<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. 2)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
MIP PROPERTIES, INC.
(Name of Registrant as Specified in Its Charter)
MIP PROPERTIES, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock
(2) Aggregate number of securities to which transaction applies: 9,223,105
shares of common stock outstanding, 5,000 shares of common stock
subject to a stock option and 110,492 shares of common stock subject to
deferred compensation arrangements
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $2.475 per
share of common stock outstanding, plus the number of shares of common
stock subject to a stock option or subject to deferred compensation
arrangements
(4) Proposed maximum aggregate value of transaction: $23,113,027.58
(5) Total fee paid: $4,622.61
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
MIP PROPERTIES, INC.
2020 SANTA MONICA BOULEVARD
SUITE 480
SANTA MONICA, CALIFORNIA 90404
August 8, 1995
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of MIP
Properties, Inc. (the "Company") which will be held at 8:00 a.m., local time,
on Wednesday, September 27, 1995, at the Los Angeles Airport Marriott Hotel,
5855 West Century Blvd., Los Angeles, California 90045.
The purpose of the Special Meeting is to consider and vote upon approval and
adoption of the Agreement and Plan of Merger, dated as of May 21, 1995 (the
"Merger Agreement"), by and among the Company, JER Partners, LLC ("Purchaser")
and MIP Acquisition Corporation, a newly-formed, wholly-owned subsidiary of
Purchaser ("Merger Sub"), and the transactions contemplated thereby. Pursuant
to the Merger Agreement, Purchaser will acquire the Company by merging Merger
Sub with and into the Company (the "Merger"). Under the terms of the Merger
Agreement, each outstanding share of the Company common stock, par value $.01
per share, except for shares owned by Purchaser or Merger Sub, will be canceled
and extinguished and converted automatically into the right to receive $2.475
in cash, without interest. Consummation of the Merger is contingent upon, among
other things, approval by the affirmative vote of the holders of not less than
eighty percent (80%) of the outstanding shares of common stock of the Company
and certain other conditions. As a result of the Merger, the Company would
become a wholly-owned subsidiary of Purchaser. If the Merger is consummated,
each stockholder will have a tax reporting event which may result in a gain or
loss for income tax reporting purposes.
UPON CONSUMMATION OF THE MERGER AND SURRENDER OF YOUR STOCK CERTIFICATE(S) TO
THE EXCHANGE AGENT, YOU WILL RECEIVE $2.475 PER SHARE IN CASH.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED AND ADOPTED
THE MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. After careful
deliberations and analysis over a substantial period of time, the Board of
Directors of the Company concluded that the proposed Merger is the best
available alternative to provide increased value to the stockholders and
therefore is advisable primarily because (i) the amount of $2.475 per share
represents a substantial premium over the recent prices at which the common
stock of the Company had been trading prior to the announcement of the proposed
Merger and (ii) the prospect of generating a return for stockholders greater
than the $2.475 per share cash consideration to be received in connection with
the Merger through continued operations is unlikely in light of the relatively
small size of the Company's real property holdings, the Company's small market
capitalization and limited trading volume and economic conditions in the real
estate industry in general. For a more detailed discussion of the Board's
analysis and conclusions, see "The Proposed Merger--Reasons for the Merger" in
the accompanying Proxy Statement. In reaching its recommendation, the Board of
Directors considered, among other things, the opinion of Duff & Phelps Capital
Markets Co., the Company's financial advisor, that the consideration to be
received by the stockholders of the Company pursuant to the Merger is fair,
from a financial point of view, to the stockholders of the Company. A copy of
the opinion of Duff & Phelps Capital Markets Co. is included as Appendix B to
the Proxy Statement.
IT IS IMPORTANT THAT EACH STOCKHOLDER WHO IS ENTITLED TO VOTE BE REPRESENTED
AT THE SPECIAL MEETING. EVEN IF YOU PLAN TO ATTEND THE MEETING, WE ENCOURAGE
YOU TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
POSTAGE-PAID ENVELOPE ENCLOSED FOR YOUR CONVENIENCE. STOCKHOLDERS MAY REVOKE
THEIR PROXIES AT ANY TIME BEFORE THEY ARE VOTED AT THE SPECIAL MEETING BY
DELIVERING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF THE COMPANY, BY
SUBMITTING TO THE SECRETARY OF THE COMPANY A LATER DATED PROXY, OR BY VOTING IN
PERSON AT THE SPECIAL MEETING.
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In the event that you should have any questions with respect to the Merger or
any of the following materials, please call me at (310) 449-4444 or 1-800-MIP-
4481 (1-800-647-4481) or our proxy solicitor, D.F. King & Co., Inc. at 1-800-
488-8035.
The other Directors and I look forward to greeting all of the stockholders
who attend the Special Meeting.
Sincerely,
/s/ Carl C. Gregory, III
Carl C. Gregory, III
Chairman of the Board
Chief Executive Officer
THE TRANSACTION TO BE CONSIDERED AT THE SPECIAL MEETING INVOLVES A MATTER OF
GREAT IMPORTANCE TO THE STOCKHOLDERS OF THE COMPANY. ACCORDINGLY, ALL
STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED
IN THE ATTACHED PROXY STATEMENT, AND TO COMPLETE, DATE, SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED PREPAID ENVELOPE.
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS CONSUMMATED, STOCKHOLDERS WILL BE FURNISHED INSTRUCTIONS FOR
EXCHANGING THEIR COMMON STOCK FOR CASH.
<PAGE>
MIP PROPERTIES, INC.
2020 SANTA MONICA BOULEVARD
SUITE 480
SANTA MONICA, CALIFORNIA 90404
(310) 449-4444
(800) MIP-4481
(800) 647-4481
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on September 27, 1995
NOTICE is hereby given that a Special Meeting of Stockholders of MIP
Properties, Inc. (the "Company") will be held at 8:00 a.m., local time, on
Wednesday, September 27, 1995, at the Los Angeles Airport Marriott Hotel, 5855
West Century Blvd., Los Angeles, California 90045, for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of May 21, 1995 (the "Merger
Agreement"), by and among the Company, JER Partners, LLC ("Purchaser") and
MIP Acquisition Corporation, a newly-formed, wholly-owned subsidiary of
Purchaser ("Merger Sub"), and the transactions contemplated thereby,
including, without limitation, the acquisition of the Company by Purchaser
pursuant to a merger of Merger Sub with and into the Company and the
conversion of each outstanding share of common stock of the Company into
the right to receive $2.475 in cash, without interest, as more fully
described in the accompanying Proxy Statement and in the Merger Agreement
attached to the Proxy Statement as Appendix A; and
(2) To transact such other business as may properly come before the
meeting or any continuation, adjournment or postponement thereof.
All stockholders are cordially invited to attend the meeting, although only
those stockholders of record at the close of business on August 3, 1995, are
entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors,
/s/ Marsha Z. Day
Marsha Z. Day
Secretary
Dated: August 8, 1995.
----------------
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING
IN PERSON, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY
IN THE ACCOMPANYING ENVELOPE. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT
IS VOTED AT THE SPECIAL MEETING BY DELIVERING WRITTEN NOTICE OF REVOCATION TO
THE SECRETARY OF THE COMPANY, BY SUBMITTING TO THE SECRETARY OF THE COMPANY A
LATER DATED PROXY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
<PAGE>
MIP PROPERTIES, INC.
2020 SANTA MONICA BOULEVARD
SUITE 480
SANTA MONICA, CALIFORNIA 90404
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS ON SEPTEMBER 27, 1995
INTRODUCTION
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of MIP
Properties, Inc. (the "Company") for use at the Special Meeting of Stockholders
(the "Special Meeting") to be held on Wednesday, September 27, 1995 (and any
postponements or adjournments thereof), at 8:00 a.m., local time, at the Los
Angeles Airport Marriott Hotel, 5855 West Century Blvd., Los Angeles,
California 90045 for the purpose of voting on a proposal to approve the
acquisition of the Company by JER Partners, LLC ("Purchaser") pursuant to a
merger (the "Merger") of MIP Acquisition Corporation, a newly-formed, wholly-
owned subsidiary of Purchaser ("Merger Sub"), with and into the Company, with
the Company being the surviving corporation (the "Surviving Corporation") in
the Merger. Upon consummation of the Merger, the Company will become a wholly-
owned subsidiary of Purchaser, and each share of common stock, par value $.01
per share ("Common Stock"), of the Company that is issued and outstanding at
the effective time of the Merger (excluding shares owned by Purchaser or Merger
Sub but including shares that have been deferred under the Company's First
Amended and Restated Long Term Incentive Compensation Plan and the Company's
Fee Deferral Plan (the "Deferred Shares")) will be automatically converted into
the right to receive an amount equal to $2.475 per share in cash, without
interest, which will be paid promptly to stockholders upon surrender of their
stock certificates to the Exchange Agent (as defined herein) pursuant to the
instructions contained in the "Letter of Transmittal" to be delivered by the
Exchange Agent. See "The Proposed Merger--Description of Merger Agreement--
Surrender of Stock Certificates."
This proxy statement is first being mailed to the stockholders of the Company
on or about August 8, 1995 and is accompanied by copies of the Company's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1994, without
exhibits (the "Form 10-K/A"), and the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995, without exhibits (the "Form 10-Q"), which
are incorporated by reference and included herein as Appendix C and Appendix D,
respectively. A copy of the Agreement and Plan of Merger, dated as of May 21,
1995, by and among the Company, Purchaser and Merger Sub (the "Merger
Agreement") is included in this Proxy Statement as Appendix A. The summaries of
portions of the Merger Agreement set forth in this Proxy Statement do not
purport to be complete, and are subject to, and qualified in their entirety by
reference to, the full text of the Merger Agreement. All stockholders are urged
to read all of the appendices attached to this Proxy Statement in their
entirety.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED AND ADOPTED
THE MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
In addition to the solicitation of proxies by mail, proxies may be solicited
by personnel of the Company in person, by telephone or through other forms of
communication without payment of additional compensation to such personnel.
Additionally, arrangements will be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of proxy solicitation
materials to beneficial owners of the Common Stock held of record by such
custodians, nominees and fiduciaries and for payment of reasonable expenses
incurred in connection therewith. D.F. King & Co., Inc. ("King") will assist
the Company in the solicitation of proxies for a fee of $10,000, plus an
additional $3.00 per stockholder contact, plus line charges and reasonable out-
of-pocket costs. The Company has also agreed to indemnify King against certain
<PAGE>
liabilities, including liabilities under the federal securities laws and
liabilities resulting from the services to be provided by King except as a
result of King's gross negligence or willful misconduct. Any questions or
requests for assistant regarding proxies and related materials may be directed
to D.F. King & Co., Inc., in writing at 77 Water Street, New York, N.Y. 10005-
4495, or by telephone at 1-800-488-8035. The cost of solicitations of proxies,
including expenses in connection with preparing and mailing this Proxy
Statement, will be paid by the Company.
RECORD DATE; VOTING AND REVOCATION OF PROXIES
Only holders of record of Common Stock at the close of business on August 3,
1995 (the "Record Date") will be entitled to notice of and to vote at the
Special Meeting. At the Record Date there were 9,223,105 shares of Common Stock
outstanding.
Each outstanding share of Common Stock is entitled to one vote on each matter
properly presented at the Special Meeting. The presence, in person or by proxy,
of holders of at least a majority of the shares entitled to vote will
constitute a quorum at the Special Meeting. At the Special Meeting, the
Company's stockholders will consider and vote upon a proposal to approve and
adopt the Merger Agreement and the transactions contemplated thereby. The
Common Stock is traded on the American Stock Exchange ("AMEX") under the symbol
"MIP." Under the AMEX rules, brokers who do not have discretionary voting power
may not give a proxy to vote shares of the Common Stock held by them in street
name without instructions from the beneficial owner of such Common Stock (a
"Broker Non-vote") when the matter to be voted upon involves a merger or
consolidation. Thus, it is important that you vote. A vote to abstain or a
Broker Non-vote will have the same effect as a vote against the Merger.
If a proxy in the accompanying form is properly executed and returned, and is
not revoked at any time before it is voted at the Special Meeting, the shares
represented by the proxy will be voted at the Special Meeting in accordance
with the proxy instructions. If a proxy in the accompanying form is properly
executed and returned without instructions, and is not revoked at any time
before it is voted at the Special Meeting, then the shares represented by such
proxy will be voted FOR approval and adoption of the Merger Agreement and the
Merger. The Board of Directors is not aware of any other business to be brought
before the Special Meeting. If any other business is properly brought before
the Special Meeting, the persons named in the enclosed proxy card will have
discretionary authority to vote the shares of Common Stock thereby represented
in accordance with their best judgment. Any stockholder may revoke such
stockholder's proxy before it is voted at the Special Meeting, either by voting
in person at the Special Meeting, by delivering written notice of revocation to
the Secretary of the Company or by delivering to the Secretary of the Company a
proxy bearing a later date.
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SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere in this Proxy
Statement and the appendices hereto which contain further information, some of
which is not summarized below. THE STOCKHOLDERS OF THE COMPANY ARE URGED TO
REVIEW THE ENTIRE PROXY STATEMENT CAREFULLY, INCLUDING THE APPENDICES ATTACHED
HERETO.
PARTIES TO THE MERGER
Purchaser and Merger Sub. JER Partners, LLC, the Purchaser, was recently
formed, and MIP Acquisition Corporation, the Merger Sub, was recently
incorporated, under the laws of the State of Maryland for the purpose of
consummating the Merger. Neither Purchaser nor Merger Sub have conducted any
business other than the transactions described herein. Both Purchaser and
Merger Sub are affiliated with J.E. Robert Companies ("JER"), a group of
affiliated companies engaged primarily in real estate investment, management
and advisory services. See "The Proposed Merger--Parties to the Merger."
The Company. The Company, MIP Properties, Inc. (formerly named Mortgage
Investments Plus, Inc.), was formed as a real estate investment trust (a
"REIT") under the applicable provisions of the Internal Revenue Code and is
engaged in the business of making real estate investments. See "The Proposed
Merger-- Parties to the Merger," "Selected Financial Information" and the
Company's Form 10-K/A and Form 10-Q included in this Proxy Statement as
Appendix C and Appendix D, respectively.
EFFECTS OF THE MERGER ON THE STOCKHOLDERS
Pursuant to the Merger Agreement, Purchaser will acquire the Company by
merging Merger Sub with and into the Company. As a result of the Merger,
Purchaser will be the sole stockholder of the Company and all of the
outstanding shares of Common Stock (excluding shares owned by Purchaser or
Merger Sub but including the Deferred Shares) prior to the Merger will be
canceled and extinguished and automatically converted into the right to receive
$2.475 per share in cash, without interest (the "Cash Merger Consideration"),
which will be paid promptly to stockholders upon surrender of their stock
certificates to the Exchange Agent pursuant to the instructions contained in
the "Letter of Transmittal" to be delivered by the Exchange Agent. See "The
Proposed Merger--Description of Merger Agreement."
As a result of the Merger, the Company's stockholders will no longer have the
opportunity to continue their equity interest in the Company as an ongoing
corporation and, therefore, will not share in the future earnings and growth of
the Company, if any. However, the Board of Directors believes the Merger is
more favorable for the stockholders than continuing their equity interest in
the Company primarily on account of the Board of Directors' determination that
(i) the Cash Merger Consideration represents a substantial premium over the
price at which the Common Stock had been trading prior to the first public
announcement of the Company's intention to explore strategic alternatives and
the price on the last trading day preceding the public announcement of the
execution of the Merger Agreement, and (ii) the prospect of generating a return
for stockholders greater than the Cash Merger Consideration through continued
operations is unlikely in light of the relatively small size of the Company's
real property holdings, the Company's small market capitalization and limited
trading volume and economic conditions in the real estate industry in general.
See "The Proposed Merger--Reasons for the Merger."
SPECIAL MEETING
Purpose of the Meeting, Date, Time and Place. The Special Meeting will be
held on Wednesday, September 27, 1995 at 8:00 a.m., local time, at the Los
Angeles Airport Marriott Hotel, 5855 West Century Blvd., Los Angeles,
California 90045. Only holders of record of Common Stock at the close of
business on the Record Date will be entitled to notice of and to vote at the
Special Meeting. At the Special Meeting, the Company's stockholders will
consider and vote upon a proposal to approve and adopt the Merger Agreement and
the transactions contemplated thereby, including, without limitation, the
acquisition of the Company by Purchaser pursuant to the Merger Agreement and
the automatic conversion upon consummation of the
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Merger of all of the outstanding shares of Common Stock (excluding shares owned
by Purchaser or Merger Sub but including the Deferred Shares) into the right to
receive $2.475 per share in cash, without interest.
Vote Required. The AFFIRMATIVE vote of the holders of not less than 80% of
the outstanding shares of Common Stock is required for approval and adoption of
the Merger Agreement and the Merger. If the required vote is not obtained, the
Merger will not be consummated. Holders of Common Stock are entitled to one
vote per share. As of the Record Date, there were 9,223,105 shares of Common
Stock outstanding, of which approximately 4.3%, 15% and 1.7% are entitled to be
voted by the officers and directors of the Company, Purchaser, and certain
affiliates of Purchaser, respectively. The officers and directors of the
Company, Purchaser and certain affiliates of Purchaser have all indicated their
intent to vote their respective shares in favor of the Merger. See "The
Proposed Merger--Vote Required for Merger" and "The Proposed Merger--Interests
of Certain Persons In the Merger--Proxy Agreement." YOUR VOTE IS IMPORTANT. A
VOTE TO ABSTAIN OR A BROKER NON-VOTE WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN
THE ACCOMPANYING ENVELOPE.
PAYMENT FOR COMMON STOCK
Following the Merger, detailed instructions with regard to the surrender of
stock certificates, together with a "Letter of Transmittal," will be forwarded
to holders of stock certificates of the Company by the Exchange Agent. Cash
payment in an amount of $2.475 per share, without interest, will be promptly
made to stockholders upon surrender of their stock certificates to the Exchange
Agent; provided, however, that in the event that a holder owns an odd number of
shares of Common Stock, the aggregate amount of consideration to be received by
such holder for all of his shares shall be rounded up to the nearest whole
cent. See "The Proposed Merger--Description of Merger Agreement--Surrender of
Stock Certificates."
THE PROPOSED MERGER
Background of the Merger. For a description of the events leading up to the
approval of the Merger by the Board of Directors, see "The Proposed Merger--
Background of the Merger."
Recommendation of the Board of Directors; Reasons for the Merger. The Board
of Directors unanimously approved and adopted the Merger Agreement and the
Merger and believes that the Merger and the Cash Merger Consideration to be
received in the Merger are fair and in the best interests of the Company's
stockholders. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS VOTE IN FAVOR OF THE MERGER AGREEMENT AND THE MERGER. For a
discussion of the reasons considered by the Board of Directors in reaching its
determination, see "The Proposed Merger--Reasons for the Merger."
Opinion of Duff & Phelps Capital Markets Co. Duff & Phelps Capital Markets
Co. ("Duff & Phelps") has acted as the Company's financial advisor in
connection with the Merger. Duff & Phelps has delivered its written opinion to
the Company's Board of Directors that the consideration to be received by the
stockholders of the Company pursuant to the Merger is fair, from a financial
point of view, to the stockholders of the Company. The full text of the Duff &
Phelps' opinion is included in this Proxy Statement as Appendix B, and should
be read in its entirety for a description of the matters considered,
assumptions made and limits of review in arriving at the opinion. See "The
Proposed Merger--Opinion of Duff & Phelps Capital Markets Co."
Effective Time of the Merger. The Merger will become effective as of the date
and time of the filing of the Articles of Merger with the Maryland State
Department of Assessments and Taxation or at such later date and time as
otherwise specified in the Articles of Merger. The Articles of Merger will be
presented for filing as soon as practicable after the satisfaction or waiver of
all conditions to the consummation of the Merger, including obtaining the
requisite approval of the stockholders of the Company. See "The Proposed
Merger--Description of Merger Agreement--Conditions to the Merger."
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Conditions to Consummation of the Merger. The obligations of the Company, on
the one hand, and of Purchaser and Merger Sub, on the other hand, to consummate
the Merger are subject to the satisfaction of certain conditions, including
approval of the holders of not less than 80% of the outstanding shares of
Common Stock. See "The Proposed Merger--Description of Merger Agreement--
Conditions to the Merger."
Termination. The Merger Agreement may be terminated at any time by the
Company and/or the Purchaser, as the case may be, prior to the effective time
of the Merger, regardless of any stockholder approval, upon the occurrence of
certain events as more fully described in the section entitled "The Proposed
Merger--Description of Merger Agreement--Termination." In the event of
termination of the Merger Agreement, there will be no liability or obligation
on the part of any party to the Merger Agreement or any of its members,
directors or officers to any other party other than under certain specified
provisions of the Merger Agreement dealing with the payment of expenses and
termination fees and except as incurred for any breach of the Merger Agreement.
See "The Proposed Merger--Description of Merger Agreement--Termination."
Interests of Certain Persons in the Merger. In considering the recommendation
of the Board of Directors with respect to the Merger, stockholders should be
aware that certain members of the Company's management and Board of Directors
have certain interests which may present them with possible conflicts of
interests in connection with the Merger. Such interests include (i) the right
of Carl C. Gregory, III, the Company's Chairman of the Board and Chief
Executive Officer, to receive a retention bonus and accrued benefits in
connection with the consummation of the Merger in an approximate aggregate
amount of $179,500, (ii) the right of Marsha Z. Day, the Company's Chief
Financial Officer, Controller and Secretary, to receive a retention bonus equal
to approximately $8,600 at the Effective Time and a severance payment equal to
approximately $27,000 plus any accrued benefits upon the occurrence of certain
events within six (6) months following the Effective Time and (iii) the rights
of Mr. Gregory, as well as two directors of the Company, Robert W. Draine and
W. John Driscoll, to receive 100,000 shares, 5,246 shares and 5,246 shares,
respectively, of Common Stock immediately prior to the Effective Time in
replacement of shares which had previously been deferred pursuant to certain
employee benefit plans of the Company and to surrender such replacement shares
to the Exchange Agent immediately after the Effective Time for Cash Merger
Consideration in an aggregate amount equal to approximately $247,500, $12,980
and $12,980, respectively. Moreover, Palm Finance Corporation, a California
corporation affiliated with Steven C. Markoff ("Palm"), a former director of
the Company, has entered into a Purchase Agreement dated May 21, 1995 (the
"Purchase Agreement") with Merger Sub pursuant to which Merger Sub has agreed
to sell to Palm certain real properties and other assets of the Surviving
Corporation following consummation of the Merger for an estimated purchase
price of approximately $1.8 million if the sale were to occur on September 30,
1995. The Company was not involved in the negotiation of the price at which the
Purchaser has proposed to sell the subject property and assets or the other
terms of the Purchase Agreement. The Company's net book value in accordance
with generally accepted accounting principles as of March 31, 1995, as adjusted
for certain capital expenditures incurred since that date, for the subject
property and assets was approximately $3.3 million. Net book value does not
necessarily represent current market value. In addition, Palm, together with
Mr. Markoff and his wife Jadwiga Z. Markoff, collectively granted to the
Purchaser, pursuant to the Proxy Agreement (as defined herein), a proxy to vote
1,380,964 shares of Common Stock owned by them in favor of the adoption of the
Merger Agreement and any other related matter and against any Competing
Transaction, as defined in the Proxy Agreement. The Company is not a party to
either the Purchase Agreement or the Proxy Agreement. See "The Proposed
Merger--Interests of Certain Persons In the Merger." Notwithstanding the
foregoing, the Board of Directors believes that the proposed Merger is in the
best interests of the stockholders. For a discussion of the reasons considered
by the Board of Directors in reaching its determination, see "The Proposed
Merger--Reasons for the Merger."
Federal Income Tax Consequences. The receipt of cash consideration by the
Company's stockholders in the Merger will be treated as a taxable transaction
for federal income tax purposes and may be treated as a taxable transaction
under state, local and foreign tax laws. See "The Proposed Merger--Federal
Income Tax Consequences."
5
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Absence of Appraisal Rights. Under Maryland law, holders of Common Stock of
the Company are not entitled to appraisal rights in connection with the Merger
since the Common Stock was traded on the AMEX on the Record Date. See "The
Proposed Merger--Absence of Appraisal Rights."
COMMON STOCK INFORMATION
The Company's Common Stock is traded on the AMEX under the symbol "MIP." As
of May 19, 1995, the last trading day preceding the public announcement of the
proposed Merger, the high and low sale prices were $1 7/8 and $1 13/16,
respectively. On July 31, 1995, the last trading day for which quotations were
available before the finalization of this Proxy Statement, the high and low
sale prices were both $2 3/16 per share. Stockholders are urged to obtain a
current market quotation for their shares. See "The Proposed Merger--Common
Stock Information."
6
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical financial information with
respect to the Company and its subsidiaries. This information should be read in
conjunction with the accompanying consolidated financial statements of the
Company, the related notes thereto, and "Management's Discussion and Analysis
of Financial Condition and Results of Operation" included in the Company's Form
10-K/A and Form 10-Q included in this Proxy Statement as Appendix C and
Appendix D, respectively.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
---------------- ----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- -------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 997 $ 1,546 $ 5,583 $ 4,111 $ 3,976 $ 6,631 $ 9,171
Expenses................ 1,280 1,844 7,016 11,908 19,041 29,360 7,892
Income (Loss) Before Ex-
traordinary Items...... (283) (298) (1,433) (7,797) (15,065) (22,729) 1,279
Extraordinary Gain on
Debt Forgiveness....... -- 21 4,296 -- -- -- --
Extraordinary Gain on
Foreclosure............ -- -- -- -- 1,022 -- --
Net Income (Loss)....... (283) (277) 2,863 (7,797) (14,043) (22,729) 1,279
Income (Loss) Before Ex-
traordinary Items Per
Share.................. (0.030) (0.032) (0.16) (0.86) (1.67) (2.52) 0.14
Extraordinary Gain on
Debt
Forgiveness Per Share.. -- .002 0.47 -- -- -- --
Extraordinary Gain on
Foreclosure Per Share.. -- -- -- -- 0.11 -- --
Net Income (Loss) Per
Share.................. (0.030) (0.030) 0.31 (0.86) (1.56) (2.52) 0.14
Dividends Paid Per
Share.................. -- -- -- -- -- -- 0.40
Total Real Estate In-
vestments, Net......... 32,964 48,430 33,380 48,827 57,926 90,143 114,896
Total Assets............ 35,369 51,580 35,907 51,752 66,801 91,940 117,458
Corporate Debt.......... -- 21,886 -- 21,971 28,953 28,928 31,730
Mortgage Debt........... 4,723 2,023 5,107 2,026 534 13,300 13,300
Stockholders' Equity.... 29,874 26,924 30,125 27,186 34,841 48,884 76,613
</TABLE>
The book value per share of Common Stock for the fiscal year ended December
31, 1994 and the first quarter ended March 31, 1995 was $3.27 and $3.24,
respectively. Book value per share is equal to the stockholders' equity divided
by the number of shares of Common Stock outstanding.
7
<PAGE>
THE PROPOSED MERGER
BRIEF DESCRIPTION OF THE MERGER
If the Merger is approved by the stockholders and all of the other conditions
to the consummation of the Merger are either satisfied or waived, Purchaser
will acquire all of the outstanding Common Stock of the Company at a cash price
of $2.475 per share, without interest (excluding shares held by Purchaser or
Merger Sub but including the Deferred Shares), which amount in the aggregate is
equal to approximately $23,100,000, and will assume certain obligations to make
net payments to holders of outstanding options to acquire shares of Common
Stock, which in the aggregate are equal to approximately $2,000. The
acquisition of the Company will be effected by a merger of Merger Sub with and
into the Company, with the Company being the Surviving Corporation. Following
the Merger, Purchaser will be the sole stockholder of the Company, and the
shares held by previous stockholders of the Company, other than Purchaser or
Merger Sub, will be automatically converted into the right to receive the Cash
Merger Consideration, which will be paid promptly to stockholders upon
surrender of their stock certificates to the Exchange Agent pursuant to the
instructions contained in the "Letter of Transmittal" to be delivered by the
Exchange Agent; provided, however, that in the event that a holder owns an odd
number of shares of Common Stock, the aggregate amount of consideration to be
received by such holder for all of his shares shall be rounded up to the
nearest whole cent. The stockholders of the Company will be instructed by the
Exchange Agent to surrender their shares together with a "Letter of
Transmittal," a form of which will be sent to the stockholders immediately
after the Merger is effected, in exchange for the Cash Merger Consideration. In
addition, following the Merger, all outstanding options to acquire shares of
Common Stock will no longer represent the right to purchase shares of Common
Stock but instead will either expire and be of no further force and effect or,
if the exercise price per share of the option is less than $2.475, represent
the right to receive $2.475 per share less the applicable per share exercise
price for each share subject to the option.
PARTIES TO THE MERGER
The parties to the Merger Agreement are the Company, Purchaser and Merger
Sub. Purchaser was recently formed and Merger Sub was recently incorporated
under the laws of the State of Maryland for the purpose of consummating the
Merger. Until the Effective Time of the Merger, it is not anticipated that
either Purchaser or Merger Sub will have any significant assets (other than
$1,000,000 in cash) or liabilities or will engage in any business activities
other than those incident to its formation and capitalization, the consummation
of the Merger and the rights and obligations under certain agreements. See "The
Proposed Merger--Interests of Certain Persons In the Merger--Purchase
Agreement" and "The Proposed Merger--Interests of Certain Persons In the
Merger--Proxy Agreement". Neither Purchaser nor Merger Sub have conducted any
business other than the transactions described herein. Purchaser and Merger Sub
are affiliated with JER, a group of affiliated companies engaged primarily in
real estate investment, management and advisory services. The address of the
principal executive offices of Purchaser and Merger Sub is 11 Canal Center
Plaza, Suite 200, Alexandria, Virginia 22314 and their telephone number is
(703) 739-4400.
The information contained in this Proxy Statement concerning Purchaser and
Merger Sub has been supplied by Purchaser and Merger Sub and their
representatives and has not been independently verified by the Company or its
representatives.
The Company, formerly named Mortgage Investments Plus, Inc., was incorporated
in Maryland on April 15, 1985 and commenced operations on July 9, 1985, after
completing an initial public offering of its Common Stock. The Company, which
was formed as a REIT under the applicable provisions of the Internal Revenue
Code, is engaged in the business of making real estate investments. The address
of the principal executive offices of the Company is 2020 Santa Monica
Boulevard, Suite 480, Santa Monica, California 90404 and the telephone number
is (310) 449-4444 or 1-800-MIP-4481 (1-800-647-4481). For more information with
respect to the business and operations of the Company, please review the
Company's Form 10-K/A and the Company's Form 10-Q included in this Proxy
Statement as Appendix C and Appendix D, respectively.
8
<PAGE>
BACKGROUND OF THE MERGER
The following is a summary of the events leading up to the execution of the
Merger Agreement.
The Company's present management team assumed control in September 1991,
during a period in which real estate rents, occupancy and values were falling
dramatically. Because of this deterioration in the real estate and financial
markets, the Company faced a number of serious business, operational and
financial difficulties through 1994. During 1992 and 1993, the Board pursued
various financial restructuring options and regularly considered a variety of
strategic alternatives, including the possibility of a sale or liquidation of
the Company and a possible bankruptcy filing. However, in the Board's opinion,
until the end of 1993, the distressed nature of the real estate market
precluded a sale, merger or business combination on terms that would have been
beneficial to the stockholders, and the Board believed that the other
alternatives, including liquidation or bankruptcy, would also not result in
favorable outcomes for the stockholders. The Company struggled through those
difficult times until the third quarter of 1994, when the Company retired all
of its corporate level debt and found itself on relatively solid financial
footing.
In January and early February of 1994, Carl C. Gregory, III, the Chairman of
the Board and Chief Executive Officer of the Company, interviewed several
investment banking firms for the purpose of choosing one to assist the Company
in identifying and evaluating available strategic alternatives. At the Board
of Directors' meeting held on February 16 and 17, 1994, three investment
banking firms made presentations to the Board.
After the presentations and the Board's deliberation, the Board selected the
team of Tallwood Associates, Inc. ("Tallwood") and Cornerstone Capital
Advisors, Ltd. ("Cornerstone") and instructed them to report back to the Board
at the end of March 1994 with (1) an evaluation of the Company's assets, (2) a
recommendation regarding the desirability of remaining a REIT, and (3) a
recommendation among various strategic alternatives.
At the March 31, 1994 Board of Directors' meeting, Tallwood and Cornerstone
made a detailed presentation based on their study, analysis and experience.
The presentation included substantial written material which was given to each
director. Their analysis included consideration of several options, including
continuation as an independent REIT, liquidation of the assets pursuant to a
stockholder approved liquidation plan, a friendly cash tender, a merger with
another REIT and a significant acquisition by the Company.
After considering the recommendations of Tallwood and Cornerstone, as well
as management's independent analysis, the Board decided to remain qualified as
a REIT and to engage the team of Tallwood and Cornerstone for a period of six
months (from April 1, 1994 through September 30, 1994) to immediately pursue a
sale, merger or significant acquisition. In the Board's opinion, each of these
alternatives presented a potential opportunity to enhance stockholder value
when compared to continuing to operate the Company as it had in the past. See
"The Proposed Merger--Reasons for the Merger."
On April 4, 1994, the Company publicly announced the hiring of Tallwood and
Cornerstone for the purpose of finding a buyer, merger partner or significant
acquisition for the Company. In May, 1994, the Company issued another press
release and its First Quarter Report announcing the Company's first quarter
results and repeating that it was actively exploring various alternatives such
as a merger, sale or significant acquisition.
At the May 19, 1994 Annual Stockholders' Meeting, the Chairman told the
attendees that the Company had hired investment bankers but that, to that
date, there were no results to report. At the Board of Directors' meeting
following the Annual Stockholders' Meeting, Richard Frary of Tallwood reported
that Tallwood and Cornerstone had completed the preparation of their marketing
materials and had begun the process of attempting to locate a potential
acquiror or acquisition candidate. It was their stated plan to propose the
transaction to as many prospects as possible and create an auction for the
Company. The Board concurred with this strategy.
9
<PAGE>
During the months of May through August of 1994, Tallwood and Cornerstone
proposed the acquisition of the Company to a large number of prospective
acquirors. Approximately 75 prospects signed a confidentiality agreement
indicating a desire to receive detailed, confidential information on the
Company and its assets and liabilities. During this period, the Company issued
press releases on June 14, 1994 and July 25, 1994 announcing an asset sale and
second quarter results, respectively, as well as restating in both press
releases that the Company continued to explore various alternatives, including
a merger, sale of the Company or its assets, or significant acquisition by the
Company with the goal of maximizing stockholder value. The Chairman's letter in
the Company's 1994 Second Quarter Report reiterated that the Company was
continuing to work on these strategic alternatives.
The efforts of Tallwood and Cornerstone and the large amount of publicity
given the effort, gave rise to a large number of prospective suitors. The Board
believed, however, that most of the prospective suitors were not serious
candidates. Many were simply "brokers," inquiring out of curiosity or to
enhance their own databases. Some were interested, but only on terms that
management, Tallwood and Cornerstone believed would be unattractive to the
stockholders. Others expressed interest, but, in the opinion of management,
Tallwood and Cornerstone, lacked the capital or financial ability to complete a
transaction. Finally, there were some proposals that were so complex that
management, Tallwood, Cornerstone and the Company's legal counsel believed that
it was highly improbable that the requisite stockholder approval would be
obtained.
At the Board of Directors' meeting held on August 17 and 18, 1994, Tallwood
and Cornerstone made a detailed presentation of their progress to date
including written material which was given to each director. The
representatives of Tallwood and Cornerstone discussed in detail the terms of
three proposals for stock and/or cash acquisitions that they had received. In
addition, considerable time was spent discussing the ranges of acceptable
prices for a sale of the Company and the difficulties associated with complying
with the requirement that any sale transaction would require the approval of at
least 80% of the Company's outstanding shares. The Board instructed Tallwood
and Cornerstone to continue negotiations with the three identified prospects.
Also, in order to assist the Board in analyzing acceptable prices in a sale
transaction, management was asked to prepare a liquidation analysis, which was
completed and presented at a special Investment Committee meeting held on
August 23, 1994. The Investment Committee, which consists of directors, Raymond
L. Bly, Jr., Robert W. Draine, Lawrence W. Farmer and Mr. Gregory, generally
has responsibility for establishing the overall investment policy of the
Company.
At a special meeting of the Board of Directors on September 16, 1994,
Tallwood and Cornerstone updated the Board on the progress of their
negotiations with the three potential suitors and presented the terms of the
three specific proposals as modified since the August 17, 1994 Board meeting.
At that same meeting, management presented the results of its liquidation
analysis. In management's liquidation analysis, management provided two
scenarios of potential liquidation values of the Company based on an expedited
liquidation assumption and an orderly liquidation assumption. Utilizing these
assumptions, management estimated the potential net present value of a share of
Common Stock to be approximately $2.21 per share in an expedited liquidation
and $2.72 per share in an orderly liquidation conducted over 18 months. After
evaluating and discussing the alternatives, the Board instructed Tallwood and
Cornerstone to negotiate further with the three prospects and told management
to revise its analysis regarding an orderly liquidation to provide for adequate
reserves for unknown liabilities and expenses which had not been included in
the initial analysis, and to seek the advice of legal and financial experts
with experience in attempting orderly liquidations of publicly traded
companies. After obtaining that advice, and concluding that an orderly
liquidation could be performed in 15 months rather than 18 months, management
prepared and presented a revised orderly liquidation analysis to the Investment
Committee at a meeting on September 21, 1994. Under the revised analysis,
management estimated the potential net present value of a share of Common Stock
to be approximately $2.20 per share in an orderly liquidation over 15 months.
At a special meeting of the Board of Directors on September 26, 1994, the
Board met with representatives of Tallwood and Cornerstone and compared the
terms of a proposed transaction with K/B Realty Advisors ("K/B"), an affiliate
of Koll Management Services, Inc., which was one of the three potential
10
<PAGE>
suitors presented at the earlier Board meetings, against the other
alternatives, including liquidation pursuant to a stockholder approved plan.
The Board, after considering the advice of management, Tallwood and
Cornerstone, and Allen, Matkins, Leck, Gamble & Mallory, the Company's legal
counsel, chose to pursue a potential sale to K/B. In the Board's opinion, a
sale to K/B was preferable to a liquidation of the Company primarily because
the Board believed, and had been advised by its legal and financial advisors,
that (i) liquidations pursuant to publicly announced plans usually result in
realized sales prices for properties substantially below the prices that such
properties would attract in normal sale transactions, and (ii) it would take
much longer for the Company's stockholders to realize cash payments under a
liquidation plan than pursuant to a merger. In addition, the Board of Directors
believed that it would be more difficult to obtain the required 80% approval of
the outstanding shares for a liquidation plan than for an all cash acquisition
transaction. That same day, the Company issued a press release announcing that
it would be negotiating a non-binding letter of intent with K/B providing for
the acquisition of all of the outstanding shares of Common Stock of the Company
by K/B for $2.525 per share in cash, subject to a number of conditions,
including, without limitation, K/B finalizing its due diligence.
The Company's engagement of Tallwood and Cornerstone expired on September 30,
1994. Even though Tallwood and Cornerstone's engagement had terminated at the
end of September 1994, pursuant to the terms of their engagement letter, they
were entitled to compensation if a transaction was consummated with K/B by
September 30, 1995. Therefore, Tallwood and Cornerstone continued to be
involved in the negotiations between K/B and the Company following the
expiration of their engagement letter.
The Company first contacted Duff & Phelps on or about September 12, 1994 for
the purpose of discussing retaining Duff & Phelps to render a fairness opinion
on the K/B transaction.
At a special meeting of the Board of Directors on October 31, 1994, the
representatives of Tallwood and Cornerstone, the Company's legal counsel and
management informed the Board as to the progress of the K/B negotiations,
including changes that were being proposed by K/B. At that meeting, the Board
appointed a special committee (the "Special Committee") consisting of Mr.
Gregory and two directors, Steven C. Markoff and Richard T. Pratt, to work with
legal counsel and Tallwood and Cornerstone to complete the negotiations with
K/B.
During the period of November 1, 1994 to December 23, 1994, the Special
Committee met telephonically or in person several times. In addition, on
November 1, 1994, the Chairman and one of the members of the Special Committee,
along with the Company's legal counsel, met with officers of K/B and their
legal counsel to continue the negotiations. Following this meeting, the
Chairman and the Company's legal counsel met and spoke frequently with their
counterparts at K/B in an effort to complete the negotiations.
On November 14, 1994, the Company issued two press releases. One announced
that the Company was negotiating a definitive agreement with K/B rather than a
non-binding letter of intent, and the second announced the third quarter
results of the Company along with a statement that the Company was focusing on
"completing the negotiation of the definitive agreement for the previously
announced acquisition of the Company by an affiliate of K/B Realty Advisors."
Shortly thereafter, the 1994 Third Quarter Report was sent to the stockholders
containing a Chairman's letter discussing the negotiations with K/B.
At the regular Board meeting held on November 17, 1994, the Board discussed a
draft of a definitive agreement with K/B and affirmed its interest in
proceeding with negotiations with K/B. On December 16, 1994, the Company issued
a press release announcing that the negotiations on the definitive agreement
with K/B were continuing, but that if a definitive agreement were ultimately
signed, the closing was likely to occur in the Second rather than the First
Quarter of 1995.
A special meeting of the Board of Directors was held on December 23,1994, at
which the directors were informed that the negotiations with K/B had reached an
impasse. On the same day, the Company issued a
11
<PAGE>
press release announcing the impasse and stating that the Company had stopped
work on the definitive agreement and would continue to explore other options
available to it.
Following the termination of negotiations with K/B, Tallwood and Cornerstone
ceased to provide financial advisory services to the Company and the Company
began to rely more upon management's and the Board of Directors' own analysis
and judgment and the informal advice received from Duff & Phelps from time to
time. Although Duff & Phelps consulted with the Chairman of the Company and
members of its Board of Directors and management during the period of September
1994 through May 1995, Duff & Phelps was not officially retained to render a
fairness opinion with respect to the Merger until May 12, 1995.
The December 23, 1994 announcement prompted several interested parties to
approach the Company regarding a possible transaction. Included among this
group was Steven C. Markoff, the Company's largest stockholder, owning
approximately 15% of the outstanding shares of Common Stock, and who was, at
that time, a director of the Company. On January 5, 1995, the Company received
an outline of a proposal from Palm, an affiliate of Mr. Markoff, to buy all of
the shares of Common Stock of the Company not then owned by Palm or Mr.
Markoff. In general, Mr. Markoff's proposal involved a cash offer of $1.83 per
share, plus a three-year note with a purported face value of $.695 per share,
secured by certain assets of the Company. Mr. Markoff's offer was also subject
to receipt of necessary financing and completion of his, and his financing
source's, due diligence. A Special Meeting of the Board of Directors was held
on January 11, 1995 to discuss the Markoff proposal. After considering the
price and terms of the Markoff proposal, as well as certain provisions of the
Maryland General Corporation Law (the "MGCL") that the Board determined, on
advice from its legal counsel, might be applicable and could prevent Mr.
Markoff or any of his affiliates from consummating an acquisition of the
Company, and after considering the level and nature of interest from other
prospects, the Board instructed management to commence negotiations with Mr.
Markoff but to continue exploring any other acquisition proposals that were
available. In particular, the Board expressed its strong preference for an all
cash offer because it believed that an all cash offer was in the best interests
of the stockholders.
Between January 11, 1995 and January 24, 1995, the Company received a number
of letters and other correspondence from Mr. Markoff and Palm modifying certain
terms of Mr. Markoff's proposal. None of the modifications altered the amount
of the proposed aggregate consideration, and the final proposal retained a
three-year note as part of the offered consideration. On February 6, 1995, a
special meeting of the Board of Directors was held to discuss the progress that
had been made on the Markoff proposal as well as to discuss a new proposal that
had been received from JER. The JER proposal contemplated an all cash
transaction at or about the price that had been offered by K/B, subject to
completion of JER's due diligence. After substantial discussion, the Board
decided that the JER proposal represented a better alternative for the
stockholders than Mr. Markoff's proposal because, among other things, the JER
proposal included an all cash purchase price by a company with significant
prior real estate acquisition experience. The Board discussed the importance
and difficulty of obtaining the required 80% approval of the outstanding
shares, particularly if Mr. Markoff did not vote in favor of the JER
transaction. The Board asked Messrs. Gregory and Pratt to meet with Mr. Markoff
to inform him that the Board considered the JER proposal to be more attractive
than his proposal and to determine whether Mr. Markoff would support a
potential transaction with JER.
On February 16, 1995, a regular meeting of the Board of Directors was held.
The progress of negotiations with JER was reported to the Board. The Board also
discussed the difficulty of obtaining the required 80% approval of the
outstanding shares, particularly if Mr. Markoff did not support the JER
transaction, and the difficulties that the Company would face if it failed to
get the required vote and was forced to incur substantial expenditures. Mr.
Markoff, who did not attend this meeting, resigned from the Board and all
committees of the Board by telephone during the February 16, 1995 meeting. On
February 17, 1995, the Company issued a press release announcing Mr. Markoff's
resignation from the Board.
12
<PAGE>
On February 21, 1995, the Company issued a press release indicating that it
had rejected Mr. Markoff's proposal and repeating the Company's belief that a
"sale, merger or business combination is a desirable option provided all of the
Company's stockholders receive adequate value for their shares."
On March 2, 1995, a special meeting of the Board of Directors was held to
discuss the status of the negotiations of the potential JER transaction and the
difficulty in obtaining the required 80% stockholder approval without the
support of Mr. Markoff. At that meeting, the Board invited members of the law
firm of Latham & Watkins, a firm with substantial experience in contested
mergers and acquisitions, to provide additional advice to the Board with
respect to the difficulties associated with the consummation of a business
combination or comparable transaction opposed by the holder of a significant
block of the subject company's stock. In its capacity as such special counsel,
Latham & Watkins advised the Board regarding the impediment that the opposition
of such a holder could pose to the consummation of a major corporate
transaction, particularly one requiring the approval of the holders of 80% of
the Company's outstanding shares of Common Stock. In response to requests from
the Board, Latham & Watkins also advised the Company's directors with respect
to alternative transaction structures that would not trigger the 80% approval
requirement, and described the costs, processes and risks associated with those
structures. After considering such advice, the Board authorized management to
inform JER that the Company had concluded that it was highly desirable that Mr.
Markoff's support of any transaction with JER be secured prior to the execution
of any agreement with JER with respect to that transaction.
In March and early April, 1995, respectively, the Company released its fiscal
year 1994 results and mailed its 1994 Annual Report to its stockholders in
which the Company stated that it was continuing to actively pursue a sale,
merger or business combination on terms that would garner the required 80%
approval of the outstanding shares.
During most of March and April of 1995, the Company continued to negotiate
terms of a potential sale to JER. These discussions were primarily among Mr.
Gregory and representatives of Allen, Matkins, Leck, Gamble & Mallory, the
Company's legal counsel, and representatives of JER and its legal counsel.
During this period, the Chairman consulted frequently with Richard Pratt of the
Special Committee, as well as the other Board members. JER informed the Company
that, during this same period of time, JER was engaged in negotiations with Mr.
Markoff in an attempt to secure his support for a potential transaction with
JER. After completion of its due diligence on the Company, JER informed the
Company that it believed that it might be prepared to make an offer for the
shares of the Company's Common Stock at or about $2.475 per share.
From time to time during March and April of 1995, new expressions of interest
would arise, some of which involved preliminary proposals that offered
consideration in excess of the per share consideration offered by JER. Each
potential transaction was considered by management and the Board of Directors
after discussion with the Company's advisors and was deemed to be less
favorable to the stockholders than the potential transaction with JER, either
because its terms were less favorable or because the Board determined that the
potential acquiror was substantially less likely than JER to consummate a
transaction on the proposed terms. In addition, because a significant amount of
legal and other expenses had been incurred in negotiating an acceptable
transaction with JER, and because JER had substantially completed its due
diligence on the Company, a process which would be time consuming and expensive
for a new acquiror, the Company determined that the proposed terms of a
transaction with another party would have to be substantially more favorable to
the stockholders than the JER proposal in order to justify the expense and
delay incumbent in pursuing it. In the opinion of the Board of Directors and
its financial advisor, Duff & Phelps, none of the other proposals contained
terms that justified the abandonment of the JER transaction.
On May 11, 1995, the Company released first quarter results along with a
statement that the Company's goal is to continue pursuing opportunities for a
possible sale, merger or business combination on terms that will be attractive
to our stockholders.
13
<PAGE>
As a result of the continuing discussions between the Company and JER, the
Chairman presented a draft of the Merger Agreement to the Company's Board of
Directors at a special meeting held on May 14, 1995. During that meeting, Duff
& Phelps, after studying the draft Merger Agreement and evaluating its terms in
light of the various other alternatives that had been presented to the Company,
delivered an oral fairness opinion on such potential transaction in which Duff
& Phelps stated that they believed that the proposed $2.475 per share cash
consideration to be received by the stockholders in the potential transaction
with Purchaser was fair to the stockholders from a financial point of view.
Following extensive discussions among the Board members, the representative of
Duff & Phelps, and the Company's legal counsel, the Board approved the form of
Merger Agreement and authorized Mr. Gregory, in his capacity as Chairman of the
Board and Chief Executive Officer of the Company, to execute a Merger Agreement
on substantially the terms presented to the Board. The Board's approval of the
potential transaction with Purchaser was subject to resolution of a number of
outstanding issues, including finalization of certain legal issues and receipt
of confirmation from Purchaser that Purchaser had successfully secured Mr.
Markoff's support of the potential transaction.
On May 19, 1995, Duff & Phelps delivered its written fairness opinion with
respect to the Merger to the Board of Directors of the Company. See "The
Proposed Merger--Opinion of Duff & Phelps Capital Markets Co." for a
description of the analysis performed by Duff & Phelps in connection with the
rendering of its fairness opinion. Neither Tallwood nor Cornerstone has
delivered any report, opinion or appraisal to the Company with respect to the
Merger and neither of them will receive any compensation in connection with or
on account of the Merger.
Following resolution of the remaining legal issues and receipt of an executed
copy of the Proxy Agreement (as defined herein) signed by Purchaser, Merger
Sub, Palm, Steven C. Markoff and his wife, Jadwiga Z. Markoff (see "The
Proposed Merger--Interests of Certain Persons In the Merger"), the Company
executed the definitive Merger Agreement on May 21, 1995 and issued a press
release prior to the opening of trading on the AMEX on Monday, May 22, 1995
announcing the execution of the Merger Agreement with Purchaser and Merger Sub.
REASONS FOR THE MERGER
At a special meeting of the Board of Directors held on May 14, 1995, the
Company's Board of Directors determined the Merger to be fair to, and in the
best interests of, the Company and its stockholders, and advisable on
substantially the terms and conditions set forth in the Merger Agreement.
Therefore, the Board of Directors approved and adopted the Merger Agreement and
the Merger, and directed that the Merger Agreement and Merger be submitted for
consideration by the stockholders at a special or annual meeting of the
stockholders. THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT
THE COMPANY'S STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE MERGER. Certain members of the Board of Directors have
certain interests which may present them with possible conflicts of interest in
connection with the Merger. See "The Proposed Merger--Interests of Certain
Persons In the Merger."
The determination of the Board of Directors to approve the Merger was based
upon consideration of a number of factors, including the following:
(1) The efforts by Tallwood and Cornerstone and the Company's
management to market the Company over an extended period of time to a
large number of potential suitors, including numerous public
announcements that the Company was attempting to secure a sale
transaction, which yielded only a small number of potentially
attractive transactions;
(2) Management's and the Board of Directors' determination, after
thorough analysis, that a sale transaction would be more favorable to
the stockholders than a stockholder approved plan of liquidation or
continuing to operate the Company as an independent entity because,
among other things, a liquidation would likely result in lower value
being delivered to the stockholders further out in the future than the
Merger, and continuing operations would not likely result in a per
share
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stock price in excess of the Cash Merger Consideration for the
foreseeable future on account of the relatively small number and value
of properties owned by the Company, the small market capitalization of
the Company, the limited trading volume of the Common Stock and the
limited future growth prospects of the Company;
(3) The advice of representatives of Duff & Phelps to members of
management over several months, Duff & Phelps' presentation at the
meeting of the Board of Directors held on May 14, 1995 discussing the
financial analyses of the Company performed by Duff & Phelps and the
opinion of Duff & Phelps that the Cash Merger Consideration to be
received by the stockholders of the Company pursuant to the Merger is
fair, from a financial point of view, to the stockholders of the
Company. See "The Proposed Merger--Opinion of Duff & Phelps Capital
Markets Co.;"
(4) The fact that the terms of the Merger Agreement and the price to
be paid were determined through arms' length negotiations between
representatives of the Company, on the one hand, and Purchaser, on the
other hand;
(5) The fact that the $2.475 price per share offered in the Merger
represents a substantial premium over both the closing sale price on
the AMEX of $1.1875 per share on March 31, 1994, the last trading day
on which the stock of the Company was traded prior to the first public
announcement of the Company's intention to explore strategic
alternatives, and the closing sale price on the AMEX of $1.8125 per
share on May 19, 1995, the last trading day preceding the public
announcement of the execution of the Merger Agreement;
(6) The fact that the $2.475 per share all cash price proposed to be
paid by Purchaser was more attractive than the terms offered by other
potential suitors because the Board believed that Purchaser was capable
of consummating a transaction on the proposed terms more quickly than
the other potential suitors because of the substantial due diligence it
had performed on the Company and because of JER's reputation and prior
experience in real estate acquisition transactions;
(7) The fact that the Special Committee and the Board of Directors
independently concluded that the $2.475 per share all cash price
proposed to be paid was an attractive and fair price for the
outstanding shares of Common Stock in light of the substantial
negotiating history with JER and other potential suitors and the
limited alternatives available to the Company;
(8) The fact that the Merger cannot be consummated unless the
approval of not less than 80% of the outstanding shares of Common Stock
of the Company is obtained, and the difficulty that such voting
requirement creates in devising strategic alternatives for the Company;
and
(9) The fact that the Merger Agreement permits the Board, under
certain limited circumstances, to negotiate with third parties and to
accept more favorable proposals, if any are received.
In view of the wide variety of factors considered by the Board of Directors
in connection with its evaluation of the Merger and the Cash Merger
Consideration, the Board of Directors did not find it practicable to quantify
or otherwise attempt to assign relative weights to the specific factors
considered in making its determination, nor did it evaluate whether such
factors were of equal weight. As a general matter, the Board of Directors
believes that the factors discussed in paragraphs (1) through (9) above support
its decision to approve the Merger and taken as a whole outweigh the factors
considered by the Board of Directors, as described below, which did not support
the Merger.
In particular, the Board of Directors considered the fact that the per share
Cash Merger Consideration was below the book value per share of the Common
Stock as of March 31, 1995 (see "Selected Financial Information").
Notwithstanding that fact, the Board of Directors believes that the per share
Cash Merger Consideration is fair to the stockholders based, in part, on the
following factors: (i) historically, the common stock has traded at a
substantial discount to the book value per share and (ii) the liquidation
analysis performed by management and Duff & Phelps indicated a liquidation
value per share substantially below the book value per share. See "The Proposed
Merger--Background of the Merger" and "The Proposed Merger--Opinion of Duff &
Phelps Capital Markets Co."
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In addition, the Board of Directors recognized in their deliberations that
the Merger will have certain negative consequences to the stockholders by
depriving them of the opportunity to continue their equity interest in the
future earnings and growth of the Company, if any, as an ongoing corporation.
See "The Proposed Merger--Certain Effects of the Merger." However, the Board of
Directors believes the Merger is more favorable for the stockholders than
continuing their equity interest in the Company, primarily on account of the
Board of Directors' determination that (i) the Cash Merger Consideration
represents a substantial premium over the price at which the Common Stock had
been trading prior to the first public announcement of the Company's intention
to explore strategic alternatives, and the price on the last trading day
preceding the public announcement of the execution of the Merger Agreement, and
(ii) the prospect of generating a return for stockholders greater than the Cash
Merger Consideration through continued operations is unlikely in light of the
relatively small size of the Company's real property holdings, the Company's
small market capitalization and limited trading volume and economic conditions
in the real estate industry in general.
If the Merger is not approved by the stockholders, the Company currently
anticipates that it will continue to operate as a small REIT which owns
investments in ten properties. Although the Company has already taken steps to
reduce its operating expenses so that they would be more appropriate for the
size of its asset base, if the Merger is not consummated, the Company will
likely look for additional steps to reduce operating expenses, including the
possibility of a severe reduction in personnel, relocation to smaller offices
and other appropriate changes. The Company believes that such additional cost
reduction steps may be appropriate because, if the Merger is not approved by
the stockholders, the Company will likely significantly reduce its activities
seeking a possible sale, merger or other business combination, and therefore,
should be able to manage its business with lower administrative staff and
overhead. While the Company will likely still remain open to the possibility of
a sale, merger or business combination even if the Merger is not approved, the
Company believes that the likelihood of such an alternative sale or merger
proposal being consummated would be questionable in light of the stockholders'
failure to approve a merger on the terms offered by Purchaser. In addition, if
the Merger is not approved, the Company anticipates that, consistent with its
past experience, it will continue to have limited capability to raise either
new debt or equity capital on competitive terms, if at all, because of its
relatively small market capitalization and small number of properties. In light
of the fact that the Company or partnerships in which it is a limited partner
continue to have loans that mature from time to time, it is possible that the
Company or one or more of such partnerships could find itself unable to
refinance some of its respective debt, which could have an adverse effect on
the Company's business and financial position.
COMMON STOCK INFORMATION
The Company's Common Stock is traded on the AMEX under the symbol "MIP". As
of May 19, 1995, the last trading day preceding the public announcement of the
proposed Merger, the high and low sale prices were $1 7/8 and $1 13/16,
respectively. On July 31, 1995, the last trading day for which quotations were
available before the finalization of this Proxy Statement, the high and low
sale prices were both $2 3/16 per share. Stockholders are urged to obtain a
current market quotation for their shares. For additional information relating
to the high and low sales prices for the First through Fourth Quarters of the
Company's 1993 and 1994 fiscal years, please see the Company's Form 10-K/A
included in this Proxy Statement as Appendix C.
OPINION OF DUFF & PHELPS CAPITAL MARKETS CO.
General. The Board of Directors of the Company formally retained Duff &
Phelps, a nationally recognized investment banking firm, in May 1995 to render
financial advisory and investment banking services in connection with the
proposed sale to Purchaser. Duff & Phelps is an established investment banking
firm which has been providing financial advisory services for more than 60
years, including investment research, mergers and acquisitions, raising capital
and financial opinions. According to Duff & Phelps, Duff & Phelps performs more
than 300 engagements each year and has been involved in a wide variety of
projects involving real estate businesses including numerous REITs, limited
partnerships and development and management companies. Prior to its formal
retention, Duff & Phelps had consulted with the Chairman
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of the Company, members of its Board of Directors and management during the
period of September 1994 through May 1995. The Board selected Duff & Phelps
from among several other investment banking firms because of its
qualifications, significant experience in advising real estate companies in
general and REITs in particular, and its competitive proposal concerning their
engagement.
THE FULL TEXT OF DUFF & PHELPS' OPINION, DATED MAY 19, 1995, IS INCLUDED AS
APPENDIX B TO THIS PROXY STATEMENT. STOCKHOLDERS ARE URGED TO READ THE OPINION
IN ITS ENTIRETY FOR THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE
REVIEW UNDERTAKEN BY DUFF & PHELPS. DUFF & PHELPS' OPINION IS DIRECTED ONLY TO
THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF THE
COMPANY AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF THE
COMPANY AS TO HOW SUCH STOCKHOLDER SHOULD VOTE SUCH STOCKHOLDER'S COMMON STOCK.
THE SUMMARY OF THE OPINION OF DUFF & PHELPS SET FORTH IN THIS PROXY STATEMENT
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
Summary of Opinion. Duff & Phelps has concluded that the Cash Merger
Consideration to be paid in the Merger is fair, from a financial point of view,
to the stockholders of the Company. In reaching its conclusion, Duff & Phelps
has stated that it has reviewed and analyzed, among other things: (i) a draft
of the Merger Agreement dated May 18, 1995; (ii) the Company's Form 10-K for
the fiscal years ended December 31, 1993 and 1994, as amended; (iii) the
Company's Form 10-Q for the fiscal quarter ended March 31, 1995; (iv)
documentation related to prior bona fide offers to purchase the Company; (v)
certain internal financial analyses and forecasts of the Company; (vi) with
respect to each property currently owned by the Company, the gross rents and
operating expenses relating to each such property, the lease renewal dates with
respect to tenants occupying such property, the debt secured by such property,
the requirements of any future tenant improvements and capital expenditures
relating to such property, and the expected contributions to net operating
income of such properties to the Company; (vii) partnership documents for those
real properties in which the Company is a limited or general partner; (viii)
current conditions and trends with respect to the real estate industry and
REITs, in general, and the market for retail, office and industrial space in
the markets where the Company operates, in particular, expected future rental
rates, interest rates, and general business and economic conditions in the
United States and the specific regions of the United States where the Company's
properties are located; (ix) reported market prices and trading volumes of the
Company's Common Stock for recent periods; (x) publicly available information
concerning other companies which they deemed comparable, in whole or in part,
to the Company; and (xi) such other financial studies, analyses and
investigations conducted by Duff & Phelps as it deemed appropriate. Moreover,
as background for its analysis, Duff & Phelps held discussions with members of
the senior management of the Company and its advisors regarding the Company's
current business operations, financial condition, portfolio values and
liquidation values. Duff & Phelps also took into account its assessment of
general economic, market and financial conditions as well as its experience in
similar transactions and securities valuation, generally. Duff & Phelps did not
make any independent appraisals of the Company's assets or liabilities. Duff &
Phelps' opinion is included in this Proxy Statement as Appendix B, and
stockholders are urged to read it in its entirety. Duff & Phelps has relied
upon the accuracy and completeness of all information provided to it or
publicly available and did not attempt to verify any such information.
Analysis Performed. In its opinion to the Board of Directors, Duff & Phelps
concluded that the proposed Merger was fair from a financial point of view to
the Company's stockholders. In reaching that opinion, Duff & Phelps considered
three alternatives to the proposed Merger in order to determine if a more
attractive alternative existed from a financial point of view: a liquidation
analysis, a five year hold analysis, and a merger or business combination
analysis. In analyzing these alternatives, Duff & Phelps concluded that the
value of the proposed Merger was higher than or within the valuation range of
the three other alternatives. As a result of these analyses, Duff & Phelps
concluded that the proposed Merger was fair from a financial
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point of view. It should be noted that Duff & Phelps' opinion was not based on
any one analysis but on the consideration of all of the analyses. The estimates
and assumptions that were used by Duff & Phelps in the various analyses are not
necessarily indicative of actual values or predictions of future results or
values. In addition, the Duff & Phelps' analyses do not purport to constitute
an appraisal of the Company's assets.
The analyses utilized by Duff & Phelps employed standard valuation and other
analytical methodologies which Duff & Phelps believes are generally accepted by
the professional financial community. It should be noted that the summary set
forth below does not purport to be a complete description of the analyses
conducted by Duff & Phelps in connection with the preparation of its opinion.
The preparation of a fairness opinion is a complex process and does not
necessarily lend itself to partial analysis or summary description. Duff &
Phelps incorporated into its analyses numerous assumptions regarding the future
performance of the national real estate industry as well as assumptions
regarding interest rates and general business and economic conditions and other
matters many of which are beyond the Company's control. Such estimates are
inherently subject to uncertainty.
Liquidation Analysis. In its liquidation analysis, Duff & Phelps analyzed
the proceeds (net of costs of liquidation) which could accrue to
stockholders if the Company were to be liquidated in a timely manner,
assuming no serious delays or problems. Two liquidation scenarios were
considered, one of which assumed all assets would be sold by December 31,
1995 ("Expedited Liquidation Scenario"), and one of which assumed all
assets would be sold by December 31, 1996 ("Orderly Liquidation Scenario").
Both scenarios were based on management's estimated value of the Company's
investments of $77.3 million in the aggregate. Management's estimates of
value were based on sales prices of comparable properties adjusted to
reflect the specific facts concerning each of the Company's properties. In
particular, adjustments from comparable sales prices were made based on
each property's occupancy rate, rental income and operating expenses, the
property's location and design, and the existence and terms of financing.
Management also adjusted these estimated values to reflect events that it
anticipated might occur in the future, such as the expiration of a lease,
the occupancy of a new tenant or anticipated changes in the rental market.
In order to arrive at a liquidation estimate for the two scenarios, Duff &
Phelps made adjustments to management's estimated value as follows: (i) a
sales price adjustment of 10% for the Orderly Liquidation Scenario ($7.7
million) and a sales price adjustment of 15% for the Expedited Liquidation
Scenario ($11.6 million) to reflect the discount that would potentially
need to be taken to dispose of the properties during the respective
liquidation periods ("Estimated Liquidation Periods"); (ii) an addition to
reflect the positive cash flow generated by the Company's properties during
the Estimated Liquidation Periods ($14.3 and $5.6 million, respectively);
(iii) a reduction to reflect interest expense relating to the Company's
properties during the Estimated Liquidation Periods ($8.7 and $3.5
million); (iv) an addition to reflect cash and cash equivalents and net
receivables and payables of the Company as of May 12, 1995 ($1.15 million);
(v) a reduction to reflect the Company's current debt financing as of May
12, 1995 ($47.3 million); (vi) a reduction to reflect the estimated
property sales commissions ranging from 2.5% to 7.0% ($1.7 and $1.6
million); (vii) a reduction to reflect overhead costs during the Estimated
Liquidation Periods including administrative personnel, legal, accounting
and ongoing corporate expenses post-liquidation ($2.3 and $1.2 million);
and, (viii) a discount to reflect the present value of the liquidation
proceeds that would not be distributed to stockholders until the end of the
Estimated Liquidation Periods. Duff & Phelps determined that a 15% discount
rate was appropriate to reflect the risks associated with realizing the
liquidation proceeds during the Estimated Liquidation Periods. Under this
analysis, Duff & Phelps concluded that the liquidation value of the Company
would be approximately $2.02 per share under the Expedited Liquidation
Scenario and $2.20 per share under the Orderly Liquidation Scenario. Both
of these values are substantially less attractive than the $2.475 per share
consideration to be received in the proposed Merger.
Five Year Hold Analysis. In its five year hold ("Five Year Hold")
analysis, Duff & Phelps analyzed the proceeds (net of disposition costs)
which could accrue to stockholders if the Company's assets were sold in
their entirety at the end of five years, assuming no additions to the
portfolio during
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the five year holding period. The analysis assumes an estimated value of
the Company's investments at the end of year five of $84.2 million. The
estimated value of the Company's investments at the end of year five was
based on discussions with management regarding management's current
estimate of each property's value, the potential for appreciation in value
for each property, the current net operating income ("NOI") for each
property, the capitalization rates implied by the current property values
and property level NOI data, management's projected NOI for each property
in five years, current market conditions and potential future market
conditions in each submarket in which the Company has properties, and
current and prospective future market capitalization rates for properties
similar to the Company's. In order to arrive at an estimate of a Five Year
Hold, Duff & Phelps made adjustments to management's estimated portfolio
value at the end of year five as follows: (i) a sales price adjustment of
10% to reflect the discount that would be taken to dispose of the
properties during the end of the five year holding period ($8.5 million);
(ii) an addition to reflect the positive cash flow generated by the
Company's properties during the Five Year Hold ($43.4 million); (iii) a
reduction to reflect the interest expense and principal amortization
relating to the Company's properties during the Five Year Hold (certain
assumptions were made related to refinancing properties which could
feasibly be refinanced at more favorable financial terms) ($25.2 million);
(iv) an addition to reflect cash and cash equivalents and net receivables
and payables of the Company (as of May 12, 1995) ($1.15 million); (v) a
reduction to reflect the Company's estimated debt balance at the end of
year five ($43.5 million); (vi) a reduction to reflect the estimated
property sales commissions ranging from 2.5% to 7.0% ($2.4 million); (vii)
a reduction to reflect the overhead costs during the Five Year Hold period
including administrative personnel, legal, accounting and ongoing corporate
expenses during the Five Year Hold ($7.4 million); and, (viii) a discount
to reflect the present value of the cash flows that would be distributed
over five years. Duff & Phelps determined that a 15% discount rate was
appropriate to reflect the risks associated with realizing the cash flows
over such five year period. Using this analysis, Duff & Phelps concluded
that the value of the Company would be approximately $2.42 per share under
the Five Year Hold analysis. This value is comparable to the $2.475 per
share consideration to be received in the proposed Merger, however, it
involves much greater uncertainty than the proposed Merger due to the
extended time frame assumed (five years). As such, Duff & Phelps concluded
that the Cash Merger Consideration represents a more attractive alternative
than the value calculated under the Five Year Hold analysis.
Merger or Business Combination. In its merger or business combination
analysis, Duff & Phelps analyzed the potential value that stockholders
might receive in a merger transaction. The analysis started with a review
of management's efforts through certain investment banking firms to find a
merger partner during 1994 (such efforts were unsuccessful as described
elsewhere in this Proxy Statement). The analysis then proceeded as follows:
(i) potential merger partners ("Merger Candidates") were identified whose
general operating orientation (REITs that own and operate primarily office
and industrial properties) might result in a strategic fit with the
Company; (ii) the Merger Candidates' operating strategies (in terms of
product type, size and geographic focus) were reviewed in order to
determine the relative degree of interest on the part of the Merger
Candidates in pursuing a merger with the Company with the following
findings: (a) most of the Merger Candidates were geographically focused in
regions inconsistent with the Company's portfolio or had property
orientations inconsistent with the Company's portfolio and (b) only a few
of the Merger Candidates had geographic or property orientations consistent
with the Company's portfolio and a majority of such Merger Candidates had
insufficient market capitalization to consummate a merger; (iii) to the
extent that one of the Merger Candidates or another REIT would consummate a
transaction it was determined that such a transaction would need to be
significantly accretive to the Merger Candidates' funds from operations
("FFO") and funds available for distribution ("FAD") (FFO is defined as net
income (loss), excluding gains (losses) from debt restructuring and sales
of property, depreciation and amortization, and after adjustments for
unconsolidated entities in which the Company holds an interest; adjustments
for these unconsolidated entities are calculated to reflect the Company's
share of the FFO from joint ventures; FAD is defined as FFO minus capital
expenditures); (iv) based on a review of the Merger Candidates' dividend
yields and dividend payout ratios it was determined that in order to induce
a Merger Candidate to consummate a merger (given other growth alternatives)
a
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transaction would have to be valued applying dividend yields ranging from
10.5% to 13.0% to representative dividends based on FAD payout ratios of
85% to 90%; (v) a representative level of FAD ($2.8 million) was determined
based on a review of historical 1993 and 1994 operating data for the
Company's portfolio and projected results for 1995-1997 and a review of
overhead expenses for publicly traded REITs (the incremental overhead to
another REIT associated with an acquisition of the Company would be lower
than the Company's projected overhead levels) ($500,000 in overhead was
assumed); and (vi) based on the representative level of FAD and the range
of FAD dividend payout ratios (85%-90%) it was determined that a merger
could potentially theoretically be consummated within a valuation range per
share of $2.04--$2.57 under the merger or business combination analysis.
This represents the theoretical value that might be paid if an interested
partner could be identified. The $2.475 per share consideration to be
received in the proposed Merger falls near the high end of this valuation
range. Duff & Phelps considered that notwithstanding this theoretical value
of the Company to a prospective Merger Candidate, no reasonable offer to
acquire or merge with the Company had been identified despite extensive
efforts to realize such a value other than the Merger. In considering the
foregoing analysis, stockholders should be aware that neither FFO nor FAD
represent cash generated from operation activities in accordance with
generally accepted accounting principles and are not necessarily indicative
of cash available to fund cash needs and should not be considered as an
alternative to net income as an indication of the Company's operating
performance or as alternatives to cash flow as a measure of liquidity.
Based on these analyses, Duff & Phelps concluded that the per share
consideration to be received by the stockholders of MIP in connection with the
Merger is fair from a financial point of view to the stockholders of the
Company.
Other Matters. Pursuant to an engagement letter dated May 12, 1995, the
Company has agreed to pay Duff & Phelps a fee of $50,000 for delivering its
opinion and reimburse Duff & Phelps for out-of-pocket expenses incurred in
connection with rendering its services. The Company has also agreed to
indemnify Duff & Phelps against certain liabilities, including liabilities
under the federal securities laws.
Duff & Phelps did not participate in the negotiations respecting the Merger
and did not recommend the terms of the Merger to the Board of Directors of the
Company. The Board of Directors did not authorize Duff & Phelps to seek, and
accordingly Duff & Phelps did not seek, other acquisition proposals for the
Company. However, the Company had previously retained Tallwood and Cornerstone
during the period from April 1, 1994 through September 30, 1994 to seek
potential buyers of the Company or its assets. Tallwood and Cornerstone did not
introduce JER or Purchaser to the Company. Furthermore, neither Tallwood nor
Cornerstone has delivered any report, opinion or appraisal with respect to the
Merger and neither of them will receive any compensation in connection with or
on account of the Merger. See "The Proposed Merger--Background of the Merger".
The consideration to be paid to stockholders in the Merger was determined in
arms-length negotiations between representatives of Purchaser and the Company.
VOTE REQUIRED FOR MERGER
The AFFIRMATIVE vote of the holders of not less than eighty percent (80%) of
the outstanding shares of Common Stock is required for approval of the Merger.
Therefore, a vote to abstain or a Broker Non-vote will have the same effect as
a vote against the Merger. In connection with the vote to be taken on the
Merger, the officers and directors of the Company, who, as of the Record Date,
collectively have the right to vote 394,410 shares of Common Stock,
representing approximately 4.3% of the outstanding shares of Common Stock, have
each indicated that they will vote such shares in favor of the Merger.
Furthermore, Purchaser has obtained a proxy from certain stockholders of the
Company owning an aggregate of 1,380,964 shares of Common Stock, or
approximately 15% of all of the outstanding shares of Common Stock, to vote
such shares in favor of the Merger and has indicated its intention to vote all
such shares in favor of the Merger. See "The Proposed Merger--Interests of
Certain Persons In the Merger--Proxy Agreement." In addition, certain
affiliates of Purchaser beneficially own or may be deemed to beneficially own
158,400 shares of Common
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Stock, or approximately 1.7% of the outstanding shares of Common Stock, and
have indicated their intent to vote such shares in favor of the Merger. See
"Voting Securities and Principal Stockholders."
THE ENTIRE BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF THE HOLDERS OF THE COMPANY'S COMMON STOCK, AND UNANIMOUSLY
RECOMMENDS THAT ALL STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE MERGER.
ABSENCE OF APPRAISAL RIGHTS
Section 3-202(c)(1)(ii) of the MGCL provides that a stockholder is bound by
the terms of the transaction and may not demand the statutorily determined fair
value for such stockholder's stock if, on the record date for determining
stockholders entitled to vote on a merger, the stock is listed on a national
securities exchange, subject to certain exceptions which do not apply to the
Company or the Merger. Since the Common Stock was traded on the American Stock
Exchange, a national securities exchange, on the Record Date, holders of Common
Stock are not entitled to appraisal rights under Maryland law in connection
with the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for by the "Purchase Method" of accounting,
whereby the purchase price will be allocated in general based upon the relative
fair value of assets acquired and liabilities assumed.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes material federal income tax
considerations in connection with the receipt of cash by the holders of the
Company's Common Stock as a result of the Merger. THE ANALYSIS CONTAINED HEREIN
IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING, PARTICULARLY SINCE CERTAIN OF THE
INCOME TAX CONSEQUENCES OF THE MERGER MAY NOT BE THE SAME FOR ALL STOCKHOLDERS
OF THE COMPANY. ACCORDINGLY, ALL STOCKHOLDERS ARE URGED TO CONSULT THEIR
PROFESSIONAL TAX ADVISORS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS,
INCLUDING ANY POSSIBLE CHANGES IN THE TAX LAWS AFTER THE DATE HEREOF, AND THE
APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS WHICH ARE NOT
SUMMARIZED BELOW.
The receipt of cash consideration by the Company's stockholders in the Merger
will be treated as a taxable transaction for federal income tax purposes and
may be treated as a taxable transaction under state, local and foreign tax
laws. Under the Internal Revenue Code of 1986, as amended (the "Code"), each
stockholder will be required to recognize taxable gain or loss to the extent of
the difference between the amount of cash received and the basis in the shares
exchanged therefor. A stockholder's basis in his shares will in most instances
be equal to his acquisition cost of such shares, less any return of capital
distributions which may have been received by the stockholder from the Company.
Any gain or loss will be capital gain or loss provided that the shares
constitute a capital asset in the hands of such stockholder. Such gain or loss
will constitute long-term capital gain or loss if the property was held by the
taxpayer for more than 12 months and will constitute short-term capital gain or
loss if held for a shorter period. The maximum federal tax rate on net long-
term capital gain is 28% for individuals, estates and trusts and 35% for
corporations.
A stockholder may be subject to backup federal income tax withholding at a
rate of 31% on payments made to such stockholder with respect to shares of
Common Stock converted pursuant to the Merger, unless such stockholder is
exempt from backup withholding or provides the Exchange Agent with his or her
correct taxpayer identification number by completing the Substitute Form W-9 to
be included with the "Letter of Transmittal," certifies as to no loss of
exemption from backup withholding and otherwise complies with the applicable
requirements of the backup withholding rules.
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DESCRIPTION OF MERGER AGREEMENT
The following is a summary of the Merger Agreement. A conformed copy of the
Merger Agreement is included as Appendix A to this Proxy Statement. This
summary is qualified in its entirety by reference to the Merger Agreement, all
of the terms and provisions of which are hereby incorporated herein by this
reference in full. All stockholders are urged to review the Merger Agreement
carefully and in its entirety.
The Merger. Purchaser has formed Merger Sub, a wholly-owned Maryland
subsidiary, solely for the purpose of facilitating the Merger. If the Merger
Agreement is approved by the requisite number of shares of Common Stock, and
all of the other conditions to the consummation of the Merger are either waived
or satisfied, Merger Sub will be merged with and into the Company pursuant to
the provisions of the MGCL, with the Company being the Surviving Corporation.
In the Merger, shares of Common Stock of the Company (excluding shares owned by
Purchaser or Merger Sub but including the Deferred Shares) will be converted
into the right to receive an amount in cash equal to the Cash Merger
Consideration, and all outstanding shares of Merger Sub will be converted into
shares of Common Stock of the Company. As the Surviving Corporation, the
Company will continue its corporate existence as a wholly-owned subsidiary of
Purchaser and the separate corporate existence of Merger Sub will cease.
Effective Time. If the Merger is approved by the stockholders and all of the
other conditions to the Merger set forth in the Merger Agreement are satisfied
or waived, Articles of Merger will be executed and filed with the Maryland
State Department of Assessments and Taxation. The Merger will become effective
as of the date and time (the "Effective Time") of such filing with the Maryland
State Department of Assessments and Taxation or at such later date and time as
otherwise specified in the Articles of Merger.
Conversion of Common Stock. At the Effective Time, each share of Common Stock
of the Company (other than shares owned by Purchaser or Merger Sub but
including all Deferred Shares) will be converted into the right to receive cash
in the amount of $2.475, without interest, payable to the holder thereof upon
surrender of the certificate evidencing such share in the manner provided
below; provided, however, that in the event that a holder owns an odd number of
shares of Common Stock, the aggregate amount of consideration to be received by
such holder for all of his shares shall be rounded up to the nearest whole
cent. Each share of Common Stock owned by the Purchaser or Merger Sub at the
Effective Time shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
Surrender of Stock Certificates. Following the Merger, an exchange agent,
mutually satisfactory to the Company and Purchaser (the "Exchange Agent") will
mail to all holders of record of Common Stock of the Company at the close of
business on the Effective Time a "Letter of Transmittal" to be used in
surrendering to the Exchange Agent their stock certificates. The "Letter of
Transmittal" will provide instructions to the stockholders concerning the
surrender of stock certificates. STOCK CERTIFICATES SHOULD NOT BE SURRENDERED
UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED. DO NOT SEND STOCK CERTIFICATES
WITH YOUR PROXY.
Each holder of Common Stock, except for Purchaser and Merger Sub, will be
entitled to receive, upon surrender to the Exchange Agent of stock certificates
together with a properly completed and duly executed "Letter of Transmittal," a
check payable to the order of such person representing a payment of $2.475 for
each share of Common Stock; provided, however, that in the event that a holder
owns an odd number of shares of Common Stock, the aggregate amount of
consideration to be received by such holder for all of his shares shall be
rounded up to the nearest whole cent. If payment is to be made to a person
other than the person in whose name a surrendered certificate is registered,
the certificate must be endorsed and otherwise be in proper form for transfer.
The person requesting such payment must pay any resulting transfer taxes or
must establish that such taxes either have been paid or are not due. The
Exchange Agent will pay the Cash Merger Consideration to a holder of a stock
certificate which has been lost or destroyed only upon receipt of satisfactory
evidence of ownership and after appropriate indemnification.
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No interest will accrue or be paid on the amounts payable upon the surrender
of stock certificates. Following the Merger, holders of such stock certificates
will cease to have any rights with respect to their shares except the right to
receive the Cash Merger Consideration. Any proceeds that remain unclaimed with
the Exchange Agent on and after one hundred eighty (180) days following the
Effective Time can be released and repaid by the Exchange Agent to Purchaser,
after which time a former stockholder may look to Purchaser for payment in
respect of its shares as a result of the Merger only as a general creditor of
Purchaser, subject to applicable abandoned property, escheat or similar laws.
Stock Options. Immediately prior to the Effective Time, each outstanding
option to purchase shares of the Company Common Stock (a "Company Stock
Option") granted pursuant to the Incentive Stock Option Plan of Mortgage
Investments Plus, Inc., as amended, or the Non-Qualified Stock Option Plan of
Mortgage Investments Plus, Inc., as amended, (collectively, the "Stock Plans"),
whether or not then vested or exercisable, shall become exercisable in full. At
the Effective Time, each Company Stock Option which has an exercise price per
share greater than $2.475 will automatically expire and the holder thereof
shall not be entitled to receive any consideration. Each outstanding Company
Stock Option which has an exercise price per share of less than $2.475 will be
canceled at the Effective Time and converted into the right of the holder
thereof to receive, upon surrender thereof, an amount in cash (the "Net
Exercise Amount") equal to (i) the number of shares which have not previously
been exercised under the Company Stock Option multiplied by (ii) the remainder
after subtracting (a) the applicable per share exercise price of such Company
Stock Option from (b) $2.475.
Deferred Compensation. All deferred compensation arrangements pursuant to the
MIP Properties, Inc. First Amended and Restated Long-Term Incentive
Compensation Plan and the MIP Properties, Inc. Fee Deferral Plan (collectively,
the "Plans") shall be terminated as of the Effective Time and shares of Common
Stock in an amount equal to the number of shares deferred pursuant to such
deferred compensation arrangements shall be issued by the Company to the
persons entitled thereto immediately prior to the consummation of the Merger.
See "The Proposed Merger--Interests of Certain Persons In the Merger."
Financing. Purchaser has informed the Company that it intends to purchase the
shares of Common Stock of the Company, refinance certain of the Company's
existing debt and pay related fees and expenses using approximately $2,000,000
of working capital, approximately $50,000,000 of borrowed funds and
approximately $8,000,000 to be raised in an equity offering exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended.
Furthermore, Purchaser has agreed in the Merger Agreement to maintain not less
than One Million Dollars ($1,000,000) in cash on hand until the Effective Time
and not to incur any obligations or liabilities other than obligations incurred
under, or contemplated by, the Merger Agreement. Purchaser also has informed
the Company that Purchaser has obtained two commitment letters from Wells Fargo
Bank to provide funds necessary to finance the purchase of the shares of Common
Stock, and to refinance certain of the Company's existing debt. See "The
Proposed Merger--Description of Financing."
Representations and Warranties. The representations and warranties of the
Company and of the Purchaser and Merger Sub contained in the Merger Agreement
include various representations and warranties typical in such agreements and
can be found in Section 5.1 and 5.2, respectively, of the Merger Agreement,
which is included in this Proxy Statement as Appendix A. None of the respective
warranties or representations of the Company and of Purchaser and Merger Sub
survive the consummation of the Merger nor the termination of the Merger
Agreement except that the representation and warranty made by Purchaser and
Merger Sub with respect to the capitalization of Purchaser shall survive
termination of the Merger Agreement.
Conduct of Business Pending the Merger. The Company has agreed that, prior to
the Effective Time, neither it nor its subsidiary, Redwood Shores MIP, Inc.
("Redwood"), will do any of the following (nor, will either of them provide
their consent to do certain of the following to any partnership or joint
venture in which the Company or Redwood owns any beneficial equity interest
(the "Partnerships")) without the prior
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written consent of Purchaser or except as otherwise contemplated by the Merger
Agreement: (a) conduct its business otherwise than in the ordinary course; (b)
increase compensation, or grant any severance or termination pay other than in
accordance with past policies, enter into any employment or severance
agreement, adopt any new benefit plans or amend or terminate any existing
benefit plans, or lend or contribute any funds to any director, officer,
employee, affiliate or associate of the Company, the subsidiaries or the
Partnerships; (c) make or agree to make any acquisitions, by merger,
consolidation, purchase or otherwise of an equity interest or any assets of any
other entity other than the purchase of assets from suppliers and vendors in
the ordinary course of business; (d) make any expenditures in connection with
their real property except in accordance with the Company's 1995 budget; (e)
change their method of accounting or tax reporting or make or rescind any
elections relating to taxes or settle any claim relating to taxes; (f) amend
its Charter or Articles of Incorporation, as the case may be, or Bylaws or
other organizational documents; (g) sell or pledge any equity securities of its
subsidiaries or the Partnerships except as provided in the Merger Agreement,
split, combine or reclassify any of their respective securities or declare or
pay any dividends; (h) issue or sell any additional securities or options or
rights to acquire securities except under limited circumstances; (i) transfer,
sell or encumber any of its real property other than the proposed sale and
refinancing referred to in the Merger Agreement or, except in the ordinary
course of business, any of its other assets which would exceed $10,000
individually or in the aggregate; (j) incur any indebtedness in excess of
$10,000 or authorize capital expenditures in excess of $50,000 except for
tenant improvements in the ordinary course of business; (k) enter into any new
contracts or amend or modify any existing contracts which would materially
affect the use or operations of its real property; (l) acquire any shares of
its capital stock; (m) make any loans or investments in any other entity or
person; (n) lease any of its real property in excess of 3,000 square feet other
than as provided in the Merger Agreement, or any of its personal property
involving property or obligations exceeding $10,000 individually or in the
aggregate; (o) settle or compromise any material claims or material litigation
for an amount greater than any reserve established therefor; (p) make any tax
election or cause any of its insurance policies to be canceled or terminated;
or (q) authorize or enter into any agreement to do any of the foregoing. The
Company has also agreed to certain additional restrictions with respect to the
conduct of its business prior to the Effective Time, as set forth in Section
6.1 of the Merger Agreement.
Conditions to the Merger. The Company's obligation, on the one hand, and
Purchaser's and Merger Sub's obligation, on the other hand, to effect the
Merger are subject to various conditions, which include, in addition to other
customary closing conditions, the following: (i) approval of the Merger
Agreement by the holders of not less than eighty percent (80%) of the
outstanding shares of Common Stock; (ii) all filings required to be made prior
to the Effective Time shall have been made, and all consents or approvals
required from governmental authorities will have been obtained; (iii) no law or
regulation will have been enacted, and no judgment or order shall have been
issued by a court or governmental authority, as applicable, restraining or
enjoining or otherwise prohibiting consummation of the Merger; (iv) the
representations and warranties of each of the Company (in the case of the
conditions to Purchaser's and Merger Sub's obligations) and Purchaser and
Merger Sub (in the case of the conditions to the Company's obligations) shall
be true and correct in all material respects on and as of the Effective Time,
and each such entity will have performed in all material respects all
obligations so required to be performed by each under the Merger Agreement; and
(v) the receipt of certain customary opinions from legal counsel as to certain
legal matters relating to the Merger.
The obligations of Purchaser and Merger Sub to consummate the Merger are
subject to the following additional conditions: (i) all consents or approvals
required by third parties under any Material Contract (as defined in the Merger
Agreement), the failure of which to obtain would have a Material Adverse Effect
(as defined in the Merger Agreement), will have been obtained by the Company or
Redwood, as the case may be, (ii) the obligations of the Company or Redwood to
make salary, severance, bonus or accrued vacation payments of any kind to any
employees thereof upon consummation of the Merger or thereafter will not exceed
$265,000 in the aggregate, (iii) receipt of a general partner certificate
certifying the capital account balances of a particular limited partnership as
of the end of its latest tax year, and (iv) no changes shall have
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occurred after December 31, 1994, in the financial condition, properties,
business or results of operation of the Company and its subsidiaries, taken as
a whole, which, individually or in the aggregate, would have a Material Adverse
Effect, except for certain events which have been acknowledged by Purchaser and
Merger Sub in the Merger Agreement.
Certain conditions to the consummation of the Merger, such as the obtaining
of a financing commitment by the Purchaser, the delivery of certain estoppel
certificates obtained by the Company from certain of its tenants and the
receipt of confirmation of certain reconveyances which were obtained in
connection with the repayment of certain Company corporate debt, have
previously been satisfied. Moreover, it is anticipated that all of such
remaining conditions will be satisfied. Any condition to the consummation of
the Merger other than the requisite stockholder approval, may be waived by the
party entitled to the benefit of such condition.
Limitation on Discussions with Third Parties. In order to induce Purchaser to
make this offer, the Company agreed that, until consummation of the Merger or
the earlier termination of the Merger Agreement, it will not directly or
indirectly, through any director, officer, employee, agent, financial advisor
or otherwise, solicit, initiate or encourage the submission of an offer or
proposal from any person, or engage in negotiations, furnish confidential
information or have discussions relating to the acquisition of all or a
material portion of the assets of the Company (whether through an acquisition
of assets of, or an equity interest in, or a merger, exchange offer, tender
offer or other business combination involving the Company) (any of the
foregoing being herein referred to as an "Acquisition Proposal"). However, if
the Board of Directors determines in good faith and is advised by outside legal
counsel that its fiduciary obligations to the stockholders so require, it may
respond to, and negotiate with, third parties concerning such matters; provided
that such third party enters into a confidentiality agreement prior to receipt
of any non-public information regarding the Company. The Company has agreed to
promptly notify Purchaser in the event that the Company should receive any form
of Acquisition Proposal from another party.
Estoppel Certificates. Pursuant to the terms of the Merger Agreement, the
Company was required to deliver to Purchaser estoppel certificates from certain
of its tenants on or prior to June 19, 1995. In addition, the Company agreed to
use its commercially reasonably efforts to obtain on or prior to the Effective
Time estoppel certificates from eighty percent (80%) of its tenants at one of
its properties. The Company has complied with these obligations.
Indemnification. Purchaser has agreed, from and after the Effective Time, to
cause the Surviving Corporation, or any successors or assigns of the Surviving
Corporation, to indemnify, defend and hold harmless, to the extent provided in
the Company's Charter and Bylaws, as in effect on the date the Merger Agreement
was executed, each person who is or was a present or former officer, director,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, partner, trustee, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans (the "Indemnified
Parties") with respect to actions or omissions occurring at or prior to the
Effective Time. Without limiting the foregoing, after the Effective Time, the
Surviving Corporation is required to pay all out-of-pocket fees and expenses,
including reasonable legal fees, for the Indemnified Parties incurred with
respect to the foregoing to the fullest extend permitted under applicable law
promptly after statements therefor are received by the Surviving Corporation;
provided the person on whose behalf the expenses are paid provides an
undertaking to repay such payments if it is ultimately determined that such
person is not entitled to indemnification. In addition, Purchaser has agreed to
purchase a two year "tail" on the Company's existing directors' and officers'
liability insurance coverage, subject to the terms, conditions and limitations
contained in the Merger Agreement.
Additional Agreements. The Company and Purchaser will use their best efforts
to obtain any consents and approvals (or exemptions) of any governmental
authority or third party required to be obtained by such party or its
subsidiaries. Furthermore, the Company agrees that it will not take any actions
with respect to any of the properties or assets that are subject to the
Purchase Agreement (as defined herein) that would
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prohibit or impair in any material respect the ability of the Merger Sub or the
Surviving Corporation to consummate the transactions contemplated by the
Purchase Agreement. See "The Proposed Merger-- Interests of Certain Persons In
the Merger--Purchase Agreement."
Termination. As of the date of this Proxy Statement, the Merger Agreement may
be terminated at any time prior to the Effective Time, regardless of any
stockholder approval, by mutual written consent of Purchaser and the Company,
and by Purchaser or the Company if (i) the other party or parties, as the case
may be, fail to comply in any material respect with any of its covenants in the
Merger Agreement and such failure is not cured within ten (10) business days of
written notice of such breach, (ii) any material representation or warranty by
the other party or parties was incorrect in any material respect when made, or
(iii) the Merger has not been consummated by November 30, 1995.
In addition, the Merger Agreement may be terminated at any time prior to the
Effective Time, regardless of any stockholder approval, (i) by the Purchaser,
if the Company fails to obtain the requisite approval of the holders of at
least eighty percent (80%) of the outstanding shares of the Company's Common
Stock by November 28, 1995 or if the Board of Directors of the Company
withdraws or adversely modifies its recommendation of the Merger, or (ii) by
the Company, if the Board of Directors of the Company enters into a definitive
agreement with another party with respect to an acquisition proposal after
being advised by counsel that failure to consider such acquisition proposal may
breach the director's fiduciary duty to the stockholders of the Company.
Certain conditions relating to the financing to be obtained by Purchaser
which would have enabled either the Company or Purchaser to terminate the
Merger Agreement by June 19, 1995, if they were not met, have been complied
with by Purchaser and, therefore, are no longer applicable.
In the event of termination of the Merger Agreement, there will be no
liability or obligation on the part of any party to the Merger Agreement or any
of its members, directors or officers to any other party other than under
certain specified provisions of the Merger Agreement dealing with the payment
of expenses and termination fees and except as incurred for any breach of the
Merger Agreement. Further, in the event of termination of the Merger Agreement
because the Board of Directors withdraws or adversely modifies its
recommendation of the Merger or enters into a definitive agreement with another
party to be acquired by such party, or because the Company fails to obtain the
requisite approval of the holders of at least eighty percent (80%) of the
outstanding shares of the Company's Common Stock by November 28, 1995, then the
Company will be required to pay Purchaser a termination fee in the amount of
$400,000. However, the Company will not be obligated to pay such termination
fee if either the Purchaser or the Merger Sub has breached its representations
and warranties or failed to comply with all of its respective covenants
contained in the Merger Agreement.
Expenses. Purchaser and the Company are responsible for their own costs and
expenses incurred in connection with the negotiation and execution of the
Merger Agreement. Further, Purchaser will be solely responsible for all costs
and expenses related to obtaining the requisite financing to proceed with the
Merger, and the Company will pay for all costs and expenses of the Company and
Purchaser relating to the solicitation of proxies and the preparation and
mailing of this Proxy Statement. The Company estimates that the aggregate
amount of costs and expenses which it will incur with respect to the Merger,
the solicitation of proxies and the preparation and mailing of this Proxy
Statement will be approximately $635,000.
Amendment and Waiver. Subject to any applicable provisions of the MGCL, the
Merger Agreement may be amended at any time by the written agreement of the
Company, Purchaser and Merger Sub; provided, however, that after the requisite
approval of the Company's stockholders has been obtained, no amendment may
modify either the amount or the form of the Cash Merger Consideration or
otherwise materially adversely affect the Company's stockholders (except for
any delay in the consummation of the Merger) without the further approval of
such stockholders. At any time prior to the Effective Time, the Company, on
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the one hand, and the Purchaser and the Merger Sub, on the other hand, may
extend the time for performance of the obligations of the other party to the
Merger Agreement, waive inaccuracies in representations and warranties and
waive compliance with any agreements or conditions for their respective benefit
contained in the Merger Agreement.
DESCRIPTION OF FINANCING
On June 19, 1995, Wells Fargo Bank ("Wells Fargo") delivered commitment
letters to the Purchaser for the debt financing referred to in the Section
entitled "The Proposed Merger--Description of Merger Agreement--Financing."
Under one of such commitment letters, as amended on July 19, 1995 (the
"Acquisition Letter"), approximately $24,000,000 (the "Acquisition Loan") is
expected to be borrowed by the Surviving Corporation for the acquisition of the
Company, and under the other commitment letter (the "Refinancing Letter"),
approximately $26,000,000 (the "Refinancing Loan") is expected to be borrowed
by Shorebreeze Associates ("Shorebreeze LP"), a California limited partnership,
for the refinancing of existing Company debt. Following consummation of the
Merger, the Surviving Corporation will be a limited partner and the Surviving
Corporation's wholly-owned subsidiary, Redwood, will be the sole general
partner, of Shorebreeze LP. The following is a summary of certain terms of the
Acquisition Letter and the Refinancing Letter. The summary is not meant to be a
complete description of the terms of the commitment letters.
Loans. The Acquisition Loan will be a senior secured term loan, secured by
the collateral described below, with a three-year term and an interest rate of
LIBOR plus 400 basis points. The loan amount is not to exceed 75% of the lesser
of (a) the sum of (i) the aggregate purchase price of the Common Stock, (ii)
the existing debt on Company assets expected to be retired upon the closing of
the Merger and (iii) third party out-of-pocket closing costs not to exceed
$350,000 and financing fees payable pursuant to the Acquisition Letter and (b)
the sum of the appraised values of the Company's assets acquired in the Merger
(and not transferred to an unaffiliated party) and subject at closing to Wells
Fargo's security interest. The loan amount is estimated to be approximately
$24,000,000.
The Refinancing Loan will be a partial recourse loan (with customary
exceptions) secured by the collateral described below, with a three-year term
and an interest rate of LIBOR plus 350 basis points. The loan amount will not
exceed 75% of the appraised value of the real property securing the Refinancing
Loan. The loan amount is currently estimated to be approximately $26,000,000.
Security. The Acquisition Loan will be secured by a perfected first priority
lien and encumbrance on the assets of the Surviving Corporation (subject to
certain permitted exceptions) and proceeds thereof, all cash on hand of the
Surviving Corporation, and certain other collateral as described in the
Acquisition Letter, including, without limitation, certain accounts to be
funded from cash flow produced by the collateral.
The Refinancing Loan will be secured by a first trust deed recorded against
the properties commonly known as Shorebreeze I and II in Redwood City,
California, and a first priority perfected security interest in a lockbox
account.
Conditions Precedent. The loan documents to be executed pursuant to the
Acquisition Letter will contain such conditions precedent to Wells Fargo's
obligations as Wells Fargo deems appropriate, including, without limitation,
satisfaction of Wells Fargo that the Merger has been consummated in accordance
with the terms of the Merger Agreement, consent of Wells Fargo as to the
identity of all direct and indirect owners of the Surviving Corporation,
satisfaction of Wells Fargo that the consummation of the transactions
contemplated by the Acquisition Letter will not constitute a fraudulent
conveyance or result in the Surviving Corporation's insolvency, completion of
certain appraisals and reviews (including environmental reviews), no material
adverse change having occurred since February 28, 1995, Wells Fargo's receipt
of title insurance, estoppel certificates and certain opinions, determination
by Wells Fargo of the assignability of collateral, execution of loan documents
and the creation and perfection of liens, there having been no amendment to or
breach or waiver of the Merger Agreement, the Company having received clearance
form the Securities and Exchange Commission with respect to these proxy
materials on or prior to August 10, 1995, the Company
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having received shareholder approval of the Merger from the holders of a
sufficient number of shares to approve the Merger on or prior to October 15,
1995, the consummation of the Merger having occurred on or prior to November
30, 1995, the closing of the transactions contemplated by the Refinancing
Letter, and the satisfaction of Wells Fargo that Purchaser has invested certain
amounts of equity in accordance with the transactions contemplated by the
Acquisition Letter.
The loan documents to be executed pursuant to the Refinancing Letter will
contain such conditions precedent to Wells Fargo's obligations as Wells Fargo
deems appropriate, including, without limitation, consent of Wells Fargo as to
the identity of all direct and indirect owners of Shorebreeze LP, satisfaction
of Wells Fargo that Shorebreeze LP will be solvent, completion of certain
appraisals and reviews (including environmental reviews), no material adverse
change having occurred from Shorebreeze LP's condition on March 31, 1995, Wells
Fargo's receipt of title insurance, estoppel certificates and certain opinions,
execution of loan documents, closing of the Acquisition Loan, and the
Refinancing Loan having closed on or prior to November 30, 1995.
Committment Fees. Under the Acquisition Letter, 2.0% of the committed amount
of the Acquisition Loan is payable to Wells Fargo on the date of the closing of
the Acquisition Loan. In addition, certain fees will be payable by Purchaser to
Wells Fargo if the Merger does not close, or if the Merger closes but the
Surviving Corporation does not borrow funds from Wells Fargo under the
Acquisition Letter.
Under the Refinancing Letter, 1.5% of the committed amount of the Refinancing
Loan is payable to Wells Fargo on the day of the closing of the Refinancing
Loan.
Covenants and Events of Default. The loan documents to be executed pursuant
to the Acquisition Letter and the Refinancing Letter will contain those
covenants and events of default which Wells Fargo deems appropriate.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the Company's stockholders will not have the
opportunity to continue their equity interest in the Company as an ongoing
corporation and therefore will not share in the future earnings and growth of
the Company, if any. Moreover, if the Merger is consummated, public trading of
the Common Stock will cease, the Common Stock will cease to be listed on the
AMEX, and the registration of the Common Stock under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), will be terminated.
EFFECT OF MARYLAND ANTITAKEOVER AND CONTROL SHARE ACQUISITION STATUTES
Antitakeover. In general, Section 3-602 of the MGCL prohibits a stockholder,
who has acquired 10% or more of the voting power of the outstanding voting
stock of a corporation (an "interested stockholder"), or any affiliate of such
stockholder, from engaging in any business combination (as defined in Section
3-601(e) of the MGCL), such as mergers, consolidations or sales or dispositions
of significant assets ("Business Combinations"), with such corporation for a
period of five years after becoming an interested stockholder of such
corporation. However, pursuant to Section 3-603(c)(1)(ii) of the MGCL, this
prohibition does not apply if the board of directors of the corporation adopts
a resolution approving the proposed Business Combination with a particular
interested stockholder at any time prior to such interested stockholder
becoming an interested stockholder. The Board of Directors of the Company, at a
special meeting duly called and held on February 6, 1995, adopted such a
resolution which exempted any and all Business Combinations that the Company at
any time after the date of the resolution may enter into or be a party to with
or involving JER or any of its existing or future affiliates, which includes
Purchaser and Merger Sub. As of February 6, 1995, Purchaser and its affiliates
had the ability to vote only 1.7% of all of the outstanding voting stock of the
Company. Consequently, since the Board exempted Business Combinations with
Purchaser prior to the
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acquisition of 10% or more of the voting power of the Company by Purchaser or
its affiliates, the MGCL Section 3-602 prohibition does not apply to the Merger
Agreement, the Merger or any transactions contemplated thereby.
Control Share Acquisition. The MGCL contains a control share acquisition
statute, codified in Subtitle 7 of Title 3, which, in general, provides that,
before an acquiror of at least 20%, 33 1/3% or 50% of the voting power of the
outstanding voting stock of a corporation may exercise the right to vote such
shares within each range, the stockholders of the corporation must have
approved such right to vote by the affirmative vote of two-thirds of all of the
"disinterested" shares entitled to vote on the matter. The control share
statute does not apply to certain specified transactions to which the
corporation is a party, including mergers effected in compliance with the MGCL,
such as the Merger. In addition, the control share provisions do not apply if a
charter or bylaw provision is adopted at any time before the acquisition of the
control shares (as defined in the statute) which exempts such acquisition from
the prohibitions contained in Subtitle 7 of Title 3. On February 6, 1995, at a
special meeting, the Board of Directors approved and adopted an amendment to
the Bylaws of the Company which specifically exempted any and all acquisitions
of shares of any class of stock of the Company made at any time by JER or any
of its existing or future affiliates, which includes Purchaser and Merger Sub,
from the restrictions contained in Subtitle 7 of Title 3 of the MGCL.
Consequently, on account of the express exemption of merger transactions, such
as the Merger, from the control share statute as well as the Bylaw amendment
exempting further acquisitions of shares of the Company's Common Stock by JER
or any of its affiliates from the control share limitations, the voting
restrictions contained in Subtitle 3 of Title 7 of the MGCL will not apply to
the Merger.
REGULATORY REQUIREMENTS
The Board of Directors is not aware of any federal or state regulatory
requirements which must be complied with or approval which must be obtained
prior to the proposed Merger other than those which have already been made or
obtained and the filing of appropriate documents to effect the Merger as
required by the MGCL.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors with respect to
the Merger, stockholders should be aware that certain members of the Company's
management and Board of Directors have certain interests which may present them
with possible conflicts of interest in connection with the Merger.
Employment Arrangements with the Company's Chief Executive Officer. Pursuant
to the employment agreement with Carl C. Gregory, III, the Company's Chairman
of the Board and Chief Executive Officer, Mr. Gregory is entitled to receive a
retention bonus equal to One Hundred Thirty-Five Thousand Dollars ($135,000)
(i) if his employment is terminated by the Company without cause during the
term of his employment agreement or (ii) if he is still employed on the earlier
to occur of the Effective Time or November 30, 1995. In addition to such
retention bonus, Mr. Gregory will be entitled to receive accrued vacation and
other benefit payments related to his employment in an amount not to exceed
Forty-Four Thousand Five Hundred Dollars ($44,500). Consequently, Mr. Gregory
will receive the retention bonus, the accrued vacation and other benefit
payments no later than November 30, 1995, whether or not the Merger is
consummated. In addition, in connection with the services which Mr. Gregory
rendered to the Company for the 1994 calendar year, the Board of Directors
adopted a resolution at a meeting on May 14, 1995, awarding a cash bonus of
Sixty-Five Thousand Dollars ($65,000) to be paid immediately to Mr. Gregory.
Retention Bonus and Severance Payment Arrangements with the Company's Chief
Financial Officer. Pursuant to a letter agreement with Marsha Z. Day, the
Company's Chief Financial Officer, Controller and Secretary, Ms. Day will be
entitled to receive a retention bonus at the Effective Time equal to
approximately Eight Thousand Six Hundred Dollars ($8,600) if she is still
employed with the Company at the Effective Time. Furthermore, if Ms. Day's
employment with the Surviving Corporation is terminated
29
<PAGE>
without cause, or if Ms. Day resigns for specified reasons, within six (6)
months following the Effective Time, Ms. Day will be entitled to receive a
severance payment equal to approximately Twenty-Seven Thousand Dollars
($27,000) plus any accrued vacation and other benefits related to her
employment. Following consummation of the Merger, Ms. Day also will be entitled
to surrender her Company Stock Option for a Net Exercise Payment in an
aggregate amount of approximately Two Thousand Dollars ($2,000).
Deferred Compensation. In the event the Merger is consummated, all deferred
compensation arrangements will be terminated and shares of Common Stock in an
amount equal to the number of shares deferred pursuant to such deferred
compensation arrangements will be issued by the Company to the persons entitled
thereto as of the Effective Time. As a result, Mr. Gregory and two directors of
the Company, Robert W. Draine and W. John Driscoll, will be issued 100,000
shares, 5,246 shares and 5,246 shares, respectively, of the Company's Common
Stock immediately prior to the consummation of the Merger and each will be
entitled to surrender such shares to the Exchange Agent immediately after the
Effective Time for Cash Merger Consideration in an aggregate amount equal to
approximately $247,500, $12,980 and $12,980, respectively.
Purchase Agreement. Merger Sub has entered into the Purchase Agreement with
Palm pursuant to which Merger Sub agreed to sell to Palm certain real
properties and other assets of the Surviving Corporation. Such sale by Merger
Sub will take place following the consummation of the Merger and only if the
Merger is actually consummated. The Company is not a party to the Purchase
Agreement, was not involved in any way in the negotiation of the price for the
sale of the real properties and other assets by Merger Sub to Palm, and is not
bound in any way to sell the subject real properties and other assets if the
Merger is not consummated.
Palm beneficially owns 1,366,306 shares of Common Stock of the Company and is
a wholly-owned subsidiary of A-Mark Financial Corporation, a corporation all of
the outstanding stock of which is owned by Steven C. Markoff, a former director
of the Company. Steven C. Markoff resigned as a director of the Company on
February 16, 1995.
In the Purchase Agreement, Merger Sub has agreed that, following consummation
of the Merger, it shall cause the Surviving Corporation to sell to Palm all of
its right, title and interest in and to the following properties and assets:
(1) That certain real property and the improvements thereon commonly
known as Irwindale Executive Plaza, 5200 and 5240 North Irwindale Avenue,
Irwindale, California (the "Irwindale Property");
(2) That certain unimproved real property commonly known as Sunwest Land,
San Bernardino, California (the "Sunwest Unimproved Property");
(3) Ninety-eight percent (98%) of the right, title and interest of the
Surviving Corporation as a limited partner (the "Partnership Interest") in
Discovery Partners, a California limited partnership ("Discovery
Partners");
(4) The contract rights of the Surviving Corporation under that certain
Settlement Agreement dated March 10, 1994, among Lary J. Mielke, Thomas R.
Tellefsen and the Company (the "Greenhouse Settlement Agreement"); and
(5) The Surviving Corporation's interests in that certain Promissory Note
dated June 5, 1989 made by Donald F. Sammis and Fernanda Sammis, husband
and wife, Lee C. Sammis, Trustee of the Donald F. Sammis Children's Trust
dated August 5, 1983, Mission Valley One, a California general partnership,
and MBM Associates, a California limited partnership, in favor of the
Company in the original principal amount of Twelve Million Three Hundred
Fifty Thousand Dollars ($12,350,000) (as amended to date, the "Note", and
collectively with the loan documents executed in connection with the making
of the loan evidenced by the Note, the "Loan Documents").
The Irwindale Property, the Sunwest Unimproved Property, the Partnership
Interest, the Greenhouse Settlement Agreement and the Loan Documents are
collectively referred to herein as the "Property".
30
<PAGE>
Under the Purchase Agreement, Palm has agreed to pay to the Surviving
Corporation, on the closing date of the purchase and sale of the Property (the
"Property Sale Closing Date"), a purchase price equal to $1.575 million plus
the product of (i) Net Operating Cash Flow (as defined in the Purchase
Agreement) from March 1, 1995 until the Property Sale Closing Date and (ii)
negative one, net of all prorations and closing costs as provided in the
Purchase Agreement (the "Property Purchase Price"). In addition, Palm will
assume all liabilities arising out of and related to the Property.
Based upon the foregoing formula and based upon certain assumptions as to
anticipated closing costs, prorations and expenses, as of the date hereof, it
is estimated that if the Property Sale Closing Date were to occur on September
30, 1995, the Property Purchase Price paid to the Surviving Corporation by Palm
would be approximately $1.8 million. The Company was not involved in the
negotiation of the price at which the Purchaser has proposed to sell the
Property or the other terms of the Purchase Agreement. In addition, the Company
has no knowledge of Purchaser's investment goals or strategy with respect to
the portfolio of properties to be acquired by the Surviving Corporation in the
Merger or the impact of Purchaser's acquisition financing on such goals and
strategy. The Company's net book value in accordance with generally accepted
accounting principles for the Property as of March 31, 1995, as adjusted for
certain capital expenditures incurred since that date, was approximately $3.3
million. Net book value does not necessarily represent current market value.
Since the Company is not a party to the Purchase Agreement, if the Merger is
not consummated, the Company will not be obligated to sell the Property to
Palm. Moreover, since the sale of the Property by the Surviving Corporation
will only take place if the Merger is consummated and the other conditions set
forth in the Purchase Agreement are satisfied or waived, the Company's
stockholders will not be entitled to participate in any of the proceeds to be
received by the Surviving Corporation from such sale.
In connection with the Purchase Agreement, Palm also obtained an option (the
"Option") to acquire the remaining limited partnership interests in Discovery
Partners held by the Surviving Corporation. The Option is exercisable from and
after twelve and one-half months after the Property Sale Closing Date and
expires sixty (60) days thereafter. The exercise price of the Option will be
the fair market value of the remaining limited partnership interests as
mutually agreed upon by Palm and the Surviving Corporation, provided that the
purchase price will not be less than $2,500 nor more than $7,500.
The consummation of the transactions contemplated by the Purchase Agreement
are required to occur on the date on which all conditions to each party's
obligations under the Purchase Agreement have been satisfied or waived or at
such other time as Palm and Merger Sub may agree, but in no event later than
thirty (30) days after the date on which the Merger closes.
Merger Sub has made certain covenants in favor of Palm in the Purchase
Agreement, including, but not limited to, the agreement of Merger Sub that it
will promptly seek and obtain the consent of Palm prior to delivering to the
Company any consent required under Section 6.1 of the Merger Agreement. Under
Section 6.1 of the Merger Agreement, the Company is required to obtain the
written agreement of the Purchaser prior to effecting certain transactions
involving its properties or business. In addition, Merger Sub has agreed to use
its reasonable efforts to cause the Company to make available to Palm certain
agreements, documents and reports, and to provide access to the real properties
being sold for inspections.
It is a condition to the obligations of each of Palm and Merger Sub to
consummate the transactions contemplated by the Purchase Agreement that, among
other things, the Merger shall have been consummated. In addition, it is a
condition to the obligation of Palm to consummate the transactions contemplated
by the Purchase Agreement that Palm believes that (i) the representations and
warranties of the Company contained in Section 5.1(m) (with respect to the
Company's real property), 5.1(t) (with respect to environmental matters
relating to the Company and its real property), and 5.1(u) (with respect to
insurance policies held by the Company) of the Merger Agreement are true and
correct in all material respects as of the Property Sale Closing Date and (ii)
between the date of the Merger Agreement and the Property Sale
31
<PAGE>
Closing Date, the Irwindale Property and the Sunwest Unimproved Property have
been operated in accordance with the covenants contained in Section 6.1 of the
Merger Agreement and the projections set forth as an exhibit to the Purchase
Agreement.
The Purchase Agreement may be terminated at any time prior to the Property
Sale Closing Date, (i) by the mutual written consent of Merger Sub and Palm,
(ii) if there has been a material violation or breach of a representation or
warranty that has rendered the satisfaction of a condition impossible and which
has not been waived, (iii) if the Merger shall not have occurred by November
30, 1995, (iv) in the event that the Merger Agreement or the Proxy Agreement
(discussed below) shall terminate or (v) if the Property Sale Closing Date
shall not have occurred on or prior to the thirtieth (30th) day following the
date on which the Merger closes.
Proxy Agreement. Merger Sub and Purchaser have entered into an agreement
dated May 21, 1995 (the "Proxy Agreement") with Palm and Steven C. Markoff and
his wife, Jadwiga Z. Markoff (collectively, the "Markoffs" and collectively
with Palm, the "Palm Group"), pursuant to which the Palm Group granted to the
Purchaser a proxy (the "Proxy") to vote 1,380,964 shares of Common Stock of the
Company owned by the Palm Group (the "Palm Shares") at every annual, special or
adjourned meeting of the stockholders of the Company in favor of the adoption
of the Merger Agreement and any other matter relating to consummation of the
transactions contemplated by the Merger Agreement and against any Competing
Transaction (as defined in the Proxy Agreement). The Proxy Agreement further
provides that in the event that Purchaser is unable to exercise the power and
authority granted thereunder for any reason, then the Palm Group is required to
vote all of the Palm Shares in favor of approval and adoption of the Merger
Agreement and the transactions contemplated thereby.
The Proxy granted to the Purchaser under the Proxy Agreement is irrevocable
unless terminated in accordance with its terms. The Proxy Agreement may be
terminated by the Palm Group upon written notice to the Purchaser upon the
occurrence of certain events including, but not limited to, (i) if the Merger
shall not have been consummated on or prior to November 30, 1995, (ii) if the
Merger Agreement is terminated either by Purchaser or the Company or (iii) if
the Merger Agreement is amended or modified in any material respect in a manner
materially adverse to the Company, the stockholders of the Company or the Palm
Group, without the written consent of the Palm Group. In addition, Purchaser
and Merger Sub may terminate the Proxy Agreement upon written notice to the
Palm Group if the Merger shall not have been consummated on or prior to
November 30, 1995 or if the Merger Agreement is terminated either by Purchaser
or the Company.
In the Proxy Agreement, the Palm Group also agreed that (i) it would not
sell, pledge, or dispose of any of the Palm Shares or permit the Palm Shares to
be subject to any liens, (ii) it will not grant or enter into any rights,
options or other similar agreements to purchase or acquire any additional
shares of Common Stock of the Company or to dispose of the Palm Shares, (iii)
it will not subject the Palm Shares to any voting trust or other voting
arrangement or grant any proxy with respect to the shares and (iv) neither the
Palm Group nor any of its affiliates or associates will acquire record or
beneficial ownership of any securities of the Company or any of the Company's
direct or indirect subsidiaries, or become a participant in or encourage or
solicit a Competing Transaction.
32
<PAGE>
RECENT EVENTS
BOARD MEETING ATTENDANCE FEES
The Board of Directors of the Company adopted a resolution authorizing the
payment of a cash monthly retainer of $833.33 to each non-employee director
commencing on May 1, 1995. In addition, John W. Creighton, Jr., a director of
the Company, has recently been elected to the Board of Directors of Unocal
Corporation.
MATURITY OF SHOREBREEZE LOANS
The Company is a limited partner of, and a lender to, and its wholly-owned
subsidiary, Redwood, is the sole general partner of, Shorebreeze LP, the
limited partnership that owns the land and improvements referred to by the
Company as the "Shorebreeze Project". As of the date hereof, certain loans
secured by first and second priority deeds of trust and other security
arrangements on the Shorebreeze Project (the "Shorebreeze Loans") have matured
and have not been refinanced, repaid or extended. The outstanding principal and
interest due on the Shorebreeze Loans to third party lenders as of July 1,
1995, was an aggregate of approximately $29.8 million. The Company and
Shorebreeze LP are in the process of negotiating extensions and/or refinancing
of the Shorebreeze Loans and the existing lenders have made offers for
extensions and/or forbearances with respect to the Shorebreeze Loans. Although
based on the Company's past experience in negotiating extensions of loans for
itself and certain of its partnerships, including Shorebreeze LP with these
lenders, the Company believes that it will be able to assist Shorebreeze LP in
obtaining extensions of the Shorebreeze Loans, no assurance can be given that
the Company and Shorebreeze LP will be successful in obtaining any extension or
refinancing of such loans. If the Company and Shorebreeze LP are unable to
obtain an extension or refinancing of the Shorebreeze Loans, then the lenders
will have, among other remedies, the right to foreclose on the Shorebreeze
Project which could have a material adverse effect on the Company's financial
position. However, Shorebreeze LP has informed the Company, and the Company
believes, that a foreclosure on the Shorebreeze Project is unlikely because
Shorebreeze LP has a number of viable alternatives, such as further
negotiations, sale, bankruptcy of Shorebreeze LP or infusion of additional
equity capital.
33
<PAGE>
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
The following tables set forth certain information, as of the Record Date,
concerning (i) any person or group known to the Company to be the beneficial
owner of more than 5% of the outstanding Company Common Stock, and (ii) the
directors and executive officers of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND BENEFICIAL PERCENT
TITLE OF CLASS ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
-------------- ----------------------------- ---------- --------
<S> <C> <C> <C>
Common Stock................ Palm Finance Corporation (a) 1,380,964(b) 14.97%
100 Wilshire Blvd., 3rd Floor
Santa Monica, CA 90401
Common Stock................ JER Partners, LLC (c) 1,380,964(d) 14.97%
11 Canal Center Plaza
Suite 200
Alexandria, VA 22314
Common Stock................ Joseph E. Robert, Jr. (c) 1,539,364(e) 16.69%
J.E. Robert Companies
11 Canal Center Plaza
Suite 200
Alexandria, VA 22314
</TABLE>
- - --------
(a) Information was obtained from the Schedule 13D filed by Steven C. Markoff
and Palm Finance Corporation with the Securities and Exchange Commission
(the "SEC") and dated January 26, 1995.
(b) Includes 14,658 shares of common stock owned jointly by Steven C. Markoff
and Jadwiga Z. Markoff. Steven C. Markoff is the indirect owner of Palm
Finance Corporation.
(c) Information was obtained from the Schedule 13D filed on behalf of Joseph E.
Robert Jr. and Purchaser with the SEC on May 31, 1995.
(d) Refers to shares of Common Stock owned by the Palm Group from whom
Purchaser has obtained a Proxy enabling it to vote these shares in favor of
the Merger and against any Competing Transaction (as defined in the Proxy
Agreement). See "The Proposed Merger--Interests of Certain Persons In the
Merger--Proxy Agreement." The Palm Group has retained all other voting
rights with respect to these shares.
(e) Includes (i) shared voting power over the 1,380,964 shares of Common Stock
as to which Purchaser, an entity controlled by Mr. Robert, has obtained the
Proxy, (ii) sole voting and sole dispositive power over 157,400 shares held
by J.E. Robert Company, Inc., a corporation all of whose stock is owned by
Mr. Robert, and (iii) shared voting and shared dispositive power over 1,000
shares of Common Stock owned by an employee of JER, as to which Mr. Robert
disclaimed beneficial ownership in the Schedule 13D filed on his behalf on
May 31, 1995.
34
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP (a) OF CLASS (b)
-------------- ------------------------ ------------- ------------
<S> <C> <C> <C>
Common Stock.... Raymond L. Bly, Jr. 35,658(c) *
Common Stock.... John W. Creighton, Jr. 70,258(c) *
Common Stock.... Robert W. Draine 93,658(c)(d) 1.0
Common Stock.... W. John Driscoll 226,144(c)(d)(e) 2.4
Common Stock.... Lawrence W. Farmer 69,534(f) *
Common Stock.... Paul Fitzgerald 34,658(c) *
Common Stock.... Carl C. Gregory, III 261,000(g) 2.8
Common Stock.... Richard T. Pratt 36,992(c) *
Common Stock.... Directors and Executive 863,602 9.0
Officers as a group (9
individuals)
</TABLE>
- - --------
(a) As of August 3, 1995.
(b) Asterisk denotes amount is less than 1%.
(c) Includes 20,000 shares which may be acquired upon exercise of a stock
option, but which do not have the right to vote on any matters in
connection with the Merger. The Company does not anticipate that the stock
option will be exercised for any of these shares because the per share
exercise price is above the per share Cash Merger Consideration to be
received in the Merger.
(d) Includes 5,246 shares which, in the event the Merger is consummated, will
be issued by the Company in substitution of deferred shares as required by
the terms of the Company's Fee Deferral Plan. None of these 5,246 shares
will have the right to vote on any matters in connection with the Merger.
(e) Includes 131,800 shares for which the voting and/or dispositive powers are
shared with others.
(f) Includes 50,000 shares which may be acquired upon exercise of a stock
option, but which do not have the right to vote on any matters in
connection with the Merger. The Company does not anticipate that the stock
option will be exercised for any of these shares because the per share
exercise price is above the per share Cash Merger Consideration to be
received in the Merger.
(g) Includes 95,000 shares which may be acquired upon exercise of a stock
option and 100,000 shares which, in the event the Merger is consummated,
will be issued by the Company in substitution of deferred shares as
required by the terms of the Company's First Amended and Restated Long-Term
Incentive Compensation Plan. None of these 195,000 shares will have the
right to vote on any matters in connection with the Merger. Further, the
Company does not anticipate that the stock option will be exercised for any
of the 95,000 shares subject thereto because the per share exercise price
is above the per share Cash Merger Consideration to be received in the
Merger.
35
<PAGE>
INDEPENDENT ACCOUNTANTS
A representative of Arthur Andersen LLP, the Company's independent certified
public accountants, is expected to be present at the Special Meeting and will
be available to respond to appropriate stockholders' questions. The
representative will have the opportunity to make a statement if he or she so
desires.
INCORPORATED DOCUMENTS
The following documents filed by the Company with Securities and Exchange
Commission are incorporated by reference in this Proxy Statement and are deemed
to be a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994;
(2) The Company's Form 10-K/A (Amendment No. 1) dated April 25, 1995,
which amends and restates the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994;
(3) The Company's Quarterly Report on Form l0-Q for the quarter ended
March 31, 1995; and
(4) The Company's Current Report on Form 8-K dated May 25, 1995.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, after the date of
this Proxy Statement and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference in this Proxy Statement and to be part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy Statement to the
extent that a statement contained herein or in any other subsequently filed
document which is also incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
These documents (without exhibits, unless such exhibits are specifically
incorporated by reference into the information that this Proxy Statement
incorporates by reference herein) are available without charge to each person,
including each beneficial owner, to whom a copy of this Proxy Statement is
delivered, upon written or oral request of such person and by first class mail
or other equally prompt means within one business day of receipt of request.
Requests should be directed to MIP Properties, Inc., 2020 Santa Monica
Boulevard, Suite #480, Santa Monica, California 90404, telephone number: (310)
449-4444 or 1-800-MIP-4481 (1-800-647-4481), Attention: Secretary.
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
Because of the nature of the Special Meeting, the date for the next Annual
Meeting has not been established. If the Merger is approved, no meeting will be
held. However, if it is not approved, any proposals by stockholders for matters
to be acted upon at the Annual Meeting must be received no later than 60 days
prior to the date of the Annual Meeting.
OTHER MATTERS
The Board of Directors is not aware of any other business to be brought
before the Special Meeting. If any other business is properly brought before
the Special Meeting, the persons named in the enclosed proxy card will have
discretionary authority to vote the shares of Common Stock thereby represented
in accordance with their best judgment.
36
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 21, 1995
BY AND AMONG
MIP PROPERTIES, INC.,
JER PARTNERS, LLC,
AND
MIP ACQUISITION CORPORATION
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<C> <S> <C>
ARTICLE I THE MERGER; CLOSING; EFFECTIVE TIME.......................... 1
1.1 The Merger................................................... 1
1.2 Closing...................................................... 2
1.3 Effective Time............................................... 2
ARTICLE II CHARTER AND BYLAWS OF THE SURVIVING CORPORATION 2
2.1 Charter...................................................... 2
2.2 Bylaws....................................................... 2
ARTICLE III OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION.......... 3
3.1 Officers and Directors....................................... 3
ARTICLE IV CONVERSION AND CANCELLATION OF SHARES IN THE MERGER.......... 3
4.1 Conversion and Cancellation of Shares........................ 3
4.2 Payment for Shares........................................... 4
4.3 Transfer of Shares After the Effective Time.................. 5
ARTICLE V REPRESENTATIONS AND WARRANTIES............................... 5
5.1 Representations and Warranties of the Company................ 5
5.2 Representations and Warranties of Purchaser and Merger Sub... 20
ARTICLE VI COVENANTS.................................................... 22
6.1 Interim Operations of the Company............................ 22
6.2 Meeting of the Company's Stockholders........................ 25
6.3 No Solicitation.............................................. 26
6.4 Estoppel Certificates........................................ 26
6.5 Filings; Consents; Other Action.............................. 27
6.6 Access....................................................... 27
6.7 Publicity.................................................... 27
6.8 Stock Options and Deferred Shares............................ 28
6.9 Indemnification.............................................. 28
6.10 Financing.................................................... 29
6.11 SEC Filings.................................................. 29
6.12 Cooperation with Lender Diligence............................ 30
6.13 Financial and Operating Covenants of Purchaser............... 30
6.14 Notice of Developments....................................... 30
6.15 Purchase Agreement........................................... 30
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE VII CONDITIONS................................................... 30
7.1 Conditions to Obligations of the Purchasing Entities......... 30
7.2 Conditions to Obligation of the Company...................... 33
ARTICLE VIII TERMINATION.................................................. 34
8.1 Termination by Mutual Consent................................ 34
8.2 Termination by Either Purchaser or the Company............... 34
8.3 Termination by Purchaser..................................... 34
8.4 Termination by the Company................................... 35
8.5 Effect of Termination and Abandonment........................ 35
8.6 Termination Fee.............................................. 36
ARTICLE IX MISCELLANEOUS AND GENERAL.................................... 36
9.1 Payment of Expenses.......................................... 36
9.2 Survival..................................................... 36
9.3 Amendment.................................................... 37
9.4 Waiver of Conditions......................................... 37
9.5 Counterparts................................................. 37
9.6 Governing Law................................................ 37
9.7 Notices...................................................... 37
9.8 Entire Agreement; Assignment................................. 38
9.9 Captions..................................................... 38
9.10 Waiver....................................................... 38
9.11 Severability................................................. 38
9.12 Attorneys' Fees.............................................. 38
ARTICLE X CERTAIN DEFINITIONS.......................................... 39
10.1 Definition of "Knowledge of the Company"..................... 39
10.2 Definition of "Subsidiary"................................... 39
SIGNATURE PAGE................................................................ 41
</TABLE>
EXHIBITS
- - --------
EXHIBIT A Form of Articles of Merger
EXHIBIT B Substance of Opinion of AMLGM, Corporate Counsel to the Company
EXHIBIT C Substance of Opinion of Real Estate Counsel to the Company
EXHIBIT D Substance of Opinion of Piper & Marbury, Special Maryland
Counsel to the Company
EXHIBIT E Form of Estoppel Certificate
EXHIBIT F Substance of Opinion of SASMF, Special Counsel to Purchaser
and Merger Sub
-ii-
<PAGE>
EXHIBIT G Form of Opinion of Gordon, Feinblatt, Rothman, Hoffberger &
Hollander, Special Maryland Counsel to Purchaser and Merger Sub
SCHEDULES
- - ---------
SCHEDULE 5.1(a) Subsidiaries and Partnerships
SCHEDULE 5.1(d) Breaches or Defaults; Consents
SCHEDULE 5.1(f) Changes
SCHEDULE 5.1(g) Benefit Plans
SCHEDULE 5.1(i) Tax Liens, Waivers or Extensions
SCHEDULE 5.1(l) Material Contracts
SCHEDULE 5.1(m) Real Property
SCHEDULE 5.1(m) (iii) Permits and Proceedings
SCHEDULE 5.1(m) (iv) Engineering Reports
SCHEDULE 5.1(m) (v) Improvements
SCHEDULE 5.1(p) Litigation
SCHEDULE 5.1(s) Related Party Transactions
SCHEDULE 5.1(t) Environmental Reports
SCHEDULE 5.1(u) Insurance
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into
as of May 21, 1995 by and among MIP PROPERTIES, INC., a Maryland corporation
(the "Company"), JER PARTNERS, LLC, a Maryland limited liability company
("Purchaser"), and MIP ACQUISITION CORPORATION, a Maryland corporation and a
wholly-owned subsidiary of Purchaser ("Merger Sub"). The Purchaser and Merger
Sub are sometimes hereinafter collectively referred to as the "Purchasing
Entities".
R E C I T A L S :
----------------
A. Purchaser and the Board of Directors of the Company each have
determined that it is in the best interests of their members and stockholders,
respectively, for Purchaser to acquire the Company upon the terms and subject to
the conditions set forth herein.
B. The Company, Purchaser and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
A G R E E M E N T :
------------------
In consideration of the premises and of the representations,
warranties, covenants and agreements contained herein, the parties hereto agree
as follows:
ARTICLE I
---------
THE MERGER; CLOSING; EFFECTIVE TIME
-----------------------------------
1.1 The Merger
--- ----------
Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 1.3) Merger Sub shall be merged with and
into the Company and the separate corporate existence of Merger Sub shall
thereupon cease (the "Merger"). The Company shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the "Surviving Corporation")
and shall continue to be governed by the laws of the State of Maryland. The
separate corporate existence of the Company with all of its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger,
subject to the provisions of Article II hereof (as it relates to the Charter and
Bylaws of the Company), Article III hereof (as it relates to directors and
officers of the Company) and Article IV hereof (as it relates to the capital
stock of the Company), and the Company shall succeed, without other transfer, to
all of the rights and properties of Merger Sub and shall be subject to all of
the debts and liabilities of Merger Sub.
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<PAGE>
The Merger shall have the effects specified in the Maryland General Corporation
Law (the "MCL").
1.2 Closing
--- -------
The closing of the Merger (the "Closing") shall take place (i) at the
offices of Allen, Matkins, Leck, Gamble & Mallory, 515 South Figueroa Street,
Eighth Floor, Los Angeles, California 90071, at 9:00 A.M., California time, on
the first business day following the date upon which the last to be fulfilled or
waived of the conditions set forth in Article VII hereof shall be fulfilled or
waived in accordance with this Agreement or (ii) at such other place and time
and/or on such other date as the Company and Purchaser may agree.
1.3 Effective Time
--- --------------
As soon as practicable following the Closing, and provided that this
Agreement has not been terminated or abandoned pursuant to Article VIII hereof,
Articles of Merger in the form attached hereto as Exhibit A (the "Articles of
---------
Merger") shall be promptly filed and recorded in accordance with the MCL. The
Merger shall thereupon become effective at the time and date of such filing or
at such date and time otherwise specified in the Articles of Merger, and such
time is hereinafter referred to as the "Effective Time".
ARTICLE II
----------
CHARTER AND BYLAWS
-------------------
OF THE SURVIVING CORPORATION
----------------------------
2.1 Charter
--- -------
By operation of the Merger, the Articles of Restatement of Charter
(the "Charter") of the Company, as the Surviving Corporation, shall be amended
and restated in its entirety as of the Effective Time to be in the form of the
Charter of Merger Sub as in effect immediately prior to the Effective Time,
until duly amended in accordance with the terms thereof and the MCL, except as
otherwise set forth in the Articles of Merger.
2.2 Bylaws
--- ------
Immediately after the Effective Time, the Bylaws of the Company, as
the Surviving Corporation, shall be amended and restated in their entirety, by
action of the Board of Directors of the Surviving Corporation, or by Purchaser
as the sole stockholder of the Surviving Corporation, to be in the form of the
Bylaws of Merger Sub as in effect immediately prior to the Effective Time, until
duly amended in accordance with the terms thereof and the MCL.
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<PAGE>
ARTICLE III
-----------
OFFICERS AND DIRECTORS
-----------------------
OF THE SURVIVING CORPORATION
----------------------------
3.1 Officers and Directors
--- ----------------------
At the Effective Time, each of the officers and directors of the
Company shall submit written resignations as officers and/or directors of the
Company, and immediately thereafter the Purchaser, as the sole stockholder of
the Surviving Corporation, shall cause the officers and directors of the Merger
Sub immediately prior to the Effective Time to be elected as the officers and
directors, respectively, of the Surviving Corporation. Such directors and
officers shall remain as such until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Charter and Bylaws.
ARTICLE IV
----------
CONVERSION AND CANCELLATION
----------------------------
OF SHARES IN THE MERGER
-----------------------
4.1 Conversion and Cancellation of Shares
--- -------------------------------------
The manner of converting and canceling shares of the Company and
Merger Sub in the Merger shall be as follows:
(a) At the Effective Time, each share of Common Stock, $.01 par
value per share, of the Company (the "Common Stock") issued and outstanding
immediately prior to the Effective Time (other than shares owned by one of
the Purchasing Entities but including all shares that have been deferred
under the Company's First Amended and Restated Long-Term Incentive
Compensation Plan and Fee Deferral Plan) (the "Shares") shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into the right to receive, without interest, an amount in cash
equal to $2.475 per share (the "Cash Merger Consideration").
(b) At the Effective Time, all Shares, by virtue of the Merger
and without any action on the part of the holders thereof, shall cease to
be outstanding and shall be canceled and retired and shall cease to exist,
and each holder of a certificate representing any such Shares shall
thereafter cease to have any rights with respect to such Shares, except the
right of holders (other than the Purchasing Entities) to receive the Cash
Merger Consideration upon the surrender of such certificate in accordance
with Section 4.2.
(c) At the Effective Time, each share of Common Stock issued and
outstanding at the Effective Time and owned by any of the Purchasing
Entities shall, by virtue of the Merger and without any action on the part
of the holder thereof, cease to be
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<PAGE>
outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
(d) At the Effective Time, each share of Common Stock, $.01 par
value per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and become one fully paid and
nonassessable share of Common Stock of the Surviving Corporation.
4.2 Payment for Shares
--- ------------------
(a) At the Effective Time, Purchaser shall make available or
cause to be made available to an exchange agent mutually satisfactory to
the Company and Purchaser (the "Exchange Agent"), amounts sufficient in the
aggregate to provide all funds necessary for the Exchange Agent to make
payments pursuant to Section 4.1(a) hereof to holders of Shares issued and
outstanding immediately prior to the Effective Time who are to receive the
Cash Merger Consideration. Promptly, and in no event later than five (5)
business days, after the Effective Time, the Surviving Corporation shall
cause to be mailed to each person who was, at the Effective Time, a holder
of record (other than any of the Purchasing Entities) of issued and
outstanding Shares, a form (mutually agreed to by Purchaser and the
Company) of letter of transmittal and instructions for use in effecting the
surrender of the certificates which, immediately prior to the Effective
Time, represented any of such Shares in exchange for payment of the Cash
Merger Consideration therefor. Upon surrender to the Exchange Agent of
such certificates, together with such letter of transmittal, duly executed
and completed in accordance with the instructions thereto, and only upon
such surrender, the Purchaser shall promptly cause to be delivered to the
persons entitled thereto a check in the amount that such persons are
entitled under Section 4.1(a) hereof, after giving effect to any required
tax withholdings.
(b) No interest will be paid or will accrue on the amount payable
upon the surrender of any certificate, whether or not such certificate was
surrendered for the Cash Merger Consideration. If payment is to be made to
a person other than the registered holder of the certificate surrendered,
it shall be a condition of such payment that the certificate so surrendered
shall be properly endorsed and otherwise in proper form for transfer, as
determined by the Exchange Agent or Purchaser, and that the person
requesting such payment shall pay any transfer or other taxes required by
reason of the payment to a person other than the registered holder of the
certificate surrendered or establish to the satisfaction of the Purchaser
or the Exchange Agent that such tax has been paid or is not payable. One
hundred and eighty days following the Effective Time, Purchaser shall be
entitled to cause the Exchange Agent to deliver to it any funds (including
any interest received with respect thereto) made available to the Exchange
Agent which have not been disbursed to holders of certificates formerly
representing Shares outstanding on the Effective Time, and thereafter such
holders shall be entitled to look to the Purchaser only as general
creditors thereof with respect to the Cash Merger Consideration payable
upon due surrender of their certificates. Notwithstanding the
-4-
<PAGE>
foregoing, neither the Exchange Agent nor any party hereto shall be liable
to any holder of certificates formerly representing Shares for any amount
paid to a public official as required by any applicable abandoned property,
escheat or similar law.
(c) The Company shall pay all charges and expenses, including
those of the Exchange Agent, in connection with the exchange of Shares for
the Cash Merger Consideration.
4.3 Transfer of Shares After the Effective Time
--- -------------------------------------------
No transfers of Shares shall be made on the stock transfer books of
the Surviving Corporation at or after the Effective Time. If, after the
Effective Time, certificates representing Shares are presented to the Surviving
Corporation or its agents, they shall be canceled and exchanged for the Cash
Merger Consideration after giving effect to any required tax withholdings. To
the extent that any amounts are withheld, such amounts shall be treated as
having been paid. Until such certificates are surrendered, each certificate
shall be deemed to evidence only the right to receive the Cash Merger
Consideration upon such surrender in accordance with the terms and conditions
set forth herein.
ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
5.1 Representations and Warranties of the Company
--- ---------------------------------------------
The Company hereby represents and warrants to Purchaser and Merger Sub
that:
(a) Corporate Organization and Qualification. The Company is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the
laws of the State of Maryland and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification,
except where such failure to so qualify or be in such good standing, would
not have a material adverse effect on the financial condition, properties,
business or results of operations of the Company and its subsidiaries taken
as a whole (a "Material Adverse Effect"). Redwood Shores MIP, Inc., a
California corporation and a wholly-owned subsidiary of the Company
("Redwood"), is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and is in good standing
as a foreign corporation in each jurisdiction where the properties owned,
leased or operated, or the business conducted, by it require such
qualification, except where such failure to so qualify or be in such good
standing, would not have a Material Adverse Effect. The Company, Redwood
and, to the Knowledge of the Company (as defined in Section 10.1 hereof),
the Partnerships have the requisite corporate or partnership power and
corporate or partnership authority, as applicable, to carry on their
respective businesses as they are now being conducted. Schedule 5.1(a)
---------------
sets forth: each of the Company's subsidiaries (as defined in Section 10.2
hereof); each subsidiary's jurisdiction of organization; each partnership,
joint venture or other organization, including, but not
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<PAGE>
limited to, Discovery Plaza, Shorebreeze I and II, and Harbor Point (the
"Partnerships"), in which the Company or any of its subsidiaries owns any
beneficial equity interest and the jurisdiction of organization and the
nature and percentage of the Company's ownership interest in such
Partnerships; and the names of persons other than the Company that are
equity owners of the Company's subsidiaries or, to the Knowledge of the
Company, are equity owners of any such Partnership. Except for Redwood,
which is the general partner of Shorebreeze Associates, a California
limited partnership ("Shorebreeze LP"), each of the subsidiaries listed on
Schedule 5.1(a) is an inactive corporation with no substantial assets,
---------------
liabilities (contingent or otherwise) in excess of $10,000 in the aggregate
or businesses. To the Knowledge of the Company, each of the Partnerships
has been duly organized and is validly existing as a limited partnership
under the laws of the jurisdiction of its organization. With respect to the
Company's and Redwood's interests in its subsidiaries and the Partnerships,
(i) the Company or Redwood (as the case may be) owns such interests free
and clear of all liens, pledges, security interests, claims, options or
other encumbrances, except as set forth in the partnership agreements
(ii) except as set forth in Schedule 5.1(d), neither the Company nor
---------------
Redwood is in breach of any provision of any agreement, document or
contract governing the Company's or Redwood's rights in or to the interests
owned or held by the Company or Redwood which could, individually or in the
aggregate, have a Material Adverse Effect (all of which agreements,
documents and contracts are set forth on Schedule 5.1(l), are unmodified as
---------------
described therein and are in full force and effect) and (iii) to the
Knowledge of the Company, the other parties to such agreements, documents
or contracts are not in breach of any of their respective obligations under
such agreements, documents or contracts which could, individually or in the
aggregate, have a Material Adverse Effect. Other than as disclosed in
Schedule 5.1(a), the Company has no subsidiaries or equity investments in
---------------
any corporation, partnership, joint venture or other organization. The
Company has made available to Purchaser a complete and correct copy of the
Company's Charter and Bylaws, Redwood's Articles of Incorporation and
Bylaws, and the organizational documents of the Partnerships, each as
amended to date. The Company's Charter and Bylaws, Redwood's Articles of
Incorporation and Bylaws, and, to the Knowledge of the Company, the
organizational documents of the Partnerships, so delivered are in full
force and effect as of the date hereof.
(b) Authorized Capital. The authorized capital stock of the
------------------
Company consists of: 75,000,000 shares of Common Stock, of which (i)
9,223,105 shares of Common Stock are outstanding on the date hereof, (ii)
5,000 shares of Common Stock are issuable upon exercise of currently
outstanding stock options granted under the Stock Plans (as defined below)
and with per share exercise prices below the per share Cash Merger
Consideration and (iii) 110,492 shares of Common Stock have been deferred
under the Company's Stock Plans; and 25,000,000 shares of preferred stock,
$.01 par value per share, of which no shares are outstanding. All of the
outstanding shares of Common Stock have been duly authorized and are
validly issued, fully paid and nonassessable. At the Effective Time, there
will be a maximum of 9,338,597 shares of Common Stock outstanding and
entitled to conversion into the Cash Merger Consideration. The Company has
no shares of Common Stock reserved for issuance,
-6-
<PAGE>
except that there are 636,895 shares of Common Stock reserved for issuance
pursuant to the Company's Incentive Stock Option Plan, Non-Qualified Stock
Option Plan, First Amended and Restated Directors Stock Plan, Fee Deferral
Plan and First Amended and Restated Long-Term Incentive Compensation Plan
(collectively, the "Stock Plans"), of which there are (1) 320,000 shares of
Common Stock subject to options outstanding under the Stock Plans (5,000 of
which are currently exercisable and have per share exercise prices below
the per share Cash Merger Consideration), and (2) 110,492 shares of Common
Stock that have been deferred under the First Amended and Restated Long-
Term Incentive Compensation Plan and/or the Fee Deferral Plan (the
"Deferred Shares"). Except as set forth above and in Schedule 5.1(a), there
---------------
are no shares of capital stock of the Company authorized, issued or
outstanding and there are no preemptive rights or any outstanding
subscriptions, options, warrants, rights (including any form of "poison
pill" rights), convertible securities or other agreements or commitments of
any character to which the Company or any of its subsidiaries is a party
relating to the issued or unissued capital stock or other securities of the
Company or any of its subsidiaries.
(c) Corporate Authority. Subject only to approval of this
-------------------
Agreement and the Merger by the holders of not less than eighty percent
(80%) of the outstanding shares of Common Stock, the Company has the
requisite corporate power and corporate authority and has taken all
corporate action necessary in order to execute and deliver this Agreement
and consummate the transactions contemplated hereby. This Agreement is a
valid and binding agreement of the Company enforceable against the Company
in accordance with its terms, except to the extent that such enforcement
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
by general principles of equity.
(d) Governmental Filings; No Violations.
-----------------------------------
(i) Other than the filings provided for in Section 1.3,
state securities and "Blue Sky" laws, and the Securities Exchange Act
of 1934, as amended (the "Exchange Act") (together, the "Regulatory
Filings"), no notices, reports or other filings are required to be
made by the Company or Redwood with, nor are any consents,
registrations, approvals, permits or authorizations required to be
obtained by the Company or Redwood from, any governmental or
regulatory authorities of the United States, the several states or any
foreign jurisdiction in connection with the execution and delivery of
this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby, except for such notices,
reports, filings, consents, registrations, approvals, permits or
authorizations, the failure of which to make or obtain would not have
a Material Adverse Effect or would not prevent or materially delay the
consummation of the Merger.
(ii) The execution and delivery of this Agreement by the
Company do not, and, assuming the requisite approval of the Company's
stockholders is obtained, the consummation by the Company of the
transactions
-7-
<PAGE>
contemplated by this Agreement will not, constitute or result in (1) a
breach or violation of, or a default under, or a conflict with, the
Charter or Bylaws of the Company, the Articles of Incorporation or
Bylaws of Redwood, or the organizational documents of the
Partnerships, (2) to the Knowledge of the Company, except as set forth
in Schedule 5.1(d), (A) a breach or violation of, a default under or
---------------
the triggering of any payment or other obligations pursuant to, any
existing Benefit Plan (as defined in Section 5.1(g)) or any grant or
award made under any such Benefit Plan, (B) with or without the giving
of notice or passage of time, a breach or violation of, a default
under, the acceleration of or the creation of a lien, pledge, charge,
security interest or similar encumbrance on assets pursuant to, or
being declared void or voidable, any provision of any Material
Contract (listed on Schedule 5.1(l)) of the Company, Redwood, or, to
----------------
the Knowledge of the Company, the Partnerships, or (C) a violation of
or a default under any law, rule, ordinance, regulation, judgment,
decree, order, award, permit or license to which the Company, Redwood
or, to the Knowledge of the Company, the Partnerships are subject,
except, in the case of clauses 2(A), (B) and (C) above, for such
breaches, violations, defaults, accelerations, creations of liens or
declarations of voidability that, alone or in the aggregate, would not
have a Material Adverse Effect or that would not prevent or materially
delay the consummation of the Merger.
(e) Company Reports; Financial Statements. The Company has filed
-------------------------------------
in a timely manner all forms, reports and documents (collectively, the
"Company Reports") required to be filed by it since December 31, 1992 under
the Securities Act of 1933, as amended, the Exchange Act, and the rules and
regulations promulgated thereunder (the "Securities Laws"). The Company
has delivered to Purchaser all the Company Reports, each in the form
(including exhibits and any amendments thereto) filed with the Securities
and Exchange Commission (the "SEC"). As of their respective dates, the
Company Reports complied as to form in all material respects with the
applicable requirements of the Securities Laws and did not contain any
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 the light of the circumstances under which they were made, not
misleading. Each of the Consolidated Balance Sheets included in or
incorporated by reference into the Company Reports (including the related
notes and schedules) fairly presents the consolidated financial position of
the Company and its subsidiaries as of its date, and each of the
consolidated statements of income and of cash flows included in or
incorporated by reference into the Company Reports (including any related
notes and schedules) fairly presents the consolidated results of
operations, retained earnings and cash flows, as the case may be, of the
Company and its subsidiaries for the periods set forth therein (subject, in
the case of unaudited statements, to normal year-end audit adjustments,
which, with respect to unaudited statements after December 31, 1994, are
not expected to be material in amount), in each case in accordance with
generally accepted accounting principles ("GAAP") consistently applied
during the periods involved, except as may be noted therein. Except as and
to the extent set forth in the Company Reports, neither the Company nor
Redwood has any material liabilities or
-8-
<PAGE>
material obligations of any nature (whether accrued, absolute, contingent
or otherwise) that would be required to be reflected on, or reserved
against in, a consolidated balance sheet of the Company or in the notes
thereto, prepared in accordance with GAAP consistently applied, except for
(i) liabilities or obligations arising in the ordinary course of business
since December 31, 1994, and (ii) liabilities or obligations which have
been incurred for legal, accounting and investment banking fees and out-of-
pocket expenses in connection with the Merger and the transactions related
thereto.
(f) Absence of Certain Changes. Except as set forth on Schedule
-------------------------- --------
5.1(f), since December 31, 1994, the Company and Redwood have, and, to the
------
Knowledge of the Company, the Partnerships have, conducted their respective
businesses only in, and have not engaged in any material commitment,
contractual obligations, borrowing, capital expenditure or transaction
other than in, the ordinary and usual course of business and there has not
been:
(i) any material adverse change in the financial condition,
properties, business or results of operations of the Company and
Redwood taken as a whole or, to the Knowledge of the Company, the
Partnerships, or to the Knowledge of the Company, any development or
combination of developments which would result in any such change,
other than developments affecting industry, economic and market
conditions generally;
(ii) any declaration, setting aside or payment of any
dividend or other distribution with respect to the capital stock of
the Company or Redwood or, to the Knowledge of the Company, any
interest in any Partnership;
(iii) any change by the Company or Redwood or, to the
Knowledge of the Company, any Partnership, in accounting principles,
practices or methods other than required by GAAP or as set forth in
the Company Reports;
(iv) any commitment, contractual obligation, borrowing,
capital expenditure or transaction (each a "Commitment") entered into
by the Company or Redwood, or, to the Knowledge of the Company, the
Partnerships, other than (1) immaterial Commitments entered into in
the ordinary course of business which may be canceled by the Company
or Redwood or, to the Knowledge of the Company, such Partnership
without penalty upon not more than 30 days' notice, (2) Leases
covering less than 3,000 square feet in any individual case and (3)
Commitments involving obligations that do not exceed $10,000
individually or $100,000 in the aggregate;
(v) any increase in the compensation (including, without
limitation, bonuses or severance payments) payable or to become
payable by the Company or Redwood to any of its employees, directors
or officers other than increases in the ordinary course of business
and consistent with past practice and except as provided in Schedule
--------
5.1(g) with respect to certain officers and in Section 7.1(h) hereof
------
with respect to Carl C. Gregory, III;
-9-
<PAGE>
(vi) subject to de minimis exceptions, any payment or
-- -------
agreement to pay by the Company or Redwood any pension, retirement
allowance or other employee benefit to any of its past or present
directors, officers or employees, except as required by previously
existing plans, agreements or arrangements or except as otherwise
permitted by this Agreement; or
(vii) any amendment to the Charter or Bylaws of the Company
or the organizational documents of the Company's subsidiaries or, to
the Knowledge of the Company, the Partnerships except for any
amendments filed as exhibits to the Company's Annual Report on Form
10-K/A for the year ended December 31, 1994;
except for sales of real estate completed prior to the date hereof and set
forth on Schedule 5.1(f), the sales of approximately six acres of the North
---------------
Bay land and the refinancing of outstanding loans with respect to
Shorebreeze I and II, the terms of which are set forth on Schedule 5.1(f).
---------------
To the Knowledge of the Company, none of the Partnerships has any
employees.
(g) Employee Benefits.
-----------------
(i) Schedule 5.1(g) contains a true and complete list of
---------------
each collective bargaining, bonus, deferred compensation, incentive
compensation, thrift, savings, stock purchase, stock option, severance
or termination pay, hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit-sharing,
pension, employee stock ownership, or retirement plan, program,
agreement or arrangement, and each other employee benefit plan,
program, agreement or arrangement, sponsored, maintained or
contributed to or required to be contributed to by the Company or
Redwood or by any trade or business, whether or not incorporated (an
"ERISA Affiliate"), that together with the Company would be deemed a
"single employer" within the meaning of section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), for the
benefit of any employee or terminated employee of the Company or any
ERISA Affiliate, whether formal or informal and whether legally
binding or not (collectively, the "Benefit Plans"). Schedule 5.1(g)
---------------
identifies each of the Benefit Plans that is an "employee benefit
plan," as that term is defined in section 3(3) of ERISA (such plans
being hereinafter referred to collectively as the "ERISA Plans").
With respect to each Benefit Plan, the Company has heretofore made
available to Purchaser true and complete copies of each such Benefit
Plan (including all amendments thereto), any trust or other funding
agreement (including all amendments thereto) and the latest financial
statements thereof, and any insurance contracts (including all
amendments thereto).
(ii) Neither the Company nor Redwood currently maintains,
and to the Knowledge of the Company, has no present or contingent
liability with
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<PAGE>
respect to, any "Employee Pension Benefit Plan". "Employee Pension
Benefit Plan" shall mean any employee pension benefit plan (as defined
in Section 3(2)(A) of ERISA) maintained by the Company, Redwood or any
ERISA Affiliate.
(iii) To the Knowledge of the Company, each Benefit Plan
has been operated and administered in all material respects in
accordance with its terms and applicable law, including but not
limited to ERISA and the Internal Revenue Code of 1986, as amended
(the "Code").
(iv) To the Knowledge of the Company, neither the Company,
Redwood nor any ERISA Affiliate, nor any ERISA Plan, nor any trust
created thereunder, nor any trustee or administrator thereof has
engaged in a transaction in connection with which the Company, Redwood
or any ERISA Affiliate, any ERISA Plan, any such trust, or any trustee
or administrator thereof, or any party dealing with any ERISA Plan or
any such trust could be subject to either a civil penalty assessed
pursuant to section 409 or 502(i) of ERISA or a tax imposed pursuant
to section 4975 or 4976 of the Code which, in either case, would have
a Material Adverse Effect.
(v) Full payment has been made, or will be made in
accordance with section 404(a)(6) of the Code, of all amounts which
the Company, Redwood or any ERISA Affiliate is required to pay under
the terms of each ERISA Plan as of the last day of the most recent
plan year thereof ended prior to the date of this Agreement, and all
such amounts properly accrued through the Closing with respect to the
current plan year thereof will be paid by the Company on or prior to
the Closing or will be properly recorded on the Company's balance
sheet; and no ERISA Plan or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in section
302 of ERISA and section 412 of the Code), whether or not waived, as
of the last day of the most recent fiscal year of each ERISA Plan
ended prior to the date of this Agreement; and all contributions
required to be made with respect thereto (whether pursuant to the
terms of any ERISA Plan or otherwise) on or prior to the Closing have
been timely made.
(vi) The consummation of the transactions contemplated by
this Agreement will not (1) entitle any current or former employee or
officer of the Company, Redwood or any ERISA Affiliate to severance
pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement, in any schedule attached hereto
or under the terms of the Stock Plans or any stock option or
restricted stock agreements in effect as of the date hereof and
entered into pursuant thereto, (2) accelerate the time of payment or
vesting, or increase the amount of compensation due any such employee
or officer except as expressly provided in this Agreement, in any
schedule attached hereto or under the terms of the Stock Plans or any
agreements entered into pursuant thereto, or
-11-
<PAGE>
(3) to the Knowledge of the Company, result in any prohibited
transaction described in section 406 of ERISA or section 4975 of the
Code for which an exemption is not available.
(vii) To the Knowledge of the Company, with respect to each
Benefit Plan that is funded wholly or partially through an insurance
policy, there will be no liability of the Company, Redwood or any
ERISA Affiliate, as of the Closing, under any such insurance policy or
ancillary agreement with respect to such insurance policy in the
nature of a retroactive rate adjustment, loss sharing arrangement or
other actual or contingent liability arising wholly or partially out
of events occurring prior to the Closing.
(viii) To the Knowledge of the Company, there are no
pending, threatened or anticipated claims by or on behalf of any
Benefit Plan, by any employee or beneficiary covered under any such
Benefit Plan, or otherwise involving any such Benefit Plan (other than
routine claims for benefits) which would have a Material Adverse
Effect.
(h) Proxy Statement. The Company's proxy statement with respect
---------------
to the meeting of the Company's stockholders referred to in Section 6.2
(the "Proxy Statement") shall not, on the date the Proxy Statement
(including any amendment or supplement thereto) is first mailed to
stockholders, or at the time of the Stockholders Meeting referred to in
Section 6.2, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under
which they are made, not misleading. The Proxy Statement shall comply as
to form in all material respects with the requirements of the Exchange Act
and the rules and regulations thereunder. Notwithstanding the foregoing,
the Company makes no representation or warranty with respect to any
information concerning Purchaser or any of its subsidiaries, affiliates or
advisers provided by Purchaser in writing (or confirmed by Purchaser as
being accurate in writing) for inclusion in the Proxy Statement.
(i) Taxes. The Company and Redwood have timely and duly filed,
-----
or caused to be filed, all federal, state, local and foreign tax returns or
reports required to be filed by it, and has paid or withheld, or caused to
be paid or withheld, all such taxes, including any related penalties,
interest and liabilities (any of the foregoing being referred to herein as
a "Tax"), required to be paid as described therein, other than where the
failure to file such returns or to pay or withhold such taxes would not
have a Material Adverse Effect or where such Taxes are being contested in
good faith and for which adequate reserves have been established in
accordance with GAAP. There are no claims or assessments pending or
proceeding against the Company or Redwood for any alleged deficiency in any
Tax, and, to the Knowledge of the Company, there are no threatened Tax
claims or assessments against the Company or Redwood, which if upheld are
reasonably likely to have a Material Adverse Effect. Except as set forth
in Schedule 5.1(i), there are no liens for Taxes upon the assets of the
---------------
Company or Redwood
-12-
<PAGE>
other than statutory liens for current Taxes not yet due. Except as set
forth in Schedule 5.1(i), neither the Company nor Redwood has any currently
---------------
effective waivers or extensions of any applicable statute of limitations to
assess any Taxes. Except as set forth in Schedule 5.1(i), there are no
---------------
outstanding requests by the Company or Redwood for any extension of time
within which to file any return or within which to pay any Taxes shown to
be due on any return. Except as set forth in Schedule 5.1(i), to the
---------------
Knowledge of the Company, no part of the Real Property is included for tax
purposes in a parcel of real estate owned by a third party.
(j) REIT Status. The Company has been organized and operated in
-----------
a manner so as to qualify as a "real estate investment trust" ("REIT")
under Sections 856 through 860 of the Code, and has elected to, has been
qualified to, remains qualified to, be taxed as a REIT under the Code and
pursuant to any applicable state tax laws. The Company has not taken or
omitted to take any action, and no event has occurred, which would cause
the Company to fail to qualify as a REIT, with respect to or in any year in
which any applicable tax statutes of limitations remain open, at the
Effective Time.
(k) Compliance with Law. Except as set forth in the
-------------------
Environmental Reports (as defined in Section 5.2(t)), to the Knowledge of
the Company, the conduct of the Company's and Redwood's business is in
conformity with all foreign, federal, state, local and other governmental
and regulatory requirements, except where such nonconformities,
individually or in the aggregate, would not have a Material Adverse Effect.
Except as set forth in the Environmental Reports, neither the Company nor
Redwood has received written notice of any violation of any zoning,
building, health or other law, ordinance or regulation with respect to the
Real Property or any portion thereof which would have a Material Adverse
Effect and the Company will promptly deliver to the Purchaser any notices
with respect to any violation of any such laws, ordinances or regulations
that the Company or Redwood receives from and after the date hereof. To
the Knowledge of the Company, the present use of the Real Property is in
compliance with all zoning laws as currently in effect except for any
failures to comply that would not have a Material Adverse Effect.
(l) Certain Agreements. Schedule 5.1(l) sets forth a true and
------------------ ---------------
complete list of each note, bond, mortgage, contract, license, lease,
commitment, indenture or other agreement of the Company and/or Redwood in
effect as of the date of this Agreement, (i) which may result in payment by
the Company or Redwood of over $25,000, (ii) which would be required by
Rule 601(b)(10) of SEC Regulation S-K to be filed as an exhibit to an
Annual Report on Form 10-K (other than any Benefit Plan), (iii) with
respect to indebtedness for money borrowed by the Company or Redwood in
excess of $25,000 (other than trade payables incurred in the ordinary and
usual course of business), and to the Knowledge of the Company, with
respect to indebtedness for borrowed money of any Partnership which is
secured by any of the Real Property, (iv) which constitutes any other
liability (including, without limitation, any guarantee, surety contract or
similar instrument), obligation or transaction involving expenditures
required to be made by, or liabilities of, the Company or Redwood in excess
of $25,000,
-13-
<PAGE>
(v) which represents the partnership agreement of each of the Partnerships,
as the same have been amended, supplemented, modified or assigned as of the
date hereof; (vi) with respect to the pending sale of any asset or property
owned by the Company or Redwood or the purchase by the Company or Redwood
of any capital asset, in either case with a purchase price in excess of
$25,000; (vii) permitting or granting the right to use or occupy more than
5,000 square feet of the Real Property (each such agreement being referred
to herein as a "Major Lease") (the items referred to in clauses (i)-(vii)
of this sentence being referred to herein as "Material Contracts"). A true
and complete copy of each Material Contract and each lease that is not a
Major Lease has been made available to Purchaser or its representatives.
Except as set forth in Schedule 5.1(l), each Material Contract is a valid
---------------
and legally binding obligation of the Company or Redwood or, to the
Knowledge of the Company, the Partnerships (as the case may be), is in full
force and effect, all obligations required to be performed thereunder as of
the date hereof by the Company or Redwood or, to the Knowledge of the
Company, the Partnerships (as the case may be) have been performed to date,
neither the Company, Redwood nor, to the Knowledge of the Company, the
Partnerships (as the case may be) has received notice of default under any
Material Contract and, to the Knowledge of the Company, no other party to
any such Material Contract is in default in any respect under the terms
thereof except for such failures to perform or defaults which individually
and in the aggregate would not have a Material Adverse Effect.
(m) Real Property.
-------------
(i) Real Property. Except for mortgages, liens, security
-------------
interests, encumbrances, options, rights, covenants, easement, leases
and other rights in favor of third parties disclosed in the Company
Reports, the ALTA policies and/or Preliminary Title Reports provided
by the Company to Purchaser with respect thereto (the "Title Reports")
or Schedule 5.1(m), and except for liens for taxes, assessments and
----------------
other governmental charges which are not due and payable or which, if
payable, are not yet delinquent, or are being contested in good faith
by appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP (the items described above being
referred to herein as "Permitted Exceptions"), to the Knowledge of the
Company, the Company owns or is a limited partner in, or has a wholly-
owned subsidiary that is a general partner in, a Partnership that owns
good and marketable fee simple title to the real property listed on
Schedule 5.1(m) attached hereto (the "Land"), together with all
---------------
improvements and buildings, structures and fixtures located thereon
(collectively, the "Improvements") and together with all rights,
privileges, easements, rights of way and appurtenances benefiting the
Land and/or the Improvements or used or connected with the beneficial
use or enjoyment of the Land and/or the Improvement (the Land, the
Improvements, and all such rights, privileges, easements, rights of
way, and appurtenances are collectively referred to herein as the
"Real Property"). The Real Property constitutes all of the real
estate properties owned by the Company or Redwood or, to the Knowledge
of the Company, the Partnerships.
-14-
<PAGE>
(ii) Leasehold. Since the date that the Company acquired
---------
title to such Real Property, neither the Company nor Redwood nor, to
the Knowledge of the Company, any of the Partnerships, has received
written notice from any tenant under any of the leases of the Real
Property (the "Leases") (1) that the Company, Redwood or any of the
Partnerships is in default under any of the Leases, or (2) regarding
any physical, structural or mechanical defects on the Real Property or
Improvements that could, in either event, individually or in the
aggregate, have a Material Adverse Effect, and to the Knowledge of the
Company, neither the Company nor Redwood has received any such notice
prior to the date the Company acquired title to such Real Property.
There are no uncured defaults by the Company, Redwood or, to the
Knowledge of the Company, any of the Partnerships, under any of the
Leases or, to the Knowledge of the Company, any uncured defaults by a
tenant under any of the Leases, that could, in either event,
individually or in the aggregate, have a Material Adverse Effect.
(iii) Permits and Proceedings. Except as disclosed on
-----------------------
Schedule 5.1(m)(iii), to the Knowledge of the Company, (1) there are
--------------------
now in full force and effect (A) all certificates, permits, approvals,
consents, authorizations and licenses required by any federal, state,
city or other governmental authority in connection with the ownership,
operation and maintenance of the Real Property, and (B) all
agreements, easements and other rights which are necessary to permit
the lawful use and operation of the buildings and improvements on any
of the Real Property or which are necessary to permit the lawful use
and operation of all driveways, roads and other means of egress and
ingress to and from any of the Real Property, and there is no pending
threat of modification or cancellation of any of the foregoing, (2)
there is no proceeding, pending or threatened, for the total or
partial condemnation of the Real Property or any portion thereof, and
(3) the Company has not received any notice that any rezoning
proceedings are pending or threatened with respect to the Real
Property or any portion thereof, except for such failures to have in
full force and effect or such proceedings that would not have a
Material Adverse Effect.
(iv) Engineering Reports. Except as set forth in Schedule
------------------- --------
5.1(m)(iv), since January 1, 1992 neither the Company nor Redwood has
----------
prepared, caused to be prepared or, to the Knowledge of the Company,
received any engineering reports in respect of the Real Property or
any improvements thereon.
(v) Improvements. Except as set forth in Schedule
------------ --------
5.1(m)(v), to the Knowledge of the Company, (A) all of the
---------
Improvements are structurally sound with no known material defects and
are in good condition, order and repair and are not damaged by waste,
fire, earthquake or earth movement or other casualty or other physical
conditions that could, individually or in the aggregate, have a
Material Adverse Effect, and (B) none of the Improvements is in need
of
-15-
<PAGE>
maintenance or repairs except for ordinary, routine maintenance and
repairs that are not material in nature or cost.
(n) Brokers and Finders. Neither the Company and any of its
-------------------
subsidiaries nor any of their respective officers, directors or employees
has employed any broker or finder or entered into any agreement, contract,
arrangement or understanding with any person or firm which may result in
the obligation of the Company, Redwood, the Purchaser or Merger Sub for any
brokerage, finder's, breakup, topping, termination or similar fees or
commissions in connection with the transactions contemplated herein, except
that the Company has employed Duff & Phelps as its financial advisor and
the Company may retain one or more other investment bankers; provided,
however, the fees to Duff & Phelps and any of the other investment bankers
will not exceed in the aggregate $125,000.
(o) Fairness Opinion. The Company has received the written
----------------
opinion of Duff & Phelps Capital Markets Co. on the date of this Agreement
to the effect that the consideration to be received by the holders of
Company Common Stock in the Merger is fair, from a financial point of view,
to such holders, and a copy of such opinion has been delivered to
Purchaser.
(p) Litigation. Except as disclosed in the Company Reports or
----------
set forth in Schedule 5.1(p), (i) there are no continuing orders,
---------------
injunctions or decrees of any court, arbitrator or governmental authority
to which the Company, Redwood or, to the Knowledge of the Company, any of
the Partnerships, is a party or by which any of their respective properties
or assets are bound, and (ii) there are no suits, claims, actions,
proceedings or investigations pending or, to the Knowledge of the Company,
threatened, against the Company, Redwood or, to the Knowledge of the
Company, pending or threatened against any Partnership, which are
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect or a material adverse effect on the ability of the Company
to consummate the transactions contemplated by this Agreement.
(q) Certain Actions. The Board of Directors of the Company has
---------------
taken the following actions on or prior to the date hereof:
(i) Adopted resolutions exempting from the provisions of
Section 3-602 of the MCL any and all "business combinations" (as that
term is defined in Section 3-601 of the MCL) of any type that the
Company at any time after the date of such adoption may enter into or
be a party to or with or involving J.E. Robert Companies or any of its
existing or future affiliates (as that term is defined in Section 3-
601 of the MCL); and
(ii) Adopted resolutions adopting an amendment to the Bylaws
of the Company exempting the acquisition of shares of Common Stock by
the Purchaser from the provisions of Section 3-701 to 3-708 of the
MCL.
-16-
<PAGE>
Such resolutions have not been amended since their adoption
and remain in full force and effect.
(r) Labor Relations. Neither the Company nor Redwood is a party
---------------
to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor union organization.
To the Knowledge of the Company, there are no organizational efforts with
respect to the formation of a collective bargaining unit presently being
made or threatened involving employees of the Company or Redwood.
(s) Related Party Transactions. Schedule 5.1(s) sets forth all
-------------------------- ---------------
arrangements, agreements and contracts in effect as of the date hereof
entered into by the Company, Redwood or, to the Knowledge of the Company,
any of the Partnerships, with (i) any person who is an officer, director or
affiliate of the Company, Redwood or such Partnership, any relative of any
of the foregoing or any entity of which any of the foregoing is an
affiliate, or (ii) any person who acquired common stock of the Company or
Redwood, or partnership interests in such Partnership in a private
placement.
(t) Environmental.
-------------
(i) Except as set forth in the environmental reports listed
on Schedule 5.1(t) (the "Environmental Reports"), to the Knowledge of
---------------
the Company, the Company, Redwood and each of the tenants of the Real
Property is in compliance with all applicable Environmental Laws
(which compliance includes, but is not limited to, the possession by
the Company, Redwood and, to the Knowledge of the Company, each of the
tenants of the Real Property, of all permits and other governmental
authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof). Except as set
forth in the Environmental Reports or on Schedule 5.1(t), neither the
---------------
Company nor Redwood has received any communication (written or oral)
from any governmental authority that alleges that the Company, Redwood
or any tenant of the Real Property is not in such compliance and, to
the Knowledge of the Company, except as set forth in the Environmental
Reports or on Schedule 5.1(t), there are no past or present actions,
---------------
activities, circumstances, conditions, events or incidents that may
prevent or interfere with such compliance in the future.
(ii) There is no Environmental Claim pending or, to the
Knowledge of the Company, threatened against the Company, Redwood or,
to the Knowledge of the Company, pending or threatened against any
tenant of the Real Property or any other person or entity whose
liability for any Environmental Claim the Company or any of its
subsidiaries has or may have retained or assumed either contractually
or by operation of law.
(iii) To the Knowledge of the Company, except as set forth
in the Environmental Reports, there are no past or present actions,
activities,
-17-
<PAGE>
circumstances, conditions, events or incidents (including, without
limitation, the release, emission, discharge, presence or disposal of
any Hazardous Material) which could form the basis of any
Environmental Claim against the Company, Redwood, or against any
tenant of the Real Property or any other person or entity whose
liability for any Environmental Claim the Company or any of its
subsidiaries has or may have retained or assumed either contractually
or by operation of law.
(iv) To the Knowledge of the Company, except as set forth in
the Environmental Reports, neither the Company, Redwood nor any tenant
of the Real Property nor any other person has Released, placed,
stored, buried or dumped Hazardous Materials or any other wastes
produced by, or resulting from, any business, commercial or industrial
activities, operations or processes, on, beneath or adjacent to the
Real Property or any property formerly owned, operated or leased by
the Company or Redwood, other than general office supplies used in the
ordinary course of business, including without limitation, copier
toner, liquid paper, glue, ink, and cleaning solvents and other than
any such Hazardous Materials used, stored or sold by a tenant of any
such Real Property in the ordinary course of such tenant's business
(which general office supplies and other Hazardous Materials, to the
Knowledge of the Company, were and are stored or disposed of in
accordance with applicable laws and regulations and in a manner such
that, to the Knowledge of the Company, there has been no Release of
any such substances into the indoor or outdoor environment).
(v) The Company has delivered or otherwise made available
for inspection to the Purchaser true, complete and correct copies of
any reports, studies, analyses, tests or monitoring possessed or
initiated by the Company or Redwood pertaining to Hazardous Materials
in, on, beneath or adjacent to the Real Property or regarding the
Company's, Redwood's and, to the Knowledge of the Company, any
tenant's of the Real Property compliance with applicable Environmental
Laws.
(vi) Except as set forth in Schedule 5.1(t), to the
---------------
Knowledge of the Company, no transfers of permits or other
governmental authorizations under Environmental Laws, and no
additional permits or other governmental authorizations under
Environmental Laws, will be required to permit the Purchaser to
conduct the business of the Company and Redwood in full compliance
with all applicable Environmental Laws immediately following the
Effective Time, as conducted by the Company and Redwood immediately
prior to the Effective Time. To the extent that such transfers or
additional permits and other governmental authorizations are required,
the Company agrees, and shall cause Redwood, to cooperate with the
Purchaser to effect such transfers and use commercially reasonable
efforts to obtain such permits and other governmental authorizations
prior to the Effective Time.
-18-
<PAGE>
(vii) The following terms as used in this Section shall
have the following meanings:
"Cleanup" means all actions required to: (1) cleanup,
remove, treat or remediate Hazardous Materials in the indoor or
outdoor environment; (2) prevent the Release of Hazardous Materials so
that they do not migrate, endanger or threaten to endanger public
health or welfare of the indoor or outdoor environment; (3) perform
pre-remedial studies and investigations and post-remedial monitoring
and care; or (4) respond to any government requests for information or
documents in any way relating to cleanup, removal, treatment or
remediation or potential cleanup, removal, treatment or remediation or
Hazardous Materials in the indoor or outdoor environment.
"Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any person or
entity alleging potential liability (including, without limitation,
potential liability for investigatory costs, Cleanup costs,
governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or
resulting from (A) the presence, or Release into the indoor or outdoor
environment, of any Hazardous Materials at any location, whether or
not owned or operated by the Company, or (B) circumstances forming the
basis of any violation, or alleged violating, of any Environmental
Law.
"Environmental Laws" means all federal, state, local and
foreign laws and regulations relating to pollution or protection of
human health or the environment, including without limitation, laws
relating to Releases or threatened Releases of Hazardous Materials
into the indoor or outdoor environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface
strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, Release, disposal, transport or
handling of Hazardous Materials and all laws and regulations with
regard to record keeping, notification, disclosure and reporting
requirements respecting Hazardous Materials.
"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, or defined as such by, or regulated as such under, any
Environmental Law.
"Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, discharge, 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, including the movement of Hazardous Materials through or in
the air, soil, surface water, groundwater or property.
-19-
<PAGE>
(u) Insurance. Set forth on Schedule 5.1(u) is a true, correct
--------- ---------------
and complete list of all primary, excess and umbrella policies, bonds and
other forms of insurance currently owned or held by or on behalf of and/or
providing insurance coverage to the Company, Redwood or their respective
properties and assets (or any of its directors, officers, salespersons,
agents or employees) other than such policies held by tenants of any of the
Real Property (collectively, the "Insurance Policies"), including the
following information for each such policy: type(s) of insurance coverage
provided; name of insurer; effective dates; policy numbers; per occurrence
and annual aggregate deductibles, per occurrence and annual aggregate
limits of liability and the extent, if any, to which the limits of
liability have been exhausted. The Insurance Policies held by the Company
and Redwood, and, to the Knowledge of the Company, the Insurance Policies
held by any Partnership with respect to the Real Property, are in full
force and effect, and all premiums currently payable or previously due for
the Insurance Policies held by the Company and Redwood, and, to the
Knowledge of the Company, the Insurance Policies held by any Partnership
with respect to the Real Property, have been paid, and no notice of
cancellation or termination has been received with respect to any of the
Insurance Policies held by the Company or Redwood, or, to the Knowledge of
the Company, the Insurance Policies held by any Partnership with respect to
the Real Property. The Company will use its commercially reasonable
efforts to keep the Insurance Policies in full force and effect through the
date of the Closing. True, correct and complete copies of the Insurance
Policies have previously been provided to the Purchaser.
(v) No Misrepresentations or Omissions. None of the
----------------------------------
representations and warranties made by the Company herein, nor in any of
the closing certificates required to be delivered hereunder or the
schedules attached hereto, contains or shall, as of the Effective Time,
contain any untrue statement of a material fact or omits or shall, as of
the Effective Time, omit to state a material fact necessary to make the
statements made therein not misleading.
5.2 Representations and Warranties of Purchaser and Merger Sub
--- ----------------------------------------------------------
Purchaser and Merger Sub represent and warrant to the Company that:
(a) Limited Liability Company Organization and Qualification.
--------------------------------------------------------
Purchaser is a limited liability company duly formed and organized and in
good standing under the laws of the State of Maryland. Purchaser has the
requisite power and authority to carry on its business as it is now being
conducted. Purchaser has delivered to the Company true, correct and
complete copies of its Articles of Organization and Operating Agreement as
in effect as of the date hereof.
(b) Corporate Organization and Qualification of Merger Sub.
------------------------------------------------------
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland. Merger Sub has the
requisite corporate power and corporate authority to carry on its business
as it is now being conducted. Merger Sub is a wholly-owned subsidiary of
Purchaser and conducts no business and has no assets or liabilities
-20-
<PAGE>
other than its rights and obligations under this Agreement and under that
certain Purchase Agreement dated of even date herewith by and between Palm
Finance Corporation, a California corporation, and Merger Sub (the
"Purchase Agreement"). Merger Sub has delivered to the Company true,
correct and complete copies of its Charter and Bylaws as in effect as of
the date hereof.
(c) Limited Liability Company Authority of Purchaser. Purchaser
------------------------------------------------
has the requisite power and authority and has taken all action necessary in
order to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
(d) Corporate Authority of Merger Sub. Merger Sub has the
---------------------------------
requisite corporate power and corporate authority and has taken all
corporate action necessary in order to execute and deliver this Agreement
and to consummate the transactions contemplated hereby, including, without
limitation, the taking of all requisite action by the Board of Directors of
Merger Sub and the approval of this Agreement and the Merger by Purchaser,
as the sole stockholder of Merger Sub, in accordance with the requirements
of Title 3, Subtitle 1 of the MCL.
(e) Binding Agreement. This Agreement is a valid and binding
-----------------
agreement of each of the Purchasing Entities enforceable against each of
the Purchasing Entities in accordance with its terms, except to the extent
that such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting creditors'
rights generally and by general principles of equity.
(f) Governmental Filings; No Violations.
-----------------------------------
(i) Other than the Regulatory Filings, no notices, reports
or other filings are required to be made by the Purchasing Entities
with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by the Purchasing Entities
from, any governmental or regulatory authorities of the United States,
the several states or any foreign jurisdiction in connection with the
execution and delivery of this Agreement by the Purchasing Entities
and the consummation by the Purchasing Entities of the transactions
contemplated hereby, except for such notices, reports, filings,
consents, registrations, approvals, permits or authorizations, the
failure of which to make or obtain would not have a material adverse
effect on the financial condition, properties, businesses or results
of operations of the Purchasing Entities taken as a whole, or would
prevent or materially delay the consummation of the Merger.
(ii) The execution and delivery of this Agreement by the
Purchasing Entities do not, and the consummation by the Purchasing
Entities of the transactions contemplated by this Agreement will not,
constitute or result in (1) a breach or violation of, or a default
under, or a conflict with, the Articles of Organization or the
Operating Agreement of Purchaser or the Charter or Bylaws of Merger
Sub, or (2)(A) with or without the giving of notice or passage of
time, a breach or violation of, a default under, the acceleration of
or the creation of a
-21-
<PAGE>
lien, pledge, charge, security interest or similar encumbrance on
assets pursuant to or being declared void or voidable, any provision
of any material contract of the Purchasing Entities or (B) a violation
of or a default under any law, rule, ordinance, regulation, judgment,
decree, order, award, permit or license to which the Purchasing
Entities is subject, except, in the case of clause (2)(A) and (B)
above, for such breaches, violations, defaults, accelerations or
creations of liens that, alone or in the aggregate, would not have a
material adverse effect on the financial condition, properties,
businesses or results of operations of the Purchasing Entities taken
as a whole or that would not prevent or materially delay the
consummation of the Merger.
(g) Capitalization; Financial Statements. As of the date hereof,
------------------------------------
the Purchaser has, and at all times through and including the Effective
Time, will have, at least One Million Dollars ($1,000,000) in cash in its
possession and reflected on its unconsolidated balance sheet. The
unconsolidated balance sheet of the Purchaser as of May 15, 1995 (the
"Unconsolidated Balance Sheet"), including the related notes and schedules,
shows cash on hand of at least $1,000,000 and fairly presents the
unconsolidated financial position of the Purchaser as of its date.
Purchaser has no material liabilities (liquidated or unliquidated, fixed or
contingent) other than those set forth in its Unconsolidated Balance Sheet.
(h) Compliance with Law. To the knowledge of the Purchasing
-------------------
Entities, the conduct of each of the Purchasing Entities' businesses is in
conformity with all foreign, federal, state, local other governmental and
regulatory requirements, except where such nonconformities, individually or
in the aggregate, would not have a Material Adverse Effect on the business,
properties, financial condition or results of operation of the Purchasing
Entities taken as a whole.
(i) Brokers and Finders. Neither the Purchasing Entities nor any
-------------------
of their respective officers, directors or employees has employed any
broker or finder or entered into any agreement, contract, arrangement or
understanding with any person or firm which may result in the obligation of
the Company, the Purchaser or Merger Sub for any brokerage, finder's,
breakup, topping, termination or similar fees or commissions in connection
with the transactions contemplated herein.
(j) Proxy Statement. None of the information supplied by the
---------------
Purchasing Entities in writing (or confirmed by any Purchasing Entity as
being accurate in writing) for inclusion in the Proxy Statement and any
amendments or supplements thereto will, at the time they are mailed to the
stockholders of the Company, or at the time of the Company's stockholder's
meeting to approve the transactions contemplated hereby, contain any untrue
statement of a material fact required to be stated therein or omit to state
any material fact required to be stated therein necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
-22-
<PAGE>
(k) Litigation. Except as disclosed in writing to the Company,
----------
there are no claims, suits, actions or proceedings pending or, to the
knowledge of the Purchasing Entities, threatened against either of the
Purchasing Entities which would, if determined adversely against such
Purchasing Entity have a material adverse effect on the business,
operations, properties, results of operations or financial condition of the
Purchasing Entities taken as a whole.
ARTICLE VI
----------
COVENANTS
---------
6.1 Interim Operations of the Company
--- ---------------------------------
The Company covenants and agrees that, after the date hereof and prior
to the Effective Time (unless Purchaser shall otherwise agree in writing and
except as otherwise contemplated by this Agreement, including the schedules
attached hereto):
(a) The business of the Company and its subsidiaries shall be
conducted only in the ordinary and usual course including operating,
repairing, maintaining and managing the Real Property consistent with past
practice, and to the extent consistent therewith, the Company and its
subsidiaries shall use its reasonable commercial efforts to preserve its
business organization intact and maintain its existing relations with
tenants, customers, suppliers, employees and business associates; provided
--------
that if any Real Property or the Improvements thereon is damaged or
destroyed by fire, flood, earthquake or other natural disasters, the
Company shall not be obligated to rebuild or repair such Real Property or
Improvements;
(b) The Company and its subsidiaries shall not, (and, to the
extent that the Company's or Redwood's consent is required to do any of the
following, the Company or Redwood, as the case may be, shall not authorize
or consent to any of the Partnerships doing any of the following) (i)
increase the compensation payable to or to become payable to any director,
officer or employee (other than increases made in the ordinary course of
business and consistent with past practice), (ii) grant any severance or
termination pay (other than pursuant to the normal severance policy of the
Company or Redwood (or any Partnership, as applicable), severance
agreements as in effect on the date of this Agreement and the severance to
be paid to Carl Gregory as contemplated by Section 7.1(h) of this
Agreement) to, or enter into any employment or severance agreement with,
any director, officer or employee other than Carl Gregory as contemplated
by Section 7.1(h) of this Agreement, or (iii) lend or contribute any funds
to any director, officer, employee, affiliate or associate of the Company,
the subsidiaries or the Partnerships;
(c) The Company and its subsidiaries shall not, (and, to the
extent that the Company's or Redwood's consent is required to do any of the
following, the Company or Redwood, as the case may be, shall not authorize
or consent to any of the Partnerships doing any of the following) (i)
acquire or agree to acquire, by merging or
-23-
<PAGE>
consolidating with, by purchasing an equity interest in or a portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division (other
than a wholly owned subsidiary) thereof, or (ii) otherwise acquire or agree
to acquire any assets of any other person (other than the purchase of
assets from suppliers or vendors in the ordinary course of business and
consistent with past practice);
(d) The Company shall only make expenditures in connection with
the Real Property in accordance with the Company's 1995 budget as currently
in effect and shall not make expenditures in excess thereof;
(e) The Company and its subsidiaries shall not, (and, to the
extent that the Company's or Redwood's consent is required to do any of the
following, the Company or Redwood, as the case may be, shall not authorize
or consent to any of the Partnerships doing any of the following) (i)
change any of its methods of accounting in effect at December 31, 1994, or
(ii) make or rescind any express or deemed election relating to taxes,
settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, or
change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal
income tax returns for the taxable year ending December 31, 1994, except as
may be required by law or changes in GAAP;
(f) Neither the Company nor Redwood shall amend its Charter or
Articles of Incorporation, as the case may be, or Bylaws (other than as
contemplated by Article II hereof) or take any action approving,
authorizing or consenting to the amendment of the organizational documents
of any of the subsidiaries or Partnerships;
(g) Neither the Company nor Redwood shall (i) sell or pledge or
agree to sell or pledge any equity securities of its subsidiaries or the
Partnerships owned by it except pursuant to agreements listed in Schedule
--------
5.1(a); (ii) split, combine or reclassify any of their respective
------
outstanding securities; or (iii) declare, set aside or pay any dividend
payable in cash, stock or property with respect to any of their respective
securities; provided, however, that the Company may, after consultation
with Purchaser, make whatever minimum distribution is required to maintain
REIT status;
(h) The Company and its subsidiaries shall not (and with respect
to clauses (ii), (v), (vi) and (viii) below, to the extent that the
Company's or Redwood's consent is required to do any of the matters set
forth in such clauses, the Company or Redwood, as the case may be, shall
not authorize or consent to any of the Partnerships doing any of the
specified actions) (i) issue, sell, pledge, dispose of or encumber any
additional shares of, or securities convertible or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of the Company or any subsidiary of
the Company other than pursuant to agreements listed on Schedule 5.1(a),
---------------
other than additional purchases of securities from wholly-owned
subsidiaries of the Company for nominal consideration and, other than
-24-
<PAGE>
issuances of Shares pursuant to "in the money" options outstanding on the
date hereof, or stock grants required to be made after the date hereof,
under the Stock Plans; (ii) transfer, license, guarantee, sell, mortgage,
pledge, dispose of or encumber any of the Real Property, other than the
sales of approximately six acres of North Bay Land, the refinancing of
outstanding loans with respect to Shorebreeze I and II; (iii) transfer,
license, guarantee, sell, mortgage, pledge, dispose of or encumber any
other assets or incur any other liability other than (1) in the ordinary
and usual course of business; (2) the refinancing of Shorebreeze I and II
and (3) assets or liabilities which do not exceed $10,000 individually or
in the aggregate; (iv) incur any indebtedness for borrowed money in excess
of $10,000 in the aggregate (other than trade payables incurred in the
ordinary course of business); (v) enter into any new contracts or
agreements materially affecting the Real Property which will survive the
Merger or will otherwise materially effect the use or operation of the Real
Property after the Merger; (vi) amend, modify, cancel, alter or supplement
in a material way any of the Material Contracts or any agreements which
affect the Real Property, including without limitation, Leases; (vii)
acquire directly or indirectly by redemption or otherwise any shares of the
capital stock of the Company; (viii) authorize capital expenditures in
excess of $50,000 (other than as disclosed to Purchaser in writing prior to
the date hereof and other than tenant improvements constructed in the
ordinary course of business);(ix) make any loans, advances or capital
contributions to, or investments in, any other person; or (x) lease any (1)
Real Property covering in any individual case in excess of 3,000 square
feet other than the leases set forth on Schedule 6.1(g) attached hereto, or
---------------
(2) personal property other than leases which involve personal property or
lease obligations that do not exceed $10,000 individually or in the
aggregate;
(i) Except as listed on Schedule 5.1(g), the Company and Redwood
---------------
shall not establish, adopt, or enter into any plans of the type which would
be considered Benefit Plans if in effect as of the date of this Agreement,
or amend or terminate any existing Benefit Plans;
(j) The Company and Redwood shall not (and, to the extent the
Company's or Redwood's consent is required for any Partnership to do any of
the following, the Company or Redwood, as the case may be, shall not
authorize or consent to any Partnership doing any of the following) settle
or compromise any material claims or material litigation against the
Company, Redwood or any Partnership, as the case may be, for an amount
greater than any reserve established therefor on the date hereof;
(k) Neither the Company nor Redwood shall make any tax election
or cause any insurance policy naming it as a beneficiary or a loss payable
payee to be canceled or terminated as a result of actions or inactions by
the Company or Redwood, as the case may be;
(l) Neither the Company nor Redwood will authorize or enter into
an agreement to do any of the foregoing and, to the extent that the
Company's or Redwood's consent is required by any Partnership for such
Partnership to authorize or enter into any
-25-
<PAGE>
agreement to do any of the foregoing, neither the Company nor Redwood, as
the case may be, shall authorize or consent to such Partnership authorizing
or entering into any such agreement; and
(m) The Company will give Purchaser notice of any event of which
the Company becomes aware that in the Company's judgment may have a
Material Adverse Effect or result in the breach of any Material Contract.
6.2 Meeting of the Company's Stockholders
--- -------------------------------------
The Company will take all action necessary in accordance with
applicable law and its Charter and Bylaws to convene a meeting (the
"Stockholders Meeting") of holders of Shares as promptly as practicable to
consider and vote upon the approval of this Agreement and the Merger. Subject
to the exercise of its fiduciary duty in accordance with Section 6.3(b) hereof,
the Board of Directors of the Company shall recommend such approval and the
Company shall take all lawful action to solicit such approval. The Proxy
Statement shall not be filed, and no amendment or supplement to the Proxy
Statement will be made by the Company, without prior consultation with Purchaser
and its counsel.
6.3 No Solicitation
--- ---------------
(a) Except as hereinafter provided to the contrary, the Company
shall not, directly or indirectly, through any director, officer, employee,
agent, financial advisor or otherwise, solicit, initiate or encourage the
submission of an offer or proposal from any person, or engage in
negotiations, furnish confidential information or have discussions,
relating to the acquisition of all or a material portion of the assets of
the Company (whether through an acquisition of assets of, or an equity
interest in, or a merger, exchange offer, tender offer or other business
combination involving the Company) (any of the foregoing being herein
referred to as an "Acquisition Proposal") and it will immediately cease and
cause to be terminated any existing negotiations with any parties conducted
heretofore with respect to any of the foregoing.
(b) Notwithstanding the foregoing, nothing herein shall require
the Company to take any action, or refrain from taking any action, in the
event the Board of Directors shall determine in good faith that such action
or failure would involve a violation of its fiduciary duty to the Company's
stockholders, and is so advised to that effect by its outside legal
counsel. In the event the Company receives any Acquisition Proposal after
the date hereof from a party other than one of the Purchasing Entities, the
Company shall promptly notify Purchaser of the terms of such Acquisition
Proposal and if an Acquisition Proposal is in writing, then the Company
will also promptly deliver to the Purchaser a copy of such written
Acquisition Proposal.
(c) In the event that the Company receives an Acquisition
Proposal, or a communication from a third party with respect to a potential
Acquisition Proposal, and such party requests access to nonpublic
information regarding the Company, then, if the Board of Directors
determines in good faith that the failure to provide such access would
-26-
<PAGE>
involve a violation of its fiduciary duty to the Company's stockholders,
and is so advised to that effect by its outside legal counsel, then the
Company may provide access to such nonpublic information regarding the
Company to such third party; provided that such third party has executed a
--------
confidentiality agreement substantially similar to the Confidentiality
Agreement dated January 3, 1995 by and between the Company and J.E. Robert
Companies (the "Confidentiality Agreement").
6.4 Estoppel Certificates.
--- ---------------------
The Company shall use its commercially reasonable efforts to obtain
and deliver to Purchaser, on or prior to the twentieth business day after the
date hereof (the "Lender Due Diligence Date"), estoppel certificates in the form
of Exhibit E attached hereto from the tenants of the Company's (including the
---------
Partnerships'), Real Property as follows: (i) each of the following tenants:
Jillian's Billiard Club of Long Beach, Inc.; The Home Depot, Inc.; Oracle
Corporation; TRW Technar, Inc.; and Sega of America, Inc.; (ii) at least four of
the following five tenants: Sola Optical U.S.A., Inc.; Magellan Systems
Corporation; GSIC Realty Corporation; California Society of CPA's; and IDS
Financial Services, Inc.; and (iii) at least sixty percent (60%) of the total
number of the tenants (excluding each of the tenants set forth above) that
occupy over 5,000 square feet. In addition, the Company shall use its
commercially reasonable efforts to obtain and deliver to Purchaser, on or prior
to the Closing Date, Estoppel Certificates in the form of Exhibit "E" attached
----------
hereto from at least 80% of the total number of the tenants at Irwindale
Executive Plaza.
6.5 Filings; Consents; Other Action
--- -------------------------------
Subject to the terms and conditions herein provided, the Company,
Redwood and Purchaser shall: (a) promptly make their respective Regulatory
filings and thereafter make any other required submissions under such other
Regulatory Filings; and (b) use their best efforts to promptly take, or cause to
be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement as soon as practicable, including
(i) using their best efforts to obtain the consents referred to in Schedule
--------
5.1(d) and (ii) voting any and all shares of Common Stock owned by any party or
- - ------
which any party has the right to vote in favor of consummation of the Merger and
the other transactions contemplated by this Agreement. The Company shall use
its commercially reasonable efforts to obtain the consent of the general partner
of Discovery Partners, a California limited partnership (the "Occidental
Partnership"), to the substitution of Palm Finance Corporation, a California
corporation, as the limited partner of the Occidental Partnership replacing the
Company. Each party shall promptly provide the other (or its counsel) copies of
all filings in connection with the Merger made by such party, all filings after
the date hereof and prior to the Effective Time made by such party under the
Exchange Act (other than Company Reports and filings under Section 13 of the
Exchange Act with respect to investments in other companies) and all other
Regulatory Filings in connection with this Agreement and the transactions
contemplated hereby and thereby.
-27-
<PAGE>
6.6 Access
--- ------
Upon reasonable notice, the Company shall afford the Purchasing
Entities and their respective officers, employees, counsel, accountants,
lenders, agents, designees and other authorized representatives
("Representatives") access, during normal business hours throughout the period
from the date hereof to the Effective Time, to its properties, books, contracts,
papers and records and, during such period, the Company shall (and shall cause
each of its subsidiaries to) furnish promptly to the Purchasing Entities and
their Representatives all information concerning its business, properties and
personnel as such party or its Representatives may reasonably request, provided
that no investigation pursuant to this Section 6.6 shall affect or be deemed to
modify any representation or warranty made by any party herein and provided
further that all such investigations shall be subject to the terms of the
Confidentiality Agreement. The Purchasing Entities shall indemnify, defend and
hold the Company harmless from and against any loss, cost, damage or liability
caused by the Purchasing Entities or any of their Representatives arising out of
any such investigations.
6.7 Publicity
--- ---------
Neither the Company and its subsidiaries nor Purchaser shall issue any
press releases or otherwise make public statements with respect to the
transactions contemplated hereby, without the prior approval of the other,
except any party hereto may make any public statement as required by law after
consultation with the other parties as to the timing and content of such
statement. Prior to making any filings with any federal or state governmental
or regulatory agency or with any national securities exchange with respect to
the transactions contemplated by this Agreement, the Company and Purchaser shall
consult with each other.
6.8 Stock Options and Deferred Shares
--- ---------------------------------
Prior to the Effective Time, the Company shall take such actions as
may be necessary such that at the Effective Time (a) except as set forth on
Schedule 6.8, each stock option outstanding pursuant to the Stock Plans (each an
- - ------------
"Option"), whether or not then exercisable, shall be canceled and only entitle
the holder thereof, upon surrender thereof to receive an amount in cash equal to
the difference between the Cash Merger Consideration and the exercise price per
Share of such Option multiplied by the number of Shares previously subject to
such Option and (b) all arrangements with respect to deferred compensation,
including the deferral of receipt of the Deferred Shares, shall be terminated
and the persons entitled to receive such Deferred Shares shall receive prior to
the Effective Time, shares of Common Stock in an amount equal to the number of
Deferred Shares receivable by such person.
6.9 Indemnification
--- ---------------
(a) From and after the Effective Time, the Purchaser shall cause
the Surviving Corporation to indemnify, defend and hold harmless, to the
extent provided in the Company's Charter and By-laws, as in effect on the
date hereof, each person who is or was a present or former officer,
director, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, partner, trustee,
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<PAGE>
employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans (the "Indemnified Parties") with respect to actions
or omissions occurring at or prior to the Effective Time. Without limiting
the foregoing, after the Effective Time, the Surviving Corporation shall
pay all out-of-pocket fees and expenses, including reasonable legal fees,
for the Indemnified Parties incurred with respect to the foregoing to the
fullest extent permitted under applicable law promptly after statements
therefor are received by the Surviving Corporation; provided the person on
--------
whose behalf the expenses are paid provides an undertaking to repay such
payments if it is ultimately determined that such person is not entitled to
indemnification.
(b) If after the Effective Time, the Surviving Corporation or any
of its successors or assigns (i) shall consolidate with or merge into any
other corporation or entity and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) shall
transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation shall assume the obligations of the Surviving Corporation set
forth in this Section 6.9. If the Surviving Corporation shall liquidate,
dissolve or otherwise wind up its business, then the Purchaser shall
indemnify, defend and hold harmless each Indemnified Party to the same
extent and on the same terms that the Surviving Corporation was so
obligated pursuant to this Section 6.9.
(c) At or prior to the Effective Time, the Purchaser will
purchase a two (2) year "tail" on the Company's existing directors and
officers liability insurance coverage (up to $5 million limit) with respect
to actions occurring prior to or at the Effective Time to the extent that
such coverage is obtainable for an aggregate premium for such two (2) year
period not to exceed $450,000, and if not, will obtain the maximum
directors and officers liability insurance available for such two (2) year
period for an aggregate premium of $450,000.
(d) The agreement of the Surviving Corporation to indemnify and
advance or reimburse Losses to Indemnified Parties hereunder and each of
the other provisions of this Section 6.9 shall survive the consummation of
the Merger and the other transactions contemplated by this Agreement and
shall inure to the benefit of and be enforceable by the Indemnified Parties
and their respective heirs, successors and legal representatives. The
Indemnified Parties are intended to be and shall be deemed third-party
beneficiaries of this Section 6.9 and shall be entitled to enforce its
provisions directly against the Surviving Corporation or the Purchaser, as
applicable. This Section 6.9 makes mandatory the indemnification permitted
under Section 2-418 of the MCL.
6.10 Financing
---- ---------
The Purchaser shall use commercially reasonable efforts to obtain the
financing needed to pay the Cash Merger Consideration and to consummate the
Merger from Wells Fargo
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<PAGE>
Bank or another reputable financial institution (the "Financing"). Not later
than the Lenders Due Diligence Date, Purchaser will obtain a firm commitment
letter, subject to customary conditions, from Wells Fargo Bank or other
reputable financial institutions to provide immediately available funds in an
amount sufficient, taken together with Purchaser's own funds, to pay at the
Effective Time an amount equal to the product of (a) the Cash Merger
Consideration multiplied by (b) the number of Shares disclosed in Sections
5.1(b)(i), (ii) and (iii), and the fees and expenses expected to be incurred in
connection with the transactions contemplated hereby. In the event that any
portion of the Financing becomes unavailable, regardless of the reason therefor,
the Purchaser will use commercially reasonable efforts to obtain the financing
necessary for this transaction from other sources. The Company, the Purchaser
and Merger Sub shall each use commercially reasonable efforts to satisfy on or
before the date of the Closing all requirements of the definitive credit
agreements and related agreements pursuant to which the Financing will be
obtained (the "Financing Agreements") which are conditions to closing all
transactions constituting the Financing and to drawing down the cash proceeds
thereunder.
6.11 SEC Filings.
---- ------------
Each proxy statement or information statement and report on Form 8-K
filed by the Company after the date hereof will comply as to form in all
material respects with the applicable requirements of the Securities Laws and
will not contain any 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 the light of the circumstances under which they were made, not
misleading.
6.12 Cooperation with Lender Diligence.
---- ---------------------------------
The Company covenants and agrees that it shall use commercially
reasonable efforts to cooperate with the Purchaser, and to cause each of Redwood
and the Partnerships to cooperate with the Purchaser, to satisfy all
requirements and closing conditions of any lender providing financing for this
transaction, including, without limitation, (a) providing access to the Real
Property in connection with the preparation of surveys, physical inspection
reports or environmental site assessments, (b) removing or otherwise satisfying
such lender's objections to the state of title to the Real Property, (c)
providing copies of documents relating to the ownership, operation, maintenance
and use of the Real Property (including, without limitation, rent rolls) or the
conduct of the Company's or Redwood's business and (d) providing copies of the
Company's or Redwood's financial statements.
6.13 Financial and Operating Covenants of Purchaser.
---- ----------------------------------------------
From and after the date hereof through the Effective Time, the
Purchaser shall maintain not less than One Million Dollars ($1,000,000) in cash
on hand and the Purchaser shall not incur any obligations or liabilities
(liquidated or unliquidated, fixed or contingent) other than the obligations and
liabilities reflected on the Unconsolidated Balance Sheet and its obligations
incurred under, or contemplated by, this Agreement.
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<PAGE>
6.14 Notice of Developments.
---- -----------------------
Each party shall give prompt notice to the others in the event it
discovers any of its own representations or warranties to be untrue as of the
time made or in the event it determines that any of its representations or
warranties will be untrue as of the Effective Time. No disclosure by any party
pursuant to this section will be deemed to amend any Disclosure Schedule
delivered herewith or cure any misrepresentation or omission.
6.15 Purchase Agreement
---- ------------------
The Company agrees that it will not take any actions with respect to
any of the properties or assets that are subject to the Purchase Agreement that
would prohibit or impair in any material respect the ability of the Merger Sub
or the Surviving Corporation to consummate the transactions contemplated by the
Purchase Agreement.
ARTICLE VII
-----------
CONDITIONS
----------
7.1 Conditions to Obligations of the Purchasing Entities
--- ----------------------------------------------------
The respective obligations of each of the Purchasing Entities to
consummate the Merger are subject to the fulfillment of each of the following
conditions, any or all of which may be waived in whole or in part by Purchaser
or Merger Sub, as the case may be, to the extent permitted by applicable law:
(a) Stockholder Approval. This Agreement and the Merger
--------------------
contemplated hereby shall have been duly approved by the holders of not
less than eighty percent (80%) of the outstanding shares of Common Stock,
in accordance with applicable law and the Charter and Bylaws of the
Company;
(b) Governmental and Regulatory Consents. Except for the filings
------------------------------------
provided for in Section 1.3, all other filings required to be made prior to
the Effective Time by the Company with, and all consents, approvals and
authorizations required to be obtained prior to the Effective Time by
Purchaser, Merger Sub, the Company or Redwood from, governmental and
regulatory authorities in connection with the execution and delivery of
this Agreement by the Company and the consummation of the transactions
contemplated hereby by the Company, Purchaser and Merger Sub shall have
been made or obtained (as the case may be);
(c) Litigation. No court or governmental or regulatory authority
----------
of competent jurisdiction shall have enacted, issued, promulgated, enforced
or entered any statute, rule, regulation, judgment, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in
effect and prohibits consummation of the transactions contemplated by this
Agreement (collectively, an "Order");
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<PAGE>
(d) Continuing Warranties; Certificate. The representations and
----------------------------------
warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the Effective Time as though
made on and as of the Effective Time, except for changes contemplated by
this Agreement, and the Company shall have performed in all material
respects all of its obligations required to be performed hereunder on or
prior to the Effective Time, and Purchaser shall have received at the
Effective Time a certificate to the foregoing effect, dated the Effective
Time, and executed on behalf of the Company by an executive officer of the
Company;
(e) Certain Authorizations and Consents. All consents referred
-----------------------------------
to in Schedule 5.1(d) required to be obtained under any Material Contract,
---------------
the failure of which to obtain would have a Material Adverse Effect, shall
have been obtained by the Company or Redwood, as the case may be;
(f) Financing. The Purchaser shall have obtained in immediately
---------
available funds an amount sufficient, taken together with Purchaser's own
funds, to pay at the Effective Time an amount equal to the product of (i)
the Cash Merger Consideration multiplied by (ii) the number of Shares
disclosed in Sections 5.1(b)(i)(ii) and (iii), and the fees and expenses
expected to be incurred in connection with the transactions contemplated
hereby; provided that this condition shall cease to be a condition to the
--------
Purchasing Entities' obligations hereunder after the Lender Due Diligence
Date;
(g) Legal Opinion. Purchaser shall have received the opinions of
-------------
the Company's corporate counsel, real estate counsel and special Maryland
counsel, each dated the Effective Date, substantially in the forms of the
opinions attached hereto as Exhibits B, C and D;
-------------------
(h) Severance Payments. The obligation of the Company or Redwood
------------------
to make salary, severance, bonus or accrued vacation payments of any kind
to Carl C. Gregory, III and all other employees of the Company or Redwood
upon consummation of the Merger or thereafter shall not exceed $265,000 in
the aggregate ($179,500 of which shall be payable to Mr. Gregory);
(i) Estoppel Certificates. Purchaser shall have received, on or
---------------------
prior to the Lender Due Diligence Date, estoppel certificates from tenants
of the Company's properties in the form of Exhibit E attached hereto from
---------
the tenants of the Company's (including the Partnerships'), Real Property
as follows: (i) each of the following tenants: Jillian's Billiard Club of
Long Beach, Inc.; The Home Depot, Inc.; Oracle Corporation; TRW Technar,
Inc.; and Sega of America, Inc.; (ii) at least four of the following five
tenants: Sola Optical U.S.A., Inc.; Magellan Systems Corporation; GSIC
Realty Corporation; California Society of CPA's; and IDS Financial
Services, Inc.; and (iii) at least sixty percent (60%) of the total number
of the tenants (excluding each of the tenants set forth above) that occupy
over 5,000 square feet;
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<PAGE>
(j) Reconveyances. Purchaser shall have received confirmation of
-------------
the reconveyances obtained in connection with the repayment of the
Company's corporate debt to TCW Special Credits in form and substance
reasonably satisfactory to Purchaser;
(k) Capital Account Certificate. The Purchaser shall have
---------------------------
received a certificate of the general partner of the limited partnership
that owns the Harbor Point property certifying the capital account balances
of such partnership as of the end of its latest tax year end; and
(l) Certain Changes. There shall have occurred no changes after
---------------
December 31, 1994, in the financial condition, properties, business or
results of operations of the Company and its subsidiaries, taken as a
whole, which, individually or in the aggregate, would have a Material
Adverse Effect. At or prior to the Effective Time, Purchaser shall have
received a certificate of the President or Chief Financial Officer of the
Company to such effect. Each of Purchaser and Merger Sub acknowledges,
however, that the loan agreements with respect to the Shorebreeze property
expire at or near the end of June 1995 and agrees that such expirations and
the effects, if any, thereof, including, without limitation, any effects
resulting from the failure to obtain a refinancing of either or both of
such loan agreements, shall not be deemed to be a change that would have a
Material Adverse Effect within the meaning of this Section, and that any
refinancing thereof shall not be deemed to be a change that would have a
Material Adverse Effect if the refinancing either (i) involves an extension
of the existing loans with a term of not more than one year and which has
no material prepayment penalty and an interest rate not to exceed twelve
percent (12%) per annum or (ii) complies with the terms of the loan set
forth on Schedule 5.1(f).
---------------
7.2 Conditions to Obligation of the Company
--- ---------------------------------------
The obligation of the Company to consummate the Merger is subject to
the fulfillment of each of the following conditions, any or all of which may be
waived in whole or in part by the Company to the extent permitted by applicable
law:
(a) Stockholder Approval. This Agreement and the Merger
--------------------
contemplated hereby shall have been duly approved by the holders of not
less than eighty percent (80%) of the outstanding shares of Common Stock in
accordance with applicable law and the Charter and Bylaws of the Company;
(b) Governmental and Regulatory Consents. Except for the filings
------------------------------------
provided for in Section 1.3, all other filings required to be made prior to
the Effective Time by Purchaser and Merger Sub with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Effective Time by the Company, Redwood, Purchaser or Merger Sub from,
governmental and regulatory authorities in connection with the execution
and delivery of this Agreement by Purchaser and Merger Sub and the
consummation of the transactions contemplated hereby by Purchaser, Merger
Sub and the Company shall have been made or obtained (as the case may be);
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<PAGE>
(c) Litigation. No court or governmental or regulatory authority
----------
of competent jurisdiction shall have enacted, issued, promulgated, enforced
or entered any Order which is in effect and prohibits consummation of the
transactions contemplated by this Agreement;
(d) Continuing Warranties; Certificate. The representations and
----------------------------------
warranties of the Purchasing Entities contained in this Agreement hereof
shall be true and correct in all material respects on and as of the
Effective Time as though made on and as of the Effective Time, except for
the changes contemplated by this Agreement, and each of Purchaser and
Merger Sub shall have performed in all material respects all of its
obligations required to be performed hereunder on or prior to the Effective
Time, and the Company shall have received at the Effective Time a
certificate to the foregoing effect, dated the Effective Time, and executed
on behalf of Purchaser and Merger Sub, respectively, by the general manager
of the Purchaser and an executive officer of Merger Sub; and
(e) Legal Opinion. The Company shall have received the opinions
-------------
of the Purchaser's counsel, dated as of the Effective Time, substantially
in the forms of the opinions attached hereto as Exhibits F and G,
----------------
respectively.
ARTICLE VIII
------------
TERMINATION
-----------
8.1 Termination by Mutual Consent
--- -----------------------------
This Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, before or after the approval by holders of
the outstanding shares of Common Stock, by the mutual consent of Purchaser and
the Company.
8.2 Termination by Either Purchaser or the Company
--- ----------------------------------------------
This Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, before or after the approval by holders of
the outstanding shares of Common Stock, by Purchaser or by action of the Board
of Directors of the Company if the Merger shall not have been consummated by
November 30, 1995.
8.3 Termination by Purchaser
--- ------------------------
(a) This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, before or after the
approval by holders of the outstanding shares of Common Stock, by
Purchaser, if (i) the Company shall have failed to comply in any material
respect with any of the covenants or agreements contained in this Agreement
to be complied with or performed by the Company at the time of such
termination and such failure has not been cured within 10 business days of
delivery of written notice to the Company from the Purchaser, (ii) any
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<PAGE>
material representation or warranty by the Company contained in this
Agreement shall be incorrect in any material respect when made, or (iii)
the Board of Directors of the Company shall have withdrawn or modified in a
manner adverse to one of the Purchasing Entities its approval or
recommendation of this Agreement or the Merger.
(b) This Agreement may be terminated and the Merger may be
abandoned by Purchaser at any time on or prior to the Lender Due Diligence
Date in the event that the Purchaser fails to obtain a commitment to
provide the Financing in accordance with Section 6.10 hereof; provided,
--------
however, that in the event of termination of this Agreement by Purchaser
-------
under this Section 8.3(b), and provided that the Company has not breached
its representations and warranties and has satisfied the conditions and
obligations contained in Section 6.4 not later than the date required by
such Section 6.4, the Purchaser shall pay a fee in the amount of $350,000
to the Company concurrently with delivery of the notice of termination to
the Company. Such fee shall be paid by certified or cashier's check
payable to the order of the Company or by federal funds wire transfer to an
account specified by the Company.
(c) This Agreement may be terminated and the Merger may be
abandoned by Purchaser if the Merger does not receive for any reason the
affirmative vote of at least eighty percent (80%) of the shares of Common
Stock outstanding and entitled to vote thereon at a duly called and held
meeting of the stockholders of the Company by November 28, 1995.
8.4 Termination by the Company
--- --------------------------
(a) This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, before or after the
approval by holders of the outstanding shares of Common Stock, by action of
the Board of Directors of the Company, if (i) one or both of the Purchasing
Entities shall have failed to comply in any material respect with any of
the covenants or agreements contained in this Agreement to be complied with
or performed by such Purchasing Entity at the time of such termination and
such failure has not been cured within 10 business days of delivery of
written notice to such Purchasing Entity from the Company, (ii) any
material representation or warranty by one of the Purchasing Entities
contained in this Agreement shall be incorrect in any material respect when
made or (iii) provided that the Company has not breached its
representations and warranties and has satisfied the conditions and
obligations contained in Section 6.4, the Purchaser fails to confirm in
writing to the Company on or prior to the Lender Due Diligence Date that it
has obtained a commitment to provide the Financing required by Section 6.10
hereof. In the event of a termination of this Agreement by the Company
pursuant to Section 8.4(a)(iii) above, the Purchaser shall pay to the
Company a fee in the amount of $350,000 within five (5) business days of
receipt of written notice of such termination and such fee shall be paid by
certified or cashier's check payable to the order of the Company or by
federal funds wire transfer to an account specified by the Company.
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<PAGE>
(b) This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time before or after the
approval by holders of the outstanding shares of Common Stock, by action of
the Board of Directors of the Company, if the Board of Directors determines
to enter into a definitive agreement with respect to an Acquisition
Proposal after being advised by counsel that the failure to consider such
Acquisition Proposal may breach the directors' fiduciary duty to
stockholders of the Company.
8.5 Effect of Termination and Abandonment
--- -------------------------------------
Subject to the payment of the fees and expenses required by Article
VIII and Section 9.1 hereof, in the event of termination of this Agreement and
abandonment of the Merger pursuant to this Article VIII, no party hereto (or any
of its members, directors or officers) shall have any liability or further
obligation to any other party to this Agreement, except that nothing herein will
relieve any party from liability for any breach of this Agreement.
8.6 Termination Fee
--- ---------------
In the event this Agreement is terminated by the Purchaser pursuant to
Section 8.3(a)(iii) or Section 8.3(c) or by the Company pursuant to Section
8.4(b), the Company shall pay to Purchaser a fee in the amount of $400,000,
provided that neither of the Purchasing Entities has breached its
- - --------
representations and warranties and each of the Purchasing Entities has complied
with all of its respective covenants contained in this Agreement. Payment of
such fee shall be made within five (5) business days of the termination of this
Agreement pursuant to Section 8.3(a)(iii), 8.3(c) or 8.4(b).
ARTICLE IX
----------
MISCELLANEOUS AND GENERAL
-------------------------
9.1 Payment of Expenses
--- -------------------
The Purchaser and the Company shall each be responsible to pay its own
costs and expenses incurred in connection with the negotiation and execution of
this Agreement. Without limiting the generality of the foregoing, but subject
to Section 8.6 above, the Purchaser shall be responsible for all of its own due
diligence and legal costs and expenses and the due diligence and legal costs and
expenses of the sources of the Financing. Except with respect to any costs and
expenses incurred by the Purchaser prior to the date hereof, and except for any
due diligence costs and legal fees and expenses incurred by the sources of the
Financing, the Company shall pay, promptly after receipt of appropriate invoices
therefor, all of the expenses of the Company and the Purchaser incurred in
connection with preparation of the Proxy Statement and soliciting the approval
of this Agreement and the Merger by the stockholders of the Company and the
consummation of the Merger unless and until the Purchaser breaches any of the
terms or provisions of, or is otherwise in default of any of its obligations
under, this Agreement. No expenses that are required to be paid by the Company
in accordance with the immediately preceding sentence that are in excess of
$10,000 individually or in the aggregate
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<PAGE>
shall be incurred or paid without the prior approval of the Company which will
not be unreasonably withheld. Investment banking fees may be paid by the Company
only in respect of fairness opinions, valuation reviews or consulting services
related to the valuation review. The total investment banking expenses so
incurred may not exceed $125,000. If the Merger shall not be consummated for any
reason, then, except as otherwise expressly provided in Sections 8.3(b), 8.4(a)
and 8.6, each party hereto shall be responsible for and shall pay its own costs
and expenses incident to preparing for, negotiating, entering into and carrying
out this Agreement and the consummation of the Merger and, except for the
amounts required to be paid by the Company to Purchaser under Section 8.6,
Purchaser shall promptly reimburse the Company for any amounts previously paid
by the Company on behalf of Purchaser.
9.2 Survival
--- --------
The agreements of the Company, Purchaser and Merger Sub contained in
Sections 2.1, 2.2, 3.1, 4.1, 4.2, 4.3, 6.5, 6.9, 9.1 and this Section 9.2 shall
survive the consummation of the Merger. The agreements of the Company,
Purchaser and Merger Sub, contained in Article VIII and Sections 5.2(g), and 9.1
and this Section 9.2 shall survive the termination of this Agreement All other
representations, warranties, agreements and covenants in this Agreement shall
not survive the consummation of the Merger or the termination of this Agreement.
9.3 Amendment
--- ---------
Subject to the applicable provisions of the MCL, at any time prior to
the Effective Time, the parties hereto may amend, modify or supplement the terms
of this Agreement, including, without limitation, to (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements contained herein; provided, however, that any
-------- -------
amendment, modification, supplement, extension or waiver of any provision of
this Agreement executed after the stockholders of the Company have approved this
Agreement and the Merger shall not modify either the amount or the form of the
Cash Merger Consideration or otherwise materially adversely affect such
stockholders (except for any delay in the consummation of the Merger) without
their requisite approval. Any agreement on the part of a party hereto to any
such amendment, modification, supplement, extension or waiver shall be valid and
enforceable against such party only if set forth in a written instrument signed
on behalf of such party.
9.4 Waiver of Conditions
--- --------------------
The conditions to each of the parties' obligations to consummate the
Merger are for the sole benefit of such party and may be waived by such party in
whole or in part to the extent permitted by applicable law.
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<PAGE>
9.5 Counterparts
--- ------------
For the convenience of the parties hereto, this Agreement may be
executed in any number of counterparts, each such counterpart being deemed to be
an original instrument, and all such counterparts shall together constitute one
and the same agreement.
9.6 Governing Law
--- -------------
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Maryland, without giving effect to
conflicts of law principles.
9.7 Notices
--- -------
Any notice, request, instruction or other document to be given
hereunder by any party to the other shall be in writing and delivered personally
or sent by registered or certified mail, postage prepaid, return receipt
requested, if to Purchaser or Merger Sub, addressed to Purchaser or Merger Sub,
as the case may be, at c/o J.E. Robert Companies, 11 Canal Center Plaza, Suite
200, Alexandria, Virginia 22314, Attention: Jonathan Kern, Gary Stevens and
Murry Gunty (with a copy to Skadden, Arps, Slate, Meagher & Flom, 1440 New York
Avenue, N.W., Washington, D.C. 20005-2107, Attention: Stephen W. Hamilton,
Esq.); and if to the Company, addressed to the Company at MIP Properties, Inc.,
2020 Santa Monica Boulevard, Suite 480, Santa Monica, California 90404,
Attention: Carl C. Gregory, III (with a copy to Allen, Matkins, Leck, Gamble &
Mallory, 515 South Figueroa Street, Eighth Floor, Los Angeles, California 90071,
Attention: Brian C. Leck, Esq.), or to such other persons or addresses as may
be designated in writing by the party to receive such notice.
9.8 Entire Agreement; Assignment
--- ----------------------------
This Agreement (including all schedules and any exhibits or annexes
hereto) (a) constitutes the entire agreement, and supersedes all other prior or
contemporaneous agreements, understandings, representations and warranties, both
written and oral, among the parties, with respect to the subject matter hereof;
provided that the Confidentiality Agreement shall continue in full force and
- - --------
effect and (b) shall not be assignable by either party, by operation of law or
otherwise, and, except as set forth in Section 6.8 hereof, is not intended to
create any obligations to, or rights in respect of, any persons other than the
parties hereto.
9.9 Captions
--- --------
The Article, Section and paragraph captions herein are for convenience
of reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof. All
references to sections, schedules and exhibits in this Agreement refer to the
sections of and the schedules and exhibits attached to, or delivered in
connection with, this Agreement.
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<PAGE>
9.10 Waiver
---- ------
Any failure to exercise or delay in exercising any right, power or
privilege herein contained, or any failure or delay at any time to require the
other party's performance of any obligation under this Agreement, shall not
affect the right to subsequently exercise that right, power or privilege, or to
require performance of that obligation. A waiver of any of the provisions of
this Agreement shall not be deemed, nor shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver. A waiver shall not be binding unless executed in writing by the party
making the waiver.
9.11 Severability
---- ------------
Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be valid and effective under applicable law.
If any provision of this Agreement shall be unlawful, void or for any reason
unenforceable it shall be deemed separable from, and shall in no way affect the
validity or enforceability of, the remaining provisions of this Agreement, and
the rights and obligations of the parties shall be enforced to the fullest
extent possible.
9.12 Attorneys' Fees
---- ---------------
In any judicial action or proceeding or any arbitration proceeding
between the parties to enforce any of the provisions of this Agreement, to seek
damages on account of the breach hereof, to seek injunctive relief to prevent
the breach hereof, to seek a judicial determination of the rights or obligations
of any party hereto, or in any judicial action or proceeding or any arbitration
proceeding between the parties in which this Agreement is raised as a defense,
regardless of whether the action or proceeding is prosecuted to judgment and in
addition to any other remedy, the unsuccessful party shall pay the successful
party all costs and expenses, including reasonable attorneys' fees, incurred by
the successful party.
ARTICLE X
---------
CERTAIN DEFINITIONS
-------------------
10.1 Definition of "Knowledge of the Company"
---- ----------------------------------------
As used in this Agreement, the term "Knowledge of the Company" means
the actual knowledge of Carl C. Gregory, III, the Chairman of the Board and
Chief Executive Officer of the Company, Philip H. Bowman, Vice President of the
Company, and/or Marsha Z. Day, the Chief Financial Officer of the Company, and
any other officer of the Company, without the necessity of any investigation. In
addition, no knowledge shall be imputed to the Company or any of the foregoing
officers from any documents or files in the possession or control of the Company
or such officers, including, without limitation, any and all documents and files
with respect to any Real Property owned or leased by the Company or any of the
Partnerships or with respect to which the Company or any of the Partnerships has
a security interest or has filed a
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<PAGE>
deed of trust or mortgage; provided, however, that the foregoing limitation
--------- --------
shall not apply with respect to documents or files relating to the time period
from and after September 1, 1991.
10.2 Definition of "Subsidiary"
---- --------------------------
As used in this Agreement, the term "subsidiary" means any corporation
or other organization whether incorporated or unincorporated of which at least a
majority of the securities or interests having by the terms thereof ordinary
voting power to elect at least 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. The term "subsidiary" as used in this Agreement, however, does
not include any partnership, joint venture or other organization in which the
Company has an interest as a limited partner or joint venture partner and that
is listed on Schedule 5.1(a).
---------------
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto on the date
first hereinabove written.
JER PARTNERS, LLC,
a Maryland limited liability company
By: /s/ JOSEPH E. ROBERT
--------------------------------------
Name: Joseph E. Robert
-----------------------------------
Title: Member
-----------------------------------
MIP ACQUISITION CORPORATION,
a Maryland corporation
By: /s/ JOSEPH E. ROBERT
--------------------------------------
Name: Joseph E. Robert
-----------------------------------
Title: President
-----------------------------------
MIP PROPERTIES, INC.,
a Maryland corporation
By: /s/ CARL C. GREGORY, III
--------------------------------------
Carl C. Gregory, III
Chairman of the Board and
Chief Executive Officer
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<PAGE>
EXHIBIT "A"
-----------
ARTICLES OF MERGER
BETWEEN
MIP PROPERTIES, INC.,
(A MARYLAND CORPORATION)
AND
MIP ACQUISITION CORPORATION,
(A MARYLAND CORPORATION)
MIP Properties, Inc., a corporation duly organized and existing under
the laws of the State of Maryland ("MIP"), and MIP Acquisition Corporation, a
corporation duly organized and existing under the laws of the State of Maryland
("Merger Sub"), do hereby certify that:
FIRST: MIP and Merger Sub agree to merge.
SECOND: The name and place of incorporation of each party to these
Articles are MIP Properties, Inc., a corporation incorporated under the laws of
the State of Maryland, and MIP Acquisition Corporation, a corporation
incorporated under the laws of the State of Maryland. MIP shall survive the
merger.
THIRD: The principal office of MIP in the State of Maryland is
located in Baltimore City, and the principal office of Merger Sub in the State
of Maryland is located in Baltimore City. Neither MIP nor Merger Sub owns an
interest in land in the State of Maryland.
FOURTH: The terms and conditions of the transaction set forth in
these Articles were advised, authorized and approved by each corporation party
to these Articles in the manner and by the vote required by its charter and the
laws of the state of its incorporation. The manner of approval was as follows:
(a) The Board of Directors of Merger Sub, by written consent,
dated ___________, 1995, signed by each member of the Board and filed with
the minutes of proceedings of the Board, adopted a resolution which
declared that the merger was advisable on substantially the terms and
conditions set forth or referred to in these Articles and directed that the
proposed merger be submitted for consideration by the sole stockholder of
Merger Sub. The merger on substantially the terms and conditions set forth
or referred to in these Articles was approved by the sole stockholder of
Merger Sub, by written consent, dated __________, 1995, signed by the sole
stockholder of Merger Sub and filed with the minutes of meetings of the
sole stockholder of Merger Sub.
(b) The Board of Directors of MIP at a meeting held on May 14,
1995, adopted a resolution which declared that the merger on substantially
the terms and conditions set forth or referred to in these Articles was
advisable and
<PAGE>
directed that the proposed merger be submitted for consideration by the
stockholders of MIP. The merger was approved by the stockholders of MIP at
a special meeting of stockholders held on ___________, 1995, by the
affirmative vote of the holders of at least eighty percent (80%) of the
outstanding shares of stock entitled to be voted on the matter.
FIFTH: As of the effective time of the merger, the charter of MIP
is amended and restated in its entirety to read as follows:
_________________________________
ARTICLES OF INCORPORATION
-------------------------
ARTICLE I
The name of the corporation (which is hereinafter called the
"Corporation") is
_________________________________
ARTICLE II
The purposes for which the Corporation is formed are as
follows:
To engage in any lawful act or activities permitted by a
corporation organized under the laws of the State of Maryland.
The foregoing enumeration of the purposes, objects and business
of the Corporation is made in furtherance, and not in limitation, of the
powers conferred upon the Corporation by law, and is not intended, by the
mention of any particular purpose, object or business, in any manner to
limit or restrict the generality of any other purpose, object or business
mentioned, or to limit or restrict any of the powers of the Corporation,
and the said Corporation shall enjoy and exercise all of the powers and
rights now or hereafter conferred by statute upon corporations. Nothing
herein contained shall be deemed `to authorize or permit the Corporation
to carry on any business or exercise any power or do any act which a
corporation formed under the laws of the State of Maryland may not at the
time lawfully carry on or do.
ARTICLE III
The post office address of the principal office of the
Corporation in this State is c/o Abba D. Poliakoff, 233 E. Redwood
Street, Baltimore, Maryland 21202. The name and post office address of
the resident agent of the Corporation in this State are Diane Heckert,
Director of
A-2
<PAGE>
Operations, c/o CorpAssist, Inc., 11 E. Chase Street, Suite 9E,
Baltimore, Maryland 21202. Said resident agent is an individual actually
residing in this State.
ARTICLE IV
The total number of shares of stock which the Corporation has
authority to issue is five thousand (5,000) shares of common stock with a
par value of One Cent ($.01) per share, for an aggregate par value of
Fifty Dollars ($50.00).
ARTICLE V
The number of Directors of the Corporation shall be not less
than three (3) nor more than twelve (12); provided, however, that (a) if
at any time there is no stock outstanding, the Corporation may have less
than three (3) but not less than one (1) Director; and (b) if there is
stock outstanding and there are less than three (3) stockholders, the
number of Directors may be less than three (3) but not less than the
number of stockholders. The number of Directors may be increased or
decreased pursuant to the By-laws of the Corporation, subject, however,
to the above provisions. The name of the Director who shall act until his
successor is duly elected and qualifies is Joseph Robert [any other
Directors of Merger Sub elected prior to the filing of these Articles of
Merger will be required to be listed].
ARTICLE VI
The following provisions are hereby adopted for the purposes of
describing the rights and powers of the Corporation and of the Directors
and Stockholders:
(a) The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of shares of stock
of any class, whether now or hereafter authorized and securities
convertible into shares of its stock of any class whether now or
hereafter authorized for such consideration as said Board of Directors
may deem advisable, subject to such limitations and restrictions, if any,
as may be set forth in the By-laws of the Corporation.
(b) The Board of Directors of the Corporation may classify or
reclassify any unissued shares by fixing or altering in any one or more
respects, from time to time before issuance of such shares, the
preferences, rights, voting powers, restrictions and qualifications of,
the dividends on, the times and prices of redemption of, and the
conversion rights of, such shares.
A-3
<PAGE>
(c) The Corporation reserves the right to amend its Charter so
that such amendment may alter the contract rights, as expressly set forth
in the Charter, of any outstanding stock, and any objecting stockholder
whose rights may or shall be thereby substantially adversely affected
shall not be entitled to demand and receive payment of the fair value of
his stock.
(d) Except as may otherwise be provided by the Board of
Directors, no holder of any shares of the stock of the Corporation shall
have any preemptive right to purchase, subscribe for, or otherwise
acquire any shares of stock of the Corporation of any class now or
hereafter authorized, or any securities or rights exchangeable for,
convertible into or evidencing rights to acquire such shares.
The enumeration and definition of a particular power of the
Board of Directors included in the foregoing is for descriptive purposes
only and shall in no way limit or restrict the terms of any other clause
of this or any other Article of these Articles of Incorporation, or in
any manner exclude or limit any powers conferred upon the Board of
Directors under the Maryland General Corporation Law now or hereafter in
force.
ARTICLE VII
No director or officer of the Corporation shall be liable to
the Corporation or to its stockholders for money damages except (i) to
the extent that it is proved that such director or officer actually
received an improper benefit or profit in money, property or services,
for the amount of the benefit or profit in money, property or services
actually received, or (ii) to the extent that a judgment or other final
adjudication adverse to such director or officer is entered in a
proceeding based on a finding in the proceeding that such director's or
officer's action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action adjudicated
in the proceeding.
ARTICLE VIII
Any provision of the By-laws of the Corporation in effect
immediately prior to _____________, 1995 [merger effective date] which
prohibits an amendment thereto, unless there has been compliance with
certain provisions of the Articles of Incorporation of the Corporation,
shall have no further force or effect. On and after ______________, 1995
[merger effective date], any provision of the By-laws may be amended in
accordance with the provisions hereof and the Maryland General
Corporation Law.
SIXTH: The total number of shares of stock of all classes which MIP
has authority to issue is 100,000,000, of which 75,000,000 are shares of common
stock (par value
A-4
<PAGE>
$.01 per share) (the "Common Stock") and 25,000,000 are shares of preferred
stock (par value $.01 per share). The aggregate par value of all the shares of
stock of all classes of MIP is $1,000,000. Immediately before the merger, the
total number of shares of stock which MIP has authority to issue, the number of
shares of stock of each class of MIP, the par value of the shares of stock of
each such class, and the aggregate par value of all the shares of stock of all
classes of MIP are as set forth in the immediately preceding sentence. As
changed by the merger pursuant to Article Fifth of these Articles, immediately
after the merger, the total number of shares of stock of all classes which MIP
has authority to issue will be 5,000 shares, all of one class of common stock
(par value $.01 per share), and the aggregate par value of all the shares of
stock of all classes of MIP will be $50.00. The total number of shares of stock
of all classes which Merger Sub has authority to issue is 5,000 shares, all of
one class of common stock (par value $.01 per share). The aggregate par value of
all the shares of stock of all classes of Merger Sub is $50.00.
SEVENTH: The manner and basis of converting or exchanging issued
stock of the merging corporations into different stock of a corporation, or
other consideration, and the treatment of any issued stock of the merging
corporations not to be converted or exchanged are as follows:
(a) At the effective time of the merger, each share of Common
Stock of MIP (other than shares owned by Merger Sub or the limited
liability company that owns all of the shares of Merger Sub, but including
all shares that have been deferred under MIP's First Amended and Restated
Long-Term Incentive Compensation Plan and Fee Deferral Plan) (the "Shares")
issued and outstanding immediately prior to such effective time shall, by
virtue of the merger and without any action on the part of the holder
thereof, be converted into the right to receive, without interest, an
amount in cash equal to $2.475 (the "Cash Merger Consideration"). The Cash
Merger Consideration shall be payable in accordance with, and subject to,
the terms and conditions of the Agreement and Plan of Merger dated as of
May 21, 1995 by and among MIP, Merger Sub, and JER Partners, LLC, a
Maryland limited liability company.
(b) At the effective time of the merger, all previously issued
and outstanding Shares, by virtue of the merger and without any action on
the part of the holders thereof, shall cease to be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such Shares shall thereafter cease to have any
rights with respect to such Shares except the right of holders (other than
Merger Sub or the limited liability company that owns all of the shares of
Merger Sub) to receive the Cash Merger Consideration set forth in clause
(a) above in this Article Seventh upon the surrender of such certificate.
(c) At the effective time of the merger, each Share issued and
outstanding at such effective time and owned by Merger Sub (or the limited
liability company that owns all of the shares of Merger Sub) shall, by
virtue of the merger and without any action on the part of the holder
thereof, cease to be outstanding, shall be
A-5
<PAGE>
canceled and retired without payment of any consideration therefor and
shall cease to exist.
(d) At the effective time of the merger, each share of common
stock, $.01 par value per share, of Merger Sub issued and outstanding
immediately prior to such effective time shall be converted into and become
one fully paid and nonassessable share of Common Stock of MIP.
EIGHTH: The merger shall become effective upon acceptance of these
Articles for record by the Maryland State Department of Assessments and
Taxation. At such effective time, Merger Sub shall be merged with and into MIP,
the separate existence of Merger Sub shall cease and MIP shall continue in
existence and shall possess any and all purposes and powers of Merger Sub, and
all assets, rights, properties and privileges of Merger Sub shall be transferred
to, vested in and devolved upon MIP without further act or deed, and MIP shall
be liable for all the debts and obligations of Merger Sub.
A-6
<PAGE>
IN WITNESS WHEREOF, MIP Properties, Inc., a Maryland corporation, and
MIP Acquisition Corporation, a Maryland corporation, have caused these Articles
to be signed in their respective names and on their respective behalves by their
respective chairmen of the board of directors or presidents and witnessed by
their respective secretaries or assistant secretaries on _____________, 1995.
MIP Properties, Inc.,
a Maryland corporation
ATTEST: (SEAL)
By:
- - ---------------------------------- ---------------------------------
Name: Name:
----------------------------- -------------------------------
Secretary Chairman of the Board and
Chief Executive Officer
MIP Acquisition Corporation,
a Maryland corporation
ATTEST: (SEAL)
By:
- - ---------------------------------- ---------------------------------
Name: Name:
----------------------------- -------------------------------
Secretary President
A-7
<PAGE>
THE UNDERSIGNED, Chairman of the Board and Chief Executive Officer of
MIP Properties, Inc., a Maryland corporation, who executed on behalf of said
Corporation the foregoing Articles of Merger of which this certificate is made a
part, hereby acknowledges the foregoing Articles of Merger to be the corporate
act of said Corporation and hereby certifies that to the best of his knowledge,
information and belief the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
------------------------------------
Name:
-------------------------------
Chairman of the Board and
Chief Executive Officer
THE UNDERSIGNED, President of MIP Acquisition Corporation, a Maryland
corporation, who executed on behalf of said Corporation the foregoing Articles
of Merger of which this certificate is made a part, hereby acknowledges the
foregoing Articles of Merger to be the corporate act of said Corporation and
hereby certifies that to the best of his knowledge, information and belief the
matters and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects under the penalties of
perjury.
-------------------------------------
Name:
--------------------------------
President
A-8
<PAGE>
EXHIBIT "B"
-----------
SUBSTANCE OF OPINION
OF ALLEN, MATKINS, LECK, GAMBLE & MALLORY,
CORPORATE COUNSEL TO MIP PROPERTIES, INC.
-----------------------------------------
1. Neither the execution and delivery by the Company of the Agreement
and Plan of Merger (the "Merger Agreement") nor the consummation by the Company
of the transactions contemplated thereby will, to our actual knowledge, (i)
conflict with or result in a breach by the Company of, or constitute a default
under, any Material Contract (as defined in the Merger Agreement) listed on
Exhibit A attached hereto to which the Company is a party, or (ii) violate (a)
- - ----------
any judgment, order or decree listed on Exhibit B attached hereto applicable to
---------
the Company or (b) any California or federal law applicable to the Company.
2. No consent, order or approval of any California or federal court
or governmental agency or body is required on the part of the Company for the
execution and delivery of the Merger Agreement or the consummation of the
transactions contemplated thereby, except such as have been obtained prior to
the date hereof and remain valid and outstanding. We express no opinion,
however, as to any such consent, order or approval (i) which may be required as
a result of the involvement of Purchaser, Merger Sub or any affiliate or agent
of either of them in the transactions contemplated by the Merger Agreement
because of such entities or persons legal or regulatory status or because of any
other facts specifically pertaining to Purchaser, Merger Sub or any of their
affiliates or agents; (ii) the absence of which does not have any material
adverse effect on the Purchaser, Merger Sub or the Company and does not deprive
the Purchaser or Merger Sub of any material benefit under the Merger Agreement;
or (iii) which can be readily obtained without significant delay or expense to
Purchaser and Merger Sub, without the loss to Purchaser or Merger Sub of any
material benefit under the Merger Agreement and without any material adverse
effect on Purchaser, Merger Sub or the Company during the period such consent,
order or approval was not obtained. We refer you to the opinion of Piper &
Marbury, special Maryland counsel to the Company, for issues relating to
compliance with Maryland law.
3. To our actual knowledge, except for the matters set forth in the
Company Reports, in the Merger Agreement or on Exhibit C attached to this
---------
opinion, the Company is not the subject of any pending or threatened action,
suit, proceeding or investigation against or affecting the Company in any court
or by or before any arbitrator or governmental entity which would have a
material adverse effect on the Company taken as a whole if determined adversely
to the Company or which seeks to prevent or delay the consummation of the
Merger.
4. To our actual knowledge, all options or rights, if any, to acquire
the Company's common stock, $.01 par value per share (the "Common Stock"), have
been exercised, have expired or have been canceled as of the Effective Time as
contemplated in the Merger Agreement. To our actual knowledge, except as
disclosed in the Company Reports or in the Merger Agreement, the authorized but
unissued shares of capital stock of the Company are not subject to any presently
outstanding and effective warrants, options, rights or commitments
<PAGE>
granted by the Company, and the Company is not obligated to issue, purchase or
redeem any additional shares of its capital stock.
5. The Proxy Statement, as of the date it was mailed to the
shareholders of the Company, complied as to form in all material respects with
the requirements of Regulation 14A of the Securities Exchange Act of 1934, as
amended, and the related rules and regulations. In addition, we have
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants of the Company,
your representatives and your counsel at which the Proxy Statement and related
matters were discussed and, although we are not passing upon, and do not assume
any responsibility for, the accuracy, completeness or fairness of the statements
contained in the Proxy Statement and have not made any independent check or
verification thereof, during the course of such participation, nothing came to
our attention that caused us to believe that, on the date the Proxy Statement
was first mailed to stockholders, or at the time of the Stockholders Meeting,
the Proxy Statement contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that no opinion is expressed as to
-------- -------
any information concerning either of the Purchasing Entities or any of their
respective subsidiaries, affiliates or advisors provided by either of the
Purchasing Entities for inclusion in the Proxy Statement; and provided further
----------------
that we express no opinion or belief as to the financial statements and the
notes thereto or the schedules and other financial or statistical data included
or incorporated by reference in the Proxy Statement or as to any information
incorporated by reference in the Proxy Statement. In passing upon the form of
the Proxy Statement, we necessarily assume that the statements made or included
therein are complete, fair and correct and take no responsibility therefor
except as specifically set forth in this Paragraph 6.
B-2
<PAGE>
EXHIBIT "C"
-----------
SUBSTANCE OF OPINION
OF REAL ESTATE COUNSEL TO MIP PROPERTIES, INC.
----------------------------------------------
1. Neither the execution and delivery by the Company of the Agreement
and Plan of Merger (the "Merger Agreement") nor the consummation by the Company
of the transactions contemplated thereby will, to our actual knowledge, (i)
conflict with or result in a breach by the Company of, or constitute a default
under (with or without the giving of notice or passage of time), or the
acceleration of any payment pursuant to any Material Contract (as defined in the
Merger Agreement) listed on Exhibit A attached hereto, to which the Company is a
---------
party or any of the properties identified on Exhibit B attached hereto (the
---------
"Properties") are bound, (ii) result in the imposition of any encumbrance
against any of the Properties, (iii) violate any judgment, order or decree
applicable to any of the Properties or (iv) violate any California or federal
law applicable to the ownership of the Properties, but excluding the effect of
any California or federal securities, tax or creditors' rights laws.
<PAGE>
EXHIBIT "D"
-----------
SUBSTANCE OF OPINION OF
PIPER & MARBURY, MARYLAND COUNSEL
TO MIP PROPERTIES INC.
----------------------
l. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Maryland. The Company has the
corporate power to own its current property and assets and to conduct its
business as now being conducted as described in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994. The Company has the
requisite corporate power and corporate authority to enter into, execute,
deliver and perform the Agreement and Plan of Merger (the "Merger Agreement")
and to carry out the transactions contemplated thereby.
2. Neither the execution, delivery or performance by the Company of
the Merger Agreement nor the consummation by the Company of the transactions
contemplated thereby will conflict with the Charter or Bylaws of the Company or,
to our knowledge, any provisions of law of the State of Maryland applicable to
the Company.
3. The execution and delivery of the Merger Agreement has been duly
authorized by all necessary corporate action on the part of the Company, and no
other action on the part of the Company or its stockholders is necessary to
authorize the execution and delivery of the Merger Agreement or to consummate
the Merger.
4. The Merger Agreement has been duly executed and delivered by the
Company and will constitute a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally. We advise you that the enforceability of the
Merger Agreement is subject to the effect of general principles of equity,
including, without limitation, concepts of materiality, reasonableness, good
faith and fair dealing, and the possible unavailability of specific performance
or injunctive relief, regardless of whether considered in a proceeding in equity
or at law.
5. Upon the filing with, and acceptance for record by, the Maryland
State Department of Assessments and Taxation (the "SDAT") of the Articles of
Merger duly signed, acknowledged and attested by or on behalf of the Company and
Merger Sub in accordance with the provisions of the Merger Agreement, each act
required to be taken by or on behalf of the Company under the Maryland General
Corporation Law to consummate the Merger will have been duly and properly taken.
6. No consent, order or approval of any Maryland court or
governmental agency or body is required on the part of the Company for the
execution and delivery of the Merger Agreement or the consummation of the
Merger, except such as have been obtained prior to the date hereof and remain
valid and outstanding, and except the filing with and acceptance for record by
the SDAT of the Articles of Merger as described in paragraph 4 above. We
express no opinion, however, as to any such consent, order or approval (i) which
may be
<PAGE>
required as a result of the involvement of Purchaser, Merger Sub or any
affiliate or agent of either of them in the transactions contemplated by the
Merger Agreement because of such entities or persons legal or regulatory status
or because of any other facts specifically pertaining to Purchaser, Merger Sub
or any of their affiliates or agents; (ii) the absence of which does not have
any material adverse effect on the Purchaser, Merger Sub or the Company and does
not deprive the Purchaser or Merger Sub of any material benefit under the Merger
Agreement; or (iii) which can be readily obtained without significant delay or
expense to Purchaser and Merger Sub, without the loss to Purchaser or Merger Sub
of any material benefit under the Merger Agreement and without any material
adverse effect on Purchaser, Merger Sub or the Company during the period such
consent, order or approval was not obtained.
D-2
<PAGE>
EXHIBIT "E"
-----------
FORM OF TENANT ESTOPPEL CERTIFICATE
-----------------------------------
TO: JER Partners, LLC (the "Purchaser"), its affiliates, subsidiaries,
successors and assigns
RE: Property Address:________________________________ (the "Building")
Lease Date:______________________________________
Landlord:________________________________________ ("Landlord")
Tenant:__________________________________________ ("Tenant")
Square Footage Leased:___________________________
Suite Number: _______________________________ (the "Leased Premises")
It is our understanding that, pursuant to a merger, the Purchaser is
contemplating the purchase of all of the capital stock of Landlord (or a partner
of the Landlord) and that the Purchaser is requiring this certification in
connection with such transaction.
The undersigned Tenant under the referenced lease (the "Lease") hereby
ratifies the Lease and represents, warrants, and certifies to the Purchaser, its
affiliates, subsidiaries, successors and assigns the following:
l. A true and complete copy of the Lease and any and all amendments,
extensions, assignments and other modifications thereto, are attached hereto.
There are no other agreements, either oral or written, between Landlord and
Tenant with respect to the Lease or the premises (including the land and/or the
building(s)) leased under the Lease ("Leased Premises").
2. Rent has been paid through the last day of the current month and
all additional rent has been paid and collected in a current manner. There is no
prepaid rent except ____________________________ and the amount of security
deposit posted pursuant to the Lease is ____________________
3. Tenant took possession of the Leased Premises on _____________ the
lease commencement date is _____________ and Tenant commenced paying rent on
__________________. Rent is currently payable in the amount of ___________ per
month, and the following additional monthly payments are currently being paid
under the Lease: __________________________ (property taxes, property insurance,
CAM parking, storage, electricity, utilities, etc.), each as provided in the
Lease. Tenant's share of common area expenses and/or operating expenses is
__________ Percent (_____%). The base year for operating expenses is
___________________ and for real estate taxes is ___________, each as provided
in the Lease. (RETAIL TENANTS ONLY: The annual percentage rent payable, if any,
for the calendar year beginning January 1, 1994 and ending December 31, 1994
under the Lease was in the amount of ____________, and "Gross Sales" (as such
term is defined in the Lease), if any, during the calendar year 1994 were
_______________.
<PAGE>
4. The Lease terminates on _______________ and Tenant has no
expansion or renewal rights, or any other options or rights to extend the term
of the Lease, except as attached hereto.
5. All work, including construction, Tenant improvements and
alterations, to be performed for Tenant under the Lease has been performed as
required under and in accordance with the terms of the Lease and has been
accepted by Tenant. All conditions and obligations under the Lease to be
performed by Landlord as of the date hereof have been fully performed by
Landlord.
6. The Lease is in full force and effect, free from default by
Landlord or Tenant, and Tenant has no claims or defenses against Landlord or
offsets against rent.
7. Tenant has not assigned or sublet the Lease or any portion of the
Leased Premises, nor does Tenant hold the Lease or the Leased Premises under
assignment or sublet.
8. Except for the interest in the Leased Premises created by the
Lease and Tenant's personal property contained therein, Tenant has no interest
in the Leased Premises, the Building or any personal property used in connection
therewith, nor does Tenant have any right of first refusal, opportunity of
negotiation or right or option to purchase all or any portion of the Leased
Premises or the Building.
9. The statements contained herein may be relied upon by Landlord, by
the Purchaser by any prospective purchaser of the fee of the Leased Premises
and/or the Building, and any lender of Landlord or the Purchaser or any such
prospective purchaser, and their respective successors and assigns.
10. Tenant has not filed a voluntary petition for relief, and is not
the subject of any involuntary petition for relief, under the United States
Bankruptcy Code or similar bankruptcy laws. Tenant is in possession and
presently open and conducting business in the Leased Premises.
11. Tenant has not received notice from Landlord or any governmental
entity or instrumentality indicating that the Premises or the property of which
the Premises are a part, violate or fail to comply with any governmental law,
order, rule or regulation.
THE UNDERSIGNED individual is duly authorized to execute this Tenant
Estoppel Certificate on behalf of Tenant.
Dated: _____________, 1995
Tenant: By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
E-2
<PAGE>
EXHIBIT "F"
-----------
SUBSTANCE OF OPINION OF
SKADDEN, ARPS, SLATE, MEAGHER & FLOM,
SPECIAL COUNSEL TO PURCHASER AND MERGER SUB
-------------------------------------------
For purposes of this opinion: (i) the term "Applicable Law" means only
the laws of the United States of America which, in our experience, are normally
applicable to transactions of the type contemplated by the Merger Agreement;
provided, however, that the term Applicable Laws shall not include federal
securities laws or the securities laws of any state of the United States; (ii)
the term "Governmental Authorities" means any legislative, judicial,
administrative or regulatory body of the United States of America; (iii) the
term "Governmental Approval" means any consent, approval, license, authorization
or validation of, or filing, recording, qualification or registration with, any
Governmental Authority pursuant to Applicable Laws; and (iv) the term
"Applicable Order" means any order or decree of any Governmental Authority by
which Purchaser or Merger Sub is bound, the existence of which has been
specifically disclosed to us in writing by Purchaser or Merger Sub and which are
listed on Schedule A hereto.
1. The execution and delivery by Purchaser and Merger Sub of the
Merger Agreement and the performance by Purchaser and Merger Sub of their
respective obligations thereunder do not contravene (i) any provision of
Applicable Law or (ii) any Applicable Order.
2. The execution, delivery and performance by Purchaser and Merger
Sub of the Merger Agreement will not conflict with or constitute a breach of or
default under the agreements or instruments to which Purchaser or Merger Sub is
subject and which are set forth on Exhibit A hereto (which have been identified
to us by Purchaser and Merger Sub as all the agreements and instruments which
are material to the business or financial condition of Purchaser and Merger
Sub). We express no opinion as to whether the execution, delivery or
performance by Purchaser or Merger Sub of the Merger Agreement will constitute a
violation of or a default under any covenant, restriction or provision with
respect to financial ratios or any aspect of the financial condition or results
of operations of Purchaser or Merger Sub.
3. No Governmental Approval which has not been obtained is required
for the execution and delivery by Purchaser or Merger Sub of the Merger
Agreement or the consummation by Purchaser or Merger Sub of the transactions
contemplated thereby. We express no opinion, however, as to any such
Governmental Approval (i) which may be required as a result of your involvement
in the transactions contemplated by the Merger Agreement because of your legal
or regulatory status or because of any other facts specifically pertaining to
you; (ii) the absence of which does not have any material adverse effect on you,
Purchaser or Merger Sub and does not deprive you of any material benefit under
the Merger Agreement; or (iii) which can be readily obtained without significant
delay or expense to you, without loss to you of any material benefit under the
Merger Agreement and without any material adverse effect on you, Purchaser or
Merger Sub during the period such Governmental Approval was not obtained.
4. To our knowledge, there are no pending or threatened actions,
proceedings or investigations affecting Purchaser or Merger Sub or any of their
respective
<PAGE>
properties or assets that is likely to prohibit or delay the consummation of the
Merger or to have a material adverse effect on Purchaser and Merger Sub taken as
a whole. The opinions in this paragraph are rendered solely in reliance upon
representations of officers of Purchaser and Merger Sub, which representations
have not been independently investigated or verified by us.
F-2
<PAGE>
EXHIBIT "G"
-----------
________________, 1995
MIP Properties, Inc.
2020 Santa Monica Boulevard, Suite 480
Santa Monica, California 90404
Re: Merger of MIP Properties, Inc. and MIP Acquisition Corporation,
a Wholly-Owned Subsidiary of JER Partners, LLC
Dear Sir or Madam:
We have acted as special Maryland counsel to JER Partners, LLC, a
Maryland limited liability company ("JER"), and MIP Acquisition Corporation, a
Maryland corporation that is a wholly-owned subsidiary of JER ("Merger Sub"), in
connection with the merger ("Merger") of Merger Sub with and into MIP
Properties, Inc., a Maryland corporation ("MIP"), pursuant to the Agreement and
Plan of Merger between MIP, JER and Merger Sub dated as of _______, 1995 (the
"Merger Agreement"). All capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Merger Agreement.
In connection with the opinions contained herein, we have examined and
are relying upon copies of the following documents:
(a) Merger Agreement, Articles of Merger and the representations
and warranties of each of the parties contained in the Merger Agreement;
(b) Articles of Organization of JER and Articles of Incorporation
of Merger Sub, each of which as certified by the State Department of
Assessments and Taxation of Maryland ("SDAT") on _________, 1995;
(c) Operating Agreement of JER and resolutions adopted by the
members of JER relating to the Merger Agreement, the Merger and matters
relating thereto, as certified by the Secretary of JER;
(d) Bylaws of Merger Sub, Stock Ledger Book ("Stock Ledger Book")
of Merger Sub reflecting that all of the issued and outstanding shares of
the capital stock of Merger Sub is owned (beneficially and of record) by
JER, and resolutions of the Board of Directors of Merger Sub relating to
the Merger Agreement, the Merger and matters relating thereto;
(e) Certificates of the Secretary of JER and of a member of
Merger Sub dated _________, 1995 ("Certificates of Secretary") regarding
the matters described in clauses (c) and (d) above and the incumbency of
certain members of JER and certain officers of Merger Sub;
<PAGE>
(f) Certificate of Good Standing issued by the Secretary of State
of Maryland dated _________, 1995 to the effect that JER is validly
existing and in good standing as a limited liability company under the laws
of the State of Maryland law, duly authorized to transact business in the
State of Maryland;
(g) Certificate of Good Standing issued by the Secretary of State
of Maryland dated _________, 1995 to the effect that Merger Sub is validly
existing and in good standing as a corporation under the laws of the State
of Maryland, duly authorized to transact business in the State of Maryland;
(h) Certificates of certain members of JER ("Members
Certificate") and of certain officers of Merger Sub ("Officer's
Certificate") dated _________, 1995 containing certain representations of
material facts; and
(i) Telephonic confirmation from MIP or its counsel that the
Merger Agreement has in fact been delivered to MIP.
In basing the opinions and other matters set forth herein on "our
knowledge," the words "our knowledge" signify that, in the course of our
representation of JER and Merger Sub in matters with respect to which we have
been engaged by them as counsel, no information has come to our attention that
would give us actual knowledge or actual notice that any such opinions or other
matters are not accurate or that any of the foregoing documents, certificates,
reports, and information on which we have relied are not accurate and complete.
Except as otherwise stated herein, we have undertaken no independent
investigation or verification of such matters. The words "our knowledge" and
similar language used herein are intended to be limited to the knowledge of the
lawyers within our firm who have worked on matters on behalf of JER and Merger
Sub since March 10, 1995.
In reaching the opinions set forth below, we have assumed, and to our
knowledge there are no facts inconsistent with, the following:
(a) each of the parties thereto (except JER and Merger Sub) has
duly and validly executed and delivered each instrument, document and
agreement in connection with the Merger to which such party is a signatory,
and such party's obligations set forth therein are its legal, valid, and
binding obligations, enforceable in accordance with their respective terms;
(b) each person (except JER and Merger Sub) executing any such
instrument, document or agreement on behalf of any party is duly authorized
to do so;
(c) there are no oral or written modifications of or amendments
to any of the documents referred to above, and there has been no waiver of
any of the provisions of such documents, by actions or conduct of the
parties or otherwise;
(d) all documents submitted to us as originals are authentic, all
documents submitted to us as certified or photostatic copies conform to the
original
G-2
<PAGE>
document, all signatures on all documents submitted to us for examination
are genuine, and all public records reviewed are accurate and complete.
Based on our review of the foregoing and subject to the assumptions
and qualifications set forth herein, it is our opinion that:
1. JER has been duly formed and is validly existing as a limited
liability company in good standing under the laws of the State of Maryland, and
has the requisite power and authority to own its properties, conduct its
business as described in its Operating Agreement, and execute and deliver, and
to perform its obligations under, the Merger Agreement.
2. Merger Sub has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Maryland, has the
requisite power and authority to own its properties, conduct its business as
described in its Articles of Incorporation, and execute and deliver, and to
perform its obligations under, the Merger Agreement.
3. Based solely on the Stock Ledger Book and our knowledge, all of
the issued and outstanding capital stock of Merger Sub is owned by JER.
4. The Merger Agreement has been duly executed and delivered by JER
and by Merger Sub and constitutes the valid and binding obligation of each of
JER and Merger Sub, respectively, enforceable against each of them in accordance
with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws affecting
creditors' rights generally, and (ii) the exercise of judicial discretion in
accordance with general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law). We express no opinion as to the
enforceability of any rights to contribution or indemnification provided for in
the Merger Agreement which are violative of the public policy underlying any
law, rule or regulation (including any federal or state securities law, rule or
regulation).
5. The execution and delivery of the Merger Agreement by JER, and the
performance by JER of its obligations thereunder, has been authorized by JER by
all necessary action required of a limited liability company.
6. The execution and delivery of the Merger Agreement by Merger Sub,
and the performance by Merger Sub of its obligations thereunder, has been
authorized by Merger Sub by all necessary corporate action.
7. Neither the execution and delivery of the Merger Agreement by JER,
nor the consummation of the transactions specified therein, will (i) conflict
with, result in a breach of or constitute a default under JER's Articles of
Organization or Operating Agreement, or (ii) to our knowledge, violate any
Maryland law, judgment, order or decree that is applicable to JER or any of its
properties in Maryland, if any.
G-3
<PAGE>
8. Neither the execution and delivery of the Merger Agreement by
Merger Sub, nor the consummation of the transactions specified therein, will (i)
conflict with, result in a breach of or constitute a default under Merger Sub's
Articles of Incorporation or Bylaws, or (ii) to our knowledge, violate any
Maryland law, judgment, order or decree that is applicable to Merger Sub or any
of its properties in Maryland, if any.
9. Except as to the filing and recordation with, and acceptance for
record by, SDAT of the Articles of Merger, and except as to any matters relating
to any federal or state securities or Blue Sky laws, to our knowledge, no
consent or approval of any Maryland court or government agency is required on
the part of JER and/or Merger Sub for the execution and delivery of the Merger
Agreement by them or for the consummation of the Merger. We express no opinion
with respect to any consents or approvals that may be required as a result of
MIP's involvement in the transactions contemplated by the Merger Agreement due
to any legal or regulatory status or any facts pertaining specifically to MIP.
We express no opinion as to the laws of any jurisdiction other than
the laws of the State of Maryland. The opinions expressed herein concern only
the effect of the laws (excluding the principles of conflict of laws) of the
State of Maryland as currently in effect. We assume no obligation to supplement
this opinion if any applicable laws change after the date hereof or if we become
aware of any facts that might change the opinions expressed herein after the
date hereof.
The opinions expressed in this letter are solely for your use, the use
of your counsel and for the benefit of (and the opinions expressed herein may be
relied upon by) Skadden, Arps, Slate, Meagher & Flom, counsel to JER and Merger
Sub; these opinions may not be relied on by any other persons without our prior
written approval. The opinions expressed in this letter are limited to the
matters set forth herein, and no other opinions should be inferred beyond the
matters expressly stated.
Very truly yours,
GORDON, FEINBLATT, ROTHMAN,
HOFFBERGER & HOLLANDER, LLC
By:_____________________________
Abba David Poliakoff,
Member of the Firm
G-4
<PAGE>
APPENDIX B
DUFF & PHELPS CAPITAL MARKETS CO.
2029 CENTURY PARK EAST
SUITE 820
LOS ANGELES, CA 90067
(310) 284-8008
FAX (310) 284-8130
May 19, 1995
Board of Directors
MIP Properties, Inc.
2020 Santa Monica Blvd.
Santa Monica, CA
Gentlemen:
You have retained Duff & Phelps Capital Markets Co. ("Duff & Phelps") as
independent financial advisor to the Board of Directors of MIP Properties, Inc.
("MIP" or the "Company") to provide an opinion (the "Opinion") as to the
fairness to the MIP shareholders of a proposed sale (the "Proposed
Transaction") of MIP. The Proposed Transaction includes a series of steps in
which MIP will become a wholly-owned subsidiary of JER PARTNERS, L.L.C.
("JER"). Under the terms of the Proposed Transaction, JER will acquire a 100%
ownership interest of MIP through the merger of MIP with MIP Acquisition
Corporation ("Acquisition Corp."), a wholly-owned subsidiary of JER, in which
MIP survives and pursuant to which the 9,338,597 shares of common stock of MIP
then outstanding or subject to options or deferrals are converted into the
right to receive $2.475 per share. In addition, we understand that concurrently
with the entering into of the Agreement and Plan of Merger with MIP,
Acquisition Corp. is entering into a purchase agreement pursuant to which
Acquisition Corp. has agreed to sell certain properties and assets to Palm
Finance Corporation, and JER and Acquisition Corp. are entering into an
agreement with Steven C. Markoff, Jadwiga Z. Markoff, and Palm Finance
Corporation (collectively, the "Palm Group"), pursuant to which the Palm Group
is granting a proxy to vote its shares of MIP common stock in favor of the
merger to JER. Our opinion relates to the fairness from a financial point of
view of the $2.475 per share consideration to be received by the stockholders
of MIP in the Proposed Transaction.
In conducting our analysis and arriving at our Opinion, we have reviewed and
analyzed, among other things: (1) The Draft Agreement and Plan of Merger by and
among MIP Properties, Inc. and JER Partners, L.L.C., dated May 18, 1995; (2)
MIP's Form 10-K filed with the Securities and Exchange Commission ("SEC") for
the fiscal years ended December 31, 1993 and 1994; (3) MIP's Form 10- Q filed
with the SEC for the fiscal quarter ended March 31, 1995; (4) documentation
related to prior bona fide offers to purchase the Company; (5) certain internal
financial analyses and forecasts for the Company; (6) with respect to each
property currently owned by MIP, the gross rents and operating expenses
relating to each such property, the lease renewal dates with respect to tenants
occupying such property, the debt secured by such property, the requirements of
any future tenant improvements and capital expenditures relating to such
property, and the expected contributions to net operating income of such
properties to MIP; (7) partnership documents for those real properties in which
MIP is a limited or general partner; (8) current conditions and trends with
respect to the real estate industry and REITs, in general, and the market for
retail, office and industrial space in the markets where the Company operates,
in particular, expected future rental rates, interest rates, and general
business and economic conditions in the United States and the specific regions
of the U.S. where MIP's properties are located; (9) reported market prices and
trading volumes of the Company's common stock for recent periods; (10) publicly
available information concerning other companies we deemed comparable, in whole
or in part, to MIP; and (11) such other financial studies, analyses and
investigations conducted by Duff & Phelps as it deemed appropriate.
B-1
<PAGE>
As background for its analysis, Duff & Phelps held discussions with members
of the senior management of MIP and its advisors regarding current business
operations, financial condition, portfolio values and liquidation values.
In performing its analysis and rendering its Opinion, Duff & Phelps relied
upon the accuracy and completeness of all information provided to it, whether
obtained from public or private sources, and did not attempt to independently
verify any such information. With respect to financial forecasts, we have
assumed that these have been reasonably prepared on bases reflecting the best
currently available estimates of the Company's management and of the expected
future financial performance of MIP. Duff & Phelps also took into account its
assessment of general economic, market and financial conditions as well as its
experience in similar transactions and securities valuation in general. Duff &
Phelps did not make any independent appraisals of the assets or liabilities of
the Company.
Duff & Phelps has prepared its Opinion effective as of May 19, 1995. Its
Opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of such date.
Based upon and subject to the foregoing, Duff & Phelps is of the opinion that
the per share consideration to be received by the stockholders of MIP in
connection with the Proposed Transaction is fair from a financial point of view
to the stockholders of the Company.
Respectfully submitted,
/s/ Duff & Phelps Capital Markets Co.
Duff & Phelps Capital Markets Co.
<PAGE>
APPENDIX C
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K/A
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1994 or
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period of to
COMMISSION FILE NUMBER 1-8898
MIP PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 52-1394207
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
2020 SANTA MONICA BLVD., SUITE #480
SANTA MONICA, CALIFORNIA 90404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (310) 449-4444
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock ($.01 par value) American Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
None None
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of registrant's voting shares held by non-
affiliates was $15,877,491 as of March 15, 1995.
Shares of common stock outstanding at March 15, 1995: 9,223,105
C-1
<PAGE>
MIP PROPERTIES, INC.
PART I
ITEM 1. BUSINESS
MIP Properties, Inc. (the "Company" or "MIP"), a Maryland Corporation
(formerly named Mortgage Investments Plus, Inc.), was formed on April 15, 1985
as a real estate investment trust under the applicable provisions of the
Internal Revenue Code. Under the Code, a real estate investment trust which
meets certain requirements is not subject to federal income tax if at least 95
percent of its taxable income is distributed.
The Company has investments in seven wholly-owned real estate properties and
three real estate joint ventures all located in California. The Company's
diversified portfolio consists of office, industrial and retail projects. The
following table summarizes the Company's investment portfolio at December 31,
1994:
INVESTMENT PORTFOLIO
DECEMBER 31, 1994
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MIP BOOK VALUE
BEFORE RESERVE
FOR LOSSES 1994 CASH FLOW THIRD PARTY 1994
WHOLLY- NUMBER OF PERCENT ---------------- BEFORE LOAN DEBT CASH FLOW
OWNED PROPERTIES PROPERTY TYPE TENANTS LEASED EQUITY LOAN DEBT SERVICE(A) AMOUNT(B) SERVICE(C) TO MIP(F)
- - ---------------- --------------- --------- ------- -------- ------ --------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Irwindale
Executive Plaza Office 6 82% $ 2,498 $ -- $ 171 $ -- $ -- $ 561(D)
Irwindale, CA 40,000 Sq. Ft.
Retail 3 80%
13,300 Sq. Ft.
Long Beach
Building Office 26 80% 5,158 -- 553 2,495 170 383
Long Beach, CA 125,000 Sq. Ft. May-99 P + 4%
Northbay
Industrial Park Industrial 1 79% 6,128 -- 512 1,196 84 405
Petaluma, CA 120,500 Sq. Ft. Jan-96 P + 1.5%
Northbay
Industrial Park Land N/A N/A 2,617 -- (35) -- -- (35)
Petaluma, CA 11.20 Acres
San Dimas
Corporate
Center Industrial 2 100% 6,474 -- 847 -- -- 847
San Dimas, CA 75,000 Sq. Ft.
Sunwest Retail
Plaza Retail 7 92% 2,245 -- 284 1,416 117 139
San Bernardino,
CA 21,300 Sq. Ft. Jul-95 P + 1.5%
Sunwest
Professional
Park Land N/A N/A 1,426 -- (13) -- -- (13)
San Bernardino,
CA 4.27 Acres
---------------- ------
26,546 -- 2,287
<CAPTION>
JOINT VENTURES
--------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Harbor Point Retail 2 93% 357 6,100 845 -- -- 845
Los Angeles, CA 150,000 Sq. Ft.
Occidental Plaza Office 1 100% 123 -- 1,809 12,202 Cash Flow --
Bakersfield, CA 125,600 Sq. Ft. Feb-96 9.50%
Shorebreeze
(Phase I) Office 8 100% 2,238 -- 2,052 15,497 Cash Flow --
Redwood City,
CA 113,000 Sq. Ft. Jun-95 9.50%
Shorebreeze
(Phase II) Office 7 100% 3,548 3,030(E) 1,968 15,187 Cash Flow --
Redwood City,
CA 115,600 Sq. Ft. Jun-95 LIBOR + 3.25%
or 9.56%
---------------- ------
6,266 9,130 845
----------------
Total Investment 32,812 9,130
Less Reserve For
Losses (8,562)
--------
Total Net Real Estate Investments and
Loans $ 33,380
========
------
Total Portfolio Cash Flow to MIP $3,132
======
</TABLE>
- - -------
(A) Amounts represent cash operating revenues less operating expenses and are
before depreciation, amortization, debt service, capital items and
reserves. Amounts do not necessarily represent cash flow in accordance
with generally accepted accounting principles.
(B) Date refers to maturity.
(C) Includes principal amortization.
(D) Includes approximately $390 related to a third party rent subsidy.
(E) Classified as a non-earning loan.
(F) Amounts represent net cash received from each investment or the net cash
outflow for each investment.
C-2
<PAGE>
<TABLE>
<CAPTION>
RENTABLE LEASED
SQUARE SQUARE
PORTFOLIO PROPERTY TYPE FEET PERCENT FEET PERCENT
- - ----------------------- -------- ------- ------- -------
<S> <C> <C> <C> <C>
Office......................................... 519,200 58% 487,200 94%
Industrial..................................... 195,500 22% 169,800 87%
Retail......................................... 184,600 20% 170,000 92%
------- ---- ------- ---
Total Portfolio.............................. 899,300 100% 827,000 92%
======= ==== ======= ===
</TABLE>
<TABLE>
<CAPTION>
RENTABLE LEASED
SQUARE FEET
PORTFOLIO LEASING STATISTICS FEET SQUARE PERCENT
- - ---------------------------- -------- ------- -------
<S> <C> <C> <C>
Wholly-Owned Properties................................ 395,100 332,800 84%
Joint Ventures......................................... 504,200 494,200 98%
------- ------- ---
Total Portfolio...................................... 899,300 827,000 92%
======= ======= ===
</TABLE>
WHOLLY-OWNED PROPERTY INVESTMENTS:
Irwindale Executive Plaza consists of a two-story office building and a
single story retail/service center located approximately 15 miles east of
downtown Los Angeles in Irwindale. The project is currently 81 percent leased
to nine tenants on relatively short term leases, typical in this market, and is
managed by a third party management company.
Long Beach Office Building is located in the heart of downtown Long Beach.
The building is 80 percent leased to 26 tenants, including a new restaurant and
billiard club which is currently scheduled to open in the Spring of 1995. MIP
acquired title to this project via foreclosure in January 1994. The project is
managed by a third party management company.
Northbay Industrial Building consists of a two-story industrial building in
Petaluma, California. The building is 71 percent leased to Sola Optical USA,
Inc. ("Sola") through January 2000. Sola is currently leasing an additional 8
percent of the building on a month-to-month basis. The Company manages the
property.
Northbay Industrial Park Land is 11 acres of developable land in a planned
industrial community in Petaluma, California. The land is currently being
marketed for sale.
San Dimas Corporate Center is a fully leased duplex industrial building
approximately 20 miles east of downtown Los Angeles in San Dimas. TRW Technar,
Inc. occupies 59 percent of the building until February, 1997. The remaining 41
percent of the building is leased to Magellan Systems Corporation until August
1996. The Company manages the property.
Sunwest Retail Plaza is a convenience retail center located in San
Bernardino, California. The project is 92 percent leased to seven tenants with
the largest tenant's lease expiring in 2012. The project is managed by a third
party management company.
Sunwest Land is an unimproved 4.27 acre parcel in the midst of several mid-
rise office buildings, near the Sunwest Retail Plaza in San Bernardino. The
property is currently being marketed for sale.
JOINT VENTURE INVESTMENTS:
Harbor Point is a single building retail property located approximately 15
miles from downtown Los Angeles in Gardena. The project is 93 percent leased
primarily to The Home Depot, Inc., one of the nation's leading retail home
improvement centers. Their lease runs through January 2000. MIP currently
receives all cash flow from this property. MIP is a 50 percent limited partner
and the lender in this project. The project is managed by an affiliate of the
general partner.
C-3
<PAGE>
Occidental Plaza is a suburban mid-rise office building with an adjacent 5.5
acre parcel of developable land in Bakersfield. The building is 100 percent
leased to Occidental Petroleum through September 1999. Currently, all cash flow
is being remitted to the third party lender for interest and principal
reduction. MIP is a 50 percent limited partner in this project. The project is
managed by an affiliate of the general partner.
Shorebreeze is a waterfront office complex consisting of two suburban mid-
rise office buildings in Redwood City, just south of the San Francisco
International Airport. This project is 100 percent leased to national and local
tenants with leases expiring periodically over the next ten years. Currently,
all cash flow is being remitted to the two third party lenders for interest and
principal reduction. MIP is a 50 percent limited partner in this project. The
project is managed by an affiliate of the general partners.
STRATEGIC ALTERNATIVES:
In April 1994, the Company announced the retention of investment bankers to
assist MIP in maximizing stockholder value. Some of the strategies that the
Board of Directors has considered to accomplish this goal include a merger,
sale of MIP or a significant acquisition by MIP. In September 1994, the Company
announced plans to enter into a non-binding letter of intent to be acquired by
an affiliate of K/B Realty Advisors for $2.525 per share. Subsequently, in
December 1994, the Company announced that merger negotiations with K/B Realty
Advisors had reached an impasse. Additionally, in February 1995, the Company
announced that the Board of Directors rejected a proposal to purchase the
Company for $1.83 per share in cash and $0.695 per share in notes from MIP's
largest stockholder, Palm Finance Corporation. The Company continues to believe
that a sale, merger or business combination is a desirable option to achieve
the goal of maximizing stockholder value and is actively pursuing such
opportunities.
COMPETITION AND ECONOMIC ENVIRONMENT:
All of the Company's real estate investments are located in California which
has been significantly impacted by the continued real estate recession. The
Company's real estate investments compete with similar properties located in
their respective markets on the basis of rents charged, services provided,
location and the physical improvements. Currently, the Company's portfolio is
92 percent leased overall. Approximately 4 and 16 percent of the existing
leases in MIP's portfolio, on a square foot basis, expire in 1995 and 1996,
respectively. MIP does not anticipate a material impact upon operations or
liquidity with regard to expiring leases and lease rollovers and management
plans to continue to aggressively renew leases to minimize the risk of vacant
space. However, outside factors such as business contractions of significant
tenants and the overall health of the economy may impact the Company's success.
MIP's mortgage debt matures in 1995, 1996, and 1999 and certain of the
Company's joint venture investments have debt that matures in 1995 and 1996.
Although management believes that these loans can be replaced or extended with
equal or more favorable financing, there has been in the recent past and
continues to be limited availability of credit which could impede the Company's
ability to obtain financing on acceptable terms or at all.
OTHER INFORMATION:
The Company operates only in one business segment and its operations are not
seasonal. Additionally, in 1994, approximately 15 percent of the Company's
gross revenues were generated by its loan to the Harbor Point joint venture
which owns a building substantially leased to Home Depot and approximately 12
percent of the Company's gross revenues were generated from the Company's
investment in the Northbay Industrial Building which is leased to Sola Optical
USA, Inc. In 1993, revenues from the Company's loans relating to Harbor Point,
Casas Lindas Apartments, Hacienda Promenade and Irwindale Executive Plaza and
from the Sola Optical USA, Inc., lease at the Northbay Building and TRW Technar
lease at San Dimas Corporate Center approximate 20%, 15%, 13%, 12%, 16% and 10%
of gross revenues, respectively. In 1992, revenues from the Company's loans
relating to Harbor Point, Casas Lindas Apartments, Hacienda Promenade and from
the Sola Optical USA, Inc., lease at the Northbay Building and TRW Technar
lease at San Dimas Corporate Center approximated 21%, 12%, 12%, 16% and 10% of
gross revenues, respectively.
C-4
<PAGE>
As of March 15, 1995, the Company had four employees.
ITEM 2. PROPERTIES
The Company leases executive and administrative offices. They are located at
2020 Santa Monica Blvd., Suite #480, Santa Monica, California, 90404. The
Company does not own any real property for use in connection with its
administration. See table in Item 1. for real estate investment property.
ITEM 3. LEGAL PROCEEDINGS
At the present time, the Company is not a party to any material pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Price and Dividend Data
<TABLE>
<CAPTION>
1994 HIGH LOW DIVIDENDS
---- ------- -------- ---------
<S> <C> <C> <C>
First Quarter.................................... $1 7/16 $1 1/16 --
Second Quarter................................... 2 1/16 1 3/16 --
Third Quarter.................................... 2 1/4 1 11/16 --
Fourth Quarter................................... 2 1/4 1 3/4 --
<CAPTION>
1993 HIGH LOW DIVIDENDS
---- ------- -------- ---------
<S> <C> <C> <C>
First Quarter.................................... $1 7/16 $ 5/8 --
Second Quarter................................... 1 1/4 1 --
Third Quarter.................................... 1 3/16 5/8 --
Fourth Quarter................................... 1 1/4 11/16 --
</TABLE>
Set forth above for the quarters indicated are the high and low prices of the
Company's common stock and the per share cash dividend declared in each
quarter. No cash dividend was declared in 1994 or 1993. During 1993 and through
August 1994, when the Company repaid its corporate debt, the Company was
precluded from paying a dividend unless such dividend was required for the
Company to retain its status as a real estate investment trust. Presently, the
Company does not anticipate paying any dividends in 1995.
The Company's common stock is listed on the American Stock Exchange. The
trading symbol is "MIP". On March 15, 1995, the closing price of the stock was
$1.81 .
There were 909 stockholders of record at December 31, 1994.
C-5
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
----------------------------------------------
1994 1993 1992 1991 1990
------- ------- -------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues........................ $ 5,583 $ 4,111 $ 3,976 $ 6,631 $ 9,171
Expenses........................ 7,016 11,908 19,041 29,360 7,892
Income (Loss) Before Extraordi-
nary Items..................... (1,433) (7,797) (15,065) (22,729) 1,279
Extraordinary Gain on Debt For-
giveness....................... 4,296 -- -- -- --
Extraordinary Gain on Foreclo-
sure........................... -- -- 1,022 -- --
Net Income (Loss)............... 2,863 (7,797) (14,043) (22,729) 1,279
Income (Loss) Before Extraordi-
nary Items Per Share........... (0.16) (0.86) (1.67) (2.52) 0.14
Extraordinary Gain on Debt For-
giveness Per Share............. 0.47 -- -- -- --
Extraordinary Gain on Foreclo-
sure Per Share................. -- -- 0.11 -- --
Net Income (Loss) Per Share..... 0.31 (0.86) (1.56) (2.52) 0.14
Dividends Paid Per Share........ -- -- -- -- 0.40
Total Real Estate Investments,
Net............................ 33,380 48,827 57,926 90,143 114,896
Total Assets.................... 35,907 51,752 66,801 91,940 117,458
Corporate Debt.................. -- 21,971 28,953 28,928 31,730
Mortgage Debt................... 5,107 2,026 534 13,300 13,300
Stockholders' Equity............ 30,125 27,186 34,841 48,884 76,613
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MIP Properties, Inc., formerly named Mortgage Investments Plus, Inc. (the
"Company" or "MIP") was incorporated in April, 1985 and commenced operations on
July 9, 1985, after completing an initial public offering of its common stock.
The Company is engaged in the business of making real estate investments.
FINANCIAL CONDITION
During 1994, total real estate investments decreased by $15.4 million and
total liabilities decreased by $18.8 million. This change reflects the sale of
certain assets and the refinancing of others which generated funds to
completely repay MIP's $22 million corporate debt at a net discount of
approximately $4.3 million. Additionally, in 1994 the Company's reserve for
losses decreased by approximately $12.7 million. This decrease is primarily the
result of the write-off of reserves relating to the foreclosure of the Long
Beach Building for approximately $7.5 million, the negotiated settlement of the
Greenhouse Marketplace note for approximately $3.4 million, the third party
foreclosure relating to MIP's joint venture investment 580 Marketplace for $1
million, and to the sales of the Northbay Land for approximately $0.8 million.
No provision for losses were recorded in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Based on current information and market conditions, management believes that
for the next twenty-four months there will be sufficient cash from operations
to operate the Company. MIP's mortgage debt, including the debt at the joint
venture level, matures in 1995, 1996, and 1999. Funds to repay mortgage debt
are expected to be generated from the refinancing of existing debt, sales of
certain assets, and current cash flow. Additionally, approximately 4 and 16
percent of the existing leases in MIP's portfolio, on a square foot basis,
expire in 1995 and 1996, respectively. MIP's ability to successfully manage
tenant turnover and improve the overall leasing of the portfolio is contingent
on various external factors such as business contractions of significant
tenants and a more competitive marketplace. Although MIP anticipates a
satisfactory outcome regarding refinancing and re-leasing its projects, MIP may
be negatively impacted by the conditions in the real estate and financial
markets in general.
C-6
<PAGE>
At December 31, 1994, the Company had an unfunded commitment of approximately
$2.2 million to an existing joint venture. If required, management expects that
this commitment would be funded from available cash, future cash flow and from
additional mortgage debt.
Both the Company's investment portfolio and its debt are sensitive to
fluctuations in the prime rate. The weighted average interest rate for the
Company's mortgage debt and corporate debt was 10.01 percent and 8.02 percent,
respectively, for the year ended December 31, 1994.
Cash flows from operating activities increased significantly in 1994
primarily due to the timing of payments made on interest due on the corporate
debt. In February 1993, the Company paid approximately $1.6 million of interest
relating to 1992. Excluding the above, the increase in cash flows from
operating activities can be attributed to lower interest expense from reduced
outstanding amounts of debt and increased cash flow from the Long Beach
Building and Irwindale Executive Plaza partly relating to MIP obtaining title
to the projects in January 1994 and October 1993, respectively, and to improved
leasing at the Long Beach Building. Significant change from cash flows from
operating activities is not expected in the future unless the debt at the joint
venture level is restructured in a fashion that would allow MIP to receive cash
flow from its investments.
Cash flows from investing activities increased due to the various asset sales
in 1994. Management expects cash outflows from investing activities to be
limited in the future because of the Company's current decision to minimize
additional investment and the Company's limited unfunded obligations. The cash
flows used in financing activities in 1994 reflect the repayment of corporate
debt with the proceeds of the disposition of investments, offset by the
proceeds from the new mortgage debt.
The Company believes that it has operated so as to qualify as a real estate
investment trust under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended. In order to maintain this qualification, the Company must pay
at least 95 percent of its taxable income in dividends. The Company currently
anticipates having a tax loss for reporting purposes for the year ended
December 31, 1994, and as such no dividends were declared for the year ended
December 31, 1994.
Although certain aspects of the economy have improved, management believes
that continued uncertainty will impact a broad range of industries, including
real estate. In 1995, MIP may continue to be negatively impacted by external
factors such as its lessees' and partners' ability to meet obligations, the
limited availability of credit, business contractions of significant tenants,
and a more competitive marketplace. Accordingly, MIP's cost of credit may
increase and it may be necessary for the Company to commit additional funds to
certain projects.
RESULTS OF OPERATIONS
Fiscal Year Ended December 31, 1994 Compared to Fiscal Year Ended December 31,
1993
Consolidated net income for the year ended December 31, 1994, was
approximately $2.9 million or $0.31 per share, compared to a consolidated net
loss for the year ended December 31, 1993 of approximately $7.8 million or
$0.86 per share.
Included in the results for 1994 is an extraordinary gain on debt forgiveness
of approximately $4.3 million or $0.47 per share related to discounts earned
from the early repayment of MIP's corporate debt. Additionally, earnings
increased due to operations from wholly-owned properties, lower joint venture
losses and lower interest and corporate operating expenses, offset by costs of
pursuing strategic alternatives. The consolidated loss of $7.8 million in 1993
included a provision for losses on investments of $6.25 million or $0.69 per
share.
Interest income decreased in 1994 primarily due to the sale of the $4.4
million Hacienda Promenade mortgage loan in June which resulted in a loss on
disposition of investments of $1.5 million.
C-7
<PAGE>
Rental income, rental operating expenses, and depreciation and amortization
increased in 1994 due to the acquisitions via foreclosure of the Irwindale
Executive Plaza in October 1993 and the Long Beach Building in January 1994,
and to the acquisition of the remaining 50 percent of the Ontario Airport
Business Park joint venture in December 1993. In fiscal 1993, prior to MIP
acquiring title to these properties, cash receipts from these investments were
not recognized as income. The increases in rental income, rental operating
expenses and depreciation and amortization were offset by the sales of Casas
Lindas Apartments in August 1994, which resulted in a gain on the disposition
of investments of $1.5 million and Ontario Airport Business Park in December
1994, which resulted in a nominal gain.
Joint venture losses decreased in 1994 primarily due to Ontario Airport
Business Park becoming wholly- owned in December 1993, the sale of MIP's
interest in the Fort Sutter Medical joint venture in August 1993, and to
increased rental income related to the Shorebreeze joint venture.
Interest expense in 1994 was lower due to the significant decrease in debt.
MIP's corporate debt was restructured in December 1993. The new agreement
provided for MIP to earn a discount from the face amount of the note upon
prepayment. By August 1994, the Company had generated funds to retire the
corporate debt from the net proceeds of asset sales and from the financing of
Sunwest Retail Plaza, the Long Beach Building and the Northbay Building. The
net proceeds of approximately $17.1 million from these transactions were used
to prepay the corporate debt generating approximately $4.8 million in discount
from the face amount, offset by the write-off of deferred financing costs of
approximately $0.5 million.
Corporate operating expenses decreased primarily due to a lower directors'
and officers' liability insurance premium. Additionally, no costs were incurred
in 1994 relating to MIP's Park in the Valley mortgage loan investment which was
fully written off in 1993. These decreases were offset by increased
compensation relating to the Long-Term Incentive Compensation Plan. Cash
operating expenses in 1994 approximated 2.9 percent of average invested assets.
Additionally, costs of pursuing strategic alternatives relate to investment
banking, legal, and consulting fees incurred in pursuit of MIP's stated goal of
reviewing strategic alternatives.
RESULTS OF OPERATIONS
Fiscal Year Ended December 31, 1993 Compared to Fiscal Year Ended December 31,
1992
For the year ended December 31, 1993, consolidated net loss was approximately
$7.8 million or $0.86 per share. Consolidated net loss for the year ended
December 31, 1992 was approximately $14.0 million or $1.56 per share, including
an extraordinary gain on foreclosure of approximately $1.0 million or $.11 per
share, relating to the Campus at Carlsbad project.
The decrease in the 1993 net loss is primarily the result of the lower
provision for losses on investments of $6.25 million or $0.69 per share versus
$12.5 million or $1.39 per share in 1992 and the $75,700 gain from the sale of
Miramar Building A in 1993 versus the $500,000 gain in 1992 from the
disposition of a portion of the Company's joint venture interest in San Diego
Corporate Center. Additionally, earnings increased from improved operations
from the Company's wholly-owned properties and joint venture investments and
lower interest expense. These increases were offset by lower interest income
and increased corporate operating expenses.
Rental income increased primarily due to the expiration of a significant
lease concession at San Dimas in early 1993, improved efforts in rent
collection, and the acquisitions of Irwindale Executive Plaza and Ontario
Airport Business Park in October, 1993 and December, 1993, respectively. These
increases were offset by the loss of revenue related to Campus at Carlsbad, a
158,000 square foot office and research and development complex, which was
taken over by its lender in June, 1992. The decreases in rental operating
expenses and depreciation and amortization were primarily related to Campus at
Carlsbad and improved
C-8
<PAGE>
operating efficiencies, which were offset by the acquisitions of Irwindale
Executive Plaza and Ontario Airport Business Park.
The decrease in interest expense primarily relates to the foreclosure by the
third party lender on the $13.3 million loan at Campus at Carlsbad discussed
above and lower outstanding corporate debt.
Joint venture losses decreased primarily due to the Company ceasing to
recognize joint venture losses in the 1993 financial statements on certain of
its joint ventures as a result of the related joint venture investment account
having been reduced to zero and overall improved joint venture operations.
Joint venture return decreased because excess cash flow from certain joint
ventures was not distributed and was instead used to reduce debt at the joint
venture level.
Interest income was lower due to the treatment of cash receipts as principal
paydowns rather than interest income for the Long Beach Building and Irwindale
Executive Plaza loans.
Corporate operating expenses increased primarily due to the impact of the
Directors Stock Plan and the Long-Term Incentive Compensation Plan for key
employees that were approved by the stockholders in July, 1993, as well as a
higher directors' and officers' liability insurance premium. These increases
were offset by lower costs relating to the Park in the Valley mortgage loan
investment which was written off in 1993. Cash operating expenses in 1993
approximated 2.2 percent of average invested assets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................ 9
Consolidated Balance Sheets............................................. 10
Consolidated Statements of Operations................................... 11
Consolidated Statements of Stockholders' Equity......................... 12
Consolidated Statements of Cash Flows................................... 13
Notes to Consolidated Financial Statements.............................. 14
</TABLE>
C-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Directors of MIP Properties, Inc.:
We have audited the accompanying consolidated balance sheets of MIP
Properties, Inc. (a Maryland corporation) and subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MIP Properties, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
January 27, 1995
C-10
<PAGE>
MIP PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Real Estate Investments:
Investments in Joint Ventures.................... $ 6,266,100 $ 7,575,100
Loans to Joint Ventures.......................... 6,100,000 6,100,000
Mortgage Loan.................................... -- 4,565,900
Non-Earning Loans................................ 3,030,400 18,992,400
Land............................................. 5,827,800 6,552,200
Buildings and Improvements (net of accumulated
depreciation of $2,389,100 and $2,515,300, as of
December 31, 1994 and 1993, respectively)....... 16,674,600 20,329,800
Land Held for Sale............................... 4,042,800 5,957,900
------------ ------------
41,941,700 70,073,300
Reserve for Losses............................... (8,562,000) (21,246,000)
------------ ------------
33,379,700 48,827,300
Cash and Cash Equivalents.......................... 1,799,300 1,390,900
Other Assets....................................... 728,100 1,533,500
------------ ------------
$ 35,907,100 $ 51,751,700
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Corporate Debt................................... $ -- $ 21,971,400
Mortgage Debt.................................... 5,107,000 2,026,400
Accounts Payable and Other Liabilities........... 674,700 567,800
------------ ------------
5,781,700 24,565,600
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock $.01 Par Value, 25,000,000 Shares
Authorized, No Shares Outstanding............... -- --
Common Stock, $.01 Par Value, 75,000,000 Shares
Authorized, 9,206,437 Shares Outstanding in
1994, 9,161,962 Shares Outstanding in 1993...... 92,100 91,600
Additional Paid-In Capital....................... 82,726,700 82,651,300
Accumulated Loss and Dividends Paid in Excess of
Net Income...................................... (52,693,400) (55,556,800)
------------ ------------
30,125,400 27,186,100
------------ ------------
$ 35,907,100 $ 51,751,700
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
C-11
<PAGE>
MIP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Interest Income..................... $ 1,111,300 $ 1,538,700 $ 1,920,700
Rental Income....................... 4,731,400 3,035,800 2,876,800
Net Gain on Disposition of Invest-
ments.............................. 32,300 75,700 500,000
Joint Venture Losses................ (291,800) (564,600) (1,618,900)
Joint Venture Return................ -- 25,300 297,600
----------- ------------ ------------
5,583,200 4,110,900 3,976,200
Expenses:
Interest............................ 1,657,500 1,817,800 2,450,500
Rental Operating Expenses........... 1,774,500 855,100 1,054,200
Depreciation and Amortization....... 1,195,100 779,100 872,900
Corporate Operating Expenses........ 1,981,800 2,206,400 2,163,500
Costs of Pursuing Strategic Alterna-
tives.............................. 407,100 -- --
Provision for Losses on Investments. -- 6,250,000 12,500,000
----------- ------------ ------------
7,016,000 11,908,400 19,041,100
Loss Before Extraordinary Items....... (1,432,800) ( 7,797,500) (15,064,900)
Extraordinary Gain on Debt Forgive-
ness................................. 4,296,200 -- --
Extraordinary Gain on Foreclosure..... -- -- 1,021,500
----------- ------------ ------------
Net Income (Loss)..................... $ 2,863,400 $( 7,797,500) $(14,043,400)
=========== ============ ============
Loss Before Extraordinary Items Per
Share................................ $ (0.16) $ (0.86) $ (1.67)
Extraordinary Gain on Debt Forgiveness
Per Share............................ 0.47 -- --
Extraordinary Gain on Foreclosure Per
Share................................ -- -- 0.11
----------- ------------ ------------
Net Income (Loss) Per Share........... $ 0.31 $ (0.86) $ (1.56)
=========== ============ ============
Dividends Paid Per Share.............. $ -- $ -- $ --
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
C-12
<PAGE>
MIP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
-----------------------------------------------
ACCUMULATED
NUMBER OF LOSS AND
SHARES OF DIVIDENDS
COMMON ADDITIONAL PAID IN TOTAL
STOCK COMMON PAID-IN EXCESS OF STOCKHOLDERS'
OUTSTANDING STOCK CAPITAL NET INCOME EQUITY
----------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1991................... 9,020,000 $90,200 $82,509,700 $(33,715,900) $ 48,884,000
Net Loss.............. -- -- -- (14,043,400) (14,043,400)
--------- ------- ----------- ------------ ------------
Balance at December 31,
1992 .................. 9,020,000 90,200 82,509,700 (47,759,300) 34,840,600
Stock Issuance........ 141,962 1,400 141,600 -- 143,000
Net Loss.............. -- -- -- (7,797,500) (7,797,500)
--------- ------- ----------- ------------ ------------
Balance at December 31,
1993................... 9,161,962 91,600 82,651,300 (55,556,800) 27,186,100
Stock Issuance........ 44,475 500 75,400 -- 75,900
Net Income............ -- -- -- 2,863,400 2,863,400
--------- ------- ----------- ------------ ------------
Balance at December 31,
1994................... 9,206,437 $92,100 $82,726,700 $(52,693,400) $ 30,125,400
========= ======= =========== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
C-13
<PAGE>
MIP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1994
---------------------------------------
1994 1993 1992
------------ ----------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss)................... $ 2,863,400 $(7,797,500) $(14,043,400)
Extraordinary Gain on Debt
Forgiveness........................ (4,296,200) -- --
Depreciation and Amortization....... 1,195,100 779,100 872,900
Equity in Joint Venture Losses...... 291,800 564,600 1,618,900
Cash Received from Rent Subsidy..... 390,500 -- --
Joint Venture Distributions......... -- 270,700 50,000
Provision for Losses on Investments. -- 6,250,000 12,500,000
Net Gain on Disposition of
Investments........................ (32,300) (75,700) (500,000)
Extraordinary Gain on Foreclosure... -- -- (1,021,500)
Net Change in Other Assets and
Accounts Payable and Other
Liabilities........................ 458,600 (997,800) 2,157,500
------------ ----------- ------------
Net Cash Provided By (Used In)
Operating Activities................. 870,900 (1,006,600) 1,634,400
------------ ----------- ------------
Cash Flows from Investing Activities:
Mortgage Loan Disbursed............. (107,000) (103,400) --
Non-Earning Loans Repaid............ -- 311,400 268,000
Investment in Buildings and
Improvements....................... (258,400) (67,200) (77,000)
Net Proceeds from Disposition of
Investments........................ 13,887,100 2,360,800 5,603,700
Joint Venture Equity Repaid......... 17,200 -- (6,700)
------------ ----------- ------------
Net Cash Provided By Investing Activi-
ties................................. 13,538,900 2,501,600 5,788,000
------------ ----------- ------------
Cash Flows from Financing Activities:
Paydowns of Corporate Debt.......... (17,081,900) (8,369,500) --
Proceeds from Corporate Debt........ -- 422,700 24,700
Paydowns of Mortgage Debt........... (13,500) (800) --
Proceeds from Mortgage Debt......... 3,094,000 -- --
Proceeds from Joint Venture Debt
Refinancing........................ -- -- 291,200
------------ ----------- ------------
Net Cash (Used In) Provided By Financ-
ing Activities....................... (14,001,400) (7,947,600) 315,900
------------ ----------- ------------
Net Increase (Decrease) in Cash....... 408,400 (6,452,600) 7,738,300
Cash and Cash Equivalents at Beginning
of the Year.......................... 1,390,900 7,843,500 105,200
------------ ----------- ------------
Cash and Cash Equivalents at End of
the Year............................. $ 1,799,300 $ 1,390,900 $ 7,843,500
============ =========== ============
Cash Interest Paid.................... $ 1,383,800 $ 3,177,300 $ 223,800
============ =========== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
C-14
<PAGE>
MIP PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION
MIP Properties, Inc. ("the Company" or "MIP"), formerly named Mortgage
Investments Plus, Inc., a Maryland corporation, was formed on April 15, 1985
for the purpose of making real estate investments. Operations commenced on July
9, 1985 after completing an initial public offering of its common stock.
MIP invests in real estate properties and real estate joint ventures in
California. The Company's diversified portfolio of investments may be impacted
by external factors such as the limited availability of credit, business
contractions of tenants and an increasingly competitive marketplace.
Specifically, some properties are facing tenant turnover and the maturity of
third party loans in 1995 and 1996. Management carefully evaluates each
property individually before determining whether or not to commit additional
funds to enhance or maintain the value of an investment.
2. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company are as follows:
A. Investments in Joint Ventures
Investments in which MIP does not have a controlling interest are accounted
for by the equity method. Under the terms of the various joint venture
agreements, the Company is allocated between 20 and 100 percent of net losses
and between 50 and 100 percent of net income. Joint venture losses are
recognized in the financial statements until the related joint venture
investment account is reduced to a zero balance. Losses incurred after the
joint venture investment account is reduced to zero are not recognized.
Distributions from joint ventures are accounted for as a return of capital
until the investment balance is reduced to zero. Subsequent distributions
received after the investment account has been reduced to zero are recognized
as income.
Joint ventures in which the Company has a controlling interest are
consolidated. Through August 1994, the Company had an investment in an 80
percent owned joint venture and under the terms of the joint venture agreement,
as amended, the Company recorded 100 percent of the net loss. All significant
intercompany accounts and transactions have been eliminated in consolidation.
B. Revenue Recognition
In 1994 approximately 15% of the Company's gross revenues were generated by
its loan to the Harbor Point joint venture and approximately 12% of the
Company's gross revenues were generated from the single tenant at the Northbay
Industrial Building. In 1993, revenues from the Company's loans relating to
Harbor Point, Casas Lindas Apartments, Hacienda Promenade and Irwindale
Executive Plaza and from the Sola Optical USA, Inc., lease at the Northbay
Building and TRW Technar lease at San Dimas Corporate Center approximated 20%,
15%, 13%, 12%, 16% and 10% of gross revenues, respectively. In 1992, revenues
from the Company's loans relating to Harbor Point, Casas Lindas Apartments,
Hacienda Promenade and from the Sola Optical USA, Inc., lease at the Northbay
Building and TRW Technar lease at San Dimas Corporate Center approximated 21%,
12%, 12%, 16% and 10% of gross revenues, respectively.
In general, rental income from operating leases is recognized in income on a
straight-line basis over the period of the related lease agreement.
C-15
<PAGE>
MIP PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Future minimum rental receipts from wholly-owned properties as of December
31, 1994, are as follows (in thousands):
<TABLE>
<S> <C>
1995.............................. $3,854
1996.............................. 3,403
1997.............................. 2,278
1998.............................. 1,934
1999.............................. 1,667
Thereafter........................ 3,284
</TABLE>
Loan origination and commitment fees are deferred and recognized as interest
income over the term of the related loan in accordance with Statement of
Financial Accounting Standards No. 91. Deferred loan fees are classified as a
reduction of the related loan balance in the accompanying financial statements.
The Company does not recognize income when collection of such income is
subject to material uncertainties. Such unrecognized income is recorded when
received.
C. Real Estate
Land and buildings and improvements are carried at the lower of cost less
accumulated depreciation relating to the buildings and improvements or net
realizable value. Land held for sale is carried at the lower of cost or fair
market value. Properties acquired via foreclosure or deed in lieu of
foreclosure are carried at the lower of cost or fair market value on the date
of acquisition. See also D below. Depreciation is computed using the straight
line method over the estimated useful life of 40 years for buildings.
Improvements are capitalized and depreciated over the shorter of the remaining
useful life of the building or the improvement. Repairs and maintenance are
expensed as incurred.
D. Reserve for Losses
Management periodically evaluates the Company's investment portfolio for
realizability. In performing its evaluation, management assesses the
recoverability of investments by comparing the carrying amount of the
investment with its estimated net realizable value. Based on these evaluations,
the Company's investment portfolio is stated at the lower of cost or net
realizable value, or in the case of land held for sale, fair market value, as
of December 31, 1994 and 1993.
Estimated net realizable value differs from market value in that, among other
things, market value assumes a sale under current market conditions, considers
a potential purchaser's requirement for future profit and discounts the timing
of estimated future cash receipts, whereas, net realizable value is defined as
the estimated selling price in the ordinary course of business less estimated
costs to complete, hold and dispose of the property. The Company's valuation of
its investment portfolio by comparison of the carrying amount of the investment
to net realizable value is based on the Company's present plans for each
investment, the financial ability of the Company to carry out such plans,
management's judgments regarding borrowers' and partners' ability to meet
obligations, the estimated operating results of the investment, the cost of
credit and future economic conditions. Based on the Company's intent and
ability to support its investments, as well as other factors noted, the Company
made provisions for losses on investments and charged to expense $6,250,000,
and $12,500,000 in 1993 and 1992, respectively. No provisions for losses were
recorded in 1994. As conditions change, further adjustments may be deemed
necessary.
The adjustments recorded and the year end balances are based on the
assumption that the Company is a going concern and that its assets will be
operated and disposed of in the ordinary course of business. Several
C-16
<PAGE>
MIP PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
of the properties have leases expiring and outstanding loans maturing in 1995
and 1996. See Notes 9, 10, and 11. The realization of the Company's
investments in these properties will depend on the Company's ability to either
successfully renegotiate the current terms of such outstanding loans or obtain
alternative financing and the lease-up of space upon tenant turnover. If the
Company were forced to dispose of its investments in a liquidation mode rather
than realizing the values in the ordinary course of business, the values
attained may be significantly less than those reflected herein.
The activity in reserve for losses for the years ended December 31, 1994,
1993, and 1992 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Balance, Beginning of the Year................. $21,246 $28,993 $18,250
Provision for Losses........................... -- 6,250 12,500
Write-offs..................................... (12,684) (13,997) (1,757)
------- ------- -------
Balance, End of the Year....................... $ 8,562 $21,246 $28,993
======= ======= =======
</TABLE>
The write-offs in 1994 against the previously recorded reserves primarily
relate to the foreclosure of the Long Beach Building for approximately $7.5
million, the negotiated settlement of the Greenhouse Marketplace note for
approximately $3.4 million, the third party foreclosure relating to MIP's
joint venture investment 580 Marketplace for $1 million, and to the sales of
the Northbay Land for approximately $0.8 million. The write-offs in 1993
relate to the Park-in-the Valley loan for approximately $12 million and the
foreclosure of Irwindale Executive Plaza for approximately $1.9 million. The
write-offs in 1992 relate to the sale of a portion of San Dimas Corporate
Center.
E. Non-Earning Loans
Non-earning loans are those for which management has discontinued accrual of
interest because there exists reasonable doubt as to the full and timely
collection of either principal or interest or such loans have become
significantly past due with respect to principal or interest. Interest
accruals may be continued for loans that have become contractually past due
when such loans are well secured and in the process of collection, and
accordingly, management has determined such loans to be fully collectible as
to both principal and interest. For this purpose, loans are considered well
secured if they are collateralized by property having an estimated net
realizable value in excess of the amount of principal and accrued interest
outstanding. All payments received are first applied to unpaid principal and
then to accrued but uncollected interest.
F. Corporate Operating Expenses
A breakdown of corporate operating expenses for the years ended December 31,
1994, 1993, and 1992, is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Compensation(1)..................................... $ 816 $ 663 $ 562
Directors' and Officers' Insurance.................. 498 740 660
Park in the Valley Carrying Costs(2)................ -- 114 393
Other(1)............................................ 667 689 549
------ ------ ------
$1,981 $2,206 $2,164
====== ====== ======
</TABLE>
- - --------
(1) See Note 5.
(2) Costs relate to the Company's Park in the Valley mortgage loan which was
written off in 1993.
C-17
<PAGE>
MIP PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
G. Reclassifications
Certain prior year amounts have been reclassified to conform with the 1994
presentation.
3. PER SHARE DATA
Net income per share is based on the weighted average number of common shares
outstanding of 9,231,285 for 1994, 9,028,217 for 1993, and 9,020,000 for 1992.
Common shares granted and vested but deferred pursuant to the Directors Stock
Plan and the Long-Term Incentive Compensation Plan are included in the weighted
average number of shares outstanding. Total shares issuable pursuant to the
Directors Stock Plan and the Long-Term Incentive Compensation Plan are excluded
from the weighted average number of shares outstanding for 1994 and 1993 as
their impact is not material and is antidilutive, respectively. Additionally,
fully diluted earnings per share are not presented because the effect of
outstanding options is either not material or is antidilutive.
4. CASH DIVIDENDS AND INCOME TAXES
No dividends were paid in 1994, 1993 or 1992. It is estimated that the
Company generated a federal income tax net operating loss of $0.94, $1.46, and
$0.14 per share in 1994, 1993 and 1992, respectively. As of December 31, 1994,
for federal income tax purposes, it is estimated that the Company had an
ordinary loss carryforward of approximately $26.3 million and a capital loss
carryforward of approximately $1.9 million.
Earnings and profits, which determine the taxability of dividends to
stockholders, differ from net income due to differences in the timing of the
recognition of certain income and expense items for tax reporting and for
financial reporting purposes.
The Company has operated at all times so as to qualify as a real estate
investment trust under the Internal Revenue Code of 1986, as amended.
Accordingly, no provision for income taxes has been made in the accompanying
consolidated financial statements.
The net difference in the tax basis and the reported amounts of the Company's
assets and liabilities as of December 31, 1994 is approximately $7.5 million.
The difference primarily relates to reserves for losses for financial statement
purposes which have not been deducted for tax purposes.
5. STOCKHOLDERS' EQUITY
On July 21, 1993, the stockholders approved a Long-Term Incentive
Compensation Plan for key employees covering 200,000 shares of common stock.
Under the Plan, stock awards totaling 200,000 shares have been granted. One
third of the shares granted vested on February 11, 1993, 1994 and 1995,
respectively. As of December 31, 1994, 133,333 shares had vested and 79,665 of
those shares were outstanding. Certain participants had elected to defer the
remaining 63,001 shares pursuant to the Plan.
Also on July 21, 1993, the stockholders approved the Directors Stock Plan
covering 240,000 shares of common stock. Under the Plan, the Company shall
issue common stock or stock credits, as defined in the Plan, to each non-
employee Director on September 1 of each year in an amount equal to $10,000
divided by the fair market value, as defined, of one share on such date. The
Plan, however, provided for the first issuance to be made on July 21, 1993. As
of December 31, 1994, 106,772 shares had been issued under the Directors Stock
Plan, and 10,492 shares had been deferred by the participants pursuant to the
Plan.
C-18
<PAGE>
MIP PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
5. STOCKHOLDERS' EQUITY--(CONTINUED)
The Company has an Incentive Stock Option Plan and a Non-Qualified Stock
Option Plan (collectively, "the Plans"). The Board of Directors has reserved
400,000 shares of common stock of the Company which may be granted to eligible
persons under the plan. Options generally become exercisable at the rate of 20
percent per year, cumulatively, and are exercisable in full after five years.
The options outstanding at December 31, 1994 and 1993 were granted between May
2, 1985 and May 16, 1991 and expire ten years after the date of grant. In 1993
options for 20,000 shares of common stock were terminated. Summary information
at December 31, 1994, 1993 and 1992, is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Options Outstanding............................... 290,000 290,000 310,000
Options Exercisable............................... 288,000 287,000 306,000
Average Option Price Per Share.................... $3.35 $3.35 $3.32
</TABLE>
The Company has authorized 25,000,000 shares of preferred stock. The issuance
of preferred stock may be authorized from time to time by the Board of
Directors of the Company, without stockholder approval, in such series and with
such preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or other provisions, as determined
by the Board of Directors.
6. CORPORATE DEBT
On December 28, 1993, the Company's corporate debt was purchased by a new
lender and simultaneously restructured. The new Amended and Restated Credit
Agreement (the "Loan") was for approximately $22 million and was scheduled to
mature on June 28, 1997. The Loan was secured by most of the Company's assets
and bore interest at prime plus one percent. Additionally, the Loan allowed
prepayment of all or part of the principal at any time before maturity and
provided the Company the opportunity to earn a discount from the face amount of
the loan upon prepayment. Under the terms of the Loan, the Company could pay
only such dividends as are required for the Company to retain its status as a
real estate investment trust.
By August 1994, the Company had completed the sales of the Hacienda Promenade
mortgage loan, approximately two acres of land at Northbay Industrial Park, and
the Casas Lindas Apartments and had completed the refinancing of Sunwest Retail
Plaza, Long Beach Building, and the Northbay Industrial Building. The net
proceeds of $17.1 million from these transactions were used to prepay the
corporate debt which generated approximately a $4.8 million discount from the
face amount, which was offset by the write-off of deferred financing costs of
approximately $0.5 million.
In February 1993, the Company had previously entered into an Amended and
Restated Credit Agreement with its bank. The loan bore interest at prime plus
one percent and there were no commitment fees. Costs related to restructuring
the loan were capitalized, included in other assets, and amortized over the
original life of the loan.
The weighted average cost of the corporate debt outstanding as of December
31, 1993 and 1992 was 7.00, and 6.25 percent, respectively. No corporate debt
was outstanding as of December 31, 1994. The weighted average cost of corporate
debt for the years ended December 31, 1994, 1993 and 1992 was 8.02, 7.06, and
6.60 percent, respectively. The maximum amount of borrowings outstanding was
approximately $22 and $29 million during 1994 and 1993, respectively. The
Company withheld interest payments from the lender of approximately $1.6
million through December 31, 1992 relating to the pending restructure of the
loan agreement. These amounts were included in accounts payable, accrued
interest and other liabilities as of December 31, 1992, and were remitted to
the bank in February, 1993 when the loan restructure was completed.
C-19
<PAGE>
MIP PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
7. MORTGAGE DEBT
In April 1994, the Company borrowed an additional $850,000 on the mortgage
loan secured by Sunwest Retail Plaza bringing the total loan amount to
$1,388,350. The loan matures in July 1995 and bears interest at prime plus one
and one-half percent, or 10 percent, and prime plus one percent, or 7.0 percent
as of December 31, 1994 and 1993, respectively. The loan requires a repayment
fee as of December 31, 1994 of approximately $28,000 which increases monthly to
approximately $61,000 at maturity.
In May 1994, the Company obtained a $2.5 million mortgage loan secured by the
Long Beach Building. The Company paid a one percent origination fee. The note
bears interest at prime plus four percent or 12.5 percent as of December 31,
1994. The loan matures in May 1999 and has no prepayment fee.
In August 1994, the Company obtained a $2.9 million mortgage loan secured by
the Northbay Industrial Building. In the fourth quarter of 1994, the Company
applied the net proceeds from the sale of Ontario Airport Business Park and
some of the net proceeds from the sale of a portion of the Northbay Industrial
Land to reduce the outstanding amount to $1,180,000. The loan matures in
January 1996 and bears interest at prime plus one and one-half percent, or 10
percent as of December 31, 1994. The loan requires a repayment fee as of
December 31, 1994 of approximately $20,000 which increases monthly to
approximately $87,000 at maturity.
In December 1993 the Company took over ownership of Ontario Airport Business
Park and assumed a mortgage loan of approximately $1.5 million. In November
1994 the Company sold the property and the buyer assumed the existing mortgage
loan.
8. COMMITMENTS
At December 31, 1994, the Company had an unfunded commitment of approximately
$2.2 million to an existing joint venture.
Agreements to extend credit or provide capital to a partner or borrower are
commitments as long as there is no violation of any condition established in
the contract. The Company may also advance additional funds to investments if
it believes such action will enhance or maintain its investment. Commitments
generally have fixed expiration dates or other termination clauses. However,
all commitments may expire without being fully drawn upon. Each potential real
estate investment and each partners' or borrowers' creditworthiness is
evaluated on a case-by-case basis. The Company obtains additional collateral
such as personal guarantees or other real estate, when available and deemed
appropriate, based on the Company's evaluation of the project, partner or
borrower.
9. INVESTMENTS IN JOINT VENTURES
The Company is a limited partner in joint ventures which are engaged in the
operation of commercial and industrial real estate. The Company is entitled to
cash distribution preferences with respect to its capital contributions to such
joint ventures. In addition, the Company loaned funds to the joint ventures for
land acquisition and construction of buildings and improvements.
The combined financial position of the unconsolidated joint ventures at
December 31, 1994 and 1993 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Assets (principally land, buildings and improvements)..... $48,172 $67,980
======= =======
Liabilities (including loans of $9,130 at December 31,
1994 and 1993,
payable to the Company).................................. $53,780 $71,847
Partners' Equity (Deficit)................................ (5,608) (3,867)
------- -------
Total Liabilities and Partners' Equity (Deficit).......... $48,172 $67,980
======= =======
</TABLE>
C-20
<PAGE>
MIP PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
9. INVESTMENTS IN JOINT VENTURES--(CONTINUED)
The combined results of operations of the unconsolidated joint ventures for
the years ended December 31, 1994, 1993, and 1992 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- --------
<S> <C> <C> <C>
Revenues........................................ $ 8,845 $12,689 $ 13,144
Operating Expenses.............................. (1,968) (2,675) (3,157)
Interest........................................ (5,172) (7,757) (10,015)
Depreciation and Amortization................... (1,995) (2,913) (3,276)
------- ------- --------
Net Loss........................................ $ (290) $ (656) $ (3,304)
======= ======= ========
</TABLE>
MIP is a 50 percent limited partner in the Shorebreeze Associates joint
venture which owns two 100 percent leased office buildings in Redwood City,
California. A $15.5 million third party loan on Phase I and a $15.2 million
third party loan on Phase II mature in June, 1995. The partners are reviewing
various options including extending the current loans and obtaining alternative
financing.
10. INVESTMENTS IN LAND AND BUILDINGS AND IMPROVEMENTS
The following tabulation lists by type of property the investments included
in land and buildings and improvements as of December 31, 1994 (dollars in
thousands):
<TABLE>
<CAPTION>
COST GROSS AMOUNT
INITIAL COST CAPITALIZED CARRIED AT
THIRD PARTY BUILDING & SUBSEQUENT TO DECEMBER 31, ACCUMULATED DATE OF DATE
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS ACQUISITION 1994 DEPRECIATION CONSTRUCTION ACQUIRED
----------- ----------- ------ ------------ ------------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Irwindale Executive
Plaza.................. $ -- $ 620 $ 2,529 $(385)(2) $ 2,764 $ 266 1990 1993
Office/Retail
Irwindale, CA
Long Beach Building..... 2,495 875 4,248 228 5,351 193 1925(3) 1994
Office
Long Beach, CA
Northbay Industrial
Park................... 1,196 1,409 5,305 -- 6,714 586 1989 1990
Industrial
Petaluma, CA
San Dimas Corp. Ctr..... -- 2,146 5,442 -- 7,588 1,114 1989 1992
Office/R&D
San Dimas, CA
Sunwest Retail Plaza.... 1,416 778 1,697 -- 2,475 230 1989 1992
Retail
San Bernardino, CA
Northbay Industrial
Park(1)................ -- 2,616 -- -- 2,616 -- -- 1990
Unimproved Land
Petaluma, CA
Sunwest Professional
Park(1)................ -- 1,426 -- -- 1,426 -- -- 1991
Unimproved Land
San Bernardino, CA
------ ------ ------- ----- ------- ------ ---- ----
$5,107 $9,870 $19,221 $(157) $28,934 $2,389
====== ====== ======= ===== ======= ======
</TABLE>
- - --------
(1) Land Held for Sale.
(2) Basis was reduced by $390 relating to a third party rent subsidy.
(3) Building is classified as a historical landmark and was rehabilitated in
1986.
C-21
<PAGE>
MIP PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
10. INVESTMENTS IN LAND AND BUILDINGS AND IMPROVEMENTS--(CONTINUED)
The land and buildings and improvements have a federal income tax cost basis
of approximately $29.7 million at December 31, 1994.
The activity in investments in land and buildings and improvements and
related accumulated depreciation for the years ended December 31, 1994, 1993,
and 1992 is summarized as follows (in thousands):
INVESTMENTS IN LAND AND BUILDINGS AND IMPROVEMENTS
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Balance, Beginning of Year $35,355 $30,445 $46,678
Additions--
Acquisitions through Foreclosure.................. 5,123 3,149 4,020
Other Acquisitions................................ -- 2,805 --
Improvements...................................... 258 67 77
------- ------- -------
40,736 36,466 50,775
------- ------- -------
Deductions--
Cost of Real Estate Sold.......................... 11,412 1,111 7,111
Third Party Foreclosure........................... -- -- 13,369
Cash Received From Rent Subsidy................... 390 -- --
Reclassification.................................. -- -- (150)
------- ------- -------
11,802 1,111 20,330
------- ------- -------
Balance, End of Year................................. $28,934 $35,355 $30,445
======= ======= =======
ACCUMULATED DEPRECIATION
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Balance, Beginning of Year........................... $ 2,515 $ 1,812 $ 2,472
Additions (Deductions)--
Charged to Operations............................. 1,136 732 777
Third Party Foreclosure........................... -- -- (1,191)
Sales and Write-offs.............................. (1,262) (29) (246)
------- ------- -------
Balance, End of Year................................. $ 2,389 $ 2,515 $ 1,812
======= ======= =======
</TABLE>
C-22
<PAGE>
MIP PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
11. LOANS
The following tabulation lists investments in loans outstanding by type as of
December 31, 1994 (dollars in thousands):
<TABLE>
<CAPTION>
FACE AND
CARRYING
INTEREST MATURITY AMOUNT OF
DESCRIPTION RATE(1) DATE(1) MORTGAGE
----------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Loans to Joint Ventures:
Harbor Point Retail Prime + 1.5% September 1998 $6,100
Los Angeles, CA Cap of 12%
Non-Earning Loans:
Shorebreeze Phase II Office LIBOR + 3.25% June 1995 3,030(2)
------
Redwood City, CA or 9.56%
Total Investment in Loans............................... $9,130
======
</TABLE>
- - --------
(1) Interest accrues and is payable monthly. Principal is payable upon maturity
of the loan.
(2) MIP's loan is subordinated to a $15.2 million third party loan. See Note 9
for further discussion.
The activity in the loan accounts for the years ended December 31, 1994, 1993
and 1992 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Balance, Beginning of Year...................... $ 29,658 $ 47,027 $50,852
Increases--
Disbursements................................. 107 103 --
Write-off of Loan Fees........................ 125 -- 5
Decreases--
Sale.......................................... (4,673) -- --
Write-offs.................................... (3,500) (11,913) --
Foreclosures.................................. (12,587) (5,248) --
Repayments.................................... -- (311) (268)
Deeds-in-lieu of Foreclosures................. -- -- (3,562)
-------- -------- -------
Balance, End of Year............................ $ 9,130 $ 29,658 $47,027
======== ======== =======
</TABLE>
C-23
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS OF THE REGISTRANT:
The Board of Directors, currently consisting of eight members, is classified
into three classes. The Charter and Bylaws of the Company provide that the
number of Directors in each class shall be as nearly as practicable equal.
Certain information regarding the directors of the Company as of March 1,
1995 is set forth below:
Raymond L. Bly, Jr.--Mr. Bly, 75, has served as director of the Company since
1985 and was formerly Vice President, Western Real Estate Operations, of
Prudential Insurance Company. Mr. Bly's term as a director expires in 1995.
John W. Creighton, Jr.--Mr. Creighton, 62, has served as a director of the
Company since 1985, and is president, chief executive officer and a director of
Weyerhaeuser Company (forest products). He is also a director of Portland
General Corporation, Quality Food Centers, Inc. and Washington Energy Company.
Mr. Creighton's term as a director expires in 1995.
Robert W. Draine--Mr. Draine, 70, has served as a director of the Company
since 1985, and is a partner of Draine/Poulson Real Estate Group. He is also a
director of Watson Land Company. Mr. Draine's term as a director expires in
1996.
Mr. W. John Driscoll--Mr. Driscoll, 66, has served as a director of the
Company since 1989, and was formerly chairman and president of Rock Island
Company, a private investment company. He is also a director of Comshare
Incorporated, Northern States Power Company, John Nuveen & Company, Inc., Rock
Island Company, The St. Paul Companies, Taylor Investment Corporation and
Weyerhaeuser Company. Mr. Driscoll's term as a director expires in 1996.
Lawrence W. Farmer--Mr. Farmer, 60, has served as a director of the Company
since 1985, and is a principal of Wasatch Investments, Inc. Formerly, he was
president of Koll Realty Advisors, the advisor of the Company until August,
1991, and executive vice president of The Koll Company, parent of such advisor.
Mr. Farmer's term as a director expires in 1996.
Paul Fitzgerald--Mr. Fitzgerald, 58, has served as a director of the Company
since 1985, and is a vice president of Chemical Bank. Mr. Fitzgerald's term as
a director expires in 1997.
Carl C. Gregory, III--Mr. Gregory, 50, has served as a director of the
Company since 1986, and is chairman of the board and chief executive officer of
the Company. He was president of American Western Realty Corporation until
August, 1991. Mr. Gregory's term as a director expires in 1995.
Richard T. Pratt--Mr. Pratt, 58, has served as a director of the Company
since 1985, and is chairman of Richard T. Pratt Associates, a consulting firm.
Formerly, he was managing director of Merrill Lynch Financial Institutions
Group, chairman of the board of Merrill Lynch Mortgage Capital, Inc., and
chairman of the Federal Home Loan Bank Board, the Federal Home Loan Mortgage
Corporation and the Federal Savings and Loan Insurance Corporation. Mr. Pratt's
term as a director expires in 1997.
C-24
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT:
Certain information regarding the executive officers of the Company as of
March 1, 1995 is set forth below:
Carl C. Gregory, III, 50, has served as Chairman of the Board of Directors
and Chief Executive Officer of the Company since May 1989 and as a member of
the Board of Directors since May 1986. He was the President of American Western
Realty Corporation until August 1991.
Marsha Z. Day, 35, has served as Chief Financial Officer of the Company since
August 1991, Controller of the Company since November 1988, and Secretary of
the Company since August 1993.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------------------- --------------------------
NAME AND OTHER ANNUAL RESTRICTED ALL OTHER
RINCIPAL POSITIONP YEAR SALARY($) BONUS($) COMPENSATION STOCK AWARDS COMPENSATION
- - ------------------ ---- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Carl C. Gregory, III.... 1994 $270,000 $ 0 * $ 0 $ 0
Chief Executive Officer 1993 261,667 50,000(1) * 100,000(2) 0
1992 250,000 30,000 * 0 0
</TABLE>
- - --------
* Aggregate does not exceed 10% of the total annual salary and bonus reported
for the named officer.
(1) Represents fair market value on February 10, 1993 of stock award granted on
February 10, 1993 in the amount of 50,000 shares, which award was subject
to stockholder approval of the Company's Long- Term Incentive Compensation
Plan (the "LTIP Plan"). The LTIP Plan was approved by the Stockholders at
the 1993 Annual Stockholders Meeting.
(2) Includes 100,000 shares granted on February 10, 1993 under the LTIP Plan,
50,000 shares of which vested on February 11, 1994 and 1995, but payment
for which (together with declared dividends) was deferred at the election
of Mr. Gregory to January 1, 2000. Mr. Gregory holds no other restricted
stock. The value of such restricted stock on December 31, 1994 was
$190,325. Dividends are accrued on such restricted stock, and delivered
when the restricted stock (or cash in lieu thereof if deferred) is
delivered.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR- OPTIONS AT FISCAL
END YEAR-END
NUMBER OF ------------------------- -----------------
SHARES ACQUIRED VALUE EXERCISABLE/
ON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE UNEXERCISABLE
--------------- -------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Carl C. Gregory, III.... 0 $0 95,000 0 $0
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Carl C. Gregory, III, currently serves as chairman and chief executive
officer of the Company pursuant to an employment contract which became
effective June 1, 1993 and expires on June 30, 1995. Presently, the Board of
Directors has elected not to have the existing contract continue beyond June
30, 1995. Under the contract, Mr. Gregory is entitled to cash compensation of
at least $270,000 annually. Although the employment contract may be terminated
at any time by either the Company or Mr. Gregory, Mr. Gregory is entitled to
receive, whether or not earned, salary that would be otherwise due under the
contract through June 30, 1995, should his employment by the Company be
terminated without cause (as that term is defined
C-25
<PAGE>
in the contract) or should he resign because a majority of the directors of the
Company are individuals whose elections did not have the approval of the
current directors of the Company; or the Company engages in a merger or sale-
of-assets transaction with another corporation, as a result of which those who
were stockholders of the Company prior to such a transaction no longer hold
shares of the other corporation which is the surviving corporation sufficient
for such holders to elect a majority of the directors of such corporation; or
directors' and officers' liability indemnification and insurance which is the
same or comparable to that which was available to him either as of June 1, 1991
or June 1, 1993, is not in effect; or the nature of his duties as chief
executive officer of the Company are significantly limited by the Board of
Directors.
COMPENSATION OF DIRECTORS
In 1994, each non-employee director was entitled to receive for service as a
director an annual fee of $10,000 and a daily fee of $500 for attending board
meetings, and reimbursement of travel expenses in connection with meetings.
Pursuant to the First Amended and Restated Directors Stock Plan each non-
employee director is paid an annual fee in the form of common stock or stock
credits, as defined in said plan, having a value on the date of grant equal to
$10,000. Members of the Audit Committee received an annual fee of $1,500; and
non-employee members of the Investment Committee received an annual fee of
$2,500 and a daily fee of $500 for attending committee meetings and carrying
out the work of the Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee, each of whom is currently a
director of the Company, are: John W. Creighton, Jr., W. John Driscoll and
Richard T. Pratt. No member of the Compensation Committee is, or has ever been,
an officer or employee of the Company, except that Mr. Creighton has held the
office of Chairman of the Board but has never been employed by the Company nor
compensated by the Company other than compensation in the form of directors'
fees paid to directors generally.
No executive officer of the Company serves, or has served, as either a
director or a member of the compensation committee of an entity of which a
director of the Company or a member of its Compensation Committee is an
executive officer.
None of the members of the Compensation Committee has had a relationship with
the Company the disclosure of which is required by Item 404 of SEC Regulation
S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the persons who, to the Company's knowledge,
beneficially owned more than five percent of the outstanding common stock as of
March 1, 1995:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
TITLE OF NAME OF AMOUNT AND NATURE OF PERCENT
CLASS BENEFICIAL OWNER(A) BENEFICIAL OWNERSHIP(A) OF CLASS
-------- ------------------- ----------------------- --------
<S> <C> <C> <C>
Common Stock Palm Finance Corporation 1,380,964(b) 14.97
100 Wilshire Blvd., 3rd Fl.
Santa Monica, CA 90401
</TABLE>
- - --------
(a) Information was obtained from the Schedule 13D filed by Steven C. Markoff
and Palm Finance Corporation on January 26, 1995.
(b) Includes 14,658 shares of common stock owned by Steven C. Markoff, the
indirect owner of Palm Finance Corporation.
C-26
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
TITLE OF NAME OF AMOUNT AND NATURE OF PERCENT
CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP(A) OF CLASS
-------- ---------------- ----------------------- --------
<S> <C> <C> <C>
Common Stock Raymond J. Bly, Jr. 35,658(b) *
Common Stock John W. Creighton, Jr. 70,258(b) *
Common Stock Robert W. Draine 88,412(b) *
Common Stock W. John Driscoll 220,898(b)(e) 2.17
Common Stock Lawrence W. Farmer 69,534(c) *
Common Stock Paul Fitzgerald 34,658(b) *
Common Stock Carl C. Gregory, III 161,000(d) 1.73
Common Stock Richard T. Pratt 36,992(b) *
Directors and Executive Officers as a 733,110 7.72
group
(9 individuals)
</TABLE>
- - --------
(a) As of March 1, 1995.
(b) Includes 20,000 shares which may be acquired upon exercise of a stock
option.
(c) Includes 50,000 shares which may be acquired upon exercise of a stock
option.
(d) Includes 95,000 shares which may be acquired upon exercise of a stock
option.
(e) Includes 131,800 shares the voting and/or dispositive powers of which are
shared with others.
(f) Asterisk denotes amount is less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
C-27
<PAGE>
MIP PROPERTIES, INC.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A.Index to Financial Statements and Schedules
1. Financial Statements (included under Item 8)
--Report of Independent Public Accountants
--Consolidated Balance Sheets at December 31, 1994 and 1993
--Consolidated Statements of Operations for the years ended December
31, 1994, 1993 and 1992
--Consolidated Statements of Stockholders' Equity at December 31,
1994, 1993 and 1992
--Consolidated Statements of Cash Flows for the years ended December
31, 1994, 1993 and 1992
2. Supplemental Financial Statement Schedules--
--None
All schedules have been omitted because the required information is
presented in the financial statements or the related notes or are
not applicable.
B.Reports on Form 8-K
A Form 8-K was filed on October 7, 1994.
C.Exhibits
<TABLE>
<C> <C> <S>
* 3.1 Articles of Incorporation
***** 3.2 Bylaws, as Amended
** 10.3 Incentive Stock Option Plan
** 10.4 Non-Qualified Stock Option Plan
*** 10.19 Amended and Restated Credit Agreement, dated as of December
28, 1993
**** 10.20 Amended and Restated Credit Agreement, dated as of January 28,
1991
**** 10.21 Amended and Restated Credit Agreement, dated as of February 8,
1993
***** 10.22 First Amended and Restated Directors Stock Plan
***** 10.23 First Amended and Restated Long-Term Incentive Compensation
Plan
***** 10.24 Fee Deferral Plan
***** 10.25 Employment Agreement dated June 1, 1993 between Carl C.
Gregory, III and MIP Properties, Inc.
***** 10.26 Extension of Employment Agreement dated November 30, 1994
between Carl C. Gregory, III and MIP Properties, Inc.
***** 21. Subsidiaries of the Registrant
23. Consent of Independent Public Accountants
</TABLE>
- - --------
* Incorporated herein by reference to such Exhibit to the Annual Report on
Form 10-K of Registrant for the year ended December 31, 1991.
** Incorporated herein by reference to such Exhibit to Registration Statement
on Form S-8 of Registrant (Registration No. 33-17183) filed on September
11, 1987.
*** Incorporated herein by reference to such Exhibit to Form 8-K of Registrant
filed on January 7, 1994.
**** Incorporated herein by reference to such Exhibit to the Annual Report on
Form 10-K of Registrant for the year ended December 31, 1993.
***** Previously filed.
C-28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
MIP Properties, Inc.
Date: April 25, 1995 /s/ Carl C. Gregory, III
By___________________________________
Carl C. Gregory, III Chairman of
the Board and Chief Executive
Officer
C-29
<PAGE>
APPENDIX D
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995 or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 1-8898
MIP PROPERTIES, INC.
- - --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Maryland 52-1394207
-------- ---------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2020 SANTA MONICA BOULEVARD
SUITE #480
SANTA MONICA, CALIFORNIA 90404
------------------------------ ---------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(310) 449-4444
--------------
(Registrant's telephone number, including area code)
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if 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 .
--- ---
The number of shares outstanding of registrant's class of common stock, as of
May 11, 1995 was 9,223,105 common shares ($.01 par value).
<PAGE>
MIP PROPERTIES, INC.
Index to Form 10-Q Report
For the Quarter
Ended March 31, 1995
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6 - 7
Part II. Other Information (Items 2 through 5 not applicable)
- - -------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K 8
Signature 8
Exhibits 9
</TABLE>
<PAGE>
MIP PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS:
Loan to Joint Venture $ 6,100,000 $ 6,100,000
Investments in Joint Venture 6,301,700 6,266,100
Non-Earning Loans 3,030,400 3,030,400
Land 5,827,800 5,827,800
Buildings and Improvements (net of
accumulated depreciation of $2,621,300
and $2,389,100 as of March 31, 1995, and
December 31, 1994, respectively) 16,222,500 16,674,600
Land Held for Sale 4,042,800 4,042,800
------------ ------------
41,525,200 41,941,700
Reserve for Losses (8,562,000) (8,562,000)
------------ ------------
32,963,200 33,379,700
CASH 1,787,300 1,799,300
OTHER ASSETS 618,800 728,100
------------ ------------
$ 35,369,300 $ 35,907,100
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Mortgage Debt 4,722,600 5,107,000
Accounts Payable and Other Liabilities 772,300 674,700
------------ ------------
5,494,900 5,781,700
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock $.01 Par Value, 25,000,000
Shares Authorized, No Shares Outstanding ----- -----
Common Stock, $.01 Par Value, 75,000,000
Shares Authorized, 9,223,105 Shares
Outstanding 92,200 92,100
Additional Paid-In Capital 82,758,800 82,726,700
Accumulated Loss and Dividends
Paid in Excess of Net Income (52,976,600) (52,693,400)
------------ ------------
29,874,400 30,125,400
------------ ------------
$ 35,369,300 $ 35,907,100
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
-1-
<PAGE>
MIP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
----------- -----------
<S> <C> <C>
Revenues:
Interest Income $ 227,800 $ 352,300
Rental Income 935,600 1,258,100
Joint Venture Losses (166,900) (64,000)
---------- ----------
996,500 1,546,400
---------- ----------
Expenses:
Mortgage Interest 177,800 57,800
Corporate Interest ----- 462,700
Corporate Operating Expenses 404,800 552,600
Rental Operating Expenses 359,900 469,400
Depreciation and Amortization 245,600 302,700
Strategic Alternative Costs 91,500 -----
---------- ----------
1,279,600 1,845,200
---------- ----------
Loss Before Extraordinary Item (283,100) (298,800)
Extraordinary Gain on Debt Forgiveness ----- 21,400
---------- ----------
Net Loss (283,100) (277,400)
========== ==========
Loss Per Share Before Extraordinary Item ($0.030) ($0.032)
Extraordinary Gain on Debt Forgiveness Per Share ----- 0.002
---------- ----------
($0.030) ($0.030)
========== ==========
Dividends Paid Per Share $ 0.000 $ 0.000
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
-2-
<PAGE>
MIP PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($283,100) ($277,400)
Extraordinary Gain on Debt Forgiveness -- (21,400)
Depreciation and Amortization 245,600 302,700
Equity in Joint Venture Losses 166,900 64,000
Lease Termination Payment 400,000 --
Cash Received From Rent Subsidy -- 149,000
Net Change in Other Assets and Accounts
Payable and Other Liabilities 255,600 99,300
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 785,000 316,200
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Joint Venture Equity Contribution (202,500) --
Investment in Buildings and Improvements (180,000) (58,900)
Net Proceeds from Disposition of Investments -- 50,000
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (382,500) (8,900)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Paydowns of Mortgage Debt (414,500) (3,200)
Paydowns of Corporate Debt -- (64,000)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (414,500) (67,200)
---------- ----------
Net Increase (Decrease) In Cash (12,000) 240,100
Cash at Beginning of the Period 1,799,300 1,390,900
---------- ----------
Cash at End of the Period $1,787,300 $1,631,000
========== ==========
Cash Interest Paid 147,400 455,900
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
-3-
<PAGE>
MIP PROPERTIES, INC.
March 31, 1995
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
In accordance with the rules and regulations of the Securities and Exchange
Commission certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The accompanying interim financial
statements have not been examined by independent public accountants.
Although management believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these financial
statements be read in conjunction with the Company's 1994 Annual Report on
Form 10-K. In the opinion of management, all adjustments necessary to the
fair presentation of the accompanying financial information have been made.
2. PER SHARE DATA
Net loss per share is based on the weighted average number of common shares
outstanding of 9,303,930 for 1995 and 9,170,629 for 1994. Common shares
granted but deferred pursuant to the Directors Stock Plan and the Long-Term
Incentive Compensation Plan are included in the weighted average number of
shares outstanding. Total shares issuable pursuant to the Directors Stock
Plan are excluded from the weighted average number of shares outstanding for
1995 and 1994 as their impact is antidilutive. Additionally, fully diluted
earnings per share are not presented because the effect of outstanding
options is antidilutive.
3. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The unaudited combined financial position and results of operations of the
unconsolidated joint ventures in which the Company has invested are as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- -------------
<S> <C> <C>
Assets (principally land, buildings and
improvements) $47,841 $48,172
======= =======
Liabilities (including loans of $9,130 at March
31, 1995, and December 31, 1994, payable
to the Company) $53,274 $53,780
Partners Equity (Deficit) (5,433) (5,608)
------- -------
Total Liabilities & Partners Equity (Deficit) $47,841 $48,172
======= =======
<CAPTION>
Three Months Ended March 31,
1995 1994
------- -------
<S> <C> <C>
Revenue $ 2,068 $ 2,325
Operating Expenses (454) (472)
Interest Expense (1,293) (1,391)
Depreciation and Amortization (392) (598)
------- -------
Net Loss $ (71) $ (136)
======= =======
</TABLE>
-4-
<PAGE>
MIP PROPERTIES, INC.
March 31, 1995
Notes to Consolidated Financial Statements (Continued)
In April 1995, the Shorebreeze Associates joint venture which owns two 100
percent leased office buildings in Redwood City, California, was
restructured. The joint venture ownership now includes Redwood Shores MIP
Inc., a wholly owned subsidiary of MIP, as a 1 percent general partner, MIP
as an 89 percent limited partner and the previous general partners as 5
percent limited partners each. Under the terms of the agreement, MIP is
allocated 90 percent of ordinary income and 90 percent of all losses. Net
profits from an extraordinary event are in general allocated first to the
limited partners other than MIP and then in accordance with ownership
percentages. Pursuant to the terms of the joint venture agreement and
generally accepted accounting principles, the Company believes it does not
have a controlling interest and therefore, Shorebreeze Associates is not
consolidated. Accordingly, 90 percent of the losses from the joint venture
are included in joint venture losses in MIP's statement of operations for
the three months ended March 31, 1995. Additionally, a $15.4 million third
party loan related to Phase I and a $14.9 million third party loan related
to Phase II mature in June 1995. The partners are reviewing various options
including extending the current loans and obtaining alternative financing.
In January 1995 the Company made an equity contribution of $202,500 to its
Harbor Point joint venture to fund the second installment of a leasing
commission relating to the sole tenant Home Depot USA, Inc.
4. CORPORATE OPERATING EXPENSES
The breakdown of corporate operating expenses for the three months ended
March 31, 1995 and 1994, is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Compensation $180 $240
Directors and Officers Liability Insurance 105 157
Other 120 156
---- ----
$405 $553
==== ====
</TABLE>
5. STOCKHOLDERS' EQUITY
The Company maintains a Long-Term Incentive Compensation Plan for key
employees covering 200,000 shares of common stock. Under the Plan, stock
awards totaling 200,000 shares have been granted. One third of the shares
granted vested on February 11, 1993, February 11, 1994, and February 11,
1995, respectively. As of March 31, 1995, 96,333 of the vested shares had
been issued, 100,000 shares were deferred by participants pursuant to the
Plan, and the remaining 3,667 shares had been paid out in cash to
participants pursuant to the Plan.
6. BUILDINGS AND IMPROVEMENTS AND MORTGAGE DEBT
During the first quarter of 1995, a tenant in the San Dimas Corporate
Center, TRW Technar, Inc., exercised its right to terminate its lease and
paid the Company $400,000. The tenant will continue to occupy the space
through February 1997. This payment was used to offset the capitalized
tenant improvements related to this tenant.
Additionally, in March 1995, the Company made a $400,000 paydown on the
mortgage loan secured by Sunwest Retail Plaza, decreasing the total loan
amount to $988,350. In connection with the paydown, the Company paid a fee
of approximately $12,700. The loan matures in January 1996 and bears
interest at prime plus one and one-half percent, or 10.50 percent as of
March 31, 1995. Beginning August 1, 1995 an extension fee of one-tenth of
one percent is due monthly. The loan requires a repayment fee of
approximately $32,000 as of March 31, 1995 which increases monthly through
July 1995 to approximately 44,000.
-5-
<PAGE>
MIP PROPERTIES, INC.
Form 10-Q
March 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- - -------------------------------
Based on current information and market conditions, management believes that in
the next twenty-four months there will be sufficient cash from operations to
operate the Company. MIP's mortgage debt, including the debt at the joint
venture level, matures in 1995, 1996 and 1999. Funds to repay mortgage debt are
expected to be generated from the refinancing of existing debt, sales of certain
assets, and current cash flow. Additionally, approximately 4 and 16 percent of
the existing leases in MIP's portfolio, on a square foot basis, expire in 1995
and 1996, respectively. MIP's ability to successfully manage tenant turnover
and improve the overall leasing of the portfolio is contingent in part on
various external factors such as business contractions of significant tenants
and a more competitive marketplace. Although MIP anticipates a satisfactory
outcome regarding refinancing and re-leasing its projects, MIP may be negatively
impacted by conditions in the real estate and financial markets in general.
At March 31, 1995, the Company had an unfunded commitment of approximately $2.2
million to an existing joint venture. If required, management expects that this
commitment would be funded from available cash, future cash flow and from
additional mortgage debt.
Cash flows from operating activities increased in 1995 primarily due to the
receipt of a one time early lease cancellation payment of $400,000 from TRW
Technar, Inc., a tenant in San Dimas Corporate Center. Cash flows from
investing activities decreased due to increased tenant improvement costs at the
Long Beach Building and Irwindale Executive Plaza and a joint venture equity
contribution to Harbor Point for a second installment on a leasing commission.
Cash flows from financing activities reflect a greater repayment of debt in
1995.
The Company believes it has operated so as to qualify as a real estate
investment trust under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended. In order to maintain this qualification, the Company must pay
95 percent of its taxable income in dividends. The Company currently
anticipates utilizing available net operating loss carryforwards to offset any
taxable income. Presently, the Company does not anticipate paying any dividends
in 1995.
Results of Operations
- - ---------------------
Three Months Ended March 31, 1995
- - ---------------------------------
Consolidated net loss for the three month period ended March 31, 1995 was
($283,100) or ($0.03) per share compared with ($277,400) or ($0.03) per share
for the same period in 1994. The results from 1994 include an extraordinary
gain on debt forgiveness of $21,400.
Interest income decreased for the three months ended March 31, 1995 due to the
sale of the $4.4 million Hacienda Promenade mortgage loan in June 1994.
Joint venture losses increased for the three months ended March 31, 1995
primarily due to the restructure of the Shorebreeze Associates joint venture.
MIP is now allocated 90 percent of the losses versus 20 percent in prior
periods.
The decrease in rental income, rental operating expenses and depreciation and
amortization reflect the sales of Casas Lindas Apartments in August 1994 and
Ontario Airport Business Park in November 1994, offset by the acquisition of the
Long Beach Building in late January 1994.
-6-
<PAGE>
MIP PROPERTIES, INC.
Form 10-Q
March 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Mortgage interest increased due to higher average borrowings of approximately
$3.0 million for the first quarter of 1995 compared to the first quarter of
1994, the accrual of repayment fees with respect to the Northbay Building and
the Sunwest Retail Plaza mortgage loans and the increased prime rate. There was
no corporate interest expense in 1995 due to the payoff of the corporate debt in
August 1994.
Corporate operating expenses decreased due to lower directors and officers
liability insurance premium, lower compensation expense related to the Long-Term
Incentive Compensation Plan, and lower legal costs.
Strategic alternative costs relate to legal and consulting fees incurred in
pursuit of MIP's stated goal of reviewing strategic alternatives.
-7-
<PAGE>
MIP PROPERTIES, INC.
Form 10-Q
March 31, 1995
Part II. Other Information
- - -----------------------------
Item 6. Exhibits and Reports on Form 8-K
(a). See Exhibit index.
(b). No reports on Form 8-K were filed during the quarter ended March 31,
1995.
Signature
- - ---------
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.
MIP PROPERTIES, INC.
By /s/ Marsha Z. Day
-----------------
Marsha Z. Day
Duly Authorized Officer and
Chief Accounting Officer
Date May 11, 1995
------------
-8-
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description of Documents Sequentially
- - ----------- ------------------------ ------------
Numbered Page
-------------
<C> <S> <C>
10.27 Fourth Amended and Restated Agreement of
Limited Partnership of Shorebreeze Associates
27 Article 5 FDS for March 31, 1995 10-Q
</TABLE>
-9-
<PAGE>
APPENDIX E
PROXY MIP PROPERTIES, INC.
SPECIAL MEETING OF STOCKHOLDERS
SEPTEMBER 27, 1995
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints W. John Driscoll, Director, and Carl C.
Gregory, III, Chairman of the Board and Chief Executive Officer, and each of
them, with full power to act without the other and with full power of
substitution, as proxies to represent and to vote, as directed herein, all
shares the undersigned is entitled to vote at the special meeting of the
stockholders of MIP Properties, Inc. to be held at the Los Angeles Airport
Marriott Hotel, 5855 West Century Blvd., Los Angeles, California 90045 on
Wednesday, September 27, 1995, at 8:00 a.m., local time (the "Special
Meeting"), and all continuations, adjournments or postponements thereof, as
follows:
UNLESS OTHERWISE MARKED, THE PROXIES ARE APPOINTED WITH AUTHORITY TO VOTE
"FOR" PROPOSAL 1.
Any and all proxies heretofore given are revoked.
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN
BLUE OR BLACK INK.
(Continued, and to be signed and dated, on reverse side)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1.
1. To approve and adopt the Agreement and Plan of Merger, dated as of May 21,
1995, by and among MIP Properties, Inc. (the "Company"), JER Partners, LLC
("Purchaser") and MIP Acquisition Corporation, a newly-formed, wholly-owned
subsidiary of Purchaser ("Merger Sub"), and the transactions contemplated
thereby, pursuant to which, among other things, Merger Sub will be merged with
and into the Company, and all of the outstanding shares of Common Stock of the
Company will be converted into the right to receive $2.475 per share in cash.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. In their discretion, the proxies are authorized to vote upon other matters
that may properly come before the Special Meeting, and all continuations,
adjournments or postponements thereof.
PLEASE SIGN HERE
Please mark, sign and date
this proxy and return it
promptly whether you
expect to attend the
meeting or not. If you do
attend the meeting, you
may vote in person.
Dated: ,
1995
Please sign exactly as
your name(s) appears, if
joint account, each joint
owner should sign.
PLEASE MARK, SIGN, DATE AND RETURN IN THE ENVELOPE PROVIDED
<PAGE>
APPENDIX F
PROXY
MIP PROPERTIES, INC
SPECIAL MEETING OF STOCKHOLDERS
SEPTEMBER 27, 1995
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints W. John Driscoll, Director, and Carl C.
Gregory, III, Chairman of the Board and Chief Executive Officer, and each of
them, with full power to act without the other and with full power of
substitution, as proxies to represent and to vote, as directed herein, all
shares the undersigned is entitled to vote at the special meeting of the
stockholders of MIP PROPERTIES, INC. to be held at the Los Angeles Airport
Marriott Hotel, 5855 West Century Blvd., Los Angeles, California 90045 on
Wednesday, September 27, 1995 at 8:00 a.m., local time (the "Special Meeting")
and all continuations, adjournments or postponements thereof, as follows:
UNLESS OTHERWISE MARKED, THE PROXIES ARE APPOINTED WITH AUTHORITY TO VOTE
"FOR" ITEM 1.
ANY AND ALL PROXIES HERETOFORE GIVEN ARE REVOKED.
(CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE)
- - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
- - --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1.
Item 1--To approve and adopt the Agreement and Plan of Merger, dated as of May
21, 1995, by and among MIP Properties, Inc. (the "Company"), JER Partners, LLC
("Purchaser") and MIP Acquisition Corporation, a newly-formed, wholly-owned
subsidiary of Purchaser ("Merger Sub"), and the transactions contemplated
thereby, pursuant to which, among other things, Merger Sub will be merged with
and into the Company, and all of the outstanding shares of Common Stock of the
Company will be converted into the right to receive $2.475 per share in cash.
FOR AGAINST ABSTAIN
[_] [_] [_]
Item 2--In their discretion, the proxies are authorized to vote upon other
matters that may properly come before the Special Meeting, and all
continuations, adjournments or postponements thereof.
Even if you are planning to attend the meeting in person, you are urged to sign
and mail the Proxy in the return envelope so that your stock may be represented
at the meeting.
NOTE: Please sign exactly as your name(s) appears, if joint account, each joint
owner should sign.
Dated: ___________________________________________________________________, 1995
- - --------------------------------------------------------------------------------
(Signature)
- - --------------------------------------------------------------------------------
(Signature, if held jointly)
- - --------------------------------------------------------------------------------
PLEASE DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED SELF-
ADDRESSED, POSTAGE PAID ENVELOPE
- - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
EXHIBIT 99
D.F. KING & CO., INC.
MIP PROPERTIES, INC.
INSTRUCTION TO CALLERS
Hello, Mr./Ms. (Shareholder). My name is . I am calling
from D.F. King & Co., Inc. We are assisting MIP Properties, Inc. with
regard to its upcoming Special Meeting of Stockholders to be held on
Wednesday, September 27, 1995. Do you have a moment?
HAVE YOU RECEIVED PROXY MATERIAL REGARDING THE STOCKHOLDER MEETING?
IF NO: Confirm current address and arrange to have a duplicate set of material
mailed to the stockholder. If you have questions or need assistance once
you receive the material, please call D.F. King at 1 (800) 488-8035.
IF YES:HAVE YOU HAD A CHANCE TO REVIEW THE MATERIAL?
IF NO: Briefly explain the proposal to be discussed at the meeting, and that
the Board of Directors recommends all stockholders vote for the
Agreement and Plan of Merger. Suggest that the stockholder read through
the materials at their earliest convenience, and vote by returning the
proxy card in the envelope provided. If you have questions or need
assistance, please call D.F. King at 1 (800) 488-8035.
IF YES:DO YOU HAVE ANY QUESTIONS?
IF YES: Answer questions using only the approved proxy solicitation materials.
Be sure to inform the stockholder of the Board of Directors
recommendation and that he/she may vote by signing, dating and
returning the proxy card in the envelope provided. Thank the
stockholder and end the call.
IF NO: Be sure to inform the stockholder of the Board of Directors
recommendation. Remind the stockholder that his/her vote is important.
Please take a moment to vote by signing, dating, and returning your
proxy card in the envelope provided. Thank the stockholder and end the
call.
NOTE: IF APPROPRIATE (USE YOUR JUDGMENT) ASK THE STOCKHOLDER IF HE/SHE HAS
SUPPORTED THE BOARD OF DIRECTORS' RECOMMENDATION.
<PAGE>
D.F. KING & CO., INC.
MIP PROPERTIES, INC.
SPECIAL MEETING
INSTRUCTIONS FOR LEAVING A MESSAGE ON AN ANSWERING MACHINE
Hello, my name is . I am calling from D.F. King & Co., Inc. on behalf
of the Board of Directors of MIP Properties, Inc. You should have received
materials in the mail concerning the Special Meeting of Stockholders to be held
Wednesday, September 27, 1995. At your earliest convenience please sign, date
and return the enclosed proxy in the envelope provided. If you have not
received your proxy materials, or have questions or need assistance, please
call D.F. King at 1-800-488-8035. If you have already mailed your proxy card,
please disregard this message and accept our thanks.
