<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-13545
AMB PROPERTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 94-3281941
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
505 MONTGOMERY ST., SAN FRANCISCO, CALIFORNIA 94111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(415) 394-9000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
As of August 1, 1999, there were 86,521,092 shares of the Registrant's
common stock, $0.01 par value per share, outstanding.
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<PAGE> 2
AMB PROPERTY CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and June
30, 1999 (unaudited)...................................... 1
Consolidated Statements of Operations for the six and three
months ended June 30, 1998 and 1999 (unaudited)........... 2
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1999 (unaudited).................. 3
Consolidated Statement of Stockholders' Equity for the six
months ended June 30, 1999 (unaudited).................... 4
Notes to Consolidated Financial Statements (unaudited)...... 5
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations................................. 14
Quantitative and Qualitative Disclosures About Market
Item 3. Risks..................................................... 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 24
Item 2. Changes in Securities and Use of Proceeds................... 24
Item 3. Defaults Upon Senior Securities............................. 24
Item 4. Submission of Matters to a Vote of Security Holders......... 24
Item 5. Other Information........................................... 25
Item 6. Exhibits and Reports on Form 8-K............................ 41
</TABLE>
- ---------------
The following are trademarks of the Company: Strategic Alliance Programs,
Development Alliance Program, Development Alliance Partners, UPREIT Alliance
Program, Institutional Alliance Program, Institutional Alliance Partners,
Management Alliance Program, Customer Alliance Program and Broker Alliance
Program.
i
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
AMB PROPERTY CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND JUNE 30, 1999
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------
<S> <C> <C>
Investments in real estate:
Land and improvements..................................... $ 740,680 $ 666,743
Buildings and improvements................................ 2,445,104 2,116,208
Construction in progress.................................. 183,276 189,099
---------- ----------
Total investments in properties................... 3,369,060 2,972,050
Accumulated depreciation and amortization................. (58,404) (70,032)
---------- ----------
Net investments in properties..................... 3,310,656 2,902,018
Investment in unconsolidated joint venture................ 57,655 58,278
Properties held for divestiture, net...................... 115,050 675,892
---------- ----------
Net investments in real estate.................... 3,483,361 3,636,188
Cash and cash equivalents................................... 25,137 40,130
Other assets................................................ 54,387 56,226
---------- ----------
Total assets...................................... $3,562,885 $3,732,544
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
Secured debt.............................................. $ 734,196 $ 763,587
Unsecured senior debt securities.......................... 400,000 400,000
Unsecured credit facility................................. 234,000 255,000
---------- ----------
Total debt........................................ 1,368,196 1,418,587
Other liabilities........................................... 104,305 120,686
---------- ----------
Total liabilities................................. 1,472,501 1,539,273
Commitments and contingencies............................... -- --
Minority interests.......................................... 325,024 409,662
Stockholders' equity:
Series A preferred stock, cumulative, redeemable, $0.01
par value, 100,000,000 shares authorized, 4,000,000
shares issued and outstanding, $100,000 liquidation
preference............................................. 96,100 96,100
Common stock, $0.01 par value, 500,000,000 shares
authorized, 85,917,520 and 86,518,592 issued and
outstanding............................................ 859 865
Additional paid-in capital................................ 1,668,401 1,679,954
Retained earnings......................................... -- 6,690
---------- ----------
Total stockholders' equity........................ 1,765,360 1,783,609
---------- ----------
Total liabilities and stockholders' equity........ $3,562,885 $3,732,544
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE> 4
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ---------------------------
1998 1999 1998 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Rental revenues........................... $ 159,003 $ 221,187 $ 84,401 $ 113,530
Equity in earnings of unconsolidated joint
venture................................ -- 2,328 -- 1,177
Investment management and other income.... 1,796 1,434 613 670
----------- ----------- ----------- -----------
Total revenues.................... 160,799 224,949 85,014 115,377
OPERATING EXPENSES
Property operating expenses............... 21,231 30,616 11,227 16,117
Real estate taxes......................... 21,273 29,802 11,025 14,767
General and administrative................ 5,862 8,350 3,144 4,278
Interest, including amortization.......... 27,561 46,558 15,720 23,591
Depreciation and amortization............. 25,302 33,602 13,516 15,178
----------- ----------- ----------- -----------
Total operating expenses.......... 101,229 148,928 54,632 73,931
----------- ----------- ----------- -----------
Income from operations before
minority Interests.............. 59,570 76,021 30,382 41,446
Minority interests' share of net income... (3,686) (14,706) (2,404) (8,145)
----------- ----------- ----------- -----------
Net income before gain from
divestiture of real estate...... 55,884 61,315 27,978 33,301
Gain from divestiture of real estate...... -- 11,525 -- 11,525
----------- ----------- ----------- -----------
Net income before extraordinary
items........................... 55,884 72,840 27,978 44,826
Extraordinary items....................... -- (1,509) -- (1,509)
----------- ----------- ----------- -----------
Net income........................ 55,884 71,331 27,978 43,317
Series A preferred stock dividends........ -- (4,250) -- (2,125)
----------- ----------- ----------- -----------
Net income available to common
stockholders.................... $ 55,884 $ 67,081 $ 27,978 $ 41,192
=========== =========== =========== ===========
BASIC INCOME PER COMMON SHARE:
Before extraordinary items................ $ 0.65 $ 0.80 $ 0.33 $ 0.50
Extraordinary items....................... -- (0.02) -- (0.02)
----------- ----------- ----------- -----------
Net income available to common
stockholders.................... $ 0.65 $ 0.78 $ 0.33 $ 0.48
=========== =========== =========== ===========
DILUTED INCOME PER COMMON SHARE:
Before extraordinary items................ $ 0.65 $ 0.80 $ 0.32 $ 0.50
Extraordinary items....................... -- (0.02) -- (0.02)
----------- ----------- ----------- -----------
Net income available to common
stockholders.................... $ 0.65 $ 0.78 $ 0.32 $ 0.48
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic..................................... 85,874,513 86,143,859 85,874,513 86,286,613
=========== =========== =========== ===========
Diluted................................... 86,253,456 86,244,750 86,222,175 86,468,820
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 5
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 55,884 $ 71,331
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 25,302 33,602
Straight-line rents....................................... (5,489) (5,523)
Amortization of debt premiums and financing costs......... (1,274) (1,413)
Minority interests' share of net income................... 3,686 14,706
Gain on divestiture of real estate........................ -- (11,525)
Non-cash portion of extraordinary items................... -- (1,372)
Equity in (earnings) loss of AMB Investment Management.... 95 (720)
Equity in earnings of unconsolidated joint venture........ -- (2,328)
Changes in assets and liabilities:
Other assets.............................................. (6,958) 3,724
Other liabilities......................................... 4,474 16,381
--------- ---------
Net cash provided by operating activities.......... 75,720 116,863
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property acquisitions......................... (246,213) (242,712)
Additions to land, building, development costs, and other
first generation improvements............................. (40,865) (62,009)
Additions to second generation building improvements and
lease costs............................................... (6,341) (12,362)
Acquisition of interest in unconsolidated joint venture..... (67,149) --
Distribution received from unconsolidated joint venture..... -- 1,705
Net proceeds from divestiture of real estate................ -- 214,729
Reduction of payable to affiliates in connection with
Formation Transactions.................................... (38,071) --
--------- ---------
Net cash used in investing activities.............. (398,639) (100,649)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock.................................... -- 549
Borrowings on unsecured credit facility..................... 382,000 236,000
Borrowings on secured debt.................................. 16,914 20,992
Payments on unsecured credit facility....................... (395,000) (215,000)
Payments on secured debt.................................... (59,545) (46,817)
Payments of financing fees.................................. -- (104)
Net proceeds from issuance of senior debt securities........ 399,166 --
Net proceeds from issuance of Series D preferred units...... -- 77,773
Dividends paid to common and preferred stockholders......... (29,413) (63,786)
Distributions to minority interests, including preferred
units..................................................... (2,004) (10,828)
--------- ---------
Net cash provided by financing activities.......... 312,118 (1,221)
--------- ---------
Net increase (decrease) in cash and cash equivalents........ (10,801) 14,993
Cash and cash equivalents at beginning of period............ 39,968 25,137
--------- ---------
Cash and cash equivalents at end of period.................. $ 29,167 $ 40,130
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 26,583 $ 47,108
========= =========
Non-cash transactions:
Acquisitions of properties................................ $ 434,353 $ 314,726
Assumption of debt........................................ (99,623) (57,480)
Minority interest's contribution, including units
issued.................................................. (88,517) (14,534)
--------- ---------
Net cash paid...................................... $ 246,213 $ 242,712
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 6
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
SERIES A ---------------------- ADDITIONAL
PREFERRED NUMBER PAID-IN RETAINED
STOCK OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------------ ------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998... $96,100 85,917,520 $859 $1,668,401 $ -- $1,765,360
Net income................... 4,250 -- -- -- 67,081 71,331
Issuance of restricted stock,
net....................... -- 99,069 1 2,229 -- 2,230
Exercise of stock options.... -- 16,250 -- 342 -- 342
Conversion of Operating
Partnership units......... -- 485,753 5 10,983 -- 10,988
Deferred compensation........ -- -- -- (2,150) -- (2,150)
Deferred compensation
amortization.............. -- -- -- 215 -- 215
Reallocation of Limited
Partners' interests in
Operating Partnership..... -- -- -- (66) -- (66)
Dividends.................... (4,250) -- -- -- (60,391) (64,641)
------- ---------- ---- ---------- -------- ----------
Balance at June 30, 1999....... $96,100 86,518,592 $865 $1,679,954 $ 6,690 $1,783,609
======= ========== ==== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 7
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED, DOLLARS IN THOUSANDS,
EXCEPT PROPERTY STATISTICS, SHARE, PER SHARE AND UNIT AMOUNTS)
1. ORGANIZATION AND FORMATION
AMB Property Corporation, a Maryland corporation (the "Company"), commenced
operations as a fully integrated real estate company effective with the
completion of its initial public offering (the "IPO") on November 26, 1997. The
Company elected to be taxed as a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986 (the "Code"),
commencing with its taxable year ended December 31, 1997, and believes its
current organization and method of operation will enable it to maintain its
status as a REIT. The Company, through its controlling interest in its
subsidiary, AMB Property, L.P., a Delaware limited partnership (the "Operating
Partnership"), is engaged in the acquisition, ownership, operation, management,
renovation, expansion and development of industrial buildings and community
shopping centers in target markets nationwide. Unless the context otherwise
requires, the "Company" means AMB Property Corporation, the Operating
Partnership and its other controlled subsidiaries.
The Company and the Operating Partnership were formed shortly before
consummation of the IPO. AMB Institutional Realty Advisors, Inc., a California
corporation and registered investment advisor (the "Predecessor"), formed AMB
Property Corporation, a wholly owned subsidiary, and merged with and into the
Company (the "Merger") in exchange for 4,746,616 shares of the Company's Common
Stock (the "Common Stock"). In addition, the Company and the Operating
Partnership acquired, through a series of mergers and other transactions, 31.8
million rentable square feet of industrial property and 6.3 million rentable
square feet of retail property in exchange for 65,022,185 shares of the
Company's Common Stock, 2,542,163 limited partner interests ("LP Units") in the
Operating Partnership, the assumption of debt and, to a limited extent, cash.
The net assets of the Predecessor and the properties acquired with Common Stock
were contributed to the Operating Partnership in exchange for 69,768,801 LP
Units. The purchase method of accounting was applied to the acquisition of the
properties. Collectively, the Merger and the other formation transactions
described above are referred to as the "Formation Transactions."
On November 26, 1997, the Company completed its IPO of 16,100,000 shares of
Common Stock, $0.01 par value per share, for $21.00 per share, resulting in
gross offering proceeds of approximately $338,100. The net proceeds of
approximately $300,032 were used to repay indebtedness, to purchase interests
from certain investors who elected not to receive Common Stock or LP Units in
connection with the Formation Transactions, to fund property acquisitions, and
for general corporate working capital requirements.
As of June 30, 1999, the Company owned an approximate 95.0% general partner
interest in the Operating Partnership, excluding preferred units. The remaining
5.0% limited partner interest is owned by nonaffiliated investors. For local law
purposes, properties in certain states are owned through limited partnerships
and limited liability companies owned 99% by the Operating Partnership and 1% by
a wholly owned subsidiary of the Company. The ownership of such properties
through such entities does not materially affect the Company's overall ownership
of the interests in the properties. As the sole general partner of the Operating
Partnership, the Company has the full, exclusive and complete responsibility and
discretion in the day-to-day management and control of the Operating
Partnership.
In connection with the Formation Transactions, the Operating Partnership
formed AMB Investment Management, Inc., a Maryland corporation ("AMB Investment
Management"). The Operating Partnership purchased 100% of AMB Investment
Management's non-voting preferred stock (representing a 95% economic interest
therein). Certain current and former executive officers of the Company and an
officer of AMB Investment Management collectively purchased 100% of AMB
Investment Management's voting common stock (representing a 5% economic interest
therein). AMB Investment Management was formed to succeed to the Predecessor's
investment management business of providing real estate investment management
services on a fee basis to clients. The Operating Partnership also owns 100% of
the non-voting preferred stock
5
<PAGE> 8
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED, DOLLARS IN THOUSANDS,
EXCEPT PROPERTY STATISTICS, SHARE, PER SHARE AND UNIT AMOUNTS)
of Headlands Realty Corporation, a Maryland corporation (representing a 95%
economic interest therein). Certain executive officers of the Company and a
director of Headlands Realty Corporation collectively own 100% of the voting
common stock of Headlands Realty Corporation (representing a 5% economic
interest therein). Headlands Realty Corporation invests in properties and
interests in entities that engage in the management, leasing and development of
properties and similar activities. The Operating Partnership accounts for its
investment in AMB Investment Management and Headlands Realty Corporation using
the equity method of accounting.
As of June 30, 1999, the Company owned 677 industrial buildings (the
"Industrial Properties") and 29 retail centers (the "Retail Properties") located
in 26 markets throughout the United States. The Industrial Properties,
principally warehouse distribution buildings, encompass approximately 61.9
million rentable square feet and, as of June 30, 1999, were 95.8% leased to over
2,100 tenants. The Retail Properties, principally grocer-anchored community
shopping centers, encompass approximately 5.7 million rentable square feet and,
as of June 30, 1999, were 94.2% leased to over 700 tenants. The Industrial
Properties and the Retail Properties collectively are referred to as the
"Properties."
2. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and note disclosures normally included in the
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The consolidated financial
statements for prior periods have been reclassified to conform to current
classifications with no effect on results of operations. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments, of a normal recurring nature, necessary for a fair presentation
of the Company's consolidated financial position and results of operations for
the interim periods.
The interim results of the six and three months ended June 30, 1998 and
1999 are not necessarily indicative of the results expected for the entire year.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
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.
3. REAL ESTATE ACQUISITION AND DEVELOPMENT ACTIVITY
During the second quarter of 1999, the Company acquired $200,845 in
operating properties, consisting of 62 industrial buildings, aggregating 3.1
million square feet. The Company did not initiate any new development projects
during the quarter. Two development projects, aggregating approximately 0.2
million square feet, were completed during the quarter, at a total aggregate
cost of $7,800. As of June 30, 1999, the Company had 14 industrial projects,
aggregating approximately 3.7 million square feet, in its development pipeline,
with a total estimated cost of $180,300 upon completion, and two retail
projects, aggregating approximately 0.3 million square feet, in its development
pipeline, with a total estimated cost of $46,100 upon completion.
6
<PAGE> 9
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED, DOLLARS IN THOUSANDS,
EXCEPT PROPERTY STATISTICS, SHARE, PER SHARE AND UNIT AMOUNTS)
4. PROPERTY HELD FOR DIVESTITURE AND PROPERTY DIVESTITURE
On March 9, 1999, the Operating Partnership signed three separate
definitive agreements with BPP Retail, LLC ("BPP Retail"), a co-investment
entity between Burnham Pacific ("BPP") and the California Public Employees'
Retirement System ("CalPERS"), pursuant to which, if fully consummated, BPP
Retail would have acquired up to 28 retail shopping centers, totaling
approximately 5.1 million square feet, for an aggregate price of $663,400. The
sale of five of the properties is subject to the consent of the Company's joint
venture partners. One of the Company's joint venture partners who holds an
interest in three of the properties has indicated that it will not consent to
the sale of these properties at this time. The Company has received consents
from its joint venture partners for the sale of the other two properties. As a
result, the price with respect to the 25 remaining properties, totaling
approximately 4.3 million square feet, is approximately $560,400. The Company
intends to dispose of these three properties or its interests in the joint
ventures through which it holds the properties.
Pursuant to the agreements, BPP Retail will acquire the 25 centers in
separate transactions. Under the agreements, the Operating Partnership has the
right to extend the closing dates for a period of up to either 20 or 50 days.
The Operating Partnership has exercised this right with respect to the first and
second transactions, which occurred on June 15, 1999 and August 4, 1999,
respectively. Pursuant to the closing of the first transaction, BPP Retail
acquired nine retail shopping centers, totaling approximately 1.4 million square
feet, for an aggregate price of approximately $207,400. The Company used the
proceeds from the first transaction to repay secured debt related to the
properties divested, to partially repay amounts outstanding under the Company's
unsecured credit facility, to pay transaction expenses, for potential
acquisitions and for general corporate purposes. This divestiture resulted in an
approximate gain of $11,800 and an approximate extraordinary loss of $1,500,
consisting of prepayment penalties with an off-set for debt premium write-off
related to the indebtedness extinguished. On August 4, 1999, the second
transaction with BPP Retail closed. Pursuant to the closing of the second
transaction, BPP Retail acquired 12 of the Company's retail shopping centers,
totaling approximately 2.1 million square feet, for an aggregate price of
$245,800. The Company used the proceeds from the second transaction to repay
secured debt related to the properties divested, to partially repay amounts
outstanding under the Company's unsecured credit facility, to pay transaction
expenses, for potential acquisitions and for general corporate purposes. The
Company currently expects the third transaction to close on or about December 1,
1999.
In addition, the Operating Partnership entered into a definitive agreement,
subject to a financing condition, with BPP, pursuant to which, if fully
consummated, BPP would have acquired up to six additional retail centers,
totaling approximately 1.5 million square feet, for approximately $284,400. On
June 30, 1999, this agreement was terminated pursuant to its terms as a result
of BPP's decision not to waive the financing condition. The Company currently
intends to dispose of the six retail properties, either on an individual or
portfolio basis, or its interests in the joint ventures through which it holds
the properties.
The Company intends to use the proceeds of approximately $107,200 from the
divestiture of the remaining four retail centers to BPP Retail in the third
transaction to pay approximately $26,500 in partial repayment of amounts
outstanding under the Company's unsecured credit facility, to pay transaction
expenses, for potential acquisitions and for general corporate purposes.
In connection with the BPP Retail transactions, the Company has granted
CalPERS an option to purchase up to 2,000,000 shares of the Company's common
stock for an exercise price of $25.00 per share that CalPERS may exercise on or
before March 31, 2000. The Company has registered the 2,000,000 shares of common
stock issuable upon exercise of the option.
7
<PAGE> 10
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED, DOLLARS IN THOUSANDS,
EXCEPT PROPERTY STATISTICS, SHARE, PER SHARE AND UNIT AMOUNTS)
Although the remaining transaction with BPP Retail has a discretionary due
diligence period, it is subject to certain customary closing conditions, which
are generally applied on a property-by-property basis. BPP has announced that it
has received and is reviewing a merger proposal. The Company does not believe
that the contractual obligations of BPP Retail with respect to the purchase of
the retail centers will be affected by any resulting merger. BPP Retail has
posted a deposit of $8,375 on the remaining transaction. BPP Retail's liability
in the event of its default under a definitive agreement is limited to its
deposit. Although the Company believes that the remaining transaction with BPP
Retail is probable, the transaction might not close as scheduled or close at
all, and it is possible that the transaction may close with respect to just a
portion of the properties currently subject to the agreement.
As of June 30, 1999, the net carrying value of the properties held for
divestiture, comprised of 25 retail centers and 16 industrial buildings, was
$675,892. Certain of the properties included in these transactions are subject
to indebtedness which totaled $150,520 as of June 30, 1999.
The following summarizes the condensed results of operations of the
properties held for divestiture for the six and three months ended June 30, 1998
and 1999:
<TABLE>
<CAPTION>
PROPERTIES HELD FOR DIVESTITURE
-------------------------------------------------------
INDUSTRIAL RETAIL TOTAL
--------------- ----------------- -----------------
SIX MONTHS ENDED JUNE 30, 1998 1999 1998 1999 1998 1999
------------------------- ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income..................................... $2,390 $2,311 $40,154 $43,230 $42,544 $45,541
Property operating expenses................ 481 554 11,988 12,667 12,469 13,221
------ ------ ------- ------- ------- -------
Net operating income..................... $1,909 $1,757 $28,166 $30,563 $30,075 $32,320
====== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
INDUSTRIAL RETAIL TOTAL
--------------- ----------------- -----------------
THREE MONTHS ENDED JUNE 30, 1998 1999 1998 1999 1998 1999
--------------------------- ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income..................................... $1,204 $1,223 $20,017 $21,691 $21,221 $22,914
Property operating expenses................ 223 305 6,163 6,274 6,386 6,579
------ ------ ------- ------- ------- -------
Net operating income..................... $ 981 $ 918 $13,854 $15,417 $14,835 $16,335
====== ====== ======= ======= ======= =======
</TABLE>
In June 1999, the Company also divested itself of one industrial building
located in Bolingbrook, Illinois, aggregating 0.3 million square feet. The
building was divested at a gross price of $10,500.
8
<PAGE> 11
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED, DOLLARS IN THOUSANDS,
EXCEPT PROPERTY STATISTICS, SHARE, PER SHARE AND UNIT AMOUNTS)
5. DEBT
As of December 31, 1998 and June 30, 1999, debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------
<S> <C> <C>
Secured debt, varying interest rates from 4.0% to 10.0% due
May 2000 to April 2014.................................... $ 718,979 $ 750,623
Unsecured senior debt securities, weighted average Interest
rate of 7.2%, due June 2008, June 2015 and June 2018...... 400,000 400,000
Unsecured credit facility, variable interest at LIBOR plus
90 to 120 basis points (6.6% at June 30, 1999, based on
30-day LIBOR of 5.2%), due November 2000.................. 234,000 255,000
---------- ----------
Subtotal.................................................. 1,352,979 1,405,623
Unamortized debt premiums................................. 15,217 12,964
---------- ----------
Total consolidated debt................................. $1,368,196 $1,418,587
========== ==========
</TABLE>
Secured debt generally requires monthly principal and interest payments.
The secured debt is secured by deeds of trust on certain Properties. As of June
30, 1999, the total gross investment value of those Properties secured by debt
was $1,435,550. All of the secured debt bears interest at fixed rates, except
for two loans with an aggregate principal amount of $10,491 which bear interest
at a variable rate. The secured debt has various financial and non-financial
covenants. Additionally, certain of the secured debt is cross-collateralized. In
the second quarter of 1999, as part of a property acquisition transaction, the
Company assumed $13,724 of secured debt at a weighted average interest rate of
9.9%, maturing between October 2000 and January 2005.
Interest on the senior debt securities is payable semiannually in each June
and December commencing December 1998. The 2015 notes are putable and callable
in June 2005. The senior debt securities are subject to various financial and
non-financial covenants.
The Company has a $500,000 unsecured revolving credit agreement (the
"Credit Facility") with Morgan Guaranty Trust Company of New York, as agent, and
a syndicate of twelve other banks. The Credit Facility has an original term of
three years and is subject to a fee that accrues on the daily average undrawn
funds, which varies between 15 and 25 basis points of the undrawn funds based on
the Company's credit rating. The Credit Facility has various financial and
non-financial covenants.
Capitalized interest related to construction projects for the six and three
months ended June 30, 1998 and 1999 was $3,098, $5,457, $1,845 and $2,874,
respectively.
The scheduled maturities of the Company's total debt, excluding unamortized
debt premiums, as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
UNSECURED
SENIOR UNSECURED
SECURED DEBT CREDIT
DEBT SECURITIES FACILITY TOTAL
-------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1999 (six months).............................. $ 7,470 $ -- $ -- $ 7,470
2000........................................... 44,861 -- 255,000 299,861
2001........................................... 43,944 -- -- 43,944
2002........................................... 62,612 -- -- 62,612
2003........................................... 108,790 -- -- 108,790
2004........................................... 92,557 -- -- 92,577
2005........................................... 69,212 100,000 -- 169,212
2006........................................... 145,874 -- -- 145,874
2007........................................... 38,504 -- -- 38,504
2008........................................... 127,742 175,000 -- 302,742
Thereafter..................................... 9,057 125,000 -- 134,057
-------- -------- -------- ----------
Subtotal....................................... $750,623 $400,000 $255,000 $1,405,623
======== ======== ======== ==========
</TABLE>
9
<PAGE> 12
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED, DOLLARS IN THOUSANDS,
EXCEPT PROPERTY STATISTICS, SHARE, PER SHARE AND UNIT AMOUNTS)
6. MINORITY INTERESTS IN CONSOLIDATED JOINT VENTURE
Minority interests in the Company represent the limited partnership
interests in the Operating Partnership and interests held by certain third
parties (some of which are Institutional Alliance Partners) in 18 joint
ventures, through which 21 properties are held, that are consolidated for
financial reporting purposes. Such investments are consolidated because (i) the
Company owns a majority interest or (ii) the Company holds significant control
over the entity through a 50% or greater ownership interest combined with the
ability to control major operating decisions such as approval of budgets,
selection of property managers and changes in financing.
The following table distinguishes the minority interest ownership held by
certain joint venture partners, Institutional Alliance Partners, the limited
partners in the Operating Partnership, the Series B Preferred Unit holders'
interest in the Operating Partnership, the Series C Preferred Unit holders'
interest in an indirect subsidiary of the Company and the Series D Preferred
Unit holders' interest in an indirect subsidiary of the Company, as of the
quarter ended June 30, 1999 and for the six and three months ended June 30,
1999.
<TABLE>
<CAPTION>
MINORITY INTEREST SHARE
OF NET INCOME
------------------------------
MINORITY INTEREST SIX MONTHS THREE MONTHS
LIABILITY AS OF ENDED ENDED
JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999
----------------- ------------- -------------
<S> <C> <C> <C>
Joint venture partners............................. $ 17,780 $ 910 $ 554
Institutional Alliance Partners.................... 56,023 1,800 741
Limited partners in the Operating Partnership...... 89,900 3,521 2,183
Series B Preferred Units (liquidation preference of
$65,000)......................................... 62,320 2,804 1,402
Series C Preferred Units (liquidation preference of
$110,000)........................................ 105,866 4,812 2,406
Series D Preferred Units (liquidation preference of
$79,767)......................................... 77,773 859 859
-------- ------- ------
$409,662 $14,706 $8,145
======== ======= ======
</TABLE>
7. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
The Company has a 56.1% non-controlling limited partnership interest in one
unconsolidated equity investment joint venture which was purchased in June 1998.
The joint venture owns 36 industrial buildings totaling approximately 4.0
million square feet in the Chicago market. For the six and three month periods
ended June 30, 1999, the Company's share of net operating income was $3,992 and
$2,014, respectively, and as of June 30, 1999, the Company's share of the
unconsolidated joint venture debt was $19,472, which had a weighted average
interest rate of 6.49%.
8. STOCKHOLDERS' EQUITY
On June 4, 1999, the Company and the Operating Partnership declared a
quarterly cash distribution of $0.35 per share of common stock and LP Unit, for
the quarter ending June 30, 1999, payable on July 15, 1999, to stockholders and
unitholders of record as of July 6, 1999. On June 4, 1999, the Company declared
a cash dividend of $0.53125 per share on its Series A Preferred Stock, and the
Operating Partnership declared a cash distribution of $0.53125 per unit on its
Series A Preferred Units, for the three month period ending July 14, 1999,
payable on July 15, 1999, to stockholders and unitholders of record as of June
30, 1999.
10
<PAGE> 13
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED, DOLLARS IN THOUSANDS,
EXCEPT PROPERTY STATISTICS, SHARE, PER SHARE AND UNIT AMOUNTS)
9. INCOME PER SHARE
The Company's only dilutive securities outstanding for the six and three
months ended June 30, 1998 and 1999 were stock options granted under its stock
incentive plan. The effect of the stock options was to increase weighted average
shares outstanding by 378,943 and 100,891 shares for the six months ended June
30, 1998 and 1999, respectively, and by 347,662 and 182,206 shares for the three
months ended June 30, 1998 and 1999, respectively. Such dilution was computed
using the treasury stock method.
10. SEGMENT INFORMATION
The Company has two reportable segments: Industrial Properties and Retail
Properties. The Industrial Properties consist primarily of warehouse
distribution facilities suitable for single or multiple tenants and are
typically comprised of multiple buildings and are leased to tenants engaged in
various types of businesses. The Retail Properties are generally leased to one
or more anchor tenants, such as grocery and drug stores, and various retail
businesses. The accounting policies of the segments are the same as those
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. The Company evaluates performance based upon property net
operating income and contribution to funds from operations ("FFO") from the
combined properties in each segment. The Company's properties are managed
separately because each segment requires different operating, pricing and
leasing strategies. Significant information used by the Company for the
reportable segments is as follows:
<TABLE>
<CAPTION>
INDUSTRIAL PROPERTIES RETAIL PROPERTIES TOTAL PROPERTIES
------------------------- -------------------------------- -------------------------
SIX MONTHS THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED ENDED ENDED
---------- ------------ ----------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
RENTAL REVENUES:
June 30, 1998......... $106,583 $57,918 $52,420 $26,483 $159,003 $ 84,401
June 30, 1999......... 164,760 87,161 56,427 26,369 221,187 113,530
PROPERTY NET OPERATING
INCOME AND CONTRIBUTION
TO FFO(1):
June 30, 1998......... 79,849 43,793 36,650 18,356 116,499 62,149
June 30, 1999......... 121,049 64,566 39,720 18,080 160,769 82,646
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT IN PROPERTIES INDUSTRIAL PROPERTIES RETAIL PROPERTIES TOTAL PROPERTIES
------------------------ --------------------- ----------------- ----------------
<S> <C> <C> <C>
As of:
December 31, 1998(2).... $2,574,940 $794,120 $3,369,060
June 30, 1999(3)........ 2,926,321 45,729 2,972,050
</TABLE>
- ---------------
(1) Property net operating income (NOI) and contribution to FFO are defined as
rental revenue, including reimbursements and straight-line rents, less
property level operating expenses, including allocated asset management
costs and excluding depreciation, amortization and interest expense.
(2) Excludes net properties held for divestiture of $21,434, $93,616 and
$115,050 for Industrial, Retail and Total Properties, respectively.
(3) Excludes net properties held for divestiture of $38,326, $637,566 and
$675,892 for Industrial, Retail and Total Properties, respectively.
11
<PAGE> 14
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED, DOLLARS IN THOUSANDS,
EXCEPT PROPERTY STATISTICS, SHARE, PER SHARE AND UNIT AMOUNTS)
The Company uses property net operating income and FFO as operating
performance measures. The following two tables are reconciliations between total
reportable segment revenue, property net operating income and FFO contribution
to consolidated revenues, net income and FFO.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- ---------------------
1998 1999 1998 1999
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Total rental revenues for reportable segments............... $159,003 $221,187 $ 84,401 $113,530
Investment management and other income...................... 1,796 3,762 613 1,847
-------- -------- -------- --------
Total consolidated revenues................................. $160,799 $224,949 $ 85,014 $115,377
======== ======== ======== ========
NET INCOME
Property net operating income and contribution to FFO for
reportable segments....................................... $116,499 $160,769 $ 62,149 $ 82,646
Equity in earnings of unconsolidated joint venture.......... -- 2,328 -- 1,177
Investment management and other income...................... 1,796 1,434 613 670
Less:
General and administrative................................ (5,862) (8,350) (3,144) (4,278)
Interest expense.......................................... (27,561) (46,558) (15,720) (23,591)
Depreciation and amortization............................. (25,302) (33,602) (13,516) (15,178)
Minority interests........................................ (3,686) (14,706) (2,404) (8,145)
-------- -------- -------- --------
Net income before gain from divestiture of real estate...... $ 55,884 $ 61,315 $ 27,978 $ 33,301
Gain from divestiture of real estate........................ -- 11,525 -- 11,525
Extraordinary items......................................... -- (1,509) -- (1,509)
-------- -------- -------- --------
Net income.................................................. $ 55,884 $ 71,331 $ 27,978 $ 43,317
======== ======== ======== ========
FFO(1)
Net income.................................................. $ 55,884 $ 71,331 $ 27,978 $ 43,317
Minority interests' share of net income..................... 3,686 14,706 2,404 8,145
Gain from divestiture of real estate........................ -- (11,525) -- (11,525)
Extraordinary items......................................... -- 1,509 -- 1,509
Real estate depreciation and amortization:
Total depreciation and amortization....................... 25,302 33,602 13,516 15,178
Furniture, fixtures, and equipment depreciation........... (215) (364) (111) (250)
FFO attributable to minority interests(2):
Institutional Alliance Partners........................... (1,129) (2,635) (1,003) (1,161)
Other joint venture partners.............................. (959) (1,109) (510) (558)
Adjustment to derive FFO in unconsolidated joint venture(3):
Company's share of net income............................. -- (2,328) -- (1,177)
Company's share of FFO.................................... -- 3,316 -- 1,671
Series A preferred stock dividends.......................... -- (4,250) -- (2,125)
Series B, C & D preferred unit distributions................ -- (8,475) -- (4,667)
-------- -------- -------- --------
FFO......................................................... $ 82,569 $ 93,778 $ 42,274 $ 48,357
======== ======== ======== ========
</TABLE>
- ---------------
(1) FFO is defined as income from operations before minority interest, gains or
losses from sale of real estate and extraordinary losses plus real estate
depreciation and adjustment to derive the Company's pro rata share of the
FFO of unconsolidated joint ventures, less minority interests' pro rata
share of the FFO of consolidated joint ventures and perpetual preferred
stock dividends. In accordance with NAREIT White Paper on FFO, the Company
includes the effects of straight-line rents in FFO. Further, the Company
does not adjust FFO to eliminate the effects of non-recurring charges.
(2) Represents FFO attributable to minority interests in consolidated joint
ventures for the periods presented, which has been computed as minority
interests' share of net income before disposal of properties plus minority
interests' share of real estate-related depreciation and amortization of the
consolidated joint ventures for such periods. Such minority interests are
not exchangeable into shares of Common Stock.
(3) Represents the Company's pro rata share of FFO in unconsolidated joint
ventures for the periods presented, which has been computed as the Company's
share of net income plus the Company's share of real estate-related
depreciation and amortization of the unconsolidated joint venture for such
periods.
12
<PAGE> 15
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED, DOLLARS IN THOUSANDS,
EXCEPT PROPERTY STATISTICS, SHARE, PER SHARE AND UNIT AMOUNTS)
11. COMMITMENTS AND CONTINGENCIES
Litigation
In the normal course of business, from time to time, the Company is
involved in legal actions relating to the ownership and operations of its
Properties. In management's opinion, the liabilities, if any, that may
ultimately result from such legal actions are not expected to have a materially
adverse effect on the consolidated financial position, results of operations, or
cash flows of the Company.
Environmental Matters
The Company follows the policy of monitoring its properties for the
presence of hazardous or toxic substances. The Company is not aware of any
environmental liability with respect to the Properties that would have a
material adverse effect on the Company's business, assets or results of
operations. There can be no assurance that such a material environmental
liability does not exist. The existence of any such material environmental
liability would have an adverse effect on the Company's results of operations
and cash flow.
General Uninsured Losses
The Company carries comprehensive liability, fire, flood, environmental,
extended coverage and rental loss insurance with policy specifications, limits
and deductibles which the Company believes are adequate and appropriate under
the circumstances given the relative risk of loss, the cost of such coverage and
industry practice. There are, however, certain types of extraordinary losses
that may be either uninsurable, or not economically insurable. Certain of the
Properties are located in areas that are subject to earthquake activity; the
Company has therefore obtained limited earthquake insurance. Should an uninsured
loss occur, the Company could lose its investment in, and anticipated profits
and cash flows, from a Property.
13
<PAGE> 16
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion and analysis of the consolidated
financial condition and results of operations in conjunction with the Notes to
Consolidated Financial Statements. Statements contained in this discussion which
are not historical facts may be forward looking statements. You can identify
forward-looking statements by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates" or "anticipates" or the negative of
these words and phrases or similar words or phrases. You can also identify
forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements involve numerous risks and uncertainties and you
should not rely upon them as predictions of future events. There is no assurance
that the events or circumstances reflected in forward-looking statements will be
achieved or occur. Forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and we may not
be able to realize them. The following factors, among others, could cause actual
results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or non-renewal of
leases by tenants, increased interest rates and operating costs, failure to
obtain necessary outside financing, difficulties in identifying properties to
acquire and in effecting acquisitions, our failure to successfully integrate
acquired properties and operations, our failure to divest of properties we have
contracted to sell or to timely reinvest proceeds from any such divestitures,
risks and uncertainties affecting property development and construction
(including, construction delays, cost overruns, our inability to obtain
necessary permits and public opposition to these activities), our failure to
qualify and maintain our status as a real estate investment trust under the
Internal Revenue Code of 1986, as amended, environmental uncertainties, risks
related to natural disasters, financial market fluctuations, changes in real
estate and zoning laws and increases in real property tax rates. Our success
also depends upon economic trends generally, including interest rates, income
tax laws, governmental regulation, legislation, population changes and those
risk factors discussed in Item 5 of this report. We caution you not to place
undue reliance on forward-looking statements, which reflect our analysis only
and speak only as of the date of this report or the dates indicated in the
statements.
Unless we indicate otherwise or unless the context requires otherwise, all
references in this report to "AMB" and the "Company" mean AMB Property
Corporation and all references to the "operating partnership" mean AMB Property,
L.P. Unless we indicate otherwise or unless the context requires otherwise, all
references in this report to "we," "us," or "our" mean AMB and its subsidiaries,
including the operating partnership and its subsidiaries.
THE COMPANY
As of June 30, 1999, we owned and operated industrial buildings and retail
centers totaling 67.6 million square feet located in 26 markets nationwide. As
of June 30, 1999, we owned 677 industrial buildings, principally warehouse
distribution buildings, aggregating 61.9 million rentable square feet, which
were 95.8% leased, and 29 retail centers, principally grocer-anchored community
shopping centers, aggregating 5.7 million rentable square feet, which were 94.2%
leased. In addition, as of the same date we had an interest in an unconsolidated
joint venture that owns 36 industrial buildings aggregating 4.0 million square
feet and we operated properties aggregating 3.8 million, 0.4 million, and 0.1
million square feet of industrial, retail, and other properties, respectively,
on behalf of investment management clients.
On March 9, 1999, we signed three separate definitive agreements with BPP
Retail, LLC, a co-investment entity between Burnham Pacific and the California
Public Employees' Retirement System, pursuant to which, if fully consummated,
BPP Retail would have acquired up to 28 of our retail shopping centers, totaling
approximately 5.1 million square feet, for an aggregate price of $663.4 million.
The sale of five of the properties is subject to the consent of our joint
venture partners. One of our joint venture partners who holds an interest in
three of the properties has indicated that it will not consent to the sale of
these properties at this time. We have received consents from our joint venture
partners for the sale of the other two properties. As a result, the price with
respect to the 25 remaining properties, totaling approximately 4.3 million
square
14
<PAGE> 17
feet, is approximately $560.4 million. We intend to dispose of these three
properties or our interests in the joint ventures through which we hold the
properties.
Pursuant to the agreements, BPP Retail will acquire the 25 centers in
separate transactions. Under the agreements, we have the right to extend the
closing dates for a period of up to either 20 or 50 days. We have exercised this
right with respect to the first and second transactions, which closed on June
15, 1999 and August 4, 1999, respectively. Pursuant to the closings of the first
and second transactions, BPP Retail acquired 21 retail shopping centers,
totaling approximately 3.5 million square feet, for an aggregate price of
approximately $453.2 million. We used the proceeds from the first and second
transactions to repay secured debt related to the properties divested of
approximately $55.5 million, to pay approximately $210.0 million in partial
repayment of amounts outstanding under our unsecured credit facility, to pay
transaction expenses, for potential acquisitions and for general corporate
purposes. We currently expect the third transaction to close on or about
December 1, 1999.
In addition, we entered into a definitive agreement, subject to a financing
condition, with Burnham Pacific, pursuant to which, if fully consummated,
Burnham Pacific would have acquired up to six additional retail centers,
totaling approximately 1.5 million square feet, for approximately $284.4
million. On June 30, 1999, this agreement was terminated pursuant to its terms
as a result of Burnham Pacific's decision not to waive the financing condition.
We currently intend to dispose of the six retail properties, either on an
individual or portfolio basis, or our interests in the joint ventures through
which we hold the properties.
We intend to use the proceeds of approximately $107.2 million from the
divestiture of the remaining four retail centers to BPP Retail in the third
transaction to pay approximately $26.5 million in partial repayment of amounts
outstanding under our unsecured credit facility, to pay transaction expenses,
for potential acquisitions and for general corporate purposes.
In connection with the BPP Retail transactions, AMB has granted the
California Public Employee's Retirement System an option to purchase up to
2,000,000 shares of AMB's common stock for an exercise price of $25.00 per share
that the California Public Employees' Retirement system may exercise on or
before March 31, 2000. AMB had registered the 2,000,000 shares of common stock
issuable upon exercise of the option.
Although the remaining transaction with BPP Retail has a discretionary due
diligence period, it is subject to certain customary closing conditions, which
are generally applied on a property-by-property basis. Burnham Pacific has
announced that it has received and is reviewing a merger proposal. We do not
believe that the remaining contractual obligations of BPP Retail with respect to
the purchase of the retail centers will be affected by any resulting merger. BPP
Retail has posted a deposit of $8.4 million on the remaining transaction. BPP
Retail's liability in the event of its default under a definitive agreement is
limited to its deposit. Although we believe that the remaining transaction with
BPP Retail is probable, the transaction might not close as scheduled or close at
all, and it is possible that the transaction may close with respect to just a
portion of the properties currently subject to the agreement.
ACQUISITION AND DEVELOPMENT ACTIVITY
During the second quarter, we acquired $200.8 million in operating
properties, consisting of 62 industrial buildings, aggregating 3.1 million
square feet. We also completed two development projects, aggregating
approximately 0.2 million square feet, during the quarter, with an aggregate
total cost of $7.8 million. As of June 30, 1999, we had 14 industrial projects,
aggregating approximately 3.7 million square feet, in our development pipeline,
with an aggregate total estimated cost of $180.3 million upon completion, and
two retail projects, aggregating approximately 0.3 million square feet, in our
development pipeline, with an aggregate estimated cost of $46.1 million upon
completion.
15
<PAGE> 18
STRATEGIC ALLIANCE PROGRAMS
We believe that our strategy of forming strategic alliances with local and
regional real estate experts improves our operating efficiency and flexibility,
strengthens our customer satisfaction and retention and provides us with
attractive growth opportunities. Additionally, our strategic alliances with
institutional investors enhance our access to private capital and our ability to
finance transactions.
Our six Strategic Alliance Programs can be grouped into two categories:
- Operating Alliances, which allow us to form relationships with local or
regional real estate experts, thereby becoming their ally rather than
their competitor; and
- Investment Alliances, which allow us to establish relationships with a
variety of capital sources.
OPERATING ALLIANCES
MANAGEMENT ALLIANCE PROGRAM: Our strategy for the Management Alliance
Program is to develop close relationships with, and outsource property
management to, local property managers that we believe to be among the best in
their respective markets. Our alliances with local property managers increase
our flexibility, reduce our overhead expenses and improve our customer service.
In addition, these alliances provide us with local market information related to
tenant activity and acquisition opportunities. During the quarter ended June 30,
1999, we acquired four industrial buildings, aggregating 0.4 million square
feet, sourced through our Management Alliance Program.
DEVELOPMENT ALLIANCE PROGRAM: Our strategy for our Development Alliance
Program is to form alliances with development firms with a strong local presence
and expertise. As of June 30, 1999, over 80% of our development projects were
being developed by our Development Alliance Partners.
CUSTOMER ALLIANCE PROGRAM: Through our Customer Alliance Program, we seek
to build long-term working relationships with major tenants. We are committed to
working with our tenants, particularly our larger tenants with multi-site
requirements, to make their property searches as efficient as possible.
BROKER ALLIANCE PROGRAM: Through our Broker Alliance Program, we work
closely with top local leasing companies in each of our markets, which brokers
provide us with access to high quality tenants and local market knowledge.
INVESTMENT ALLIANCES
UPREIT ALLIANCE PROGRAM: Through our UPREIT Alliance Program, we issue
limited partnership units in the operating partnership to certain property
owners in exchange for properties, thus providing additional growth for our
portfolio. During the quarter ended June 30, 1999, we acquired 51 industrial
buildings, aggregating 1.7 million square feet, sourced through our UPREIT
Alliance Program.
INSTITUTIONAL ALLIANCE PROGRAM: Our strategy for our Institutional Alliance
Program is to form alliances with institutional investors. Our alliances with
institutional investors provide us with access to private capital, including
during those times when the public markets are less attractive, as well as
providing us with a source of incremental fee income and investment returns.
RESULTS OF OPERATIONS
The analysis below shows changes in our results of operations for the six
and three months ended June 30, 1999 and 1998 which includes changes
attributable to acquisitions and development activity, and the changes resulting
from properties that we owned during both the current and prior year reporting
periods, excluding development properties prior to being stabilized (generally
defined as 95.0% leased) for both the current and prior periods (the "same store
properties"). For the comparison between the six and three month periods ended
June 30, 1999 and 1998, the same store properties consist of properties
aggregating 40.4 million square feet. Our future financial condition and results
of operations, including rental revenues, may be impacted by
16
<PAGE> 19
the acquisition of additional properties. Our future revenues and expenses may
vary materially from their historical rates.
SIX AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Rental revenues. Rental revenues, including straight-line rents, tenant
reimbursements and other property related income, increased by $62.2 and $29.1
million, or 39% and 35%, for the six and three months ended June 30, 1999, to
$221.2 and $113.5 million, respectively, as compared with the same periods in
1998. Approximately $4.8 and $2.8 million, or 8% and 10% of this increase, was
attributable to same store properties, with the remaining $58.2 and $26.3
million attributable to properties acquired between January 1, 1998 and June 30,
1999. The growth in rental revenues in same store properties resulted primarily
from the incremental effect of cash rental rate increases and changes in
occupancy and reimbursement of expenses, offset by a decrease in straight-line
rents. During the quarter ended June 30, 1999, the same store properties
increase in base rents (cash basis) was 16.6% on 1.0 million square feet leased.
Other revenues. Other revenues, including equity in earnings of
unconsolidated joint venture, investment management income, and interest income,
totaled $3.8 and $1.8 million for the six and three months ended June 30, 1999,
respectively, as compared to $1.8 and $0.6 million for the six and three months
ended June 30, 1998, respectively. The $2.0 and $1.2 million increase in other
revenues between the six and three months ended June 30, 1999 and June 30, 1998,
respectively, was primarily attributable to the earnings from our equity
investment in our unconsolidated joint venture which was purchased in June 1998.
Property operating expenses and real estate taxes. Property operating
expenses, including asset management costs and real estate taxes, increased by
$17.9 and $8.6 million, or 42% and 39%, for the six and three months ended June
30, 1999, to $60.4 and $30.9 million, respectively, as compared with the same
periods in 1998. Same store properties operating expenses increased by
approximately $1.1 and $0.4 million for the six and three months ended June 30,
1999, respectively, while operating expenses attributable to properties acquired
between January 1, 1998 through June 30, 1999 added $16.8 and $8.2 million. The
change in same store properties operating expenses primarily relates to
increases in same store properties real estate taxes of approximately $1.1 and
$0.3 million for the six and three months ended June 30, 1999, respectively.
General and administrative expenses. General and administrative expenses
were $8.4 and $4.3 million for the six and three months ended June 30, 1999,
respectively. The $2.5 and $1.1 million, or 42% and 36%, increases from the six
and three months ended June 30, 1998 to June 30, 1999 are primarily attributable
to additional staffing that resulted from the growth in our portfolio. The
remainder of the increase is due to the change in our accounting policy for
capitalizing internal acquisition costs. Effective during the second quarter of
1998, we changed our policy to expense all internal costs.
LIQUIDITY AND CAPITAL RESOURCES
We currently expect that our principal sources of working capital and
funding for acquisitions, development, expansion and renovation of properties
will include cash flow from operations, borrowings under our unsecured credit
facility, other forms of secured or unsecured financing, proceeds from equity or
debt offerings by AMB or the operating partnership (including issuances of
limited partnership units in the operating partnership) and net proceeds from
divestitures of properties. We presently believe that our sources of working
capital and our ability to access private and public debt and equity capital are
adequate for us to continue to meet our liquidity requirements for the
foreseeable future.
CAPITAL RESOURCES
Property divestitures. On March 9, 1999, we signed three separate
definitive agreements with BPP Retail, LLC pursuant to which, if fully
consummated, BPP Retail would have acquired up to 28 of our retail shopping
centers, totaling approximately 5.1 million square feet, for an aggregate price
of $663.4 million. The sale of five of the properties is subject to the consent
of our joint venture partners. One of our joint venture partners who holds an
interest in three of the properties has indicated that it will not consent to
the sale of
17
<PAGE> 20
these properties at this time. We have received consents from our joint venture
partners for the sale of the other two properties. As a result, the sale price
with respect to the 25 remaining properties, totaling approximately 4.3 million
square feet, is approximately $560.4 million. We intend to dispose of these
three properties or our interests in the joint ventures through which we hold
the properties.
Pursuant to the agreements, BPP Retail will acquire the 25 centers in
separate transactions. Under the agreements, we have the right to extend the
closing dates for a period of up to either 20 or 50 days. We have exercised this
right with respect to the first and second transactions, which closed on June
15, 1999 and August 4, 1999, respectively. Pursuant to the closings of the first
and second transactions, BPP Retail acquired 21 retail shopping centers,
totaling approximately 3.5 million square feet, for an aggregate price of
approximately $453.2 million. We used the proceeds from the first and second
transactions to repay secured debt related to the properties divested of
approximately $55.5 million, to pay approximately $210.0 million in partial
repayment of amounts outstanding under our unsecured credit facility, to pay
transaction expenses, for potential acquisitions and for general corporate
purposes. We currently expect the third transactions to close on or about
December 1, 1999.
In addition, we entered into a definitive agreement, subject to a financing
condition, with Burnham Pacific, pursuant to which, if fully consummated,
Burnham Pacific would have acquired up to six additional retail centers,
totaling approximately 1.5 million square feet, for approximately $284.4
million. On June 30, 1999, this agreement was terminated pursuant to its terms
as a result of Burnham Pacific's decision not to waive the financing condition.
We currently intend to dispose of the six retail properties, either on an
individual or portfolio basis, or our interests in the joint ventures through
which we hold the properties.
As of June 30, 1999, the net carrying value of the properties held for
divestiture was $675.9 million. Certain of the properties included in these
transactions are subject to indebtedness totaling $150.5 million as of June 30,
1999. We intend to use the proceeds of $519.7 million from these transactions to
pay expenses incurred in connection with the divestitures, to repay the secured
debt related to the properties divested, to partially pay down our unsecured
credit facility, for potential acquisitions and for general corporate purposes.
On June 10, 1999, we divested one industrial building located in
Bolingbrook, Illinois, aggregating 0.3 million square feet. The building was
disposed of at a gross price of $10.5 million. We used the net proceeds of $10.2
million to partially fund a property acquisition and for general corporate
purposes.
Credit facility. We have a $500 million unsecured revolving credit
agreement with Morgan Guaranty Trust Company of New York, as agent, and a
syndicate of twelve other banks. The credit facility has a term of three years
and is subject to a fee that accrues on the daily average undrawn funds, which
varies between 15 and 25 basis points (currently 15 basis points) of the undrawn
funds based on our credit rating. We use the credit facility principally for
acquisitions and for general working capital requirements. Borrowings under the
credit facility bear interest at LIBOR plus 90 to 120 basis points (currently
LIBOR plus 90 basis points), depending our debt rating at the time of the
borrowings. As of June 30, 1999, the outstanding balance on the credit facility
was $255.0 million, with a weighted average interest rate of 6.6% (based on
30-day LIBOR of 5.2%). Monthly debt service payments on the credit facility are
interest only. The credit facility matures in November 2000. The total amount
available under the credit facility fluctuates based upon the borrowing base, as
defined in the agreement governing the credit facility. At June 30, 1999, the
remaining amount available under the credit facility was approximately $245.0
million.
Debt and equity financing. On May 5, 1999, AMB Property II, L.P. issued and
sold 1,595,337 7.75% Series D Cumulative Redeemable Preferred Limited
Partnership Units at a price of $50.00 per unit in a private placement.
Distributions are cumulative from the date of original issuance and are payable
quarterly in arrears at a rate per unit equal to $3.875 per annum. The Series D
Preferred Units are redeemable by AMB Property II, L.P. on or after May 5, 2004,
subject to certain conditions, for cash at a redemption price equal to $50.00
per unit, plus accumulated and unpaid distributions thereon, if any, to the
redemption date. The Series D Preferred Units are exchangeable, at specified
times and subject to certain conditions, on a one-for-one basis, for shares of
AMB's Series D Preferred Stock. AMB Property II, L.P. used the net proceeds of
approximately $77.8 million to make a loan to the operating partnership in the
amount of approximately $20.1 million and to purchase an unconsolidated joint
venture interest for a price of approximately
18
<PAGE> 21
$57.7 million from the operating partnership. The loan bears interest at a rate
of 7.0% per annum and is payable upon demand. The operating partnership used the
funds to repay borrowings under the credit facility and for general corporate
purposes.
Market capitalization. As of June 30, 1999, the aggregate principal amount
of this secured debt was $750.6 million, excluding unamortized debt premiums of
$13.0 million. The secured debt bears interest at rates varying from 4.0% to
10.0% per annum (with a weighted average of 7.8%) and final maturity dates
ranging from May 2000 to April 2014. We believe the carrying value of the debt
approximates its fair value on June 30, 1999.
As of June 30, 1999, our total outstanding debt was approximately $1.4
billion, including unamortized debt premiums of approximately $13.0 million. See
Note 5 to our Consolidated Financial Statements. The total amount of debt that
we must repay during the remainder of 1999 is approximately $7.5 million, which
represents scheduled principal amortization.
In order to maintain financial flexibility and facilitate the rapid
deployment of capital through market cycles, we presently intend to operate with
a debt-to-total market capitalization ratio of approximately 45% or less.
Additionally, we presently intend to continue to structure our balance sheet in
order to maintain an investment grade rating on our senior unsecured debt.
The tables below summarize our debt maturities and capitalization as of
June 30, 1999 (in thousands, except share amounts and percentages).
DEBT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNSECURED
INDUSTRIAL RETAIL SENIOR UNSECURED
SECURED SECURED DEBT CREDIT
DEBT DEBT SECURITIES FACILITY TOTAL
---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
1999 (six months)...................... $ 5,131 $ 2,339 $ -- $ -- $ 7,470
2000................................... 36,161 8,700 -- 255,000 299,861
2001................................... 13,399 30,545 -- -- 43,944
2002................................... 28,434 34,178 -- -- 62,612
2003................................... 57,933 50,857 -- -- 108,790
2004................................... 91,625 932 -- -- 92,557
2005................................... 68,204 1,008 100,000 -- 169,212
2006................................... 134,045 11,829 -- -- 145,874
2007................................... 37,777 727 -- -- 38,504
2008................................... 119,984 7,758 175,000 -- 302,742
Thereafter............................. 7,131 1,926 125,000 -- 134,057
-------- -------- -------- -------- ----------
Subtotal............................. 599,824 150,799 400,000 255,000 1,405,623
Unamortized premiums................. 9,588 3,376 -- -- 12,964
-------- -------- -------- -------- ----------
Total consolidated debt...... 609,412 154,175 400,000 255,000 1,418,587
Our share of unconsolidated JV debt.... 19,472 -- -- -- 19,472
-------- -------- -------- -------- ----------
Total debt................... $628,884 $154,175 $400,000 $255,000 $1,438,059
======== ======== ======== ======== ==========
JV partners' share of consolidated JV
debt................................. (49,691)
----------
Our share of total debt........... $1,388,368
----------
Weighted average interest
rate......................... 7.8%(1) 7.9% 7.2% 6.6% 7.4%
Weighted average maturity (in
years)....................... 6.7(1) 4.2 11.4 1.4 6.8
</TABLE>
- ---------------
(1) Does not include unconsolidated joint venture debt, which bears interest at
6.5% per annum and matures in 2007.
19
<PAGE> 22
MARKET EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES
SECURITY OUTSTANDING MARKET PRICE MARKET VALUE
-------- ----------- ------------ ------------
<S> <C> <C> <C>
Common stock.......................................... 86,518,592 $23.50 $2,033,187
Common limited partnership units...................... 4,578,942 23.50 107,605
---------- ----------
Total....................................... 91,097,534 $2,140,792
========== ==========
</TABLE>
PREFERRED STOCK AND UNITS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND LIQUIDATION REDEMPTION
SECURITY RATE PREFERENCE PROVISIONS
-------- -------- ----------- -------------
<S> <C> <C> <C>
Series A preferred stock.............................. 8.50% $100,000 July 2003
Series B preferred units.............................. 8.63% 65,000 November 2003
Series C preferred units.............................. 8.75% 110,000 November 2003
Series D preferred units.............................. 7.75% 79,767 May 2004
--------
Weighted Average/Total.............................. 8.43% $354,767
--------
</TABLE>
CAPITALIZATION RATIOS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Total debt-to-total market capitalization................... 36.6%
Our share of total debt-to-total market capitalization...... 35.7%
Total debt plus preferred-to-total market capitalization.... 45.6%
Our share of total debt plus preferred-to-total market
capitalization............................................ 44.9%
</TABLE>
LIQUIDITY
As of June 30, 1999, we had approximately $40.1 million in cash and cash
equivalents and $245.0 million of additional available borrowings under the
credit facility. We intend to use cash from operations, borrowings under the
credit facility, other forms of secured and unsecured financing, proceeds from
any future debt or equity offerings by AMB or the operating partnership
(including issuances of limited partnership units in the operating partnership
or its subsidiaries), and proceeds from divestitures of properties to fund
acquisitions, development activities and capital expenditures and to provide for
general working capital requirements.
On June 4, 1999, we declared a quarterly cash distribution of $0.35 per
share of common stock and the operating partnership declared a quarterly cash
distribution of $0.35 per operating partnership unit, for the quarter ending
June 30, 1999, payable on July 15, 1999, to stockholders and unitholders of
record as of July 6, 1999. On June 4, 1999, we declared a cash dividend of
$0.53125 per share on our Series A Preferred Stock, and the operating
partnership declared a cash distribution of $0.53125 per unit on its Series A
Preferred Units, for the three month period ending July 14, 1999, payable on
July 15, 1999, to stockholders and unitholders of record as of June 30, 1999.
The anticipated size of our distributions, using only cash from operations,
will not allow us to retire all of our debt as it comes due. Therefore, we
intend to also repay maturing debt with net proceeds from future debt and/or
equity financings. However, we may not be able to obtain future financings on
favorable terms or at all.
CAPITAL COMMITMENTS
In addition to recurring capital expenditures and costs to renew or
re-tenant space, as of June 30, 1999, our development pipeline included 16
projects representing a total estimated investment of $226.4 million upon
completion. Of this total, approximately $132.0 million had been funded as of
June 30, 1999 and approximately $94.4 million is estimated to be required to
complete projects currently under construction or for which we have committed to
complete. We presently expect to fund these expenditures with cash from
20
<PAGE> 23
operations, borrowings under the credit facility, debt or equity issuances and
net proceeds from property divestitures. Other than these capital items, we have
no material capital commitments.
During the period from April 1, 1999 to June 30, 1999, we invested $200.8
million in 62 industrial buildings, aggregating 3.1 million rentable square
feet. We funded these acquisitions and initiated development projects through
borrowings under the credit facility, cash, debt assumption, and the issuance of
limited partnership units in the operating partnership.
YEAR 2000 COMPLIANCE
Our state of readiness. We utilize a number of computer software programs
and operating systems across our entire organization, including applications
used in financial business systems and various administrative functions. To the
extent that our software applications contain source code that is unable to
appropriately interpret the upcoming calendar year 2000 and beyond, some level
of modification or replacement of such applications will be necessary.
We are currently conducting a company-wide test of our financial and
non-financial systems to ensure that our systems will adequately handle the year
2000 issue. Our financial system is fully year 2000 compliant. We have conducted
a survey of our property managers to determine if our non-financial systems
(HVAC, security, lighting, and other building systems) at our properties are
year 2000 compliant and to determine the state of readiness of our tenants
regarding their year 2000 compliance. A majority of our property managers have
responded to the survey and, based upon such responses, we believe that the
non-financial systems with respect to those properties are year 2000 compliant.
In addition, we are currently surveying our other third party vendors to
determine if their systems are year 2000 compliant and to determine the state of
readiness regarding their year 2000 compliance. The compliance efforts of our
third-party vendors, including utility and telecommunication companies, are not
within our control and any failure on the part of our third-party vendors to
become year 2000 compliant could result in disruptions in our business
operations and at our properties.
Costs of addressing our year 2000 issues. Given the information known at
this time about our systems, coupled with our ongoing, normal course-of-business
efforts to upgrade or replace critical systems, as necessary, we do not expect
year 2000 compliance costs to have any material adverse impact on our liquidity
or ongoing results of operations. The costs of such assessment will be included
in our general and administrative expenses. Although we can make no assurance,
we currently do not expect that the year 2000 issue will materially affect our
operations due to problems encountered by our suppliers, customers and lenders.
Risks of our year 2000 issues. In light of our assessment and remediation
efforts to date, we believe that any residual year 2000 risk is limited to
non-critical business applications and support hardware. No assurance can be
given, however, that all of our systems will be year 2000 compliant or that
compliance will not have a material adverse effect on our future liquidity,
results of operations or ability to service debt.
Our contingency plans. We are currently developing our contingency plan for
all operations to address the most reasonably likely worst case scenarios
regarding year 2000 compliance. We expect such contingency plans to be completed
before the end of the year.
21
<PAGE> 24
FUNDS FROM OPERATIONS
We believe that FFO, as defined by NAREIT, is an appropriate measure of
performance for an equity REIT. While FFO is a relevant and widely used measure
of operating performance of REITs, it does not represent cash flow from
operations or net income as defined by GAAP, and it should not be considered as
an alternative to those indicators in evaluating liquidity or operating
performance. Further, FFO as disclosed by other REITs may not be comparable.
The following table reflects the calculation of our FFO for six and three
months ended June 30, 1998 and 1999 (dollars in thousands).
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ---------------------------
1998 1999 1998 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Income from operations before minority
interests............................... $ 59,570 $ 76,021 $ 30,382 $ 41,446
Real estate related depreciation and
amortization:
Total depreciation and amortization..... 25,302 33,602 13,516 15,178
FF&E depreciation and ground lease
amortization......................... (215) (364) (111) (250)
FFO attributable to minority
interests(1)(2):
Institutional Alliance Partners......... (1,129) (2,635) (1,003) (1,161)
Other joint venture partners............ (959) (1,109) (510) (558)
Adjustments to derive FFO in
unconsolidated joint Venture(3):
Our share of net income................. -- (2,328) -- (1,177)
Our share of FFO........................ -- 3,316 -- 1,671
Series A preferred stock dividends........ -- (4,250) -- (2,125)
Series B, C & D preferred unit
distributions........................... -- (8,475) -- (4,667)
----------- ----------- ----------- -----------
FFO(1).................................... $ 82,569 $ 93,778 $ 42,274 $ 48,357
=========== =========== =========== ===========
FFO per common share and unit:
Basic................................... $ 0.93 $ 1.03 $ 0.47 $ 0.53
=========== =========== =========== ===========
Diluted................................. $ 0.92 $ 1.03 $ 0.47 $ 0.53
=========== =========== =========== ===========
Weighted average common shares and units:
Basic................................... 88,983,990 90,655,675 89,539,010 90,861,822
=========== =========== =========== ===========
Diluted(4).............................. 89,362,932 90,756,567 89,886,673 91,044,028
=========== =========== =========== ===========
</TABLE>
- ---------------
(1) FFO is defined as income from operations before minority interest, gains or
losses from sale of real estate and extraordinary losses plus real estate
depreciation and adjustment to derive our pro rata share of the FFO of
unconsolidated joint ventures, less minority interests' pro rata share of
the FFO of consolidated joint ventures and perpetual preferred stock
dividends. In accordance with NAREIT White Paper on FFO, we include the
effects of straight-line rents in FFO. Further, we do not adjust FFO to
eliminate the effects of non-recurring changes.
(2) Represents FFO attributable to minority interest in consolidated joint
ventures for the period presented, which has been computed as minority
interests' share of net income plus minority interests' share of real
estate-related depreciation and amortization of the consolidated joint
ventures for such period. These minority interests are not convertible into
shares of common stock.
(3) Represents our pro rata share of FFO in unconsolidated joint ventures for
the period presented, which has been computed as our share of net income
plus our share of real estate-related depreciation and amortization of the
unconsolidated joint venture for such period.
(4) Includes the dilutive effect of stock options.
22
<PAGE> 25
OPERATING AND LEASING STATISTICS SUMMARY
The following summarizes key operating and leasing statistics for all of
our industrial properties and retail properties as of and for the period ended
June 30, 1999.
<TABLE>
<CAPTION>
INDUSTRIAL RETAIL TOTAL
----------- ---------- -----------
<S> <C> <C> <C>
Square feet owned(1)........................................ 61,901,637 5,652,580 67,554,217
Occupancy percentage........................................ 95.8% 94.2% 95.6%
Lease expirations as percentage of total square feet (next
12 months)................................................ 15.5% 8.4% 14.9%
Weighted average lease term................................. 7 years 15 years 7 years
Tenant retention:
Quarter................................................... 58.3% 88.4% 59.6%
Trailing average (1/01/96 to 6/30/99)..................... 72.4% 85.7% 73.1%
Rent increases on renewals and rollovers:
Quarter................................................... 14.1% 6.5% 13.1%
Trailing 12 months........................................ 10.1% 7.4% 9.8%
Same store cash basis NOI growth(2):
Quarter................................................... 5.1% 6.8% 5.5%
Year-to-date.............................................. 5.9% 4.8% 5.4%
Second generation tenant improvements and leasing
commissions per sq. ft.:(3)
Quarter:
Renewals................................................ $ 0.83 $ 0.84 $ 0.83
Re-tenanted............................................. 2.57 1.27 2.57
----------- ---------- -----------
Weighted average.................................... $ 1.82 $ 0.94 $ 1.81
=========== ========== ===========
Year-to-date:
Renewals................................................ $ 1.43 $ 1.43 $ 1.43
Re-tenanted............................................. 2.52 4.36 2.54
----------- ---------- -----------
Weighted average.................................... $ 1.67 $ 1.58 $ 1.67
=========== ========== ===========
Trailing average (1/01/96 to 6/30/99)..................... $ 1.32 $ 4.13 $ 1.46
=========== ========== ===========
</TABLE>
- ---------------
(1) In addition to owned square feet as of June 30, 1999, AMB Investment
Management managed 3.8 million, 0.4 million, and 0.1 million additional
square feet of industrial, retail, and other properties, respectively. We
also have an investment in 4.0 million square feet of industrial properties
through our investment in an unconsolidated joint venture.
(2) Consists of industrial buildings and retail centers aggregating 36.0 million
and 4.4 million square feet, respectively, that have been owned by us prior
to January 1, 1998, and excludes development properties prior to
stabilization.
(3) Consists of all leases renewing or re-tenanting with lease terms greater
than one year.
The following summarizes key same store properties' operating statistics
for our industrial properties and retail properties as of and for the period
ending June 30, 1999.
<TABLE>
<CAPTION>
INDUSTRIAL RETAIL TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Square feet in same store pool(1)........................... 36,025,231 4,411,219 40,436,450
Occupancy percentage:
6/30/98................................................... 95.6% 97.4% 95.8%
6/30/99................................................... 96.9% 96.4% 96.8%
Tenant retention:
Quarter................................................... 67.2% 88.5% 68.5%
Trailing 12 months........................................ 66.2% 76.8% 66.7%
Rent increases on renewals and rollovers:
Quarter................................................... 18.9% 6.5% 16.6%
Trailing 12 months........................................ 9.2% 7.4% 8.9%
Cash basis NOI growth % increase:
Quarter:
Revenues................................................ 4.6% 4.8% 4.7%
Expenses................................................ 3.0% 0.5% 2.2%
NOI..................................................... 5.1% 6.8% 5.5%
Year-to-date:
Revenues................................................ 5.4% 4.1% 5.0%
Expenses................................................ 3.8% 2.3% 3.4%
NOI..................................................... 5.9% 4.8% 5.4%
</TABLE>
- ---------------
(1) Same store properties include all properties that were owned during both the
current and prior year reporting periods and excludes development properties
prior to being stabilized for both the current and prior reporting period.
23
<PAGE> 26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Our exposure to market risk includes the rising interest rates in
connection with our unsecured credit facility and other variable rate
borrowings, and our ability to incur more debt without stockholder approval,
thereby increasing our debt service obligations, which could adversely affect
our cash flows. See "Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources -- Capital Resources -- Market Capitalization."
PART II
ITEM 1. LEGAL PROCEEDINGS
As of June 30, 1999, there were no pending legal proceedings to which we
are a party or of which any of our properties is the subject, the adverse
determination of which we anticipate would have a material adverse effect upon
our financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 30, 1999, the operating partnership issued an aggregate of 390,633
limited partnership units with an aggregate value of approximately $9.4 million
to two corporations and twelve individuals in partial consideration for the
acquisition of properties. On May 21, 1999, the operating partnership issued
18,638 limited partnership units with a value of approximately $0.5 million to a
limited liability company in partial consideration for the acquisition of
properties. On May 26, 1999, the operating partnership issued 212,766 limited
partnership units with a value of approximately $5.0 million to a limited
liability company in partial consideration for the acquisition of properties.
Holders of the limited partnership units may redeem part or all of their limited
partnership units for cash, or at the election of AMB, exchange their limited
partnership units for shares of AMB's common stock on a one-for-one basis.
The issuance of limited partnership units in connection with the
acquisitions discussed above constituted private placements of securities which
were exempt from the registration requirement of the Securities Act pursuant to
Section 4(2) of the Securities Act and Rule 506 of Regulation D.
On May 5, 1999, AMB Property II, L.P. issued and sold 1,595,337 7.75%
Series D Cumulative Redeemable Preferred Limited Partnership Units at a price of
$50.00 per unit, for a gross price of $79.8 million, to a limited liability
company. The issuance and sale of the Series D Preferred Units constituted a
private placement of securities which was exempt from the registration
requirement of the Securities Act pursuant to Section 4(2) of the Securities Act
and Rule 506 of Regulation D. The Series D Preferred Units are exchangeable, at
specified times and subject to certain conditions, on a one-for-one basis, for
shares of AMB's Series D Preferred Stock. The Articles Supplementary
establishing the rights and preferences of the holders of the Series D Preferred
Stock were filed as Exhibit 3.1 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 7, 1999. The
stockholders voted to (1) elect nine directors to the Company's Board of
Directors to serve until the next annual meeting of stockholders and until their
successors are duly elected and qualified and (2) ratify and approve an
amendment to the Company's First Amended and Restated 1997 Stock Option and
Incentive Plan, increasing the number of shares authorized for issuance
thereunder by 3,200,000 shares.
24
<PAGE> 27
The stockholders' votes with respect to the election of directors were as
follows:
<TABLE>
<CAPTION>
VOTES
--------------------------------------------------
AGAINST OR VOTES BROKER
FOR WITHHELD ABSTAINED NON-VOTES
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Douglas D. Abbey....................... 61,574,242 125,676 -- --
Hamid R. Moghadam...................... 61,574,242 125,676 -- --
T. Robert Burke........................ 61,574,242 125,676 -- --
Daniel H. Case III..................... 61,574,242 125,676 -- --
Robert H. Edelstein, Ph.D. ............ 61,574,242 125,676 -- --
Lynn M. Sedway......................... 61,574,242 125,676 -- --
Jeffrey L. Skelton, Ph.D. ............. 61,574,242 125,676 -- --
Thomas W. Tusher....................... 61,574,242 125,676 -- --
Caryl B. Welborn, Esq. ................ 61,574,242 125,676 -- --
</TABLE>
The stockholders' votes with respect to the ratification and approval of
the increase in number of shares authorized for issuance under the Company's
1997 Stock Option and Incentive Plan were as follows:
<TABLE>
<CAPTION>
VOTES
- ----------------------------------------------
AGAINST OR VOTES BROKER
FOR WITHHELD ABSTAINED NON-VOTES
- ---------- ---------- --------- ---------
<S> <C> <C> <C>
52,936,753 8,621,421 141,744 --
</TABLE>
ITEM 5. OTHER INFORMATION
BUSINESS RISKS
Our operations involve various risks that could have adverse consequences
to us. Such risks include, among others:
GENERAL REAL ESTATE RISKS
THERE ARE FACTORS OUTSIDE OF OUR CONTROL THAT AFFECT THE PERFORMANCE AND
VALUE OF OUR PROPERTIES
Real property investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend on the amount of
income earned and capital appreciation generated by the related properties as
well as the expenses incurred in connection with the properties. If our
properties do not generate income sufficient to meet operating expenses,
including debt service and capital expenditures, AMB's ability to pay
distributions to holders of its common stock could be adversely affected. Income
from, and the value of, our properties may be adversely affected by the general
economic climate, local conditions such as oversupply of industrial or retail
space or a reduction in demand for industrial or retail space, the
attractiveness of our properties to potential tenants, competition from other
properties, our ability to provide adequate maintenance and insurance and an
increase in operating costs. In addition, revenues from properties and real
estate values are also affected by factors such as the cost of compliance with
regulations, the potential for liability under applicable laws (including
changes in tax laws), interest rate levels and the availability of financing.
Our income would be adversely affected if a significant number of tenants were
unable to pay rent or if we were unable to rent our industrial or retail space
on favorable terms. Certain significant expenditures associated with an
investment in real estate (such as mortgage payments, real estate taxes and
maintenance costs) generally do not decline when circumstances cause a reduction
in income from the property.
WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE AS LEASES EXPIRE
We are subject to the risks that leases may not be renewed, 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 24.7% of the leased square footage of our properties as of June
30, 1999 will expire on or prior to December 31, 2000, with leases on 7.3% of
the leased square footage of our
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properties as of June 30, 1999 expiring during the six months ending December
31, 1999. In addition, numerous properties compete with our properties in
attracting tenants to lease space, particularly with respect to retail centers.
The number of competitive commercial properties in a particular area could have
a material adverse effect on our ability to lease space in our properties and on
the rents that we are able to charge. Our financial condition, results of
operations, cash flow and AMB's ability to pay distributions on, and the market
price of, its common stock could be adversely affected if we are unable to
promptly relet or renew the leases for all or a substantial portion of expiring
leases, if the rental rates upon renewal or reletting is significantly lower
than expected, or if our reserves for these purposes prove inadequate.
REAL ESTATE INVESTMENTS ARE ILLIQUID
Because real estate investments are relatively illiquid, our ability to
vary our portfolio promptly in response to economic or other conditions is
limited. The limitations in the Internal Revenue Code and related regulations on
a real estate investment trust holding property for sale may affect our ability
to sell properties without adversely affecting distributions to AMB's
stockholders. The relative illiquidity of our holdings, Internal Revenue Code
prohibitions and related regulations could impede our ability to respond to
adverse changes in the performance of our investments and could adversely affect
our financial condition, results of operations and cash flow and AMB's ability
to pay distributions on, and the market price of, its common stock.
A SIGNIFICANT NUMBER OF OUR PROPERTIES ARE LOCATED IN CALIFORNIA
Our properties located in California as of June 30, 1999 represented
approximately 21.5% of the aggregate square footage of our properties as of June
30, 1999 and approximately 28.6% of our annualized base rent. Annualized base
rent means the monthly contractual amount under existing leases at June 30,
1999, multiplied by 12. This amount excludes expense reimbursements and rental
abatements. Our revenue from, and the value of, our properties located in
California may be affected by a number of factors, including local real estate
conditions (such as oversupply of or reduced demand for commercial properties)
and the local economic climate. Business layoffs, downsizing, industry
slowdowns, changing demographics and other factors may adversely impact the
local economic climate. A downturn in either the California economy or in
California real estate conditions could adversely affect our financial
condition, results of operations and cash flow and AMB's ability to pay
distributions on, and the market price of, its common stock. Certain of our
properties are also subject to possible loss from seismic activity. On June 15,
1999 and August 4, 1999, we sold an aggregate of seven of our properties located
in California to BPP Retail. In the event that the remaining transaction with
BPP Retail, LLC is fully consummated, we will dispose of all but three of our
retail centers located in California and, thereafter (based on property
statistics as of June 30, 1999), 22.1% of our properties based on aggregate
square footage and 29.3% of our properties based on annualized base rent will be
located in California.
OUR PROPERTIES ARE CURRENTLY CONCENTRATED IN THE INDUSTRIAL AND RETAIL
SECTORS
Our properties are currently concentrated predominantly in the industrial
and retail commercial real estate sectors. However, in the event that the
transactions with BPP Retail are fully consummated, our properties will be
concentrated predominately in the industrial real estate sector. Our
concentration in certain property types may expose us to the risk of economic
downturns in these sectors to a greater extent than if our portfolio also
included other property types. In the event that the transactions referred to
above are consummated, our exposure to the risk of economic downturns in the
industrial real estate sector will be greater. As a result of such
concentration, economic downturns in these sectors could have an adverse effect
on our financial condition, results of operations and cash flow and AMB's
ability to pay distributions on, and the market price of, its common stock.
SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE
We carry comprehensive liability, fire, extended coverage and rental loss
insurance covering all of our properties, with policy specifications and insured
limits which we believe are adequate and appropriate under the circumstances
given relative risk of loss, the cost of such coverage and industry practice.
There are,
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however, certain losses that are not generally insured because it is not
economically feasible to insure against them, including losses due to riots or
acts of war. Certain losses such as losses due to floods or seismic activity may
be insured subject to certain limitations including large deductibles or
co-payments and policy limits. If an uninsured loss or a loss in excess of
insured limits occurs with respect to one or more of our properties, we could
lose the capital we invested in the properties, as well as the anticipated
future revenue from the properties and, in the case of debt which is with
recourse to us, we would remain obligated for any mortgage debt or other
financial obligations related to the properties. Moreover, as the general
partner of the operating partnership, AMB will generally be liable for all of
the operating partnership's unsatisfied obligations other than non-recourse
obligations. Any such liability could adversely affect our financial condition,
results of operations and cash flow and AMB's ability to pay distributions on,
and the market price of, its common stock.
A number of our properties are located in areas that are known to be
subject to earthquake activity, including California where, as of June 30, 1999,
181 industrial buildings aggregating 13.3 million rentable square feet
(representing 21.9% of our properties based on aggregate square footage and
28.1% based on annualized base rent) and six retail centers aggregating 1.3
million rentable square feet (representing 22.2% of our properties based on
aggregate square footage and 30.7% based on annualized base rent) are located.
In the event that the remaining transaction with BPP Retail is fully
consummated, we will dispose of all but three of our retail centers located in
California and, thereafter (based on property statistics as of June 30, 1999),
22.1% of our properties based on aggregate square footage and 29.3% of our
properties based on annualized base rent will be located in California. We carry
replacement cost earthquake insurance on all of our properties located in areas
historically subject to seismic activity, subject to coverage limitations and
deductibles which we believe are commercially reasonable. This insurance
coverage also applies to the properties managed by AMB Investment Management,
Inc., with a single aggregate policy limit and deductible applicable to those
properties and our properties. The operating partnership owns 100% of the
non-voting preferred stock of AMB Investment Management, Inc. See "-- AMB
Investment Management, Inc. and Headlands Realty Corporation." Through an annual
analysis prepared by outside consultants, we evaluate our earthquake insurance
coverage in light of current industry practice and determine the appropriate
amount of earthquake insurance to carry. We may incur material losses in excess
of insurance proceeds and we may not be able to continue to obtain insurance at
commercially reasonable rates.
WE ARE SUBJECT TO RISKS AND LIABILITIES IN CONNECTION WITH PROPERTIES OWNED
THROUGH JOINT VENTURES, LIMITED LIABILITY COMPANIES AND PARTNERSHIPS
As of June 30, 1999, we had ownership interests in 18 joint ventures,
limited liability companies or partnerships with third parties, as well as an
interest in one unconsolidated entity. As of June 30, 1999, we owned 21 of our
properties through these entities. We may make additional investments through
these ventures in the future and presently plan to do so with clients of AMB
Investment Management, Inc. and certain Development Alliance Partners, who share
certain approval rights over major decisions. Partnership, limited liability
company or joint venture investments may involve risks such as the following:
- our partners, co-members or joint venturers might become bankrupt (in
which event we and any other remaining general partners, members or joint
venturers would generally remain liable for the liabilities of the
partnership, limited liability company or joint venture);
- our partners, co-members or joint venturers might at any time have
economic or other business interests or goals which are inconsistent with
our business interests or goals;
- our partners, co-members or joint venturers may be in a position to take
action contrary to our instructions, requests, policies or objectives,
including our policy with respect to maintaining AMB's qualification as a
real estate investment trust; and
- agreements governing joint ventures, limited liability companies and
partnerships often contain restrictions on the transfer of a joint
venturer's, member's or partner's interest or "buy-sell" or other
provisions which may result in a purchase or sale of the interest at a
disadvantageous time or on disadvantageous terms.
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We will, however, generally seek to maintain sufficient control of our
partnerships, limited liability companies and joint ventures to permit us to
achieve our business objectives. Our organizational documents do not limit the
amount of available funds that we may invest in partnerships, limited liability
companies or joint ventures. The occurrence of one or more of the events
described above could have an adverse effect on our financial condition, results
of operations and cash flow and AMB's ability to pay distributions on, and the
market price of, its common stock.
WE MAY BE UNABLE TO CONSUMMATE ACQUISITIONS ON ADVANTAGEOUS TERMS
We intend to continue to acquire industrial and, to a lesser extent,
certain value-added retail properties. Acquisitions of industrial and retail
properties entail risks that investments will fail to perform in accordance with
expectations. Estimates of the costs of improvements necessary for us to bring
an acquired property up to market standards may prove inaccurate. In addition,
there are general investment risks associated with any new real estate
investment. Further, we anticipate significant competition for attractive
investment opportunities from other major real estate investors with significant
capital including both publicly traded real estate investment trusts and private
institutional investment funds. We expect that future acquisitions will be
financed through a combination of borrowings under our credit facility, proceeds
from equity or debt offerings by AMB or the operating partnership (including
issuances of limited partnership units), and proceeds from the transactions with
BPP Retail, which could have an adverse effect on our cash flow. We may not be
able to acquire additional properties. Our inability to finance any future
acquisitions on favorable terms or the failure of acquisitions to conform with
our expectations or investment criteria, or our failure to timely reinvest the
proceeds from the transactions with BPP Retail could adversely affect our
financial condition, results of operations and cash flow and AMB's ability to
pay distributions on, and the market price of, its common stock.
WE MAY BE UNABLE TO COMPLETE RENOVATION AND DEVELOPMENT ON ADVANTAGEOUS
TERMS
The real estate development business, including the renovation and
rehabilitation of existing properties, involves significant risks. These risks
include the following:
- we may not be able to obtain financing on favorable terms for development
projects and we may not complete construction on schedule or within
budget, resulting in increased debt service expense and construction
costs and delays in leasing such properties and generating cash flow;
- we may not be able to obtain, or we may experience delays in obtaining,
all necessary zoning, land-use, building, occupancy and other required
governmental permits and authorizations;
- new or renovated properties may perform below anticipated levels,
producing cash flow below budgeted amounts;
- substantial renovation as well as new development activities, regardless
of whether or not they are ultimately successful, typically require a
substantial portion of management's time and attention which could divert
management's time from our day-to-day operations; and
- activities that we finance through construction loans involve the risk
that, upon completion of construction, we may not be able to obtain
permanent financing or we may not be able to obtain permanent financing
on advantageous terms.
These risks could have an adverse effect on our financial condition,
results of operations and cash flow and AMB's ability to pay distributions on,
and the market price of, its common stock.
DEBT FINANCING
WE COULD INCUR MORE DEBT
We operate with a policy of incurring debt, either directly or through our
subsidiaries, only if upon such incurrence our debt-to-total market
capitalization ratio would be approximately 45% or less. The aggregate amount of
indebtedness that we may incur under our policy varies directly with the
valuation of AMB's capital stock and the number of shares of capital stock
outstanding. Accordingly, we would be able to incur additional indebtedness
under our policy as a result of increases in the market price per share of AMB's
common stock or
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other outstanding classes of capital stock, and future issuance of shares of
AMB's capital stock. In spite of this policy, our organizational documents do
not contain any limitation on the amount of indebtedness that we may incur.
Accordingly, AMB's board of directors could alter or eliminate this policy and
would do so, for example, if it were necessary for AMB to continue to qualify as
a real estate investment trust. If we change this policy, we could become more
highly leveraged, resulting in an increase in debt service that could adversely
affect our financial condition, results of operations and cash flow and AMB's
ability to pay distributions on, and the market price of, its common stock.
SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
We are subject to risks normally associated with debt financing, including
the risks that cash flow will be insufficient to make distributions to AMB's
stockholders, that we will be unable to refinance existing indebtedness on our
properties (which in all cases will not have been fully amortized at maturity)
and that the terms of refinancing will not be as favorable as the terms of
existing indebtedness.
As of June 30, 1999, we had total debt outstanding of approximately $1.4
billion including:
- approximately $783.1 million of secured indebtedness (not including
unamortized debt premiums) with an average maturity of seven years and a
weighted average interest rate of 7.8%;
- approximately $255.0 million outstanding under our unsecured $500 million
credit facility with a maturity date of November 2000 and a weighted
average interest rate of 6.6%; and
- $400.0 million aggregate principal amount of unsecured senior debt
securities with maturities in June 2008, 2015 and 2018 and a weighted
average interest rate of 7.18%.
With the proceeds from the first and second transactions with BPP Retail,
we repaid approximately $55.5 million of secured indebtedness relating to the
properties divested and made payments under our unsecured credit facility in the
amount of approximately $210.0 million. We currently intend to use the proceeds
from the third transaction with BPP Retail to repay approximately $26.5 million
of amounts outstanding under our secured credit facility.
AMB is a guarantor of the operating partnership's obligations with respect
to the senior debt securities referenced above. If we are unable to refinance or
extend principal payments due at maturity or pay them with proceeds of other
capital transactions, we expect that our cash flow will not be sufficient in all
years to pay distributions to AMB's stockholders and to repay all such maturing
debt. Furthermore, if prevailing interest rates or other factors at the time of
refinancing (such as the reluctance of lenders to make commercial real estate
loans) result in higher interest rates upon refinancing, the interest expense
relating to that refinanced indebtedness would increase. This increased interest
expense would adversely affect our financial condition, results of operations
and cash flow and AMB's ability to pay distributions on, and the market price
of, its common stock. In addition, if we mortgage one or more of our properties
to secure payment of indebtedness and we are unable to meet mortgage payments,
the property could be foreclosed upon or transferred to the mortgagee with a
consequent loss of income and asset value. A foreclosure on one or more of our
properties could adversely affect our financial condition, results of operations
and cash flow and AMB's ability to pay distributions on, and the market price
of, its common stock.
RISING INTEREST RATES COULD ADVERSELY AFFECT OUR CASH FLOW
As of June 30, 1999, we had $255.0 million outstanding under our credit
facility. In addition, we may incur other variable rate indebtedness in the
future. Increases in interest rates on this indebtedness could increase our
interest expense, which would adversely affect our financial condition, results
of operations and cash flow and AMB's ability to pay distributions on, and the
market price of, its common stock. Accordingly, we may in the future engage in
transactions to limit our exposure to rising interest rates.
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WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL
In order to qualify as a real estate investment trust under the Internal
Revenue Code, AMB is required each year to distribute to its stockholders at
least 95% of its real estate investment trust taxable income (determined without
regard to the dividends-paid deduction and by excluding any net capital gain).
Because of this distribution requirement, we may not be able to fund all future
capital needs, including capital needs in connection with acquisitions, from
cash retained from operations. As a result, to fund capital needs, we rely on
third-party sources of capital, which we may not be able to obtain on favorable
terms or at all. Our access to third-party sources of capital depends upon a
number of factors, including general market conditions and the market's
perception of our growth potential and our current and potential future earnings
and cash distributions and the market price of the shares of AMB's capital
stock. Additional debt financing may substantially increase our leverage.
WE COULD DEFAULT ON CROSS-COLLATERALIZED AND CROSS-DEFAULTED DEBT
As of June 30, 1999, we had 16 non-recourse secured loans which are
cross-collateralized by 18 properties. As of June 30, 1999, we had $216.3
million (not including unamortized debt premium) outstanding on these loans.
With the proceeds from the second transaction with BPP Retail, we repaid two
loans aggregating approximately $23.7 million, which were secured by two
properties. If we default on any of these loans, we will be required to repay
the aggregate of all indebtedness, together with applicable prepayment charges,
to avoid foreclosure on all the cross-collateralized properties within the
applicable pool. Foreclosure on our properties, or our inability to refinance
our loans on favorable terms, could adversely impact our financial condition,
results of operations and cash flow and AMB's ability to pay distributions on,
and the market price of, its common stock. In addition, our credit facilities
and the senior debt securities of the operating partnership contain certain
cross-default provisions which are triggered in the event that our other
material indebtedness is in default. These cross-default provisions may require
us to repay or restructure the credit facilities and the senior debt securities
in addition to any mortgage or other debt which is in default, which could
adversely affect our financial condition, results of operations and cash flow
and AMB's ability to pay distributions on, and the market price of, its common
stock.
CONTINGENT OR UNKNOWN LIABILITIES COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION
Our predecessors have been in existence for varying lengths of time up to
15 years. At the time of our formation we acquired the assets of these entities
subject to all of their potential existing liabilities. There may be current
liabilities or future liabilities arising from prior activities that we are not
aware of and therefore are not disclosed in this report. We assumed these
liabilities as the surviving entity in the various merger and contribution
transactions that occurred at the time of our formation. Existing liabilities
for indebtedness generally were taken into account in connection with the
allocation of the operating partnership's limited partnership units and/or
shares of AMB's common stock in the formation transactions, but no other
liabilities were taken into account for these purposes. We do not have recourse
against our predecessors or any of their respective stockholders or partners or
against any individual account investors with respect to any unknown
liabilities. Unknown liabilities might include the following:
- liabilities for clean-up or remediation of undisclosed environmental
conditions;
- claims of tenants, vendors or other persons dealing with our predecessors
prior to the formation transactions that had not been asserted prior to
the formation transactions;
- accrued but unpaid liabilities incurred in the ordinary course of
business;
- tax liabilities; and
- claims for indemnification by the officers and directors of our
predecessors and others indemnified by these entities.
Certain tenants may claim that the formation transactions gave rise to a
right to purchase the premises that they occupy. We do not believe any such
claims would be material. See "-- Government Regulations --
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We Could Encounter Costly Environmental Problems" below regarding the
possibility of undisclosed environmental conditions potentially affecting the
value of our properties. Undisclosed material liabilities in connection with the
acquisition of properties, entities and interests in properties or entities
could adversely affect our financial condition, results of operations and cash
flow and AMB's ability to pay distributions on, and the market price of, its
common stock.
FAILURE TO CONSUMMATE THE REMAINING TRANSACTION WITH BPP RETAIL
On March 9, 1999, the operating partnership signed three separate
definitive agreements with BPP Retail, pursuant to which, if fully consummated,
BPP Retail would have acquired up to 28 of our retail shopping centers, totaling
approximately 5.1 million square feet, for an aggregate price of $663.4 million.
The sale of five of the properties is subject to the consent of our joint
venture partners. One of our joint venture partners who holds an interest in
three of the properties has indicated that it will not consent to the sale of
these properties at this time. We have received consents from our joint venture
partners for the sale of the other two properties. As a result, the price with
respect to the 25 remaining properties, totaling approximately 4.3 million
square feet, is approximately $560.4 million. We intend to dispose of these
three properties or our interests in the joint ventures through which we hold
the properties.
Pursuant to the agreements, BPP Retail will acquire the 25 centers in
separate transactions. Under the agreements, the operating partnership has the
right to extend the closing dates for a period of up to either 20 or 50 days.
The operating partnership has exercised this right with respect to the first and
second transactions, which occurred on June 15, 1999 and August 4, 1999,
respectively. Pursuant to the closings of the first and second transactions, BPP
Retail acquired 21 retail shopping centers, totaling approximately 3.5 million
square feet, for an aggregate price of approximately $453.2 million. We used the
proceeds from the first and second transactions to repay secured debt related to
the properties divested of approximately $55.5 million, to pay approximately
$210.0 million in partial repayment of amounts outstanding under our unsecured
credit facility, to pay transaction expenses, for potential acquisitions and for
general corporate purposes. We currently expect the third transaction to close
on or about December 1, 1999.
In addition, the operating partnership entered into a definitive agreement,
subject to a financing condition, with Burnham Pacific, pursuant to which, if
fully consummated, Burnham Pacific would have acquired up to six additional
retail centers, totaling approximately 1.5 million square feet, for
approximately $284.4 million. On June 30, 1999, this agreement was terminated
pursuant to its terms as a result of Burnham Pacific's decision not to waive the
financing condition. We currently intend to dispose of these six properties,
either on an individual or portfolio basis, or our interests in the joint
ventures through which we hold the properties.
We intend to use the proceeds of approximately $107.2 million from the
divestiture of the remaining four retail centers to BPP Retail in the third
transaction to pay approximately $26.5 million in partial repayment of amounts
outstanding under our unsecured credit facility, to pay transaction expenses,
for potential acquisitions and for general corporate purposes.
Although the remaining transaction with BPP Retail has a discretionary due
diligence period, it is subject to certain customary closing conditions, which
are generally applied on a property-by-property basis. Burnham Pacific has
announced that it has received and is reviewing a merger proposal. We do not
believe that the contractual obligations of BPP Retail with respect to the
purchase of the retail centers will be affected by any resulting merger. BPP
Retail has posted a deposit of $8.4 million on the remaining transaction. BPP
Retail's liability in the event of its default under a definitive agreement is
limited to its deposit. Although we believe that the remaining transaction with
BPP Retail is probable, it might not close as scheduled or close at all, and it
is possible that the transaction may close with respect to just a portion of the
properties currently subject to the agreement. In the event that the remaining
transaction fails to close, or its closing is significantly delayed, net
proceeds from divestitures of properties will not be available to the same
extent to fund our acquisitions and developments. Any failure or delay in such
closing may also make us unable to repay certain of our indebtedness with the
net
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proceeds as we currently intend and could require us to borrow additional funds
or seek other forms of financing.
CONFLICTS OF INTEREST
SOME OF OUR EXECUTIVE OFFICERS ARE INVOLVED IN OTHER REAL ESTATE ACTIVITIES
AND INVESTMENTS
Some of our executive officers own interests in real estate-related
businesses and investments. These interests include minority ownership of
Institutional Housing Partners, a residential housing finance company, and
ownership of AMB Development, Inc. and AMB Development, L.P., developers which
own property that we believe is not suitable for ownership by us. AMB
Development, Inc. and AMB Development, L.P. have agreed not to initiate any new
development projects following AMB's initial public offering in November 1997.
These entities have also agreed that they will not make any further investments
in industrial or retail properties other than those currently under development
at the time of AMB's initial public offering. AMB Institutional Housing
Partners, AMB Development, Inc. and AMB Development, L.P. continue to use the
name "AMB" pursuant to royalty-free license arrangements. The continued
involvement in other real estate-related activities by some of our executive
officers and directors could divert management's attention from our day-to-day
operations. Most of our executive officers have entered into non-competition
agreements with us pursuant to which they have agreed not to engage in any
activities, directly or indirectly, in respect of commercial real estate, and
not to make any investment in respect of industrial or retail real estate, other
than through ownership of not more than 5% of the outstanding shares of a public
company engaged in such activities or through the existing investments referred
to in this report. State law may limit our ability to enforce these agreements.
We could also, in the future, subject to the unanimous approval of the
disinterested members of the board of directors with respect to such
transaction, acquire property from executive officers, enter into leases with
executive officers, and/or engage in other related activities in which the
interests pursued by the executive officers may not be in the best interests of
AMB's stockholders.
CERTAIN OF OUR EXECUTIVE OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF
INTEREST WITH US IN CONNECTION WITH OTHER PROPERTIES THAT THEY OWN OR
CONTROL
As of May 31, 1999, AMB Development, L.P. owns interests in 11 retail
development projects in the U.S., 10 of which consist of a single free-standing
Walgreens drugstore and one of which consists of a free-standing Walgreens
drugstore, a ground lease to McDonald's and a 14,000 square foot retail center.
In addition, Messrs. Abbey, Moghadam and Burke, each a founder and director, own
less than 1% interests in two partnerships which own office buildings in various
markets; these interests have negligible value. Luis A. Belmonte, an executive
officer, owns less than a 10% interest, representing an estimated value of
$75,000, in a limited partnership which owns an office building located in
Oakland, California.
In addition, several of our executive officers individually own:
- less than 1% interests in the stocks of certain publicly-traded real
estate investment trusts;
- certain interests in and rights to developed and undeveloped real
property located outside the United States;
- certain passive interests, that we do not believe are material, in real
estate businesses in which such persons were previously employed; and
- certain other de minimis holdings in equity securities of real estate
companies.
Thomas W. Tusher, a member of AMB's board of directors, is a limited
partner in a partnership in which Messrs. Abbey, Moghadam and Burke are general
partners and which owns a 75% interest in an office building. Mr. Tusher owns a
20% interest in the partnership, valued as of May 31, 1999 at approximately $1.2
million. Messrs. Abbey, Moghadam and Burke each have an approximately 26.7%
interest in the partnership, each valued as of May 31, 1999 at approximately
$1.6 million.
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We believe that the properties and activities set forth above generally do
not directly compete with any of our properties. However, it is possible that a
property in which an executive officer or director, or an affiliate of an
executive officer or director, has an interest may compete with us in the future
if we were to invest in a property similar in type and in close proximity to
that property. In addition, the continued involvement by our executive officers
and directors in these properties could divert management's attention from our
day-to-day operations. Our policy prohibits us from acquiring any properties
from our executive officers or their affiliates without the approval of the
disinterested members of AMB's board of directors with respect to that
transaction.
AMB'S ROLE AS GENERAL PARTNER OF THE OPERATING PARTNERSHIP MAY CONFLICT WITH
THE INTERESTS OF STOCKHOLDERS
As the general partner of the operating partnership, AMB has fiduciary
obligations to the operating partnership's limited partners, the discharge of
which may conflict with the interests of AMB's stockholders. In addition, those
persons holding limited partnership units will have the right to vote as a class
on certain amendments to the partnership agreement of the operating partnership
and individually to approve certain amendments that would adversely affect their
rights. The limited partners may exercise these voting rights in a manner that
conflicts with the interests of AMB's stockholders. In addition, under the terms
of the operating partnership's partnership agreement, holders of limited
partnership units will have certain approval rights with respect to certain
transactions that affect all stockholders but which they may not exercise in a
manner which reflects the interests of all stockholders.
AMB'S DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT STOCKHOLDERS COULD ACT
IN A MANNER THAT IS NOT IN THE BEST INTEREST OF ALL STOCKHOLDERS
As of July 21, 1999, AMB's three largest stockholders, Cohen & Steers
Capital Management, Inc. (with respect to various client accounts for which
Cohen & Steers Capital Management, Inc. serves as investment advisor), Southern
Company Services, Inc. and Capital Research and Management Company (with respect
to various client accounts for which Capital Research and Management Company
serves as investment advisor) beneficially owned approximately 21.4% of AMB's
outstanding common stock. In addition, our executive officers and directors
beneficially owned approximately 5.5% of AMB's outstanding common stock as of
August 1, 1999, and will have influence on our management and operation and, as
stockholders, will have influence on the outcome of any matters submitted to a
vote of AMB's stockholders. This influence might be exercised in a manner that
is inconsistent with the interests of other stockholders. Although there is no
understanding or arrangement for these directors, officers and stockholders and
their affiliates to act in concert, these parties would be in a position to
exercise significant influence over our affairs if they choose to do so.
WE COULD SUFFER LOSSES IF WE FAIL TO ENFORCE THE TERMS OF CERTAIN
AGREEMENTS
As holders of shares of AMB's common stock and, potentially, performance
units, certain of AMB's directors and officers could have a conflict of interest
with respect to their obligations as directors and officers to vigorously
enforce the terms of certain of the agreements relating to our formation
transactions. The potential failure to enforce the material terms of those
agreements could result in a monetary loss to us, which loss could have a
material adverse effect on our financial condition, results of operations and
cash flow and AMB's ability to pay distributions on, and the market price of,
its common stock.
OWNERSHIP OF COMMON STOCK
LIMITATIONS IN AMB'S CHARTER AND BYLAWS COULD PREVENT A CHANGE IN CONTROL
Certain provisions of AMB's charter and bylaws may delay, defer or prevent
a change in control or other transaction that could provide the holders of AMB's
common stock with the opportunity to realize a premium over the then-prevailing
market price for the common stock. To maintain AMB's qualification as a real
estate investment trust for federal income tax purposes, not more than 50% in
value of AMB's outstanding stock may be owned, actually or constructively, by
five or fewer individuals (as defined in the Internal Revenue Code to
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include certain entities) during the last half of a taxable year after the first
taxable year for which a real estate investment trust election is made.
Furthermore, after the first taxable year for which a real estate investment
trust election is made, AMB's common stock must be held by a minimum of 100
persons for at least 335 days of a 12-month taxable year (or a proportionate
part of a short tax year). In addition, if AMB, or an owner of 10% or more of
AMB's stock, actually or constructively owns 10% or more of one of AMB's tenants
(or a tenant of any partnership in which AMB is a partner), the rent received by
AMB (either directly or through any such partnership) from that tenant will not
be qualifying income for purposes of the real estate investment trust gross
income tests of the Internal Revenue Code. To facilitate maintenance of AMB's
qualification as a real estate investment trust for federal income tax purposes,
AMB will prohibit the ownership, actually or by virtue of the constructive
ownership provisions of the Internal Revenue Code, by any single person of more
than 9.8% (by value or number of shares, whichever is more restrictive) of the
issued and outstanding shares of AMB's common stock and more than 9.8% (by value
or number of shares, whichever is more restrictive) of the issued and
outstanding shares of AMB's Series A Preferred Stock, and AMB will also prohibit
the ownership, actually or constructively, of any shares of AMB's Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock by any
single person so that no such person, taking into account all of AMB's stock so
owned by such person, may own in excess of 9.8% of AMB's issued and outstanding
capital stock. We refer to this limitation as the "ownership limit." Shares
acquired or held in violation of the ownership limit will be transferred to a
trust for the benefit of a designated charitable beneficiary. Any person who
acquires shares in violation of the ownership limit will not be entitled to any
distributions on the shares or be entitled to vote the shares or receive any
proceeds from the subsequent sale of the shares in excess of the lesser of the
price paid for the shares or the amount realized from the sale. A transfer of
shares in violation of the above limits may be void under certain circumstances.
The ownership limit may have the effect of delaying, deferring or preventing a
change in control and, therefore, could adversely affect AMB's stockholders'
ability to realize a premium over the then-prevailing market price for the
shares of AMB's common stock in connection with such transaction. The board of
directors has waived the ownership limit applicable to AMB's common stock with
respect to Ameritech Pension Trust, allowing it to own up to 14.9% of AMB's
common stock and, under some circumstances, allowing it to own up to 19.6%.
However, AMB conditioned this waiver upon the receipt of undertakings and
representations from Ameritech Pension Trust which AMB believed were reasonably
necessary in order to conclude that the waiver would not cause AMB to fail to
qualify as a real estate investment trust.
AMB's charter authorizes AMB to issue additional shares of common stock and
Series A Preferred Stock and to issue Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and one or more other series or
classes of preferred stock and to establish the preferences, rights and other
terms of any series or class of preferred stock that AMB issues. Although AMB's
board of directors has no intention to do so at the present time, it could
establish a series or class of preferred stock that could delay, defer or
prevent a transaction or a change in control that might involve a premium price
for the common stock or otherwise be in the best interests of AMB's
stockholders.
AMB's charter and bylaws and Maryland law also contain other provisions
that may delay, defer or prevent a transaction, including a change in control,
that might involve payment of a premium price for the common stock or otherwise
be in the best interests of AMB's stockholders. Those provisions include the
following:
- the provision in the charter that directors may be removed only for cause
and only upon a two-thirds vote of stockholders, together with bylaw
provisions authorizing the board of directors to fill vacant
directorships;
- the provision in the charter requiring a two-thirds vote of stockholders
for any amendment of the charter;
- the requirement in the bylaws that the request of the holders of 50% or
more of AMB's common stock is necessary for stockholders to call a
special meeting;
- the requirement of Maryland law that stockholders may only take action by
written consent with the unanimous approval of all stockholders entitled
to vote on the matter in question; and
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- the requirement in the bylaws of advance notice by stockholders for the
nomination of directors or proposal of business to be considered at a
meeting of stockholders.
These provisions may impede various actions by stockholders without
approval of AMB's board of directors, which in turn may delay, defer or prevent
a transaction involving a change of control.
WE COULD CHANGE OUR INVESTMENT AND FINANCING POLICIES WITHOUT A VOTE OF
STOCKHOLDERS
Subject to our fundamental investment policy to maintain AMB's
qualification as a real estate investment trust (unless a change is approved by
AMB's board of directors under certain circumstances), AMB's board of directors
will determine our investment and financing policies, our growth strategy and
our debt, capitalization, distribution and operating policies. Although the
board of directors has no present intention to revise or amend these strategies
and policies, the board of directors may do so at any time without a vote of
stockholders. Accordingly, stockholders will have no control over changes in our
strategies and policies (other than through the election of directors), and any
such changes may not serve the interests of all stockholders and could adversely
affect our financial condition or results of operations, including our ability
to distribute cash to stockholders.
IF WE ISSUE ADDITIONAL SECURITIES, THE INVESTMENT OF EXISTING STOCKHOLDERS
WILL BE DILUTED
We have authority to issue shares of common stock or other equity or debt
securities in exchange for property or otherwise. Similarly, we may cause the
operating partnership to issue additional limited partnership units in exchange
for property or otherwise. Existing stockholders will have no preemptive right
to acquire any additional securities issued by us or the operating partnership
and any issuance of additional equity securities could result in dilution of an
existing stockholder's investment.
THE LARGE NUMBER OF SHARES AVAILABLE FOR FUTURE SALE COULD ADVERSELY AFFECT
THE MARKET PRICE OF AMB'S COMMON STOCK
We cannot predict the effect, if any, that future sales of shares of AMB's
common stock, or the availability of shares of AMB's common stock for future
sale, will have on its market price. Sales of a substantial number of shares of
AMB's common stock in the public market (or upon exchange of limited partnership
units in the operating partnership) or the perception that such sales (or
exchanges) might occur could adversely affect the market price of AMB's common
stock.
All shares of common stock issuable upon the redemption of limited
partnership units in the operating partnership will be deemed to be "restricted
securities" within the meaning of Rule 144 under the Securities Act and may not
be transferred unless registered under the Securities Act or an exemption from
registration is available, including any exemption from registration provided
under Rule 144. In general, upon satisfaction of certain conditions, Rule 144
permits the holder to sell certain amounts of restricted securities one year
following the date of acquisition of the restricted securities from us and,
after two years, permits unlimited sales by persons unaffiliated with us. On
November 26, 1998, 74,710,153 shares of common stock issued in our formation
transactions became eligible for sale pursuant to Rule 144, subject to the
volume limitations and other conditions imposed by Rule 144. Commencing
generally on the first anniversary of the date of acquisition of common limited
partnership units (or such other date agreed to by the operating partnership and
the holders of the units), the operating partnership may redeem common limited
partnership units at the request of the holders for cash (based on the fair
market value of an equivalent number of shares of common stock at the time of
redemption) or, at AMB's option, exchange the common limited partnership units
for an equal number of shares of common stock of AMB, subject to certain
antidilution adjustments. The operating partnership has issued and outstanding
4,568,942 common limited partnership units to date. As of June 30, 1999, AMB has
reserved 8,785,030 shares of common stock for issuance under its Stock Option
and Incentive Plan (not including shares that AMB has already issued) and, as of
June 30, 1999, has granted to certain directors, officers and employees options
to purchase 4,572,990 shares of common stock (not including forfeitures and
16,250 shares that AMB has issued pursuant to the exercise of options). To date,
AMB has granted 148,720 restricted shares of common stock, 932 of which have
been forfeited. In addition, AMB may
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issue additional shares of common stock and the operating partnership may issue
additional limited partnership units in connection with the acquisition of
properties. In connection with the issuance of common limited partnership units
to other transferors of properties, and in connection with the issuance of any
performance units, AMB has agreed to file registration statements covering the
issuance of shares of common stock upon the exchange of the common limited
partnership units. AMB has also filed a registration statement with respect to
the shares of common stock issuable under its Stock Option and Incentive Plan.
These registration statements and registration rights generally allow shares of
common stock covered thereby, including shares of common stock issuable upon
exchange of limited partnership units, including performance units, or the
exercise of options or restricted shares of common stock, to be transferred or
resold without restriction under the Securities Act. AMB may also agree to
provide registration rights to any other person who may become an owner of the
operating partnership's limited partnership units.
Future sales of the shares of common stock described above could adversely
affect the market price of AMB's common stock. The existence of the operating
partnership's limited partnership units, options and shares of common stock
reserved for issuance upon exchange of limited partnership units, and the
exercise of options and registration rights referred to above, also may
adversely affect the terms upon which we are able to obtain additional capital
through the sale of equity securities.
VARIOUS MARKET CONDITIONS AFFECT THE PRICE OF AMB'S COMMON STOCK
As with other publicly-traded equity securities, the market price of AMB's
common stock will depend upon various market conditions, which may change from
time to time. Among the market conditions that may affect the market price of
AMB's common stock are the following:
- the extent of investor interest in us;
- the general reputation of real estate investment trusts and the
attractiveness of their equity securities in comparison to other equity
securities (including securities issued by other real estate-based
companies);
- our financial performance; and
- general stock and bond market conditions, including changes in interest
rates on fixed income securities which may lead prospective purchasers of
AMB's common stock to demand a higher annual yield from future
distributions. Such an increase in the required yield from distributions
may adversely affect the market price of AMB's common stock.
Other factors such as governmental regulatory action and changes in tax
laws could also have a significant impact on the future market price of AMB's
common stock.
EARNINGS AND CASH DISTRIBUTIONS, ASSET VALUE AND MARKET INTEREST RATES
AFFECT THE PRICE OF AMB'S COMMON STOCK
The market value of the equity securities of a real estate investment trust
generally is based primarily upon the market's perception of the real estate
investment trust's growth potential and its current and potential future
earnings and cash distributions, and is based secondarily upon the real estate
market value of the underlying assets. For that reason, shares of AMB's common
stock may trade at prices that are higher or lower than the net asset value per
share. To the extent AMB retains operating cash flow for investment purposes,
working capital reserves or other purposes, these retained funds, while
increasing the value of our underlying assets, may not correspondingly increase
the market price of AMB's common stock. AMB's failure to meet the market's
expectation with regard to future earnings and cash distributions likely would
adversely affect the market price of AMB's common stock. Another factor that may
influence the price of AMB's common stock will be the distribution yield on the
common stock (as a percentage of the price of the common stock) relative to
market interest rates. An increase in market interest rates might lead
prospective purchasers of AMB's common stock to expect a higher distribution
yield, which would adversely affect the market price of the common stock. If the
market price of AMB's common stock declines significantly, we might breach
certain
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covenants with respect to debt obligations, which might adversely affect our
liquidity and ability to make future acquisitions and AMB's ability to pay
distributions to its stockholders.
WE COULD INVEST IN REAL ESTATE MORTGAGES
We may invest in mortgages, and may do so as a strategy for ultimately
acquiring the underlying property. In general, investments in mortgages include
the risks that borrowers may not be able to make debt service payments or pay
principal when due, that the value of the mortgaged property may be less than
the principal amount of the mortgage note secured by the property and that
interest rates payable on the mortgages may be lower than our cost of funds to
acquire these mortgages. In any of these events, our FFO and AMB's ability to
make distributions on, and the market price of, its common stock could be
adversely affected. FFO means income (loss) from operations before disposal of
real estate properties, minority interests and extraordinary items plus
depreciation and amortization, excluding depreciation of furniture, fixtures and
equipment less funds from operations attributable to minority interests in
consolidated joint ventures which are not convertible into shares of common
stock.
GOVERNMENT REGULATIONS
Many laws and governmental regulations are applicable to our properties and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.
COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
Under the Americans with Disabilities Act, places of public accommodation
must meet certain federal requirements related to access and use by disabled
persons. Compliance with the Americans with Disabilities Act might require us to
remove structural barriers to handicapped access in certain public areas where
such removal is "readily achievable." If we fail to comply with the Americans
with Disabilities Act, we might be required to pay fines to the government or
damages to private litigants. The impact of application of the Americans with
Disabilities Act to our properties, including the extent and timing of required
renovations, is uncertain. If we are required to make unanticipated expenditures
to comply with the Americans with Disabilities Act, our cash flow and the
amounts available for distributions to AMB's stockholders may be adversely
affected.
WE COULD ENCOUNTER COSTLY ENVIRONMENTAL PROBLEMS
Federal, state and local laws and regulations relating to the protection of
the environment impose liability on a current or previous owner or operator of
real estate for contamination resulting from the presence or discharge of
hazardous or toxic substances or petroleum products at the property. A current
or previous owner may be required to investigate and clean up contamination at
or migrating from a site. These laws typically impose liability and clean-up
responsibility without regard to whether the owner or operator knew of or caused
the presence of the contaminants. Even if more than one person may have been
responsible for the contamination, each person covered by the environmental laws
may be held responsible for all of the clean-up costs incurred. In addition,
third parties may sue the owner or operator of a site for damages based on
personal injury, property damage and/or other costs, including investigation and
clean-up costs, resulting from environmental contamination present at or
emanating from that site.
Environmental laws also govern the presence, maintenance and removal of
asbestos. These laws require that owners or operators of buildings containing
asbestos properly manage and maintain the asbestos, that they adequately inform
or train those who may come into contact with asbestos and that they undertake
special precautions, including removal or other abatement in the event that
asbestos is disturbed during renovation or demolition of a building. These laws
may impose fines and penalties on building owners or operators for failure to
comply with these requirements and may allow third parties to seek recovery from
owners or operators for personal injury associated with exposure to asbestos
fibers. Some of our properties may contain asbestos-containing building
materials.
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Some of our properties are leased or have been leased, in part, to owners
and operators of dry cleaners that operate on-site dry cleaning plants, to
owners and operators of gas stations or to owners or operators of other
businesses that use, store or otherwise handle petroleum products or other
hazardous or toxic substances. Some of these properties contain, or may have
contained, underground storage tanks for the storage of petroleum products and
other hazardous or toxic substances. These operations create a potential for the
release of petroleum products or other hazardous or toxic substances. Some of
our properties are adjacent to or near other properties that have contained or
currently contain underground storage tanks used to store petroleum products or
other hazardous or toxic substances. In addition, certain of our properties are
on, or are adjacent to or near other properties upon which others, including
former owners or tenants of the properties, have engaged or may in the future
engage in activities that may release petroleum products or other hazardous or
toxic substances. From time to time, we may acquire properties, or interests in
properties, with known adverse environmental conditions where we believe that
the environmental liabilities associated with these conditions are quantifiable
and the acquisition will yield a superior risk-adjusted return. In connection
with certain of the properties under contract for disposition to BPP Retail, we
have agreed to remain responsible for, and to bear the cost of, remediating or
monitoring certain environmental conditions on the properties following the
applicable closing dates of the transactions.
All of our properties were subject to a Phase I or similar environmental
assessments by independent environmental consultants at the time of acquisition
or shortly after acquisition. Phase I assessments are intended to discover and
evaluate information regarding the environmental condition of the surveyed
property and surrounding properties. Phase I assessments generally include an
historical review, a public records review, an investigation of the surveyed
site and surrounding properties, and preparation and issuance of a written
report, but do not include soil sampling or subsurface investigations and
typically do not include an asbestos survey. We may perform additional Phase II
testing if recommended by the independent environmental consultant. Phase II
testing may include the collection and laboratory analysis of soil and
groundwater samples, completion of surveys for asbestos-containing building
materials, and any other testing that the consultant considers prudent in order
to test for the presence of hazardous materials. Some of the environmental
assessments of our properties do not contain a comprehensive review of the past
uses of the properties and/or the surrounding properties.
None of the environmental assessments of our properties has revealed any
environmental liability that we believe would have a material adverse effect on
our financial condition or results of operations taken as a whole, and we are
not aware of any such material environmental liability. Nonetheless, it is
possible that the assessments do not reveal all environmental liabilities and
that there are material environmental liabilities of which we are unaware or
that known environmental conditions may give rise to liabilities that are
materially greater than anticipated. Moreover, future laws, ordinances or
regulations may impose material environmental liability and the current
environmental condition of our properties may be affected by tenants, by the
condition of land, by operations in the vicinity of the properties (such as
releases from underground storage tanks), or by third parties unrelated to us.
If the costs of compliance with environmental laws and regulations now existing
or adopted in the future exceed our budgets for these items, our financial
condition, results of operations and cash flow and AMB's ability to pay
distributions on, and the market price of, its common stock could be adversely
affected.
OUR FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED IF WE FAIL TO COMPLY
WITH OTHER REGULATIONS
Our properties are also subject to various federal, state and local
regulatory requirements such as state and local fire and life safety
requirements. If we fail to comply with these requirements, we might incur fines
by governmental authorities or be required to pay awards of damages to private
litigants. We believe that our properties are currently in substantial
compliance with all such regulatory requirements. However, these requirements
may change or new requirements may be imposed which could require significant
unanticipated expenditures by us. Any such unanticipated expenditures could have
an adverse effect on our financial condition, results of operations and cash
flow and AMB's ability to pay distributions on, and the market price of, its
common stock.
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FEDERAL INCOME TAX RISKS
AMB'S FAILURE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST WOULD HAVE
SERIOUS ADVERSE CONSEQUENCES TO STOCKHOLDERS
AMB intends to operate so as to qualify as a real estate investment trust
under the Internal Revenue Code. AMB believes that it has been organized and has
operated in a manner which would allow it to qualify as a real estate investment
trust under the Internal Revenue Code beginning with its taxable year ended
December 31, 1997. However, it is possible that AMB has been organized or has
operated in a manner which would not allow it to qualify as a real estate
investment trust, or that AMB's future operations could cause it to fail to
qualify. Qualification as a real estate investment trust requires AMB to satisfy
numerous requirements (some on an annual and quarterly basis) established under
highly technical and complex Internal Revenue 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
AMB's control. For example, in order to qualify as a real estate investment
trust, at least 95% of AMB's gross income in any year must be derived from
qualifying sources, AMB must pay dividends to stockholders aggregating annually
at least 95% of its real estate investment trust taxable income (determined
without regard to the dividends paid deduction and by excluding capital gains)
and AMB must satisfy specified asset tests on a quarterly basis. These
provisions and the applicable treasury regulations are more complicated in our
case because AMB holds its assets in partnership form. Legislation, new
regulations, administrative interpretations or court decisions could
significantly change the tax laws with respect to qualification as a real estate
investment trust or the federal income tax consequences of such qualification.
However, AMB is not aware of any pending tax legislation that would adversely
affect its ability to operate as a real estate investment trust.
If AMB fails to qualify as a real estate investment trust in any taxable
year, it will be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Unless AMB is entitled to relief under certain statutory provisions, it would be
disqualified from treatment as a real estate investment trust for the four
taxable years following the year during which it lost qualification. If AMB
loses its real estate investment trust status, its net earnings available for
investment or distribution to stockholders would be significantly reduced for
each of the years involved. In addition, AMB would no longer be required to make
distributions to stockholders.
AMB PAYS SOME TAXES
Even if AMB qualifies as a real estate investment trust, it will be subject
to certain federal, state and local taxes on its income and property. In
addition, the net taxable income, if any, from the activities conducted through
AMB Investment Management, Inc. and Headlands Realty Corporation (which we
discuss below under "-- AMB Investment Management, Inc. and Headlands Realty
Corporation") will be subject to federal and state income tax.
CERTAIN PROPERTY TRANSFERS MAY GENERATE PROHIBITED TRANSACTION INCOME
From time to time, we may transfer or otherwise dispose of some of our
properties. Under the Internal Revenue Code, any gain resulting from transfers
of properties that are held as inventory or primarily for sale to customers in
the ordinary course of business is treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Since we acquire properties
for investment purposes, we believe that any transfer or disposal of property by
us would not be deemed by the Internal Revenue Service to be a prohibited
transaction with any resulting gain allocable to AMB being subject to a 100%
penalty tax. However, whether property is held for investment purposes is a
question of fact that depends on all the facts and circumstances surrounding the
particular transaction and the Internal Revenue Service may contend that certain
transfers or disposals of properties by us (including possibly some or all of
the properties that are subject to the agreements with BPP Retail) are
prohibited transactions. While we believe that the Internal Revenue Service
would not prevail in any such dispute, any adverse finding by the Internal
Revenue Service that a transfer or disposition of property constituted a
prohibited transaction would subject AMB to a 100% penalty tax on any gain
allocable to AMB from the prohibited transaction. In addition, any income from a
prohibited transaction may adversely affect
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AMB's ability to satisfy the income tests for qualifications as a real estate
investment trust for federal income tax purposes.
WE ARE DEPENDENT ON OUR KEY PERSONNEL
We depend on the efforts of AMB's executive officers. While we believe that
we could find suitable replacements for these key personnel, the loss of their
services or the limitation of their availability could adversely affect our
financial condition, results of operations and cash flow and AMB's ability to
pay distributions on, and the market price of, its common stock. We do not have
employment agreements with any of our executive officers.
WE MAY BE UNABLE TO MANAGE OUR GROWTH
Our business has grown rapidly and continues to grow through property
acquisitions. If we fail to effectively manage our growth, our financial
condition, results of operations and cash flow and AMB's ability to pay
distributions on, and the market price of, its common stock could be adversely
affected.
AMB INVESTMENT MANAGEMENT, INC. AND HEADLANDS REALTY CORPORATION
WE DO NOT CONTROL THE ACTIVITIES OF AMB INVESTMENT MANAGEMENT, INC. AND
HEADLANDS REALTY CORPORATION
The operating partnership owns 100% of the non-voting preferred stock of
AMB Investment Management, Inc. and Headlands Realty Corporation (representing
approximately 95% of the economic interest in each entity). Certain of AMB's
current and former executive officers and an officer of AMB Investment
Management, Inc. own all of the outstanding voting common stock of AMB
Investment Management, Inc. (representing approximately 5% of the economic
interest in AMB Investment Management, Inc.). Certain of AMB's executive
officers and a director of Headlands Realty Corporation own all of the
outstanding voting common stock of Headlands Realty Corporation (representing
approximately 5% of the economic interest in Headlands Realty Corporation). The
ownership structure of AMB Investment Management, Inc. and Headlands Realty
Corporation permits us to share in the income of those corporations while
allowing AMB to maintain its status as a real estate investment trust. We
receive substantially all of the economic benefit of the businesses carried on
by AMB Investment Management, Inc. and Headlands Realty Corporation through the
operating partnership's right to receive dividends. However, we are not able to
elect the directors or officers of AMB Investment Management, Inc. and Headlands
Realty Corporation and, as a result, we do not have the ability to influence
their operation or to require that their boards of directors declare and pay
cash dividends on the non-voting stock of AMB Investment Management, Inc. and
Headlands Realty Corporation held by the operating partnership. The boards of
directors and management of AMB Investment Management, Inc. and Headlands Realty
Corporation might implement business policies or decisions that would not have
been implemented by persons controlled by us and that may be adverse to the
interests of AMB's stockholders or that may adversely impact our financial
condition, results of operations and cash flow and AMB's ability to pay
distributions on, and the market price of, its common stock. In addition, AMB
Investment Management, Inc. and Headlands Realty Corporation are subject to tax
on their income, reducing their cash available for distribution to the operating
partnership.
AMB INVESTMENT MANAGEMENT, INC. MAY NOT BE ABLE TO GENERATE SUFFICIENT FEES
Fees earned by AMB Investment Management, Inc. depend on various factors
affecting the ability to attract and retain investment management clients and
the overall returns achieved on managed assets. These factors are beyond our
control. AMB Investment Management, Inc.'s failure to attract investment
management clients or achieve sufficient overall returns on managed assets could
reduce its ability to make distributions on the stock owned by the operating
partnership and could also limit co-investment opportunities to the operating
partnership. This would limit the operating partnership's ability to generate
rental revenues from such co-investments and use the co-investment program as a
source to finance property acquisitions and leverage acquisition opportunities.
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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.1 Agreement for Purchase and Exchange entered into as of March
9, 1999 by and among AMB Property, L.P., AMB Property II,
L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the
transaction which closed on June 15, 1999.
10.2 Agreement for Purchase and Exchange entered into as of March
9, 1999 by and among AMB Property, L.P., AMB Property II,
L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the
transaction which closed on August 4, 1999.
10.3 Agreement for Purchase and Exchange entered into as of March
9, 1999 by and among AMB Property, L.P., AMB Property II,
L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the
transaction which is currently scheduled to close on or
about December 1, 1999.
10.4 Dividend Reinvestment and Direct Purchase Plan, dated July
9, 1999.
10.5 Second Amended and Restated 1997 Stock Option and Incentive
Plan.
27.1 Financial Data Schedule -- AMB Property Corporation.
</TABLE>
(b) Reports on Form 8-K:
- AMB filed a Current Report on Form 8-K on April 8, 1999, which contained
pro forma financial statements as of and at December 31, 1998, relating
to the transactions with BPP Retail, LLC and Burnham Pacific Properties.
- AMB filed Amendment No. 1 to Current Report on Form 8-K on June 9, 1999,
which contained information relating to the transactions with BPP Retail,
LLC and Burnham Pacific Properties and pro forma financial statements as
of and at March 31, 1999, relating to the transactions with BPP Retail,
LLC and Burnham Pacific Properties.
- AMB filed a Current Report on Form 8-K on June 15, 1999, regarding the
closing of the first transaction with BPP Retail, LLC.
- AMB filed a Current Report on Form 8-K on July 1, 1999, regarding the
termination of the transaction with Burnham Pacific Properties and
containing updated pro forma financial statements as of and at March 31,
1999, relating to the transactions with BPP Retail, LLC.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMB PROPERTY CORPORATION
Registrant
Date: August 13, 1999 By: /s/ MICHAEL A. COKE
------------------------------------
Michael A. Coke
Chief Financial Officer and
Senior Vice President
(Duly Authorized Officer and
Principal Financial and Accounting
Officer)
42
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.1 Agreement for Purchase and Exchange entered into as of March
9, 1999 by and among AMB Property, L.P., AMB Property II,
L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the
transaction which closed on June 15, 1999.
10.2 Agreement for Purchase and Exchange entered into as of March
9, 1999 by and among AMB Property, L.P., AMB Property II,
L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the
transaction which closed on August 4, 1999.
10.3 Agreement for Purchase and Exchange entered into as of March
9, 1999 by and among AMB Property, L.P., AMB Property II,
L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the
transaction which is currently scheduled to close on or
about December 1, 1999.
10.4 Dividend Reinvestment and Direct Purchase Plan, dated July
9, 1999.
10.5 Second Amended and Restated 1997 Stock Option and Incentive
Plan.
27.1 Financial Data Schedule -- AMB Property Corporation.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AGREEMENT FOR PURCHASE AND SALE
March 9, 1999
<PAGE> 2
<TABLE>
<CAPTION>
ARTICLE PAGE
----
<S> <C> <C>
ARTICLE 1 BASIC DEFINITIONS..................................................1
ARTICLE 2 PURCHASE AND exchange..............................................4
ARTICLE 3 CONDITIONS PRECEDENT..............................................13
ARTICLE 4 COVENANTS, WARRANTIES AND REPRESENTATIVES.........................14
ARTICLE 5 DEPOSIT; DEFAULT..................................................24
ARTICLE 6 CLOSING...........................................................29
ARTICLE 7 MISCELLANEOUS.....................................................39
</TABLE>
<PAGE> 3
List of Exhibits
* Exhibit A-1-- Transferors & Properties (Sale Properties)
* Exhibit A-2 -- Transferors & Properties (Exchange Properties)
* Exhibit B -- Confirmation Letter
* Exhibit C -- Disclosure Materials List & Statement
* Exhibit D -- Title Allocations
* Exhibit E -- Rent Rolls
* Exhibit F-- Intentionally Omitted
* Exhibit G -- Title Exceptions
* Exhibit G-1 -- Excluded Exceptions
* Exhibit G-2 -- Title Documents to be Obtained
* Exhibit H-1 -- Allocated Price (Sale Properties)
* Exhibit H-2 -- Allocated Price (Exchange Properties)
* Exhibit I -- Transfer Documents
* Exhibit J Press Release
* Exhibit K -- Title Affidavit
* Exhibit L -- Excluded Claims
* Exhibit M -- Joint Venture Properties
* Exhibit N -- Investigation Matters
* Exhibit N-1 -- Credit Calculation Example
* Exhibit O -- Indemnity Agreements
* Exhibit P -- Year 2000 Action
* Exhibit Q -- Insured Properties
* Exhibit R -- Carl's Junior Property
* Exhibit S -- Vacant Space
* Exhibit T-1 -- Audit Documents
* Exhibit T-2-- Audit Certificate
* Exhibit U-1-- No Further Action Properties
* Exhibit U-2-- Access and Remediation Agreement
* Exhibit V-- Agreements
* Exhibit W-- Litigation
<PAGE> 4
AGREEMENT FOR PURCHASE AND EXCHANGE
THIS AGREEMENT FOR PURCHASE AND EXCHANGE is made and entered into as of
March 9, 1999, by and among AMB PROPERTY, L.P., a Delaware limited partnership
("AMBLP"), AMB PROPERTY II, L.P., a Delaware limited partnership ("AMB II"),
LONG GATE, L.L.C., a Delaware limited liability company ("Long Gate"), (AMBLP,
AMB II and Long Gate are, collectively, as to the properties described on
Exhibit A-2, the "Exchangors," and as to the properties described on Exhibit
A-1, the "Sellers" and, together, the "Transferors"), and BPP RETAIL, LLC, a
Delaware limited liability company ("Buyer"). Transferors and their respective
interests in the Properties (as defined below) are identified more precisely on
Exhibit A to this Agreement.
RECITALS
A. The Sellers, either directly or indirectly (with certain Third
Parties (as herein defined)), hold ownership of a portfolio of properties listed
on Exhibit A-1 to this Agreement and defined below with greater specificity as
the " Sale Properties."
B. The Exchangors, either directly or indirectly (with certain Third
Parties (as herein defined)), hold ownership of a portfolio of properties listed
on Exhibit A-2 to this Agreement and defined below with greater specificity as
the "Exchange Properties."
C. Buyer desires to acquire and each of Exchangors desires to transfer,
subject to the terms and conditions contained in this Agreement, the entirety of
its right, title and interest in the Exchange Properties.
D. Buyer desires to acquire and each of Sellers desires to sell,
subject to the terms and conditions contained in this Agreement, the entirety of
its right, title and interest in the Sale Properties.
AGREEMENT
NOW, THEREFORE, Buyer and Transferors do hereby agree as follows:
ARTICLE 1
BASIC DEFINITIONS
"Additional Exceptions" shall have the meaning set forth in Section
2.6(a).
"Additional Title Exception Notice" shall have the meaning set forth in
Section 2.6(b).
"Allocated Price" shall refer, as to each Sale Property, to the portion
of the Sale Purchase Price allocated to such Sale Property as set forth on
Exhibit H-1 to this Agreement, and as to each Exchange Property, to the portion
of the Exchange Price allocated to such Exchange Property as set forth on
Exhibit H-2 to this Agreement.
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<PAGE> 5
"Closing Date" shall mean April 30, 1999 (as such date may be deferred
with respect to a particular Property pursuant to the terms of this Agreement);
provided, that Transferors shall have the right to extend the Closing Date for
up to fifty (50) days, upon not less than ten (10) business days notice prior to
the original Closing Date.
"Confirmation Letter" shall mean the letter in the form attached as
Exhibit B to this Agreement to be delivered by Buyer to Transferors on or prior
to the close of the prescribed Confirmation Period pursuant to Section 3.2
below.
"Confirmation Period" shall mean the period commencing on the date of
this Agreement, and ending at 5:00 p.m., California time on April 8, 1999,
provided that the Confirmation Period may end earlier at Buyer's election upon
delivery by Buyer to Transferors of the Confirmation Letter (representing the
conclusive waiver by Buyer of any further Confirmation Period).
"Contract Period" shall mean the period from the date of this Agreement
through and including the Closing Date (as the same may be extended pursuant to
this Agreement).
"Contracts" shall mean all maintenance, service and other operating
contracts, equipment leases and other arrangements or agreements to which any
Transferors is a party affecting the ownership, repair, maintenance, management,
leasing or operation of the Properties.
"Deferred Property" shall have the meaning set forth in Section 2.5(d)
below.
"Deleted Property" shall have the meaning set forth in Section 2.5(d)
below.
"Disclosure Materials" shall mean those materials described in Section
A of the Disclosure Materials List & Statement to which Buyer has been afforded
access and review rights prior to the date of this Agreement.
"Disclosure Materials List & Statement" shall mean the statement set
forth as Exhibit C to this Agreement.
"Exchange Price" shall have the meaning set forth in Section 2.2(b)
below.
"Exchange Property" shall mean, with respect to each of the Properties
described on Exhibit A-2, the Real Property, the Personal Property and the
Intangible Property. Collectively, such Properties shall be referred to as the
"Exchange Properties."
"Financial Statements" shall mean the historical income and expense
statements for the Properties for calendar years 1997 and 1998 (or such shorter
period as Transferors may have owned an applicable Property), which have been
provided to Buyer.
"Hazardous Materials" shall mean any substances, materials, wastes,
pollutants or contaminants defined or listed in or subject to reporting,
investigation, permitting, remediation, licensing or other regulatory
requirements under any environmental laws or regulations, including, without
limitation, any inflammable explosives, radioactive materials, asbestos,
polychlorinated biphenyls, trichloroethylene, tetrachloroethylene,
perchloroethylene and other
2
<PAGE> 6
chlorinated solvents, petroleum products and by-products and other substances
with toxic or hazardous characteristics.
"Improvements" shall mean, as to each of the properties listed on
Exhibit A, the right, title and interest of the Transferors in ownership of such
property in any and all structures, buildings, facilities, parking areas or
other improvements situated on such property's Land and all related fixtures,
improvements, building systems and equipment (including, without limitation,
HVAC, security and life safety systems).
"Intangible Property" shall mean, as to each Real Property, the right,
title and interest of the Transferors in ownership of such Real Property in: (a)
any and all permits, entitlements, filings, building plans, specifications and
working drawings, certificates of occupancy, operating permits, sign permits,
development rights and approvals, certificates, licenses, warranties and
guarantees, engineering, soils, pest control, survey, environmental, appraisal,
market and other reports relating to such Real Property and associated Personal
Property; (b) all trade names, service marks, tenant lists, advertising
materials and telephone exchange numbers identified with such Real Property; (c)
the Contracts and the Leases; (d) except as set forth on Exhibit L attached
hereto (the "Excluded Claims"), claims, awards, actions, remedial rights and
judgments, and escrow accounts relating to environmental remediation, to the
extent relating to such Real Property and associated Personal Property; (e) all
books, records, files and correspondence relating to such Real Property and
associated Personal Property; (f) to the extent assignable, the agreements
listed on Exhibit V attached hereto, including all purchase options, rights of
first refusal or first opportunity to purchase and similar rights contained
therein; and (g) all other transferable intangible property, miscellaneous
rights, benefits or privileges of any kind or character with respect to such
Real Property and associated Personal Property, including, without limitation,
under any REAs, provided that the Intangible Property shall not include any
Transferor's name or any right to the reference "AMB".
"Investigation Matters" shall have the meaning set forth in Section
2.4(a) below.
"Joint Venture" shall have the meaning set forth in Section 2.7 below.
"Land" shall mean, as to each of the properties listed on Exhibit A,
the land component of the property as described with precision in the Title
Policies.
"Leases" shall mean, as to each Real Property, all leases, concession
agreements, rental agreements or other agreements (including all amendments or
modifications thereto) which entitle any person to the occupancy or use of any
portion of the Real Property.
"Material Adverse Matters Amount" shall refer, as to any Property, to
the amount, if any, as to which Buyer claims a credit against the Price with
respect to an Investigation Matter pursuant to Section 2.5 and Exhibit N
attached hereto.
"Permitted Exceptions" shall mean the various matters affecting title
to the Properties that are approved or deemed approved by Buyer pursuant to
Section 2.6 below.
"Personal Property" shall mean, as to each Real Property, all
furniture, furnishings, trade fixtures and other tangible personal property
directly or indirectly owned by the Transferors in
3
<PAGE> 7
ownership of such Real Property that is located at and used exclusively in
connection with the operation of any Real Property.
"Price" shall mean the Sale Purchase Price and the Exchange Price,
collectively.
"Property" shall mean, with respect to each of the properties described
on Exhibit A, the Real Property, the Personal Property and the Intangible
Property. Collectively, such properties shall be referred to as the
"Properties."
"Real Property" shall mean, as to each property listed on Exhibit A,
the Land, the Improvements and all of Transferor's right, title and interest in
and to the rights, privileges, easements, and appurtenances to the Land or the
Improvements, including, without limitation, any air, development, water,
hydrocarbon or mineral rights held by any Transferors, all licenses, easements,
rights-of-way, claims, rights or benefits, covenants, conditions and servitude
and other appurtenances used or connected with the beneficial use or enjoyment
of the Land or the Improvements and all rights or interests relating to any
roads, alleys or parking areas adjacent to or servicing the Land or the
Improvements.
"REAs" shall have the meaning set forth in Section 4.1(b)(viii) below.
"Rent Rolls" shall refer to the information schedules attached as
Exhibit E to this Agreement pertaining to the Leases.
"Sale Property" shall mean, with respect to each of the Properties
described on Exhibit A-1, the Real Property, the Personal Property and the
Intangible Property. Collectively, such Properties shall be referred to as the
"Sale Properties."
"Sale Purchase Price" shall have the meaning set forth in Section
2.2(a) below.
"Surveys" shall refer to Transferors' existing surveys with respect to
the Properties which have been delivered by Transferors to Buyer.
"Third Party" or "Third Parties" shall have the meaning set forth in
Section 2.7 below.
"Title Company" shall mean Chicago Title Company; Attn: Pat Davisson
(Telephone: (415) 788-0871).
"Title Policies" shall refer to Transferors' existing title insurance
policies with respect to the Properties, complete copies of which have been made
available by Transferors to Buyer.
"1031 Exchange" shall have the meaning set forth in Section 6.6 below.
ARTICLE 2
PURCHASE AND EXCHANGE
SECTION 2.1 Purchase and Transfer. Exchangors agree to transfer the
Exchange Properties to Buyer by means of one or more 1031 Exchanges, and Buyer
agrees to acquire the Exchange Properties upon all of the terms, covenants and
conditions set forth in this Agreement.
4
<PAGE> 8
In furtherance of exchange, Buyer agrees to cooperate in such 1031 Exchanges
pursuant to and as provided in Section 6.6 below. Sellers agree to sell the Sale
Properties to Buyer and Buyer agrees to purchase or cause to be purchased the
Sale Properties upon all of the terms, covenants and conditions set forth in
this Agreement.
SECTION 2.2 Price.
(a) The aggregate purchase price for the Sale Properties (the
"Sale Purchase Price") shall be the sum of Sixty Two Million Two Hundred Twenty
Seven Thousand Dollars (U.S. $62,227,000), subject to adjustment in accordance
with Sections 2.3 [Adjustments], 6.3 [Prorations] and 6.9 [Completion Events]
below. The entire amount of the Sale Purchase Price so adjusted shall be payable
by Buyer to Sellers in cash on the Closing Date through the escrow described in
Section 6.1 below.
(b) The aggregate price for the Exchange Properties (the
"Exchange Price") shall be the sum of Two Hundred Thirty Million Five Hundred
Twenty Five Thousand Dollars (U.S. $230,525,000), subject to adjustment in
accordance with Sections 2.3 [Adjustments], 6.3 [Prorations] and 6.9 [Completion
Events] below. The entire amount of the Exchange Price so adjusted shall be
payable by Buyer to one or more exchange facilitators selected by Exchangors in
their sole discretion, in furtherance of one or more 1031 Exchanges, through
payment in cash of the entire balance of the Exchange Price on the Closing Date
through one or more escrows described in Section 6.1 below.
SECTION 2.3 Adjustments. In addition to the prorations and credits
contemplated by Section 6.3 below, (a) the Price shall be decreased by the
aggregate amount of the Allocated Prices of any Deleted Properties, (b) the
portion of the Price payable on the Closing Date shall be reduced by the
Allocated Price of any Deferred Properties, and (c) the Price shall be decreased
by the aggregate amount of any adjustments effected pursuant to Sections 2.5 and
2.6 below.
SECTION 2.4 Buyer's Review and Transferors' Disclaimer.
(a) Buyer acknowledges that Transferors have afforded Buyer and
its agents and representatives an opportunity to review all of the Disclosure
Materials prior to the date of this Agreement and, subject to the express terms
of this Agreement, that Buyer has completed such review to its satisfaction.
Buyer has assumed fully the risk that Buyer has failed completely and adequately
to review and consider any or all of such materials. But for Buyers' expression
of satisfaction with the content of the Disclosure Materials, Buyer would not
have entered into this Agreement; but for Buyer's expression of such
satisfaction and assumption of any risk as to the character of its review and
consideration of the Disclosure Materials, Transferors would not have entered
into this Agreement. Nevertheless, during the Confirmation Period, Buyer shall
be permitted to make a further review of information relating solely to the
matters described on Exhibit N attached hereto (the "Investigation Matters") to
determine whether any Material Adverse Matters Amounts exist with respect to the
Properties and the extent of any such Material Adverse Matters Amount. Following
the Confirmation Period, Buyer shall have no further right of inspection and
review with respect to the Properties except solely for the purpose of assisting
Buyer in its management transition as provided in Sections 4.2(m) and (o) and
Section 6.10. The rights and obligations of the parties arising out of Buyer's
determination and assertion prior to
5
<PAGE> 9
the close of the Confirmation Period that such Material Adverse Matters Amounts
do exist shall be limited and solely governed by the provisions of Section 2.5
below and Exhibit N attached hereto.
(b) Buyer's exercise of the rights of review and confirmation
set forth in subsection (a) shall be subject to the following limitations: (i)
any entry onto any Property by Buyer, its agents or representatives, shall be
during normal business hours, following not less than 24 hours' prior notice to
Transferors and, at Transferors' discretion, accompanied by a representative of
Transferors; (ii) Buyer shall not conduct any drilling, test borings or other
disturbance of any Property for review of soils, compaction, environmental,
structural or other conditions without Transferors' prior written consent (which
may be withheld in Transferor's sole and absolute discretion); (iii) any
discussions or interviews with any third party, any partner of any Transferors,
any tenants of a Property or their respective personnel, at Transferors'
election, shall be conducted in the presence of Transferors or their
representatives; (iv) any discussions or interviews with employees at any
Property shall be limited to designated senior employees and, at Transferors'
election, shall be conducted in the presence of Transferors or their
representatives; (v) Buyer shall exercise reasonable diligence not to disturb
the use or occupancy or the conduct of business at any Property; (vi) prior to
any entry upon the Property by Buyer or any of its agents, representatives or
consultants for the purpose of conducting any inspections, investigations or
tests, Buyer shall deliver to Transferors a certificate of insurance evidencing
that Buyer carries a liability insurance policy in an amount not less than
$5,000,000, which liability insurance policy names each Transferors as an
additional insured; and (vii) Buyer shall indemnify, defend and hold Transferors
harmless from all loss, cost, and expense relating to personal injury or
property damage resulting from any entry or inspections performed by Buyer, its
agents or representatives. Subject to the provisions of this Agreement,
Transferors shall at all times use all reasonable efforts (but at no material
cost to Transferors) to provide Buyer with access or information that Buyer may
reasonably request concerning the Properties, but Transferors shall bear no
liability if Transferors are not able to afford Buyer such access or information
despite such reasonable efforts.
(c) Buyer acknowledges (i) that Buyer has entered into this
Agreement with the intention of making and relying upon its own investigation of
the physical, environmental, economic and legal condition of the Properties,
(ii) that, other than those specifically set forth in Article IV below or in any
document to be delivered pursuant to Section 6.1 below, Transferors are not
making and have not at any time made any warranty or representation of any kind,
expressed or implied, with respect to the Properties, including, without
limitation, warranties or representations as to habitability, merchantability,
fitness for a particular purpose, title (other than Transferors' limited
warranty of title set forth in the Deeds), zoning, tax consequences, latent or
patent physical or environmental condition, utilities, operating history or
projections, valuation, projections, compliance with law or the truth, accuracy
or completeness of the Disclosure Materials, (iii) that other than those
specifically set forth in Article IV below or in any document to be delivered
pursuant to Section 6.1 below, Buyer is not relying upon and is not entitled to
rely upon any representations and warranties made by Transferors or anyone
acting or claiming to act on any of Transferors' behalf, (iv) that the
Disclosure Materials include soils, environmental and physical reports prepared
for Transferors by third parties as to which Buyer has no right of reliance,
Buyer has conducted an independent evaluation and Transferors have made no
representation whatsoever as to accuracy, completeness or adequacy (provided,
6
<PAGE> 10
however, that nothing herein shall be deemed to limit Buyer's right to seek to
obtain from the third parties which prepared such reports the right to rely on
such reports at no cost to Transferors), and (v) that the Disclosure Materials
include economic projections which reflect assumptions as to future market
status and future Property income and expense with respect to the Properties
which are inherently uncertain and as to which Transferors have not made any
guaranty or representation whatsoever. Buyer further acknowledges that it has
not received from Transferors any accounting, tax, legal, architectural,
engineering, property management or other advice with respect to this
transaction and is relying solely upon the advice of its own accounting, tax,
legal, architectural, engineering, property management and other advisors.
Except as provided in the representations and warranties of Transferors set
forth in Article IV below and except as otherwise expressly set forth in this
Agreement or in any document to be delivered pursuant to Section 6.1 below,
based upon the order of Buyer's familiarity with and due diligence relating to
the Properties and pertinent knowledge as to the markets in which the Properties
are situated and in direct consideration of Transferors' decision to sell or
exchange the Properties to Buyer for the Price and not to pursue available
disposition alternatives, Buyer shall purchase the Properties in an "as is,
where is and with all faults" condition on the Closing Date and assumes fully
the risk that adverse latent or patent physical, environmental, economic or
legal conditions may not have been revealed by its investigations. Transferors
and Buyer acknowledge that the compensation to be paid to Transferors for the
Properties has taken into account that the Property is being sold or exchanged
subject to the provisions of this Section 2.4. Transferors and Buyer agree that
the provisions of this Section 2.4 shall survive closing.
(d) Consistent with the foregoing and subject solely to the
express covenants and indemnities set forth in this Agreement and the
representations set forth in Section 4.1 or in any document to be delivered
pursuant to Section 6.1 below (as such covenants, indemnities and
representations are limited pursuant to Section 4.4 hereof), effective as of the
Closing Date, Buyer, for itself and its agents, affiliates, successors and
assigns, hereby releases and forever discharges Transferors, their respective
members, beneficial owners, agents, affiliates, successors and assigns
(collectively, the "Releasees") from any and all rights, claims and demands at
law or in equity, whether known or unknown at the time of this agreement, which
Buyer has or may have in the future, arising out of the physical, environmental,
economic or legal condition of the Properties, including, without limitation,
all claims in tort or contract and any claim for indemnification or contribution
arising under the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601, et. seq.) or any similar federal, state
or local statute, rule or ordinance relating to liability of property owners for
environmental matters. Without limiting the foregoing, Buyer, upon closing,
shall be deemed to have waived, relinquished and released Transferors and all
other Releasees from and against any and all matters arising out of latent or
patent defects or physical conditions, violations of applicable laws and any and
all other acts, omissions, events, circumstances or matters affecting the
Properties, except for breach of the express covenants and indemnities set forth
in this Agreement and the representations and warranties set forth in Section
4.1 or in any document to be delivered pursuant to Section 6.1 (as such
covenants, indemnities and representations are limited pursuant to Section 4.4
hereof). For the foregoing purposes, Buyer hereby specifically waives the
provisions of Section 1542 of the California Civil Code and any similar law of
any other state, territory or jurisdiction. Section 1542 provides:
7
<PAGE> 11
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 his
settlement with the debtor.
Buyer hereby specifically acknowledges that Buyer has carefully reviewed this
subsection and discussed its import with legal counsel and that the provisions
of this subsection are a material part of this Agreement.
_______________
Buyer
(e) Subject to the express covenants and indemnities set forth
in this Agreement and the representations of Transferors set forth in Section
4.1 or in any document to be delivered pursuant to Section 6.1 (as such
covenants, indemnities and representations are limited pursuant to Section 4.4
hereof), Buyer shall indemnify, defend and hold Transferors harmless from and
against any and all losses, damages, causes of action, costs and expenses
(including without limitation, reasonable attorneys' fees and costs), claims and
liabilities in connection with or relating directly or indirectly to the
Properties to the extent arising out of or resulting from acts or omissions
occurring from and after the Closing Date. Transferors shall indemnify, defend
and hold Buyer harmless from and against any and all losses, damages, causes of
action, costs and expenses (including, without limitation, reasonable attorneys'
fees and costs), claims and liabilities in connection with claims brought by
third parties unaffiliated to Buyer (i) for physical injury to persons or
physical damage to property to the extent such injury or damage occurred on the
Properties and arose out of or resulted from acts or omissions of Transferors
that took place prior to the Closing Date, (ii) with respect to acts or
omissions of Transferors that took place prior to the Closing Date and that are
actually insured under an insurance policy carried by Transferors (and then only
to the extent of the proceeds actually paid under such policy, Transferors
agreeing to use commercially reasonable efforts to realize such insurance
proceeds) and (iii) with respect to each of the matters which are listed on
Exhibit W attached hereto as such list may be amended from time to time during
the Contract Period by Transferors (and provided to Buyer) to reflect new
litigation filed against Transferors during the Contract Period (the foregoing
items (i), (ii) and (iii) being collectively referred to as "Claims"); provided
that Transferors' indemnity contained in this Section 2.4(e) shall not apply to
any Claims relating to or arising out of or in connection with the environmental
condition of the Properties whether or not such Claim may be covered by
Transferors' environmental insurance policies.
SECTION 2.5 Material Adverse Matters Amounts.
(a) On or prior to the close of the Confirmation Period, Buyer
shall deliver to Transferors the Confirmation Letter in the form attached as
Exhibit B to this Agreement confirming Buyer's satisfaction as to the absence of
any Material Adverse Matters Amounts other than as specified in the Confirmation
Letter and waiving any further right or need to conduct further review or
investigation for such purposes. Buyer's failure to deliver to Transferors on or
prior to the close of the Confirmation Period an executed Confirmation Letter in
the form attached as Exhibit B, without modification or qualification in any
manner whatsoever (whether material or immaterial) -- excepting an enumeration
and explanation of
8
<PAGE> 12
identified Material Adverse Matters Amounts, shall be deemed conclusively as
Buyer's confirmation of the absence of any Material Adverse Matters Amounts.
(b) If the Confirmation Letter identifies any Material Adverse
Matters Amounts, the Confirmation Letter shall set forth: (i) the identity of
any Properties as to which Buyer has identified any Material Adverse Matters
Amounts, (ii) the nature of the Investigation Matter for each affected Property
which resulted in such Material Adverse Matters Amounts and (iii) reasonably
detailed evidence of the existence of such Material Adverse Matters Amount and
Buyer's rationale for and calculation of the Material Adverse Matters Amounts
set forth.
(c) If the Confirmation Letter does so identify Material
Adverse Matters Amounts, then, for a period ending five (5) business days
following the close of the Confirmation Period, Buyer and Transferors shall
negotiate in good faith (but otherwise as a matter within each party's sole
discretion) to determine whether the parties can reach a mutually acceptable
reduction in the Price. The parties further acknowledge that neither
participation in nor any statements made in the course of such discussions shall
represent or be interpreted as an admission or agreement as to the existence,
character or measure of any Material Adverse Matters Amount.
(d) In any event, if the parties are not able to reach and
execute a written agreement evidencing a mutually satisfactory Price adjustment
within such five (5) business day negotiation period, Transferors shall provide
Buyer with written notice (the "Election Notice") within an additional period of
three (3) business days informing Buyer that Transferors, in Transferors' sole
discretion: (i) dispute the existence or measure of Material Adverse Matters
Amounts as to Properties identified in the Election Notice, (ii) accept Buyer's
calculation of the Material Adverse Matters Amounts, in which case the Price
shall be reduced by the Material Adverse Matters Amount set forth in Buyer's
calculation, or (iii) withdraw Properties identified in the Election Notice from
the sale or exchange to Buyer; provided, however, that Transferors shall not be
permitted to withdraw any Property unless the Material Adverse Matters Amount
claimed by Buyer exceeds $200,000 with respect to such Property and exceeds
$900,000 with respect to all of the Properties (in which event Transferors, in
Transferors' discretion, may withdraw such Properties as to which Material
Adverse Matters Amounts are claimed until the claimed Material Adverse Matters
Amounts for the remaining Properties is less than or equal to $900,000). Any
Property identified as the subject of dispute under clause (i) above shall be
referred to as a "Deferred Property." Any Property withdrawn under clause (iii)
above shall be referred to as a "Deleted Property."
(e) If Transferors have elected to dispute the calculation of
any Material Adverse Matters Amounts under subsection (d)(i) above, such dispute
shall be submitted promptly to arbitration pursuant to Section 7.5 below. Buyer
and Transferors, respectively, shall remain fully obligated to purchase and sell
or exchange, as applicable, both the Deferred Properties and all other
Properties (excepting any Deleted Properties) on the terms and conditions set
forth in this Agreement, provided that (i) the Price payable on the Closing Date
applicable to all other Properties shall be reduced by the Allocated Price of
the Deferred Properties, (ii) the Closing Date with respect to the Deferred
Properties shall be deferred to that date ten (10) business days following the
issuance of a final decision in arbitration, (iii) an amount equal to five
percent (5%) of the Allocated Price for each Deferred Property shall be
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retained by Title Company as a continuing Deposit subject to disposition in
accordance with Section 5.1 below as to such Deferred Property and (iv) the
Allocated Price with respect to each Deferred Property shall be subject to any
reduction determined in arbitration.
(f) Subject to the provisions of Section 2.8, if a Property is
designated as a Deleted Property, Buyer and Transferors, respectively, shall
have no further obligation to purchase or sell or exchange, as applicable, the
Deleted Properties, shall remain obligated to purchase or sell or exchange, as
applicable, all other Properties and the Price payable on the Closing Date
applicable to all other Properties shall be reduced by the Allocated Prices of
the Deleted Properties.
SECTION 2.6 Title Exceptions.
(a) Buyer acknowledges that prior to the date hereof,
Transferors have provided to Buyer access to copies of the Title Policies, as
well as copies of the exception documents referred to in the Title Policies and
copies of the Surveys of the Properties, to the extent such exceptions are in
Transferors' immediate possession. Buyer also acknowledges that Transferors have
requested Title Company to deliver to Buyer updated title reports to the Title
Policies, as well as copies of any exception documents relating to exceptions
that are reflected in such updates that have not otherwise been provided to
Buyer prior to the date hereof; provided that Transferors shall have no
liability hereunder if Buyer is unable to obtain copies of any such documents
and Buyer shall have no rights hereunder with respect thereto. Buyer may
continue to secure during the Confirmation Period any additional title or survey
updates desired by Buyer (and will use reasonable efforts to provide the copies
of such updates to Transferors promptly after receipt of same by Buyer). As used
herein, the term "Additional Exceptions" shall mean (i) any title exceptions or
survey exceptions or qualifications identified by Title Company that are not
within the definition of Permitted Exceptions, (ii) the items listed on Exhibit
G-2 to the extent they materially and adversely affect the use, occupancy or
value of a Property, provided that such items shall not be deemed to materially
and adversely affect the use, occupancy and value of a Property to the extent
Buyer has approved (or is deemed to have approved) exceptions on such Property
or other Properties which are substantially similar in all material respects,
(iii) matters shown on surveys described in the Exhibit G Title Policies (as
defined in Exhibit G) or, if such surveys cannot be located or otherwise
obtained, on new surveys obtained by Buyer, for the Properties identified on
Exhibit G-2 which were not shown on the surveys for such Properties delivered or
made available to Buyer, if applicable, and which materially and adversely
affect the use, occupancy or value of a Property, provided that such items shall
not be deemed to materially and adversely affect the use, occupancy and value of
a Property to the extent Buyer has approved (or is deemed to have approved) such
matters on such Property or other Properties which are substantially similar in
all material respects, and (iv) with respect to any Property as to which the
Title Company will not agree at least ten (10) business days prior to the end of
the Confirmation Period to issue a survey endorsement referring to the same
survey as is referenced in Transferors' most recent Exhibit G Title Policy (for
such Property), any variance established by Buyer from the legal descriptions
insured in Transferors' most recent Exhibit G Title Policies to the surveys
described in such Title Policies (other than variances actually known to Buyer
as of the date hereof). Buyer, in any event, shall endeavor in good faith (but
at no out-of-pocket cost to Buyer) to cause the Title Company to delete or
insure over any Additional Exceptions to Buyer's reasonable satisfaction prior
to Buyer's expression of such matters in an
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Additional Title Exception Notice (as described below). Buyer shall have the
right to request that the Title Company provide at Buyer's sole cost and expense
any reinsurance or endorsements Buyer shall reasonably request with respect to
Permitted Exceptions, Additional Exceptions or otherwise, provided that the
issuance of such reinsurance or endorsements shall not be a condition to or
delay the closing except as otherwise provided in this Agreement.
(b) Buyer shall have the right to deliver a notice to
Transferors identifying any Additional Exceptions (the "Additional Title
Exception Notice") by the earlier of (i) five (5) business days after Scott
Verges becomes aware of the matter constituting an Additional Exception or (ii)
the close of the Confirmation Period. Buyer's failure to deliver any such notice
in timely fashion shall be deemed an approval of any such Additional Exceptions.
Buyer shall have no right to deliver an Additional Title Exception Notice
following the close of the Confirmation Period. If Buyer delivers an Additional
Title Exception Notice within such period, Buyer and Transferors shall promptly
attempt to agree upon the method or cost to cure or remove such Additional
Exception or, if not susceptible to cure or removal, an appropriate reduction in
the Allocated Price for the affected Property. If Transferors and Buyer are
unable to agree upon a resolution within five (5) business days following
Transferors' receipt of an Additional Title Exception Notice, Transferors shall
elect, at its option and by written notice given not later than the date of
Transferors' delivery of an Election Notice under Section 2.5(d) above, (i) to
terminate this Agreement with respect to the affected Property, in which event
such Property shall be treated as a Deleted Property or (ii) to submit the
existence of the Additional Exception, the character of a satisfactory cure or
the measure of appropriate price reduction to arbitration in accordance with the
terms of Section 7.5, in which case the Property shall be treated as a Deferred
Property. Notwithstanding the foregoing, Buyer shall not have the right to
object to any Additional Exception if Title Company is willing to affirmatively
insure or endorse over such Additional Exception at Transferors' expense, and
the Title Company is acting in a commercially reasonable manner in providing
such affirmative insurance or endorsement and Buyer reasonably approves the form
and substance of such affirmative insurance or endorsement.
(c) "Permitted Exceptions" shall include and refer to the title
exceptions set forth in Exhibit G attached hereto. Notwithstanding the
foregoing, Transferors shall remove or cause the Title Company to remove or,
except with respect to Deed of Trust Liens (as herein defined), endorse over by
endorsement reasonably satisfactory to Buyer, at Transferors' sole cost and
expense, on or prior to the Closing Date and there shall not be treated as
Permitted Exceptions: (i) any liens of any mortgages or deeds of trust securing
indebtedness of Transferors or its affiliates (collectively, "Deed of Trust
Liens") and any other liens for monetary obligations (including mechanic's
liens, but excluding (A) mechanic's liens filed by contractors or any other
parties which are working for tenants under Leases or for Transferors where the
obligation to pay such contractors or other parties is directly or indirectly an
obligation of such tenants (but only to the extent (x) such obligation is not
subject to reimbursement or payment by Transferors or its affiliates and (y)
such tenant has neither filed for protection under applicable bankruptcy laws
nor abandoned its premises) or which arise in connection with work as to which
Buyer is to receive a credit at the closing (but only to the extent of such
credit) or has agreed to assume the obligation which is the subject of such
lien, and (B) any other liens which, in the aggregate, exceed Thirty-Five
Thousand Dollars ($35,000) for a particular Property, which arise following the
date of Buyer's execution and delivery of this Agreement and which were not
created by or
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acquiesced in by Transferors, any affiliate of Transferors, or any partner,
member, officer, director, employee, agent or representative of either such
party) that are not assumed by Buyer (for such purposes, all assessments
collected with ad valorem real estate taxes and which are paid in installments
and are not delinquent as of the Closing Date shall be assumed by Buyer (subject
to the provisions of Section 6.3) and represent Permitted Exceptions); provided,
however, that with respect to any liens identified in clause (B) above, (1)
Transferors shall have the right, in Transferors' sole discretion, to (x) remove
or cause the Title Company to remove or endorse over by endorsement reasonably
satisfactory to Buyer, such lien at Transferors' sole cost and expense on or
prior to the Closing Date, or (y) terminate this Agreement with respect to the
affected property in which event such Property shall be treated as a Deleted
Property, and (2) such liens shall not be Permitted Exceptions unless consented
to by Buyer; and (ii) any title matters created in violation of Transferors'
covenant set forth in Section 4.2(e) below.
(d) Transferors shall have no obligation to execute any
affidavits or indemnifications in connection with the issuance of Buyer's title
insurance excepting only the affidavit attached hereto as Exhibit K and such
other customary affidavits as to authority, the rights of tenants in occupancy,
the status of mechanics' liens and other affidavits or indemnifications
reasonably necessary to address matters of title which Transferors are obligated
to remove or cure pursuant to this Section 2.6.
SECTION 2.7 Joint Venture Interests. Buyer acknowledges that the
Properties identified on Exhibit M attached hereto are owned by entities (each a
"Joint Venture") in which a Transferor and an unrelated third party (each, a
"Third Party" and collectively, the "Third Parties") own the beneficial
interests. If the consent or waiver of applicable Third Parties is not required
for a Transferor to sell or exchange a Property owned by a Joint Venture, then
Transferors shall cause the Property to be sold or exchanged by such Joint
Venture to Buyer. With respect to each Joint Venture where the consent or waiver
of a Third Party is required, Transferors shall, at Transferors' election made
in Transferors' sole discretion, attempt to either (i) obtain the consent of the
applicable Third Party to cause the Joint Venture to sell or exchange the
applicable Property to Buyer, or (ii) acquire the Third Party's interest in the
Joint Venture prior to or concurrent with the closing hereunder, to the extent
such purchase is permitted under the terms of the applicable Joint Venture's
operative agreement (or consented to by the Third Party) and thereafter cause
the Joint Venture to sell or exchange the applicable Property to Buyer.
Transferors shall not be required to expend any amounts to obtain the consent of
any Third Party pursuant to clause (i), but Transferors shall be required to
expend up to (but not more than) the net amount of the applicable Third Party's
proportionate share of the Allocated Price of the applicable Property based on
such Third Party's interest in the Joint Venture in order to acquire such Third
Party's interest pursuant to clause (ii) above. If Transferors are unable to
obtain a required consent or waiver from a Third Party to a sale of the Property
or acquire the Third Party's interest in such Joint Venture (after agreeing to
expend the amount set forth above), then this Agreement shall be terminated with
respect to the affected Property, in which event such Property shall be treated
as a Deleted Property.
SECTION 2.8 Reinstatement Right. Notwithstanding anything to the
contrary contained in this Agreement, if Transferors elect to treat a Property
as a Deleted Property under Sections 2.5, 2.6 or 4.4 of this Agreement, Buyer
shall have the right, by providing Transferors with written notice given within
three (3) business days after receipt of Transferors' notice
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designating a Property as a Deleted Property, to cause such Property to no
longer be treated as a Deleted Property and to purchase such Property in
accordance with this Agreement, in which event the specific condition giving
rise to Transferors' treatment of such Property as a Deleted Property shall be
deemed waived by Buyer and Buyer shall not receive any adjustment to the
Allocated Price for such Property or have any right to deliver a Claim Notice as
a result of such condition.
ARTICLE 3
CONDITIONS PRECEDENT
SECTION 3.1 Conditions.
(a) Notwithstanding anything in this Agreement to the contrary,
Buyer's obligation to purchase a particular Property shall be subject to and
contingent upon the satisfaction or waiver of the following conditions precedent
with respect to such Property:
(i) The willingness, upon the sole condition of the payment
of any regularly scheduled premium, of the Title Company (or another title
insurance company reasonably satisfactory to Buyer) to issue Owner's Policies of
Title Insurance in the form of the Title Policy issued to the applicable
Transferor with respect to each Property in connection with the initial public
offering of the stock of the Company (as herein defined) ("IPO") or, if no Title
Policy was issued for a Property in connection with the IPO, then the Title
Policy issued upon the acquisition of the Property by the applicable Transferor
(or the party that contributed such Property to the Transferor at the IPO (a
"Contributor") (or such other form(s) as may be reasonably satisfactory to
Buyer)), and with all of the endorsements issued in any Title Policy issued by
the Title Company for a particular Property insuring Buyer (or Buyer's permitted
assignee or nominee) that title to the applicable Real Property is vested of
record in Buyer (or Buyer's permitted assignee or nominee) on the Closing Date
subject only to the printed conditions and exceptions of such policies (but
deleting (by endorsement or otherwise), where permitted under applicable laws or
regulations and at Buyer's expense, any co-insurance, creditors rights and
so-called "standard" exceptions) and the Permitted Exceptions applicable to such
Real Property. Transferors will cooperate and use reasonable efforts (but at no
out-of-pocket cost to Transferors) to assist Buyer in obtaining all endorsements
contained in the Title Policies (whether issued in connection with the IPO or an
acquisition). Without limiting the foregoing, if the Title Company (and, to the
extent applicable, a different title insurance company if one other than the
Title Company previously issued any such endorsement) refuses to issue such
endorsement to Buyer at closing with respect to a matter insured against under
the Title Policies, upon request of Buyer, Transferors will assert a claim
against such insurer at Buyer's expense and direction with the goal of enabling
Buyer to obtain such endorsement from such title company. Nothing contained in
the second, third, or fourth sentence of this Section 3.1(a)(i) shall be
construed as expanding the provisions of the first sentence of this Section
3.1(a)(i) or Section 2.6 or be considered a condition to Buyer's obligation to
purchase any of the Properties and Transferors shall have no liability
whatsoever if they are unable to cause a title company to issue any such
endorsement;
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(ii) With respect to a particular Property, such Property
has not been designated a Deleted Property pursuant to this Agreement; and
(iii) Transferors' performance or tender of performance of
all material obligations under this Agreement with respect to the applicable
Property, including Transferors' covenants under Section 4.2 with respect to
such Property.
(b) Notwithstanding anything in this Agreement to the contrary,
Transferors' obligation to sell or exchange a particular Property or all of the
Properties, as the case may be, shall be subject to and contingent upon the
satisfaction or waiver of the following conditions precedent:
(i) With respect to a particular Property, such Property
has not been designated a Deleted Property pursuant to this Agreement; and
(ii) Buyer's performance or tender of performance of all
material obligations under this Agreement.
SECTION 3.2 Failure or Waiver of Conditions Precedent.
(a) If any of the conditions set forth in Section 3.1(a)(i) or
(iii) is not fulfilled or waived by Buyer with respect to a particular Property,
Buyer may, by written notice to Transferors, terminate this Agreement with
respect to the applicable Property and such Property shall be treated as a
Deleted Property. If the condition set forth in Section 3.1(b)(ii) is not
fulfilled or waived, Transferors may, by written notice to Buyer, terminate this
Agreement, whereupon all rights and obligations hereunder of each party shall be
at an end. Either party may, at its election, at any time or times on or before
the date specified for the satisfaction of the condition, waive in writing the
benefit of any of the conditions set forth in Section 3.1(a) and 3.1(b) above.
In any event, Buyer's consent to the close of escrow with respect to a Property
pursuant to this Agreement shall waive any remaining unfulfilled conditions for
the benefit of Buyer with respect to such Property.
(b) Notwithstanding the foregoing, if Buyer desires to
terminate this Agreement with respect to a Property based upon a failure of the
condition set forth in Section 3.1(a)(i) or (iii) above, Transferors shall have
a period of 30 days within which to cure such failure or, if such failure cannot
reasonably be cured within 30 days, an additional reasonable time period of up
to an additional 60 days (for a total of 90 days), so long as such cure has been
commenced within such 30 days and is at all times diligently pursued. If
Transferors have not cured such failure within such cure period then Buyer may
elect to terminate this Agreement with respect to the affected Property, in
which event such Property shall be treated as a Deleted Property.
ARTICLE 4
COVENANTS, WARRANTIES AND REPRESENTATIVES
SECTION 4.1 Transferors' Warranties and Representations. Each of
Transferors expresses to Buyer the representations and warranties set forth
below as of the date of this
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Agreement, provided that each of such representations and warranties shall be
deemed expressly qualified by any information set forth on the Disclosure
Materials List & Statement or contained in the Disclosure Materials, and any
information set forth on the Disclosure Materials List & Statement or contained
in the Disclosure Materials shall be deemed an exception to each and all of
Transferors' representations and warranties set forth herein.
(a) Each of Transferors represents and warrants with respect to
itself as follows:
(i) The Transferor (and Transferor's general partners, if
Transferor is a limited partnership, and each of its constituent members, if
Transferor is a limited liability company) is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization and the
Transferor is qualified to do business in each state in which Real Property
owned by such Transferor is located to the extent the failure to so qualify
would have a material and adverse effect on Transferor's performance of its
obligations under this Agreement. The Transferor has full power and lawful
authority to enter into and carry out the terms and provisions of this Agreement
and to execute and deliver all documents which are contemplated by this
Agreement, and all actions of the Transferor necessary to confer such power and
authority upon the persons executing this Agreement (and all documents which are
contemplated by this Agreement) on behalf of the Transferor have been taken;
(ii) Except with respect to the third party consents
expressly described in or contemplated under this Agreement or expressly
required under any agreements included in Intangible Property, including the
consent of Third Parties, if required, the Transferor's execution and delivery
of this Agreement, the consummation of the transactions contemplated hereby and
the performance of the Transferor's obligations under the instruments required
to be delivered by the Transferor at the closing, do not and will not require
the consent, approval or other authorization of, or registration, declaration or
filing with, (collectively, "Consents") any governmental authority (excepting
the recordation of closing documents contemplated in this Agreement and any
filings required under applicable state or federal securities or tax laws) or
any other person or entity, except such Consents as will be obtained on or
before closing or as to which the failure to obtain would not have a material
and adverse effect on Transferor's performance of its obligations under this
Agreement, and do not and will not result in any material violation of, or
material default under, any term or provision of any agreement, instrument,
mortgage, loan agreement or similar document to which the Transferor is a party
or by which the Transferor is bound. Subject to the foregoing, all partnership,
limited liability company, board of directors and shareholder approvals required
for Transferor to enter into this Agreement and to consummate the transactions
described in this Agreement have been obtained;
(iii) There is no litigation, investigation or proceeding
pending or, to the best of the Transferor's knowledge, contemplated or
threatened against the Transferor which would impair or adversely affect the
Transferor's ability to perform its obligations under this Agreement or any
other instrument or document related hereto; and
(iv) The Transferor is not a "foreign person" as defined in
Internal Revenue Code 1445(f)(3).
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(b) Each of Transferors represents and warrants as follows with
respect to each Property owned by such Transferor:
(i) As of the date of this Agreement, Transferor has no
knowledge that, and has received no written notice from any governmental
authorities that eminent domain proceedings for the condemnation of any Property
or any part of a Property are pending;
(ii) As of the date of this Agreement, Transferor has no
knowledge that, and has received no written notice of any threatened or pending
litigation against Transferor other than routine matters covered by Transferor's
insurance or other matters which would not materially and adversely affect any
Property;
(iii) As of the date of this Agreement, Transferor has
received no written notice from any governmental authority that the improvements
constituting any Property are presently in material violation of any applicable
building codes where such violation has not been cured in all material respects;
(iv) As of the date of this Agreement, Transferor has
received no written notice from any governmental authority that any Property is
presently in material violation of any applicable zoning, land use or other law,
order, ordinance, rule or regulation affecting the Property which violation has
not been cured, that any investigation has been commenced or is contemplated
with respect to any such possible failure of compliance and Transferor has not
received written notice from any insurance company or Board of Fire Underwriters
any written notice of any defect or inadequacy in connection with a Property or
its operation where such defect or inadequacy has not been cured in all material
respects;
(v) There are no Contracts involving payment in excess of
$25,000 per annum with respect to any Property that will be binding upon Buyer
after the closing, other than such Contracts that are cancelable by the owner of
the Property within 30 days after written notice from such owner without penalty
or premium (other than penalties or premiums that will be paid by Transferor on
or before the closing);
(vi) As of the date of this Agreement, except as set forth
in the environmental reports included within the Disclosure Materials and any
reports or studies prepared by or for Buyer, Transferor has received no written
notice of the presence or release of any Hazardous Materials presently
deposited, stored, or otherwise located on, under, in or about any Property
which require reporting to any governmental authority or are otherwise not in
compliance with environmental laws, regulations and orders;
(vii) The Rent Rolls constituting Exhibit E to this
Agreement completely and accurately identify as to each Lease as of February 15,
1999: the expiration date of the current term of the Lease; the amount of any
security deposit held by Transferor; the current base rental payable under such
Lease and future rent escalations; the amount of additional rent (i.e., cost
recovery) currently billed to the tenant under the Lease; and the approximate
rentable area of the premises. As of February 15, 1999, each Lease identified on
the Rent Roll was, to the best of Transferor's knowledge, in full force and
effect and, to the best of Transferor's knowledge, Transferor was not in
material default thereunder. As of March 1,
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1999, Transferor had not received written notice of any material default by
Transferor under any Leases, which default had not been cured in all material
respects, and Transferor has not delivered any default notice to a tenant under
any Lease and, to Transferor's knowledge and except as set forth in the
delinquency reports provided by Transferors to Buyer, Transferor was not aware
of any other default by a tenant under a Lease as to which default Transferor
would customarily have delivered a notice of default to such tenant but has not
done so, which defaults have not been cured in all material respects. Transferor
has delivered or made available to Buyer copies of all Leases of more than
14,000 square feet or any amendments thereto executed on or before the date of
this Agreement (other than the Leases with Old Navy and Kids R Us at Corbins
Corner);
(viii) As of the date of this Agreement, Transferor has
received no written notice that Transferor or any other party is in default
under any reciprocal easement agreement or declaration of covenants, conditions,
and restrictions or any other similar instrument or agreement affecting any of
the Properties (collectively, the "REAs"), which default has not been cured in
all Material respects;
(ix) Except with respect to rights of Third Parties under
the Joint Ventures, Transferor has not granted any option or right of first
refusal or first opportunity to acquire any fee or ground leasehold estate of
any portion of the Properties;
(x) As of the date of this Agreement, the Financial
Statements delivered to Buyer by Transferor are true and correct in all material
respects;
(xi) With respect to the matters contained in the
Disclosure Materials List & Statement and the Disclosure Materials, to
Transferor's knowledge, Transferor has not willfully and intentionally omitted
to state any material facts required to be stated therein or willfully and
intentionally made any untrue statement of a material fact, which would render
the Disclosure Materials List & Statement or the Disclosure Materials materially
misleading. Transferor has not willfully and intentionally failed to deliver or
make available to Buyer all of the following documents in Transferor's immediate
possession and has not instructed any third party not to deliver any such
documents to Buyer: (x) reports regarding the environmental condition of the
Properties or (y) reports obtained in connection with the acquisition of a
Property regarding the physical condition and legal compliance of such Property;
and
(xii) Transferor has taken the steps described on Exhibit P
attached hereto in an effort to cause all computer hardware and software at each
Property which is the direct responsibility of Transferor (and not the
responsibility of a tenant, vendor or other third party) and which controls
utility and other physical operating functions including, without limitation,
alarm and other security systems, irrigation systems, lighting systems, health
safety systems and similar functions (the "Owner's Computer Systems"), to at all
times hereafter provide the following functions: (a) consistently handle date
information before, during and after January 1, 2000 including, without
limitation, accepting date input, providing date output and performing
calculations on dates or portions of dates; (b) function accurately in
accordance with the specifications for such computer hardware or software and
without interruption before, during and after January 1, 2000, without any
change in operations associated with the advent of the new century; (c) respond
to two digit date input in a way that resolves any ambiguity as to
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century in a disclosed, defined and predetermined matter; and (d) store and
provide output data information in ways that are unambiguous as to century. To
Transferor's knowledge, as of the date of this Agreement, the cost to correct
any failure of the Owner's Computer Systems to provide the foregoing functions
would not be material (provided, that no representation or warranty is made with
respect to any such failure for reasons other than the advent of the new
century).
Subject to the provisions of Section 4.4, each of the Transferors shall
be jointly and severally liable for the breach of any representation and
warranty of a Transferor set forth in this Section 4.1.
* * * * *
For the foregoing purposes, the terms "Transferors' knowledge" or "Transferor's
knowledge" or words of similar effect shall mean the current actual, subjective
knowledge of Messrs. John Diserens, Michael Coke, Blake Baird and David Fries
(collectively, the "Knowledge Persons"), in each case without independent
investigation or inquiry, but after inquiry of the current asset managers who
are employees of Transferors in its retail division. Such individuals' knowledge
shall not include information or material which may be in the possession of any
of the Transferors or the named individuals, but of which the named individuals
are not actually aware. Transferors shall have no liability for the breach of
any representations or warranties absent an arbitrated or judicial finding that
the named individuals knowingly withheld information from Buyer with respect to
the subject matter of the representation or warranty or falsified information
delivered to and relied upon by Buyer and that such action amounted to a
violation of a representation or warranty expressly set forth in this Agreement.
None of the named individuals whose sole knowledge is imputed to a Transferors
under this Section nor any party other than the Transferors affording a
representation shall bear responsibility for any breach of such representation.
SECTION 4.2 Transferors' Covenants. Transferors hereby covenants and
agrees as follows:
(a) During the Contract Period, Transferors will exercise
reasonable and good faith efforts (i) to operate and maintain the Properties in
a manner consistent with current practices and (ii) to comply, where such
compliance is the obligation of Transferors (and not of a tenant or other party)
in all material respects with all material laws and regulations applicable to
the Properties;
(b) During the Contract Period, Transferors will not sell or
otherwise dispose of any significant items of Personal Property unless replaced
with an item of like value, quality and utility;
(c) During the Contract Period, Transferors shall not enter
into or modify any Contracts relating to the operation or maintenance of a
Property, except for (i) those entered into in the ordinary course of business
with parties which are not affiliates of Transferors and (A) which are
cancelable upon not more than thirty (30) days prior notice without penalty or
premium or (B) which require payments to the applicable vendor of $25,000 or
less per year and
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which, in the aggregate for any individual Property, require payments to the
applicable vendors of $50,000 or less per year, or (ii) those otherwise approved
by Buyer, which approval shall not be unreasonably withheld and shall be deemed
given if Buyer should fail to approve or disapprove proposed Contract matters in
writing within 5 business days following Transferor's written request (which
shall include all material information necessary to allow Buyer to make an
informed decision). At Buyer's written request provided at least five (5)
business days prior to the Closing Date, Transferors shall deliver notice of
termination on the Closing Date as to any and all Contracts that Buyer desires
to terminate, provided that such termination shall be effective following any
notice or waiting period for such termination described in the Contract and that
Transferors shall not be required to bear any termination or cancellation fee or
charge that may be assessed under such Contract based upon an early termination.
Notwithstanding the foregoing, Transferors shall terminate all property
management agreements and exclusive leasing agreements applicable to the
Properties as of the Closing Date, at Transferors' expense;
(d) During the Contract Period, Transferors will not execute or
modify in any material fashion any Leases pertaining to premises in excess of
5,000 rentable square feet or any ground lease, other than with Buyer's prior
consent, which shall be deemed given if Buyer (in the person of Burnham Pacific
Properties, Inc.'s chief investment officer or chief operating officer) should
fail to approve or disapprove proposed lease matters in writing within 5
business days following Transferors' written request (which shall include all
material information necessary to allow Buyer to make an informed decision).
Buyer shall exercise its rights of approval of leasing matters reasonably and in
good faith. With respect to new Leases or Lease amendments pertaining to
premises of 5,000 rentable square feet or less, Transferors shall have the right
to enter into new Leases or amendments without any need to obtain Buyer's
consent, provided that (A) such new Lease or amendment is entered into on an
arm's length basis and the applicable Transferors believes in its good faith
reasonable discretion that it is entering into such new Lease or modification on
market terms (B) such new Lease or amendment does not provide for a cap on the
pass through of cost recoveries or exclude the recovery of management fees, (C)
such new Lease or amendment does not contain a material change to the assignment
provision of Transferors' standard lease form in use at the applicable Property
(the "Standard Form"), (D) with respect to a new Lease, Transferors initiated
negotiations with such tenant using the Standard Form and any changes thereto
are consistent with Transferors' standard leasing practices, and (E) Buyer is
provided with a copy of the executed Lease or modification documents within a
reasonable period after such documents are executed. Transferors shall use
reasonable efforts to continue to seek leases for the Properties in a manner
consistent with present practice;
(e) During the Contract Period, except with respect to actions
taken by Third Parties without the applicable Transferor's consent in connection
with Joint Venture Properties, Transferors shall not voluntarily create, consent
to or acquiesce in the creation of liens or exceptions to title without Buyer's
prior written consent, provided that Buyer shall not unreasonably withhold or
delay consent to any proposed matters affecting title necessary to maintain or
enhance the value of the pertinent Property;
(f) During the Contract Period, Transferors shall maintain its
currently effective policies of property insurance and rental loss insurance for
the Improvements;
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(g) During the Contract Period, Transferors shall use
commercially reasonable efforts (but at no material cost to Transferors except
as may otherwise be expressly provided in this Agreement) to obtain all third
party and governmental approvals and consents necessary to consummate the
transactions contemplated hereby;
(h) During the Contract Period, Transferors shall maintain
their books accounts and records in a manner consistent with past practice;
(i) During the Contract Period, Transferors shall observe and
comply with the material terms and conditions of all Contracts, Leases, Property
licenses, and Property approvals;
(j) During the Contract Period, Transferors shall not knowingly
and intentionally take any action which would cause the representations and
warranties contained in Section 4.1 (other than as permitted in this Agreement)
to cease to be true and correct in all material respects as of the Closing Date
as though then made;
(k) During the Contract Period, Transferors shall comply in all
material respects with all existing easements, covenants, conditions,
restrictions and other encumbrances affecting any Property;
(l) During the Contract Period, Transferors shall reasonably
cooperate with Buyer, but at no cost to Transferors, (i) to assist Buyer in
obtaining environmental insurance coverage for the Properties (provided, that in
no event shall Buyer have the right to perform any environmental testing in
connection with obtaining such insurance) and (ii) to enable Buyer to exercise
and close on the Applewood Option (as defined in the Disclosure Materials List &
Statement) and, at Buyer's written request, with respect to any other similar
options or rights described on Exhibit V attached hereto, as soon as possible
after the closing, provided such option(s) shall not be exercised or caused to
be exercised by Buyer prior to the closing and Transferors shall not be required
to exercise such option(s) prior to the closing);
(m) During the Contract Period, but subject to the provisions
of Sections 2.4 and 2.5, Transferors shall permit Buyer, and Buyer's lenders and
its representatives, to have reasonable access (upon reasonable notice, during
normal business hours and, if required by Transferors, accompanied by a
representative of Transferors) to the books, records and Properties, and, with
Transferors' prior approval not to be unreasonably withheld, tenants, parties to
REAs, parties to options and rights of first refusal, and parties to management
agreements and Contracts, in order to assist Buyer in its management transition
with respect to the Properties and to provide information to its lenders that is
reasonably requested by them;
(n) As a courtesy to Buyer, during the Contract Period,
Transferors shall use reasonable efforts to provide Buyer with copies of any
written notices received by Transferors during the Contract Period, which
notices relate to matters described in Section 4.1(b)(i), (ii), (iii), (iv),
(vi), (vii) or (viii); provided, that notwithstanding anything to the contrary
contained in this Agreement, Transferors shall have no liability whatsoever to
Buyer as a result of its failure to comply with the provisions of this Section
4.2(n);
(o) During the Contract Period, Transferors shall provide
reasonable access to the Disclosure Materials (upon reasonable notice and during
normal business hours) and the right
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to copy such materials (at no cost to Transferors) in order to assist Buyer in
its management transition with respect to the Properties and to provide
information to its lenders that is reasonably requested by them;
(p) During the Contract Period, Transferors shall meet and
confer with Buyer on a regular basis to discuss leasing activity at the
Properties and the status of work described in Section 6.9 and shall provide
Buyer at such meetings or otherwise reasonably detailed information regarding
the costs incurred with respect to, and the costs anticipated to complete, such
work;
(q) During the Contract Period, Transferors shall notify Buyer
of any litigation filed against Transferors during the Contract Period within a
reasonable period of time after Transferors are made aware of such litigation
and Exhibit W shall be revised to include such litigation; and
(r) During the Contract Period, to the extent Transferors have
a right of first offer or right of first refusal to purchase any real property
related to any of the Properties and Transferors receive written notice that the
period for exercising such right has commenced, Transferors shall promptly
notify Buyer and Buyer shall have the right, by written notice to Transferors,
to request that at closing Transferors assign such right to Buyer (if
assignable) or use reasonable efforts to cause the applicable property to be
direct deeded to Buyer; provided, that in no event shall Transferors have any
liability or incur any cost with respect to such property or be required to take
title to such property, and Buyer shall deliver to Title Company at the times
required in connection with such right to purchase, and remain responsible for,
any funds to be paid in connection with the acquisition of such property.
SECTION 4.3 Buyer's Warranties and Representations. Buyer hereby
represents and warrants to Transferors that the following are true as of the
date of this Agreement:
(a) Buyer is a duly formed and validly existing limited
liability company under the law of the state of its formation and is (or on the
Closing Date will be) in good standing under the laws of the states where each
Property is located and Buyer has the full right, authority and power to enter
into this Agreement, to consummate the transactions contemplated herein and to
perform its obligations hereunder and under those documents and instruments to
be executed by it at the closing, and each of the individuals executing this
Agreement on behalf of Buyer is authorized to do so, and this Agreement
constitutes a valid and legally binding obligation of Buyer enforceable against
Buyer in accordance with its terms.
(b) Buyer's execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and the performance of
Buyer's obligations under the instruments required to be delivered by Buyer at
the closing, do not and will not result in any material violation of, or
material default under, any term or provision of any agreement, instrument,
mortgage, loan agreement or similar document to which Buyer is a party or by
which Buyer is bound.
(c) There is no litigation, investigation or proceeding pending
or, to the best of Buyer's knowledge, contemplated or threatened against Buyer
which would impair or
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adversely affect Buyer's ability to perform its obligations under this Agreement
or any other instrument or document related hereto.
SECTION 4.4 Survival/Limitations.
(a) Subject to subsection (b) below, the parties agree that
Transferors' warranties and representations contained in Sections 4.1 (a) and
(b) of this Agreement shall survive Buyer's purchase of the Properties and the
Closing Date for a period ending 180 calendar days following the Closing Date
(the "Limitation Period"). Such termination as of the close of the Limitation
Period shall apply to known as well as unknown breaches of such warranties or
representations. Subject to subsection (b) below, Buyer's waiver and release set
forth in Section 2.4 shall apply fully to liabilities under such representations
and warranties. Buyer specifically acknowledges that such termination of
liability represents a material element of the consideration to Transferors.
(b) Any claim of Buyer based upon a breach of any
representation or warranty or covenant or a claim under any indemnity contained
in this Agreement or any representation, warranty, covenant or indemnity
contained in any other document or instrument delivered by Transferors to Buyer
at closing (collectively a "Breach") shall be expressed, if at all, in writing
setting forth in reasonable detail the basis and character of the claim (a
"Claim Notice"), and, in the case of a Breach of Transferors' representations
and warranties contained in this Agreement or a Breach of a covenant contained
in Section 4.2 hereof only, shall be delivered to Transferors prior to the
expiration of the Limitation Period. Notwithstanding the foregoing, Buyer's
right to make and recover any claim pursuant to a Claim Notice shall be subject
to the following: (i) any matters identified by Buyer during the Confirmation
Period which would represent both a breach of representation and result in a
Material Adverse Matters Amount shall be treated solely as the latter and shall
not be the subject of any claim for breach of representation under this Article
IV, (ii) with respect to a Breach of Transferors' representations and warranties
contained in this Agreement, or a Breach of a covenant contained in Section 4.2
hereof or a Breach under an indemnity contained in the Assignments of
Intangibles or the Assignments of Leases (as such terms are defined in Section
6.1(a) below), Buyer shall not make any claim on account of such Breach unless
and until (A) the aggregate measure of such claims with respect to a Property
exceeds $200,000, and (B) the aggregate measure of such claims with respect to
all of the Properties exceeds $900,000 (the "Threshold"), in which event Buyer's
claim shall be limited to an amount equal to (x) the amount by which such
aggregate exceeds the Threshold, plus (y) an amount equal to two-thirds of the
Threshold, (iii) Transferors' aggregate liability for claims arising out of all
Breaches (i.e., those described in clause (ii) above as well as all other
Breaches) shall not, in the aggregate, exceed an amount equal to three percent
(3%) of the aggregate Price for all of the Properties acquired by Buyer
exclusive of the amounts of any insurance proceeds actually received by
Transferors which are to be applied to Claims pursuant to Section 2.4(e), and
(iv) Buyer shall have the right to deliver to Transferors Claim Notices with
respect to any Breach discovered by Buyer prior to the Closing Date solely if
such notice is delivered prior to the Closing Date. Notwithstanding the
foregoing, with respect to a Claim Notice asserting a breach of the
representation contained in Section 4.1(b)(vii), the following shall be
substituted for the provisions of clause (ii) of this Section 4.4(b): (ii) Buyer
shall not make any claim on account of a breach of the representation and
warranty contained in Section 4.1(b)(vii) with respect to any Property unless
and until the aggregate measure of such claims with respect to all
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Properties exceeds $50,000, and only to the extent that such aggregate exceeds
$50,000. For purposes of this Section 4.4(b) (and without limiting the
introductory paragraph of Section 4.1), a Breach shall be deemed to be
discovered by Buyer prior to the Closing Date only to the extent that any of
David Martin, Daniel Platt, Joseph Byrne, Scott Verges, John Waters, Jim Gaube
or Guy Jacquier has actual, subjective knowledge of the facts or circumstances
giving rise to such breach of representation or warranty or Section 4.2
covenants. Following receipt of such a pre-closing Claim Notice with respect to
which Buyer has the right to make and recover a claim as aforesaid, Transferors
may elect, by written notice to Buyer given not later than the first to occur of
the date that is ten (10) business days following the date of the Claim Notice
or the Closing Date, to terminate this Agreement as to the Property to which
such pre-closing Claim Notice relates and such Property shall be treated as a
Deleted Property and Buyer shall not be entitled to any damages in connection
therewith. If Transferors fail to elect to treat any Property which is the
subject of a pre-closing Claim Notice as a Deleted Property, the closing as to
such Property shall be conducted on the Closing Date. As to pre-closing Claim
Notices with respect to which Transferors do not elect to treat the affected
Property as a Deleted Property and as to all Claim Notices received by
Transferors following the Closing Date as to which Buyer has the right to make
and recover a claim as aforesaid, Buyer shall have the right after (but not
before) the Closing Date to proceed against Transferors for actual monetary
damages based upon such Claim Notice -- subject to the cure rights set forth in
subparagraph (c) below and the limitations set forth above and in the remaining
sentences of this subparagraph. Notwithstanding anything to the contrary
provided in this Agreement, in no event shall Transferors be liable to Buyer for
any consequential or punitive damages based upon any breach of this Agreement,
including breaches of representation or warranty. Subject to applicable
principles of fraudulent conveyance, in no event shall Buyer seek satisfaction
for any obligation from any shareholders, officers, directors, employees,
agents, legal representatives, successors or assigns of such trustees or
beneficiaries, nor shall any such person or entity have any personal liability
for any such obligations of any Transferors.
(c) The Transferors who have committed a Breach for which a
Claim Notice has been received shall have a period of 30 days within which to
cure such breach, or, if such breach cannot reasonably be cured within 30 days,
an additional reasonable time period of up to an additional 60 days, so long as
such cure has been commenced within such 30 days and is at all times diligently
pursued. If the Breach is not cured after actual written notice and within such
cure period, Buyer's sole remedy shall be an action at law for damages against
the breaching Transferor or Transferors, which must be commenced with respect to
a Breach of a representation or warranty contained in this Agreement or a Breach
of a covenant contained in Section 4.2 hereof, if at all, within the Limitation
Period; provided, however, that if within the Limitation Period Buyer gives a
Claim Notice and the Transferors commence to cure and thereafter terminate such
cure effort or fail in such cure effort, Buyer shall have an additional 30 days
from the date of written notice from the Transferors of such termination or the
expiration of such cure period within which to commence an action at law for
damages as a consequence of the failure to cure. The existence or pendency of
such cure rights shall not delay the Closing Date as to a Property not
designated as a Deleted Property. The provisions of this Section 4.4 shall
survive the closing or any termination of this Agreement.
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ARTICLE 5
DEPOSIT; DEFAULT
SECTION 5.1 Buyer's Default & Deposit.
(a) Substantially concurrently with the execution and delivery
of this Agreement, Buyer shall deliver to Title Company, for deposit into the
escrow described in Section 6.1 below, cash in an amount equal to Eleven Million
Dollars ($11,000,000) (the "Deposit"). In the event that this transaction is
consummated as contemplated by this Agreement, then the entire amount of the
Deposit, together with any interest accrued thereon, whether in cash or in the
form of a Letter of Credit (as herein defined) shall be returned to Buyer and in
no event shall the Deposit be credited against the Price. The entire amount of
the Deposit (or the portion of the Deposit allocable to Properties with respect
to which Transferors refuse to perform their material closing obligations),
together with any interest accrued thereon, shall be returned immediately to
Buyer in the event that the transaction fails to close due to termination of
this Agreement pursuant to Section 5.2. IN THE EVENT THE TRANSACTION
CONTEMPLATED BY THIS AGREEMENT SHOULD FAIL TO CLOSE AS A RESULT OF BUYER'S
DEFAULT HEREUNDER, THE ENTIRE AMOUNT OF THE DEPOSIT, PLUS ACCRUED INTEREST, (AND
TO THE EXTENT THE DEPOSIT IS IN THE FORM OF A LETTER OF CREDIT, TITLE COMPANY
SHALL IMMEDIATELY MAKE DEMAND FOR THE PRINCIPAL AMOUNT OF THE LETTER OF CREDIT)
SHALL BE PAID BY THE TITLE COMPANY TO TRANSFERORS AS LIQUIDATED DAMAGES (THE
"LIQUIDATED AMOUNT"). BUYER AND TRANSFERORS HEREBY ACKNOWLEDGE AND AGREE THAT
TRANSFERORS' DAMAGES IN THE EVENT OF SUCH A BREACH OF THIS AGREEMENT BY BUYER
WOULD BE DIFFICULT OR IMPOSSIBLE TO DETERMINE, THAT THE AMOUNT OF THE DEPOSIT
PLUS ACCRUED INTEREST IS THE PARTIES' BEST AND MOST ACCURATE ESTIMATE OF THE
DAMAGES TRANSFERORS WOULD SUFFER IN THE EVENT THE TRANSACTION PROVIDED FOR IN
THIS AGREEMENT FAILS TO CLOSE, AND THAT SUCH ESTIMATE IS REASONABLE UNDER THE
CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT. BUYER AND TRANSFERORS
AGREE THAT TRANSFERORS' RIGHT TO RETAIN THE DEPOSIT PLUS ACCRUED INTEREST SHALL
BE THE SOLE REMEDY OF TRANSFERORS IN THE EVENT OF A BREACH OF THIS AGREEMENT BY
BUYER.
ACCEPTED AND AGREED TO:
__________________________ ____________________________
BUYER'S INITIALS TRANSFEROR'S INITIALS
This Section 5.1 is intended only to liquidate and limit Transferors' rights to
damages arising due to Buyer's failure to purchase the Properties and shall not
limit the indemnification or other obligations of (i) Buyer's constituent
partners pursuant to the Confidentiality Agreement dated January 25, 1999
executed by Burnham Pacific Properties, Inc. for the benefit of Transferors (the
"BP Confidentiality Agreement") and the Confidentiality Agreement dated January
25, 1999 executed by the State of California Public Employees' Retirement System
("Calpers") for the benefit of Transferors (the "Calpers Confidentiality
Agreement;" which, together with the BP
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Confidentiality Agreement, are collectively referred to as the "Confidentiality
Agreements") or (ii) Buyer pursuant to (A) any other documents delivered
pursuant to this Agreement or (B) Sections 2.4(b), 2.4(e), 7.2, 7.9 and 7.13 of
this Agreement. In the event that any Property becomes a Deleted Property
pursuant to the provisions of this Agreement, then Buyer shall have the right to
cause Title Company to withdraw from the escrow and pay to Buyer (or to reduce
any letter of credit, as applicable, by) an amount equal to the product of (x)
the Deposit (and interest accruing thereon) and (y) the quotient expressed as a
percentage, of the Allocated Price with respect to such Deleted Property and the
total Price.
(b) In the event that Transferors are entitled to the Deposit
pursuant to Section 5.1 hereof, an amount equal to the lesser of (i) the
Liquidated Amount or (ii) the sum of (A) the maximum amount that can be paid to
Transferors without causing Transferors (or any of their constituent partners)
to fail to meet the requirements of Sections 856(c)(2) and 856(c)(3) of the
Code, determined as if the payment of such amount did not constitute income
described in Section 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code
("Qualifying Income"), as determined by Transferors' accountants, plus (B) in
the event Transferors receive either (x) a letter from Transferors' counsel
prior to the Closing Date indicating that Transferors (or their constituent
partners, as applicable) has received a ruling from the Internal Revenue Service
(the "IRS") described in clauses (ii) or (iii) of the following paragraph, or
(y) an opinion from Transferors' (or their constituent partners', as applicable)
counsel as described in clause (iv) of the following paragraph, an amount equal
to the Liquidated Amount less the amount payable under clause (A) above, and any
balance of the Liquidated Amount (the "Balance") shall be retained by Title
Company in escrow in accordance with the terms of an escrow (subject to the
terms of the following paragraph) being otherwise agreed upon by Transferors and
the escrow agent.
(c) The escrow agreement described in Section 5.1(b) shall
provide that the amount in escrow or any portion thereof shall not be released
to Transferors except to the extent the escrow agent receives any one or
combination of the following: (i) a letter from Transferors' accountants
indicating the maximum amount that can be paid by the escrow agent to
Transferors without causing Transferors (or any of their constituent partners,
as applicable) to fail to meet the requirements of Sections 856(c)(2) and
856(c)(3) of the Code, determined as if the payment of such amount did not
constitute Qualifying Income, in which case the escrow agent shall release the
amount indicated in such letter to Transferors, (ii) a letter from Transferors'
(or any of their constituent partner's, as applicable) counsel indicating that
Transferors (or any of its constituent partners, as applicable) received a
ruling from the IRS holding that the receipt by Transferors (or any of their
constituent partners, as applicable) of the Liquidated Amount would either
constitute Qualifying Income or would be excluded from gross income within the
meaning of Sections 856(c)(2) and 856(c)(3) of the Code, in which case the
escrow agent shall release the Balance to Transferors, (iii) a letter from
Transferors' (or any of their constituent partners' as applicable) counsel
indicating that Transferors (or any of their constituent partners, as
applicable) received a ruling from the IRS holding that the receipt by a
Transferor (or its constituent partner, as applicable) of the Balance following
the receipt of and pursuant to such ruling would not be deemed constructively
received prior thereto or (iv) an opinion of a Transferor's (or its constituent
partner's, as applicable) legal counsel to the effect that the receipt by a
Transferor (or its constituent partner, as applicable) of the Liquidated Amount
would either constitute Qualifying Income or would be excluded from gross income
within the meaning of Sections 856(c)(2) and 856(c)(3) of the Code, in which
case the escrow agent shall release the
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Balance to Transferors. Buyer and Title Company agree to act reasonably and
cooperate with Transferor in order (x) to maximize the portion of the Liquidated
Amount that may be distributed to Transferors hereunder without causing a
Transferor (or its constituent partner, as applicable) to fail to meet the
requirements of Sections 856(c)(2) and 856(c)(3) of the Code or (y) to improve a
Transferor's (or any of their constituent partner's, as applicable) chances of
securing a favorable ruling described in this Section 5.1(c), provided that,
except as otherwise provided in this Agreement, Buyer and Title Company shall
not be required to incur any out-of-pocket costs in connection therewith. The
escrow agreement shall also provide that any portion of the Liquidated Amount
then held in escrow after the expiration of five (5) years from the date of the
establishment of such escrow shall be released by the escrow agent to Buyer.
Buyer shall not be a party (other than a contingent beneficiary as described
above) to such escrow arrangements and shall not bear any cost of or have
liability resulting from such escrow arrangements.
SECTION 5.2 Transferors' Default. If (a) the conditions precedent set
forth in Section 3.1(b) shall have been satisfied or waived (provided that for
purposes of this Section Buyer shall not be required to tender formally the
Price but only demonstrate the commitment of immediately available funds to pay
such Price) and (b) Transferors shall refuse to perform their material closing
obligations under this Agreement (e.g., by refusing to convey a Property to
Buyer at Closing), then Buyer's sole and exclusive remedy shall be either (i) to
receive back the Deposit in the event Transferors refused to perform their
material closing obligations with respect to all of the Properties (or the
portion of the Deposit allocable to Properties with respect to which Transferors
refuse to perform their material closing obligations) plus all accrued interest
thereon or (ii) to pursue an action for specific performance on a Property by
Property basis as to those Properties with respect to which Transferors refuse
to perform their material closing obligations ; provided, that notwithstanding
anything to the contrary contained herein, Buyer's right to pursue an action for
specific performance is expressly conditioned on Buyer not being in default or
having defaulted in any material respect under any other material agreement in
which Buyer or any of its constituent members and any of the Transferors is a
party and which was entered into on or after March 1, 1999. Subject to the
foregoing, Buyer acknowledges that Buyer's remedies for Transferor's failure to
perform all of its material obligations under this Agreement with respect to the
sale or exchange of a particular Property but less than all of the Properties
shall be exclusively governed by the provisions of Section 3.2 above. Nothing
contained in this Section 5.2 is intended to limit Buyer's rights under Sections
7.2, 7.9 and 7.13 of this Agreement.
SECTION 5.3 Solicitation; Negotiations.
(a) Unless and until this Agreement shall have been terminated
in accordance with its terms, the Transferors agree and covenant that (i)
neither Transferors nor any of their respective subsidiaries or affiliates nor
AMB Property Corporation, a Maryland corporation, which is AMBLP's general
partner (the "Company"), shall, and each of them shall direct and use their best
efforts to cause their respective officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it or any of its subsidiaries) not to, directly or
indirectly, initiate, solicit or encourage any inquiries or the making or
implementation of any proposal or offer with respect to a merger, acquisition,
or similar transaction involving the direct or indirect purchase of the
Properties (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in
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any negotiations with, or provide any confidential information or data to, or
have any discussions with, any person relating to, an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal.
(b) Notwithstanding anything set forth in this Agreement to the
contrary, the Board of Directors of the Company may furnish information to or
enter into discussions or negotiations with any person that makes an unsolicited
bona fide proposal to purchase all or a portion of the Properties having
aggregate Allocated Price of at least eighty-five percent (85%) of the aggregate
Price of all of the Properties, whether by merger, purchase of partnership
interests or assets or otherwise (a "Proposal"), if the Board of Directors of
the Company determines in good faith that the Proposal, if consummated as
proposed, would result in a transaction more favorable to the Company's
stockholders from a financial point of view than the transactions contemplated
by this Agreement (any such Proposal being referred to herein as a "Superior
Proposal"). If the Board of Directors of the Company is prepared to accept the
Superior Proposal, then Transferors shall have the right to terminate this
Agreement by giving Buyer 48 hours notice that the Board of Directors is
prepared to accept the Superior Proposal, instructing the Title Company to
return the Deposit to Buyer and in addition paying Buyer a termination fee in
the amount of the then current Deposit (as increased or decreased from time to
time pursuant to this Agreement) (excluding the amount of any remaining Deposit
allocable to any Properties which were previously designated as Deleted
Properties) (the "Termination Fee"). The return of the Deposit (and all interest
accrued thereon) and the additional payment of the Termination Fee shall be
Buyer's sole and exclusive remedy in the event of a termination pursuant to this
Section 5.3
(c) In addition to the provisions set forth in Sections 5.3(a)
and 5.3(b) hereof, nothing in this Agreement shall be deemed to prevent in any
manner the taking of any action by the Company with respect to any merger,
consolidation or sale of all or substantially all of the assets of the Company
or any of the Transferors, in the event that the Board of Directors of the
Company shall determine, based on advice of outside legal counsel, that the
failure to take such action would be inconsistent with such Board of Directors'
fiduciary duties to the Company's stockholders under applicable law. In the
event that such action would be inconsistent with the transactions contemplated
hereby, then Transferors shall have the right to terminate this Agreement by
giving Buyer 48 hours notice that such Board of Directors is prepared to take
such action, instructing the Title Company to return the Deposit to Buyer and in
addition paying Buyer the Termination Fee. The return of the Deposit and the
additional payment of the Termination Fee shall be Buyer's sole and exclusive
remedy in the event of a termination pursuant to this Section 5.3.
(d) In the event that Transferors are obligated to pay Buyer
the Termination Fee, Transferors shall pay to Buyer an amount equal to the
lesser of (i) the Termination Fee or (ii) the sum of (A) the maximum amount that
can be paid to Buyer without causing Buyer (or any of its members) to fail to
meet the requirements of Sections 856(c)(2) and 856(c)(3) of the Code,
determined as if the payment of such amount did not constitute income described
in Section 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying
Income"), as determined by Buyer's accountants, plus (B) in the event Buyer
receives either (x) a letter from Buyer's counsel prior to the Closing Date
indicating that Buyer (or its members, as applicable) has received a ruling from
the Internal Revenue Service (the "IRS") described in clauses (ii) or (iii)
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of the following paragraph, or (y) an opinion from Buyer's (or its member's, as
applicable) counsel as described in clause (iv) of the following paragraph, an
amount equal to the Termination Fee less the amount payable under clause (A)
above, and any balance of the Termination Fee (the "Balance") shall be deposited
by Transferors in escrow in accordance with the next succeeding sentence with
the Title Company or other escrow agent selected by Buyer and reasonably
acceptable to Transferors. Transferors shall deposit into such escrow an amount
in immediately available federal funds equal to the Balance, with the terms of
such escrow (subject to the terms of the following paragraph) being otherwise
agreed upon by Buyer and the escrow agent. All payments by Transferors pursuant
to this paragraph shall be made by wire transfer or bank check within thirty
(30) days after demand by Buyer. Payment to Buyer of the amounts set forth in
this Section 5.3(d) and, if applicable, deposit into escrow of the Balance,
shall satisfy Transferors' obligations in full under the terms and conditions of
this Section 5.3.
(e) The escrow agreement described in Section 5.3(d) shall
provide that the amount in escrow or any portion thereof shall not be released
to Buyer except to the extent the escrow agent receives any one or combination
of the following: (i) a letter from Buyer's accountants indicating the maximum
amount that can be paid by the escrow agent to Buyer without causing Buyer (or
its member, as applicable) to fail to meet the requirements of Sections
856(c)(2) and 856(c)(3) of the Code, determined as if the payment of such amount
did not constitute Qualifying Income, in which case the escrow agent shall
release the amount indicated in such letter to Buyer, (ii) a letter from Buyer's
(or its member's, as applicable) counsel indicating that Buyer (or its member,
as applicable) received a ruling from the IRS holding that the receipt by Buyer
(or its member, as applicable) of the Termination Fee would either constitute
Qualifying Income or would be excluded from gross income within the meaning of
Sections 856(c)(2) and 856(c)(3) of the Code, in which case the escrow agent
shall release the Balance to Buyer, (iii) a letter from Buyer's (or its
member's, as applicable) counsel indicating that Buyer (or its member, as
applicable) received a ruling from the IRS holding that the receipt by Buyer (or
its member, as applicable) of the Balance following the receipt of and pursuant
to such ruling would not be deemed constructively received prior thereto or (iv)
an opinion of Buyer's (or its member's, as applicable) legal counsel to the
effect that the receipt by Buyer (or its member, as applicable) of the
Termination Fee would either constitute Qualifying Income or would be excluded
from gross income within the meaning of Sections 856(c)(2) and 856(c)(3) of the
Code, in which case the escrow agent shall release the Balance to Buyer.
Transferors agree to act reasonably and cooperate with Buyer in order (x) to
maximize the portion of the Termination Fee that may be distributed to Buyer
hereunder without causing Buyer (or its member, as applicable) to fail to meet
the requirements of Sections 856(c)(2) and 856(c)(3) of the Code or (y) to
improve Buyer's (or its member's, as applicable) chances of securing a favorable
ruling described in this Section 5.3(e), provided that Transferors shall not be
required to incur any out-of-pocket costs in connection therewith. The escrow
agreement shall also provide that any portion of the Termination Fee then held
in escrow after the expiration of five (5) years from the date of the
establishment of such escrow shall be released by the escrow agent to
Transferors. Transferors shall not be a party (other than a contingent
beneficiary as described above) to such escrow arrangements and shall not bear
any cost of or have liability resulting from such escrow arrangements.
SECTION 5.4 Letter of Credit. In lieu of depositing the Deposit in cash
pursuant to this Agreement, or after depositing the Deposit in cash, in
substitution for all or any portion of the
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cash Deposit, Buyer may deliver to Title Company an unconditional and
irrevocable letter of credit in favor of Title Company, in form reasonably
satisfactory to Transferors and Title Company, drawn upon a state or national
bank reasonably approved by Transferors and Title Company, which letter of
credit shall (i) expire no earlier than fifteen (15) days after the scheduled
Closing Date (as such date may be changed with respect to all of the Properties
or a particular Property pursuant to this Agreement), (ii) be capable of being
drawn on by Title Company upon demand (subject to customary draw procedures and
requirements) and (iii) otherwise be in form and substance reasonably
satisfactory to Transferors and Title Company (the "Letter of Credit"). The
Letter of Credit shall secure the faithful performance and observance by Buyer
of the terms, provisions, and conditions of this Agreement in the same manner
and to the same extent as the Deposit. The Letter of Credit shall be held and
disbursed by Title Company in the same manner as the Deposit, except that:
(a) if the term of the Letter of Credit will expire prior to
the then scheduled Closing Date (as such date may be changed with respect to all
of the Properties or a particular Property pursuant to this Agreement), and such
Letter of Credit is not extended or a new Letter of Credit for an extended
period of time is not substituted within five (5) business days prior to the
expiration date of the Letter of Credit, then Title Company shall make demand
for the principal amount of the Letter of Credit prior to the expiration date of
the Letter of Credit and hold such funds in the same manner as the Deposit
pursuant to this Agreement;
(b) if Title Company continues to hold the Letter of Credit at
closing and the closing occurs as contemplated by this Agreement, subject to (c)
below such Letter of Credit shall be returned to Buyer at closing; and
(c) in any instance in which a portion of the Deposit is to be
returned to Buyer pursuant to this Agreement or in which a closing occurs and
subsequent closings are contemplated due to the deferral of the closing with
respect to one or more of the Properties and in order to do so the amount of the
Letter of Credit would have to be reduced, the Title Company shall continue to
hold the Letter of Credit in the manner set forth in and subject to the
provisions of this Section 5.4 until Buyer has provided a substitute Letter of
Credit in the amount of the Deposit as so reduced.
ARTICLE 6
CLOSING
SECTION 6.1 Escrow Arrangements. One or more escrows (to the extent
more than one escrow is necessary to accommodate Transferors' 1031 Exchange(s))
for the purchase and sale contemplated by this Agreement shall be opened by
Buyer and Transferors with Title Company. At least one business day prior to the
Closing Date, Transferors and Buyer shall each deliver escrow instructions to
Title Company consistent with this Article VI, and designating Title Company as
the "Reporting Person" for the transaction pursuant to Section 6045(e) of the
Code. By signing below, Title Company agrees to act as the "Reporting Person"
for the transaction pursuant to Section 6045(e) of the Code and to complete and
file with the IRS Forms 1099-S (and furnish Buyer and Transferors with copies
thereof) on or before the due date therefor. In addition, the parties shall
deposit in escrow, at least one business day prior to the Closing Date (unless
otherwise provided below in this Section 6.1) the funds and documents described
below:
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(a) Transferors shall deposit (or cause to be deposited):
(i) a duly executed and acknowledged deed pertaining to the
Real Property portion of each of the Properties, each in the form attached to
this Agreement as Exhibit I-A (collectively, the "Deeds");
(ii) a duly executed bill of sale pertaining to the
Personal Property portion of each of the Properties, each in the form attached
to this Agreement as Exhibit I-B (collectively, the "Bills of Sale");
(iii) a duly executed counterpart assignment and assumption
pertaining to the Intangible Property portion of each of the Properties, each in
the form attached to this Agreement as Exhibit I-C (collectively, the
"Assignments of Intangibles");
(iv) a duly executed counterpart assignment and assumption
pertaining to the Leases, each in the form attached to this Agreement as Exhibit
I-D (collectively, the "Assignments of Leases");
(v) a certificate from each Transferors certifying the
information required by any of the states in which any of the Properties are
located to establish that the transaction contemplated by this Agreement is
exempt from the tax withholding requirements of such states (the "State
Certificates");
(vi) a certificate from each Transferors certifying the
information required by 1445 of the Code to establish, for the purposes of
avoiding Buyer's tax withholding obligations, that Transferors is not a "foreign
person" as defined in 1445(f)(3) of the Code (the "FIRPTA Certificate");
(vii) a letter executed by each respective Transferors and,
if applicable, its respective management agent and the Buyer, in form and
substance satisfactory to Buyer, addressed to all tenants of each respective
Property, notifying all such tenants of the transfer of ownership of the
Property and directing payment of all rents accruing after the Closing Date to
be made to Buyer or such other party as Buyer directs (the "Tenant Notices");
(viii) to the extent not previously delivered to Buyer and
in Buyer's possession or under its control, originals of any of the Contracts,
Leases, licenses, approvals, plans, specifications, warranties, other Intangible
Property and other books and records relating to the ownership and operation of
the Property (or if the original is not in the Transferors' possession or
control, copies thereof to the extent in Transferors' possession or control);
(ix) an updated Rent Roll for each Property in the same
format as was used for the Rent Rolls attached hereto as Exhibit E or in such
other format as is reasonably acceptable to Buyer dated no later than five (5)
days prior to closing, which updated Rent Roll will be used solely for the
purpose of (i) identifying all Leases at such Property as of the applicable
Closing Date and (ii) allowing the Title Company to issue Buyer's title
insurance policies subject to no exception for parties in possession other than
the Leases identified in the Rent Roll;
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(x) subject to the provisions of Section 2.6, such
affidavits as may be reasonably and customarily required by the Title Company to
issue the Title Policies in the form required hereby (including, without
limitation, without exception for parties-in-possession (other than tenants
under the Leases) or mechanics' or materialmen's liens which are to be satisfied
by Transferors pursuant to Section 2.6);
(xi) the Remediation and Access Agreement (as herein
defined); and
(xii) evidence reasonably satisfactory to the Title Company
as to the legal existence and authority of the Transferors and the authority and
incumbency of the persons signing documents on behalf of the Transferors.
In addition, Transferors shall deliver to Buyer on the Closing Date, outside of
escrow, to the extent in Transferor's possession or control, the originals of
all Leases, Contracts and tenant files and all keys to the Properties.
(b) Buyer shall deposit:
(i) on or prior to the close of business on the business
day immediately prior to the Closing Date, immediately available funds
sufficient to pay the balance of the Price, plus sufficient additional cash to
pay Buyer's share of all escrow costs and closing expenses;
(ii) a duly executed counterpart for each of the
Assignments of Intangibles, Assignments of Leases and Remediation and Access
Agreement (and Tenant Notices where required);
(iii) a certificate duly executed by Buyer in favor of
Transferors confirming the waivers and acknowledgments set forth in Sections 2.5
and 4.4 above; and
(iv) evidence reasonably satisfactory to Title Company as
to the legal existence and authority of the Buyer and the authority and
incumbency of the persons signing documents on behalf of the Buyer.
SECTION 6.2 Title. Title Company shall close escrow on the Closing Date
by:
(a) recording the Deeds;
(b) issuing the owner's title policies to Buyer pursuant to
Section 3.1(a)(i) above;
(c) delivering to Buyer originals of the Bills of Sale, the
FIRPTA Certificate, the State Certificates, executed counterparts of each of the
Assignments of Intangibles, Assignments of Leases and Remediation and Access
Agreement and all of the other documents in escrow under Section 6.1(a);
(d) delivering to Transferors (or the exchange facilitator(s),
as applicable) (i) a counterpart for each of the Assignments of Intangibles, the
Assignments of Leases and the
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Remediation and Access Agreement executed by Buyer, (ii) the certificate
described in Section 6.1(b)(iii) above, (iii) funds in the amount of the Sale
Purchase Price, as adjusted for credits, adjustments, prorations and closing
costs in accordance with Section 2.3 and this Article VI and as allocated
pursuant to the direction of the Transferors (upon which allocation Buyer and
Title Company shall have the right to conclusively rely) and (iv) funds in the
amount of the Exchange Price, as adjusted for credits, adjustments, prorations
and closing costs in accordance with Section 2.3 and this Article VI and as
allocated pursuant to the direction of the Transferors (upon which allocation
Buyer and Title Company shall have the right to conclusively rely); and
(e) if directed by the parties, delivering the Tenant Notices
to the tenants by certified mail, return receipt requested.
SECTION 6.3 Prorations.
(a) Taxes. Real estate taxes, personal property taxes and any
general or special assessments with respect to the Properties which are not the
direct payment obligation of tenants pursuant to the Leases (as opposed to a
reimbursement obligation) shall be prorated as of the Closing Date -- to the end
that Transferors shall be responsible for all taxes and assessments that are
allocable to any period prior to the Closing Date and Buyer shall be responsible
for all taxes and assessments that are allocable to any period from and after
the Closing Date. Notwithstanding anything to the contrary contained herein, in
regards to Real Property located in the States of Illinois and Colorado, (A)
general real estate taxes which are not the direct or indirect (as a
reimbursement obligation) payment obligations of tenants pursuant to the Leases
and which are payable for the tax year prior to the tax year in which the
closing occurs and all prior years shall be paid by Transferors (including any
installments thereof payable after the Closing Date) and (B) general real estate
taxes which are not the direct or indirect (as a reimbursement obligation)
payment obligations of tenants pursuant to the Leases and which are payable for
the tax year in which the closing occurs shall be prorated by Transferors and
Buyer as of the Closing Date. If the actual amount of taxes, assessments or
other amounts to be prorated for the year in which the closing occurs (and, with
respect to Real Property located in Illinois and Colorado, for the tax year
prior to the tax year in which the closing occurs) is not known as of the
Closing Date, the proration shall be based on the parties' reasonable estimates
of such taxes, assessments and other amounts. To the extent any real or personal
property taxes subject to apportionment in accordance with the foregoing are, as
of the Closing Date, the subject of any appeal filed by or on behalf of
Transferors, then notwithstanding anything to the contrary contained in this
subparagraph, (i) no apportionment of the taxes being appealed shall occur at
the closing, but instead such apportionment shall be deferred until the outcome
of the appeal is final and the amount of taxes owing becomes fixed at which time
Transferors shall be responsible for all such taxes that are allocable to any
period prior to the Closing Date and Buyer shall be responsible for all such
taxes that are allocable to any period from and after the Closing Date, and (ii)
Transferors shall provide Buyer with adequate security, either in the form of a
bond or by escrowing the amounts being appealed, to assure Buyer that
Transferors' portion of such tax liability, including any penalty, will be
available. To the extent any taxes which are the subject of an appeal have been
paid by Transferors under protest and the appeal results in Buyer receiving a
credit toward future tax liability or a refund, then Buyer shall, within thirty
(30) days following receipt of such refund or notice of such credit, pay to
Transferors the full amount of such refund or credit allocable to the period
prior to the Closing Date, excluding, however, any
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portion of such refund or credit that is required to be passed through to the
tenants pursuant to any Leases or to other parties by existing contract.
(b) Prepaid Expenses. Buyer shall be charged for those prepaid
expenses paid by Transferors directly or indirectly allocable to any period from
and after the Closing Date, including, without limitation, annual permit and
confirmation fees, fees for licenses and all security or other deposits paid by
Transferors to third parties which Buyer elects to assume and to which Buyer
then shall be entitled to the benefits and refund following the Closing Date.
(c) Property Income and Expense. The following prorations and
adjustments shall occur as of the closing. Prior to the Closing Date,
Transferors shall provide all information to Buyer required to calculate such
prorations and adjustments and representatives of Buyer and Transferors shall
together make such calculations:
(i) General. Subject to the specific provisions of clauses
(ii), (iii) and (iv) below, income and expense shall be prorated on the basis of
a 30-day month and on a cash basis (except for items of income and expense that
are payable less frequently than monthly, which shall be prorated on an accrual
basis). All such items attributable to the period prior to the Closing Date
shall be credited to Transferors; all such items attributable to the period on
and following the Closing Date shall be credited to Buyer. Buyer shall be
credited in escrow with (a) any portion of rental agreement or lease deposits
which are refundable to the tenants and have not been applied to outstanding
tenant obligations in accordance with the terms of the applicable Lease and (b)
rent prepaid beyond the Closing Date. Transferors shall transfer Transferors
entire interest in any letters of credit or certificates of deposit held by
Transferors as the deposits described in clause (a) above and shall diligently
cooperate with Buyer in obtaining any reissuance or confirmation of the effect
of the transfer of such instruments. Buyer shall not be entitled to any interest
on rental agreement or lease deposits or prepaid rent accrued on or before the
Closing Date, except to the extent any such amount of interest is refundable or
payable to any tenant under a Lease or applicable law. Transferors shall be
credited in escrow with any refundable deposits or bonds held by any utility,
governmental agency or service contractor, to the extent such deposits or bonds
are assigned to Buyer on the Closing Date.
(ii) Leasing Costs. Subject to the provisions of Section
6.9 below, Buyer shall be credited in escrow with any leasing commissions,
tenant improvements or other allowances to be paid by Buyer on or after the
Closing Date with respect to the current term of any Lease or Lease modification
executed, or any extension term or expansion of premises exercised, in each
case, on or before March 1, 1999, and Transferors shall pay on or before the
Closing Date all such items payable prior to the Closing Date. Notwithstanding
the provisions of the immediately following sentence, with respect to any new
Leases or Lease modifications executed after March 1, 1999 with respect to any
of the space identified on Exhibit S attached hereto which are permitted under
the terms of this Agreement ("Vacant Space"), Transferors shall be credited in
escrow with the amount of any leasing commissions, tenant improvements or other
allowances paid by Transferors after March 1, 1999. Buyer shall receive a credit
at closing against the Price in the amount of $7.00 per square foot of Vacant
Space, whether or not such space is leased prior to closing. With respect to any
space which is not Vacant Space, subject to Section 6.9 Transferors shall be
credited in escrow with an amount equal to (A) the amount of any leasing
commissions, tenant improvement and other allowances paid by Transferors after
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March 1, 1999 to the extent such items relate to new Leases or Lease
modifications executed or extensions of terms or expansions of premises that are
exercised after March 1, 1999 and permitted under the terms of this Agreement,
multiplied by (B) a fraction in which the numerator is the number of months or
partial months of the stabilized term (i.e., the term following the tenant's
entry into occupancy and commencement of unabated rental obligations) of any
such Lease following the Closing Date and the denominator is the number of
months or partial months in the stabilized term of such Lease. Buyer shall
assume all obligations for any leasing commissions, tenant improvement or other
allowances payable following the Closing Date with respect to Leases or Lease
modifications executed or extensions of terms or expansions of premises that are
exercised following March 1, 1999 and which are permitted under the terms of
this Agreement; provided, that as to any such leasing commissions not disclosed
to Buyer in the Disclosure Materials List & Statement or the Disclosure
Materials or approved or deemed approved by Buyer pursuant to this Agreement or
which are not expressly assumed by Buyer under any other provision of this
Agreement, Buyer shall only be obligated to pay the market rate commission for
the applicable Lease (and Transferors shall remain responsible for any above
market component of such commission). Any expenditures or commitments to
expenditures relating to Leases or modifications or extensions of terms or
expansions of premises executed following March 1, 1999 in excess of the amounts
budgeted and approved as part of Buyer's approval of the Lease (where such
approval is required) shall be subject to Buyer's specific approval, which shall
not be unreasonably withheld and shall be deemed given if Buyer should fail to
approve or disapprove such excess expenditure within 5 business days following
Transferors' written request and delivery of material information reasonably
necessary to allow Buyer to make an informed decision.
(iii) Rents. Rents payable by tenants under the Leases,
shall be prorated as and when collected (whether such collection occurs prior
to, on, or after the Closing Date). Buyer shall receive a credit for the amounts
actually received before the Closing Date and which pertain to any period after
the Closing Date. Buyer shall not receive a credit at the closing for any rents
for the month in which the closing occurs which are in arrears and have not then
been received. As to any tenants who are delinquent in the payment of rent on
the Closing Date, Buyer shall use reasonable efforts (but shall not be required
to commence legal action or terminate or evict a tenant) to collect or cause to
be collected such delinquent rents following the Closing Date. Any and all rents
so collected by Buyer following the closing (less a deduction for all reasonable
collection costs and expenses incurred by Buyer) shall be successively applied
(after deduction for Buyer's reasonable collection costs) to the payment of (x)
rent due and payable in the month in which the closing occurs, (y) rent due and
payable in the months succeeding the month in which the closing occurs (through
and including the month in which payment is made) and (z) rent due and payable
in the months preceding the month in which the closing occurs. If all or part of
any rents or other charges received by Buyer following the closing are allocable
to Transferors pursuant to the foregoing sentence, then such sums shall be
promptly paid to Transferors. Transferors reserve the right to pursue any
damages remedy Transferors may have against any tenant with respect to such
delinquent rents, but shall have no right to exercise any other remedy under the
Lease (including, without limitation, termination or eviction).
(iv) Additional Rents. Any percentage rent, escalation
charges for real estate taxes, parking charges, operating and maintenance
expenses, escalation rents or charges,
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electricity charges, cost of living increases or any other charges of a similar
nature other than fixed or base rent under the Leases (collectively, the
"Additional Rents") shall be prorated as of the Closing Date between Buyer and
Transferors on or before the date which is ninety (90) days following the end of
the calendar year in which the closing occurs based on the actual number of days
of the year and month which shall have elapsed as of the Closing Date. Prior to
the end of the calendar year in which the closing occurs, Transferors shall
provide Buyer with information regarding Additional Rents which were received by
Transferors prior to closing and the amount of reimbursable expenses paid by
Transferors prior to closing. On or before the date which is sixty (60) days
following the end of the calendar year in which the closing occurs, Buyer shall
deliver to Transferors a reconciliation of all expenses reimbursable by tenants
under the Leases, and the amount of Additional Rents received by Transferors and
Buyer relating thereto (the "Reconciliation"). Upon reasonable notice and during
normal business hours, each party shall make available to the other all
information reasonably required to confirm the Reconciliation. In the event of
any overpayment of Additional Rents by the tenants to Transferors, Transferors
shall promptly, but in no event later than fifteen (15) days after receipt of
the Reconciliation, pay to Buyer the amount of such overpayment and Buyer, as
the landlord under the particular Leases, shall pay or credit to each applicable
tenant the amount of such overpayment. In the event of an underpayment of
Additional Rents by the tenants to Transferors, Buyer shall pay to Transferors
the amount of such underpayment within fifteen (15) days following Buyer's
receipt of any such amounts from the tenants.
(d) Adjustments to Prorations. Subject to Section 6.3(a) and
6.3(c)(iv) above, after the closing, the parties shall from time to time, as
soon as is practicable after accurate information becomes available and in any
event within 180 days following the Closing Date, recalculate and reapportion
any of the items subject to proration or apportionment (i) which were not
prorated and apportioned at the closing because of the unavailability of the
information necessary to compute such proration, or (ii) which were prorated or
apportioned at the closing based upon estimated or incomplete information, or
(iii) for which any errors or omissions in computing prorations at the closing
are discovered subsequent thereto, and thereafter the proper party shall be
reimbursed based on the results of such recalculation and reapportionment.
Unless otherwise specified herein, all such reimbursements shall be made on or
before thirty (30) days after receipt of notice of the amount due. Any such
reimbursements not timely paid shall bear interest at a per annum rate equal to
ten percent (10%) from the due date until all such unpaid sums together with all
interest accrued thereon is paid if payment is not made within ten (10) days
after receipt of a bill therefor.
(e) Prior Year's Reconciliation. If the closing occurs before
Transferors have performed the annual reconciliation of Additional Rent for the
calendar year immediately preceding the calendar year in which the closing
occurs, then Transferors shall, as soon as practicable after closing, perform
such reconciliation at its sole cost and expense. Upon completion of such annual
reconciliation, Transferors shall immediately deliver to Buyer a detailed
description of any Additional Rent which are payable by or reimbursable to any
present tenant (the "Prior Year Reconciliation"). The Prior Year Reconciliation
shall be accompanied by all applicable back-up documentation, together with
Transferors' check for such Additional Rent which is reimbursable to a tenant.
Based upon Transferors' calculations, Buyer shall send customary statements for
reimbursement of Additional Rent to tenants under the Leases based on the Prior
Year Reconciliation, and shall remit to Transferors within thirty (30) days of
receipt, all
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sums so collected. If Transferors' calculations show that Additional Rent has
been overpaid by any present tenant and Transferors have submitted its check to
Buyer for such amounts, Buyer shall refund such Additional Rent to such tenant.
(f) Survival. The provisions of this Section 6.3 shall survive
the closing.
SECTION 6.4 Other Closing Costs.
(a) The premium payable in connection with the issuance of the
Title Policies, governmental documentary transfer or transaction taxes or fees
due on the transfer of the Properties, recording costs, and, except as otherwise
provided below, other closing costs shall be paid by Transferors and Buyer
according to custom in the county in which the applicable Property is located as
set forth on Exhibit D attached hereto.
(b) Transferors shall pay 50% of any escrow or other costs
charged by or reimbursable to the Title Company; provided, however that
additional costs to create multiple escrows to accommodate 1031 Exchanges shall
be borne by the party requesting such multiple escrows.
(c) Buyer shall pay 50% of any escrow or other costs charged by
or reimbursable to the Title Company; provided, however that additional costs to
create multiple escrows to accommodate 1031 Exchanges shall be borne by the
party requesting such multiple escrows.
SECTION 6.5 Further Documentation. At or following the close of escrow,
Buyer and Transferors shall execute any certificate, memoranda, assignment or
other instruments required by this Agreement, law or local custom or otherwise
reasonably requested by the other party to effect the transactions contemplated
by this Agreement and shall take such other actions (but at no material cost or
expense) as are reasonably requested by the other party to effect the
transactions contemplated by this Agreement.
SECTION 6.6 Cooperation in Exchange. The parties acknowledge and agree
that Exchangors have elected (with respect to the Exchange Properties) and Buyer
may elect (with respect to the Properties) to assign their interest in this
Agreement to an exchange facilitator by means of one or more escrows for the
purpose of completing an exchange of such Properties or interests in such
Properties in a transaction which will qualify for treatment as a tax deferred
exchange pursuant to the provisions of Section 1031 of the Internal Revenue Code
of 1986 and applicable state revenue and taxation code sections (a "1031
Exchange"). Each party agrees to reasonably cooperate with any party so electing
in implementing any such assignment and 1031 Exchange, provided that such
cooperation shall not entail any material additional expense to the non-electing
party, cause such party to take title to any other property or cause such party
exposure to any liability or loss of rights or benefits contemplated by this
Agreement, and the electing party shall indemnify, defend and hold the
non-electing party harmless from any liability, damage, loss, cost or other
expense including, without limitation, reasonable attorneys' fees and costs,
resulting or arising from the implementation of any such assignment and 1031
Exchange. No such assignment by any party shall relieve such party from any of
its obligations
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hereunder, nor shall such party's ability to consummate a tax deferred exchange
be a condition to the performance of such party's obligations under this
Agreement.
SECTION 6.7 Environmental Matters.
(a) Buyer and Transferors acknowledge and agree that
Transferors shall transfer and assign to Buyer at the closing (to the extent
assignable), as part of the Intangible Property, Transferors' rights and
interests in and to any indemnifications or covenants from third parties (other
than any rights of Transferors under any of Transferors' environmental insurance
policies, which rights are expressly not assigned to Buyer under this Agreement)
relating to the environmental condition of the Properties (reserving solely
Transferors' rights to the benefit of such indemnifications and covenants
protecting Transferors with respect to Transferors' ownership of the
Properties), including, without limitation, those indemnity agreements shown on
Exhibit O. Following the closing, Buyer and Transferors shall cooperate in the
pursuit of any and all claims arising under such instruments, which cooperation
shall include, as required, Transferors' expression and pursuit of claims for
the benefit of Buyer -- provided that such pursuit is at Buyer's sole cost and
expense and does not expose Transferors to additional liability.
(b) With respect to the Property described on Exhibit U-1,
Transferors shall use reasonable efforts to obtain on or before closing (but
without any liability whatsoever if they are unable to do so except as set forth
below), a no further action letter (which letter shall be permitted to contain
customary qualifications and exclusions, such as a right of the lead regulatory
agency to reopen its investigation based on additional information, and may be a
risk based no further action letter) from the lead regulatory agency in
connection with the known contamination located on such Property as more
particularly described on Exhibit U-1 (an "NFA letter"). If Transferors are not
able to deliver to Buyer an NFA Letter with respect to any such Property on or
before the closing, then Transferors shall execute and deliver to Buyer at
closing with respect to any such Property as to which no NFA Letter has been
obtained, a remediation and access agreement in the form attached as Exhibit U-2
(the "Remediation and Access Agreement").
SECTION 6.8 Environmental Insurance Deductibles. The parties hereto
acknowledge that Buyer intends to obtain environmental insurance ("Environmental
Insurance") for the Properties listed on Exhibit Q attached hereto (the "Insured
Properties"). If a loss occurs under the Environmental Insurance and to the
extent such loss is a result of environmental contamination or a release of
Hazardous Materials determined to have been present or to have occurred at an
Insured Property on or before the Closing Date (a "Loss"), then Transferors
shall reimburse to Buyer eighty percent (80%) of any amounts actually incurred
by Buyer with respect to such Loss (as substantiated by written invoices or
other evidence reasonably satisfactory to Transferors) as a result of the
application of the deductible under the Environmental Insurance for such Insured
Property, but in no event shall Transferors' liability exceed eighty thousand
dollars ($80,000) in the aggregate with respect to all Losses at any one Insured
Property. Buyer agrees not to take any affirmative actions which would or could
reasonably be expected to result in a Loss, such as performing a Phase II
environmental assessment, unless required to do so in writing by a lender,
rating agency, new material equity investor, a governmental authority or tenant
(but with respect to any of the foregoing persons, only after Buyer has used
commercially
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reasonable efforts to find a suitable alternative to taking any such affirmative
actions, such as naming such party as an additional insured under Buyer's
environmental insurance policy or providing such party with an environmental
indemnity) or based on a reasonable belief that a release of Hazardous Materials
(other than with respect to a matter disclosed in the environmental reports
included in the Disclosure Materials) has occurred (provided, that the mere
existence of a dry cleaner at the Property is not in and of itself sufficient to
constitute such a "reasonable belief"), and in any event will not do so without
providing Transferors at least ten (10) days prior written notice to review the
scope of such action; provided, that the foregoing prohibition on Buyer taking
affirmative actions shall not apply with respect to a Property from and after
the two (2) year anniversary of the Closing Date for such Property. The
obligation of Transferors to reimburse Buyer under this Section 6.8 shall apply
only to Losses for a particular Property as to which Transferors receive written
notice from Buyer on or before the two (2) year anniversary of the Closing Date
for such Property.
SECTION 6.9 Completion Events.
(a) With respect to the Property described on Exhibit R
attached hereto, on or before the closing, Transferors shall trigger Carl's
Junior's right to exercise its purchase option and concurrently therewith
Transferors shall use commercially reasonable efforts, but at no out of pocket
cost to Transferors, to either (i) cause the Title Company to insure over any
exception for Carl's Junior's purchase option to acquire such Property pursuant
to an endorsement or other affirmative coverage in form reasonably satisfactory
to Buyer or (ii) obtain a waiver of such right from Carl's Junior in form
reasonably acceptable to the Buyer. If, by the closing, Transferors are unable
to obtain either (i) or (ii) or Carl's Junior exercises its purchase option and
closes on such purchase, then such Property shall be treated as a Deleted
Property; provided, that if Carl's Junior has not exercised its purchase option
and closed on such purchase, Transferors shall be entitled to defer the closing
for such Property for a period of up to one (1) year to allow Transferors to
deliver title to such Property unencumbered by such purchase option, in which
event (i) the Price payable on the Closing Date applicable to all other
Properties shall be reduced by the Allocated Price of such Property, and (ii) an
amount equal to five percent (5%) of the Allocated Price for such Property shall
be retained by Title Company as a continuing Deposit subject to disposition in
accordance with Section 5.1 above as to such Property.
(b) General Provisions. All work performed by Transferors under
this Section 6.9 shall be performed in a good and workmanlike manner
substantially in accordance with all applicable laws. Nothing in this Section
6.9 is intended to limit or expand Buyer's approval rights contained in Section
4.2(c) or (d).
SECTION 6.10 Transferors' Covenant of Cooperation. Transferors hereby
agree to reasonably cooperate with Buyer or Buyer's auditors, at no expense,
liability or substantial accounting time to Transferors, prior to and after the
closing (but subject to the provisions of Section 2.4) (i) by providing
financial data pertaining to the Properties to the extent required by the
Securities and Exchange Commission ("SEC") or reasonably required to prepare
filings that Buyer intends to file with the SEC, including (to the extent so
required) the documentation requested on Exhibit T-1 (but without duplication of
any of the documents listed in the Disclosure Material List & Statement or
contained in the Disclosure Materials so long as continued access is provided to
such documents as were not delivered to Buyer) as it relates to
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the one (1) year period immediately preceding the closing, and (ii) in
delivering to Buyer's auditors a certificate in the form of Exhibit T-2.
Transferors shall provide such documentation and deliver such certificate in
each instance within ten (10) business days after receipt of Buyer's reasonable
request to do so. Without limiting Transferors' representations and warranties
contained in this Agreement or Transferors' covenants contained in Section 4.2
or in any document executed and delivered to Buyer by Transferors at closing,
Buyer shall indemnify and hold Transferors harmless from and against any and all
claims, liabilities, losses, damages, causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees and costs) to the
extent relating to or arising out of Transferors' performance of its obligations
under this Section 6.10, including, without limitation, any claims arising out
of the reliance by third parties, including Buyer's auditors, on information
provided by Transferors under this Section 6.10. The provisions of this Section
6.10 shall survive the closing
SECTION 6.11 UCC Financing Statements. If Buyer provides evidence
during the Confirmation Period of any UCC Financing Statements naming a
Transferor or any of its affiliates as debtor and encumbering a Property
(whether in connection with mortgages, deeds of trust or personal property
financings which are not assumed by Buyer), then Transferors shall use
reasonable efforts to cause the release of such UCC Financing Statements as soon
as practicable after the closing.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Damage or Destruction.
(a) Buyer shall be bound to purchase each of the Properties as
required by the terms of this Agreement without regard to the occurrence or
effect of any damage to or destruction of any of the Properties or condemnation
of any Property by right of eminent domain, provided that the occurrence of any
damage or destruction involves repair costs of less than the greater of
$1,000,000 or ten percent (10%) of the Property's Allocated Price, and any
condemnation does not materially affect the use or value of the affected
Property. If Buyer is so bound to purchase a Property notwithstanding the
occurrence of damage, destruction or condemnation, or if Buyer fails to elect to
treat the applicable Property as a Deleted Property pursuant to Section 7.1(b)
below then upon the closing: (i) in the event of damage covered by insurance or
an immaterial condemnation, Buyer shall receive a credit against the Allocated
Price for such Property in the amount (net of collection costs and costs of
repair reasonably incurred by Transferors and not then reimbursed) of any
insurance proceeds or condemnation award collected and retained by Transferors
as a result of any such damage or destruction or condemnation plus (in the case
of damage) the amount of the deductible portion of Transferors' insurance
policy, and Transferors shall assign to Buyer all rights to such net insurance
proceeds or condemnation awards as shall not have been collected prior to the
close of escrow; and (ii) in the event of damage not covered by insurance, Buyer
shall receive a credit (not to exceed the greater of $1,000,000 or ten percent
(10%) of the Property's Allocated Price for each affected Property) in the
amount of the estimated cost to repair the damage.
(b) If, prior to the Closing Date, any Property suffers damage
or destruction that involves repair costs in excess of the greater of $1,000,000
or ten percent (10%) of the
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Property's Allocated Price or condemnation which affects the use or value of the
Property in other than a minor and immaterial manner, then Buyer may elect to
treat such Property as a Deleted Property by giving written notice of such
election to Transferors promptly following Buyer's knowledge of the event and
extent of damage, destruction or condemnation. In the event of the deletion of
any Property pursuant to this Section 7.1(b), the parties shall be bound to
consummate the purchase and sale of the balance of the Properties in accordance
with this Agreement and the Price shall be reduced by an amount equal to the
Allocated Price of the Deleted Property.
SECTION 7.2 Fees & Commissions.
(a) Each party to this Agreement warrants to the other that,
except as otherwise provided in subparagraph (b) below, no person or entity can
properly claim a right to a real estate or investment banker's commission,
finder's fee, acquisition fee or other brokerage-type compensation
(collectively, "Real Estate Compensation") based upon the acts of that party
with respect to the transaction contemplated by this Agreement. Each party
hereby agrees to indemnify and defend the other against and to hold the other
harmless from any and all loss, cost, liability or expense (including but not
limited to attorneys' fees and returned commissions) resulting from any claim
for Real Estate Compensation by any person or entity based upon such acts.
(b) The parties hereby acknowledge that Morgan Stanley Dean
Witter has acted as Transferors' investment bankers in connection with this
transaction. Transferors shall be responsible for paying any commission or fees
due to such parties in connection with this transaction.
SECTION 7.3 Successors and Assigns. Buyer may not assign any of Buyer's
rights or duties hereunder without the prior written consent of Transferors,
which may be withheld in Transferors' sole discretion; provided, however, that
Buyer shall have the right to assign all or a portion of its rights hereunder to
an entity which is at least 75% owned, directly or indirectly, by Buyer, without
the prior consent of Transferors, except that any such assignment to such an
affiliate of Buyer shall not relieve Buyer of any of its obligations under this
Agreement.
SECTION 7.4 Notices. Any notice, consent or approval (or request for
consent or approval) required or permitted to be given under this Agreement
shall be in writing and shall be given or requested by (i) hand delivery, (ii)
Federal Express or another reliable overnight courier service, (iii) facsimile
telecopy, or (iv) United States mail, registered or certified mail, postage
prepaid, return receipt required, and addressed as follows:
To Transferors:
c/o AMB Property, L.P.
505 Montgomery Street, Fifth Floor
San Francisco, CA 94111
Attn: W. Blake Baird
Fax No.: (415) 394-9001
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and
AMB Property, L.P.
505 Montgomery Street, Fifth Floor
San Francisco, CA 94111
Attn: General Counsel
Fax No.: (415) 394-9001
with a copy to:
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304-1018
Attn: Philip J. Levine
Fax No.: (650) 494-0792
To Buyer:
Burnham Pacific Properties, Inc.
100 Bush Street, Suite 2400
San Francisco, CA 94104
Attn: General Counsel
Fax No.: (650) 352-1711
with a copy to:
David Krotine, Esq.
McDonough, Holland & Allen
5555 Capitol Mall, 9th Flr.
Sacramento, CA 94814
Fax No.: (916) 444-5918
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
Attn: Christopher B. Barker, P.C.
Fax No.: 617-227-8591
Any such notice, consent or approval (or request for consent or approval) shall
be deemed given or requested (i) if given by hand delivery, upon such hand
delivery, (ii) one (1) business day after being deposited with Federal Express
or another reliable overnight courier service, (iii) if sent by facsimile, the
day the facsimile is successfully transmitted, or (iv) if sent by registered or
certified mail, three (3) business days after being deposited in the United
States mail. Any address or name specified above may be changed by notice given
to the addressee by the other party in accordance with this Section 7.4. The
inability to deliver because of a changed address
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<PAGE> 45
of which no notice was given, or rejection or other refusal to accept any
notice, shall be deemed to be the receipt of the notice as of the date of such
inability to deliver or rejection or refusal to accept. Any notice to be given
by any party hereto may be given by the counsel for such party.
SECTION 7.5 ARBITRATION OF DISPUTES. CONTROVERSIES OR CLAIMS TO BE
SUBMITTED TO ARBITRATION PURSUANT TO SECTIONS 2.5, 2.6 OR 6.9 ABOVE SHALL BE
RESOLVED BY ARBITRATION CONDUCTED IN ACCORDANCE WITH THE CALIFORNIA CODE OF
CIVIL PROCEDURE SECTION 1280 ET SEQ. AND UNDER THE REAL ESTATE INDUSTRY RULES OF
THE AMERICAN ARBITRATION ASSOCIATION ("AAA RULES"), EXCEPT THAT WITH RESPECT TO
ANY INSTANCE IN WHICH THE ARBITRATION RELATES SOLELY TO A DISPUTE OVER THE
AMOUNT OF A PRICE ADJUSTMENT, ANY SUCH ARBITRATION SHALL BE SO CALLED
"BASEBALL-STYLE" SUCH THAT EACH PARTY SHALL STATE A SINGLE AMOUNT AS ITS
POSITION ON THE ISSUE BEING ARBITRATED AND A SINGLE ARBITRATOR SHALL BE REQUIRED
TO SELECT ONE OF THE AMOUNTS STATED BY THE PARTIES, AND SHALL HAVE NO RIGHT TO
DECIDE A DIFFERENT AMOUNT OR OTHERWISE TAKE A DIFFERENT POSITION. THE
ARBITRATOR(S) SHALL GIVE EFFECT TO SUBSTANTIVE AND PROCEDURAL LAW OF THE STATE
OF CALIFORNIA INCLUDING, WITHOUT LIMITATION, THE STATUTES OF LIMITATION IN
DETERMINING ANY CLAIM (BUT EXCLUDING PRINCIPLES RELATING TO CONFLICTS OF LAWS).
ANY CONTROVERSY CONCERNING WHETHER AN ISSUE IS ARBITRABLE SHALL BE DETERMINED BY
THE ARBITRATOR(S). ALL DECISIONS BY THE ARBITRATOR(S) SHALL BE IN WRITING AND
COPIES OF THE DECISIONS SHALL BE DELIVERED TO EACH PARTY.
ARBITRATION SHALL TAKE PLACE IN SAN FRANCISCO, CALIFORNIA AT A LOCATION MUTUALLY
ACCEPTABLE TO THE PARTIES OR AS DESIGNATED BY THE ARBITRATOR(S) IF THE PARTIES
CANNOT AGREE ON A LOCATION. THE DECISION BY THE ARBITRATOR(S) SHALL BE ISSUED NO
LATER THAN SIXTY (60) DAYS AFTER THE DATE ON WHICH THE INITIATING PARTY GIVES
WRITTEN NOTICE TO THE OTHER PARTY OF ITS INTENTION TO ARBITRATE, WHICH NOTICE
SHALL COMPLY WITH THE REQUIREMENTS OF THE AAA RULES AND THREE COPIES OF SUCH
NOTICE SHALL BE FILED AT THE REGIONAL OFFICE OF AAA IN SAN FRANCISCO, CALIFORNIA
AS PROVIDED IN THE AAA RULES.
JUDGMENT UPON THE ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR JUDICIAL RELIEF
OR PURSUIT OF A PROVISIONAL OR ANCILLARY REMEDY SHALL NOT CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR
CLAIM TO ARBITRATION IF ANY OTHER PARTY CONTESTS SUCH ACTION FOR JUDICIAL
RELIEF.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE `ARBITRATION OF DISPUTES' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL. BY INITIALING
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IN THE SPACE BELOW, YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND
APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE `ARBITRATION OF
DISPUTES' PROVISION. 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.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE `ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION.
__________________________ ____________________________
BUYER'S INITIALS TRANSFEROR'S INITIALS
SECTION 7.6 Entire Agreement. Excepting solely the Confidentiality
Agreements, this Agreement and the attached exhibits, which are by this
reference incorporated herein, and all documents in the nature of such exhibits,
when executed, contain the entire understanding of the parties and supersede any
and all other written or oral understanding.
SECTION 7.7 Time. Time is of the essence of every provision contained
in this Agreement.
SECTION 7.8 Incorporation by Reference. All of the exhibits attached to
this Agreement or referred to herein and all documents in the nature of such
exhibits, when executed, are by this reference incorporated in and made a part
of this Agreement.
SECTION 7.9 Attorneys' Fees. In the event any dispute between Buyer and
any of Transferors should result in litigation or arbitration, including,
without limitation, arbitration pursuant to Section 7.5 above, the prevailing
party shall be reimbursed for all reasonable costs incurred in connection with
such litigation or arbitration, including, without limitation, reasonable
attorneys' fees and costs.
SECTION 7.10 Construction. The parties acknowledge that each party and
its counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments or exhibits hereto.
SECTION 7.11 Governing Law. This Agreement shall be construed and
interpreted in accordance with and shall be governed and enforced in all
respects according to the laws of the State of California (without giving effect
to conflicts of laws principles).
SECTION 7.12 Operating Records. Each party agrees to make available to
the other party from time to time, but not more frequently than quarterly, upon
reasonable notice, for a period of two years following the Closing Date, such
party's operating records for the Properties, to the
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<PAGE> 47
extent such party has operating records, in order to permit the requesting party
to prepare such historical financial statements for the Properties as such party
requires to satisfy legal or contractual obligations. The party making its
operating records available shall have no obligation to prepare any operating
statements or incur any expense in connection with the provisions of this
section.
SECTION 7.13 Confidentiality. Buyer and Transferors each acknowledge
and agree that this Agreement and the terms and conditions set forth are to be
kept confidential unless and until the closing occurs on the Closing Date in
accordance with and subject to the terms of this Section 7.13 and the
Confidentiality Agreements. Without limiting the obligations of Buyer's
constituent partners under the Confidentiality Agreements, each party shall be
entitled to discuss and disclose the transaction with employees, agents,
consultants, lenders, clients and representatives of such party -- each of whom
shall be directed by the disclosing party to maintain such information in
confidence. Notwithstanding anything to the contrary contained in this Section
7.13, following the full execution of this Agreement and Buyer's delivery of the
Deposit to Title Company, the parties shall issue a joint press release with
respect to this transaction, which press release shall be in the form attached
hereto as Exhibit J. The Transferors agree that nothing in this Section shall
prevent Buyer from disclosing any information otherwise deemed confidential
under this Section (i) in connection with Buyer's enforcement of its rights
hereunder or (ii) pursuant to any legal requirement applicable to Buyer,
including, without limitation, any securities laws, any reporting requirement or
any accounting or auditing standard.
SECTION 7.14 Counterparts. This Agreement may be executed in one or
more counterparts. All counterparts so executed shall constitute one contract,
binding on all parties, even though all parties are not signatory to the same
counterpart.
SECTION 7.15 Transferors' Representative. Buyer shall be entitled to
rely upon any notice, approval or decision expressed by any of the Knowledge
Persons acting alone on behalf of all of the Transferors.
SECTION 7.16 No Liability. Notwithstanding anything to the contrary
contained herein, in no event shall Calpers, which is a constituent member of
Buyer, or any of its trustees, directors or employees, have any personal
liability under this Agreement.
SECTION 7.17 Escrow Provisions.
(a) By its signature below, Title Company acknowledges receipt
of the Deposit (whether in the form of cash or a Letter of Credit). Title
Company agrees to hold the Deposit (whether in the form of cash or a Letter of
Credit) in escrow pursuant to the provisions of this Agreement for application
in accordance with the provisions of this Agreement, including the following
terms:
(1) Title Company shall have no duties or responsibilities
other than those expressly set forth in this Agreement. Title Company shall have
no duty to enforce any obligation of any person to make any payment or delivery
or to enforce any obligation of any person to perform any other act. Title
Company shall be under no liability to the other parties
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<PAGE> 48
hereto or to anyone else by reason of any failure on the part of any party
hereto or any maker, guarantor, endorser or other signatory of any document or
any other person to perform such person's obligations under any such document.
Except for this Agreement, amendments to this Agreement executed by Transferors
and Buyer and except for joint written instructions given to Title Company by
Transferors and Buyer relating to the Deposit, Title Company shall not be
obligated to recognize any agreement between any or all of the persons referred
to herein, notwithstanding that references thereto may be made herein and
whether or not it has knowledge thereof.
(2) In its capacity as Title Company, Title Company shall
not be responsible for the genuineness or validity of any security, instrument,
document or item deposited with it and shall have no responsibility other than
to faithfully follow the instructions contained in this Agreement, and subject
to the terms hereof, it is fully protected in acting in accordance with any
written instrument given to it hereunder by any of the parties hereto and
believed by Title Company to have been signed by the proper person. Title
Company may assume that any person purporting to give any notice hereunder has
been duly authorized to do so. Title Company is acting as a stakeholder only
with respect to the Deposit. If there is any dispute or uncertainty concerning
any action to be taken hereunder, Title Company shall have the right to take no
action (other than to make demand for the principal amount of any portion of the
Deposit in the form of a Letter of Credit as may be required under this
Agreement which demand shall be made as so required by this Agreement
notwithstanding any contrary instructions by Buyer unless approved in writing by
Transferors) until it shall have received instructions in writing approved by
Transferors and Buyer or until directed by a final order of judgment of a court
of competent jurisdiction, whereupon Title Company shall take such action in
accordance with such instructions or such order.
(3) It is understood and agreed that the duties of Title
Company are purely ministerial in nature. Title Company shall not be liable to
the other parties hereto or to anyone else for any action taken or omitted by
it, or any action suffered by it to be taken or omitted, in good faith and in
the exercise of reasonable judgment, except for acts of willful misconduct or
gross negligence. Title Company may rely conclusively and shall be protected in
acting upon any order, notice, demand, certificate, opinion or advice of counsel
(including counsel chosen by Title Company), statement, instrument, report or
other paper or document (not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth and accuracy of any
information therein contained) which is reasonably believed by Title Company to
be genuine and signed or presented by the proper person or persons. Title
Company shall not be bound by any notice or demand, or any waiver, modification,
termination or rescission of this Agreement or any of the terms hereof, unless
evidenced by a final judgment or decree of a court of competent jurisdiction in
the State of California or a Federal court in such State, or a writing delivered
to Title Company signed by the proper party or parties and, if the duties or
rights of Title Company are affected, unless it shall give its prior written
consent thereto.
(4) Title Company shall have the right to assume in the
absence of written notice to the contrary from the proper person or persons that
a fact or an event by reason of which an action would or might be taken by Title
Company does not exist or has not occurred, without incurring liability to the
other parties hereto or to anyone else for any action taken or
45
<PAGE> 49
omitted, or any action suffered by it to be taken or omitted, in good faith and
in the exercise of reasonable judgment, in reliance upon such assumption.
(5) Except in connection with Title Company's willful
misconduct or gross negligence, Title Company shall be indemnified and held
harmless jointly and severally by the other parties hereto from and against any
and all liabilities, expenses and losses suffered by Title Company (as escrow
agent), including reasonable attorneys' fees and expenses, in connection with
any action, suit or other proceeding involving any claim, which arises out of or
relates to this Agreement, the services of Title Company hereunder or the monies
or instruments held by it hereunder. Promptly after the receipt by Title Company
of notice of any demand or claim or the commencement of any action, suit or
proceeding, Title Company shall, if a demand or a claim is made or an action is
commenced against any of the other parties hereto, notify such other parties
hereto in writing; but the failure by Title Company to give such notice shall
not relieve any party from any liability which such party may have to Title
Company hereunder.
SECTION 7.18 State Specific Provisions.
(a) In regards to Real Property located in California:
(i) Buyer is hereby apprised of and shall determine whether
any Real Property is located within the coastal zone under the California
Coastal Act.
(ii) Buyer is hereby apprised of and shall determine
whether any Real Property is located within a special studies zone under the
Alquist-Priolo Geologic Hazard Act.
(iii) To the extent required by law, Transferors and Buyer
agree to provide a Real Estate Transfer Disclosure Statement.
(iv) Transferors shall provide Buyer with a form California
590-RE.
(b) In regards to Real Property located in Florida:
(i) Buyer is notified as follows: RADON GAS: Radon is a
naturally occurring radioactive gas that, when it has accumulated in a building
in sufficient quantities, may present health risks to persons who are exposed to
it over time. Levels of radon that exceed federal and state guidelines have been
found in buildings in Florida. Additional information regarding radon and radon
testing may be obtained from your county public health unit.
(ii) THE REAL PROPERTY MAY BE LOCATED IN A DISTRICT THAT
IMPOSES TAXES OR ASSESSMENTS, OR BOTH TAXES AND ASSESSMENTS, ON THE REAL
PROPERTY THROUGH A SPECIAL TAXING DISTRICT. THESE TAXES AND ASSESSMENTS PAY THE
CONSTRUCTION, OPERATION AND MAINTENANCE COSTS OF CERTAIN PUBLIC FACILITIES OF
THE DISTRICT AND ARE SET ANNUALLY BY THE GOVERNING BOARD OF THE DISTRICT. THESE
TAXES AND ASSESSMENTS ARE IN ADDITION TO COUNTY AND ALL OTHER TAXES AND
ASSESSMENTS PROVIDED FOR BY LAW.
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(iii) Buyer is hereby apprised of and shall determine
whether any Real Property is located within the coastal construction control
line and Buyer shall waive in writing at closing the requirement of Transferors
to provide an affidavit or survey delineating the location of the coastal
construction control line.
(iv) Buyer is hereby apprised that Buyer has the right to
have the energy-efficiency rating determined. If Buyer desires to have the Real
Property rated, Buyer must arrange to have the energy-efficiency rating
determination performed at Buyer's expense. The energy rating so determined
shall not, however, entitle Buyer to cancel this Agreement since such rating is
not a contingency of this Agreement.
(c) In regards to Real Property located in Maryland: Buyer is
hereby apprised of and shall determine whether the Real Property located in
Maryland is subject to the Agricultural Land Transfer Tax as provided in
Maryland Code Section 13-301 et seq. and Buyer shall be responsible for the
payment of any Agricultural Land Transfer Tax, if any, due as a result of the
conveyance of the Real Property located in Maryland to Buyer.
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<PAGE> 51
IN WITNESS WHEREOF, Transferors and Buyer have executed this Agreement as of the
day and year first written above.
Buyer:
BPP RETAIL, LLC,
a Delaware limited liability company
By: Burnham Pacific Operating Partnership, L.P.
a Delaware limited partnership
Its Managing Member
By: Burnham Pacific Properties, Inc.
Its general partner
By: ______________________________
Name: ____________________________
Title: ___________________________
By: ______________________________
Name: ____________________________
Title: ___________________________
Transferors:
AMB Property, L.P.
a Delaware limited partnership
By: AMB Property Corporation
Its general partner
By: ______________________________
Name: ____________________________
AMB Property II, L.P.
a Delaware limited partnership
By: AMB Property Holding Corporation
Its general partner
By: ______________________________
Name: ____________________________
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Long Gate, L.L.C.
a Delaware limited liability company
By: ______________________________
Name: ____________________________
The undersigned party is joining this Agreement solely for the purpose of
acknowledging and agreeing to the provisions of Article V and Section 7.17
hereof and any other provisions of this Agreement expressly applicable to Title
Company.
CHICAGO TITLE COMPANY
By: ______________________________
Name: ____________________________
Title: ___________________________
49
<PAGE> 1
EXHIBIT 10.2
AGREEMENT FOR PURCHASE AND SALE
March 9, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C> <C>
ARTICLE 1 BASIC DEFINITIONS................................................................1
ARTICLE 2 PURCHASE AND exchange............................................................4
ARTICLE 3 CONDITIONS PRECEDENT............................................................12
ARTICLE 4 COVENANTS, WARRANTIES AND REPRESENTATIVES.......................................14
ARTICLE 5 DEPOSIT; DEFAULT................................................................23
ARTICLE 6 CLOSING.........................................................................29
ARTICLE 7 MISCELLANEOUS...................................................................39
</TABLE>
<PAGE> 3
List of Exhibits
* Exhibit A-1-- Transferors & Properties (Sale Properties)
* Exhibit A-2 -- Transferors & Properties (Exchange Properties)
* Exhibit B -- Confirmation Letter
* Exhibit C -- Disclosure Materials List & Statement
* Exhibit D -- Title Allocations
* Exhibit E -- Rent Rolls
* Exhibit F-- Intentionally Omitted
* Exhibit G -- Title Exceptions
* Exhibit G-1 -- Excluded Exceptions
* Exhibit G-2 -- Title Documents to be Obtained
* Exhibit H-1 -- Allocated Price (Sale Properties)
* Exhibit H-2 -- Allocated Price (Exchange Properties)
* Exhibit I -- Transfer Documents
* Exhibit J Press Release
* Exhibit K -- Title Affidavit
* Exhibit L -- Excluded Claims
* Exhibit M -- [Intentionally Omitted]
* Exhibit N -- Investigation Matters
* Exhibit N-1 -- Credit Calculation Example
* Exhibit O -- Indemnity Agreements
* Exhibit P -- Year 2000 Action
* Exhibit Q -- Insured Properties
* Exhibit R -- Southwest Pavillion Property
* Exhibit S -- Vacant Space
* Exhibit T-1 -- Audit Documents
* Exhibit T-2-- Audit Certificate
* Exhibit U-1-- Assigned Insurance Property
* Exhibit U-2-- Assigned Insurance
* Exhibit U-3-- No Further Action Properties
* Exhibit U-4-- Access and Remediation Agreement
* Exhibit V-- Agreements
* Exhibit W-- Litigation
<PAGE> 4
AGREEMENT FOR PURCHASE AND EXCHANGE
THIS AGREEMENT FOR PURCHASE AND EXCHANGE is made and entered into as of
March 9, 1999, by and among AMB PROPERTY, L.P., a Delaware limited partnership
("AMBLP"), AMB PROPERTY II, L.P., a Delaware limited partnership ("AMB II" and
AMBLP are, collectively, as to the properties described on Exhibit A-2, the
"Exchangors," and as to the properties described on Exhibit A-1, the "Sellers"
and, together, the "Transferors"), and BPP RETAIL, LLC, a Delaware limited
liability company ("Buyer"). Transferors and their respective interests in the
Properties (as defined below) are identified more precisely on Exhibit A to this
Agreement.
RECITALS
A. The Sellers hold ownership of a portfolio of properties listed
on Exhibit A-1 to this Agreement and defined below with greater specificity as
the " Sale Properties."
B. The Exchangors hold ownership of a portfolio of properties
listed on Exhibit A-2 to this Agreement and defined below with greater
specificity as the "Exchange Properties."
C. Buyer desires to acquire and each of Exchangors desires to
transfer, subject to the terms and conditions contained in this Agreement, the
entirety of its right, title and interest in the Exchange Properties.
D. Buyer desires to acquire and each of Sellers desires to sell,
subject to the terms and conditions contained in this Agreement, the entirety of
its right, title and interest in the Sale Properties.
AGREEMENT
NOW, THEREFORE, Buyer and Transferors do hereby agree as follows:
ARTICLE 1
BASIC DEFINITIONS
"Additional Exceptions" shall have the meaning set forth in Section
2.6(a).
"Additional Title Exception Notice" shall have the meaning set forth in
Section 2.6(b).
"Allocated Price" shall refer, as to each Sale Property, to the portion
of the Sale Purchase Price allocated to such Sale Property as set forth on
Exhibit H-1 to this Agreement, and as to each Exchange Property, to the portion
of the Exchange Price allocated to such Exchange Property as set forth on
Exhibit H-2 to this Agreement.
"Closing Date" shall mean July 31, 1999 (as such date may be deferred
with respect to a particular Property pursuant to the terms of this Agreement);
provided, that Transferors shall have the right to (A) extend the Closing Date
for up to fifty (50) days and/or (B) accelerate the Closing Date by up to thirty
(30) ) days, upon not less than ten (10) business days notice prior to
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the original Closing Date (if Transferors are extending the Closing Date) and
upon not less than thirty (30) days notice prior to an accelerated Closing Date
(if Transferors are accelerating the Closing Date).
"Confirmation Letter" shall mean the letter in the form attached as
Exhibit B to this Agreement to be delivered by Buyer to Transferors on or prior
to the close of the prescribed Confirmation Period pursuant to Section 3.2
below.
"Confirmation Period" shall mean the period commencing on the date of
this Agreement, and ending at 5:00 p.m., California time on April 8, 1999,
provided that the Confirmation Period may end earlier at Buyer's election upon
delivery by Buyer to Transferors of the Confirmation Letter (representing the
conclusive waiver by Buyer of any further Confirmation Period).
"Contract Period" shall mean the period from the date of this Agreement
through and including the Closing Date (as the same may be extended pursuant to
this Agreement).
"Contracts" shall mean all maintenance, service and other operating
contracts, equipment leases and other arrangements or agreements to which any
Transferors is a party affecting the ownership, repair, maintenance, management,
leasing or operation of the Properties.
"Deferred Property" shall have the meaning set forth in Section 2.5(d)
below.
"Deleted Property" shall have the meaning set forth in Section 2.5(d)
below.
"Disclosure Materials" shall mean those materials described in Section
A of the Disclosure Materials List & Statement to which Buyer has been afforded
access and review rights prior to the date of this Agreement.
"Disclosure Materials List & Statement" shall mean the statement set
forth as Exhibit C to this Agreement.
"Exchange Price" shall have the meaning set forth in Section 2.2(b)
below.
"Exchange Property" shall mean, with respect to each of the Properties
described on Exhibit A-2, the Real Property, the Personal Property and the
Intangible Property. Collectively, such Properties shall be referred to as the
"Exchange Properties."
"Financial Statements" shall mean the historical income and expense
statements for the Properties for calendar years 1997 and 1998 (or such shorter
period as Transferors may have owned an applicable Property), which have been
provided to Buyer.
"Hazardous Materials" shall mean any substances, materials, wastes,
pollutants or contaminants defined or listed in or subject to reporting,
investigation, permitting, remediation, licensing or other regulatory
requirements under any environmental laws or regulations, including, without
limitation, any inflammable explosives, radioactive materials, asbestos,
polychlorinated biphenyls, trichloroethylene, tetrachloroethylene,
perchloroethylene and other chlorinated solvents, petroleum products and
by-products and other substances with toxic or hazardous characteristics.
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"Improvements" shall mean, as to each of the properties listed on
Exhibit A, the right, title and interest of the Transferors in ownership of such
property in any and all structures, buildings, facilities, parking areas or
other improvements situated on such property's Land and all related fixtures,
improvements, building systems and equipment (including, without limitation,
HVAC, security and life safety systems).
"Intangible Property" shall mean, as to each Real Property, the right,
title and interest of the Transferors in ownership of such Real Property in: (a)
any and all permits, entitlements, filings, building plans, specifications and
working drawings, certificates of occupancy, operating permits, sign permits,
development rights and approvals, certificates, licenses, warranties and
guarantees, engineering, soils, pest control, survey, environmental, appraisal,
market and other reports relating to such Real Property and associated Personal
Property; (b) all trade names, service marks, tenant lists, advertising
materials and telephone exchange numbers identified with such Real Property; (c)
the Contracts and the Leases; (d) except as set forth on Exhibit L attached
hereto (the "Excluded Claims"), claims, awards, actions, remedial rights and
judgments, and escrow accounts relating to environmental remediation, to the
extent relating to such Real Property and associated Personal Property; (e) all
books, records, files and correspondence relating to such Real Property and
associated Personal Property; (f) to the extent assignable, the agreements
listed on Exhibit V attached hereto, including all purchase options, rights of
first refusal or first opportunity to purchase and similar rights contained
therein; and (g) all other transferable intangible property, miscellaneous
rights, benefits or privileges of any kind or character with respect to such
Real Property and associated Personal Property, including, without limitation,
under any REAs, provided that the Intangible Property shall not include any
Transferor's name or any right to the reference "AMB".
"Investigation Matters" shall have the meaning set forth in Section
2.4(a) below.
"Land" shall mean, as to each of the properties listed on Exhibit A,
the land component of the property as described with precision in the Title
Policies.
"Leases" shall mean, as to each Real Property, all leases, concession
agreements, rental agreements or other agreements (including all amendments or
modifications thereto) which entitle any person to the occupancy or use of any
portion of the Real Property.
"Material Adverse Matters Amount" shall refer, as to any Property, to
the amount, if any, as to which Buyer claims a credit against the Price with
respect to an Investigation Matter pursuant to Section 2.5 and Exhibit N
attached hereto.
"Permitted Exceptions" shall mean the various matters affecting title
to the Properties that are approved or deemed approved by Buyer pursuant to
Section 2.6 below.
"Personal Property" shall mean, as to each Real Property, all
furniture, furnishings, trade fixtures and other tangible personal property
directly or indirectly owned by the Transferors in ownership of such Real
Property that is located at and used exclusively in connection with the
operation of any Real Property.
"Price" shall mean the Sale Purchase Price and the Exchange Price,
collectively.
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"Property" shall mean, with respect to each of the properties
described on Exhibit A, the Real Property, the Personal Property and the
Intangible Property. Collectively, such properties shall be referred to as the
"Properties."
"Real Property" shall mean, as to each property listed on Exhibit A,
the Land, the Improvements and all of Transferor's right, title and interest in
and to the rights, privileges, easements, and appurtenances to the Land or the
Improvements, including, without limitation, any air, development, water,
hydrocarbon or mineral rights held by any Transferors, all licenses, easements,
rights-of-way, claims, rights or benefits, covenants, conditions and servitude
and other appurtenances used or connected with the beneficial use or enjoyment
of the Land or the Improvements and all rights or interests relating to any
roads, alleys or parking areas adjacent to or servicing the Land or the
Improvements.
"REAs" shall have the meaning set forth in Section 4.1(b)(viii) below.
"Rent Rolls" shall refer to the information schedules attached as
Exhibit E to this Agreement pertaining to the Leases.
"Sale Property" shall mean, with respect to each of the Properties
described on Exhibit A-1, the Real Property, the Personal Property and the
Intangible Property. Collectively, such Properties shall be referred to as the
"Sale Properties."
"Sale Purchase Price" shall have the meaning set forth in Section
2.2(a) below.
"Surveys" shall refer to Transferors' existing surveys with respect to
the Properties which have been delivered by Transferors to Buyer.
"Title Company" shall mean Chicago Title Company; Attn: Pat Davisson
(Telephone: (415) 788-0871).
"Title Policies" shall refer to Transferors' existing title insurance
policies with respect to the Properties, complete copies of which have been made
available by Transferors to Buyer.
"1031 Exchange" shall have the meaning set forth in Section 6.6 below.
ARTICLE 2
PURCHASE AND EXCHANGE
SECTION 2.1 Purchase and Transfer. Exchangors agree to transfer the
Exchange Properties to Buyer by means of one or more 1031 Exchanges, and Buyer
agrees to acquire the Exchange Properties upon all of the terms, covenants and
conditions set forth in this Agreement. In furtherance of exchange, Buyer agrees
to cooperate in such 1031 Exchanges pursuant to and as provided in Section 6.6
below. Sellers agree to sell the Sale Properties to Buyer and Buyer agrees to
purchase or cause to be purchased the Sale Properties upon all of the terms,
covenants and conditions set forth in this Agreement.
SECTION 2.2 Price.
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(a) The aggregate purchase price for the Sale Properties
(the "Sale Purchase Price") shall be the sum of One Hundred Thirty Eight Million
Five Hundred Fifty Three Thousand Dollars (U.S. $138,553,000 subject to
adjustment in accordance with Sections 2.3 [Adjustments], 6.3 [Prorations] and
6.9 [Completion Events] below. The entire amount of the Sale Purchase Price so
adjusted shall be payable by Buyer to Sellers in cash on the Closing Date
through the escrow described in Section 6.1 below.
(b) The aggregate price for the Exchange Properties (the
"Exchange Price") shall be the sum of One Hundred Seven Million Two Hundred
Thirteen Thousand Dollars (U.S. $107,213,000), subject to adjustment in
accordance with Sections 2.3 [Adjustments], 6.3 [Prorations] and 6.9 [Completion
Events] below. The entire amount of the Exchange Price so adjusted shall be
payable by Buyer to one or more exchange facilitators selected by Exchangors in
their sole discretion, in furtherance of one or more 1031 Exchanges, through
payment in cash of the entire balance of the Exchange Price on the Closing Date
through one or more escrows described in Section 6.1 below.
SECTION 2.3 Adjustments. In addition to the prorations and credits
contemplated by Section 6.3 below, (a) the Price shall be decreased by the
aggregate amount of the Allocated Prices of any Deleted Properties, (b) the
portion of the Price payable on the Closing Date shall be reduced by the
Allocated Price of any Deferred Properties, and (c) the Price shall be decreased
by the aggregate amount of any adjustments effected pursuant to Sections 2.5 and
2.6 below.
SECTION 2.4 Buyer's Review and Transferors' Disclaimer.
(a) Buyer acknowledges that Transferors have afforded Buyer
and its agents and representatives an opportunity to review all of the
Disclosure Materials prior to the date of this Agreement and, subject to the
express terms of this Agreement, that Buyer has completed such review to its
satisfaction. Buyer has assumed fully the risk that Buyer has failed completely
and adequately to review and consider any or all of such materials. But for
Buyers' expression of satisfaction with the content of the Disclosure Materials,
Buyer would not have entered into this Agreement; but for Buyer's expression of
such satisfaction and assumption of any risk as to the character of its review
and consideration of the Disclosure Materials, Transferors would not have
entered into this Agreement. Nevertheless, during the Confirmation Period, Buyer
shall be permitted to make a further review of information relating solely to
the matters described on Exhibit N attached hereto (the "Investigation Matters")
to determine whether any Material Adverse Matters Amounts exist with respect to
the Properties and the extent of any such Material Adverse Matters Amount.
Following the Confirmation Period, Buyer shall have no further right of
inspection and review with respect to the Properties except solely for the
purpose of assisting Buyer in its management transition as provided in Sections
4.2(m) and (o) and Section 6.10. The rights and obligations of the parties
arising out of Buyer's determination and assertion prior to the close of the
Confirmation Period that such Material Adverse Matters Amounts do exist shall be
limited and solely governed by the provisions of Section 2.5 below and Exhibit N
attached hereto.
(b) Buyer's exercise of the rights of review and confirmation
set forth in subsection (a) shall be subject to the following limitations: (i)
any entry onto any Property by Buyer, its agents or representatives, shall be
during normal business hours, following not less
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than 24 hours' prior notice to Transferors and, at Transferors' discretion,
accompanied by a representative of Transferors; (ii) Buyer shall not conduct any
drilling, test borings or other disturbance of any Property for review of soils,
compaction, environmental, structural or other conditions without Transferors'
prior written consent (which may be withheld in Transferor's sole and absolute
discretion); (iii) any discussions or interviews with any third party, any
partner of any Transferors, any tenants of a Property or their respective
personnel, at Transferors' election, shall be conducted in the presence of
Transferors or their representatives; (iv) any discussions or interviews with
employees at any Property shall be limited to designated senior employees and,
at Transferors' election, shall be conducted in the presence of Transferors or
their representatives; (v) Buyer shall exercise reasonable diligence not to
disturb the use or occupancy or the conduct of business at any Property; (vi)
prior to any entry upon the Property by Buyer or any of its agents,
representatives or consultants for the purpose of conducting any inspections,
investigations or tests, Buyer shall deliver to Transferors a certificate of
insurance evidencing that Buyer carries a liability insurance policy in an
amount not less than $5,000,000, which liability insurance policy names each
Transferors as an additional insured; and (vii) Buyer shall indemnify, defend
and hold Transferors harmless from all loss, cost, and expense relating to
personal injury or property damage resulting from any entry or inspections
performed by Buyer, its agents or representatives. Subject to the provisions of
this Agreement, Transferors shall at all times use all reasonable efforts (but
at no material cost to Transferors) to provide Buyer with access or information
that Buyer may reasonably request concerning the Properties, but Transferors
shall bear no liability if Transferors are not able to afford Buyer such access
or information despite such reasonable efforts.
(c) Buyer acknowledges (i) that Buyer has entered into this
Agreement with the intention of making and relying upon its own investigation of
the physical, environmental, economic and legal condition of the Properties,
(ii) that, other than those specifically set forth in Article IV below or in any
document to be delivered pursuant to Section 6.1 below, Transferors are not
making and have not at any time made any warranty or representation of any kind,
expressed or implied, with respect to the Properties, including, without
limitation, warranties or representations as to habitability, merchantability,
fitness for a particular purpose, title (other than Transferors' limited
warranty of title set forth in the Deeds), zoning, tax consequences, latent or
patent physical or environmental condition, utilities, operating history or
projections, valuation, projections, compliance with law or the truth, accuracy
or completeness of the Disclosure Materials, (iii) that other than those
specifically set forth in Article IV below or in any document to be delivered
pursuant to Section 6.1 below, Buyer is not relying upon and is not entitled to
rely upon any representations and warranties made by Transferors or anyone
acting or claiming to act on any of Transferors' behalf, (iv) that the
Disclosure Materials include soils, environmental and physical reports prepared
for Transferors by third parties as to which Buyer has no right of reliance,
Buyer has conducted an independent evaluation and Transferors have made no
representation whatsoever as to accuracy, completeness or adequacy (provided,
however, that nothing herein shall be deemed to limit Buyer's right to seek to
obtain from the third parties which prepared such reports the right to rely on
such reports at no cost to Transferors), and (v) that the Disclosure Materials
include economic projections which reflect assumptions as to future market
status and future Property income and expense with respect to the Properties
which are inherently uncertain and as to which Transferors have not made any
guaranty or representation whatsoever. Buyer further acknowledges that it has
not received from Transferors any accounting, tax, legal, architectural,
engineering, property management or other
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advice with respect to this transaction and is relying solely upon the advice of
its own accounting, tax, legal, architectural, engineering, property management
and other advisors. Except as provided in the representations and warranties of
Transferors set forth in Article IV below and except as otherwise expressly set
forth in this Agreement or in any document to be delivered pursuant to Section
6.1 below, based upon the order of Buyer's familiarity with and due diligence
relating to the Properties and pertinent knowledge as to the markets in which
the Properties are situated and in direct consideration of Transferors' decision
to sell or exchange the Properties to Buyer for the Price and not to pursue
available disposition alternatives, Buyer shall purchase the Properties in an
"as is, where is and with all faults" condition on the Closing Date and assumes
fully the risk that adverse latent or patent physical, environmental, economic
or legal conditions may not have been revealed by its investigations.
Transferors and Buyer acknowledge that the compensation to be paid to
Transferors for the Properties has taken into account that the Property is being
sold or exchanged subject to the provisions of this Section 2.4. Transferors and
Buyer agree that the provisions of this Section 2.4 shall survive closing.
(d) Consistent with the foregoing and subject solely to the
express covenants and indemnities set forth in this Agreement and the
representations set forth in Section 4.1 or in any document to be delivered
pursuant to Section 6.1 below (as such covenants, indemnities and
representations are limited pursuant to Section 4.4 hereof), effective as of the
Closing Date, Buyer, for itself and its agents, affiliates, successors and
assigns, hereby releases and forever discharges Transferors, their respective
members, beneficial owners, agents, affiliates, successors and assigns
(collectively, the "Releasees") from any and all rights, claims and demands at
law or in equity, whether known or unknown at the time of this agreement, which
Buyer has or may have in the future, arising out of the physical, environmental,
economic or legal condition of the Properties, including, without limitation,
all claims in tort or contract and any claim for indemnification or contribution
arising under the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601, et. seq.) or any similar federal, state
or local statute, rule or ordinance relating to liability of property owners for
environmental matters. Without limiting the foregoing, Buyer, upon closing,
shall be deemed to have waived, relinquished and released Transferors and all
other Releasees from and against any and all matters arising out of latent or
patent defects or physical conditions, violations of applicable laws and any and
all other acts, omissions, events, circumstances or matters affecting the
Properties, except for breach of the express covenants and indemnities set forth
in this Agreement and the representations and warranties set forth in Section
4.1 or in any document to be delivered pursuant to Section 6.1 (as such
covenants, indemnities and representations are limited pursuant to Section 4.4
hereof). For the foregoing purposes, Buyer hereby specifically waives the
provisions of Section 1542 of the California Civil Code and any similar law of
any other state, territory or jurisdiction. Section 1542 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 his
settlement with the debtor.
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Buyer hereby specifically acknowledges that Buyer has carefully reviewed this
subsection and discussed its import with legal counsel and that the provisions
of this subsection are a material part of this Agreement.
________________
Buyer
(e) Subject to the express covenants and indemnities set
forth in this Agreement and the representations of Transferors set forth in
Section 4.1 or in any document to be delivered pursuant to Section 6.1 (as such
covenants, indemnities and representations are limited pursuant to Section 4.4
hereof), Buyer shall indemnify, defend and hold Transferors harmless from and
against any and all losses, damages, causes of action, costs and expenses
(including without limitation, reasonable attorneys' fees and costs), claims and
liabilities in connection with or relating directly or indirectly to the
Properties to the extent arising out of or resulting from acts or omissions
occurring from and after the Closing Date. Transferors shall indemnify, defend
and hold Buyer harmless from and against any and all losses, damages, causes of
action, costs and expenses (including, without limitation, reasonable attorneys'
fees and costs), claims and liabilities in connection with claims brought by
third parties unaffiliated to Buyer (i) for physical injury to persons or
physical damage to property to the extent such injury or damage occurred on the
Properties and arose out of or resulted from acts or omissions of Transferors
that took place prior to the Closing Date, (ii) with respect to acts or
omissions of Transferors that took place prior to the Closing Date and that are
actually insured under an insurance policy carried by Transferors (and then only
to the extent of the proceeds actually paid under such policy, Transferors
agreeing to use commercially reasonable efforts to realize such insurance
proceeds) and (iii) with respect to each of the matters which are listed on
Exhibit W attached hereto as such list may be amended from time to time during
the Contract Period by Transferors (and provided to Buyer) to reflect new
litigation filed against Transferors during the Contract Period (the foregoing
items (i), (ii) and (iii) being collectively referred to as "Claims"); provided
that Transferors' indemnity contained in this Section 2.4(e) shall not apply to
any Claims relating to or arising out of or in connection with the environmental
condition of the Properties whether or not such Claim may be covered by
Transferors' environmental insurance policies.
SECTION 2.5 Material Adverse Matters Amounts.
(a) On or prior to the close of the Confirmation Period,
Buyer shall deliver to Transferors the Confirmation Letter in the form attached
as Exhibit B to this Agreement confirming Buyer's satisfaction as to the absence
of any Material Adverse Matters Amounts other than as specified in the
Confirmation Letter and waiving any further right or need to conduct further
review or investigation for such purposes. Buyer's failure to deliver to
Transferors on or prior to the close of the Confirmation Period an executed
Confirmation Letter in the form attached as Exhibit B, without modification or
qualification in any manner whatsoever (whether material or immaterial) --
excepting an enumeration and explanation of identified Material Adverse Matters
Amounts, shall be deemed conclusively as Buyer's confirmation of the absence of
any Material Adverse Matters Amounts.
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(b) If the Confirmation Letter identifies any Material
Adverse Matters Amounts, the Confirmation Letter shall set forth: (i) the
identity of any Properties as to which Buyer has identified any Material Adverse
Matters Amounts, (ii) the nature of the Investigation Matter for each affected
Property which resulted in such Material Adverse Matters Amounts and (iii)
reasonably detailed evidence of the existence of such Material Adverse Matters
Amount and Buyer's rationale for and calculation of the Material Adverse Matters
Amounts set forth.
(c) If the Confirmation Letter does so identify Material
Adverse Matters Amounts, then, for a period ending five (5) business days
following the close of the Confirmation Period, Buyer and Transferors shall
negotiate in good faith (but otherwise as a matter within each party's sole
discretion) to determine whether the parties can reach a mutually acceptable
reduction in the Price. The parties further acknowledge that neither
participation in nor any statements made in the course of such discussions shall
represent or be interpreted as an admission or agreement as to the existence,
character or measure of any Material Adverse Matters Amount.
(d) In any event, if the parties are not able to reach and
execute a written agreement evidencing a mutually satisfactory Price adjustment
within such five (5) business day negotiation period, Transferors shall provide
Buyer with written notice (the "Election Notice") within an additional period of
three (3) business days informing Buyer that Transferors, in Transferors' sole
discretion: (i) dispute the existence or measure of Material Adverse Matters
Amounts as to Properties identified in the Election Notice, (ii) accept Buyer's
calculation of the Material Adverse Matters Amounts, in which case the Price
shall be reduced by the Material Adverse Matters Amount set forth in Buyer's
calculation, or (iii) withdraw Properties identified in the Election Notice from
the sale or exchange to Buyer; provided, however, that Transferors shall not be
permitted to withdraw any Property unless the Material Adverse Matters Amount
claimed by Buyer exceeds $200,000 with respect to such Property and exceeds
$750,000 with respect to all of the Properties (in which event Transferors, in
Transferors' discretion, may withdraw such Properties as to which Material
Adverse Matters Amounts are claimed until the claimed Material Adverse Matters
Amounts for the remaining Properties is less than or equal to $750,000). Any
Property identified as the subject of dispute under clause (i) above shall be
referred to as a "Deferred Property." Any Property withdrawn under clause (iii)
above shall be referred to as a "Deleted Property."
(e) If Transferors have elected to dispute the calculation
of any Material Adverse Matters Amounts under subsection (d)(i) above, such
dispute shall be submitted promptly to arbitration pursuant to Section 7.5
below. Buyer and Transferors, respectively, shall remain fully obligated to
purchase and sell or exchange, as applicable, both the Deferred Properties and
all other Properties (excepting any Deleted Properties) on the terms and
conditions set forth in this Agreement, provided that (i) the Price payable on
the Closing Date applicable to all other Properties shall be reduced by the
Allocated Price of the Deferred Properties, (ii) the Closing Date with respect
to the Deferred Properties shall be deferred to that date ten (10) business days
following the issuance of a final decision in arbitration, (iii) an amount equal
to five percent (5%) of the Allocated Price for each Deferred Property shall be
retained by Title Company as a continuing Deposit subject to disposition in
accordance with Section 5.1 below as to such Deferred Property and (iv) the
Allocated Price with respect to each Deferred Property shall be subject to any
reduction determined in arbitration.
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(f) Subject to the provisions of Section 2.8, if a Property
is designated as a Deleted Property, Buyer and Transferors, respectively, shall
have no further obligation to purchase or sell or exchange, as applicable, the
Deleted Properties, shall remain obligated to purchase or sell or exchange, as
applicable, all other Properties and the Price payable on the Closing Date
applicable to all other Properties shall be reduced by the Allocated Prices of
the Deleted Properties.
SECTION 2.6 Title Exceptions.
(a) Buyer acknowledges that prior to the date hereof,
Transferors have provided to Buyer access to copies of the Title Policies, as
well as copies of the exception documents referred to in the Title Policies and
copies of the Surveys of the Properties, to the extent such exceptions are in
Transferors' immediate possession. Buyer also acknowledges that Transferors have
requested Title Company to deliver to Buyer updated title reports to the Title
Policies, as well as copies of any exception documents relating to exceptions
that are reflected in such updates that have not otherwise been provided to
Buyer prior to the date hereof; provided that Transferors shall have no
liability hereunder if Buyer is unable to obtain copies of any such documents
and Buyer shall have no rights hereunder with respect thereto. Buyer may
continue to secure during the Confirmation Period any additional title or survey
updates desired by Buyer (and will use reasonable efforts to provide the copies
of such updates to Transferors promptly after receipt of same by Buyer). As used
herein, the term "Additional Exceptions" shall mean (i) any title exceptions or
survey exceptions or qualifications identified by Title Company that are not
within the definition of Permitted Exceptions, (ii) the items listed on Exhibit
G-2 to the extent they materially and adversely affect the use, occupancy or
value of a Property, provided that such items shall not be deemed to materially
and adversely affect the use, occupancy and value of a Property to the extent
Buyer has approved (or is deemed to have approved) exceptions on such Property
or other Properties which are substantially similar in all material respects,
(iii) matters shown on surveys described in the Exhibit G Title Policies (as
defined in Exhibit G) or, if such surveys cannot be located or otherwise
obtained, on new surveys obtained by Buyer, for the Properties identified on
Exhibit G-2 which were not shown on the surveys for such Properties delivered or
made available to Buyer, if applicable, and which materially and adversely
affect the use, occupancy or value of a Property, provided that such items shall
not be deemed to materially and adversely affect the use, occupancy and value of
a Property to the extent Buyer has approved (or is deemed to have approved) such
matters on such Property or other Properties which are substantially similar in
all material respects, and (iv) with respect to any Property as to which the
Title Company will not agree at least ten (10) business days prior to the end of
the Confirmation Period to issue a survey endorsement referring to the same
survey as is referenced in Transferors' most recent Exhibit G Title Policy (for
such Property), any variance established by Buyer from the legal descriptions
insured in Transferors' most recent Exhibit G Title Policies to the surveys
described in such Title Policies (other than variances relating to the Civic
Excluded Lot or Southwest Pavillion Pad (as such terms are defined in Exhibit A
) as previously disclosed to Buyer or otherwise actually known to Buyer as of
the date hereof). Buyer, in any event, shall endeavor in good faith (but at no
out-of-pocket cost to Buyer) to cause the Title Company to delete or insure over
any Additional Exceptions to Buyer's reasonable satisfaction prior to Buyer's
expression of such matters in an Additional Title Exception Notice (as described
below). Buyer shall have the right to request that the Title Company provide at
Buyer's sole cost and expense any reinsurance or endorsements Buyer shall
reasonably request
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with respect to Permitted Exceptions, Additional Exceptions or otherwise,
provided that the issuance of such reinsurance or endorsements shall not be a
condition to or delay the closing except as otherwise provided in this
Agreement.
(b) Buyer shall have the right to deliver a notice to
Transferors identifying any Additional Exceptions (the "Additional Title
Exception Notice") by the earlier of (i) five (5) business days after Scott
Verges becomes aware of the matter constituting an Additional Exception or (ii)
the close of the Confirmation Period. Buyer's failure to deliver any such notice
in timely fashion shall be deemed an approval of any such Additional Exceptions.
Buyer shall have no right to deliver an Additional Title Exception Notice
following the close of the Confirmation Period. If Buyer delivers an Additional
Title Exception Notice within such period, Buyer and Transferors shall promptly
attempt to agree upon the method or cost to cure or remove such Additional
Exception or, if not susceptible to cure or removal, an appropriate reduction in
the Allocated Price for the affected Property. If Transferors and Buyer are
unable to agree upon a resolution within five (5) business days following
Transferors' receipt of an Additional Title Exception Notice, Transferors shall
elect, at its option and by written notice given not later than the date of
Transferors' delivery of an Election Notice under Section 2.5(d) above, (i) to
terminate this Agreement with respect to the affected Property, in which event
such Property shall be treated as a Deleted Property or (ii) to submit the
existence of the Additional Exception, the character of a satisfactory cure or
the measure of appropriate price reduction to arbitration in accordance with the
terms of Section 7.5, in which case the Property shall be treated as a Deferred
Property. Notwithstanding the foregoing, Buyer shall not have the right to
object to any Additional Exception if Title Company is willing to affirmatively
insure or endorse over such Additional Exception at Transferors' expense, and
the Title Company is acting in a commercially reasonable manner in providing
such affirmative insurance or endorsement and Buyer reasonably approves the form
and substance of such affirmative insurance or endorsement.
(c) "Permitted Exceptions" shall include and refer to the
title exceptions set forth in Exhibit G attached hereto. Notwithstanding the
foregoing, Transferors shall remove or cause the Title Company to remove or,
except with respect to Deed of Trust Liens (as herein defined), endorse over by
endorsement reasonably satisfactory to Buyer, at Transferors' sole cost and
expense, on or prior to the Closing Date and there shall not be treated as
Permitted Exceptions: (i) any liens of any mortgages or deeds of trust securing
indebtedness of Transferors or its affiliates (collectively, "Deed of Trust
Liens") and any other liens for monetary obligations (including mechanic's
liens, but excluding (A) mechanic's liens filed by contractors or any other
parties which are working for tenants under Leases or for Transferors where the
obligation to pay such contractors or other parties is directly or indirectly an
obligation of such tenants (but only to the extent (x) such obligation is not
subject to reimbursement or payment by Transferors or its affiliates and (y)
such tenant has neither filed for protection under applicable bankruptcy laws
nor abandoned its premises) or which arise in connection with work as to which
Buyer is to receive a credit at the closing (but only to the extent of such
credit) or has agreed to assume the obligation which is the subject of such
lien, and (B) any other liens which, in the aggregate, exceed Thirty-Five
Thousand Dollars ($35,000) for a particular Property, which arise following the
date of Buyer's execution and delivery of this Agreement and which were not
created by or acquiesced in by Transferors, any affiliate of Transferors, or any
partner, member, officer, director, employee, agent or representative of either
such party) that are not assumed by Buyer
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(for such purposes, all assessments collected with ad valorem real estate taxes
and which are paid in installments and are not delinquent as of the Closing Date
shall be assumed by Buyer (subject to the provisions of Section 6.3) and
represent Permitted Exceptions); provided, however, that with respect to any
liens identified in clause (B) above, (1) Transferors shall have the right, in
Transferors' sole discretion, to (x) remove or cause the Title Company to remove
or endorse over by endorsement reasonably satisfactory to Buyer, such lien at
Transferors' sole cost and expense on or prior to the Closing Date, or (y)
terminate this Agreement with respect to the affected property in which event
such Property shall be treated as a Deleted Property, and (2) such liens shall
not be Permitted Exceptions unless consented to by Buyer; and (ii) any title
matters created in violation of Transferors' covenant set forth in Section
4.2(e) below.
(d) Transferors shall have no obligation to execute any
affidavits or indemnifications in connection with the issuance of Buyer's title
insurance excepting only the affidavit attached hereto as Exhibit K and such
other customary affidavits as to authority, the rights of tenants in occupancy,
the status of mechanics' liens and other affidavits or indemnifications
reasonably necessary to address matters of title which Transferors are obligated
to remove or cure pursuant to this Section 2.6.
SECTION 2.7 [Intentionally Omitted]
SECTION 2.8 Reinstatement Right. Notwithstanding anything to the
contrary contained in this Agreement, if Transferors elect to treat a Property
as a Deleted Property under Sections 2.5, 2.6 or 4.4 of this Agreement, Buyer
shall have the right, by providing Transferors with written notice given within
three (3) business days after receipt of Transferors' notice designating a
Property as a Deleted Property, to cause such Property to no longer be treated
as a Deleted Property and to purchase such Property in accordance with this
Agreement, in which event the specific condition giving rise to Transferors'
treatment of such Property as a Deleted Property shall be deemed waived by Buyer
and Buyer shall not receive any adjustment to the Allocated Price for such
Property or have any right to deliver a Claim Notice as a result of such
condition.
ARTICLE 3
CONDITIONS PRECEDENT
SECTION 3.1 Conditions.
(a) Notwithstanding anything in this Agreement to the
contrary, Buyer's obligation to purchase a particular Property shall be subject
to and contingent upon the satisfaction or waiver of the following conditions
precedent with respect to such Property:
(i) The willingness, upon the sole condition of
the payment of any regularly scheduled premium, of the Title Company (or another
title insurance company reasonably satisfactory to Buyer) to issue Owner's
Policies of Title Insurance in the form of the Title Policy issued to the
applicable Transferor with respect to each Property in connection with the
initial public offering of the stock of the Company (as herein defined) ("IPO")
or, if no Title Policy was issued for a Property in connection with the IPO,
then the Title Policy issued upon the acquisition of the Property by the
applicable Transferor (or the party that contributed such
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Property to the Transferor at the IPO (a "Contributor") (or such other form(s)
as may be reasonably satisfactory to Buyer)), and with all of the endorsements
issued in any Title Policy issued by the Title Company for a particular Property
insuring Buyer (or Buyer's permitted assignee or nominee) that title to the
applicable Real Property is vested of record in Buyer (or Buyer's permitted
assignee or nominee) on the Closing Date subject only to the printed conditions
and exceptions of such policies (but deleting (by endorsement or otherwise),
where permitted under applicable laws or regulations and at Buyer's expense, any
co-insurance, creditors rights and so-called "standard" exceptions) and the
Permitted Exceptions applicable to such Real Property. Transferors will
cooperate and use reasonable efforts (but at no out-of-pocket cost to
Transferors) to assist Buyer in obtaining all endorsements contained in the
Title Policies (whether issued in connection with the IPO or an acquisition).
Without limiting the foregoing, if the Title Company (and, to the extent
applicable, a different title insurance company if one other than the Title
Company previously issued any such endorsement) refuses to issue such
endorsement to Buyer at closing with respect to a matter insured against under
the Title Policies, upon request of Buyer, Transferors will assert a claim
against such insurer at Buyer's expense and direction with the goal of enabling
Buyer to obtain such endorsement from such title company. Nothing contained in
the second, third, or fourth sentence of this Section 3.1(a)(i) shall be
construed as expanding the provisions of the first sentence of this Section
3.1(a)(i) or Section 2.6 or be considered a condition to Buyer's obligation to
purchase any of the Properties and Transferors shall have no liability
whatsoever if they are unable to cause a title company to issue any such
endorsement;
(ii) With respect to a particular Property, such
Property has not been designated a Deleted Property pursuant to this Agreement;
and
(iii) Transferors' performance or tender of performance
of all material obligations under this Agreement with respect to the applicable
Property, including Transferors' covenants under Section 4.2 with respect to
such Property.
(b) Notwithstanding anything in this Agreement to the
contrary, Transferors' obligation to sell or exchange a particular Property or
all of the Properties, as the case may be, shall be subject to and contingent
upon the satisfaction or waiver of the following conditions precedent:
(i) With respect to a particular Property, such
Property has not been designated a Deleted Property pursuant to this Agreement;
and
(ii) Buyer's performance or tender of performance
of all material obligations under this Agreement.
SECTION 3.2 Failure or Waiver of Conditions Precedent.
(a) If any of the conditions set forth in Section 3.1(a)(i)
or (iii) is not fulfilled or waived by Buyer with respect to a particular
Property, Buyer may, by written notice to Transferors, terminate this Agreement
with respect to the applicable Property and such Property shall be treated as a
Deleted Property. If the condition set forth in Section 3.1(b)(ii) is not
fulfilled or waived, Transferors may, by written notice to Buyer, terminate this
Agreement,
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whereupon all rights and obligations hereunder of each party shall be at an end.
Either party may, at its election, at any time or times on or before the date
specified for the satisfaction of the condition, waive in writing the benefit of
any of the conditions set forth in Section 3.1(a) and 3.1(b) above. In any
event, Buyer's consent to the close of escrow with respect to a Property
pursuant to this Agreement shall waive any remaining unfulfilled conditions for
the benefit of Buyer with respect to such Property.
(b) Notwithstanding the foregoing, if Buyer desires to
terminate this Agreement with respect to a Property based upon a failure of the
condition set forth in Section 3.1(a)(i) or (iii) above, Transferors shall have
a period of 30 days within which to cure such failure or, if such failure cannot
reasonably be cured within 30 days, an additional reasonable time period of up
to an additional 60 days (for a total of 90 days), so long as such cure has been
commenced within such 30 days and is at all times diligently pursued. If
Transferors have not cured such failure within such cure period then Buyer may
elect to terminate this Agreement with respect to the affected Property, in
which event such Property shall be treated as a Deleted Property.
ARTICLE 4
COVENANTS, WARRANTIES AND REPRESENTATIVES
SECTION 4.1 Transferors' Warranties and Representations. Each of
Transferors expresses to Buyer the representations and warranties set forth
below as of the date of this Agreement, provided that each of such
representations and warranties shall be deemed expressly qualified by any
information set forth on the Disclosure Materials List & Statement or contained
in the Disclosure Materials, and any information set forth on the Disclosure
Materials List & Statement or contained in the Disclosure Materials shall be
deemed an exception to each and all of Transferors' representations and
warranties set forth herein.
(a) Each of Transferors represents and warrants with
respect to itself as follows:
(i) The Transferor (and Transferor's general
partners, if Transferor is a limited partnership, and each of its constituent
members, if Transferor is a limited liability company) is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and the Transferor is qualified to do business in each state in
which Real Property owned by such Transferor is located to the extent the
failure to so qualify would have a material and adverse effect on Transferor's
performance of its obligations under this Agreement. The Transferor has full
power and lawful authority to enter into and carry out the terms and provisions
of this Agreement and to execute and deliver all documents which are
contemplated by this Agreement, and all actions of the Transferor necessary to
confer such power and authority upon the persons executing this Agreement (and
all documents which are contemplated by this Agreement) on behalf of the
Transferor have been taken;
(ii) Except with respect to the third party
consents expressly described in or contemplated under this Agreement or
expressly required under any agreements included in Intangible Property, the
Transferor's execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby and the performance of the Transferor's
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obligations under the instruments required to be delivered by the Transferor at
the closing, do not and will not require the consent, approval or other
authorization of, or registration, declaration or filing with, (collectively,
"Consents") any governmental authority (excepting the recordation of closing
documents contemplated in this Agreement and any filings required under
applicable state or federal securities or tax laws) or any other person or
entity, except such Consents as will be obtained on or before closing or as to
which the failure to obtain would not have a material and adverse effect on
Transferor's performance of its obligations under this Agreement, and do not and
will not result in any material violation of, or material default under, any
term or provision of any agreement, instrument, mortgage, loan agreement or
similar document to which the Transferor is a party or by which the Transferor
is bound. Subject to the foregoing, all partnership, limited liability company,
board of directors and shareholder approvals required for Transferor to enter
into this Agreement and to consummate the transactions described in this
Agreement have been obtained;
(iii) There is no litigation, investigation or
proceeding pending or, to the best of the Transferor's knowledge, contemplated
or threatened against the Transferor which would impair or adversely affect the
Transferor's ability to perform its obligations under this Agreement or any
other instrument or document related hereto; and
(iv) The Transferor is not a "foreign person" as
defined in Internal Revenue Code 1445(f)(3).
(b) Each of Transferors represents and warrants as follows
with respect to each Property owned by such Transferor:
(i) As of the date of this Agreement, Transferor
has no knowledge that, and has received no written notice from any governmental
authorities that eminent domain proceedings for the condemnation of any Property
or any part of a Property are pending;
(ii) As of the date of this Agreement, Transferor
has no knowledge that, and has received no written notice of any threatened or
pending litigation against Transferor other than routine matters covered by
Transferor's insurance or other matters which would not materially and adversely
affect any Property;
(iii) As of the date of this Agreement, Transferor
has received no written notice from any governmental authority that the
improvements constituting any Property are presently in material violation of
any applicable building codes where such violation has not been cured in all
material respects;
(iv) As of the date of this Agreement, Transferor
has received no written notice from any governmental authority that any Property
is presently in material violation of any applicable zoning, land use or other
law, order, ordinance, rule or regulation affecting the Property which violation
has not been cured, that any investigation has been commenced or is contemplated
with respect to any such possible failure of compliance and Transferor has not
received written notice from any insurance company or Board of Fire Underwriters
any written notice of any defect or inadequacy in connection with a Property or
its operation where such defect or inadequacy has not been cured in all material
respects;
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(v) There are no Contracts involving payment in
excess of $25,000 per annum with respect to any Property that will be binding
upon Buyer after the closing, other than such Contracts that are cancelable by
the owner of the Property within 30 days after written notice from such owner
without penalty or premium (other than penalties or premiums that will be paid
by Transferor on or before the closing);
(vi) As of the date of this Agreement, except as
set forth in the environmental reports included within the Disclosure Materials
and any reports or studies prepared by or for Buyer, Transferor has received no
written notice of the presence or release of any Hazardous Materials presently
deposited, stored, or otherwise located on, under, in or about any Property
which require reporting to any governmental authority or are otherwise not in
compliance with environmental laws, regulations and orders;
(vii) The Rent Rolls constituting Exhibit E to this
Agreement completely and accurately identify as to each Lease as of February 15,
1999: the expiration date of the current term of the Lease; the amount of any
security deposit held by Transferor; the current base rental payable under such
Lease and future rent escalations; the amount of additional rent (i.e., cost
recovery) currently billed to the tenant under the Lease; and the approximate
rentable area of the premises. As of February 15, 1999, each Lease identified on
the Rent Roll was, to the best of Transferor's knowledge, in full force and
effect and, to the best of Transferor's knowledge, Transferor was not in
material default thereunder. As of March 1, 1999, Transferor had not received
written notice of any material default by Transferor under any Leases, which
default had not been cured in all material respects, and Transferor has not
delivered any default notice to a tenant under any Lease and, to Transferor's
knowledge and except as set forth in the delinquency reports provided by
Transferors to Buyer, Transferor was not aware of any other default by a tenant
under a Lease as to which default Transferor would customarily have delivered a
notice of default to such tenant but has not done so, which defaults have not
been cured in all material respects. Transferor has delivered or made available
to Buyer copies of all Leases of more than 14,000 square feet or any amendments
thereto executed on or before the date of this Agreement;
(viii) As of the date of this Agreement, Transferor
has received no written notice that Transferor or any other party is in default
under any reciprocal easement agreement or declaration of covenants, conditions,
and restrictions or any other similar instrument or agreement affecting any of
the Properties (collectively, the "REAs"), which default has not been cured in
all Material respects;
(ix) Transferor has not granted any option or
right of first refusal or first opportunity to acquire any fee or ground
leasehold estate of any portion of the Properties;
(x) As of the date of this Agreement, the
Financial Statements delivered to Buyer by Transferor are true and correct in
all material respects;
(xi) With respect to the matters contained in the
Disclosure Materials List & Statement and the Disclosure Materials, to
Transferor's knowledge, Transferor has not willfully and intentionally omitted
to state any material facts required to be stated therein or willfully and
intentionally made any untrue statement of a material fact, which would render
the
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Disclosure Materials List & Statement or the Disclosure Materials materially
misleading. Transferor has not willfully and intentionally failed to deliver or
make available to Buyer all of the following documents in Transferor's immediate
possession and has not instructed any third party not to deliver any such
documents to Buyer: (x) reports regarding the environmental condition of the
Properties or (y) reports obtained in connection with the acquisition of a
Property regarding the physical condition and legal compliance of such Property;
and
(xii) Transferor has taken the steps described on
Exhibit P attached hereto in an effort to cause all computer hardware and
software at each Property which is the direct responsibility of Transferor (and
not the responsibility of a tenant, vendor or other third party) and which
controls utility and other physical operating functions including, without
limitation, alarm and other security systems, irrigation systems, lighting
systems, health safety systems and similar functions (the "Owner's Computer
Systems"), to at all times hereafter provide the following functions: (a)
consistently handle date information before, during and after January 1, 2000
including, without limitation, accepting date input, providing date output and
performing calculations on dates or portions of dates; (b) function accurately
in accordance with the specifications for such computer hardware or software and
without interruption before, during and after January 1, 2000, without any
change in operations associated with the advent of the new century; (c) respond
to two digit date input in a way that resolves any ambiguity as to century in a
disclosed, defined and predetermined matter; and (d) store and provide output
data information in ways that are unambiguous as to century. To Transferor's
knowledge, as of the date of this Agreement, the cost to correct any failure of
the Owner's Computer Systems to provide the foregoing functions would not be
material (provided, that no representation or warranty is made with respect to
any such failure for reasons other than the advent of the new century).
Subject to the provisions of Section 4.4, each of the Transferors shall
be jointly and severally liable for the breach of any representation and
warranty of a Transferor set forth in this Section 4.1.
* * * * *
For the foregoing purposes, the terms "Transferors' knowledge" or "Transferor's
knowledge" or words of similar effect shall mean the current actual, subjective
knowledge of Messrs. John Diserens, Michael Coke, Blake Baird and David Fries
(collectively, the "Knowledge Persons"), in each case without independent
investigation or inquiry, but after inquiry of the current asset managers who
are employees of Transferors in its retail division. Such individuals' knowledge
shall not include information or material which may be in the possession of any
of the Transferors or the named individuals, but of which the named individuals
are not actually aware. Transferors shall have no liability for the breach of
any representations or warranties absent an arbitrated or judicial finding that
the named individuals knowingly withheld information from Buyer with respect to
the subject matter of the representation or warranty or falsified information
delivered to and relied upon by Buyer and that such action amounted to a
violation of a representation or warranty expressly set forth in this Agreement.
None of the named individuals whose sole knowledge is imputed to a Transferors
under this Section nor any party other than the Transferors affording a
representation shall bear responsibility for any breach of such representation.
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SECTION 4.2 Transferors' Covenants. Transferors hereby covenants
and agrees as follows:
(a) During the Contract Period, Transferors will exercise
reasonable and good faith efforts (i) to operate and maintain the Properties in
a manner consistent with current practices and (ii) to comply, where such
compliance is the obligation of Transferors (and not of a tenant or other party)
in all material respects with all material laws and regulations applicable to
the Properties;
(b) During the Contract Period, Transferors will not sell
or otherwise dispose of any significant items of Personal Property unless
replaced with an item of like value, quality and utility;
(c) During the Contract Period, Transferors shall not enter
into or modify any Contracts relating to the operation or maintenance of a
Property, except for (i) those entered into in the ordinary course of business
with parties which are not affiliates of Transferors and (A) which are
cancelable upon not more than thirty (30) days prior notice without penalty or
premium or (B) which require payments to the applicable vendor of $25,000 or
less per year and which, in the aggregate for any individual Property, require
payments to the applicable vendors of $50,000 or less per year, or (ii) those
otherwise approved by Buyer, which approval shall not be unreasonably withheld
and shall be deemed given if Buyer should fail to approve or disapprove proposed
Contract matters in writing within 5 business days following Transferor's
written request (which shall include all material information necessary to allow
Buyer to make an informed decision). At Buyer's written request provided at
least five (5) business days prior to the Closing Date, Transferors shall
deliver notice of termination on the Closing Date as to any and all Contracts
that Buyer desires to terminate, provided that such termination shall be
effective following any notice or waiting period for such termination described
in the Contract and that Transferors shall not be required to bear any
termination or cancellation fee or charge that may be assessed under such
Contract based upon an early termination. Notwithstanding the foregoing,
Transferors shall terminate all property management agreements and exclusive
leasing agreements applicable to the Properties as of the Closing Date, at
Transferors' expense;
(d) During the Contract Period, Transferors will not
execute or modify in any material fashion any Leases pertaining to premises in
excess of 5,000 rentable square feet or any ground lease, other than with
Buyer's prior consent, which shall be deemed given if Buyer (in the person of
Burnham Pacific Properties, Inc.'s chief investment officer or chief operating
officer) should fail to approve or disapprove proposed lease matters in writing
within 5 business days following Transferors' written request (which shall
include all material information necessary to allow Buyer to make an informed
decision). Buyer shall exercise its rights of approval of leasing matters
reasonably and in good faith. With respect to new Leases or Lease amendments
pertaining to premises of 5,000 rentable square feet or less, Transferors shall
have the right to enter into new Leases or amendments without any need to obtain
Buyer's consent, provided that (A) such new Lease or amendment is entered into
on an arm's length basis and the applicable Transferors believes in its good
faith reasonable discretion that it is entering into such new Lease or
modification on market terms (B) such new Lease or amendment does not provide
for a cap on the pass through of cost recoveries or exclude the recovery of
management fees, (C) such new Lease or amendment does not contain a material
change to the assignment provision of
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Transferors' standard lease form in use at the applicable Property (the
"Standard Form"), (D) with respect to a new Lease, Transferors initiated
negotiations with such tenant using the Standard Form and any changes thereto
are consistent with Transferors' standard leasing practices, and (E) Buyer is
provided with a copy of the executed Lease or modification documents within a
reasonable period after such documents are executed. Transferors shall use
reasonable efforts to continue to seek leases for the Properties in a manner
consistent with present practice;
(e) During the Contract Period, Transferors shall not
voluntarily create, consent to or acquiesce in the creation of liens or
exceptions to title without Buyer's prior written consent, provided that Buyer
shall not unreasonably withhold or delay consent to any proposed matters
affecting title necessary to maintain or enhance the value of the pertinent
Property;
(f) During the Contract Period, Transferors shall maintain
its currently effective policies of property insurance and rental loss insurance
for the Improvements;
(g) During the Contract Period, Transferors shall use
commercially reasonable efforts (but at no material cost to Transferors except
as may otherwise be expressly provided in this Agreement) to obtain all third
party and governmental approvals and consents necessary to consummate the
transactions contemplated hereby;
(h) During the Contract Period, Transferors shall maintain
their books accounts and records in a manner consistent with past practice;
(i) During the Contract Period, Transferors shall observe
and comply with the material terms and conditions of all Contracts, Leases,
Property licenses, and Property approvals;
(j) During the Contract Period, Transferors shall not
knowingly and intentionally take any action which would cause the
representations and warranties contained in Section 4.1 (other than as permitted
in this Agreement) to cease to be true and correct in all material respects as
of the Closing Date as though then made;
(k) During the Contract Period, Transferors shall comply in
all material respects with all existing easements, covenants, conditions,
restrictions and other encumbrances affecting any Property;
(l) During the Contract Period, Transferors shall
reasonably cooperate with Buyer, but at no cost to Transferors, (i) to assist
Buyer in obtaining environmental insurance coverage for the Properties
(provided, that in no event shall Buyer have the right to perform any
environmental testing in connection with obtaining such insurance) and (ii) to
enable Buyer to exercise and close on the Applewood Option (as defined in the
Disclosure Materials List & Statement) and, at Buyer's written request, with
respect to any other similar options or rights described on Exhibit V attached
hereto, as soon as possible after the closing, provided such option(s) shall not
be exercised or caused to be exercised by Buyer prior to the closing and
Transferors shall not be required to exercise such option(s) prior to the
closing);
(m) During the Contract Period, but subject to the
provisions of Sections 2.4 and 2.5, Transferors shall permit Buyer, and Buyer's
lenders and its representatives, to have
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reasonable access (upon reasonable notice, during normal business hours and, if
required by Transferors, accompanied by a representative of Transferors) to the
books, records and Properties, and, with Transferors' prior approval not to be
unreasonably withheld, tenants, parties to REAs, parties to options and rights
of first refusal, and parties to management agreements and Contracts, in order
to assist Buyer in its management transition with respect to the Properties and
to provide information to its lenders that is reasonably requested by them;
(n) As a courtesy to Buyer, during the Contract Period,
Transferors shall use reasonable efforts to provide Buyer with copies of any
written notices received by Transferors during the Contract Period, which
notices relate to matters described in Section 4.1(b)(i), (ii), (iii), (iv),
(vi), (vii) or (viii); provided, that notwithstanding anything to the contrary
contained in this Agreement, Transferors shall have no liability whatsoever to
Buyer as a result of its failure to comply with the provisions of this Section
4.2(n);
(o) During the Contract Period, Transferors shall provide
reasonable access to the Disclosure Materials (upon reasonable notice and during
normal business hours) and the right to copy such materials (at no cost to
Transferors) in order to assist Buyer in its management transition with respect
to the Properties and to provide information to its lenders that is reasonably
requested by them;
(p) During the Contract Period, Transferors shall meet and
confer with Buyer on a regular basis to discuss leasing activity at the
Properties and the status of work described in Section 6.9 and shall provide
Buyer at such meetings or otherwise reasonably detailed information regarding
the costs incurred with respect to, and the costs anticipated to complete, such
work;
(q) During the Contract Period, Transferors shall notify
Buyer of any litigation filed against Transferors during the Contract Period
within a reasonable period of time after Transferors are made aware of such
litigation and Exhibit W shall be revised to include such litigation; and
(r) During the Contract Period, to the extent Transferors
have a right of first offer or right of first refusal to purchase any real
property related to any of the Properties and Transferors receive written notice
that the period for exercising such right has commenced, Transferors shall
promptly notify Buyer and Buyer shall have the right, by written notice to
Transferors, to request that at closing Transferors assign such right to Buyer
(if assignable) or use reasonable efforts to cause the applicable property to be
direct deeded to Buyer; provided, that in no event shall Transferors have any
liability or incur any cost with respect to such property or be required to take
title to such property, and Buyer shall deliver to Title Company at the times
required in connection with such right to purchase, and remain responsible for,
any funds to be paid in connection with the acquisition of such property.
SECTION 4.3 Buyer's Warranties and Representations. Buyer hereby
represents and warrants to Transferors that the following are true as of the
date of this Agreement:
(a) Buyer is a duly formed and validly existing limited
liability company under the law of the state of its formation and is (or on the
Closing Date will be) in good
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standing under the laws of the states where each Property is located and Buyer
has the full right, authority and power to enter into this Agreement, to
consummate the transactions contemplated herein and to perform its obligations
hereunder and under those documents and instruments to be executed by it at the
closing, and each of the individuals executing this Agreement on behalf of Buyer
is authorized to do so, and this Agreement constitutes a valid and legally
binding obligation of Buyer enforceable against Buyer in accordance with its
terms.
(b) Buyer's execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and the performance of
Buyer's obligations under the instruments required to be delivered by Buyer at
the closing, do not and will not result in any material violation of, or
material default under, any term or provision of any agreement, instrument,
mortgage, loan agreement or similar document to which Buyer is a party or by
which Buyer is bound.
(c) There is no litigation, investigation or proceeding
pending or, to the best of Buyer's knowledge, contemplated or threatened against
Buyer which would impair or adversely affect Buyer's ability to perform its
obligations under this Agreement or any other instrument or document related
hereto.
SECTION 4.4 Survival/Limitations.
(a) Subject to subsection (b) below, the parties agree that
Transferors' warranties and representations contained in Sections 4.1 (a) and
(b) of this Agreement shall survive Buyer's purchase of the Properties and the
Closing Date for a period ending 180 calendar days following the Closing Date
(the "Limitation Period"). Such termination as of the close of the Limitation
Period shall apply to known as well as unknown breaches of such warranties or
representations. Subject to subsection (b) below, Buyer's waiver and release set
forth in Section 2.4 shall apply fully to liabilities under such representations
and warranties. Buyer specifically acknowledges that such termination of
liability represents a material element of the consideration to Transferors.
(b) Any claim of Buyer based upon a breach of any
representation or warranty or covenant or a claim under any indemnity contained
in this Agreement or any representation, warranty, covenant or indemnity
contained in any other document or instrument delivered by Transferors to Buyer
at closing (collectively a "Breach") shall be expressed, if at all, in writing
setting forth in reasonable detail the basis and character of the claim (a
"Claim Notice"), and, in the case of a Breach of Transferors' representations
and warranties contained in this Agreement or a Breach of a covenant contained
in Section 4.2 hereof only, shall be delivered to Transferors prior to the
expiration of the Limitation Period. Notwithstanding the foregoing, Buyer's
right to make and recover any claim pursuant to a Claim Notice shall be subject
to the following: (i) any matters identified by Buyer during the Confirmation
Period which would represent both a breach of representation and result in a
Material Adverse Matters Amount shall be treated solely as the latter and shall
not be the subject of any claim for breach of representation under this Article
IV, (ii) with respect to a Breach of Transferors' representations and warranties
contained in this Agreement, or a Breach of a covenant contained in Section 4.2
hereof or a Breach under an indemnity contained in the Assignments of
Intangibles or the Assignments of Leases (as such terms are defined in Section
6.1(a) below), Buyer shall not make any claim on account of such
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Breach unless and until (A) the aggregate measure of such claims with respect to
a Property exceeds $200,000, and (B) the aggregate measure of such claims with
respect to all of the Properties exceeds $750,000 (the "Threshold"), in which
event Buyer's claim shall be limited to an amount equal to (x) the amount by
which such aggregate exceeds the Threshold, plus (y) an amount equal to
two-thirds of the Threshold, (iii) Transferors' aggregate liability for claims
arising out of all Breaches (i.e., those described in clause (ii) above as well
as all other Breaches) shall not, in the aggregate, exceed an amount equal to
three percent (3%) of the aggregate Price for all of the Properties acquired by
Buyer exclusive of the amounts of any insurance proceeds actually received by
Transferors which are to be applied to Claims pursuant to Section 2.4(e), and
(iv) Buyer shall have the right to deliver to Transferors Claim Notices with
respect to any Breach discovered by Buyer prior to the Closing Date solely if
such notice is delivered prior to the Closing Date. Notwithstanding the
foregoing, with respect to a Claim Notice asserting a breach of the
representation contained in Section 4.1(b)(vii), the following shall be
substituted for the provisions of clause (ii) of this Section 4.4(b): (ii) Buyer
shall not make any claim on account of a breach of the representation and
warranty contained in Section 4.1(b)(vii) with respect to any Property unless
and until the aggregate measure of such claims with respect to all Properties
exceeds $50,000, and only to the extent that such aggregate exceeds $50,000. For
purposes of this Section 4.4(b) (and without limiting the introductory paragraph
of Section 4.1), a Breach shall be deemed to be discovered by Buyer prior to the
Closing Date only to the extent that any of David Martin, Daniel Platt, Joseph
Byrne, Scott Verges, John Waters, Jim Gaube or Guy Jacquier has actual,
subjective knowledge of the facts or circumstances giving rise to such breach of
representation or warranty or Section 4.2 covenants. Following receipt of such a
pre-closing Claim Notice with respect to which Buyer has the right to make and
recover a claim as aforesaid, Transferors may elect, by written notice to Buyer
given not later than the first to occur of the date that is ten (10) business
days following the date of the Claim Notice or the Closing Date, to terminate
this Agreement as to the Property to which such pre-closing Claim Notice relates
and such Property shall be treated as a Deleted Property and Buyer shall not be
entitled to any damages in connection therewith. If Transferors fail to elect to
treat any Property which is the subject of a pre-closing Claim Notice as a
Deleted Property, the closing as to such Property shall be conducted on the
Closing Date. As to pre-closing Claim Notices with respect to which Transferors
do not elect to treat the affected Property as a Deleted Property and as to all
Claim Notices received by Transferors following the Closing Date as to which
Buyer has the right to make and recover a claim as aforesaid, Buyer shall have
the right after (but not before) the Closing Date to proceed against Transferors
for actual monetary damages based upon such Claim Notice -- subject to the cure
rights set forth in subparagraph (c) below and the limitations set forth above
and in the remaining sentences of this subparagraph. Notwithstanding anything to
the contrary provided in this Agreement, in no event shall Transferors be liable
to Buyer for any consequential or punitive damages based upon any breach of this
Agreement, including breaches of representation or warranty. Subject to
applicable principles of fraudulent conveyance, in no event shall Buyer seek
satisfaction for any obligation from any shareholders, officers, directors,
employees, agents, legal representatives, successors or assigns of such trustees
or beneficiaries, nor shall any such person or entity have any personal
liability for any such obligations of any Transferors.
(c) The Transferors who have committed a Breach for which a
Claim Notice has been received shall have a period of 30 days within which to
cure such breach, or, if such breach cannot reasonably be cured within 30 days,
an additional reasonable time period of up to
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an additional 60 days, so long as such cure has been commenced within such 30
days and is at all times diligently pursued. If the Breach is not cured after
actual written notice and within such cure period, Buyer's sole remedy shall be
an action at law for damages against the breaching Transferor or Transferors,
which must be commenced with respect to a Breach of a representation or warranty
contained in this Agreement or a Breach of a covenant contained in Section 4.2
hereof, if at all, within the Limitation Period; provided, however, that if
within the Limitation Period Buyer gives a Claim Notice and the Transferors
commence to cure and thereafter terminate such cure effort or fail in such cure
effort, Buyer shall have an additional 30 days from the date of written notice
from the Transferors of such termination or the expiration of such cure period
within which to commence an action at law for damages as a consequence of the
failure to cure. The existence or pendency of such cure rights shall not delay
the Closing Date as to a Property not designated as a Deleted Property. The
provisions of this Section 4.4 shall survive the closing or any termination of
this Agreement.
ARTICLE 5
DEPOSIT; DEFAULT
SECTION 5.1 Buyer's Default & Deposit.
(a) Substantially concurrently with the execution and
delivery of this Agreement, Buyer shall deliver to Title Company, for deposit
into the escrow described in Section 6.1 below, cash in an amount equal to Nine
Million Dollars ($9,000,000), which amount shall be increased on April 30, 1999
by an additional Three Million Two Hundred Fifty Thousand Dollars ($3,250,000)
(collectively, the "Deposit"). In the event that this transaction is consummated
as contemplated by this Agreement, then the entire amount of the Deposit,
together with any interest accrued thereon, whether in cash or in the form of a
Letter of Credit (as herein defined) shall be returned to Buyer and in no event
shall the Deposit be credited against the Price. The entire amount of the
Deposit (or the portion of the Deposit allocable to Properties with respect to
which Transferors refuse to perform their material closing obligations),
together with any interest accrued thereon, shall be returned immediately to
Buyer in the event that the transaction fails to close due to termination of
this Agreement pursuant to Section 5.2. IN THE EVENT THE TRANSACTION
CONTEMPLATED BY THIS AGREEMENT SHOULD FAIL TO CLOSE AS A RESULT OF BUYER'S
DEFAULT HEREUNDER, THE ENTIRE AMOUNT OF THE DEPOSIT, PLUS ACCRUED INTEREST, (AND
TO THE EXTENT THE DEPOSIT IS IN THE FORM OF A LETTER OF CREDIT, TITLE COMPANY
SHALL IMMEDIATELY MAKE DEMAND FOR THE PRINCIPAL AMOUNT OF THE LETTER OF CREDIT)
SHALL BE PAID BY THE TITLE COMPANY TO TRANSFERORS AS LIQUIDATED DAMAGES (THE
"LIQUIDATED AMOUNT"). BUYER AND TRANSFERORS HEREBY ACKNOWLEDGE AND AGREE THAT
TRANSFERORS' DAMAGES IN THE EVENT OF SUCH A BREACH OF THIS AGREEMENT BY BUYER
WOULD BE DIFFICULT OR IMPOSSIBLE TO DETERMINE, THAT THE AMOUNT OF THE DEPOSIT
PLUS ACCRUED INTEREST IS THE PARTIES' BEST AND MOST ACCURATE ESTIMATE OF THE
DAMAGES TRANSFERORS WOULD SUFFER IN THE EVENT THE TRANSACTION PROVIDED FOR IN
THIS AGREEMENT FAILS TO CLOSE, AND THAT SUCH ESTIMATE IS REASONABLE UNDER THE
CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT. BUYER AND TRANSFERORS
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AGREE THAT TRANSFERORS' RIGHT TO RETAIN THE DEPOSIT PLUS ACCRUED INTEREST SHALL
BE THE SOLE REMEDY OF TRANSFERORS IN THE EVENT OF A BREACH OF THIS AGREEMENT BY
BUYER.
ACCEPTED AND AGREED TO:
________________________ _____________________________
BUYER'S INITIALS TRANSFEROR'S INITIALS
This Section 5.1 is intended only to liquidate and limit Transferors' rights to
damages arising due to Buyer's failure to purchase the Properties and shall not
limit the indemnification or other obligations of (i) Buyer's constituent
partners pursuant to the Confidentiality Agreement dated January 25, 1999
executed by Burnham Pacific Properties, Inc. for the benefit of Transferors (the
"BP Confidentiality Agreement") and the Confidentiality Agreement dated January
25, 1999 executed by the State of California Public Employees' Retirement System
("Calpers") for the benefit of Transferors (the "Calpers Confidentiality
Agreement;" which, together with the BP Confidentiality Agreement, are
collectively referred to as the "Confidentiality Agreements") or (ii) Buyer
pursuant to (A) any other documents delivered pursuant to this Agreement or (B)
Sections 2.4(b), 2.4(e), 7.2, 7.9 and 7.13 of this Agreement. In the event that
any Property becomes a Deleted Property pursuant to the provisions of this
Agreement, then Buyer shall have the right to cause Title Company to withdraw
from the escrow and pay to Buyer (or to reduce any letter of credit, as
applicable, by) an amount equal to the product of (x) the Deposit (and interest
accruing thereon) and (y) the quotient expressed as a percentage, of the
Allocated Price with respect to such Deleted Property and the total Price.
(b) In the event that Transferors are entitled to the
Deposit pursuant to Section 5.1 hereof, an amount equal to the lesser of (i) the
Liquidated Amount or (ii) the sum of (A) the maximum amount that can be paid to
Transferors without causing Transferors (or any of their constituent partners)
to fail to meet the requirements of Sections 856(c)(2) and 856(c)(3) of the
Code, determined as if the payment of such amount did not constitute income
described in Section 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code
("Qualifying Income"), as determined by Transferors' accountants, plus (B) in
the event Transferors receive either (x) a letter from Transferors' counsel
prior to the Closing Date indicating that Transferors (or their constituent
partners, as applicable) has received a ruling from the Internal Revenue Service
(the "IRS") described in clauses (ii) or (iii) of the following paragraph, or
(y) an opinion from Transferors' (or their constituent partners', as applicable)
counsel as described in clause (iv) of the following paragraph, an amount equal
to the Liquidated Amount less the amount payable under clause (A) above, and any
balance of the Liquidated Amount (the "Balance") shall be retained by Title
Company in escrow in accordance with the terms of an escrow (subject to the
terms of the following paragraph) being otherwise agreed upon by Transferors and
the escrow agent.
(c) The escrow agreement described in Section 5.1(b) shall
provide that the amount in escrow or any portion thereof shall not be released
to Transferors except to the extent the escrow agent receives any one or
combination of the following: (i) a letter from Transferors' accountants
indicating the maximum amount that can be paid by the escrow agent to
Transferors without causing Transferors (or any of their constituent partners,
as applicable) to fail to meet the
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requirements of Sections 856(c)(2) and 856(c)(3) of the Code, determined as if
the payment of such amount did not constitute Qualifying Income, in which case
the escrow agent shall release the amount indicated in such letter to
Transferors, (ii) a letter from Transferors' (or any of their constituent
partner's, as applicable) counsel indicating that Transferors (or any of its
constituent partners, as applicable) received a ruling from the IRS holding that
the receipt by Transferors (or any of their constituent partners, as applicable)
of the Liquidated Amount would either constitute Qualifying Income or would be
excluded from gross income within the meaning of Sections 856(c)(2) and
856(c)(3) of the Code, in which case the escrow agent shall release the Balance
to Transferors, (iii) a letter from Transferors' (or any of their constituent
partners' as applicable) counsel indicating that Transferors (or any of their
constituent partners, as applicable) received a ruling from the IRS holding that
the receipt by a Transferor (or its constituent partner, as applicable) of the
Balance following the receipt of and pursuant to such ruling would not be deemed
constructively received prior thereto or (iv) an opinion of a Transferor's (or
its constituent partner's, as applicable) legal counsel to the effect that the
receipt by a Transferor (or its constituent partner, as applicable) of the
Liquidated Amount would either constitute Qualifying Income or would be excluded
from gross income within the meaning of Sections 856(c)(2) and 856(c)(3) of the
Code, in which case the escrow agent shall release the Balance to Transferors.
Buyer and Title Company agree to act reasonably and cooperate with Transferor in
order (x) to maximize the portion of the Liquidated Amount that may be
distributed to Transferors hereunder without causing a Transferor (or its
constituent partner, as applicable) to fail to meet the requirements of Sections
856(c)(2) and 856(c)(3) of the Code or (y) to improve a Transferor's (or any of
their constituent partner's, as applicable) chances of securing a favorable
ruling described in this Section 5.1(c), provided that, except as otherwise
provided in this Agreement, Buyer and Title Company shall not be required to
incur any out-of-pocket costs in connection therewith. The escrow agreement
shall also provide that any portion of the Liquidated Amount then held in escrow
after the expiration of five (5) years from the date of the establishment of
such escrow shall be released by the escrow agent to Buyer. Buyer shall not be a
party (other than a contingent beneficiary as described above) to such escrow
arrangements and shall not bear any cost of or have liability resulting from
such escrow arrangements.
SECTION 5.2 Transferors' Default. If (a) the conditions precedent
set forth in Section 3.1(b) shall have been satisfied or waived (provided that
for purposes of this Section Buyer shall not be required to tender formally the
Price but only demonstrate the commitment of immediately available funds to pay
such Price) and (b) Transferors shall refuse to perform their material closing
obligations under this Agreement (e.g., by refusing to convey a Property to
Buyer at Closing), then Buyer's sole and exclusive remedy shall be either (i) to
receive back the Deposit in the event Transferors refused to perform their
material closing obligations with respect to all of the Properties (or the
portion of the Deposit allocable to Properties with respect to which Transferors
refuse to perform their material closing obligations) plus all accrued interest
thereon or (ii) to pursue an action for specific performance on a Property by
Property basis as to those Properties with respect to which Transferors refuse
to perform their material closing obligations ; provided, that notwithstanding
anything to the contrary contained herein, Buyer's right to pursue an action for
specific performance is expressly conditioned on Buyer not being in default or
having defaulted in any material respect under any other material agreement in
which Buyer or any of its constituent members and any of the Transferors is a
party and which was entered into on or after March 1, 1999. Subject to the
foregoing, Buyer acknowledges that Buyer's remedies for Transferor's failure to
perform all of its material obligations under this
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Agreement with respect to the sale or exchange of a particular Property but less
than all of the Properties shall be exclusively governed by the provisions of
Section 3.2 above. Nothing contained in this Section 5.2 is intended to limit
Buyer's rights under Sections 7.2, 7.9 and 7.13 of this Agreement.
SECTION 5.3 Solicitation; Negotiations.
(a) Unless and until this Agreement shall have been
terminated in accordance with its terms, the Transferors agree and covenant that
(i) neither Transferors nor any of their respective subsidiaries or affiliates
nor AMB Property Corporation, a Maryland corporation, which is AMBLP's general
partner (the "Company"), shall, and each of them shall direct and use their best
efforts to cause their respective officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it or any of its subsidiaries) not to, directly or
indirectly, initiate, solicit or encourage any inquiries or the making or
implementation of any proposal or offer with respect to a merger, acquisition,
or similar transaction involving the direct or indirect purchase of the
Properties (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations with, or provide any
confidential information or data to, or have any discussions with, any person
relating to, an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal.
(b) Notwithstanding anything set forth in this Agreement to
the contrary, the Board of Directors of the Company may furnish information to
or enter into discussions or negotiations with any person that makes an
unsolicited bona fide proposal to purchase all or a portion of the Properties
having aggregate Allocated Price of at least eighty-five percent (85%) of the
aggregate Price of all of the Properties, whether by merger, purchase of
partnership interests or assets or otherwise (a "Proposal"), if the Board of
Directors of the Company determines in good faith that the Proposal, if
consummated as proposed, would result in a transaction more favorable to the
Company's stockholders from a financial point of view than the transactions
contemplated by this Agreement (any such Proposal being referred to herein as a
"Superior Proposal"). If the Board of Directors of the Company is prepared to
accept the Superior Proposal, then Transferors shall have the right to terminate
this Agreement by giving Buyer 48 hours notice that the Board of Directors is
prepared to accept the Superior Proposal, instructing the Title Company to
return the Deposit to Buyer and in addition paying Buyer a termination fee in
the amount of the then current Deposit (as increased or decreased from time to
time pursuant to this Agreement) (excluding the amount of any remaining Deposit
allocable to any Properties which were previously designated as Deleted
Properties) (the "Termination Fee"). The return of the Deposit (and all interest
accrued thereon) and the additional payment of the Termination Fee shall be
Buyer's sole and exclusive remedy in the event of a termination pursuant to this
Section 5.3
(c) In addition to the provisions set forth in Sections
5.3(a) and 5.3(b) hereof, nothing in this Agreement shall be deemed to prevent
in any manner the taking of any action by the Company with respect to any
merger, consolidation or sale of all or substantially all of the assets of the
Company or any of the Transferors, in the event that the Board of Directors of
the Company shall determine, based on advice of outside legal counsel, that the
failure to take such action would be inconsistent with such Board of Directors'
fiduciary duties to the Company's
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stockholders under applicable law. In the event that such action would be
inconsistent with the transactions contemplated hereby, then Transferors shall
have the right to terminate this Agreement by giving Buyer 48 hours notice that
such Board of Directors is prepared to take such action, instructing the Title
Company to return the Deposit to Buyer and in addition paying Buyer the
Termination Fee. The return of the Deposit and the additional payment of the
Termination Fee shall be Buyer's sole and exclusive remedy in the event of a
termination pursuant to this Section 5.3.
(d) In the event that Transferors are obligated to pay
Buyer the Termination Fee, Transferors shall pay to Buyer an amount equal to the
lesser of (i) the Termination Fee or (ii) the sum of (A) the maximum amount that
can be paid to Buyer without causing Buyer (or any of its members) to fail to
meet the requirements of Sections 856(c)(2) and 856(c)(3) of the Code,
determined as if the payment of such amount did not constitute income described
in Section 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying
Income"), as determined by Buyer's accountants, plus (B) in the event Buyer
receives either (x) a letter from Buyer's counsel prior to the Closing Date
indicating that Buyer (or its members, as applicable) has received a ruling from
the Internal Revenue Service (the "IRS") described in clauses (ii) or (iii) of
the following paragraph, or (y) an opinion from Buyer's (or its member's, as
applicable) counsel as described in clause (iv) of the following paragraph, an
amount equal to the Termination Fee less the amount payable under clause (A)
above, and any balance of the Termination Fee (the "Balance") shall be deposited
by Transferors in escrow in accordance with the next succeeding sentence with
the Title Company or other escrow agent selected by Buyer and reasonably
acceptable to Transferors. Transferors shall deposit into such escrow an amount
in immediately available federal funds equal to the Balance, with the terms of
such escrow (subject to the terms of the following paragraph) being otherwise
agreed upon by Buyer and the escrow agent. All payments by Transferors pursuant
to this paragraph shall be made by wire transfer or bank check within thirty
(30) days after demand by Buyer. Payment to Buyer of the amounts set forth in
this Section 5.3(d) and, if applicable, deposit into escrow of the Balance,
shall satisfy Transferors' obligations in full under the terms and conditions of
this Section 5.3.
(e) The escrow agreement described in Section 5.3(d) shall
provide that the amount in escrow or any portion thereof shall not be released
to Buyer except to the extent the escrow agent receives any one or combination
of the following: (i) a letter from Buyer's accountants indicating the maximum
amount that can be paid by the escrow agent to Buyer without causing Buyer (or
its member, as applicable) to fail to meet the requirements of Sections
856(c)(2) and 856(c)(3) of the Code, determined as if the payment of such amount
did not constitute Qualifying Income, in which case the escrow agent shall
release the amount indicated in such letter to Buyer, (ii) a letter from Buyer's
(or its member's, as applicable) counsel indicating that Buyer (or its member,
as applicable) received a ruling from the IRS holding that the receipt by Buyer
(or its member, as applicable) of the Termination Fee would either constitute
Qualifying Income or would be excluded from gross income within the meaning of
Sections 856(c)(2) and 856(c)(3) of the Code, in which case the escrow agent
shall release the Balance to Buyer, (iii) a letter from Buyer's (or its
member's, as applicable) counsel indicating that Buyer (or its member, as
applicable) received a ruling from the IRS holding that the receipt by Buyer (or
its member, as applicable) of the Balance following the receipt of and pursuant
to such ruling would not be deemed constructively received prior thereto or (iv)
an opinion of Buyer's (or
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its member's, as applicable) legal counsel to the effect that the receipt by
Buyer (or its member, as applicable) of the Termination Fee would either
constitute Qualifying Income or would be excluded from gross income within the
meaning of Sections 856(c)(2) and 856(c)(3) of the Code, in which case the
escrow agent shall release the Balance to Buyer. Transferors agree to act
reasonably and cooperate with Buyer in order (x) to maximize the portion of the
Termination Fee that may be distributed to Buyer hereunder without causing Buyer
(or its member, as applicable) to fail to meet the requirements of Sections
856(c)(2) and 856(c)(3) of the Code or (y) to improve Buyer's (or its member's,
as applicable) chances of securing a favorable ruling described in this Section
5.3(e), provided that Transferors shall not be required to incur any
out-of-pocket costs in connection therewith. The escrow agreement shall also
provide that any portion of the Termination Fee then held in escrow after the
expiration of five (5) years from the date of the establishment of such escrow
shall be released by the escrow agent to Transferors. Transferors shall not be a
party (other than a contingent beneficiary as described above) to such escrow
arrangements and shall not bear any cost of or have liability resulting from
such escrow arrangements.
SECTION 5.4 Letter of Credit. In lieu of depositing the Deposit in
cash pursuant to this Agreement, or after depositing the Deposit in cash, in
substitution for all or any portion of the cash Deposit, Buyer may deliver to
Title Company an unconditional and irrevocable letter of credit in favor of
Title Company, in form reasonably satisfactory to Transferors and Title Company,
drawn upon a state or national bank reasonably approved by Transferors and Title
Company, which letter of credit shall (i) expire no earlier than fifteen (15)
days after the scheduled Closing Date (as such date may be changed with respect
to all of the Properties or a particular Property pursuant to this Agreement),
(ii) be capable of being drawn on by Title Company upon demand (subject to
customary draw procedures and requirements) and (iii) otherwise be in form and
substance reasonably satisfactory to Transferors and Title Company (the "Letter
of Credit"). The Letter of Credit shall secure the faithful performance and
observance by Buyer of the terms, provisions, and conditions of this Agreement
in the same manner and to the same extent as the Deposit. The Letter of Credit
shall be held and disbursed by Title Company in the same manner as the Deposit,
except that:
(a) if the term of the Letter of Credit will expire prior
to the then scheduled Closing Date (as such date may be changed with respect to
all of the Properties or a particular Property pursuant to this Agreement), and
such Letter of Credit is not extended or a new Letter of Credit for an extended
period of time is not substituted within five (5) business days prior to the
expiration date of the Letter of Credit, then Title Company shall make demand
for the principal amount of the Letter of Credit prior to the expiration date of
the Letter of Credit and hold such funds in the same manner as the Deposit
pursuant to this Agreement;
(b) if Title Company continues to hold the Letter of Credit
at closing and the closing occurs as contemplated by this Agreement, subject to
(c) below such Letter of Credit shall be returned to Buyer at closing; and
(c) in any instance in which a portion of the Deposit is to
be returned to Buyer pursuant to this Agreement or in which a closing occurs and
subsequent closings are contemplated due to the deferral of the closing with
respect to one or more of the Properties and in order to do so the amount of the
Letter of Credit would have to be reduced, the Title Company shall continue to
hold the Letter of Credit in the manner set forth in and subject to the
provisions
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of this Section 5.4 until Buyer has provided a substitute Letter of Credit in
the amount of the Deposit as so reduced.
ARTICLE 6
CLOSING
SECTION 6.1 Escrow Arrangements. One or more escrows (to the extent
more than one escrow is necessary to accommodate Transferors' 1031 Exchange(s))
for the purchase and sale contemplated by this Agreement shall be opened by
Buyer and Transferors with Title Company. At least one business day prior to the
Closing Date, Transferors and Buyer shall each deliver escrow instructions to
Title Company consistent with this Article VI, and designating Title Company as
the "Reporting Person" for the transaction pursuant to Section 6045(e) of the
Code. By signing below, Title Company agrees to act as the "Reporting Person"
for the transaction pursuant to Section 6045(e) of the Code and to complete and
file with the IRS Forms 1099-S (and furnish Buyer and Transferors with copies
thereof) on or before the due date therefor. In addition, the parties shall
deposit in escrow, at least one business day prior to the Closing Date (unless
otherwise provided below in this Section 6.1) the funds and documents described
below:
(a) Transferors shall deposit (or cause to be deposited):
(i) a duly executed and acknowledged deed
pertaining to the Real Property portion of each of the Properties, each in the
form attached to this Agreement as Exhibit I-A (collectively, the "Deeds");
(ii) a duly executed bill of sale pertaining to
the Personal Property portion of each of the Properties, each in the form
attached to this Agreement as Exhibit I-B (collectively, the "Bills of Sale");
(iii) a duly executed counterpart assignment and
assumption pertaining to the Intangible Property portion of each of the
Properties, each in the form attached to this Agreement as Exhibit I-C
(collectively, the "Assignments of Intangibles");
(iv) a duly executed counterpart assignment and
assumption pertaining to the Leases, each in the form attached to this Agreement
as Exhibit I-D (collectively, the "Assignments of Leases");
(v) a certificate from each Transferors certifying the
information required by any of the states in which any of the Properties are
located to establish that the transaction contemplated by this Agreement is
exempt from the tax withholding requirements of such states (the "State
Certificates");
(vi) a certificate from each Transferors
certifying the information required by 1445 of the Code to establish, for the
purposes of avoiding Buyer's tax withholding obligations, that Transferors is
not a "foreign person" as defined in 1445(f)(3) of the Code (the "FIRPTA
Certificate");
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(vii) a letter executed by each respective
Transferors and, if applicable, its respective management agent and the Buyer,
in form and substance satisfactory to Buyer, addressed to all tenants of each
respective Property, notifying all such tenants of the transfer of ownership of
the Property and directing payment of all rents accruing after the Closing Date
to be made to Buyer or such other party as Buyer directs (the "Tenant Notices");
(viii) to the extent not previously delivered to
Buyer and in Buyer's possession or under its control, originals of any of the
Contracts, Leases, licenses, approvals, plans, specifications, warranties, other
Intangible Property and other books and records relating to the ownership and
operation of the Property (or if the original is not in the Transferors'
possession or control, copies thereof to the extent in Transferors' possession
or control);
(ix) an updated Rent Roll for each Property in the
same format as was used for the Rent Rolls attached hereto as Exhibit E or in
such other format as is reasonably acceptable to Buyer dated no later than five
(5) days prior to closing, which updated Rent Roll will be used solely for the
purpose of (i) identifying all Leases at such Property as of the applicable
Closing Date and (ii) allowing the Title Company to issue Buyer's title
insurance policies subject to no exception for parties in possession other than
the Leases identified in the Rent Roll;
(x) subject to the provisions of Section 2.6,
such affidavits as may be reasonably and customarily required by the Title
Company to issue the Title Policies in the form required hereby (including,
without limitation, without exception for parties-in-possession (other than
tenants under the Leases) or mechanics' or materialmen's liens which are to be
satisfied by Transferors pursuant to Section 2.6);
(xi) the Remediation and Access Agreement (as
herein defined); and
(xii) evidence reasonably satisfactory to the Title
Company as to the legal existence and authority of the Transferors and the
authority and incumbency of the persons signing documents on behalf of the
Transferors.
In addition, Transferors shall deliver to Buyer on the Closing Date, outside of
escrow, to the extent in Transferor's possession or control, the originals of
all Leases, Contracts and tenant files and all keys to the Properties.
(b) Buyer shall deposit:
(i) on or prior to the close of business on the
business day immediately prior to the Closing Date, immediately available funds
sufficient to pay the balance of the Price, plus sufficient additional cash to
pay Buyer's share of all escrow costs and closing expenses;
(ii) a duly executed counterpart for each of the
Assignments of Intangibles, Assignments of Leases and Remediation and Access
Agreement (and Tenant Notices where required);
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(iii) a certificate duly executed by Buyer in favor
of Transferors confirming the waivers and acknowledgments set forth in Sections
2.5 and 4.4 above; and
(iv) evidence reasonably satisfactory to Title
Company as to the legal existence and authority of the Buyer and the authority
and incumbency of the persons signing documents on behalf of the Buyer.
SECTION 6.2 Title. Title Company shall close escrow on the Closing
Date by:
(a) recording the Deeds;
(b) issuing the owner's title policies to Buyer pursuant to
Section 3.1(a)(i) above;
(c) delivering to Buyer originals of the Bills of Sale, the
FIRPTA Certificate, the State Certificates, executed counterparts of each of the
Assignments of Intangibles, Assignments of Leases and Remediation and Access
Agreement and all of the other documents in escrow under Section 6.1(a);
(d) delivering to Transferors (or the exchange
facilitator(s), as applicable) (i) a counterpart for each of the Assignments of
Intangibles, the Assignments of Leases and the Remediation and Access Agreement
executed by Buyer, (ii) the certificate described in Section 6.1(b)(iii) above,
(iii) funds in the amount of the Sale Purchase Price, as adjusted for credits,
adjustments, prorations and closing costs in accordance with Section 2.3 and
this Article VI and as allocated pursuant to the direction of the Transferors
(upon which allocation Buyer and Title Company shall have the right to
conclusively rely) and (iv) funds in the amount of the Exchange Price, as
adjusted for credits, adjustments, prorations and closing costs in accordance
with Section 2.3 and this Article VI and as allocated pursuant to the direction
of the Transferors (upon which allocation Buyer and Title Company shall have the
right to conclusively rely); and
(e) if directed by the parties, delivering the Tenant
Notices to the tenants by certified mail, return receipt requested.
SECTION 6.3 Prorations.
(a) Taxes. Real estate taxes, personal property taxes and
any general or special assessments with respect to the Properties which are not
the direct payment obligation of tenants pursuant to the Leases (as opposed to a
reimbursement obligation) shall be prorated as of the Closing Date -- to the end
that Transferors shall be responsible for all taxes and assessments that are
allocable to any period prior to the Closing Date and Buyer shall be responsible
for all taxes and assessments that are allocable to any period from and after
the Closing Date. Notwithstanding anything to the contrary contained herein, in
regards to Real Property located in the States of Illinois and Colorado, (A)
general real estate taxes which are not the direct or indirect (as a
reimbursement obligation) payment obligations of tenants pursuant to the Leases
and which are payable for the tax year prior to the tax year in which the
closing occurs and all prior years shall be paid by Transferors (including any
installments thereof payable after the Closing Date) and (B) general real estate
taxes which are not the direct or indirect (as a reimbursement obligation)
payment obligations of tenants pursuant to the Leases and which are
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payable for the tax year in which the closing occurs shall be prorated by
Transferors and Buyer as of the Closing Date. If the actual amount of taxes,
assessments or other amounts to be prorated for the year in which the closing
occurs (and, with respect to Real Property located in Illinois and Colorado, for
the tax year prior to the tax year in which the closing occurs) is not known as
of the Closing Date, the proration shall be based on the parties' reasonable
estimates of such taxes, assessments and other amounts. To the extent any real
or personal property taxes subject to apportionment in accordance with the
foregoing are, as of the Closing Date, the subject of any appeal filed by or on
behalf of Transferors, then notwithstanding anything to the contrary contained
in this subparagraph, (i) no apportionment of the taxes being appealed shall
occur at the closing, but instead such apportionment shall be deferred until the
outcome of the appeal is final and the amount of taxes owing becomes fixed at
which time Transferors shall be responsible for all such taxes that are
allocable to any period prior to the Closing Date and Buyer shall be responsible
for all such taxes that are allocable to any period from and after the Closing
Date, and (ii) Transferors shall provide Buyer with adequate security, either in
the form of a bond or by escrowing the amounts being appealed, to assure Buyer
that Transferors' portion of such tax liability, including any penalty, will be
available. To the extent any taxes which are the subject of an appeal have been
paid by Transferors under protest and the appeal results in Buyer receiving a
credit toward future tax liability or a refund, then Buyer shall, within thirty
(30) days following receipt of such refund or notice of such credit, pay to
Transferors the full amount of such refund or credit allocable to the period
prior to the Closing Date, excluding, however, any portion of such refund or
credit that is required to be passed through to the tenants pursuant to any
Leases or to other parties by existing contract.
(b) Prepaid Expenses. Buyer shall be charged for those
prepaid expenses paid by Transferors directly or indirectly allocable to any
period from and after the Closing Date, including, without limitation, annual
permit and confirmation fees, fees for licenses and all security or other
deposits paid by Transferors to third parties which Buyer elects to assume and
to which Buyer then shall be entitled to the benefits and refund following the
Closing Date.
(c) Property Income and Expense. The following prorations
and adjustments shall occur as of the closing. Prior to the Closing Date,
Transferors shall provide all information to Buyer required to calculate such
prorations and adjustments and representatives of Buyer and Transferors shall
together make such calculations:
(i) General. Subject to the specific provisions
of clauses (ii), (iii) and (iv) below, income and expense shall be prorated on
the basis of a 30-day month and on a cash basis (except for items of income and
expense that are payable less frequently than monthly, which shall be prorated
on an accrual basis). All such items attributable to the period prior to the
Closing Date shall be credited to Transferors; all such items attributable to
the period on and following the Closing Date shall be credited to Buyer. Buyer
shall be credited in escrow with (a) any portion of rental agreement or lease
deposits which are refundable to the tenants and have not been applied to
outstanding tenant obligations in accordance with the terms of the applicable
Lease and (b) rent prepaid beyond the Closing Date. Transferors shall transfer
Transferors entire interest in any letters of credit or certificates of deposit
held by Transferors as the deposits described in clause (a) above and shall
diligently cooperate with Buyer in obtaining any reissuance or confirmation of
the effect of the transfer of such instruments. Buyer shall not be entitled to
any interest on rental agreement or lease deposits or prepaid rent accrued on or
before
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the Closing Date, except to the extent any such amount of interest is refundable
or payable to any tenant under a Lease or applicable law. Transferors shall be
credited in escrow with any refundable deposits or bonds held by any utility,
governmental agency or service contractor, to the extent such deposits or bonds
are assigned to Buyer on the Closing Date.
(ii) Leasing Costs. Subject to the provisions of
Section 6.9 below, Buyer shall be credited in escrow with any leasing
commissions, tenant improvements or other allowances to be paid by Buyer on or
after the Closing Date with respect to the current term of any Lease or Lease
modification executed, or any extension term or expansion of premises exercised,
in each case, on or before March 1, 1999, and Transferors shall pay on or before
the Closing Date all such items payable prior to the Closing Date.
Notwithstanding the provisions of the immediately following sentence, with
respect to any new Leases or Lease modifications executed after March 1, 1999
with respect to any of the space identified on Exhibit S attached hereto which
are permitted under the terms of this Agreement ("Vacant Space"), Transferors
shall be credited in escrow with the amount of any leasing commissions, tenant
improvements or other allowances paid by Transferors after March 1, 1999. Buyer
shall receive a credit at closing against the Price in the amount of $7.00 per
square foot of Vacant Space, whether or not such space is leased prior to
closing. With respect to any space which is not Vacant Space, subject to Section
6.9 Transferors shall be credited in escrow with an amount equal to (A) the
amount of any leasing commissions, tenant improvement and other allowances paid
by Transferors after March 1, 1999 to the extent such items relate to new Leases
or Lease modifications executed or extensions of terms or expansions of premises
that are exercised after March 1, 1999 and permitted under the terms of this
Agreement, multiplied by (B) a fraction in which the numerator is the number of
months or partial months of the stabilized term (i.e., the term following the
tenant's entry into occupancy and commencement of unabated rental obligations)
of any such Lease following the Closing Date and the denominator is the number
of months or partial months in the stabilized term of such Lease. Buyer shall
assume all obligations for any leasing commissions, tenant improvement or other
allowances payable following the Closing Date with respect to Leases or Lease
modifications executed or extensions of terms or expansions of premises that are
exercised following March 1, 1999 and which are permitted under the terms of
this Agreement; provided, that as to any such leasing commissions not disclosed
to Buyer in the Disclosure Materials List & Statement or the Disclosure
Materials or approved or deemed approved by Buyer pursuant to this Agreement or
which are not expressly assumed by Buyer under any other provision of this
Agreement, Buyer shall only be obligated to pay the market rate commission for
the applicable Lease (and Transferors shall remain responsible for any above
market component of such commission). Any expenditures or commitments to
expenditures relating to Leases or modifications or extensions of terms or
expansions of premises executed following March 1, 1999 in excess of the amounts
budgeted and approved as part of Buyer's approval of the Lease (where such
approval is required) shall be subject to Buyer's specific approval, which shall
not be unreasonably withheld and shall be deemed given if Buyer should fail to
approve or disapprove such excess expenditure within 5 business days following
Transferors' written request and delivery of material information reasonably
necessary to allow Buyer to make an informed decision.
(iii) Rents. Rents payable by tenants under the
Leases, shall be prorated as and when collected (whether such collection occurs
prior to, on, or after the Closing Date). Buyer shall receive a credit for the
amounts actually received before the Closing Date and
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which pertain to any period after the Closing Date. Buyer shall not receive a
credit at the closing for any rents for the month in which the closing occurs
which are in arrears and have not then been received. As to any tenants who are
delinquent in the payment of rent on the Closing Date, Buyer shall use
reasonable efforts (but shall not be required to commence legal action or
terminate or evict a tenant) to collect or cause to be collected such delinquent
rents following the Closing Date. Any and all rents so collected by Buyer
following the closing (less a deduction for all reasonable collection costs and
expenses incurred by Buyer) shall be successively applied (after deduction for
Buyer's reasonable collection costs) to the payment of (x) rent due and payable
in the month in which the closing occurs, (y) rent due and payable in the months
succeeding the month in which the closing occurs (through and including the
month in which payment is made) and (z) rent due and payable in the months
preceding the month in which the closing occurs. If all or part of any rents or
other charges received by Buyer following the closing are allocable to
Transferors pursuant to the foregoing sentence, then such sums shall be promptly
paid to Transferors. Transferors reserve the right to pursue any damages remedy
Transferors may have against any tenant with respect to such delinquent rents,
but shall have no right to exercise any other remedy under the Lease (including,
without limitation, termination or eviction).
(iv) Additional Rents. Any percentage rent,
escalation charges for real estate taxes, parking charges, operating and
maintenance expenses, escalation rents or charges, electricity charges, cost of
living increases or any other charges of a similar nature other than fixed or
base rent under the Leases (collectively, the "Additional Rents") shall be
prorated as of the Closing Date between Buyer and Transferors on or before the
date which is ninety (90) days following the end of the calendar year in which
the closing occurs based on the actual number of days of the year and month
which shall have elapsed as of the Closing Date. Prior to the end of the
calendar year in which the closing occurs, Transferors shall provide Buyer with
information regarding Additional Rents which were received by Transferors prior
to closing and the amount of reimbursable expenses paid by Transferors prior to
closing. On or before the date which is sixty (60) days following the end of the
calendar year in which the closing occurs, Buyer shall deliver to Transferors a
reconciliation of all expenses reimbursable by tenants under the Leases, and the
amount of Additional Rents received by Transferors and Buyer relating thereto
(the "Reconciliation"). Upon reasonable notice and during normal business hours,
each party shall make available to the other all information reasonably required
to confirm the Reconciliation. In the event of any overpayment of Additional
Rents by the tenants to Transferors, Transferors shall promptly, but in no event
later than fifteen (15) days after receipt of the Reconciliation, pay to Buyer
the amount of such overpayment and Buyer, as the landlord under the particular
Leases, shall pay or credit to each applicable tenant the amount of such
overpayment. In the event of an underpayment of Additional Rents by the tenants
to Transferors, Buyer shall pay to Transferors the amount of such underpayment
within fifteen (15) days following Buyer's receipt of any such amounts from the
tenants.
(d) Adjustments to Prorations. Subject to Section 6.3(a)
and 6.3(c)(iv) above, after the closing, the parties shall from time to time, as
soon as is practicable after accurate information becomes available and in any
event within 180 days following the Closing Date, recalculate and reapportion
any of the items subject to proration or apportionment (i) which were not
prorated and apportioned at the closing because of the unavailability of the
information necessary to compute such proration, or (ii) which were prorated or
apportioned at the closing
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based upon estimated or incomplete information, or (iii) for which any errors or
omissions in computing prorations at the closing are discovered subsequent
thereto, and thereafter the proper party shall be reimbursed based on the
results of such recalculation and reapportionment. Unless otherwise specified
herein, all such reimbursements shall be made on or before thirty (30) days
after receipt of notice of the amount due. Any such reimbursements not timely
paid shall bear interest at a per annum rate equal to ten percent (10%) from the
due date until all such unpaid sums together with all interest accrued thereon
is paid if payment is not made within ten (10) days after receipt of a bill
therefor.
(e) Prior Year's Reconciliation. If the closing occurs
before Transferors have performed the annual reconciliation of Additional Rent
for the calendar year immediately preceding the calendar year in which the
closing occurs, then Transferors shall, as soon as practicable after closing,
perform such reconciliation at its sole cost and expense. Upon completion of
such annual reconciliation, Transferors shall immediately deliver to Buyer a
detailed description of any Additional Rent which are payable by or reimbursable
to any present tenant (the "Prior Year Reconciliation"). The Prior Year
Reconciliation shall be accompanied by all applicable back-up documentation,
together with Transferors' check for such Additional Rent which is reimbursable
to a tenant. Based upon Transferors' calculations, Buyer shall send customary
statements for reimbursement of Additional Rent to tenants under the Leases
based on the Prior Year Reconciliation, and shall remit to Transferors within
thirty (30) days of receipt, all sums so collected. If Transferors' calculations
show that Additional Rent has been overpaid by any present tenant and
Transferors have submitted its check to Buyer for such amounts, Buyer shall
refund such Additional Rent to such tenant.
(f) Survival. The provisions of this Section 6.3 shall
survive the closing.
SECTION 6.4 Other Closing Costs.
(a) The premium payable in connection with the issuance of
the Title Policies, governmental documentary transfer or transaction taxes or
fees due on the transfer of the Properties, recording costs, and, except as
otherwise provided below, other closing costs shall be paid by Transferors and
Buyer according to custom in the county in which the applicable Property is
located as set forth on Exhibit D attached hereto.
(b) Transferors shall pay 50% of any escrow or other costs
charged by or reimbursable to the Title Company; provided, however that
additional costs to create multiple escrows to accommodate 1031 Exchanges shall
be borne by the party requesting such multiple escrows.
(c) Buyer shall pay 50% of any escrow or other costs
charged by or reimbursable to the Title Company; provided, however that
additional costs to create multiple escrows to accommodate 1031 Exchanges shall
be borne by the party requesting such multiple escrows.
SECTION 6.5 Further Documentation. At or following the close of
escrow, Buyer and Transferors shall execute any certificate, memoranda,
assignment or other instruments required by this Agreement, law or local custom
or otherwise reasonably requested by the other party to
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effect the transactions contemplated by this Agreement and shall take such other
actions (but at no material cost or expense) as are reasonably requested by the
other party to effect the transactions contemplated by this Agreement.
SECTION 6.6 Cooperation in Exchange. The parties acknowledge and
agree that Exchangors have elected (with respect to the Exchange Properties) and
Buyer may elect (with respect to the Properties) to assign their interest in
this Agreement to an exchange facilitator by means of one or more escrows for
the purpose of completing an exchange of such Properties or interests in such
Properties in a transaction which will qualify for treatment as a tax deferred
exchange pursuant to the provisions of Section 1031 of the Internal Revenue Code
of 1986 and applicable state revenue and taxation code sections (a "1031
Exchange"). Each party agrees to reasonably cooperate with any party so electing
in implementing any such assignment and 1031 Exchange, provided that such
cooperation shall not entail any material additional expense to the non-electing
party, cause such party to take title to any other property or cause such party
exposure to any liability or loss of rights or benefits contemplated by this
Agreement, and the electing party shall indemnify, defend and hold the
non-electing party harmless from any liability, damage, loss, cost or other
expense including, without limitation, reasonable attorneys' fees and costs,
resulting or arising from the implementation of any such assignment and 1031
Exchange. No such assignment by any party shall relieve such party from any of
its obligations hereunder, nor shall such party's ability to consummate a tax
deferred exchange be a condition to the performance of such party's obligations
under this Agreement.
SECTION 6.7 Environmental Matters.
(a) Buyer and Transferors acknowledge and agree that
Transferors shall transfer and assign to Buyer at the closing (to the extent
assignable), as part of the Intangible Property, Transferors' rights and
interests in and to any indemnifications or covenants from third parties (other
than any rights of Transferors under any of Transferors' environmental insurance
policies, which rights are expressly not assigned to Buyer under this Agreement
except as expressly otherwise set forth below) relating to the environmental
condition of the Properties (reserving solely Transferors' rights to the benefit
of such indemnifications and covenants protecting Transferors with respect to
Transferors' ownership of the Properties), including, without limitation, those
indemnity agreements shown on Exhibit O. Following the closing, Buyer and
Transferors shall cooperate in the pursuit of any and all claims arising under
such instruments, which cooperation shall include, as required, Transferors'
expression and pursuit of claims for the benefit of Buyer -- provided that such
pursuit is at Buyer's sole cost and expense and does not expose Transferors to
additional liability. Notwithstanding the foregoing, with respect to the
Property described on Exhibit U-1 attached hereto, to the extent assignable and
subject to obtaining the consent of the applicable insurer, at closing
Transferors shall assign all of their right, title and interest in the
environmental insurance policy described on Exhibit U-2 and Transferors shall be
named as an additional insured under such policy; provided, that the assignment
of such policy shall not constitute a condition of closing under this Agreement.
(b) With respect to the Property described on Exhibit U-3,
Transferors shall use reasonable efforts to obtain on or before closing (but
without any liability whatsoever if they are unable to do so except as set forth
below), a no further action letter (which letter shall be permitted to contain
customary qualifications and exclusions, such as a right of the lead
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regulatory agency to reopen its investigation based on additional information,
and may be a risk based no further action letter) from the lead regulatory
agency in connection with the known contamination located on such Property as
more particularly described on Exhibit U-3 (an "NFA letter"). If Transferors are
not able to deliver to Buyer an NFA Letter with respect to any such Property on
or before the closing, then Transferors shall execute and deliver to Buyer at
closing with respect to such Property as to which no NFA Letter has been
obtained, a remediation and access agreement in the form attached as Exhibit U-4
(the "Remediation and Access Agreement").
SECTION 6.8 Environmental Insurance Deductibles. The parties hereto
acknowledge that Buyer intends to obtain environmental insurance ("Environmental
Insurance") for the Properties listed on Exhibit Q attached hereto (the "Insured
Properties"). If a loss occurs under the Environmental Insurance and to the
extent such loss is a result of environmental contamination or a release of
Hazardous Materials determined to have been present or to have occurred at an
Insured Property on or before the Closing Date (a "Loss"), then Transferors
shall reimburse to Buyer eighty percent (80%) of any amounts actually incurred
by Buyer with respect to such Loss (as substantiated by written invoices or
other evidence reasonably satisfactory to Transferors) as a result of the
application of the deductible under the Environmental Insurance for such Insured
Property, but in no event shall Transferors' liability exceed eighty thousand
dollars ($80,000) in the aggregate with respect to all Losses at any one Insured
Property. Buyer agrees not to take any affirmative actions which would or could
reasonably be expected to result in a Loss, such as performing a Phase II
environmental assessment, unless required to do so in writing by a lender,
rating agency, new material equity investor, a governmental authority or tenant
(but with respect to any of the foregoing persons, only after Buyer has used
commercially reasonable efforts to find a suitable alternative to taking any
such affirmative actions, such as naming such party as an additional insured
under Buyer's environmental insurance policy or providing such party with an
environmental indemnity) or based on a reasonable belief that a release of
Hazardous Materials (other than with respect to a matter disclosed in the
environmental reports included in the Disclosure Materials) has occurred
(provided, that the mere existence of a dry cleaner at the Property is not in
and of itself sufficient to constitute such a "reasonable belief"), and in any
event will not do so without providing Transferors at least ten (10) days prior
written notice to review the scope of such action; provided, that the foregoing
prohibition on Buyer taking affirmative actions shall not apply with respect to
a Property from and after the two (2) year anniversary of the Closing Date for
such Property. The obligation of Transferors to reimburse Buyer under this
Section 6.8 shall apply only to Losses for a particular Property as to which
Transferors receive written notice from Buyer on or before the two (2) year
anniversary of the Closing Date for such Property.
SECTION 6.9 Completion Events.
(a) With respect to the Property described on Exhibit R
attached hereto (the "SWP Property"), Transferors shall use commercially
reasonable efforts to obtain title to such Property on or before the closing so
as to allow Transferors to convey such Property to Buyer in a condition as will
enable Buyer to obtain an Owner's Title Policy for such Property (including
endorsements and exceptions) substantially similar to the form of Owner's title
policy obtained by Buyer with respect to the Property acquired by Buyer in this
transaction which is most proximate to the SWP Property. Buyer has informed
Transferors that Buyer intends to ground
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lease the SWP Property and Transferors agree that Buyer can take the lead role
in any negotiations with a potential ground lessee, subject to the reasonable
approval of Transferors as to the terms of any such ground lease; provided, that
if Buyer acquires the SWP Property, then Buyer shall assume all obligations for
any site improvements to be performed by or at the expense of the ground lessor
and Transferors shall receive a credit for any sums expended by Transferors
prior to the closing and at the request of Buyer or pursuant to a ground lease
approved by Buyer with respect to any such site work. If Transferors are unable
to obtain title to the SWP Property on or before the closing, then the SWP
Property shall be treated as a Deferred Property, Transferors shall thereafter
use reasonable efforts (without any obligation to expend any funds) to obtain
title to the SWP Property and the closing for such Property shall be deferred
for a period of up to one (1) year to allow transferors to obtain such title, in
which event (i) the Price payable on the Closing Date applicable to all other
Properties shall be reduced by the Allocated Price of such Property, and (ii) an
amount equal to five percent (5%) of the Allocated Price for such Property shall
be retained by Title Company as a continuing Deposit subject to disposition in
accordance with Section 5.1 above as to such Property (provided that if
Transferors have not obtained a binding commitment from the title holder to
convey such Property to Transferors (or Buyer as Transferors' designee), Buyer
shall not be obligated to post a continuing Deposit until such binding agreement
is obtained and delivered to Buyer). If the closing for such Property occurs,
then at such closing Buyer shall receive a credit against the Allocated Price
for such Property in the amount of $250,000.
(b) General Provisions. All work performed by Transferors
under this Section 6.9 shall be performed in a good and workmanlike manner
substantially in accordance with all applicable laws. Nothing in this Section
6.9 is intended to limit or expand Buyer's approval rights contained in Section
4.2(c) or (d).
SECTION 6.10 Transferors' Covenant of Cooperation. Transferors
hereby agree to reasonably cooperate with Buyer or Buyer's auditors, at no
expense, liability or substantial accounting time to Transferors, prior to and
after the closing (but subject to the provisions of Section 2.4) (i) by
providing financial data pertaining to the Properties to the extent required by
the Securities and Exchange Commission ("SEC") or reasonably required to prepare
filings that Buyer intends to file with the SEC, including (to the extent so
required) the documentation requested on Exhibit T-1 (but without duplication of
any of the documents listed in the Disclosure Material List & Statement or
contained in the Disclosure Materials so long as continued access is provided to
such documents as were not delivered to Buyer) as it relates to the one (1) year
period immediately preceding the closing, and (ii) in delivering to Buyer's
auditors a certificate in the form of Exhibit T-2. Transferors shall provide
such documentation and deliver such certificate in each instance within ten (10)
business days after receipt of Buyer's reasonable request to do so. Without
limiting Transferors' representations and warranties contained in this Agreement
or Transferors' covenants contained in Section 4.2 or in any document executed
and delivered to Buyer by Transferors at closing, Buyer shall indemnify and hold
Transferors harmless from and against any and all claims, liabilities, losses,
damages, causes of action, costs and expenses (including, without limitation,
reasonable attorneys' fees and costs) to the extent relating to or arising out
of Transferors' performance of its obligations under this Section 6.10,
including, without limitation, any claims arising out of the reliance by third
parties, including Buyer's auditors, on information provided by Transferors
under this Section 6.10. The provisions of this Section 6.10 shall survive the
closing
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SECTION 6.11 UCC Financing Statements. If Buyer provides evidence
during the Confirmation Period of any UCC Financing Statements naming a
Transferor or any of its affiliates as debtor and encumbering a Property
(whether in connection with mortgages, deeds of trust or personal property
financings which are not assumed by Buyer), then Transferors shall use
reasonable efforts to cause the release of such UCC Financing Statements as soon
as practicable after the closing.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Damage or Destruction.
(a) Buyer shall be bound to purchase each of the Properties
as required by the terms of this Agreement without regard to the occurrence or
effect of any damage to or destruction of any of the Properties or condemnation
of any Property by right of eminent domain, provided that the occurrence of any
damage or destruction involves repair costs of less than the greater of
$1,000,000 or ten percent (10%) of the Property's Allocated Price, and any
condemnation does not materially affect the use or value of the affected
Property. If Buyer is so bound to purchase a Property notwithstanding the
occurrence of damage, destruction or condemnation, or if Buyer fails to elect to
treat the applicable Property as a Deleted Property pursuant to Section 7.1(b)
below then upon the closing: (i) in the event of damage covered by insurance or
an immaterial condemnation, Buyer shall receive a credit against the Allocated
Price for such Property in the amount (net of collection costs and costs of
repair reasonably incurred by Transferors and not then reimbursed) of any
insurance proceeds or condemnation award collected and retained by Transferors
as a result of any such damage or destruction or condemnation plus (in the case
of damage) the amount of the deductible portion of Transferors' insurance
policy, and Transferors shall assign to Buyer all rights to such net insurance
proceeds or condemnation awards as shall not have been collected prior to the
close of escrow; and (ii) in the event of damage not covered by insurance, Buyer
shall receive a credit (not to exceed the greater of $1,000,000 or ten percent
(10%) of the Property's Allocated Price for each affected Property) in the
amount of the estimated cost to repair the damage.
(b) If, prior to the Closing Date, any Property suffers
damage or destruction that involves repair costs in excess of the greater of
$1,000,000 or ten percent (10%) of the Property's Allocated Price or
condemnation which affects the use or value of the Property in other than a
minor and immaterial manner, then Buyer may elect to treat such Property as a
Deleted Property by giving written notice of such election to Transferors
promptly following Buyer's knowledge of the event and extent of damage,
destruction or condemnation. In the event of the deletion of any Property
pursuant to this Section 7.1(b), the parties shall be bound to consummate the
purchase and sale of the balance of the Properties in accordance with this
Agreement and the Price shall be reduced by an amount equal to the Allocated
Price of the Deleted Property.
SECTION 7.2 Fees & Commissions.
(a) Each party to this Agreement warrants to the other
that, except as otherwise provided in subparagraph (b) below, no person or
entity can properly claim a right to a
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real estate or investment banker's commission, finder's fee, acquisition fee or
other brokerage-type compensation (collectively, "Real Estate Compensation")
based upon the acts of that party with respect to the transaction contemplated
by this Agreement. Each party hereby agrees to indemnify and defend the other
against and to hold the other harmless from any and all loss, cost, liability or
expense (including but not limited to attorneys' fees and returned commissions)
resulting from any claim for Real Estate Compensation by any person or entity
based upon such acts.
(b) The parties hereby acknowledge that Morgan Stanley Dean
Witter has acted as Transferors' investment bankers in connection with this
transaction. Transferors shall be responsible for paying any commission or fees
due to such parties in connection with this transaction.
SECTION 7.3 Successors and Assigns. Buyer may not assign any of
Buyer's rights or duties hereunder without the prior written consent of
Transferors, which may be withheld in Transferors' sole discretion; provided,
however, that Buyer shall have the right to assign all or a portion of its
rights hereunder to an entity which is at least 75% owned, directly or
indirectly, by Buyer, without the prior consent of Transferors, except that any
such assignment to such an affiliate of Buyer shall not relieve Buyer of any of
its obligations under this Agreement.
SECTION 7.4 Notices. Any notice, consent or approval (or request
for consent or approval) required or permitted to be given under this Agreement
shall be in writing and shall be given or requested by (i) hand delivery, (ii)
Federal Express or another reliable overnight courier service, (iii) facsimile
telecopy, or (iv) United States mail, registered or certified mail, postage
prepaid, return receipt required, and addressed as follows:
To Transferors:
c/o AMB Property, L.P.
505 Montgomery Street, Fifth Floor
San Francisco, CA 94111
Attn: W. Blake Baird
Fax No.: (415) 394-9001
and
AMB Property, L.P.
505 Montgomery Street, Fifth Floor
San Francisco, CA 94111
Attn: General Counsel
Fax No.: (415) 394-9001
with a copy to:
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304-1018
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<PAGE> 44
Attn: Philip J. Levine
Fax No.: (650) 494-0792
To Buyer:
Burnham Pacific Properties, Inc.
100 Bush Street, Suite 2400
San Francisco, CA 94104
Attn: General Counsel
Fax No.: (650) 352-1711
with a copy to:
David Krotine, Esq.
McDonough, Holland & Allen
5555 Capitol Mall, 9th Flr.
Sacramento, CA 94814
Fax No.: (916) 444-5918
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
Attn: Christopher B. Barker, P.C.
Fax No.: 617-227-8591
Any such notice, consent or approval (or request for consent or approval) shall
be deemed given or requested (i) if given by hand delivery, upon such hand
delivery, (ii) one (1) business day after being deposited with Federal Express
or another reliable overnight courier service, (iii) if sent by facsimile, the
day the facsimile is successfully transmitted, or (iv) if sent by registered or
certified mail, three (3) business days after being deposited in the United
States mail. Any address or name specified above may be changed by notice given
to the addressee by the other party in accordance with this Section 7.4. The
inability to deliver because of a changed address of which no notice was given,
or rejection or other refusal to accept any notice, shall be deemed to be the
receipt of the notice as of the date of such inability to deliver or rejection
or refusal to accept. Any notice to be given by any party hereto may be given by
the counsel for such party.
SECTION 7.5 ARBITRATION OF DISPUTES. CONTROVERSIES OR CLAIMS TO BE
SUBMITTED TO ARBITRATION PURSUANT TO SECTIONS 2.5, 2.6 OR 6.9 ABOVE SHALL BE
RESOLVED BY ARBITRATION CONDUCTED IN ACCORDANCE WITH THE CALIFORNIA CODE OF
CIVIL PROCEDURE SECTION 1280 ET SEQ. AND UNDER THE REAL ESTATE INDUSTRY RULES OF
THE AMERICAN ARBITRATION ASSOCIATION ("AAA RULES"), EXCEPT THAT WITH RESPECT TO
ANY INSTANCE IN WHICH THE ARBITRATION RELATES SOLELY TO A DISPUTE OVER THE
AMOUNT OF A PRICE ADJUSTMENT, ANY SUCH ARBITRATION SHALL BE SO CALLED
"BASEBALL-STYLE" SUCH THAT EACH PARTY SHALL STATE A SINGLE AMOUNT AS ITS
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<PAGE> 45
POSITION ON THE ISSUE BEING ARBITRATED AND A SINGLE ARBITRATOR SHALL BE REQUIRED
TO SELECT ONE OF THE AMOUNTS STATED BY THE PARTIES, AND SHALL HAVE NO RIGHT TO
DECIDE A DIFFERENT AMOUNT OR OTHERWISE TAKE A DIFFERENT POSITION. THE
ARBITRATOR(S) SHALL GIVE EFFECT TO SUBSTANTIVE AND PROCEDURAL LAW OF THE STATE
OF CALIFORNIA INCLUDING, WITHOUT LIMITATION, THE STATUTES OF LIMITATION IN
DETERMINING ANY CLAIM (BUT EXCLUDING PRINCIPLES RELATING TO CONFLICTS OF LAWS).
ANY CONTROVERSY CONCERNING WHETHER AN ISSUE IS ARBITRABLE SHALL BE DETERMINED BY
THE ARBITRATOR(S). ALL DECISIONS BY THE ARBITRATOR(S) SHALL BE IN WRITING AND
COPIES OF THE DECISIONS SHALL BE DELIVERED TO EACH PARTY.
ARBITRATION SHALL TAKE PLACE IN SAN FRANCISCO, CALIFORNIA AT A LOCATION MUTUALLY
ACCEPTABLE TO THE PARTIES OR AS DESIGNATED BY THE ARBITRATOR(S) IF THE PARTIES
CANNOT AGREE ON A LOCATION. THE DECISION BY THE ARBITRATOR(S) SHALL BE ISSUED NO
LATER THAN SIXTY (60) DAYS AFTER THE DATE ON WHICH THE INITIATING PARTY GIVES
WRITTEN NOTICE TO THE OTHER PARTY OF ITS INTENTION TO ARBITRATE, WHICH NOTICE
SHALL COMPLY WITH THE REQUIREMENTS OF THE AAA RULES AND THREE COPIES OF SUCH
NOTICE SHALL BE FILED AT THE REGIONAL OFFICE OF AAA IN SAN FRANCISCO, CALIFORNIA
AS PROVIDED IN THE AAA RULES.
JUDGMENT UPON THE ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR JUDICIAL RELIEF
OR PURSUIT OF A PROVISIONAL OR ANCILLARY REMEDY SHALL NOT CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR
CLAIM TO ARBITRATION IF ANY OTHER PARTY CONTESTS SUCH ACTION FOR JUDICIAL
RELIEF.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE `ARBITRATION OF DISPUTES' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW 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, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
`ARBITRATION OF DISPUTES' PROVISION. 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.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE `ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION.
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<PAGE> 46
_______________________ _____________________________
BUYER'S INITIALS TRANSFEROR'S INITIALS
SECTION 7.6 Entire Agreement. Excepting solely the Confidentiality
Agreements, this Agreement and the attached exhibits, which are by this
reference incorporated herein, and all documents in the nature of such exhibits,
when executed, contain the entire understanding of the parties and supersede any
and all other written or oral understanding.
SECTION 7.7 Time. Time is of the essence of every provision
contained in this Agreement.
SECTION 7.8 Incorporation by Reference. All of the exhibits
attached to this Agreement or referred to herein and all documents in the nature
of such exhibits, when executed, are by this reference incorporated in and made
a part of this Agreement.
SECTION 7.9 Attorneys' Fees. In the event any dispute between Buyer
and any of Transferors should result in litigation or arbitration, including,
without limitation, arbitration pursuant to Section 7.5 above, the prevailing
party shall be reimbursed for all reasonable costs incurred in connection with
such litigation or arbitration, including, without limitation, reasonable
attorneys' fees and costs.
SECTION 7.10 Construction. The parties acknowledge that each party
and its counsel have reviewed and revised this Agreement and that the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement or any amendments or exhibits hereto.
SECTION 7.11 Governing Law. This Agreement shall be construed and
interpreted in accordance with and shall be governed and enforced in all
respects according to the laws of the State of California (without giving effect
to conflicts of laws principles).
SECTION 7.12 Operating Records. Each party agrees to make available
to the other party from time to time, but not more frequently than quarterly,
upon reasonable notice, for a period of two years following the Closing Date,
such party's operating records for the Properties, to the extent such party has
operating records, in order to permit the requesting party to prepare such
historical financial statements for the Properties as such party requires to
satisfy legal or contractual obligations. The party making its operating records
available shall have no obligation to prepare any operating statements or incur
any expense in connection with the provisions of this section.
SECTION 7.13 Confidentiality. Buyer and Transferors each acknowledge
and agree that this Agreement and the terms and conditions set forth are to be
kept confidential unless and until the closing occurs on the Closing Date in
accordance with and subject to the terms of this Section 7.13 and the
Confidentiality Agreements. Without limiting the obligations of Buyer's
constituent partners under the Confidentiality Agreements, each party shall be
entitled to discuss and disclose the transaction with employees, agents,
consultants, lenders, clients and
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<PAGE> 47
representatives of such party -- each of whom shall be directed by the
disclosing party to maintain such information in confidence. Notwithstanding
anything to the contrary contained in this Section 7.13, following the full
execution of this Agreement and Buyer's delivery of the Deposit to Title
Company, the parties shall issue a joint press release with respect to this
transaction, which press release shall be in the form attached hereto as Exhibit
J. The Transferors agree that nothing in this Section shall prevent Buyer from
disclosing any information otherwise deemed confidential under this Section (i)
in connection with Buyer's enforcement of its rights hereunder or (ii) pursuant
to any legal requirement applicable to Buyer, including, without limitation, any
securities laws, any reporting requirement or any accounting or auditing
standard.
SECTION 7.14 Counterparts. This Agreement may be executed in one or
more counterparts. All counterparts so executed shall constitute one contract,
binding on all parties, even though all parties are not signatory to the same
counterpart.
SECTION 7.15 Transferors' Representative. Buyer shall be entitled to
rely upon any notice, approval or decision expressed by any of the Knowledge
Persons acting alone on behalf of all of the Transferors.
SECTION 7.16 No Liability. Notwithstanding anything to the contrary
contained herein, in no event shall Calpers, which is a constituent member of
Buyer, or any of its trustees, directors or employees, have any personal
liability under this Agreement.
SECTION 7.17 Escrow Provisions.
(a) By its signature below, Title Company acknowledges
receipt of the Deposit (whether in the form of cash or a Letter of Credit).
Title Company agrees to hold the Deposit (whether in the form of cash or a
Letter of Credit) in escrow pursuant to the provisions of this Agreement for
application in accordance with the provisions of this Agreement, including the
following terms:
(1) Title Company shall have no duties or
responsibilities other than those expressly set forth in this Agreement. Title
Company shall have no duty to enforce any obligation of any person to make any
payment or delivery or to enforce any obligation of any person to perform any
other act. Title Company shall be under no liability to the other parties hereto
or to anyone else by reason of any failure on the part of any party hereto or
any maker, guarantor, endorser or other signatory of any document or any other
person to perform such person's obligations under any such document. Except for
this Agreement, amendments to this Agreement executed by Transferors and Buyer
and except for joint written instructions given to Title Company by Transferors
and Buyer relating to the Deposit, Title Company shall not be obligated to
recognize any agreement between any or all of the persons referred to herein,
notwithstanding that references thereto may be made herein and whether or not it
has knowledge thereof.
(2) In its capacity as Title Company, Title Company
shall not be responsible for the genuineness or validity of any security,
instrument, document or item deposited with it and shall have no responsibility
other than to faithfully follow the instructions
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<PAGE> 48
contained in this Agreement, and subject to the terms hereof, it is fully
protected in acting in accordance with any written instrument given to it
hereunder by any of the parties hereto and believed by Title Company to have
been signed by the proper person. Title Company may assume that any person
purporting to give any notice hereunder has been duly authorized to do so. Title
Company is acting as a stakeholder only with respect to the Deposit. If there is
any dispute or uncertainty concerning any action to be taken hereunder, Title
Company shall have the right to take no action (other than to make demand for
the principal amount of any portion of the Deposit in the form of a Letter of
Credit as may be required under this Agreement which demand shall be made as so
required by this Agreement notwithstanding any contrary instructions by Buyer
unless approved in writing by Transferors) until it shall have received
instructions in writing approved by Transferors and Buyer or until directed by a
final order of judgment of a court of competent jurisdiction, whereupon Title
Company shall take such action in accordance with such instructions or such
order.
(3) It is understood and agreed that the duties of
Title Company are purely ministerial in nature. Title Company shall not be
liable to the other parties hereto or to anyone else for any action taken or
omitted by it, or any action suffered by it to be taken or omitted, in good
faith and in the exercise of reasonable judgment, except for acts of willful
misconduct or gross negligence. Title Company may rely conclusively and shall be
protected in acting upon any order, notice, demand, certificate, opinion or
advice of counsel (including counsel chosen by Title Company), statement,
instrument, report or other paper or document (not only as to its due execution
and the validity and effectiveness of its provisions, but also as to the truth
and accuracy of any information therein contained) which is reasonably believed
by Title Company to be genuine and signed or presented by the proper person or
persons. Title Company shall not be bound by any notice or demand, or any
waiver, modification, termination or rescission of this Agreement or any of the
terms hereof, unless evidenced by a final judgment or decree of a court of
competent jurisdiction in the State of California or a Federal court in such
State, or a writing delivered to Title Company signed by the proper party or
parties and, if the duties or rights of Title Company are affected, unless it
shall give its prior written consent thereto.
(4) Title Company shall have the right to assume in
the absence of written notice to the contrary from the proper person or persons
that a fact or an event by reason of which an action would or might be taken by
Title Company does not exist or has not occurred, without incurring liability to
the other parties hereto or to anyone else for any action taken or omitted, or
any action suffered by it to be taken or omitted, in good faith and in the
exercise of reasonable judgment, in reliance upon such assumption.
(5) Except in connection with Title Company's willful
misconduct or gross negligence, Title Company shall be indemnified and held
harmless jointly and severally by the other parties hereto from and against any
and all liabilities, expenses and losses suffered by Title Company (as escrow
agent), including reasonable attorneys' fees and expenses, in connection with
any action, suit or other proceeding involving any claim, which arises out of or
relates to this Agreement, the services of Title Company hereunder or the monies
or instruments held by it hereunder. Promptly after the receipt by Title Company
of notice of any demand or claim or the commencement of any action, suit or
proceeding, Title Company shall, if a demand or a claim is made or an action is
commenced against any of the other parties hereto, notify such
45
<PAGE> 49
other parties hereto in writing; but the failure by Title Company to give such
notice shall not relieve any party from any liability which such party may have
to Title Company hereunder.
SECTION 7.18 State Specific Provisions.
(a) In regards to Real Property located in California:
(i) Buyer is hereby apprised of and shall
determine whether any Real Property is located within the coastal zone under the
California Coastal Act.
(ii) Buyer is hereby apprised of and shall
determine whether any Real Property is located within a special studies zone
under the Alquist-Priolo Geologic Hazard Act.
(iii) To the extent required by law, Transferors
and Buyer agree to provide a Real Estate Transfer Disclosure Statement.
(iv) Transferors shall provide Buyer with a form
California 590-RE.
(b) In regards to Real Property located in Colorado:
Special taxing districts may be subject to general obligation indebtedness that
is paid by revenues produced from annual tax levies on the taxable property
within such districts. Property owners in such districts may be placed at risk
for increased mill levies and excessive tax burdens to support the servicing of
such debt where circumstances arise resulting in the inability of such a
district to discharge such indebtedness without such an increase in mill levies.
Buyer should investigate the debt financing requirements of the authorized
general obligation indebtedness of such districts, existing mill levies of such
districts servicing such indebtedness, and the potential for an increase in such
mill levies.
(c) In regards to Real Property located in Illinois: Buyer
and Transferors hereby agree to make all disclosures and do all things necessary
to comply with the Illinois Responsible Property Transfer Act ("Act"). Either a
disclosure document ("IRPTA Disclosure Document") in the form required under the
Act, or an affidavit to the effect that no such IRPTA Disclosure Document is
required under such Act shall be delivered by Transferors to Buyer at closing.
Buyer and Transferors hereby waive the requirement of the delivery of an IRPTA
Disclosure Document not less than thirty (30) days prior to the Closing Date,
both parties acknowledging and agreeing that they are aware of the purpose and
intent of the IRPTA Disclosure Document.
(d) In regards to Real Property located in Minnesota: Buyer
is hereby apprised of and shall determine whether a well is located on any of
the Real Property located in Minnesota. Transferors certify that Transferors do
not know of any wells on the Real Property located in Minnesota. In the event
Buyer locates a well on the Real Property Buyer shall not be entitled to cancel
this Agreement nor shall Buyer be entitled to recover any costs, including,
without limitation, the cost to seal the well and attorneys' fees.
(e) In regards to Real Property located in Texas
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<PAGE> 50
(i) Buyer is hereby apprised of and shall
determine whether any of the Real Property is located seaward of the Gulf
Intercoastal Waterway to its southernmost point and then seaward of the
longitudinal line also known as 97/,12', 19" which runs southerly to the
international boundary from the intersection of the center line of the Gulf
Intercoastal Waterway and the Brownsville Ship Channel, and if any of the Real
Property is in close proximity to a beach fronting the Gulf of Mexico, Buyer is
hereby advised that the public has acquired a right of use or easement to or
over the area of any public beach by prescription, dedication, or presumption,
or has retained a right by virtue of continuous right in the public since time
immemorial, as recognized in law and custom.
The extreme seaward boundary of natural vegetation that
spreads continuously inland customarily marks the landward boundary of the
public easement. If there is no clearly marked natural vegetation line, the
landward boundary of the easement is as provided by Sections 61.016 and 61.017,
Natural Resources Code.
State law prohibits any obstruction, barrier, restraint, or
interference with the use of the public easement, including the placement of
structure seaward of the landward boundary of the easement. STRUCTURES ERECTED
SEAWARD OF THE VEGETATION LINE (OR OTHER APPLICABLE EASEMENT BOUNDARY) OR THAT
BECOME SEAWARD OF THE VEGETATION LINE AS A RESULT OF NATURAL PROCESSES ARE
SUBJECT TO A LAWSUIT BY THE STATE OF TEXAS TO REMOVE THE STRUCTURE.
Buyer is hereby notified that Buyer should seek the advice of an attorney or
other qualified person before executing this Agreement or instrument of
conveyance as to the relevance of these statutes and facts to the value of any
of the Real Property Buyer is hereby purchasing or contracting to purchase.
(ii) Buyer is hereby apprised of and shall
determine whether any of the Real Property is located within a Water District.
If any of the Real Property is located within a Water District, Buyer is
notified as follows [to the extent required, missing information to be
completed, if applicable, by Transferors on or before the closing.]:
"The real property, described below, that you are about to purchase is
located in the _________District. The district has taxing authority
separate from any other taxing authority and may, subject to voter
approval, issue an unlimited amount of bonds and levy an unlimited rate
of tax in payment of such bonds. As of this date, the rate of taxes
levied by the district on real property located in the district is
$________________on each $100 of assessed valuation. If the district
has not yet levied taxes, the most recent projected rate of debt
service tax, as of this date, is $__________on each $100 of assessed
valuation. The total amount of bonds approved by the voters and which
have been or may, at this date, be issued is $_________, and the
aggregate initial principal amounts of all bonds issued for one or more
of the specified facilities of the district and payable in whole or in
part from property taxes is
$_____________.
The district has the authority to adopt and impose a standby fee on
property in the district that has water, sanitary sewer, or drainage
facilities and services available
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<PAGE> 51
but not connected and which does not have a house, building, or other
improvement located thereon and does not substantially utilize the
utility capacity available to the property. The district may exercise
the authority without holding an election on the matter. As of this
date, the most recent amount of the standby fee is $____________. An
unpaid standby fee is a personal obligation of the person that owned
the property at the time of imposition and is secured by a lien on the
property. Any person may request a certificate from the district
stating the amount, if any, of unpaid standby fees on a tract of
property in the district.
The purpose of this district is to provide water, sewer, drainage, or
flood control facilities and services within the district through the
issuance of bonds payable in whole or in part from property taxes. The
cost of these facilities is not included in the purchase price of your
property, and these utility facilities are owned or to be owned by the
district. The legal description of the property you are acquiring is as
follows:
_______________________________________________________________________
_______________________________________________________________________
BUYER IS ADVISED THAT THE INFORMATION SHOWN ON THIS FORM IS SUBJECT TO
CHANGE BY THE DISTRICT AT ANY TIME. THE DISTRICT ROUTINELY ESTABLISHES
TAX RATES DURING THE MONTHS OF SEPTEMBER THROUGH DECEMBER OF EACH YEAR,
EFFECTIVE FOR THE YEAR IN WHICH THE TAX RATES ARE APPROVED BY THE
DISTRICT. BUYER IS ADVISED TO CONTACT THE DISTRICT TO DETERMINE THE
STATUS OF ANY CURRENT OR PROPOSED CHANGES TO THE INFORMATION SHOWN ON
THIS FORM.
The undersigned Buyer hereby acknowledges receipt of the foregoing
notice at or prior to execution of a binding contract for the purchase
of the real property described in such notice or at closing of purchase
of the real property."
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IN WITNESS WHEREOF, Transferors and Buyer have executed this Agreement as of the
day and year first written above.
Buyer:
BPP RETAIL, LLC,
a Delaware limited liability company
By: Burnham Pacific Operating Partnership, L.P.
a Delaware limited partnership
Its Managing Member
By: Burnham Pacific Properties, Inc.
Its general partner
By: ____________________________
Name: __________________________
Title: _________________________
By: ____________________________
Name: __________________________
Title: _________________________
Transferors:
AMB Property, L.P.
a Delaware limited partnership
By: AMB Property Corporation
Its general partner
By:________________________________
Its:_______________________________
AMB Property II, L.P.
a Delaware limited partnership
By: AMB Property Holding Corporation
Its general partner
By:________________________________
Its________________________________
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<PAGE> 53
The undersigned party is joining this Agreement solely for the purpose of
acknowledging and agreeing to the provisions of Article V and Section 7.17
hereof and any other provisions of this Agreement expressly applicable to Title
Company.
CHICAGO TITLE COMPANY
By: ____________________________
Name: __________________________
Title: _________________________
50
<PAGE> 1
Exhibit 10.3
AGREEMENT FOR PURCHASE AND SALE
March 9, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 BASIC DEFINITIONS............................................. 1
ARTICLE 2 PURCHASE AND EXCHANGE......................................... 4
ARTICLE 3 CONDITIONS PRECEDENT.......................................... 12
ARTICLE 4 COVENANTS, WARRANTIES AND REPRESENTATIVES..................... 14
ARTICLE 5 DEPOSIT; DEFAULT.............................................. 23
ARTICLE 6 CLOSING....................................................... 29
ARTICLE 7 MISCELLANEOUS................................................. 39
</TABLE>
<PAGE> 3
List of Exhibits
* Exhibit A-1 -- Transferors & Properties (Sale Properties)
* Exhibit A-2 -- Transferors & Properties (Exchange Properties)
* Exhibit B -- Confirmation Letter
* Exhibit C -- Disclosure Materials List & Statement
* Exhibit D -- Title Allocations
* Exhibit E -- Rent Rolls
* Exhibit F -- Intentionally Omitted
* Exhibit G -- Title Exceptions
* Exhibit G-1 -- Excluded Exceptions
* Exhibit G-2 -- Title Documents to be Obtained
* Exhibit H-1 -- Allocated Price (Sale Properties)
* Exhibit H-2 -- Allocated Price (Exchange Properties)
* Exhibit I -- Transfer Documents
* Exhibit J -- Press Release
* Exhibit K -- Title Affidavit
* Exhibit L -- Excluded Claims
* Exhibit M -- [Intentionally Omitted]
* Exhibit N -- Investigation Matters
* Exhibit N-1 -- Credit Calculation Example
* Exhibit O -- Indemnity Agreements
* Exhibit P -- Year 2000 Action
* Exhibit Q -- Insured Properties
* Exhibit R -- Southwest Pavillion Property
* Exhibit S -- Vacant Space
* Exhibit T-1 -- Audit Documents
* Exhibit T-2 -- Audit Certificate
* Exhibit U-1 -- Assigned Insurance Property
* Exhibit U-2 -- Assigned Insurance
* Exhibit U-3 -- No Further Action Properties
* Exhibit U-4 -- Access and Remediation Agreement
* Exhibit V -- Agreements
* Exhibit W -- Litigation
<PAGE> 4
AGREEMENT FOR PURCHASE AND EXCHANGE
THIS AGREEMENT FOR PURCHASE AND EXCHANGE is made and entered into as of
March 9, 1999, by and among AMB PROPERTY, L.P., a Delaware limited partnership
("AMBLP"), AMB PROPERTY II, L.P., a Delaware limited partnership ("AMB II" and
AMBLP are, collectively, as to the properties described on Exhibit A-2, the
"Exchangors," and as to the properties described on Exhibit A-1, the "Sellers"
and, together, the "Transferors"), and BPP RETAIL, LLC, a Delaware limited
liability company ("Buyer"). Transferors and their respective interests in the
Properties (as defined below) are identified more precisely on Exhibit A to this
Agreement.
RECITALS
A. The Sellers, either directly or indirectly (with certain Third
Parties (as herein defined)), hold ownership of a portfolio of properties listed
on Exhibit A-1 to this Agreement and defined below with greater specificity as
the "Sale Properties."
B. The Exchangors, either directly or indirectly (with certain Third
Parties (as herein defined)), hold ownership of a portfolio of properties listed
on Exhibit A-2 to this Agreement and defined below with greater specificity as
the "Exchange Properties."
C. Buyer desires to acquire and each of Exchangors desires to transfer,
subject to the terms and conditions contained in this Agreement, the entirety of
its right, title and interest in the Exchange Properties.
D. Buyer desires to acquire and each of Sellers desires to sell,
subject to the terms and conditions contained in this Agreement, the entirety of
its right, title and interest in the Sale Properties.
AGREEMENT
NOW, THEREFORE, Buyer and Transferors do hereby agree as follows:
ARTICLE 1
BASIC DEFINITIONS
"Additional Exceptions" shall have the meaning set forth in Section
2.6(a).
"Additional Title Exception Notice" shall have the meaning set forth in
Section 2.6(b).
"Allocated Price" shall refer, as to each Sale Property, to the portion
of the Sale Purchase Price allocated to such Sale Property as set forth on
Exhibit H-1 to this Agreement, and as to each Exchange Property, to the portion
of the Exchange Price allocated to such Exchange Property as set forth on
Exhibit H-2 to this Agreement.
"Closing Date" shall mean December 1, 1999 (as such date may be
deferred with respect to a particular Property pursuant to the terms of this
Agreement); provided, that Transferors shall
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have the right to extend the Closing Date for up to twenty (20) days, upon not
less than ten (10) business days notice prior to the original Closing Date.
"Confirmation Letter" shall mean the letter in the form attached as
Exhibit B to this Agreement to be delivered by Buyer to Transferors on or prior
to the close of the prescribed Confirmation Period pursuant to Section 3.2
below.
"Confirmation Period" shall mean the period commencing on the date of
this Agreement, and ending at 5:00 p.m., California time on April 8, 1999,
provided that the Confirmation Period may end earlier at Buyer's election upon
delivery by Buyer to Transferors of the Confirmation Letter (representing the
conclusive waiver by Buyer of any further Confirmation Period).
"Contract Period" shall mean the period from the date of this Agreement
through and including the Closing Date (as the same may be extended pursuant to
this Agreement).
"Contracts" shall mean all maintenance, service and other operating
contracts, equipment leases and other arrangements or agreements to which any
Transferors is a party affecting the ownership, repair, maintenance, management,
leasing or operation of the Properties.
"Deferred Property" shall have the meaning set forth in Section 2.5(d)
below.
"Deleted Property" shall have the meaning set forth in Section 2.5(d)
below.
"Disclosure Materials" shall mean those materials described in Section
A of the Disclosure Materials List & Statement to which Buyer has been afforded
access and review rights prior to the date of this Agreement.
"Disclosure Materials List & Statement" shall mean the statement set
forth as Exhibit C to this Agreement.
"Exchange Price" shall have the meaning set forth in Section 2.2(b)
below.
"Exchange Property" shall mean, with respect to each of the Properties
described on Exhibit A-2, the Real Property, the Personal Property and the
Intangible Property. Collectively, such Properties shall be referred to as the
"Exchange Properties."
"Financial Statements" shall mean the historical income and expense
statements for the Properties for calendar years 1997 and 1998 (or such shorter
period as Transferors may have owned an applicable Property), which have been
provided to Buyer.
"Hazardous Materials" shall mean any substances, materials, wastes,
pollutants or contaminants defined or listed in or subject to reporting,
investigation, permitting, remediation, licensing or other regulatory
requirements under any environmental laws or regulations, including, without
limitation, any inflammable explosives, radioactive materials, asbestos,
polychlorinated biphenyls, trichloroethylene, tetrachloroethylene,
perchloroethylene and other chlorinated solvents, petroleum products and
by-products and other substances with toxic or hazardous characteristics.
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"Improvements" shall mean, as to each of the properties listed on
Exhibit A, the right, title and interest of the Transferors in ownership of such
property in any and all structures, buildings, facilities, parking areas or
other improvements situated on such property's Land and all related fixtures,
improvements, building systems and equipment (including, without limitation,
HVAC, security and life safety systems).
"Intangible Property" shall mean, as to each Real Property, the right,
title and interest of the Transferors in ownership of such Real Property in: (a)
any and all permits, entitlements, filings, building plans, specifications and
working drawings, certificates of occupancy, operating permits, sign permits,
development rights and approvals, certificates, licenses, warranties and
guarantees, engineering, soils, pest control, survey, environmental, appraisal,
market and other reports relating to such Real Property and associated Personal
Property; (b) all trade names, service marks, tenant lists, advertising
materials and telephone exchange numbers identified with such Real Property; (c)
the Contracts and the Leases; (d) except as set forth on Exhibit L attached
hereto (the "Excluded Claims"), claims, awards, actions, remedial rights and
judgments, and escrow accounts relating to environmental remediation, to the
extent relating to such Real Property and associated Personal Property; (e) all
books, records, files and correspondence relating to such Real Property and
associated Personal Property; (f) to the extent assignable, the agreements
listed on Exhibit V attached hereto, including all purchase options, rights of
first refusal or first opportunity to purchase and similar rights contained
therein; and (g) all other transferable intangible property, miscellaneous
rights, benefits or privileges of any kind or character with respect to such
Real Property and associated Personal Property, including, without limitation,
under any REAs, provided that the Intangible Property shall not include any
Transferor's name or any right to the reference "AMB".
"Investigation Matters" shall have the meaning set forth in Section
2.4(a) below.
"Joint Venture" shall have the meaning set forth in Section 2.7 below.
"Land" shall mean, as to each of the properties listed on Exhibit A,
the land component of the property as described with precision in the Title
Policies.
"Leases" shall mean, as to each Real Property, all leases, concession
agreements, rental agreements or other agreements (including all amendments or
modifications thereto) which entitle any person to the occupancy or use of any
portion of the Real Property.
"Material Adverse Matters Amount" shall refer, as to any Property, to
the amount, if any, as to which Buyer claims a credit against the Price with
respect to an Investigation Matter pursuant to Section 2.5 and Exhibit N
attached hereto.
"Permitted Exceptions" shall mean the various matters affecting title
to the Properties that are approved or deemed approved by Buyer pursuant to
Section 2.6 below.
"Personal Property" shall mean, as to each Real Property, all
furniture, furnishings, trade fixtures and other tangible personal property
directly or indirectly owned by the Transferors in ownership of such Real
Property that is located at and used exclusively in connection with the
operation of any Real Property.
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"Price" shall mean the Sale Purchase Price and the Exchange Price,
collectively.
"Property" shall mean, with respect to each of the properties described
on Exhibit A, the Real Property, the Personal Property and the Intangible
Property. Collectively, such properties shall be referred to as the
"Properties."
"Real Property" shall mean, as to each property listed on Exhibit A,
the Land, the Improvements and all of Transferor's right, title and interest in
and to the rights, privileges, easements, and appurtenances to the Land or the
Improvements, including, without limitation, any air, development, water,
hydrocarbon or mineral rights held by any Transferors, all licenses, easements,
rights-of-way, claims, rights or benefits, covenants, conditions and servitude
and other appurtenances used or connected with the beneficial use or enjoyment
of the Land or the Improvements and all rights or interests relating to any
roads, alleys or parking areas adjacent to or servicing the Land or the
Improvements.
"REAs" shall have the meaning set forth in Section 4.1(b)(viii) below.
"Rent Rolls" shall refer to the information schedules attached as
Exhibit E to this Agreement pertaining to the Leases.
"Sale Property" shall mean, with respect to each of the Properties
described on Exhibit A-1, the Real Property, the Personal Property and the
Intangible Property. Collectively, such Properties shall be referred to as the
"Sale Properties."
"Sale Purchase Price" shall have the meaning set forth in Section
2.2(a) below.
"Surveys" shall refer to Transferors' existing surveys with respect to
the Properties which have been delivered by Transferors to Buyer.
"Third Party" or "Third Parties" shall have the meaning set forth in
Section 2.7 below.
"Title Company" shall mean Chicago Title Company; Attn: Pat Davisson
(Telephone: (415) 788-0871).
"Title Policies" shall refer to Transferors' existing title insurance
policies with respect to the Properties, complete copies of which have been made
available by Transferors to Buyer.
"1031 Exchange" shall have the meaning set forth in Section 6.6 below.
ARTICLE 2
PURCHASE AND EXCHANGE
SECTION 2.1 Purchase and Transfer. Exchangors agree to transfer the
Exchange Properties to Buyer by means of one or more 1031 Exchanges, and Buyer
agrees to acquire the Exchange Properties upon all of the terms, covenants and
conditions set forth in this Agreement. In furtherance of exchange, Buyer agrees
to cooperate in such 1031 Exchanges pursuant to and as provided in Section 6.6
below. Sellers agree to sell the Sale Properties to Buyer and Buyer
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agrees to purchase or cause to be purchased the Sale Properties upon all of the
terms, covenants and conditions set forth in this Agreement.
SECTION 2.2 Price.
(a) The aggregate purchase price for the Sale Properties (the
"Sale Purchase Price") shall be the sum of Twelve Million Seven Hundred Fourteen
Thousand Dollars (U.S. $12,714,000), subject to adjustment in accordance with
Sections 2.3 [Adjustments], 6.3 [Prorations] and 6.9 [Completion Events] below.
The entire amount of the Sale Purchase Price so adjusted shall be payable by
Buyer to Sellers in cash on the Closing Date through the escrow described in
Section 6.1 below.
(b) The aggregate price for the Exchange Properties (the
"Exchange Price") shall be the sum of One Hundred Twelve Million One Hundred
Nineteen Thousand Dollars (U.S. $112,119,000), subject to adjustment in
accordance with Sections 2.3 [Adjustments], 6.3 [Prorations] and 6.9 [Completion
Events] below. The entire amount of the Exchange Price so adjusted shall be
payable by Buyer to one or more exchange facilitators selected by Exchangors in
their sole discretion, in furtherance of one or more 1031 Exchanges, through
payment in cash of the entire balance of the Exchange Price on the Closing Date
through one or more escrows described in Section 6.1 below.
SECTION 2.3 Adjustments. In addition to the prorations and credits
contemplated by Section 6.3 below, (a) the Price shall be decreased by the
aggregate amount of the Allocated Prices of any Deleted Properties, (b) the
portion of the Price payable on the Closing Date shall be reduced by the
Allocated Price of any Deferred Properties, and (c) the Price shall be decreased
by the aggregate amount of any adjustments effected pursuant to Sections 2.5 and
2.6 below.
SECTION 2.4 Buyer's Review and Transferors' Disclaimer.
(a) Buyer acknowledges that Transferors have afforded Buyer
and its agents and representatives an opportunity to review all of the
Disclosure Materials prior to the date of this Agreement and, subject to the
express terms of this Agreement, that Buyer has completed such review to its
satisfaction. Buyer has assumed fully the risk that Buyer has failed completely
and adequately to review and consider any or all of such materials. But for
Buyers' expression of satisfaction with the content of the Disclosure Materials,
Buyer would not have entered into this Agreement; but for Buyer's expression of
such satisfaction and assumption of any risk as to the character of its review
and consideration of the Disclosure Materials, Transferors would not have
entered into this Agreement. Nevertheless, during the Confirmation Period, Buyer
shall be permitted to make a further review of information relating solely to
the matters described on Exhibit N attached hereto (the "Investigation Matters")
to determine whether any Material Adverse Matters Amounts exist with respect to
the Properties and the extent of any such Material Adverse Matters Amount.
Following the Confirmation Period, Buyer shall have no further right of
inspection and review with respect to the Properties except solely for the
purpose of assisting Buyer in its management transition as provided in Sections
4.2(m) and (o) and Section 6.10. The rights and obligations of the parties
arising out of Buyer's determination and assertion prior to the close of the
Confirmation Period that such Material Adverse Matters Amounts do exist shall
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be limited and solely governed by the provisions of Section 2.5 below and
Exhibit N attached hereto.
(b) Buyer's exercise of the rights of review and confirmation
set forth in subsection (a) shall be subject to the following limitations: (i)
any entry onto any Property by Buyer, its agents or representatives, shall be
during normal business hours, following not less than 24 hours' prior notice to
Transferors and, at Transferors' discretion, accompanied by a representative of
Transferors; (ii) Buyer shall not conduct any drilling, test borings or other
disturbance of any Property for review of soils, compaction, environmental,
structural or other conditions without Transferors' prior written consent (which
may be withheld in Transferor's sole and absolute discretion); (iii) any
discussions or interviews with any third party, any partner of any Transferors,
any tenants of a Property or their respective personnel, at Transferors'
election, shall be conducted in the presence of Transferors or their
representatives; (iv) any discussions or interviews with employees at any
Property shall be limited to designated senior employees and, at Transferors'
election, shall be conducted in the presence of Transferors or their
representatives; (v) Buyer shall exercise reasonable diligence not to disturb
the use or occupancy or the conduct of business at any Property; (vi) prior to
any entry upon the Property by Buyer or any of its agents, representatives or
consultants for the purpose of conducting any inspections, investigations or
tests, Buyer shall deliver to Transferors a certificate of insurance evidencing
that Buyer carries a liability insurance policy in an amount not less than
$5,000,000, which liability insurance policy names each Transferors as an
additional insured; and (vii) Buyer shall indemnify, defend and hold Transferors
harmless from all loss, cost, and expense relating to personal injury or
property damage resulting from any entry or inspections performed by Buyer, its
agents or representatives. Subject to the provisions of this Agreement,
Transferors shall at all times use all reasonable efforts (but at no material
cost to Transferors) to provide Buyer with access or information that Buyer may
reasonably request concerning the Properties, but Transferors shall bear no
liability if Transferors are not able to afford Buyer such access or information
despite such reasonable efforts.
(c) Buyer acknowledges (i) that Buyer has entered into this
Agreement with the intention of making and relying upon its own investigation of
the physical, environmental, economic and legal condition of the Properties,
(ii) that, other than those specifically set forth in Article IV below or in any
document to be delivered pursuant to Section 6.1 below, Transferors are not
making and have not at any time made any warranty or representation of any kind,
expressed or implied, with respect to the Properties, including, without
limitation, warranties or representations as to habitability, merchantability,
fitness for a particular purpose, title (other than Transferors' limited
warranty of title set forth in the Deeds), zoning, tax consequences, latent or
patent physical or environmental condition, utilities, operating history or
projections, valuation, projections, compliance with law or the truth, accuracy
or completeness of the Disclosure Materials, (iii) that other than those
specifically set forth in Article IV below or in any document to be delivered
pursuant to Section 6.1 below, Buyer is not relying upon and is not entitled to
rely upon any representations and warranties made by Transferors or anyone
acting or claiming to act on any of Transferors' behalf, (iv) that the
Disclosure Materials include soils, environmental and physical reports prepared
for Transferors by third parties as to which Buyer has no right of reliance,
Buyer has conducted an independent evaluation and Transferors have made no
representation whatsoever as to accuracy, completeness or adequacy (provided,
however, that nothing herein shall be deemed to limit Buyer's right to seek to
obtain from the
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third parties which prepared such reports the right to rely on
such reports at no cost to Transferors), and (v) that the Disclosure Materials
include economic projections which reflect assumptions as to future market
status and future Property income and expense with respect to the Properties
which are inherently uncertain and as to which Transferors have not made any
guaranty or representation whatsoever. Buyer further acknowledges that it has
not received from Transferors any accounting, tax, legal, architectural,
engineering, property management or other advice with respect to this
transaction and is relying solely upon the advice of its own accounting, tax,
legal, architectural, engineering, property management and other advisors.
Except as provided in the representations and warranties of Transferors set
forth in Article IV below and except as otherwise expressly set forth in this
Agreement or in any document to be delivered pursuant to Section 6.1 below,
based upon the order of Buyer's familiarity with and due diligence relating to
the Properties and pertinent knowledge as to the markets in which the Properties
are situated and in direct consideration of Transferors' decision to sell or
exchange the Properties to Buyer for the Price and not to pursue available
disposition alternatives, Buyer shall purchase the Properties in an "as is,
where is and with all faults" condition on the Closing Date and assumes fully
the risk that adverse latent or patent physical, environmental, economic or
legal conditions may not have been revealed by its investigations. Transferors
and Buyer acknowledge that the compensation to be paid to Transferors for the
Properties has taken into account that the Property is being sold or exchanged
subject to the provisions of this Section 2.4. Transferors and Buyer agree that
the provisions of this Section 2.4 shall survive closing.
(d) Consistent with the foregoing and subject solely to the
express covenants and indemnities set forth in this Agreement and the
representations set forth in Section 4.1 or in any document to be delivered
pursuant to Section 6.1 below (as such covenants, indemnities and
representations are limited pursuant to Section 4.4 hereof), effective as of the
Closing Date, Buyer, for itself and its agents, affiliates, successors and
assigns, hereby releases and forever discharges Transferors, their respective
members, beneficial owners, agents, affiliates, successors and assigns
(collectively, the "Releasees") from any and all rights, claims and demands at
law or in equity, whether known or unknown at the time of this agreement, which
Buyer has or may have in the future, arising out of the physical, environmental,
economic or legal condition of the Properties, including, without limitation,
all claims in tort or contract and any claim for indemnification or contribution
arising under the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601, et. seq.) or any similar federal, state
or local statute, rule or ordinance relating to liability of property owners for
environmental matters. Without limiting the foregoing, Buyer, upon closing,
shall be deemed to have waived, relinquished and released Transferors and all
other Releasees from and against any and all matters arising out of latent or
patent defects or physical conditions, violations of applicable laws and any and
all other acts, omissions, events, circumstances or matters affecting the
Properties, except for breach of the express covenants and indemnities set forth
in this Agreement and the representations and warranties set forth in Section
4.1 or in any document to be delivered pursuant to Section 6.1 (as such
covenants, indemnities and representations are limited pursuant to Section 4.4
hereof). For the foregoing purposes, Buyer hereby specifically waives the
provisions of Section 1542 of the California Civil Code and any similar law of
any other state, territory or jurisdiction. Section 1542 provides:
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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 his
settlement with the debtor.
Buyer hereby specifically acknowledges that Buyer has carefully reviewed this
subsection and discussed its import with legal counsel and that the provisions
of this subsection are a material part of this Agreement.
________________
Buyer
(e) Subject to the express covenants and indemnities set forth
in this Agreement and the representations of Transferors set forth in Section
4.1 or in any document to be delivered pursuant to Section 6.1 (as such
covenants, indemnities and representations are limited pursuant to Section 4.4
hereof), Buyer shall indemnify, defend and hold Transferors harmless from and
against any and all losses, damages, causes of action, costs and expenses
(including without limitation, reasonable attorneys' fees and costs), claims and
liabilities in connection with or relating directly or indirectly to the
Properties to the extent arising out of or resulting from acts or omissions
occurring from and after the Closing Date. Transferors shall indemnify, defend
and hold Buyer harmless from and against any and all losses, damages, causes of
action, costs and expenses (including, without limitation, reasonable attorneys'
fees and costs), claims and liabilities in connection with claims brought by
third parties unaffiliated to Buyer (i) for physical injury to persons or
physical damage to property to the extent such injury or damage occurred on the
Properties and arose out of or resulted from acts or omissions of Transferors
that took place prior to the Closing Date, (ii) with respect to acts or
omissions of Transferors that took place prior to the Closing Date and that are
actually insured under an insurance policy carried by Transferors (and then only
to the extent of the proceeds actually paid under such policy, Transferors
agreeing to use commercially reasonable efforts to realize such insurance
proceeds) and (iii) with respect to each of the matters which are listed on
Exhibit W attached hereto as such list may be amended from time to time during
the Contract Period by Transferors (and provided to Buyer) to reflect new
litigation filed against Transferors during the Contract Period (the foregoing
items (i), (ii) and (iii) being collectively referred to as "Claims"); provided
that Transferors' indemnity contained in this Section 2.4(e) shall not apply to
any Claims relating to or arising out of or in connection with the environmental
condition of the Properties whether or not such Claim may be covered by
Transferors' environmental insurance policies.
SECTION 2.5 Material Adverse Matters Amounts.
(a) On or prior to the close of the Confirmation Period, Buyer
shall deliver to Transferors the Confirmation Letter in the form attached as
Exhibit B to this Agreement confirming Buyer's satisfaction as to the absence of
any Material Adverse Matters Amounts other than as specified in the Confirmation
Letter and waiving any further right or need to conduct further review or
investigation for such purposes. Buyer's failure to deliver to Transferors on or
prior to the close of the Confirmation Period an executed Confirmation Letter in
the form attached as Exhibit B, without modification or qualification in any
manner whatsoever (whether material or immaterial) -- excepting an enumeration
and explanation of
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identified Material Adverse Matters Amounts, shall be deemed conclusively as
Buyer's confirmation of the absence of any Material Adverse Matters Amounts.
(b) If the Confirmation Letter identifies any Material Adverse
Matters Amounts, the Confirmation Letter shall set forth: (i) the identity of
any Properties as to which Buyer has identified any Material Adverse Matters
Amounts, (ii) the nature of the Investigation Matter for each affected Property
which resulted in such Material Adverse Matters Amounts and (iii) reasonably
detailed evidence of the existence of such Material Adverse Matters Amount and
Buyer's rationale for and calculation of the Material Adverse Matters Amounts
set forth.
(c) If the Confirmation Letter does so identify Material
Adverse Matters Amounts, then, for a period ending five (5) business days
following the close of the Confirmation Period, Buyer and Transferors shall
negotiate in good faith (but otherwise as a matter within each party's sole
discretion) to determine whether the parties can reach a mutually acceptable
reduction in the Price. The parties further acknowledge that neither
participation in nor any statements made in the course of such discussions shall
represent or be interpreted as an admission or agreement as to the existence,
character or measure of any Material Adverse Matters Amount.
(d) In any event, if the parties are not able to reach and
execute a written agreement evidencing a mutually satisfactory Price adjustment
within such five (5) business day negotiation period, Transferors shall provide
Buyer with written notice (the "Election Notice") within an additional period of
three (3) business days informing Buyer that Transferors, in Transferors' sole
discretion: (i) dispute the existence or measure of Material Adverse Matters
Amounts as to Properties identified in the Election Notice, (ii) accept Buyer's
calculation of the Material Adverse Matters Amounts, in which case the Price
shall be reduced by the Material Adverse Matters Amount set forth in Buyer's
calculation, or (iii) withdraw Properties identified in the Election Notice from
the sale or exchange to Buyer; provided, however, that Transferors shall not be
permitted to withdraw any Property unless the Material Adverse Matters Amount
claimed by Buyer exceeds $200,000 with respect to such Property and exceeds
$375,000 with respect to all of the Properties (in which event Transferors, in
Transferors' discretion, may withdraw such Properties as to which Material
Adverse Matters Amounts are claimed until the claimed Material Adverse Matters
Amounts for the remaining Properties is less than or equal to $375,000). Any
Property identified as the subject of dispute under clause (i) above shall be
referred to as a "Deferred Property." Any Property withdrawn under clause (iii)
above shall be referred to as a "Deleted Property."
(e) If Transferors have elected to dispute the calculation of
any Material Adverse Matters Amounts under subsection (d)(i) above, such dispute
shall be submitted promptly to arbitration pursuant to Section 7.5 below. Buyer
and Transferors, respectively, shall remain fully obligated to purchase and sell
or exchange, as applicable, both the Deferred Properties and all other
Properties (excepting any Deleted Properties) on the terms and conditions set
forth in this Agreement, provided that (i) the Price payable on the Closing Date
applicable to all other Properties shall be reduced by the Allocated Price of
the Deferred Properties, (ii) the Closing Date with respect to the Deferred
Properties shall be deferred to that date ten (10) business days following the
issuance of a final decision in arbitration, (iii) an amount equal to five
percent (5%) of the Allocated Price for each Deferred Property shall be
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retained by Title Company as a continuing Deposit subject to disposition in
accordance with Section 5.1 below as to such Deferred Property and (iv) the
Allocated Price with respect to each Deferred Property shall be subject to any
reduction determined in arbitration.
(f) Subject to the provisions of Section 2.8, if a Property
is designated as a Deleted Property, Buyer and Transferors, respectively, shall
have no further obligation to purchase or sell or exchange, as applicable, the
Deleted Properties, shall remain obligated to purchase or sell or exchange, as
applicable, all other Properties and the Price payable on the Closing Date
applicable to all other Properties shall be reduced by the Allocated Prices of
the Deleted Properties.
SECTION 2.6 Title Exceptions.
(a) Buyer acknowledges that prior to the date hereof,
Transferors have provided to Buyer access to copies of the Title Policies, as
well as copies of the exception documents referred to in the Title Policies and
copies of the Surveys of the Properties, to the extent such exceptions are in
Transferors' immediate possession. Buyer also acknowledges that Transferors have
requested Title Company to deliver to Buyer updated title reports to the Title
Policies, as well as copies of any exception documents relating to exceptions
that are reflected in such updates that have not otherwise been provided to
Buyer prior to the date hereof; provided that Transferors shall have no
liability hereunder if Buyer is unable to obtain copies of any such documents
and Buyer shall have no rights hereunder with respect thereto. Buyer may
continue to secure during the Confirmation Period any additional title or survey
updates desired by Buyer (and will use reasonable efforts to provide the copies
of such updates to Transferors promptly after receipt of same by Buyer). As used
herein, the term "Additional Exceptions" shall mean (i) any title exceptions or
survey exceptions or qualifications identified by Title Company that are not
within the definition of Permitted Exceptions, (ii) the items listed on Exhibit
G-2 to the extent they materially and adversely affect the use, occupancy or
value of a Property, provided that such items shall not be deemed to materially
and adversely affect the use, occupancy and value of a Property to the extent
Buyer has approved (or is deemed to have approved) exceptions on such Property
or other Properties which are substantially similar in all material respects,
(iii) matters shown on surveys described in the Exhibit G Title Policies (as
defined in Exhibit G) or, if such surveys cannot be located or otherwise
obtained, on new surveys obtained by Buyer, for the Properties identified on
Exhibit G-2 which were not shown on the surveys for such Properties delivered or
made available to Buyer, if applicable, and which materially and adversely
affect the use, occupancy or value of a Property, provided that such items shall
not be deemed to materially and adversely affect the use, occupancy and value of
a Property to the extent Buyer has approved (or is deemed to have approved) such
matters on such Property or other Properties which are substantially similar in
all material respects, and (iv) with respect to any Property as to which the
Title Company will not agree at least ten (10) business days prior to the end of
the Confirmation Period to issue a survey endorsement referring to the same
survey as is referenced in Transferors' most recent Exhibit G Title Policy (for
such Property), any variance established by Buyer from the legal descriptions
insured in Transferors' most recent Exhibit G Title Policies to the surveys
described in such Title Policies (other than variances relating to the Palm Aire
Additional Parcel (as such term is defined in Exhibit A) as previously disclosed
to Buyer or otherwise actually known to Buyer as of the date hereof). Buyer, in
any event, shall endeavor in good faith (but at no out-of-pocket cost to Buyer)
to cause the Title Company to
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delete or insure over any Additional Exceptions to Buyer's reasonable
satisfaction prior to Buyer's expression of such matters in an Additional Title
Exception Notice (as described below). Buyer shall have the right to request
that the Title Company provide at Buyer's sole cost and expense any reinsurance
or endorsements Buyer shall reasonably request with respect to Permitted
Exceptions, Additional Exceptions or otherwise, provided that the issuance of
such reinsurance or endorsements shall not be a condition to or delay the
closing except as otherwise provided in this Agreement.
(b) Buyer shall have the right to deliver a notice to
Transferors identifying any Additional Exceptions (the "Additional Title
Exception Notice") by the earlier of (i) five (5) business days after Scott
Verges becomes aware of the matter constituting an Additional Exception or (ii)
the close of the Confirmation Period. Buyer's failure to deliver any such notice
in timely fashion shall be deemed an approval of any such Additional Exceptions.
Buyer shall have no right to deliver an Additional Title Exception Notice
following the close of the Confirmation Period. If Buyer delivers an Additional
Title Exception Notice within such period, Buyer and Transferors shall promptly
attempt to agree upon the method or cost to cure or remove such Additional
Exception or, if not susceptible to cure or removal, an appropriate reduction in
the Allocated Price for the affected Property. If Transferors and Buyer are
unable to agree upon a resolution within five (5) business days following
Transferors' receipt of an Additional Title Exception Notice, Transferors shall
elect, at its option and by written notice given not later than the date of
Transferors' delivery of an Election Notice under Section 2.5(d) above, (i) to
terminate this Agreement with respect to the affected Property, in which event
such Property shall be treated as a Deleted Property or (ii) to submit the
existence of the Additional Exception, the character of a satisfactory cure or
the measure of appropriate price reduction to arbitration in accordance with the
terms of Section 7.5, in which case the Property shall be treated as a Deferred
Property. Notwithstanding the foregoing, Buyer shall not have the right to
object to any Additional Exception if Title Company is willing to affirmatively
insure or endorse over such Additional Exception at Transferors' expense, and
the Title Company is acting in a commercially reasonable manner in providing
such affirmative insurance or endorsement and Buyer reasonably approves the form
and substance of such affirmative insurance or endorsement.
(c) "Permitted Exceptions" shall include and refer to the
title exceptions set forth in Exhibit G attached hereto. Notwithstanding the
foregoing, Transferors shall remove or cause the Title Company to remove or,
except with respect to Deed of Trust Liens (as herein defined), endorse over by
endorsement reasonably satisfactory to Buyer, at Transferors' sole cost and
expense, on or prior to the Closing Date and there shall not be treated as
Permitted Exceptions: (i) any liens of any mortgages or deeds of trust securing
indebtedness of Transferors or its affiliates (collectively, "Deed of Trust
Liens") and any other liens for monetary obligations (including mechanic's
liens, but excluding (A) mechanic's liens filed by contractors or any other
parties which are working for tenants under Leases or for Transferors where the
obligation to pay such contractors or other parties is directly or indirectly an
obligation of such tenants (but only to the extent (x) such obligation is not
subject to reimbursement or payment by Transferors or its affiliates and (y)
such tenant has neither filed for protection under applicable bankruptcy laws
nor abandoned its premises) or which arise in connection with work as to which
Buyer is to receive a credit at the closing (but only to the extent of such
credit) or has agreed to assume the obligation which is the subject of such
lien, and (B) any other liens which, in the aggregate,
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exceed Thirty-Five Thousand Dollars ($35,000) for a particular Property, which
arise following the date of Buyer's execution and delivery of this Agreement and
which were not created by or acquiesced in by Transferors, any affiliate of
Transferors, or any partner, member, officer, director, employee, agent or
representative of either such party) that are not assumed by Buyer (for such
purposes, all assessments collected with ad valorem real estate taxes and which
are paid in installments and are not delinquent as of the Closing Date shall be
assumed by Buyer (subject to the provisions of Section 6.3) and represent
Permitted Exceptions); provided, however, that with respect to any liens
identified in clause (B) above, (1) Transferors shall have the right, in
Transferors' sole discretion, to (x) remove or cause the Title Company to remove
or endorse over by endorsement reasonably satisfactory to Buyer, such lien at
Transferors' sole cost and expense on or prior to the Closing Date, or (y)
terminate this Agreement with respect to the affected property in which event
such Property shall be treated as a Deleted Property, and (2) such liens shall
not be Permitted Exceptions unless consented to by Buyer; and (ii) any title
matters created in violation of Transferors' covenant set forth in Section
4.2(e) below.
(d) Transferors shall have no obligation to execute any
affidavits or indemnifications in connection with the issuance of Buyer's title
insurance excepting only the affidavit attached hereto as Exhibit K and such
other customary affidavits as to authority, the rights of tenants in occupancy,
the status of mechanics' liens and other affidavits or indemnifications
reasonably necessary to address matters of title which Transferors are obligated
to remove or cure pursuant to this Section 2.6.
SECTION 2.7 Joint Venture Interests. Buyer acknowledges that the
Properties identified on Exhibit M attached hereto are owned by entities (each a
"Joint Venture") in which a Transferor and an unrelated third party (each, a
"Third Party" and collectively, the "Third Parties") own the beneficial
interests. If the consent or waiver of applicable Third Parties is not required
for a Transferor to sell or exchange a Property owned by a Joint Venture, then
Transferors shall cause the Property to be sold or exchanged by such Joint
Venture to Buyer. With respect to each Joint Venture where the consent or waiver
of a Third Party is required, Transferors shall, at Transferors' election made
in Transferors' sole discretion, attempt to either (i) obtain the consent of the
applicable Third Party to cause the Joint Venture to sell or exchange the
applicable Property to Buyer, or (ii) acquire the Third Party's interest in the
Joint Venture prior to or concurrent with the closing hereunder, to the extent
such purchase is permitted under the terms of the applicable Joint Venture's
operative agreement (or consented to by the Third Party) and thereafter cause
the Joint Venture to sell or exchange the applicable Property to Buyer.
Transferors shall not be required to expend any amounts to obtain the consent of
any Third Party pursuant to clause (i), but Transferors shall be required to
expend up to (but not more than) the net amount of the applicable Third Party's
proportionate share of the Allocated Price of the applicable Property based on
such Third Party's interest in the Joint Venture in order to acquire such Third
Party's interest pursuant to clause (ii) above. If Transferors are unable to
obtain a required consent or waiver from a Third Party to a sale of the Property
or acquire the Third Party's interest in such Joint Venture (after agreeing to
expend the amount set forth above), then this Agreement shall be terminated with
respect to the affected Property, in which event such Property shall be treated
as a Deleted Property.
SECTION 2.8 Reinstatement Right. Notwithstanding anything to the
contrary contained in this Agreement, if Transferors elect to treat a Property
as a Deleted Property under
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Sections 2.5, 2.6 or 4.4 of this Agreement, Buyer shall have the right, by
providing Transferors with written notice given within three (3) business days
after receipt of Transferors' notice designating a Property as a Deleted
Property, to cause such Property to no longer be treated as a Deleted Property
and to purchase such Property in accordance with this Agreement, in which event
the specific condition giving rise to Transferors' treatment of such Property as
a Deleted Property shall be deemed waived by Buyer and Buyer shall not receive
any adjustment to the Allocated Price for such Property or have any right to
deliver a Claim Notice as a result of such condition.
ARTICLE 3
CONDITIONS PRECEDENT
SECTION 3.1 Conditions.
(a) Notwithstanding anything in this Agreement to the
contrary, Buyer's obligation to purchase a particular Property shall be subject
to and contingent upon the satisfaction or waiver of the following conditions
precedent with respect to such Property:
(i) The willingness, upon the sole condition of
the payment of any regularly scheduled premium, of the Title Company (or another
title insurance company reasonably satisfactory to Buyer) to issue Owner's
Policies of Title Insurance in the form of the Title Policy issued to the
applicable Transferor with respect to each Property in connection with the
initial public offering of the stock of the Company (as herein defined) ("IPO")
or, if no Title Policy was issued for a Property in connection with the IPO,
then the Title Policy issued upon the acquisition of the Property by the
applicable Transferor (or the party that contributed such Property to the
Transferor at the IPO (a "Contributor") (or such other form(s) as may be
reasonably satisfactory to Buyer)), and with all of the endorsements issued in
any Title Policy issued by the Title Company for a particular Property insuring
Buyer (or Buyer's permitted assignee or nominee) that title to the applicable
Real Property is vested of record in Buyer (or Buyer's permitted assignee or
nominee) on the Closing Date subject only to the printed conditions and
exceptions of such policies (but deleting (by endorsement or otherwise), where
permitted under applicable laws or regulations and at Buyer's expense, any
co-insurance, creditors rights and so-called "standard" exceptions) and the
Permitted Exceptions applicable to such Real Property. Transferors will
cooperate and use reasonable efforts (but at no out-of-pocket cost to
Transferors) to assist Buyer in obtaining all endorsements contained in the
Title Policies (whether issued in connection with the IPO or an acquisition).
Without limiting the foregoing, if the Title Company (and, to the extent
applicable, a different title insurance company if one other than the Title
Company previously issued any such endorsement) refuses to issue such
endorsement to Buyer at closing with respect to a matter insured against under
the Title Policies, upon request of Buyer, Transferors will assert a claim
against such insurer at Buyer's expense and direction with the goal of enabling
Buyer to obtain such endorsement from such title company. Nothing contained in
the second, third, or fourth sentence of this Section 3.1(a)(i) shall be
construed as expanding the provisions of the first sentence of this Section
3.1(a)(i) or Section 2.6 or be considered a condition to Buyer's obligation to
purchase any of the Properties and Transferors shall have no liability
whatsoever if they are unable to cause a title company to issue any such
endorsement;
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(ii) With respect to a particular Property, such
Property has not been designated a Deleted Property pursuant to this Agreement;
and
(iii) Transferors' performance or tender of
performance of all material obligations under this Agreement with respect to the
applicable Property, including Transferors' covenants under Section 4.2 with
respect to such Property.
(b) Notwithstanding anything in this Agreement to the
contrary, Transferors' obligation to sell or exchange a particular Property or
all of the Properties, as the case may be, shall be subject to and contingent
upon the satisfaction or waiver of the following conditions precedent:
(i) With respect to a particular Property, such
Property has not been designated a Deleted Property pursuant to this Agreement;
and
(ii) Buyer's performance or tender of performance
of all material obligations under this Agreement.
SECTION 3.2 Failure or Waiver of Conditions Precedent.
(a) If any of the conditions set forth in Section 3.1(a)(i)
or (iii) is not fulfilled or waived by Buyer with respect to a particular
Property, Buyer may, by written notice to Transferors, terminate this Agreement
with respect to the applicable Property and such Property shall be treated as a
Deleted Property. If the condition set forth in Section 3.1(b)(ii) is not
fulfilled or waived, Transferors may, by written notice to Buyer, terminate this
Agreement, whereupon all rights and obligations hereunder of each party shall be
at an end. Either party may, at its election, at any time or times on or before
the date specified for the satisfaction of the condition, waive in writing the
benefit of any of the conditions set forth in Section 3.1(a) and 3.1(b) above.
In any event, Buyer's consent to the close of escrow with respect to a Property
pursuant to this Agreement shall waive any remaining unfulfilled conditions for
the benefit of Buyer with respect to such Property.
(b) Notwithstanding the foregoing, if Buyer desires to
terminate this Agreement with respect to a Property based upon a failure of the
condition set forth in Section 3.1(a)(i) or (iii) above, Transferors shall have
a period of 30 days within which to cure such failure or, if such failure cannot
reasonably be cured within 30 days, an additional reasonable time period of up
to an additional 60 days (for a total of 90 days), so long as such cure has been
commenced within such 30 days and is at all times diligently pursued. If
Transferors have not cured such failure within such cure period then Buyer may
elect to terminate this Agreement with respect to the affected Property, in
which event such Property shall be treated as a Deleted Property.
ARTICLE 4
COVENANTS, WARRANTIES AND REPRESENTATIVES
SECTION 4.1 Transferors' Warranties and Representations. Each of
Transferors expresses to Buyer the representations and warranties set forth
below as of the date of this
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Agreement, provided that each of such representations and warranties shall be
deemed expressly qualified by any information set forth on the Disclosure
Materials List & Statement or contained in the Disclosure Materials, and any
information set forth on the Disclosure Materials List & Statement or contained
in the Disclosure Materials shall be deemed an exception to each and all of
Transferors' representations and warranties set forth herein.
(a) Each of Transferors represents and warrants with
respect to itself as follows:
(i) The Transferor (and Transferor's general
partners, if Transferor is a limited partnership, and each of its constituent
members, if Transferor is a limited liability company) is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and the Transferor is qualified to do business in each state in
which Real Property owned by such Transferor is located to the extent the
failure to so qualify would have a material and adverse effect on Transferor's
performance of its obligations under this Agreement. The Transferor has full
power and lawful authority to enter into and carry out the terms and provisions
of this Agreement and to execute and deliver all documents which are
contemplated by this Agreement, and all actions of the Transferor necessary to
confer such power and authority upon the persons executing this Agreement (and
all documents which are contemplated by this Agreement) on behalf of the
Transferor have been taken;
(ii) Except with respect to the third party
consents expressly described in or contemplated under this Agreement or
expressly required under any agreements included in Intangible Property,
including the consent of Third Parties, if required, the Transferor's execution
and delivery of this Agreement, the consummation of the transactions
contemplated hereby and the performance of the Transferor's obligations under
the instruments required to be delivered by the Transferor at the closing, do
not and will not require the consent, approval or other authorization of, or
registration, declaration or filing with, (collectively, "Consents") any
governmental authority (excepting the recordation of closing documents
contemplated in this Agreement and any filings required under applicable state
or federal securities or tax laws) or any other person or entity, except such
Consents as will be obtained on or before closing or as to which the failure to
obtain would not have a material and adverse effect on Transferor's performance
of its obligations under this Agreement, and do not and will not result in any
material violation of, or material default under, any term or provision of any
agreement, instrument, mortgage, loan agreement or similar document to which the
Transferor is a party or by which the Transferor is bound. Subject to the
foregoing, all partnership, limited liability company, board of directors and
shareholder approvals required for Transferor to enter into this Agreement and
to consummate the transactions described in this Agreement have been obtained;
(iii) There is no litigation, investigation or
proceeding pending or, to the best of the Transferor's knowledge, contemplated
or threatened against the Transferor which would impair or adversely affect the
Transferor's ability to perform its obligations under this Agreement or any
other instrument or document related hereto; and
(iv) The Transferor is not a "foreign person" as
defined in Internal Revenue Code 1445(f)(3).
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(b) Each of Transferors represents and warrants as follows
with respect to each Property owned by such Transferor:
(i) As of the date of this Agreement, Transferor
has no knowledge that, and has received no written notice from any governmental
authorities that eminent domain proceedings for the condemnation of any Property
or any part of a Property are pending;
(ii) As of the date of this Agreement, Transferor
has no knowledge that, and has received no written notice of any threatened or
pending litigation against Transferor other than routine matters covered by
Transferor's insurance or other matters which would not materially and adversely
affect any Property;
(iii) As of the date of this Agreement, Transferor
has received no written notice from any governmental authority that the
improvements constituting any Property are presently in material violation of
any applicable building codes where such violation has not been cured in all
material respects;
(iv) As of the date of this Agreement, Transferor
has received no written notice from any governmental authority that any Property
is presently in material violation of any applicable zoning, land use or other
law, order, ordinance, rule or regulation affecting the Property which violation
has not been cured, that any investigation has been commenced or is contemplated
with respect to any such possible failure of compliance and Transferor has not
received written notice from any insurance company or Board of Fire Underwriters
any written notice of any defect or inadequacy in connection with a Property or
its operation where such defect or inadequacy has not been cured in all material
respects;
(v) There are no Contracts involving payment in
excess of $25,000 per annum with respect to any Property that will be binding
upon Buyer after the closing, other than such Contracts that are cancelable by
the owner of the Property within 30 days after written notice from such owner
without penalty or premium (other than penalties or premiums that will be paid
by Transferor on or before the closing);
(vi) As of the date of this Agreement, except as
set forth in the environmental reports included within the Disclosure Materials
and any reports or studies prepared by or for Buyer, Transferor has received no
written notice of the presence or release of any Hazardous Materials presently
deposited, stored, or otherwise located on, under, in or about any Property
which require reporting to any governmental authority or are otherwise not in
compliance with environmental laws, regulations and orders;
(vii) The Rent Rolls constituting Exhibit E to this
Agreement completely and accurately identify as to each Lease as of February 15,
1999: the expiration date of the current term of the Lease; the amount of any
security deposit held by Transferor; the current base rental payable under such
Lease and future rent escalations; the amount of additional rent (i.e., cost
recovery) currently billed to the tenant under the Lease; and the approximate
rentable area of the premises. As of February 15, 1999, each Lease identified on
the Rent Roll was, to the best of Transferor's knowledge, in full force and
effect and, to the best of Transferor's knowledge, Transferor was not in
material default thereunder. As of March 1,
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1999, Transferor had not received written notice of any material default by
Transferor under any Leases, which default had not been cured in all material
respects, and Transferor has not delivered any default notice to a tenant under
any Lease and, to Transferor's knowledge and except as set forth in the
delinquency reports provided by Transferors to Buyer, Transferor was not aware
of any other default by a tenant under a Lease as to which default Transferor
would customarily have delivered a notice of default to such tenant but has not
done so, which defaults have not been cured in all material respects. Transferor
has delivered or made available to Buyer copies of all Leases of more than
14,000 square feet or any amendments thereto executed on or before the date of
this Agreement (other than the Leases with Petco and Michaels at Weslayan
Plaza);
(viii) As of the date of this Agreement, Transferor
has received no written notice that Transferor or any other party is in default
under any reciprocal easement agreement or declaration of covenants, conditions,
and restrictions or any other similar instrument or agreement affecting any of
the Properties (collectively, the "REAs"), which default has not been cured in
all Material respects;
(ix) Except with respect to rights of Third
Parties under the Joint Ventures, Transferor has not granted any option or right
of first refusal or first opportunity to acquire any fee or ground leasehold
estate of any portion of the Properties;
(x) As of the date of this Agreement, the
Financial Statements delivered to Buyer by Transferor are true and correct in
all material respects;
(xi) With respect to the matters contained in the
Disclosure Materials List & Statement and the Disclosure Materials, to
Transferor's knowledge, Transferor has not willfully and intentionally omitted
to state any material facts required to be stated therein or willfully and
intentionally made any untrue statement of a material fact, which would render
the Disclosure Materials List & Statement or the Disclosure Materials materially
misleading. Transferor has not willfully and intentionally failed to deliver or
make available to Buyer all of the following documents in Transferor's immediate
possession and has not instructed any third party not to deliver any such
documents to Buyer: (x) reports regarding the environmental condition of the
Properties or (y) reports obtained in connection with the acquisition of a
Property regarding the physical condition and legal compliance of such Property;
and
(xii) Transferor has taken the steps described on
Exhibit P attached hereto in an effort to cause all computer hardware and
software at each Property which is the direct responsibility of Transferor (and
not the responsibility of a tenant, vendor or other third party) and which
controls utility and other physical operating functions including, without
limitation, alarm and other security systems, irrigation systems, lighting
systems, health safety systems and similar functions (the "Owner's Computer
Systems"), to at all times hereafter provide the following functions: (a)
consistently handle date information before, during and after January 1, 2000
including, without limitation, accepting date input, providing date output and
performing calculations on dates or portions of dates; (b) function accurately
in accordance with the specifications for such computer hardware or software and
without interruption before, during and after January 1, 2000, without any
change in operations associated with the advent of the new century; (c) respond
to two digit date input in a way that resolves any ambiguity as to
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century in a disclosed, defined and predetermined matter; and (d) store and
provide output data information in ways that are unambiguous as to century. To
Transferor's knowledge, as of the date of this Agreement, the cost to correct
any failure of the Owner's Computer Systems to provide the foregoing functions
would not be material (provided, that no representation or warranty is made with
respect to any such failure for reasons other than the advent of the new
century).
Subject to the provisions of Section 4.4, each of the Transferors shall
be jointly and severally liable for the breach of any representation and
warranty of a Transferor set forth in this Section 4.1.
* * * * *
For the foregoing purposes, the terms "Transferors' knowledge" or "Transferor's
knowledge" or words of similar effect shall mean the current actual, subjective
knowledge of Messrs. John Diserens, Michael Coke, Blake Baird and David Fries
(collectively, the "Knowledge Persons"), in each case without independent
investigation or inquiry, but after inquiry of the current asset managers who
are employees of Transferors in its retail division. Such individuals' knowledge
shall not include information or material which may be in the possession of any
of the Transferors or the named individuals, but of which the named individuals
are not actually aware. Transferors shall have no liability for the breach of
any representations or warranties absent an arbitrated or judicial finding that
the named individuals knowingly withheld information from Buyer with respect to
the subject matter of the representation or warranty or falsified information
delivered to and relied upon by Buyer and that such action amounted to a
violation of a representation or warranty expressly set forth in this Agreement.
None of the named individuals whose sole knowledge is imputed to a Transferors
under this Section nor any party other than the Transferors affording a
representation shall bear responsibility for any breach of such representation.
SECTION 4.2 Transferors' Covenants. Transferors hereby covenants
and agrees as follows:
(a) During the Contract Period, Transferors will exercise
reasonable and good faith efforts (i) to operate and maintain the Properties in
a manner consistent with current practices and (ii) to comply, where such
compliance is the obligation of Transferors (and not of a tenant or other party)
in all material respects with all material laws and regulations applicable to
the Properties;
(b) During the Contract Period, Transferors will not sell
or otherwise dispose of any significant items of Personal Property unless
replaced with an item of like value, quality and utility;
(c) During the Contract Period, Transferors shall not enter
into or modify any Contracts relating to the operation or maintenance of a
Property, except for (i) those entered into in the ordinary course of business
with parties which are not affiliates of Transferors and (A) which are
cancelable upon not more than thirty (30) days prior notice without penalty or
premium or (B) which require payments to the applicable vendor of $25,000 or
less per year and
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which, in the aggregate for any individual Property, require payments to the
applicable vendors of $50,000 or less per year, or (ii) those otherwise approved
by Buyer, which approval shall not be unreasonably withheld and shall be deemed
given if Buyer should fail to approve or disapprove proposed Contract matters in
writing within 5 business days following Transferor's written request (which
shall include all material information necessary to allow Buyer to make an
informed decision). At Buyer's written request provided at least five (5)
business days prior to the Closing Date, Transferors shall deliver notice of
termination on the Closing Date as to any and all Contracts that Buyer desires
to terminate, provided that such termination shall be effective following any
notice or waiting period for such termination described in the Contract and that
Transferors shall not be required to bear any termination or cancellation fee or
charge that may be assessed under such Contract based upon an early termination.
Notwithstanding the foregoing, Transferors shall terminate all property
management agreements and exclusive leasing agreements applicable to the
Properties as of the Closing Date, at Transferors' expense;
(d) During the Contract Period, Transferors will not
execute or modify in any material fashion any Leases pertaining to premises in
excess of 5,000 rentable square feet or any ground lease, other than with
Buyer's prior consent, which shall be deemed given if Buyer (in the person of
Burnham Pacific Properties, Inc.'s chief investment officer or chief operating
officer) should fail to approve or disapprove proposed lease matters in writing
within 5 business days following Transferors' written request (which shall
include all material information necessary to allow Buyer to make an informed
decision). Buyer shall exercise its rights of approval of leasing matters
reasonably and in good faith. With respect to new Leases or Lease amendments
pertaining to premises of 5,000 rentable square feet or less, Transferors shall
have the right to enter into new Leases or amendments without any need to obtain
Buyer's consent, provided that (A) such new Lease or amendment is entered into
on an arm's length basis and the applicable Transferors believes in its good
faith reasonable discretion that it is entering into such new Lease or
modification on market terms (B) such new Lease or amendment does not provide
for a cap on the pass through of cost recoveries or exclude the recovery of
management fees, (C) such new Lease or amendment does not contain a material
change to the assignment provision of Transferors' standard lease form in use at
the applicable Property (the "Standard Form"), (D) with respect to a new Lease,
Transferors initiated negotiations with such tenant using the Standard Form and
any changes thereto are consistent with Transferors' standard leasing practices,
and (E) Buyer is provided with a copy of the executed Lease or modification
documents within a reasonable period after such documents are executed.
Transferors shall use reasonable efforts to continue to seek leases for the
Properties in a manner consistent with present practice;
(e) During the Contract Period, except with respect to
actions taken by Third Parties without the applicable Transferor's consent in
connection with Joint Venture Properties, Transferors shall not voluntarily
create, consent to or acquiesce in the creation of liens or exceptions to title
without Buyer's prior written consent, provided that Buyer shall not
unreasonably withhold or delay consent to any proposed matters affecting title
necessary to maintain or enhance the value of the pertinent Property;
(f) During the Contract Period, Transferors shall maintain
its currently effective policies of property insurance and rental loss insurance
for the Improvements;
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(g) During the Contract Period, Transferors shall use
commercially reasonable efforts (but at no material cost to Transferors except
as may otherwise be expressly provided in this Agreement) to obtain all third
party and governmental approvals and consents necessary to consummate the
transactions contemplated hereby;
(h) During the Contract Period, Transferors shall maintain
their books accounts and records in a manner consistent with past practice;
(i) During the Contract Period, Transferors shall observe
and comply with the material terms and conditions of all Contracts, Leases,
Property licenses, and Property approvals;
(j) During the Contract Period, Transferors shall not
knowingly and intentionally take any action which would cause the
representations and warranties contained in Section 4.1 (other than as permitted
in this Agreement) to cease to be true and correct in all material respects as
of the Closing Date as though then made;
(k) During the Contract Period, Transferors shall comply in
all material respects with all existing easements, covenants, conditions,
restrictions and other encumbrances affecting any Property;
(l) During the Contract Period, Transferors shall
reasonably cooperate with Buyer, but at no cost to Transferors, (i) to assist
Buyer in obtaining environmental insurance coverage for the Properties
(provided, that in no event shall Buyer have the right to perform any
environmental testing in connection with obtaining such insurance) and (ii) to
enable Buyer to exercise and close on the Applewood Option (as defined in the
Disclosure Materials List & Statement) and, at Buyer's written request, with
respect to any other similar options or rights described on Exhibit V attached
hereto, as soon as possible after the closing, provided such option(s) shall not
be exercised or caused to be exercised by Buyer prior to the closing and
Transferors shall not be required to exercise such option(s) prior to the
closing);
(m) During the Contract Period, but subject to the
provisions of Sections 2.4 and 2.5, Transferors shall permit Buyer, and Buyer's
lenders and its representatives, to have reasonable access (upon reasonable
notice, during normal business hours and, if required by Transferors,
accompanied by a representative of Transferors) to the books, records and
Properties, and, with Transferors' prior approval not to be unreasonably
withheld, tenants, parties to REAs, parties to options and rights of first
refusal, and parties to management agreements and Contracts, in order to assist
Buyer in its management transition with respect to the Properties and to provide
information to its lenders that is reasonably requested by them;
(n) As a courtesy to Buyer, during the Contract Period,
Transferors shall use reasonable efforts to provide Buyer with copies of any
written notices received by Transferors during the Contract Period, which
notices relate to matters described in Section 4.1(b)(i), (ii), (iii), (iv),
(vi), (vii) or (viii); provided, that notwithstanding anything to the contrary
contained in this Agreement, Transferors shall have no liability whatsoever to
Buyer as a result of its failure to comply with the provisions of this Section
4.2(n);
(o) During the Contract Period, Transferors shall provide
reasonable access to the Disclosure Materials (upon reasonable notice and during
normal business hours) and the right
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to copy such materials (at no cost to Transferors) in order to assist Buyer in
its management transition with respect to the Properties and to provide
information to its lenders that is reasonably requested by them;
(p) During the Contract Period, Transferors shall meet and
confer with Buyer on a regular basis to discuss leasing activity at the
Properties and the status of work described in Section 6.9 and shall provide
Buyer at such meetings or otherwise reasonably detailed information regarding
the costs incurred with respect to, and the costs anticipated to complete, such
work;
(q) During the Contract Period, Transferors shall notify
Buyer of any litigation filed against Transferors during the Contract Period
within a reasonable period of time after Transferors are made aware of such
litigation and Exhibit W shall be revised to include such litigation; and
(r) During the Contract Period, to the extent Transferors
have a right of first offer or right of first refusal to purchase any real
property related to any of the Properties and Transferors receive written notice
that the period for exercising such right has commenced, Transferors shall
promptly notify Buyer and Buyer shall have the right, by written notice to
Transferors, to request that at closing Transferors assign such right to Buyer
(if assignable) or use reasonable efforts to cause the applicable property to be
direct deeded to Buyer; provided, that in no event shall Transferors have any
liability or incur any cost with respect to such property or be required to take
title to such property, and Buyer shall deliver to Title Company at the times
required in connection with such right to purchase, and remain responsible for,
any funds to be paid in connection with the acquisition of such property.
SECTION 4.3 Buyer's Warranties and Representations. Buyer hereby
represents and warrants to Transferors that the following are true as of the
date of this Agreement:
(a) Buyer is a duly formed and validly existing limited
liability company under the law of the state of its formation and is (or on the
Closing Date will be) in good standing under the laws of the states where each
Property is located and Buyer has the full right, authority and power to enter
into this Agreement, to consummate the transactions contemplated herein and to
perform its obligations hereunder and under those documents and instruments to
be executed by it at the closing, and each of the individuals executing this
Agreement on behalf of Buyer is authorized to do so, and this Agreement
constitutes a valid and legally binding obligation of Buyer enforceable against
Buyer in accordance with its terms.
(b) Buyer's execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and the performance of
Buyer's obligations under the instruments required to be delivered by Buyer at
the closing, do not and will not result in any material violation of, or
material default under, any term or provision of any agreement, instrument,
mortgage, loan agreement or similar document to which Buyer is a party or by
which Buyer is bound.
(c) There is no litigation, investigation or proceeding
pending or, to the best of Buyer's knowledge, contemplated or threatened against
Buyer which would impair or
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adversely affect Buyer's ability to perform its obligations under this Agreement
or any other instrument or document related hereto.
SECTION 4.4 Survival/Limitations.
(a) Subject to subsection (b) below, the parties agree that
Transferors' warranties and representations contained in Sections 4.1 (a) and
(b) of this Agreement shall survive Buyer's purchase of the Properties and the
Closing Date for a period ending 180 calendar days following the Closing Date
(the "Limitation Period"). Such termination as of the close of the Limitation
Period shall apply to known as well as unknown breaches of such warranties or
representations. Subject to subsection (b) below, Buyer's waiver and release set
forth in Section 2.4 shall apply fully to liabilities under such representations
and warranties. Buyer specifically acknowledges that such termination of
liability represents a material element of the consideration to Transferors.
(b) Any claim of Buyer based upon a breach of any
representation or warranty or covenant or a claim under any indemnity contained
in this Agreement or any representation, warranty, covenant or indemnity
contained in any other document or instrument delivered by Transferors to Buyer
at closing (collectively a "Breach") shall be expressed, if at all, in writing
setting forth in reasonable detail the basis and character of the claim (a
"Claim Notice"), and, in the case of a Breach of Transferors' representations
and warranties contained in this Agreement or a Breach of a covenant contained
in Section 4.2 hereof only, shall be delivered to Transferors prior to the
expiration of the Limitation Period. Notwithstanding the foregoing, Buyer's
right to make and recover any claim pursuant to a Claim Notice shall be subject
to the following: (i) any matters identified by Buyer during the Confirmation
Period which would represent both a breach of representation and result in a
Material Adverse Matters Amount shall be treated solely as the latter and shall
not be the subject of any claim for breach of representation under this Article
IV, (ii) with respect to a Breach of Transferors' representations and warranties
contained in this Agreement, or a Breach of a covenant contained in Section 4.2
hereof or a Breach under an indemnity contained in the Assignments of
Intangibles or the Assignments of Leases (as such terms are defined in Section
6.1(a) below), Buyer shall not make any claim on account of such Breach unless
and until (A) the aggregate measure of such claims with respect to a Property
exceeds $200,000, and (B) the aggregate measure of such claims with respect to
all of the Properties exceeds $375,000 (the "Threshold"), in which event Buyer's
claim shall be limited to an amount equal to (x) the amount by which such
aggregate exceeds the Threshold, plus (y) an amount equal to two-thirds of the
Threshold, (iii) Transferors' aggregate liability for claims arising out of all
Breaches (i.e., those described in clause (ii) above as well as all other
Breaches) shall not, in the aggregate, exceed an amount equal to three percent
(3%) of the aggregate Price for all of the Properties acquired by Buyer
exclusive of the amounts of any insurance proceeds actually received by
Transferors which are to be applied to Claims pursuant to Section 2.4(e), and
(iv) Buyer shall have the right to deliver to Transferors Claim Notices with
respect to any Breach discovered by Buyer prior to the Closing Date solely if
such notice is delivered prior to the Closing Date. Notwithstanding the
foregoing, with respect to a Claim Notice asserting a breach of the
representation contained in Section 4.1(b)(vii), the following shall be
substituted for the provisions of clause (ii) of this Section 4.4(b): (ii) Buyer
shall not make any claim on account of a breach of the representation and
warranty contained in Section 4.1(b)(vii) with respect to any Property unless
and until the aggregate measure of such claims with respect to all
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Properties exceeds $50,000, and only to the extent that such aggregate exceeds
$50,000. For purposes of this Section 4.4(b) (and without limiting the
introductory paragraph of Section 4.1), a Breach shall be deemed to be
discovered by Buyer prior to the Closing Date only to the extent that any of
David Martin, Daniel Platt, Joseph Byrne, Scott Verges, John Waters, Jim Gaube
or Guy Jacquier has actual, subjective knowledge of the facts or circumstances
giving rise to such breach of representation or warranty or Section 4.2
covenants. Following receipt of such a pre-closing Claim Notice with respect to
which Buyer has the right to make and recover a claim as aforesaid, Transferors
may elect, by written notice to Buyer given not later than the first to occur of
the date that is ten (10) business days following the date of the Claim Notice
or the Closing Date, to terminate this Agreement as to the Property to which
such pre-closing Claim Notice relates and such Property shall be treated as a
Deleted Property and Buyer shall not be entitled to any damages in connection
therewith. If Transferors fail to elect to treat any Property which is the
subject of a pre-closing Claim Notice as a Deleted Property, the closing as to
such Property shall be conducted on the Closing Date. As to pre-closing Claim
Notices with respect to which Transferors do not elect to treat the affected
Property as a Deleted Property and as to all Claim Notices received by
Transferors following the Closing Date as to which Buyer has the right to make
and recover a claim as aforesaid, Buyer shall have the right after (but not
before) the Closing Date to proceed against Transferors for actual monetary
damages based upon such Claim Notice -- subject to the cure rights set forth in
subparagraph (c) below and the limitations set forth above and in the remaining
sentences of this subparagraph. Notwithstanding anything to the contrary
provided in this Agreement, in no event shall Transferors be liable to Buyer for
any consequential or punitive damages based upon any breach of this Agreement,
including breaches of representation or warranty. Subject to applicable
principles of fraudulent conveyance, in no event shall Buyer seek satisfaction
for any obligation from any shareholders, officers, directors, employees,
agents, legal representatives, successors or assigns of such trustees or
beneficiaries, nor shall any such person or entity have any personal liability
for any such obligations of any Transferors.
(c) The Transferors who have committed a Breach for which a
Claim Notice has been received shall have a period of 30 days within which to
cure such breach, or, if such breach cannot reasonably be cured within 30 days,
an additional reasonable time period of up to an additional 60 days, so long as
such cure has been commenced within such 30 days and is at all times diligently
pursued. If the Breach is not cured after actual written notice and within such
cure period, Buyer's sole remedy shall be an action at law for damages against
the breaching Transferor or Transferors, which must be commenced with respect to
a Breach of a representation or warranty contained in this Agreement or a Breach
of a covenant contained in Section 4.2 hereof, if at all, within the Limitation
Period; provided, however, that if within the Limitation Period Buyer gives a
Claim Notice and the Transferors commence to cure and thereafter terminate such
cure effort or fail in such cure effort, Buyer shall have an additional 30 days
from the date of written notice from the Transferors of such termination or the
expiration of such cure period within which to commence an action at law for
damages as a consequence of the failure to cure. The existence or pendency of
such cure rights shall not delay the Closing Date as to a Property not
designated as a Deleted Property. The provisions of this Section 4.4 shall
survive the closing or any termination of this Agreement.
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ARTICLE 5
DEPOSIT; DEFAULT
SECTION 5.1 Buyer's Default & Deposit.
(a) Substantially concurrently with the execution and
delivery of this Agreement, Buyer shall deliver to Title Company, for deposit
into the escrow described in Section 6.1 below, cash in an amount equal to Five
Million Dollars ($5,000,000), which amount shall be increased on April 30, 1999
by an additional One Million Two Hundred Fifty Thousand Dollars ($1,250,000),
and which amount shall be further increased on July 31, 1999 by an additional
One Million Five Hundred Thousand Dollars ($1,500,000) (collectively, the
"Deposit"). In the event that this transaction is consummated as contemplated by
this Agreement, then the entire amount of the Deposit, together with any
interest accrued thereon, whether in cash or in the form of a Letter of Credit
(as herein defined) shall be returned to Buyer and in no event shall the Deposit
be credited against the Price. The entire amount of the Deposit (or the portion
of the Deposit allocable to Properties with respect to which Transferors refuse
to perform their material closing obligations), together with any interest
accrued thereon, shall be returned immediately to Buyer in the event that the
transaction fails to close due to termination of this Agreement pursuant to
Section 5.2. IN THE EVENT THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT SHOULD
FAIL TO CLOSE AS A RESULT OF BUYER'S DEFAULT HEREUNDER, THE ENTIRE AMOUNT OF THE
DEPOSIT, PLUS ACCRUED INTEREST, (AND TO THE EXTENT THE DEPOSIT IS IN THE FORM OF
A LETTER OF CREDIT, TITLE COMPANY SHALL IMMEDIATELY MAKE DEMAND FOR THE
PRINCIPAL AMOUNT OF THE LETTER OF CREDIT) SHALL BE PAID BY THE TITLE COMPANY TO
TRANSFERORS AS LIQUIDATED DAMAGES (THE "LIQUIDATED AMOUNT"). BUYER AND
TRANSFERORS HEREBY ACKNOWLEDGE AND AGREE THAT TRANSFERORS' DAMAGES IN THE EVENT
OF SUCH A BREACH OF THIS AGREEMENT BY BUYER WOULD BE DIFFICULT OR IMPOSSIBLE TO
DETERMINE, THAT THE AMOUNT OF THE DEPOSIT PLUS ACCRUED INTEREST IS THE PARTIES'
BEST AND MOST ACCURATE ESTIMATE OF THE DAMAGES TRANSFERORS WOULD SUFFER IN THE
EVENT THE TRANSACTION PROVIDED FOR IN THIS AGREEMENT FAILS TO CLOSE, AND THAT
SUCH ESTIMATE IS REASONABLE UNDER THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS
AGREEMENT. BUYER AND TRANSFERORS AGREE THAT TRANSFERORS' RIGHT TO RETAIN THE
DEPOSIT PLUS ACCRUED INTEREST SHALL BE THE SOLE REMEDY OF TRANSFERORS IN THE
EVENT OF A BREACH OF THIS AGREEMENT BY BUYER.
ACCEPTED AND AGREED TO:
______________________ __________________________
BUYER'S INITIALS TRANSFEROR'S INITIALS
This Section 5.1 is intended only to liquidate and limit Transferors' rights to
damages arising due to Buyer's failure to purchase the Properties and shall not
limit the indemnification or other obligations of (i) Buyer's constituent
partners pursuant to the Confidentiality Agreement dated January 25, 1999
executed by Burnham Pacific Properties, Inc. for the benefit of Transferors (the
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"BP Confidentiality Agreement") and the Confidentiality Agreement dated January
25, 1999 executed by the State of California Public Employees' Retirement System
("Calpers") for the benefit of Transferors (the "Calpers Confidentiality
Agreement;" which, together with the BP Confidentiality Agreement, are
collectively referred to as the "Confidentiality Agreements") or (ii) Buyer
pursuant to (A) any other documents delivered pursuant to this Agreement or (B)
Sections 2.4(b), 2.4(e), 7.2, 7.9 and 7.13 of this Agreement. In the event that
any Property becomes a Deleted Property pursuant to the provisions of this
Agreement, then Buyer shall have the right to cause Title Company to withdraw
from the escrow and pay to Buyer (or to reduce any letter of credit, as
applicable, by) an amount equal to the product of (x) the Deposit (and interest
accruing thereon) and (y) the quotient expressed as a percentage, of the
Allocated Price with respect to such Deleted Property and the total Price.
(b) In the event that Transferors are entitled to the
Deposit pursuant to Section 5.1 hereof, an amount equal to the lesser of (i) the
Liquidated Amount or (ii) the sum of (A) the maximum amount that can be paid to
Transferors without causing Transferors (or any of their constituent partners)
to fail to meet the requirements of Sections 856(c)(2) and 856(c)(3) of the
Code, determined as if the payment of such amount did not constitute income
described in Section 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code
("Qualifying Income"), as determined by Transferors' accountants, plus (B) in
the event Transferors receive either (x) a letter from Transferors' counsel
prior to the Closing Date indicating that Transferors (or their constituent
partners, as applicable) has received a ruling from the Internal Revenue Service
(the "IRS") described in clauses (ii) or (iii) of the following paragraph, or
(y) an opinion from Transferors' (or their constituent partners', as applicable)
counsel as described in clause (iv) of the following paragraph, an amount equal
to the Liquidated Amount less the amount payable under clause (A) above, and any
balance of the Liquidated Amount (the "Balance") shall be retained by Title
Company in escrow in accordance with the terms of an escrow (subject to the
terms of the following paragraph) being otherwise agreed upon by Transferors and
the escrow agent.
(c) The escrow agreement described in Section 5.1(b) shall
provide that the amount in escrow or any portion thereof shall not be released
to Transferors except to the extent the escrow agent receives any one or
combination of the following: (i) a letter from Transferors' accountants
indicating the maximum amount that can be paid by the escrow agent to
Transferors without causing Transferors (or any of their constituent partners,
as applicable) to fail to meet the requirements of Sections 856(c)(2) and
856(c)(3) of the Code, determined as if the payment of such amount did not
constitute Qualifying Income, in which case the escrow agent shall release the
amount indicated in such letter to Transferors, (ii) a letter from Transferors'
(or any of their constituent partner's, as applicable) counsel indicating that
Transferors (or any of its constituent partners, as applicable) received a
ruling from the IRS holding that the receipt by Transferors (or any of their
constituent partners, as applicable) of the Liquidated Amount would either
constitute Qualifying Income or would be excluded from gross income within the
meaning of Sections 856(c)(2) and 856(c)(3) of the Code, in which case the
escrow agent shall release the Balance to Transferors, (iii) a letter from
Transferors' (or any of their constituent partners' as applicable) counsel
indicating that Transferors (or any of their constituent partners, as
applicable) received a ruling from the IRS holding that the receipt by a
Transferor (or
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its constituent partner, as applicable) of the Balance following the receipt of
and pursuant to such ruling would not be deemed constructively received prior
thereto or (iv) an opinion of a Transferor's (or its constituent partner's, as
applicable) legal counsel to the effect that the receipt by a Transferor (or its
constituent partner, as applicable) of the Liquidated Amount would either
constitute Qualifying Income or would be excluded from gross income within the
meaning of Sections 856(c)(2) and 856(c)(3) of the Code, in which case the
escrow agent shall release the Balance to Transferors. Buyer and Title Company
agree to act reasonably and cooperate with Transferor in order (x) to maximize
the portion of the Liquidated Amount that may be distributed to Transferors
hereunder without causing a Transferor (or its constituent partner, as
applicable) to fail to meet the requirements of Sections 856(c)(2) and 856(c)(3)
of the Code or (y) to improve a Transferor's (or any of their constituent
partner's, as applicable) chances of securing a favorable ruling described in
this Section 5.1(c), provided that, except as otherwise provided in this
Agreement, Buyer and Title Company shall not be required to incur any
out-of-pocket costs in connection therewith. The escrow agreement shall also
provide that any portion of the Liquidated Amount then held in escrow after the
expiration of five (5) years from the date of the establishment of such escrow
shall be released by the escrow agent to Buyer. Buyer shall not be a party
(other than a contingent beneficiary as described above) to such escrow
arrangements and shall not bear any cost of or have liability resulting from
such escrow arrangements.
SECTION 5.2 Transferors' Default. If (a) the conditions precedent
set forth in Section 3.1(b) shall have been satisfied or waived (provided that
for purposes of this Section Buyer shall not be required to tender formally the
Price but only demonstrate the commitment of immediately available funds to pay
such Price) and (b) Transferors shall refuse to perform their material closing
obligations under this Agreement (e.g., by refusing to convey a Property to
Buyer at Closing), then Buyer's sole and exclusive remedy shall be either (i) to
receive back the Deposit in the event Transferors refused to perform their
material closing obligations with respect to all of the Properties (or the
portion of the Deposit allocable to Properties with respect to which Transferors
refuse to perform their material closing obligations) plus all accrued interest
thereon or (ii) to pursue an action for specific performance on a Property by
Property basis as to those Properties with respect to which Transferors refuse
to perform their material closing obligations ; provided, that notwithstanding
anything to the contrary contained herein, Buyer's right to pursue an action for
specific performance is expressly conditioned on Buyer not being in default or
having defaulted in any material respect under any other material agreement in
which Buyer or any of its constituent members and any of the Transferors is a
party and which was entered into on or after March 1, 1999. Subject to the
foregoing, Buyer acknowledges that Buyer's remedies for Transferor's failure to
perform all of its material obligations under this Agreement with respect to the
sale or exchange of a particular Property but less than all of the Properties
shall be exclusively governed by the provisions of Section 3.2 above. Nothing
contained in this Section 5.2 is intended to limit Buyer's rights under Sections
7.2, 7.9 and 7.13 of this Agreement.
SECTION 5.3 Solicitation; Negotiations.
(a) Unless and until this Agreement shall have been
terminated in accordance with its terms, the Transferors agree and covenant that
(i) neither Transferors nor any of their respective subsidiaries or affiliates
nor AMB Property Corporation, a Maryland corporation, which is AMBLP's general
partner (the "Company"), shall, and each of them shall direct and use their best
efforts to cause their respective officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it or any of its subsidiaries) not to, directly or
indirectly, initiate, solicit or encourage
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any inquiries or the making or implementation of any proposal or offer with
respect to a merger, acquisition, or similar transaction involving the direct or
indirect purchase of the Properties (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or engage in any
negotiations with, or provide any confidential information or data to, or have
any discussions with, any person relating to, an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal.
(b) Notwithstanding anything set forth in this Agreement to
the contrary, the Board of Directors of the Company may furnish information to
or enter into discussions or negotiations with any person that makes an
unsolicited bona fide proposal to purchase all or a portion of the Properties
having aggregate Allocated Price of at least eighty-five percent (85%) of the
aggregate Price of all of the Properties, whether by merger, purchase of
partnership interests or assets or otherwise (a "Proposal"), if the Board of
Directors of the Company determines in good faith that the Proposal, if
consummated as proposed, would result in a transaction more favorable to the
Company's stockholders from a financial point of view than the transactions
contemplated by this Agreement (any such Proposal being referred to herein as a
"Superior Proposal"). If the Board of Directors of the Company is prepared to
accept the Superior Proposal, then Transferors shall have the right to terminate
this Agreement by giving Buyer 48 hours notice that the Board of Directors is
prepared to accept the Superior Proposal, instructing the Title Company to
return the Deposit to Buyer and in addition paying Buyer a termination fee in
the amount of the then current Deposit (as increased or decreased from time to
time pursuant to this Agreement) (excluding the amount of any remaining Deposit
allocable to any Properties which were previously designated as Deleted
Properties) (the "Termination Fee"). The return of the Deposit (and all interest
accrued thereon) and the additional payment of the Termination Fee shall be
Buyer's sole and exclusive remedy in the event of a termination pursuant to this
Section 5.3
(c) In addition to the provisions set forth in Sections
5.3(a) and 5.3(b) hereof, nothing in this Agreement shall be deemed to prevent
in any manner the taking of any action by the Company with respect to any
merger, consolidation or sale of all or substantially all of the assets of the
Company or any of the Transferors, in the event that the Board of Directors of
the Company shall determine, based on advice of outside legal counsel, that the
failure to take such action would be inconsistent with such Board of Directors'
fiduciary duties to the Company's stockholders under applicable law. In the
event that such action would be inconsistent with the transactions contemplated
hereby, then Transferors shall have the right to terminate this Agreement by
giving Buyer 48 hours notice that such Board of Directors is prepared to take
such action, instructing the Title Company to return the Deposit to Buyer and in
addition paying Buyer the Termination Fee. The return of the Deposit and the
additional payment of the Termination Fee shall be Buyer's sole and exclusive
remedy in the event of a termination pursuant to this Section 5.3.
(d) In the event that Transferors are obligated to pay
Buyer the Termination Fee, Transferors shall pay to Buyer an amount equal to the
lesser of (i) the Termination Fee or (ii) the sum of (A) the maximum amount that
can be paid to Buyer without causing Buyer (or any of its members) to fail to
meet the requirements of Sections 856(c)(2) and 856(c)(3) of the Code,
determined as if the payment of such amount did not constitute income described
in Section 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code ("Qualifying
Income"), as determined
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by Buyer's accountants, plus (B) in the event Buyer receives either (x) a letter
from Buyer's counsel prior to the Closing Date indicating that Buyer (or its
members, as applicable) has received a ruling from the Internal Revenue Service
(the "IRS") described in clauses (ii) or (iii) of the following paragraph, or
(y) an opinion from Buyer's (or its member's, as applicable) counsel as
described in clause (iv) of the following paragraph, an amount equal to the
Termination Fee less the amount payable under clause (A) above, and any balance
of the Termination Fee (the "Balance") shall be deposited by Transferors in
escrow in accordance with the next succeeding sentence with the Title Company or
other escrow agent selected by Buyer and reasonably acceptable to Transferors.
Transferors shall deposit into such escrow an amount in immediately available
federal funds equal to the Balance, with the terms of such escrow (subject to
the terms of the following paragraph) being otherwise agreed upon by Buyer and
the escrow agent. All payments by Transferors pursuant to this paragraph shall
be made by wire transfer or bank check within thirty (30) days after demand by
Buyer. Payment to Buyer of the amounts set forth in this Section 5.3(d) and, if
applicable, deposit into escrow of the Balance, shall satisfy Transferors'
obligations in full under the terms and conditions of this Section 5.3.
(e) The escrow agreement described in Section 5.3(d) shall
provide that the amount in escrow or any portion thereof shall not be released
to Buyer except to the extent the escrow agent receives any one or combination
of the following: (i) a letter from Buyer's accountants indicating the maximum
amount that can be paid by the escrow agent to Buyer without causing Buyer (or
its member, as applicable) to fail to meet the requirements of Sections
856(c)(2) and 856(c)(3) of the Code, determined as if the payment of such amount
did not constitute Qualifying Income, in which case the escrow agent shall
release the amount indicated in such letter to Buyer, (ii) a letter from Buyer's
(or its member's, as applicable) counsel indicating that Buyer (or its member,
as applicable) received a ruling from the IRS holding that the receipt by Buyer
(or its member, as applicable) of the Termination Fee would either constitute
Qualifying Income or would be excluded from gross income within the meaning of
Sections 856(c)(2) and 856(c)(3) of the Code, in which case the escrow agent
shall release the Balance to Buyer, (iii) a letter from Buyer's (or its
member's, as applicable) counsel indicating that Buyer (or its member, as
applicable) received a ruling from the IRS holding that the receipt by Buyer (or
its member, as applicable) of the Balance following the receipt of and pursuant
to such ruling would not be deemed constructively received prior thereto or (iv)
an opinion of Buyer's (or its member's, as applicable) legal counsel to the
effect that the receipt by Buyer (or its member, as applicable) of the
Termination Fee would either constitute Qualifying Income or would be excluded
from gross income within the meaning of Sections 856(c)(2) and 856(c)(3) of the
Code, in which case the escrow agent shall release the Balance to Buyer.
Transferors agree to act reasonably and cooperate with Buyer in order (x) to
maximize the portion of the Termination Fee that may be distributed to Buyer
hereunder without causing Buyer (or its member, as applicable) to fail to meet
the requirements of Sections 856(c)(2) and 856(c)(3) of the Code or (y) to
improve Buyer's (or its member's, as applicable) chances of securing a favorable
ruling described in this Section 5.3(e), provided that Transferors shall not be
required to incur any out-of-pocket costs in connection therewith. The escrow
agreement shall also provide that any portion of the Termination Fee then held
in escrow after the expiration of five (5) years from the date of the
establishment of such escrow shall be released by the escrow agent to
Transferors. Transferors shall not be a party (other than a contingent
beneficiary as described above) to such escrow arrangements and shall not bear
any cost of or have liability resulting from such escrow arrangements.
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SECTION 5.4 Letter of Credit. In lieu of depositing the Deposit in
cash pursuant to this Agreement, or after depositing the Deposit in cash, in
substitution for all or any portion of the cash Deposit, Buyer may deliver to
Title Company an unconditional and irrevocable letter of credit in favor of
Title Company, in form reasonably satisfactory to Transferors and Title Company,
drawn upon a state or national bank reasonably approved by Transferors and Title
Company, which letter of credit shall (i) expire no earlier than fifteen (15)
days after the scheduled Closing Date (as such date may be changed with respect
to all of the Properties or a particular Property pursuant to this Agreement),
(ii) be capable of being drawn on by Title Company upon demand (subject to
customary draw procedures and requirements) and (iii) otherwise be in form and
substance reasonably satisfactory to Transferors and Title Company (the "Letter
of Credit"). The Letter of Credit shall secure the faithful performance and
observance by Buyer of the terms, provisions, and conditions of this Agreement
in the same manner and to the same extent as the Deposit. The Letter of Credit
shall be held and disbursed by Title Company in the same manner as the Deposit,
except that:
(a) if the term of the Letter of Credit will expire prior
to the then scheduled Closing Date (as such date may be changed with respect to
all of the Properties or a particular Property pursuant to this Agreement), and
such Letter of Credit is not extended or a new Letter of Credit for an extended
period of time is not substituted within five (5) business days prior to the
expiration date of the Letter of Credit, then Title Company shall make demand
for the principal amount of the Letter of Credit prior to the expiration date of
the Letter of Credit and hold such funds in the same manner as the Deposit
pursuant to this Agreement;
(b) if Title Company continues to hold the Letter of Credit
at closing and the closing occurs as contemplated by this Agreement, subject to
(c) below such Letter of Credit shall be returned to Buyer at closing; and
(c) in any instance in which a portion of the Deposit is to
be returned to Buyer pursuant to this Agreement or in which a closing occurs and
subsequent closings are contemplated due to the deferral of the closing with
respect to one or more of the Properties and in order to do so the amount of the
Letter of Credit would have to be reduced, the Title Company shall continue to
hold the Letter of Credit in the manner set forth in and subject to the
provisions of this Section 5.4 until Buyer has provided a substitute Letter of
Credit in the amount of the Deposit as so reduced.
ARTICLE 6
CLOSING
SECTION 6.1 Escrow Arrangements. One or more escrows (to the extent
more than one escrow is necessary to accommodate Transferors' 1031 Exchange(s))
for the purchase and sale contemplated by this Agreement shall be opened by
Buyer and Transferors with Title Company. At least one business day prior to the
Closing Date, Transferors and Buyer shall each deliver escrow instructions to
Title Company consistent with this Article VI, and designating Title Company as
the "Reporting Person" for the transaction pursuant to Section 6045(e) of the
Code. By signing below, Title Company agrees to act as the "Reporting Person"
for the transaction pursuant to Section 6045(e) of the Code and to complete and
file with the IRS Forms 1099-S (and furnish Buyer and Transferors with copies
thereof) on or before the due date therefor. In
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addition, the parties shall deposit in escrow, at least one business day prior
to the Closing Date (unless otherwise provided below in this Section 6.1) the
funds and documents described below:
(a) Transferors shall deposit (or cause to be deposited):
(i) a duly executed and acknowledged deed
pertaining to the Real Property portion of each of the Properties, each in the
form attached to this Agreement as Exhibit I-A (collectively, the "Deeds");
(ii) a duly executed bill of sale pertaining to
the Personal Property portion of each of the Properties, each in the form
attached to this Agreement as Exhibit I-B (collectively, the "Bills of Sale");
(iii) a duly executed counterpart assignment and
assumption pertaining to the Intangible Property portion of each of the
Properties, each in the form attached to this Agreement as Exhibit I-C
(collectively, the "Assignments of Intangibles");
(iv) a duly executed counterpart assignment and
assumption pertaining to the Leases, each in the form attached to this Agreement
as Exhibit I-D (collectively, the "Assignments of Leases");
(v) a certificate from each Transferors
certifying the information required by any of the states in which any of the
Properties are located to establish that the transaction contemplated by this
Agreement is exempt from the tax withholding requirements of such states (the
"State Certificates");
(vi) a certificate from each Transferors
certifying the information required by 1445 of the Code to establish, for the
purposes of avoiding Buyer's tax withholding obligations, that Transferors is
not a "foreign person" as defined in 1445(f)(3) of the Code (the "FIRPTA
Certificate");
(vii) a letter executed by each respective
Transferors and, if applicable, its respective management agent and the Buyer,
in form and substance satisfactory to Buyer, addressed to all tenants of each
respective Property, notifying all such tenants of the transfer of ownership of
the Property and directing payment of all rents accruing after the Closing Date
to be made to Buyer or such other party as Buyer directs (the "Tenant Notices");
(viii) to the extent not previously delivered to
Buyer and in Buyer's possession or under its control, originals of any of the
Contracts, Leases, licenses, approvals, plans, specifications, warranties, other
Intangible Property and other books and records relating to the ownership and
operation of the Property (or if the original is not in the Transferors'
possession or control, copies thereof to the extent in Transferors' possession
or control);
(ix) an updated Rent Roll for each Property in the
same format as was used for the Rent Rolls attached hereto as Exhibit E or in
such other format as is reasonably acceptable to Buyer dated no later than five
(5) days prior to closing, which updated Rent Roll will be used solely for the
purpose of (i) identifying all Leases at such Property as of the applicable
Closing Date and (ii) allowing the Title Company to issue Buyer's title
insurance
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policies subject to no exception for parties in possession other than the Leases
identified in the Rent Roll;
(x) subject to the provisions of Section 2.6,
such affidavits as may be reasonably and customarily required by the Title
Company to issue the Title Policies in the form required hereby (including,
without limitation, without exception for parties-in-possession (other than
tenants under the Leases) or mechanics' or materialmen's liens which are to be
satisfied by Transferors pursuant to Section 2.6);
(xi) the Remediation and Access Agreement (as
herein defined); and
(xii) evidence reasonably satisfactory to the Title
Company as to the legal existence and authority of the Transferors and the
authority and incumbency of the persons signing documents on behalf of the
Transferors.
In addition, Transferors shall deliver to Buyer on the Closing Date, outside of
escrow, to the extent in Transferor's possession or control, the originals of
all Leases, Contracts and tenant files and all keys to the Properties.
(b) Buyer shall deposit:
(i) on or prior to the close of business on the
business day immediately prior to the Closing Date, immediately available funds
sufficient to pay the balance of the Price, plus sufficient additional cash to
pay Buyer's share of all escrow costs and closing expenses;
(ii) a duly executed counterpart for each of the
Assignments of Intangibles, Assignments of Leases and Remediation and Access
Agreement (and Tenant Notices where required);
(iii) a certificate duly executed by Buyer in favor
of Transferors confirming the waivers and acknowledgments set forth in Sections
2.5 and 4.4 above; and
(iv) evidence reasonably satisfactory to Title
Company as to the legal existence and authority of the Buyer and the authority
and incumbency of the persons signing documents on behalf of the Buyer.
SECTION 6.2 Title. Title Company shall close escrow on the Closing
Date by:
(a) recording the Deeds;
(b) issuing the owner's title policies to Buyer pursuant to
Section 3.1(a)(i) above;
(c) delivering to Buyer originals of the Bills of Sale, the
FIRPTA Certificate, the State Certificates, executed counterparts of each of the
Assignments of Intangibles, Assignments of Leases and Remediation and Access
Agreement and all of the other documents in escrow under Section 6.1(a);
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(d) delivering to Transferors (or the exchange
facilitator(s), as applicable) (i) a counterpart for each of the Assignments of
Intangibles, the Assignments of Leases and the Remediation and Access Agreement
executed by Buyer, (ii) the certificate described in Section 6.1(b)(iii) above,
(iii) funds in the amount of the Sale Purchase Price, as adjusted for credits,
adjustments, prorations and closing costs in accordance with Section 2.3 and
this Article VI and as allocated pursuant to the direction of the Transferors
(upon which allocation Buyer and Title Company shall have the right to
conclusively rely) and (iv) funds in the amount of the Exchange Price, as
adjusted for credits, adjustments, prorations and closing costs in accordance
with Section 2.3 and this Article VI and as allocated pursuant to the direction
of the Transferors (upon which allocation Buyer and Title Company shall have the
right to conclusively rely); and
(e) if directed by the parties, delivering the Tenant
Notices to the tenants by certified mail, return receipt requested.
SECTION 6.3 Prorations.
(a) Taxes. Real estate taxes, personal property taxes and
any general or special assessments with respect to the Properties which are not
the direct payment obligation of tenants pursuant to the Leases (as opposed to a
reimbursement obligation) shall be prorated as of the Closing Date -- to the end
that Transferors shall be responsible for all taxes and assessments that are
allocable to any period prior to the Closing Date and Buyer shall be responsible
for all taxes and assessments that are allocable to any period from and after
the Closing Date. Notwithstanding anything to the contrary contained herein, in
regards to Real Property located in the States of Illinois and Colorado, (A)
general real estate taxes which are not the direct or indirect (as a
reimbursement obligation) payment obligations of tenants pursuant to the Leases
and which are payable for the tax year prior to the tax year in which the
closing occurs and all prior years shall be paid by Transferors (including any
installments thereof payable after the Closing Date) and (B) general real estate
taxes which are not the direct or indirect (as a reimbursement obligation)
payment obligations of tenants pursuant to the Leases and which are payable for
the tax year in which the closing occurs shall be prorated by Transferors and
Buyer as of the Closing Date. If the actual amount of taxes, assessments or
other amounts to be prorated for the year in which the closing occurs (and, with
respect to Real Property located in Illinois and Colorado, for the tax year
prior to the tax year in which the closing occurs) is not known as of the
Closing Date, the proration shall be based on the parties' reasonable estimates
of such taxes, assessments and other amounts. To the extent any real or personal
property taxes subject to apportionment in accordance with the foregoing are, as
of the Closing Date, the subject of any appeal filed by or on behalf of
Transferors, then notwithstanding anything to the contrary contained in this
subparagraph, (i) no apportionment of the taxes being appealed shall occur at
the closing, but instead such apportionment shall be deferred until the outcome
of the appeal is final and the amount of taxes owing becomes fixed at which time
Transferors shall be responsible for all such taxes that are allocable to any
period prior to the Closing Date and Buyer shall be responsible for all such
taxes that are allocable to any period from and after the Closing Date, and (ii)
Transferors shall provide Buyer with adequate security, either in the form of a
bond or by escrowing the amounts being appealed, to assure Buyer that
Transferors' portion of such tax liability, including any penalty, will be
available. To the extent any taxes which are the subject of an appeal have been
paid by Transferors under protest and the appeal results in Buyer receiving a
credit toward future tax liability or a refund, then Buyer shall, within thirty
(30) days
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following receipt of such refund or notice of such credit, pay to Transferors
the full amount of such refund or credit allocable to the period prior to the
Closing Date, excluding, however, any portion of such refund or credit that is
required to be passed through to the tenants pursuant to any Leases or to other
parties by existing contract.
(b) Prepaid Expenses. Buyer shall be charged for those
prepaid expenses paid by Transferors directly or indirectly allocable to any
period from and after the Closing Date, including, without limitation, annual
permit and confirmation fees, fees for licenses and all security or other
deposits paid by Transferors to third parties which Buyer elects to assume and
to which Buyer then shall be entitled to the benefits and refund following the
Closing Date.
(c) Property Income and Expense. The following prorations
and adjustments shall occur as of the closing. Prior to the Closing Date,
Transferors shall provide all information to Buyer required to calculate such
prorations and adjustments and representatives of Buyer and Transferors shall
together make such calculations:
(i) General. Subject to the specific provisions
of clauses (ii), (iii) and (iv) below, income and expense shall be prorated on
the basis of a 30-day month and on a cash basis (except for items of income and
expense that are payable less frequently than monthly, which shall be prorated
on an accrual basis). All such items attributable to the period prior to the
Closing Date shall be credited to Transferors; all such items attributable to
the period on and following the Closing Date shall be credited to Buyer. Buyer
shall be credited in escrow with (a) any portion of rental agreement or lease
deposits which are refundable to the tenants and have not been applied to
outstanding tenant obligations in accordance with the terms of the applicable
Lease and (b) rent prepaid beyond the Closing Date. Transferors shall transfer
Transferors entire interest in any letters of credit or certificates of deposit
held by Transferors as the deposits described in clause (a) above and shall
diligently cooperate with Buyer in obtaining any reissuance or confirmation of
the effect of the transfer of such instruments. Buyer shall not be entitled to
any interest on rental agreement or lease deposits or prepaid rent accrued on or
before the Closing Date, except to the extent any such amount of interest is
refundable or payable to any tenant under a Lease or applicable law. Transferors
shall be credited in escrow with any refundable deposits or bonds held by any
utility, governmental agency or service contractor, to the extent such deposits
or bonds are assigned to Buyer on the Closing Date.
(ii) Leasing Costs. Subject to the provisions of
Section 6.9 below, Buyer shall be credited in escrow with any leasing
commissions, tenant improvements or other allowances to be paid by Buyer on or
after the Closing Date with respect to the current term of any Lease or Lease
modification executed, or any extension term or expansion of premises exercised,
in each case, on or before March 1, 1999, and Transferors shall pay on or before
the Closing Date all such items payable prior to the Closing Date.
Notwithstanding the provisions of the immediately following sentence, with
respect to any new Leases or Lease modifications executed after March 1, 1999
with respect to any of the space identified on Exhibit S attached hereto which
are permitted under the terms of this Agreement ("Vacant Space"), Transferors
shall be credited in escrow with the amount of any leasing commissions, tenant
improvements or other allowances paid by Transferors after March 1, 1999. Buyer
shall receive a credit at closing against the Price in the amount of $7.00 per
square foot of Vacant Space, whether or not such space is leased prior to
closing. With respect to any space which is not Vacant Space, subject to
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Section 6.9 Transferors shall be credited in escrow with an amount equal to (A)
the amount of any leasing commissions, tenant improvement and other allowances
paid by Transferors after March 1, 1999 to the extent such items relate to new
Leases or Lease modifications executed or extensions of terms or expansions of
premises that are exercised after March 1, 1999 and permitted under the terms of
this Agreement, multiplied by (B) a fraction in which the numerator is the
number of months or partial months of the stabilized term (i.e., the term
following the tenant's entry into occupancy and commencement of unabated rental
obligations) of any such Lease following the Closing Date and the denominator is
the number of months or partial months in the stabilized term of such Lease.
Buyer shall assume all obligations for any leasing commissions, tenant
improvement or other allowances payable following the Closing Date with respect
to Leases or Lease modifications executed or extensions of terms or expansions
of premises that are exercised following March 1, 1999 and which are permitted
under the terms of this Agreement; provided, that as to any such leasing
commissions not disclosed to Buyer in the Disclosure Materials List & Statement
or the Disclosure Materials or approved or deemed approved by Buyer pursuant to
this Agreement or which are not expressly assumed by Buyer under any other
provision of this Agreement, Buyer shall only be obligated to pay the market
rate commission for the applicable Lease (and Transferors shall remain
responsible for any above market component of such commission). Any expenditures
or commitments to expenditures relating to Leases or modifications or extensions
of terms or expansions of premises executed following March 1, 1999 in excess of
the amounts budgeted and approved as part of Buyer's approval of the Lease
(where such approval is required) shall be subject to Buyer's specific approval,
which shall not be unreasonably withheld and shall be deemed given if Buyer
should fail to approve or disapprove such excess expenditure within 5 business
days following Transferors' written request and delivery of material information
reasonably necessary to allow Buyer to make an informed decision.
(iii) Rents. Rents payable by tenants under the
Leases, shall be prorated as and when collected (whether such collection occurs
prior to, on, or after the Closing Date). Buyer shall receive a credit for the
amounts actually received before the Closing Date and which pertain to any
period after the Closing Date. Buyer shall not receive a credit at the closing
for any rents for the month in which the closing occurs which are in arrears and
have not then been received. As to any tenants who are delinquent in the payment
of rent on the Closing Date, Buyer shall use reasonable efforts (but shall not
be required to commence legal action or terminate or evict a tenant) to collect
or cause to be collected such delinquent rents following the Closing Date. Any
and all rents so collected by Buyer following the closing (less a deduction for
all reasonable collection costs and expenses incurred by Buyer) shall be
successively applied (after deduction for Buyer's reasonable collection costs)
to the payment of (x) rent due and payable in the month in which the closing
occurs, (y) rent due and payable in the months succeeding the month in which the
closing occurs (through and including the month in which payment is made) and
(z) rent due and payable in the months preceding the month in which the closing
occurs. If all or part of any rents or other charges received by Buyer following
the closing are allocable to Transferors pursuant to the foregoing sentence,
then such sums shall be promptly paid to Transferors. Transferors reserve the
right to pursue any damages remedy Transferors may have against any tenant with
respect to such delinquent rents, but shall have no right to exercise any other
remedy under the Lease (including, without limitation, termination or eviction).
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(iv) Additional Rents. Any percentage rent,
escalation charges for real estate taxes, parking charges, operating and
maintenance expenses, escalation rents or charges, electricity charges, cost of
living increases or any other charges of a similar nature other than fixed or
base rent under the Leases (collectively, the "Additional Rents") shall be
prorated as of the Closing Date between Buyer and Transferors on or before the
date which is ninety (90) days following the end of the calendar year in which
the closing occurs based on the actual number of days of the year and month
which shall have elapsed as of the Closing Date. Prior to the end of the
calendar year in which the closing occurs, Transferors shall provide Buyer with
information regarding Additional Rents which were received by Transferors prior
to closing and the amount of reimbursable expenses paid by Transferors prior to
closing. On or before the date which is sixty (60) days following the end of the
calendar year in which the closing occurs, Buyer shall deliver to Transferors a
reconciliation of all expenses reimbursable by tenants under the Leases, and the
amount of Additional Rents received by Transferors and Buyer relating thereto
(the "Reconciliation"). Upon reasonable notice and during normal business hours,
each party shall make available to the other all information reasonably required
to confirm the Reconciliation. In the event of any overpayment of Additional
Rents by the tenants to Transferors, Transferors shall promptly, but in no event
later than fifteen (15) days after receipt of the Reconciliation, pay to Buyer
the amount of such overpayment and Buyer, as the landlord under the particular
Leases, shall pay or credit to each applicable tenant the amount of such
overpayment. In the event of an underpayment of Additional Rents by the tenants
to Transferors, Buyer shall pay to Transferors the amount of such underpayment
within fifteen (15) days following Buyer's receipt of any such amounts from the
tenants.
(d) Adjustments to Prorations. Subject to Section 6.3(a)
and 6.3(c)(iv) above, after the closing, the parties shall from time to time, as
soon as is practicable after accurate information becomes available and in any
event within 180 days following the Closing Date, recalculate and reapportion
any of the items subject to proration or apportionment (i) which were not
prorated and apportioned at the closing because of the unavailability of the
information necessary to compute such proration, or (ii) which were prorated or
apportioned at the closing based upon estimated or incomplete information, or
(iii) for which any errors or omissions in computing prorations at the closing
are discovered subsequent thereto, and thereafter the proper party shall be
reimbursed based on the results of such recalculation and reapportionment.
Unless otherwise specified herein, all such reimbursements shall be made on or
before thirty (30) days after receipt of notice of the amount due. Any such
reimbursements not timely paid shall bear interest at a per annum rate equal to
ten percent (10%) from the due date until all such unpaid sums together with all
interest accrued thereon is paid if payment is not made within ten (10) days
after receipt of a bill therefor.
(e) Prior Year's Reconciliation. If the closing occurs
before Transferors have performed the annual reconciliation of Additional Rent
for the calendar year immediately preceding the calendar year in which the
closing occurs, then Transferors shall, as soon as practicable after closing,
perform such reconciliation at its sole cost and expense. Upon completion of
such annual reconciliation, Transferors shall immediately deliver to Buyer a
detailed description of any Additional Rent which are payable by or reimbursable
to any present tenant (the "Prior Year Reconciliation"). The Prior Year
Reconciliation shall be accompanied by all applicable back-up documentation,
together with Transferors' check for such Additional Rent which is reimbursable
to a tenant. Based upon Transferors' calculations, Buyer shall send
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customary statements for reimbursement of Additional Rent to tenants under the
Leases based on the Prior Year Reconciliation, and shall remit to Transferors
within thirty (30) days of receipt, all sums so collected. If Transferors'
calculations show that Additional Rent has been overpaid by any present tenant
and Transferors have submitted its check to Buyer for such amounts, Buyer shall
refund such Additional Rent to such tenant.
(f) Survival. The provisions of this Section 6.3 shall
survive the closing.
SECTION 6.4 Other Closing Costs.
(a) The premium payable in connection with the issuance of
the Title Policies, governmental documentary transfer or transaction taxes or
fees due on the transfer of the Properties, recording costs, and, except as
otherwise provided below, other closing costs shall be paid by Transferors and
Buyer according to custom in the county in which the applicable Property is
located as set forth on Exhibit D attached hereto.
(b) Transferors shall pay 50% of any escrow or other costs
charged by or reimbursable to the Title Company; provided, however that
additional costs to create multiple escrows to accommodate 1031 Exchanges shall
be borne by the party requesting such multiple escrows.
(c) Buyer shall pay 50% of any escrow or other costs
charged by or reimbursable to the Title Company; provided, however that
additional costs to create multiple escrows to accommodate 1031 Exchanges shall
be borne by the party requesting such multiple escrows.
SECTION 6.5 Further Documentation. At or following the close of
escrow, Buyer and Transferors shall execute any certificate, memoranda,
assignment or other instruments required by this Agreement, law or local custom
or otherwise reasonably requested by the other party to effect the transactions
contemplated by this Agreement and shall take such other actions (but at no
material cost or expense) as are reasonably requested by the other party to
effect the transactions contemplated by this Agreement.
SECTION 6.6 Cooperation in Exchange. The parties acknowledge and
agree that Exchangors have elected (with respect to the Exchange Properties) and
Buyer may elect (with respect to the Properties) to assign their interest in
this Agreement to an exchange facilitator by means of one or more escrows for
the purpose of completing an exchange of such Properties or interests in such
Properties in a transaction which will qualify for treatment as a tax deferred
exchange pursuant to the provisions of Section 1031 of the Internal Revenue Code
of 1986 and applicable state revenue and taxation code sections (a "1031
Exchange"). Each party agrees to reasonably cooperate with any party so electing
in implementing any such assignment and 1031 Exchange, provided that such
cooperation shall not entail any material additional expense to the non-electing
party, cause such party to take title to any other property or cause such party
exposure to any liability or loss of rights or benefits contemplated by this
Agreement, and the electing party shall indemnify, defend and hold the
non-electing party harmless from any liability, damage, loss, cost or other
expense including, without limitation, reasonable attorneys' fees and costs,
resulting or arising from the implementation of any such assignment and 1031
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Exchange. No such assignment by any party shall relieve such party from any of
its obligations hereunder, nor shall such party's ability to consummate a tax
deferred exchange be a condition to the performance of such party's obligations
under this Agreement.
SECTION 6.7 Environmental Matters.
(a) Buyer and Transferors acknowledge and agree that
Transferors shall transfer and assign to Buyer at the closing (to the extent
assignable), as part of the Intangible Property, Transferors' rights and
interests in and to any indemnifications or covenants from third parties (other
than any rights of Transferors under any of Transferors' environmental insurance
policies, which rights are expressly not assigned to Buyer under this Agreement
except as expressly otherwise set forth below) relating to the environmental
condition of the Properties (reserving solely Transferors' rights to the benefit
of such indemnifications and covenants protecting Transferors with respect to
Transferors' ownership of the Properties), including, without limitation, those
indemnity agreements shown on Exhibit O. Following the closing, Buyer and
Transferors shall cooperate in the pursuit of any and all claims arising under
such instruments, which cooperation shall include, as required, Transferors'
expression and pursuit of claims for the benefit of Buyer -- provided that such
pursuit is at Buyer's sole cost and expense and does not expose Transferors to
additional liability. Notwithstanding the foregoing, with respect to the
Property described on Exhibit U-1 attached hereto, to the extent assignable and
subject to obtaining the consent of the applicable insurer, at closing
Transferors shall assign all of their right, title and interest in the
environmental insurance policy described on Exhibit U-2 and Transferors shall be
named as an additional insured under such policy; provided, that the assignment
of such policy shall not constitute a condition of closing under this Agreement.
(b) With respect to the Property described on Exhibit U-3,
Transferors shall use reasonable efforts to obtain on or before closing (but
without any liability whatsoever if they are unable to do so except as set forth
below), a no further action letter (which letter shall be permitted to contain
customary qualifications and exclusions, such as a right of the lead regulatory
agency to reopen its investigation based on additional information, and may be a
risk based no further action letter) from the lead regulatory agency in
connection with the known contamination located on such Properties as more
particularly described on Exhibit U-3 (an "NFA letter"). If Transferors are not
able to deliver to Buyer an NFA Letter with respect to any such Property on or
before the closing, then Transferors shall execute and deliver to Buyer at
closing with respect to any such Property as to which no NFA Letter has been
obtained, a remediation and access agreement in the form attached as Exhibit U-4
(the "Remediation and Access Agreement").
SECTION 6.8 [Intentionally Omitted]
SECTION 6.9 Completion Events.
(a) If the matters described on Exhibit R-1 are not
completed prior to the Closing Date, Transferors can elect, in its sole
discretion, as follows: (i) to provide Buyer with a credit to the Allocated
Price for such Property (if a credit amount is specified on Exhibit R-1 then in
the amount of the credit); (ii) if Transferors have entered into a fixed price
contract for each of such matters, to provide Buyer with a credit to the
Allocated Price for such Property
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equal to the difference between such fixed price and the substantiated amounts
paid by Transferors to the contractor under such contract; or (iii) if (i) and
(ii) do not apply, notify Buyer of Transferors' intent to submit to arbitration
pursuant to Section 7.5 below the determination of an appropriate credit based
on the portion of such matters to be completed after the closing, in which event
the closing shall not be delayed but Transferors shall credit to Buyer at
closing the amount that Transferors believe in good faith is appropriate;
provided, that the parties shall endeavor for thirty (30) days after closing to
reach a mutually acceptable credit prior to submitting such matter to
arbitration and that if it is determined pursuant to such arbitration that Buyer
should have received a larger credit at closing, then Transferors shall pay to
Buyer the amount of such difference, together with interest at nine percent (9%)
per annum, from the Closing Date for such Property to the date of payment of
such difference. Except as otherwise expressly provided in this Section 6.9, in
no event shall a closing be delayed as a result of the application of this
Section 6.9.
(b) With respect to the Property described on Exhibit R-2
attached hereto, (i) Transferors shall use commercially reasonable efforts to
cause the former Winn Dixie improvements to be demolished in order to permit the
construction of new improvements, which improvements are currently planned to be
leased to Payless and Eckerds, pursuant to leases currently under negotiation.
Transferors shall be responsible for the cost of any capital improvements to the
shopping center (including such new improvements) which are required under any
such leases and for the cost of and any tenant improvements and leasing
commissions (with respect to the initial term of such leases) payable by the
landlord in connection with such leases (and Transferors shall receive no credit
from Buyer for any such costs paid by Transferors); provided, that (A) if any
such leases are executed prior to the closing and any such capital improvements
or tenant improvements are not completed as of the closing, then Buyer shall
receive a credit at the closing against the Allocated Price for such Property
equal to the remaining cost to complete such work and the amount of any such
leasing commissions which remain unpaid, and (B) with respect to any such space
as to which no lease permitted under this Agreement or consented to by Buyer
(where such consent is required) has been executed by Transferors, then at the
closing Buyer shall receive a credit against the Allocated Price for such
Property equal to (x) the net present value of the projected income loss for
such space (if any) based on the difference between Buyer's financial models as
to rent and term for such space assuming such space was leased to Payless and/or
Eckerds, as applicable, and market assumptions (including, without limitation,
any lease-up deficit), discounted at 11.5% per annum, and (y) the cost of any
capital improvements required to realize the income that would have been
produced by leases to Eckerds and/or Payless, as applicable to the extent not
completed as of Closing. If the parties cannot agree in good faith on the amount
of the credit, then the matter shall be submitted to arbitration pursuant to
Section 7.5 below, in which event the closing shall not be delayed but
Transferors shall credit to Buyer at closing the amount that Transferors believe
in good faith is appropriate; provided, that if it is determined pursuant to
such arbitration that Buyer should have received a larger credit at closing,
then Transferors shall pay to Buyer the amount of such difference, together with
interest at nine percent (9%) per annum, from the Closing Date for such Property
to the date of payment of such difference; (ii) Transferors shall install a new
roof on the former Eckerds space; provided that if Transferors have not
completed such installation on or before the closing then Buyer shall receive a
credit for the cost to complete such installation as determined in the manner
described in Section 6.9(a); (iii) Transferors are negotiating with McDonalds in
connection with the lease of a pad at the
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shopping center and Transferors shall be responsible for the cost of any of
landlord's obligations in connection with the consummation of and required under
the terms of such lease, including leasing commissions and pad preparation
costs; provided that (A) if such lease is executed prior to the closing, to the
extent any such obligations have not been paid by Transferors prior to the
closing, Buyer shall receive a credit for the cost of such unpaid obligations as
determined in the manner described in Section 6.9(a) and (B) if such lease is
not executed prior to the closing, Buyer shall receive a credit against the
Allocated Price for such Property in the amount of $110,000; and (iv)
Transferors shall use commercially reasonable efforts to complete with respect
to the area from and including the former Eckerd's space to the end of the
shopping center certain cosmetic renovations consistent with the portion of such
center that has already been cosmetically renovated, the cost of which has been
budgeted at less than $150,000; provided that if Transferors have not completed
such renovations on or before the closing, then Buyer shall receive a credit for
the cost to complete such renovations.
(c) With respect to the Property described on Exhibit R-3
attached hereto, (i) Transferors and Buyer agree that the amount of $305,000
(the "Totem Amount") shall be used by Transferors for certain renovations and
deferred maintenance at the Property (the "Totem Work") as directed by Buyer and
pursuant to any budget Buyer provides to Transferors with Transferors'
reasonable approval and Transferors shall use good faith efforts to utilize such
funds to implement the Totem Work in a good and workmanlike manner; provided,
that at the closing, Buyer shall receive a credit against the Allocated Price
for such Property equal to the Totem Amount less the amount actually expended by
Transferors in performing or causing to be performed the Totem Work; and (ii)
with respect to the space formerly occupied by Ernst and the adjacent 5000
square foot space planned for development adjacent to such space, Transferors
are presently negotiating leases with potential tenants for such space, and
Transferors shall be responsible for the cost of any capital improvements to the
shopping center which are required under any such leases and for the cost of any
tenant improvements and leasing commissions (with respect to the initial term of
such leases) payable by the landlord in connection with such leases (and
Transferors shall receive no credit from Buyer for any such costs paid by
Transferors); provided, that (A) if any such leases are executed prior to the
closing and any such capital improvements or tenant improvements are not
completed as of the closing, then Buyer shall receive a credit at the closing
against the Allocated Price for such Property equal to the remaining cost to
complete such work and the amount of any such leasing commissions which remain
unpaid, and (B) with respect to any such space as to which no lease permitted
under this Agreement or consented to by Buyer (where such consent is required)
has been executed by Transferors, then at the closing Buyer shall receive a
credit against the Allocated Price for such Property equal to (x) the net
present value of the projected income loss for such space (if any) based on the
difference between Buyer's financial models as to rent and term for such space
assuming such space was leased to Ross, Car Toys and/or Confetti's, as
applicable, and market assumptions (including, without limitation, any lease-up
deficit), discounted at 11.5% per annum, and (y) the cost of any capital
improvements required to realize the income that would have been produced by
leases to Ross, Car Toys and/or Confetti's, as applicable to the extent not
completed as of Closing. If the parties cannot agree in good faith on the amount
of the credit, then the matter shall be submitted to arbitration pursuant to
Section 7.5 below, in which event the closing shall not be delayed but
Transferors shall credit to Buyer at closing the amount that Transferors
determine, in its reasonable discretion, to be appropriate; provided, that if it
is determined pursuant to such arbitration that Buyer should have received a
larger credit at
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closing, then Transferors shall pay to Buyer the amount of such difference,
together with interest at nine percent (9%) per annum, from the Closing Date for
such Property to the date of payment of such difference.
(d) If the matters described on Exhibit R-4 are not
completed prior to the Closing Date with respect to such Property, Transferors
can elect, in its sole discretion, as follows: (i) to provide Buyer with a
credit to the Allocated Price for such Property (if a credit amount is specified
on Exhibit R-4 then in the amount of the credit); (ii) if Transferors have
entered into a fixed price contract for the applicable matter, to provide Buyer
with a credit to the Allocated Price for such Property equal to the difference
between such fixed price and the substantiated amounts paid by Transferors to
the contractor under such contract; or (iii) if (i) and (ii) do not apply,
notify Buyer of Transferors' intent to submit to arbitration pursuant to Section
7.5 below the determination of an appropriate credit based on the portion of
such matter to be completed after the closing, in which event the closing shall
not be delayed but Transferors shall credit to Buyer at closing the amount that
Transferors believe in good faith is appropriate; provided, that the parties
shall endeavor for thirty (30) days after closing to reach a mutually acceptable
credit prior to submitting such matter to arbitration and that if it is
determined pursuant to such arbitration that Buyer should have received a larger
credit at closing, then Transferors shall pay to Buyer the amount of such
difference, together with interest at nine percent (9%) per annum, from the
Closing Date for such Property to the date of payment of such differences.
Except as otherwise expressly provided in this Section 6.9, in no event shall a
closing be delayed as a result of the application of this Section 6.9.
(e) General Provisions. All work performed by Transferors
under this Section 6.9 shall be performed in a good and workmanlike manner
substantially in accordance with all applicable laws. Nothing in this Section
6.9 is intended to limit or expand Buyer's approval rights contained in Section
4.2(c) or (d).
SECTION 6.10 Transferors' Covenant of Cooperation. Transferors
hereby agree to reasonably cooperate with Buyer or Buyer's auditors, at no
expense, liability or substantial accounting time to Transferors, prior to and
after the closing (but subject to the provisions of Section 2.4) (i) by
providing financial data pertaining to the Properties to the extent required by
the Securities and Exchange Commission ("SEC") or reasonably required to prepare
filings that Buyer intends to file with the SEC, including (to the extent so
required) the documentation requested on Exhibit T-1 (but without duplication of
any of the documents listed in the Disclosure Material List & Statement or
contained in the Disclosure Materials so long as continued access is provided to
such documents as were not delivered to Buyer) as it relates to the one (1) year
period immediately preceding the closing, and (ii) in delivering to Buyer's
auditors a certificate in the form of Exhibit T-2. Transferors shall provide
such documentation and deliver such certificate in each instance within ten (10)
business days after receipt of Buyer's reasonable request to do so. Without
limiting Transferors' representations and warranties contained in this Agreement
or Transferors' covenants contained in Section 4.2 or in any document executed
and delivered to Buyer by Transferors at closing, Buyer shall indemnify and hold
Transferors harmless from and against any and all claims, liabilities, losses,
damages, causes of action, costs and expenses (including, without limitation,
reasonable attorneys' fees and costs) to the extent relating to or arising out
of Transferors' performance of its obligations under this Section 6.10,
including, without limitation, any claims arising out of the reliance by
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third parties, including Buyer's auditors, on information provided by
Transferors under this Section 6.10. The provisions of this Section 6.10 shall
survive the closing
SECTION 6.11 UCC Financing Statements. If Buyer provides evidence
during the Confirmation Period of any UCC Financing Statements naming a
Transferor or any of its affiliates as debtor and encumbering a Property
(whether in connection with mortgages, deeds of trust or personal property
financings which are not assumed by Buyer), then Transferors shall use
reasonable efforts to cause the release of such UCC Financing Statements as soon
as practicable after the closing.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Damage or Destruction.
(a) Buyer shall be bound to purchase each of the Properties
as required by the terms of this Agreement without regard to the occurrence or
effect of any damage to or destruction of any of the Properties or condemnation
of any Property by right of eminent domain, provided that the occurrence of any
damage or destruction involves repair costs of less than the greater of
$1,000,000 or ten percent (10%) of the Property's Allocated Price, and any
condemnation does not materially affect the use or value of the affected
Property. If Buyer is so bound to purchase a Property notwithstanding the
occurrence of damage, destruction or condemnation, or if Buyer fails to elect to
treat the applicable Property as a Deleted Property pursuant to Section 7.1(b)
below then upon the closing: (i) in the event of damage covered by insurance or
an immaterial condemnation, Buyer shall receive a credit against the Allocated
Price for such Property in the amount (net of collection costs and costs of
repair reasonably incurred by Transferors and not then reimbursed) of any
insurance proceeds or condemnation award collected and retained by Transferors
as a result of any such damage or destruction or condemnation plus (in the case
of damage) the amount of the deductible portion of Transferors' insurance
policy, and Transferors shall assign to Buyer all rights to such net insurance
proceeds or condemnation awards as shall not have been collected prior to the
close of escrow; and (ii) in the event of damage not covered by insurance, Buyer
shall receive a credit (not to exceed the greater of $1,000,000 or ten percent
(10%) of the Property's Allocated Price for each affected Property) in the
amount of the estimated cost to repair the damage.
(b) If, prior to the Closing Date, any Property suffers
damage or destruction that involves repair costs in excess of the greater of
$1,000,000 or ten percent (10%) of the Property's Allocated Price or
condemnation which affects the use or value of the Property in other than a
minor and immaterial manner, then Buyer may elect to treat such Property as a
Deleted Property by giving written notice of such election to Transferors
promptly following Buyer's knowledge of the event and extent of damage,
destruction or condemnation. In the event of the deletion of any Property
pursuant to this Section 7.1(b), the parties shall be bound to consummate the
purchase and sale of the balance of the Properties in accordance with this
Agreement and the Price shall be reduced by an amount equal to the Allocated
Price of the Deleted Property.
SECTION 7.2 Fees & Commissions.
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(a) Each party to this Agreement warrants to the other
that, except as otherwise provided in subparagraph (b) below, no person or
entity can properly claim a right to a real estate or investment banker's
commission, finder's fee, acquisition fee or other brokerage-type compensation
(collectively, "Real Estate Compensation") based upon the acts of that party
with respect to the transaction contemplated by this Agreement. Each party
hereby agrees to indemnify and defend the other against and to hold the other
harmless from any and all loss, cost, liability or expense (including but not
limited to attorneys' fees and returned commissions) resulting from any claim
for Real Estate Compensation by any person or entity based upon such acts.
(b) The parties hereby acknowledge that Morgan Stanley Dean
Witter has acted as Transferors' investment bankers in connection with this
transaction. Transferors shall be responsible for paying any commission or fees
due to such parties in connection with this transaction.
SECTION 7.3 Successors and Assigns. Buyer may not assign any of
Buyer's rights or duties hereunder without the prior written consent of
Transferors, which may be withheld in Transferors' sole discretion; provided,
however, that Buyer shall have the right to assign all or a portion of its
rights hereunder to an entity which is at least 75% owned, directly or
indirectly, by Buyer, without the prior consent of Transferors, except that any
such assignment to such an affiliate of Buyer shall not relieve Buyer of any of
its obligations under this Agreement.
SECTION 7.4 Notices. Any notice, consent or approval (or request
for consent or approval) required or permitted to be given under this Agreement
shall be in writing and shall be given or requested by (i) hand delivery, (ii)
Federal Express or another reliable overnight courier service, (iii) facsimile
telecopy, or (iv) United States mail, registered or certified mail, postage
prepaid, return receipt required, and addressed as follows:
To Transferors:
c/o AMB Property, L.P.
505 Montgomery Street, Fifth Floor
San Francisco, CA 94111
Attn: W. Blake Baird
Fax No.: (415) 394-9001
and
AMB Property, L.P.
505 Montgomery Street, Fifth Floor
San Francisco, CA 94111
Attn: General Counsel
Fax No.: (415) 394-9001
with a copy to:
Morrison & Foerster LLP
755 Page Mill Road
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Palo Alto, California 94304-1018
Attn: Philip J. Levine
Fax No.: (650) 494-0792
To Buyer:
Burnham Pacific Properties, Inc.
100 Bush Street, Suite 2400
San Francisco, CA 94104
Attn: General Counsel
Fax No.: (650) 352-1711
with a copy to:
David Krotine, Esq.
McDonough, Holland & Allen
5555 Capitol Mall, 9th Flr.
Sacramento, CA 94814
Fax No.: (916) 444-5918
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
Attn: Christopher B. Barker, P.C.
Fax No.: 617-227-8591
Any such notice, consent or approval (or request for consent or approval) shall
be deemed given or requested (i) if given by hand delivery, upon such hand
delivery, (ii) one (1) business day after being deposited with Federal Express
or another reliable overnight courier service, (iii) if sent by facsimile, the
day the facsimile is successfully transmitted, or (iv) if sent by registered or
certified mail, three (3) business days after being deposited in the United
States mail. Any address or name specified above may be changed by notice given
to the addressee by the other party in accordance with this Section 7.4. The
inability to deliver because of a changed address of which no notice was given,
or rejection or other refusal to accept any notice, shall be deemed to be the
receipt of the notice as of the date of such inability to deliver or rejection
or refusal to accept. Any notice to be given by any party hereto may be given by
the counsel for such party.
SECTION 7.5 ARBITRATION OF DISPUTES. CONTROVERSIES OR CLAIMS TO BE
SUBMITTED TO ARBITRATION PURSUANT TO SECTIONS 2.5, 2.6 OR 6.9 ABOVE SHALL BE
RESOLVED BY ARBITRATION CONDUCTED IN ACCORDANCE WITH THE CALIFORNIA CODE OF
CIVIL PROCEDURE SECTION 1280 ET SEQ. AND UNDER THE REAL ESTATE INDUSTRY RULES OF
THE AMERICAN ARBITRATION ASSOCIATION ("AAA RULES"), EXCEPT THAT WITH RESPECT TO
ANY INSTANCE IN WHICH THE ARBITRATION RELATES SOLELY TO A DISPUTE OVER THE
AMOUNT OF A PRICE ADJUSTMENT, ANY SUCH ARBITRATION SHALL BE SO CALLED
"BASEBALL-
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STYLE" SUCH THAT EACH PARTY SHALL STATE A SINGLE AMOUNT AS ITS POSITION ON THE
ISSUE BEING ARBITRATED AND A SINGLE ARBITRATOR SHALL BE REQUIRED TO SELECT ONE
OF THE AMOUNTS STATED BY THE PARTIES, AND SHALL HAVE NO RIGHT TO DECIDE A
DIFFERENT AMOUNT OR OTHERWISE TAKE A DIFFERENT POSITION. THE ARBITRATOR(S) SHALL
GIVE EFFECT TO SUBSTANTIVE AND PROCEDURAL LAW OF THE STATE OF CALIFORNIA
INCLUDING, WITHOUT LIMITATION, THE STATUTES OF LIMITATION IN DETERMINING ANY
CLAIM (BUT EXCLUDING PRINCIPLES RELATING TO CONFLICTS OF LAWS). ANY CONTROVERSY
CONCERNING WHETHER AN ISSUE IS ARBITRABLE SHALL BE DETERMINED BY THE
ARBITRATOR(S). ALL DECISIONS BY THE ARBITRATOR(S) SHALL BE IN WRITING AND COPIES
OF THE DECISIONS SHALL BE DELIVERED TO EACH PARTY.
ARBITRATION SHALL TAKE PLACE IN SAN FRANCISCO, CALIFORNIA AT A LOCATION MUTUALLY
ACCEPTABLE TO THE PARTIES OR AS DESIGNATED BY THE ARBITRATOR(S) IF THE PARTIES
CANNOT AGREE ON A LOCATION. THE DECISION BY THE ARBITRATOR(S) SHALL BE ISSUED NO
LATER THAN SIXTY (60) DAYS AFTER THE DATE ON WHICH THE INITIATING PARTY GIVES
WRITTEN NOTICE TO THE OTHER PARTY OF ITS INTENTION TO ARBITRATE, WHICH NOTICE
SHALL COMPLY WITH THE REQUIREMENTS OF THE AAA RULES AND THREE COPIES OF SUCH
NOTICE SHALL BE FILED AT THE REGIONAL OFFICE OF AAA IN SAN FRANCISCO, CALIFORNIA
AS PROVIDED IN THE AAA RULES.
JUDGMENT UPON THE ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR JUDICIAL RELIEF
OR PURSUIT OF A PROVISIONAL OR ANCILLARY REMEDY SHALL NOT CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR
CLAIM TO ARBITRATION IF ANY OTHER PARTY CONTESTS SUCH ACTION FOR JUDICIAL
RELIEF.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE `ARBITRATION OF DISPUTES' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW 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, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
`ARBITRATION OF DISPUTES' PROVISION. 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.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE `ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION.
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_____________________ __________________________
BUYER'S INITIALS TRANSFEROR'S INITIALS
SECTION 7.6 Entire Agreement. Excepting solely the Confidentiality
Agreements, this Agreement and the attached exhibits, which are by this
reference incorporated herein, and all documents in the nature of such exhibits,
when executed, contain the entire understanding of the parties and supersede any
and all other written or oral understanding.
SECTION 7.7 Time. Time is of the essence of every provision
contained in this Agreement.
SECTION 7.8 Incorporation by Reference. All of the exhibits
attached to this Agreement or referred to herein and all documents in the nature
of such exhibits, when executed, are by this reference incorporated in and made
a part of this Agreement.
SECTION 7.9 Attorneys' Fees. In the event any dispute between Buyer
and any of Transferors should result in litigation or arbitration, including,
without limitation, arbitration pursuant to Section 7.5 above, the prevailing
party shall be reimbursed for all reasonable costs incurred in connection with
such litigation or arbitration, including, without limitation, reasonable
attorneys' fees and costs.
SECTION 7.10 Construction. The parties acknowledge that each party
and its counsel have reviewed and revised this Agreement and that the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement or any amendments or exhibits hereto.
SECTION 7.11 Governing Law. This Agreement shall be construed and
interpreted in accordance with and shall be governed and enforced in all
respects according to the laws of the State of California (without giving effect
to conflicts of laws principles).
SECTION 7.12 Operating Records. Each party agrees to make available
to the other party from time to time, but not more frequently than quarterly,
upon reasonable notice, for a period of two years following the Closing Date,
such party's operating records for the Properties, to the extent such party has
operating records, in order to permit the requesting party to prepare such
historical financial statements for the Properties as such party requires to
satisfy legal or contractual obligations. The party making its operating records
available shall have no obligation to prepare any operating statements or incur
any expense in connection with the provisions of this section.
SECTION 7.13 Confidentiality. Buyer and Transferors each acknowledge
and agree that this Agreement and the terms and conditions set forth are to be
kept confidential unless and until the closing occurs on the Closing Date in
accordance with and subject to the terms of this Section 7.13 and the
Confidentiality Agreements. Without limiting the obligations of Buyer's
constituent partners under the Confidentiality Agreements, each party shall be
entitled to discuss and disclose the transaction with employees, agents,
consultants, lenders, clients and
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representatives of such party -- each of whom shall be directed by the
disclosing party to maintain such information in confidence. Notwithstanding
anything to the contrary contained in this Section 7.13, following the full
execution of this Agreement and Buyer's delivery of the Deposit to Title
Company, the parties shall issue a joint press release with respect to this
transaction, which press release shall be in the form attached hereto as Exhibit
J. The Transferors agree that nothing in this Section shall prevent Buyer from
disclosing any information otherwise deemed confidential under this Section (i)
in connection with Buyer's enforcement of its rights hereunder or (ii) pursuant
to any legal requirement applicable to Buyer, including, without limitation, any
securities laws, any reporting requirement or any accounting or auditing
standard.
SECTION 7.14 Counterparts. This Agreement may be executed in one or
more counterparts. All counterparts so executed shall constitute one contract,
binding on all parties, even though all parties are not signatory to the same
counterpart.
SECTION 7.15 Transferors' Representative. Buyer shall be entitled to
rely upon any notice, approval or decision expressed by any of the Knowledge
Persons acting alone on behalf of all of the Transferors.
SECTION 7.16 No Liability. Notwithstanding anything to the contrary
contained herein, in no event shall Calpers, which is a constituent member of
Buyer, or any of its trustees, directors or employees, have any personal
liability under this Agreement.
SECTION 7.17 Escrow Provisions.
(a) By its signature below, Title Company acknowledges
receipt of the Deposit (whether in the form of cash or a Letter of Credit).
Title Company agrees to hold the Deposit (whether in the form of cash or a
Letter of Credit) in escrow pursuant to the provisions of this Agreement for
application in accordance with the provisions of this Agreement, including the
following terms:
(1) Title Company shall have no duties or
responsibilities other than those expressly set forth in this Agreement. Title
Company shall have no duty to enforce any obligation of any person to make any
payment or delivery or to enforce any obligation of any person to perform any
other act. Title Company shall be under no liability to the other parties hereto
or to anyone else by reason of any failure on the part of any party hereto or
any maker, guarantor, endorser or other signatory of any document or any other
person to perform such person's obligations under any such document. Except for
this Agreement, amendments to this Agreement executed by Transferors and Buyer
and except for joint written instructions given to Title Company by Transferors
and Buyer relating to the Deposit, Title Company shall not be obligated to
recognize any agreement between any or all of the persons referred to herein,
notwithstanding that references thereto may be made herein and whether or not it
has knowledge thereof.
(2) In its capacity as Title Company, Title Company
shall not be responsible for the genuineness or validity of any security,
instrument, document or item deposited with it and shall have no responsibility
other than to faithfully follow the instructions
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contained in this Agreement, and subject to the terms hereof, it is fully
protected in acting in accordance with any written instrument given to it
hereunder by any of the parties hereto and believed by Title Company to have
been signed by the proper person. Title Company may assume that any person
purporting to give any notice hereunder has been duly authorized to do so. Title
Company is acting as a stakeholder only with respect to the Deposit. If there is
any dispute or uncertainty concerning any action to be taken hereunder, Title
Company shall have the right to take no action (other than to make demand for
the principal amount of any portion of the Deposit in the form of a Letter of
Credit as may be required under this Agreement which demand shall be made as so
required by this Agreement notwithstanding any contrary instructions by Buyer
unless approved in writing by Transferors) until it shall have received
instructions in writing approved by Transferors and Buyer or until directed by a
final order of judgment of a court of competent jurisdiction, whereupon Title
Company shall take such action in accordance with such instructions or such
order.
(3) It is understood and agreed that the duties of
Title Company are purely ministerial in nature. Title Company shall not be
liable to the other parties hereto or to anyone else for any action taken or
omitted by it, or any action suffered by it to be taken or omitted, in good
faith and in the exercise of reasonable judgment, except for acts of willful
misconduct or gross negligence. Title Company may rely conclusively and shall be
protected in acting upon any order, notice, demand, certificate, opinion or
advice of counsel (including counsel chosen by Title Company), statement,
instrument, report or other paper or document (not only as to its due execution
and the validity and effectiveness of its provisions, but also as to the truth
and accuracy of any information therein contained) which is reasonably believed
by Title Company to be genuine and signed or presented by the proper person or
persons. Title Company shall not be bound by any notice or demand, or any
waiver, modification, termination or rescission of this Agreement or any of the
terms hereof, unless evidenced by a final judgment or decree of a court of
competent jurisdiction in the State of California or a Federal court in such
State, or a writing delivered to Title Company signed by the proper party or
parties and, if the duties or rights of Title Company are affected, unless it
shall give its prior written consent thereto.
(4) Title Company shall have the right to assume in
the absence of written notice to the contrary from the proper person or persons
that a fact or an event by reason of which an action would or might be taken by
Title Company does not exist or has not occurred, without incurring liability to
the other parties hereto or to anyone else for any action taken or omitted, or
any action suffered by it to be taken or omitted, in good faith and in the
exercise of reasonable judgment, in reliance upon such assumption.
(5) Except in connection with Title Company's willful
misconduct or gross negligence, Title Company shall be indemnified and held
harmless jointly and severally by the other parties hereto from and against any
and all liabilities, expenses and losses suffered by Title Company (as escrow
agent), including reasonable attorneys' fees and expenses, in connection with
any action, suit or other proceeding involving any claim, which arises out of or
relates to this Agreement, the services of Title Company hereunder or the monies
or instruments held by it hereunder. Promptly after the receipt by Title Company
of notice of any demand or claim or the commencement of any action, suit or
proceeding, Title Company shall, if a demand or a claim is made or an action is
commenced against any of the other parties hereto, notify such
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other parties hereto in writing; but the failure by Title Company to give such
notice shall not relieve any party from any liability which such party may have
to Title Company hereunder.
SECTION 7.18 State Specific Provisions.
(a) In regards to Real Property located in California:(a)
(i) Buyer is hereby apprised of and shall
determine whether any Real Property is located within the coastal zone under the
California Coastal Act.
(ii) Buyer is hereby apprised of and shall
determine whether any Real Property is located within a special studies zone
under the Alquist-Priolo Geologic Hazard Act.
(iii) To the extent required by law, Transferors
and Buyer agree to provide a Real Estate Transfer Disclosure Statement.
(iv) Transferors shall provide Buyer with a form
California 590-RE.
(b) In regards to Real Property located in Florida:
(i) Buyer is notified as follows: RADON GAS:
Radon is a naturally occurring radioactive gas that, when it has accumulated in
a building in sufficient quantities, may present health risks to persons who are
exposed to it over time. Levels of radon that exceed federal and state
guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public health
unit.
(ii) THE REAL PROPERTY MAY BE LOCATED IN A
DISTRICT THAT IMPOSES TAXES OR ASSESSMENTS, OR BOTH TAXES AND ASSESSMENTS, ON
THE REAL PROPERTY THROUGH A SPECIAL TAXING DISTRICT. THESE TAXES AND ASSESSMENTS
PAY THE CONSTRUCTION, OPERATION AND MAINTENANCE COSTS OF CERTAIN PUBLIC
FACILITIES OF THE DISTRICT AND ARE SET ANNUALLY BY THE GOVERNING BOARD OF THE
DISTRICT. THESE TAXES AND ASSESSMENTS ARE IN ADDITION TO COUNTY AND ALL OTHER
TAXES AND ASSESSMENTS PROVIDED FOR BY LAW.
(iii) Buyer is hereby apprised of and shall
determine whether any Real Property is located within the coastal construction
control line and Buyer shall waive in writing at closing the requirement of
Transferors to provide an affidavit or survey delineating the location of the
coastal construction control line.
(iv) Buyer is hereby apprised that Buyer has the
right to have the energy-efficiency rating determined. If Buyer desires to have
the Real Property rated, Buyer must arrange to have the energy-efficiency rating
determination performed at Buyer's expense. The energy rating so determined
shall not, however, entitle Buyer to cancel this Agreement since such rating is
not a contingency of this Agreement.
(c) In regards to Real Property located in Texas
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(i) Buyer is hereby apprised of and shall
determine whether any of the Real Property is located seaward of the Gulf
Intercoastal Waterway to its southernmost point and then seaward of the
longitudinal line also known as 97,12', 19" which runs southerly to the
international boundary from the intersection of the center line of the Gulf
Intercoastal Waterway and the Brownsville Ship Channel, and if any of the Real
Property is in close proximity to a beach fronting the Gulf of Mexico, Buyer is
hereby advised that the public has acquired a right of use or easement to or
over the area of any public beach by prescription, dedication, or presumption,
or has retained a right by virtue of continuous right in the public since time
immemorial, as recognized in law and custom.
The extreme seaward boundary of natural vegetation that
spreads continuously inland customarily marks the landward boundary of the
public easement. If there is no clearly marked natural vegetation line, the
landward boundary of the easement is as provided by Sections 61.016 and 61.017,
Natural Resources Code.
State law prohibits any obstruction, barrier, restraint, or
interference with the use of the public easement, including the placement of
structure seaward of the landward boundary of the easement. STRUCTURES ERECTED
SEAWARD OF THE VEGETATION LINE (OR OTHER APPLICABLE EASEMENT BOUNDARY) OR THAT
BECOME SEAWARD OF THE VEGETATION LINE AS A RESULT OF NATURAL PROCESSES ARE
SUBJECT TO A LAWSUIT BY THE STATE OF TEXAS TO REMOVE THE STRUCTURE.
Buyer is hereby notified that Buyer should seek the advice of an attorney or
other qualified person before executing this Agreement or instrument of
conveyance as to the relevance of these statutes and facts to the value of any
of the Real Property Buyer is hereby purchasing or contracting to purchase.
(ii) Buyer is hereby apprised of and shall
determine whether any of the Real Property is located within a Water District.
If any of the Real Property is located within a Water District, Buyer is
notified as follows [to the extent required, missing information to be
completed, if applicable, by Transferors on or before the closing.]:
"The real property, described below, that you are about to purchase is
located in the _________District. The district has taxing authority
separate from any other taxing authority and may, subject to voter
approval, issue an unlimited amount of bonds and levy an unlimited rate
of tax in payment of such bonds. As of this date, the rate of taxes
levied by the district on real property located in the district is
$________________on each $100 of assessed valuation. If the district
has not yet levied taxes, the most recent projected rate of debt
service tax, as of this date, is $__________on each $100 of assessed
valuation. The total amount of bonds approved by the voters and which
have been or may, at this date, be issued is $_________, and the
aggregate initial principal amounts of all bonds issued for one or more
of the specified facilities of the district and payable in whole or in
part from property taxes is $__________.
The district has the authority to adopt and impose a standby fee on
property in the district that has water, sanitary sewer, or drainage
facilities and services available
49
<PAGE> 53
but not connected and which does not have a house, building, or other
improvement located thereon and does not substantially utilize the
utility capacity available to the property. The district may exercise
the authority without holding an election on the matter. As of this
date, the most recent amount of the standby fee is $____________. An
unpaid standby fee is a personal obligation of the person that owned
the property at the time of imposition and is secured by a lien on the
property. Any person may request a certificate from the district
stating the amount, if any, of unpaid standby fees on a tract of
property in the district.
The purpose of this district is to provide water, sewer, drainage, or
flood control facilities and services within the district through the
issuance of bonds payable in whole or in part from property taxes. The
cost of these facilities is not included in the purchase price of your
property, and these utility facilities are owned or to be owned by the
district. The legal description of the property you are acquiring is as
follows:
_______________________________________________________________________
_______________________________________________________________________
BUYER IS ADVISED THAT THE INFORMATION SHOWN ON THIS FORM IS SUBJECT TO
CHANGE BY THE DISTRICT AT ANY TIME. THE DISTRICT ROUTINELY ESTABLISHES
TAX RATES DURING THE MONTHS OF SEPTEMBER THROUGH DECEMBER OF EACH YEAR,
EFFECTIVE FOR THE YEAR IN WHICH THE TAX RATES ARE APPROVED BY THE
DISTRICT. BUYER IS ADVISED TO CONTACT THE DISTRICT TO DETERMINE THE
STATUS OF ANY CURRENT OR PROPOSED CHANGES TO THE INFORMATION SHOWN ON
THIS FORM.
The undersigned Buyer hereby acknowledges receipt of the foregoing
notice at or prior to execution of a binding contract for the purchase
of the real property described in such notice or at closing of purchase
of the real property.
50
<PAGE> 54
IN WITNESS WHEREOF, Transferors and Buyer have executed this Agreement as of the
day and year first written above.
Buyer:
BPP RETAIL, LLC,
a Delaware limited liability company
By: Burnham Pacific Operating Partnership, L.P.
a Delaware limited partnership
Its Managing Member
By: Burnham Pacific Properties, Inc.
Its general partner
By: ____________________________
Name: __________________________
Title: _________________________
By: ____________________________
Name: __________________________
Title: _________________________
Transferors:
AMB Property, L.P.
a Delaware limited partnership
By: AMB Property Corporation
Its general partner
By:________________________________
Its:_______________________________
AMB Property II, L.P.
a Delaware limited partnership
By: AMB Property Holding Corporation
Its general partner
By:_________________________________
Its_________________________________
51
<PAGE> 55
The undersigned party is joining this Agreement solely for the purpose of
acknowledging and agreeing to the provisions of Article V and Section 7.17
hereof and any other provisions of this Agreement expressly applicable to Title
Company.
CHICAGO TITLE COMPANY
By: ____________________________
Name: __________________________
Title: _________________________
52
<PAGE> 1
EXHIBIT 10.4
AMB PROPERTY CORPORATION
DIVIDEND REINVESTMENT AND DIRECT PURCHASE PLAN
JULY 9, 1999
1. PURPOSE AND ADMINISTRATION
AMB Property Corporation, a Maryland corporation (the "Company"),
has adopted three plans for the direct purchase of shares of the Company's
common stock, par value $.01 per share (the "Common Stock"): (i) the Dividend
Reinvestment Program (the "DRIP"); (ii) the Discount Stock Purchase Plan (the
"DSPP"); and (iii) the Waiver Discount Plan (the "WDP"). The DRIP, DSPP and WDP
are collectively referred to as the "Plan." The purpose of the Plan is to
provide existing stockholders of the Company with an opportunity to invest
automatically the cash dividends paid upon shares of the Company's Common Stock
held by them, as well as to permit existing and prospective stockholders to make
voluntary cash purchases of such Common Stock. BankBoston N.A as agent, or such
successor plan administrator as we may designate (the "Agent"), will administer
the Plan. EquiServe L.L.C., a registered transfer agent, will provide certain
administrative support to the Agent.
2. PARTICIPATION
Any existing holder of shares of Common Stock with any of such
shares registered in his or her name on the records of the Agent and, with
respect to the DSPP and WDP, certain other persons as described below, may
enroll in the Plan (any such person so enrolled in the Plan is referred to
herein as a "Participant"). Beneficial owners of shares of Common Stock
registered in the name of another person or entity must make arrangements for
that person or entity to handle investment or reinvestment with respect to
dividends received upon such shares, or must arrange to have such shares
registered in the beneficial owner's name in order to participate.
If a Participant holds shares registered in the name of another
person, a Broker/Nominee Form ("B/N Form") provides the sole means whereby a
broker, bank or other nominee holding shares on a Participant's behalf may
request an Optional Cash Purchase for the Participant. In such case, the broker,
bank or other nominee must use a B/N Form for transmitting Optional Cash
Purchases on the Participant's behalf. A B/N Form must be delivered to the Agent
each time that such broker, bank or other nominee transmits Optional Cash
Purchases on the Participant's behalf. A Participant may request a B/N Form from
the Agent in writing or by telephone.
To enroll in the Plan, a prospective Participant must complete and
sign an enrollment form, substantially in the form attached hereto as Exhibit
A-1 or Exhibit A-2
<PAGE> 2
(collectively the "Enrollment Form") and return it to the Agent and, if
applicable, a Request for Waiver, substantially in the form attached hereto as
Exhibit B (the "Request for Waiver"), and return it to the Company. If the
shares of Common Stock are registered in the more than one name (such as joint
tenants, trustees, etc.), all registered holders must sign an Enrollment Form
and, if applicable, the Request for Waiver.
A prospective Participant may join the Plan at any time.
Participation in the DRIP will begin with the first dividend payment after an
Enrollment Form, designating the reinvestment of dividends, is received by the
Agent, provided there is sufficient time for processing prior to the next
dividend record date. Participation in the DSPP will begin concurrently with the
first DSPP Investment Date after an Enrollment Form and the DSPP Payment (as
defined below) are received by the Agent, provided the payment is received two
full business days prior to the next DSPP Investment Date. Participation in the
WDP will begin upon commencement of the first Investment Period (as defined
below) after the Request for Waiver, approved by the Company, and the WDP
Payment (as defined below) are received by the Agent, provided the payment is
received two full business days prior to the next Investment Period.
By selecting the "Partial Reinvestment" option on the Enrollment
Form, stockholders may elect to receive cash dividends on a specified number of
their shares, and reinvest the dividends on the balance of such shares. A
Participant may change the dividend reinvestment option at any time by
submitting a newly executed Enrollment Form to the Agent or by writing to the
Agent. Enrollment Forms may be obtained by contacting the Agent at the address
set forth in Section 22. Any change in the number of shares with respect to
which the Agent is authorized to reinvest dividends must be received by the
Agent prior to the record date for a dividend to permit the new number of shares
to apply to that dividend.
3. DIVIDEND REINVESTMENT
Purchases of shares of Common Stock with reinvested dividends shall
occur on the dividend payment date or on the actual date of purchase if the
Company directs the Agent to extend the period used to purchase shares in the
open market or in privately negotiated transactions for up to an additional
trading 15 days after the applicable dividend payment date. Shares of Common
Stock purchased with such reinvested dividends shall be, at the Company's
option, either from (i) authorized but unissued shares of Common Stock or (ii)
shares of Common Stock purchased by the Agent in open market or privately
negotiated transactions. In either case, such shares of Common Stock will be
sold to the Participant at a price per share determined in accordance with
Section 5 hereof.
4. OPTIONAL CASH PURCHASES
A voluntary cash purchase may be made under either the DSPP or WDP
(the "Optional Cash Purchase") at the time a Participant enrolls in the Plan,
and thereafter from time to time as set forth below. Participants may make
Optional Cash Purchases under the
<PAGE> 3
DSPP by delivering a check or money order payable to AMB Investment Plan to the
Agent at the address set forth herein. Participants may make Optional Cash
Purchases under the WDP by transmitting immediately available funds to the Agent
to the account referenced on the Request for Waiver. Participants should send
all inquiries regarding other forms of payments and all other written inquiries
directly to the Agent at its address set forth in Section 22.
A. Direct Share Purchase Plan.
Any Participant may purchase additional shares of Common Stock under
the DSPP by delivering to the Agent a check or money order in U.S. currency made
payable to AMB Investment Plan at the address set forth in Section 22. Wire
transfers are not permitted for purchases under the DSPP. Under the DSPP, the
purchase of shares of Common Stock by a Participant will occur on the next DSPP
Investment Date following the date on which the Agent receives the DSPP Payment;
provided, however, that if any DSPP Payment is received less than two full
business days before the second DSPP Investment Date following the date the
payment is received by the Agent, such DSPP Payment will be used to purchase
shares of Common Stock on the next DSPP Investment Date following the date on
which the Agent receives the DSPP Payment if the Agent determines, in its sole
discretion, that insufficient time exists to process the DSPP Payment prior to
the next DSPP Investment Date. The aggregate amount of any DSPP Payment of a
Participant used to purchase shares of Common Stock during any calendar month
shall not be less than $500 nor more than $5,000. Shares of Common Stock
purchased under the DSPP shall be, at the Company's option, either from (i)
authorized but unissued shares of Common Stock or (ii) shares of Common Stock
purchased by the Agent in open market or privately negotiated transactions. In
either case, such shares of Common Stock will be sold to the Participant at a
price per share determined in accordance with Section 5.
B. Waiver Discount Plan.
Any Participant may purchase additional shares of Common Stock under
the WDP by transferring immediately available funds to the account referenced in
the Request for Waiver. The Agent must also receive written approval from the
Company of the Request for Waiver at least one full business day before the next
Investment Period. Under the WDP, a Participant shall purchase the maximum
number of shares of Common Stock that may be purchased on each trading day
during the applicable Investment Period (as defined below) with 1/12th of the
WDP Payment at a price per share equal to the average of the average high and
low price per share on that particular trading day during the applicable
Investment Period as reported by the New York Stock Exchange or, if the Common
Stock is not then listed on the New York Stock Exchange, any other securities
exchange or national quotation service on which the Common Stock is then traded
or listed for quotation, less a discount of up to 5% in the case of purchases of
previously unissued shares of Common Stock, subject to any applicable Threshold
Price (as defined below) established pursuant to Section 4.C below (the
"Investment Period Average Purchase Price"). "Investment Period" means the
period of twelve (12) consecutive trading days
<PAGE> 4
during any calendar month commencing on a date determined at the sole discretion
of the Company. Under the WDP, the purchase of shares of Common Stock by a
Participant will occur on each trading day during the Investment Period on which
shares are traded on the NYSE and, if applicable, on which the average of the
high and low sales price per share, as reported on the NYSE, exceeds the
applicable Threshold Price. Under the WDP, a Participant will acquire, on each
such trading day, all rights of ownership with respect to the shares of Common
Stock purchased on such day, including without limitation, the right to dispose
of or vote such shares. The WDP Payment must be received by the Agent not less
than two full business days before the commencement of the Investment Period;
provided, however, that if any WDP Payment is received less than two full
business days before the commencement of an Investment Period, such WDP Payment
will be used to purchase shares of Common Stock on the second Investment Period
following the date on which the Agent receives the WDP Payment if the Agent
determines, in its sole discretion, that insufficient time exists to process the
WDP Payment prior to commencement of the next Investment Period. The aggregate
amount of any WDP Payment of a Participant used to purchase shares of Common
Stock during any calendar month shall not be less than $5,000. Shares of Common
Stock purchased under the WDP shall be, at the Company's option, either from (i)
authorized and unissued shares of Common Stock or (ii) shares of Common Stock
purchased by the Agent in open market or privately negotiated transactions. In
either case, such shares of Common Stock will be sold to the Participant at a
price per share determined in accordance with Section 5.
C. Threshold Pricing.
The Company may elect to establish for any Investment Period a minimum
threshold price (a "Threshold Price") applicable to Optional Cash Purchases made
under the WDP with respect to the purchase of newly issued shares of Common
Stock not later than three business days prior to the first day of the
applicable Investment Period. The Threshold Price, if any, shall be determined
by the Company in its sole discretion after reviewing the current market
conditions and shall be the per share price that the average of the high and low
prices of the Common Stock as reported on the New York Stock Exchange must equal
or exceed for each trading day of the relevant Investment Period. In the event
that (i) the average per share sale price does not equal or exceed the Threshold
Price for any particular trading day in the Investment Period or (ii) no trades
of Common Stock are made on the New York Stock Exchange on a day in the
Investment Period, then the Company shall exclude that trading day from the
Investment Period. The Agent shall return to a Participant one-twelfth of that
Participant's Optional Cash Purchase for each trading day of an Investment
Period that is excluded by the Company in accordance with the immediately
preceding sentence. The Company's election whether to establish a Threshold
Price for any particular Investment Period will not affect its rights to
establish a Threshold Price in any other Investment Period. Neither the Company
nor the Agent shall have any responsibility to notify any Participant regarding
the Company's establishment of a Threshold Price for an Investment Period. Any
Participant shall be able to confirm the existence of a Threshold Price by
telephoning the Company's Investor Relations at (877) 285-3111 during the three
business days preceding the applicable Investment Period.
<PAGE> 5
D. Discount Pricing.
The Company may elect to establish, each month and in no event later
than three business days prior to the dividend record date, DSPP Investment Date
or the first day of the applicable Investment Period, as applicable, a discount
from the market price applicable to reinvested dividends and Optional Cash
Purchases with respect to the purchase of newly issued shares from the Company.
Any discount set by the Company with respect to an Optional Cash Purchase shall
apply to the entire Optional Cash Purchase, subject to the limitations set forth
below. The Company's election whether to establish a discount for dividend
reinvestment or Optional Cash Purchases for any dividend payment date, DSPP
Investment Date or Investment Period, as applicable, will not affect its rights
to establish a discount for any other dividend payment date, DSPP Investment
Date or Investment Period in the future. Any Participant may obtain the discount
applicable to the next dividend payment date, DSPP Investment Date or Investment
Period by telephoning the Investor Relations at (877) 285-3111 during the three
business days prior to the applicable dividend payment date, DSPP Investment
Date or Investment Period, as applicable. The discount, if any, shall be
determined by the Company in its sole discretion after reviewing the current
market conditions, the level of participation in the plan, and current and
projected capital needs. Such discount may vary but shall at no time be more
than 5% of the average of the high and low sales price per share of Common Stock
as reported by the New York Stock Exchange on the applicable dividend payment
date or DSPP Investment Date, and for each day during an Investment Period.
Notwithstanding the foregoing, the discount may not be varied by the Company
during an Investment Period, and shall apply uniformly to all Optional Cash
Purchases made under the WDP for each day of the respective Investment Period,
provided however, that such purchase price for each share purchased on any
particular trading day during the applicable Investment Period, after giving
effect to the applicable discount, less the per share amount of any brokerage
commissions, trading fees and other costs of purchase paid by the Company on
behalf of the Participants on such day, shall not be less than the Minimum
Purchase Price as defined in Section 5 below.
E. Procedures Applicable to Optional Cash Purchases.
Participants shall not be obligated to make any DSPP investments or
WDP investments, and the amount of such investments may vary, in the case of a
purchase under the DSPP, among DSPP Investment Dates, and in the case of a
purchase under the WDP, among Investment Periods. With respect to a purchase
under the DSPP, if the "Optional Cash Only" box on the Enrollment Form is
checked, the Company will continue to pay cash dividends on the shares
registered in the Participant's name in the usual manner, but any DSPP Payment
received will be applied toward the purchase of additional shares of Common
Stock under the DSPP in accordance with the terms hereof. DSPP Payments shall be
delivered to the Agent at the address set forth in Section 22.
In the event that any Participant's check with respect to a DSPP
Payment is
<PAGE> 6
returned unpaid for any reason, the Agent will consider the request for
investment of such money null and void and shall immediately remove from the
Participant's account shares, if any, purchased upon the prior credit of such
money. The Agent shall thereupon be entitled to sell these shares to satisfy any
uncollected amounts. If the net proceeds of the sale of such shares are
insufficient to satisfy the balance of such uncollected amounts, the Agent, in
addition to any other legal remedies it may have, shall be entitled to sell such
additional shares from the Participant's account to satisfy the uncollected
balance.
A Participant may obtain a refund of any DSPP Payment or WDP Payment
not yet invested upon written request to the Agent at the address set forth in
Section 22, provided such request is received not later than two business days
prior to, in the case of a DSPP Payment, the next DSPP Investment Date, and in
the case of a WDP Payment, the commencement of the next Investment Period. If
the Agent receives the Participant's request for refund later than these
specified times, the DSPP Payment or WDP Payment, as applicable, will be applied
to the purchase of shares of Common Stock.
5. SHARE PURCHASES
As Agent for the Participants in the Plan, the Agent will receive
cash dividends from the Company with respect to Common Shares held by the
Participants and Optional Cash Purchases from the Participants. Shares to be
purchased under the DRIP, the DSPP and the WDP with such cash dividends or
Optional Cash Purchases may be purchased in the open market by the Agent on the
New York Stock Exchange or any securities exchange where shares of the Company's
Common Stock are traded, in the over-the-counter market, or in negotiated
transactions, and may be subject to such terms with respect to price, delivery
and other matters as to which the Agent may agree. Alternatively, or in
combination with open market purchases, the Company has the right to satisfy its
obligations under the DRIP, the DSPP and the WDP, by registering and issuing
additional shares of Common Stock, subject to compliance with the Securities Act
of 1933, as amended, and the rules and regulations thereunder. We may, without
giving you prior notice, change our determination as to whether the Agent will
purchase shares of Common Stock directly from us or in the open market or in
privately negotiated transactions from third parties (although we may not effect
such a change more than once in any three-month period) in connection with the
purchase of shares with reinvested dividends or from Optional Cash Purchases
under the DSPP or the WDP.
In the event that the Company satisfies its obligations hereunder
by registering and issuing additional shares of Common Stock, the date of
issuance of shares to be purchased with reinvested dividends will be the
Dividend Payment Date, and the date of issuance of shares to be purchased with
Optional Cash Purchases will be the DSPP Investment Date or on each day on which
shares are purchased during the applicable WDP Investment Period, as the case
may be.
When the Company is issuing shares of Common Stock to satisfy its
obligations under the DRIP or the DSPP, the purchase price will be the average
of the highest and
<PAGE> 7
lowest price per share as reported by the New York Stock Exchange or, if the
Common Stock is not then listed on the New York Stock Exchange, any other
securities exchange or national quotation service on which the Common Stock is
then traded or listed for quotation on such Dividend Payment Date or DSPP
Investment Date. When the Company is issuing shares of Common Stock to satisfy
its obligations under the WDP, the purchase price will be the average of the
highest and lowest price per share as reported by the New York Stock Exchange
or, if the Common Stock is not then listed on the New York Stock Exchange, any
other securities exchange or national quotation service on which the Common
Stock is then traded or listed for quotation on each day shares are purchased
during the applicable Investment Period. Shares of Common Stock purchased under
the DRIP, the DSPP and the WDP on the open market or in privately negotiated
transactions shall occur on the applicable Dividend Payment Date or DSPP
Investment Date or during the WDP Investment Period, as the case may be;
provided, however, that the Company may in the future advise the Agent that the
Agent may effect such purchases from time to time in its discretion over such
longer period not to exceed the 15 trading days following the applicable
Dividend Payment Date, DSPP Investment Date or WDP Investment Period; provided,
further, that in the case of such a purchase to be effected following a DSPP
Investment Date or WDP Investment Period, in no event shall any such purchase
occur on a Dividend Payment Date. If the Company exercises its discretion to
execute market purchases over an extended period, the date of issuance will be
the actual date of purchase of the Common Stock. In making purchases for a
Participant's account, the Agent may commingle a Participant's funds with those
of other Participants. The price at which shares will be deemed to have been
acquired for a Participant's account shall be the average price (on a day-by-day
basis) of all shares purchased by the Agent for the Plan with reinvested
dividends and/or DSPP Payments and/or WDP Payments then being invested. No
Participant shall have any authority or power to direct the time or price at
which Common Stock may be purchased. No interest will be paid on funds held for
investment.
Notwithstanding anything to the contrary in this Plan, the amount
per share paid by a Participant for any shares of Common Stock (whether from
reinvested dividends or Optional Cash Purchases, and whether acquired from the
Company or through open market or privately negotiated transactions) purchased
on any particular trading day, less the amount per share of any brokerage
commissions, trading fees and any other costs of purchase paid by the Company,
if any, shall not be less than 95% of the average of the high and low sales
price of the Common Stock reported by the New York Stock Exchange on that
particular trading day (the "Minimum Purchase Price") In the event that shares
would be purchased below the Minimum Purchase Price, the Company will instead
reduce the discount, if any, or charge the Participant for such commissions,
fees or costs on such share purchase so that the Participant's purchase price
per share will equal the Minimum Purchase Price.
The number of shares to be purchased for a Participant will depend
on the net amount of the Participant's dividends available for reinvestment
under the DRIP, and/or the aggregate amount of the DSPP Payment and/or WDP
Payment and the price per share
<PAGE> 8
of the Common Stock. Each Participant's account will be credited with the number
of shares, including fractions calculated to four decimal places, equal to the
total of a Participant's funds available for investment, divided by the
applicable per share purchase price of the shares purchased.
The Agent shall have no responsibility as to the value of the Common
Stock acquired for a Participant's account. It is understood that for a number
of reasons, including observance of the Rules and Regulations of the Securities
and Exchange Commission requiring temporary curtailment or suspension of
purchases and the limitations on ownership contained in the Company's charter,
the whole amount of funds available in a Participant's account for the purchase
of Common Stock might not be applied to such purchase. The Agent shall not be
liable when conditions prevent the purchase of Common Stock or interfere with
the timing of such purchases.
6. COSTS
The Company will pay all of the costs of administrating the Plan
(other than brokerage commissions and trading fees). The Company will pass on to
each Participant the fees and commissions associated with the purchase and sale
of shares of Common Stock attributable to each Participant under the Plan.
7. CUSTODIAL SERVICE
All shares of Common Stock that are purchased by Participants under
the DRIP, DSPP or the WDP shall be held in the Participant's name and the shares
shall be added to the Participants' balance in the Plan. The Agent shall act as
custodian for all of the Participants' shares held in the Plan.
A Participant may send to the Agent for safekeeping all Common Stock
certificates which the Participant holds. The Agent will keep all shares
represented by such certificates for safekeeping in book entry form, combined
with any full and fractional shares then held in the Plan in the name of the
Participant. In order to deposit share certificates in the Plan, a Participant
must submit a letter of instruction to the Agent. Shares certificates may be
withdrawn from the Plan by instructing the Agent in writing.
8. STATEMENT OF ACCOUNT
As soon as practicable after the purchase of Common Stock is
completed, the Agent will send each Participant a statement of account
confirming the transaction and itemizing any previous investment activity for
the calendar year. If a Participant participates in the Plan through a broker,
bank or nominee, the Participant's statement of account will be sent to the
respective broker, bank or nominee and the Participant must contact the broker,
bank or nominee to obtain the statement.
9. DIVIDENDS ON PLAN SHARES
<PAGE> 9
As the custodian for the Common Stock held in Participants' accounts
under the Plan (whether such shares were purchased under the DRIP, the DSPP or
the WDP) the Agent will receive dividends (less any applicable tax withholding
requirements imposed on the Company) for all Plan shares held on the applicable
record date, will credit such dividends to Participants' accounts on the basis
of shares held in these accounts, and will automatically reinvest such dividends
in additional Common Stock unless it is otherwise instructed in writing by the
Participant.
If the Company distributes stockholders' subscription rights to
purchase additional shares of common stock or other securities, the Agent shall
sell the rights accruing to all shares held in a Participant's name when the
rights become separately tradable. The Agent will apply the net proceeds from
the sale of the rights to the purchase of Common Stock with the next monthly
Optional Cash Purchase. If a Participant does not want the subscription or such
other rights sold, such Participant may notify the Agent by submitting an
updated Enrollment Form which shall direct the Agent to distribute the rights
directly to the Participant.
10. SALE OF PLAN SHARES
A Participant can instruct the Agent in writing to sell any or all
of the whole shares of Common Stock held in the Plan. The written notification
to the Agent must include the number of shares to be sold. Any such request that
does not clearly indicate the number of shares to be sold will be returned to
the Participant with no action taken. The Agent will make the sale as soon as
practicable after receipt of a Participant's proper request and a check for the
proceeds, less brokerage commission, transfer taxes (if any) and a $15.00
service fee, will be sent by the Agent promptly after the settlement date. No
Participant shall have the authority or power to direct the date or sales price
at which Common Stock may be sold. A withdrawal/termination form will be
provided on the reverse side of the statement of account for this purpose.
Participants should mail this form to the Agent at the address set forth in
Section 22.
A Participant may transfer ownership of all or any part of their
shares held in the Plan through gift, private sale or otherwise, by mailing to
the Agent at the above address a properly executed stock assignment, along with
a letter requesting the transfer and a Substitute Form W-9 completed by the
transferee. If any stock certificates in such Participant's account contain a
restrictive legend, the Agent will comply with the provisions of such
restrictive legend before effecting a sale or transfer of such restricted
shares. All transfers shall be subject to the limitations on ownership and
transfer provided herein and in the Company's charter.
11. ISSUANCE OF SHARE CERTIFICATES
Share certificates will not be issued unless a request is made to
the Agent. The number of shares held in the Plan by a Participant will be shown
on the regular statement
<PAGE> 10
of account provided to such Participant. By contacting the Agent by telephone or
in writing, a Participant may request, without charge, a share certificate for
any or all of the whole shares held for such Participant in the Plan. Each
certificate issued will be registered in the name or names in which the account
is maintained, unless otherwise instructed in writing. If a certificate is to be
issued in a name other than the name on the Plan Account, the Participant or
Participants must have their signature(s) guaranteed by a commercial banker or
broker. Certificates for fractional shares will not be issued under any
circumstances.
12. TERMINATION OF PLAN PARTICIPATION
In order to terminate participation in the Plan, a Participant must
notify the Agent in writing. The Company may also terminate the Plan by sending
written notice to the Participants and to the Agent. After the Agent receives
the termination notice, dividends will be sent to the stockholder in the usual
manner, and no further voluntary cash purchases may be made. A termination
notice will be effective upon receipt by the Agent, provided such notice is
received at least two business days prior to the next dividend record date,
Optional Cash Purchase Payment Date or commencement of the next Investment
Period. If a termination notice is not received by the Agent at least two
business days prior to any dividend record date, in the case of the DRIP, and in
the case of the DSPP and WDP, at least two business days prior to the
commencement of the DSPP Investment Date or Investment Period respectively, it
will not be processed until after purchases made from dividends paid have been
completed and credited to Participants' accounts. Once termination has been
effected, the Agent will issue to the Participant a certificate for all whole
shares held by a Participant under the Plan. Alternatively, a Participant may
specify in the termination notice that some or all of the shares be sold. The
Agent will deliver a check to the Participant for the net proceeds.
If a Participant transfers shares represented by certificates
registered in such Participant's name on the Company's books but does not notify
the Agent, the Agent will continue to reinvest dividends on shares held in such
Participant's account under the Plan until otherwise directed.
If a Participant's Plan account balance falls below one full share,
the Agent reserves the right to sell the fractional share and remit the
proceeds, less any applicable fees, to the Participant at the Participant's
address appearing in the Agent's records.
13. PLAN ADMINISTRATION
The Agent, or a successor selected by the Company, will administer
the Plan for Participants, keep records, send statements of account to
Participants, answer Participants' questions and perform other duties set forth
herein or otherwise related to the Plan. All inquiries regarding the Plan should
be sent to the Agent at the address set forth in Section 22.
<PAGE> 11
As soon as practicable after each purchase for a Participant's
account, a statement of account will be mailed to the Participant by the Agent.
In addition, the Agent shall send to each Participant all communications sent to
other stockholders, including, if applicable, any annual and quarterly reports
to stockholders, proxy statements and dividend income information for tax
reporting purposes.
The Company may remove the Agent upon 60 days prior written notice
to the Agent (the "Termination Notice"). The Agent may resign as Agent upon 60
days prior written notice to the Company. Upon any such removal or resignation,
the Agent shall be relieved and discharged of any further responsibilities with
respect to its duties thereunder. Not later than 30 days after the date on which
the Agent receives or delivers, as the case may be, the Termination Notice (the
"Termination Notice Date"), the Company shall deliver to the Agent a written
notice instructing the Agent to deliver to the Company or its designee all of
the statements of account, the shares of Common Stock held by the Agent under
the Plan, and all other books and records in connection with the administration
of the Plan (collectively, the "Plan Records"). The Agent shall comply with
instruction and deliver the Plan Records to the Company or its designee not
later than 10 business days following the date it receives such instruction;
provided, however, that if no instruction is received by the Agent by the 30th
day following the Termination Notice Date, the Agent shall deliver the Plan
Records to the Company not later than 45 days after the Termination Notice Date.
The Agent shall cooperate with and assist the Company or any successor agent
with the transfer of the Plan Records.
As Agent, BankBoston N.A. shall act in accordance with the Plan and
in accordance with applicable laws, including without limitation the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and interpretations
thereof by the Securities and Exchange Commission.
The Agent shall keep appropriate records concerning the Plan
accounts, purchases and sales of the Company's securities made under the Plan
and Participants' addresses of record and shall send statements of account and
confirmations to each Participant in accordance with the provisions hereof.
Without limiting the foregoing, the Agent shall maintain and retain for a period
of not less than two years from the date of the event the following information:
(i) the dates and substance of any materials distributed in connection with the
Plan, (ii) the number of Participants as of the end of each month; (iii) the
volume of Company securities purchased under the Plan by the Agent each month;
and (iv) a record of any period during which the Company is engaged in any other
distribution of shares of its Common Stock or other Company securities for
purposes of Regulation M under the Exchange Act. The Company shall notify the
Agent of the commencement and the termination of any such period on the date of
any such commencement or termination:
The Agent:
(a) shall have no duties or obligations other than those
specifically set forth herein or as may subsequently be agreed
<PAGE> 12
to in writing between the Agent and the Company. Without
limiting the foregoing, nothing herein shall impose any
fiduciary duty upon the Agent to any Participant, as such term
is defined herein;
(b) shall be regarded as making no representation and having no
responsibilities as to the validity, sufficiency, value, or
genuineness of any of the Company's securities purchased or sold
in connection herewith, and will not be required to or be
responsible for and will make no representations as to, the
validity, sufficiency, value or genuineness of any of the
Company's securities;
(c) shall not be obligated to take any legal action hereunder; if,
however, the Agent determines to take any legal action
hereunder, and where the taking of such action might, in its
reasonable judgment, subject or expose it to any expense or
liability, the Agent shall not be required to act unless it
shall have been furnished with an indemnity reasonably
satisfactory to it;
(d) may rely on and shall be fully authorized and protected in
acting or failing to act in good faith reliance upon any
certificate, instrument, opinion, notice, letter, telegram,
telex, facsimile transmission or other document or security
delivered to and believed by the Agent to be genuine and to have
been signed by the proper person or persons;
(e) shall not be liable or responsible for any failure on the part
of the Company or any Participant to comply with any of their
respective obligations relating to the Plan or under applicable
law, including without limitation obligations under applicable
securities laws;
(f) shall have no obligation to make any payment unless it has
received the necessary funds as set forth herein to make such
payments in full;
(g) may consult with counsel reasonably satisfactory to the Agent,
including in-house counsel, if any, or counsel to the Company,
and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken,
suffered, or omitted by the Agent in good faith and in
accordance with the advice of such counsel;
<PAGE> 13
(h) may perform any of its duties hereunder either directly or by or
through agents or attorney which are not affiliates of the
Company (except for purchase and sale orders submitted by
Participants, including accompanying funds, all of which will be
handled only by the Agent's personnel), provided that (i) any
activities that constitute transfer agent functions, as defined
in section 3(a)(25) of the Exchange Act, must be conducted
either by the Agent itself or by a service organization that is
a registered transfer agent under the Exchange Act, and (ii) no
such agent or attorney shall receive compensation based on the
number and type of orders or transactions processed through the
Plan. The Agent shall not be liable or responsible for any
misconduct or negligence on the part of any agent or attorney
appointed with reasonable care by it hereunder; and
(i) is not authorized, and shall have no obligation, to pay any
brokers, dealers, or soliciting fees to any person.
In exercising all of its duties and obligations hereunder, the Agent
shall use the same degree of skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
Notwithstanding the foregoing, the Agent may not be relieved from
liability for its own negligent action, its own negligent failure to act, or its
own willful misconduct, except that the Agent shall not be liable for any error
or judgment made in good faith unless it is proved that the Agent was negligent
in ascertaining the pertinent facts.
The Agent may charge reasonable fees for its services in connection
with the Plan (to the extent consistent with the provisions of the Plan)
including without limitation fees for purchase and sale order processing,
enrollment, custody, account maintenance and dividend reinvestment and shall be
reimbursed for all its reasonable out-of-pocket costs and expenses. All such
fees, costs and expenses shall be paid by the Company, except that Participants
and other eligible book entry stockholders will be required to pay a nominal
commission and fee for each sale order and a nominal fee for the issuance of
duplicate statements of account or transaction notices. The Agent may from time
to time by notice to the Company and the Participants establish the amount of
any such fees.
The Agent shall have the authority to undertake any act reasonably
necessary to fulfill its duties as set forth herein.
In administering the Plan, neither the Agent, the Company nor any
agent for either will be liable for (i) any act done in good faith or for any
good faith omission to act, including, without limitation, any claim of
liability arising out of failure to terminate a Participant's account upon such
Participant's death or adjudicated incompetence prior to
<PAGE> 14
the receipt of written notice of such death or adjudicated incompetence, (ii)
the prices at which Common Stock are purchased for the Participant's account,
(iii) the times when purchases are made or (iv) fluctuations in the per share
market value of the Common Stock. The Agent shall not be liable for any failure
or delays arising out of conditions beyond its reasonable control including, but
not limited to, work stoppages, fires, civil disobedience, riots, rebellions,
storms, electrical, mechanical, computer or communications facilities failures,
acts of God or similar occurrences.
Neither the Agent, the Company nor any agent for either shall have
any duties, responsibilities or liabilities except such as are expressly set
forth herein and in the Agent Agreement. The Company specifically disclaims any
responsibility for any of the Agent's actions or inactions in connection with
the administration hereof.
The Company will indemnify and hold harmless the Agent and its
officers, directors, shareholders, and agents from and against any loss,
liability, damage or expense (including reasonable attorneys' fees and expenses)
(a "Loss") incurred as a result of the performance of the Agent's duties
hereunder, provided that such Loss is not (a) due to any negligent or bad faith
act or omission by the Agent, (b) due to a failure by the Agent to act in
accordance with the provisions hereof or the written instructions of the Company
or (c) due to a breach by the Agent of its agreements set forth herein.
14. PLEDGE OF SHARES
Shares held in the Plan may not be pledged or assigned, and any such
purported pledge or assignment shall be void.
15. VOTING
The Agent will not vote any shares that it holds for a Participant's
account except as directed by the Participant. If no instructions are received,
the shares will not be voted. Each Participant that is a registered holder will
receive a proxy voting card for the total of their whole shares, including
shares that they hold in the Plan. Neither the Company nor the Agent shall be
required to send proxy materials to any Participant that holds shares of Common
Stock through a broker, bank or nominee and any such Participant must contact
such broker, bank or nominee to vote their shares.
16. SHARE DIVIDENDS, ETC.
Any Common Stock dividend upon, or shares of Common Stock issued as
a result of, splits of Common Stock, both full and fractional, will be credited
by the Agent to Participants' accounts. Participation in any rights offering
will be based upon both the Common Stock registered in Participants' names and
the Common Stock credited to Participants' accounts. Rights applicable to Common
Stock credited to a Participant's account under the Plan will be sold by the
Agent and proceeds will be credited to the Participant's account under the Plan
and applied to the purchase of Common Stock on the
<PAGE> 15
next DSPP Investment Date (or over the 15 trading days following the next DSPP
Investment Date as provided in Section 5 of this Plan). Any Participant who
wishes to exercise, transfer or sell the rights applicable to the Common Stock
credited to the Participant's account under the Plan must request, prior to the
record date for the issuance of any such rights, that the Common Stock credited
to the Participant's account be transferred from the Participant's account and
registered in the Participant's name.
17. OWNERSHIP LIMITATIONS
The Company's charter places certain restrictions upon the actual
and constructive ownership of shares of each class or series of stock, applied
to each class or series of stock separately. With respect to the Common Stock of
the Company, any one person or entity is limited to owning, actually and
constructively, no more than 9.8% of the outstanding Common Stock of the Company
(the "Ownership Limit"). The percentage of ownership is measured by either value
or absolute number of shares, whichever measurement is more restrictive. To the
extent any transfer of Common Stock, reinvestment of dividends or Optional Cash
Purchase elected by a stockholder would cause such stockholder or any other
person or entity to exceed the Ownership Limit or otherwise violate the
Company's charter, such transfer or investment will be void ab initio as to that
stockholder or the other person or entity, and such stockholder or other person
or entity will be entitled to receive cash dividends (without interest) in lieu
of such reinvestment or to a return of such Optional Cash Purchase (without
interest), as applicable.
In order to monitor the Ownership Limit and the limitation of cash
purchases which may be made under the Plan, the Company has right to aggregate
all plan accounts that it believes, in its sole discretion, are under common
control or management or to have common ultimate beneficial ownership. If the
Company exercises such right, it shall aggregate the accounts and return,
without interest, within 35 days of receipt, any amounts in excess of the
investment limitations applicable to a single account received in respect of all
such accounts.
18. AMENDMENT OR TERMINATION OF PLAN
The Plan may be amended, modified, suspended, supplemented or
terminated by the Company at any time, provided, however, that when necessary or
appropriate to comply with law or the rules or policies of the Securities and
Exchange Commission or other applicable regulatory authority, such action shall
be effective only by mailing appropriate written notice at least 30 days prior
to the effective date of such action to each Participant. Any such action shall
be deemed accepted by the Participant unless prior to the effective date
thereof, the Agent receives written notice of the termination of the
Participant's account. Any such amendment may include an appointment by the
Company of a successor agent under the terms and conditions set forth herein, in
which event the Company is authorized to pay such successor agent for the
account of each Participant all dividends and distributions payable on Common
Stock held by the Participant under the Plan for application by such successor
agent as provided herein. Notwithstanding the
<PAGE> 16
foregoing, such action shall not have any retroactive effect that would
prejudice the interests of the Participants. In the event of termination,
certificates for whole shares held by each Participant in the Plan will be
delivered to such Participant together with a check for the net proceeds of the
value of any fractional shares, which value will be equal to the average of the
highest and lowest price per share as then reported by the New York Stock
Exchange or, if the Common Stock is not then listed on the New York Stock
Exchange, any other securities exchange or national quotation service on which
the Common Stock is then traded or listed for quotation on the date of such
termination.
19. GOVERNING LAW
The terms and conditions of the Plan and its operation shall be
governed by the internal laws of the State of Maryland, without regard to
otherwise applicable principles of conflicts of law.
20. INTERPRETATION
Any question of interpretation arising under the Plan will be
determined by the Company, and any such determination will be final.
21. EFFECTIVE DATE
The effective date of the Plan shall be July 9,1999.
22. CORRESPONDENCE AND QUESTIONS
All correspondence and questions regarding the Plan and any account
thereunder should be directed to:
BankBoston N.A.
c/o EquiServe Limited Partnership
150 Royall Street
Canton, Massachusetts 02021
Telephone (800) 331-9474
<PAGE> 1
EXHIBIT 10.5
THE SECOND AMENDED AND RESTATED
1997 STOCK OPTION AND INCENTIVE PLAN
OF
AMB PROPERTY CORPORATION
AND AMB INVESTMENT MANAGEMENT, INC.
AND THEIR RESPECTIVE SUBSIDIARIES
AMB Property Corporation, a Maryland corporation (the "Company")
and AMB Investment Management, Inc., a Maryland corporation (the "Investment
Management Company") adopted The 1997 Stock Option and Incentive Plan of AMB
Property Corporation and AMB Investment Management, Inc. and their Respective
Subsidiaries (as such term is defined below), effective November 26, 1997, for
the benefit of their eligible employees, consultants and directors and those of
their Subsidiaries. The 1997 Stock Option and Incentive Plan of AMB Property
Corporation and AMB Investment Management, Inc. and their Respective
Subsidiaries was amended and restated in its entirety in the form of the First
Amended and Restated 1997 Stock Option and Incentive Plan of AMB Property
Corporation and AMB Investment Management, Inc. and their Respective
Subsidiaries, effective March 5, 1999, as amended by the First Amendment to the
First Amended and Restated 1997 Stock Option and Incentive Plan, effective March
5, 1999 (as amended, the "First Amended and Restated 1997 Stock Option and
Incentive Plan"). The First Amended and Restated 1997 Stock Option and Incentive
Plan is hereby amended and restated in its entirety in the form of this Second
Amended and Restated 1997 Stock Option and Incentive Plan of AMB Property
Corporation and AMB Investment Management, Inc. and their Respective
Subsidiaries (as amended and restated, the "Plan"), effective as of May 7, 1999.
The Plan consists of two plans, one for the benefit of employees, consultants
and independent directors of the Company and its Subsidiaries and one for the
benefit of the employees, consultants and independent directors of the
Investment Management Company and its Subsidiaries.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors, key
Employees and consultants to further the growth, development and financial
success of the Company by personally benefiting through the ownership of Company
stock and/or rights which recognize such growth, development and financial
success.
(2) To enable the Company and the Investment Management Company,
and their respective Subsidiaries, to obtain and retain the services of
directors, key Employees and consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.
<PAGE> 2
ARTICLE I.
DEFINITIONS
1.1. General. Wherever the following terms are used in this Plan
they shall have the meanings specified below, unless the context clearly
indicates otherwise.
1.2. Award Limit. "Award Limit" shall mean 1 million shares of
Common Stock, as adjusted pursuant to Section 10.3.
1.3. Board. "Board" shall mean the Board of Directors of the
Company.
1.4. Cause. "Cause," unless otherwise defined in an Employee's
employment agreement, or a consultant's consulting agreement, with the Company
or one of its Subsidiaries, shall mean (i) gross negligence or willful
misconduct, (ii) an uncured breach of any of the employee's material duties
under their employment agreement, (iii) fraud or other conduct against the
material best interests of the Company or (iv) a conviction of a felony if such
conviction has a material adverse effect on the Company.
1.5. Change in Control. "Change in Control" shall mean a change
in ownership or control of the Company effected through either of the following
transactions:
(a) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled by, or
is under common control with, the Company) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's stockholders which the Board does
not recommend such stockholders to accept; or
(b) there is a change in the composition of the Board over a
period of thirty-six (36) consecutive months (or less) such that a majority of
the Board members (rounded up to the nearest whole number) ceases, by reason of
one or more proxy contests for the election of Board members, to be comprised of
individuals who either (i) have been Board members continuously since the
beginning of such period or (ii) have been elected or nominated for election as
Board members during such period by at least a majority of the Board members
described in clause (i) who were still in office at the time such election or
nomination was approved by the Board.
1.6. Code. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
1.7. Committee. "Committee" shall mean, with respect to the
Company and any Company Subsidiary, the Compensation Committee of the Board, or
another committee or subcommittee of the Board, appointed as provided in Section
9.1 and, with respect to the Investment Management Company, the Compensation
Committee of its board of directors or
2
<PAGE> 3
another committee or subcommittee of such board, if any, appointed by the Board
of Directors of the Investment Management Company in a manner consistent with
Section 9.1 hereof (except that references to the Board in such Section shall
mean the board of directors of the Investment Management Company) or the
Investment Management Company's board of directors; provided, however, that in
the case of a person who is an "officer or director of the issuer" within the
meaning of Rule 16-3(a) under the Securities Exchange Act of 1934, as amended,
the grant of any award under this Plan to such person shall be made by the
Compensation Committee of the Board.
1.8. Common Stock. "Common Stock" shall mean the common stock of
the Company, par value $.01 per share, and any equity security of the Company
issued or authorized to be issued in the future, but excluding any preferred
stock and any warrants, options or other rights to purchase Common Stock. Debt
securities of the Company convertible into Common Stock shall be deemed equity
securities of the Company.
1.9. Company. "Company" shall mean AMB Property Corporation, a
Maryland corporation.
1.10. Company Employee. "Company Employee" shall mean any officer
or other employee (as defined in accordance with Section 3401(c) of the Code) of
the Company or of any Company Subsidiary.
1.11. Company Subsidiary. "Company Subsidiary" shall mean (i) a
corporation, association or other business entity of which 50% or more of the
total combined voting power of all classes of capital stock is owned, directly
or indirectly, by the Company or by one or more Company Subsidiaries or by the
Company and one or more Company Subsidiaries, (ii) any partnership or limited
liability company of which 50% or more of the capital and profits interests is
owned, directly or indirectly, by the Company or by one or more Company
Subsidiaries or by the Company and one or more Company Subsidiaries, and (iii)
any other entity not described in clauses (i) or (ii) above of which 50% or more
of the ownership and the power, pursuant to a written contract or agreement, to
direct the policies and management or the financial and the other affairs
thereof, are owned or controlled by the Company or by one or more other Company
Subsidiaries or by the Company and one or more Company Subsidiaries.
1.12. Consultant. "consultant" shall mean any consultant or
adviser if:
(a) the consultant or adviser renders bona fide services to the
Company, the Investment Management Company or their respective subsidiaries;
(b) the services rendered by the consultant or adviser are not in
connection with the offer or sale of securities in a capital-raising transaction
and do not directly or indirectly promote or maintain a market for the
securities of the Company, the Investment Management Company or their respective
subsidiaries; and
3
<PAGE> 4
(c) the consultant or adviser is a natural person who has
contracted directly with the Company, the Investment Management Company or their
respective subsidiaries, as applicable, to render such services.
1.13. Corporate Transaction. "Corporate Transaction" shall mean
any of the following stockholder-approved transactions to which the Company is a
party:
(a) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State in which the Company is incorporated, form a holding company or
effect a similar reorganization as to form whereupon this Plan and all Options
are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation or
dissolution of the Company in a transaction not covered by the exceptions to
clause (a), above; or
(c) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred or issued to a person or persons different from those who held such
securities immediately prior to such merger.
1.14. Deferred Stock. "Deferred Stock" shall mean Common Stock
awarded under Article VII of this Plan.
1.15. Director. "Director" shall mean an Independent Director, an
Investment Management Company Director or a Non-Employee Director.
1.16. Dividend Equivalent. "Dividend Equivalent" shall mean a
right to receive the equivalent value (in cash or Common Stock) of dividends or
regular cash distributions paid on Common Stock, awarded under Article VII of
this Plan.
1.17. Employee. "Employee" shall mean any Company Employee or any
Investment Management Company Employee.
1.18. Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
1.19. Fair Market Value. "Fair Market Value" of a share of Common
Stock as of a given date shall be (i) the closing price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any (or as reported on any composite index which includes such
principal exchange), on the trading day previous to such date, or if shares were
not traded on the trading day previous to such date, then on the next preceding
date on which a trade occurred, or (ii) if Common Stock is not traded on an
exchange but is quoted on Nasdaq or a successor quotation system, the mean
between the closing representative bid and asked prices for the Common Stock on
the trading day previous to such date as reported by Nasdaq or such successor
quotation system; or (iii) if Common Stock is not
4
<PAGE> 5
publicly traded on an exchange and not quoted on Nasdaq or a successor quotation
system, the Fair Market Value of a share of Common Stock as established by the
Committee (or the Board, in the case of Options granted to Independent
Directors) acting in good faith. Notwithstanding anything to the contrary
herein, the Fair Market Value at the time of grant of a share of Common Stock
underlying an option grant or other award made under this Plan and in connection
with the initial public offering of the Company shall be the initial offering
price per share.
1.20. General Partner Interest. "General Partner Interest" shall
mean an ownership interest in the Partnership that is a general partner interest
and includes any and all benefits to which the holder of such an interest may be
entitled as provided in the Partnership Agreement, together with all obligations
of such holder to comply with the terms and provisions of such agreement.
1.21. Grantee. "Grantee" shall mean an Employee or consultant
granted a Performance Award, Dividend Equivalent, Stock Payment or Stock
Appreciation Right, or an award of Deferred Stock, under this Plan.
1.22. Incentive Stock Option. "Incentive Stock Option" shall mean
an option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Committee.
1.23. Initial Independent Director. "Initial Independent
Director" shall have the meaning given to such term in Section 3.4(d) hereof.
1.24. Independent Director. "Independent Director" shall mean a
member of the Board who is not an employee, officer or affiliate of the Company
or a subsidiary or division thereof, or a relative of a principal executive
officer, and who is not an individual member of an organization acting as an
advisor, consultant or legal counsel receiving compensation on a continuing
basis from the Company in addition to director's fees.
1.25. Investment Management Company. "Investment Management
Company" shall mean AMB Investment Management, Inc., a Maryland corporation.
1.26. Investment Management Company Employee. "Investment
Management Company Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Investment
Management Company, or any corporation or partnership which is then an
Investment Management Company Subsidiary.
1.27. Investment Management Company Independent Director.
"Investment Management Company Independent Director" shall mean a member of the
Investment Management Company Board who is not (i) an employee, officer, or
affiliates of the Company, the Investment Management Company or a subsidiary or
division of the foregoing, or a relative of a principal executive officer, and
who is not an individual member of an organization acting as an advisor,
consultant or legal counsel receiving compensation on a continuing basis from
the company or the Investment Management Company in addition to director's fees
or (b) an Independent Director.
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<PAGE> 6
1.28. Investment Management Company Purchase Price. "Investment
Management Company Purchase Price" shall have the meaning set forth in Section
5.5 hereof.
1.29. Investment Management Company Purchased Shares. "Investment
Management Company Purchased Shares" shall have the meaning set forth in Section
5.5 hereof.
1.30. Investment Management Company Subsidiary. "Investment
Management Company Subsidiary" shall mean (i) a corporation, association or
other business of which 50% or more of the total combined voting power of all
classes of capital stock is owned, directly or indirectly, by the Investment
Management Company or by one or more Investment Management Company Subsidiaries
or by the Investment Management Company and one or more Investment Management
Company Subsidiaries, (ii) any partnership or limited liability company of which
50% or more of the capital and profits interests is owned, directly or
indirectly, by the Investment Management Company or by one or more Investment
Management Company Subsidiaries or by the Investment Management Company and one
or more Investment Management Company Subsidiaries and (iii) any other entity
not described in clauses (i) or (ii) above of which 50% or more of the ownership
and the power, pursuant to a written contract or agreement, to direct the
policies and management or the financial and the other affairs thereof, are
owned or controlled by the Investment Management Company or by one or more
Investment Management Company Subsidiaries or by the Investment Management
Company and one or more Investment Management Company Subsidiaries.
1.31. Non-Employee Director. "Non-Employee Director" shall mean a
member of the Board or the Investment Management Company Board who is not an
Independent Director, an Investment Management Company Independent Director or
an Employee.
1.32. Non-Qualified Stock Option. "Non-Qualified Stock Option"
shall mean an Option which is not designated as an Incentive Stock Option by the
Committee.
1.33. Option. "Option" shall mean a stock option granted under
Article III of this Plan. An Option granted under this Plan shall, as determined
by the Committee, be either a Non-Qualified Stock Option or an Incentive Stock
Option; provided, however, that Options granted to anyone other than Company
Employees shall be Non-Qualified Stock Options.
1.34. Optionee. "Optionee" shall mean an Employee, consultant or
Director granted an Option under this Plan.
1.35. Partnership. "Partnership" shall mean AMB Property, L.P., a
Delaware limited partnership.
1.36. Partnership Agreement. "Partnership Agreement" shall mean
the Amended and Restated Agreement of Limited Partnership of the Partnership, as
the same may be amended, modified or restated from time to time.
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<PAGE> 7
1.37. Partnership Employee. "Partnership Employee" shall mean any
officer, other employee (as defined in accordance with Section 3401(c) of the
Code) of the Partnership, or any entity which is then a Partnership Subsidiary.
1.38. Partnership Purchase Price. "Partnership Purchase Price"
shall have the meaning set forth in Section 5.4
1.39. Partnership Purchased Shares. "Partnership Purchased
Shares" shall have the meaning set forth in Section 5.4.
1.40. Partnership Subsidiary. "Partnership Subsidiary" shall mean
(i) a corporation, association or other business entity of which 50% or more of
the total combined voting power of all classes of capital stock is owned,
directly or indirectly, by the Partnership or by one or more Partnership
Subsidiaries or by the Partnership and one or more Partnership Subsidiaries,
(ii) any partnership or limited liability company of which 50% or more of the
capital and profits interests is owned, directly or indirectly, by the
Partnership or by one or more Partnership Subsidiaries or by the Partnership and
one or more Partnership Subsidiaries, and (iii) any other entity not described
in clauses (i) or (ii) above of which 50% or more of the ownership and the
power, pursuant to a written contract or agreement, to direct the policies and
management or the financial and the other affairs thereof, are owned or
controlled by the Partnership or by one or more other Partnership Subsidiaries
or by the Partnership and one or more Partnership Subsidiaries.
1.41. Performance Award. "Performance Award" shall mean a cash
bonus, stock bonus or other performance or incentive award that is paid in cash,
Common Stock or a combination of both, awarded under Article VII of this Plan.
1.42. Plan. "Plan" shall mean the Second Amended and Restated
1997 Stock Option and Incentive Plan of AMB Property Corporation and AMB
Investment Management, Inc. and their Respective Subsidiaries.
1.43. Restricted Stock. "Restricted Stock" shall mean Common
Stock awarded under Article VI of this Plan.
1.44. Restricted Stockholder. "Restricted Stockholder" shall mean
an Employee or consultant granted an award of Restricted Stock under Article VI
of this Plan.
1.45. Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
under the Exchange Act, as such Rule may be amended from time to time.
1.46. Section 162(m) Participant. "Section 162(m) Participant"
shall mean any key Employee designated by the Committee as a key Employee whose
compensation for the fiscal year in which the key Employee is so designated or a
future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.
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1.47. Stock Appreciation Right. "Stock Appreciation Right" shall
mean a stock appreciation right granted under Article VIII of this Plan.
1.48. Stock Payment. "Stock Payment" shall mean (i) a payment in
the form of shares of Common Stock, or (ii) an option or other right to purchase
shares of Common Stock, as part of a deferred compensation arrangement, made in
lieu of all or any portion of the compensation, including without limitation,
salary, bonuses and commissions, that would otherwise become payable to a key
Employee or consultant in cash, awarded under Article VII of this Plan.
1.49. Subsidiary. "Subsidiary" shall mean any Company Subsidiary
or Investment Management Company Subsidiary.
1.50. Termination of Consultancy. "Termination of Consultancy"
shall mean the time when the engagement of an Optionee, Grantee or Restricted
Stockholder as a consultant to the Company, a Company Subsidiary, the Investment
Management Company, an Investment Management Company Subsidiary, the Partnership
or a Partnership Subsidiary is terminated for any reason, with or without Cause,
including, but not by way of limitation, by resignation, discharge, death or
retirement; but excluding terminations where there is a simultaneous
commencement of employment with the Company, a Company Subsidiary, the
Investment Management Company, an Investment Management Company Subsidiary, the
Partnership or a Partnership Subsidiary. The Committee, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Consultancy, including, but not by way of limitation, the
question of whether a Termination of Consultancy resulted from a discharge for
Cause, and all questions of whether a particular leave of absence constitutes a
Terminations of Consultancy. Notwithstanding any other provision of this Plan,
the Company, a Company Subsidiary, the Investment Management Company, an
Investment Management Company Subsidiary, the Partnership or a Partnership
Subsidiary has an absolute and unrestricted right to terminate a consultant's
service at any time for any reason whatsoever, with or without Cause, except to
the extent expressly provided otherwise in writing.
1.51. Termination of Directorship. "Termination of Directorship"
shall mean the time when an Optionee, Grantee or Restricted Stockholder who is
an Independent Director or a Management Investment Company Independent Director
ceases to be a Director for any reason, including, but not by way of limitation,
a termination by resignation, failure to be elected, death or retirement; but
excluding, at the discretion of the Committee, terminations (i) where there is a
simultaneous reemployment or continuing employment of an Optionee, Grantee or
Restricted Stockholder by the Company, a Company Subsidiary, the Investment
Management Company, an Investment Management Company Subsidiary, the Partnership
or a Partnership Subsidiary and (ii) which are followed by the simultaneous
establishment of a directorship with the Company, a Company Subsidiary, the
Investment Management Company, an Investment Management Company Subsidiary, the
Partnership or a Partnership Subsidiary. The Board, in its sole and absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Directorship with respect to Independent Directors or Management
Investment Company Independent Directors in accordance with the Company's
bylaws.
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1.52. Termination of Employment. "Termination of Employment"
shall mean the time when the employee-employer relationship between an Optionee,
Grantee or Restricted Stockholder and the Company, Investment Management Company
or Partnership, or any of their respective Subsidiaries, is terminated for any
reason, with or without Cause, including, but not by way of limitation, a
termination by resignation, discharge, death, disability or retirement; but
excluding (i) terminations where there is a simultaneous reemployment or
continuing employment of an Optionee, Grantee or Restricted Stockholder by the
Company, a Company Subsidiary, the Investment Management Company, an Investment
Management Company Subsidiary, the Partnership or a Partnership Subsidiary, (ii)
at the discretion of the Committee, terminations which result in a temporary
severance of the employee-employer relationship, and (iii) at the discretion of
the Committee, terminations which are followed by the simultaneous establishment
of a consulting relationship by the Company, a Company Subsidiary, the
Investment Management Company, an Investment Management Company Subsidiary, the
Partnership or a Partnership Subsidiary with the former employee. The Committee,
in its absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Employment, including, but not by way of
limitation, the question of whether a Termination of Employment resulted from a
discharge for Cause, and all questions of whether a particular leave of absence
constitutes a Termination of Employment; provided, however, that, with respect
to Incentive Stock Options unless otherwise determined by the Committee in its
discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Section. Notwithstanding any other provision of
this Plan, the Company, a Company Subsidiary, the Investment Management Company,
an Investment Management Company Subsidiary, the Partnership or a Partnership
Subsidiary has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without Cause, except
to the extent expressly provided otherwise in writing.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
(a) The shares of stock subject to Options, awards of Restricted
Stock, Performance Awards, Dividend Equivalents, awards of Deferred Stock, Stock
Payments or Stock Appreciation Rights shall be shares of Common Stock. The
aggregate number of such shares which may be issued upon exercise of such
Options or rights or upon any such awards under the Plan shall not exceed Eight
Million Nine Hundred Fifty Thousand (8,950,000). The shares of Common Stock
issuable upon exercise of such Options or rights or upon any such awards may be
either previously authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Options,
awards of Restricted Stock, Performance Awards, Dividend Equivalents, awards of
Deferred Stock,
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Stock Payments or Stock Appreciation Rights granted under the Plan to any
individual in any calendar year shall not exceed the Award Limit.
2.2. Add-back of Options and Other Rights. If any Option, or
other right to acquire shares of Common Stock under any other award under this
Plan, expires or is canceled without having been fully exercised, or is
exercised in whole or in part for cash as permitted by this Plan, the number of
shares subject to such Option or other right but as to which such Option or
other right was not exercised prior to its expiration, cancellation or exercise
may again be optioned, granted or awarded hereunder, subject to the limitations
of Section 2.1. Furthermore, any shares subject to Options or other awards which
are adjusted pursuant to Section 10.3 and become exercisable with respect to
shares of stock of another corporation shall be considered canceled and may
again be optioned, granted or awarded hereunder, subject to the limitations of
Section 2.1. Shares of Common Stock which are delivered by the Optionee or
Grantee or withheld by the Company upon the exercise of any Option or other
award under this Plan, in payment of the exercise price thereof, may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. If any share of Restricted Stock is forfeited by the Grantee or repurchased
by the Company pursuant to Section 6.6 hereof, such share may again be optioned,
granted or awarded hereunder, subject to the limitations of Section 2.1.
Notwithstanding the provisions of this Section 2.2, no shares of Common Stock
may again be optioned, granted or awarded if such action would cause an
Incentive Stock Option to fail to qualify as an incentive stock option under
Section 422 of the Code.
ARTICLE III.
GRANTING OF OPTIONS
3.1. Eligibility. Any Employee, consultant or Non-Employee
Director selected by the Committee pursuant to Section 3.4(a)(i) shall be
eligible to be granted an Option. Independent Directors of the Company shall be
eligible to be granted Options at the times and in the manner set forth in
Section 3.4(d).
3.2. Disqualification for Stock Ownership. No person may be
granted an Incentive Stock Option under this Plan if such person, at the time
the Incentive Stock Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any then existing Subsidiary or parent corporation (within the
meaning of Section 422 of the Code) unless such Incentive Stock Option conforms
to the applicable provisions of Section 422 of the Code.
3.3. Qualification of Incentive Stock Options. No Incentive Stock
Option shall be granted to any person who is not an Employee, or to any Employee
of a Subsidiary which does not constitute a "subsidiary corporation" within
Section 424(f) of the Code.
3.4. Granting of Options
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of this Plan:
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(i) Determine which Employees are key Employees and select
from among the key Employees, consultants and Non-Employee Directors
(including Employees, consultants and Non-Employee Directors who have
previously received Options or other awards under this Plan) such of
them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected key
Employees or consultants;
(iii) Subject to Section 3.3, determine whether such
Options are to be Incentive Stock Options or Non-Qualified Stock Options
and whether such Options are to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options,
consistent with this Plan; provided, however, that the terms and
conditions of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall
include, but not be limited to, such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the
Code.
(b) Upon the selection of a key Employee or consultant to be
granted an Option, the Committee shall instruct the Secretary of the Company to
issue the Option and may impose such conditions on the grant of the Option as it
deems appropriate.
(c) Any Incentive Stock Option granted under this Plan may be
modified by the Committee, with the consent of the Optionee, to disqualify such
Option from treatment as an "incentive stock option" under Section 422 of the
Code.
(d) During the term of the Plan, each person who is named as an
Independent Director in the Company's registration statement in connection with
the Company's initial public offering of its Common Stock (an "Initial
Independent Director") as of the date upon which such Independent Director's
term as a director commences, automatically shall be granted (i) an Option to
purchase twenty-six thousand two hundred fifty (26,250) shares of Common Stock
(subject to adjustment as provided in Section 10.3) on the date of such initial
public offering and (ii) an Option to purchase fifteen thousand (15,000) shares
of Common Stock (subject to adjustment as provided in Section 10.3) on the date
of each annual meeting of stockholders after such initial public offering at
which the Independent Director is reelected to the Board commencing with the
annual meeting to be held in 1999. During the term of the Plan, a person, other
than an Initial Independent Director, who is initially elected to the Board
after the consummation of the initial public offering of Common Stock and who is
an Independent Director at the time of such initial election automatically shall
be granted (i) an Option to purchase twenty thousand (20,000) shares of Common
Stock (subject to adjustment as provided in Section 10.3) on the date of such
initial election and (ii) an Option to purchase fifteen thousand (15,000) shares
of Common Stock (subject to adjustment as provided in Section 10.3) on the date
of each annual meeting of stockholders after such initial election at which the
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Independent Director is reelected to the Board. Members of the Board who are
employees of the Company who subsequently retire from the Company and remain on
the Board will not receive an initial Option grant pursuant to clause (i) of the
preceding sentence, but to the extent that they are otherwise eligible, will
receive, after retirement from employment with the Company, Options as described
in clause (ii) of the preceding sentence. All the foregoing Option grants
authorized by this Section 3.4(d) are subject to stockholder approval of the
Plan.
ARTICLE IV.
TERMS OF OPTIONS
4.1. Option Agreement. Each Option shall be evidenced by a
written Stock Option Agreement, which shall be executed by the Optionee and an
authorized officer of the Company and which shall contain such terms and
conditions as the Committee (or the Board, in the case of Options granted to
Independent Directors) shall determine, consistent with this Plan. Stock Option
Agreements evidencing Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Stock Option Agreements evidencing Incentive Stock
Options shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
4.2. Option Price. The price per share of the shares subject to
each Option shall be set by the Committee; provided, however, that (i) in the
case of Incentive Stock Options such price shall not be less than 100% of the
Fair Market Value of a share of Common Stock on the date the Option is granted
(or the date the Option is modified, extended or renewed for purposes of Section
424(h) of the Code); (ii) in the case of Incentive Stock Options granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code), such price shall not be less than 110% of the Fair
Market Value of a share of Common Stock on the date the Option is granted (or
the date the Option is modified, extended or renewed for purposes of Section
424(h) of the Code); (iii) in the case of Options granted to Independent
Directors, such price shall equal 100% of the Fair Market Value of a share of
Common Stock on the date the Option is granted; provided, however, that the
price of each share subject to each Option granted to Initial Independent
Directors pursuant to Section 3.4(d) hereof shall equal the initial public
offering price per share of Common Stock; and (iv) in the case of all other
Options granted, such price shall be not less than 100% of the Fair Market Value
of a share of Common Stock on the date the Option is granted. Notwithstanding
any other provision of this Plan to the contrary, the Committee shall not have
the authority to amend the terms of any outstanding Option to reduce its
exercise price.
4.3. Option Term. The term of an Option shall be set by the
Committee in its discretion; provided, however, that, (i) no Option shall be
granted with a term of more than ten (10) years from the date the Option is
granted, (ii) in the case of Options granted to Independent Directors, the term
shall be ten (10) years from the date the Option is granted, and (iii) in the
case of Incentive Stock Options, the term shall not be more than five (5) years
from the date the
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Incentive Stock Option is granted, if the Incentive Stock Option is granted to
an individual then owning (within the meaning of Section 424(d) of the Code)
more than 10% of the total combined voting power of all classes of stock of the
Company or any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code). Except as limited by requirements of Section 422 of
the Code and regulations and rulings thereunder applicable to Incentive Stock
Options, the Committee may extend the term of any outstanding Option in
connection with any Termination of Employment or Termination of Consultancy of
the Optionee, or amend any other term or condition of such Option relating to
such a termination.
4.4. Option Vesting
(a) The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee and the
Committee may determine that an Option may not be exercised in whole or in part
for a specified period after it is granted; provided, however, that, unless the
Committee otherwise provides in the terms of the Option or otherwise, no Option
shall be exercisable by any Optionee who is then subject to Section 16 of the
Exchange Act within the period ending six months and one day after the date the
Option is granted; and provided, further, that, unless the Board otherwise
provides in the terms of the Options or otherwise, Options granted to
Independent Directors shall become fully exercisable on first anniversary of the
date of Option grant, except as provided in Section 10.3(b). At any time after
grant of an Option, the Committee may, in its sole and absolute discretion and
subject to whatever terms and conditions it selects, accelerate the period
during which an Option (except an Option granted to an Independent Director)
vests.
(b) No portion of an Option which is unexercisable at Termination
of Employment, Termination of Directorship or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee in the case of Options granted to Employees or
consultants either in the Stock Option Agreement or by action of the Committee
following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock
with respect to which "incentive stock options" (within the meaning of Section
422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by an Optionee during any calendar year (under
the Plan and all other incentive stock option plans of the Company and any
parent or subsidiary corporation (within the meaning of Section 422 of the Code)
of the Company) exceeds $100,000, such Options shall be treated as Non-Qualified
Options to the extent required by Section 422 of the Code. The rule set forth in
the preceding sentence shall be applied by taking Options into account in the
order in which they were granted. For purposes of this Section 4.4(c), the Fair
Market Value of stock shall be determined as of the time the Option with respect
to such stock is granted.
4.5. Consideration. In consideration of the granting of an
Option, the Optionee shall agree, in the written Stock Option Agreement, to
remain in the employ of (or to consult for or to serve as an Independent
Director of, as applicable) the Company, a Company Subsidiary, the Investment
Management Company, an Investment Management Company Subsidiary, the
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Partnership or a Partnership Subsidiary for a period of at least one year (or
such shorter period as may be fixed in the Stock Option Agreement or by action
of the Committee following grant of the Option) after the Option is granted (or,
in the case of an Independent Director, until the next annual meeting of
stockholders of the Company). Nothing in this Plan or in any Stock Option
Agreement hereunder shall (i) confer upon any Optionee any right to (a) continue
in the employ of, or as a consultant for, the Company, a Company Subsidiary, the
Investment Management Company, an Investment Management Company Subsidiary, the
Partnership or a Partnership Subsidiary, or as a Director, or (b) receive any
severance pay from the Company, a Company Subsidiary, the Investment Management
Company, an Investment Management Company Subsidiary, the Partnership or a
Partnership Subsidiary or (ii) interfere with or restrict in any way the rights
of the Company, a Company Subsidiary, the Investment Management Company, an
Investment Management Company Subsidiary, the Partnership or a Partnership
Subsidiary, which are hereby expressly reserved, to discharge any Optionee at
any time for any reason whatsoever, with or without Cause.
ARTICLE V.
EXERCISE OF OPTIONS
5.1. Partial Exercise. An exercisable Option may be exercised in
whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Committee (or the Board, in the case of Options
granted to Independent Directors) may require that, by the terms of the Option,
a partial exercise be with respect to a minimum number of shares.
5.2. Manner of Exercise. All or a portion of an exercisable
Option shall be deemed exercised upon delivery of all of the following to the
Secretary of the Company (or such other officer as identified in the applicable
Stock Option Agreement):
(a) A written notice complying with the applicable rules
established by the Committee (or the Board, in the case of Options granted to
Independent Directors) stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion of the Option;
(b) Such representations and documents as the Committee (or the
Board, in the case of Options granted to Independent Directors), in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The Committee or Board may, in
its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation, placing
legends on share certificates and issuing stop-transfer notices to agents and
registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 10.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option; and
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(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, the Committee (or the Board, in the case of Options granted to
Independent Directors), may in its discretion (i) allow a delay in payment up to
thirty (30) days from the date the Option, or portion thereof, is exercised;
(ii) allow payment, in whole or in part, through the delivery of shares of
Common Stock owned by the Optionee, duly endorsed for transfer to the Company
with a Fair Market Value on the date of delivery equal to the aggregate exercise
price of the Option or exercised portion thereof; (iii) allow payment, in whole
or in part, through the surrender of shares of Common Stock then issuable upon
exercise of the Option having a Fair Market Value on the date of Option exercise
equal to the aggregate exercise price of the Option or exercised portion
thereof; (iv) allow payment, in whole or in part, through the delivery of a full
recourse promissory note bearing interest (at no less than such rate as shall
then preclude the imputation of interest under the Code) and payable upon such
terms as may be prescribed by the Committee or the Board; or (v) allow payment
through any combination of the consideration provided in the foregoing
subparagraphs (ii), (iii) and (iv). In the case of a promissory note, the
Committee (or the Board, in the case of Options granted to Independent
Directors) may also prescribe the form of such note and the security to be given
for such note. The Option may not be exercised, however, by delivery of a
promissory note or by a loan from the Company when or where such loan or other
extension of credit is prohibited by law.
5.3. Transfer of Shares to a Company Employee, Consultant or
Independent Director. As soon as practicable after receipt by the Company,
pursuant to Section 5.2(d), of payment for the shares with respect to which an
Option (which in the case of a Company Employee, consultant or Independent
Director was issued to and is held by such Optionee in such capacity), or
portion thereof, is exercised by an Optionee who is a Company Employee,
Independent Director or a consultant to the Company, with respect to each such
exercise, the Company shall transfer to the Optionee the number of shares equal
to
(a) The amount of the payment made by the Optionee to the Company
pursuant to Section 5.2(d), divided by
(b) The price per share of the shares subject to the Option as
determined pursuant to Section 4.2.
5.4. Transfer of Shares to a Partnership Employee, Consultant or
Independent Director. (a)At the time that an Optionee who is an Employee,
Independent Director or consultant of the Partnership or a Partnership
Subsidiary exercises all or any part of an Option pursuant to the terms of this
Plan, such Optionee shall remit to the Partnership or the Partnership
Subsidiary, as the case may be, an amount equal to the product of the exercise
price per share of such Option and the number of shares with respect to such
Option being exercised by such Optionee.
(b) As soon as practicable after receipt by the Operating
Partnership of a notice of the exercise of shares with respect to which an
Option (which was issued to and is held by a Partnership Employee, consultant or
Independent Director in such capacity), or portion
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thereof, is exercised by an Optionee who is a Partnership Employee, Independent
Director or consultant, with respect to each such exercise the Company shall
sell to the Partnership, or the Partnership Subsidiary in the case of an
Optionee who is an Employee, consultant or Independent Director of Partnership
Subsidiary, the number of shares (the "Partnership Purchased Shares") equal to
the number of shares subject to such exercise by such Optionee at a purchase
price equal to the Fair Market Value of a share of Common Stock at the time of
the exercise (the "Partnership Purchase Price");
(c) As soon as practicable after receipt of the Partnership
Purchased Shares by the Partnership, or the Partnership Subsidiary in the case
of an Optionee who is an Employee, Independent Director or consultant of a
Partnership Subsidiary, the Partnership or the Partnership Subsidiary, as the
case may be, shall transfer such shares to the Optionee at no additional cost.
5.5. Transfer of Shares to an Investment Management Company
Employee, Consultant or Independent Director. (a) At the time that an Optionee
who is an Employee, Independent Director or consultant of the Investment
Management Company or an Investment Management Company Subsidiary exercises all
or any part of an Option pursuant to the terms of this Plan, such Optionee shall
remit to the Investment Management Company or the Investment Management Company
Subsidiary, as the case may be, an amount equal to the product of the exercise
price per share of such Option and the number of shares with respect to such
Option being exercised by such Optionee.
(b) As soon as practicable after receipt by the Investment
Management Company, of a notice of the exercise of shares with respect to which
an Option (which in the case of an Investment Management Company Employee,
consultant or Independent Director was issued to and is held by such Optionee in
such capacity), or portion thereof, is exercised by an Optionee who is an
Investment Management Company Employee, an Investment Management Company
Independent Director or consultant, with respect to each such exercise the
Company shall sell to the Investment Management Company, or the Investment
Management Company Subsidiary in the case of an Optionee who is an Employee,
consultant or Independent Director of an Investment Management Company
Subsidiary, the number of shares (the "Investment Management Company Purchased
Shares") equal to the number of shares subject to such exercise by such Optionee
at a purchase price equal to the Fair Market Value of a share of Common Stock at
the time of the exercise (the "Investment Management Company Purchase Price");
(c) As soon as practicable after receipt of the Investment
Management Company Purchased Shares by the Investment Management Company, or the
Investment Management Company Subsidiary in the case of an Optionee who is an
Employee, Independent Director or consultant of a Investment Management Company
Subsidiary, the Investment Management Company or such Investment Management
Company Subsidiary, as the case may be, shall transfer such shares to the
Optionee at no additional cost.
5.6. Transfer of Payment to the Partnership. As soon as
practicable after receipt by the Company of the amount described in Section
5.2(d), 5.4(b) and 5.5(b) the
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Company shall contribute to the Partnership an amount of cash equal to such
payment and the Partnership shall issue an additional interest in the
Partnership on the terms set forth in the Partnership Agreement.
5.7. Conditions to Issuance of Stock Certificates. The Company
shall not be required to issue or deliver any certificate or certificates for
shares of stock purchased upon the exercise of any Option or portion thereof
prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of
such shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body which the Committee or Board shall, in its absolute discretion, deem
necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee (or Board, in the case
of Options granted to Independent Directors) shall, in its absolute discretion,
determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee (or Board, in the case of Options
granted to Independent Directors) may establish from time to time for reasons of
administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
5.8. Rights as Stockholders. The holders of Options shall not be,
nor have any of the rights or privileges of, stockholders of the Company in
respect of any shares purchasable upon the exercise of any part of an Option
unless and until certificates representing such shares have been issued by the
Company to such holders.
5.9. Ownership and Transfer Restrictions. The Committee (or
Board, in the case of Options granted to Independent Directors), in its absolute
discretion, may impose such restrictions on the ownership and transferability of
the shares purchasable upon the exercise of an Option as it deems appropriate.
Any such restriction shall be set forth in the respective Stock Option Agreement
and may be referred to on the certificates evidencing such shares. The Committee
may require the Employee to give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(i) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Employee or (ii) one year after the transfer of such shares to
such Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Option refer to such requirement to give prompt
notice of disposition.
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5.10. Limitations on Exercise of Options Granted to an Optionee.
The Committee (or the Board, in the case of Options granted to Independent
Directors), in its absolute discretion, may impose such limitations and
restrictions on the exercise of Options as it deems appropriate. Any such
limitation shall be set forth in the respective Stock Option Agreement.
Notwithstanding the foregoing, an Option is not exercisable if in the sole and
absolute discretion of the Committee the exercise of such Option would likely
result in any of the following:
(a) the Optionee's or any other person's ownership of capital
stock being in violation of the Stock Ownership Limit (as defined in the
Company's Articles of Incorporation); or
(b) income to the Company that could impair the Company's status
as a real estate investment trust, within the meaning of Sections 856 through
860 of the Code.
ARTICLE VI.
AWARD OF RESTRICTED STOCK
6.1. Eligibility. Subject to the Award Limit, Restricted Stock
may be awarded to any Employee who the Committee determines is a key Employee or
any Director or consultant whom the Committee determines should receive such an
award.
6.2. Award of Restricted Stock
(a) The Committee may from time to time, in its absolute
discretion:
(i) Determine which Employees are key Employees and select
from among the key Employees, Directors or consultants (including
Employees, Directors or consultants who have previously received other
awards under this Plan) such of them as in its opinion should be awarded
Restricted Stock; and
(ii) Determine the purchase price, if any, and other terms
and conditions (including, without limitation, in the case of awards to
Employees, consultants or Independent Directors of the Partnership, any
Partnership Subsidiary, the Investment Management Company or any
Investment Management Company Subsidiary, the mechanism for the transfer
of the Restricted Stock and payment therefor and, in the case of the
repurchase of shares of Restricted Stock subject to restrictions in
effect at the time of the Termination of Employment, Directorship or
Consultancy of such Employee, Director or consultant, as the case may
be) applicable to such Restricted Stock, consistent with this Plan.
(b) The Committee shall establish the purchase price, if any, and
form of payment for Restricted Stock; provided, however, that such purchase
price shall be no less than the par value of the Common Stock to be purchased,
unless otherwise permitted by applicable state law. In all cases, legal
consideration shall be required for each issuance of Restricted Stock.
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(c) Upon the selection of a key Employee or consultant to be
awarded Restricted Stock, the Committee shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on the
issuance of such Restricted Stock as it deems appropriate.
6.3. Restricted Stock Agreement. Restricted Stock shall be issued
only pursuant to a written Restricted Stock Agreement, which shall be executed
by the selected key Employee or consultant and an authorized officer of the
Company and which shall contain such terms and conditions as the Committee shall
determine, consistent with this Plan.
6.4. Consideration. As consideration for the issuance of
Restricted Stock, in addition to payment of any purchase price, the Restricted
Stockholder shall agree, in the written Restricted Stock Agreement, to remain in
the employ of, or to consult for, the Company, a Company Subsidiary, the
Investment Management Company, an Investment Management Company Subsidiary, the
Partnership or a Partnership Subsidiary for a period of at least one year after
the Restricted Stock is issued (or such shorter period as may be fixed in the
Restricted Stock Agreement or by action of the Committee following grant of the
Restricted Stock) or, in the case of a Director, complete the remainder of such
Director's elected term. Nothing in this Plan or in any Restricted Stock
Agreement hereunder shall (i) confer on any Restricted Stockholder any right to
(a) continue in the employ of, as a Director of or as a consultant for, the
Company, a Company Subsidiary, the Investment Management Company, an Investment
Management Company Subsidiary, the Partnership or a Partnership Subsidiary or
(b) receive any severance pay from the Company, a Company Subsidiary, the
Investment Management Company, an Investment Management Company Subsidiary, the
Partnership or a Partnership Subsidiary or (ii) interfere with or restrict in
any way the rights of the Company, a Company Subsidiary, the Investment
Management Company, an Investment Management Company Subsidiary, the Partnership
or a Partnership Subsidiary, which are hereby expressly reserved, to discharge
the Employee or consultant at any time for any reason whatsoever, with or
without Cause, or any Director pursuant to the Company's bylaws.
6.5. Rights as Stockholders. Subject to Section 6.6, upon
delivery of the shares of Restricted Stock to the escrow holder pursuant to
Section 6.8, the Restricted Stockholder shall have, unless otherwise provided by
the Committee, all the rights of a stockholder with respect to said shares,
subject to the restrictions in his Restricted Stock Agreement, including the
right to receive all dividends and other distributions paid or made with respect
to the shares; provided, however, that in the discretion of the Committee, any
extraordinary distributions with respect to the Common Stock shall be subject to
the restrictions set forth in Section 6.6.
6.6. Restriction. All shares of Restricted Stock issued under
this Plan (including any shares received by holders thereof with respect to
shares of Restricted Stock as a result of stock dividends, stock splits or any
other form of recapitalization) shall, in the terms of each individual
Restricted Stock Agreement, be subject to such restrictions as the Committee
shall provide, which restrictions may include, without limitation, restrictions
concerning voting rights and transferability and restrictions based on duration
of employment with the Company, Company performance and individual performance;
provided, however, that, unless the
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Committee otherwise provides in the terms of the Restricted Stock Agreement or
otherwise, no share of Restricted Stock granted to a person subject to Section
16 of the Exchange Act shall be sold, assigned or otherwise transferred until at
least six months and one day have elapsed from the date on which the Restricted
Stock was issued, and provided, further, that, except with respect to shares of
Restricted Stock granted pursuant to Section 6.10, by action taken after the
Restricted Stock is issued, the Committee may, on such terms and conditions as
it may determine to be appropriate, remove any or all of the restrictions
imposed by the terms of the Restricted Stock Agreement. Restricted Stock may not
be sold or encumbered until all restrictions are terminated or expire. If no
consideration was paid by the Restricted Stockholder upon issuance, a Restricted
Stockholder's rights in unvested Restricted Stock shall lapse upon a Termination
of Employment or, if applicable, upon a Termination of Directorship or a
Termination of Consultancy; provided, however, that the Committee in its sole
and absolute discretion may provide that such rights shall not lapse in the
event of a Termination of Employment or Termination of Directorship following a
"change of ownership control" (within the meaning of Treasury Regulation Section
1.62-27(e)(2)(v) or any successor regulation thereto) of the Company or because
of the Restricted Stockholder's death or disability.
6.7. Repurchase of Restricted Stock. The Committee shall provide
in the terms of each individual Restricted Stock Agreement that the Company
shall have the right to repurchase from the Restricted Stockholder the
Restricted Stock then subject to restrictions under the Restricted Stock
Agreement immediately upon a Termination of Employment or, if applicable, upon a
Termination of Director or a Termination of Consultancy, at a cash price per
share equal to the price paid by the Restricted Stockholder for such Restricted
Stock; provided, however, that the Committee in its sole and absolute discretion
may provide that no such right of repurchase shall exist in the event of a
Termination of Employment, Termination of Directorship or Termination of
Consultancy following a "change of ownership or control" (within the meaning of
Treasury Regulation Section 1.162-27(e)(2)(v) or any successor regulation
thereto) of the Company or because of the Restricted Stockholder's death or
disability; provided, further, that, except with respect to shares of Restricted
Stock granted pursuant to Section 6.10, the Committee in its sole and absolute
discretion may provide that no such right of repurchase shall exist in the event
of a Termination of Employment, Termination of Directorship or a Termination of
Consultancy without Cause, following any change in control or ownership of the
Company, because of the Restricted Stockholder's retirement, or otherwise.
6.8. Escrow. The Secretary of the Company or such other escrow
holder as the Committee may appoint shall retain physical custody of each
certificate representing Restricted Stock until all of the restrictions imposed
under the Restricted Stock Agreement with respect to the shares evidenced by
such certificate expire or shall have been removed.
6.9. Legend. In order to enforce the restrictions imposed upon
shares of Restricted Stock hereunder, the Committee shall cause a legend or
legends to be placed on certificates representing all shares of Restricted Stock
that are still subject to restrictions under Restricted Stock Agreements, which
legend or legends shall make appropriate reference to the conditions imposed
thereby.
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6.10. Provisions Applicable to Section 162(m) Participants.
(a) Notwithstanding anything in the Plan to the contrary, the
Committee may grant Restricted Stock to a Section 162(m) Participant the
restrictions with respect to which lapse upon the attainment of performance
goals for the Company which are related to one or more of the following business
criteria: (i) pre-tax income, (ii) operating income, (iii) cash flow, (iv)
earnings per share, (v) return on equity, (vi) return on invested capital or
assets, (vii) cost reductions or savings, (viii) funds from operations, (ix)
appreciation in the fair market value of Common Stock and (x) earnings before
any one or more of the following items: interest, taxes, depreciation or
amortization.
(b) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect to
Restricted Stock which may be granted to one or more Section 162(m)
Participants, no later than ninety (90) days following the commencement of any
fiscal year in question or any other designated fiscal period or period of
service (or such other time as may be required or permitted by Section 162(m) of
the Code), the Committee shall, in writing, (i) designate one or more Section
162(m) Participants, (ii) select the performance goal or goals applicable to the
fiscal year or other designated fiscal period or period of service, (iii)
establish the various targets and amounts of Restricted Stock which may be
earned for such fiscal year or other designated fiscal period or period of
service and (iv) specify the relationship between performance goals and targets
and the amounts of Restricted Stock to be earned by each Section 162(m)
Participant for such fiscal year or other designated fiscal period or period of
service. Following the completion of each fiscal year or other designated fiscal
period or period of service, the Committee shall certify in writing whether the
applicable performance targets have been achieved for such fiscal year or other
designated fiscal period or period of service. In determining the amount earned
by a Section 162(m) Participant, the Committee shall have the right to reduce
(but not to increase) the amount payable at a given level of performance to take
into account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or other
designated fiscal period or period of service.
ARTICLE VII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
7.1. Eligibility. Subject to the Award Limit, one or more
Performance Awards, Dividend Equivalents, awards of Deferred Stock, and/or Stock
Payments may be granted to any Employee whom the Committee determines is a key
Employee or any consultant or Independent Director whom the Committee determines
should receive such an award.
7.2. Performance Awards. Any key Employee, consultant or
Independent Director selected by the Committee may be granted one or more
Performance Awards. The value of such Performance Awards may be linked to the
market value, book value, net profits or other measure of the value of Common
Stock or other specific performance criteria determined
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appropriate by the Committee, in each case on a specified date or dates or over
any period or periods determined by the Committee, or may be based upon the
appreciation in the market value, book value, net profits or other measure of
the value of a specified number of shares of Common Stock over a fixed period or
periods determined by the Committee. In making such determinations, the
Committee shall consider (among such other factors as it deems relevant in light
of the specific type of award) the contributions, responsibilities and other
compensation of the particular key Employee or consultant.
7.3. Dividend Equivalents. Any key Employee, consultant or
Independent Director selected by the Committee may be granted Dividend
Equivalents based on the dividends declared on Common Stock, to be credited as
of dividend payment dates, during the period between the date an Option, Stock
Appreciation Right, Deferred Stock or Performance Award is granted, and the date
such Option, Stock Appreciation Right, Deferred Stock or Performance Award is
exercised, vests or expires, as determined by the Committee. Such Dividend
Equivalents shall be converted to cash or additional shares of Common Stock by
such formula and at such time and subject to such limitations as may be
determined by the Committee. With respect to Dividend Equivalents granted with
respect to Options intended to be qualified performance-based compensation for
purposes of Section 162(m) of the Code, such Dividend Equivalents shall be
payable regardless of whether such Option is exercised.
7.4. Stock Payments. Any key Employee, consultant or Independent
Director selected by the Committee may receive Stock Payments in the manner
determined from time to time by the Committee. The number of shares shall be
determined by the Committee and may be based upon the Fair Market Value, book
value, net profits or other measure of the value of Common Stock or other
specific performance criteria determined appropriate by the Committee,
determined on the date such Stock Payment is made or on any date thereafter.
7.5. Deferred Stock. Any key Employee, consultant or Independent
Director selected by the Committee may be granted an award of Deferred Stock in
the manner determined from time to time by the Committee. The number of shares
of Deferred Stock shall be determined by the Committee and may be linked to the
market value, book value, net profits or other measure of the value of Common
Stock or other specific performance criteria determined to be appropriate by the
Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee. Common Stock underlying a Deferred Stock
award will not be issued until the Deferred Stock award has vested, pursuant to
a vesting schedule or performance criteria set by the Committee. Unless
otherwise provided by the Committee, a Grantee of Deferred Stock shall have no
rights as a Company stockholder with respect to such Deferred Stock until such
time as the award has vested and the Common Stock underlying the award has been
issued.
7.6. Performance Award Agreement, Dividend Equivalent Agreement,
Deferred Stock Agreement, Stock Payment Agreement. Each Performance Award,
Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be
evidenced by a written agreement, which shall be executed by the Grantee and an
authorized Officer of the Company and which shall contain such terms and
conditions (including, without limitation, in the case of
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awards to Employees, consultants or Independent Directors of the Partnership,
any Partnership Subsidiary, the Investment Management Company or any Investment
Management Company Subsidiary, the mechanism for the transfer or rights under
such awards) as the Committee shall determine, consistent with this Plan.
7.7. Term. The term of a Performance Award, Dividend Equivalent,
award of Deferred Stock and/or Stock Payment shall be set by the Committee in
its discretion.
7.8. Exercise or Purchase Price. The Committee may establish the
exercise or purchase price of a Performance Award, shares of Deferred Stock, or
shares received as a Stock Payment; provided, however, that such price shall not
be less than the par value for a share of Common Stock, unless otherwise
permitted by applicable state law.
7.9. Exercise Upon Termination of Employment. A Performance
Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment is
exercisable or payable only while the Grantee is an Employee or consultant;
provided, however, that the Committee in its sole and absolute discretion may
provide that the Performance Award, Dividend Equivalent, award of Deferred Stock
and/or Stock Payment may be exercised or paid subsequent to a Termination of
Employment following a "change of control or ownership" (within the meaning of
Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the Company;
provided, further, that except with respect to Performance Awards granted
pursuant to Section 7.12, the Committee in its sole and absolute discretion may
provide that the Performance Awards may be exercised or paid following a
Termination of Employment or a Termination of Consultancy without cause, or
following a change in control of the Company, or because of the Grantee's
retirement, death or disability, or otherwise.
7.10. Payment on Exercise. Payment of the amount determined under
Section 7.1 or 7.2 above shall be in cash, in Common Stock or a combination of
both, as determined by the Committee. To the extent any payment under this
Article VII is effected in Common Stock, it shall be made subject to
satisfaction of all provisions of Section 5.3.
7.11. Consideration. In consideration of the granting of a
Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment, the Grantee shall agree, in a written agreement, to remain in the
employ of, or to consult for, the Company, a Company Subsidiary, the Investment
Management Company, an Investment Management Company Subsidiary, the Partnership
or a Partnership Subsidiary for a period of at least one year after such
Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment is granted (or such shorter period as may be fixed in such agreement or
by action of the Committee following such grant). Nothing in this Plan or in any
agreement hereunder shall (i) confer on any Grantee any right to (a) continue in
the employ of, or as a consultant for, the Company, a Company Subsidiary, the
Investment Management Company, an Investment Management Company Subsidiary, the
Partnership or a Partnership Subsidiary or (b) receive any severance pay from
the Company, a Company Subsidiary, the
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Investment Management Company, an Investment Management Company Subsidiary, the
Partnership or a Partnership Subsidiary or (ii) interfere with or restrict in
any way the rights of the Company, a Company Subsidiary, the Investment
Management Company, an Investment Management Company Subsidiary, the Partnership
or a Partnership Subsidiary, which are hereby expressly reserved, to discharge
any Grantee at any time for any reason whatsoever, with or without Cause.
7.12. Provisions Applicable to Section 162(m) Participants.
(a) Notwithstanding anything in the Plan to the contrary, the
Committee may grant any performance or incentive awards described in Article VII
to a Section 162(m) Participant that vest or become exercisable or payable upon
the attainment of performance goals for the Company which are related to one or
more of the following business criteria: (i) pre-tax income, (ii) operating
income, (iii) cash flow, (iv) earnings per share, (v) return on equity, (vi)
return on invested capital or assets, (vii) cost reductions or savings, (viii)
funds from operations, (ix) appreciation in the fair market value of Common
Stock and (x) earnings before any one or more of the following items: interest,
taxes, depreciation or amortization.
(b) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect to
performance or incentive awards described in Article VII which may be granted to
one or more Section 162(m) Participants, no later than ninety (90) days
following the commencement of any fiscal year in question or any other
designated fiscal period or period of service (or such other time as may be
required or permitted by Section 162(m) of the Code), the Committee shall, in
writing, (i) designate one or more Section 162(m) Participants, (ii) select the
performance goal or goals applicable to the fiscal year or other designated
fiscal period or period of service, (iii) establish the various targets and
bonus amounts which may be earned for such fiscal year or other designated
fiscal period or period of service and (iv) specify the relationship between
performance goals and targets and the amounts to be earned by each Section
162(m) Participant for such fiscal year or other designated fiscal period or
period of service. Following the completion of each fiscal year or other
designated fiscal period or period of service, the Committee shall certify in
writing whether the applicable performance targets have been achieved for such
fiscal year or other designated fiscal period or period of service. In
determining the amount earned by a Section 162(m) Participant, the Committee
shall have the right to reduce (but not to increase) the amount payable at a
given level of performance to take into account additional factors that the
Committee may deem relevant to the assessment of individual or corporate
performance for the fiscal year or other designated fiscal period or period of
service.
ARTICLE VIII.
STOCK APPRECIATION RIGHTS
8.1. Grant of Stock Appreciation Rights. A Stock Appreciation
Right may be granted to any key Employee or consultant selected by the
Committee. A Stock Appreciation Right may be granted (i) in connection and
simultaneously with the grant of an Option, (ii) with respect to a previously
granted Option, or (iii) independent of an Option. A Stock Appreciation Right
shall be subject to such terms and conditions (including, without limitation,
the mechanism for the transfer of rights under such awards) not inconsistent
with this Plan as the Committee
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shall impose and shall be evidenced by a written Stock Appreciation Right
Agreement, which shall be executed by the Grantee and an authorized officer of
the Company. The Committee, in its discretion, may determine whether a Stock
Appreciation Right is to qualify as performance-based compensation as described
in Section 162(m)(4)(C) of the Code and Stock Appreciation Right Agreements
evidencing Stock Appreciation Rights intended to so qualify shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code.
8.2. Coupled Stock Appreciation Rights
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related
to a particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.
(b) A CSAR may be granted to the Grantee for no more than the
number of shares subject to the simultaneously or previously granted Option to
which it is coupled.
(c) A CSAR shall entitle the Grantee (or other person entitled to
exercise the Option pursuant to this Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the extent
then exercisable pursuant to its terms) and to receive from the Company in
exchange therefor an amount determined by multiplying the difference obtained by
subtracting the Option exercise price from the Fair Market Value of a share of
Common Stock on the date of exercise of the CSAR by the number of shares of
Common Stock with respect to which the CSAR shall have been exercised, subject
to any limitations the Committee may impose.
8.3. Independent Stock Appreciation Rights
(a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An ISAR
shall be exercisable in such installments as the Committee may determine. An
ISAR shall cover such number of shares of Common Stock as the Committee may
determine; provided, however, that unless the Committee otherwise provides in
the terms of the ISAR or otherwise, no ISAR granted to a person subject to
Section 16 of the Exchange Act shall be exercisable until at least six months
have elapsed from (but excluding) the date on which the Option was granted. The
exercise price per share of Common Stock subject to each ISAR shall be set by
the Committee. An ISAR is exercisable only while the Grantee is an Employee or
consultant; provided that the Committee may determine that the ISAR may be
exercised subsequent to Termination of Employment or Termination of Consultancy
without cause, or following a change in control of the Company, or because of
the Grantee's retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Grantee (or other person entitled
to exercise the ISAR pursuant to this Plan) to exercise all or a specified
portion of the ISAR (to the extent then exercisable pursuant to its terms) and
to receive from the Company an amount determined by multiplying the difference
obtained by subtracting the exercise price per share of the ISAR from
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the Fair Market Value of a share of Common Stock on the date of exercise of the
ISAR by the number of shares of Common Stock with respect to which the ISAR
shall have been exercised, subject to any limitations the Committee may impose.
8.4. Payment and Limitations on Exercise
(a) Payment of the amount determined under Section 8.2(c) and
8.3(b) above shall be in cash, in Common Stock (based on its Fair Market Value
as of the date the Stock Appreciation Right is exercised) or a combination of
both, as determined by the Committee. To the extent such payment is effected in
Common Stock it shall be made subject to satisfaction of all provisions of
Section 5.3 above pertaining to Options.
(b) Grantees of Stock Appreciation Rights may be required to
comply with any timing or other restrictions with respect to the settlement or
exercise of a Stock Appreciation Right, including a window-period limitation, as
may be imposed in the discretion of the Board or Committee.
8.5. Consideration. In consideration of the granting of a Stock
Appreciation Right, the Grantee shall agree, in the written Stock Appreciation
Right Agreement, to remain in the employ of, or to consult for, the Company, a
Company Subsidiary, the Investment Management Company, an Investment Management
Company Subsidiary, the Partnership or a Partnership Subsidiary for a period of
at least one year after the Stock Appreciation Right is granted (or such shorter
period as may be fixed in the Stock Appreciation Right Agreement or by action of
the Committee following grant of the Restricted Stock). Nothing in this Plan or
in any Stock Appreciation Right Agreement hereunder shall (i) confer on any
Grantee any right to (a) continue in the employ of, or as a consultant for, the
Company, a Company Subsidiary, the Investment Management Company, an Investment
Management Company Subsidiary, the Partnership or a Partnership Subsidiary or
(b) receive any severance pay from the Company, a Company Subsidiary, the
Investment Management Company, an Investment Management Company Subsidiary, the
Partnership or a Partnership Subsidiary or (ii) interfere with or restrict in
any way the rights of the Company, a Company Subsidiary, the Investment
Management Company, an Investment Management Company Subsidiary, the Partnership
or a Partnership Subsidiary, which are hereby expressly reserved, to discharge
any Grantee at any time for any reason whatsoever, with or without Cause.
ARTICLE IX.
ADMINISTRATION
9.1. Compensation Committee. Prior to the Company's initial
registration of Common Stock under Section 12 of the Exchange Act, the
Compensation Committee shall consist of the entire Board. Following such
registration, the Compensation Committee (or another committee or a subcommittee
of the Board assuming the functions of the Committee under this Plan) shall
consist solely of two or more Independent Directors appointed by and holding
office at the pleasure of the Board, each of whom is both a "non-employee
director" as defined by Rule 16b-3 and an "outside director" for purposes of
Section 162(m) of the Code.
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Appointment of Committee members shall be effective upon acceptance of
appointment. Committee members may resign at any time by delivering written
notice to the Board. Vacancies in the Committee may be filled by the Board.
9.2. Duties and Powers of Committee. It shall be the duty of the
Committee to conduct the general administration of this Plan in accordance with
its provisions. The Committee shall have the power to interpret this Plan and
the agreements pursuant to which Options, awards of Restricted Stock or Deferred
Stock, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments are granted or awarded, and to adopt such rules for the
administration, interpretation, and application of this Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Notwithstanding the
foregoing, the full Board, acting by a majority of its members in office, shall
conduct the general administration of the Plan with respect to Options granted
to Independent Directors. Any such grant or award under this Plan need not be
the same with respect to each Optionee, Grantee or Restricted Stockholder. Any
such interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under this Plan except with respect to
matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations
or rules issued thereunder, are required to be determined in the sole discretion
of the Committee.
9.3. Majority Rule; Unanimous Written Consent. The Committee
shall act by a majority of its members in attendance at a meeting at which a
quorum is present or by a memorandum or other written instrument signed by all
members of the Committee.
9.4. Compensation; Professional Assistance; Good Faith Actions.
Members of the Committee shall receive such compensation, if any, for their
services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of this Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers, or other persons. The Committee, the Company and the
Company's officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board in good
faith shall be final and binding upon all Optionees, Grantees, Restricted
Stockholders, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Plan, Options, awards of
Restricted Stock or Deferred Stock, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments, and all members of the Committee
and the Board shall be fully protected by the Company in respect of any such
action, determination or interpretation.
9.5. Delegation of Authority to Grant Awards. The Committee may,
but need not, delegate from time to time to a committee consisting of one or
more members of the Committee or of one or more officers of the Company some or
all of the Committee's authority to grant awards under this Plan to eligible
recipients; provided, however, that each such recipient
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must be an individual other than an "officer," "director" or "beneficial owner
of more than ten per centum of any class of any equity security" within the
meaning of each such term as it is used under Section 16(b) of the Exchange Act.
Any delegation hereunder shall be subject to the restrictions and limits that
the Committee specifies at the time of such delegation of authority and may be
rescinded at any time by the Committee. At all times, any committee appointed
under this Section 9.5 shall serve in such capacity at the pleasure of the
Committee.
ARTICLE X.
MISCELLANEOUS PROVISIONS
10.1. Not Transferable. Options, Restricted Stock awards,
Deferred Stock awards, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments under this Plan may not be sold, pledged,
assigned, or transferred in any manner other than by will or the laws of descent
and distribution, unless and until such rights or awards have been exercised, or
the shares underlying such rights or awards have been issued, and all
restrictions applicable to such shares have lapsed. No Option, Restricted Stock
award, Deferred Stock award, Performance Award, Stock Appreciation Right,
Dividend Equivalent or Stock Payment or interest or right therein shall be
liable for the debts, contracts or engagements of the Optionee, Grantee or
Restricted Stockholder or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.
During the lifetime of the Optionee or Grantee, only he may
exercise an Option or other right or award (or any portion thereof) granted to
him under the Plan. After the death of the Optionee or Grantee, any exercisable
portion of an Option or other right or award may, prior to the time when such
portion becomes unexercisable under the Plan or the applicable Stock Option
Agreement or other agreement, be exercised by his personal representative or by
any person empowered to do so under the deceased Optionee's or Grantee's will or
under the then applicable laws of descent and distribution.
10.2. Amendment, Suspension or Termination of this Plan. Except
as otherwise provided in this Section 10.2, this Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. However, without approval of the
Company's stockholders given within twelve months before or after the action by
the Board or the Committee, no action of the Board or the Committee may, except
as provided in Section 10.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under this Plan or increase the
Award Limit, and no action of the Board or the Committee may be taken that would
otherwise require stockholder approval as a matter of applicable law, regulation
or rule. No amendment, suspension or termination of this Plan shall, without the
consent of the holder of Options, Restricted Stock awards, Deferred Stock
awards, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments, alter or impair any rights or obligations under
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any Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments theretofore
granted or awarded, unless the award itself otherwise expressly so provides. No
Options, Restricted Stock, Deferred Stock, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments may be granted or
awarded during any period of suspension or after termination of this Plan, and
in no event may any Incentive Stock Option be granted under this Plan after the
first to occur of the following events:
(a) The expiration of ten years from the date the 1997 Stock
Option and Incentive Plan of AMB Property Corporation and AMB Investment
Management, Inc. and their Respective Subsidiaries was adopted by the Board; or
(b) The expiration of ten years from the date the 1997 Stock
Option and Incentive Plan of AMB Property Corporation and AMB Investment
Management, Inc. and their Respective Subsidiaries was approved by the Company's
stockholders under Section 10.4.
10.3. Changes in Common Stock or Assets of the Company,
Acquisition or Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 10.3(d), in the event that the Committee
(or the Board, in the case of Options granted to Independent Directors)
determines that any dividend or other distribution (whether in the form of cash,
Common Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company (including, but not limited to, a
Corporate Transaction), or exchange of Common Stock or other securities of the
Company, issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other similar corporate transaction or event, in
the Committee's sole discretion (or in the case of Options granted to
Independent Directors, the Board's sole discretion), affects the Common Stock
such that an adjustment is determined by the Committee to be appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to an Option,
Restricted Stock award, Performance Award, Stock Appreciation Right, Dividend
Equivalent, Deferred Stock award or Stock Payment, then the Committee (or the
Board, in the case of Options granted to Independent Directors) shall, in such
manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Common Stock (or
other securities or property) with respect to which Options, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments may be granted under the Plan, or which may be granted as
Restricted Stock or Deferred Stock (including, but not limited to,
adjustments of the limitations in Section 2.1 on the maximum number and
kind of shares which may be issued and adjustments of the Award Limit),
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(ii) the number and kind of shares of Common Stock (or
other securities or property) subject to outstanding Options,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents, or
Stock Payments, and in the number and kind of shares of outstanding
Restricted Stock or Deferred Stock, and
(iii) the grant or exercise price with respect to any
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent
or Stock Payment.
(b) Subject to Section 10.3(d), in the event of any Corporate
Transaction or other transaction or event described in Section 10.3(a) or any
unusual or nonrecurring transactions or events affecting the Company, any
affiliate of the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or accounting
principles, the Committee (or the Board, in the case of Options granted to
Independent Directors) in its discretion is hereby authorized to take any one or
more of the following actions whenever the Committee (or the Board, in the case
of Options granted to Independent Directors) determines that such action is
appropriate or desirable:
(i) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee (or the Board, in
the case of Options granted to Independent Directors) may provide,
either by the terms of the agreement or by action taken prior to the
occurrence of such transaction or event and either automatically or upon
the optionee's request, for either the purchase of any such Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent, or
Stock Payment, or any Restricted Stock or Deferred Stock for an amount
of cash equal to the amount that could have been attained upon the
exercise of such option, right or award or realization of the optionee's
rights had such option, right or award been currently exercisable or
payable or fully vested or the replacement of such option, right or
award with other rights or property selected by the Committee (or the
Board, in the case of Options granted to Independent Directors) in its
sole discretion;
(ii) In its sole and absolute discretion, the Committee
(or the Board, in the case of Options granted to Independent Directors)
may provide, either by the terms of such Option, Performance Award,
Stock Appreciation Right, Dividend Equivalent, or Stock Payment, or
Restricted Stock or Deferred Stock or by action taken prior to the
occurrence of such transaction or event that it cannot vest, be
exercised or become payable after such event;
(iii) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee (or the
Board, in the case of Options granted to Independent Directors) may
provide, either by the terms of such Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted
Stock or Deferred Stock or by action taken prior to the occurrence of
such transaction or event, that for a specified period of time prior to
such transaction or event, such option, right or award shall be
exercisable as to all shares covered thereby, notwithstanding anything
to the contrary in (i) Section 4.4 or (ii) the provisions of such
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Option, Performance Award, Stock Appreciation Right, Dividend
Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock;
(iv) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee (or the
Board, in the case of Options granted to Independent Directors) may
provide, either by the terms of such Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent, or Stock Payment, or Restricted
Stock or Deferred Stock or by action taken prior to the occurrence of
such transaction or event, that upon such event, such option, right or
award be assumed by the successor or survivor corporation, or a parent
or subsidiary thereof, or shall be substituted for by similar options,
rights or awards covering the stock of the successor or survivor
corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices;
(v) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee (or the Board, in
the case of Options granted to Independent Directors) may make
adjustments in the number and type of shares of Common Stock (or other
securities or property) subject to outstanding Options, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents, or Stock
Payments, and in the number and kind of outstanding Restricted Stock or
Deferred Stock and/or in the terms and conditions of, and the criteria
included in, outstanding options, rights and awards and options, rights
and awards which may be granted in the future; and
(vi) In its sole and absolute discretion, and on such
terms and conditions as it deems appropriate, the Committee may provide
either by the terms of a Restricted Stock award or Deferred Stock award
or by action taken prior to the occurrence of such event that, for a
specified period of time prior to such event, the restrictions imposed
under a Restricted Stock Agreement or a Deferred Stock Agreement upon
some or all shares of Restricted Stock or Deferred Stock may be
terminated, and, in the case of Restricted Stock, some or all shares of
such Restricted Stock may cease to be subject to repurchase under
Section 6.6 or forfeiture under Section 6.5 after such event.
(c) Subject to Section 10.3(d) and 10.8, the Committee (or the
Board, in the case of Options granted to Independent Directors) may, in its
discretion, include such further provisions and limitations in any Option,
Performance Award, Stock Appreciation Right, Dividend Equivalent, or Stock
Payment, or Restricted Stock or Deferred Stock agreement or certificate, as it
may deem equitable and in the best interests of the Company.
(d) With respect to Options, Restricted Stock, Deferred Stock,
Stock Appreciation Rights and performance or incentive awards described in
Article VII which are granted to Section 162(m) Participants and are intended to
qualify as performance-based compensation under Section 162(m)(4)(C), no
adjustment or action described in this Section 10.3 or in any other provision of
the Plan shall be authorized to the extent that such adjustment or action would
cause the Plan to violate Section 422(b)(1) of the Code or would cause such
option or stock appreciation right to fail to so qualify under Section
162(m)(4)(C), as the case may be, or
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any successor provisions thereto. Furthermore, no such adjustment or action
shall be authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 or violate the exemptive
conditions of Rule 16b-3 unless the Committee (or the Board, in the case of
Options granted to Independent Directors) determines that the option or other
award is not to comply with such exemptive conditions. The number of shares of
Common Stock subject to any option, right or award shall always be rounded to
the next whole number.
10.4. Approval of Plan by Stockholders. This Plan will be
submitted for the approval of the Company's stockholders within twelve months
after the date of the Board's initial adoption of this Plan. Options,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments may be granted and Restricted Stock or Deferred Stock may be awarded
prior to such stockholder approval, provided that such Options, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock Payments shall
not be exercisable and such Restricted Stock or Deferred Stock shall not vest
prior to the time when this Plan is approved by the stockholders, and provided
further that if such approval has not been obtained at the end of said
twelve-month period, all Options, Performance Awards, Stock Appreciation Rights,
Dividend Equivalents or Stock Payments previously granted and all Restricted
Stock or Deferred Stock previously awarded under this Plan shall thereupon be
canceled and become null and void.
10.5. Tax Withholding. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each Optionee,
Grantee or Restricted Stockholder of any sums required by federal, state or
local tax law to be withheld with respect to the issuance, vesting, exercise or
payment of any Option, Restricted Stock, Deferred Stock, Performance Award,
Stock Appreciation Right, Dividend Equivalent or Stock Payment. The Committee
(or the Board, in the case of Options granted to Independent Directors) may in
its discretion and in satisfaction of the foregoing requirement allow such
Optionee, Grantee or Restricted Stockholder to elect to have the Company
withhold shares of Common Stock otherwise issuable under such Option or other
award (or allow the return of shares of Common Stock) having a Fair Market Value
equal to the sums required to be withheld.
10.6. Loans. The Committee may, in its discretion, extend one or
more loans to key Employees in connection with the exercise or receipt of an
Option, Performance Award, Stock Appreciation Right, Dividend Equivalent or
Stock Payment granted under this Plan, or the issuance of Restricted Stock or
Deferred Stock awarded under this Plan. The terms and conditions of any such
loan shall be set by the Committee.
10.7. Forfeiture Provisions. Pursuant to its general authority to
determine the terms and conditions applicable to awards under the Plan, the
Committee (or the Board, in the case of Options granted to Independent
Directors) shall have the right (to the extent consistent with the applicable
exemptive conditions of Rule 16b-3) to provide, in the terms of Options or other
awards made under the Plan, or to require the recipient to agree by separate
written instrument, that (i) any proceeds, gains or other economic benefit
actually or constructively received by the recipient upon any receipt or
exercise of the award, or upon the receipt or resale of any Common Stock
underlying such award, must be paid to the Company, and (ii) the award
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shall terminate and any unexercised portion of such award (whether or not
vested) shall be forfeited, if (a) a Termination of Employment, Termination of
Consultancy or Termination of Directorship occurs prior to a specified date, or
within a specified time period following receipt or exercise of the award, or
(b) the recipient at any time, or during a specified time period, engages in any
activity in competition with the Company, or which is inimical, contrary or
harmful to the interests of the Company, as further defined by the Committee (or
the Board, as applicable).
10.8. Limitations Applicable to Section 16 Persons and
Performance-Based Compensation. Notwithstanding any other provision of this
Plan, this Plan, and any Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent or Stock Payment granted, or Restricted Stock or Deferred
Stock awarded, to any individual who is then subject to Section 16 of the
Exchange Act, shall be subject to any additional limitations set forth in any
applicable exemptive rule under Section 16 of the Exchange Act (including any
amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law,
the Plan, Options, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents, Stock Payments, Restricted Stock and Deferred Stock granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule. Furthermore, notwithstanding any other provision
of this Plan, any Option, Stock Appreciation Right or performance or incentive
award described in Article VII which is granted to a Section 162(m) Participant
and is intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall be subject to any additional limitations
set forth in Section 162(m) of the Code (including any amendment to Section
162(m) of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the
extent necessary to conform to such requirements.
10.9. Effect of Plan Upon Options and Compensation Plans. The
adoption of this Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in this Plan shall be
construed to limit the right of the Company (i) to establish any other forms of
incentives or compensation for Employees, Directors or Consultants of the
Company or any Subsidiary or (ii) to grant or assume options or other rights or
awards otherwise than under this Plan in connection with any proper corporate
purpose including but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation,
partnership, limited liability company, firm or association.
10.10. Section 83(b) Election Prohibited. No Grantee, Optionee or
Restricted Stockholder may make an election under Section 83(b) of the Code with
respect to any award or grant under this Plan, without the Company's consent.
10.11. Compliance with Laws. This Plan, the granting and vesting
of Options, Restricted Stock awards, Deferred Stock awards, Performance Awards,
Stock Appreciation Rights, Dividend Equivalents or Stock Payments under this
Plan and the issuance and delivery of
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shares of Common Stock and the payment of money under this Plan or under
Options, Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments granted or Restricted Stock or Deferred Stock awarded hereunder
are subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law and
federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
this Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan, Options, Restricted Stock awards,
Deferred Stock awards, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments granted or awarded hereunder shall be deemed
amended to the extent necessary to conform to such laws, rules and regulations.
10.12. Titles. Titles are provided herein for convenience only
and are not to serve as a basis for interpretation or construction of this Plan.
10.13. Governing Law. This Plan and any agreements hereunder
shall be administered, interpreted and enforced under the internal laws of the
State of California without regard to conflicts of laws thereof.
10.14. Conflicts with Company's Articles of Incorporation.
Notwithstanding any other provision of this Plan, no Optionee, Grantee or
Restricted Stockholder shall acquire or have any right to acquire any Common
Stock, and shall not have other rights under this Plan, which are prohibited
under the Company's Articles of Incorporation.
[Remainder of Page Intentionally Left Blank.]
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I hereby certify that the foregoing Plan was duly adopted by the
Board of Directors of AMB Property Corporation on May 7, 1999.
Executed on this 7th day of May, 1999.
________________________________________
David S. Fries
Chief Administrative Officer,
Managing Director and General
Counsel
S-1
<PAGE> 36
IN WITNESS WHEREOF, the parties below have caused the foregoing
Plan to be approved by their officers duly authorized on this 7th day of May,
1999.
AMB PROPERTY, L.P.,
a Delaware limited partnership
By: AMB Property Corporation
its general partner
By: _______________________________
David S. Fries
Chief Administrative Officer,
Managing Director and General
Counsel
AMB PROPERTY II, L.P.,
a Delaware limited partnership
By: AMB Property Holding Corporation
its general partner
By: _______________________________
John T. Roberts
Vice President
S-2
<PAGE> 37
AMB INVESTMENT MANAGEMENT, INC.,
a Maryland corporation
By: ___________________________________
Barbara J. Linn
President
AMB INVESTMENT MANAGEMENT LIMITED
PARTNERSHIP
By: AMB Investment Management, Inc.
its general partner
By: _______________________________
Barbara J. Linn
President
S-3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from AMB Property
Corporation's Consolidated Financial Statements (unaudited) for the period ended
June 30, 1999 and is qualified in its entirety by reference to such Consolidated
Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 40,130
<SECURITIES> 0
<RECEIVABLES> 56,226
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 96,356
<PP&E> 2,972,050
<DEPRECIATION> 70,032
<TOTAL-ASSETS> 3,732,544
<CURRENT-LIABILITIES> 120,686
<BONDS> 1,418,587
0
96,100
<COMMON> 1,680,819
<OTHER-SE> 6,690
<TOTAL-LIABILITY-AND-EQUITY> 3,732,544
<SALES> 0
<TOTAL-REVENUES> 224,949
<CGS> 0
<TOTAL-COSTS> 148,928
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,558
<INCOME-PRETAX> 76,021
<INCOME-TAX> 0
<INCOME-CONTINUING> 72,840
<DISCONTINUED> 0
<EXTRAORDINARY> (1,509)
<CHANGES> 0
<NET-INCOME> 71,331
<EPS-BASIC> .78
<EPS-DILUTED> .78
</TABLE>
