
--------------------------------
1982 272,571
1982 385,648
1982 532,967
--------------------------------
1982 543,019
1984 465,427
1985 171,465
--------------------------------
1989 341,856
1989 528,000
1990 135,000
--------------------------------
1990 343,145
1990 356,610
1991 555,282
--------------------------------
TOTAL 7,195,888
--------------------------------
--------------------------------
ANNUAL AVG 342,661
ANNUAL OFFICE BUILDING CONSTRUCTION BAR CHART
DOWNTOWN SAN DIEGO
[CHART]
<PAGE>
[MAP]
<PAGE>
SAN DIEGO OFFICE MARKET
- -------------------------------------------------------------------------------
high-rise buildings: The Bank of California, Tower Great
American, Security Pacific Bank, and the former Union Bank
building.
1980-1985: Six high-rise office buildings with a combined
rentable area of about 2.4 million square feet were completed
during this period, including the Wells Fargo, Imperial Bank, and
First Interstate Bank Buildings. No new development occurred
during the period from 1986 to 1988.
1989-1991: Six high-rise buildings with a combined rentable
area of approximately 5.5 million square feet were completed
during this period, including two major mixed-use projects
Emerald Shapery Center and Symphony Towers. The development of
these buildings generally expanded the class A office market
westerly of the "B" Street financial corridor. The One America
Plaza building, a 34-story tower containing approximately 570,000
square feet, was completed in 1991 and represents the last
building developed during the most recent cycle in downtown San
Diego. This building has achieved an occupancy level of only 60
percent roughly three years after completion.
The downtown area is situated near the most southwesterly portion of the
region. It does not benefit from the appeal of a convenient, centralized
location, and has not captured the significant share of corporate tenants
typically headquartered in the downtown central business district in major
cities throughout the country. Many of these tenants have selected either the
UTC submarket, which is closer to the executive housing base, or the less
expensive inland office markets such as Mission Valley. The downtown San Diego
office market appeals primarily to tenants who require the "downtown" identity
or proximity to government centers and courts.
DOWNTOWN OFFICE SUPPLY
The downtown submarket is one of the five office submarkets that comprise
the larger Central City market area. The larger Central City market area
contained 16,788,930 square feet as of year-end 1995. The Central City office
market includes the submarkets of Downtown, Uptown, Old Town/Sports Arena, South
City and East City. The Downtown submarket contains 11,687,102 total square
feet of office area, or 70 percent of the total Central City supply. As of
year-end 1995 the Downtown submarket had an overall vacancy rate of 17.9
percent. Of the total office supply in the Downtown submarket, there are 21
high-rise office buildings completed since 1960 that are considered the most
directly
- -------------------------------------------------------------------------------
72
<PAGE>
COMPETITIVE SAN DIEGO OFFICE BUILDINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
BUILDING INFORMATION AVAILABLE
ITEM BUILDING NAME / NO. OF AREA AVG. FLR. YEAR SPACE (SF)
NO. LOCATION STORIES (SF) AREA (SF) BUILT DIRECT
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
DOWNTOWN SAN DIEGO
COMPETITIVE OFFICE BUILDINGS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
D-1 ONE AMERICA PLAZA 34 555,282 16,332 1991 158,357
600 West Broadway
- ---------------------------------------------------------------------------------------------------
D-2 550 CORPORATE CENTER 20 343,145 17,157 1990 24,249
550 West C Street
- ---------------------------------------------------------------------------------------------------
D-3 EMERALD PLAZA 30 356,610 11,887 1990 71,700
400 West Broadway
- ---------------------------------------------------------------------------------------------------
D-4 COLUMBIA SQUARE 13 135,000 10,385 1990 9,040
1230 Columbia Street
- ---------------------------------------------------------------------------------------------------
D-5 KOLL CENTER I 21 341,856 16,279 1989 26,242
501 West Broadway
- ---------------------------------------------------------------------------------------------------
D-6 SYMPHONY TOWERS 34 528,000 15,529 1989 6,215
750 B Street
- ---------------------------------------------------------------------------------------------------
D-7 JOHN BURNHAM BUILDING 19 171,465 9,024 1985 7,640
610 West Ash Street
- ---------------------------------------------------------------------------------------------------
D-8 FIRST INTERSTATE PLAZA 23 465,427 20,236 1984 121,269
401 B Street
- ---------------------------------------------------------------------------------------------------
D-9 WELLS FARGO 20 385,648 19,282 1982 6,073
101 W. Broadway
- ---------------------------------------------------------------------------------------------------
D-10 FIRST NATIONAL BANK 27 532,967 19,740 1982 87,520
401 A Street
- ---------------------------------------------------------------------------------------------------
D-11 IMPERIAL BANK BUILDING 24 543,019 22,626 1982 92,759
701 B Street
- ---------------------------------------------------------------------------------------------------
D-12 BANK OF AMERICA BUILDING 20 272,571 13,629 1982 2,350
450 B Street
- ---------------------------------------------------------------------------------------------------
D-13 HOME SAVINGS TOWER 22 330,173 15,008 1975 42,916
225 Broadway
- ---------------------------------------------------------------------------------------------------
D-14 600 B STREET 24 331,411 13,809 1974 14,849
600 B Street
- ---------------------------------------------------------------------------------------------------
D-15 CIVIC CENTER BUILDING 18 266,954 14,831 1972 42,815
1200 Third Avenue
- ---------------------------------------------------------------------------------------------------
D-16 BANK OF CALIFORNIA 18 318,324 17,685 1971 182,711
110 West A Street
- ---------------------------------------------------------------------------------------------------
D-17 525 B STREET BUILDING 22 426,747 19,398 1969 125,216
525 B Street
- ---------------------------------------------------------------------------------------------------
D-18 UNION BANK BUILDING 24 237,066 9,878 1966 24,782
530 B Street
- ---------------------------------------------------------------------------------------------------
D-19 EXECUTIVE COMPLEX 25 324,327 12,973 1963 27,602
1010 Second Avenue
- ---------------------------------------------------------------------------------------------------
D-20 CHAMBER BUILDING 23 167,928 7,301 1963 24,349
110 West C Street
- ---------------------------------------------------------------------------------------------------
D-21 GREAT WESTERN 18 161,968 8,998 1961 109,570
707 Broadway
- ---------------------------------------------------------------------------------------------------
MARKET TOTALS 479 7,195,888 311,986 1,208,224
- ---------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
AVAILABLE OVERALL QUOTED OVERALL PARKING
ITEM BUILDING NAME / SPACE (SF) AVAILABILTY ANNUAL RENT VACANCY RATIO /
NO. LOCATION SUBLEASE (SF) PSF PSF RATIO 1,000 SF
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
DOWNTOWN SAN DIEGO
COMPETITIVE OFFICE BUILDINGS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
D-1 ONE AMERICA PLAZA 0 158,357 $21.00 - $30.00 71.5% 2.00
600 West Broadway
- ---------------------------------------------------------------------------------------------------
D-2 550 CORPORATE CENTER 0 24,249 $19.20 - $19.80 92.9% 2.00
550 West C Street
- ---------------------------------------------------------------------------------------------------
D-3 EMERALD PLAZA 0 71,700 $18.00 - $27.00 79.9% 1.00
400 West Broadway
- ---------------------------------------------------------------------------------------------------
D-4 COLUMBIA SQUARE 0 9,040 $16.20 - $16.20 93.3% 1.70
1230 Columbia Street
- ---------------------------------------------------------------------------------------------------
D-5 KOLL CENTER I 0 26,242 $16.20 - $20.40 92.3% 2.00
501 West Broadway
- ---------------------------------------------------------------------------------------------------
D-6 SYMPHONY TOWERS 0 6,215 $18.00 - $24.00 98.8% 1.25
750 B Street
- ---------------------------------------------------------------------------------------------------
D-7 JOHN BURNHAM BUILDING 0 7,640 $15.00 - $16.80 95.5% 4.00
610 West Ash Street
- ---------------------------------------------------------------------------------------------------
D-8 FIRST INTERSTATE PLAZA 0 121,269 $17.40 - $23.40 73.9% 1.30
401 B Street
- ---------------------------------------------------------------------------------------------------
D-9 WELLS FARGO 0 6,073 $17.40 - $22.20 98.4% 2.00
101 W. Broadway
- ---------------------------------------------------------------------------------------------------
D-10 FIRST NATIONAL BANK 0 87,520 $17.40 - $19.80 83.6% 1.00
401 A Street
- ---------------------------------------------------------------------------------------------------
D-11 IMPERIAL BANK BUILDING 0 92,759 $15.60 - $18.00 82.9% .70
701 B Street
- ---------------------------------------------------------------------------------------------------
D-12 BANK OF AMERICA BUILDING 13,500 15,850 $15.60 - $16.20 94.2% .70
450 B Street
- ---------------------------------------------------------------------------------------------------
D-13 HOME SAVINGS TOWER 0 42,916 $16.80 - $19.80 87.0% 2.00
225 Broadway
- ---------------------------------------------------------------------------------------------------
D-14 600 B STREET 0 14,849 $13.20 - $17.40 95.5% 2.00
600 B Street
- ---------------------------------------------------------------------------------------------------
D-15 CIVIC CENTER BUILDING 0 42,815 $13.20 - $15.00 84.0% 1.00
1200 Third Avenue
- ---------------------------------------------------------------------------------------------------
D-16 BANK OF CALIFORNIA 0 182,711 $13.80 - $15.60 42.6% 1.00
110 West A Street
- ---------------------------------------------------------------------------------------------------
D-17 525 B STREET BUILDING 0 125,216 $16.80 - $19.20 70.7% 1.00
525 B Street
- ---------------------------------------------------------------------------------------------------
D-18 UNION BANK BUILDING 0 24,782 $15.60 - $17.40 89.5% 1.00
530 B Street
- ---------------------------------------------------------------------------------------------------
D-19 EXECUTIVE COMPLEX 0 27,602 $13.20 - $15.60 91.5% 1.00
1010 Second Avenue
- ---------------------------------------------------------------------------------------------------
D-20 CHAMBER BUILDING 0 24,349 $12.48 - $13.80 85.5% 1.30
110 West C Street
- ---------------------------------------------------------------------------------------------------
D-21 GREAT WESTERN 0 109,570 $10.80 - $13.20 32.4% 4.60
707 Broadway
- ---------------------------------------------------------------------------------------------------
MARKET TOTALS 13,500 1,221,724 83.0%
- ---------------------------------------------------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
SAN DIEGO OFFICE BUILDINGS
[BAR GRAPH]
<PAGE>
SAN DIEGO OFFICE MARKET
- -------------------------------------------------------------------------------
competitive Class A properties. The survey on an accompanying page summarizes
the pertinent characteristics of existing primary competitive high rise office
supply. The 21 buildings were completed during the period from 1963 to 1991,
and contain a combined rentable area of 7,195,888 square feet. The year-end,
1995 overall (combined) occupancy level for the competitive buildings is 83
percent.
DOWNTOWN RENTAL RATES
The exhibit covering the 21 high-rise buildings in the downtown market
presents the data in order of the year of completion. There are three primary
"tiers" of high rise office buildings in the downtown market. The first tier
includes the premier Class A assets completed during the period from 1989 to
1991 (refer to D-1 through D-6). These buildings represent generally the best
quality office space in the downtown market and have current quoted rental rates
ranging from $16.20 to $30.00 per-square-foot annually full service gross. The
second tier of office buildings includes the building completed during the first
portion of the 1980's (D-7 through D-12), and represent generally good quality
office properties. Current quoted rental rates for these buildings range from
$15.00 to $22.20 per-square-foot annually. The third tier of office buildings
includes the properties developed during the period from the early 1960's
through the 1970's (D-13 through D-21). Several of these properties have been
renovated or are undergoing renovation, and some contain asbestos and are not in
full compliance with the city's fire/life safety and handicap access ordinances.
For several of these assets the capital improvements required to prepare the
space for tenant occupancy are not justified by the current achievable rental
rates. This category generally represents a lower cost alternative the to
superior Class A assets, and current quoted rental rates range from $10.80 to
$19.20 per-square-foot annually, with the upper end of the range corresponding
to substantially renovated buildings.
An accompanying exhibit includes details of 10 leases signed for space in a
range of competitive downtown San Diego office buildings during the second half
of 1995. The lease terms range from three to 10 years in length, and have
effective rental rates (average rent over the lease term net of free rent and
including set increases) from $12.00 to $20.40 per-square-foot annually, full
service gross (FSG). As shown on the chart, the weighted average effective
rental rate for the 10 leases is $17.19 per-square-foot annually.
DOWNTOWN ABSORPTION
The downtown office submarket experienced a positive net absorption during
1995 of 273,777 square feet, which represented a sharp increase from the 1994
net absorption of NEGATIVE 45,192 square feet. A substantial portion of the
positive 1995 absorption is attributable tot he change in ownership and
realignment of Emerald Shapery Center, which experienced 71,700 square feet of
positive new absorption during 1995, or 26.2 percent of the new absorption in
this market. The absorption trend for office space in downtown San Diego
during the past 10 years is summarized below.
- -------------------------------------------------------------------------------
73
<PAGE>
SAN DIEGO DOWNTOWN
SUMMARY OF COMPARABLE LEASES
PROFESSIONAL OFFICE TENANTS
<TABLE>
<CAPTION>
Initial
Item Date of Rounded Analyst Adjust- Expense Concession Effective Annual
No. Market Lease Area (SF) Term Rent (PSF) ments Basis Comments PSF Rent
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SD-1 Downtown Oct-95 2,300 5 years $13.20 3%/Yr FSG None $13.92
$12.00 TIA
- -------------------------------------------------------------------------------------------------------------
SD-2 Downtown Aug-95 18,400 10 years $23.40 Flat FSG None $16.32
$15.00 TIA
- -------------------------------------------------------------------------------------------------------------
SD-3 Downtown Jul-95 2,200 10 years $13.20 3%/Yr FSG None $16.68
$8.00 TIA
- -------------------------------------------------------------------------------------------------------------
SD-4 Downtown Sep-95 1,500 5 years $16.80 Flat FSG None $16.80
$28.00 TIA
- -------------------------------------------------------------------------------------------------------------
SD-5 Downtown Sep-95 9,000 7 years $22.20 Flat FSG 12 months $19.08
$5.00 TIA
- -------------------------------------------------------------------------------------------------------------
SD-6 Downtown Apr-95 19,000 10 years $18.60 Fixed FSG None $20.40
N/A $15.00 TIA
- -------------------------------------------------------------------------------------------------------------
SD-7 Downtown Dec-95 5,024 5 years $10.80 3%/YR FSG None $12.00
$10.00 TIA
- -------------------------------------------------------------------------------------------------------------
SD-8 Downtown Nov-95 7,800 6 years $14.40 $0.05/YR FSG 3 months $15.60
$6.00 TIA
- -------------------------------------------------------------------------------------------------------------
SD-9 Downtown Nov-95 19,849 3 years $17.40 Flat FSG None $17.40
$7.50 TIA
- -------------------------------------------------------------------------------------------------------------
SD-10 Downtown Oct-95 7,351 5 years $15.00 Flat FSG None $14.64
$9.00 TIA
- -------------------------------------------------------------------------------------------------------------
</TABLE>
WEIGHTED AVERAGE EFFECTIVE RENTAL RATE = $17.19
<PAGE>
- ------------------------------------------------------------------------------
INVENTORY / ABSORPTION / VACANCY
SAN DIEGO DOWNTOWN OFFICE SPACE
- ------------------------------------------------------------------------------
1986 to 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Absorption Inventory Vacancy Occupancy %
<S> <C> <C> <C> <C>
1986 433,763 9,193,489 1,501,439 83.7%
1987 423,697 9,160,593 949,136 89.6%
1988 289,881 9,422,193 962,950 89.8%
1989 772,010 10,815,863 1,566,804 85.5%
1990 196,475 11,103,699 1,853,475 83.3%
1991 176,451 11,812,339 2,290,093 80.6%
1992 (254,970) 11,830,874 2,451,789 79.3%
1993 201,334 11,809,408 2,288,540 80.6%
1994 (45,192) 11,750,081 2,329,344 80.2%
1995 273,498 11,687,102 2,089,300 82.1%
- ------------------------------------------------------------------------------
Total 2,466,947 108,586,641 18,282,870 83.2%
- ------------------------------------------------------------------------------
ANNUAL AVG 246,695 10,858,664 1,828,287 83.2%
</TABLE>
NET ABSORPTION
[CHART]
INVENTORY BAR GRAPH
[CHART]
<PAGE>
SAN DIEGO OFFICE MARKET
- -------------------------------------------------------------------------------
Net SF
Year Office Absorption
---- -----------------
1986 433,763
1987 423,697
1988 289,881
1989 772,010
1990 196,475
1991 176,451
1992 ( 254,970)
1993 201,334
1994 ( 45,192)
1995 273,777
----------
Total 2,467,226
Average 1986-1995: 246,723SF
Average 1990-1995: 91,313SF
The chart indicates that absorption levels in the downtown office market
declined sharply since the end of the last decade. The average annual net
office absorption of about 91,313 square feet during the six-year period from
1990 through 1995 compares with the average annual absorption during the last
four years of the past decade (1986 through 1989) of about 480,000 square feet.
The net absorption levels reflect in part the substantial increase in new
supply in alternative, emerging San Diego County markets such as UTC, Mission
Valley, and Kearny Mesa, as well as the slowdown in the local and regional
economy which began in the second half of 1990. The economic downturn has
negatively impacted the businesses that have formed the primary demand base for
space in the downtown market. Several financial institutions, including Home
Federal, Great American Savings, Imperial Savings, and Security Pacific Bank
have either become insolvent or have merged with other institutions during the
past three years. The three savings and loans cited above were headquartered in
downtown San Diego and their difficulties have resulted in the loss of about
4,000 executive level positions since 1990. The result has been a significant
reduction in the direct office space requirements of these and other financial
institutions as well as a corresponding decline in demand from ancillary
businesses such as legal and accounting firms which provided support services to
the financial institutions. Home Savings acquired Coast Savings, and the merger
of Security Pacific and Bank of America has resulted in the consolidation of the
employees in the two headquarters buildings either owned (Bank of America) or
controlled (Security Pacific) by these two entities in the downtown San Diego
market.
An analysis of the historical office building construction trends in the
downtown market demonstrate an almost "classical" example of development
cycles. The market has historically experienced three- to four-year periods of
new development and oversupply in response to indications of tightening. The
recent excess supply and depressed market conditions are similar conceptually to
the mid-1980's, following the
- -------------------------------------------------------------------------------
74
<PAGE>
SAN DIEGO OFFICE MARKET
- -------------------------------------------------------------------------------
completion of six high rise buildings totalling about 2.35 million square feet
during the period 1982 through 1985. The historical data we reviewed covering
the larger Central City office market prior to 1986 indicates the following
overall vacancy levels during the period from 1975 through 1985.
Year Vacancy
---- -------
1975 19.3%
1976 23.0%
1977 19.1%
1978 13.4%
1979 9.3%
1980 5.5%
1981 4.1%
1982 27.0%
1983 24.7%
1984 23.4%
1985 27.9%
The sharp increase in vacancy rates during the first five years of the last
decade resulted from the substantial new supply completed during the same
period. As noted previously the imbalance in supply and demand effectively
halted new development for a four-year period, which permitted market conditions
to tighten and a new development cycle to commence. The exhibit on the facing
page shows the trend in supply, absorption, and vacancy rates in the downtown
submarket during the 10-year period 1986 through 1995. The chart indicates that
the halt in new development following 1985 permitted the vacancy levels to
decline to about 10 percent prior to a new development cycle from 1989 to 1991.
The "recovery" cycle since the last major property was completed in 1991 has had
only a minimal affect on vacancy levels prior to 1995 due to the decline in
absorption. The economic recession and the emergence of competitive,
alternative office markets suggests that the downtown market will require a
longer recovery period than during previous cycles. The current market imbalance
between supply and demand has been intensified by changes in the local and
regional economy which may have long term implications for property owners. The
consolidation within the financial institutions such as commercial banks and
insurance companies have led to a reduction in office space requirements.
Accounting and law firms have also been impacted by the increasing cost
containment policies of a shrinking client base. Advances in communication and
information technologies have made it possible for service firms to improve
productivity while maintaining leaner staffing levels.
On the supply side of the office market in downtown San Diego, the current
minimal new demand and the low rental rates have created an environment in which
new development is not economically feasible, and the marketplace generally
anticipates that new development (excluding owner user buildings) will not be
feasible for a number of years. Unlike many other areas of southern California,
San Diego has not legislated particularly restrictive development constraints in
the downtown market area, and there is virtually an "unlimited" amount of vacant
or effectively vacant land potentially available for
- -------------------------------------------------------------------------------
75
<PAGE>
SAN DIEGO OFFICE MARKET
- -------------------------------------------------------------------------------
new commercial development. Many of the projects previously proposed for new
office development have been abandoned by the developers during the past three
years, however, and the limited recent sale and marketing activity of land sites
in the downtown market have involved primarily parking lots acquired based on
the income potential for the parking operation.
TENANT MIX
The primary source of tenants from the private sector in the downtown
market is business services, and within this group the most significant source
of tenant is legal services. As of year-end 1992 there were approximately 340
legal firms leasing nearly 2.2 million square feet of space in the downtown
market, or about 30 percent of the total leased area. The 20 largest law firms
in San Diego County have downtown locations, including the largest firm Gray,
Cary, Ames & Frye, which leases about 100,000 square feet in the First
Interstate bank building. Other major firms in the downtown market include Luce
Forward, et al (recently relocated to One America Plaza), Latham Watkins (a
tenant in the Imperial Bank building on B Street), Musick Peeler (Home Savings),
Neil, Dymott (Exchange Complex) and Ault Deuprey et al (42,000 square feet in
Emerald Shapery).
The Finance, Insurance, Real Estate sector (FIRE) of employment accounted
for about 25 percent of the total occupied area as of the beginning of 1993.
The largest component of the tenant base within the FIRE sector are depository
institutions, which accounted for nearly 15 percent of the total occupied space
in the downtown market. There were 47 depository institutions in the market
with an average space requirement of about 22,000 square feet, which was the
largest average size of any downtown tenant group. Companies in the
communications industry accounted for only 320,000 square feet of occupied
space. The largest single user in this category is AT &T, which has offered
much of its premises in the Symphony Towers building for sublease.
As noted previously the demand from the private sector tenant base in the
downtown market has declined substantially during the past three years. The
diminishing space requirements by many users has created a very competitive
environment for landlords, and the landlords of newer class A buildings have
been willing to accept zero or negative net present value leases in order to
cover operating expenses. Several of the major lease deals during the past two
years have involved tenants relocating to superior space in newer buildings.
A recent major private sector lease involved Harcourt and Brace, who leased
about 80,000 square feet in 525 "B" Street during 1993. The primary source of
new tenant demand in the downtown market during the past four years has been
from government or quasi-government tenants, however. The City of San Diego
negotiated new leases for roughly 500,000 square feet in three older downtown
buildings during 1991-1992 (Executive Complex, the previous Security Pacific
headquarters building, and the former Great American Bank Building at 600 B
Street. Another major government transaction involves a build-to-suit project
on the former Bentall site (currently under construction) for a new county
courthouse and offices for the staffs of the county marshall, district attorney,
grand jury, law review board, and probation department. The decision to develop
a new
- -------------------------------------------------------------------------------
76
<PAGE>
SAN DIEGO OFFICE MARKET
- -------------------------------------------------------------------------------
project for these facilities rather than lease less expensive existing space
will result in the addition of 400,000 square feet to the market rather than the
net absorption of completed space.
Other government tenants recently in the market for space in downtown San
Diego include the IRS fraud division (which signed for about 20,000 square feet
in the 701 B Street building), the County Water Authority, the FBI, the Border
Patrol, U.S. Customs, and other city and county offices. The demand from these
tenants has been largely satisfied during the past two years with the three
major city leases and the build-to-suit project discussed above. San Diego Gas
& Electric relocated from its premises in the Bank of California building (110 A
Street) to its master leased building on Ash Street in the downtown submarket.
CONCLUSIONS
The downtown San Diego office market is currently in a cycle of high
vacancy and limited demand that has shown improvement during 1995. The
potential tenant base has been somewhat limited in recent years primarily to
government tenants and law firms, and the near-term demand from these tenants
appears to have been largely satisfied. The emergence of alternative markets
during the past decade, particularly the UTC market, which is more prestigious,
and the Mission Valley and Kearny Mesa markets, which offer more favorable
economic terms, has diluted the tenant base at a more rapid pace than the growth
in demand. The absence of new office development throughout the county should
permit a gradual recovery in occupancy levels and rental rates over the next few
years, however, assuming a reasonable economic recovery for the region. The UTC
submarket has tightened during the past two years, and the Mission Valley and
Kearny Mesa submarkets have shown recent signs of improvement as well,
particularly for larger blocks of space. The improvement in these markets
should eventually result in rental increases, which theoretically will benefit
the downtown market as well. While the timing for improved market conditions
downtown is uncertain, the current economic climate is showing signs of
strengthening in some sections of San Diego County, and the downtown submarket
should benefit from overflow demand as other markets tighten.
- -------------------------------------------------------------------------------
77
<PAGE>
ADDENDA
- --------------------------------------------------------------------------------
PEER BUILDING ANALYSIS
SUBMARKET LEASE DATA
OFFICE BUILDING SALES SUMMARY
- --------------------------------------------------------------------------------
78
<PAGE>
PEER BUILDING ANALYSIS
Skyview Center I 6033 West Century Boulevard
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Building Information
Item Building Name / No of Area Avg Flr Year Available Space (SF)
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A-1 CENTROPLEX #7 4 236,311 59,078 1981 Ground 0 0
5721 West Century Boulevard 0 0 0
---- ---- -----
0 0 0
- -------------------------------------------------------------------------------------------------------
A-2 SKYVIEW CENTER II 11 196,205 17,837 1987 Ground 0 0
6053 West Century Boulevard 5-11 28,678 0
---- ------ -----
28,678 0
- -------------------------------------------------------------------------------------------------------
A-3 LOS ANGELES AIRPORT CENTER II 14 213,974 15,284 1964 Ground 860 0
5959 West Century Boulevard 2-14 69,267 0
---- ------ -----
70,127 0
- -------------------------------------------------------------------------------------------------------
A-4 CONTINENTAL PARK 4 108,000 27,000 1984 Ground 0 0
841 Apollo Street 3 4,848 0
---- ------ -----
4,848 0
- -------------------------------------------------------------------------------------------------------
A-5 XEROX CENTRE II 12 245,000 20,417 1987 Ground 0 0
1960 Grand Avenue 0 7,652 0
---- ------ -----
7,652 0
- -------------------------------------------------------------------------------------------------------
A-6 THE PLAZA AT CONTINENTAL PARK 8 406,258 67,710 1982 Ground 39,453 0
2101/2121/2141 Rosecrans Ave 1-5 90,913 0
---- ------- -----
130,366 0
- -------------------------------------------------------------------------------------------------------
A-7 KILROY AIRPORT CNTR II-TOWER V 12 300,000 25,000 1983 Ground 0 0
2250 Imperial Highway 2-8 58,733 0
---- ------ -----
58,733 0
- -------------------------------------------------------------------------------------------------------
A-8 KILROY AIRPORT CNTR II-TOWER VI 12 280,000 23,333 1983 Ground 0 0
2260 Imperial Highway 0 0 0
---- ------ -----
0 0
- -------------------------------------------------------------------------------------------------------
A-9 PACIFIC CONCOURSE (BLDG 2) 4 91,400 22,850 1989 Ground 0 0
5230 Pacific Concourse Drive 1-4 8,871 1,985
---- ------ -----
8,871 1,985
- -------------------------------------------------------------------------------------------------------
A-10 PACIFIC CONCOURSE (BLDG 3) 3 68,234 22,745 1989 Ground 2,559 0
5245 Pacific Concourse Drive 2 12,451 0
---- ------ -----
15,010 0
- -------------------------------------------------------------------------------------------------------
A-11 PACIFIC CORPORATE TOWERS 20 500,000 25,000 1984 Ground 7,282 0
100 N Sepulveda Boulevard 2-4 33,879 0
---- ------ -----
41,161 0
- -------------------------------------------------------------------------------------------------------
MARKET TOTALS 102 2,645,382 25,935 365,446 1,985
- -------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Overall Quoted
Item Building Name / Availability Annual Rent Lease Occupancy Ratio
No. Location (SF) PSF PSF Type Direct Overall
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
100.0% 100.0%
A-1 CENTROPLEX #7 TOTAL
5721 West Century Boulevard 0
- -------------------------------------------------------------------------------------------------------
A-2 SKYVIEW CENTER II 85.4% 85.4%
6053 West Century Boulevard TOTAL $17.40 $17.40 FSG
28,678
- -------------------------------------------------------------------------------------------------------
A-3 LOS ANGELES AIRPORT CENTER II $15.00 - $15.00 FSG 67.2% 67.2%
5959 West Century Boulevard TOTAL $15.00 - $15.00 FSG
70,127
- -------------------------------------------------------------------------------------------------------
A-4 CONTINENTAL PARK 95.5% 95.5%
841 Apollo Street TOTAL $19.20 - $19.20 FSG
4,848
- -------------------------------------------------------------------------------------------------------
A-5 XEROX CENTRE II 96.9% 96.9%
1960 Grand Avenue TOTAL $18.00 $18.00 FSG
7,652
- -------------------------------------------------------------------------------------------------------
A-6 THE PLAZA AT CONTINENTAL PARK $25.20 - $27.00 FSG 67.9% 67.9%
2101/2121/2141 Rosecrans Ave TOTAL $18.60 - $25.20 FSG
130,366
- -------------------------------------------------------------------------------------------------------
A-7 KILROY AIRPORT CNTR II-TOWER V 80.4% 80.4%
2250 Imperial Highway TOTAL $16.20 $19.80 FSG
58,733
- -------------------------------------------------------------------------------------------------------
A-8 KILROY AIRPORT CNTR II-TOWER VI 100.0% 100.0%
2260 Imperial Highway TOTAL
0
- -------------------------------------------------------------------------------------------------------
A-9 PACIFIC CONCOURSE (BLDG 2) 90.3% 88.1%
5230 Pacific Concourse Drive TOTAL $15.00 - $18.60 FSG
10,856
- -------------------------------------------------------------------------------------------------------
A-10 PACIFIC CONCOURSE (BLDG 3) $16.20 - $18.60 FSG 78.0% 78.0%
5245 Pacific Concourse Drive TOTAL $16.20 - $18.60 FSG
15,010
- -------------------------------------------------------------------------------------------------------
A-11 PACIFIC CORPORATE TOWERS $16.20 - $18.00 FSG 91.8% 91.8%
100 N Sepulveda Boulevard TOTAL $16.20 - $18.60 FSG
41,161
- -------------------------------------------------------------------------------------------------------
MARKET TOTALS 367,431 86.2% 86.1%
- -------------------------------------------------------------------------------------------------------
--------------------------------------------------------
$17.68 - $20.48 Direct Weighted Average Rental Rate
--------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
LOS ANGELES AIRPORT AREA
[GRAPH]
<PAGE>
PEER BUILDING ANALYSIS
Anaheim City Center 222 South Harbor Boulevard
<TABLE>
<CAPTION>
Building Incremation
Item Building Name/ No. of Area Avg Flr Year Available Space (SF)
No. Location Stores (SF) Area (SF) Built Floor(s) Direct Sublease
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A-1 KOLL CENTER ORANGE 14 275,865 19,705 1988 Ground 0 0
500 North State College Blvd. 2-12 54,850 0
---- ------ ------
Orange, CA 54,850 0
- -----------------------------------------------------------------------------------------------------------------------------
A-2 THE CITY TOWER 20 410,200 20,510 1988 Ground 0 0
333 City Boulevard West 4-21 89,305 0
---- ------ ------
Orange, CA 89,305 0
- -----------------------------------------------------------------------------------------------------------------------------
A-3 ANAHEIM CITY CENTER 10 187,209 18,721 1986 Ground 0 0
222 South Harbor Blvd. 3-10 9,611 12,806
---- ----- ------
Anaheim, CA 9,611 12,806
- -----------------------------------------------------------------------------------------------------------------------------
A-4 EXECUTIVE TOWER 16 360,059 22,504 1987 Ground 0 0
1100 Town & Country Rd. 4-16 30,494 0
---- ------ ------
Orange, CA 30,494 0
- -----------------------------------------------------------------------------------------------------------------------------
A-5 LINCOLN TOWN CENTER 10 212,542 21,254 1987 Ground 0 0
2677 N. Main Street 4-9 16,364 0
--- ------ ------
Santa Ana, CA 16.364 0
- -----------------------------------------------------------------------------------------------------------------------------
A-6 NEXUS CITY SQUARE 8 178,600 22,325 1987 Ground 0 0
750/70/90 The City Drive 4 93,000 23,250 2-8 53,750 0
--- ------ ------
Orange, CA 4 93,000 23,250 53,750 0
364,600
- -----------------------------------------------------------------------------------------------------------------------------
A-7 XEROX CENTRE 14 305,230 21,802 1988 Ground 1,132 11,863
1851 E. First Street 7-15 38,408 0
---- ------ ------
Santa Ana, CA 39,540 11,863
- -----------------------------------------------------------------------------------------------------------------------------
A-8 STATE COMP. BUILDING 8 216,156 27,020 1994 Ground 0 0
1750 E. Fourth Street 6 0 2,658
- - ------
Santa Ana, CA 0 2,658
- -----------------------------------------------------------------------------------------------------------------------------
A-9 BENTALL EXECUTIVE CENTER 10 196,461 19,646 1991 Ground 3,199 0
1551 North Tustin Avenue 4-9 2,183 15,956
--- ----- ------
Tustin, CA 5,382 15,956
- -----------------------------------------------------------------------------------------------------------------------------
A-10 TRI-CENTRE 10 203,599 20,360 1986 Ground 0 0
333 S. Anita 2-10 14,492 90,473
---- ------ ------
Orange, CA 14,492 90,473
- -----------------------------------------------------------------------------------------------------------------------------
A-11 STADIUM TOWERS PLAZA 12 255,967 21,331 1988 Ground 4,602 0
2400 E. Katella Avenue 2-10 74,871 21,980
---- ------ ------
Anaheim, CA 79,473 21,980
- -----------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 140 3,352,488 23,946 393,261 155,736
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
QUOTED
Item Building Name/ OVERALL ANNUAL RENT OCCUPANCY RATIO
No. Location AVAILABILITY PSF PSF DIRECT OVERALL
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A-1 KOLL CENTER ORANGE 80.1% 80.1%
500 North State College Blvd. TOTAL $21.00 $21.00
Orange, CA 54,850
- ----------------------------------------------------------------------------------------------------
A-2 THE CITY TOWER 78.2% 78.2%
333 City Boulevard West TOTAL $19.20 $19.20
Orange, CA 89,305
- ----------------------------------------------------------------------------------------------------
A-3 ANAHEIM CITY CENTER 94.9% 88.0%
222 South Harbor Blvd. TOTAL $12.60 $18.60
Anaheim, CA 22,417
- ----------------------------------------------------------------------------------------------------
A-4 EXECUTIVE TOWER 91.5% 91.5%
1100 Town & Country Rd. TOTAL $21.00 $21.00
Orange, CA 30,494
- ----------------------------------------------------------------------------------------------------
A-5 LINCOLN TOWN CENTER 92.3% 92.3%
2677 N. Main Street TOTAL $18.00 $18.00
Santa Ana, CA 16,364
- ----------------------------------------------------------------------------------------------------
A-6 NEXUS CITY SQUARE 69.9% 69.9%
750/70/90 The City Drive TOTAL $17.40 $17.40
Orange, CA 53,750
- ----------------------------------------------------------------------------------------------------
A-7 XEROX CENTRE $14.40 $14.40 87.0% 83.2%
1851 E. First Street TOTAL $19.80 $19.80
Santa Ana, CA 51,403
- ----------------------------------------------------------------------------------------------------
A-8 STATE COMP. BUILDING 100.0% 98.8%
1750 E. Fourth Street TOTAL $17.76 $17.76
Santa Ana, CA 2,658
- ----------------------------------------------------------------------------------------------------
A-9 BENTALL EXECUTIVE CENTER $19.20 $19.20 97.3% 89.1%
1551 North Tustin Avenue TOTAL $13.80 $19.20
Tustin, CA 21,338
- ----------------------------------------------------------------------------------------------------
A-10 TRI-CENTRE 92.9% 48.4%
333 S. Anita TOTAL $17.40 $18.00
Orange, CA 104,965
- ----------------------------------------------------------------------------------------------------
A-11 STADIUM TOWERS PLAZA N/A N/A 69.0% 60.4%
2400 E. Katella Avenue TOTAL N/A N/A
Anaheim, CA 101,453
- ----------------------------------------------------------------------------------------------------
MARKET TOTALS 548,997 88.3% 83.6%
- ----------------------------------------------------------------------------------------------------
-------------------------------------------------------
$19.05 - $19.30 Direct Wtd Avg Rental Rate
-------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
ANAHEIM AREA
[GRAPH]
<PAGE>
PEER BUILDING ANALYSIS
Beverly Atrium 350 South Beverly Drive
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Building Information
Item Building Name / No. of Area Avg. Flr. Year Available Space (SF)
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R-1 WELLS FARGO BANK BLDG. 12 177,300 14,755 1972 Ground 0 0
433 N. Camden Drive 4 - 9 44,491 0
----- ------ ------
44,491 0
- -------------------------------------------------------------------------------------------------------
R-2 WILSHIRE RODEO PLAZA SOUTH 3 70,000 23,333 1985 Ground 0 0
131 S. Rodeo Drive 2 - 3 17,438 0
----- ------ ------
17,438 0
- -------------------------------------------------------------------------------------------------------
R-3 VILLAGE ON CANON 3 62,000 20,667 1989 Ground 0 0
301 N. Canon Drive 2 - 3 2,784 11,052
----- ------ ------
2,784 11,052
- -------------------------------------------------------------------------------------------------------
R-4 450 N. ROXBURY DR. BLDG. 10 101,957 10,196 1972 Ground 7,023 0
450 N. Roxbury Dr. 2 - 10 43,664 0
------ ------- ------
50,687 0
- -------------------------------------------------------------------------------------------------------
R-5 BANK OF AMERICA BLDG. 8 74,069 9,259 1974 Ground 0 0
9440 Santa Monica Blvd. 3 - 7 3,525 0
----- ------- ------
3,525 0
- -------------------------------------------------------------------------------------------------------
R-6 WILSHIRE AT ELM 3 47,745 15,915 1989 Ground 0 0
9320 Wilshire Blvd. 0 0 0
----- ------- ------
0 0
- -------------------------------------------------------------------------------------------------------
R-7 WILSHIRE CRESCENT BUILDING 4 108,452 27,113 1989 Ground 23,716 0
9333 Wilshire Blvd. 1 - 3 84,736 0
----- ------- ------
108,452 0
- -------------------------------------------------------------------------------------------------------
R-8 BEVERLY HILLS FINANCIAL CNTR. 12 127,000 10,583 1971 Ground 7,193 0
9401 Wilshire Blvd. 5 - 12 13,810 0
------ ------ ------
21,003 0
- -------------------------------------------------------------------------------------------------------
R-9 STERLING PLAZA 6 50,000 8,333 1950 Ground 13,000 0
9441 Wilshire Blvd. renov. 1991 2 - 5 20,000 0
----- ------- ------
33,000 0
- -------------------------------------------------------------------------------------------------------
R-10 GLENDALE FEDERAL BLDG. 11 155,270 14,115 1971 Ground 12,660 0
9454 Wilshire Blvd. 2 - 9 18,312 0
----- ------- ------
30,972 0
- -------------------------------------------------------------------------------------------------------
R-11 WILSHIRE BEVERLY CENTER 9 153,754 17,084 1962 Ground 0 0
9465 Wilshire Blvd. 2 - 9 120,000 0
----- ------- ------
120,000 0
- -------------------------------------------------------------------------------------------------------
R-12 WILSHIRE RODEO PLAZA 5 48,000 9,600 1985 Ground 0 0
9536 Wilshire Blvd. 2 - 4 3,276 0
----- ------- ------
3,276 0
- -------------------------------------------------------------------------------------------------------
R-13 9560 WILSHIRE BLVD. BLDG. 6 90,000 15,000 1982 Ground 0 0
9560 Wilshire Blvd. 0 0 0
----- ------- ------
0 0
- -------------------------------------------------------------------------------------------------------
R-14 WALLACE MOIR BLDG. 10 145,000 14,500 1972 Ground 14,034 0
9595 Wilshire Blvd. 3 6,134 0
----- ------- ------
20,168 0
- -------------------------------------------------------------------------------------------------------
R-15 HEITMAN CENTRE 8 211,845 26,481 1982 Ground 7,373 0
9601 Wilshire Blvd. 6 4,908 0
----- ------- ------
12,281 0
- -------------------------------------------------------------------------------------------------------
R-16 ONE ROXBURY PLAZA 12 100,154 8,346 1973 Ground 3,079 0
9701 Wilshire Blvd. 9 - 12 37,810 0
----- ------- ------
40,889 0
- -------------------------------------------------------------------------------------------------------
R-17 WILSHIRE PALM 3 85,412 28,471 1990 Ground 5,150 0
9150 Wilshire Blvd. 2 5,151 0
----- ------- ------
10,301 0
- -------------------------------------------------------------------------------------------------------
MARKET TOTALS 125 1,807,958 14,464 519,267 11,052
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Overall Quoted
Item Building Name / Availability Annual Rent Lease Occupancy Ratio
No. Location (SF) PSF PSF Type Direct Overall
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
R-1 WELLS FARGO BANK BLDG. 74.9% 74.9%
433 N. Camden Drive TOTAL $25.80 $28.20 FSG
44,491
- -------------------------------------------------------------------------------------------------------
R-2 WILSHIRE RODEO PLAZA SOUTH 75.1% 75.1%
131 S. Rodeo Drive TOTAL $28.80 $29.40 FSG
17,438
- -------------------------------------------------------------------------------------------------------
R-3 VILLAGE ON CANON 95.5% 77.7%
301 N. Canon Drive TOTAL $30.00 $30.00 FSG
13,836
- -------------------------------------------------------------------------------------------------------
R-4 450 N. ROXBURY DR. BLDG. $27.00 - $29.40 FSG 50.3% 50.3%
450 N. Roxbury Dr. TOTAL $27.00 - $29.40 FSG
50,687
- -------------------------------------------------------------------------------------------------------
R-5 BANK OF AMERICA BLDG. 95.2% 95.2%
9440 Santa Monica Blvd. TOTAL $29.40 $29.40 FSG
3,525
- -------------------------------------------------------------------------------------------------------
R-6 WILSHIRE AT ELM 100.0% 100.0%
9320 Wilshire Blvd. TOTAL
0
- -------------------------------------------------------------------------------------------------------
R-7 WILSHIRE CRESCENT BUILDING $29.40 - $29.40 FSG 0.0% 0.0%
9333 Wilshire Blvd. TOTAL $29.40 $29.40 FSG
108,452
- -------------------------------------------------------------------------------------------------------
R-8 BEVERLY HILLS FINANCIAL CNTR. $42.00 - $42.00 FSG 83.5% 83.5%
9401 Wilshire Blvd. TOTAL $25.80 $27.60 FSG
21,003
- -------------------------------------------------------------------------------------------------------
R-9 STERLING PLAZA $36.00 - $36.00 FSG 34.0% 34.0%
9441 Wilshire Blvd. TOTAL $36.00 $36.00 FSG
33,000
- -------------------------------------------------------------------------------------------------------
R-10 GLENDALE FEDERAL BLDG. $26.40 - $28.68 FSG 80.1% 80.1%
9454 Wilshire Blvd. TOTAL $26.40 $28.68 FSG
30,972
- -------------------------------------------------------------------------------------------------------
R-11 WILSHIRE BEVERLY CENTER 22.1% 22.0%
9465 Wilshire Blvd. TOTAL $24.00 $30.00 FSG
120,000
- -------------------------------------------------------------------------------------------------------
R-12 WILSHIRE RODEO PLAZA 93.2% 93.2%
9536 Wilshire Blvd. TOTAL $24.00 $26.40 FSG
3,276
- -------------------------------------------------------------------------------------------------------
R-13 9560 WILSHIRE BLVD. BLDG. 100.0% 100.0%
9560 Wilshire Blvd. TOTAL
0
- -------------------------------------------------------------------------------------------------------
R-14 WALLACE MOIR BLDG. $19.80 - $19.80 FSG 86.1% 86.1%
9595 Wilshire Blvd. TOTAL $19.80 - $19.80 FSG
20,168
- -------------------------------------------------------------------------------------------------------
R-15 HEITMAN CENTRE $24.00 - $27.00 FSG 94.2% 94.2%
9601 Wilshire Blvd. TOTAL $24.00 - $27.00 FSG
12,281
- -------------------------------------------------------------------------------------------------------
R-16 ONE ROXBURY PLAZA $27.00 - $30.00 FSG 59.2% 59.2%
9701 Wilshire Blvd. TOTAL $27.00 $30.00 FSG
40,889
- -------------------------------------------------------------------------------------------------------
R-17 WILSHIRE PALM $27.00 - $27.00 FSG 87.9% 87.9%
9150 Wilshire Blvd. TOTAL $27.00 - $27.00 FSG
10,301
- -------------------------------------------------------------------------------------------------------
MARKET TOTALS 530,319 71.3% 70.7%
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
---------------------------------------------------------
$27.14 - $29.49 Direct Weighted Average Rental Rate
---------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
BEVERLY HILLS
[GRAPH]
<PAGE>
PEER BUILDING ANALYSIS
9665 Wilshire Boulevard
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
BUILDING INFORMATION
--------------------------------------- AVAILABLE SPACE (SF) OVERALL
ITEM BUILDING NAME/ NO. OF AREA AVG FLR YEAR ----------------------------- AVAILABILITY
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(S) DIRECT SUBLEASE (SF)
- --------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 WELLS FARGO BANK BLDG. 12 177,300 14,775 1972 Ground 0 0
433 N. Camden Drive 4 - 9 44,491 0 TOTAL
------ ----- ------
44,491 0 44,491
- --------------------------------------------------------------------------------------------------------------------------
R-2 WILSHIRE RODEO PLAZA SOUTH 3 70,000 23,333 1985 Ground 0
131 S. Rodeo Drive 2 - 3 17,438 0 TOTAL
------ ----- ------
17,438 0 17,438
- --------------------------------------------------------------------------------------------------------------------------
R-3 VILLAGE ON CANON 3 62,000 20,667 1989 Ground 0 0
301 N. Canon Drive 2 - 3 2,784 11,052 TOTAL
------ ----- ------
2,784 11,052 13,836
- --------------------------------------------------------------------------------------------------------------------------
R-4 450 N. ROXBURY DR. BLDG. 10 101,957 10,196 1972 Ground 7,023 0
450 N. Roxbury Dr. 2 - 10 43,664 0 TOTAL
------ ----- ------
50,687 0 50,687
- --------------------------------------------------------------------------------------------------------------------------
R-5 BANK OF AMERICA BLDG. 8 74,069 9,259 1974 Ground 0 0
9440 Santa Monica Blvd. 3 - 7 3,525 0 TOTAL
------ ----- ------
3,525 0 3,525
- --------------------------------------------------------------------------------------------------------------------------
R-6 WILSHIRE AT ELM 3 47,745 15,915 1989 Ground 0 0
9320 Wilshire Blvd. 0 0 0 TOTAL
------ ----- ------
0 0 0
- --------------------------------------------------------------------------------------------------------------------------
R-7 WILSHIRE CRESCENT BUILDING 4 108,452 27,113 1989 Ground 23,716 0
9333 Wilshire Blvd. 1 - 3 84,736 0 TOTAL
------ ----- ------
108,452 0 108,452
- --------------------------------------------------------------------------------------------------------------------------
R-8 BEVERLY HILLS FINANCIAL CNTR. 12 127,000 10,583 1971 Ground 7,193 0
9401 Wilshire Blvd. 5 - 12 13,810 0 TOTAL
------ ----- ------
21,003 0 21,003
- --------------------------------------------------------------------------------------------------------------------------
R-9 STERLING PLAZA 6 50,000 8,333 1950 Ground 13,000 0
9441 Wilshire Blvd. renov. 1991 2 - 5 20,000 0 TOTAL
------ ----- ------
33,000 0 33,000
- --------------------------------------------------------------------------------------------------------------------------
R-10 GLENDALE FEDERAL BLDG. 11 155,270 14,115 1971 Ground 12,660 0
9454 Wilshire Blvd. 2 - 9 18,312 0 TOTAL
------ ----- ------
30,972 0 30,972
- --------------------------------------------------------------------------------------------------------------------------
R-11 WILSHIRE BEVERLY CENTER 9 153,754 17,084 1962 Ground 0 0
9465 Wilshire Blvd. 2 - 9 120,000 0 TOTAL
------ ----- ------
120,000 0 120,000
- --------------------------------------------------------------------------------------------------------------------------
R-12 WILSHIRE RODEO PLAZA 5 48,000 9,600 1985 Ground 0 0
9536 Wilshire Blvd. 2 - 4 3,276 0 TOTAL
------ ----- ------
3,276 0 3,276
- --------------------------------------------------------------------------------------------------------------------------
R-13 9560 WILSHIRE BLVD. BLDG. 6 90,000 15,000 1982 Ground 0 0
9560 Wilshire Blvd. 0 0 0 TOTAL
------ ----- ------
0 0 0
- --------------------------------------------------------------------------------------------------------------------------
R-14 WALLACE MOIR BLDG. 10 145,000 14,500 1972 Ground 14,034 0
9595 Wilshire Blvd. 3 6,134 0 TOTAL
------ ----- ------
20,168 0 20,168
- --------------------------------------------------------------------------------------------------------------------------
R-15 HEITMAN CENTRE 8 211,845 26,481 1962 Ground 7,373 0
9601 Wilshire Blvd. 6 4,908 0 TOTAL
------ ----- ------
12,281 0 12,281
- --------------------------------------------------------------------------------------------------------------------------
R-16 ONE ROXBURY PLAZA 12 100,154 8,346 1973 Ground 3,079 0
9701 Wilshire Blvd. 9 - 12 37,810 0 TOTAL
------ ----- ------
40,889 0 40,889
- --------------------------------------------------------------------------------------------------------------------------
R-17 WILSHIRE PALM 3 85,412 28,471 1990 Ground 5,150 0
9150 Wilshire Blvd. 2 5,151 0 TOTAL
------ ----- ------
10,301 0 10,301
- --------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 125 1,807,958 14,464 519,267 11,052 530,319
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
QUOTED
ANNUAL RENT OCCUPANCY RATIO
ITEM BUILDING NAME/ ----------------- LEASE ------------------
NO. LOCATION PSF PSF TYPE DIRECT OVERALL
- ---- ------------- ------ ------- ----- ------ -------
<C> <S> <C> <C> <C> <C> <C>
R-1 WELLS FARGO BANK BLDG. 74.9% 74.9%
433 N. Camden Drive $25.80 -- $28.20 FSG
- -----------------------------------------------------------------------------------------
R-2 WILSHIRE RODEO PLAZA SOUTH 75.1% 75.1%
131 S. Rodeo Drive $28.80 -- $29.40 FSG
- -----------------------------------------------------------------------------------------
R-3 VILLAGE ON CANON 95.5% 77.7%
301 N. Canon Drive $30.00 -- $30.00 FSG
- -----------------------------------------------------------------------------------------
R-4 450 N. ROXBURY DR. BLDG. $27.00 -- $29.40 FSG 50.3% 50.3%
450 N. Roxbury Dr. $27.00 -- $29.40 FSG
- -----------------------------------------------------------------------------------------
R-5 BANK OF AMERICA BLDG. 95.2% 95.2%
9440 Santa Monica Blvd. $29.40 -- $29.40 FSG
- -----------------------------------------------------------------------------------------
R-6 WILSHIRE AT ELM 100.0% 100.0%
9320 Wilshire Blvd.
- -----------------------------------------------------------------------------------------
R-7 WILSHIRE CRESCENT BUILDING $29.40 -- $29.40 FSG 0.0% 0.0%
9333 Wilshire Blvd. $29.40 -- $29.40 FSG
- -----------------------------------------------------------------------------------------
R-8 BEVERLY HILLS FINANCIAL CNTR. $42.00 -- $42.00 FSG 83.5% 83.5%
9401 Wilshire Blvd. $25.80 -- $27.60 FSG
- -----------------------------------------------------------------------------------------
R-9 STERLING PLAZA $36.00 -- $36.00 FSG 34.0% 34.0%
9441 Wilshire Blvd. $36.00 -- $36.00 FSG
- -----------------------------------------------------------------------------------------
R-10 GLENDALE FEDERAL BLDG. $26.40 -- $28.68 FSG 80.1% 80.1%
9454 Wilshire Blvd. $26.40 -- $28.68 FSG
- -----------------------------------------------------------------------------------------
R-11 WILSHIRE BEVERLY CENTER 22.0% 22.0%
9465 Wilshire Blvd. $24.00 -- $30.00 FSG
- -----------------------------------------------------------------------------------------
R-12 WILSHIRE RODEO PLAZA 93.2% 93.2%
9536 Wilshire Blvd. $24.00 -- $26.40 FSG
- -----------------------------------------------------------------------------------------
R-13 9560 WILSHIRE BLVD. BLDG. 100.0% 100.0%
9560 Wilshire Blvd.
- -----------------------------------------------------------------------------------------
R-14 WALLACE MOIR BLDG. $19.80 -- $19.80 FSG 86.1% 86.1%
9560 Wilshire Blvd. $19.80 -- $19.80 FSG
- -----------------------------------------------------------------------------------------
R-15 HEITMAN CENTRE $24.00 -- $27.00 FSG 94.2% 94.2%
9601 Wilshire Blvd. $24.00 -- $27.00 FSG
- -----------------------------------------------------------------------------------------
R-16 ONE ROXBURY PLAZA $27.00 -- $30.00 FSG 59.2% 59.2%
9701 Wilshire Blvd. $27.00 -- $30.00 FSG
- -----------------------------------------------------------------------------------------
R-17 WILSHIRE PALM $27.00 -- $27.00 FSG 87.9% 87.9%
9150 Wilshire Blvd. $27.00 -- $27.00 FSG
- -----------------------------------------------------------------------------------------
MARKET TOTALS 71.3% 70.7%
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------------
$27.14 - $29.49 Direct Weighted Average Rental Rate
- ----------------------------------------------------------
OFFICE BUILDING ACTIVITY CHART
BEVERLY HILLS
[ G R A P H ]
<PAGE>
PEER BUILDING ANALYSIS
Glenoaks Plaza -- 303 N Glenoaks Boulevard
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Building Information Overall Quoted Occupancy
Item Building Name / No. of Area Avg. Flr. Year Available Space (SF) Availabilty Annual Rent Lease Ratio
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF) PSF PSF Type Direct Overall
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 Highland Federal Building 4 73,000 18,250 1987 Ground 0 3,055 $19.80-$19.80 FSG 59.7% 55.5%
601 S. Glenoaks Boulevard 4 - 8 29,402 0 Total $19.80-$19.80 FSG
------ ------ -----
29,402 3,055 32,457
- ------------------------------------------------------------------------------------------------------------------------------------
R-2 Cusumano Plaza 4 60,000 15,000 1989 Ground 0 0 94.1% 94.1%
100 N. First Street 2 3,565 0 Total $23.40-$23.40 FSG
------ ------ -----
3,565 0 3,565
- ------------------------------------------------------------------------------------------------------------------------------------
R-3 101 S. First St. Building 4 60,000 15,000 1985 Ground 0 0 100.0% 100.0%
101 S. First Street 0 0 0 Total
------ ------ -----
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
R-4 111-115 N. First St.
Building 3 33,285 11,095 1989- Ground 0 0 89.3% 89.3%
116 N. First Street 1991 2 3,565 0 Total $23.40-$23.40
------ ------ -----
3,565 0 3,565
- ------------------------------------------------------------------------------------------------------------------------------------
R-4 111-115 N. First St.
Building 3 85,000 28,333 1989- Ground 0 0 66.7% 66.7%
115 N. First Street 1991 2 28,333 0 Total $23.40-$23.40
------ ------ -----
28,333 0 28,333
- ------------------------------------------------------------------------------------------------------------------------------------
R-5 California Federal
Building 6 81,118 13,520 1978 Ground 0 91.6% 81.6%
333 N. Glenoaks Boulevard 3 & 6 6,814 8,085 Total $15.60-$22.20 FSG
------ ------ -----
6,814 8,085 14,899
- ------------------------------------------------------------------------------------------------------------------------------------
R-6 Burbank Executive Plaza 6 80,447 10,075 1984 Ground 4,280 0 $22.20-$22.20 FSG87.9% 87.8%
300 E. Magnolia Boulevard 2 - 3 3,092 0 Total $22.20-$22.20 FSG
------ ------ -----
7,372 0 7,372
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 30 452,850 15,095 79,051 11,140 90,191 82.5% 80.1%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
BURBANK
[Chart]
<PAGE>
PEER BUILDING ANALYSIS
Calabasas Commerce Center 26010 Mureau Road
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Building Information
Item Building Name/ No. of Area Avg. Flr. Year Available Space (SF)
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C-1 PARKWAY CALABASAS BUS. PARK I 2 95,000 47,500 1981 1 - 2 0 2,307
23801 Calabasas Road 1 - 2 9,776 0
------ ------ ------
9,776 2,307
- ------------------------------------------------------------------------------------------------------------------------------------
C-2 PARKWAY CALABASAS BUS. PARK II 2 97,000 48,500 1983 Ground 0 0
23901 Calabasas Road 1 - 2 8,964 0
------ ------ ------
8,964 0
- ------------------------------------------------------------------------------------------------------------------------------------
C-3 AGOURA HILLS BUS. PARK IV 2 50,000 25,000 1987 Ground 0 0
30501 Agoura Road 2 0 8,000
------ ------ ------
0 8,000
- ------------------------------------------------------------------------------------------------------------------------------------
C-4 AGOURA HILLS BUS. PARK V 2 65,000 32,500 1972 Ground 0 0
30401 Agoura Road 0 0 0
------ ------ ------
0 0
- ------------------------------------------------------------------------------------------------------------------------------------
C-5 WOULCOTT BUSINESS CNTR A & B 2 64,634 32,317 1985 Ground 0 0
5010/5016 N. Parkway Calabasas 2 1,250 0
------ ------ ------
1,250 0
- -----------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 10 371,634 37,163 19,990 10,307
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Overall Quoted
Item Building Name/ Availability Annual Rent Lease Occupancy Ratio
No. Location (SF) PSF PSF Type Direct Overall
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
C-1 PARKWAY CALABASAS BUS. PARK I $19.20 - $19.20 FSG 89.7% 87.3%
23801 Calabasas Road Total $19.20 - $19.20 FSG
12,083
- ------------------------------------------------------------------------------------------------------------------------------------
C-2 PARKWAY CALABASAS BUS. PARK II 90.8% 90.8%
23901 Calabasas Road Total $19.20 - $19.20 FSG
8,964
- ------------------------------------------------------------------------------------------------------------------------------------
C-3 AGOURA HILLS BUS. PARK IV 100.0% 84.0%
30501 Agoura Road Total $17.64 - $17.64 FSG
8,000
- ------------------------------------------------------------------------------------------------------------------------------------
C-4 AGOURA HILLS BUS. PARK V 100.0% 100.0%
30401 Agoura Road Total
0
- ------------------------------------------------------------------------------------------------------------------------------------
C-5 WOULCOTT BUSINESS CNTR A & B 98.1% 98.1%
5010/5016 N. Parkway Calabasas Total $18.60 - $18.60 FSG
1,250
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 30,297 94.5% 91.8%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
CALABASAS
[Bar Chart]
<PAGE>
PEER BUILDING ANALYSIS
9911 West Rico Boulevard
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Building Information Overall Quoted Occupancy
Item Building Name / No. of Area Avg. Flr. Year Available Space (SF) Availabilty Annual Rent Lease Ratio
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF) PSF PSF Type Direct Overall
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
C-1 GATEWAY EAST 14 308,000 22,000 1964 Ground 0 0 97.2% 97.2%
1800 Avenue of the Stars 11 & 14 8,500 0 TOTAL $21.00-$21.00 FSG
------ ------- -----
8,500 0 8,500
- ------------------------------------------------------------------------------------------------------------------------------------
C-2 GATEWAY WEST 14 242,900 17,350 1963 Ground 1,346 0 $24.00-$26.40 74.5% 74.5%
1801 Avenue of the Stars 2 - 14 60,616 0 TOTAL $24.00-$26.40 FSG
------ ------- -----
61,962 0 61,962
- ------------------------------------------------------------------------------------------------------------------------------------
C-3 1900 AVENUE OF THE STARS 28 551,819 19,708 1969 Ground 0 0 79.9% 79.6%
1900 Avenue of the Stars 2 - 27 110,814 1,492 TOTAL $21.00-$27.00 FSG
------ ------- -----
110,814 1,492 112,306
- ------------------------------------------------------------------------------------------------------------------------------------
C-4 1901 AVENUE OF THE STARS 20 450,699 22,535 1968 Ground 4,659 0 $21.00-$24.60 86.7% 85.0%
1901 Avenue of the Stars 2 - 17 55,070 8,096 TOTAL $21.00-$24.60 FSG
------ ------ -----
59,729 8,096 67,825
- ------------------------------------------------------------------------------------------------------------------------------------
C-5 CENTURY PARK PLAZA 26 342,187 13,161 1973 Ground 9,495 0 $19.20-$24.00 FSG 74.0% 68.9%
1801 Century Park East 2 - 26 79,402 17,430 TOTAL $19.20-$27.00 FSG
------ ------ ------
88,897 17,430 106,327
- ------------------------------------------------------------------------------------------------------------------------------------
C-6 WATT PLAZA -- NORTH TOWER 23 412,000 17,913 1981 Ground 5,389 0 $19.20-$25.20 FSG 75.7% 75.7%
1875 Century Park East 2 94,627 0 TOTAL $19.20-$25.20 FSG
------ ------- -----
100,016 0 100,016
- ------------------------------------------------------------------------------------------------------------------------------------
C-7 CENTURY PARK BUILDING 15 285,000 19,000 1970 Ground 6,720 0 $22.20-$22.20 FSG 38.2% 36.4%
1880 Century Park East 2 - 15 169,453 5,053 TOTAL $22.20-$22.20 FSG
------ ------- -----
176,173 5,053 181,226
- ------------------------------------------------------------------------------------------------------------------------------------
C-8 THE 1888 BUILDING 21 463,808 22,086 1970 Ground 12,658 0 $19.20-$25.20 FSG 72.8% 72.8%
1888 Century Park East 2 - 21 113,680 0 TOTAL $19.20-$25.20 FSG
------ ------- -----
126,338 0 126,338
- ------------------------------------------------------------------------------------------------------------------------------------
C-9 WATT PLAZA -- SOUTH TOWER 23 412,000 17,913 1982 Ground 0 0 84.5% 83.8%
1925 Century Park East 3 - 19 63,792 2,816 TOTAL $19.20-$25.20 FSG
------ ------ -----
63,792 2,816 66,608
- ------------------------------------------------------------------------------------------------------------------------------------
C-10 PRIME TICKET BUILDING 5 102,000 20,400 1970 Ground 0 0 100.0% 100.0%
10000 Santa Monica Blvd. 0 0 0 TOTAL
------ ------- -----
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
C-11 ROYAL BEVERLY GLEN PLAZA 4 79,524 19,881 1986 Ground 0 0 100.0% 100.0%
10390 Santa Monica Blvd. 0 0 0 TOTAL
------ ------- -----
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET SUB-TOTALS 193 3,649,937 18,912 796,221 34,887 831,108 78.2% 77.2%
- ------------------------------------------------------------------------------------------------------------------------------------
$20.64-$24.96 Direct Weighted Average Rental Rate
--------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
[Chart]
<PAGE>
PEER BUILDING ANALYSIS
Bristol Plaza 6167 Bristol Parkway
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Building Information Overall Quoted Occupancy
Item Building Name / No of Area Avg Flr Year Available Space (SF) Availabilty Annual Rent Lease Ratio
No Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF) PSF PSF Type Direct Overall
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
C-1 Howard Hughes Center
Phase I 16 313,447 19,590 1986 Ground 0 0 83.5% 83.5%
6701 Center Drive West 5 - 14 51,649 0 TOTAL $19.20-$19.20 FSG
------ ------ -----
51,649 0 51,649
- ------------------------------------------------------------------------------------------------------------------------------------
C-2 Northpoint 9 100,000 11,111 1991 Ground 0 0 91.5% 86.6%
6601 Center Drive West 3 8,451 4,944 TOTAL $14.40-$19.20 FSG
------ ------ -----
8,451 4,944 13,396
- ------------------------------------------------------------------------------------------------------------------------------------
C-3 Miramar Building 3 52,500 17,500 1979 Ground 674 0 $15.60-$17.00 FSG 81.3% 81.3%
6133 Bristol Parkway 2 - 3 9,152 0 TOTAL $15.60-$17.00 FSG
------ ------ ----
9,826 0 9,826
- ------------------------------------------------------------------------------------------------------------------------------------
C-4 Pacifica Plaza 3 105,000 35,000 1981 Ground 3,346 0 $19.80-$19.80 FSG 87.2% 53.0%
6101 West Centinela Avenue 2 - 3 10,069 35,975 TOTAL $19.80-$19.80 FSG
------ ------ ------
13,415 35,975 49,390
- ------------------------------------------------------------------------------------------------------------------------------------
C-5 Corporate Plaza 3 109,600 36,533 1984 Ground 0 0 41.7% 41.7%
100 Corporate Pointe 1 - 3 63,940 0 TOTAL $17.40-$17.40 FSG
------ ------ -----
63,940 0 63,940
- ------------------------------------------------------------------------------------------------------------------------------------
C-6 The Glen -- South Structure 5 110,000 22,000 1985 Ground 0 0 80.9% 80.9%
200 Corporate Pointe 3 - 4 20,973 0 TOTAL $18.00-$18.00 FSG
------ ------ -----
20,973 0 20,973
- ------------------------------------------------------------------------------------------------------------------------------------
C-7 The Glen -- North Structure 5 110,000 22,000 1985 Ground 0 0 52.4% 52.4%
300 Corporate Pointe 1 - 5 52,394 0 TOTAL $18.00-$18.00 FSG
------ ------ -----
52,394 0 52,394
- ------------------------------------------------------------------------------------------------------------------------------------
C-8 600 Corporate Pointe 12 265,905 22,159 1989 Ground 9,923 0 $18.00-$18.60 FSG 60.5% 60.5%
600 Corporate Pointe 2 - 12 95,141 0 TOTAL $18.00-$18.60 FSG
------ ------- -----
105,064 0 105,064
- ------------------------------------------------------------------------------------------------------------------------------------
C-9 The Promontory Building 4 112,000 28,000 1980 Ground 2,637 0 97.6% 97.6%
5901 Green Valley Circle 0 0 0 TOTAL $17.40-$17.40 FSG
------ ------- -----
2,637 0 2,637
- ------------------------------------------------------------------------------------------------------------------------------------
C-10 La Cienega Slauson Bus.
Park I 3 182,566 60,855 1988 Ground 13,523 0 $15.00-$16.80 FSG 66.2% 66.2%
5100-10 Gold Leaf Circle 1 & 2 48,204 0 TOTAL $15.00-$16.80 FSG
------ ------- -----
61,727 0 51,727
- ------------------------------------------------------------------------------------------------------------------------------------
C-11 La Cienega Slauson Bus.
Park II 4 103,600 25,900 1990 Ground 12,309 0 $15.00-$16.80 FSG 69.8% 69.8%
5120 Gold Leaf Circle 2 - 3 19,010 0 TOTAL $15.00-$16.80
------ ------- -----
31,319 0 31,391
- ------------------------------------------------------------------------------------------------------------------------------------
C-12 Buckingham Heights -- East 2 80,000 40,000 1980 Ground 12,453 0 $16.20-$16.20 FSG 60.8% 60.8%
5601 Slauson Avenue 2 18,938 0 TOTAL $16.20-$16.20 FSG
------ ------- -----
31,391 0 31,391
- ------------------------------------------------------------------------------------------------------------------------------------
C-13 Buckingham Heights -- West 2 64,000 32,000 1980 Ground 0 0 81.3% 81.3%
5701-31 Slauson Avenue 1 - 2 11,972 0 TOTAL $16.20-$16.20 FSG
------ ------- -----
11,972 0 119,972
- ------------------------------------------------------------------------------------------------------------------------------------
C-14 400 Corporate Pointe 8 164,845 20,606 1987 Ground 0 0 91.5% 91.5%
400 Corporate Pointe 1 - 8 14,074 0 TOTAL $18.00-$18.00 FSG
------ ------- -----
14,074 0 14,074
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 79 1,873,463 23,715 478,832 40,919 519,751 74.4% 72.3%
- ------------------------------------------------------------------------------------------------------------------------------------
$17.24-$17.83 Direct Weighted Average Rental Rate
--------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
CULVER CITY AREA
[Chart]
<PAGE>
PEER BUILDING ANALYSIS
400 Corporate Pointe
<TABLE>
<CAPTION>
BUILDING INFORMATION AVAILABLE SPACE (SF) OVERALL
ITEM BUILDING NAME/ NO. OF AREA AVG FLR YEAR AVAILABILITY
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(S) DIRECT SUBLEASE (SF)
- ---- ------------- ------- ---- --------- ----- -------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
C-1 HOWARD HUGHES CENTER PHASE I 16 313,447 19,590 1988 Ground 0 0
6701 Center Drive West 5 - 14 51,649 0 TOTAL
------ ------ -
51,649 0 51,649
- --------------------------------------------------------------------------------------------------------------------------
C-2 NORTHPOINT 9 100,000 11,111 1991 Ground 0 0
6601 Center Drive West 3 8,451 4,944 TOTAL
----- ------ ------
8,451 4,944 13,395
- --------------------------------------------------------------------------------------------------------------------------
C-3 MIRAMAR BUILDING 3 52,500 17,500 1979 Ground 674 0
6133 Bristol Parkway 2 - 3 9,152 0 TOTAL
----- ----- -
9,826 0 9,826
- --------------------------------------------------------------------------------------------------------------------------
C-4 PACIFICA PLAZA 3 105,000 35,000 1981 Ground 3,346 0
6101 West Centineta Avenue 2 - 3 10,069 35,975 TOTAL
------ ------ ------
13,415 35,975 49,390
- --------------------------------------------------------------------------------------------------------------------------
C-5 CORPORATE PLAZA 3 109,600 36,533 1984 Ground 0 0
300 Corporate Pointe 1 - 3 63,940 0 TOTAL
------ ------ -
63,940 0 63,940
- --------------------------------------------------------------------------------------------------------------------------
C-6 THE GLEN - SOUTH STRUCTURE 5 110,000 22,000 1985 Ground 0 0
200 Corporate Pointe 3 - 4 20,973 0 TOTAL
----- ------ -
20,973 0 20,973
- --------------------------------------------------------------------------------------------------------------------------
C-7 THE GLEN - NORTH STRUCTURE 5 110,000 22,000 1985 Ground 0 0
300 Corporate Pointe 1 - 5 52,394 0 TOTAL
------ ------- -
52,394 0 52,394
- --------------------------------------------------------------------------------------------------------------------------
C-8 600 CORPORATE POINTE 12 265,905 22,159 1989 Ground 9,923 0
600 Corporate Pointe 2 - 12 95,141 0 TOTAL
------ ------- -
105,064 0 105,064
- --------------------------------------------------------------------------------------------------------------------------
C-9 THE PROMONTORY BUILDING 4 112,000 28,000 1980 Ground 2,637 0
5901 Green Valley Circle 0 0 0 TOTAL
------ ----- -
2,637 0 2,637
- --------------------------------------------------------------------------------------------------------------------------
C-10 LA CIENEGA SIAUSON BUS. PARK I 3 182,566 60,855 1988 Ground 13,523 0
5100-10 Gold Leaf Circle 1 & 2 48,204 0 TOTAL
----- ------- -
61,727 0 61,727
- --------------------------------------------------------------------------------------------------------------------------
C-11 LA CIENEGA SIAUSON BUS. PARK II 4 103,600 25,900 1990 Ground 12,309 0
5120 Gold Leaf Circle 2 - 3 19,010 0 TOTAL
----- ------ -
31,319 0 31,319
- --------------------------------------------------------------------------------------------------------------------------
C-12 BUCKINGHAM HEIGHTS - EAST 2 80,000 40,000 1980 Ground 12,453 0
5601 Slauson Avenue 2 18,938 0 TOTAL
------ ------- -
31,391 0 31,391
- --------------------------------------------------------------------------------------------------------------------------
C-13 BUCKINGHAM HEIGHTS - WEST 2 64,000 32,000 1980 Ground 0 0
5701-31 Slauson Avenue 1-2 11,972 0 TOTAL
------ ------ -
11,972 0 11,972
- --------------------------------------------------------------------------------------------------------------------------
C-14 BRISTOL PLAZA 4 84,014 21,004 1982 Ground 0 0
5167 Bristol Parkway 1 - 4 17,925 0 TOTAL
------ ------ -
17,925 0 17,925
- --------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 75 1,792,532 23,902 482,683 40,919 523,602
- --------------------------------------------------------------------------------------------------------------------------
QUOTED
ITEM ANNUAL RENT LEASE OCCUPANCY RATIO
NO. PSF PSF TYPE DIRECT OVERALL
- ---- ------- -------- ----- ------ -------
<S> <C> <C> <C> <C> <C>
C-1 HOWARD HUGHES CENTER PHASE I 83.5% 83.5%
6701 Center Drive West $19.20 - $19.20 FSG
- ------------------------------------------------------------------------------------------
C-2 NORTHPOINT 91.5% 88.6%
6601 Center Drive West $14.40 - $19.20 FSG
- ------------------------------------------------------------------------------------------
C-3 MIRAMAR BUILDING $15.60 - $17.00 FSG 81.3% 81.3%
6133 Bristol Parkway $15.60 - $17.00 FSG
- ------------------------------------------------------------------------------------------
C-4 PACIFICA PLAZA $19.80 - $19.80 FSG 87.2% 53.0%
6101 West Centineta Avenue $19.80 - $19.80 FSG
- ------------------------------------------------------------------------------------------
C-5 CORPORATE PLAZA 41.7% 41.7%
300 Corporate Pointe $17.40 - $17.40 FSG
- ------------------------------------------------------------------------------------------
C-6 THE GLEN - SOUTH STRUCTURE 80.9% 80.9%
200 Corporate Pointe $18.00 - $18.00 FSG
- ------------------------------------------------------------------------------------------
C-7 THE GLEN - NORTH STRUCTURE 52.4% 52.4%
300 Corporate Pointe $18.00 - $18.00 FSG
- ------------------------------------------------------------------------------------------
C-8 600 CORPORATE POINTE $18.00 - $18.60 FSG 60.5% 60.5%
600 Corporate Pointe $18.00 - $18.60 FSG
- ------------------------------------------------------------------------------------------
C-9 THE PROMONTORY BUILDING $17.40 - $17.40 FSG 97.6% 97.6%
5901 Green Valley Circle
- ------------------------------------------------------------------------------------------
C-10 LA CIENEGA SIAUSON BUS. PARK I $15.00 - $16.80 FSG 66.2% 66.2%
5100-10 Gold Leaf Circle $15.00 - $16.80 FSG
- ------------------------------------------------------------------------------------------
C-11 LA CIENEGA SIAUSON BUS. PARK II $15.00 - $16.80 FSG 69.8% 69.8%
5120 Gold Leaf Circle $15.00 - $16.80 FSG
- ------------------------------------------------------------------------------------------
C-12 BUCKINGHAM HEIGHTS - EAST $16.20 - $16.20 FSG 60.8% 60.8%
5601 Slauson Avenue $16.20 - $16.20 FSG
- ------------------------------------------------------------------------------------------
C-13 BUCKINGHAM HEIGHTS - WEST 81.3% 81.3%
5701-31 Slauson Avenue $16.20 - $16.20 FSG
- ------------------------------------------------------------------------------------------
C-14 BRISTOL PLAZA 78.7% 78.7%
5167 Bristol Parkway $17.40 - $17.40 FSG
- ------------------------------------------------------------------------------------------
73.1% 70.8%
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
$17.22 - $17.81 Direct Weighted Average Rental Rate
- ------------------------------------------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
CULVER CITY AREA
[GRAPH]
<PAGE>
PEER BUILDING ANALYSIS
16000 Ventura Boulevard
<TABLE>
<CAPTION>
BUILDING INFORMATION
------------------------------------- AVAILABLE SPACE (SF) OVERALL
ITEM BUILDING NAME/ NO. OF AREA AVG FLR YEAR ------------------------------- AVAILABILITY
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOOR(S) DIRECT SUBLEASE (SF)
- ---- ------------- ------- ---- --------- ----- -------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
E-1 ENCINO GATEWAY BUILDING 20 335,000 16,750 1974 Ground 24,327 0
15760 Ventura Blvd. 5 - 20 22,713 0 TOTAL
------ ------ -
47,040 0 47,040
- --------------------------------------------------------------------------------------------------------------------------
E-2 ENCINO TERRACE CENTER 6 400,000 66,667 1986 Ground 11,644 0
15821 Ventura Blvd. 2 - 5 78,366 18,644 TOTAL
------ ------ ------
90,010 18,644 108,654
- --------------------------------------------------------------------------------------------------------------------------
E-3 THE PINKERTON BUILDING 18 199,000 11,056 1971 Ground 0 0
15910 Ventura Blvd. 2 - 3 15,005 8,838 TOTAL
----- ------ ------
15,005 8,838 23,843
- --------------------------------------------------------------------------------------------------------------------------
E-4 TOKAI BANK 6 104,000 17,333 1981 Ground 0 0
16027 Ventura Blvd. 2 - 6 8,734 3,000 TOTAL
------ ------ ------
8,734 3,000 11,734
- --------------------------------------------------------------------------------------------------------------------------
E-5 DEVELCORE CENTER 6 155,000 25,833 1983 Ground 0 0
16030 Ventura Blvd. 2 - 6 84,609 0 TOTAL
------ ------ -
84,609 0 84,609
- --------------------------------------------------------------------------------------------------------------------------
E-6 ENCINO FINANCIAL CENTER 13 222,618 17,124 1975 Ground 1,978 0
16133 Ventura Blvd. 4 - 9 20,781 6,412 TOTAL
--------- ------ -----
22,759 6,412 29,171
- --------------------------------------------------------------------------------------------------------------------------
E-7 MANUFACTURERS BANK BUILDING 12 140,000 11,667 1972 Ground 0 0
16255 Ventura Blvd. 2, 9 & 11 8,747 0 TOTAL
--------- -------- -
8,747 0 8,747
- --------------------------------------------------------------------------------------------------------------------------
E-8 VENTURA LIBBIT BUILDING 12 150,000 12,500 1971 Ground 0 0
16311 Ventura Blvd. 6 - 12 13,352 0 TOTAL
------- ------- -
13,352 0 13,352
- --------------------------------------------------------------------------------------------------------------------------
E-9 ENCINO EXECUTIVE PLAZA 6 176,588 29,431 1986 Ground 0 0
16501 Ventura Blvd. 3 - 6 17,389 0 TOTAL
-------- ----- -
17,389 0 17,389
- --------------------------------------------------------------------------------------------------------------------------
E-10 THE ENCINO ATRIUM 6 160,000 26,667 1981 Ground 2,826 0
16530 Ventura Blvd. 3 - 6 22,503 0 TOTAL
------- ------- -
25,329 0 25,329
- --------------------------------------------------------------------------------------------------------------------------
E-11 FIRST INTERSTATE BANK 14 160,000 11,429 1969 Ground 0 0
16633 Ventura Blvd. 5 - 13 17,502 0 TOTAL
------- ------ -
17,502 0 17,502
- --------------------------------------------------------------------------------------------------------------------------
E-12 FIRST FINANCIAL PLAZA 6 216,000 36,000 1986 Ground 6,475 8,109
16830 Ventura Blvd. 3 5,130 6,619 TOTAL
------- ------- -----
11,605 14,728 26,333
- --------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 125 2,418,206 19,346 362,081 51,622 413,703
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
QUOTED
ANNUAL RENT OCCUPANCY RATIO
ITEM ----------------- LEASE ------------------
NO. PSF PSF TYPE DIRECT OVERALL
- ---- ------- -------- ----- ------ -------
<S> <C> <C> <C> <C> <C>
E-1 $15.00 - $22.80 FSG 86.0% 86.0%
$15.60 - $21.60 FSG
- --------------------------------------------------------
E-2 $24.60 - $25.80 FSG 77.5% 72.8%
$23.40 - $25.80 FSG
- --------------------------------------------------------
E-3 92.5% 88.0%
$18.00 $18.00 FSG
- --------------------------------------------------------
E-4 91.6% 88.7%
$14.40 $20.40 FSG
- --------------------------------------------------------
E-5 45.4% 45.4%
$19.20 $21.00 FSG
- --------------------------------------------------------
E-6 $22.20 - $22.20 FSG 89.8% 86.9%
$19.80 $21.00 FSG
- --------------------------------------------------------
E-7 93.8% 93.8%
$21.00 $21.60 FSG
- --------------------------------------------------------
E-8 91.1% 91.1%
$22.80 $25.20 FSG
- --------------------------------------------------------
E-9 90.2% 90.2%
$22.80 - $24.00 FSG
- --------------------------------------------------------
E-10 $20.40 - $ 1.75 FSG 84.2% 84.2%
$21.00 - $21.60 FSG
- --------------------------------------------------------
E-11 89.1% 89.1%
$19.80 - $19.80 FSG
- --------------------------------------------------------
E-12 $16.20 - $25.80 FSG 94.6% 87.8%
$24.00 - $25.80 FSG
- --------------------------------------------------------
MARKET TOTALS 85.0% 82.9%
- --------------------------------------------------------
- ----------------------------------------------------------
$20.21 - $22.45 Direct Weighted Average Rental Rate
- ----------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
ENCINO AREA
[ G R A P H ]
<PAGE>
PEER BUILDING ANALYSIS
425 West Broadway
<TABLE>
<CAPTION>
Building Information
Item Building Name/ No of Area Avg Flr Year Available Space (SF)
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease
- ---- ---------------- ------- ------- --------- ----- -------- ------ -----------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
G-1 Galleria Tower 12 147,000 12,250 1983 Ground 0 0
100 W. Broadway 6 - 8 8,296 0
----- ----- -----
8,296 0
- -------------------------------------------------------------------------------------------------
G-2 Glendale Financial 6 120,778 20,130 1981 6 0 8,513
225 W. Broadway 1 - 5 3,180 0
----- ----- -----
3,180 8,513
- -------------------------------------------------------------------------------------------------
G-3 Glendale Corporate Center 7 112,300 16,043 1985 Ground 0 0
425 E. Colorado Street 4 - 6 26,034 0
----- ----- -----
26,034 0
- -------------------------------------------------------------------------------------------------
300 W. Glenoaks Blvd.
Building 3 29,000 9,667 1981 1 & 2 0 5,356
300 W. Glenoaks Blvd. 3 7,583 0
----- ----- -----
7,583 5,356
- -------------------------------------------------------------------------------------------------
MARKET TOTALS 28 409,078 14,610 45,093 13,869
- -------------------------------------------------------------------------------------------------
<CAPTION>
Overall Quoted
Item Building Name/ Availability Annual Rent Lease Occupancy Ratio
No. Location (SF) PSF PSF Type Direct Overall
- ---- ---------------- ------------ ----- ----- ----- ------ -------
<C> <S> <C> <C> <C> <C> <C> <C>
G-1 Galleria Tower 94.4% 94.4%
100 W. Broadway TOTAL $24.96 - $24.96 FSG
8,296
- ----------------------------------------------------------------------------------------
G-2 Glendale Financial $18.00 - $18.00 FSG 97.4% 90.3%
225 W. Broadway TOTAL $18.00 - $22.20 FSG
11,693
- --------------------- ------------------------------------------------------------
G-3 Glendale Corporate Center 76.8% 76.8%
425 E. Colorado Street TOTAL $18.00 - $18.60 FSG
26,034
- -----------------------------------------------------------------------------------------
G-4 300 W. Glenoaks Blvd.
Building $19.20 - $19.20 FSG 73.9% 55.4%
300 W. Glenoaks Blvd. TOTAL $21.00 - $21.00 FSG
12,939
- -----------------------------------------------------------------------------------------
MARKET TOTALS 58,962 89.0% 85.6%
- -----------------------------------------------------------------------------------------
$19.78 - $20.43 Direct Weighted Average Rental Rate
</TABLE>
OFFICE BUILDING ACTIVITY CHART
GLENDALE
[BAR GRAPH]
<PAGE>
PEER BUILDING ANALYSIS
5832 BOLSA AVENUE - HUNTINGTON BEACH
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Building Information Overall Quoted Occupancy
Item Building Name / No. of Area Avg. Flr. Year Available Space (SF) Availabilty Annual Rent Ratio
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF) PSF PSF Direct Overall
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
H-1 SEACLIFF OFFICE PARK #5 3 53,000 17,667 1989 Ground 1,249 0 $18.00-$18.00 93.7% 93.7%
2100 Main Street 2 2,067 0 TOTAL $18.00-$18.00
Huntington Beach, CA ------ ----- -----
3,316 0 3,316
- ------------------------------------------------------------------------------------------------------------------------------------
H-2 SEACLIFF OFFICE PARK #3 2 25,000 12,500 1981 Ground 4,225 0 $15.60-$15.60 73.3% 73.3%
2134 Main Street 2 2,439 0 TOTAL $15.60-$15.60
Huntington Beach, CA ------ ----- -----
6,664 0 6,884
- ------------------------------------------------------------------------------------------------------------------------------------
H-3 SEACLIFF OFFICE PARK #2 2 20,000 10,000 1979 Ground 3,084 0 $16.20-$16.20 77.7% 77.7%
2130 Main Street 2 1,376 0 TOTAL $16.20-$16.20
Huntington Beach, CA ------ ----- -----
4,460 0 4,460
- ------------------------------------------------------------------------------------------------------------------------------------
H-4 SEACLIFF OFFICE PARK #4 2 19,359 9,680 1979 Ground 5,704 0 $15.60-$15.60 6.6% 6.6%
2124 Main Street 2 12,374 0 TOTAL $15.60-$16.80
Huntington Beach, CA ------ ----- -----
18,078 0 18,078
- ------------------------------------------------------------------------------------------------------------------------------------
H-5 WIND RIVER PARK 3 33,000 11,000 1984 Ground 0 0 100.0% 100.0%
18141 Beach Boulevard 0 0 0 TOTAL
Huntington Beach, CA ------ ----- -----
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
H-6 PETER'S LANDING 2 31,044 15,522 1979 Ground 0 0 96.1% 96.1%
16390 Pacific Coast Highway 2 1,206 0 TOTAL $18.00-$18.00
Huntington Beach, CA ------ ----- -----
1,206 0 1,206
- ------------------------------------------------------------------------------------------------------------------------------------
H-7 SEAVIEW PLAZA 4 35,555 8,889 1984 Ground 3,338 0 $13.20-$13.20 68.5% 68.5%
20422 Beach Boulevard 2 - 4 7,858 0 TOTAL $13.20-$13.20
Huntington Beach, CA ------ ----- -----
11,196 0 11,196
- ------------------------------------------------------------------------------------------------------------------------------------
H-8 BEACH PLAZA 4 63,278 15,820 1981 Ground 0 0 73.0% 73.0%
19671 Beach Boulevard 2 - 4 17,067 0 TOTAL $12.00-$12.00
Huntington Beach, CA ------ ----- -----
17,067 0 17,067
- ------------------------------------------------------------------------------------------------------------------------------------
H-9 ONE PACIFIC CENTER 12 188,150 15,679 1987 Ground 0 0 76.9% 76.9%
7755 Center Avenue 2 - 10 30,112 13,262 TOTAL $13.80-$18.00
Huntington Beach, CA ------ ----- -----
30,112 13,262 43,374
- ------------------------------------------------------------------------------------------------------------------------------------
H-10 ONE PACIFIC PLAZA 6 94,897 15,816 1985 Ground 0 0 88.5% 88.5%
7711 Center Avenue 2 - 6 10,873 0 TOTAL $16.20-$16.20
Huntington Beach, CA ------ ----- -----
10,873 0 10,873
- ------------------------------------------------------------------------------------------------------------------------------------
H-11 ONE PACIFIC PLAZA 6 93,024 15,504 1982 Ground 0 0 86.9% 86.9%
7777 Center Avenue 4 - 5 12,220 0 TOTAL $16.20-$16.20
Huntington Beach, CA ------ ----- -----
12,220 0 12,220
- ------------------------------------------------------------------------------------------------------------------------------------
H-12 GUARDIAN CENTRE 14 203,970 14,569 1985 Ground 3,155 0 $17.40-$17.40 64.7% 64.7%
17011 Beach Boulevard 5 - 15 68,929 0 TOTAL $17.40-$17.40
Huntington Beach, CA ------ ----- -----
72,084 0 72,084
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 60 860,277 14,338 187,276 13,262 200,538 78.2% 76.7%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
$15.68 - $16.43 Direct Wtd. Avg. Rental Rate
--------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
HUNTINGTON BEACH
[Chart]
<PAGE>
<TABLE>
<CAPTION>
PEER BUILDING ANALYSIS
100 Broadway Building 100 Broadway
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Building Information Overall
Item Building Name/ No of Area Avg Flr Year Available Space(SF) Availability
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF)
---------------------------------------------------------------------------------------------------------------------------------
D-1 AMERICAN SAVINGS BUILDING 10 127,991 12,799 1984 Ground 7,960 0
401 East Ocean Boulevard 2-10 77,489 0 TOTAL
---- ------ -----
85,449 0 85,449
---------------------------------------------------------------------------------------------------------------------------------
D-2 HARBOR BANK BUILDING 6 109,000 18,167 1982 Ground 0 0
11 Golden Shore Avenue 2-5 38,517 0 TOTAL
---- ------ -----
38,517 0 38,517
---------------------------------------------------------------------------------------------------------------------------------
D-3 OCEANGATE TOWER 12 202,000 16,833 1971 Ground 19,893 0
100 Oceangate Avenue 4-9 32,183 0 TOTAL
---- ------ -----
52,076 0 52,076
---------------------------------------------------------------------------------------------------------------------------------
D-4 HOME SAVINGS BUILDING 4 103,000 25,750 1982 Ground 18,464 0
249 East Ocean Boulevard 2-10 24,475 0 TOTAL
---- ------ -----
42,939 0 42,939
---------------------------------------------------------------------------------------------------------------------------------
D-5 DOWNTOWN PLAZA 6 100,145 16,691 1982 Ground 0 0
211 East Ocean Boulevard 3-4 6,276 0 TOTAL
---- ------ -----
6,276 0 6,276
---------------------------------------------------------------------------------------------------------------------------------
D-6 THE 180 BUILDING 12 200,028 16,669 1982 Ground 19,681 0
180 East Ocean Boulevard 2-12 165,618 0 TOTAL
---- ------ -----
185,299 0 185,299
---------------------------------------------------------------------------------------------------------------------------------
D-7 FIDELITY FEDERAL BUILDING 9 122,453 13,606 1964 Ground 10,637 0
555 East Ocean Boulevard 2-8 10,015 0 TOTAL
---- ------ -----
20,652 0 20,652
---------------------------------------------------------------------------------------------------------------------------------
D-8 ARCO CENTER 15 220,625 14,708 1983 Ground 0 4,630
200 Oceangate Avenue 2-15 44,091 0 TOTAL
---- ------ -----
44,091 4,630 48,721
---------------------------------------------------------------------------------------------------------------------------------
D-9 ARCO CENTER 14 218,298 15,593 1983 Ground 898 0
300 Oceangate Avenue 5-9 28,038 0 TOTAL
---- ------ -----
28,936 0 28,936
---------------------------------------------------------------------------------------------------------------------------------
D-10 UNION BANK BUILDING 14 157,683 11,263 1975 Ground 0 0
400 Oceangate Avenue 2-11 32,700 8,933 TOTAL
---- ------ -----
32,700 8,933 41,633
---------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 102 1,561,223 15,306 536,935 13,563 550,498
<CAPTION>
Item Building Name/ Quoted
No. Location Annual Rent Lease Occupancy Ratio
PSF PSF Type Direct Overall
-----------------------------------------------------------------------------------------------------
D-1 AMERICAN SAVINGS BUILDING $15.00 - $18.60 FSG 33.2% 33.2%
401 East Ocean Boulevard $15.00 - $18.60 FSG
-----------------------------------------------------------------------------------------------------
D-2 HARBOR BANK BUILDING 64.7% 64.7%
11 Golden Shore Avenue $18.60 $18.60 FSG
-----------------------------------------------------------------------------------------------------
D-3 OCEANGATE TOWER $16.80 - $18.60 FSG 74.2% 74.2%
100 Oceangate Avenue $16.80 $18.60 FSG
-----------------------------------------------------------------------------------------------------
D-4 HOME SAVINGS BUILDING $16.20 - $22.20 FSG 58.3% 58.3%
249 East Ocean Boulevard $16.20 $22.20 FSG
-----------------------------------------------------------------------------------------------------
D-5 DOWNTOWN PLAZA 93.7% 93.7%
211 East Ocean Boulevard $16.20 $16.20 FSG
-----------------------------------------------------------------------------------------------------
D-6 THE 180 BUILDING $22.20 - $22.20 FSG 7.4% 7.4%
180 East Ocean Boulevard $21.00 $21.00 FSG
-----------------------------------------------------------------------------------------------------
D-7 FIDELITY FEDERAL BUILDING $14.40 - $19.20 FSG 83.1% 83.1%
555 East Ocean Boulevard $15.00 $15.00 FSG
-----------------------------------------------------------------------------------------------------
D-8 ARCO CENTER $16.80 - $16.80 FSG 80.0% 77.9%
200 Oceangate Avenue $21.96 $22.92 FSG
-----------------------------------------------------------------------------------------------------
D-9 ARCO CENTER $21.96 - $22.92 FSG 86.7% 86.7%
300 Oceangate Avenue $24.00 $24.00 FSG
-----------------------------------------------------------------------------------------------------
D-10 ARCO CENTER 79.3% 73.6%
400 Oceangate Avenue $16.20 $18.60 FSG
-----------------------------------------------------------------------------------------------------
MARKET TOTALS 65.6% 64.7%
$18.77 - $20.32 Direct Weighted Average Rental Rate
-----------------------------------------------------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
LONG BEACH DOWNTOWN AREA
[BAR CHART]
<PAGE>
<TABLE>
<CAPTION>
PEER BUILDING ANALYSIS
The New Wilshire - 6100 Wilshire Boulevard
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Building Information Overall
Item Building Name/ No of Area Avg Flr Year Available Space(SF) Availability
No. Location Stories (SF) Area Built Floor(s) Direct Sublease (SF)
---------------------------------------------------------------------------------------------------------------------------------
MM-1 5670 WILSHIRE BUILDING
5670 Wilshire Boulevard 27 407,200 15,081 1965 Ground 0 0
Ren. 1992 6-27 41,939 0 TOTAL
---- ------ -
41,939 0 41,939
---------------------------------------------------------------------------------------------------------------------------------
MM-2 THE WILSHIRE COURTYARD-EAST 6 540,000 90,000 1987 Ground 8,424 2,942
5700 Wilshire Boulevard 3 0 72,483 TOTAL
- - ------
8,424 75,425 83,849
---------------------------------------------------------------------------------------------------------------------------------
MM-3 THE WILSHIRE COURTYARD-WEST 6 452,243 75,374 1987 Ground 6,471 0
5750 Wilshire Boulevard 2-6 122,797 88,352 TOTAL
--- ------- ------
129,268 88,352 217,620
---------------------------------------------------------------------------------------------------------------------------------
MM-4 MUSEUM SQUARE 10 505,000 50,500 1950 Ground 35,018 0
5757 Wilshire Boulevard Ren. 1982 2-9 134,596 0 TOTAL
--- ------- -
169,614 0 169,614
---------------------------------------------------------------------------------------------------------------------------------
MM-5 MUTUAL BENEFIT LIFE 32 407,500 12,734 1971 Ground 0 0
5900 Wilshire Boulevard 4-30 118,544 0 TOTAL
---- ------- -
118,544 0 118,544
---------------------------------------------------------------------------------------------------------------------------------
MM-6 6300 WILSHIRE BUILDING 21 361,904 17,234 1973 Ground 26,604 0
6300 Wilshire Boulevard Ren. 1992 6-21 65,187 1,500 TOTAL
---- ------ -----
to 1993 91,791 1,500 93,291
---------------------------------------------------------------------------------------------------------------------------------
MM-7 6500 WILSHIRE BUILDING 23 425,039 18,480 1986 6-9 0 79,728
6500 Wilshire Boulevard 4-23 58,313 0 TOTAL
---- ------ -
58,313 79,728 138,041
---------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 125 3,098,886 24,791 617,893 245,005 862,893
---------------------------------------------------------------------------------------------------------------------------------
Quoted
Annual Rent Lease Occupancy Ratio
PSF PSF Type Direct Overall
89.7% 89.7%
$23.40 - $28.80 FSG
----------------------------------------------------------------
$23.40 - $23.40 FSG 98.4% 84.5%
$23.40 - $23.40 FSG
----------------------------------------------------------------
$27.00 - $28.20 FSG 71.4% 51.9%
$24.00 - $28.20 FSG
----------------------------------------------------------------
$16.80 - $23.40 FSG 66.4% 66.4%
$16.80 - $23.40 FSG
----------------------------------------------------------------
70.9% 70.9%
$18.60 - $19.80 FSG
----------------------------------------------------------------
$21.00 - $22.20 FSG 74.6% 74.2%
$18.00 - $22.20 FSG
----------------------------------------------------------------
$15.00 - $15.00 FSG 86.3% 67.5%
$22.20 - $23.40 FSG
----------------------------------------------------------------
MARKET TOTALS 80.1% 72.2%
----------------------------------------------------------------
$20.04 - $23.90 Direct Weighted Average Rental Rate
-------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
MIRACLE MILE ALONG WILSHIRE BOULEVARD
[BAR CHART]
<PAGE>
PEER BUILDING ANALYSIS
12501 Imperial Highway Norwalk
<TABLE>
<CAPTION>
BUILDING INFORMATION OVERALL
ITEM BUILDING NAME/ NO. OF AREA AVG FLR YEAR AVAILABLE SPACE (SF) AVAILABILITY
NO. LOCATION STORIES (SF) AREA (SF) BUILT FLOORS DIRECT SUBLEASE (SF)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
N-1 91 FREEWAY CENTER 4 83,000 20,750 1992 Ground 0 0
Cerritos, CA 2-6 9,960 0 TOTAL
------- ------ ------
9,960 0 9,960
- ---------------------------------------------------------------------------------------------------------
N-2 12750 CENTER COURT DRIVE 7 140,392 20,056 1989 Ground 0 0
Cerritos, CA 2-6 2,611 0 TOTAL
------- ------ ------
2,611 0 2,611
- ---------------------------------------------------------------------------------------------------------
N-3 17785 CENTER COURT DRIVE 7 139,916 19,988 1989 Ground 0 0
Cerritos, CA 2-6 0 0 TOTAL
------- ------ ------
0 0 0
- ---------------------------------------------------------------------------------------------------------
N-4 500 CITADEL DRIVE 4 86,700 21,675 1991 Ground 0 0
Commerce, CA 2-4 11,282 0 TOTAL
------- ------ ------
11,282 0 11,282
- ---------------------------------------------------------------------------------------------------------
N-5 500 CITADEL DRIVE 4 86,700 21,675 1991 Ground 21,675 0
Commerce, CA 2-4 43,325 0 TOTAL
------- ------ ------
65,000 0 65,000
- ---------------------------------------------------------------------------------------------------------
N-6 5701 SO. EASTERN AVENUE 6 150,000 25,000 1991 Ground 3,112 0
Commerce, CA 2-6 19,025 0 TOTAL
------- ------ ------
22,137 0 22,137
- ---------------------------------------------------------------------------------------------------------
N-7 5800 SO. EASTERN AVENUE 5 66,000 13,200 1974 Ground 0 0
Commerce, CA 2-5 14,946 0 TOTAL
------- ------ ------
14,946 0 14,946
- ---------------------------------------------------------------------------------------------------------
N-8 5801 E. SLAUSON AVENUE 3 53,870 17,957 1983 Ground 954 0
Commerce, CA 2-3 17,312 0 TOTAL
------- ------ ------
18,266 0 18,266
- ---------------------------------------------------------------------------------------------------------
N-9 8141 E. 2ND STREET 6 65,000 10,833 1989 Ground 0 0
Downey, CA 2-6 7,595 0 TOTAL
------- ------ ------
7,595 0 7,595
- ---------------------------------------------------------------------------------------------------------
N-10 CENTERPOINT BUILDING #1 4 87,274 21,819 1977 Ground 0 0
La Palma, CA 2-6 32,144 0 TOTAL
------- ------ ------
32,144 0 32,144
- ---------------------------------------------------------------------------------------------------------
N-11 CENTERPOINT BUILDING #2 4 81,972 20,493 1977 Ground 0 0
La Palma, CA 2-6 0 0 TOTAL
------- ------ ------
0 0 0
- ---------------------------------------------------------------------------------------------------------
N-12 CENTERPOINT BUILDING #3 3 60,174 20,058 1977 Ground 0 0
La Palma, CA 2-6 3,894 0 TOTAL
------- ------ ------
3,894 0 3,894
- ---------------------------------------------------------------------------------------------------------
N-13 CENTERPOINT BUILDING #4 7 145,451 20,779 1977 Ground 0 0
La Palma, CA 2-6 6,326 0 TOTAL
------- ------ ------
6,326 0 6,326
- ---------------------------------------------------------------------------------------------------------
N-14 12440 IMPERIAL HIGHWAY 8 464,000 58,000 1981 Ground 0 0
Norwalk, CA 2-6 78,880 83,000 TOTAL
------- ------ ------
78,880 83,000 161,880
- ---------------------------------------------------------------------------------------------------------
N-15 10100 PIONEER BOULEVARD 3 109,419 36,473 1982 Ground 17,094 0
Sante Fe Springs, CA 2-3 49,314 0 TOTAL
------- ------ ------
66,408 0 66,408
- ---------------------------------------------------------------------------------------------------------
N-16 10330 PIONEER BOULEVARD 2 70,124 35,062 1991 Ground 2,321 0
Sante Fe Springs, CA 2 8,814 0 TOTAL
------- ------ ------
11,135 0 11,135
- ---------------------------------------------------------------------------------------------------------
MARKET TOTALS 77 1,889,992 24,545 350,584 83,000 433,584
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
QUOTED
ITEM BUILDING NAME/ ANNUAL RENT LEASE OCCUPANCY RATIO
NO. LOCATION PSF PSF TYPE DIRECT OVERALL
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
N-1 91 FREEWAY CENTER --- --- FSG 88.0% 88.0%
Cerritos, CA $16.80 $18.00 FSG
- ----------------------------------------------------------------------------
N-2 12750 CENTER COURT DRIVE --- --- FSG 98.1% 98.1%
Cerritos, CA $21.60 $21.60 FSG
- ----------------------------------------------------------------------------
N-3 17785 CENTER COURT DRIVE --- --- FSG 100.0% 100.0%
Cerritos, CA --- --- FSG
- ----------------------------------------------------------------------------
N-4 500 CITADEL DRIVE --- --- FSG 87.0% 87.0%
Commerce, CA $21.60 $21.60 FSG
- ----------------------------------------------------------------------------
N-5 500 CITADEL DRIVE $21.00 $21.00 FSG 25.0% 25.0%
Commerce, CA $21.00 $21.00 FSG
- ----------------------------------------------------------------------------
N-6 5701 SO. EASTERN AVENUE $20.40 $20.40 FSG 85.2% 85.2%
Commerce, CA $19.80 $20.40 FSG
- ----------------------------------------------------------------------------
N-7 5800 SO. EASTERN AVENUE --- --- FSG 77.4% 77.4%
Commerce, CA $16.80 $18.00 FSG
- ----------------------------------------------------------------------------
N-8 5801 E. SLAUSON AVENUE $18.60 $18.60 FSG 66.1% 66.1%
Commerce, CA $18.60 $18.60 FSG
- ----------------------------------------------------------------------------
N-9 8141 E. 2ND STREET --- --- FSG 88.3% 88.3%
Downey, CA $16.20 $18.00 FSG
- ----------------------------------------------------------------------------
N-10 CENTERPOINT BUILDING #1 --- --- FSG 63.2% 63.2%
La Palma, CA $19.20 $19.20 FSG
- ----------------------------------------------------------------------------
N-11 CENTERPOINT BUILDING #2 --- --- FSG 100.0% 100.0%
La Palma, CA --- --- FSG
- ----------------------------------------------------------------------------
N-12 CENTERPOINT BUILDING #3 --- --- FSG 93.5% 93.5%
La Palma, CA $19.20 $19.20 FSG
- ----------------------------------------------------------------------------
N-13 CENTERPOINT BUILDING #4 --- --- FSG 95.7% 95.7%
La Palma, CA $19.20 $19.20 FSG
- ----------------------------------------------------------------------------
N-14 12440 IMPERIAL HIGHWAY --- --- FSG 83.0% 65.1%
Norwalk, CA $17.40 $17.40 FSG
- ----------------------------------------------------------------------------
N-15 10100 PIONEER BOULEVARD $16.20 $16.20 FSG 39.3% 39.3%
Sante Fe Springs, CA $16.20 $16.20 FSG
- ----------------------------------------------------------------------------
N-16 10330 PIONEER BOULEVARD $15.60 $15.60 FSG 84.1% 84.1%
Sante Fe Springs, CA $15.60 $15.60 FSG
- ----------------------------------------------------------------------------
MARKET TOTALS 91.5% 77.1%
- ----------------------------------------------------------------------------
</TABLE>
---------------------------------------------
$18.32 $18.47 DIRECT WEIGHTED AVERAGE
RENTAL RATE
---------------------------------------------
OFFICE BUILDING ACTIVITY CHART
NORWALK
[GRAPHIC]
<PAGE>
PEER BUILDING ANALYSIS
1950 Sawtelle
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Building Information Overall Quoted Occupancy
Item Building Name/ No. of Area Avg. Flr. Year Available Space (SF) Availabilty Annual Rent Lease Ratio
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF) PSF PSF Type Direct Overall
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
W-1 CORNERSTONE PLAZA 8 156,296 19.537 1986 Ground 0 0 100.0% 100.0%
1990 S. Bundy Drive 0 0 0 TOTAL $19.80 $22.20 FSG
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
W-2 OLYMPIC CENTRE 6 142,900 23,817 1985 Ground 0 0 13.2% 13.2%
11150 W. Olympic Blvd. 6-11 124.103 0 TOTAL $17.40 $21.00 FSG
------ -------
124,103 0 124,103
- ------------------------------------------------------------------------------------------------------------------------------------
W-3 NOVELL BUILDING 5 54,820 10,964 1986 Ground 0 0 100.0% 100.0%
11300 W. Olympic Blvd. 0 0 0 TOTAL
------ ------- ------
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
W-4 COMMERCE PLAZA 3 77,371 25,790 1973 Ground 1,671 0 $19.20-$19.20 87.2% 87.2%
11340 W. Olympic Blvd. 2-3 8,229 0 TOTAL $19.20-$19.20 FSG
------ ------- ------
9,900 0 9,900
- ------------------------------------------------------------------------------------------------------------------------------------
W-5 TRIDENT CENTER 12 320,000 26,667 1983 Ground 2,140 0 $19.20-$19.20 99.3% 97.1%
11355-11377 W.
Olympic Blvd. 2-3 0 1,200 TOTAL $21.00-$21.00 FSG
------ ------
2,140 7,200 9,340
7,200 9,340
- ------------------------------------------------------------------------------------------------------------------------------------
W-6 EXECUTIVE LIFE 11 230,000 20,909 1983 Ground 10,034 0 $16.80-$16.80 FSG 25.4% 25.4%
BUILDING
11444 W. Olympic Blvd. 2-9 161,472 0 TOTAL $16.80-$16.80 FSG
------ -------
171,506 0 171,506
- ------------------------------------------------------------------------------------------------------------------------------------
W-7 OLYMPIC PLAZA 6 237,000 39,500 1983 Ground 6,893 0 $18.00-$18.00 FSG 82.8% 82.8%
11500 W. Olympic Blvd. 3-6 33,816 0 TOTAL $18.00 $18.00 FSG
------ -------
40,709 0 40,709
- ------------------------------------------------------------------------------------------------------------------------------------
W-8 WESTSIDE TOWERS 12 404,588 33,716 1985 Ground 3,926 0 $19.20-$21.00 FSG 74.5% 74.5%
11835-45 W. Olympic 2-12 99,120 0 TOTAL $19.20-$21.00 FSG
Blvd. ------ -------
103,046 0 103,046
- ------------------------------------------------------------------------------------------------------------------------------------
W-9 TELEFLORA PLAZA 3 149,400 40,800 1981 Ground 12,700 0 $19.80-$19.80 91.5% 87.8%
12233 W. Olympic Blvd. 2 0 5,600 TOTAL $19.80 $19.80 FSG
12,700 5,600 18,300
- ------------------------------------------------------------------------------------------------------------------------------------
W-10 SAWTELLE PLAZA 7 42,000 6,000 1984 Ground 0 0 92.5% 92.5%
1849 Sawtelle Boulevard 5-6 3,150 0 TOTAL $17.40 $17.40 FSG
------ ------- ------
3,150 0 3,150
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 73 1,814,375 24,854 467,254 12,800 490,054 74.2% 73.5%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------
$17.74-$19.09 Direct Weighted Average
Rental Rate
--------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
WEST LOS ANGELES AREA
[GRAPH]
<PAGE>
PEER BUILDING ANALYSIS
70 SOUTH LAKE AVENUE
<TABLE>
<CAPTION>
BUILDING INFORMATION OVERALL
ITEM BUILDING NO. OF AREA AVG.FLR YEAR AVAILABLE SPACE (SF) AVAILABILITY
NO. NAME/LOCATION STORES (SF) AREA (SF) BUILT FLOORS DIRECT SUBLEASE (SF)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
P-1 2 NORTH LAKE AVENUE BUILDING 10 200,011 20,001 1985 Ground 3,540 9,898
2 N. Lake Avenue 4 - 8 5,603 33,571 TOTAL
----- ----- ------
9,143 43,469 52,612
- ------------------------------------------------------------------------------------------------------------------------------------
P-2 PASADENA FINANCIAL CENTER 9 146,665 16,296 1983 Ground 0 0
35 N. Lake Avenue 4 - 8 27,698 0 TOTAL
----- ------
27,698 0 27,698
- ------------------------------------------------------------------------------------------------------------------------------------
P-3 CENTURY SQUARE 11 205,653 18,696 1984 Ground 0 0
155 N. Lake Avenue 0 0 0 TOTAL
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
P-4 GATEWAY PLAZA 14 300,000 21,429 1989 10 2,200
300 N. Lake Avenue 11 6,866 0 TOTAL
----- ------
6,866 2,200 9,066
- ------------------------------------------------------------------------------------------------------------------------------------
P-5 LAKE CORSON BUILDING 12 208,000 17,333 1988 2 0 4,790
301 N. Lake Avenue 4, 10 & 11 30,690 0 TOTAL
---------- ------
30,690 4,790 35,480
- ------------------------------------------------------------------------------------------------------------------------------------
P-6 PASADENA TOWERS I 9 184,460 20,496 1989 2 & 5 0 25,500
800 E. Colorado Boulevard 5 - 9 27,711 0 TOTAL
----- ------
27,711 25,500 53,211
- ------------------------------------------------------------------------------------------------------------------------------------
P-7 PASADENA TOWERS II 9 184,460 20,496 1991 2 - 5 0 70,000
55 S. Lake Avenue 5 - 9 30,570 0 TOTAL
----- ------
30,570 70,000 100,570
- ------------------------------------------------------------------------------------------------------------------------------------
P-8 CORPORATE CENTER PASADENA 15 222,591 14,839 1982 4 0 2,473
225 S. Lake Avenue 5 & 11 19,832 0 TOTAL
------ ------
19,832 2,473 22,305
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 89 1,651,840 18,580 152,510 148,432 300,942
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
QUOTED
ITEM BUILDING ANNUAL RENT LEASE OCCUPANCY RATIO
NO. NAME/LOCATION PSF PSF TYPE DIRECT OVERALL
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
P-1 2 NORTH LAKE AVENUE BUILDING $16.00 $27.00 FSG 95.4% 73.7%
2 N. Lake Avenue $21.00 $27.00 FSG
- -------------------------------------------------------------------------------------
P-2 PASADENA FINANCIAL CENTER 81.1% 81.1%
35 N. Lake Avenue $19.20 $22.00 FSG
- -------------------------------------------------------------------------------------
P-3 CENTURY SQUARE 100.0% 100.0%
155 N. Lake Avenue
- -------------------------------------------------------------------------------------
P-4 GATEWAY PLAZA $19.80 $19.80 FSG 97.7% 97.0%
300 N. Lake Avenue $19.20 $19.20 FSG
- -------------------------------------------------------------------------------------
P-5 LAKE CORSON BUILDING $16.20 $16.20 FSG 85.2% 82.9%
301 N. Lake Avenue $24.60 $27.00 FSG
- -------------------------------------------------------------------------------------
P-6 PASADENA TOWERS I $17.40 $21.00 FSG 85.0% 71.2%
800 E. Colorado Boulevard $27.00 $27.00 FSG
- -------------------------------------------------------------------------------------
P-7 PASADENA TOWERS II $21.00 $24.00 FSG 83.4% 45.5%
55 S. Lake Avenue $22.80 $28.80 FSG
- -------------------------------------------------------------------------------------
P-8 CORPORATE CENTER PASADENA $19.20 $19.20 FSG 91.1% 90.0%
225 S. Lake Avenue $24.00 $24.00 FSG
- -------------------------------------------------------------------------------------
MARKET TOTALS 90.8% 81.8%
- -------------------------------------------------------------------------------------
----------------------------------------------------
$23.04 - $25.71 DIRECT WEIGHTED AVERAGE RENTAL RATE
----------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
LAKE AVENUE CORRIDOR
[GRAPH]
<PAGE>
PEER BUILDING ANALYSIS
Imperial Bank Tower 701 "B" Street
<TABLE>
<CAPTION>
BUILDING INFORMATION OVERALL
ITEM BUILDING NO. OF AREA AVG.FLR YEAR AVAILABLE SPACE (SF) AVAILABILITY
NO. NAME/LOCATION STORIES (SF) AREA (SF) BUILT DIRECT SUBLEASE (SF)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DOWNTOWN SAN DIEGO
COMPETITIVE OFFICE BUILDINGS
- -----------------------------------------------------------------------------------------------------------------------------
D-1 ONE AMERICA PLAZA 34 555,282 16,332 1991 153,357 0 153,357
600 West Broadway
- -----------------------------------------------------------------------------------------------------------------------------
D-2 550 CORPORATE CENTER 20 343,145 17,157 1990 10,876 0 10,876
550 West C Street
- -----------------------------------------------------------------------------------------------------------------------------
D-3 EMERALD PLAZA 30 356,610 11,887 1990 70,015 0 70,015
400 West Broadway
- -----------------------------------------------------------------------------------------------------------------------------
D-4 COLUMBIA SQUARE 13 135,000 10,385 1990 9,040 28,500 37,540
1230 Columbia Street
- -----------------------------------------------------------------------------------------------------------------------------
D-5 KOLL CENTER I 21 341,856 16,279 1989 32,200 5,500 37,700
501 West Broadway
- -----------------------------------------------------------------------------------------------------------------------------
D-6 SYMPHONY TOWERS 34 528,000 15,529 1989 16,960 0 16,960
750 B Street
- -----------------------------------------------------------------------------------------------------------------------------
D-7 JOHN BURNHAM BUILDING 19 171,465 9,024 1985 7,600 0 7,600
610 West Ash Street
- -----------------------------------------------------------------------------------------------------------------------------
D-8 FIRST INTERSTATE PLAZA 23 465,427 20,236 1984 103,754 0 103,754
401 B Street
- -----------------------------------------------------------------------------------------------------------------------------
D-9 WELLS FARGO 20 385,648 19,282 1982 6,073 0 6,073
101 W. Broadway
- -----------------------------------------------------------------------------------------------------------------------------
D-10 FIRST NATIONAL BANK 27 532,967 19,740 1982 75,877 0 75,877
401 A Street
- -----------------------------------------------------------------------------------------------------------------------------
D-11 BANK OF AMERICA BUILDING 20 272,571 13,629 1982 2,350 13,500 15,850
450 B Street
- -----------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 251 4,087,971 169,480 488,102 47,500 535,802
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
QUOTED
ITEM BUILDING ANNUAL RENT OCCUPANCY RATIO
NO. NAME/LOCATION PSF PSF DIRECT OVERALL
- ---------------------------------------------------------------------------
DOWNTOWN SAN DIEGO
COMPETITIVE OFFICE BUILDINGS
D-1 ONE AMERICA PLAZA $21.00 - $30.00 72.4% 72.4%
600 West Broadway
- ---------------------------------------------------------------------------
D-2 550 CORPORATE CENTER $19.20 - $19.80 96.8% 96.8%
550 West C Street
- ---------------------------------------------------------------------------
D-3 EMERALD PLAZA $18.00 - $27.00 80.4% 80.4%
400 West Broadway
- ---------------------------------------------------------------------------
D-4 COLUMBIA SQUARE $16.20 - $16.20 93.3% 72.2%
1230 Columbia Street
- ---------------------------------------------------------------------------
D-5 KOLL CENTER I $16.20 - $20.40 90.6% 89.0%
501 West Broadway
- ---------------------------------------------------------------------------
D-6 SYMPHONY TOWERS $18.00 - $24.00 96.8% 96.8%
750 B Street
- ---------------------------------------------------------------------------
D-7 JOHN BURNHAM BUILDING $15.00 - $16.80 95.6% 95.6%
610 West Ash Street
- ---------------------------------------------------------------------------
D-8 FIRST INTERSTATE PLAZA $17.40 - $23.40 77.7% 77.7%
401 B Street
- ---------------------------------------------------------------------------
D-9 WELLS FARGO $17.40 - $22.20 98.4% 98.4%
101 W. Broadway
- ---------------------------------------------------------------------------
D-10 FIRST NATIONAL BANK $17.40 - $19.80 85.8% 85.8%
401 A Street
- ---------------------------------------------------------------------------
D-11 BANK OF AMERICA BUILDING $15.60 - $16.20 99.1% 94.2%
450 B Street
- ---------------------------------------------------------------------------
MARKET TOTALS 88.1% 86.9%
- ---------------------------------------------------------------------------
-----------------------------------------------------
$18.53 - $24.89 Direct Wtd. Avg Rental Rate
-----------------------------------------------------
OFFICE BUILDING ACTIVITY CHART
SAN DIEGO OFFICE BUILDINGS
[GRAPH]
<PAGE>
PEER BUILDING ANALYSIS
Woodland Hills Financial Center 21031 Ventura Boulevard
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Building Information Overall Quoted Occupancy
Item Building Name/ No. of Area Avg. Flr. Year Available Space (SF) Availabilty Annual Rent Lease Ratio
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF) PSF PSF Type Direct Overall
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R-1 CARLTON PLAZA 4 150,000 37,500 1986 Ground 0 0 96.2% 96.2%
20750 Ventura
Boulevard 3 2,697 0 TOTAL $23.40 $23.40 FSG
------ ------- ------
2,697 0 2,697
- ------------------------------------------------------------------------------------------------------------------------------------
R-2 WARNER CORPORATE
CENTER 12 251,840 20,987 1988 9 0 5,028 $18.00-$18.00 FSG 91.2% 89.2%
21300 Victory 1-12 22,265 0 TOTAL $21.80 $23.40 FSG
Boulevard ------ ------- ------
22,265 5,028 27,293
- ------------------------------------------------------------------------------------------------------------------------------------
R-3 WARNER PARK CENTER 12 60,000 5,000 1986 Ground 0 0 79.2% 79.2%
21800 Burbank
Boulevard 1-2 12,484 0 TOTAL $22.80 $22.80 FSG
------ ------- ------
12,484 0 12,484
- ------------------------------------------------------------------------------------------------------------------------------------
R-4 WARNER GATEWAY 3 239,164 79,721 1989 Ground 822 0 $22.20-$22.20 FSG 99.7% 87.3%
21820-21860 Burbank
Blvd. 2-3 0 29,458 TOTAL $17.40 $17.40 FSG
------ ------- ------
822 29,458 30,280
- ------------------------------------------------------------------------------------------------------------------------------------
R-5 21900 BURBANK BLVD
BUILDING 3 90,000 30,000 1985 Ground 0 0 60.9% 60.9%
21900 Burbank
Boulevard 1-3 35,192 0 TOTAL $23.40 $23.40 FSG
------ ------- ------
35,192 0 35,192
- ------------------------------------------------------------------------------------------------------------------------------------
R-6 WARNERVIEW 3 63,000 21,000 1981 Ground 0 1,788 $18.00-$18.00 81.5% 78.6%
5959 Topanga Boulevard 1-3 11,683 0 TOTAL $21.00 $21.00
------ ------- ------
11,683 1,788 13,471
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 37 854,004 23,031 85,143 36,274 121,417 90.0% 85.2%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
$22.50-$22.97 Direct Weighted Average Rental Rate
--------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
WOODLAND HILLS
[GRAPH]
<PAGE>
PEER BUILDING ANALYSIS
5601 Lindero Canyon Road Westlake Village
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Building Information Overall Quoted
Item Building Name / No. of Area Avg. Flr. Year Available Space (SF) Availabilty Annual Rent Lease Occupancy Ratio
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF) PSF PSF Type Direct Overall
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
W-1 MALIBU CANYON BUS. PARK-A 2 47,000 0 1986 Ground 0 0 87.0% 87.0%
26707 Agoura Road 2 15,500 0 TOTAL $19.80-$19.80 FSG
--- ------ ---
15,500 0 15,500
- ------------------------------------------------------------------------------------------------------------------------------------
W-2 AGOURA HILLS BUSINESS
PARK V 2 65,000 32,500 1987 Ground 0 0 100.0% 100.0%
30401 Agoura Road 0 0 0 TOTAL
--- ------ ---
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
W-3 26541 AGOURA ROAD 2 90,000 45,000 1988 Ground 0 15,000 $17.40-$17.40 FSG 100.0% 100.0%
26541 Agoura Road 2 0 44,000 TOTAL $17.40-$17.40 FSG
--- ------ ------
0 59,000 59,000
- ------------------------------------------------------------------------------------------------------------------------------------
W-4 CALABASAS BUSINESS PARK II 2 97,000 48,500 1983 Ground 4,178 0 $19.20-$19.20 FSG 90.8% 90.8%
23901 Calabasas Road 2 4,786 0 TOTAL $19.20-$19.20 FSG
--- ------ ---
8,964 0 8,964
- ------------------------------------------------------------------------------------------------------------------------------------
W-5 CORP. POINTE AT CALABASAS 3 105,400 35,133 1988 Ground 0 14,725 $17.40-$19.80 FSG 100.0% 88.0%
27001 Agoura Road 0 0 0 TOTAL
--- ------ ---
0 14,725 14,725
- ------------------------------------------------------------------------------------------------------------------------------------
W-6 SPECTRUM CORP. CENTER-A 2 32,452 16,226 1991 Ground 0 0 100.0% 85.6%
4333 Park Terrace Drive N/A 0 4,659 TOTAL $19.20-$19.20 FSG
--- ------ ---
0 4,659 4,659
- ------------------------------------------------------------------------------------------------------------------------------------
W-7 WESTLAKE CORP. CENTER-A 3 53,599 17,866 1986 Ground 4,488 0 $16.20-$16.20 FSG 90.1% 90.1%
4165 Thousand Oaks Blvd. 2 834 0 TOTAL $18.00-$18.00 FSG
--- ------ ---
5,322 0 5,322
- ------------------------------------------------------------------------------------------------------------------------------------
W-8 WESTLAKE CORP. PK./BLUE
CROSS 2 90,000 45,000 1985 Ground 0 0 100.0% 100.0%
4553 La Tienda Drive 0 0 0 TOTAL
--- ------ ---
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
W-9 31829 WEST LA TIENDA DRIVE 2 50,000 0 1982 Ground 0 0 100.0% 100.0%
31829 West La Tienda Drive 0 0 0 TOTAL
--- ------ ---
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 20 630,451 31,523 29,796 78,384 108,170 95.3% 82.8%
- ------------------------------------------------------------------------------------------------------------------------------------
$19.03-$19.03 Direct Weighted Average
Rental Rate
-------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
[Chart]
<PAGE>
<TABLE>
<CAPTION>
PEER BUILDING ANALYSIS
Westwood Terrace 1640 S Sepulveda Boulevard
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Building Information Overall
Item Building Name/ No of Area Avg Flr Year Available Space (SF) Availability
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF)
---------------------------------------------------------------------------------------------------------------------------------
WN-1 WESTWOOD GATEWAY II (EAST) 20 288,990 14,350 1989 Ground 0 0
11100 Santa Monica Boulevard 9&19 15,275 7,788 TOTAL
---- ------ -----
15,275 7,788 23,063
---------------------------------------------------------------------------------------------------------------------------------
WN-2 WESTWOOD GATEWAY 22 289,000 13,138 1985 1&6 0 4,960
11111 Santa Monica Boulevard 2-21 56,951 0 TOTAL
---- ------ -
56,951 4,960 61,911
---------------------------------------------------------------------------------------------------------------------------------
WN-3 WESTWOOD GATEWAY II (NORTH) 15 225,589 15,039 1989 Ground 1,449 0
11150 Santa Monica Boulevard 2-16 20,101 0 TOTAL
---- ------ -
21,550 0 21,550
---------------------------------------------------------------------------------------------------------------------------------
WN-4 WESTWOOD ATRIUM BUILDING 3 101,500 33,833 1985 Ground 0 0
1440 South Sepulveda Boulevard 0 0 0 TOTAL
- - -
0 0 0
---------------------------------------------------------------------------------------------------------------------------------
WN-5 TOCALOMA PLAZA 4 85,000 18,250 1984 Ground 2,200 0
10780 Santa Monica Blvd 2-4 16,333 4,000 TOTAL
--- ------ -----
18,533 4,000 22,533
---------------------------------------------------------------------------------------------------------------------------------
WN-6 BENTLEY BUILDING 4 36,000 9,000 1984 Ground 0 0
11075 Santa Monica Blvd 0 0 0 TOTAL
- - -
0 0 0
---------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 68 1,004,079 14,768 112,308 16,748 129,067
---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Item Building Name/ Quoted
No. Location Annual Rent Lease Occupancy Rate
PSF PSF Type Direct Overall
----------------------------------------------------------------------------------------------------------
WN-1 WESTWOOD GATEWAY II (EAST) 92.0% 92.0%
11100 Santa Monica Boulevard $28.20 $28.20 FSG
----------------------------------------------------------------------------------------------------------
WN-2 WESTWOOD GATEWAY $21.60 - $24.00 FSG 79.6% 79.6%
11111 Santa Monica Boulevard $21.80 $36.00 FSG
----------------------------------------------------------------------------------------------------------
WN-3 WESTWOOD GATEWAY II (NORTH) $28.80 - $36.00 FSG 90.4% 90.4%
11150 Santa Monica Boulevard $28.80 - $36.00 FSG
----------------------------------------------------------------------------------------------------------
WN-4 WESTWOOD ATRIUM BUILDING 100.0% 100.0%
1440 South Sepulveda Boulevard
----------------------------------------------------------------------------------------------------------
WN-5 TOCALOMA PLAZA $17.40 - $17.40 FSG 71.5% 85.3%
10780 Santa Monica Blvd $12.00 $17.40 FSG
----------------------------------------------------------------------------------------------------------
WN-6 BENTLEY BUILDING 100.0% 100.0%
11075 Santa Monica Blvd
----------------------------------------------------------------------------------------------------------
MARKET TOTALS 88.8% 87.1%
----------------------------------------------------------------------------------------------------------
-------------------------------------------------------
$22.50 - $31.87 Direct Weighted Average Rental Rate
-------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
WESTWOOD/WEST LOS ANGELES
[BAR CHART]
<PAGE>
PEER BUILDING ANALYSIS
LONG BEACH AIRPORT BUSINESS PARK
4811 AIRPORT PLAZA DRIVE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Building Information Overall Quoted Occupancy
Item Building Name / No. of Area Avg. Flr. Year Available Space (SF) Availabilty Annual Rent Lease Ratio
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF) PSF PSF Type Direct Overall
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A-1 L.B. AIRPORT BUS. PARK 8 165,000 20,625 1986 Ground 0 0 100.0% 100.0%
4801 Airport Drive 0 0 0 TOTAL
--- --- ---
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
A-2 L.B. AIRPORT BUS. PARK 3 150,403 50,134 1987 Ground 0 0 100.0% 100.0%
4900/4910 Airport Plaza Drive 0 0 0 TOTAL
--- --- ---
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
A-3 L.B. AIRPORT BUS. PARK 8 163,358 20,420 1989 Ground 0 0 96.1% 96.1%
5000 East Spring Street 2-7 6,402 0 TOTAL $23.40-$23.40 FSG
--- ----- ---
6,402 0 6,402
- ------------------------------------------------------------------------------------------------------------------------------------
A-4 L.B. AIRPORT BUS. PARK 2 50,000 25,000 1982 Ground 0 0 100.0% 100.0%
5001 Airport Plaza Drive 0 0 0 TOTAL
--- --- ---
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
A-5 FREEWAY BUSINESS CENTER 4 76,582 19,148 1984 Ground 0 0 100.0% 100.0%
1515 Hughes Way 0 0 0 TOTAL
--- --- ---
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
A-6 KILROY AIRPORT CENTER 6 170,030 28,338 1989 Ground 0 0 63.8% 63.8%
3760 Kilroy Airport Way 3-5 27,482 0 TOTAL $25.80-$27.00 FSG
--- ------ ---
27,482 0 27,482
- ------------------------------------------------------------------------------------------------------------------------------------
A-7 KILROY AIRPORT CENTER 8 227,939 28,492 1989 Ground 0 0 91.4% 88.5%
3780 Kilroy Airport Way 3-8 19,713 6,387 TOTAL $18.00-$27.00 FSG
--- ------ ---
19,713 6,387 26,100
- ------------------------------------------------------------------------------------------------------------------------------------
A-8 KILROY AIRPORT CENTER 2 98,243 49,122 1987 Ground 0 0 100.0% 100.0%
3880 Kilroy Airport Way 0 0 0 TOTAL
--- --- ---
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
A-9 KILROY AIRPORT CENTER 3 129,300 43,100 1987 Ground 0 0 94.3% 94.3%
3900 Kilroy Airport Way 2-3 7,234 0 TOTAL $24.00-$24.00 FSG
--- ----- ---
7,324 0 7,324
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 44 1,230,855 27,974 60,921 6,387 67,308 95.1% 94.5%
- ------------------------------------------------------------------------------------------------------------------------------------
$22.81-$26.26 Direct Weighted Average
Rental Rate
</TABLE>
OFFICE BUILDING ACTIVITY CHART
LONG BEACH AIRPORT AREA
[Chart]
<PAGE>
PEER BUILDING ANALYSIS
Long Beach Airport Business Park 4900-4910 Airport Plaza Drive
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Building Information Overall Quoted Occupancy
Item Building Name/ No. of Area Avg. Flr. Year Available Space (SF) Availabilty Annual Rent Lease Ratio
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF) PSF PSF Type Direct Overall
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A-1 L.B. AIRPORT
BUSINESS PARK 8 165,000 20,625 1988 Ground 0 0 100.0% 100.0%
4801 Airport Plaza
Drive 0 0 0 TOTAL
------ ------- ------
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
A-2 L.B. AIRPORT
BUSINESS PARK 6 121,810 20,268 1987 Ground 0 0 100.0% 100.0%
4811 Airport Plaza
Drive 0 0 0 TOTAL
------ ------- ------
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
A-3 L.B. AIRPORT
BUSINESS PARK 8 163,358 20,420 1989 Ground 0 0 96.1% 96.1%
5000 East Spring
Street 2-7 6,402 0 TOTAL $23.40 $23.40 FSG
------ ------- ------
6,402 0 6,402
- ------------------------------------------------------------------------------------------------------------------------------------
A-4 L.B. AIRPORT 2 50,000 25,00 1982 GROUND 0 0 100.0% 100.0%
BUSINESS PARK
5001 Airport Plaza
Drive 0 0 0 TOTAL
------ ------- ------
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
A-5 FREEWAY BUSINESS
CENTER 4 76,582 19,148 1984 Ground 0 0 100.0% 100.0%
1515 Hughes Way 0 0 0 TOTAL
------ ------- ------
0 0
- ------------------------------------------------------------------------------------------------------------------------------------
A-6 KILROY AIRPORT CENTER 6 170,030 28,338 1983 Ground 0 0 83.8% 83.8%
3760 Kilroy Airport Way 3-5 27,482 0 TOTAL $25.80-$27.00 FSG
------ ------- ------
27,482 0 27,482
- ------------------------------------------------------------------------------------------------------------------------------------
A-7 KILROY AIRPORT CENTER 8 227,939 28,492 1989 Ground 0 0 91.4% 88.5%
3780 Kilroy Airport Way 3-8 19,713 8,387 TOTAL $18.00 $27.00 FSG
------ ------- ------
19,713 8,387 28,100
- ------------------------------------------------------------------------------------------------------------------------------------
A-8 KILROY AIRPORT CENTER 2 98,243 49,122 1987 Ground 0 0 100.0% 100.0%
3880 Kilroy Airport Way 0 0 0 TOTAL
------ ------- ------
0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
A-9 KILROY AIRPORT CENTER 3 129,300 43,100 1987 Ground 0 0 94.3% 94.3%
3900 Kilroy Airport Way 2-3 7,324 0 TOTAL $24.00 $24.00 FSG
------ ------- ------
7,324 0 7,324
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 47 1,202,062 25,576 80,921 6,367 87,308 94.9% 94.4%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
$22.81-$26.26 Direct Weighted Average Rental Rate
--------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
LONG BEACH AIRPORT AREA
[GRAPH]
<PAGE>
<TABLE>
<CAPTION>
PEER BUILDING ANALYSIS
Long Beach Airport Business Park 5000 Spring Street
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Building Information Overall
Item Building Name/ No of Area Avg Flr Year Available Space(SF) Availability
No. Location Stories (SF) Area (SF) Built Floor(s) Direct Sublease (SF)
---------------------------------------------------------------------------------------------------------------------------------
A-1 L.B. AIRPORT BUSINESS PARK 8 165,000 20,625 1986 Ground 0 0
4801 Airport Plaza Drive 0 0 0 TOTAL
- - -
0 0 0
---------------------------------------------------------------------------------------------------------------------------------
A-2 L.B. AIRPORT BUSINESS PARK 8 121,610 20,268 1987 Ground 0 0
4811 Airport Plaza Drive 0 0 0 TOTAL
- - -
0 0 0
---------------------------------------------------------------------------------------------------------------------------------
A-3 L.B. AIRPORT BUSINESS PARK 3 150,403 50,134 1987 Ground 0 0
4900/4910 Airport Plaza Drive 0 0 0 TOTAL
- - -
0 0 0
---------------------------------------------------------------------------------------------------------------------------------
A-4 L.B. AIRPORT BUSINESS PARK 2 50,000 25,000 1982 Ground 0 0
5001 Airport Plaza Drive 0 0 0 TOTAL
- - -
0 0 0
---------------------------------------------------------------------------------------------------------------------------------
A-5 FREEWAY BUSINESS CENTER 4 76,582 19,146 1984 Ground 0 0
1515 Hughes Way 0 0 0 TOTAL
- - -
0 0 0
---------------------------------------------------------------------------------------------------------------------------------
A-6 KILROY AIRPORT CENTER 6 170,030 28,338 1989 Ground 0 0
3760 Kilroy Airport Way 3-5 27,482 0 TOTAL
- - -
27,482 0 27,482
---------------------------------------------------------------------------------------------------------------------------------
A-7 KILROY AIRPORT CENTER 8 227,939 28,492 1989 Ground 0 0
3780 Kilroy Airport Way 3-8 19,713 6,387 TOTAL
- - -
19,713 6,387 26,100
---------------------------------------------------------------------------------------------------------------------------------
A-8 KILROY AIRPORT CENTER 2 98,243 49,122 1987 Ground 0 0
3880 Kilroy Airport Way 0 0 0 TOTAL
- - -
0 0 0
---------------------------------------------------------------------------------------------------------------------------------
A-9 KILROY AIRPORT CENTER 3 129,300 43,100 1987 Ground 0 0
3900 Kilroy Airport Way 2-3 7,324 0 TOTAL
- - -
7,324 0 7,324
---------------------------------------------------------------------------------------------------------------------------------
MARKET TOTALS 42 1,189,107 28,312 54,519 6,387 60,908
Quoted
Annual Rent Lease Occupancy Ratio
PSF PSF Type Direct Overall
100.0% 100.0%
----------------------------------------------------------------
100.0% 100.0%
----------------------------------------------------------------
100.0% 100.0%
----------------------------------------------------------------
100.0% 100.0%
----------------------------------------------------------------
100.0% 100.0%
----------------------------------------------------------------
83.8% 83.8%
$25.80 - $27.00 FSG
----------------------------------------------------------------
91.4% 88.5%
$18.00 - $27.00 FSG
----------------------------------------------------------------
100.0% 100.0%
----------------------------------------------------------------
94.3% 94.3%
$24.00 - $24.00 FSG
----------------------------------------------------------------
MARKET TOTALS 96.4% 94.9%
$22.74 - $26.60 Direct Weighted Average Rental Rate
-------------------------------------------------------
</TABLE>
OFFICE BUILDING ACTIVITY CHART
LONG BEACH AIRPORT AREA
[BAR CHART]
<PAGE>
SUMMARY OF COMPARABLE LEASES
Professional Office Tenants
Westside Los Angeles Submarkets as of 4th Quarter 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Item Date of Rounded Initial Annual
No. Market & Location Lease Area (SF) Term Rent (PSF)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CW-1 Culver City / Nov-95 1,800 3 years $18.60
Westchester
- ----------------------------------------------------------------------------------
CW-2 Culver City / Nov-95 1,868 5 years $16.92
Westchester
- ----------------------------------------------------------------------------------
CW-3 Culver City / Feb-95 1,024 6 years $15.60
Westchester
- ----------------------------------------------------------------------------------
CW-4 Culver City / Aug-95 13,696 10 years $15.60
Westchester $18.00
- ----------------------------------------------------------------------------------
CW-5 Culver City / Sep-95 1,494 3 years $22.20
Westchester $22.80
$24.48
- ----------------------------------------------------------------------------------
CW-6 Culver City / Oct-95 4,287 5 years $14.40
Westchester $14.40
$16.80
$18.00
$19.20
- ----------------------------------------------------------------------------------
CW-7 Culver City / Dec-95 26,502 6 years $14.16
Westchester $15.12
$15.96
- ----------------------------------------------------------------------------------
M-1 Marina Mar-95 1,130 3 years $19.20
- ----------------------------------------------------------------------------------
M-2 Marina Apr-96 1,620 3 years $18.60
- ----------------------------------------------------------------------------------
M-3 Marina May-95 1,827 5 years $17.40
- ----------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------
Effective
Item Expense Concessions/ Annual
No. Market & Location Adjustments Basis Comments PSF Rent
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CW-1 Culver City / Flat FSG No free rent reported / $18.60
Westchester Paint and carpet
- ----------------------------------------------------------------------------------
CW-2 Culver City / Annual FSG No free rent reported / $18.36
Westchester CPI Paint and carpet
- ----------------------------------------------------------------------------------
CW-3 Culver City / Flat FSG No free rent reported / $15.60
Westchester Paint and carpet
- ----------------------------------------------------------------------------------
CW-4 Culver City / 1-60 mos FSG 9 mos free rent reported / $16.80
Westchester 61-120 mos on portion
$10/rsf TI allowances
- ----------------------------------------------------------------------------------
CW-5 Culver City / 1-12 mos FSG No free rent reported / $23.16
Westchester 13-24 mos FSG $10/usf TI allowances
25-36 mos FSG Net of electricity
- ----------------------------------------------------------------------------------
CW-6 Culver City / 1-12 mos FSG Months 1, 13 & 25 free $16.08
Westchester 13-24 mos FSG rent / build-to-suit
25-36 mos FSG
37-48 mos FSG
49-60 mos FSG
- ----------------------------------------------------------------------------------
CW-7 Culver City / 1-23 mos FSG 2 weeks free rent / $15.00
Westchester 24-48 mos FSG $5/usf TI allowances
49-72 mos FSG Lease renewal
- ----------------------------------------------------------------------------------
M-1 Marina Flat FSG No free rent reported / $19.20
No TI's (as is condition)
- ----------------------------------------------------------------------------------
M-2 Marina Flat FSG No free rent reported / $18.60
$9.10/psf TI allowances
- ----------------------------------------------------------------------------------
M-3 Marina Flat FSG No free rent reported / $17.40
$8.50/psf TI allowances
Direct deal w/building
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Item Date of Rounded Initial Annual
No. Market & Location Lease Area (SF) Term Rent (PSF)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
M-4 Marina May-95 4,145 5 years $24.00
- ----------------------------------------------------------------------------------
M-5 Marina Jul-95 60,000 5 years $17.40
- ----------------------------------------------------------------------------------
M-6 Marina Sep-95 2,473 5 years $22.20
- ----------------------------------------------------------------------------------
SM-1 Santa Monica 4th Qtr 22,000 10 years $31.00
1995
- ----------------------------------------------------------------------------------
SM-2 Santa Monica 4th Qtr 6,200 5 years $29.30
1995
- ----------------------------------------------------------------------------------
SM-3 Santa Monica 3rd Qtr 30,000 5 years $20.40
1995
- ----------------------------------------------------------------------------------
SM-4 Santa Monica 3rd Qtr 5,600 5 years $26.40
1995
- ----------------------------------------------------------------------------------
SM-5 Santa Monica 3rd Qtr 2,800 5 years $31.30
1995
- ----------------------------------------------------------------------------------
W-1 Westwood 3rd Qtr 10,000 5 years $27.00
1995
- ----------------------------------------------------------------------------------
W-2 Westwood 4th Qtr 3,000 5 years $25.20
1995
- ----------------------------------------------------------------------------------
W-3 Westwood 1st Qtr 2,500 5 years $27.60
1995
- ----------------------------------------------------------------------------------
W-4 Westwood 1st Qtr 5,700 7 years $28.20
1995 $33.60
- ----------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------
Effective
Item Expense Concessions/ Annual
No. Market & Location Adjustments Basis Comments PSF Rent
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
M-4 Marina Flat FSG No free rent reported / $24.00
No TI's (as is condition)
Net of janitorial & electric
- ----------------------------------------------------------------------------------
M-5 Marina Flat FSG No free rent reported / $17.40
$7.00/usf TI allowances
- -----------------------------------------------------------------------------------
M-6 Marina Flat FSG No free rent reported / $22.20
No TI's (as is condition)
- ----------------------------------------------------------------------------------
SM-1 Santa Monica Effective FSG $40 psf TI-2nd generation; $31.00
Rent Proposal not signed 10 years
- ----------------------------------------------------------------------------------
SM-2 Santa Monica Flat FSG No free rent / No TI; $29.30
Sublease 5 years
- ----------------------------------------------------------------------------------
SM-3 Santa Monica Flat FSG No free rent; $20.40
$20 psf TI-2nd generation; 5 years
Sublease
- ----------------------------------------------------------------------------------
SM-4 Santa Monica Flat FSG 5 months free rent ; $24.20
Paint/Carpet 5 years
- ----------------------------------------------------------------------------------
SM-5 Santa Monica Flat FSG No free rent ; $31.30
Paint/Carpet 5 years
- ----------------------------------------------------------------------------------
W-1 Westwood Flat FSG No free rent; $27.00
$22 psf TI/2nd generation 5 years
- ----------------------------------------------------------------------------------
W-2 Westwood Flat FSG No free rent; $25.20
BTS TI/2nd generation 5 years
- ----------------------------------------------------------------------------------
W-3 Westwood Flat FSG 22 mos. @ 1/2 rent; $22.54
$40 psf TI (raw) / 5 years
- ----------------------------------------------------------------------------------
W-4 Westwood 1-60 mos FSG 28 mos @ 1/2 rent; $24.87
61-84 mos $42 psf TI (raw) 7 years
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Item Date of Rounded Initial Annual
No. Market & Location Lease Area (SF) Term Rent (PSF)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
W-5 Westwood 4th Qtr 110,000 10 years $28.20
1995 $33.60
- ----------------------------------------------------------------------------------
W-6 Westwood 2nd Qtr 5,900 5 years $31.20
1995
- ----------------------------------------------------------------------------------
W-7 Westwood 3rd Qtr 4,500 5 years $31.20
1995 $34.80
- ----------------------------------------------------------------------------------
W-8 Westwood 3rd Qtr 9,000 5 years $31.80
1995
- ----------------------------------------------------------------------------------
W-9 Westwood 3rd Qtr 7,800 6 years $28.80
1995 $31.80
$19.92
$35.40
- ----------------------------------------------------------------------------------
W-10 Westwood 4th Qtr 6,700 5 years $30.60
1995
- ----------------------------------------------------------------------------------
CC-1 Century City 3rd Qtr 8,000 5 years $36.00
1995
- ----------------------------------------------------------------------------------
CC-2 Century City 1st Qtr 5,000 5 years $35.40
1995
- ----------------------------------------------------------------------------------
CC-3 Century City 4th Qtr 1,300 5 years $36.00
1995
- ----------------------------------------------------------------------------------
CC-4 Century City 3rd Qtr 80,000 10 years $21.60
1995 $25.20
- ----------------------------------------------------------------------------------
CC-5 Century City 3rd Qtr 8,000 5 years $19.56
1995
- ----------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------
Effective
Item Expense Concessions/ Annual
No. Market & Location Adjustments Basis Comments PSF Rent
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
W-5 Westwood 1-60 mos FSG 36 mos. @ 1/2 rent; $26.67
61-120 mos $42 psf TI (raw); 10 years
Building signage
- ----------------------------------------------------------------------------------
W-6 Westwood Flat FSG 2 mos. free rent; $30.20
$75 psf TI 5 years
- ----------------------------------------------------------------------------------
W-7 Westwood 1-31 mos FSG No free rent; $33.00
32-60 mos $40 psf TI 5 years
- ----------------------------------------------------------------------------------
W-8 Westwood Flat FSG No free rent; $31.80
$44 psf TI 5 years
- ----------------------------------------------------------------------------------
W-9 Westwood 1-25 mos FSG No free rent (see mos. 37- $27.44
25-36 mos 60); $43 psf TI (raw) 7 years
37-60 mos
60-72 mos
- ----------------------------------------------------------------------------------
W-10 Westwood Flat FSG No free rent; $30.60
$35 psf TI 5 years
- ----------------------------------------------------------------------------------
CC-1 Century City Annual FSG 10 months free rent; $33.96
4% increase $18 psf TI + Existing 5 years
- ----------------------------------------------------------------------------------
CC-2 Century City Annual FSG 11 months free rent; $33.96
4% increase $20 psf TI 5 years
- ----------------------------------------------------------------------------------
CC-3 Century City Annual FSG No free rent; $39.00
4% increase $10 psf TI + Existing 5 years
- ----------------------------------------------------------------------------------
CC-4 Century City 1-60 mos FSG No free rent; $23.40
61-120 mos $50 psf TI 10 years
Building Signage
- ----------------------------------------------------------------------------------
CC-5 Century City Flat FSG No free rent; $30.60
$35 psf TI 5 years
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Item Date of Rounded Initial Annual
No. Market & Location Lease Area (SF) Term Rent (PSF)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CC-6 Century City 4th Qtr 4,500 7 years $21.00
1995
- ----------------------------------------------------------------------------------
CC-7 Century City 4th Qtr 3,000 5 years $21.00
1995
- ----------------------------------------------------------------------------------
B-1 Brentwood 2nd Qtr 29,000 N/A N/A
1995 (Full bldg)
- ----------------------------------------------------------------------------------
B-2 Brentwood 2nd Qtr 13,000 10 years $19.20
1995 $24.00
- ----------------------------------------------------------------------------------
B-3 Brentwood 4th Qtr 3,500 8 years $25.20
1995 $27.00
- ----------------------------------------------------------------------------------
B-4 Brentwood 3rd Qtr 3,500 5 years $25.20
1995
- ----------------------------------------------------------------------------------
BH-1 Beverly Hills 1st Qtr 77,000 10 years $22.80
1995
- ----------------------------------------------------------------------------------
BH-2 Beverly Hills 3rd Qtr 28,000 10 years $25.20
1995 $26.20
- ----------------------------------------------------------------------------------
BH-3 Beverly Hills 4th Qtr 14,000 10 years $27.00
1995 $32.40
- ----------------------------------------------------------------------------------
BH-4 Beverly Hills 2nd Qtr 3,500 5 years $28.50
1995
- ----------------------------------------------------------------------------------
MM-1 Miracle Mile 1st Qtr 3,000 5 years $22.80
1995
- ----------------------------------------------------------------------------------
MM-2 Miracle Mile 2nd Qtr 15,000 10 years $19.20
1995 $20.40
- ----------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------
Effecive
Item Expense Concessions/ Annual
No. Market & Location Adjustments Basis Comments PSF Rent
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CC-6 Century City Flat FSG 1/2 month free rent; $20.40
$10 psf TI 7 years
- -----------------------------------------------------------------------------------
CC-7 Century City Flat FSG 3 months free rent; $19.40
$15 psf TI 5 years
- -----------------------------------------------------------------------------------
B-1 Brentwood N/A N/A N/A N/A
- -----------------------------------------------------------------------------------
B-2 Brentwood 1-60 mos FSG 4 months free rent; $20.96
61-120 mos $25 psf TI + Existing 10 years
- -----------------------------------------------------------------------------------
B-3 Brentwood 1-60 mos FSG 6.5 months free rent; $24.17
61-96 mos $15 psf TI 8 years
- -----------------------------------------------------------------------------------
B-4 Brentwood Flat FSG 3 mos free rent; $24.00
$35 psf TI 5 years
- -----------------------------------------------------------------------------------
BH-1 Beverly Hills Flat FSG No free rent; $22.80
$40 psf TI 5 years
- -----------------------------------------------------------------------------------
BH-2 Beverly Hills 1-60 mos FSG 6 months free rent; $24.42
61-120 mos $35 psf TI 5 years
- -----------------------------------------------------------------------------------
BH-3 Beverly Hills 1-60 mos FSG 2 months free rent; $29.15
61-120 mos $35 psf TI 5 years
- -----------------------------------------------------------------------------------
BH-4 Beverly Hills Flat FSG No free rent; $25.80
$25 psf TI 5 years
- -----------------------------------------------------------------------------------
MM-1 Miracle Mile Flat FSG No free rent; $22.80
$27 psf TI 5 years
- -----------------------------------------------------------------------------------
MM-2 Miracle Mile 1-60 mos FSG No free rent; $19.80
61-120 mos $25 psf TI 5 years
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Item Date of Rounded Initial Annual
No. Market & Location Lease Area (SF) Term Rent (PSF)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MM-3 Miracle Mile 3rd Qtr 2,000 5 years $19.80
1995
MM-4 Miracle Mile 4th Qtr 4,000 5 years $19.44
1995
- ----------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------
Effecive
Item Expense Concessions/ Annual
No. Market & Location Adjustments Basis Comments PSF Rent
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MM-3 Miracle Mile Flat FSG No free rent; $19.80
paint & carpet 5 years
- -----------------------------------------------------------------------------------
MM-4 Miracle Mile Flat FSG No free rent; $19.44
$35 psf TI 5 years
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
PASADENA
SUMMARY OF COMPARABLE LEASES
PROFESSIONAL OFFICE TENANTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Item Date of Rounded Initial Annual Adjust- Expense Concessions Effective Annual
No. Market & Location Lease Area (SF) Term Rent (PSF) ments Basis Comments PSF Rent
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
P-1 Pasadena Jul-95 8,500 5 years $19.20 Flat FSG 4 mos free rent $17.92
$5.00 psf TI's
- -----------------------------------------------------------------------------------------------------------------------------------
P-2 Pasadena Sep-95 3,200 5 years $22.80 Flat FSG 3 mos free rent $21.66
$30.00 PSF TI's
- -----------------------------------------------------------------------------------------------------------------------------------
P-3 Pasadena Jul-95 3,100 5 years $22.80 Flat FSG 3 mos free $21.66
$30.00 PSF TI's
- -----------------------------------------------------------------------------------------------------------------------------------
P-4 Pasadena May-95 4,800 5 years $21.00 Flat FSG No free rent $21.00
$40.00 PSF TI's
- -----------------------------------------------------------------------------------------------------------------------------------
P-5 Pasadena Jun-95 9,400 5 years $22.20 Yr. 6: $24.60 FSG No free rent reported / $23.40
$10/usf TI allowance
- -----------------------------------------------------------------------------------------------------------------------------------
P-6 Pasadena May-95 5,700 3 years $22.56 Flat FSG No free rent $22.56
5 mos $00.00 PSF TI's
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Item Date of Rounded Initial Annual Adjust- Expense Concessions Effective Annual
No. Market & Location Lease Area (SF) Term Rent (PSF) ments Basis Comments PSF Rent
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
P-7 Pasadena Jun-95 4,600 5 years $21.60 Flat FSG 7 mos free $19.05
No TI's
- -----------------------------------------------------------------------------------------------------------------------------------
P-8 Pasadena Sep-95 6,600 6 years $18.24 Yr. 3: $23.64 FSG No free rent $22.44
Yr. 4: $24.84 $27.25 PSF TI's
- -----------------------------------------------------------------------------------------------------------------------------------
P-9 Pasadena Mar-95 1,800 5 years $18.84 Flat FSG 1 month free $18.84
No TI's
- -----------------------------------------------------------------------------------------------------------------------------------
P-10 Pasadena May-95 4,900 5 years $19.80 Flat FSG 5 mos free $18.15
$20.00 PSF TI's
- -----------------------------------------------------------------------------------------------------------------------------------
P-11 Pasadena Jan-96 3,600 5 years $18.96 Flat FSG 3 mos free $18.08
5 mos No TI's
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CALABASAS AND WESTLAKE VILLAGE
SUMMARY OF COMPARABLE LEASES
PROFESSIONAL OFFICE TENANTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Item Date of Rounded Initial Annual
No. Market & Location Lease Area (SF) Term Rent (PSF)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
C-1 Calabasas Oct-95 9,243 10 years $19.20
$19.80
$21.00
- ----------------------------------------------------------------------------------
C-2 Calabasas Oct-95 1,450 3 years $19.20
- -----------------------------------------------------------------------------------
C-3 Calabasas Oct-95 852 3 years $19.20
- -----------------------------------------------------------------------------------
C-4 Calabasas Jul-95 3,300 3 years $19.20
- -----------------------------------------------------------------------------------
C-5 Calabasas Mar-95 4,930 5 years $18.96
- -----------------------------------------------------------------------------------
C-6 Calabasas Mar-95 8,300 5 years $17.40
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
WV-1 Westlake Village Nov-95 3,854 5 years $17.40
$18.00
$19.20
$19.80
- -----------------------------------------------------------------------------------
WV-2 Westlake Village Sep-95 9,778 5 years $19.20
- -----------------------------------------------------------------------------------
WV-3 Westlake Village Sep-95 10,525 10 years $18.60
- -----------------------------------------------------------------------------------
WV-4 Westlake Village Dec-94 6,500 5 years $17.40
plus utilities
- -----------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------
Effecive
Item Expense Free Rent/ Annual
No. Market & Location Adjustments Basis Tenant Improvements PSF Rent
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
C-1 Calabasas 1-40 mos FSG No free rent $20.00
41-80 mos reported / $5 psf
80-120 mos TI allowances in Yr 5
- -----------------------------------------------------------------------------------
C-2 Calabasas Flat FSG 3 months free rent / $17.60
$12-14 psf TI allowance
- -----------------------------------------------------------------------------------
C-3 Calabasas Flat FSG 3 months free rent / $17.60
$12-13 psf TI allowance
- -----------------------------------------------------------------------------------
C-4 Calabasas Flat FSG 4 months free rent / $17.07
"As is" condition
- -----------------------------------------------------------------------------------
C-5 Calabasas Flat FSG No free rent $18.96
reported / $15 psf
TI allowance
- -----------------------------------------------------------------------------------
C-6 Calabasas Flat FSG No free rent $17.40
reported / $10 psf
TI allowance
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
WV-1 Westlake Village 1-12 mos FSG No free rent $18.72
13-24 mos reported / Paint
25-48 mos and Carpet
49-60 mos
- -----------------------------------------------------------------------------------
WV-2 Westlake Village Flat FSG No free rent $19.20
reported / $25 psf
TI allowance
- -----------------------------------------------------------------------------------
WV-3 Westlake Village Flat FSG 2 months free rent / $19.69
$12 psf TI allowance
- -----------------------------------------------------------------------------------
WV-4 Westlake Village Flat FSG No free rent $17.40
reported / $17 psf plus utilities
TI allowance
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
WOODLAND HILLS / WARNER CENTER
SUMMARY OF COMPARABLE LEASES
PROFESSIONAL OFFICE TENANTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Item Date of Rounded Initial Annual
No. Market & Location Lease Area (SF) Term Rent (PSF)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
WH-1 Woodland Hills 1st Qtr 10,000 5 years $21.00
1996
- -----------------------------------------------------------------------------------
WH-2 Woodland Hills 1st Qtr 22,000 5 years $19.80
1996
- -----------------------------------------------------------------------------------
WH-3 Woodland Hills 3rd Qtr 12,500 6 years $22.80
1995
- -----------------------------------------------------------------------------------
WH-4 Woodland Hills 3rd Qtr 2,800 5 years $23.40
1995
- -----------------------------------------------------------------------------------
WH-5 Woodland Hills 3rd Qtr 4,500 5 years $22.80
1995
- -----------------------------------------------------------------------------------
WH-6 Woodland Hills 2nd Qtr 2,000 5 years $24.00
1995
- -----------------------------------------------------------------------------------
WH-7 Woodland Hills 2nd Qtr 32,000 7 years $23.40
1995
- -----------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------
Effecive
Item Expense Concessions/ Annual
No. Market & Location Adjustments Basis Comments PSF Rent
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
WH-1 Woodland Hills Mos 31-60: FSG $20 psf TI (blended) $21.30
$21.60 (1/2 space is raw) 5 years
- -----------------------------------------------------------------------------------
WH-2 Woodland Hills None FSG $10 psf TI $19.80
5 years
- -----------------------------------------------------------------------------------
WH-3 Woodland Hills None FSG 2 mos free rent $22.17
$30 psf TI 6 years
- -----------------------------------------------------------------------------------
WH-4 Woodland Hills None FSG $32.50 psf TI $23.40
5 years
- -----------------------------------------------------------------------------------
WH-5 Woodland Hills None FSG $31 psf TI $22.80
5 years
- ----------------------------------------------------------------------------------
WH-6 Woodland Hills None FSG 2 mos free rent $23.20
$32 psf TIL 5 years
- -----------------------------------------------------------------------------------
WH-7 Woodland Hills None FSG After hours electrical $17.75
rate includes included in 7 years
after hours rent (=$4.40 psf ann.)
utilities $30 psf TI
160 spaces free for term.
13 mos free rent
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
ENCINO SUBMARKET
SUMMARY OF COMPARABLE LEASES
PROFESSIONAL OFFICE TENANTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Item Date of Rounded Initial Annual
No. Market & Location Lease Area (SF) Term Rent (PSF)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
E-1 Encino Feb-96 4,600 5 years $19.20
$20.40
- ----------------------------------------------------------------------------------
E-2 Encino Dec-95 5,194 5 years $19.80
$20.99
- -----------------------------------------------------------------------------------
E-3 Encino Nov-95 9,500 6 years $21.00
- -----------------------------------------------------------------------------------
E-4 Encino Nov-95 3,390 5 years $19.80
$20.99
- -----------------------------------------------------------------------------------
E-5 Encino Aug-95 2,082 5 years $18.00
$20.40
- -----------------------------------------------------------------------------------
E-6 Encino Apr-95 5,279 5 years $18.00
- -----------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------
Effective
Item Expense Free Rent / Annual
No. Market & Location Adjustments Basis Tenant Improvements PSF Rent
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
E-1 Encino 1-30 mos FSG No free rent / $19.80
31-60 mos $26.00 raw space
- -----------------------------------------------------------------------------------
E-2 Encino 1-30 mos FSG No free rent / $20.40
31-60 mos $30.00
- -----------------------------------------------------------------------------------
E-3 Encino Flat FSG No free rent / $21.00
$25.00
- -----------------------------------------------------------------------------------
E-4 Encino 1-30 mos FSG 1 month free rent / $20.04
31-60 mos $27.50
- -----------------------------------------------------------------------------------
E-5 Encino 1-30 mos FSG No free rent / $19.20
31-60 mos $18.00
- -----------------------------------------------------------------------------------
E-6 Encino Flat FSG No free rent / $18.00
$25.00
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
SUMMARY OF COMPARABLE LEASES
PROFESSIONAL OFFICE TENANTS
WEST COUNTY SUBMARKETS AS OF 4TH QUARTER 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Item Date of Rounded Initial Annual
No. Market & Location Lease Area (SF) Term Rent (PSF)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
L-1 Fountain Valley Dec-95 11,000 5 years $15.60
- ----------------------------------------------------------------------------------
L-2 Huntington Beach Nov-95 12,000 5 years $17.40
- -----------------------------------------------------------------------------------
L-3 Huntington Beach Nov-95 30,300 5 years $14.40
- -----------------------------------------------------------------------------------
L-4 Huntington Beach Proposal 14,000 5 years $16.20
- -----------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------
Effective
Item Expense Concessions/ Annual
No. Market & Location Adjustments Basis Comments PSF Rent
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
L-1 Fountain Valley Flat FSG 2 Months $15.08
$15.00 TIA
- -----------------------------------------------------------------------------------
L-2 Huntington Beach Flat FSG None $17.40
$16.00 TIA
- -----------------------------------------------------------------------------------
L-3 Huntington Beach Flat FSG 2 Months $13.92
Turnkey
- -----------------------------------------------------------------------------------
L-4 Huntington Beach Flat FSG 2 Months $15.66
Turnkey
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
SUMMARY OF COMPARABLE LEASES
PROFESSIONAL OFFICE TENANTS
IN-FREEWAY SUBMARKETS AS OF 4TH QUARTER 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
ITEM DATE OF ROUNDED INITIAL ANNUAL
NO. MARKET & LOCATION LEASE AREA (SF) TERM RENT (PSF)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
L-1 Stadium Area Jan-96 7,500 2 years $19.80
- ----------------------------------------------------------------------------------
L-2 Stadium Area Aug-95 22,800 6 years $19.80
- -----------------------------------------------------------------------------------
L-3 Stadium Area Jun-95 3,000 5 years $19.20
- -----------------------------------------------------------------------------------
L-4 Main Place Area Jan-96 8,000 10 years $19.80
- -----------------------------------------------------------------------------------
L-5 Main Place Area Jan-96 6,000 10 years $19.80
- -----------------------------------------------------------------------------------
L-6 Main Place Area Feb-96 11,000 5 years $16.80
$18.00
- -----------------------------------------------------------------------------------
L-7 The City Area May-95 12,000 5 years $19.80
- -----------------------------------------------------------------------------------
L-8 The City Area Jan-95 2,000 5 years $19.80
- -----------------------------------------------------------------------------------
L-9 Main Place Area Dec-95 11,500 5 years $19.80
- -----------------------------------------------------------------------------------
L-10 Main Place Area Oct-95 14,500 5 years $19.80
- -----------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------
EFFECTIVE
ITEM EXPENSE CONCESSIONS/ ANNUAL
NO. MARKET & LOCATION ADJUSTMENTS BASIS COMMENTS PSF RENT
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
L-1 Stadium Area Flat FSG 3 Mos Free $17.33
$5.00 TIA
- -----------------------------------------------------------------------------------
L-2 Stadium Area Flat FSG 7 Mos Free $17.87
$27.00 TIA
- -----------------------------------------------------------------------------------
L-3 Stadium Area Flat FSG 5 Mos Free $17.64
$27.00 TIA
- -----------------------------------------------------------------------------------
L-4 Main Place Area Flat FSG None $19.80
$25.00 TIA
- -----------------------------------------------------------------------------------
L-5 Main Place Area Flat FSG Free Rent N/A $16.56
$15.00 TIA
- -----------------------------------------------------------------------------------
L-6 Main Place Area 1-30 mos FSG None $17.40
31-60 mos $28.00 TIA
- -----------------------------------------------------------------------------------
L-7 The City Area Flat FSG N/Av $16.80
$25.00 TIA
- -----------------------------------------------------------------------------------
L-8 The City Area Flat FSG N/Av $19.14
$15.00 TIA
- -----------------------------------------------------------------------------------
L-9 Main Place Area Flat FSG Free Rent N/A $16.68
$22.00 TIA
- -----------------------------------------------------------------------------------
L-10 Main Place Area Flat FSG Free Rent N/A $17.40
$16.00 TIA
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
SUMMARY OF OFFICE BUILDING INVESTMENT ACTIVITY
LOS ANGELES COUNTY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
IMPROVEMENT DESCRIPTION SALES PRICE
- ----------------------------------------------------------------------------------------------------------------------------------
ITEM PROPERTY NAME / DATE OF YEAR NO. OF RENTABLE OCC. @
NO. LOCATION SALE BUILT STORIES AREA (SF) SALE TOTAL PSF OAR
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NORTH LOS ANGELES MARKETS
- ----------------------------------------------------------------------------------------------------------------------------------
I(1) Pasadena Towers 12/95 1989 9 431,588 85% $80,000,000 $185.36 9.25%
800 E. Colorado Blvd. (2 Towers
55 S. Lake Ave. and Retail)
Pasadena, CA
- ----------------------------------------------------------------------------------------------------------------------------------
I(2) 70 S. Lake Ave. 11/95 1982 11 100,580 67% $10,700,000 $106.38 12.3%
Pasadena, CA
- ----------------------------------------------------------------------------------------------------------------------------------
I(3) Encino Spectrum 12/95 1993 3 74,062 100% $11,900,000 $160.68 5.5%
(MPAA Headquarters) Master
15503 Ventura Blvd. Leased $14,000,000 $189.03 9.4%
Los Angeles, CA adjusted
(Encino) for free
rent
- ----------------------------------------------------------------------------------------------------------------------------------
I(4) The Nestle Building 5/95 1990 21 502,029 95% $116,000,000 $231.06 8.2%
800 N. Brand, 3rd
Glendale, CA
- ----------------------------------------------------------------------------------------------------------------------------------
I(5) 16000 Ventura Blvd. 3/95 1981 12 175,255 83% $19,750,000 $112.69 10.9%
Los Angeles, CA prior to with income
(Encino) holdbacks supports
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SUMMARY OF COMPARABLE OFFICE BUILDING INVESTMENT ACTIVITY
LOS ANGELES COUNTY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Improvement Description Sales Price
- ----------------------------------------------------------------------------------------------------------------------------------
Item Property Name / Date of Year No. of Rentable Occ. @
No. Location Sale Built Stories Area (SF) Sale Total PSF OAR
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WESTSIDE MARKETS
- ----------------------------------------------------------------------------------------------------------------------------------
I-1 6167 Bristol Pkwy 8/94 1982 4 82,595 80% Short-term $5,200,000 $ 62.96 14%
Culver City, CA Cash
- ----------------------------------------------------------------------------------------------------------------------------------
I-2 9701 Wilshire Blvd. 9/94 1973 12 102,510 80% $17,950,000 $175.11 9.1%
Beverly Hills, CA
- ----------------------------------------------------------------------------------------------------------------------------------
I-3 Gateway Los Angeles 12/94 1986 13 139,941 78% $17,500,000 $125.05 10.1%
12424 Wilshire Blvd.
Los Angeles, CA
- ----------------------------------------------------------------------------------------------------------------------------------
I-4 100 Corporate Pointe 12/94 1984 3 110,135 70% Short-term $6,500,000 $ 59.02 N/A
Culver City, CA Cash
- ----------------------------------------------------------------------------------------------------------------------------------
I-5 Brentwood Financial 2/95 1982 6 84,672 88% $12,700,000 $149.99 N/A
11726 San Vicente Blvd.
Los Angeles, CA $14,200,000 $167.71
after capital
- ----------------------------------------------------------------------------------------------------------------------------------
I-6 400 Corporate Pointe 6/95 1987 8 164,845 84% $15,800,000 $ 95.85 15.5%
Culver City, CA (Note Purchase) est.
- ----------------------------------------------------------------------------------------------------------------------------------
I-7 Executive Tower 8/95 1989 16 239,875 76% $38,250,000 $159.46 10.8%
11400 W. Olympic Blvd.
Los Angeles, CA
- ----------------------------------------------------------------------------------------------------------------------------------
I-8 414 Camden Dr. 9/95 1972/ 12 64,143 88% $15,800,000 $246.32 9.5%
Beverly Hills, CA renovated
1992
- ----------------------------------------------------------------------------------------------------------------------------------
I-9 9333 Wilshire Blvd. 9/95 1989 4 108,449 7% $20,000,000 $184.42 N/A
Beverly Hills, CA
- ----------------------------------------------------------------------------------------------------------------------------------
I-10 Palisades Promenade 11/95 1989 4 91,854 93% $22,500,000 $244.95 11.0%
120 Broadway Note Purchase
Santa Monica, CA
- ----------------------------------------------------------------------------------------------------------------------------------
I-11 Westwood Terrace 11/95 1987 5 136,160 87% $19,000,000 $139.54 11.7% @
1640 Sepulveda Blvd. Contract
Los Angeles, CA 10.5% @
(West Los Angeles) Market
- ----------------------------------------------------------------------------------------------------------------------------------
I-12 600 Corporate Pointe 03/96 1989 12 266,092 62% $23,300,000 $ 87.56 N/A
Culver City, CA plus garage
retail
- ----------------------------------------------------------------------------------------------------------------------------------
I-13 Wilshire Brentwood Plaza 3/96 1984 15 230,357 85% $38,650,000 $167.78 11.0%
12400 Wilshire Blvd. to decline to includes
Los Angeles, CA 75% lease-up
(Brentwood) 1996 NOI
8.5% est.
@ 75%
- ----------------------------------------------------------------------------------------------------------------------------------
I-14 400 Corporate Pointe 3/96 1987 8 164,845 85% $21,000,000 $127.39 14.0%
Culver City, CA Cash est.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to
the use of our reports on the Arden Predecessors (as defined in the Notes
thereto) dated April 10, 1996, 16000 Ventura dated April 10, 1996, 1950 Sawtelle
dated April 10, 1996, Westwood Terrace, Skyview Center, 4811 and 4900/10 Airport
Plaza Drive and New Wilshire dated September 10, 1996, 70 South Lake and
Calabasas Commerce Center dated April 10, 1996, the 1996 Acquired Properties
dated April 10, 1996, the Acquisition Properties dated April 19, 1996, and Arden
Realty Group, Inc., a Maryland corporation, dated May 1, 1996, in Amendment No.
1 to the Registration Statement filed by Arden Realty Group, Inc. on Form S-11
dated September 16, 1996 and the related Prospectus.
/s/ ERNST & YOUNG LLP
------------------------------------------------------------------------------
Los Angeles, California
September 16, 1996
<PAGE>
EXHIBIT 23.8
CONSENT OF JERRY ASHER
I hereby consent to being named a proposed director of Arden Realty Group,
Inc. and to the use of my name under the heading "MANAGEMENT" in the Prospectus
which is part of this Registration Statement filed by Arden Realty Group, Inc.
on Form S-11, and to the use of my name wherever appearing in this Registration
Statement and the related Prospectus, and any amendments thereto.
Dated: August 28, 1996
/s/ JERRY ASHER
--------------------------------------
Jerry Asher
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ARDEN PREDECESSORS COMBINED BALANCE SHEETS AND THE COMBINED STATEMENTS
OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 JAN-01-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<CASH> 18,247 13,039
<SECURITIES> 0 0
<RECEIVABLES> 5,573 2,873
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 23,820 15,912
<PP&E> 260,997 164,170
<DEPRECIATION> 6,248 3,296
<TOTAL-ASSETS> 286,165 182,379
<CURRENT-LIABILITIES> 4,726 3,398
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 286,165 182,379
<SALES> 0 0
<TOTAL-REVENUES> 24,471 11,692
<CGS> 0 0
<TOTAL-COSTS> 9,082 4,716
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 14,741 5,537
<INCOME-PRETAX> (2,482) (575)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,138) (576)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
