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SECURITIES AND EXCHANGE COMMISSION
---------------
WASHINGTON, DC 20549
---------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------
Date of Report (Date of earliest event reported): September 21, 1998
PACIFIC GATEWAY PROPERTIES, INC.
(Exact Name of Registrant as Specified in Charter)
NEW YORK 1-8692 04-2816560
(State or Other Jurisdiction (Commission File (I.R.S. Employer
of Incorporation) Number) Identification Number)
930 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94133
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code: (415) 398-4800
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ITEM 5. OTHER EVENTS
On September 21, 1998, Pacific Gateway Properties (the "Company") completed
the private placement of 300,000 shares of Series 1 Convertible Preferred Stock
(the "Series 1 Preferred Shares") for $3,000,000 to GEM Value/PGP, L.L.C.
("GEM"), an affiliate of GEM Value Fund, L.P. ("GEM Value", together with GEM,
the "GEM Entities").
GEM's 300,000 Series 1 Preferred Shares are convertible into shares of the
Company's common stock (the "Common Stock") on a one for one basis and have the
same voting rights as the Common Stock. GEM Value also owns 101,700 shares of
Common Stock which it had acquired in open market purchases prior to entering
into discussions to invest in the Preferred Shares. The GEM Entities' common
and preferred stock holdings in the Company represent 9.5% of the total shares
of capital stock of the Company outstanding and entitled to vote.
The Series 1 Preferred Shares will receive dividends, if any, from the Company's
operating cash flow on a pari passu basis with holders of Common Stock. The
agreement with GEM does not require the company to make any distributions. In
the event of a full or partial liquidation of the Company, the holders of Series
1 Preferred Shares will be entitled to a liquidation preference of $10.00 per
share. GEM also received customary registration rights for the Common Stock
issuable upon conversion of the Series 1 Preferred Shares.
In addition, GEM has entered into an agreement with the Company and three
entities controlled by the Company's Chairman, Richard Osborne, whereby, GEM has
a "tag along" right to sell its Series 1 Preferred Shares on a pro rata basis
with sales of Common Stock by the Osborne controlled entities. This right is
exercisable should any of the Osborne controlled entities sell cumulatively in
excess of 200,000 shares of the Company's Common Stock.
It was further agreed that Norman S. Geller, co-founder of GEM Investors, Inc.,
an affiliate of GEM, will be nominated for election to the Company's board of
directors at the 1998 Annual Meeting of Shareholders scheduled for October 26,
1998.
The funds raised from the GEM investment will be combined with existing cash
reserves of the Company to be used on possible future opportunistic investments.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) EXHIBITS
<TABLE>
Exhibit No. Description
----------- -----------
<S> <C>
4.1 Certificate of Amendment of Certificate of
Incorporation.
10.1 Series 1 Preferred Stock Purchase Agreement, dated
as of September 21, 1998.
10.2 Registration Rights Agreement, dated as of
September 21, 1998.
10.3 Stockholders' Agreement and Irrevocable Proxy,
dated as of September 21, 1998.
99.1 Press Release issued September 22, 1998.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated as of September 28, 1998.
PACIFIC GATEWAY PROPERTIES, INC.
By /s/ RAYMOND V. MARINO
--------------------------------------
Raymond V. Marino
President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DOCUMENT PAGE
----------- -------------------------------------------------------- ------------
<S> <C> <C>
Exhibit 4.1 Certificate of Amendment of Certificate of Incorporation
Exhibit 10.1 Series 1 Preferred Stock Purchase Agreement, dated as of
September 21, 1998
Exhibit 10.2 Registration Rights Agreement, dated as of
September 21, 1998.
Exhibit 10.3 Stockholders' Agreement and Irrevocable Proxy, dated as
of September 21, 1998
Exhibit 99.1 Press Release issued September 22, 1998
</TABLE>
<PAGE>
Exhibit 4.1
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
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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 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.
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<PAGE>
(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.
"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
8
<PAGE>
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 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
9
<PAGE>
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 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
10
<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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;
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(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
<PAGE>
Exhibit 10.1
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
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Amendment"). In order to assist the parties in interpreting certain
provisions of the Certificate of Amendment, interpretive examples are
attached hereto as SCHEDULE A.
(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.
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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 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
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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 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.
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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 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
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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.
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
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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."
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
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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:
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
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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.
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
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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(c) 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 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
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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 with Section 6.3
27
<PAGE>
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.
28
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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 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.
29
<PAGE>
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.
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.
30
<PAGE>
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
31
<PAGE>
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
<PAGE>
SCHEDULE A
The following examples illustrate the parties' intended interpretation
of the terms of the Certificate of Amendment of the Company's Certificate of
Incorporation (the "Certificate").
LIQUIDATION PREFERENCE EXAMPLES
EXAMPLE 1: Assume that immediately prior to a complete liquidation,
dissolution or winding up of the Corporation (a
"Dissolution"), 5,000,000 shares of Common Stock are
outstanding and 300,000 shares of Series 1 Preferred Stock are
outstanding and the Company has assets with an immediate
liquidation value of $2,700,000. Further assume that there
has been no adjustment to the Conversion Price pursuant to
Section 4(C) of the Certificate and no adjustment to the
Liquidation Preference pursuant to Section 3(A) of the
Certificate. Upon Dissolution, each share of Series 1
Preferred Stock would entitle the holder to receive a
preferential distribution of $9.00 (thus reducing the
remaining Liquidation Preference to $1.00). No distribution
would be made with respect to shares of Common Stock.
EXAMPLE 2: Assume that immediately prior to a Dissolution, 5,000,000
shares of Common Stock are outstanding and 300,000 shares of
Series 1 Preferred Stock are outstanding. Further assume
that there has been no adjustment to the Conversion Price and
no adjustment to the Liquidation Preference.
(a) Assume further that, immediately prior to the
Dissolution, the Corporation's assets consist solely of
$23,000,000 in cash. Upon Dissolution, first, each share of
Series 1 Preferred Stock would entitle the holder to receive a
preferential distribution equal to $10.00 (thus reducing the
remaining Liquidation Preference to zero) and, second, each
share of Common Stock would entitle the holder to receive a
distribution of $4.00.
(b) Assume further that, immediately prior to the
Dissolution, the Corporation's assets consist solely of
unmarketable securities ("Securities") with a fair value of
$23,000,000. Upon Dissolution, first, each share of Series 1
Preferred Stock would entitle the holder to receive a
preferential distribution of Securities having a fair value of
$10.00 (thus reducing the remaining Liquidation Preference to
zero) and, second, each share of Common Stock would entitle
the holder to receive a distribution of Securities having a
fair value of $4.00.
(c) Assume further that, from time to time prior to the
Dissolution, the Corporation had paid dividends to holders of
Common Stock and Series 1 Preferred Stock aggregating
$50,000,000, all from sources other than Sale or Refinancing
Proceeds. Since dividends paid from sources other than Sale
or Refinancing Proceeds are always required to be paid to
holders of shares of Series 1 Preferred Stock and shares of
Common Stock on a pro rata basis (subject to
<PAGE>
adjustment to reflect any stock split, reverse stock split,
stock dividend, combination of shares, reclassification of
shares and the like), such dividends could have had no effect
on the Liquidation Preference or any Preference Repayment
Amount. Also assume that, immediately prior to the
Dissolution, the Corporation has assets with an immediate
liquidation value of $23,000,000. Upon Dissolution, first,
each share of Series 1 Preferred Stock would entitle the
holder to receive a preferential distribution equal of $10.00
(thus reducing the remaining Liquidation Preference to zero)
and, second, each share of Common Stock would entitle the
holder to receive a distribution of $4.00.
EXAMPLE 3: Assume that immediately prior to a Dissolution, 5,000,000
shares of Common Stock are outstanding and 300,000 shares of
Series 1 Preferred Stock are outstanding and the Corporation
has assets with an immediate liquidation value of $63,600,000.
Further assume that there has been no adjustment to the
Conversion Price and no adjustment to the Liquidation
Preference. Upon Dissolution, first, each share of Series 1
Preferred Stock would entitle the holder to receive a
preferential distribution of $10.00, second, each share of
Common Stock would entitle the holder to receive a
distribution of $10.00, and third, each share of Series 1
Preferred Stock and each share of Common Stock would entitle
their respective holders to a further pro rata distribution of
$2.00.
EXAMPLE 4: Assume that immediately prior to a Dissolution, 10,000,000
shares of Common Stock are outstanding following a two for one
split of the Common Stock and 300,000 shares of Series 1
Preferred Stock are outstanding and the Corporation has assets
with an immediate liquidation value of $63,600,000. Further
assume that the Corporation had previously paid Dividends from
Sale or Refinancing Proceeds to the holders of shares of
Series 1 Preferred Stock in the aggregate amount of $600,000,
thus reducing the remaining Liquidation Preference to $8.00
per share. As a result of the stock split each share of
Series 1 Preferred Stock would be convertible into two shares
of Common Stock pursuant to Section 4(C) of the Certificate.
Upon Dissolution, first, each share of Series 1 Preferred
Stock would entitle the holder to receive a preferential
distribution of $8.00 (thus, reducing the remaining
Liquidation Preference to zero), second, each share of Common
Stock would entitle the holder to receive a distribution of
$5.00, and third, the remaining $11,200,000 would be
distributed to the holders of the Series 1 Preferred Stock and
the holders of the Common Stock on a pro rata basis which, due
to the two for one split of the Common Stock, would result in
the holder of each share of Preferred Stock receiving a
further distribution of approximately $2.11 and the holder of
each share of Common Stock receiving a further distribution of
approximately $1.06.
EXAMPLE 5: Assume that the Corporation will be acquired (whether through
a merger or a sale of substantially all of the assets of the
corporation) by a third party for aggregate consideration of
$63,600,000 in cash. Further assume that 5,000,000 shares of
Common Stock are outstanding, 300,000 shares of Series 1
Preferred Stock are
34
<PAGE>
outstanding and there has been no adjustment to the Conversion
Price pursuant to Section 4(C) of the Certificate or to the
Liquidation Preference pursuant to Section 3(A) of the
Certificate. Upon Dissolution, first, each share of Series 1
Preferred Stock would entitle the holder to receive a
preferential distribution of $10.00 (thus reducing the
remaining Liquidation Preference to zero), second, each share
of Common Stock would entitle the holder to receive a
distribution of $10.00 and third, each share of Series 1
Preferred Stock and each share of Common Stock would entitle
their respective holders to a further pro rata distribution of
$2.00.
PREFERENCE REPAYMENT AMOUNT EXAMPLES
EXAMPLE 6: Assume that there are 300,000 shares of Series 1 Preferred
Stock outstanding and 5,000,000 shares of Common Stock
outstanding. Assume proceeds from the sale of properties of
$1.5 million. Assume a distribution of $5.00 per share to the
holders of Series 1 Preferred Stock from the proceeds of such
sale and no distributions from the proceeds of such sale to
the holders of Common Stock. The holders of Series 1
Preferred Stock now wish to convert into Common Stock. In
order to do so, such holders must pay the Company a Preference
Repayment Amount of $5.00 per share or a total of $1.5
million.
EXAMPLE 7: Assume that there are 300,000 shares of Series 1 Preferred
Stock outstanding and 5,000,000 shares of Common Stock
outstanding. Assume proceeds from the sale of properties of
$10 million. Assume a distribution of $10.00 per share to the
holders of Series 1 Preferred Stock from the proceeds of such
sale and a distribution of $1.40 per share to the holders of
Common Stock from the proceeds of such sale. The holders of
Series 1 Preferred Stock now wish to convert into Common
Stock. In order to do so, such holders must pay the Company a
Preference Repayment Amount equal to $8.60 per share or a
total of $2.58 million. This is derived from the fact that
the holders of Common Stock have received 14% of the
equalization payment they were otherwise entitled to receive.
EXAMPLE 8: Assume that there are 300,000 shares of Series 1 Preferred
Stock outstanding and 5,000,000 shares of Common Stock
outstanding. Assume proceeds from the sale of properties of
$10 million. Assume a distribution of $10.00 per share to the
holders of Series 1 Preferred Stock from the proceeds of such
sale and a distribution of $1.40 per share to the holders of
Common Stock from the proceeds of such sale. The holders of
200,000 shares of Series 1 Preferred Stock now wish to convert
such shares into Common Stock. In order to do so, such
holders must pay the Company a Preference Repayment Amount
equal to $8.60 per share or a total of $1.72 million.
After such conversion, assume that the Company pays a further
distribution of $4.00 per share to the holders of Common Stock
(which include the holders of 200,000 shares of Common Stock
issued on conversion of Series 1 Preferred
35
<PAGE>
Stock) from the proceeds of an additional sale of properties.
The holders of the remaining 100,000 shares of Series 1
Preferred Stock then wish to convert such shares into Common
Stock. In order to do so, such holders must pay the Company a
Preference Repayment Amount equal to $4.60 per share or a
total of $460,000.
36
<PAGE>
Exhibit 10.2
PACIFIC GATEWAY PROPERTIES, INC.
REGISTRATION RIGHTS AGREEMENT
SEPTEMBER 21, 1998
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
----
<S> <C>
SECTION 1 .................................................................1
Restrictions on Transferability of Securities; ............................1
1.1. CERTAIN DEFINITIONS .............................................1
1.2. REQUESTED REGISTRATION ..........................................2
1.3. COMPANY REGISTRATION ............................................4
1.4. EXPENSES OF REGISTRATION ........................................5
1.6. REGISTRATION PROCEDURES .........................................6
1.7. INDEMNIFICATION .................................................7
1.7. INFORMATION BY HOLDER ...........................................9
1.8. LIMITATIONS ON REGISTRATION OF ISSUES OF SECURITIES .............9
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 ................................................................12
MISCELLANEOUS ............................................................12
2.1. GOVERNING LAW ..................................................12
2.2. SUCCESSORS AND ASSIGNS .........................................13
2.3. ENTIRE AGREEMENT; AMENDMENT; WAIVER ............................13
2.4. NOTICES, ETC. ..................................................13
i
<PAGE>
2.5. SEPARABILITY ...................................................13
2.6. INFORMATION CONFIDENTIAL .......................................13
2.7. TITLES AND SUBTITLES ...........................................13
2.8. COUNTERPARTS ...................................................13
</TABLE>
ii
<PAGE>
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.
1
<PAGE>
(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.
(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:
2
<PAGE>
(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 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.
3
<PAGE>
(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 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
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(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 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.
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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 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
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(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 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).
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(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 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
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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.
(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.
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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 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
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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.
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
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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 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.
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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.
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.
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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
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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
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Exhibit 10.3
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.
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"CERTIFICATE" shall mean the Certificate of Incorporation of the Company,
as amended and/or restated from time to time.
"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.
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"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").
2.2 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.
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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.
3.1 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
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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.
4.3 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
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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.
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
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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.
* * * *
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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
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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
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PRINCIPAL STOCKHOLDERS:
TURKEY VULTURE FUND XIII, LTD.
By: /s/ Richard M. Osborne
-------------------------------------
Richard M. Osborne, Manager
Address: 7001 Center Street
Mentor, Ohio 44060
RICHARD M. OSBORNE TRUST
By: : /s/ Richard M. Osborne
-----------------------------------
Richard M. Osborne, Trustee
Address: 7001 Center Street
Mentor, Ohio 44060
LIBERTY SELF STOR, LTD.
By: : /s/ Richard M. Osborne
-----------------------------------
Richard M. Osborne, Managing Member
Address: 7001 Center Street
Mentor, Ohio 44060
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Exhibit 99.1
NEWS RELEASE
FOR RELEASE: SEPTEMBER 22, 1998
PACIFIC GATEWAY PROPERTIES ANNOUNCES
ISSUANCE OF $3,000,000 OF SERIES 1 CONVERTIBLE PREFERRED STOCK
SAN FRANCISCO, CALIFORNIA ....Pacific Gateway Properties (PGP-AMEX) announced
today that it has completed the private placement of 300,000 shares of Series 1
Convertible Preferred Stock for $3,000,000 to GEM Value/PGP, L.L.C., an
affiliate of GEM Value Fund, L.P. (GEM).
GEM's 300,000 preferred shares are convertible into PGP's common shares on a one
for one basis and have the same voting rights. GEM Value Fund, L.P. also owns
101,700 shares of PGP's common stock which it had acquired in open market
purchases prior to entering into discussions to invest in PGP's preferred stock.
GEM's common and preferred stock holdings in PGP represent 9.5% of the total
preferred and common shares outstanding and entitled to vote.
The preferred stock will receive dividends, if any, from PGP's operating cash
flow on a pari passu basis with common shareholders. The agreement with GEM
does not require PGP to make any distributions. In the event of a full or
partial liquidation of PGP, the preferred shareholders will be entitled to a
liquidation preference of $10.00 per share. GEM also received customary
registration rights for the common stock issuable upon conversion of the
preferred stock.
In addition, GEM has entered into an agreement with PGP and three entities
controlled by PGP's Chairman, Richard Osborne, whereby, GEM has a "tag along"
right to sell its preferred shares on a pro rata basis with the Osborne
controlled entities. This right is exercisable should any of the Osborne
controlled entities sell cumulatively in excess of 200,000 shares of PGP's
common stock.
It was further agreed that Norman S. Geller, co-founder of GEM Investors, Inc.,
an affiliate of GEM, will be nominated for election to PGP's board of directors
at the 1998 Annual Meeting of Shareholders scheduled for October 26, 1998.
-MORE-
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Raymond Marino, President & CEO of PGP, commented, "GEM's investment in PGP
demonstrates PGP's ability to attract new investors that share our vision for
the Company's future. The funds raised from the GEM investment will be combined
with existing cash reserves of PGP to be used on possible future opportunistic
investments."
Pacific Gateway Properties, a San Francisco based real estate investment company
owns several Bay Area properties located in Walnut Creek, San Jose, San
Francisco, and a 23% partnership interest in Rincon Center in San Francisco.
PGP also owns properties in Arizona, Florida and Massachusetts.
FOR MORE INFORMATION CONTACT: RAYMOND MARINO, PRESIDENT & CEO
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