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As filed with the Securities and Exchange Commission on July 20, 1998.
Registration Statement No. 333-52835
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------------
MISSION WEST PROPERTIES
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2635431 6798
(State or other (I.R.S. Employee (Primary Standard
jurisdiction incorporation Identification No.) Industrial Classification
or organization) Code Number)
10050 Bandley Drive, Cupertino, California 95014
(408) 725-0700
(Address, including ZIP Code and telephone number of
registrant's principal executive offices)
MR. CARL E. BERG
10050 Bandley Drive
Cupertino, California 95014
----------------------
(Name, address and telephone number
of agent for service)
----------------------
Copies to:
ALAN B. KALIN
KATHI A. RAWNSLEY
Graham & James LLP
600 Hansen Way
Palo Alto, California 94304
Tel: (650) 856-6500
Fax: (650) 856-3619
Approximate date of commencement of proposed sale of the securities
to the public:
AS SOON AS PRACTICABLE FOLLOWING THE EFFECTIVE DATE
OF THIS REGISTRATION STATEMENT.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______________
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___________________1
----------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THE PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Subject to Completion, dated July 20, 1998.
PROXY STATEMENT/PROSPECTUS
MISSION WEST PROPERTIES
109,624,072 Shares of Common Stock
This proxy statement/prospectus (the "Proxy Statement/Prospectus") is the
proxy statement of Mission West Properties, a California corporation (the
"Company"). This proxy statement is being furnished to holders of common stock,
no par value (the "Common Stock"), of the Company in connection with the
solicitation of proxies by the board of directors of the Company for use at a
special meeting of shareholders to be held at ____ a.m., on _____________, 1998,
at _______________, ________________, _________________, California, including
any adjournments ("Special Meeting").
In December 1996, shareholders approved the sale of substantially all of
the Company's assets and the distribution of the net proceeds on a pro rata
basis. Subsequent to the sale of the assets, a group of investors led by Carl E.
Berg approached the Company with a proposal to recapitalize the Company and,
rather than dissolve the Company, continue the business of the Company under the
control of Mr. Berg with a portfolio of new investment properties. Following the
initial investment in the Company by the Berg-led investment group and the final
distribution of the proceeds of the asset sales to shareholders, the American
Stock Exchange ("AMEX") halted trading of the Company's Common Stock.
Thereafter, Mr. Berg proposed that the Company undertake several
transactions intended to provide the Company with additional capital and control
of substantial real estate holdings of Mr. Berg, members of his immediate family
and certain entities which they control (the "Berg Group"). In July 1998, the
Company acquired the sole general partner interest in each of four limited
partnerships holding properties previously controlled by the Berg Group and
certain other persons. The board of directors believes that the proposals and
related transactions are in the best interests of the Company, and has approved
the transactions described below. At the Special Meeting, shareholders will be
asked to consider and vote on the following proposals:
1. Pursuant to rules of the AMEX, the shareholders of the Company will be
asked to approve the sale and issuance by the Company at $4.50 per share of
6,495,058 shares of Common Stock to accredited investors pursuant to binding
subscription agreements, which are subject to such shareholder approval (the
"Private Placement").
2. The Company will apply the proceeds from the Private Placement and
existing cash to fund the payment of $35,200,000 owed by the Company for the
acquisition of the sole general partner interests representing approximately
10.91% of the total partnership interests in each of four existing limited
partnerships (collectively the "Operating Partnerships") owning from
approximately 4.2 to 4.34 million square feet of leased buildings used for
offices, research and development, light manufacturing, and assembly ("R&D
Property") under the terms of an agreement among the Company, the Berg Group and
certain other persons (the "Acquisition Agreement"). The Acquisition Agreement
also provides for the Company to acquire, through the Operating Partnerships,
approximately 1.02 million rentable square feet of R&D Property to be
constructed and leased prior to acquisition by the Operating Partnerships (the
"Pending Development Projects") from certain members of the Berg Group, and an
option to acquire future building developments on land currently held by certain
members of the Berg Group. Collectively, these transactions (the "Berg
Acquisition") will allow the Company to acquire control of more than 5.2 million
rentable square feet of R&D Property previously controlled principally by the
Berg Group. To enable the Company to begin reporting financial data for the
Operating Partnerships with the Company's consolidated financial statements as
of July 1, 1998, the Company, the Berg Group and the other parties to the
Acquisition Agreement executed an amendment providing for the Company's
acquisition of its 10.91% general partner interest in each of the Operating
Partnerships, and the contribution of certain properties to one of the Operating
Partnerships, effective as of that date (the "Partnership Closing"). At the
Special Meeting, the Company's shareholders will be asked to ratify the
Partnership Closing and to approve the other transactions comprising the Berg
Acquisition and related matters. If the shareholders approve such proposals, all
other transactions will close on the last business day of the month in which the
Special Meeting is held (referred to in this Proxy Statement/Prospectus as "the
final closing date for the Berg Acquisition").
3. Pursuant to AMEX rules, the Company also seeks shareholder approval of
the issuance of up to 100,825,478 shares of Common Stock upon the future
redemption or exchange of 100,825,478 units of limited partnership interest in
the Operating Partnerships ("L.P. Units"), including 33,919,072 L.P. Units
issuable upon the Operating Partnerships' acquisition of the Pending Development
Projects from members of the Berg Grouppursuant to the terms of an Exchange
Rights Agreement among the company, the Operating Partnerships and the Limited
Partners (the "Exchange Rights Agreement") to take effect at the final closing
date for the Berg Acquisition.
4. Shareholders are asked also to approve a proposal to reincorporate the
Company under the laws of the State of Maryland through a merger (the
"Reincorporation Merger") with and into Mission West Properties, Inc., a
Maryland corporation ("Mission West-Maryland"), a newly formed wholly owned
subsidiary of the Company. Mission West-Maryland will be the surviving
corporation with articles of incorporation (the "Charter") and bylaws which
differ materially from those of the Company. Mission West-Maryland was formed
for the purpose of redomiciling the Company as a Maryland corporation and
acquiring, recapitalizing and continuing the business and operations of the
Company. In the Reincorporation Merger, shares of the Company's Common Stock
outstanding at the effective time of the merger will be converted into shares of
common stock, $0.001 par value per share of Mission West-Maryland ("New Common
Stock") on a one-for-one basis (the "Exchange Ratio"). Unexercised employee and
consultant stock options to purchase 605,000 shares of Common Stock will be
exchanged for new stock options to purchase the same number of shares of New
Common Stock at the Exchange Ratio. Following the Reincorporation Merger,
Mission West-Maryland expects to qualify as a Real Estate Investment Trust
("REIT") for federal income tax purposes and conduct its business on a
self-administered, self-managed, and fully
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integrated basis going forward. The Charter and bylaws will include provisions
related to the preservation of Mission West-Maryland's status as a REIT. As used
in this Proxy Statement/Prospectus the term "Company" also may refer to Mission
West-Maryland unless the discussion concerns the Reincorporation Merger or the
Charter or the Mission West-Maryland bylaws.
This Proxy Statement/Prospectus is also the prospectus of the Company's
successor, Mission West-Maryland, to be delivered to the shareholders of the
Company in connection with the Reincorporation Merger and the exchange with
existing equity holders and the purchasers of shares in the Private Placement of
(i) 8,193,594 shares of Common Stock (after giving effect to the Private
Placement) for New Common Stock, (ii) the exchange of outstanding employee stock
options issued by the Company for identical employee stock options of Mission
West-Maryland, and (iii) the reservation of 100,825,478 shares of New Common
Stock for issuance upon any future exchange of L.P. Units as a result of the
Reincorporation Merger.
The Company has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended (the "Securities Act") covering the
shares of New Common Stock to be issued in the Reincorporation Merger.
The Common Stock is traded on the AMEX and the Pacific Exchange, Inc.
("PCX") under the symbol "MSW." On ______ __, 199_, the last reported sale price
of the Common Stock on the AMEX was $_____________. See "INFORMATION WITH
RESPECT TO THE COMPANY--Price Range of the Shares and Distribution History."
Based on that price and assuming approval of all proposals and the consummation
of the contemplated transactions, the total market value of the Company and the
Operating Partnerships would be approximately $__________.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF MATERIAL
RISKS THAT SHOULD BE CONSIDERED IN EVALUATING THE PROPOSALS.
THESE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE
The date of this Prospectus is _____________, 1998
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TABLE OF CONTENTS
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FORWARD-LOOKING INFORMATION...............................................................................................1
AVAILABLE INFORMATION.....................................................................................................1
INFORMATION INCORPORATED BY REFERENCE.....................................................................................2
SUMMARY OF THE UPREIT TRANSACTIONS AND PURPOSE OF THE SPECIAL MEETING....................................................3
Background.......................................................................................................3
Parties to and Terms of the Berg Acquisition.....................................................................3
Private Placement/Recapitalization...............................................................................3
Reincorporation Merger...........................................................................................4
Structure of the UPREIT Transactions.............................................................................4
Reasons for the Berg Acquisition.................................................................................4
Description of the Properties....................................................................................4
Business Objectives and Strategy.................................................................................5
Operations of the Company after the Berg Acquisition, Reincorporation Merger and the REIT Election...............5
Distributions....................................................................................................5
Reasons for the Reincorporation Merger...........................................................................5
Conditions to Consummation.......................................................................................5
Board of Directors; Management...................................................................................5
Conflicts of Interest............................................................................................5
Required Approval................................................................................................6
Dissenters' Rights...............................................................................................6
Accounting Treatment.............................................................................................6
Tax Consequences of the UPREIT Transactions......................................................................6
New Common Stock.................................................................................................6
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA................................................................................7
SUMMARY SELECTED FINANCIAL DATA...........................................................................................8
RISK FACTORS..............................................................................................................9
No Independent Appraisal; No Arm's Length Negotiations with Affiliates...........................................9
Dependence on Mr. Berg...........................................................................................9
Control of the Company and the Operating Partnerships by the Berg Group..........................................9
Potential Conflicts of Interest with the Berg Group.............................................................10
Changes in Policies Without Shareholder Approval................................................................12
Anti-Takeover Provisions........................................................................................12
Real Estate Investment Considerations...........................................................................12
Federal Income Tax Risks........................................................................................15
Uncertainties Regarding Distributions to Shareholders...........................................................16
Potential Property Tax Reassessments............................................................................17
Market for Common Stock.........................................................................................17
The Company's Obligation to Purchase Tendered L.P. Units........................................................17
Shares Eligible for Future Sale.................................................................................17
THE SPECIAL MEETING......................................................................................................19
Parties to the Berg Acquisition.................................................................................19
Parties to the Reincorporation Merger...........................................................................19
General Information Concerning Solicitation and Voting..........................................................19
Record Date, Voting Rights and Outstanding Shares...............................................................20
Revocability of Proxies.........................................................................................20
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Solicitation....................................................................................................20
Votes Required..................................................................................................20
Consequences if the Proposals Are Not Approved..................................................................20
Dissenters' Rights..............................................................................................21
Recommendation of the Board of Directors........................................................................21
BACKGROUND OF THE UPREIT TRANSACTIONS....................................................................................22
Introduction....................................................................................................22
Background......................................................................................................22
Reasons for the Private Placement and the Berg Acquisition......................................................24
Summary of the Transactions.....................................................................................24
Consequences of the Berg Acquisition and the Private Placement..................................................25
Benefits to the Berg Group......................................................................................26
Valuation of Interests..........................................................................................26
Pro Forma Capitalization........................................................................................27
Included Information............................................................................................28
Price Range of the Common Stock and Distribution History........................................................28
THE COMPANY'S PRO FORMA DATA.............................................................................................29
THE BUSINESS OF BERG & BERG..............................................................................................30
History Of Berg & Berg..........................................................................................30
Regional Economic Profile.......................................................................................31
The Silicon Valley R&D Property Market..........................................................................32
The Silicon Valley..............................................................................................32
Unemployment Rate...............................................................................................33
Silicon Valley R&D Property Market..............................................................................33
Berg & Berg Business Strategy...................................................................................34
BERG PROPERTIES SUMMARY SELECTED FINANCIAL DATA..........................................................................36
SELECTED COMBINED HISTORICAL FINANCIAL DATA FOR THE ACQUIRED PROPERTIES..................................................37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION FOR THE PROPERTIES..................38
Overview........................................................................................................38
Results of Operations...........................................................................................39
Pro Forma Liquidity and Capital Resources.......................................................................42
Historical Cash Flows...........................................................................................43
Inflation.......................................................................................................44
DESCRIPTION OF THE PROPERTIES............................................................................................45
General.........................................................................................................45
Overview of the Berg Properties.................................................................................45
Average Occupancy and Rental Rates..............................................................................45
Leasing Activity................................................................................................46
Lease Expirations...............................................................................................46
Significant Properties and Tenants..............................................................................47
Other Major Tenants.............................................................................................49
The Berg Properties.............................................................................................50
Standard Berg & Berg Lease Terms................................................................................53
Overview of the Acquired Properties.............................................................................53
Average Occupancy and Rental Rates..............................................................................53
Lease Expirations...............................................................................................54
Acquired Properties.............................................................................................55
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The Pending Development Projects................................................................................55
Land Holding and Development Arrangements.......................................................................57
Mortgage Debt and Credit Lines..................................................................................59
Property Tax Information........................................................................................60
Environmental Matters...........................................................................................60
Legal Proceedings...............................................................................................61
Employees.......................................................................................................61
FUTURE OPERATIONS OF THE COMPANY.........................................................................................61
Overview........................................................................................................61
Operating and Growth Strategy...................................................................................61
Operations and Management.......................................................................................62
Acquisitions....................................................................................................62
Line of Credit..................................................................................................63
Mortgage Indebtedness Outstanding after Berg Acquisition........................................................63
Overview........................................................................................................64
Distribution Table..............................................................................................64
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES..............................................................................67
Investment Policies.............................................................................................67
Financing Policies..............................................................................................67
Disposition Policy..............................................................................................69
Conflict of Interest Policies...................................................................................69
Policies with Respect to Other Activities.......................................................................69
THE ACQUISITION AGREEMENT................................................................................................71
General.........................................................................................................71
The Closing.....................................................................................................71
Representations and Warranties..................................................................................71
Conditions to Consummation of the Contemplated Transactions.....................................................71
Covenants.......................................................................................................72
Conflicts of Interest Provisions................................................................................72
Termination.....................................................................................................73
Survival and Indemnification Matters............................................................................73
OPERATING PARTNERSHIP AGREEMENT..........................................................................................74
Management......................................................................................................74
Transferability of L.P. Units...................................................................................74
Additional Capital Contributions and Loans......................................................................75
Exchange Rights, Put Rights and Registration Rights.............................................................75
Other Matters...................................................................................................76
Term 76
MANAGEMENT OF THE COMPANY................................................................................................77
Directors and Executive Officers................................................................................77
Number, Terms and Election of Directors.........................................................................78
Contractual Arrangements........................................................................................78
Committees of the Board of Directors............................................................................78
Compensation of Directors.......................................................................................78
Executive Compensation..........................................................................................79
Summary Compensation Table......................................................................................79
Benefit Plans...................................................................................................80
1997 Stock Option Plan..........................................................................................80
Compensation Committee Interlocks and Insider Participation.....................................................80
Limitation of Liability and Indemnification.....................................................................80
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(Continued)
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CERTAIN TRANSACTIONS.....................................................................................................82
Private Placement Transactions--1997............................................................................82
Private Placement Transactions--1998............................................................................82
UPREIT Transactions.............................................................................................83
Purchase by Michael Anderson....................................................................................83
PRINCIPAL SHAREHOLDERS...................................................................................................84
THE REINCORPORATION MERGER...............................................................................................86
Introduction....................................................................................................86
Exchange of Securities..........................................................................................86
Approval and Effectiveness of Merger............................................................................86
Possible Disadvantages..........................................................................................87
No Change in the Name, Business, Management, Location of Principal Office or Employee Plans of the
Company....................................................................................................87
Comparison Of Rights of Shareholders of the Company and Stockholders of Mission West-Maryland...................87
DESCRIPTION OF MISSION WEST - MARYLAND STOCK............................................................................100
General........................................................................................................100
New Common Stock...............................................................................................100
New Classes or Series of Stock.................................................................................100
Power to Issue Additional Shares of New Common Stock and New Preferred Stock...................................101
Restrictions on Transfer.......................................................................................101
Reinvestment and Share Purchase Plan...........................................................................103
CERTAIN PROVISIONS OF MARYLAND LAW AND OF MISSION WEST-MARYLAND'S CHARTER AND BYLAWS...................................104
The Board of Directors.........................................................................................104
Removal of Directors...........................................................................................104
Business Combinations..........................................................................................104
Control Share Acquisitions.....................................................................................104
Board Quorum and Special Voting Requirements...................................................................105
Amendment to the Charter.......................................................................................105
Dissolution of the Company.....................................................................................105
Advance Notice of Director Nominations and New Business........................................................106
Conflict of Interest...........................................................................................106
Anti-takeover Effect of Certain Provisions of Maryland Law and of the Charter and bylaws.......................106
ACCOUNTING TREATMENT OF THE BERG ACQUISITION AND THE REINCORPORATION MERGER.............................................107
FEDERAL INCOME TAX CONSIDERATIONS.......................................................................................107
Taxation of the Company........................................................................................107
Taxation of United States Shareholders.........................................................................112
Taxation of Tax-Exempt Shareholders............................................................................113
Taxation of Foreign Shareholders...............................................................................114
Information Reporting Requirements and Backup Withholding Tax..................................................115
Tax Aspects of the Operating Partnerships......................................................................116
Federal Income Tax Consequences of the Reincorporation Merger..................................................118
Other Tax Consequences.........................................................................................118
ERISA CONSIDERATIONS....................................................................................................119
General........................................................................................................119
Plan Assets Regulations........................................................................................119
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General ERISA Requirements.....................................................................................119
Prohibited Transactions........................................................................................120
Reporting and Disclosure.......................................................................................120
LEGAL MATTERS...........................................................................................................121
EXPERTS.................................................................................................................121
OTHER MATTERS...........................................................................................................121
SHAREHOLDER PROPOSALS...................................................................................................121
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FORWARD-LOOKING INFORMATION
Statements contained in or delivered in connection with this Proxy
Statement/Prospectus may constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve a number of risks and uncertainties. Set forth under "RISK
FACTORS," below, and elsewhere in this Proxy Statement/Prospectus are cautionary
statements that accompany those forward-looking statements. Those cautionary
statements identify important factors that could cause actual results to differ
materially from those in the forward-looking statements and from historical
trends. Such factors include general economic conditions, stock market
fluctuations, changes in yields of fixed income securities, risks associated
with the ownership of industrial and office buildings and with real estate,
generally, conditions in the local real estate market where the properties are
located, and the substantial control rights of the Berg Group with respect to
the Company.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and files all required
reports, proxy statements and other information with the Securities and Exchange
Commission ("Commission"). Reports, proxy statements and other information filed
by the Company may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's regional offices located at 7 World Trade
Center, 13th floor, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and copies of such material
may be obtained from the Public Reference Section of the Commission, Washington,
D.C. 20549, at prescribed rates. In addition, the Commission maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
on EDGAR. The Commission's web site address is http:\\www.sec.gov. These
documents may also be inspected at the office of the American Stock Exchange, 86
Trinity Place, New York, New York, and the Pacific Exchange, Inc., 115 Sansome
Street, 8th Floor, San Francisco, California.
This Proxy Statement/Prospectus is part of the Registration Statement. This
Proxy Statement/Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules of the Commission. For further information, reference is made to
the Registration Statement.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE OFFER
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES,
NOR DOES IT CONSTITUTE AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY
JURISDICTION TO WHOM IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference in this Proxy Statement/Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year and
one-month transition period ended December 31, 1997.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
3. The Company's Current Report on Form 8-K filed on March 13, 1998.
4. The description of the Company's Common Stock contained in the
Company's registration statement on Form S-8 filed with the
Commission on May 17, 1991 (Registration #33-40664).
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein, or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
Documents (except for certain exhibits to such documents, unless exhibits
are specifically incorporated by reference herein) incorporated by reference in
this Proxy Statement/Prospectus are available on oral or written request from
the Secretary of the Company at: Mission West Properties, 10050 Bandley Drive,
Cupertino, California 95014; telephone: (408) 725-0700.
This Proxy Statement/Prospectus is accompanied by a form of proxy for use
at the Special Meeting, a copy of the Company's latest Annual Report on Form
10-K, and a copy of Part 1 of the Company's latest Quarterly Report on Form-10Q.
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SUMMARY OF THE UPREIT TRANSACTIONS AND PURPOSE OF THE
SPECIAL MEETING
THE FOLLOWING BRIEFLY SUMMARIZES THE PROPOSALS TO BE VOTED UPON.
BACKGROUND
Shareholders previously approved the sale of substantially all of the
assets of the Company and the distribution of the net proceeds of sale on a pro
rata basis. Subsequent to the distribution, Carl E. Berg approached the Company
with a proposal to recapitalize the Company, and, rather than dissolve the
Company, continue the business of the Company under the control of the Berg
Group with a portfolio of new investment properties. After the purchase of
shares representing a controlling interest in the Company by certain members of
the Berg Group and other accredited investors and the final distribution to all
previous shareholders in October 1997, the AMEX halted trading of the Company's
Common Stock because the Company no longer met AMEX minimum listing
requirements.
PARTIES TO AND TERMS OF THE BERG ACQUISITION
The Berg Acquisition concerns the Company's acquisition of interests as the
sole general partner in the four existing limited partnerships (referred to
collectively as the "Operating Partnerships"), which hold approximately 4.2
million rentable square feet of office/research and development/manufacturing
space ("R&D Property") located in the portion of the San Francisco Bay Area
known as "Silicon Valley," intended to be effective as of July 1, 1998, as well
as rights to acquire additional R&D Properties, as described below, after
shareholder approval. On July __, 1998, the Company and the parties to the
Acquisition Agreement agreed to consummate the Company's acquisition of the
general partner interests in the Operating Partnerships, effective for financial
and income tax accounting and reporting purposes as of July 1, 1998 (the
"Partnership Closing"), in advance of the Special Meeting, to enable the Company
to include results of operations, assets and other financial data for the
Operating Partnerships with the Company's consolidated financial statements for
the second half of 1998. The Company effected the Partnership Closing by issuing
to each of the Operating Partnerships a demand note 7.25% interest with a
principal amount equal to 10.91% of the net asset value of the Operating
Partnership, as provided in the Acquisition Agreement as amended by the parties
effective as of July 1, 1998. Each note is payable upon the closing of the
Private Placement, or an equivalent transaction, or, if earlier, on July 1,
2000.
As a consequence of the Partnership Closing, the Company now controls the
Operating Partnerships, all of which are governed by the Delaware Revised
Uniform Limited Partnership Act ("DRULPA"). The individual Operating
Partnerships are named Mission West Properties L.P. ("MWP"), Mission West
Properties L.P. I ("MWP I"), Mission West Properties L.P. II ("MWP II") and
Mission West Properties L.P. III ("MWP III"). MWP was organized under the DRULPA
in 1995; MWP I and MWP II were general partnerships formed more than 15 years
ago which converted to limited partnerships under the DRULPA in December 1997;
and MWP III was formed in 1983 as a California limited partnership and converted
to a Delaware limited partnership under the DRULPA at the Partnership Closing.
No new entity has been created in connection with the Partnership Closing, and
the Company does not intend to create a new entity to conclude any aspect of the
Berg Acquisition.
Prior to the Partnership Closing, MWP, MWP I and MWP II were controlled by
Carl E. Berg and his brother Clyde J. Berg, who have been engaged in developing,
owning, operating, acquiring and selling Silicon Valley R&D Properties under the
name "Berg & Berg Developers" ("Berg & Berg") for nearly 30 years. Another
Silicon Valley developer, John T. Kontrabecki ("Kontrabecki") controlled MWP III
as its sole general partner prior to the Partnership Closing, and Carl and Clyde
Berg owned 50% of that partnership as limited partners. Prior to the Partnership
Closing, certain members of the Berg Group held R&D Properties outside of MWP,
MWP I and MWP II, and Mr. Kontrabecki was a general partner in two other
partnerships (in which members of the Berg Group held substantial limited
partner interests). To consolidate title to those R&D Properties in a single
entity, the parties agreed pursuant to the Acquisition Agreement to contribute
their respective R&D Properties to MWP in exchange for L.P. Units in connection
with the Berg Acquisition. By amendment to the Acquisition Agreement, all the
proposed transfers to MWP occurred at the Partnership Closing, except for the
conveyance of certain R&D Properties representing approximately 0.144 million
rentable square feet (the "Fremont Properties") subject to a purchase option
held by Mr. Berg. A dispute has arisen. Based upon the parties current
positions, the Company believes that this dispute will result in litigation The
Acquisition Agreement, as amended, obligates Mr. Berg to convey the Fremont
Properties to MWP, if and when he completes his own acquisition of those
Properties. All of the individuals and entities transferring R&D Properties to
MWP pursuant to their obligations under the Acquisition Agreement are accredited
investors within the meaning of the federal securities laws, and all such
entities are privately owned.
Of the total R&D Properties rentable square footage owned and operated by
the Operating Partnerships following the Partnerships' Closing, properties
representing approximately 3.78 million rentable square feet were owned or
controlled by members of the Berg Group and constitute the historical properties
managed by Berg & Berg (the "Berg Properties"). Other R&D Properties, consisting
of approximately 0.56 million rentable square feet, (the "Acquired Properties")
represent certain R&D Properties (the "Kontrabeki Properties") held by the three
limited partnerships (the "Kontrabecki Partnerships") previously controlled by
John Kontrabecki and the Fremont Properties.
Under the terms of the Acquisition Agreement, the Operating Partnerships
and the Company also have agreed to the terms of a Pending Projects Acquisition
Agreement (the "Pending Projects Acquisition Agreement"), which permits the
acquisition by the Operating Partnerships of approximately one million
additional rentable square feet upon the completion and leasing of a number of
the Pending Development Projects owned by certain members of the Berg Group and
under current development by Berg & Berg Enterprises, Inc. ("BBE"). The owners
of the Pending Development Projects may elect to receive cash or L.P. Units from
the Operating Partnerships. The Acquisition Agreement also gives the Company an
option to acquire, through the Operating Partnerships, any future R&D Property
developments on approximately 162 net acres of Silicon Valley land owned by
certain members of the Berg Group (the "Berg Land Holdings") under the terms of
the Berg Land Holdings Option Agreement (the "Option Agreement"). The owners of
the Berg Land Holdings may elect to receive cash or L.P. Units. The Company will
not acquire any properties directly. The Company will enter into the Pending
Projections Acquisition Agreement and the Option Agreement only following
shareholder approval at the Special Meeting. See "BACKGROUND OF THE UPREIT
TRANSACTIONS," and "THE ACQUISITION AGREEMENT."
PRIVATE PLACEMENT
The Company also has entered into binding agreements, subject to certain
conditions, to sell 6,495,058 shares of Common Stock at $4.50 per share to
accredited investors in the Private Placement, following shareholder approval
required by the AMEX. Of the total number of shares to be sold in the Private
Placement, 5,800,000 shares were offered in a placement managed by Ingalls &
Snyder LLC ("Ingalls & Snyder"). The
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<PAGE>
purchasers of such shares have agreed to pay a placement fee of $0.05 per share
to Ingalls & Snyder, for which the company has no liability.
CAPITALIZATION
Taking into account the shares issued in the Private Placement and L.P.
Units to be outstanding immediately after the closing of the Berg Acquisition,
the total number of L.P. Units and shares of Common Stock entitled to receive
distributions of cash flow from the Operating Partnerships directly, or
indirectly through dividends paid by the Company, (collectively the "Outstanding
Shares") will be 75,100,000. See "BACKGROUND OF THE UPREIT TRANSACTIONS --
Summary of the Transactions" and "-- Pro Forma Capitalization."
REINCORPORATION MERGER
Pursuant to a merger agreement ("Merger Agreement") between the Company and
its wholly owned subsidiary, Mission West-Maryland, the Company will merge into
Mission West-Maryland following shareholder approval and the consummation of the
Berg Acquisition and the Private Placement. Following these transactions,
Mission West-Maryland intends to elect to become a REIT. In approving the
Reincorporation Merger, the shareholders also will approve the Charter and the
bylaws of Mission West-Maryland. See "THE REINCORPORATION MERGER."
STRUCTURE OF THE UPREIT TRANSACTIONS
The Limited Partners ownership of interest prior to the UPREIT Transactions and
Related L.P. Unit Allocation are as follows:
[GRAPHIC]
The UPREIT Transactions are illustrated as follows:
[GRAPHIC]
REASONS FOR THE BERG ACQUISITION
The board of directors of the Company believes that the Berg Acquisition
and the Private Placement will provide the Company with substantial working
capital, a strong real property portfolio and an effective real estate
operation. The board of directors further believes that these transactions
provide an opportunity for the Company to significantly enhance shareholder
value. See "BACKGROUND OF THE UPREIT TRANSACTIONS--Reasons for the Berg
Acquisition and Private Placement."
DESCRIPTION OF THE PROPERTIES
All of the Berg Properties are located in Silicon Valley. All together the
Operating Partnerships will own 69 R&D Properties located on 61 separate sites.
As of March 31 1998, the Berg Properties were 100% occupied, with a total of 73
tenants principally engaged in the information technology business, and the
Acquired Properties were 100% occupied by a total of 10 tenants. The Berg
Properties currently are subject to total indebtedness of approximately $78_
million, of which approximately $38.2 million is secured by first deeds of
trust. Certain of the Acquired Properties are subject to secured indebtedness of
approximately $39.2 million. At the final closing for the Berg Acquisition, the
Company intends to obtain $130 million of new secured debt financing from
Prudential (the "New Secured Loan") and a $50 million line of credit. The
proceeds of the New Secured Loan along with the proceeds of the Company's
purchase of its interest in the Operating Partnerships will be used to repay
$82.6 million of existing debt secured by the Berg Properties and the Acquired
Properties, incurred prior to the Partnership Closing to fund a distribution of
approximately $91.6 million to members of the Berg Group. See "BACKGROUND OF THE
UPREIT TRANSACTIONS--Consequences of the Berg Acquisition and the Private
Placement" and "DESCRIPTION OF THE PROPERTIES."
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<PAGE>
BUSINESS OBJECTIVES AND STRATEGY
After completing the UPREIT Transactions, the Company will operate as a
self-managed, self-administered and fully integrated REIT. The Company will
operate the Berg Properties and may acquire additional R&D Properties from the
Berg Group under the terms of the Pending Projects Acquisition Agreement and the
"Option Agreement." The Company may also seek to acquire other R&D properties
and other real estate assets in Silicon Valley and parts of the West Coast. See
"FUTURE OPERATIONS."
OPERATIONS OF THE COMPANY AFTER THE BERG ACQUISITION, REINCORPORATION MERGER AND
THE REIT ELECTION
Following the completion of the UPREIT Transactions the Company will occupy
the same offices as BBE in a building owned by Berg & Berg. BBE is a member of
the Berg Group and currently provides real estate development services for the
Berg Group and their affiliates, as well as the Berg Properties. Several current
employees of BBE, including Carl E. Berg, will be employees of the Company. The
Company will lease space from Berg & Berg and will reimburse BBE for a portion
of the office overhead. See "FUTURE OPERATIONS--Operations and Management."
DISTRIBUTIONS
As a REIT, the Company will pay distributions based upon an estimate of
cash available for distribution to shareholders ("Cash Available for
Distribution") with total annual dividends expected to equal at least 95% of the
Company's annual taxable income in accordance with applicable REIT requirements.
During 1998, the Company expects to pay quarterly distributions of approximately
$0.085 per share of Common Stock. See "DISTRIBUTION POLICY."
REASONS FOR THE REINCORPORATION MERGER
The board of directors believes that the Maryland General Corporation Law
("MGCL") contains provisions conducive to the operations of a REIT. Many REITs
have incorporated in the State of Maryland, and the board of directors believes
that this has provided state regulatory authorities and courts in Maryland with
substantial experience in the administration and governance of REITs. See
"REINCORPORATION MERGER."
CONDITIONS TO CONSUMMATION
The Berg Acquisition (other than the Partnership Closing) and the Private
Placement are subject to shareholder approval and such customary closing
conditions as the accuracy of representations and warranties, the absence of
material adverse changes, and the absence of litigation to enjoin the
consummation of any of the UPREIT Transactions. The Reincorporation Merger is
subject to similar closing conditions and the effectiveness of the Registration
Statement. See "THE ACQUISITION AGREEMENT," and "THE REINCORPORATION MERGER."
BOARD OF DIRECTORS; MANAGEMENT
In general, the board of directors and management of the Company will
remain the same after the Reincorporation Merger. The Company does expect to add
one or two additional directors before the end of 1998. See "MANAGEMENT OF THE
COMPANY UPON CONSUMMATION OF THE BERG ACQUISITION".
CONFLICTS OF INTEREST
The UPREIT Transactions entail a number of conflicts of interest. The
Operating Partnerships and the Company currently are controlled by Carl E. Berg
and other Berg Group members. After the UPREIT Transactions, the Berg Group
members will have two representatives on the board of directors (the "Berg Group
Board Representatives"), at least one of whom will be required to approve
certain material transactions involving the Company (the "Required Directors
Approval"). In addition, Berg Group members, in the aggregate, will own, or have
the right under certain circumstances to acquire, shares of Common Stock
representing 84.6% of the total number of the Outstanding Shares (assuming the
exchange of all outstanding L.P. Units for Common Stock), subject to an
aggregate ownership limit of 20% (the "Berg Group Ownership Limit"), as provided
in the Aquisition Agreement. Consent of the Limited Partners holding a majority
of outstanding L.P. Units (the "L.P. Unit Majority"), principally the Berg Group
members, will be required for certain major transactions involving the Operating
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Partnerships. Furthermore, the Company and the Operating Partnerships will, or
may, acquire certain additional R&D Properties from members of the Berg Group
under the terms of the Pending Projects Acquisition Agreement and the Berg Land
Holdings Option Agreement. Although Mr. Berg will be the Company's President and
Chief Executive Officer, he will remain involved in many other real estate and
venture capital activities. Transactions between the Company or the Operating
Partnerships and members of the Berg Group, or their affiliates, will be subject
to approval by a committee of directors who are independent of the Berg Group
("Independent Directors Committee") See "RISK FACTORS--Control of the Company
and the Operating Partnerships by the Berg Group and Mr. Berg--Potential
Conflicts of Interest with the Berg Group."
REQUIRED APPROVAL
Only holders of Common Stock of record on _________ __, 1998 will be
entitled to vote at the Special Meeting. The affirmative vote of the holders of
a majority of the outstanding shares of record is needed to ratify or approve
each of the UPREIT Transactions. Broker non-votes and abstentions will be
counted as votes against the UPREIT Transactions.
DISSENTERS' RIGHTS
Statutory dissenters' rights under the California General Corporation Law
(the "CGCL") are not available with respect to any of the Proposals to be voted
upon at the Special Meeting.
ACCOUNTING TREATMENT
The UPREIT Transactions will be accounted for as a recapitalization of the
Berg Properties in a manner similar to reverse acquisition accounting recording
the historical carrying value of assets with the exception of the Acquired
Properties. The Acquired Properties will be accounted for as a purchase for the
Fremont Properties and as a step-acquisition for the Kontrabecki Properties.
Pursuant to the step-acquisition for the Kontrabecki Properties, The Berg
Group's ownership interest will be recorded at their historical carrying value.
See "ACCOUNTING TREATMENT OF THE BERG ACQUISITION AND THE REINCORPORATION
MERGER."
TAX CONSEQUENCES OF THE UPREIT TRANSACTIONS
The Berg Acquisition and the Private Placement will not result in the
recognition of gain or loss by the Company or its shareholders for federal
income tax purposes.
The Reincorporation Merger is expected to be a tax-free reincorporation
transaction within the meaning of Section 368(a)(1)(F) of the Internal Revenue
Code of 1986, as amended (the "Code"). Accordingly, it will not result in
taxable income or result in the recognition of gain or loss by the Company, its
shareholders, or the holders of options to purchase Common Stock.
Once the Company elects REIT status following the Reincorporation Merger,
the Company generally may avoid income tax with respect to its income, and the
shareholders will be subject to income taxation with respect to certain
distributions from the Company. Graham & James LLP will provide a federal income
tax opinion to the Company in connection with the Reincorporation Merger to the
effect, that for the Company's taxable year ending December 31, 1998, it will be
organized and able to operate in conformity with the REIT qualification
requirements under the Code. See "FEDERAL INCOME TAX CONSIDERATIONS--Taxation of
the Company."
NEW COMMON STOCK
In connection with the Reincorporation Merger, the Company is exchanging
previously issued and outstanding securities of the Company for new securities
of Mission West-Maryland. The New Common Stock exchanged for Old Common Stock in
connection with the Reincorporation Merger will continue to be listed on the
AMEX. Shares held by affiliates of the Company will be subject to manner of
sale, volume restrictions, and other requirements (aside from holding period)
imposed by Rule 144 and Rule 145(d) promulgated by the Commission. The Company
intends to file with the Commission a registration statement on Form S-8 to
register shares of Common Stock reserved for issuance under the Company's
employee benefit plans and resales of any Common Stock issued under such
employee benefit plans.
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<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
Set forth below are summary unaudited pro forma combined financial
information and other data for the Company as of and for the periods indicated,
prepared on the assumption that the Private Placement and the Berg Acquisition
had occurred at March 31, 1998 for balance sheet data and property and other
data. The pro forma operating data further assumes that such transactions had
occurred as of January 1, 1998 and 1997, respectively. This data should be read
in conjunction with the Selected Financial Data and the historical and pro forma
financial statements included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Three Months Ended Year Ended
March 31, 1998 December 31, 1997
---------------------- -------------------
(in thousands)
<S> <C> <C>
OPERATING DATA:
Revenue:
Rent $ 12,731 $45,572
Tenant reimbursements 2,097 6,769
---------------------- -------------------
Total revenue 14,828 52,341
---------------------- -------------------
Expenses:
Operating expenses 1,026 3,790
Real estate taxes 1,212 4,475
General and administrative 700 2,750
Interest 2,944 11,777
Depreciation and amortization 2,229 8,892
---------------------- -------------------
Total Expenses 8,111 31,684
---------------------- -------------------
Income before minority interest 6,717 20,657
Minority Interest 5,984 18,403
---------------------- -------------------
Net income 733 2,254
---------------------- -------------------
---------------------- -------------------
Basic and Diluted Earnings Per Share(1) $ 0.09 $0.28
---------------------- -------------------
---------------------- -------------------
Weighted average number of common shares outstanding 8,193,594 8,193,594
---------------------- -------------------
---------------------- -------------------
PROPERTY AND OTHER DATA:
Total properties, end of period 69 69
Total square feet, end of period 4,340,569 4,340,569
Average monthly rental revenue per square foot(2) $ 0.94 $0.87
Average occupancy - stabilized 100% 97%
FUNDS FROM OPERATIONS: (3) $ 8,946 $29,549
BALANCE SHEET DATA:
Real estate assets, net of accumulated depreciation $154,852
Total assets 167,406
Debt 164,639
Total liabilities 172,880
Shareholders' equity (5,474)
</TABLE>
- -------------------
(1) Per share calculations do not consider the dilutive effect of (i)
66,906,406 L.P. Units that are exchangeable for common shares of the
Company's stock; and (ii) 605,000 shares of common stock issuable in
connection with options outstanding under the 1997 Stock Option Plan. For
purposes of the pro forma per share calculation, these securities if
converted or exercised, would have no effect on per share calculations.
(2) Average monthly rental revenue per square foot has been determined by
taking the base rent for the period, divided by the number of months in the
period, and then divided by the total square feet of occupied space.
(3) As defined by the National Association of Real Estate Investment Trusts
("NAREIT"), FFO represents net income (loss) before minority interest of
unitholders (computed in accordance with GAAP), excluding gains (or losses)
from debt restructuring and sales of property, plus real estate related
depreciation and amortization (excluding amortization of deferred financing
costs and depreciation of non-real estate assets) and after adjustments for
unconsolidated partnerships and joint ventures. Management considers FFO an
appropriate measure of performance of an equity REIT because industry
analysts have accepted it as such. FFO should not be considered as an
alternative for net income as a measure of profitability nor is it
comparable to cash flows provided by operating activities determined in
accordance with GAAP. See "Distribution Policy."
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<PAGE>
SUMMARY SELECTED FINANCIAL DATA
Set forth below are Summary Combined Financial Data for the Berg Properties
as of and for the periods indicated on an historical basis. This data should be
read in conjunction with the Selected Financial Data and the historical
financial statements included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------------- -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------ ------------ ----------- ---------- ---------- ---------- ----------
($ in thousands)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rent $11,073 $8,801 $40,163 $28,934 $23,064 $25,186 $25,620
Tenant reimbursements 2,033 1,226 6,519 3,902 4,193 3,190 3,486
------------ ------------ ----------- ---------- ---------- ---------- ----------
Total revenue 13,106 10,027 46,682 32,836 27,257 28,376 29,106
------------ ------------ ----------- ---------- ---------- ---------- ----------
Expenses:
Operating expenses 1,019 1,118 $ 3,741 $ 1,906 $ 2,032 $ 1,355 1,129
Real estate taxes 1,189 980 4,229 3,750 3,595 2,716 3,116
Management fee (related parties) 322 240 1,050 827 654 739 994
Interest (related parties) 61 79 248 293 357 329 45
Interest 1,485 1,470 5,919 6,090 6,190 8,222 9,054
Depreciation and amortization 1,935 1,680 7,717 6,739 6,323 6,851 7,156
------------ ------------ ----------- ---------- ---------- ---------- ----------
6,011 5,567 22,904 19,605 19,151 20,212 21,494
------------ ------------ ----------- ---------- ---------- ---------- ----------
Income before gain on sale of
real estate and extraordinary
item 7,095 4,460 23,778 13,231 8,106 8,164 7,612
Gain on sale - - - - 20,779 - -
------------ ------------ ----------- ---------- ---------- ---------- ----------
Income before extraordinary item 7,095 4,460 23,778 13,231 28,885 8,164 7,612
Extraordinary item - - - 610 3,206 - 1,766
------------ ------------ ----------- ---------- ---------- ---------- ----------
------------ ------------ ----------- ---------- ---------- ---------- ----------
Net income $ 7,095 $ 4,460 $23,778 $13,841 $32,091 $ 8,164 $ 9,378
------------ ------------ ----------- ---------- ---------- ---------- ----------
------------ ------------ ----------- ---------- ---------- ---------- ----------
PROPERTY AND OTHER DATA:
Total properties, end of period 58 55 58 53 50 41 40
Total square feet, end of period 3,779 3,484 3,779 3,392 3,195 2,856 2,796
Average monthly rental revenue
per square foot(1) $ 0.95 $ 0.81 $ 0.86 $0.78 $0.71 $ 0.96 $0.84
Occupancy at end of period 100% 96.2% 97.7% 91.9% 87.4% 80.3% 89.6%
FUNDS FROM OPERATIONS(2)(3) $ 9,030 $ 6,140 $31,495 $19,970 $14,429 $15,015 $14,768
Cash flow from operations $ 9,835 $ 5,477 $29,909 $20,248 $16,392 $16,518 $18,480
Cash flow from investing (236) (3,454) (17,251) (29,275) (6,353) (5,003) (3,248)
Cash flow from financing (505) (640) (8,432) 9,433 (10,013) (12,093) (13,599)
March 31, December 31,
-------------------------- -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------ ------------ ----------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA: ($ in thousands)
(Unaudited) (Unaudited)
Real estate assets, net of
accumulated depreciation $98,453 $92,484 $100,15 $90,710 $72,319 $62,450 $61,610
Total assets 122,529 102,791 113,950 97,651 73,730 59,957 64,516
Debt 76,168 73,314 76,507 73,416 69,543 79,594 100,126
Debt - related parties 1,821 2,411 1,975 2,546 3,051 2,889 1,433
Total liabilities 85,795 81,909 84,299 80,826 76,199 83,720 104,117
Partners' equity 36,734 20,882 29,651 16,825 (2,469) (23,763) (39,601)
</TABLE>
- -------------------
(1) Average monthly rental revenue per square foot has been determined by
taking the base rent for the period, divided by the number of months in the
period, and then divided by the total square feet of occupied space.
(2) As defined by the National Association of Real Estate Investment Trusts
("NAREIT"), FFO represents net income (loss) before minority interest of
unitholders (computed in accordance with GAAP), excluding gains (or losses)
from debt restructuring and sales of property, plus real estate related
depreciation and amortization (excluding amortization of deferred financing
costs and depreciation of non-real estate assets) and after adjustments for
unconsolidated partnerships and joint ventures. Management considers FFO an
appropriate measure of performance of an equity REIT because industry
analysts have accepted it as such. FFO should not be considered as an
alternative for net income as a measure of profitability nor is it
comparable to cash flows provided by operating activities determined in
accordance with GAAP. See "Distribution Policy."
(3) Non-cash adjustments to FFO were as follows: in all periods, depreciation
and amortization; in 1996, 1995 and 1993, gains on extinguishment of debt;
and in 1995, gain on sale of property.
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS IN
EVALUATING THE PROPOSALS. THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS, BELIEFS AND
INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROXY STATEMENT/PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROXY STATEMENT/PROSPECTUS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS PROXY
STATEMENT/PROSPECTUS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE THOSE DISCUSSED BELOW AND IN OTHER PLACES INCLUDING THE "BUSINESS OF
BERG & BERG," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION FOR THE PROPERTIES," AND "DISTRIBUTION POLICY."
NO INDEPENDENT APPRAISAL; NO ARM'S LENGTH NEGOTIATIONS WITH AFFILIATES
There has been no independent valuation of the Company, nor have there been
any discussions or negotiations between the Berg Group and independent
representatives of the Company concerning obtaining an independent valuation. In
October 1997, the board of directors of the Company determined that future
transactions involving equity securities of the Company would be priced at $4.50
per share, or the equivalent thereof, until the Company had acquired assets and
generated revenues and FFO. That price was not determined by independent
valuation and no third party appraisals of the Properties were obtained for
purposes of the Private Placement, or the Berg Acquisition, nor has a fairness
opinion been obtained. As a result of the Berg Acquisition, Carl E. Berg and
other Berg Group Members will relinquish control of the Berg Properties, which
have a total book value of $98,453 as of March 31, 1998, to the Company, and
debt owed to or guaranteed by Mr. Berg and other members of the Berg Group
totaling approximately $143 million will be repaid with the proceeds of the New
Secured Loan and the Company's purchase of the general partnership interests in
the Operating Partnerships, including $77 million for debt incurred by MWP I and
MWP II prior to the Partnership Closing to fund a distribution to members of the
Berg Group. The valuation of the Company implied by the Company's purchase of
the 10.91% general partner interests in the Operating Partnerships for $35.2
million ( approximately $4.30 per share), and the value of the L.P. Units to be
held by the Limited Partners, may not accurately reflect the value of the
Properties in the Operating Partnerships prior to the consummation of the Berg
Acquisition. See "BACKGROUND OF THE UPREIT TRANSACTIONS--Valuation of
Interests."
DEPENDENCE ON MR. BERG
The Company is substantially dependent upon the leadership of Mr. Berg, its
Chairman and Chief Executive Officer. See "THE BUSINESS OF BERG & BERG--History
of Berg & Berg." Mr. Berg will be managing the day-to-day operations of the
Company, as Chairman and Chief Executive Officer, and will devote a substantial
portion of his time to the affairs of the Company, including the formulation and
execution of the Company's growth and business development strategies. Mr. Berg
has a number of other business interests to which he devotes a portion of his
time. See "POTENTIAL CONFLICTS OF INTEREST." In particular, Mr. Berg is a
substantial investor in a number of technology companies in the Silicon Valley,
including tenants of a few of the Berg Properties, and serves on the board of
directors of six of such technology companies. The Company believes that his
active involvement in the technology industry provides the Company with valuable
information regarding the business and operations of its tenants and their
present and future space requirements, as well as valuable industry contacts and
tenant referral sources. The Company believes that the loss of these benefits,
through the loss of Mr. Berg's knowledge and abilities and their benefits, could
have a material adverse effect on the Company.
CONTROL OF THE COMPANY AND THE OPERATING PARTNERSHIPS BY THE BERG GROUP
Following the completion of the UPREIT Transactions, the Berg Group, and
Mr. Berg who controls the Berg Group, will exercise significant control over the
operations and affairs of the Company, and therefore, indirectly, the Operating
Partnerships.
OWNERSHIP INTEREST. Following the completion of the UPREIT Transactions,
members of the Berg Group will hold L.P. Units representing an aggregate 84.4%
limited partnership interest in the Operating Partnerships, and an aggregate of
84.6% of the Outstanding Shares, (without regard to the Berg Group Ownership
Limit) through their right to exchange L.P. Units for Common Stock under certain
circumstances. Notwithstanding the Berg Group Ownership Limit, these exchange
rights will give the members of the Berg Group substantial influence over the
management and direction of the Company. Moreover, the Berg Group members also
will possess the following material rights with respect to the governance of the
Company and the Operating Partnerships. See "PRINCIPAL SHAREHOLDERS" and
"--Shares Eligible for Future Sale."
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<PAGE>
BOARD OF DIRECTORS REPRESENTATION. Pursuant to the UPREIT Transactions the
Berg Group will acquire the right to nominate two directors for election to the
board of directors (the "Berg Group Board Representatives") so long as the
members of the Berg Group together with their Affiliates (other than the Company
and the Operating Partnerships) own at least 15% of the total number of shares
of voting stock of the Company taking into account the conversion, exchange or
exercise of all outstanding warrants, options, convertible securities and other
rights to acquire voting stock of the Company and all L.P. Units exchangeable or
redeemable for Common Stock or other voting stock of the Company (without regard
to any Ownership Limit) (the "Fully-Diluted" number of shares). In the event
such ownership falls below 15% but is at least 10%, the Berg Group will have the
right to nominate one person for election to the board of directors. Mr. Berg
and Michael Anderson, Vice President and Chief Operating Officer of the Company,
will constitute the initial Berg Group Board Representatives. The other two
directors on the current four-person board of directors will be unaffiliated
with the Berg Group (the "Independent Directors") and, together, will constitute
the Independent Directors Committee of the board of directors. See "MANAGEMENT
OF THE COMPANY UPON CONSUMMATION OF THE BERG ACQUISITION--Directors and
Executive Officers," "OPERATING PARTNERSHIP AGREEMENT--Management," and "CERTAIN
PROVISIONS OF MARYLAND LAW AND OF MISSION WEST-MARYLAND'S CHARTER AND
BYLAWS--The Board of Directors."
SPECIAL BOARD VOTING PROVISIONS. The Charter will provide that, until such
time as the Berg Group and their Affiliates (other than the Company and the
Operating Partnerships) own less than 15% of the Fully-Diluted number of shares
of Common Stock (the "Protective Provisions Expiration Date"), the vote of a
majority of the directors including Mr. Berg or someone he has designated to
replace him as a director (the "Required Directors") shall be required to
approve certain fundamental corporate actions, including amendments to the
Charter or bylaws, and any merger, consolidation or sale of all or substantially
all of the assets of the Company or the Operating Partnerships. In addition, the
Mission West-Maryland bylaws will provide that a quorum must include the
Required Directors for any action at a meeting. Also, the approval of more than
75% of the entire board of directors will be required to approve other
significant transactions such as certain borrowings in excess of 50% of the sum
of (i) the total number of Outstanding Shares multiplied by the market price
(the "Market Price") of the Common Stock plus (ii) the Company's total debt
("Total Market Capitalization"); and the conduct of business by the Company
other than through the Operating Partnerships. Accordingly, under certain
circumstances the Berg Group or Mr. Berg could prevent the Company or the
Operating Partnerships from taking any of such actions. See "CERTAIN PROVISIONS
OF MARYLAND LAW AND OF MISSION WEST-MARYLAND'S CHARTER AND BYLAWS--Board Quorum
and Special Voting Requirements."
LIMITED PARTNER APPROVAL RIGHTS. Under the Operating Partnership Agreement,
the consent of holders of the L.P. Unit Majority also is required with respect
to a number of significant actions, including amendments to the Operating
Partnership Agreement and the issuance of limited partnership interests having
senior rights with respect to the L.P. Units. In addition, until the Protective
Provisions Expiration Date, the consent of the L.P. Unit Majority will be
required with respect to other matters, including actions and transactions
similar to those requiring the approval of the Required Directors. See
"OPERATING PARTNERSHIP AGREEMENT--Management." Taxable sales of certain
Properties are subject to the consent, under certain circumstances, of Mr. Berg
and Clyde J. Berg, or Kontrabecki, as well. See "--Tax Consequences of Sale of
Properties."
POTENTIAL CONFLICTS OF INTEREST WITH THE BERG GROUP
Mr. Berg and other members of the Berg Group, who will possess significant
rights in the Company and the Operating Partnerships, have a variety of
interests which may not be consistent with the interests of the other
shareholders of the Company. One such conflict arises because the Company has
agreed to pay overhead reimbursements and rent to BBE and Berg & Berg totaling
approximately $15,000 per month. The Acquisition Agreement specifies that any
increase in rent and overhead allocations and all other transactions between the
Company and Mr. Berg or other members of the Berg Group, or between the Company
and any entity in which Berg Group members own directly or indirectly 5% or more
of the equity interests including the Operating Partnerships, must be approved
by the Independent Directors Committee, and provides additional restrictions
summarized below relating to specific matters where conflicts may arise. Mr.
Berg also has agreed to refer all his prospective R&D Property development and
acquisition activities in Washington, Oregon and California to the Company for
initial consideration. There can be no assurance that these restrictions will be
successful in eliminating the influence of such conflicts. If these restrictions
are not successful, decisions could be made that might fail to protect fully the
interests of all shareholders of the Company. Aside from these restrictions, Mr.
Berg and the other members of the Berg Group are entitled to freedom of action
under the terms of the Acquisition Agreement.
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EXCLUDED PROPERTIES. Although the Company is succeeding to most of the R&D
Properties in which the Berg Group holds interests, certain properties that are
not managed by any member of the Berg Group or are not material to the Company
(the "Excluded Properties") are not being contributed to the Operating
Partnerships. Members of the Berg Group will continue to hold ownership
interests in the Excluded Properties that are not contributed to the Operating
Partnerships. One such Excluded Property is the Company's headquarters at 10050
Bandley Drive, Cupertino, California, which is owned by Berg & Berg, and used by
Mr. Berg as his principal office and the principal office of other Affiliates
besides the Company. The other Excluded Properties (representing an aggregate of
approximately 270,000 rentable square feet) are located in the Silicon Valley
and cannot be made available to the Company by any of the Berg Group members as
part of the Berg Acquisition because no Berg Group member has the power to
include such property in the Berg Acquisition, or because the property is
subject to obligations that render transfer to the Operating Partnerships
impractical. The Company does not expect that these Excluded Properties will
compete with any of the Properties, and none of them involve any common tenants
or common financing arrangements with the Properties. In addition, unless Mr.
Berg can resolve the dispute which has arisen concerning the Fremont Properties
in a manner which allows him to acquire those Properties, he will be unable to
contribute them to an Operating Partnership.
PENDING DEVELOPMENT PROJECTS. There are four Pending Development Projects
which represent a total of 12 R&D Properties and approximately one million
rentable square feet in the aggregate. Under the Acquisition Agreement, the
Company and the owners of these Properties have agreed that the Company or the
Operating Partnerships will acquire each of the R&D Properties as it is
completed and leased. Under the terms of the Pending Projects Acquisition
Agreement the sellers of the Properties may elect to receive cash or L.P. Units
at a value of $4.50 per unit. The purchase price for each of the Properties will
be adjusted at the time of transfer based upon the ratio of the actual monthly
rental rate per square foot to the projected rental rate per square foot set
forth in the Pending Projects Acquisition Agreement. The Berg Group members who
own the Pending Development Projects, including Carl E. Berg, will determine the
terms of the leases for each of the Properties prior to their transfer to the
Company. The sellers' determination of acceptable terms may differ materially
from those sought by an independent party. See "DESCRIPTION OF THE
PROPERTIES--The Pending Development Projects."
BERG LAND HOLDINGS. The Berg Land Holdings will not be contributed to the
Operating Partnerships. The Company and the Operating Partnerships have an
option to purchase properties developed on the Berg Land Holdings, as well a
right of first offer relating thereto, pursuant to the terms of the Option
Agreement. See "DESCRIPTION OF PROPERTIES--Land Holding and Development
Arrangements." If the Independent Directors Committee does not elect to exercise
its rights with respect to some or all of the Berg Land Holdings and the Berg
Group subsequently determines to develop such Holdings, Carl E. Berg and other
members of the Berg Group may devote a substantial amount of their time to such
development activities, and the developed Berg Land Holdings may compete for
available tenants with certain of the Properties.
TAX CONSEQUENCES OF SALE OF PROPERTIES. Since most of the Properties have
unrealized gain attributable to the difference between fair market value and
adjusted tax basis in such Properties prior to the Company's purchase of its
general partner's interest, the sale of any of such Properties may cause adverse
tax consequences to the Limited Partners. As a result, the Limited Partners
might not favor a sale of a Property even though such a sale could be beneficial
to other shareholders of the Company. Furthermore, until the Protective
Provisions Expiration Date, the Operating Partnership Agreement provides that
for a period of ten years following the closing of the Berg Acquisition, the
Operating Partnerships may not sell or otherwise transfer any Property
designated by Mr. Berg or Clyde J. Berg in a taxable transaction. In addition,
Mr. Kontrabecki may designate that the Kontrabecki Properties may not be sold or
transferred in a taxable transaction. See "FEDERAL INCOME TAX CONSIDERATIONS--
Tax Aspects of the Operating Partnerships," "CERTAIN PROVISIONS OF MARYLAND LAW
AND MISSION WEST-MARYLAND'S CHARTER AND BYLAWS" and "OPERATING PARTNERSHIP
AGREEMENT--Management."
TERMS OF TRANSFERS; ENFORCEMENT OF PARTNERSHIP AGREEMENT. Neither the terms
of transfers of the Berg Properties to the Operating Partnerships by the Limited
Partners or the terms of the Operating Partnership Agreement were determined
through arm's-length negotiation. Some Berg Group members in their capacity as
beneficial owners of the Acquired Properties also had a substantial interest in
determining the terms and conditions of the transfers of the Acquired Properties
and the Pending Development Projects to the Operating Partnerships. The Berg
Group Board Representatives also may be subject to a conflict of interest with
respect to their obligations as directors of the Company to enforce the terms of
the Operating Partnership Agreement.
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CHANGES IN POLICIES WITHOUT SHAREHOLDER APPROVAL
The Company's board of directors will determine the investment and
financing policies of the Operating Partnerships and its policies with respect
to certain other activities, including its growth, debt capitalization,
distribution and operating policies. See "POLICIES WITH RESPECT TO CERTAIN
INVESTMENT ACTIVITIES." The board of directors has no present intention to amend
or revise these policies. However, the board of directors may do so at any time
without a vote of the Company's shareholders. A change in these policies could
adversely affect the Company's financial condition or results of operations.
ANTI-TAKEOVER PROVISIONS
Provisions of the Charter and bylaws of Mission West-Maryland could delay,
defer or prevent a transaction or a change in control of Mission West-Maryland
(or other transaction) that might involve a premium price for holders of Common
Stock or otherwise be in their best interest. See "CERTAIN PROVISIONS OF
MARYLAND LAW AND OF MISSION WEST-MARYLAND'S CHARTER AND BYLAWS."
REAL ESTATE INVESTMENT CONSIDERATIONS
GENERAL. Real property investments are subject to varying degrees of risk.
The investment returns available from equity investments in real estate depend
in large part on the amount of income earned and capital appreciation generated
by the Properties as well as the related expenses incurred. If the Properties do
not generate revenue sufficient to meet operating expenses, debt service and
capital expenditures, the Company's income and ability to make distributions to
its shareholders will be adversely affected. Income from the Properties may also
be adversely affected by general economic conditions, local economic conditions
such as oversupply of commercial real estate, the attractiveness of the
Properties to tenants, competition from other available rental property, the
ability of the Company to provide adequate maintenance and insurance, the costs
of tenant improvements, leasing commissions and tenant inducements and the
potential of increased operating costs (including real estate taxes). Various
significant expenditures associated with an investment in real estate (such as
mortgage payments, real estate taxes and maintenance expenses) generally are not
reduced when circumstances cause a reduction in revenue from the investment.
Income from properties and real estate values also are affected by a variety of
other factors, such as governmental regulations and applicable laws (including
real estate, zoning and tax laws), interest rate levels and the availability of
financing.
ILLIQUIDITY OF REAL ESTATE INVESTMENTS. Real estate investments are
relatively illiquid, which limits the ability of the Operating Partnerships
(and, therefore, the Company) to restructure its portfolio in response to
changes in economic or other conditions. See "OPERATING PARTNERSHIP AGREEMENT--
Management." In addition, the Properties are subject to fixed expenditures, such
as debt service, real estate taxes, and expenses for repairs, maintenance, and
operations that do not decline with reductions in income. Such illiquidity and
fixed expenditures, together with other factors might impede the Company's
ability to respond to adverse conditions. The Company's ability to make expected
distributions to shareholders also could be adversely effected as a result.
GEOGRAPHIC AND INDUSTRY CONCENTRATION; DEPENDENCE UPON SILICON VALLEY
ECONOMY AND THE ELECTRONICS INDUSTRY. All of the Properties are located in the
southern portion of the San Francisco Bay Area commonly referred to as "Silicon
Valley." Following a recessionary period which ended in 1993, the Silicon Valley
economy has grown robustly and the reported unemployment rate for Santa Clara
County was 3.1% as of December 31, 1997. See "THE BUSINESS OF BERG & BERG--
Regional Economic Profile." As a result of the strong Silicon Valley economy,
values for the Properties and rents payable under new leases have increased
substantially since 1995. Future increases in values and rents for the
Properties depend to a significant extent on the health of the Silicon Valley
economy. All of the Properties are subject to existing leases with fixed rental
rates, and a material downturn in the Silicon Valley economy, or in the
commercial real estate market in Silicon Valley, will not immediately reduce
revenues but could have a material adverse impact on the value of the Company's
Common Stock and on the Company's financial condition. Following the completion
of UPREIT Transactions, the Company will consider expansion into other regions
of the West Coast with concentrations of technology companies if R&D Properties
of good quality can be obtained on reasonable terms. See "FUTURE OPERATIONS OF
THE COMPANY--Acquisitions."
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RISK OF LOSS OF KEY TENANTS. Most of the Properties are occupied by single
tenants, many of whom are large, publicly-traded electronics companies. The
Company's three largest tenants, Apple Computer Inc. ("Apple"), Amdahl
Corporation ("Amdahl"), and Cisco Systems, Inc. ("Cisco") accounted for
approximately 16.25%, 8.67%, and 7.17%, respectively, of the aggregate Annual
Base Rent from the Berg Properties for the year ended December 31, 1997. The
Operating Partnerships' 12 largest tenants for the Berg Properties represent at
least 56.8% of such Annual Base Rent. Eight of these tenants have occupied their
respective Properties for periods ranging from five to 22 years and have renewed
one or more leases. The Company believes that Berg & Berg's practice of
emphasizing the development of single-tenant, rather than multi-tenant,
Properties has contributed to its relatively high occupancy rates. Apple has
announced operating losses, internal reorganizations, and layoffs in each of its
last two fiscal years. To date, Apple has not defaulted in the payment of rent
under any of its three leases with the Operating Partnerships, nor has Apple,
Amdahl or Cisco notified the Operating Partnerships of an intention to vacate,
reduce its occupancy at, or relocate from any of their respective properties.
However, there can be no assurance that Apple, Amdahl, Cisco or other key
tenants will renew their leases. The Company believes that it would be able to
relet Properties of its other key tenants should they be vacated and that some
of such Properties are currently leased at below market rental rates. However,
if the Company is unable to relet properties as leases terminate or if Apple,
Amdahl, Cisco or another key tenant were to terminate their tenancy, and the
Company were unable to relet such Properties within a reasonable period of time
and at comparable rental rates, the Company's operating results and its ability
to make distributions could be adversely affected. See "DESCRIPTION OF THE
PROPERTIES--the Berg Properties."
RISK OF BANKRUPTCY OF KEY TENANTS. At any time, a tenant of the Properties
may seek the protection of the bankruptcy laws which could result in the
rejection and termination of such tenant's lease and thereby cause a reduction
in the Company's income. Although the Operating Partnerships' predecessors have
experienced losses from tenant bankruptcies of less than $25,000 since 1987, no
assurance can be given that tenants will not file for bankruptcy protection in
the future or, if a tenant makes such a filing, that it will affirm its lease
and continue to make rental payments in a timely manner. In addition, from time
to time a tenant may experience a downturn in its business which may weaken its
financial condition and result in its failure to make rental payments when due.
If a tenant's lease is not affirmed following a bankruptcy filing, or if a
tenant's financial condition weakens, the Company's income may be adversely
affected. The bankruptcy of one or more of the Company's key tenants could have
a material adverse effect on the Company's operating results and its ability to
make distributions.
ADDITIONAL RISKS OF REAL ESTATE ACQUISITION AND DEVELOPMENT. A focus of the
Company will be the acquisition of additional properties in selected
geographical areas and the renovation and reletting of such properties. The
Company may also undertake the development of new buildings on sites acquired
from the Berg Group or from third parties. See "DESCRIPTION OF THE PROPERTIES
- -Land Holding and Development Arrangements." Real estate acquisition and
development involves significant risks in addition to those relating to the
ownership and operation of existing, fully-leased properties, including the
risks that required approvals may not be obtained or may take more time and
resources to obtain than expected, that construction may not be completed on
schedule or on budget and that the properties may not achieve anticipated rent
or occupancy levels. In addition, if permanent debt or equity financing is not
available on acceptable terms to refinance new development activities or
acquisitions undertaken without permanent financing, further development
activities or acquisitions could be curtailed and the Company's operating
results and its ability to make distribution could be adversely affected.
DEBT FINANCING; RISK OF INABILITY TO SERVICE DEBT. On a pro forma basis as
of March 31, 1998, after giving effect to the Berg Acquisition, 26 of the
Properties are mortgaged to secure payment of debt, and the Company expects to
have outstanding approximately $164.6 million of debt secured by such Properties
for the final closing date for the Berg Acquisition, following shareholder
approval at the Special Meeting. If the Operating Partnerships were unable to
meet their mortgage payments, a loss could be sustained as a result of
foreclosure on its Property by the mortgagee. Such a loss could reduce the value
of the Company's investment in the Operating Partnerships. See "DESCRIPTION OF
THE PROPERTIES -- Mortgage Debt and Wells Fargo Lines" for information regarding
the terms of the mortgages encumbering the Properties.
As part of its current business strategy, the Company has adopted a policy
of maintaining a consolidated ratio of debt to Total Market Capitalization of
less than 50%, which may not be exceeded without the approval of more than 75%
of the entire board of directors. The Company's pro forma ratio of debt to Total
Market Capitalization would have been approximately 32.8% at March 31, 1998,
assuming the occurrence of the UPREIT Transactions, a Market Price of $4.50
price per share, and 75,100,000 Outstanding Shares issued and
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outstanding on that date. Within the prescribed limit, the board of directors of
the Company may, from time to time, modify its debt policy and may increase or
decrease its ratio of debt to Total Market Capitalization. If the Company were
to change its debt policy, the Company could become more highly leveraged,
resulting in an increased risk of default on its obligations and an increase in
debt service requirements that could adversely affect the Company's financial
condition, its operating results and its ability to make distributions.
POTENTIAL ENVIRONMENTAL LIABILITY. Under various federal, state and local
laws, ordinances and regulations, an owner or operator of real property may be
held liable for the costs of removal or remediation of certain hazardous or
toxic substances located on or in the property. Such laws often impose liability
and expose the owner to governmental proceedings without regard to whether the
owner knew of, or was responsible for, the presence of the hazardous or toxic
substances. The cost of any required remediation or removal of such substances
may be substantial. In addition, the owner's liability as to any specific
property is generally not limited and could exceed the value of the property
and/or the aggregate assets of the owner. The presence of such substances, or
the failure to properly remove or remediate such substances, may also adversely
affect the owner's ability to sell or rent the property or to borrow using the
property as collateral. Persons who arrange for treatment or the disposal of
hazardous or toxic substances may also be liable for the costs of any required
remediation or removal of the hazardous or toxic substances at a disposal
facility, regardless of whether the facility is owned or operated by such owner
or entity. In connection with the ownership of the Properties or the treatment
or disposal of hazardous or toxic substances, the Company may be liable for such
costs.
Other federal, state and local laws impose liability for the release of
asbestos-containing materials ("ACMs") into the air and require the removal of
damaged ACMs in the event of remodeling or renovation. The Company is aware that
there are ACMs present at several of the Properties, primarily in floor
coverings. The Company believes that the ACMs present at these Properties are
generally in good condition and that no ACMs are present at the remaining
Properties. The Company believes it is in compliance in all material respects
with all present federal, state and local laws relating to ACMs and that if it
were given limited time to remove all ACMs present at the Properties, the cost
of such removal would not have a material adverse effect on its financial
condition, operating results or ability to make distributions.
The Company is not aware of any environmental liability relating to the
Properties that it believes would have a material adverse effect on its
financial condition, its operating results or its ability to make distributions
and has not been notified by any governmental authority or any other person of
any material noncompliance, liability or other claim in connection with any of
the Properties. Groundwater contaminated by chemicals used in various
manufacturing processes, including semiconductor fabrication, underlies a
significant portion of northeastern Santa Clara County, where many of the
Properties are located, however. Environmental assessments have not been
conducted for most of the Properties and none since 1995. Phase I environmental
assessments and some soil and water sampling as recommended by the environmental
consultant have been obtained on each of the Pending Development Projects. No
assurance can be given that future uses and conditions (including changes in
applicable environmental laws and regulations, the uses and conditions of
properties in the vicinity of the Properties, such as leaking underground
storage tanks and the current and future activities of tenants) will not result
in the imposition of environmental liability and the costs attendant thereto.
GENERAL UNINSURED LOSSES. The Operating Partnerships will carry
comprehensive liability, fire, extended coverage and rental loss insurance
covering all of the Properties, with policy specifications and insured limits
which the Company believes are adequate and appropriate under the circumstances.
There are, however, certain types of extraordinary losses that are not generally
insured because they are either uninsurable or not economically insurable.
Should an uninsured loss or a loss in excess of insured limits occur, the
Operating Partnerships could lose their capital invested in a Property, as well
as the anticipated future revenues from the Property, and, in the case of debt
which is recourse to the Operating Partnerships, would remain obligated for any
mortgage debt or other financial obligations related to the Property. The
Company does not intend to obtain owner's title insurance policies for any of
the Properties, but pursuant to the Acquisition Agreement certain members of the
Berg Group and other Limited Partners have agreed to indemnify the Company for
any losses attributable to defects in title existing prior to the closing of the
Berg Acquisition. If a loss occurs resulting from a title defect with respect to
a Property in excess of insured limits, or the Company cannot obtain full
recovery though the Berg Group's indemnification where applicable, the Company
could lose all or part of its investment in, and anticipated profits and cash
flows from, such Property.
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POTENTIAL UNINSURED LOSSES FROM SEISMIC ACTIVITY. All the Properties are
located in areas that are subject to earthquake activity. In light of such
earthquake risk, since the early 1970's, California building codes have
established construction standards for all newly built and renovated buildings,
the current and most strict construction standards having been adopted in 1994.
Most of the Properties were completed prior to the adoption of more stringent
building codes in 1994. The Company believes that all Properties were
constructed in full compliance with applicable laws and construction standards
existing at the time of construction. The Operating Partnerships' insurance
policies for the Berg Properties do not cover damage caused by seismic activity,
although they do cover losses from fires after an earthquake. The Operating
Partnership has not obtained earthquake insurance for the Properties, and the
Company believes that such insurance coverage is generally not economical.
Following the October 17, 1989 Loma Prieta earthquake in the San Francisco Bay
Area, which had a magnitude of approximately 7.1 on the Richter scale, Berg &
Berg observed, and its tenants reported, only minimal damage to the Properties.
Should an earthquake occur that results in substantial damage to the existing
Properties, or properties subsequently acquired by the Company, the Company
could lose its investment in such properties and its financial condition,
operating results and ability to make distributions could be adversely affected.
FEDERAL INCOME TAX RISKS
FAILURE TO QUALIFY AS A REIT. The Company intends to elect to be taxed as a
REIT under the Code for its taxable year ending December 31, 1998, and to
operate in a manner designed to achieve and maintain qualification as a REIT.
Although the Company expects that it will be organized and will operate in
conformity with the requirements for qualification as a REIT, no assurance can
be given that the Company will so qualify or that it will continue to qualify in
the future. Qualification as a REIT involves the application of highly technical
and complex Code provisions for which there are only limited judicial and
administrative interpretations. The Company's ability to qualify and maintain
its status as a REIT will depend on the Company's ability to meet various
requirements. For example, at least 95% of the Company's gross income in any
year must be derived from dividends, interest, rents from real property, certain
capital gains and other qualified sources, and the Company must make annual
distributions to shareholders totaling at least 95% of its REIT taxable income
(excluding net capital gains). See "FEDERAL INCOME TAX CONSIDERATIONS." These
and various other factual matters and circumstances not entirely within the
Company's control may affect its ability to qualify or maintain its status as a
REIT. In addition, no assurance can be given that new legislation, regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification. See "FEDERAL INCOME TAX
CONSIDERATIONS--Requirements for Qualification."
If the Company were to fail to qualify as a REIT in any taxable year, it
would not be allowed a deduction for distributions to its shareholders in
computing its taxable income, and it would be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Unless entitled to relief under certain Code
provisions, the Company would also be disqualified from treatment as a REIT for
the four taxable years following the year during which REIT qualification was
lost. As a result of the loss of REIT status, funds available for distribution
to the Company's shareholders would be reduced for each of the years involved
and, in addition, the Company would no longer be required to make distributions
to its shareholders. Although the Company currently intends to operate in a
manner designed to enable it to qualify and maintain its status as a REIT, it is
possible that economic, market, legal, tax or other considerations may cause the
Company to fail to qualify as a REIT or may cause the Company's board of
directors either to refrain from making the REIT election or to revoke the REIT
election once made.
REIT DISTRIBUTION REQUIREMENTS. To obtain and maintain favorable tax
treatment as a REIT, the Company generally will be required each year to
distribute as a dividend to its shareholders at least 95% of its otherwise
taxable income (after certain adjustments). In addition, the Company will be
subject to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of 85% of its ordinary income for the calendar year, 95% of its capital gain
income for the calendar year and any undistributed taxable income from prior
periods. Failure to comply with these requirements would result in the Company's
income being subject to tax at regular corporate rates.
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OWNERSHIP LIMIT NECESSARY TO MAINTAIN REIT QUALIFICATION. In order for the
Company to maintain its qualification as a REIT, not more than 50% in value of
its outstanding stock may be owned, directly or indirectly, by five or fewer
individuals, as defined in the Code (the "Five or Fewer Test"). For the purposes
of preserving the Company's qualification as a REIT, the Charter generally
prohibits ownership (the "Ownership Limit") of more than 9% of the Common Stock
by any shareholder (other than limits set by agreements with the Berg Group, for
which the aggregate Ownership Limit is 20% (the "Berg Group Ownership Limit")).
The Charter mandates the aggregation of stock owned by affiliated owners for
purposes of the Ownership Limit. Individuals owning a percentage of the Common
Stock outstanding that exceeds the Ownership Limit at the time of the
Reincorporation Merger will not be required to reduce their stock holdings but
will be subject to the Ownership Limit with respect to the acquisition of
additional shares of Common Stock (other than shares acquired pursuant to
board-approved stock option and other compensation plans). Following
consummation of the UPREIT Transactions, the Berg Group initially will own less
than two percent of the issued and outstanding Common Stock. One current
legislative proposal of the Clinton administration would amend the "closely
held" requirement for REIT qualification. See "FEDERAL INCOME TAX
CONSIDERATIONS--Requirements for Qualification."
The constructive ownership rules of the Code are complex and may cause
Common Stock owned, directly or indirectly, by a group of related individuals
and/or entities to be deemed to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9% of the Common Stock (or the
acquisition of an interest in an entity which owns Common Stock) by an
individual or entity could cause that individual or entity (or another
individual or entity) to own constructively in excess of 9% of the Common Stock,
and thus subject such stock to the Ownership Limit.
The Charter provides that any transfer of shares by members of the Berg
Group or other shareholders that would result in direct or constructive
ownership in excess of the applicable Ownership Limit would be void, and the
intended transferee of such shares, including any pledgee, will be deemed never
to have had an interest in such shares. Further, if, in the opinion of the board
of directors (i) a transfer or repurchase of shares would result in any
shareholder or group of shareholders acting together owning in excess of the
Ownership Limit, or (ii) a proposed transfer or repurchase of shares may
jeopardize the qualification of the Company as a REIT under the Code, under the
Charter the board of directors may, in its sole discretion, refuse to allow the
shares to be transferred to the proposed transferee. If any transfer or
repurchase of shares of Common Stock occurs which, if effective, would result in
any person beneficially or constructively owning shares of Stock of the Company
in excess or in violation of the above transfer or ownership limitations (a
"Prohibited Owner"), then that number of shares shall be automatically
transferred to a trust (the "Trust") for the exclusive benefit of one or more
charitable beneficiaries (the "Charitable Beneficiary"), and the Prohibited
Owner shall not acquire any rights in such shares. The Prohibited Owner shall
not benefit economically from ownership of any shares of stock held in the
Trust, shall have no rights to dividends and shall not possess any rights to
vote or other rights attributable to the shares of stock held in the Trust. The
trustee of the Trust (the "Trustee") shall have all voting rights and rights to
dividends or other distributions with respect to shares of stock held in the
Trust, which rights shall be exercised for the exclusive benefit of the
Charitable Beneficiary. The shares or L.P. Units held by the Berg Group members
are not subject to automatic transfer to the Trust, however, as their shares
will be subject to the prohibitions associated with the applicable Berg Group
Ownership Limit, as well as restrictions on any exchanges of L.P. Units and
share purchases, repurchases and transfers of any kind that would result in a
violation of the Five or Fewer Test. See "FEDERAL INCOME TAX
CONSIDERATIONS--Requirements for Qualification."
UNCERTAINTIES REGARDING DISTRIBUTIONS TO SHAREHOLDERS
The Company's income will consist primarily of the Company's share of the
income of the Operating Partnerships, and the Company's cash flow will consist
primarily of its share of distributions from the Operating Partnerships.
Differences in timing between the receipt of income and the payment of expenses
in arriving at taxable income (of the Company or the Operating Partnerships) and
the effect of required debt amortization payments could require the Company
directly, or through the Operating Partnerships, to borrow funds on a short-term
basis to meet its intended distribution policy. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE
PROPERTIES--Liquidity and Capital Resources" and "DISTRIBUTION POLICY" for
information concerning the Company's expected cash flow.
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The amount and timing of distributions by the Operating Partnerships will
be determined by the board of directors of the Company as the sole general
partner of the Operating Partnerships and will be dependent on a number of
factors, including the amount of cash available for distribution, the Operating
Partnerships' financial condition, any decision by the Board of Directors to
reinvest funds rather than to distribute such funds, the Operating Partnerships'
capital expenditures, the annual distribution requirements under the REIT
provisions of the Code and such other factors as the Company's Board of
Directors deems relevant. See "FEDERAL INCOME TAX CONSIDERATIONS--Taxation of
the Company--Requirements for Qualification" and "--Annual Distribution
Requirements." Accordingly, there is no assurance that the Company will be able
to meet or maintain its intended distribution policy.
POTENTIAL PROPERTY TAX REASSESSMENTS
The Company does not believe that its acquisition of interests in the
Operating Partnerships will result in a statutory change in ownership giving
rise to a reassessment of any of the Properties for California property tax
purposes. There can be no assurance, however, that county assessors or other tax
administrative agencies in California will not attempt to assert that such a
change occurred as a result of the transactions related to the Berg Acquisition.
Although the Company believes that such a challenge would not be successful
ultimately, there can be no assurance regarding the outcome of any such dispute
or proceeding. Such a reassessment could result in increased real estate taxes
on the Properties. Substantially all of the leases for the Properties contain
provisions requiring the tenants to pay their proportionate share of any
property tax increases. As a practical matter, the Company may be unable to pass
through to its tenants the full amount of the increased taxes resulting from a
reassessment, however, the Company believes that any amount not passed through
to tenants will not have a material effect on the Company's operating results.
See "THE COMPANY'S PRO FORMA DATA."
MARKET FOR COMMON STOCK
The AMEX halted trading of the Common Stock at the opening of trading on
October 20,1997. The last day of trading prior to the halt was October 17, 1997.
The closing price of the Common Stock on October 17, 1997 was $3.38. On
_____________, 1998, the last trading day immediately preceding the date of this
Proxy Statement/Prospectus, the closing price of the Common Stock on the AMEX
was $________.
THE COMPANY'S OBLIGATION TO PURCHASE TENDERED L.P. UNITS
Each of the Limited Partners (other than Carl E. Berg and Clyde J. Berg)
will have the annual right to exercise their Put Rights and cause the Operating
Partnerships to purchase a portion of their L.P. Units at a purchase price based
on the average market value of the Common Stock for the 10-trading day period
immediately preceding the date of tender. Upon the exercise of this put right by
a Limited Partner the Company will have the option to purchase the tendered L.P.
Units with available cash, borrowed funds, or the proceeds of an offering of
newly issued shares of Common Stock. The Limited Partners' Put Rights generally
commence one year after the completion of the Berg Acquisition, and are
available once a year for a maximum of one-third of the Limited Partner's L.P.
Units. If the total purchase price of the L.P. Units tendered by all Limited
Partners in one year exceeds $1 million, the Operating Partnerships or the
Company shall be entitled to reduce proportionally the number of L.P. Units to
be acquired from each tendering Limited Partner so that the total purchase price
is not more than $1 million. The exercise by Limited Partners of their Put
Rights may reduce the amount of Cash Available for Distribution to shareholders
of the Company. See "OPERATING PARTNERSHIP AGREEMENT--Exchange Rights, Put
Rights and Registration Rights."
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock. Sales of substantial amounts of Common Stock
(including shares issued in connection with the Exchange Rights) or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock. Additional shares of Common Stock may be issued to
the Limited Partners (subject to the Ownership Limit) if they exchange their
L.P. Units for shares of Common Stock pursuant to the Exchange Rights or may be
sold by the Company to raise funds to acquire such L.P. Units if the Limited
Partners elect to tender L.P. Units to the Company pursuant to the Put Rights.
Such Exchange Rights and Put Rights, however, generally are not available during
the first year following the Berg Acquisition. During such initial 12-month
period, the Limited Partners will be allowed to seek one registration of not
more than 500,000 shares of Common Stock for resale (on SEC Form S-3 or the
equivalent) and will have
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"piggyback registration" rights for not more than 25% of the total number of
shares proposed for a public offering of Common Stock by the Company. Following
the first anniversary of the Berg Acquisition, the exercise of the Exchange
Rights generally is limited to the exchange or sale once during any 12-month
period by each Limited Partner of up to one-third of the aggregate number of
L.P. Units owned by such Limited Partner. The Company has granted certain
"demand," "resale" and "piggyback" registration rights with respect to shares of
Common Stock which would be acquired by the Limited Partners and their
Affiliates pursuant to the Exchange Rights. All registrations of Berg Group
shares are subject to underwriters' requirements for offering size reduction,
and the right of the board of directors to restrict or delay registrations for
limited periods. Sales of shares acquired by members of the Berg Group and other
Limited Partners through the exercise of their Exchange Rights and registration
rights may adversely impact the price and trading volume of the Common Stock
from time to time to the detriment of other shareholders.
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THE SPECIAL MEETING
At the Special Meeting, the board of directors seeks shareholder approval
or ratification of the following six proposals pertaining to the UPREIT
Transactions. Each of the transactions is subject to distinct terms and
conditions. The parties to the Berg Acquisition have completed the Partnership
Closing portion of the transaction, and the Company seeks shareholder
ratification of the Berg Acquisition is conditioned upon the completion of the
Private Placement. None of such transactions is subject to the occurrence of the
Reincorporation Merger. The board of directors intends for the shareholders to
consider all six proposals at once, and this Proxy Statement/Prospectus
describes the UPREIT Transactions and their material consequences based on the
assumption that all of the UPREIT Transactions will be approved by the
shareholders and consummated by the parties to each transaction.
PROPOSAL 1
APPROVAL OF SALE OF 6,495,058 SHARES OF COMMON STOCK AT $4.50 PER SHARE
PROPOSAL 2
RATIFICATION OF THE COMPANY'S ACQUISITION OF THE SOLE GENERAL PARTNER
INTEREST IN EACH OF THE OPERATING PARTNERSHIPS
PROPOSAL 3
APPROVAL OF THE COMPANY'S ACQUISITION OF THE PENDING DEVELOPMENT PROJECTS
FROM CARL E. BERG AND CERTAIN OTHER MEMBERS OF THE BERG GROUP
PROPOSAL 4
APPROVAL OF THE COMPANY'S ACQUISITION OF AN OPTION TO ACQUIRE FUTURE R&D
PROPERTIES BUILT ON LAND OWNED BY CARL E. BERG AND CERTAIN OTHER MEMBERS OF
THE BERG GROUP
PROPOSAL 5
APPROVAL OF THE ISSUANCE OF UP TO 100,825,478 SHARES OF
COMMON STOCK IN EXCHANGE FOR LIMITED PARTNERSHIP INTERESTS HELD BY OR ISSUABLE
TO CARL E.BERG AND CERTAIN OTHER MEMBERS OF THE BERG GROUP AND OTHER LIMITED
PARTNERS
PROPOSAL 6
REINCORPORATION OF THE COMPANY AS A MARYLAND REIT
PROPOSALS 1, 2, 3, 4 AND 5 PERTAIN TO THE BERG ACQUISITION AND THE COMPANY'S
FORMATION OF AN UPREIT. PROPOSAL 6 CONCERNS THE MERGER OF THE COMPANY INTO
MISSION WEST-MARYLAND, WHICH THE COMPANY ANTICIPATES WILL ELECT REIT STATUS IN
1998.
PARTIES TO THE BERG ACQUISITION
The Berg Group consists of Carl E. Berg and his wife, Clyde J. Berg,
certain trusts for their respective children, BBE, and certain other entities
which they control. See "PRINCIPAL SHAREHOLDERS." The members of the Berg Group
currently own most of the interests in the limited partnerships comprising the
Operating Partnerships and, upon final consummation of the Berg Acquisition,
including acquisition of the Fremont Properties, will beneficially own
63,381,987 L.P. Units, or approximately 84.4% of the Operating Partnerships. The
remaining 3,524,421 L.P. Units will be owned directly, or indirectly, by Mr.
Kontrabecki and other non-Affiliates of the Berg Group. All the individuals and
entities actually holding or acquiring record ownership of the L.P. Units
pursuant to the Acquisition Agreement have represented to the Company that they
are accredited investors within the meaning of Rule 501(a) of Regulation D
promulgated by the Commission under the Securities Act. Certain of the Acquired
Properties known as the "Fremont Properties" are subject to an option held by
Carl E. Berg. Mr. Berg intends to acquire and contribute the Fremont Properties
to the Operating Partnerships at or before the final closing for the Berg
Acquisition, although he first must resolve a dispute, which is unrelated to the
activities of the Company or the Operating Partnerships, with the current owners
of the Fremont Properties. The Company believes that this dispute may lead to
litigation and there can be no assurance that Mr. Berg will be able to reach a
resolution of the dispute and acquire the Fremont Properties prior to the final
closing date for the Berg Acquisition. The Berg Acquisition will provide
material benefits to the members of the Berg Group. See "BACKGROUND OF THE
UPREIT TRANSACTIONS--Benefits to the Berg Group," and "DESCRIPTION OF THE
PROPERTIES -- Overview of the Acquired Properties."
PARTIES TO THE REINCORPORATION MERGER
The Reincorporation Merger will be effected through the merger of the
Company with and into Mission West-Maryland pursuant to Section 1110 of the
California General Corporation Law (the "CGCL") and Sections 3-101 et seq. of
the Maryland General Corporation Law (the "MGCL"). Mission West-Maryland was
incorporated in Maryland on March 20, 1998. See "THE REINCORPORATION MERGER."
GENERAL INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited on behalf of the board of directors of the
Company for use at the Special Meeting to be held on, or at any adjournment or
postponement thereof, for the purposes set forth herein and in the
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accompanying Notice of Special Meeting of Shareholders. The Special Meeting will
be held at 10050 Bandley Drive, Cupertino, California 95014. The mailing of this
Prospectus/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 ______________, 1998.
RECORD DATE, VOTING RIGHTS AND OUTSTANDING SHARES
The outstanding securities of the Company at March 31, 1998 consisted of
1,698,536 shares of Common Stock. Each shareholder of record at the close of
business on ___________, 1998 is entitled to one 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.
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 at 10050 Bandley Drive,
Cupertino, California 95014, a written notice or 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.
VOTES REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of the Common Stock, either voting in person or by proxy, is necessary to
approve Proposal 6, the Reincorporation Merger. The remaining proposals require
only approval of the shareholders, which is defined under California law to mean
the affirmative vote of a majority of the shares represented and voting at the
Special Meeting.
Two substantially similar Voting Rights Agreements (the "Voting Rights
Agreements") cover all shares of Common Stock acquired from the Company in a
private placement in September 1997, as well as a substantial number of shares
acquired from the Company in a private placement in November 1997. Consequently,
the holders of the 1,097,959 shares subject to the Voting Rights Agreements have
agreed to vote their shares of Common Stock as directed by Mr. Berg, on behalf
of BBE, on all matters submitted to a vote of the shareholders of the Company.
The Voting Rights Agreements terminate 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; (iii) two years after the effective date of the Voting Rights Agreement.
BBE has advised the Company that it will not exercise its rights under the
Voting Rights Agreements with respect to any of the Proposals to allow for
approval of the Proposals by the holders of a majority of shares of Common Stock
without regard to any voting rights possessed directly or indirectly by members
of the Berg Group. Accordingly, all holders of Common Stock will be entitled to
determine independently whether to vote their shares in favor of each of the
Proposals. Furthermore, BBE has advised the Company that it will terminate the
Voting Rights Agreements following the approval or ratification of all of the
UPREIT Transactions at the Special Meeting.
CONSEQUENCES IF THE PROPOSALS ARE NOT APPROVED
The board of directors adopted resolutions approving Proposals 1 through 6
on May 14, 1998, subject to shareholder approval or ratification. AMEX rules or
the CGCL require shareholder approval only of Proposals 1, 5 and 6, but the
board of directors has determined to seek shareholder approval of all the UPREIT
Transactions due to the materiality of such transactions and the potential
conflicts of interests between the Company and the Berg Group. As the Company
and other parties to the Acquisition Agreement completed the Partnership Closing
on July ___, 1998, the failure of the shareholders to approve the transaction
would not render it ineffective between the parties. Similarly, the Company
already has entered into binding agreements to sell 6,495,058 shares of Common
Stock in the Private Placement. Within two years from the date of the
Partnership Closing the L.P. Unit Majority may call the demand notes issued at
the Partnership Closing, which currently total approximately $33.6 million and
which the Company will need to finance by that date at the latest. Accordingly,
if the shareholders do not approve the Private Placement, the Company will seek
to obtain the amount of funds to be provided by the Private Placement in the
same or another manner. Failure of the shareholders to approve Proposals 3 and 4
would deprive the Company of the right to acquire the Pending Development
Projects and developments constructed on the Berg Land Holdings, which the
Company believes would materially diminish the Company's ability to increase
revenues and expand its real estate holdings within the next two years. If the
shareholders do not approve Proposal 5, the limited partners will not be able to
exchange L.P. Units for Common Stock and the Company's Total Market
Capitalization would be much lower. Additionally, the Company would be unable to
meet its obligations to the sellers under the Pending Projects Acquisition
Agreement, and thus, unable to enter into that agreement.
The Company and all other parties are obligated under the terms of the
Acquisition Agreement as amended to use their ultimate best efforts to obtain
shareholder approval of the UPREIT Transactions. Therefore, if the shareholders
fail to ratify the Partnership Closing transactions and/or the other
transactions comprising the Berg Acquisition by failing to approve Proposals 2,
3 and 4, the Company intends to call another special meeting of shareholders at
which the Company again would seek such ratification and approval and could ask
BBE, which is also a party to the Acquisition Agreement to advise the holders of
the shares subject to the Voting Rights Agreements to vote their shares in favor
of the proposal at the new meeting.
In any event, the Company's management does not intend to recommend the
dissolution and liquidation of the Company even though the shareholders fail to
approve any or all of the Proposals. Under the CGCL, however, the holders of at
least one-half of the Company's voting shares could vote in favor of
dissolution, or the holders of at least one-third of the voting shares could
initiate an action in Superior Court for involuntary dissolution of the Company.
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The Berg Acquisition and the Private Placement may be consummated upon
shareholder approval irrespective of whether the shareholders approve the
Reincorporation Merger. If the shareholders fail to adopt Proposal 6, the
Company nevertheless intends to elect to become a REIT in 1998, but it will
remain subject to the CGCL, and will not have adopted the Charter or the
proposed bylaws of Mission West-Maryland. The Company's articles of
incorporation and bylaws do not contain share ownership limits and other
restrictions contained in the Charter or proposed bylaws that are intended to
help maintain REIT qualification, however. Therefore, the Company would face a
greater risk of ceasing to qualify as a REIT if the shareholders do not approve
the Reincorporation Merger.See "COMPARISON OF SHAREHOLDERS RIGHTS" and "FEDERAL
INCOME TAX CONSIDERATIONS -- Taxation of the Company -- Requirements for
Qualification."
DISSENTERS' RIGHTS
Under California law, none of the shareholders of the Company will be
entitled to exercise dissenters' rights with respect to any of the Proposals.
See "THE REINCORPORATION MERGER--Approval and Effectiveness of Merger."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors of the Company unanimously recommends votes "FOR"
Proposals 1 through 6.
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BACKGROUND OF THE UPREIT TRANSACTIONS
INTRODUCTION
Following the sale of all of its properties in the first half of 1997, the
Company's announced objective has been to re-enter the real estate business. In
May 1997, BBE and the Company entered into a Stock Purchase Agreement for the
sale of 200,000 shares of newly issued Common Stock for $900,000, or $4.50 per
share, to BBE and other investors designated by BBE. At that time, BBE and the
Company contemplated, as disclosed in the Company's July 8, 1997 Proxy
Statement, that the Company would achieve that objective by acquiring office/R&D
real estate, or interests in entities owning such real estate, from Carl E. Berg
and his affiliates. Since then, the Company has been engaged in raising capital
through private placements of Common Stock, and Mr. Berg and his affiliates have
been reorganizing the Operating Partnerships' predecessors and making
arrangements to acquire additional R&D Properties. Those efforts culminated in
the execution of the Acquisition Agreement in May 1998. In July 1998, the
Acquisition Agreement was amended and the Company acquired an approximate 10.91%
interest as the sole general partner in each of the Operating Partnerships. The
Operating Partnerships now own all of the Berg Properties and the Kontrabecki
Properties, and will acquire the Fremont Properties once Mr. Berg has purchased
them, resulting in a total of approximately 4.34 million rentable square feet of
R&D Properties to be held in the Operating Partnerships. In addition, the
Company has agreed to acquire the approximately 1.02 million rentable square
feet of Pending Development Projects, after they have been constructed and
leased. Including the L.P. Units issuable to Mr. Berg for the Fremont
Properties, the Berg Group will own L.P. Units representing approximately 84.4%
of the interests in the Operating Partnerships, and non-Berg Group parties will
own approximately 4.69% of the interests in the Operating Partnerships, prior to
the acquisition of any Pending Development Projects.
In November 1997, the Company effected a 1-for-30 reverse stock split of
the Common Stock (the "Reverse Split"). All share and per share figures stated
in this Proxy Statement/Prospectus give effect to the Reverse Split.
BACKGROUND
THE COMPANY. Until recently, the Company was 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. In January and May
1997, the Company completed the sale of its entire real estate portfolio.
The Company was formed in 1969 as Palomar Mortgage Investors, a California
business trust. It operated as a REIT, 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 the properties it owned. In 1982, the Company incorporated
under its present name. The Company has two wholly owned subsidiaries, MIT
Realty, Inc. and Mission West Executive Aircraft Center, Inc. ("MWEAC"). MIT
Realty, Inc. and MWEAC are both inactive.
In July 1996, the Company entered into an agreement to sell all of its real
estate assets. That agreement was subsequently terminated and replaced, as was a
subsequent agreement. On December 6, 1996, the Company entered into an agreement
to sell all of its real estate assets to Spieker Properties, L.P. for $50.5
million in cash. Upon completion of the sale of eight properties and one parcel
of land, the Company received $47.5 million in cash, from which it repaid all
debt encumbering the properties and paid a majority of the related transaction
and closing costs, including $3 million in "break-up" fees from the terminated
sales transactions.
On February 4, 1997, the Company declared a special dividend of $9.00 per
share payable on February 27, 1997 to all shareholders of record as of February
19, 1997. After the sale of assets and the payment of the dividend to
shareholders, only nominal assets remained in the Company. The board of
directors and management considered available strategic alternatives for the
remaining corporate entity. Those alternatives included possible business or
asset acquisitions or combinations, a sale of the corporate entity, and outright
liquidation.
On May 27, 1997, the Company entered into the Stock Purchase Agreement with
BBE, which transferred most of its share purchase rights to unaffiliated
accredited investors as of August 4, 1997. All such investors (collectively the
"Berg Voting Group") signed the Voting Rights Agreements. A special meeting of
shareholders was on held August 5, 1997, at which the shareholders of the
Company approved the transaction. The transaction was completed on September 2,
1997, at which time all officers and directors of the Company resigned, and BBE
and the Berg Voting Group acquired a 79.6% controlling ownership position in the
Company.
On October 20, 1997, the Company paid a further distribution of $3.30 per
share to shareholders of record as of August 28, 1997, from available cash
including $900,000 received from members of the Berg Voting Group for the
purchase of their shares. No portion of the distribution was paid on shares held
by the members of the Berg Voting Group. In connection with that distribution,
the AMEX halted trading of the Common Stock at the opening of trading on October
20, 1997.
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To increase the price per share of the Common Stock, raise funds and
increase assets and shareholders' equity, at a special meeting of shareholders
held on November 10, 1997, the shareholders of the Company approved the Reverse
Split, and the sale of 1,250,000 newly issued shares of Common Stock at $4.50
per share in a private placement offering. The Company completed that
transaction as of November 12, 1997. In November 1997, the Company changed its
fiscal year to December 31.
THE OPERATING PARTNERSHIPS. On July __, 1998, the Company acquired control
of the four Operating Partnerships by becoming the sole general partner and
acquiring an approximate 10.91% interest in each one, which became effective as
of July 1, 1998 for financial and partnership income tax accounting purposes. To
purchase its interest the Company issued Demand Notes of approximately $6.9
million, $6.7 million, $19 million, and $1 million to MWP, MWP I, MWP II and MWP
III, respectively. Although each Demand Note is payable on demand, no such
demand may be made prior to the earlier of the closing of the Private Placement
or July 1, 2000. Demand under each note may be made by action of the holders of
a majority of the outstanding L.P. Units in the partnership. Interest on the
Demand Notes is computed at the rate of 7.25, compounded semiannually. The
amendment to the Acquisition Agreement, dated as of July 1, 1998, provides that
upon the acquisition of the Fremont Properties by MWP, the Company will be
required to pay MWP an additional $1.6 million to maintain its 10.91% interest
in that partnership.
As a consequence of the Partnership Closing, the Operating Partnerships
currently hold R&D Properties with an aggregate book value as of March 31, 1998,
of $135.2 million (net of accumulated depreciation of $82.6 million), subject to
total debt of $158.7 million. The Fremont Properties will have a total purchase
price of $19.7 million which include indebtedness of $5.9 million when acquired
by the Operating Partnerships. Upon the completion of the Berg Acquisition and
the implementation of the New Secured Loan, the total amount of collateralized
indebtedness of the Operating Partnerships will be $164.6 million, none of which
will be owed to related parties.
In connection with the Partnership Closing, each of the Operating
Partnerships and their limited partners entered into an Agreement for Assumption
and Allocation of Liabilities, under which the Limited Partners agreed to assume
personal liability for a certain percentage of recourse indebtedness under a
Wells Fargo Bank N.A. ("Wells Fargo") line of credit, in the event of payment
default by the Operating Partnerships. The Limited Partners have assumed a share
of this debt to preserve basis for federal income tax purposes, and intend to
provide limited guaranties of a similar nature to Prudential upon the refinance
of the Wells Fargo debt with the New Secured Loan, and other proceeds.
As a result of the Partnership Closing, the Operating Partnerships now have
an aggregate of 63,844,980 L.P. Units outstanding, of which 60,320,520 L.P.
Units are held by Carl E. Berg and other members of the Berg Group. Mr. Berg
will receive 3,061,427 additional L.P. Units from upon his acquisition and
contribution of the Fremont Properties to MWP.
All of the Operating Partnerships are governed by the terms of the
Operating Partnership Agreement and the Acquisition Agreement, as amended. Upon
the final closing date for the Berg Acquisition, the Operating Partnerships also
will be subject to the terms of the Exchange Rights Agreement, the Pending
Projects Acquisition Agreement and the Option Agreement.
The Operating Partnerships are maintained as separate entities to avoid
unnecessary transfers of real estate interests and maintain favorable tax
depreciation methods and periods. At present, the Company has no intention of
merging or combining any of the Operating Partnerships. The Acquisition
Agreement does provide, however, that the Company may operate the four limited
partnerships for some purposes as if they were a single enterprise. The Company
may commingle the funds and cash flow of the partnerships, and generally will
make them joint obligors for all recourse indebtedness of the Partnership and
secure mortgage debt proportionately with the Properties held by the respective
partnerships. Operating cash flow shall be distributed based upon the total
partnership interests in the Operating Partnerships, and the Company's share of
all distributions with respect to its interest in each of the four limited
partnerships will be identical. The Acquisition Agreement contemplates that all
financing, investing, property acquisitions and dispositions, and all business
expansion activities of the Company and the Operating Partnerships will be
undertaken through the Operating Partnerships in a manner intended to maintain a
ratio of net equity value for each of the four limited partnerships to the total
net equity value of the Operating Partnerships as a whole that is similar to
such ratio as of the July 1, 1998 effective date of the Partnership Closing. See
'THE ACQUISITION AGREEMENT."
All holders of L.P. Units (other than Carl Berg and Clyde Berg) may put
their L.P. Units for redemption by the Operating Partnerships not more than once
each year, subject to the Company's right to purchase such units with funds
raised through an offering of new shares of Common Stock, and subject to an
aggregate annual limitation of $1 million for the total purchase price, unless
the Company otherwise elects. Upon the exercise of such put rights, the holder
of the L.P. Units will receive cash. In addition, the holders of the L.P. Units
may exchange their L.P. Units for shares of Common Stock under certain
circumstances. See "OPERATING PARTNERSHIP AGREEMENT--Exchange Rights, Put Rights
and Registration Rights."
THE PRIVATE PLACEMENT. To partially finance its acquisition of the general
partner interests in the Operating Partnerships, the Company has agreed to sell
6,495,058 shares of Common Stock at a price of $4.50 per share to a number of
accredited investors in two separate private placements. In one of the
transactions, Ingalls & Snyder has acted as the placement agent for the sale of
5,800,000 shares of Common Stock for a total cash purchase price of $26,100,000.
Ingalls & Snyder is entitled to receive a commission of $0.05 per share from
each of the purchasers payable at the closing for the purchase of the shares.
The Company is not obligated to pay these commissions. The Ingalls & Snyder
private placement was offered through a Private Placement Memorandum dated as of
April 27, 1998 and was fully subscribed on May 4, 1998. At the same time, the
Company effected an additional private placement for the offer and sale of
695,058 shares of Common Stock at a price of $4.50 per share to a separate group
of investors, including Mr. Berg and consisting primarily of friends and
relatives of the Company's senior management. In the transaction, John Moran, a
principal of Ingalls & Snyder, will receive 200,000 shares of Common Stock at
the closing in payment for services rendered related to the Company's recent
capital formation efforts in assisting the Company to obtain its financing. The
other 495,058 shares will be sold for cash. The Private Placement is expected to
close at the same time as the Berg Acquisition but only upon shareholder
approval at the Special Meeting. All of the purchasers in both transactions have
signed a stock purchase agreement which constitutes their irrevocable commitment
to purchase the shares of Common Stock, subject only to customary closing
conditions such as the accuracy of the Company's representations and warranties,
in addition to the approval of the Private Placement by the shareholders at the
Special Meeting. All of the purchasers have represented to the Company that they
are accredited investors.
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ADDITIONAL DEBT ARRANGEMENTS. After the final closing date for the Berg
Acquisition, the Company and the Operating Partnerships expect to obtain the
$130 million New Secured Loan to be secured by 14 of the Properties. All of the
proceeds of the New Secured Loan will be used to refinance existing debt,
including approximately $33 million of debt outstanding under lines of credit
guaranteed by all of the Berg Group members. At the closing of the Berg
Acquisition, the Company and the Operating Partnerships also intend to obtain a
$50 million revolving line of credit, which they are currently negotiating with
several financial institutions (the "New Credit Line"). Proceeds from the New
Credit Line will be used for working capital. Certain of the Limited Partners
may guaranty all or part of the outstanding debt under the New Secured Loan for
federal income tax considerations. See "DESCRIPTION OF THE PROPERTIES --
Mortgage Debt and Credit Line" and "FUTURE OPERATIONS OF THE COMPANY -- Line of
Credit -- Mortgage Indebtedness Outstanding After Berg Acquisition."
REASONS FOR THE PRIVATE PLACEMENT AND THE BERG ACQUISITION
The board of directors believes that the Private Placement and the Berg
Acquisition represent effective means for rapidly acquiring (i) a substantial
portfolio of Silicon Valley R&D Properties, (ii) a strong and effective real
estate management operation, and (iii) a substantial presence in the REIT
industry for future acquisitions and raising capital to finance the Company's
operations. In connection with the Company's July 1997 solicitation of
shareholder approval for the sale of shares of Common Stock constituting control
of the Company to BBE and its co-investors, the Company expressed its intention
and desire to continue its historical involvement in the real estate business
through some form of business combination with the Berg Group. The Company
believes that the UPREIT Transactions fulfill that objective. See "FUTURE
OPERATIONS OF THE COMPANY--Operating and Growth Strategy."
Moreover, the acquisition of a controlling interest in the Operating
Partnerships rather than the direct acquisition of any of the Properties will
enhance the Company's acquisition and development strategy by providing several
alternatives (e.g., cash, Common Stock or L.P. Units) for acquiring the Pending
Development Projects and one or more of the Berg Land Holdings from the Berg
Group or acquiring additional properties from third parties. The Company
believes that these alternative currencies will enable it to acquire desirable
buildings or sites from sellers (including the Berg Group) who seek the
liquidity provided by shares of Common Stock, or to offer L.P. Units to sellers
(including the Berg Group) interested in deferring potential taxable gain.
Furthermore, it will allow the Company the flexibility to acquire significant
properties without using cash or issuing Common Stock to sellers whose ownership
thereof would cause them to exceed the Ownership Limit. By completing the
Partnership Closing effective as of July 1, 1998 and in advance of the Special
Meeting, the Company can consolidate the balance sheets and operating results of
the Operating Partnerships with its own financial statements for the entire
second half of the current fiscal year. The Company believes that this will
simplify the accounting procedures associated with recording the associated
transactions, permit clearer financial statement presentation, reduce the risk
that the Company might fail to meet the 75% gross income test for REIT
qualification in 1998, and help the Company to avoid regulation under the
Investment Company Act of 1940.
After the final closing of the Berg Acquisition and the closing of the
Private Placement, the Company will have 75,100,000 Outstanding Shares, and the
Berg Group will have beneficial ownership of approximately 84.6% of the
Outstanding Shares (assuming contribution of the Fremont Properties). Except for
the Excluded Properties, the Properties in the Company's initial portfolio will
include all of the Silicon Valley R&D Properties currently owned by any of the
Berg Group members
SUMMARY OF THE TRANSACTIONS
The Berg Acquisition and Private Placement transactions include the
following events (assuming acquisition of the Fremont Properties):
- - The Company will sell 6,495,058 shares of Common Stock for net proceeds of
$28.3 million, including 200,000 shares of Common Stock valued at $4.50 per
share to John Moran as consideration for consulting services related to the
Company's recent capital formation efforts.
- - The former general partners in each of the four limited partnerships
comprising the Operating Partnerships have resigned and become Limited
Partners.
- - The Company has become the sole general partner of the Operating
Partnerships by acquiring an approximate 10.91% interest in the capital and
profits of the Operating Partnerships for $35.2 million ($33.6 million of
Demand Notes payable upon closing of the Private Placement, and $1.6
million payable upon contribution of the Fremont Properties to MWP).
- - Existing Limited Partnership interests will have been converted into
52,695,177 L.P. Units and a total of 14,211,229 L.P. Units will have been
issued in exchange for R&D Properties contributed to MWP by Carl E. Berg,
certain Berg Group members, and two of the Kontrabecki Partnerships.
-24-
<PAGE>
- - The Company will give the Limited Partners the right to exchange each of
their L.P. Units for one share of Common Stock upon certain circumstances.
- - The Operating Partnerships will give certain Limited Partners the right to
put their L.P. Units to the Operating Partnerships once each year for cash
at a price equal to the 10-day average trading price for the Common Stock,
and by agreement with the Company, it will have the option to purchase the
tendered units for cash or shares of Common Stock at the same price. The
total annual purchase price of the tendered L.P. Units may not exceed $1
million without the Company's consent.
- - Certain Berg Group members have agreed with the Company that the Operating
Partnerships will have the right to acquire each of the Pending Development
Projects in exchange for a specified number of L.P. Units (estimated to be
a total of 33,919,072 L.P. Units) when each such Project has been completed
and leased. The number of L.P. Units to be issued will be adjusted if the
Property's first-year monthly rental rate per square foot differs from the
amount projected under the Pending Project Acquisition Agreement.
- - The Berg Group will grant to the Company and the Operating Partnerships the
right to purchase the Berg Land Holdings at a fixed formula pursuant to the
Berg Land Holdings Option Agreement as long as the Berg Group holds, or has
the right to acquire, shares representing 65% of the Common Stock on a
Fully-Diluted basis. In addition, the Berg Group will provide certain
rights of first offer to the Company and the Operating Partnerships in the
event the Berg Group exercises any reserved rights to develop the Berg Land
Holdings.
- - Berg & Berg will transfer its property management business to the Company
and will lease a portion of its Bandley Drive headquarters to the Company
pursuant to the Office Lease.
- - The Operating Partnerships will obtain secured debt of $130 million to
repay $33.3 million of existing debt secured by the Kontrabecki Properties
and $49.3 million of existing debt secured by some of the Berg Properties.
Existing debt secured by some of the Berg Properties and Fremont Properties
totaling approximately $34.6 million will remain outstanding.
- - For income tax reasons certain Limited Partners have assumed secondary
personal liability of existing debt and the same Limited Partners intend to
guaranty payment of all or some portion of the New Secured Loan. The
existing liability assumption and allocation agreements and the new
guarantees would obligate those Limited Partners to repay the debt to the
extent the lender is unable to receive payment through recourse to the
Operating Partnerships and its assets.
CONSEQUENCES OF THE BERG ACQUISITION AND THE PRIVATE PLACEMENT
The Berg Acquisition and the Private Placement will result in the
following:
- - The existing shareholders of the Company will own approximately 20.73% of
the outstanding Common Stock of the Company, and after this transaction,
the purchasers of Common Stock in the Private Placement will own
approximately 79.27% of the outstanding voting securities of the Company.
- - The Company will be the sole general partner of, and own a 10.91% interest
in, the Operating Partnerships.
- - The members of the Berg Group will beneficially own 63,381,987 L.P. Units
representing in the aggregate an approximate 84.4% limited partnership
interest in the Operating Partnerships.
- - Individuals and entities, other than members of the Berg Group, will
directly and indirectly own 3,524,421 L.P. Units representing in the
aggregate an approximate 4.69% limited partnership interest in the
Operating Partnerships.
- - The Operating Partnerships will own the fee interest in all of the
Properties.
-25-
<PAGE>
- The proceeds of the New Secured Loan along with the proceeds of the
Company's purchase of its interest in the Operating Partnerships and cash on
hand prior to the Partnership Closing of the Berg Acquisition will have been
used to repay $82.6 million of existing debt secured by the Properties, and to
make a distribution of approximately $91.6 million to Carl E. Berg and Clyde J.
Berg prior to the Partnership Closing.
BENEFITS TO THE BERG GROUP
The members of the Berg Group, and to a lesser extent the non-affiliated
Limited Partners in the Operating Partnerships, will realize benefits from the
Berg Acquisition. These benefits include:
- - All of the L.P. Units in the Operating Partnerships will be exchangeable
for shares of Common Stock pursuant to the Exchange Rights (subject to the
Ownership Limit). L.P. Units held by other than Carl E. Berg and Clyde J.
Berg may be tendered to the Operating Partnerships pursuant to the Put
Rights. Under certain circumstances, the holders of the L.P. Units also may
require the Company to register the shares of Common Stock received upon
conversion of the L.P. Units. Accordingly, after the expiration of certain
restrictions upon the exercise of these liquidity rights, the Berg Group's
ownership interest in the Operating Partnerships will be more liquid than
its ownership interest in the Berg Properties, and the partnership
interests beneficially owned by the partners in the Operating Partnerships
will be more liquid than their current ownership interests in each of the
four limited partnerships that will comprise the Operating Partnerships.
- Certain debt relating to the Properties will be refinanced, including
debt of approximately $33 million owed under lines of credit for which members
of the Berg Group are personally liable. However, in connection with the New
Secured Loan, members of the Berg Group and other Limited Partners in the
Operating Partnerships may provide personal guaranties with respect to all or
some portion of the debt for income tax reasons.
- - Carl E. Berg will receive an annual salary of approximately $100,000 plus
additional benefits as the Chief Executive Officer of the Company. See
"MANAGEMENT--Executive Compensation."
VALUATION OF INTERESTS
BERG ACQUISITION. Pursuant to the Berg Acquisition, the Company will
succeed to the Silicon Valley R&D Property ownership and management business of
the Berg Group through the Company's general partnership interest in the
Operating Partnerships. In October 1997, the board of directors of the Company
determined that, until such time as the Company had acquired operating
properties or other assets which would generate reportable income and funds from
operations, all issuances of Common Stock and transactions involving the actual
or contingent issuance of equity securities of the Company would be effected at
a price of $4.50 per share, or the equivalent thereof. The Company sold shares
of Common Stock at that price in a private placement in September 1997 and in
another private placement in November 1997. The closing price of the Common
Stock, as quoted on the AMEX, was $3.38 on October 17, 1997, the last trading
date prior to the halt in trading declared by the AMEX effective as of October
20, 1997. On October 21, 1997, a special distribution of $3.30 per share of
Common Stock was paid to shareholders of record as of August 28, 1997. Upon
approval of the shareholders and filing an amendment to the articles of
incorporation of the Company on November 10, 1997, the Company effected Reverse
Split, which the board of directors expected to result in each outstanding share
of Common Stock having a value approximately equal to the $4.50 price which
investors had paid in the private placement transaction on November 12, 1997. In
May 1998, the Company agreed to sell shares of Common Stock to the purchasers in
the Private Placement at $4.50 per share. Pursuant to the Acquisition Agreement,
the Company agreed to acquire its approximately 10.91% general partner interest
in the Operating Partnerships for $35.2 million, which (assuming 75,100,000
Outstanding Shares) equates to a price of approximately $4.30 per share of
Common Stock. The Company and the Berg Group have used a price of $4.50 to
determine the value of each L.P. Unit as well as the number of L.P. Units
issuable in connection with the Operating Partnerships' acquisition of the
Pending Development Projects. See "DESCRIPTION OF THE PROPERTIES--The Pending
Development Projects." The price of $4.50 per share selected by the board of
directors may not be representative of the trading price of a share of Common
Stock, and upon the resumption of trading of the Common Stock on the AMEX, it is
likely that the Common Stock will trade at a different price.
-26-
<PAGE>
Independent appraisals were not obtained to determine the fair market
value of the Berg Properties for purposes of the Berg Acquisition. The total
historical cost of the Berg Properties was approximately $178 million at March
31, 1998. The Company believes, however, that the most appropriate valuation is
one that reflects the value of the Silicon Valley R&D Property ownership and
management business of the Operating Partnerships, taken as a whole.
PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of the Company (based on
the combined historical financial statements) as of March 31, 1998 and as
adjusted to reflect the consummation of the UPREIT Transactions. The information
set forth in the following table should be read in conjunction with the combined
historical financial statements and notes thereto and the (unaudited) pro forma
financial information and notes thereto included elsewhere in this Proxy
Statement/Prospectus and the discussion set forth in "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and
Capital Resources."
<TABLE>
<CAPTION>
March 31, 1998
-----------------------------------
Predecessor Company Pro
Historical Forma(2)
--------------- ---------------
(in thousands)
<S> <C> <C>
Debt:
Lines of credit $ 37,953 5,000
Notes payable (related parties) 1,821 -
Mortgage notes payable 38,215 $159,639
--------------- ---------------
Total debt(1) 77,989 164,639
Shareholders'/owners' equity:
Preferred Stock, $0.001 par value, 20,000,000
authorized, none issued and outstanding on
a pro forma basis - -
Common Stock, $0.001 par value, 200,000,000
authorized, 8,193,594 issued and outstanding
on a pro forma basis - 8
Receivable from issuance of Common Stock - (1,234)
Additional paid in capital - (4,248)
Accumulated equity of continuing interests 36,734 -
--------------- ---------------
Total shareholders'/owners' equity 36,734 (5,474)
--------------- ---------------
--------------- ---------------
Total Capitalization $114,723 $159,165
--------------- ---------------
--------------- ---------------
</TABLE>
- -----------
(1) For a description of the Company's debt, see Note 5 of Notes to Combined
Financial Statements for the Berg Properties and "DESCRIPTION OF THE
PROPERTIES--Mortgage Debt."
(2) Excludes any effect of exercise or conversion of potentially dilutive
securities.
-27-
<PAGE>
INFORMATION WITH RESPECT TO THE COMPANY
INCLUDED INFORMATION
This Proxy Statement/Prospectus is accompanied by (i) a copy of the
Company's Form 10-K for the one-month transition period and fiscal year ended
December 31, 1997; (ii) Part I of the Company's Form 10-Q for the quarter ended
March 31, 1998; and (iii) combined historical financial statements of the
Operating Partnerships' predecessor as of and for the periods or years ended
March 31, 1998 and 1997, and December 31, 1997, 1996 and 1995.
PRICE RANGE OF THE COMMON STOCK AND DISTRIBUTION HISTORY
The following are the high and low sales prices, by quarter, of the
Company's common stock for the two most recent fiscal years as adjusted to give
retroactive effect to the 1 for 30 reverse stock split which was effective as of
November 10, 1997:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
High Low High Low
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
First Quarter(1) 397 1/2 56 1/4(2) 161 1/4 138 3/4
Second Quarter 112 1/2 52 1/2 210 138 3/4
Third Quarter 153 3/4 93 3/4 247 1/2 187 1/2
Fourth Quarter 136 7/8 93 3/4(3) 292 1/2 213 3/4
</TABLE>
- ----------
(1) In 1997, the Company changed its fiscal year end from November 30 to
December 31. Thus, the first quarter of 1997 includes the month of December
1996.
(2) During the first fiscal quarter in 1997 (on February 27, 1997), the Company
paid a $9.00 special dividend ($270 adjusted to give retroactive effect to
the 1 for 30 reverse stock split).
(3) During the fourth fiscal quarter in 1997 (on October 21, 1997), the Company
paid a $3.30 special dividend ($99 adjusted to give retroactive effect to
the 1 for 30 reverse stock split).
As of March 31, 1998, the approximate number of holders of record of the
Company's common stock was 360. The Company paid no dividends during fiscal
1996. The Company declared and paid a special dividend of $9.00 per share ($270
per share, post-split) on February 27, 1997. A special dividend of $3.30 per
share was paid on October 21, 1997. ($99 per share, post-split)
The Company intends to qualify as a REIT for tax purposes in the fiscal
year ending December 31, 1998. In order to so qualify, the Company intends to
declare and pay regular quarterly dividends in the future. See "DISTRIBUTION
POLICY."
-28-
<PAGE>
THE COMPANY'S PRO FORMA DATA
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
Set forth below are summary unaudited pro forma combined financial
information and other data for the Company as of and for the periods indicated,
prepared on the assumption that the Private Placement and the Berg Acquisition
had occurred at March 31, 1998 for balance sheet data and property and other
data. The pro forma operating data further assumes that such transactions had
occurred as of January 1, 1998 and 1997, respectively. This data should be read
in conjunction with the Selected Financial Data and the historical and pro forma
financial statements included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Three Months Ended Year Ended
March 31, 1998 December 31, 1997
---------------------- -------------------
(in thousands)
<S> <C> <C>
OPERATING DATA:
Revenue:
Rent $ 12,731 $45,572
Tenant reimbursements 2,097 6,769
---------------------- -------------------
Total revenue 14,828 52,341
---------------------- -------------------
Expenses:
Operating expenses 1,026 3,790
Real estate taxes 1,212 4,475
General and administrative 700 2,750
Interest 2,944 11,777
Depreciation and amortization 2,229 8,892
---------------------- -------------------
Total Expenses 8,111 31,684
---------------------- -------------------
Income before minority interest 6,717 20,657
Minority Interest 5,984 18,403
---------------------- -------------------
Net income 733 2,254
---------------------- -------------------
---------------------- -------------------
Basic and Diluted Earnings Per Share(1) $ 0.09 $0.28
---------------------- -------------------
---------------------- -------------------
Weighted average number of common shares outstanding 8,193,594 8,193,594
---------------------- -------------------
---------------------- -------------------
PROPERTY AND OTHER DATA:
Total properties, end of period 69 69
Total square feet, end of period 4,340,569 4,340,569
Average monthly rental revenue per square foot(2) $ 0.94 $0.87
Average occupancy - stabilized 100% 97%
FUNDS FROM OPERATIONS: (3) $ 8,946 $29,549
BALANCE SHEET DATA:
Real estate assets, net of accumulated depreciation $154,852
Total assets 167,406
Debt 164,639
Total liabilities 172,880
Shareholders' equity (5,474)
</TABLE>
- -------------------
(1) Per share calculations do not consider the dilutive effect of (i)
66,906,406 L.P. Units that are exchangeable for common shares of the
Company's stock; and (ii) 605,000 shares of common stock issuable in
connection with options outstanding under the 1997 Stock Option Plan. For
purposes of the pro forma per share calculation, these securities if
converted or exercised, would have no effect on per share calculations.
(2) Average monthly rental revenue per square foot has been determined by
taking the base rent for the period, divided by the number of months in the
period, and then divided by the total square feet of occupied space.
(3) As defined by the National Association of Real Estate Investment Trusts
("NAREIT"), FFO represents net income (loss) before minority interest of
unitholders (computed in accordance with GAAP), excluding gains (or losses)
from debt restructuring and sales of property, plus real estate related
depreciation and amortization (excluding amortization of deferred financing
costs and depreciation of non-real estate assets) and after adjustments for
unconsolidated partnerships and joint ventures. Management considers FFO an
appropriate measure of performance of an equity REIT because industry
analysts have accepted it as such. FFO should not be considered as an
alternative for net income as a measure of profitability nor is it
comparable to cash flows provided by operating activities determined in
accordance with GAAP. See "Distribution Policy."
-29-
<PAGE>
THE BUSINESS OF BERG & BERG
HISTORY OF BERG & BERG
Carl E. Berg, the Company's President and Chief Executive Officer and the
controlling member of the Berg Group, has been engaged in the development and
long-term ownership of Silicon Valley real estate for more than 25 years. In
1969, Mr. Berg foresaw the rising demand for efficient, multi-purpose facilities
for the rapidly growing electronics industry in the area of Santa Clara County
that has come to be known as "Silicon Valley" (a term that now encompasses much
of the southern portion of the San Francisco Bay Area). See "--The Silicon
Valley R&D Property Market". He formed a general partnership, Sobrato-Berg
Properties, with John Sobrato to focus on the development of R&D Properties,
that is, mixed-use facilities providing space for offices, development and
research, light manufacturing and assembly. Between 1969 and 1980, Sobrato-Berg
Properties acquired and developed approximately 45 R&D Properties, totaling
approximately 3.5 million rentable square feet. In 1980, Messrs. Berg and
Sobrato terminated their partnership and, as a result of the subsequent division
of its assets, 20 properties totaling approximately 1.2 million rentable square
feet were transferred to Berg Family Partnership, owned by Mr. Berg and other
members of the Berg Group.
In 1980, Mr. Berg and his brother, Clyde J. Berg, organized Berg & Berg to
continue the business of acquiring and developing R&D Properties. Between 1980
and 1983, Berg & Berg acquired and developed 18 additional R&D Properties,
totaling approximately 1.4 million rentable square feet.
In 1983, Berg & Berg's assessment of the Silicon Valley commercial real
estate market suggested a significant decline in demand for rental property,
particularly in the R&D Property segment of the market. Based on this
assessment, in 1983 Berg & Berg focused its attention on enhancing investment
returns from its existing portfolio of properties and constructing facilities
for identified tenants on a build-to-suit basis. From 1983 until 1995, Berg &
Berg was engaged primarily in build-to-suit development activities on a limited
basis in selected locations where experience with its portfolio properties
indicated that new buildings could be rented at rates adequate to justify
anticipated development costs and provide an acceptable return on its
investment.
In late 1994, Berg & Berg perceived a change in the market for R&D
Properties in Silicon Valley and in 1995 acquired over 60 acres of land in
Milpitas, Fremont and Mountain View, California and over 450,000 square feet of
R&D Properties with short-term leases at below-market rents. During the past two
years, Berg & Berg has purchased land or options on land totaling more than 55
acres in south San Jose. In 1995 and 1996, Berg & Berg began construction of
eight buildings comprising over 700,000 square feet and was one of the two most
active developers leasing and building R&D Properties in Silicon Valley.
Since 1972, Mr. Berg also has been actively involved in venture capital
investments in technology companies in the Silicon Valley. Directly and through
various venture capital partnerships, he has made early-round equity investments
in more than 100 technology companies, including such companies as Amdahl
Corporation, Sun Microsystems, Inc., Integrated Device Technologies, Inc.,
Valence Technology, Inc., Iwerks Entertainment, Inc., On-Command Video, Inc. and
Videonics, Inc. Mr. Berg has served on the boards of directors of numerous
technology companies and currently serves on six such boards. These activities
have helped Berg & Berg to develop a detailed understanding of the real estate
requirements of technology companies, to acquire valuable market information, to
increase its name recognition within the venture capital and entrepreneurial
communities, and to manifest its commitment to the growth and success of Silicon
Valley companies. The Company believes that Mr. Berg's substantial knowledge of
and contacts in the information technology industry have provided a significant
benefit to Berg & Berg in the operation of its commercial real estate business,
and will continue to benefit the Company after the Berg Acquisition.
-30-
<PAGE>
REGIONAL ECONOMIC PROFILE
The San Francisco Bay Area comprises nine counties, including Santa Clara,
Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Solano and Sonoma
Counties, covering approximately 7,200 square miles. The San Francisco Bay Area
is the second largest metropolitan area in California with over 6.5 million
people, and the fourth largest metropolitan area in the United States after New
York, Los Angeles, and Chicago.
The economy of the San Francisco Bay Area is one of the strongest and most
diverse in the nation. The growth of the computer, biotechnology, and
engineering industries propels the region's economy forward as new technologies
draw strength from a broad base of industries, services, venture capital
financing, banking, universities, and research institutions. The San Francisco
Bay Area's long term relationship with Pacific Rim countries has made it one of
the major gateways for Asia and Far East trade. Moreover, the San Francisco Bay
Area has a reputation as one of the most desirable areas in the United States to
visit, which has made tourism a major growth industry. The San Francisco Bay
Area is a center of all resources necessary to create, develop and expand new
businesses.
Factors contributing to the region's economic strength include the
following:
- TECHNOLOGY CENTER. The Silicon Valley economy has an expansive
employment base of technology, semiconductor, electronics,
telecommunications, software, and computer related companies
unsurpassed in the nation and the world. The Silicon Valley is host to
over 4,000 technology companies employing in excess of 250,000 people.
Santa Clara County ranks fourth in the State of California in terms of
employment and population and is headquarters to many Fortune 500
companies, including Applied Materials, Inc., Apple Computer, Inc.,
Intel Corporation, Sun Microsystems, U.S. Robotics, Inc., National
Semiconductor Corporation, Cisco Systems, Inc., and Hewlett-Packard.
- FINANCIAL SERVICES CENTER. The San Francisco Bay Area is the home of
the nation's highest density of venture capital firms, the
headquarters for Bank of America, Wells Fargo Bank, and numerous
investment banking firms specializing in technology industries.
According to the Price Waterhouse LLP National Venture Capital Survey,
during 1997, venture capital firms invested approximately $3.66
billion in Silicon Valley companies.
- TRANSPORTATION AND FREEWAYS. Silicon Valley has an elaborate regional
freeway system, the San Jose International Airport, close access to
the San Francisco International Airport, and a modern light rail
system that is expected to cover major portions of the Silicon
Valley's R&D areas by the year 2000. The major freeways are
Interstates 280, 680, and 880, U.S. 101, and Highway 85. U.S. 101 and
Interstate 280 converge in San Jose and connect to San Francisco,
while Interstate 880 connects the Oakland area. Interstate 680
provides access to the East Bay and Pleasanton areas. Highway 85 forms
a semi-circle around San Jose and connects the main residential areas
to the heart of Silicon Valley.
- HIGHLY EDUCATED WORK FORCE. The San Francisco Bay Area has the highest
percentage of college-educated adults in the nation and its
pre-eminent educational institutions, such as Stanford University and
the University of California at Berkeley, have played a major role in
making it one of the world's leading technology centers. The presence
of these major research institutions and the highly educated work
force has fueled the region's economic engine and will enable the
region to build on its strong technology base in the future.
- CENTER FOR INTERNATIONAL TRADE. The San Francisco Bay Area is
currently the fourth largest trade district behind Los Angeles, New
York and Detroit serving primarily the Pacific Rim countries.
-31-
<PAGE>
THE SILICON VALLEY R&D PROPERTY MARKET
Santa Clara County, which incorporates much of Silicon Valley, including
the San Jose metropolitan area, has grown in population from 659,000 in 1960 to
1,653,100 on January 1, 1997, according to census data. San Jose, with a
population of more than 850,000, is the third largest city in California and the
eleventh largest in the United States. Santa Clara County is the largest county
in the San Francisco Bay Area encompassing an area of 1,312 square miles, and
includes many communities of diverse size and nature.
Much of Santa Clara County's economic growth has been driven by the
development and expansion of high technology industries. In recent years, space
requirements and higher rents for R&D Properties in Santa Clara County have led
technology companies to seek facilities elsewhere at office parks located in
southwestern Alameda County and southwestern San Mateo County. As a result, the
Company believes that the term "Silicon Valley" now refers to the more or less
contiguous areas of industrial development in all three counties where a
substantial number of technology companies can be found.
THE SILICON VALLEY
[MAP]
-32-
<PAGE>
Supported by major educational and research institutions and by a strong
venture capital community, Silicon Valley has been instrumental in the
development and commercialization of technology in virtually every major field.
Over the past 40 years the Silicon Valley economy has grown and diversified
through an evolutionary process as successive generations of technology emerge,
mature and are eventually replaced. In recent years, the continuous emergence of
new generations of technology companies has kept unemployment rates in Santa
Clara County consistently lower than California rates overall, and generally
lower than national rates, as shown by the following table:
UNEMPLOYMENT RATE
<TABLE>
<CAPTION>
United States (1) California (2) Santa Clara County (2)
----------------- -------------- ----------------------
<S> <C> <C> <C>
1993 6.8% 9.4% 6.8%
1994 6.1% 8.6% 6.2%
1995 5.6% 7.8% 4.9%
1996 5.4% 7.2% 3.6%
1997 4.9% 6.1% 3.1%
</TABLE>
- ----------------
(1) Source: U.S. Bureau of Labor Statistics.
(2) Source: State of California Employment Development Department. The overall
1997 unemployment rates for the area referred to as Silicon Valley in this
Proxy Statement/Prospectus are lower than the rates for Santa Clara County.
While Silicon Valley companies often establish manufacturing plants in
other locations where they can benefit from lower facilities and labor costs,
the headquarters, marketing and research and development functions associated
with running the company and developing new products often remain in Silicon
Valley. This occurs because of the availability of a well-trained and
experienced workforce, an established infrastructure of vendors and
service-providers and the proximity to major universities engaged in advanced
science and technology research. Consequently, the principal space requirement
for entrepreneurial technology companies in Silicon Valley is for R&D
Properties. According to regular quarterly reports on R&D Properties prepared by
BT Commercial Real Estate ("BT Commercial"), Silicon Valley R&D Properties
currently represent over 120 million rentable square feet, more than 50% of all
commercial industrial space in Silicon Valley. At the end of the fourth quarter
of 1997, the vacancy rate for Silicon Valley R&D Properties stood at 4.5%, an
approximate 10% decrease from the fourth quarter of 1996. Currently, the
occupancy rate is close to 100% for properties in good condition at desirable
locations.
SILICON VALLEY R&D PROPERTY MARKET
The following table sets forth data regarding the Silicon Valley R&D
Property market:
<TABLE>
<CAPTION>
Increase in Aggregate Increase in Aggregate Average Asking
Space Available(1) Leased Space(1) Vacancy Rate Rental Rates($)(2)
--------------------- --------------------- ------------ ------------------
<S> <C> <C> <C> <C>
1993 12.1 1.5 14.1% 0.76
1994 15.2 3.0 12.2% 0.76
1995 22.5 8.5 7.0% 0.75 - 0.80
1996 17.2 5.2 5.1% 0.80 - 1.08
1997 16.7 5.5 4.5% 1.19 - 1.39
</TABLE>
- -------------
(1) Millions of square feet.
(2) Per square foot per month.
As indicated by the table, since 1995, the Silicon Valley R&D Property
market has seen a significant reduction in the excess of gross absorption over
net absorption, while witnessing declining vacancy rates and significantly
increasing rental rates. The Company does not anticipate a significant increase
in gross absorption in this market because there are few large blocks of
contiguous space and suitable development sites. For example, in the fourth
quarter of 1997, only five blocks of contiguous R&D Property space of at least
100,000 square feet were available in the entire market, according to BT
Commercial.
As a result, the Company believes that average asking rental rates will
continue to increase during 1998 and 1999. According to BT Commercial, between
the fourth quarter of 1996 and the fourth quarter of 1997, average asking rental
rates in the Silicon Valley R&D Property market rose from $1.11 to $1.39 per
square foot
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<PAGE>
per month. On the other hand, tenant improvement allowances offered by landlords
have declined substantially, and in desirable locations, like Cupertino,
Mountain View, Sunnyvale, San Jose, Fremont and Milpitas, now can be as much as
50% lower than they were in the past few years. Since January 1995, over 1.4
million rentable square feet of the Berg Properties have been leased to
approximately 45 tenants with rents at least equal to the average asking rental
rate in the Silicon Valley R&D Properties market.
During 1998 and 1999, 13 Berg Properties representing 521,000 rentable
square feet will be available for new leases or rent renewals. These Properties
are located in Milpitas, Cupertino, Sunnyvale and San Jose, which the Company
believes are in the highest rent category in Silicon Valley, aside from Palo
Alto, a very specialized market with a low base of R&D Property square footage
and an occupancy rate of 99.4% according to BT Commercial. Based on current
conditions in the Silicon Valley R&D Properties market, the Company believes
that it will be able to lease these Properties at rents which exceed the rental
rates under the existing leases.
BERG & BERG BUSINESS STRATEGY
Berg & Berg's development business and its portfolio of Silicon Valley R&D
Properties have been built on a business strategy incorporating the following
elements:
- STRONG GEOGRAPHIC AND INDUSTRY FOCUS. Berg & Berg has focused its
activities on addressing the facility requirements of
technology-oriented companies in the Silicon Valley. The Company
believes that this focus has enabled Berg & Berg to gain a
thorough understanding of the Silicon Valley real estate market,
to anticipate trends in the market, to identify and concentrate
its efforts on the most favorably located sub-regions of the
market and to take advantage of its experience and its extensive
contacts and relationships with local government agencies, real
estate brokers and subcontractors, as well as with tenants and
prospective tenants.
- LEAN, EXPERIENCED MANAGEMENT TEAM. In part because of its primary
focus on Silicon Valley and the special real estate requirements
of technology tenants, Berg & Berg has been able to conduct and
expand its business with a small management team comprised of
highly-qualified and experienced professionals working within a
relatively flat organizational structure. These managers share a
common approach to property development and management. The
Company believes that the leanness, experience and continuity of
this management team have enabled Berg & Berg to rapidly assess
and respond to market opportunities and tenant needs, minimize
development and construction risks, control operating expenses
and develop and maintain excellent relationships with its
tenants. The Company further believes that these advantages
translate into significantly lower costs for operations and
construction which give the Company the ability to compete
favorably with other R&D Property developers in Silicon Valley,
especially for build-to-suit projects subject to competitive
bidding. Furthermore, its lower cost structure should allow the
Company to generate better returns from properties whose value
can be increased through appropriate remodeling and efficient
property management.
- MARKET AWARENESS AND SENSITIVITY. Berg & Berg has consistently
followed a demand-driven approach to the R&D Property business in
which it has used its in-depth experience and extensive industry
contacts to identify the facility requirements of tenants and
potential tenants in the Silicon Valley and its various
sub-regions.
- EMPHASIS ON GENERAL PURPOSE FACILITIES, SINGLE TENANT PROJECTS
AND LONG-TERM TENANT RELATIONSHIPS. Most of the Properties are
general purpose R&D Properties, located in desirable sub-regions
of the Silicon Valley. Such Properties have been developed for,
or leased to, single-tenants, many of whom are large,
publicly-traded electronics companies. Most of the Company's
major tenants have occupied their Properties for many years
pursuant to fully net leases under which the tenant pays all
operating costs. The Company believes that Berg & Berg's practice
of emphasizing the development of
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<PAGE>
single-tenant rather than multi-tenant properties has contributed
to its relatively low turnover and high occupancy rates and that
the relatively small number of tenants occupying the Properties
allows it to efficiently manage the Properties and serve the
needs of its tenants without the need for an extensive in-house
staff or the assistance of a third-party management organization.
In addition, this emphasis allows the Company to pay less for
tenant improvements and leasing commissions than multi-tenant,
high turnover property owners, and also reduces the time and
expense associated with obtaining building permits and other
government approvals. The Company believes that the relatively
stable, extended relationships which Berg & Berg has developed
with its key tenants have been a valuable factor in the expansion
of its business.
- SOUND PROPERTY MANAGEMENT PRACTICES. Berg & Berg makes extensive
use of its experienced in-house architectural, design and
construction management personnel in all phases of its
acquisition, development and property management businesses, and
focuses on similar types of development projects to more
effectively utilize these skills and experience. For each
property, the Berg & Berg staff develops a specific development,
marketing and property management program. It selects vendors and
subcontractors on a competitive bidding basis from a select group
of highly qualified firms with whom it maintains ongoing
relationships and carefully supervises their work. The Company
believes that, as a result of these sound operating practices,
Berg & Berg has acquired a reputation for completing its projects
on time and within budget.
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<PAGE>
BERG PROPERTIES SUMMARY SELECTED FINANCIAL DATA
Set forth below are Summary Combined Financial Data for the Berg Properties
as of and for the periods indicated on an historical basis. This data should be
read in conjunction with the Selected Financial Data and the historical pro
forma financial statements included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------------- -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------ ------------ ----------- ---------- ---------- ---------- ----------
($ in thousands)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rent $ 11,073 $8,801 $40,163 $28,934 $23,064 $25,186 $25,620
Tenant reimbursements 2,033 1,226 6,519 3,902 4,193 3,190 3,486
------------ ------------ ----------- ---------- ---------- ---------- ----------
Total revenue 13,106 10,027 46,682 32,836 27,257 28,376 29,106
------------ ------------ ----------- ---------- ---------- ---------- ----------
Expenses:
Operating expenses 1,019 1,118 $ 3,741 $ 1,906 $ 2,032 $ 1,355 1,129
Real estate taxes 1,189 980 4,229 3,750 3,595 2,716 3,116
Management fee (related parties) 322 240 1,050 827 654 739 994
Interest (related parties) 61 79 248 293 357 329 45
Interest 1,485 1,470 5,919 6,090 6,190 8,222 9,054
Depreciation and amortization 1,935 1,680 7,717 6,739 6,323 6,851 7,156
------------ ------------ ----------- ---------- ---------- ---------- ----------
6,011 5,567 22,904 19,605 19,151 20,212 21,494
------------ ------------ ----------- ---------- ---------- ---------- ----------
Income before gain on sale of
real estate and extraordinary
item 7,095 4,460 23,778 13,231 8,106 8,164 7,612
Gain on sale - - - - 20,779 - -
------------ ------------ ----------- ---------- ---------- ---------- ----------
Income before extraordinary item 7,095 4,460 23,778 13,231 28,885 8,164 7,612
Extraordinary item - - - 610 3,206 - 1,766
------------ ------------ ----------- ---------- ---------- ---------- ----------
Net income $7,095 $4,460 $23,778 $13,841 $32,091 $ 8,164 $ 9,378
------------ ------------ ----------- ---------- ---------- ---------- ----------
------------ ------------ ----------- ---------- ---------- ---------- ----------
PROPERTY AND OTHER DATA:
Total properties, end of period 58 55 58 53 50 41 40
Total square feet, end of period 3,779 3,484 3,779 3,392 3,195 2,856 2,796
Average monthly rental revenue
per square foot(1) $0.95 $0.81 $0.86 $0.78 $0.71 $0.96 $0.84
Occupancy at end of period 100% 96.2% 97.7% 91.9% 87.4% 80.3% 89.6%
FUNDS FROM OPERATIONS(2)(3) $9,030 $6,140 $31,495 $19,970 $14,429 $15,015 $14,768
Cash flow from operations $9,835 $5,477 $29,909 $20,248 $16,392 $16,518 $18,480
Cash flow from investing (236) (3,454) (17,251) (29,275) (6,353) (5,003) (3,248)
Cash flow from financing (505) (640) (8,432) 9,433 (10,013) (12,093) (13,599)
March 31, December 31,
-------------------------- -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------ ------------ ----------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA: ($ in thousands)
(Unaudited) (Unaudited)
Real estate assets, net of
accumulated depreciation $98,453 $92,484 $100,15 $90,710 $72,319 $62,450 $61,610
Total assets 122,529 102,791 113,950 97,651 73,730 59,957 64,516
Debt 76,168 73,314 76,507 73,416 69,543 79,594 100,126
Debt - related parties 1,821 2,411 1,975 2,546 3,051 2,889 1,433
Total liabilities 85,795 81,909 84,299 80,826 76,199 83,720 104,117
Partners' equity 36,734 20,882 29,651 16,825 (2,469) (23,763) (39,601)
</TABLE>
- --------------
(1) Average monthly rental revenue per square foot has been determined by taking
the base rent for the period, divided by the number of months in the period,
and then divided by the total square feet of occupied space.
(2) As defined by the National Association of Real Estate Investment Trusts
("NAREIT"), FFO represents net income (loss) before minority interest of
unitholders (computed in accordance with GAAP), excluding gains (or losses)
from debt restructuring and sales of property, plus real estate related
depreciation and amortization (excluding amortization of deferred financing
costs and depreciation of non-real estate assets) and after adjustments for
unconsolidated partnerships and joint ventures. Management considers FFO an
appropriate measure of performance of an equity REIT because industry
analysts have accepted it as such. FFO should not be considered as an
alternative for net income as a measure of profitability nor is it
comparable to cash flows provided by operating activities determined in
accordance with GAAP. See "Distribution Policy."
(3) Non-cash adjustments to FFO were as follows: in all periods, depreciation
and amortization; in 1996, 1995 and 1993, gains on extinguishment of debt;
and in 1995, gain on sale of property.
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<PAGE>
SELECTED COMBINED HISTORICAL FINANCIAL DATA FOR THE ACQUIRED PROPERTIES
Set forth below are Summary Combined Financial Data for the Acquired
Properties as of and for the periods indicated on an historical basis. This data
should be read in conjunction with the historical financial statements included
elsewhere in this Proxy Statement / Prospectus.
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
------------------------------- ----------------------------------------------------------------
1998 1997(1) 1997(1) 1996 1995 1994
-------------- ------------- ------------- ------------- -------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Revenue
Base rent $1,658 $1,025 $5,409 $3,388 $3,136 $2,956
Other income 64 28 250 61 58 60
-------------- ------------- ------------- ------------- -------------- ------------
Total Revenue 1,722 1,053 5,659 3,449 3,194 3,016
Expenses
Property operating 7 15 49 170 417 725
Real estate taxes 23 55 246 48 11 128
-------------- ------------- ------------- ------------- -------------- ------------
Total Expenses 30 70 295 218 428 853
-------------- ------------- ------------- ------------- -------------- ------------
Revenue in excess of
certain expenses $1,692 $ 983 $5,364 $3,231 $2,766 2,163
-------------- ------------- ------------- ------------- -------------- ------------
-------------- ------------- ------------- ------------- -------------- ------------
</TABLE>
- -----------
(1) The Fremont Properties commenced operations during the first quarter of
1997.
-37-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION FOR THE PROPERTIES
The following discussion should be read in conjunction with the Selected
Financial Data and the Combined Financial Statements for the Properties and
notes thereto appearing elsewhere in this Proxy Statement/Prospectus. The
Combined Financial Statements of the Berg Properties are comprised of the
operations, assets and liabilities of the Berg Properties other than the
Acquired Properties and the Pending Development Projects. As part of the Berg
Acquisition, the Kontrabecki Properties became part of the real estate holdings
of the Operating Partnerships at the Partnership Closing, and the Fremont
Properties will be contributed when, and if, acquired by Carl E. Berg. The
Company is the sole general partner and the beneficial owner of an approximately
10.91% interest in the Operating Partnerships, and, in general, will control the
operations and activities of the Partnership. As a result, for accounting
purposes, the financial information of the Operating Partnerships and the
Company will be consolidated, as of July 1, 1998.
OVERVIEW
The Berg Properties are a combination of Silicon Valley R&D Properties
controlled historically by the Berg Group. Since the beginning of 1995, the
aggregate R&D Property square footage represented by the Berg Properties has
increased significantly from approximately 2.9 million square feet at December
31, 1994 to approximately 3.8 million square feet at March 31, 1998, primarily
from the development of new buildings. Such increase combined with a substantial
increase in the overall occupancy rate of the Berg Properties have contributed
to a dramatic increase in the revenues earned by the Berg Group from the Berg
Properties.
The table below details the size of the Berg Properties portfolio and the
total occupancy rate as of each of the dates presented:
<TABLE>
<CAPTION>
March 31, December 31,
-------------------- ---------------------------------------------
1998 1997 1997 1996 1995 1994
-------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Square feet (millions) 3.8 3.5 3.8 3.4 3.2 2.9
Occupancy percentage 100% 96.2% 97.7% 91.9% 87.4% 80.3%
</TABLE>
Historically, entities within the Berg Group have developed and managed the
Berg Properties, drawing on funds provided by operations, lines of credit from
Wells Fargo, direct property loans provided by other lending institutions, and
contributions of capital from time to time by members of the Berg Group,
principally to repay indebtedness outstanding under the Wells Fargo lines of
credit. In addition, certain affiliates of the Berg Group have used the Wells
Fargo lines of credit for other ventures on a demand basis, including loans used
primarily to finance the construction of improvements on certain of the Berg
Properties. Those loans and all other lending arrangements with affiliates will
be terminated upon the closing of the Berg Acquisition.
The table below details the borrowings and repayments by the Berg Group
during the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended March 31, Years Ended December 31,
----------------------------- --------------------------------------------
1998 1997 1997 1996 1995
------------- -------------- -------------- ------------- -------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Borrowing of Wells Fargo lines - - $3,750 $6,999 $ 1,034
Repayment of Wells Fargo lines - - (1,335) (952) (5,978)
Borrowing on Notes (related parties) - - - - 637
Repayment on Notes (related parties) $(154) $(135) (571) (504) (474)
Borrowing on Mortgages - - 3,105 - -
Repayment of Mortgages (339) (102) (2,429) (1,563) (1,210)
------------- -------------- -------------- ------------- -------------
Borrowed/(Repaid) Total: $(493) $(237) $2,520 $3,980 $(5,991)
------------- -------------- -------------- ------------- -------------
------------- -------------- -------------- ------------- -------------
</TABLE>
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<PAGE>
Most of the Berg Properties were developed by members of the Berg Group or
their Affiliates who have held such Properties continuously since their initial
construction. Occasionally, the Berg Group has acquired and sold developed
properties, as well. In 1995, the Berg Group sold two buildings totaling
approximately 315,000 rentable square feet: one building was sold directly to
the tenant, Xilinx Corporation; the other building was distributed by Berg &
Berg Developers to its partners and then sold to Xilinx Corporation
(collectively, the "Xilinx Sales"). Immediately after the Xilinx Sales, Berg &
Berg acquired McCandless Technology Park in Milpitas, California, which
comprised approximately 345,000 rentable square feet. Later in 1995, members of
the Berg Group acquired several additional R&D Properties consisting of
approximately 110,000 rentable square feet.
The table below summarizes dispositions, new development, and acquisitions
of R&D Properties by the Berg Group since January 1, 1995, in rentable square
footage:
<TABLE>
<CAPTION>
Three Months Ended March 31, Years Ended December 31,
---------------------------- ---------------------------------------
1998 1997 1997 1996 1995
------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Constructed - 91,584 387,729 196,348 200,484
Purchased - - - - 454,591
Sold - - - - (315,460)
------------- ------------- ------------ ------------ -----------
Total Net - 91,584 387,729 196,348 339,615
------------- ------------- ------------ ------------ -----------
------------- ------------- ------------ ------------ -----------
</TABLE>
Since 1991, BBE has operated as a management company providing services to
the Berg Group members and their Affiliates that have owned the Berg Properties
and have paid BBE a management fee of approximately 3% of gross base rental
revenue determined on a cash basis. All management fee arrangements with BBE
will be terminated upon the closing of the Berg Acquisition.
Beginning in 1995, new leases established for approximately 44 of the Berg
Properties (including leases acquired in the purchase of McCandless Technology
Park) obligated the tenants to pay approximately 3% of the base rent as
additional monthly common area charges. Berg & Berg views these charges as a
means for tenants to fund their liability for future repairs of a non-structural
nature ratably over the term of the lease. In the Combined Financial Statements
of the Berg Properties these payments have been characterized as rent under GAAP
accounting, and no reserve has been established for any future repairs.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
THE BERG PROPERTIES
RENTAL REVENUES AND TENANT REIMBURSEMENTS. Rental revenue increased by $2.3
million, or 26.1%, to $11.1 million for the three months ended March 31, 1998
compared to $8.8 million for the three months ended March 31, 1997. The
principal reasons for the increase in rental revenue were the increase in the
overall occupancy rate for the Berg Properties, from 96.2% at March 31, 1997 to
100% at March 31, 1998, the addition of approximately 296,000 rentable square
feet of leased space during the second and third quarters of 1997, scheduled
rental rate increases, and the higher rents associated with new leases. Tenant
reimbursements increased by $0.8 million, or 66.7%, to $2.0 million for the
three months ended March 31, 1998 from $1.2 million for the three months ended
March 31, 1997. The increase in tenant reimbursements was due primarily to the
higher occupancy level, the increase in total rentable square feet of leased
space, and an increase in the number of tenants reimbursing the Berg Properties
for operating expenses instead of paying them directly to the service provider.
EXPENSES. Total expenses for the Berg Properties increased by approximately
$0.4 million, or 7.1%, to $6.0 million for the three months ended March 31,
1998, compared to $5.6 million for the three months ended March 31, 1997.
Property operating expenses decreased slightly by approximately $0.1 million, or
approximately 9.1%, to approximately $1.0 million for the three months ended
March 31, 1998 compared to approximately $1.1 million for the three months ended
March 31, 1997. Depreciation expense increased by approximately $0.2
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<PAGE>
million, or 11.8%, to $1.9 million for the three months ended March 31, 1998
compared to $1.7 million for the three months ended March 31, 1997 primarily as
a result of new improvements and new construction. Real estate taxes increased
slightly and interest expense (including amounts associated with related
parties) for the three months ended March 31, 1998 was essentially unchanged in
comparison to the quarter ended March 31, 1997, as debt principal balances and
interest rates remained substantially the same.
NET INCOME. Net income increased by approximately $2.6 million to almost
$7.1 million for the three months ended March 31, 1998, an increase of nearly
58% over the net income of $4.5 million for the comparable period ended March
31, 1997. The substantial rise in net income resulted from a combination of new
leases at higher rental rates and scheduled rental rate increases, as well as
the addition of leased space, while operating expenses and interest expense were
flat and real estate taxes, depreciation and amortization expense, and the BBE
management fee resulted in an overall increase in expenses for the first quarter
of 1998 of just $0.4 million or, approximately 7.1%, over the first quarter of
1997.
THE ACQUIRED PROPERTIES
RENTAL REVENUES AND TENANT REIMBURSEMENTS. Rental revenue for the three
months ended March 31, 1998 was $1.7 million for the Acquired Properties, with
$1.2 million coming from the Kontrabecki Properties and $0.5 million coming from
the Fremont Properties. Tenant reimbursements and other income were a combined
$0.06 million, mostly attributable to the Fremont Properties. The Kontrabecki
Properties had minimal expenses and minimal tenant reimbursements as the tenants
paid most of their expenses directly to the service providers.
EXPENSES. Total expenses for the Acquired Properties were $0.03 million,
all of which were attributable to the Fremont Properties.
REVENUE IN EXCESS OF CERTAIN EXPENSES. The combined revenue in excess of
certain expenses of the Acquired Properties was $1.7 million, of which $1.2
million was derived from the Kontrabecki Properties and $0.5 million from the
Fremont Properties.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
THE BERG PROPERTIES
RENTAL REVENUES AND TENANT REIMBURSEMENTS. Rental revenue increased by
$11.3 million, or 39.1%, to $40.2 million for the year ended December 31, 1997
compared to $28.9 million for the year ended December 31, 1996. The principal
reasons for the increase in rental revenue were the increase in the overall
occupancy rate for the Berg Properties, from 91.9% at December 31, 1996 to 97.7%
at December 31, 1997, the addition of approximately 388,000 rentable square feet
of leased space, and scheduled rental rate increases. Tenant reimbursements
increased by $2.6 million, or approximately 66.7%, to $6.5 million for the year
ended December 31, 1997 from $3.9 million for the year ended December 31, 1996.
The increase in tenant reimbursements was due primarily to the higher occupancy
level, an increase of 388,000 rentable square feet of leased space, and an
increase in the number of tenants reimbursing the Berg Properties for operating
expenses rather than paying them directly to the service provider.
EXPENSES. Total expenses for the Berg Properties increased by approximately
$3.3 million, or 16.8%, to $22.9 million for the year ended December 31, 1997,
compared to $19.6 million for the year ended December 31, 1996. Property
operating expenses increased by $1.8 million, or 94.7%, to $3.7 million for the
year ended December 31, 1997 from $1.9 million for the year ended December 31,
1996. The increase in operating expenses was offset by an increase of $2.6
million in tenant reimbursements and was due primarily to the increased
occupancy of the Berg Properties and the substantial increase in leased square
footage. Depreciation expense increased by $1.0 million, or 14.9%, to $7.7
million for the year ended December 31, 1997 as compared to $6.7 million for the
year ended December 31, 1996. The increase in depreciation expense resulted
primarily from new improvements and new construction. Real estate taxes
increased slightly by $0.4 million, or approximately 10.5%, to $4.2 million for
the year ended December 31, 1997 from $3.8 million for the year ended December
31, 1996. Interest expense (including amounts associated with related parties)
for the year ended December 31, 1997 was virtually unchanged from the year ended
December 31, 1996, as debt principal balances and interest rates remained
substantially the same.
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<PAGE>
NET INCOME. Income before extraordinary item increased by $10.6 million, or
approximately 80.3%, to $23.8 million for the year ended December 31, 1997, from
$ 13.2 million for the year ended December 31, 1996, as rental revenue increased
substantially due to increased occupancy of the Berg Properties, scheduled
rental rate increases, and the addition of leased space without a comparable
increase in total expenses. For the year ended December 31, 1996, net income
included an extraordinary gain of $0.6 million related to the forgiveness of
debt by Great West Life & Annuity Insurance Company.
THE ACQUIRED PROPERTIES
RENTAL REVENUES AND TENANT REIMBURSEMENTS. Rental revenue for the year
ended December 31, 1997 was $5.4 million for the Acquired Properties, with $4.1
million coming from the Kontrabecki Properties and $1.3 million coming from the
Fremont Properties, which were completed during the first quarter of 1997.
Tenant reimbursements and other income were a combined $0.3 million, with $0.1
million attributable to the Kontrabecki Properties and $0.2 million attributable
to the Fremont Properties.
EXPENSES. Total expenses for the Acquired Properties were $0.29 million, of
which $0.02 million applied to the Kontrabecki Properties and $0.27 million
applied to the Fremont Properties.
REVENUE IN EXCESS OF CERTAIN EXPENSES. The combined revenue in excess of
certain expenses of the Acquired Properties was $5.4 million, of which $4.2
million were generated by the Kontrabecki Properties and $1.2 million by the
Fremont Properties.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The Berg Properties
RENTAL REVENUE AND TENANT REIMBURSEMENTS. Rental revenue increased by $5.8
million, or 25.1%, to $28.9 million for the year ended December 31, 1996 from
$23.1 million for the year ended December 31, 1995, as the overall occupancy
rate increased to 91.9% at December 31, 1996 from 87.4% at December 31, 1995. In
addition, rental rates rose for new and renewal leases, and the Berg Group added
approximately 196,000 square feet of new leased R&D Properties to the Berg
Properties. Tenant reimbursements decreased by $0.3 million, or 7.1%, to $3.9
million for the year ended December 31, 1996 from $4.2 million for the year
ended December 31, 1995, as the additional tenant reimbursements attributable to
increased occupancy of the Berg Properties and the acquisition of additional
leased space were more than offset by the decline in tenant reimbursements as a
result of new tenants paying operating expenses directly to the service
providers.
EXPENSES. Total expenses increased by 2.1% to $19.6 million for the year
ended December 31, 1996, from $19.2 million for the year ended December 31,
1995. Operating expenses decreased by $0.1 million, or 5%. Interest expense
decreased by $0.2 million, or 3.0% to $6.4 million for the year ended December
31, 1996 from $6.6 million for the year ended December 31, 1995 due to
construction activities and related borrowings. Depreciation and amortization
expense increased by $0.4 million, or 6.3% for the year ended December 31, 1996,
to $6.7 million from $6.3 million for the year ended December 31, 1995, due to
the addition of new R&D Properties and leased space acquired by the Berg Group
during 1995 and 1996. Real estate taxes increased by $0.2 million, or 5.6% to
$3.8 million for the year ended December 31, 1996 from $3.6 million for the year
ended December 31, 1995, as a result of minor reassessments as values rose on
certain Berg Properties while the real estate tax increases attributable to the
increase in net rentable square footage were offset by the disposition of two
R&D Properties in the Xilinx Sales. For the year ended December 31, 1996,
general and administrative expenses, as reflected by the management fee paid to
BBE, increased with rental revenues.
NET INCOME. Income before gain on sale of real estate and extraordinary
items increased by $5.1 million to $13.2 million for the year ended December 31,
1996, from $8.1 million for the year ended December 31, 1995, as growth in
revenues far exceeded the increase in expenses. Income decreased for the year
ended December 31, 1996, however, due to the effect of two extraordinary items
for the year ended December 31, 1995: The $20.8 million gain on the Xilinx
Sales, and a $3.2 million gain which resulted from the forgiveness of debt by
Great West Life & Annuity Insurance Company. For the year ended December 31,
1996, $0.6 million of extraordinary gain also resulted from debt forgiveness by
the same lender.
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<PAGE>
THE KONTRABECKI PROPERTIES
RENTAL REVENUE AND TENANT REIMBURSEMENTS. Rental revenue increased by
approximately $0.3 million, or 9.7%, to $3.4 million for the year ended December
31, 1996 from $3.1 million for the year ended December 31, 1995. The increase
was primarily due to an increase in occupancy to 86.9% at December 31, 1996 from
81.8% at December 31, 1995, and rising rental rates for new and renewal leases.
Tenant reimbursements and other income were level for the period.
EXPENSES. Total expenses decreased substantially by 48.8%, to $0.22 million
for the year ended December 31, 1996, compared to $0.43 million for the year
ended December 31, 1995. For the year ended December 31, 1996, operating and
maintenance expenses decreased by $0.25 million, or 59.5%, to $0.17 million from
$0.42 million for the year ended December 31, 1995. These substantial reductions
resulted primarily from the lease of vacant space to tenants who paid the
expenses directly to the service provider.
REVENUE IN EXCESS OF CERTAIN EXPENSES. The Kontrabecki Properties produced
revenue in excess of certain expenses of $3.23 million for the year ended
December 31, 1996, an approximately 16.8% increase over the same period for the
year ended December 31, 1995.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
The Company expects its FFO to be the principal source of liquidity for
distributions, debt service, leasing commissions and recurring capital
expenditures. The Company has not operated previously as a REIT and has no FFO
operating history. The Company also has not previously paid regular dividends
and other distributions to its shareholders and can make no assurances that it
will be able to do so in the future. Based solely upon past operating results
for the Properties and the results of operations for the first quarter of 1998,
on a pro forma basis, the Company expects its FFO for 1998 to be adequate to
meet projected distributions to shareholders and other presently anticipated
liquidity requirements in 1998. See "DISTRIBUTION POLICY."
Upon completion of the Berg Acquisition, the Company expects to have total
indebtedness on the Properties of approximately $164.6 million, comprised of
mortgage debt secured by certain of the Properties under the New Secured Loan
and existing secured loan arrangements for $34.6 million. The New Secured Loan
financing is expected to total $130 million, bearing an interest rate of 6.56%,
with a term of 10 years, payable in monthly installments of interest and
principal (based upon a 30 year amortization) of approximately $0.8 million. The
Company will be required to pay total fees of approximately $0.5 million in
connection with this new secured loan which is expected to close in late
September 1998. The Company also expects to have $50 million available to borrow
under the New Line of Credit. The Company's debt to Total Market Capitalization
ratio will be approximately 32.8% based upon an estimated market capitalization
of approximately $503 million.
The Company expects to meet its short-term liquidity requirements generally
through its initial working capital, the New Credit Line, and net cash provided
by operations. The Properties require periodic investments of capital for
tenant-related capital expenditures and for general capital improvements. For
the years ended December 31, 1993 through December 31, 1997, the recurring
tenant improvement costs and leasing commissions incurred with respect to new
leases and lease renewals of the Berg Properties averaged approximately $1.5
million annually. Of the Acquired Properties, only 83,902 square feet of space
is subject to leases that expire between January 1, 1998 and December 31, 2001.
The Company will therefore have approximately 416,000 square feet under expiring
leases annually from January 1, 1998 through December 31, 2000. The Company
expects that the average annual cost of recurring tenant improvements and
leasing commissions, related to the properties, will be approximately $1.5
million from January 1, 1998 through December 31, 2000. It expects that
substantially all of these sums will be recouped from the tenants under new or
renewed leases by way of increased rental rates. The Company expects to meet its
long-term liquidity requirements for the funding of property development,
property acquisitions and other material non-recurring capital improvements, as
well as annual tenders of L.P. Units by certain Limited Partners, through
long-term secured and unsecured indebtedness (including the New Credit Line) and
the issuance of additional equity securities by the Company. See "POLICIES WITH
RESPECT TO CERTAIN ACTIVITIES--Financing Policies."
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<PAGE>
HISTORICAL CASH FLOWS
BERG PROPERTIES
CASH PROVIDED FROM OPERATIONS. The amount of net cash provided by
operations has consistently increased since 1995. The Berg Properties had net
cash provided by operating activities of approximately $9.8 million and $5.5
million for the three months ended March 31, 1998 and 1997, respectively, and
approximately $29.9 million, $20.2 million and $16.4 million for the years ended
December 31, 1997, 1996 and 1995, respectively. The $4.3 million increase in net
cash provided by operating activities for the three months ended March 31, 1998
compared to the same period in 1997 was primarily due to an increase in net
income, a reduction in the increase in other assets, as well as an increase in
accounts payable and accrued expenses. The approximately $9.7 million increase
in net cash provided by operating activities for the year ended December 31,
1997 over the year ended December 31, 1996 was primarily due to an increase in
net income, partially offset by an increase in other assets and deferred rent
receivable. The $3.8 million increase in net cash provided by operating
activities for the year ended December 31, 1996 over the same period in 1995 was
due primarily to an increase in income before gain on sale of real estate and
extraordinary item.
INVESTING ACTIVITIES. Net cash used in investing activities with respect to
the Berg Properties was approximately $0.2 million and $3.5 million for the
three months ended March 31, 1998 and 1997, respectively, and approximately
$17.3 million, $29.3 million and $6.4 million for the years ended December 31,
1997, 1996, and 1995, respectively. The $3.3 million decrease in net cash used
in investing activities for the three months ended March 31, 1998 compared to
the same period in 1997 was primarily due to a decrease in construction
activities. The approximately $12 million decrease in net cash used in investing
activities for the year ended December 31, 1997 compared to the year ended
December 31, 1996 was also due to a decrease in construction activities.
Correspondingly, the approximately $22.9 million increase in net cash used in
investing activities for the year ended December 31, 1996 compared to the year
ended December 31, 1995, was primarily due to an increase in construction and
development expenditures for a number of the R&D Properties, including several
projects in McCandless Technology Park in Milpitas. The volume and cost of
construction and development activities for new projects and tenant improvements
in connection with new leases varies from year to year. The Company has
estimated such expenditures in connection with its estimation of pro forma cash
available for distribution during 1998, and in determining effective annual
rents for the Berg Properties. There can be no assurance that such estimates
will reflect actual results, however, and capital expenditures in prior periods
should not be viewed as indicative of expenditures in future periods.
FINANCING ACTIVITIES. Net cash (used) provided in financing activities with
respect to the Berg Properties was $(0.5) million and $(0.6) million for the
three months ended March 31, 1998 and 1997, respectively, and $(8.4) million,
$9.4 million, and $(10.0) million for the years ended December 31, 1997, 1996
and 1995, respectively. Changes in financing activities generally have been
directly related to the level of new construction and development of R&D
Properties by the Berg Group. Comparing the three months ended March 31, 1998 to
the three months ended March 31, 1997, there were no changes in debt other than
normal recurring principal payments, and capital distributions decreased to
$0.01 million for the three months ended March 31, 1998 from $0.4 million for
the three months ended March 31, 1997. For the year ended December 31, 1997, the
increase in total debt on the Berg Properties was $1.5 million less than the
increase in debt during the same period in 1996, contributions by partners were
reduced by $11.5 million, and distributions to partners increased by
approximately $4.9 million. Comparing the year ended December 31, 1996 to the
year ended December 31, 1995, the Berg Group increased total debt on the Berg
Properties by $4.0 million, increased capital contributions by $9.3 million, and
reduced capital distributions by $0.1 million.
NON-CASH FINANCING ACTIVITIES. Non-cash investing and financing activities
for the Berg Properties consisted of debt forgiveness gains of approximately
$0.6 million and $3.2 million for the years ended December 31, 1996 and 1995,
respectively, attributable to the debt forgiveness by Great West Life & Annuity
Insurance Company. Transfers of construction in progress, reflecting the
difference in the amount of construction in progress at the beginning and end of
each period, were none and $3.3 million for the three months ended March 31,
1998 and 1997, respectively, and $6.8 million and $0.08 million and none for the
years ended December 31, 1997, 1996 and 1995, respectively.
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<PAGE>
INFLATION
Most of the leases with the tenants of the Properties require the tenants
to pay all operating expenses, including real estate taxes and insurance, and
increases in common area maintenance expenses, either directly or by
reimbursements paid to the landlord. Such lease provisions substantially reduce
the Company's exposure to increases in costs and operating expenses resulting
from inflation.
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<PAGE>
DESCRIPTION OF THE PROPERTIES
GENERAL
Prior to the Partnership Closing, the members of the Berg Group and certain
of their Affiliates owned all of the Berg Properties, which consist of 50 sites,
including 58 separate buildings aggregating approximately 3,780,000 rentable
square feet, and all of which are located in Silicon Valley. As the sole general
partner of all of the Operating Partnerships, the Company has acquired control
of the Berg Properties. The Acquired Properties, which consist of 11 sites,
including 11 separate buildings aggregating approximately 561,000 rentable
square feet, also located in Silicon Valley, currently are, or prior to the
final closing of the Berg Acquisition will be, owned by the Operating
Partnerships and controlled by the Company. All of the Properties will be held
by the Operating Partnerships after the Berg Acquisition.
OVERVIEW OF THE BERG PROPERTIES
All of the Berg Properties are R&D Properties, designed for research and
development, office and, in some cases, include space for light manufacturing
operations with loading docks. The Company considers all of the Berg Properties
to be "Silicon Valley R&D Properties." Generally, the Berg Properties are one to
four story buildings of tilt-up concrete construction, have parking of 3.5
spaces per thousand square feet, or greater, clear ceiling heights less than 18
feet, and range in size from 18,000 to 211,000 rentable square feet. Most of the
office space is open and suitable for configuration to meet the tenants
requirements with the use of movable dividers. Approximately 40 of the 58 R&D
Properties are single tenant facilities, although most have been designed to be
divisible and to be usable by multiple tenants.
The current leases for the Berg Properties typically have terms ranging
from three to ten years. Most of the leases provide for fixed periodic rental
increases. Substantially all of the leases are "triple net" leases pursuant to
which the tenant is required to pay substantially all of the operating expenses
of the Property, including all maintenance and repairs (excluding only certain
structural repairs to the building shell), property taxes and insurance. Most of
the leases contain renewal options which allow the tenant to extend the lease
based on fixed rental adjustments (which may be below market ratio) or
adjustment to then prevailing market rates.
AVERAGE OCCUPANCY AND RENTAL RATES
The following table sets forth the aggregate average percent of square
footage leased and the average Annual Base Rent per leased square foot for the
Berg Properties for the periods specified:
<TABLE>
<CAPTION>
Total Rentable Average Occupancy Average Monthly Base Rent Total Annual Base Rent
Square Footage at Period End Per Leased Square Foot (1) (in thousands) (2)
----------------- -------------------- ---------------------------- -------------------------
<S> <C> <C> <C> <C>
1992 2.8 million 87.55% $0.85 $24,893
1993 2.8 million 89.58% 0.84 25,316
1994 2.9 million 80.27% 0.96 26,389
1995 3.2 million 87.38% 0.71 23,745
1996 3.4 million 91.86% 0.78 29,119
1997 3.8 million 97.68% (3) 0.86 38,295
</TABLE>
- ---------------------
(1) Calculated as total Annual Base Rent divided by the average total leased
square footage at period end divided by 12.
(2) Excludes annual base rent under leases entered into wherein the first date
of occupancy is after December 31, 1997 for Berg Properties consisting of
53,494, 26,150, and 8,206 square feet, respectively.
(3) As of March 31, 1998 the Berg Properties were 100% occupied.
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<PAGE>
LEASING ACTIVITY
The following table sets forth certain information (on a per rentable
square foot basis) about leasing activity for the Berg Properties owned as of
December 31, 1997 for the years indicated:
<TABLE>
<CAPTION>
Number of Square Footage Base Rent Tenant Improvements Effective
Leases(1) Leased Under Leases and Commissions(2) Annual Rent
-------------- ----------------- --------------- ------------------------ -------------
<S> <C> <C> <C> <C> <C>
1992 10 717,673 $9.97 $ - $9.97
1993 10 531,313 $10.26 $0.49 $9.77
1994 10 454,576 $7.01 $0.83 $6.18
1995 17 569,740 $9.58 $0.18 $9.40
1996 24 705,971 $11.31 $0.77 $10.54
1997 18 811,903 $14.57 $0.71 $13.86
</TABLE>
- ---------------------
(1) Excludes leases with a term of less than 12 months and leases related to new
buildings or substantially renovated buildings.
(2) Amounts represent the annual amortization expense associated with leasing
commissions and tenant improvements related to leases executed during the
period. Costs related to new buildings or substantially renovated buildings
have been excluded.
LEASE EXPIRATIONS
The following table shows expirations of leases for the Berg Properties in
place as of December 31, 1997 for each of the next ten years beginning with
1998, assuming none of the tenants exercises renewal options or termination
rights that have not been exercised as of the date hereof:
<TABLE>
<CAPTION>
Percentage of
Annual Base Rent Total Annual Base
Number of Rentable Square Footage Under Expiring Rent Represented By
Leases Expiring Subject to Expiring Leases (in Expiring
Leases thousands)(1) Leases(2)
----------------- ------------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
1998 4 94,409 $644 1.50%
1999 9 426,466 $3,471 8.07%
2000 18 642,497 $7,463 17.35%
2001 18 457,758 $4,713 10.95%
2002 11 808,652 $11,250 26.15%
2003 7 338,093 $3,500 8.14%
2004 10 578,853 $7,771 18.06%
2005 - - - -
2006 1 93,984 $1,015 2.36%
2007 and
thereafter 4 339,272 $3,194 7.42%
----------------- ------------------------- ---------------------- ---------------------
82 3,779,984 $43,021 100.00%
</TABLE>
- ---------------------
(1) Actual Base Rent for 1998. Includes additional 26,150 square feet leased to
Sasco, 53,494 leased to Avnet and 8,206 leased to Breakthrough Software.
(2) Based on actual 1998 Rents under existing leases.
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<PAGE>
SIGNIFICANT PROPERTIES AND TENANTS
The Berg Properties are occupied by a total of 73 tenants. Most of the Berg
Properties are occupied by single tenants, and most of the largest tenants are
publicly-held companies in the electronics industry. The following table sets
forth information concerning the 12 largest tenants for the Berg Properties,
representing 56.8% of the total Annual Base Rent and 50.8% of the total leased
square footage for the Berg Properties as of December 31, 1997. See "BERG
PROPERTIES HISTORICAL FINANCIAL DATA."
<TABLE>
<CAPTION>
Number Number Annual Base Rent Percent of Total Annual
Tenant of Leases of Buildings (in thousands) Base Rent from all Leases
----------------------- ----------- ------------- ------------------ -------------------------
<S> <C> <C> <C> <C>
1 Apple Computer, Inc. 3 4 $6,223 16.25%
2 Amdahl Corporation 4 7 3,320 8.67%
3 Cisco Systems, Inc. 2 2 2,745 7.17%
4 ESL (TRW) 1 1 1,273 3.32%
5 Motorola, Inc. 1 1 1,254 3.27%
6 On Command Video 1 2 1,155 3.02%
7 Arrow Electronics 2 2 1,114 2.91%
8 Condor Systems, Inc. 1 2 1,073 2.80%
9 Comerica Bank 1 1 996 2.60%
10 Behring Pharmaceutical 1 1 945 2.47%
11 Santa Clara County 2 1 873 2.28%
12 NEC Electronics 1 1 784 2.05%
----------- ------------- ------------------ -------------------------
Total 20 25 $21,755 56.81%
</TABLE>
Set forth below is additional information concerning certain Berg
Properties:
APPLE PROPERTIES
The Apple Properties consist of four buildings located at three locations
in Cupertino, California totaling 376,400 square feet occupied by Apple
Computer, Inc. ("Apple") for more than five years. Upon completion of the Berg
Acquisition, the Apple Properties will represent approximately 8.67% of the
total rentable square footage in the Operating Partnerships. The largest
building is a four-story 211,000 square foot building located across the street
from Apple's 850,000 square foot corporate headquarters. Apple spent
approximately $14 million in 1992 to renovate and upgrade this building, which
is currently used for software development activities. Apple also leases a
three-building "campus" complex, totaling 142,000 square feet, located one-half
block from Apple's headquarters building. Apple spent approximately $10 million
to renovate and upgrade this facility in 1991 and currently uses this building
for engineering activities. Apple also leases a 23,400 square foot building in
Cupertino, California approximately two miles from Apple's corporate
headquarters. This facility is currently used for prototype manufacturing. None
of the Apple Properties is sublet or unoccupied.
The effective annual rent per square foot for the Apple Properties was
$11.42, $12.98, $13.12, $13.23 and $15.79 for 1993 through 1997, respectively.
The total income tax basis in the Apple Properties was $3,787,722 as of December
31, 1997. Depreciation has been recorded for tax purposes using the
straight-line method over the useful lives of the respective assets from the
dates they were placed in service, which have ranged from 5 to 45 years. The
annual property taxes, including assessments, for the Apple Properties
aggregated approximately $418,000 for the year ended December 31, 1997, based on
a tax rate of approximately 1.08% plus assessments.
DESCRIPTION OF TENANT. Apple is a Fortune 500 company and one of the
largest computer firms in the world. As of March 31, 1998, Apple employed
approximately 10,000 people, and its total annual revenues for 1997 were
approximately $7 billion. Apple's Cupertino headquarters building was completed
in 1993 at an estimated cost of $200 million, and the two largest Apple
Properties are the buildings located closest to Apple's headquarters.
LEASE TERMS. The lease for the four-story building expires on May 31, 2002.
The lease currently provides for rental payments of $4,338,840 per year ($1.71
per square foot per month). Apple has the option to extend the term of this
lease for two successive five-year periods, subject to fixed rent adjustments.
The lease for the three-building campus expires on December 31, 2002. This lease
currently provides for rental payments of
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<PAGE>
$1,975,382 per year ($1.16 per square foot per month). Apple has the option to
extend the term of this lease for five years, subject to an adjustment of the
rental to market rates. The lease for the 23,400 square feet building expires on
November 30, 1998. This lease currently provides for rental payments of $351,702
per year ($1.25 per square foot per month). There are no termination, relocation
or buy-out rights in favor of Apple under any of these leases.
AMDAHL PROPERTIES
The Amdahl Properties comprise a 260,000 square foot office complex of five
buildings located in the Oakmead Business Park in Sunnyvale, California and two
buildings of 125,000 square feet and 75,000 square feet, respectively, located
in Santa Clara, California about two miles from the Sunnyvale complex. These
properties are occupied by Amdahl Corporation ("Amdahl"). Upon completion of the
Berg Acquisition, the Amdahl Properties will represent approximately 10.6% of
the total rentable square footage in the Operating Partnerships. Amdahl utilizes
the Sunnyvale facility for its corporate headquarters and the Santa Clara
facility for research and development activities. These buildings were built
between 1972 and 1983 under build-to-suit arrangements with Amdahl. Amdahl has
sublet approximately 23,000 square feet of one of the Santa Clara buildings.
The effective annual rent per square foot for the Amdahl Properties was
$6.63, $6.86, $7.16, $7.16 and $7.20 for 1993 through 1997, respectively. The
total income tax basis in the Amdahl Properties was $7,192,570 as of December
31, 1997. Depreciation has been recorded for tax purposes using the
straight-line method over the useful lives of the respective assets from the
dates the assets were placed in service, which range from 5 to 45 years. The
annual property taxes, including assessments, for the Amdahl Properties
aggregated approximately $402,000 for the year ended December 31, 1997, based on
an average tax rate of approximately 1.04% plus assessments.
DESCRIPTION OF TENANT. Amdahl is a major international computer company,
and a wholly owned subsidiary of Fujitsu Limited. As of December 31, 1997,
Amdahl employed approximately 9,900 people and its total revenues for the year
were approximately $1.6 billion.
LEASE TERMS. The leases for five of the buildings, totaling 260,000 square
feet, expire in the first half of 1999. These leases currently provide for
aggregate annual rent of $1,061,592 ($0.34 per square foot per month). The lease
for the 125,000 square foot building in Santa Clara expires on November 30,
2008. Currently, annual rental for this building totals approximately $1,104,698
during 1998 and increases by 5% every seven years ($0.74 per square foot per
month before adjustments). The lease for the remaining 75,000 square foot
building expires on April 14, 2004. Currently, annual rental for this facility
is $1,157,085 ($1.29 per square foot per month). The leases contain 14 five-year
options remaining with rental rates increasing at pre-negotiated increments for
each option period. The Company believes that the rental rates for all of the
Amdahl Properties are significantly below present market rates, and the
pre-negotiated rate adjustments will not necessarily bear any relationship to
present or future market rates. There are no termination, relocation or buy-out
rights in favor of Amdahl under any of the leases.
CISCO PROPERTIES
The Cisco Properties consist of two buildings presently occupied by Cisco
Systems, Inc. ("Cisco"). One of the buildings is a 200,484 square foot
build-to-suit building located in south San Jose completed in January 1996. The
other building, which is located in Santa Clara, totals 65,780 square feet and
was acquired in 1996 and leased to Cisco effective February 1, 1997. The larger
facility is used by Cisco as a major manufacturing and research and development
site. Upon completion of the Berg Acquisition, the Cisco Properties will
represent approximately 6.13% of the total rentable square footage in the
Operating Partnerships.
The effective annual rent per square foot for the Cisco Properties was
$10.20 for 1997. The total income tax basis in the Cisco Properties was
$14,299,768 as of December 31, 1997. Depreciation has been recorded for tax
purposes using the straight-line method over the useful lives of the respective
assets from the dates the assets were placed in service, which approximate 40
years for these improvements. The annual property taxes, including assessments,
for the Cisco Properties aggregate approximately $259,185 based on the 1997-98
real property tax bills, with tax rates ranging from 1.09% to 1.14% plus
assessments. Cisco is in the process of completing certain improvements
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<PAGE>
at the smaller facility which will likely result in a real property tax
reassessment of this property. Any increase in taxes associated with these
improvements during the lease term is Cisco's responsibility.
DESCRIPTION OF TENANT. Cisco is a publicly traded computer network products
manufacturer. As of July 31, 1997, Cisco employed over 11,000 people. Its
revenues grew by 57.2% over the prior year and its total revenues for its 1997
fiscal year were approximately $6.44 billion.
LEASE TERMS. The lease for the 200,484 square foot building expires on
December 31, 2002. The current annual rental is $2,033,580 ($0.85 per square
foot per month) with fixed periodic increases. Cisco has an option to purchase
this property and has the first right of option to lease or purchase additional
buildings to be constructed, if any, on property adjacent to the location of
this building. The purchase option must be exercised during defined periods
during the lease term at fixed prices. Cisco has two five-year options to extend
the term of its existing lease at fixed annual rent increases.
The lease for the 65,780 square foot building expires on January 31, 2000.
The current rent for this property is $907,764 ($1.15 per square foot per month)
with no rental increases over the initial term of the lease. Cisco has one
option to extend the term of this lease for a period of one year at a fixed
rental increase.
OTHER MAJOR TENANTS
The other nine of the twelve major tenants for the Berg Properties
currently lease R&D Properties under 11 separate leases which would comprise
approximately 21.63% of the Operating Partnerships' total rentable square
footage following the Berg Acquisition. None of the nine tenants accounts for
more than 3.3% of Annual Base Rent for the Berg Properties or more than 3.47% of
the total rentable square footage of all Properties. The Company believes that
all nine tenants currently are in good financial condition. The Company is
unaware of any material defaults under any of their leases. Each of such tenants
has signed a form of the Berg & Berg standard lease agreement. If any of these
tenants were to vacate the Berg Properties that they currently lease or
otherwise terminated their tenancies, the Company believes that it could obtain
new tenants at comparable or higher rents within three months, in light of the
current market for Silicon Valley R&D Properties. See "THE BUSINESS OF BERG &
BERG--The Silicon Valley R&D Property Market."
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<PAGE>
THE BERG PROPERTIES
The following table provides certain additional information concerning all
of the Berg Properties:
<TABLE>
<CAPTION>
Annualized
1997 Effective
Year Developed Annualized 1997 Net Rent Per
Address of Leased ("D") or Rentable Actual Annual Net Rent Per Sq. Sq. Ft. Per
Premises Acquired ("A") Square Feet Tenant Base Rent for 1997 Ft. Per Month Month
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10401 Bubb Road 1972(D) 9,708 LBE Technology $145,814 $1.25 $1.23
Cupertino
1600/10 McCandless 1995(A) 40,970 Panasonic $270,402 $0.55 $0.55
Milpitas Industrial
1745 McCandless 1995(A) 20,331 EIP Microwave $178,104 $0.73 $0.69
Milpitas
10300 Bubb Road 1972(D) 23,400 Apple $351,702 $1.25 $1.25
Cupertino
1657 McCandless 1995(A) 8,184 Wedge Tech. $70,704 $0.72 $0.72
Milpitas
1230 E. Arques Ave. 1977(D) 60,000 Amdahl $302,337 $0.42 $0.42
Sunnyvale
2001 Logic Drive 1992(D) 72,426 Motorola $1,254,418 $1.44 $1.39
San Jose
1250 E. Arques Ave. 1974(D) 200,000 Amdahl $755,923 $0.31 $0.31
Sunnyvale
2039 Samaritan Drive 1984(D) 14,205 Holonet $251,983 $1.48 $1.41
San Jose
1575 McCandless 1995(A) 11,056 Acropolis $92,870 $0.70 $0.67
Milpitas
2610 No. First Street 1981(D) 6,794 SC Juv. Prob. $103,860 $1.27 $1.21
San Jose
6850 Santa Teresa 1979(D) 30,000 Magnex $210,045 $0.58 $0.58
San Jose
2243 Samaritan Drive 1984(D) 23,801 State Farm $362,727 $1.27 $1.23
San Jose
6385 San Ignacio 1980(D) 17,400 Alcatel $138,330 $0.66 $0.66
San Jose
1135 Kern Avenue 1973(D) 18,300 Davicom $192,150 $0.88 $0.82
Sunnyvale
4750 Patrick Henry 1996(A) 65,780 Siemens/Cisco (1) $898,784 $1.14 $1.08
Santa Clara
10411 Bubb Road 1972(D) 10,622 Enatec/Celerity $166,499 $1.31 $1.25
Cupertino Systems (1)
1212 Bordeaux 1984(D) 71,800 ESL $1,273,344 $1.48 $1.07
Sunnyvale
2239 Samaritan Drive 1984(D) 25,633 Lynx $250,326 $0.81 $0.77
San Jose
1810 McCandless 1995(A) 39,800 Kent Electronics $298,500 $0.63 $0.63
Milpitas
2610-B No. First Street 1981(D) 6,031 Mycom(Nyden) $55,728 $0.77 $0.73
San Jose
1500/20 McCandless 1995(A) 42,700 Adaptec $363,804 $0.71 $0.68
Milpitas
450-460 National Avenue 1973(D) 36,100 Savi Technology $345,756 $0.80 $0.80
Mt. View
140 Great Oaks 1982(D) 30,459 GSS/Array $201,024 $0.55 $0.52
San Jose
2033 Samaritan Drive 1984(D) 12,286 Good Samaritan $179,868 $1.22 $1.22
San Jose
6387 San Ignacio 1980(D) 17,400 Modutek Corporation $127,368 $0.61 $0.61
San Jose
2133-2233 Samaritan Dr. 1984(D) 110,490 Condor $1,072,860 $0.81 $0.81
San Jose
1645 McCandless 1995(A) 6,432 APS Computer/ $65,123 $0.84 $0.72
Milpitas Swinerton Inc. (1)
6540 Via Del Oro 1980(D) 20,076 Exsil $189,672 $0.79 $0.79
San Jose
2600 No. First Street 1981(D) 56,516 SC Cnty(Adult) $769,344 $1.13 $1.13
San Jose
-50-
<PAGE>
<CAPTION>
Annualized
1997 Effective
Year Developed Annualized 1997 Net Rent Per
Address of Leased ("D") or Rentable Actual Annual Net Rent Per Sq. Sq. Ft. Per
Premises Acquired ("A") Square Feet Tenant Base Rent for 1997 Ft. Per Month Month
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3236 Scott Blvd. 1981(D) 54,672 Celeritek $698,472 $1.06 $0.88
Santa Clara
6320 San Ignacio 1982(D) 45,000 Symantec $368,468 $0.68 $0.65
San Jose
6781 Via Del Oro 1982(D) 21,800 Datum $195,192 $0.75 $0.75
San Jose
6330 San Ignacio 1982(D) 19,600 Tech. Elite $218,344 $0.93 $0.69
San Jose
6351 San Ignacio 1982(D) 15,920 Alteon $176,425 $0.92 $0.88
San Jose
6540 Via Del Oro 1980(D) 5,862 X-Cyte, Inc. $15,300 $0.87 $0.87
San Jose
6540 Via Del Oro 1980(D) 5,862 SVCC/Thinking $39,119 $0.56 $0.53
San Jose Tools, Inc. (1)
6350 San Ignacio 1982(D) 63,638 Bell Sports $595,656 $0.78 $0.54
San Jose
1635 McCandless 1995(A) 7,922 Preston-Holmes $66,705 $0.70 $0.70
Milpitas
6360 San Ignacio 1982(D) 19,104 Silicon Vly Resch $190,330 $0.83 $0.63
San Jose
1625 McCandless 1995(A) 11,087 Rorze Autom. $128,292 $0.96 $0.92
Milpitas
2043 Samaritan Drive 1984(D) 48,677 Amati $709,706 $1.21 $1.09
San Jose
150-160 Great Oaks 1982(D) 52,000 Atcor $396,000 $0.63 $0.63
San Jose
6325 San Ignacio 1981(D) 50,400 Photon Dynamics $547,934 $0.91 $0.69
San Jose
1555 McCandless 1995(A) 14,436 A&D Engineering $144,503 $0.83 $0.83
Milpitas
1450 McCandless 1997(D) 45,312 Chartered $450,998 $0.83 $0.79
Milpitas Semiconductor
1435 McCandless 1995(A) 8,713 SVT Technologies $88,872 $0.85 $0.85
Milpitas
1525-35 McCandless 1995(A) 14,219 TTI West/ADE Tech. $164,232 $0.96 $0.92
Milpitas (1)
1455 McCandless Dr 1995(A) 13,129 CNET $137,203 $0.87 $0.84
Milpitas
3301 Olcott Street 1977(D) 64,500 NEC Electronics $783,675 $1.22 $0.91
Santa Clara
1690 McCandless 1997(D) 14,919 Taxan $167,997 $1.41 $1.33
Milpitas
10500 N. De Anza Blvd 1981(D) 211,000 Apple $4,145,140 $1.64 $1.56
Cupertino
6311 San Ignacio 1981(D) 30,000 Teledex $210,000 $0.58 $0.58
San Jose
6340 San Ignacio 1982(D) 9,750 Aureflam $52,065 $0.89 $0.67
San Jose Corporation
405 Tasman/1190 Morse 1976(D) 28,350 Pacific Pay $286,618 $0.84 $0.83
Sunnyvale Video/Coptec (1)
6341 San Ignacio 1980(D) 79,120 Nelms-Donham $645,198 $0.68 $0.65
San Jose
1725 McCandless Dr 1995(A) 15,400 Spec. Mat. Supply $147,243 $0.80 $0.77
Milpitas
4949 Hellyer Avenue 1995(D) 200,484 Cisco $1,913,292 $0.80 $0.77
San Jose
20605-705 Valley Green 1975(D) 142,000 Apple $1,726,622 $1.01 $0.94
Cupertino
1425 McCandless 1995(A) 16,737 Optical Assoc. $164,469 $0.82 $0.82
Milpitas
20400 Mariani 1978(D) 105,000 Syva $945,000 $0.75 $0.75
Cupertino
2800 Bayview 1994(A) 59,736 Concept $599,568 $0.84 $0.81
Fremont
10440 Bubb Road 1979(D) 19,500 Linotext Digital $245,700 $1.05 $1.00
Cupertino Color
-51-
<PAGE>
<CAPTION>
Annualized
1997 Effective
Year Developed Annualized 1997 Net Rent Per
Address of Leased ("D") or Rentable Actual Annual Net Rent Per Sq. Sq. Ft. Per
Premises Acquired ("A") Square Feet Tenant Base Rent for 1997 Ft. Per Month Month
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1170 Morse Ave. 1980(D) 34,750 CA Parkinson $365,864 $0.88 $0.66
Sunnyvale
1740 McCandless 1995(A) 51,602 Mektec $498,475 $0.81 $0.81
Milpitas
1325 McCandless 1996(D) 50,768 Sherpa $574,084 $0.94 $0.91
Milpitas
1375 McCandless 1996(D) 26,800 Digital DJ $373,109 $1.27 $1.24
Milpitas
6321 San Ignacio 1981(D) 53,494 Avnet(2) -- $0.00 $0.00
San Jose
10460 Bubb Road 1976(D) 30,460 Silicon Video/GSI $433,760 $1.58 $1.55
Cupertino (1)
3120 Scott Blvd. 1983(D) 75,000 Amdahl $1,157,085 $1.29 $1.29
Santa Clara
6331 San Ignacio 1980/1997(D) 131,320(3) On Command Video $1,155,267 $0.73 $0.73
San Jose
1587 & 1595 McCandless 1995(A) 22,207 Spin Tech./Medical $239,313 $0.90 $0.89
Milpitas Innovations
1765 McCandless 1997(D) 118,708 Larscom $614,313 $1.15 $1.12
Milpitas
3501 W. Warren Blvd 1997(D) 51,864 Comptech $267,620 $1.29 $1.24
Fremont
46600 Fremont Blvd. 1997(D) 16,000 A-Trend Technology $95,040 $1.32 $1.29
Fremont
48800 Milmont Drive 1996(D) 53,000 Premisys $563,178 $0.89 $0.85
Fremont
75/85 E. Trimble 1981(D) 93,984 Comerica $996,232 $0.88 $0.86
San Jose
1350 McCandless 1997(D) 46,272 Arrow Electronics, $569,129 $1.12 $1.09
Milpitas Inc.
1600 Memorex Drive 1995(A) 83,516 Sasco $438,460 $0.53 $0.44
Santa Clara
1680 McCandless 1997(D) 58,334 Arrow Electronics, $545,247 $1.04 $1.01
Milpitas Inc.
2251 Lawson Lane 1979(D) 125,000 Amdahl $1,104,698 $0.74 $0.74
Santa Clara
2610-C North First St 1981(D) 8,206 Breakthrough (4) $0 $0.00 $0.00
San Jose
1600 Memorex 1995(A) 26,150 Sasco(2) $0 $0.00 $0.00
Santa Clara
------------ --------------
Totals 3,779,984 $38,294,581
</TABLE>
- -----------------
(1) Space that has been vacated during 1997 by first tenant named and re-let to
second tenant named.
(2) Lease signed prior to December 31, 1997, and Property occupied as of January
1998. Not considered occupied for occupancy calculations.
(3) 36,320 rentable square feet completed during 1997.
(4) Additional space leased to Breakthrough Software with rent commencing in
February 1998.
-52-
<PAGE>
STANDARD BERG & BERG LEASE TERMS
The standard lease agreement used by Berg & Berg is a triple net lease. The
term of the standard lease ranges from three to ten years with one to three
five-year options for the tenant to extend the lease at market rental rates, but
not less than the rent in the last month of the original term. Most of the
leases contain provisions similar to the following:
- Except to the extent caused by the sole negligence or willful misconduct
of the lessor, the tenant is required to fully indemnify Berg & Berg for
property related actions, suits, proceedings or the like, including any actions,
suits or proceedings relating to hazardous materials. The indemnification
provisions survive the termination of the lease.
- The tenant may not assign the lease or sublet the premises without the
prior written consent of Berg & Berg, except to a bona fide affiliate or
subsidiary of the tenant. In recent leases, Berg & Berg has reserved the right
to withhold consent to any proposed assignment or sublease if the proposed
assignee or sublessee is a generator of hazardous materials. Regardless of an
assignment or sublet permitted, the tenant remains primarily liable for the
performance of all conditions, covenants and obligations under the lease.
- Berg & Berg generally does not require the tenant to obtain earthquake
insurance.
OVERVIEW OF THE ACQUIRED PROPERTIES
All of the Acquired Properties are R&D Properties. They are occupied by a
total of 10 tenants under leases with terms ranging from 4 to 13 years. Most of
the leases provide for fixed periodic rental increases. All of the leases are
triple net leases. Most of the leases contain renewal options which allow the
tenant to extend the lease based on fixed rental adjustments (which may be below
market ratio) or adjustment to then prevailing market rates.
AVERAGE OCCUPANCY AND RENTAL RATES
The following table sets forth the aggregate average percent of square
footage leased and the average Annual Base Rent per leased square foot for the
Acquired Properties for the periods specified:
<TABLE>
<CAPTION>
Total Annual
Total Rentable Average Occupancy Average Annual Base Rent Effective Rent Per Base Rent
Square Footage at Period End Per Leased Square Foot (1) Square Foot(3) (in thousands)
-------------- ----------------- -------------------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
1992 416,527 84.30% $0.87 $0.87 $3,672,036
1993 416,527 74.23% 0.88 0.70 3,259,777
1994 416,527 66.05% 0.89 0.64 2,879,135
1995 416,527 81.76% 0.72 0.72 2,953,399
1996 416,527 86.84% 0.76 0.76 3,313,067
1997 560,585 90.63% 0.86 0.81 5,000,488
</TABLE>
- -----------
(1) Calculated as total Annual Base Rent divided by the average total leased
square footage at period end divided by 12.
(2) Includes the Fremont Properties, which were completed and occupied during
1997.
-53-
<PAGE>
LEASE EXPIRATIONS
The following table shows expirations of leases for the Acquired Properties
in place as of December 31, 1997 for each of the next ten years beginning with
1998, assuming none of the tenants exercises renewal options or termination
rights that have not been exercised as of the date hereof:
<TABLE>
<CAPTION>
Annual Base Rent Percentage of Total Annual
Number of Rentable Square Footage Under Expiring Leases Base Rent Represented by
Leases Expiring Subject to Expiring Leases (in thousands)(1) Expiring Leases(2)
--------------- -------------------------- --------------------- --------------------------
<S> <C> <C> <C> <C>
1998 1 18,304 $ 64 1.02%
1999 3 65,598 751 11.95%
2000 - - - -
2001 - - - -
2002 7 332,625 3,527 56.16%
2003 - - -
2004 2 99,802 1,422 22.64%
2005 - - - -
2006 - - - -
2007 and
thereafter 1 44,256 517 8.23%
--------------- -------------------------- --------------------- --------------------------
Total 14 560,585 $6,281 100.00%
</TABLE>
- -----------
(1) Based on actual base rent under existing leases for 1998.
(2) Calculated by dividing the Annual Base Rent for 1998 by total 1998 Annual
Base Rents for all Acquired Properties.
-54-
<PAGE>
ACQUIRED PROPERTIES
The following table provides certain additional information concerning
the Acquired Properties:
<TABLE>
<CAPTION>
Year Annualized Annualized
Developed Actual 1997 Net 1997 Effective
("D") or Rentable Annual Base Rent Per Net Rent Per
Address of Acquired Square Rent for Sq. Ft. Sq. Ft. Per
Leased Premises ("A") Feet Tenant 1997 Per Month Month
- ---------------------- ----------- --------- ----------------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
FREMONT PROPERTIES
4050 Starboard Drive 1997(D) 52,232 Flash - - -
Fremont, California(1) Electronics,
Inc.
45700 Northport 1997(D) 47,570 Phillips $669,960 $1.17 $1.14
Fremont, California Electronics
45738 Northport Loop 1997(D) 44,256 EIC $432,902 $0.82 $0.80
Fremont, California
--------- -----------
Totals 144,058 $1,102,862
KONTRABECKI PROPERTIES
3510 Bassett Street 1983(D) 18,304 Sigma Circuits $153,756 $0.70 $0.55
Santa Clara, California
3540 Bassett Street 1984(D) 19,600 IXYS $180,198 $0.77 $0.70
Santa Clara, California Technologies, Inc.
3542 Bassett Street 1984(D) 20,648 Sigma Circuits $182,872 $0.74 $0.59
Santa Clara, California
3506 Bassett Street 1983(D) 25,350 Crystallume / $261,013 $0.86 $0.74
Santa Clara, California A.R.T.
3530 Bassett Street 1983(D) 50,070 SDL, Inc. $476,974 $0.79 $0.79
Santa Clara, California
3520 Bassett Street 1988(D) 52,080 KLA Instruments $624,674 $1.00 $1.00
Santa Clara, California / SDL, Inc.
3550 Bassett Street 1986(D) 49,080 Intevac $421,950 $0.72 $0.72
Santa Clara, California
3560 Bassett Street 1986(D) 73,093 Intevac $647,018 $0.74 $0.74
Santa Clara, California
3570 Bassett Street 1986(D) 23,372 Intevac $252,418 $0.90 $0.90
Santa Clara, California
3580 Bassett Street 1986(D) 21,118 Intevac $181,557 $0.72 $0.72
Santa Clara, California
3544 Bassett Street 1984(D) 63,812 Maxell Corp. $515,196 $0.67 $0.67
Santa Clara, California
--------- -----------
Totals 416,527 $3,897,626
</TABLE>
- ------------
(1) Lease signed prior to December 31, 1997, rent and occupancy commenced on
January 1, 1998.
(2) Lease for 3560 Bassett commenced on April 1, 1997. Rent for the first two
months was payable at a 50% discount.
THE PENDING DEVELOPMENT PROJECTS
GREAT OAKS/SANTA TERESA This proposed project located on Berg & Berg land
in south San Jose will be a contemporary two-story concrete tilt-up R&D Property
of approximately 54,240 square feet situated on a three-acre site. BBE expects
this project to be completed and leased in late 1998 to mid-1999.
MEMOREX AND RICHARD. This proposed complex located in Santa Clara will
consist of two single story R&D Properties, with limited parking, intended for
single tenant occupancy. The building located on Memorex Drive will have 52,800
rentable square feet, and the building on Richard Ave. will have 58,740 square
feet. BBE expects to complete and lease both buildings by mid-1998.
AUTOMATION PARK. This project is being built on two adjoining parcels
totaling 22 acres in north San Jose. BBE will construct four single story
Spanish-style R&D Properties with approximate rentable areas of 114,028, 80,640,
80,640 and 61,056 square feet, respectively, with 4 per 1,000 square feet
parking areas. BBE expects to complete and lease the four buildings between late
1998 and mid-1999.
-55-
<PAGE>
L'AVENIDA. This Mountain View, California project will be a five-building
complex totaling approximately 513,000 square feet on nearly 30 acres. The
buildings will be high-quality contemporary tilt-up R&D Properties with
reflective glass and concrete exteriors designed primarily as headquarters or
research and development facilities for software or biotechnology firms. The
site is a prime location near U.S. Highway 101, and neighboring tenants include
Alza Corporation, Sun Microsystems, Inc. and Silicon Graphics, Inc. BBE expects
to complete and lease all of the buildings in mid-1999.
THE PENDING PROJECTS ACQUISITION AGREEMENT. The Acquisition Agreement, as
amended, provides for the Company, the Operating Partnerships and the members of
the Berg Group holding interests in the Pending Development Projects to enter
into the Pending Project Acquisition Agreement for the acquisition of the
Pending Development Projects by the Operating Partnerships at the final closing
date for the Berg Acquisition. Currently, there are no tenants for any of the
Projects. Following are the principal terms of that agreement:
- The selling Berg Group members and BBE will build and deliver
each R&D Property in the Pending Development Projects to the
Operating Partnerships at the acquisition value set forth in the
following table, subject to adjustment if the actual average
monthly rental rate per square foot differs from the projected
rental rate set forth in the table. The actual acquisition value
will be equal to the actual Annual Base Rent divided by the
capitalization rate, minus the amount of debt encumbering the
property.
<TABLE>
<CAPTION>
Projected Triple Projected Average
Approximate Net Annual Base Monthly Rental Rate Acquisition Capitalization
Pending Project Building Size Rent Per Square Foot Value Rate(1)
- ------------------ ------------- ------------------ -------------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Great Oaks 54,240 $ 715,968 $1.10 $ 5,226,043 0.137
Memorex Drive 52,800 $ 535,560 $0.85 $ 3,347,250 0.160
Richard (Ave.) 58,740 $ 599,148 $0.85 $ 3,744,675 0.160
Automation Park 114,028 $1,778,836 $1.30 $12,705,971 0.140
80,640 $1,257,984 $1.30 $ 8,985,600 0.140
80,640 $1,257,984 $1.30 $ 8,985,600 0.140
61,056 $ 952,474 $1.30 $ 6,803,386 0.140
L'Avenida(2) 94,134 $3,219,382 $2.85 $18,937,541 0.170
101,622 $3,475,724 $2.85 $20,445,435 0.170
93,314 $3,191,339 $2.85 $18,772,582 0.170
126,236 $4,317,271 $2.85 $25,395,717 0.170
98,166 $3,357,277 $2.85 $19,748,688 0.170
</TABLE>
- -----------------
(1) Calculated as 100 divided by the quotient of the Purchase Price and the
Projected Triple Net Annual Base Rent. Management believes the current
capitalization rate for good quality Silicon Valley R&D Properties is
approximately 0.085 to 0.095.
(2) This project provides an unusually high rate of return and is not
representative of returns or projects that the Company may be able to
obtain or acquire in the future.
- The acquisition value will be payable by the Company or the
Operating Partnerships in L.P. Units at $4.50 per L.P. Unit or
cash, at the option of the Sellers.
- The closing for the acquisition of an individual R&D Property
within the Project will occur only when the building has been
completed and fully leased. The Company and the Operating
Partnerships are not otherwise required to acquire any of the
Pending Development Projects.
- The sellers will make customary representations and warranties to
the Operating Partnerships as of the closing date.
- Leases will be on commercially reasonable terms and conditions.
See "Standard Berg & Berg Lease Terms."
-56-
<PAGE>
LAND HOLDING AND DEVELOPMENT ARRANGEMENTS
BERG LAND HOLDINGS. Certain members of the Berg Group, including Carl E.
Berg, own several parcels of undeveloped real estate in the Silicon Valley (the
"Berg Land Holdings") which have been made available to the Company for future
development, subject to closing the Berg Acquisition, under the terms of the
Option Agreement. Mr. Berg and such other Berg Group members have not undertaken
any obligation to the Company or the Operating Partnerships to exercise any of
their options or rights to acquire or develop the Berg Land Holdings and may not
exercise them prior to their current expiration dates. The following table
describes the Berg Land Holdings:
<TABLE>
<CAPTION>
Estimated Remaining
Development Potential
Acres(1) in Rentable Square Feet(2)
------------- -------------------------
<S> <C> <C>
King Ranch Business Park, South San Jose 123 1,900,000
Hellyer and Piercy, South San Jose 7 105,000
Fremont & Cushing, Fremont 32 450,000
</TABLE>
- ------------
(1) Net acres
(2) Assumed coverage ratio of 32-35% of the buildable portion of the parcel.
All three parcels have industrial or industrial business park zoning,
permitting the development of R&D Properties. All discretionary approvals for
the King Ranch, and Hellyer and Piercy properties have been obtained, with the
exception of discretionary architectural reviews. Development of each of the
parcels also requires various administrative and ministerial permits and
approvals prior to the commencement of construction.
The King Ranch site is adjacent to U.S. Highway 101. To date, designs have
been prepared for two buildings of approximately 110,000 square feet and 70,000
square feet, respectively.
Certain members of the Berg Group hold an option to purchase the site at
Fremont Avenue and Cushing Boulevard in Fremont, California, exercisable,
including all extensions, prior to January 2000. Acquisition of the land is
subject to receipt of building permits and the resolution of issues concerning
the set aside of wetlands. The Berg Group intends to propose offsite mitigation
to the Army Corps of Engineers. If this mitigation cannot be obtained, the
buildable site would be reduced to approximately 22 acres and 335,000 rentable
square feet. The optionholders may decide not to exercise their option to
acquire this land, in which case it will no longer be subject to the Berg Land
Holdings Option Agreement.
Certain members of the Berg Group hold an option to purchase the parcel
located at Hellyer Avenue and Piercy Road in south San Jose during 1998. The
acquisition of the land is subject to receipt of building permits and the
resolution of street improvement costs with the City of San Jose. The
optionholders may decide not to exercise their right to acquire this property,
in which case it will no longer be subject to the Berg Land Holdings Option
Agreement.
THE OPTION AGREEMENT. The Acquisition Agreement, as amended, provides for
the Company, the Operating Partnerships and the members of the Berg Group
holding interests in the Berg Land Holdings to enter into the Option Agreement
containing the following principal terms at the final closing date for the Berg
Acquisition:
- After the effective date of the Option Agreement and for as long
as the Berg Group members and their Affiliates own or have the
right to acquire shares representing 65% of the Common Stock on a
Fully-Diluted basis, the Company will have the option (the
"Option") to acquire any building developed by any member of the
Berg Group on the Berg Land Holdings at such time as the building
has been leased at a price equal to (i) the full construction
cost of the building, plus (ii) 10% of (i), plus (iii) the
acquisition value of the parcel on which the improvements were
constructed as set forth in the schedule below, and interest at
LIBOR from January 1, 1998 until the close of escrow, plus (iv)
taxes and assessments prorated from January 1, 1998, plus (v)
interest at LIBOR on the amounts described in clauses (i) and
(iv) from the date paid by the
-57-
<PAGE>
developer and ending at the close of escrow, and minus the sum of
the principal amount of all debt encumbering the acquired
property. The acquisition value of each parcel under the Option
Agreement follows:
<TABLE>
<CAPTION>
Parcel Acquisition Value
----------------------------------
Per Acre Per Square Foot
------------- -----------------
<S> <C> <C>
King Ranch $435,600 $10.00
Hillyer & Piercy $370,260 $8.50
Fremont & Cushing $871,200 $20.00
</TABLE>
- The purchase price will be payable in cash, unless otherwise
agreed by the Berg Group representatives, and the Company may
contribute such building to the Operating Partnerships, subject
to any debt incurred in connection with the acquisition, in
exchange for additional general partner interests in the
Operating Partnerships based up the market value of the Common
Stock over the 30-trading day period preceding the Company's
exercise of the Option.
- The Company also must assume all assessments.
- If the Company elects not to exercise the Option with respect to
any building, the Berg Group may hold and lease the building for
its own account, or sell such building to a third party.
- All action by the Company under the Option Agreement must be
approved by a majority of the members of Independent Directors
Committee.
NON-COMPETITION ARRANGEMENTS. Mr. Berg has advised the Company of his
intention to conduct all of his material R&D Property investment and development
activities through the Company, except with respect to the Berg Land Holdings,
which are subject to the Option Agreement, and the Pending Development Projects,
which are subject to the Pending Projects Acquisition Agreement. Accordingly,
under the Acquisition Agreement, he has agreed not to directly or indirectly
acquire or develop, or acquire an equity ownership interest in any entity that
has or intends to acquire an ownership interest in any real estate (with the
exception of minor investments not to exceed 10% of the outstanding voting
securities in publicly-traded companies) intended for R&D Property development
or similar industrial use in California, Oregon or Washington without first
disclosing such investment opportunity to the Company and making such
opportunity available to the Company at the option of the Independent Directors
Committee. See "THE ACQUISITION AGREEMENT--Conflicts of Interest Provisions."
-58-
<PAGE>
MORTGAGE DEBT AND CREDIT LINES
MORTGAGE DEBT. The following table sets forth certain information regarding
the mortgages encumbering the Berg Properties upon the consummation of the Berg
Acquisition, assuming the application of the proceeds therefrom as set forth in
"Use of Proceeds" and that such proceeds were applied effective as of March 31,
1998. All mortgage debt is nonrecourse to the Company, although certain of the
mortgages are cross-defaulted and cross-collateralized with other mortgaged
Properties.
<TABLE>
<CAPTION>
Pro Forma
Actual March Pro Forma Annual Pro March 31,
31, 1998 Debt Paid off March 31, Forma Debt Maturity 1998
Debt Description Collateral Properties Balance at Offering 1998 Balance Service Date (1) Interest Rate
- ----------------- ----------------------------- ------------ ------------- ------------ ------------ ----------- -------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
LINES OF CREDIT:
Wells Fargo 2251 Lawson Lane, Santa $37,953 $(32,953) 5,000 363 10/99 (2)
Clara, CA, 3301 Olcott,
Santa Clara, CA, 1230 &
1250 Arques, Sunnyvale, CA,
1135 Kern, Sunnyvale, CA,
405 Tasman, Sunnyvale,
CA 1190 Morse Avenue,
Sunnyvale, CA,
450 National Avenue,
Mountain View, CA,
10300 Bubb Road, Cupertino,
CA, 10440 Bubb Road,
Cupertino, CA, 10460 Bubb
Road, Cupertino, CA,
20605 - 20705 Valley Green
Drive, Cupertino, CA,
20400 Mariana, Cupertino, CA,
2033 - 2243 Samaritan Drive,
San Jose, CA, 10500 de Anza
Boulevard, Cupertino, CA
MORTGAGE LOANS:
Great West Life
& Annuity
Insurance
Company 6320 San Ignacio Ave, San
Jose, CA 7,836 - $7,836 $553 2/04 7.0%
Great West Life
& Annuity
Insurance
Company 6540 Via del Oro, 6385 San
Ignacio Ave., San Jose, CA 1,977 - 1,977 140 5/04 7.0%
Great West Life
& Annuity
Insurance
Company 1170 Morse Avenue,
Sunnyvale, CA 3,739 - 3,739 264 5/04 7.0%
National
Electrical
Contractors
Association
Pension Benefit
Trust Fund 2251 Lawson Lane, Santa
Clara, CA 4,758 (4,758) - - 1/09 -
Prudential
Capital Group 1230 E. Arques, Sunnyvale, CA 1,130 (1,130) - - 11/07 -
Prudential 20605 - 20705 Valley Green
Capital Group Drive, Cupertino, CA 3,206 (3,206) - - 10/98 -
Prudential
Capital Group 20400 Mariani, Cupertino, CA 2,126 (2,126) - - 7/09 -
Prudential
Capital Group 1250 E. Arques, Sunnyvale, CA 2,249 (2,249) - - 11/99 -
New York Life
Insurance
Company 10440 Bubb Road, Cupertino, CA 444 (444) - - 8/09 -
Home Savings &
Loan Association 10460 Bubb Road, Cupertino, CA 558 (558) - - 1/07 -
Amdahl 3120 Scott, Santa Clara, CA 7,087 - 7,087 682 3/14 9.5%
Corporation
Citicorp U.S.A. 2800 Bayview Drive, 3,105 - 3,105 233 4/00 (3)
Inc. Fremont, CA
----------- ------------ ------------ ------------
Mortgage Loans
Sub-total 38,215 (14,471) 23,744 2,235
Related Party 1,821 (1,821) - -
Debt
Acquired Properties 39,218 (33,323) 5,895 442 4/00 7.5%
New Secured Loan 130,000 9,100 (4) 7.0%(4)
-------- -------
$164,639 $11,777
</TABLE>
- -------------
(1) All principal due at maturity date.
(2) The lesser of Wells Fargo prime rate in effect on the first day of each
calendar month, or the LIBOR or the Wells Fargo Purchased Funds Rate quoted
on the first day of each calendar month plus 1.65%. Average rates for the
three months ended March 31, 1998 and the years ended December 31, 1997,
1996 and 1995 were 7.26%, 7.25%, 7.04% and 8.20%, respectively.
(3) One month LIBOR plus 1.625% adjusted monthly.
(4) The Company is currently in negotiations with Prudential Capital to procure
the New Secured Loan expected to total $130 million. The Company
anticipates that the New Secured Loan will have an initial term of 10 years
with an interest rate of 6.56%. At this time, there can be no assurance
that the Company will be able to complete this transaction or another
transaction with similar terms. Management believes that if negotiations
were commenced with a new potential lender, the interest rate negotiated
would approximate 7% (the current prevailing market rate), and therefore,
the Company has assumed an interest rate of 7% for this loan.
CREDIT LINE. Historically, some of the Berg Properties have been pledged as
collateral under a line of credit provided by Wells Fargo, which has been
guaranteed by the Berg Group members. At the closing of the Berg Acquisition,
the Company intends to repay indebtedness of approximately $33 million under the
Wells Fargo lines of credit which are secured by some of the Properties. The
Company also intends to repay
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approximately $33.3 million of indebtedness under the Wells Fargo line which is
secured by some of the Acquired Properties. The Company intends to obtain the
New Credit Line the final closing date for the Berg Acquisition. See "FUTURE
OPERATIONS OF THE COMPANY--Line of Credit."
PROPERTY TAX INFORMATION
The aggregate real estate property tax obligations paid by the Company
(with or without tenant reimbursement) for the Berg Properties during calendar
1997 were approximately $4.2 million. This amount does not include real estate
property taxes paid directly by tenants. Of the four limited partnerships
comprising the Operating Partnerships, only Mission West Properties, L.P. has
had any Properties transferred to it as part of the Berg Acquisition; the other
three limited partnerships will retain their historical Properties. The Property
transfers to Mission West Properties, L.P. resulted in a statutory change in
ownership giving rise to a reassessment for California real property tax
purposes, which is not expected to have a material adverse impact on the
operations or financial condition of the Company.
Except as noted with respect to transfers of Properties to MWP, the Company
does not believe that any other aspects of the UPREIT Transactions effect a
statutory change in ownership. Nevertheless, there can be no assurance that a
local assessor will not assert that the UPREIT Transactions also have resulted
in a statutory change in ownership with respect to the Berg Properties held by
MWP I, MWP II and MWP III, as county assessors in California occasionally
challenge complex transactions in which new investors acquire interests in
existing real property holding entities. Substantially all of the leases for the
Properties contain provisions requiring the tenants to pay as additional rent
their proportionate shares of any property tax increases over specified base
amounts. The Company may not be able to pass through to its tenants the full
amount of any increased taxes resulting from a reassessment, however. The
Company believes that any amount that cannot be passed through to tenants will
not have a material adverse effect on the Company.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real property may be held liable for the costs of removal
or remediation of certain hazardous or toxic substances located on or in the
property. Such laws often impose liability and expose the owner to governmental
proceedings, without regard to whether the owner knew of, or was responsible
for, the presence of the hazardous or toxic substances. The costs of any
required remediation or removal of such substances may be substantial. In
addition, the owner's liability as to any specific property is generally not
limited and could exceed the value of the property and/or the aggregate assets
of the owner. The presence of such substances, or the failure to properly remove
or remediate such substances, may also adversely affect the owner's ability to
sell or rent the property or to borrow using the property as collateral. Persons
who arrange for the treatment or disposal of hazardous or toxic substances, such
as asbestos, at a disposal facility may also be liable for the costs of any
required remediation or removal of the hazardous or toxic substances at the
facility, regardless of whether the facility is owned or operated by such owner
or entity. In connection with the ownership of the Properties or the treatment
or disposal of hazardous or toxic substances, the Company may be liable for such
costs.
Other federal, state and local laws impose liability for the release of
ACMs into the air and require the removal of damaged ACMs in the event of
remodeling or renovation. The Company is aware that there are ACMs present at
several of the Properties, primarily in floor coverings. The Company believes
that the ACMs present at these Properties are generally in good condition and
that no ACMs are present in the remaining Properties. The Company believes it is
in compliance in all material respects with all federal, state and local laws
relating to ACMs and that if it were required to remove all ACMs present at the
Properties over a short period of time, the cost of such removal would not have
a material adverse effect on its financial condition, operating results, or
ability to make distributions.
The Company is not aware of any environmental liability relating to the
Properties that it believes would have a material adverse effect on its
financial condition, its operating results or its ability to make distributions
and has not been notified by any governmental authority or any other person of
any material noncompliance, liability or other claim in connection with any of
the Properties. No assurance can be given that future laws, ordinances or
regulations will not impose material environmental liabilities, or that the
current environmental condition of the Properties will not be affected by
tenants and occupants of the Properties, by the uses or condition of properties
in the vicinity of the Properties, such as leaking underground storage tanks, or
by third parties unrelated to the
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Company. If the Company is required to remove or remediate any toxic wastes
or hazardous substances present on any of the Properties, the cost to the
Company could be material.
LEGAL PROCEEDINGS
From time to time the Company is involved in legal proceedings arising in
the ordinary course of its business, none of which is believed to be material.
The Company is not aware of any material litigation affecting any of the
Properties, the Pending Development Projects, the Berg Land Holdings, or the
Operating Partnerships. except for anticipated litigation concerning the Fremont
Properties. See "SUMMARY OF THE UPREIT TRANSACTIONS AND PURPOSE OF THE SPECIAL
MEETING -- Parties to and Terms of the Berg Acquisition." Berg & Berg is a
plaintiff in BERG & BERG v. CHERYL AND GILBERT CHAVEZ in the Santa Clara County
Superior Court. The court has entered a default judgment against the defendants
in that action to recover funds embezzled by a former employee of Berg & Berg
and BBE. Neither the Company nor the Operating Partnerships are entitled to any
funds that may be recovered pursuant to the judgment.
EMPLOYEES
The Company initially expects to employ five persons. The Operating
Partnerships will not have any employees. Prior to the consummation of the
UPREIT Transactions, three of the Company's employees were employed by BBE.
FUTURE OPERATIONS OF THE COMPANY
OVERVIEW
Upon consummation of the UPREIT Transactions, the Company will be a
fully-integrated, self-administered and self-managed REIT organized to continue
and expand the business of acquiring, developing, owning and managing Silicon
Valley R&D Properties currently conducted by the Berg Group. Upon completion of
the Berg Acquisition, the Company, through its general partnership interests in
the Operating Partnerships, will own and operate 69 Silicon Valley R&D
Properties. As of March 31, 1998, the occupancy rate of the Properties was
approximately 100%. The Company also will acquire the 12 Silicon Valley R&D
Properties comprising the Pending Development Projects, and has an option to
acquire additional Berg Group Silicon Valley R&D Properties pursuant to the
Option Agreement.
Consequently, the Company's principal focus upon consummation of the UPREIT
Transactions will be the management of Silicon Valley R&D Properties. With
Silicon Valley's highly educated and skilled work force, recent history of
numerous successful start-up companies, and large contingent of venture capital
firms, the Company believes that this region will continue to spawn successful
new high-growth industries and entrepreneurial businesses to an extent matched
nowhere else in the United States.
In 1996, according to the National Venture Capital Survey, venture capital
investment in the Silicon Valley reached $2.3 billion, representing 24.1% of the
total of $9.5 billion invested nationally. Most of the investments were in
technology-based companies, particularly in communications and software. In
1997, total venture capital investment in Silicon Valley exceeded $3.3 billion.
Successful, venture capital-backed technology companies typically seek further
capital from the public capital markets. Initial public offerings ("IPOs") by
companies in the San Francisco Bay Area raised over $2.2 billion, $2.1 billion,
and $1.7 billion in 1995, 1996, and 1997, respectively. Frequently, the IPO
proceeds are used to fund the companies' growth and expansion, with a resulting
need for additional space. The Company believes that this financial cycle will
continue to create favorable R&D Property development and rental opportunities
in the Silicon Valley.
OPERATING AND GROWTH STRATEGY
The Company intends to employ Berg & Berg's historical business strategy
and the Company's substantial resources to achieve growth in FFO. The Company's
operating and growth strategy contains the following principal elements:
- Continued emphasis on general purpose, single-tenant Silicon
Valley R&D Properties for technology-based companies to
capitalize on the Company's extensive contacts in these
companies and its extensive knowledge of their real estate
needs.
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- Acquiring R&D Properties built by the Berg Group on the Berg
Land Holdings, which now represent one of the largest
aggregations of land available for future construction of R&D
Properties in Silicon Valley.
- Demand-driven development activities, emphasizing
build-to-suit projects for existing and emerging technology
companies experiencing growth in the Silicon Valley.
- Opportunistic acquisitions of high quality, well-located
Silicon Valley R&D Properties in situations where illiquidity
or inadequate management permit their acquisition at favorable
prices, and where the Company's management skills will
facilitate increases in cash flow and asset value.
- Maintenance of a lean, experienced and responsive management
team comprised of highly qualified and experienced
professionals working within a relatively flat organizational
structure.
- Prudent financial management emphasizing current cash flow, as
well as long-term value in the Company's acquisition and
financing policies, the pre-leasing of buildings prior to
acquisition or development to reduce the risks of owning them
and the maintenance of sufficient liquidity to acquire and
finance properties on desirable terms.
- Geographic expansion into other technology-based areas of the
West Coast if good R&D Properties become available there.
OPERATIONS AND MANAGEMENT
The Company will operate as a self-administered, self-managed REIT with its
own employees. It will sublease office space from Berg & Berg at 10050 Bandley
Drive and will share clerical staff and other overhead on what the Company
considers to be very favorable terms. The total monthly rent payable by the
Company to Berg & Berg will be $5,625, and the Company's contribution to BBE
overhead when added to the rent payable to Berg & Berg will not exceed $15,000
per month. Carl E. Berg will work for the Company, as well as BBE, and will
provide services to other enterprises. The other employees of the Company,
except Bradley A. Perkins, will work for the Company full-time. The Company may
add two additional employees, as required, but does not anticipate growth in
employment except as acquisitions of new properties, particularly in other
geographic regions, require additional personnel.
Construction and repair work at the Company's Properties for building
maintenance and tenant improvements may be provided by BBE. The Company will bid
all major work competitively to subcontractors.
The Company generally will market the Properties and negotiate leases with
tenants by itself. Occasionally, the Company expects to retain real estate
brokers, and its policy is to pay fixed commissions to tenants' brokers.
ACQUISITIONS
The Company's principal acquisition opportunities are the Pending
Development Projects and the acquisition of R&D Properties constructed by the
Berg Group on the Berg Land Holdings under the Option Agreement. The Berg Group
has acquired approximately 580,000 square feet of buildings in the last four
years. The Company believes its acquisitions experience and the network of real
estate professionals it has done business with will continue to provide
opportunities for external growth. Furthermore, the Company's use of the
Operating Partnerships structure gives prospective sellers the opportunity to
contribute properties to the Company (through the Operating Partnerships) on a
tax-deferred basis in exchange for L.P. Units. This capacity to complete
tax-deferred transactions with sellers of real property will further enhance the
Company's ability to acquire additional properties. Management also intends to
monitor available, well located, industrial properties on the West Coast of the
United States.
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LINE OF CREDIT
The Company intends to obtain the New Credit Line in order to finance
acquisitions and for general corporate purposes. It is expected that the
available credit facility will be approximately $50,000,000. Management expects
to obtain this line of credit from a national or regional lending institution.
The Company intends to have the line of credit in place by the closing of the
Berg Acquisition.
MORTGAGE INDEBTEDNESS OUTSTANDING AFTER BERG ACQUISITION
The Company intends to obtain mortgage financing in order to refinance
existing indebtedness. Management has had discussions with three national
lending institutions regarding the mortgage financing. It is expected that the
financing will be secured by a group of the Properties. This New Secured Loan
financing is expected to total $130 million, with a term of 10 years, amortized
over 30 years, resulting in monthly debt service obligations of $0.8 million.
The Operating Partnerships expect to pay approximately $0.5 million as
application and financing fees for the New Secured Loan. In addition, secured
loans totaling approximately $34.6 million, which are secured by some of the
Properties, will remain outstanding following the consummation of the Berg
Acquisition. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE PROPERTIES -- Pro Forma Liquidity and Capital
Resources."
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DISTRIBUTION POLICY
OVERVIEW
The Company intends to make regular quarterly distributions to holders of
its Common Stock based on its Cash Available for Distribution. The Company's
ability to make such distributions will be affected by numerous factors
including, most importantly, the receipt of distributions from the Operating
Partnerships. The first distribution for the period commencing at the final
closing date for the Berg Acquisition and ending on September 30, 1998 is
expected to be in an amount equivalent to a quarterly distribution of $0.085 per
share (which, if annualized, would equal $0.34 per share, or an annual yield of
8%, based on the last trading price set forth on the cover page of this
Prospectus/Proxy Statement).
In general, the Company expects that Cash Available for Distribution will
exceed its initial planned distributions. Expected distributions for the 12
months following the final closing date for the Berg Acquisition will be
approximately 88% of the estimated Cash Available for Distribution of the
Company and are expected to exceed 95% of the Company's taxable income, as
determined under federal tax laws applicable to REITs. The amount of estimated
Cash Available for Distribution is based on pro forma FFO of the Company for all
of the Properties for the twelve months ending March 31, 1999, with adjustments
for certain known events occurring after March 31, 1998 that are not reflected
in the Company's historical or pro forma financial statements.
DISTRIBUTION TABLE
The following table illustrates the adjustments made to the Company's pro
forma FFO for the twelve months ended March 31, 1998, as adjusted, in estimating
its initial dividend:
<TABLE>
<CAPTION>
(in thousands,
except
expected initial
dividend per share)
---------------------
<S> <C>
Pro forma income before minority interest and other non-recurring items for the year ended
December 31, 1997 $20,657
Plus: Pro forma real estate depreciation and amortization for the year ended
December 31, 1997 8,892
---------------------
Pro forma FFO for the year ended December 31, 1997 (1) 29,549
Less: Pro forma FFO for the three months ended March 31, 1997 (5,271)
Plus: Pro forma FFO for the three months ended March 31, 1998 8,946
---------------------
Pro forma FFO for the twelve months ended March 31, 1998 33,224
Adjustments:
Net increase in contractual rental income (2) 2,601
---------------------
Estimated adjusted pro forma FFO for the twelve months ended March 31, 1998 30,825
Adjustments:
Net effect of straight-line rents (3) (1,508)
Scheduled mortgage loan principal payments (4) (3,630)
Estimated annual provision for leasing commissions (5) (1,074)
Estimated annual provision for capital expenditures (6) (525)
---------------------
Estimated pro forma Cash Available for Distribution for the twelve months ended March 31, 1999 29,088
---------------------
---------------------
Minority interests' share of estimated pro forma Cash Available for Distribution 25,914
---------------------
---------------------
The Company's share of estimated pro forma Cash Available for Distribution available for
shareholders (7) 3,174
---------------------
---------------------
Estimated initial annual distribution per share (8) $0.34
---------------------
---------------------
Payout ratio based on estimated pro forma Cash Available for Distribution (9) 87.8%
---------------------
---------------------
</TABLE>
- ------------------
(1) FFO represents net income (loss) before minority interest of unitholders
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation
and amortization (excluding amortization of deferred financing costs and
depreciation of non-real estate assets) and after adjustments for
unconsolidated partnerships and joint ventures.
(2) Represents the net increases in contractual rental income, net of expenses,
from new leases and renewals that were not in effect for the entire twelve
month period ended March 31, 1998 and new leases and renewals that went
into effect between March 31, 1998 and July 8, 1998. Rental Income has not
been included for any properties for the periods prior to their
construction completion and availability for occupancy.
(3) Effect of adjusting straight-line rental income included in pro forma
adjusted FFO for the twelve months ended March 31, 1998 to a cash basis.
(4) Represents scheduled payments of debt principal due during the 12 months
ending March 31, 1999.
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(5) Anticipated leasing commissions to be incurred based on the historical
weighted average of such commissions paid in connection with lease renewals
and re-leasing at the Properties multiplied by the average annual square
feet of space for which leases expire during the period from April 1, 1998
through December 31, 2000.
(6) The estimated cost of recurring building improvements and equipment
replacements (excluding tenant improvements) at the Properties for the
twelve months ending March 31, 1999. Generally, the Properties and their
associated tenant leases are such that non-revenue producing tenant
improvements are immaterial.
(7) The Company's share of estimated pro forma Cash Available for Distribution
and the initial amount available for distribution to the shareholders is
based on the Company's 10.91% partnership interest in the Operating
Partnerships.
(8) The estimated annual distribution per share is based on a total of
8,193,594 shares outstanding after the UPREIT Transactions assuming no
dilution from the exchange of L.P. Units, or exercise of options pursuant
to the terms of the 1997 Stock Option Plan.
(9) The payout ratio on estimated Cash Available for Distribution is calculated
as the estimated initial annual distribution per share divided by the
Company's share of Cash Available for Distribution per share for the 12
months ending March 31, 1999.
The Company believes that its estimate of Cash Available for Distribution
constitutes a reasonable basis for setting the amount of the Company's initial
distribution and expects to maintain its initial distribution rate for the 12
months following the closing of the Berg Acquisition, unless actual results of
operations, economic conditions or other factors differ materially from the
assumptions used in the estimate. Cash Available for Distribution does not
represent cash generated from operating activities in accordance with GAAP and
is not necessarily indicative of cash available to fund cash needs. The actual
return that the Company will realize and the amount available for distributions
to shareholders will be affected by a number of factors, including the revenues
received from the Properties, the operating expenses of the Company, the
interest expense incurred on borrowings and unanticipated capital expenditures.
The estimate of Cash Available for Distribution is provided in this Proxy
Statement/Prospectus solely for the purpose of setting the initial distribution
amount and is not intended to be a forecast by the Company of its future results
of operations, FFO or Cash Available for Distribution. No assurance can be given
that the Company's estimate will prove accurate.
The Company anticipates that Cash Available for Distribution will exceed
earnings and profits for federal income tax purposes as the latter figure takes
into account non-cash expenses, such as depreciation and amortization, to be
incurred by the Company. Distributions by the Company to the extent of its
current and accumulated earnings and profits for federal income tax purposes
will be taxable to shareholders as ordinary dividend income unless a shareholder
is a tax-exempt entity. See "FEDERAL INCOME TAX CONSIDERATIONS--Taxation of
United States Shareholders". Distributions in excess of earnings and profits
generally will be treated as a non-taxable reduction of the shareholder's basis
in the Common Stock to the extent thereof, and thereafter as taxable gain. The
percentage of such distributions constituting a non-taxable return of capital,
if any, may vary from period to period. The Company anticipates that a
substantial percentage of the distributions to shareholders for the 12 months
following the consummation of the Offering will constitute ordinary income.
In order to maintain its qualification as a REIT, the Company must make
annual distributions to shareholders of at least 95% of its taxable income
(which does not include net capital gains). See "FEDERAL INCOME TAX
CONSIDERATIONS--Taxation of the Company--Annual Distribution Requirements."
Under certain circumstances, the Company may be required to make distributions
in excess of Cash Available for Distribution in order to meet such distribution
requirements.
Any inability on the part of the Operating Partnerships to secure financing
as required to fund capital expenditures and net changes in working capital,
including development activities and expansions, would require the utilization
of distributable cash flow to satisfy such obligations, thereby possibly
reducing distributions to partners, including the Company, and funds available
for the Company to pay dividends. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources."
Cash Available for Distribution is based on FFO. The Company computes FFO
in accordance with standards established by the Board of Governors of NAREIT in
its March 1995 White Paper, which may differ from the methodology for
calculating Funds from Operations utilized by other equity REITs, and
accordingly, may not be comparable to such other REITs. NAREIT currently defines
FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring and sales of property, plus real estate related
depreciation and amortization (excluding amortization of deferred financing
costs and depreciation of non-real estate assets) and after adjustments for
unconsolidated partnerships and joint ventures. Extraordinary or unusual items,
along with significant non-recurring events that materially distort the
comparative measure of FFO are disregarded in this calculation. Management
believes that its computation of FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides investors
with an understanding of the Company's ability to incur and service debt and
make capital expenditures. The Company's definition of FFO also assumes
conversion at the beginning of the period of all convertible securities,
including minority interests that might be exchanged for Common Stock. The
Company's FFO does not represent the amount available for management's
discretionary use as such funds may be needed for capital replacement or
expansion, debt service obligations, or other commitments and uncertainties. FFO
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flows from operating activities (determined in accordance with GAAP) as
a measure of the Company's liquidity, nor is FFO necessarily indicative of funds
available to fund the Company's cash needs, including its ability to make
distributions. The Company believes that to facilitate a clear understanding of
the combined historical operating results of the Berg Properties and the
Company, FFO should be examined in conjunction with net income as presented in
the combined financial statements.
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Distributions by the Company will be determined by the board of directors
and will depend on actual Cash Available for Distribution of the Company, its
financial condition, capital requirements, the annual distribution requirements
under the REIT provisions of the Code and such other factors as the Board of
Directors deems relevant. For a discussion of the tax treatment of distributions
to holders of shares of Common Stock, see "FEDERAL INCOME TAX
CONSIDERATIONS--Taxation of United States Shareholders" and "Taxation of Foreign
Shareholders."
THE ESTIMATES OF PRO FORMA CASH FLOWS FROM OPERATING ACTIVITIES AND CASH
AVAILABLE FOR DISTRIBUTION ARE MADE SOLELY FOR THE PURPOSE OF SETTING THE
INITIAL DISTRIBUTION RATE AND ARE NOT INTENDED TO BE A PROJECTION OR FORECAST OF
THE COMPANY'S RESULTS OF OPERATIONS OR OF ITS LIQUIDITY. FUNDS FROM OPERATIONS
DOES NOT REPRESENT CASH FLOW FROM OPERATIONS AS DEFINED BY GAAP, IS NOT
NECESSARILY INDICATIVE OF CASH AVAILABLE TO FUND ALL OF THE COMPANY'S CASH
NEEDS, AND SHOULD NOT BE CONSIDERED AS AN ALTERNATIVE TO NET INCOME FOR PURPOSES
OF EVALUATING THE COMPANY'S OPERATING PERFORMANCE. SEE "FORWARD LOOKING
INFORMATION" and "RISK FACTORS--Uncertainties Regarding Distributions to
Shareholders."
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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the Company's policies with respect to
investment, financing, conflicts of interest and other activities of the
Company. These policies have been formulated by the board of directors of the
Company and generally may be amended or revised from time to time at the
discretion of the board of directors without a vote of the shareholders of the
Company. Upon the effective date of the Reincorporation Merger, however, the
Charter will provide that (i) until the Protective Provisions Expiration Date,
the approval of the Required Directors as provided in the Charter and the
consent of the L.P. Unit Majority are required for the Company to take title to
assets (other than temporarily in connection with an acquisition prior to
contributing such assets to the operating partnership) or to conduct business
other than through the operating partnership, or for the Company or the
Operating Partnerships to engage in any business other than the ownership,
construction, development and operation of real estate properties, (ii) changes
in certain policies with respect to conflicts of interest must be consistent
with legal requirements, (iii) certain policies with respect to competition by
Carl E. Berg and the Berg Group are imposed pursuant to provisions of the
Acquisition Agreement that cannot be amended or waived without the approval of
the Independent Directors Committee, and (iv) the Company cannot take any action
intended to terminate its qualification as a REIT without the approval of more
than 75% of the entire board of directors. In addition, until the Protective
Provisions Expiration Date, the approval of the Required Directors will be
required for certain fundamental corporate actions, including amendments to the
Charter or bylaws, amendments to the Operating Partnership Agreement, and any
merger, consolidation or sale of all or substantially all of the assets of the
Company or the Operating Partnerships. Certain specific transactions, including
the issuance of securities and borrowings in excess of specified limits, and
amendments of the Charter and bylaws are subject to approval by more than 75% of
the directors. See "DESCRIPTION OF CAPITAL STOCK--Board Quorum and Special
Voting Requirements."
INVESTMENT POLICIES
The Company's business will be focused solely on the ownership,
construction, development and operation of real estate properties, principally
R&D Properties, and the Company intends to conduct all of its activities through
the Operating Partnerships. The Company's investment objective is to provide
stable cash flow available for quarterly cash distributions and achieve
long-term appreciation through increases in cash flows and the value of its
properties. The Company intends to pursue these objectives by (i) investing
capital to enhance investment returns on its existing Properties, and (ii)
acquiring or developing additional properties where the Company believes that
opportunities exist for attractive investment returns. Such additional
properties may include some or all of the Berg Land Holdings, which are subject
to options held by the Company. See "DESCRIPTION OF THE PROPERTIES--Land Holding
and Development Arrangements." The Company may expand or improve its properties
or, subject to the approval of the Required Directors, sell such properties in
whole or in part as determined by the Board. See "FUTURE OPERATIONS--Strategy."
The Company expects to pursue its investment objectives principally through
the direct ownership by the Operating Partnerships of the Properties and future
developed properties. Future development or investment activities will not be
limited to any specified percentage of the Company's assets. The Company may
also participate with other entities in property ownership, through joint
ventures or other types of co-ownership. Equity investments may be subject to
existing mortgage financing and other indebtedness which have priority over the
equity interest of the Company.
While the Company will emphasize equity real estate investments, it may, in
its discretion and subject to the percentage ownership limitations and gross
income tests necessary for REIT qualification, invest in mortgage and other real
estate interests including securities of other real estate investment trusts.
The Company has not previously invested in mortgages or securities of other real
estate investment trusts and does not have any present intention to make such
investments.
FINANCING POLICIES
The Company intends to maintain a ratio of debt to Total Market
Capitalization of no more than 50%. The Company's ratio of debt to Total Market
Capitalization would have been approximately 32.8% at March 31, 1998, on a pro
forma basis after giving effect to the UPREIT Transactions. See "PRO FORMA
CAPITALIZATION." The Company, however, may from time to time reevaluate its debt
policy in light of then current economic conditions, relative costs of debt and
equity capital, the market values of its properties, growth and acquisition
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opportunities and other factors. Subject to the need for more than 75% of the
directors to approve debt increases above 50% of Total Market Capitalization,
the Company may modify its debt policy and may increase or decrease its ratio of
debt to Total Market Capitalization.
The Company has established its debt policy relative to Total Market
Capitalization, because the Company believes that the book value of its assets
(which to a large extent consists of the depreciated value of real property, the
Company's primary tangible asset) does not accurately reflect its ability to
borrow and to meet debt service requirements. However, Total Market
Capitalization is more variable than book value and does not necessarily reflect
the fair market value of the Company's underlying assets. Although the Company
will consider factors other than market capitalization in making decisions
regarding the incurrence of debt (such as the estimated market value of such
properties upon refinancing, and the ability of particular properties and the
Company as a whole to generate cash flow to cover expected debt services), there
can be no assurance that the Company will maintain the ratio of debt to Total
Market Capitalization (or to any other measure of asset value) described above.
To the extent that the board of directors of the Company determines to seek
additional capital, the Company may raise such capital through additional equity
offerings, debt financing or retention of cash flow (after consideration of
provisions of the Code requiring the distribution by a REIT of a certain
percentage of its taxable income and taking into account taxes that would be
imposed on undistributed taxable income), or through a combination of these
sources. It is the Company's present intention that any additional borrowings
will be made through the Operating Partnerships, although the Company may incur
borrowings that would be reloaned to the Operating Partnerships. See "OPERATING
PARTNERSHIP AGREEMENT." Borrowings may be unsecured or may be secured by any or
all assets of the Company, the Operating Partnerships, or any existing or new
property and may have full or limited recourse to all or any portion of the
assets of the Company, the Operating Partnerships, or any existing or new
property.
The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole. At the closing of the Berg Acquisition the Company intends to establish
the New Secured Loan and the New Credit Line. The line of credit would be
available to fund property acquisitions, development activities, and for general
corporate purposes. The Company may determine to issue securities senior to the
Common Stock, including shares of new series of Preferred Stock and debt
securities (either of which may be convertible into Common Stock or accompanied
by warrants to purchase capital stock). The Company may also determine to
finance acquisitions through the exchange of properties or the issuance of
additional L.P. Units in the Operating Partnerships, shares of Common Stock or
other securities.
In the event that the board of directors determines to raise additional
equity capital, it has the authority, without shareholder approval, to issue
additional shares of Common Stock, Preferred Stock other capital stock
(including securities senior to the Common Stock) of the Company in any manner
(and on such terms and for such consideration) it deems appropriate, including
in exchange for property. In the event that the Company issues (whether for cash
or property) any shares of Common Stock or securities convertible into, or
exchangeable or exercisable for, shares of Common Stock, subject to certain
limited exceptions, including the issuance of Common Stock pursuant to any stock
incentive plan adopted by the Company or pursuant to Limited Partners' exercise
of the Exchange Rights or the Put Rights, the Limited Partners will have the
right to purchase Common Stock or such securities in order to maintain their
respective percentage interests in the Company and the Operating Partnerships on
a consolidated basis. If the board of directors determines that the Company will
raise additional equity capital to fund investments by the Operating
Partnerships, the Company will contribute such funds to the Operating
Partnerships as a contribution to capital and purchase of additional general
partnership interest; however, holders of L.P. Units will have the right to
participate in such funding on a pro rata basis. In the event that holders of
L.P. Units sell their L.P. Units to the Company pursuant to their Put Rights,
the Company is authorized to raise the funds for such purchase by issuing
additional shares of Common Stock. In addition, the Company may issue additional
shares of Common Stock in connection with the exchange of L.P. Units for shares
of Common Stock pursuant to the exercise of the Exchange Rights.
The Company's Board of Directors also has the authority to cause the
Operating Partnerships to issue additional L.P. Units in any manner (and on such
terms and for such consideration) as it deems appropriate, including in exchange
for property. In the event that the Operating Partnerships issues new L.P. Units
for cash (but not property), the Limited Partners will have the right to
purchase L.P. Units in order, and to the extent necessary, to maintain their
respective percentage interests in the Operating Partnerships. Any such new L.P.
Units will be
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exchangeable for Common Stock pursuant to the Exchange Rights or may be
tendered to the Company pursuant to the Put Rights. See "OPERATING
PARTNERSHIP AGREEMENT--Exchange Rights, Put Rights and Registration Rights."
DISPOSITION POLICY
The Company has no current intention to dispose of any of the Properties,
although it reserves the right to do so. The tax basis of the Limited Partners
in the Properties in the Operating Partnerships is substantially less than
current fair market value. Accordingly, prior to the disposition of their L.P.
Units in the Operating Partnerships, upon a disposition of any of the
Properties, a disproportionately large share of the gain for federal income tax
purposes would be allocated to the Limited Partners. See "FEDERAL INCOME TAX
CONSIDERATIONS--Income Taxation of the Partnership." Consequently, it may be in
the interests of the Limited Partners that the Company continue to hold the
Properties in order to defer such taxable gain. In light of this, the Operating
Partnership Agreement provides that for a period of ten years after the closing
or until the Protective Provisions Expiration Date, if earlier, Carl Berg and
Clyde Berg may prohibit the Operating Partnerships from disposing of Properties
which they designate in a taxable transaction. Kontrabecki has a similar right
with respect to the Kontrabecki Properties which will lapse before the end of
the ten-year period, if his beneficial ownership interest in the Operating
Partnerships falls below 750,000 L.P. Units. The Limited Partners may seek to
cause the Company to retain the Properties even when such action may not be in
the interests of some, or a majority, of the shareholders of the Company. The
approval of the Required Directors will be required if the Company sells in any
transaction, or series of related transactions or aggregate sales, all or
substantially all of the assets of the Company. The consent of the holders of a
majority of the L.P. Units will be required to effect a sale or sales of all, or
substantially all, of the assets of the Operating Partnerships. For a
description of certain tax consequences arising from the disposition of a
property controlled by the Company, see "FEDERAL INCOME TAX CONSIDERATIONS--The
Aspects of The Operating Partnerships."
CONFLICT OF INTEREST POLICIES
The Company has adopted certain policies and entered into certain
agreements with the Berg Group designed to eliminate or minimize potential
conflicts of interest. There can be no assurance that these policies will be
successful in eliminating the influence of such conflicts. If they are not
successful, decisions affecting the Company could be made that might fail to
reflect fully the interests of all shareholders.
In recognition of these potential conflicts of interest, the Company and
the Berg Group have agreed that any transaction between the Company and Mr. Berg
or other members of the Berg Group must be approved by the Independent Directors
Committee. The members of the Berg Group also have agreed that all future
transactions between the Company and their Affiliates or any other entities in
which they hold 5% or greater ownership interests shall be subject to review and
approval by the Independent Directors Committee. See "THE ACQUISITION
AGREEMENT--Conflict of Interest Provisions."
In addition, the Berg Group and the Company have entered into agreements
concerning the lease of office space to the Company, the acquisition of Berg
Land Holdings and of Pending Development Projects, and the use of BBE for
construction and repair work. The exercise of the Company's rights or the waiver
of any benefits to the Company under these agreements will be subject to the
approval of the Independent Directors Committee. See "DESCRIPTION OF THE
PROPERTIES--Land Holding and Development Arrangements" and "FUTURE OPERATIONS OF
THE COMPANY--Operation and Management."
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company has authority to offer shares of its capital stock or other
securities and to repurchase or otherwise reacquire its shares or any other
securities and may engage in such activities in the future. The Company has no
outstanding loans to other entities or persons, including its officers and
directors. The Company may in the future make loans to joint ventures in which
it participates in order to meet working capital needs.
The Company has not engaged in trading, underwriting or agency distribution
or sale of securities of other issuers, nor has the Company invested in the
securities of other issuers other than the Operating Partnerships for the
purpose of exercising control, and does not intend to do so. The Company intends
to make investments in such a way that it will not be treated as an investment
company under the Investment Company Act of 1940.
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At all times, the Company intends to make investments in such a manner as
to be consistent with the requirements of the Code for the Company to qualify as
a REIT unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), directors representing more than 75% of the entire board
of directors determine that it is no longer in the best interests of the Company
to qualify as a REIT.
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THE ACQUISITION AGREEMENT
THE FOLLOWING SUMMARY OF THE ACQUISITION AGREEMENT, INCLUDING THE
DESCRIPTIONS OF CERTAIN PROVISIONS SET FORTH ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
ACQUISITION AGREEMENT, WHICH IS FILED AS AN EXHIBIT TO THE REGISTRATION
STATEMENT OF WHICH THIS PROXY STATEMENT/PROSPECTUS IS A PART. A COPY OF THE
AGREEMENT IS AVAILABLE FROM THE COMPANY UPON REQUEST. SEE "AVAILABLE
INFORMATION."
GENERAL
The parties to the Acquisition Agreement are MWP, MWP I, MWP II, all
members of the Berg Group, and all of the Kontrabecki Partnerships, including
MWP III. Under the terms of the Acquisition Agreement, as amended as of July 1,
1998, the parties agreed to operate MWP, MWP I, MWP II and MWP III as the
Operating Partnerships subject to the terms of the Operating Partnership
Agreement, the Operating Partnerships have acquired certain Berg Properties and
certain Acquired Properties in July 1998, when the Company has consummated the
Partnership Closing, and to consummate the remaining transactions comprising the
Berg Acquisition after the shareholders have approved Proposals 1,3,4 and 5 at
the Special Meeting. Pursuant to the Acquisition Agreement, the Company is
entitled to conduct the operations of all four limited partnerships in a
consolidated manner under the name "Mission West Properties, L.P." The
Acquisition Agreement was signed by all parties effective as of May 14, 1998,
and amended as of July 1, 1998.
THE CLOSING
At the Partnership Closing, the existing general partners in MWP, MWP I,
MWP II and MWP III resigned, the Company acquired its 10.91% general partner
interest in each of the Operating Partnerships, MWP acquired certain Berg
Properties and the Kontrabecki Properties in exchange for L.P. Units, and the
Company and all limited partners in each of the Operating Partnerships signed
and delivered an Operating Partnership Agreement. In addition, MWP III converted
to a Delaware limited partnership as of the date of the Partnership Closing. The
final closing of the transactions contemplated by the Acquisition Agreement will
occur on the last business day of the month in which the shareholders approve
the UPREIT Transactions at the Special Meeting. At such closing, the parties
will sign and deliver the Operating Partnership Agreement, the Exchange Rights
Agreement, the Berg Land Holdings Option Agreement, the Pending Projects
Acquisition Agreement, and subject to shareholder approval of the
Reincorporation Merger, the Merger Agreement. The Company expects Mr. Berg to
acquire the Fremont Properties and contribute them to MWP at or before the final
closing date.
REPRESENTATIONS AND WARRANTIES
The Acquisition Agreement provides for each of the parties to make
representations and warranties customary for transactions of this nature, which
generally relate to the parties lawful organization, good standing,
authorization to enter into the agreement and effect the transactions required
under the Acquisition Agreement, title to the Properties, condition of the
Properties, effectiveness of the leases for the Properties, the accuracy of
financial information exchanged by the parties, the accredited investor status
of all limited partners, and similar matters. Representations and warranties
concerning the Properties were made in connection with the Partnership Closing,
and will be made at the of the final closing date for the Berg Acquisition, as
well.
CONDITIONS TO CONSUMMATION OF THE CONTEMPLATED TRANSACTIONS
To permit the Partnership Closing to occur in advance of the Special
Meeting, the parties waived general conditions to closing contained in the
Acquisition Agreement and satisfied closing conditions regarding the
effectiveness of the offering of L.P. Units to the Limited Partners in an exempt
private placement, the resignation of the existing general partners of MWP, MWP
I, MWP II and MWP III, and the accuracy of representations and warranties
concerning the parties to the Acquisition Agreement and the Properties.
The closing of the remaining transactions constituting the Berg Acquisition
and the Private Placement is subject to the satisfaction of certain conditions.
The conditions applicable to the obligations of all parties include shareholder
approval of such transactions as set forth in Proposals 1, 3, 4 and 5 at the
Special Meeting, the absence of any injunction or restraining order against
completing any of the UPREIT Transactions, the receipt of all required third
party consents, the consummation of the Private Placement, and the execution and
delivery of all related agreements. The obligations of the Company to close the
transactions will be subject to, in addition to the preceding conditions, the
accuracy of the representations and warranties of the other parties to the
agreement.
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COVENANTS
The Acquisition Agreement includes covenants pertaining to the provision of
timely and accurate financial statements as necessary in connection with the
Company's preparation of the Registration Statement and this Proxy
Statement/Prospectus, the continued conduct of each party's business with
respect to the Properties in the ordinary course, and each party's agreement to
take actions required and reasonably requested to comply with the terms of the
Acquisition Agreement and consummate the transactions subject to that agreement.
Under the July 1, 1998 amendment to the Acquisition Agreement the Company and
all other parties have agreed to use their respective ultimate best efforts to
obtain shareholder approval of all UPREIT Transactions.
The Acquisition Agreement requires the Company to provide Exchange Rights
to the Limited Partners with respect to their L.P. Units and to give them
certain rights to register the shares of Common Stock acquired under the terms
of the Exchange Rights Agreement. Also, the Company must take steps necessary to
preserve and list on the AMEX the shares of Common Stock issuable in exchange
for L.P. Units under the Exchange Rights Agreement. Furthermore, the Company has
agreed that each of the Limited Partners may purchase his, her or its pro-rata
share of new equity securities offered by the Company subsequent to the closing
date. Each Limited Partner's pro-rata share will be determined based on the
proportion which the Limited Partner's number of L.P. Units bears to the total
number of Outstanding Shares at the time of the Company's proposed offering of
new equity securities. The Limited Partners will have 10 days in which to
respond to the Company's offer of such securities. Thereafter, the Company will
have a period of 60 days to conclude the sale and issuance of the new securities
upon the same terms offered to the Limited Partners. A Limited Partner may
assign the right of first refusal to any assignee of at least 500,000 L.P.
Units. The right of first refusal will terminate upon the earlier of May 14,
2003, or the written agreement of the Company and holders of a majority of the
L.P. Units.
Under the Acquisition Agreement, the Company has agreed to provide
indemnity to its officers, directors, employees, agents and certain other
parties with respect to claims brought against indemnified parties as a result
of his, her or its service to or relationship with the Company, whether before
or after the closing of the UPREIT Transactions. This indemnification is
consistent with the provisions of the articles of incorporation of the Company
and the Charter. See "THE REINCORPORATION MERGER--Comparison of Rights of
Shareholders." The Company also has agreed to take the action necessary to
effect the Reincorporation Merger, subject to shareholder approval at the
Special Meeting, and to cause Mission West-Maryland to adopt the Charter and
bylaws described below. The members of the Berg Group will have the right to
nominate for election to the Board of Directors of the Berg Group Board
Representatives so long as the Berg Group and its Affiliates beneficially own an
aggregate of at least 15% of the Fully-Diluted number of shares of Common Stock.
In the event that this ownership falls below 15% but is at least 10%, the
members of the Berg Group will have the right to nominate one person for
election to the board of directors. See "CERTAIN PROVISIONS OF MARYLAND LAW AND
MISSION WEST-MARYLAND'S CHARTER AND BYLAWS."
CONFLICTS OF INTEREST PROVISIONS
The Acquisition Agreement includes the undertaking of Carl E. Berg not to
directly or indirectly acquire or develop, or acquire any equity ownership
interest in any entity that has an ownership interest in any real estate zoned
or intended for use as R&D Properties or similar industrial facilities or
intends to engage in similar real estate activities (with the exception of
investments in securities of publicly traded companies, which securities do not
represent more than 10% of the outstanding voting securities of such companies)
in California, Oregon or Washington without first disclosing such investment
opportunity to the Company and making such opportunity available to the Company
subject to the approval of the Independent Directors Committee. This restriction
does not apply to any acquisition, development or investment with respect to the
Berg Land Holdings and the Pending Development Projects. This restriction
remains in effect until the date on which both of the following conditions are
satisfied: (i) no nominee of the Berg Group is a member of the Company's board
of directors and (ii) the Berg Group and its Affiliates (other than the Company
and the Operating Partnerships) beneficially own less than 25% of the
outstanding Common Stock of the Company (including for these purposes shares
issuable upon exercise of the Exchange Rights subject to the Ownership Limit).
In addition, transactions between the Company and any Berg Group member, or
entity in which a Berg Group member holds at least 5% of the equity interests
are subject to review and approval by the Independent Directors Committee. Aside
from those restrictions, Mr. Berg and other members of the Berg Group will
generally have freedom of action with respect to the conduct of their business
activities and will not be required to seek the approval of such activities or
refer business opportunities to the Company, nor will they be subject to
liability for failure to do so.
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TERMINATION
The Acquisition Agreement is terminable prior to the final closing date for
the Berg Acquisition only by the Company or Mr. Berg in the event there exists a
non-appealable final order, decree or judgment preventing the occurrence of any
aspect of the UPREIT Transactions.
SURVIVAL AND INDEMNIFICATION MATTERS
All representations and warranties of the parties to the Acquisition
Agreement will survive the closing for a period of one year. Each party to the
Acquisition Agreement is obligated to indemnify the other parties and their
Affiliates with respect to losses and liability resulting from inaccuracies in
the representations and warranties of such party, failure by a party to perform
its obligations under the Acquisition Agreement, failure to satisfy liabilities
not assumed by the Operating Partnerships or the Company, and any claim for
brokers' commissions or finder's fees.
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OPERATING PARTNERSHIP AGREEMENT
THE FOLLOWING SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT, INCLUDING THE
DESCRIPTIONS OF CERTAIN PROVISIONS SET FORTH ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPERATING
PARTNERSHIP AGREEMENT, WHICH IS FILED AS AN EXHIBIT TO THE REGISTRATION
STATEMENT OF WHICH THIS PROXY STATEMENT/PROSPECTUS IS A PART.
MANAGEMENT
As of the Partnership Closing effective date, the Operating Partnerships
consists of four separate Delaware limited partnerships engaged in the combined
operation and ownership of the Properties pursuant to the terms of the
Acquisition Agreement, as amended, and the Operating Partnership Agreement,
which is identical in all material respects for all four of the limited
partnerships. Generally, pursuant to the Operating Partnership Agreement, the
Company as the sole general partner of the Operating Partnerships has exclusive
control of the business and assets of the Operating Partnerships and has full
and complete authority, discretion and responsibility with respect to the
Operating Partnerships' operations and transactions, including, without
limitation, acquisitions of additional properties, borrowing funds, raising new
capital, leasing buildings, as well as selecting and supervising all employees
and agents of the Operating Partnerships. Through its authority to manage the
business and affairs of the Company, the board of directors of the Company will
direct the business of the Operating Partnerships. The Berg Group has the right
to nominate two individuals for election to the board of directors so long as
the members of the Berg Group and their Affiliates (other than the Company and
the Operating Partnerships) beneficially own in the aggregate at least 15% of
the outstanding shares of Common Stock on a Fully-Diluted basis. If the members
of the Berg Group and such Affiliates beneficially own, in the aggregate, less
than 15% but at least 10% of the Common Stock, on a Fully-Diluted basis, the
Berg Group will have the right to nominate one individual for election to the
board of directors.
Notwithstanding the Company's effective control of the Operating
Partnerships, the consent of the Limited Partners holding an L.P. Unit Majority
is required with respect to certain extraordinary actions involving the
Operating Partnerships including (i) the amendment, modification or termination
of the Operating Partnership Agreement, (ii) a general assignment for the
benefit of creditors or the appointment of a custodian, receiver or trustee for
any of the assets of the Operating Partnerships, (iii) the institution of any
proceeding for bankruptcy of the Operating Partnerships, (iv) the transfer of
any general partnership interests in the Operating Partnerships, including (with
certain exceptions) transfers attendant to any merger, consolidation or
liquidation of the Company, (v) the admission of any additional or substitute
general partner in the Operating Partnerships; and (vi) a Change of Control of
the Operating Partnerships. In addition, until the Protective Provisions
Expiration Date, the consent of the Limited Partners holding the L.P. Unit
Majority is also required with respect to (i) the liquidation of the Operating
Partnerships, (ii) the sale or other transfer of all or substantially all of the
assets of the Operating Partnerships and certain mergers and business
combinations resulting in the complete disposition of all L.P. Units; and (iii)
the issuance of limited partnership interests having seniority as to
distributions, assets and voting over the L.P. Units.
Carl Berg and Clyde Berg have the right for a period of ten years, or, if
sooner, until the Protective Provisions Expiration Date, to prohibit taxable
transfers of designated Properties by the Operating Partnerships without their
prior written consent. John Kontrabecki has similar rights with respect to the
former Kontrabecki Properties, which expire after he owns fewer than 750,000
L.P. Units. The Operating Partnerships will be able to effect "tax-free" like
kind exchanges under Section 1031 of the Code, or in connection with other
non-taxable transactions, such as a contribution of property to a new
partnership, without obtaining the prior written consent of these individuals.
See "POLICIES WITH RESPECT TO CERTAIN ACTIVITIES Disposition Policy."
TRANSFERABILITY OF L.P. UNITS
The Operating Partnership Agreement provides that the Limited Partners may
transfer their L.P. Units subject to certain limitations. Except for certain
transfers by the Limited Partners to or from certain of their affiliates,
however, all transfers may be made only with the prior written consent of the
Company as the sole general partner of the Operating Partnerships.
In addition, no transfer of L.P. Units by the Limited Partners may be made
in violation of certain regulatory and other restrictions set forth in the
Operating Partnership Agreement. Except in the case of certain permitted
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transfers to or from certain Affiliates of the Limited Partners, the Exchange
Rights, the Put Rights, the New Equity Financing Rights and the Protective
Provisions will no longer be applicable to L.P. Units so transferred, and the
transferee will not have any rights to nominate persons to the board of
directors of the Company.
ADDITIONAL CAPITAL CONTRIBUTIONS AND LOANS
The Operating Partnership Agreement provides that if the Operating
Partnerships requires additional funds to pursue its investment objectives, the
Company may fund such investments by raising additional equity capital and
making a capital contribution to the Operating Partnerships or by borrowing such
funds and lending the net proceeds thereof to the Operating Partnerships. If the
Company intends to provide additional funds through a contribution to capital
and purchase of units of general partnership interest, the Limited Partners will
have the right to participate in such funding on a pro rata, pari passu basis
and to acquire additional L.P. Units (the "New Equity Financing Rights"). If the
Limited Partners do not participate in such financing, the Company will acquire
additional units of general partnership interest. In either case, the number of
additional units of partnership interest will be increased based upon the amount
of the additional capital contributions and the value of the Operating
Partnerships as of the date such contributions are made.
In addition, as general partner of the Operating Partnerships, the Company
has the ability to cause the Operating Partnerships to issue additional L.P.
Units. In the event that the Operating Partnerships issues new L.P. Units (for
cash but not property), the Limited Partners will have the right to purchase new
L.P. Units at the price offered by the Company in the transaction giving rise to
such participation right in order, and to the extent necessary, to maintain
their respective percentage interests in the Operating Partnerships. See
"POLICIES WITH RESPECT TO CERTAIN ACTIVITIES-- Financing."
EXCHANGE RIGHTS, PUT RIGHTS AND REGISTRATION RIGHTS
Subject to shareholder approval of Proposal 5, the Limited Partners will
have the Exchange Rights, which become exercisable after the first anniversary
of the Berg Acquisition, except that the Limited Partners may, in the aggregate,
tender L.P. Units for exchange prior to the first anniversary solely in
connection with (i) the registration of 500,000 shares of Common Stock acquired
upon exercise of the Exchange Rights for resale on a Form S-3 (or any equivalent
form) and (ii) a registered public offering of Common Stock initiated by the
Company to the extent of 25% of the total shares in the offering subject to the
underwriters' unlimited right to reduce the participation of all selling
shareholders. Once in each 12-month period beginning on the first anniversary of
the closing of the Offering, the Limited Partners (other than Carl Berg and
Clyde Berg) will have the right to exchange a portion of their L.P. Units for
shares of Common Stock (subject to the Ownership Limit) and to exercise the Put
Rights to sell a portion of their L.P. Units to the Operating Partnerships at a
price equal to the average Market Price of the Common Stock for the 10-trading
day period immediately preceding the date of tender (the "Tender Price"). Upon
any exercise of the Put Rights, the Company will have the opportunity for a
period of 15 days to elect to fund the purchase of the L.P. Units and purchase
additional general partner interests in the Operating Partnerships for cash,
unless the purchase price exceeds $1 million in the aggregate for all tendering
Limited Partners, in which case, the Operating Partnerships or the Company shall
be entitled to reduce proportionally the number of L.P. Units to be acquired
from each tendering Limited Partner so that the total purchase price is not more
than $1 million.
The Exchange Rights Agreement permits every Limited Partner to tender L.P.
Units to the Company, and at the Company's election, to receive cash, Common
Stock, or a combination of cash and Common Stock in exchange for the L.P. Units
tendered, subject to the Ownership Limit, or the Berg Group Ownership Limit, as
the case may be. Pursuant to the Exchange Rights Agreement, the holders of L.P.
Units will have the right to participate in any registered public offering of
the Common Stock initiated by the Company to the extent of 25% of the total
shares sold in the offering upon converting L.P. Units to shares of Common
Stock, but subject to the underwriters' unlimited right to reduce the
participation of all selling shareholders. The holders of L.P. Units will be
able to request resale registrations of shares of Common Stock acquired on
exchange of L.P. Units on a Form S-3, or any equivalent form of registration
statement, and after the first year following the closing of the Berg
Acquisition, the Company will be obligated to effect no more than two such
registrations in any 12-month period. The Company is obligated to assist the
L.P. Unit holders in obtaining a firm commitment underwriting agreement for such
resale from a qualified investment banking firm. If registration on Form S-3, or
an equivalent form, is not available for any reason, the Company will be
obligated to effect a registration of the shares to be acquired on exercise of
the Exchange Rights on Form S-11, or an equivalent form, in an underwritten
public offering, upon demand by the holders of no fewer than 500,000 L.P. Units.
All holders of L.P. Units will be entitled to participate
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in such registration. The Company will bear all costs of such registrations
other than selling expenses, including commissions and separate counsels' fees
of the L.P. Unit holders. The Company will not be required to effect any
registration for resale on Form S-3, or equivalent form of Common Stock shares
issuable to the holder of L.P. Units if the request is for less than 250,000
shares.
OTHER MATTERS
The Operating Partnership Agreement requires that the Operating
Partnerships be operated in a manner that will enable the Company to satisfy the
requirements for being classified as a REIT and to avoid any federal income or
excise tax liability.
The Operating Partnership Agreement provides that the net operating cash
flow of the Operating Partnerships, as well as net sales and refinancing
proceeds, will be distributed from time to time as determined by the board of
directors of the Company (but not less frequently than quarterly) pro rata in
accordance with the partners' percentage interests in the Operating
Partnerships. See "Distribution Policy."
Pursuant to the Operating Partnership Agreement, the Operating Partnerships
will also assume and pay when due, or reimburse the Company for payment of,
certain costs and expenses relating to the continuity of existence and
operations of the Company. In addition, the Operating Partnership Agreement
obligates the Operating Partnerships to reimburse all organization costs and
expenses of the UPREIT Transactions paid or incurred by the Berg Group.
The Operating Partnership Agreement provides that upon the exercise of an
outstanding option under the Company's 1997 Option Plan, the Company may
purchase additional general partner interests in the Operating Partnerships by
contributing the exercise proceeds to the Operating Partnerships. The increased
interest of the Company shall be equal to the percentage of Outstanding Shares
represented by the shares acquired upon exercise of the option.
TERM
The Operating Partnerships will continue in full force and effect until
December 31, 2048 or until sooner dissolved pursuant to the terms of the
Operating Partnership Agreement.
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MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of May 15, 1998 are
as follows:
<TABLE>
<CAPTION>
Age Position
------ ---------------------------------------------------------------
<S> <C> <C>
Carl E. Berg(1)(3) 60 Chairman of the Board, Chief Executive Officer, President and
Director
Michael J. Anderson(1) 38 Vice President, Chief Operating Officer and Director
Bradley A. Perkins 41 Vice President, General Counsel and Secretary
Marianne K. Aguiar 31 Vice President of Finance and Controller
John Bolger(2)(3) 51 Director
Roger Kirk(2) 45 Director
</TABLE>
- ----------
(1) Berg Group Board Representative
(2) Member of the Independent Director's Committee and Member of the
Compensation Committee
(3) Member of the Audit Committee
The following is a biographical summary of the experience of the executive
officers and directors of the Company:
Mr. Berg has served as Chief Executive officer, President and Director of
the Company since September of 1997. From 1979 to the present, Mr. Berg has been
a general partner of Berg & Berg Developers and a director and officer of BBE,
Inc. since its inception. Mr. Berg is also a director of Integrated Device
Technologies, Inc., Videonics, Valence Technology and System Integrated
Research.
Mr. Anderson joined the Company on January 1, 1998. On March 30, 1998, Mr.
Anderson was appointed Chief Operating Officer, Vice President and a Director.
After seven years as a real estate attorney and partner at Ware & Freidenrich,
Palo Alto, California, Mr. Anderson has spent the past six years in private real
estate development with Sandhill Homes, LP and Sandhill Property Company.
Mr. Perkins joined the Company on February 2, 1998. On March 30, 1998, Mr.
Perkins was appointed Vice President, General Counsel, and Secretary. Mr.
Perkins will devote a portion of his time to the Company, a portion to various
Berg companies, and a portion of his time to Teledex Corporation (a telephone
supplier). From November 1991 to January 1998, Mr. Perkins was with Valence
Technology, Inc., where he was Vice President, General Counsel and Secretary for
the past five years. From August 1988 to November 1991, Mr. Perkins was
Assistant General Counsel and Intellectual Property Counsel with VLSI
Technology, Inc., a semiconductor manufacturer.
Ms. Aguiar joined the Company on March 29, 1998. On March 30, 1998, Ms.
Aguiar was appointed Vice President of Finance and Controller. From June 1996 to
March 1998, Ms. Aguiar was with Oasis Residential, Inc. where she served as Vice
President, Controller and Treasurer from July 1996 to March 1998. From November
1995 to May 1996, Ms. Aguiar was employed by SBT Accounting Systems where from
April 1996 to May 1996, she served as Acting Vice President of Finance and
Controller and from November 1995 to April 1996 she served as Assistant
Controller. From November 1992 to November 1995, Ms. Aguiar was employed by
Coopers & Lybrand LLP where she served as Audit Manager.
Mr. Bolger became a director of the Company on March 30, 1998. Mr. Bolger
is a private investor. He was Vice President of Finance and Administration of
Cisco Systems, Inc., a networking company, from May 1989 through December 1992.
Mr. Bolger is a director of Integrated Device Technology, Inc., Integrated
Systems Inc., McAfee Associates, Inc., Sanmina Corporation, and TCSI
Corporation.
Mr. Kirk initially became a director of the Company in September 1997. In
May 1998, Mr. Kirk rejoined the board. Mr. Kirk has been President of
Hydrodynamics, Inc., since he formed the company in 1982. Since 1988, Mr. Kirk
has been the project manager and a general partner in Isabella Partners for
Isabella Hydroelectric Project. Certain members of the Berg Group are also
general partners in Isabella Partners.
-77-
<PAGE>
NUMBER, TERMS AND ELECTION OF DIRECTORS
Following the Reincorporation Merger, the number of directors will
initially be set at five. However, the bylaws of Mission West-Maryland provide
that the number of directors may be changed from time to time by the board of
directors, provided that the number will never be less than the minimum required
by Maryland law or more than 15. The board of directors may determine the exact
number. Generally, each director will serve for a term of one year or until the
next annual meeting at which directors are elected.
CONTRACTUAL ARRANGEMENTS
In January 1998, the Company entered into an employment agreement with Mr.
Anderson, Vice President, Chief Operating Officer and Director, providing that
in the case of voluntary termination for good cause (as defined in the
agreement) or involuntary termination other than for cause, Mr. Anderson will be
entitled to a severance payment of $100,000 and a continuation of medical and
other group insurance benefits for six months. In the event such a termination
occurs more than 12 months from his hire date, the vesting of Mr. Anderson's
stock options will accelerate and options which would have vested in the six
month period following the termination date will be vested as of the termination
date. Additionally, Mr. Anderson acquired 200,000 shares of Common Stock on
March 30, 1998 pursuant to the exercise of an option. Mr. Anderson's shares are
subject to repurchase by the Company. The Company loaned Mr. Anderson $900,000
to purchase the shares.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. The Company has established an Audit Committee that will
consist of at least two Independent Directors following the consummation of the
UPREIT Transactions contemplated in this Prospectus/Proxy Statement. The Audit
Committee was established to make recommendations concerning the engagement of
independent public accountants, review with the independent public accountants
the plans and results of the audit engagement, approve professional services
provided by the independent public accountants, review the independence of the
independent public accountants, consider the range of audit and non-audit fees
and review the adequacy of the Company's internal accounting controls.
COMPENSATION COMMITTEE. The Company has established a Compensation
Committee to determine compensation for the Company's executive officers and to
implement the Company's 1997 Stock Option Plan. The Compensation Committee
currently consists of two Independent Directors and will not include any officer
of the Company.
INDEPENDENT DIRECTORS COMMITTEE. Following the consummation of the
transactions contemplated herein, the Board of Directors will establish the
Independent Directors Committee consisting of at least two Independent Directors
to approve transactions between the Company and members of the Berg Group and
their affiliates and any entity in which any of them directly or indirectly owns
at least 5% of the equity interests. In addition, the Independent Directors
Committee will determine whether to exercise the Company's rights under the Berg
Land Holdings Option Agreement.
COMPENSATION OF DIRECTORS
The Company intends to pay its directors who are not officers of the
Company fees for their services as directors. Directors will receive annual
compensation of $15,000, plus a fee of $1,000 for attendance (in person or by
telephone) at each meeting of the board of directors, but not for committee
meetings. Officers of the Company who are also directors will not be paid any
director fees.
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<PAGE>
Each member of the Board of Directors who is not an employee of the Company
or any of its subsidiaries or affiliates (a "Non-Employee Director") and who
becomes a member of the Board of Directors after November 10, 1997, the date on
which the 1997 Stock Option Plan was approved by the shareholders of the
Company, will automatically receive a grant of an option to purchase 50,000
shares of Common Stock at an exercise price equal to 100% of the fair market
value of the Common Stock at the date of grant of such option upon joining the
Board of Directors. Such options will become exercisable cumulatively with
respect to 1/48th of the underlying shares on the first day of each month
following the date of grant. Generally, the options must be exercised while the
optionee is a director of the Company.
EXECUTIVE COMPENSATION
Upon the acquisition of control of the Company by the Berg Voting Group on
September 2, 1997 all former officers and directors resigned as of the same
date. The officers and directors appointed to replace them, including Mr. Berg
and Mr. Kirk, received no compensation during the 1997 fiscal year. Therefore,
no officer or director who received compensation during the fiscal year ended
December 31, 1997 will receive compensation during the fiscal year ending
December 31, 1998. The following table sets forth the annual base salary of the
former chief executive officer and the annual base salary which the Company
expects to pay in 1998 to the Company's president and four other most highly
compensated executive officers whose annualized base salary is expected to
exceed $100,000 (collectively, the "Named Executives"). The Company also may
pay, subject to approval of the board of directors, a cash bonus to each Named
Executive in an amount not to exceed such executive's base salary.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Summary Compensation(1) Long-Term Compensation
----------------------------------------- ----------------------------
Other Annual Securities Underlying
Salary Bonus Compensation Options (shares)
---------- ---------- -------------- -------------------------
<S> <C> <C> <C> <C>
Michael M. Earley(2) $ 49,640 - $25,750 -
President and CEO
Carl E. Berg 100,000 - - -
Chairman, CEO and President
Michael J. Anderson 150,000 $50,000 - 600,000(3)
Vice President and COO
Bradley A. Perkins 160,000 - - 80,000(4)
Vice President and General Counsel
Marianne K. Aguiar 105,000 - - 75,000(4)
Vice President of Finance and
Controller
</TABLE>
- ----------------
(1) Compensation for Mr. Berg, Mr. Anderson, Mr. Perkins and Ms. Aguiar is
prospective. No current Executive Officer received any compensation from
the Company in 1997.
(2) Michael M. Earley served as Chief Executive Officer, President and Director
of the Company from March 7, 1997 through August 1997. Mr. Earley received
compensation for such services through the payment by the Company to Triton
Group Ltd. (of which Mr. Earley was concurrently the Chief Executive
Officer and President) in the total amount of $75,390 ($49,640 paid to the
Triton Group Management for general management services, including Mr.
Earley's services, and $25,750 paid directly to Mr. Earley as Director's
fees).
(3) Mr. Anderson received a stock option to purchase 400,000 shares of stock,
which vests over four years as follows: 6.25% on the first six-month
anniversary of Mr. Anderson's date of hire, an additional 12.5% on his
one-year anniversary, and the remainder in equal amounts on a monthly basis
over the remaining three years. Mr. Anderson received a second stock option
to purchase an additional 200,000 shares which was immediately exercisable,
subject to the Company's right to repurchase (which right decreases over
time) such shares in the event Mr. Anderson leaves the employ of the
Company. Mr. Anderson exercised his option for such shares. The Company
loaned Mr. Anderson the purchase price for this stock.
(4) Stock options vest over four years as follows: 6.25% on the first six-month
anniversary of date of hire, an additional 12.5% on the one-year
anniversary, and the remainder in equal amounts on a monthly basis over the
remaining three years.
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<PAGE>
BENEFIT PLANS
1997 STOCK OPTION PLAN. The Company's 1997 Stock Option Plan (the "Option
Plan") was approved by the Company's shareholders on November 10, 1997. The
Option Plan was adopted so that the Company may attract and retain 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 by enabling them to
participate in the Company's success. The following summary is qualified in it
entirety by reference to the full text of the Option Plan, a copy of which was
filed as an exhibit to the Company's Proxy Statement, dated October 20, 1997,
filed with the Commission on October 20, 1997.
The Option Plan provides for the granting to employees (including officers
and directors who are employees) of "incentive stock options" within the meaning
of Section 422 of the Code, and for the granting of nonstatutory options to
employees, consultants and directors, including directors who are neither
employees of, nor consultants to, the Company ("Non-Employee Directors").
Options to purchase a maximum of 5,500,000 shares of Common Stock may be granted
under the Option Plan, subject to equitable adjustments to reflect certain
corporate events. The Option Plan will be administered by the Compensation
Committee. The interpretation and construction of any provision of the Option
Plan is within the sole discretion of the Compensation 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.
The Compensation Committee 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 Non-Employee
Directors pursuant to automatic grants.
Each option granted under the Option Plan is evidenced by a written stock
option agreement between the Company and the optionee. The Option Plan provides
that options must vest and, unless otherwise decided by the Committee become
exercisable cumulatively as to 20% of the underlying shares on each anniversary
of the date of grant for so long as the optionee is employed by or providing
service to the Company.
The price per share exercise price of options granted under the Option Plan
may not be less than 100% of the fair market value on the date of grant, except
in certain specific circumstances, in which case the exercise price may not be
less than 110%. Each option may be exercised only to the extent that it is
vested. Options must generally be exercised during the optionee's employment or
within 30 days following the optionee's termination of status as an employee,
consultant or director, unless termination is due to the death or disability of
an optionee. If termination of status is due to death or disability of the
optionee, an option may be exercised within six months.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last completed fiscal year, no current members of the
Compensation Committee were officers of the Company. The current officers and
directors of the Company were elected or appointed during the current fiscal
year, except for Carl E. Berg. Mr. Berg became an officer and director in
September 1997, but did not serve on the Compensation Committee during the last
completed fiscal year. No officer who received compensation in the last
completed fiscal year is now an officer. The current members of the Company's
Compensation Committee were elected by the board of directors effective during
the current fiscal year and are not officers or employees of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services; or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL.
The Charter also authorizes Mission West-Maryland to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
any present or former director or officer, or any individual who, while a
director of Mission
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<PAGE>
West-Maryland and at the request of Mission West-Maryland, serves or has served
another corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or other enterprise
from and against any claim or liability to which such person may become subject
or which such person may incur by reason of his status as a present or former
director or officer of Mission West-Maryland. The Maryland Bylaws obligate
Mission West-Maryland, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (i) any present or former director or officer who
is made a party to the proceeding by reason of his service in that capacity or
(ii) any individual who, while a director of Mission West-Maryland and at the
request of Mission West-Maryland, serves or has served another corporation, real
estate investment trust, partnership, joint venture, trust, employee benefit
plan or any other enterprise as a director, officer, partner or trustee of such
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity. The Charter and bylaws
also permit Mission West-Maryland to indemnify and advance expenses to any
person who served a predecessor of Mission West-Maryland in any of the
capacities described above and any employee or agent of Mission West-Maryland or
a predecessor of Mission West-Marylad.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
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<PAGE>
CERTAIN TRANSACTIONS
PRIVATE PLACEMENT TRANSACTIONS--1997
In September and November of 1997, the Company sold Common Stock in two
private placement transactions. On September 2, 1997, the Company sold 200,000
shares of Common Stock at $4.50 per share prior to the Reverse Split. In
connection with that transaction the Company received an opinion from Slusser
Associates, Inc. that the transaction was fair to the Company's shareholders
from a financial point of view. Slusser Associates, Inc. received a fee of
$150,000. On November 12, 1997, the Company sold 1,250,000 shares of Common
Stock at $4.50 per share after giving effect to the Reverse Split. The price
paid for the Common Stock in the November transaction was the same as the price
paid in the September private placement, and the Company did not retain a
financial advisor to render a fairness opinion. There can be no assurance that
the terms of the November private placement were as favorable to the Company as
would have been obtained with unrelated third parties. The purchasers of record
of the Common Stock in the two transactions included, among others, the
following 5% shareholders, executive officers, directors, and affiliates of 5%
shareholders, executive officers and directors:
<TABLE>
<CAPTION>
September Private November Private
Placement(1) Placement
------------------- -------------------
<S> <C> <C>
Berg & Berg Enterprises, 27,333 -
Inc.(2)
Thelmer Aalgaard(3) 12,333 70,640
Carl E. Warden(4) 12,333 105,000
John C. Bolger 12,333 9,889
Robert L. and Sharon K. Yoerg - 111,111
</TABLE>
- ---------------
(1) Reflects Reverse Split.
(2) Carl E. Berg, President, Chief Executive Officer and Director of the
Company, is also an officer and director of BBE. Clyde Berg is a director
of BBE. Carl E. Berg, Clyde J. Berg and members of their immediate families
are, directly and indirectly, the beneficial owners of all shares of the
capital stock of BBE.
(3) Mr. Aalgard is a director of BBE.
(4) As a result of the UPREIT Transactions, Mr. Warden and the Yoergs will no
longer be Affiliates of the Company.
In addition, members of Mr. Aalgaard's immediate family purchased or
received as a gift from Mr. Aalgaard an aggregate of 17,772 shares of Common
Stock in connection with the November Private Placement.
In connection with the September and November private placements, certain
purchasers of Common Stock, including Mr. Aalgaard, Mr. Warden, Mr. Bolger and
the Yoergs entered into the Voting Rights Agreement. The Voting Rights
Agreements terminate at the earliest of the following dates: (i) upon any sale
of the purchaser's shares of Common Stock pursuant to a registration statement
declared effective under the Securities Act, but only as to the purchaser's
shares of Common Stock so sold; (ii) upon the sale of the purchaser's shares of
Common Stock pursuant to Rule 144 promulgated under the Securities Act, but only
as to the purchaser's shares of Common Stock so sold; or (iii) two years after
the effective date of the Voting Rights Agreements. See "THE SPECIAL MEETING --
Votes Required."
PRIVATE PLACEMENT TRANSACTIONS--1998
On May 4, 1998, the Company entered into agreements with prospective
purchasers to sell and issue 6,495,058 shares of Common Stock in the Private
Placement, the terms of which are described elsewhere in this Proxy
Statement/Prospectus. See "BACKGROUND OF THE UPREIT
TRANSACTIONS--Background--The Private Placement." The Company has not obtained a
"fairness opinion" or other independent financial advice with respect to the
terms, including price, of the Private Placement, although Ingalls & Snyder LLC
has acted as placement agent and advisor for the purchasers of 5,800,000 shares
of Common Stock. The purchasers of record of the Common Stock will include,
among others, the following officers, directors, 5% shareholders and purchasers,
who by reason of the purchase of Common Stock in the Private Placement, will
become 5% shareholders:
<TABLE>
<CAPTION>
Non-Placement Agent Ingalls & Snyder
Private Placement Private Placement
--------------------- ------------------
<S> <C> <C>
Carl E. Berg 50,000 -
Thelmer Aalgaard 70,000 -
Carl E. Warden 39,609 -
Leo Helzel - 457,000
Meyer Family Trust - 1,000,000
I&S Value Partners - 1,125,067
Prism Partners I, L.P. - 450,000
</TABLE>
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<PAGE>
UPREIT TRANSACTIONS
The UPREIT Transactions include transactions between the Company, certain
officers and directors of the Company and their affiliates. See "SUMMARY OF THE
UPREIT TRANSACTIONS AND PURPOSE OF THE SPECIAL MEETING--Private
Placement/Recapitalization," "RISK FACTORS--Control of the Company and the
Operating Partnerships by the Berg Group," and "--Potential Conflicts of
Interest with the Berg Group," "BACKGROUND OF THE UPREIT TRANSACTIONS--Benefits
to the Berg Group." The Company has consummated the Partnership Closing portion
of the Berg Acquisition. The Company has not obtained a "fairness" opinion or
other independent financial advice with respect to the UPREIT Transactions.
There can be no assurance that the terms of any of the UPREIT Transactions are
as favorable as could have been obtained with unrelated third parties.
PURCHASE BY MICHAEL ANDERSON
Michael J. Anderson, Vice President and Chief Operating Officer of the
Company, acquired 200,000 shares of Common Stock on March 30, 1998 pursuant to
the exercise of an option. Mr. Anderson's shares are subject to repurchase by
the Company. The Company loaned Mr. Anderson $900,000 to purchase the shares.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock as of May 15, 1998 by (i) each person
who is a shareholder of the Company holding more than a 5% interest in the
Company, (ii) directors and Named Executives of the Company, and (iii) the
directors and officers of the Company as a group. Unless otherwise indicated in
the footnotes to the table, all of such interests are owned directly, and the
person or entity has sole voting and investment power. The number of shares of
Common Stock for which L.P. Units are exchangeable is not reflected in the table
but is discussed in the footnotes. For a description of the terms of the
Exchange Rights and the Put Rights of the Limited Partners, see "OPERATING
PARTNERSHIP AGREEMENT -- Exchange Rights, Put Rights, and Registration Rights."
For a description of the right of members of the Berg Group to nominate persons
to the board of directors of the Company, see "MANAGEMENT--Directors and
Executive Officers."
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------------------------
Number of Number of
Shares Shares
Beneficially Beneficially
Owned(1) Owned(1)
Prior to After
UPREIT Percent UPREIT Percent
Transactions Ownership Transactions Ownership
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Michael J. Anderson 225,000(2) 13.1% 225,000 2.7%
Vice President, Chief
Operating Officer and
Director
Carl E. Warden 117,333(3) 6.9% 156,942(3) 1.9%
1516 Country Club Drive
Los Altos, CA 94024
Robert L. & Sharon K. Yoerg(4) 111,111 6.5% 111,111 1.4%
98 Melanie Lane
Atherton, CA 94027
Thelmer Aalgaard 82,973(5) 4.9% 152,973(6) 1.9%
c/o Berg & Berg Enterprises, Inc.
10050 Bandley Drive
Cupertino, CA 95014
Roger S. Kirk, Director 34,556 2.1% 34,556 *
521 E. Peach #28
Bozeman, Montana 59771
John C. Bolger, Director 25,348(7) 1.5% 25,348 *
96 Sutherland Drive
Atherton, CA 94027
Carl E. Berg(8) 27,333(9) * 77,333(10) 1.0%
President, Chief Executive
Officer and Director
Clyde J. Berg(8) 27,333(9) * 27,333(11) *
c/o Berg & Berg Enterprises, Inc.
10050 Bandley Drive
Cupertino, CA 95014
Berg & Berg Enterprises, Inc. 27,333(8) * 27,333(12) *
10050 Bandley Drive
Cupertino, CA 95014
Bradley A. Perkins 0(13) * 0 *
Vice President, General
Counsel and Secretary
Marianne K. Aguiar 0(14) * 0 *
Vice President of
Finance and Controller
Ingalls & Snyder Value 0 * 1,125,067 13.7%
Partners, L.P.(15)
61 Broadway
New York, NY 10006
Meyer Family Trust 0 * 1,000,000 12.2%
c/o Bay Apartment Communities, Inc.
4340 Stevens Creek Blvd., Suite 275
San Jose, CA 95129
Prism Partners I, L.P.(16) 0 * 450,000 5.5%
909 Montgomery Street, Suite 400
San Francisco, CA 94133
Leo Helzel(17) 0 * 437,000 5.3%
5550 Redwood Road, Suite 4
Oakland, CA 94619
Paul McCarthy(18) 0 * 430,000 5.2%
c/o Marquette National Corporation
6316 South Western Avenue
Chicago, IL 60636
All Directors and executive 314,321 18.2% 362,237(20) 4.4%
officers as a group (6 persons)(19)
</TABLE>
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<PAGE>
- -------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities and includes
securities which such person has the right to acquire beneficial ownership
within 60 days of May 15, 1998. Unless otherwise indicated, the persons or
entities identified in this table have sole voting and investment power
with respect to all shares shown as beneficially owned by them. Percentage
ownership calculations are based on 1,698,536 shares outstanding as of May
15, 1998.
(2) Mr. Anderson received a stock option to purchase 400,000 shares of stock,
which vests over 4 years as follows: 6.25% on the first six-month
anniversary of Mr. Anderson's date of hire, an additional 12.5% on his
one-year anniversary, and the remainder in equal amounts on a monthly basis
over the remaining 3 years. Mr. Anderson received a second stock option to
purchase an additional 200,000 which was immediately exercisable subject to
repurchase, which Mr. Anderson exercised. The Company loaned Mr. Anderson
the purchase price for this stock.
(3) Includes (i) 9,333 shares held of record by Carl E. Warden and (ii) 39,609
held of record by Marlin Concepts, Inc. to be purchased in the Private
Placement.
(4) Includes (i) 55,556 shares held of record by Robert L. Yoerg M.D. Trustee,
Robert L. Yoerg Professional Corporation Pension Plan and (ii) 11,111
shares held of record by Sharon K. Yoerg, Custodian, Elizabeth A. Yoerg,
Under the Uniform Gifts to Minors Act.
(5) Mr. Aalgaard is a director of BBE. Includes (i) 33,400 shares held of
record by Carl E. Berg, Trustee, Berg & Berg Profit Sharing Plan FBO
Thelmer G. Aalgaard Dated 1/1/84, (ii) 4,160 shares held of record by Carl
E. Berg, Trustee, Berg & Berg Profit Sharing Plan FBO Thelmer G. Aalgaard
Dated 1/1/84, 1997 Contribution, and (iii) 2,220 shares held of record by
Thelmer G. Aalgaard, Custodian, Rachel Michaels, Under the California
Uniform Gifts to Minor Act.
(6) Does not include 1,254,577 shares of Common Stock issuable on exchange of
L.P. Units held by Mr. Aalgaard as a result of his status as a partner or
member of the following entities: Baccarat Cambrian, a California general
partnership and a limited partner in MWP; MWP; Baccarat Fremont Developers,
LLC, a California limited liability company and a limited partner of MWP;
Berg Venture I, a California general partnership and general partner of
Triangle Development Company which is a limited partner of MWP; and Berg
Venture II, a California limited partnership and limited partner of MWP.
Also does not include 595,048 shares of Common Stock issuable on exchange
of L.P. Units held by Mr. Aalgaard as trustee of the Sonya L. Berg Trust
and the Sherri L. Berg Trust for which Mr. Aalgaard possesses no pecuniary
interest. If all Common Stock issuable on exchange of L.P. Units were
outstanding, Mr. Aalgaard's percent ownership would be 2.7%.
(7) Includes 3,126 shares of Common Stock issuable on exercise of options.
(8) Carl E. Berg and Clyde J. Berg disclaim beneficial ownership, except to the
extent of their pecuniary interest, in the 1,097,959 shares of Common Stock
subject to the Voting Rights Agreements. Carl E. Berg is an executive
officer, director and Clyde J. Berg is a director of BBE. With members of
their immediate families, the Messrs. Berg beneficially own, directly and
indirectly, all of the shares of capital stock of BBE. Carl E. Berg
disclaims beneficial ownership of 53,071 shares of Common Stock held by him
as a trustee under various pension and profit sharing plans, some of which
are subject to the Voting Rights Agreements. Mr. Berg has no investment
control over such shares.
(9) Does not include 1,070,626 shares of Common Stock which are subject to
Voting Rights Agreements. BBE and the Messrs. Berg disclaim 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 Voting Rights Agreements, to vote such shares as
recommended by Carl E. Berg, as agent for BBE. Both Clyde J. Berg and Carl
E. Berg may be deemed the beneficial owner of any shares of Common Stock
beneficially owned by BBE. See Footnote (1) above.
(10) Does not include 31,476,025 shares of Common Stock issuable on exchange of
L.P. Units held by Mr. Berg as a result of his status as a partner or
member of the following entities: MWP I; MWP II; MWP III; DeAnza Office
Partners, a California general partnership and limited partner of MWP; Berg
Venture I, a California general partnership and general partner of Triangle
Development Company which is a limited partner of MWP; Berg Venture II, a
California limited partnership and limited partner of MWP; and ownership of
certain properties referenced herein as the Fremont properties which he is
obligated to contribute to MWP upon acquiring them. Also does not include
an additional 4,542,121 shares of Common Stock issuable on exchange of L.P.
Units held by BBE. If all Common Stock issuable on exchange of L.P. Units
were outstanding and Mr. Berg were deemed to be the beneficial owner of the
shares set forth above, Mr. Berg's percent ownership would be 48%.
(11) Does not include 20,006,025 shares of Common Stock issuable on exchange of
L.P. Units held by Mr. Berg as a result of his status as partner or member
of the following entities: MWP I; MWP II; MWP III; DeAnza Office Partners,
a California general partnership and limited partner of MWP; Berg Venture
I, a California general partnership and general partner of Triangle
Development Company which is a limited partner of MWP; and Berg Venture II,
a California limited partnership and limited partner of MWP. Also does not
include 862,268 shares of Common Stock issuable on exchange of L.P. Units
held by Mr. Berg as trustee of the Carl Berg Child's Trust UTA dated June
2, 1978 and 1,957,983 shares of Common Stock issuable on exchange of L.P.
Units held by Mr. Berg as trustee of the 1981 Kara Ann Berg Trust. Does not
include an additional 4,542,121 shares of Common Stock issuable on exchange
of L.P. Units held by BBE. If all Common Stock issuable on exchange of L.P.
Units were outstanding and Mr. Berg were deemed to be the beneficial owner
of the shares set forth above, Mr. Berg's percent ownership would be 36.5%.
(12) Does not include 4,542,121 shares of Common Stock issuable on exchange of
L.P. Units held by BBE. If all Common Stock issuable on exchange of L.P.
Units were outstanding, BBE's percent ownership would be 6.1%.
(13) Mr. Perkins received a stock option to purchase 80,000 shares of stock,
which vests over 4 years as follows: 6.25% on the first six-month
anniversary of Mr. Perkins' date of hire, an additional 12.5% on his
one-year anniversary, and the remainder in equal amounts on a monthly basis
over the remaining 3 years.
(14) Ms. Aguiar received a stock option to purchase 75,000 shares of stock,
which vests over 4 years as follows: 6.25% on the first six-month
anniversary of Ms. Aguiar's date of hire, an additional 12.5% on her
one-year anniversary, and the remainder in equal amounts on a monthly basis
over the remaining 3 years.
(15) Thomas Boucher and Robert L. Cipson, general partners of Ingalls & Snyder
Value Partners, L.P. ("Value Partners"), have the power to vote and the
power to direct the investment of Value Partners with respect to the Common
Stock.
(16) Jerald Weintraub, managing general partner of Prism Partners I, L.P.
("Prism"), has the power to vote and the power to direct the investment of
Prism with respect to the Common Stock. Includes 31,500 shares held of
record by Legion Fund Limited, for which Mr. Weintraub also has the power
to vote and the power to direct the investment.
(17) Mr. Helzel may be deemed to be the beneficial owner of (i) 22,000 shares
held of record by Helzel Family Foundation and (ii) 415,000 shares held of
record by the Leo B. and Florence Helzel Living Trust because Mr. Helzel is
a director of the foundation, and trustee and beneficiary of the trust. Mr.
Helzel disclaims beneficial ownership of these shares except to the extent
of his pecuniary interest therein.
(18) Mr. McCarthy may be deemed to be the beneficial owner of (i) 215,000 shares
held of record by John F. McCarthy Charitable Lead Annuity Trust and (ii)
215,000 shares held of record by Marquette National Corporation, because
Mr. McCarthy is the trustee of the Trust and the Chairman, Chief Executive
Officer and beneficial owner of the Marquette National Corporation. Mr.
McCarthy disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest therein.
(19) Current officers and directors include Carl E. Berg, Michael J. Anderson,
Bradley A. Perkins, Marianne K. Aguiar, John C. Bolger and Roger S. Kirk.
(20) Assuming all Common Stock issuable on exchange of L.P. is outstanding,
directors and executive officers of the Company would hold 36,362,383
shares of Common Stock, or 48.4%.
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THE REINCORPORATION MERGER
INTRODUCTION
The Company's board of directors believes that the best interests of the
Company and its shareholders will be served by changing the state of
incorporation of the Company from California to Maryland by means of the
Reincorporation Merger. The principal reason for the Reincorporation Merger is
that the MGCL contains provisions conducive to the operation of a REIT. Many
REITs have incorporated in the State of Maryland, and the board of directors
believes that this has provided state regulatory authorities and courts with a
defined body of administrative and case law concerning the governance of REITs.
The Reincorporation Merger will be effected by merging the Company into
Mission West-Maryland, a newly formed wholly-owned subsidiary of the Company,
which was incorporated for the purpose of redomiciling the Company as a Maryland
corporation and acquiring, recapitalizing and continuing the business and
operations of the Company. Upon completion of the Reincorporation Merger, the
Company will cease to exist and Mission West-Maryland will continue to operate
the business of the Company under the name Mission West Properties, Inc.
EXCHANGE OF SECURITIES
Pursuant to the Agreement and Plan of Merger, which will be in
substantially the form attached hereto as Exhibit A (the "Merger Agreement"),
each outstanding share of Common Stock will automatically be converted into one
share of New Common Stock at the effective time of the merger and outstanding
options and warrants for the purchase of Common Stock will be exchanged for
options and warrants for the purchase of the equivalent number of shares of New
Common Stock. Each stock certificate representing issued and outstanding shares
of Common Stock will continue to represent the same number of shares of New
Common Stock. Options and warrants issued and outstanding will continue to
represent the right to purchase the same number of shares of New Common Stock.
IT WILL NOT BE NECESSARY FOR SECURITYHOLDERS TO EXCHANGE THEIR EXISTING
SECURITIES FOR SECURITIES OF MISSION WEST-MARYLAND. Securityholders of the
Company may exchange their securities if they so choose, however. The Common
Stock is listed for trading on the AMEX and the PCX, and after the
Reincorporation Merger, the New Common Stock will continue to be listed on the
AMEX and the PCX without interruption under the same symbol ("MSW").
APPROVAL AND EFFECTIVENESS OF MERGER
Under California law, the affirmative vote of a majority of the outstanding
shares of Common Stock of the Company is required for approval of the Merger
Agreement and the other terms of the Reincorporation Merger. See "THE SPECIAL
MEETING - Votes Required." The Reincorporation Merger has been approved by the
Company's board of directors, which unanimously recommends a vote in favor of
the proposal. If approved by the shareholders, it is anticipated that the merger
will become effective as soon as practicable following the Meeting (the
"Effective Date"). However, pursuant to the Merger Agreement, the merger may be
abandoned or the Merger Agreement may be amended by the board of directors
(except that the principal terms may not be amended without shareholder
approval) either before or after shareholder approval has been obtained and
prior to the Effective Date of the Reincorporation Merger if, in the opinion of
the board of directors of either company, circumstances arise which make either
action advisable.
Shareholders of the Company will not have dissenters' rights of appraisal
with respect to the Reincorporation Merger.
The discussion set forth below is qualified in its entirety by reference to
the Merger Agreement, the Charter and the bylaws of Mission West-Maryland (the
"Maryland Bylaws" for purposes of this discussion), which will be substantially
in the forms attached to this Proxy Statement/Prospectus as Exhibits A, B and C,
respectively.
APPROVAL BY SHAREHOLDERS OF THE REINCORPORATION MERGER WILL CONSTITUTE
APPROVAL OF THE MERGER AGREEMENT, THE CHARTER AND THE MARYLAND BYLAWS OF MISSION
WEST-MARYLAND, WHICH WILL BE SUBSTANTIALLY IN THE FORMS SET FORTH AS EXHIBITS A,
B AND C TO THIS PROXY STATEMENT/PROSPECTUS.
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POSSIBLE DISADVANTAGES
Despite the unanimous belief of the board of directors that the
Reincorporation Merger is in the best interests of the Company and its
shareholders, it should be noted that California and Maryland law differ in
certain respects. Maryland law may not afford stockholders the same substantive
rights as California law. For a comparison of shareholders' rights and the
powers of management under Maryland and California law, see "--Comparison of
Rights of Shareholders of the Company and Stockholders Mission West-Maryland."
NO CHANGE IN THE NAME, BUSINESS, MANAGEMENT, LOCATION OF PRINCIPAL OFFICE OR
EMPLOYEE PLANS OF THE COMPANY
The Reincorporation Merger will effect a change in the legal domicile of
the Company and other changes of a legal nature, certain of which are described
in this Proxy Statement/Prospectus. The Reincorporation Merger will not result
in a change in the name of the Company, except to include "Inc." at the end. The
business, management, fiscal year, location of the principal office, assets and
liabilities of the Company will not change as a result of the Reincorporation
Merger, although the business, management assets and liabilities may change as a
result of certain other proposals contained in the Proxy Statement/Prospectus.
See "BACKGROUND OF THE BERG ACQUISITION," "THE BUSINESS OF BERG & BERG," "FUTURE
OPERATIONS OF COMPANY," AND "MANAGEMENT OF THE COMPANY UPON CONSUMMATION OF THE
BERG ACQUISITION." The individuals listed "MANAGEMENT OF THE COMPANY UPON
CONSUMMATION OF THE BERG ACQUISITION will become the directors of Mission
West-Maryland. In addition, the Company expects to add one or two individuals to
the board of directors before the end of 1998. All employee benefit, stock
option and stock purchase plans of the Company will be continued by Mission
West-Maryland, and each option or right issued pursuant to any such plan will
automatically be converted into an option or right to purchase the same number
of shares of New Common Stock, at the same price per share, upon the same terms,
and subject to the same conditions, as set forth in such plan. Shareholders
should note that approval of the Reincorporation Merger will also constitute
approval of the assumption of these plans by Mission West-Maryland.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF THE COMPANY AND STOCKHOLDERS OF MISSION
WEST-MARYLAND
The Company is organized as a corporation under the laws of the State of
California and Mission West-Maryland is organized as a corporation under the
laws of the State of Maryland. As a California corporation, the Company is
subject to the California General Corporation Law (the "CGCL"), a general
corporation statute dealing with a wide variety of matters, including election,
tenure, duties and liabilities of directors and officers; dividends and other
distributions; rights of shareholders; and extraordinary actions, such as
amendments to the articles of incorporation, mergers, sales of all or
substantially all of the Company's assets and dissolution. The Company also is
governed by its Articles of Incorporation (the "California Articles") and its
Bylaws (the "California Bylaws"), which have been adopted pursuant to the CGCL.
As a Maryland corporation, Mission West-Maryland is governed by the Maryland
General Corporation Law (the "MGCL"), a general corporation statute covering
substantially the same matters as are covered by the CGCL, and by the Charter
and Maryland Bylaws
The material differences between the CGCL and the MGCL and among these
various documents are summarized below. The CGCL refers to "shareholders" and
the MGCL refers to "stockholders." The use of either term refers to the holders
of stock of the Company or Mission West-Maryland, as the case may be.
The comparison of certain rights of the shareholders of the Company and the
stockholders of Mission West-Maryland set forth below does not purport to be
complete and is subject to and qualified in its entirety by reference to the
CGCL and the MGCL and also to the California Articles, the California Bylaws,
the Charter and the Maryland Bylaws, copies of which are available from the
Company as described under "AVAILABLE INFORMATION".
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CALIFORNIA
SHAREHOLDER VOTING RIGHTS
California law provides for cumulative voting in the election of directors
(which permits holders of less than a majority of the voting securities of a
corporation to cumulate their votes and elect a director or directors in certain
situations) but permits the elimination thereof in the case of a listed
corporation (which is defined as a corporation that has shares listed on the
AMEX or other national securities exchanges). The California Bylaws specifically
provide for cumulative voting.
With certain exceptions, the CGCL requires that mergers, reorganizations,
dissolution, certain sales of assets and similar transactions be approved by the
holders of a majority of each class of shares outstanding.
Under the CGCL, the articles of incorporation and bylaws may include
supermajority voting provisions. These provisions, however, must be renewed
every two years and may not require a vote in excess of two-thirds of the
outstanding shares.
MARYLAND
SHAREHOLDER VOTING RIGHTS
Under the MGCL, cumulative voting is not available unless so provided in the
corporation's charter. The Charter does not provide for cumulative voting. As a
result, holders of a majority of the shares of Maryland Common Stock generally
would be entitled to elect all of the directors of Mission West-Maryland.
Pursuant to agreement, however, the Company and the Berg Group have agreed to
take action necessary to elect the two Berg Group Board Representatives to the
board of directors.
The MGCL requires, with certain exceptions, that the holders of two-thirds of
all shares entitled to vote on the matter must approve mergers, consolidations,
share exchanges, transfers of all or substantially all of the assets of the
corporation and dissolution unless the charter provides for a different number
not less than a majority. The Charter provides that such matters may be approved
by the holders of a majority of shares entitled to vote on the matter.
Under the MGCL, the charter of a Maryland corporation may include
supermajority voting provisions without restrictions. The Charter currently
does not contain any supermajority voting provisions.
DENIAL OF VOTING RIGHTS
Under the MGCL, holders of the outstanding shares of any class of stock may be
denied all voting rights.
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CALIFORNIA
DIVIDENDS AND OTHER DISTRIBUTIONS
Under the CGCL, the Company may only make a distribution to shareholders if (a)
its retained earnings immediately prior to payment of the distribution are at
least equal to the amount of the distribution, or (b) generally, its total
assets (determined on the basis of their depreciated historical cost in
accordance with GAAP and exclusive of certain intangible assets and certain
other charges and expenses) are equal to at least 1 1/4 times its total
liabilities (excluding certain deferred items) immediately after giving effect
to the distribution. The CGCL also prohibits a California corporation from
making any distribution to shareholders if the corporation is or, as a result
thereof, would be likely to be unable to meet its liabilities as they mature.
The CGCL also imposes certain further limitations on distributions on common
stock if capital stock with a preference on distributions of assets upon
liquidation is outstanding.
DISSENTING SHAREHOLDER'S APPRAISAL RIGHTS
Under California law, shareholders of a California corporation whose shares are
listed on a national securities exchange (as are the shares of the Company)
generally do not have dissenters' rights unless the holders of 5% or more of the
class of outstanding shares claim the right or unless the corporation or any law
restricts the transfer of such shares.
STANDARD OF CONDUCT FOR DIRECTORS
Section 309 of the CGCL requires that a director perform the duties of a
director in good faith in the manner such director believes to be in the best
interests of the corporation and its shareholders and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like position would use
under similar circumstances.
MARYLAND
DIVIDENDS AND OTHER DISTRIBUTIONS
The MGCL allows the payment of dividends and other distributions unless, after
giving effect to the distribution, (a) the corporation would not be able to pay
its debts as they become due in the usual course of business or (b) the
corporation's total assets would be less than the sum of the corporation's
liabilities plus, unless the charter provides otherwise (which the Charter
does), the amount that would be needed upon dissolution to satisfy the
preferential rights of those stockholders whose preferential rights upon
dissolution are superior to those receiving the distribution.
DISSENTING SHAREHOLDER'S APPRAISAL RIGHTS
The MGCL does not provide appraisal rights to stockholders of a corporation if
the corporation's shares are listed on a national securities exchange, such as
the AMEX, on the record date for determining those stockholders of the
corporation entitled to vote on the merger.
STANDARD OF CONDUCT FOR DIRECTORS
Section 2-405.1 of the MGCL requires that a director of a Maryland corporation
perform his duties in good faith with a reasonable belief that his actions are
in the best interests of the corporation and with the care of an ordinarily
prudent person in a like position ... under similar circumstances.
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CALIFORNIA
REMOVAL OF DIRECTORS
Under the CGCL and the California Bylaws, the entire board of directors or any
individual director may be removed from office by a vote of shareholders holding
a majority of the outstanding shares entitled to vote at an election of
directors; provided, however, that unless the entire board is removed, an
individual director shall not be removed, unless (a) the number of shares voted
against removal, or not consenting to such removal, in the case of a written
consent, would be insufficient to elect such director if voted cumulatively at
an election at which the same total number of votes were cast and the entire
number of directors authorized at the time of such director's most recent
election were then being elected or (b) holders of the shares of any class or
series entitled to elect one or more directors shall vote to remove a director
so elected by said class or series.
The CGCL also provides that the superior court of the proper county may, at the
request of shareholders holding at least 10% of the number of outstanding shares
of any class, remove any director in case of fraudulent or dishonest acts or
gross abuse of authority or discretion with reference to the corporation and may
bar from reelection any director so removed for a period prescribed by the
court.
MARYLAND
REMOVAL OF DIRECTORS
Under the MGCL, the stockholders of a corporation may remove any director, with
or without cause, by the affirmative vote of a majority of all the votes
entitled to be cast for the election of directors, unless the charter of the
corporation provides otherwise. The MGCL further states that if the stockholders
of any class or series are entitled separately to elect one or more directors, a
director elected by a class or series may not be removed without cause except by
the affirmative vote of a majority of all votes of that class or series, unless
the charter of the corporation provides otherwise (which the Charter does not).
The Charter provides that directors may be removed only for cause (defined in
the Charter to be with respect to any particular director, conviction of a
felony or a final judgment of a court of competent jurisdiction holding that
such director caused demonstrable, material harm to Mission West-Maryland
through bad faith or active and deliberate dishonesty) and only by the
affirmative vote of at least a majority of the votes entitled to be cast in the
election of directors. The MGCL does not provide for the removal of directors by
a court upon petition of shareholders.
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CALIFORNIA
VACANCIES ON THE BOARD OF DIRECTORS
The California Bylaws provide that vacancies on the board of directors, except
for a vacancy created by the removal of a director, may be filled by a majority
of the remaining directors, though less than a quorum, or by a sole remaining
director. Each director so elected shall hold office until his successor is
elected at an annual or a special meeting of the shareholders. A vacancy
occurring on the board of directors of the Company created by the removal of a
director may only be filled by the vote of a majority of the shares entitled to
vote represented at a duly held meeting at which a quorum is present, or by the
unanimous written consent of the shareholders.
The California Bylaws also provide that the shareholders may elect a director or
directors at any time to fill any vacancy or vacancies not filled by the
directors. Any such election by written consent (other than to fill a vacancy
created by the removal of a director) shall require the consent of holders a
majority of the outstanding shares entitled to vote.
MARYLAND
VACANCIES ON THE BOARD OF DIRECTORS
As permitted by the MGCL, the Maryland Bylaws provide that (a) a vacancy on the
Mission West-Maryland board of directors may be filled, if caused by any reason
other than an increase in the number of directors, by a majority of the
remaining directors, even if such number is less than a quorum and (b) any
vacancy in the Mission West-Maryland board of directors caused by an increase in
the number of directors may be filled by a majority vote of the entire Mission
West-Maryland board of directors; provided that a vacancy created by the
departure of a Berg Group Representative must be filled by another Berg Group
Board Representative until the time that the right of the Berg Group to name
directors has been terminated. A director elected by the Mission West-Maryland
board of directors will hold office until the next annual meeting of
stockholders and until his or her successor is elected and qualifies.
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CALIFORNIA
COMMITTEES OF BOARD OF DIRECTORS
The California Bylaws provide that the board of directors may designate
committees consisting of two or more directors. Such committees may have all the
authority of the board of directors except with respect to: (a) the approval of
any action for which the CGCL also requires shareholders' approval or approval
of the issuance of outstanding shares, (b) the filling of vacancies on the board
of directors or on any committee, (c) the fixing of compensation of the
directors for serving on the board of directors or on any committee, (d) the
amendment or repeal of bylaws or the adoption of new bylaws, (e) the amendment
or repeal of any resolution of the board of directors which by its express terms
is not so amendable or repealable, (f) a distribution to the shareholders of the
corporation (as defined in Section 166 of the CGCL), except at a rate or in the
periodic amount or within a price range determined by the board of directors and
(g) the appointment of other committees of the board of directors or the members
thereof.
SPECIAL MEETINGS OF SHAREHOLDERS
The CGCL and the California Bylaws provide that a special meeting of
shareholders may be called by the board of directors, the chairman of the board,
the president, or by the holders of shares entitled to cast not less than 10% of
the votes at the meeting.
MARYLAND
COMMITTEES OF BOARD OF DIRECTORS
The Maryland Bylaws provide that the board of directors may appoint committees
composed of one or more directors and may delegate to such committees any of the
powers of the board of directors, except as prohibited by law. The MGCL provides
that the board of directors may delegate to committees any of the powers of the
board of directors, except the power to: (a) authorize dividends on stock, (b)
issue stock (subject to certain exceptions), (c) recommend to the stockholders
any action which requires stockholder approval, (d) amend the bylaws or (e)
approve any merger or share exchange which does not require stockholder
approval.
SPECIAL MEETINGS OF SHAREHOLDERS
As permitted by the MGCL, the Maryland Bylaws provide that, a special meeting of
stockholders may be called by the chief executive officer, the president or a
majority of the board of directors and must be called by the secretary of
Mission West-Maryland at the request in writing of shareholders entitled to cast
a majority of all the votes entitled to be cast at the meeting.
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CALIFORNIA
ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS
The California Bylaws provide that, subject to certain notice requirements, any
action which, under any provision of the CGCL, may be taken at a meeting of
shareholders, may be taken without a meeting if a consent in writing, setting
forth the action so taken, is signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
AMENDMENTS TO ARTICLES, CHARTER AND BYLAWS
Under the CGCL, the articles of incorporation may be amended only if such
amendment is approved by the board of directors and by the holders of a majority
of the outstanding shares of stock entitled to vote on the matter. Under the
CGCL, a corporation's bylaws may be adopted, amended or repealed by approval of
the shareholders or by the board of directors; however, the shareholders may
never be divested of the power to adopt, amend or repeal the bylaws. In
addition, the CGCL provides that a bylaw changing a fixed number of directors or
the maximum or minimum number of directors may only be adopted by the holders of
a majority of the shares entitled to vote. The California Bylaws provide that,
subject to any exception, new bylaws may be adopted or the California Bylaws may
be amended or repealed by the affirmative vote of a majority of the outstanding
shares entitled to vote, or by the written consent of shareholders entitled to
vote such shares, and the California Bylaws also provide that, subject to the
rights of shareholders set forth above and any other exceptions, bylaws other
than a bylaw or amendment thereof changing the authorized number of directors
may be adopted, amended or repealed by the California Board.
MARYLAND
ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS
The MGCL provides that any action that may be taken at a stockholder meeting may
be taken without a meeting only if (a) a unanimous written consent setting forth
the matter is signed by each stockholder entitled to vote on the matter and (b)
a written waiver of any right to dissent is signed by each stockholder entitled
to notice of the meeting but not entitled to vote at it.
AMENDMENTS TO ARTICLES, CHARTER AND BYLAWS
Under the MGCL, an amendment to the charter of a corporation must be approved by
the board of directors and the holders of two-thirds of the shares entitled to
vote on such matter unless such charter provides for a different vote not less
than a majority of such shares so entitled to vote. The Charter provides for
amendments by the affirmative vote of the holders of a majority of the shares
entitled to vote on the matter.
As permitted by the MGCL, the Maryland Bylaws provide that the Maryland board of
directors has the exclusive power to adopt, amend or repeal any provision of the
Maryland Bylaws and to make new bylaws. The Maryland Bylaws further provide that
any amendment must be approved by the Required Directors.
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CALIFORNIA
LIMIT ON SHARE OWNERSHIP
The California Articles contain no limitations or restrictions on ownership of
shares of the Company.
CERTAIN BUSINESS COMBINATIONS
The CGCL contains no business combination statute. However, the CGCL requires
delivery of a fairness opinion in connection with (i) a tender offer, including
a share exchange tender offer, (ii) a merger (other than a short-form merger
such as the Reincorporation Merger), (iii) the acquisition of control of the
outstanding shares or of all or substantially all of the assets of the
corporation in exchange for stock or other securities, or (iv) a sale of all or
substantially all of the corporation's assets is proposed by an interested party
(an "Interested Party") to the corporation or some or all of its shareholders.
The CGCL defines "Interested Party" to include a person who (a) directly or
indirectly controls the corporation that is the subject of the proposed
combination, (b) is directly or indirectly controlled by an officer or director
of the subject corporation or (c) is an entity in which a material financial
interest is held by any director or executive officer of the subject
corporation.
MARYLAND
LIMIT ON SHARE OWNERSHIP
As permitted by the MGCL, the Charter contains provisions limiting the ownership
and transfer of shares of stock of Mission West-Maryland which are intended to
ensure that Mission West-Maryland meets the requirements of the Code for
qualification as a REIT. See "DESCRIPTION OF MISSION WEST-MARYLAND
STOCK--Restrictions on Transfer", and "CERTAIN PROVISIONS OF MARYLAND LAW AND
MISSION WEST-MARYLAND'S CHARTER AND BYLAWS."
CERTAIN BUSINESS COMBINATIONS
The MGCL restricts certain business combinations (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and an "Interested Stockholder" or an affiliate thereof. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by the board of directors of the corporation prior to
the time that the "Interested Stockholder" becomes an "Interested Stockholder."
See "CERTAIN PROVISIONS OF MARYLAND LAW AND MISSION WEST-MARYLAND'S CHARTER AND
BYLAWS."
Pursuant to the authority granted under the MGCL, the board of directors will
adopt a resolution providing that the "business combination" provisions of the
MGCL shall not apply to Mission West-Maryland.
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CALIFORNIA
CONTROL SHARE ACQUISITIONS
The CGCL contains no provisions governing acquisitions of control shares.
MARYLAND
CONTROL SHARE ACQUISITIONS
The MGCL eliminates the voting rights of control shares in certain
circumstances. "Control Shares" are defined in the MGCL as voting shares of
stock which, if aggregated with all other such shares of stock previously
acquired by the acquiror or in respect of which the acquiror is able to exercise
or direct the exercise of voting power (except solely by virtue of a revocable
proxy), would entitle the acquiror to exercise voting power in electing
directors within one of the following ranges of voting power: (a) one-fifth or
more but less than one-third, (b) one-third or more but less than a majority, or
(c) a majority or more of all voting power. Control shares do not include shares
the acquiring person is then entitled to vote as a result of having previously
obtained stockholder approval. See "CERTAIN PROVISIONS OF MARYLAND LAW AND
MISSION WEST-MARYLAND'S CHARTER AND BYLAWS."
The MGCL permits a Maryland corporation to opt out of the control share
acquisition statute by provision in its charter or bylaws. Mission West-Maryland
has included such a provision in the Maryland Bylaws. However, the Mission
West-Maryland board of directors may, at any time, without stockholder approval,
vote to amend the Maryland Bylaws to eliminate this provision, which would
result in Mission West-Maryland being governed by the control share acquisition
statute.
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CALIFORNIA
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
Pursuant to the CGCL and the California Articles, the liability of directors of
the Company to the Company or to any shareholder of the Company for money
damages for breach of fiduciary duty has been eliminated, except for (a) acts or
omissions that involve intentional misconduct or a knowing and culpable
violation of the law, (b) acts or omissions that a director believes to be
contrary to the best interests of the Company or its shareholders or that
involve the absence of good faith on the part of the director, (c) any
transaction from which a director derived an improper personal benefit, (d) acts
or omissions that show a reckless disregard for the director's duty to the
Company or its shareholders in circumstances in which the director was aware, or
should have been aware, in the ordinary course of performing a director's
duties, of a risk of serious injury to the Company or its shareholders, (e) acts
or omissions that constitute an unexcused pattern of inattention that amounts to
an abdication of the director's duty to the Company or its shareholders, (f)
violations of the CGCL requirements governing Company contracts in which the
director has a material interest, or (g) corporate actions for which the
director and the Company are jointly and severally liable. In general, the
liability of officers may not be eliminated or limited under California law.
MARYLAND
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
Pursuant to the MGCL and the Charter, the liability of directors and officers to
Mission West-Maryland or to any stockholder of Mission West-Maryland for money
damages has been eliminated, except for (a) actual receipt of an improper
benefit or profit in money, property or services or (b) active and deliberate
dishonesty established by a final judgment as being material to the cause of
action. Thus, the directors and officers of Mission West-Maryland may not be
liable for certain actions for which they might have otherwise been liable under
California law.
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CALIFORNIA
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The CGCL contains provisions authorizing corporations to indemnify an officer or
director if the officer or director acted in good faith and in a manner he or
she reasonably believed to be in the best interest of the corporation. The CGCL
also permits the corporation to advance expenses to a director or officer, if
the corporation receives an undertaking, usually in the form of a bond, by or on
behalf of the director or officer to repay any amounts advanced if it is
determined ultimately that the director or officer is not entitled to be
indemnified under the CGCL. Under the CGCL, the termination of any proceeding by
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that such person failed to meet the standard of
conduct necessary to allow indemnification.
In addition, the CGCL permits indemnification for judgments of liability and
settlements in derivative actions except that (a) indemnification may only be
made with court approval when a person is adjudged liable to the corporation in
the performance of that person's duty to the corporation and its shareholders
and (b) indemnification of amounts paid to settle and/or expenses incurred to
defend a threatened or pending action shall not be made when such threatened or
pending action is settled or otherwise disposed of without court approval. No
indemnification is permitted under the CGCL for the actions for which liability
for money damages may not be limited.
The California Bylaws provide that the agents of the Company are indemnified and
held harmless from all liability arising from or related to a breach of duty to
the Company or its stockholders. The California Bylaws further provide that such
indemnification is not exclusive of any other rights the agents of the
corporation may have, including other rights pursuant to the laws of California.
MARYLAND
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The MGCL permits indemnification of officers and directors against
judgments, penalties, fines and amounts paid in settlement of a proceeding,
unless it is established that the act of the director or officer was material
and was committed in bad faith or was the result of active and deliberate
dishonesty, or the director or officer received an improper personal benefit in
money, property or services, or in a criminal proceeding had reasonable cause to
believe the act or omission was unlawful. Indemnification is prohibited if the
person seeking indemnification has been found liable to the corporation in a
proceeding brought by or in the right of the corporation, unless otherwise
ordered by a court and then only for expenses. In contrast to California law,
under Maryland law a termination of a proceeding by conviction or upon a plea of
nolo contendere or its equivalent creates a rebuttable presumption that such
person did not meet the requisite standard of conduct to allow indemnification.
The Maryland Bylaws require Mission West-Maryland to indemnify, and advance
expenses to, present and former directors and officers to the maximum extent
permitted by Maryland law. For a complete description of the indemnification of
directors and officers of Mission West-Maryland required by or permitted under
the MGCL, the Charter and the Maryland Bylaws, see "MANAGEMENT OF THE COMPANY --
Limitation of Liability and Indemnification."
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CALIFORNIA
INDEMNIFICATION OF DIRECTORS AND OFFICERS (Continued)
As used in the indemnification provisions of the California Bylaws, "agents" of
the Company include any person who is or was a director, officer, employee or
other agent of the Company, or is or was serving at the request of the Company
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 a predecessor corporation of the Company or of another enterprise at the
request of such predecessor corporation.
INSPECTION OF BOOKS AND RECORDS
Under the CGCL, upon written demand for any purpose reasonably related to the
shareholder's interest as a shareholder, any shareholder of the Company may
inspect and copy the record of shareholders and inspect any other corporate
books and records. A shareholder or shareholders (a) who hold at least 5% of the
outstanding voting shares of the corporation or (b) who hold at least 1% of
those voting shares and have filed a Schedule 14A with the Securities and
Exchange Commission shall have an absolute right to inspect and copy the record
of shareholders. These rights apply both to any California corporation and any
foreign corporation that keeps such records in California or has its principal
executive office in California. Thus, the inspection rights provided by the CGCL
will be applicable to Mission West-Maryland after the Reincorporation.
MARYLAND
INSPECTION OF BOOKS AND RECORDS
The MGCL provides a right to inspect and copy the corporation's books of account
and stock ledger to persons who have been stockholders for more than six months
and own at least 5% of any class of a Maryland corporation's outstanding shares.
In addition, any stockholder of a Maryland corporation has the right to inspect
the bylaws, minutes of stockholders meetings, annual statements of affairs and
voting trust agreements and to request that the corporation provide a sworn
statement showing all stock and securities issued and all consideration per
share received therefor by the corporation within the preceding 12 months.
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CALIFORNIA
INTERESTED DIRECTOR TRANSACTIONS
Under California law, certain contracts or transactions in which one or more of
a corporation's directors has an interest are not void or voidable solely
because of such interest if certain conditions are met. Under California law (a)
either the shareholders or the board of directors must approve any contract or
transaction after full disclosure of the material facts (and in the case of
board approval, the contract or transaction must also be "just and reasonable")
or (b) the contract or transaction must have been just and reasonable at the
time it was authorized or approved. California law has a more stringent
requirement than Maryland law in circumstances where board approval is sought
with respect to an interested director transaction. The contract or transaction
must be just and reasonable and must be approved by a majority vote of a quorum
of the directors, without counting the vote of any interested directors (except
that interested directors may be counted for purposes of establishing a quorum).
The CGCL also provides that any loan or guarantee to or for the benefit of a
director or officer of the corporation or its parent requires the approval of
the shareholders unless such loan or guaranty is pursuant to a plan that has
been approved by the holders of a majority of the outstanding shares. However,
under the CGCL, the bylaws of a corporation with more than 100 shareholders may
authorize the board of directors alone to approve loans or guaranties to
directors and officers. The California Bylaws do not currently contain such a
provision allowing the directors to approve such loans or guaranties.
MARYLAND
INTERESTED DIRECTOR TRANSACTIONS
Under the MGCL, certain contracts or transactions in which one or more of a
corporation's directors has an interest are not void or voidable solely because
of such interest if the contract or transaction (a) is approved by a majority of
the disinterested directors or by a majority of votes cast by the disinterested
stockholders, in either case after full disclosure of the material facts, or (b)
is fair and reasonable to the corporation.
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DESCRIPTION OF MISSION WEST-MARYLAND STOCK
THE FOLLOWING SUMMARY OF THE TERMS OF THE CAPITAL STOCK OF MISSION
WEST-MARYLAND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MGCL AND TO THE
CHARTER AND BYLAWS OF MISSION WEST-MARYLAND; COPIES OF THE CHARTER AND THE
BYLAWS ARE ATTACHED AS EXHIBITS TO THIS PROXY STATEMENT/PROSPECTUS.
GENERAL
The Charter provides that Mission West-Maryland may issue up to 200,000,000
shares of New Common Stock and 20,000,000 shares of New Preferred Stock. Upon
completion of the Reincorporation Merger 8,193,594 shares of New Common Stock
will be issued and outstanding and no shares of New Preferred Stock will be
designated into series or be issued and outstanding.
NEW COMMON STOCK
All shares of New Common Stock offered hereby will be duly authorized,
fully paid and nonassessable. Subject to the preferential rights of any other
class or series of stock and to the provisions of the Charter regarding the
restrictions on transfer of stock, holders of shares of New Common Stock are
entitled to receive dividends on such stock if, as and when authorized and
declared by the board of directors out of assets legally available therefor and
to share ratably in the assets of Mission West-Maryland legally available for
distribution to its stockholders in the event of its liquidation, dissolution or
winding up after payment of or adequate provision for all known debts and
liabilities of Mission West-Maryland.
Subject to the provisions of the Charter regarding the restrictions on
transfer of stock, each outstanding share of New Common Stock entitles the
holder to one vote on all matters submitted to a vote of stockholders, including
the election of directors and, except as provided with respect to any other
class or series of stock, the holders of such shares will possess the exclusive
voting power. There is no cumulative voting in the election of directors, which
means that the holders of a majority of the outstanding shares of New Common
Stock can elect all of the directors then standing for election and the holders
of the remaining shares will not be able to elect any directors.
Holders of shares of New Common Stock have no preference, conversion,
exchange, sinking fund, redemption or appraisal rights and have no preemptive
rights to subscribe for any securities of Mission West-Maryland. Subject to the
provisions of the Charter regarding the restrictions on transfer of stock,
shares of New Common Stock will have equal dividend, liquidation and other
rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
Charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's Charter. The Charter provides
that the affirmative vote of a majority of all votes entitled to be cast may
approve such matters.
The Charter provides that, to the extent permitted by Maryland law from
time to time, the board of directors of Mission West-Maryland, without any
action by the stockholders of Mission West-Maryland, may amend the Charter from
time to time to increase or decrease the aggregate number of shares of stock or
the number of shares of stock of any class or series that Mission West-Maryland
has authority to issue. Such action is not presently permitted under Maryland
law, but may be permitted in the future.
NEW CLASSES OR SERIES OF STOCK
The Charter authorizes the board of directors to classify or reclassify any
unissued shares of New Preferred Stock into other classes or series of classes
of stock and to establish the number of shares in each class or series and to
set the preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series without any action by the
stockholders of Mission West-Maryland.
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POWER TO ISSUE ADDITIONAL SHARES OF NEW COMMON STOCK AND NEW PREFERRED STOCK
Mission West-Maryland believes that the power of the Board of Directors to
issue additional authorized but unissued shares of New Common Stock and New
Preferred and to classify or reclassify unissued shares of New New Preferred
Stock and thereafter to cause Mission West-Maryland to issue such classified or
reclassified shares of stock will provide Mission West-Maryland with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other needs which might arise. The additional classes or series, as well
as the New Common Stock and New Preferred Stock, will be available for issuance
without further action by Mission West-Maryland's stockholders, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which Mission West-Maryland's securities may be
listed or traded. Although the Board of Directors has no intention at the
present time of doing so, it could authorize Mission West-Maryland to issue a
class or series that could, depending upon the terms of such class or series,
delay, defer or prevent a transaction or a change in control of Mission
West-Maryland that might involve a premium price for holders of New Common Stock
or otherwise be in their best interest.
RESTRICTIONS ON TRANSFER
REIT RESTRICTIONS. For Mission West-Maryland to qualify as a REIT under the
Code, its shares of stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year, and the REIT may not violate the
Five or Fewer Test during the last half of a taxable year.
Because the board of directors believes it is at present essential for
Mission West-Maryland to qualify as a REIT, the Charter, subject to certain
exceptions, contains certain restrictions on the number of shares of stock of
Mission West-Maryland that a person may own. The Charter prohibits any person
from acquiring or holding, directly or indirectly, shares of New Common Stock in
excess of 9% in value of the aggregate of the outstanding shares of stock of
Mission West-Maryland except for members of the Berg Group and their Affiliates
(other than the Company and the Operating Partnerships) who, by agreement, are
subject to the Berg Group Ownership Limit, which is 20%. The Charter prohibits
ownership of New Common Stock by any members of the Berg Group or any other
shareholders or their pledgees or assignees, which would cause Mission
West-Maryland to violate any of the REIT Requirements.
Mission West-Maryland's board of directors, in its sole discretion, may
exempt a person other than the Berg Group from the Ownership Limit (an "Excepted
Holder"), provided that no person may own shares of stock, directly or
indirectly, which represent 9% or more of the value of the outstanding shares of
stock of Mission West-Maryland if that would result in Mission West-Maryland
being "closely held" within the meaning of Section 856(h) of the Code or
otherwise would result in Mission West-Maryland failing to qualify as a REIT. In
order to be considered by the board of directors as an Excepted Holder, a person
also must not own, directly or indirectly, an interest in a tenant of Mission
West-Maryland (or a tenant of any entity owned or controlled by Mission
West-Maryland) that would cause Mission West-Maryland to own, directly or
indirectly, more than a 10% interest in such a tenant. The person seeking an
exemption must represent to the satisfaction of the board of directors that it
will not violate the two aforementioned restrictions. The person also must agree
that any violation or attempted violation of any of the foregoing restrictions
will result in the automatic transfer of the shares of stock causing such
violation to the Trust. The board of directors may require a ruling from the IRS
or an opinion of counsel, in either case in form and substance satisfactory to
the board of directors in its sole discretion, in order to determine or ensure
Mission West-Maryland's status as a REIT. The management of the Company intends
to request the board of directors of Mission West-Maryland to designate as an
Excepted Holder any purchasers of shares in the Private Placement whose share
ownership as of the effective date of the Reincorporation Merger exceeds the
Ownership Limit. The designation shall not apply, however, to subsequent
purchases of shares of stock of Mission West-Maryland by such Excepted Holder
except for shares acquired pursuant to a grant or award under the Stock Option
Plan or another written compensation plan approved by the board of directors.
The Charter further prohibits (a) any person from beneficially or
constructively owning shares of stock of Mission West-Maryland that would result
in Mission West-Maryland being "closely held" under Section 856(h) of the Code
or otherwise cause Mission West-Maryland to fail to qualify as a REIT and (b)
any person from transferring shares of stock of Mission West-Maryland if such
transfer would result in shares of stock of Mission West-Maryland being owned by
fewer than 100 persons. Any person who acquires or attempts or intends to
acquire beneficial or constructive ownership of shares of stock of Mission
West-Maryland that will or may violate
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any of the foregoing restrictions on transferability and ownership, or any
person who would have owned shares of the stock of Mission West-Maryland that
resulted in a transfer of shares to the Trust, is required to give notice
immediately to Mission West-Maryland and provide Mission West-Maryland with such
other information as Mission West-Maryland may request in order to determine the
effect of such transfer on Mission West-Maryland's status as a REIT. The
foregoing restrictions on transferability and ownership will not apply if the
board of directors, by affirmative vote of 75% of all directors, determines that
it is no longer in the best interests of Mission West-Maryland to attempt to
qualify, or to continue to qualify, as a REIT.
If any transfer of shares of stock of Mission West-Maryland occurs which,
if effective, would result in any person beneficially or constructively owning
shares of stock of Mission West-Maryland in excess or in violation of the above
transfer or ownership limitations, then that number of shares of stock of
Mission West-Maryland the beneficial or constructive ownership of which
otherwise would cause such person to violate such limitations (rounded to the
nearest whole share) shall be automatically transferred to a trust for the
exclusive benefit of one or more charitable beneficiaries, and the Prohibited
Owner shall not acquire any rights in such shares. Such automatic transfer shall
be deemed to be effective as of the close of business on the Business Day prior
to the date of such violative transfer. Shares of stock held in the Trust shall
be issued and outstanding shares of stock of Mission West-Maryland. The
Prohibited Owner shall not benefit economically from ownership of any shares of
stock held in the Trust, shall have no rights to dividends and shall not possess
any rights to vote or other rights attributable to the shares of stock held in
the Trust. The trustee of the Trust shall have all voting rights and rights to
dividends or other distributions with respect to shares of stock held in the
Trust, which rights shall be exercised for the exclusive benefit of the
Charitable Beneficiary. Any dividend or other distribution paid prior to the
discovery by Mission West-Maryland that shares of stock have been transferred to
the Trustee shall be paid by the recipient of such dividend or distribution to
the Trustee upon demand, and any dividend or other distribution authorized but
unpaid shall be paid when due to the Trustee. Any dividend or distribution so
paid to the Trustee shall be held in trust for the Charitable Beneficiary. The
Prohibited Owner shall have no voting rights with respect to shares of stock
held in the Trust and, subject to Maryland law, effective as of the date that
such shares of stock hve been transferred to the Trust, the Trustee shall have
the authority (at the Trustee's sole discretion) (i) to rescind as void any vote
cast by a Prohibited Owner prior to the discovery by Mission West-Maryland that
such shares have been transferred to the Trust and (ii) to recast such vote in
accordance with the desires of the Trustee acting for the benefit of the
Charitable Beneficiary. However, if Mission West-Maryland has already taken
irreversible corporate action, then the Trustee shall not have the authority to
rescind and recast such vote.
Within 20 days of receiving notice from Mission West-Maryland that shares
of stock of Mission West-Maryland have been transferred to the Trust, the
Trustee shall sell the shares of stock held in the Trust to a person, designated
by the Trustee, whose ownership of the shares will not violate the ownership
limitations set forth in the Charter. Upon such sale, the interest of the
Charitable Beneficiary in the shares sold shall terminate and the Trustee shall
distribute the net proceeds of the sale to the Prohibited Owner and to the
Charitable Beneficiary as follows. The Prohibited Owner shall receive the lesser
of (i) the price paid by the Prohibited Owner for the shares or, if the
Prohibited Owner did not give value for the shares in connection with the event
causing the shares to be held in the Trust (e.g., a gift, devise or other such
transaction), the Market Price of such shares on the day of the event causing
the shares to be held in the Trust and (ii) the price per share received by the
Trustee from the sale or other disposition of the shares held in the Trust. Any
net sale proceeds in excess of the amount payable to the Prohibited Owner shall
be paid immediately to the Charitable Beneficiary. If, prior to the discovery by
Mission West-Maryland that shares of stock have been transferred to the Trust,
such shares are sold by a Prohibited Owner, (i) such shares shall be deemed to
have been sold on behalf of the Trust and (ii) to the extent that the Prohibited
Owner received an amount for such shares that exceeds the amount that such
Prohibited Owner was entitled to receive pursuant to the aforementioned
requirement, such excess shall be paid to the Trustee upon demand.
In addition, shares of stock of Mission West-Maryland held in the Trust
shall be deemed to have been offered for sale to Mission West-Maryland, or its
designee, at a price per share equal to the lesser of (i) the price per share in
the transaction that resulted in such transfer to the Trust (or, in the case of
a devise or gift, the Market Price at the time of such devise or gift) and (ii)
the Market Price on the date Mission West-Maryland, or its designee, accepts
such offer. Mission West-Maryland shall have the right to accept such offer
until the Trustee has sold the shares of stock held in the Trust. Upon such a
sale to Mission West-Maryland, the interest of the Charitable Beneficiary in the
shares sold shall terminate and the Trustee shall distribute the net proceeds of
the sale to the Prohibited Owner.
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The foregoing restrictions do not apply to shares acquired in original
issuance by members of the Berg Group. All certificates representing shares of
New Common Stock other than such shares will bear a legend referring to the
restrictions described above.
Every owner of more than 5% (or such lower percentage as required by the
Code or the regulations promulgated thereunder) of all classes or series of
Mission West-Maryland's stock, including shares of New Common Stock, within 30
days after the end of each taxable year, is required to give written notice to
Mission West-Maryland stating the name and address of such owner, the number of
shares of each class and series of stock of Mission West-Maryland which the
owner beneficially owns and a description of the manner in which such shares are
held. Each such owner shall provide to Mission West-Maryland such additional
information as Mission West-Maryland may request in order to determine the
effect, if any, of such beneficial ownership on Mission West-Maryland's status
as a REIT and to ensure compliance with the Stock Ownership Limit. In addition,
each shareholder shall upon demand be required to provide to Mission
West-Maryland such information as Mission West-Maryland may request, in good
faith, in order to determine Mission West-Maryland's status as a REIT and to
comply with the requirements of any taxing authority or governmental authority
or to determine such compliance.
These ownership limits could delay, defer or prevent a transaction or a
change in control of Mission West-Maryland that might involve a premium price
for the New Common Stock or otherwise be in the best interest of the
stockholders.
SECURITIES RESTRICTIONS. Subject to the restrictions set forth above in
"--Restrictions on Transfer" and following the consummation of the transactions
contemplated herein, Mission West-Maryland will have outstanding 8,193,594
shares of New Common Stock; which will be freely transferable in the public
market without restriction or further registration under the Securities Act,
unless purchased by Affiliates of Mission West-Maryland, whose shares will be
subject to the resale limitations of Rule 144 and Rule 145(d).
In general, under Rule 144, an Affiliate of Mission West-Maryland is
subject to restrictions on the manner of resale of such Affiliate's shares.
Further, the number of shares sold by an Affiliate in any three-month period may
not exceed the greater of 1% of the shares of New Common Stock then outstanding
or the reported average weekly trading volume of the New Common Stock during the
four calendar weeks immediately preceding the date on which notice of the sale
is sent to the Commission. Any sale by an Affiliate of Mission West-Maryland
will also be subject to certain notice requirements and availability of current
public information concerning Mission West-Maryland.
REINVESTMENT AND SHARE PURCHASE PLAN
Mission West-Maryland may adopt a Distribution Reinvestment and Share
Purchase Plan that would allow stockholders to automatically reinvest cash
distributions on their outstanding shares of Common Stock and/or L.P. Units to
purchase additional shares of Common Stock at a discounted price and without the
payment of any brokerage commission or service charge. Stockholders and Limited
Partners would also have the option of investing limited additional amounts by
making cash payments. No decision has been made yet by the Company whether or
not to adopt such a plan, and there can be no assurance that such a plan will
ever be adopted by Mission West-Maryland.
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CERTAIN PROVISIONS OF MARYLAND LAW AND
OF MISSION WEST-MARYLAND'S CHARTER AND BYLAWS
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND MARYLAND BYLAWS DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO
AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MARYLAND LAW AND TO THE CHARTER
AND BYLAWS, COPIES OF WHICH ARE EXHIBITS TO THIS PROXY STATEMENT/PROSPECTUS. SEE
"ADDITIONAL INFORMATION."
THE BOARD OF DIRECTORS
The Charter provides that the number of directors of the Company shall be
five and that number may be increased or decreased pursuant to the bylaws. As
long as the Berg Group members and their Affiliates (other than the Company and
the Operating Partnerships) own at least 15% of the voting shares on a
Fully-Diluted basis, at least two directors must satisfy the qualification of
being nominated by the Berg Group members. At least one director must satisfy
such qualification if Berg Group's aggregate percentage ownership of voting
shares on a Fully-Diluted basis is at least 10%, although less than 15%. The
Maryland Bylaws provide that the board of directors may establish, increase or
decrease the number of directors, provided that the number of directors shall
never be less than the minimum number required by Maryland law, nor more than
15. In general, any vacancy will be filled, at any regular meeting or at any
special meeting called for that purpose, by a majority of the remaining
directors, except that a vacancy resulting from an increase in the number of
directors must be filled by a majority of the entire board of directors. A
vacancy created by the departure of a Berg Group Board Representative, however,
must be filled by another Berg Group Board Representative until the date that
the right of the Berg Group to name the Berg Group Board Representatives has
expired.
REMOVAL OF DIRECTORS
The Charter provides that a director may be removed only for cause (as
defined in the Charter) and only by the affirmative vote of at least a majority
of the votes entitled to be cast in the election of directors. This provision,
when coupled with the provision in the Maryland Bylaws authorizing the board of
directors to fill vacant directorships, precludes stockholders from removing
incumbent directors without cause and filling the vacancies created by such
removal with their own nominees.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an Affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock of
the corporation (an "Interested Stockholder") or an Affiliate of such an
Interested Stockholder are prohibited for five years after the most recent date
on which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, any such business combination must be recommended by the board of
directors of such corporation and approved by the affirmative vote of at least
(a) 80% of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation and (b) two-thirds of the votes entitled to be
cast by holders of voting stock of the corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the corporation's
common stockholders receive a minimum price (as defined in the MGCL) for their
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. These provisions
of the MGCL do not apply, however, to business combinations that are approved or
exempted by the board of directors of the corporation prior to the time that the
Interested Stockholder becomes an Interested Stockholder. After the
Reincorporation Merger the Berg Group will beneficially own more than 10% of the
Company's voting shares, as will one of the purchasers in the Private Placement.
They would, therefore, be subject to the business combination provision of the
MGCL. However, pursuant to the statute, the Company has exempted any usiness
combinations involving the Berg Group and any purchaser in the Private
Placement. Consequently, the five-year prohibition and the super-majority vote
requirements will not apply to business combinations between any of them and the
Company. As a result, the Berg Group and such purchaser may be able to enter
into business combinations with the Company that may not be in the best interest
of its stockholders without compliance by the Company with the super-majority
vote requirements and the other provisions of the statute.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be
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cast on the matter, excluding shares of stock owned by the acquiror, by officers
or by directors who are employees of the corporation. "Control Shares" are
voting shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror or in respect of which the acquiror is able
to exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than
a majority, or (iii) a majority or more of all voting power. Control shares do
not include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation.
The Maryland Bylaws contain a provision exempting from the control share
acquisition statute any and all acquisitions by any person of the Company's
shares of stock. There can be no assurance that such provision will not be
amended or eliminated at any time in the future.
BOARD QUORUM AND SPECIAL VOTING REQUIREMENTS
Generally, a majority of the total number of directors constitutes a quorum
for the transaction of business under the MGCL. However, the Maryland Bylaws
provide that a quorum for any meeting of the board of directors must include the
Required Directors.
The Maryland Bylaws include special voting requirements for the board of
directors, such that until the Protective Provisions Expiration Date, the
Company will not take or permit to be taken any of the following actions without
the approval of the Required Directors: (i) establishing a quorum for a meeting
which is not attended by Mr. Berg or his designee; (ii) amending the Charter or
the bylaws; (iii) merging with or into another entity; and (iv) any sale of all
or substantially all of the Company's assets. The Maryland Bylaws also provide
that the approval of more than 75% of the entire board of directors will be
required for (i) the Company's taking title to assets or conducting business
other than through the Operating Partnerships, (ii) the termination of the
Company's status as a REIT, and (iii) incurring indebtedness in excess of 50% of
the Company's Total Market Capitalization.
AMENDMENT TO THE CHARTER
The Charter, including its provisions regarding removal of directors, may
be amended only by the affirmative vote of the holders of a majority of all of
the votes entitled to be cast on the matter. In addition, the bylaws require the
approval by the Berg Group of all amendments to the Charter.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be advised by a majority of the entire
board of directors and approved by the stockholders by the affirmative vote of
the holders of a majority of all of the votes entitled to be cast on the matter.
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ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The bylaws provide that (a) with respect to an annual meeting of
stockholders, nominations of persons for election to the board of directors and
the proposal of business to be considered by stockholders may be made only (i)
pursuant to Mission West-Maryland's notice of the meeting, (ii) by or at the
direction of the board of directors or (iii) by a stockholder who is entitled to
vote at the meeting and has complied with the advance notice procedures set
forth in the bylaws and (b) with respect to special meetings of stockholders,
only the business specified in Mission West-Maryland's notice of meeting may be
brought before the meeting of stockholders and nominations of persons for
election to the board of directors may be made only (i) pursuant to Mission
West-Maryland's notice of the meeting, (ii) by or at the direction of the board
of directors or (iii) provided that the board of directors has determined that
directors shall be elected at such meeting, by a stockholder who is entitled to
vote at the meeting and has complied with the advance notice provisions set
forth in the bylaws.
CONFLICT OF INTEREST
The Charter provides that no director will be prohibited from voting or
taking any action as a director because of any actual or apparent conflict of
interest between the director and the Company and that no action taken by the
board of directors will be void or voidable because a majority of directors are
affiliated with the Berg Group or that an action is beneficial to the Berg
Group, to the extent permitted by law.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER
AND BYLAWS
The control share acquisition provisions of the MGCL, and the provisions of
the Charter on removal of directors and the advance notice provisions of the
bylaws could delay, defer or prevent a transaction or a change in control of
Mission West-Maryland that might involve a premium price for holders of New
Common Stock or otherwise be in their best interest.
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ACCOUNTING TREATMENT OF THE BERG ACQUISITION AND THE REINCORPORATION MERGER
The UPREIT Transactions will be accounted for as a recapitalization of the
Berg Properties in a manner similar to reverse acquisition accounting recording
the historical carrying value of assets with the exception of the Acquired
Properties. The Acquired Properties will be accounted for as a purchase for the
Fremont Properties and as a step-acquisition for the Kontrabecki Properties.
Pursuant to the step-acquisition for the Kontrabecki Properties, The Berg
Group's ownership interest will be recorded at their historical carrying value.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
concerning Mission West-Maryland (referred to also as the "Company" in this
discussion) after the Reincorporation Merger and the election to become a REIT
is based on current law, is for general information only and is not tax advice.
This discussion is for general purposes only and does not purport to deal with
all aspects of taxation that may be relevant to particular shareholders in light
of their personal investment or tax circumstances, or to certain types of
shareholders (including insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, foreign corporations, persons who are not
citizens or residents of the United States, and persons who hold stock as part
of a conversion transaction, as part of a hedging transaction or as a position
in a straddle for tax purposes) subject to special treatment under the federal
income tax laws.
This summary does not provide a detailed discussion of any state, local, or
foreign tax considerations. This summary is qualified in its entirety by the
applicable provisions of the Code, rules and regulations promulgated thereunder,
and administrative and judicial interpretations thereof, all as of the date
hereof and all of which are subject to change (which change may apply
retroactively). The Taxpayer Relief Act of 1997 (the "1997 Act") was enacted on
August 5, 1997. The 1997 Act contains many provisions which generally make it
easier to operate and to continue to qualify as a REIT for taxable years
beginning after the date of enactment (which, for the Company, would be
applicable commencing with its taxable year beginning January 1, 1998). The IRS
Restructuring and Reform Bill of 1998, which has been passed by Congress and is
awaiting signature by the President, changes certain aspects of the federal
income tax law applicable to REITs (the "1998 Act"), and their shareholders.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE COMPANY'S ELECTION TO BE
TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. The Company plans to elect to be taxed as a REIT under Sections
856 through 860 of the Code and the applicable Treasury Regulations (the "REIT
Provisions") commencing with its taxable year ending December 31, 1998. The
Company believes that it is organized and will be operated in such a manner as
to qualify for taxation as a REIT under the REIT Provisions and the Company
intends to continue to operate in such a manner. No assurance can be given,
however, that the Company will operate in a manner so as to qualify or remain
qualified as a REIT.
The REIT Provisions are highly technical and complex. The material aspects
of the REIT Provisions are summarized below.
In the opinion of Graham & James LLP, commencing with the Company's taxable
year ending on December 31, 1998, the Company will be organized in conformity
with the requirements for qualification and taxation as a REIT, and its method
of operation will enable it to meet the requirements for continued qualification
and taxation as a REIT. This opinion is based on various assumptions relating to
the organization and operation of the Company and the Operating Partnerships,
however, and is conditioned upon certain representations made by the Company
about factual matters relating to the organization and expected operation of the
Company and the Operating Partnerships. In addition, this opinion is based upon
the factual representations of the Company concerning its business and
properties as set forth in this Proxy Statement/Prospectus and assumes that the
actions described in this Proxy Statement/Prospectus are completed as described.
Moreover, qualification and taxation as a REIT depends upon the Company's
ability to meet, through actual annual operating results, the various income,
asset, distribution, stock ownership, and other qualification tests imposed by
the REIT Provisions
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discussed below, the results of which will not be reviewed by nor be under the
control of Graham & James LLP. Accordingly, no assurance can be given that the
actual results of the Company's operation for any particular taxable year will
satisfy such requirements. See "Loss of REIT Qualification".
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate incom e taxes on the portion of its net income that
is currently distributed to its shareholders. This treatment substantially
eliminates the "double taxation" (at the corporate and shareholder levels) that
generally results from investment in a corporation. The Company may be subject
to federal income and excise tax, however, as follows:
(i) The Company will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains.
(ii) Under certain circumstances, the Company may be subject to the
"corporate alternative minimum tax" on its items of tax preference.
(iii) If the Company has (A) net income from the sale or other disposition
of "foreclosure property" which is held primarily for sale to customers in
the ordinary course of business or (B) other nonqualifying net income from
foreclosure property, it will be subject to tax on such income at the
highest corporate rate.
(iv) If the Company has net income from "prohibited transactions" (which
are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business, other
than foreclosure property), such income will be subject to a 100% tax.
(v) If the Company fails to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), but preserves its qualification as
a REIT because certain other requirements have been met, it will be subject
to a 100% tax on the net income attributable to the greater of the amount
by which the Company fails the 75% or 95% test, multiplied by a fraction
intended to reflect the Company's profitability.
(vi) If the Company should fail to distribute during each calendar year at
least the sum of (A) 85% of its REIT ordinary income for such year, (B) 95%
of its REIT capital gain net income for such year, and (C) any
undistributed taxable income from prior periods, the Company would be
subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. The 1998 Act provides that all
distributions by the REIT shall be deemed to come first from earnings from
non-REIT years.
(vii) If during the ten-year period (the "Recognition Period") beginning on
the first day of the first taxable year for which the Company qualifies as
a REIT, the Company recognizes gain in the disposition of any asset held by
the Company as of the beginning of such Recognition Period, then, to the
extent of the excess of (a) the fair market value of such asset as of the
beginning of such Recognition Period over (b) the Company's adjusted basis
in such asset as of the beginning of such Recognition Period (the "Built-in
Gain"), such gain will be subject to tax at the highest regular corporate
rate. The Company will not acquire any assets until the closing of the Berg
Acquisition, and they will hold no such assets at the beginning of the
Recognition Period.
(viii) If the Company subsequently acquires any asset from a C corporation
(i.e., generally a corporation subject to full corporate-level tax) in a
transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other property)
in the hands of the C corporation, and the Company recognizes gain on the
disposition of such asset during the Recognition Period beginning on the
date on which such asset was acquired by the Company, then, to the extent
of the Built-in Gain, such gain will be subject to tax at the highest
regular corporate rate. The result described above with respect to the
recognition of Built-in Gain during the Recognition Period assumes the
Company will make an election in accordance with Notice 88-19 issued by the
Internal Revenue Service (the "IRS"). See "--Tax Aspects of the Operating
Partnerships--Partnership Allocations" and " Tax Allocations with Respect
to Contributed Properties" below.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association: (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Code sections 856 though 859; (4) which is
neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons (determined without reference to any rules of attribution); (6)
during the last half of each taxable year not
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more than 50% in value of the outstanding stock of which is owned, directly or
constructively, by "five or fewer" individuals (as defined in the Code to
include certain entities) (the "Five or Fewer Test"); (7) that makes an election
to be a REIT (or has made such election for a previous taxable year which has
not been revoked or terminated) and satisfies all relevant filing and other
administrative requirements established by the IRS that must be met in order to
elect and maintain REIT status; (8) that uses a calendar year for federal income
tax purposes and complies with the recordkeeping requirements of the Code and
Treasury Regulations promulgated thereunder; and (9) which meets certain income
and asset tests, described below. The Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year, that condition (5) must
be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months and that condition
(6) must be met for the last six months of each taxable year. As of the date of
this Proxy Statement/Prospectus the Company believes that it will satisfy
conditions (5) and (6). The Charter contains restrictions regarding transfers of
shares, which are intended to assist the Company in continuing to satisfy the
share ownership requirements described in (5) and (6). In particular,although
the Berg Group may own as much as 20% of the outstanding stock under the Berg
Group Ownership Limit, which likely represents ownership by two individuals,
Carl E. Berg and Clyde J. Berg, for Five or Fewer Test purposes, the members of
the Berg Group may not acquire any additional shares if it would result in the
Company's failure to satisfy the Test. Such transfer restrictions are described
in "DESCRIPTION OF MISSION WEST-MARYLAND STOCK--Restrictions on Transfer."
In its proposed budget for the 1999 fiscal year, the Clinton Administration
has proposed to impose an ownership requirement for REIT qualification in
addition to the Five or Fewer Test. The proposal would create a limit of 50% of
the combined voting power of all classes of voting stock or the total value of
all classes of stock any one person or entity could own. Unlike the current Five
or Fewer Test, which permits a "look through" for certain entities to determine
the number of owners, the Clinton proposal would apply to any person (including
a partnership, corporation or trust). In addition, the proposal calls for
attribution of ownership between a partnership and its partners and a
corporation and its shareholders (with a 10% threshold for attribution). This
proposal has not been included in the 1998 Act.
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, if the Company complies with regulatory rules pursuant to
which it is required to send annual letters to certain of its shareholders
requesting information regarding the actual ownership of its stock, but does not
know, or exercising reasonable diligence would not have known, whether it failed
to meet the requirement that it not be closely held, the Company will be treated
as having met the Five or Fewer Test. If the Company were to fail to comply with
these regulatory rules for any year, it would be subject to a $25,000 penalty.
If the Company's failure to comply was due to intentional disregard of the
requirements, the penalty would be increased to $50,000. However, if the
Company's failure to comply was due to reasonable cause and not willful neglect,
no penalty would be imposed.
Section 856(i) of the Code provides that a corporation that is a "qualified
REIT subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities and items of income, deduction and credit of a "qualified REIT
subsidiary" shall be treated as assets, liabilities and items of income,
deduction and credit of the REIT. Pursuant to the 1997 Act, for the Company's
taxable years beginning on or after January 1, 1998, a "qualified REIT
subsidiary" is a corporation all of the capital stock of which is owned by the
REIT. Pursuant to this amendment, the Company will have the ability, if it so
chooses, to acquire an existing corporation that will qualify as a "qualified
REIT subsidiary", as opposed to having to form such a subsidiary. The Company
may form or acquire "qualified REIT subsidiaries" in the future. In applying the
income and asset tests described below, a "qualified REIT subsidiary" will be
ignored and all assets, liabilities and items of income, deduction and credit of
such "qualified REIT subsidiary" will be treated as assets, liabilities and
items of income, deduction and credit of the Company. A "qualified REIT
subsidiary" of the Company will not be subject to federal corporate income
taxation, although it may be subject to state and local taxation in certain
states.
In the case of a REIT such as the Company which is a partner in a
partnership, Treasury Regulations provide that the REIT will be deemed to own
its proportionate share of the assets of the partnership and will be deemed to
be entitled to the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership retain
the same character in the hands of the REIT for purposes of Section 856 of the
Code, including satisfying the gross income tests and the asset tests. Thus, the
Company's proportionate share of the assets, liabilities and items of income of
the Operating Partnerships will be treated as assets, liabilities and items of
income of the Company for purposes of applying the requirements described below.
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GROSS INCOME TESTS. In order to maintain qualification as a REIT, the
Company annually must satisfy two gross income requirements, as follows:
(i) At least 75% of the Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on real
property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments.
(ii) At least 95% of the Company's gross income (excluding gross income
from prohibited transactions) for each taxable year must be derived from
such real property investments and from dividends, interest and gain from
the sale or disposition of stock or securities (or from any combination of
the foregoing).
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met, including the following:
(i) The amount of rent must not be based in whole or in part on the income
or profits of any person from the property. However, an amount received or
accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales.
(ii) Rents received from a tenant will not qualify as "rents from real
property" in satisfying the gross income tests if the Company, or an owner
of 10% or more of the Company, directly or constructively owns 10% or more
of such tenant (a "Related Party Tenant"). Constructive ownership is
determined under the attribution rules of Section 318 of the Code, as
modified by Section 856(d)(5) of the Code.
(iii) If rent attributable to personal property, leased in connection with
a lease of real property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property."
(iv) Rents received will not qualify as "rents from real property", unless
the Company generally does not operate or manage the property or furnish or
render services to the tenants of such property, other than through an
independent contractor from whom the REIT derives no revenue. The Company
may, however, directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for occupancy
only and are not otherwise considered "rendered to the occupant" of the
property. In addition, for its 1998 taxable year and thereafter, the
Company is permitted to receive up to 1% of its gross income from the
provision of non-customary services and still treat all other amounts
received from such property as "rents from real property."
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. An amount received or
accrued generally will not be excluded from the term "interest," however, solely
by reason of being based on a fixed percentage or percentages of receipts or
sales.
The Company intends for all of its income to be derived from its interest
in the Operating Partnerships, and expects that the Operating Partnerships'
ownership of the Properties will give rise to income which will enable the
Company to satisfy all of the income tests described above. All of the "rents
from real property" that the Company expects to receive or expects the
Partnership to receive will satisfy the foregoing conditions. Certain Properties
or portions thereof have been leased to corporations in which members of the
Berg Group own in excess of 10% of the total number of outstanding shares.
Initially, the Berg Group will own less than 2% of the Common Stock, and the
Company is not aware of any other shareholders owning interests in such tenants
which would result in such entities being deemed Related Party Tenants. However,
the future acquisition of 10% or more of the Company's Common Stock by the Berg
Group, upon exercise of their Exchange Rights or otherwise, could cause such
entities to be treated as Related Party Tenants. The members of the Berg Group
have agreed not to acquire shares of the Company's Common Stock if, in the sole
judgment of the Independent Directors Committee, their ownership of Common Stock
would result in the loss of the Company's status as a REIT.
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RELIEF PROVISIONS. Should the Company fail to satisfy one or both of the
75% or 95% gross income tests for any taxable year, it may nevertheless qualify
as a REIT for such year by obtaining relief under certain provisions of Section
856 of the Code. Such provisions would allow the Company to preserve its REIT
qualifications if (i) the failure to meet such tests was due to reasonable cause
and not due to willful neglect, (ii) the Company attaches a schedule of the
sources of its income to its tax return, and (iii) any incorrect information on
the schedule was not due to fraud with intent to evade tax. There can be no
assurance, however, that the Company would be entitled to the benefit of these
relief provisions in all circumstances. As discussed above in "Taxation of the
Company--General", even if these relief provisions apply, a tax would be imposed
with respect to the excess net income.
ASSET TESTS. To maintain its status as a REIT the Company, at the close of
each quarter of its taxable year, also must satisfy the following three
asset-related tests:
(i) At least 75% of the value of the Company's total assets must be
represented by interests in real estate assets, shares in cash, cash items
and government securities (as well as certain temporary investments in
stock or debt instruments purchased with the proceeds of new capital issued
by the Company).
(ii) No more than 25% of the Company's total assets may be represented by
securities other than those in the class described in (i), above.
(iii) With respect to the investments described in (ii) above, the value of
any one issuer's securities owned by the Company may not exceed 5% of the
value of the Company's total assets, and the Company may not own more than
10% of any one issuer's outstanding voting securities. The Clinton
Administration's 1999 budget proposal would prohibit a REIT from holding
more than 10% of the outstanding stock of any one issuer, determined by
either vote or value. This proposal is not part of the 1998 Act.
In applying these asset-related tests the Company will be deemed to own its
proportionate share of all of the assets of the Operating Partnerships. Upon the
consummation of the Berg Acquisition, more than 75% of the value of the
Operating Partnerships' assets will qualify as "real estate assets."
Having met the asset tests at the close of any quarter, the Company will
not forfeit its REIT status by failing to satisfy these tests at the end of a
later quarter solely due to fluctuations in asset values. Furthermore, should
the Company fail to satisfy the asset tests because of its acquisition of
securities or other property during a quarter, the Company can be cured of such
failure by disposing of a sufficient amount of nonqualifying assets within 30
days after the close of that quarter. The Company intends to maintain adequate
records of the value of its assets to ensure compliance with the asset-related
tests, and to take such other action within 30-days after the close of any
quarter as may be required to cure any noncompliance.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, the
Company must distribute dividends (other than capital gains dividends) to its
shareholders in an amount at least equal to: (A) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to deduction for the
dividends paid and by excluding any net capital gain), and (ii) 95% of the
excess of the net income, if any, from foreclosure property (in excess of the
special tax imposed on income from foreclosure property); minus (B) the sum of
certain items of "noncash income". Such dividends must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
the Company timely files its tax return for such year, and if paid on or before
the first regular dividend payment after such declaration. To the extent that
the Company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its REIT taxable income, as adjusted, it will
be subject to tax on the undistributed amount of its REIT taxable income at
regular ordinary and capital gains corporate tax rates. For the Company's
taxable year beginning on January 1, 1998 and for all taxable years thereafter,
undistributed capital gains may be so designated by the Company and in such
event will be includible in the income of the holders of shares of Common Stock.
If the Company makes that election, shareholders will be treated as having paid
the capital gains tax imposed on the Company on the designated amounts including
in their income as long-term capital gains. Such shareholders would get an
increase in the basis for income recognized and a decrease in their basis for
taxes paid by the Company. Additionally, if the Company fails to distribute at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain income for such year, and (iii) any undistributed taxable
income from prior periods, during each calendar year the Company would be
subject to a 4% excise tax on the excess of such requied distribution over the
amounts actually distributed.
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The Company's REIT taxable income will consist almost entirely of the
Company's distributive share of the income of the Operating Partnerships. The
Company expects generally to have adequate cash and cash equivalents to allow
liquid assets to satisfy such distribution requirements. The Company intends to
make timely distributions sufficient to satisfy the REIT annual distribution
requirements.
Nevertheless, on occasion the Company may lack sufficient cash or cash
equivalents to make timely dividend distributions in the required amounts either
because its share of the Operating Partnerships' cash flow for a particular year
is inadequate or because of timing differences between the Company's receipt of
income and payment of deductible expenses, and the inclusion of such income and
the deduction of such expenses in determining the Company's REIT taxable income.
Upon the occurrence of these events, in order to meet the 95% distribution
requirements, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable stock
dividends.
Certain provisions of the Code may permit the Company to remedy its failure
to meet the distribution requirements for a taxable year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. The Company then
could avoid being subjected to tax on the amounts so distributed, although the
Company would be required to pay interest on the amount of the deduction taken
for the deficiency dividends.
LOSS OF REIT QUALIFICATION. If the Company fails to qualify for taxation as
a REIT in any taxable year, and the relief provisions do not apply, the Company
will be subject to tax (including any applicable corporate alternative minimum
tax) on its taxable income at regular corporate rates. Distributions to
shareholders in any year in which the Company fails to qualify will not be
deductible by the Company and need not be made. Upon such failure to qualify,
all distributions to shareholders will, to the extent of the Company's current
and accumulated earnings and profits, be taxable as ordinary income. In
addition, subject to certain limitations of the Code, such distributions to
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief.
TAXATION OF UNITED STATES SHAREHOLDERS
GENERALLY. As used herein, the term "United States Shareholder" means a
holder of shares who is an individual who is a citizen or resident of the United
States; a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any state; an estate the income of which
from sources without the United States is includible in gross income for United
States federal income tax purposes regardless of whether such income is
effectively connected with the conduct of a trade or business in the United
States; a trust the primary supervision over the administration of which is
exercisable by a court within the United States and having one or more United
States fiduciaries with authority to control all substantial decisions of such
trust; and any other person whose income or gain in respect of the stock is
effectively connected with the conduct of a United States trade or business.
As long as the Company qualifies as a REIT, distributions made to the
Company's United States Shareholders out of current or accumulated earnings and
profits (and not designated as capital gains dividends) will be treated by them
as ordinary income and will not be eligible for the dividends received deduction
for corporations. Distributions designated as capital gains dividends will be
taxed as long-term capital gains (to the extent they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period for
which the United States Shareholder has held its stock. Pursuant to Section
291(d) of the Code corporate shareholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income.
On November 10, 1997, the IRS issued Notice 97-64, which provides generally
that a REIT may classify portions of its designated capital gain dividend as (i)
a 20% rate gain distribution (which would be taxed as long-term capital gain in
the 20% group), (ii) an unrecaptured Section 1250 gain distribution (which would
be taxed as long-term capital gain in the 25% group), or (iii) a 28% rate gain
distribution (which would be taxed as long-term capital gain in the 28% group).
(If no designation is made, the entire designated capital gain divided will be
treated as a 28% rate gain distribution. For a discussion of the 20%, 25% and
28% tax rates applicable to individuals, see "1997 Act Changes to Capital Gain
Taxation" below). IRS Notice 97-64 also provides that a REIT must determine the
maximum amounts that it may designate as 20% and 25% rate capital gain dividends
by performing the
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computation required by the Code as if the REIT were an individual whose
ordinary income were subject to a marginal tax rate of at least 28%. The Notice
further provides that designations made by the REIT will be effective only to
the extent that they comply with Revenue Ruling 89-91, which requires that
distributions made to different classes of shares be composed proportionately of
dividends of a particular type.
Distributions that exceed current and accumulated earnings and profits will
not be taxable to a United States Shareholder to the extent that they do not
exceed the adjusted basis of the shareholder's shares, but rather will reduce
the shareholder's adjusted basis in the shares. To the extent that such
distributions exceed a shareholder's adjusted basis in its shares they will be
included in income as gain realized from the sale of the shares, assuming the
shares are a capital asset in the hands of the shareholder. In addition, any
dividend declared by the Company in October, November or December of any year
payable to a United States Shareholder of record on a specified date in any such
month shall be treated as both paid by the Company and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid by the Company during January of the following calendar year. United States
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed under
"Taxation of the Company--General" and "Annual Distribution Requirements" above.
As a result, shareholders may be required to treat as taxable dividends certain
distributions which would otherwise result in a tax-free return of capital.
Furthermore, any "deficiency dividend" will be treated as a "dividend" (an
ordinary dividend or a capital gain dividend, as the case may be), regardless of
the Company's earnings and profits.
United States Shareholders may not include in their individual income tax
returns any net operating losses or capital losses of the Company. Instead, such
losses would be carried over by the Company for potential offset against future
income (subject to certain limitations). Distributions made by the Company and
gain arising from the sale or exchange by a United States Shareholder of shares
will not be treated as passive activity income, and, as a result, United States
Shareholders generally will not be able to apply any "passive losses" against
such income or gain. In addition, taxable distributions from the Company
generally will be treated as investment income for purposes of the investment
interest limitations. Capital gain dividends and capital gains from the
disposition of shares (including distributions treated as such), however, will
be treated as investment income only if the United States Shareholder so elects,
in which case such capital gains will be taxed at ordinary income rates. The
Company will notify United States Shareholders after the close of the Company's
taxable year as to the portions of distributions attributable to that year that
constitute ordinary income, return of capital and capital gain.
In general, any loss realized upon a sale or exchange of shares by a United
States Shareholder who has held such shares for six months or less will be
treated as a long-term or mid-term capital loss to the extent of capital gains
dividends received by such shareholder from the Company with respect to such
shares which were classified as long-term or mid-term capital gains.
RECENT CHANGES TO CAPITAL GAIN TAXATION. The 1997 Act altered the taxation
of capital gain income. Under the 1997 Act, individuals, trusts and estates that
hold certain investments for more than eighteen months may be taxed at a maximum
long-term capital gain rate of 20% on the sale or exchange of those investments.
Individuals, trusts and estates that hold certain assets for more than one year
but not more than eighteen months may be taxed at a maximum mid-term capital
gain rate of 28% on the sale or exchange of those investments. The 1997 Act also
established a maximum rate of 25% for "unrecaptured Section 1250 gain" for
individuals, trusts and estates, special rules for "qualified five-year gain",
and other changes to prior law. The 1997 Act allowed the IRS to prescribe
regulations on how the 1997 Act's new capital gain rates will apply to sales of
capital assets by "pass-through entities", which include REITs, and to sales of
interests in "pass-through entities". Under the 1998 Act, the long-term capital
gain rates apply to capital assets held more than one year, and the mid-term
holding period has been eliminated for sales or exchanges after December 31,
1997. Shareholders are urged to consult with their own tax advisors with respect
to the new rules contained in the 1997 Act and the 1998 Act.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Distributions from the Company to certain tax-exempt employees' pension
trusts or other domestic tax-exempt Shareholders will not constitute "unrelated
business taxable income" unless such a shareholder has borrowed to acquire or
carry its stock of the Company or the shares are used by such shareholder in an
unrelated trade or business. For taxable years beginning after December 31,
1993, qualified trusts that hold more than 10%
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of the shares of the Common Stock may under certain circumstances be required to
treat a certain percentage of dividends as unrelated business taxable income if
the Company is "predominantly held" by qualified trusts. For these purposes, a
qualified trust is any trust defined under Section 401(a) of the Code and exempt
from tax under Section 501(a) of the Code. The Company would be "predominantly
held" if one or more qualified trusts, each owning more than 10% of the shares
of Common Stock were to hold more than 50% of the shares of Common Stock in the
aggregate. In such a circumstance, any qualified trust that owned more than 10%
of the shares of Common Stock might be required to treat a certain portion of
the dividends paid as unrelated business taxable income.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Foreign Shareholders") are complex, and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
FOREIGN SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE
IMPACT OF FEDERAL, STATE AND LOCAL INCOME TAX LAWS WITH REGARD TO AN INVESTMENT
IN THE COMPANY, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions by the Company that are not attributable to gain from sales
or exchanges by the Company of United States real property interests and not
designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions ordinarily
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution, unless an applicable tax treaty reduces or eliminates that tax. If
income from the investment in the shares is treated as effectively connected
with the conduct by the Foreign Shareholder of a United States trade or
business, however, the Foreign Shareholder generally will be subject to a tax at
graduated rates in the same manner as United States Shareholders are taxed with
respect to such dividends (and the income may also be subject to the 30% branch
profits tax in the case of a Foreign Shareholder that is a foreign corporation).
The Company will withhold United States income tax at the rate of 30% on the
gross amount of any such dividends made to a Foreign Shareholder unless (i) a
lower treaty rate applies, or (ii) the Foreign Shareholder files an IRS Form
4224 with the Company certifying that the investment to which the distribution
relates is effectively connected with a United States trade or business of such
Foreign Shareholder. Lower treaty rates applicable to dividend income may not
necessarily apply to dividends from a REIT such as the Company, however.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Foreign Shareholder to the extent that they
do not exceed the adjusted basis of the Foreign Shareholder's shares, but rather
will reduce the adjusted basis of a Foreign Shareholder's shares. To the extent
that such distributions exceed the adjusted basis of a Foreign Shareholder's
shares, they will give rise to gain from the sale or exchange of its stock, the
tax treatment of which is described below. As a result of a legislative change
made by the Small Business Job Protection Act of 1996, it appears that the
Company will be required to withhold 10% of any distribution in excess of the
Company's current and accumulated earnings and profits. Consequently, although
the Company intends to withhold at a rate of 30% on the entire amount of any
distribution (or a lower applicable treaty rate), to the extent that the Company
does not do so, any portion of a distribution not subject to withholding at a
rate of 30% (or a lower applicable treaty rate) will be subject to withholding
at a rate of 10%. However, the Foreign Shareholder may seek a refund of such
amounts from the IRS if it is subsequently determined that such distribution
was, in fact, in excess of current or accumulated earnings and profits of the
Company, and the amount withheld exceeded the Foreign Shareholder's United
States tax liability, if any, with respect to the distribution.
Distributions that are designated by the Company at the time of
distribution as capital gains dividends (other than those arising from the
disposition of a United States real property interest) generally will not be
subject to taxation, unless (i) investment in the shares is effectively
connected with the Foreign Shareholder's United States trade or business, in
which case the Foreign Shareholder will be subject to the same treatment as
United States Shareholders with respect to such gain (except that a Foreign
Shareholder that is a foreign corporation may also be subject to the 30% branch
profits tax), or (ii) the Foreign Shareholder is a nonresident alien individual
who was present in the United States for 183 days or more during the taxable
year and has a tax home in the United States, in which case the nonresident
alien individual will be subject to a 30% tax on the capital gains.
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For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from the sale or exchange by the Company of a United
States real property interest will be taxed to a Foreign Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Foreign Shareholder
as if such gain were effectively connected with a United States trade or
business conducted by the Foreign Shareholder. Foreign Shareholders would thus
be taxed at the same capital gain rates applicable to United States Shareholders
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals). Also, distributions subject
to FIRPTA may be subject to a 30% branch profits tax in the hands of a foreign
corporate shareholder not entitled to treaty exemption. The Company is required
by applicable IRS regulations to withhold 35% of any distribution that could be
designated by the Company as a capital gain dividend. This amount is creditable
against the Foreign Shareholder's FIRPTA tax liability.
If the Company is a "domestically-controlled REIT," a sale of Common Stock
by a Foreign Shareholder generally will not be subject to United States
taxation. A "domestically-controlled REIT" is a REIT in which, at all times
during a particular testing period (generally five years preceding the sale in
issue), less than 50% of the value of the REIT's shares are held directly or
indirectly (taking into consideration attribution rules) by Foreign
Shareholders. Because the Common Stock will be publicly traded, no assurance can
be given that the Company will constitute a domestically-controlled REIT.
Notwithstanding the foregoing, capital gain from the sale of stock of a
domestically-controlled REIT not subject to FIRPTA will be taxable to a Foreign
Shareholder (under rules generally applicable to United States Shareholders) if
such person is in the United States for 183 days or more during the taxable year
of disposition and certain other conditions apply.
If the Company is not a domestically-controlled REIT, whether a sale of
Common Stock would be subject to tax under FIRPTA as a sale of a United States
real property interest would depend on whether the Common Stock is "regularly
traded" (as defined by applicable Treasury Regulations) on an established
securities market (e.g., the AMEX and the PCX, on which the Common Stock is
listed) and whether the selling shareholder held, directly or indirectly, more
than 5% of the Common Stock during the five-year period ending on the date of
disposition. Arguably, the applicable Treasury Regulations defining "regularly
traded" for this purpose provide that the shares of Common Stock will not be
"regularly traded" for any calendar quarter during which 100 or fewer persons
(treating related persons as one person) in the aggregate own 50% or more of the
shares of Common Stock. If this interpretation is correct, and the Company did
not at the time constitute a domestically-controlled REIT, a Foreign Shareholder
(without regard to its ownership percentage of Common Stock) will be subject to
federal income tax with respect to gain realized on any sale or other
disposition of Common Stock that occurs within a calendar quarter during which
50% or more of the Common Stock is so owned. If the gain on the sale of the
Common Stock is subject to taxation under FIRPTA, the Foreign Shareholder will
be subject to the same treatment as a United States Shareholder with respect to
such gain (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). In any
event, a purchaser of Common Stock from a Foreign Shareholder will not be
required under FIRPTA to withhold on the purchase price if the purchased Common
Stock is "regularly traded" on an established securities market or if the
Company is a domestically-controlled REIT. Otherwise, under FIRPTA the purchaser
of Common Stock may be required to withhold 10% of the purchase price and remit
such amount to the IRS.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
The Company will report to its shareholders and the IRS the amount of
dividends paid or deemed paid during each calendar year, and the amount of tax
withheld, if any.
UNITED STATES SHAREHOLDERS. Under certain circumstances, United States
Shareholders owning Common Stock may be subject to backup withholding at a rate
of 31% on payments made with respect to, or cash proceeds of a sale or exchange
of, Common Stock. Backup withholding will apply only if the shareholder (i)
fails to furnish the Company with its Taxpayer Identification Number ("TIN")
which, for an individual, would be his Social Security Number, (ii) furnishes
the Company with an incorrect TIN, (iii) is notified by the IRS that it has
failed properly to report payments of interest and dividends, or (iv) under
certain circumstances, fails to certify, under penalty of perjury, that it has
furnished a correct TIN and has not been notified by the IRS that it is subject
to backup withholding for failure to report interest and dividend payments.
Backup withholding will not apply with respect to payments made to certain
exempt recipients, such as tax-exempt organizations. United States Shareholders
should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption. Backup withholding is not an additional tax. Rather, the amount of
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any backup withholding with respect to a payment to a United States Shareholder
will be allowed as a credit against such United States Shareholder's United
States federal income tax liability and may entitle such United States
Shareholder to a refund, provided that the required information is furnished to
the IRS.
FOREIGN SHAREHOLDERS. Additional issues may arise pertaining to information
reporting and backup withholding with respect to Foreign Shareholders, and
Foreign Shareholders should consult their tax advisors with respect to any such
information reporting and backup withholding requirements. Backup withholding
with respect to Foreign Shareholders is not an additional tax. Rather, the
amount of any backup withholding with respect to a payment to a Foreign
Shareholder will be allowed as a credit against any United States federal income
tax liability of such Foreign Shareholder. If withholding results in an
overpayment of taxes, a refund may be obtained provided that the required
information is furnished to the IRS.
The United States Treasury has recently finalized regulations regarding the
withholding and information reporting rules discussed above. In general, these
regulations do not alter the substantive withholding and information reporting
requirements, but unify certification procedures and forms and clarify and
modify reliance standards. These regulations generally are effective for
payments made after December 31, 1999, subject to certain transition rules.
Valid withholding certificates that are held on December 31, 1999, will remain
valid until the earlier of December 31, 2000, or the date of expiration of the
certificate under rules currently in effect (unless otherwise invalidated due to
changes in the circumstances of the person whose name is on such certificate). A
Foreign Shareholder should consult its own advisor regarding the effect of the
new Treasury Regulations.
TAX ASPECTS OF THE OPERATING PARTNERSHIPS
GENERAL. Substantially all of the Company's investments will be held
indirectly through the Operating Partnerships, which in turn will own the
Properties. In general, partnerships are "pass-through" entities that are not
subject to federal income tax. Instead, partners receive an allocation of the
items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax on their distributive shares thereof, without regard
to whether the partners actually receive a cash distribution from the
partnership. The Company will include in its income its share of the foregoing
partnership items for purposes of the various REIT income tests and in the
computation of its REIT taxable income. See: "Partnership Allocations" below.
Moreover, for purposes of the REIT asset tests, the Company will include its
proportionate share of assets held directly or indirectly by the Operating
Partnerships. See "Taxation of the Company".
ENTITY CLASSIFICATION. If the Operating Partnerships were treated as an
association taxable as a corporation instead of as a partnership, it would be
taxable as a corporation and therefore subject to an entity-level tax on its
income. In this event, the character of the Company's assets and items of gross
income would change and would preclude the Company from satisfying the
asset-related tests and the income tests (see "FEDERAL INCOME TAX
CONSIDERATIONS" --"Taxation of the Company--Asset Tests" and " Income Tests"),
which in turn would prevent the Company from qualifying as a REIT. See "Failure
to Qualify" above for a discussion of the effect of the Company's failure to
meet such tests for a taxable year.
The Operating Partnerships has not requested, nor does it intend to
request, a ruling from the IRS that it will be treated as a partnership for
federal income tax purposes. Instead, at the closing of the Reincorporation
Merger, Graham & James LLP will deliver an opinion to the effect that, based on
the provisions of the Operating Partnership Agreement, and certain factual
assumptions and representations described in the opinion, the Operating
Partnerships will be treated as a partnership for federal income tax purposes.
Unlike a private letter ruling, an opinion of counsel is not binding on the IRS,
and no assurance can be given that the IRS will not challenge the status of the
Operating Partnerships as a partnership for federal income tax purposes. If such
challenges were sustained by a court, the Partnership would be treated as a
corporation for federal income tax purposes.
PARTNERSHIP ALLOCATIONS. Although the provisions of a partnership agreement
generally determine the partners' respective allocations of income and loss,
such allocations will be disregarded for tax purposes if they do not have
"substantial economic effect" under the requirements of Section 704(b) of the
Code and the Treasury Regulations promulgated thereunder. If an allocation is
not recognized for federal income tax purposes, the item subject to the
allocation will be reallocated in accordance with the partners' interests in the
partnership, which will be determined by taking into account all of the facts
and circumstances relating to the economic arrangement of the partners with
respect to such item. The allocations of taxable income and loss by the
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Operating Partnerships are intended to comply with the requirements of Section
704(b) of the Code and the Treasury Regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Section 704(c) of
the Code requires all income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership to be allocated for federal income
tax purposes in a manner such that the contributor is charged with or benefits
from the unrealized gain or unrealized loss inherent in the property at the time
of the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution (a "Book-Tax Difference"). Such
allocations are made solely for federal income tax purposes and do not affect
the book capital accounts or other economic arrangements among the partners. The
Partnership Agreement generally requires such allocations to be made in a manner
consistent with the provisions of Section 704(c) of the Code.
Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for a Book-Tax Difference,
including retention of the "traditional method" or the election of certain
alternative methods which would permit any distortions caused by a Book-Tax
Difference to be entirely rectified on an annual basis or with respect to a
specific taxable transaction such as a sale. Based on the foregoing, in general,
if any asset contributed to or revalued by the Operating Partnerships is
determined to have a fair market value which is greater than its adjusted tax
basis, certain partners of the Operating Partnerships will be allocated lower
amounts of depreciation deductions for tax purposes by the Operating
Partnerships and increased taxable income and gain on sale. Such allocations
will tend to eliminate the Book-Tax Difference over the life of the Operating
Partnerships. However, the special allocation rules of Section 704(c) of the
Code do not always entirely rectify the Book-Tax Difference on an annual basis
or with respect to a specific transaction such as a sale. Thus, the Company may
be allocated lower depreciation and other deductions, and possibly greater
amounts of taxable income in the event of a sale of contributed assets, and such
amounts may be in excess of the economic or book income allocated to it as a
result of such sale. Such an allocation might cause the Company to recognize
taxable income in excess of cash proceeds, which might adversely affect the
Company's ability to comply with the REIT distribution requirements. See
"--Requirements for Qualification--Annual Distribution Requirements".
Any property purchased or constructed by the Operating Partnerships
subsequent to the Berg Acquisition will initially have a tax basis equal to its
cost, and Section 704(c) of the Code will not apply. Depreciation with respect
to such property will be allocated for book and tax purposes pro rata to each
partner.
Upon the disposition of any Properties with a Book-Tax Difference for an
amount greater than the adjusted tax basis, book gain will be allocated to the
Limited Partners and the Company to the extent of any prior special allocations
of depreciation with respect to such Properties, then pro rata to each Partner.
In addition, tax gain with respect to such Properties will be allocated to the
Limited Partners to the extent of the remaining Book-Tax Difference, then
pro-rata to each partner. On any subsequently purchased property, gain for tax
and book purposes will be allocated pro rata to each Partner.
BASIS IN PARTNERSHIP INTEREST. The Company's adjusted tax basis in its
interest in the Operating Partnerships generally (i) will be equal to the amount
of cash and the basis of any other property contributed to the Operating
Partnerships by the Company, (ii) will be increased by its allocable share of
(a) the Operating Partnerships' income, and (b) the indebtedness of the
Operating Partnerships, and (iii) will be reduced, but not below zero, by the
Company's allocable share of (a) the Operating Partnerships' losses and (b) the
amount of cash distributed to the Company by the Operating Partnerships, and by
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnerships.
If the allocation of the Company's distributive share of the Operating
Partnerships' loss will reduce the adjusted tax basis of the Company's
partnership interest in the Operating Partnerships below zero, the recognition
of such loss will be deferred until such time as the recognition of such loss
would not reduce the Company's adjusted tax basis below zero. To the extent that
the Operating Partnerships' distributions, or any decrease in the Company's
share of the nonrecourse indebtedness of the Operating Partnerships (such
decreases being considered a constructive cash distribution to the partners)
exceeds the Company's adjusted tax basis, such distributions will constitute
taxable income to the Company. Such taxable income will normally be
characterized as a capital gain, and if the Company's partnership interest in
the Operating Partnerships has been held for longer than the long-term capital
gain holding period, the distribution will constitute a long-term capital gain.
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SALE OF THE OPERATING PARTNERSHIPS' PROPERTY. Any gain realized by the
Operating Partnerships on the sale of property held for more than one year will
generally be mid-term capital gain, long-term capital gain or unrecaptured
Section 1250 gain, except for any portion of such gain that is treated as
depreciation or cost recovery recapture, in accordance with the rules described
above. See "--Taxation of United States Shareholders--1997 Act Changes to
Capital Gain Taxation." The Operating Partnerships intends to hold the
Properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing, owning, and operating the Properties and
additional properties, and to sell a Property when such sale is consistent with
the Operating Partnerships' investment objectives. See "POLICIES WITH RESPECT TO
CERTAIN ACTIVITIES".
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION MERGER.
The Company has been advised by Graham & James LLP that, for federal income
tax purposes, no gain or loss will be recognized by the holders of Common Stock
or options to purchase Common Stock as a result of the consummation of the
Reincorporation Merger. Each holder of Common Stock will have the same basis in
the New Common Stock received pursuant to the Reincorporation Merger as he had
in the Common Stock held immediately prior to the Reincorporation Merger, and
his holding period with respect to the New Common Stock will include the period
during which he held the corresponding Common Stock, so long as the Common Stock
was held as a capital asset at the time of consummation of the Reincorporation
Merger.
The Company has also been advised by Graham & James LLP that the Company
will not recognize gain or loss for federal income tax purposes as a result of
the Reincorporation Merger, and that Mission West-Maryland will succeed without
adjustment to the tax attributes of the Company. The Company is currently
subject to state income taxation in California. If the Reincorporation Merger is
approved, Mission West-Maryland may be subject to California state income tax.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
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ERISA CONSIDERATIONS
GENERAL
In evaluating the effect of the UPREIT Transactions, a fiduciary of a
qualified profit-sharing, pension or stock bonus plan, including a plan for
self-employed individuals and their employees or any other employee benefit plan
(a "Plan") subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), should consider (a) whether the ownership of Common Stock is
in accordance with the documents and instruments governing such Plan; (b)
whether the ownership of Common Stock is consistent with the fiduciary's
responsibilities and satisfies the requirements of Part 4 of Title I of ERISA
(where applicable) and, in particular, the diversification, prudence and
liquidity requirements of Section 404 of ERISA; (c) the effect in the unlikely
event that the Company's assets are treated as assets of the Plan; and (d) the
need to value the assets of the Plan annually.
The fiduciary investment considerations summarized below provide a general
discussion that does not include all the fiduciary investment considerations
relevant to a Plan. This summary is based on the current provisions of ERISA and
the Code and regulations and rulings thereunder and both of which may be changed
(perhaps adversely and with retroactive effect) by future legislative,
administrative or judicial actions. This discussion should not be construed as
legal advice and prospective purchasers of Common Stock should consult with and
rely upon their own advisors in evaluating these matters in light of their own
personal circumstances.
PLAN ASSETS REGULATIONS
Under Department of Labor ("DOL") regulations determining the assets of a
Plan for purposes of ERISA and the related prohibited transaction excise tax
provisions of the Code (the "Plan Asset Regulation"), when a Plan makes an
equity investment in another entity, the underlying assets of that entity will
not be considered assets of the Plan if the equity interest is a
"publicly-offered security."
For purposes of the Plan Asset Regulation, a "publicly-offered security" is
a security that is (a) "freely transferable," (b) part of a class of securities
that is "widely held," and (C) part of a class of securities that is registered
under section 12(b) or 12(g) of the Securities Exchange Act of 1934 (the
"Exchange Act"). The Common Stock has been registered under the Securities Act
and the Exchange Act of 1934.
The Plan Asset Regulation provides that a security is "widely held" only if
it is a part of the class of securities that is owned by 100 or more investors
independent of the issuer and of one another. A security will not fail to be
"widely held" because the number of independent investors falls below 100
subsequent to the offering as a result of events beyond the control of the
issuer. The Company expects the Common Stock to remain "widely held" upon the
completion of the UPREIT Transactions.
The Plan Asset Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all the
relevant facts and circumstances. The Plan Asset Regulation further provides
that when a security is part of an offering in which the minimum investment is
$10,000 or less, as is the case with the offering of the Common Stock, certain
restrictions ordinarily will not, alone or in combination, affect the finding
that such securities are "freely transferable." The Company believes that the
restrictions imposed under the Charter on the transfer of the New Common Stock
are limited to the restrictions on transfer generally permitted under the Plan
Asset Regulation and are not likely to result in the failure of the New Common
Stock to be "freely transferable." However, no assurance can be given that the
DOL will not reach a contrary conclusion.
Therefore, the Company believes that the Common Stock and the New Common
Stock should be treated as "publicly-offered securities", under the Plan Asset
Regulation and, accordingly, that the underlying assets of the Company should
not be considered to be assets of any Plan investing in the Common Stock.
GENERAL ERISA REQUIREMENTS
ERISA generally requires that the assets of a Plan be held in trust and
that the trustee, or an investment manager (within the meaning of Section 3(38)
of ERISA), have exclusive authority and discretion to manage and control the
assets of the Plan. As discussed above, under current law the assets of the
Company do not appear likely to be assets of Plans receiving shares of Common
Stock or New Common Stock as a result of the UPREIT Transactions. However, if
the assets of the Company were deemed to be assets of Plans under ERISA, the
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directors of the Company would likely be fiduciaries with respect to the Plans
that invest in the Company and the prudence and other fiduciary standards set
forth in ERISA would apply to the directors and to all investments made by the
Company. Plan fiduciaries who make the decision to invest in the Common Stock
could, under certain circumstances, be liable as co-fiduciaries for actions
taken by the Company or the directors that do not conform to the ERISA standards
for investments under Part 4 of Title I of ERISA.
PROHIBITED TRANSACTIONS
Section 406 of ERISA provides that Plan fiduciaries are prohibited from
causing a Plan to engage in certain types of transactions. Section 406(a)
prohibits a fiduciary from knowingly causing a Plan to engage directly or
indirectly in, among other things: (a) a sale or exchange, or leasing, of
property with a party in interest; (b) a loan or other extension of credit with
a party in interest; (c) a transaction involving the furnishing of goods,
services or facilities with a party in interest; or (d) a transaction involving
the transfer of Plan assets to, or use of Plan assets by or for the benefit of,
a party in interest. Additionally, Section 406 prohibits a Plan fiduciary from
dealing with Plan assets in his own interest or for his own account, from acting
in any capacity in any transaction involving the Plan on behalf of a party (or
representing a party) whose interests are adverse to the interest of the Plan,
and from receiving any consideration for his own account from any party dealing
with the Plan in connection with a transaction involving Plan assets. Similar
provisions in Section 4975 of the Code apply to qualified Plans, and to certain
other plans and individual retirement arrangements not subject to ERISA.
If the assets of the Company were deemed to be assets of a Plan, a director
could be characterized as a fiduciary of the Plan under ERISA or the Code. A
director's characterization as a fiduciary would cause him to be deemed as a
"party in interest" under ERISA and a "disqualified person" under the Code with
respect to a Plan (or other plan or individual retirement arrangement) receiving
Common Stock, which could cause various transactions between the director and
the Company to constitute prohibited transactions under ERISA and the Code.
Moreover, if the assets of the Company were deemed to be assets of the Plans,
transactions between the Company and parties in interest or disqualified persons
with respect to any Plan (or other plan or individual retirement arrangement)
that has invested in the Company could be prohibited transactions with respect
to the Plan, unless a statutory or administrative exemption is available.
If a prohibited transaction has occurred, certain of the parties involved
in the transaction could be required to (a) undo the transaction, (b) restore to
the Plan any profit realized on the transaction, (c) make good to the Plan any
loss suffered by it as a result of the transaction and (d) pay an excise tax
equal to fifteen percent of the "amount involved" in the transaction for each
year in which the transaction remains uncorrected. If such transaction is not
corrected within the "taxable period," as defined in Section 4975(f)(2) of the
Code, the parties involved in the transaction could be required to pay an excise
tax equal to 100% of the "amount involved."
If the investment constituted a prohibited transaction under Section
408(e)(2) of the Code by reason of the Company engaging in a prohibited
transaction with the individual who established an individual retirement
arrangement ("IRA") or his beneficiary, the IRA would lose its tax-exempt
status. The other penalties for prohibited transactions would not apply.
REPORTING AND DISCLOSURE
As part of the reporting and disclosure requirements applicable to Plans
under ERISA and the Code, fiduciaries of a Plan are required to determine
annually the fair market value of the assets of such Plan as of the close of
such Plan's fiscal year and to file annual reports valuing such assets. Since
the Common Stock and New Common Stock are or will be listed on the AMEX (and
that the assets of the Company will not be deemed to be assets of the Plans) and
are expected to be trading on the AMEX following consummation of the UPREIT
Transactions, the requirements for valuation should be complied with by such
listing and trading.
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LEGAL MATTERS
The validity of the shares of New Common Stock offered hereby, as well as
certain tax matters described under "Federal Income Tax Considerations", will be
passed upon for the Company by Graham & James LLP. A partner of Graham & James
LLP, who is rendering services with respect to the UPREIT Transactions, owns
12,333 shares of Common Stock. Graham & James LLP will rely on the opinion of
Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland, as to certain
matters of Maryland law.
EXPERTS
The consolidated financial statements of the Company incorporated in the
Proxy Statement / Prospectus by reference to the Annual Report on Form 10-K for
the period ended December 31, 1997 and the Combined Financial Statements for the
Berg Properties as of December 31, 1997 and 1996, and for the three years in the
period ended December 31, 1997, the Combined Statement of Revenue and Certain
Expenses of Fremont Properties for the year ended December 31, 1997 and
the Statements of Revenue and Certain Expenses for the Kontrabecki Properties
for the years ended December 31, 1997, 1996 and 1995 included in this Proxy
Statement / Prospectus have been audited by PricewaterhouseCoopers LLP,
independent accountants. Such financial statements have been included in
reliance upon the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements as of November 30, 1996 and for each of the two
years then ended incorporated in this Prospectus by reference to Mission West
Properties' Annual Report on Form 10-K for the year ended December 31, 1997,
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
In addition, certain statistical and other information under the captions
"THE BUSINESS OF BERG & BERG--Regional Economic Profile and The Silicon Valley
R&D Property Market" has been prepared by BT Commercial Real Estate, and is
included herein in reliance upon the authority of such firm as an expert in,
among other things, real estate consulting and economics.
OTHER MATTERS
No other matters will be presented for action at the Special Meeting.
SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, the Company shareholders may
present proper proposals for inclusion in the Company's proxy statement and for
consideration at the next annual meeting of its shareholders by submitting such
proposals to the Company in a timely manner. In order to be so included for the
1998 annual meeting, shareholder proposals must be received by the Company at a
reasonable time (which the Company considers to be at least 30 days) before the
Company mails the proxy statement to shareholders.
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GLOSSARY
"ACMs" means asbestos-containing materials.
"Acquired Properties" means the approximately .56 million rentable square feet
of R&D Properties, consisting of the Kontrabecki Properties and the Fremont
Properties, to be acquired by the Operating Partnerships at the closing of the
Berg Acquisition.
"Acquisition Agreement" means the agreement dated as of May 14, 1998, among
the Partnership, the other partnerships comprising the Operating Partnerships,
all of the partners therein, and the Company concerning the acquisition of the
Berg Properties, the Acquired Properties and the Pending Development Projects by
the Operating Partnerships, the Company's investment in and admission to the
Operating Partnerships as sole general partner, the rights and options of the
limited partners in the Operating Partnerships to tender L.P. Units or acquire
shares of Common Stock under certain circumstances, and the rights of the Berg
Group to appoint the Berg Group Board Representatives and receive other board of
directors approval rights.
"Adjusted Pro Forma Funds from Operations" means FFO as of the date of the Pro
Forma financial statements adjusted for net increases in rental income and
tenant reimbursements from new leases and renewals that went into effect between
October 1, 1997 and March 15, 1998.
"Affiliate" means a person or entity that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, another person or entity.
"Amdahl Properties" means an office complex of five buildings located in the
Oakmead Business Park in Sunnyvale, California and two additional buildings
located in Santa Clara, California leased by the Operating Partnerships to
Amdahl Corporation.
"AMEX" means the American Stock Exchange.
"Annual Base Rent" means gross rent for the calendar year excluding payments by
tenants on account of real estate taxes, operating expenses and utility
expenses.
"Apple Properties" means four buildings at three locations in Cupertino,
California leased by the Operating Partnerships to Apple Computer, Inc.
"Audit Committee" means the audit committee of the Board of Directors.
"BBE" means Berg & Berg Enterprises, Inc., an affiliate of Carl E. Berg and
Clyde J. Berg.
"Berg & Berg" means Berg & Berg Developers, a general partnership consisting of
Carl E. Berg and Clyde J. Berg.
"Berg Acquisition" means the series of transactions in which MWP L.P., MWP L.P.
I, MWP L.P. II, and MWP L.P. III will become the Operating Partnerships, the
Operating Partnerships will acquire the Acquired Properties, and the Company
will become the sole general partner of the Operating Partnerships.
"Berg Group" means Carl E. Berg, Clyde J. Berg, the members of their respective
Immediate Families, and certain entities controlled by Carl E. Berg and/or Clyde
J. Berg which are BBE, Baccarat Cambrian Partnership, Baccarat Fremont
Developers LLC, and DeAnza Office Partners.
"Berg Group Board Representative(s)" means one or both of the two members of the
Company's board of directors appointed by the Berg Group pursuant to rights
acquired in connection with the Berg Acquisition.
"Berg Land Holdings" means the parcels of undeveloped land known as "King
Ranch," "Hillyer & Piercy," and "Fremont & Cushing," which certain members of
the Berg Group own or have rights to acquire.
"Berg Land Holdings Option Agreement" means the agreement pursuant to which the
Berg Group members that own or hold options to acquire the Berg Land Holdings
have granted the Company and the Operating Partnerships an option to acquire
completed and leased buildings constructed on the Berg Land Holdings.
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"Berg Properties" means complexes, including 59 separate buildings aggregating
approximately 3.78 million rentable square feet located in the Silicon Valley
and owned by the Berg Group prior to the Berg Acquisition.
"Berg Voting Group" means those shareholders of the Company who have executed
one of the Voting Rights Agreements.
"Book-Tax Difference" means the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution.
"BT Commercial" means BT Commercial Real Estate.
"Built-in Gain" means the excess of the fair market value of assets as of the
beginning of the Recognition Period over the Company's adjusted basis in assets
as of the beginning of the Recognition Period.
"Cash Available for Distribution" means Funds from Operations (FFO) less
scheduled mortgage loan principal payments, leasing commissions paid and capital
expenditures.
"CGCL" means the California General Corporation Law.
"Change of Control Transaction" shall mean (A) any transaction or series of
transactions, in which all Limited Partners in the Operating Partnerships are
legally entitled to participate and pursuant to which L.P. Units representing
more than 50% of the total outstanding L.P. Units of the Operating Partnerships
are purchased by a person not controlled by, in control of or under common
control with the Company, any Affiliate of the Company or any Affiliate of a
Limited Partner, (B) the merger or consolidation of the Partnership with another
entity (other than a merger or consolidation in which the holders of L.P. Units
of the Partnership immediately before the merger or consolidation own
immediately after the merger or consolidation, voting securities of the
surviving or acquiring entity or a parent party of such surviving or acquiring
entity, possessing more than 50% of the voting power of the surviving or
acquiring entity or parent party) resulting in the exchange of the outstanding
L.P. Units of the Partnership for cash, securities or other property, or (C) any
merger, sale, lease, license, exchange or other disposition (whether in one
transaction or a series of related transactions) of more than 50% of the assets
of the Partnership.
"Charitable Beneficiary" means the beneficiary of the Trust.
"Charter" means the articles of incorporation of Mission West-Maryland.
"Cisco Properties" means two buildings, one in San Jose and one in Santa Clara,
California, leased to Cisco Systems, Inc.
"Code" means the Internal Revenue Code of 1986, as amended and in effect from
time to time, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means common stock, no par value per share, of the Company, and
also may refer to the New Common Stock issued by Mission West-Maryland pursuant
to the Reincorporation.
"Company" means Mission West Properties, a California corporation, and any
successor to such corporation.
"Compensation Committee" means the compensation committee of the Board of
Directors.
"DRULPA" means the Delaware Revised Uniform Limited Partnership Act.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Excepted Holder" means any person exempted from the Ownership Limit by the
board of directors, in its sole discretion, as provided in the Charter.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Exchange Ratio" means the one-for-one basis for which shares of Common Stock
will be exchanged for shares of New Common Stock.
"Exchange Right" has the meaning set forth in the Exchange Rights Agreement.
"Exchange Rights Agreement" means the Exchange Rights Agreement among the
Company, the partnerships comprising the Operating Partnerships and each of the
limited partners therein, as provided in the Acquisition Agreement.
"Excluded Properties" means certain R&D Properties that are not managed by any
member of the Berg Group or are not material to the Company which are not being
contributed to the Operating Partnerships, including the Company's headquarters
located at 10050 Bandley Drive, Cupertino, California.
"FFO" means Funds from Operations defined in accordance with the resolution
adopted by the Board of Governors of NAREIT in its March 1995 White Paper, net
income (loss) computed in accordance with GAAP, excluding gains (or losses) from
debt restructuring and sales of property, plus real estate related depreciation
and amortization (excluding amortization of deferred financing costs), and after
adjustments for unconsolidated partnerships and joint ventures.
"Five-or-Fewer Test" means the test set out in the Code which requires that not
more than 50% in value of a REIT's outstanding stock may be owned, directly or
indirectly, by five or fewer individuals in order to qualify as a REIT.
"Foreign Stockholders" means foreign corporations, foreign partnerships and
other foreign stockholders of Mission West-Maryland.
"Fully-Diluted" means the fully diluted shares of voting stock of the Company
(including without limitation upon the exercise of all outstanding warrants,
options, convertible securities and other rights to acquire voting stock of the
Company, and all L.P. Units exchangeable or redeemable for Common Stock or other
voting stock of the Company (without regard to any Ownership Limit).
"GAAP" means United States generally accepted accounting principles, as in
effect from time to time.
"Immediate Family" means, with respect to any individual, such individual's
spouse, parents, parents-in-law, children, nephews, nieces, brothers, sisters,
brothers-in-law, sisters-in-law, stepchildren, sons-in-law and daughters-in-law
or any trust solely for the benefit of any of the foregoing family members whose
sole beneficiaries include the foregoing family members.
"Independent Director" means a director of the Company who is not an employee,
officer or affiliate of the Company or a subsidiary or division thereof, or a
relative of a principal executive officer, and who is not an individual member
of an organization acting as advisor, consultant or legal counsel, receiving
compensation on a continuing basis from the Company in addition to directors'
fees.
"Independent Directors Committee" means the committee of the Company's board of
directors comprised of the Independent Directors.
"Ingalls & Snyder" means Ingalls & Snyder, LLC, a registered broker-dealer.
"Interested Stockholder" means under the MGCL, any person who beneficially owns
ten percent or more of the voting power of the corporation's shares or an
affiliate of the corporation who, at any time within the two-year period prior
to the date in question, was the beneficial owner of ten percent or more of the
voting power of the then-outstanding voting stock of the corporation.
"IRS" means the Internal Revenue Service.
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"Kontrabecki" means John Kontrabecki, the general partner of the Kontrabecki
Partnerships.
"Kontrabecki Partnerships" means the three limited partnerships that own the
Kontrabecki Properties.
"Kontrabecki Properties" means the Acquired Properties to be contributed by
the Kontrabecki Partnerships.
"Limited Partner(s)" means the limited partners of the three limited
partnerships, Mission West Properties, L.P., MWP L.P. I and MWP L.P. II.
"L.P. Unit Majority" means the Limited Partners holding the right to vote, in
the aggregate, a majority of the total number of L.P. Units outstanding.
"L.P. Units" means a fractional, undivided share of the partnership interests
of all Limited Partners in the Partnership.
"Look-Through Rule" means the ERISA rule providing that in certain circumstances
where a Plan holds an interest in an entity, the assets of the entity are deemed
to be the Plan's assets.
"Market Price" means the closing price of a share of Common Stock (or other
equity security of the Company) on the AMEX or any other principal exchange on
which the Common Stock or other equity security is listed and traded.
"Maryland Bylaws" means the proposed bylaws of Mission West-Maryland to be
adopted by the stockholders pursuant to the Reincorporation Merger.
"MGCL" means the Maryland General Corporation Law.
"Merger Agreement" means the merger agreement between the Company and Mission
West-Maryland to effect the Reincorporation Merger.
"Mission West-Maryland" means the corporation formed under the laws of the State
of Maryland to facilitate the Reincorporation Merger.
"MWEAC" means Mission West Executive Aircraft Center, Inc., a wholly-owned
subsidiary of the Company which is inactive.
"MWP" means Mission West Properties, L.P., formerly known as Berg Properties,
L.P.
"MWP I" means Mission West Properties, L.P. I, formerly known as Berg & Berg
Developers, L.P.
"MWP II" means Mission West Properties, L.P. II, formerly known as Berg Family
Partners, L.P.
"Named Executives" means the Company's president and four other most highly
compensated executive officers whose annual salary is expected to exceed
$100,000.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"Net Absorption" means, with respect to a specified market area, the net
increase in occupied rentable space.
"New Common Stock" means the common stock, par value $0.001 per share, of
Mission West-Maryland.
"New Credit Line" means a line of credit facility for $50 million to be obtained
by the Company and the Operating Partnerships on or after the date of final
closing for the Berg Acquisition.
"New Equity Financing Rights" has the meaning set forth in Section 8.8 of the
Operating Partnership Agreement.
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"New Credit Line" means a line of credit facility for $50 million to be obtained
by the Company and the Operating Partnerships on or after the date of final
closing for the Berg Acquisition.
"Office Lease" means the lease from the Berg Group to the Operating Partnerships
relating to the Berg Group's headquarters located at 10050 Bandley Drive,
Cupertino, California.
"Operating Partnerships" means, collectively, Mission West Properties, L.P.,
Mission West Properties, L.P. I and Mission West Properties, L.P. II, and
Mission West Properties, L.P. III with offices at 10050 Bandley Drive,
Cupertino, CA 95014, through which all of the Company's interests in the
Properties will be held and real estate activities will be conducted.
"Operating Partnership Agreement" means the limited partnership agreement of
each of the limited partnerships comprising the Operating Partnerships, as
amended from time to time, which is identical in all material respects for each
limited partnership.
"Option" means the option that the Company has to purchase any building
developed by the Berg Group on the Berg Land Holdings for so long as the Berg
Group owns or has the right to acquire shares representing 65% of the Common
Stock on a Fully-Diluted basis.
"Option Agreement" means the agreement pursuant to which the Company and the
Operating Partnerships have an option to purchase the Berg Land Holdings, as
well as rights of first refusal and rights of first offer relating thereto.
"Option Plan" means the Company's 1997 Stock Option Plan approved by the
Company's shareholders at a special meeting held on November 10, 1997.
"Outstanding Shares" means only the total number of issued and outstanding
shares of capital stock of the Company and plus the total number of L.P. Units
of the Operating Partnerships outstanding from time to time.
"Ownership Limit" means the restriction contained in the Charter of Mission
West-Maryland providing that, subject to certain exceptions, no holder may own,
or be deemed to own by virtue of the constructive ownership provisions of the
Code, more than 9% of the outstanding shares of new Common Stock.
"PCX" means the Pacific Exchange, Inc.
"Pending Development Projects" means four Berg Group-owned R&D Property
development projects which the Operating Partnerships has agreed to acquire upon
their completion pursuant to the terms of the Acquisition Agreement and the
related Pending Projects Option Agreement.
"Pending Projects Acquisition Agreement" means an agreement pursuant to which
the Company and the Operating Partnerships have an option to purchase each of
the buildings in the Pending Development Projects once completed and fully
leased.
"Plan" means employee benefit plans and IRAs.
"Plan Asset Regulations" means regulations issued by the United States
Department of Labor defining "plan assets" and the related prohibited
transaction excise tax provisions of the code.
"Private Placement" means the offer and sale of 6,295,058 shares of Common Stock
to accredited investors to be approved by shareholders at the Special Meeting.
"Prohibited Owner" means a person, who by reason of a transfer of shares of
stock of the Company, will beneficially or constructively own shares of stock of
the Company in excess or in violation of the transfer and ownership restrictions
contained in Charter provisions of Mission West-Maryland.
"Properties" means the Berg Properties and the Acquired Properties,
collectively.
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"Protective Provisions Expiration Date" means the date on which the Berg Group
and their Affiliates own less than 15% of the shares of Common Stock on a
Fully-Diluted Basis.
"Proxy Statement/Prospectus" means this prospectus and proxy statement relating
to the approval by the shareholders of the Company of the Berg Acquisition, the
Private Placement, and the Reincorporation Merger.
"Put Rights" means the right of certain Limited Partners to cause the Operating
Partnerships to purchase a portion of a Limited Partner's L.P. Units at a
purchase price based on the market value of the Common Stock.
"R&D Property" or "R&D Properties" means property used primarily for office,
research and development, light manufacturing, and assembly.
"Reform Act" means the Private Securities Litigation Reform Act of 1995.
"Registration Statement" means the Form S-4 Registration Statement to be filed
with the Commission of which the Proxy Statement/Prospectus forms a part.
"Regulations" means the final, temporary or proposed Income Tax Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
"Reincorporation Merger" means the merger by the Company with and into Mission
West-Maryland to effectuate a change in the Company's state of incorporation.
"REIT" means a real estate investment trust as defined in Section 856 of the
Code which meets the requirements for qualification as a REIT described in
Sections 856 through 860 of the Code.
"REIT Provisions" means Sections 856 through 860 of the code and the applicable
Treasury Regulations.
"REIT Requirements" means all of the requirements imposed under the Code on any
entity seeking to qualify and remain qualified as a REIT.
"REIT taxable income" means taxable income of a REIT.
"Related Party Tenant" means a tenant of a REIT in which the REIT, or an owner
of 10% or more of the REIT, actually or constructively owns a 10% or greater
ownership interest.
"Rentable square feet" means a building's usable area plus common areas and
penetrations, expressed collectively in square feet which are allocated pro rata
to tenants.
"Required Directors" means a majority of the directors of the Company
including Carl E. Berg or a director designated by Mr. Berg to replace him as
a director.
"Reverse Split" means the 1-for-30 reverse split on the Common Stock effective
as of November 10, 1997.
"Rule 144" means Rule 144 promulgated under the Securities Act, and "Rule
145(d)" refers to certain resale restrictions applicable to affiliates under
Rule 145.
"San Francisco Bay Area" means nine counties, including Santa Clara, Alameda,
Contra Costa, Marin, Napa, San Francisco, San Mateo, Solano and Sonoma
Counties, covering approximately 7,200 square miles.
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"Securities Act" means the Securities Act of 1933, as amended.
"Silicon Valley" means the southern portion of the San Francisco Bay Area,
including portions of southeastern San Mateo County, southwestern Alameda County
and Santa Clara County.
"Silicon Valley R&D Properties" means R&D properties located in the Silicon
Valley.
"Special Meeting" means the Company's special meeting of shareholders to be held
______, 1998, at Cupertino, California, including any adjournments.
"Stock Option Plan" means the Company's 1997 Stock Option Plan and any other
plan adopted from time to time by the Company pursuant to which shares of Common
Stock are issued, or options to acquire shares of Common Stock are granted, to
consultant, employees or directors of the Company, the Operating Partnerships or
their respective Affiliates in consideration for services or future services.
"Subsidiary" means, with respect to any Person, any corporation, partnership or
other entity of which a majority of (i) the voting power of the Voting
Securities; or (ii) the outstanding equity interests, is owned, directly or
indirectly, by such Person.
"Tender Price" means the price per share of Common Stock at which L.P. Units
have been tendered by a Limited Partner upon the exercise of its Put Rights.
"Total Market Capitalization" means the market value of the outstanding Common
Stock determined as if all outstanding L.P. Units had been converted into Common
Stock, plus the market value of all other publicly traded securities of the
Company outstanding from time to time, plus the total debt of the Company and
the Operating Partnerships.
"Treasury Regulations" means regulations of the U.S. Department of Treasury
under the Code.
"Triple net basis lease" means a lease pursuant to which a tenant is responsible
for the base rent in addition to the costs and expenses in connection with and
related to property taxes, insurance and repairs and maintenance applicable to
the leased space.
"Trust" means a charitable trust which Mission West-Maryland may create to
obtain excess shares not transferable to the Prohibited Owner.
"Trustee" means the trustee of the Trust.
"United States Shareholder" means a holder of shares who is an individual who is
a citizen or resident of the United States; a corporation, partnership or other
entity created or organized in, or under the laws of, the United States or any
State; an estate the income of which from sources without the United States is
includable in gross income for United States federal income tax purposes; a
trust the primary supervision of which is exercisable by a court within the
United States and having one or more United States fiduciaries with authority to
control all substantial decisions of such trust; and any person whose income or
gain in respect of the stock is effectively connected with the conduct of a
United States trade or business.
"UPREIT Transactions" means the Berg Acquisition and the Reincorporation Merger.
"Voting Rights Agreements" means the agreements covering all shares of Common
Stock acquired in the September Private Placement and certain shares of Common
Stock acquired in the November Private Placement pursuant to which the holders
agreed to vote their shares of Common Stock as directed by Carl E. Berg on
behalf of BBE, on all matters submitted to a vote of the shareholders of the
Company for up to two years.
"Xilinx Sales" means sales of two R&D Properties by Berg & Berg to Xilinx
Corporation in 1995.
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MISSION WEST PROPERTIES
INDEX TO FINANCIAL STATEMENTS
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I. UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Pro Forma Balance Sheet as of March 31, 1998 FS-2 Pro Forma Statement
of Operations for the three months ended March 31, 1998 FS-3 Pro Forma
Statement of Operations for the year ended December 31, 1997 FS-4 Notes
and Management's Assumptions to Unaudited Pro Forma Financial
Statements FS-5
II. COMBINED FINANCIAL STATEMENTS FOR THE BERG PROPERTIES
Report of Independent Accountants FS-8
Combined Balance Sheets as of March 31, 1998 and 1997 and as of
December 31, 1997 and 1996 FS-9
Combined Statements of Operations for the three month periods ended
March 31, 1998 and 1997 and for the years ended December 31, 1997,
1996, and 1995 FS-10
Combined Statements of Net Equity for the three month period ended
March 31, 1998 and for the years ended December 31, 1997, 1996 and
1995 FS-11 Combined Statements of Cash Flows for the three month
periods ended March 31,
1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995 FS-12
Notes to Combined Financial Statements FS-13
III. FREMONT PROPERTIES
Report of Independent Accountants FS-22
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 FS-23
Notes to Combined Statement of Revenue and Certain Expenses FS-24
IV. KONTRABECKI PROPERTIES
Report of Independent Accountants FS-25
Combined Statements of Revenue and Certain Expenses for the years ended
December 31, 1997, 1996 and 1995 FS-26
Notes to Combined Statements of Revenue and Certain Expenses FS-27
</TABLE>
FS-1
<PAGE>
<TABLE>
MISSION WEST PROPERTIES
PRO FORMA BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
----------
<CAPTION>
Preferential The Acquired
Mission West The Berg Equity Properties Pro Froma
Properties Properties Distribution March 31, 1998 Adjustment Pro Forma
March 31, 1998 March 31, 1998 (Note 3) (Note 4) (Note 5) March 31, 1998
--------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Real Estate:
Land - $30,426 - $10,947 - $41,373
Building and
improvements - 148,039 - 46,999 $1,000 196,038
--------- ----------- ---------- ---------- ----------- -----------
- 178,465 - 57,946 1,000 237,411
Less, accumulated
depreciation - (80,012) - (2,557) - (82,569)
--------- ----------- ---------- ---------- ----------- -----------
- 98,453 - 55,389 1,000 154,842
Cash and cash
equivalents $5,153 14,813 (91,594) - 74,600 2,972
Deferred rent
receivable - 4,365 - - - 4,365
Other assets, net 329 4,898 - - - 5,227
========= =========== ========== ========== =========== ===========
Total Assets 5,482 122,529 (91,594) 5,389 75,600 167,406
========= =========== ========== ========== =========== ===========
Liabilities and
shareholders'
(deficit) / equity:
Lines of credit - 37,953 - - (32,953) 5,000
Notes payable
(related parties) - 1,821 - 33,323 (35,144) -
Mortgage notes
payable - 38,215 - 5,895 115,529 159,639
Accounts payable/
accrued expenses 435 3,549 - - - 3,984
Other liabilities - 4,257 - - - 4,257
--------- ----------- ---------- ---------- ----------- -----------
Total Liabilities 435 85,795 - 39,218 47,432 172,880
--------- ----------- ---------- ---------- ----------- -----------
Shareholders'/
owners' equity:
Preferred Stock,
$0.001 par value,
20,000,000
authorized, none
issued and
outstanding on
a pro forma basis - - - - - -
Common Stock,
$0.001 par value,
200,000,000
authorized,
8,193,594 issued
and outstanding
on a pro forma
basis - - - - 8 8
Receivable from
issuance of
Common Stock (1,234) - - - - (1,234)
Additional paid
in capital 6,281 - (54,860) 16,171 28,160 4,248
Accumulated equity
of continuing
interests - 36,734 (36,734) - - -
--------- ----------- ---------- ---------- ----------- -----------
Total shareholders'
/owners equity 5,047 36,734 (91,594) 16,171 28,168 (5,474)
--------- ----------- ---------- ---------- ----------- -----------
Total liabilities
and shareholders'/
owners' equity $5,482 $122,529 (91,594) $55,389 $75,600 $167,406
========= =========== ========== ========== =========== ===========
</TABLE>
The accompanying notes and management's assumptions are an
integral part of this statement.
FS-2
<PAGE>
MISSION WEST PROPERTIES
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
----------
<TABLE>
<CAPTION>
The Acquired
Mission West The Berg Properties Pro Forma
Properties Properties March 31, 1998 Adjustments Pro Forma
March 31, 1998 March 31, 1998 (Note 4) (Note 5) March 31, 1998
-------------- -------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Revenue:
Rent - 11,073 $1,658 - $12,731
Tenant reimbursements - 2,033 64 - 2,097
Other $77 - - $(77) -
-------------- -------------- --------------- ------------ --------------
Total revenue 77 13,106 1,722 (77) 14,828
-------------- -------------- --------------- ------------ --------------
Expenses:
Operating expenses - 1,019 7 - 1,026
Real estate taxes - 1,189 23 - 1,212
General and administrative 230 - - 470 700
Management fees (related parties) - 322 - (322) -
Interest (related parties) - 61 - (61) -
Interest - 1,485 - 1,459 2,944
Depreciation and amortization - 1,935 294 - 2,229
-------------- -------------- --------------- ------------ --------------
Total expenses 230 6,011 324 1,546 8,111
-------------- -------------- --------------- ------------ --------------
Income (loss) before minority
interest (153) 7,095 1,398 (1,623) 6,717
Minority interest - - - 5,984 5,984
-------------- -------------- --------------- ------------ --------------
Net income (loss) $(153) $7,095 $1,398 $(7,607) $733
-------------- -------------- --------------- ------------ --------------
-------------- -------------- --------------- ------------ --------------
-------------- --------------
-------------- --------------
Basic and diluted earnings (loss)
per share $(0.10) $0.09
-------------- --------------
-------------- --------------
Weighted average number of common
shares outstanding 1,503,933 8,193,594
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes and management's assumptions are an
integral part of this statement.
FS-3
<PAGE>
MISSION WEST PROPERTIES
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
----------
<TABLE>
<CAPTION>
The Acquired
Mission West The Berg Properties
Properties Properties December 31, Pro Forma Pro Forma
November 30, December 31, 1997 Adjustments December 31,
1997 1997 (Note 4) (Note 5)
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Rent $1,376 $40,163 $5,409 $(1,376) $45,572
Tenant reimbursements - 6,519 250 - 6,769
Other 359 - - (359) -
------------ ------------ ------------- ------------ -------------
Total revenue 1,735 46,682 5,659 (1,735) 52,341
------------ ------------ ------------- ------------ -------------
Expenses:
Operating expenses 246 3,741 49 (246) 3,790
Real estate taxes - 4,229 246 - 4,475
General and administrative 1,467 - - 1,283 2,750
Management fees (related parties) - 1,050 - (1,050) -
Interest (related parties) - 248 - (248) -
Interest 425 5,919 - 5,433 11,777
Depreciation and amortization 246 7,717 1,175 (246) 8,892
------------ ------------ ------------- ------------ -------------
Total expenses 2,384 22,904 1.470 4,926 31,684
------------ ------------ ------------- ------------ -------------
Income (loss) before minority
interest, gain on sale of
real estate, income taxes (649) 23,778 4,189 (6,661) 20,657
Minority interest - - - 18,403 18,403
------------ ------------ ------------- ------------ -------------
Income before gain on sale of real
estate and income taxes (649) 23,778 4,189 (25,064) 2,254
------------ ------------ ------------- ------------ -------------
Gain on sale for real estate 4,736 - - (4,736) -
(Provision) for income taxes (1,043) - - 1,043 -
------------ ------------ ------------- ------------ -------------
Net income $3,044 $23,778 $4,189 $(28,757) $2,254
------------ ------------ ------------- ------------ -------------
------------ ------------ ------------- ------------ -------------
Basic and diluted earnings per share $18.48 $0.28
------------ -------------
------------ -------------
Weighted average number of common
shares outstanding 164,692 8,193,594
------------ -------------
------------ -------------
</TABLE>
The accompanying notes and management's assumptions are an
integral part of this statement.
FS-4
<PAGE>
MISSION WEST PROPERTIES
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE PRO FORMA FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND FOR THE YEAR ENDED
DECEMBER 31, 1997, CONTINUED
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
----------
1. ORGANIZATION AND BASIS OF PRESENTATION:
The pro forma financial statements of Mission West Properties (the
"Company") have been prepared based on the historical financial statements
of the Company, the Berg Properties and the Acquired Properties considering
the effects of the UPREIT Transactions. The pro forma balance sheet of the
Company at March 31, 1998 has been prepared as if the UPREIT Transactions
had been consummated at March 31, 1998. The pro forma statements of
operations for three months ended March 31, 1998 and for the year ended
December 31, 1997 have been prepared as if the UPREIT Transactions had been
consummated on January 1, 1998 and 1997, respectively. In management's
opinion, all adjustments necessary to reflect the effects of the UPREIT
Transactions have been made. The pro forma financial statements should be
read in conjunction with the historical financial statements.
The unaudited pro forma financial statements are not necessarily indicative
of what the actual financial position would have been at March 31, 1998,
nor actual results of operations for three months ended March 31, 1998 or
for the year ended December 31, 1997, had the UPREIT Transactions occurred
on March 31, 1998 and January 1, 1998 or 1997, respectively, nor do they
purport to present the future financial position of the Company.
In November 1997, the Board of Directors approved a change in the Company's
fiscal year end from November 30 to December 31, effective with the
calendar year beginning January 1, 1997. As the transition period was less
than one month no separate transition period statements have been prepared.
All share and per share amounts have been adjusted to reflect the 1 for 30
reverse stock split.
2. ASSUMPTIONS:
Certain assumptions regarding the operations of the Company have been made
in connection with the preparation of the pro forma financial statements.
Those assumptions are as follows:
a. The pro forma financial statements assume that the Company has
elected to be and qualified as a real estate investment trust
("REIT") for income tax reporting purposes and has distributed
sufficient taxable income to meet the requirements of the
Internal Revenue Code and, therefore, incurred no income tax
liabilities.
b. Rent has been recognized on a straight-line method of accounting
in accordance with generally accepted accounting principles.
c. General and administrative expenses historically incurred by the
properties and the predecessor entities have been adjusted to
reflect the self-administered structure of the Company and the
additional expenses of being a public company.
d. Pro forma net income per share information is calculated using
8,193,594 shares as the average number of shares outstanding
during the pro forma periods. For the pro forma periods, no other
securities which, if converted or exercised, would have a
dilutive effect on earnings per share calculations.
3. PREFERENTIAL EQUITY DISTRIBUTION:
In connection with the recapitalization, members of the Berg Group will
receive a preferential equity distribution aggregating $91,594. The Berg
Group's equity in the underlying properties, on a fair market basis, is
significantly in excess of the book value and the preferential equity
distribution represents the return of that value to the Berg Group prior to
the contribution of the properties to the Operating Partnership. The
preferential equity distribution served to reduce the purchase price of the
10.91% general partnership interest required to be paid by the Company.
4. THE ACQUISITIONS:
Concurrent with the consummation of the UPREIT Transactions, the Company
will purchase the Acquired Properties which include approximately 144,000
rentable square feet currently owned by a third party
(Continued)
FS-5
<PAGE>
(the "Fremont Properties"), as well as approximately 416,000 rentable
square feet consisting of properties held by limited partnerships
controlled by John Kontrabecki as general partner (the "Kontrabecki
Properties"). Certain entities related to the Berg Group own
non-controlling interests in the Kontrabecki Properties. Any interests
related to the Acquired Properties held by certain entities related to the
Berg Group have been reflected in the pro forma financial statements at
their historical book values.
In connection with the acquisition of the Acquired Properties, the
Operating Partnership will issue 6,694,027 partnership units (issued at a
value of $4.50 per partnership unit) with a fair value of $30,123. The
Operating Partnership will also assume $39,218 of debt which is
collateralized by these properties, resulting in a total purchase price of
$69,341. Subsequent to the closing of the $130,000 portfolio mortgage
facility, $33,323 of debt assumed in connection with the Acquired
Properties will be repaid.
Upon the closing of the Berg Acquisition, the Acquired Properties will have
a total book value of $55,389 which includes a partial step-up in basis for
the interest in the Acquired Properties previously held by entities outside
the Berg Group. The book value has been allocated between land, buildings
and improvements based upon the historical percentages of costs incurred to
purchase the land and land improvements of the overall properties' value.
5. PRO FORMA ADJUSTMENTS:
(1) In conjunction with the UPREIT Transactions, in September and
November 1997, the Company completed the private placement of
200,000 (adjusted for the 1 for 30 reverse stock split) and
1,250,000 shares of common stock, respectively, resulting in
proceeds to the Company of $6,525. On March 30, 1998, the Company
sold 200,000 shares at $4.50 per share to an executive officer in
exchange for a note receivable payable to the Company. Concurrent
with the UPREIT Transactions, the Company will sell 6,295,058
shares at $4.50 per share to certain accredited investors for net
proceeds of $28,328. In connection with this sale of common
stock, a fee will be paid to an individual in the form of 200,000
shares of the Company's common stock. Operations of the Company
for the year ended November 30, 1997, represent the results of
its liquidation of prior holdings and are not indicative of its
future operations.
(2) The Company will repay amounts borrowed as follows:
<TABLE>
<CAPTION>
<S> <C>
Lines of credit $32,953
Mortgages notes payable 14,471
Notes payable (related parties) 35,144
---------
$82,568
---------
---------
</TABLE>
The pro forma statements of operations have been adjusted to
reflect historical interest expense to reflect such payment. The
early repayment of certain mortgages is expected to result in
prepayment penalties of $160.
(3) The Company intends to borrow $130,000 under a new portfolio
mortgage facility that is collateralized by certain properties
owned by the Operating Partnerships controlled by the Company.
The Company is currently in negotiations with a potential lender
for a loan which will have an initial term of 10 years with an
interest rate of 6.56%. However, as the Company is still in
negotiations with the potential lender, there can be no assurance
that the Company will be able to complete this transaction or a
transaction with similar terms. Management believes that if the
Company was required to seek a loan from a new potential lender,
the available interest rate would approximate 7% (the current
prevailing market rate). Therefore, the Company has used a rate
of 7% in the pro forma financial statements reflecting this
projected loan.
Additional interest expense associated with these borrowings, net
of the repayments discussed above, in the amounts of $1,459 and
$5,433 for the pro forma three months ended March 31, 1998, and
for the pro forma year ended December 31, 1997, respectively, has
been adjusted to reflect the new capital structure of the
Company.
(4) As a result of the transfer of title from the current owners of
certain properties to the Operating Partnerships, transfer taxes
approximating $1,000 will be paid. The Company does not
anticipate full reassessment for property tax purposes due to the
transactions associated with the UPREIT Transactions, however,
any increases in such taxes will be passed to the properties'
tenants under such tenants' lease agreements.
(5) The Company will be self-managed and will no longer pay
management fees. Therefore, the costs of managing the operations
of the Company have been included in the pro forma statement of
operations and historical management fees have been eliminated.
(6) In connection with the UPREIT Transactions, the Company will own
an approximate 10.91% interest in the Operating Partnerships and
become its sole general partner. Pursuant to EITF 94-2 the
initial minority interest is less than zero and; therefore, has
been recorded at zero in the pro forma balance sheet at March 31,
1998..
(7) The historical financial information for the Company has been
eliminated as it is not reflective of the future operations of
the Company.
(Continued)
FS-6
<PAGE>
MISSION WEST PROPERTIES
NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE PRO
FORMA FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND FOR THE YEAR ENDED
DECEMBER 31, 1997, CONTINUED
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
----------
PRO FORMA ADJUSTMENT SUMMARY:
Balance Sheet - March 31, 1998:
<TABLE>
<CAPTION>
Cash and Notes Payable Mortgage Shareholders'
Pro Forma Cash Real Estate Lines of (Related Notes Common (Deficit)/
Adjustment Equivalents Assets Credit Parties) Payable Stock Equity
- ---------- ------------- ----------- --------- --------------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $28,328 $(8) $(28,320)
2 (82,728) $32,953 $35,144 $14,471 160
3 130,000 (130,000)
4 (1,000) $1,000
------------ ----------- --------- --------------- ------------ --------- --------------
$74,600 $1,000 $32,953 $35,144 $(115,529) $(8) $(28,160)
------------ ----------- --------- --------------- ------------ --------- --------------
------------ ----------- --------- --------------- ------------ --------- --------------
</TABLE>
Statement of Operations - for the three months ended March 31, 1998:
<TABLE>
<CAPTION>
Management Fee Interest
Pro Forma General and (Related (Related Minority
Adjustment Revenue Administrative Parties) Parties) Interest Interest
- -------------- ---------- ----------------- ----------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
2 $61 $816
3 (2,275)
5 $(700) $322
6 $(5,984)
7 $(77) 230
------------ --------------- ----------------- ----------------- ------------- ------------
$(77) $(470) $322 $61 $(1,459) $(5,984)
------------ --------------- ----------------- ----------------- ------------- ------------
------------ --------------- ----------------- ----------------- ------------- ------------
</TABLE>
Statement of Operations - for the year ended December 31, 1997:
<TABLE>
<CAPTION>
Management
General Fee Interest Depreciation
Pro Forma Operating and (Related (Related and
Adjustment Revenue Other Expenses Administrative Parties) Parties) Interest Amortization
- ------------- ---------- -------- ----------- --------------- ------------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2 $248 $3,242
3 (9,100)
5 $(2,750) $1,050
6
7 $(1,376) $(359) $246 1,467 425 $246
-------- ------- --------- ------------ ------------ --------- -------- ------------
$(1,376) $(359) $246 $(1,283) $1,050 $248 $(5,433) $246
--------- ------- --------- ------------ ------------ --------- -------- ------------
--------- ------- --------- ------------ ------------ --------- -------- ------------
<CAPTION>
Provision
for
Pro Forma Minority Gain Income
Adjustment Interest on Sale Taxes
- ------------ ---------- --------- -----------
<S> <C> <C> <C>
2
3
6
7 $(18,403)
8 $(4,736) $1,043
----------- ---------- --------
$(18,403) $(4,736) $1,043
----------- ---------- --------
----------- ---------- --------
</TABLE>
FS-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Berg Group:
We have audited the combined balance sheets and the financial statement schedule
of the Berg Properties as described in Note 1 as of December 31, 1997 and 1996,
and the related combined statements of operations, net equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements and the financial statement schedule are the responsibility of the
management of the Berg Properties. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Berg
Properties as of December 31, 1997 and 1996, and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
San Francisco, California
April 17, 1998 Coopers & Lybrand L.L.P.
FS-8
<PAGE>
THE BERG PROPERTIES
COMBINED BALANCE SHEETS
(IN THOUSANDS)
-------
<TABLE>
<CAPTION>
March 31, December 31,
--------------------------------------- ----------------------------------
1998 1997 1997 1996
------------------- ---------------- --------------- ---------------
ASSETS (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Real Estate, at cost:
Land $ 30,426 $ 30,426 $ 30,426 $ 30,426
Buildings and improvements 61,262 55,982 61,262 51,410
Tenant improvements 86,777 75,385 86,541 73,163
------------------- ---------------- --------------- ---------------
178,465 161,793 178,229 154,999
Less, accumulated depreciation (80,012) (72,744) (78,077) (71,064)
------------------- ---------------- --------------- ---------------
98,453 89,049 100,152 83,935
Construction-in-progress - 3,435 - 6,775
------------------- ---------------- --------------- ---------------
98,453 92,484 100,152 90,710
------------------- ---------------- --------------- ---------------
Cash and cash equivalents 14,813 2,876 5,719 1,493
Deferred rent receivable 4,365 3,169 4,144 2,843
Other assets, net 4,898 4,262 3,935 2,605
------------------- ---------------- --------------- ---------------
$122,529 $102,791 $113,950 $ 97,651
------------------- ---------------- --------------- ---------------
------------------- ---------------- --------------- ---------------
LIABILITIES AND NET EQUITY
Lines of credit $ 37,953 $ 35,538 $ 37,953 $ 35,538
Notes payable (related parties) 1,821 2,411 1,975 2,546
Mortgage notes payable 38,215 37,776 38,554 37,878
Accounts payable and accrued expenses 3,549 2,884 2,102 2,262
Other liabilities 4,257 3,300 3,715 2,602
------------------- ---------------- --------------- ---------------
85,795 81,909 84,299 80,826
Net equity 36,734 20,882 29,651 16,825
------------------- ---------------- --------------- ---------------
$122,529 $102,791 $113,950 $ 97,651
------------------- ---------------- --------------- ---------------
------------------- ---------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
FS-9
<PAGE>
THE BERG PROPERTIES
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
----------
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
------------------------------ -------------------------------------------------
1998 1997 1997 1996 1995
-------------- ------------- -------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Rent $11,073 $ 8,801 $40,163 $28,934 $23,064
Tenant reimbursements 2,033 1,226 6,519 3,902 4,193
-------------- ------------- -------------- ------------- -------------
Total revenue 13,106 10,027 46,682 32,836 27,257
-------------- ------------- -------------- ------------- -------------
Expenses:
Operating expenses 1,019 1,118 3,741 1,906 2,032
Real estate taxes 1,189 980 4,229 3,750 3,595
Management fee
(related parties) 322 240 1,050 827 654
Interest (related parties) 61 79 248 293 357
Interest 1,485 1,470 5,919 6,090 6,190
Depreciation and amortization 1,935 1,680 7,717 6,739 6,323
-------------- ------------- -------------- ------------- -------------
6,011 5,567 22,904 19,605 19,151
-------------- ------------- -------------- ------------- -------------
Income before gain on
sale of real estate
and extraordinary item 7,095 4,460 23,778 13,231 8,106
Gain on sale - - - - 20,779
-------------- ------------- -------------- ------------- -------------
Income before extraordinary item 7,095 4,460 23,778 13,231 28,885
Extraordinary item - - - 610 3,206
-------------- ------------- -------------- ------------- -------------
Net income $ 7,095 $ 4,460 $23,778 $13,841 $32,091
-------------- ------------- -------------- ------------- -------------
-------------- ------------- -------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
FS-10
<PAGE>
THE BERG PROPERTIES
COMBINED STATEMENTS OF NET EQUITY
(IN THOUSANDS)
----------
<TABLE>
<S> <C>
Balance (deficit), January 1, 1995 $(23,763)
Contributions 2,953
Distributions (13,750)
Net income 32,091
-------------
Balance (deficit), December 31, 1995 $ (2,469)
Contributions 12,299
Distributions (6,846)
Net income 13,841
-------------
Balance, December 31, 1996 $ 16,825
Contributions 755
Distributions (11,707)
Net income 23,778
-------------
Balance, December 31, 1997 29,651
Distributions (12)
Net income 7,095
-------------
Balance, March 31, 1998 (unaudited) $ 36,734
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
FS-11
<PAGE>
THE BERG PROPERTIES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
--------------
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- ------------------------------------
1998 1997 1997 1996 1995
----------- ----------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income 7,095 4,460 $ 23,778 $ 13,841 $ 32,091
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 1,935 1,680 7,717 6,739 6,323
Loan fee amortization 3 3 12 10 10
Gain on sale of property - - - - (20,779)
Extraordinary gain on extinguishment of debt - - - (610) (3,206)
Changes in assets and liabilities:
Deferred rent receivable (221) (326) (1,330) (586) (77)
Other assets (966) (1,660) (1,221) (406) 354
Accrued expenses 1,447 622 (160) 353 1,841
Other liabilities 542 698 1,113 907 (165)
----------- ----------- -------- -------- --------
Net cash provided by operating activities 9,835 5,477 29,909 20,248 16,392
----------- ----------- -------- -------- --------
Investing activities:
Purchase and improvements to real estate (236) (3,454) (17,251) (29,275) (35,910)
Proceeds from sale of property - - - - 29,557
----------- ----------- -------- -------- --------
Net cash (used in) investing activities (236) (3,454) (17,251) (29,275) (6,353)
----------- ----------- -------- -------- --------
Financing activities:
Borrowings on lines of credit - - 3,750 6,999 1,034
Repayments on lines of credit - - (1,335) (952) (5,978)
Borrowings on notes payable (related parties) - - - - 637
Repayments on notes payable (related parties) (154) (135) (571) (504) (474)
Borrowings on mortgage notes payable - - 3,105 - -
Repayments on mortgage notes payable (339) (102) (2,429) (1,563) (1,210)
Capital contributions - - 755 12,299 2,953
Capital distributions (12) (403) (11,707) (6,846) (6,975)
----------- ----------- -------- -------- --------
Net cash (used in) provided by financing
activities (505) (640) (8,432) 9,433 (10,013)
----------- ----------- -------- -------- --------
Increase in cash and cash equivalents 9,094 1,383 4,226 406 26
Cash and cash equivalents at the beginning of
the period 5,719 1,493 1,493 1,087 1,061
----------- ----------- -------- -------- --------
Cash and cash equivalents at the end of the
period $14,813 $ 2,876 $ 5,719 $ 1,493 $ 1,087
----------- ----------- -------- -------- --------
----------- ----------- -------- -------- --------
Noncash investing and financing activities:
Noncash transfers of construction-in-progress - $ 3,340 $ 6,775 $ 75 -
----------- ----------- -------- -------- --------
----------- ----------- -------- -------- --------
Noncash property distribution - - - - $ 6,775
----------- ----------- -------- -------- --------
----------- ----------- -------- -------- --------
Supplemental information:
Cash paid for interest, net of amounts
capitalized $ 1,485 $ 1,470 $ 6,272 $ 6,278 $ 6,243
----------- ----------- -------- -------- --------
----------- ----------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-12
<PAGE>
THE BERG PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
--------------
1. ORGANIZATION AND BUSINESS:
ORGANIZATION:
The Berg Properties do not constitute a legal entity, but rather are a
combination of various research and development properties held by
entities controlled by the Carl E. Berg, Clyde J. Berg, members of
their immediate families and certain entities which they control
(collective, the "Berg Group", as defined). The Berg Group has
historically been engaged in developing, owning, operating and selling
income-producing real estate primarily in the region surrounding San
Jose, California. In addition to its real estate operations, the
controlled Berg Group has been involved with other business pursuits
including technology venture capital funding, strategic investment and
business development. The accompanying financial statements reflect
only the assets, liabilities and results of operations of Berg
Properties, which will be controlled by the Company following the
consummation of the UPREIT Transactions.
BUSINESS:
On September 2, 1997, the Berg Group purchased 6,000,000 (200,000
giving effect to a 1 for 30 reverse stock split in November 1997)
newly issued shares of common stock of Mission West Properties (the
"Company"), an American Stock Exchange listed real estate company that
completed the sale of all of its real estate holdings earlier in 1997
(the "Initial Investment"). Upon consummation of the Initial
Investment, the Berg Group beneficially owned 79.6% of the voting
securities of the Company. Subsequent to the Initial Investment a
series of transactions were approved by the Company's shareholders
that included a 1 for 30 reverse stock split, a private placement of
1,250,000 shares of the Company's common stock at $4.50 per share and
the adoption of the Company's stock option plan, and a change in the
Company's year end from November 30 to December 31. The Company also
hired a new management team and issued options under the stock plan to
key employees for the purchase of 755,000 shares at $4.50 per share.
In March 1997, one officer exercised an option to 200,000 shares of
common stock at $4.50 per pursuant to a restricted stock purchase
agreement.
Pursuant to the UPREIT Transactions (as defined in the Registration
Statement on Form S-4), the Berg Group will transfer its development
and property management business to an operating partnership of which
the Company will be the sole general partner and own a percentage of
the operating partnership, will purchase approximately $69,300 of
income producing real estate, certain outstanding indebtedness of the
Berg Properties will be repaid, a third-party investment approximating
$28,300 (net of offering costs) will be received by the Company, and
the Company will elect to be taxed as a real estate investment trust
for its fiscal year-end beginning January 1, 1998. Therefore,
effective with the transactions related to the UPREIT Transactions,
the management of the historic Berg Properties and the acquisition
properties will be performed by the Company and its consolidated
operating partnership, and the Company will operate under a new
capital structure.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
PRINCIPLES OF COMBINATION:
The financial statements have been presented on a combined basis, at
historical cost, because the Berg Properties has been under the common
control of the Berg Group. All significant intergroup transactions and
balances have been eliminated in combination.
INTERIM UNAUDITED FINANCIAL INFORMATION:
The accompanying interim unaudited financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance
with generally accepted accounting
(Continued)
FS-13
<PAGE>
THE BERG PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
--------------
principles may have been condensed or omitted pursuant to such rules
and regulations, although management believes that the disclosures are
adequate to make the information presented not misleading. In the
opinion of management, all adjustments and eliminations, consisting
only of normal, recurring adjustments, necessary to present fairly the
financial position of the Berg Properties as of March 31, 1998 and
1997, and the results of their operations and cash flows for the three
months ended March 31, 1998 and 1997, have been included. The results
of operations for such interim periods are not necessarily indicative
of the results of the full year.
MANAGEMENT ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that may affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
REVENUE RECOGNITION:
Rental income is recognized on a straight-line method of accounting
under which contractual rent payment increases are recognized evenly
over the lease term. Certain lease agreements contain terms which
provide for additional rents based on reimbursement of certain costs.
These additional rents are reflected on the accrual basis.
PROPERTY:
Property and equipment is stated at the lower of cost or fair value.
Cost includes expenditures for improvements or replacements and the
net amount of interest cost associated with capital additions.
Capitalized interest was $257 in 1997 and $459 in 1996. Maintenance
and repairs are charged to expense as incurred. Gains and losses from
sales are included in income in accordance with Financial Accounting
Standards No. 66, ACCOUNTING FOR SALES OF REAL ESTATE.
Losses in carrying values of investment assets are provided by
management when the losses become apparent and the investment asset is
considered impaired. Management evaluates is investment assets on a
periodic basis, to assess whether any impairment indications are
present. If an investment asset is considered to be impaired, a loss
is provided to reduce the carrying value of the investment asset to
its estimated fair value. No such losses have been required or
provided in the accompanying financial statements.
DEPRECIATION:
Depreciation is computed using the straight-line method over estimated
useful lives of 40 years for buildings, over the life of lease terms
which average 10 years for tenant improvements, and 10 years for
furniture and equipment.
STATEMENTS OF CASH FLOWS:
Cash and cash equivalents include all cash and liquid investments with
an original maturity date from date of purchase of three months or
less.
EXTERNAL LEASE ACQUISITION COSTS:
External lease acquisition costs are capitalized and amortized over
the lives of the related leases.
LOAN FEES:
Loan fees are stated at cost and are being amortized under a method of
accounting which approximates the effective interest method over the
terms of the related notes. Upon refinancing, property disposition or
loan termination, such fees are directly written-off.
(Continued)
FS-14
<PAGE>
THE BERG PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
--------------
INCOME TAXES:
No federal or state income taxes are payable by the entities which own
the Berg Properties and none have been provided for in the
accompanying financial statements, as such properties are owned by
partnerships whose partners are required to include their respective
share of profits and losses in their individual tax returns.
CONCENTRATION OF CREDIT RISK:
Management of the Berg Properties performs ongoing credit evaluations
of their tenants. The Berg Properties are not geographically diverse,
and their tenants operate primarily in the technology industry.
Additionally, because the Berg Properties are leased to 71 tenants,
default by any major tenant could significantly impact the results of
the combined total. The largest of such tenants, calculated as a
percentage of aggregate base rent, are Apple Computers, Inc., 16.3%;
Amdahl Corporation, 8.7%; Cisco Systems, Inc., 7.2%; and nine other
tenants, approximating 24.6%. However, management believes the risk of
such a default is reduced because of the critical nature of these
properties for ongoing tenant operations.
COMMITMENTS AND CONTINGENCIES:
Members of the Berg Group and the entities which hold the Berg
Properties are party to litigation arising out of the normal course of
business. While the ultimate results of any such lawsuits or other
proceedings cannot be predicted with certainty, management does not
expect that these matters will have a material adverse effect on the
combined financial position or results of operations of the Berg
Properties.
Insurance policies currently maintained by the Berg Properties do not
cover damage caused by seismic activity, although they do cover losses
from fires after an earthquake.
3. EXTERNAL LEASE ACQUISITION COSTS:
Included in other assets are external lease acquisition costs.
Accumulated amortization related to these costs aggregated $1,353 and
$661 as of December 31, 1997 and 1996, respectively.
4. LOAN FEES:
Included in other assets are loan fees. Accumulated amortization
related to these fees aggregated $198 and $186 as of December 31, 1997
and 1996, respectively.
5. NOTES PAYABLE:
Historically, the Berg Properties have had access to credit facilities
entered into by members of the Berg Group. Balances under such
facilities have been allocated to entities within the Berg Group
generally based on approximate use of the credit facilities.
Borrowings under these credit facilities have been used to finance
various ventures including commercial real estate development and
acquisition, including assets that are included in the Berg
Properties, technology venture capital investments and other assets
unrelated to real estate not included in these financial statements.
Included in the accompanying financial statements is an allocation of
certain lines of credit with an aggregate borrowing limit of $130,000.
These lines of credit facilities are collateralized by certain Berg
Properties and other assets of the Berg Group. Among other
requirements, the credit facilities have covenants requiring the
owners to maintain certain levels of personal net worth and carry
interest rates based on the prime rate in effect on the first day of
each calendar month, less the Purchased Funds Rate quoted on the first
day of each calendar month less 1.65%, which was 7.24% at December 31,
1997. Aggregate borrowings outstanding under the lines of credit
facilities at December 31, 1997 totaled $99,192 with $37,953 allocated
to the Berg
(Continued)
FS-15
<PAGE>
THE BERG PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
--------------
Properties and included in these financial statements. Included in the
aggregate borrowing under the line of credit facilities is
approximately $12,000 related to an embezzlement by a former employee.
Amounts allocated to the Berg Properties do not include any amounts
related to the theft as such amounts have been allocated to certain
Berg Group Members.
Pursuant to the UPREIT Transactions, it is anticipated that the notes
payable of the Berg Properties will be restructured and/or retired
through a combination of new debt and equity.
Principal payments on outstanding borrowings as of December 31, 1997
are due as follows:
<TABLE>
<CAPTION>
Notes Payable Mortgage Notes
Lines of Credit (Related Parties) Payable
--------------- ----------------- --------------
<S> <C> <C> <C>
1998 - $ 639 $ 4,464
1999 $37,953 607 1,325
2000 - 262 4,552
2001 - 139 1,580
2002 - 72 1,726
Thereafter - 256 24,907
------- ------ -------
$37,953 $1,975 $38,554
------- ------ -------
------- ------ -------
</TABLE>
(Continued)
FS-16
<PAGE>
THE BERG PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
-----------
<TABLE>
<CAPTION>
5. NOTES PAYABLE:
--------------
Balance Balance
Dec. 31, Dec. 31,
Description Berg Group Collateral Properties Start Date 1997 1996 Matures Rate
- ------------------ -------------------------------------- ---------- ------------- ------------- ------------ ----
<S> <C> <C> <C> <C> <C> <C>
LINES OF CREDIT:
Wells Fargo Bank 2251 Lawson Lane, Santa Clara, CA Various $37,953,115 $35,537,833 October 1999 (1)
Clara, CA, 3301 Olcott, ------------- -------------
Santa Clara, CA, 1230 & ------------- -------------
1250 Arques, Sunnyvale, CA,
1135 Kern, Sunnyvale, CA,
405 Tasman, Sunnyvale,
CA 1190 Morse Avenue,
Sunnyvale, CA,
450 National Avenue,
Mountain View, CA,
10300 Bubb Road, Cupertino,
CA, 10440 Bubb Road,
Cupertino, CA, 10460 Bubb
Road, Cupertino, CA,
20605 - 20705 Valley Green
Drive, Cupertino, CA,
20400 Mariana, Cupertino, CA,
2033 - 2243 Samaritan Drive,
San Jose, CA, 10500 de Anza
Boulevard, Cupertino, CA
MORTGAGE NOTES:
Great West Life & 6320 San Ignacio Ave, San Jose, CA January 1984 7,871,793 7,999,883 February 2004 7%
Annuity Insurance
Company
Great West Life & 6385 San Ignacio Ave, San Jose, CA April 1984 1,986,001 2,018,561 May 2004 7%
Annuity Insurance
Company 6540 Via del Oro, San Jose, CA
Great West Life & 1170 Morse Avenue, Sunnyvale, CA April 1984 3,755,444 3,817,019 May 2004 7%
Annuity Insurance
Company
National Electrical
Contractors 2251 Lawson Lane, Santa Clara, CA January 1980 4,820,216 5,058,865 January 2009 9.75%
Association
Pension Benefit
Trust Fund
Prudential Capital
Group 1230 E. Arques, Sunnyvale, CA October 1977 1,147,269 1,216,466 November 2007 9%
Prudential Capital
Group 450 National Avenue, Mountain View, CA July 1973 0 0 9.25%
Prudential Capital
Group 3301 Olcott, Santa Clara, CA July 1977 0 1,113,702 8.75%
Prudential Capital
Group 20605 - 20705 Valley Green Drive, September 1978 3,250,320 3,422,564 October 1998 8.5%
Cupertino, CA
Prudential Capital
Group 20400 Mariani, Cupertino, CA March 1979 2,153,993 2,264,142 March 2009 8.75%
Prudential Capital
Group 1250 E. Arques, Sunnyvale, CA November 1973 2,311,583 2,551,126 November 1999 9.5%
Prudential Capital
Group 10300 Bubb Road, Cupertino, CA May 1972 0 0 8.75%
New York Life 10440 Bubb Road, Cupertino, CA January 1979 452,335 472,625 August 2009 9.5/8%
Insurance Company
Home Savings & Loan 10460 Bubb Road, Cupertino, CA January 1977 568,721 608,564 January 2007 9.5%
Association
Bank of America 1135 & 1137 Kern, Sunnyvale, CA June 1973 0 0 8.5%
Amdahl Corporation 3120 Scott, Santa Clara, CA April 1984 7,131,711 7,301,659 March 31, 9.5%
2014
Great Western Bank 10401 Bubb Road, Cupertino, CA February 1973 0 33,132 8.5%
Citicorp U.S.A. Inc. 2800 Bayview Drive, Fremont, CA April 1997 3,105,000 0 April 2000 (2)
----------- --------------
Mortgage Notes total 38,554,386 37,878,308
----------- --------------
----------- --------------
</TABLE>
- ------------------------------
(1) The lesser of Wells Fargo prime rate in effect on the first day of each
calendar month, or the LIBOR or the Wells Fargo Purchased Funds Rate quoted
on the first day of each calendar month plus 1.65%. Average rates for the
three months ended March 31, 1998 and the years ended December 31, 1997,
1996 and 1995 were 7.26%, 7.25%, 7.04% and 8.20%, respectively.
(2) One month LIBOR +1.625% adjusted monthly .
(Continued)
FS-17
<PAGE>
THE BERG PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
-------------
6. FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
requires disclosure of fair value information about financial
instruments, whether or not recognized in the statement of financial
condition, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based
upon estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used,
including the discount rate and the estimated future cash flows. In
that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instrument. SFAS No. 107
excludes certain financial instruments and all non-financial
instruments from its disclosure requirements.
The following summarizes the financial instruments and the estimate of
the fair value of each class of financial instruments for which it is
practicable to estimate that value:
CASH AND CASH EQUIVALENTS:
The carrying amount of cash and cash equivalents is considered
to be a reasonable estimate of fair value.
MORTGAGE NOTES PAYABLE:
In accordance with the requirements of Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments," management has estimated that mortgage
notes payable with an aggregate carrying value of $38,554 have
on estimated aggregate fair value of $38,211 at December 31,
1997.
7. RELATED PARTY TRANSACTIONS:
The Berg Properties are held by partnerships that have received certain
management services and financing from members of the Berg Group to the
benefit of the partnerships and the properties. Such services have
included general operating expenses, office space, and administrative
and technical assistance. The partnerships have reimbursed the Berg
Group members for the cost of providing such services and property
management services on a fee basis. Expenses related to the properties
for general and property-specific services paid to related parties
aggregated $1,050, $827, and $654 for the years ended December 31,
1997, 1996, and 1995, respectively.
Included in the financing described in Note 5, certain affiliated
entities have extended funds to the partnerships which own the
properties. These amounts are included in notes payable (related
parties) on the combined balance sheet. Such amounts are due upon
demand and accrue interest at a rate equal to that charged on the lines
of credit facilities and interest incurred on such advances is included
in interest expense (related parties) in the combined statements of
operations.
8. OPERATING LEASES:
The Berg Properties are leased to tenants under net operating leases
with initial term expiration dates extending to the year 2008. Future
minimum rentals under noncancelable operating leases, excluding tenant
reimbursements of expenses as of December 31, 1997, are approximately
as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $41,320
1999 39,300
2000 34,379
2001 29,645
2002 22,870
Thereafter 32,940
--------
$200,454
--------
--------
</TABLE>
(Continued)
FS-18
<PAGE>
THE BERG PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
----------
Minimum rental revenues, as presented for the years ended December 31,
1997, 1996 and 1995, contain straight-line adjustments for rental
revenue increases in accordance with generally accepted accounting
principles. The aggregate rental revenue increases resulting from the
straight-line adjustments for the years ended December 31, 1997, 1996
and 1995 were $1,301, $586, and $77, respectively.
9. EXTRAORDINARY ITEMS:
In 1996 and 1995, net gains of $610 and $3,206, respectively, were
realized as a result of early extinguishment of certain debt
obligations.
FS-19
<PAGE>
THE BERG PROPERTIES
SCHEDULE III
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------------------------
Cost
Initial Cost Capitalization
---------------------------------------------- Subsequent to
Shell Tenant Acquisition/
Building Sq. Ft. Encumbrance Land Improvements Improvements Improvement
- ------------------------------ --------- ----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
6850 Santa Teresa 30,000 $ 105,060 $ 317,106 $ 188,211 0
6331 San Ignacio 131,250 122,928 1,127,074 705,238 $ 3,964,830
6341 San Ignacio 95,040 122,928 1,127,074 705,238 (117,704)
75 E. Trimble 93,984 960,000 1,150,928 955,299 2,168,521
1170 Morse 34,750 3,755,444 48,685 909,965 793,345 800,000
6540 Via Del Oro 31,800 993,000 80,772 334,458 303,990 0
6385-6387 San Ignacio 34,800 993,001 88,923 365,741 332,669 0
1212 Bordeaux 71,800 4,000,000 1,102,092 46,500 180,950 5,079,735
150-160 Great Oaks 52,000 187,425 572,879 912,960 75,439
140 Great Oaks 52,259 187,425 572,879 543,286 445,113
6311 San Ignacio 30,000 60,461 289,440 274,346 2,559
6321 San Ignacio 103,894 191,461 916,560 868,761 2,233,199
6320 San Ignacio 157,092 7,871,793 178,414 1,920,012 1,062,547 1,355,351
2610 N. First St. 77,547 639,999 1,435,464 985,593 879,605
2033-43 Samaritan 75,168 409,321 912,880 2,792,320 236,712
2133 Samaritan 80,000 435,634 971,583 2,971,817 2,887
2233 - 43 Samaritan 79,924 435,220 970,640 2,968,994 2,884
3236 Scott 54,672 7,504,850 1,457,273 724,086 1,388,005 700,000
1810 McCandless Dr. 39,800 564,762 784,519 784,519 7,716
1740 McCandless Dr. 51,602 732,232 1,017,155 1,017,155 5,951
1680 McCandless Dr. 73,253 990,398 0 0 3,562,232
1600 McCandless Dr. 40,970 581,364 807,582 807,582 6,126
1500 McCandless Dr. 42,700 605,913 841,683 841,683 6,565
1450 McCandless Dr. 45,312 606,086 0 0 2,136,034
1350 McCandless Dr. 46,272 593,511 0 0 2,206,705
1325 McCandless Dr. 77,568 1,027,019 0 0 3,574,201
1425 McCandless Dr. 38,579 549,423 763,211 763,211 5,790
1525 McCandless Dr. 28,655 406,614 564,834 564,834 4,285
1575 McCandless Dr. 33,263 472,002 655,665 655,665 4,974
1625 McCandless Dr. 33,625 477,139 662,801 662,801 5,027
1745 McCandless Dr. 35,731 507,023 704,313 704,313 5,342
1765 McCandless Dr. 118,708 1,532,956 0 0 5,018,826
1600 Memorex Drive 109,666 1,000,000 875,000 875,000 559
4949 Hellyer Avenue 200,484 1,986,336 4,585,362 4,735,026 (10,000
2001 Logic 72,426 1,007,959 1,440,000 1,277,443 0
2251 Lawson 125,000 4,820,216 998,430 2,163,118 2,369,128 8,000
1230 Arques 60,000 1,147,269 49,867 721,721 624,669 156,112
450-460 National 36,100 29,161 219,655 234,550 85,347
1135 Kern Avenue 18,300 65,306 126,199 151,631 69,584
10300 Bubb 23,400 94,336 152,665 153,488 185,899
20400 Mariani 105,000 2,153,993 596,259 956,846 1,139,174 0
3301 Olcott 64,500 576,082 643,859 586,689 838,046
1250 Arques 200,000 2,311,583 413,831 1,432,307 2,359,186 366,506
10500 De Anza 211,000 16,000,000 1,498,500 5,086,027 7,200,447 0
20605-705 Valley Green 142,000 3,250,320 532,821 1,644,011 2,178,848 636,776
1190 Morse/405 Tasman 28,350 49,231 263,040 249,865 136,082
10440 Bubb 19,500 452,335 55,493 292,807 494,892 136,061
10460 Bubb 30,460 568,721 175,162 364,464 219,312 136,861
3120 Scott 75,000 7,131,711 350,574 3,387,720 3,074,872 900,100
3501 W Warren Bld 67,864 4,902,185 1,436,890 1,813,361 1,789,802 (15,482
48800 Milmont Drive 53,000 3,170,096 1,052,190 1,158,065 1,172,833 9,430
4750 Patrick Henry 65,780 2,375,984 1,163,575 1,146,854 1,147,020 0
10401 Bubb 20,330 95,966 132,403 208,010 0
2800 Bayview 59,736 3,105,000 737,855 1,734,146 0 0
--------- ----------- ----------- ------------ ------------ -------------
Subtotal 3,779,914 $76,507,501 $30,426,287 $51,806,662 $57,977,217 $38,018,786
--------- ----------- ----------- ------------ ------------ -------------
--------- ----------- ----------- ------------ ------------ -------------
<CAPTION>
December 31, 1997
--------------------------------------------------------------------------------
Gross Amount at Which Carried at Close of
Period
----------------------------------------------
Shell & Tenant Accumulated Date of
Building Land Improvements Improvements Total Depreciation Completion
- ------------------------------ ----------- ------------ ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
6850 Santa Teresa $ 105,060 $ 317,106 $ 188,211 $ 610,377 $ (509,475) 1979
6331 San Ignacio 122,928 1,356,086 4,441,056 5,920,070 (2,587,448) 1980
6341 San Ignacio 122,928 981,548 733,060 1,837,536 (1,155,158) 1980
75 E. Trimble 960,000 1,150,928 3,123,820 5,234,748 (2,054,859) 1981
1170 Morse 48,685 909,965 1,593,345 2,551,995 (1,257,784) 1980
6540 Via Del Oro 80,772 334,458 303,990 719,220 (564,532) 1980
6385-6387 San Ignacio 88,923 365,741 332,669 787,333 (617,790) 1980
1212 Bordeaux 1,102,092 530,517 4,776,668 6,409,277 (1,474,232) 1984
150-160 Great Oaks 187,425 572,879 988,399 1,748,703 (1,263,387) 1982
140 Great Oaks 187,425 572,879 988,399 1,748,703 (1,264,760) 1982
6311 San Ignacio 60,461 289,629 276,716 626,806 (494,691) 1981
6321 San Ignacio 191,461 1,120,216 2,898,304 4,209,981 (1,956,235) 1981
6320 San Ignacio 178,414 1,920,011 2,417,899 4,516,324 (2,496,504) 1982
2610 N. First St. 639,999 1,435,464 1,865,198 3,940,661 (2,344,027) 1981
2033-43 Samaritan 409,321 912,880 3,029,032 4,351,233 (2,689,750) 1984
2133 Samaritan 435,634 971,583 2,974,704 4,381,921 (2,863,030) 1984
2233 - 43 Samaritan 435,220 970,640 2,971,878 4,377,738 (2,769,310) 1984
3236 Scott 1,457,273 724,086 2,088,005 4,269,364 (2,041,780) 1981
1810 McCandless Dr. 564,762 787,362 789,392 2,141,516 (322,450) 1995
1740 McCandless Dr. 732,232 1,019,348 1,020,913 2,772,493 (260,940) 1995
1680 McCandless Dr. 990,398 1,721,342 1,840,890 4,552,630 (541,969) 1996
1600 McCandless Dr. 581,364 809,839 811,451 2,202,654 (266,610) 1995
1500 McCandless Dr. 605,913 844,216 845,715 2,295,844 (277,866) 1995
1450 McCandless Dr. 593,511 1,057,469 1,091,140 2,742,120 (345,049) 1995
1350 McCandless Dr. 606,086 1,079,873 1,114,257 2,800,216 (352,358) 1996
1325 McCandless Dr. 1,027,049 1,738,889 1,835,282 4,601,220 (612,079) 1997
1425 McCandless Dr. 549,423 765,344 766,868 2,081,635 (261,180) 1995
1525 McCandless Dr. 406,614 566,413 567,540 1,540,567 (193,498) 1995
1575 McCandless Dr. 472,002 657,498 658,806 1,788,306 (224,614) 1995
1625 McCandless Dr. 477,139 664,653 665,976 1,807,768 (227,058) 1995
1745 McCandless Dr. 507,023 706,281 707,687 1,920,991 (241,280) 1995
1765 McCandless Dr. 1,532,956 2,627,962 2,390,864 6,551,782 (812,926) 1997
1600 Memorex Drive 1,000,000 875,000 875,559 2,750,559 (704,447) 1995
4949 Hellyer Avenue 1,986,336 4,575,362 4,735,026 11,296,724 (1,399,886) 1995
2001 Logic 1,007,959 1,440,000 1,277,443 3,725,402 (779,626) 1992
2251 Lawson 998,430 2,163,118 2,377,128 5,538,676 (3,831,224) 1979
1230 Arques 49,867 805,423 697,079 1,552,369 (1,373,925) 1977
450-460 National 29,161 240,292 299,260 568,713 (568,713) 1973
1135 Kern Avenue 65,306 126,199 221,215 412,720 (391,853) 1973
10300 Bubb 94,336 152,665 339,387 586,388 (478,274) 1972
20400 Mariani 596,259 956,846 1,139,174 2,692,279 (2,060,466) 1978
3301 Olcott 576,082 633,859 1,434,735 2,644,676 (1,225,375) 1977
1250 Arques 413,831 1,570,769 2,587,230 4,571,830 (4,359,010) 1974
10500 De Anza 1,498,500 5,086,027 7,200,447 13,784,974 (13,293,962) 1981
20605-705 Valley Green 532,821 1,644,011 2,815,624 4,992,456 (3,853,122) 1975
1190 Morse/405 Tasman 49,231 327,704 321,283 698,218 (602,821) 1976
10440 Bubb 55,493 366,034 557,726 979,253 (787,043) 1979
10460 Bubb 175,162 418,778 301,859 895,799 (698,076) 1976
3120 Scott 350,574 3,377,720 3,984,972 7,713,266 (5,032,610) 1983
3501 W Warren Bld 1,436,890 1,847,476 1,740,205 5,024,571 (351,697) 1997
48800 Milmont Drive 1,052,190 1,158,065 1,182,263 3,392,518 (316,976) 1996
4750 Patrick Henry 1,163,575 1,146,854 1,147,020 3,457,449 (425,734) 1996
10401 Bubb 95,966 132,403 208,010 436,379 (405,719) 1972
2800 Bayview 737,855 1,734,146 0 2,472,001 (437,151) 1994
----------- ------------ ------------ ------------ -----------
Subtotal $30,426,317 $61,261,856 $86,540,779 $178,228,952 $78,077,441
----------- ------------ ------------ ------------ -----------
----------- ------------ ------------ ------------ -----------
</TABLE>
FS-20
<PAGE>
THE BERG PROPERTIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(IN THOUSANDS)
----------
Summary of activity for real estate and accumulated depreciation is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1997 1996 1995
----------------- ------------------ ----------------
<S> <C> <C> <C>
Real estate:
Balance at beginning of year $154,999 $133,014 $120,382
Improvements and acquisition/development
of real estate 23,230 22,775 35,910
Disposal of real estate - (790) (23,278)
----------------- ------------------ ----------------
Balance at end of year $178,229 $154,999 $133,014
----------------- ------------------ ----------------
----------------- ------------------ ----------------
Accumulated depreciation:
Balance at beginning of year $71,064 $64,857 $66,174
Depreciation expense 7,013 6,387 6,132
Disposal of real estate - (180) (7,449)
----------------- ------------------ ----------------
Balance at end of year $78,077 $71,064 $64,857
----------------- ------------------ ----------------
----------------- ------------------ ----------------
</TABLE>
FS-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Berg Group:
We have audited the accompanying Statement of Revenue and Certain Expenses of
the Fremont Properties as described in Note 2 for the year ended December 31,
1997. The Statement of Revenue and Certain Expenses is the responsibility of the
management of the Fremont Properties. Our responsibility is to express an
opinion on the Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission, for inclusion in the registration statement on Form S-4 of
Mission West Properties as described in Note 1, and is not intended to be a
complete presentation of the Fremont Properties' revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
present fairly, in all material respects, the revenue and certain expenses of
the Fremont Properties described in Note 2 for the year ended December 31, 1997,
in conformity with generally accepted accounting principles.
San Francisco, California
April 17, 1998 Coopers & Lybrand L.L.P.
FS-22
<PAGE>
FREMONT PROPERTIES
STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
----------
<TABLE>
<CAPTION>
Three Months Ending March 31,
------------------------------ Year Ended
1998 1997 December 31, 1997
-------------- -------------- ------------------
(unaudited)
Revenue:
<S> <C> <C> <C>
Base rent $530 $223 $1,256
Tenant reimbursements 64 28 173
-------------- -------------- ------------------
594 251 1,429
Expenses:
Property operating
and maintenance 7 11 40
Real estate taxes 23 55 234
-------------- -------------- ------------------
Total expenses 30 66 274
-------------- -------------- ------------------
Revenue in excess of
certain expenses $564 $185 $1,155
============== ============== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-23
<PAGE>
FREMONT PROPERTIES
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The accompanying Statement of Revenue and Certain Expenses was prepared for
the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the registration statement on Form
S-4 of Mission West Properties. The accompanying statement is not
representative of the actual operations of the Fremont Properties, as
defined in Note 2, for the period presented nor indicative of future
operations. Certain expenses, primarily depreciation, amortization and
interest expense, which may not be comparable to the expenses expected to
be incurred by Mission West Properties in future operations of the Fremont
Properties, have been excluded.
REVENUE AND EXPENSE RECOGNITION:
Revenue is recognized on a straight-line basis over the terms of the
related leases. Expenses are recognized in the period in which they are
incurred.
USE OF ESTIMATES:
The preparation of the Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of the combined revenue and expenses during the reporting periods.
Actual results could differ from these estimates.
2. DESCRIPTION OF PROPERTIES:
The accompanying Statement of Revenue and Certain Expenses relate to the
combined operations of three properties at 4050 Starboard Drive, 45700
Northport Loop East and 45738 Northport Loop West. The commercial buildings
have approximately 144,000 rental square feet and are located in Fremont,
California. The Fremont Properties have been presented on a combined basis
because the Fremont Properties were under common ownership and management
of the developer.
The Properties were developed with physical completion and lease-up
concluded in the first quarter of 1997. Therefore no prior period
information is available.
3. RENTALS:
The Properties have entered into tenant leases that provide for tenants to
share in the operating expenses and real estate taxes on a pro rata basis,
as defined.
FS-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Berg Group:
We have audited the accompanying combined Statements of Revenue and Certain
Expenses of the Kontrabecki Properties as described in Note 2 for the years
ended December 31, 1997, 1996 and 1995. The Statements of Revenue and Certain
Expenses are the responsibility of the management of the Kontrabecki Properties.
Our responsibility is to express an opinion on these Statements of Revenue and
Certain Expenses based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying combined Statements of Revenue and Certain Expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, for inclusion in the registration statement
on Form S-4 of Mission West Properties as described in Note 1, and is not
intended to be a complete presentation of the Kontrabecki Properties' revenue
and expenses.
In our opinion, the combined Statements of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the combined revenue and
certain expenses of the Kontrabecki Properties described in Note 2 for the years
ended December 31, 1997, 1996 and 1995, in conformity with generally accepted
accounting principles.
San Francisco, California
April 17, 1998 Coopers & Lybrand L.L.P.
FS-25
<PAGE>
KONTRABECKI PROPERTIES
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
----------
<TABLE>
<CAPTION>
Three Months Ended Year Ended December 31,
March 31,
-------------------- -----------------------------
1998 1997 1997 1996 1995
--------- --------- -------- -------- ---------
(unaudited)
Revenue:
<S> <C> <C> <C> <C> <C>
Base rent $1,128 $802 $4,153 $3,388 $3,136
Other income - - 77 61 58
--------- --------- -------- -------- ---------
1,128 802 4,230 3,449 3,194
--------- --------- -------- -------- ---------
Expenses:
Property operating
and maintenance - 4 9 170 417
Real estate taxes - - 12 48 11
--------- --------- -------- -------- ---------
Total expenses - 4 21 218 428
--------- --------- -------- -------- ---------
Revenue in excess of
certain expenses $1,128 $798 $4,209 $3,231 $2,766
========= ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-26
<PAGE>
KONTRABECKI PROPERTIES
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The accompanying combined Statements of Revenue and Certain
Expenses were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange
Commission for inclusion in the registration statement on Form
S-4 of Mission West Properties. The accompanying combined
statements are not representative of the actual operations of
the Kontrabecki Properties, as defined in Note 2, for the
periods presented nor indicative of future operations. Certain
expenses, primarily depreciation, amortization and interest
expense, which may not be comparable to the expenses expected
to be incurred by Mission West Properties in future operations
of the Properties, have been excluded.
REVENUE AND EXPENSE RECOGNITION:
Revenue is recognized on a straight-line basis over the terms
of the related leases. Expenses are recognized in the period
in which they are incurred.
USE OF ESTIMATES:
The preparation of the combined Statements of Revenue and
Certain Expenses in conformity with generally accepted
accounting principles requires management to make estimates
and assumptions that affect the reported amounts of the
combined revenue and expenses during the reporting periods.
Actual results could differ from these estimates.
2. DESCRIPTION OF THE PROPERTIES:
The accompanying combined Statements of Revenue and Certain Expenses
relate to the combined operations of the Kontrabecki Properties,
office buildings with approximately 416,000 rentable square feet,
located in Santa Clara, California. The Kontrabecki Properties have
been presented on a combined basis because the Kontrabecki Properties
were under common ownership and management.
3. RENTALS:
The Kontrabecki Properties' management has entered into tenant leases
that provide for tenants to share in the operating expenses and real
estate taxes on a pro forma basis, as defined. During the fourth
quarter of 1996 and throughout 1997, occupancy increase obtained at
the Kontrabecki Properties allowed for a significant portion of such
expenses to be charged to the tenants pursuant to the lease
agreements.
FS-27
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's articles of incorporation eliminate a director's personal
liability for monetary damages to the Registrant and its shareholders arising
from a breach or alleged breach of the director's fiduciary duty, except for
liability arising under Section 310 and 316 of the California General
Corporation Law or liability for (i) acts or omissions that involve intentional
misconduct or knowing and culpable violation of law, (ii) acts or omissions that
a director believes to be contrary to the best interests of the Registrant or
its shareholders or that involve the absence of good faith on the part of the
director, (iii) any transaction from which a director derived an improper
personal benefit, (iv) acts or omissions that show a reckless disregard for the
director's duty to the Registrant or its shareholders in circumstances in which
the director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to the Registrant or
its shareholders and (v) acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
Registrant or its shareholders. This provision does not eliminate the directors'
duty of care, and in appropriate circumstances equitable remedies such as an
injunction or other forms of non-monetary relief would remain available under
California Law.
Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended. The Registrant's Restated Articles of
Incorporation and Bylaws contain provisions covering indemnification of
corporate directors, officers and other agents against certain liabilities and
expenses incurred as a result of proceedings involving such persons in their
capacities as directors, officers, employees or agents, including proceedings
under the Securities Act or the Securities Exchange Act of 1934, as amended. The
Company has not entered into indemnification agreements with its directors and
executive officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
Exhibit Description
No.
- ----------- ------------------------------------------------------------
<S> <C>
2.1 Form of Merger Agreement and Plan of Merger between the
Company and Mission West-Maryland
3.1.1+ Amended and Restated Articles of Incorporation of the
Company
3.1.2+ Bylaws, as amended, of the Company
3.2.1 Form of Articles of Amendment and Restatement of Mission
West-Maryland
3.2.2 Form of Restated Bylaws of Mission West-Maryland
5.1* Opinion of Graham & James LLP regarding the validity of
the securities being registered
5.2* Opinion of Ballard Spahr Andrews & Ingersoll regarding
merger of the Company and Mission West-Maryland
II-1
<PAGE>
8.1* Opinion of Graham & James LLP regarding certain tax matters
10.1.1 Form of Amended and Restated Agreement of Limited
Partnership of Operating Partnerships
10.1.2 Form of Agreement for Assumption and Allocation of
Liabilities
10.2 Form of Exchange Rights Agreement between the Company and
the Limited Partners
10.3.1+ 1997 Stock Option Plan of the Company
10.3.2 Form of Incentive Stock Option Agreement
10.3.3 Form of Non-statutory Stock Option Agreement
10.3.4 Form of Directors Stock Option Agreement
10.4.1 Acquisition Agreement, dated as of May 14, 1998, among the
Company, Certain Partnerships and the Berg Group (as
defined therein)
10.4.2 Amendment to Acquisition Agreement, dated as of July 1,
1998
10.4.3 Form of Partnership Interest Purchase Demand Note
10.5.1 Stock Purchase Agreement dated as of May 4, 1998, between
the Company and the purchasers of Common Stock in a
private placement of 5,800,000 shares and Subscription
Agreement relating to same
10.5.2 Stock Purchase Agreement, dated as of May 4, 1998 between
the Company and the purchasers of Common Stock in a
private placement of 695,058 shares and Subscription
Agreement relating to same
10.6 Pending Projects Acquisition Agreement among the Company,
the Operating Partnership and the members of the Berg Group
10.7 Berg Land Holdings Option Agreement between the Company
and certain members of the Berg Group
10.8 Berg & Berg Enterprises, Inc. Sublease Agreement
10.9 Incentive Stock Option Agreement for Michael J. Anderson
(200,000 shares of Common Stock)
10.10 Restricted Stock Purchase Agreement for Michael J.
Anderson (200,000 shares of Common Stock)
10.11 Promissory Note from Michael J. Anderson
10.12** Lease Agreement with Apple Computer, Inc.
II-2
<PAGE>
10.13** Lease Agreement with Cisco Systems, Inc.
10.14** Lease Agreement with Amdahl Corporation
23.1* Consent of Graham & James LLP (included in the opinion
filed as Exhibit 5.1 to this Registration Statement)
23.2* Consent of Ballard Spahr Andrews & Ingersoll (included in
the opinion filed as Exhibit 5.2 to this Registration
Statement)
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of PricewaterhouseCoopers LLP
23.5* Consent of BT Commercial
24.1** Powers of Attorney
99.1* Form of Proxy for the Company's Shareholders
99.2* Form of Letter to the Company's Shareholders
99.3 Form of Notice to the Company's Shareholders
</TABLE>
+ Incorporated by reference
* To be filed by amendment.
** Previously filed
II-3
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act and,
where interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(d) The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
registrant undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
II-4
<PAGE>
(e) The undersigned Registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (d) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(f) Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission and indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in a successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(g) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(h) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Cupertino, State
of California on July 20, 1998.
MISSION WEST PROPERTIES
By: /s/ Carl E. Berg
---------------------------------------
Carl E. Berg
Chairman of the Board, Chief Executive
Officer, President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated, effective July 20, 1998.
SIGNATURE TITLE
/s/ Carl E. Berg Chairman of the Board, Chief Executive
- -------------------------- Officer, President, Chief Financial Officer
Carl E. Berg and Director
* Michael J. Anderson Vice President, Chief Operating Officer and
- -------------------------- Director
Michael J. Anderson
* John C. Bolger Director
- --------------------------
John C. Bolger
* /s/ Carl E. Berg
- --------------------------
Carl E. Berg
Attorney-in-fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
No.
- ----------- ------------------------------------------------------------
<S> <C>
2.1 Form of Merger Agreement and Plan of Merger between the
Company and Mission West-Maryland
3.1.1+ Amended and Restated Articles of Incorporation of the
Company
3.1.2+ Bylaws, as amended, of the Company
3.2.1 Form of Articles of Amendment and Restatement of Mission
West-Maryland
3.2.2 Form of Restated Bylaws of Mission West-Maryland
5.1* Opinion of Graham & James LLP regarding the validity of
the securities being registered
5.2* Opinion of Ballard Spahr Andrews & Ingersoll regarding
merger of the Company and Mission West-Maryland
8.1* Opinion of Graham & James LLP regarding certain tax matters
10.1.1 Form of Amended and Restated Agreement of Limited
Partnership of Operating Partnerships
10.1.2 Form of Agreement for Assumption and Allocation of
Liabilities
10.2 Form of Exchange Rights Agreement between the Company and
the Limited Partners
10.3.1+ 1997 Stock Option Plan of the Company
10.3.2 Form of Incentive Stock Option Agreement
10.3.3 Form of Non-statutory Stock Option Agreement
10.3.4 Form of Directors Stock Option Agreement
10.4.1 Acquisition Agreement, dated as of May 14, 1998, among the
Company, Certain Partnerships and the Berg Group (as
defined therein)
10.4.2 Amendment to Acquisition Agreement, dated as of July 1,
1998
10.4.3 Form of Partnership Interest Purchase Demand Note
10.5.1 Stock Purchase Agreement dated as of May 4, 1998, between
the Company and the purchasers of Common Stock in a
private placement of 5,800,000 shares and Subscription
Agreement relating to same
10.5.2 Stock Purchase Agreement, dated as of May 4, 1998 between
the Company and the purchasers of Common Stock in a
private placement of 695,058 shares and Subscription
Agreement relating to same
10.6 Pending Projects Acquisition Agreement among the Company,
the Operating Partnership and the members of the Berg Group
10.7 Berg Land Holdings Option Agreement between the Company
and certain members of the Berg Group
10.8 Berg & Berg Enterprises, Inc. Sublease Agreement
10.9 Incentive Stock Option Agreement for Michael J. Anderson
(200,000 shares of Common Stock)
10.10 Restricted Stock Purchase Agreement for Michael J.
Anderson (200,000 shares of Common Stock)
10.11 Promissory Note from Michael J. Anderson
10.12** Lease Agreement with Apple Computer, Inc.
10.13** Lease Agreement with Cisco Systems, Inc.
10.14** Lease Agreement with Amdahl Corporation
23.1* Consent of Graham & James LLP (included in the opinion
filed as Exhibit 5.1 to this Registration Statement)
23.2* Consent of Ballard Spahr Andrews & Ingersoll (included in
the opinion filed as Exhibit 5.2 to this Registration
Statement)
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of PricewaterhouseCoopers LLP
23.5* Consent of BT Commercial
24.1** Powers of Attorney
99.1* Form of Proxy for the Company's Shareholders
99.2* Form of Letter to the Company's Shareholders
99.3 Form of Notice to the Company's Shareholders
</TABLE>
+ Incorporated by reference
* To be filed by amendment.
** Previosly filed
<PAGE>
MERGER AGREEMENT
AND
PLAN OF MERGER
This Merger Agreement and Plan of Merger ("Agreement") is made and
entered into as of ________ __, 1998 by and between Mission West Properties,
a California corporation ("Mission West-California" or "Parent"), and Mission
West Properties, Inc., a Maryland corporation ("Mission West-Maryland" or
"Surviving Corporation") (collectively, with Mission West-California, the
"Constituent Corporations").
ARTICLE I
THE MERGER
1.1 EFFECTIVE TIME OF THE MERGER. Mission West-California shall merge with
and into Mission West-Maryland (the "Merger") pursuant to Section 1110 of the
California General Corporation Law ("CGCL") and Sections 3-101 et seq. of the
Maryland General Corporation Law ("MGCL"). The Merger shall become effective
upon the filing of the certificate of ownership of Mission West-California,
which incorporates this Agreement, with the Secretary of State of the State of
California and acceptance for record of Articles of Merger by the State
Department of Assessments and Taxation of Maryland ("SDAT") (the "Effective Time
of Merger").
1.2 MERGER AT THE EFFECTIVE TIME. At the Effective Time of the Merger,
Mission West-California shall be merged into Mission West-Maryland, and the
separate corporate existence of Mission West-California shall cease. Mission
West-Maryland shall be the Surviving Corporation.
1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in
Section 1107 of the CGCL and Sections 3-114 of the MGCL. As the Surviving
Corporation in the Merger, Mission West-Maryland shall succeed, without other
transfer, to all the rights and property of Mission West-California and shall be
subject to all of the obligations and liabilities of Mission West-California in
the same manner as if Mission West-Maryland had incurred them itself.
ARTICLE II
APPROVAL OF THE MERGER
2.1 APPROVAL BY PARENT. The Merger shall be approved by the Board of
Directors of Mission West-California in accordance with the provisions of
<PAGE>
Section 1110(a) of the CGCL. The Merger shall be approved by the shareholders of
Mission West-California as provided in Section 1110(c) of the CGCL.
2.2 APPROVAL BY SUBSIDIARY. The Merger shall be approved by the Board of
Directors of Mission West-Maryland as provided in Sections 3-105 and 3-106 of
the MGCL.
ARTICLE III
ARTICLES OF INCORPORATION, BYLAWS AND DIRECTORS AND
OFFICERS OF THE SURVIVING CORPORATION
3.1 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles of
Amendment and Restatement (the "Charter") of Mission West-Maryland, attached
hereto as Exhibit A, in effect immediately prior to the Effective Time of the
Merger, shall be the Charter of the Surviving Corporation unless and until the
Charter is amended as provided by applicable law or as provided in such Charter.
3.2 BYLAWS OF SURVIVING CORPORATION. The Bylaws of Mission West-Maryland,
attached hereto as Exhibit B, in effect immediately prior to the Effective Time
of the Merger, shall be the Bylaws of the Surviving Corporation unless and until
amended or repealed as provided by applicable law, the Charter or Bylaws of the
Surviving Corporation.
3.3 OFFICERS AND DIRECTORS OF SURVIVING CORPORATION. The officers and
directors of Mission West-California in office immediately prior to the
Effective Time of the Merger shall be the officers and directors of the
Surviving Corporation unless and until replaced as provided by applicable law,
the Charter or the Bylaws of the Surviving Corporation.
ARTICLE IV
EFFECT ON OUTSTANDING STOCK; CAPITALIZATION
4.1 CAPITALIZATION. As of the date hereof, the authorized capital stock
of Mission West-California consists of 200,000,000 shares of Common Stock, no
par value, of which ____________ are currently issued and outstanding, and
20,000,000 shares of Preferred Stock, no par value, none of which has been
designated as any series and none of which are issued and outstanding. As of
the date hereof, the authorized stock of Mission West-Maryland consists of
200,000,000 shares of Common Stock, $0.001 par value per share, of which 100
shares are currently issued and outstanding and 20,000,000 shares of
Preferred Stock, $0.001 par value per share, none of which has been
designated as any series and none of which are issued and outstanding.
Mission West-California owns all of the issued and outstanding shares of
Common Stock of Mission West-Maryland.
4.2 EFFECT ON PARENT STOCK. At the Effective Time of the Merger, by
virtue of the Merger and without any action on the part of the Constituent
Corporations, each share of the issued and outstanding Common Stock of
Mission West-California shall be exchanged for one share of the Common Stock
of Mission West-Maryland.
4.3 EFFECT ON PARENT STOCK OPTIONS. At the Effective Time of the Merger,
by virtue of the Merger and without any action on the part of the Constituent
Corporations, the 5,500,000 shares of Common Stock reserved for issuance under
the Mission West-California 1997 Stock Option Plan shall become shares of
Common Stock of Mission West-Maryland
<PAGE>
reserved for issuance under such Plan, and options to purchase _______ shares of
Common Stock of Mission West-California which have been granted and are
outstanding under such Plan shall be exchangeable for options to purchase the
same number of shares of Mission West-Maryland Common Stock at the same exercise
price per share.
4.4 EFFECT ON STOCK OF SUBSIDIARY. At the Effective Time of the Merger,
by virtue of the Merger and without any action on the part of the Constituent
Corporations, all of the shares of Common Stock of Mission West-Maryland
issued and outstanding immediately before this Effective Time of the Merger
shall be canceled. No securities, cash, or other property shall be issued to
Mission West-California as the holder of all of the outstanding shares of
Mission West-Maryland Common Stock.
ARTICLE V
GENERAL PROVISIONS
5.1 GOVERNING LAW. This Agreement shall be governed by and effected in
accordance with the laws of the State of California.
5.2 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to the Merger and supersedes all prior or
contemporaneous agreements.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
MISSION WEST PROPERTIES,
a California corporation
By:
--------------------------------
Carl E. Berg, President
and Chief Executive Officer
By:
--------------------------------
Bradley A. Perkins, Secretary
MISSION WEST PROPERTIES, INC.
a Maryland corporation
By: (SEAL)
--------------------------
Carl E. Berg, President
and Chief Executive Officer
Attest:
----------------------------
Bradley A. Perkins, Secretary
<PAGE>
MISSION WEST PROPERTIES, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST: Mission West Properties, Inc., a Maryland corporation (the
"Corporation"), desires to amend and restate its charter as currently in
effect and as hereinafter amended.
SECOND: The following provisions are all the provisions of the charter
currently in effect and as hereinafter amended:
ARTICLE I
INCORPORATOR
The undersigned, James J. Hanks, Jr., whose address is c/o Ballard Spahr
Andrews & Ingersoll, LLP, 300 East Lombard Street, Baltimore, Maryland 21202,
being at least 18 years of age, does hereby form a corporation under the
general laws of the State of Maryland.
ARTICLE II
NAME
The name of the corporation (the "Corporation") is:
Mission West Properties, Inc.
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed are to engage in any
lawful act or activity (including, without limitation or obligation, engaging
in business as a real estate investment trust under the Internal Revenue Code
of 1986, as amended, or any successor statute (the "Code")) for which
corporations may be organized under the general laws of the State of Maryland
as now or hereafter in force. For purposes of these Articles, "REIT" means a
real estate investment trust under Sections 856 through 860 of the Code.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the State of
Maryland is c/o Ballard Spahr Andrews & Ingersoll, LLP, 300 East Lombard
Street, Baltimore, Maryland 21202, Attention: James J. Hanks, Jr. The name of
the resident agent of the Corporation in the State of Maryland is James J.
Hanks, Jr., whose post address is c/o Ballard Spahr Andrews & Ingersoll, LLP,
300 East
<PAGE>
Lombard Street, Baltimore, Maryland 21202. The resident agent is a citizen of
and resides in the State of Maryland.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 5.1 NUMBER OF DIRECTORS. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors.
The number of directors of the Corporation shall be five, which number may be
increased or decreased pursuant to the Bylaws, but shall never be less than
the minimum number required nor more than the maximum number allowed by the
Maryland General Corporation Law.
Section 5.2 EXTRAORDINARY ACTIONS. Notwithstanding any provision of law
permitting or requiring any action to be taken or approved by the affirmative
vote of the holders of shares entitled to cast a greater number of votes, any
such action shall be effective and valid if taken or approved by the
affirmative vote of holders of shares entitled to cast a majority of all the
votes entitled to be cast on the matter.
Section 5.3 AUTHORIZATION BY BOARD OF ISSUANCE OF STOCK, DEBT
SECURITIES. The Board of Directors may authorize the issuance from time to
time of shares of stock of the Corporation of any class or series, whether
now or hereafter authorized, or securities or rights convertible into shares
of its stock of any class or series, whether now or hereafter authorized, for
such consideration as the Board of Directors may deem advisable (or without
consideration in the case of a stock split or stock dividend), subject to
such restrictions or limitations, if any, as may be set forth in the charter
or the Bylaws. To the fullest extent permissible under the General
Corporation Law of Maryland, the Board of Directors may authorize the
issuance from time to time of 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.
Section 5.4 PREEMPTIVE RIGHTS. Except as may be provided by the Board of
Directors in setting the terms of classified or reclassified shares of stock
pursuant to Section 6.4, or as may otherwise be provided by contract, no
holder of shares of stock of the Corporation shall, as such holder, have any
preemptive right to purchase or subscribe for any additional shares of stock
of the Corporation or any other security of the Corporation which it may
issue or sell.
Section 5.5 INDEMNIFICATION. The Corporation shall have the power, to
the maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (a) any individual who is a
present or former director or officer of the Corporation or (b) any
individual who, while a director of the Corporation and at the request of the
Corporation, serves or has served as a director, officer, partner or trustee
of another corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or any other enterprise from and
against any claim or liability to which such person may become subject or
which such person may incur by reason of his status as a present or former
director or officer of the Corporation. The Corporation shall have the power,
with the approval of the
<PAGE>
Board of Directors, to provide such indemnification and advancement of
expenses to a person who served a predecessor of the Corporation in any of
the capacities described in (a) or (b) above and to any employee or agent of
the Corporation or a predecessor of the Corporation.
Section 5.6 DETERMINATIONS BY BOARD. The determination as to any of the
following matters, made in good faith by or pursuant to the direction of the
Board of Directors consistent with the charter and in the absence of actual
receipt of an improper benefit in money, property or services or active and
deliberate dishonesty established by a court, shall be final and conclusive
and shall be binding upon the Corporation and every holder of shares of its
stock: The amount of the net income of the Corporation for any period and the
amount of assets at any time legally available for the payment of dividends,
redemption of its stock or the payment of other distributions on its stock;
the amount of paid-in surplus, net assets, other surplus, annual or other net
profit, net assets in excess of capital, undivided profits or excess of
profits over losses on sales of assets; the amount, purpose, time of
creation, increase or decrease, alteration or cancellation of any reserves or
charges and the propriety thereof (whether or not any obligation or liability
for which such reserves or charges shall have been created shall have been
paid or discharged); the fair value, or any sale, bid or asked price to be
applied in determining the fair value, of any asset owned or held by the
Corporation; any matter relating to the acquisition, holding and disposition
of any assets by the Corporation; or any other matter relating to the
business and affairs of the Corporation.
Section 5.7 REIT QUALIFICATION. If the Corporation elects to qualify for
federal income tax treatment as a REIT, the Board of Directors shall use its
reasonable best efforts to take such actions as are necessary or appropriate
to preserve the status of the Corporation as a REIT; however, the Board of
Directors may revoke or otherwise terminate the Corporation's REIT election
pursuant to Section 856(g) of the Code and may determine that compliance with
any restriction or limitation on stock ownership and transfers set forth in
Article VII is no longer required for REIT qualification upon the affirmative
vote of more than seventy-five percent (75%) of all directors then serving on
the Board of Directors.
Section 5.8 REMOVAL OF DIRECTORS. Subject to the rights of holders of
one or more classes or series of Preferred Stock to elect or remove one or
more directors, any director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and then only by the
affirmative vote of the holders of at least a majority of the votes entitled
to be cast generally in the election of directors. For the purpose of this
paragraph, "cause" shall mean with respect to any particular director,
conviction of a felony or a final judgment of a court of competent
jurisdiction holding that such director caused demonstrable, material harm to
the Corporation through bad faith or active and deliberate dishonesty.
Section 5.9 ADVISOR AGREEMENTS. Subject to such approval of stockholders
and other conditions, if any, as may be required by any applicable statute,
rule or regulation, the Board of Directors may authorize the execution and
performance by the Corporation of one or more agreements with any person,
corporation, association, company, trust, partnership (limited or general) or
other organization whereby, subject to the supervision and control of the
Board of Directors, any such other person, corporation, association, company,
trust, partnership (limited or general) or other organization shall render or
make available to the Corporation managerial, investment, advisory and/or
related services, office space and other services and facilities (including,
if deemed
<PAGE>
advisable by the Board of Directors, the management or supervision of the
investments of the Corporation) upon such terms and conditions as may be
provided in such agreement or agreements (including, if deemed fair and
equitable by the Board of Directors, the compensation payable thereunder by
the Corporation).
Section 5.10 PROTECTIVE PROVISIONS. Until such time as Carl E. Berg,
Clyde J. Berg, the members of their respective immediate families and certain
entities controlled by Carl E. Berg and/or Clyde J. Berg which are Berg &
Berg Enterprises, Inc., Baccarat Cambrian Partnership, Baccarat Fremont
Developers LLC, and DeAnza Office Partners (collectively, the "Berg Group")
and their affiliates (other than the Corporation and Mission West Properties,
L.P., Mission West Properties, L.P. I, Mission West Properties, L.P. II or
Mission West Properties, L.P. III (collectively, the "Operating
Partnership"), in the aggregate, own less than fifteen percent (15%) of the
voting stock of the Corporation (including without limitation upon the
exercise of all outstanding warrants, options, convertible securities and
other rights to acquire voting stock of the Corporation, and all units of
limited partnership interest exchangeable or redeemable for Common Stock or
other voting stock of the Corporation without regard to any ownership limit
set forth in the charter, the Bylaws or by agreement), a majority of the
directors, including Carl E. Berg or an individual whom he designates to
replace him on the Board of Directors ("Designee"), shall be required to (i)
hold a meeting of the Board of Directors which is not attended by Carl E.
Berg or his Designee, (ii) approve an amendment to the Corporation's charter
or Bylaws, or (iii) approve any merger, consolidation or sale of all or
substantially all of the assets of the Corporation or the Operating
Partnership.
Section 5.11 CONFLICT OF INTEREST. No director shall be prohibited from
voting or taking any action as a director because of any actual or apparent
conflict of interest between the director and the Corporation, and no action
taken by the board of directors will be void or voidable because (i) a
majority of directors are affiliated with the Berg Group or (ii) an action is
beneficial to the Berg Group, to the extent permitted by the Maryland General
Corporation Law.
ARTICLE VI
STOCK
Section 6.1 AUTHORIZED SHARES. The Corporation has authority to issue
200,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and 20,000,000 shares of Preferred Stock, $.001 par value per share
("Preferred Stock"). The aggregate par value of all authorized shares of stock
having par value is $220,000. If shares of one class of stock are classified
or reclassified into shares of another class of stock pursuant to this
Article VI, the number of authorized shares of the former class shall be
automatically decreased and the number of shares of the latter class shall be
automatically increased, in each case by the number of shares so classified
or reclassified, so that the aggregate number of shares of stock of all
classes that the Corporation has authority to issue shall not be more than
the total number of shares of stock set forth in the first sentence of this
paragraph. To the extent permitted by Maryland law, the Board of Directors,
without any action by the stockholders of the Corporation, may amend the
charter from time to time to increase or decrease the aggregate number of
shares of stock or the number of shares of stock of any class or series that
the Corporation has authority to issue.
<PAGE>
Section 6.2 COMMON STOCK. Subject to the provisions of Article VII, each
share of Common Stock shall entitle the holder thereof to one vote.
Section 6.3 PREFERRED STOCK. The Board of Directors may classify any
unissued shares of Preferred Stock and reclassify any previously classified
but unissued shares of Preferred Stock of any series from time to time, in
one or more classes or series of stock.
Section 6.4 CLASSIFIED OR RECLASSIFIED SHARES. Prior to issuance of
classified or reclassified shares of any class or series, the Board of
Directors by resolution shall: (a) designate that class or series to
distinguish it from all other classes and series of stock of the Corporation;
(b) specify the number of shares to be included in the class or series; (c)
set or change, subject to the provisions of Article VII and subject to the
express terms of any class or series of stock of the Corporation outstanding
at the time, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of redemption for each class or
series; and (d) cause the Corporation to file articles supplementary with the
State Department of Assessments and Taxation of Maryland ("SDAT"). Any of the
terms of any class or series of stock set or changed pursuant to clause (c)
of this Section 6.4 may be made dependent upon facts or events ascertainable
outside the charter (including determinations by the Board of Directors or
other facts or events within the control of the Corporation) and may vary
among holders thereof, provided that the manner in which such facts, events
or variations shall operate upon the terms of such class or series of stock
is clearly and expressly set forth in the articles supplementary filed with
the SDAT.
Section 6.5 CHARTER AND BYLAWS. All persons who shall acquire stock in
the Corporation shall acquire the same subject to the provisions of the
charter and the Bylaws.
ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 7.1 DEFINITIONS. For the purpose of this Article VII, the
following terms shall have the following meanings:
AMEX. The term "AMEX" shall mean the American Stock Exchange.
BENEFICIAL OWNERSHIP. The term "Beneficial Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares of
Capital Stock is held directly or indirectly (including by a nominee), and
shall include interests that would be treated as owned through the
application of Section 544 of the Code, as modified by Section 856(h)(1)(B)
of the Code. The terms "Beneficial Owner," "Beneficially Owns" and
"Beneficially Owned" shall have the correlative meanings.
BUSINESS DAY. The term "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which
banking institutions in New York City are authorized or required by law,
regulation or executive order to close.
CAPITAL STOCK. The term "Capital Stock" shall mean all classes or series
of stock of the Corporation, including, without limitation, Common Stock and
Preferred Stock and any equity security of the Company convertible into or
exchangeable for Common Stock or Preferred Stock.
<PAGE>
CHARITABLE BENEFICIARY. The term "Charitable Beneficiary" shall mean one
or more beneficiaries of the Trust as determined pursuant to Section 7.3.6,
provided that each such organization must be described in Section 501(c)(3)
of the Code and contributions to each such organization must be eligible for
deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
CHARTER. The term "Charter" shall mean the charter of the Corporation, as
that term is defined in the MGCL.
CODE. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
CONSTRUCTIVE OWNERSHIP. The term "Constructive Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares of
Capital Stock is held directly or indirectly (including by a nominee), and
shall include interests that would be treated as owned through the
application of Section 318(a) of the Code, as modified by Section 856(d)(5)
of the Code. The terms "Constructive Owner," "Constructively Owns" and
"Constructively Owned" shall have the correlative meanings.
EXCEPTED HOLDER. The term "Excepted Holder" shall mean a stockholder of the
Corporation for whom an Excepted Holder Limit is created by these Articles or by
the Board of Directors pursuant to Section 7.2.7.
EXCEPTED HOLDER LIMIT. The term "Excepted Holder Limit" shall mean,
provided that the affected Excepted Holder agrees to comply with the
requirements established by the Board of Directors pursuant to Section 7.2.7,
and subject to adjustment pursuant to Section 7.2.8, the percentage limit
established by the Board of Directors pursuant to Section 7.2.7.
INITIAL DATE. The term "Initial Date" shall mean the date upon which the
Articles of Amendment containing this Article VII are filed with the SDAT.
MARKET PRICE. The term "Market Price" on any date shall mean, with
respect to outstanding shares of Common Stock, the Closing Price for the
Common Stock on such date. The "Closing Price" on any date shall mean the
last sale price for the Common Stock, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, for the Common Stock, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the AMEX or, if the Common Stock
is not listed or admitted to trading on the AMEX, as reported on the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, the last
quoted price, or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or, if
such system is no longer in use, the principal other automated quotation
system that may then be in use or, if the Common Stock is not quoted by any
such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors of the Corporation or, in the event that
no trading price is available for the Common Stock, the fair market value of
the Common Stock, as determined in good faith by the Board of Directors of
the Corporation.
<PAGE>
MGCL. The term "MGCL" shall mean the Maryland General Corporation Law,
as amended from time to time.
OWNERSHIP LIMIT. The term "Ownership Limit" shall mean not more than
nine percent (9%) in value of the aggregate of the outstanding shares of
Capital Stock. The value of the outstanding shares of Capital Stock shall be
determined by the Board of Directors of the Corporation in good faith, which
determination shall be conclusive for all purposes hereof.
PERSON. The term "Person" shall mean an individual, corporation,
partnership, estate, trust (including a trust qualified under Sections 401(a)
or 501(c)(17) of the Code), a portion of a trust permanently set aside for or
to be used exclusively for the purposes described in Section 642(c) of the
Code, association, private foundation within the meaning of Section 509(a) of
the Code, joint stock company or other entity and also includes a group as
that term is used for purposes of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended, and a group to which an Excepted Holder Limit
applies.
PROHIBITED OWNER. The term "Prohibited Owner" shall mean, with respect
to any purported Transfer, any Person who, but for the provisions of Section
7.2.1(b), would Beneficially Own or Constructively Own shares of Capital
Stock in violation of Section 7.2.1(a), and if appropriate in the context,
shall also mean any Person who would have been the record owner of the shares
that the Prohibited Owner would have so owned.
RESTRICTION TERMINATION DATE. The term "Restriction Termination Date"
shall mean the first day after the Initial Date on which the Corporation
determines pursuant to Section 5.7 of the Charter that it is no longer in the
best interests of the Corporation to attempt to, or continue to, qualify as a
REIT or that compliance with the restrictions and limitations on Beneficial
Ownership, Constructive Ownership and Transfers of shares of Capital Stock
set forth herein is no longer required in order for the Corporation to
qualify as a REIT.
TRANSFER. The term "Transfer" shall mean any issuance, sale, transfer,
gift, assignment, devise or other disposition, as well as any other event
that causes any Person to acquire Beneficial Ownership or Constructive
Ownership, or any agreement to take any such actions or cause any such
events, of Capital Stock or the right to vote or receive dividends on Capital
Stock, including (a) the granting or exercise of any option (or any
disposition of any option), (b) any disposition of any securities or rights
convertible into or exchangeable for Capital Stock or any interest in Capital
Stock or any exercise of any such conversion or exchange right and (c)
transfers of interests in other entities that result in changes in Beneficial
or Constructive Ownership of Capital Stock; in each case, whether voluntary
or involuntary, whether owned of record, Constructively Owned or Beneficially
Owned and whether by operation of law or otherwise. The terms "Transferring"
and "Transferred" shall have the correlative meanings.
TRUST. The term "Trust" shall mean any trust provided for in Section 7.3.1.
TRUSTEE. The term "Trustee" shall mean the Person unaffiliated with the
Corporation and a Prohibited Owner, that is appointed by the Corporation to
serve as trustee of the Trust.
Section 7.2 CAPITAL STOCK.
Section 7.2.1 OWNERSHIP LIMITATIONS. During the period commencing on the
<PAGE>
Initial Date and prior to the Restriction Termination Date:
(a) BASIC RESTRICTIONS.
(i) (1) No Person, other than any Person in the Berg
Group or an Excepted Holder, shall Beneficially Own or
Constructively Own shares of Capital Stock in excess of the
Ownership Limit, and (2) no Excepted Holder shall Beneficially
Own or Constructively Own shares of Capital Stock in excess of
the Excepted Holder Limit for such Excepted Holder.
(ii) No Person, including all of the Persons in the Berg
Group, shall Beneficially or Constructively Own shares of
Capital Stock to the extent that such Beneficial or
Constructive Ownership of Capital Stock would result in the
Corporation being "closely held" within the meaning of Section
856(h) of the Code (without regard to whether the ownership
interest is held during the last half of a taxable year), or
otherwise failing to qualify as a REIT (including, but not
limited to, Beneficial or Constructive Ownership that would
result in the Corporation owning (actually or Constructively)
an interest in a tenant that is described in Section
856(d)(2)(B) of the Code if the income derived by the
Corporation from such tenant would cause the Corporation to
fail to satisfy any of the gross income requirements of
Section 856(c) of the Code).
(iii) Notwithstanding any other provisions contained
herein, any Transfer of shares of Capital Stock (whether or
not such Transfer is the result of a transaction entered into
through the facilities of the AMEX or any other national
securities exchange or automated inter-dealer quotation
system) that, if effective, would result in the Capital Stock
being beneficially owned by less than 100 Persons (determined
under the principles of Section 856(a)(5) of the Code) shall
be void AB INITIO, and the intended transferee shall acquire
no rights in such shares of Capital Stock.
(b) TRANSFER IN TRUST. If any Transfer of shares of Capital Stock
(whether or not such Transfer is the result of a transaction
entered into through the facilities of the AMEX or any other
national securities exchange or automated inter-dealer quotation
system) occurs which, if effective, would result in any Person
Beneficially Owning or Constructively Owning shares of Capital
Stock in violation of Section 7.2.1(a)(i) or (ii),
(i) then that number of shares of the Capital Stock the
Beneficial or Constructive Ownership of which otherwise would
cause such Person to violate Section 7.2.1(a)(i) or
(ii)(rounded to the nearest whole share) shall be
automatically transferred to a Trust for the benefit of a
Charitable Beneficiary, as described in Section 7.3, effective
as of the close of business on the Business Day prior to the
date of such Transfer, and such Person shall acquire no rights
in such shares; or
(ii) if the transfer to the Trust described in clause (i)
of this sentence would not be effective for any reason to
prevent the violation of Section 7.2.1(a)(i) or (ii), then the
Transfer
<PAGE>
of that number of shares of Capital Stock that otherwise would
cause any Person to violate Section 7.2.1(a)(i) or (ii) shall
be void AB INITIO, and the intended transferee shall acquire
no rights in such shares of Capital Stock.
Section 7.2.2 REMEDIES FOR BREACH. If the Board of Directors of the
Corporation or any duly authorized committee thereof shall at any time
determine in good faith that a Transfer or other event has taken place that
results in a violation of Section 7.2.1 or that a Person intends to acquire
or has attempted to acquire Beneficial or Constructive Ownership of any
shares of Capital Stock in violation of Section 7.2.1 (whether or not such
violation is intended), the Board of Directors or a committee thereof shall
take such action as it deems advisable to refuse to give effect to or to
prevent such Transfer or other event, including, without limitation, causing
the Corporation to redeem shares, refusing to give effect to such Transfer on
the books of the Corporation or instituting proceedings to enjoin such
Transfer or other event; PROVIDED, HOWEVER, that any Transfer or attempted
Transfer or other event in violation of Section 7.2.1 shall automatically
result in the transfer to the Trust described above, and, where applicable,
such Transfer (or other event) shall be void AB INITIO as provided above
irrespective of any action (or non-action) by the Board of Directors or a
committee thereof.
Section 7.2.3 NOTICE OF RESTRICTED TRANSFER. Any Person who acquires or
attempts or intends to acquire Beneficial Ownership or Constructive Ownership
of shares of Capital Stock that will or may violate Section 7.2.1(a) or any
Person who would have owned shares of Capital Stock that resulted in a
transfer to the Trust pursuant to the provisions of Section 7.2.1(b) shall
immediately give written notice to the Corporation of such event, or in the
case of such a proposed or attempted transaction, give at least 15 days prior
written notice, and shall provide to the Corporation such other information
as the Corporation may request in order to determine the effect, if any, of
such Transfer on the Corporation's status as a REIT.
Section 7.2.4 OWNERS REQUIRED TO PROVIDE INFORMATION. From the Initial
Date and prior to the Restriction Termination Date:
(a) every owner of more than five percent (or such lower percentage
as required by the Code or the Treasury Regulations promulgated
thereunder) of the outstanding shares of Capital Stock, within 30 days
after the end of each taxable year, shall give written notice to the
Corporation stating the name and address of such owner, the number of
shares of Capital Stock and other shares of the Capital Stock
Beneficially Owned and a description of the manner in which such shares
are held. Each such owner shall provide to the Corporation such
additional information as the Corporation may request in order to
determine the effect, if any, of such Beneficial Ownership on the
Corporation's status as a REIT and to ensure compliance with the
Ownership Limit; and
(b) each Person who is a Beneficial or Constructive Owner of
Capital Stock and each Person (including the stockholder of record) who
is holding Capital Stock for a Beneficial or Constructive Owner shall
provide to the Corporation such information as the Corporation may
request, in good faith, in order to determine the Corporation's status
as a REIT and to comply with requirements of any taxing authority or
governmental authority or to determine such compliance.
Section 7.2.5 REMEDIES NOT LIMITED. Subject to Section 5.7 of the Charter,
<PAGE>
nothing contained in this Section 7.2 shall limit the authority of the Board
of Directors of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders in preserving the Corporation's status as a REIT.
Section 7.2.6 AMBIGUITY. In the case of an ambiguity in the application
of any of the provisions of this Section 7.2, Section 7.3, or any definition
contained in Section 7.1, the Board of Directors of the Corporation shall
have the power to determine the application of the provisions of this Section
7.2 or Section 7.3 with respect to any situation based on the facts known to
it. In the event Section 7.2 or 7.3 requires an action by the Board of
Directors and the Charter fails to provide specific guidance with respect to
such action, the Board of Directors shall have the power to determine the
action to be taken so long as such action is not contrary to the provisions
of Sections 7.1, 7.2 or 7.3.
Section 7.2.7 EXCEPTIONS.
(a) Subject to Section 7.2.1(a)(ii), the Board of Directors of the
Corporation, in its sole discretion, may exempt a Person from the Ownership
Limit, as the case may be, and may establish or increase an Excepted Holder
Limit for such Person if:
(i) the Board of Directors obtains such representations and
undertakings from such Person as are reasonably necessary to
ascertain that no individual's Beneficial or Constructive Ownership
of such shares of Capital Stock will violate Section 7.2.1(a)(ii);
(ii) such Person does not and represents that it will not own,
actually or Constructively, an interest in a tenant of the
Corporation (or a tenant of any entity owned or controlled by the
Corporation) that would cause the Corporation to own, actually or
Constructively, more than a 9.9% interest (as set forth in Section
856(d)(2)(B) of the Code) in such tenant and the Board of Directors
obtains such representations and undertakings from such Person as
are reasonably necessary to ascertain this fact (for this purpose,
a tenant from whom the Corporation (or an entity owned or
controlled by the Corporation) derives (and is expected to continue
to derive) a sufficiently small amount of revenue such that, in the
opinion of the Board of Directors of the Corporation, rent from
such tenant would not adversely affect the Corporation's ability to
qualify as a REIT, shall not be treated as a tenant of the
Corporation); and
(iii) such Person agrees that any violation or attempted
violation of such representations or undertakings (or other action
which is contrary to the restrictions contained in Sections 7.2.1
through 7.2.6) will result in such shares of Capital Stock being
automatically transferred to a Trust in accordance with Sections
7.2.1(b) and 7.3.
(b) Prior to granting any exception pursuant to Section 7.2.7(a),
the Board of Directors of the Corporation may require a ruling from the
Internal Revenue Service, or an opinion of counsel, in either case in
form and substance satisfactory to the Board of Directors in its sole
discretion, as it may deem necessary or advisable in order to determine
or ensure the Corporation's status as a REIT. Notwithstanding the
receipt of any ruling or opinion, the Board of Directors may impose such
conditions or restrictions as it deems appropriate in connection with
granting such exception.
<PAGE>
(c) Subject to Section 7.2.1(a)(ii), an underwriter which
participates in a public offering or a private placement of Capital
Stock (or securities convertible into or exchangeable for Capital Stock)
may Beneficially Own or Constructively Own shares of Capital Stock (or
securities convertible into or exchangeable for Capital Stock) in excess
of the Ownership Limit, but only to the extent necessary to facilitate
such public offering or private placement.
(d) The Board of Directors may only reduce the Excepted Holder
Limit for an Excepted Holder: (1) with the written consent of such
Excepted Holder at any time, or (2) pursuant to the terms and conditions
of the agreements and undertakings entered into with such Excepted
Holder in connection with the establishment of the Excepted Holder Limit
for that Excepted Holder. No Excepted Holder Limit shall be reduced to a
percentage that is less than the Ownership Limit.
Section 7.2.8 INCREASE IN OWNERSHIP LIMIT. The Board of Directors may from
time to time increase the Ownership Limit.
Section 7.2.9 LEGEND. Each certificate for shares of Capital Stock shall
bear substantially the following legend:
The shares represented by this certificate are subject to
restrictions on Beneficial and Constructive Ownership and Transfer for
the purpose of the Corporation's maintenance of its status as a Real
Estate Investment Trust under the Internal Revenue Code of 1986, as
amended (the "Code"). Subject to certain further restrictions and except
as expressly provided in the Corporation's Charter, (i) no Person may
Beneficially or Constructively Own shares of Capital Stock of the
Corporation in excess of nine percent (9%) of the value of the total
outstanding shares of Capital Stock of the Corporation, unless such
Person is a member of the Berg Group, or an Excepted Holder (in which
case the Excepted Holder Limit shall be applicable); (ii) no Person may
Beneficially or Constructively Own Capital Stock that would result in
the Corporation being "closely held" under Section 856(h) of the Code or
otherwise cause the Corporation to fail to qualify as a REIT; and (iii)
no Person may Transfer shares of Capital Stock if such Transfer would
result in the Capital Stock of the Corporation being owned by fewer than
100 Persons. Any Person who Beneficially or Constructively Owns or
attempts to Beneficially or Constructively Own shares of Capital Stock
which causes or will cause a Person to Beneficially or Constructively
Own shares of Capital Stock in excess or in violation of the above
limitations must immediately notify the Corporation. If any of the
restrictions on transfer or ownership are violated, the shares of
Capital Stock represented hereby will be automatically transferred to a
Trustee of a Trust for the benefit of one or more Charitable
Beneficiaries. In addition, upon the occurrence of certain events,
attempted Transfers in violation of the restrictions described above may
be void AB INITIO. All capitalized terms in this legend have the
meanings defined in the charter of the Corporation, as the same may be
amended from time to time, a copy of which, including the restrictions
on transfer and ownership, will be furnished to each holder of Capital
Stock of the Corporation on request and without charge.
Instead of the foregoing legend, the certificate may state that the
Corporation will furnish a full statement about certain restrictions on
transferability to a stockholder on request and without charge.
<PAGE>
Section 7.2.10 Notwithstanding any other provision of this Section 7.2,
the restrictions set forth in this Section 7 other than the restrictions set
forth in Section 7.2.1(a)(ii), shall not apply to shares of Capital Stock
owned or acquired in original issuance by members of the Berg Group.
Section 7.3 TRANSFER OF CAPITAL STOCK IN TRUST.
Section 7.3.1 OWNERSHIP IN TRUST. Upon any purported Transfer or other
event described in Section 7.2.1(b) that would result in a transfer of shares
of Capital Stock to a Trust, such shares of Capital Stock shall be deemed to
have been transferred to the Trustee as trustee of a Trust for the exclusive
benefit of one or more Charitable Beneficiaries. Such transfer to the Trustee
shall be deemed to be effective as of the close of business on the Business
Day prior to the purported Transfer or other event that results in the
transfer to the Trust pursuant to Section 7.2.1(b). The Trustee shall be
appointed by the Corporation and shall be a Person unaffiliated with the
Corporation and any Prohibited Owner. Each Charitable Beneficiary shall be
designated by the Corporation as provided in Section 7.3.6.
Section 7.3.2 STATUS OF SHARES HELD BY THE TRUSTEE. Shares of Capital
Stock held by the Trustee shall be issued and outstanding shares of Capital
Stock of the Company. The Prohibited Owner shall have no rights in the shares
held by the Trustee. The Prohibited Owner shall not benefit economically from
ownership of any shares held in trust by the Trustee, shall have no rights to
dividends or other distributions and shall not possess any rights to vote or
other rights attributable to the shares held in the Trust.
Section 7.3.3 DIVIDEND AND VOTING RIGHTS. The Trustee shall have all
voting rights and rights to dividends or other distributions with respect to
shares of Capital Stock held in the Trust, which rights shall be exercised
for the exclusive benefit of the Charitable Beneficiary. Any dividend or
other distribution paid prior to the discovery by the Corporation that the
shares of Capital Stock have been transferred to the Trustee shall be paid by
the recipient of such dividend or distribution to the Trustee upon demand and
any dividend or other distribution authorized but unpaid shall be paid when
due to the Trustee. Any dividend or distribution so paid to the Trustee shall
be held in trust for the Charitable Beneficiary. The Prohibited Owner shall
have no voting rights with respect to shares held in the Trust and, subject
to Maryland law, effective as of the date that the shares of Capital Stock
have been transferred to the Trustee, the Trustee shall have the authority
(at the Trustee's sole discretion) (i) to rescind as void any vote cast by a
Prohibited Owner prior to the discovery by the Corporation that the shares of
Capital Stock have been transferred to the Trustee and (ii) to recast such
vote in accordance with the desires of the Trustee acting for the benefit of
the Charitable Beneficiary; provided, however, that if the Corporation has
already taken irreversible corporate action, then the Trustee shall not have
the authority to rescind and recast such vote. Notwithstanding the provisions
of this Article VII, until the Corporation has received notification that
shares of Capital Stock have been transferred into a Trust, the Corporation
shall be entitled to rely on its share transfer and other stockholder records
for purposes of preparing lists of stockholders entitled to vote at meetings,
determining the validity and authority of proxies and otherwise conducting
votes of stockholders.
Section 7.3.4 SALE OF SHARES BY TRUSTEE. Within 20 days of receiving
notice from the Corporation that shares of Capital Stock have been
transferred to the
<PAGE>
Trust, the Trustee of the Trust shall sell the shares held in the Trust to a
person, designated by the Trustee, whose ownership of the shares will not
violate the ownership limitations set forth in Section 7.2.1(a). Upon such
sale, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to
the Prohibited Owner and to the Charitable Beneficiary as provided in this
Section 7.3.4. The Prohibited Owner shall receive the lesser of (1) the price
paid by the Prohibited Owner for the shares or, if the Prohibited Owner did
not give value for the shares in connection with the event causing the shares
to be held in the Trust (E.G., in the case of a gift, devise or other such
transaction), the Market Price of the shares on the day of the event causing
the shares to be held in the Trust and (2) the price per share received by
the Trustee from the sale or other disposition of the shares held in the
Trust. Any net sales proceeds in excess of the amount payable to the
Prohibited Owner shall be immediately paid to the Charitable Beneficiary. If,
prior to the discovery by the Corporation that shares of Capital Stock have
been transferred to the Trustee, such shares are sold by a Prohibited Owner,
then (i) such shares shall be deemed to have been sold on behalf of the Trust
and (ii) to the extent that the Prohibited Owner received an amount for such
shares that exceeds the amount that such Prohibited Owner was entitled to
receive pursuant to this Section 7.3.4, such excess shall be paid to the
Trustee upon demand.
Section 7.3.5 PURCHASE RIGHT IN STOCK TRANSFERRED TO THE TRUSTEE. Shares
of Capital Stock transferred to the Trustee shall be deemed to have been
offered for sale to the Corporation, or its designee, at a price per share
equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Trust (or, in the case of a devise or gift,
the Market Price at the time of such devise or gift) and (ii) the Market
Price on the date the Corporation, or its designee, accepts such offer. The
Corporation shall have the right to accept such offer until the Trustee has
sold the shares held in the Trust pursuant to Section 7.3.4. Upon such a sale
to the Corporation, the interest of the Charitable Beneficiary in the shares
sold shall terminate and the Trustee shall distribute the net proceeds of the
sale to the Prohibited Owner.
Section 7.3.6 DESIGNATION OF CHARITABLE BENEFICIARIES. By written notice
to the Trustee, the Corporation shall designate one or more nonprofit
organizations to be the Charitable Beneficiary of the interest in the Trust
such that (i) the shares of Capital Stock held in the Trust would not violate
the restrictions set forth in Section 7.2.1(a) in the hands of such
Charitable Beneficiary and (ii) each such organization must be described in
Section 501(c)(3) of the Code and contributions to each such organization
must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and
2522 of the Code.
Section 7.4 AMEX TRANSACTIONS. Nothing in this Article VII shall
preclude the settlement of any transaction entered into through the
facilities of the AMEX or any other national securities exchange or automated
inter-dealer quotation system. The fact that the settlement of any
transaction occurs shall not negate the effect of any other provision of this
Article VII and any transferee in such a transaction shall be subject to all
of the provisions and limitations set forth in this Article VII.
Section 7.5 ENFORCEMENT. The Corporation is authorized specifically to
seek equitable relief, including injunctive relief, to enforce the provisions
of this Article VII.
Section 7.6 NON-WAIVER. No delay or failure on the part of the Corporation
<PAGE>
or the Board of Directors in exercising any right hereunder shall operate as
a waiver of any right of the Corporation or the Board of Directors, as the
case may be, except to the extent specifically waived in writing.
ARTICLE VIII
AMENDMENTS
The Corporation reserves the right from time to time to make any
amendment to its charter, now or hereafter authorized by law, including any
amendment altering the terms or contract rights, as expressly set forth in
the charter, of any shares of outstanding stock. All rights and powers
conferred by the charter on stockholders, directors and officers are granted
subject to this reservation.
ARTICLE IX
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to time
permits limitation of the liability of directors and officers of a
corporation, no director or officer of the Corporation shall be liable to the
Corporation or its stockholders for money damages. Neither the amendment nor
repeal of this Article IX, nor the adoption or amendment of any other
provision of the charter or Bylaws inconsistent with this Article IX, shall
apply to or affect in any respect the applicability of the preceding sentence
with respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption.
THIRD: The amendment to and restatement of the charter as hereinabove set
forth have been duly advised by the Board of Directors and approved by the
stockholders of the Corporation as required by law.
FOURTH: The current address of the principal office of the Corporation is as
set forth in Article IV of the foregoing amendment and restatement of the
charter.
FIFTH: The name and address of the Corporation's current resident agent is as
set forth in Article IV of the foregoing amendment and restatement of the
charter.
SIXTH: The number of directors of the Corporation is as set forth in Article
V of the foregoing amendment and restatement of the charter. The current
directors of the Company are Carl E. Berg, Michael J. Anderson, John Bolger,
and Roger Kirk.
SEVENTH: The total number of shares of stock which the Corporation had
authority to issue immediately prior to this amendment and restatement was
100, consisting of 100 shares of Common Stock, $.001 par value per share. The
aggregate par value of all shares of stock having par value was $.10.
EIGHTH: The total number of shares of stock which the Corporation has
authority to issue pursuant to the foregoing amendment and restatement of the
charter is 220,000,000, consisting of 200,000,000 shares of Common Stock,
$.001 par value per share, and 20,000,000 shares of Preferred Stock, $.001
par value per share. The aggregate par value of all authorized shares of
stock having par value is $220,000.
NINTH: The undersigned President acknowledges these Articles of Amendment and
<PAGE>
Restatement to be the corporate act of the Corporation and as to all matters
or facts required to be verified under oath, the undersigned President
acknowledges that to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and that this statement
is made under the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
and Restatement to be signed in its name and on its behalf by its President
and attested to by its Secretary on this _____ day of ____________, 1998.
ATTEST: MISSION WEST PROPERTIES, INC.
By: (SEAL)
------------------------- ---------------------------------------
Secretary President
<PAGE>
MISSION WEST PROPERTIES, INC.
RESTATED BYLAWS
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation shall be
located at such place or places as the Board of Directors may designate.
SECTION 2. ADDITIONAL OFFICES. The Corporation may have additional offices at
such places as the Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE. All meetings of stockholders shall be held at the principal
office of the Corporation or at such other place within the United States as
shall be stated in the notice of the meeting.
SECTION 2. ANNUAL MEETING. An annual meeting of the stockholders for the
election of directors and the transaction of any business within the powers
of the Corporation shall be held on a date and at the time set by the Board
of Directors.
SECTION 3. SPECIAL MEETINGS. The president, chief executive officer or Board
of Directors may call special meetings of the stockholders. Special meetings
of stockholders shall also be called by the secretary of the Corporation upon
the written request of the holders of shares entitled to cast not less than a
majority of all the votes entitled to be cast at such meeting. Such request
shall state the purpose of such meeting and the matters proposed to be acted
on at such meeting. The secretary shall inform such stockholders of the
reasonably estimated cost of preparing and mailing notice of the meeting and,
upon payment to the Corporation by such stockholders of such costs, the
secretary shall give notice to each stockholder entitled to notice of the
meeting.
SECTION 4. NOTICE. Not less than ten nor more than 90 days before each
meeting of stockholders, the secretary shall give to each stockholder
entitled to vote at such meeting and to each stockholder not entitled to vote
who is entitled to notice of the meeting written or printed notice stating
the time and place of the meeting and, in the case of a special meeting or as
otherwise may be required by any statute, the purpose for which the meeting
is called, either by mail or by presenting it to such stockholder personally
or by leaving it at his
<PAGE>
residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail addressed to the
stockholder at his post office address as it appears on the records of the
Corporation, with postage thereon prepaid.
SECTION 5. SCOPE OF NOTICE. Any business of the Corporation may be transacted
at an annual meeting of stockholders without being specifically designated in
the notice, except such business as is required by any statute to be stated
in such notice. No business shall be transacted at a special meeting of
stockholders except as specifically designated in the notice.
SECTION 6. ORGANIZATION. At every meeting of stockholders, the chairman of
the board, if there be one, shall conduct the meeting or, in the case of
vacancy in office or absence of the chairman of the board, one of the
following officers present shall conduct the meeting in the order stated: the
vice chairman of the board, if there be one, the president, the vice
presidents in their order of rank and seniority, or a chairman chosen by the
stockholders entitled to cast a majority of the votes which all stockholders
present in person or by proxy are entitled to cast, shall act as chairman,
and the secretary, or, in his absence, an assistant secretary, or in the
absence of both the secretary and assistant secretaries, a person appointed
by the chairman shall act as secretary.
SECTION 7. QUORUM. At any meeting of stockholders, the presence in person or
by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this
section shall not affect any requirement under any statute or the charter of
the Corporation for the vote necessary for the adoption of any measure. If,
however, such quorum shall not be present at any meeting of the stockholders,
the stockholders entitled to vote at such meeting, present in person or by
proxy, shall have the power to adjourn the meeting from time to time to a
date not more than 120 days after the original record date without notice
other than announcement at the meeting. At such adjourned meeting at which a
quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified.
SECTION 8. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient
to elect a director. Each share may be voted for as many individuals as
there are directors to be elected and for whose election the share is
entitled to be voted. A majority of the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient
to approve any other matter which may properly come before the meeting,
unless more than a majority of the votes cast is required by statute or by
the charter of the Corporation. Unless otherwise provided in the charter,
each outstanding share, regardless of class, shall be entitled to one vote on
each matter submitted to a vote at a meeting of stockholders.
SECTION 9. PROXIES. A stockholder may cast the votes entitled to be cast by
the shares of the stock owned of record by him either in person or by proxy
executed in writing by the stockholder or by his duly authorized agent. Such
proxy shall be filed with the secretary of the Corporation before or at the
time of the meeting. No proxy shall be valid after eleven months from the
date of its execution, unless otherwise provided in the proxy.
SECTION 10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the Corporation
registered in the name of a corporation, partnership, trust or other entity,
if entitled to be voted, may be voted by the president or a vice president, a
<PAGE>
general partner or trustee thereof, as the case may be, or a proxy appointed
by any of the foregoing individuals, unless some other person who has been
appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the
partners of a partnership presents a certified copy of such bylaw, resolution
or agreement, in which case such person may vote such stock. Any director or
other fiduciary may vote stock registered in his name as such fiduciary,
either in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it shall
not be voted at any meeting and shall not be counted in determining the total
number of outstanding shares entitled to be voted at any given time, unless
they are held by it in a fiduciary capacity, in which case they may be voted
and shall be counted in determining the total number of outstanding shares at
any given time.
The Board of Directors may adopt by resolution a procedure by which a
stockholder may certify in writing to the Corporation that any shares of
stock registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth
the class of stockholders who may make the certification, the purpose for
which the certification may be made, the form of certification and the
information to be contained in it; if the certification is with respect to a
record date or closing of the stock transfer books, the time after the record
date or closing of the stock transfer books within which the certification
must be received by the Corporation; and any other provisions with respect to
the procedure which the Board of Directors considers necessary or desirable.
On receipt of such certification, the person specified in the certification
shall be regarded as, for the purposes set forth in the certification, the
stockholder of record of the specified stock in place of the stockholder who
makes the certification.
Notwithstanding any other provision of the charter of the Corporation or
these Bylaws, Title 3, Subtitle 7 of the Corporations and Associations
Article of the Annotated Code of Maryland (or any successor statute) shall
not apply to any acquisition by any person of shares of stock of the
Corporation. This section may be repealed, in whole or in part, at any time,
whether before or after an acquisition of control shares and, upon such
repeal, may, to the extent provided by any successor bylaw, apply to any
prior or subsequent control share acquisition.
SECTION 11. INSPECTORS. At any meeting of stockholders, the chairman of the
meeting may appoint one or more persons as inspectors for such meeting. Such
inspectors shall ascertain and report the number of shares represented at the
meeting based upon their determination of the validity and effect of proxies,
count all votes, report the results and perform such other acts as are proper
to conduct the election and voting with impartiality and fairness to all the
stockholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there is more than one inspector acting at such meeting.
If there is more than one inspector, the report of a majority shall be the
report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting
shall be PRIMA FACIE evidence thereof.
SECTION 12. NOMINATIONS AND PROPOSALS BY STOCKHOLDERS.
(A) ANNUAL MEETINGS OF STOCKHOLDERS.
<PAGE>
(1) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (i) pursuant to
the Corporation's notice of meeting, (ii) by or at the direction of
the Board of Directors, (iii) by any stockholder of the Corporation
who was a stockholder of record both at the time of giving of
notice provided for in this Section 12(a) and at the time of the
annual meeting, who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Section
12(a), or (iv) as provided below in Section 14.
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (iii) of
paragraph (a)(1) of this Section 12, the stockholder must have
given timely notice thereof in writing to the secretary of the
Corporation and such other business must otherwise be a proper
matter for action by stockholders. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal
executive offices of the Corporation not later than the close of
business on the 60th day nor earlier than the close of business on
the 90th day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date
of the annual meeting is advanced by more than 30 days or delayed
by more than 60 days from such anniversary date or if the
Corporation has not previously held an annual meeting, notice by
the stockholder to be timely must be so delivered not earlier than
the close of business on the 90th day prior to such annual meeting
and not later than the close of business on the later of the 60th
day prior to such annual meeting or the tenth day following the day
on which public announcement of the date of such meeting is first
made by the Corporation. In no event shall the public
announcement of a postponement or adjournment of an annual meeting
to a later date or time commence a new time period for the giving
of a stockholder's notice as described above. Such stockholder's
notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all
information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in
an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act") (including such person's
written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (ii) as to any other
business that the stockholder proposes to bring before the meeting,
a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such
stockholder and of the beneficial owner, if any, on whose behalf
the proposal is made; and (iii) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made, (x) the name and address of such
stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (y) the number of shares of each class of
stock of the Corporation which are owned beneficially and of record
by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 12 to the contrary, in the event that the
<PAGE>
number of directors to be elected to the Board of Directors is
increased and there is no public announcement by the Corporation
naming all of the nominees for director or specifying the size of
the increased Board of Directors at least 70 days prior to the
first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section 12(a) shall also be
considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the
secretary at the principal executive offices of the Corporation not
later than the close of business on the tenth day following the day
on which such public announcement is first made by the Corporation.
(B) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are
to be elected (i) pursuant to the Corporation's notice of meeting, (ii)
by or at the direction of the Board of Directors, (iii) provided that
the Board of Directors has determined that directors shall be elected at
such special meeting, by any stockholder of the Corporation who is a
stockholder of record both at the time of giving of notice provided for
in this Section 12(b) and at the time of the special meeting, who is
entitled to vote at the meeting and who complied with the notice
procedures set forth in this Section 12(b) or (iv) in any event, as
provided in Section 14. In the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder may nominate a
person or persons (as the case may be) for election to such position as
specified in the Corporation's notice of meeting, if the stockholder's
notice containing the information required by paragraph (a)(2) of this
Section 12 shall be delivered to the secretary at the principal
executive offices of the Corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later
than the close of business on the later of the 60th day prior to such
special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of a postponement or
adjournment of a special meeting to a later date or time commence a new
time period for the giving of a stockholder's notice as described above.
(C) GENERAL.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 12 or in Section 14 shall be
eligible to serve as directors and only such business shall be
conducted at a meeting of stockholders as shall have been brought
before the meeting in accordance with the procedures set forth in
this Section 12. The chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed
to be brought before the meeting was made or proposed, as the case
may be, in accordance with the procedures set forth in this Section
12 and, if any proposed nomination or business is not in compliance
with this Section 12, to declare that such nomination or proposal
shall be disregarded.
(2) For purposes of this Section 12, "public announcement" shall mean
<PAGE>
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 12, a
stockholder shall also comply with all applicable requirements of
state law and of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section
12. Nothing in this Section 12 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in, nor any right
of the Corporation to omit a proposal from, the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 13. VOTING BY BALLOT. Voting on any question or in any election may
be by voice unless the presiding officer shall order or any stockholder shall
demand that voting be by ballot.
SECTION 14. NOMINATION AND ELECTION OF BERG GROUP DIRECTOR REPRESENTATIVES.
The Board of Directors shall include among its members two individuals
nominated by Carl E. Berg, Clyde J. Berg, the members of their respective
immediate families and certain entities controlled by Carl E. Berg and/or
Clyde J. Berg which are Berg & Berg Enterprises, Inc., Baccarat Cambrian
Partnership, Baccarat Fremont Developers LLC and DeAnza Office Partners
(collectively the "Berg Group") and their affiliates (the "Berg Group Board
Representatives") so long as the members of the Berg Group, together with
their affiliates (other than the Corporation or Mission West Properties,
L.P., Mission West Properties, L.P. I, Mission West Properties, L.P. II or
Mission West Properties, L.P. III (collectively, the "Operating
Partnership"), in the aggregate, own at least 15% of the total number of
shares of voting stock of the Corporation (taking into account the
conversion, exchange or exercise of all outstanding warrants, options,
convertible securities and other rights to acquire voting stock of the
Corporation and all units of limited partnership interests in the Operating
Partnership exchangeable or redeemable for Common Stock or other voting stock
of the Corporation (without regard to any ownership limit set forth in the
Corporation's charter, the Bylaws or any agreement) (the "Fully-Diluted"
number of shares)). The Berg Group shall exercise the right to name directors
provided in this Section 14 by submitting to the Board of Directors prior to
any annual meeting or other meeting at which directors are elected the
name(s) of the Berg Group nominee(s). In the event the Berg Group and their
affiliates (other than the Company and the Operating Partnership), in the
aggreagate, own less than 15%, but at least 10%, of the Fully-Diluted number
of shares, the Berg Group may nominate only one director to be a Berg Group
Board Representative.
A Berg Group Board Representative may not be replaced, whether by election or
filling of a vacancy, by any individual who has not been nominated by the
Berg Group. In the event of doubt concerning the identification of the
nominees of the Berg Group, prior to any meeting of stockholders at which
directors are to be elected, the chief executive officer or presiding
officer, if a different person, shall ask the Berg Group members to cast
ballots, and the one or two individuals, as the case may be, selected by the
holders of a majority of all of the Fully-Diluted shares held by the Berg
Group members shall be deemed to be the nominees of the Berg Group.
As used in this Section 14 the term "affiliate" shall have the meaning
ascribed to it by Rule 12b-2 promulgated under the Exchange Act.
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation shall
be managed under the direction of its Board of Directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or at
any special meeting called for that purpose, a majority of the entire Board
of Directors may establish, increase or decrease the number of directors,
provided that the number thereof shall never be less than the minimum number
required by the Maryland General Corporation Law, nor more than 15, and
further provided that the tenure of office of a director shall not be
affected by any decrease in the number of directors.
SECTION 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Directors shall be held immediately after and at the same place as the annual
meeting of stockholders, no notice other than this Bylaw being necessary. The
Board of Directors may provide, by resolution, the time and place, either
within or without the State of Maryland, for the holding of regular meetings
of the Board of Directors without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the chairman of the board, president or by
a majority of the directors then in office. The person or persons authorized
to call special meetings of the Board of Directors may fix any place, either
within or without the State of Maryland, as the place for holding any special
meeting of the Board of Directors called by them.
SECTION 5. NOTICE. Notice of any special meeting of the Board of Directors
shall be delivered personally or by telephone, facsimile transmission, United
States mail or courier to each director at his business or residence address.
Notice by personal delivery, by telephone or a facsimile transmission shall
be given at least two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting and shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. Telephone notice shall be deemed to be given when the
director is personally given such notice in a telephone call to which he is a
party. Facsimile transmission notice shall be deemed to be given upon
completion of the transmission of the message to the number given to the
Corporation by the director and receipt of a completed answer-back indicating
receipt. Neither the business to be transacted at, nor the purpose of, any
annual, regular or special meeting of the Board of Directors need be stated
in the notice, unless specifically required by statute or these Bylaws.
SECTION 6. QUORUM.
(a) Subject to the requirements of paragraph (b) of this Section 6, a
majority of the directors shall constitute a quorum for transaction of
business at any meeting of the Board of Directors, provided that, if
less than a majority of such directors are present at said meeting, a
majority of the directors present may adjourn the meeting from time to
time without further notice, and provided further that if, pursuant to
the charter of the Corporation or these Bylaws, the vote of a majority
of a particular group of directors is required for action, a quorum must
also include a majority of such group.
<PAGE>
(b) Until the date on which the Berg Group and their affiliates (other
than the Company and the Operating Partnership) own less than 15% of the
Fully-Diluted number of shares, all meetings of the Board of Directors
shall require the presence of Carl E. Berg or the presence of an
individual whom he designates to replace him on the Board of Directors
(the "Designee"). Mr. Berg shall submit a written statement identifying
the Designee to the Company from time to time to permit identification
of the Designee in the event that death, disability or other event
results in a vacancy on the Board of Directors as a result of Mr. Berg's
inability to serve as a director. Mr. Berg may amend the statement at
his sole discretion.
(c) Subject to the foregoing, the directors present at a meeting which
has been duly called and convened may continue to transact business
until adjournment, notwithstanding the withdrawal of enough directors to
leave less than a quorum.
SECTION 7. VOTING.
(a) Except as provided in paragraph (a) and (b) of this Section 7, the
action of the majority of the directors present at a meeting at which a
quorum is present shall be the action of the Board of Directors, unless
the concurrence of a greater proportion is required for such action by
applicable statute.
(b) The approval of more than 75% of all of the directors then serving
on the Board of Directors shall be required to approve (i) acquisitions
of assets or conduct of any business other than, in either case, through
the Operating Partnership, (ii) the termination of the Corporation's
status as a REIT or (iii) the Corporation's incurring indebtedness for
borrowed funds exceeding 50% of the market value of the outstanding
Common Stock determined as if all outstanding units of limited
partnership interests in the Operating Partnership had been converted
into Common Stock, plus the market value of all other publicly traded
securities of the Corporation outstanding from time to time, plus the
total debt of the Corporation and the Operating Partnership.
SECTION 8. TELEPHONE MEETINGS. Directors may participate in a meeting by
means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person
at the meeting.
SECTION 9. INFORMAL ACTION BY DIRECTORS. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a
meeting, if a consent in writing to such action is signed by each director
and such written consent is filed with the minutes of proceedings of the
Board of Directors.
SECTION 10. VACANCIES. If for any reason any or all the directors cease to be
directors, such event shall not terminate the Corporation or affect these
Bylaws or the powers of the remaining directors hereunder (even if fewer than
three directors remain). Any vacancy on the Board of Directors for any cause
other than an increase in the number of directors shall be filled by a
majority of the remaining directors, even if such majority is less than a
quorum. Any vacancy in the number of directors created by an increase in the
number of directors may be filled by a majority vote of the entire Board of
Directors. Any individual so
<PAGE>
elected as director shall hold office until the next annual meeting of
stockholders and until his successor is elected and qualifies.
SECTION 11. COMPENSATION. Directors shall receive a salary for their services
as directors as set forth in a resolution of the Board of Directors, and may
receive compensation per year and/or per meeting and/or per visit to real
property or other facilities owned or leased by the Corporation and for any
service or activity they performed or engaged in as directors. Directors may
be reimbursed for expenses of attendance, if any, at each annual, regular or
special meeting of the Board of Directors or of any committee thereof and for
their expenses, if any, in connection with each property visit and any other
service or activity they performed or engaged in as directors; but nothing
herein contained shall be construed to preclude any directors from serving
the Corporation in any other capacity and receiving compensation therefor.
SECTION 12. LOSS OF DEPOSITS. No director shall be liable for any loss which
may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or stock have been
deposited.
SECTION 13. SURETY BONDS. Unless required by law, no director shall be
obligated to give any bond or surety or other security for the performance of
any of his duties.
SECTION 14. RELIANCE. Each director, officer, employee and agent of the
Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or
failure to act in reliance in good faith upon the books of account or other
records of the Corporation, upon an opinion of counsel or upon reports made
to the Corporation by any of its officers or employees or by the adviser,
accountants, appraisers or other experts or consultants selected by the Board
of Directors or officers of the Corporation, regardless of whether such
counsel or expert may also be a director.
SECTION 15. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The
directors shall have no responsibility to devote their full time to the
affairs of the Corporation. Except as provided otherwise in any agreement
between the Corporation and the affected person, any director or officer,
employee or agent of the Corporation, in his personal capacity or in a
capacity as an affiliate, employee, or agent of any other person, or
otherwise, may have business interests and engage in business activities
similar to or in addition to or in competition with those of or relating to
the Corporation.
ARTICLE IV
COMMITTEES
SECTION 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors may
appoint from among its members an Executive Committee, an Audit Committee,
a Compensation Committee, and other committees, composed of one or more
directors, to serve at the pleasure of the Board of Directors.
SECTION 2. POWERS. The Board of Directors may delegate to committees
appointed under Section 1 of this Article any of the powers of the Board of
Directors, except as prohibited by law and these Bylaws.
SECTION 3. MEETINGS. Notice of committee meetings shall be given in the same
<PAGE>
manner as notice for special meetings of the Board of Directors. A majority
of the members of the committee shall constitute a quorum for the transaction
of business at any meeting of the committee. The act of a majority of the
committee members present at a meeting shall be the act of such committee.
The Board of Directors may designate a chairman of any committee, and such
chairman may fix the time and place of its meeting unless the Board shall
otherwise provide. In the absence of any member of any such committee, the
members thereof present at any meeting, whether or not they constitute a
quorum, may appoint another director to act in the place of such absent
member. Each committee shall keep minutes of its proceedings.
SECTION 4. TELEPHONE MEETINGS. Members of a committee of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these
means shall constitute presence in person at the meeting.
SECTION 5. INFORMAL ACTION BY COMMITTEES. Any action required or permitted to
be taken at any meeting of a committee of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the committee and such written consent is filed with the minutes of
proceedings of such committee.
SECTION 6. VACANCIES. Subject to the provisions hereof, the Board of
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace
any absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Corporation shall include
a chief executive officer, a president, a secretary and a treasurer and may
include a chairman of the board, a vice chairman of the board, one or more
vice presidents, a chief operating officer, a chief financial officer, one or
more assistant secretaries and one or more assistant treasurers. In addition,
the Board of Directors may from time to time appoint such other officers with
such powers and duties as they shall deem necessary or desirable. The
officers of the Corporation shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each
annual meeting of stockholders, except that the chief executive officer may
appoint one or more vice presidents, assistant secretaries and assistant
treasurers. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as may be convenient. Each
officer shall hold office until his successor is elected and qualifies or
until his death, resignation or removal in the manner hereinafter provided.
Any two or more offices except president and vice president may be held by
the same person. In its discretion, the Board of Directors may leave unfilled
any office except that of president, treasurer and secretary. Election of an
officer or agent shall not of itself create contract rights between the
Corporation and such officer or agent.
SECTION 2. REMOVAL AND RESIGNATION. Any officer or agent of the Corporation
may be removed by the Board of Directors if in its judgment the best
interests of the Corporation would be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so
removed. Any officer
<PAGE>
of the Corporation may resign at any time by giving written notice of his
resignation to the Board of Directors, the chairman of the board, the
president or the secretary. Any resignation shall take effect at any time
subsequent to the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. The
acceptance of a resignation shall not be necessary to make it effective
unless otherwise stated in the resignation. Such resignation shall be without
prejudice to the contract rights, if any, of the Corporation.
SECTION 3. VACANCIES. A vacancy in any office may be filled by the Board of
Directors for the balance of the term.
SECTION 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may designate a
chief executive officer. In the absence of such designation, the chairman of
the board shall be the chief executive officer of the Corporation. The chief
executive officer shall have general responsibility for implementation of the
policies of the Corporation, as determined by the Board of Directors, and for
the management of the business and affairs of the Corporation.
SECTION 5. CHIEF OPERATING OFFICER. The Board of Directors may designate a
chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the
chief executive officer.
SECTION 6. CHIEF FINANCIAL OFFICER. The Board of Directors may designate a
chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the
chief executive officer.
SECTION 7. CHAIRMAN OF THE BOARD. The Board of Directors shall designate a
chairman of the board. The chairman of the board shall preside over the
meetings of the Board of Directors and of the stockholders at which he shall
be present. The chairman of the board shall perform such other duties as may
be assigned to him by the Board of Directors.
SECTION 8. PRESIDENT. The president or chief executive officer, as the case
may be, shall in general supervise and control all of the business and
affairs of the Corporation. In the absence of a designation of a chief
operating officer by the Board of Directors, the president shall be the chief
operating officer. He may execute any deed, mortgage, bond, contract or other
instrument, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer
or agent of the Corporation or shall be required by law to be otherwise
executed; and in general shall perform all duties incident to the office of
president and such other duties as may be prescribed by the Board of
Directors from time to time.
SECTION 9. VICE PRESIDENTS. In the absence of the president or in the event
of a vacancy in such office, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated at
the time of their election or, in the absence of any designation, then in the
order of their election) shall perform the duties of the president and when
so acting shall have all the powers of and be subject to all the restrictions
upon the president; and shall perform such other duties as from time to time
may be assigned to him by the president or by the Board of Directors. The
Board of Directors may designate one or more vice presidents as executive
vice president or as vice president for particular areas of responsibility.
<PAGE>
SECTION 10. SECRETARY. The secretary shall (a) keep the minutes of the
proceedings of the stockholders, the Board of Directors and committees of the
Board of Directors in one or more books provided for that purpose; (b) see
that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (c) be custodian of the corporate records and
of the seal of the Corporation; (d) keep a register of the post office
address of each stockholder which shall be furnished to the secretary by such
stockholder; (e) have general charge of the share transfer books of the
Corporation; and (f) in general perform such other duties as from time to
time may be assigned to him by the chief executive officer, the president or
by the Board of Directors.
SECTION 11. TREASURER. The treasurer shall have the custody of the funds and
securities of the Corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit
of the Corporation in such depositories as may be designated by the Board of
Directors. In the absence of a designation of a chief financial officer by
the Board of Directors, the treasurer shall be the chief financial officer of
the Corporation.
The treasurer shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the president and Board of Directors, at the regular meetings
of the Board of Directors or whenever it may so require, an account of all
his transactions as treasurer and of the financial condition of the
Corporation.
If required by the Board of Directors, the treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, moneys and other property of whatever kind in his
possession or under his control belonging to the Corporation.
SECTION 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant
secretaries and assistant treasurers, in general, shall perform such duties
as shall be assigned to them by the secretary or treasurer, respectively, or
by the president or the Board of Directors. The assistant treasurers shall,
if required by the Board of Directors, give bonds for the faithful performance
of their duties in such sums and with such surety or sureties as shall be
satisfactory to the Board of Directors.
SECTION 13. SALARIES. The salaries and other compensation of the officers
shall be fixed from time to time by the Board of Directors and no officer
shall be prevented from receiving such salary or other compensation by reason
of the fact that he is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer or
agent to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the Corporation and such authority may be
general or confined to specific instances. Any agreement, deed, mortgage,
lease or other document executed by one or more of the directors or by an
authorized person shall be valid and binding upon the Board of Directors and
upon the Corporation when authorized or ratified by action of the Board of
Directors.
<PAGE>
SECTION 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such officer or agent of the
Corporation in such manner as shall from time to time be determined by the
Board of Directors.
SECTION 3. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
designate.
ARTICLE VII
STOCK
SECTION 1. CERTIFICATES. Each stockholder shall be entitled to a certificate
or certificates which shall represent and certify the number of shares of
each class of stock held by him in the Corporation. Each certificate shall be
signed by the chief executive officer, the president or a vice president and
countersigned by the secretary or an assistant secretary or the treasurer or
an assistant treasurer and may be sealed with the seal, if any, of the
Corporation. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Corporation shall, from time to
time, issue several classes of stock, each class may have its own number
series. A certificate is valid and may be issued whether or not an officer
who signed it is still an officer when it is issued. Each certificate
representing shares which are restricted as to their transferability or
voting powers, which are preferred or limited as to their dividends or as to
their allocable portion of the assets upon liquidation or which are
redeemable at the option of the Corporation, shall have a statement of such
restriction, limitation, preference or redemption provision, or a summary
thereof, plainly stated on the certificate. If the Corporation has authority
to issue stock of more than one class, the certificate shall contain on the
face or back a full statement or summary of the designations and any
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and
terms and conditions of redemption of each class of stock and, if the
Corporation is authorized to issue any preferred or special class in series,
the differences in the relative rights and preferences between the shares of
each series to the extent they have been set and the authority of the Board
of Directors to set the relative rights and preferences of subsequent series.
In lieu of such statement or summary, the certificate may state that the
Corporation will furnish a full statement of such information to any
stockholder upon request and without charge. If any class of stock is
restricted by the Corporation as to transferability, the certificate shall
contain a full statement of the restriction or state that the Corporation
will furnish information about the restrictions to the stockholder on request
and without charge.
SECTION 2. TRANSFERS. Upon surrender to the Corporation or the transfer agent
of the Corporation of a stock certificate duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the
Corporation shall issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of record of any share
of stock as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or on
the
<PAGE>
part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of any class of stock will
be subject in all respects to the charter of the Corporation and all of the
terms and conditions contained therein, and to the terms of any written
agreement between the Corporation and a stockholder with respect to share
transfers subject to the terms of such agreement.
SECTION 3. REPLACEMENT CERTIFICATE. Any officer designated by the Board of
Directors may direct a new certificate to be issued in place of any
certificate previously issued by the Corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the
person claiming the certificate to be lost, stolen or destroyed. When
authorizing the issuance of a new certificate, an officer designated by the
Board of Directors may, in his discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or the owner's legal representative to advertise the same in such
manner as he shall require and/or to give bond, with sufficient surety, to
the Corporation to indemnify it against any loss or claim which may arise as
a result of the issuance of a new certificate.
SECTION 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of
Directors may set, in advance, a record date for the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders
or determining stockholders entitled to receive payment of any dividend or
the allotment of any other rights, or in order to make a determination of
stockholders for any other proper purpose. Such date, in any case, shall not
be prior to the close of business on the day the record date is fixed and
shall be not more than 90 days and, in the case of a meeting of stockholders,
not less than ten days, before the date on which the meeting or particular
action requiring such determination of stockholders of record is to be held
or taken.
In lieu of fixing a record date, the Board of Directors may provide that the
stock transfer books shall be closed for a stated period but not longer than
20 days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the
date of such meeting.
If no record date is fixed and the stock transfer books are not closed for
the determination of stockholders, (a) the record date for the determination
of stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day on which the notice of meeting
is mailed or the thirtieth day before the meeting, whichever is the closer
date to the meeting; and (b) the record date for the determination of
stockholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the
resolution of the directors, declaring the dividend or allotment of rights,
is adopted.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, except when (i) the determination has
been made through the closing of the transfer books and the stated period of
closing has expired or (ii) the meeting is adjourned to a date more than 120
days after the record date fixed for the original meeting, in either of which
case a new record date shall be determined as set forth herein.
<PAGE>
SECTION 5. STOCK LEDGER. The Corporation shall maintain at its principal
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
SECTION 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors may
issue fractional stock or provide for the issuance of scrip, all on such
terms and under such conditions as they may determine. Notwithstanding any
other provision of the charter or these Bylaws, the Board of Directors may
issue units consisting of different securities of the Corporation. Any
security issued in a unit shall have the same characteristics as any
identical securities issued by the Corporation, except that the Board of
Directors may provide that for a specified period securities of the
Corporation issued in such unit may be transferred on the books of the
Corporation only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix the
fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
SECTION 1. AUTHORIZATION. Dividends and other distributions upon the stock of
the Corporation may be authorized and declared by the Board of Directors,
subject to the provisions of law and the charter of the Corporation.
Dividends and other distributions may be paid in cash, property or stock of
the Corporation, subject to the provisions of law and the charter.
SECTION 2. CONTINGENCIES. Before payment of any dividends or other
distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board
of Directors may from time to time, in its absolute discretion, think proper
as a reserve fund for contingencies, for equalizing dividends or other
distributions, for repairing or maintaining any property of the Corporation
or for such other purpose as the Board of Directors shall determine to be in
the best interest of the Corporation, and the Board of Directors may modify
or abolish any such reserve in the manner in which it was created.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation, the Board of
Directors may from time to time adopt, amend, revise or terminate any policy
or policies with respect to investments by the Corporation as it shall deem
appropriate in its sole discretion.
ARTICLE XI
<PAGE>
SEAL
SECTION 1. SEAL. The Board of Directors may authorize the adoption of a seal
by the Corporation. The seal shall contain the name of the Corporation and
the year of its incorporation and the words "Incorporated in Maryland." The
Board of Directors may authorize one or more duplicate seals and provide for
the custody thereof.
SECTION 2. AFFIXING SEAL. Whenever the Corporation is permitted or required
to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the
word "(SEAL)" adjacent to the signature of the person authorized to execute
the document on behalf of the Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law in effect from time to time,
the Corporation shall indemnify and, without requiring a preliminary
determination of the ultimate entitlement to indemnification, shall pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any individual who is a present or former director or officer of the
Corporation and who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director of the
Corporation and at the request of the Corporation, serves or has served
another corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
officer, partner or trustee of such corporation, real estate investment
trust, partnership, joint venture, trust, employee benefit plan or other
enterprise and who is made a party to the proceeding by reason of his service
in that capacity. The Corporation may, with the approval of its Board of
Directors, provide such indemnification and advance for expenses to a person
who served a predecessor of the Corporation in any of the capacities
described in (a) or (b) above and to any employee or agent of the Corporation
or a predecessor of the Corporation.
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or charter of the Corporation
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure
to act which occurred prior to such amendment, repeal or adoption.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter of the
Corporation or these Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the
purpose of any meeting need be set forth in the waiver of notice, unless
specifically required by statute. The attendance of any person at any meeting
shall constitute a waiver of notice of such meeting, except where such person
attends a meeting for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called or
convened.
<PAGE>
ARTICLE XIV
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power to adopt, alter or
repeal any provision of these Bylaws and to make new Bylaws subject to the
provisions of the corporation's charter and Article III, Section 7 of these
Bylaws.
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
MISSION WEST PROPERTIES, L.P. [ ]
__________ __, 1998
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
MISSION WEST PROPERTIES, L.P. [ ]
This AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF MISSION WEST
PROPERTIES, L.P. [--] (this "Agreement"), dated as of __________ __, 1998, is
entered into by and among Mission West Properties, Inc., a California
corporation (the "Company" or the "General Partner")] and the parties whose
names are set forth on Appendix I attached hereto (as it may be amended from
time to time).
WHEREAS, the Partnership was organized initially as [INSERT DESCRIPTION]
and became a limited partnership pursuant to the Revised Uniform Limited
Partnership Act of the State of Delaware by filing an [AMENDMENT TO] certificate
of limited partnership with the Secretary of State of the State of Delaware on
_____ _____, 199__;
WHEREAS, since its organization as a Delaware limited partnership, the
Partnership has been operated and managed by [_________ ("_______")], as sole
general partner, pursuant to the terms of the Agreement of Limited Partnership
of [___________ __] (the "Prior Agreement");
<PAGE>
WHEREAS, on ________ __, 1998, the Partnership filed an amendment of
certificate of limited partnership with the Secretary of State of the State of
Delaware changing the Partnership's name to Mission West Properties, L.P. [-];
WHEREAS, pursuant to the terms of a Acquisition Agreement dated as of
________ __, 1998 (the "Acquisition Agreement"), the Company has agreed to
acquire a ___% general partner interest in the Partnership and to become the
sole general partner in the Partnership upon the satisfaction of certain
conditions set forth in the Acquisition Agreement, which now have been satisfied
or waived by the parties thereto;
WHEREAS, [NAME OF EXISTING GENERAL PARTNER] and all of the limited
partners in the Partnership wish to admit the Company as a general partner, to
amend the certificate of limited partnership of the Partnership to reflect the
Company's admission as a general partner, and to amend and restate the Prior
Agreement as provided herein; and
WHEREAS, upon the filing of the certificate of amendment of the
certificate of limited partnership of the Partnership with the Secretary of
State of the State of Delaware, _______ intends to resign as a general partner
and become a limited partner in the Partnership pursuant to the terms of this
Agreement.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
and other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties do hereby agree as follows:
ARTICLE 1. DEFINED TERMS.
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the following terms used in this
Agreement.
1.1 "ACT" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
1.2 "ACQUISITION AGREEMENT" means the agreement dated as of ________ __,
1998, among the Partnership, the other partnerships comprising the Operating
Partnership, all of the partners therein, and the Company concerning the
acquisition of the Berg Properties, the Acquired Properties and the Pending
Development Projects by the Operating Partnership, the Company's investment in
and admission to the Operating Partnership as sole general partner, and the
rights and options of the limited partners in the Operating Partnership to
tender L.P. Units or acquire shares of Common Stock under certain circumstances.
1.3 "ADDITIONAL LIMITED PARTNER" means a Person admitted to the Partnership
as a Limited Partner pursuant to Section 4.3 hereof and who is shown as such on
the books and records of the Partnership.
1.4 "ADJUSTED CAPITAL ACCOUNT DEFICIT" means with respect to any Partner,
the negative balance, if any, in such Partner's Capital Account as of the end of
any relevant fiscal year, determined after giving effect to the following
adjustments:
(a) credit to such Capital Account any portion of such negative
balance which such Partner (i) is treated as obligated to restore to the
Partnership pursuant to the provisions of Section 1.704-1(b)(2)(ii)(c) of
<PAGE>
the Regulations, or (ii) is deemed to be obligated to restore to the
Partnership pursuant to the penultimate sentences of Sections 1.704-2(g)(1)
and 1.704-2(i)(5) of the Regulations; and
(b) debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
1.5 "ADJUSTED CONTRIBUTION" means the Capital Contributions of any Partner
reduced by the total distributions to such Partner from Capital Events occurring
subsequent to the Closing Date under the Acquisition Agreement. For purposes of
this Agreement, the initial Capital Contribution of the Company shall be equal
to [$35,200,000] and the initial Adjusted Contribution of each Limited Partner
shall be equal to the value of the Limited Partner's interest in the Operating
Partnership as set forth in Appendix I of the Acquisition Agreement.
1.6 "AFFILIATE" means, (a) with respect to any individual Person, any
member of the Immediate Family of such Person or a trust established for the
benefit of such member, or (b) with respect to any Entity, any Person which,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, any such Entity.
1.7 "AGREEMENT" means this Amended and Restated Agreement of Limited
Partnership, as originally executed and as amended, modified, supplemented or
restated from time to time, as the context requires.
1.8 "ARTICLES OF INCORPORATION" means the Articles of Incorporation of the
Company, as amended and restated from time to time, or the articles of
incorporation, certificate of incorporation, operating agreement of other
Charter instrument of any corporation or other entity which is a successor to
the Company by merger or consolidation.
1.9 "ASSIGNEE" means a Person to whom one or more L.P. Units have been
transferred in a manner permitted under this Agreement, but who has not become a
Substituted Limited Partner, and who has the rights set forth in Section 11.5.
1.10 "AVAILABLE CASH" means the Partnership's share of the Operating
Partnership's Available Cash (as defined in the Acquisition Agreement) with
respect to the applicable period of measurement (i.e., any period beginning on
the first day of the fiscal year, quarter or other period commencing immediately
after the last day of the fiscal year, quarter or other applicable period for
purposes of the prior calculation of Available Cash for or with respect to which
a distribution has been made, and ending on the last day of the fiscal year,
quarter or other applicable period immediately preceding the date of the
calculation). Notwithstanding the foregoing, Available Cash shall not include
any cash received or reductions in reserves, nor shall the calculation of
Available Cash take into account any disbursements made or reserves established,
after commencement of the dissolution and liquidation of the Partnership.
1.11 "BERG ACQUISITION" has the meaning set forth in the Acquisition
Agreement.
1.12 "BERG GROUP" means Carl E. Berg, Clyde J. Berg, the members of their
respective Immediate Families, and any Entity which is an Affiliate of either
Carl E. Berg or Clyde J. Berg, excluding the Partnership and the Company.
1.13 "BERG LAND HOLDINGS" means certain land held by members of the Berg
Group which the Operating Partnership may acquire under certain circumstances
<PAGE>
pursuant to the terms of the Acquisition Agreement and the related Berg Land
Holdings Option Agreement dated as of ________ __, 1998.
1.14 "CAPITAL ACCOUNT" means with respect to any Partner, the Capital
Account maintained for such Partner in accordance with the following provisions:
(a) to each Partner's Capital Account there shall be credited (i) such
Partner's Initial Adjusted Contribution as of the effective date of this
Agreement (ii) such Partner's Capital Contributions subsequent to the
Effective Date of this Agreement, (iii) such Partner's distributive share
of Net Income and any items in the nature of income or gain which are
specially allocated to such Partner pursuant to Sections 1 and 2 of
Appendix II and (iv) the amount of any Partnership liabilities assumed by
such Partner or which are secured by any asset distributed to such Partner;
(b) to each Partner's Capital Account there shall be debited (i) the
amount of cash and the Gross Asset Value of any Property distributed to
such Partner pursuant to any provision of this Agreement, (ii) such
Partner's distributive share of Net Losses and any items in the nature of
expenses or losses which are specially allocated to such Partner pursuant
to Sections 1 and 2 of Appendix II, and (iii) the amount of any liabilities
of such Partner assumed by the Partnership or which are secured by any
asset contributed by such Partner to the Partnership to the extent not
assumed by the Partner; and
(c) in the event all or a portion of a Partnership Interest is
transferred in accordance with the terms of this Agreement, the transferee
shall succeed to the Capital Account of the transferor to the extent it
relates to the transferred Partnership Interest.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Sections
1.704-1(b) and 1.704-2 of the Regulations, and shall be interpreted and applied
in a manner consistent with such Regulations. In the event the General Partner
shall reasonably determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed assets or which are assumed by the Partnership, the
General Partner or any Limited Partner) are computed in order to comply with
such Regulations, the General Partner may make such modification; provided that
it does not have an adverse effect on the amounts distributable to any Partner
pursuant to Article 13 hereof upon the dissolution of the Partnership.
1.15 "CAPITAL CONTRIBUTION" means, with respect to any Partner, any cash,
cash equivalents or the Gross Asset Value of property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Article 4
hereof.
1.16 "CAPITAL EVENT" means any Partnership transaction not in the ordinary
course of its business, including, without limitation, distribution to the
Partners in excess of distributive shares of income, principal payments,
prepayments, prepayment penalties, sales, exchanges, foreclosures or other
dispositions of Property owned by the Partnership, recoveries of damage awards
and insurance proceeds not used to rebuild (other than the receipt of
contributions to the capital of the Partnership and business or rental
interruption insurance proceeds not used to rebuild).
<PAGE>
1.17 "CERTIFICATE" means the Certificate of Limited Partnership relating to
the Partnership to be filed in the office of the Delaware Secretary of State, as
amended from time to time in accordance with the terms hereof and the Act.
1.18 "CHANGE OF CONTROL TRANSACTION" shall mean (A) any transaction or
series of transactions occurring after the Effective Date, in which all Limited
Partners in the Operating Partnership are legally entitled to participate and
pursuant to which L.P. Units representing more than 50% of the total outstanding
L.P. Units of the Operating Partnership are purchased by a Person not controlled
by, in control of or under common control with the Company, any Affiliate of the
Company or any Affiliate of a Limited Partner, (B) the merger or consolidation
of the Partnership with another entity (other than a merger or consolidation in
which the holders of L.P. Units of the Partnership immediately before the merger
or consolidation own immediately after the merger or consolidation, Voting
Securities of the surviving or acquiring Entity or a parent party of such
surviving or acquiring Entity, possessing more than 50% of the voting power of
the surviving or acquiring Entity or parent party) resulting in the exchange of
the outstanding L.P. Units of the Partnership for cash, securities or other
property, or (C) any merger, sale, lease, license, exchange or other disposition
(whether in one transaction or a series of related transactions) of more than
50% of the assets of the Partnership.
1.19 "CHARTER" has the meaning set forth in Rule 405 of Regulation C
promulgated by the SEC under the Securities Act ("Rule 405").
1.20 "CODE" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
1.21 "COMMON STOCK" means a share of Common Stock of the Company or any
shares of Voting Securities into which the Common Stock may be reclassified or
converted or for which shares of Common Stock may be exchanged in any
transaction made applicable or available to all holders of Common Stock as a
class.
1.22 "COMMON STOCK PRICE" means with respect to a particular valuation
event identified under this Agreement, the last reported sales price regular way
on such date or, in case no such reported sale takes place on such date, the
average of the reported closing bid and asked prices regular way on such date,
in either case on the American Stock Exchange, the New York Stock Exchange, or
if the Common Stock is not then listed or admitted to trading on any such
exchange, the Nasdaq or any comparable system on which the Common Stock is then
listed or admitted to trading or, if not then listed or admitted to trading on
any national securities exchange, the Nasdaq or any comparable system for the
10-trading day period ending with the last day preceding the date of the
valuation event.
1.23 "COMPANY" means Mission West Properties, a California corporation, and
any successor to such corporation.
1.24 "CONSENT" means the consent or approval of a proposed action by a
Partner given in accordance with Section 14.2 hereof.
1.25 "DEPRECIATION" means, with respect to any asset of the Partnership for
any fiscal year or other period, the depreciation, depletion, amortization or
<PAGE>
other cost recovery deduction, as the case may be, allowed or allowable for
federal income tax purposes in respect of such asset for such fiscal year or
other period; provided, however, that except as otherwise provided in Section
1.704-2 of the Regulations, if there is a difference between the Gross Asset
Value (including the Gross Asset Value, as increased pursuant to paragraph (d)
of the definition of Gross Asset Value) and the adjusted tax basis of such asset
at the beginning of such fiscal year or other period, Depreciation for such
asset shall be an amount that bears the same ratio to the beginning Gross Asset
Value of such asset as the federal income tax depreciation, depletion,
amortization or other cost recovery deduction for such fiscal year or other
period bears to the beginning adjusted tax basis of such asset; provided,
further, that if the federal income tax depreciation, depletion, amortization or
other cost recovery deduction for such asset for such fiscal year or other
period is zero, Depreciation of such asset shall be determined with reference to
the beginning Gross Asset Value of such asset using any reasonable method
selected by the General Partner.
1.26 "DIVIDEND REINVESTMENT PLAN" has the meaning set forth in Rule 405.
1.27 "EFFECTIVE DATE" means the date of closing of the Berg Acquisition.
1.28 "EMPLOYEE BENEFIT PLAN" has the meaning set forth in Rule 405.
1.29 "ENTITY" means any general partnership, limited partnership,
corporation, joint venture, trust, business trust, real estate investment trust,
limited liability company, cooperative or association.
1.30 "EQUITY SECURITY" has the meaning set forth in Rule 405.
1.31 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time (or any corresponding provisions of succeeding laws).
1.32 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
1.33 "EXCHANGE FACTOR" has the meaning set forth in the Exchange Rights
Agreement, and is equal to the number of L.P. Units exchangeable for one share
of Common Stock, from time to time, under the Exchange Rights Agreement.
1.34 "EXCHANGE RIGHT" has the meaning set forth in the Exchange Rights
Agreement.
1.35 "EXCHANGE RIGHTS AGREEMENT" means Exchange Rights Agreement among the
Company, and each of the limited partners of the partnerships comprising the
Operating Partnership.
1.36 "GAAP" means United States generally accepted accounting principles,
as in effect from time to time.
1.37 "GENERAL PARTNER" means the general partner of the Partnership, if
there is more than one general partner, all such general partners.
1.38 "GENERAL PARTNER INTEREST" means a Partnership Interest held by the
General Partner, in its capacity as general partner. A General Partner Interest
may be expressed as a number of Units, each of which shall represent the same
Percentage Interest in the Partnership as one L.P. Unit.
1.39 "GROSS ASSET VALUE" means, with respect to any asset of the
<PAGE>
Partnership, such asset's adjusted basis for federal income tax purposes, except
as follows:
(a) the initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, without reduction for liabilities, as determined by the contributing
Partner and the Partnership on the date of contribution thereof;
(b) if the General Partner reasonably determines that an adjustment is
necessary or appropriate to reflect the relative economic interests of the
Partners, the Gross Asset Values of all Partnership assets shall be
adjusted in accordance with Sections 1.704-1(b)(2)(iv)(f) and (g) of the
Regulations to equal their respective gross fair market values, without
reduction for liabilities, as reasonably determined by the General Partner,
as of the following times:
(1) a Capital Contribution (other than a de minimis Capital
Contribution) to the Partnership by a new or existing Partner as
consideration for a Partnership Interest; or
(2) the distribution by the Partnership to a Partner of more than
a de minimis amount of Partnership assets as consideration for the
repurchase of a Partnership Interest; or
(3) the liquidation of the Partnership within the meaning of
Section 1.704-1(b)(2)(ii)(g) of the Regulations;
(c) the Gross Asset Values of Partnership assets distributed to any
Partner shall be the gross fair market values of such assets (taking
Section 7701(g) of the Code into account) without reduction for
liabilities, as reasonably determined by the General Partner as of the date
of distribution; and
(d) the Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Sections 734(b) or 743(b) of the Code, but only to the
extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations (as
set forth in Appendix II); provided, however, that Gross Asset Values shall
not be adjusted pursuant to this paragraph (d) to the extent that the
General Partner reasonably determines that an adjustment pursuant to
paragraph (b) above is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
paragraph (d).
At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Partnership's assets for purposes of computing
Net Income and Net Loss.
1.40 "IMMEDIATE FAMILY" means, with respect to any Person, such Person's
spouse, parents, parents-in-law, children, nephews, nieces, brothers, sisters,
brothers-in-law, sisters-in-law, stepchildren, sons-in-law and daughters-in-law
or any trust solely for the benefit of any of the foregoing family members whose
sole beneficiaries include the foregoing family members.
1.41 "INCAPACITY" OR "INCAPACITATED" means, (i) as to any individual
Partner, death, total physical disability or entry by a court of competent
<PAGE>
jurisdiction adjudicating him incompetent to manage his person or his estate;
(ii) as to any corporation which is a Partner, the filing of a certificate of
dissolution, or its equivalent, for the corporation or the revocation of its
charter; (iii) as to any partnership which is a Partner, the dissolution and
commencement of winding up of the partnership; (iv) as to any estate which is a
Partner, the distribution by the fiduciary of the estate's entire interest in
the Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect; (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner; (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors; (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above; (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties; (f) any proceeding seeking liquidation, reorganization or
other relief of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within 120
days after the commencement thereof; (g) the appointment without the Partner's
consent or acquiescence of a trustee, receiver or liquidator has not been
vacated or stayed within 90 days of such appointment; or (h) an appointment
referred to in clause (g) which has been stayed is not vacated within 90 days
after the expiration of any such stay.
1.42 "INDEMNITEE" means (i) any Person made a party to a proceeding by
reason of (A) such Person's status as (1) the General Partner, (2) a director,
trustee or officer of the Partnership or the General Partner, or (3) a director,
trustee or officer of any other Entity, each Person serving in such capacity at
the request of the Partnership or the General Partner, or (B) his or its
liabilities, pursuant to a loan guarantee or otherwise, for any indebtedness of
the Partnership or any Subsidiary of the Partnership (including, without
limitation, any indebtedness which the Partnership or any Subsidiary of the
Partnership has assumed or taken assets subject to); and (ii) such other Persons
(including Affiliates of the General Partner or the Partnership) as the General
Partner may designate from time to time (whether before or after the event
giving rise to potential liability), in its sole and absolute discretion.
1.43 "INITIAL CONTRIBUTED PROPERTY" means the Properties as defined in the
Acquisition Agreement.
1.44 "LIEN" means, with respect to any asset of the Partnership, (i) any
mortgage, deed of trust, lien, pledge, encumbrance, charge, restriction or
security interest in or on such asset, (ii) the interest of a vendor or a lessor
under any conditional sale agreement, capital lease or title retention agreement
relating to such asset and (iii) in the case of securities, any purchase option,
call or similar right of a third party with respect to such securities.
1.45 "LIMITED PARTNER" means any Person named as a Limited Partner in
Appendix I, as such Appendix may be amended from time to time, or any
Substituted Limited Partner or Additional Limited Partner, in such Person's
capacity as a Limited Partner of the Partnership.
<PAGE>
1.46 "LIMITED PARTNER INTEREST" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Partners and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled, as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partner Interest may be expressed as a
number of L.P. Units.
1.47 "LIQUIDATING EVENT" has the meaning set forth in Section 13.1 hereof.
1.48 "LIQUIDATOR" has the meaning set forth in Section 13.2 hereof.
1.49 "L.P. UNIT" means a fractional, undivided share of the Partnership
Interests of all Partners issued pursuant to Sections 4.1, 4.2 and 4.3. The
number of L.P. Units outstanding and the Percentage Interests in the Partnership
represented by such L.P. Units are set forth in Appendix I, as such Appendix may
be amended from time to time. The ownership of L.P. Units shall be evidenced by
such form of certificate for units as the General Partner adopts from time to
time unless the General Partner determines that the L.P. Units shall be
uncertificated securities.
1.50 "L.P. UNIT MAJORITY" means the Limited Partners holding the right to
vote, in the aggregate, a majority of the total number of L.P. Units outstanding
in the Operating Partnership.
1.51 "NET INCOME" OR "NET LOSS" means, for each fiscal year or other
applicable period, an amount equal to the Partnership's taxable income or loss
for such year or period as determined for federal income tax purposes by the
General Partner, determined in accordance with Section 703(a) of the Code (for
this purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a) of the Code shall be included in taxable
income or loss), adjusted as follows: (a) by including as an item of gross
income any tax-exempt income received by the Partnership and not otherwise taken
into account in computing Net Income or Net Loss; (b) by treating as a
deductible expense any expenditure of the Partnership described in Section
705(a)(2)(B) of the Code (or which is treated as a Section 705(a)(2)(B)
expenditure pursuant to Section 1.704-1(b)(2)(iv)(i) of the Regulations) and not
otherwise taken into account in computing Net Income or Net Loss, including
amounts paid or incurred to organize the Partnership (unless an election is made
pursuant to Section 709(b) of the Code) or to promote the sale of interests in
the Partnership and by treating deductions for any losses incurred in connection
with the sale or exchange of Partnership property disallowed pursuant to Section
267(a)(1) or 707(b) of the Code as expenditures described in Section
705(a)(2)(B) of the Code; (c) by taking into account Depreciation in lieu of
depreciation, depletion, amortization and other cost recovery deductions taken
into account in computing taxable income or loss; (d) by computing gain or loss
resulting from any disposition of Partnership property with respect to which
gain or loss is recognized for federal income tax purposes by reference to the
Gross Asset Value of such property rather than its adjusted tax basis; (e) in
the event of an adjustment of the Gross Asset Value of any Partnership asset
which requires that the Capital Accounts of the Partnership be adjusted pursuant
to Sections 1.704-1(b)(2)(iv)(e), (f) and (g) of the Regulations, by taking into
account the amount of such adjustment as if such adjustment represented
additional Net Income or Net Loss pursuant to Appendix II; and (f) by not taking
into account in computing Net Income or Net Loss items separately allocated to
the Partners pursuant to Sections 1 and 2 of Appendix II.
<PAGE>
1.52 "NEW EQUITY FINANCING RIGHT" has the meaning set forth in Section 8.8.
1.53 "NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations
Sections 1.704-2(b)(1) and 1.704-2(c).
1.54 "NONRECOURSE LIABILITIES" has the meaning set forth in Regulations
Section 1.704-2(b)(3).
1.55 "OPERATING PARTNERSHIP" means, collectively, Mission West Properties,
L.P., Mission West Properties, L.P. I, Mission West Properties, L.P. II and
Mission West Properties, L.P. III.
1.56 "PARTNER" means the General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners collectively.
1.57 "PARTNER MINIMUM GAIN" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
1.58 "PARTNER NONRECOURSE DEBT" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
1.59 "PARTNER NONRECOURSE DEDUCTIONS" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership taxable
year shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
1.60 "PARTNERSHIP" means the limited partnership governed by this
Agreement, and any successor thereto.
1.61 "PARTNERSHIP INTEREST" means an ownership interest in the Partnership
representing an Adjusted Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. A Partnership Interest may be expressed as a number of L.P.
Units.
1.62 "PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in a Partnership Minimum Gain, for a Partnership
taxable year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
1.63 "PARTNERSHIP RECORD DATE" means the record date established by the
General Partner for the distribution of Available Cash pursuant to Section 5.1,
which shall be the same as the record date established by the Company for a
distribution to its shareholders of some or all of its portion of such
distribution.
1.64 "PARTNERSHIP YEAR" means the fiscal year of the Partnership, which is
the calendar year, as set forth in Section 9.2.
1.65 "PENDING DEVELOPMENT PROJECTS" means three Berg Group-owned R&D
<PAGE>
Property development projects which the Operating Partnership has agreed to
acquire upon their completion pursuant to the terms of the Acquisition Agreement
and the related Pending Projects Option Agreement dated as of ________ __, 1998.
1.66 "PARTNERSHIP INTEREST" means, as to a Partner, the fractional part of
the Partnership Interests owned by such Partner and expressed as a percentage as
specified in Appendix I, as such Appendix may be amended from time to time.
1.67 "PERMITTED PARTNERS" has the meaning set forth in Section 1(b) of
Appendix II.
1.68 "PERMITTED TRANSFEREE" means any person to whom L.P. Units are
Transferred in accordance with Section 11.3 of this Agreement.
1.69 "PERSON" means an individual or Entity.
1.70 "PRECONTRIBUTION GAIN" has the meaning set forth in Section 3(c) of
Appendix II.
1.71 "PUT RIGHTS" shall have the meaning provided in Section 8.7.
1.72 "PROTECTIVE PROVISIONS EXPIRATION DATE" means the date on which the
members of the Berg Group own less than 15% of the Common Stock, treating all
Equity Securities of the Company and all L.P. Units owned by such members as
Common Stock outstanding for this purpose.
1.73 "PROPERTIES" has the meaning given such term in the Acquisition
Agreement.
1.74 "QUARTER" means each of the three month periods ending on March 31,
June 30, September 30 and December 31.
1.75 "REGULATIONS" means the final, temporary or proposed Income Tax
Regulations promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
1.76 "REIT" means a real estate investment trust as defined in Section 856
of the Code.
1.77 "REIT REQUIREMENTS" means all of the requirements imposed under the
Code on any entity seeking to qualify and remain qualified as a REIT.
1.78 "RESTRICTED PARTNER" has the meaning set forth in Section 1(b) of
Appendix II.
1.79 "SEC" means the U.S. Securities and Exchange Commission.
1.80 "SECURITIES ACT" means the Securities Act of 1933, as amended.
1.81 "STOCK OPTION PLAN" means the Company's 1997 Stock Option Plan and any
other plan adopted from time to time by the Company pursuant to which shares of
Common Stock are issued, or options to acquire shares of Common Stock are
granted, to consultant, employees or directors of the Company, the Operating
Partnership or their respective Affiliates in consideration for services or
future services.
1.82 "SUBSIDIARY" means, with respect to any Person, any corporation,
<PAGE>
partnership or other entity of which a majority of (i) the voting power of the
Voting Securities; or (ii) the outstanding equity interests, is owned, directly
or indirectly, by such Person.
1.83 "SUBSTITUTED LIMITED PARTNER" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4 hereof.
1.84 "TAX ITEMS" has the meaning set forth in Appendix II.
1.85 "TERMINATING CAPITAL TRANSACTION" means any Change of Control
Transaction.
1.86 "TOTAL MARKET CAPITALIZATION" means the market value of the
outstanding Common Stock determined as if all L.P. Units in the Operating
Partnership had been converted into Common Stock at the Exchange Factor plus the
total debt of the Company and the Operating Partnership.
1.87 "TRANSFER" as a noun, means any sale, assignment, conveyance, pledge,
hypothecation, gift, encumbrance or other transfer, and as a verb, means to
sell, assign, convey, pledge, hypothecate, give, encumber or otherwise transfer.
1.88 "UNIT" means an equal undivided interest in all of the outstanding
Partnership Interests.
1.89 "UNITED STATES PERSON" means a holder of L.P. Units who is an
individual who is a citizen or resident of the United States; a corporation,
partnership or other entity created or organized in, or under the laws of, the
United States or any State; an estate the income of which from sources without
the United States is includable in gross income for United States federal income
tax purposes; a trust the primary supervision of which is exercisable by a court
within the United States and having one or more United States fiduciaries with
authority to control all substantial decisions of such trust; and any Person
whose income or gain in respect of the L.P. Units is effectively connected with
the conduct of a United States trade or business.
1.90 "VOTING SECURITIES" means any Equity Security which entitles the
holder thereof to vote on all matters submitted for a vote of equity holders by
the issuer of such Equity Security, including the right to vote for directors in
the case of a corporation.
Certain additional terms and phrases have the meanings set forth in
Appendix II.
ARTICLE 2. ORGANIZATIONAL MATTERS.
2.1 CONTINUATION. The Partners hereby agree to continue the Partnership
under and pursuant to the Act. Except as expressly provided herein to the
contrary, the rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Act. The Partnership
Interest of each Partner shall be personal property for all purposes.
2.2 NAME. The name of the Partnership shall be Mission West Properties,
L.P. [ ]. The Partnership's business may be conducted under any other name or
names deemed advisable by the General Partner, including the name of the General
Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary to comply with the laws of any jurisdiction. The General Partner
<PAGE>
in its sole and absolute discretion may, upon 5 days' prior written notice to
the Limited Partners, change the name of the Partnership.
2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE. The address of the
registered office of the Partnership in the State of Delaware and the name and
address of the registered agent for service of process on the Partnership in the
State of Delaware is The Corporation Trust Company, 1029 Orange Street,
Wilmington, Delaware 19801. The principal office of the Partnership shall be
10050 Bandley Drive, Cupertino, California 95014, or such other place as the
General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems advisable.
2.4 POWER OF ATTORNEY.
A. Each Limited Partner and each Assignee hereby constitutes and appoints
the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and other
instruments (including, without limitation, this Agreement and the
Certificate and all amendments or restatements thereof) that the General
Partner or the Liquidator deems appropriate or necessary to form, qualify
or continue the existence or qualification of the Partnership as a limited
partnership (or a partnership in which the Limited Partners have limited
liability) in the State of Delaware and in all other jurisdictions in which
the Partnership may or plans to conduct business or own property,
including, without limitation, any documents necessary or advisable to
convey any Contributed Property to the Partnership; (b) all instruments
that the General Partner deems appropriate or necessary to reflect any
amendment, change, modification or restatement of this Agreement in
accordance with its terms; (c) all conveyances and other instruments or
documents that the General Partner or the Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement, including, without limitation, a
certificate of cancellation; (d) all instruments relating to the admission,
withdrawal, removal or substitution of any Partner pursuant to, or other
events described in, Article 11, 12 or 13, or the Capital Contribution of
any Partner; and (e) all certificates, documents and other instruments
relating to the determination of the rights, preferences and privileges of
Partnership Interest; and
(2) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of the
General Partner or any Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action which is made
or given by the Partners hereunder or is consistent with the terms of this
agreement or appropriate or necessary, in the sole discretion of the
General Partner or any Liquidator, to effectuate the terms or intent of
this Agreement.
Nothing contained herein shall be construed as authorizing the General
Partner or any Liquidator to amend this Agreement except in accordance with
<PAGE>
Article 14, or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable and
a power coupled with an interest, in recognition of the fact that each of the
Partners will be relying upon the power of the General Partner and any
Liquidator to act as contemplated by this Agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
Transfer of all or any portion of such Limited Partner's or Assignee's L.P.
Units and shall extend to such Limited Partner's or Assignee's heirs,
successors, assigns and personal representatives. Each such Limited Partner or
Assignee hereby agrees to be bound by any representation made by the General
Partner or any Liquidator, acting in good faith pursuant to such power of
attorney, and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within 15 days after receipt of the General
Partner's or Liquidator's request therefor, such further designation, powers of
attorney and other instruments as the General Partner or the Liquidator, as the
case may be, deems necessary to effectuate this Agreement and the purposes of
the Partnership.
2.5 TERM. The term of the Partnership shall commence on the date hereof and
shall continue until December 31, 2048, unless the Partnership is dissolved
sooner pursuant to the provisions of Article 13 or as otherwise provided by law.
ARTICLE 3. PURPOSE.
3.1 PURPOSE AND BUSINESS. The purpose and nature of the business to be
conducted by the Partnership is to conduct any business that may be lawfully
conducted by a limited partnership organized pursuant to the Act including,
without limitation, to engage in the following activities: to acquire, hold,
own, develop, construct, improve, maintain, operate, sell, lease, transfer,
encumber, convey, exchange, and otherwise dispose of or deal with the
Properties, and the Pending Development Projects; to acquire, hold, own,
develop, construct, improve, maintain, operate, sell, lease, transfer, encumber,
convey, exchange, and otherwise dispose of or deal with real and personal
property of all kinds; to undertake such other activities as may be necessary,
advisable, desirable or convenient to the business of the Partnership; and to
engage in such other ancillary activities as shall be necessary or desirable to
effectuate the foregoing purposes.
3.2 POWERS. The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business for which it has
been formed and for the protection and benefit of the Partnership; provided,
that the Partnership shall not take, and shall refrain from taking, any action
which, in the judgment of the General Partner, in its sole and absolute
discretion, (i) could adversely affect the ability of the Company to continue to
qualify as a REIT; (ii) could subject the Company to any additional taxes under
Section 857 or Section 4981 of the Code; or (iii) could violate any law or
regulation of any governmental body or agency having jurisdiction over the
Company or its securities, unless such action (or inaction) shall have been
specifically consented to by the Company, if not the General Partner, and the
L.P. Unit Majority.
<PAGE>
ARTICLE 4. CAPITAL CONTRIBUTIONS.
4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS.
A. At the time of the execution of this Agreement, the Partners have made
the Adjusted Contributions, or shall make the Capital Contributions contemplated
by the Acquisition Agreement, as set forth in Appendix I to this Agreement. Each
Limited Partner shall own L.P. Units in the amount set forth for such Partner in
Appendix I and shall have a Percentage Interest in the Partnership as set forth
in Appendix I, which shall be adjusted in Appendix I from time to time by the
General Partner to the extent necessary to reflect accurately exchanges,
additional Capital Contributions, the issuance of additional Partnership
Interests, the exercise of Put Rights with respect to L.P. Units or similar
events having an effect on any Partner's Percentage Interest.
B. The number of Units held by the General Partner, in its capacity as
general partner, shall be deemed to be the General Partner Interest. Except as
provided in Sections 4.2, 10.5 and 13.3, the Partners shall have no obligation
to make any additional Capital Contributions.
4.2 ADDITIONAL FUNDS; RESTRICTIONS ON COMPANY.
A. The sums of money required to finance the business and affairs of the
Partnership shall be derived from the initial Capital Contributions made to the
Partnership by the Company as set forth in the Acquisition Agreement and from
funds generated from the operation and business of the Partnership including,
without limitation, distributions directly or indirectly received by the
Partnership from Available Cash provided by the Operating Partnership. In the
event additional financing is needed from sources other than as set forth in the
preceding sentence for any reason, subject to the provisions of Sections 8.8 and
8.9, the General Partner may, in its discretion, in such amounts and at such
times as it solely shall determine to be necessary or appropriate, obtain
additional funds for the Operating Partnership which shall be allocated to each
of the partnerships included therein, including the Partnership, pro rata in
proportion to the ratio of the number of Units then outstanding in each such
Partnership to the total number of L.P. Units then outstanding in the Operating
Partnership taken as a whole ("Pro Rata Share"). Accordingly, to the extent of
such Pro Rata Share of the Partnership and subject to Section 8.9 and any other
limitations contained in this Agreement or the Acquisition Agreement, the
General Partner may, (i) cause the Partnership to issue additional Partnership
Interests and admit additional Limited Partners to the Partnership in accordance
with Section 4.3; (ii) make additional Capital Contributions to the Partnership
(subject to the provisions of Section 4.2B); (iii) cause the Partnership to
borrow money, enter into loan arrangements, issue debt securities, obtain
letters of credit or otherwise borrow money on a secured or unsecured basis; or
(iv) make loans to the Partnership (subject to Section 4.2B). In no event shall
the Limited Partners be required to make any additional Capital Contributions or
any loan to, or otherwise provide any financial accommodation for the benefit
of, the Partnership pursuant to any such permitted action by the General
Partner, except insofar as a Limited Partner has exercised its New Equity
Financing Right pursuant to Section 8.8.
B. Except as agreed otherwise at the time by vote or written consent of the
L.P. Unit Majority: (i) the Company shall lend to the Partnership its Pro Rata
Share of the proceeds of or consideration received by the Company from all loans
and advances to the Company pursuant to any financial borrowing arrangement on
the same financial terms and conditions, including interest rate and repayment
<PAGE>
schedule, as shall be applicable with respect to or incurred in connection with
the issuance of such loans and advances to the Company (which the Partnership
may, in turn, lend to any other partnership constituting part of the Operating
Partnership); (ii) in the case of Equity Securities senior or junior to the
Common Stock as to dividends and distributions on liquidation, which are not
convertible into Common Stock as of the issuance date, the Company shall
contribute to the Partnership the proceeds of or consideration (including any
property or other non-cash assets) received for such Securities and the proceeds
of, or consideration received from, any subsequent exercise, exchange or
conversion thereof (if applicable), and shall receive from the Partnership, new
Partnership Interests in the Partnership in consideration therefor with the same
financial terms and conditions, including dividend, dividend priority,
liquidation preference, conversion and redemption rights, as are applicable to
such Equity Securities; (iii) in the case of Common Stock, or other Equity
Securities convertible into Common Stock as of the issuance date, including,
without limitation, shares of Common Stock or other Equity Securities issued
upon exercise of options issued under the Stock Option Plan or any other
Employee Benefit Plan of the Company, the Company shall contribute to the
Partnership the proceeds of or consideration (including any property or other
non-cash assets) received for such Securities and the proceeds of, or
consideration received from, any subsequent exercise, exchange or conversion
thereof (if applicable), and shall receive from the Partnership a number of
additional Units of General Partner Interest in consideration therefor equal to
the product of (x) the number of shares of Common Stock or other Equity
Securities issued by the Company, multiplied by (y) the Exchange Factor in
effect on the date of such contribution; and (iv) in the case of Common Stock or
other Equity Securities issued upon the exercise or surrender of rights under a
stock option, warrant, or any other right for which the Company does not receive
proceeds, and issues less than the number of shares of Common Stock or other
Equity Securities subject to such option, warrant or other right to the holder
thereof retaining the excess of such shares as payment of the purchase price (a
"net exercise"), or where the Company uses the proceeds received pursuant to a
Dividend Reinvestment Plan to acquire shares of Common Stock or other Equity
Securities to be issued to the shareholder exercising such right, the Company
shall receive from the Partnership a number of additional Units of General
Partner Interest equal to the actual number of shares of Common Stock or other
Equity Securities so issued to the shareholder multiplied by the Exchange
Factor.
4.3 ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS; ADMISSION OF ADDITIONAL
LIMITED PARTNERS. In addition to any Partnership Interests issuable by the
Partnership pursuant to Section 4.2, and subject to the provisions of Sections
8.8 and 8.9, the General Partner is authorized to cause the Partnership to issue
additional Partnership Interests (or options therefor) in the form of L.P. Units
or other Partnership Interests senior or junior to the L.P. Units to any Persons
at any time or from time to time, for consideration per Unit of Partnership
Interest not less than the Common Stock Price determined at the initial issuance
date divided by the Exchange Factor, and on such other terms and conditions, as
the General Partner shall establish provided, however, that (i) each partnership
included in the Operating Partnership shall effect its Pro Rata Share of such
issuance, (ii) such issuance does not cause the Partnership to become, with
respect to any Employee Benefit Plan subject to Title I of ERISA or Section 4975
of the Code, a "party in interest" (as defined in Section 3(14) of ERISA) or a
"disqualified person" (as defined in Section 4975(e) of the Code); and (iii)
such issuance does not cause any portion of the assets of the Partnership to
constitute assets of any Employee Benefit Plan subject to Section 2510.3-101 of
the regulations of the United States Department of Labor. Subject to the
<PAGE>
limitations set forth in the preceding sentence, the General Partner may take
such steps as it, in its reasonable discretion, deems necessary or appropriate
to admit any Person as a Limited Partner of the Partnership, including, without
limitation, amending the Certificate, Appendix I or any other provision of this
Agreement.
4.4 REPURCHASE OF COMPANY EQUITY SECURITIES. In the event the Company shall
elect to purchase from its shareholders shares of Common Stock for the purpose
of delivering such shares to satisfy an obligation under any Dividend
Reinvestment Plan or Employee Benefit Plan adopted by the Company, or shall
repurchase any other Equity Securities of the Company pursuant to any other
share repurchase obligation or arrangement undertaken by the Company with any
Company shareholder, including preferred stock redemptions, the purchase price
paid by the Company for such shares and any other expenses incurred by the
Company in connection with such purchase shall be considered expenses of the
Partnership and shall be reimbursed to the Company, subject to the condition
that: (i) if such shares subsequently are to be sold by the Company, the Company
shall pay to the Partnership any proceeds received by the Company for such
shares of Common Stock or other Equity Securities (provided that an exchange of
shares of Common Stock for L.P. Units pursuant to the Exchange Rights Agreement
would not be considered a sale for such purposes); and (ii) if such shares are
not re-transferred by the Company within 30 days after the purchase thereof, the
General Partner shall cause the Partnership to cancel the number of Units of
General Partner Interest held by the Company determined by multiplying (x) the
quotient obtained by dividing the total amount deemed paid by the Partnership by
the Common Stock Price determined as of the repurchase date, by (y) the Exchange
Factor in effect on the date of such repurchase.
4.5 NO THIRD PARTY BENEFICIARY. No creditor or other third party having
dealings with the Partnership shall have the right to enforce the right or
obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns.
4.6 NO INTEREST; NO RETURN. No Partner shall be entitled to interest on its
Capital Contribution or on such Partner's Capital Account. Except as provided in
Section 8.7 or Article 13 of this Agreement, or by law, no Partner shall have
any right to demand or receive the return of its Capital Contribution from the
Partnership.
ARTICLE 5. DISTRIBUTIONS.
5.1 REGULAR DISTRIBUTIONS. Except for distributions pursuant to Section
13.2 in connection with the dissolution and liquidation of the Partnership, and
subject to the provisions of Sections 5.3, 5.4 and 5.5, the General Partner
shall cause the Partnership to distribute, from time to time as determined by
the General Partner, but in any event not less frequently than once each
Quarter, the Partnership's Pro Rata Share of all Available Cash, to the
Partners, in accordance with each Partner's respective Percentage Interest;
provided, however, that in no event may a Limited Partner receive a distribution
of Available Cash with respect to a L.P. Unit, if such Limited Partner is
entitled to receive a distribution out of such Available Cash with respect to a
share of Common Stock for which such L.P. Unit has been exchanged.
5.2 QUALIFICATION AS A REIT. The General Partner shall be entitled to cause
<PAGE>
the Partnership to distribute to the General Partner the Partnership's Pro Rata
Share of Available Cash distributed by the Operating Partnership to enable the
General Partner to pay shareholder dividends that will (i) satisfy the REIT
Requirements for distributions to shareholders, and (ii) avoid any federal
income or excise tax liability of the General Partner; provided, however, the
General Partner is not bound to comply with this covenant to the extent such
distributions would violate applicable Delaware law.
5.3 WITHHOLDING. With respect to any withholding tax or other similar tax
liability or obligation to which the Partnership may be subject as a result of
any act or status of any Partner or to which the Partnership becomes subject
with respect to any Unit, the Partnership shall have the right to withhold
amounts of Available Cash distributable to such Partner or with respect to such
Units, to the extent of the amount of such withholding tax or other similar tax
liability or obligation pursuant to the provisions contained in Section 10.5.
5.4 ADDITIONAL PARTNERSHIP INTERESTS. If the Partnership issues Partnership
Interests in accordance with Section 4.2 or 4.3 which are entitled to certain
distribution priorities, Section 5.1 shall be amended, as necessary, to reflect
the distribution priority of such Partnership Interests and corresponding
amendments shall be made to the provisions of Appendix II.
5.5 DISTRIBUTIONS UPON LIQUIDATION. Proceeds from a Terminating Capital
Transaction and any other cash received or reductions in reserves made after
commencement of the liquidation of the Partnership shall be distributed to the
Partners in accordance with Section 13.2.
ARTICLE 6. ALLOCATIONS.
The Net Income, Net Loss, and other Partnership items of income, gain,
loss, deduction or credit as provided under the Code, shall be allocated
pursuant to the provisions of Appendix II, as amended from time to time.
ARTICLE 7. MANAGEMENT AND OPERATION OF BUSINESS.
7.1 MANAGEMENT.
A. Except as otherwise expressly provided in this Agreement, and subject to
the provisions of Section 8.9, all management powers over the business and
affairs the Partnership are and shall be exclusively vested in the General
Partner, and no Limited Partner shall have any right to participate in or
exercise control or management power over the business and affairs of the
Partnership. The General Partner may not be removed by the Limited Partners,
with or without cause. In addition to the powers now or hereafter granted a
general partner of a limited partnership under the Act or which are granted to
the General Partner under any other provision of this Agreement, the General
Partner shall have full power and authority to make contracts, sign documents,
conduct litigation, acquire and convey property, hire employees, consultants and
professionals, raise capital, borrow funds, incur liabilities, invest funds,
comply with all applicable laws, and do all other things deemed necessary or
desirable by the General Partner to conduct the business of the Partnership on
behalf of the Partnership; to exercise all powers set forth in Section 3.2, and
to effectuate the purposes set forth in Section 3.1, provided that any exercise
of the foregoing rights and powers must be consistent with the REIT
Requirements.
B. Except as provided in Section 8.9, each of the Limited Partners agrees
<PAGE>
that the General Partner is authorized to execute, deliver and perform the
agreements and transactions on behalf of the Partnership without any further
act, approval or vote of the Partners, notwithstanding any other provision of
this Agreement to the fullest extent permitted under the Act or other applicable
law, rule or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, in accordance with the
provisions of the Acquisition Agreement, the General Partner may cause the
Partnership to establish and maintain at any and all times working capital
accounts and other cash or similar balances in such amount as the General
Partner, in its sole and absolute discretion, deems appropriate and reasonable
from time to time. Such accounts may include funds of the General Partner and
the other partnerships in the Operating Partnership, which the General Partner
shall be free to commingle.
D. In exercising its authority under this Agreement, the General Partner
shall take into account the tax consequences to any Partner of any action taken
by it and shall select the alternative which appears at the time to present the
least adverse tax consequences to the Limited Partners. By way of example, but
not of limitation: If the General Partner decides to refinance (directly or
indirectly) any outstanding indebtedness of the Partnership, the General Partner
shall use reasonable efforts to structure such refinancing in a manner that
minimizes any adverse tax consequences resulting therefrom to the Limited
Partners. The General Partner and the Partnership shall not have liability to a
Limited Partner under any circumstances as a result of an income tax liability
incurred by such Limited Partner as a result of a necessary action (or inaction)
by the General Partner taken pursuant to its authority under and in accordance
with this Agreement where avoiding the resulting adverse tax consequences to a
Limited Partner was not reasonably practicable under the circumstances.
7.2 CERTIFICATE OF LIMITED PARTNERSHIP. The General Partner shall file the
[AMENDED CERTIFICATE] [CERTIFICATE] with the Secretary of State of Delaware as
required by the Act. The General Partner shall use all reasonable efforts to
cause to be filed such other certificates or documents as may be reasonable and
necessary or appropriate for the formation, continuation, qualification and
operation of a limited partnership (or a partnership in which the limited
partners have limited liability) in the State of Delaware and any other state,
or the District of Columbia, in which the Partnership may elect to do business
or own property. To the extent that such action is determined by the General
Partner to be reasonable and necessary or appropriate, the General Partner shall
file amendments to and restatements of the Certificate and do all of the things
to maintain the Partnership as a limited partnership (or a partnership in which
the limited partners have limited liability) under the laws of the State of
Delaware and each other state, or the District of Columbia, in which the
Partnership may elect to do business or own property. Subject to the terms of
Section 8.5A(iv) hereof, the General Partner shall not be required, before or
after filing, to deliver or mail a copy of the Certificate or any amendment
thereto to any Limited Partner.
7.3 REIMBURSEMENT OF THE GENERAL PARTNER AND THE COMPANY.
A. Except as provided in this Section 7.3 and elsewhere in this Agreement
(including the provisions of Articles 5 and 6 regarding distributions, payments,
<PAGE>
and allocations to which it may be entitled), the General Partner shall not be
compensated for its services as general partner of the Partnership.
B. The General Partner, shall be reimbursed on a monthly basis, or such
other basis as it may determine in its sole and absolute discretion, for all
expenses that it incurs relating to the ownership and operation of, or for the
benefit of, the Partnership; provided, that the amount of any such reimbursement
shall be reduced by any interest earned by the General Partner with respect to
bank accounts or other instruments or accounts held by it in its name. Such
reimbursement shall be in addition to any reimbursement made as a result of
indemnification pursuant to Section 7.6.
7.4 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER. The General Partner shall
not directly or indirectly enter into or conduct any business other than in
connection with the ownership, acquisition, development and disposition of
Partnership Interests and the management of the business of the Partnership, and
such activities as are incidental thereto. The General Partner and any
Affiliates of the General Partner may acquire Limited Partner Interests and
shall be entitled to exercise all rights of a Limited Partner relating to such
Limited Partner Interests.
7.5 CONTRACTS WITH AFFILIATES.
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
B. Except as provided in Section 7.4, the Partnership may Transfer assets
to joint ventures, other partnerships, corporations or other business entities
in which it is or thereby becomes a participant upon such terms and subject to
such conditions consistent with this Agreement and applicable law as the General
Partner, in its sole and absolute discretion, believes are advisable.
C. Except as expressly permitted by this Agreement or otherwise
contemplated by the Acquisition Agreement, neither the General Partner nor any
of its Affiliates shall sell, Transfer or convey any property to, or purchase
any property from, the Partnership, directly or indirectly, except pursuant to
transactions that are determined by the General Partner in good faith to be fair
and reasonable.
D. Except as provided otherwise in Section 8.9, the General Partner, in its
sole and absolute discretion and without the approval of the Limited Partners,
may propose and adopt, on behalf of the Partnership, Employee Benefit Plans
funded by the Partnership for the benefit of employees of the General Partner,
the Partnership, Subsidiaries of the Partnership or any Affiliate of any of them
in respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any Subsidiaries of the Partnership.
E. The General Partner is expressly authorized to enter into, in the name
and on behalf of the Partnership, a "right of first opportunity" or "right of
first offer" arrangement, non-competition agreements and other conflict
avoidance agreements with various Affiliates of the Partnership and the General
Partner, on such terms as the General Partner, in its sole and absolute
discretion, believes are advisable.
<PAGE>
7.6 INDEMNIFICATION.
A. To the fullest extent permitted by Delaware law, the Partnership shall
indemnify each Indemnitee from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including, without limitation,
reasonable attorneys' fees and other legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the Partnership or the Company as set forth in
this Agreement, in which such Indemnitee may be involved, or is threatened to be
involved, as a party or otherwise, except to the extent it is finally determined
by a court of competent jurisdiction, from which no further appeal may be taken,
that such Indemnitee's action constituted intentional acts or omissions
constituting willful misconduct or fraud. Without limitation, the foregoing
indemnity shall extend to any liability of any Indemnitee, pursuant to a loan
guaranty or otherwise for any indebtedness of the Partnership or any Subsidiary
of the Partnership (including, without limitation, any indebtedness which the
Partnership or any Subsidiary of the Partnership has assumed or taken subject
to), except with respect to Partnership debt that has been assumed or guaranteed
by an Indemnitee in its capacity as a Limited Partner. The General Partner is
hereby authorized and empowered, on behalf of the Partnership, to enter into one
or more indemnity agreements consistent with the provisions of this Section 7.6
in favor of any Indemnitee having or potentially having liability for any such
indebtedness. Any indemnification pursuant to this Section 7.6 shall be made
only out of the assets of the Partnership, and neither the General Partner nor
any Limited Partner shall have any obligation to contribute to the capital of
the Partnership, or otherwise provide funds, to enable the Partnership to fund
its obligations under this Section 7.6.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding shall be paid or reimbursed by the Partnership in advance of the
final disposition of the proceeding.
C. The indemnification provided by this Section 7.6 shall be in addition to
any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, under the Company's
Articles of Incorporation, as a matter of law, or otherwise, and shall continue
as to an Indemnitee who has ceased to serve in such capacity unless otherwise
provided in a written agreement pursuant to which such Indemnities are
indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnities and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. For purposes of this Section 7.6, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an Employee Benefit Plan
whenever the performance by such Indemnitee of its duties to the Partnership
also imposes duties on, or otherwise involves services by, such Indemnitee to
the plan or participants or beneficiaries of the plan; excise taxes assessed on
an Indemnitee with respect to an Employee Benefit Pan pursuant to applicable law
shall constitute fines within the meaning of this Section 7.6; and actions taken
<PAGE>
or omitted by the Indemnitee with respect to an Employee Benefit Plan in the
performance of its duties for a purpose reasonably believed by it to be in the
interest of the participant and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject any of the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.6 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.6 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.6 or any provision hereof
shall be prospective only and shall not in any way affect the Partnership's
liability to any Indemnitee under this Section 7.6, as in effect immediately
prior to such amendment, modification, or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
I. The provisions of this Section 7.6 shall be inapplicable to any
investigation, claim, suit, or proceeding, or the portion thereof, which
concerns claims for breach of contract between the Partnership and a Person
contracting other than in such Person's capacity as a Partner, or as an officer
or director of the General Partner.
J. No provision of this Section 7.6 shall be construed as permitting any
contract or transaction which is prohibited by the provisions of Section
9.2(b) of the Acquisition Agreement.
7.7 LIABILITY OF THE GENERAL PARTNER.
A. Notwithstanding anything to the contrary set forth in this Agreement,
the General Partner and its officers and directors shall not be liable for
monetary damages to the Partnership, any Partners or any Assignees for losses
sustained or liabilities incurred as a result of errors in judgment or of any
act or omission, if the General Partner acted in good faith; provided, however,
the foregoing shall not be deemed to exculpate the Company from any liability
the Company may have under the Acquisition Agreement.
B. Subject to its obligations and duties as General Partner set forth in
Section 7.1A hereof, the General Partner may exercise any of the powers granted
to it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agent. The General Partner shall not be
liable for any acts or omissions on the part of any such agent, except in
circumstances for which the General Partner may be liable under Section 7.7A or
would not be subject to indemnification under Section 7.6.
C. Any amendment, modification or repeal of this Section 7.7 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's and its officers' and directors' liability
to the Partnership and the Limited Partners under this Section 7.7 as in effect
<PAGE>
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
7.8 LIMITED PARTNERS' RIGHT TO BRING DERIVATIVE LAWSUITS. Any Limited
Partner may bring an action on behalf of the Partnership, as permitted under the
Act and the laws of the State of Delaware, to recover a judgment in favor of the
Partnership if the General Partner has refused to bring the action or if an
effort to cause the General Partner to bring the action is not likely to
succeed.
7.9 OTHER MATTERS CONCERNING THE GENERAL PARTNER.
A. The General Partner may rely and shall be protected in acting, or
refraining from acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and duly appointed attorneys-in-fact. Each such attorney shall, to the
extent provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the Company to continue to
qualify as a REIT; or (ii) to avoid the Company incurring any taxes under
Section 857 or Section 4981 of the Code, is expressly authorized under this
Agreement and is deemed approved by all of the Limited Partners.
7.10 TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership asset for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, that the General Partner shall use its best efforts to
<PAGE>
cause beneficial and record title to such assets to be vested in the Partnership
as soon as reasonably practicable. All Partnership assets shall be recorded as
the property of the Partnership in its books and records, irrespective of the
name in which legal title to such Partnership assets is held.
7.11 RELIANCE BY THIRD PARTIES. Notwithstanding anything to the contrary in
this Agreement, any Person dealing with the Partnership shall be entitled to
assume that the General Partner has full power and authority, without consent or
approval of any other Partner or Person, to encumber, sell or otherwise use in
any manner any and all assets of the Partnership and to enter into any contracts
on behalf of the Partnership, and take any and all actions on behalf of the
Partnership, and such Person shall be entitled to deal with the General Partner
as if the General Partner were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing. In no event shall any Person dealing with the General
Partner or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the General Partner or its representatives. Each and
every certificate, document or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that: (i) at the time of the execution and delivery of such certificate,
document or instrument, this Agreement was in full force and effect; (ii) the
Person executing and delivering such certificate, document or instrument was
duly authorized and empowered to do so for and on behalf of the Partnership; and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this Agreement and is binding
upon the Partnership.
ARTICLE 8. RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.
8.1 LIMITATION OF LIABILITY. The Limited Partners shall have no liability
under this Agreement except as expressly provided in this Agreement, including
Sections 10.5 and 13.3 hereof, or under the Act. Notwithstanding the preceding
sentence, each Limited Partner shall have the right, but not the obligation, to
guarantee a portion of the indebtedness of the Partnership in accordance with
the terms of the Acquisition Agreement.
8.2 MANAGEMENT OF BUSINESS. No Limited Partner or Assignee (other than the
General Partner, any of its Affiliates or any officer, director, employee, agent
or trustee of the General Partner, the Partnership or any of their Affiliates,
in their capacity as such) shall take part in the operation, management or
control (within the meaning of the Act) of the Partnership's business, transact
any business in the Partnership's name or have the power to sign documents for
or otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner, the Partnership or any of
their Affiliates, in their capacity as such, shall not affect, impair or
eliminate the limitations on the liability of the Limited Partners or Assignees
under this Agreement.
8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS. Subject to any agreements
entered into pursuant to Section 7.5 hereof and any other agreements entered
into by a Limited Partner or its Affiliates with the Partnership or any of its
Subsidiaries including the Acquisition Agreement, any Limited Partner (other
<PAGE>
than the Company) and any officer, director, employee, agent, trustee, Affiliate
or shareholder of any Limited Partner (other than the Company) shall be entitled
to and may have business interests and engage in business activities in addition
to those relating to the Partnership, including business interests and
activities that are in direct competition with the Partnership or that are
enhanced by the activities of the Partnership. Neither the Partnership nor any
Partners shall have any rights by virtue of this Agreement in any business
ventures of any Limited Partner or Assignee which are permitted within the scope
of this Section 8.3. None of the Limited Partners (other than the Company) nor
any other Person shall have any rights by virtue of this Agreement or the
Partnership relationship established hereby in any business ventures of any
other Person and such Person shall have no obligation pursuant to this Agreement
to offer any interest in any such business ventures to the Partnership, any
Limited Partner or any such other Person, even if such opportunity is of a
character which, if presented to the Partnership, any Limited Partner or such
other Person, could be taken by such Person.
8.4 RETURN OF CAPITAL. Except in connection with the exercise of Exchange
Rights or Put Rights, no Limited Partner shall be entitled to the withdrawal or
return of its Capital Contribution, except to the extent of distributions made
pursuant to this Agreement or upon termination of the Partnership as provided
herein. Except to the extent provided by Appendix II, or as otherwise expressly
provided in this Agreement, no Limited Partner or Assignee shall have priority
over any other Limited Partner or Assignee, either as to the return of Capital
Contributions or as to profits, losses or distributions.
8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP.
A. In addition to the other rights provided by this Agreement or by the
Act, and except as limited by Section 8.5B hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense (including such reasonable copying and administrative charges as the
General Partner may establish from time to time): (i) to obtain a copy of the
most recent annual and quarterly reports filed by the Company with the SEC
pursuant to the Exchange Act; (ii) to obtain a copy of the Partnership's
federal, state and local income tax returns for each Partnership Year; (iii) to
obtain a current list of the name and last known business, residence or mailing
address of each Partner; (iv) to obtain a copy of this Agreement and the
Certificate and all amendments and/or restatements thereto, together with
executed copies of all powers of attorney pursuant to which this Agreement, the
Certificate and all amendments and/or restatements thereto have been executed;
and (v) to obtain true and full information regarding the amount of cash and a
description and statement of any other property or services contributed by each
Partner and which each Partner has agreed to contribute in the future, and the
date on which each became a Partner.
B. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, any information that (i) the General Partner reasonably believes to
be in the nature of trade secrets or other confidential information, the
disclosure of which the General Partner in good faith believes is not in the
best interests of the Partnership or the Company or could damage the Partnership
or its business; or (ii) the Partnership is required by law or by agreements
with an unaffiliated third party to keep confidential.
<PAGE>
8.6 EXCHANGE RIGHTS. The Limited Partners may exchange all or a portion of
their L.P. Units for shares of Common Stock on the terms and subject to the
conditions and restrictions contained in the Exchange Rights Agreement.
8.7 PUT RIGHTS.
A. Upon the terms and subject to the conditions of this Agreement, each
Limited Partner (other than Carl E. Berg and Clyde J. Berg with respect to all
L.P. Units owned by them beneficially as of the Effective Date) shall have the
right to tender to the Partnership outstanding L.P. Units no more than once
during any 12-month period commencing after ___________, ___ 1999. The
Partnership shall purchase properly tendered L.P. Units for cash at a price (the
"Tender Price") equal to the average market value of the Common Stock price as
of the date the Limited Partner delivers to the General Partner, at the address
provided in Appendix II, a completed and duly executed Letter of Transmittal in
the form attached as Exhibit A to the Exchange Rights Agreement, and any other
documents required by the Letter of Transmittal. Only a tender in this manner
will constitute a valid tender of L.P. Units pursuant to this Section 8.7A. The
General Partner shall make all determinations as to the validity and form of any
tender of L.P. Units in accordance with the provisions of this Agreement, and
upon rejection of a tender, shall give the tendering holder written notice of
such rejection, which shall include the reasons therefor. Unless otherwise
agreed by the General Partner or as provided in Section 8.7C, tenders of L.P.
Units pursuant to this Section 8.7A shall be irrevocable and shall not be
subject to withdrawal or modification.
B. Within 15 days after the valid tender of L.P. Units pursuant to Section
8.7A, the Company may make an election to purchase such L.P. Units itself with
cash of the Company (the "Cash Election"). If with respect to any tender of L.P.
Units pursuant to this Section 8.7, the Company makes the Cash Election, then
within 90 days after such tender the Company shall pay to the tendering Limited
Partner an aggregate amount of cash equal to the purchase price of the tendered
L.P. Units with available cash, borrowed funds or the proceeds of an offering of
new shares of Common Stock. Upon acquiring the L.P. Units, the Company may cause
the Partnership to retire the L.P. Units and convert them to the same number of
Units of General Partner Interest, and the General Partner shall amend Appendix
I accordingly.
C. Notwithstanding the foregoing, if the purchase price for the L.P. Units
tendered by a Limited Partners in one year exceeds $1,000,000, the Partnership
or the Company shall be entitled to reduce proportionally the number of L.P.
Units to be acquired from each Tendering Partner so that the total purchase
price does not exceed $1,000,000 if the Company so elects. In addition, if the
Company does not timely make the Cash Election, the Partnership shall deliver
the purchase price for the tendered L.P. Units to the Limited Partner within 45
days after the Letter of Transmittal was delivered to the General Partner. The
General Partner may defer payment of the purchase price until such time not to
exceed 120 days after the valid tender of L.P. Units pursuant to Section 8.7A as
the Partnership has adequate Available Cash after payment of the purchase price,
in the reasonable judgment of the General Partner, to fund current distributions
necessary for the Company to satisfy the REIT Requirements following the waiver
by the Company of its right to make the Cash Election. In such event, the
General Partner shall give the tendering Limited Partner written notice of its
decision to defer the payment with a calculation supporting the General
Partner's determination within 20 days after the Letter of Transmittal was
delivered to the General Partner. Upon receiving such notice, the Limited
<PAGE>
Partner may withdraw the tender. In addition, the Limited Partner may instead
exercise its rights under the Exchange Rights Agreement. If a Limited Partner
tenders L.P. Units pursuant to this Section 8.7, the Limited Partner shall pay
the amount of any additional documentary, stamp or similar issue or transfer tax
which is due, and shall be responsible for all income or other taxes as a result
of such exchange.
D. Each tender of L.P. Units shall constitute a representation and warranty
by the tendering Limited Partner of each of the representations and warranties
set forth in the form of Letter of Transmittal.
E. Until the holder of L.P. Units tendered pursuant to Section 8.7 has
received cash in exchange therefor, such Limited Partner shall continue to hold
and own such L.P. Units for all purposes of this Agreement.
8.8 NEW EQUITY FINANCING RIGHTS.
A. If the General Partner determines that it is in the best interests of
the Partnership to obtain additional funds through the issuance of additional
Partnership Interests, the General Partner shall first offer to the Limited
Partners in each of the partnerships comprising the Operating Partnership,
including the Partnership, the right of first refusal to purchase that portion
of such additional Partnership Interests which their respective numbers of L.P.
Units bear to the total number of outstanding L.P. Units in the Operating
Partnership. The General Partner shall make this offer pursuant to a written
notice describing the offering price, class or series of Partnership Interest,
and all other material terms of the offer. Such notice shall be sent to each
Limited Partner at the address reflected in Appendix I, as amended. The Limited
Partners shall have 10 days from the date of such notice to elect to purchase
any such additional Partnership Interests. Such election shall be made pursuant
to a written subscription form specifying the number of Units of additional
Limited Partnership Interests the Limited Partner intends to acquire and the
total purchase price therefor, and shall be signed by the Limited Partner and
delivered to the General Partner at the address set forth on Appendix I. After
such 10-day period, the General Partner shall be free to offer any additional
Limited Partnership Interests on substantially similar terms to non-Partners and
Partners alike.
B. The foregoing right of the Limited Partners to acquire additional equity
interests offered by the Partnership ("New Equity Financing Right") shall not
apply to any offering (i) which is part of a transaction in which the Limited
Partners had the ability to exercise their New Equity Financing Rights under the
Acquisition Agreement with respect to an offering of Equity Securities by the
Company, (ii) in connection with a merger or other business combination subject
to approval by the L.P. Unit Majority pursuant to Section 8.9, (iii) to a Person
in connection with the acquisition of property or services by the Partnership
from such Person, or (iv) of any Partnership Interest upon conversion of an
outstanding Equity Security of the Partnership, any Partnership Subsidiary, or
the Company.
8.9 MATTERS REQUIRING L.P. UNIT MAJORITY APPROVAL. The consent of the L.P.
Unit Majority will be required with respect to the following actions involving
the Partnership: (i) the material amendment, modification or termination of the
Agreement; (ii) a general assignment for the benefit of creditors or the
appointment of a custodian, receiver or trustee for any of the assets of the
Partnership; (iii) the institution of any proceeding for bankruptcy of the
Partnership; (iv) the Transfer of any General Partnership Interests, including
<PAGE>
transfers attendant to any merger, consolidation or liquidation of the Company
except as otherwise provided in 11.2C; (v) the admission of any additional or
substitute General Partner in the Partnership; and (vi) a Change of Control
Transaction. In addition, until the Protective Provisions Expiration Date, the
consent of the L.P. Unit Majority will also be required with respect to: (i) any
Terminating Capital Transaction; (ii) the dissolution and liquidation of the
Partnership; and (iii) the Partnership's issuance of Limited Partner Interests
having seniority over the L.P. Units with respect to distributing assets, and
voting rights.
8.10 APPROVAL OF CERTAIN TAXABLE SALES. Until the earlier of the tenth
anniversary of the closing of the Berg Acquisition and the Protective Provisions
Expiration Date, the General Partner must obtain the prior written consent of
Carl E. Berg, and upon Carl Berg's death if prior to the expiration of this
provision, Clyde J. Berg, before effecting any sale or other transfer of any of
the Properties identified on Schedules 1, 2, 3 or 5 to the Acquisition Agreement
on behalf of the Partnership which results in the recognition of taxable income
by any member of the Berg Group under the Code. Until the earlier of the tenth
anniversary of the Berg Acquisition and the date on which John T. Kontrabecki
ceases to beneficially own at least 750,000 L.P. Units, the General Partner
shall obtain his prior written consent prior to effecting any sale or other
transfer of any of the Properties (identified in Schedules 4 or 5 to the
Acquisition Agreement) as owned by Kontrabecki, Triangle Partners, or Berg
Ventures II, which will result in the recognition of taxable income by
Kontrabecki under the Code.
ARTICLE 9. BOOKS, RECORDS, ACCOUNTING AND REPORTS.
9.1 RECORDS AND ACCOUNTING. The General Partner shall keep or cause to be
kept at the principal office of the Partnership those records and documents
required to be maintained by the Act and other books and records deemed by the
General Partner to be appropriate with respect to the Partnership's business,
including, without limitation, all books and records necessary to comply with
applicable REIT Requirements and to provide to the Limited Partners any
information, lists and copies of documents required to be provided pursuant to
Sections 8.5A and 9.3 hereof. Any records maintained by or on behalf of the
Partnership in the regular course of its business may be kept on, or be in the
form of, punch cards, magnetic tape, photographs, micrographics or any other
information storage device, provided that the records so maintained are
convertible into clearly legible written form within a reasonable period of
time. The books of the Partnership shall be maintained, for financial and tax
reporting purposes, on an accrual basis in accordance with GAAP, or such other
basis as the General Partner determines to be necessary or appropriate.
9.2 FISCAL YEAR. The fiscal year of the Partnership shall be the calendar
year.
ARTICLE 10. TAX MATTERS.
10.1 PREPARATION OF TAX RETURNS. The General Partner shall arrange for the
preparation and timely filing of all Partnership returns for federal and state
income tax purposes and shall use all reasonable efforts to furnish, within
sixty (60) days of the close of each taxable year, the tax information
reasonably required by Limited Partners for their federal and state income tax
reporting purposes.
10.2 TAX ELECTIONS. The General Partner shall elect for the Partnership to
<PAGE>
be considered a limited partnership on all applicable federal and state income
tax returns to be filed by the Partnership. Except as otherwise provided herein,
the General Partner shall, in its sole and absolute discretion, determine
whether to make any other available election pursuant to the Code.
Notwithstanding the above, in making any such tax election the General Partner
shall take into account the tax consequences to the Limited Partners resulting
from any such election. The General Partner shall make such tax elections on
behalf of the Partnership as the L.P. Unit Majority request, provided that the
General Partner believes that such election is not adverse to the interests of
the General Partner, including its interest in preserving its qualification as a
REIT under the Code. In addition, the General Partner shall elect the
"traditional method" of making Section 704(c) allocations pursuant to
Regulations Section 1.704-3 with respect to each Property under the Acquisition
Agreement. The General Partner shall have the right to seek to revoke any tax
election it makes (other than the election to use the traditional method of
making the Section 704(c) allocations described in this Section 10.2),
including, without limitation, the election under Section 754 of the Code, upon
the General Partner' s determination, in its sole and absolute discretion, that
such revocation is in the best interests of the Limited Partners taken as a
whole and with the approval of the L.P. Unit Majority until the Protective
Provisions Expiration Date. All such elections and determinations may be made on
a Property-by-Property basis, and the General Partner shall be required to
analyze the impact of all such elections and determinations on that basis.
10.3 TAX MATTERS PARTNER.
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the
Code, upon receipt of notice from the Internal Revenue Service of the beginning
of an administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the Internal Revenue Service with the name, address,
taxpayer identification number, and Percentage Interest of each of the Limited
Partners and the Assignees; provided, that such information is provided to the
Partnership by the Limited Partners and the Assignees.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the Internal Revenue Service
with respect to any administrative or judicial proceedings for the
adjustment of Partnership items required to be taken into account by a
Partner for income tax purposes (such administrative proceedings being
referred to as a "tax audit" and such judicial proceedings being referred
to as "judicial review"), and in the settlement agreement the tax matters
partner may expressly state that such agreement shall bind all Partners,
except that such settlement agreement shall not bind any Partner (i) who
(within the time prescribed pursuant to the Code and Regulations) files a
statement with the Internal Revenue Service providing that the tax matters
partner shall not have the authority to enter into a settlement agreement
on behalf of such Partner; or (ii) who is a "notice partner" (as defined in
Section 6231(a)(8) of the Code) or a member of a "notice group" (as defined
in Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative adjustment at
the Partnership level of any item required to be taken into account by a
Partner for tax purposes (a "final adjustment") is mailed to the tax
matters partner, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the Tax Court or
<PAGE>
the filing of a complaint for refund with the United States Claims Court or
the District Court of the United States for the district in which the
Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the
Internal Revenue Service and, if any part of such request is not allowed by
the Internal Revenue Service, to file an appropriate pleading (petition or
complaint) for judicial review with respect to such request;
(5) to enter into an agreement with the Internal Revenue Service to
extend the period for assessing any tax which is attributable to any item
required to be taken account of by a Partner for tax purposes, or an item
affected by such item; and
(6) to take any other action on behalf of the Partners or the
Partnership in connection with any tax audit or judicial review proceeding
to the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of
the tax matters partner and the provisions relating to indemnification of
the General Partner set forth in Section 7.6 of this Agreement shall be
fully applicable to the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its services.
All third party costs and expenses incurred by the tax matters partner in
performing its duties as such (including legal and accounting fees and expenses)
shall be borne by the Partnership. Nothing herein shall be construed to restrict
the Partnership from engaging an accounting firm to assist the tax matters
partner in discharging its duties hereunder, so long as the compensation paid by
the Partnership for such services is reasonable.
10.4 ORGANIZATIONAL EXPENSES. The Partnership shall elect to deduct
expenses, if any, incurred by it in organizing the Partnership ratably over a
60-month period as provided in Section 709 of the Code.
10.5 WITHHOLDING. Each Limited Partner hereby authorizes the Partnership to
withhold from, or pay on behalf of or with respect to, such Limited Partner any
amount of federal, state, local, or foreign taxes that the General Partner
determines that the Partnership is required to withhold or pay with respect to
any amount distributable or allocable to such Limited Partner pursuant to this
Agreement, including, without limitation, any taxes required to be withheld or
paid by the Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the
Code. Any amount paid on behalf of or with respect to a Limited Partner shall
constitute a loan by the Partnership to such Limited Partner, which loan shall
be repaid by such Limited Partner within 15 days after notice from the General
Partner that such payment must be made unless (i) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited
Partner; or (ii) the General Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the amount of Available
Cash which would, but for such payment, be distributed to the Limited Partner.
Any amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be
treated as having been distributed to such Limited Partner. Each Limited Partner
<PAGE>
hereby unconditionally and irrevocably grants to the Partnership a security
interest in such Limited Partner's Partnership Interest to secure such Limited
Partner's obligation to pay to the Partnership any amounts required to be paid
pursuant to this Section 10.5. In the event that a Limited Partner fails to pay
when due any amounts owed to the Partnership pursuant to this Section 10.5, the
General Partner may, in its sole and absolute discretion, elect to make the
payment to the Partnership on behalf of such defaulting Limited Partner, and in
such event shall be deemed to have loaned such amount to such defaulting Limited
Partner and shall succeed to all rights and remedies of the Partnership as
against such defaulting Limited Partner. Without limitation, in such event, the
General Partner shall have the right to receive distributions that would
otherwise be distributable to such defaulting Limited Partner until such time as
such loan, together with all interest thereon, has been paid in full, and any
such distributions so received by the General Partner shall be treated as having
been distributed to the defaulting Limited Partner and immediately paid by the
defaulting Limited Partner to the General Partner in repayment of such loan. Any
amount payable by a Limited Partner hereunder shall bear interest at the highest
base or prime rate of interest published from time to time by any of Wells Fargo
Bank, N.A., plus 4 percentage points, but in no event higher than the maximum
lawful rate of interest on such obligation, such interest to accrue from the
date such amount is due (i.e., 15 days after demand) until such amount is paid
in full. Each Limited Partner shall take such actions as the Partnership or the
General Partner shall request in order to perfect or enforce the security
interest created hereunder.
ARTICLE 11. TRANSFERS AND WITHDRAWALS.
11.1 TRANSFER.
A. The term "Transfer," when used in this Article 11 with respect to a
Unit, shall be deemed to refer to a transaction by which the General Partner
purports to assign all or any part of its General Partner Interest to another
Person or by which a Limited Partner purports to assign all or any part of its
Limited Partner Interest to another Person. The term "Transfer" when used in
this Article 11 does not include any exchange of L.P. Units for shares of Common
Stock pursuant to the Exchange Rights Agreement.
B. No Partnership Interest shall be Transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any Transfer or purported Transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void.
11.2 TRANSFER OF THE COMPANY'S PARTNERSHIP INTERESTS.
A. The General Partner may not withdraw as General Partner or transfer its
General Partner Interest or Limited Partner Interest unless (i) the L.P. Unit
Majority (excluding L.P. Units held by the Company) consents to such Transfer or
withdrawal, or (ii) such Transfer is to an entity which is wholly-owned by the
Company and is a Qualified REIT Subsidiary under Section 856(i) of the Code.
B. In the event the General Partner withdraws as General Partner in
accordance with Section 11.2A, the General Partner's General Partner Interest
shall immediately be converted into a Limited Partner Interest.
11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER.
A. Subject to the provisions of this Section 11.3, a Limited Partner (other
<PAGE>
than the Company) may, without the consent of the General Partner:
(a) if such Limited Partner is a partnership or a limited liability
company, Transfer such Limited Partner's L.P. Units to any partner of such
Limited Partner or any member of such limited liability company;
(b) Transfer such Limited Partner's L.P. Units to any other Limited
Partner; and
(c) pledge such Limited Partner's L.P. Units to any financial
institution as collateral for any loan with respect to which such Limited
Partner is personally liable.
B. Subject to the provisions of this Section 11.3, a Limited Partner may
Transfer any of such Limited Partner's L.P. Units, other than in accordance with
Section 11.3A, only with the prior written consent of the General Partner which
may be withheld in its sole discretion.
C. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all of the rights of a Limited Partner, but
not more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to Transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
D. No Transfer by a Limited Partner of its L.P. Units may be made to any
Person if (i) in the opinion of legal counsel for the Partnership, it would
result in the Partnership being treated as an association taxable as a
corporation; (ii) such Transfer would cause the Partnership to become, with
respect to any Employee Benefit Plan subject to Title I of ERISA, a
"party-in-interest" (as defined in Section 3(14) of ERISA) or a "disqualified
person" (as defined in Section 4975(c) of the Code); (iii) such Transfer would,
in the opinion of legal counsel for the Partnership, cause any portion of the
assets of the Partnership to constitute assets of any Employee Benefit Plan
pursuant to Department of Labor Regulations Section 2510.2-101; (iv) such
Transfer would subject the Partnership to regulation under the Investment
Company Act of 1940, the Investment Advisors Act of 1940 or ERISA; or (v) such
Transfer is a sale or exchange, and such sale or exchange would, when aggregated
with all other sales and exchanges during the 12-month period ending on the date
of the proposed Transfer, result in a Change of Control Transaction.
E. Subject to the foregoing provisions of Section 11.3 and the terms of
Section 12.2, a Limited Partner may transfer L.P. Units to an Affiliate and have
such Affiliate become a Limited Partner.
In addition to the conditions set forth in Sections 11.3D, 11.4, and 12.2
any Transfer pursuant to this Article 11 is subject to the following conditions:
(1) unless such Transfer is being made pursuant to an effective
registration statement under the Securities Act, or pursuant to Rule
144 or Rule 144A thereunder, the transferring Limited Partner shall
deliver to the Company a notice with respect to the proposed transfer,
together with an opinion of counsel in form and substance satisfactory
to the General Partner prepared by counsel reasonably satisfactory to
the General Partner (which shall include, without limitation, counsel
<PAGE>
to each of the Limited Partners as of the date hereof), to the effect
that an exemption from registration and qualification under such
Securities Act is available;
(2) the transferring Limited Partner and its transferee shall
each provide a certificate to the General Partner, in form and
substance satisfactory to the General Partner, to the effect that (i)
the proposed transfer will not be effected on or through (a) a United
States national, regional or local securities exchange, (b) a foreign
securities exchange or (c) an interdealer quotation system that
regularly disseminates firm buy or sell quotations by identified
brokers or dealers (including, without limitation, the Nasdaq) by
electronic means or otherwise, and (ii) it is not, and the proposed
transfer will not be made by, through or on behalf of, (a) a Person
who regularly quotes equity interests in the Partnership, such as a
broker or dealer making a market in equity interests in the
Partnership or (b) a Person who regularly makes available to the
public (including customers or subscribers) bid or offer quotes with
respect to equity interests in the Partnership and stands ready to
effect buy or sell transactions at the quoted prices for itself or on
behalf of others; PROVIDED, HOWEVER, that such certificate shall not
be required for any transfer in connection with a registered public
offering;
(3) the transferee must be a United States Person for federal
income tax purposes; and
(4) such transfer must not cause the Partnership to terminate or
lose its status as a partnership for tax purposes.
F. If it shall become unlawful for any Limited Partner to continue to hold
some or all of the L.P. Units held by such Limited Partner, or by reason of
legal or regulatory restrictions the cost to such Limited Partner to continue to
hold such L.P. Units (in relation to the value of such L.P. Units to such
Limited Partner) has, in the reasonable judgment of such Limited Partner,
significantly increased, such Limited Partner may, at any time following the
date three business days after the delivery by such Limited Partner to the
General Partner a notice of the existence of any such restriction, Transfer all
or any portion of the L.P. Units held by such Limited Partner free of any
restrictions imposed under this Agreement (other than those restrictions
required by federal or state laws, including securities, and tax, laws, and
subject to the prospective transferee meeting the requirements of Section 12.2,
and provided that the transferee Limited Partner shall hold its L.P. Units
subject to all of the terms of this Agreement); but only if such Limited Partner
cannot then exercise its Exchange Rights or Put Rights for cash, and the Company
has notified the Limited Partner that the Company will not register for offer
and sale all shares of Common Stock issued upon the exercise of the Exchange
Rights within 90 days. In connection therewith, the Company shall assist such
Limited Partner in disposing of the L.P. Units held by it in a prompt and
orderly manner, and (at the request of such Limited Partner) make available (and
authorize such Limited Partner to make available through the Company) financial
and other information concerning the Company and its Subsidiaries (including,
without limitation, the information described in Rule 144A(d)(4)) to any
prospective purchaser of such L.P. Units (it being agreed that such prospective
purchaser shall be either an "accredited investor" within the meaning of Rule
501 (a) under the Securities Act or a "qualified institutional buyer" within the
meaning of Rule 144A(d)(1) under such Act to the extent that such L.P. Units are
<PAGE>
"restricted securities" as such term is defined in Rule 144). The Company may
require that each such prospective purchaser keep confidential, pursuant to
customary confidentiality requirements, any information received by it pursuant
to this provision.
11.4 SUBSTITUTED LIMITED PARTNERS. The General Partner shall have the right
to consent to the admission of a transferee who receives L.P. Units pursuant to
Section 11.3A, C, or E, which consent may be given or withheld by the General
Partner in its sole and absolute discretion. The General Partner's failure or
refusal to permit such transferee to become a Substituted Limited Partner shall
not give rise to any cause of action against the Partnership or any Partner.
11.5 ASSIGNEES. If the General Partner, in its sole and absolute
discretion, does not consent to the admission of any transferee as a Substituted
Limited Partner, as described in Section 11.4, such transferee shall be
considered an Assignee for purposes of this Agreement. An Assignee shall be
deemed to have had assigned to it, and shall be entitled to receive
distributions from the Partnership and the share of Net Income, Net Losses and
any other Tax Items with respect to the L.P. Units assigned to such transferee,
but shall not be deemed to be a holder of L.P. Units for any other purpose under
this Agreement, and shall not be entitled to vote such L.P. Units in any matter
presented to the Limited Partners for a vote (such L.P. Units being deemed to
have been voted on such matter in the same proportion as all other L.P. Units
held by Limited Partners are voted). In the event the Assignee desires to make a
further assignment of any such L.P. Units, such Assignee shall be subject to all
of the provisions of this Article 11 to the same extent and in the same manner
as any Limited Partner desiring to make an assignment of L.P. Units.
11.6 EFFECT OF PROHIBITED TRANSFER. Any transfer made in violation of
Article 11 shall be null and void and of no force and effect.
11.7 GENERAL PROVISIONS.
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted Transfer of all of such Limited Partner's L.P. Units in
accordance with this Article 11, or pursuant to the tender or exchange of all of
its L.P. Units pursuant to the exercise of Put Rights or Exchange Rights.
B. Any Limited Partner who shall Transfer all of its L.P. Units in a
Transfer permitted pursuant to this Article 11 shall cease to be a Limited
Partner upon the admission of all Assignees of such L.P. Units as Substituted
Limited Partners. Similarly, any Limited Partner who shall Transfer all of its
L.P. Units pursuant to a tender or exchange of all of its L.P. Units pursuant to
the exercise of Put Rights or Exchange Rights shall cease to be a Limited
Partner.
C. Without the consent of the General Partner, permitted Transfers pursuant
to this Article 11 may be made effective only as of the first day of a Quarter.
D. If any Partnership Interest is transferred or assigned during the year
in compliance with the provisions of this Article 11, or redeemed pursuant to
Section 8.7, or exchanged pursuant to the Exchange Rights Agreement on any day
other than the first day of a Partnership Year, the Net Income, Net Losses, each
item thereof, and all other Tax Items attributable to such interest for such
Partnership Year shall be divided and allocated between the transferor Partner
and the transferee Partner by taking into account their varying interests during
the Partnership Year in accordance with Section 706(d) of the Code, using the
<PAGE>
interim closing of the books method. Solely for purposes of making such
allocations, each of such items for the calendar month in which the Transfer or
assignment occurs shall be allocated to the transferee Partner, and none of such
items for the calendar month in which an exchange occurs shall be allocated to
the exchanging Partner, provided, however, that the General Partner may adopt
such other conventions relating to allocations in connection with transfers,
assignments, or exchanges as it determines are necessary or appropriate. All
distributions of Available Cash attributable to such L.P. Units with respect to
which the Partnership Record Date is before the date of such transfer,
assignment, or exchange shall be made to the transferor Partner or the
exchanging Partner, as the case may be, and in the case of a Transfer or
assignment other than an exchange, all distributions of Available Cash
thereafter attributable to such L.P. Units shall be made to the transferee
Partner.
ARTICLE 12. ADMISSION OF PARTNERS.
12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER. A successor to all of the
General Partner Interest pursuant to Article 11 hereof who is proposed to be
admitted as a successor General Partner shall be admitted to the Partnership as
the General Partner, effective upon the Transfer. Any such transferee shall
carry on the business of the Partnership without dissolution. In each case, the
admission shall be subject to the successor General Partner executing and
delivering to the Partnership an acceptance of all of the terms and conditions
of this Agreement, the Acquisition Agreement, and such other documents or
instruments as may be required to effect the admission. In the case of such
admission on any day other than the first day of a Partnership Year, all items
attributable to the General Partner Interest for such Partnership Year shall be
allocated between the transferring General Partner and such successor as
provided in Section 11.6D.
12.2 ADMISSION OF ADDITIONAL AND SUBSTITUTED LIMITED PARTNERS.
A. A Person who makes a Capital Contribution to the Partnership in
accordance with this Agreement after the Effective Date and a Permitted
Transferee pursuant to Article 11 shall be admitted to the Partnership as an
Additional Limited Partner or a Substituted Limited Partner only upon furnishing
to the General Partner (i) evidence of acceptance in form satisfactory to the
General Partner of all of the terms and conditions of this Agreement and the
Acquisition Agreement, including, without limitation, the power of attorney
granted in Section 2.4 hereof and (ii) such other documents or instruments as
may be required in the discretion of the General Partner in order to effect such
Person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no Person
shall be admitted as an Additional Limited Partner or a Substituted Limited
Partner without the consent of the General Partner, which consent may be given
or withheld in the General Partner's sole and absolute discretion. The admission
of any Person as an Additional Limited Partner or a Substituted Limited Partner
shall become effective on the date upon which the name of such Person is
recorded on the books and records of the Partnership, following the consent of
the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on any
day other than the first day of a Partnership Year, then Net Income, Net Losses,
each other Tax Item and all other items allocable among Partners and Assignees
for such Partnership Year shall be allocated among such Additional Limited
<PAGE>
Partner and all other Partners and Assignees by taking into account their
varying interests during the Partnership Year in accordance with Section 706(d)
of the Code, using the interim closing of the books method. Solely for purposes
of making such allocations, each of such items for the calendar month in which
an admission of any Additional Limited Partner occurs shall be allocated among
all of the Partners and Assignees, including such Additional Limited Partner.
All distributions of Available Cash with respect to which the Partnership Record
Date is before the date of such admission shall be made solely to Partners and
Assignees, other than the Additional Limited Partner, and all distributions of
Available Cash thereafter shall be made to all of the Partners and Assignees,
including such Additional Limited Partner.
D. A transferee who has been admitted as a Substituted Limited Partner or
an Additional Limited Partner shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP. For the
admission to the Partnership of any Partner, the General Partner shall take all
steps necessary and appropriate under the Act to amend the records of the
Partnership and, if necessary, to prepare as soon as practical an amendment of
this Agreement (including an amendment of Appendix I) and, if required by law,
shall prepare and file an amendment to the Certificate and may for this purpose
exercise the power of attorney granted pursuant to Section 2.4 hereof.
ARTICLE 13. DISSOLUTION, LIQUIDATION AND TERMINATION.
13.1 DISSOLUTION. The Partnership shall not be dissolved by the admission
of Substituted Limited Partners or Additional Limited Partners or by the
admission of a successor General Partner in accordance with the terms of this
Agreement. In the event of the withdrawal of the General Partner, any successor
General Partner shall continue the business of the Partnership. The Partnership
shall dissolve, and its affairs shall be wound up, only upon the first to occur
of any of the following ("Liquidating Events"):
(i) the expiration of its term as provided in Section 2.5 hereof;
(ii) an event of withdrawal of the General Partner, as defined in the
Act (other than an event of bankruptcy), unless, within 90 days after such
event of withdrawal a majority in interest of the remaining Partners agree
in writing to continue the business of the Partnership and to the
appointment, effective as of the date of withdrawal, of a successor General
Partner;
(iii) from and after the date of this Agreement through December 31,
2048, an election to dissolve the Partnership made by the General Partner,
with the Consent of Limited Partners holding 66-2/3% or more of the L.P.
Units (including L.P. Units held by the Company);
(iv) on or after January 1, 2049, an election to dissolve the
Partnership made by the General Partner, in its sole and absolute
discretion;
(v) entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
(vi) the sale of all or substantially all of the assets and properties
<PAGE>
of the Partnership;
(vii) a final and non-appealable judgment is entered by a court of
competent jurisdiction ruling that the General Partner is bankrupt or
insolvent, or a final and non-appealable order for relief is entered by a
court with appropriate jurisdiction against the General Partner, in each
case under any federal or state bankruptcy or insolvency laws as now or
hereafter in effect, unless prior to the entry of such order or judgment
all of the remaining Partners agree in writing to continue the business of
the Partnership and to the appointment, effective as of a date prior to the
date of such order or judgment, of a substitute General Partner.
13.2 WINDING UP.
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner, or, in the event there is no remaining General Partner, any
Person elected by Limited Partners holding at least a majority of the Limited
Partnership Interests (the General Partner or such other Person being referred
to herein as the "Liquidator"), shall be responsible for overseeing the winding
up and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the Partnership property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom (which may, to the extent determined by the General
Partner, include shares of beneficial interest or other securities of the
Company) shall be applied and distributed in the following order:
(i) First, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than the Partners;
(ii) Second, to the payment and discharge of all of the Partnership's
debts and liabilities to the General Partner;
(iii) Third, to the payment and discharge of all of the Partnership's
debts and liabilities to the other Partners;
(iv) Fourth, to the General Partner and Limited Partners to the extent
of and in accordance with the positive balances in their Capital Accounts,
after giving effect to all contributions, distributions, and allocations
for all periods; and
(v) The balance, if any, to the Partners according to their Percentage
Interests.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2A hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any asset except those necessary to satisfy
<PAGE>
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interests of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
C. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:
(1) distributed to a trust established for the benefit of the General
Partner and Limited Partners for the purposes of liquidating Partnership
assets, collecting amounts owed to the Partnership, and paying any
contingent or unforeseen liabilities or obligations of the Partnership or
the General Partner arising out of or in connection with the Partnership.
The assets of any such trust shall be distributed to the General Partner
and Limited Partners from time to time, in the reasonable discretion of the
Liquidator, in the same proportions as the amount distributed to such trust
by the Partnership would otherwise have been distributed to the General
Partner and Limited Partners pursuant to this Agreement; or
(2) withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the Partnership,
provided that such withheld or escrowed amounts shall be distributed to the
General Partner and Limited Partners in the manner and order of priority
set forth in Section 13.2A as soon as practicable.
13.3 OBLIGATION TO CONTRIBUTE DEFICIT. In the event the Partnership is
"liquidated" within the meaning Section 1.704-1(b)(2)(ii)(G) of the Regulations,
if any Partner's Adjusted Contributions are less than zero (after giving effect
to all contributions, distributions, and allocations for all Fiscal Years,
including the Fiscal Year during which such liquidation occurs), such Partner
shall contribute to the capital of the Partnership the amount necessary to
restore such Partner's Capital Account to zero in compliance with Regulations
Section 1.704-1(b)(2(ii)(B)(3).
13.4 RIGHTS OF LIMITED PARTNERS. Except as otherwise provided in this
Agreement, each Limited Partner shall look solely to the assets of the
Partnership for the return of its Adjusted Capital Contributions and shall have
no right or power to demand or receive property other than cash from the
Partnership. Except as otherwise provided in this Agreement, no Limited Partner
shall have priority over any other Partner as to the return of its Adjusted
Capital Contributions, distributions, or allocations.
13.5 NOTICE OF DISSOLUTION. In the event a Liquidating Event occurs or an
event occurs that would, but for the provisions of an election or objection by
one or more Partners pursuant to Section 13.1, result in a dissolution of the
Partnership, the General Partner shall, within 30 days thereafter, provide
written notice thereof to each of the Partners.
<PAGE>
13.6 TERMINATION OF PARTNERSHIP AND CANCELLATION OF CERTIFICATE OF LIMITED
PARTNERSHIP. Upon the completion of the liquidation of the Partnership' s
assets, as provided in Section 13.2 hereof, the Partnership shall be terminated,
a certificate of cancellation shall be filed, and all qualifications of the
Partnership as a foreign limited partnership in jurisdictions other than the
state of Delaware shall be canceled and such other actions as may be necessary
to terminate the Partnership shall be taken.
13.7 REASONABLE TIME FOR WINDING-UP. A reasonable time shall be allowed for
the orderly winding-up of the business and affairs of the Partnership and the
liquidation of its assets pursuant to Section 13.2 hereof in order to minimize
any losses otherwise attendant upon such winding-up, and the provisions of this
Agreement shall remain in effect among the Partners during the period of
liquidation.
13.8 WAIVER OF PARTITION. Each Partner hereby waives any right to partition
of the Partnership property.
13.9 DEEMED DISTRIBUTION AND RECONTRIBUTION. Notwithstanding any other
provisions of this Article 13, in the event the Partnership is liquidated within
the meaning of Regulations Section 1.704-1(b)(2)(ii)(G) but no Liquidating Event
has occurred, the Property shall not be liquidated, the Partnership's
liabilities shall not be paid or discharged, and the Partnership's affairs shall
not be wound up. Instead, the Partnership shall be deemed to have distributed
the Property in kind to the Partners, who shall be deemed to have assumed and
taken subject to all Partnership liabilities, all in accordance with their
respective Capital Accounts, and if any Partner has an Adjusted Capital Account
Deficit (after giving effect to all contributions, distributions, and
allocations for all Fiscal Years, including the Fiscal Year during which such
liquidation occurs) such Partner shall contribute to the capital of the
Partnership the amount necessary to restore such deficit balance to zero in
compliance with Regulations Section 1.704-1(b)(2(ii)(b)(3). Immediately
thereafter, the Partners shall be deemed to have recontributed the property in
kind to the Partnership, which shall be deemed to have assumed and taken subject
to all such liabilities.
ARTICLE 14. AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS.
14.1 AMENDMENTS.
A. Amendments to this Agreement may be proposed by the General Partner or
by any Limited Partners (other than the Company) holding in the aggregate 25% or
more of the Partnership Interests. Following such proposal, the General Partner
shall submit any proposed amendment to the Limited Partners. The General Partner
shall seek the written vote of the Partners on the proposed amendment or shall
call a meeting to vote thereon and to transact any other business that it may
deem appropriate. For purposes of obtaining a written vote, the General Partner
may require a response within a reasonable specified time, but not less than 15
days, and failure to respond in such time period shall constitute a vote which
is consistent with the General Partner's recommendation with respect to the
proposal. Except as provided in Section 8.9, 13.1C, 14.1B, 14.1C or 14.1D, a
proposed amendment shall be adopted and be effective as an amendment hereto if
it is approved by the General Partner and it receives the Consent of Limited
Partners holding 50% or more of the Percentage Interests of the Limited Partners
(including Limited Partner Interests held by the Company).
B. Notwithstanding any provisions of Sections 8.9 and 14.1A to the
<PAGE>
contrary, the General Partner shall have the power, without the consent of the
Limited Partners, to amend this Agreement as may be required to facilitate or
implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner or any Affiliate of the
General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination, or withdrawal
of Partners in accordance with this Agreement;
(3) to set forth the designations, rights, powers, duties, and
preferences of the holders of any additional Partnership Interests issued
pursuant to Section 4.3 hereof;
(4) to reflect a change that is of an inconsequential nature and does
not adversely affect the Limited Partners in any material respect, or to
cure any ambiguity, correct or supplement any provision in this Agreement
not inconsistent with law or with other provisions, or make other changes
with respect to matters arising under this Agreement that will not be
inconsistent with law or with the provisions of this Agreement; and
(5) to satisfy any requirements, conditions, or guidelines contained
in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law.
The General Partner shall provide notice to the Limited Partners when any action
under this Section 14.1B is taken.
C. Notwithstanding provision of Section 14.1A and 14.1B to the contrary,
this Agreement shall not be amended without the Consent of each Partner
adversely affected if such amendment would (i) convert a Limited Partner's
interest in the Partnership into a General Partner Interest; (ii) modify the
limited liability of a Limited Partner in a manner adverse to such Limited
Partner; (iii) alter rights of the Partner to receive distributions pursuant to
Article 5 or Article 13, or the allocations specified in Article 6 (except as
permitted pursuant to Article IV and Section 14.1B(3) hereof); (iv) cause the
termination of the Partnership prior to the time set forth in Section 2.5 or
13.1; or (v) amend this Section 14.1C. Further, no amendment may alter the
restrictions on the General Partner's authority set forth in Section 13.1C
without the Consent specified in that section.
14.2 MEETINGS OF THE PARTNERS.
A. Meetings of the Partners may be called by the General Partner and shall
be called upon the receipt by the General Partner of a written request by
Limited Partners (other than the Company) holding 25% or more of the Partnership
Interests. The request shall state the nature of the business to be transacted.
Notice of any such meeting shall be given to all Partners not less than 7 days
nor more than 30 days prior to the date of such meeting. Partners may vote in
person or by proxy at such meeting. Whenever the vote or Consent of the Limited
Partners is permitted or required under this Agreement, such vote or Consent may
be given at a meeting of the Partners or may be given in accordance with the
procedure prescribed in Section 14.1A hereof. Except as otherwise expressly
provided in this Agreement, the consent of holders of a majority of the
Percentage Interests held by Partners (including Limited Partnership Interests
held by the Company) shall control.
<PAGE>
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement).
Such consent may be in one instrument or in several instruments, and shall have
the same force and effect as a vote of a majority of the Percentage Interests of
the Partners (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the General Partner. An action so
taken shall be deemed to have been taken at a meeting held on the effective date
so certified.
C. Each Limited Partner may authorize any Person or Persons to act for him
by proxy on all matters in which a Limited Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of 11 months from
the date thereof unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the Limited Partner executing it, such revocation
to be effective upon the Partnership's receipt of written notice of such
revocation from the Limited Partner executing such proxy.
D. Each meeting of the Partners shall be conducted by the General Partner
or such other Person as the General Partner may appoint pursuant to such rules
for the conduct of the meeting as the General Partner or such other Person deems
appropriate. Meetings of Partners may be conducted in the same manner as
meetings of the shareholders of the Company and may be held at the same time,
and as part of, meetings of the shareholders of the Company.
ARTICLE 15. GENERAL PROVISIONS.
15.1 ADDRESSES AND NOTICE. Any notice, demand, request or report required
or permitted to be given or made to a Partner or Assignee under this Agreement
shall be in writing and shall be deemed given or made when delivered in person
or when sent by first class United States mail or by other means of written
communication to the Partner or Assignee (including electronic mail and
electronic facsimile transmission if delivery in that manner has been confirmed)
at the address set forth in Appendix I or such other address of which the
Partner shall notify the General Partner in writing.
15.2 TITLES AND CAPTIONS. All article or section titles or captions in this
Agreement are for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent of
any provisions hereof. Except as specifically provided otherwise, references to
"Articles" and "Sections" are to Articles and Sections of this Agreement.
15.3 PRONOUNS AND PLURALS. Whenever the context may require, any pronoun
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall include
the plural and vice versa.
15.4 FURTHER ACTION. The parties shall execute and deliver all documents,
provide all information and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this Agreement.
15.5 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their heirs, executors, administrators,
<PAGE>
successors, legal representatives and permitted assigns.
15.6 CREDITORS. Other than as expressly set forth herein with respect to
the Indemnitees, none of the provisions of this Agreement shall be for the
benefit of, or shall be enforceable by, any creditor of the Partnership.
15.7 WAIVER. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement or condition.
15.8 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which together shall constitute one agreement binding on all of the parties
hereto, notwithstanding that all such parties are not signatories to the
original or the same counterpart. Each party shall become bound by this
Agreement immediately upon affixing its signature hereto.
15.9 APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of laws thereof.
15.10 INVALIDITY OF PROVISIONS. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.
15.11 ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement among the Partners with respect to the subject matter hereof and
supersedes any other prior written or oral understandings or agreements among
them with respect thereto.
15.12 GUARANTY BY THE COMPANY. The Company unconditionally and irrevocably
guarantees to the Limited Partners the performance by the General Partner of the
General Partner' s obligations under this Agreement. This guarantee is
exclusively for the benefit of the Limited Partners and shall not extend to the
benefit any creditor of the Partnership.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
[GENERAL PARTNER]
By:
-----------------------------------
Title:
LIMITED PARTNERS:
[TO COME]
<PAGE>
APPENDIX I
<TABLE>
<CAPTION>
PARTNERS' [ADJUSTED] CONTRIBUTIONS AND PARTNERSHIP INTERESTS
Name Cash Agreed Total L.P. Percentage
and Contribution* Value of Contribution Units Interest
Address Contributed
of Property
Partner
<S> <C> <C> <C> <C> <C> <C>
GENERAL
PARTNER
[General
Partner]
LIMITED
PARTNERS
[General
Partner]
[Other
Limited
Partners
To Come]
</TABLE>
*The Company's Cash Contribution shall be increased by all transaction costs
paid by the Company out of the Company Cash pursuant to the Acquisition
Agreement.
<PAGE>
APPENDIX II
ALLOCATIONS OF PARTNERSHIP INTERESTS
1. ALLOCATION OF NET INCOME AND NET LOSS.
(a) NET INCOME. Except as otherwise provided in this Appendix II, Net
Income (or items thereof) (other than Net Income, or items thereof, arising in
connection with a Terminating Capital Transaction) for any fiscal year or other
applicable period shall be allocated to the Partners in accordance with their
respective Percentage Interests.
(b) NET LOSS. Except as otherwise provided in this Appendix II, Net Loss
(or items thereof) of the Partnership for each fiscal year or other applicable
period shall be allocated to the Partners in accordance with the Partners'
respective Percentage Interests. Notwithstanding the preceding sentence, to the
extent any Net Loss (or items thereof) allocated to a Partner under this
subparagraph (b) would cause such Partner (hereinafter, a "Restricted Partner")
to have an Adjusted Capital Account Deficit, or increase the amount of an
existing Adjusted Capital Account Deficit, as of the end of the fiscal year or
<PAGE>
other applicable period to which such Net Loss relates, such Net Loss shall not
be allocated to such Restricted Partner and instead shall be allocated to the
other Partner(s) (hereinafter, the "Permitted Partners") pro rata in accordance
with each Permitted Partner's Percentage Interest.
(c) TERMINATING CAPITAL TRANSACTION; LIQUIDATION. Allocations of Net
Income or Net Loss (or items thereof) in connection with a Terminating Capital
Transaction or Liquidation of the Partnership shall first be made so that, to
the extent possible, each Partner's Capital Account balance is equal to such
Partner's Adjusted Contribution, and the remainder of such Net Income or Net
Loss (or items thereof) shall be allocated to the Partners in accordance with
their Percentage Interests. Notwithstanding the preceding sentence, to the
extent any Net Loss (or items thereof) would be allocated to a Restricted
Partner under this subparagraph (c), such Net Loss shall not be allocated to
such Restricted Partner and instead shall be allocated to the Permitted Partners
pro rata in accordance with each Permitted Partner's Percentage Interest.
(d) RULES OF CONSTRUCTION.
(1) CAPITAL ACCOUNT INCREASES. For purposes of making allocations
pursuant to subparagraph 1(c) of this Appendix II, a Partner's Capital Account
balance shall be deemed to be increased by such Partner's share of any
Partnership Minimum Gain and Partner Minimum Gain remaining at the close of the
fiscal period in respect of which such allocations are being made.
(2) CHANGE IN PERCENTAGE INTERESTS. In the event any Partner's
Percentage Interest changes during a fiscal year for any reason, including
without limitation, the Transfer of any interest in the Partnership, the tax
allocations contained in this Appendix II shall be applied as necessary to
reflect the varying interests of the Partners during such year.
2. SPECIAL ALLOCATIONS.
Notwithstanding any provisions of paragraph 1 of this Appendix II, the
following special allocations shall be made.
(a) MINIMUM GAIN CHARGEBACK (NONRECOURSE LIABILITIES). Except as otherwise
provided in Section 1.704-2(f) of the Regulations, if there is a net decrease in
Partnership Minimum Gain for any Partnership fiscal year, each Partner shall be
specially allocated items of Partnership income and gain for such year (and, if
necessary, subsequent years) in an amount equal to such Partner's share of the
net decrease in Partnership Minimum Gain to the extent required by Regulations
Section 1.704-2(f). The items to be so allocated shall be determined in
accordance with Sections 1.704-2(f) and (j)(2) of the Regulations. This
subparagraph 2(a) is intended to comply with the minimum gain chargeback
requirement in said Section of the Regulations and shall be interpreted
consistently therewith. Allocations pursuant to this subparagraph 2(a) shall be
made in proportion to the respective amounts required to be allocated to each
Partner pursuant hereto.
(b) PARTNER MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Section 1.704-2(i)(4) of the Regulations, if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any fiscal year,
each Partner who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Section 1.704- 2(i)(5)
of the Regulations, shall be specially allocated items of Partnership income and
gain for such year (and, if necessary, subsequent years) in an amount equal to
<PAGE>
that Partner's share of the net decrease in the Partner Minimum Gain
attributable to such Partner Nonrecourse Debt to the extent and in the manner
required by Section 1.704-2(i) of the Regulations. The items to be so
allocated shall be determined in accordance with Sections 1.704-2(i)(4) and
(j)(2) of the Regulations. This subparagraph 2(b) is intended to comply with
the minimum gain chargeback requirement with respect to Partner Nonrecourse
Debt contained in said Section 1.704-2(i)(4) of the Regulations and shall be
interpreted consistently therewith. Allocations pursuant to this subparagraph
2(b) shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant hereto.
(c) QUALIFIED INCOME OFFSET. In the event a Partner unexpectedly
receives any adjustments, allocations or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, and such Partner has
an Adjusted Capital Account Deficit, items of Partnership income (including
gross income) and gain shall be specially allocated to such Partner in an
amount and manner sufficient to eliminate the Adjusted Capital Account
Deficit as quickly as possible as required by the Regulations. This
subparagraph 2(c) is intended to constitute a "qualified income offset" under
Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
consistently therewith.
(d) OTHER CHARGEBACK OF IMPERMISSIBLE NEGATIVE CAPITAL ACCOUNT. To the
extent any Partner has an Adjusted Capital Account Deficit at the end of any
Partnership Year, each such Partner shall be specially allocated items of
Partnership income (including gross income) and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
paragraph 2(d) shall be made if and only to the extent that such Partner would
have an Adjusted Capital Account Deficit after all other allocations provided
for in this Appendix II have been tentatively made as if this paragraph 2(d)
were not in the Agreement.
(e) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any fiscal year or
other applicable period shall be allocated to the Partners in accordance with
their respective Percentage Interests.
(f) PARTNER NONRECOURSE DEDUCTIONS. Partner Nonrecourse Deductions for any
fiscal year or other applicable period with respect to a Partner Nonrecourse
Debt shall be specially allocated to the Partner that bears the economic risk of
loss for such Partner Nonrecourse Debt (as determined under Sections
1.704-2(b)(4) and 1.704-2(i)(1) of the Regulations).
(g) INTENT OF ALLOCATIONS. The parties intend that the allocation
provisions of this Appendix II shall result in final Capital Account balances of
the Partners that initially are equal to each Partner's Adjusted Contribution
and are then in proportion to the Partners' respective Percentage Interests, so
that when liquidating distributions are made in accordance with such final
Capital Account balances under Section 13.2A(4) hereof, such distributions will
be able to return to each Partner its Adjusted Contribution and then will be
made in proportion to the Partners' respective Percentage Interests. To the
extent that such final Capital Account balances do not so reflect the provisions
of this Appendix II, income and loss of the Partnership for the current year and
future years, as computed for book purposes, shall be allocated among the
Partners so as to result in final Capital Account balances reflecting the
provisions of this Appendix II, and to the extent such allocations of items of
income (including gross income) and deduction do not result in such final
Capital Account balances, then, income and loss of the Partnership for prior
open years, as computed for book purposes (or items of gross income and
<PAGE>
deduction of the Partnership for such years, as computed for book purposes)
shall be reallocated among the Partners consistent with the foregoing. This
subparagraph shall control notwithstanding any reallocation of income, loss, or
items thereof, as computed for book purposes, by the Internal Revenue Service or
any other taxing authority.
(h) SECTION 754 ADJUSTMENT. To the extent an adjustment to the adjusted
tax basis of any asset of the Partnership pursuant to Section 734(b) of the Code
or Section 743(b) of the Code is required pursuant to Regulations Section
1.704-1(b)(2)(iv)(m) to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) and such gain or loss shall be specially
allocated among the Partners in a manner consistent with the manner in which
each of their respective Capital Accounts are required to be adjusted pursuant
to such section of the Regulations.
(i) GROSS INCOME ALLOCATION. There shall be specially allocated to the
General Partner an amount of Partnership income and gain during each Partnership
Year or portion thereof, before any other allocations are made hereunder, which
is equal to the excess, if any, of the cumulative distributions of cash made to
the General Partner under Section 7.3B hereof over the cumulative allocations of
Partnership income and gain to the General Partner pursuant to this Section (i)
of this Appendix II.
3. TAX ALLOCATIONS.
(a) ITEMS OF INCOME OR LOSS. Except as is otherwise provided in this
Appendix II, an allocation of Partnership Net Income or Net Loss to a Partner
shall be treated as an allocation to such Partner of the same share of each item
of income, gain, loss, deduction and item of tax-exempt income or Section
705(a)(2)(B) expenditure (or item treated as such expenditure pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i)) ("Tax Items") that is taken into
account in computing Net Income or Net Loss.
(b) SECTION 1245/1250 RECAPTURE. If any portion of gain from the sale of
Partnership assets is treated as gain which is ordinary income by virtue of the
application of Code Sections 1245 or 1250 ("Affected Gain"), then such Affected
Gain shall be allocated among the Partners in the same proportion that the
depreciation and amortization deductions giving rise to the Affected Gain were
allocated. This subparagraph 3(b) shall not alter the amount of Net Income (or
items thereof) allocated among the Partners, but merely the character of such
Net Income (or items thereof). For purposes hereof, in order to determine the
proportionate allocations of depreciation and amortization deductions for each
fiscal year or other applicable period, such deductions shall be deemed
allocated on the same basis as Net Income and Net Loss for such respective
period.
(c) PRECONTRIBUTION GAIN. The Partnership may elect the traditional method
of allocation contained in Section 1.704- 3(b) of the Regulations to take into
account any variation between the adjusted basis and the fair market value of
the Initial Contributed Property at the time of the contribution
("Precontribution Gain") on a Property-by-Property basis. By executing this
Agreement, each Partner hereby agrees to report income, gain, loss and deduction
on such Partner's federal income tax return in a manner that is consistent with
the use of the traditional method of allocation with respect to the Initial
Contributed Property. With respect to any Contributed Property, the Partnership
<PAGE>
shall use any permissible method contained in the Regulations promulgated under
Section 704(c) of the Code selected by the General Partner, in its sole
discretion, to take into account any variation between the adjusted basis of
such asset and the fair market value of such asset as of the time of the
contribution. Each Partner hereby agrees to report income, gain, loss and
deduction on such Partner's federal income tax return in a manner consistent
with the method used by the Partnership.
(d) ALLOCATIONS RESPECTING SECTION 704(C) AND Revaluations. If any asset
has a Gross Asset Value which is different from the Partnership's adjusted basis
for such asset for federal income tax purposes because the Partnership has
revalued such asset pursuant to Regulations Section 1.704-1(b)(2)(iv)(f), the
allocations of Tax Items shall be made in accordance with the principles of
Section 704(c) of the Code and the Regulations and the methods of allocation
promulgated thereunder, provided, however, that the General Partner shall elect
with respect to each Initial Contributed Property, to allocate the income, gain,
loss and deduction with respect to such Property using the "traditional method"
described in Regulations Section 1.704-3(b) unless the majority of the Limited
Partners affected thereby otherwise instruct the General Partner. The intent of
this Section 3(d) and Section 3(c) above is that each Partner who contributed to
the capital of the Partnership a Contributed Property will bear, through reduced
allocations of depreciation, increased allocations of gain or other items, the
tax detriments associated with any Precontribution Gain. This Section 3(d) and
Section 3(c) are to be interpreted consistently with such intent.
(e) EXCESS NONRECOURSE LIABILITY SAFE HARBOR. Pursuant to Regulations
Section 1.752-3(a)(3), solely for purposes of determining each Partner's
proportionate share of the "excess nonrecourse liabilities" of the Partnership
(as defined in Regulations Section 1.752-3(a)(3)), the Partners' respective
interests in Partnership profits shall be determined in accordance with each
Partner's Percentage Interest; provided, however, that each Partner who has
contributed an asset to the Partnership shall be allocated, to the extent
possible, a share of "excess nonrecourse liabilities" of the Partnership which
results in such Partner being allocated nonrecourse liabilities in an amount
which is at least equal to the amount of income pursuant to Section 704(c) of
the Code and the Regulations promulgated thereunder (the "Liability Shortfall").
In the event there is an insufficient amount of nonrecourse liabilities to
allocate to each Partner an amount of nonrecourse liabilities equal to the
Liability Shortfall, then an amount of nonrecourse liabilities in proportion to,
and to the extent of, the Liability Shortfall shall be allocated to each
Partner.
(f) REFERENCES TO REGULATIONS. Any reference in this Appendix II or the
Agreement to a provision of proposed and/or temporary Regulations shall, in the
event such provision is modified or renumbered, be deemed to refer to the
successor provision as so modified or renumbered, but only to the extent such
successor provision applies to the Partnership under the effective date rules
applicable to such successor provision.
(g) SUCCESSOR PARTNERS. For purposes of this Appendix II, a transferee of
a Partnership Interest shall be deemed to have been allocated the Net Income,
Net Loss and other items of Partnership income, gain, loss, deduction and credit
allocable to the transferred Partnership Interest that previously have been
allocated to the transferor Partner pursuant to this Agreement.
(h) LIMITATION TO PRESERVE REIT STATUS. Notwithstanding anything else in
this Agreement, to the extent that the amount paid, credited, distributed or
<PAGE>
reimbursed by the Partnership or any Partners to, for or with respect any
Partner that is a REIT ("REIT Partner") or its officers, directors, employees or
agents, whether as a reimbursement, fee, expense or indemnity (a "REIT
Payment"), would constitute gross income to the REIT Partner for purposes of
Section 856 (c)(2) or Section 856(c)(3) of the Code, then, notwithstanding any
other provision of this Agreement, the amount of such REIT Payments, as selected
by the General Partner in its discretion from among items of potential
distribution, reimbursement, fees, expenses and indemnities, shall be reduced
for any Fiscal Year so that the REIT Payments, as so reduced, to, for or with
respect to such REIT Partner shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (x) four and
nine-tenths percent (4.9%) of the REIT Partner total gross income (but excluding
the amount of any REIT Payments) for the Fiscal Year that is described in
subSections (A) through (H) of Section 856(c)(2) over (y) the amount of gross
income (within the meaning of Section 856(c)(2)) derived by the REIT Partner
from sources other than those described in subSections (A) through (H) of
Section 856(c)(2) (but not including the amount of any REIT Payments); or
(ii) an amount equal to the excess, if any, of (x) 24% of the REIT
Partner's total gross income (but excluding the amount of any REIT Payments) for
the Fiscal Year that is described in subSections (A) through (I) of Section
856(c)(3) over (y) the amount of gross income (within the meaning of Section
856(c)(3)) derived by the REIT Partner from sources other than those described
in subSections (A) through (I) of Section 856(c)(3) (but not including the
amount of any REIT Payments);
PROVIDED, HOWEVER, that REIT payments in excess of the amounts set forth in
clauses (i) and (ii) above may be made if the General Partner, as a condition
precedent, obtains an opinion of tax counsel that the receipt of such excess
amounts shall not adversely affect the REIT Partner's ability to qualify as a
REIT. To the extent that REIT Payments may not be made in a Fiscal Year as a
consequence of the limitations set forth in this Section 3(h), such REIT
Payments shall carry over and shall be treated as arising in the following
Fiscal Year. Nothing in this Section 3(h) shall permit the General Partner to
allocate income of the Partnership to any Partner in excess of the income that
would otherwise be allocated to it under Article 6 without regard to this
Section 3(h). The purpose of the limitations contained in this Section 3(h) is
to prevent any REIT Partner from failing to qualify as a REIT under the Code by
reason of such REIT Partner's share of items, including distributions,
reimbursements, fees, expenses or indemnities, receivable directly or indirectly
from the Partnership or the Partners, and this Section 3(h) shall be interpreted
and applied to effectuate such purpose.
<PAGE>
AGREEMENT FOR ASSUMPTION
AND ALLOCATION OF LIABILITIES
THIS AGREEMENT is made by and among the parties identified herein with
reference to the following facts:
RECITALS
A. ____________________, a Delaware limited partnership (the "Partnership")
owns and manages certain real property.
B. _____________, ____________, and _________________ are the limited partners
of the Partnership, and Mission West Properties, a California corporation
(the "Company"), is the general partner of the Partnership.
C. The Partnership is the successor to ________________, a ___________ limited
partnership, and is governed by the provisions of the Amended and Restated
Agreement of Limited Partnership of Mission West Properties, L.P. III dated
as of July 1, 1998, which has revised and restated the limited partnership
agreement of ______________ (the "Partnership Agreement").
D. The Partnership has certain liabilities for debt arising from loans to the
Partnership, some of which are secured by real property of the Partnership
and others of which are unsecured.
E. The terms of the Partnership Agreement require the limited partners and the
general partner to make-up the amount of any capital account deficit
resulting upon liquidation and winding up of the Partnership under certain
circumstances ("Deficit Make-Up Provision").
F. The terms of the Partnership Agreement provide the manner in which
liability for debt for "nonrecourse debts" (as defined therein) of the
Partnership is to be shared among the partners for income tax purposes.
G. As of July 1, 1998, the Partnership has principal indebtedness of
approximately $___________, under a secured loan from _________, and
___________ jointly [or other entity], which they made from funds borrowed
from Wells Fargo Bank N.A. (the "Lender"), and for which they are
personally liable (the "Recourse Loan").
<PAGE>
H. The partners in the Partnership (individually, each an "Assuming Party" and
collectively the "Assuming Parties") desire to establish among themselves
their respective responsibilities for payment of any liability of the
Partnership under any loans to the Partnership if the Partnership fails to
pay them, and to release all other partners of any ultimate liability
therefor that such partners might otherwise have under the terms of such
loan, the Partnership Agreement or applicable law.
AGREEMENT
NOW, THEREFORE, in order to formalize the understanding of the Assuming Parties,
to establish the amount of the Partnership's debt obligations assumed by each
Assuming Party, to relieve the General Partner from its existing primary
liability for the Recourse Loan, to declare the Assuming Parties' respective
shares of nonrecourse debts of the Partnership, and to amend the Partnership
Agreement as provided herein, the parties agree as follows:
1. ASSUMPTION OF LIABILITY.
(a) By execution of this Agreement, each Assuming Party hereby unconditionally
assumes personal liability, without right of contribution from the General
Partner or any other Assuming Party, to pay pursuant to the terms of the
Recourse Loan, whose terms are incorporated herein by this reference, or any
successor credit agreement, the percentage of the sum of Recourse Loan principal
now or existing hereafter and all interest thereon as set forth next to their
names solely in the event the Partnership fails to pay all principal and
interest due under the terms of the Recourse Loan and only after all cash and
other assets of the Partnership have been used to satisfy the liabilities of the
Partnership including such loan:
<TABLE>
<CAPTION>
PERCENTAGE OF
PARTNERS RECOURSE LOAN ASSUMED
<S> <C>
The Company 0%
______________ ___%
______________ ___%
______________ ___%
</TABLE>
(b) An Assuming Party shall not be liable to the Partnership or any other
Assuming Party for any more of the unpaid balance of the Recourse Loan than his
or its percentage share provided in Paragraph 1(a). Each Assuming Party shall
share liability for nonrecourse debts of the Partnership for income tax purposes
in the manner provided in the Partnership Agreement. No Assuming Party shall
have any obligation under a Deficit Make-Up Provision of the Partnership
Agreement if that will result in the Assuming Party's bearing a greater share of
the Recourse Loan or the nonrecourse debts of the Partnership than is provided
by this Agreement.
(c) Payments of the Recourse Loan made by the Partnership (and not by any
<PAGE>
Assuming Party personally) shall be credited pro rata against the amounts
assumed by the Assuming Parties under Paragraph 1(a).
2. DIRECTION TO PAY LENDER. If required by the Lender, each Assuming Party
agrees to remit to the Lender, or to the Partnership, all amounts payable by
such Party by reason of this Agreement, and each Assuming Party hereby
authorizes and directs the Partnership and the Company to pay over such amounts
to the Lender. Each Assuming Party further agrees that the Partnership may pay
directly to the Lender from its funds any amounts due to such Party from the
Partnership up to the amount the Assuming Party is obligated to pay the Lender
by reason of this Agreement, if the Assuming Party defaults in any payment
obligation assumed by and allocated to the Assuming Party under this Agreement.
The Assuming Parties hereby authorize and direct the Company to make such
payments on behalf of the Partnership.
3. INDEMNIFICATION. Each Assuming Party hereby agrees to indemnify and hold
harmless every other partner in the Partnership against any and all liability,
costs, damages, attorneys' fees and other expenses that any such other partners
may incur with respect to the Recourse Loan from any failure by the Assuming
Party to satisfy its proportionate liability for such indebtedness as provided
in Paragraph 1.
4. ACCOUNTING. The Company shall maintain books and records setting forth the
amount of the liabilities assumed under this Agreement and the amounts applied
by the Company pursuant to the direction and authorization in Paragraph 2,
hereof, to the reduction of such liabilities, including any amounts paid by the
Company or the Partnership to the Lender upon any default in payment by any
Assuming Party. The Company shall provide to an Assuming Party a statement of
any change in the amount of any such liability upon request by the Assuming
Party.
5. DEFAULT. An Assuming Party shall be in default under this Agreement in the
event: (i) he or it fails to pay when due any amount he or it is required to pay
under the Recourse Loan by reason of this Agreement; (ii) he or it fails to
satisfy any condition or to honor and perform any covenant set forth in
Paragraphs 1, 2, or 3 above; or (iii) he or it fails to pay when due any amount
he or it owes to the Lender hereunder. In the event of such default:
(a) All amounts owed by the defaulting Assuming Party under the Recourse Loan
by reason of this Agreement will become due and payable in full immediately;
(b) The Lender shall have all rights and remedies set forth herein, and as
otherwise provided by law to collect all amounts due and payable by such
defaulting Assuming Party. The Lender shall have the right to enforce one or
more of such remedies, successively or concurrently, and any action to enforce
the same shall not bar the Lender from pursuing any further remedy which it may
have hereunder or otherwise as provided by law, including, without limitation,
the absolute right on the part of the Lender to commence an action against a
defaulting Assuming Party for a judgment in the amount of all sums due and
collectible from such Assuming Party under this Agreement; and
(c) This Agreement and the obligations and rights of the Assuming Party
hereunder are further subject to all remedies and rights of enforcement of the
Lender under the Recourse Loan solely to the extent of an Assuming Party's
liabilities thereunder by reason of this Agreement.
6. GOVERNING LAW. This Agreement is governed by and construed under the
laws of
<PAGE>
the State of California without regard to any principles governing
conflicts of laws.
7. AGREEMENT FOR THE BENEFIT OF THE LENDER. Each Assuming Party agrees that
this Agreement is made for the benefit of the Lender. After execution of
this Agreement it shall be delivered to the Lender upon the Lender's request,
and the Lender shall be entitled to proceed against an Assuming Party under
this Agreement as if the Assuming Party had made and issued his or its
personal note directly to the Lender in an amount equal to his or its total
obligations hereunder.
8. NOTICES. All notices and information to be submitted to an Assuming Party
shall be sent to him or it at 10050 Bandley Drive, Cupertino, California 95014.
9. COUNTERPARTS. This Agreement may be executed in several counterparts,
and all so executed shall constitute one agreement which shall be binding on
all the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the Assuming Parties, the Company and the Partnership
have executed this Agreement as of July 1, 1998.
MISSION WEST PROPERTIES
-----------------------------
By: By: Mission West Properties
Its: President Its: General Partner
By:
Its: President
---------------------
---------------------
---------------------
<PAGE>
LENDER'S ACKNOWLEDGMENT OF RECEIPT
Receipt of the attached Agreement for Assumption and Allocation of
Liabilities is hereby acknowledged as of July 1, 1998 for all purposes.
(Insert name of lender)
By:
Its:
<PAGE>
EXCHANGE RIGHTS AGREEMENT
This Exchange Rights Agreement (this "Agreement") is made as
of ________ __, 1998 by and among Mission West Properties, a California
corporation (the "Company"), and each of the limited partners ("Limited
Partners") of Mission West Properties, L.P., a Delaware limited partnership
("MWP"), Mission West Properties, L.P. I, a Delaware limited partnership
("MWP I"), Mission West Properties, L.P. II, a Delaware limited partnership
("MWP II") and Mission West Properties, L.P. III, a Delaware limited
partnership (MWP III, and collectively with MWP, MWP I and MWP II, the
"Operating Partnership"), listed on the signature pages hereto.
WHEREAS, the Limited Partners own all of the units of limited
partnership interest of the Operating Partnership ("L.P. Units") currently
outstanding;
WHEREAS, pursuant to an Acquisition Agreement dated of even date
herewith (the "Acquisition Agreement") among the Company, the Operating
Partnership and the Contributing Entities (as that term is defined in the
Acquisition Agreement), the Company will acquire the general partnership
interests in the Operating Partnership in exchange for $35,200,000, and the
Operating Partnership will acquire certain properties from the Contributing
Entities in exchange for L.P. Units and the shareholders and/or limited partners
of the Contributing Entities will thereby become Limited Partners and parties to
an Operating Partnership Agreement of the Operating Partnership. For purposes of
this Agreement, L.P. Units shall include L.P. Units outstanding on the date
hereof, together with any L.P. Units of the Operating Partnership issued after
the date hereof.
WHEREAS, pursuant to the Acquisition Agreement the parties hereto are
entering into this Agreement to provide for the rights of the Limited Partners
to (i) tender L.P. Units in exchange for shares of the Company's common stock
(the "Common Stock"), cash or a combination of Common Stock and cash, on the
terms and conditions set forth herein (the "Exchange Rights") and (ii) register
shares of Common Stock;
NOW, THEREFORE, in consideration of the premises and the mutual
covenant set forth herein, the parties hereto agree as follows:
1. DEFINITIONS.
For purposes of this Agreement:
"AFFILIATE" shall mean (a) with respect to any individual person, any
member of the immediate family of such person or a trust established for the
benefit of such member, or (b) with respect to any entity, any person which,
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with any such entity.
"BENEFICIALLY OWNING" means owning Common Stock directly, indirectly or
<PAGE>
constructively by a person or entity through the application of Section 318(a)
of the Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the
Code, as modified by Section 856(h) of the Code. The term "Beneficially Own"
shall have a correlative meaning.
"CODE" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, as interpreted by the applicable regulations thereunder.
"COMMON STOCK" means the shares of Common Stock, no par value per share,
of the Company or any shares of voting securities into which the Common Stock
may be reclassified or converted or for which shares of Common Stock may be
exchanged in any transaction made applicable or available to all holders of
Common Stock as a class.
"CLOSING PRICE" shall mean, with respect to a particular date, the last
reported sales price regular way on such date or, in case no such reported sale
takes place on such date, the average of the reported closing bid and asked
prices regular way on such date, in either case on the AMEX, or if the Common
Stock is not then listed or admitted to trading on such Exchange, on the
principal national securities exchange, the Nasdaq or any comparable system on
which the Common Stock is then listed or admitted to trading or, if not then
listed or admitted to trading on any national securities exchange, the Nasdaq or
any comparable system. The closing sale price on such date of the Common Stock
or if the Common Stock is not then quoted on Nasdaq or any comparable system,
the Board of Trustees of the Trust and the Board of Directors of the Corporation
shall in good faith determine the Closing Price.
"EXCHANGE FACTOR" shall mean the ratio at which L.P. Units will be
exchangeable into Common Stock. The Exchange Factor shall initially be 1:1. The
initial Exchange Factor shall be subject to adjustment as provided in Section 7.
"OWNERSHIP LIMIT" has the meaning set forth in the Restated Articles, as
amended from time to time, or in the Acquisition Agreement with respect to the
Berg Group (as defined therein).
"PARTNERSHIP AGREEMENT" shall mean the Operating Partnership's Amended and
Restated Agreement of Limited Partnership, as amended from time to time.
"REIT REQUIREMENTS" shall mean the requirements for the Company to (i)
qualify as a REIT under the Code and the rules and regulations promulgated
thereunder and (ii) avoid any federal income or excise tax liability.
"RESTATED ARTICLES" means the Amended and Restated Articles of
Incorporation of the Mission West Properties, Inc., a Maryland corporation
("Mission West-Maryland"), as amended from time to time after the date of this
Agreement. Mission West-Maryland will be the successor corporation to the
Company upon the consummation of a merger by the Company with and into Mission
West-Maryland for the purpose of redomiciling the Company in Maryland.
2. RIGHT TO TENDER L.P. UNITS.
2.1 GENERAL. Upon the terms and subject to the conditions of this
Agreement, after the first anniversary hereof each holder of L.P. Units shall
have the right to tender to the Company outstanding L.P. Units; provided, that
prior to the first anniversary of this Agreement, holders of L.P. Units may
tender L.P. Units solely in connection with (i) the registration of shares of
Common Stock acquired upon exchanging L.P. Units for Common Stock pursuant to a
<PAGE>
registered public offering of Common Stock initiated by the Company to the
extent of 25% of the total shares sold in the offering (subject to the Ownership
Limit and the underwriter's unlimited right to reduce the participation of all
selling shareholders) and (ii) the registration of an aggregate of 500,000
shares of Common Stock acquired upon exchanging L.P. Units into such shares of
Common Stock on a Form S-3, or any successor form thereto (subject to the
Ownership Limit). Any registration of Common Stock received in exchange for L.P.
Units pursuant to this Section 2 shall comply in all respects with Section 8
hereof.
2.2 CERTAIN LIMITATIONS. Notwithstanding any other provision of this
Agreement to the contrary, no Common Stock or cash shall be issued or paid in
respect of any tender of L.P. Units (i) if the right to tender L.P. Units and
receive Common Stock or cash would result in the Company not satisfying the REIT
Requirements in any respect or would result in any person or entity Beneficially
Owning Common Stock exceeding the applicable Ownership Limit, (ii) prior to the
expiration or termination of the waiting period applicable to such exchange and
issuance, if any, under the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as it may be amended from time to time, or (iii) prior to the receipt of all
governmental and regulatory approvals which are required to be obtained prior to
such tender and issuance or payment. Such holder shall, as a condition to any
tender of L.P. Units which would result in any Limited Partner, together with
such Limited Partner's Affiliates, Beneficially Owning, in the aggregate more
than shares of outstanding Common Stock exceeding the applicable Ownership
Limit, give not less than ninety (90) days' written notice to the Company of its
intent to tender L.P. Units. In the event that the ability to receive Common
Stock or cash would result in the Company not satisfying the REIT Requirements
in any respect or would result in any person or entity Beneficially Owning
Common Stock exceeding the Ownership Limit, and as a result thereof no Common
Stock or cash may be issued or paid in respect of any tender of L.P. Units
pursuant to subsection (i) above, the parties hereto shall use their respective
best efforts to restructure the terms and provisions of this Agreement (and, if
necessary, the Partnership Agreement), or to agree to terms and provisions in
addition to such terms and provisions, so as to provide to each such party the
same substantive rights (or substantive rights as close thereto as is reasonably
practicable) as those provided by this Agreement and the Partnership Agreement.
2.3 NATURE OF THE OFFER. The right to exchange L.P. Units pursuant to this
Agreement constitutes a continuous offer and may not be withdrawn, amended or
modified by the Company without the prior written consent of each holder of
outstanding L.P. Units adversely affected by such withdrawal, amendment or
modification; provided that any withdrawal, amendment or modification that does
not adversely affect any holder of outstanding L.P. Units may be effected
without the consent of such holder.
3. ACCEPTANCE OF TENDER; ELECTION OF METHOD OF PAYMENT FOR TENDERED L.P. UNITS.
3.1 FORM OF TENDER. Upon the terms and subject to the conditions of this
Agreement, the Company shall accept L.P. Units validly tendered in proper form
and meeting all of the requirements of this Agreement. In order for L.P. Units
to be validly tendered pursuant to this Agreement, the registered holder thereof
shall deliver to the Company, at the address provided pursuant to Section 12 (i)
a completed and duly executed Letter of Transmittal in the form attached hereto
as Exhibit A (the "Letter of Transmittal") and any other documents required by
the Letter of Transmittal and (ii) a calculation, to the best knowledge of such
registered holder after due inquiry (together with such supporting documentation
as the Company may reasonably request), of the maximum number of shares of
<PAGE>
Common Stock that may be issued to such registered holder without causing either
(x) the Company to not satisfy the REIT Requirements in any respect or (y) any
person or entity to Beneficially Own Common Stock in excess of the applicable
Ownership Limit. The Company shall make all determinations as to the validity
and form of any tender of L.P. Units in accordance with the provisions of this
Agreement and upon rejection of a tender shall give the tendering holder written
notice of such rejection, which shall include the reasons therefor.
3.2 REVOCABILITY. Unless otherwise agreed to by the Company, tenders of
L.P. Units pursuant to this Agreement shall be irrevocable and shall not be
subject to withdrawal or modification; provided that if the Company makes the
Stock Election (as defined below) with respect to a tender, then within three
(3) days after such Stock Election the tendering holder may elect to revoke such
tender so long as (i) no public disclosure of such tender has been made prior to
such revocation and (ii) such tendering holder reimburses the Company for all
reasonable costs and expenses incurred in connection with such tender.
3.3 COMPANY ELECTIONS. Within fifteen (15) days after the valid tender of
L.P. Units pursuant to this Agreement, the Company shall make an election to pay
for such L.P. Units by delivering either (i) Common Stock (the "Stock
Election"), (ii) cash (the "Cash Election") or (iii) a combination of Common
Stock and cash (the "Combined Election").
4. STOCK ELECTION.
4.1 STOCK EXCHANGE. If with respect to any tender of L.P. Units pursuant
to this Agreement, the Company makes the Stock Election, then within twenty (20)
days after such tender the Company shall deliver to the tendering holder one
share of Common Stock for each L.P. Unit validly tendered pursuant to the
provisions of this Agreement, as adjusted pursuant to Section 7.
4.2 FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon exchange of L.P. Units pursuant to this
Agreement. If more than one Letter of Transmittal shall be delivered at one time
by the same holder, the number of full shares which shall be issuable upon
exchange of the L.P. Units tendered thereby shall be computed on the basis of
the aggregate number of L.P. Units so tendered. Instead of any fractional shares
which would otherwise be issuable upon exchange of any L.P. Units, the Company
shall pay a cash adjustment in respect of such fraction in an amount equal to
the same fraction of the Closing Price.
4.3 TAXES. If a holder exchanges L.P. Units pursuant to this
Agreement, the Company shall pay any documentary, stamp or similar issue or
transfer tax due on any issue of Common Stock upon such exchange. Such
holder, however, shall (i) pay to the Company the amount of any additional
documentary, stamp or similar issue or transfer tax which is due (or shall
establish to the satisfaction of the Company the payment thereof) as a result
of Common Stock being issued in a name other than the name of such holder and
(ii) be responsible for all income or other taxes as a result of such
exchange.
5. CASH ELECTION.
If with respect to any tender of L.P. Units pursuant to this Agreement,
the Company makes the Cash Election, then within thirty (30) days after such
tender the Company shall pay to the tendering holder an aggregate amount of cash
(the "Aggregate Cash Payment") equal to the product of (i) the number of shares
of Common Stock which would have been delivered to such holder if the Company
<PAGE>
had made the Stock Election with respect to such tender and (ii) the average
Closing Price for the ten (10) trading day period ending one (1) day prior to
the date of such tender.
6. COMBINED ELECTION.
If with respect to any tender of L.P. Units pursuant to this Agreement,
the Company shall make the Combined Election, then within thirty (30) days after
such tender the Company shall (i) notify the tending holder of the number of
such tendered L.P. Units which will be exchanged for cash (the "Cash Units") and
the number of such tendered L.P. Units which will be exchanged for Common Stock
(the "Stock Units") as adjusted pursuant to Section 7, (ii) pay to the tendering
holder, in respect of each Cash Unit validly tendered pursuant to the provisions
of this Agreement, an amount of cash equal to the average Closing Price for the
ten trading-day period ending one (1) day prior to the date of such tender and
(iii) deliver to the tendering holder one share of Common Stock for each Stock
Unit validly tendered pursuant to the provisions of this Agreement.
The provisions of Sections 4.2 and 4.3 of this Agreement shall apply to the
issuance of Common Stock pursuant to this Section 6.
7. EXCHANGE FACTOR; ADJUSTMENTS TO EXCHANGE FACTOR.
7.1 EXCHANGE FACTOR. Pursuant to Sections 4, 5 and 6, each L.P. Unit
initially shall be exchangeable, without the payment of additional consideration
by the holder thereof, into one (1) share of Common Stock or the equivalent
thereof in cash. The number of L.P. Units exchangeable for one share of Common
Stock ("Exchange Factor") shall be subject to adjustment as hereinafter
provided.
7.2 ADJUSTMENT FOR STOCK SPLITS, DIVIDENDS AND Combinations. If the
Company at any time or from time to time after the date hereof shall effect a
subdivision of the outstanding Common Stock, or shall fix a record date for
determination of shareholders entitled to receive a dividend of Common Stock on
its outstanding Common Stock, the Exchange Factor then in effect immediately
before such subdivision or as of such record date shall be proportionately
reduced, and if the Corporation shall combine the outstanding shares of Common
Stock, the Exchange Factor then in effect immediately before the combination
shall be proportionately increased. Any adjustment under this Section 7.2 shall
become effective at the close of business on the date the subdivision or
combination becomes effective or on the record date for determining holders of
any class of securities entitled to receive the dividend; provided that if such
record date shall have been fixed and such dividend shall not have been fully
paid on the date fixed therefor, the adjustment previously made in the Exchange
Factor that became effective on such record date shall be cancelled as of the
close of business on such record date, and thereafter the Exchange Factor shall
be adjusted pursuant to this Section 7.2 as of the time of actual payment of
such dividend.
7.3 ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event the
Company at any time or from time to time shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Company other than
shares of Common Stock, then and in each such event provision shall be made so
that the holders of L.P. Units shall receive upon exchange thereof, in addition
to the number of shares of Common Stock receivable thereupon, the amount of such
securities of the Company that they would have received had their L.P. Units
<PAGE>
been exchanged into Common Stock on the date of such event, giving effect to all
adjustments called for with respect to such securities during the period from
the date of such event to and including the exchange date.
7.4 ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the
Common Stock issuable upon exchange of the L.P. Units shall be changed into the
same or different number of shares of any class or series of stock, whether by
capital reorganization, reclassification or otherwise (other than a subdivision
or combination of shares or stock dividend provided for in Sections 7.1 and 7.2
above, or a merger, consolidation, sale of assets or other transaction provided
for in Section 7.3 below), then and in each such event the holder of each L.P.
Unit shall have the right thereafter to exchange such share into the kind and
amount of shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number of
shares of Common Stock into which such L.P. Unit might have been exchanged
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
7.5 ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In the event of any
merger or consolidation of the Company with or into another corporation or the
conveyance of all or substantially all of the assets of the Company to another
corporation, each L.P. Unit shall thereafter be exchangeable into the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Company deliverable upon exchange of such L.P.
Units would have been entitled upon such consolidation, merger or conveyance;
and, in any such case, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions herein set forth
with respect to the rights and interest thereafter of the holders of the L.P.
Units, to the end that the provisions set forth herein (including provisions
with respect to changes in and other adjustments of the Exchange Factor) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
share of stock or other property thereafter deliverable upon exchange of L.P.
Units.
7.6 NO IMPAIRMENT. The Company will not, by amendment of this Agreement
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed under this Section 7 and in the taking of all such action as may be
necessary or appropriate in order to protect the Exchange Rights of the holders
of L.P. Units against impairment.
7.7 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment
or readjustment of the Exchange Factor pursuant to this Section 7, the Company
at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder of L.P. Units, a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request at any time of any holder of L.P. Units, furnish
or cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the ratio at which exchanges of L.P.
Units would be made at the time, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which at the time would be received
upon exchange of such holder's L.P. Units.
8. REGISTRATION RIGHTS.
<PAGE>
The Company shall provide the following registration rights to the Limited
Partners:
8.1 DEFINITIONS. For purposes of this Section 8:
(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 Securities 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 upon exchange of the L.P. Units (the "Exchange 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 Exchange Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which such person's
rights under this Agreement or the Partnership Agreement were not assigned in
conformity with this Agreement or the Partnership Agreement;
(c) For this purpose, "REGISTRATION EXPENSES" mean any and all
expenses of the Company incident to performance of or compliance with this
Agreement, including, without limitation, (i) all SEC and securities
exchange registration and filing fees, (ii) all printing, messenger and deliver
expenses, (iii) all fees and expenses incurred in connection with the listing of
the Registrable Securities on any securities exchange, and the fees and
disbursements of counsel for the Company and of its independent public
accountants, but excluding underwriting discounts and commissions and transfer
taxes, if any;
(d) The term "FORM S-3" or "FORM S-11" means such form under the
Securities Act as in effect on the date hereof or any registration form under
the Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
8.2 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 Limited Partners) any of its
stock or other securities under the Securities Act of 1933, as amended (the
"Securities 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
Limited Partner written notice of such registration. Upon the written request of
each Limited Partner given within twenty (20) days after mailing of such notice
by the Company in accordance with Section 12 of this Agreement, the Company
shall, subject to the provisions of paragraph 8.9 below, cause to be registered
under the Securities Act the Registrable Securities that each such Limited
Partner has requested to be registered to the extent of 25% of the total shares
to be sold in the offering.
8.3 SHELF REGISTRATION. At any time, from time to time, following the
first anniversary of the date of the Agreement, upon the request of Limited
<PAGE>
Partners holding at least five percent (5%) of the Registrable Securities
("Participating Limited Partners"), the Company shall file, and use its best
efforts to have declared effective under the Securities Act by the sixtieth
(60th) day after the date the Company receives such request, a "shelf"
registration statement pursuant to the requirements of the Securities Act on
Form S-3 or another appropriate form pursuant to Rule 415 under the Securities
Act (or any successor rule or regulation) covering the disposition of at least
200,000 shares of the 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 such Participating
Limited Partners, PROVIDED, HOWEVER , that the Company is only obligated to
effect one (1) such registration in any twelve (12)-month period. 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
Securities 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 Securities Act or by any other rules and regulations
thereunder applicable to "shelf" registrations. The Company shall provide the
Participating Limited Partners with written notice of the filing of such "shelf"
registration statement within five (5) days after such registration statement
has been filed with the Securities and Exchange Commission ("SEC"). If the
Company delivers to the Participating Limited Partners 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 detrimental to the Company or its
shareholders for the Participating Limited Partners to offer or sell, or to
continue to offer and 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"), the Limited
Partners shall not 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 any twelve (12) month period.
8.4 REQUESTS FOR REGISTRATION.
(a) Notwithstanding the limitations set forth in Section 8.3 above,
subject to the Ownership Limit and the discretion of the Company, all Limited
Partners in the aggregate may request the registration of L.P. Units prior to
the first anniversary of the Closing Date in connection with the registration of
an aggregate of 500,000 shares of Common Stock on a Form S-3 or another
appropriate form pursuant to Rule 415 under the Securities Act (or any successor
rule or regulation), upon converting L.P. Units into shares of Common Stock.
Such registration shall be subject to the Blackout Period described in Section
8.3.
(b) If the Company shall receive a written request from Limited
Partners holding no fewer that 500,000 L. P. Units (the "Initiating Holders")
and the Company is not then eligible to file a registration statement on Form
S-3 or another appropriate form pursuant to Rule 415 of the Securities Act (or
any successor rule or regulation) in accordance with the requirements of Section
8.3, the Company shall promptly give written notice of such request to all
Limited Partners and shall, subject to the limitations set forth below, effect
as soon as practicable, and in any event with in one hundred twenty (120) days
of the receipt of such request, a registration on Form S-11, or an equivalent
form, of all Registrable Securities which the Limited Partners request to be
<PAGE>
registered within twenty (20) days of the mailing of such notice by the Company
in accordance with Section 12 hereof in an underwritten public offering. 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 Limited Partner to
include such Limited Partner's Registrable Securities in such registration shall
be conditioned upon such Limited Partner's participation in such underwriting
and the inclusion of such Limited Partner's Registrable Securities in the
underwriting to the extent provided herein. All Limited Partners proposing to
distribute their securities through such underwriting shall (together with the
Company) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting. Notwithstanding any
other provision of this Section 8.4(b), 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 Limited Partners proposing to distribute 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 Limited Partners, 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. In addition, any registration
pursuant to this Section 8.4(b) shall be subject to the Blackout Period
described in Section 8.3.
8.5 OBLIGATIONS OF THE PARTIES.
(a) Whenever required under Section 8.2, 8.3 or 8.4 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 a Limited
Partner, keep such registration statement effective until the completion of the
sale of the Registrable Securities subject to the registration statement,
subject to the provisions of Section 8.3;
(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 Securities Act with respect to the disposition of all
securities covered by such registration statement;
(iii) furnish to the Limited Partners 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 the
Limited Partners;
(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 Limited
Partner, 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
<PAGE>
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. The Limited
Partner shall also enter into and perform its obligations under such an
agreement; and
(vi) notify the Limited Partners at any time when a prospectus
relating thereto is required to be delivered under the Securities 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 light of the
circumstances then existing.
(b) When requested by Limited Partners in connection with a "shelf"
registration pursuant to Section 8.3, the Company shall assist the Limited
Partners in obtaining a firm commitment underwriting agreement for such resales
from a qualified investment banking firm, as determined by the Company.
(c) The Limited Partners agree that in connection with any
registration of the Registrable Securities by the Company pursuant to Section
8.2, 8.3 or 8.4, except as permitted under Regulation M promulgated under the
Exchange Act, if the Registrable Securities of Holder are being distributed
pursuant to such registration, the Limited Partners 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 any
Limited Partner has a beneficial interest, any shares of the Common Stock of the
Company until such Limited Partner has completed the Limited Partner's
participation in such distribution.
8.6 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 8.2, 8.3 or
8.4 with respect to the Registrable Securities of a Limited Partner that the
Limited Partner 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 Limited
Partner's Registrable Securities.
8.7 EXPENSES OF REQUESTED REGISTRATIONS. In connection with
registrations, filings, or qualifications pursuant to Sections 8.3 or 8.4, the
Company shall pay all Registration Expenses, other than selling expenses
(including commissions and separate counsel' fees of the Limited Partners).
8.8 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all
expenses incurred by the Company in connection with any registration, filing, or
qualification of Registrable Securities with respect to registrations pursuant
to Section 8.2 and the closing of the sale thereof, including (without
limitation) all registration, filing, qualification, printer's fees, attorneys'
and accounting fees and expenses; provided, however, that the Company shall not
be responsible for underwriting discounts and commissions or other charges
relating to the Registrable Securities, or for the Limited Partners' attorneys'
fees and expenses or any taxes imposed with respect to the Registrable
Securities on the sale and transfer thereof.
<PAGE>
8.9 UNDERWRITING REQUIREMENTS. In connection with any offering involving
an underwriting of shares of the Company's capital stock pursuant to Section
8.2, Limited Partners may include up to 25% of the shares sold in the offering,
provided however, that the Company shall not be required under Section 8.2, to
include any of the Limited Partners' Registrable Securities in such underwriting
unless the Limited Partner accepts 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 the Participating Limited Partners 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 shareholder 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 shareholder which is a Participating
Limited Partner 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 shareholder", and any pro rata reduction with respect to such
"selling shareholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling shareholder", as defined in this sentence.
8.10 DELAY OF REGISTRATION. The Limited Partners shall not 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 Section 8.
8.11 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under this Section 8:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless a Limited Partner, any underwriter (as defined in the Act) for a
Limited Partner and each person, if any, who controls a Limited Partner 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 a Limited
Partner, underwriter or controlling person, as incurred, any legal or other
<PAGE>
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.
(b) To the extent permitted by law, a Limited Partner 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 shareholder
selling securities in such registration statement and any controlling person of
any such underwriter or other shareholder, 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 a Limited Partner
expressly for use in connection with such registration; and a Limited Partner
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 a Limited Partner, which consent shall not be unreasonably
withheld; and 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 a Limited Partner.
(c) Promptly after receipt by an indemnified party under this Section
8.11 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 8.11, 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
8.11, 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 8.11.
<PAGE>
(d) If the indemnification provided for in this Section 8.11 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 a Limited Partner'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 a Limited Partner.
(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.
(f) The obligations of the Company and a Limited Partner under this
Section 8.11 shall survive the completion of any offering of Registrable
Securities in a registration statement filed pursuant to Section 8.2, 8.3 or
8.4, and otherwise.
8.12 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Limited Partners the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit the Limited Partners to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to use reasonable efforts 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 Limited Partners
to utilize Form S-3 for the sale of Registrable Securities as soon as permitted
pursuant to this Section 8 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 Securities Act and the Exchange Act
of 1934 as amended (the "Exchange Act"); and
(d) furnish to a Limited Partner, so long as a Limited Partner 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 Securities 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
<PAGE>
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 a Limited Partner of any rule or regulation of the SEC which permits
the selling of any such securities without registration or pursuant to such
form.
8.13 EXERCISE OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities pursuant to this Section 8 may be exercised by a
Limited Partner or by any transferee or assignee of such securities who, after
such assignment or transfer, holds at least 500,000 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 Limited Partner under applicable
provisions of this Section 8; 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
Securities 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; and PROVIDED THAT all assignees and transferees who would not
qualify individually for an assignment of the registration rights as provided
herein 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 Section 8.
8.14 "MARKET STAND-OFF" AGREEMENT. The Limited Partners hereby agree 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 the Company's 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 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 the Limited Partners (and the shares or securities of
every other person subject to the foregoing restriction) until the end of such
period.
8.15 DELAYED PAYMENT UNITS REGISTRATION.
If at any time after one year from the date of this Agreement, (a) a
Limited Partner validly tenders L.P. Units pursuant to the provisions of this
Agreement, (b) the Company makes the Stock Election or the Combined Election
with respect to such tender, (c) as a result of the Ownership Limit such Limited
Partner cannot receive the full number of shares of Common Stock otherwise
<PAGE>
issuable to such Limited Partner pursuant to such tender and such election
(without giving effect to the Ownership Limit), then:
(i) subject to the other terms and conditions of this
Agreement, such Limited Partner shall be entitled to receive the number of
shares of Common Stock which it can receive pursuant to such tender, such
election and the Ownership Limit; and
(ii) if such Limited Partner shall make a written request for
registration of Common Stock pursuant to this Section 8, the Company shall cause
there to be filed with the SEC a registration statement and the Company shall
register and sell pursuant thereto a number of shares of Common Stock equal to
the number of shares of such Unissued Common Stock. Within two (2) business days
after the receipt by the Company of the proceeds of any sale (after underwriting
discounts and commissions) of such Common Stock pursuant to such registration,
the Company shall pay such proceeds to the tendering holder of the Delayed
Payment Units, in full payment for the tender of such Delayed Payment Units.
(iii) For purposes of this Section 8.15, the number of shares of
Common Stock which such Limited Partner cannot receive pursuant to such tender
as a result of the Ownership Limit are referred to as the "Unissued Common
Stock" and the L.P. Units tendered in respect of such Unissued Common Stock are
referred to as the "Delayed Payment Units."
9. REPRESENTATIONS OF TENDERING HOLDER.
Each tender of L.P. Units shall constitute a representation and warranty
by the tendering holder of each of the representations and warranties set forth
in the form of Letter of Transmittal. Without limiting the generality of the
foregoing, unless, at the time of a tender for exchange of L.P. Units pursuant
to this Agreement, a registration statement relating to Common Stock to be
delivered upon such tender is effective under the Securities Act, such tender
shall constitute a representation and warranty by the tendering holder to the
Company that such tendering holder (i) is an "accredited investor" within the
meaning of Rule 501 under the Securities Act, (ii) has sufficient knowledge and
experience in financial and business matters and in investing in entities
similar to the Operating Partnership and the Company, so as to be able to
evaluate the risks and merits of its investment in the Operating Partnership and
the Company and it is able financially to bear the risks thereof, (iii) has had
an opportunity to discuss the business, management and financial affairs of the
Operating Partnership and the Company with the management of the Operating
Partnership and the Company and (iv) understands that the Common Stock has not
been registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof or Rule 506 promulgated under the Securities
Act and such Common Stock must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act and applicable state
securities laws or is exempt from such registration.
10. STATUS OF TENDERING HOLDER.
Until the holder of L.P. Units tendered pursuant to this Agreement becomes
a holder of record of the Common Stock issued in exchange therefor (in the case
of a Stock Election or a Combined Election) or until such holder has received
cash in exchange therefor (in the case of a Cash Election or a Combined
Election), such holder shall continue to hold and own such L.P. Units for all
purposes of the Partnership Agreement. In the case of a Stock Election or a
<PAGE>
Combined Election, no such holder shall have any rights as a shareholder of the
Company in respect of such Common Stock until such holder becomes a holder of
record of such Common Stock.
11. RESERVATION OF SHARES; CLOSING OF TRANSFER BOOKS.
11.1 The Company shall reserve and shall at all times have reserved out of
its authorized by but unissued Common Stock, solely for the purpose of effecting
the exchange of L.P. Units pursuant to this Agreement, enough shares of Common
Stock to permit the exchange of the then outstanding L.P. Units. All Common
Stock which may be issued upon exchange of L.P. Units shall be validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issuance thereof other than income taxes resulting from such
exchange.
11.2 The Company shall not close its transfer books so as to prevent the
timely issuance of Common Stock pursuant to this Agreement.
12. GENERAL.
12.1 SURVIVAL. The covenants, representations and warranties of the
parties to this Agreement shall survive the execution and delivery of this
Agreement.
12.2 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 all the
Limited Partners. 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.
12.3 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 date
hereof, 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.
12.4 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California without regard to its principles governing conflicts of
laws.
12.5 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 the Company:
Mission West Properties
10050 Bandley Drive
<PAGE>
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
(b) If to the Limited Partners:
At the Address set forth on the signature page hereto.
Each party may change its address or telecopier number by prior written notice
to the other parties.
12.6 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.
12.7 EXPENSES. The Company and the Limited Partners 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.
12.8 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding of the Company and the Limited Partners with respect to the
transactions contemplated by this Agreement, and supersede all prior agreements,
arrangements and understandings relating to the subject matter of this
Agreement.
12.9 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 a majority in interest of the Limited
Partners 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.
12.10HEADINGS. 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.
12.11NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express
or implied, is intended to or shall (a) confer on any person other than the
parties
<PAGE>
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.
12.12RULES 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.
12.13SEVERABILITY. 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.
THE COMPANY: MISSION WEST PROPERTIES
BY:
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(signature)
Name:
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(Print or type if signing on
Company's behalf)
Title:
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(if applicable)
THE LIMITED PARTNERS:
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By:
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(signature)
Name:
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(print or type name)
Title:
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(if applicable)
Address:
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Telecopier:
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By:
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(signature)
Name:
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(print or type name)
Title:
------------------------
(if applicable)
Address:
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<PAGE>
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Telecopier:
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By:
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(signature)
Name:
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(print or type name)
Title:
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(if applicable)
Address:
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Telecopier:
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<PAGE>
[Mission West Properties Logo] GRANT PURSUANT TO
1997 STOCK OPTION PLAN
________________________, OPTIONEE:
Mission West Properties, a California corporation (the "Company"), hereby grants
to Optionee, an option ("Option") to purchase a total of __________________
(_______) shares of Common Stock ("Shares") of the Company, at the price set
forth herein, and in all respects subject to the terms, definitions and
provisions of the Company's 1997 Stock Option Plan ("Plan"), which is
incorporated herein by this reference.
THE DETAILS OF YOUR OPTION ARE AS FOLLOWS:
1. NATURE OF THE OPTION
The Option is intended to be an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). To
the extent that the Option, or any portion thereof, does not qualify as an
incentive stock option under the Code because the aggregate fair market value
(determined at the grant date) of the Shares for which the Option or portion
thereof first becomes exercisable hereunder will, when added to the aggregate
fair market value (determined as of the respective date or dates of grant) of
the Shares or other securities for which the Option or one or more other
incentive stock options granted to the Optionee prior to the grant date (whether
under the Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first becomes exercisable during the calendar year, exceed $100,000
in the aggregate, the Option or portion thereof shall constitute an incentive
stock option under the Plan in such calendar year only to the extent of such
$100,000 limitation. To the extent that the fair market value of the Shares for
which the Option first becomes exercisable in any calendar year exceeds such
$100,000 limitation, the Option may nevertheless be exercised for those excess
Shares in such calendar year as a "Nonstatutory Stock Option", as defined in
Section 2.o of the Plan.
2. OPTION PRICE
The Option Price is $____________ for each Share.
3 VESTING AND EXERCISE OF OPTION
The Option shall vest and become exercisable during its term in accordance with
the provisions of Section 9 of the Plan as follows:
a. VESTING AND RIGHT TO EXERCISE
i. The Option shall vest as follows, subject to the Optionee's
Continuous Employment with the Company:
NUMBER OF SHARES DATE OF EARLIEST EXERCISE
(INSTALLMENT) (VESTING)
----------------------------------------------------------------
Page 1
<PAGE>
Subject to the provisions of subparagraphs ii and iii below, the
Optionee can only exercise the portion of the Option that is
vested, until the expiration of the Option term.
ii. In the event of the Optionee's death, disability or other
termination of employment, the exercisability of the Option shall
be governed by Sections 9.d, e and f of the Plan.
iii. The Option may not be exercised for fractional shares or
for less than ten (10) Shares
b. METHOD OF EXERCISE
In order to exercise any portion of this Option, the Optionee shall
notify the Company in writing of the election to exercise the Option,
the number of shares in respect of which the Option is being exercised
by executing and delivering the Notice of Exercise of Stock Option in
the form attached hereto to the Secretary of the Company. The
certificate or certificates representing Shares as to which this
Option has been exercised shall be registered in the name of the
Optionee.
b. RESTRICTIONS ON EXERCISE
This Option may not be exercised if the issuance of the Shares upon
such exercise or the method of payment of consideration for such
shares would constitute a violation of any applicable Federal or state
securities law or other law or regulation. Furthermore, the method
and manner of payment of the Option Price will be subject to the rules
under Part 207 of Title 12 of the Code of Federal Regulations
("Regulation G") as promulgated by the Federal Reserve Board if such
rules apply to the Company at the date of exercise. As a condition to
the exercise of this Option, the Company may require the Optionee to
make any representation or warranty to the Company at the time of
exercise of this Option as in the opinion of legal counsel for the
Company may be required by any applicable law or regulation, including
the execution and delivery of an appropriate representation statement.
Accordingly, the stock certificates for the Shares issued upon
exercise of this Option may bear appropriate legends restricting
transfer.
4. NON-TRANSFERABILITY OF OPTION
This Option may be exercised during the lifetime of the Optionee only by the
Optionee and, subject to the provisions of Sections 9.f and 10 of the Plan, may
not be transferred in any manner other than by will or by the laws of descent
and distribution. The terms of this Option shall be binding upon the executors,
administrators, heirs and successors of the Optionee.
5. METHOD OF PAYMENT
Payment of the exercise price shall be by any of the following, or a combination
thereof, at the election of the Optionee:
a. cash;
b. certified or bank cashier's check;
c. in the event there exists a public market for the Company's Common
Stock on the date of exercise, by delivery of 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 of the shares being purchased on or
before the settlement date for the sale of such shares to the broker; or
e. in the event there exists a public market for the Company's Common
Stock on the date of exercise, by surrender of shares of the Company's
Common Stock, provided that if such shares were acquired upon exercise of
an incentive stock option, the Optionee must have first satisfied the
holding period requirements under Section 422(a)(1) of the Code. In this
case payment shall be made as follows:
i. Optionee shall deliver to the Secretary of the Company a written
notice which shall set forth the portion of the purchase price the
Optionee wishes to pay with Common Stock, and the number of shares of
such Common Stock the Optionee intends to surrender pursuant to the
exercise of this Option, which shall be determined by dividing the
aforementioned portion of the purchase price by the average of the
last reported bid and asked prices per share of Common Stock of the
Company, as reported in THE WALL STREET JOURNAL, for the day on which
the notice of exercise is sent or delivered;
ii. Fractional shares shall be disregarded and the Optionee shall pay
in cash an amount equal to such fraction multiplied by the price
determined under subparagraph i above;
iii. The written notice shall be accompanied by a duly endorsed blank
stock power with respect to the number of Shares set forth in the
notice, and the certificate(s)
Page 2
<PAGE>
representing said Shares shall be delivered to the Company at its
principal offices within three (3) working days from the date of the
notice of exercise;
iv. The Optionee hereby authorizes and directs the Secretary of the
Company to transfer so many of the Shares represented by such
certificate(s) as are necessary to pay the purchase price in
accordance with the provisions herein;
v. If any such transfer of Shares requires the consent of the
California Commissioner of Corporations or of some other agency under
the securities laws of any other state, or an opinion of counsel for
the Company or Optionee that such transfer may be effected under
applicable Federal and state securities laws, the time periods
specified herein shall be extended for such periods as the necessary
request for consent to transfer is pending before said Commissioner or
other agency, or until counsel renders such an opinion, as the case
may be. All parties agree to cooperate in making such request for
transfer, or in obtaining such opinion of counsel, and no transfer
shall be effected without such consent or opinion if required by law;
and
vi. Notwithstanding any other provision herein, the Optionee shall
only be permitted to pay the purchase price with Shares of the
Company's Common Stock owned by him as of the exercise date in the
manner and within the time periods allowed under 17 CFR Section
240.16b-3 promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), as such regulation is presently constituted,
as it is amended from time to time, and as it is interpreted now or
hereafter by the Securities and Exchange Commission.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
The number of Shares covered by this Option shall be adjusted in accordance with
the provisions of Section 11 of the Plan in the event of changes in the
capitalization or organization of the Company, or if the Company is a party to a
merger or other corporate reorganization.
7. TERM OF OPTION
This Option may not be exercised more than six (6) years from the date of grant
of this Option, as set forth below, and may be exercised during such term only
in accordance with the Plan and the terms of this Option.
8. NOT EMPLOYMENT CONTRACT
Nothing in this Agreement or in the Plan shall confer upon the Optionee any
right to continue in the employ of the Company or shall interfere with or
restrict in any way the rights of the Company, which are hereby expressly
reserved, to discharge the Optionee at any time for any reason whatsoever, with
or without cause, subject to the provisions of applicable law. This is not an
employment contract.
9. INCOME TAX WITHHOLDING
a. The Optionee authorizes the Company to withhold in accordance with
applicable law from any compensation payable to him or her any taxes required to
be withheld by Federal, state or local laws as a result of the exercise of this
Option. The Optionee agrees to notify the Company immediately in the event of
any disqualifying disposition (within the meaning of Section 421(b) of the Code)
of the shares acquired upon exercise of an incentive stock option. Furthermore,
in the event of any determination that the Company has failed to withhold a sum
sufficient to pay all withholding taxes due in connection with the exercise of
this Option, or a disqualifying disposition of the shares acquired upon exercise
of an incentive stock option, the Optionee agrees to pay the Company the amount
of such deficiency in cash within five (5) days after receiving a written demand
from the Company to do so, whether or not Optionee is an employee of the Company
at that time.
b. At such time as the Optionee is required to pay to the Company an amount
with respect to tax withholding obligations as set forth in subparagraph a, the
Optionee may elect prior to the date the amount of such withholding tax is
determined 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 in accordance with the provisions of Section 9.g of the
Plan.
c. Any adverse consequences incurred by an 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.
Page 3
<PAGE>
Dated the _____ day of ________________________.
MISSION WEST PROPERTIES
By
---------------------------------------------
Duly authorized on behalf of the Board of Directors
The Optionee acknowledges receipt of copies of the Plan, the Restricted Stock
Purchase Agreement and the exhibits referred to therein, and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. The Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Committee upon any questions arising under the Plan.
- ------------------------------------------------
Optionee
CONSENT OF SPOUSE
I, _________________________, spouse of the Optionee who executed the foregoing
Agreement, hereby agree that my spouse's interest in the shares of Common Stock
subject to said Agreement shall be irrevocably bound by the Agreement's terms.
I further agree that my community property interest in such shares, if any,
shall similarly be bound by said Agreement and that such consent is binding upon
my executors, administrators, heirs and assigns. I agree to execute and deliver
such documents as may be necessary to carry out the intent of said Agreement and
this consent.
- ------------------------------------------------
Spouse
Page 4
<PAGE>
[MISSION WEST PROPERTIES LOGO] GRANT PURSUANT TO
1997 STOCK OPTION PLAN
________________________, OPTIONEE:
Mission West Properties, a California corporation (the "Company"), hereby grants
to Optionee, an option ("Option") to purchase a total of __________________
(_______) shares of Common Stock ("Shares") of the Company, at the price set
forth herein, and in all respects subject to the terms, definitions and
provisions of the Company's 1997 Stock Option Plan ("Plan"), which is
incorporated herein by this reference.
THE DETAILS OF YOUR OPTION ARE AS FOLLOWS:
1. NATURE OF THE OPTION
The Option is intended to be a nonstatutory option and NOT an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. OPTION PRICE
The Option Price is $____________ for each Share.
3 VESTING AND EXERCISE OF OPTION
The Option shall vest and become exercisable during its term in accordance with
the provisions of Section 9 of the Plan as follows:
a. VESTING AND RIGHT TO EXERCISE
i. The Option shall vest as follows, subject to the Optionee's
Continuous Employment with the Company:
NUMBER OF SHARES DATE OF EARLIEST EXERCISE
(INSTALLMENT) (VESTING)
-----------------------------------------------------------------
Page 1
<PAGE>
Subject to the provisions of subparagraphs ii and iii below, the
Optionee can only exercise the portion of the Option that is vested,
until the expiration of the Option term.
ii. In the event of the Optionee's death, disability or other
termination of employment, the exercisability of the Option shall be
governed by Sections 9.d, e and f of the Plan.
iii. The Option may not be exercised for fractional shares or for
less than ten (10) Shares
b. METHOD OF EXERCISE
In order to exercise any portion of this Option, the Optionee shall notify
the Company in writing of the election to exercise the Option, the number
of shares in respect of which the Option is being exercised by executing
and delivering the Notice of Exercise of Stock Option in the form attached
hereto to the Secretary of the Company. The certificate or certificates
representing Shares as to which this Option has been exercised shall be
registered in the name of the Optionee.
b. RESTRICTIONS ON EXERCISE
This Option may not be exercised if the issuance of the Shares upon such
exercise or the method of payment of consideration for such shares would
constitute a violation of any applicable Federal or state securities law or
other law or regulation. Furthermore, the method and manner of payment of
the Option Price will be subject to the rules under Part 207 of Title 12 of
the Code of Federal Regulations ("Regulation G") as promulgated by the
Federal Reserve Board if such rules apply to the Company at the date of
exercise. As a condition to the exercise of this Option, the Company may
require the Optionee to make any representation or warranty to the Company
at the time of exercise of this Option as in the opinion of legal counsel
for the Company may be required by any applicable law or regulation,
including the execution and delivery of an appropriate representation
statement. Accordingly, the stock certificates for the Shares issued upon
exercise of this Option may bear appropriate legends restricting transfer.
4. NON-TRANSFERABILITY OF OPTION
This Option may be exercised during the lifetime of the Optionee only by the
Optionee and, subject to the provisions of Sections 9.f and 10 of the Plan, may
not be transferred in any manner other than by will or by the laws of descent
and distribution. The terms of this Option shall be binding upon the executors,
administrators, heirs and successors of the Optionee.
5. METHOD OF PAYMENT
Payment of the exercise price shall be by any of the following, or a combination
thereof, at the election of the Optionee:
a. cash;
b. certified or bank cashier's check;
c. in the event there exists a public market for the Company's Common
Stock on the date of exercise, by delivery of 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 of the shares being purchased on or
before the settlement date for the sale of such shares to the broker; or
e. in the event there exists a public market for the Company's Common
Stock on the date of exercise, by surrender of shares of the Company's
Common Stock, provided that if such shares were acquired upon exercise of
an incentive stock option, the Optionee must have first satisfied the
holding period requirements under Section 422(a)(1) of the Code. In this
case payment shall be made as follows:
i. Optionee shall deliver to the Secretary of the Company a
written notice which shall set forth the portion of the purchase price
the Optionee wishes to pay with Common Stock, and the number of shares
of such Common Stock the Optionee intends to surrender pursuant to the
exercise of this Option, which shall be determined by dividing the
aforementioned portion of the purchase price by the average of the
last reported bid and asked prices per share of Common Stock of the
Company, as reported in THE WALL STREET JOURNAL, for the day on which
the notice of exercise is sent or delivered;
ii. Fractional shares shall be disregarded and the Optionee shall
pay in cash an amount equal to such fraction multiplied by the price
determined under subparagraph i above;
iii. The written notice shall be accompanied by a duly endorsed
blank stock power with respect to the number of Shares set forth in
the notice, and the certificate(s)
Page 2
<PAGE>
representing said Shares shall be delivered to the Company at its
principal offices within three (3) working days from the date of the
notice of exercise;
iv. The Optionee hereby authorizes and directs the Secretary of
the Company to transfer so many of the Shares represented by such
certificate(s) as are necessary to pay the purchase price in
accordance with the provisions herein;
v. If any such transfer of Shares requires the consent of the
California Commissioner of Corporations or of some other agency under
the securities laws of any other state, or an opinion of counsel for
the Company or Optionee that such transfer may be effected under
applicable Federal and state securities laws, the time periods
specified herein shall be extended for such periods as the necessary
request for consent to transfer is pending before said Commissioner or
other agency, or until counsel renders such an opinion, as the case
may be. All parties agree to cooperate in making such request for
transfer, or in obtaining such opinion of counsel, and no transfer
shall be effected without such consent or opinion if required by law;
and
vi. Notwithstanding any other provision herein, the Optionee shall
only be permitted to pay the purchase price with Shares of the
Company's Common Stock owned by him as of the exercise date in the
manner and within the time periods allowed under 17 CFR Section
240.16b-3 promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), as such regulation is presently constituted,
as it is amended from time to time, and as it is interpreted now or
hereafter by the Securities and Exchange Commission.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
The number of Shares covered by this Option shall be adjusted in accordance with
the provisions of Section 11 of the Plan in the event of changes in the
capitalization or organization of the Company, or if the Company is a party to a
merger or other corporate reorganization.
7. TERM OF OPTION
This Option may not be exercised more than six (6) years from the date of grant
of this Option, as set forth below, and may be exercised during such term only
in accordance with the Plan and the terms of this Option.
8. NOT EMPLOYMENT CONTRACT
Nothing in this Agreement or in the Plan shall confer upon the Optionee any
right to continue in the employ of the Company or shall interfere with or
restrict in any way the rights of the Company, which are hereby expressly
reserved, to discharge the Optionee at any time for any reason whatsoever, with
or without cause, subject to the provisions of applicable law. This is not an
employment contract.
9. INCOME TAX WITHHOLDING
a. The Optionee authorizes the Company to withhold in accordance with
applicable law from any compensation payable to him or her any taxes required to
be withheld by Federal, state or local laws as a result of the exercise of this
Option. The Optionee agrees to notify the Company immediately in the event of
any disqualifying disposition (within the meaning of Section 421(b) of the Code)
of the shares acquired upon exercise of an incentive stock option. Furthermore,
in the event of any determination that the Company has failed to withhold a sum
sufficient to pay all withholding taxes due in connection with the exercise of
this Option, or a disqualifying disposition of the shares acquired upon exercise
of an incentive stock option, the Optionee agrees to pay the Company the amount
of such deficiency in cash within five (5) days after receiving a written demand
from the Company to do so, whether or not Optionee is an employee of the Company
at that time.
b. At such time as the Optionee is required to pay to the Company an amount
with respect to tax withholding obligations as set forth in subparagraph a, the
Optionee may elect prior to the date the amount of such withholding tax is
determined 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 in accordance with the provisions of Section 9.g of the
Plan.
c. Any adverse consequences incurred by an 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.
Page 3
<PAGE>
Dated the _____ day of ________________________.
MISSION WEST PROPERTIES
By __________________________________________________
Duly authorized on behalf of the Board of Directors
The Optionee acknowledges receipt of copies of the Plan, the Restricted Stock
Purchase Agreement and the exhibits referred to therein, and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. The Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Committee upon any questions arising under the Plan.
_____________________________________________
Optionee
CONSENT OF SPOUSE
I, _________________________, spouse of the Optionee who executed the foregoing
Agreement, hereby agree that my spouse's interest in the shares of Common Stock
subject to said Agreement shall be irrevocably bound by the Agreement's terms.
I further agree that my community property interest in such shares, if any,
shall similarly be bound by said Agreement and that such consent is binding upon
my executors, administrators, heirs and assigns. I agree to execute and deliver
such documents as may be necessary to carry out the intent of said Agreement and
this consent.
_____________________________________________
Spouse
Page 4
<PAGE>
[MISSION WEST PROPERTIES LOGO] NON-EMPLOYEE DIRECTOR GRANT PURSUANT TO
1997 STOCK OPTION PLAN
________________________, OPTIONEE:
Mission West Properties, a California corporation (the "Company"), hereby grants
to Optionee, an option ("Option") to purchase a total of __________________
(_______) shares of Common Stock ("Shares") of the Company, at the price set
forth herein, and in all respects subject to the terms, definitions and
provisions of the Company's 1997 Stock Option Plan ("Plan"), which is
incorporated herein by this reference.
1. NATURE OF THE OPTION
This Option is intended to be a nonstatutory option and is NOT an incentive
stock option within the meaning of Section 422 of the Internal Revenue Code of
1986 ("Code").
2. OPTION PRICE
The Option Price is _______________ ($________) for each share of Common Stock,
which is one hundred percent (100%) of the fair market value of the Common Stock
as determined on the date of grant of this Option.
3. VESTING AND EXERCISE OF OPTION
This Option shall be exercisable during its term in accordance with the
provisions of Section 5 and Section 9 of the Plan as follows:
a. VESTING AND RIGHT TO EXERCISE
i. Any Option granted to a Non-Employee Director shall vest and 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
only while the Non-Employee Director remains a director.
ii. Any Option granted hereunder to any person other than an Outside
Director 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.
iii. This Option may not be exercised for a fraction of a share or for
fewer than ten (10) shares.
iv. In the event of the Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option
shall be governed by Section 9(b) of the Plan.
b. METHOD OF EXERCISE
This Option shall be exercisable by notifying the Company in writing of the
election to exercise the Option, the number of Shares in respect of which
the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such Shares
as may be required by the Company pursuant to the provisions of the Plan.
Such written notice shall be signed by the Optionee and shall be delivered
in person or by certified mail to the Secretary of the Company. The
written notice shall be accompanied by payment in full of the aggregate
purchase price of the shares purchased. The certificate or certificates
for shares of stock as to which the Option is exercised shall be registered
in the name of the Optionee.
c. RESTRICTIONS ON EXERCISE
This Option may not be exercised if the issuance of such shares upon such
exercise or the method of payment of consideration for such shares would
constitute a violation of any applicable Federal or state securities law or
any other law or regulation. Furthermore, the method and manner of payment
of the Option Price will be subject to the rules under Part 207 of Title 12
of the Code of Federal Regulations ("Regulation G") as promulgated by the
Federal Reserve Board if such rules apply to the Company at the date of
exercise. As a condition to the exercise of this Option, the Company may
require the Optionee to make any representation or warranty to the Company
at the time of exercise of the Option as in the opinion of legal counsel
for the Company may be required by any applicable law or regulation,
including the execution and delivery of an appropriate representation
statement. Accordingly, the stock certificates for the Shares issued upon
exercise of this Option may bear appropriate legends restricting transfer.
Page 1
<PAGE>
4. NON-TRANSFERABILITY OF OPTION
This Option may not be transferred in any manner otherwise than by will or by
the laws of descent and distribution and may be exercised during the lifetime of
the Optionee only by him, 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. The terms of this Option shall be binding upon
the executors, administrators, heirs and successors of the Optionee.
5. METHOD OF PAYMENT
Payment of the exercise price shall be by any of the following, or a combination
thereof, at the election of the Optionee:
i. cash;
ii. check;
iii. wire transfer;
iv. promissory note;
v. authorization to retain from the total number of shares as to which
the Option is exercised that number of shares having a fair market value on
the date of exercise equal to the exercise price for the total number of
shares as to which the Option is exercised;
vi. in lieu of delivery of a cash payment for the purchase price of the
Shares for which the Option is exercised, by delivery of a sell order to a
broker for the shares being purchased and an agreement to pay the purchase
price for the share being purchased (or irrevocable instructions to the
Optionee's broker to deliver to the Company the amount of sale proceeds
required to pay the exercise price) on or before the settlement date for
the sale of such shares; or
vii. by surrender of other shares of the Company's Common Stock that:
1/ either have been owned by the Optionee for more than six (6)
months on the date of surrender or were not acquired, directly or
indirectly, from the Company; and
2/ have a fair market value (within the meaning of Section 8(a)
of the Plan) on the date of surrender equal to the aggregate Option
Price of the Shares as to which the Option is being exercised.
Notwithstanding any other provision herein, the Optionee shall only be
permitted to pay the purchase price with shares of the Company's Common
Stock owned by him as of the exercise date in the manner and within the
time periods allowed by Rule 16b-3 under the Exchange Act as such
regulation is presently constituted, as it is amended from time to time,
and as it is interpreted now or hereafter by the Securities and Exchange
Commission.
6. TERM OF OPTION
The term of each Option granted under the Plan shall be six (6) years from the
date of grant of this Option, as set forth below, and may be exercised during
such term only in accordance with the Plan and the terms of this Option.
7. NO RIGHT TO SERVE AS A DIRECTOR
Nothing in this Agreement or in the Plan shall confer upon the Optionee any
right with respect to continuation of service as a Director or nomination to
serve as a Director with the Company or shall interfere with or restrict in any
way the rights of the Company, which are hereby expressly reserved, to terminate
the Optionee's directorship at any time. This is not an employment contract.
Page 2
<PAGE>
8. TAXATION UPON EXERCISE OF OPTION
Optionee understands that, upon exercise of this Option, he will recognize
income for tax purposes in an amount equal to the excess of the then fair market
value of the Shares purchased over the exercise price paid for such Shares.
(Since the Optionee is subject to Section 16(b) of the Exchange Act, the
measurement and timing of such income may be deferred under certain
circumstances, and the Optionee is advised to contact a tax advisor concerning
the desirability of filing an 83(b) election in connection with the exercise of
the Option.) Upon a resale of such Shares by the Optionee, any difference
between the sale price and the fair market value of the Shares on the date of
exercise of the Option to the extent not included in income as described above,
will be treated as capital gain or loss.
Dated the _____ day of ________________________.
MISSION WEST PROPERTIES
By ____________________________________________________
Duly authorized on behalf of the Board of Directors
The Optionee acknowledges receipt of copies of the Plan, the Restricted Stock
Purchase Agreement and the exhibits referred to therein, and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. The Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Committee upon any questions arising under the Plan.
_____________________________________________
Optionee
CONSENT OF SPOUSE
I, _________________________, spouse of the Optionee who executed the foregoing
Agreement, hereby agree that my spouse's interest in the shares of Common Stock
subject to said Agreement shall be irrevocably bound by the Agreement's terms.
I further agree that my community property interest in such shares, if any,
shall similarly be bound by said Agreement and that such consent is binding upon
my executors, administrators, heirs and assigns. I agree to execute and deliver
such documents as may be necessary to carry out the intent of said Agreement and
this consent.
_____________________________________________
Spouse
Page 3
<PAGE>
ACQUISITION AGREEMENT
DATED AS OF MAY 14, 1998
among
MISSION WEST PROPERTIES,
CERTAIN PARTNERSHIPS AND THE BERG GROUP
(AS DEFINED THEREIN).
<PAGE>
ACQUISITION AGREEMENT
This Acquisition Agreement is made and entered into as of May __, 1998, by
and among Mission West Properties, a California corporation (the "Company"),
Mission West Properties, L.P., a Delaware limited partnership ("MWP"), Berg
Family Partners, L.P., a Delaware limited partnership ("MWP I"), Berg & Berg
Developers, L.P., a Delaware limited partnership ("MWP II"), Kontrabecki
Associates, a California limited partnership ("MWP III"), and each of the
partners of the respective partnerships (the "Partners"), holders of equity
interests in the other entities listed in Appendix I hereto, and certain other
persons identified on exhibits and schedules hereto.
RECITALS
WHEREAS, the Company, a publicly owned corporation which desires to
qualify as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended (the "Code"), for the tax year ending December 31,
1998, desires to rapidly acquire a substantial portfolio of San Francisco Bay
Area properties used primarily for office, research and development, light
manufacturing and assembly ("R&D Properties);
WHEREAS, MWP, formerly known as Berg Properties, L.P., owns and operates
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the R&D Properties listed on Schedule 1 hereto (the "MWP Properties"); MWP I
owns and operates the R&D Properties listed on Schedule 2 hereto (the "MWP I
Properties"); MWP II owns and operates the R&D Properties listed on Schedule 3
hereto (the "MWP II Properties");
WHEREAS, John Kontrabecki ("Kontrabecki") is the general partner of three
limited partnerships, including MWP III, that own R&D Properties (the
"Kontrabecki Partnerships"). MWP III owns and operates the R&D Properties listed
on Schedule 4 hereto (the "MWP III Properties");
WHEREAS, the Kontrabecki Partnerships and the individuals and other
entities listed on Schedule 5 hereto (the "Contributing Entities") own and
operate the R&D Properties set forth opposite such Contributing Entity's name on
Schedule 5 (the "Contributed Properties");
WHEREAS, the Company intends to acquire a general partnership interest in
each of MWP, MWP I, MWP II and MWP III (collectively, the "Operating
Partnership") in exchange for Thirty-Five Million Two Hundred Thousand Dollars
($35,200,000) (the "Berg Acquisition");
WHEREAS, in order to raise funds for the Berg Acquisition, the Company
intends to issue and sell 5,800,000 shares of its Common Stock ("Common Stock")
for $26,100,000 to a group of private investors introduced to the Company by
Ingalls & Snyder LLC as placement agent and intends to issue and sell 695,058
shares of its Common Stock for $2,227,761 in cash and such other consideration
as the Company deems acceptable to certain additional investors in a separate
private placement (collectively, the "Private Placement");
WHEREAS, each of MWP, MWP I, MWP II, and MWP III holds and will hold its
Properties subject to certain secured indebtedness and is and will be liable
with respect to one or more lines of credit, some or all of which have been
guaranteed or assumed proportionately by the existing partners therein and which
they will continue to assume or guaranty in the same proportion after the
transactions contemplated by this Agreement;
WHEREAS, in connection with the acquisition by the Company of the general
partnership interest in the Operating Partnership, each of MWP, MWP I, MWP II
and MWP III intends to issue units of limited partnership interest (the "L.P.
Units") in each respective limited partnership in exchange for the existing
interests in such partnerships in accordance with the schedule attached hereto;
WHEREAS, following the Berg Acquisition, each of the existing general
partners of MWP, MWP I, MWP II and MWP III intends to resign as the general
partner and become a limited partner in their respective limited partnerships
through the acquisition of additional L.P. Units in exchange for such interest
as a general partner;
WHEREAS, following the Berg Acquisition, the Company will manage the
Operating Partnership as a single enterprise while maintaining separate books
and records for each of MWP, MWP I, MWP II, and MWP III, and each of the
partners therein shall share only in the income or loss of that partnership for
federal and state income tax purposes;
WHEREAS, at the closing for the Berg Acquisition, the Operating
Partnership intends to enter into an agreement (the "Pending Projects
Acquisition Agreement") regarding the acquisition by the Company or the
Operating Partnership of certain pending R&D Property developments in exchange
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for the issuance to the owners of such R&D Properties for cash or L.P. Units,
when each such project has been completed and fully leased;
WHEREAS, at the closing for the Berg Acquisition, certain of the Partners
will grant to the Company and the Operating Partnership the right to purchase
certain land holdings of such Partners in exchange for cash, in the aggregate,
pursuant to the terms and conditions of an option agreement (the "Berg Land
Holdings Option Agreement");
WHEREAS, upon consummation of the Berg Acquisition, the Company intends to
reincorporate in the State of Maryland through a merger (the "Reincorporation
Merger") with and into its wholly-owned subsidiary, Mission West Properties,
Inc. ("Mission West-Maryland");
WHEREAS, in connection with the Berg Acquisition and the Reincorporation
Merger, the Company and certain Partners and their affiliates referred to as the
"Berg Group" intend to agree to certain corporate governance and management
covenants; and
WHEREAS, promptly following the consent of the shareholders of the Company
to the transactions contemplated hereby, the parties hereto wish to consummate
the transactions contemplated hereby, upon all of the terms and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
conditions and promises hereinafter set forth, the parties agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms have the meanings specified or
referred to in this Section 1.
1.1 "AFFILIATE" shall have the meaning ascribed to such term in Rule 12b-2
under the Exchange Act.
1.2 "APPLICABLE LAWS" shall have the meaning set forth in Section 7.8.
1.3 "AMEX" shall mean the American Stock Exchange.
1.4 "ARTICLES OF INCORPORATION" shall mean the Articles of Incorporation of
Mission West-Maryland attached as Exhibit A to the Merger Agreement.
1.5 "AVAILABLE CASH" shall mean, with respect to the applicable period of
measurement (i.e., any period beginning on the first day of the fiscal
year, quarter or other period commencing immediately after the last day of
the fiscal year, quarter or other applicable period for purposes of the
prior calculation of Available Cash for or with respect to which a
distribution has been made, and ending on the last day of the fiscal year,
quarter or other applicable period immediately preceding the date of the
calculation) the excess, if any, as of such date, of:
(a) the gross cash receipts of all of the Constituent Partnerships
combined for such period from all sources whatsoever, including,
without limitation, the following:
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(i) all rents, revenues, income and proceeds derived from
operations, including, without limitation, distributions received
from any Entity in which the Constituent Partnership has an
interest;
(ii) all proceeds and revenues received on account of any sales
of property or as a refinancing of or payments of principal,
interest, costs, fees, penalties or otherwise on account of any
borrowings or loans made by the Constituent Partnership or
financings or refinancings of any property of the Constituent
Partnership;
(iii)the amount of any insurance proceeds and condemnation awards
received by either Constituent Partnership; and
(iv) all capital contributions or loans received by the
Constituent Partnership from its partners:
(b) over the sum of:
(i) all operating costs and expenses, including costs relating to
tenant improvements, brokerage expenses, taxes and other expenses
of the Properties, of the Partnership and capital expenditures
made during such period (without deduction, however, for any
capital expenditures, charges for Depreciation or other expenses
not paid in cash or expenditures from reserves described in
(viii) below);
(ii) all costs and expenses expended or paid during such period
in connection with the sale or other disposition, or financing or
refinancing, of property of the Partnership or the recovery of
insurance or condemnation proceeds;
(iii)all fees provided for under this Agreement;
(iv) all debt service, including principal and interest, paid
during such period on all indebtedness (including under any line
of credit);
(v) all capital contributions, advances, reimbursements or
similar payments made to any person in which a Partnership has an
interest;
(vi) all loans made by the Constituent Partnership in accordance
with the terms of this Agreement;
(vii) all reimbursements to the General Partner or its Affiliates
during such period; and
(viii) any new reserves or increases in reserves reasonably
determined by the General Partner in its sole discretion to be
necessary for working capital, capital improvements, payments of
periodic expenditures, debt service or other purposes of the
Operating Partnership or any Person in which the Partnership has
an interest.
1.6 "BERG GROUP" means Carl E. Berg, Clyde J. Berg, the members of their
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Immediate Family, and any Entity which is an Affiliate of either Carl
E. Berg or Clyde J. Berg (excluding any Constituent Partnership and
the Company).
1.7 "BERG LAND HOLDINGS OPTION AGREEMENT" shall mean the agreement among
the Company, the Operating Partnership and certain members of the
Berg Group substantially in the form attached hereto as Exhibit A.
1.8 "BYLAWS" shall mean the Bylaws of Mission West-Maryland attached as
Exhibit B to the Merger Agreement.
1.9 "CHARTER" shall have the meaning set forth in Rule 405 under the
Securities Act.
1.10 "CLOSING" shall have the meaning set forth in Section 3.
1.11 "CLOSING DATE" shall mean the date and time of the Closing.
1.12 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
1.13 "COMPANY" shall mean Mission West Properties, a California
corporation and its successor corporation, Mission West Properties,
Inc., a Maryland corporation, in the event that the Reincorporation
Merger is approved.
1.14 "COMPANY SEC FILINGS" shall have the meaning set forth in Section
6.6.
1.15 "COMPANY FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 6.6.
1.16 "CONSTITUENT PARTNERSHIP" shall mean any of the four limited
partnerships comprising the Operating Partnership.
1.17 "CONTRIBUTED PROPERTIES" shall mean those R&D Properties listed on
Schedule 5.
1.18 "CONTRIBUTING ENTITY" shall mean an Entity which is contributing any
of the Contributed Properties to the Operating Partnership as part of
the Berg Acquisition.
1.19 "CONTRIBUTING ENTITIES" shall mean all such Entities.
1.20 "CONTRIBUTION AMOUNT" shall mean Thirty-Five Million Two Hundred
Thousand Dollars ($35,200,000) payable to the Operating Partnership
by the Company at the closing of the Berg Acquisition.
1.21 "ENTITY" shall mean any general partnership, limited partnership,
corporation, joint venture, trust, business trust, real estate
investment trust, limited liability company, cooperative or
association.
1.22 "EQUITY SECURITIES" shall have the meaning set forth in Rule 405
under the Securities Act.
1.23 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
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1.24 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
1.25 "EXCHANGE RIGHTS AGREEMENT" shall mean the agreement between the
Company and the Limited Partners with respect to the exchange of L.P.
Units for shares of Common Stock of the Company, in the form attached
hereto as Exhibit B.
1.26 "EXISTING PROPERTIES" shall mean the R&D Properties held by MWP, MWP
I, and MWP II immediately prior to the closing of the Berg
Acquisition.
1.27 "FUNDS FROM OPERATIONS" shall mean funds from operations as
determined in accordance with the standards established by the Board
of Governors of NAREIT in its March 1995 White Paper.
1.28 "GOVERNMENTAL BODY" shall mean any domestic or foreign national,
state or municipal or other local government or multi-national body,
any subdivision, agency, commission or authority thereof, or any
quasi-governmental or private body exercising any regulatory or
taxing authority thereunder.
1.29 "IMMEDIATE FAMILY" means, with respect to any Person,
such Person's spouse, parents, parents-in-law, children,
nephews, nieces, brothers, sisters, brothers-in-law,
sisters-in-law, stepchildren, sons-in-law and daughters-in-law
or any trust solely for the benefit of any of the foregoing
family members whose sole beneficiaries include the foregoing
family members.
1.30 "INDEMNIFIED PARTIES" shall have the meaning set forth in Section
8.7(b).
1.31 "INDEPENDENT DIRECTOR" shall mean any director of the Company who is
not a member of the Berg Group.
1.32 "LEASES" shall mean the leases for the Properties to be set forth on
Schedule 7.2(a).
1.33 "LIENS" means, with respect to any property of any Person, (i) any
mortgage, deed of trust, lien, pledge, encumbrance, charge,
restriction or security interest in or on such asset, (ii) the
interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to
such asset and (iii) in the case of securities, any purchase option,
call or similar right of a third party with respect to such
securities.
1.34 "LIMITED PARTNER" shall mean any limited partner in the Operating
Partnership after the Closing Date.
1.35 "MATERIAL ADVERSE EFFECT" shall mean any change or effect that is
materially adverse to the business, assets, properties, results of
operation or financial condition.
1.36 "MERGER AGREEMENT" shall mean the agreement to be entered into
between the Company and Mission West-Maryland to effect the
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Reincorporation Merger, subject to Shareholder Approval,
substantially in the form attached to this Agreement as Exhibit C.
1.37 "OPERATING PARTNERSHIP" shall mean MWP, MWP I, MWP II, and MWP III,
collectively.
1.38 "OPERATING PARTNERSHIP AGREEMENT" shall mean the agreement of limited
partnership for MWP, MWP I, MWP II and MWP III substantially in the
form attached to this Agreement as Exhibit D.
1.39 "PENDING PROJECTS ACQUISITION AGREEMENT" shall mean the agreement
among the Company, the Operating Partnership, and certain members of
the Berg Group substantially in the form attached hereto as Exhibit
E.
1.40 "PERSON" shall mean an individual or an Entity.
1.41 "PROPERTIES" shall mean the Existing Properties and the Contributed
Properties.
1.42 "PROPOSED TRANSACTIONS" shall mean (i) the Berg Acquisition; (ii) the
Private Placement; and (iii) the Reincorporation Merger.
1.43 "PROTECTIVE PROVISIONS EXPIRATION DATE" shall mean the date on which
the members of the Berg Group own less than 15% of the Equity
Securities of the Company, treating all L.P. Units in the Operating
Partnership owned by such members as Common Stock outstanding for
this purpose.
1.44 "PROXY STATEMENT/PROSPECTUS" shall mean the proxy
statement/prospectus of the Company which forms a part of the
S-4 Registration Statement and which will be mailed to the
Company's shareholders in connection with obtaining Shareholder
Approval at the Special Meeting.
1.45 "RELATED AGREEMENTS" shall mean the Operating Partnership Agreement,
the Exchange Rights Agreement, the Berg Land Holdings Option
Agreement, and the Pending Projects Acquisition Agreement.
1.46 "REQUIRED CONSENTS" shall mean the licenses, authorizations,
consents, orders and approvals to be listed on Schedule 6.5 and such
other material licenses, authorizations, consents, orders and
approvals that are necessary for the consummation of the Proposed
Transactions.
1.47 "REQUIRED DIRECTORS" shall mean a majority of the directors of the
Company including Carl E. Berg or an individual designated by Carl E.
Berg to replace him on the board of directors.
1.48 "S-4 REGISTRATION STATEMENT" shall mean the registration statement on
SEC Form S-4 to be filed by the Company with respect to the
Reincorporation Merger.
1.49 "SEC" shall mean the Securities and Exchange Commission.
1.50 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
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1.51 "SHAREHOLDER APPROVAL" shall mean the vote of the shareholders of the
Company approving a Proposed Transaction at the Special Meeting.
1.52 "SPECIAL MEETING" shall mean the Special Meeting of Shareholders of
the Company for which proxies will be solicited for approval of all
of the Proposed Transactions pursuant to the Proxy Statement.
1.53 "SUBSIDIARIES" shall mean MIT Realty, Inc., Mission West Executive
Aircraft Center, Inc., and any other subsidiary of the Company as of
the Closing Date.
1.54 "TOTAL MARKET CAPITALIZATION" shall mean the sum of the aggregate
market value of the outstanding shares of Common Stock, assuming the
exchange of all L.P. Units for shares of Common Stock, plus the
aggregate market value of all publicly traded Equity Securities of
the Company (other than Common Stock) which may be outstanding from
time to time, plus the Company's total outstanding debt.
1.55 "VOTING SECURITIES" means any Equity Security within the meaning of
SEC Rule 405 which entitles the holder thereof to vote on all matters
submitted for a vote of equity holders by the issuer of such Equity
Security, including the right to vote for directors in the case of a
corporation.
2. THE PARTIES.
2.1 THE COMPANY. The Company is a publicly owned corporation which has its
Common Stock listed on the AMEX. The Company is incorporated in California
as an infinite life corporation.
2.2 THE OPERATING PARTNERSHIP AND ITS PARTNERS. As of the date hereof, the
Constituent Partnerships are three (3) Delaware limited partnerships, MWP,
MWP I, MWP II, and one California limited partnership, MWP III. Such
limited partnerships hold the Existing Properties listed in Schedules 1, 2,
3 and 4, respectively. The general and limited partners of each of MWP, MWP
I, MWP II and MWP III are set forth on Appendix I hereto.
2.3 THE CONTRIBUTING ENTITIES. The Contributing Entities consist of the
eight Persons set forth on Schedule 5, including MWP III.
2.4 CARL E. BERG AND THE BERG GROUP. Carl E. Berg and the other members of
the Berg Group, as identified on Appendix I are the promoters of the
Operating Partnership and, collectively, are principal Affiliates of the
Company. Some of the Berg Group members also will be limited partners of
the Operating Partnership.
3. THE TRANSACTIONS SUBJECT TO THIS AGREEMENT.
3.1 AGREEMENT TO FORM THE OPERATING PARTNERSHIP. Each of the Constituent
Partnerships hereby agrees to adopt the Operating Partnership Agreement and
to be managed and operated as a participant in the Operating Partnership.
Subject to the consummation of the Berg Acquisition, the Company shall
manage the Operating Partnership, in its capacity as general partner of
each of the Constituent Partnerships, in accordance with the principles and
procedures contained in Section 9.7. Upon the Closing, all of the limited
partnership interests and the existing general partner interests in each of
the Constituent Partnerships shall be converted automatically into the
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number of L.P. Units set forth opposite the name of each Constituent
Partnership on Schedule 6; MWP III shall elect to become a Delaware limited
partnership pursuant to Section 17-217(b) of the Delaware Revised Uniform
Limited Partnership Act; and the existing limited partnership agreement of
each of the limited partnerships shall be amended and restated to
substantially conform to the provisions of the Operating Partnership
Agreement.
3.2 ACQUISITION OF THE CONTRIBUTED PROPERTIES. Subject to the terms and
conditions hereof and in reliance upon the representations, warranties, and
agreements contained herein, at the Closing, the Operating Partnership
shall acquire the Contributed Properties and the Contributing Entities
(other than MWP III) shall convey their respective Contributed Properties
to MWP. In exchange each Contributing Entity shall be entitled to receive
that number of L.P. Units set forth opposite its name on Schedule 5 at the
Closing.
3.3 THE BERG ACQUISITION.
(a) Subject to the terms and conditions hereof and in reliance upon
the representations, warranties, and agreements contained herein, at
the Closing: (i) the Company shall acquire the general partnership
interests in each of the Constituent Partnerships for the total amount
of Thirty-Five Million Two Hundred Thousand Dollars ($35,200,000)
payable in cash to each of the Constituent Partnerships as set forth
below (the "Contribution Amount"); (ii) Berg & Berg Enterprises, Inc.,
Berg Family Partners LLC, Berg & Berg Developers LLC, and John
Kontrabecki shall resign as the general partner of MWP, MWP I, MWP II,
and MWP III, respectively; and (iii) the Company shall receive a
general partner interest equal to 10.91% of the capital, profits,
losses and distributions of each Constituent Partnership (or 10.91% of
the Operating Partnership) in accordance with the terms of the
Operating Partnership Agreement. The capital contribution and amount
payable by the Company for its general partner interest in each of the
Constituent Partnerships at the Closing is equal to the following
percentages of the total Contribution Amount, subject to adjustment as
provided in Section 3.3(b), as follows:
<TABLE>
<CAPTION>
PARTNERSHIP PERCENTAGE
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MWP 24.25529%
MWP I 19.01593%
MWP II 53.87997%
MWP III 2.84881%
</TABLE>
(b) At or prior to the Closing, the Operating Partnerships may obtain
new loans or refinance existing debt of the Constituent Partnerships,
which will be, or is secured by, certain Existing Properties and/or
Contributed Properties. The amount of debt encumbering such Properties
will affect the value of each of the Constituent Partnerships and the
percentage of the total Contribution Amount allowable to each such
Partnership. Accordingly, the parties agree that proportional
adjustments will be made in the percentages set forth in the table in
Section 3(a) to reflect the difference between the amount of
indebtedness for borrowed funds which encumbers the Properties of a
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Constituent Partnership as of the Closing Date and the amount of such
indebtedness as of the date of this Agreement. Furthermore, the
parties acknowledge and agree that for income tax purposes, limited
partners in the Operating Partnership, and the partners or other
equity owners in such limited partners have assumed or guaranteed, or
will wish to assume or guaranty certain indebtedness of their
respective Constituent Partnerships. All parties acknowledge and agree
that all limited partners or owners of interests therein shall be
entitled to assume or guaranty indebtedness of the Operating
Partnership as of the Closing Date in such proportions as they
request.
4. THE CLOSING.
4.1 THE CLOSING DATE. Subject to Shareholder Approval, the closing of
the transactions described in Sections 3.1, 3.2, and 3.3 (the
"Closing") shall take place at the offices of Berg & Berg Enterprises,
Inc., 10050 Bandley Drive, Cupertino, California at 10:00 a.m.,
P.D.T., on the last business day of the calendar month in which the
Special Meeting is held.
4.2 DELIVERIES. On the Closing Date: (i) the Company shall pay the
Contribution Amount to the Operating Partnership in immediately
available funds for the credit of each of the Constituent Partnerships
as provided in Section 3.3, and the Company shall receive the general
partner interest in each of the Constituent Partnerships and such
certificates representing the same as shall be available; (ii) the
Contributing Entities shall deliver good and marketable title to the
Contributed Properties by grant deeds executed and acknowledged by the
applicable Contributing Entity, and the Operating Partnership shall
deliver to the Contributing Entities certificates representing the
number of L.P. Units set forth opposite each respective Contributing
Entity's name on Schedule 5 hereto; (iii) the parties to the Pending
Projects Acquisition Agreement and the Berg Land Holdings Option
Agreement shall deliver duly executed copies of the agreements to each
party thereto; (iv) the Company and all other partners in each of the
Constituent Partnerships shall sign and deliver the Operating
Partnership Agreement to representatives of the respective parties at
the Closing; and (v) the Company, each Constituent Partnership and all
of the Limited Partners shall sign and deliver the Exchange Rights
Agreement to the representatives of the respective parties at the
Closing; and (vi) each of the general partners in each of the
Constituent Partnerships shall execute and deliver a certificate of
amendment of certificate of limited partnership designating the
Company as the new sole general partner in the partnership.
4.3 ADJUSTMENTS. The amounts receivable by or payable to the
Contributing Entities (other than MWP III) at the Closing based upon
the pro rations required under this Section 4.3 shall be determined
and the net amount shall be paid in cash at the Closing by or to the
Contributing Entity that owns the particular Contributed Property to
which the adjustment relates. The items to be pro rated as of the
Closing Date include the following: real estate taxes (on the basis of
the due dates of the tax bills for the period for which such taxes are
assessed) on the Contributed Properties, personal property taxes on
the Personal Property, minimum water and sewer rentals, rents,
including without limitation, expense pass-throughs, percentage rents,
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income from and expenses for electricity and other sums paid by
tenants, licensees and concessionaires and collected by the
Contributing Entities prior to the Closing Date under the Leases
covering the Contributed Properties, payments due under service
agreements which are to be assigned to the benefit of the Operating
Partnership, prepaid license fees and other charges for licenses and
permits for its Contributed Properties, which will remain in effect
for the benefit of the Operating Partnership after the Closing Date,
rental under any ground lease, municipal rubbish removal charges,
lease rejection awards made in any bankruptcy proceedings of a tenant,
and prepaid insurance premiums for insurance which will remain in
effect for the benefit of the Operating Partnership after the Closing
Date, if any, shall be apportioned pro rata between the Contributing
Entity and the Operating Partnership, on a per diem basis as of
midnight on the day before the Closing Date, so that the Contributing
Entity shall bear all expenses with respect to its Contributed
Properties and benefit from all items of income with respect to its
Contributed Properties through the day before the Closing Date. To the
extent that the amounts of the items to be adjusted are not reasonably
ascertainable as of the Closing Date or there are any other items
which should properly be allocated at that time, they shall be
adjusted or taken into account by the affected Contributing Entity and
the Operating Partnership as promptly after the Closing Date as the
amounts thereof are ascertained.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO OBLIGATIONS OF ALL PARTIES. The obligations of the
parties to this Agreement to effect the Closing shall be subject to
the satisfaction at or prior to the Closing of the following
conditions:
(a) APPROVAL OF SHAREHOLDERS. The transactions contemplated by
this Agreement shall have received Shareholder Approval under
applicable California law, the Company's articles of
incorporation and bylaws, and the rules of AMEX.
(b) NO INJUNCTION. No permanent or preliminary injunction or
restraining order or other order by any court or other
Governmental Body of competent jurisdiction or other legal
restraint or prohibition preventing consummation of the Proposed
Transactions shall be in effect.
(c) APPROVALS AND CONSENTS. All Required Consents shall have been
obtained and shall be in full force and effect.
(d) CONSUMMATION OF THE PRIVATE PLACEMENTS. The Company shall
have consummated the Private Placement.
(e) OFFERING OF L.P. UNITS. The offer, sale and issuance of the
L.P. Units to the Company and the Contributing Entities shall
have complied with Rule 506 promulgated under the Securities Act
and applicable blue sky and state securities laws.
5.2 CONDITIONS TO OBLIGATIONS OF THE CONTRIBUTING ENTITIES. The obligations
of the Contributing Entities to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the following conditions:
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(a) REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The representations
and warranties of the Company and each of the Constituent Partnerships
set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date
as though made at such time, except for such changes permitted or
contemplated by the terms of this Agreement and except insofar as any
such representations and warranties relate solely to a particular date
or period, in which case they shall be true and correct in all
material respects on the Closing Date with respect to such date and
period, and the Company shall have performed and complied in all
material respects with all obligations, covenants and agreements
contained in this Agreement required to be performed and complied with
by it at or prior to the Closing Date. (b) ADDITIONAL DOCUMENTS. The
Company shall have delivered or caused to be delivered to the
Contributing Entities all other documents required to be delivered to
them pursuant to this Agreement.
(c) NO MATERIAL ADVERSE CHANGE. Since the date hereof nothing shall
have occurred which, individually or in the aggregate, has had, or is
reasonably likely to have, a Material Adverse Effect on the Company,
or the Properties.
(d) CASH CONTRIBUTION. The Company shall have contributed to the
Operating Partnership a total of Thirty-Five Million Two Hundred
Thousand Dollars ($35,200,000).
5.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to effect the Closing shall be subject to the satisfaction at or
prior to the Closing of the following conditions:
(a) REPRESENTATIONS, WARRANTIES AND AGREEMENTS. (i) The
representations and warranties of the Constituent Partnerships and the
Contributing Entities set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made at such time, except for such
changes permitted or contemplated by the terms of this Agreement, and
except insofar as any such representations and warranties relate
solely to a particular date or period, in which case they shall be
true and correct in all material respects on the Closing Date with
respect to such date and period and (ii) the Constituent Partnerships,
the Contributing Entities and their respective partners, as the case
may be, shall have performed and complied in all material respects
with all obligations, covenants and agreements contained in this
Agreement required to be performed and complied with by them at or
prior to the Closing Date. Prior to the Closing Date, each of the
Contributing Entities and Owners shall submit the following
representation and warranty schedules for the Company's approval
concerning the consistency of the information provided therein with
the representations and warranties made by each of such parties under
this Agreement:
REPRESENTATION AND WARRANTY SCHEDULES
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5.4(a) Permitted Encumbrances
<PAGE>
6.5 Required Consents
6.11 ERISA Plans
6.13 Certain Changes or Events
7.2(a) Leases
7.2(c) Rent Roll
7.2(d) Tenant Security Deposits
7.5(b) Non-Qualified Income
7.6 Insurance Policies
</TABLE>
(b) WITHDRAWALS. At the Closing, each of BBE, Berg Family Partners
LLC, Berg & Berg Developers LLC, and Kontrabecki shall deliver a
letter to the Company declaring their resignations as general partners
from MWP, MWP I, MWP II and MWP III, respectively, and their
respective agreement to become Limited Partners in such partnership
subject to the terms of the Operating Partnership Agreement.
(c) ADDITIONAL DOCUMENTS. The Operating Partnership, the Contributing
Entities and the other parties to this Agreement shall have delivered
or caused to be delivered to the Company all other documents required
by any of them to be delivered to the Company pursuant to this
Agreement.
(d) NO MATERIAL ADVERSE CHANGE. Since the date hereof nothing shall
have occurred which, individually or in the aggregate, has had, or is
reasonably likely to have, a Material Adverse Effect on the Existing
Properties or the Contributed Properties, taken as whole.
5.4 ADDITIONAL CONDITIONS WITH RESPECT TO THE CONTRIBUTED PROPERTIES. The
obligations of the Company and the parties hereto other than the
Contributing Entities to effect the Closing with respect to the acquisition
of the Contributed Properties shall be subject to the satisfaction of the
following conditions at or prior to the Closing Date by each of the
Contributing Entities with respect to its particular Contributed
Property(ies):
(a) Title to its Contributed Properties shall be such as will be
insured, solely in the name of the appropriate Contributing Entity as
good and marketable by a national title insurance company (the "Title
Insurance Company") at regular rates pursuant to the standard
stipulations and conditions of the 1970 Form B ALTA Owner's Title
Insurance Policy as revised in 1984 and as the same may be modified by
such endorsements, affirmative coverage and other matters which have
been requested by the Company prior to the date hereof (and such other
endorsements and affirmative coverages as may hereafter be reasonably
required by the Company), free and clear of all Liens and
encumbrances, except for the Permitted Encumbrances. The term
"Permitted Encumbrances" shall mean those title matters and Liens set
forth as to such Contributed Property on Schedule 5.4(a). At Closing,
title to the personal property associated with each Contributed
Property shall only be subject to the Permitted Encumbrances as to
such Contributed Property except for the personal property described
on Schedule 5.4(a) which is denoted as being leased or financed. The
Contributing Entity shall deliver to the Title Insurance Company such
commercially reasonable instruments as the Title Insurance Company
requires to issue endorsements and other coverages, in such form as
<PAGE>
the Company reasonably requires. The premiums and other costs of title
insurance shall be borne by the Operating Partnership.
(b) The Contributing Entity shall have delivered to the Company prior
to the Closing Date current searches of all Uniform Commercial Code
financing statements filed with the Secretary of State and/or county
clerk against its Contributed Properties, together with bankruptcy,
tax lien and judgment searches and searches for pending litigation in
all appropriate jurisdictions. It is a condition of Closing that such
searches reveal that other than the Permitted Encumbrances there are
no bankruptcies, actions, claims or liens affecting or encumbering or
which might affect or encumber its Contributed Properties or any
interest in its Contributed Properties which will continue after the
Closing Date.
(c) The Contributing Entity shall have delivered estoppel certificates
acceptable to the Company obtained from lessors under any ground lease
under which a Contributing Entity is a lessee.
(d) The Contributing Entity shall have delivered the estoppel letters
received by the Contributing Entity from those parties under
reciprocal easement agreements, if any, for which the Company has
requested that the Contributing Entity request estoppel letters. The
Contributing Entity agrees to use reasonable and diligent efforts to
obtain such estoppel letters.
(e) The Contributing Entity shall have delivered the originals, if
available, of all Leases and amendments thereto and guarantees
thereof, all ground leases and all mortgages and related documents
relating to its Contributed Properties directly to the Operating
Partnership.
(f) The Contributing Entity shall have executed and delivered a notice
(suitable for reproduction) to tenants advising of the transfer of the
Contributed Property to the Operating Partnership and advising the
tenants to pay all future rentals to or upon the order of the
Operating Partnership.
(g) The Contributing Entity shall have delivered to the Operating
Partnership, all Security Deposits, together with all interest earned
thereon as of the Closing Date which the Contributing Entity is
obligated, by law, contract or otherwise, to pay to tenants with
respect to its Contributed Properties.
(h) The Contributing Entity shall have delivered directly to the
Company, copies of building plans and specifications for its
Contributed Properties, if available.
(i) The Contributing Entity shall have delivered directly to the
Company, the following, to the extent in the possession of the
Contributing Entity: copies of all certificates of occupancy,
licenses, permits, authorizations and approvals required by law and
issued by all Governmental Bodies having jurisdiction over its
Contributed Properties, together with copies of all certificates
issued by any local board of fire underwriters (or other body
exercising similar functions). The Contributing Entity also shall have
delivered at the Closing the original or copies of each bill, together
<PAGE>
with proof of payment thereof (if any of the same have been paid), for
current real estate and personal property taxes.
(j) Each of the Contributing Entities shall have delivered to the
Company, a Non-Foreign Transferor Certificate, certifying that such
the Contributing Entity is not a "foreign person" within the meaning
of Section 1445 of the Internal Revenue Code of 1986, as amended (the
"Code").
(k) The Contributing Entity shall have executed and delivered to the
Company such other documents or instruments as in the reasonable
opinion of counsel for the Company may be necessary to effectuate the
transactions described in this Agreement, provided that such documents
or instruments do not increase the liability of the Contributing
Entities.
6. REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE PARTIES.
Each of the Company, the Constituent Partnerships and the Contributing Entities,
severally as to itself only, represents and warrants to, and agrees with, the
other parties hereto as follows:
6.1 ORGANIZATION OF THE CONSTITUENT PARTNERSHIPS; AUTHORIZATION. Each
Constituent Partnership is a limited partnership duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, with full partnership power and authority to execute and
deliver this Agreement and any other agreements contemplated hereby and to
perform its obligations hereunder and thereunder. The execution, delivery
and performance of this Agreement and the consummation of the Proposed
Transactions have been duly authorized by all necessary partnership action.
This Agreement constitutes a valid and binding obligation of the
Constituent Partnership, enforceable against such Partnership in accordance
with its terms.
6.2 ORGANIZATION OF THE CONTRIBUTING ENTITIES; AUTHORIZATION. Each
Contributing Entity is an Entity duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, with full
power and authority to execute and deliver this Agreement, and any other
agreements contemplated hereby and to perform its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate or partnership action. This Agreement
constitutes a valid and binding obligation of the Contributing Entity,
enforceable in accordance with its terms.
6.3 ORGANIZATION OF THE COMPANY; AUTHORIZATION; CAPITALIZATION.
(a) The Company is a California corporation duly organized, validly
existing and in good standing under the laws of the State of
California, with full power and authority to execute and deliver this
Agreement and any other agreements contemplated hereby and, subject to
obtaining the consent of its shareholders, to perform its obligations
hereunder and thereunder. The execution, delivery and performance by
the Company of this Agreement, and the Related Agreements, and the
consummation of the Proposed Transactions have been duly authorized by
the board of directors of the Company and by all other necessary
action, subject to Shareholder Approval. This Agreement constitutes a
<PAGE>
valid and binding obligation of the Company, enforceable in accordance
with its terms.
(b) The authorized capital stock of the Company consists of Two
Hundred Million (200,000,000) shares of Common Stock, no par value, of
which, as of April 30, 1998, 1,698,536 shares were issued and
outstanding and Twenty Million (20,000,000) shares of Preferred Stock,
no par value, none of which were issued and outstanding as of April
30, 1998. All outstanding shares of the Company have been validly
issued, and are fully paid and nonassessable. Except for shares of
Common Stock reserved for (i) exchange of the L.P. Units, (ii) the
Private Placement, and (iii) options for the purchase of 605,000
shares of common stock under the Company's 1997 Stock Option Plan,
there are no outstanding subscriptions, options, rights, warrants,
convertible securities or other agreements or calls, demands or
commitments of any kind relating to the issuance, sale or transfer of
the Company's common stock or securities convertible into or
exchangeable for, the Company's common stock.
(c) The Company does not own any Equity Securities of, and has no
direct or indirect ownership interest in, any Person other than the
Subsidiaries. The Company owns all of the issued and outstanding
shares of capital stock of each such Subsidiary. There are no
outstanding subscriptions, options, rights, warrants, convertible
securities or other agreements or calls, demands or commitments of any
kind relating to the issuance, sale or transfer of the such shares.
6.4 NO CONFLICTS. Neither the execution and delivery of this Agreement nor
the consummation of any or all of the transactions contemplated hereunder,
or of the Proposed Transactions will (a) violate any provision of the
certificate of incorporation, bylaws, partnership agreement or other
governing instrument of the Company, the Constituent Partnerships, or the
Contributing Entities or (b) violate, be in conflict with, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under any material contract to which the Company, the
Constituent Partnership, or any of the Contributing Entities is party or
(c) violate any statute or law or any judgment, decree, order, regulation
or rule of any court or other Governmental Body applicable to the Company,
the Constituent Partnership, or any of the Contributing Entities.
6.5 CONSENTS AND APPROVALS. Except for the filing with the SEC of the Proxy
Statement, and the Shareholder Approval, and as set forth on Schedule 6.5
(the "Required Consents"), no consent, approval or authorization of, or
declaration, filing or registration with, any Governmental Body or any
other Person is required in connection with the execution, delivery and
performance of this Agreement, any of the Related Agreements or the
consummation of the Proposed Transactions by the Company, the Operating
Partnership or the Contributing Entity or any of the Contributing Entities.
6.6 COMPANY REPORTS AND FINANCIAL STATEMENTS. The Company has heretofore
made available to the Constituent Partnerships and the Contributing
Entities true and complete copies of all documents that the Company has
filed with the SEC (the "Company SEC Filings") since January 1997. The
Company SEC Filings constitute all of the documents (other than preliminary
material) that the Company was required to file with the SEC since such
date. As of their respective dates, each of the Company SEC Filings
complied in all material respects with the applicable requirements of the
<PAGE>
Securities Act, the Exchange Act and the rules and regulations under each
such Act. When filed with the SEC, the financial statements (the "Company
Financial Statements") included in the Company SEC Filings complied as to
form in all material respects with the applicable rules and regulations of
the SEC and were prepared in accordance with generally accepted accounting
principles consistently applied (except as may be indicated therein or in
the notes or schedules thereto).
6.7 LITIGATION. There is no action, suit, inquiry, proceeding or
investigation by or before any court or Governmental Body pending or,
to the best knowledge of the Company, the Constituent Partnerships or
the Contributing Entities, threatened against or involving the Company,
the Constituent Partnerships or the Contributing Entities which
questions or challenges the validity of this Agreement or the Related
Agreements or any action taken or to be taken pursuant to this
Agreement or the Related Agreements or in connection with the
transactions contemplated hereunder or the Proposed Transactions, nor
is there any valid basis for any such action, proceeding or
investigation. Neither the Company, the Constituent Partnerships nor
the Contributing Entity is in default under or in violation of any
agreement, commitment or restriction to which it is a party or by which
it is bound; or is subject to any judgment, order or decree that may
have an adverse effect on its business practices or on its ability to
acquire any property or conduct any business.
6.8 COMPLIANCE WITH LAW. The operations of the Company, the Constituent
Partnerships and the Contributing Entities have been conducted in
accordance with all applicable laws, regulations and other requirements of
all Governmental Bodies.
6.9 BROKERS AND FINDERS. No agent, broker, finder or investment or
commercial banker, or other Person or firms engaged by or acting on behalf
of the Company, any of the Constituent Partnerships or any of the
Contributing Entities or any of their respective Affiliates in connection
with the negotiation, execution or performance of this Agreement or the
consummation of the transactions contemplated hereunder, is or will be
entitled to any broker's or finder's or similar fees or other commissions
as a result of the Closing except for the fee of 200,000 shares of the
Company's Common Stock to be sold and issued to John Moran by the Company
in connection with the Private Placement.
6.10 MATERIAL ADVERSE CHANGES.
(a) With respect to each of the Properties, since the date of the most
recent rent roll relating to the applicable Properties, (i) there has
not been any material adverse change in the business, results of
operations, properties, assets or financial condition of the
Properties, respectively, or, to the best knowledge of the Constituent
Partnership or the Contributing Entity, any event, condition or
contingency that is likely to result in such a material adverse change
and (b) neither the Constituent Partnership nor the Contributing
Entities have taken any action which, if taken after the date hereof,
would violate Sections 8.8, 8.9 or 8.10.
(b) Except as disclosed in the Company SEC Filings, prior to the date
hereof there has not been any Material Adverse Effect on the business,
results of operations, properties, assets or financial condition of
the Company or any event, condition or contingency that is likely to
result in a Material Adverse Effect.
<PAGE>
6.11 EMPLOYEE BENEFIT PLANS; COMPLIANCE WITH ERISA.
(a) Except as set forth in Schedule 6.11, neither the Company, any
Constituent Partnership nor any Contributing Entity (i) maintains or
contributes to or has any obligation with respect to, and none of the
employees of the Company, the Operating Partnership or any
Contributing Entity is covered by, any ERISA plans, or (ii) is a party
to any contract for the employment of any employee or any other person
who renders services to it. Neither the Company, any Constituent
Partnership nor any Contributing Entity has any agreement or
commitment to create any additional ERISA plan, enter into any
additional employment agreement or to modify or change any existing
Plan or employment agreement.
(b) Neither the execution and delivery of this Agreement nor the
consummation of any or all of the transactions contemplated hereunder
will (i) entitle any current or former employee of the Company, any
Constituent Partnership or any Contributing Entity to severance pay,
unemployment compensation or any similar payment, or (ii) accelerate
the time of payment or vesting or increase the amount of any
compensation due to any such employee or former employee.
6.12 FINANCIAL STATEMENTS.
(a) Each of the Contributing Entities has provided to the Company all
of the financial information requested by the Company for the
preparation of financial statements and other financial data required
by the Company for the S-4 Registration Statement, and will provide
promptly all such additional financial information and data requested
by the Company. Each of the Contributing Entities will permit the
Company's auditors to review the books and records of the Contributing
Entity. All financial information provided to the Company is correct
and complete.
(b) The books and records of the Contributing Entity, all of which
have been or will be made available to the Company, are complete and
correct, have been maintained in accordance with sound business
practices and fairly reflect the assets, liabilities and operations of
the Contributing Entity and the aforesaid financial statements are in
conformity therewith.
6.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1997, the
business of the Contributing Entity has been conducted in the ordinary
course and, except as shall be set forth on Schedule 6.13, the Contributing
Entity has not:
(a) incurred any indebtedness for money borrowed or any noncurrent
indebtedness for the purchase price of any fixed or capital asset;
(b) made (A) any change, except in the ordinary course of business, in
its properties and assets or in its liabilities, (B) any commitment
for any capital expenditure or (C) any sale, lease or other
disposition of any capital asset;
(c) made any change in its corporate charter or partnership agreement;
(d) made any partnership or other distribution or payment, or set
<PAGE>
aside any amount for payment with respect to any partnership interest;
(e) amended, made or entered into any agreement with, or increased the
salaries of, any employee, agent, consultant, advisor or sales or
other representative of the Contributing Entity;
(f) amended any material contract, Lease or agreement;
(g) entered into any agreement resulting in the imposition of any
mortgage or pledge of, or the creation of any lien, charge or
encumbrance on, any of its properties or assets; or
(h) voluntarily incurred any material obligation or liability,
absolute or contingent, except in the ordinary course of business or
pursuant to existing contracts and agreements described in this
Agreement or in the Schedules delivered pursuant hereto.
6.14 SUITABILITY. Each of the partners in the Constituent Partnerships and
each of the Contributing Entities is an "accredited investor," or is
represented by a "purchaser representative," as defined in Rule 501 of
Regulation D promulgated under the Securities Act.
6.15 INVESTMENT. Each of the partners in the Constituent Partnerships and
each of the Contributing Entities is acquiring the L.P. Units for
investment for such party's own account and not with a view to, or for
resale, in connection with, any distribution of the L.P. Units, and such
party has no present intention of selling or distributing any of such L.P.
Units. Each of the partners in the Constituent Partnerships and each of the
Contributing Entities understands that the L.P. Units 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 the party's investment intent as
expressed herein.
6.16 RULE 144. Each of the partners in the Constituent Partnerships and
each of the Contributing Entities acknowledges that, because they have not
been registered under the Securities Act, the L.P. Units 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. Each of the partners in the
Constituent Partnerships and each of the Contributing Entities 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)).
7. REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE PROPERTIES.
Each of the Contributing Entities represents and warrants to the Company and the
Operating Partnership, severally and for itself with respect only to the
<PAGE>
particular Contributed Property or Contributed Properties being contributed by
such Contributing Entity, and each of the Constituent Partnerships (other than
MWP III) represents and warrants to the Company, severally for itself with
respect only to the Existing Properties of such Constituent Partnership, (each
of the foregoing an "Owner") as follows:
7.1 TITLE TO PREMISES.
(a) The Owner has not done or suffered or permitted to be done or
committed any act or matter which would render legal and equitable
title to its Properties to not be good and marketable, such as will be
insured as such by the Title Insurance Company, as specified in
Section 5.4(a), subject only to the Permitted Encumbrances and the
Leases.
(b) There has been no violation by the Owner or its Properties of any
provision, condition or agreement contained in any restrictive
covenant, cross-easement agreement or similar instrument or agreement
affecting its Properties or any portion thereof, which would have a
material adverse effect on its Properties.
(c) The Personal Property located on its Properties, other than that
owned by tenants, utility companies or contractors is owned or leased
by the Owner, includes all the types and approximate quantities of
personal property heretofore owned or leased by the Owner and used in
the ownership, operation and maintenance of the improvements located
on its Properties and, if owned or leased by the Owner, as of the
Closing Date, is owned or leased by the Owner free and clear of any
liens or security interests of any kind, except for Permitted
Encumbrances.
(d) Its Properties are an independent unit which does not now rely on
any facilities (other than facilities covered by Permitted
Encumbrances including, without limitation, any reciprocal easement
agreements, or facilities of municipalities or public utility and
water companies and other than parking areas which its Properties make
legal use of under any reciprocal easement agreements) located on any
property not included in its Properties to fulfill any requirement of
any Governmental Body or for the furnishing to its Properties of any
essential building systems or utilities.
(e) Except as may be contained in the Leases, there are no purchase
contracts, options, or any other agreements of any kind, written or
oral, recorded or unrecorded, whereby any person or entity other than
the Owner has or will have any basis to assert any right, title or
interest in, or right to possession, use, enjoyment or proceeds of all
or a portion of its Properties.
7.2 LEASES.
(a) Except for the Leases of its Properties to be set forth on
Schedule 7.2(a), the Owner has not entered into any other contracts
for the sale or leasing of its Properties or any portion thereof.
(b) As of the Closing Date, no persons or entities, other than the
Owner and the tenants under the Leases and their permitted subtenants
<PAGE>
and licensees, shall have any right to the possession, use or
occupancy of its Properties or any portion thereof for any reason
whatsoever.
(c) As of the Closing Date, Schedule 7.2(c) (the "Rent Roll") will be
true and correct in all material respects as of the date noted thereon
and discloses all Leases and the rents due for the dates shown thereon
(collectively, "Rents"). The Leases include all tenancies, licenses
and subleases and other rights of occupancy or use for all or any
portion of its Properties pursuant to which the Owner is landlord or
licensor, all as amended, renewed and extended to the date of the Rent
Roll, whether oral or written.
(d) As of the Closing Date, Schedule 7.2(d) will contain a list of all
security deposits given by the lessees under the Leases (the "Security
Deposits"). Each Security Deposit has been and is held by the Owner or
its agents in compliance with the respective Lease and applicable law.
There are no unfulfilled obligations as to Security Deposits to
tenants under Leases the terms of which have expired or been
terminated and there is no suit, action or other claim made, or, to
the knowledge of the Owner, pending or threatened with respect to any
such Security Deposit.
(e) The following is true with respect to each Lease:
(i) the Lease is valid and existing and in full force and effect
in accordance with its terms. No Lease has been modified, in
writing or otherwise;
(ii) all obligations of the lessor thereunder which accrue prior
to or on the Closing Date shall have been performed and paid for
in full by the Owner on or prior to the Closing Date;
(iii) except for delinquencies in payment of rent of less than
thirty (30) days, to the knowledge of the Owner there has been no
material default or event which, with the giving of notice or the
lapse of time, or both, would constitute a default, on the part
of the lessor thereunder and, the tenant has not asserted and, to
the knowledge of the Owner, has no defense to or offset or claim
against its rent or the performance of its other obligations
under the Lease;
(iv) no tenant has prepaid any rent for more than one month if
the lease term has commenced and two months if the lease term has
not yet commenced;
(v) the Owner has received no written notice from any tenant or
any guarantor of a Lease that such tenant or guarantor is or may
become unable or unwilling to pay its rent or other sums due
under its Lease, continue to operate for the balance of the term
of the Lease, operate in accordance with the exclusives
prescribed under the Lease or otherwise perform any of its other
material obligations under the Lease;
(vi) the Owner has not, and to the knowledge of the Owner, no
other person has, released or discharged any guarantor,
voluntarily or involuntarily or by operation of law, from any
<PAGE>
obligation with respect to the Lease that such guarantor has
guaranteed;
(vii) at the time of Closing, no rents will have been assigned,
pledged or encumbered;
(viii) except as shall be set forth on Schedule 7.2(a) as of the
Closing Date, the Owner does not own, directly or indirectly, (A)
five percent (5%) or more of the total combined voting power of
all classes of stock entitled to vote, or ten percent (10%) or
more of the total number of shares of all classes of stock, of
any tenant of its Properties or (B) an interest of ten percent
(10%) or more in the assets or net profits of any tenant of its
Properties; and
(ix) all tenant improvements required under the Leases have been
installed and/or completed, all costs relating thereto have been
paid, and there is no on-going work with respect to any tenant
improvement.
7.3 ENVIRONMENTAL MATTERS. The Owner, or any Person in control of the
Owner, has not done anything to cause or knowingly permit and, to the
knowledge of the Owner, no other person or entity has done anything to
cause or permit Hazardous Materials (as defined below) to be now located on
(except for reasonable amounts used in the ordinary course for the
construction, operation or maintenance of its Properties by the Owner in
accordance with all applicable laws or used by tenants of its Properties in
the ordinary course of operation of their business, which use by tenants
is, and has been, to the knowledge of the Owner, in accordance with all
applicable laws), in or under its Properties or released into the
environment, or discharged, placed or disposed of at, on or under its
Properties; (ii) the Owner has not done anything to cause or knowingly
permit and, to the knowledge of the Owner, no other person or entity has
done anything to cause or permit any underground storage tanks to be
located at its Properties now or during the time of such Owner's ownership
of the property; (iii) during the time of such Owner's ownership of the
property, the Owner has not done anything to cause any of its Properties to
be used to store, treat or dispose of Hazardous Materials and the Owner has
not become aware of any Hazardous Materials stored or disposed of or
adjacent to any of its Properties; and (iv) the Owner has not done anything
to cause or knowingly permit its Properties and its prior uses to fail to
comply with, at all times, any applicable Environmental Laws (as hereafter
defined) or any other governmental law, regulation or requirement relating
to environmental and occupational health and safety matters and Hazardous
Materials. To the knowledge of the Owner, there currently exist no facts or
circumstances that would give rise to a material Environmental Claim (as
defined below).
The term "Hazardous Materials" shall mean any substance, material, waste,
gas or particulate matter which is regulated by any local Governmental
Body, the state in which its Properties are located, or the United States
Government, including, but not limited to, any material or substance which
is (i) defined as a "hazardous waste", "hazardous material", "hazardous
<PAGE>
substance", "extremely hazardous waste", or "restricted hazardous waste" or
words of similar import under any provision of any Environmental Law; (ii)
petroleum or petroleum products; (iii) polychlorinated biphenyl; (iv)
radioactive material; (v) radon gas; (vi) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C.
Section 1251 et seq. (33 U.S.C. Section 1317); (vii) defined as a
"hazardous waste" pursuant to Section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903); or
(viii) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation, and Liability Act, 42
U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601). The term
"Environmental Laws" shall mean all statutes specifically described in the
foregoing sentence and all federal, state and local environmental health
and safety statutes, ordinances, codes, rules, regulations, orders and
decrees regulating, relating to or imposing liability or standards
concerning or in connection with Hazardous Materials. The term
"Environmental Claim" shall mean any administrative, regulatory or judicial
action, suit, demand, demand letter, claim, lien, notice of non-compliance
or violation, investigation or proceeding relating in any way to any
Environmental Law or any permit issued under any such Environmental Law
including, without limitation, (a) by any Governmental Body for
enforcement, cleanup, removal, response, remedial or other actions or
damages pursuant to any applicable Environmental Law, and (b) by any third
party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or
arising from alleged injury or threat of injury to health, safety or the
environment.
7.4 ENGINEERING MATTERS.
(a) To the knowledge of the Owner there are no material defects in or
damage to the structure (including the roof and walls) of its
Properties. To the knowledge of the Owner, the systems of its
Properties, including any elevators, heating, ventilation, air
conditioning, plumbing, electrical, drainage, fire alarm,
communications, sprinkler, security and exhaust systems are in
operational and working order and such systems do not contain any
material hidden defect.
(b) The Owner has no knowledge that the flood hazard area designation
for its Properties as shown on a survey of its Properties is
incorrect.
(c) All water, sewer, gas, electric, telephone, and other public
utilities and all storm water drainage necessary for the operation of
its Properties (i) either enter its Properties through open public
streets adjoining its Properties, or, if they pass through adjoining
private land, do so in accordance with valid public or private
easements or rights of way which will inure to the benefit of the
Operating Partnership, (ii) are installed, connected and operating,
with all installation and connection charges paid in full, including,
without limitation, connection and the permanent right to discharge
sanitary waste into the collector system of the appropriate sewer
authority, (iii) to the knowledge of the Owner, are being utilized in
compliance with all applicable governmental and environmental
protection authorities' laws, rules, regulations and requirements, and
(iv) to the knowledge of the Owner, have been adequate and, to the
knowledge of the Owner, will continue to be adequate to service its
Properties as improved and presently used. To the knowledge of the
Owner, no moratorium, proceeding or other fact or condition exists
which (A) threatens to impair continued furnishing of such services to
<PAGE>
its Properties at regular rates and fees, or (B) could result in the
discontinuance of such services presently available or necessary.
Water and sanitary sewer provided for its Properties are public.
7.5 FINANCIAL MATTERS.
(a) All alterations, improvements or other work required to have been
completed by the Owner under any reciprocal easement agreements,
Leases executed prior to the Closing Date, and other agreements to
which it is a party, including, without limitation, all alterations,
improvements and other work or allowances therefor required to prepare
space for the initial occupancy of each tenant under a lease, has
heretofore been completed and/or paid for in full.
(b) Except as may be set forth on Schedule 7.5(b) as of the Closing
Date, there is no income derived from the Owner's Properties other
than rental income and interest income. The rental income derived from
its Properties constitutes "rent from real property" as defined in
Section 856(d)(1) of the Code. The interest income derived from the
operation of its Properties constitutes "interest" as defined in
Section 856(c)(2)(B) of the Code.
7.6 INSURANCE.
(a) As of the Closing Date, Schedule 7.6 shall set forth an accurate
and complete list of the insurance policies relating to its Properties
or any part thereof and naming the Owner as an insured; all such
policies are in full force and effect and all premiums thereunder as
of the Closing Date have been paid to the extent due; and no notice of
cancellation has been received with respect thereto and, to the
knowledge of the Owner, none is threatened. The Owner represents that
it does not currently self-insure with respect to any portion of the
insurance, other than earthquake insurance.
(b) The Owner has not received any notice from any insurance company
of any defect or inaccuracies in any of its Properties, or any parts
thereof, which would adversely affect the insurability of any of its
Properties, or would increase the cost of insurance beyond that which
would ordinarily and customarily be charged for similar properties in
the vicinity of such Properties. All of its Properties are fully
insured in accordance with prudent and customary practice.
(c) To the knowledge of the Owner, the Owner has complied with all
work orders, requirements and demands of each and every insurance
company insuring all or any part of its Properties.
7.7 REAL ESTATE TAXES AND ASSESSMENTS.
(a) The copies of the real property tax bills for its Properties for
the current tax year which have been furnished by the Owner to the
Operating Partnership are true and correct and complete copies of all
of such tax bills. All real estate taxes due and payable as of the
Closing Date have been paid in full and there are no pending or, to
the knowledge of the Owner, threatened proceedings for the correction
or reduction of the assessed valuation of its Properties for the
current or prior tax years.
<PAGE>
(b) Each of its Properties alone constitutes one or more entire tax
parcel(s) for real estate tax purposes, and are not taxed as part of a
larger tax parcel.
(c) The Owner has not received notice that, and to the knowledge of
the Owner, there are no public improvements in the nature of off-site
improvements, or otherwise, which have been ordered to be made and/or
which have not heretofore been assessed and there are no special or
general assessments (other than regular, annual real estate taxes)
pending against or presently being considered in formal municipal or
quasi-municipal proceedings which will affect its Properties.
7.8 CONDEMNATION; COMPLIANCE WITH LAWS, ETC.
(a) The Owner has not received any written notice with respect to its
Properties from any public authority concerning any eminent domain or
condemnation proceeding, or any uncorrected violation of any
ordinance, public regulation, statute, permit, site plan approval,
zoning or subdivision regulation or urban redevelopment plan
applicable to its Properties.
(b) To the knowledge of the Owner, its Properties, when built, did not
violate any federal, state, county or municipal laws, ordinances,
codes, regulations or requirements affecting all or any of its
Properties including, without limitation, housing, building, safety,
health, environmental, fire or zoning ordinances, codes and
regulations of the respective jurisdictions within which its
Properties are located (together, "Applicable Laws").
(c) To the knowledge of the Owner, there are no material unperformed
obligations relative to its Properties outstanding pursuant to any
written agreements with any Governmental Body.
8. COVENANTS.
8.1 FINANCIAL STATEMENTS. As soon as practicable following any request by
the Company, the Contributing Entities and the Constituent Partnerships
shall cause to be prepared and delivered to the Company such financial
statements prepared in accordance with the applicable rules of SEC
Regulation S-X, including any updates of such financial statements needed
to satisfy the requirements of Rule 3-12 of Regulation S-X as needed in
connection with the S-4 Registration Statement. When and if these financial
statements are delivered, such financial statements will be true and
correct in all material respects and will fairly present the assets,
liabilities and financial condition and the results of operations of the
Properties of the Constituent Partnerships or the Contributing Entities, as
the case may be, as at the respective dates thereof and for the periods
therein referred to, all in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, subject,
in the case of unaudited interim financial statements, to normal, recurring
year-end audit adjustments.
8.2 CONSENT OF CONTRIBUTING ENTITIES. As promptly as practicable, and in
any event prior to the Closing Date, each of the Contributing Entities
shall, to the extent that the terms of its charter, bylaws or partnership
agreement require, use commercially reasonable efforts to solicit and
obtain all required consents of certain Persons listed on Exhibit F to this
<PAGE>
Agreement and the consummation of the transactions contemplated hereunder
substantially in the form of the Consents of Certain Persons attached
hereto as Exhibit F.
8.3 COMPANY CORPORATE ACTIONS.
(a) SPECIAL MEETING. As soon as practicable, in accordance with the
CGCL and the Company's articles of incorporation and bylaws, and the
policies and regulations of the AMEX, the Company shall take all
action necessary to convene the Special Meeting as soon as practicable
to consider and vote to approve the Proposed Transactions.
(b) PROXY STATEMENT; OTHER FILINGS. As soon as practicable, the
Company shall prepare, and the Company shall file an S-4 Registration
Statement with the Commission to register all of the securities to be
issued by the Company's successor, Mission West-Maryland, as part of
the Reincorporation Merger pursuant to Section 5 of the Securities
Act, and shall use its best efforts to have it declared effective by
the Commission. Upon the effectiveness of the S-4 Registration
Statement the Company shall mail to its shareholders the Proxy
Statement/Prospectus contained therein, and a form of proxy with
respect to the meeting of the Company's shareholders referred to in
subparagraph (a) above. In connection with the Company's preparation
of the Proxy Statement/Prospectus, the Constituent Partnerships and
the Contributing Entities shall provide to the Company a description
of the Properties, the financial statements referred to in Section 8.1
and such other information with respect to the Properties, the
Constituent Partnerships, and the Contributing Entities as the Company
shall reasonably request.
(c) DISCLOSURE. None of the information supplied or to be supplied by
the Limited Partners, the Constituent Partnerships or the Contributing
Entities, or any of their respective Affiliates, directors, officers,
employees, agents or representatives for inclusion in the S-4
Registration Statement or any other document filed or to be filed with
the SEC or any Governmental Body in connection with the Proposed
Transactions will, at the time it is provided, be false or misleading
with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
8.4 ACCESS. Between the date of this Agreement and the Closing Date, the
Limited Partners, the Constituent Partnerships, and the Contributing
Entities shall (and shall use commercially reasonable efforts to cause
their respective Affiliates to) afford to the officers, employees, counsel,
auditors, financial advisors and other authorized representatives of the
Company full access during normal business hours to all its properties,
personnel, books and records that relate (directly or indirectly) to the
assets or properties that, following the Closing, will be owned by the
Operating Partnership and furnish promptly to such persons such information
concerning its business, properties, personnel and affairs as such persons
shall from time to time reasonably request.
8.5 PUBLIC ANNOUNCEMENTS. No party to this Agreement other than the Company
shall (and each such party shall use its reasonable efforts to cause its
Affiliates, directors, trustees, officers, employees, agents and
representatives not to), issue any press release, make any public
<PAGE>
announcement concerning the S-4 Registration Statement or any of the
Proposed Transactions
8.6 INDEMNIFICATION AND INSURANCE.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action,
suit, proceeding or investigation in which any of the present officers
or directors of the Company is, or is threatened to be, made a party
by reason of the fact that he is or was a director, officer, employee
or agent of the Company, or is or was serving at the request of the
Company as a trustee, director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
whether before or after the Closing, the Company shall use its best
efforts to defend against such claim, action, fact, proceeding or
investigation and to respond promptly thereto. It is understood and
agreed that the Company shall indemnify and hold harmless, as and to
the full extent permitted by applicable law, each such officer or
director against any losses, claims, damages, liabilities, costs,
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement in connection with any such claim, action, suit,
proceeding or investigation, and in the event of any such claim,
action, suit, proceeding or investigation (whether arising before or
after the Closing), (i) the Company shall retain counsel reasonably
satisfactory to the officer or director and shall pay all fees and
expenses of such counsel for the officer or director promptly as
statements therefor are received and (ii) the Company will use its
best efforts to assist in the vigorous defense of any such matter;
provided that the Company shall not be liable for any settlement
effected without its prior written consent; and provided further that
the Company shall have no obligation hereunder to any officer or
director when and if a court of competent jurisdiction shall
ultimately determine, and such determination shall have become final
and non-appealable, that indemnification of such officer or director
in the manner contemplated hereby is prohibited by applicable law. Any
officer or director wishing to claim indemnification under this
Section 8.6(a), upon learning of any such claim, action, suit,
proceeding or investigation, shall notify the Company thereof.
(b) The Company acknowledges and agrees that all rights to
indemnification existing in favor of the present or former directors,
officers, employees, fiduciaries and agents of the Company or any of
its Subsidiaries (collectively, the "Indemnified Parties") as provided
in the Company's articles of incorporation or bylaws or the
certificate or articles of incorporation, bylaws or similar documents
of any of the Company's Subsidiaries as in effect as of the date
hereof with respect to matters occurring prior to the Closing shall
survive the Closing and shall not be amended in a manner which would
have the effect of limiting such indemnification rights for any period
of time.
8.7 MATERIAL CHANGES.
(a) Between the date of this Agreement and the Closing Date, each of
the parties to this Agreement will give prompt notice to all other
parties of: (i) the occurrence, or failure to occur, of any event that
<PAGE>
would be likely to cause any representation or warranty of such party
contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date of this Agreement to the Closing
Date (except for changes permitted or contemplated by this Agreement),
(ii) any failure of such party to comply with or satisfy, in any
material respect, any covenant, condition or agreement to be complied
with by it under this Agreement, (iii) any notice or other
communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
contemplated by this Agreement, or that such transactions otherwise
may violate the rights of or confer remedies upon such third party,
and (iv) any notice of, or other communication relating to, any
violation of Applicable Laws, any litigation or any order or judgment
entered or rendered therein.
(b) Between the date of the mailing of the Proxy Statement/Prospectus
to the Company's shareholders and the Closing Date, all parties other
than the Company shall notify the Company of any material change in
the information supplied by it or any of its respective Affiliates,
directors, officers, agents or representatives for inclusion in the
Proxy Statement/Prospectus.
8.8 APPROVALS. Each party to this Agreement shall as promptly as
practicable, (a) use commercially reasonable efforts to obtain all Required
Consents, and give all necessary notices to and make all necessary filings
with and applications and submissions to, any Governmental Body or other
person or entity in connection with the consummation of the transactions
contemplated hereunder, and (b) cooperate with the reasonable requests of
any other party in connection with the foregoing.
8.9 CONDUCT OF BUSINESS PRIOR TO THE CLOSING.
(a) Between the date of this Agreement and the Closing Date, each
party to this Agreement shall conduct its business only in the
ordinary course and consistent with past practice.
(b) At the Closing, each Contributing Entity will assign to the
Operating Partnership the Leases applicable to its Contributed
Properties.
(c) Between the date of the execution of this Agreement and the
Closing Date, each Owner agrees that:
(i) It shall, at its expense, make all repairs and replacements,
structural and non-structural, which are required with respect to
any portion of the Properties to maintain it in its present
condition; and shall also complete, at their expense to the
extent that the expenses may not be passed through to tenants,
any repairs or capital improvements commenced prior to the
Closing Date.
(ii) It shall operate and manage its Properties in the same
manner as it has been operated and managed prior to the date of
this Agreement and in accordance with Applicable Laws.
(iii) It shall submit to the Company monthly reports of rental
collections, occupancy and vacancies.
<PAGE>
(iv) It shall perform any and all acts, and shall make any and
all payments, necessary to cause the representations and
warranties of such party under this Agreement to be true and
correct as of the date made or as of the Closing Date if then
required to be true and correct.
(v) It shall comply with all of the obligations of such party
under the Leases and all other agreements and contractual
arrangements by which the party and/or the Properties are bound
or affected, and to its best knowledge, shall comply with all
Applicable Laws.
(vi) It shall maintain the insurance policies on the Properties
in full force and effect and shall pay all required premiums and
other charges.
(vii) It shall not modify or terminate, any of the Leases (except
by reason of a default by the tenant thereunder).
(viii) Promptly after receipt thereof by the Company, it shall
deliver to the Company, the following:
(A) a copy of any notice of default given or received under
any of the Leases or other agreements or any notices of
termination given for any Lease;
(B) a copy of any tax bill, notice or statement of value, or
notice of change in a tax rate affecting or relating to its
Properties;
(C) a copy of any notice of an actual or alleged violation
of Applicable Laws; and
(D) a copy of any notice of any condemnation proceedings
with respect to its Properties.
(d) Between the date of this Agreement and the Closing Date, each of
the Constituent Partnerships and each Contributing Entity shall not,
without the consent of the other parties hereto (which consent shall
not be unreasonably withheld), except as specifically contemplated by
this Agreement:
(i) make any changes or amendment of its limited partnership
agreement;
(ii) be party to any merger, consolidation or other business
combination; or
(iii) agree or otherwise commit, whether in writing or otherwise,
to do either of the foregoing.
Notwithstanding the foregoing, this Section 8.9(d) shall not apply to
any transaction or event contemplated by this Agreement or the Related
Agreements.
8.10 FIRE OR OTHER CASUALTY. Each Owner shall maintain in full force and
<PAGE>
effect until the Closing Date the fire and extended coverage insurance
policies now in effect on the Properties. In the event that any building on
a Property shall have been materially damaged by fire or other casualty (in
a manner which adversely affects the operation of such Property as a whole
or which could have an adverse economic consequence to the Property and not
restored as of the Closing Date) the Company may, in its sole discretion,
continue to include such Property in the Operating Partnership for purposes
of the Berg Acquisition; provided that the proceeds of any insurance policy
attributable to such Property shall be transferred to the Operating
Partnership and in such event, there shall be no reduction in the
consideration received by the Property Owner or its partners or
shareholders.
8.11 RESERVATION AND LISTING OF SHARES. The Company shall take all action
necessary to reserve a sufficient number of Shares for issuance upon (a)
the exchange of all L.P. Units issuable under this Agreement, including the
L.P. Units potentially issuable under the Pending Projects Acquisition
Agreement for shares of the Company's Common Stock in accordance with the
terms of the Exchange Rights Agreement, and shall take all action necessary
to list such reserved shares, subject to official notice of issuance, on
the AMEX.
9. ADDITIONAL COVENANTS.
9.1 EXCHANGE RIGHTS OF LIMITED PARTNERS OF OPERATING PARTNERSHIP. Effective
as of the Closing Date, the Company agrees to give the Limited Partners the
right to exchange each L.P. Unit into one share of the Company's Common
Stock at such times and upon such terms as are set forth in the Exchange
Rights Agreement, and subject to adjustment of such exchange ratio as are
provided therein.
9.2 CORPORATE OPPORTUNITIES; FREEDOM OF ACTION.
(a) CORPORATE OPPORTUNITIES. Effective as of the Closing Date Carl E.
Berg agrees not to directly or indirectly acquire or develop, or
acquire an equity ownership interest in any entity that has an
ownership interest in any real property zoned for industrial or R&D
use or which intends to acquire such interests (with the exception of
investments in the securities of publicly-traded companies, which do
not represent more than 10% of the outstanding voting securities
thereof) in California, Oregon or Washington without first disclosing
such investment opportunity to the Company and making such opportunity
available to the Company subject to the approval of a committee of the
Company's Board of Directors comprised solely of Independent
Directors; PROVIDED, HOWEVER that the foregoing shall not apply to any
acquisition, development or investment with respect to the Berg Land
Holdings, or the Projects subject to the Pending Projects Acquisition
Agreement, or the Excluded Properties (as defined in the S-4
Registration Statement). The foregoing restriction shall remain in
effect until the date on which both of the following conditions are
satisfied: (i) no nominee of the Berg Group is a member of the
Company's board of directors and (ii) the Berg Group beneficially owns
less than 25% of the outstanding Common Stock of the Company
(including for these purposes all shares then issuable upon exercise
of the Exchange Rights).
(b) CERTAIN INTERESTED PARTY TRANSACTIONS. Effective as of the Closing
<PAGE>
Date, the Company and each party hereto who is a member of the Berg
Group agrees that prior to undertaking any transaction or entering
into any contract between the Company or the Operating Partnership and
any member of the Berg Group, or any Entity in which a Berg Group
member beneficially owns at least 5% of the outstanding Equity
interests shall be subject to prior review and approval by the
Independent Directors Committee. If the proposed transaction or
contract is not approved by the Independent Directors Committee, at
least as to the Berg Group member(s)' involvement therein, such Berg
Group member or members agree not to participate in the transaction or
enter into such contract. The provisions of this Section 9.2(b) shall
not apply to transactions or contracts of a minor nature determined in
accordance with standards or thresholds established by the Independent
Directors Committee.
(c) FREEDOM OF ACTION. Except as provided in Section 9.2(a) and (b),
after the Closing Date neither Carl E. Berg nor any other member of
the Berg Group shall have any obligation to the Company, the Operating
Partnership, or the Company's shareholders or any other Limited
Partners not to (i) engage in the same or similar activities or lines
of business as the Company, (ii) invest or own any interest publicly
or privately in, or develop a business relationship with, any
corporation, partnership or other entity engaged in the same or
similar activities or lines of business as, or otherwise in
competition with, the Company, or (iii) do business with any client or
customer of the Company. Neither Carl E. Berg nor any other member of
the Berg Group shall have any obligation, or be liable, to the
Company, or the Operating Partnership (A) for or arising out of the
conduct described in (i), (ii), or (iii), above, (B) for exercising or
failing to exercise his or the Berg Group's rights under this
Agreement or any other Related Agreement to which he or they will be a
party, (C) for exercising or failing to exercise his or the Berg
Group's rights as a shareholder of the Company or as a Limited
Partner, (D) for breach of any fiduciary or other duty to the Company,
or the Operating Partnership by reason of the conduct described in
(A), (B) or (C) above. Except as provided otherwise in Section 9.2(a)
or (b), in the event that any member of the Berg Group, acquires
knowledge of a potential transaction, agreement, arrangement or other
matter which may be a corporate opportunity for both such Person and
the Company, neither such Person nor its officers, directors,
employees or former employees shall have any duty to communicate or
offer such corporate opportunity to the Company, and neither such
Person nor its officers, directors, employees or former employees
shall be liable to the Company for breach of any fiduciary or other
duty, as a shareholder or otherwise, by reason of the fact that such
Person pursues or acquires such corporate opportunity for itself,
directs such corporate opportunity to another Person or does not
communicate such corporate opportunity or information regarding such
corporate opportunity to the Company.
9.3 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Limited
Partner the right of first refusal to purchase his, her or its pro rata
share of any New Securities (as defined below) that the Company may, from
time to time, propose to sell and issue. A Limited Partner's pro rata
share, for purposes of this right of first refusal, is the ratio of the
number of shares of Common Stock issuable upon exchange of the L.P. Units
held by such Limited Partner immediately prior to the issuance of New
<PAGE>
Securities to the total number of shares of Common Stock outstanding
immediately prior to the issuance of New Securities, assuming conversion or
exchange of all outstanding securities convertible or exchangeable into
Common Stock of the company. This right of first refusal shall be subject
to the following provisions:
(a) "NEW SECURITIES." "New Securities" shall mean any capital stock of
the Company, whether or not now authorized, and rights, options or
warrants to purchase such capital stock, and securities of any type
whatsoever that are or may become convertible into capital stock;
provided, however, that the term "New Securities" shall not include
(i) securities issued pursuant to this Agreement and the Private
Placement, (ii) securities issued upon exchange of L.P. Units, (iii)
securities issued pursuant to the acquisition of another business
entity or business segment of any such entity by the Company by
merger, purchase of substantially all the assets of such entity or
business segment or other reorganization whereby the Company or its
shareholders will own more than fifty percent (50%) of the voting
power of such business entity or business segment of any such entity,
(iv) securities issued to officers, directors, employees or
consultants of or to the Company pursuant to any stock option, stock
purchase or stock bonus plan, agreement or arrangement approved by the
board of directors of the Company, (v) securities issued to any
financial institution in connection with a loan transaction approved
by the board of directors of the Company, (vi) securities issued to
vendors or customers or to other persons in similar commercial
situations with the Company, provided such issuance is approved by the
board of directors, (vii) securities issued in a public offering
pursuant to a registration under the Securities Act with an aggregate
offering price to the public of more than $7,500,000, (viii)
securities issued in connection with any stock split, stock dividend
or recapitalization of the Company, and (ix) any right, option or
warrant to acquire any security convertible into the securities
excluded from the definition of New Securities pursuant to subsections
(i) through (viii) above.
(b) NOTICE OF PROPOSED ISSUANCE. In the event the Company proposes to
undertake an issuance of New Securities, it shall give each Limited
Partner written notice of its intention, describing the type of New
Securities, their price and the general terms upon which the Company
proposes to issue such New Securities. Each Limited Partner shall have
ten (10) days after any such notice is mailed or delivered to agree to
purchase such Limited Partner's pro rata share of such New Securities
for the price and upon the terms specified in the notice by giving
written notice to the Company and stating therein the quantity of New
Securities to be purchased.
(c) SALE OF NEW SECURITIES. In the event the Limited Partners fail to
exercise fully the right of first refusal within said ten (10) day
period, the Company shall have sixty (60) days thereafter to sell or
enter into an agreement (pursuant to which the sale of New Securities
covered thereby shall be closed, if at all, within sixty (60) days
from the date of such agreement) to sell the New Securities respecting
which the Limited Partners' right of first refusal set forth in this
Section 9.3 is not exercised, at a price and upon terms no more
favorable to the purchasers thereof than are specified in the
Company's notice to Limited Partners pursuant to Section 9.3(b). In
<PAGE>
the event the Company has not sold the New Securities within the
foregoing period, the Company shall not thereafter issue or sell any
New Securities without first again offering such securities to the
Limited Partners in the manner provided in Section 9.3 (b) above.
(d) ASSIGNMENT. The rights granted by the Company pursuant to this
Section 9.3 may be assigned by any Limited Partner to a transferee or
assignee of not less than 500,000 L.P. Units (as adjusted for stock
splits, combinations and the like), provided that such assignment may
otherwise be effected in accordance with applicable securities laws
and that the Company is given written notice at the time of said
assignment stating the name and address of said transferee or assignee
and identifying the securities with respect to which such rights are
being assigned.
(e) TERMINATION OF RIGHT OF FIRST REFUSAL. The right of first refusal
granted under this Section 9.3 shall terminate upon the earlier of (i)
May 14, 2003 or (ii) written agreement of the Company and the holders
of a majority of the L.P. Units then outstanding.
9.4 REIT ELECTION. After the Closing, the Company agrees to take all action
necessary to qualify as a REIT and to make an election to be taxed as a
REIT in the tax year ending December 31, 1998.
9.5 BERG GROUP BOARD REPRESENTATIVES; REQUIRED DIRECTORS CONSENT; SUPER
MAJORITY APPROVAL. The Company agrees that the Berg Group will have the
right to nominate two directors for election to the board of directors so
long as the Berg Group members together with their Affiliates (other than
the Company and the Operating Partnership) own at least 15% of the Equity
Securities of the Company treating all L.P. Units owned by such members and
their Affiliates as Common Stock for this purpose, and the right to
nominate one director if such ownership interest is less than 15% but at
least 10% of such Equity Securities. The Company agrees to take all steps
necessary to cause the election of such Berg Group nominees to the board of
directors. The Company agrees that until the Protective Provisions
Expiration Date it will not take or permit to be taken any of the following
actions without the approval of the Required Directors (in addition to all
other approvals required by the Company's articles of incorporation,
bylaws, contracts or applicable law): (i) establishing a quorum for any
meeting of the board of directors which is not attended by a Required
Director; (ii) amending the Company's articles of incorporation or bylaws;
(iii) merging the Company with or into any other Entity; or (iv) any sale
of all or substantially all of the Company's assets. The Company agrees
further, and the bylaws of Mission West-Maryland shall provide following
the Reincorporation Merger that the approval of more than 75% of the entire
board of directors will be required for (i) the Company's taking title to
assets or conducting business other than through the Operating Partnership,
(ii) the termination of the Company's status as a REIT; and (iii) incurring
indebtedness in excess of 50% of the Company's Total Market Capitalization.
9.6 REINCORPORATION MERGER. After the Closing, and subject to Shareholder
Approval of the Reincorporation Merger, the Company shall take all actions
and file all documents necessary and shall cause Mission West-Maryland to
take all actions and file all documents necessary to effectuate the
Reincorporation Merger. The Company agrees to cause the provisions of
Sections 9.2 and 9.5 to be incorporated into either the Articles of
Incorporation or the Bylaws of Mission West-Maryland.
<PAGE>
9.7 OPERATION OF THE OPERATING PARTNERSHIP.
(a) CASH; DISTRIBUTIONS. The Constituent Partnerships acknowledge and
agree that from and after the Closing Date, as provided in the
Operating Partnership Agreement, the Available Cash will be commingled
and used to pay the obligations of all Constituent Partnerships. In
addition, the Operating Partnership shall and will make any
distributions of Available Cash to the Constituent Partnerships on a
pro rata basis in proportion to the ratio of the number of L.P. Units
then outstanding in each such limited partnership to the total member
of L.P. Units then outstanding in the Operating Partnership, and shall
pay distributions simultaneously to the General Partner of each
Constituent Partnership in accordance with the General Partner's
interest in each such limited partnership. Notwithstanding the
foregoing, separate books and records shall be maintained for each
Constituent Partnership, and all costs shall be accounted for
separately and properly credited to the general ledger of each
Constituent Partnership.
(b) FUTURE OPERATIONS. The Company, as general partner of the
Operating Partnership, shall make investment, financing and
operational decisions as though the Operating Partnership was a
consolidated entity; provided that accounts, books and records shall
be properly maintained on a separate basis for each Constituent
Partnership. The Operating Partnership may transact business and
otherwise act for all of the Constituent Partnerships in the name
"Mission West Properties, L.P." The Company, as general partner of the
Operating Partnership, shall endeavor to structure all transactions in
such manner as will maintain the current pro rata interests of each
Constituent Partnership, and of the Limited Partners thereof, to the
Operating Partnership, as a whole, based on the ratio which the
outstanding L.P. Units of each such limited partnership bears to the
total number of L.P. Units set forth on Schedule 6.
9.8 REIT QUALIFICATION OF THE COMPANY. For the purposes of Section
856(a)(6) and (h) of the Code, the Berg Group members agree that they shall
not own (within the meaning of Section 544(a) of the Code), both
individually and as a group, more than 20% of the total value of the
Company's outstanding stock (as determined for purposes of Section
542(a)(2) of the Code) (the "Berg Ownership Limit"); and (ii) for purposes
of all other ownership attribution rules under the Code (in particular
Section 318 of the Code), no single Berg Group member shall directly or
indirectly own 50% or more of the value of the Company's outstanding stock.
The Berg Group members further agree that at no time while the Company is a
REIT shall they acquire or permit any person within their control to
acquire shares of Common Stock or other Equity Securities of the Company if
such acquisition would cause the Company to fail to satisfy the REIT
requirement that five or fewer individuals cannot own more than 50% of the
value of the Company's outstanding stock within the meaning of Sections
544(a)(2) and Section 856(a)(6) and (h) of the Code. The Company
acknowledges and agrees that the right of Limited Partners to exchange L.P.
Units for Common Stock pursuant to the Exchange Rights Agreement does not
constitute the ownership of stock by such Limited Partners under Section
544(a) or 318 of the Code.
10. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
<PAGE>
10.1 SURVIVAL. All representations, warranties and agreements contained in
this Agreement or in any certificate delivered pursuant to this Agreement
shall survive the Closing for a period of one year.
10.2 INDEMNIFICATION. Each party to this Agreement shall severally
indemnify and hold harmless all other parties and their Affiliates, for any
loss, liability, claim, damage, expense (including, but not limited to,
costs of investigation and defense and reasonable attorneys' fees) or
diminution of value (collectively, "Damages") arising from or in connection
with (a) any inaccuracy in any of the representations and warranties of
such party in this Agreement, (b) any failure by such party to perform or
comply with any covenant, obligation or agreement in this Agreement, (c)
any liabilities of such party not specifically assumed by the Operating
Partnership or the Company hereunder, (d) any claim by any Person for
brokerage or finder's fees or commissions or similar payments based upon
any agreement or understanding alleged to have been made by any such Person
with such party (or any Person acting on such party's behalf) in connection
with any of the Proposed Transactions.
10.3 PROCEDURE FOR INDEMNIFICATION. Promptly after receipt by an
indemnified party ("Indemnified Party") under Section 10.2 of notice of the
commencement of any action, such Indemnified Party shall, if a claim in
respect thereof is to be made against an indemnifying party ("Indemnifying
Party") under such section, give notice to the Indemnifying Party of the
commencement thereof, but the failure so to notify the Indemnifying Party
shall not relieve it of any liability that it may have to any Indemnified
Party except to the extent the Indemnifying Party demonstrates that the
defense of such action is prejudiced thereby. In case any such action shall
be brought against an Indemnified Party and it shall give notice to the
Indemnifying Party of the commencement thereof, the Indemnifying Party
shall be entitled to participate therein and, to the extent that it shall
wish, to assume the defense thereof with counsel reasonably satisfactory to
such Indemnified Party and, after notice from the Indemnifying Party to
such Indemnified Party of its election so to assume the defense thereof,
the Indemnifying Party shall not be liable to such Indemnified Party under
such section for any fees of other counsel or any other expenses, in each
case subsequently incurred by such Indemnified Party in connection with the
defense thereof, other than reasonable costs of investigation. If an
Indemnifying Party assumes the defense of such an action, (a) no compromise
or settlement thereof may be effected by the Indemnifying Party without the
Indemnified Party's consent unless (i) there is no finding or admission of
any violation of law or any violation of the rights of any Person and no
effect on any other claims that may be made against the Indemnified Party
and (ii) the sole relief provided is monetary damages that are paid in full
by the Indemnifying Party and (b) the Indemnifying Party shall have no
liability with respect to any compromise or settlement thereof effected
without its consent (which consent will not be unreasonably withheld). If
notice is given to an Indemnifying Party of the commencement of any action
and it does not, within ten (10) days after the Indemnified Party's notice
is given, give notice to the Indemnified Party of its election to assume
the defense thereof, the Indemnifying Party shall be bound by any
determination made in such action or any compromise or settlement thereof
effected by the Indemnified Party. Notwithstanding the foregoing, if an
Indemnified Party determines in good faith that there is a reasonable
probability that an action may adversely affect it or its affiliates other
than as a result of monetary damages, such Indemnified Party may, by notice
<PAGE>
to the Indemnifying Party, assume the exclusive right to defend, compromise
or settle such action, but the Indemnifying Party shall not be bound by any
determination of an action so defended or any compromise or settlement
thereof effected without its consent (which consent shall not be
unreasonably withheld). Notwithstanding the foregoing, any determination
with respect to the Company's determination to make a claim for
indemnification against the Contributing Entities shall be made solely by a
majority of the Independent Directors.
11. TERMINATION.
11.1 TERMINATION.
(a) This Agreement may be terminated by the Company or by Carl E. Berg
before the Closing occurs, whether before or after the Shareholder
Meeting, only as follows:
(i) if the consummation of the Proposed Transactions by the
Company would violate any non-appealable final order, decree or
judgment of any Governmental Body having competent jurisdiction;
(ii) if any material representation or warranty of the Operating
Partnership or any of the Contributing Entities or the
Constituent Partnerships made herein is untrue in any material
respect (other than a change permitted or contemplated by this
Agreement) and such breach is not cured within 60 days of receipt
of a notice from the Company that such breach exists or has
occurred;
(iii) if the conditions to the Company's obligations to
consummate the Closing as set forth in Sections 5.3 and 5.4
cannot reasonably be satisfied on or before September 30, 1998;
(iv) if the Company's shareholders do not approve the Private
Placements and the Berg Acquisition at the Special Meeting.
(b) This Agreement may be terminated by the Company alone if any
consent of any Limited Partner other than a Limited Partner who is a
member of the Berg Group shall not have been obtained on or before the
Closing Date.
11.2 EFFECT OF TERMINATION. In the event that this Agreement is terminated
pursuant to Section 11.1, this Agreement shall terminate without any
liability or further obligation of any party to another, except for
Sections 8.6, 10.2, and 10.3 which shall survive termination. A termination
under Section 11.1 shall not relieve a defaulting or breaching party (or
any party who has liability under this Agreement in respect of the actions
of a defaulting or breaching party) from any liability to the other party
or parties hereto for or in respect of such default or breach.
12. NOTICES.
All notices, consents and other communications under this agreement shall
be in writing and shall be deemed to have been duly given when (a)
delivered by hand, (b) sent by facsimile transmission (with receipt
confirmed), provided that a copy is mailed by registered mail, return
receipt requested, or (c) when received by the addressee, if sent by
<PAGE>
Express Mail, Federal Express or other express delivery service (receipt
requested), in each case to the appropriate addresses, and telecopier
numbers set forth in Appendix I hereto (or to such other addresses, and fax
numbers as a party may designate as to itself by notice to the other
parties).
13. GOVERNING LAW; JURISDICTION; ETC.
13.1 GOVERNING LAW. This Agreement and (unless otherwise provided) all
amendments hereof and waivers and consents hereunder shall be governed by
the internal laws of the State of California, without regard to the
conflicts of law principles thereof.
13.2 JURISDICTION. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this agreement may be
brought against any of the parties in the courts of the State of
California, or, if it has or can acquire jurisdiction, in the Northern
District of California, and each of the parties hereby consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in
any such action or proceeding and waives any objection to venue laid
therein.
14. MISCELLANEOUS.
14.1 SPECIFIC PERFORMANCE. The parties acknowledge that the subject matter
of this Agreement is unique and that no adequate remedy of law would be
available for breach of this Agreement. Accordingly, each party agrees that
the other parties will be entitled to an appropriate decree of specific
performance or other equitable remedies to enforce this Agreement (without
any bond or other security being required) and each party waives the
defense in any action or proceeding brought to enforce this Agreement that
there exists an adequate remedy at law.
14.2 CAPTIONS. The captions or headings of the Sections of this Agreement
are for convenience only, and shall not control or affect the meaning or
construction of any of the terms or provisions of this Agreement.
References in this Agreement to Sections are references to Sections of this
Agreement, unless expressly stated to the contrary. References in this
Agreement to Schedules are, unless expressly stated to the contrary,
references to Schedules to this Agreement, each of which is part of this
Agreement.
14.3 NO WAIVER. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement. Any waiver must
be in writing.
14.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement supersedes all prior
agreements among the parties with respect to its subject matter, and is
intended (with the documents referred to herein) as a complete and
exclusive statement of the terms of the agreement among the parties with
respect thereto and cannot be changed or terminated except by a written
instrument executed by the party or parties against whom enforcement
thereof is sought. This Agreement shall bind and inure to the benefit of
the parties hereto and their respective heirs, executors, personal
representatives, successors and assigns.
<PAGE>
14.5 BINDING NATURE. This Agreement shall be binding on each party hereto
at the time that such party executes this Agreement notwithstanding that
other signatories hereto executed and delivered the Agreement at a later
date or not at all.
14.6 COUNTERPARTS. This Agreement may be executed in counterparts and
delivered by electronic facsimile transmission, and each signed counterpart
transmitted by electronic facsimile shall be considered an original, but
all of which together shall constitute the same instrument.
[Remainder of page intentionally left blank]
<PAGE>
SIGNATURE PAGES OF ACQUISITION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have hereunto executed this Agreement
as of the first date written above, and a party's signature hereon in any
capacity shall constitute such party's execution of this Agreement in all
capacities which the party holds for purposes of this Agreement.
CONSTITUENT PARTNERSHIPS
MISSION WEST PROPERTIES, L.P., A DELAWARE LIMITED PARTNERSHIP
By:
Berg & Berg Enterprises, Inc., a California corporation
Its: General Partner
By:
Carl E. Berg
Its: President
By:
Thelmer Aalgaard
Its: Limited Partner
By:
Clyde J. Berg, Trustee, 1981 Kara Ann Berg Trust
Its: Limited Partner
By:
Michael L. Knapp
Its: Limited Partner
By:
Thelmer Aalgaard, Trustee of the Sonya L. Berg Trust
Its: Limited Partner
By:
Thelmer Aalgaard, Trustee of the Sherri L. Berg Trust
Its: Limited Partner
BERG FAMILY PARTNERS L.P., A DELAWARE LIMITED PARTNERSHIP
<PAGE>
By:
Berg Family Partners, LLC
Its: General Partner
By:
Carl E. Berg
Its: Manager
By:
Berg Living Trust UTA dated May 1, 1981
Its: Limited Partner
By:
Carl E. Berg
Its: Trustee
By:
Mary Ann Berg
Its: Trustee
By:
Clyde J. Berg, Trustee, 1995 Clyde J. Berg Revocable Trust, dated
April 4, 1995
Its: Limited Partner
By:
Clyde J. Berg
Its: Trustee
By:
Clyde J. Berg, Trustee, Carl Berg Child's Trust UTA dated June 2, 1978
Its: Limited Partner
By:
Clyde J. Berg
Its: Trustee
BERG & BERG DEVELOPERS, L.P., A DELAWARE LIMITED PARTNERSHIP
By:
Berg & Berg Developers, LLC, a Delaware limited liability company
Its: General Partner
By:
Carl E. Berg
Its: Manager
By:
Carl E. Berg
Its: Limited Partner
By:
Mary Ann Berg
Its: Limited Partner
By:
<PAGE>
Clyde J. Berg
Its: Limited Partner
KONTRABECKI ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP
By:
John T. Kontrabecki
Its: General Partner
CONTRIBUTING ENTITIES
KONTRABECKI ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP
By:
John T. Kontrabecki
Its: General Partner
TRIANGLE DEVELOPMENT, A CALIFORNIA LIMITED PARTNERSHIP
By:
Berg Ventures I
Its: General Partner
By:
John T. Kontrabecki
Its: General Partner
BERG VENTURES II, A CALIFORNIA LIMITED PARTNERSHIP
By:
John T. Kontrabecki
Its: General Partner
BACCARAT FREMONT DEVELOPERS, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY
By:
Michael L. Knapp
Its: Managing Member
BACCARAT CAMBRIAN, A CALIFORNIA GENERAL PARTNERSHIP
By:
Carl E. Berg
Its: General Partner
BERG & BERG ENTERPRISES INC., A CALIFORNIA CORPORATION
By:
Carl E. Berg
Its: President
<PAGE>
DE ANZA OFFICE PARTNERS, A CALIFORNIA GENERAL PARTNERSHIP
By:
Carl E. Berg
Its: General Partner
THE COMPANY
MISSION WEST PROPERTIES, A CALIFORNIA CORPORATION
By:
Michael J. Anderson
Its: Vice President and Chief Operating Officer
ADDITIONAL CONSENTING BERG GROUP MEMBERS
The terms of the foregoing Acquisition Agreement are acknowledged and
accepted by the undersigned.
Michael J. O'Rosky
Sonya O'Rosky
James R. Zorn
Sherri Zorn
<PAGE>
APPENDIX I
LIMITED PARTNERS IN THE OPERATING PARTNERSHIP POST-CLOSING
<TABLE>
<CAPTION>
L.P.
NAME ADDRESS UNITS
----------------------------------------------------------
<S> <C> <C>
Carl E. Berg, Mary 10050 Bandley Drive 31,869,313
Ann Berg, and Berg Cupertino,
Living Trust UTA California 95014
Dated May 1, 1981 Fax No. (408)
725-1626
----------------------------------------------------------
Clyde J. Berg and 10050 Bandley Drive 20,006,201
Clyde J. Berg Cupertino,
Revocable Trust, California 95014
dated April 4, 1995 Fax No. (408)
725-1626
----------------------------------------------------------
Clyde J. Berg, 10050 Bandley Drive 910,958
Trustee, Cupertino,
Carl Berg Child's California 95014
Trust UTA Dated Fax No. (408)
June 2, 1978 725-1626
----------------------------------------------------------
Berg & Berg 10050 Bandley Drive *
Developers, LLC Cupertino,
California 95014
Fax No. (408)
725-1626
----------------------------------------------------------
Berg Family 10050 Bandley Drive *
Partners, LLC Cupertino,
California 95014
Fax No. (408)
725-1626
----------------------------------------------------------
Clyde J. Berg, 10050 Bandley Drive 998,472
Trustee Cupertino,
of the 1981 Kara California 95014
Ann Berg Trust Fax No. (408)
725-1626
----------------------------------------------------------
Thelmer G. 10050 Bandley Drive 297,524
Aalgaard, Trustee Cupertino,
of the Sonya L. California 95014
Berg Trust Fax No. (408)
725-1626
----------------------------------------------------------
Thelmer G. 10050 Bandley Drive 297,524
Aalgaard, Trustee Cupertino,
of the Sherri L. California 95014
Berg Trust Fax No. (408)
725-1626
----------------------------------------------------------
Thelmer G. Aalgaard 10050 Bandley Drive 302,567
Cupertino,
California 95014
Fax No. (408)
725-1626
----------------------------------------------------------
Michael L. Knapp 10050 Bandley Drive 100,856
Cupertino,
California 95014
Fax No. (408)
725-1626
----------------------------------------------------------
Berg & Berg 10050 Bandley Drive 4,542,121
Enterprises, Inc. Cupertino, CA 95014
Fax No. (408)
725-1626
<PAGE>
----------------------------------------------------------
Baccarat Cambrian 10050 Bandley Drive 2,878,152
Partnership Cupertino,
California 95014
Fax No. (408)
725-1626
----------------------------------------------------------
Baccarat Fremont 10050 Bandley Drive 1,216,290
Developers Cupertino,
California 95014
Fax No. (408)
725-1626
----------------------------------------------------------
DeAnza Office 10050 Bandley Drive 806,846
Partners Cupertino,
California 95014
Fax No. (408)
725-1626
----------------------------------------------------------
Triangle 2755 Campus Drive, 482,911
Development Company #100
San Mateo, CA 94403
Fax No. (650)
312-1333
----------------------------------------------------------
John Kontrabecki 2755 Campus Drive, 953,018
#100
San Mateo, CA 94403
Fax No. (650)
312-1333
----------------------------------------------------------
Berg Venture II 2755 Campus Drive, 1,243,653
#100
San Mateo, CA 94403
Fax No. (650)
312-1333
----------------------------------------------------------
Total 66,906,406
</TABLE>
* Initial holder of 0.50% of the total L.P. Units outstanding in each of
Mission West Properties L.P. I and Mission West Properties L.P., II which will
be distributed after the closing to the owners of the LLC in identical
proportion to their percentage interests in each such partnership. Such
distributed Units are included in the individual L.P. Unit totals reflected
above.
<PAGE>
SCHEDULE 1
SCHEDULE OF MISSION WEST PROPERTIES, L.P.
PRE-CONTRIBUTION PROPERTIES
<TABLE>
<CAPTION>
Assessor's PROPERTY ADDRESS
PARCEL #
---------------------------------------------------
<S> <C>
519-1010-1174 48700-48800 Milmont
Drive, Fremont
---------------------------------------------------
104-04-120 4750-4800 Patrick Henry
Drive, Santa Clara
---------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 2
SCHEDULE OF MISSION WEST PROPERTIES, L.P. I (FORMERLY BERG FAMILY PARTNERS)
PROPERTIES
<TABLE>
<CAPTION>
ASSESSOR'S PARCEL # PROPERTY ADDRESS
------------------------------------------------------------
<S> <C>
110-29-007 1190 Morse Avenue, Sunnyvale
------------------------------------------------------------
160-54-017 450 National Avenue, Mountain View
------------------------------------------------------------
205-23-011 1135 Kern Avenue, Sunnyvale
------------------------------------------------------------
216-35-024 1230 E. Arques Avenue, Sunnyvale
------------------------------------------------------------
216-35-026 1250 E. Arques Avenue, Sunnyvale
------------------------------------------------------------
224-44-019 2251 Lawson Lane, Santa Clara
------------------------------------------------------------
224-44-020 3120 Scott Boulevard, Santa Clara
------------------------------------------------------------
224-47-019 3301 Olcott Street, Santa Clara
------------------------------------------------------------
316-22-018 20400 Mariani Avenue, Cupertino
------------------------------------------------------------
326-10-046 20605-705 Valley Green Drive, Cupertino
------------------------------------------------------------
357-20-020 10300 Bubb Road, Cupertino
------------------------------------------------------------
357-20-036 10440 Bubb Road, Cupertino
------------------------------------------------------------
357-20-037 10460 Bubb Road, Cupertino
------------------------------------------------------------
316-22-017 10500 N. DeAnza Boulevard, Cupertino
------------------------------------------------------------
519-1005-72 2800 Bayview
------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 3
SCHEDULE OF MISSION WEST PROPERTIES, L.P. II (FORMERLY BERG & BERG
DEVELOPERS) PROPERTIES
<TABLE>
<CAPTION>
Assessor's DESCRIPTION
PARCEL #
--------------------------------------------------
<S> <C>
086-33-092 McCandless-Parcel 7, Milpitas
--------------------------------------------------
086-33-093 McCandless-Parcel 8, Milpitas
--------------------------------------------------
086-33-094 McCandless-Parcel 9, Milpitas
--------------------------------------------------
086-33-095 McCandless-Parcel 10, Milpitas
--------------------------------------------------
086-33-098 McCandless-Parcel 4, Milpitas
--------------------------------------------------
086-33-099 McCandless-Parcel 5, Milpitas
--------------------------------------------------
086-33-100 McCandless-Parcel 6, Milpitas
--------------------------------------------------
086-41-016 McCandless 2A & 2B, Milpitas
--------------------------------------------------
086-41-017 McCandless-Parcel 3, Milpitas
--------------------------------------------------
086-41-018 McCandless-Parcel 3, Milpitas
--------------------------------------------------
086-41-019 McCandless-Parcel 11, Milpitas
--------------------------------------------------
086-41-020 McCandless-Parcel 11, Milpitas
--------------------------------------------------
086-41-021 McCandless-Parcel 12, Milpitas
--------------------------------------------------
086-41-022 McCandless-Parcel 13, Milpitas
--------------------------------------------------
097-13-054 75 E. Trimble Road and
2600-2610 North First St., San Jose
--------------------------------------------------
097-13-055 2600-2610 North First St.,
and 75 E. Trimble Road, San Jose
--------------------------------------------------
110-14-198 1170 Morse Avenue, Sunnyvale
--------------------------------------------------
110-25-040 1212 Bordeaux Drive, Sunnyvale
--------------------------------------------------
216-29-112 3236 Scott Boulevard, Santa Clara
--------------------------------------------------
224-65-006 1600 Memorex Drive, Santa Clara
--------------------------------------------------
421-07-021 2033-2243 Samaritan Drive, San Jose
--------------------------------------------------
706-02-025 6850 Santa Teresa, San Jose
--------------------------------------------------
706-02-026 140-160 Great Oaks Boulevard and
6781 Via Del Oro, San Jose
--------------------------------------------------
706-02-034 6385-6387 San Ignacio and
6540 Via Del Oro, San Jose
--------------------------------------------------
706-09-023 6320-6360 San Ignacio, San Jose
--------------------------------------------------
706-09-094 6311-6351 San Ignacio, San Jose
--------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 4
MISSION WEST PROPERTIES, L.P. III (FORMERLY KONTRABECKI ASSOCIATES) PROPERTIES
<TABLE>
<CAPTION>
ASSESSOR'S PROPERTY ADDRESS
PARCEL #
---------------------------------------
<S> <C>
104-15-128-00 3506-3510 Bassett,
Santa Clara
---------------------------------------
104-15-130-00 3540-3544 Bassett,
Santa Clara
---------------------------------------
104-15-131-00 3550-3580 Bassett,
Santa Clara
---------------------------------------
104-15-132-00 Cul-de-Sac
---------------------------------------
</TABLE>
<PAGE>
SCHEDULE 5
SCHEDULE OF CONTRIBUTED PROPERTIES
<TABLE>
<CAPTION>
CONTRIBUTING ASSESSOR'S DESCRIPTION NUMBER OF
ENTITY PARCEL #'S UNITS
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Carl E. Berg 525-1350-54-1, 4050 Starboard Drive, 3,061,427
525-1350-18, 45700 Northport,
525-1350-24 45738 Northport Loop,
Fremont, CA
- ---------------------------------------------------------------------
MWPIII 104-15-128-00, 3506-3510 Bassett 1,906,036*
104-15-130-00, Street,
104-15-131-00 3540-3544 Bassett
Street,
3550-3580 Bassett
Street
Santa Clara, CA
- ---------------------------------------------------------------------
Triangle 104-15-133-00 3530 Bassett Street 482,911
Development Santa Clara, CA
Company
- ---------------------------------------------------------------------
Berg Venture 104-15-134-00 3520 Bassett Street 1,243,653
II Santa Clara, CA
- ---------------------------------------------------------------------
Baccarat 519-850-102 3501 W. Warren and 1,216,290
Fremont 46600 Fremont
Developers Boulevard
LLC
- ---------------------------------------------------------------------
Baccarat 421-07-025 2001 Logic Drive 2,878,152
Cambrian
Partnership
- ---------------------------------------------------------------------
Berg & Berg 678-16-005 4949 Hellyer Avenue 4,521,950
Enterprises,
Inc.
- ---------------------------------------------------------------------
De Anza 357-20-010 10401-10411 Bubb 806,846
Office Road, Cupertino, CA
Partners
- ---------------------------------------------------------------------
</TABLE>
* Included on Schedule 6 also.
<PAGE>
SCHEDULE 6
POST-CONTRIBUTION SCHEDULE OF L.P. UNITS OUTSTANDING
FOR EACH PARTNERSHIP IN THE OPERATING PARTNERSHIP
<TABLE>
<CAPTION>
PARTNERSHIP NAME NUMBER OF L.P. UNITS
--------------------------------------------------
<S> <C>
Mission West Properties, 16,228,344
L.P.
--------------------------------------------------
Mission West Properties, 12,722,876
L.P. I
--------------------------------------------------
Mission West Properties, 36,049,150
L.P. II
--------------------------------------------------
Mission West Properties, 1,906,036
L.P. III
--------------------------------------------------
Total: 66,906,406
--------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT F
CONSENT OF CERTAIN PERSONS
EACH OF THE FOLLOWING PERSONS/ENTITIES HEREBY ACKNOWLEDGES THE TERMS OF THE
ACQUISITION AGREEMENT DATED AS OF MAY 14, 1998 TO WHICH A LIMITED PARTNERSHIP IN
WHICH THE UNDERSIGNED IS A LIMITED PARTNER, AND CONSENTS TO THE LIMITED
PARTNERSHIP'S AGREEMENT TO BE BOUND BY THOSE TERMS.
By:
Brian Aalgaard
Dated:
By:
James Koch
Dated:
By: KLA Development Corporation
By:
Its:
Dated:
By:
Karen Bella
Dated:
<PAGE>
AMENDMENT TO ACQUISITION AGREEMENT
This Amendment to Acquisition Agreement is made and entered into as of
July 1, 1998, by and among Mission West Properties, a California corporation
(the "Company"), Mission West Properties, L.P., a Delaware limited partnership
("MWP"), Berg Family Partners, L.P., a Delaware limited partnership ("MWP I"),
Berg & Berg Developers, L.P., a Delaware limited partnership ("MWP II"),
Kontrabecki Associates, a California limited partnership ("MWP III"), and each
of the partners of the respective partnerships (the "Partners"), holders of
equity interests in the other entities and certain other persons who are listed
on the signature pages hereto.
RECITALS
WHEREAS, the parties hereto entered into an Acquisition Agreement dated
May 14, 1998 (the "Acquisition Agreement") pursuant to which the parties thereto
may amend the Acquisition Agreement by a writing executed by the party or
parties against whom enforcement is sought in accordance with Section 14.4
thereof.
WHEREAS, the parties wish to amend the Acquisition Agreement and their
respective performance thereunder to permit the occurrence of the Berg
Acquisition (as defined xtherein) and the organization of the Operating
Partnership (as defined therein) prior to the Special Meeting (as defined
therein) so that the accounting period for which the Company reports the
operations of the Operating Partnership in 1998 shall commence on July 1,
1998.
WHEREAS, such parties now desire to amend the terms of the Acquisition
Agreement to provide for the changes set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
conditions and promises hereinafter set forth, the parties agree as follows:
1. DEFINITIONS. Unless otherwise defined or specified in this Amendment, all
capitalized terms used herein will have the meanings set forth in the
Acquisition Agreement.
2. AMENDMENT TO CERTAIN SECTIONS OF ACQUISITION AGREEMENT. The following
sections of the Acquisition Agreement will be amended as follows:
2.1 DEFINITIONS. Section 1.10 shall be amended to read in its entirety as
follows:
1.10 "CLOSING" shall have the meaning ascribed to it in Section 4.1,
and "PARTNERSHIP CLOSING" shall mean the closing of the transactions
described in Section 3 (THE TRANSACTIONS SUBJECT TO THIS AGREEMENT),
as amended hereby.
<PAGE>
Section 1.11 shall be amended to read in its entirety as follows:
1.11 "CLOSING DATE" shall mean the date and time of the Closing.
"PARTNERSHIP CLOSING DATE" shall mean July 1, 1998.
Section 1.51 shall be amended to read in its entirety as follows:
1.51 "SHAREHOLDER APPROVAL" shall mean the vote of the shareholders
of the Company approving or ratifying a Proposed Transaction at the
Special Meeting.
2.2 THE TRANSACTIONS SUBJECT TO THIS AGREEMENT. Sections 3.1-3.3 shall be
amended to read in their entirety as follows:
3.1 AGREEMENT TO FORM THE OPERATING PARTNERSHIP. Each of the
Constituent Partnerships hereby agrees to adopt the Operating
Partnership Agreement and to be managed and operated as a
participant in the Operating Partnership. Upon the occurrence of the
Partnership Closing, the Company thereafter shall manage the
Operating Partnership, in its capacity as general partner of each of
the Constituent Partnerships, in accordance with the principles and
procedures contained in Section 9.7. Upon the Partnership Closing,
all of the limited partnership interests and the existing general
partner interests in each of the Constituent Partnerships shall be
converted automatically into the number of L.P. Units set forth
opposite the name of each Constituent Partnership on Schedule 6
(provided that 3,061,427 L.P. Units of MWP shall not be issued
unless and until Carl E. Berg has acquired the properties set forth
opposite his name on Schedule 5 (the "Fremont Properties") and has
contributed them, subject to secured indebtedness of approximately
Five Million Nine Hundred Thousand Dollars ($5,900,000) in
principal), by grant deed to MWP; MWP III shall elect to become a
Delaware limited partnership pursuant to Section 17-217(b) of the
Delaware Revised Uniform Limited Partnership Act; and the existing
limited partnership agreement of each of the limited partnerships
shall be amended and restated to substantially conform to the
provisions of the Operating Partnership Agreement.
3.2 ACQUISITION OF THE CONTRIBUTED PROPERTIES.
Subject to the terms and conditions hereof and in reliance
upon the representations, warranties, and agreements contained
herein, at the Partnership Closing, the Operating Partnership shall
acquire the Contributed Properties and the Contributing Entities
(other than MWP III) shall convey their respective Contributed
Properties to MWP. In exchange, each Contributing Entity shall be
entitled to receive that number of L.P. Units set forth opposite its
name on Schedule 5 at the Partnership Closing. Notwithstanding the
foregoing, Carl E. Berg shall not contribute the Fremont Properties
to MWP at the Partnership Closing and shall not be entitled to
receive 3,061,427 L.P. Units of MWP limited partnership interest, as
set forth on Schedule 5, unless and until he has contributed the
Fremont Properties, subject to indebtedness in the approximate
principal amount of $5,900,000, to MWP by grant deed.
3.3 THE BERG ACQUISITION.
<PAGE>
(a) Subject to the terms and conditions hereof and in reliance upon
the representations, warranties, and agreements contained herein, at
the Partnership Closing: (i) the Company shall acquire the general
partnership interests in each of the Constituent Partnerships for
the total amount of Thirty-Three Million Five Hundred Eighty-Nine
Thousand Three Hundred Thirty-Three Dollars ($33,589,333) payable by
delivery of a demand note ("Demand Note") to each of the Constituent
Partnerships in the amounts set forth opposite the name of such
Constituent Partnership (the "Contribution Amount") in the form
attached hereto Exhibit G; (ii) Berg & Berg Enterprises, Inc., Berg
Family Partners LLC, Berg & Berg Developers LLC, and John T.
Kontrabecki shall resign as the general partner of MWP, MWP I, MWP
II, and MWP III, respectively; and (iii) the Company shall receive a
general partner interest equal to 10.91% of the capital, profits,
losses and distributions of each Constituent Partnership (or 10.91%
of the Operating Partnership) in accordance with the terms of the
Operating Partnership Agreement. The capital contribution and amount
of the Demand Note payable by the Company set forth below for its
general partner interest in each of the Constituent Partnerships at
the Partnership Closing is subject to adjustment as provided in
Section 3.3(b).
<TABLE>
<CAPTION>
PARTNERSHIP DEMAND NOTE AMOUNT
<S> <C>
MWP $ 6,927,195
MWP I 6,693,607
MWP II 18,965,750
MWP III 1,002,781
</TABLE>
(b) At or prior to the Partnership Closing, the Operating
Partnership may obtain new loans or refinance existing debt of the
Constituent Partnerships, which will be, or is secured by, certain
Existing Properties and/or Contributed Properties. The amount of
debt encumbering such Properties will affect the value of each of
the Constituent Partnerships and the percentage of the total
Contribution Amount allocable to each such Partnership. Accordingly,
the parties agree that appropriate adjustment, if any, will be made
in the amount of each of the Demand Notes set forth in the table in
Section 3.3(a) to reflect the difference between the amount of
indebtedness for borrowed funds which encumbers the Properties of a
Constituent Partnership as of the Partnership Closing Date and the
amount of such indebtedness as of the date of this Agreement.
Furthermore, the parties acknowledge and agree that for income tax
purposes, limited partners in the Operating Partnership, and the
partners or other equity owners in such limited partners have
assumed or guaranteed, or will wish to assume or guaranty certain
indebtedness of their respective Constituent Partnerships. All
parties acknowledge and agree that all limited partners or owners of
interests therein shall be entitled to assume or guaranty
indebtedness of the Operating Partnership as of the Partnership
Closing Date and any refinancing date in such proportions as they
request.
2.3 THE CLOSING. Sections 4.1-4.3 shall be amended to read in their
<PAGE>
entirety as follows:
4.1 THE CLOSING DATE.
Subject to Shareholder Approval, the closing of the transactions
contemplated by this Agreement, excluding the transactions described
in Sections 3.1, 3.2, and 3.3 to be concluded on the Partnership
Closing Date, shall take place (the "Closing") at the offices of
Berg & Berg Enterprises, Inc., 10050 Bandley Drive, Cupertino,
California at 10:00 a.m., P.D.T., on the last business day of the
calendar month in which the Special Meeting is held (the "Closing
Date"). The Partnership Closing for the transactions described in
Sections 3.1, 3.2 and 3.3 shall take place at the same offices,
effective at the close of business on July 1, 1998 (the "Partnership
Closing Date").
4.2 DELIVERIES.
(a) On the Partnership Closing Date: (i) the Company shall
deliver a Demand Note to each Constituent Partnership as provided in
Section 3.3, and the Company shall receive the general partner
interest in each of the Constituent Partnerships and such
certificates representing the same as shall be available; (ii) the
Contributing Entities shall deliver good and marketable title to the
Contributed Properties (other than the Fremont Properties) by grant
deeds executed and acknowledged by the applicable Contributing
Entity, and the Operating Partnership shall deliver to the
Contributing Entities certificates representing the number of L.P.
Units set forth opposite each respective Contributing Entity's name
on Schedule 5 hereto (other than L.P. Units issuable in exchange for
the contribution of the Fremont Properties); (iii) the Company and
all other partners in each of the Constituent Partnerships shall
sign and deliver the Operating Partnership Agreement to
representatives of the respective parties at the Partnership
Closing; and (iv) each of the general partners in each of the
Constituent Partnerships shall execute and deliver a certificate of
amendment of certificate of limited partnership designating the
Company as the new sole general partner in the partnership.
(b) On the Closing Date, (i) the parties to the Pending
Projects Acquisition Agreement and the Berg Land Holdings Option
Agreement shall deliver duly executed copies of the agreements to
each party thereto; (ii) the Company, each Constituent Partnership
and all of the Limited Partners shall sign and deliver the Exchange
Rights Agreement to the representatives of the respective parties at
the Closing; (iii) Carl E. Berg shall deliver good and marketable
title to the Fremont Properties by duly executed and acknowledged
grant deeds, and the Operating Partnership shall deliver to Carl E.
Berg a certificate representing 3,061,427 L.P. Units; and (iv) the
Company shall pay in immediately available funds to the Operating
Partnership One Million Six Hundred Ten Thousand Six Hundred
Sixty-Seven Dollars ($1,610,667) as a contribution which equals
10.91% of the net equity value of the Fremont Properties, as the
contribution amount to be paid for the remainder of the Company's
10.91% general partner interest in MWP, and shall pay in immediately
available funds all other amounts payable on demand made by the
Operating Partnership pursuant to the terms of the Demand Notes.
<PAGE>
4.3 ADJUSTMENTS. The amounts receivable by or payable to the
Contributing Entities (other than MWP III) at the Partnership
Closing based upon the pro rations required under this Section 4.3
shall be determined and the net amount shall be paid in cash at the
Partnership Closing by or to the Contributing Entity that owns the
particular Contributed Property to which the adjustment relates. The
items to be pro rated as of the Partnership Closing Date include the
following: real estate taxes (on the basis of the due dates of the
tax bills for the period for which such taxes are assessed) on the
Contributed Properties, personal property taxes on the Personal
Property, minimum water and sewer rentals, rents, including without
limitation, expense pass-throughs, percentage rents, income from and
expenses for electricity and other sums paid by tenants, licensees
and concessionaires and collected by the Contributing Entities prior
to the Partnership Closing Date under the Leases covering the
Contributed Properties, payments due under service agreements which
are to be assigned to the benefit of the Operating Partnership,
prepaid license fees and other charges for licenses and permits for
its Contributed Properties, which will remain in effect for the
benefit of the Operating Partnership after the Partnership Closing
Date, rental under any ground lease, municipal rubbish removal
charges, lease rejection awards made in any bankruptcy proceedings
of a tenant, and prepaid insurance premiums for insurance which will
remain in effect for the benefit of the Operating Partnership after
the Partnership Closing Date, if any, shall be apportioned pro rata
between the Contributing Entity and the Operating Partnership, on a
per diem basis as of midnight on the day before the Partnership
Closing Date, so that the Contributing Entity shall bear all
expenses with respect to its Contributed Properties and benefit from
all items of income with respect to its Contributed Properties
through the day before the Partnership Closing Date. To the extent
that the amounts of the items to be adjusted are not reasonably
ascertainable as of the Partnership Closing Date or there are any
other items which should properly be allocated at that time, they
shall be adjusted or taken into account by the affected Contributing
Entity and the Operating Partnership as promptly after the
Partnership Closing Date as the amounts thereof are ascertained.
2.4 CONDITIONS TO CLOSING. Section 5.2 is hereby amended to apply only to
the Partnership Closing as of the Partnership Closing Date. Section 5.2(d) shall
be amended by deleting such provision in its entirety and replacing it with the
following:
"PAYMENT OF CONTRIBUTION AMOUNT." The Company shall have executed
and delivered Demand Notes to the Operating Partnership in the
aggregate amount of Thirty-Three Million Five Hundred Eighty-nine
Thousand Three Hundred Thirty-three Dollars ($33,589,733)
substantially in the form attached hereto as Exhibit G."
Sections 5.3(a), (c) and (d) shall apply to the Partnership Closing and
the Closing, and Section 5.3(b) and Section 5.4, in its entirety, shall apply
only to the Partnership Closing.
2.5 REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE PROPERTIES. Section
7 is hereby amended to be applicable with respect to both the Partnership
Closing, and the Closing and compliance with any representation or warranty
waived by the parties with respect to the Partnership Closing shall be required
<PAGE>
as of the Closing Date; provided, further that all such provisions shall apply
with respect to Carl E. Berg's contribution of the Fremont Properties to MWP
only as of the date such contribution occurs.
2.6 COMPANY CORPORATE ACTIONS. Section 8.3(a) is hereby amended to read in
its entirety as follows:
(a) SPECIAL MEETING. As soon as practicable, in accordance
with the CGCL and the Company's articles of incorporation and
bylaws, and the policies and regulations of the AMEX, the Company
shall take all action necessary to convene the Special Meeting as
soon as practicable to consider and vote to approve or ratify the
Proposed Transactions. The Company and all other parties to this
Agreement agree to use their respective ultimate best efforts to
obtain Shareholder Approval.
2.7 CORPORATE OPPORTUNITIES; FREEDOM OF ACTION. The provisions of Section
9.2 shall take effect as of the Partnership Closing Date immediately upon
completion of the Partnership Closing.
2.8 OPERATION OF THE OPERATING PARTNERSHIP. The provisions of Section 9.7
shall take effect as of the Partnership Closing Date immediately upon completion
of the Partnership Closing.
2.9 TERMINATION. Section 11.1 is amended to read in its entirety as
follows:
11.1 TERMINATION. This Agreement may be terminated by the Company or
by Carl E. Berg before the Closing occurs, whether before or after
the Shareholder Meeting only if the consummation of the Proposed
Transactions by the Company would violate any non-appealable final
order, decree or judgment of any Governmental Body having competent
jurisdiction.
Section 11.2 is amended to add the following sentence at the end thereof:
11.2 EFFECT OF TERMINATION. In the event of termination pursuant to
Section 11.1 as amended, the Company, the Constituent Partnerships
and the Contributing Entities shall take all actions and execute all
documents deemed reasonable or necessary to unwind the transactions
concluded at the Partnership Closing and, to the extent practicable
at the time, to restore each of the parties to the Agreement to the
position that such party was in on the date immediately preceding
the Partnership Closing Date, as if the Partnership Closing had not
occurred with respect to such party.
3. WAIVER OF CERTAIN CLOSING CONDITIONS. The parties hereto agree that the
conditions to Closing set forth in Sections 5.1(a) and (d) of the Acquisition
Agreement are hereby waived with respect to the Partnership Closing and need not
be completed prior to the Partnership Closing Date.
4. AMENDMENT OF EXHIBITS TO ACQUISITION AGREEMENT. The parties hereto agree that
any and all agreements attached as exhibits to the Acquisition Agreement shall
be amended as recommended by legal counsel to the extent necessary to conform to
the Acquisition Agreement as amended hereby.
5. CONTINUED EFFECT. Except as otherwise expressly provided herein, the
<PAGE>
Acquisition Agreement will continue in full force and effect, in accordance with
its terms.
6. MISCELLANEOUS.
This Amendment and (unless otherwise provided) and waivers and consents
hereunder shall be governed by the internal laws of the State of California,
without regard to the conflicts of law principles thereof. This Amendment
constitutes the full and entire understanding and agreement among the parties
with regard to the subject matter contained herein, and supersedes all prior
written and oral agreements, representations and commitments, if any, among the
parties with respect to such subject matter, provided that each party hereto
hereby agrees to take such other actions and execute such additional documents
as may be necessary to effectuate the terms of this Amendment. This Amendment
may be executed in counterparts and delivered by electronic facsimile
transmission, and each signed counterpart transmitted by electronic facsimile
shall be considered an original, but all of which together shall constitute the
same instrument. Any provision of this Amendment may be waived or modified only
in accordance with Section 14.4 of the Acquisition Agreement.
[Remainder of the page intentionally left blank]
<PAGE>
SIGNATURE PAGES OF AMENDMENT TO ACQUISITION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
Amendment as of the first date written above, and a party's signature hereon in
any capacity shall constitute such party's execution of this Amendment in all
capacities which the party holds for purposes of this Amendment.
CONSTITUENT PARTNERSHIPS
MISSION WEST PROPERTIES, L.P., A DELAWARE LIMITED PARTNERSHIP
By:
Berg & Berg Enterprises, Inc., a California corporation
Its: General Partner
By:
Carl E. Berg
Its: President
By:
Thelmer Aalgaard
Its: Limited Partner
By:
Clyde J. Berg, Trustee, 1981 Kara Ann Berg Trust
Its: Limited Partner
By:
Michael L. Knapp
Its: Limited Partner
By:
Thelmer Aalgaard, Trustee of the Sonya L. Berg Trust
Its: Limited Partner
<PAGE>
By:
Thelmer Aalgaard, Trustee of the Sherri L. Berg Trust
Its: Limited Partner
BERG FAMILY PARTNERS L.P., A DELAWARE LIMITED PARTNERSHIP
By:
Berg Family Partners, LLC
Its: General Partner
By:
Carl E. Berg
Its: Manager
By:
Berg Living Trust UTA dated May 1, 1981
Its: Limited Partner
By:
Carl E. Berg
Its: Trustee
By:
Mary Ann Berg
Its: Trustee
By:
Clyde J. Berg, Trustee, 1995 Clyde J. Berg Revocable Trust, dated
April 4, 1995
Its: Limited Partner
By:
Clyde J. Berg
Its: Trustee
By:
Clyde J. Berg, Trustee, Carl Berg Child's Trust UTA dated June 2, 1978
Its: Limited Partner
By:
Clyde J. Berg
Its: Trustee
BERG & BERG DEVELOPERS, L.P., A DELAWARE LIMITED PARTNERSHIP
By:
Berg & Berg Developers, LLC, a Delaware limited liability company
Its: General Partner
By:
Carl E. Berg
Its: Manager
By:
<PAGE>
Carl E. Berg
Its: Limited Partner
By:
Mary Ann Berg
Its: Limited Partner
By:
Clyde J. Berg
Its: Limited Partner
KONTRABECKI ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP
By:
John T. Kontrabecki
Its: General Partner
CONTRIBUTING ENTITIES
KONTRABECKI ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP
By:
John T. Kontrabecki
Its: General Partner
TRIANGLE DEVELOPMENT, A CALIFORNIA LIMITED PARTNERSHIP
By:
Berg Ventures I
Its: General Partner
By:
John T. Kontrabecki
Its: General Partner
BERG VENTURES II, A CALIFORNIA LIMITED PARTNERSHIP
By:
John T. Kontrabecki
Its: General Partner
BACCARAT FREMONT DEVELOPERS, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY
By:
Michael L. Knapp
Its: Managing Member
BACCARAT CAMBRIAN, A CALIFORNIA GENERAL PARTNERSHIP
By:
Carl E. Berg
<PAGE>
Its: General Partner
BERG & BERG ENTERPRISES INC., A CALIFORNIA CORPORATION
By:
Carl E. Berg
Its: President
DE ANZA OFFICE PARTNERS, A CALIFORNIA GENERAL PARTNERSHIP
By:
Carl E. Berg
Its: General Partner
THE COMPANY
MISSION WEST PROPERTIES, A CALIFORNIA CORPORATION
By:
Michael J. Anderson
Its: Vice President and Chief Operating Officer
<PAGE>
EXHIBIT G
July 1, 1998
Cupertino, California _____________
Partnership Interest Purchase
Demand Note
On demand, Mission West Properties ("Maker") promises to pay to
the order of [INSERT NAME OF LIMITED PARTNERSHIP] or any person or entity to
whom this Note has been endorsed for payment or order (collectively the
"Holder"), the principal sum of ____________________________________
($____________) (the "principal sum") and interest on the principal sum at
the rate of seven and one quarter percent (7.25%) per annum, from the date of
this Note until paid in full, but in no case higher than the maximum rate
allowed by law. Interest shall accrue and compound semiannually on the
unpaid balance, computed on the basis of a 360-day year. Principal and
interest will be paid in lawful money of the United States of America at the
address of the Holder of this Note. All payments on this Note shall be
applied first to the reduction of any accrued and unpaid interest before any
reduction in the principal sum outstanding. Notwithstanding the foregoing,
the Holder shall make no demand under this Note until the earlier of (i) the
date on which the Maker receives funds from the sale of its equity securities
in the Private Placement (as identified in the Acquisition Agreement among
Mission West Properties, Certain Partnerships and the Berg Group (as defined
therein), dated as of May 14, 1998); and (ii) the second anniversary of the
issuance of this Note. Any demand by [INSERT NAME OF LIMITED PARTNERSHIP] may
be made by action of the holders of a majority of the outstanding L.P. Units
in such partnership.
The following is a statement of additional rights of the Holder of
this Note and the conditions to which this Note is subject, to which the
Holder hereof, by the acceptance of this Note, agrees:
<PAGE>
1. ATTORNEYS' FEES. If the indebtedness represented hereby is not paid in
full when due, Maker promises to pay all costs of collection, including, but
not limited to, reasonable attorneys' fees.
2. REPLACEMENT. On receipt of evidence reasonably satisfactory to Maker of
loss, theft, destruction or mutilation of this Note and, in the case of loss,
theft or destruction, on delivery of an indemnity agreement or bond
reasonably satisfactory in form and amount to Maker, or in the case of
mutilation, on surrender and cancellation of this Note, Maker, at Maker's
expense, will execute and deliver, in lieu of this Note, a new Note of like
tenor.
3. MODIFICATION. This Note and any of its terms may be changed, waived or
terminated only by a written instrument signed by the party against which
enforcement of that change, waiver or termination is sought.
4. GOVERNING LAW. This Note shall be governed by and construed and enforced
in accordance with the laws of the State of California.
5. SEVERABILITY. If any provision of this Note should be found to be invalid
or unenforceable, all other provisions shall nevertheless remain in full
force and effect to the maximum extent permitted by law.
6. NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery or on the day sent by facsimile transmission if a true and
correct copy is sent the same day by first class mail, postage prepaid, or by
dispatch by an internationally recognized express courier services, to the
proper parties at the appropriate business addresses.
MISSION WEST PROPERTIES
By:
Its:
<PAGE>
STOCK PURCHASE AGREEMENT - INGALLS & SNYDER LLC PRIVATE PLACEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the ____
day of ________, 1998, 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").
RECITALS
WHEREAS, the Company intends to submit to its shareholders for
approval: an acquisition by the Company of the general partnership interest
in four limited partnerships in which the limited partners will receive the
right to exchange limited partner interests for Common Stock (the "Berg
Acquisition"); the purchase and sale of up to 5,777,778 shares (the "Shares")
of common stock of the Company (the "Common Stock") pursuant to this
Agreement (the "Private Placement"); and the merger of the Company with and
into Mission West Properties, Inc., a Maryland corporation ("Mission
West-Maryland") which will elect to become a Real Estate Investment Trust
(the "Reincorporation Merger"), (collectively the "Proposed Transactions");
WHEREAS, the Company intends to file a Registration Statement on Form
S-4 (the "Registration Statement") to register shares of Common Stock and
other securities to be issued by Mission West-Maryland in exchange for
securities of the Company pursuant to the Securities Act of 1933, as amended
(the "Securities Act') and will deliver to the shareholders of the Company
the proxy statement/prospectus (the "Proxy Statement/Prospectus") included in
such Registration Statement in connection with the special meeting of
shareholders at which the shareholders will be asked to approve the purchase
and sale of the Shares (the "Special Meeting");
WHEREAS, the Company's confidential Private Placement Memorandum dated
as of April __, 1998 (the "Private Placement Memorandum"), has been delivered
to each of the Purchasers in connection with the Private Placement;
WHEREAS, the firm of Ingalls & Snyder LLC, a registered broker dealer
("Ingalls & Snyder") has acted as the placement agent for the Purchasers in
connection with this Private Placement of Shares; and
WHEREAS, subject to shareholder approval, the Purchasers wish to
purchase from the Company, and the Company wishes to sell to the Purchasers,
the Shares pursuant to the terms of the Agreement;
AGREEMENT
NOW, THEREFORE the Purchasers and the Company agree as follows:
1. AUTHORIZATION AND SALE OF COMMON STOCK.
<PAGE>
1.1 AUTHORIZATION OF THE SHARES. The Board of Directors of the Company has
approved and authorized the Shares for issuance.
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 ($4.50) per share for the
aggregate purchase price set forth opposite each such Purchaser's name on the
Schedule of Purchasers.
1.3 SEPARATE AGREEMENTS. The Company's agreement with each Purchaser is a
separate agreement, and the sale of the shares of Common Stock to each
Purchaser is a separate sale.
1.4 PLACEMENT AGENT COMMISSION. In addition to the purchase price paid for
the Shares, each Purchaser agrees, severally, to pay to Ingalls & Snyder a
fee of Five Cents ($.05) per share on the Closing Date (as defined in Section
2.1) for each Share that Purchaser agrees to purchase from the Company
pursuant to this Agreement.
2. CLOSING DATE; DELIVERY.
2.1 CLOSING DATE. Subject to shareholder approval, 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 the Company at 10050 Bandley
Drive, Cupertino, California on the first business day immediately following
the Special Meeting, 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 applicable purchase price
(as set forth on the Schedule of Purchasers) in immediately available funds
by cashier's check or by wire transfer no later than the 5:00 p.m. on the
Closing Date to the Company at Mellon Bank, Pittsburgh, Pennsylvania, ABA
#043 000261, for credit to: Merrill Lynch, Account #101 1730; for further
credit to: Mission West Properties, Account #291 07M35. In addition, each
Purchaser will deliver to Ingalls & Snyder an amount equal to Five Cents
($.05) per share for each Share purchased by Purchaser hereunder in
immediately available funds by cashier's check or by wire transfer no later
than the 5:00 p.m. on the Closing Date to ____________________. Upon the
consummation of the Reincorporation Merger and after the SEC has declared the
Registration Statement effective, each of the Shares shall be exchanged
automatically for one share of Common Stock of Mission West-Maryland in the
manner described in the Registration Statement.
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.
<PAGE>
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.
3.2 SUBSIDIARIES. Other than Mission West Executive Aircraft Center, Inc.,
MIT Realty, Inc., and Mission West Properties, Inc., a Maryland corporation
(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 1,698,535 shares are 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"), of which options to acquire Six Hundred Five Thousand (605,000)
shares have been granted as of the date hereof. The Company has reserved
Five Million Seven Hundred Seventy-Seven Thousand Seven Hundred Seventy-Eight
(5,777,778) shares of Common Stock for issuance hereunder. Except for the
foregoing, and the other securities to be issued in connection with the
Proposed Transactions, 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 is not 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
<PAGE>
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.
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 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,
including the Proxy Statement/Prospectus, ("Company SEC Documents") have
complied in all material respects with the applicable requirements of 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
<PAGE>
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 December 31, 1997 and the Proxy Statement/Prospectus. The Company shall
furnish copies of the Registration Statement, of the Proxy
Statement/Prospectus forms a part, to all Purchasers requesting the same
prior to the Closing. The financial statements set forth in the SEC Form
10-K and the Proxy Statement/Prospectus are in accordance with the books and
records of the Company and the other entities for which financial information
is presented (the "Berg Entities"), 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 and the Berg Entities as of the dates thereof and
the results of its operations for the periods then ended.
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.
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. Except for the fee to be paid to Ingalls & Snyder, 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
<PAGE>
by this Agreement.
4.6 SUITABILITY. Purchaser is an "accredited investor," as such term is
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. 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)).
4.9 REIT QUALIFICATION OF THE COMPANY. For the purposes of Section 856(a)(6)
and (h) of the Internal Revenue Code of 1986, as amended (the "Code"), each
Purchaser represents and warrants that upon and as a result of the Purchase's
acquisition of the Shares at the Closing Date: (i) no individual who is a
Purchaser or owns a direct or indirect interest in such Purchaser will own
(within the meaning of Section 544(a) of the Code) more than 10% of the total
value of the Company's outstanding stock (as determined for purposes of
Section 542(a)(2) of the Code); (ii) for purposes of the ownership
attribution rules under Section 856(d)(5) of the Code, Purchaser would not be
deemed to own 50% or more of the value of the Company's outstanding stock;
(iii) no Purchaser which is a qualified trust (within the meaning of Section
856(h)(3)(E) of the Code) will own (within the meaning of Section 544(a) of
the Code) more than 10% of the value of the outstanding stock of the Company;
(iv) Purchaser does not own, directly or indirectly, 10% or more of the total
combined voting power of all classes of stock of any tenant of any of the
properties listed in the Private Placement Memorandum; and (v) Purchaser has
no plan or intention, and has not entered into any agreement or arrangement,
to transfer Shares at any time after the Closing Date such that as a
consequence of the transfer any of the Purchaser's representations and
warranties in clauses (i) through (iv) would cease to be true.
5. COVENANTS OF THE COMPANY.
5.1 INVESTIGATION. Upon reasonable notice, prior to the Closing Date the
Company shall afford to Purchasers or to any of Purchaser's officers,
employees, accountants, counsel and other authorized representatives full and
complete access during normal business hours to its plants, properties,
contracts,
<PAGE>
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
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 CONSENTS AND APPROVALS. Prior to the Closing Date, 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 REPRESENTATIONS 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 SHAREHOLDER APPROVAL. The shareholders of the Company shall have
approved the purchase and sale of the Shares at the Special Meeting.
6.4 LISTING REQUIREMENTS. The Shares shall have been listed with the
American Stock Exchange and the Pacific Exchange, subject to shareholder
approval of the purchase and sale of the Shares.
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.
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.
8. GENERAL.
8.1 SURVIVAL. The covenants, representations and warranties of the parties
to this Agreement shall survive the Closing for a period of one year.
<PAGE>
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.
with a copy to:
Ingalls & Snyder LLC
61 Broadway
New York, New York 10006
Telecopier:
Attention: ___________
(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
<PAGE>
Telecopier: 650/856-3619
Attention: Alan B. Kalin
Each Purchaser may change its address or telecopier number for purposes
of this Agreement by prior written notice to the Company. The Company may
change its address or telecopier number by prior written notice to the
Purchasers.
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.
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
or subscribers for a majority of the Shares subject to this Agreement, 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,
<PAGE>
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT
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)
<PAGE>
APPENDIX I
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PURCHASE PRICE/OTHER
PURCHASERS CONSIDERATIONS
<S> <C> <C>
</TABLE>
<PAGE>
SUBSCRIPTION
AND REGISTRATION FORM
FOR MISSION WEST PROPERTIES
COMMON STOCK
I. PURCHASE OF COMMON STOCK
A. By executing this Subscription and Registration Form for Mission West
Properties Common Stock (the "Common Stock"), and the counterpart
signature pages to the Stock Purchase Agreement (the "Purchase
Agreement"), the undersigned hereby irrevocably agrees for the benefit
of Mission West Properties, a California corporation (the "Company") (i)
to purchase ______________ shares of the Common Stock of the Company, at
a purchase price of $4.50 per share for a total purchase price of
$_____________ (the "Purchase Price") and (ii) to tender the Purchase
Price at the Closing (as that term is defined in the Purchase Agreement)
by wire transfer no later than the 5:00 p.m., P.D.T., on ______ __, 1998
to Mellon Bank, Pittsburgh, Pennsylvania, ABA #043 000261, for credit
to: Merrill Lynch, Account #101 1730; for further credit to: Mission
West Properties, Account #291 07M35 or other appropriate consideration
approved by the Company in advance.
B. Unless the Company is instructed otherwise in writing by the
undersigned, the Purchase Price will be returned promptly in the event
that for any reason the purchase and sale of the Common Stock subscribed
hereby is not consummated or in the event that the undersigned's
subscription is rejected.
II. REGISTER COMMON STOCK AS FOLLOWS:
A. Corporation, Trust, Other Organization or any other Fiduciary Capacity
______________________________________________________________________
(Name of Corporation, Other Organization or Trustees)
If Trust, date of Trust Instrument:___________________________________
Tax ID Number:________________________________________________________
Number of Shares:_____________________________________________________
B. Individual, Joint Tenants, Tenants in Common, Community Property: (Type
of Ownership)
______________________________________________________________________
(First Name) (Last Name) (M.I.) (Social Security No.)
______________________________________________________________________
(First Name) (Last Name) (M.I.) (Social Security No.)
<PAGE>
______________________________________________________________________
(First Name) (Last Name) (M.I.) (Social Security No.)
Number of Shares:_____________________________________________________
(Joint tenancy with rights of survivorship will be presumed unless
otherwise indicated.)
C. Custodian for a Minor:
Number of Shares:_____________________________________________________
______________________________________________________________________
(Custodian's First Name) (Last Name)
______________________________________________________________________
(Minor's First Name) (Last Name) (Minor's Social Security No.)
______________________________________________________________________
Under the Uniform Gifts to Minor Act. (State of Residence of Minor)
Number of Shares:_____________________________________________________
______________________________________________________________________
(Custodian's First Name) (Last Name)
______________________________________________________________________
(Minor's First Name) (Last Name) (Minor's Social Security No.)
______________________________________________________________________
Under the Uniform Gifts to Minor Act. (State of Residence of Minor)
Number of Shares:_____________________________________________________
______________________________________________________________________
(Custodian's First Name) (Last Name)
______________________________________________________________________
(Minor's First Name) (Last Name) (Minor's Social Security No.)
______________________________________________________________________
Under the Uniform Gifts to Minor Act. (State of Residence of Minor)
III. SUBSCRIBER'S NAME AND ADDRESS:
______________________________________________________________________
(Print or type name(s)
<PAGE>
______________________________________________________________________
(Street Address)
______________________________________________________________________
(City, State, Country)
______________________________________________________________________
(Telephone Number) (Facsimile Number)
IV. ACKNOWLEDGEMENT AND ACCEPTANCE
The undersigned purchaser(s) hereby acknowledge(s) receipt of the Company's
Private Placement Memorandum and hereby subscribe(s) to purchase shares
of Common Stock of the Company and deliver(s) the following documents to
the Company: (a) a completed and signed Subscription and Registration
Form for Mission West Properties Common Stock, (b) one counterpart
signature page to the Purchase Agreement; (c) a completed Prospective
Investor Questionnaire (for individual investors only) and (d) a signed
Substitute IRS Form W-9.
DATE: BY:
(Signature)
DATE: BY:
(Signature)
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the ____
day of ________, 1998, 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").
RECITALS
WHEREAS, the Company intends to submit to its shareholders for
approval: a $26,100,000 investment in the Company by a group of accredited
investors (the "Ingalls & Snyder Private Placement"); an acquisition by the
Company of the general partnership interest in four limited partnerships in
which the limited partners will receive the right to exchange limited partner
interests for Common Stock (the "Berg Acquisition"); the purchase and sale of
shares (the "Shares") of common stock of the Company (the "Common Stock")
pursuant to this Agreement; and the merger of the Company with and into
Mission West Properties, Inc., a Maryland corporation ("Mission
West-Maryland") which will elect to become a Real Estate Investment Trust
(the "Reincorporation Merger"), (collectively the "Proposed Transactions");
WHEREAS, the Company intends to file a Registration Statement on Form
S-4 (the "Registration Statement") to register shares of Common Stock and
other securities to be issued by Mission West-Maryland in exchange for
securities of the Company pursuant to the Securities Act of 1933, as amended
(the "Securities Act') and will deliver to the shareholders of the Company
the proxy statement/prospectus included in such Registration Statement in
connection with the special meeting of shareholders at which the shareholders
will be asked to approve the purchase and sale of the Shares (the "Special
Meeting"); and
WHEREAS, subject to shareholder approval, the Purchasers wish to
purchase from the Company, and the Company wishes to sell to the Purchasers,
the Shares pursuant to the terms of the Agreement.
AGREEMENT
NOW, THEREFORE, 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 the Shares for issuance.
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
<PAGE>
aggregate purchase price or other consideration set forth opposite each such
Purchaser's name on the Schedule of Purchasers.
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. Subject to shareholder approval, 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 the Company at 10050 Bandley
Drive, Cupertino, California on the first business day immediately following
the Special Meeting, 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 applicable purchase price
in immediately available funds by cashier's check or by wire transfer no
later than the 5:00 p.m. on the Closing Date to the Company at Mellon Bank,
Pittsburgh, Pennsylvania, ABA #043 000261, for credit to: Merrill Lynch,
Account #101 1730; for further credit to: Mission West Properties, Account
#291 07M35, or the Company's receipt of other consideration as set forth on
the Schedule of Purchasers. Upon the consummation of the Reincorporation
Merger and after the SEC has declared the Registration Statement effective,
each of the Shares shall be exchanged automatically for one share of Common
Stock of Mission West-Maryland in the manner described in the Registration
Statement.
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.
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 1,698,536 shares are issued and outstanding. All such
issued and outstanding shares have been duly authorized and validly issued,
are fully paid
<PAGE>
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"),
of which options to acquire 605,000 shares have been granted and are
outstanding as of the date hereof. The Company has also reserved Five Million
Eight Hundred Thousand (5,800,000) shares of Common Stock for issuance
pursuant to the Ingalls & Snyder Private Placement and has reserved the
Shares for issuance hereunder. Except for the foregoing, and the other
securities to be issued in connection with the Proposed Transactions, 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 is not 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 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.
3.8. GOVERNMENTAL CONSENT, ETC. No consent, approval, order or authorization
of,
<PAGE>
or registration, qualification, designation, declaration or filing (other
than filing a proxy statement with 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 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 years
ended November 30, 1996 and December 31, 1997 to all Purchasers who have
requested such information. The Company shall furnish copies of the
Registration Statement to all Purchasers requesting the same prior to the
Closing. 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
<PAGE>
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.
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. 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,
<PAGE>
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, prior to the Closing Date the
Company shall afford to Purchasers or to any of 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
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 CONSENTS AND APPROVALS. Prior to the Closing Date, 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 REPRESENTATIONS 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 SHAREHOLDER APPROVAL. The shareholders of the Company shall have
approved the purchase and sale of the Shares at the Special Meeting.
6.4 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 be listed with the American Stock Exchange and the Pacific
Exchange, subject to shareholder approval of the purchase and sale of the
Shares.
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
<PAGE>
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.
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.
8. GENERAL.
8.1 SURVIVAL. The covenants, representations and warranties of the parties
to this Agreement shall survive the Closing for a period of one year.
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
<PAGE>
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
Each Purchaser may change its address or telecopier number for purposes
of this Agreement by prior written notice to the Company. The Company may
change its address or telecopier number by prior written notice to the
Purchasers.
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.
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 or
subscribers for a majority of the Shares subject to this Agreement, 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
<PAGE>
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT
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)
<PAGE>
APPENDIX I
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PURCHASE PRICE/OTHER
PURCHASERS CONSIDERATIONS
<S> <C> <C>
</TABLE>
<PAGE>
SUBSCRIPTION
AND REGISTRATION FORM
FOR MISSION WEST PROPERTIES
COMMON STOCK
I. PURCHASE OF COMMON STOCK
A. By executing this Subscription and Registration Form for Mission West
Properties Common Stock (the "Common Stock"), and the counterpart
signature pages to the Stock Purchase Agreement (the "Purchase
Agreement"), the undersigned hereby irrevocably agrees for the benefit
of Mission West Properties, a California corporation (the "Company") (i)
to purchase ______________ shares of the Common Stock of the Company, at
a purchase price of $4.50 per share for a total purchase price of
$_____________ (the "Purchase Price") and (ii) to tender the Purchase
Price at the Closing (as that term is defined in the Purchase Agreement)
by wire transfer no later than the 5:00 p.m., P.D.T., on ______ __, 1998
to Mellon Bank, Pittsburgh, Pennsylvania, ABA #043 000261, for credit
to: Merrill Lynch, Account #101 1730; for further credit to: Mission
West Properties, Account #291 07M35 or other appropriate consideration
approved by the Company in advance.
B. Unless the Company is instructed otherwise in writing by the
undersigned, the Purchase Price will be returned promptly in the event
that for any reason the purchase and sale of the Common Stock subscribed
hereby is not consummated or in the event that the undersigned's
subscription is rejected.
II. REGISTER COMMON STOCK AS FOLLOWS:
A. Corporation, Trust, Other Organization or any other Fiduciary Capacity
______________________________________________________________________
(Name of Corporation, Other Organization or Trustees)
If Trust, date of Trust Instrument:___________________________________
Tax ID Number:________________________________________________________
Number of Shares:_____________________________________________________
B. Individual, Joint Tenants, Tenants in Common, Community Property: (Type
of Ownership)
______________________________________________________________________
<PAGE>
(First Name) (Last Name) (M.I.) (Social Security No.)
______________________________________________________________________
(First Name) (Last Name) (M.I.) (Social Security No.)
______________________________________________________________________
(First Name) (Last Name) (M.I.) (Social Security No.)
Number of Shares:_____________________________________________________
(Joint tenancy with rights of survivorship will be presumed unless
otherwise indicated.)
C. Custodian for a Minor:
Number of Shares:_____________________________________________________
______________________________________________________________________
(Custodian's First Name) (Last Name)
______________________________________________________________________
(Minor's First Name) (Last Name) (Minor's Social Security No.)
______________________________________________________________________
Under the Uniform Gifts to Minor Act. (State of Residence of Minor)
Number of Shares:_____________________________________________________
______________________________________________________________________
(Custodian's First Name) (Last Name)
______________________________________________________________________
(Minor's First Name) (Last Name) (Minor's Social Security No.)
______________________________________________________________________
Under the Uniform Gifts to Minor Act. (State of Residence of Minor)
Number of Shares:_____________________________________________________
______________________________________________________________________
(Custodian's First Name) (Last Name)
______________________________________________________________________
(Minor's First Name) (Last Name) (Minor's Social Security No.)
______________________________________________________________________
Under the Uniform Gifts to Minor Act. (State of Residence of Minor)
<PAGE>
III. SUBSCRIBER'S NAME AND ADDRESS:
______________________________________________________________________
(Print or type name(s)
______________________________________________________________________
(Street Address)
______________________________________________________________________
(City, State, Country)
______________________________________________________________________
(Telephone Number) (Facsimile Number)
IV. ACKNOWLEDGEMENT AND ACCEPTANCE
The undersigned purchaser(s) hereby acknowledge(s) receipt of the Company's
Private Placement Memorandum and hereby subscribe(s) to purchase shares
of Common Stock of the Company and deliver(s) the following documents to
the Company: (a) a completed and signed Subscription and Registration
Form for Mission West Properties Common Stock, (b) one counterpart
signature page to the Purchase Agreement; (c) a completed Prospective
Investor Questionnaire (for individual investors only) and (d) a signed
Substitute IRS Form W-9.
DATE: BY:
(Signature)
DATE: BY:
(Signature)
<PAGE>
PENDING PROJECTS ACQUISITION AGREEMENT
This Pending Project Acquisition Agreement ("Agreement") is entered into as
of ___________, 1998 by and between Mission West Properties, a California
corporation (the "Company"), Mission West Properties, L.P., a Delaware
limited partnership ("MWP"), Mission West Properties, L.P. I, a Delaware
limited partnership ("MWP I"), Mission West Properties, L.P. II, a Delaware
limited partnership ("MWP II") and Mission West Properties, L.P. III, a
Delaware limited partnership ("MWP III"; MWP, MWP I, MWP II and MWP III are
referred to as the "Operating Partnership"; the Company and the Operating
Partnership are referred to collectively as the "Purchaser"), on the one
hand, and the individuals and entities listed on Appendix I who own the
properties set forth opposite such individuals' and entities' names thereon
(the "Sellers") on the other hand.
RECITALS
A. The Sellers are the owners of certain real property located in Santa Clara
County, California, and described in attached EXHIBIT A, together with all
rights, privileges, easements, and appurtenances (collectively, the "Pending
Projects"); and all personal property, entitlements, licenses, permits,
development rights, air rights, authorizations, certificates, surveys, plans,
specifications, reports, studies, test results and all unexpired warranties
and guaranties given by unaffiliated third parties owned by the Sellers and
pertaining to or used exclusively in connection with the Pending Projects
(the "Personal Property"); (the Pending Projects and Personal Property shall
be collectively referred to herein as the "Pending Projects").
B. In connection with the Acquisition Agreement dated as of May 14, 1998 (the
"Acquisition Agreement"), to which the Purchaser and the Sellers all are
parties, the Operating Partnership has agreed to issue L.P. Units to all of
the limited partners therein, the Company has agreed to become the general
partner of the Operating Partnership, and the Company has agreed to permit
holders of L.P. Units to exchange them for shares of the Company's common
stock ("Common Stock") under certain circumstances.
C. The Operating Partnership is governed by the Operating Partnership
Agreement and the Acquisition Agreement.
D. The Purchaser desires to acquire the Pending Projects and the Sellers
desire to convey the Pending Projects on the terms and conditions of this
Agreement, and pursuant to the Acquisition Agreement have agreed that the
Company or the Operating Partnership shall acquire each of the 12 buildings
comprising the Pending Projects as soon as such building (each an "acquired
property" herein) has been completed and fully leased by issuing additional
L.P. Units to the Sellers at a value of $4.50 per L.P. Unit, or at the
Sellers' option, they may receive cash or a combination of cash and L.P.
Units.
AGREEMENT
<PAGE>
For good and valuable consideration, the receipt and adequacy of which are
acknowledged, the parties agree as follows:
1. ACQUISITION. At the Closing Date (as defined herein) for the acquisition
of each of the buildings included in the Pending Projects, the Sellers who
own that building (as indicated on Appendix I) (the "Participating Sellers")
agree to convey, and the Purchaser agrees to acquire, such property subject
to the terms and conditions of this Agreement. The Sellers' shall appoint one
representative to act as their agent in connection with the acquisition and
conveyance of each acquired property (the "Sellers' Representative"). The
Sellers' Representative is authorized to receive written notices from the
Purchaser on behalf of all of the Sellers of such property.
2. ACQUISITION VALUE. The acquisition value for the conveyance of each of the
buildings in the Pending Projects will be the amount set forth in Appendix I,
subject to adjustment if the actual average monthly rental per square foot
for the term of the lease or leases in effect with respect thereto as of the
Closing Date (as defined herein) differs from the projected rental rate set
forth in Appendix I. Consequently, the actual Acquisition Value will be equal
to the acquisition value set forth in Appendix I multiplied by the ratio of
the actual average monthly rental rate per square foot divided by the
projected rental rate set forth in Appendix I (the "Acquisition Value"):
3. CONSIDERATION.
(a) ITEMS. The Purchaser shall provide the following items of consideration
to the Sellers upon the Purchaser's acquisition of the Pending Projects:
(i) the Acquisition Value of each building as set forth in Appendix
I, as such amount shall be adjusted as of the Closing Date (as defined
herein), payable, at the election of the Participating Sellers, as
provided in Section 3(b), (A) in cash in an amount equal to (x) such
Acquisition Value minus (y) the sum of the principal amount of all
debt encumbering the building as of the Closing Date, and all accrued,
unpaid interest and other financing charges applicable to such debt
(the "Net Acquisition Value"), or (ii) through the issuance to the
Participating Sellers of that number of L.P. Units (with each
receiving his, her or its proportionate share based on their ownership
interests in the acquired property) equal to the quotient obtained by
dividing the Net Acquisition Value by $4.50;
(ii) the assumption of all indebtedness encumbering the acquired
property as of the Closing Date; and
(iii) assumption and payment of all prorations and reimbursements
which the Purchaser is obligated to pay pursuant to Section 10.
(b) The Participating Sellers shall decide among themselves whether to
receive cash or L.P. Units, or both, upon their conveyance of the acquired
property to the Purchaser, and through one representative who they select,
shall deliver to the Purchaser, a written notice of election specifying the
number of L.P. Units, the amount of cash, or the number and amount of each,
to be delivered to each Participating Seller not less than __ days prior to
the Closing Date.
(c) The purchaser of each acquired property at the Closing may be the
<PAGE>
Operating Partnership or the Company; provided that pursuant to the terms
of the Operating Partnership Agreement the Company shall contribute such
property to the Operating Partnership in exchange for additional
partnership interests as provided therein. The Purchaser shall notify the
Sellers which entity will be acquiring the property not less than __ days
prior to the Closing Date.
4. CLOSING DATE. The acquisition of each building in the Pending Projects
shall occur on the __ business day after the last to occur of (i) the
completion of the building and receipt of required occupancy permits; (ii)
the execution of written leases with respect to 100% of the rentable square
footage in such building, (iii) satisfaction of all closing conditions set
forth in Section 5 and 6 as set forth in certificates which each party shall
deliver to the other, and (iv) the Participating Sellers' delivery to the
Purchaser of their election as to the form of consideration they intend to
receive for the acquired property (the "Closing Date").
5. CONDITIONS TO THE PURCHASER'S PERFORMANCE. The Purchaser's obligation to
acquire any of the buildings included in the Pending Projects is subject in
each instance to the following conditions precedent:
(a) The Sellers' representations and warranties in this Agreement being
correct in all material respects as of each Closing Date;
(b) The Sellers' compliance with the provisions of Section I5 with respect
to such acquired property;
(c) There shall not have occurred after the date hereof any material
adverse physical change in the acquired property, other than as
contemplated by the parties in connection with the completion of the
property, from its condition as of the date hereof.
(d) The Purchaser shall not have elected to terminate such obligation in
conformity with the provisions of Section II or Section 12.
The foregoing conditions shall be for the benefit of, and may be waived by,
the Purchaser. Upon the non-satisfaction of any of the foregoing conditions,
unless waived by the Purchaser, the Purchaser's obligations to acquire the
particular property shall terminate.
6. CONDITIONS TO THE SELLERS' PERFORMANCE. The Sellers' obligation to convey
each building included in the Pending Projects is subject in each instance to
the following conditions precedent:
(a) The Purchaser's representations and warranties in this Agreement being
correct in all material respects as of each Closing Date; and
(b) The Purchaser's performance of all of its obligations to acquire such
property under this Agreement.
(c) The Purchaser shall not have elected to terminate such obligation in
conformity with the provisions of Section II or Section 12.
The foregoing conditions shall be for the benefit of, and may be waived only
by, the Participating Sellers with respect to each acquired property. Upon
the non-satisfaction of any of the foregoing conditions, unless waived by
such Participating Sellers, their obligation to convey the particular
property shall
<PAGE>
terminate.
7. ACCESS.
(a) Access to the Pending Projects prior to the Closing Date shall be given
to the Purchaser during normal business hours upon at least one (1)
business day's prior notice to the Seller.
(b) The Purchaser and the Purchaser's contractors and consultants shall
have the right, from the date hereof until the Closing Date for an acquired
property, to enter onto such property, at its own cost and risk, for any
purposes, including but not limited to, inspecting the property. The
Purchaser's contractors and consultants shall be duly licensed and insured.
As a condition of such entry, the Purchaser shall provide evidence
reasonably satisfactory to the Sellers of the existence of general
liability insurance prior to any such entry, inspection, test or study. The
Sellers agree to cooperate reasonably with the Purchaser in the inspection
of the Pending Projects and agree to make available to the Purchaser all
information in the Sellers' possession or control pertaining to the
condition of the Pending Projects, including engineering and environmental
reports, studies, tests, monitoring results, and related documentation.
(c) The Purchaser shall indemnify and defend the Sellers against and hold
the Sellers harmless from all losses, costs, damages, liabilities, and
expenses, arising out of any personal injury or physical damage to the
Pending Projects in connection with the Purchaser's inspection of or
presence, prior to the Closing Date, on the Pending Projects. Furthermore,
the Purchaser shall indemnify, defend and hold the Sellers harmless from
and against any mechanic's lien claims that may arise in connection with
the Purchaser's inspection of or presence, prior to the Closing Date, on
the Pending Projects.
8. TITLE. Title to the Pending Projects shall be such as will be insured,
solely in the name of the applicable Sellers as good and marketable title by
a title insurance company acceptable to the Purchaser at regular rates
pursuant to the standard stipulations and conditions of the 1970 Form B ALTA
Owner's Title Insurance Policy as revised in 1984, and as the same may be
modified by such endorsements, affirmative coverage and other matters which
have been requested by the Purchaser prior to each of the Closing Dates, free
and clear of all liens and encumbrances, except those liens and encumbrances
which the Purchaser agrees to accept and/or assume in writing as of each
Closing Date.
9. CLOSE OF THE PURCHASE AND SALE.
(a) CONVEYANCE OF TITLE. At each close of escrow, good and marketable title
to the Pending Projects shall be conveyed by the Sellers to the Purchaser
by the Deed (as defined below) subject only to the following permitted
liens:
(i) A lien for real property taxes and assessments not then
delinquent;
(ii) Matters of title respecting the Pending Projects approved or
deemed approved by the Purchaser in accordance with this Agreement;
(iii) Title and survey matters which would be disclosed by an ALTA
survey and approved or deemed approved by the Purchaser;
<PAGE>
(iv) Matters affecting the condition of title to the Pending Projects
created by or with the written consent of the Purchaser; and
(v) Indebtedness for borrowed funds incurred by the Sellers with
their written agreement.
As of each of the Closing Dates, all of the Sellers' right, title and
interest in and to the Personal Property shall be conveyed by the Sellers
to the Purchaser by the Warranty Bill of Sale in the form attached hereto
as EXHIBIT B (the "Bill of Sale").
(b) THE SELLERS' DELIVERIES ON THE CLOSING DATE. The Sellers shall deliver
to the Purchaser on every Closing Date the following documents:
(i) Statutory grant deeds executed and acknowledged by the Sellers
(the "Deed");
(ii) The Sellers' affidavits of non-foreign status as contemplated by
Section 1445 of the Internal Revenue Code of 1986, as amended, or a
release from the Internal Revenue Service in form and content
reasonably acceptable to the Purchaser, indicating that the Purchaser
is excused from any withholding requirements under federal law
("FIRPTA Affidavit") executed by the Sellers, but undated;
(iii) The Sellers' affidavits as contemplated by Revenue and Taxation
Code Section 18662 or a release from the California Franchise Tax
Board in form and content reasonably acceptable to the Purchaser,
indicating that the Purchaser is excused from any withholding
requirements under California law (the "Withholding Affidavit")
executed by the Sellers, but undated;
(iv) Bills of Sale duly executed by the Sellers, but undated; and
(v) Such other documents as the Purchaser may reasonably require in
order to close the transactions in accordance with the terms hereof.
(c) PURCHASER'S DELIVERIES ON THE CLOSING DATE. The Purchaser shall to the
Sellers on every Closing Date the following:
(i) The consideration in accordance with Section 3(a) together with
the Purchaser's share of closing costs; and
(ii) Such other documents as the Sellers may reasonably require to
close the transactions in accordance with the terms hereof.
(d) CLOSING COSTS. The closing costs shall be allocated and prorated as
follows:
(i) THE SELLERS SHALL PAY:
(A) any costs of clearing title to the Pending Projects;
(B) any document preparation fees for the Deed; and
(C) all documentary and/or real property transfer taxes due upon
the transfer of the Pending Projects.
<PAGE>
(ii) THE PURCHASER SHALL PAY:
(A) all charges in connection with the issuance of a title
policy; and
(B) the recording charges in connection with recordation of the
Deed.
Any closing costs not addressed herein shall be allocated in
accordance with the custom and practice then prevailing in Santa Clara
County.
(iii) REAL ESTATE TAXES, BONDS AND ASSESSMENTS. Current real property
taxes, any current installment of any bond or assessment that
constitutes a lien on the Pending Projects, rents and license fees, if
any, including any additional property taxes or installments of any
bond or assessment lien that may be assessed after the Closing Date,
but that relate to a period prior to the Closing Date, regardless of
when notice of those taxes, dues or assessments are received or who
receives the notice shall be prorated as of the Closing Date.
10. POSSESSION. Exclusive possession of the Pending Projects shall be delivered
to the Purchaser on each Closing Date.
11. DAMAGE AND DESTRUCTION.
(a) In the event of damage or destruction of a building included in the
Pending Projects or any portion of the Pending Projects prior to a Closing
Date in an amount not exceeding ______________ Dollars ($__________), the
Purchaser and the Sellers shall consummate the transaction, provided that
the Sellers shall assign to the Purchaser such Sellers' rights under any
insurance policy covering the damage or destruction and shall indemnify the
Purchaser with respect to any costs incurred by the Purchaser in repairing
and restoring the building after the Closing Date that are not paid by the
insurance up to the amount of _______________ Dollars ($___________) or
may, at the Sellers' election, grant the Purchaser a credit in said amount
against the Acquisition Value.
(b) In the event of damage or destruction of a building included in the
Pending Projects or any portion of the Pending Projects prior to the
Closing Date in an amount in excess of ______________ Dollars
($__________), the Purchaser may elect within ten (10) days following such
event of damage or destruction, either to terminate its obligation to
acquire such property under the terms of this Agreement upon written notice
to the Sellers, or to consummate the transaction, in which event the
Sellers shall assign to the Purchaser the Sellers' rights under any
insurance policy covering the damage or destruction, but without the
indemnity provided in subSection (a) above. The Purchaser's failure to
affirmatively elect whether to terminate or consummate the transaction
within said ten (10) day period shall be deemed the Purchaser's election to
consummate the transaction. If the Purchaser elects to terminate its
obligation to acquire such property under the terms of this Agreement
pursuant to this provision, neither party shall have any further
obligations to acquire or convey such property under this Agreement.
12. CONDEMNATION.
<PAGE>
(a) If any portion of a building included in the Pending Projects is taken
by condemnation or eminent domain or is the subject of a threatened or
pending condemnation or eminent domain proceeding that has not been
consummated prior to the Closing Dates resulting in a decrease in the value
of the Pending Projects in an amount not exceeding ______________ Dollars
($__________), the Purchaser and the Sellers shall consummate the
transaction, provided that the Sellers shall assign to the Purchaser such
Sellers' rights to all awards for the condemnation or taking and shall
indemnify the Purchaser with respect to any costs incurred by the Purchaser
in repairing and restoring the property that are not paid by the
condemnation awards up to the amount of ______________ Dollars ($_________)
or may, at the Sellers' election, grant the Purchaser a credit in such
amount against the consideration payable for the acquired property.
(b) If any portion of a building included in the Pending Projects is taken
by condemnation or eminent domain or is the subject of a threatened or
pending condemnation or eminent domain proceeding that has not been
consummated prior to the Closing Date resulting in a decrease in the value
of such property in an amount in excess of ____________ Dollars ($_______),
the Purchaser may elect within ten (10) days following such event, either
to terminate its obligation, to acquire the property under this Agreement
upon written notice to the Sellers, or to consummate the transaction, in
which event the Sellers shall assign to the Purchaser such Sellers' rights
to all awards for the condemnation or taking, but without the indemnity
provided in subsection (a) above. The Purchaser's failure to affirmatively
elect whether to terminate or consummate the transaction within said ten
(10) day period shall be deemed the Purchaser's election to consummate the
transaction. If the Purchaser elects to terminate its obligation to acquire
the property under this Agreement pursuant to this provision, neither party
shall have any further obligations to acquire or convey such property under
this Agreement, except as otherwise provided in this Agreement.
13. SELLERS' REPRESENTATIONS AND WARRANTIES. The Sellers jointly and
severally represent and warrant to the Purchaser that as of the date of this
Agreement and as of each of the respective Closing Dates:
(a) The Sellers have full right, power and authority to enter into and
perform the Sellers' obligations under this Agreement in accordance with
its terms;
(b) None of the Sellers is a "foreign person" within the meaning of Section
1445(f)(3) of the Internal Revenue Code of 1954, as amended, and is a
"resident" of the State of California within the meaning of Section 18662
of the California Revenue and Taxation Code, as amended;
(c) There is not pending, or to the Sellers' actual knowledge, threatened,
any litigation with respect to the Pending Projects (excluding any
properties conveyed to the Purchaser hereunder prior to the Closing Date);
and
(d) Except as disclosed to the Purchaser and to the Sellers' actual
knowledge, no toxic or hazardous chemicals, waste, or substances of any
kind have ever been spilled, disposed of, or stored on, under, or at the
Pending Projects in violation of any applicable law, rule or regulation
(excluding any properties conveyed to the Purchaser hereunder prior to the
Closing Date).
<PAGE>
The continued accuracy in all respects of the Sellers' foregoing
representations and warranties of the Sellers shall be a condition precedent
to the Purchaser's obligation to close the acquisition of each property. All
such representations and warranties contained in this Agreement shall be
deemed remade as of the Closing Dates for each acquired property.
14. PURCHASER REPRESENTATIONS AND WARRANTIES. The Purchaser represents and
warrants to the Sellers that as of the date of this Agreement and as of each
of the respective Closing Dates the Purchaser has full right, power and
authority to buy the Pending Projects from the Sellers and to perform the
Purchaser's obligations under this Agreement in accordance with its terms.
15. SELLERS' COVENANTS. Commencing on the date hereof and continuing with
respect to each building included in the Pending Projects until the Closing
Date for the acquisition of such property:
(a) The Sellers shall not create or consent to any liens, encumbrances, or
easements on or affecting the Pending Projects, except for the permitted
liens described in Section 9(a) as contemplated by the submitted plans and
issued permits for such Projects and for secured debt.
(b) The Sellers shall not permit any act of waste or act that would
materially to diminish the value of the Pending Projects for any reason,
except that caused by ordinary wear and tear.
(c) The Sellers will promptly (after learning of same) notify the Purchaser
in writing of any adverse material changes affecting the physical condition
of the Pending Projects.
(d) The Sellers shall complete and maintain the Pending Projects in
conformity with applicable building codes, laws, and sound construction and
property management practices.
(e) Unless the acquisition of an acquired property is sooner terminated by
the Purchaser (when permitted under this Agreement), the Sellers will not
make, accept, negotiate or otherwise pursue any offers for the disposition
(whether directly, through a joint venture, ground lease, financing, or
otherwise) of any interest in the Pending Projects.
16. "AS-IS" SALE. Except as expressly set forth herein, the Purchaser
acknowledges that it is buying the Pending Projects in "As-Is, Where-Is"
condition, in reliance on its own investigations.
17. BROKERS AND FINDERS. The Purchaser and the Sellers each represent and
warrant to the other party that no broker or finder has been utilized in the
purchase and sale contemplated by this Agreement. In the event of a claim for
broker's fees, finder's fees, commissions or other similar compensation in
connection herewith: (i) the Purchaser, if such claim is based upon any
agreement alleged to have been made by the Purchaser, shall indemnify,
defend, and hold the Sellers harmless (using counsel reasonably satisfactory
to the Sellers) from and against any and all damages, liabilities, costs,
expenses and losses (including, but not limited to, attorneys' fees and
costs) that the Sellers sustain or incur by reason of such claim; and (ii)
the Sellers, if such claim is based upon any agreement alleged to have been
made by the Sellers, shall indemnify, defend and hold the Purchaser harmless
(using counsel reasonably satisfactory to the Purchaser) from and against any
and all damages,
<PAGE>
liabilities, costs, expenses and losses (including, but not limited to,
attorneys' fees and costs) that the Purchaser sustains or incurs by reason of
such claim.
18. SURVIVAL. Except to the extent specifically provided to the contrary
hereunder, each and every covenant, agreement, representation and warranty of
each of the parties hereto shall survive the Closing Date and shall not merge
with the Sellers' deliveries of the Deeds or other documents to the Purchaser.
19. ASSIGNMENT; SUCCESSORS AND ASSIGNS. The Purchaser shall have the right to
assign this Agreement with the prior written consent of the Sellers'
Representative or all Sellers, which consent shall not be unreasonably
withheld. This Agreement, and the terms, covenants and conditions herein
contained, shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, heirs and assigns.
20. NOTICES. All notices to be given under this Agreement shall be in writing
and sent by:
(a) certified mail, return receipt requested, in which case notice shall be
deemed delivered three (3) business days after deposit, postage prepaid in
the United States Mail,
(b) a nationally recognized overnight courier, in which case notice shall
be deemed delivered one (1) business day after deposit with that courier,
or
(c) facsimile or similar means if a copy of the notice is also sent by
United States Certified Mail, in which case notice shall be deemed
delivered on transmittal by facsimile or other similar means, provided that
a transmission report is generated by reflecting the accurate transmission
of the notices, as follows:
If to the Purchaser:
Mission West Properties
10050 Bandley Drive
Cupertino, CA 95014
Attention: Independent Directors Committee
Fax No. (408) 725-1626
If to the Sellers:
c/o Berg & Berg Enterprises, Inc.
10050 Bandley Drive
Cupertino, CA 95014
Attention: Carl E. Berg
Fax No. (408) 725-1626
21. ARBITRATION OF DISPUTES. Any dispute or claim in law or equity solely
between the Purchaser and Sellers arising out of this Agreement shall be
decided by neutral, binding arbitration. The arbitration shall be conducted
in accordance with the rules of the American Arbitration Association ("AAA")
then obtaining using a single arbitrator. The decision of the arbitrator
shall be final and binding. In all other respects, the arbitration shall be
conducted in accordance with Part III, Title 9 of the California Code of
Civil Procedure. Judgment upon the award rendered by the arbitrator(s) may be
entered in any
<PAGE>
court having jurisdiction thereof. The parties shall have the right to
discovery in accordance with code of Civil Procedure Section 1283.05. The
arbitration shall take place in the County of Santa Clara. The filing of a
judicial action to enable the recording of a notice of pending action, for
order of attachment, receivership, injunction, or other provisional remedies,
shall not constitute a waiver of the right to arbitrate under this provision.
22. ATTORNEYS' FEES. If any arbitration or court action is commenced between
the parties, the prevailing party in that arbitration or court action shall
be entitled to recover from the non-prevailing party all reasonable
attorneys' fees and costs.
23. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the parties to this Agreement and shall not be modified in any manner except
by an instrument in writing executed by the parties or their respective
successors in interest.
24. SEPARATE CONTENTS. The acquisition and conveyance of the real property
and improvements constituting each of the buildings included in the Pending
Projects or identified on Appendix I is a separate transaction, and the
parties' obligations with respect to each such property constitutes a
separate contract under this Agreement.
25. SEVERABILITY. If any term or provision of this Agreement shall, to any
extent, be held invalid or unenforceable, the remainder of this Agreement
shall not be affected.
26. WAIVERS. A waiver or breach of covenant or provision in this Agreement
shall not be deemed a waiver of any other covenant or provision in this
Agreement, and no waiver shall be valid unless in writing and executed by the
waiving party. An extension of time for performance of any obligation or act
shall not be deemed an extension of the time for performance of any other
obligation or act.
27. CONSTRUCTION. The section headings and captions of this Agreement are,
and the arrangement of this instrument is, for the sole convenience of the
parties to this Agreement. The section headings, captions, and arrangement of
this instrument do not in any way affect, limit, amplify, or modify the terms
and provisions of this Agreement. The singular form shall include plural, and
vice versa. This Agreement shall not be construed as if it had been prepared
by one of the parties, but rather as if both parties have prepared it. Unless
otherwise indicated, all references to sections are to this Agreement. All
exhibits referred to in this Agreement are attached to it and incorporated in
it by this reference. Capitalized terms used in this Agreement have the
meaning ascribed to them in the Acquisition Agreement under indicated
otherwise.
28. MERGER. All of the terms, provisions, representations and covenants of
the parties under this Agreement shall survive the Closing Dates and shall
not be merged in the Deeds.
29. COUNTERPARTS. This Agreement may be executed in one or more counterparts.
30. TIME OF THE ESSENCE. Time is of the essence in this Agreement.
31. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of California.
32. EXHIBITS. Each exhibit to which reference is made in this Agreement is
<PAGE>
deemed incorporated into this Agreement in its entirety by such reference.
The exhibits to this Agreement are the following:
Exhibit A Legal Description of Pending Projects
Exhibit B Warranty Bill of Sale
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.
PURCHASER: SELLERS:
By: By:
Its: Its:
By: By:
Its: Its:
<PAGE>
APPENDIX I
LIST OF PENDING PROJECTS, OWNERS
AND
INITIAL ACQUISITION VALUE
<TABLE>
<CAPTION>
Projected
Projected Average
Triple Monthly
Approximate Net Rental Rate Acquisition
PENDING PROJECT AND BUILDING Annual Per SQUARE VALUE
OWNERS SIZE BASE RENT FOOT
<S> <C> <C> <C> <C>
GREAT OAKS 54,240 $ 715,968 $1.10 $ 5,226,043
Carl Berg and Clyde Berg
MEMOREX DRIVE 52,800 $ 535,560 $0.85 $ 3,347,250
Carl Berg and Clyde Berg
RICHARD AVE. 58,740 $ 599,148 $0.85 $ 3,744,675
Carl Berg and Clyde Berg
AUTOMATION PARK
[______________]
Bldg. 1 114,028 $1,778,036 $1.30 $12,705,971
Bldg. 2 80,640 $1,257,984 $1.30 $ 8,985,600
Bldg. 3 80,640 $1,257,984 $1.30 $ 8,985,600
Bldg. 4 61,056 $ 952,474 $1.30 $ 6,803,386
L'AVENIDA
Baccarat Fremont, LLC,
a California limited
liability company,
Thelmer Aalgaard and
Patricia Aalgaard,
husband and wife, and
<PAGE>
Clyde Berg, Trustee of the
1981 Kara Ann Berg Trust
Bldg. 1 94,134 $3,219,382 $2.85 $18,937,541
Bldg. 2 101,622 $3,475,724 $2.85 $20,445,435
Bldg. 3 93,314 $3,191,339 $2.85 $18,772,582
Bldg. 4 126,236 $4,317,271 $2.85 $25,395,717
Bldg. 5 98,166 $3,357,277 $2.85 $19,748,688
</TABLE>
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF THE PENDING PROJECTS
THE LAND REFERRED TO IN THIS REPORT IS SITUATED IN THE STATE OF CALIFORNIA, AND
IS DESCRIBED AS FOLLOWS:
GREAT OAKS:
This land is located in south San Jose, California and consists of approximately
3 gross acres of unimproved land. The land is described by the following
Assessor's Parcel Number:
706-02-025
MEMOREX DRIVE AND RICHARD AVE.:
This land is located in north Santa Clara, California and consists of
approximately a 6 acre portion of land. This portion of land is described by the
following Assessor's Parcel Number:
224-65-006
AUTOMATION PARKWAY:
This land is located in north San Jose, California and consists of approximately
21 gross acres of unimproved land. The land is described by the following
Assessor's Parcel Numbers:
Portions of 244-13-10, and 244-15-18.
L' AVENIDA:
This land is located in Mountain View, California and consists of approximately
32 gross acres of unimproved land. The land is described by the following
Assessor's Parcel Numbers:
116-16-63, 116-16-60, 116-16-65, 116-16-59, 116-16-75, 116-16-70, 116-16-69,
116-16-74
EXHIBIT B
<PAGE>
WARRANTY BILL OF SALE
This Warranty Bill of Sale ("Bill of Sale") is executed as of March _,
1998 by the individuals and entities listed on Appendix I ("Sellers") in favor
of Mission West Properties, a California corporation (the "Company"), Mission
West Properties, L.P. ("MWP"), Mission West Properties, L.P. I ("MWP I"),
Mission West Properties, L.P. II ("MWP II"), Mission West Properties, L.P. III
("MWP III, and collectively with the Company, MWP, MWP I and MWP II, the
"Purchaser")
RECITALS
A. The Sellers and the Purchaser have entered into that certain Pending
Projects Acquistion Agreement dated of even date herewith (the "Purchase
Agreement"), in which the Purchaser has agreed to purchase real property in
Santa Clara County, State of California, more particularly described in
attached Schedule 1, (the "Pending Projects") incorporated in this Bill of
Sale.
B. Pursuant to the Purchase Agreement, the Sellers have agreed to transfer to
the Purchaser all the Sellers' right, title and interest in all licenses,
permits, development rights, air rights, authorizations, certificates,
surveys, plans, specifications, reports, studies, test results and all
unexpired warranties and guaranties given by unaffiliated third parties owned
by the Sellers and pertaining to or used exclusively in connection with the
Pending Projects (collectively, "Personal Property") concurrent with the
Closing Dates (as defined in the Purchase Agreement).
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Sellers agree as follows:
AGREEMENT
1. TRANSFER. Effective as of the Closing Dates, the Sellers hereby transfer,
sell, assign, grant and convey to the Purchaser all of the Sellers' right,
title, and interest in the Personal Property.
2. SELLERS'S COVENANTS. The Sellers covenant to the Purchaser that the
Sellers have good and marketable title to the Personal Property, free of all
liens, and has the right to transfer the Personal Property. The Sellers
further agree that the Sellers will defend the Purchaser's title to the
Personal Property against the demands of anyone claiming through the Sellers.
3. ATTORNEYS' FEES. If any suit, action or other proceeding is instituted to
enforce the rights of either party under this Bill of Sale, the successful
party, as adjudicated by a court, shall be entitled to reasonable attorney
fees and court costs.
4. GOVERNING LAW. This Bill of Sale shall be governed and construed in
accordance with California law.
The Sellers have executed this Bill of Sale as of the date first above
written.
SELLERS:
By:
Its:
<PAGE>
By:
Its:
<PAGE>
BERG LAND HOLDINGS OPTION AGREEMENT
OPTIONEE: Mission West Properties, a California corporation,
Mission West Properties, L.P., a Delaware limited
partnership, Mission West Properties, L.P. I, a
Delaware limited partnership, Mission West Properties,
L.P. II, a Delaware limited partnership, and Mission
West Properties, L.P. III, a Delaware limited
partnership
OPTIONOR: , a California corporation
-------------------------------
PROPERTY: King Ranch Business Park, San Jose, CA
Hellyer and Piercy, San Jose, CA
Fremont and Cushing, Fremont, CA
Dated: , 1998
----------------
<PAGE>
BERG LAND HOLDINGS
OPTION AGREEMENT
This Berg Land Holdings Option Agreement ("Agreement") is entered into as
of _________ __, 1998 by and between Mission West Properties, a California
corporation (the "Company"), Mission West Properties, L.P., a Delaware limited
partnership ("MWP"), Mission West Properties, L.P. I, a Delaware limited
partnership ("MWP I"), Mission West Properties, L.P. II, a Delaware limited
partnership ("MWP II") and Mission West Properties, L.P. III, a Delaware limited
partnership ("MWP III"; MWP, MWP I, MWP II and MWP III are referred to as the
"Operating Partnership"; the Company and the Operating Partnership are referred
to collectively as the "Optionee"), on the one hand, and the individuals and
entities listed on Appendix I who own or have the right to acquire the
properties set forth opposite such individuals' and entities' names thereon (the
"Optionors") on the other hand.
RECITALS
A. The Optionors are the owners of, or have the right to acquire, three
(3) tracts of real property located in Santa Clara County and Alameda County,
California, commonly known as King Ranch Business Park, Hellyer and Piercy, and
Fremont and Cushing, and described in attached Exhibit A, together with all
rights, privileges, easements, and appurtenances (collectively, the "Berg Land
Holdings"); and all personal property, entitlements, licenses, permits,
development rights, air rights, authorizations, certificates, surveys, plans,
specifications, reports, studies, test results and all unexpired warranties and
<PAGE>
guaranties given by unaffiliated third parties owned by the Optionors and
pertaining to or used exclusively in connection with the Berg Land Holdings (the
"Personal Property"); (the Berg Land Holdings and Personal Property shall be
collectively referred to herein as the "Berg Land Holdings").
B. In connection with the Acquisition Agreement dated as of May 14,
1998 (the "Acquisition Agreement"), to which the Optionee and the Optionors
all are parties, the Operating Partnership has agreed to issue L.P. Units to
all of the limited partners therein, the Company has agreed to become the
general partner of the Operating Partnership, and the Company has agreed to
permit holders of L.P. Units to exchange them for shares of the Company's
common stock ("Common Stock") under certain circumstances.
C. The Operating Partnership is governed by the Operating Partnership
Agreement and the Acquisition Agreement.
D. The Optionee desires to have an option to acquire the Berg Land
Holdings and the Optionors desire to grant such an option to Optionee on the
terms and conditions of this Agreement, and pursuant to the Acquisition
Agreement have agreed that the Company or the Operating Partnership shall have
the option to acquire each of the buildings comprising the Berg Land Holdings as
soon as such building (each an "acquired property" herein) has been completed
and fully leased by issuing either additional L.P. Units to the Optionors based
upon the Acquisition Value (as defined below), or at the Optionors' option, they
may receive cash or a combination of cash and L.P. Units equal to the
Acquisition Value.
E. This Agreement shall become effective (the "Option Effective Date").
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and promises of
the parties, the parties hereto agree as follows:
1. OPTION. Optionor grants Optionee an exclusive option ("Option") to purchase
each of the acquired properties comprising the Berg Land Holdings. The Option
shall be "rolling" and shall apply to each acquired property. The fact that
Optionee does not exercise the Option with respect to a given acquired property
shall not impact Optionee's right to exercise the Option with respect to a
subsequent acquired property. The Optionors' shall appoint one representative to
act as their agent in connection with the acquisition and conveyance of each
acquired property (the "Optionors' Representative"). The Optionors'
Representative is authorized to receive written notices from the Optionee on
behalf of all of the Optionors of such property. This Option does not create any
right to acquire any portion of the Berg Land Holdings prior to the development
of a completed building thereon, fully leased.
2. TERM OF OPTION. The term of the Option ("Term") shall commence on the Option
Effective Date and, unless Optionee has timely exercised the Option in
accordance with the provisions hereof, shall terminate on the sooner of (i) the
"Percentage Interest Date" (as defined below), or (ii) 11:59 p.m. on December
31, 2010. The Percentage Interest Date shall be the date on which the "Berg
Group" as defined in the Acquisition Agreement no longer owns or has the right
to acquire 65% of the Company's Common Stock, determined as though all L.P.
Units owned in the aggregate by the Berg Group were exchanged for shares of
Common Stock at the Exchange Factor.
<PAGE>
3. CONSIDERATION. As consideration for the Option, Optionee has paid to Optionor
the sum of Ten and No/100 Dollars ($10. 00) ("Option Consideration"), the
receipt and sufficiency of which are hereby acknowledged.
4. DEVELOPMENT OF BERG LAND HOLDINGS. Optionor intends to develop the Berg Land
Holdings and construct thereon various industrial buildings, subject to
obtaining the necessary governmental permits and approvals. This development
will occur over several years and shall be accomplished in a manner that
Optionor determines, in its sole discretion, is prudent based upon market
conditions. This development will occur over several years and shall be
accomplished in a manner that Optionor determines, in its sole discretion, is
prudent based upon market conditions. The properties commonly known as Hellyer
and Piercy and Fremont and Cushing are not yet owned by Optionors, but are
subject to acquisition agreements wherein the Optionors have the right to
acquire such properties. If the Optionors decide not to exercise their rights to
acquire such properties, then such properties shall no longer be deemed to be
part of the Berg Land Holdings and shall no longer be subject to the terms of
this Option.
5. EXERCISE. The exercise of the Option with respect to a given acquired
property must occur within thirty (30) days of receipt of the "Completion
Notice" from Optionor's Representative to Optionee. The Completion Notice shall
be delivered by Optionor's Representative to Optionee with respect to each
acquired property in the Berg Land Holdings once the following has occurred (i)
the completion of the building and receipt of required occupancy permits; (ii)
the execution of written leases with respect to one hundred percent (100%) of
the rentable square footage in such building, and (iii) the Optionors' election
as to the form of consideration they intend to receive for the acquired
property. Optionee may exercise the Option at any time during such thirty
(30)-day period by written notice ("Notice") to Optionor, stating the date upon
which Optionee desires to close escrow (provided that escrow shall not close
later than the sixtieth (60th) day following receipt of the Completion Notice).
6. ACQUISITION VALUE. In the event that Optionee exercises the Option, the
Acquisition Value for the subject acquired property shall be equal to (i) the
full construction cost of all improvements on or servicing the acquired
property, plus (ii) 10% of the amount set forth in subsection (i), plus (iii)
the acquisition value of the parcel on which the improvements were constructed
as set forth in the schedule below and interest at LIBOR from January 1, 1998
until the close of escrow, plus (iv) property tax and assessment payments on
such property prorated from January 1, 1998, plus (v) interest at LIBOR on the
amounts set forth in subsections (i) and (iv) from the date paid by Optionor and
ending at the close of escrow, minus (v) the sum of the principal amount of all
debt encumbering the subject acquired property as of the closing. Optionee shall
assume all assessments that are a lien against the subject acquired property.
The acquisition value of each parcel of the Berg Land Holdings shall be as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
LOCATION: ACQUISITION VALUE PER ACQUISITION VALUE PER
SQUARE FOOT OF ACRE OF ACQUIRED
ACQUIRED PROPERTY: PROPERTY:
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<S> <C> <C>
King Ranch $10.00 per square foot $435,600
<PAGE>
Business Park
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Hellyer and Piercy $8.50 per square foot $370,260
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Fremont and Cushing $20.00 per square foot $871,200
- ------------------------------------------------------------------
</TABLE>
7. PAYMENT OF ACQUISITION VALUE. The Acquisition Value shall be paid in cash or
L.P. Units, at the election of the Optionor's Representative. To the extent the
Optionor's Representative elects to receive L.P. Units, the number of L.P. Units
(N) paid to Optionor shall be determined as follows:
(A-B)/C=N; where:
A = Acquisition Value
B = Any cash portion of the Acquisition Value paid to Optionor
C = The average market value of the Common Stock over the 30
trading-day period preceding the exercise of the Option.
8. AGREEMENT OF PURCHASE AND SALE. Within seven (7) days after exercise of the
Option by Optionee, Optionee and Optionors each shall execute an agreement of
purchase and sale for the purchase of the subject acquired property by Optionee
from Optionors. The Purchase Agreement shall be in the form of the agreement of
purchase and sale ("Form Purchase Agreement) attached hereto as Exhibit B;
provided, however, the Form Purchase Agreement shall be modified to reflect (a)
the date of execution of the Purchase Agreement, (b) the method of payment and
the amount of the Acquisition Value, and (c) the outside date of the close of
escrow, and (d) the legal description of the acquired property to be
transferred.
9. REPRESENTATIONS AND WARRANTIES. Optionors warrant that Optionors are the
owners of, or have a valid and binding agreement to acquire, the Berg Land
Holdings, and have (or will have prior to the close of escrow under the Purchase
Agreement) insurable fee simple title to the acquired property clear of
restrictions, leases, liens, and other encumbrances, except as permitted in the
Purchase Agreement. If this option is exercised by Optionee, Optionors will
convey title to the acquired property by California statutory grant deed.
10. ASSIGNMENT. Optionee shall have the right to assign the Option with the
prior consent of Optionors (whose consent shall be subject to their sole and
absolute discretion).
11. NO TRANSFER OF PARCEL. From and after the Option Effective Date, unless and
until this Agreement is terminated, Optionors shall not sell or convey or grant
an option to sell or convey all or any portion of the Berg Land Holdings if such
sale, conveyance or grant might in any way impair Optionors' ability to transfer
the Berg Land Holdings to Optionee.
12. MISCELLANEOUS.
(A) SUCCESSORS AND ASSIGNS. The terms, covenants and conditions herein contained
shall be binding upon and inure to the benefit of the successors and assigns of
<PAGE>
the parties hereto.
(B) ENTIRE AGREEMENT. This Agreement contains all of the covenants, conditions
and agreements between the parties and shall supersede all prior correspondence,
agreements and understandings, both oral and written.
(C) GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
(D) NOTICES. All notices required or permitted to be given hereunder shall be in
writing and mailed postage prepaid by certified or registered mail, return
receipt requested, or by personal delivery, to the appropriate address indicated
in this paragraph, or at such other place or places as either Optionee or
Optionors' Representative respectively may designate from time to time in a
written notice given to the other. Notices shall be deemed sufficiently given
upon receipt if by personal delivery, overnight carrier or facsimile or three
(3) days after the date of mailing thereof.
(i) Optionee's Address for Notice:
Mission West Properties
10050 Bandley Drive
Cupertino, CA 95014
Attention: Independent Directors Committee
Facsimile No.: (408) 725-0700
(ii) Optionors' Address for Notice:
Mission West Properties
10050 Bandley Drive
Cupertino, CA 95014
Attention: Carl E. Berg
Facsimile No.: (408) 725-0700
(E) HEADINGS. The title and headings of the paragraphs hereof are intended
solely for means of reference and are not intended to modify, explain or place
any construction on any of the provisions of this Agreement.
(F) THIRD-PARTY RIGHTS. Nothing in this Agreement, express or implied, is
intended to confer on any person, other than the parties to this Agreement and
their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
(G) AUTHORITY OF PARTIES. All persons executing this Agreement on behalf of any
party to this Agreement warrant that they have the authority to execute this
Agreement on behalf of that party.
(H) PARTIAL INVALIDITY. Any provisions of this Agreement that is unenforceable
or invalid or the inclusion of which would adversely affect the validity, or
enforceability of this Agreement shall be of no effect, but all the remaining
provisions of this Agreement shall remain in full force.
(I) COUNTERPARTS. This Agreement may be executed in one or more counterparts.
(J) AMENDMENT. This Agreement may not be modified, amended or otherwise changed
in any manner except by a writing executed by both Optionee and Optionor.
<PAGE>
(K) TIME. Time is of the essence of every provision herein contained.
(L) EXHIBITS. The following exhibits are attached to, and made a part of, this
Agreement:
(M) CONSTRUCTION. The section headings and captions of this Agreement are, and
the arrangement of this instrument is, for the sole convenience of the parties
to this Agreement. The section headings, captions, and arrangement of this
instrument do not in any way affect, limit, amplify, or modify the terms and
provisions of this Agreement. The singular form shall include plural, and vice
versa. This Agreement shall not be construed as if it had been prepared by one
of the parties, but rather as if both parties have prepared it. Unless otherwise
indicated, all references to sections are to this Agreement. All exhibits
referred to in this Agreement are attached to it and incorporated in it by this
reference. As used herein all capitalized terms shall have the meanings ascribed
to them in the Acquisition Agreement, unless otherwise expressed.
Exhibit A - Description of the Berg Land Holdings
Exhibit B - Form of Purchase Agreement
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in one
or more counterparts, on the date(s) set forth below, effective as of the day
and year first above written.
"Optionor"
_______________________________, a California
corporation
By
Its
By
Its
"Optionee"
______________________________, a California
limited partnership
By
Its
By
Its
<PAGE>
APPENDIX I
OPTIONORS OF THE BERG LAND HOLDINGS
<TABLE>
<CAPTION>
OPTIONOR PROPERTY
<S> <C>
BB&K, a California general King Ranch Business Park, San
partnership Jose, CA
Baccarat Fremont Developers, LLC, Hellyer and Piercy, San Jose, CA
a California limited liability
company
Baccarat Fremont Developers, LLC, Fremont and Cushing, Fremont, CA
a California limited liability
company
</TABLE>
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF THE BERG LAND HOLDINGS
THE LAND REFERRED TO IN THIS REPORT IS SITUATED IN THE STATE OF CALIFORNIA, AND
IS DESCRIBED AS FOLLOWS:
KING RANCH BUSINESS PARK:
This land is located in south San Jose, California and consists of approximately
123 gross acres of unimproved land. The land is described by the following
Assessor's Parcel Numbers:
678-14-033, 678-14-052, 678-14-058, 678-14-060, 678-14-62, 678-14-066,
678-14-74, 678-14-079, 678-14-081, 678-16-005, 678-16-006, 678-16-007,
678-16-008, and 678-16-011
HELLYER AND PIERCY:
This land is located in south San Jose, California and consists of approximately
7 gross acres of unimproved land. The land is described by the following
Assessor's Parcel Number:
678-08-003
FREMONT AND CUSHING:
This land is located in Fremont, California and consists of approximately 32
gross acres of unimproved land. The land is described by the following
Assessor's Parcel Numbers:
519-0850-014-57, and 519-0850-014-54
<PAGE>
EXHIBIT B
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
This Purchase and Sale Agreement and Joint Escrow Instructions
("Agreement") is entered into as of ____________________ (the "Effective Date")
by and between _______________________________ (the "Seller"), and
____________________, a California limited partnership (the "Purchaser") with
reference to the following facts:
RECITALS
A. Seller is the owner of certain real property comprising approximately
acres of improved real property located at _____________________________,
_____________ County, California, commonly known as ________________________, as
more particularly described in attached Exhibit A, together with all rights,
privileges, easements, and appurtenances (collectively, the "Property"); and all
personal property, entitlements, licenses, permits, development rights, air
rights, authorizations, certificates, surveys, plans, specifications, reports,
studies, test results and all unexpired warranties and guaranties given by
unaffiliated third parties owned by Seller and pertaining to or used exclusively
in connection with the Property (the "Personal Property"); (the Property and
Personal Property shall be collectively referred to herein as the "Property").
B. Purchaser desires to purchase the Property and Seller desires to sell
the Property on the terms and conditions in this Agreement.
AGREEMENT
For good and valuable consideration, the receipt and adequacy of which are
acknowledged, the parties agree as follows:
1. PURCHASE AND SALE. Seller agrees to sell and Purchaser agrees to purchase the
Property subject to the terms and conditions in this Agreement.
2. ACQUISITION VALUE. The Acquisition Value for the Property shall be
________________ (the "Acquisition Value") and shall be payable as follows:
(a) A cash deposit of $50,000 (the "Deposit") shall be placed in escrow by
Purchaser and held in the Escrow in an interest bearing account.
[SEE PARAGRAPH 7 OF BERG LAND HOLDINGS OPTION AGREEMENT ON HOW THE BALANCE
OF THE ACQUISITION VALUE SHALL BE PAID TO SELLER]
3. ESCROW. By this Agreement, Purchaser and Seller establish an escrow
("Escrow") with ______________________________________________ (the "Escrow
Agent"), subject to the provisions of the standard conditions for acceptance of
escrow, but only to the extent that the standard conditions impose no additional
obligations or liabilities on the parties, and further subject to the terms and
conditions in this Agreement, the latter to control in the case of conflict,
with a signed counterpart of this document to be delivered as escrow
instructions to Escrow Agent. Escrow Agent shall promptly execute a copy of this
Agreement in the places indicated below and return fully executed counterparts
to each of the parties; provided, however, the failure of Escrow Agent to
promptly do so shall not affect the rights and obligations of Purchaser and
Seller hereunder.
4. LIQUIDATED DAMAGES. IN THE EVENT THAT THIS AGREEMENT DOES NOT CLOSE BY THE
CLOSE OF ESCROW AS A CONSEQUENCE OF A MATERIAL DEFAULT BY BUYER, AND PROVIDED
THAT SELLER HAS COMPLIED WITH ALL TERMS OF THIS AGREEMENT, BUYER SHALL PAY
SELLER AS LIQUIDATED DAMAGES, AN AMOUNT EQUAL TO THE DEPOSIT (FOR THE TOTAL SUM
OF DOLLARS ($ ). THE PARTIES AGREE THAT SELLER'S ACTUAL DAMAGES WOULD BE
DIFFICULT OR IMPOSSIBLE TO DETERMINE IF BUYER DEFAULTS, AND THE AMOUNT SET FORTH
IN THIS PARAGRAPH 4 IS THE BEST ESTIMATE OF THE AMOUNT OF DAMAGES SELLER WOULD
SUFFER AND SUCH AMOUNT SHALL BE THE AMOUNT THAT SELLER IS ENTITLED TO RECEIVE AS
LIQUIDATED DAMAGES PURSUANT TO SECTIONS 1671, 1676 AND 1677 OF THE CALIFORNIA
CIVIL CODE; AND SELLER SHALL HAVE NO RIGHT, AND HEREBY WAIVES ALL RIGHTS, TO AN
ACTION FOR SPECIFIC PERFORMANCE OF THIS AGREEMENT. THE PARTIES WITNESS THEIR
AGREEMENT TO THIS LIQUIDATED DAMAGES PROVISION AND SELLER'S WAIVER OF SPECIFIC
PERFORMANCE BY EXECUTION OF THIS PARAGRAPH
Buyer: Seller:
By: By:
Its: Its:
By: By:
Its: Its:
<PAGE>
5. FEASIBILITY PERIOD.
(a) During the period commencing on the Effective Date and terminating ten (10)
days thereafter (the "Feasibility Period"), Purchaser may undertake at
Purchaser's expense a review and inspection of the Property, including, but not
limited to a review of the title to the Property, a review of the physical
condition of the Property, including, but not limited to, inspection and
examination of soils, environmental factors, hazardous substances, if any, and
archeological information relating to the Property; a review and investigation
of the effect of any zoning, maps, permits, reports, engineering data,
regulations, ordinances, and laws affecting the Property; a review, after such
examination and study it may deem appropriate, as to whether the Property can be
economically and timely operated in accordance with Purchaser's proposed plan
for the Property, including but not limited, to a marketing and finance
analysis; a review to determine whether Purchaser can obtain any and all final
governmental and private approvals as may be deemed necessary by Purchaser in
Purchaser's sole and absolute discretion to permit Purchaser's future
development and operation of the Property; a review to determine whether or not
water, sewer or electrical and other utilities can be brought to the Property in
an economical and timely fashion in sufficient quality and quantity to permit
the development and operation in the manner, currently contemplated by
Purchaser's current development and operation plan for the Property, as that
plan may be modified from time to time hereinafter; and such other tests,
investigations or analysis as Purchaser deems necessary in its sole and absolute
discretion and otherwise subject to the restrictions set forth below. Within
five (5) days following the Effective Date, Seller shall deliver to (or
otherwise make available for reasonable inspection by) Purchaser copies of all
architectural plans, surveys, specifications, contracts, licenses, reports,
environmental reports, seismic reports, studies, test results, tax bills,
expense information and other documents pertaining to the Property that are
owned by and in the possession of Seller (the "Operative Documents").
(b) If Purchaser disapproves of the results of the inspection and review for any
reason, which determination may be made by Purchaser in its sole and absolute
discretion, Purchaser may elect, prior to the expiration of the Feasibility
Period, to terminate this Agreement by giving Seller written notification
thereof, and the Deposit together with all interest earned thereon shall be
returned to Purchaser. If Purchaser fails to properly notify Seller of the
intent to terminate this Agreement, Purchaser shall be deemed to be satisfied
<PAGE>
with the results of the inspection and shall be deemed to have waived the right
to terminate this Agreement pursuant to this provision.
6. CONDITIONS TO PURCHASER'S PERFORMANCE. Purchaser's obligation to perform
under this Agreement is subject to the following conditions:
(a) Purchaser's approval of the Property as provided in Section 5;
(b) Seller's representations in this Agreement being correct in all material
respects as of the date of this Agreement and as of the Closing Date;
(c) Seller's performance of all of its obligations under this Agreement;
(d) Escrow Agent being prepared to issue the Title Policy (as defined below) on
the Closing Date (as defined below), subject only to the Approved Exceptions,
and containing such endorsements as may be reasonably required by Purchaser; and
(e) There shall not have occurred after the Effective Date any material adverse
physical change in the Property from its condition as of the Effective Date.
The conditions (a) through (e) shall be for the benefit of, and may be waived
by, Purchaser. Upon the non-satisfaction of any of the foregoing conditions,
unless waived by Purchaser, the Agreement shall be terminated and any Deposit
then held by Escrow Agent together with all interest thereon shall be returned
to Purchaser.
7. CONDITIONS TO SELLER'S PERFORMANCE. Seller's obligation to perform under this
Agreement is subject to the following conditions:
(a) Purchaser's representations in this Agreement being correct in all material
respects as of the date of this Agreement and as of the Closing Date; and
(b) Purchaser's performance of all of its obligations under this Agreement.
The conditions (a) and (b) shall be for the benefit of, and may be waived by,
Seller. Upon the non-satisfaction of any of the foregoing conditions, unless
waived by Seller, the Agreement shall be terminated and any Deposit then held by
Escrow Agent together with all interest thereon and any sums previously released
to Seller shall be returned to Purchaser.
8. ACCESS.
(a) Access to the Property prior to the Closing Date shall be given to Purchaser
during normal business hours upon at least one (1) business day's prior notice
to Seller.
(b) Purchaser and Purchaser's contractors and consultants shall have the right,
from the Effective Date until the Closing Date, to enter onto the Property, at
their own cost and risk, for any purposes, including but not limited to,
inspecting the Property, taking samples of the soil, and conducting an
environmental audit (including an investigation of past and current uses of the
Property). In addition, Purchaser shall have the right to contact any federal,
state, or local governmental authority or agency to investigate any matters
relating to the Property. Purchaser's contractors and consultants shall be duly
licensed and insured. As a condition of such entry, Purchaser shall provide
evidence reasonably satisfactory to Seller of the existence of general liability
insurance prior to any such entry, inspection, test or study. Seller agrees to
<PAGE>
cooperate reasonably with Purchaser in the inspection of the Property and agrees
to make available to Purchaser all information in Seller's possession or control
pertaining to the condition of the Property, including engineering and
environmental reports, studies, tests, monitoring results, and related
documentation.
(c) Purchaser shall indemnify and defend Seller against and hold Seller harmless
from all losses, costs, damages, liabilities, and expenses, arising out of any
personal injury or physical damage to the Property in connection with
Purchaser's inspection of or presence, prior to the Closing Date, on the
Property. Furthermore, Purchaser shall indemnify, defend and hold Seller
harmless from and against any mechanic's lien claims that may arise in
connection with Purchaser's inspection of or presence, prior to the Closing
Date, on the Property.
9. TITLE.
(a) Immediately following the execution of this Agreement by both parties,
Purchaser shall cause Escrow Agent to issue to Purchaser (with a copy to Seller)
a preliminary report for a CLTA Owner's Policy for the Property, setting forth
all liens, encumbrances, easements, restrictions, conditions, and other record
matters affecting Seller's title to the Property (the "Preliminary Report"),
together with copies of all documents relating to title exceptions referred to
in the Preliminary Report. Purchaser shall have the right, prior to the
expiration of the Feasibility Period, to obtain an ALTA survey, at its own
expense, sufficient for the issuance of an ALTA Owner's Extended Coverage Policy
of Title Insurance.
(b) Purchaser shall approve or disapprove each exception shown on the
Preliminary Report and in any ALTA supplement issued in connection therewith
(each an "Exception") by the date which is the later to occur of (i) the
expiration of the Feasibility Period or (ii) five (5) days following the receipt
of each of the Preliminary Report, the underlying exceptions, and any ALTA
supplement to the Preliminary Report, as the case may be. Any Exception not so
timely disapproved shall be deemed an "Approved Exception."
(c) If any Exception is disapproved (each a "Disapproved Exception") Seller
shall have the option either to notify Purchaser (i) that Seller will attempt to
remove or cure such Disapproved Exception prior to the Closing Date or (ii) that
Seller will take no action whatsoever; provided, however, Seller's failure to
notify Purchaser of Seller's election of any of its foregoing options within
five (5) business days after Seller's receipt of Purchaser's notice of a
Disapproved Exception shall be deemed Seller's election of option (ii). In the
event that Seller elects or is deemed to have selected option (ii) then
Purchaser shall, within five (5) days after Purchaser's receipt or deemed
receipt of Seller's election, either elect to waive such Disapproved Exception
and proceed to the Close of Escrow without offset or deduction or to terminate
this Agreement, in which latter event Purchaser shall pay all reasonable charges
to the Escrow Agent in connection with this transaction and all the funds and
documents deposited with Escrow Agent shall be promptly refunded or returned, as
the case may be by Escrow Agent to the depositing party. Purchaser's failure to
so timely notify Seller of Purchaser's election will be deemed Purchaser's
election to waive the Disapproved Exception. In the event Seller elects option
(i) Seller shall, prior to the Closing Date, use its good faith reasonable
efforts to cause each Disapproved Exception to be discharged, satisfied,
released, or terminated, as the case may be, of record, and in a form that is
reasonably satisfactory to Purchaser and Escrow Agent, all at Seller's sole cost
<PAGE>
and expense. Seller shall have no liability if despite the use of its good faith
reasonable efforts, it cannot cure the Disapproved Exception and Purchaser shall
again have the option to either terminate this Agreement or waive such
Disapproved Exception and proceed to closing without offset or deduction.
(d) Notwithstanding anything contained in this Agreement to the contrary, it is
agreed that any monetary encumbrance affecting title to the Property, other than
a lien for current real property taxes and assessments not then delinquent,
shall be discharged by Seller on the Closing Date and need not be formally
disapproved by Purchaser. Seller hereby authorizes Escrow Agent to disburse from
the cash portion of the Acquisition Value and proceeds otherwise disbursable to
Seller upon the Close of Escrow the sum sufficient to discharge any monetary
encumbrances that may be discharged only by the payment of money.
10. CLOSE OF ESCROW.
(A) CONVEYANCE OF TITLE. At the Close of Escrow, good and marketable title to
the Property shall be conveyed by Seller to Purchaser by the Deed (as defined
below) subject only to:
(i) A lien for real property taxes and assessments not then delinquent
(notwithstanding anything to the contrary contained herein, the purchaser shall
assume all assessments that are a lien against the Property);
(ii) Matters of title respecting the Property approved or deemed approved by
Purchaser in accordance with this Agreement;
(iii) Title and survey matters which would be disclosed by an ALTA survey and
approved or deemed approved by Purchaser; and
(iv) Matters affecting the condition of title to the Property created by or with
the written consent of Purchaser.
At the Close of Escrow all of Seller's right, title and interest in and to
the Personal Property shall be conveyed by Seller to Purchaser by the Warranty
Bill of Sale in the form attached hereto as Exhibit B (the "Bill of Sale").
(B) SELLER'S DEPOSITS INTO ESCROW. Seller shall deposit with Escrow Agent at
least three (3) business days prior to the Close of Escrow, the following
documents:
(i) A statutory grant deed executed and acknowledged by Seller
(the "Deed");
(ii) Seller's affidavit of non-foreign status as contemplated by Section 1445 of
the Internal Revenue Code of 1986, as amended, or a release from the Internal
Revenue Service in form and content reasonably acceptable to Purchaser,
indicating that Purchaser is excused from any withholding requirements under
federal law ("FIRPTA Affidavit") executed by Seller, but undated;
(iii) Seller's affidavit as contemplated by Revenue and Taxation Code Section
18662 or a release from the California Franchise Tax Board in form and content
reasonably acceptable to Purchaser, indicating that Purchaser is excused from
any withholding requirements under California law (the "Withholding Affidavit")
executed by Seller, but undated;
(iv) The Bill of Sale duly executed by Seller, but undated;
<PAGE>
(v) An Assignment of any leases approved by Purchaser wherein such lease is
assigned to Purchaser, Purchaser assumes all obligations of landlord with
respect thereto, and Seller is indemnified with respect to any liability
thereunder; and
(vi) Notwithstanding the foregoing, at any time prior to the Close of Escrow
Seller shall deposit with Escrow Agent such other documents as Purchaser, Title
Company or Escrow Agent may reasonably require in order to close this
transaction of purchase and sale in accordance with the terms hereof.
(C) PURCHASER'S DEPOSITS INTO ESCROW. Purchaser shall deposit with Escrow Agent,
on or prior to the Close of Escrow, the following:
(i) Balance of the Acquisition Value in accordance with Section 2(b) together
with Purchaser's share of closing costs; and
(ii) Such other documents as Seller, Title Company or Escrow Agent may
reasonably require to close this transaction of purchase and sale in accordance
with the terms hereof.
(D) CLOSING DATE. The closing hereunder (the "Close of Escrow") shall be the
date the Deed is recorded (the "Closing Date"). Subject to the terms hereof, the
Close of Escrow shall occur on that date which is no later than the sixtieth
(60th) day following receipt of the Completion Notice with respect to the
acquired property (the "Expected Closing Date"), or as soon thereafter as the
Escrow is in condition for. Close of Escrow; provided, however, that if the
Close of Escrow does not occur by the Expected Closing Date and the Expected
Closing Date is not extended by written agreement by the parties, a party hereto
not then in default under this Agreement may notify the other party and Escrow
Agent, in writing that, unless the Close of Escrow occurs within five (5)
business days following said notice, the Escrow and this Agreement shall be
deemed terminated without further notice or instructions and, in which event,
the party which is not in position to close shall be deemed to be in material
breach of this Agreement and the party that has fully complied may exercise its
remedies in accordance with the terms hereof.
(E) CLOSE OF ESCROW. On the Closing Date and provided that Escrow Agent is
irrevocably committed to issue a CLTA Owner's Policy of title insurance showing
good and marketable fee simple title to the Property in the amount of the
Acquisition Value vested in Purchaser, subject only to the Approved Exceptions
(the "Title Policy"), Escrow Agent shall date all undated documents as of the
Closing Date and shall close Escrow as follows:
(i) Record the Deed (marked for return to Purchaser) in the
_______________________________ County Recorder's Office (which shall be deemed
delivery to Purchaser);
(ii) Issue the Title Policy;
(iv) Distribute the balance of the Acquisition Value to Seller after deducting
therefrom the prorated amounts and charges to be paid by or on behalf of Seller;
(v) Charge Purchaser for those costs and expenses to be paid by Purchaser
<PAGE>
pursuant to this Agreement and disburse any net funds remaining after the
preceding disbursements to Purchaser;
(vi) Prepare and deliver to both Purchaser and Seller one signed copy of Escrow
Agent's closing statement showing all receipts and disbursements of the Escrow;
(vii) Deliver to Purchaser the FIRPTA Affidavit and the Withholding Affidavit,
Warranty Bill of Sale, the counterpart of the Assignment Agreement executed by
Seller and the items referenced in Section 10(b)(vi) above; and
(viii) Deliver to each of the parties such additional documents as either party
may direct.
(F) CLOSING COSTS. Escrow Agent shall allocate and prorate the following costs
at the Close of Escrow:
(I) SELLER SHALL PAY:
(A) any costs of clearing title to the Property;
(B) any document preparation fees for the Deed; and
(C) all documentary and/or real property transfer taxes due upon the transfer
of the Property.
(II) PURCHASER SHALL PAY:
(A) all charges in connection with the issuance of the Title Policy;
(B) the recording charges in connection with recordation of the Deed; and
(C) the escrow fee charged by Escrow Agent.
Any closing costs not addressed herein shall be allocated in accordance with the
custom and practice then prevailing in the County in which the Property is
located.
(III) REAL ESTATE TAXES, BONDS AND ASSESSMENTS. Current real property taxes, any
current installment of any bond or assessment that constitutes a lien on the
Property, rents, security deposits, and license fees, if any, including any
additional property taxes or installments of any bond or assessment lien that
may be assessed after the Close of Escrow, but that relate to a period prior to
the Close of Escrow, regardless of when notice of those taxes, dues or
assessments are received or who receives the notice shall be prorated as of the
Close of Escrow.
(IV) BALANCE OUTSIDE OF ESCROW. Any item to be prorated in accordance with the
terms of this Agreement which is not determined or determinable on the Closing
Date shall be adjusted by the parties by appropriate cash payment outside of the
Escrow within five (5) business days after the amount due is determined.
11. POSSESSION. Exclusive possession of the Property shall be delivered to
Purchaser at the Close of Escrow.
12. DAMAGE AND DESTRUCTION.
(a) In the event of damage or destruction of the Property or any portion of the
<PAGE>
Property prior to the Close of Escrow in an amount not exceeding Ten Thousand
Dollars ($10,000.00), Purchaser and Seller shall consummate this Agreement,
provided that Seller shall assign to Purchaser Seller's rights under any
insurance policy covering the damage or destruction and shall indemnify and
guarantee Purchaser with respect to any costs incurred by Purchaser in repairing
and restoring the Property after the Close of Escrow that are not paid by the
insurance up to the amount of Ten Thousand Dollars ($10,000.00) or may, at
Seller's election, grant Purchaser a credit in said amount against the
Acquisition Value.
(b) In the event of damage or destruction of the Property or any portion of the
Property prior to the Close of Escrow in an amount in excess of Ten Thousand
Dollars ($10,000.00), Purchaser may elect within ten (10) days following such
event of damage or destruction, either to terminate this Agreement upon written
notice to Seller and Escrow Agent or to consummate this Agreement, in which
event Seller shall assign to Purchaser Seller's rights under any insurance
policy covering the damage or destruction, but without the indemnity and
guarantee provided in subsection (a) above. Purchaser's failure to affirmatively
elect whether to terminate or consummate this Agreement within said ten (10) day
period shall be deemed Purchaser's election to consummate this Agreement. If
Purchaser elects to terminate this Agreement pursuant to this provision, Escrow
Agent and/or Seller, as the case may be, shall, within five (5) days following
receipt of Purchaser's notice, return the Deposit, to Purchaser. Upon
termination, neither party shall have any further obligations under this
Agreement except as otherwise provided in this Agreement.
13. CONDEMNATION.
(a) If any portion of the Property is taken by condemnation or eminent domain or
is the subject of a threatened or pending condemnation or eminent domain
proceeding that has not been consummated prior to the Close of Escrow resulting
in a decrease in the value of the Property in an amount not exceeding Ten
Thousand Dollars ($10,000.00), Purchaser and Seller shall consummate this
Agreement, provided that Seller shall assign to Purchaser Seller's rights to all
awards for the condemnation or taking and shall indemnify and guarantee
Purchaser with respect to any costs incurred by Purchaser in repairing and
restoring the Property that are not paid by the awards up to the amount of Ten
Thousand Dollars ($10,000.00) or may, at Seller's election, grant Purchaser a
credit in such amount against the Acquisition Value.
(b) If any portion of the Property is taken by condemnation or eminent domain or
is the subject of a threatened or pending condemnation or eminent domain
proceeding that has not been consummated prior to the Close of Escrow resulting
in a decrease in the value of the Property in an amount in excess of Ten
Thousand Dollars ($10,000.00), Purchaser may elect within ten (10) days
following such event, either to terminate this Agreement upon written notice to
Seller and Escrow Agent or to consummate this Agreement, in which event Seller
shall assign to Purchaser Seller's rights to all awards for the condemnation or
taking, but without the indemnity and guarantee provided in subSection (a)
above. Purchaser's failure to affirmatively elect whether to terminate or
consummate this Agreement within said ten (10) day period shall be deemed
Purchaser's election to consummate this Agreement. If Purchaser elects to
terminate this Agreement pursuant to this provision, Escrow Agent and/or Seller,
as the case may be, shall, within five (5) days following receipt of Purchaser's
notice, return the Deposit to Purchaser. Upon termination, neither party shall
have any further obligations under this Agreement except as otherwise provided
in this Agreement.
<PAGE>
14. SELLER REPRESENTATIONS. Seller represents to Purchaser that as of the date
of this Agreement and as of the Closing Date:
(a) Seller has full right, power and authority to enter into and perform
Seller's obligations under this Agreement in accordance with its terms;
(b) That Seller is not a "foreign person" within the meaning of Section
1445(f)(3) of the Internal Revenue Code of 1954, as amended, and is a "resident"
of the State of California within the meaning of Section 18662 of the California
Revenue and Taxation Code, as amended;
(c) There is not pending, or to Seller's actual knowledge, threatened, any
litigation with respect to the Property; and
(d) Except as disclosed to Purchaser and to Seller's actual knowledge, no toxic
or hazardous chemicals, waste, or substances of any kind have ever been spilled,
disposed of, or stored on, under, or at the Property in violation of any
applicable law, rule or regulation.
The continued accuracy in all respects of Seller's representations shall be a
condition precedent to Purchaser's obligation to close. All representations
contained in this Agreement shall be deemed remade as of the Closing Date and
shall survive the Closing Date. If, after the Effective Date hereof, but prior
to the Closing Date, Seller becomes aware that any of the representations set
forth herein are no longer true and correct, then Seller may provide Purchaser
with written notice stating that Seller believes that such representations are
no longer accurate and the general nature of the change. Within five (5)
business days after receipt of such notice, Purchaser shall either: (i)
terminate this Agreement and the Deposit shall be returned to Purchaser; or (ii)
waive its rights on such account not to consummate the transaction herein
contemplated, in which case Purchaser shall be deemed to have waived all rights
and remedies with respect to those matters specifically set forth in such
notice. Notwithstanding the foregoing, nothing in this paragraph shall limit
Purchaser's rights and remedies if the representation or warranty was inaccurate
as of the date of this Agreement.
15. PURCHASER REPRESENTATIONS. Purchaser represents to Seller
that as of the date of this Agreement and as of the Close of
Escrow as follows:
(a) Purchaser has full right, power and authority to buy the Property from
Seller and to perform Purchaser's obligations under this Agreement in accordance
with its terms.
The continued accuracy in all respects of Purchaser's representations shall be a
condition precedent to Seller's obligation to close. All representations
contained in this Agreement shall be deemed remade as of the Closing Date and
shall survive the Closing Date.
16. SELLER COVENANTS. Commencing on the Effective Date and continuing until the
Close of Escrow:
(a) Seller shall not create or consent to any liens, encumbrances, or easements
on or affecting the Property. Seller shall not enter into any agreement
regarding the sale, rental, lease, management, repair, improvement, or any other
matter affecting the Property without the prior written consent of Purchaser,
<PAGE>
which consent shall not be unreasonably withheld or delayed.
(b) Seller shall not permit any act of waste or act that would tend to diminish
the value of the Property for any reason, except that caused by ordinary wear
and tear.
(d) Seller shall maintain the Property in substantially the same manner as it
has been maintained prior to the Effective Date until the Close of Escrow and
shall not make any material changes to the Property or enter into any agreement
affecting the Property without Purchaser's prior consent, which consent shall
not be unreasonably withheld or delayed.
(e) That on the Closing Date there shall be no outstanding contracts made by
Seller for any improvements to the Property that have not been fully paid for
and that Seller shall cause to be discharged all mechanics' and materialmen's
liens arising from any labor or materials furnished prior to Closing which
pertain to the Property.
(f) Unless this Agreement is sooner terminated by Purchaser, the Seller will not
make, accept, negotiate or otherwise pursue any offers for the disposition
(whether directly, through a joint venture, ground lease, financing, or
otherwise) of any interest in the Property.
17. "AS-IS" SALE. Except as expressly set forth herein, Purchaser acknowledges
that it is buying the Property in its "As-Is, Where-Is" condition, in reliance
on its own investigations.
18. BROKERS AND FINDERS. Purchaser and Seller each represent and warrant that no
broker or finder has been utilized in the purchase and sale contemplated by this
Agreement. In the event of a claim for broker's fees, finder's fees, commissions
or other similar compensation in connection herewith: (i) Purchaser, if such
claim is based upon any agreement alleged to have been made by Purchaser, shall
indemnify, defend, and hold Seller harmless (using counsel reasonably
satisfactory to Seller) from and against any and all damages, liabilities,
costs, expenses and losses (including, but not limited to, attorneys' fees and
costs) that Seller sustains or incurs by reason of such claim; and (ii) Seller,
if such claim is based upon any agreement alleged to have been made by Seller,
shall indemnify, defend and hold Purchaser harmless (using counsel reasonably
satisfactory to Purchaser) from and against any and all damages, liabilities,
costs, expenses and losses (including, but not limited to, attorneys' fees and
costs) that Purchaser sustains or incurs by reason of such claim.
19. SURVIVAL. Except to the extent specifically provided to the contrary
hereunder, each and every covenant, agreement, representation and warranty of
each of the parties hereto shall survive the Closing Date and shall not merge
with Seller's delivery of the Deed or other documents to Purchaser.
20. ASSIGNMENT; SUCCESSORS AND ASSIGNS. Purchaser shall have the right to assign
this Agreement with Seller's prior written consent, which consent shall not be
unreasonably withheld. This Agreement, and the terms, covenants and conditions
herein contained, shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, heirs and assigns.
21. NOTICES. All notices to be given under this Agreement shall be in writing
<PAGE>
and sent by:
(a) certified mail, return receipt requested, in which case notice shall be
deemed delivered three (3) business days after deposit, postage prepaid in the
United States Mail,
(b) a nationally recognized overnight courier, in which case notice shall be
deemed delivered one (1) business day after deposit with that courier, or
(c) facsimile or similar means if a copy of the notice is also sent by United
States Certified Mail, in which case notice shall be deemed delivered on
transmittal by facsimile or other similar means, provided that a transmission
report is generated by reflecting the accurate transmission of the notices, as
follows:
If to Purchaser: If to Seller:
Mission West Properties Mission West Properties
10050 Bandley Drive 10050 Bandley Drive
Cupertino, CA 95014 Cupertino, CA 95014
Attention: Independent Directors Committee Attention: Carl E. Berg
Facsimile No.: (408) 725-0700 Facsimile No.: (408)725-0700
22. ARBITRATION OF DISPUTES. ANY DISPUTE OR CLAIM IN LAW OR EQUITY BETWEEN
PURCHASER AND SELLER ARISING OUT OF THIS AGREEMENT SHALL BE DECIDED BY NEUTRAL,
BINDING ARBITRATION.
THE ARBITRATION SHALL BE CONDUCTED IN ACCORDANCE WITH THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION ("AAA") THEN OBTAINING USING A SINGLE ARBITRATOR. THE
DECISION OF THE ARBITRATOR SHALL BE FINAL AND BINDING. IN ALL OTHER RESPECTS,
THE ARBITRATION SHALL BE CONDUCTED IN ACCORDANCE WITH PART III, TITLE 9 OF THE
CALIFORNIA CODE OF CIVIL PROCEDURE. JUDGMENT UPON THE AWARD RENDERED BY THE
ARBITRATOR(S) MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF. THE
PARTIES SHALL HAVE THE RIGHT TO DISCOVERY IN ACCORDANCE WITH CODE OF CIVIL
PROCEDURE Section 1283.05. THE ARBITRATION SHALL TAKE PLACE IN THE CITY AND
COUNTY OF SAN FRANCISCO. THE FOLLOWING MATTERS ARE EXCLUDED FROM ARBITRATION
HEREUNDER: (A) A JUDICIAL OR NON-JUDICIAL FORECLOSURE OR OTHER ACTION OR
PROCEEDING TO ENFORCE A DEED OF TRUST, MORTGAGE, OR INSTALLMENT LAND SALE
CONTRACT AS DEFINED IN CIVIL CODE SECTION 2985, (B) AN UNLAWFUL DETAINER ACTION,
(C) THE FILING OR ENFORCEMENT OF A MECHANIC'S LIEN, (D) ANY MATTER WHICH IS
WITHIN THE JURISDICTION OF A PROBATE OR SMALL CLAIMS COURT, AND (E) AN ACTION
FOR BODILY INJURY OR WRONGFUL DEATH TO WHICH CODE OF CIVIL PROCEDURE SECTION
337.1 OR SECTION 337.15 APPLIES. THE FILING OF A JUDICIAL ACTION TO ENABLE THE
RECORDING OF A NOTICE OF PENDING ACTION, FOR ORDER OF ATTACHMENT, RECEIVERSHIP,
INJUNCTION, OR OTHER PROVISIONAL REMEDIES, SHALL NOT CONSTITUTE A WAIVER OF THE
RIGHT TO ARBITRATE UNDER THIS PROVISION.
"NOTICE: BY INITIALING THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTE' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS
TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
'ARBITRATION OF DISPUTES' PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY."
<PAGE>
"WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISIONS TO
NEUTRAL ARBITRATION."
Purchaser's Initials: Seller's Initials:
---------- ----------
23. ATTORNEYS' FEES. If any arbitration or court action is commenced between the
parties, the prevailing party in that arbitration or court action shall be
entitled to recover from the non-prevailing party all reasonable attorneys' fees
and costs.
24. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the
parties to this Agreement and shall not be modified in any manner except by an
instrument in writing executed by the parties or their respective successors in
interest.
25. SEVERABILITY. If any term or provision of this Agreement shall, to any
extent, be held invalid or unenforceable, the remainder of this Agreement shall
not be affected.
26. WAIVERS. A waiver or breach of covenant or provision in this Agreement shall
not be deemed a waiver of any other covenant or provision in this Agreement, and
no waiver shall be valid unless in writing and executed by the waiving party. An
extension of time for performance of any obligation or act shall not be deemed
an extension of the time for performance of any other obligation or act.
27. CONSTRUCTION. The section headings and captions of this Agreement are, and
the arrangement of this instrument is, for the sole convenience of the parties
to this Agreement. The Section headings, captions, and arrangement of this
instrument do not in any way affect, limit, amplify, or modify the terms and
provisions of this Agreement. The singular form shall include plural, and vice
versa. This Agreement shall not be construed as if it had been prepared by one
of the parties, but rather as if both parties have prepared it. Unless otherwise
indicated, all references to Sections are to this Agreement. All exhibits
referred to in this Agreement are attached to it and incorporated in it by this
reference.
28. MERGER. All of the terms, provisions, representations and covenants of the
parties under this Agreement shall survive the Close of Escrow and shall not be
merged in the Deed.
29. PERFORMANCE DUE ON DAY OTHER THAN BUSINESS PAY. If the time period for the
performance of any act called for under this Agreement expires on a Saturday,
Sunday, or any other day on which banking institutions in the State of
California are authorized or obligated by law or executive order to close (a
"Holiday"), the act in question may be performed on the next succeeding day that
is not a Saturday, Sunday, or Holiday.
30. COUNTERPARTS. This Agreement may be executed in one or more counterparts.
31. TIME OF THE ESSENCE. Time is of the essence in this Agreement.
32. SUCCESSORS. This Agreement shall inure to the benefit of and shall be
binding upon the parties to this Agreement and their respective heirs,
<PAGE>
successors, and permitted assigns.
33. GOVERNING LAW. This Agreement shall be governed and construed in accordance
with California law.
34. EXHIBITS. Each exhibit to which reference is made in this Agreement is
deemed incorporated into this Agreement in its entirety by such reference. The
exhibits to this Agreement are the following:
Exhibit A Legal Description of Property
Exhibit B Warranty Bill of Sale
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.
Buyer: Seller:
By: By:
Its: Its:
By: By:
Its: Its:
ESCROW AGENT:
FIRST AMERICAN TITLE GUARANTY
COMPANY, a California corporation
By:
Its:
Escrow No.
<PAGE>
EXHIBIT A
TO BE COMPLETED AT TIME OF TRANSACTION.
<PAGE>
EXHIBIT B
WARRANTY BILL OF SALE
This Warranty Bill of Sale ("Bill of Sale") is executed as of __, ________
by _______________________________, a California corporation ("Seller") in favor
of _______________________________, a California limited partnership
("Purchaser").
RECITALS
A. Seller and Purchaser have entered into that certain Purchase and Sale
Agreement and Joint Escrow Instructions dated _______________ (the "Purchase
Agreement"), in which Purchaser has agreed to purchase improved real property in
_______________ County, State of California, more particularly described in
attached Schedule 1, (the "Property") incorporated in this Bill of Sale.
B. Pursuant to the Purchase Agreement, Seller has agreed to transfer to
Purchaser all Seller's right, title and interest in all licenses, permits,
development rights, air rights, authorizations, certificates, surveys, plans,
specifications, reports, studies, test results and all unexpired warranties and
guaranties given by unaffiliated third parties owned by Seller and pertaining to
or used exclusively in connection with the Property (collectively, "Personal
Property") concurrent with the Closing Date (as defined in the Purchase
Agreement).
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Seller agrees as follows:
1. TRANSFER. Effective as of the Closing Date, Seller hereby transfers, sells,
assigns, grants and conveys to Purchaser all of Seller's right, title, and
interest in the Personal Property.
2. SELLER'S COVENANTS. Seller covenants to Purchaser that Seller has good and
marketable title to the Personal Property, free of all liens, and has the right
to transfer the Personal Property. Seller further agrees that Seller will defend
Purchaser's title to the Personal Property against the demands of anyone
claiming through Seller.
3. ATTORNEY FEES. If any suit, action or other proceeding is instituted to
enforce the rights of either party under this Bill of Sale, the successful
party, as adjudicated by a court, shall be entitled to reasonable attorney fees
and court costs.
4. GOVERNING LAW. This Bill of Sale shall be governed and construed in
accordance with California law.
Seller has executed this Bill of Sale as of the date first above written.
SELLER:
a California corporation
By:
Its:
By:
Its:
<PAGE>
- --------------------------------------------------------------------------------
STANDARD FORM LEASE
- --------------------------------------------------------------------------------
PARTIES: This Lease, executed in duplicate at Cupertino, California, on May 19,
1998, by and between Berg & Berg Enterprises, Inc., a California Corporation,
and Mission West Properties, a California corporation, hereinafter called
respectively Lessor and Lessee, without regard to number or gender.
USE: WITNESSETH: That Lessor hereby leases to Lessee, and Lessee hires from
Lessor, for the purpose of conducting therein office, research and development,
light manufacturing, and warehouse activities, and any other legal activity; and
for no other purpose without obtaining the prior written consent of Lessor.
PREMISES: The real property with appurtenances as shown on Exhibit A (the
"Premises") situated in the City of Cupertino, County of Santa Clara, State of
California, and more particularly described as follows:
Lessee's portion of the Premises is 3,200 square feet of an approximately
7,500 square foot building, including all improvements thereto, as shown on
Exhibit A.1 including the right to use its pro-rata share of the parking
spaces located at the Premises. The address for the leased portion of the
Premises is 10050 Bandley Drive, Cupertino, California. Lessee's pro-rata
share of the building is approximately 42.67%.
TERM: The term shall be for thirty-six (36) months unless extended pursuant to
Section 35 of this Lease (the "Lease Term"), commencing on April 1, 1998 and
ending thirty-six (36) months thereafter.
RENT: Base rent shall be payable in monthly installments as follows:
<TABLE>
<CAPTION>
Base rent Estimated CAC* Total
--------- -------------- -----
<S> <C> <C> <C>
Months 1 through 36 $5,600 $1,120* $6,720
</TABLE>
* CAC charges to be adjusted per Common Area Charges Section below.
Base rent and CAC as scheduled above shall be payable in advance on or before
the first day of each calendar month during the Lease Term. The term "Rent," as
used herein, shall be deemed to be and to mean the base monthly rent and all
other sums required to be paid by Lessee pursuant to the terms of this Lease.
Rent shall be paid in lawful money of the United States of America, without
offset or deduction, and shall be paid to Lessor at such place or places as may
be designated from time to time by Lessor. Rent for any period less than a
calendar month shall be a pro rata portion of the monthly installment. Upon
execution of this Lease, Lessee shall deposit with Lessor the first month's
rent.
SECURITY DEPOSIT: Lessee shall deposit with Lessor the sum of Six Thousand Seven
Hundred Twenty Dollars ($6,720) (the "Security Deposit"). The Security Deposit
shall be held by Lessor as security for the faithful performance by Lessee of
all of the terms, covenants, and conditions of this Lease applicable to Lessee.
If Lessee commits a default as provided for herein, including but not limited to
a default with respect to the provisions contained herein relating to the
condition of the Premises, Lessor may (but shall not be required to) use, apply
or retain all or any part of the Security Deposit for the payment of any amount
which Lessor may spend by reason of default by Lessee. If any portion of the
Security Deposit is so used or applied, Lessee shall, within ten days after
written demand therefor, deposit cash with Lessor in an amount sufficient to
restore the Security Deposit to its original amount. Lessee's failure to do so
shall be a default by Lessee. Any attempt by Lessee to transfer or encumber its
interest in the Security Deposit shall be null and void. Upon execution of this
Lease, Lessee shall deposit with Lessor the Security Deposit. Notwithstanding
the above, Lessor agrees to waive the requirement for Lessee to make a security
deposit provided Lessee's shareholder's equity exceeds $7.5 million. If at any
time during this Lease, Lessee's shareholder's equity is less than $7.5 million,
Lessee shall deposit with Lessor the Security Deposit referenced above within
ten days after the issuance of Lessee's financial statements indicating the
reduction in shareholder's equity below $7.5 million. If Lessee fails to make
the Security Deposit as required, Lessee shall be deemed to be in default per
Section 14.1 (a) of this Lease.
COMMON AREA CHARGES: Lessee shall pay to Lessor, as additional Rent, an amount
equal to Lessee's pro-rate share of the total common area charges of the
Premises as defined below (the common area charges for the Premises is referred
to herein as ("CAC")). Lessee shall pay to Lessor as Rent, on or before the
first day of each calendar month during the Lease Term, subject to adjustment
and reconciliation as provided hereinbelow, the sum of One Thousand One Hundred
Twenty Dollars ($1,120), said sum representing Lessee's estimated monthly
payment of Lessee's percentage share of CAC. It is understood and agreed that
<PAGE>
Lessee's obligation under this paragraph shall be prorated to reflect the
Commencement Date and the end of the Lease Term. Upon execution of this Lease,
Lessee shall deposit with Lessor the first month's estimated CAC.
Lessee's estimated monthly payment of CAC payable by Lessee during the calendar
year in which the Lease commences is set forth above. At or prior to the
commencement of each succeeding calendar year term (or as soon as practical
thereafter), Lessor shall provide Lessee with Lessee's estimated monthly payment
for CAC which Lessee shall pay to Lessor as Rent. Within 120 days of the end of
the calendar year and the end of the Lease Term, Lessor shall provide Lessee a
statement of actual CAC incurred including capital reserves for the preceding
year or other applicable period in the case of a termination year. If such
statement shows that Lessee has paid less than its actual percentage, then
Lessee shall on demand pay to Lessor the amount of such deficiency. If such
statement shows that Lessee has paid more than its actual percentage, then
Lessor shall, at its option, promptly refund such excess to Lessee or credit the
amount thereof to the Rent next becoming due from Lessee. Lessor reserves the
right to revise any estimate of CAC if the actual or projected CAC show an
increase or decrease in excess of 10% from an earlier estimate for the same
period. In such event, Lessor shall provide a revised estimate to Lessee,
together with an explanation of the reasons therefor, and Lessee shall revise
its monthly payments accordingly. Lessor's and Lessee's obligation with respect
to adjustments at the end of the Lease Term or earlier expiration of this Lease
shall survive the Lease Term or earlier expiration.
As used in this Lease, CAC shall include but is not limited to: (i) items as
specified in Sections 5(b), 6, 12, 16 and 31; (ii) all costs and expenses
including but not limited to supplies, materials, equipment and tools used or
required in connection with the operation and maintenance of the Premises; (iii)
licenses, permits and inspection fees; (iv) all other costs incurred by Lessor
in maintaining and operating the Premises; (v) all reserves for capital
replacements and government regulations imposed on the Premises not related to
Lessee's use and occupancy of the Premises; and (vi) an amount equal to five
percent (5%) of the aggregate of all CAC, as compensation for Lessor's
accounting and processing services. Lessee shall have the right to review the
basis and computation analysis used to derive the CAC applicable to this Lease
annually.
LATE CHARGES: Lessee hereby acknowledges that a late payment made by Lessee to
Lessor of Rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges, which may be imposed on Lessor
according to the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of Rent or any other sum due from Lessee is not
received by Lessor or Lessor's designee within ten (10) days after such amount
is due, Lessee shall pay to Lessor a late charge equal to five (5%) percent of
such overdue amount. The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Lessor will incur by reason of late
payments made by Lessee. Acceptance of such late charges by Lessor shall in no
event constitute a waiver of Lessee's default with respect to such overdue
amount, nor shall it prevent Lessor from exercising any of the other rights and
remedies granted hereunder.
QUIET ENJOYMENT: Lessor covenants and agrees with Lessee that upon Lessee paying
Rent and performing its covenants and conditions under this Lease, Lessee shall
and may peaceably and quietly have, hold and enjoy the Premises for the Lease
Term, subject, however, to the rights reserved by Lessor hereunder.
OFFICE/OVERHEAD SHARING: It is understood and acknowledged that the Premises
described herein shall be utilized for the business operations of both Lessor
and Lessee. Lessee shall pay for or reimbursement Lessor for its prorata share,
to be determined by Lessor on an equitable basis, of all building and
operational expenses related to the use of the office, the equipment in the
office, office supplies, personnel costs, management costs, and any other costs
necessary for the operation of a professional management organization at the
Premises. In addition, Lessee and Lessor shall each be responsible for the
exclusive costs of their own organization. The primary purpose of this
arrangement is to utilize the existing resources of Lessor and its staff to
benefit Lessee at a reasonable cost to Lessee. Notwithstanding the above,
Lessee's obligation under this Lease, including base rent, CAC, and
office/overhead sharing shall not exceed Fifteen Thousand Dollars ($15,400) per
month during the first thirty-six months of the Lease Term.
IT IS FURTHER MUTUALLY AGREED BETWEEN THE PARTIES AS FOLLOWS:
1. POSSESSION: Possession shall be deemed tendered and the term shall commence
effective April 1, 1998.
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2.1 ACCEPTANCE OF PREMISES AND COVENANTS TO SURRENDER: Lessee accepts the
Premises in an "AS IS" condition and "AS IS" state of repair, subject to
Lessor's representation that the Premises are in good order and repair, and
comply with all requirements for occupancy as of the Commencement Date. Lessee
agrees on the last day of the Lease Term, or on the sooner termination of this
Lease, to surrender the Premises to Lessor in Good Condition and Repair. Good
Condition and Repair ("Good Condition and Repair") shall not mean original
condition, but shall mean that the Premises are in a commercially acceptable
condition suitable for occupancy by a reasonable lessee. The interior walls of
all office and warehouse areas, the floors of all office and warehouse areas,
all suspended ceilings and any carpeting are to be cleaned and in Good Condition
and Repair. Lessee, on or before the end of the Lease Term or sooner termination
of this Lease, shall remove all its personal property and trade fixtures from
the Premises, and all such property not so removed shall be deemed to be
abandoned by Lessee. Lessee shall reimburse Lessor for all disposition costs
incurred by Lessor relative to Lessee's abandoned property. If the Premises are
not surrendered at the end of the Lease Term or earlier termination of this
Lease, Lessee shall indemnify Lessor against loss or liability resulting from
any delay caused by Lessee in surrendering the Premises including, without
limitation, any claims made by any succeeding Lessee founded on such delay.
3. USES PROHIBITED: Lessee shall not commit, or suffer to be committed, any
waste upon the Premises, or any nuisance, or other act or thing which may
disturb the quiet enjoyment of any other tenant in or around the buildings in
which the subject Premises are located or allow any sale by auction upon the
Premises, or allow the Premises to be used for any improper, immoral, unlawful
or objectionable purpose, or place any loads upon the floor, walls, or ceiling
which may endanger the structure, or use any machinery or apparatus which will
in any manner vibrate or shake the Premises or the building of which it is a
part, or place any harmful liquids in the drainage system of the building. No
waste materials or refuse shall be dumped upon or permitted to remain upon any
part of the Premises outside of the building proper. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored upon or permitted to remain on any
portion of the Premises outside of the building structure, unless approved by
the local, state federal or other applicable governing authority. Lessor
consents to Lessee's use of materials which are incidental to the normal,
day-to-day operations of any office user, such as copier fluids, cleaning
materials, etc., but this does not relieve Lessee of any of its obligations not
to contaminate the Premises and related real property or violate any Hazardous
Materials Laws.
4. ALTERATIONS AND ADDITIONS: Lessee shall not make, or suffer to be made, any
alteration or addition to said Premises, or any part thereof, without the
express, advance written consent of Lessor; any addition or alteration to said
Premises, except movable furniture and trade fixtures, shall become at once a
part of the realty and belong to Lessor at the end of the Lease Term or earlier
termination of this Lease. Alterations and additions which are not deemed as
trade fixtures shall include HVAC systems, lighting systems, electrical systems,
partitioning, carpeting, or any other installation which has become an integral
part of the Premises. Lessee agrees that it will not proceed to make such
alterations or additions until all required government permits have been
obtained and after having obtained consent from Lessor to do so, until five (5)
days from the receipt of such consent, so that Lessor may post appropriate
notices to avoid any liability to contractors or material suppliers for payment
for Lessee's improvements. Lessee shall at all times permit such notices to be
posted and to remain posted until the completion of work. At the end of the
Lease Term or earlier termination of this Lease, Lessee shall remove and shall
be required to remove its special tenant improvements, all related equipment,
and any additions or alterations installed by Lessee at or during the Lease Term
and Lessee shall return the Premises to the condition that existed before the
installation of the tenant improvements. Notwithstanding the above, Lessor
agrees to allow any reasonable alterations and improvements and will use its
best efforts to notify Lessee at the time of approval if such improvements or
alterations are to be removed at the end of the Lease Term or earlier
termination of this Lease.
5. MAINTENANCE OF PREMISES:
(a) Lessee shall at its sole cost and expense keep, repair, and maintain
the interior of the Premises, including, but not limited to, all lighting
systems, temperature control systems, and plumbing systems in Good
Condition and Repair, including any required replacements. Lessee shall
maintain all wall surfaces and floor coverings in Good Condition and
Repair, free of holes, gouges, or defacements and provide interior and
exterior window washing as needed.
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(b) Lessor shall, at Lessee's expense, keep, repair, and maintain in Good
Condition and Repair including replacements (based on a pro-rata share of
(i) costs based on square footage or (ii) costs directly related to
Lessee's use of the Premises) the following, which shall be included in the
monthly CAC:
1. The exterior of the building, any appurtenances and every part
thereof, including but not limited to, glazing, sidewalks, parking
areas, electrical systems, HVAC systems, roof membrane, and painting
of exterior walls. The parking lot to receive a finish coat every
five to seven years.
2. The HVAC by a service contract with a licensed air conditioning and
heating contractor which contract shall provide for a minimum of
quarterly maintenance of all air conditioning and heating equipment at
the Premises including HVAC repairs or replacements which are either
excluded from such service contract or any existing equipment
warranties.
3. The landscaping by a landscape contractor to water, maintain, trim
and replace, when necessary, any shrubbery and landscaping at the
Premises.
4. The roof membrane by a service contract with a licensed reputable
roofing contractor which contract shall provide for a minimum of
semi-annual maintenance, cleaning of storm gutters, drains, removing
of debris, and trimming overhanging trees, repair of the roof and
application of a finish coat every five years to the building at the
Premises.
5. Exterior pest control.
6. Fire monitoring services.
(c) Lessee hereby waives any and all rights to make repairs at the expense
of Lessor as provided in Section 1942 of the Civil Code of the State of
California, and all rights provided for by Section 1941 of said Civil Code.
(d) Lessor shall be responsible for the repair of any structural defects in
the Premises including the roof structure (not membrane), exterior walls
and foundation during the Lease Term.
6. INSURANCE:
A) HAZARD INSURANCE: Lessee shall not use, or permit said Premises, or any
part thereof, to be used, for any purpose other than that for which the
Premises are hereby leased; and no use shall be made or permitted to be
made of the Premises, nor acts done, which may cause a cancellation of any
insurance policy covering the Premises, or any part thereof, nor shall
Lessee sell or permit to be kept, used or sold, in or about said Premises,
any article which may be prohibited by a fire and extended coverage
insurance policy. Lessee shall comply with any and all requirements,
pertaining to said Premises, of any insurance organization or company,
necessary for the maintenance of reasonable fire and extended coverage
insurance, covering the Premises. Lessor shall, at Lessee's sole cost and
expense, purchase and keep in force fire and extended coverage insurance,
covering loss or damage to the Premises in an amount equal to the full
replacement cost of the Premises, as determined by Lessor, with proceeds
payable to Lessor. In the event of a loss per the insurance provisions of
this paragraph, Lessee shall be responsible for deductibles up to a maximum
of $5,000 per occurrence. Lessee acknowledges that the insurance
referenced in this paragraph does not include coverage for Lessee's
personal property.
B) LOSS OF RENTS INSURANCE: Lessor shall, at Lessee's sole cost and
expense, purchase and maintain in full force and effect, a policy of rental
loss insurance, in an amount equal to the amount of Rent payable by Lessee
commencing on the date of loss for the next ensuing one (1) year, as
reasonably determined by Lessor with proceeds payable to Lessor ("Loss of
Rents Insurance").
C) LIABILITY AND PROPERTY DAMAGE INSURANCE: Lessee, as a material part of
the consideration to be rendered to Lessor, hereby waives all claims
against Lessor and Lessor's Agents for damages to goods, wares and
merchandise, and all other personal property in, upon, or about the
Premises, and for injuries to persons in, upon, or about the Premises, from
any cause arising at any time, and Lessee will hold Lessor and Lessor's
Agents exempt and harmless from any damage or injury to any person, or to
the goods, wares, and merchandise and all other personal property of any
person, arising from the use or occupancy of the Premises by Lessee, or
from the failure of Lessee to keep the Premises in Good Condition and
Repair, as herein provided. Lessee shall, at Lessee's sole cost and
expense, purchase and keep in force a standard policy of commercial general
liability insurance and property damage policy covering the Premises and
all related areas insuring the
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Lessee having a combined single limit for both bodily injury, death and
property damage in an amount not less than five million dollars
($5,000,000.00) and Lessee's insurance shall be primary. The limits of
said insurance shall not, however, limit the liability of Lessee hereunder.
Lessee shall, at its sole cost and expense, comply with all of the
insurance requirements of all local, municipal, state and federal
authorities now in force, or which may hereafter be in force, pertaining to
Lessee's use and occupancy of the said Premises.
D) PERSONAL PROPERTY INSURANCE: Lessee shall obtain, at Lessee's sole cost
and expense, a policy of fire and extended coverage insurance including
coverage for direct physical loss special form, and a sprinkler leakage
endorsement insuring the personal property of Lessee. The proceeds from
any personal property damage policy shall be payable to Lessee.
All insurance policies required in 6 C) and 6 D) above shall: (i) provide for a
certificate of insurance evidencing the insurance required herein, being
deposited with Lessor ten (10) days prior to the Commencement Date, and upon
each renewal, such certificates shall be provided 30 days prior to the
expiration date of such coverage, (ii) be in a form reasonably satisfactory to
Lessor and shall provide the coverage required by Lessee in this Lease, (iii) be
carried with companies with a Best Rating of A+ minimum, (iv) specifically
provide that such policies shall not be subject to cancellation, reduction of
coverage, or other change except after 30 days prior written notice to Lessor,
(v) name Lessor, Lessor's lender, and any other party with an insurable interest
in the Premises as additional insureds by endorsement to policy, and (vi) shall
be primary.
Lessee agrees to pay to Lessor, as additional Rent, on demand, the full cost of
the insurance polices referenced in 6 A) and 6 B) above as evidenced by
insurance billings to Lessor which shall be included in the CAC. If Lessee does
not occupy the entire Premises, the insurance premiums shall be allocated to the
portion of the Premises occupied by Lessee on a pro-rata square footage or other
equitable basis, as determined by Lessor. It is agreed that Lessee's obligation
under this paragraph shall be prorated to the reflect the Commencement Date and
the end of the Lease Term.
Lessor and Lessee hereby waive any rights each may have against the other
related to any loss or damage caused to Lessor or Lessee as the case may be, or
to the Premises or its contents, and which may arise from any risk generally
covered by fire and extended coverage insurance. The parties shall provide that
their respective insurance policies insuring the property or the personal
property include a waiver of any right of subrogation which said insurance
company may have against Lessor or Lessee, as the case may be.
7. ABANDONMENT: Lessee shall not vacate or abandon the Premises at any time
during the Lease Term; and if Lessee shall abandon, vacate or surrender said
Premises, or be dispossessed by process of law, or otherwise, any personal
property belonging to Lessee and left on the Premises shall be deemed to be
abandoned, at the option of Lessor. Notwithstanding the above, the Premises
shall not be considered vacated or abandoned if Lessee maintains the Premises in
Good Condition and Repair, provides security and is not in default.
8. FREE FROM LIENS: Lessee shall keep the subject Premises and the property in
which the subject Premises are situated, free from any and all liens including
but not limited to liens arising out of any work performed, materials furnished,
or obligations incurred by Lessee. However, the Lessor shall allow Lessee to
contest a lien claim, so long as the claim is discharged prior to any
foreclosure proceeding being initiated against the property and provided Lessee
provides Lessor a bond if the lien exceeds $5,000.
9. COMPLIANCE WITH GOVERNMENTAL REGULATIONS: Lessee shall, at its sole cost and
expense, comply with all of the requirements of all local, municipal, state and
federal authorities now in force, or which may hereafter be in force, pertaining
to the Premises, and shall faithfully observe in the use and occupancy of the
Premises all local and municipal ordinances and state and federal statutes now
in force or which may hereafter be in force.
10. INTENTIONALLY OMITTED.
11. ADVERTISEMENTS AND SIGNS: Lessee shall not place or permit to be placed, in,
upon or about the Premises any unusual or extraordinary signs, or any signs not
approved by the city, local, state, federal or other applicable governing
authority. Lessee
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shall not place, or permit to be placed upon the Premises, any signs,
advertisements or notices without the written consent of the Lessor, and such
consent shall not be unreasonably withheld. A sign so placed on the Premises
shall be so placed upon the understanding and agreement that Lessee will remove
same at the end of the Lease Term or earlier termination of this Lease and
repair any damage or injury to the Premises caused thereby, and if not so
removed by Lessee, then Lessor may have the same removed at Lessee's expense.
12. UTILITIES: Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities supplied to the Premises which shall be included
in Lessee's monthly estimated CAC. Any charges for sewer usage, PG&E and
telephone site service or related fees shall be the obligation of Lessee and
paid for by Lessee and shall be included in Lessee's monthly estimated CAC. If
any such services are not separately metered to Lessee, Lessee shall pay a
reasonable proportion of all charges which are jointly metered, the
determination to be made by Lessor acting reasonably and on any equitable basis.
Lessor and Lessee agree that Lessor shall not be liable to Lessee for any
disruption in any of the utility services to the Premises.
13. ATTORNEY'S FEES: In case suit should be brought for the possession of the
Premises, for the recovery of any sum due hereunder, because of the breach of
any other covenant herein, or to enforce, protect, or establish any term,
conditions, or covenant of this Lease or the right of either party hereunder,
the losing party shall pay to the Prevailing Party reasonable attorney's fees
which shall be deemed to have accrued on the commencement of such action and
shall be enforceable whether or not such action is prosecuted to judgment. The
term "Prevailing Party" shall mean the party that received substantially the
relief requested, whether by settlement, dismissal, summary judgment, judgment,
or otherwise.
14.1 DEFAULT: The occurrence of any of the following shall constitute a default
and breach of this Lease by Lessee: a) Any failure by Lessee to pay Rent or to
make any other payment required to be made by Lessee hereunder when due if not
cured within ten (10) days after written notice thereof by Lessor to Lessee; b)
The abandonment or vacation of the Premises by Lessee except as provided in
Section 7; c) A failure by Lessee to observe and perform any other provision of
this Lease to be observed or performed by Lessee, where such failure continues
for thirty days after written notice thereof by Lessor to Lessee; provided,
however, that if the nature of such default is such that the same cannot be
reasonably cured within such thirty (30) day period, Lessee shall not be deemed
to be in default if Lessee shall, within such period, commence such cure and
thereafter diligently prosecute the same to completion; d) The making by Lessee
of any general assignment for the benefit of creditors; the filing by or against
Lessee of a petition to have Lessee adjudged a bankrupt or of a petition for
reorganization or arrangement under any law relating to bankruptcy; e) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets or Lessee's interest in this Lease, or the attachment, execution
or other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease.
14.2 SURRENDER OF LEASE: In the event of any such default by Lessee, then in
addition to any other remedies available to Lessor at law or in equity, Lessor
shall have the immediate option to terminate this Lease before the end of the
Lease Term and all rights of Lessee hereunder, by giving written notice of such
intention to terminate. In the event that Lessor terminates this Lease due to a
default of Lessee, then Lessor may recover from Lessee: a) the worth at the time
of award of any unpaid Rent which had been earned at the time of such
termination; plus b) the worth at the time of award of unpaid Rent which would
have been earned after termination until the time of award exceeding the amount
of such rental loss that the Lessee proves could have been reasonably avoided;
plus c) the worth at the time of award of the amount by which the unpaid Rent
for the balance of the Lease Term after the time of award exceeds the amount of
such rental loss that the Lessee proves could have been reasonably avoided; plus
d) any other amount necessary to compensate Lessor for all the detriment
proximately caused by Lessee's failure to perform his obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom; and e) at Lessor's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by applicable
California law. As used in (a) and (b) above, the "worth at the time of award"
is computed by allowing interest at the rate of Wells Fargo's prime rate plus
two percent (2%) per annum. As used in (c) above, the "worth at the time of
award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).
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14.3 RIGHT OF ENTRY AND REMOVAL: In the event of any such default by Lessee,
Lessor shall also have the right, with or without terminating this Lease, to
re-enter the Premises and remove all persons and property from the Premises;
such property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Lessee.
14.4 ABANDONMENT: In the event of the vacation or abandonment, except as
provided in Section 7, of the Premises by Lessee or in the event that Lessor
shall elect to re-enter as provided in paragraph 14.3 above or shall take
possession of the Premises pursuant to legal proceeding or pursuant to any
notice provided by law, and Lessor does not elect to terminate this Lease as
provided in Section 14.2 above, then Lessor may from time to time, without
terminating this Lease, either recover all Rent as it becomes due or relet the
Premises or any part thereof for such term or terms and at such rental rates and
upon such other terms and conditions as Lessor, in its sole discretion, may deem
advisable with the right to make alterations and repairs to the Premises. In
the event that Lessor elects to relet the Premises, then Rent received by Lessor
from such reletting shall be applied; first, to the payment of any indebtedness
other than Rent due hereunder from Lessee to Lessor; second, to the payment of
any cost of such reletting; third, to the payment of the cost of any alterations
and repairs to the Premises; fourth, to the payment of Rent due and unpaid
hereunder; and the residue, if any, shall be held by Lessor and applied to the
payment of future Rent as the same may become due and payable hereunder. Should
that portion of such Rent received from such reletting during any month, which
is applied by the payment of Rent hereunder according to the application
procedure outlined above, be less than the Rent payable during that month by
Lessee hereunder, then Lessee shall pay such deficiency to Lessor immediately
upon demand therefor by Lessor. Such deficiency shall be calculated and paid
monthly. Lessee shall also pay to Lessor, as soon as ascertained, any costs and
expenses incurred by Lessor in such reletting or in making such alterations and
repairs not covered by the rentals received from such reletting.
14.5 NO IMPLIED TERMINATION: No re-entry or taking possession of the Premises by
Lessor pursuant to Section 14.3 or Section 14.4 of this Lease shall be construed
as an election to terminate this Lease unless a written notice of such intention
is given to Lessee or unless the termination thereof is decreed by a court of
competent jurisdiction. Notwithstanding any reletting without termination by
Lessor because of any default by Lessee, Lessor may at any time after such
reletting elect to terminate this Lease for any such default.
15. SURRENDER OF LEASE: The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, shall not work a merger, and shall, at
the option of Lessor, terminate all or any existing subleases or sub tenancies,
or may, at the option of Lessor, operate as an assignment to him of any or all
such subleases or sub tenancies.
16. TAXES: Lessee shall pay and discharge punctually and when the same shall
become due and payable without penalty, all real estate taxes, personal property
taxes, taxes based on vehicles utilizing parking areas in the Premises, taxes
computed or based on rental income (other than federal, state and municipal net
income taxes), environmental surcharges, privilege taxes, excise taxes, business
and occupation taxes, school fees or surcharges, gross receipts taxes, sales
and/or use taxes, employee taxes, occupational license taxes, water and sewer
taxes, assessments (including, but not limited to, assessments for public
improvements or benefit), assessments for local improvement and maintenance
districts, and all other governmental impositions and charges of every kind and
nature whatsoever, regardless of whether now customary or within the
contemplation of the parties hereto and regardless of whether resulting from
increased rate and/or valuation, or whether extraordinary or ordinary, general
or special, unforeseen or foreseen, or similar or dissimilar to any of the
foregoing (all of the foregoing being hereinafter collectively called "Tax" or
"Taxes") which, at any time during the Lease Term, shall be applicable or
against the Premises, or shall become due and payable and a lien or charge upon
the Premises under or by virtue of any present or future laws, statutes,
ordinances, regulations, or other requirements of any governmental authority
whatsoever. The term "Environmental Surcharge" shall include any and all
expenses, taxes, charges or penalties imposed by the Federal Department of
Energy, Federal Environmental Protection Agency, the Federal Clean Air Act, or
any regulations promulgated thereunder, or any other local, state or federal
governmental agency or entity now or hereafter vested with the power to impose
taxes, assessments or other types of surcharges as a means of controlling or
abating environmental pollution or the use of energy in regard to the use,
operation or occupancy of the Premises. The term "Tax" shall include, without
limitation, all taxes, assessments, levies, fees, impositions or charges levied,
imposed, assessed, measured, or based in any manner whatsoever (i) in whole or
in part on the Rent payable by Lessee under this Lease, (ii) upon or with
respect to the use, possession, occupancy, leasing, operation or management of
the Premises, (iii) upon this transaction or any document to which Lessee is a
party creating or transferring an
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interest or an estate in the Premises, (iv) upon Lessee's business operations
conducted at the Premises, (v) upon, measured by or reasonably attributable to
the cost or value of Lessee's equipment, furniture, fixtures and other personal
property located on the Premises or the cost or value of any leasehold
improvements made in or to the Premises by or for Lessee, regardless of whether
title to such improvements shall be in Lessor or Lessee, or (vi) in lieu of or
equivalent to any Tax set forth in this Section 16. In the event any such Taxes
are payable by Lessor and it shall not be lawful for Lessee to reimburse Lessor
for such Taxes, then the Rent payable thereunder shall be increased to net
Lessor the same net rent after imposition of any such Tax upon Lessor as would
have been payable to Lessor prior to the imposition of any such Tax. It is the
intention of the parties that Lessor shall be free from all such Taxes and all
other governmental impositions and charges of every kind and nature whatsoever.
However, nothing contained in this Section 16 shall require Lessee to pay any
Federal or State income, franchise, estate, inheritance, succession, transfer or
excess profits tax imposed upon Lessor. If any general or special assessment
is levied and assessed against the Premises, Lessor agrees to use its best
reasonable efforts to cause the assessment to become a lien on the Premises
securing repayment of a bond sold to finance the improvements to which the
assessment relates which is payable in installments of principal and interest
over the maximum term allowed by law. It is understood and agreed that Lessee's
obligation under this paragraph will be prorated to reflect the Commencement
Date and the end of the Lease Term. It is further understood that if Taxes
cover the Premises and Lessee does not occupy the entire Premises, the Taxes
will be allocated to the portion of the Premises occupied by Lessee based on a
pro-rata square footage or other equitable basis, as determined by Lessor.
Taxes billed by Lessor to Lessee shall be included in the monthly CAC.
Subject to any limitations or restrictions imposed by any deeds of trust or
mortgages now or hereafter covering or affecting the Premises, Lessee shall have
the right to contest or review the amount or validity of any Tax by appropriate
legal proceedings but which is not to be deemed or construed in any way as
relieving, modifying or extending Lessee's covenant to pay such Tax at the time
and in the manner as provided in this Section 16. However, as a condition of
Lessee's right to contest, if such contested Tax is not paid before such contest
and if the legal proceedings shall not operate to prevent or stay the collection
of the Tax so contested, Lessee shall, before instituting any such proceeding,
protect the Premises and the interest of Lessor and of the beneficiary of a deed
of trust or the mortgagee of a mortgage affecting the Premises against any lien
upon the Premises by a surety bond, issued by an insurance company acceptable to
Lessor and in an amount equal to one and one-half (1 1/2) times the amount
contested or, at Lessor's option, the amount of the contested Tax and the
interest and penalties in connection therewith. Any contest as to the validity
or amount of any Tax, whether before or after payment, shall be made by Lessee
in Lessee's own name, or if required by law, in the name of Lessor or both
Lessor and Lessee. Lessee shall defend, indemnify and hold harmless Lessor
from and against any and all costs or expenses, including attorneys' fees, in
connection with any such proceedings brought by Lessee, whether in its own name
or not. Lessee shall be entitled to retain any refund of any such contested Tax
and penalties or interest thereon which have been paid by Lessee. Nothing
contained herein shall be construed as affecting or limiting Lessor's right to
contest any Tax at Lessor's expense.
17. NOTICES: Unless otherwise provided for in this Lease, any and all written
notices or other communication (the "Communication") to be given in connection
with this Lease shall be given in writing and shall be given by personal
delivery, facsimile transmission or by mailing by registered or certified mail
with postage thereon or recognized overnight courier, fully prepaid, in a sealed
envelope addressed to the intended recipient as follows:
(a) to the Lessor at: 10050 Bandley Drive
Cupertino, California 95014
Attention: Carl E. Berg
Fax No: (408) 725-1626
(b) to the Lessee at: 10050 Bandley Drive
Cupertino, California
Attention: Michael J. Anderson
Fax No: (408) 725-1626
or such other addresses, facsimile number or individual as may be designated by
a Communication given by a party to the other parties as aforesaid. Any
Communication given by personal delivery shall be conclusively deemed to have
been given and
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received on a date it is so delivered at such address provided that such date is
a business day, otherwise on the first business day following its receipt, and
if given by registered or certified mail, on the day on which delivery is made
or refused or if given by recognized overnight courier, on the first business
day following deposit with such overnight courier and if given by facsimile
transmission, on the day on which it was transmitted provided such day is a
business day, failing which, on the next business day thereafter.
18. ENTRY BY LESSOR: Lessee shall permit Lessor and its agents to enter into and
upon said Premises at all reasonable times using the minimum amount of
interference and inconvenience to Lessee and Lessee's business, subject to any
security regulations of Lessee, for the purpose of inspecting the same or for
the purpose of maintaining the building in which said Premises are situated, or
for the purpose of making repairs, alterations or additions to any other portion
of said building, including the erection and maintenance of such scaffolding,
canopies, fences and props as may be required, without any rebate of Rent and
without any liability to Lessee for any loss of occupation or quiet enjoyment of
the Premises; and shall permit Lessor and his agents, at any time within ninety
(90) days prior to the end of the Lease Term, to place upon said Premises any
usual or ordinary "For Sale" or "For Lease" signs and exhibit the Premises to
prospective tenants at reasonable hours.
19. DESTRUCTION OF PREMISES: In the event of a partial destruction of the said
Premises during the Lease Term from any cause which is covered by Lessor's
property insurance, Lessor shall forthwith repair the same, provided such
repairs can be made within ninety (90) days after receipt of building permit
under the laws and regulations of State, Federal, County, or Municipal
authorities, but such partial destruction shall in no way annul or void this
Lease, except that Lessee shall be entitled to a proportionate reduction of Rent
while such repairs are being made to the extent of payments received by Lessor
under its Loss of Rents Insurance coverage. With respect to any partial
destruction which Lessor is obligated to repair or may elect to repair under the
terms of this paragraph, the provision of Section 1932, Subdivision 2, and of
Section 1933, Subdivision 4, of the Civil Code of the State of California are
waived by Lessee. In the event that the building in which the subject Premises
may be situated is destroyed to an extent greater than thirty-three and
one-third percent (33 1/3%) of the replacement cost thereof, Lessor may, at its
sole option, elect to terminate this Lease, whether the subject Premises is
insured or not. A total destruction of the building in which the subject
Premises are situated shall terminate this Lease. Notwithstanding the above,
Lessor is only obligated to repair or rebuild to the extent of available
insurance proceeds including any deductible amount. Should Lessor determine
that insufficient or no insurance proceeds are available for repair or
reconstruction of Premises, Lessor, at its sole option, may terminate the Lease.
Lessee shall have the option of continuing this Lease by agreeing to pay all
repair costs to the subject Premises.
20. ASSIGNMENT AND SUBLETTING: Lessee shall not assign this Lease, or any
interest therein, and shall not sublet the said Premises or any part thereof, or
any right or privilege appurtenant thereto, or cause any other person or entity
(a bona fide subsidiary or affiliate of Lessee excepted) to occupy or use the
Premises, or any portion thereof, without the advance written consent of Lessor.
Any such assignment or subletting without such consent shall be void, and shall,
at the option of the Lessor, terminate this Lease. This Lease shall not, or
shall any interest therein, be assignable, as to the interest of Lessee, by
operation of law, without the written consent of Lessor. Notwithstanding
Lessor's obligation to provide reasonable approval, Lessor reserves the right to
withhold its consent for any proposed sublessee or assignee of Lessee if the
proposed sublessee or assignee is a user or generator of Hazardous Materials.
If Lessee desires to assign its rights under this Lease or to sublet, all or a
portion of the subject Premises to a party other than a bona fide subsidiary or
affiliate of Lessee, Lessee shall first notify Lessor of the proposed terms and
conditions of such assignment or subletting. Lessor shall have the right of
first refusal to enter into a direct Lessor-lessee relationship with such party
under such proposed terms and conditions, in which event Lessee shall be
relieved of its obligations hereunder to the extent of the Lessor-lessee
relationship entered into between Lessor and such third party. Notwithstanding
the foregoing, Lessee may assign this Lease to a successor in interest, whether
by merger or acquisition, provided there is no substantial reduction in the net
worth of the resulting entity and the resulting entity is not a user or
generator of Hazardous Materials. Whether or not Lessor's consent to a sublease
or assignment is required, in the event of any sublease or assignment, Lessee
shall be and shall remain primarily liable for the performance of all
conditions, covenants, and obligations of Lessee hereunder and, in the event of
a default by an assignee or sublessee, Lessor may proceed directly against the
original Lessee hereunder and/or any other predecessor of such assignee or
sublessee without the necessity of exhausting remedies against said assignee or
sublessee.
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21. CONDEMNATION: If any part of the Premises shall be taken for any public or
quasi-public use, under any statute or by right of eminent domain or private
purchase in lieu thereof, and a part thereof remains which is susceptible of
occupation hereunder, this Lease shall as to the part so taken, terminate as of
the date title vests in the condemnor or purchaser, and the Rent payable
hereunder shall be adjusted so that the Lessee shall be required to pay for the
remainder of the Lease Term only that portion of Rent as the value of the part
remaining. The rental adjustment resulting will be computed at the same Rental
rate for the remaining part not taken; however, Lessor shall have the option to
terminate this Lease as of the date when title to the part so taken vests in the
condemnor or purchaser. If all of the Premises, or such part thereof be taken
so that there does not remain a portion susceptible for occupation hereunder,
this Lease shall thereupon terminate. If a part or all of the Premises be
taken, all compensation awarded upon such taking shall be payable to the Lessor.
Lessee may file a separate claim and be entitled to any award granted to Lessee.
22. EFFECTS OF CONVEYANCE: The term "Lessor" as used in this Lease, means only
the owner for the time being of the land and building constituting the Premises,
so that, in the event of any sale of said land or building, or in the event of a
Lease of said building, Lessor shall be and hereby is entirely freed and
relieved of all covenants and obligations of Lessor hereunder, and it shall be
deemed and construed, without further agreement between the parties and the
purchaser of any such sale, or the Lessor of the building, that the purchaser or
lessor of the building has assumed and agreed to carry out any and all covenants
and obligations of the Lessor hereunder. If any security is given by Lessee to
secure the faithful performance of all or any of the covenants of this Lease on
the part of Lessee, Lessor may transfer and deliver the security, as such, to
the purchaser at any such sale of the building, and thereupon the Lessor shall
be discharged from any further liability.
23. SUBORDINATION: This Lease, in the event Lessor notifies Lessee in writing,
shall be subordinate to any ground lease, deed of trust, or other hypothecation
for security now or hereafter placed upon the real property at which the
Premises are a part and to any and all advances made on the security thereof and
to renewals, modifications, replacements and extensions thereof. Lessee agrees
to promptly execute any documents which may be required to effectuate such
subordination. Notwithstanding such subordination, if Lessee is not in default
and so long as Lessee shall pay the Rent and observe and perform all of the
provisions and covenants required under this Lease, Lessee's right to quiet
possession of the Premises shall not be disturbed or effected by any
subordination.
24. WAIVER: The waiver by Lessor of any breach of any term, covenant or
condition, herein contained shall not be construed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant or condition therein contained. The subsequent acceptance of Rent
hereunder by Lessor shall not be deemed to be a waiver of Lessee's breach of any
term, covenant, or condition of the Lease.
25. HOLDING OVER: Any holding over after the end of the Lease Term requires
Lessor's written approval prior to the end of the Lease Term, which,
notwithstanding any other provisions of this Lease, Lessor may withhold. Such
holding over shall be construed to be a tenancy at sufferance from month to
month. Lessee shall pay to Lessor monthly base rent equal to one and one-half
(1.5) times the monthly base rent installment due in the last month of the Lease
Term and all other additional rent and all other terms and conditions of the
Lease shall apply, so far as applicable. Holding over by Lessee without written
approval of Lessor shall subject Lessee to the liabilities and obligations
provided for in this Lease and by law, including, but not limited to those in
Section 2 of this Lease. Lessee shall indemnify and hold Lessor harmless
against any loss or liability resulting from any delay caused by Lessee in
surrendering the Premises, including without limitation, any claims made or
penalties incurred by any succeeding lessee or by Lessor. No holding over shall
be deemed or construed to exercise any option to extend or renew this Lease in
lieu of full and timely exercise of any such option as required hereunder.
26. LESSOR'S LIABILITY: If Lessee should recover a money judgment against Lessor
arising in connection with this Lease, the judgment shall be satisfied only out
of the Lessor's interest in the Premises and neither Lessor or any of its
partners shall be liable personally for any deficiency.
27. ESTOPPEL CERTIFICATES: Lessee shall at any time during the Lease Term, upon
not less than ten (10) days prior written notice from Lessor, execute and
deliver to Lessor a statement in writing certifying that, this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification) and the dates to which the Rent and other charges have been
paid
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in advance, if any, and acknowledging that there are not, to Lessee's knowledge,
any uncured defaults on the part of Lessor hereunder or specifying such defaults
if they are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer of the Premises. Lessee's failure to
deliver such a statement within such time shall be conclusive upon the Lessee
that (a) this Lease is in full force and effect, without modification except as
may be represented by Lessor; (b) there are no uncured defaults in Lessor's
performance.
28. TIME: Time is of the essence of the Lease.
29. CAPTIONS: The headings on titles to the paragraphs of this Lease are not a
part of this Lease and shall have no effect upon the construction or
interpretation of any part thereof. This instrument contains all of the
agreements and conditions made between the parties hereto and may not be
modified orally or in any other manner than by an agreement in writing signed by
all of the parties hereto or their respective successors in interest.
30. PARTY NAMES: Landlord and Tenant may be used in various places in this Lease
as a substitute for Lessor and Lessee respectively.
31. EARTHQUAKE INSURANCE: As a condition of Lessor agreeing to waive the
requirement for earthquake insurance, Lessee agrees that it will pay, as
additional Rent, which shall be included in the monthly CAC, an amount not to
exceed One Thousand Two Hundred Eighty Dollars ($1,280) per year for earthquake
insurance if Lessor desires to obtain some form of earthquake insurance in the
future, if and when available, on terms acceptable to Lessor as determined in
the sole and absolute discretion of Lessor.
32. HABITUAL DEFAULT: Notwithstanding anything to the contrary contained in
Section 14 herein, Lessor and Lessee agree that if Lessee shall have defaulted
in the payment of Rent for three or more times during any twelve month period
during the Lease Term, then such conduct shall, at the option of the Lessor,
represent a separate event of default which cannot be cured by Lessee. Lessee
acknowledges that the purpose of this provision is to prevent repetitive
defaults by the Lessee under the Lease, which constitute a hardship to the
Lessor and deprive the Lessor of the timely performance by the Lessee hereunder.
33. HAZARDOUS MATERIALS
33.1 DEFINITIONS: As used in this Lease, the following terms shall have the
following meaning:
a. The term "Hazardous Materials" shall mean (i) polychlorinated biphenyls;
(ii) radioactive materials and (iii) any chemical, material or substance
now or hereafter defined as or included in the definitions of "hazardous
substance" "hazardous water", "hazardous material", "extremely hazardous
waste", "restricted hazardous waste" under Section 25115, 25117 or 15122.7,
or listed pursuant to Section 25140 of the California Health and Safety
Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii) defined
as "hazardous substance" under Section 25316 of the California Health and
Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous
Substances Account Act), (iii) defined as "hazardous material", "hazardous
substance", or "hazardous waste" under Section 25501 of the California
Health and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials
Release, Response, Plans and Inventory), (iv) defined as a "hazardous
substance" under Section 25181 of the California Health and Safety Code,
Division 20l, Chapter 6.7 (Underground Storage of Hazardous Substances),
(v) petroleum, (vi) asbestos, (vii) listed under Article 9 or defined as
"hazardous" or "extremely hazardous" pursuant to Article II of Title 22 of
the California Administrative Code, Division 4, Chapter 20, (viii) defined
as "hazardous substance" pursuant to Section 311 of the Federal Water
Pollution Control Act, 33 U.S.C. 1251 et seq. or listed pursuant to Section
1004 of the Federal Water Pollution Control Act (33 U.S.C. 1317), (ix)
defined as a "hazardous waste", pursuant to Section 1004 of the Federal
Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq., (x) defined
as "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Responsibility Compensations, and Liability Act, 42 U.S.C.
9601 et seq., or (xi) regulated under the Toxic Substances Control Act, 156
U.S.C. 2601 et seq.
b. The term "Hazardous Materials Laws" shall mean any local, state and
federal laws, rules, regulations, or ordinances relating to the use,
generation, transportation, analysis, manufacture, installation, release,
discharge, storage or disposal of Hazardous Material.
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c. The term "Lessor's Agents" shall mean Lessor's agents, representatives,
employees, contractors, subcontractors, directors, officers and partners.
d. The term "Lessee's Agents" shall mean Lessee's agents, representatives,
employees, contractors, subcontractors, directors, officers, partners,
invitees or any other person in or about the Premises.
33.2 LESSEE'S RIGHT TO INVESTIGATE: Lessee shall be entitled to cause such
inspection, soils and ground water tests, and other evaluations to be made of
the Premises as Lessee deems necessary regarding (i) the presence and use of
Hazardous Materials in or about the Premises, and (ii) the potential for
exposure to Lessee's employees and other persons to any Hazardous Materials used
and stored by previous occupants in or about the Premises. Lessee shall provide
Lessor with copies of all inspections, tests and evaluations. Lessee shall
indemnify, defend and hold Lessor harmless from any cost, claim or expense
arising from such entry by Lessee or from the performance of any such
investigation by such Lessee.
33.3 LESSOR'S REPRESENTATIONS: Lessor hereby represents and warrants to the best
of Lessor's knowledge that the Premises are, as of the date of this Lease, in
compliance with all Hazardous Material Laws.
33.4 LESSEE'S OBLIGATION TO INDEMNIFY: Lessee, at its sole cost and expense,
shall indemnify, defend, protect and hold Lessor and Lessor's Agents harmless
from and against any and all cost or expenses, including those described under
subparagraphs i, ii and iii herein below set forth, arising from or caused in
whole or in part, directly or indirectly by:
a. Lessee's or Lessee's Agents' use, analysis, storage, transportation,
disposal, release, threatened release, discharge or generation of Hazardous
Material to, in, on, under, about or from the Premises; or
b. Lessee's or Lessee's Agents failure to comply with Hazardous Material
laws; or
c. Any release of Hazardous Material to, in, on, under, about, from or onto
the Premises caused by or occurring as a result of acts or omissions of
Lessee or Lessee's Agents or occurring during the Lease Term, except ground
water contamination from other parcels where the source is from off the
Premises not arising from or caused by Lessee or Lessee's Agents.
The cost and expenses indemnified against include, but are not limited to the
following:
i. Any and all claims, actions, suits, proceedings, losses, damages,
liabilities, deficiencies, forfeitures, penalties, fines, punitive damages,
cost or expenses;
ii. Any claim, action, suit or proceeding for personal injury (including
sickness, disease, or death), tangible or intangible property damage,
compensation for lost wages, business income, profits or other economic
loss, damage to the natural resources of the environment, nuisance,
pollution, contamination, leaks, spills, release or other adverse effects
on the environment;
iii. The cost of any repair, clean-up, treatment or detoxification of the
Premises necessary to bring the Premises into compliance with all Hazardous
Material Laws, including the preparation and implementation of any closure,
disposal, remedial action, or other actions with regard to the Premises,
and expenses (including, without limitation, reasonable attorney's fees and
consultants fees, investigation and laboratory fees, court cost and
litigation expenses).
33.5 LESSEE'S OBLIGATION TO REMEDIATE CONTAMINATION: Lessee shall, at its sole
cost and expense, promptly take any and all action necessary to remediate
contamination of the Premises by Hazardous Materials during the Lease Term.
33.6 OBLIGATION TO NOTIFY: Lessor and Lessee shall each give written notice to
the other as soon as reasonably practical of (i) any communication received from
any governmental authority concerning Hazardous Material which related to the
Premises and (ii) any contamination of the Premises by Hazardous Materials which
constitutes a violation of any Hazardous Material Laws.
33.7 SURVIVAL: The obligations of Lessee under this Section 33 shall survive the
Lease Term or earlier termination of this Lease.
33.8 CERTIFICATION AND CLOSURE: On or before the end of the Lease Term or
earlier termination of this Lease, Lessee shall deliver to Lessor a
certification executed by Lessee stating that, to the best of Lessee's
knowledge, there exists no violation of Hazardous Material Laws resulting from
Lessee's obligation in Paragraph 33. If pursuant to local ordinance, state or
federal law, Lessee is required, at the expiration of the Lease Term, to submit
a closure plan for the Premises to a local, state or federal agency, then Lessee
shall furnish to Lessor a copy of such plan.
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33.9 PRIOR HAZARDOUS MATERIALS: Lessee shall have no obligation to clean up or
to hold Lessor harmless with respect to, any Hazardous Material or wastes
discovered on the Premises which were not introduced into, in, on, about, from
or under the Premises during the Lease Term or ground water contamination from
other parcels where the source is from off the Premises not arising from or
caused by Lessee or Lessee's Agents.
34. BROKERS: Lessor and Lessee represent that they have not utilized or
contacted a real estate broker or finder with respect to this Lease. and Lessee
agrees to indemnify and hold Lessor harmless against any claim, cost, liability
or cause of action asserted by any broker or finder claiming through Lessee
Lessor represents and warrants that it has not utilized or contacted a real
estate broker or finder with respect to this Lease and Lessor agrees to
indemnify and hold Lessee harmless against any claim, cost, liability or cause
of action asserted by any broker or finder claiming through Lessor.
35. OPTION TO EXTEND
A. OPTION: Lessor hereby grants to Lessee one (1) option to extend the Lease
Term, with the extended term to be for a period of three (3) years, on the
following terms and conditions:
(i) Lessee shall give Lessor written notice of its exercise of its option
to extend no earlier than twenty-four (24) calendar months, nor later than
six (6) calendar months before the Lease Term would end but for said
exercise. Time is of the essence.
(ii) Lessee may not extend the Lease Term pursuant to any option granted by
this Section 35 if Lessee is in default as of the date of the exercise of
its option. If Lessee has committed a default by Lessee as defined in
Section 14 or 32 that has not been cured or waived by Lessor in writing by
the date that any extended term is to commence, then Lessor may elect not
to allow the Lease Term to be extended, notwithstanding any notice given by
Lessee of an exercise of this option to extend.
(iii) All terms and conditions of this Lease shall apply during the
extended term, except that the base rent and rental increases for each
extended term shall be determined as provided in Section 35 (B) below
(iv) Lessee must provide Lessor written notice of its exercise of its
option as provided hereunder at least nine (9) months before the Lease Term
would end but for said exercise for purposes of negotiating rental terms.
Lessee may withdraw its notice of exercise of an extension option for any
reason prior to six (6) months before the Lease Term would end but for said
exercise. Lessor shall provide Lessee with Lessor's proposed base monthly
rent for the option period within twenty (20) days of Lessee's written
request. However, once Lessee delivers a notice of exercise of an option
to extend the Lease Term it may not be withdrawn unless notice in writing
is provided to Lessor at least six (6) months before the Lease Term would
end but for said exercise and, subject to the provisions of this Section
35, such notice shall operate to extend the Lease Term. Upon any extension
of the Lease Term pursuant to this Section 35, the term "Lease Term" as
used in this Lease shall thereafter include the then extended term.
(v) The option rights of Mission West Properties granted under this
Section 35 are granted for Mission West Properties' personal benefit and
may not be assigned or transferred by Mission West Properties or exercised
if Mission West Properties is not occupying the Premises at the time of
exercise.
B. EXTENDED TERM RENT - OPTION PERIOD: The monthly Rent for the Premises during
the extended term shall equal the fair market monthly Rent for the Premises as
of the commencement date of the extended term, but in no case, less than the
Rent during the last month of the prior Lease term. Promptly upon Lessee's
exercise of the option to extend, Lessee and Lessor shall meet and attempt to
agree on the fair market monthly Rent for the Premises as of the commencement
date of the extended term. In the event the parties fail to agree upon the
amount of the monthly Rent for the extended term prior to commencement thereof,
the monthly Rent for the extended term shall be determined by appraisal in the
manner hereafter set forth; provided, however, that in no event shall the
monthly Rent for the extended term be less than in the immediate preceding
period. Annual base rent increases during the extended term shall be four
percent (4%) per year. In the event it becomes necessary under this paragraph
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to determine the fair market monthly Rent of the Premises by appraisal, Lessor
and Lessee each shall appoint a real estate appraiser who shall be a member of
the American Institute of Real Estate Appraiser ("AIREA") and such appraisers
shall each determine the fair market monthly Rent for the Premises taking into
account the value of the Premises and the amenities provided by the outside
areas, the common areas, and the Building, and prevailing comparable Rentals in
the area. Such appraisers shall, within twenty (20) business days after their
appointment, complete their appraisals and submit their appraisal reports to
Lessor and Lessee. If the fair market monthly Rent of the Premises established
in the two (2) appraisals varies by five percent (5%) or less of the higher
Rent, the average of the two shall be controlling. If said fair market monthly
Rent varies by more than five percent (5%) of the higher Rental, said
appraisers, within ten (10) days after submission of the last appraisal, shall
appoint a third appraiser who shall be a member of the AIREA and who shall also
be experienced in the appraisal of Rent values and adjustment practices for
commercial properties in the vicinity of the Premises. Such third appraiser
shall, within twenty (20) business days after his appointment, determine by
appraisal the fair market monthly Rent of the Premises taking into account the
same factors referred to above, and submit his appraisal report to Lessor and
Lessee. The fair market monthly Rent determined by the third appraiser for the
Premises shall be controlling, unless it is less than that set forth in the
lower appraisal previously obtained, in which case the value set forth in said
lower appraisal shall be controlling, or unless it is greater than that set
forth in the higher appraisal previously obtained in which case the Rent set for
in said higher appraisal shall be controlling. If either Lessor or Lessee fails
to appoint an appraiser, or if an appraiser appointed by either of them fails,
after his appointment to submit his appraisal within the required period in
accordance with the foregoing, the appraisal submitted by the appraiser properly
appointed and timely submitting his appraisal shall be controlling. If the two
appraisers appointed by Lessor and Lessee are unable to agree upon a third
appraiser within the required period in accordance with the foregoing,
application shall be made within twenty (20) days thereafter by either Lessor or
Lessee to AIREA, which shall appoint a member of said institute willing to serve
as appraiser. The cost of all appraisals under this subparagraph shall be borne
equally be Lessor and Lessee.
36. APPROVALS: Whenever in this Lease the Lessor's or Lessee's consent is
required, such consent shall not be unreasonably or arbitrarily withheld or
delayed. In the event that the Lessor or Lessee does not respond to a request
for any consents which may be required of it in this Lease within ten business
days of the request of such consent in writing by the Lessee or Lessor, such
consent shall be deemed to have been given by the Lessor or Lessee.
37. AUTHORITY: Each party executing this Lease represents and warrants that he
or she is duly authorized to execute and deliver the Lease. If executed on
behalf of a corporation, that the Lease is executed in accordance with the
by-laws of said corporation (or a partnership that the Lease is executed in
accordance with the partnership agreement of such partnership), that no other
party's approval or consent to such execution and delivery is required, and that
the Lease is binding upon said individual, corporation (or partnership) as the
case may be in accordance with its terms.
38. INDEMNIFICATION OF LESSOR: Except to the extent caused by the sole
negligence or willful misconduct of Lessor or Lessor's Agents, Lessee shall
defend, indemnify and hold Lessor harmless from and against any and all
obligations, losses, costs, expenses, claims, demands, attorney's fees,
investigation costs or liabilities on account of, or arising out of the use,
condition or occupancy of the Premises or any act or omission to act of Lessee
or Lessee's Agents or any occurrence in, upon, about or at the Premises,
including, without limitation, any of the foregoing provisions arising out of
the use, generation, manufacture, installation, release, discharge, storage, or
disposal of Hazardous Materials by Lessee or Lessee's Agents. It is understood
that Lessee is and shall be in control and possession of the Premises and that
Lessor shall in no event be responsible or liable for any injury or damage or
injury to any person whatsoever, happening on, in, about, or in connection with
the Premises, or for any injury or damage to the Premises or any part thereof.
This Lease is entered into on the express condition that Lessor shall not be
liable for, or suffer loss by reason of injury to person or property, from
whatever cause, which in any way may be connected with the use, condition or
occupancy of the Premises or personal property located herein. The provisions of
this Lease permitting Lessor to enter and inspect the Premises are for the
purpose of enabling Lessor to become informed as to whether Lessee is complying
with the terms of this Lease and Lessor shall be under no duty to enter, inspect
or to perform any of Lessee's covenants set forth in this Lease. Lessee shall
further indemnify, defend and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any obligation
to Lessee's part to be performed under the terms of this Lease. The provisions
of Section 38 shall survive the Lease Term or earlier termination of this Lease
with respect to any damage, injury or death occurring during the Lease Term.
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39. SUCCESSORS AND ASSIGNS: The covenants and conditions herein contained shall,
subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of all of the parties hereto;
and all of the parties hereto shall be jointly and severally liable hereunder.
40. MISCELLANEOUS PROVISIONS: All rights and remedies hereunder are cumulative
and not alternative to the extent permitted by law and are in addition to all
other rights or remedies in law and in equity.
41. CHOICE OF LAW: This lease shall be construed and enforced in accordance
with the substantive laws of the State of California. The language of all parts
of this lease shall in all cases be construed as a whole according to its fair
meaning and not strictly for or against either Lessor or Lessee.
42. ENTIRE AGREEMENT: This Lease is the entire agreement between the parties,
and there are no agreements or representations between the parties except as
expressed herein. Except as otherwise provided for herein, no subsequent change
or addition to this Lease shall be binding unless in writing and signed by the
parties hereto.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease, the day and year
first above written.
LESSOR LESSEE
BERG & BERG ENTERPRISES, INC. MISSION WEST PROPERTIES
By: By:
--------------------------- ---------------------------
signature of authorized Signature of authorized
representative representative
Carl E. Berg Michael J. Anderson
- ------------------------------ ------------------------------
printed name printed name
- ------------------------------ ------------------------------
title Title
- ------------------------------ ------------------------------
date Date
PAGE 15
<PAGE>
EXHIBIT 10.9
GRANT PURSUANT TO
1997 STOCK OPTION PLAN
MICHAEL J. ANDERSON, OPTIONEE:
Mission West Properties, a California corporation (the "Company"), hereby grants
to Optionee, an option ("Option") to purchase a total of two hundred thousand
(200,000) shares of Common Stock ("Shares") of the Company, at the price set
forth herein, and in all respects subject to the terms, definitions and
provisions of the Company's 1997 Stock Option Plan ("Plan"), which is
incorporated herein by this reference.
THE DETAILS OF YOUR OPTION ARE AS FOLLOWS:
1. NATURE OF THE OPTION
The Option is intended to be an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). To
the extent that the Option, or any portion thereof, does not qualify as an
incentive stock option under the Code because the aggregate fair market value
(determined at the grant date) of the Shares for which the Option or portion
thereof first becomes exercisable hereunder will, when added to the aggregate
fair market value (determined as of the respective date or dates of grant) of
the Shares or other securities for which the Option or one or more other
incentive stock options granted to the Optionee prior to the grant date (whether
under the Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first becomes exercisable during the calendar year, exceed $100,000
in the aggregate, the Option or portion thereof shall constitute an incentive
stock option under the Plan in such calendar year only to the extent of such
$100,000 limitation. To the extent that the fair market value of the Shares for
which the Option first becomes exercisable in any calendar year exceeds such
$100,000 limitation, the Option may nevertheless be exercised for those excess
Shares in such calendar year as a "Nonstatutory Stock Option", as defined in
Section 2.o of the Plan.
2. OPTION PRICE
The Option Price is four dollars and fifty cents ($4.50) for each Share.
3 VESTING AND EXERCISE OF OPTION
The Option shall vest and become exercisable during its term in accordance with
the provisions of Section 9 of the Plan as follows:
a. VESTING AND RIGHT TO EXERCISE
i. The Option shall vest as follows, subject to the Optionee's
Continuous Employment with the Company:
<TABLE>
<CAPTION>
DATE OF EARLIEST EXERCISE NUMBER OF SHARES
(VESTING) (INSTALLMENT)
----------------------------------------------------------------------
<S> <C>
Six months from date of grant 12,500
One year from date of grant 25,000
Each month thereafter for 35 months 4,514
48th month from date of grant 4,510
</TABLE>
<PAGE>
Subject to the provisions of subparagraphs ii and iii below, the
Optionee can exercise any portion of the Option until the expiration
of the Option term. Notwithstanding the foregoing, but subject to the
provisions of subparagraph ii below, at the election of the Optionee,
the Option can be exercised in whole or in part at any time as to the
Shares which have not vested, provided that the Optionee shall, as a
condition of such exercise, execute and deliver the Restricted Stock
Purchase Agreement in the form attached hereto ("Restricted Stock
Purchase Agreement"), pursuant to which the Company shall be granted
a Repurchase Option as to all Unvested Shares (as such term is
defined in the Restricted Stock Purchase Agreement). ii. In the event
of the Optionee's death, disability or other termination of
employment, the exercisability of the Option shall be governed by
Sections 9.d, e and f of the Plan. iii. The Option may not be
exercised for fractional shares or for less than ten (10) Shares
b. METHOD OF EXERCISE
In order to exercise any portion of this Option, the Optionee shall notify
the Company in writing of the election to exercise the Option, the number
of shares in respect of which the Option is being exercised by executing
and delivering the Notice of Exercise of Stock Option in the form attached
hereto, and shall execute and deliver to the Chief Financial Officer of
the Company the Restricted Stock Purchase Agreement, together with the
Stock Assignments, Escrow Agreement and, if applicable, the Consent of
Spouse, Promissory Note, and Security Agreement, forms of which are
attached as exhibits to the Restricted Stock Purchase Agreement. The
Restricted Stock Purchase Agreement must be accompanied by payment in full
of the aggregate purchase price for the Shares to be purchased. The
certificate or certificates representing Shares as to which this Option
has been exercised shall be registered in the name of the Optionee. b.
RESTRICTIONS ON EXERCISE This Option may not be exercised if the issuance
of the Shares upon such exercise or the method of payment of consideration
for such shares would constitute a violation of any applicable Federal or
state securities law or other law or regulation. Furthermore, the method
and manner of payment of the Option Price will be subject to the rules
under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation
G") as promulgated by the Federal Reserve Board if such rules apply to the
Company at the date of exercise. As a condition to the exercise of this
Option, the Company may require the Optionee to make any representation or
warranty to the Company at the time of exercise of this Option as in the
opinion of legal counsel for the Company may be required by any applicable
law or regulation, including the execution and delivery of an appropriate
representation statement. Accordingly, the stock certificates for the
Shares issued upon exercise of this Option may bear appropriate legends
restricting transfer.
4. NON-TRANSFERABILITY OF OPTION
This Option may be exercised during the lifetime of the Optionee only by the
Optionee and, subject to the provisions of Sections 9.f and 10 of the Plan, may
not be transferred in any manner other than by will or by the laws of descent
and distribution. The terms of this Option shall be binding upon the executors,
administrators, heirs and successors of the Optionee.
5. METHOD OF PAYMENT
Payment of the exercise price shall be by any of the following, or a combination
thereof, at the election of the Optionee:
a. cash;
b. certified or bank cashier's check;
c. full recourse promissory note secured by the Shares or equivalent
collateral; or d. in the event there exists a public market for the
Company's Common Stock on the date of exercise, by delivery of 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 of the shares
being purchased on or before the settlement date for the sale of such
shares to the broker; or e. in the event there exists a public market for
the Company's Common Stock on the date of exercise, by surrender of shares
of the Company's Common Stock, provided that if such shares were acquired
upon exercise of an incentive stock option, the Optionee must have first
satisfied the holding period requirements under Section 422(a)(1) of the
Code. In this case payment shall be made as follows:
i. In addition to the execution and delivery of the Restricted Stock
Purchase Agreement, Optionee shall deliver to the Secretary of the
Company a written notice which shall set forth the portion of the
purchase price the Optionee wishes to pay with Common Stock, and the
number of shares of such Common Stock the Optionee intends to
surrender pursuant to the exercise of this Option, which shall be
determined by dividing the aforementioned portion of the purchase
price by the average of the last reported bid and asked prices per
share of Common Stock of the Company, as reported in THE WALL STREET
JOURNAL, for the day on which the notice of exercise is sent or
delivered; ii. Fractional shares shall be disregarded and the
Optionee shall pay in cash an amount equal to such fraction
multiplied by the price determined under subparagraph i above; iii.
The written notice shall be accompanied by a duly endorsed blank
stock power with respect to the number of Shares set forth in the
notice, and the certificate(s) representing said Shares shall be
delivered to the Company at its principal offices within three (3)
working days from the date of the notice of exercise; iv. The
Optionee hereby authorizes and directs the Secretary of the Company
to transfer so many of the Shares represented by such certificate(s)
as are necessary to pay the purchase price in accordance with the
provisions herein; v. If any such transfer of Shares requires the
consent of the California Commissioner of Corporations or of some
other agency under the securities laws of any other state, or an
opinion of counsel for the Company or Optionee that such transfer may
be effected under applicable Federal and state securities laws, the
time periods specified herein shall be extended for such periods as
the necessary request for consent to transfer is pending before said
Commissioner or other agency, or until counsel renders such an
opinion, as the case may be. All parties agree to cooperate in making
such request for transfer, or in obtaining such opinion of counsel,
and no transfer shall be effected without such consent or opinion if
required by law; and vi. Notwithstanding any other provision herein,
the Optionee shall only be permitted to pay the purchase price with
Shares of the Company's Common Stock owned by him as of the exercise
date in the manner and within the time periods allowed under 17 CFR
ss.240.16b-3 promulgated under the Securities Exchange Act of 1934,
as amended ("Exchange Act"), as such regulation is presently
constituted, as it is amended from time to time, and as it is
interpreted now or hereafter by the Securities and Exchange
Commission.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. The number of Shares
covered by this Option shall be adjusted in accordance with the provisions of
Section 11 of the Plan in the event of changes in the capitalization or
organization of the Company, or if the Company is a party to a merger or other
corporate reorganization.
7. TERM OF OPTION
This Option may not be exercised more than six (6) years from the date of grant
of this Option, as set forth below, and may be exercised during such term only
in accordance with the Plan and the terms of this Option.
8. REPURCHASE RIGHTS
The Optionee hereby agrees that any Shares acquired upon the exercise of this
Option shall be subject to the rights of the Company to repurchase such Shares
to the extent such Shares have not yet vested and to certain restrictions on
transfer specified in the Restricted Stock Purchase Agreement.
9. NOT EMPLOYMENT CONTRACT
Nothing in this Agreement or in the Plan shall confer upon the Optionee any
right to continue in the employ of the Company or shall interfere with or
restrict in any way the rights of the Company, which are hereby expressly
reserved, to discharge the Optionee at any time for any reason whatsoever, with
or without cause, subject to the provisions of applicable law. This is not an
employment contract.
10. INCOME TAX WITHHOLDING
a. The Optionee authorizes the Company to withhold in accordance with applicable
law from any compensation payable to him or her any taxes required to be
withheld by Federal, state or local laws as a result of the exercise of this
Option. The Optionee agrees to notify the Company immediately in the event of
any disqualifying disposition (within the meaning of Section 421(b) of the Code)
of the shares acquired upon exercise of an incentive stock option. Furthermore,
in the event of any determination that the Company has failed to withhold a sum
sufficient to pay all withholding taxes due in connection with the exercise of
this Option, or a disqualifying disposition of the shares acquired upon exercise
of an incentive stock option, the Optionee agrees to pay the Company the amount
of such deficiency in cash within five (5) days after receiving a written demand
from the Company to do so, whether or not Optionee is an employee of the Company
at that time. b. At such time as the Optionee is required to pay to the Company
an amount with respect to tax withholding obligations as set forth in
subparagraph a, the Optionee may elect prior to the date the amount of such
withholding tax is determined 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 in accordance with the provisions of Section 9.g of
the Plan. c. Any adverse consequences incurred by an 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.
11. TERMINATION
a. Should optionee voluntarily terminate for Good Cause (as defined below) or be
involuntarily terminated for other than Bad Cause (as defined below) more than
twelve (12) months from Optionee's date of employment with the Company, then any
portion of this option that would have vested in the six (6) months following
Optionee's termination date, shall vest on Optionee's termination date. b. GOOD
CAUSE shall be defined as any of the following condition, which condition(s)
remain(s) in effect ten (10) days after written notice to the Board of Directors
of the Company from Optionee of such condition(s):
i. a decrease in Optionee's base salary and/or a material decrease in
Optionee's standard management bonus plan or employee benefits; ii. a
material reduction in Optionee's title, authority, responsibilities or
duties, as measured against Optionee's title, authority or responsibility
or duties immediately prior to such reduction; iii. Optionee is not
promoted to President of the Company within eighteen (18) months following
his date of employment; iv. the relocation of the Optionee's work place
for the Company to a location outside Santa Clara County, California; or
v. the Company is in breach of the employment agreement (attached) with
Optionee.
b. BAD CAUSE shall be defined as:
i. theft, dishonesty, or intentional falsification of any employment or
Company records; ii. intentional and improper disclosure of the Company's
confidential or proprietary information; or iii. Optionee's conviction for
any criminal act which materially impairs Optionee's ability to perform
his duties.
Dated the 1st day of January 1998
MISSION WEST PROPERTIES
By
---------------------------------
Duly authorized on behalf of the Board of Directors
<PAGE>
The Optionee acknowledges receipt of copies of the Plan, the Restricted Stock
Purchase Agreement and the exhibits referred to therein, and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. The Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Committee upon any questions arising under the Plan.
- ----------------------------------
Optionee
CONSENT OF SPOUSE
I, _________________________, spouse of the Optionee who executed the foregoing
Agreement, hereby agree that my spouse's interest in the shares of Common Stock
subject to said Agreement shall be irrevocably bound by the Agreement's terms. I
further agree that my community property interest in such shares, if any, shall
similarly be bound by said Agreement and that such consent is binding upon my
executors, administrators, heirs and assigns. I agree to execute and deliver
such documents as may be necessary to carry out the intent of said Agreement and
this consent.
- ----------------------------------
Spouse
<PAGE>
MISSION WEST PROPERTIES
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into as of March 30, 1998, between Mission
West Properties, a California corporation (the "Company") and Michael J.
Anderson ("Purchaser").
R E C I T A L S:
A. Pursuant to the exercise of a stock option (the "Option") granted to
Purchaser by the Company under the Stock Option Agreement dated March 30,
1998 (the "Option Agreement"), Purchaser has elected to purchase Two Hundred
Thousand (200,000) shares of the Company's Common Stock (the "Shares").
B. Purchaser is a key employee of the Company. The securities described in
this Agreement are being offered and sold pursuant to a written compensatory
benefit plan of the Company.
NOW, THEREFORE, in consideration of the mutual covenants exchanged, the
parties agree as follows:
1. PURCHASE AND SALE OF SHARES.
(a) PURCHASE AND SALE OF SHARES. The Company agrees to sell to
Purchaser, and Purchaser agrees to purchase from the Company, Two
Hundred Thousand (200,000) shares of the Company's Common Stock (the
"Shares"), at a purchase price of Four Dollars and Fifty Cents ($4.50)
per share, for a total purchase price of Nine Hundred Thousand Dollars
($900,000). All of the Shares shall be subject to this Agreement and the
restrictions herein contained.
(b) CLOSING. The purchase and sale of the Shares shall be held at the
principal office of the Company on the date hereof, or at such other
time and place as shall be mutually agreed between Purchaser and the
Company. At the closing, Purchaser shall deliver to the Company the
total purchase price for the Shares paid in a form and manner authorized
by the Option Agreement, and the Company will issue, as promptly
thereafter as practicable, a certificate representing the Shares issued
in the name of Purchaser. In the event Purchaser delivers his Promissory
Note in the form attached hereto as Exhibit A in payment of the purchase
price, the following shall apply:
(i) Purchaser shall assign, transfer and pledge the Shares, or
collateral of equivalent value acceptable to the Company, to the
Company as security for payment of the Promissory Note in
accordance with the provisions of a Security Agreement in the form
of Exhibit B attached hereto.
(ii) In the event Purchaser's employment by the Company is
<PAGE>
terminated for any reason whatsoever, including death, the
Company shall have the right, upon ninety (90) days' prior
written notice to Purchaser, or his legal representative or
successor, to accelerate the full payment of the Promissory
Note, in which event such payment shall be due and payable to
the Company within thirty (30) days after the expiration of
the ninety (90)-day period, unless Purchaser is in default
under the Promissory Note or the Security Agreement on the
date such notice is sent. In the event of such default, the
provisions regarding acceleration of payment due under the
Promissory Note contained in Section 6 of the Security
Agreement shall apply.
2. REPURCHASE OPTION.
(a) SHARES SUBJECT TO REPURCHASE. Purchaser hereby grants to the Company
the option (the "Repurchase Option") to repurchase all or part of the
Unvested Shares (as defined in Section 2(b) below) at the price per
share paid for them by Purchaser (the "Option Price"), subject to
adjustment pursuant to Section 3, upon the occurrences set forth in
subSection (c), but only to the extent such Shares have not been
released from the Repurchase Option as provided in subSection (b). All
of the Shares shall initially be subject to the Repurchase Option.
(b) RELEASE DATES. The Shares subject to the Repurchase Option shall be
released from the Repurchase Option in accordance with the vesting
schedule set forth in Section 3(a) of the Option Agreement to the extent
and as of the dates provided therein. Shares subject to the Repurchase
Option are referred to herein as "Unvested Shares," and Shares which
have been released from the Repurchase Option are referred to herein as
"Vested Shares."
(c) OCCURRENCES PERMITTING EXERCISE. The Company may exercise the
Repurchase Option if during the term of this Agreement any one of the
following events (an "Offering Event") takes place: (i) Purchaser shall
cease to be employed by the Company (including a Parent or Subsidiary of
the Company) for any reason, or no reason, with or without cause,
including involuntary termination, death or disability; or (ii) any
event occurs which causes the involuntary transfer to creditors or to
any other person or entity of all or any part of the Shares still
subject to the Repurchase Option at the time of such transfer; or (iii)
upon designation by the Company in writing to Purchaser, any
acceleration of payment due as provided under the terms of the
Promissory Note.
(d) EXERCISE OF REPURCHASE OPTION. Upon the occurrence of an Offering
Event, the Company may exercise the Repurchase Option by delivering
personally, or by registered or certified mail, to Purchaser (or the
Purchaser's permitted transferee or legal representative, as the case
may be), within ninety (90) days after the date of the Offering Event, a
notice in writing indicating the Company's election to exercise its
Repurchase Option and the number of Shares to be purchased by the
Company or the Company's designee, who shall be identified in such
notice, and setting forth a date for closing not later than thirty (30)
days from the date of giving such notice.
(e) CLOSING FOR REPURCHASE OF SHARES. The closing for the repurchase of
the Shares pursuant to the exercise of the Repurchase Option shall take
place at the Company's principal offices. At the closing, the holder of
the
<PAGE>
certificate(s) representing the Shares being transferred shall deliver
said certificate or certificates evidencing the Shares to the Company,
duly endorsed for transfer, and the Company (or its designee) shall
tender payment of the purchase price for the Shares being purchased. The
purchase price shall be payable in full in cash, or by check, provided
that the Company may elect to offset against and deduct from any payment
of the purchase price any indebtedness then owed by Purchaser to the
Company.
3. ADJUSTMENTS.
(a) GENERAL. If, from time to time during the term of this Agreement:
(i) there is any stock dividend, distribution or dividend, stock split,
or other change in the character or amount of any of the outstanding
securities of the Company; or (ii) there is any consolidation, merger or
sale of all, or substantially all, of the assets of the Company; then in
such event, any and all new, substituted or additional securities, cash,
or other property to which Purchaser is entitled by reason of his
ownership of the Shares (the "New Consideration") shall be included in
the word "Shares" for all purposes with the same force and effect as the
Shares presently subject to the Repurchase Option and other terms of
this Agreement, and shall be subject to the Repurchase Option in the
same manner and to the same extent as the Unvested Shares with respect
to which the New Consideration was provided. While the total Option
Price shall remain the same after any such event, the Option Price per
share shall be appropriately adjusted to reflect any change in the
number of shares.
(b) QUARTERLY DISTRIBUTIONS. Notwithstanding the provisions of
subsection (a) above to the contrary, Purchaser shall be entitled to
receive and retain dividends or other distributions declared on the
Common Stock of the Company by the board of directors quarterly or on
any other regular, periodic basis, including but not limited to
distributions required for compliance with the provisions of Section
857(a) of the Internal Revenue Code of 1986, as amended.
4. RESTRICTIONS ON TRANSFER.
(a) NO TRANSFER OF SHARES SUBJECT TO REPURCHASE OPTION. Purchaser shall
not sell, transfer, pledge, assign or otherwise dispose of any of the
Unvested Shares which are subject to the Repurchase Option.
(b) GIFTS OF SHARES. Notwithstanding any other term of this Section 4,
Purchaser may make a gift of all or any part of the Shares to any of
Purchaser's parents, spouse, issue, siblings, nephews or nieces or to a
trust for the exclusive benefit of any of the foregoing parties. The
donee or donees shall hold such Shares subject to all the provisions of
this Agreement.
5. ASSIGNMENT OF RIGHTS. The Company may assign its rights under Section 2
hereof to one or more persons or entities, who shall have the right to so
exercise such rights in his or its own name and for his or its own account.
If any such transfer of the Shares requires the consent of any agency
pursuant to the securities laws of any state, the time periods specified
herein shall be extended for such period as the necessary request for consent
to transfer is pending before such agency. All parties agree to cooperate in
making such request for transfer, and no transfer shall be executed without
such consent if required by law.
<PAGE>
6. RELEASE OF SHARES FROM REPURCHASE OPTION. The number of Shares subject to
the Repurchase Option will decline as set forth in Section 2(b), and the
Repurchase Option shall terminate following the expiration of the notice
specified in Section 2(d). Subject to the provisions of the Promissory Note
and the Security Agreement, the Company shall release and deliver to
Purchaser, from time to time as Purchaser may reasonably request, a
certificate representing that number of Shares set forth in a written request
made to the Secretary of the Company, to the extent that such Shares are no
longer subject to the Repurchase Option. The Company shall cause new
certificates to be issued as necessary to effectuate the release and delivery
of such Shares to Purchaser.
7. LEGENDS.
(a) ENDORSEMENT ON CERTIFICATES. The certificates representing the Shares
subject to this Agreement shall be endorsed with a legend substantially in
the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY
IN ACCORDANCE WITH THE TERMS OF A RESTRICTED STOCK PURCHASE
AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OR HIS
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY. THE AGREEMENT MAY BE INSPECTED AT THE
PRINCIPAL OFFICE OF THE COMPANY DURING NORMAL BUSINESS HOURS.
(b) TERMINATION OF ALL RESTRICTIONS. In the event the restrictions
imposed by this Agreement shall be terminated as herein provided, a new
certificate or certificates representing the Shares shall be issued, on
request, without the legend referred to in Subsection 7(a).
(c) SECURITIES LAW LEGENDS. Any transfer or sale of the Shares is
further subject to all restrictions on transfer imposed by state or
federal securities laws. Accordingly, it is understood and agreed that
the certificates representing the Shares shall bear any legends required
by such state or federal securities laws.
8. PURCHASER'S REPRESENTATIONS. In connection with the purchase of the Shares,
Purchaser hereby represents and warrants to the Company as follows:
(a) INVESTMENT INTENT; CAPACITY TO PROTECT INTERESTS. Purchaser is
purchasing the Shares solely for his or her own account for investment
and not with a view to or for sale in connection with any distribution
of the Shares or any portion thereof and not with any present intention
of selling, offering to sell or otherwise disposing of or distributing
the Shares or any portion thereof in any transaction other than a
transaction exempt from registration under the Securities Act of 1933,
as amended (the "Act"). Purchaser also represents that the entire legal
and beneficial interest of the Shares is being purchased, and will be
held, for Purchaser's account only, and neither in whole or in part for
any other person. Purchaser either (i) has a pre-existing business or
personal relationship with the Company or any of its officers, directors
or controlling persons, or (ii) by reason of Purchaser's business or
financial experience or the business or financial experience of
Purchaser's professional advisors who are unaffiliated with and who are
not compensated by the Company or any affiliate or selling agent of the
Company, directly or indirectly, could be reasonably assumed to have the
capacity to evaluate the merits and risks of an investment in the
Company and to protect Purchaser's own interests in connection with this
transaction.
<PAGE>
(b) INFORMATION CONCERNING COMPANY. Purchaser has heretofore discussed
the Company and its plans, operations and financial condition with the
Company's officers and has heretofore received all such information as
Purchaser has deemed necessary and appropriate to enable the Purchaser
to evaluate the financial risk inherent in making an investment in the
Shares. Purchaser has received satisfactory and complete information
concerning the business and financial condition of the Company in
response to all inquiries in respect thereof.
(c) ECONOMIC RISK. Purchaser realizes that the purchase of the Shares
will be a highly speculative investment and involves a high degree of
risk, and Purchaser is able, without impairing his or her financial
condition, to hold the Shares for an indefinite period of time and to
suffer a complete loss of Purchaser's investment.
(d) RESTRICTED SECURITIES. Purchaser understands and acknowledges that:
(i) the sale of the Shares has not been registered under the Act,
and the Shares must be held indefinitely unless subsequently
registered under the Act or an exemption from such registration is
available and the Company is under no obligation to register the
Shares;
(ii) the share certificate representing the Shares will be stamped
with the legends specified in Section 7 hereof; and
(iii) the Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
(e) DISPOSITION UNDER RULE 144. Purchaser understands that the Shares
are restricted securities within the meaning of Rule 144 promulgated
under the Act; that unless the Shares have been issued pursuant to Rule
701 promulgated under the Act the exemption from registration under Rule
144 will not be available in any event for at least one year from the
date of purchase and payment of the Shares (AND THAT PAYMENT BY A NOTE
IS NOT DEEMED PAYMENT UNLESS IT IS SECURED BY ASSETS OTHER THAN THE
SHARES), and even then will not be available unless: (i) a public
trading market then exists for the Common Stock of the Company; (ii)
adequate information concerning the Company is then available to the
public; and (iii) other terms and conditions of Rule 144 are complied
with; and that any sale of the Shares may be made only in limited
amounts in accordance with such terms and conditions.
(f) FURTHER LIMITATIONS ON DISPOSITION. Purchaser agrees that he shall not
make any disposition of all or any portion of the Shares unless and until:
(i) (A) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such
disposition is made in accordance with said Registration Statement;
OR, (B)(1) Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed
disposition, (2) Purchaser shall have furnished the Company with an
opinion of the Purchaser's counsel to the effect that such
disposition will not require registration of such shares under the
Securities Act, AND (3) such opinion of Purchaser's counsel shall
have been concurred in by counsel for the Company and the Company
shall have advised Purchaser of such
<PAGE>
concurrence; AND,
(ii) The Shares proposed to be transferred are no longer subject to
the Repurchase Option set forth in Section 2 hereof.
9. ESCROW. As security for his faithful performance of the terms of this
Agreement and to ensure the availability for delivery of Purchaser's Shares
upon exercise of the Repurchase Option herein provided for, Purchaser agrees
to deliver to and deposit with Graham & James LLP, legal counsel to the
Company (the "Escrow Agent"), as Escrow Agent in this transaction, two Stock
Assignments duly endorsed (with date and number of Shares blank) in the form
attached hereto as Exhibit C, together with the certificate or certificates
evidencing the Shares; said documents are to be held by the Escrow Agent
pursuant to the Joint Escrow Instructions of the Company and Purchaser set
forth in Exhibit E attached hereto and incorporated by this reference, which
instructions shall also be delivered to the Escrow Agent at the closing
hereunder.
10. COMPLIANCE WITH INCOME TAX LAWS.
(a) WITHHOLDING TAX. Purchaser authorizes the Company to withhold in
accordance with applicable law from any compensation payable to him or
her any taxes required to be withheld by Federal, state or local laws as
a result of the purchase of the Shares. Furthermore, in the event of any
determination that the Company has failed to withhold a sum sufficient
to pay all withholding taxes due in connection with the purchase of the
Shares, Purchaser agrees to pay the Company the amount of such
deficiency in cash within five (5) days after receiving a written demand
from the Company to do so, whether or not Purchaser is an employee of
the Company at that time.
(b) INTEREST ON NOTE. In the event that any Promissory Note issued by
the Purchaser under this Agreement is subject to the provisions of
Section 1274 of the Internal Revenue Code of 1986, as amended (the
"Code"), and would have original issue discount subject to Section 1272
of the Code, the Company and the Purchaser agree to make and file a
timely election under Section 1274A(c) of the Code and regulations
thereunder to account for all of the interest on such Note on the cash
receipts and disbursements method for Federal income tax purposes.
11. ELECTION PURSUANT TO SECTION 83(B) OF INTERNAL REVENUE CODE OF 1986, AS
AMENDED. Purchaser shall be responsible for filing with the Internal Revenue
Service an appropriate written notice of election pursuant to Section 83(b)
of the Code, if Purchaser wishes to make such an election. Purchaser shall
notify the Company in writing if Purchaser files such an election within
thirty (30) days of the date of the sale herein contemplated. The Company
intends, in the event it does not receive from Purchaser evidence of such
filing, to claim a tax deduction for any amount which would otherwise be
taxable to Purchaser in the absence of such an election.
12. ENFORCEMENT. Purchaser agrees that a violation on his or her part of any of
the terms of this Agreement (other than those contained in Sections 12 and 13,
above) may cause irreparable damage to the Company, the exact amount of which is
impossible to ascertain, and for that reason agrees that the Company shall be
entitled to exercise its right to effect a repurchase and transfer of the Shares
pursuant to Section 2 hereof or to a decree of specific performance of the terms
hereof or an injunction restraining further violation, said right to be in
addition to any other remedies of said parties.
<PAGE>
13. CONTROLLING PROVISIONS. The Shares are subject to the provisions of the
Company's 1997 Stock Option Plan, and unless stated otherwise terms defined
therein have the same meaning when used in this Agreement. To the extent that
there may be any conflict between the provisions of this Agreement and the
provisions contained in the Company's Bylaws on the transfer or restriction
on transfer of Shares, the terms of this Agreement shall be controlling. This
Agreement may not be modified except by a writing signed by the party to be
bound.
14. OWNERSHIP, VOTING RIGHTS, DUTIES. This Agreement shall not affect in any
way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein.
15. NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery or on the day sent by facsimile transmission if a true and
correct copy is sent the same day by first class mail, postage prepaid, or by
dispatch by an internationally recognized express courier service.
16. BINDING EFFECT. This Agreement shall inure to the benefit of the Company
and its successors and assigns and, subject to the restrictions on transfer
set forth herein, be binding upon Purchaser, his permitted transferees,
heirs, legatees, executors, administrators and legal successors, who shall
hold the Shares subject to the terms hereof.
17. GOVERNING LAW. This Agreement, together with the exhibits hereto, shall
be governed by and construed in accordance with the laws of the State of
California, as such laws are applied to contracts entered into by residents
of such state and performed in such state.
18. ENTIRE AGREEMENT. This Agreement supersedes all previous written or oral
agreements between the parties regarding the subject matter hereof, and
constitutes the entire agreement of the parties regarding such subject
matter. This Agreement may not be modified or terminated except by a writing
executed by all of the parties hereto.
19. NOT EMPLOYMENT CONTRACT. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Purchaser or the Company to
terminate Purchaser's employment, for any reason or for no reason, with or
without cause, subject to the provisions of applicable law. This Agreement is
not an employment contract.
20. GENDER. The masculine, feminine or neuter pronouns used herein shall be
interpreted without regard to gender.
21. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
22. SEVERABILITY. If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with
the purposes and tenor and effect of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first
<PAGE>
above written.
MISSION WEST PROPERTIES PURCHASER
By: By:
------------------------- ---------------------------------
Michael J. Anderson
Title: Address: 858 Fielding Drive,
---------------------- Palo Alto, CA 94303
<PAGE>
EXHIBIT A
PROMISSORY NOTE SECURED BY
PLEDGE OF STOCK
March 30, 1998
Cupertino, California $900,000
FIVE - YEAR NOTE
The undersigned, Michael J. Anderson, for value received, promises to
pay to Mission West Properties (the "Company") or any person or entity to
whom this Note has been endorsed for payment, or order (collectively the
"Holder"), the principal sum of Nine Hundred Thousand Dollars ($900,000) (the
"principal sum") and interest on the principal sum from time to time
remaining unpaid hereon from the date of this Note until paid in full at the
rate of percent (5.59%) compounded annually. Subject to the provisions of
Sections 3 and 5 of this Note, interest shall be paid annually on each
anniversary of the date of this Note; the principal sum and any accrued but
unpaid interest to be paid in full on or before the fifth anniversary of the
date of this Note.
Principal and interest will be paid in lawful money of the United
States of America at the address of the Holder of this Note as shown on the
books of the Company. The undersigned shall have the right to prepay all or
any portion of the indebtedness represented hereby without premium or penalty
upon ten (10) days notice.
The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, to which the Holder hereof,
by the acceptance of this Note, agrees:
1. ATTORNEYS' FEES. If the indebtedness represented hereby is not paid in
full when due, the undersigned promises to pay all costs of collection,
including, but not limited to, reasonable attorneys' fees.
2. REPLACEMENT. On receipt of evidence reasonably satisfactory to the
undersigned of the loss, theft, destruction or mutilation of this Note and,
in the case of loss, theft or destruction, on delivery of an indemnity
agreement or
<PAGE>
bond reasonably satisfactory in form and amount to the Company and the
undersigned, or in the case of mutilation, on surrender and cancellation of
this Note, the undersigned, at his expense, will execute and deliver, in lieu
of this Note, a new Note of like tenor.
3. RIGHT TO ACCELERATE PAYMENT. This Note shall become immediately due and
payable in the full amount of the principal sum then unpaid, together with
all accrued and unpaid interest thereon, at the option of the Holder of this
Note without notice or demand, upon the occurrence of any of the following
events:
(a) the undersigned becomes insolvent in that either a petition is filed
by or against the undersigned under any bankruptcy law, or he is unable
to pay his debts as they fall due, or he makes a general assignment for
the benefit of his creditors or takes any other action to take advantage
of any insolvency laws; or
(b) the undersigned fails to make payment when due of any part or
installment of principal or interest, and such default is not cured
within ten (10) days of the Holder's giving notice of such default to
the undersigned; or
(c) the election by the Company to accelerate payment of the Note
pursuant to Section 1(b) of the Restricted Stock Purchase Agreement of
even date herewith (the "Stock Purchase Agreement") between the Company
and the undersigned; or
(d) any default by the undersigned under the terms of the Stock Purchase
Agreement or the Security Agreement (described below) which is not
otherwise specified in paragraphs (a), (b) or (c) above.
4. MODIFICATION. This Note and any of its terms may be changed, waived or
terminated only by a written instrument signed by the party against which
enforcement of that change, waiver or termination is sought.
5. SECURITY. This Note is given pursuant to the terms of the Restricted Stock
Purchase Agreement and is secured under the terms of a Security Agreement of
even date herewith made between the undersigned and the Company. The Holder
shall be entitled to all the benefits of the security as provided in the
Security Agreement, provided that the Holder shall not be obligated to
proceed first against the collateral, but may proceed directly on this Note.
In the event the Holder proceeds against the collateral and the proceeds of
same are inadequate to pay any amounts due on this Note, the undersigned
shall remain liable for any deficiency. Upon the occurrence of certain events
stated in the Security Agreement and in the Stock Purchase Agreement, the
entire amount of this Note may become payable prior to the maturity date
stated herein.
6. GOVERNING LAW. This Note shall be governed by and construed and enforced
in accordance with the laws of the State of California without regard to any
principles governing conflicts of laws.
7. NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery or on the day sent by facsimile transmission if a true and
correct copy is sent the same day by first class mail, postage prepaid, or by
dispatch by an internationally recognized express courier service, or at such
other address as any party may designate by ten (10) days' advance written
notice to the other party.
<PAGE>
8. SEVERABILITY. If any provision of this Note should be found to be invalid
or unenforceable, all other provisions shall nevertheless remain in full
force and effect to the maximum extent permitted by law.
Michael J. Anderson
Address: 858 Fielding Drive
Palo Alto, CA 94303
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Mission West
Properties of our report dated February 11, 1997, except as to the 1 for 30
reverse stock split discussed in Note 1, which is as of November 10, 1997,
appearing on page F-3 of Mission West Properties' Annual Report on Form 10-K for
the year ended December 31, 1997. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
San Diego, California
July 15, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File No.
333-52835) of our report dated April 17, 1998 on our audits of the combined
financial statements and financial statement schedule of The Berg Properties as
of December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996
and 1995 and our reports dated April 17, 1998 on our audits of the Statements
of Revenue and Certain Expenses of the Kontrabecki Properties for the years
ended December 31, 1997, 1996 and 1995 and the Combined Statement of Revenue and
Certain Expenses of the Fremont Properties for the year ended December 31,
1997. Additionally, we consent to the incorporation by reference of our report
dated March 20, 1998 on our audit of the consolidated financial statements of
Mission West Properties as of and for the year ended November 30, 1997 and one
month period ended December 31, 1997. We also consent to the references to our
firm under the caption "Experts".
San Francisco, California
July 20, 1998 /s/ PricewaterhouseCoopers LLP
<PAGE>
EXHIBIT 99.3
MISSION WEST PROPERTIES
10050 Bandley Drive
Cupertino, California 95014
----------------------------------------------------
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON
-------------
----------------------------------------------------
TO THE SHAREHOLDERS:
A special meeting (the "Meeting") of shareholders of Mission West
Properties, a California corporation (the "Company") will be held at the
Company's corporate offices, 10050 Bandley Drive, Cupertino, California 95014 on
___________, _____________, 199_ at ____ _.m., for the following purposes:
1. To approve a proposed private placement of 6,495,058 shares of the
Company's Common Stock for $4.50 per share.
2. To ratify and approve the Company's acquisition of the sole general
partner interest representing approximately 10.91% of the total partnership
interests in each of four existing limited partnerships (collectively the
"Operating Partnerships") owning from approximately 4.2 to 4.34 million rentable
square feet of leased commercial R&D buildings, in which the principal limited
partners are Carl E. Berg and certain of his affiliates, pursuant to the terms
of an Acquisition Agreement dated as of May 14, 1998 and an Amendment to
Acquisition Agreement effective July 1, 1998.
3. To approve the Company's acquisition of the right to acquire, through
the Operating Partnerships, certain pending commercial R&D building developments
consisting of approximately 1.02 million rentable square feet from Mr. Berg and
certain of his affiliates.
4. To approve the Company's acquisition of an option to acquire future
commercial R&D building developments on land currently held by Mr. Berg and
certain of his affiliates.
5. To approve the issuance of up to 100,825,478 shares of Common Stock upon
the future redemption or exchange of 100,825,478 units of limited partnership
interests held by or issuable to the limited partners in the Operating
Partnerships ("L.P. Units"), including 33,919,072 L.P. Units issuable upon the
acquisition of the pending commercial R&D building developments from Mr. Berg
and certain of his affiliates.
6. To approve a proposal to reincorporate the Company under the laws of the
State of Maryland through a merger with and into the Company's wholly owned
subsidiary Mission West Properties, Inc., a Maryland corporation ("Mission
West-Maryland"), which during 1998 intends to elect to become a Real Estate
Investment Trust ("REIT") for federal income tax purposes, and to approve the
adoption of the charter and bylaws of Mission West-Maryland to take effect upon
the merger (the "Reincorporation Merger").
Only shareholders of record at the close of business on _________, 1998,
will be entitled to vote at the meeting. Each of those 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
Bradley A. Perkins
