<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /x/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only (as
/x/ Definitive Proxy Statement (Permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MISSION WEST PROPERTIES
- --------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required.
/ / Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rules 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transactions:
- --------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
MISSION WEST PROPERTIES
10050 Bandley Drive
Cupertino, California 95014
-------------------------------
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 10, 1997
-------------------------------
TO THE SHAREHOLDERS:
A special meeting of shareholders of Mission West Properties (the
"Company") will be held at the Company's corporate offices, 10050 Bandley
Drive, Cupertino, California 95014 on Monday, November 10, 1997, at 3:00
p.m. P.S.T. for the following purposes:
1. To consider the amendment of the Company's Articles of Incorporation, as
amended, which amendment would, among other things, effect a 1 for 30
reverse stock split on the Company's Common Stock, authorize 200,000,000
shares of the Company's Common Stock following the reverse stock split,
authorize 20,000,000 shares of undesignated preferred stock which the
Board of Directors would be permitted to designate and determine the
rights, preferences and privileges thereof, and authorize the Company to
issue convertible debt securities upon such terms and conditions as are
fixed by the Board of Directors.
2. To consider the approval of a proposed private placement of 1,250,000
shares of the Company's Common Stock, after taking into account the
proposed reverse stock split, for $4.50 per share.
3. To consider the approval and adoption of the Company's 1997 Stock Option
Plan pursuant to which 5,500,000 shares of the Company's Common Stock,
after taking into account the proposed reverse stock split, will be
reserved for issuance.
Only shareholders of record at the close of business on October 20,
1997, will be entitled to vote at the meeting. Each of these shareholders is
cordially invited to be present and vote at the meeting in person.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY. THIS IS IMPORTANT BECAUSE A MAJORITY
OF THE SHARES MUST BE REPRESENTED, EITHER IN PERSON OR BY PROXY, TO
CONSTITUTE A QUORUM. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN
THOUGH YOU HAVE PREVIOUSLY PROVIDED A PROXY.
By Order of the Directors
/s/ Michael L. Knapp
Michael L. Knapp, Secretary
THE DATE OF THIS PROXY STATEMENT IS OCTOBER 20, 1997.
<PAGE>
MISSION WEST PROPERTIES
10050 Bandley Drive
Cupertino, California 95014
-------------------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 10, 1997
-------------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors
("Board" or "Directors") of Mission West Properties, a California corporation
(the "Company"), for use at the Special Meeting of Shareholders to be held on
November 10, 1997, at 3:00 p.m. local time (the "Special Meeting"), or at any
adjournment or postponement thereof, for the purposes set forth herein and in
the accompanying Notice of Special Meeting of Shareholders. The Special
Meeting will be held at 10050 Bandley Drive, Cupertino, California 95014. The
mailing of this Proxy Statement and the accompanying form of proxy to
shareholders of the Company entitled to vote at the Special Meeting is
expected to commence on or about October 20, 1997.
VOTING RIGHTS AND OUTSTANDING SHARES
The outstanding securities of the Company at October 20, 1997 consisted
of 7,533,121 shares of common stock (the "Common Stock"). Each shareholder
of record at the close of business on October 20, 1997, is entitled to one
(1) vote for each share of Common Stock then held. The shares represented by
any proxy in the enclosed form will be voted in accordance with the
instructions given on the proxy if the proxy is properly executed and is
received by the Company prior to the close of voting at the meeting or any
adjournment or postponement thereof.
Shares of the Common Stock are listed on the American Stock Exchange
(the "AMEX") and on the Pacific Exchange (the "PSE"). The Company announced
on October 16, 1997 that, in view of a special distribution of $3.30 per
share to be paid on October 21, 1997 to shareholders of record on August 28,
1997, the American Stock Exchange decided to halt trading of the Common Stock
at the opening of trading on October 20, 1997.
REVOCABILITY OF PROXIES
A shareholder giving a proxy has the power to revoke it at any time
before it is exercised. A proxy may be revoked by filing with the Secretary
of the Company at the Company's principal executive office, 10050 Bandley
Drive, Cupertino, California 95014, a written notice of revocation or a duly
executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person.
SOLICITATION
The cost of soliciting proxies in the enclosed form will be borne by the
Company. Solicitation will be made primarily by mail but shareholders may be
solicited by telephone, telegraph, or personal contact. The Board of
Directors may retain the services of a proxy-soliciting firm for soliciting
proxies from those entities holding shares in street name.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the
outstanding shares of the Company held at October 20, 1997 by the only
persons known to management to be the beneficial owners of more than five (5)
percent of these shares, each of the Directors of the Company, each of the
executive officers of the Company, and the Directors and executive officers
as a group.
<TABLE>
<CAPTION>
Shares
Beneficially Owned
as of October 20,
Beneficial Owner 1997 Percent of Class
- ----------------------------------------------------------------------------- ------------------ -------------------
<S> <C> <C>
Berg & Berg Enterprises, Inc.
10050 Bandley Drive
Cupertino, CA 95014 820,000(1) 10.9
Carl E. Berg
President and Chief Executive Officer 820,000(1)(2) 10.9
Michael L. Knapp
Chief Financial Officer and Secretary 370,000 4.9
Alarmguard Holdings, Inc.
c/o Michael M. Early
550 West "C" Street, Suite 1880
San Diego, CA 92101 676,050 9.0
Roger Kirk, Director
c/o Berg & Berg Enterprises, Inc.
10050 Bandley Drive
Cupertino, CA 95014 370,000 4.9
Keith Cocita, Director
c/o Berg & Berg Enterprises, Inc.
10050 Bandley Drive
Cupertino, CA 95014 0 0
Michael Orosky, Director
c/o Berg & Berg Enterprises, Inc.
10050 Bandley Drive
Cupertino, CA 95014 0 0
All Directors and executive officers as a group (5 persons) 1,560,000 21.0
</TABLE>
- ------------------------
(1) Excludes 5,180,000 shares of Common Stock which are the subject of a
Voting Rights Agreement. Berg & Berg Enterprises, Inc. ("BBE") disclaims
beneficial ownership of such shares because BBE has no investment control
over such shares and no power to vote such shares. However, holders of
such shares are obligated, pursuant to the Voting Rights Agreement, to
vote such shares as recommended by Carl E. Berg, as agent for Berg & Berg
Enterprises, Inc. See Schedule 13D, as amended, filed with the Securities
and Exchange Commission August 14, 1997 by BBE and a group of private
investors. See "Change in Control."
(2) Mr. Berg disclaims ownership, except to the extent of his pecuniary
interest, in the shares of Common Stock held of record by Berg & Berg
Enterprises, Inc. of which Mr. Berg is an executive officer, director and
beneficial owner of, directly and indirectly, approximately 51% of its
outstanding shares.
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CHANGE IN CONTROL
On September 2, 1997, the Company completed the sale of 6,000,000 shares
of its newly issued Common Stock to a group of private investors (the "Berg
Group") led by Berg & Berg Enterprises, Inc. ("BBE"). The members of the
Berg Group include those individuals and entities set forth in Appendix I to
the Stock Purchase Agreement, dated May 27, 1997, by and between the Company
and the Berg Group, as amended July 2, 1997 (the "Stock Purchase Agreement"),
a copy of which was attached the Company's Proxy Statement distributed to
shareholders in connection with the August 5, 1997 special meeting of
shareholders. The Stock Purchase Agreement was previously filed with the
Securities and Exchange Commission ("SEC") on July 3, 1997 as an exhibit to
the Company's Schedule 14A, as amended. The source of consideration used by
BBE to acquire the Common Stock was working capital. The source of
consideration used by all other members of the Berg Group to acquire the
Common Stock was personal funds. The Berg Group now beneficially owns 79.6%
of the voting securities of the Company. Unaudited financial statements for
the quarter ended August 31, 1997, including an unaudited pro forma balance
sheet, and management's discussion and analysis of financial condition and
results of operations from the Company's Form 10-Q are attached as Exhibit A.
The members of the Berg Group entered into a Voting Rights Agreement
covering all shares of Common Stock acquired pursuant to the Stock Purchase
Agreement (the "Shares"), and all shares issued on, or in exchange for, any
of the Shares by reason of any stock dividend, stock split, consolidation of
shares, reclassification or consolidation involving the Company. Each member
of the Berg Group has agreed to vote such member's Shares as directed by Carl
Berg, on behalf of BBE, on all matters submitted to a vote of the
shareholders of the Company. The Voting Rights Agreement terminates at the
earliest of the following dates: (i) upon any sale of the Shares pursuant to
a registration statement declared effective under the Securities Act of 1933,
as amended (the "Securities Act"), but only as to the Shares so sold; (ii)
upon a sale of the Shares pursuant to Rule 144 promulgated under the
Securities Act, but only as to the Shares so sold; or (iii) two years after
the effective date of the Voting Rights Agreement.
PROPOSAL 1
PROPOSED AMENDMENT AND RESTATEMENT OF ARTICLES OF INCORPORATION TO
EFFECTUATE A 1 FOR 30 REVERSE STOCK SPLIT, INCREASE THE AUTHORIZED SHARES
OF COMMON STOCK TO 200,000,000, AUTHORIZE UP TO 20,000,000 SHARES OF PREFERRED
STOCK, AND AUTHORIZE THE COMPANY TO ISSUE CONVERTIBLE DEBT SECURITIES
INTRODUCTION
The Company's Board of Directors has adopted a resolution to amend and
restate the Company's Articles of Incorporation, as amended, to effect a
reverse stock split, increase the authorized shares of Common Stock to
200,000,000 shares, authorize up to 20,000,000 shares of undesignated
preferred stock and authorize the issuance of convertible debt securities
upon such terms and conditions as are fixed by the Board of Directors. The
proposed Amended and Restated Articles of Incorporation (the "Restated
Articles") are attached hereto as Exhibit B. In addition to those sections of
the Company's Form 10-Q attached as Exhibit A, certain items from the
Company's Form 10-K for the fiscal year ended November 30, 1996 are attached
as Exhibit C.
REVERSE STOCK SPLIT
GENERAL INFORMATION. The proposed Restated Articles will effectuate a 1
for 30 reverse stock split (the "Reverse Split") which will be effective upon
the filing of the Restated Articles with the Secretary of State of
California. The effect of the Reverse Split upon holders of Common Stock
will be that the total shares of Common Stock held by each shareholder will
be automatically converted into the number of shares of Common Stock equal to
the number of shares of Common Stock owned immediately prior to the Reverse
Split divided by 30. The Company will pay cash for any fractional shares in
an amount equal to $0.15 for each share of Common Stock without giving effect
to the
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Reverse Split multiplied by the number of shares of Common Stock held by such
holder that would otherwise have been exchanged for such fractional share
interest.
Assuming the Restated Articles are approved by the Company's shareholders
at the Special Meeting, each shareholder's percentage interest in the Company
and proportional voting power will remain unchanged, except for minor
differences resulting from the payment of cash for fractional shares. The
rights and privileges of the holders of Common Stock will be substantially
unaffected by the Reverse Split.
REASONS FOR THE REVERSE SPLIT. Shares of the Common Stock are listed
and traded on the AMEX and the PSE. For continued listing on the AMEX, it
may be necessary that, among other things, Common Stock not sell for a
substantial period of time at a low price per share. The original listing
requirements of the AMEX require a minimum market price of $3.00 per share.
The market price per share for the Common Stock dropped significantly
earlier this year when the Company sold substantially all of its assets in a
transaction approved by the Company's shareholders, and the market price
remained below $3.00 per share for an extended period. Recently, the price
per share for the Company's Common Stock has been greater than $3.00.
However, the Company is obligated to make a distribution to shareholders of
$3.30 per share on October 21, 1997 (the "Distribution"). The price per share
of the Common Stock will be reduced by the amount of the Distribution. The
Company announced on October 16, 1997 that, in view of the Distribution, the
AMEX has decided to halt trading of the Common Stock at the opening of
trading on October 20, 1997. The Company believes that the Reverse Split is
necessary to increase the price per share of the Common Stock to greater than
$3.00 per share in order to maintain its AMEX listing. In addition, the
reduction of the Company's assets might result in delisting of the Common
Stock by the Amex. The Company is proposing the sale of additional shares of
Common Stock following the Reverse Split to increase the total assets of the
Company to the approximate level existing prior to the Distribution, as
described in Exhibit A, and to effect a transaction at a price greater than
$3.00 per share. See "Proposal 2 - Approval of Proposed Private Placement of
Securities."
IMPLEMENTATION OF THE REVERSE SPLIT. The Reverse Split will be formally
implemented in Article 3 of the Restated Articles. Assuming the Restated
Articles, including the Reverse Split, are approved by the shareholders at
the Special Meeting, the Restated Articles will be filed with the Secretary
of State of California at which the time the Reverse Split shall be
effective.
PRINCIPAL EFFECT OF THE REVERSE SPLIT. Shareholders have no right under
California law or under the Company's Articles of Incorporation, as amended,
or Bylaws to dissent from the Reverse Split or to dissent from the payment of
cash for any fractional share interest resulting from the Reverse Split in
lieu of issuing fractional shares.
The Company has authorized capital of 10,000,000 shares of Common Stock,
as of October 20, 1997. The authorized capital stock of the Company will not
be reduced or otherwise affected by the Reverse Split. The number of issued
and outstanding shares of Common Stock of the Company on that date was
7,533,121. Based upon the Company's best estimate, without taking into
consideration fractional shares for which cash will be paid, the aggregate
number of shares of Common Stock that will be issued and outstanding after
giving effect to the Reverse Split is 251,104. Shares no longer outstanding
as a result of the fractional shares being settled for cash will be returned
to authorized but unissued shares of Common Stock. Because the Company
believes that not more than 10% of the outstanding shares of Common Stock
will be returned to the Company's authorized but unissued shares of Common
Stock as a result of the payment of cash for fractional shares in connection
with the Reverse Split, the Company is permitted to pay cash for fractional
shares pursuant to Section 407 of the California General Corporation Law
("CGCL").
The Reverse Split may result in some shareholders owning "odd-lots" of
less than 100 shares of Common Stock. Brokerage commissions and other costs
of transactions in odd-lots are generally somewhat higher that the costs of
transactions in "round-lots" of even multiples of 100 shares.
DILUTION. The Company intends to issue additional shares of its Common
Stock on an ongoing basis in order to satisfy all or a portion of its need
for cash. If and to the extent that the Company issues additional shares of
its
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<PAGE>
Common Stock, either prior or subsequent to the implementation of the
Reverse Split, each shareholder's percentage ownership interest in the
Company and proportional voting power will be reduced.
EXCHANGE OF STOCK CERTIFICATES. Assuming the Reverse Split is approved
by the shareholders, they will be required to exchange their stock
certificates for new certificates representing new post-split shares of
Common Stock. Shareholders will be furnished with the necessary materials
and instructions for the surrender and exchange of stock certificates and
payment of cash for fractional shares at the appropriate time by the
Company's transfer agent. Shareholders will not be required to pay transfer
or other fees in connection with the exchange of certificates. SHAREHOLDERS
SHOULD NOT SUBMIT ANY CERTIFICATES UNTIL REQUESTED TO DO SO.
FEDERAL INCOME TAX CONSEQUENCES. The Company has not sought and will
not seek an opinion of counsel or a ruling from the Internal Revenue Service
regarding the federal income tax consequences of the Reverse Split. The
Company believes, however, that because the Reverse Split is not part of a
plan to periodically increase a shareholder's proportionate interest in the
assets or earnings and profits of the Company, the Reverse Split will have
the following income tax effects:
1. The exchange of shares of Common Stock for shares of new Common Stock
will not result in recognition of gain or loss. The holding period of
the shares of new Common Stock will include the shareholder's holding
period for the shares of Common Stock exchanged therefor, provided that
the shares of Common Stock were held as a capital asset. The adjusted
basis of the shares of new Common Stock will be the same as the
adjusted basis of the shares of Common Stock exchanged therefor.
2. The receipt of cash for the fractional shares pursuant to the Reverse
Split will be a taxable transaction for federal income tax purposes
under the Internal Revenue Code of 1986, as amended (the "Code"), and
may be a taxable transaction under applicable state, local and other
tax laws. In general, a shareholder will recognize a gain or a loss
equal to the difference between the amount of cash received by him or
her and the tax basis for the pre-reverse stock split shares of Common
Stock for which the shareholder has received cash.
The above description of federal income tax consequences is based upon
the Code, the applicable Treasury Regulations promulgated thereunder,
judicial authority and current administrative rulings and practices as in
effect on the date of this Proxy Statement. This discussion is for general
information only and does not discuss consequences which may apply to special
classes of taxpayers (e.g., non-resident aliens, broker-dealers or insurance
companies). Shareholders are urged to consult their own tax advisors to
determine the particular consequences to them.
INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
The Company's Articles of Incorporation, as amended, currently
authorize the Company to issue up to 10,000,000 shares of Common Stock, no
par value. The Company proposes that the Restated Articles provide for
200,000,000 authorized shares of Common Stock, no par value.
The Board of Directors believes that it is prudent to increase the
authorized number of shares of Common Stock to 200,000,000 shares in order to
provide a reserve of shares available for issuance to meet business needs as
they arise. Like most companies, the Company has historically maintained a
substantial reserve of authorized but unissued shares in order to avoid the
time and expense of seeking shareholder approval each time it needs to make a
new issuance of Common Stock in light of possible future activities which the
Board of Directors deems to be in the best interests of the shareholders.
Such future activities may include, without limitation, financings,
establishing strategic relationships, acquiring property, providing equity
incentives to employees, officers or directors, or effecting stock splits or
dividends. Although the Company has no present obligation to issue
additional shares of Common Stock, the Company continues to evaluate and
conduct discussions with third parties with respect to potential acquisitions
or investments such as the private placement of 1,250,000 shares of the
Common Stock. See "Proposal 2 - Approval of Proposed Private Placement of
Securities."
5
<PAGE>
Approval of the increase in the number of authorized shares of Common
Stock would not affect the rights, preferences, and privileges of the holders
of currently outstanding Common Stock, except for effects incidental to
increasing the number of shares of the Common Stock outstanding.
If the shareholders approve the increase in the number of authorized
shares of Common Stock pursuant to the Restated Articles, the Board of
Directors may cause the issuance of additional shares of Common Stock without
further vote of the shareholders of the Company, except as provided under
California corporate law or under the rules of any national securities
exchange on which shares of Common Stock are then listed. Current holders of
Common Stock have no preemptive or similar rights, which means that current
shareholders do not have a prior right to purchase any new issue of capital
stock of the Company in order to maintain their ownership interest in the
Company. The issuance of additional shares of Common Stock would decrease
the proportionate equity interest of the Company's current shareholders and,
depending upon the price paid for such additional shares, could result in
dilution to the Company's current shareholders.
In addition, the Board of Directors could use authorized but unissued
shares of Common Stock to create impediments to a takeover or a transfer of
control of the Company. Accordingly, the increase in the number of
authorized shares of Common Stock may deter a future takeover attempt which
holders of Common Stock may deem to be in their best interest or in which
holders of Common Stock may be offered a premium for their shares over the
market price. The Board of Directors is not currently aware of any attempt
to take over or acquire the Company. While it may be deemed to have
potential anti-takeover effects, the proposed amendment to increase the
authorized Common Stock is not prompted by any specific effort or takeover
threat currently perceived by management.
AUTHORIZATION OF PREFERRED STOCK
The Board of Directors believes that the authorization of the Preferred
Stock is in the best interests of the Company and its shareholders and
believes that it is advisable to authorize such shares and have them
available in connection with possible future transactions, such as
financings, strategic relationships, corporate mergers or acquisitions,
acquisitions of property, and other uses not presently determinable and as
may be deemed to be feasible and in the best interests of the Company. In
addition, the Board of Directors believes that it is desirable that the
Company have the flexibility to issue shares of Preferred Stock without
further shareholder action, except as otherwise provided by law.
The Preferred Stock will have such rights, preferences, privileges and
restrictions as are determined by the Board of Directors. Thus, if the
Restated Articles are approved, the Board of Directors would be entitled to
authorize the creation and issuance of up to 20,000,000 shares of Preferred
Stock in one or more series with such limitations and restrictions as may be
determined in the Board's sole discretion, without further authorization by
the Company's shareholders. Shareholders will not have preemptive rights to
subscribe for shares of Preferred Stock.
It is not possible to determine the actual effect of the Preferred Stock
on the rights of the shareholders of the Company until the Board of Directors
determines the rights of the holders of a series of the Preferred Stock.
However, such effects might include (i) restrictions on the payment of
dividends to holders of the Common Stock; (ii) dilution of voting power to
the extent that the holders of shares of Preferred Stock are given voting
rights; (iii) dilution of the equity interests and voting power if the
Preferred Stock is convertible into Common Stock; and (iv) restrictions upon
any distribution of assets to the holders of the Common Stock upon
liquidation or dissolution and until the satisfaction of any liquidation
preference granted to the holders of Preferred Stock.
Although the Board of Directors has no present intention of doing so, it
could issue shares of Preferred Stock (within the limits imposed by
applicable law) that could, depending on the terms of such series, make more
difficult or discourage an attempt to obtain control of the Company by means
of a merger, tender offer, proxy contest or other means. When in the
judgment of the Board of Directors such action would be in the best interests
of the shareholders and the Company, the issuance of shares of Preferred
Stock could be used to create voting or other impediments or to discourage
persons seeking to gain control of the Company, for example, by the sale of
Preferred Stock to purchasers favorable to the Board of Directors. In
addition, the Board of Directors could authorize holders of a series of
Preferred Stock to vote either as a class or with the holders of Common
Stock, on any merger, sale or
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<PAGE>
exchange of assets by the Company or any other extraordinary corporate
transaction. The existence of the additional authorized shares could have
the effect of discouraging unsolicited takeover attempts. The issuance of
new shares could also be used to dilute the stock ownership of a person or
entity seeking to obtain control of the Company should the Board of Directors
consider the action of such entity or person not to be in the best interests
of the shareholders and the Company. Such issuance of Preferred Stock could
also have the effect of diluting the earnings per share and book value per
share of the Common Stock held by the holders of Common Stock.
While the Company may consider effecting an equity offering of Preferred
Stock in the future for the purposes of raising additional working capital or
otherwise, the Company, as of the date hereof, has no agreements or
understandings with any third party to effect any such offering and no
assurances are given that any offering will in fact be effected.
AUTHORIZATION TO ISSUE CONVERTIBLE DEBT SECURITIES
The Restated Articles include a provision which authorizes the Company
to issue convertible debt securities upon such terms and conditions as are
fixed by the Board of Directors in accordance with Section 403 of the CGCL.
The Company is not required to include such a provision in its Restated
Articles in order to authorize the Board of Directors to issue convertible
debt securities. Convertible debt securities may be issued at the discretion
of the Board of Directors regardless of any provision in the Articles of
Incorporation. However, the Board of Directors has determined that it is in
the best interests of the Company to clearly set forth such authorization in
its Restated Articles for approval by the outstanding shares.
DISSENTERS' RIGHTS
Pursuant to the CGCL, the Company's shareholders are not entitled to
dissenters' rights of appraisal with respect to the Restated Articles.
VOTE REQUIRED; APPROVAL OF RESTATED ARTICLES ASSURED
The affirmative vote of holders of a majority of the outstanding
shares of the Common Stock, either voting in person or by proxy, is necessary
to approve the Restated Articles. BBE has advised the Company that it will
vote its shares in favor of the proposal to amend and restate the Company's
Articles of Incorporation, as amended. The Company believes that all other
members of the Berg Group also will vote their shares in favor of this
proposal as required by the Voting Rights Agreement. See "Change in
Control." As a result, approval of the Restated Articles is assured without
any other votes being cast in favor of the Restated Articles. Because
approval by a majority of the outstanding shares is required, broker
non-votes and abstentions effectively will be votes against approval of the
Restated Articles.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 1.
PROPOSAL 2
APPROVAL OF PROPOSED PRIVATE PLACEMENT OF SECURITIES
INTRODUCTION
The Company proposes to sell and issue 1,250,000 shares of newly issued
Common Stock at a price of $4.50 per share in a private placement following
the effective date of the Reverse Split. The price per share has been
determined in good faith by the Board of Directors, after taking into
consideration several factors, including, but not limited to, (i) the
Distribution, which the Board of Directors expected would cause the value and
market price of the Company's Common Stock to decrease significantly, (ii)
the recent private sale of Common Stock to the Berg Group at $0.15 per share,
(iii) the effects of the proposed Reverse Split, and (iv) the current book
value of the
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<PAGE>
Common Stock. The Company intends to offer the 1,250,000 shares
of Common Stock in a private placement which complies with Rule 506 of
Regulation D ("Rule 506") promulgated by the Securities and Exchange
Commission ("SEC").
The AMEX listing rules require shareholder approval as a prerequisite to
approval of applications to list additional shares to be issued in connection
with transactions involving the sale or issuance by the Company of Common
Stock (or securities convertible into Common Stock) equal to 20% or more of
presently outstanding stock for less than the greater of book value or market
value. If the proposed private placement is successful, it will result in
the issuance of greater than 20% of the Company's outstanding Common Stock,
after giving effect to the Reverse Split. The proposed offering price of
$4.50 is equivalent to the $0.15 per share price paid for the Common Stock by
the Berg Group after giving effect to the Reverse Split. However, the market
value may, from time to time, exceed the book value. For that reason, the
Board of Directors has determined that shareholder approval of the proposed
private placement is prudent.
If the proposed private placement is structured in a manner whereby the
Common Stock offered will not at the time of issuance result in the issuance
of Common Stock equal to 20% or more of presently outstanding stock for less
than the greater of book value or market value, the Board of Directors
reserves the right to proceed with the transaction without obtaining
shareholder approval.
REASONS FOR THE PRIVATE PLACEMENT; EFFECT ON CURRENT SHAREHOLDERS
In order to preserve the listing of its Common Stock on the AMEX, the
Company must maintain certain financial conditions, including a certain
minimum shareholders' equity. Due to the Distribution, the Company's assets
will decrease significantly, its shareholders' equity will fall below the
minimum guidelines set by the AMEX, and the market price of its Common Stock
will decrease significantly. In order to raise funds and increase the
Company's assets, the Company proposes to sell and issue additional shares of
the Common Stock at $4.50 per share. Financial information and the Company's
proposed actions are described in the Company's Form 10-Q for the quarter
ended August 31, 1997, certain portions of which are attached as Exhibit A.
The AMEX has decided to halt trading of the Common Stock at the opening
of trading on October 20, 1997, in light of the Distribution. Although the
AMEX has advised the Company that it will consider a number of factors in
making the decision to resume trading, the private placement is essential
before the AMEX will consider resuming trading of the Common Stock. The
Company anticipates that trading will resume in late November 1997, but there
can be no assurance that the AMEX will resume trading of the Common Stock
and no assurance of the date on which trading might resume.
If the proposed private placement is successful, the current
shareholders will experience a substantial decrease in their percentage
ownership interest in the Company and proportional voting power will be
reduced.
TERMS OF THE PRIVATE PLACEMENT STOCK PURCHASE AGREEMENT
The form of agreement to be used in the private placement, including all
Appendices and Exhibits thereto, is attached hereto as Exhibit D (the
"Private Placement Agreement"). The summary set forth below constitutes the
proposed terms and conditions of the Private Placement Agreement which are
qualified in their entirety by reference to Exhibit D. To the extent that
the Company deems it advisable in the light of subsequent negotiations with
potential purchasers of the Company's Common Stock, these terms and
conditions may be modified.
PURCHASE PRICE; CLOSING. The Company proposes to sell and issue
1,250,000 shares of its Common Stock at a price per share of $4.50 with
aggregate proceeds to the Company of $5,625,000 (the "Offering"). The
Offering will be made in compliance with Rule 506. If the Company
successfully completes the Offering, the closing of the Offering will occur
as soon as practicable after November 10, 1997 (the "Closing").
REPRESENTATIONS AND WARRANTIES. The form of Private Placement Agreement
contains representations and warranties by the Company customarily made by
issuers in transactions similar to the Offering. The Private
8
<PAGE>
Placement Agreement also contains representations and warranties by the
purchasers of the Company's Common Stock (the "Purchasers") customarily made
by purchasers in transactions similar to the Offering.
CERTAIN COVENANTS OF THE COMPANY. Pursuant to the Private Placement
Agreement, the Company has agreed to provide certain rights to the
Purchasers, including (i) an investigation right prior to the Closing which
provides Purchasers with access to the Company's property and records and to
the Company's employees and accounts, as well as obligating the Company to
provide Purchasers with such financial and operating information as such
Purchasers may reasonably request and (ii) registration rights which will
permit the Purchasers to register securities of the Company (a) upon request
by holders on a Form S-3 when the Company meets certain eligibility
requirements, (b) if the Company files a registration statement for a public
offering of securities for cash, on a pro rata basis as to all securities
covered by the registration rights (subject to limitations imposed by the
Company and its underwriters) and (c) upon the request of the holders of a
certain percentage of securities covered by these registration rights, if the
first two rights are unavailable.
CONDITIONS TO CLOSING. In connection with the Closing, the Company must
certify that its representations and warranties are true and correct and that
the Company has performed all of its obligations pursuant to the Agreement.
The Company's Restated Articles must also be filed and effective prior to the
Closing and the 1,250,000 shares of Common Stock purchased in the Offering
must be listed with the AMEX. The Purchasers must deliver appropriate funds
to the Company to cover the purchase price of the Shares and must execute and
deliver a Voting Rights Agreement by and among BBE and the Purchasers, the
terms of which are substantially similar to the terms of the Voting Rights
Agreement entered into by and among BBE and the other members of the Berg
Group, a copy of which is attached as an exhibit to the Private Placement
Agreement. See "Change in Control."
VOTE REQUIRED; APPROVAL ASSURED
Shareholder approval of the private placement may be required by the
AMEX Listing Standards, Policies and Requirements. Under California law,
shareholder approval is defined as the affirmative vote of a majority of the
votes cast to approve the proposed private placement. Therefore, the
affirmative vote of a majority of the votes cast is required to approve the
private placement. BBE has advised the Company that it will vote its shares
in favor of the proposal to approve the Company's private placement of
securities. The Company believes that all other members of the Berg Group
also will vote their shares in favor of this proposal as required by the
Voting Rights Agreement. See "Change in Control." As a result, approval of
the private placement is assured without any other votes being cast in favor
of the private placement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
PROPOSAL 3
ADOPTION OF 1997 STOCK OPTION PLAN
GENERAL
The Company's proposed 1997 Stock Option Plan (the "Option Plan") was
adopted by the Board of Directors on October 9, 1997, subject to shareholder
approval.
The Board of Directors believes that it is in the Company's best
interest to adopt the Option Plan so that the Company may attract the high
quality employees, consultants and directors necessary to build the Company's
infrastructure and to provide ongoing incentives to the Company's employees
in the form of options to purchase the Company's Common Stock.
The Option Plan provides for the granting to employees of "incentive
stock options" within the meaning of Section 422 of the Code, and for the
granting of nonstatutory options to employees, directors and consultants.
9
<PAGE>
The full text of the Option Plan is set forth in Exhibit E to this proxy
statement, and the following summary is qualified in its entirety by
reference to Exhibit E.
PURPOSE
The principal purpose of the Option Plan is to provide equity incentives
to the Company's employees, as well as consultants and members of the Board
of Directors who are neither employees of, nor consultants to, the Company
("Outside Directors"), by enabling them to participate in the Company's
success and to encourage the participants' continued service to the Company.
NUMBER OF SHARES
Options to purchase a maximum of 5,500,000 shares of Common Stock, after
giving effect to the Reverse Split, may be granted under the Option Plan,
subject to adjustment in accordance with the paragraph entitled "Adjustments
Upon Change in Capitalization."
ADMINISTRATION
The Option Plan may be administered by the Board of Directors of the
Company or by a committee. Grants of options under the Plan shall be made by
the Board or a committee. The Company currently intends that a Compensation
Committee (the "Administrator") will administer the Option Plan and grant
options thereunder. Any option granted to a member of the Board of Directors
must comply with the requirements of Section 16b-1 et seq. of the Rules and
Regulations of the SEC and any applicable federal tax laws or regulations.
The interpretation and construction of any provision of the Option Plan is
within the sole discretion of the Board or committee, whose determination is
final and conclusive. Members of the Board or committee receive no
additional compensation for their services in connection with the
administration of the Option Plan. Copies of the Option Plan will be
available upon request at the Company's principal executive offices.
ELIGIBILITY
The Option Plan provides that options may be granted to employees
(including officers and directors who are also employees), consultants of the
Company or any parent or majority-owned subsidiary and Outside Directors.
Incentive stock options may be granted only to employees. The Administrator
selects the optionees and determines the number of shares to be subject to
each option and the time or times at which shares become exercisable under
the option except for options granted to Outside Directors pursuant to
automatic grants. In making such determination, the duties and
responsibilities of the employee or consultant, the value of his or her
services, his or her present and potential contribution to the success of the
Company, the anticipated number of years of future service and other relevant
factors will be taken into account. Generally, such options become
exercisable or "vest" at a certain rate. Each option may be exercised only
to the extent it is vested.
AUTOMATIC GRANTS TO OUTSIDE DIRECTORS
The Option Plan provides that a nonstatutory option to purchase 50,000
shares shall be automatically granted to Outside Directors who first become
Outside Directors after the date that the Option Plan is approved by the
shareholders of the Company (the "Automatic Grant Program"). The exercise
price of options granted under the Automatic Grant Program is 100% of the
fair market value of the Common Stock on the date of the automatic grant.
Automatic Grant Program options become exercisable cumulatively with respect
to 1/48th of the underlying shares on the first day of each month following
the date of grant of such option, and, in general, must be exercised while the
optionee is a director of the Company. Automatic Grant Program options have
a term of six years from the date of grant.
10
<PAGE>
TERMS OF OPTIONS
The terms of options granted under the Option Plan are determined by the
Administrator. Each option granted under the Option Plan is evidenced by a
written stock option agreement between the Company and the optionee and is
subject to the following additional terms and conditions:
EXERCISE OF OPTION. Options under the Option Plan generally become
exercisable cumulatively as to 20% of the underlying shares on each
anniversary of the date of grant. An option granted under the Option Plan is
exercised by giving written notice of exercise to the Company, specifying the
number of full shares of Common Stock to be purchased and tendering payment
of the purchase price to the Company. Payment for shares issued upon
exercise of an option may consist of cash, check, promissory note, other
shares of the Company's Common Stock or any combination of such methods of
payment, or such other consideration and method of payment as is permitted
under the CGCL.
EXERCISE PRICE. The per share exercise price of options granted
under the Option Plan (other than those to Outside Directors) is determined
by the Administrator and may not be less than 100% of the fair market value
on the date of grant. However, in the case of incentive stock options
granted to an optionee who owns more than 10% of the voting power or value of
all classes of stock of the Company, the per share exercise price must not be
less than 110% of the fair market value on the date of grant. As long as the
Company's Common Stock is listed on any established stock exchange or a
national market system, the fair market value of a share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such system or exchange (or the exchange
with the greatest volume of trading in Common Stock) on the date of grant of
the Option, as reported in The Wall Street Journal.
TERMINATION OF STATUS AS AN EMPLOYEE, CONSULTANT OR OUTSIDE DIRECTOR.
If the optionee's employment or consulting relationship with the Company or
status as an Outside Director is terminated for any reason (other than death
or disability), options may be exercised within 30 days (or such other period
of time as is determined by the Administrator) after such termination as to
all or part of the shares as to which the optionee was entitled to exercise
at the date of such termination.
DEATH OR DISABILITY OF OPTIONEE. Options may be exercised within no
more than six months following termination due to permanent and total
disability or due to the optionee's death and may be exercised by the
optionee's estate.
TERM AND TERMINATION OF OPTIONS. Options granted under the Option Plan
may have a term of six years from the date of grant. No option may be
exercised by any person after the expiration of its term. In the case of an
incentive stock option granted to an optionee who, immediately before the
grant of such option, owns more than 10% of the voting power or value of all
classes of stock of the Company, the term of such incentive stock option may
not exceed five years.
NON-TRANSFERABILITY OF OPTIONS. An option is not transferable by the
optionee, other than by will or the laws of descent or distribution, and is
exercisable during the optionee's lifetime only by the optionee. In the
event of the optionee's death, options may be exercised by a person who
acquires the right to exercise the option by bequest or inheritance.
OTHER PROVISIONS. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Option Plan as may be
determined by the Administrator.
11
<PAGE>
CHANGES IN CAPITALIZATION
In the event a change, such as a stock split or stock dividend payable
in Common Stock, is made in the Company's capitalization, which results in an
exchange of Common Stock for a greater or lesser number of shares without
receipt of consideration by the Company, appropriate adjustment shall be made
in the option price and number of shares subject to outstanding options.
Appropriate adjustment will also be made in the number of shares of Common
Stock which have been authorized for issuance under the Option Plan but as to
which no options have yet been granted or which have been returned to the
Option Plan upon cancellation of an option. Such adjustments shall be made
by the Board of Directors, whose determination shall be final and conclusive,
subject to any required action by the shareholders of the Company.
In the event of the proposed dissolution or liquidation of the
Company, options outstanding under the Option Plan will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided
by the Board. In the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, outstanding options shall be assumed or an equivalent option
shall be substituted by such successor corporation (or a parent or subsidiary
of such successor corporation), unless such successor corporation does not
agree to assume the options or to substitute an equivalent option, in which
case the options shall terminate.
AMENDMENT AND TERMINATION OF THE OPTION PLAN
The Board may amend or terminate the Option Plan from time to time in
such respects as the Board may deem advisable; provided that the Company
shall obtain shareholder approval of any Option Plan amendment in such a
manner and to such a degree as is required by the applicable law, rule or
regulation. Any amendment or termination of the Option Plan shall not affect
options already granted and such options shall remain in full force and
effect as if the Option Plan had not been amended or terminated, unless
mutually agreed otherwise between the optionee and the Administrator, which
agreement must be in writing and signed by the optionee and the Company.
The Option Plan will continue to require shareholder approval of
amendments in accordance with federal tax laws and regulations applicable to
incentive stock option plans, to the extent the Company desires that the
Option Plan continue to qualify for the grant of incentive stock options
thereunder. The Code and the rules and regulations thereunder governing
incentive stock option plans currently require shareholder approval for any
increase in the number of shares issuable under a plan and for certain
changes in the eligibility standards under a plan.
In any event, the Option Plan continues in effect for ten years from the
date of its approval by the Board of Directors. Any options outstanding
under the Option Plan at the time of termination shall remain outstanding
until they expire by their terms.
TAX INFORMATION
Options granted under the Option Plan may be either "incentive stock
options," as defined in Section 422 of the Code or nonstatutory options.
INCENTIVE STOCK OPTIONS. If an option granted under the Option Plan is
an incentive stock option, the optionee will recognize no income upon grant
of the incentive stock option and incur no tax liability due to the exercise
unless the optionee is subject to the alternative minimum tax. The Company
will not be allowed a deduction for federal income tax purposes as a result
of the exercise of an incentive stock option regardless of the applicability
of the alternative minimum tax. Upon the sale or exchange of the shares at
least two years after grant of the option and one year after receipt of the
shares by the optionee, any gain will be treated as long-term capital gain.
If these holding periods are not satisfied, the optionee will recognize
ordinary income equal to the difference between the exercise price and the
lower of the fair market value of the stock at the date of the option
exercise or the sale price of the stock. A different rule for measuring
ordinary income upon such a premature disposition may apply if the optionee
is also an officer, director or ten percent 10% shareholder of the Company.
The Company will be entitled to a deduction in the same amount as the
ordinary income recognized by the optionee. Any gain recognized by the
12
<PAGE>
optionee on such a premature disposition of the shares in excess of the
amount treated as ordinary income will be characterized as capital gain or
loss.
NONSTATUTORY OPTIONS. All other options which do not qualify as
incentive stock options are referred to as nonstatutory options. An optionee
will not recognize any taxable income at the time he or she is granted a
nonstatutory option. However upon its exercise, the optionee will recognize
ordinary income for tax purposes measured by the excess of the then fair
market value of the shares over the option price. In certain circumstances,
where the shares are subject to a substantial risk of forfeiture when
acquired or where the optionee is an officer, director or 10% shareholder of
the Company, the date of taxation may be deferred unless the optionee files
an election with the Internal Revenue Service under Section 83(b) of the
Code. The income recognized by an optionee who is also an employee of the
company will be subject to tax withholding by the Company. Upon resale of
such shares by the optionee, any difference between the sales price and the
exercise price, to the extent not recognized as ordinary income as provided
above, will be treated as capital gain or loss. The Company will be entitled
to a tax deduction in the amount and at the time that the Optionee recognizes
ordinary income with respect to shares acquired upon exercise of a
nonstatutory option.
The above description of federal income tax consequences is based upon
the Code, the applicable Treasury Regulations promulgated thereunder,
judicial authority and current administrative rulings and practices as in
effect on the date of this Proxy Statement. This discussion is for general
information only and does not discuss consequences which may apply to special
classes of taxpayers. Shareholders are urged to consult their own tax
advisors to determine the particular consequences to them.
STOCK PRICE
The closing price of a share of Common Stock on the AMEX on October 17,
1997 was $3.38.
PLAN BENEFITS
The Company cannot now determine the exact number of options to be
granted in the future to the Company's executive officers or to all other
employees as a group under the Option Plan. All of the Company's current
executive officers and directors were appointed or elected as of September 2,
1997, and no current employees were employed by the Company prior to that
date. See "Change in Control." There are no options outstanding under the
Company's prior option plan, which has been terminated in accordance with its
terms.
REQUIRED VOTE, APPROVAL ASSURED
The affirmative vote of a majority of the votes cast will be required
under California law to approve the adoption of the Company's Option Plan.
BBE has advised the Company that it will vote its shares in favor of the
proposal to adopt the Option Plan. The Company believes that all other
members of the Berg Group also will vote their shares in favor of this
proposal as required by the Voting Rights Agreement. See "Change in Control."
As a result, the approval of the Option Plan is assured without any other
votes being cast in favor of the Option Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
All current directors and officers were elected or appointed on
September 2, 1997 and all former officers and directors resigned as of the
same date. Therefore, no officer or director who received compensation
during the current fiscal year will be eligible to participate in or receive
options under the Option Plan. Compensation has not yet been determined nor
paid to any current director or officer. The Company does not currently have
sufficient funds to compensate its directors and officers, but is proposing
to obtain additional funds through a private placement. See "Proposal
2-Approval of Proposed Private Placement of Securities."
13
<PAGE>
It is contemplated that the current executive officers will receive
options to purchase the Company's Common Stock in the event that the Option
Plan is approved by the shareholders. No current Outside Directions will be
eligible for options under the Option Plan. See "Proposal 3-Adoption of 1997
Stock Option Plan." However, the exact number of options to be granted in
the future cannot now be determined.
TRADING OF COMMON STOCK ON THE AMERICAN STOCK EXCHANGE
The Common Stock is currently listed on the AMEX and the PSE. In view of
the Distribution, the AMEX has decided to halt trading of the Common Stock at
the opening of trading on October 20, 1997. Therefore, the last day of
trading on the AMEX and the PSE was Friday, October 17, 1997. The Company
anticipates that trading will resume after the completion of the proposed
private placement and the effectiveness of certain related actions, including
the Reverse Split. However, there can be no assurance that the AMEX will
resume trading of the Common Stock and no assurance of the date on which
trading might resume. See "Proposal 1 - Proposed Amendment and Restatement of
Articles of Incorporation to Effectuate a 1 for 30 Reverse Stock Split,
Increase the Authorized Shares of Common Stock to 200,000,000, Authorize Up
to 20,000,000 Shares of Preferred Stock, and Authorize the Company to Issue
Convertible Debt Securities" and "Proposal 2 - Approval of Proposed Private
Placement of Securities."
OTHER MATTERS
No other matters will be presented for action at the Special Meeting.
By Order of the Directors
/s/ Michael L. Knapp
Michael L. Knapp
Secretary
October 20, 1997
Cupertino, California
14
<PAGE>
MISSION WEST PROPERTIES
SPECIAL MEETING OF SHAREHOLDERS
NOVEMBER 10, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Carl E. Berg and Michael L. Knapp, and
each of them, as his agents and proxies with full power of substitution to
vote any and all shares of Common Stock of Mission West Properties which the
undersigned is entitled to vote at the Special Meeting of Shareholders of
said Company to be held November 10, 1997, or any adjournment or postponement
thereof, as specified on the reverse hereof.
THIS PROXY WILL BE VOTED AS THE UNDERSIGNED SPECIFIES ON THE REVERSE
HEREOF. UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED FOR PROPOSALS 2
AND 3.
<PAGE>
THE BOARD OF DIRECTORS SOLICITS YOUR PROXY FOR THE FOLLOWING ITEMS:
1. PROPOSAL TO AUTHORIZE the Company to amend and restate the Company's
Articles of Incorporation, as amended, to effect a 1 for 30 reverse stock
split, increase the authorized shares of Common Stock to 200,000,000,
authorize 20,000,000 shares of undesignated preferred stock, and authorize
the Company to issue convertible debt securities.
FOR ( ) AGAINST ( ) ABSTAIN ( )
2. PROPOSAL TO APPROVE the Company's proposed private placement of 1,250,000
shares of the Company's Common Stock after taking into account the reverse
stock split.
FOR ( ) AGAINST ( ) ABSTAIN ( )
3. PROPOSAL TO APPROVE the adoption of the Company's 1997 Stock Option Plan
and the reservation of 5,500,000 shares of Common Stock for issuance
thereunder after taking into account the reverse stock split.
FOR ( ) AGAINST ( ) ABSTAIN ( )
Date: ______________, 1997
Signature: ____________________________
Signature: ____________________________
NOTE: Please sign as name appears herein. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
<PAGE>
EXHIBIT A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended August 31, 1997 Commission File Number 1-8383
MISSION WEST PROPERTIES
Incorporated in California IRS Employer Identification Number: 95-2635431
Principal Executive Offices: Telephone: (408) 725-0700
10050 Bandley Drive
Cupertino, California 95014-2188
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 [ ]
The number of shares of the Registrant's common stock outstanding as of
October 8, 1997 is 7,533,121.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. QUARTERLY FINANCIAL STATEMENTS
Following are three-month third quarter and nine-month year-to-date (as
applicable) fiscal year 1997 consolidated financial statements (unaudited)
and accompanying notes.
- 2 -
<PAGE>
MISSION WEST PROPERTIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(UNAUDITED) (Unaudited)
PRO FORMA August 31 November 30
ASSETS: (NOTE 2) 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents $ 5,275,000 $ 5,827,000 $ 3,111,000
Real estate investments (held-for-sale):
Rental properties, less accumulated depreciation of
$10,422,000 in 1996 ($44,455,000 pledged in 1996) - - 45,824,000
Unimproved land ($461,000 pledged in 1996) - - 461,000
------------ ------------ ------------
- - 46,285,000
Less allowance for estimated losses - - (4,413,000)
------------ ------------ ------------
Net real estate investments - - 41,872,000
Other assets, less allowances of $17,000 in 1997 and
$360,000 in 1996 and accumulated depreciation of
$215,000 in 1997 and $321,000 in 1996 209,000 162,000 1,341,000
------------ ------------ ------------
$ 5,484,000 $ 5,989,000 $ 46,324,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes payable $ - $ - $ 30,753,000
Dividends/distributions payable 5,059,000 5,059,000
Income taxes payable 120,000 265,000 -
Accounts payable and accrued expenses 211,000 1,247,000 1,389,000
------------ ------------ ------------
Total liabilities 5,390,000 6,571,000 32,142,000
------------ ------------ ------------
Shareholders' equity:
Common stock, no par value, 10,000,000 shares
authorized, 1,533,121 shares issued and outstanding
(1,371,121 in 1996) 21,082,000 20,182,000 19,456,000
Accumulated deficit (2,131,000) (1,907,000) (5,274,000)
Current cash dividends/distributions declared (18,857,000) (18,857,000) -
------------ ------------ ------------
Total shareholders' equity 94,000 (582,000) 14,182,000
------------ ------------ ------------
$ 5,484,000 $ 5,989,000 $ 46,324,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
MISSION WEST PROPERTIES
Consolidated Statements of Operations (Unaudited)
(Discontinued Operations -- See Note 2)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- --------------------------
August 31 August 31 August 31 August 31
1997 1996 1997 1996
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Sales of real estate $ 15,000 $ 27,000 $50,561,000 $ 86,000
Rental revenues from real estate 5,000 1,749,000 1,360,000 5,342,000
Other, including interest 90,000 91,000 307,000 237,000
---------- ---------- ----------- ----------
110,000 1,867,000 52,228,000 5,665,000
---------- ---------- ----------- ----------
EXPENSES:
Costs of real estate sold 35,000 240,000 45,830,000 247,000
Operating expenses of real estate (12,000) 431,000 235,000 1,215,000
Depreciation of real estate - 342,000 246,000 1,026,000
General and administrative 223,000 245,000 817,000 749,000
Interest - 754,000 425,000 2,319,000
---------- ---------- ----------- ----------
246,000 2,012,000 47,553,000 5,556,000
---------- ---------- ----------- ----------
Income (loss) before income taxes (136,000) (145,000) 4,675,000 109,000
Provision for (benefit from) income taxes (65,000) (56,000) 1,308,000 46,000
---------- ---------- ----------- ----------
NET INCOME (LOSS) $ (71,000) $ (89,000) $ 3,367,000 $ 63,000
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
NET INCOME (LOSS) PER SHARE $ (0.05) $ (0.06) $ 2.26 $ 0.05
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
MISSION WEST PROPERTIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
August 31 August 31
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,367,000 $ 63,000
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Net gain on sales of real estate (4,676,000) -
Depreciation 252,000 1,033,000
Tax effect of canceled stock options (33,000) -
Changes in assets and liabilities:
Decrease (increase) in net real estate investments 2,000 (44,000)
Decrease in other assets 801,000 117,000
Increase (decrease) in income taxes payable 265,000 (88,000)
Decrease in accounts payable and accrued expenses (813,000) (197,000)
----------- -----------
Net cash provided by (used for) operating activities (835,000) 884,000
----------- -----------
Cash flows from investing activities:
Net proceeds from sales of real estate 46,443,000 -
Net maturities of short-term investments - 1,405,000
----------- -----------
Net cash provided by investing activities 46,443,000 1,405,000
----------- -----------
Cash flows from financing activities:
Repayments of notes payable (30,753,000) (985,000)
Proceeds from stock options exercised 759,000 10,000
Proceeds from sales of common stock 900,000 -
Payment of cash dividends (13,798,000) -
----------- -----------
Net cash used for financing activities (42,892,000) (975,000)
----------- -----------
Net increase in cash and cash equivalents 2,716,000 1,314,000
Cash and cash equivalents at beginning of period 3,111,000 566,000
----------- -----------
Cash and cash equivalents at end of period $ 5,827,000 $ 1,880,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
MISSION WEST PROPERTIES
Notes to Consolidated Financial Statements (Unaudited)
August 31, 1997
NOTE 1 -- BASIS OF PRESENTATION
Mission West Properties (the "Company") has historically been engaged in
developing, owning, operating, and selling income-producing real estate
located principally in southern California. As discussed in Note 2 "Sale of
Real Estate Investments/Sale of Common Stock" below, the Company completed
the sale of its entire real estate portfolio during May 1997 and completed a
sale of the remaining corporate entity through a stock transaction on
September 2, 1997.
As of September 2, 1997, the Company is 80-percent owned by a group of
private investors led by Berg & Berg Enterprises, Inc. of Cupertino,
California. Prior to September 2, 1997, the Company was 44-percent owned by
Alarmguard Holdings, Inc., who had merged on April 15, 1997 with the
Company's previous 44-percent owner, Triton Group Ltd.
The accompanying consolidated financial statements (unaudited) have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and,
therefore, do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
These financial statements have been prepared on a going concern basis
assuming continuity of operations and the realization of assets and
liquidation of liabilities in the ordinary course of business. 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, the disclosure of
contingent assets and liabilities at financial statement date, and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The operating results for the interim period are not necessarily indicative
of the results to be expected for a full fiscal year or for any future
periods. In the opinion of management, the information furnished herein
reflects all adjustments, consisting only of normal recurring accruals, that
are necessary for a fair presentation of results for the unaudited interim
period.
NOTE 2 -- SALE OF REAL ESTATE INVESTMENTS/SALE OF COMMON STOCK
PRO FORMA BALANCE SHEET AND DISCONTINUED OPERATIONS
On December 6, 1996, the Company entered into an agreement to sell all its
real estate assets to Spieker Properties, L.P. ("Spieker"), a California
limited partnership, for $50,500,000 in cash, subject to certain customary
conditions. A special shareholder meeting was held December 16, 1996, at
which the Company's shareholders approved the sale of the real estate assets
to Spieker.
A majority of the sale transaction was completed January 22, 1997, at which
time nine of the Company's 11 real estate properties were sold. The sale of
the remaining two properties was completed May 6, 1997. The properties sold
consisted of occupied office, light industrial, and R&D buildings and
leaseholds, together with hangar and office buildings thereon, in San Diego
and Riverside counties, California, and occupied industrial buildings and
vacant land in Chandler, Arizona. The total building space sold approximated
815,000 square feet.
The Company received $47,500,000 in cash upon completing the sale of the
first portion of the portfolio (nine properties), from which it repaid all
debt encumbering the properties and paid the related transaction and closing
costs, including $3,000,000 in "break-up" fees from previously terminated
sales transactions. Upon completing the sale of the two remaining properties
in May 1997, the Company received $3,000,000 in cash, from which the related
transaction and closing costs were paid. The costs of real estate sold
reflected in the statement of operations include the "break-up" fees as well
as the Company's net investment in the underlying real estate sold and all
other transaction and selling costs.
The Company declared and paid a special cash distribution of $9.00 per share
to shareholders during February 1997. This distribution represented the
available proceeds from the portion of the real estate portfolio that was
sold in January 1997.
- 6 -
<PAGE>
NOTE 2 (CONTINUED) -- SALE OF REAL ESTATE INVESTMENTS/SALE OF COMMON STOCK
PRO FORMA BALANCE SHEET AND DISCONTINUED OPERATIONS
The sale of the real estate portfolio resulted in a substantial gain for the
Company. Following the sale of assets and the payment of the distribution to
shareholders, only nominal assets remained in the Company and, therefore, the
resulting corporate entity had virtually no revenue-generating or
cash-generating capabilities.
On May 27, 1997, the Company entered into a Stock Purchase Agreement (the
"Agreement") with a group of private investors led by Berg & Berg
Enterprises, Inc. (collectively, the "Purchaser" or the "Berg Group") of
Cupertino, California, pursuant to which the Company would sell 6,000,000
shares of newly issued common stock to the Purchaser for a purchase price of
$900,000 in cash, or $0.15 per share. A special meeting of shareholders was
held August 5, 1997, at which the shareholders approved the stock sale
transaction.
This sale of common stock was completed September 2, 1997, at which time all
officers and Directors resigned and the Berg Group became the controlling
shareholder with an 80-percent ownership position in the Company. The Berg
Group comprises privately held firms that have designed, developed, and
leased office, R&D, and manufacturing buildings and complexes occupied by
Silicon Valley technology companies since 1969. Currently, the Berg Group
owns and operates more than 3,500,000 square feet of property. Per terms of
the Agreement, the Company will pay a cash distribution of $3.30 per share to
shareholders on October 21, 1997 for a total distribution of $5,059,000; the
record date for this distribution was August 28, 1997.
The Pro Forma balance sheet has been prepared to show the effects that the
stock sale and resulting change in Directors and officers would have had on
the August 31, 1997 balance sheet, had that transaction occurred prior to the
end of the third quarter. The effects reflected in the Pro Forma balance
sheet consist of expenses and disbursements that arose upon the closing of
the transaction and include the issuance of the common stock, investment
advisor fees, former Director and officer severance and other payments, and
the related tax effects thereof.
NOTE 3 -- CASH FLOW INFORMATION
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, money market funds, certificates of deposit, commercial paper, and
obligations of the U.S. Treasury with an original maturity of 90 days or
less. Cash paid during the nine months ended August 31 for interest was
$411,000 in 1997 and $2,400,000 in 1996. Cash paid for income taxes during
the nine-month periods was $546,000 in 1997 and $38,000 in 1996.
NOTE 4 -- NOTES PAYABLE
Notes payable comprise the following:
<TABLE>
<CAPTION>
August 31 November 30
1997 1996
--------- -----------
<S> <C> <C>
Secured notes payable to banks, due 1998 through 2001, paid in
full during first quarter fiscal year 1997 $ - $29,365,000
Secured note payable to insurance company, due April 1997, paid
in full during January 1997 - 1,388,000
--------- -----------
$ - $30,753,000
--------- -----------
--------- -----------
</TABLE>
NOTE 5 -- NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on 1,533,121 and 1,371,121 shares for
the quarters ended August 31, and 1,489,369 and 1,370,336 for the nine months
ended August 31, the weighted average number of shares outstanding during the
periods presented for fiscal years 1997 and 1996, respectively. The effect
of stock options is either not applicable or is not significant and such
effect is not reflected in the per share computations.
- 7 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained herein,
statements contained in this Form 10-Q may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995 ("Reform Act"). The Company may also make forward-looking
statements in other reports filed with the Securities and Exchange
Commission, in materials delivered to shareholders and in press releases. In
addition, the Company's representatives may from time to time make oral
forward-looking statements. In accordance with the Reform Act, set forth
below under "Liquidity and Capital Resources" are cautionary statements that
accompany those forward-looking statements. Those cautionary statements
identify certain important factors that could cause actual results to differ
materially from those in the forward-looking statements and from historical
trends.
RESULTS OF OPERATIONS:
THIRD QUARTER FISCAL 1997 COMPARED TO THIRD QUARTER FISCAL 1996
As discussed in Note 2, "Sale of Real Estate Investments/Sale of Common
Stock," to the consolidated financial statements above, the Company sold a
majority of its real estate assets in January 1997 and completed the sale of
its entire real estate portfolio in May 1997, leaving the Company with no
operating assets and minimal cash-generating ability. During the third
quarter of fiscal 1997, the Company's shareholders approved a change in
control of the Company, through a stock sale to a group of private investors
completed on September 2, 1997. Additionally, in August 1997, the Board of
Directors declared a special cash distribution of $3.30 per share that will
be paid to shareholders on October 21, 1997 (record date of August 28, 1997)
(the "October Distribution").
Results for the third quarter of fiscal 1997 reflect the fact that the
Company had no operations, minimal other assets, and continued to incur
overhead expenses to enable completion of the stock sale transaction.
Expenses of approximately $65,000 were incurred during the quarter related to
the pending stock sale. During the third quarter of the preceding year, the
Company had continued to operate its real estate portfolio in the normal
course, and had entered into an agreement for sale of the portfolio to a
single purchaser (which was completed in fiscal 1997 with a different
purchaser). During the third quarter of fiscal 1996, the Company incurred
approximately $237,000 in costs associated with the sale of its real estate
assets in January and May 1997.
The stock sale was effected in accordance with a May 27, 1997 agreement
providing for the sale of 6,000,000 newly issued shares of Common Stock for
$0.15 per share to a group of private investors led by Berg & Berg
Enterprises, Inc. (the "Berg Group") of Cupertino, California. At a special
meeting held on August 5, 1997, the Company's shareholders approved the stock
sale. The stock sale was completed on September 2, 1997, subsequent to the
end of the third quarter, at which time all current officers and directors of
the Company resigned and were replaced by individuals recommended by the Berg
Group's representative. Upon completion of the stock sale, the Berg Group
owned approximately 79.6 percent of the outstanding shares of the Company.
FIRST NINE MONTHS FISCAL 1997 COMPARED TO FIRST NINE MONTHS FISCAL 1996
The sale of the Company's real estate portfolio in January and May 1997,
discussed above, had a significant effect on the operations of the Company
during fiscal year 1997. The sale of the real estate portfolio was in
accordance with a December 1996 agreement with Spieker Properties, L.P.
("Spieker"), a California limited partnership, in which Spieker agreed to
purchase all the Company's real estate assets for $50,500,000 in cash,
subject to certain customary conditions. A special meeting of the Company's
shareholders was held on December 16, 1996, at which the shareholders
approved the sale. Most of the sale transaction was completed on January 22,
1997, at which time the Company sold nine of its eleven real estate
properties. The sale of the remaining two properties was completed on May 6,
1997. All debt encumbering the properties and the related transaction and
closing costs were paid from the sales proceeds. The properties sold
consisted of occupied office, light industrial, and R&D buildings and
leaseholds, together with hangar and office buildings thereon, in San Diego
and Riverside Counties, California, and occupied industrial buildings and
vacant land in Chandler, Arizona. The total building space sold approximated
815,000 square feet. Upon completing the sale of the nine properties during
the first quarter of 1997, the Company received $47,500,000 in cash, from
which it repaid all debt encumbering the properties (thus eliminating future
interest expense) and paid related transaction and closing costs, including
$3,000,000 in "break-up" fees from previously terminated sales transactions.
- 8 -
<PAGE>
RESULTS OF OPERATIONS (CONTINUED):
Upon completing the sale of the remaining two properties in May 1997, the
Company received $3,000,000 cash, from which related transaction and closing
costs also were paid.
FIRST NINE MONTHS FISCAL 1997 COMPARED TO FIRST NINE MONTHS FISCAL 1996
(CONTINUED)
The Company completed the sale of 6,000,000 newly issued shares of Common
Stock on September 2, 1997 at $0.15 per share for $900,000. The Company
declared and paid a special cash distribution of $9.00 per share to
shareholders during February 1997 and declared the October Distribution in
August 1997 for payment on October 21, 1997.
The sale of the real estate portfolio resulted in a gain of approximately
$4,675,000 and, coupled with the cash distribution paid to shareholders, left
the Company with no operating assets and minimal cash-generating ability.
Results for the first nine months of fiscal 1997 reflect the effects of the
sale: gain on sale of real estate (net of the "break-up" fees),
significantly decreased revenues and expenses from operations of real estate,
decreased interest expense, and an increase in general and administrative
expenses (primarily) due to severance payments upon downsizing of corporate
staff, and transaction costs associated with the sale of Common Stock).
CHANGES IN FINANCIAL CONDITION:
AUGUST 31, 1997 COMPARED TO NOVEMBER 30, 1996
Nearly all changes in the Company's financial position during the first nine
months of fiscal year 1997 resulted from the sale of the Company's real
estate portfolio. Proceeds from the sale of the property were used to pay
all debt and a substantial portion of all other liabilities of the Company,
as well as the special $9.00 per share distribution to shareholders in
February 1997. In addition, the Board of Directors declared the October
Distribution, which was reserved by the Company as of August 31, 1997.
In connection with the January 1997 sale of real estate, vesting was
accelerated to permit the exercise of stock options for the purchase of
13,520 shares. During February 1997, all vested stock options, totaling
162,000 shares, also were exercised by option holders. Total exercise
proceeds to the Company from all such option exercises were $759,000 and were
recognized on a "net exercise" basis. Certain unvested options were canceled
in March 1997.
The Company completed the sale of 6,000,000 newly issued shares of Common
Stock subsequent to August 31, 1997 (see Note 2, "Sale of Real Estate
Investments/Sale of Common Stock" to the consolidated financial statements
above). The $900,000 purchase price was received on August 5, 1997, and was
initially classified as a liability until completion of the sale.
LIQUIDITY AND CAPITAL RESOURCES:
During the first nine months of fiscal 1997, the Company generated cash from
the sale of all of its real estate assets and used the proceeds from such
sales to retire outstanding debt, fund ongoing operations, pay a special
distribution to shareholders and pay tax liabilities. After payment of the
October Distribution, only nominal assets will remain in the Company, which
will have minimal or no revenue-generating or cash-generating capabilities.
The Company intends to raise capital with a view to maintaining the listing
of the Common Stock on the American Stock Exchange ("AMEX") and the Pacific
Exchange ("PSE") and enabling the Company to raise more capital for the
direct and indirect acquisition of revenue-generating real estate and other
assets. The Company may acquire such properties and other assets through
direct purchases or the issuance of securities of the Company in exchange for
such properties and assets or interests in existing businesses and entities
that own such properties and assets. The Company may enter into such
transactions with affiliates of Berg & Berg Enterprises, Inc. and Carl E.
Berg, the Chief Executive Officer and a director of the Company, which own
and operate more than 3,500,000 square feet of Santa Clara County, California
properties. There can be no assurance that any such transactions will occur,
however.
The Board of Directors has determined, subject to compliance with applicable
laws and AMEX requirements, shareholder approval, and the satisfaction of
customary conditions, that the Company should effect a 1 for 30 reverse split
of the Common
- 9 -
<PAGE>
Stock and sell up to 1,250,000 shares of Common Stock at $4.50 per share
(post-split) in a private placement to sophisticated investors. The Board of
Directors has determined that this price will be approximately equivalent on
a post-reverse split basis to the $0.15 per share paid by the Berg Group for
shares of Common Stock in September 1997. Moreover, the Board of Directors
has determined that $4.50 is an appropriate price for all transactions
involving Common Stock and Common Stock equivalents issued by the Company
until such time as the Company has acquired revenue-generating properties and
other assets, directly or indirectly, and has funds from real estate
operations. The ownership interests in the Company held by existing
shareholders will be reduced substantially by any of such transactions, any
of which may be materially dilutive to all existing shareholders of the
Company. If the Company does not raise additional capital or acquire
revenue-generating real estate or other assets, the Company believes that the
outstanding shares of Common Stock will cease to have value.
Forward-looking statements involve a number of risks and uncertainties. Some
of the important factors that could cause actual results to differ materially
from those in the forward-looking statements include the following:
- Future transactions intended to raise capital for the Company and result
in the Company's conduct of a new real estate business are subject to
applicable California and federal laws, the regulations of stock
exchanges or other markets on which the Common Stock is traded, real
estate market conditions, stock market conditions, or other factors.
- Following the October Distribution, the Common Stock will no longer meet
the listing requirements of the AMEX and PSE. In the absence of
appropriate actions by the Company, there is a risk, therefore, that the
Common Stock will be delisted from such exchanges and there may no longer
exist a trading market for the Common Stock.
- If the Company does raise sufficient capital to maintain the AMEX and
PSE listings of the Common Stock, but does not re-enter the real
estate business during the next fiscal year, the Company may become
subject to the Investment Company Act of 1940, as amended, which
would entail substantially more regulation of the Company at
significant additional expense.
- At present, approximately 79.6 percent of the outstanding Common Stock
is owned by members of the Berg Group. All such shares are subject
to a Voting Rights Agreement obligating those shareholders to vote
their shares in the manner recommended by Berg & Berg Enterprises,
Inc. and Carl E. Berg, who as a result, should be viewed as
possessing effective control of the Company. There can be no
assurance that such control will be exercised to cause the occurrence
of any transaction described in the forward-looking statements.
- If the Company does re-enter the real estate business, there can be no
assurance that the Company's operations will be profitable. There can
be no assurance that the price of a share of Common Stock will
increase as a result of the Company's acquisition of any real estate
or other assets or its future revenue-generating activities, if any.
- 10 -
<PAGE>
EXHIBIT B
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MISSION WEST PROPERTIES
ARTICLE 1. The name of this corporation is "Mission West Properties."
ARTICLE 2. The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.
ARTICLE 3. This corporation is authorized to issue two classes of stock to
be designated, respectively, Common Stock ("Common Stock") and Preferred
Stock ("Preferred Stock"). The number of shares of Common Stock authorized
to be issued is Two Hundred Million (200,000,000) and the total number of
shares of Preferred Stock authorized to be issued is Twenty Million
(20,000,000).
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors of this corporation is hereby authorized,
within the limits and restrictions stated in these Amended and Restated
Articles of Incorporation, to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock, and within the limits stated herein or in any
resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any such series and the designation thereof, to
increase or decrease the number of shares of any series subsequent to the
issue of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be
so decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
On the effective date of these Amended and Restated Articles of
Incorporation, all outstanding shares of Common Stock held by each holder of
record on such date shall be automatically combined at the rate of
one-for-thirty without any further action on the part of the holders thereof
or this corporation (the "Reverse Split"). No fractional shares shall be
issued as a result of the Reverse Split unless such action would result in
the cancellation of more than ten percent (10%) of the outstanding shares of
Common Stock. This corporation will pay cash for all fractional shares in an
amount equal to a price per share of Fifteen Cents ($0.15) prior to the
combination.
ARTICLE 4. To the fullest extent permissible under the General Corporation
Law of California, this corporation is authorized to issue debt securities
convertible into other debt securities or into shares of the corporation
within such time and upon the happening of one or more specified events and
upon such terms and conditions as are fixed by the Board of Directors.
ARTICLE 5. The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under the laws
of California.
(a) Whether by bylaw, agreement or otherwise, the agents of this
corporation may be provided indemnity by this corporation in excess of
the indemnity expressly permitted by Section 317 of the California
Corporations Code for those agents of this corporation for breach of duty to
this corporation and its stockholders provided, however, that an agent may
not be indemnified for any acts or omissions or transactions from which a
director may not be relieved of liability pursuant to this Article or as to
circumstances in which indemnity is expressly prohibited by Section 317 of
the California Corporations Code.
(b) As used in this Article the term "agents" includes any person who
is or was a director, officer, employee or other agent of this corporation,
or is or was serving at the request of this corporation as a director,
officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was a director,
officer, employee or agent of a foreign or domestic corporation which was the
predecessor corporation of this corporation or of another enterprise at the
request of such predecessor corporation.
<PAGE>
EXHIBIT C
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------
FORM 10-K
/X/ Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended November 30, 1996, or
/ / Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ________
Commission File Number 1-8383
MISSION WEST PROPERTIES
Incorporated in California IRS Employer Identification Number: 95-2635431
Principal Executive Offices: Telephone: (619) 450-3135
6815 Flanders Drive, Suite 250
San Diego, California 92121-3914
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Exchanges on Which Registered
- ------------------------------------ -----------------------------
Shares of common stock, no par value American Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to the
Form 10-K. /x/
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was $5,183,000 as of February 19, 1997.
The number of shares of the Registrant's common stock outstanding as of February
19, 1997, was 1,533,121.
Portions of Part III are incorporated by reference to the Registrant's
definitive Proxy Statement for the 1997 annual meeting of shareholders.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL:
Mission West Properties (the "Company"), with corporate offices located in San
Diego, California, is a California corporation that has been engaged in
developing, owning, operating, and selling income-producing commercial real
estate. Since completing its most recent development projects in 1991, the
Company has been involved principally in owning and operating real estate
projects.
The Company was formed in 1969 as Palomar Mortgage Investors, a California
business trust. It operated as a real estate investment trust ("REIT") (as
defined by the Internal Revenue Code), investing primarily in short- and
intermediate-term construction and development loans secured by first trust
deeds on real property. In 1974, the Company terminated new loan activity
except to facilitate the sale of property acquired from borrowers through
foreclosure or by deed in lieu of foreclosure and, in 1975, changed its name to
Mission Investment Trust. In 1979, the Company terminated its status as a REIT
and began to develop and market properties it owned. Since then, the Company
has acquired, developed, and sold properties in southern California and Arizona
in accordance with its business strategy. In 1982 the Company incorporated
under its present name.
SALE OF REAL ESTATE PORTFOLIO:
In July 1996 the Company entered into an agreement to sell all its real estate
assets; this agreement was subsequently terminated and replaced, and the
subsequent agreement was also terminated and replaced. On December 6, 1996, the
Company entered into an agreement to sell all the real estate assets to Spieker
Properties, L.P. ("Spieker"), a California limited partnership, for $50,500,000
in cash, subject to certain conditions customary in a transaction of this type.
A special shareholder meeting was held December 16, 1996, at which time the
Company's shareholders approved the sale of the real estate assets to Spieker.
A majority of the sale transaction was completed January 22, 1997, at which time
eight of the Company's ten operating properties and a vacant land parcel were
sold (also see Note 2 to the consolidated financial statements). The remaining
two operating properties are anticipated to be sold within 120 days after
January 22, 1997. The properties sold consisted of occupied office, light
industrial, and R&D buildings in San Diego and Riverside counties, California,
and occupied industrial buildings and vacant land in Chandler, Arizona. The two
remaining properties consist of leaseholds, together with hangar and office
buildings thereon, comprising approximately 25 percent of the land at Palomar-
McClellan Airport in San Diego county.
Upon completion of sale of the eight properties and land, the Company received
$47,500,000 in cash, from which it repaid all debt encumbering the properties
and paid a majority of the related transaction and closing costs, including
$3,000,000 in "break-up" fees from the terminated sales transactions. In
accordance with the sales agreement, $300,000 was withheld from the proceeds to
allow for satisfaction of any post-closing breaches of representations and
warranties made by the Seller. If no such breaches occur, the $300,000 will be
released to the Company after 90 days. Also in accordance with the sales
agreement, upon completion of sale of the two leasehold properties, the Company
will receive $3,000,000 in cash, subject to an additional $300,000
representation and warranty holdback (for 90 days), from which it will pay
related transaction costs.
On February 4, 1997, the Company declared that a special dividend of $9.00 per
share would be paid on February 27, 1997 to all shareholders of record as of
February 19, 1997. This dividend represents the currently available portion of
the proceeds from the sale of the real estate assets. The significance of the
sale of assets and the subsequent payment of dividend to shareholders is that
only nominal assets will remain in the Company and, therefore, the resulting
corporate entity has virtually no revenue-generating or cash-generating
capabilities. The Board of Directors and management currently are reviewing
available strategic alternatives for the remaining corporate entity. These
alternatives include a possible business or asset acquisition or combination, a
sale of the corporate entity, or outright liquidation.
There is no relationship between the Company and Spieker.
- 1 -
<PAGE>
WHOLLY OWNED SUBSIDIARIES:
The Company has two wholly owned subsidiaries, MIT Realty, Inc. and Mission West
Executive Aircraft Center, Inc. ("MWEAC"). MIT Realty, Inc. is an inactive
entity; it has no signed contracts or commitments. MWEAC is an active
subsidiary that owns and operates office buildings and aircraft hangars as part
of a fixed-base operations center at the McClellan-Palomar Airport; management
of this facility is provided by an independent contractor and the results of the
operations of this subsidiary are included in the consolidated financial
statements of the Company.
EMPLOYEES:
The Company had seven full-time employees as of November 30, 1996.
REAL ESTATE INVESTMENTS AND MARKETING:
At November 30, 1996, the Company had investments in ten real estate projects
and one undeveloped parcel of land totaling $41,872,000, net of accumulated
depreciation and allowance for estimated losses. The Company completed its most
recent development projects in 1991 and, since that time, has principally
focused on managing its real estate portfolio. Because the Company's property
portfolio contained what management believed to be high-quality projects located
in desirable markets, the Company historically had been successful in both
leasing projects and effecting sales from time to time. Subsequent to November
30, 1996, the Company sold a majority of its real estate properties (see Part I
- -- Item 1 "Business -- Sale of Real Estate Portfolio" above). The Company's
properties were substantially leased, with an average portfolio occupancy of 86
percent in fiscal year 1996, and had an aggregate positive cash flow.
GOVERNMENT REGULATIONS/ENVIRONMENTAL ISSUES:
The Company's rental properties were subject to various federal, state, and
local regulations such as those addressed by the American Disabilities Act and
local building codes. The Company believes that the properties were in
substantial compliance with all applicable regulatory requirements through the
date of sale (see Part I -- Item 1 "Business -- Sale of Real Estate Portfolio"
above) and, therefore, no material costs are anticipated to correct
noncompliance.
ITEM 2. PROPERTIES
The Company had developed or acquired commercial properties located in southern
California and Arizona. Each property was selected for its perceived potential
to contribute value to the Company's real estate portfolio and ability to
generate profit, typically upon sale. In the pursuit of enhancing property
values and profits, the Company committed to a regular maintenance program and
to providing superior property management services to its tenants.
During the year ended November 30, 1996, the Company's operating property
portfolio was, on average, 86 percent leased. The rental rate for leases,
exclusive of airport hangar space, in effect during the year ranged from $0.31
to $1.99 per square foot, net of concessions. The Company has negotiated each
lease separately; typically, office building and airport lease rates are full-
service, net of utilities, and industrial rates are triple net or modified
gross. A majority of the leases contain provisions for annual cost-of-living or
percentage increases. Lease terms average from one to five years, ranging up to
ten years, with a few month-to-month tenancies. Cash flows from a property may
vary from year to year depending on tenant turnover. Upon lease maturity,
expenditures such as lease commissions, leasehold improvements, and suite
refurbishments may occur.
- 2 -
<PAGE>
ITEM 2. PROPERTIES (CONTINUED)
The Company's real estate investments as of November 30, 1996, were as follows
(sale of all properties except the two Airport Projects was completed January
22, 1997; see Part I -- Item 1 "Business -- Sale of Real Estate Portfolio"
above):
<TABLE>
<CAPTION>
YEAR FISCAL 1996 NUMBER OF
NUMBER OF AMOUNT CONSTRUCTED/ AVERAGE TENANTS AT
DESCRIPTION AND LOCATION BUILDINGS INVESTED ACQUIRED SQ. FT. OCCUPANCY 11/30/96
------------------------ --------- -------- ----------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OFFICE PROJECTS:
Two-story, Carlsbad, CA 2 $7,667,000 1988 80,540 65% 8
Three-story, San Diego, CA 1 7,680,000 1989 75,711 86% 16
Two-story, Carlsbad, CA 1 5,575,000 1991 52,696 100% 7
Two-story, San Diego, CA 1 4,120,000 1989 45,097 42% 4
INDUSTRIAL/R&D PROJECTS:
Manufacturing, Riverside, CA 1 5,944,000 1991 161,588 100% 1
R&D, San Diego, CA 4 6,340,000 1984 87,409 66% 8
R&D, San Diego, CA 4 6,652,000 1990 72,320 96% 7
Light industrial, Chandler, AZ 2 3,750,000 1986 65,630 97% 16
Industrial, Carlsbad, CA 3 3,593,000 1991 44,574 96% 17
AIRPORT PROJECTS:
Hangar/office bldg., Carlsbad, CA 1 1,812,000 1990 43,116 78% 11
Hangars/office bldg., Carlsbad, CA 3 3,113,000 1990 90,155 92% 54
UNDEVELOPED LAND:
Chandler, AZ N/A 461,000 1985 N/A N/A N/A
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is party to certain legal proceedings in its ordinary course of
business.
A civil action for an unspecified amount of damages relating to environmental
contamination was filed in May 1995 by residents in Kennedy Heights and certain
nearby residential developments located in the greater Houston, Texas, area.
The suit was filed in the 281st District Court of Harris County in Houston,
Texas. The Company and 50 other parties were named as defendants. The Company
was dismissed from the action without prejudice in December 1995 and agreed at
that time to a tolling of the statute of limitations through December 11, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
quarter ended November 30, 1996. A proposal for sale of all the Company's real
estate assets was put to a vote of security holders on December 16, 1996 (see
Part I -- Item 1 "Business -- Sale of Real Estate Portfolio" above); the sale
was approved by approximately 88 percent.
- 3 -
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SHARES OF COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Common Stock of the Company is traded on the American and Pacific Stock
Exchanges under the symbol MSW. The following are the high and low sales
prices, by quarter, of the Registrant's shares for the two most recent fiscal
years.
1996 1995
---------------- ------------------
High Low High Low
------ ----- ----- ------
1st Quarter 5 3/8 4 5/8 7 1/4 5 1/4
2nd Quarter 7 4 5/8 5 3/4 5 1/4
3rd Quarter 8 1/4 6 1/4 5 5/8 4 7/8
4th Quarter 9 3/4 7 1/8 5 1/2 5
As of February 19, 1997, the approximate number of holders of record of the
Company's stock was 475. The Company paid no dividends during fiscal 1996 or
1995. Certain banks, through their debt agreements, had restricted the Company
from paying cash dividends to shareholders; these notes payable were repaid in
full upon completion of the sale of real estate in January 1997. On February 4,
1997, the Company declared a special dividend of $9.00 per share to be paid
February 27, 1997 (see Part I -- Item 1 "Business -- Sale of Real Estate
Portfolio" above).
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Selected consolidated financial data is derived from the audited financial
statements and notes thereto (see Part II -- Item 8 "Consolidated Financial
Statements and Supplementary Data" below) and is as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
Years Ended November 30
-------------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Results of Operations:
Revenues $ 7,526 $ 7,926 $ 9,297 $ 7,142 $ 7,297
Net Income (Loss) 35 52 (1,943) (1,065) (824)
Net Income (Loss) per Share 0.02 0.04 (1.32) (0.73) (0.56)
Financial Condition:
Total Assets $46,324 $47,570 $50,963 $56,236 $59,731
Notes Payable 30,753 31,967 34,382 35,938 38,229
Shareholders' Equity per Share 10.34 10.33 10.02 11.27 12.04
Cash Dividends Declared per Share 0.00 0.00 0.00 0.05 0.35
Average Shares Outstanding 1,458 1,393 1,469 1,469 1,469
</TABLE>
- 4 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED WITH FISCAL 1995:
During fiscal year 1996, the Company continued to focus operating efforts on
managing its real estate portfolio of ten operating projects; no properties were
sold and no development occurred during the year. In addition to managing the
portfolio, the Company entered into an agreement to sell the portfolio in July
1996. This agreement was subsequently replaced, with a majority of the real
estate being sold in January 1997 (see Part I -- Item 1 "Business -- Sale of
Real Estate Portfolio" above).
During 1996 occupancy levels remained fairly stable, averaging 86 percent for
the portfolio, compared to 87 percent in fiscal 1995. Compared to fiscal 1995,
the Company's rental revenues from real estate decreased $81,000, or one
percent, in 1996; the related operating expenses of real estate decreased
$140,000, or eight percent. The decrease in rental revenue primarily resulted
from the decrease in occupancy. The net decrease in operating expenses resulted
from decreases in building repairs/reconditioning and property taxes that were
offset by general increases in operating costs.
Sales of real estate decreased $287,000 between years, primarily the result of
an unimproved parcel of land sold in 1995. The related costs of real estate
sold in fiscal 1995 consist primarily of the land sale, while 1996 costs
primarily consist of expenses associated with the agreements to sell the entire
portfolio that were not consummated (costs associated with the sale completed in
January 1997 will be recorded as a cost of sale at that time).
Interest expense decreased $390,000 between years as a result of decreases in
outstanding notes payable and in prime lending rates (prime rates averaged 8.3
percent during fiscal 1996 compared to 8.8 percent during fiscal 1995).
FISCAL 1995 COMPARED WITH FISCAL 1994:
During fiscal year 1995, the Company did not engage in development activity and
sold no rental properties; the Company sold one parcel of undeveloped land. The
Company continued to focus operating efforts on managing its real estate
portfolio of ten operating projects. During 1995 occupancy levels averaged 87
percent for the portfolio, compared to 84 percent in fiscal 1994. A $5,200,000
adjustment recorded in fiscal 1994 affected results of operations for fiscal
1995 in numerous areas, as discussed below.
Compared to fiscal 1994, the Company's rental revenues from real estate
increased $509,000, or eight percent, in 1995; the related operating expenses of
real estate decreased $208,000, or ten percent. The increase in rental revenue
primarily resulted from effects of a $5,200,000 adjustment recorded during the
fourth quarter of fiscal 1994 to real estate investments and other assets
(reduced amortization of certain charges against rental revenue in 1995). The
net decrease in operating expenses resulted from several factors. Increases in
building repairs/reconditioning (successful leasing activity) and property taxes
in Arizona were offset by decreases in bad debt expense (including $115,000 in
recovery of prior bad debts), lease commission amortization (additional effect
of the 1994 adjustment), refunds of prior year property taxes (successful
assessment appeals), and general cost containment. Depreciation of real estate
decreased $120,000 between years due to effects of the 1994 adjustment.
Sales of real estate decreased a net $1,696,000 between years. Litigation was
settled during fiscal 1994 related to property sold in 1986, resulting in
$1,500,000 of nonrecurring revenue in fiscal 1994. During fiscal 1995, a parcel
of unimproved land was sold for $225,000. The related costs of real estate sold
in fiscal 1994 consist of legal fees and distributions in accordance with the
Company's Management Incentive Plan and in fiscal 1995 consist of the land sold
and various related selling costs.
Due to reimbursements from tenants for interior leasehold improvements in excess
of a standard allowance that were recorded in fiscal 1994 but not repeated in
fiscal 1995, other revenues decreased $184,000 between 1994 and 1995.
During fiscal 1995, general and administrative expenses decreased $255,000 due
to cost control and elimination of outside consultant fees recorded in fiscal
1994. Interest expense increased $347,000 between years as a result of
increases in prime
- 5 -
<PAGE>
FISCAL 1995 COMPARED WITH FISCAL 1994 (CONTINUED):
lending rates, offset by a $2,415,000 reduction in notes payable. Prime rates
averaged 8.8 percent during fiscal 1995 compared to 6.9 percent during fiscal
1994.
As discussed in Note 4 to the Consolidated Financial Statements, the Company
adopted SFAS No. 109 effective December 1, 1993. This required change in
accounting for income taxes resulted in a $440,000 cumulative effect, directly
contributing net income for fiscal 1994 that was not repeated in fiscal 1995.
CHANGES IN FINANCIAL POSITION
NOVEMBER 30, 1996 COMPARED WITH NOVEMBER 30, 1995:
During fiscal year 1996, the Company's cash and investments position increased a
net $17,000. Cash inflow from operations was offset by scheduled debt
amortizations of $964,000, a $250,000 payoff of note payable upon maturity,
normal interest expense, lease commissions payments, and payment of certain
costs related to the portfolio sale. The $1,312,000 decrease in real estate
investments during fiscal 1996 resulted primarily from normal depreciation.
During fiscal 1996, the Company negotiated renewals of 40 percent of its debt
portfolio, extending maturities until 2001. One unsecured loan in the amount of
$250,000 was paid in full during 1996 upon its maturity.
LIQUIDITY AND CAPITAL RESOURCES
As discussed in Part I -- Item 1 "Business -- Sale of Real Estate Portfolio"
above and in Note 2 "Subsequent Event -- Sale of Real Estate Investments" to the
consolidated financial statements below, the Company entered into an agreement
to sell its entire real estate portfolio and a majority of that sale was
completed in January 1997. Additionally, a special dividend to shareholders of
$9.00 per share was declared in February 1997; this dividend represented the
currently available portion of the net proceeds from the sale of the assets.
Sale of the remainder of the portfolio is scheduled to be completed within 120
days after January 22, 1997 and payment of an additional special dividend to
shareholders will be considered at that time.
The significance of the sale of assets and the subsequent payment of dividend(s)
to shareholders is that only nominal assets will remain in the Company and,
therefore, the resulting corporate entity has virtually no revenue-generating or
cash-generating capabilities. The Board of Directors and management currently
are reviewing available strategic alternatives for the remaining corporate
entity. These alternatives include a possible business or asset acquisition or
combination, a sale of the corporate entity, or outright liquidation.
Upon the January 1997 sale, reductions in general and administrative ("G&A")
expenses of approximately $10,000 per month were made. Other G&A expenses of
approximately $78,000 per month will continue until the remainder of the real
estate is sold and until the future course of the Company is determined. These
two items are anticipated to be achieved by the third quarter of fiscal 1997.
Funding of future G&A expenses and any other items that arise will occur from
current cash on hand.
IMPACT OF RECESSION ON OPERATIONS
Due to the sale of essentially all the Company's assets (see Part I -- Item 1
"Business -- Sale of Real Estate Portfolio" above), an impact from recession on
the Company's operations or financial condition is not considered likely.
IMPACT OF INFLATION AND CHANGING PRICES ON OPERATIONS
Due to the sale of essentially all the Company's assets (see Part I -- Item 1
"Business -- Sale of Real Estate Portfolio" above), an impact from inflation or
changing prices on the Company's operations or financial condition is not
considered likely.
- 6 -
<PAGE>
<TABLE>
<CAPTION>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES: Page
----
<S> <C>
Report of Independent Accountants 8
Consolidated Balance Sheets (including Pro Forma Balance Sheet) 9
Consolidated Statements of Operations 10
Consolidated Statements of Cash Flows 11
Consolidated Statements of Shareholders' Equity 12
Notes to Consolidated Financial Statements 13 - 17
Schedule XI -- Real Estate and Accumulated Depreciation 18
(All other schedules are omitted because they are not applicable or the
required information is presented in the financial statements or notes
thereto.)
</TABLE>
- 7 -
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Mission West Properties
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Mission West Properties and its subsidiaries (the "Company") at November 30,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended November 30, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
On January 22, 1997, the Company sold a majority of its real estate assets
pursuant to an agreement, as more fully described in Note 2 to the consolidated
financial statements. The pro forma balance sheet reflects the effect of this
sale on the Company's financial condition at November 30, 1996, had the sale
occurred at that date.
As discussed in Note 4, during fiscal year 1994 the Company changed its method
of accounting for income taxes.
PRICE WATERHOUSE LLP
San Diego, California
February 11, 1997
- 8-
<PAGE>
<TABLE>
<CAPTION>
MISSION WEST PROPERTIES
Consolidated Balance Sheets
At November 30
PRO FORMA
ASSETS: (NOTE 2) 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash and cash equivalents $ 2,390,000 $ 3,111,000 $ 566,000
Short-term investments, held-to-maturity - - 2,528,000
Real estate investments (held-for-sale):
Rental properties, less accumulated depreciation 3,726,000 45,824,000 47,136,000
of $10,422,000 in 1996 and $9,054,000 in 1995
($44,455,000 pledged in 1996; $45,729,000 in 1995)
Unimproved land ($461,000 pledged in 1996 and 1995) - 461,000 461,000
------------- ------------- -------------
3,726,000 46,285,000 47,597,000
Less allowance for estimated losses (654,000) (4,413,000) (4,413,000)
------------- ------------- -------------
Net real estate investments 3,072,000 41,872,000 43,184,000
Other assets, less allowances of $360,000 in 1996 and
$541,000 in 1995 and accumulated depreciation of
$321,000 in 1996 and $312,000 in 1995 585,000 1,341,000 1,292,000
------------- ------------- -------------
$ 6,047,000 $ 46,324,000 $ 47,570,000
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes payable $ - $ 30,753,000 $ 31,967,000
Accounts payable and accrued expenses 2,315,000 1,389,000 1,466,000
------------- ------------- -------------
Total liabilities 2,315,000 32,142,000 33,433,000
------------- ------------- -------------
Commitments and contingencies (Note 7)
Shareholders' equity:
Common stock, no par value, 10,000,000 shares
authorized, 1,371,121 shares issued and outstanding
(1,368,721 in 1995) 20,215,000 19,456,000 19,446,000
Accumulated deficit (16,483,000) (5,274,000) (5,309,000)
------------- ------------- -------------
Total shareholders' equity 3,732,000 14,182,000 14,137,000
------------- ------------- -------------
$ 6,047,000 $ 46,324,000 $ 47,570,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
- 9 -
<PAGE>
<TABLE>
<CAPTION>
MISSION WEST PROPERTIES
Consolidated Statements of Operations
(Discontinued Operations -- See Note 2)
Years Ended November 30
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental revenues from real estate $ 7,065,000 $ 7,146,000 $ 6,637,000
Sales of real estate 113,000 400,000 2,096,000
Other, including interest 348,000 380,000 564,000
----------- ----------- -----------
7,526,000 7,926,000 9,297,000
----------- ----------- -----------
EXPENSES:
Operating expenses of real estate 1,643,000 1,783,000 1,991,000
Depreciation of real estate 1,369,000 1,352,000 1,472,000
Costs of real estate sold 419,000 324,000 229,000
Provision for estimated losses on real estate - - 5,200,000
General and administrative 991,000 945,000 1,200,000
Interest 3,045,000 3,435,000 3,088,000
----------- ----------- -----------
7,467,000 7,839,000 13,180,000
----------- ----------- -----------
Income (loss) before income taxes and cumulative effect of
change in accounting 59,000 87,000 (3,883,000)
Provision for (benefit from) income taxes 24,000 35,000 (1,500,000)
----------- ----------- -----------
Income (loss) before cumulative effect of change in accounting 35,000 52,000 (2,383,000)
Cumulative effect of change in accounting for income taxes - - 440,000
----------- ----------- -----------
NET INCOME (LOSS) $ 35,000 $ 52,000 $(1,943,000)
----------- ----------- -----------
----------- ----------- -----------
PER SHARE:
Income (loss) before cumulative effect of change in accounting $ 0.02 $ 0.04 $(1.62)
Cumulative effect of change in accounting for income taxes - - 0.30
----------- ----------- -----------
Net income (loss) per share $ 0.02 $ 0.04 $(1.32)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
- 10 -
<PAGE>
<TABLE>
<CAPTION>
MISSION WEST PROPERTIES
Consolidated Statements of Cash Flows
Years Ended November 30
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 35,000 $ 52,000 $(1,943,000)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Provision for estimated losses on real estate - - 5,200,000
Depreciation 1,379,000 1,360,000 1,479,000
Cumulative effect of change in accounting for income
taxes - - (440,000)
Deferred income taxes 35,000 102,000 (1,784,000)
Compensation expense of stock options - - 82,000
Changes in assets and liabilities:
Decrease (increase) in net real estate investments (57,000) 28,000 (673,000)
Decrease (increase) in other assets (94,000) (549,000) 361,000
Increase (decrease) in accounts payable and accrued
expenses (77,000) (395,000) 168,000
----------- ----------- -----------
Net cash provided by operating activities 1,221,000 598,000 2,450,000
----------- ----------- -----------
Cash flows from investing activities:
Net maturities of short-term investments 2,528,000 191,000 492,000
----------- ----------- -----------
Cash flows from financing activities:
Repayments on notes payable (1,214,000) (2,415,000) (1,556,000)
Proceeds from issuance of Common Stock upon option exercise 10,000 - -
----------- ----------- -----------
Net cash used for financing activities (1,204,000) (2,415,000) (1,556,000)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 2,545,000 (1,626,000) 1,386,000
Cash and cash equivalents at beginning of year 566,000 2,192,000 806,000
----------- ----------- -----------
Cash and cash equivalents at end of year $ 3,111,000 $ 566,000 $ 2,192,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
- 11 -
<PAGE>
<TABLE>
<CAPTION>
MISSION WEST PROPERTIES
Consolidated Statements of Shareholders' Equity
Years Ended November 30, 1996, 1995 and 1994
Common Accumulated
Stock Deficit Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance at November 30, 1993 $19,966,000 $(3,418,000) $16,548,000
Grant of 125,000 nonqualified stock options, net 115,000 - 115,000
Net loss for 1994 - (1,943,000) (1,943,000)
----------- ----------- -----------
Balance at November 30, 1994 20,081,000 (5,361,000) 14,720,000
Redemption and retirement of 100,000 shares (635,000) - (635,000)
Net income for 1995 - 52,000 52,000
----------- ----------- -----------
Balance at November 30, 1995 19,446,000 (5,309,000) 14,137,000
Issuance of Common Stock upon option exercise 10,000 - 10,000
Net income for 1996 - 35,000 35,000
----------- ----------- -----------
Balance at November 30, 1996 $19,456,000 $(5,274,000) $14,182,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
- 12 -
<PAGE>
MISSION WEST PROPERTIES
Notes to Consolidated Financial Statements
November 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL POLICIES: Mission West Properties (the "Company") has been engaged in
developing, owning, operating, and selling income-producing real estate located
principally in southern California. As discussed in Note 2 "Subsequent Event --
Sale of Real Estate Investments" below, the Company entered into an agreement to
sell its entire real estate portfolio and a majority of that sale was completed
in January 1997. The Company is 49 percent owned by Triton Group Ltd.
("Triton").
The accompanying financial statements consolidate the accounts of the Company
and its wholly owned subsidiaries. All transactions between the Company and its
subsidiaries have been eliminated.
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, the disclosure of
contingent assets and liabilities at financial statement date, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
REAL ESTATE: The Company's real estate investments are carried at cost; an
allowance for estimated losses is provided for other than temporary declines in
value based on the Directors' and management's periodic evaluation of those
investments. This evaluation considers recent appraised values, market
conditions, and the Company's investment strategies.
Although adoption is not required until its fiscal year 1997, the Company has
assessed the impact of Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Based on the selling price of the real estate assets
(see Note 2 "Subsequent Event -- Sale of Real Estate Investments" below), the
Company does not believe there has been an impairment of the assets that would
have an adverse impact on its financial position or results of operation.
Revenues from sales of real estate are reported at the time of sale or when
certain financial criteria are met.
DEPRECIATION: Depreciation on rental properties is computed using the straight-
line method over the estimated useful lives of the assets, generally ten to 30
years.
INCOME TAXES: Income taxes are accounted for in accordance with SFAS No. 109,
"Accounting for Income Taxes." Deferred income taxes are provided for all
temporary differences and operating loss and tax credit carryforwards. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
NET INCOME (LOSS) PER SHARE: Net income (loss) per share of common stock is
based on 1,457,551 shares in fiscal year 1996 and 1,393,105 and 1,468,721 shares
in fiscal years 1995 and 1994, respectively. The shares for 1996 include the
weighted average shares outstanding for the year as well as the dilutive effect
of common stock equivalents, which consist of shares subject to stock options.
The effect of stock options is either immaterial or antidilutive for fiscal
years 1995 and 1994; therefore, only the weighted average shares outstanding are
used in those per share computations.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents includes cash on hand,
money market funds, U.S. Treasury Bills, and certificates of deposit with an
original maturity of 90 days or less. Short-term investments include U.S.
Treasury Bills and certificates of deposit.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts of the Company's
financial instruments as presented are reasonable estimates of those
instruments' fair values.
- 13 -
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK: Credit risk is primarily concentrated in cash
equivalents, short-term investments, and rent receivables. Cash in excess of
operating requirements is invested in U.S. Treasury securities or with federally
insured institutions in short-term certificates of deposit; amounts invested
with a single institution are limited to minimize risk. The Company's primary
operations have consisted of leasing commercial space to small and medium-sized
tenants, primarily in southern California. To reduce credit risk, the Company
obtains and holds security deposits from a majority of tenants and performs
ongoing credit evaluations of all major tenants' financial conditions.
SHORT-TERM INVESTMENTS: Investments are accounted for in accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
which requires that investments be classified as either held-to-maturity,
trading, or available-for-sale. Held-to-maturity investments are carried at
amortized costs; unrealized gains and losses are included in earnings for
trading investments and are recorded directly to shareholders' equity for
available-for-sale investments. Management determines the classification of
investments at the time of purchase; the Company's short-term investments are
classified as held-to-maturity and are carried at amortized cost, which
approximates fair value.
NOTE 2 - SUBSEQUENT EVENT -- SALE OF REAL ESTATE INVESTMENTS
PRO FORMA BALANCE SHEET AND DISCONTINUED OPERATIONS
The Pro Forma balance sheet has been prepared to show the effects that two
subsequent events, a sale of the Company's real estate assets and payment of a
special dividend (as discussed below), would have had on the November 30, 1996
balance sheet. Effects reflected in the Pro Forma balance sheet include cash
proceeds from the sale of nine properties, repayment of debt, gain on the sale,
related income tax liability, and payment of the special dividend.
During July 1996 the Company entered into an agreement to sell all its real
estate assets; this agreement was subsequently terminated and replaced, and the
subsequent agreement was also terminated and replaced. On December 6, 1996, the
Company entered into an agreement to sell all its real estate assets to Spieker
Properties, L.P. ("Spieker"), a California limited partnership, for $50,500,000
in cash, subject to certain conditions customary in a transaction of this type.
A special shareholder meeting was held December 16, 1996, at which time the
Company's shareholders approved the sale of the real estate assets to Spieker.
A majority of the sale transaction was completed January 22, 1997, at which time
nine of the Company's 11 real estate properties were sold. The remaining two
properties are anticipated to close within 120 days after January 22, 1997. The
nine properties sold consisted of occupied office, light industrial, and R&D
buildings in San Diego and Riverside counties, California, and occupied
industrial buildings and vacant land in Chandler, Arizona. The total building
space sold approximated 685,000 square feet. The two remaining properties
consist of leaseholds, together with hangar and office buildings thereon,
comprising approximately 25 percent of the land at Palomar-McClellan Airport in
San Diego county, California.
Upon completion of sale of the nine properties, the Company received $47,500,000
in cash, from which it repaid all debt encumbering the properties and paid a
majority of the related transaction and closing costs, including $3,000,000 in
"break-up" fees from the terminated sales transactions. In accordance with the
sales agreement, $300,000 was withheld from the proceeds to allow for
satisfaction of any post-closing breaches of representations and warranties made
by the Seller. If no such breaches occur, the $300,000 will be released to the
Company after 90 days. Also in accordance with the sales agreement, upon
completion of sale of the two leasehold properties, the Company will receive
$3,000,000 in cash, subject to an additional $300,000 representation and
warranty holdback (for 90 days), from which it will pay related transaction
costs.
The sale of the real estate results in a substantial gain for the Company. This
sale will be recorded upon its completion in fiscal year 1997. The significance
of the sale of assets and the subsequent payment of dividend(s) to shareholders
is that only nominal assets will remain in the Company and, therefore, the
resulting corporate entity has virtually no revenue-generating or cash-
generating capabilities.
On February 4, 1997, the Company declared that a special dividend of $9.00 per
share would be paid on February 27, 1997 to all shareholders of record as of
February 19, 1997. This dividend represents the currently available portion of
the proceeds from the sale of the real estate assets.
- 14 -
<PAGE>
NOTE 3 - NOTES PAYABLE
<TABLE>
<CAPTION>
November 30
--------------------------
Notes payable comprise the following: 1996 1995
----------- -----------
<S> <C> <C>
Secured notes payable to banks, due 1998 through 2001, interest rates $29,365,000 $30,218,000
ranging from 9% (fixed) to 9.75% (prime plus 1.5%), principal and
interest due in monthly installments of $290,000, balance of principal
due at maturity
Unsecured note payable to bank, due 1996, interest rate of 9.75% (prime - 250,000
plus 1.5%), interest only due monthly, principal due at maturity
Secured note payable to insurance company, due 1997, interest rate of
10%, principal and interest due in monthly installments of $21,000 1,388,000 1,499,000
----------- -----------
$30,753,000 $31,967,000
----------- -----------
----------- -----------
</TABLE>
Aggregate principal payments required on the notes payable at November 30, 1996,
are $2,230,000, $16,760,000, $298,000, $298,000, and $11,167,000 for the years
1997 through 2001. Certain of the notes payable contain financial covenants
such as debt service coverage and maximum debt-to-worth ratios. Additional
covenants restrict the Company from paying cash dividends and other provisions
specify that a change in majority voting power of the Company's stock, either by
transfer or the issuance of additional voting securities, is an event of
default. All notes payable were repaid in full upon the sale of a majority of
the Company's real estate assets in January 1997 (see Note 2 "Subsequent
Event -- Sale of Real Estate Investments" above).
NOTE 4 - INCOME TAXES
<TABLE>
<CAPTION>
November 30
--------------------------
Deferred tax assets (liabilities) comprise the following: 1996 1995
----------- -----------
<S> <C> <C>
Basis of depreciable assets $ 497,000 $ 500,000
Other 283,000 324,000
----------- -----------
Deferred tax assets 780,000 824,000
----------- -----------
Deferred rental revenue (39,000) (21,000)
Other (86,000) (75,000)
----------- -----------
Deferred tax liabilities (125,000) (96,000)
----------- -----------
655,000 728,000
Deferred tax asset valuation allowance (188,000) (226,000)
----------- -----------
$ 467,000 $ 502,000
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
The provision for (benefit from) income taxes reconciles Years Ended November 30
---------------------------------------
to the statutory rate as follows: 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Statutory federal tax rate 34.0% 34.0% (34.0)%
Increase (decrease) in taxes resulting from:
Change in deferred tax asset valuation allowance (64.2) (7.1) 5.3
Alternative minimum taxes 60.9 - -
State income tax, net of federal tax benefit 6.1 10.6 (7.6)
Other 3.9 2.7 (2.3)
---- ---- ------
40.7% 40.2% (38.6)%
---- ---- ------
---- ---- ------
</TABLE>
- 15 -
<PAGE>
NOTE 4 - INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
The provision for (benefit from) income taxes comprises Years Ended November 30
the following: ------------------------------------------
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
CURRENT
Federal $ (21,000) $ (81,000) $ 696,000
State 10,000 14,000 83,000
------------ ------------ ------------
(11,000) (67,000) 779,000
------------ ------------ ------------
DEFERRED
Federal 35,000 102,000 (1,916,000)
State - - (363,000)
------------ ------------ ------------
35,000 102,000 (2,279,000)
------------ ------------ ------------
$ 24,000 $ 35,000 $(1,500,000)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Company adopted SFAS No. 109 effective December 1, 1993. This accounting
statement requires recognition of deferred tax assets and liabilities for
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities, at anticipated tax rates. The cumulative effect of
this change in the method of accounting for income taxes resulted in a $440,000
decrease in the net loss for fiscal year 1994. As of November 30, 1996, the
Company's net deferred tax asset is included in other assets.
The provision for (benefit from) income taxes reflects temporary differences in
the recognition of revenue and expense for tax and financial reporting purposes.
These temporary differences primarily arise from the recognition of rental
revenue from real estate, recognition of accrued expenses, capitalized interest,
and a different depreciable basis for tax than for financial reporting purposes.
The Company carries back federal net operating losses to prior years for refunds
and carries forward state net operating losses to be applied against future
operating income, if any.
Due to the uncertainty of realizing the benefit of certain deferred tax assets,
including state loss carryforwards, a valuation allowance was established in
fiscal year 1994. The net decrease in the valuation allowance during fiscal
year 1996 was due to changes in the state loss carryforward amount.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the fiscal year for interest was $3,106,000, $3,566,000, and
$3,102,000 in 1996, 1995, and 1994, respectively. The Company received an
income tax refund, net of payments, of $17,000 in fiscal year 1996 and paid
income taxes, net of refunds, of $258,000 and $145,000 in fiscal years 1995 and
1994, respectively.
During the first quarter of fiscal year 1995, in a noncash transaction, the
Company reacquired and retired 100,000 shares of its common stock. This
transaction was effected by a transfer of 100,000 shares of the Company's stock
from Triton to an affiliated tenant, at which point Triton's investment in the
Company decreased to 49 percent, and an exchange of the 100,000 shares from the
affiliated tenant to the Company for real estate assets, consisting of certain
tenant improvements, and a modification of lease terms, consisting of an
extension of maturity and a reduction in rent.
NOTE 6 - STOCK OPTIONS AND STOCK PURCHASE PLAN
The Company has a Director Stock Option Plan and an Incentive Stock Option Plan
under which non-salaried directors and officers, respectively, may purchase
shares of the Company's stock at a minimum option price based on market value at
the date of grant. Options granted under the plans become exercisable ratably
over five years and expire after a period not to exceed ten years. At November
30, 1996, 150,000 and 200,000 shares were authorized under each plan, of which
131,600 and 163,600 were available for grant and 26,400 and 49,080 were
exercisable under the Director Stock Option Plan and the
- 16 -
<PAGE>
NOTE 6-STOCK OPTIONS AND STOCK PURCHASE PLAN (CONTINUED)
Incentive Stock Option Plan, respectively. Provisions of the Plans accelerate
vesting of all unvested options upon the sale of a majority of the Company's
real estate assets (see Note 2 "Subsequent Event -- Sale of Real Estate
Investments" above); such unvested shares at November 30, 1996 totaled 13,520.
Activity in these plans comprises the
following: Years Ended November 30
----------------------------
1996 1995 1994
-------- ------- --------
Beginning share balance 100,000 106,400 156,200
Exercised ($4.125 per share) (2,400) - -
Canceled ($10.125 per share in 1996) (8,600) (6,400) (49,800)
-------- ------- --------
Ending share balance ($3.25 to $9.75 per share) 89,000 100,000 106,400
-------- ------- --------
-------- ------- --------
Effective July 1, 1994, the Company granted nonqualified options to purchase
125,000 shares of its Common stock to a key executive. The exercise price of
the options is $3.00 per share and the options expire ten years from the date of
grant. Options to purchase 73,000 shares of the grant vested immediately; the
remainder of the options become exercisable if specific financial milestones
occur.
SFAS No. 123, "Accounting for Stock-Based Compensation," issued in October 1995,
will require adoption during the Company's fiscal year 1997. The impact of
adoption is considered to be minimal since no options have been granted in
recent years.
The Company has a Stock Purchase Plan for which all directors and employees are
eligible. Under terms of the plan, each eligible participant may contribute up
to $3,000 per month, to be invested in shares of the Company's stock purchased
on the open market. The Company contributes $0.50 to the plan for each $1.00
contributed by a participant. The total amounts expended by the Company for
such contributions during the years ended November 30, 1996, 1995, and 1994 were
$37,000, $31,000, and $19,000, respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company is a lessee on two 30-year land leases at an airport in San Diego
county and incurred rental expense of $189,000, $192,000, and $189,000 for
fiscal years ended November 30, 1996, 1995, and 1994, respectively. The
provisions of the leases require minimum lease payments of $183,000, $192,000,
$201,000, $211,000, and $222,000 during the Company's fiscal years 1997 through
2001 and $6,310,000 thereafter, and contingent payments of five percent of
certain sublease income. The lease amounts are subject to renegotiation to
reflect cost of living increases every five years. The Company holds subleases
and records sublease revenue from these two parcels; the related minimum future
rentals are included in the amounts set forth below.
Minimum future rentals revenue on non-cancelable operating leases as of November
30, 1996 amount to $5,682,000, $4,331,000, $3,037,000, $2,439,000, and
$1,699,000 for fiscal years 1997 through 2001, respectively, and $7,173,000
thereafter. During the years ended November 30, 1995 and 1994, rental revenue
from real estate of $611,000 and $763,000, respectively, was recorded for
property leased to former affiliates of Triton.
A civil action for an unspecified amount of damages relating to environmental
contamination was filed in May 1995 by residents in Kennedy Heights and certain
nearby residential developments located in the greater Houston, Texas, area.
The suit was filed in the 281st District Court of Harris County in Houston,
Texas. The Company and 50 other parties were named as defendants. The Company
was dismissed from the action without prejudice in December 1995 and agreed at
that time to a tolling of the statute of limitations through December 11, 1997.
- 17 -
<PAGE>
<TABLE>
<CAPTION>
MISSION WEST PROPERTIES
SCHEDULE XI -- Real Estate and Accumulated Depreciation (a)
November 30, 1996
(in thousands)
Costs Capitalized Carrying
Subsequent to Amount
Initial Cost Acquisition at End Accum. Date
Bldgs. & Improve- Prop. of Year Deprec. of Date
Location and Description Encumbrances Land Impvmts. ments Taxes (b)(d) (c) Const. Acq'd.
- ------------------------ ------------ -------- -------- -------- ----- --------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RENTAL PROPERTIES:
Carlsbad, California:
Industrial buildings $ 1,748 $ 1,029 $ - $ 2,533 $ 31 $ 3,593 $ 483 3/91 7/88
Office building 2,815 1,029 - 4,460 86 5,575 730 3/91 7/88
Office buildings 4,772 1,434 - 6,174 59 7,667 1,592 9/88 11/85
Hangars/office building 1,661 - - 3,084 29 3,113 755 2/90 6/88
Hangar/office building - - 1,353 459 - 1,812 444 - 9/90
Riverside, California:
Manufacturing building 3,022 2,187 28 3,693 36 5,944 869 3/91 9/90
San Diego, California:
Office building 5,527 2,155 3,498 2,027 - 7,680 1,223 5/85 7/89
R&D buildings 4,013 2,122 - 4,170 48 6,340 1,442 11/84 1/84
R&D/office buildings 5,807 2,786 - 7,920 66 10,772 1,835 3/90 1/84
Chandler, Arizona:
Industrial buildings 1,388 760 - 2,942 48 3,750 1,049 9/86 6/85
UNIMPROVED LAND:
Chandler, Arizona:
Vacant land - 457 - - 4 461 - - 6/85
------- ------- ------- ------- ---- ------- -------
$30,753 $13,959 $ 4,879 $37,462 $407 $56,707 $10,422
------- ------- ------- ------- ---- ------- -------
------- ------- ------- ------- ---- ------- -------
</TABLE>
- --------------------------
(a) A majority of the real estate investments were sold January 22, 1997. See
Note 2 to the consolidated financial statements.
(b) The cost basis of real estate for federal income tax purposes approximates
its gross carrying value, before accumulated depreciation and allowance for
estimated losses. The allowance for estimated losses of $4,413,000 at
November 30, 1996, was determined in accordance with the Company's policy
as described in Note 1 to the consolidated financial statements.
(c) Rental properties are depreciated on a straight-line basis over a 10- to
30-year life. Changes in accumulated depreciation for the three years
ended November 30, 1996, follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C>
Balance at beginning of year $ 9,054 $ 7,702 $ 6,233
Charged to expense during the year 1,369 1,352 1,472
Deletions for property sold during the year and other (1) - (3)
------- ------- -------
Balance at end of year $10,422 $ 9,054 $ 7,702
------- ------- -------
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
(d)Changes in the carrying amount for the three years ended November 30, 1996, follows: 1996 1995 1994
------- ------- -------
<S> <C> <C>
Balance at beginning of year $56,651 $57,314 $56,644
Additions/improvements during the year 57 236 673
Property sold during the year and other (1) (899) (3)
Balance at end of year $56,707 $56,651 $57,314
------- ------- -------
------- ------- -------
</TABLE>
- 18 -
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in, or disagreements with, independent accountants on
matters of accounting principles or practices or of financial disclosure.
- 19 -
<PAGE>
EXHIBIT D
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the __ day
of ___, 1997, by and between the investors identified on Appendix I to this
Agreement (the "Schedule of Purchasers") (individually a "Purchaser" and
collectively the "Purchasers") and Mission West Properties, a California
corporation (the "Company").
The Purchasers and the Company agree as follows:
1 AUTHORIZATION AND SALE OF COMMON STOCK.
1.1 AUTHORIZATION OF THE SHARES. The Board of Directors of the Company
has approved and authorized for issuance One Million Two Hundred Fifty
Thousand (1,250,000) shares of the Common Stock of the Company (the "Shares").
1.2 SALE OF THE SHARES. Subject to the terms and conditions hereof, on
the Closing Date (as defined in Section 2.1), the Company will issue and sell
to each Purchaser, and each Purchaser agrees, severally, to purchase from the
Company, the number of Shares of Common Stock specified opposite such
Purchaser's name on the Schedule of Purchasers, as amended from time to time,
at a purchase price of Four Dollars and Fifty Cents ($4.50) per share for the
aggregate purchase price set forth opposite each such Purchaser's name.
1.3 SEPARATE AGREEMENTS. The Company's agreement with each Purchaser is
a separate agreement, and the sale of the shares of Common Stock to each
Purchaser is a separate sale.
2 CLOSING DATE; DELIVERY
2.1 CLOSING DATE. The closing of the purchase and sale of the Shares
hereunder (the "Closing") with each of the Purchasers shall be held at the
offices of Graham & James LLP, 600 Hansen Way, Palo Alto, California, at
10:00 a.m., P.S.T. on ________, 1997 or at such other time and place to which
the Company and Purchasers of a majority of the Shares may agree upon orally
or in writing (the "Closing Date").
2.2 DELIVERY. At the Closing, the Company will deliver to each
Purchaser, a certificate representing the Shares to be purchased by such
Purchaser from the Company (which shall be issued in such Purchaser's name as
set forth on the Schedule of Purchasers) against payment of the purchase
price therefor in immediately available funds by cashier's check or by wire
transfer to the Company at [INSERT WIRE TRANSFER INSTRUCTION].
3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to each Purchaser that,
subject to and except as set forth in a Schedule of Exceptions (the "Schedule
of Exceptions") delivered to the Purchasers, specifically identifying the
relevant subsections hereof:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California. The Company has all requisite corporate power and authority
to carry on its business as presently conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on its business or properties.
<PAGE>
3.2 SUBSIDIARIES. Other than Mission West Executive Aircraft Center,
Inc. and MIT Realty, Inc. (the "Company Subsidiaries") which are wholly owned
by the Company, the Company does not own or control, directly or indirectly,
any interest in any other corporation, association, partnership or other
business entity. As used in this Section 3, references to the Company
include the Company Subsidiaries. The Company is not a participant in any
joint venture, partnership, or similar arrangement.
3.3 CAPITALIZATION. The authorized capital stock of the Company as of
the Closing Date will consist of Two Hundred Million (200,000,000) shares of
Common Stock, of which [251,104] shares are issued and outstanding and Twenty
Million (20,000,000) shares of Preferred Stock, none of which will be issued
and outstanding. All such issued and outstanding shares have been duly
authorized and validly issued, are fully paid and nonassessable and have been
issued in compliance with all applicable state and federal laws concerning
the issuance of securities. The Company has reserved Five Million Five
Hundred Thousand (5,500,000) shares of Common Stock for issuance under the
Company's 1997 Stock Option Plan (the "Plan"). No options have been granted
pursuant to the Plan. The Company has reserved One Million Two Hundred Fifty
Thousand (1,250,000) shares of Common Stock for issuance hereunder. Except
for the foregoing, there are no outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock.
3.4 AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations
of the Company hereunder and thereunder, and the authorization, sale and
issuance of the Shares pursuant hereto has been taken or will be taken prior
to the Closing Date. This Agreement, when executed and delivered by the
Company, will constitute a valid and binding obligation of the Company,
enforceable in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
3.5 VALID ISSUANCE OF COMMON STOCK. The Shares that are being purchased
by the Purchasers hereunder, when issued, sold and delivered in accordance
with the terms of this Agreement for the consideration expressed herein, will
be duly and validly issued, fully paid, and nonassessable, and will be free
of restrictions on transfer other than restrictions on transfer under this
Agreement, and under applicable state and federal securities laws.
3.6 COMPLIANCE WITH OTHER INSTRUMENTS. The Company will not be in
violation or default of any term of the Amended and Restated Articles of
Incorporation (the "Articles"), or Bylaws of the Company, nor is the Company
in violation or default of any term of any contract, agreement, instrument,
judgment, decree, order, statute, rule or regulation (collectively,
"Instruments and Laws") to which the Company is subject and a
violation of which would have a material adverse effect on the condition,
financial or otherwise, or operations of the Company. The execution,
delivery and performance of this Agreement, and the consummation of the
transactions pursuant hereto, will not result in a violation of or be in
conflict with the Articles, as amended, or the Bylaws of the Company or
constitute, with or without the passage of time and giving of notice, a
material default under any such Instrument or Law, except where such
violations or defaults, singularly or in the aggregate, would not have a
material adverse effect on the business, operations, property or condition
(financial or otherwise) of the Company, require any consent or waiver (which
has not been obtained) under any such Instrument or Law, or result in the
creation of any lien, encumbrance or charge upon any of the properties or
assets of the Company pursuant to any such Instrument or Law.
3.7 LITIGATION. There are no actions, suits, proceedings or
investigations pending or, to the best of the Company's knowledge, threatened
against the Company.
2
<PAGE>
3.8 GOVERNMENTAL CONSENT, ETC. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing (other than filing a proxy statement with the Securities and Exchange
Commission (the "SEC") with, any federal, state or local governmental
authority on the part of the Company is required in connection with the
consummation of the transactions contemplated by this Agreement.
3.9 COMPANY SEC INFORMATION. As of their respective filing dates
(except as thereafter amended) all documents that the Company has filed with
the SEC ("Company SEC Documents") have complied in all material respects with
the applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act") or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and none of the Company SEC Documents has contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading except to the extent corrected by a subsequently filed Company SEC
Document.
3.10 OFFERING. Subject in part to the truth and accuracy of each
Purchaser's representations set forth in Section 4 of this Agreement, the
offer, sale and issuance of the Shares as contemplated by this Agreement are
exempt from the registration requirements under Section 5 of the Securities
Act, and neither the Company nor any authorized agent acting on its behalf
will take any action hereafter that would cause the loss of such exemption.
3.11 TITLE TO PROPERTY AND ASSETS. The Company owns its property and
assets free and clear of all mortgages, loans, liens and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business
and do not materially impair the Company's ownership or use of such property
or assets. With respect to the property and assets it leases, the Company is
in compliance with such leases and, to the best of its knowledge, holds a
valid leasehold interest free of any liens, claims or encumbrances.
3.12 TAX RETURNS AND PAYMENTS. The Company has filed all tax returns
and reports as required by law. All such returns and reports are true and
correct in all material respects. The Company has paid in full all taxes and
other assessments due.
3.13 APPROVAL BY BOARD OF DIRECTORS. The Board of Directors of the
Company has approved this Agreement and all of the transactions contemplated
by this Agreement.
3.14 FINANCIAL STATEMENTS. The Company has delivered true and accurate
copies of the Company's annual report on SEC Form 10-K for the fiscal year
ended November 30, 1996 and the Company's quarterly reports on SEC Form 10-Q
for the first, second and third quarters of the fiscal year ending November
30, 1997 to all Purchasers who have requested such information. All of the
financial statements set forth in such SEC reports are in accordance with the
books and records of the Company, have been prepared in conformity with
generally accepted accounting principles consistently applied (except as
described in the notes included therein), and fairly present the financial
condition of the Company as of the dates thereof and the results of its
operations for the periods then ended, subject, in the case of unaudited
financial statements, to year-end adjustments.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser severally represents and warrants to the Company as follows:
4.1 EXISTENCE AND POWER. Purchaser, if a corporation, partnership or
limited liability company, is a corporation, partnership or limited liability
company duly organized, validly existing and in good standing under the laws
of the state under which it was organized, with full power and authority to
enter into this Agreement and to perform its obligations under this Agreement.
3
<PAGE>
4.2 AUTHORIZATION. Purchaser's execution, delivery and performance of
this Agreement, and the consummation by Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all requisite
corporate, partnership or limited liability company action of the Purchaser.
4.3 BINDING EFFECT. This Agreement has been duly executed and delivered
by Purchaser, and constitutes a valid and binding agreement of Purchaser.
4.4 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution and
delivery of this Agreement by Purchaser nor the consummation by Purchaser of
the transactions contemplated hereby will (a) conflict with or result in any
breach of any provision of the articles of incorporation, bylaws, partnership
agreement or operating agreement of Purchaser; (b) require any filing with,
or the obtaining of any permit, authorization, consent or approval of, any
court or governmental or regulatory authority; (c) to the best knowledge of
Purchaser, result in a default (give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement, lease
or other instrument or obligation to which Purchaser is a party or by which
Purchaser or any of its assets may be bound, except for defaults (or rights
of termination, cancellation or acceleration) as to which requisite waivers
or consents have been obtained; or (d) to the best knowledge of Purchaser,
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Purchaser; or any of its assets; PROVIDED, that the foregoing
clauses (b), (c) and (d) shall not apply to requirements, defaults or
violations which would not have a material adverse effect on the business,
operations or financial condition of Purchaser.
4.5 BROKERS' FEES. No investment banker, broker, finder or other
intermediary has been retained by or is authorized to act on behalf of
Purchaser who might be entitled to any fee or commission from the Company
upon consummation of the transactions contemplated by this Agreement.
4.6 SUITABILITY. Purchaser is an "accredited investor" or is
represented by a "purchaser representative" as defined in Rule 501 of
Regulation D promulgated under the Securities Act.
4.7 INVESTMENT. Purchaser is acquiring the number of Shares set forth
opposite Purchaser's name on the Schedule of Purchasers for investment for
Purchaser's own account and not with a view to, or for, resale in connection
with, any distribution of the Shares, and Purchaser has no present intention
of selling or distributing any of such Shares. Purchaser understands that
the Shares have not been registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities Act
which depends upon, among other things, the BONA FIDE nature of Purchaser's
investment intent as expressed herein.
4.8 RULE 144. Purchaser acknowledges that, because they have not been
registered under the Securities Act, the Shares constitute "restricted
securities" as defined in Rule 144(a)(3) and must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such
registration is available. Purchaser is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited resale of
securities purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things, the existence of a public
market for the securities, the availability of certain current public
information about the issuer, the resale occurring not less than one year
after a party has purchased and paid for the security to be sold, the sale
being through a "broker's transaction" or in transactions directly with a
"market maker" (as provided by Rule 144(f)) and the number of securities
being sold during any three-month period not exceeding specified limitations
(unless the securities satisfy the requirements of Rule 144(k)).
5. COVENANTS OF THE COMPANY
5.1 INVESTIGATION. Upon reasonable notice, the Company shall afford to
Purchasers or to any Purchaser's officers, employees, accountants, counsel
and other authorized representatives full and complete access during normal
business hours to its plants, properties, contracts, commitments, books and
records (including, but not limited, to tax returns) and to the employees and
accountants of the Company responsible for such matters, and shall use its
reasonable best efforts to cause its
4
<PAGE>
representatives to furnish promptly to Purchasers such additional financial
and operating data and other information as any Purchaser or its duly
authorized representatives may from time to time reasonably request.
5.2 REGISTRATION RIGHTS. Purchasers shall have the registration rights
set forth in Appendix II.
5.3 CONSENTS AND APPROVALS. Prior to the Closing, the Company shall use
its best efforts to obtain the authorizations, consents, orders and approvals
of federal, state and local regulatory bodies and officials, courts and other
third parties that may be necessary for the performance of its obligations
under this Agreement and the consummation of the transactions contemplated by
this Agreement, and shall cooperate fully with each other in seeking promptly
to obtain such authorizations, consents, orders and approvals as may be
necessary for the performance of its obligations pursuant to this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. Except to the extent
expressly waived in writing by Purchaser, all obligations of Purchaser under
this Agreement are subject to the fulfillment, at or before the Closing, of
all of the following conditions:
6.1 REPRESENTATION AND WARRANTIES TRUE AT CLOSING. Each of the
representations and warranties of the Company contained in this Agreement
shall be true in all material respects on and as of the Closing Date with the
same effect as though made on and as of such date.
6.2 PERFORMANCE. The Company shall have performed in all material
respects its obligations to be performed on or prior to the Closing pursuant
to this Agreement.
6.3 NO CONFLICT. Neither the Company nor any of its assets shall be
subject to or obligated under its Articles of Incorporation or Bylaws or
under any material contract, lease or other instrument or any license,
franchise or permit, or subject to any statute, rule, order or decree, which
would be defaulted, breached, terminated, forfeited or violated by or in
conflict (or upon the failure to give notice or the lapse of time, or both,
would result in a default, breach, termination, forfeiture or conflict) with
its execution and performance of this Agreement and the transactions
contemplated hereby. Except as contemplated under this Agreement, no consent
of any person not a party to this Agreement, nor consent of or filing with
(including any waiting period) any governmental authority is required to be
obtained or performed on the part of the Company to permit the consummation
of the transactions contemplated by this Agreement.
6.4 RESTATED ARTICLES. The Restated Articles shall be approved by the
holders of voting stock of the Company at a meeting to be duly held for that
purpose by the Company and shall be filed with the Secretary of State of
California.
6.5 SECURITIES LAW COMPLIANCE. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
including, but not limited to, the sale and issuance of the Shares by the
Company to the Purchasers shall comply with and be effected in accordance
with the applicable provisions of all federal and state securities laws.
6.6 LISTING REQUIREMENTS. The Company shall have complied with all
rules and requirements of the American Stock Exchange and the Pacific
Exchange, and the Shares shall have been listed with the American Stock
Exchange and the Pacific Exchange.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. Except to the extent
expressly waived in writing by the Company, the obligations of the Company
set forth in this Agreement are subject to the fulfillment, at or before the
Closing, of all of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Each of the
representations and warranties of each Purchaser contained in this Agreement
shall be true in all material respects on and as of the Closing Date with the
same effect as though made on and as of such date.
5
<PAGE>
7.2 PERFORMANCE. Each Purchaser shall have performed in all material
respects each of the obligations of such Purchaser to be performed on or
prior to the Closing pursuant to this Agreement.
7.3 VOTING RIGHTS AGREEMENT. Each Purchaser shall have executed and
delivered a counterpart signature page to the Voting Rights Agreement
attached hereto as Exhibit A.
8. GENERAL.
8.1 SURVIVAL. The covenants, representations and warranties of the
parties to this Agreement shall survive the Closing.
8.2 BINDING EFFECT; BENEFITS; ASSIGNMENT. All of the terms of this
Agreement shall be binding upon, inure to the benefit of and be enforceable
by and against the successors and permitted assigns of the Company and
Purchaser. Nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies under or by reason of
this Agreement except as expressly indicated in this Agreement. Neither the
Company nor Purchaser shall assign any of their respective rights or
obligations under this Agreement to any other person, firm or corporation
without the prior written consent of the other party to this Agreement.
8.3 FURTHER ACTION. Each of the parties to this Agreement shall execute
such documents and other papers and take such further actions as may be
reasonably required or desirable to carry out the provisions of this
Agreement and the transactions contemplated in this Agreement or, at or after
the Closing Date, to evidence the consummation of the transactions
contemplated in this Agreement. Each of the parties to this Agreement shall
take, or cause to be taken, all actions and to do, or cause to be done, all
other things necessary, proper or advisable to consummate and make effective
as promptly as practicable the transactions contemplated by this Agreement,
to satisfy the conditions to this Agreement and to obtain in a timely manner
all necessary waivers, consents, and approvals and to effect all necessary
registrations and filings.
8.4 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California without regard to its principles governing conflicts of
laws.
8.5 NOTICES. All notices, requests, demands and other communications to
be given pursuant to the terms of this Agreement shall be in writing and
shall be delivered personally, telecopied or sent by nationally recognized
overnight delivery service, and shall be deemed given and effective when so
delivered personally, telecopied or sent, as follows:
(a) If to Purchaser:
At the address set forth in the Schedule of Purchasers.
(b) If to the Company:
Mission West Properties
10050 Bandley Drive
Cupertino, California 95014
Telecopier: 408/725-1626
Attention: Carl E. Berg
with a copy to:
Graham & James LLP
600 Hansen Way
Palo Alto, California 94304
Telecopier: 650/856-3619
Attention: Alan B. Kalin
6
<PAGE>
Each party may change its address or telecopier number by prior
written notice to the other parties.
8.6 COUNTERPARTS. This Agreement may be executed in counterparts and
transmitted by facsimile, each of which when so executed and transmitted
shall be deemed to be an original, and such counterparts shall together
constitute one and the same instrument.
8.7 EXPENSES. Purchasers and the Company shall pay their own respective
expenses, costs and fees (including, without limitation, attorneys' and
accountants' fees) incurred in connection with the negotiation, preparation,
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement, except as provided otherwise in
Appendix II.
8.8 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the Company and Purchasers with respect to the
transactions contemplated by this Agreement, and supersedes all prior
agreements, arrangements and understandings relating to the subject matter of
this Agreement.
8.9 AMENDMENT AND WAIVER. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, covenants, representations,
warranties or conditions of this Agreement may be waived, only by a written
instrument executed by the Company and Purchasers who are record holders of a
majority of the Shares or, in the case of a waiver, by or on behalf of the
party waiving compliance. The failure of any party at any time to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of any
condition or of any breach of any term, covenant, representation or warranty
contained in this Agreement, in any one or more instances, shall be deemed to
be or construed as a further or continuing waiver of any such condition or of
any breach of any such term, covenant, representation or warranty or any
other term, covenant, representation or warranty set forth in this Agreement.
8.10 HEADINGS. The headings of the sections and paragraphs of this
agreement have been inserted for convenience or reference only and shall in
no way restrict or otherwise modify any of the terms or provisions of this
Agreement.
8.11 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express
or implied, is intended to or shall (a) confer on any person other than the
parties hereto and their respective successors or assigns any rights
(including third-party beneficiary rights), remedies, obligations or
liabilities under or by reason of this Agreement or (b) constitute the
parties hereto as partners or as participants in a joint venture. This
Agreement shall not provide third parties with any remedy, claim, liability,
reimbursement, cause of action or other right in excess of those existing
without reference to the terms of this Agreement. No third party shall have
any right, independent of any right that exists irrespective of this
Agreement, under or granted by this Agreement, to bring any suit at law or
equity for any matter governed by or subject to the provisions of this
Agreement.
8.12 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation or
rule of construction providing that ambiguities in any agreement or other
document will be construed against the party drafting such agreement or
document.
8.13 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the Company and each Purchaser has executed this
Agreement as of the day and year first above written.
PURCHASER:
-----------------------------------------------------
(Print or type name of Purchaser)
By:
-----------------------------------------------------
(signature)
Name:
------------------------------------------------
(Print or type if signing on Purchaser's behalf)
Title:
-----------------------------------------------
(if applicable)
THE COMPANY: MISSION WEST PROPERTIES
By:
-----------------------------------------------------
(signature)
Name:
------------------------------------------------
(print or type name)
Title:
-----------------------------------------------
(if applicable)
8
<PAGE>
APPENDIX I
SCHEDULE OF PURCHASERS
Name and Address of
Purchasers Number of Shares Purchase Price
- -------------------------------------------------------------------------------
<PAGE>
APPENDIX II
REGISTRATION RIGHTS
1. DEFINITIONS. For purposes of this Appendix II:
(a) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act and the declaration or ordering
of effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (1) the Common Stock of
the Company issued pursuant to the Agreement (the "Purchasers' Stock") and
(2) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right, or other security which is
issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of, such Purchasers' Stock, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in
which such person's rights under this Appendix II were not assigned in
conformity with this Appendix II;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock then
outstanding, and the number of shares of Common Stock issuable pursuant to
then exercisable or convertible securities, that are Registrable Securities.
(d) The term "Company" means Mission West Properties.
(e) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 13 hereof; and
(f) The term "Form S-3" means such form under the Act as in effect
on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(g) The term "Act" means the Securities Act of 1933, as amended.
(h) The "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) The "Agreement" means the Stock Purchase Agreement dated as of
_________, 1997 by and among the Company and the purchasers named therein.
2. REQUEST FOR REGISTRATION.
(a) If the Company shall receive a written request from the Holders
of more than fifty percent (50%) of the Registrable Securities then
outstanding that the Company file a registration statement under the Act
covering the registration of at least twenty-five percent (25%) of the
Registrable Securities then outstanding, the Company shall use its diligent
best efforts to, within ten (10) days of the receipt thereof, give written
notice of such request to all Holders and shall, subject to the limitations
in subsection 2(b), effect as soon as practicable, and in any event within
one hundred twenty (120) days of the receipt of such request, the
registration under the Act of all Registrable Securities which the Holders
request to be registered within twenty (20) days of the mailing of such
notice by the Company in accordance with Section 8.5 of the Agreement;
provided that no such request need be accepted if the Company agrees to
effect registration of such Registrable Securities pursuant to Section 3 or 4
hereof, instead, and thereafter diligently pursues such registration.
<PAGE>
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise
the Company as a part of their request made pursuant to this Section 2, and
the Company shall include such information in the written notice referred to
in subsection 2(a). The underwriter will be selected by a majority-in-
interest of the Initiating Holders and shall be an underwriter of nationally
recognized standing reasonably acceptable to the Company. In such event, the
right of any Holder to include such Holder's Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority-in-interest of
the Initiating Holders and such Holder) to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall (together with the Company as provided in Section 5(a)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities
which would otherwise be underwritten pursuant hereto, and the number of
shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; PROVIDED,
HOWEVER, that the number of shares of Registrable Securities to be included
in such underwriting shall not be reduced unless all other securities to be
offered for sale by any security holder are first entirely excluded from the
underwriting.
(c) The Company is obligated to effect only one (1) registration
pursuant to this Section 2.
(d) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration pursuant to this Section 2 a certificate
signed by the President of the Company stating that (i) in the good faith
judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of
such registration statement, or (ii) the Company intends to file a
registration statement within one hundred eighty (180) days thereafter, then
the Company shall have the right to defer taking action with respect to such
filing for a period of not more than one hundred eighty (180) days after
receipt of the request of the Initiating Holders; PROVIDED, HOWEVER, that the
Company may not utilize this right more than once in any twelve (12)-month
period. In addition, the Company shall not be required to effect any sale of
securities, including Registrable Securities, in a public offering at a price
lower than Three Dollars ($3.00) per share.
3. COMPANY REGISTRATION. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public
offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to participants in a Company stock
plan, or a registration on any form which does not include substantially the
same information as would be required to be included in a registration
statement covering the sale of the Registrable Securities), the Company
shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty
(20) days after mailing of such notice by the Company in accordance with
Section 8.5 of the Agreement, the Company shall, subject to the provisions of
Section 9 hereof, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
4. SHELF REGISTRATION. Upon the request of any Holders of at least
twenty-five percent (25%) of the Registrable Securities, the Company shall
file, and use its best efforts to have declared effective under the Act by
the sixtieth (60th) day after the later of (i) the date the Company receives
such request and (ii) the date on which Form S-3 becomes available for a
sale or disposition of Registrable Securities by the Holders, a "shelf"
registration statement pursuant to the requirements of the Act on Form S-3 or
another
2
<PAGE>
appropriate form pursuant to Rule 415 under the Act (or any successor rule or
regulation) covering the disposition of all Registrable Securities in one or
more underwritten offerings, block transactions, broker transactions,
at-the-market transactions, and in such other manner or manners as may be
specified by any Holder. The Company shall use its best efforts to keep such
"shelf" registration continuously effective as long as the delivery of a
prospectus is required under the Act in connection with the disposition of
the Registrable Securities registered thereby and in furtherance of such
obligation, shall supplement or amend such registration statement if, as, and
when required by the rules, regulations and instructions applicable to the
form used by the Company for such registration or by the Act or by any other
rules and regulations thereunder applicable to shelf registrations. The
Company shall provide all Holders with written notice of the filing of such
shelf registration statement within five (5) days after such registration
statement has been filed with the SEC. The obligations of the Company set
forth in of Section 5(a) hereof (other than clauses (v) and (vii)) shall
apply with respect to any such shelf registration. If the Company delivers
to the Holders a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company or its shareholders for any
Holder to offer or sell any Registrable Securities under the shelf
registration statement for a period set forth in such certificate not to
exceed one hundred twenty (120) days and commencing no earlier than ten (10)
days after the date such certificate is so delivered (the "Blackout Period"),
no such Holder shall offer or sell any Registrable Securities during such
Blackout Period, provided that the Company shall have the right to deliver
such a certificate only once during each twelve (12)-month period.
5. OBLIGATIONS OF THE PARTIES.
(a) Whenever required under Section 2, 3 or 4 to effect the
registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for up to ninety (90) days.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(iii) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities
owned by them.
(iv) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by
the Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(v) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(vi) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
3
<PAGE>
existing.
(vii) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to Section 2, on the date
that such Registrable Securities are delivered to the underwriters for sale
in connection with a registration pursuant to Section 2 (i) an opinion, dated
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters
in an underwritten public offering, addressed to the underwriters, if any,
and to the Holders requesting registration of Registrable Securities and (ii)
a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
(b) The Holders agree that in connection with any Registration of
the Registrable Securities by the Company pursuant to Section 2, 3 or 4:
(i) It shall be a condition precedent to the other obligations
of the Company to take any action pursuant to this Appendix II that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method
of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
(ii) Except as permitted under Regulation M promulgated under
the Exchange Act, if the Registrable Securities of such Holder are being
distributed pursuant to such Registration, a selling Holder shall not,
directly or indirectly, by the use of any means or instrumentality of
interstate commerce, or the mails, or any facility of any national securities
exchange, either alone or with one or more persons, bid for or purchase for
any account in which such Holder has a beneficial interest, any shares of the
Common Stock of the Company until the Holder has completed his participation
in such distribution.
6. FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Sections 2, 3 or 4 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of such securities as
shall be required to effect the registration of such Holder's Registrable
Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 2 or Section 4 if, due to the
operation of Section 9, the number of shares of the Registrable Securities to
be included in the registration does not equal or exceed the number of shares
required to originally trigger the Company's obligation to initiate such
registration as specified in Section 2(a) or Section 4, whichever is
applicable.
7. EXPENSES OF DEMAND REGISTRATION. All expenses, other than
underwriting discounts and commissions, incurred in connection with
registrations, filings, or qualifications pursuant to Section 2, 3 or Section
4, including (without limitation) all registration, filing, and qualification
fees, printers' and accounting fees, fees and disbursements of counsel for
the Company, shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating
Holders shall bear such expenses); provided further, however, that if at the
time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company different from
that known to the Holders at the time of their request and have withdrawn the
request with reasonable promptness following disclosure by the Company of
such material adverse change then the Holders shall not be required to pay
any of such expenses and shall retain their rights pursuant to Section 2.
4
<PAGE>
8. EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all
expenses incurred in connection with any registration, filing, or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 3 for each Holder, including (without limitation) all
registration, filing, qualification, and printer's fees and expenses, but
excluding underwriting discounts and commissions relating to the Registrable
Securities.
9. UNDERWRITING REQUIREMENTS. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company shall
not be required under Section 3 to include any of the Holders' Registrable
Securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected
by it (or by other persons entitled to select the underwriters), and then
only in such quantity as the underwriters determine in their sole discretion
will not jeopardize the success of the offering by the Company. If the total
amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, the Company shall
be required to include in the offering only that number of such securities,
including Registrable Securities, which the underwriters determine in their
sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling
shareholders according to the total amount of securities entitled to be
included therein owned by each selling stockholder or in such other
proportions as shall mutually be agreed to by such selling shareholders).
For purposes of the preceding parenthetical concerning apportionment, for any
selling stockholder which is a holder of Registrable Securities and which is
a partnership or corporation, the partners, retired partners, and
shareholders of such holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling stockholder", and
any pro-rata reduction with respect to such "selling stockholder" shall be
based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals included in such "selling stockholder", as
defined in this sentence.
10. DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of any provision of this Appendix II.
11. INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Appendix II.
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the Exchange Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Act, or the Exchange Act, or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii)
the omission or alleged omission to state therein a material fact required to
be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of the
Act, the Exchange Act, any state securities law or any rule or regulation
promulgated under the Act, or the Exchange Act or any state securities law;
and the Company will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action; PROVIDED, HOWEVER, that the indemnity agreement
contained in this subsection (a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable to any
indemnitee for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished by such
indemnitee expressly for use in connection with such registration.
5
<PAGE>
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of
the foregoing persons may become subject, under the Act, or the Exchange Act,
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such
registration; and each such Holder will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection (b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; PROVIDED,
HOWEVER, that the indemnity agreement contained in this subsection (b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld; PROVIDED, THAT, in
no event shall any indemnity obligation under this subsection (b) (together
with any obligation to contribute under subsection (d)) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 11 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 11,
deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and
any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time
of the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 11, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
11.
(d) If the indemnification provided for in this Section 11 is held
by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred
to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim, damage,
or expense in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and of the indemnified party on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and
of the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission. In no event shall any Holder's
obligation to contribute under this subsection (d) (together with any
obligation to indemnify under subsection (b)) exceed the gross proceeds from
the offering received by such Holder.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
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(f) The obligations of the Company and Holders under this Section
11 shall survive the completion of any offering of Registrable Securities in
a registration statement filed pursuant to Section 2, 3 or 4, and otherwise.
12. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times
(b) take such action as is necessary to enable the Holders to
utilize Form S-3 for the sale of their Registrable Securities as soon as
practicable after the date of the Agreement.
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144,
the Act, and the Exchange Act, or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC which permits the selling of any
such securities without registration or pursuant to such form.
13. EXERCISE OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities pursuant to this Appendix II may be exercised
by any Holder or by any transferee or assignee of such securities who, after
such assignment or transfer, holds at least Fifty Thousand (50,000) shares of
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations, and other recapitalizations), provided, in the
case of any such transferee or assignee, the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and
address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned and such transferee or
assignee agrees to comply with all obligations imposed on a Holder under
applicable provisions of this Appendix II; and PROVIDED, FURTHER, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. For the purposes of determining the number of
shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants, and siblings of such partners or spouses who acquire Registrable
Securities by gift, will, or intestate succession) shall be aggregated
together and with the partnership; provided that all assignees and
transferees who would not qualify individually for assignment of registration
rights shall have a single attorney-in-fact for the purpose of exercising any
rights, receiving notices, or taking any action under applicable provisions
of this Appendix II.
14. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that,
during the period of duration (not to exceed one hundred eighty (180) days)
specified by the Company and an underwriter of Common Stock or other
securities of the Company, following the effective date of any registered
underwritten public offering of Company securities, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any
short sale), grant any option to purchase or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any securities of the
Company held by it at any time during such period except Common Stock
included in such registration; PROVIDED, HOWEVER, that all officers and
directors of the
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Company, and all other persons with registration rights (whether or not
pursuant to this Agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
15. TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled to
exercise any rights provided for in Section 2 following the third anniversary
of the date of the Agreement. In addition, no Holder shall have the right to
register the offer or sale of any Registrable Securities or offer or sell any
Registrable Securities pursuant to a Company registration contemplated by
Section 3 hereof or pursuant to the shelf registration contemplated by
Section 4 hereof, if such Holder may sell such Registrable Securities without
registration under Rule 144 (or any successor rule) of the SEC, unless the
purpose of such registration is to enable such Holder to sell, in a single
transaction, or in any event within thirty (30) days of the effective date of
the applicable registration statement, Registrable Securities in excess of
the number permitted under Rule 144(a).
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EXHIBIT A
VOTING RIGHTS AGREEMENT
This Voting Rights Agreement (the "Agreement") is made and entered into
as of this ______ day of ______, 1997 by and among each of the persons
listed on Appendix I (the "Investors") to the Stock Purchase Agreement, dated
of even date herewith (the "Purchase Agreement") and Berg & Berg Enterprises,
Inc. ("BBE").
R E C I T A L S
WHEREAS, Mission West Properties, a California corporation (the
"Company"), and the Investors entered into the Purchase Agreement pursuant
to which the Company agreed to sell and issue 1,250,000 shares of the
Company's Common Stock to the Investors;
WHEREAS, concurrently herewith, each Investor has executed the Purchase
Agreement and subscribed to the number of shares of the Company's Common
Stock indicated on a subscription form delivered to the Company by each
Investor (the "Purchase"); and
WHEREAS, in connection with the Purchase, the Investors and Berg & Berg
Enterprises, Inc., a major shareholder of the Company, desire to provide for
the future voting of shares of the Company's capital stock held by them;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1.
VOTING
1.1 Each Investor and BBE agree to hold all shares of Common Stock of
the Company registered in their respective names or beneficially now or
hereafter owned by them (hereinafter collectively referred to as the
"Shares") subject to, and to vote the Shares in accordance with, the
provisions of this Agreement.
1.2 Following the closing of the Purchase, each Investor agrees to vote
such Investor's Shares as directed by Carl Berg, on behalf of BBE, on all
matters submitted to a vote of the shareholders of the Company.
1.3 This voting agreement provided in Section 1.2 above is coupled with
an interest and may not be revoked (i) without the consent of the Investors
holding at least a majority of the outstanding Shares then held by all
Investors and (ii) without the consent of BBE; provided, however, that BBE
then holds shares of Common Stock of the Company.
1.4 Concurrently with the execution of this Agreement, each of the
Investors will authorize and direct the Company, through BBE, to imprint or
otherwise place on certificates representing the Shares the following, or a
substantially similar, restrictive legend:
"The shares represented by this certificate are subject to the terms and
conditions of a Voting Rights Agreement, dated as of __________, 1997, all
the terms of which are incorporated herein by reference. A copy of such
Agreement may be obtained without charge upon written request to the
Company at its principal place of business."
1.5 The provisions of this Agreement shall be binding upon the
successors in interest to any of the Shares. Each Investor understands and
agrees that the Company shall not permit the transfer of any of
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the Shares on its books or issue a new certificate representing any of
the Shares unless and until the person to whom such security is to be
transferred shall have executed a written agreement, substantially in the
form of this Agreement, pursuant to which such person becomes a party to this
Agreement and agrees to be bound by all the provisions hereof as if such
person were an Investor.
1.6 Except as provided by this Agreement, each Investor and BBE shall
exercise the full rights of a shareholder with respect to the Shares held by
each.
ARTICLE 2.
EFFECT; TERMINATION
This Agreement shall continue in full force and effect with respect to
all Shares from the date of the Purchase until the earliest of the following
dates: (i) upon any sale of the Shares pursuant to a registration statement
declared effective under the Securities Act of 1933, as amended, but in such
event this Agreement shall terminate only as to the Shares so sold; (ii) any
sale of the shares pursuant to Rule 144 promulgated under the Securities Act,
but in such event this Agreement shall terminate only as to the Shares so
sold; or (iii) two years after the effective date of this Agreement, at which
time this Agreement will terminate in its entirety.
ARTICLE 3.
MISCELLANEOUS
3.1 The parties hereto hereby declare that it is impossible to measure
in money the damages which will accrue to a party hereto or to their heirs,
personal representatives, or assigns by reason of a failure to perform any of
the obligations under this Agreement and agree that the terms of this
Agreement shall be specifically enforceable. If any party hereto or such
party's heirs, personal representatives, or assigns institutes any action or
proceeding to specifically enforce the provisions hereof, any person against
whom such action or proceeding is brought hereby waives the claim or defense
therein that such party or such personal representative has an adequate
remedy at law, and such person shall not offer in any such action or
proceeding the claim or defense that such remedy at law exists.
3.2 This Agreement, and the rights of the parties hereto, shall be
governed by and construed in accordance with the laws of the State of
California without regard to its principles governing conflicts of laws.
3.3 The rights and covenants provided herein are the sole and entire
agreement between the Investors and BBE with respect to the subject matter
hereof. This Agreement may be amended at any time and from time to time, and
particular provisions of this Agreement may be waived as to all Investors and
BBE, only by an instrument in writing signed by a majority-in-interest of the
Investors and BBE. Notwithstanding the above, this Agreement may also be
amended by BBE with no further action on the part of the Investors solely to
include as Investors hereunder holders of Common Stock of the Company issued
by the Company after the closing of the Purchase.
3.4 If any provision of this Agreement is held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions of
this Agreement shall not be affected thereby.
3.5 This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors, assigns,
administrators, executors and other legal representatives.
3.6 In the event that subsequent to the date of this Agreement any
shares or other securities (other than any shares or securities of another
corporation issued to the Company's shareholders pursuant to a plan of
merger) are issued on, or in exchange for, any of the Shares held by the
Investors by reason of any stock dividend, stock split, consolidation of
shares, reclassification or consolidation involving the Company, such shares
or securities shall be deemed to be Shares for purposes of this Agreement.
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3.7 This Agreement may be executed in counterparts and transmitted by
facsimile, each of which when so executed and transmitted shall be deemed to
be an original, and such counterparts shall together constitute one and the
same instrument.
3.8 No delay or omission to exercise any right, power or remedy accruing
to any party, upon any breach or default of any other party under this
Agreement, shall impair any such right, power or remedy of such party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereunder
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring.
Except as provided in Section 3.3 hereof, any waiver, permit, consent or
approval of any kind or character on the part of any party of any breach or
default under this Agreement, or any waiver on the part of any party of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
The foregoing Voting Rights Agreement is hereby executed as of the date
first above written.
BERG & BERG ENTERPRISES, INC.
By:
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----------------------------------
Please print name and title
Address: 10050 Bandley Drive
Cupertino, CA 95014
INVESTORS:
---------------------------------------
By:
------------------------------------
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Please print name and title
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EXHIBIT E
MISSION WEST PROPERTIES
1997 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentives to Employees, Directors and
Consultants of the Company and its Subsidiaries, and to promote the success
of the Company's business. Options granted hereunder may be either Incentive
Stock Options or Nonstatutory Stock Options at the discretion of the
Committee. This is intended to be a stock option plan for purposes of
Section 408 of the California General Corporation Law.
2. DEFINITIONS. As used herein, and in any Option granted hereunder,
the following definitions shall apply:
(A) "BOARD" shall mean the Board of Directors of the Company.
(B) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(C) "COMMON STOCK" shall mean the Common Stock of the Company.
(D) "COMPANY" shall mean Mission West Properties.
(E) "COMMITTEE" shall mean the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan. If the Board does
not appoint or ceases to maintain a Committee, the term "Committee" shall
refer to the full Board.
(F) "CONSULTANT" shall mean any independent contractor retained to
perform services for the Company.
(G) "CONTINUOUS EMPLOYMENT" shall mean the absence of any
interruption or termination of service as an Employee or Director by the
Company or any Subsidiary. Continuous Employment shall not be considered
interrupted during any period of sick leave, military leave or any other
leave of absence approved by the Board or in the case of transfers between
locations of the Company or between the Company and any Parent, Subsidiary or
successor of the Company.
(H) "COVERED EMPLOYEE" shall mean any individual whose compensation
is subject to the limitations on tax deductibility provided by Section 162(m)
of the Code and any Treasury Regulations promulgated thereunder in effect at
the close of the taxable year of the Company in which an Option has been
granted to such individual.
(I) "DIRECTOR" shall mean a director of the Company.
(J) "EFFECTIVE DATE" shall mean the date on which the Plan is
initially approved by the Shareholders of the Company in accordance with
Section 18 of the Plan.
(K) "EMPLOYEE" shall mean any person, including officers (whether
or not they are directors), employed by the Company or any Subsidiary.
(L) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
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(M) "INCENTIVE STOCK OPTION" shall mean any option granted under
this Plan and any other option granted to an Employee in accordance with the
provisions of Section 422 of the Code, and the Treasury Regulations
promulgated thereunder.
(N) "NON-EMPLOYEE DIRECTOR" shall mean a director of the Company
who qualifies as a Non-Employee Director as such term is defined in Section
240.16b-3(b)(3) of the General Rules and Regulations promulgated under the
Exchange Act (the "General Rules and Regulations").
(O) "NONSTATUTORY STOCK OPTION" shall mean an Option granted under
the Plan that is subject to the provisions of Section 1.83-7 of the Treasury
Regulations promulgated under Section 83 of the Code.
(P) "OPTION" shall mean a stock option granted pursuant to the Plan.
(Q) "OPTION AGREEMENT" shall mean a written agreement between the
Company and the Optionee regarding the grant and exercise of Options to
purchase Shares and the terms and conditions thereof as determined by the
Committee pursuant to the Plan.
(R) "OPTIONED SHARES" shall mean the Common Stock subject to an
Option.
(S) "OPTIONEE" shall mean an Employee, Non-Employee Director or
Consultant who receives an Option.
(T) "OUTSIDE DIRECTOR" shall mean a director of the Company who
qualifies as an Outside Director as such term is used in Section 162(m) of
the Code and defined in any applicable Treasury Regulations promulgated
thereunder.
(U) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined by Section 424(e) of the Code.
(V) "PLAN" shall mean this 1997 Stock Option Plan.
(W) "SECTION 162(m)" shall mean Section 162(m) of the Code.
(X) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
(Y) "SHARE" shall mean a share of the Common Stock subject to an
Option, as adjusted in accordance with Section 11 of the Plan.
(Z) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is Five Million Five Hundred Thousand (5,500,000) Shares.
The Shares may be authorized but unissued or reacquired shares of Common
Stock. If an Option expires or becomes unexercisable for any reason without
having been exercised in full, the Shares which were subject to the Option
but as to which the Option was not exercised shall become available for other
Option grants under the Plan, unless the Plan shall have been terminated.
4. ADMINISTRATION OF THE PLAN.
(A) PROCEDURE. The Plan shall be administered either by: (i) the
full Board; or (ii) a Committee of two (2) or more directors, each of whom is
a Non-Employee Director, or an Outside Director, if the latter definition is
more restrictive. The Board shall take all action necessary to administer
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the Plan so that all transactions involving Options and Shares issued
pursuant to the Plan shall be exempt from Section 16(b) of the Exchange Act
in accordance with the then effective provisions of Section 240.16b-1 et.
seq. of the General Rules and Regulations and shall comply with the then
effective requirements of Section 162(m) and any Treasury Regulations
promulgated thereunder with respect to the deductibility of compensation for
Covered Employees; provided that any amendment to the Plan required for
compliance with such provisions shall be made consistent with the provisions
of Section 13 of the Plan and said General Rules and Regulations.
(B) POWERS OF THE COMMITTEE. Subject to the provisions of the
Plan, the Committee shall have the authority: (i) to determine, upon review
of relevant information, the fair market value of the Common Stock; (ii) to
determine the exercise price of Options to be granted, the Employees,
Directors or Consultants to whom and the time or times at which Options shall
be granted, and the number of Shares to be represented by each Option; (iii)
to interpret the Plan; (iv) to prescribe, amend and rescind rules and
regulations relating to the Plan; (v) to determine the terms and provisions
of each Option granted under the Plan (which need not be identical) and, with
the consent of the holder thereof, to modify or amend any Option; (vi) to
authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option previously granted by the
Committee; (vii) to accelerate or (with the consent of the Optionee) defer an
exercise date of any Option, subject to the provisions of Section 9(a) of the
Plan; (viii) to determine whether Options granted under the Plan will be
Incentive Stock Options or Nonstatutory Stock Options; (ix) to make all other
determinations deemed necessary or advisable for the administration of the
Plan.
(C) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations
and interpretations of the Committee shall be final and binding on all
potential or actual Optionees, any other holder of an Option or other equity
security of the Company and all other persons.
5. ELIGIBILITY.
(A) PERSONS ELIGIBLE FOR OPTIONS. Options under the Plan may be
granted only to Employees, Directors or Consultants whom the Committee, in
its sole discretion, may designate from time to time. Incentive Stock
Options may be granted only to Employees. An Employee who has been granted
an Option, if he or she is otherwise eligible, may be granted an additional
Option or Options. However, the aggregate fair market value (determined in
accordance with the provisions of Section 8(a) of the Plan) of the Shares
subject to one or more Incentive Stock Options that are exercisable for the
first time by an Optionee during any calendar year (under all stock option
plans of the Company and its Parents and Subsidiaries) shall not exceed
$100,000 (determined as of the grant date). Options under the Plan shall be
granted to Covered Employees upon satisfaction of the conditions to such
grants provided pursuant to Section 162(m) and any Treasury Regulations
promulgated thereunder. In addition, the maximum number of Shares with
respect to which Options may be granted during any calendar year to any
Employee shall not exceed Five Hundred Thousand (500,000) Shares.
(B) GRANTS TO NON-EMPLOYEE DIRECTORS. The provisions set forth in
this Section 5(b) shall not be amended more than once every six months, other
than to comply with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder. All grants of
Options to Directors under this Plan shall be automatic and non-discretionary
and shall be made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Non
Employee Directors shall be granted Options or to determine the number of
shares to be covered by Options granted to Non-Employee Directors; provided,
however, that nothing in this Plan shall be construed to prevent an Outside
Director from declining to receive an Option under this Plan.
(ii) Beginning on the Effective Date, each Non-Employee
Director who first becomes an Non-Employee Director after the Effective Date
shall be automatically granted an Option to purchase Fifty Thousand (50,000)
Shares, decreased or increased as provided in Section 11 hereof, upon
becoming an Non-Employee Director.
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(iii) The terms of an Option granted pursuant to this Section
5(b) shall be as follows:
(A) the term of the Option shall be six years;
(B) except as provided in Section 9 of the Plan, the
Option shall be exercisable only while the Non-Employee Director remains a
director;
(C) the exercise price per share of Common Stock shall
be 100% of the fair market value on the date of grant of the Option
(determined in accordance with Section 8(a) of the Plan);
(D) the Option shall become exercisable in
installments cumulatively with respect to 1/48 of the Optioned Shares on the
first day of each month following the date of grant; provided, however, that
in no event shall any Option be exercisable prior to obtaining shareholder
approval of the Plan.
(C) NO RIGHT TO CONTINUING EMPLOYMENT CONSULTING OR
DIRECTOR RELATIONSHIP. Neither the establishment nor the operation of the
Plan shall confer upon any Optionee or any other person any right with
respect to continuation of employment or other service with the Company or
any Subsidiary, nor shall the Plan interfere in any way with the right of the
Optionee or the right of the Company (or any Parent or Subsidiary) to
terminate such employment or service at any time.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board and its approval by vote of the holders of the outstanding shares
of the Company entitled to vote on the adoption of the Plan (in accordance
with the provisions of Section 18 hereof). It shall continue in effect for a
term of ten years unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION. Unless the Committee determines otherwise, the term
of each Option granted under the Plan shall be six years from the date of
grant. The term of the Option shall be set forth in the Option Agreement. In
any event, no Incentive Stock Option shall be exercisable after the
expiration of ten years from the date such Option is granted, and provided
further that no Incentive Stock Option granted to any Employee who, at the
date such Option is granted, owns (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 Parent or Subsidiary shall be exercisable after
the expiration of five years from the date such Option is granted.
8. OPTION PRICE AND CONSIDERATION.
(A) OPTION PRICE. Except as provided in subsections (b) and (c)
below, the option price for the Shares to be issued pursuant to any Option
shall be such price as is determined by the Committee, which shall in no
event be less than the fair market value of such Shares on the date the
Option is granted. Fair market value of the Common Stock shall be determined
by the Committee, using such criteria as it deems relevant; provided,
however, that as long as the Common Stock is listed on a national securities
exchange (within the meaning of Section 6 of the Exchange Act) or on the
Nasdaq National Market (or any successor national market system), the fair
market value per Share shall be the closing price on such exchange on the
date of grant of the Option, as reported in THE WALL STREET JOURNAL; and if
publicly traded and not listed on a national securities exchange, fair market
value shall be the average of the last reported bid and asked prices of the
Common Stock on the date of grant, as reported in THE WALL STREET JOURNAL
(or, if not so reported, as otherwise reported by Nasdaq).
(B) TEN PERCENT SHAREHOLDERS. No Incentive Stock Option shall be
granted to any Employee who, at the date such Option is granted, owns (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 Parent or
Subsidiary, unless the option price for the Shares to be issued pursuant to
such Option is at least equal to 110% of the fair market value of such Shares
on the grant date determined by the Committee in the manner set forth in
subsection (a) above.
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(C) SECTION 162(m) LIMITATIONS. The Option Price of any Option
granted to a Covered Employee shall be at least equal to the fair market
value of the Shares as of the date of grant as determined in the manner set
forth in subsection (a) above.
(D) CONSIDERATION. The consideration to be paid for the Optioned
Shares shall be payment in cash or by check, cashier's check, certified
check, or wire transfer, unless payment in some other manner, including by
promissory note, other shares of the Company's Common Stock or such other
consideration and method of payment for the issuance of Optioned Shares as
may be permitted under Sections 408 and 409 of the California General
Corporation Law, is authorized by the Committee at the time of the grant of
the Option. Any cash or other property received by the Company from the sale
of Shares pursuant to the Plan shall constitute part of the general assets of
the Company.
9. EXERCISE OF OPTION.
(A) VESTING PERIOD. Any Option granted hereunder to any person
other than an Outside Director shall be exercisable at such times and under
such conditions as determined by the Committee and as shall be permissible
under the terms of the Plan, which shall be specified in the Option Agreement
evidencing the Option. Unless the Committee specifically determines
otherwise at the time of the grant of the Option, each Option shall vest and
become exercisable, cumulatively, as to 20% of the Optioned Shares on each
anniversary of the date of the grant of the Option until all of the Optioned
Shares have vested, subject to the Optionee's Continuous Employment. An
Option may not be exercised for fractional shares or for less than 10 Shares.
(B) EXERCISE PROCEDURES. An Option shall be deemed to be exercised
when written notice of such exercise has been given to the Company in
accordance with the terms of the Option by the person entitled to exercise
the Option and full payment for the Shares with respect to which the Option
is exercised has been received by the Company. In lieu of delivery of a cash
payment for the purchase price of the Optioned Shares with respect to which
the Option is exercised, the Optionee may deliver to the Company a sell order
to a broker for the Shares being purchased and an agreement to pay (or have
the broker remit payment for) the purchase price for the Shares being
purchased on or before the settlement date for the sale of such shares to the
broker. As soon as practicable following the exercise of an Option in the
manner set forth above, the Company shall issue or cause its transfer agent
to issue stock certificates representing the Shares purchased. Until the
issuance of such stock certificates (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Shares notwithstanding
the exercise of the Option. No adjustment will be made for a dividend or
other rights for which the record date is prior to the date of the transfer
by the Optionee of the consideration for the purchase of the Shares, except
as provided in Section 11 of the Plan.
(C) EXERCISE OF OPTION WITH STOCK. If an Optionee is permitted to
exercise an Option by delivering shares of the Company's Common Stock, the
Option Agreement covering such Option may include provisions authorizing the
Optionee to exercise the Option, in whole or in part, by (i) delivering whole
shares of the Company's Common Stock previously owned by such Optionee
(whether or not acquired through the prior exercise of a stock option) having
a fair market value equal to the Option price; or (ii) directing the Company
to withhold from the Shares that would otherwise be issued upon exercise of
the Option that number of whole Shares having a fair market value equal to
the Option price. Shares of the Company's Common Stock so delivered or
withheld shall be valued at their fair market value at the close of the last
business day immediately preceding the date of exercise of the Option, as
determined by the Committee. Any balance of the Option price shall be paid
in cash. Any Shares delivered or withheld in accordance with this provision
shall again become available for purposes of the Plan and for Options
subsequently granted thereunder. Any exercise of an Option under Section
9(c)(i) or 9(c)(ii) above by any person subject to short-swing trading
liability under Section 16(b) of the Exchange Act shall comply with the
relevant requirements of Section 240.16b-1 et. seq. of the General Rules and
Regulations.
(D) TERMINATION OF STATUS AS EMPLOYEE, DIRECTOR OR CONSULTANT. If
an Optionee shall cease to be an Employee, Director or Consultant for any
reason other than permanent and total disability or death, he or she may, but
only within 30 days (or such other period of time as is determined by the
Committee) after the date he or she ceases to be an Employee, Director or
Consultant,
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exercise his or her Option to the extent that he or she was entitled to
exercise it at the date of such termination, subject to the condition that no
Option shall be exercisable after the expiration of the Option period.
(E) DISABILITY OF OPTIONEE. If an Optionee shall cease to be an
Employee, Director or Consultant due to permanent and total disability, and
such Optionee is, or was within the 90-day period prior to such termination,
an Employee, Director or Consultant and who was in Continuous Employment as
such from the date of the grant of the Option until the date of disability or
termination, the Option may be exercised at any time within six months
following the date of termination, but only to the extent of the accrued
right to exercise at the time of termination, subject to the condition that
no option shall be exercised after the expiration of the Option period.
(F) DEATH OF OPTIONEE. In the event of the death during the Option
period of an Optionee who is at the time of his or her death, or was within
the 90-day period immediately prior thereto, an Employee, Non-Employee
Director or Consultant and who was in Continuous Employment as such from the
date of the grant of the Option until the date of death or termination, the
Option may be exercised, at any time within six months following the date of
death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest, inheritance or otherwise as a result of the
Optionee's death, but only to the extent of the accrued right to exercise at
the time of the termination or death, whichever comes first, subject to the
condition that no option shall be exercised after the expiration of the term
of the Option.
(G) TAX WITHHOLDING. When an Optionee is required to pay to the
Company an amount with respect to tax withholding obligations in connection
with the exercise of an Option granted under the Plan, the Optionee may elect
prior to the date the amount of such withholding tax is determined (the "Tax
Date") to make such payment, or such increased payment as the Optionee elects
to make up to the maximum federal, state and local marginal tax rates,
including any related FICA obligation, applicable to the Optionee and the
particular transaction, by: (i) delivering cash; (ii) delivering part or all
of the payment in previously owned shares of Common Stock (whether or not
acquired through the prior exercise of an Option); and/or (iii) irrevocably
directing the Company to withhold from the Shares that would otherwise be
issued upon exercise of the Option that number of whole Shares having a fair
market value equal to the amount of tax required or elected to be withheld (a
"Withholding Election"). If an Optionee's Tax Date is deferred beyond the
date of exercise and the Optionee makes a Withholding Election, the Optionee
will initially receive the full amount of Optioned Shares otherwise issuable
upon exercise of the Option, but will be unconditionally obligated to
surrender to the Company on the Tax Date the number of Shares necessary to
satisfy his or her minimum withholding requirements, or such higher payment
as he or she may have elected to make, with adjustments to be made in cash
after the Tax Date.
Notwithstanding anything in the preceding paragraph to the contrary,
any withholding of Shares with respect to taxes arising in connection with
the exercise of an Option by any person subject to short-swing trading
liability under Section 16(b) of the Exchange Act shall satisfy the
conditions for exemption therefrom set forth in Section 240.16b-1 et. seq. of
the General Rules and Regulations, and shall occur automatically upon
exercise when required for the Option to satisfy the requirements for a
"formula plan" as defined therein.
Any adverse consequences incurred by the Optionee with respect to
the use of shares of Common Stock to pay any part of the Option Price or of
any tax in connection with the exercise of an Option, including without
limitation any adverse tax consequences arising as a result of a
disqualifying disposition within the meaning of Section 422 of the Code,
shall be the sole responsibility of the Optionee.
10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent and distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee, except
that to the extent permitted by the committee, an Optionee may transfer
Nonstatutory Stock Options solely by gift to members of the Optionee's
immediate family.
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11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any
required action by the shareholders of the Company, the number of Optioned
Shares covered by each outstanding Option, and the per share exercise price
of each such Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, recapitalization, combination,
reclassification, the payment of a stock dividend on the Common Stock or any
other increase or decrease in the number of such shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Committee, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for proportionately adjusting the number or
class of securities covered by any Option, as well as the price to be paid
therefor, in the event that the Company effects one or more reorganizations,
recapitalizations, rights offerings, or other increases or reductions of its
outstanding shares of Common Stock, and in the event of the Company being
consolidated with or merged into any other corporation.
Unless otherwise determined by the Board, upon the dissolution or
liquidation of the Company the Options granted under the Plan shall terminate
and thereupon become null and void. Upon any merger or consolidation, if the
Company is not the surviving corporation, or if the Company is the surviving
corporation in a "triangular merger" transaction with a subsidiary of a
"parent" corporation (as "parent" is defined in Section 175 of the California
General Corporation Law and used in Section 1101 thereof), the options
granted under the Plan shall either be assumed by the new entity or the
parent corporation, or shall terminate in accordance with the provisions of
the preceding sentence.
12. TIME OF GRANTING OPTIONS. Unless otherwise specified by the
Committee, the date of grant of an Option under the Plan shall be the date on
which the Committee makes the determination granting such Option. Notice of
the determination shall be given to each Optionee to whom an Option is so
granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable, except that, without approval of the shareholders of the Company,
no such revision or amendment shall change the number of Shares subject to
the Plan, change the designation of the class of employees eligible to
receive Options or add any material benefit to Optionees under the Plan. Any
such amendment or termination of the Plan shall not affect Options already
granted, and such Options shall remain in full force and effect as if the
Plan had not been amended or terminated. The modification or addition of a
material term of the Plan (as determined under Section 162(m) and any
applicable Treasury Regulations promulgated thereunder) shall be approved by
the shareholders in the manner provided in Section 18 of the Plan.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an Option granted under the Plan unless the exercise of such
Option and the issuance and delivery of such Shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation,
the Securities Act, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares
may then be listed, and shall be further subject to the approval of counsel
for the Company with respect to such compliance. As a condition to the
exercise of an Option, the Company may require the person exercising such
Option to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. RESERVATION OF SHARES. During the term of this Plan the Company
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan. Inability of the
Company to obtain from any regulatory body having jurisdiction and authority
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deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder shall relieve the Company of any liability in
respect of the nonissuance or sale of such Shares as to which such requisite
authority shall not have been obtained.
16. INFORMATION TO OPTIONEE. During the term of any Option granted
under the Plan, the Company shall provide or otherwise make available to each
Optionee a copy of its annual financial statement and any other financial
information provided to its shareholders in accordance with the provisions of
the Company's Bylaws and applicable law.
17. OPTION AGREEMENT. Options granted under the Plan shall be
evidenced by Option Agreements.
18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within 12 months before or after the Plan is
adopted. Any amendments to the Plan requiring shareholder approval must be
approved by the affirmative vote of the holders of a majority of the
outstanding shares of voting stock present or represented and entitled to
vote at a duly held meeting at which a quorum is present, or by the written
consent of the shareholders in the manner provided by California law.
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