FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1999
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Commission file number 1-8966
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SJW Corp.
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(Exact name of registrant as specified in its charter)
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California 77-0066628
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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374 West Santa Clara Street, San Jose, CA 95196
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(Address of principal executive offices) (Zip Code)
408-279-7800
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year changed since
last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Common shares outstanding as of November 12, 1999 and as of the
date of this report are 3,045,147.
---------
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
--------------------
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands, except share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
--------------------------------------
Operating revenue $ 37,661 35,821 88,916 80,665
Operating expense:
Operation:
Purchased water 10,015 9,187 21,085 18,646
Power 1,298 1,328 2,814 2,627
Pump taxes 5,396 4,996 11,676 9,682
Other 5,143 4,414 14,638 12,975
Maintenance 1,805 1,697 5,087 5,198
Property and other
nonincome taxes 999 916 2,861 2,653
Depreciation and
amortization 2,558 2,392 7,674 7,188
Income taxes 3,657 3,923 7,586 7,348
Total operating -------------------------------------
expenses 30,871 28,853 73,421 66,317
--------------------------------------
Operating income 6,790 6,968 15,495 14,348
Gain on sale on nonutility
property, net of tax - - - 1,629
Dividend 298 294 895 883
Interest and other charges (1,855) (1,543) (5,533) (4,686)
Other income 176 88 407 349
-------------------------------------
Net income $ 5,409 5,807 11,264 12,523
======================================
Other comprehensive
income(loss):
Unrealized gain(loss)
on investment 1,375 (2,749) (4,331) (7,596)
Income taxes related to
other comprehensive
income (loss) (564) 1,127 1,776 3,114
--------------------------------------
Other comprehensive
income (loss), net 811 (1,622) (2,555) (4,482)
---------------------------------------
Comprehensive income $ 6,220 4,185 8,709 8,041
=======================================
Basic earnings per
share $ 1.78 1.83 3.68 3.95
Comprehensive income
per share 2.04 1.32 2.85 2.54
Dividends per share $ .60 0.585 1.80 1.755
Weighted average
shares outstanding 3,045,147 3,170,347 3,058,258 3,170,347
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
SEPTEMBER 30 DECEMBER 31
1999 1998
ASSETS -------------------------
Utility plant and intangible
assets $ 425,087 403,227
Less accumulated depreciation and
amortization 130,418 122,809
-------------------------
Net utility plant 294,669 280,418
Nonutility property 11,295 11,360
Current assets:
Cash and equivalents 1,074 8,066
Accounts receivable and accrued revenue 17,740 11,910
Prepaid expenses and other 1,409 1,249
-------------------------
Total current assets 20,223 21,225
Other assets:
Investment in California Water
Service Group 30,111 34,442
Debt issuance and reacquisition costs 3,920 4,032
Regulatory assets 5,160 5,137
Goodwill 1,936 2,000
Other 713 766
-------------------------
Total other assets 41,840 46,377
-------------------------
$ 368,027 359,380
=========================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 9,516 9,899
Additional paid-in capital 12,356 19,085
Retained earnings 110,266 104,553
Accumulated other comprehensive income 7,057 9,612
Shareholders' equity 139,195 143,149
Long-term debt 90,000 90,000
-------------------------
Total capitalization 229,195 233,149
Current liabilities:
Line of credit 2,900 -
Accrued interest 1,989 2,720
Accounts payable 1,373 2,163
Accrued pump taxes and purchased water 4,791 2,423
Accrued taxes 4,318 1,353
Other current liabilities 3,832 3,095
-------------------------
Total current liabilities 19,203 11,754
Deferred income taxes and tax credits 26,452 27,790
Advances for and contributions in aid
of construction 89,614 83,771
Other noncurrent liabilities 3,563 2,916
-------------------------
$ 368,027 359,380
=========================
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30
1999 1998
Operating activities: ---------------------
Net income $ 11,264 12,523
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 7,674 7,188
Deferred income taxes and credits (1,338) (1,311)
Gain on sale of nonutility property - (1,629)
Changes in operating assets and liabilities:
Accounts receivable and accrued revenue (5,830) (6,689)
Prepaid expenses and other (160) (129)
Accounts payable and other
current liabilities (53) 3,685
Accrued pump taxes and purchased water 2,368 2,279
Accrued taxes 2,965 4,287
Accrued interest (731) (1,007)
Other changes, net 2,923 1,809
------------------
Net cash provided by operating activities 19,082 21,006
------------------
Investing activities:
Additions to utility plant (22,589) (26,493)
Additions to nonutility property (64) (4,362)
Cost to retire utility plant (295) (95)
Net proceeds from sale of nonutility
property - 3,073
------------------
Net cash used in investing activities (22,948) (27,877)
------------------
Financing activities:
Dividends paid (5,552) (5,564)
Borrowings from line of credit 2,900 4,700
Advances and contributions in aid of
construction 7,809 5,407
Refunds of advances (1,172) (1,090)
Purchase and retirement of common stock (7,111) -
Net cash provided by (used in)financing
activities (3,126) 3,453
-------------------
Net change in cash and equivalents (6,992) (3,418)
Cash and equivalents, beginning of period 8,066 3,832
Cash and equivalents, end of period $ 1,074 414
==================
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 6,069 5,498
Income taxes 5,027 3,138
SJW CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE I - General
In the opinion of SJW Corp., the accompanying unaudited
condensed consolidated financial statements contain all
adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the
results for the interim periods.
The Notes to Consolidated Financial Statements incorporated
by reference in SJW Corp.'s 1998 Annual Report on Form 10-K
should be read with the accompanying condensed consolidated
financial statements.
NOTE II - Merger
On October 28, 1999, SJW Corp. entered into an agreement
with American Water Works Company ("American") by which SJW
Corp. shall merge with and into American. Under the terms
of agreement the shareholders of SJW Corp. will receive an
aggregate of approximately $390 million in cash. American
will assume outstanding SJW Corp. indebtedness. The
business combination will be accounted for as a purchase
transaction and is expected to close in the third quarter of
2000 after regulatory approvals are received.
NOTE III Joint Venture
In September, 1999 SJW Land Company formed a
limited partnership with a real estate developer whereby
SJW Land contributed real property at 444 West Santa Clara
Street in exchange for a 70% limited partnership interest.
The real property will be developed into an office building
under the management of the real estate developer who is the
general partner.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
SJW Corp. and its subsidiaries have a commercial bank line
of credit that provides for unsecured borrowings of up to
$28,000,000 at rates which approximate the bank's prime or
reference rate. At September 30, 1999, SJW Corp. had
available an unused short-term bank line of credit of
$25,100,000.
San Jose Water Company's capital expenditures are incurred
in connection with environmental regulations. Capital
expenditures for the next five years are likely to increase
from historical levels due to the addition of new, or
expansion of existing, water treatment and source of supply
facilities and to comply with environmental regulations.
Net capital expenditures for 1999 are estimated at
$21,400,000. For the five year period from 1999 to 2003,
San Jose Water Company's net capital expenditures are
estimated to aggregate $110,000,000. Net capital
expenditures represent gross capital expenditures less
advances and contributions in aid of construction.
General:
SJW Corp. is a holding company created in 1985 through an
agreement of merger with San Jose Water Company. SJW Corp.
has operational and financial flexibility and can engage in
nonregulated activities. SJW Corp. owns 1,099,952 shares of
California Water Service Group.
San Jose Water Company is a public utility in the business
of providing water service to approximately 971,000 people
in the metropolitan San Jose area.
SJW Land Company, a wholly owned subsidiary, was formed in
1985 for the purpose of real estate development. It
operates parking facilities located adjacent to the
Company's headquarters and the San Jose Arena.
Results of Operations (dollars in thousands):
-------------------------------------------
Overview
SJW Corp.'s consolidated net income for the third quarter of
1999 was $5,409, a decrease of 7% from $5,807 in the third
quarter of 1998.
Earnings for the nine months of 1999 decreased 10% from the
same period in 1998. Included in the 1998 nine months
results was a net of tax nonrecurring gain on sale of land
of $1,629.
Operating Revenue
The change in consolidated operating revenue from the same
period in 1998 was due to the following factors:
Operating Revenue
Three months ended Nine months ended
September 30 1999vs1998 September 30 1999vs1998
Increase/(decrease) Increase/(decrease)
---------------------------------------------------------
Utility:
Consumption ($1,146) (3.2)% 2,784 3.4%
New customers 254 0.7 578 0.7
Rate increases 2,705 7.6 4,654 5.8
Real estate 27 0.1 235 0.3
--------------------------------------------------------
$1,840 5.2% 8,251 10.2%
========================================================
Average usage per metered customer in the third quarter of
1999 was 3.6% lower than the third quarter of 1998. Year-to-
date metered customer usage increased 4% in comparison to
the same period in 1998.
Operating Expense
The change in consolidated operating expense, excluding
income taxes, from the same period in 1998 was due to the
following:
Operating
Expense Three months ended Nine months ended
September 30 1999vs1998 September 30 1999vs1998
Increase/(decrease) Increase/(decrease)
-----------------------------------------------------------
Operation and
maintenance $2,035 8.2% 6,172 10.5%
Depreciation 166 0.6 486 0.8
General taxes 83 0.3 208 0.3
-----------------------------------------------------------
$2,284 9.1% 6,866 11.6%
The higher third quarter operation and maintenance expense
in 1999 was attributable to increased water production cost
as a result of rate increases in Santa Clara Valley Water
District's purchased water and pump tax costs. Year-to-date
operation and maintenance expense for 1999 increased due to
the above-mentioned cost increase and higher customer water
consumption.
Other
The effective income tax rate in the third quarter of 1999
was 40%, which approximates the third quarter of 1998. Nine
months year-to-date income tax rate was comparable to the
income tax rate for the same period in 1998.
Since the water business is highly seasonal in nature, a
comparison of the revenue and expense of the current quarter
with the immediately preceding quarter would not be
meaningful. Results of the first nine months of 1999 may
not be indicative of results for the full year.
Water Supply
On November 1, 1999, Santa Clara Valley Water District's 10
reservoirs were 56% full with 94,314 acre feet of water in
storage -- which is about average for the past 20 years.
While at the same time, the water level in the Santa Clara
ground water basin and the year to date rainfall
approximated the 30-year average.
Regulatory Affairs
The Public Utilities Commission of California rendered a
rate decision on July 22, 1996, approving an average annual
rate increase of 1.25% through 1999 for San Jose Water
Company. These rate increases are based on rates of return
on ratebase of 9.28% and 9.25% for the years 1996 and 1997,
respectively, reflecting a return on common equity of 10.2%.
The increases for 1998 and 1999 are to offset operational
and financial attrition.
On July 1, 1999, San Jose Water Company was approved for an
offset rate increase in the amount of $3,304 or 3.2% to
offset the purchased water and pump tax rate increase
instituted by the Santa Clara Valley Water District. Offset
rate increase is a cost reimbursement and is not designed to
increase the earnings of the utility.
Year 2000 Compliance
San Jose Water Company executives, as part of their
operating duties, are evaluating the company's information
technology (IT) and non-IT systems to ensure all systems are
prepared for the Year 2000 (Y2K). The company generally
uses software packages and hardware that are Y2K assured.
The company has received confirmation from various software
and hardware vendors, as well as independent testers, that
the systems are Y2K ready.
San Jose Water Company has an IT master plan that identifies
systems that need to be replaced due to age, or need to be
modified to generate operating and customer service
benefits. The systems that are currently identified as non-
assured were all upgraded as part of the IT master plan.
The last of these upgrades were completed in October, 1999.
Management also contacted critical third party suppliers
regarding their Y2K readiness. Suppliers of water, power,
and other goods are critical to San Jose Water Company's
operations. The suppliers described their state of
readiness and contingency plans, if available. The company's
wholesale supplier, Santa Clara Valley Water District
(SCVWD), relies on the supply from the state government's
Department of Water Resources (DWR). As of today, DWR has
completed the modifications required to be Y2K assured, and
the DWR consultant has completed its audit on the
enhancement. Contingency plans are in place to supply the
SCVWD system by gravity from Anderson Reservoir.
To date there have been no significant costs associated
solely with Y2K issues. The company does not anticipate
incurring material future costs directly related to the Y2K,
such as modifying software and hiring Y2K solution
providers. No major IT projects have been deferred due to
Y2K issues. The costs of identifying the issues, evaluating
the systems, inquiring about third party suppliers' Y2K
preparedness, and any testing are currently being expensed.
Future Y2K assurance consulting costs are expected to
approximate $10.
San Jose Water Company has Y2K contingency plans covering
accounting, operations, and information systems. These
plans have been modified as additional information became
available. In the worst case scenario, if SCVWD is unable
to provide water to the company, power supplies are
interrupted, and the computer system that controls the water
distribution function fails, the company may be able to use
its standby generators to pump limited water from its wells
to the distribution system.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In 1993, Valley Title Company and its insurer claimed in a
lawsuit that a fire service pipeline ruptured, causing water
and heating oil to flood the title company's basement. In
April 1995, San Jose Water Company's insurance carrier
settled the property damage claim of plaintiff insurance
company for $3.5 million.
The jury separately awarded plaintiff title company $3
million for its loss of business documents. A unanimous
appellate court reversed this decision, and in January 1998,
the California Supreme Court denied review of that reversal.
In July 1998, Maxxum Management Company, successor to Valley
Title Company, filed a new lawsuit against San Jose Water
Company. The litigation was based upon the same facts as
the first lawsuit but alleged a cause of action in inverse
condemnation. San Jose Water Company has recently succeeded
in having the case dismissed by the court of appeal and the
case is concluded.
Item 5. OTHER INFORMATION
On October 28, 1999, the Board of Directors declared the
regular quarterly dividend of $.60 per common share. The
dividend will be paid December 1, 1999 to shareholders of
record as of the close of business on November 8, 1999.
In the same meeting, the Board of Directors also
rescinded a stock repurchase program which was initiated
in October 1998 under which the corporation was
authorized to repurchase up to 250,000 shares of its
common stock at open market prices. As of September 30,
1999, the Corporation has repurchased 125,200 shares at
the prevailing market price at an aggregate cost of
$7,271,000 of which $7,111,000 was repurchased during the
first quarter of 1999. The shares repurchased have been
cancelled and are considered authorized and unissued.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits required to be filed by Item 601 of
Regulation S-K.
See Exhibit Index on Page 12 of this document which is
incorporated herein by reference.
The exhibits filed herewith are attached hereto and
those indicated on the Exhibit Index which are not filed
herewith were previously filed with the Securities
Exchange Commission as noted in the following list.
Except where stated otherwise, such exhibits are hereby
incorporated by reference.
(b.) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter ended September 30, 1999.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Corporation has no derivative financial instruments,
financial instruments with significant off-balance sheet
risks, or financial instruments with concentrations of
credit risk. There is no material sensitivity to changes
in market rates and prices.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SJW Corp.
Date: November 12, 1999 By /s/Angela Yip
------------------ ------------------
Angela Yip,
Chief Financial Officer
EXHIBIT INDEX
Exhibit Description Located in
No. Sequentially
Numbered Copy
2 Plan of Acquisition, Reorganization,
Arrangement, Liquidation or Succession:
2.5 Agreement and Plan of Merger dated as of
October 28, 1999 among American Water Works
Company, Inc., SJW Acquisition Corporation
and SJW Corp. 13 - 79
10.12 Sixth Amendment to San Jose Water Company's
Executive Supplemental Retirement Plan 80 - 81
10.13 Amendment to SJW Corp.'s Executive Severance
Plan 82 - 85
10.14 SJW Corp.'s Transaction Incentive and
Retention Program for Key Employees 86 - 95
10. 15 Resolution for Directors' Retirement Plan
adopted by SJW Corp. Board of Directors as
amended on September 22, 1999 96
10.16 Resolution for Directors' Retirement Plan
adopted by San Jose Water Company's Board of
Directors as amended on September 22, 1999 97
10.17 Resolution for Directors' Retirement Plan
adopted by SJW Land Company Board of Directors
on September 22, 1999 98
10.18 Limited Partnership Agreement of 444 West
Santa Clara Street, L. P. executed between
SJW Land Company and Toeniskoetter & Breeding,
Inc. Development 99 - 213
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 28, 1999
among
AMERICAN WATER WORKS COMPANY, INC.,
SJW ACQUISITION CORP.
and
SJW CORP.
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER 1
1.1. The Merger 1
1.2. Closing 1
1.3. Effective Time 2
1.4. Effects of the Merger 2
1.5. Articles of Incorporation 2
1.6. By-Laws 2
1.7. Officers and Directors of Surviving Corporation 2
1.8. Effect on Capital Stock. 2
1.9. Further Assurances 3
ARTICLE II EXCHANGE OF CERTIFICATES 4
2.1. Exchange Fund 4
2.2. Exchange Procedures 4
2.3. No Further Ownership Rights in SJW Common Stock 4
2.4. Termination of Exchange Fund 5
2.5. No Liability 5
2.6. Investment of the Exchange Fund 5
2.7. Lost Certificates 5
2.8. Withholding Rights 5
2.9. Stock Transfer Books 6
ARTICLE III REPRESENTATIONS AND WARRANTIES 6
3.1. Representations and Warranties of SJW 6
3.2. Representations and Warranties of Parent 17
3.3. Representations and Warranties of Parent and
Merger Sub 19
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 20
4.1. Covenants of SJW 20
4.2. Covenants of Parent 24
4.3. Advice of Changes; Governmental Filings 24
4.4. Transition Planning; Continued Operations of
SJW 24
4.5. Control of SJW's Business 25
ARTICLE V ADDITIONAL AGREEMENTS 25
5.1. Preparation of SJW Proxy Statement; SJW
Shareholders Meeting. 25
5.2. Access to Information 26
5.3. Reasonable Best Efforts. 27
5.4. Acquisition Proposals. 28
5.5. Employee Benefits Matters. 30
5.6. Fees and Expenses 31
5.7. Directors' and Officers' Indemnification and
Insurance. 31
5.8. Public Announcements 33
5.9. Disclosure Schedule Supplements 33
ARTICLE VI CONDITIONS PRECEDENT 33
6.1. Conditions to Each Party's Obligation to Effect
the Merger 33
6.2. Additional Conditions to Obligations of Parent and
Merger Sub 34
6.3. Additional Conditions to Obligations of SJW 35
ARTICLE VII TERMINATION AND AMENDMENT 35
7.1. Termination 35
7.2. Effect of Termination. 37
7.3. Amendment 37
7.4. Extension; Waiver 38
ARTICLE VIII GENERAL PROVISIONS 38
8.1. Non-Survival of Representations, Warranties and
Agreements 38
8.2. Notices 38
8.3. Interpretation 39
8.4. Counterparts 39
8.5. Entire Agreement; No Third Party Beneficiaries.40
8.6. Governing Law 40
8.7. Severability 40
8.8. Assignment 40
8.9. Submission to Jurisdiction; Waivers 40
8.10. Enforcement 41
8.11. Definitions 41
8.12. Other Agreements 42
GLOSSARY OF DEFINED TERMS
Definition Location of Definition
1935 Act Section 3.1(t)
Acquisition Proposal Section 5.4
Agreement Preamble
AMEX Section 3.1(c)(iii)
Benefit Plans Section 8.11(a)
Board of Directors Section 8.11(b)
Business Day Section 8.11(c)
CCC Section 1.1
Certificate Section 1.8(b)
Closing Section 1.2
Closing Date Section 1.2
Code Section 2.8
Confidentiality Agreement Section 5.2
Contracts Section 3.1(c)(ii)
Delaware Certificate of Merger Section 1.3
Delaware General Corporation Law Section 1.1
Dissenting Shares Section 1.8(e)
DOJ Section 5.3(b)
DRIP Section3.1(b)(i)
Encumbrances Section 3.1(b)(iv)
Effective Time Section 1.3
Environmental Claim Section 3.1(g)(v)(A)
Environmental Law Section 3.1(g)(v)(B)
ERISA Section 3.1(h)(i)
Exchange Act Section 3.1(c)(iii)
Exchange Agent Section 2.1
Exchange Fund Section 2.1
Expenses Section 5.6
Final Order Section 6.1(c)
GAAP Section 3.1(d)
Governmental Entity Section 3.1(c)(iii)
Hazardous Materials Section 3.1(g)(v)(C)
Health Agencies Section 3.1(c)(iii)
HSR Act Section 3.1(c)(iii)
Indemnified Parties Section 5.7(a)
knowledge Section 8.11(d)
Laws Section 3.1(c)(ii)
Material Adverse Effect Section 8.11(e)
Merger Recitals
Merger Consideration Section 1.8(a)
Merger Sub Preamble
Orders Section 3.1(c)(ii)
Parent Preamble
Parent Financial Advisor Section 3.2(e)
Parent Ordinary Shares Section 3.1(v)
Person Section 8.11(g)
PUCs Section 3.1(c)(iii)
Release Section 3.1(g)(v)(D)
Required SJW Vote Section 3.1(p)
Rights Section 3.1(b)(i)
Rights Plan Section 3.1(b)(i)
SEC Section 3.1(d)
Significant Subsidiary Section 8.11(h)
SJW Preamble
SJW Board Approval Section 3.1(o)
SJW Common Stock Recitals
SJW Disclosure Schedule Section 3.1
SJW Employees Section 5.5(b)(i)
SJW Financial Advisor Section 3.1(r)
SJW Proxy Statement Section 5.1(a)
SJW Required Consents. Section 3.1(c)(iii)
SJW SEC Reports Section 3.1(d)
SJW Shareholders Meeting Section 5.1(b)
SJW Voting Debt Section 3.1(b)(ii)
Subsidiary Section 8.11(h)
Superior Proposal. Section 8.11(i)
Surviving Corporation Section 1.1
Tax Return Section 3.1(k)(vi)
Taxes Section 3.1(k)(vi)
Termination Date Section 7.1(b)
Termination Fee Section 7.2(b)
Violation Section 3.1(c)(ii)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 28,
1999 (this "Agreement"), among American Water Works Company,
Inc., a Delaware corporation ("Parent"), SJW Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Parent
("Merger Sub"), and SJW Corp., a California corporation ("SJW").
W I T N E S S E T H :
WHEREAS, the respective Boards of Directors of the
Parent, Merger Sub and SJW have each determined that this
Agreement and the merger of Merger Sub with and into SJW (the
"Merger") in accordance with the provisions of this Agreement are
advisable and in the best interests of their respective
shareholders, and such Boards of Directors have approved such
Merger, upon the terms and subject to the conditions set forth in
this Agreement, pursuant to which the holders of shares of common
stock, $3.125 par value, of SJW ("SJW Common Stock") will be
converted into the right to receive the Merger Consideration (as
defined in Section 1.8) for each share of SJW Common Stock issued
and outstanding immediately prior to the Effective Time (as
defined in Section 1.3) (other than shares of SJW Common Stock
that are owned or held directly or indirectly by Parent or SJW
which shall be canceled as provided in Section 1.8, and
Dissenting Shares (as defined in Section 1.8)), and SJW will
become a wholly-owned subsidiary of Parent;
WHEREAS, Parent, Merger Sub and SJW desire to make
certain representations, warranties, covenants and agreements in
connection with the transactions contemplated hereby and also to
prescribe various conditions to the transactions contemplated
hereby;
WHEREAS, as an inducement for Parent to enter into this
Agreement, certain stockholders of SJW have entered into voting
support agreements; and
NOW, THEREFORE, in consideration of the foregoing and
the respective representations, warranties, covenants and
agreements set forth herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger.
Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the California Corporation Code
(the "CCC") and Delaware General Corporation Law (the "DGCL"), Merger Sub
shall be merged with and into SJW at the Effective Time. Following the
Merger, the separate corporate existence of Merger Sub shall cease and
SJW shall continue as the surviving corporation (the "Surviving Corporation").
1.2. Closing.
The closing of the Merger (the "Closing") will take
place at 10:00 a.m., Pacific time, as soon as practicable, but in
any event not later than the third Business Day, after the
satisfaction or waiver (subject to any applicable Law or Order
(each as defined in Section 3.1(c)) of the conditions (excluding
conditions that, by their terms, cannot be satisfied until the
Closing Date) set forth in Article VI (the "Closing Date"),
unless another time or date is agreed to in writing by the
parties hereto. The Closing shall be held at the offices of
Brobeck, Phleger & Harrison LLP, Spear Street Tower, One Market,
San Francisco, CA 94105, unless another place is agreed to in
writing by the parties hereto.
1.3. Effective Time.
On the Closing Date, the parties shall (i) file
agreements of merger (or like instruments) (collectively, the
"Agreement of Merger") in such form as is required by and
executed in accordance with the relevant provisions of the CCC
and DGCL and (ii) make all other filings or recordings required
under the CCC and DGCL. The Merger shall become effective at such
time as the Agreement of Merger has been duly filed with the
California Secretary of State and the Delaware Secretary of State
or at such subsequent time as Parent and SJW shall agree and be
specified in the Agreement of Merger (the date and time the
Merger becomes effective being the "Effective Time").
1.4. Effects of the Merger.
At and after the Effective Time, the Merger will
have the effects set forth in the CCC. Without limiting the
generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and
franchises of SJW and Merger Sub shall be vested in the Surviving
Corporation, and all debts, liabilities and duties of SJW and
Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
1.5. Articles of Incorporation.
At the Effective Time, the articles of incorporation
of the Surviving Corporation shall be amended in accordance with
*the CCC to read in its entirety as set forth in Exhibit 1.5
hereto until thereafter amended as provided therein and under the
CCC.
1.6. By-Laws.
The by-laws of Merger Sub as in effect at the
Effective Time shall be the by-laws of the Surviving Corporation
until thereafter changed or amended as provided therein and under
applicable Law or Order.
1.7. Officers and Directors of Surviving Corporation.
The officers of SJW as of the Effective Time shall
be the officers of the Surviving Corporation, until the earlier
of their resignation or removal or otherwise ceasing to be an
officer or until their respective successors are duly elected and
qualified, as the case may be. The directors of Merger Sub as of
the Effective Time shall be the directors of the Surviving
Corporation until the earlier of their resignation or removal or
otherwise ceasing to be a director or until their respective
successors are duly elected and qualified.
1.8. Effect on Capital Stock.
(a) At the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, each share of SJW
Common Stock issued and outstanding immediately prior to th Effective
Time (other than shares of SJW Common Stock that are 100% owned or held
directly or indirectly by Parent or SJW, which shall be canceled as
provided in Section 1.8(c) and Dissenting Shares) shall be converted into
the right to receive, subject to the provisions of Article II, $128.00
in cash (the "Merger Consideration"), without any interest or dividends
thereon, except as provided in Section 2.3.
(b) As a result of the Merger and without any action on
the part of the holders thereof, at Effective Time, all shares of SJW
Common Stock shall cease to be outstanding and shall be canceled
and shall cease to exist, and each holder of a certificate which
immediately prior to the Effective Time represented any such
shares of SJW Common Stock (a "Certificate") shall thereafter
cease to have any rights with respect to such shares of SJW
Common Stock, except the right to receive the applicable Merger
Consideration, other than with respect to SJW Common Stock to be
canceled in accordance with Section 1.8(c) and Dissenting Shares,
in accordance with Article II upon the surrender of such
Certificate.
(c) Each share of SJW Common Stock issued that is 100%
owned or held directly or indirectly by Parent or SJW at the Effective
Time shall, by virtue of the Merger, cease to be outstanding and
shall be canceled and no payment or other consideration shall be
delivered in exchange therefor.
(d) Each share of common stock, par value $.01 per share,
of Merger Sub issued and outstanding immediately prior to the
Effective Time, shall be converted into one share of common
stock, par value $.01 per share, of the Surviving Corporation as
of the Effective Time.
(e) Notwithstanding any other provision of this
Agreement shares of SJW Common Stock issued and outstanding
immediately prior to the Effective Time and held by a holder who has
voted against the approval of this Agreement and who has demanded the
payment of such shares at fair value in accordance with
Section 1301 of the CCC ("Dissenting Shares") shall not be
converted into a right to receive the Merger Consideration but
shall be converted into the right to receive such consideration
as may be determined to be due to such holder pursuant to the
CCC, unless such holder fails to perfect such demand for payment
within the period prescribed by the CCC or withdraws or otherwise
loses such holder's right to payment under the CCC. If, after the
Effective Time, such holder fails to perfect such demand for
payment or withdraws or loses such holder's right to payment,
such Dissenting Shares shall be treated as if they had been
converted as of the Effective Time into the right to receive the
Merger Consideration, without interest or dividends thereon,
except as provided in Section 2.3. SJW shall give Merger Sub
prompt notice of any written demands received by SJW for payment
of fair value for shares of SJW Common Stock, withdrawals of such
demands, and other instruments served pursuant to the CCC and
received by SJW and relating thereto. Parent shall direct all
negotiations and proceedings with respect to such demands for
payment. Prior to the Effective Time, SJW shall not, except with
the prior written consent of Merger Sub or as required under
applicable law, make any payment with respect to, or settle or
offer to settle, any such demands.
1.9. Further Assurances.
At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of SJW or Merger
Sub, any deeds, bills of sale, assignments or assurances and to
take and do, in the name and on behalf of SJW or Merger Sub, any
other actions and things to vest, perfect or confirm of record or
otherwise in the Surviving Corporation any and all right, title
and interest in, to and under any of the rights, properties or
assets acquired or to be acquired by the Surviving Corporation as
a result of, or in connection with, the Merger.
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1. Exchange Fund.
Prior to the Effective Time, Parent shall designate
a commercial bank or trust company selected by Parent and
reasonably acceptable to SJW to act as exchange agent hereunder
for the purpose of exchanging Certificates for the Merger
Consideration (the "Exchange Agent"). At or prior to the
Effective Time, Parent shall deposit or cause to be deposited
with the Exchange Agent, in trust for the benefit of holders of
shares of SJW Common Stock, the aggregate amount of cash to be
paid pursuant to Section 1.8 in exchange for outstanding shares
of SJW Common Stock (other than shares of SJW Common Stock that
are 100% owned or held directly or indirectly by Parent or SJW
which shall be canceled as provided in Section 1.8(c) and
Dissenting Shares). Parent shall, or shall cause the Surviving
Corporation to make available to the Exchange Agent from time to
time as needed, cash sufficient to pay any dividends pursuant to
Section 2.3. Any cash deposited with the Exchange Agent shall
hereinafter be referred to as the "Exchange Fund".
2.2. Exchange Procedures
As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the
Exchange Agent to mail to each holder of a Certificate (i) a
letter of transmittal which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange
Agent, and which letter shall be in customary form and have such
other provisions as Parent may reasonably specify and (ii)
instructions for effecting the surrender of such Certificates in
exchange for the Merger Consideration. Upon surrender of a
Certificate to the Exchange Agent together with such letter of
transmittal, duly executed and completed in accordance with the
instructions thereto, and such other documents as may reasonably
be required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor a check in the
aggregate amount equal to (A) the Merger Consideration multiplied
by the number of shares of SJW Common Stock formerly represented
by such Certificate and (B) any dividends payable in accordance
with Section 2.3 less any required withholding of taxes as
provided in Section 2.8. No interest will be paid or will accrue
on any cash payable pursuant to the preceding sentence. In the
event of a transfer of ownership of SJW Common Stock which is not
registered in the transfer records of SJW, a check in the proper
amount of cash for the appropriate Merger Consideration and any
dividends payable in accordance with Section 2.3 may be paid with
respect to such SJW Common Stock to such a transferee if the
Certificate formerly representing such shares of SJW Common Stock
is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence
that any applicable stock transfer taxes have been paid or are
not payable. The Exchange Fund shall not be used for any purpose
other than as set forth in this Article II.
2.3. No Further Ownership Rights in SJW Common Stock
Cash paid upon conversion of shares of SJW Common
Stock in accordance with the terms of Article I and this Article
II shall be deemed to have been paid in full satisfaction of all
rights pertaining to the shares of SJW Common Stock, subject,
however, to the Surviving Corporation's obligation, if any, to
pay any dividends or make any other distributions with a record
date prior to the Effective Time which may have been declared or
made by SJW on such shares of SJW Common Stock prior to the date
of this Agreement and which remain unpaid at the Effective Time.
2.4. Termination of Exchange Fund
Any portion of the Exchange Fund which remains
undistributed to the holders of Certificates for twelve months
after the Effective Time shall be delivered to the Surviving
Corporation or otherwise on the instruction of the Surviving
Corporation, and any holders of the Certificates who have not
theretofore complied with this Article II shall thereafter look
only to the Surviving Corporation and Parent for the Merger
Consideration with respect to the shares of SJW Common Stock
formerly represented thereby to which such holders are entitled
pursuant to Section 1.8 and Section 2.2, and any dividends on
shares of SJW Common Stock to which such holders are entitled
pursuant to Section 2.3.
2.5. No Liability
None of Parent, Merger Sub, SJW, the Surviving
Corporation or the Exchange Agent shall be liable to any Person
in respect of any Merger Consideration or dividends from the
Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar Law.
2.6. Investment of the Exchange Fund
The Exchange Agent shall invest any cash included in
the Exchange Fund only in one or more of the following
investments as directed by the Surviving Corporation from time to
time: (i) obligations of the United States government maturing
not more than 180 days after the date of purchase; (ii)
certificates of deposit maturing not more than 180 days after the
date of purchase issued by a bank organized under the laws of the
United States or any state thereof having a combined capital and
surplus of at least $500,000,000; (iii) a money market fund
having assets of at least $3,000,000,000; or (iv) tax-exempt or
corporate debt obligations maturing not more than 180 days after
the date of purchase given the highest investment grade rating by
Standard & Poor's and Moody's Investor Service. Any interest and
other income resulting from such investments shall promptly be
paid to the Surviving Corporation.
2.7. Lost Certificates
If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed
and, if required by the Surviving Corporation, the posting by
such Person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange
Agent will deliver in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration with respect to
the shares of SJW Common Stock formerly represented thereby and
unpaid dividends, if any, on shares of SJW Common Stock
deliverable in respect thereof, pursuant to this Agreement.
2.8. Withholding Rights
Each of the Surviving Corporation and Parent shall
be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of
shares of SJW Common Stock such amounts as it is required to
deduct and withhold with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder (the "Code"), or any
provision of state, local or foreign tax Law or Order. To the
extent that amounts are so withheld by the Surviving Corporation
or Parent, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to
the holder of the shares of SJW Common Stock in respect of which
such deduction and withholding was made by the Surviving
Corporation or Parent, as the case may be.
2.9. Stock Transfer Books
At the close of business, Pacific time, on the day
Effective Time occurs, the stock transfer books of SJW shall be
closed and there shall be no further registration of transfers of
shares of SJW Common Stock thereafter on the records of SJW. From
and after the Effective Time, the holders of Certificates shall
cease to have any rights with respect to such shares of SJW
Common Stock formerly represented thereby, except as otherwise
provided herein or by Law. On or after the Effective Time, any
Certificates presented to the Exchange Agent or Parent for any
reason shall be exchanged for the Merger Consideration with
respect to the shares of SJW Common Stock formerly represented
thereby and any dividends to which the holders thereof are
entitled pursuant to Section 2.3.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of SJW
Except as set forth in the Disclosure Schedule
delivered by SJW to Parent prior to the execution of this
Agreement (the "SJW Disclosure Schedule"), SJW represents and
warrants to Parent as follows:
(a) Organization, Standing and Power. Each of SJW and
its Subsidiaries (as defined in Section 8.11(h)) is a corporation
duly incorporated or otherwise organized, validly existing and in
good standing under the Laws of its jurisdiction of incorporation
or organization, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as
now being conducted. Each of SJW and its Subsidiaries is duly
qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification necessary
other than in such jurisdictions where the failure so to qualify
or be in good standing would not, individually or in the
aggregate, have a Material Adverse Effect (as defined in Section
8.11(e)) on SJW. Section 3.1(a) of the SJW Disclosure Schedule
sets forth a complete and accurate list of each direct and
indirect Subsidiary of SJW. The copies of the articles of
incorporation and by-laws of SJW and its Subsidiaries that were
previously furnished to Parent are true, complete and correct
copies of such documents as in effect on the date of this
Agreement.
(b) Capital Structure.
(i) As of the date of this Agreement, the
authorized capital stock of SJW consisted of 6,000,000 shares of
SJW Common Stock. As of October 28, 1999, 3,045,147 shares of SJW
Common Stock wereissued and outstanding. All issued and outstanding
shares of SJW Common Stock are duly authorized, validly issued,
fully paid and nonassessable, and holders of SJW Common Stock are not
entitled to preemptive rights. There are outstanding no options,
warrants or other rights to acquire capital stock from SJW. No options
or warrants or other rights to acquire capital stock from SJW have
been issued or granted and remain outstanding.
(ii) No bonds, debentures, notes or other indebtedness
of SJW or any of its Subsidiaries having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders may vote ("SJW Voting Debt")
are issued or outstanding.
(iii) There are no securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which SJW or any of its Subsidiaries is a party, or
by which any of them is bound, obligating SJW or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other
securities of SJW or any of its Subsidiaries or, securities
convertible into or exchangeable for shares of capital stock or
securities of SJW or any of its Subsidiaries, or obligating SJW
or any of its Subsidiaries to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. There are no outstanding
obligations of SJW or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of SJW or
any of its Subsidiaries or to provide funds to, or make any
investment in any other Person, other than a wholly owned
Subsidiary of SJW, or to vote or to dispose of any shares of the
capital stock of any of the Subsidiaries.
(iv) All of the outstanding shares of capital stock of
each Subsidiary of SJW are duly authorized, validly issued, fully paid
and nonassessable and, along with any equity interest in any
Subsidiary that is a partnership, limited liability company or
other similar entity, are owned, beneficially and of record, by
SJW or a Subsidiary, which is wholly owned, directly or
indirectly, by SJW, free and clear of any liens, claims,
mortgages, encumbrances, pledges, security interests, or any
other restrictions with respect to the transferability or
assignability thereof (collectively, "Encumbrances").
(c) Authority; No Violations.
(i) SJW has all requisite corporate power and authority
to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby,
subject in the case of the consummation of the Merger to the
approval of this Agreement by the Required SJW Vote (as defined
in Section 3.1(p)). The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate
action on the part of SJW, and no other corporate or shareholder
proceedings on the part of SJW are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby
(other than in the case of the consummation of the Merger, the
approval of this Agreement by the Required SJW Vote). This
Agreement has been duly and validly executed and delivered by SJW
and constitutes a valid and binding agreement of SJW, enforceable
against it in accordance with its terms.
(ii) The execution and delivery of this Agreement by
SJW do not or will not, as the case may be, and the performance of the
Agreement and the consummation of the Merger by SJW and the other
transactions contemplated hereby will not, result in any
violation of, conflict with or constitute a default (with or
without notice or lapse of time, or both) under, or give rise to
a right of termination, amendment, cancellation or acceleration
of any obligation or the loss of a benefit under, or the creation
of an Encumbrance on any assets of SJW or any of its Subsidiaries
(any such violation, default, right of termination, amendment,
cancellation or acceleration, loss or creation, a "Violation")
pursuant to: (A) any provision of the articles of incorporation
or by-laws or similar organizational document of SJW or any
Subsidiary of SJW or (B) except as would not, individually or in
the aggregate, have a Material Adverse Effect on SJW, subject to
obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred
to in paragraph (iii) below, any loan or credit agreement, note,
mortgage, bond, indenture, lease, benefit plan or other
agreement, obligation, instrument, permit, concession, franchise,
or license to which SJW or any of its Subsidiaries is a party or
by which any of them or any of their properties or assets may be
bound (collectively, "Contracts"), or any statute, law,
ordinance, rule, regulation, whether federal, state, local or
foreign (collectively, "Laws"), or any judgment, order, writ,
injunction or decree, whether federal, state, local or foreign
(collectively, "Orders") applicable to SJW or any Subsidiary of
SJW or their respective properties or assets.
(iii) No consent, approval, permit, order or
authorization of, or registration, declaration or filing with, or notice
to, any foreign, supranational, national, state, municipal or local
government, any instrumentality, subdivision, court,
administrative agency or commission or other authority thereof,
or any quasi-governmental or private body exercising any
regulatory, taxing, importing or other governmental or quasi
governmental authority (a "Governmental Entity"), is required by
or with respect to SJW or any Subsidiary of SJW in connection
with the execution and delivery of this Agreement by SJW or the
performance of this Agreement and the consummation of the Merger
and the other transactions contemplated hereby, except for those
required under or in relation to (A) the Hart Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
(B) the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (C) the CCC with respect to the filing of the
Agreement of Merger, (D) Laws, practices and Orders of any state
public utility control or public service commissions or similar
state regulatory bodies ("PUCs"), each of which is identified in
Section 3.1(c)(iii)(D) of the SJW Disclosure Schedule, (E) Laws,
practices and Orders of any state or local departments of public
health or departments of health or similar state or local
regulatory bodies or of any federal, state or local regulatory
body having jurisdiction over environmental protection or
environmental conservation or similar matters ("Health
Agencies"), each of which is identified in Section 3.1(c)(iii)(E)
of the SJW Disclosure Schedule, (F) rules and regulations of the
American Stock Exchange, Inc. (the "AMEX"), and (G) such
consents, approvals, permits, Orders, authorizations,
registrations, declarations and filings the failure of which to
make or obtain would not, individually or in the aggregate, have
a Material Adverse Effect on SJW and would not reasonably be
expected to prevent or materially delay the consummation of the
Merger. Consents, approvals, permits, Orders, authorizations,
registrations, declarations and filings required under or in
relation to any of the foregoing clauses (A) through (F) are
hereinafter referred to as "SJW Required Consents." The parties
hereto agree that references in this Agreement to "obtaining" SJW
Required Consents means obtaining such consents, approvals or
authorizations, making such registrations, declarations or
filings, giving such notices, and having such waiting periods
expire as are necessary to avoid a violation of Law or an Order.
(d) Reports and Financial Statements.
SJW has filed all required reports, schedules, forms, statements and other
documents required to be filed by it under the Exchange Act or the
Securities Act (together with the rules and regulations
thereunder) with the Securities and Exchange Commission (the
"SEC") since January 1, 1998 (collectively, including all
exhibits thereto, the "SJW SEC Reports"). No Subsidiary of SJW is
required to file any form, report or other document with the SEC,
any stock exchange or any comparable Governmental Entity. None of
SJW SEC Reports including, without limitation, any financial
statements or schedules included therein, as of their respective
dates (and, if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing),
contained or will contain any untrue statement of a material fact
or omitted or will omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. Each of the audited consolidated financial statements
and unaudited interim financial statements (including the related
notes) included in the SJW SEC Reports presents fairly, in all
material respects, the consolidated financial position and
consolidated results of operations and cash flows of SJW and its
Subsidiaries as of the respective dates or for the respective
periods set forth therein, all in conformity with United States
generally accepted accounting principles ("GAAP") consistently
applied during the periods involved except as otherwise noted
therein, and subject, in the case of the unaudited interim
financial statements, to normal and recurring year-end
adjustments that have not been and are not expected to be
material in amount. All of such SJW SEC Reports, as of their
respective dates (and as of the date of any amendment to the
respective SJW SEC Report), complied in all material respects
with the applicable requirements of the Securities Act of 1933,
as amended, and the Exchange Act and the rules and regulations
promulgated thereunder.
(e) Absence of Liabilities.
Except for liabilities or obligations which are accrued or reserved
against in SJW's most recent financial statements dated prior to the
date hereof (or in the related notes thereto) included in the SJW SEC
Reports or which were incurred in the ordinary course of business and
consistent with past practices since the date of SJW's most
recent financial statements included in the SJW SEC Reports, SJW
and each of its Subsidiaries do not have any material, known
liabilities or obligations (whether absolute, accrued, contingent
or otherwise) of a nature required by GAAP to be reflected in a
consolidated balance sheet (or reflected in the notes thereto) of
SJW.
(f) Compliance.
(i) Except as set forth in the SJW SEC Reports filed
prior to the date hereof, neither SJW nor any of its Subsidiaries is in
violation of, is, to the knowledge of SJW, under investigation
with respect to any violation of, or has been given notice or
threatened with any violation of, any Laws or Orders (excluding
for purposes of this Section 3.1(f) Environmental Laws), except
for violations or possible violations which would not,
individually or in the aggregate, have a Material Adverse Effect
on SJW. SJW and its Subsidiaries have all permits, licenses,
franchises and other governmental authorizations, consents and
approvals ("Permits") necessary to conduct their businesses as
presently conducted, except for such Permits, the absence of
which would not, individually or in the aggregate, have a
Material Adverse Effect on SJW. Neither SJW nor any of its
Subsidiaries is in breach or violation of, or in default in the
performance or observance of (i) any provision of its article of
incorporation or by-laws, or (ii) except as would not,
individually or in the aggregate, have a Material Adverse Effect
on SJW or would not reasonably be expected to prevent or
materially delay the consummation of the Merger, any Contract or
Permit applicable to SJW or any Subsidiaries of SJW or their
respective properties or assets.
(ii) All filings required to be made by SJW or any of
its Subsidiaries since December 31, 1997, under any applicable Laws
or Orders relating to the regulation of public utilities, have
been filed with the appropriate PUC or Health Agency or any other
appropriate Governmental Entity (including, without limitation,
to the extent required, the state public utility regulatory
agencies in California), as the case may be, including all forms,
statements, reports, agreements (oral or written) and all
documents, exhibits, amendments and supplements appertaining
thereto, including but not limited to all rates, tariffs,
franchises, service agreements and related documents and all such
filings complied, as of their respective dates, in all material
respects with all applicable requirements of the appropriate Laws
or Orders, except for such filings or such failures to comply
that would not, individually or in the aggregate, have a Material
Adverse Effect on SJW.
(g) Environmental Matters.
(i) SJW and each of its Subsidiaries are in compliance
with all applicable Environmental Laws (as defined in Section 3.1(g))
(which compliance includes, but is not limited to, the possession
by SJW of all Permits and other governmental authorizations
required under applicable Environmental Laws ("Environmental
Permits"), and compliance with the terms and conditions thereof),
except where the failure to be in compliance would not,
individually or in the aggregate, have a Material Adverse Effect
on SJW. SJW has not received any written communication, whether
from a Governmental Entity, citizens group, employee or
otherwise, alleging that SJW or any of its Subsidiaries are not
in such compliance, and there are no past or present (or to the
knowledge of SJW, future) actions, activities, circumstances,
conditions, events or incidents that may prevent or interfere
with such compliance in the future, except for such failure to be
in compliance and such actions, activities, circumstances,
conditions, events or incidents that would not, individually or
in the aggregate, have a Material Adverse Effect on SJW.
(ii) There are no Environmental Claims (as defined
in Section 3.1(g)) pending or, to the knowledge of SJW, threatened,
against SJW or any of its Subsidiaries, or any Person whose liability
for any such Environmental Claim SJW or any of its Subsidiaries has
retained or assumed either contractually or by operation of Law
or Order.
(iii) To the knowledge of SJW, there are no past or
present actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the Release (as defined
in Section 3.1(g)), threatened Release or presence of any
Hazardous Material (as defined in Section 3.1(g)), that could
form the basis of any Environmental Claim against SJW or any of
its Subsidiaries, or to the best knowledge of SJW against any
Person whose liability for any Environmental Claim SJW or any of
its Subsidiaries has or may have retained or assumed either
contractually or by operation of Law or Order, except for such
liabilities which would not, individually or in the aggregate,
have a Material Adverse Effect on SJW.
(iv) As used in this Agreement:
(A) "Environmental Claim" means any suit,
proceeding, action, cause of action, investigation or written claim or
notice by any Person alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages,
property damages, diminution of value, personal injuries, or
penalties) arising out of, based on or resulting from (a) the
presence, or Release of any Hazardous Materials at any location,
whether or not owned or operated by SJW, or (b) circumstances
forming the basis of any violation, or alleged violation, of any
Environmental Law.
(B) "Environmental Law" means all Laws relating
to pollution or protection of human health or the environment, including
without limitation, Laws relating to Releases or threatened Releases of
Hazardous Materials or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Materials and all
Laws with regard to recordkeeping, notification, disclosure and
reporting requirements respecting Hazardous Materials.
(C) "Hazardous Materials" means all
substances defined as Hazardous Substances, Oils, Pollutants or
Contaminants in the National Oil and Hazardous Substances Pollution
Contingency Plan, 40 C.F.R. (S) 300.5, natural gas, liquified natural
gas, natural gas liquids, gas useable fuels, or Hazardous Substances,
Oils, Pollutants or Contaminants defined as such by, or regulated as
such under, any Environmental Law.
(D) "Release" means any release, spill,
emission, discharge,leaking, pumping, injection, deposit, disposal,
dispersal, leaching or migration into the indoor or outdoor environment
(including, without limitation, ambient air, surface water,
groundwater and surface or subsurface strata) or into or out of
any property or structure, including the movement of Hazardous
Materials through or in the air, soil, surface water, groundwater
or property.
(h) Employee Benefit Plans; ERISA.
(i) Section 3.1(h)(i) of the SJW Disclosure Schedule
contains a true and complete list of each deferred compensation and each
bonus or other incentive compensation, stock purchase, stock
option and other equity compensation or ownership plan, program,
agreement or arrangement, each severance or termination pay,
medical, surgical, hospitalization, life insurance and other
"welfare" plan, fund or program (within the meaning of Section
3(1) of the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder
("ERISA")) (excluding any payroll practices, compensation
arrangements and fringe benefits or perquisites which,
individually or in the aggregate, are not material); each profit-
sharing, stock bonus or other "pension" plan, fund or program
(within the meaning of Section 3(2) of ERISA); each employment,
retention, consulting, termination or severance agreement with
any officer or director or any other employee (if the cash
severance amount payable to such employee under such agreement
could be reasonably expected to exceed $200,000); and each other
material employee benefit plan, fund, program, agreement or
arrangement, in each case, that is sponsored, maintained or
contributed to or required to be contributed to by SJW or by any
trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with SJW would be deemed a "single
employer" within the meaning of section 4001(b) of ERISA, or to
which SJW or an ERISA Affiliate is party for the benefit of any
employee or former employee of SJW or any Subsidiary of SJW, in
respect of which SJW or any Subsidiary of SJW will have
continuing liability on or after the Effective Time (the "SJW
Benefit Plans"). Notwithstanding the foregoing, at any time prior
to the twentieth Business Day following the date of this
Agreement, SJW may amend or supplement the list set forth in
Section 3.1(h)(i) of the SJW Disclosure Schedule, so long as such
changes are made in respect of actions permitted in accordance
with Section 4.1(h).
(ii) With respect to each SJW Benefit Plan, (A) no
amendments have been made thereto since the date hereof, or in the case
of a pension benefit plan intended to be "qualified" under Section
401(a) of the Code, since the date of its most recent favorable
determination letter from the Internal Revenue Service (other
than as required by applicable Law or as would not result in any
increased cost that would have a Material Adverse Effect), and
(B) SJW has heretofore delivered or made available to Parent true
and complete copies of the SJW Benefit Plans, any related trust
or other funding vehicle, the most recent annual report on Form
5500, the current summary plan description and the most recent
determination letter received from the IRS with respect to each
SJW Benefit Plan intended to qualify under Section 401 of the
Code.
(iii) No liability under Title IV has been incurred
by SJW or any ERISA Affiliate that has not been satisfied in full,
and, to the knowledge of SJW, no condition exists that presents a
material risk to SJW or any ERISA Affiliate of incurring any such
liability, other than liability for premiums due the Pension
Benefit Guaranty Corporation (which premiums have been paid when
due), where any such liability has had, or would have a Material
Adverse Effect.
(iv) No SJW Benefit Plan that is subject to Title IV
(a "SJW Title IV Plan") is a "multiemployer pension plan," as defined
in section 3(37) of ERISA, nor is any SJW Title IV Plan a plan
described in section 4063(a) of ERISA. At no time since
December 31, 1992, have SJW or any ERISA Affiliate, been required
to contribute to, or incurred any withdrawal liability, within
the meaning of Section 4201 of ERISA to any multiemployer pension
plan nor does SJW or any ERISA Affiliate have any potential
withdrawal liability arising from a transaction described in
Section 4204 of ERISA. Any withdrawal liability incurred with
respect to any multiemployer plan has been fully paid as of the
date hereof.
(v) Each SJW Benefit Plan has been operated and
administered in accordance with its terms, the terms of any applicable
collective bargaining agreement and applicable Law, including but not
limited to ERISA and the Code, except as would not be reasonably
expected to result in a Material Adverse Effect, and each SJW
Benefit Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code has received a favorable determination
letter from the Internal Revenue Service.
(vi) None of the terms of the SJW Benefit Plans
provide that the consummation of the transactions contemplated by this
Agreement will, either alone or in combination with another event, (A)
entitle any current or former employee or officer of SJW or any
ERISA Affiliate to severance pay, unemployment compensation or
any other payment, except as expressly provided in this
Agreement, or (B) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or
officer.
(vii) There are no pending, or to the knowledge of SJW,
threatened or anticipated claims by or on behalf of any SJW
Benefit Plan, by any employee or beneficiary covered under any
such SJW Benefit Plan, or otherwise involving any such SJW
Benefit Plan (other than routine claims for benefits) that would
be reasonably expected to result in liability that would have a
Material Adverse Effect.
(viii) Neither the Company nor any ERISA Affiliate
has incurred or is reasonably likely to incur any liability with
respect to any plan or arrangement that would be included within
the definition of "Benefit Plan" hereunder but for the fact that
such plan or arrangement was terminated before the date of this
Agreement.
(i) Absence of Certain Changes or Events.
Except as disclosed in the SJW SEC Reports filed with the SEC prior to
the date hereof, since June 30, 1999 (a) the businesses of SJW and its
Subsidiaries have been conducted in the ordinary course,
consistent with past practices and (b) there has not been any
event, occurrence, development or state of circumstances or facts
that has had, or would have, individually or in the aggregate, a
Material Adverse Effect on SJW.
(j) Year 2000.
The computer software operated by SJW and its Subsidiaries which is used
in the conduct of their businesses is,as of the date hereof, capable
of providing or being adapted to provide, and as of the Effective Time
will provide, uninterrupted millennium functionality to record, store,
process and present calendar dates falling on or after January 1, 2000 in
substantially the same manner and with the same functionality as
such software records, stores, processes and presents such
calendar dates falling on or before December 31, 1999, other than
such interruptions in millennium functionality that would not,
individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect on SJW. SJW believes that the
remaining cost of adaptions referred to in the foregoing sentence
is not reasonably likely to have a Material Adverse Effect on
SJW.
(k) Taxes.
(i) SJW and its Subsidiaries have (A) duly filed
(or there has been filed on their behalf) with the appropriate
Governmental Entities all Tax Returns (as defined in Section
3.1(k)(vii)(B)) required to be filed by them on or prior to the date
hereof, other than those Tax Returns the failure of which to file
would not, individually or in the aggregate, result in a Material
Adverse Effect on SJW, and such Tax Returns are true, correct and
complete in all material respects, and (B) duly paid in full (or
there has been paid) all Taxes (as defined in Section
3.1(k)(vii)(A)) shown to be due on such Tax Returns.
(ii) Except as set forth in Section 3.1(k) of
the SJW Disclosure Schedule, there are no ongoing federal, state,
local or foreign audits or examinations of any Tax Return of SJW
or any of its Subsidiaries.
(iii) There are no outstanding requests, agreements,
consents or waivers to extend the statutory period of limitations
applicable to the assessment of any Taxes or deficiencies against
SJW or any of its Subsidiaries, and no power of attorney granted
by either SJW or any of its Subsidiaries with respect to any
Taxes is currently in force.
(iv) Neither SJW nor any of its Subsidiaries is a
party to any agreement providing for the allocation or sharing of Taxes.
(v) No consent under Section 341(f) of the Code has
been filed with respect to SJW or any of its Subsidiaries.
(vi) The accruals for Taxes reflected in SJW's most
recent balance sheet included in the SJW SEC Reports are adequate to
cover all liabilities for Taxes of SJW and its Subsidiaries for
all periods ending on or before the date of such balance sheet
and nothing has occurred subsequent to the date of such balance
sheet to make any of such accruals inadequate.
(vii) For purposes of this Agreement:
(A) "Taxes" means any and all federal, state,
local, foreign or other taxes of any kind (together with any and all
interest, penalties,additions to tax and additional amounts imposed with
respect thereto) imposed by any taxing authority, including, without
limitation,taxes or other charges on or with respect to income,franchises,
windfall or other profits, gross receipts, property, sales, use, capital
stock, payroll, employment, social security, workers' compensation,
unemployment compensation or net worth, and taxes
or other charges in the nature of excise, withholding, ad valorem
or value added, and (B) "Tax Return" means any return, report or
similar statement (including the attached schedules) required to
be filed with respect to any Tax, including, without limitation,
any information return, claim for refund, amended return or
declaration of estimated Tax.
(l) Insurance.
Each of SJW and its Subsidiaries is, and has been continuously since
January 1, 1994, insured with financially responsible insurers in such
amounts and against such risks and losses as are customary in all material
respects for companies in the United States conducting the business conducted
by SJW and its Subsidiaries during such time period, except for such
insurance the absence of which would not have a Material Adverse
Effect. Neither SJW nor any of its Subsidiaries has received any
notice of cancellation or termination with respect to any
material insurance policy of SJW or any Subsidiary of SJW. SJW
has fulfilled all of its obligations under each material
insurance policy, including the timely payment of premiums, other
than such failures to fulfill its obligations that would not
reasonably be expected, individually or in the aggregate, to
reduce or nullify the benefits under such policy.
(m) Property Franchises.
SJW and its Subsidiaries own or have sufficient rights and consents to
use under existing franchises,easements, leases, and license agreements
all properties, rights and assets necessary for the conduct of their
businesses and operations as currently conducted, except where the
failure to own or have sufficient rights and consents to use such
properties, rights and assets would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect on SJW.
(n) Water Quality.
The quality of water supplied by SJW and its Subsidiaries to their
respective customers complies in all material respects with all applicable
standards for quality and safety of water imposed by applicable
Laws and Orders.
(o) Board Approval.
The Board of Directors of SJW, by resolutions duly and unanimously
adopted at a meeting duly called and held and not subsequently rescinded
or modified in any way (the "SJW Board Approval"), has duly (i)
determined that this Agreement and the Merger are advisable and in the
best interests of SJW and its shareholders, (ii) approved this Agreement
and the Merger and (iii) recommended that the shareholders of SJW approve
and adopt this Agreement. Assuming the accuracy of the
representations and warranties set forth in Sections 3.2(g) and
3.3(e), the Board of Directors of SJW has taken the necessary
action to make inapplicable the restrictions on business
combinations set forth in Section 203 of the CCC and any other
similar applicable antitakeover Laws.
(p) Vote Required.
The affirmative vote of the holders of a majority of the outstanding
shares of SJW Common Stock to adopt this Agreement (the "Required SJW
Vote") is the only vote of the holders of any class or series of SJW
capital stock necessary to adopt this Agreement and approve the
transactions contemplated hereby.
(q) Brokers or Finders.
No agent, broker, investment banker,financial advisor or other firm or
Person is or will be entitled to any broker's or finder's fee or financial
advisor's fee or any other similar commission or fee in connection with
any of the transactions contemplated by this Agreement, except Morgan
Stanley & Co. Incorporated (the "SJW Financial Advisor"), whose
fees and expenses will be paid by SJW in accordance with SJW's
agreement with such firm, based upon arrangements made by or on
behalf of SJW and previously disclosed to Parent in writing.
(r) Opinion of SJW Financial Advisor.
SJW has received the opinion of SJW Financial Advisor, dated the date
of this Agreement, to the effect that, as of such date, the Merger
Consideration is fair, from a financial point of view, to the
holders of SJW Common Stock and such opinion has not been
withdrawn or modified.
(s) Regulation as a Utility.
Certain Subsidiaries of SJW are regulated as public utilities in
California. Neither SJW nor any "subsidiary company" or "affiliate"
(as such terms are defined in the Public Utility Holding Company Act
of 1935, as amended (the"1935 Act")) of SJW is subject to regulation
as a public utility or public service company (or similar designation)
by any other state in the United States, by the United States or any
agency or instrumentality of the United States or by any foreign country.
SJW is not a holding company under the 1935 Act. From December
31, 1989 to the date of this Agreement no Governmental Entity has
denied the request of SJW or any of its Subsidiaries to include
any asset then in utility service in rate base for recovery in
the amount of $500,000 or more.
(t) Litigation.
Except for claims, actions, suits, proceedings or investigations that
would not have a Material Adverse Effect on SJW (collectively, "Claims"),
there are no claims, actions,suits, proceedings or investigations pending
or, to SJW's knowledge, threatened against SJW or any of its Subsidiaries,
or any properties or rights of SJW or any of its Subsidiaries, by or
before any Governmental Entity. Section 3.1(a) of the SJW
Disclosure Schedule sets forth all Claims which are pending or,
to SJW's knowledge, threatened against any of SJW or its
Subsidiaries. Neither SJW nor any of its Subsidiaries is subject
to any outstanding Order that could reasonably be expected to
have a Material Adverse Effect on SJW or prevent or materially
delay the consummation of the Merger.
(u) No Parent Capital Stock.
SJW does not own or hold directly or indirectly any capital stock of
Parent, or any options,warrants or other rights to acquire any capital
stock of Parent, or in each case, any interests therein.
(v) Contracts.
All contracts which are material to the Company and its Subsidiaries
("Material Contracts") have been provided to Parent. All Material
Contracts to which SJW or any of its Subsidiaries are a party or by
which its assets are bound are a valid and binding obligation of SJW or
such Subsidiary and, to the knowledge of SJW, the valid and binding
obligation of each other party thereto. Neither SJW nor any of its
Subsidiaries,nor to the knowledge of SJW or any other party thereto,
is in violation of or in default under (nor does there exist any
condition which upon the passage of time or the giving of notice
would cause such a violation or default under) any Material
Contract, except for such violations or defaults that could not
be reasonably expected to result in a Material Adverse Effect.
(w) Real Estate.
Except for such matters that would not,individually or in the aggregate,
have a Material Adverse Effect on SJW:
(i) All structures and other improvements on such
properties are within the lot lines and do not encroach on the properties
of any other person. Neither SJW nor any of its Subsidiaries has
received any written or oral notice for assessments for public
improvements against SJW Real Property which remains unpaid, and
to the knowledge of SJW, no such assessment has been proposed.
(ii) SJW and each of its Subsidiaries has obtained
all authorizations, permits, easements and rights of way, including
proof of dedication ("Access Rights"), which are necessary to
ensure continued uninterrupted (1) vehicular and pedestrian
ingress and egress to and from SJW Real Property and
(2) continued use, operation, maintenance, repair and replacement
of all existing and currently committed water lines used by SJW
and each of its Subsidiaries in connection with their respective
businesses. All Access Rights are in full force and effect.
Neither SJW nor any of its Subsidiaries is in breach or default
under the easement rights and rights of way enjoyed by SJW or its
Subsidiaries, and to the knowledge of SJW, none of the grantors
of such rights are in breach or default thereunder. There are no
restrictions on entrance to or exit from SJW Real Property to
adjacent public streets, and no conditions exist which will or
with the giving of notice, the passage of time or both, could
materially and adversely affect such Access Rights.
(iii) As of the Effective Time, SJW Real Property
will be adequate to operate the businesses of SJW and its Subsidiaries
consistent with past practice.
(iv) SJW Real Property has adequate arrangements
for supplies of electricity, gas, oil, coal and sewer for all operations
at the 1998 or current operating levels, whichever is greater. There are
no actions or proceedings pending or, to SJW's knowledge,
threatened that would adversely affect the supply of electricity,
gas, coal or sewer to SJW Real Property.
(v) There are no pending, or to SJW's knowledge,
threatened eminent domain, condemnation or other governmental action
affecting or taking of any SJW Real Property.
(x) Intellectual Property.
SJW or its Subsidiaries owns, leases or licenses free and clear of all
Encumbrances all Intellectual Property Rights necessary to conduct the
business of SJW, except where the failure to own, lease or license would
not have,individually or in the aggregate, a Material Adverse Effect on
SJW. Except for such claims, infringements and misappropriations
that would not have, individually or in the aggregate, a Material
Adverse Effect on SJW, (i) there has been no claim made against
SJW or any of its Subsidiaries asserting the invalidity, misuse
or unenforceability of any Intellectual Property Rights, (ii) SJW
is not aware of any infringement or misappropriation of any of
the Intellectual Property Rights, and (iii) neither SJW nor any
of its Subsidiaries has infringed or misappropriated any
intellectual property or proprietary right of any other entity.
As used herein, "Intellectual Property Rights" mean any
trademark, servicemark, registration therefor or application for
registration therefor, trade name, invention, patent, patent
application, trade secret, know-how, copyright, copyright
registration, application for copy registration, or any other
similar type of proprietary intellectual property, in each case
owned, leased or licensed and used or held for use by the SJW or
any Subsidiary.
(y) Product Liability.
Except for such matters that would not,individually or in the
aggregate, have a Material Adverse Effect on SJW, there are no
(i) liabilities of SJW or any of its Subsidiaries, fixed or contingent,
asserted or, to the knowledge of SJW, unasserted, with respect to any
product liability or similar claim that relates to any product or service
sold by SJW or any of its Subsidiaries or (ii) liabilities of SJW or
any of its Subsidiaries, fixed or contingent, asserted or, to the
knowledge of SJW unasserted, with respect to any claim for the
breach of any express or implied product warranty or a similar
claim with respect to any product or service sold by SJW or any
of its Subsidiaries to others.
(z) Condition of Assets.
The buildings, machinery, equipment,tools, furniture, improvements and
other fixed intangible assets of SJW and its Subsidiaries are structurally
sound and free from known defects, subject to ordinary wear and tear, and
shall be maintained by SJW or such Subsidiaries in such good operating
condition and repair through the Effective Time so as to have the
capacity to permit the operation of SJW's or such Subsidiaries'
business as presently conducted. The assets and properties of SJW
and its Subsidiaries include all assets, rights, properties and
contracts, the use of which is necessary to the continued conduct
after the Effective Time of SJW's and each of its Subsidiaries'
business by the Surviving Corporation substantially in the manner
as it is presently conducted.
3.2. Representations and Warranties of Parent
Parent represents and warrants to SJW as follows:
(a) Organization, Standing and Power.
Parent is a corporation duly incorporated and validly existing under the
Laws of its jurisdiction of incorporation or organization, has all
requisite power and authority to own, lease and operate its properties
and to carry on its business as now being conducted, and is duly
qualified to do business in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties
makes such qualification necessary other than in such
jurisdictions where the failure so to qualify or to be in good
standing would not, individually or in the aggregate, have a
Material Adverse Effect on Parent.
(b) Authority; No Violations.
(i) Parent has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part
of Parent. This Agreement has been duly and validly executed and
delivered by Parent and constitutes a valid and binding agreement
of Parent, enforceable against it in accordance with its terms.
(ii) The execution and delivery of this Agreement
by Parent do not or will not, as the case may be, and the performance
of this Agreement and the consummation by Parent of the Merger and the
other actions contemplated hereby will not, result in a Violation
pursuant to: (A) any provision of the articles of incorporation
or by-laws of Parent or any Subsidiary of Parent or (B) except as
would not, individually or in the aggregate, have a Material
Adverse Effect on Parent, subject to obtaining or making the
consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (iii) below,
any Contract, Laws or Orders applicable to Parent or any
Subsidiary of Parent or their respective properties or assets.
(iii) No consent, approval, order or authorization
of, or registration, declaration or filing with, or notice to, any
Governmental Entity is required by or with respect to Parent or
any Subsidiary of Parent in connection with the execution and
delivery of this Agreement by Parent or the performance of this
Agreement and the consummation of the Merger and the other
transactions contemplated hereby, except for those required under
or in relation to (A) the HSR Act, (B) Laws of any PUCs and set
forth in Section 3.1 (c)(iii)(D) of the SJW Disclosure Schedule,
(C) rules and regulations of the New York Stock Exchange, and
(D) such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to
make or obtain would not, individually or in the aggregate, have
a Material Adverse Effect on Parent. Consents, approvals, orders,
authorizations, registrations, declarations and filings required
under or in relation to the foregoing clauses (A) through (D) are
hereinafter referred to as the "Parent Required Consents". The
parties hereto agree that references in this Agreement to
"obtaining" Parent Required Consents means obtaining such
consents, approvals or authorizations, making such registrations,
declarations or filings, giving such notices; and having such
waiting periods expire as are necessary to avoid a violation of
Law or an Order.
(c) Board Approval.
The Board of Directors of Parent, by resolutions duly adopted at a
meeting duly called and held and not subsequently rescinded or modified
in any way, has duly (i) determined that this Agreement and the Merger
are in the best interests of Parent and its shareholders and
(ii) approved this Agreement and the Merger.
(d) Vote Required.
No vote of the holders of any class or series of Parent capital stock
is necessary to approve this Agreement, the Merger or the other
transactions contemplated hereby.
(e) Brokers or Finders.
No agent, broker, investment banker,financial advisor or other firm or
Person is or will be entitled to any broker's or finder's fee or any
other similar commission or fee in connection with any of the transactions
contemplated by this Agreement based upon arrangements made by or on
behalf of Parent, except Greenhill & Company (the "Parent Financial
Advisor"), whose fees and expenses will be paid by Parent in
accordance with Parent's agreement with such firm based upon
arrangements made by or on behalf of Parent.
(f) Litigation.
As of the date hereof, there are no claims,
actions, suits, proceedings or investigations pending or, to
Parent's knowledge, threatened against Parent or any of its
Subsidiaries, or any properties or rights of Parent or any of its
Subsidiaries, before any Governmental Entity that (i) seek to
materially delay or prevent the consummation of the Merger or the
other transactions contemplated hereby or (ii) could reasonably
be expected to affect adversely the ability of Parent to fulfill
its obligations hereunder, including Parent's obligations under
Article I and Article II.
(g) No SJW Capital Stock.
Except for 400 shares of SJW Common Stock, Parent does not own or hold
directly or indirectly any shares of SJW Common Stock or any other capital
stock of SJW, or any options, warrants or other rights to acquire any
shares of SJW Common Stock or any other capital stock of SJW, or in each
case, any interests therein, other than pursuant to the Merger as
contemplated by this Agreement.
(h) Financing.
Parent has or will have available, prior to the Effective Time, sufficient
funds to pay the Merger Consideration pursuant to this Agreement and
otherwise to satisfy its obligations hereunder.
3.3. Representations and Warranties of Parent and Merger Sub
Parent and Merger Sub represent and warrant to SJW as follows:
(a) Organization, Standing and Power.
Merger Sub is a corporation duly incorporated, validly existing and in
good standing under the Laws of Delaware. Merger Sub is a wholly-owned
subsidiary of Parent.
(b) Authority; No Violations.
(i) Merger Sub has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Merger Sub of this
Agreement and the consummation by Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by all
necessary corporate and shareholder action on the part of Merger Sub.
This Agreement has been duly and validly executed and delivered by
Merger Sub and constitutes a valid and binding agreement of Merger Sub,
enforceable against it in accordance with its terms.
(ii) The execution and delivery of this Agreement by
Merger Sub do not or will not, as the case may be, and the performance of
this Agreement and the consummation by Merger Sub of the Merger and the
other transactions contemplated hereby will not, result in a Violation
pursuant to: (A) any provision of the articles ofincorporation or
by-laws of Merger Sub or (B) except as would not, individually or in the
aggregate, have a Material Adverse Effect on Parent, subject to obtaining
or making the consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (iii) below, any
Contract, Laws or Orders applicable to Merger Sub or its properties or
assets.
(iii) No consent, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity is
required by or with respect to Merger Sub in connection with the execution
and delivery of this Agreement by Merger Sub or the consummation of the
Merger and the other transactions contemplated hereby, except for the Parent
Required Consents, the filing of the Agreement of Merger pursuant to the CCC
and DGCL and such consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain would not,
individually or in the aggregate, have a Material Adverse Effect on Parent.
(c) Board and Shareholder Approval. The Board of Directors of
Merger Sub, by resolutions duly adopted without a meeting by
unanimous consent thereto in writing and not subsequently
rescinded or modified in any way, has duly
(i) determined that this Agreement and the Merger are
advisable and in the best interest of Merger Sub and its shareholder,
(ii) approved this Agreement and the Merger and
(iii) recommended that the shareholder of Merger Sub
adopt this Agreement. Following the adoption of such resolutions by the
Board of Directors of Merger Sub, the sole shareholder of Merger Sub,
without a meeting by consent in writing, has duly adopted this Agreement.
(d) No Business Activities. Merger Sub has not conducted any
activities other than in connection with its organization, the negotiation
and execution of this Agreement and the consummation of the transactions
contemplated hereby. Merger Sub has no Subsidiaries.
(e) No SJW Capital Stock. Merger Sub does not own or hold
directly or indirectly any shares of SJW Common Stock or any other capital
stock of SJW, or any options, warrants or other rights to acquire any shares
of SJW Common Stock or any other capital stock of SJW, or in each case, any
interests therein.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1. Covenants of SJW
During the period from the date of this Agreement and continuing until the
Effective Time, SJW agrees as to itself and its Subsidiaries that (except as
expressly contemplated or permitted by this Agreement or as otherwise
indicated in Section 4.1 of the SJW Disclosure Schedule or as required by a
Governmental Entity of competent jurisdiction (written notice of which will
be given promptly to Parent) or to the extent that Parent shall otherwise
consent in writing):
(a) Ordinary Course.
(i) SJW and each of its Subsidiaries shall carry on their
respective businesses in the usual, regular and ordinary course, in all
material respects, in substantially the same manner as heretofore conducted,
and shall use all reasonable efforts to preserve intact their present lines
of business, business organizations and reputations, maintain their rights,
franchises and permits, keep available the services of their officers and
key employees, maintain their assets and properties in good working order
and condition, ordinary wear and tear excepted, and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their ongoing businesses shall not be impaired in
any material respect at the Effective Time; provided, however, that no
action by SJW or its Subsidiaries with respect to matters
specifically addressed by any other provision of this Section 4.1 shall be
deemed a breach of this Section 4.1(a)(i) unless such action would constitute a
breach of one or more of such other provisions.
(ii) Other than with the consent of Parent, which shall
not be unreasonably withheld, SJW shall not, and shall not permit any of its
Subsidiaries to, (A) enter into any new material line of business or (B)
incur or commit to any capital expenditures other than capital expenditures
contemplated in SJW's capital budget,reasonable amounts required to meet
emergencies, and such additional amounts as may be required to comply with
Laws and Orders then in effect or required by a Governmental Entity.
(b) Dividends; Changes in Share Capital.
SJW shall not, and shall not permit any of its Subsidiaries to, and
shall not propose to, (i) declare, set aside or pay any dividends on or
make other distributions (whether in cash or otherwise) in respect of any
of its capital stock,except (x) dividends by wholly-owned Subsidiaries of
SJW to such Subsidiary's parent or another wholly-owned Subsidiary of SJW
and (y) the regular quarterly dividends on SJW Common Stock in the amount
of $0.60 per share of SJW Common Stock payable in the third and
fourth quarter of 1999, and $0.615 per share of SJW Common Stock per quarter
thereafter,(ii) split, combine, subdivide or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for, shares of its capital stock,
except for any such transaction by a wholly owned Subsidiary of SJW which
remains a wholly owned Subsidiary of SJW after consummation of such
transaction, (iii) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization or (iv) directly or indirectly repurchase, redeem or
otherwise acquire any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock.
(c) Issuance of Securities.
SJW shall not, and shall not permit any of its Subsidiaries to, issue,
deliver or sell, pledge or encumber, or authorize or propose the issuance,
delivery or sale,pledge or encumbrance of, any shares of its capital stock
of any class, any SJW Voting Debt or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire,any such
shares or SJW Voting Debt, or enter into any agreement with respect to
any of the foregoing, other than issuances by a wholly owned Subsidiary
of SJW of capital stock to such Subsidiary's Parent or another wholly
owned Subsidiary of SJW.
(d) Governing Documents.
Except to the extent required to comply with their respective obligations
hereunder or, following written notice to Parent, as may be required by Law
or Order or required by the rules and regulations of the AMEX, SJW shall not,
and shall not permit any of its Subsidiaries to, amend or propose to
amend their respective articles of incorporation, by-laws or
other governing documents.
(e) No Acquisitions.
Other than with the consent of Parent, which shall not be unreasonably
withheld, SJW shall not, and shall not permit any of its Subsidiaries to,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof,
or otherwise acquire or agree to acquire any assets other than the
acquisition of assets as are used in the operations of the business of SJW
and its Subsidiaries in the ordinary course, consistent with past
practice.
(f) No Dispositions.
Other than (i) with the consent of Parent, which shall not be unreasonably
withheld, (ii) as set forth in Section 4.1(f) of the Disclosure Schedule
and (iii) transfers between SJW and the wholly-owned Subsidiaries of SJW and
between the wholly-owned Subsidiaries of SJW. SJW shall not, and shall
not permit any Subsidiary of SJW to, sell, lease, transfer, encumber or
otherwise dispose of, or agree to sell, lease, transfer, encumber or
otherwise dispose of, any of its assets (including capital stock of
Subsidiaries of SJW) which are material to SJW.
(g) Investments; Indebtedness.
SJW shall not, and shall not permit any of its Subsidiaries to, (i)
other than as set forth on Schedule 4.1(g) of the Disclosure Schedule,
make any loans, advances or capital contributions to, or investments in,
any other Person, other than loans, advances, capital contributions
and investments by SJW or a Subsidiary of SJW to or in SJW or any
wholly owned Subsidiary of SJW, (ii) pay, discharge, settle or
satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other
than payments, discharges, settlements or satisfactions incurred
or committed to in the ordinary course of business consistent
with past practice or reflected in the most recent consolidated
financial statements (or the notes thereto) of SJW included in
the most recent SJW SEC Reports filed prior to the date of this
Agreement or (iii) other than as set forth on Schedule 4.1(g) of
the Disclosure Schedule, create, incur, assume or suffer to exist
any indebtedness, guarantees, loans or advances or any debt
securities or any warrants or rights to acquire any debt
securities not in existence as of the date of this Agreement
except for short-term indebtedness incurred under SJW's current
short-term facilities (and any replacements thereof) in the
ordinary course of business, consistent with past practices, and
which shall not exceed $20,000,000 in the aggregate without the
consent of Parent, which shall not be unreasonably withheld, in
each case as such facilities and other existing indebtedness may
be amended, extended, modified, refunded, renewed, refinanced or
replaced after the date of this Agreement, but only if the
aggregate principal amount thereof is not increased thereby, the
term thereof is not extended thereby (or, in the case of
replacement indebtedness, the term of such indebtedness is not
for a longer period of time than the period of time applicable to
the indebtedness so replaced) and the other terms and conditions
thereof, taken as a whole, are not less advantageous to SJW and
its Subsidiaries than those in existence as of the date of this
Agreement.
(h) Compensation.
Except as otherwise agreed by Parent, SJW shall not, and shall not
permit any of its Subsidiaries to, (i) materially increase the amount
of compensation of any executive officer, director or employee,
(ii) make any material increase in or commitment to increase any
employee benefits, (iii) issue any equity-based awards or shares of
SJW Common Stock pursuant to SJW Benefit Plans, adopt or make any
commitment to enter into, adopt,amend in any material manner or
terminate any SJW Benefit Plan,or any other agreement, arrangement,
plan or policy between SJW or one of its Subsidiaries and one or more
of its directors, officers or employees, or (iv) make any contribution,
other than regularly scheduled contributions, to any SJW Benefit Plan.
(i) Other Actions.
SJW shall not, and shall not permit any ofits Subsidiaries to take any
action that would, or fail to take any action which failure would, or
that could reasonably be expected to, result in, (i) a material breach
of any provision of this Agreement, or (ii) any of the conditions to
the Merger set forth in Article VI not being satisfied.
(j) Accounting Methods; Income Tax Matters.
Except as disclosed in the SJW SEC Reports filed prior to the date of
this Agreement, or as required by a Governmental Entity, SJW shall not,
nor shall it permit any of its Subsidiaries to, change its methods of
accounting or accounting practices in effect at December 31,1998, except
as required by GAAP. SJW shall not, nor shall it permit any of its
Subsidiaries to, (i) change its fiscal year,(ii) make or rescind any
material tax election, (iii) settle or compromise any claim, action,
suit, litigation, proceeding,arbitration, investigation, audit, or
controversy in respect of Taxes for any amount in excess of the amount
reserved therefor and reflected in the most recent consolidated financial
statements (or the notes thereto) of SJW included in the most
recent SJW SEC Report, or (iv) change in any material respect any
of its methods of reporting income, deductions or accounting for
federal income Tax purposes from those employed in the
preparation of its federal income Tax Return for the taxable year
ending December 31, 1998.
(k) Contracts.
SJW shall not, nor shall it permit any of its Subsidiaries, except in
the ordinary course of business consistent with past practice (i)
to modify, amend, terminate or fail to use commercially reasonable efforts
to renew any material Contract or waive, release or assign any material
rights or claims under a Contract to which SJW or any of its Subsidiaries
is a party or (ii) to enter into any new material Contracts.
(l) Regulatory Matters.
Except for filings in the ordinary course of business consistent with
past practice that would not have a Material Adverse Effect on SJW,
SJW shall inform Parent reasonably in advance of making a filing to
implement any changes in any of its or its Subsidiaries' rates or
surcharges for water service or executing any agreement with respect
thereto that is otherwise permitted under this Agreement and shall, and shall
cause its Subsidiaries to, deliver to Parent a copy of each such
filing or agreement. SJW shall, and shall cause its Subsidiaries
to, make all such filings (A) only in the ordinary course of business
consistent with past practice or (B) as required by a Governmental Entity.
(m) Compromise; Settlement.
Neither SJW nor any of its Subsidiaries shall settle or compromise
any pending or threatened claims or arbitrations (other than any
Claims or arbitrations relating to matters set forth in the SJW SEC Reports),
other than settlements which involve solely the payment of money (without
admission of liability) that would not result in an uninsured payment by or
liability of SJW in excess of $300,000 in the aggregate above the reserves
established specifically therefor on the books of SJW as of the date hereof.
4.2. Covenants of Parent
During the period from the date of this Agreement and continuing until the
Effective Time, Parent agrees as to itself and its Subsidiaries that (except
as expressly contemplated or permitted by this Agreement or as required by a
Governmental Entity of competent jurisdiction (written notice of which will
be given promptly to SJW) or to the extent that SJW shall otherwise consent
in writing) Parent shall not, and shall not permit any of its Subsidiaries
to, take any action that would, or fail to take any action which failure
would impair Parent's ability to have available sufficient funds to pay the
Merger Consideration pursuant to this Agreement and otherwise to satisfy
its obligations hereunder.
4.3. Advice of Changes; Governmental Filings
Each party shall (a) confer on a regular and frequent basis
with the other, with respect to matters relevant to the Merger and
(b) report (to the extent permitted by Law,Order or any applicable
confidentiality agreement) on operational matters with respect to SJW and
its Subsidiaries, and SJW shall promptly advise Parent, orally and in
writing, of any material change or event affecting its business or
operations, including any complaint, investigation or hearing by any
Governmental Entity (or communication indicating the same may be contemplated)
or the institution or threat of material litigation. SJW shall timely file
all reports required to be filed by it with the SEC (and all other
Governmental Entities) between the date of this Agreement and the
Effective Time and shall (to the extent permitted by Law, Order or any
applicable confidentiality agreement) deliver to Parent copies of all
such reports,announcements and publications promptly after the same are filed.
Except as otherwise required by Section 4.1(l) and subject to applicable
Laws and Orders relating to the exchange ofinformation, each of SJW and
Parent shall have the right to review in advance, and will consult with
the other with respect to, all the information relating to the other party
and each of their respective Subsidiaries, which appears in any filings,
announcements or publications made with, or written materials submitted to,
any third party or any Governmental Entity in connection with the
transactions contemplated by this Agreement. In exercising the foregoing
right, each of the parties hereto agrees to act reasonably and as promptly
as practicable. Each party agrees that, to the extent practicable and as
timely as practicable, it will consult with, and provide all appropriate
and necessary assistance to, the other party with respect to the obtaining
of all permits, consents, approvals and authorizations of all third parties
and Governmental Entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the
other party apprised of the status of matters relating to completion of
the transactions contemplated hereby.
4.4. Transition Planning; Continued Operations of SJW.
(a) SJW and Parent shall each appoint three (3) officers to
serve from time to time as their respective representatives on a committee
that will be responsible for coordinating transition planning and
implementation relating to the Merger. The initial representatives of SJW
shall be W. Richard Roth, Angela Yip and Scott Yoo. The initial
representatives of Parent shall be Daniel Kelleher, W. Timothy Pohl and
Ellen Wolf.
(b) Between the date of this Agreement and the Effective Time,
Parent at its discretion may locate up to two of itsrepresentatives at the
offices of SJW (it being understood that such representatives shall not
interfere with the business and operations of SJW or its Subsidiaries and
shall have no authority whatsoever with respect to the operation of the
business of SJW or any of its subsidiaries). During such period SJW shall
cause one or more of its designated representatives to consult as requested
by Parent with such representatives of Parent and to discuss the general
status of the business of SJW and its Subsidiaries consistent with
Sections 4.4 and 5.2 hereof.
4.5. Control of SJW's Business
Nothing contained in this Agreement shall be deemed
to give Parent, directly or indirectly, the right to control or
direct SJW's operations prior to the Effective Time. Prior to the
Effective Time, SJW shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision
over its operations.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1. Preparation of SJW Proxy Statement; SJW Shareholders
Meeting.
(a) As promptly as practicable following the date hereof, SJW
shall, in cooperation with Parent, prepare and file with the SEC
preliminary proxy materials relating to the SJW Shareholders
Meeting (such proxy statement, and any amendments or supplements
thereto, the "SJW Proxy Statement"). The SJW Proxy Statement
shall comply as to form in all material respects with the
applicable provisions of the Exchange Act and the rules and
regulations thereunder, and shall include a statement that the
Board of Directors finds the Merger to be advisable, fair to and
in the best interests of SJW. Each of SJW and Parent shall use
all reasonable efforts to have the SJW Proxy Statement cleared by
the SEC as promptly as practicable after filing with the SEC. SJW
shall, as promptly as practicable after receipt thereof, provide
copies of any written comments received from the SEC with respect
to the SJW Proxy Statement to Parent and advise Parent of any
oral comments with respect to the SJW Proxy Statement received
from the SEC. If at any time prior to the SJW Shareholders
Meeting there shall occur any event that should be set forth in
an amendment or supplement to the SJW Proxy Statement, SJW shall
promptly prepare and mail to its shareholders such an amendment
or supplement. SJW shall cause the SJW Proxy Statement to be
mailed to its shareholders at the earliest practicable date
following clearance of the SJW Proxy Statement by the SEC and,
subject to Section 5.4, shall include in the SJW Proxy Statement
the recommendation of the Board of Directors of SJW that the
shareholders of SJW vote in favor of the approval of the Merger
Agreement.
Parent agrees that none of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in
the SJW Proxy Statement and each amendment or supplement thereto,
at the time of mailing thereof and at the time of SJW
Shareholders Meeting, will contain an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. SJW agrees that none of the information supplied or
to be supplied by SJW for inclusion or incorporation by reference
in the SJW Proxy Statement and each amendment or supplement
thereto, at the time of mailing thereof and at the time of SJW
Shareholders Meeting, will contain an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. SJW will provide Parent and its counsel with a
reasonable opportunity to review and comment on the SJW Proxy
Statement and all responses to requests for additional
information by and replies to comments of the SEC prior to filing
such with, or sending such to, the SEC, and will provide Parent
and its counsel with a copy of all such filings made with the
SEC. No amendment or supplement to the information supplied by
Parent for inclusion in the SJW Proxy Statement shall be made
without the approval of Parent, which approval shall not be
unreasonably withheld or delayed.
(b) Subject to Sections 5.4 and 7.1(f), SJW shall, as
promptly as practicable following the execution of this Agreement, duly
call, give notice of, convene and hold a meeting of its shareholders
(the "SJW Shareholders Meeting") for the purpose of obtaining the Required
SJW Vote with respect to the transactions contemplated by this Agreement,
shall take all lawful action to solicit the adoption of this Agreement by
the Required SJW Vote and the Board of Directors of SJW shall recommend
adoption of this Agreement by the shareholders of SJW.
5.2. Access to Information
Upon reasonable notice, SJW shall (and shall cause its
Subsidiaries to) afford to the officers, employees, accountants, counsel,
financial advisors and other representatives of Parent reasonable access
during normal business hours, during the period prior to the Effective Time,
to all its facilities, operations, officers, employees, agents and
accountants and its properties, books, contracts, commitments and records
(including, without limitation, Environmental Permits and
environmental reports, audits and assessments) and, during such period, SJW
shall (and shall cause its Subsidiaries to) furnish promptly to Parent
(or in the case of the documents referred to in clause (a)(ii) below,
make available to any representatives of Parent): (a) (i) a copy of each
report, schedule, registration statement and other document filed,
published, announced or received by it during such period pursuant to the
requirements of Federal or state securities Laws, as applicable; and (ii)
each report, schedule, statement and other document filed with or received
by any other Governmental Entity (other than, in the case of clause (i) or
(ii), documents which such party is not permitted to disclose under
applicable Law or Orders), and (b) all other information concerning its
business, properties and personnel as Parent may reasonably request;
provided, however,that SJW may restrict the foregoing access to the extent
that (x)a Governmental Entity requires SJW or any of its Subsidiaries to
restrict access to any properties or information reasonably
related to any such contract on the basis of applicable Laws or Orders with
respect to national security matters or (y) any Law or Order of any
Governmental Entity applicable to SJW requires SJW or its Subsidiaries to
restrict access to any properties orinformation. Parent will hold any
information provided under this Section 5.2 or Sections 4.3 or 4.4 that is
non-public in confidence to the extent required by, and in accordance with,
the provisions of the letter dated August 5, 1999 between SJW and Parent
(the "Confidentiality Agreement"). Any investigation by Parent shall not
affect the representations and warranties of SJW.
5.3. Reasonable Best Efforts.
(a) Subject to the terms and conditions of this Agreement, each
party will use its reasonable best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate the Merger and the
other transactions contemplated by this Agreement as soon as
practicable after the date hereof and to cause the conditions set
forth in Article VI to be satisfied on or prior to Closing. In
furtherance and not in limitation of the foregoing, each party
hereto agrees to make an appropriate filing of a Notification and
Report Form pursuant to the HSR Act with respect to the
transactions contemplated hereby as promptly as practicable after
the date hereof and to supply as promptly as practicable any
additional information and documentary material that may be
requested pursuant to the HSR Act and to take all other actions
necessary to cause the expiration or termination of the
applicable waiting periods under the HSR Act as soon as
practicable. Nothing contained in this Agreement (including but
not limited to Sections 5.3(a) and 5.3(d)) will require or
obligate the Parent or any of its Subsidiaries (i) to agree to or
otherwise become subject to any adjustment in, or forbearance
from requesting changes in, authorized rates of Parent or any of
its respective Subsidiaries, or to any material limitations on
(A) the right of Parent, Merger Sub, SJW or their affiliates to
acquire, hold or effectively to control or operate the business,
assets or operations of SJW or (B) the right of Parent to
exercise full rights of ownership of the SJW Common Stock
acquired by Parent including, without limitation, the right to
vote any SJW Common Stock held by Parent on all matters properly
presented to the shareholders, or (ii) to agree or otherwise be
required to sell or otherwise dispose of, hold separate (through
the establishment of a trust or otherwise), or divest itself of
all or any portion (other than a de minimis portion) of the
business, assets, or operations of SJW, Parent or any of their
respective subsidiaries. Notwithstanding anything to the contrary
contained herein, in no event will any party or their respective
subsidiaries be required to waive any of the conditions to the
Merger set forth in Article VI of this Agreement as they apply to
such party.
(b) Each of Parent and SJW shall, in connection with
the efforts referenced in Section 5.3(a) to obtain all requisite approvals
and authorizations for the transactions contemplated by this
Merger Agreement under the HSR Act or any other applicable Law or
Order, use its reasonable best efforts to (i) make all appropriate filings
and submissions with any PUC, Health Agency or other Governmental Entity
that may be necessary, proper or advisable under applicable Laws or Orders
in respect of any of the transactions contemplated by this Agreement,
(ii) cooperate in all respects with each other in connection with any such
filing or submission and in connection with any investigation or other
inquiry, including any proceeding initiated by a private
party, (iii) promptly inform the other party of any communication
received by such party from, or given by such party to, PUCs,
Health Agencies, the Antitrust Division of the Department of
Justice (the "DOJ") or any other Governmental Entity and of any
material communication received or given in connection with any
proceeding by a private party, in each case regarding any of the
transactions contemplated hereby and (iv) permit the other party
to review any communication given by it to, and consult with each
other in advance of any meeting or conference with, PUCs, Health
Agencies, the DOJ or any such other Governmental Entity or, in
connection with any proceeding by a private party, with any other Person,
in each case regarding any of the transactions contemplated hereby, and
to the extent permitted by PUCs, Health Agencies, the DOJ or such
other applicable Governmental Entity or other Person, give the other party
the opportunity to attend and participate in such meetings and conferences.
(c) In furtherance and not in limitation of the covenants
of the parties contained in Sections 5.3(a) and 5.3(b), if any
administrative or judicial action or proceeding, including any
proceeding by a private party, is instituted (or threatened to be
instituted) challenging any transaction contemplated by this
Agreement as violative of any applicable Law or Order, each of
Parent and SJW shall cooperate in all respects with each other
and use its respective reasonable best efforts to contest and
resist any such action or proceeding and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other
order, whether temporary, preliminary or permanent, that is in
effect and that prohibits, prevents or restricts consummation of the
transactions contemplated by this Agreement. Notwithstanding
the foregoing or any other provision of this Agreement, nothing
in this Section 5.3 shall limit a party's right to terminate this
Agreement pursuant to Section 7.1(b) or 7.1(c) so long as such
party has up to then complied in all respects with its
obligations under this Section 5.3.
(d) If any objections are asserted with respect to the
transactions contemplated hereby under any applicable Law or
Order or if any suit is instituted by any Governmental Entity or
any private party challenging any of the transactions contemplated hereby
as violative of any applicable Law or Order, each of Parent and SJW shall
use its reasonable best efforts to resolve any such objections or challenge
as such Governmental Entity or private party may have to such transactions
under such Law or Order so as to permit consummation of the transactions
contemplated by this Agreement.
5.4. Acquisition Proposals.
(a) SJW shall, and shall instruct each of its Subsidiaries
and Representatives (as defined below) to, immediately cease all existing
discussions or negotiations, if any, with any parties conducted heretofore
with respect to any Acquisition Proposal (as defined below). SJW shall not
directly or indirectly, and it shall cause its Subsidiaries, officers,
directors, employees,representatives, agents and affiliates, including
any investment bankers, attorneys and accountants ("Representatives")
retained by SJW or any of its Subsidiaries or affiliates, not to, directly
or indirectly, (i) solicit, initiate, encourage or otherwise facilitate
(including by way of furnishing information) any inquiries or proposals that
constitute, or could reasonably be expected to lead to, any inquiry,
proposal or offer (or any improvement, restatement, amendment, renewal or
reiteration thereof) from any Person relating to any direct or indirect
acquisition or purchase of SJW or any of its Subsidiaries, a
merger, recapitalization, consolidation, business combination, sale of a
significant portion of the assets of SJW and its Subsidiaries, taken as a
whole, sale of 10% or more of the shares of capital stock (including by way
of a tender offer, share exchange or exchange offer) or similar or
comparable transactions involving SJW or any of its Subsidiaries, other
than the transactions contemplated by this Agreement (any such inquiry,
proposal or offer (or improvement, restatement, amendment,renewal or
reiteration thereof) (other than made by Parent or an affiliate thereof)
being herein referred to as an "Acquisition Proposal"), or (ii) engage in
negotiations or discussions concerning, or provide any non-public
information to any Person relating to, any Acquisition Proposal.
Notwithstanding any other provision of this Agreement, the Board of
Directors of SJW may, at any time prior to approval of this Agreement by the
shareholders of SJW, furnish information (pursuant to a customary
confidentiality agreement no more favorable, in the aggregate, to
the party receiving information than the Confidentiality
Agreement (it being understood that SJW may enter into a confidentiality
agreement without a standstill or with a standstill provision less favorable
to SJW if it waives or similarly modifies the standstill provision in the
Confidentiality Agreement; provided that in no circumstances shall any such
standstill provision in any such further confidentiality agreement be more
favorable to the other Person with respect to the purchase of shares of SJW
Common Stock)) to,or engage in discussions or negotiations with, any Person
in response to such Person's Superior Proposal that did not otherwise result
from a breach of this Section 5.4 (as defined in Section 8.11(i)) made by
such Person if, and only to the extent that, prior to taking such action,
(A) the Board of Directors of SJW consults in good faith with its
independent legal counsel as to the advisability of furnishing information
to, or engaging in discussions or negotiations with, such Person and
determines in good faith based upon the advice of its independent legal
counsel that the failure to take such action would constitute a breach by
the Board of Directors of SJW of their fiduciary duties to the Company's
shareholders under applicable law, and (B) SJW provides reasonable advance
notice to Parent to the effect that it is taking such action.
(b) Except and only to the extent provided in paragraph (c)
below, neither the Board of Directors of SJW nor any committee
thereof shall (i) withdraw, modify or change, or propose to
withdraw, modify or change, in any manner adverse to Parent, the
approval or recommendation by such Board of Directors or such
committee of the Merger or this Agreement, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition
Proposal, or (iii) cause SJW to enter into any agreement (other
than a confidentiality agreement entered into in accordance with
Section 5.4(a)), letter of intent, agreement in principle,
acquisition agreement or other similar agreement relating to any
Acquisition Proposal.
(c) Notwithstanding any other provision of this Agreement, in
response to a Superior Proposal and after consulting in good
faith with its independent legal counsel as to the advisability
of such action and determines in good faith based upon the advice
of its independent legal counsel that the failure to take such
action would constitute a breach by the Board of Directors of SJW
of their fiduciary duties to the Company's shareholders under
applicable law, SJW's Board of Directors shall be permitted
(subject to this and the following sentences), at any time prior
to the adoption of this Agreement by the shareholders of SJW, (i)
to withdraw, modify or change, or propose to withdraw, modify or
change, the approval or recommendation by the Board of Directors
of this Agreement, the Merger or the other transactions
contemplated by this Agreement or (ii) to approve or recommend,
or propose to approve or recommend, any Superior Proposal, but
only in each case referred to in clauses (i) and (ii), after the
third Business Day following Parent's receipt of written notice
advising Parent that the Board of Directors of SJW has received a
Superior Proposal, specifying the principal terms of such
Superior Proposal and stating that it intends to take any action
described in clause (i) or (ii) above. After providing such
notice, SJW shall provide a reasonable opportunity to Parent
within such three Business Day-period to make such adjustments in
the terms and conditions of this Agreement as would enable SJW to
proceed with its recommendation to the shareholders of SJW
without taking any action described in clauses (i) or (ii) of the
preceding sentence; provided that any such adjustments shall be
at the discretion of Parent at such time.
(d) SJW shall immediately advise Parent of any request for
information or any Acquisition Proposal, the material terms of such request
or Acquisition Proposal (and in the case of a Superior Proposal, the
identity of such Person making such proposal). SJW will keep Parent
reasonably informed of the status and material terms (including amendments
or proposed amendments) of any such request or Acquisition Proposal.
(e) Nothing contained in this Section 5.4 shall prohibit
SJW or its Board of Directors (i) from taking and disclosing to its
shareholders a position contemplated by Rule 14d-9 and Rule 14e-2(a)
promulgated under the Exchange Act or from making any legally required
disclosure to the shareholders of SJW with regard to an Acquisition Proposal
or (ii) prior to the adoption of this Agreement by the shareholders of SJW,
from taking any action as contemplated by Section 7.1(f). Nothing in this
Section 5.4 shall (x) permit SJW to terminate this Agreement (except as
specifically provided in Article VII hereof) or (y) affect any other
obligation of SJW under this Agreement.
5.5. Employee Benefits Matters.
(a) Employee Benefits.
(i) Obligations of Parent; Comparability of Benefits.
Parent shall cause the Surviving Corporation to assume all employment
and other related Agreements with respect to any current employee
of SJW, which shall be performed in accordance with their terms.
In addition, the obligations under each SJW Benefit Plan (as
defined in Section 8.11(a)) as to which SJW or any of its
Subsidiaries has any obligation with respect to any current or
former employee (the "SJW Employees") shall become the
obligations of Parent and the Surviving Corporation at the
Effective Time. Thereafter, Parent shall, or shall cause the
Surviving Corporation to, provide benefits to SJW Employees under
those of Parent's Benefit Plans that provide benefits that are
most closely analogous to those provided by the SJW Benefit
Plans, on terms and conditions substantially similar, in the
aggregate, to those that apply to similarly situated employees of
Parent's Subsidiaries. Nothing herein shall require the
continuation of any particular SJW Benefit Plan or prevent the
amendment or termination thereof (subject to the maintenance, in
the aggregate, of the benefits as provided in the preceding
sentence).
(ii) Pre-Existing Limitations; Deductible; Service
Credit. With respect to any Benefit Plans of Parent or any Subsidiary of
Parent in which SJW Employees participate effective as of the
Closing Date, Parent shall, or shall cause the Surviving
Corporation to: (A) not impose any limitations more onerous than
those currently in effect as to pre-existing conditions,
exclusions and waiting periods with respect to participation and
coverage requirements applicable to SJW Employees under any
Benefit Plan of Parent or any Subsidiary of Parent in which such
employees may be eligible to participate after the Effective
Time, (B) provide each SJW Employee with credit for any co-
payments and deductibles paid prior to the Effective Time in
satisfying any applicable deductible or out-of-pocket
requirements under any welfare Benefit Plan of Parent or any
Subsidiary of Parent in which such employees may be eligible to
participate after the Effective Time, and (C) recognize all
service of SJW Employees with SJW for purposes of eligibility to
participate, vesting credit, eligibility for benefits and the
amount of any such benefits (other than accruals under any
defined benefit pension plan) in any Benefit Plan of Parent or
any Subsidiary of Parent in which such employees may be eligible
to participate after the Effective Time, to the same extent taken
into account under a comparable SJW Benefit Plan immediately
prior to the Closing Date.
(iii) Change of Control. SJW and Parent agree that,
for purposes of the SJW Benefit Plans, the approval or consummation
of the transactions contemplated by this Agreement, as applicable, shall
constitute a "Change in Control", as applicable under such SJW Benefit Plans.
(iv) Certain Plans. Notwithstanding any other provision
hereof, Parent shall, or shall cause the Surviving Corporation to,
provide the benefits under the SJW Corp. Transaction Incentive
and Retention Program for Key Employees and the SJW Corp.
Executive Severance Plan, as amended ("Severance Plan"),
including the Supplemental Executive Retirement Plan benefits
provided under the Severance Plan, to those individuals covered
by those plans on the Effective Time in accordance with the terms
of such plans as of the date hereof.
5.6. Fees and Expenses
Whether or not the Merger is consummated, all Expenses (as defined below)
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such Expenses, except (a) if the
Merger is consummated, the Surviving Corporation shall pay, or cause to be
paid, any and all property or transfer taxes imposed on SJW or
its Subsidiaries and (b) as provided in Section 7.2. As used in
this Agreement, "Expenses" includes all out-of-pocket expenses
(including all fees and expenses of counsel, accountants,
investment bankers, experts and consultants to a party hereto and
its affiliates) incurred by a party or on its behalf in
connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the
transactions contemplated hereby, including the preparation,
printing, filing and mailing of the SJW Proxy Statement and the
solicitation of shareholder approvals and all other matters
related to the transactions contemplated hereby.
5.7. Directors' and Officers' Indemnification and Insurance.
(a) After the Effective Time through the sixth anniversary
of the Effective Time, Parent and the Surviving Corporation shall,
jointly and severally, indemnify and hold harmless each present
(as of the Effective Time) or former officer, director or
employee of SJW and its Subsidiaries (the "Indemnified Parties"),
against all claims, losses, liabilities, damages, judgments,
fines and reasonable fees, costs and expenses (including
attorneys' fees and expenses) incurred in connection with any
claim, action, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or
pertaining to (i) the fact that the Indemnified Party is or was
an officer, director or employee of SJW or any of its
Subsidiaries to the extent that such claim, action, proceeding or
investigation pertains to matters existing or occurring at or
prior to the Effective Time (including this Agreement and the
transactions and actions contemplated hereby) (a "Claim"),
whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent permitted under applicable Law or
Order; provided that no Indemnified Party may settle any such
claim without the prior approval of Parent (which approval shall
not be unreasonably withheld or delayed). Each Indemnified Party
will be entitled to advancement of expenses incurred in the
defense of any claim, action, proceeding or investigation from
Parent or the Surviving Corporation within ten Business Days of
receipt by Parent or the Surviving Corporation from the
Indemnified Party of a request therefor to the extent permitted
under the CCC; provided that any Person to whom expenses are
advanced provides an undertaking, to the extent required by the
CCC , to repay such advances if it is ultimately determined that
such Person is not entitled to indemnification.
(b) Unless a modification is required by law, the Surviving
Corporation shall cause to be maintained in effect (i) in its
articles of incorporation and by-laws for a period of six years
after the Effective Time, the current provisions regarding
elimination of liability of directors and indemnification of, and
advancement of expenses to, officers, directors and employees
contained in the articles of incorporation and by-laws of SJW on
the date of this Agreement (provided that the Surviving
Corporation may make any amendments or other modifications to
such provisions that would not adversely affect the rights
thereunder of persons who at any time prior to the Effective Time
were identified as indemnitees under the articles of
incorporation or by-laws of SJW with respect to matters existing
or occurring at or prior to the Effective Time, and (ii) for a
period of six years after the Effective Time, the current
policies of directors' and officers' liability insurance and
fiduciary liability insurance maintained by SJW (provided that
the Surviving Corporation may substitute therefor policies of at
least the same coverage and amounts containing terms and
conditions which are, in the aggregate, no less advantageous to
the insured) with respect to claims arising from facts or events
that occurred on or before the Effective Time; provided, however,
that in no event shall the Surviving Corporation be required to
expend in any one year an amount in excess of 200% of the annual
premiums currently paid by SJW for such insurance; and, provided,
further, that if the annual premiums of such insurance coverage
exceed such amount, the Surviving Corporation shall be obligated
to obtain a policy with the greatest coverage available for a
cost not exceeding such amount.
(c) Notwithstanding anything herein to the contrary, if
any claim, action, proceeding or investigation (whether arising
before, at or after the Effective Time) is made against any
Indemnified Party on or prior to the sixth anniversary of the
Effective Time, the provisions of this Section 5.7 shall continue
in effect until the final disposition of such claim, action,
proceeding or investigation. Parent or the Surviving Corporation
shall have the right to assume the defense of any Claim for which
indemnification is provided herein, and neither Parent nor the
Surviving Corporation will be liable to such Indemnified Parties
for any legal expenses of other counsel or any other expenses
subsequently incurred thereafter by such Indemnified Parties in
connection with the defense thereof, except that an Indemnified
Party will have the right to retain separate counsel, reasonably
acceptable to Parent, at the expense of the indemnifying party if
the named parties to any such proceeding include both the
Indemnified Party and the Parent (or Surviving Corporation), or
their respective successors, and counsel for Parent determines
that the representation of such parties by the same counsel would
be inappropriate due to a conflict of interest between them based
upon the standards of professional responsibility applicable
thereto.
(d) In the event that the Surviving Corporation or any of
its successors or assigns (i) consolidates with or merges into any
other Person and shall not be the continuing or surviving
corporation or 1entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties
and assets to any Person, then, and in each such case, proper
provision shall be made so that the successors or assigns of the
Surviving Corporation shall succeed to the obligations set forth
in Section 5.5 and this Section 5.7.
5.8. Public Announcements
SJW and Parent shall use all reasonable efforts to develop a joint
communications plan. Each of the parties agrees that it shall not, nor
shall any of their respective affiliates, issue or cause to be issued, any
press releases and other public statements with respect to this Agreement
or the transactions contemplated hereby unless otherwise required by
applicable Law or by obligations pursuant to any listing agreement with or
rules of any securities exchange, provided that, if such disclosure is
required by applicable law or by obligations pursuant to any
listing agreement with or rules of any securities exchange, each
of the parties agrees to consult with each other before issuing
any press release or otherwise making any public statement with
respect to this Agreement or the transactions contemplated hereby.
5.9. Disclosure Schedule Supplements
From time to time after the date of this Agreement and prior to the
Effective Time, SJW will promptly supplement or amend the SJW Disclosure
Schedule with respect to any matter hereafter arising which, if existing
or occurring at or prior to the date of this Agreement, would have been
required to be set forth or described in the SJW Disclosure Schedule or
which is necessary to correct any information in a schedule or in any
representation and warranty of SJW which has been rendered inaccurate
thereby. From time to time after the date of this Agreement and prior to
the Effective Time, Parent will promptly disclose in writing to SJW any
matter hereafter arising which, if existing or occurring at or prior to
the date of this Agreement, would have been required to be set forth or
described in a disclosure schedule or which is necessary to correct any
information in a schedule or in any representation and warranty
of Parent or Merger Sub which has been rendered inaccurate
thereby (including, for purposes of this Section 5.9 only, any
representation or warranty set forth in Section 3.2(f) without
regard to the words "As of the date hereof" therein). Each of SJW
and Parent shall, within a reasonable period of time following
any such disclosure, supplement or amendment, negotiate in good
faith with respect to the consequences of any such disclosure,
supplement or amendment. For purposes of determining the accuracy
of the representations and warranties of SJW contained in this
Agreement in order to determine the fulfillment of the conditions
set forth in Section 6.2(a), the SJW Disclosure Schedule shall be
deemed to include only that information contained therein on the
date of this Agreement and shall be deemed to exclude any
information contained in any subsequent supplement or amendment
thereto. For purposes of determining the accuracy of the
representations and warranties of Parent contained in this
Agreement in order to determine the fulfillment of the conditions
set forth in Section 6.3(a), there shall be deemed to be no
disclosure schedule of Parent, and the information contained in
any written disclosure by Parent pursuant to this provision shall
not be considered.
ARTICLE VI
CONDITIONS PRECEDENT
6.1. Conditions to Each Party's Obligation to Effect the Merger
The respective obligations of SJW, Parent and Merger Sub to effect the
Merger are subject to the satisfaction or waiver at or prior to the Closing
of the following conditions:
(a) Shareholder Approval. SJW shall have obtained the Required
SJW Vote for the adoption of this Agreement by the shareholders of SJW.
(b) No Injunctions or Restraints; Illegality. No federal,
state, local or foreign, if any, Law shall have been adopted or
promulgated, and no temporary restraining Order, preliminary or
permanent injunction or other Order issued by a court or other
Governmental Entity of competent jurisdiction shall be in effect,
having the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
(c) Governmental Approvals. All Parent Required Consents and
the SJW Required Consents shall have been obtained prior to the Effective
Time, and shall have become Final Orders. The Final Orders shall not,
individually or in the aggregate, impose terms and conditions that
materially impair thexability of the parties to complete the Merger or the
other transactions contemplated hereby. "Final Order" for purposes of this
Agreement means action by the relevant regulatory authority which has not
been reversed, stayed, enjoined, set aside or annulled, and with respect to
which any waiting period prescribed by any Law or Order before
the Merger and other transactions contemplated hereby may be
consummated has expired, and as to which all conditions to be
satisfied before the consummation of such transactions prescribed
by Law or Order have been satisfied.
(d) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been
terminated or shall have expired.
6.2. Additional Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to effect the Merger are
subject to the satisfaction of, or waiver by Parent, at or prior to the
Closing of the following additional conditions:
(a) Representations and Warranties At the time of Closing:
(i) Each of the representations and warranties of SJW
set forth in the first and last sentence of Section 3.1(a) and Sections
3.1(b), 3.1(c)(i), 3.1(o), 3.1(p) and 3.1(r) shall be true and correct in
all material respects; and
(ii) Each of the other representations and warranties
of SJW set forth in the Agreement shall be true and correct without giving
effect to any qualification for Material Adverse Effect,
materiality or correlative term, except to the extent that such
failure to be true and correct would not, in the aggregate and
when taken together with all such failures, have a Material
Adverse Effect; as if such representations and warranties referred to in
clauses (i) and (ii) above were made at the Effective Time except (A) to
the extent any such representation or warranty speaks by its terms as of
a certain date, and (B) for changes specifically permitted by this
Agreement; and Parent shall have received a certificate of the chief
executive officer and the chief financial officer of SJW to such effect.
(b) Performance of Obligations of SJW. SJW shall have
performed or complied in all material respects with all agreements and
covenants required to be performed by it under this Agreement at or prior
to the Closing Date, and Parent shall have received a certificate of the
chief executive officer and the chief financial officer of SJW to such effect.
(c) Final Orders. The Final Orders referred to in Section
6.1(c) shall not, individually or in the aggregate, impose terms and
conditions that could reasonably be expected to result in a Material Adverse
Effect on SJW or Parent.
(d) Product Liability. No event has occurred which could
reasonably be likely to result in any liability of SJW or its Subsidiaries
for death or serious personal injury, fixed or contingent, asserted or
unasserted, with respect to any product or service sold by SJW or its
Subsidiaries such that the reputation of SJW, Parent or any of their
Subsidiaries might be significantly impaired.
6.3. Additional Conditions to Obligations of SJW
The obligations of SJW to effect the Merger are subject to
the satisfaction of, or waiver by SJW, at or prior to the Closing of the
following additional conditions:
(a) Representations and Warranties. Each of the representations
and warranties of Parent and Merger Sub set forth in this Agreement shall be
true and correct (other than any representation or warranty, or any portion
of a representation or warranty, that is not qualified as to Material
Adverse Effect,which representations and warranties shall be true and correct in
all material respects), as if such representations or warranties were made
as of the Effective Time, except (i) to the extent given as of a certain
date and (ii) for changes specifically permitted by this Agreement, and SJW
shall have received a certificate of the chief executive officer and the
chief financial officer of Parent to such effect.
(b) Performance of Obligations of Parent. Parent shall have
performed or complied in all material respects with all agreements and
covenants required to be performed by it under this Agreement at or prior
to the Closing Date, and SJW shall have received a certificate of the
chief executive officer and the chief financial officer of Parent to
such effect.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1. Termination
This Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of
the terminating party or parties, and except as provided below, whether
before or after approval of the matters presented in connection with the
Merger by the shareholders of SJW or Merger Sub:
(a) By mutual written consent of Parent and SJW, by action of
their respective Boards of Directors;
(b) By either SJW or Parent, by written notice to the other
party, if the Effective Time shall not have occurred on or before the first
anniversary of the date of this Agreement (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement (including without limitation Section 5.3)
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before the Termination Date; provided further that if, on such
first anniversary, (i) the condition set forth in Section 6.1(c) has not
been satisfied or waived, (ii) all of the other conditions to the
consummation of the Merger set forth in Article VI have been satisfied or
waived or can readily be satisfied and (iii) any approvals required in
order for the condition set forth in Section 6.1(c) to be satisfied that
have not yet been obtained are being pursued diligently and in good faith,
then the Termination Date shall,without any action by any of the parties,
be extended to the earlier of (x) the date that is six months after the first
anniversary of the date hereof and (y) the date that such approvals are no
longer being pursued diligently and in good faith by any party necessary to
the prosecution thereof;
(c) By either SJW or Parent if any Governmental Entity
(i) shallhave issued an order, decree or ruling or taken any other action
(which the parties shall have used their reasonable best efforts to resist,
resolve or lift, as applicable, in accordance with Section 5.3) permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable or (ii) shall have failed
to issue an order, decree or ruling or to take any other action (which order,
decree, ruling or other action the parties shall have used their
reasonable best efforts to obtain, in accordance with Section 5.3), in each
case (i) and (ii) that is necessary to fulfill the conditions set forth in
subsections 6.1(c) and (d), as applicable, and such denial of a request to
issue such order,decree, ruling or take such other action shall have become
final and nonappealable; provided, however, that the right to terminate
this Agreement under this Section 7.1(c) shall not be available to any party
whose failure to comply with Section 5.3 has been the cause of such action
or inaction;
(d) By either SJW or Parent if the approval by the
shareholders of SJW required for the consummation of the Merger shall
not have been obtained by reason of the failure to obtain the Required SJW
Vote upon the taking of such vote at a duly held meeting of shareholders of
SJW, or at any adjournment thereof;
(e) By Parent if the Board of Directors of SJW shall have
taken or resolved to take any of the actions set forth in clauses (i)
or (ii) of Section 5.4(b) or if the Board of Directors of SJW shall have
refused to affirm its recommendation of the Merger and the transactions
contemplated by this Agreement as promptly as practicable (but in any case
within ten business days) after receipt of written request from Parent
therefor;
(f) By SJW at any time prior to adoption of this Agreement
by the shareholders of SJW if the Board of Directors of SJW (i) shall have
approved a Superior Proposal or (ii) shall have entered into a definitive
agreement with respect to a Superior Proposal; provided, however, that SJW
shall have complied with Section 5.4;
(g) By Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of SJW set forth in this Agreement, or if
any representation or warranty of SJW shall have become untrue, incomplete
or incorrect, in either case such that the conditions set forth in Section
6.2(a) would not be satisfied (a "Terminating SJW Breach"); provided,
however, that if such Terminating SJW Breach is curable by SJW through
the exercise of its reasonable efforts within 10 days, Parent may not
terminate this Agreement under this Section 7.1(g) until the expiration of
such 10 day period or the time SJW fails to maintain reasonable efforts,
whichever occurs earlier; and provided, further, that the preceding proviso
shall not in any event be deemed to extend any date set forth in paragraph
(b) of this Section 7.1; or
(h) By SJW, upon breach of any representation, warranty,
covenant or agreement on the part of Parent or Merger Sub set forth in this
Agreement, or if any representation or warrant of Parent shall have become
untrue, incomplete or incorrect, in either case such that the conditions
set forth in Section 6.3(a) would not be satisfied ("Terminating Parent
Breach"); provided,however, that if such Terminating Parent Breach is
curable by Parent through the exercise of its reasonable efforts within 10
days and for so long as Parent continues to exercise such reasonable efforts,
Company may not terminate this Agreement under this Section 7.1(h) until the
expiration of such 10 day period or the time SJW fails to maintain reasonable
efforts, whichever occurs earlier; and provided, further, that the preceding
proviso shall not in any event be deemed to extend any date set forth
in paragraph (b) of this Section 7.1.
7.2. Effect of Termination.
(a) In the event of termination of this Agreement by either
SJW or Parent as provided in Section 7.1, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of
Parent, Merger Sub or SJW or their respective officers or directors except
with respect to the second sentence of Section 5.2, Section 5.6, this
Section 7.2 and Article VIII; provided, however, that nothing herein shall
relieve any party from liability for the willful breach of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
(b) Parent and SJW agree that SJW shall pay to Parent the
sum of $17.5 million (the "Termination Fee") if (i) SJW or Parent shall
terminate this Agreement pursuant to Section 7.1(d), Section 7.1(e), or
Section 7.1(f)(i), and at any time after the date of this Agreement and at
or before the time of the event giving rise to such termination there shall
exist an Acquisition Proposal with respect to SJW or any of its Subsidiaries
and within 18 months following the termination of this Agreement, SJW enters
into a definitive agreement with a third party with respect to an
Acquisition Proposal or an Acquisition Proposal is consummated or (ii) SJW
shall terminate this Agreement pursuant to Section7.1(f)(ii).
(c) The Termination Fee required to be paid to Parent
pursuant to Section 7.2(b) shall be made to Parent not later than five
Business Days after the entering into of a definitive agreement
with respect to, or the consummation of, an Acquisition Proposal,
as applicable. Payment under this Section 7.2 shall be made by
wire transfer of immediately available funds to an account
designated by Parent in the amount of the Termination Fee, plus
interest, if any, accrued from the date when payment was due to
the payment date at the prime rate in effect at Wells Fargo Bank,
San Francisco.
7.3. Amendment
This Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time before or
after approval of the matters presented in connection with the Merger by
the shareholders of SJW and Merger Sub, but, after any such approval, no
amendment shall be made which by Law or in accordance with the rules of any
relevant stock exchange requires further approval by such shareholders
without such further approval. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto.
7.4. Extension; Waiver
At any time prior to the Effective Time, the parties hereto, by
action taken or authorized by their respective Boards of Directors, may, to
the extent legally allowed, (i) extend the time for the performance of any
of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid
only if set forth in a written instrument signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
8.1. Non-Survival of Representations, Warranties and Agreements
None of the representations, warranties, covenants and other agreements in
this Agreement or in any instrument delivered pursuant to this
Agreement, including any rights arising out of any breach of such
representations, warranties,covenants and other agreements, shall survive
the Effective Time,except for those covenants and agreements contained
herein and therein that by their terms apply or are to be performed in whole
or in part after the Effective Time and this Article VIII. Nothing in this
Section 8.1 shall relieve any party for any breach of any representation,
warranty, covenant or other agreement in this Agreement occurring prior to
termination.
8.2. Notices
All notices and other communications hereunder shall be in writing (including
telecopy or other similar writing) and shall be deemed duly given (a) on the
date of delivery if delivered personally, or by telecopy or telefacsimile,
upon confirmation of receipt, (b) on the first Business Day following the
date of dispatch if delivered by a recognized next-day courier service,
(c) on the tenth Business Day following the date of mailing if delivered by
registered or certified mail, return receipt requested, postage prepaid or
(d) if given by any other means, when received at the address specified in
this Section 8.2, except, in each case, for a notice of a change of address,
which shall be effective only upon receipt thereof. All notices hereunder
shall be delivered as set forth below, or pursuant to such other instructions
as may be designated in writing by the party to receive such notice:
(a) if to Parent or Merger Sub, to
American Water Works Company, Inc.
1025 Laurel Oak Road
P.O. Box 1770
Voorhees, NJ 08043
Fax: 856-346-8299
Attention: W. Timothy Pohl
with a copy to
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Fax: 215-994-2
Attention: John LaRocca
(b) if to SJW to
SJW Corp.
374 W. Santa Clara St.
San Jose, CA 95113 (courier) or 95196 (mail)
Fax: (408) 279-7932
Attention: Richard Roth
with a copy to
Brobeck, Phleger & Harrison LLP
One Market, Spear Street Tower
San Francisco, CA 94105
Fax: (415) 442-1010
Attention: Ronald B. Moskovitz
8.3. Interpretation
When a reference is made in this Agreement to Sections, Exhibits
or Schedules, such reference shall be to a Section of or Exhibit or Schedule
to this Agreement unless otherwise indicated. The table of contents,
glossary of defined terms and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include","includes" or
"including" are used in this Agreement, they shall be deemed to be followed
by the words "without limitation". The inclusion of any matter in the SJW
Disclosure Schedule in connection with any representation, warranty,
covenant or agreement that is qualified as to materiality or "Material
Adverse Effect" shall not be an admission by SJW that such matter is material
or would have a Material Adverse Effect. Notwithstanding anything to the
contrary, in no event shall any risk factors or similar cautionary language
included in any SJW SEC Reports under the heading "Forwarding Looking
Statements" be disclosed or deemed disclosed for purposes of the
representations, warranties, or covenants contained in this Agreement except
as otherwise specifically disclosed herein or therein.
8.4. Counterparts
This Agreement may be executed in two or more counterparts, all of which
shall be considered one and the same agreement and shall become
effective when each party shall have received counterparts hereof signed
by all other parties hereto,it being understood that the parties need not
sign the same counterpart.
8.5. Entire Agreement; No Third Party Beneficiaries.
(a) This Agreement together with the SJW Disclosure Schedule,
and exhibits hereto constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the
Confidentiality Agreement, which shall survive the execution and delivery of
this Agreement.
(b) This Agreement shall be binding upon and inure solely
to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than Section 5.7 (which is intended to be for the benefit of
the Persons covered thereby and may be enforced by such Persons).
8.6. Governing Law
This Agreement shall be governed and construed in accordance with the laws
of the State of California, without regard to principles of conflict of laws.
8.7. Severability
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any Law, Order or public policy, all other
terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner in order that the transactions contemplated hereby are
consummated as originally contemplated to the greatest extent possible.
8.8. Assignment
Neither this Agreement nor any of the rights,interests or obligations
hereunder shall be assigned by any of the parties hereto, in whole or
in part (whether by operation of Law, Order or otherwise), without
the prior written consent of the other parties, and any attempt to make any
such assignment without such consent shall be null and void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective
successors and assigns. SJW agrees that, at the request of Parent and
Merger Sub at any time prior to adoption of this Agreement by the
shareholders of SJW, SJW will take all actions required by the CCC in order
to effect, after all actions required by the CCC and DGCL are taken by
Parent and Merger Sub, the substitution of another direct or indirect
wholly-owned Subsidiary of Parent for Merger Sub in this Agreement; provided
that each of Parent and such substitute Subsidiary shall represent and
warrant to SJW, on the date such substitution is to be effective, the
representations and warranties set forth in Section 3.3; and provided,
further, that no action shall be taken that would require SJW to amend or
supplement the SJW Proxy Statement at any time after the SJW Proxy Statement
has first been mailed to SJW's shareholders.
8.9. Submission to Jurisdiction; Waivers
Each of Parent, Merger Sub and SJW irrevocably agrees that any legal
action or proceeding with respect to this Agreement or for recognition
and enforcement of any judgment in respect hereof brought by any party
hereto or its successors or assigns may be brought and determined in
the Santa Clara County Superior Court of the State of California, or in
the United States Courts in or for the Northern District of California, in
each case having subject matter jurisdiction, and each of Parent,
Merger Sub and SJW hereby irrevocably submits with regard to any
such action or proceeding for itself and in respect to its
property, generally and unconditionally, to the nonexclusive
jurisdiction of the aforesaid courts. Each of the parties hereto
hereby agrees that service of any process, summons, notice or
document by U.S. registered mail to its respective address set
forth in Section 8.2 shall be effective service of process for
any such legal action or proceeding brought against it in any
such court. Each of Parent, Merger Sub and SJW hereby
irrevocably waives, and agrees not to assert, by way of motion,
as a defense, counterclaim or otherwise, in any action or
proceeding with respect to this Agreement, (a) any claim that it
is not personally subject to the jurisdiction of the above-named
courts for any reason other than the failure to serve process in
accordance with this Section 8.9, (b) that it or its property is
exempt or immune from jurisdiction of any such court or from any
legal process commenced in such courts (whether through service
of notice, attachment prior to judgment, attachment in aid of
execution of judgment, execution of judgment or otherwise) and
(c) to the fullest extent permitted by applicable Law or Order,
that (i) the suit, action or proceeding in any such court is
brought in an inconvenient forum, (ii) the venue of such suit,
action or proceeding is improper and (iii) this Agreement, or the
subject matter hereof, may not be enforced in or by such courts.
Notwithstanding anything contained herein to the contrary, SJW
understands and agrees that this Section 8.9 is not intended to
and shall not be deemed to be a consent by Parent to jurisdiction
for any purpose other than the limited purpose of enforcing this
Agreement in accordance with its terms.
8.10. Enforcement
The parties agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the
parties shall be entitled to specific performance of the terms hereof,
this being in addition to any other remedy to which they are entitled
at Law, Order or in equity.
8.11. Definitions
As used in this Agreement:
(a) "Benefit Plans" means, with respect to any Person, each
employee or director benefit plan, program, arrangement and contract
(including any "employee benefit plan," as defined in Section 3(3) of
ERISA, and any bonus, deferred compensation, stock bonus, stock purchase,
restricted stock, stock option, employment, termination, stay agreement or
bonus, change in control and severance plan, program, arrangement and
contract) in effect on the date of this Agreement or disclosed on Section
4.1(c) of the SJW Disclosure Schedule, to which such Person or
its Subsidiary is a party, which is maintained or contributed to
by such Person, or with respect to which such Person could incur
material liability under Section 4069, 4201 or 4212(c) of ERISA.
(b) "Board of Directors" means the Board of Directors of any
specified Person and any committees thereof.
(c) "Business Day" means any day on which banks are not
required or authorized to close in the city of San Francisco.
(d) "knowledge" when used with respect to any party means
the knowledge of any executive officer of such party after reasonable
inquiry.
(e) "Material Adverse Effect" means, with respect to any
Person, any change, circumstance or effect that would reasonably be
expected to result in a materially adverse effect on the business,
financial condition or results of operations of such Person and its
Subsidiaries taken as a whole, other than any change, circumstance or
effect relating (i) to reductions in consumer demand or reductions in
supply sources solely as a result of unusual climatic conditions in the
watersheds or in the areas serviced by SJW or any of its Subsidiaries or
(ii) to actions or omissions by either Parent or SJW, or any of their
Subsidiaries, as the case may be, taken with the written permission of the
other party in connection with the transactions contemplated hereby.
(f) "the other party" means, with respect to SJW, Parent and
means, with respect to Parent, SJW.
(g) "Person" means an individual, corporation, limited
liability company, partnership, association, trust, unincorporated
organization, other entity or group (as defined in the Exchange Act).
(h) "Subsidiary" when used with respect to any party means
any corporation or other organization, whether incorporated or
unincorporated, (i) of which such party or any other Subsidiary
of such party is a general partner (excluding partnerships, the
general partnership interests of which held by such party or any
Subsidiary of such party do not have a majority of the voting
interests in such partnership) or (ii) at least a majority of the
securities or other interests of which having by their terms
ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its
Subsidiaries.
(i) "Superior Proposal" means an unsolicited bona fide
written Acquisition Proposal that the Board of Directors of SJW concludes
in good faith (after consultation with its financial advisors)
would, if consummated, provide greater aggregate value to SJW's
shareholders (in their capacities as shareholders), from a
financial point of view, than the transactions contemplated by
this Agreement and for which any required financing is committed
or which, in the good faith judgment of the Board of Directors of
SJW (after consultation with its financial advisors), is
reasonably capable of being financed by the Person making such
Acquisition Proposal (provided that for purposes of this
definition the term Acquisition Proposal shall have the meaning
assigned to such term in Section 5.4 except that (x) the
reference to "10% or more of the shares" in the definition of
"Acquisition Proposal" shall be deemed to be a reference to "sale
of 50% or more of the shares" and (y) "Acquisition Proposal"
shall only be deemed to refer to a transaction involving SJW, or
with respect to assets (including the shares of any Subsidiary of
SJW) of SJW and its Subsidiaries, taken as a whole, and not any
of its Subsidiaries alone.
8.12. Other Agreements
The parties hereto acknowledge and agree that, except as otherwise
expressly set forth in this Agreement, the rights and obligations of SJW
and Parent under any other agreement between the parties shall not be
affected by any provision of this Agreement.
[Intentionally Left Blank]
IN WITNESS WHEREOF, Parent, SJW and Merger Sub have
caused this Agreement to be signed by their respective officers
thereunto duly authorized, all as of the day and year first above
written.
AMERICAN WATER WORKS COMPANY, INC.
By: /s/ W. Timothy Pohl_________
Name: W. Timothy Pohl
Title: Secretary and General
Counsel
SJW ACQUISITION CORP.
By: /s/ W. Timothy Pohl_______
Name: W. Timothy Pohl
Title: Vice President
SJW CORP.
By: /s/ W. Richard Roth_______
Name: W. Richard Roth
Title: President
SIXTH AMENDMENT
TO
SAN JOSE WATER COMPANY
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
dated January 1, 1992
The San Jose Water Company Executive Supplemental
Retirement Plan is hereby amended effective January 1, 1999 to
read as follows:
FIRST: Effective January 1, 1999, Section 3.1 is
amended to read as follows:
"3.1 The retirement benefits under this Plan to which a
Participant shall be entitled, shall be an amount equal to the
following:
"(a) Two and two tenths percent (2.2%) of the
Final Average Compensation of a Participant multiplied by the
Participant's Years of Service (not to exceed twenty (20) years)
plus one and one-tenth percent (1.1%) of the Final Average
Compensation of a Participant multiplied by the Participant's
Years of Service in excess of 20 years (not to exceed an
additional ten (10) years) up to a total not to exceed fifty-five
percent (55%) of Final Average Compensation; less benefits
payable to the Participant from the San Jose Water Company
Retirement Plan. The one and one-tenth percent (1.1%) and fifty-
five percent (55%) of Final Average Compensation percentages
stated above shall be increased to one and six tenths percent
(1.6%) and sixty percent (60%) respectively for Participants who
are credited with an Hour of Service, as defined in the San Jose
Water Company Retirement Plan, on or after November 1, 1999."
"(b) In addition to the benefit described in
subsection (a) above, Mr. John Weinhardt shall receive an
additional eight and one quarter tenths of one percent (.825%) of
Final Average Compensation for each year of service as President
and Chief Executive Officer of the Company.
"(c) In addition to the benefit described in
subsection (a) above, Barbara Y. Nilsen shall receive the
following benefit if she retires on March 1, 1998: $40,000 in the
first year, $30,000 in the second year, and $20,000 in the third
year of retirement. The benefit will be paid pro rata on a
monthly basis. Actuarial reductions will apply if a form of
payment with beneficiary rights is elected.
"(d) In addition, to the benefit described in
subsection (a) above, Frederick Meyer shall receive an additional
two and one-half (2 1/2) Years of Service credit and shall be deemed
to be 2 (1/2) years of age older at the time he retires.
"(e) In addition to the benefit described in
subsection (a) above, Participants who are entitled to a benefit
under the SJW. Corp Executive Severance Plan (the "Severance
Plan") and whose employment with the Company terminates within
twenty-four (24) months after a Change in Control, as defined in
the Severance Plan, shall receive an additional three (3) Years
of Service and shall be deemed to be three (3) years of age older
at the time of retirement.
"(f) Mr. W. Richard Roth shall be entitled to a
retirement benefit hereunder, payable to him on a monthly basis,
at the later of his attainment of fifty-five (55) years of age
or his actual retirement in an amount equal to the greater of (i)
the benefit to which he would otherwise be entitled under the
Plan or (ii) fifty-five percent (55%) of Final Average
Compensation less benefits payable to him from the San Jose Water
Company Retirement Plan."
"The amount of the offset for benefits paid from the
San Jose Water Company Retirement Plan contained in subsections
(a), (e) and (f) shall be the Actuarially Equivalent of a single
life annuity commencing on the Participant's Normal Retirement
Date."
SECOND: Except as provided herein, the San Jose Water
Company Executive Supplemental Retirement Plan shall continue in
full force and effect.
IN WITNESS WHEREOF, San Jose Water Company has caused
its authorized officers to affix the corporate name and seal
hereto this __ day of _____________, 1999.
SAN JOSE WATER COMPANY
By____________________________
By____________________________
EXECUTIVE SEVERANCE PLAN
AMENDMENT 1999-1
* * *
The SJW Corp. Executive Severance Plan (the "Plan") as
previously adopted by SJW Corp. ("Company") for the benefit of
the Officers (as defined therein) of Company and/or its
Affiliates and Associates (as defined therein) is hereby amended
effective September 21, 1999 as follows:
1. Section 1(f) is hereby amended to read in full as
follows:
"(f) "Good Reason" shall exist with respect to an
Officer if and only if, without the Officer's express
written consent:
(1) there is a significant change in the nature
or the scope of the Officer's authority or in his or
her overall working environment;
(2) the Officer is assigned duties materially
inconsistent with his or her present duties,
responsibilities and status;
(3) there is a reduction in the Officer's rate of
base salary or target bonus; or
(4) Employer changes by fifty-five (55) miles or
more the principal location in which the Officer is
required to perform services;
provided that, with respect to any voluntary
termination of employment by Mr. Richard Roth during
the sixty (60) day period beginning on the one year
anniversary of a Change in Control, Good Reason shall
automatically be deemed to have existed."
2. Subparagraph (3) of Section 2(a) is hereby amended
in full to read as follows:
"(3) The Company will make provisions in its
Supplemental Executive Retirement Plan ("SERP") so that each
Officer (other than Mr. W. Richard Roth) will receive combined
retirement benefits under the SERP and the Company's Retirement
Plan equivalent to that which would be provided if such Officer
had three additional years of service credit and were three years
older on the date of his or her retirement. Solely for Mr. W.
Richard Roth the Company shall, in lieu of the foregoing, adopt
and implement the Sixth Amendment to the SERP in substantially
the form attached as Exhibit A."
2. Sections 14(b) and (c) shall not apply to Mr. W.
Richard Roth, and Mr. Roth's Change in Control Benefit under this
Plan shall not be subject to the Benefit Limit of Section 14(b).
Instead, there is hereby added the following new Section 14(d)
solely and exclusively for the benefit of Mr. W. Richard Roth:
"(d) If Mr. Roth qualifies for a Change in Control
Benefit hereunder, he shall receive an additional cash payment
(the "Tax Gross-Up") sufficient to reimburse him on an after-tax
basis for any excise tax imposed on such Officer with respect to
such Change in Control Benefit pursuant to Section 4999 of the
Internal Revenue Code or a successor provision or similar tax
("Excise Tax"), so that such Officer does not incur any out-of-
pocket cost with respect to such Excise Tax. The amount of any
such Tax Gross-Up will be determined pursuant to the following
formula and will be subject to the Company's collection of all
applicable federal, state and local income and employment
withholding taxes and any Excise Tax:
X = Y / (1 - (A + B + C)), where
X is the total dollar amount of the Tax Gross-Up
payable to Mr. Roth.
Y is the total Excise Tax imposed on Mr. Roth with
respect to such Change in Control Benefit.
A is the Excise Tax rate in effect at the time.
B is the highest combined marginal federal income and
applicable state income tax rate in effect for Mr.
Roth, after taking into account the deductibility of
state income taxes against federal income taxes to the
extent allowable, for the calendar year in which the
Tax Gross-Up is paid.
C is the applicable Hospital Insurance (Medicare) Tax
Rate in effect for Mr. Roth for the calendar year in
which the Tax Gross-Up is paid.
Within ninety (90) days after each determination is
made by the Internal Revenue Service or Roth's tax advisor that
one or more of the Change in Control Benefits paid to Roth
constitute excess parachute payments under Code Section 280G for
which Roth is liable for an Excise Tax, Roth shall identify the
nature of those parachute payments to the Company and submit to
the Company the calculation of the Excise Tax attributable to
that payment and the Tax Gross-Up to which Roth is entitled with
respect to such tax liability. The Company will pay such Tax
Gross-Up to Roth (net of all applicable withholding taxes,
including any taxes required to be withheld under Code Section
4999) within ten (10) business days after Roth's submission of
the calculation of such Excise Tax and the resulting Tax Gross-
Up, provided such calculations represent a reasonable
interpretation of the applicable law and regulations.
In the event that Roth's actual Excise Tax liability is
determined by a Final Determination to be greater than the Excise
Tax liability taken into account for purposes of the Tax Gross-Up
paid to Roth pursuant to this Section 14(b), then within ninety
(90) days following the Final Determination, Roth shall submit to
the Company a new Excise Tax calculation based upon the Final
Determination. Within ten (10) business days after receipt of
such calculation, the Company shall pay Roth the additional Tax
Gross-Up attributable to such excess Excise Tax liability.
In the event that Roth's actual Excise Tax liability is
determined by a Final Determination to be less than the Excise
Tax liability taken into account for purposes of the Tax Gross-Up
paid to Roth pursuant to this Section 14(b), then Roth shall
refund to the Company, promptly upon receipt, any federal or
state tax refund attributable to the Excise Tax overpayment.
For purposes of this Section 14(b), a "Final
Determination" means an audit adjustment by the Internal Revenue
Service that is either (i) agreed to by both Roth (or his estate)
and the Company (such agreement by the Company to be not
unreasonably withheld) or (ii) sustained by a court of competent
jurisdiction in a decision with which Roth and the Company concur
(such concurrence by the Company to be not unreasonably withheld)
or with respect to which the period within which an appeal may be
filed has lapsed without a notice of appeal being filed."
3. Except as heretofore amended, the terms of the
Plan shall continue in full force and effect.
IN WITNESS WHEREOF, Company has caused this instrument
to be executed in its name by its duly authorized officer, all as
of the day and year first above written.
SJW CORP.
By:________________
Its: ______________
SJW CORP.
TRANSACTION INCENTIVE AND RETENTION PROGRAM
FOR
KEY EMPLOYEES
I. PURPOSE OF THE PROGRAM
This Transaction Incentive and Retention Program for
Key Employees is intended to promote the interests of SJW Corp.,
a California corporation (the "Company"), by providing members of
the Company's senior management with a special incentive to
remain in the Company's employ during any period in which the
Company may be the subject of an acquisition offer and during a
limited transition period following such an acquisition.
II. DEFINITIONS
For purposes of the Program, the following definitions
apply:
Acquisition means any of the following transactions
pursuant to which assets or securities of the Company are
acquired for consideration paid in cash, securities or other
property:
(i) any merger or consolidation in which
securities possessing more than fifty percent (50%) of
the total combined voting power of the Company's
outstanding securities are transferred to a person or
persons different from the persons holding those
securities immediately prior to the merger or
consolidation, or
(ii) the sale, transfer or other
disposition of all or substantially all (more than
eighty percent (80%)) of the Company's assets in
liquidation or dissolution of the Company, or
(iii) the direct sale or exchange by
the Company's stockholders of securities possessing
more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities to
a person or persons different from the persons holding
those securities immediately prior to such sale or
exchange.
Acquisition Proceeds means the following items of
consideration (in cash, securities or other property) paid by the
acquiring company in effecting the Acquisition:
(i) if the Acquisition is effected by a
merger or consolidation or the direct purchase of the
Company's outstanding common stock, the aggregate
amount of cash and other consideration (valued at fair
market value) payable to the holders of the Company's
outstanding common stock in acquisition of their
common stock holdings, or
(ii) if the Acquisition is effected by
the purchase of all or substantially all of the
Company's assets in liquidation or dissolution, the sum
of (A) the aggregate amount of cash and other
consideration (valued at fair market value) paid to the
Company in acquiring the Company's assets plus (B) the
fair market value of other assets of the Company that
remain available for distribution to stockholders, less
the portion of such amount applied by the Company to
the payment of any outstanding indebtedness of the
Company (other than amounts owed under this Program).
No liability of the Company assumed or discharged by
the acquiring company in the Acquisition (other than any
liability under this Program) shall be taken into account in
determining the amount of the Acquisition Proceeds.
Acquisition Proceeds Per Share shall be the amount
determined in accordance with the following provisions:
(i) if the Acquisition is effected by a
merger or consolidation or the direct purchase of the
Company's outstanding common stock, the Acquisition
Proceeds Per Share will be equal to the amount actually
paid to the Company's stockholders per outstanding
share of common stock.
(ii) if the Acquisition is effected by the
purchase of all or substantially all of the Company's
assets, the Acquisition Proceeds Per Share will be
determined pursuant to the following formula:
X = AP / O, where
X is the dollar amount of the Acquisition
Proceeds Per Share
AP is the aggregate amount of the Acquisition
Proceeds, and
O is the total number of outstanding shares
of the Company's common stock at the time of
the Acquisition, determined on a fully-
diluted basis, including the number of shares
of common stock issuable upon any convertible
equity or debt securities or upon the
exercise of any outstanding warrants or other
similar purchase rights.
Board means the Company's Board of Directors.
Bonus Award means a Retention Bonus Award or Incentive
Bonus Award payable under the Program.
Bonus Payment Date means the later of (i) the
expiration of the twelve (12) month period following the
execution date of the definitive agreement for the Acquisition or
(ii) the closing of the Acquisition following the requisite
approval of that Acquisition by the Public Utilities Commission
of the State of California.
Code means the Internal Revenue Code, as amended from
time to time.
Company means the SJW Corp., a California corporation,
or successor entity.
Employee means an individual who is employed on a full-
time basis by the Company, subject to the Company's control and
direction as to both the work to be performed and the manner and
method of performance.
Good Reason exists with respect to a Participant if and
only if, without the Participant's express written consent:
(i) there is a significant change in the nature
or the scope of the Participant's authority or in
his or her overall working environment;
(ii) the Participant is assigned duties materially
inconsistent with his or her present duties,
responsibilities and status;
(iii) there is a reduction in the
Participant's rate of base salary or target bonus;
or
(iv) the Company changes by fifty-five (55) miles
or more the principal location in which the
Participant is required to perform services.
Incentive Bonus Award means the incentive bonus
entitlement of each Participant under the Program as determined
pursuant to the provisions of Article IV of the Program.
Involuntary Termination means the termination of
Employee status by reason of (i) the individual's involuntary
dismissal or discharge by the Company other than a Termination
for Cause or (ii) the individual's death or permanent disability.
Participant means the members of senior management who
are to participate in the Program. Each Participants is
identified in attached Schedule A to the Program, which also
specifies whether such Participant is entitled to a Retention
Bonus Award, an Incentive Bonus Award or both.
Program means the Company's Transaction Incentive and
Retention Program for Key Employees, as set forth in this
document and any amendments thereto made from time to time.
Retention Bonus Award means the retention bonus
entitlement of each Participant under the Program as determined
in accordance with Article III of the Program.
Termination for Cause means the Company's termination
of the Participant's status as an Employee for one or more of the
following reasons: (i) commission of any act of fraud,
embezzlement or dishonesty, (ii) unauthorized use or disclosure
of confidential information, trade secrets or other proprietary
information, (iii) continuing failure to perform the duties,
functions and responsibilities of the individual's position with
the Company after written warning in which the performance
deficiencies are identified and a reasonable cure period of at
least fifteen (15) days is provided, (iv) a material breach of
the terms of any employment agreement in effect at the time or
the terms of any confidentiality or proprietary information
agreement or (v) any other intentional misconduct on the
Participant's behalf which has a materially adverse effect upon
the business or affairs of the Company.
III. RETENTION BONUS AWARD
A. Each Participant in the Program who is designated in
Schedule A as eligible for a Retention Bonus Award and who either
(i) continues in Employee status through the Bonus Payment Date,
(ii) terminates his or her employment for Good Reason following
the closing of an Acquisition and before the Bonus Payment Date
or (iii) is terminated by reason of an Involuntarily Termination
before the Bonus Payment Date will become eligible to receive a
Retention Bonus Award under the Program upon the terms and
conditions of this Article III. No Retention Bonus Award will
be paid to any Participant who otherwise ceases employment before
the Bonus Payment Date.
B. The amount of the potential Retention Bonus Award payable to
each of Mr. Weinhardt and Mr. Roth shall be $1,250,000. The
Retention Bonus Award for each other Participant shall be such
Participant's base salary at the time of closing of the
Acquisition.
C. The Retention Bonus Award determined for each Participant
who qualifies for payment will become payable in one lump sum on
the Bonus Payment Date. Payment of the Retention Bonus Award
will be made in cash, subject to the Company's collection of all
applicable federal, state and local income and employment
withholding taxes and any excise tax imposed under Code Section
4999.
IV. INCENTIVE BONUS AWARD
A. Each Participant who is designated in Schedule A as eligible
for an Incentive bonus Award and who either (i) continues in
Employee status through the Bonus Payment Date, (ii) terminates
his or her employment for Good Reason following the closing of an
Acquisition and before the Bonus Payment Date or (iii) is
terminated by reason of an Involuntarily Termination before the
Bonus Payment Date will become eligible to receive an Incentive
Bonus Award under the Program upon the terms and conditions of
this Article IV. No Incentive Bonus Award will be paid to any
Participant who otherwise ceases employment before the Bonus
Payment Date.
B. The amount of the Incentive Bonus Award payable to each
Participant will be determined in accordance with attached Schedule B.
C. The Incentive Bonus Award determined for each Participant
who qualifies for payment will become payable in one lump sum on
the Bonus Payment Date. Payment of the Incentive Bonus Award
will be made in cash, except that, if all or any portion of the
Acquisition Proceeds is paid in the form of freely-tradable
securities, then the payment may, in the Board's discretion, be
made in whole or in part in those securities. The payment will
be subject to the Company's collection of all applicable federal,
state and local income and employment withholding taxes and any
excise tax imposed under Code Section 4999.
V. TAX GROSS-UP
A. Any Participant who qualifies for both a Retention Bonus
Award and an Incentive Bonus Award shall receive an additional
bonus amount under the Program (the "Tax Gross-Up") sufficient to
reimburse such individuals on an after tax-basis for any excise
tax imposed on such Participant with respect to the combined
Bonus Award and any other compensation payable to such
Participant by the Company or an affiliate or successor pursuant
to Code Section 4999 or a successor provision or similar tax
("Excise Tax"), so that such Participant does not incur any out-
of-pocket cost with respect to such Excise Tax. The amount of
any such Tax Gross-Up will be determined pursuant to the
following formula and will be subject to the Company's collection
of all applicable federal, state and local income and employment
withholding taxes and any Excise Tax:
X = Y (1 - (A + B + C)), where
X is the total dollar amount of the Tax Gross-
Up payable to the Participant.
Y is the total Excise Tax imposed on the
Participant with respect to the combined
Bonus Award and any other compensation
payable to the Participant by the Company or
an affiliate or successor.
A is the Excise Tax rate in effect at the
time.
B is the highest combined marginal federal
income and applicable state income tax rate
in effect for the Participant, after taking
into account the deductibility of state
income taxes against federal income taxes to
the extent allowable, for the calendar year
in which the Tax Gross-Up is paid.
C is the applicable Hospital Insurance
(Medicare) Tax Rate in effect for the
Participant for the calendar year in which
the Tax Gross-Up is paid
B. Within ninety (90) days after each determination is made by
the Internal Revenue Service or the Participant's tax advisor
that the Retention Bonus Award/and or Incentive Bonus Award paid
to the Participant under this Plan (alone or together with other
compensation payable to the Participant by the Company or an
affiliate or successor) constitutes an excess parachute payment
under Code Section 280G for which the Participant is liable for
an Excise Tax, the Participant shall identify the nature of the
parachute payments (including those that are payable under this
Plan and those that are not) and submit to the Company the
calculation of the Excise Tax attributable to all such payments
and the Tax Gross-Up to which the Participant is entitled with
respect to such tax liability. The Company will pay such Tax
Gross-Up to the Participant (net of all applicable withholding
taxes, including any taxes required to be withheld under Code
Section 4999) within ten (10) business days after the
Participant's submission of the calculation of such Excise Tax
and the resulting Tax Gross-Up, provided such calculations
represent a reasonable interpretation of the applicable law and
regulations.
C. In the event that the Participant's actual Excise Tax
liability is determined by a Final Determination to be greater
than the Excise Tax liability taken into account for purposes of
the Tax Gross-Up paid to the Participant pursuant to Section V.A
of this Plan, then within ninety (90) days following the Final
Determination, the Participant shall submit to the Company a new
Excise Tax calculation based upon the Final Determination.
Within ten (10) business days after receipt of such calculation,
the Company will pay the Participant the additional Tax Gross-Up
attributable to such excess Excise Tax liability.
D. In the event that the Participant's actual Excise Tax
liability is determined by a Final Determination to be less than
the Excise Tax liability taken into account for purposes of the
Tax Gross-Up paid to the Participant pursuant to Section V.A of
this Plan, then the Participant shall refund to the Company,
promptly upon receipt, any federal or state tax refund
attributable to the Excise Tax overpayment.
E. For purposes of this Section V, a "Final Determination"
means an audit adjustment by the Internal Revenue Service that is
either (i) agreed to by both the Participant (or his or her
estate) and the Company (such agreement by the Company to be not
unreasonably withheld) or (ii) sustained by a court of competent
jurisdiction in a decision with which the Participant and the
Company concur (such concurrence by the Company to be not
unreasonably withheld) or with respect to which the period within
which an appeal may be filed has lapsed without a notice of
appeal being filed.
VI. PROGRAM DURATION AND AMENDMENT
A. The Program will become effective when adopted by
the Board and will continue through the settlement date of all
Bonus Awards or Tax Gross-Ups which become payable under the
Program. However, this Program shall automatically terminate
and no Bonus Awards or Tax Gross-Ups shall be payable hereunder
if a definitive agreement to effect an Acquisition has not been
executed before January 1, 2001.
B. The Board may amend the Program at any time;
provided, however, that no such action shall adversely affect the
rights of Participants with respect to their Bonus Award or Tax
Gross-Up entitlements under the Program.
VII. NON-TRANSFERABILITY/DEATH
No rights or interests of a Participant with respect to
his or her Bonus Awards or Tax Gross-Up hereunder may be
transferred, assigned, pledged or encumbered, other than a
transfer effected by will or the laws of descent and distribution
following the Participant's death.
VII. NO EMPLOYMENT RIGHTS
No provision of the Program or any Bonus Award or Tax
Gross-Up entitlement hereunder shall confer upon a Participant
any right to continue as an Employee for any period of specific
duration or interfere with or otherwise restrict in any way the
rights of the Company or of the Participant, which rights are
expressly reserved by each (subject to the terms of any written
employment agreement executed by both parties) to terminate the
Participant's employment at any time for any reason, with or
without cause.
VIII. GOVERNING LAW
The provisions of the Program shall be governed by and
construed in accordance with the laws of the State of California
without resort to that State's conflict-of-laws rules.
IX. SUCCESSORS AND ASSIGNS
The liabilities and obligations of the Company
hereunder shall be binding upon any successor corporation or
entity that succeeds to all or substantially all of the assets
and business of the Company by merger or other transaction,
whether or not such transaction qualifies as an Acquisition.
X. COSTS AND EXPENSES
The Company will pay all costs and expenses incurred in
the administration of the Program.
XI. ARBITRATION
Any dispute between a Participant and the Company with
respect to his or her Bonus Awards or other benefit entitlement
under the Program shall be settled by arbitration proceedings
conducted in Santa Clara County, California in accordance with
the applicable rules of the American Arbitration Association. If
the Participant and the Company cannot agree upon the individual
to serve as arbitrator, then such Participant and the Company
will request the Santa Clara County, California office of the
American Arbitration Association to submit a list of five (5)
potential arbitrators, and in the absence of any agreement as to
which of the named individuals are to serve as arbitrator, the
Participant and the Company will each have the right to remove
two (2) of the named individuals from the list, and the last
remaining individual on the list will accordingly serve as the
arbitrator. If more than one individual remains on the list, the
Santa Clara Office of the American Arbitration Association shall
select the arbitrator from among those remaining on the list.
Such arbitrator will have full power and authority to settle the
dispute through interpretation and application of the express
provisions of the Program, but will have no authority to amend,
revise or supplement such provisions. The costs of such
arbitration will be shared equally by the Participant and the
Company, and the decision of the arbitrator shall be final and
binding on both the Participant and the Company.
RESOLUTION PASSED BY THE BOARD OF DIRECTORS OF SJW CORP
SEPTEMBER 22, 1999:
RESOLVED, that each Director when he ceases to be a
Director shall receive a benefit equal to the annual retainer in
effect at the time such Director ceases to be a Director. This
benefit will be paid to the Director, his beneficiary or his
estate, for the number of years the Director served on the Board
up to a maximum of 10 years. These payments will be made with
the same frequency as the ongoing Director's retainers. The
Company reserves the right, by resolution adopted by the Board,
to alter, amend, modify or terminate the benefits provided above
at any time, except that no such resolution shall affect the
benefits to which a Director shall have become entitled by reason
of his having ceased to be a Director prior to the adoption of
such resolution.
RESOLUTIONS PASSED BY THE BOARD OF DIRECTORS OF SAN JOSE WATER
COMPANY SEPTEMBER 22, 1999:
RESOLVED, that each Director when he ceases to be a
Director shall receive a benefit equal to the annual retainer in
effect at the time such Director ceases to be a Director. This
benefit will be paid to the Director, his beneficiary or his
estate, for the number of years the Director served on the Board
up to a maximum of 10 years. These payments will be made with
the same frequency as the ongoing Director's retainers. The
Company reserves the right, by resolution adopted by the Board,
to alter, amend, modify or terminate the benefits provided above
at any time, except that no such resolution shall affect the
benefits to which a Director shall have become entitled by reason
of his having ceased to be a Director prior to the adoption of
such resolution.
RECORD OF DIRECTOR RETIREMENT RESOLUTION
SJW LAND COMPANY
RESOLUTION PASSED BY THE BOARD OF DIRECTORS OF SJW LAND COMPANY
SEPTEMBER 22, 1999:
RESOLVED, that each Director when he ceases to be a
Director shall receive a benefit equal to the annual retainer in
effect at the time such Director ceases to be a Director. This
benefit will be paid to the Director, his beneficiary or his
estate, for the number of years the Director served on the Board
up to a maximum of 10 years. These payments will be made with
the same frequency as the ongoing Director's retainers. The
Company reserves the right, by resolution adopted by the Board,
to alter, amend, modify or terminate the benefits provided above
at any time, except that no such resolution shall affect the
benefits to which a Director shall have become entitled by reason
of his having ceased to be a Director prior to the adoption of
such resolution.
LIMITED PARTNERSHIP AGREEMENT
OF
444 WEST SANTA CLARA STREET, L.P.
LIMITED PARTNERSHIP AGREEMENT
OF
444 WEST SANTA CLARA STREET, L.P.
TABLE OF CONTENTS
Article Page
1 DEFINITIONS 1
1.1 Adjusted Additional Capital 1
1.2 Adjusted Capital Account Deficit 1
1.3 Adjusted Invested Capital 2
1.4 Assignee 2
1.5 Bankruptcy 2
1.6 Capital Account 2
1.7 Code 3
1.8 Consent of the Limited Partner 3
1.9 Depreciation 3
1.10 General Partner 3
1.11 Gross Asset Value 3
1.12 Invested Capital 3
1.13 Limited Partner 3
1.14 Losses 3
1.15 Net Proceeds From Continuing Operations 3
1.16 Net Proceeds From Sales or Refinancings 4
1.17 Nonrecourse Deductions 4
1.18 Nonrecourse Liability 4
1.19 Partner Nonrecourse Debt 4
1.20 Partner Nonrecourse Debt Minimum Gain 5
1.21 Partner Nonrecourse Deductions 5
1.22 Partner 5
1.23 Partnership 5
1.24 Partnership Minimum Gain 5
1.25 Percentage Interest 5
1.26 Preferred Return 5
1.27 Priority Return 5
1.28 Profits 6
1.29 Project 6
1.30 Property 6
2 FORMATION OF PARTNERSHIP 6
2.1 Limited Partnership 6
2.2 Name and Principal Place of Business 6
2.3 Certificate of Limited Partnership 6
2.4 Agent for Service of Process 7
3 PURPOSES 7
4 TERM 7
5 ACCOUNTING 8
5.1 Method of Accounting 8
5.2 Financial Statements 8
5.3 Records and Inspection 8
5.4 Income Tax Information 9
5.5 Fiscal Year 9
6 CAPITAL 9
6.1 Initial Capital Contributions and Advances 9
6.2 Additional Capital Contributions 14
6.3 Failure to Contribute Capital 14
6.4 Interest 20
6.5 Withdrawal 20
6.6 Loans to the Partnership 20
6.7 Return of Capital 21
6.8 No Guarantees 21
7 CAPITAL ACCOUNTS 21
7.1 Maintenance 21
7.2 Profits and Losses 23
7.3 Gross Asset Value 24
7.4 Depreciation 25
8 PROFITS, LOSSES AND CASH DISTRIBUTIONS 26
8.1 Allocations of Profits and Losses 26
8.2 Limitation on Losses and Liabilities of Limited Partner36
8.3 Distribution of Net Proceeds From Continuing Operations36
8.4 Distribution of Net Proceeds From Sales or Refinancings37
9 MANAGEMENT OF PARTNERSHIP 38
9.1 Management 38
9.2 Time Devoted 42
9.3 Other Business Ventures 43
9.4 Execution of Documents 43
9.5 Bank Accounts 44
9.6 Contracts with Partnership 44
9.7 Right to Rely upon the Authority of General Partner 44
9.8 Intentionally Left Blank 45
9.9 Hold Harmless 45
10 COMPENSATION 46
11 WITHDRAWAL, BANKRUPTCY OR REMOVAL
OF GENERAL PARTNER
11.1 Effect on Partnership 48
11.2 Removal of General Partner for Cause 49
11.3 Withdrawal of General Partner 49
11.4 Dissolution of General Partner 49
11.5 Liability of Former General Partner 49
12 DEATH, BANKRUPTCY, DISSOLUTION OR WITHDRAWALOF A LIMITED PARTNER 50
13 SALE OF A PARTNERSHIP INTEREST 51
13.1 Restriction on Transfer by General Partner 51
13.2 Sale of Partnership Interest of a Limited Partner 51
13.3 General Restriction on Transfer 53
13.4 Securities Law 53
13.5 Admission of Additional Limited Partners 54
14 POWERS AND APPROVALRIGHTS OF THE LIMITED PARTNERS 56
14.1 No Management and Control 56
14.2 Voting 56
15 DISSOLUTION AND TERMINATION OF THE PARTNERSHIP 57
15.1 Dissolution 57
15.2 Liquidation and Distribution 57
15.3 Gains or Losses in Process of Liquidation 58
15.4 Capital Account Restoration Obligation 59
15.5 Certificate of Dissolution 59
15.6 Waiver 59
16 MISCELLANEOUS 60
16.1 Notices 60
16.2 Amendments 60
16.3 Entire Agreement 60
16.4 Construction 61
16.5 Counterpart Execution 61
16.6 Severability 61
16.7 Captions - Pronouns 61
16.8 Binding Effect 61
16.9 Attorneys' Fees 61
16.10 Written Consent 62
16.11 Covenant of Capacity To Sign 62
16.12 No Third Party Beneficiary 62
16.13 Dispute Resolution 63
16.14 Conditional Use Permit Requirements 65
LIMITED PARTNERSHIP AGREEMENT
OF
444 WEST SANTA CLARA STREET, L.P.
This Limited Partnership Agreement is made and entered
into as of
September 2, 1999 by and between TBI-444 West Santa Clara Street,
a California limited partnership ("TBI-Santa Clara Street"), the
general partner of which is Toeniskoetter & Breeding, Inc.
Development, as General Partner, and SJW Land Company, a
California corporation, as Limited Partner.
ARTICLE 1
DEFINITIONS
The following terms, when used in this Agreement, shall
have the meaning set forth in this Article.
1.1 Adjusted Additional Capital. "Adjusted Additional
Capital" shall mean the Invested Capital of a Partner contributed
pursuant to section 6.2, less all amounts distributed to that
Partner pursuant to sections 8.3(b) and 8.4(b).
1.2 Adjusted Capital Account Deficit. "Adjusted
Capital Account Deficit" means, with respect to any Limited
Partner, the deficit balance, if any, in such Limited Partner's
Capital Account as of the end of the relevant fiscal year, after
giving effect to the following adjustments:
(i) Credit to such Capital Account any
amounts which such Limited Partner is obligated to restore
pursuant to any provision of this Agreement or is deemed to
be obligated to restore pursuant to the next to last
sentences of Treasury Regulation Sections 1.704-2(g)(1) and
1.704-2(i)(5); and
(ii) Debit to such Capital Account the items
described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6)
of the Treasury Regulations.
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations and shall be
interpreted consistently therewith.
1.3 Adjusted Invested Capital. "Adjusted Invested
Capital" shall mean the Invested Capital of a Partner other than
Invested Capital contributed pursuant to section 6.2, less all
amounts distributed to that Partner pursuant to section 8.4(d) or
8.4(e).
1.4 Assignee. "Assignee" shall mean a person who has
acquired a beneficial interest in this Partnership from a Limited
Partner but who is not a substituted Limited Partner.
1.5 Bankruptcy. "Bankruptcy" shall mean (1) the
entering of an order for relief against a Partner under Chapter 7
of the federal bankruptcy law, (2) that the Partner: (a) makes a
general assignment for the benefit of creditors, (b) files a
voluntary petition under the federal bankruptcy law, (c) files a
petition or answer in court admitting the Partner is insolvent,
or (d) seeks, consents to, or acquiesces in the appointment of a
trustee, receiver, or liquidator of the Partner or of all or any
substantial part of that Partner's assets, or (3) that sixty (60)
days after the appointment, without that Partner's consent or
acquiescence, of a trustee, receiver, or liquidator of all or any
substantial part of that Partner's assets, the appointment is not
vacated or stayed, or that within sixty (60) days after the
expiration of any such stay, the appointment is not vacated.
1.6 Capital Account. "Capital Account" is defined in
Article 7.
1.7 Code. "Code" shall mean the Internal Revenue Code
of 1986, as amended from time to time (or any corresponding
provisions of succeeding law). Reference in the Agreement to
"Regulations" or "Treasury Regulations" shall mean the Income Tax
Regulations, including Temporary Regulations, promulgated under
the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
1.8 Consent of the Limited Partner. The term "Consent
of the Limited Partner" shall mean the affirmative vote or
consent of the Limited Partner.
1.9 Depreciation. "Depreciation" is defined in
Article 7.
1.10 General Partner. The "General Partner" is TBI-
Santa Clara Street, a California limited partnership, or any
person or entity succeeding it as a General Partner or admitted
to the Partnership as a General Partner.
1.11 Gross Asset Value. "Gross Asset Value" is defined
in Article 7.
1.12 Invested Capital. "Invested Capital" shall mean
the cash and agreed value of any property contributed to the
Partnership as capital by any Partner when this Partnership is
formed or at any later date pursuant to the terms of this
Agreement.
1.13 Limited Partner. A "Limited Partner" is any
Limited Partner to this Agreement, as set forth on Exhibit A
attached hereto and made a part hereof, including any person who
becomes a Limited Partner by substitution after receiving an
assignment from a Limited Partner and the consent of the General
Partner or any person admitted to the Partnership as a Limited
Partner.
1.14 Losses. "Losses" is defined in Article 7.
1.15 Net Proceeds From Continuing Operations. The term
"Net Proceeds From Continuing Operations" shall mean all receipts
of every kind or nature derived from the operation of the
Partnership (but excluding capital contributions made pursuant to
section 6.1, additional capital contributions made pursuant to
section 6.2, and loans made to the Partnership pursuant to
section 6.6(a)) less (i) any and all administrative, operating
and capital expenditures incurred or paid with respect to the
operation of the Partnership or its business, provided, however,
that allowances for depreciation, cost recovery, depletion and
amortization shall be excluded from such expenditures, and (ii)
any amounts set aside by the General Partner as a reasonable
working capital reserve and as a reasonable reserve for
emergencies. Net Proceeds From Continuing Operations shall not
include Net Proceeds From Sales or Refinancings.
1.16 Net Proceeds From Sales or Refinancings. The term
"Net Proceeds From Sales or Refinancings" shall mean the (i) net
amount remaining and available for distribution by the
Partnership received from the proceeds of any sale, exchange or
other disposition or financing or refinancing of the
Partnership's property, including the Property or any portion
thereof, after the payment, in full, of all allocable costs and
expenses of any such sale or financing or refinancing, the
payment of all then due indebtedness of the Partnership allocable
to said property, and the establishment, in the General Partner's
discretion, of a reasonable working capital reserve, or (ii) net
condemnation proceeds, or (iii) insurance proceeds not used to
rebuild or replace the affected property following an event of
damage or destruction.
1.17 Nonrecourse Deductions. "Nonrecourse Deductions"
has a meaning set forth in Section 1.704-2(b)(1) of the
Regulations.
1.18 Nonrecourse Liability. "Nonrecourse Liability"
has the meaning set forth in Section 1.704-2(b)(3) of the
Regulations.
1.19 Partner Nonrecourse Debt. "Partner Nonrecourse
Debt" has the meaning set forth in Section 1.704-2(b)(4) of the
Regulations.
1.20 Partner Nonrecourse Debt Minimum Gain. "Partner
Nonrecourse Debt Minimum Gain" means an amount, with respect to
each Partner Nonrecourse Debt, equal to the Partnership Minimum
Gain that would result if such Partner Nonrecourse Debt were
treated as a Nonrecourse Liability, determined in accordance with
Section 1.704-2(i)(3) of the Regulations.
1.21 Partner Nonrecourse Deductions. "Partner
Nonrecourse Deductions" has the meaning set forth in Sections
1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
1.22 Partner. "Partner" shall mean any General Partner
or Limited Partner in this Partnership.
1.23 Partnership. "Partnership" shall mean the
partnership formed by this Agreement.
1.24 Partnership Minimum Gain. "Partnership Minimum
Gain" has the meaning set forth in Sections 1.704-2(b)(2) and
1.704-2(d) of the Regulations.
1.25 Percentage Interest. "Percentage Interest" shall
mean the percentage ownership interest in the Partnership of a
General Partner or a Limited Partner. The Percentage Interest of
each Partner is set forth on Exhibit A.
1.26 Preferred Return. "Preferred Return" shall mean,
with respect to the Limited Partner, an amount, determined on a
cumulative basis and compounded annually, equal to a five percent
(5%) per annum return on the daily balance of such Partner's
Adjusted Invested Capital. For financial and income tax
reporting purposes, neither accrual nor payment of the Preferred
Return shall be an expense of the Partnership nor be regarded as
a "guaranteed payment" within the meaning of Section 707(c) of
the Code.
1.27 Priority Return. "Priority Return" shall mean,
with respect to each Partner, an amount equal to an eight percent
(8%) per annum cumulative return (computed daily on a simple (and
not compounded) basis) on the daily balance of such Partner's
Adjusted Additional Capital. For financial and income tax
reporting purposes, neither accrual nor payment of the Priority
Return shall be an expense of the Partnership nor be regarded as
a "guaranteed payment" within the meaning of Section 707(c) of
the Code.
1.28 Profits. "Profits" is defined in Article 7.
1.29 Project. "Project" shall mean the approximately
22,080 square foot office building to be constructed on the
Property.
1.30 Property. "Property" shall mean that certain real
property totaling approximately one-half (1/2) acre located at
the southeast corner of West Santa Clara and Autumn Streets, San
Jose, Santa Clara County, California, described more particularly
in Exhibit B attached hereto and made a part hereof.
ARTICLE 2
FORMATION OF PARTNERSHIP
2.1 Limited Partnership. The Partners do hereby form
a limited partnership pursuant to the provisions of California
Corporations Code, Title 2, Chapter 3, known as the California
Revised Limited Partnership Act (the "Act"), except as may be
expressly provided herein.
2.2 Name and Principal Place of Business. The name of
this Partnership shall be "444 West Santa Clara Street, L.P." and
its principal office shall be located at 1960 The Alameda, Suite
20, San Jose, California 95126 or at such other place designated
from time to time by the General Partner.
2.3 Certificate of Limited Partnership. The General
Partner shall, concurrently with the execution of this Agreement,
sign and acknowledge a Certificate of Limited Partnership
pursuant to the provisions of Section 15621 of the California
Corporations Code and shall file such Certificate in the office
of the California Secretary of State. The General Partner shall
cause a copy of such filed Certificate, certified by the
Secretary of State, to be recorded in the office of the Recorder
of each county in which the Partnership holds title to real
property.
2.4 Agent for Service of Process. The Partnership
hereby appoints, as its agent for service of process in the State
of California, Brad W. Krouskup, whose address is 1960 The
Alameda, Suite 20, San Jose, California 95126. The General
Partner may from time to time, at its discretion, designate a
different agent for service of process for the Partnership.
ARTICLE 3
PURPOSES
The purpose and character of business of the
Partnership shall be to acquire, develop, own, lease, hold for
investment, improve, maintain and operate the Project, and to
engage in any and all general business activities related to or
incidental to such purposes. The specification of a particular
business shall not be deemed a limitation upon the general powers
of the Partnership.
ARTICLE 4
TERM
The Partnership shall commence as of the date the
Certificate of Limited Partnership is filed in the office of the
California Secretary of State, and shall continue for a period of
fifty (50) years, unless earlier dissolved as set forth herein.
ARTICLE 5
ACCOUNTING
5.1 Method of Accounting. The Partnership shall keep
its accounting records and shall report for income tax purposes
on the accrual basis, unless otherwise determined by the General
Partner.
5.2 Financial Statements. The General Partner shall
cause an annual report of the operations of the Partnership to be
prepared within ninety (90) days of the end of the fiscal year,
and have a copy delivered to each Limited Partner. Said annual
report shall include a balance sheet as of the end of the fiscal
year and an income statement for the fiscal year.
5.3 Records and Inspection. The General Partner shall
keep, at the Partnership's principal office, the Partnership's
books and records as they relate to the internal affairs of the
Partnership, including (a) a current list of the full name and
last known business or residence address of each Partner set
forth in alphabetical order together with the Invested Capital
and the share in profits and losses of each Partner, (b) a copy
of the Certificate of Limited Partnership and all certificates of
amendment thereto, together with executed copies of any powers of
attorney pursuant to which any certificate has been executed, (c)
copies of the Partnership's federal, state and local income tax
or information returns and reports, if any, for the six (6) most
recent years, (d) copies of the original of this Agreement and
any amendments thereto, and (e) financial statements of the
Partnership for the six (6) most recent fiscal years. Each
Partner has the right, upon reasonable request, to inspect and
copy during normal business hours any such Partnership records.
Upon request of a Limited Partner, the General Partner shall
promptly deliver to the Limited Partner, at the expense of the
Partnership, a copy of the information required to be maintained
by (a), (b), (c), (d) and (e) above.
5.4 Income Tax Information. The General Partner shall
provide each Partner within ninety (90) days after the end of
each fiscal year (a) the information necessary for the Partner to
complete his federal and state income tax returns, and (b) a copy
of the Partnership's federal, state and local income tax or
information returns for the year. The General Partner shall have
prepared and file all required income tax returns for the
Partnership. The General Partner shall be the Tax Matters
Partner for purposes of Section 6231(a)(7) of the Code.
5.5 Fiscal Year. The fiscal year of the Partnership
shall be the calendar year.
ARTICLE 6
CAPITAL
6.1 Initial Capital Contributions and Advances.
(a) Concurrently with the closing of the
construction loan obtained by the Partnership for construction of
the Project (the "Construction Loan"), TBI-Santa Clara Street
shall contribute to the capital of the Partnership cash in the
amount of One Thousand and no/100ths Dollars ($1,000.00).
(b) Concurrently with the closing of the
Construction Loan, the Limited Partner shall contribute to and
cause to be conveyed to the Partnership all right, title, estate
and interest in and to the Property at an agreed value equal to
One Million Two Hundred Thousand Dollars ($1,200,000.00), subject
only to non-delinquent general and special county taxes and
assessments (the "Permitted Exceptions"). Prior to the
contribution of the Property to the Partnership, the Limited
Partner shall have caused the existing structures on the Property
to be demolished and the underground storage tanks and any toxic
substances found on (or in) the Property to be removed. The
Partnership shall be responsible for removal of the billboards on
the Property. The cost of such removal shall be a Project cost.
(c) The Limited Partner makes the following
representations, warranties and covenants which shall survive the
contribution of the Property to the Partnership, each of which is
material and being relied upon by the General Partner and the
Partnership, is true as of the date hereof unless a different
date is specified, and shall be true in all respects on the date
the Property is contributed to the Partnership (the "Contribution
Date"):
(i) Rare or Endangered Species. To the best
knowledge of the Limited Partner, there are no species
classified or proposed to be classified rare or endangered
inhabiting the Property.
(ii) No Other Outstanding Rights in Property.
No other person, firm, corporation or other entity has, or
at the Contribution Date, will have, any right or option to
acquire all or any portion of the Property.
(iii) No Violations of Laws or
Ordinances. No notice of violation of any applicable zoning
regulation or ordinance or other law, order, ordinance,
permit, rule, regulation or requirement, or any contract or
any covenants, conditions or restrictions affecting or
relating to the use or occupancy of the Property has been
given to the Limited Partner by any governmental agency
having jurisdiction or by any other person entitled to
enforce the same, nor does any condition exist which now, or
with the passage or time would constitute a breach of any
applicable zoning regulation or ordinance or other law,
order, ordinance, permit, rule, regulation or requirement or
any contract or any covenants, conditions or restrictions
affecting or relating to the use or occupancy of the
Property. The Limited Partner shall promptly notify the
General Partner of any changes affecting this representation
of which it becomes aware prior to the Contribution Date.
(iv) Liens. The Limited Partner represents
that it has not permitted any work to be done on or about
the Property which could result in a mechanic's lien being
recorded against the Property. Further, the Limited Partner
shall not, from the date of this Agreement, without the
prior written consent of the General Partner, permit any
work to be done on or about, or any labor or materials to be
furnished to, the Property. The Limited Partner shall
indemnify and hold the Partnership and the General Partner
harmless from all claims, costs, and liabilities, including
reasonable attorneys' fees, arising out of or in connection
with any work done or claimed to have been done on or about
the Property and any labor and materials furnished or
claimed to have been furnished to the Property prior to the
Contribution Date. If any liens or other encumbrances are
filed against the Property prior to or after the
Contribution Date, except as may result from the acts or
omissions of the Partnership within the scope of its
business, the Limited Partner, at its cost, shall remove the
same and if the Limited Partner fails to do so within thirty
(30) days, the General Partner shall have the right, but not
the obligation, to: (A) remove them at the Limited
Partner's expense, including any reasonable attorneys' fees
incurred; (B) rescind this Agreement; or (C) pursue any
other legal remedy available to the Partnership or the
General Partner.
(v) Foreign Person. The Limited Partner is
not a "foreign person" within the meaning of Internal
Revenue Code Section 1445(f)(3). Prior to the Contribution
Date, the Limited Partner shall deliver to the Partnership
an affidavit, in form reasonably satisfactory to the General
Partner, meeting the requirements of Internal Revenue Code
Section 1445(b)(2), stating that such Limited Partner is not
a foreign person and setting forth such Limited Partner's
United States employer identification number and business
address.
(vi) Archaeological Sites. To the best
knowledge of the Limited Partner, there are no
archaeological sites on the Property.
(vii) Authority. The individuals
executing this Agreement on behalf of the Limited Partner
have the right, power, legal capacity and authority to enter
into this Agreement on behalf of the Limited Partner and to
execute all other documents and perform all other acts as
may be necessary to satisfy the Limited Partner's
obligations under this Agreement.
(viii) Encumbrances. The Limited Partner
shall not cause or permit any deeds of trust, liens,
encumbrances, easements, or other matters affecting title or
possession to the Property to become of record or to
otherwise be created during the period ending on the
Contribution Date (collectively "Encumbrances"). If any
Encumbrances become of record or are otherwise created, the
Limited Partner shall cause their removal prior to the
Contribution Date.
(ix) Breach of Agreement. The execution and
delivery of this Agreement by the Limited Partner and the
conveyance of the Property to the Partnership as
contemplated by this Agreement will not result in (A) a
breach of, or a default under, any contract, agreement,
commitment or other document or instrument to which the
Limited Partner is a party or by which the Limited Partner
or the Property is bound or (B) a violation of any law,
ordinance, regulation or rule of any governmental board or
body or any judgment, order or decree of any court or
governmental board or body applicable to the Limited Partner
or the Property.
(x) No Litigation. There is no action,
suit, proceeding, inquiry or investigation (including any
eminent domain proceeding or any proceeding under any
bankruptcy, insolvency or other similar law), pending or
threatened, by or before any court or governmental board or
body, (A) against or affecting the Property or (B) that
would prevent or hinder the performance by the Limited
Partner of its obligation to convey the Property to the
Partnership.
(xi) Possession. No person has a possessory
interest in or to the Property under any consensual
arrangement with the Limited Partner or any predecessor in
title to the Limited Partner or by way of adverse
possession.
(d) Concurrently with the contribution of the
Property to the Partnership, the Partnership shall cause First
American Title Guaranty Company to issue to the Partnership a
CLTA policy of title insurance insuring the Partnership that it
is the owner in fee of such property, with coverage in such
amount as is determined by the General Partner, the cost of which
shall be paid by the Partnership.
(e) The Limited Partner shall advance to the
Partnership all funds required to pay pre-development expenses
with respect to the development of the Property until the closing
of the Construction Loan. Such advances by the Limited Partner
to the Partnership, plus interest from the date of each such
advance at the lesser of (i) the maximum rate of interest
permitted by law, and (ii) the Wall Street Journal prime lending
rate as used by Heritage Bank of Commerce, initially at the rate
in effect at the time of such advance and changing simultaneously
with each change in such prime rate, shall be repaid from the
proceeds of the initial funding of the Construction Loan and
prior to any distributions to the Partners.
6.2 Additional Capital Contributions.
Whenever it is reasonably determined by the
General Partner that the Partnership's capital and funds which
the Limited Partner advances to the Partnership pursuant to
section 6.1(e) is or is presently likely to become insufficient
for the operations of the Partnership and the conduct of its
business, including, without limitation, the development and
operation of the Project, the General Partner shall notify the
Limited Partner of the amount of additional capital needed. Such
amount shall, if approved by Partners (including the General
Partner) holding a majority of the Percentage Interests held by
all Partners, be contributed by each Partner on a pro rata basis
according to its Percentage Interest in the Partnership. Such
contributions shall be made within thirty (30) days of the date
of approval by Partners holding the required Percentage
Interests. Except as otherwise provided by the Act or the terms
of this Agreement (including, without limitation, this section
6.2), the Partners shall not be required to contribute additional
capital. If funds in addition to the Partnership's capital are
required for any Partnership purposes, including the development
and operation of the Project, the General Partner may (a) borrow
such funds from one or more of the Partners, and the additional
capital call procedure set forth in this section 6.2 above shall
not be construed to in any way limit the General Partner's
authority to obtain funds from such sources, or (b) after
following the additional capital call procedure set forth in this
section 6.2 above and failure to obtain the required funds
pursuant to that procedure (whether because the Partners do not
approve the additional capital call or one or more Partners fails
to contribute its share of the additional capital contribution),
admit additional Limited Partners pursuant to section 13.5.
6.3 Failure to Contribute Capital.
6.3.1 Consequence of Failure. If any Partner
("Defaulting Partner") fails to contribute the amount due from it
pursuant to section 6.1 or 6.2, the remaining Partners
("Nondefaulting Partners"), may, at the election of Nondefaulting
Partners holding more than fifty percent (50%) of the Percentage
Interests held by all Nondefaulting Partners, upon giving the
Defaulting Partner an additional ten (10) days written notice and
upon the failure of the Defaulting Partner to pay said
contribution within said ten (10) days, either:
(a) Make such contribution on behalf of the
Defaulting Partner, in which case the Defaulting Partner
shall be indebted to the Nondefaulting Partners for the full
amount of such contribution plus interest thereon from the
date the advance is made until paid at the lesser of (i) the
maximum rate of interest permitted by law, or (ii) the prime
or reference rate of the San Jose Office of Bank of America
plus two percent (2%), initially at the rate in effect at
the time of such loan and changing simultaneously with each
change in such prime or reference rate. Such indebtedness
shall be repaid out of any subsequent distributions made
pursuant to this Agreement to which the Defaulting Partner
would otherwise be entitled, which amounts shall be applied
first to interest and then to principal, until the
indebtedness is paid in full, and to the extent not repaid
upon or prior to the dissolution of the Partnership, shall
immediately be paid by the Defaulting Partner and it shall
be personally liable for such payment;
(b) Purchase the entire Partnership interest
of the Defaulting Partner at a price determined in
accordance with the valuation procedure set forth in
subsection 6.3.2. In the event of such purchase, each
Nondefaulting Partner shall be entitled to purchase its
proportionate share of such interest, and if any
Nondefaulting Partner does not purchase its share the other
Nondefaulting Partners shall not be entitled to purchase
less than all of the Defaulting Partner's interest. Each
Nondefaulting Partner's share shall be in proportion to its
Percentage Interest as amongst the purchasing Partners. If
purchased, except as provided below, the full purchase
price, without interest, shall be paid in cash within thirty
(30) days of the agreement of the purchase price by the
Partners or the date of delivery of the notice of decision
of the appraiser(s) to the Partners, as applicable. If the
purchase price is in excess of Twenty-Five Thousand and
no/100ths Dollars ($25,000.00), the Nondefaulting Partners
may pay the purchase price as follows: twenty-five percent
(25%) of the purchase price shall be paid in cash within
thirty (30) days of the agreement of the purchase price by
the Partners or the date of delivery of the notice of
decision of the appraiser(s) to the Partners, as applicable;
the balance of the purchase price payable pursuant to a
promissory note from the purchasing Nondefaulting Partners,
bearing interest at the prime or reference rate at such time
of the San Jose Office of Bank of America, principal and
interest payable in sixty (60) equal monthly installments.
If purchased, the Defaulting Partner shall assign its
interest in the Partnership to the purchasing Partner(s)
free and clear of all liens, claims and encumbrances. If
purchased, all interest of the Defaulting Partner in the
Partnership and its assets shall terminate. All debts of
the Partnership to the Defaulting Partner, or of the
Defaulting Partner to the Partnership, or of the Defaulting
Partner to another Partner or another Partner to the
Defaulting Partner pursuant to section 6.3.1(a), shall also
be paid at that time.
Each Partner acknowledges and agrees that (i)
a default by any Partner in making a required capital
contribution will result in the Partnership and the
Nondefaulting Partners incurring certain costs and other
damages in an amount that would be extremely difficult or
impractical to ascertain and (ii) the remedies described in
this section 6.3.1 bear a reasonable relationship to the
damages which the Partners estimate may be suffered by the
Partnership and the Nondefaulting Partners by reason of the
failure of a Defaulting Partner to make any required capital
contribution and the election of any or all of the above
described remedies is not unreasonable under the
circumstances existing as of the date hereof.
The election of the Nondefaulting Partners to
pursue any remedy provided in this section 6.3.1 shall not
be a waiver or limitation of the right to pursue an
additional or different remedy available hereunder or under
law or equity with respect to any subsequent default.
6.3.2 Valuation Procedure.
(a) If, upon failure of the Defaulting
Partner to contribute the amount due from it pursuant to
section 6.1 or 6.2, the Nondefaulting Partners elect to
proceed under section 6.3.1(b) to purchase the Partnership
interest of the Defaulting Partner at the purchase price
determined in accordance with this section, the purchase
price shall be determined by mutual agreement of the
Defaulting Partner and the Nondefaulting Partners electing
to purchase the Defaulting Partner's interest ("Purchasing
Partners"). Each such Partner hereby agrees to use its best
efforts to agree upon the purchase price.
(b)(i) If the Defaulting Partner and the
Purchasing Partners cannot agree on a purchase price within
thirty (30) days after the Defaulting Partner's failure to
contribute, the purchase price shall be determined by
appraisal. The purchase price shall be determined by an
appraiser acceptable to the Defaulting Partner and the
Purchasing Partners. Each such Partner hereby agrees to use
its best efforts to agree upon a single appraiser.
(ii) If the Defaulting Partner and the
Purchasing Partners cannot agree on a single appraiser
within thirty (30) days after their failure to agree upon a
purchase price, the Purchasing Partners shall give the
Defaulting Partner written notice designating the first
appraiser ("First Appraiser").
(iii) Within fifteen (15) days after the
service of the notice referred to in section 6.3.2(b)(ii),
the Defaulting Partner shall given written notice to the
Purchasing Partners designating the second appraiser
("Second Appraiser"). If the Second Appraiser is not so
designated within or by the time above specified, then the
appointment of the Second Appraiser shall be made in the
same manner as is hereinafter provided for the appointment
of a third appraiser ("Third Appraiser") in a case where the
First and Second Appraisers are unable to agree upon the
Third Appraiser. The First and Second Appraisers so
designated or appointed shall meet within ten (10) days
after the Second Appraiser is appointed and if, within
thirty (30) days after the Second Appraiser is appointed,
the First and Second Appraisers do not agree upon the
Appraised Value (as defined in subsection 6.3.2(c)), they
shall themselves appoint a Third Appraiser who shall be a
competent and impartial person; and in the event of their
being unable to agree upon such appointment within ten (10)
days after the time aforesaid, the Third Appraiser shall be
selected by the parties themselves if they can agree thereon
within a further period of fifteen (15) days. If the
parties do not so agree, then either party, on behalf of
both, may request such appointment by a Judge of the
California Superior Court of Santa Clara County. In the
event of the failure, refusal or inability of any appraiser
to act, a new appraiser shall be appointed in his stead,
which appointment shall be made in the same manner as
hereinbefore provided for the appointment of such appraiser
so failing, refusing or unable to act. The Purchasing
Partners shall pay fifty percent (50%) and the Defaulting
Partner shall pay fifty percent (50%) of the fees and
expenses of the appraiser jointly named, but each party
shall pay the fees and expenses of any appraiser appointed
solely by such party, or in whose stead, as above provided,
such appraiser was appointed, and the fees and expenses of
the Third Appraiser, and all other expenses, if any, shall
be borne fifty percent (50%) by the Purchasing Partners and
fifty percent (50%) by the Defaulting Partner. Any
appraiser designated to serve in accordance with the
provisions of this Agreement shall be disinterested and
shall be qualified to appraise partnership interests and
real estate and other assets of the type covered by this
Agreement, shall be a member of the American Institute of
Real Estate Appraisers (or any successor association or body
of comparable standing if such Institute is not then in
existence), and shall have been actively engaged in the
appraisal of real estate or partnership interests for a
period of not less than five (5) years immediately preceding
his appointment.
(c) The Appraiser(s) shall determine the
fair market value, as of the time of the Defaulting
Partner's failure to contribute, of all of the assets of the
Partnership, including the Project. The "fair market value"
of all of the assets of the Partnership or of the Project
for purposes of this section 6.3.2 shall mean the cash price
which a sophisticated purchaser would pay on such date for
all of the assets of the Partnership or the Project. The
Appraised Value for purposes of this section 6.3.2 shall be
(i) the fair market value determined by the jointly
appointed Appraiser, or (ii) the fair market value agreed
upon by the Appraisers in the event only two Appraisers
serve, or (iii) the average of the fair market values of the
two Appraisers who are closest together in the event three
Appraisers serve. After reaching a decision the Appraisers
shall given written notice to each Partner of the Appraised
Value arrived at by them. The amount of the purchase price
of the Defaulting Partner's interest in the Partnership
shall be the amount that would have been distributed to it
under section 15.2 if all of the Partnership assets and the
Project had been liquidated at the Appraised Value and this
Partnership dissolved.
6.4 Interest. No interest shall be paid on any
capital contribution except as may be provided herein.
6.5 Withdrawal. No Partner shall have a right to
withdraw or demand the return of its Invested Capital except on
dissolution of the Partnership, or with the consent of the
General Partner.
6.6 Loans to the Partnership. No Partner shall be
required to loan funds to the Partnership. In addition, no
Partner may loan or advance money to the Partnership without the
written consent of the General Partner. The General Partner or
an affiliate of the General Partner may loan funds to the
Partnership for any Partnership purpose, provided, however, if
the General Partner or its affiliate intends to loan funds to the
Partnership, the General Partner shall give notice to the Limited
Partner of such intent and the amount of such loan and the
Limited Partner shall have the right for ten (10) business days
from the date of such notice to loan all or any portion of such
amount to the Partnership. Any loan by a Partner to the
Partnership shall be separately entered in the books of the
Partnership as a loan to the Partnership, shall bear interest at
such reasonable arm's-length rate and be subject to repayment
pursuant to such reasonable arm's-length terms and conditions as
are determined by the lending Partner and the General Partner,
and shall be evidenced by a promissory note executed and
delivered by the Partnership to the lending Partner. Any such
loan shall not be regarded as a capital contribution and shall
neither increase the lending Partner's interest in the
Partnership nor entitle him to any increased share of the
Partnership profits. Loans made to the Partnership by a Partner,
and any interest accrued thereon, shall be repaid prior to any
distributions to the Partners pursuant to section 8.3 or 8.4.
6.7 Return of Capital. Except as expressly provided
in this Agreement, no Partner shall have the right to demand or
receive property other than cash in return for such Partner's
Invested Capital.
6.8 No Guarantees. The Limited Partner shall not be
required to guarantee any loans made to the Partnership.
ARTICLE 7
CAPITAL ACCOUNTS
7.1 Maintenance. The Partnership shall maintain an
individual capital account for each Partner. Each Partner's
capital account ("Capital Account") shall be maintained on a book
basis in accordance with the provisions of Section
1.704-1(b)(2)(iv) of the Treasury Regulations and will be
determined as follows:
(i) To each Partner's Capital Account there
shall be credited the amount of money and the initial Gross
Asset Value of any property (other than money) contributed
by such Partner to the Partnership, such Partner's
distributive share of Partnership Profits and any items in
the nature of income or gain which are specially allocated
pursuant to section 8.1.3 or 8.1.4, and the amount of any
Partnership liabilities assumed by such Partner or which are
secured by any Partnership property distributed to such
Partner.
(ii) To each Partner's Capital Account there
shall be debited the amount of cash and the Gross Asset
Value of any Partnership property distributed to such
Partner pursuant to any provision of this Agreement, such
Partner's distributive share of Losses and any items in the
nature of expenses or losses which are specially allocated
pursuant to section 8.1.3 or 8.1.4, and the amount of any
liabilities of such Partner assumed by the Partnership or
which are secured by any property contributed by such
Partner to the Partnership.
In the event all or a portion of an interest in the
Partnership is transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of
the transferor to the extent it relates to the transferred
interest.
In determining the amount of any liability for purposes
of subsections (i) and (ii) in the first paragraph of this
section 7.1, there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and the
Treasury Regulations.
The foregoing provisions and the other provisions of
this Agreement relating to the maintenance of Capital Accounts
are intended to comply with Treasury Regulation Section
1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General
Partner shall determine that it is prudent to modify the manner
in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to
liabilities which are secured by contributed or distributed
property or which are assumed by the Partnership or the
Partners), are computed in order to comply with such Regulations,
the General Partner may make such modification, provided that it
is not likely to have a material effect on the amounts
distributable to any Partner pursuant to Article 15 hereof upon
the dissolution of the Partnership. The General Partner also
shall (a) make any adjustments that are necessary or appropriate
to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in
accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(q),
and (b) make any appropriate modifications in the event
unanticipated events (for example, the acquisition by the
Partnership of oil or gas properties) might otherwise cause this
Agreement not to comply with Treasury Regulation Section
1.704-1(b).
7.2 Profits and Losses. "Profits" and "Losses" means,
for each fiscal year or other period, an amount equal to the
Partnership's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss, or deduction required
to be stated separately pursuant to Code Section 703(a)(1) shall
be included in taxable income or loss), with the following
adjustments:
(i) Any income of the Partnership that is
exempt from federal income tax and not otherwise taken into
account in computing Profits or Losses pursuant to this
section 7.2 shall be added to such taxable income or loss;
(ii) Any expenditures of the Partnership
described in Code Section 705(a)(2)(B) or treated as Code
Section 705(a)(2)(B) expenditures pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Profits or Losses pursuant
to this section 7.2, shall be subtracted from such taxable
income or loss;
(iii) In the event the Gross Asset Value
of any Partnership asset is adjusted pursuant to section
7.3(ii) or (iii), the amount of such adjustment shall be
taken into account as gain or loss from the disposition of
such asset for purposes of computing Profits or Losses;
(iv) Gain or loss resulting from any
disposition of Partnership property with respect to which
gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of
the property disposed of, notwithstanding that the adjusted
tax basis of such property differs from its Gross Asset
Value;
(v) In lieu of depreciation, amortization,
and other cost recovery deductions taken into account in
computing such taxable income or loss, there shall be taken
into account Depreciation for such fiscal year or other
period, computed in accordance with section 7.4 below; and
(vi) Notwithstanding any other provision of
this section 7.2, any items which are specially allocated
pursuant to section 8.1.3 or 8.1.4 shall not be taken into
account in computing Profits or Losses.
The amounts of the items of Partnership income, gain, loss or
deduction available to be specially allocated pursuant to
sections 8.1.3 and 8.1.4 shall be determined by applying rules
analogous to those set forth in section 7.2(i) through (v) above.
7.3 Gross Asset Value. For purposes of this
Agreement, "Gross Asset Value" means, with respect to any asset,
the asset's adjusted basis for federal income tax purposes,
except as follows:
(i) The initial Gross Asset Value of any
asset contributed by a Partner to the Partnership shall be
the gross fair market value of such asset, as determined by
the contributing Partner and the General Partner. The
initial Gross Asset Value of the Property contributed by the
Limited Partners pursuant to section 6.1(b) shall be One
Million Two Hundred Thousand Dollars ($1,200,000.00);
(ii) The Gross Asset Values of all
Partnership assets shall be adjusted to equal their
respective gross fair market values, as determined by the
General Partner, as of the following times: (a) the
acquisition of an additional interest in the Partnership by
any new or existing Partner in exchange for more than a de
minimis capital contribution or the distribution by the
Partnership to a Partner of more than a de minimis amount of
Partnership property as consideration for an interest in the
Partnership if the General Partner reasonably determines
that such an adjustment is necessary or appropriate to
reflect the relative economic interests of the Partners in
the Partnership; and (b) the liquidation of the Partnership
within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(g); and
(iii) The Gross Asset Value of any
Partnership asset distributed to any Partner shall be
adjusted to equal the gross fair market value of such asset
on the date of distribution as determined by the distributee
and the General Partner.
If the Gross Asset Value of an asset has been determined or
adjusted pursuant to section 7.3 (i) or 7.3 (ii) above, such
Gross Asset Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset for
purposes of computing Profits and Losses.
7.4 Depreciation. For purposes of this Agreement,
"Depreciation" means, for each fiscal year or other period, an
amount equal to the depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such
year or other period, except that if the Gross Asset Value of an
asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period,
Depreciation shall be an amount which bears the same ratio to
such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for
such year or other period bears to such beginning adjusted tax
basis; provided, however, that if the adjusted basis for federal
income tax purposes of an asset at the beginning of such year or
other period is zero, Depreciation shall be determined with
reference to such beginning Gross Asset Value using any
reasonable method selected by the General Partner.
ARTICLE 8
PROFITS, LOSSES AND CASH DISTRIBUTIONS
8.1 Allocations of Profits and Losses.
8.1.1 Allocation of Profits and Losses From
Operations.
(a) After giving effect to the special
allocations set forth in sections 8.1.3 and 8.1.4, Profits (and
all items thereof), except Profits resulting from any disposition
of Partnership property, ("Profits From Operations"), for each
fiscal year shall be allocated to the Partners as follows:
(i) First, to the Partners, pro rata,
until the aggregate Profits From Operations allocated
to each Partner for such fiscal year and all previous fiscal
years pursuant to this section 8.1.1(a)(i) equals the
aggregate amount of such Partner's Priority Return
distributed to such Partner pursuant to sections 8.3(a) and
8.4(a) from the commencement of the Partnership to the end
of such fiscal year;
(ii) Second, to the Limited Partner,
until the aggregate Profits From Operations allocated to
such Partner for such fiscal year and all previous fiscal
years pursuant to this section 8.1.1(a)(ii) equals the
aggregate amount of such Partner's Preferred Return
distributed to such Partner pursuant to section 8.3(c) and
8.4(c) from the commencement of the Partnership to the end
of such fiscal year;
(iii) Third, to the Partners, pro
rata, until the aggregate Profits From Operations allocated
to each Partner for such fiscal year and all previous fiscal
years pursuant to this section 8.1.1(a)(iii) is equal to the
aggregate Losses From Operations allocated to such Partner
pursuant to section 8.1.1(b)(ii) for all previous fiscal
years;
(iv) Thereafter, to the Partners in
accordance with their Percentage Interests.
(b) After giving effect to the special
allocations set forth in sections 8.1.3 and 8.1.4, and subject to
the limitation set forth in section 8.1.3(e), Losses (and all
items thereof), except Losses resulting from any disposition of
Partnership property, ("Losses From Operations), for each fiscal
year shall be allocated to the Partners as follows:
(i) First, to the Partners, pro
rata, until the aggregate Losses From Operations allocated
to each Partner for such fiscal year and all previous fiscal
years pursuant to this section 8.1.1(b)(i) is equal to the
aggregate Profits From Operations allocated to such Partner
pursuant to section 8.1.1(a)(iv) for all previous fiscal
years;
(ii) Thereafter, to the Partners in
accordance with their Percentage Interests.
8.1.2 Allocation of Profits and Losses Arising
From Sales and Dispositions.
(a) After giving effect to the special
allocations set forth in sections 8.1.3 and 8.1.4, Profits
resulting from any disposition of Partnership property ("Profits
From Sales") (including Profits From Sales from the liquidation
of Partnership assets in connection with the dissolution and
termination of the Partnership) shall be allocated as follows
(prior to reducing Capital Accounts to reflect the distributions
of amounts pursuant to section 8.4 and section 15.2):
(i) To each Partner who has a negative
Capital Account, in the proportion that each such Partner's
negative Capital Account balance bears to all Partners'
negative Capital Account balances, but in no event in an
amount exceeding such negative Capital Account balance;
(ii) Then, to the extent any Partner has a
Capital Account (after allocation of any Profits From Sales
pursuant to section 8.1.2(a)(i)) less than an amount equal
to its Accrued Priority Return (as defined in section
8.3(a)), Profits From Sales shall be allocated to such
Partner until its Capital Account equals such amount;
(iii) Then, to the extent any Partner has
a Capital Account (after allocation of any Profits From
Sales pursuant to sections 8.1.2(a)(i) and (ii)) less than
an amount equal to its (A) Adjusted Additional Capital and
(B) Accrued Priority Return, Profits From Sales shall be
allocated to such Partner until its Capital Account equals
such amount;
(iv) Then, to the extent the Limited Partner
has a Capital Account (after allocation of any Profits From
Sales pursuant to sections 8.1.2(a)(i) through (iii)) less
than an amount equal to its (A)Accrued Preferred Return, (B)
Adjusted Additional Capital, and (C) Accrued Priority
Return, Profits From Sales shall be allocated to the Limited
Partner until its Capital Account equals such amount;
(v) Then, to the extent the Limited Partner
has a Capital Account (after allocation of any Profits From
Sales pursuant to sections 8.1.2(a)(i) through (iv)) less
than an amount equal to its (A) Adjusted Invested Capital,
(B) Accrued Preferred Return, (C) Adjusted Additional
Capital, and (D) Accrued Priority Return, Profits From Sales
shall be allocated to the Limited Partner until its Capital
Account equals such amount;
(vi) Then, to the extent the General Partner
has a Capital Account (after allocation of any Profits From
Sales pursuant to sections 8.1.2(a)(i) through (iii)) less
than an amount equal to its (A) Adjusted Invested Capital,
(B) Adjusted Additional Capital, and (C) Accrued Priority
Return, Profits From Sales shall be allocated to the General
Partner until its Capital Account equals such amount;
(vii) Then, to the extent any Partner has
a Capital Account (after allocation of any Profits From
Sales pursuant to sections 8.1.2(a)(i) through (vi)) that
exceeds its (A) Adjusted Invested Capital, (B) Accrued
Preferred Return, (C) Adjusted Additional Capital, and (D)
Accrued Priority Return, Profits from Sales shall be
allocated to the other Partner in the minimum amount
required to bring the amount of such excess in each
Partner's Capital Account in proportion to their Percentage
Interests as quickly as possible; and
(viii) All remaining Profits From Sales
shall be allocated to the Partners in accordance with their
Percentage Interests.
(b) After giving effect to the special
allocations set forth in sections 8.1.3 and 8.1.4, and subject to
the limitation set forth in section 8.1.3(e), Losses resulting
from any disposition of Partnership property ("Losses From
Sales") (including Losses From Sales from the liquidation of
Partnership assets in connection with the dissolution and
termination of the Partnership) shall be allocated as follows
(prior to making distributions pursuant to section 8.4 or 15.2):
(i) First, to the extent any Partner has a
credit balance in its Capital Account which exceeds its (A)
Adjusted Invested Capital, (B) Accrued Preferred Return, (C)
Adjusted Additional Capital, and (D) Accrued Priority
Return, Losses From Sales shall be allocated to each such
Partner, pro rata in accordance with the amount of such
excess, until its Capital Account equals the amount
described above;
(ii) Then, to the extent the General
Partner has a credit balance in its Capital Account (after
the allocation of any Losses From Sales pursuant to section
8.1.2(b)(i)) which exceeds its (A) Adjusted Additional
Capital and (B) Accrued Priority Return, Losses From Sales
shall be allocated to such Partner until its Capital Account
equals the amount described above;
(iii) Then, to the extent the Limited
Partner has a credit balance in its Capital Account (after
allocation of any Losses From Sales pursuant to section
8.1.2(b)(i)) which exceeds its (A) Accrued Preferred Return,
(B) Adjusted Additional Capital and (C) Accrued Priority
Return, Losses From Sales shall be allocated to such Partner
until its Capital Account equals the amount described above;
(iv) Then, to the extent the Limited
Partner has a credit balance in its Capital Account (after
allocation of any Losses From Sales pursuant to section
8.1.2(b)(i) through (iii)) which exceeds its (A) Adjusted
Additional Capital and (B) Accrued Priority Return, Losses
From Sales shall be allocated to such Partner until its
Capital Account equals the amount described above;
(v) Then, to the extent any Partner has a
credit balance in its Capital Account (after allocation of
any Losses From Sales pursuant to sections 8.1.2(b)(i)
through (iv)) which exceeds its Accrued Priority Return,
Losses From Sales shall be allocated to each such Partner,
pro rata in accordance with the amount of such excess, until
its Capital Account equals the amount described above;
(vi) Then, to the extent any Partner
has a credit balance in its Capital Account (after
allocation of any Losses From Sales pursuant to sections
8.1.2(b)(i) through (v)) which exceeds zero, Losses From
Sales shall be allocated to each such Partner, pro rata in
accordance with the amount of such excess, until its Capital
Account equals zero; and
(vii) The balance, if any, to the
Partners in accordance with their Percentage Interests.
8.1.3 Special Allocations. The following special
allocations shall be made in the following order:
(a) Minimum Gain Chargeback. Except as
otherwise provided in Section 1.704-2(f) of the Regulations,
notwithstanding any other provision of this section 8.1, if there
is a net decrease in Partnership Minimum Gain during any
Partnership fiscal year, each Partner shall be specially
allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain,
determined in accordance with Regulations Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to
each Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Sections 1.704-2(f)(6) and
1.704-2(j)(2) of the Regulations. This section 8.1.3(a) is
intended to comply with the minimum gain chargeback requirement
in Section 1.704-2(f) of the Regulations and shall be interpreted
consistently therewith.
(b) Partner Minimum Gain Chargeback.
Except as otherwise provided in Section 1.704-2(i)(4) of the
Regulations, notwithstanding any other provision of this section
8.1, if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain attributable to a Partner Nonrecourse Debt during
any Partnership fiscal year, each Partner who has a share of the
Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Section
1.704-2(i)(5) of the Regulations, shall be specially allocated
items of Partnership income and gain for such year (and, if
necessary, subsequent years) in an amount equal to such Partner's
share of the net decrease in Partner Nonrecourse Debt Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(4). Allocations
pursuant to the previous sentence shall be made in proportion to
the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be
determined in accordance with Sections 1.704-2(i)(4) and 1.704-
2(j)(2) of the Regulations. This section 8.1.3(b) is intended to
comply with the minimum gain chargeback requirement in Section
1.704-2(i)(4) of the Regulations and shall be interpreted
consistently therewith. (c) Qualified
Income Offset. In the event any Limited Partner who is not a
General Partner unexpectedly receives any adjustments,
allocations, or distributions described in Treasury Regulation
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership
income and gain shall be specially allocated to each such Partner
in an amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations, the Adjusted Capital
Account Deficit of such Limited Partner as quickly as possible,
provided that an allocation pursuant to this section 8.1.3(c)
shall be made only if and to the extent that such Limited Partner
would have an Adjusted Capital Account Deficit after all other
allocations provided for in this section 8.1 have been
tentatively made as if this section 8.1.3(c) were not in the
Agreement.
(d) Gross Income Allocation. In the event
any Limited Partner who is not a General Partner has a deficit
Capital Account at the end of any Partnership fiscal year which
is in excess of the sum of (i) the amount such Limited Partner is
obligated to restore pursuant to any provision of this Agreement,
and (ii) the amount such Limited Partner is deemed to be
obligated to restore pursuant to the next to last sentences of
Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5),
each such Limited Partner shall be specially allocated items of
Partnership income and gain in the amount of such excess as
quickly as possible, provided that an allocation pursuant to this
section 8.1.3(d) shall be made only if and to the extent that
such Limited Partner would have a deficit Capital Account in
excess of such sum after all other allocations provided for in
this section 8.1 have been made as if section 8.1.3(c) and this
section 8.1.3(d) were not in the Agreement.
(e) Limitation on Losses. The Losses
allocated pursuant to section 8.1.2 shall not exceed the maximum
amount of Losses that can be so allocated without causing any
Limited Partner to have an Adjusted Capital Account Deficit at
the end of any fiscal year. In the event some but not all of the
Limited Partners would have Adjusted Capital Account Deficits as
a consequence of an allocation of Losses pursuant to sections
8.1.1 and 8.1.2, the limitation set forth in this section
8.1.3(e) shall be applied on a Limited Partner by Limited Partner
basis so as to allocate the maximum permissible Losses to each
Limited Partner under Section 1.704-1(b)(2)(ii)(d) of the
Regulations. All Losses in excess of the limitation set forth in
this section 8.1.3(e) shall be allocated to the General Partner.
(f) Nonrecourse Deductions. Nonrecourse
Deductions for any fiscal year or other period shall be specially
allocated to the Partners in accordance with their Percentage
Interests.
(g) Partner Nonrecourse Deductions. Any
Partner Nonrecourse Deductions for any fiscal year or other
period shall be specially allocated to the Partner who bears the
economic risk of loss with respect to the Partner Nonrecourse
Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Regulations Section
1.704-2(i)(1).
8.1.4 Curative Allocations. The allocations set
forth in sections 8.1.3(a), 8.1.3(b), 8.1.3(c), 8.1.3(d),
8.1.3(e), 8.1.3(f), and 8.1.3(g) hereof (the "Regulatory
Allocations") are intended to comply with certain requirements of
the Regulations. It is the intent of the Partners that, to the
extent possible, all Regulatory Allocations shall be offset
either with other Regulatory Allocations or with special
allocations of other items of Partnership income, gain, loss or
deduction pursuant to this section 8.1.4. Therefore,
notwithstanding any other provision of this section 8.1 (other
than the Regulatory Allocations), the General Partner shall make
such offsetting special allocations of Partnership income, gain,
loss or deduction in whatever manner it determines appropriate so
that, after such offsetting allocations are made, each Partner's
Capital Account balance is, to the extent possible, equal to the
Capital Account balance such Partner would have had if the
Regulatory Allocations were not part of the Agreement and all
Partnership items were allocated pursuant to sections 8.1.1 and
8.1.2. In exercising its discretion under this section 8.1.4,
the General Partner shall take into account future Regulatory
Allocations under sections 8.1.3(a) and 8.1.3(b) that, although
not yet made, are likely to offset other Regulatory Allocations
previously made under section 8.1.3(f) and 8.1.3(g).
8.1.5 704(c) Allocations. In accordance with
Code Section 704(c) and the Treasury Regulations thereunder,
income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for
tax purposes, be allocated among the Partners so as to take
account of any variation between the adjusted basis of such
property to the Partnership for federal income tax purposes and
its initial Gross Asset Value (computed in accordance with
section 7.3 hereof).
In the event the Gross Asset Value of any Partnership
property is adjusted pursuant to section 7.3 hereof, subsequent
allocations of income, gain, loss, and deduction with respect to
such asset shall take account of any variation between the
adjusted basis of such asset for federal income tax purposes and
its Gross Asset Value in the same manner as under Code Section
704(c) and the Treasury Regulations thereunder.
Any elections or other decisions relating to such
allocations shall be made by the General Partner in any manner
that reasonably reflects the purpose and intention of this
Agreement. Allocations pursuant to this section 8.1.5 are solely
for purposes of federal, state, and local taxes and shall not
affect, or in any way be taken into account in computing, any
Partner's Capital Account or share of Profits, Losses, other
items or distributions pursuant to any provision of this
Agreement.
8.1.6 Other Allocation Rules.
(a) For purposes of determining the Profits,
Losses, or any other items allocable to any period, Profits,
Losses, and any such other items shall be determined on a daily,
monthly, or other basis, as determined by the General Partner
using any permissible method under Code Section 706 and the
Regulations thereunder.
(b) The Partners are aware of the income tax
consequences of the allocations made by this section 8.1 and
hereby agree to be bound by the provisions of this section 8.1 in
reporting their shares of Partnership income and loss for income
tax purposes.
(c) Solely for purposes of determining a
Partner's proportionate share of the "excess nonrecourse
liabilities" of the Partnership within the meaning of Regulations
Section 1.752-3(a)(3), the Partners' interests in Partnership
profits shall be in proportion to their Percentage Interests.
(d) To the extent permitted by Section 1.704-
2(h)(3) of the Regulations, the General Partner shall endeavor to
treat distributions of Net Proceeds From Continuing Operations or
Net Proceeds From Sales or Refinancings as having been made from
the proceeds of a Nonrecourse Liability or a Partner Nonrecourse
Debt only to the extent that such distributions would cause or
increase an Adjusted Capital Account Deficit for any Limited
Partner who is not a General Partner.
(e) Each Partner acknowledges and agrees
that it has relied solely upon the advice of its own legal
counsel and/or accountant in determining the tax consequences of
this Agreement and the transactions contemplated hereby and not
upon any representations or advice by the other Partners or their
agents.
8.2 Limitation on Losses and Liabilities of Limited
Partner. No Limited Partner shall be liable for or subject to
any obligations, losses, debts or liabilities of the Partnership
in excess of the amount of its Invested Capital. Any losses of
the Partnership in an amount exceeding the amount of the capital
of the Partnership shall be borne by the General Partner.
Notwithstanding the above, to the extent required by Section
15666 of the Act, a Limited Partner receiving a distribution
shall be liable to the Partnership to return such distribution to
the Partnership.
8.3 Distribution of Net Proceeds From Continuing
Operations. Net Proceeds From Continuing Operations, after
repayment of any advances made to the Partnership by the Limited
Partner pursuant to section 6.1(e) and any loans made to the
Partnership by any of the Partners pursuant to sections 6.2 and
6.6, shall be distributed in the following order of priority:
(a) To the Partners, pro rata in proportion to
the amount distributable pursuant to this section 8.3(a), an
amount equal to each Partner's Priority Return, less any amounts
previously distributed to such Partner pursuant to section 8.4(a)
and this section 8.3(a) ("Accrued Priority Return");
(b) To the Partners, pro rata in proportion to
their Adjusted Additional Capital, until the aggregate amount
distributed to each Partner pursuant to this section 8.3(b)
equals the amount of such Partner's Adjusted Additional Capital;
(c) To the Limited Partner, an amount equal to
such Partner's Preferred Return, less any amounts previously
distributed to such Partner pursuant to section 8.4(c) and this
section 8.3(c) ("Accrued Preferred Return");
(d) To each Partner in accordance with its
Percentage Interest.
8.4 Distribution of Net Proceeds From Sales or
Refinancings. Net Proceeds From Sales or Refinancings, after
repayment of any advances made to the Partnership by the Limited
Partner pursuant to section 6.1(e) and any loans made to the
Partnership by any of the Partners pursuant to sections 6.2 and
6.6, shall be distributed in the following order of priority:
(a) To the Partners, pro rata in proportion to
the amount distributable pursuant to this section 8.4(a), until
the amount distributed to each Partner equals the amount of its
Accrued Priority Return;
(b) To the Partners, pro rata in proportion to
their Adjusted Additional Capital, until the aggregate amount
distributed to each Partner pursuant to this section 8.4(b)
equals the amount of such Partner's Adjusted Additional Capital;
(c) To the Limited Partner until the amount
distributed to the Limited Partner equals the amount of its
Accrued Preferred Return;
(d) To the Limited Partner until the aggregate
amount distributed to the Limited Partner pursuant to this
section 8.4(c) equals the amount of such Partner's Adjusted
Invested Capital;
(e) To the General Partner until the aggregate
amount distributed to the General Partner pursuant to this
section 8.4(d) equals the amount of such Partner's Adjusted
Invested Capital;
(f) To each Partner in accordance with its
Percentage Interest.
ARTICLE 9
MANAGEMENT OF PARTNERSHIP
9.1 Management.
(a) Subject to obtaining the Consent of the
Limited Partner with respect to those matters set forth in
section 9.1(b) below, the General Partner shall have full,
exclusive and complete discretion, power and authority in the
management and control of the business of the Partnership, shall
make all decisions affecting the business of the Partnership, and
may do or cause to be done any and all acts it deems necessary or
appropriate to accomplish the purposes of the Partnership. In
addition to the powers now or hereafter granted a general partner
of a limited partnership under applicable law or which are
granted to the General Partner under any other provisions of this
Agreement, and subject to obtaining the Consent of the Limited
Partner with respect to those matters set forth in section 9.1(b)
below and all other express limitations set forth herein, the
General Partner shall have full power and authority on behalf of
the Partnership to:
(i) operate, maintain, finance, improve,
construct, own, grant options with respect to, sell,
exchange, convey, assign, mortgage, and encumber real estate
and personal property, including the Project or any portion
thereof;
(ii) negotiate, execute and modify leases of
real or personal property owned by the Partnership in the
name and on behalf of the Partnership;
(iii) execute any and all agreements,
contracts, documents, certifications, and instruments
necessary or convenient in connection with the management,
maintenance, and operation of the Project;
(iv) borrow money and issue evidences of
indebtedness necessary, convenient, or incidental to the
accomplishment of the purposes of the Partnership, incur
obligations on behalf of the Partnership in the name and on
the credit of the Partnership, and secure the same by
mortgage, pledge, or other lien on any Partnership property;
(v) execute, in furtherance of any or all of
the purposes of the Partnership, any deed, lease, mortgage,
deed of trust, mortgage note, promissory note, bill of sale,
contract, or other instrument purporting to convey or
encumber any or all of the Project;
(vi) prepay in whole or in part, refinance,
recast, increase, modify, or extend any liabilities
affecting the Project and in connection therewith execute
any extensions or renewals of encumbrances on any or all of
the Project;
(vii) care for and distribute funds to the
Partners and Assignees by way of cash, income, return of
capital, or otherwise, all in accordance with the provisions
of this Agreement, and perform all matters in furtherance of
the objectives of the Partnership or this Agreement;
(viii) contract on behalf of the Partnership
for the employment and services of employees and/or
independent contractors and delegate to such persons the
duty to manage or supervise any of the assets or operations
of the Partnership;
(ix) engage in any kind of activity and
perform and carry out contracts of any kind (including
contracts of insurance covering risks to Partnership
property and General Partner liability) necessary or
incidental to, or in connection with, the accomplishment of
the purposes of the Partnership, as may be lawfully carried
on or performed by a partnership under the laws of each
state in which the Partnership is then formed or qualified;
(x) cause the Partnership to establish
reasonable reserves and to set aside therein such funds as
the General Partner, in its reasonable discretion, shall
determine to be reasonable in connection with the operation
of the business of the Partnership. Any funds so set aside
may be invested and reinvested by the General Partner;
(xi) possess and exercise any additional
rights and powers of a general partner under the partnership
laws of California (including, without limitation, the Act)
and any other applicable laws, to the extent not
inconsistent with this Agreement;
(xii) employ and engage suitable agents,
employees, advisers, consultants and counsel (including any
custodian, investment adviser, accountant, attorney,
corporate fiduciary, bank or other reputable financial
institution, rental agent, building management agent,
insurance broker, real estate broker, or any other agents,
employees or persons who may serve in such capacity for the
General Partner or any affiliate of the General Partner) to
carry out any activities which the General Partner is
authorized or required to carry out or conduct under this
Agreement, including, without limitation, a person who may
be engaged to undertake some or all of the general
management, property management, financial accounting and
record keeping, construction supervision and other duties of
the General Partner, and to rely on the advice given by such
persons, it being agreed and understood that the General
Partner shall not be responsible for any acts or omissions
of any such persons and shall assume no obligations in
connection therewith other than the obligation to use due
care in the selection and supervision thereof;
(xiii) sell, exchange or dispose of the
Project or any portion thereof at the times and on the terms
approved by the Partners;
(xiv) enter into an agreement or agreements
with real estate brokers or agents, investment banking
firms, appraisers or others providing for the engagement of
such persons on an exclusive or nonexclusive basis to advise
or represent the Partnership in the valuation, sale, lease
or other dealings with respect to the Project, it being
understood that the General Partner shall not be responsible
for the acts and omissions of any such persons and shall
assume no obligations in connection therewith other than the
obligation to use due care in the selection and supervision
thereof;
(xv) execute or submit to the applicable
governmental authorities any and all documents or
applications with respect to the obtaining of governmental
approvals and entitlements necessary to permit the
development of the Project, construct site improvements
necessary to so develop the Project, and execute and cause
to be filed and recorded subdivision, parcel or similar maps
covering or related to the Project;
(xvi) in general, exercise in full all the
powers of the Partnership and to do any and all acts and
conduct all proceedings and execute all rights and
privileges, contracts and agreements of any kind whatsoever,
although not specifically mentioned in this Agreement, that
the General Partner in its reasonable discretion may deem
necessary or appropriate to the conduct of the business and
affairs of the Partnership or to carry out the purposes of
the Partnership.
The expression of any power or authority of the General Partner
in this Agreement shall not in any way limit or exclude any other
power or authority which is not specifically or expressly set
forth in this Agreement.
(b) The General Partner, without obtaining the
Consent of the Limited Partner, shall have no authority to: (i)
do any act in contravention of this Agreement; (ii) do any act
which would make it impossible to carry on the ordinary business
of the Partnership; (iii) confess a judgment against the
Partnership that would make it impossible to carry on the
business of the Partnership; (iv) possess Partnership property,
or assign the General Partner's rights in specific Partnership
property, for other than a Partnership purpose; (v) terminate the
Partnership; (vi) amend this Agreement (except as provided in
Article 12 and sections 13.2 and 13.5); (vii) admit a person as a
General or Limited Partner (except as provided in section 13.5);
(viii) sell or encumber the Project or any portion thereof; (ix)
merge with or into another entity; (x) change the nature of the
Partnership's business; (xi) approve the final plans,
specifications and drawings for the development of the Project
and the construction of any improvements, and any material
modifications thereof; (xii) enter into any leases with respect
to the Project, or any portion thereof; (xiii) exceed in the
aggregate by more than five percent (5%) the line item budget for
any costs set forth in the development budget attached hereto as
Exhibit C, except in the event of an emergency; (xiv) approve
construction contracts for construction of improvements on and/or
to the Property, or any portion thereof, and any material
modifications thereof. The Limited Partner agrees not to
unreasonably withhold its consent to any of the above-described
acts.
(c) The Limited Partner shall take no part in the
management or control of the Partnership business, except as
expressly provided for herein. Thirty (30) months after the
first Project lease commencement date, the Limited Partner may,
at any time, require the General Partner to sell, exchange or
dispose of the Project on terms acceptable to the Limited
Partner.
9.2 Time Devoted. The General Partner (i) shall
devote such time and attention to the Partnership business as is
reasonably necessary to manage the Partnership and perform the
General Partner's duties, (ii) may from time to time engage in
any other business or enterprise for its own account, and (iii)
may employ agents to perform any of the functions necessary for
the management and operation of the Partnership.
In addition to all duties imposed on the General
Partner under the Act, by law and elsewhere in this Agreement,
the General Partner shall use commercially reasonable efforts to
(a) coordinate all financing required to develop the Project, (b)
secure all necessary entitlements, (c) provide investment
analysis, (d) coordinate all design, architectural and
engineering requirements, (e) coordinate the construction of
improvements, (f) coordinate all marketing and leasing, (g)
provide partnership accounting, (h) provide property management.
9.3 Other Business Ventures. Any Partner may engage
in or possess an interest in other business ventures of every
nature and description, independently or with others, whether
such ventures are competitive with the Partnership or otherwise,
including, but not limited to, the acquisition, ownership,
financing, leasing, operation, management, syndication,
brokerage, sale, construction and development of real property,
whether or not such property is located in the market area or
vicinity of the Project. Neither the Partnership nor the
Partners shall have any right by virtue of this Agreement in or
to such independent ventures or to the income or profits derived
therefrom. No Partner shall be obligated to present any
particular investment opportunity to the Partnership or the other
Partners, even if the opportunity is of a character that, if
presented to the Partnership or the other Partners, could be
taken by the Partnership or the other Partners, and it shall have
the right to take for its own account or to recommend to others
any investment opportunity.
9.4 Execution of Documents. Any deed, conveyance,
deed of trust, lease, contract, note, escrow instructions,
assignment of deed of trust, reconveyance under a deed of trust,
bill of sale, document affecting any interest in real property or
related to any loans secured by real property now owned or
hereafter acquired by the Partnership, or other similar document
shall be executed by the General Partner. No other signatures
shall be required.
9.5 Bank Accounts. All funds of the Partnership shall
be deposited in bank accounts in the name of the Partnership at
such bank or banks as may from time to time be selected by the
General Partner. All withdrawals from any such account or
accounts shall be made only by check or other written instrument
signed by the General Partner or such person or persons
designated by the General Partner.
9.6 Contracts with Partnership. Notwithstanding the
provisions of Corporations Code Section 15636 or any successor
thereto, the General Partner, or an affiliate of the General
Partner, may directly or indirectly, through one or more
corporations, partners or other forms of entity in which such
party has an interest, contract on a fair and reasonable basis
with the Partnership for any purpose or purposes in furtherance
of the business of the Partnership, provided charges under such
contracts are based upon prevailing and customary rates in the
particular industry for services rendered in the general vicinity
of the Project and, provided further, the Consent of the Limited
Partner is obtained, which consent shall not be unreasonably
withheld.
9.7 Right to Rely upon the Authority of General
Partner. No person dealing with the Partnership shall be
required to determine the authority of the General Partner to
make any commitment or undertaking on behalf of the Partnership
or to determine any fact or circumstance bearing upon the
existence of the authority of the General Partner. In addition,
no purchaser of any property or interests owned by the
Partnership shall be required to determine the sole and exclusive
authority of General Partner to sign and deliver on behalf of the
Partnership any such instrument of transfer, or to see to the
application or distribution of revenues or proceeds paid or
credited in connection therewith.
9.8 [Intentionally Left Blank.]
9.9 Hold Harmless.
(a) The Partnership, its receiver, or its trustee
shall indemnify, hold harmless, and pay all costs, attorneys'
fees, judgments, and amounts expended in the settlement of any
claims against the General Partner, or its partners, officers,
directors, shareholders, employees, agents, affiliates, or
assignees, arising from any liability, loss, or damage for acts
performed or omitted to be performed by them in connection with
the Partnership business unless the loss, liability, or damage
was caused by the indemnified person's fraud, bad faith or
willful misconduct.
(b) The right of indemnification set forth in
this section 9.9 shall be in addition to any rights to which the
person seeking indemnification may otherwise be entitled and
shall inure to the benefit of the successors, assignees,
executors, or administrators of any person indemnifiable under
this section. The General Partner, or its partners, officers,
directors, shareholders, employees, agents, affiliates, or
assignees, shall have the right (and no other person shall have
the right) to approve the choice of an attorney (such approval
not to be unreasonably withheld or delayed), on a reasonable
showing that the attorney for the Partnership cannot adequately
represent the choosing party's interest. The Partnership shall
pay the expenses incurred by any person indemnified hereunder in
defending a civil or criminal action, suit, or proceeding on
receipt of an undertaking by such person indemnified to repay
such payment if there shall be an adjudication or determination
that the person is not entitled to indemnification as provided in
this Agreement. The General Partner (or other indemnified
person) may not satisfy any right of indemnity or reimbursement
granted in this section or to which it may be otherwise entitled,
except from the assets of the Partnership, and no Partner shall
be personally liable with respect to any such claim for indemnity
or reimbursement.
(c) The General Partner shall not be liable to
the Partnership for any loss suffered by the Partnership in
connection with the General Partner's activities, provided that
if such loss or liability arises out of any action or inaction of
the General Partner, the General Partner must have determined
that such course of conduct was in the best interests of the
Partnership, and such course of conduct must not have constituted
fraud, bad faith or willful misconduct by the General Partner.
Without limiting the foregoing, the General Partner shall not be
personally liable for the return of the Invested Capital of the
Limited Partners, or for the return of any other contribution to
the Partnership by the Limited Partners.
ARTICLE 10
COMPENSATION
Except as expressly provided in this Agreement, no
salary or other compensation shall be paid to any Partner for its
services to the Partnership unless otherwise determined by the
General Partner. However, the General Partner shall be
reimbursed for expenses reasonably incurred on behalf of the
Partnership.
TBI-Development ("TBI-Development") and Toeniskoetter &
Breeding, Inc. Construction ("TBI-Construction"), California
corporations, shall be hired by the Partnership to provide
development and general contracting services for the development
of the Property and the construction of improvements thereon,
including, without limitation, the development and construction
of the Project. TBI-Development shall be entitled to a
development fee equal to three percent (3%) of the total project
costs (excluding the agreed value of the Property) to be paid at
such times as are reasonably determined by the General Partner.
TBI-Construction shall be entitled to a contracting fee equal to
six percent (6%) of all construction costs. Construction cost
shall include all reimbursable costs (other than the cost of a
project manager and secretarial and accounting costs) described
in Article 8 of AIA Document A111 Standard Form of Agreement
Between Owner and Contractor-Cost of the Work Plus A Fee.
Notwithstanding the above, the amount of development fee payable
to TBI-Development shall not exceed $133,000.00 and the amount of
the construction fee payable to TBI-Construction with respect to
construction of the building shell shall not exceed $132,300.00.
The amount of the development fee payable to TBI-Development and
the construction fee payable to TBI-Construction shall be set
forth in the development budget attached hereto as Exhibit C.
The Company shall hire TBI-Development to provide property
management services with respect to the Project upon completion
of the Project or any portion thereof. TBI-Development shall be
entitled to a property management fee equal to the prevailing and
customary fee charged by third party property managers for
similar services rendered with respect to similar improvements in
the general vicinity of the Project. TBI-Development will not be
paid any brokerage commissions on leasing or sale as part of the
development of the Project. TBI-Development and TBI-Construction
shall render such development, construction and property
management services pursuant to separate agreements entered into
between the applicable party and the Partnership, which
agreements shall contain such terms and conditions as are usual
and customary in the business. The Limited Partner may cause the
Partnership to terminate the property management agreement
between the Partnership and TBI-Development at any time, with or
without cause, upon thirty (30) days' prior written notice. TBI-
Development is the general partner of TBI-Santa Clara Street and
its shareholders are limited partners in TBI-Santa Clara Street.
The shareholders of TBI-Construction are also limited partners in
TBI-Santa Clara Street.
ARTICLE 11
WITHDRAWAL, BANKRUPTCY OR REMOVAL OF GENERAL PARTNER
11.1 Effect on Partnership. In the event of the
General Partner's withdrawal, removal, or Bankruptcy (each such
event hereinafter referred to as a "Terminating Event"), the
Partnership shall terminate and dissolve unless, within ninety
(90) days after the occurrence of the Terminating Event, all of
the following shall have first taken place, in which case the
Partnership shall continue:
(i) All of the Partners (including the
former General Partner or its successor) shall have elected
to continue the business of the Partnership;
(ii) The Partners (including the former
General Partner or its successor) shall have unanimously
nominated a new General Partner, and such person or entity
so nominated shall have agreed to become a General Partner
of the Partnership; and
(iii) All documents shall have been
executed and filed by the newly elected General Partner and
the existing Partners which are necessary to admit the newly
elected General Partner.
In the event a new General Partner is appointed pursuant to the
provisions of this paragraph of section 11.1, (a) the interest of
the former General Partner shall be changed into that of a
Limited Partner, and it or its successor shall have all of the
rights and obligations of a Limited Partner under this Agreement,
but such interest shall continue to be treated as that of a
General Partner for purposes of all credits, allocations and
distributions required or permitted under this Agreement, and (b)
such new General Partner may be given an interest in the income
and losses and the distributions of the Partnership, in which
case each Partner's Percentage Interest shall be reduced
proportionately.
11.2 Removal of General Partner for Cause.
11.2.1 Notice of Default. Except as set forth
in this section 11.2, the Limited Partner shall have no power to
remove or expel the General Partner. The General Partner may be
removed from the Partnership only if the General Partner defaults
in the performance of its duties and obligations as General
Partner, provided that the General Partner (i) shall have
received written notice of such default, (ii) shall not have
commenced to cure or remedy such default within ten (10) days
thereafter, and (iii) shall not have thereafter pursued any such
correction to completion with diligence and continuity and
corrected such default within a reasonable time.
11.2.2 Notice of Removal. Upon removal pursuant
to section 11.2.1, the General Partner shall be notified of the
action. Notice of removal shall be served on the General Partner
either by certified or registered mail, return receipt requested,
or by personal service and shall set forth the effective date of
the removal.
11.3 Withdrawal of General Partner. The General
Partner shall not be entitled to withdraw from the Partnership
without the Consent of the Limited Partner.
11.4 Dissolution of General Partner. In the event of
the dissolution of the General Partner, the Partnership shall not
be dissolved and liquidated; but, on the contrary, the business
of the Partnership shall be continued and the successor to the
dissolved General Partner shall have all of the rights and shall
assume all the obligations of the dissolved General Partner under
this Agreement.
11.5 Liability of Former General Partner. A General
Partner who has ceased to be a general partner shall not be
liable for any Partnership obligations incurred after the date of
cessation. The successor General Partner(s), if any, shall take
such steps as may be necessary to amend the Partnership's
Certificate of Limited Partnership in order to reflect the
cessation of such former General Partner's status as a general
partner. The Partnership shall indemnify, defend and hold such
former General Partner (and its partners, officers, directors,
shareholders, employees, agents, affiliates or assignees)
harmless from any liabilities incurred after the date such former
General Partner ceased to be a general partner.
ARTICLE 12
DEATH, BANKRUPTCY, DISSOLUTION OR WITHDRAWAL
OF A LIMITED PARTNER
In the event of a Limited Partner's death, dissolution,
or adjudication of incompetency, such Limited Partner's legal
representative, heir, distributee, beneficiary, trustee or other
successor (collectively, the "Successor") shall have the right to
become a Limited Partner in the Partnership with all the rights,
duties, powers and obligations of a Limited Partner as set forth
in this Agreement and under the Act. The substitution of the
Successor as a Limited Partner shall become effective when the
Successor has accepted, adopted and approved in writing all of
the terms and provisions of this Agreement and agreed in writing
to be bound thereby and the appropriate amendment to the
Agreement is executed by the General Partner and the Successor,
provided that such amendment is executed by the Successor and
returned to the Partnership within thirty (30) days from the date
said amendment is mailed to the Successor by the Partnership. If
the Successor refuses to accept, adopt and approve this Agreement
and be bound thereby, or if the amendment is not so executed and
returned, the Successor shall not become a Limited Partner, but
shall become an Assignee who shall be entitled to allocations and
distributions of Partnership property under the terms of this
Agreement attributable to the Partnership interest held by such
Assignee and to transfer such interest in accordance with and
subject to the terms of this Agreement, but shall not be entitled
to vote or to exercise any other rights of a Partner. The
Successor shall pay all reasonable expenses in connection with
his admission as a substituted Limited Partner.
Upon the death or legal incompetency of a Limited
Partner, his or her personal representative shall have all of the
rights of a Limited Partner for the purpose of settling or
managing his or her estate, and such power as the decedent or
incompetent possessed to sell or transfer his or her interest in
the Partnership and to constitute an Assignee as a substituted
Limited Partner.
No Limited Partner shall be entitled to withdraw from
the Partnership without the consent of the General Partner.
In the event of a Limited Partner's Bankruptcy, the
Limited Partner's successor shall not become a Limited Partner,
but shall become an Assignee as described in the first paragraph
of this Article.
ARTICLE 13
SALE OF A PARTNERSHIP INTEREST
13.1 Restriction on Transfer by General Partner. The
General Partner shall not be entitled to assign, pledge,
encumber, sell or otherwise dispose of all or any part of its
interest in the Partnership without the Consent of the Limited
Partner; provided, however, that should the General Partner's
interest in the Partnership be changed into that of a Limited
Partner as provided in section 11.1, it shall have the same right
to sell, assign or transfer its interest as a Limited Partner.
13.2 Sale of Partnership Interest of a Limited
Partner. A Limited Partner shall not sell, transfer or otherwise
dispose of all or any part of its Partnership interest without
first offering the same, upon the same terms and conditions as
the contemplated sale, transfer or other disposition, to the
other Partners. The other Partners shall have sixty (60) days
following the receipt of notice, in writing, from the Limited
Partner desiring to sell, transfer or otherwise dispose of all or
any part of its Partnership interest to purchase the interest of
the selling Partner. Such notice shall include the name of the
person or persons to whom the selling Partner intends to sell,
transfer or otherwise dispose of its interest, and the material
terms and conditions of such sale, assignment or transfer. The
other Partners who wish to purchase said interest shall have the
right to purchase said interest in proportion to the amount of
their Percentage Interests among such Partners. If the other
Partners, or some of them, do not purchase or otherwise acquire
the interest within said sixty (60) days, the Limited Partner
giving the notice shall be free thereafter to sell, transfer or
otherwise dispose of its Partnership interest to the person or
persons, and upon the terms and conditions specified in its
notice to the other Partners; provided, however, that should said
sale, transfer or other disposition not be completed within
sixty (60) days from the date the Limited Partner is free to so
sell or transfer, the Limited Partner must once again offer the
interest to the remaining Partners pursuant to the terms hereof
before it is free to sell, transfer or otherwise dispose of its
interest to an outside party. The Assignee of the Limited
Partner's interest under this section 13.2 shall become a
substituted Limited Partner if (i) he is so designated, in
writing, by the transferor Limited Partner, (ii) such designation
is approved by the General Partner, which approval may be given
or withheld in the General Partner's sole and absolute
discretion, and (iii) the Assignee has accepted, adopted and
approved in writing all of the terms and provisions of this
Agreement and agreed in writing to be bound thereby. Any such
substitution shall become effective when the appropriate
amendment to this Agreement is executed by the General Partner,
the transferor Limited Partner and the substituted Limited
Partner. In the absence of the designation and approval required
to make the Assignee a substituted Limited Partner or if the
Assignee refuses to accept, adopt and approve this Agreement and
be bound thereby, the Assignee shall be entitled to the
allocations and distributions of Partnership property under the
terms of this Agreement attributable to the Partnership interest
held by such Assignee and to transfer such interest in accordance
with and subject to the terms of this Agreement, but shall not be
entitled to vote or to exercise any other rights of a Partner.
Whether or not the Assignee becomes a substituted Limited
Partner, the transferor Limited Partner shall pay all costs
involved in the transfer of his or her interest, including
without limitation, reasonable attorneys' fees and costs involved
in amending this Agreement. A Limited Partner shall not pledge,
encumber, grant a security interest in, or permit a lien to exist
against all or any part of its interest in the Partnership
without the consent of the General Partner.
13.3 General Restriction on Transfer. Notwithstanding
the other provisions of this Article 13, unless otherwise
determined by the General Partner in its sole and absolute
discretion, no transfer of any interest in the Partnership shall
be made if such transfer would cause a "taxable termination" of
the Partnership under Section 708 of the Code.
13.4 Securities Law. All Partners acknowledge that
the Partnership interests have not been registered under the
Securities Act of 1933, as amended (the "1933 Act") in reliance
on the exemption afforded by Section 4(2) of the 1933 Act.
Therefore, to preserve said exemption and notwithstanding
anything contained herein to the contrary, the Partners hereby
agree that the interests of the Limited Partners shall be
nontransferable and nonassignable, except in compliance with the
registration provisions of the 1933 Act, or an exemption or
exemptions therefrom, and in compliance with (or exemption from)
applicable state securities laws and rules and regulations
promulgated thereunder, and any attempted or purported transfer
or assignment in violation of the foregoing shall be void and of
no effect. Each Limited Partner represents (a) that he or she is
acquiring his or her interest as a Limited Partner for his or her
own account for investment purposes and not with a view to the
distribution thereof to others, and (b) that he or she either has
a pre-existing personal or business relationship with the General
Partner or a partner, officer, director, or person controlling
the General Partner, or by reason of the Limited Partner's
business or financial experience or the business or financial
experience of his or her professional advisors, who are
unaffiliated with and who are not compensated by the Partnership
or any affiliate or selling agent thereof, directly or
indirectly, could be reasonably assumed to have the capacity to
protect his or her own interests in connection with the Limited
Partner's transactions relating to the Partnership. Accordingly,
as an additional condition precedent to any assignment or other
transfer of any interest in the Partnership, the General Partner
may, in its sole discretion, require an opinion of counsel
satisfactory to the General Partner that such assignment or
transfer will be made in compliance with the registration
provisions of the 1933 Act or exemption(s) therefrom, applicable
state securities laws and rules and regulations promulgated
thereunder, and such transferor or assignor shall be responsible
for paying said counsel's fee for the opinion.
13.5 Admission of Additional Limited Partners. The
General Partner, in its discretion, may admit other persons or
entities to the Partnership as additional Limited Partners on the
following terms and conditions:
(a) The General Partner shall have determined
that funds in addition to the Partnership's capital and
revenues from operations are required for any Partnership
purposes, including the development and operation of the
Project, the additional capital call procedure set forth in
section 6.2 shall have been followed, and the Partnership
shall have failed to obtain the required funds pursuant to
that procedure;
(b) Any Limited Partner subsequently admitted
to the Partnership by the General Partner pursuant to this
section 13.5 shall make such contribution to the capital of
the Partnership and receive an interest in the Partnership
(including priorities and preferences with respect to
distributions and allocations which may be more favorable
than and senior to the interests held by the existing
Limited Partners) as is approved by the General Partner;
provided, however, (i) such contributions shall be in the
form of cash only and not property or services, and (ii) the
existing Limited Partners shall have the right for thirty
(30) days after receipt of notification by the General
Partner, to purchase such Limited Partner interests on the
same terms and conditions such interests are then being
offered by the General Partner. The existing Limited
Partners who wish to purchase such interests shall have the
right to purchase such interests in proportion to the amount
of their Percentage Interests among the Limited Partners so
desiring to purchase. If the existing Limited Partners, or
some of them, do not elect to purchase all of the interest
or interests being offered to the additional Limited Partner
or Partners (and contribute all of the capital with respect
thereto) within said thirty (30) days, the General Partner
shall be free thereafter to sell the interest or interests
not purchased by the existing Limited Partners and to admit
such additional Limited Partner or Partners on the terms and
conditions specified in its notice to the existing Limited
Partners;
(c) By executing this Agreement, each Partner
hereby consents to the admission of an additional Limited
Partner or Partners pursuant to this section 13.5;
(d) The General Partner shall amend this
Agreement to reflect the admission of an additional Limited
Partner or Partners pursuant to this section 13.5, and such
amendment shall not require the vote or approval of the
Limited Partners;
(e) The admission of a new Limited Partner
shall be effective on the execution of an amendment to this
Agreement by the General Partner and any Limited Partner
admitted pursuant to this section 13.5; and
(f) The admission of an additional Limited
Partner or Partners pursuant to this section 13.5 shall not
cause a dissolution of the Partnership.
ARTICLE 14
POWERS AND APPROVAL
RIGHTS OF THE LIMITED PARTNERS
14.1 No Management and Control. Limited Partners
shall take no part in the control, conduct or operation of the
Partnership and, except as otherwise provided for in this
Agreement, shall have no right or authority to act for or bind
the Partnership at any time, including during the winding up
period following dissolution of the Partnership.
14.2 Voting. Except as otherwise provided for in this
Agreement, Limited Partners shall have the right to vote only on
the following matters: (a) continuation of the Partnership
pursuant to section 11.1; (b) removal of the General Partner
pursuant to section 11.2; (c) those matters specified in section
9.1(b), and (d) such other matters as the General Partner may
from time to time elect to submit to the vote of the Limited
Partners, provided, that the General Partner shall not be
obligated to submit any matter to the vote of the Limited
Partners except as otherwise provided in this Agreement.
The Limited Partners shall not be entitled for vote on
the approval or disapproval of any of the matters set forth in
Section 15632(b)(5) of the California Corporations Code unless
such right is expressly provided for in this Agreement.
ARTICLE 15
DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
15.1 Dissolution. The Partnership shall be dissolved
upon the occurrence of the earliest of the following:
(a) At any time by election of the General
Partner upon obtaining the Consent of the Limited Partner;
(b) Pursuant to the provisions of section 11.1;
(c) Upon the sale of all or substantially all
Partnership assets;
(d) Expiration of the term of the Partnership
as provided in Article 4; or
(e) Upon issuance of a decree of dissolution by
a court of competent jurisdiction.
15.2 Liquidation and Distribution. Upon the
occurrence of a dissolving event specified in section 15.1, the
General Partner, or, if the General Partner is unwilling or
unable to act, such person (hereafter, "Liquidating Trustee") as
may be elected by the Consent of the Limited Partner, shall
immediately proceed to terminate the business of the Partnership,
liquidate the assets of the Partnership, and distribute the
proceeds therefrom. The General Partner, or Liquidating Trustee,
shall sell the property of the Partnership at such price and on
such terms, including deferred consideration, as it in the
exercise of its best business judgment under the circumstances
deems in the best interests of all the Partners. The General
Partner, or Liquidating Trustee, shall have the right to transfer
Partnership property without sale to a Partnership creditor in
exchange for liquidation of a Partnership debt. The remaining
Partnership cash and the proceeds from the sales of its assets
shall be distributed in accordance with the following priorities
and in the following order:
(i) Payment of Partnership debts to
creditors of the Partnership, including Partners who
are creditors, to the extent permitted by law, in the
order of priority provided by law;
(ii)Payment of all other debts due
Partners; and
(iii) The balance, if any, shall be
distributed to the Partners in accordance with their
respective positive Capital Account balances, after
giving effect to all contributions, distributions and
allocations for all periods (including without
limitation adjustments to reflect the allocation of
gain or loss from the liquidation of Partnership assets
and all other Capital Account adjustments for the
Partnership's taxable year during which such
liquidation occurs).
Distributions pursuant to this section 15.2(b) may be
distributed to a trust established for the benefit of the
Partners for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership, and paying any
contingent or unforeseen liabilities of the Partnership or of the
Partners arising out of or in connection with the Partnership.
The assets of any such trust shall be distributed to the Partners
from time to time, in the reasonable discretion of the General
Partner or Liquidating Trustee, in the same proportions as the
amount distributed to such trust by the Partnership would
otherwise have been distributed to the Partners pursuant to this
Agreement.
15.3 Gains or Losses in Process of Liquidation. Any
gain or loss on disposition of Partnership properties in the
process of liquidation shall be credited or charged to the
Partners in the same proportion as their interests in Profits or
Losses as specified in Article 8.
15.4 Capital Account Restoration Obligation. In the
event the Partnership is "liquidated" with the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), if any Partner's
Capital Account has a deficit balance (after giving effect to all
contributions, distributions, and allocations for all fiscal
years or other periods, including the fiscal year during which
such liquidation occurs), such Partner shall contribute to the
capital of the Partnership the amount necessary to restore such
deficit balance to zero in compliance with Regulations Section
1.704-(1)(2)(ii)(b)(3); provided, however, that a Limited Partner
shall not be obligated to contribute with respect to such deficit
Capital Account balance any amount in excess of (a) such Limited
Partner's share of any capital contributions required pursuant to
section 6.1(e) or additional capital contributions required
pursuant to section 6.2, less (b) the amount of the aggregate
contributions, if any, such Limited Partner has made to the
Partnership pursuant to section 6.1(e) or 6.2, as applicable.
15.5 Certificate of Dissolution. The General Partner
or Liquidating Trustee shall cause to be filed with the Secretary
of State, in accordance with the requirements of the Act, a
Certificate of Dissolution and, upon the completion of the
winding up of the affairs of the Partnership, a Certificate of
Cancellation of the Certificate of Limited Partnership.
15.6 Waiver. Each Partner agrees that it shall not
cause a partition of any of the Partnership's property, whether
by court action or otherwise; it being agreed that any such
action would cause a substantial hardship to the Partnership and
would be in breach and contravention of this Agreement.
ARTICLE 16
MISCELLANEOUS
16.1 Notices. Any and all notices between the parties
hereto provided for or permitted by this Agreement or by law
shall be in writing and shall be deemed duly served when
personally delivered to a Partner, or, in lieu of such personal
service, within forty-eight (48) hours following deposit in the
United States mail, certified, postage prepaid, addressed to such
Partner at his address as listed on Exhibit A, or at the most
recent address, specified by written notice, given to the
Partnership; provided, however, any notice given to a General
Partner pursuant to section 11.2 shall be deemed duly served only
upon receipt. Notices to the Partnership shall be similarly
given, addressed to it at its principal place of business.
16.2 Amendments. This Agreement may be amended by
agreement of the General Partner and Limited Partners holding
more than fifty percent (50%) of the Percentage Interest held by
all Limited Partners; provided, however, except as provided in
section 13.5, any amendment to this Agreement which changes the
contributions required of a Partner, or his rights and interests
in the profits, losses or deductions of the Partnership, or his
voting rights or rights upon dissolution, shall become effective
as to that Partner only upon his written consent to such
amendment. This Agreement may be amended or modified in whole or
in part, but any such amendment or modification shall be
evidenced by a writing signed by all of the Partners (except as
provided in Article 12 or section 13.2 or 13.5). Each Partner
covenants that he shall sign promptly upon request any and all
amendments to this Agreement properly adopted pursuant to the
terms of this Agreement.
16.3 Entire Agreement. This Agreement contains the
sole and only agreement of the parties hereto relating to the
Partnership and correctly sets forth the rights, duties and
obligations of each to the other as of its date. Any prior
agreements, promises, negotiations or representations not
expressly set forth in this Agreement are of no force and effect.
16.4 Construction. This Agreement shall be construed
in accordance with and governed by the laws of the State of
California.
16.5 Counterpart Execution. This Agreement may be
executed in any number of counterparts, each of which shall be an
original, but all of which shall constitute one (1) instrument.
16.6 Severability. If any provision of this Agreement
is unenforceable under applicable law, the same shall be
severable from the remainder of this Agreement and the remainder
of the Agreement shall be enforceable to the fullest extent
permitted by law.
16.7 Captions - Pronouns. The captions contained in
this Agreement are for the convenience of the parties and shall
not be deemed or constructed as in any way limiting or extending
the language of the provisions to which said caption may refer.
Where the context so indicates, all pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification of the person,
firm or corporation may require, and the present tense shall
include the future and the future tense, the present.
16.8 Binding Effect. This Agreement shall be binding
upon and shall inure to the benefit of the parties, their heirs,
personal representatives, executors, administrators and assigns.
16.9 Attorneys' Fees. Should any litigation or
arbitration be commenced between the parties hereto, or their
personal representatives, concerning any provision of this
Agreement or the rights and duties of any person in relation
thereto, the party or parties prevailing in such litigation or
arbitration shall be entitled, in addition to such other relief
as may be granted, to a reasonable sum as and for their or his
attorneys' fees and costs in such litigation or arbitration which
shall be determined by the court in such litigation or by the
arbitrators in such arbitration or in a separate action brought
for that purpose.
16.10 Written Consent. Any action permitted to be
taken by the Partners, the General Partner or the Limited
Partners at a meeting may be taken at any time upon the written
consent of such Partners holding at least the minimum interest in
the Partnership that would be necessary to authorize or take that
action at a meeting. Notwithstanding California Corporations
Code section 15637(h), any such written consent of Limited
Partners shall be effective immediately upon the required minimum
number of Limited Partners having signed the consent.
16.11 Covenant of Capacity To Sign. All Partners
covenant that they possess all necessary capacity and authority
to sign and enter into this Agreement. All individuals signing
this Agreement for a Partner who is a corporation, a partnership,
or other legal entity, or signing under a power of attorney or as
a trustee, guardian, conservator, or in any other legal capacity,
covenant that they have the necessary capacity and authority to
act for, sign, and bind the respective entity or principal on
whose behalf they are signing.
16.12 No Third Party Beneficiary. Any agreement to pay
any amount and any assumption of liability herein contained,
express or implied, shall be only for the benefit of the Partners
and their respective heirs, successors and assigns, and such
agreements and assumptions shall not inure to the benefit of the
obligees of any indebtedness or any other party, whomsoever,
deemed to be a third-party beneficiary of this Agreement. In
this regard, it is hereby expressly agreed and understood that
any right of the Partnership or the Partners to require any
additional capital contributions under the terms of this
Agreement shall not be construed as conferring any rights or
benefits to or upon any party not a party to this Agreement.
16.13 Dispute Resolution.
(a) Negotiation. The parties shall attempt in
good faith to resolve any dispute arising out of or relating to
this Agreement promptly by negotiations between principals who
have the authority to settle the controversy. Any party may give
the other parties written notice of any dispute not resolved in
the normal course of business. Within 10 days after delivery of
said notice, principals of all parties shall meet at a mutually
acceptable time and place, and thereafter as often as they
reasonably deem necessary, to exchange relevant information and
to attempt to resolve the dispute. If the matter has not been
resolved with 30 days of the disputing party's notice, or if the
parties fail to meet within 10 days, any party may initiate
mediation of the controversy or claim as provided hereinafter in
subsection (b) below.
If a negotiator intends to be accompanied at
a meeting by an attorney, the other negotiator(s) shall be given
at least three working days' notice of such intention and may
also be accompanied by an attorney. All negotiations pursuant to
this clause and subsection (b) are confidential and shall be
treated as compromise and settlement negotiations for purposes of
Federal and State Rules of Evidence.
(b) Mediation. The parties shall attempt in
good faith to resolve by mediation any dispute arising out of or
relating to this Agreement. Any party may initiate a mediation
proceeding by a request in writing to the other parties.
Thereupon, all parties will be obligated to engage in a
mediation. Unless otherwise agreed, the proceeding will be
conducted in accordance with the then current Mediation
Procedures of the American Arbitration Association ("AAA").
Provided further,
(i) if the parties have not agreed within
10 days of the request for mediation on the selection of a
mediator willing to serve, AAA shall be asked to select a
mediator; and
(ii) efforts to reach a settlement will
continue until the conclusion of the proceeding, which is
deemed to occur when: (A) a written settlement is reached,
or (B) the mediator concludes and informs the parties in
writing that further efforts would not be useful, or (C) the
parties agree in writing that an impasse has been reached.
No party may withdraw before the conclusion of the
proceeding.
The parties regard the aforesaid obligation to mediate
an essential provision of this Agreement and one that is legally
binding on them.
(c) Arbitration.
(i) Any dispute arising out of or relating
to this Agreement or the breach, termination or validity
thereof, which has not been resolved by non-binding means as
provided in sections 16.13(a) and 16.13(b) above within 60
days of the initiation of such procedures, shall be finally
settled by arbitration conducted expeditiously in accordance
with the American Arbitration Association Commercial
Arbitration Rules by independent and impartial arbitrators,
of whom the initiating shall appoint one, the other party to
the dispute shall appoint one and the third shall be
appointed by the other two; provided, however, that if one
party has requested the others to participate in a non-
binding procedure and any other party has failed to
participate, the requesting party may initiate arbitration
before expiration of the above period. The arbitration
shall be governed by California Code of Civil Procedure,
Part III, Title 9, commencing at 1280 et. seq., or any
successor act, and judgment upon the award rendered by the
Arbitrators may be entered by any court having jurisdiction
thereof. The place of arbitration shall be San Jose,
California. The Arbitrators are not authorized to award
damages in excess of compensatory damages and each party
irrevocably waives any damages in excess of compensatory
damages.
(ii) Each Arbitrator shall have at least 5
years experience in partnership and commercial real property
matters in the Santa Clara County area.
(d) Additional Provisions.
(i) Discovery shall be as provided in the
California Arbitration law at Title 9, Chapter 3 of the Code
of Civil Procedure.
(ii) The Arbitrators shall apply applicable
law and state the reasoning upon which their order is based.
(iii) The procedures specified in this
section 16.13 shall be the sole and exclusive procedures for
the resolution of disputes between the parties arising out
of or relating to this Agreement; provided, however, that a
party may seek a preliminary injunction or other provisional
judicial relief if in its judgment such action is necessary
to avoid irreparable damage or to preserve the status quo.
Despite such action, the parties will continue to
participate in good faith in the procedures specified in
this section.
(iv) All applicable statues of
limitation and defenses based upon the passage of time shall
be tolled while the procedures specified in this section are
pending.
The parties will take such action, if any, required to
effectuate such tolling.
16.14 Conditional Use Permit Requirements. Attached
hereto as Exhibit D is the Resolution of the Planning Commission
of the City of San Jose granting a Conditional Use Permit
("Permit") for the building of the Project and the development of
the Property. Limited Partner agrees that it shall be solely
responsible for providing the fifty-three (53) off-site parking
spaces required by the Permit. Use of such parking spaces by the
Partnership or its tenants shall be at prevailing market rates.
The Partnership shall not be required to use any specific number
of parking spaces.
IN WITNESS WHEREOF, the Partners have signed this Limited
Partnership Agreement effective as of the day and year first
above written.
GENERAL PARTNER LIMITED PARTNER
TBI-444 West Santa Clara Street, a SJW Land Company, a
California Limited Partnership California corporation
By Toeniskoetter & Breeding, Inc. By s/s W. Richard Roth
Corporation, General Partner Vice-President
By /s/ Charles J. Toeniskoetter By /s/ Robert A. Loehr
Executive Vice-President Secretary
By /s/ Dan Breeding
Secretary
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<FISCAL-YEAR-END> DEC-31-1998
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