SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE
13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a)
UNDER THE SECURITIES ACT OF 1934
(Amendment No. ___)
Pacific Gateway Properties, Inc.
_______________________________________________________________________________
(Name of Issuer)
Common Stock, par value $1.00 per share
_______________________________________________________________________________
(Title of Class of Securities)
694329-10-3
(CUSIP Number)
Michael A. Elrad
GEM Value Partners LLC
900 North Michigan Avenue
Suite 1900
Chicago, Illinois 60611-1575
(312) 915-2864
_______________________________________________________________________________
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
September 21, 1998
_______________________________________________________________________________
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this Schedule 13D,
and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g),
check the following box [ ]
(Continued on following pages)
<PAGE>
CUSIP NO.: 694329-10-3 13D
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S IDENTIFICATION NOS. OF ABOVE PERSONS
GEM Value/PGP LLC
_______________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ( )
(b) (_)
_______________________________________________________________________________
3 SEC USE ONLY
_______________________________________________________________________________
4 SOURCE OF FUNDS WC, OO
_______________________________________________________________________________
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2(e) (_)
_______________________________________________________________________________
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
_______________________________________________________________________________
7 SOLE VOTING POWER
0
____________________________________________________________________
NUMBER OF 8 SHARED VOTING POWER
SHARES 300,000
BENEFICIALLY___________________________________________________________________
OWNED BY 9 SOLE DISPOSITIVE POWER
EACH 0
REPORTING ___________________________________________________________________
PERSON 10 SHARED DISPOSITIVE POWER
300,000
_______________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
300,000
_______________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES (_)
_______________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.08%
_______________________________________________________________________________
14 TYPE OF REPORTING PERSON
OO
Page 2 of 11 Pages
<PAGE>
CUSIP NO.: 694329-10-3 13D
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S IDENTIFICATION NOS. OF ABOVE PERSONS
GEM Value Fund, L.P.
_______________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ( )
(b) (_)
_______________________________________________________________________________
3 SEC USE ONLY
_______________________________________________________________________________
4 SOURCE OF FUNDS WC, OO
_______________________________________________________________________________
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2(e) (_)
_______________________________________________________________________________
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
_______________________________________________________________________________
7 SOLE VOTING POWER
0
___________________________________________________________________
NUMBER OF 8 SHARED VOTING POWER
SHARES 401,700
BENEFICIALLY___________________________________________________________________
OWNED BY 9 SOLE DISPOSITIVE POWER
EACH 0
REPORTING______________________________________________________________________
PERSON 10 SHARED DISPOSITIVE POWER
401,700
_______________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
401,700
_______________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES ( )
_______________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.49%
_______________________________________________________________________________
14 TYPE OF REPORTING PERSON
PN
Page 3 of 11 Pages
<PAGE>
CUSIP NO.: 694329-10-3 13D
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S IDENTIFICATION NOS. OF ABOVE PERSON
GEM Value Partners LLC
_______________________________________________________________________________
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ( )
(b) (_)
_______________________________________________________________________________
3 SEC USE ONLY
_______________________________________________________________________________
4 SOURCE OF FUNDS WC, OO
_______________________________________________________________________________
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2(e) (_)
_______________________________________________________________________________
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
_______________________________________________________________________________
7 SOLE VOTING POWER
0
_____________________________________________________________________
NUMBER OF 8 SHARED VOTING POWER
SHARES 401,700
BENEFICIALLY___________________________________________________________________
OWNED BY 9 SOLE DISPOSITIVE POWER
EACH 0
REPORTING _____________________________________________________________________
PERSON 10 SHARED DISPOSITIVE POWER
401,700
_______________________________________________________________________________
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
401,700
_______________________________________________________________________________
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES (_)
_______________________________________________________________________________
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.49%
_______________________________________________________________________________
14 TYPE OF REPORTING PERSON
OO
Page 4 of 11 Pages
<PAGE>
ITEM 1. SECURITY AND ISSUER.
The class of equity securities to which this statement relates is
the Common Stock, par value $1.00 per share (the "Common Stock") of Pacific
Gateway Properties, Inc., a New York corporation (the "Issuer") with its
principal executive office located at 930 Montgomery Street, Suite 400, San
Francisco, California 94133.
ITEM 2. IDENTITY AND BACKGROUND.
This statement is being filed by GEM Value/PGP LLC ("GEM/PGP"),
GEM Value Fund, L.P., a Delaware limited partnership ("GEM") and GEM Value
Partners LLC, a Delaware limited liability company (the "General Partner"
and, together with GEM/PGP and GEM, the "reporting persons").
The reporting persons have their principal offices at 900 North
Michigan Avenue, Suite 1900, Chicago, Illinois 60611-1575. GEM/PGP is a
limited liability company formed for the purpose of making the investment
in the Issuer described herein. GEM is a private investment partnership
whose primary activities include investments in marketable securities. GEM
is the managing member of GEM/PGP. The General Partner is a limited
liability company whose primary activity is to serve as the general partner
of GEM.
(a) -- (c) The names, principal occupation or employment and the
name, and, except where such information is provided elsewhere herein, the
principal business and address of any organization in which such employment
is conducted of each officer and director of the General Partner is set
forth below. Unless otherwise indicated below, each of the following
persons is a United States citizen and the business address of each of the
following persons is c/o GEM Value Partners LLC, 900 North Michigan Avenue,
Suite 1900, Chicago, Illinois 60611-1575.
Name Principal Occupation or Employment
- ---- ----------------------------------
Barry Malkin President, Member of Investment Committee
and Manager
Michael A. Elrad Executive Vice President, Treasurer,
Member of Investment Committee and Manager
Norman Geller Executive Vice President and Member
of Investment Committee
Craig Caffarelli Vice President and Manager
Paul Meister Vice President and Manager
Page 5 of 11 Page
<PAGE>
(d) During the last five years, none of the persons identified in
this Item 2 has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors).
(e) During the last five years, none of the persons identified in
this Item 2 has been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations or, or prohibiting or mandating activities subject to
Federal or State securities laws or finding any violation with respect to
such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
On September 21, 1998, GEM/PGP purchased 300,000 shares of Series
1 Preferred Stock of the Issuer (the "Series 1 Preferred") at $10.00 per
share, or $3,000,000 in the aggregate. Capital contributions by the members
in GEM/PGP are the source of funds used for such purchase. The working
capital of the members of GEM/PGP, including its controlling member, GEM,
is the source of such capital contributions to GEM/PGP.
ITEM 4. PURPOSE OF TRANSACTION.
The investment described herein is for investment purposes. The
reporting persons intend to evaluate their investment in the Issuer on an
ongoing basis. Depending on such evaluations, the reporting persons may, at
any time and from time to time, purchase additional shares of Common Stock
or dispose of some or all of the Common Stock or Series 1 Preferred held by
them. In conducting such evaluations, the reporting persons from time to
time may discuss the Issuer and its affairs with members of the Issuer's
board of directors or management, other holders of Common Stock or other
persons.
The Issuer has informed the reporting persons that it intends to
convert to a real estate investment trust ("REIT") by reincorporating the
Issuer as a Maryland corporation and adopting revised Articles of
Incorporation and Bylaws (collectively, the "Maryland Reincorporation").
GEM/PGP has agreed to approve the Maryland Reincorporation by voting its
shares of Series 1 Preferred Stock in favor of the Maryland
Reincorporation.
Pursuant to the Stock Purchase Agreement (as defined below), the
Issuer has agreed to cause a designee of GEM/PGP to be elected to the board
of directors of the Issuer. GEM/PGP has designated Norman Geller to serve
as its designee to the Issuer's board of directors. The Issuer has agreed
to cause Mr. Geller to be elected to its board of directors at the earlier
to occur of its next scheduled meeting of the board of directors or the
Issuer's next annual stockholders meeting.
GEM and the Issuer have agreed that GEM will assist the Issuer in
exploring its strategic options, including a possible sale or merger of the
Issuer or possible acquisitions by the Issuer of additional businesses or
assets. While the reporting persons do not presently
Page 6 of 11 Pages
<PAGE>
have any such specific plans or proposals, the reporting persons reserve
the right to develop plans or proposals respecting the Issuer which include
or relate to one or more of the transactions specified in subparagraphs (a)
through (j) of Item 4 of Schedule 13D, including, without limitation,
acquisitions or dispositions of assets or properties, acquisitions or
dispositions of one or more businesses, business combination transactions,
changes in the Issuer's management or directors, changes in the Issuer's
capital structure or distribution policies, changes to anti-takeover
measures or changes in the Issuer's compensation plans or arrangements.
Notwithstanding the foregoing, except as disclosed herein the reporting
persons have no current plan or proposal which relates to, or would result
in, any of the actions enumerated in subparagraphs (a) through (j) of Item
4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) GEM is the holder of 101,700 shares of Common Stock and
GEM/PGP is the holder of 300,000 shares of Series 1 Preferred. Each share
of Series 1 Preferred is immediately convertible into one share of Common
Stock, subject to adjustment. As a result, GEM and the General Partner may
be deemed to be the beneficial owners of 401,700 shares of Common Stock,
representing 9.49% of the Common Stock outstanding (as adjusted to reflect
the issuance of 300,000 shares of Series 1 Preferred) as of September 21,
1998. The 300,000 shares of Common Stock which GEM/PGP may be deemed to
beneficially own represent 7.08% of the Common Stock outstanding (as
adjusted to reflect the issuance of 300,000 shares of Series 1 Preferred)
as of September 21, 1998.
(b) The General Partner and GEM may be deemed to share beneficial
ownership of the shares of Common Stock held by GEM as well as the shares
of Series 1 Preferred held by GEM/PGP (together with the Common Stock
underlying such shares of Series 1 Preferred).
(c) On September 21, 1998, GEM/PGP purchased 300,000 shares of
Series 1 Preferred for $10.00 per share, or $3,000,000 in the aggregate.
The reporting persons have effected no other transactions in the Common
Stock in the past 60 days.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR
RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.
On September 21, 1998, GEM/PGP purchased 300,000 shares of Series
1 Preferred Stock from the Issuer pursuant to a Series 1 Preferred Stock
Purchase Agreement dated as of September 21, 1998 (the "Stock Purchase
Agreement") between GEM/PGP and the Issuer. In connection with such
purchase, GEM/PGP and the Issuer also entered into a Registration Rights
Agreement dated as of September 21, 1998 (the "Registration Rights
Agreement") between GEM/PGP and the Issuer and GEM/PGP and Richard Osborne
Trust, Turkey Vulture Fund XIII, Ltd. and Liberty Self Stor, Ltd. (the
"Principal Stockholders") entered into a Stockholders' Agreement and
Irrevocable Proxy dated as of September 21, 1998 (the
Page 7 of 11 Pages
<PAGE>
"Stockholders' Agreement"). The Stock Purchase Agreement, the Registration
Rights Agreement and the Stockholders' Agreement are each filed herewith as
exhibits.
The following descriptions of the Stock Purchase Agreement, the
Registration Rights Agreement and the Stockholders' Agreement do not
purport to be complete and reference is made to the full texts of such
agreements, which are incorporated herein by this reference.
STOCK PURCHASE AGREEMENT
Pursuant to the Stock Purchase Agreement, GEM/PGP agreed to
purchase 300,000 shares of Series 1 Preferred Stock at $10.00 per share.
The closing of such purchase took place simultaneously with the execution
of the Stock Purchase Agreement. The Stock Purchase Agreement contained
customary representations and warranties by the Issuer and by GEM/PGP.
The terms of the Series 1 Preferred are set forth in a Certificate
of Amendment of the Certificate of Incorporation of the Issuer (the
"Certificate of Amendment"). The Certificate of Amendment provides, among
other things, that the shares of Series 1 Preferred are entitled to a
liquidation preference of $10.00 per share (the "Liquidation Preference").
Distributions by the Issuer of the proceeds of (i) sales or other
dispositions of assets, (ii) morgages, financings or refinancings of
assets, (iii) borrowings by the Issuer or its subsidiaries, or (iv) sales
of Common Stock or other securities of the Issuer or its subsidiaries
(other than pursuant to certain employee benefit plans) (such proceeds,
"Sale or Refinancing Proceeds") must be made first to holders of shares of
Series 1 Preferred Stock and, when paid, cause a reduction in the
Liquidation Preference.
Shares of Series 1 Preferred are convertible at the election of
GEM/PGP into shares of Common Stock on a one-for-one basis, subject to
adjustment. If distributions of Sale or Refinancing Proceeds have been made
to holders of shares of Series 1 Preferred, then, under certain
circumstances, the holders of shares of Series 1 Preferred may be required
to repay to the Issuer the amount of some or all of such distributions in
connection with converting such shares of Series 1 Preferred into shares of
Common Stock. The general circumstances giving rise to such obligation to
repay are where distributions of Sale or Refinancing Proceeds have been
made to holders of shares of Series 1 Preferred and to holders of shares of
Common Stock in unequal amounts (on a per share basis) such that a holder
of one share of Series 1 Preferred Stock has received greater distributions
from Sale or Refinancing Proceeds in the aggregate than would have been
received by a holder of one share of Common Stock issued on September 21,
1998.
Shares of Series 1 Preferred are entitled to one vote for each
share of Common Stock into which such Series 1 Preferred are then
convertible with respect to any questions upon which holders of Common
Stock have the right to vote. In addition, the shares of Series 1 Preferred
are entitled to a class vote with respect to certain matters which would
alter their rights or the terms of the Series 1 Preferred.
Page 8 of 11 Pages
<PAGE>
Pursuant to the Stock Purchase Agreement, the Company has agreed
that, so long as GEM/PGP or its affiliates hold at least 100,000 shares of
the combined total of Series 1 Preferred and Common Stock, the Company will
cause a designee of GEM/PGP to be elected to the Issuer's board of
directors at the earlier to occur of the next scheduled meeting of the
Issuer's board of directors or the Issuer's next annual meeting of
stockholders. GEM/PGP has indicated that Norman Geller initially will serve
as its designee to the Issuer's board of directors.
Under the Stock Purchase Agreement, the Issuer agreed to release
GEM and its affiliates from certain restrictions on its ability to engage
in tender or exchange offers, mergers or other business combinations
involving the Issuer or to acquire or sell additional securities of the
Issuer which had been agreed to pursuant to a confidentiality agreement
entered into between the Issuer and GEM in June 1998.
The Issuer has agreed that GEM/PGP will be exempt from the REIT
ownership limits which will apply to other stockholders of the Issuer as a
result of the Maryland Reincorporation so long as GEM/PGP complies with
certain representations designed to ensure that the Issuer will continue to
qualify as a REIT for federal tax purposes.
GEM/PGP has waived its liquidation rights under the terms of the
Series 1 Preferred with respect to the Maryland Reincorporation.
REGISTRATION RIGHTS AGREEMENT
Under the Registration Rights Agreement, GEM/PGP is entitled to
certain "demand" and "incidental" registration rights on customary terms
with respect to potential future sales of shares of Series 1 Preferred or
the underlying shares of Common Stock. Until September 21, 2000,
registration expenses incurred as a result of a demand registration will be
shared equally between the Issuer and GEM/PGP. The registration expenses of
all other registrations will be borne by the Issuer. Pursuant to the
Registration Rights Agreement, GEM/PGP has agreed to refrain from selling
shares of Series 1 Preferred Stock or Common Stock through open-market
transactions for up to 180 days after certain registered offerings made by
the Issuer if requested to do so by the underwriters.
STOCKHOLDERS' AGREEMENT
Under the Stockholders' Agreement, the Principal Stockholders have
agreed that if any of them receives and elects to accept one or more bona
fide offers to purchase in the aggregate Common Stock in excess of 200,000
shares (subject to adjustment), GEM/PGP will have the right to participate
in such sale on a pro rata basis. Such rights do not apply to certain
exempt transfers or to sales in connection with a qualified public offering
registered under the Securities Act of 1933.
Page 9 of 11 Pages
<PAGE>
Under the Stockholders' Agreement, GEM/PGP has agreed to vote all
shares of Series 1 Preferred held by it in the same proportion as the
holders of shares of Common Stock vote with respect to any "Change in
Control Transaction" which may arise prior to the Maryland Reincorporation
and with respect to which the Series 1 Preferred Stock may be entitled to a
class vote under New York law. A "Change in Control Transaction" is defined
to mean a sale of a majority of the outstanding voting stock of the Issuer,
a merger or consoliation in which the beneficial owners of the outstanding
voting stock of the Issuer before the transaction do not beneficially own a
majority of the outstanding voting stock of the combined entity, a sale of
all or substantially all the assets of the Issuer or a reorganization in
which a third party will acquire a majority of the voting power of the
Issuer. In furtherance of the foregoing, GEM/PGP has granted the Principal
Stockholders an irrevocable proxy to vote the shares of Series 1 Preferred
in any such class vote.
The Stockholders' Agreement will terminate upon the earlier of the
closing of a Change in Control Transaction or GEM/PGP, any affiliate of
GEM/PGP and any limited partner or investor of GEM ceasing to collectively
beneficially own at least 60,000 shares of Series 1 Preferred together with
any Common Stock issuable upon conversion thereof.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit
Number Description
99.1 Joint Filing Agreement
99.2 Stock Purchase Agreement
99.3 Registration Rights Agreement
99.4 Stockholders' Agreement
99.5 Certificate of Amendment
Page 10 of 11 Pages
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Dated: September 29, 1998
GEM VALUE/PGP LLC
By: GEM Value Fund, L.P.
Its: Managing Member
By: GEM Value Partners LLC
Its: General Partner
By: /s/ Michael A. Elrad
------------------------
Name: Michael A. Elrad
Title: Executive Vice President
GEM VALUE FUND, L.P.
By: GEM Value Partners LLC
Its: General Partner
By: /s/ Michael A. Elrad
-------------------------
Name: Michael A. Elrad
Title: Executive Vice President
GEM VALUE PARTNERS LLC
By: /s/ Michael A. Elrad
-------------------------
Name: Michael A. Elrad
Title: Executive Vice President
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(f) under the Securities Exchange Act of
1934, as amended, each of the persons named below agrees to the joint
filing of a Statement on Schedule 13D (including amendments thereto) with
respect to the Common Stock, par value $1.00 per share of Pacific Gateway
Properties, Inc., a New York corporation, and further agrees that this
Joint Filing Agreement be included as an exhibit to such filings provided
that, as contemplated by Section 13d-1(f)(l)(ii), no person shall be
responsible for the completeness or accuracy of the information concerning
the other persons making the filing, unless such person knows or has reason
to believe that such information is inaccurate. This Joint Filing may be
executed in any number of counterparts, all of which together shall
constitute one and the same instrument.
Dated: September 29, 1998
GEM VALUE/PGP LLC
By: GEM Value Fund, L.P.
Its: Managing Member
By: GEM Value Partners LLC
Its: General Partner
By: /s/ Michael A. Elrad
------------------------
Name: Michael A. Elrad
Title: Executive Vice President
GEM VALUE FUND, L.P.
By: GEM Value Partners LLC
Its: General Partner
By: /s/ Michael A. Elrad
-------------------------
Name: Michael A. Elrad
Title: Executive Vice President
GEM VALUE PARTNERS LLC
By: /s/ Michael A. Elrad
--------------------------
Name: Michael A. Elrad
Title: Executive Vice President
PACIFIC GATEWAY PROPERTIES, INC.
SERIES 1 PREFERRED
STOCK PURCHASE AGREEMENT
September 21, 1998
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
SERIES 1 PREFERRED
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the
21st day of September, 1998, by and among Pacific Gateway Properties, Inc., a
New York corporation (the "Company"), and GEM Value/PGP, LLC (the "Investor").
WHEREAS:
A. The Company and the Investor are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"), and Section 4(2) of
the Securities Act;
B. The Company desires to sell and the Investor desires to purchase,
upon the terms and conditions stated in this Agreement, 300,000 shares of the
Company's Series 1 Preferred Stock, par value $1.00 per share (the "Series 1
Preferred Stock"), at a price of $10.00 per share for an aggregate principal
amount of Three Million Dollars ($3,000,000). The Series 1 Preferred Stock is
convertible into Common Stock of the Company, par value $1.00 per share (the
"Common Stock");
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as Exhibit A (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws; and
D. Contemporaneous with the execution of this Agreement and the
Registration Rights Agreement the parties hereto and Richard Osborne Trust,
Turkey Vulture Fund XIII, Ltd. and Liberty Self Stor, Ltd. (collectively, the
"Principal Stockholder") are executing and delivering a Stockholder Agreement
and Irrevocable Proxy, in the form attached hereto as Exhibit B (the
"Stockholders' Agreement"), pursuant to which the Investor and the Principal
Stockholder have agreed to certain Tag-Along Rights with respect to the
transfer and disposition of their shares and to certain voting arrangements in
connection with a Change of Control Transaction (as defined therein).
NOW, THEREFORE, the parties hereby agree as follows:
1. Purchase and Sale of Stock.
1.1. Sale and Issuance of Series 1 Preferred Stock.
(a) The Company shall adopt and file with the
Department of State of the State of New York on or before the Closing (as
defined below) the Amendment to the Certificate of Incorporation in the form
attached hereto as Exhibit C (the "Certificate of Amendment"). In order
to assist the parties in interpreting certain provisions of the Certificate of
Amendment, interpretive examples are attached hereto as Schedule A.
2
<PAGE>
(b) Subject to the terms and conditions of
this Agreement, the Investor, agrees to purchase at the Closing and the
Company agrees to sell and issue to the Investor at the Closing 300,000 shares
of the Company's Series 1 Preferred Stock at a price of $10.00 per share for
an aggregate purchase price of $3,000,000 (the "Purchase Price").
1.2. Closing. The purchase and sale of the Series 1
Preferred Stock under Article 1.1(b) shall take place at 9:00 a.m. pacific
standard time, on September 21, 1998 (the "Closing"). The Closing shall take
place at the offices of Gibson, Dunn & Crutcher LLP, Telesis Tower, One
Montgomery Street, San Francisco, California 94104, or at such other
time and place as the Company and the Investor mutually agree upon orally or
in writing. At the Closing, the Company shall deliver to the Investor a
certificate representing the Series 1 Preferred Stock and the Investor or the
Investor's designee shall deliver the Purchase Price to the Company by wire
transfer of immediately available funds to the Company, in accordance with the
Company's written wiring instructions attached hereto as Schedule B.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that, except as set forth on a
Schedule of Exceptions attached hereto as Schedule C which exceptions shall be
deemed to be representations and warranties as if made hereunder.
2.1. Organization: Good Standing; Qualification. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of New York and has all requisite corporate power and
authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify or be in good standing would have a material
adverse effect on its business.
2.2 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 Registration
Rights Agreement and the Stockholders' Agreement, the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale, and delivery of the Series 1
Preferred Stock being sold hereunder and the Common Stock issuable upon
conversion thereof has been taken or will be taken prior to the Closing, and
this Agreement, the Registration Rights Agreement and the Stockholders'
Agreement constitute valid and legally binding obligations of the Company,
enforceable in accordance with their 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.
2.3. Valid Issuance of Preferred and Common Stock. The
Series 1 Preferred Stock that is being purchased by the Investor hereunder,
when issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable and the Investor shall have good and marketable title to the
shares of Series 1 Preferred Stock free of any liens or restrictions (unless
created by the Investor) other than restrictions expressly set forth in this
Agreement, the Stockholders' Agreement or the Registration Rights Agreement.
Based in part upon the representations of the Investor in this Agreement, the
shares of Series 1 Preferred Stock will be issued in compliance with
applicable state and federal securities laws. The Common Stock issuable upon
conversion of the Series 1 Preferred Stock purchased under this Agreement has
been duly and validly reserved for issuance and, upon issuance in accordance
with the terms of the Certificate of Amendment, will be duly and validly
issued, fully paid, and nonassessable and issued in compliance with applicable
3
<PAGE>
state and federal securities laws and the Investor shall have good and
marketable title to the shares of Common Stock free of any liens or
restrictions (unless created by the Investor) other than restrictions
expressly set forth in this Agreement, the Stockholders' Agreement or the
Registration Rights Agreement.
2.4. Governmental Consents. No consent, approval, order or
authorization of, or filing with, any local, state, or federal governmental
authority is required on the part of the Company in connection with the
consummation of the transactions contemplated by this Agreement, except for
any filing required pursuant to the Securities Act and any applicable state
securities laws.
2.5. Capitalization and Voting Rights. As of the date of
this Agreement, the authorized capital of the Company consists of:
(i) Preferred Stock. Two Million (2,000,000) shares
of Preferred Stock (the "Preferred Stock"), of which Three Hundred Thousand
(300,000) shares have been designated Series 1 Preferred Stock and all of
which will be sold pursuant to this Agreement. The rights, privileges and
preferences of the Series 1 Preferred Stock will be as stated in the
Certificate of Amendment.
(ii) Common Stock. Ten Million (10,000,000) shares of
Common Stock, of which 3,933,536 shares are issued and outstanding.
(iii) All such issued and outstanding shares have been
duly authorized and validly issued and are fully paid and non-assessable and
no issued and outstanding shares are subject to pre-emptive rights created by
statute, the Certificate of Incorporation or Bylaws or any agreement to which
the Company is a party or by which the Company may be bound. All outstanding
shares of the Company's capital stock have been issued in compliance with
applicable federal and state securities laws.
(iv) The Company has reserved for issuance 204,175
shares of Common Stock pursuant to the Company's 1985 and 1996 Stock Option
Plans, of which, as of the date of this Agreement, options to purchase 171,175
shares were outstanding with a weighted average exercise price of $2.79 per
share and 33,000 shares remain available for issuance pursuant to options that
may be granted under the 1996 Stock Option Plan. Except for the shares of
Series 1 Preferred Stock to be issued pursuant to this Agreement or as set
forth on Schedule C there are no other options, warrants, conversion
privileges, preemptive rights, rights of first refusal or other contractual
rights presently outstanding or in existence to purchase or otherwise acquire
any authorized but unissued shares of the Company's capital stock or other
securities or capital stock or other securities of any subsidiary of the
Company.
(v) Except for the Registration Rights Agreement and
as disclosed on Schedule A, there are no agreements or arrangements under
which the Company is obligated to register the sale of any of its securities
under the Securities Act. Except as set forth on Schedule C, there are no
securities or instruments containing antidilution or similar provisions that
will be triggered by the issuance of the Series 1 Preferred Stock in
accordance with the terms of this Agreement.
2.6. Litigation. Except as disclosed in the SEC Documents
filed prior to the date hereof, there is no action, suit, proceeding or
investigation pending or currently threatened against the Company that
questions the validity of this Agreement or the right of the Company
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to enter into such agreement, or to consummate the transactions contemplated
hereby, or that might result, either individually or in the aggregate, in any
material adverse change in the assets, prospects or financial condition of the
Company, or in any material change in the current equity ownership of the
Company. The Company is not a party to, or to the best of its knowledge, named
in any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. There is no action, suit or proceeding by the
Company currently pending or that the Company currently intends to initiate.
2.7. Offering. Subject in part to the truth and accuracy of
the Investor's representations set forth in Section 3 of this Agreement, the
offer, sale and issuance of the Series 1 Preferred Stock as contemplated by
this Agreement are exempt from the registration requirements of the Securities
Act of 1933, as amended (the "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.
2.8. Disclosure. The Company has fully provided the Investor
with all the information that the Investor has requested for deciding whether
to purchase the Series 1 Preferred Stock and all information that the Company
believes is reasonably necessary to enable the Investor to make such decision.
To the best of the Company's knowledge, neither this Agreement, the
Registration Rights Agreement, the Stockholders' Agreement, nor any other
statements or certificates made or delivered in connection herewith or
therewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not
misleading.
2.9. Corporate Documents. Except for the Certificate
of Amendment, the Certificate of Incorporation and Bylaws of the Company are
in the form attached hereto as Section 2.9 of Schedule C.
2.10 SEC Documents. The Company has furnished to the
Investor prior to the date hereof copies of its Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 ("Form 10-K"), and
all other registration statements, reports and proxy statements filed by the
Company with the Securities and Exchange Commission ("Commission") on or after
December 31, 1997 (the Form 10-K and such registration statements,
reports and proxy statements, are collectively referred to herein as the "SEC
Documents"). Each of the SEC Documents, as of the respective date thereof, did
not, and each of the registration statements, reports and proxy statements
filed by the Company with the Commission after the date hereof and prior to
the Closing will not, as of the date thereof, contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statements made therein, in light of the circumstances under which they
were made, not misleading, except as may have been corrected in a subsequent
SEC Document. The Company is not a party to any material contract, agreement
or other arrangement which was required to have been filed as an exhibit to
the SEC Documents that is not so filed.
2.11 Environmental Matters. The Investor has been provided
with complete copies of the most recent environmental assessment, evaluation,
contamination or remediation reports regarding any of the Company's properties
which are in the Company's possession. To the knowledge of the Company, there
is no claim, action, cause of action, investigation or notice by any person or
entity against the Company or any of its properties alleging potential
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liability arising out or, or based on or resulting from (a) the presence or
release into the indoor or outdoor environment of any hazardous materials at
any location or (b) the violation of any federal, state or local laws or
regulations relating to pollution or protection of human health or the
environment, which individually or in the aggregate would have a material
adverse effect on the Company or its business.
2.12. Finder's Fees. The Company represents that it neither
is nor will be obligated for any finder's fee or commission in connection with
this transaction.
3. Representations and Warranties of the Investor. The
Investor hereby represents and warrants that:
3.1. Authorization. The Investor has full power and
authority to enter into this Agreement, the Registration Rights Agreement and
the Stockholders' Agreement, and such agreements constitute valid and legally
binding obligations of the Investor, enforceable in accordance with their
respective 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.
3.2. Purchase Entirely for Own Account. This Agreement is
made with the Investor in reliance upon the Investor's representation to the
Company, which by the Investor's execution of this Agreement the Investor
hereby confirms, that the Series 1 Preferred Stock to be purchased by the
Investor and the Common Stock issuable upon conversion thereof (collectively,
the "Securities") will be acquired for investment for the Investor's own
account, not as a nominee or agent, and not with a present view to the resale
or distribution of any part thereof, and that the Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. Except as contemplated by this Agreement, the Registration Rights
Agreement and the Stockholders' Agreement, the Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
3.3. Reliance upon Investor's Representations. The
Investor understands that the Series 1 Preferred Stock is not, and any Common
Stock acquired on conversion thereof at the time of issuance may not be,
registered under the 1933 Act on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
under the Securities Act pursuant to Regulation D and Section 4(2) thereof,
and that the Company's reliance on such exemption is predicated on the
Investor's representations set forth herein.
3.4. Receipt of Information. Such Investor believes it
has received all the information it considers necessary or appropriate for
deciding whether to purchase the Series 1 Preferred Stock. Such Investor
further represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering of
the Series 1 Preferred Stock and the business, properties, prospects and
financial condition of the Company and to obtain additional information (to
the extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to it or to which it had access. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
Section 2 of this Agreement or the right of the Investor to rely thereon.
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3.5. Investment Experience. The Investor represents that it
is experienced in evaluating and investing in securities of companies and
acknowledges that it can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series 1
Preferred Stock.
3.6. Accredited Investor or Relationship to the Company. The
Investor further represents to the Company that the Investor is an "Accredited
Investor" within the meaning of SEC Rule 501 of Regulation D, as
presently in effect.
3.7. Restricted Securities. The Investor understands that
(i) except as provided in the Registration Rights Agreement, the Securities
have not been and are not being registered under the Securities Act or any
state securities laws, and may not be transferred unless (a) subsequently
registered thereunder, or (b) the Investor shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect
that the Securities to be sold or transferred may be sold or transferred under
an exemption from such registration, or (c) sold under Rule 144
promulgated under the Securities Act (or a successor rule) ("Rule 144"),
or (d) sold or transferred to an affiliate of the Investor (which sale or
transfer shall be subject to the Company's consent which shall not be
unreasonably withheld); and (ii) neither the Company nor any other person is
under any obligation to register such Securities under the Securities Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement).
3.8. Legends. To the extent applicable, each certificate or
other document evidencing any of the Securities shall be endorsed with the
legends set forth below, and the Investor covenants that, except to the extent
such restrictions are waived by the Company, the Investor shall not transfer
the shares represented by any such certificate without complying with the
restrictions on transfer described in the legend endorsed on such certificate:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED
UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED"; and
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS OF THAT CERTAIN STOCKHOLDERS' AGREEMENT AND IRREVOCABLE PROXY, DATED
SEPTEMBER 21, 1998 BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES
(OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS CERTAIN
TAG-ALONG RIGHTS WITH RESPECT TO THE TRANSFER AND DISPOSITION OF THE SHARES
REPRESENTED BY THIS CERTIFICATE AND PROVIDES FOR CERTAIN VOTING ARRANGEMENTS.
THE COMPANY WILL, UPON REQUEST, FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER
HEREOF WITHOUT CHARGE."
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3.9. Finder's Fees. The Investor represents that it
neither is nor will be obligated for any finder's fee or commission in
connection with this transaction.
4. Conditions of Investor's Obligations at Closing. The
obligations of the Investor to effect the Closing are subject to the
fulfillment on or before the Closing of each of the following conditions,:
4.1. Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall have been true when
made and be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
4.2. Performance. The Company shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or
before the Closing.
4.3. Qualification. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
issuance and sale of the Securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing,
4.4. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents incident thereto shall be reasonably satisfactory in form
and substance to the Investor.
4.5. Registration Rights Agreement. The Company shall
have executed and delivered the Registration Rights Agreement.
4.6. Stockholders' Agreement. The Company and the Principal
Stockholder shall have executed and delivered the Stockholders' Agreement.
5. Conditions of the Company's Obligations at Closing. The
obligations of the Company to effect the Closing are subject to the
fulfillment on or before the Closing of each of the following conditions by
the Investor:
5.1. Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 shall have been true when
made and be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing.
5.2 Qualifications. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
issuance and sale of the Securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
5.3. Payment of Purchase Price. The Investor shall have
delivered the purchase price as specified in Section 1.1.
5.4. Registration Rights Agreement. The Investor shall
have executed and delivered the Registration Rights Agreement.
5.5. Stockholders' Agreement. The Investor and the Principal
Stockholder shall have executed and delivered the Stockholders' Agreement.
6. Covenants of Company. The Company covenants and agrees with the
Investor as follows:
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6.1 Board Representation. For as long as the Investor
or its Affiliates holds at least 100,000 shares of Series 1 Preferred Stock or
Common Stock (subject to adjustment to reflect any stock split, reverse stock
split, stock dividend, combination of shares, reclassification of shares and
the like), the Investor will be entitled to one representative on the Board of
Directors and the Company will use its best efforts to assure the election of
the Investor's chosen representative to the Board of Directors at the earlier
of the next scheduled meeting of the Board of Directors or the Annual
Stockholders' Meeting and to provide such director with the same director and
officers insurance and indemnification arrangement as are provided to other
members of the Board of Directors. In the event that such chosen
representative is not so elected, such person shall be entitled to receive
notices of and attend all meetings of the Board of Directors as a
non-participating observer and to receive copies of all materials distributed
to the members of the Company's Board of Directors at the time such materials
are so distributed.
6.2 Termination of Standstill. At the Closing, GEM Value,
Inc. will cease to be subject to the standstill provisions contained in the
tenth and eleventh paragraphs of the Confidentiality Agreement dated June 29,
1998, between the Company and GEM Value, Inc. (the "Confidentiality
Agreement"); provided, however, that all other provisions of the
Confidentiality Agreement will remain in full force and effect in accordance
with their terms.
6.3 Exemption from Ownership Limit.
(a) In reliance upon the representations, warranties, and
covenants of the Investor contained in Section 7.3 hereof, pursuant to
subparagraph (A)(9) of Article VI of the "Maryland Articles" (as defined in
Section 7.1 hereof), the Company agrees that it will exempt the Investor and
GEM Value Fund L.P. ("GEM") from the restrictions on ownership contained in
subparagraph (A)(2)(b) of Article VI of the Maryland Articles such that GEM
may own 101,700 shares of Common Stock of the "Maryland Company" (as defined
in Section 7.1 hereof) and the Investor or GEM may own 300,000 shares of
Series 1 Preferred Stock of the Maryland Company. Such exemptions shall be
granted to the Investor and GEM only, and shall not be assignable to any other
person or entity (including, without limitation, successors and assigns of the
Investor or GEM).
(b) If at any time and each time that there is a breach of
any covenant contained in Section 7.3(a) hereof, and as a result of such
breach (but for the provisions of this Section 6.3(b)), the Company would be
"closely held" within the meaning of Section 856(h) of the Internal Revenue
Code of 1986, as amended (the "Code"), then the exemption granted in Section
6.3(a) hereof shall, as of the close of business on the business day prior to
the date of such breach, cease to be effective, and any shares of the
Company's capital stock owned by the Investor or GEM shall be subject to
subparagraph (A)(2)(b) of Article VI of the Maryland Articles. Notwithstanding
anything herein to the contrary, if at any time and each time the exemption
granted in Section 6.3(a) so ceases to be effective, it shall cease to be
effective only to the extent necessary such that the Company would not be
"closely held." If at any time and each time that the exemption granted in
Section 6.3(a) hereof so ceases to be effective, the Investor or GEM own both
shares of Common Stock and shares of Series 1 Preferred Stock of the Company,
subparagraph (A)(2)(b) of Article VI of the Maryland Articles shall apply to
such shares pro rata based on the proportion that the fair market value of the
shares of each class of stock bears to the total fair market value of the
shares of such class of stock owned by the Investor or GEM.
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7. Covenants of the Investor. The Investor covenants and agrees with
the Company as follows:
7.1 Approval of REIT Conversion. The Investor acknowledges
that it has received and reviewed, in connection herewith, a draft of the
Company's preliminary Proxy Statement containing a proposal by the Board of
Directors to convert the Company to a real estate investment trust ("REIT") by
reincorporating the Company as a Maryland corporation (the "Maryland
Reincorporation") and making the appropriate elections under federal tax laws.
The Investor understands that to effect the Reincorporation, the existing
Company, currently organized as a corporation under the laws of New York (the
"New York Company"), will be merged into a new corporation organized under the
laws of Maryland (the "Maryland Company") (the "Merger"), pursuant to an
Agreement and Plan of Merger by and between the New York Company and the
Maryland Company. When the Merger becomes effective, (i) the New York
Company will cease to exist, (ii) the Maryland Company will succeed, to
the fullest extent permitted by law, to all of the business, assets and
liabilities of the New York Company, and (iii) each share of Common
Stock of the New York Company will be converted automatically into one share
of common stock of the Maryland Company, and each share of Series 1 Preferred
Stock of the New York Company will be converted automatically into one share
of Series 1 Preferred Stock of the Maryland Company (the "Maryland Series 1
Preferred Stock"). As a result of the Merger, to the extent that the Investor
holds shares of Series 1 Preferred Stock the Investor will become a holder of
Maryland Series 1 Preferred Stock subject to the rights, privileges and
restrictions substantially in the form contained in the draft Articles of
Incorporation (the "Maryland Articles") and Bylaws (the "Maryland Bylaws") of
the Maryland Company, drafts of which have previously been provided to the
Investor by the Company. The Investor hereby agrees to approve the
Reincorporation by voting its shares of Series 1 Preferred Stock in favor of
the Maryland Reincorporation, including the Maryland Articles and Bylaws, upon
substantially the terms and conditions set forth in the draft Proxy Statement.
7.2. Waiver of Liquidation Rights. The Investor hereby
waives its liquidation rights, with respect to the Maryland Reincorporation,
pursuant to Article IV, Section (d)(3) of the Certificate of Amendment, as
amended.
7.3. REIT Representations, Warranties and Covenants. The
Investor hereby represents and warrants that, as of the date hereof, and
covenants (except in the case of Section 7.3(b) below) that, from and after
the effective time of the Maryland Reincorporation:
(a) For purposes of Sections 7.3(b)-(j), the
term "Investor" shall include GEM.
(b) No entity or individual "Beneficially Owns"
or "Constructively Owns" (as defined below), or in the future will
Beneficially or Constructively Own, twenty-five percent (25%) or more of the
capital or profits interests of any direct member or partner of the Investor.
The Investor is and will be taxable as a partnership for federal income tax
purposes and not as a corporation or association taxable as a corporation.
(c) On the date of the Closing, the Investor
will not be "closely held" within the meaning of Section 856(h) of the Code,
determined as though the Investor were a corporation, trust, or association
(i) that had elected to be treated as a real estate
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investment trust under Section 856 of the Code and (ii) without regard
to Section 856(h)(2) of the Code. Within ten (10) business days of the
date of any reasonable request from the Company, for so long as the Investor
owns any shares of capital stock of the Company, the Investor will inform the
Company in writing of whether the Investor is "closely held" (as defined in
this Section 7.3(b)) determined as of the date of the Company's request.
(d) From and after the first day of the Company's
first taxable year as a REIT under Section 856 et. seq. of the Code until such
time as the Investor no longer owns any of the capital stock of the Company,
the Investor's ownership in the Company does not and will not cause the
Company to Constructively Own more than 9.8% of the stock or the "Ownership
Interests" (as defined below) in any tenant (a "Tenant") (within the meaning
of Section 856(d)(2)(B) of the Code) (determined without regard to
interests in any such Tenant that the Company may actually or Constructively
Own other than as a result of the Investor's actual or Constructive Ownership
in the Company) from whom the Company, directly or indirectly receives or is
expected to receive "rents from real property" (as such term is defined in
Section 856(d) of the Code (for purposes of applying Sections 856(c)(2) and
(3) of the Code)) if such ownership would cause the Company to fail to satisfy
any of the gross income requirements of Section 856(c) of the Code.
(e) The Investor will promptly inform the Company
if the Investor has knowledge of any facts or circumstances which would make
the statements contained in Section 7.3(d) incorrect. Furthermore,
within ten (10) business days of the date of any reasonable written request
from the Company, for so long as the Investor owns any shares of capital stock
of the Company, the Investor will inform the Company in writing of whether it
actually or Constructively Owns one percent (1%) or more of any Tenant
described in such request.
(f) The term "Constructively Owns" refers to
stock or Ownership Interests which the Investor (or another individual or
entity) actually owns, as well as stock or Ownership Interests which the
Investor (or another individual or entity) is considered to own through the
application of Section 318 of the Code, as modified by Section 856(d)(5) of
the Code.
(g) The term "Beneficially Owns" refers to stock
or an Ownership Interest that the Investor (or another individual or entity)
actually owns, as well as stock or Ownership Interests that the Investor (or
another individual or entity) is considered to own through the application of
Section 544 of the Code, as modified by Section 856(h) of the Code.
(h) The term "Ownership Interest" refers to any
type of ownership interest in either assets or net profits of an entity other
than a corporation.
(i) The Investor understands that the exemption
from the Ownership Limit referred to in Section 6.3 hereof shall cease to be
effective as provided in Section 6.3 hereof. If such exemption ceases to be
effective, the Investor may lose any current or future right or interest to
the number of shares of capital stock Beneficially or Constructively Owned by
the Investor in violation of subparagraph (A)(2)(a) of Article VI of the
Maryland Articles (the "Excess Shares") and (c) such Excess Shares will
be transferred to a trust (or otherwise subject to subparagraph (A)(2)(b)
of Article VI of the Maryland Articles) all in accordance
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with Section 6.3 hereof. The Investor further understands that such exemption
is not assignable to any other person or entity (including, without
limitation, successors and assigns of the Investor).
(j) The Investor understands that shares of
capital stock acquired from the Investor by any transferee of the Investor in
an amount in violation of subparagraph (A)(2)(a) of Article VI of the Maryland
Articles may be transferred to a trust (or the transfer of such shares to the
transferee may be void ab initio) under subparagraph (A)(2)(b) of Article VI
of the Maryland Articles unless a waiver of those provisions is received from
the Company pursuant to subparagraph (A)(9) of Article VI of the Maryland
Articles.
8. Miscellaneous.
8.1. Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
8.2. Survival of Warranties; Indemnification. The
warranties, representations and covenants of the Company and the Investor
contained in or made pursuant to this Agreement shall survive the execution
and delivery of this Agreement and the Closing for a period of one year,
except that the representations and warranties contained in Section 2.2, 2.3,
and 3.1, and the covenants contained in Section 7.3 shall survive
indefinitely. Subsequent to the Closing (i) the Company shall indemnify and
hold harmless Investor from and against any liability. loss or damage,
together with all reasonable costs or expenses related thereto, including
reasonable attorney's fees and expenses (collectively, "Losses"), actually
suffered or incurred by Investor to the extent such Losses arise out of or
result from the untruth and inaccuracy of any of the representations and
warranties of the Company contained herein and (ii) Investor shall indemnify
and hold harmless the Company from and against any Losses actually suffered or
incurred by the Company and arising out of or resulting from the untruth and
inaccuracy of any of the representations and warranties of Investor contained
herein.
(a) The expiration of the applicable survival period set
forth above shall not effect any claim for indemnification under this Section
8.2 if written notice of a claim for indemnification has been delivered by the
person seeking indemnification (the "Indemnitee") to the person from whom
indemnification is sought (the "Indemnitor") with respect to breaches of such
representation and warranties before the expiration of the applicable survival
period set forth above. All notices given pursuant to this subsection (a)
shall set forth with reasonable specificity the basis for the claim for
indemnification and the amount of Losses with respect to such claim.
(b) The indemnification rights under this Section 8.2 shall
be the exclusive remedy available to the parties subsequent to the Closing
Date with respect to any untruth or inaccuracy in any of the representations
and warranties contained in this Agreement.
8.3. Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including, without limitation, the Maryland Company and permitted transferees
of any shares of Series 1 Preferred Stock sold hereunder or any Common Stock
issued upon conversion thereof). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
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their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Notwithstanding the foregoing, this Agreement may not be
assigned by any party hereto except that Investor may assign its rights and
obligations under this Agreement to any affiliate (as defined under the
Securities Act), limited partner or investors of Investor, provided, that any
such assignment shall not relieve Investor of any of its obligations hereunder
or under the Stockholders Agreement or Registration Rights Agreement.
8.4. Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California, as applied to agreements
among residents of the State of California entered into and to be performed
entirely within the State of California, irrespective of choice-of-law
principles of the State of California.
8.5. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
8.6. Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.7. Notices. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be
deemed effective upon personal delivery to the party to be notified by hand or
professional courier service or ten (10) days after deposit with the United
States Post Office, by registered or certified mail, postage prepaid and
addressed to the party to be notified at the address indicated for such party
on the signature page hereof, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
8.8. Expenses. Irrespective of whether the Closing is
effected, each party will be exclusively responsible to pay all its own costs
and expenses with respect to the negotiation, execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Stockholders' Agreement.
8.9. Amendments and Waivers. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.
Any amendment or waiver affected in accordance with this paragraph shall be
binding upon each holder of any securities purchased under this Agreement at
the time outstanding (including securities into which such securities have
been converted), each future holder of all such securities, and the Company.
8.10. Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms.
8.11. Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
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8.12 No Personal Liability. Nothing in this Agreement
shall be deemed to impose any personal liability on the part of an officer,
director, shareholder, partner, member, manager or employee of the Investor or
the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
PACIFIC GATEWAY PROPERTIES, INC.
By: /s/ Raymond V. Marino
-------------------------
Raymond V. Marino
President and Chief Executive Officer
Address: 930 Montgomery Street, Suite 400
San Francisco, California 94133
INVESTOR:
GEM VALUE/PGP LLC
By: GEM Value Partners, L.L.C.,
Its Managing Member
By: /s/ Michael A. Elrad
-------------------------
Name: Michael A. Elrad
Title: Executive Vice President
Address: 900 North Michigan Avenue, Suite 1900
Chicago, Illinois 60611-1575
14
PACIFIC GATEWAY PROPERTIES, INC.
REGISTRATION RIGHTS AGREEMENT
September 21, 1998
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1..........................................................1
Restrictions on Transferability of Securities;.....................1
1.1. Certain Definitions...................................1
1.2. Requested Registration................................2
1.3. Company Registration..................................5
1.4. Expenses of Registration..............................6
1.6. Registration Procedures...............................6
1.7. Indemnification.......................................7
1.7. Information by Holder................................10
1.8. Limitations on Registration of Issues of Securities..10
1.9. Rule 144 Reporting...................................10
1.10. Transfer or Assignment of Registration Rights.......10
1.11. "Market Stand-Off" Agreement........................11
1.12. Delay of Registration...............................11
1.13. Exclusion from Registration.........................11
1.14. Allocation of Registration Opportunities............12
SECTION 2........................................................13
Miscellaneous.....................................................13
2.1. Governing Law........................................13
2.2. Successors and Assigns...............................13
2.3. Entire Agreement; Amendment; Waiver..................13
2.4. Notices, etc.........................................13
2.5. Separability.........................................13
2.6. Information Confidential.............................13
2.7. Titles and Subtitles.................................14
2.8. Counterparts.........................................14
i
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 21st day of
September 1998, by and among Pacific Gateway Properties, Inc., a New York
corporation (the "Company"), and the undersigned investor (the "Investor")
WHEREAS, the Company and the Investor are parties to the Series 1
Preferred Stock Purchase Agreement of even date herewith (the "Series 1
Purchase Agreement"); and
WHEREAS, in order to induce the Company to enter into the Series 1
Purchase Agreement and to induce the Investor to invest funds in the
Company pursuant to the Series 1 Purchase Agreement, the Investor and the
Company hereby agree that this Agreement shall govern the rights of the
Investor to cause the Company to register shares of Common Stock issuable
to the Investor and certain other matters as set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the parties hereby agree as follows:
SECTION 1
Restrictions on Transferability of Securities;
Registration Rights
1.1. Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
(a) "Closing" shall mean the date of the initial sale of
shares of the Company's Series 1 Preferred Stock.
(b) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act.
(c) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, or any similar successor federal statute and the rules
and regulations thereunder, all as the same shall be in effect from time to
time.
(d) "Holder" shall mean the Investor and any holder of
Registrable Securities to whom the registration rights conferred by this
Agreement have been transferred in compliance with Section 1.11
hereof.
(e) "Initiating Holders" shall mean any Holder or Holders
of the outstanding Registrable Securities. For purposes of such
calculation, holders of Shares shall be considered to hold the shares of
Common Stock then issuable upon conversion of such Shares.
(f) "Investors" shall mean the Investor and any
transferees or assignees who agree to become bound by the provisions of
this Agreement in accordance with the provisions of Section 1.11.
(g) "Registrable Securities" shall mean (i) shares
of Common Stock issued or issuable pursuant to the conversion of the Shares
and (ii) any Common Stock issued as a dividend or other distribution
with respect to or in exchange for or in replacement of the shares
referenced in (i) above, provided, however, that Registrable Securities
shall not include any shares of Common Stock that are freely tranferable
without registration.
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(h) The terms "register," "registered" and "registration"
shall refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act and applicable
rules and regulations thereunder, and the declaration or ordering of the
effectiveness of such registration statement.
(i) "Registration Expenses" shall mean all expenses
incurred in effecting any registration pursuant to this Agreement,
including, without limitation, all registration, qualification and filing
fees, printing expenses, escrow fees, fees and disbursements of counsel for
the Company, blue sky fees and expenses, expenses of any regular or special
audits incident to or required by any such registration, but shall not
include Selling Expenses.
(j) "Rule 144" shall mean Rule 144 as
promulgated by the Commission under the Securities Act, as such Rule
may be amended from time to time, or any similar successor Rule
that may be promulgated by the Commission.
(k) "Rule 145" shall mean Rule 145 as
promulgated by the Commission under the Securities Act, as such Rule
may be amended from time to time, or any similar successor Rule
that may be promulgated by the Commission.
(1) "Securities Act" shall mean the Securities Act of
1933, as amended, or any similar successor federal statute and the rules
and regulations thereunder, all as the same shall be in effect from time to
time, corresponding to such Act.
(m) "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities and all fees and disbursements of counsel for any Holder (other
than the fees and disbursements of counsel included in Registration
Expenses).
(n) "Shares" shall mean the Company's Series 1
Preferred Stock,
1.2. Requested Registration.
(a) Request for Registration. If the Company shall
receive from Initiating Holders at any time, a written request specifying
that it is made pursuant to this Section 1.2 that the Company effect
a registration with respect to all or a part of the Registrable Securities
having a reasonably anticipated aggregate offering price, net of
underwriting discounts and commissions, that exceeds $2,000,000, the
Company will:
(i) promptly give written notice of the
proposed registration to all other Holders; and
(ii) as soon as practicable, use its diligent
best efforts to effect such registration (including, without limitation,
filing post-effective amendments, appropriate qualifications under
applicable blue sky or other state securities laws and appropriate
compliance with the Securities Act) as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request as
are specified in a written request received by the Company within twenty
(20) days after such written notice from the Company is effective.
The Company shall not be obligated to effect, or to take any
action to such registration pursuant to this Section 1.2:
(A) In any particular jurisdiction
in which the Company would be required to execute a general consent to
service of process in effecting such registration, qualification or
compliance, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act;
(B) During the period starting with
the date sixty (60) days prior to the Company's good faith estimate of the
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date of filing of, and ending on a date one hundred eighty (180) days after
the effective date of, a registration pursuant to Section 1.3 hereof;
provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become
effective;
(b) Subject to the foregoing clauses (A) and (B), the
Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Initiating Holders; provided,
however, that if (i) in the good faith judgment of the Board of
Directors of the Company, such registration would be seriously detrimental
to the Company and the Board of Directors of the Company concludes, as a
result, that it is essential to defer the filing of such registration
statement at such time, and (ii) the Company shall furnish to such
Holders a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company for such registration
statement to be filed in the near future and that it is, therefore,
essential to defer the filing of such registration statement, then the
Company shall have the right to defer such filing for the period during
which such disclosure would be seriously detrimental, provided, that the
Company may not defer the filing for a period of more than one hundred
twenty (120) days after receipt of the request of the Initiating Holders,
and, provided further, that (except as provided in clause (a) above) the
Company shall not defer its obligation in this manner more than once in any
twelve-month period.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Sections 1.2(d), 1.14
and 1.15 hereof, include other securities of the Company and may include
securities of the Company being sold for the account of the Company.
(c) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of
an underwriting, they shall so advise the Company as a part of their
request made pursuant to Section 1.2 and the Company shall include
such information in the written notice referred to in Section 1.2(a)(i)
above. The right of any Holder to registration pursuant to
Section 1.2 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting (unless otherwise mutually agreed by a majority in
interest of the Initiating Holders and such Holder with respect to such
participation and inclusion) to the extent provided herein.
(d) Procedures. If the Company shall request inclusion in
any registration pursuant to Section 1.2 of securities being sold for
its own account, or if other Holders shall request inclusion in any
registration pursuant to Section 1.2, the Initiating Holders shall,
on behalf of all Holders, offer to include such securities in the
underwriting and may condition such offer on their acceptance of the
further applicable provisions of this Section 1. The Company shall
(together with all Holders proposing to distribute their securities through
such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders, which underwriter(s) shall be reasonably acceptable to the
Company. Notwithstanding any other provision of this Section 1.2, if
the representative of the underwriters advises the Initiating Holders in
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<PAGE>
writing that marketing factors require a limitation on the number of shares
to be underwritten, the number of shares to be included in the underwriting
or registration shall be allocated as set forth in Sections 1.14 and 1.15
hereof. If a Holder who has requested inclusion in such registration as
provided above does not agree to the terms of any such underwriting, such
Holder shall be excluded therefrom by written notice from the Company, the
underwriter or the Initiating Holders. The securities so excluded shall
also be withdrawn from registration. Any Registrable Securities or other
securities excluded shall also be withdrawn from such registration. If
shares are so withdrawn from the registration and if the number of shares
to be included in such registration was previously reduced as a result of
marketing factors pursuant to this Section 1.2(d), then the Company shall
offer to all Holders who have retained rights to include securities in the
registration the right to include additional securities in the registration
in an aggregate amount equal to the number of shares withdrawn, with such
shares to be allocated among such Holders requesting additional inclusion
in accordance with Section 1.15.
1.3. Company Registration.
(a) If the Company shall determine to register any of its
securities either for its own account or the account of a security holder
or holders exercising their respective demand registration rights (other
than pursuant to Section 1.2 hereof), other than a registration
relating solely to employee benefit plans, or a registration relating
solely to a Commission Rule 145 transaction, or a registration on any
registration Form which does not permit secondary sales, the Company will:
(i) promptly give to each Holder written
notice thereof; and
(ii) use its best efforts to include in such
registration (and any related qualification under blue sky laws or other
compliance), except as set forth in Section 1.3(b) below, and in any
underwriting involved therein, all the Registrable Securities specified in
a written request or requests, made by any Holder within twenty (20) days
after the written notice from the Company described in clause (i) above is
effective. Such written request may specify all or a part of a Holder's
Registrable Securities.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the
written notice given pursuant to Section 1.3(a)(i). In such event the
right of any Holder to registration pursuant to Section 1.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company and
the holders of other securities of the Company distributing their
securities through such underwriting) enter into an underwriting agreement
in customary form with the representative of the underwriter or
underwriters selected by the Company.
Notwithstanding any other provision of this Section 1.3, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the limitations set forth
below) exclude all Registrable Securities from, or limit the number of
Registrable Securities to be included in, the registration and
underwriting. The Company shall so advise all Holders of securities
requesting registration, and the number of shares of securities that are
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<PAGE>
entitled to be included in the registration and underwriting shall be
allocated as set forth in Sections 1.14 and 1.15. If any Holder does not
agree to the terms of any such underwriting, such Holder shall be excluded
therefrom by written notice from the Company or the underwriter. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
If shares are so withdrawn from the registration or if the number
of shares of Registrable Securities to be included in such registration was
previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include securities in
the registration the right to include additional securities in the
registration in an aggregate amount equal to the number of shares so
withdrawn, with such shares to be allocated among the persons requesting
additional inclusion in accordance with Section 1.15 hereof.
1.4. Expenses of Registration. All Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant
to Section 1.3 hereof shall be borne by the Company. All Registration
Expenses incurred in connection with any registration, qualification or
compliance pursuant to Section 1.2 hereof shall be borne by the
Company; provided, however, that for the two year period commencing on the
date of the Closing, all Registration Expenses incurred pursuant to Section
1.2 shall be shared equally between the Company and the Initiating Holders.
All Selling Expenses relating to securities so registered shall be borne by
the holders of such securities.
1.5. Registration Procedures. In the case of each registration
effected by the Company pursuant to Section 1, the Company will keep
each Holder advised in writing as to the initiation of each registration
and as to the completion thereof. At its expense, the Company will use its
best efforts to:
(a) Keep such registration effective for a period of
ninety (90) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs; provided, however, that (i) such 90-day period
shall be extended for a period of time equal to the period the Holder
refrains from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other securities) of the
Company; and (ii) in the case of any registration of Registrable Securities
on Form S-3 which are intended to be offered on a continuous or
delayed basis, such 120-day period shall be extended, if necessary, to keep
the registration statement effective until all such Registrable Securities
are sold, provided that Rule 415, or any successor Rule under
the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act
governing the obligation to file a post-effective amendment permit, in lieu
of filing a post-effective amendment which (I) includes any prospectus
required by Section 10(a)(3) of the Securities Act or (II) reflects
facts or events representing a material or fundamental change in the
information set forth in the registration statement, the incorporation by
reference of information required to be included in (I) and (II) above to
be contained in periodic reports filed pursuant to Section 13 or
15(d) of the Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
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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;
(c) Furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to the
prospectus, as a Holder from time to time may reasonably request;
(d) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which
similar securities issued by the Company are then listed;
(e) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for
all such Registrable Securities, in each case not later than the effective
date of such registration;
(f) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first month after the effective date of
the Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(g) In connection with any underwritten offering pursuant
to a registration statement filed pursuant to Section 1.2 hereof, the
Company will enter into an underwriting agreement reasonably necessary to
effect the offer and sale of Common Stock, provided such underwriting
agreement contains customary underwriting provisions and provided further
that if the underwriter so requests the underwriting agreement will contain
customary contribution provisions.
(h) Furnish, at the request of any Holder, on the date
that the Common Stock is delivered to the underwriters for sale in
connection with a registration being sold through underwriters, (i)
an opinion, if any, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance
as is customarily given to underwriters in an underwritten public offering,
addressed to the underwriters and to the Holders and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
1.6. Indemnification.
(a) The Company will indemnify each Holder, each of its
officers, directors, employees, affiliates and partners, legal counsel and
accountants and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement,
and each underwriter, if any, and each person who controls within the
meaning of Section 15 of the Securities Act any underwriter, against
all expenses, claims, losses, damages and liabilities (or actions,
proceedings or settlements in respect thereof) arising out of or based on
any untrue statement of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission to state therein
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a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of the
Securities Act or any Rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and
will reimburse each such Holder, each of its officers, directors,
employees, affiliates, partners, legal counsel and accountants and each
person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending or
settling any such claim, loss, damage, liability or action, provided that
the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission based upon written information furnished to
the Company by such Holder or underwriter and stated to be specifically for
use therein. It is agreed that the indemnity agreement contained in this
Paragraph 1.6(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 has not been
unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each
of its directors, officers, employees, affiliates, partners, legal counsel
and accountants and each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the
Company or such underwriter within the meaning of Section 15 of the
Securities Act, each other such Holder and each of their officers,
directors, employees, affiliates and partners, and each person controlling
such Holder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and
such Holders, directors, officers, employees, affiliates, partners, legal
counsel and accountants, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such
untrue statement or omission is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder
specifically for inclusion therein; provided, however, that the obligations
of such Holder hereunder (i) shall not apply to amounts paid in
settlement of any such claims, losses, damages or liabilities (or actions
in respect thereof) if such settlement is effected without the consent of
such Holder (which consent shall not be unreasonably withheld), and (ii)
shall be limited in amount to the net proceeds received by such Holder
from the sale of shares pursuant to such registration, qualification or
compliance.
(c) Any person entitled to indemnification hereunder (an
"Indemnified Party") will (i) give prompt written notice to the party
required to provide indemnification (an "Indemnifying Party") of any claim
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with respect to which it seeks indemnification and (ii) permit such
Indemnifying Party to assume the defense of such claim with counsel
reasonably satisfactory to the Indemnified Party, provided, however, that
any person entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such claim,
but the fees and expenses of such counsel shall be at the expense of such
person unless (x) the Indemnifying Party has agreed in writing to pay such
fees or expenses, or (y) the Indemnifying Party shall have failed to assume
the defense of such claim and employ counsel reasonably satisfactory to
such person or (z) in the reasonable judgment of any such person and the
Indemnifying Party, based upon advice of their respective counsel, a
conflict of interest may exist between such person and the Indemnifying
Party with respect to such claim (in which case, if the person notifies the
Indemnifying Party in writing that such person elects to employ separate
counsel at the expense of the Indemnifying Party, the Indemnifying Party
shall not have the right to assume the defense of such claim on behalf of
such person). If such defense is not assumed by the Indemnifying Party, the
Indemnifying Party will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably
withheld). No Indemnifying Party shall consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the Indemnified Party of
a release from all liability in respect to such claim or litigation without
the consent of the Indemnified Party. The failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 1.7 unless the Indemnifying Party is
materially prejudiced thereby. An Indemnifying Party who is not entitled
to, or elects not to, assume the defense of a claim will not be obligated
to pay the fees and expenses of more than one counsel for all parties
indemnified by such Indemnifying Party with respect to such claim, unless
in the reasonable judgment of any Indemnified Party a conflict of interest
may exist between such Indemnified Party and any other of such Indemnified
Parties with respect to such claim, in which event the Indemnifying Party
shall be obligated to pay the fees and expenses of such additional counsel
or counsels. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting
therefrom
(d) If the indemnification provided for in this
Section 1.6 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
which 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 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.
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(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
1.7. Information by Holder. Each Holder of Registrable Securities
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request
and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.8. Limitations on Registration of Issues of Securities. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of a majority in interest of the Holders, enter into any
agreement with any holder or prospective holder of any securities of the
Company giving such holder or prospective holder any registration rights
the terms of which are superior to the rights of the Holders hereunder or
which grant such holder or prospective holder demand registration rights
exercisable prior to those of the Holders under Section 1.2 hereof.
1.9. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may
permit the sale of the Restricted Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available as those
terms are understood and defined in Rule 144 under the Securities
Act, at all times from and after ninety (90) days following the effective
date of the first registration under the Securities Act filed by the
Company for an offering of its securities to the general public;
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities
Act and the Exchange Act at any time after it has become subject to such
reporting requirements;
(c) So long as a Holder owns any Restricted Securities,
furnish to the Holder forthwith upon written request a written statement by
the Company as to its compliance with the reporting requirements of Rule
144 (at any time from and after ninety (90) days following the effective
date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed as a
Holder may reasonably request m availing itself of any Rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
1.10. Transfer or Assignment of Registration Rights. The rights to
cause the Company to register Registrable Securities granted to a Holder by
the Company pursuant to this Section 1 may be transferred or assigned
by a Holder to (i) any transferee or assignee of not less than
175,000 shares of Registrable Securities (as presently constituted and
subject to subsequent adjustments for stock splits, stock dividends,
reverse stock splits and the like), (ii) any constituent partner or
member of a partnership or limited liability company Holder, respectively,
(iii) any subsidiary or parent of a corporate Holder, (iv) any
9
<PAGE>
person, trust or other entity if beneficial ownership or the power to vote or
dispose of the Registrable Securities resides in the same person or persons
after the transfer as immediately prior to such transfer or (v) any Holder to
whom rights have been transfered pursuant to clauses (i) through (iv);
provided, however, that the Company is given written notice at the time of or
within a reasonable time after such a transfer or assignment, stating the name
and address of said transferee or assignee and identifying the Securities with
respect to which such registration rights are being transferred or assigned,
and provided further that the transferee or assignee of such rights assumes in
a written instrument provided to the Company the obligations of such Holder
under this Section 1. For purposes of clause (iv) of the foregoing sentence,
where two or more persons share beneficial ownership or power to vote or
dispose of Registrable Securities and such persons take as transferees a
distributive share equal to all or less than all of the Registrable Securities
to which they shared voting or dispositive power prior to the transfer, with
respect to each such person beneficial ownership or the power to vote or
dispose of the Registrable Securities held by them shall be deemed to reside
in the same person as prior to the transfer. In addition, subject to the
approval of the Board of Directors in its sole discretion, the right to cause
the Company to register Registrable Securities granted to a Holder pursuant to
this Section 1 hereof may be assigned or transferred by a Holder to any other
transferee who is an affiliated person or entity of a Holder where such
transfer is of the type intended to be permitted by this Section 1.10. Any
transferee or assignee under the foregoing sentence must assume in a written
instrument provided to the Company the obligations of the transferring Holder
under this Section 1.
1.11. "Market Stand-Off" Agreement. If requested by the Company
and an underwriter of Common Stock (or other securities) of the Company, an
Investor shall not sell or otherwise transfer or dispose of any Common
Stock (or other securities) of the Company held by such Investor (other
than those included in the registration) through the facilities of any
national securities exchange or inter-dealer quotation system including
sales pursuant to Rule 144 during the one hundred eighty (180) day period
following the effective date of a registration statement of the Company
filed under the Securities Act, provided that all officers and directors of
the Company enter into similar agreements.
The obligations described in this Section 1.11 shall not
apply to a registration relating solely to employee benefit plans on
Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule
145 transaction on Form S-4 or similar forms which may be
promulgated in the future. The Company may impose stop-transfer
instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day
period.
1.12. Delay of Registration. No Holder shall have any right to
take any action to restrain, enjoin, or otherwise delay any registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.13. Termination of Registration Rights. The right of any Holder
to request registration or inclusion in any registration pursuant to this
Agreement shall terminate on the date on which all shares of Registrable
Securities held or entitled to be held upon conversion by such Holder may
immediately be sold under Rule 144 during any ninety (90) day period.
10
<PAGE>
1.14. Exclusion from Registration. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in any offering involving an underwriting 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, then 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) but
in no event shall (i) the amount of securities of the selling Holders included
in the offering be reduced below the greater of (A) thirty percent (30%) of
the total amount of securities included in such offering or (B) the total
percentage ownership of Investor in the outstanding Common Stock of the
Company assuming the full conversion of the Series 1 Preferred Stock, (ii) any
shares that a Holder of Registrable Securities wishes to include in the
offering be excluded from such offering until all of the shares that selling
shareholders who are not Holders of Registrable Securities wish to include in
such offering have been excluded from such offering, or (iii) notwithstanding
(i) and (ii) above, any shares being sold by a Holder exercising a
registration right granted in Section 1.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder which is a Holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders of
such holder, or the estates and family members of any such partners and
retired partners and any trusts for the benefit of any of the foregoing
persons shall be deemed to be a single "selling 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.
1.15. Allocation of Registration Opportunities. In any
circumstance in which all of the Registrable Securities requested to be
included in a registration on behalf of the Holders cannot be so included
as a result of limitations of the aggregate number of shares of Registrable
Securities which may be so included, the number of shares of Registrable
Securities to be included shall be allocated among the Holders requesting
inclusion of shares pro rata on the basis of the number of shares of
Registrable Securities that would be held by such Holders, assuming
conversion; provided, however, that, so that such allocation shall not
operate to reduce the aggregate number of Registrable Securities to be
included in such registration, if any Holder does not request inclusion of
the maximum number of shares of Registrable Securities allocated to him
pursuant to the above-described procedure, the remaining portion of his
allocation shall be reallocated among those requesting Holders whose
allocations did not satisfy their requests pro rata on the basis of the
number of shares of Registrable Securities that would be held by such
Holders assuming conversion, and this procedure shall be repeated until all
of the shares of Registrable Securities that may be included in the
registration on behalf of the Holders have been so allocated. The Company
shall not limit the number of Registrable Securities to be included in a
registration pursuant to this Agreement in order to include shares held by
11
<PAGE>
shareholders with no registration rights or to include any other shares of
stock issued to employees, officers, directors or consultants pursuant to the
Company's employee stock option plan or plans, or, with respect to
registrations under Section 1.2 hereof, in order to include in such
registration securities registered for the Company's own account.
SECTION 2
Miscellaneous
2.1. Governing Law. This Agreement shall be governed in all
respects by and construed in accordance with the laws of the State of
California as if entered into by and between California residents
exclusively for performance entirely within California.
2.2. Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and
be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
2.3. Entire Agreement; Amendment; Waiver. This Agreement
(including the Exhibits hereto) constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated, except by a written instrument
signed by the Company and the holders of at least sixty-six percent (66%)
of the Registrable Securities and any such amendment, waiver, discharge or
termination shall be binding on all the Holders, but in no event shall the
obligation of any Holder hereunder be materially increased, except upon the
written consent of such Holder.
2.4. Notices, etc. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by United
States first-class mall, postage prepaid, or delivered personally addressed
by hand or special courier (a) if to an Investor, as indicated on the
signature pages hereto, or at such other address as such Investor or
permitted assignee shall have furnished to the Company in writing, or
(b) if to the Company, at its headquarters, 930 Montgomery Street,
Suite 400, San Francisco, California 94133, or at such other address as the
Company shall have furnished to each holder in writing. All such notices
and other written communications shall be effective (i) if mailed,
ten (10) days after mailing and (ii) if delivered personally, upon
delivery.
2.5. Separability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
2.6. Information Confidential. Each Holder acknowledges that the
information received by them pursuant hereto may be confidential and for
its use only, and it will not use any information designated as
confidential by the Company in violation of the Exchange Act or reproduce,
disclose or disseminate such information to any other person (other than
its employees or agents having a need to know the contents of such
information, and its attorneys), except in connection with the exercise of
rights under this Agreement, unless the Company has made such information
available to the public generally or such Holder is required to disclose
such information by a governmental body.
2.7. Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
12
<PAGE>
2.8. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
2.9. No Personal Liabilty. Nothing contained in this Agreement
shall be deemed to impose any personal liability on the part of any
officer, director, shareholder, partner, member, manager or employee of the
Investor or the Company.
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above
written.
PACIFIC GATEWAY PROPERTIES, INC.
By: /s/ Raymond V. Marino
--------------------------
Raymond V. Marino
President and Chief Executive Officer
Address: 930 Montgomery Street, Suite 400
San Francisco, California 94133
INVESTOR:
GEM VALUE/PGP LLC
By: GEM Value Partners, L.L.C.,
Its Managing Member
By: /s/ Michael A. Elrad
--------------------------
Name: Michael A. Elrad
Title: Executive Vice President
Address: 900 North Michigan Avenue, Suite 1900
Chicago, Illinois 60611-1575
13
PACIFIC GATEWAY PROPERTIES, INC.
STOCKHOLDERS' AGREEMENT
AND IRREVOCABLE PROXY
THIS STOCKHOLDERS' AGREEMENT AND IRREVOCABLE PROXY (the "Agreement")
is entered into as of September 21, 1998, by and among Pacific Gateway
Properties, Inc., a New York corporation (the "Company"), GEM Value/PGP, LLC
("GEM"), and Richard Osborne Trust, Turkey Vulture Fund XIII, Ltd. and Liberty
Self Stor, Ltd. (collectively, with each of their respective Affiliates, the
"Principal Stockholders").
RECITALS
WHEREAS, the Company is issuing shares of its Series 1 Preferred
Stock to GEM pursuant to the terms and conditions of that certain Series 1
Preferred Stock Purchase Agreement, dated as of even date herewith, between
the Company and GEM (the "Purchase Agreement") and it is a condition to the
closing of the transactions contemplated by the Purchase Agreement that the
Company, GEM and the Principal Stockholders enter into this Agreement;
WHEREAS, the parties hereto wish to provide for certain Tag-Along
Rights with respect to the transfer and disposition of their Shares (as
hereinafter defined); and
WHEREAS, the parties hereto wish to provide for certain voting
arrangements with respect to a Change in Control Transaction (as hereinafter
defined).
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth in this
Agreement, the parties hereby mutually agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Affiliate" shall mean, with respect to any person or entity, another
person or entity that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with
such person or entity.
"Beneficial Owner" and "Beneficially Own" shall have the meanings
contemplated by Rule 13d-3 under the Exchange Act.
"Certificate" shall mean the Certificate of Incorporation of the
Company, as amended and/or restated from time to time.
<PAGE>
"Change of Control Transaction" shall mean a sale of a majority of
the outstanding voting stock of the Company, a merger or consolidation in
which the Beneficial Owners of the outstanding voting stock of the Company
before the transaction do not Beneficially Own a majority of the outstanding
voting stock of the combined entity, a sale of all or substantially all the
assets of the Company or a reorganization in which a third party will acquire
a majority of the voting power of the Company.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's voting Common Stock.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Exempt Transfers" shall mean (i) Transfers by an individual
stockholder by gift to his or her spouse or to the siblings, lineal
descendants, or ancestors of such individual or his or her spouse or to any
trust, partnership, limited liability company or other entity of which such
person or persons are beneficiaries, if, in the case of a Transfer to such an
entity, the Transferor retains voting rights with respect to the shares being
Transferred and Transfers by any such entity to its beneficiaries; (ii)
Transfers upon death of an individual stockholder to his or her heirs,
executors, administrators, testamentary trustees, legatees or beneficiaries;
(iii) Transfers in the form of a bona fide pledge or hypothecation to a third
party, unaffiliated institutional lender, and (iv) Transfers by and among
Affiliates of the Principal Stockholders; provided that each such transferee
shall become a "Principal Stockholder" subject to the terms and conditions of
this Agreement.
"Majority Stockholders" shall mean the holders of more than 50% of
the outstanding voting securities of the Company.
"Preferred Stock" shall mean any shares of the Company's Preferred
Stock that may be outstanding from time to time.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Series 1 Preferred Stock" shall mean shares of the Company's Series
1 Preferred Stock purchased by GEM pursuant to the Purchase Agreement and any
securities issued in respect thereof as a result of the reincorporation of the
Company in Maryland.
"Shares" shall mean shares of Preferred Stock and Common Stock of
the Company.
"Transfer" shall mean a sale, assignment, encumbrance, gift, pledge,
hypothecation or other disposition of (i) Shares or any interest therein, or
(ii) a controlling interest in a Principal Stockholder.
2. Tag-Along Rights.
2.1 The Tag-Along Rights Notice. If one or more Principal
Stockholders negotiates or receives and elects to accept one or more bona fide
offers to purchase in the aggregate (on a cumulative basis) Common Stock in
excess of 200,000 shares (subject to adjustment to reflect any stock split,
reverse stock split, stock dividend, combination of shares, reclassification
of shares and the like) of Common Stock (a "Purchase Offer"), each such
Principal Stockholder shall promptly notify in writing GEM and the Company of
the terms and conditions of such Purchase Offer and the number of shares
proposed for sale pursuant to the Purchase Offer (the "Tag-Along Rights
Notice").
2
<PAGE>
2.2 The Rights. GEM shall have the right, exercisable upon
written notice to the Principal Stockholders within 10 days after the date of
receipt of the Tag-Along Rights Notice, to participate in accordance with the
terms and conditions set forth below in the Principal Stockholders' sale of
Common Stock in excess of 200,000 shares (subject to adjustment to reflect any
stock split, reverse stock split, stock dividend, combination of shares,
reclassification of shares and the like) pursuant to the specified terms and
conditions of such Purchase Offer. To the extent GEM exercises such right of
participation, the number of shares of Common Stock that the Principal
Stockholders may sell pursuant to such Purchase Offer shall be ratably reduced
in the manner described below. The right of participation of GEM shall be
subject to the following terms and conditions:
(a) GEM may sell all or any part of that number of shares of Common
Stock owned by it (assuming full conversion of its Series 1 Preferred Stock at
the applicable conversion rate) that is not in excess of the product obtained
by multiplying (i) the number of shares of Common Stock owned by GEM
(assuming full conversion of its Series 1 Preferred Stock at the applicable
conversion rate) by (ii) a fraction, the numerator of which is the
number of shares of Common Stock covered by the Purchase Offer, and the
denominator of which is the total number of shares of Common Stock of the
Company Beneficially Owned by such Principal Stockholders. For purposes of
making this computation, any options or warrants then outstanding shall be
included. For purposes of the foregoing calculation, convertible securities
outstanding shall be deemed to have been converted into the number of shares
of Common Stock into which they are then convertible in accordance with the
provisions of the respective governing instruments.
(b) GEM may effect its participation in the sale by delivering to the
Principal Stockholders, with a copy to the Company, within the 10-day period
specified under Section 2.2 above, for transfer to the maker(s) of the
Purchase Offer, one or more certificates, properly endorsed for transfer,
which shall be accompanied by a written election to participate in the sale
with respect to a specified number of shares of Common Stock (the "Election
Number") and such certificate shall represent at least the Election Number of
shares of Common Stock.
2.3 Procedures. The stock certificate or certificates that GEM
delivers pursuant to Section 2.2(b) above shall be transferred by the Company
to the maker(s) of the Purchase Offer in consummation of the sale of the
Common Stock pursuant to the terms and conditions specified in the Tag-Along
Rights Notice to GEM, and the Company shall promptly thereafter remit to GEM
that portion of the sale proceeds to which it is entitled by reason of its
participation in such sale and any stock certificate representing any
remaining shares not sold in such sale.
2.4 Future Rights. The exercise or non-exercise of the rights of GEM
to participate in one or more sales of Common Stock made by the Principal
Stockholders shall not adversely affect the rights of GEM to participate in
subsequent Common Stock sales by the Principal Stockholders pursuant to this
Section 2.
2.5 Limits and Termination. The provisions of this Section 2 shall
not pertain or apply to: (a) Exempt Transfers by the Principal
Stockholders; or (b) sales in connection with a qualified public offering
pursuant to a registration statement under the Securities Act.
3. Voting Agreement and Irrevocable Proxy.
3
<PAGE>
3.1 Voting Agreement. In the event that a Change of Control
Transaction is submitted to the stockholders of the Company for their approval
prior to the reincorporation of the Company in Maryland, to the extent that,
pursuant to Section 903 of the New York Business Corporation Law, holders of
Series 1 Preferred Stock are entitled to vote as a separate class (the "Series
1 Class Vote") with respect to such a Change of Control Transaction, GEM
hereby agrees to exercise its Series 1 Class Vote, with respect to each share
of Series 1 Preferred Stock then held by GEM or its Affiliates, in accordance
with the vote of the Majority Stockholders. Notwithstanding the foregoing,
with respect to a change of Control Transaction and all other matters properly
submitted to the stockholders, GEM shall be entitled to vote, together with
the holders of Common Stock, one vote for each share of Common Stock into
which such Series 1 Preferred Stock could then be converted (the "Common
Vote"). As a result of the provisions contained in this Section 3.1: (i) any
Change of Control Transaction that is approved by the Majority Stockholders,
taking into account GEM's Common Vote, will be approved by the Series 1 Class
Vote, and (ii) any Change of Control Transaction that is not approved by the
Majority Stockholders, taking into account GEM's Common Vote, will not be
approved by the Series 1 Class Vote.
3.2 Irrevocable Proxy. In order to implement the provisions of
Section 3.1, GEM has agreed to grant to the Principal Stockholders an
irrevocable proxy to vote or to execute and deliver written consents in
respect of the Series 1 Class Vote for all shares of Series 1 Preferred now
owned or hereafter registered in his or her name in connection with the
approval of such a Change of Control Transaction. In furtherance of the above,
by execution of this Agreement, GEM agrees to, and hereby grants to the
Principal Stockholders an irrevocable proxy pursuant to the provisions of
Section 609 of the New York Business Corporation Law to vote, or to execute
and deliver written consents or otherwise act with respect to, the Series 1
Class Vote for all shares of Series 1 Preferred Stock of the Company now owned
or hereafter acquired as fully, to the same extent and with the same effect as
GEM might or could do under any applicable laws or regulations governing the
rights and powers of a New York corporation in connection with the approval of
a Change of Control Transaction. GEM affirms that this proxy is given as a
condition of this Agreement and the other agreements between the parties
hereto and as such is coupled with an interest and is irrevocable. This proxy
shall remain in full force and effect and be enforceable against any donee,
transferee or assignee of the shares of Series 1 Preferred Stock. This proxy
shall remain in full force and effect throughout the term of this Agreement
for as long as the Company remains a New York corporation. It is understood
that this proxy relates solely to the Series 1 Class Vote in respect of a
Change of Control Transaction, in accordance with Section 3.1, and does not
constitute the grant of any rights to vote as to any other matters.
4. Miscellaneous
4.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California, without
regard to conflicts of laws provisions.
4.2 Enforcement. The parties expressly agree that the provisions of
this Agreement may be specifically enforced against each of the parties hereto
in any court of competent jurisdiction.
4
<PAGE>
4.3 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto, including, without limitation, any transferees of the Shares
other than transferees who have received such shares pursuant to an effective
Registration Statement under the Securities Act of 1933, as amended (the
"Act") or in compliance with Rule 144 promulgated under the Act. GEM may
assign this Agreement with respect to the transfer of up to 100,000 Shares
(subject to adjustment to reflect any stock split, reverse stock split, stock
dividend, combination of shares, reclassification of shares and the like) to
any entity controlled by GEM Value Partners, LLC or to up to two (2) limited
partners or investors in GEM Value Fund L.P., provided that such assignment
will be effective only upon written acceptance by the assignee of the terms of
this Agreement and provided, further that no such assignment shall relieve GEM
from any obligations hereunder or limit GEM's rights and obligations hereunder
with respect to any Shares retained by GEM. GEM may assign this Agreement to
additional limited partners or investors of GEM upon prior written consent of
the Principal Stockholders and the Company, which consent shall not be
unreasonably withheld provided that such assignment will be effective only
upon written acceptance by the assignee of the terms of this Agreement and
provided, further that no such assignment shall relieve GEM from any
obligations hereunder or limit GEM's rights and obligations hereunder with
respect to any Shares retained by GEM.
4.4 Entire Agreement. This Agreement and each of the agreements
entered into in connection herewith, constitute the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and supersede all prior oral or written (and all contemporaneous
oral) agreements or understandings with respect to the subject matter hereof.
4.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, return receipt requested, postage prepaid, or otherwise
delivered by hand, messenger or facsimile transmission, addressed to each
party at the address listed on the signature pages hereto, or at such other
address as such party or its transferee shall have furnished to each of the
other parties in writing. Each such notice or other communication shall for
all purposes of this Agreement be treated as effective or as having been given
when delivered, if delivered by hand or by messenger (or overnight courier),
24 hours after confirmed receipt if sent by facsimile transmission or at the
earlier of its receipt or on the fifth day after mailing as aforesaid.
4.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of the
Company under this agreement, shall impair any such right, power or remedy of
such holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereunder occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any party of any breach or default under this agreement, or any
waiver on the part of any party of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
5
<PAGE>
4.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the parties
hereto, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
4.8 Severability. If any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
4.9 Amendments. The provisions of this Agreement may be amended at
any time and from time to time, and particular provisions of this Agreement
may be waived, with and only with an agreement or consent in writing signed by
the Company and by the holders of at least a majority of the Shares.
4.10 Jurisdiction. The parties hereto irrevocably submit, in any
legal action or proceeding relating to this Agreement, to the exclusive
jurisdiction of the courts of the State of California and consent that any
such action or proceeding may be brought in such courts and waive any
objection that they may now or hereafter have to the venue of such action or
proceeding in any such court or that such action or proceeding was brought in
an inconvenient forum.
4.11 Termination. The provisions of this Agreement shall terminate
upon the earlier of (a) the closing of a Change of Control Transaction
or (b) GEM, any Affiliate of GEM and any limited partner or investor of
GEM Value Fund, L.P. ceasing to collectively Beneficially Own at least 60,000
shares (subject to adjustment to reflect any stock split, reverse stock split,
stock dividend, combination of shares, reclassification of shares and the
like) of the Series 1 Preferred Stock (together with any Common Stock issuable
upon conversion thereof).
4.12 No Personal Liability. Nothing in this Agreement shall be deemed
to impose any personal liability on the part of any officer, director,
shareholder, partner, member, manager or employee of GEM, the Principal
Stockholders (except for any obligation to comply with the tag along rights
under Section 2 above) or the Company.
* * * *
6
<PAGE>
IN WITNESS WHEREOF, the foregoing Stockholders' Agreement and
Irrevocable Proxy is hereby executed as of the date first above written.
PACIFIC GATEWAY PROPERTIES, INC.
By: /s/ Raymond V. Marino
-------------------------
Raymond V. Marino
President and Chief Executive Officer
Address: 930 Montgomery Street, Suite 400
San Francisco, California 94133
GEM VALUE/PGP LLC
By: GEM Value Partners, L.L.C.,
Its Managing Member
By: /s/ Michael A. Elrad
-------------------------
Name: Michael A. Elrad
Title: Executive Vice President
Address: 900 North Michigan Avenue, Suite 1900
Chicago, Illinois 60611-1575
7
<PAGE>
PRINCIPAL STOCKHOLDERS:
TURKEY VULTURE FUND XIII, LTD.
By: /s/ Richard M. Osborne
----------------------------
Richard M. Osborne, Manager
Address: _________________________________
__________________________________________
__________________________________________
RICHARD M. OSBORNE TRUST
By: /s/ Richard M. Osborne
----------------------------
Richard M. Osborne, Trustee
Address: _________________________________
__________________________________________
__________________________________________
LIBERTY SELF STOR, LTD.
By: /s/ Richard M. Osborne
----------------------------
Richard M. Osborne, Managing Member
Address: _________________________________
__________________________________________
__________________________________________
8
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
PACIFIC GATEWAY PROPERTIES, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned, being the President and the Secretary of PACIFIC
GATEWAY PROPERTIES, INC. (the "Corporation"), hereby certify that:
A. The name of the Corporation is Pacific Gateway Properties,
Inc. The name under which the Corporation was formed is Perini Investment
Properties, Inc.
B. The Certificate of Incorporation of the Corporation was filed
by the Department of State of the State of New York on the 12th day of
January 1984.
C. None of the shares of the $1.10 Convertible Preferred Stock of
the Corporation, the number, designation and relative rights, privileges
and preferences of which were determined by the Board of Directors and set
forth in an Amendment to the Certificate of Incorporation of the
Corporation filed by the Department of State of the State of New York on
the 22nd day of January 1985, are outstanding and none will be issued
subject to the Certificate of Incorporation.
D. The Certificate of Incorporation of the Corporation is hereby
amended as follows:
Article FOURTH, Paragraph (d), of the Certificate of Incorporation
which sets forth the number, designation, relative rights, preferences, and
limitations of the $1.10 Convertible Preferred Stock of the Corporation,
none of which are outstanding and none of which will be issued, is hereby
amended in its entirety to provide for the number, designation, relative
rights, preferences, and limitations of a new series of Preferred Stock as
fixed by the Board of Directors before the issuance of such series, under
the authority contained in the Certificate of Incorporation, as follows:
"(d) A series of Preferred Stock, designated Series 1 Preferred
Stock, is hereby provided for, which series shall have the rights,
privileges and preferences set forth below.
1. Authorized Number. The number of shares constituting the
Series 1 Preferred Stock shall be Three Hundred Thousand (300,000) shares.
2. Dividend Provisions.
(A) Whenever the Corporation pays dividends or other
distributions on its Common Stock or any convertible securities, in cash,
assets, evidences of indebtedness or in kind, except for dividends of
Common Stock or Common Stock Equivalents (as defined below) without payment
of any consideration by such holder for the additional shares of Common
Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), the holders of
record on the record date of outstanding shares of Series 1 Preferred Stock
shall be entitled to receive dividends in such amount as they would be
entitled to receive if, as of the record date, their shares of Series 1
Preferred Stock had been converted into shares of Common Stock pursuant to
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Section 5 hereof. Except as otherwise provided below, no such dividend or
other distribution shall be paid or set aside with respect to shares of
Common Stock until and unless all dividends or other distributions then
payable to the holders of the Series 1 Preferred Stock shall have been
paid or declared and set aside for payment in full.
(B) Except in a Liquidation (as defined in Section 3 below),
without the affirmative vote or written consent of the holders of a
majority of the outstanding shares of Series 1 Preferred Stock, the
Corporation shall not declare or pay any Dividend (as defined below) unless
the funds used to make such Dividend are from a source other than Sale or
Refinancing Proceeds (as defined below). Notwithstanding the foregoing, the
Corporation may declare or pay a Dividend without any vote of the holders
of outstanding shares of Series 1 Preferred Stock if (x) the amount of such
Dividend which is deemed to be from Sale or Refinancing Proceeds is paid
solely to the holders of outstanding shares of Series 1 Preferred Stock on
a pro rata basis (a "Partial Liquidation Payment") or (y) the Liquidation
Preference (as defined below) has been reduced to zero in accordance with
Section 3 below.
(C) After the Liquidation Preference has been reduced to zero in
accordance with Section 3 below, the Corporation shall not declare or pay
further Dividend with respect to the Series 1 Preferred Stock if the source
of such Dividend is Sale or Refinancing Proceeds until holders of shares of
Common Stock have received Dividends from a source which is Sale or
Refinancing Proceeds equal in the aggregate (and not on a per share basis)
to the Equalization Amount (as defined below).
(D) After holders of shares of Common Stock have received
Dividends equal in the aggregate to the Equalization Amount, the holders of
shares of Series 1 Preferred Stock and shares of Common Stock shall be
entitled to receive dividends or other distributions ratably in proportion
to the number of shares of Common Stock held by each such Common Stock
holder and the number of shares of Common Stock into which the shares of
Series 1 Preferred Stock held by each such Series 1 Preferred Stock holder
are then convertible pursuant to Section 4 below, regardless of the source
of the funds for such dividends or distributions.
(E) Nothing contained in Sections (B), (C) or (D) above shall be
deemed to prohibit the Corporation from declaring or paying any dividend or
other distributions in accordance with Section (A) above, or from making
any Dividend which would not be subject to Section (A) above, if the funds
used to make such Dividend are from a source other than Sale or Refinancing
Proceeds.
(F) The Board of Directors of the Corporation shall determine in
good faith, the amount, if any, of any Dividend which is from Sale or
Refinancing Proceeds.
(G) Certain definitions:
"Dividend" means any (i) repurchase, redemption or other
acquisition or retirement for value by the Corporation or any of its
subsidiaries of any shares of Common Stock or any convertible securities
other than pursuant to contractual rights to repurchase shares of Common
Stock or any convertible securities held solely by current or former
officers, employees, directors or consultants of the Corporation or any of
its subsidiaries pursuant to a compensatory stock grant, stock option plan
or purchase plan or other employee stock incentive plan or agreement which
is customary in nature and amount and which is approved by the Board of
Directors or (ii) declaration or payment by the Corporation of any dividend
or any other payment or distribution of cash, assets or evidences of
indebtedness with respect to shares of Common Stock or any convertible
securities.
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"Equalization Amount" means the (i) Original Series 1 Issue Price
multiplied by (ii) the number of shares of Common Stock outstanding on the
date on which the Liquidation Preference becomes equal to zero (subject to
adjustment to reflect any split, subdivision or combination in the
outstanding shares of Common Stock or any dividend or other distribution
payable in additional shares of Common Stock or Common Stock Equivalents
(as defined below) with a record date or effective date after the Issue
Date (as defined below)).
"Original Series 1 Issue Price" means $10.00.
"Sale or Refinancing Proceeds" means the proceeds (whether in
cash, assets or any other form), net of repayment of debt, taxes and
closing costs after the date hereof, from (i) any sale, exchange, transfer
or other disposition of any assets of the Corporation or any of its
subsidiaries (other than in complete liquidation, dissolution or winding up
of the Corporation), (ii) any mortgage, pledge, financing or refinancing of
any assets of the Corporation or any of its subsidiaries, (iii) any
borrowings by the Corporation or any of its subsidiaries, or (iv) any sale
or issuance of any Common Stock or other equity or debt securities of the
Corporation or any of its subsidiaries other than shares of Common Stock or
other securities issued solely to current or former officers, directors,
employees, or consultants of the Corporation or any of its subsidiaries
pursuant to a compensatory stock grant, stock option plan or purchase plan
or other employee stock incentive program or agreement which is customary
in nature and amount and which is approved by the Board of Directors.
3. Liquidation Preference.
(A) In the event of any Liquidation (as defined below), subject
to the rights of any other series of Preferred Stock which may from time to
time come into existence, the holders of the Series 1 Preferred Stock shall
be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Common Stock by reason
thereof, and the Corporation's Board of Directors shall take the necessary
steps to assure that the holder of each share of Series 1 Preferred Stock
shall receive, an amount per share equal to $10.00 minus any Partial
Liquidation Payments previously made with respect to such share (the
"Liquidation Preference"); provided, however, that in no event shall the
Liquidation Preference be deemed to be less than zero. If the assets and
funds thus distributed among holders of the Series 1 Preferred Stock shall
be insufficient to permit payment to such holders of the full Liquidation
Preference, then, subject to the rights of any other series of Preferred
Stock that may from time to time come into existence, the entire assets and
funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of Series 1 Preferred Stock in
proportion to the amount of such stock held by each such holder.
(B) Upon the completion of the distribution required by
subsection (A) of this Section 3 and any other distribution which may be
required with respect to any other series of Preferred Stock which may from
time to time come into existence, if assets remain in the Corporation, the
holders of the Common Stock of the Corporation shall be entitled to receive
an amount per share equal to the lesser of: (i) $10.00 for each outstanding
share of Common Stock (subject to adjustment to reflect any split,
subdivision or combination in the outstanding shares of Common Stock or any
dividend or other distribution payable in additional shares of Common Stock
or Common Stock Equivalents with a record date or effective date after the
Issue Date (as defined below)), or, if applicable, (ii) the Equalization
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Amount less the aggregate amount of any Dividends theretofore paid to
holders of shares of Common Stock pursuant to Section 2(C) above, in each
case, divided by the number of shares of Common Stock outstanding on the
date of such distribution (or the record date for determination of holders
entitled to receive such distribution, if applicable). If any assets remain
in the Corporation after such distribution, subject to the rights of any
other series of Preferred Stock, the holders of the Common Stock and the
holders of the Series 1 Preferred Stock shall receive all of the remaining
assets of the Corporation ratably in proportion to the number of shares of
Common Stock held by each such Common Stock holder and the number of shares
of Common Stock into which the shares of Series 1 Preferred Stock held by
each such Series 1 Preferred Stock holder are then convertible pursuant to
Section 4 below.
(C) The term "Liquidation" shall mean (i) any complete
liquidation, dissolution or winding up of the Corporation, either voluntary
or involuntary, (ii) any consolidation or merger of the Corporation with or
into any other entity or entities that results in a change in the
beneficial ownership (within the meaning contemplated by Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) of 50% or more of the
voting power of the Corporation, or (iii) any sale, conveyance or
disposition of all or substantially all of the assets of the Corporation.
(D) The term "Partial Liquidation Payments" shall mean Dividends
or other distributions to holders of Series 1 Preferred Stock made from
Sale or Refinancing Proceeds.
4. Conversion. The holders of the Series 1 Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(A) Right to Convert. Each share of Series 1 Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the Corporation or any
transfer agent for the Series 1 Preferred Stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing
$10.00 (the "Original Series 1 Issue Price") by the Conversion Price at the
time in effect for such share. The initial Conversion Price per share for
shares of Series 1 Preferred Stock shall be the Original Series 1 Issue
Price; provided, however, that the Conversion Price for the Series 1
Preferred Stock shall be subject to adjustment as set forth in subsection
4(C).
At the date of any conversion of share of Series 1 Preferred Stock
pursuant to this Section 4 (the "Conversion Date") the holder of such share
shall pay to the Corporation the Preference Repayment Amount (as defined
below).
If, on or prior to the Conversion Date, the Corporation has paid
any Sale or Refinancing Proceeds to the holders of shares of Series 1
Preferred Stock pursuant to Section 2(B) above but the Liquidation
Preference is still greater than zero, then the "Preference Repayment
Amount" with respect to each share of Series 1 Preferred Stock shall be
equal to the amount of Sale or Refinancing Proceeds previously distributed.
If, on or prior to the Conversion Date, the Liquidation Preference has been
reduced to zero and holders of shares of Common Stock have not yet received
Dividends from a source which is Sale or Refinancing Proceeds equal in the
aggregate to the Equalization Amount then the "Preference Repayment Amount"
with respect to each share of Series 1 Preferred Stock shall be equal to
(i) the Equalization Amount minus the aggregate amount of Dividends
theretofore received by holders of shares of Common Stock from a source
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<PAGE>
which is Sale or Refinancing Proceeds divided by (ii) the number of shares
of Common Stock outstanding immediately prior to the Conversion Date. If,
on or prior to the Conversion Date, the Liquidation Preference has been
reduced to zero and the holders of shares of Common Stock have received
Dividends from a source which is Sale or Refinancing Proceeds equal in the
aggregate to at least the Equalization Amount then the "Preference
Repayment Amount" with respect to each share of Series 1 Preferred Stock
shall be equal to zero.
(B) Mechanics of Conversion. Before any holder of Series 1
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall (1) surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent
for the Series 1 Preferred Stock, (2) pay any Preference Repayment Amount
to the Corporation, and (3) give written notice by mail, postage prepaid,
to the Corporation at its principal corporate office, of the election to
convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued.
The Corporation shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series 1 Preferred Stock, or to the
nominee or nominees of such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares
of Series 1 Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. Notwithstanding the
foregoing, in the event of any merger, consolidation, sale of assets or
other similar transaction involving the Corporation in connection with
which the holders of the Series 1 Preferred Stock desire to convert the
Series 1 Preferred Stock into shares of Common Stock, the Corporation shall
negotiate in good faith with the holders of the shares of Series 1
Preferred Stock to agree on a transaction structure which would allow for a
tax efficient conversion of shares of Series 1 Preferred Stock into shares
of Common Stock provided that such structure would not adversely affect the
Corporation or the holders of shares of Common Stock or otherwise prevent
any benefit from accruing to the Corporation or the holders of shares of
Common Stock.
(C) Conversion Price Adjustments of Preferred Stock. The
Conversion Price of the Series 1 Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) In the event the Corporation should at any time or
from time to time after the date on which the first share of Series 1
Preferred Stock is issued (the "Issue Date") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock
or other securities or rights convertible into, or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without
payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional
shares of Common Stock issuable upon conversion or exercise thereof), then,
as of such record date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Conversion Price of the Series
1 Preferred Stock shall be appropriately decreased so that the number of
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<PAGE>
shares of Common Stock issuable on conversion of each share of such series
shall be increased in proportion to such increase of the aggregate of
shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents.
(ii) If the number of shares of Common Stock outstanding
at any time after the Issue Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series 1 Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.
(D) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in Section 2 or
subsection 4(C)(i), then, in each such case for the purpose of this
subsection 4(D), the holders of the Series 1 Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they
were the holders of the number of shares of Common Stock of the Corporation
into which their shares of Series 1 Preferred Stock are convertible as of
the record date fixed for the determination of the holders of Common Stock
of the Corporation entitled to receive such distribution.
(E) Recapitalizations; Rights Offerings.
(i) If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision or
combination provided for elsewhere in this Section 4), provision shall be
made so that the holders of the Series 1 Preferred Stock shall thereafter
be entitled to receive upon conversion of the Series 1 Preferred Stock the
number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such recapitalization. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of
the Series 1 Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 (including adjustment of the Conversion Price
then in effect and the number of shares purchasable upon conversion of the
Series 1 Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
(ii) If at any time or from time to time the Corporation
shall make any rights offering or similar arrangement generally available
to the holders of shares of Common Stock (whether through the dividend or
distribution of any rights or other securities or otherwise) to purchase
additional securities of the Corporation or any of its subsidiaries for
value, then the Corporation shall make such rights offering or similar
arrangement available to holders of shares of Series 1 Preferred Stock on
the same basis as if such shares of the Series 1 Preferred Stock had been
converted into shares of Common Stock immediately prior to the earlier of
(a) the making of such rights offering or similar arrangement and (b) any
record date for the determination of holders entitled to participate
therein.
(F) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapitalization, 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
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<PAGE>
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 5 and in
the taking of all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the holders of the Series 1 Preferred
Stock against impairment.
(G) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion
of the Series 1 Preferred Stock, and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series 1 Preferred Stock pursuant
to this Section 4, the Corporation, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series 1 Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of
Series 1 Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (1) such adjustment and readjustment, (2)
the Conversion Price at the time in effect, and (3) the number of shares of
Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of a share of Series 1 Preferred
Stock.
(H) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
the Corporation shall mail to each holder of Series 1 Preferred Stock, at
least 20 days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(I) Reservation of Stock Issuable upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series 1 Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Series 1 Preferred Stock;
and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series 1 Preferred Stock, in addition to such
other remedies as shall be available to the holder of such Preferred Stock,
the Corporation will take such corporate action at its own expense as may,
in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
(J) Notices. Any notice required by the provisions of this Section
4 to be given to the holders of shares of Series 1 Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of
the Corporation.
5. Voting Rights. The holder of each share of Series 1 Preferred
Stock shall have the right to one vote for each share of Common Stock into
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which such Series 1 Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded
to the nearest whole share), and with respect to such vote, such holder
shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders'
meeting in accordance with the by-laws of the Corporation, and shall be
entitled to vote, together with holder of Common Stock, with respect to any
questions upon which holders of Common Stock have the right to vote.
6. Protective Provisions. So long as any shares of the Series 1
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval of at least a majority of the then outstanding
shares of Series 1 Preferred Stock, as a class, together with any other
outstanding shares of Preferred Stock similarly affected:
(A) exclude or limit their right to vote on any matter to which
they are entitled to vote in accordance with the provisions of the New York
Business Corporation Law;
(B) reduce the par value of such shares of Series 1 Preferred
Stock;
(C) increase or decrease (other than by conversion) the
total number of authorized
shares of Series 1 Preferred Stock;
(D) change or abolish any of the rights, privileges, preferences
and limitations of the Series 1 Preferred Stock if such action would
adversely affect the holders thereof;
(E) alter the terms and conditions upon which shares of Series 1
Preferred Stock are convertible or change the shares issuable upon
conversion of the Series 1 Preferred Stock if such action would adversely
affect the holders thereof; or
(F) authorize or issue any other shares of capital stock having a
preference equal to or senior to the Series 1 Preferred Stock with respect
to voting, dividends or liquidation.
7. Status of Converted Stock. In the event any shares of Series 1
Preferred Stock shall be converted pursuant to Section 4, the shares so
converted shall be retired and shall resume the status of authorized and
unissued shares of Preferred Stock.
D. The foregoing amendment to the Certificate of Incorporation of
the Corporation was authorized by the Board of Directors by written consent
dated September 10, 1998.
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IN WITNESS WHEREOF, the undersigned have subscribed this
certificate on September 11, 1998 and hereby affirm that the statements
contained herein are true under penalty of perjury.
/s/ Raymond V. Marino
---------------------------
Raymond V. Marino
President and Chief Executive Officer
/s/ Stephen J. LoPresti
---------------------------
Stephen J. LoPresti
Secretary
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