<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
/ / 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 1-9524
BURNHAM PACIFIC PROPERTIES, INC.
(Exact name of Registrant as specified in its Charter)
Maryland 33-0204162
- --------------------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation)
610 West Ash Street, San Diego, California 92101
- ------------------------------------------ ---------------------------------
(Address of principal executive offices) (Zip Code)
(619) 652-4700
----------------------
Registrant's telephone number, including area code
NA
----------------------
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_____
Number of shares of the Registrant's common stock outstanding at November 16,
1998: 31,948,008
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
ASSETS
Real Estate $1,132,408 $964,755
Less Accumulated Depreciation (74,564) (55,823)
---------- --------
Real Estate-Net 1,057,844 908,932
Cash and Cash Equivalents 4,563 6,841
Restricted Cash 8,908 5,242
Receivables-Net 5,554 7,456
Investment in Unconsolidated Subsidiaries 3,683 3,683
Other Assets 13,714 11,641
---------- --------
Total $1,094,266 $943,795
---------- --------
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable and Other Liabilities $ 21,902 $ 19,296
Tenant Security Deposits 2,937 2,396
Notes Payable 402,909 369,511
Line of Credit Advances 173,899 180,869
---------- --------
Total Liabilities 601,647 572,072
---------- --------
Commitments and Contingencies
Minority Interest 70,554 58,759
---------- --------
Preferred Stock -- 28,160
---------- --------
Stockholders' Equity:
Par Value $.01/share Preferred Stock,
5,000,000 Shares Authorized; 4,800,000
Shares Designated as Series 1997-A
Convertible Preferred, 2,800,000 Shares
Outstanding at September 30, 1998 and
December 31, 1997 28 17
Common Stock, $.01/share Par Value,
95,000,000 Shares Authorized; 31,948,008
and 23,448,852 Shares Outstanding at
September 30, 1998 and December 31,
1997, Respectively 319 234
Paid in Capital in Excess of Par 524,872 376,326
Dividends Paid in Excess of Net Income (103,154) (91,773)
---------- --------
Total Stockholders' Equity 422,065 284,804
---------- --------
Total $1,094,266 $943,795
---------- --------
---------- --------
</TABLE>
See the Accompanying Notes
2
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Rents $34,360 $17,958 $95,898 $47,559
Interest 179 159 633 522
------- ------- ------- -------
Total Revenues 34,539 18,117 96,531 48,081
------- ------- ------- -------
EXPENSES
Interest 8,980 4,771 26,195 12,827
Rental Operating 9,374 4,777 26,222 13,163
General and Administrative 1,455 724 3,958 2,279
Depreciation and Amortization 7,741 3,802 20,922 10,731
------- ------- ------- -------
Total Costs and Expenses 27,550 14,074 77,297 39,000
------- ------- ------- -------
Income from Operations Before
Income from Unconsolidated
Subsidiaries, Minority Interest
and Extraordinary Item 6,989 4,043 19,234 9,081
Income from Unconsolidated
Subsidiaries 32 79 160 143
Minority Interest (1,327) (11) (3,652) (33)
------- ------- ------- -------
Income before Extraordinary Item 5,694 4,111 15,742 9,191
Loss from Early Extinguishment of Debt -- -- -- (52)
------- ------- ------- -------
Net Income $ 5,694 $ 4,111 $15,742 $ 9,139
Dividends Paid to Preferred
Stockholders (1,400) -- (4,200) --
------- ------- ------- -------
Income Available to Common
Stockholders $ 4,294 $ 4,111 $11,542 $ 9,139
------- ------- ------- -------
------- ------- ------- -------
BASIC EARNINGS PER SHARE:
Income before Extraordinary Item $ 0.13 $ 0.18 $ 0.40 $ 0.45
Extraordinary Item -- -- -- (.01)
------- ------- ------- -------
Net Income $ 0.13 $ 0.18 $ 0.40 $ 0.44
------- ------- ------- -------
------- ------- ------- -------
DILUTED EARNINGS PER SHARE:
Income before Extraordinary Item $ 0.13 $ 0.18 $ 0.39 $ 0.45
Extraordinary Item -- -- -- (.01)
------- ------- ------- -------
Net Income $ 0.13 $ 0.18 $ 0.39 $ 0.44
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See the Accompanying Notes
3
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 15,742 $ 9,139
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation and Amortization 20,922 10,731
Minority Interest 3,652 33
Provision for Bad Debt 519 371
Common Stock - Directors' Fees 256 243
Stock Options - Compensation Expense 221 -
Changes in Other Assets and Liabilities:
Receivables and Other Assets (1,321) (4,657)
Accounts Payable and Other 2,515 3,800
Tenant Security Deposits 541 508
--------- ---------
Net Cash Provided By Operating Activities 43,047 20,168
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for Acquisitions of Real Estate and
Capital Improvements (138,963) (203,503)
Proceeds from Sales of Real Estate 13,182 25,469
--------- ---------
Net Cash Used For Investing Activities (125,781) (178,034)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings Under Line of Credit Agreements 76,030 170,120
Repayments Under Line of Credit Agreements (83,000) (89,414)
Principal Payments of Notes Payable (29,123) (36,788)
Proceeds from Issuance of Notes Payable 38,925 61,979
Restricted Cash (3,666) (1,731)
Issuance of Stock - Net 113,101 73,175
Payment for Minority Interest (774)
Distributions made to Minority Interest Holders (3,923) (33)
Dividends Paid (27,114) (15,993)
--------- ---------
Net Cash Provided for Financing Activities 80,456 161,315
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (2,278) 3,449
Cash and Cash Equivalents at Beginning Of Period 6,841 4,095
--------- ---------
Cash and Cash Equivalents at End Of Period $ 4,563 $ 7,544
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash Paid During Nine Months For Interest $ 29,638 $ 14,295
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Notes Payable Assumed $ 23,596 $ 16,916
Operating Partnership Units Issued in Connection with
Real Estate Acquisitions 18,313 66
Proceeds from Notes Payable -- 25,400
Liability due to Seller 1,452
Cash Paid For Real Estate 13,532 62,810
--------- ---------
Fair Value of Real Estate Acquired $ 56,893 $ 105,192
--------- ---------
--------- ---------
</TABLE>
See Accompanying Notes
4
<PAGE>
BURNHAM PACIFIC PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998, DECEMBER 31, 1997, AND SEPTEMBER 30, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are unaudited but, in
the opinion of management, reflect all normal recurring adjustments
necessary for a fair presentation of operating results. These
financial statements should be read in conjunction with the audited
financial statements of Burnham Pacific Properties, Inc. for the year
ended December 31, 1997. Certain of the 1997 amounts have been
reclassified to conform to 1998 presentation.
Dividends Per Share - Dividends of $.2625 per common share and of $.50
per preferred share were paid on September 30, 1998 to shareholders of
record on September 23, 1998.
The allowance for doubtful accounts was approximately $1,584,000 and
$1,311,000 as of September 30, 1998 and December 31, 1997, respectively.
2. NET INCOME PER SHARE
Net income per share is computed by dividing net income for the
respective periods by the weighted average number of shares outstanding
during the applicable period.
At December 31, 1997, the Company adopted the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 128, EARNINGS PER SHARE (EPS) which replaced primary and
fully diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share is calculated on the weighted average
shares of common stock outstanding during the period. Diluted earnings
per share includes the effect of all potential common shares.
5
<PAGE>
The following table is the reconciliation from the basic to the diluted
EPS computations for "net income" for the three and nine month periods
ended September 30, 1998 and 1997 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
------- ------ ------ -------
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 5,694 $ 4,111 $15,742 $ 9,139
Less:
Dividends Paid to Preferred Stockholders (1,400) -- (4,200) --
------- ------- ------- -------
Income Available to Common
Stockholders for Basic and Diluted
Earnings Per Share $ 4,294 $ 4,111 $11,542 $ 9,139
------- ------- ------- -------
------- ------- ------- -------
Denominator:
Shares for Basic Earnings Per Share-
weighted average shares outstanding 31,933 23,434 29,161 20,601
Effect of Dilutive Securities:
Stock Options 191 89 188 89
------- ------- ------- -------
Shares for Diluted Earnings Per Share 32,124 23,523 29,349 20,690
------- ------- ------- -------
------- ------- ------- -------
Basic Earnings Per Share $ 0.13 $ 0.18 $ 0.40 $ 0.44
------- ------- ------- -------
------- ------- ------- -------
Diluted Earnings Per Share $ 0.13 $ 0.18 $ 0.39 $ 0.44
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
In 1998, dividends and shares from conversion of Preferred Stock were
excluded from the diluted earnings per share calculations because they
were anti-dilutive. (There was no Preferred Stock for the 1997 periods
presented). In 1998 and 1997, minority interest expense and shares
from the conversion of Operating Partnership units were excluded from
the diluted earnings per share calculations because they were
anti-dilutive.
3. SECURITIES
At September 30, 1998, the Company had effective shelf registration
statements on file with the Securities and Exchange Commission relating
to an aggregate of $202,144,000 of registered and unissued debt and equity
securities.
6
<PAGE>
4. REAL ESTATE
Real Estate is summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Retail Centers $967,872 $845,536
Office/Industrial Buildings 57,875 57,846
Retail Centers Under Development 99,803 56,443
Other 6,858 4,930
---------- --------
Total Real Estate 1,132,408 964,755
Accumulated Depreciation (74,564) (55,823)
---------- --------
Real Estate-Net $1,057,844 $908,932
---------- --------
---------- --------
</TABLE>
On February 3, 1998, the Company purchased a retail shopping center for
approximately $14,825,000. The acquisition was financed with a new
$7,000,000 7-year mortgage loan bearing interest at 7.54% secured by
the shopping center, with the balance coming from borrowings under the
Company's Credit Facility.
On May 28, 1998, the Company purchased a retail shopping center for
approximately $31,500,000. The acquisition was financed by the
assumption of a $19,615,000 mortgage loan bearing interest at 9.20%,
maturity in September 2011; the issuance of Operating Partnership units
with a value of approximately $10,715,000; with the balance coming from
borrowings under the Company's Credit Facility. The issuer of the
$19,615,000 mortgage note is a bankruptcy remote, special purpose,
partnership in which the Company has substantially all economic benefits.
On June 3, 1998, the Company purchased a portfolio of three retail
shopping centers. The purchase price of the portfolio was approximately
$10,600,000. The acquisition of the portfolio was financed by the
issuance of Operating Partnership units with a value of approximately
$4,100,000; with the balance coming from borrowings under the Company's
Credit Facility.
On June 12, 1998, the Company purchased a portfolio of three retail
shopping centers. The purchase price of the portfolio was approximately
$13,100,000. The acquisition of the portfolio was financed by the
issuance of Operating Partnership units with a value of approximately
$3,300,000; the assumption of a mortgage loan in an amount of
approximately $4,000,000 bearing interest at 10.13%, due in September
2000, secured by one of the properties; with the balance coming from
borrowings under the Company's Credit Facility.
On July 23, 1998, the Company purchased a retail shopping center for
approximately $9,600,000. The acquisition was financed with borrowings
under the Company's Credit Facility.
On July 31, 1998, the Company purchased a portfolio of three retail
shopping centers. The purchase price of the portfolio was approximately
$15,500,000. The acquisition of the portfolio was financed with
borrowings under the Company's Credit Facility.
7
<PAGE>
On August 4, 1998, the Company sold the parking lot structure of its
1000 Van Ness project for approximately $13,125,000. Net proceeds of
$7,875,000 were used to reduce borrowings under a construction loan
secured by this project, with the remaining proceeds used to reduce
borrowings under the Company's Credit Facility. No gain or loss
resulted from such sale.
On September 1, 1998, the Company purchased a leasehold interest in a
portion of a retail shopping center for approximately $1,100,000. The
acquisition was financed with borrowings under the Company's Credit
Facility.
5. JOINT VENTURE
Burnham Pacific Operating Partnership, L.P., ("Burnham OP") and the
state of California Public Employees' Retirement System ("CalPERS") are
the sole members of a limited liability company, BPP Retail, LLC, whose
operating agreement constitutes a joint venture agreement between
Burnham OP and CalPERS ("JV"). The LLC Agreement, dated August 31,
1998, contemplates that generally CalPERS will have an 80% interest and
Burnham OP a 20% interest in the JV, whose purpose is to serve as the
vehicle through which the parties invest in neighborhood, community,
promotional and specialty retail centers in the Western United States.
Burnham OP is the manager of the JV.
As of October 1, 1998, CalPERS made an initial contribution to the JV of
five retail properties in Colorado, Texas and Oregon, valued at
approximately $80,000,000, of which it had previously been the sole
owner under arrangements with previous advisors. On October 2, 1998,
the JV purchased a retail shopping center for approximately $13,310,000.
During the fourth quarter of 1998, Burnham OP intends to contribute
properties owned directly by Burnham OP for purposes of its
contribution. The JV agreement contemplates an aggregate $400 million
investment by CalPERS and $100 million investment by Burnham OP through
the period ending December 31, 1999, and provides for up to $165 million
of leverage through mortgage or line of credit borrowings by the JV.
Subject to certain qualifications, in making future acquisitions,
Burnham OP is committed to offer qualifying retail property investment
opportunities to the JV until the parties' respective investment
obligations are satisfied, before making such acquisitions solely for
its own direct account. There can be no assurance that the investment
goals of the JV will be satisfied or that the parties may not agree to
expand such goals or to vary their respective 80/20% participation in
the JV.
CalPERS is entitled to a priority return on its investment in the JV
before any return is paid to Burnham OP. The priority return is equal
to a 5.00% "real" (i.e., inflation adjusted) annual rate of return plus
(i) a premium, depending upon the type of property, from 50 basis points
on existing shopping center projects to 200 basis points on speculative
development projects and 300 basis points on undeveloped land, and (ii)
a further premium of up to 30 basis points depending upon the currently
anticipated leverage on the properties owned by the JV.
Burnham OP will receive specified annual asset management fees, property
management fees, leasing, acquisition, disposition and development fees.
In addition, after a preferred return to CalPERS, Burnham OP will be
entitled to receive an
8
<PAGE>
incentive distribution equal to 25% of the total return provided the JV
meets or exceeds certain performance benchmarks.
The JV agreement specifies a term of 30 years, contemplates a real
estate cycle of 9 years, and provides for the cumulative measurement of
performance and total return. Accordingly, it is possible that in some
years Burnham OP may not receive any distribution (other than the
specified fees) with respect to its investment in the JV, because of its
return being subordinated to CalPERS' priority return, although
shortfalls in any year may be made up by performance in subsequent
years. Also under certain circumstances, the return of Burnham OP's
capital may be subordinated to the return of CalPERS' capital. While the
payment of distributions to Burnham OP are subordinated to the payment
of distributions to CalPERS, Burnham OP is not responsible to repay
distributions that have been paid with respect to any prior period.
Notwithstanding the specific duration and expected real estate cycle of
the JV, either CalPERS or Burnham OP may terminate early the JV upon
giving specified advance notice. Subject to certain limitations, either
party may also cause the JV to sell any particular property. Also
subject to certain limitations, CalPERS may elect to convert its JV
interest in one or more designated properties into up to an aggregate of
9.8% of the number of shares of common stock of the Company then
outstanding, with the number of shares to be issued to be determined
pursuant to a formula based upon a number of factors including the net
operating income of the properties involved, debt to market
capitalization, weighted cost of debt and the Company's recent stock
price at the time of the conversion.
Under the JV agreement, Burnham OP is obligated to observe a number of
policies established by CalPERS with respect to its investments
generally, to consult regularly with CalPERS relative to its policies
for real estate investments particularly, to establish an annual
business plan for the JV that is subject to CalPERS' approval, to advise
CalPERS concerning major developments, and to obtain CalPERS' approval
before taking specified major activities with respect to the properties.
The fair market value of each property will be determined annually by
an independent appraiser selected by CalPERS. CalPERS has the right to
terminate Burnham OP as the manager of the JV and as property manager of
the JV properties at any time, in which event both parties have the
unilateral right to terminate the JV.
The Company expects to account for Burnham OP's investment in the JV on
the equity method.
6. SUBSEQUENT EVENTS
On October 23, 1998, the Company purchased a leasehold interest in a
portion of a retail shopping center for approximately $2,132,000. The
acquisition was financed with borrowings under the Company's Credit
Facility.
9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
September 30, 1998 and 1997:
During the three months ended September 30, 1998, net income increased
$1,583,000 or 39%, to $5,694,000 compared to $4,111,000 for the same period
in 1997. For the nine months ended September 30, 1998, net income increased
$6,603,000 or 72% to $15,742,000 compared to $9,139,000 for the same period
in 1997. Income available to common stockholders increased to $4,294,000
($0.13 per share) for the three month period ended September 30, 1998 from
$4,111,000 ($0.18 per share) in 1997. Income available to common
stockholders increased to $11,542,000 ($0.40 per share) for the nine month
period ended September 30, 1998 from $9,139,000 ($0.44 per share) in 1997.
The principal reasons for these changes are discussed in the following
paragraphs.
Compared to the same period in 1997, revenues increased $16,422,000 for the
three month period and $48,450,000 for the nine month period. These
increases were primarily attributable to the acquisition activity in 1997 and
1998 and a lease termination fee of approximately $1,895,000 and $3,690,000
for the three and nine month periods of 1998, respectively.
Interest expense increased $4,209,000 for the 1998 three month period and
$13,368,000 for the 1998 nine month period, as compared to the same period in
1997. This increase is attributable to the net increase in debt related to
the Company's 1997 and 1998 acquisition activity. The debt outstanding
(exclusive of approximately $14,881,000 of fixed rate mortgage debt in
unconsolidated subsidiaries) on September 30, 1998 and related weighted
average rate were $576,808,000 and 7.56% respectively, compared to
$295,951,000 and 7.76% on September 30, 1997. Interest capitalized in
conjunction with development and expansion projects was approximately
$1,731,000 and $4,877,000 for the three and nine months ended September 30,
1998, respectively, as compared to approximately $554,000 and $2,025,000 for
the same periods in 1997.
Rental operating expenses increased over 1997 by $4,597,000 for the 1998
three month period and $13,059,000 for the 1998 nine month period. This
increase is primarily attributable to the addition of new properties in 1997
and 1998.
General and administrative expenses increased $731,000 and $1,679,000 for the
1998 three and nine month periods, respectively, as compared to the same
periods in 1997. These increases reflect increased staffing levels and the
opening of offices in Concord, Sacramento, Fremont, Portland and Seattle.
Compared to the same period in 1997, depreciation and amortization expense
increased $3,939,000 for the 1998 three month period and $10,191,000 for the
1998 nine month period, reflecting the acquisitions made during 1997 and 1998.
10
<PAGE>
FUNDS FROM OPERATIONS
September 30, 1998 and 1997
The Company considers Funds From Operations (FFO) to be a relevant
supplemental measure of the performance of an equity REIT since such measure
does not recognize depreciation and certain amortization expenses as
operating expenses. Management believes that reductions for these charges
are not meaningful in evaluating income-producing real estate, which
historically has not depreciated. FFO means net income (computed in
accordance with generally accepted accounting principles), before gains (or
losses) from debt restructuring and sales of property, plus depreciation of
real property. FFO does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs and should
not be considered as an alternative to net income as an indicator of the
Company's operating performance or as an alternative to cash flow as a
measure of liquidity.
For the three and nine months ended September 30, 1998, Basic FFO increased
$3,698,000 and $11,602,000 respectively, compared to the same period in 1997.
The increase was net of several effects, but was primarily attributable to
the increase in revenues from acquisitions and a lease termination fee of
approximately $1,895,000 and $3,690,000 for the three and nine month periods
of 1998, respectively.
The calculation of FFO for the respective periods is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
------- ------ ------- -------
<S> <C> <C> <C> <C>
Income Available to
Common Stockholders $ 4,294 $4,111 $11,542 $ 9,139
Adjustments:
Depreciation of Real Estate and
Tenant Improvements 6,898 3,353 18,773 9,608
Amortization of Leasing Costs 173 203 498 412
Early Extinguishment of Debt -- -- -- 52
------- ------ ------- -------
Funds from Operations - Basic 11,365 7,667 30,813 19,211
Adjustments:
Dividends Paid to
Preferred Stockholders 1,400 -- 4,200 --
Minority Interest 1,327 11 3,652 33
------- ------ ------- -------
Funds from Operations - Diluted $14,092 $7,678 $38,665 $19,244
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
11
<PAGE>
MATERIAL CHANGES IN FINANCIAL CONDITION
September 30, 1998 compared to December 31, 1997:
On February 3, 1998, the Company purchased a retail shopping center for
approximately $14,825,000. The acquisition was financed with a new
$7,000,000 7-year mortgage loan bearing interest at 7.54% secured by the
shopping center, with the balance coming from borrowings under the Company's
Credit Facility.
On May 28, 1998, the Company purchased a retail shopping center for
approximately $31,500,000. The acquisition was financed by the assumption of
a $19,615,000 mortgage loan bearing interest at 9.20%, maturity in September
2011; the issuance of Operating Partnership units with a value of
approximately $10,715,000; with the balance coming from borrowings under the
Company's Credit Facility. The issuer of the $19,615,000 mortgage note is a
bankruptcy remote, special purpose, partnership in which the Company has
substantially all economic benefits.
On June 3, 1998, the Company purchased a portfolio of three retail shopping
centers. The purchase price of the portfolio was approximately $10,600,000.
The acquisition of the portfolio was financed by the issuance of Operating
Partnership units with a value of approximately $4,100,000; with the balance
coming from borrowings under the Company's Credit Facility.
On June 12, 1998, the Company purchased a portfolio of three retail shopping
centers. The purchase price of the portfolio was approximately $13,100,000.
The acquisition of the portfolio was financed by the issuance of Operating
Partnership units with a value of approximately $3,300,000; the assumption of
a mortgage loan in an amount of approximately $4,000,000 bearing interest at
10.13%, due in September 2000, secured by one of the properties; with the
balance coming from borrowings under the Company's Credit Facility.
On July 23, 1998, the Company purchased a retail shopping center for
approximately $9,600,000. The acquisition was financed with borrowings under
the Company's Credit Facility.
On July 31, 1998, the Company purchased a portfolio of three retail shopping
centers. The purchase price of the portfolio was approximately $15,500,000.
The acquisition of the portfolio was financed with borrowings under the
Company's Credit Facility.
On August 4, 1998, the Company sold the parking lot structure of its 1000 Van
Ness project for approximately $13,125,000. Net proceeds of $7,875,000 were
used to reduce borrowings under a construction loan secured by this project,
with the remaining proceeds used to reduce borrowings under the Company's
Credit Facility. No gain or loss resulted from such sale.
On September 1, 1998, the Company purchased a leasehold interest in a portion
of a retail shopping center for approximately $1,100,000. The acquisition
was financed with borrowings under the Company's Credit Facility.
As of September 30, 1998, and December 31, 1997, approximately $4,778,000 and
$3,185,000, respectively, of straight-lined rent is included in other assets.
12
<PAGE>
At September 30, 1998, the Company's total debt was approximately
$576,808,000 and consisted of approximately $372,065,000 of fixed rate debt,
and $204,743,000 of variable rate debt. The Company has a $205,000,000 Credit
Facility of which $135,000,000 is secured or to be secured by mortgages on
various of the Company's properties and $70,000,000 is unsecured. The Credit
Facility bears interest at rates of LIBOR (London Inter-Bank Offer Rate) plus
1.40% for secured borrowings or LIBOR plus 1.50% for unsecured borrowings.
The Credit Facility is scheduled to mature in November 1998, with a one year
extension option available, which the Company expects to exercise. At
September 30, 1998, borrowings of approximately $110,018,000 were outstanding
under the secured portion of the Credit Facility and $63,882,000 was
outstanding under the unsecured portion.
At September 30, 1998, the Company had approximately $29,256,000 outstanding
under a $36,582,000 construction loan, secured by one of the Company's
development properties. The remaining availability of $7,326,000 is expected
to be used to fund the completion of a 131,500 square foot entertainment
center in downtown San Francisco, California. Borrowings under this loan bear
interest at LIBOR plus 1.90% or at prime plus .50%. The loan matures in
January 1999.
At September 30, 1998, the Company's capitalization consisted of $576,808,000
of debt (excluding the Company's proportionate share of joint venture
mortgage debt which is approximately 25% of $14,881,000), $120,000,000 of
preferred stock and preferred Operating Partnership units, and approximately
$471,834,000 of market equity (market equity is defined as (i) the sum of the
number of outstanding shares of Common Stock of the Company plus Common Units
of the Operating Partnership held by partners of the Operating Partnership
other than the Company, multiplied by (ii) the closing price of a share of
Common Stock on the New York Stock Exchange at September 30, 1998 of $13.94),
resulting in a debt to total market capitalization ratio of .49 to 1.0
compared to the ratio of .53 to 1.0 at December 31, 1997.
On March 30, 1998, the Company issued 7,475,000 shares of Common Stock at a
public offering price of $14.125 per share. In addition, on March 30, 1998,
the Company issued 965,518 shares of Common Stock to a Unit Investment Trust
at a price based upon the March 25, 1998 market value of $14.50 per share.
The combined shares were sold pursuant to the Company's shelf registration
statements. The net proceeds from the combined offerings of $113,353,000 were
used to reduce borrowings under the Company's Credit Facility, pay off the
balance outstanding under a construction loan agreement secured by one of the
Company's development properties and for general working capital purposes.
13
<PAGE>
Burnham Pacific Operating Partnership, L.P., ("Burnham OP") and the state of
California Public Employees' Retirement System ("CalPERS") are the sole
members of a limited liability company, BPP Retail, LLC, whose operating
agreement constitutes a joint venture agreement between Burnham OP and
CalPERS ("JV"). The LLC Agreement, dated August 31, 1998, contemplates that
generally CalPERS will have an 80% interest and Burnham OP a 20% interest in
the JV, whose purpose is to serve as the vehicle through which the parties
invest in neighborhood, community, promotional and specialty retail centers
in the Western United States. Burnham OP is the manager of the JV.
As of October 1, 1998, CalPERS made an initial contribution to the JV of five
retail properties in Colorado, Texas and Oregon, valued at approximately
$80,000,000, of which it had previously been the sole owner under
arrangements with previous advisors. On October 2, 1998, the JV purchased a
retail shopping center for approximately $13,310,000. During the fourth
quarter of 1998, Burnham OP intends to contribute properties owned directly
by Burnham OP for purposes of its contribution. The JV agreement contemplates
an aggregate $400 million investment by CalPERS and $100 million investment
by Burnham OP through the period ending December 31, 1999, and provides for
up to $165 million of leverage through mortgage or line of credit borrowings
by the JV. Subject to certain qualifications, in making future acquisitions,
Burnham OP is committed to offer qualifying retail property investment
opportunities to the JV until the parties' respective investment obligations
are satisfied, before making such acquisitions solely for its own direct
account. There can be no assurance that the investment goals of the JV will
be satisfied or that the parties may not agree to expand such goals or to
vary their respective 80/20% participation in the JV.
CalPERS is entitled to a priority return on its investment in the JV before
any return is paid to Burnham OP. The priority return is equal to a 5.00%
"real" (i.e., inflation adjusted) annual rate of return plus (i) a premium,
depending upon the type of property, from 50 basis points on existing
shopping center projects to 200 basis points on speculative development
projects and 300 basis points on undeveloped land, and (ii) a further premium
of up to 30 basis points depending upon the currently anticipated leverage on
the properties owned by the JV.
Burnham OP will receive specified annual asset management fees, property
management fees, leasing, acquisition, disposition and development fees. In
addition, after a preferred return to CalPERS, Burnham OP will be entitled to
receive an incentive distribution equal to 25% of the total return provided
the JV meets or exceeds certain performance benchmarks.
The JV agreement specifies a term of 30 years, contemplates a real estate
cycle of 9 years, and provides for the cumulative measurement of performance
and total return. Accordingly, it is possible that in some years Burnham OP
may not receive any distribution (other than the specified fees) with respect
to its investment in the JV, because of its return being subordinated to
CalPERS' priority return, although shortfalls in any year may be made up by
performance in subsequent years. Also under certain circumstances, the
return of Burnham OP's capital may be subordinated to the return of CalPERS'
capital. While the payment of distributions to Burnham OP are subordinated
to the payment of distributions to CalPERS, Burnham OP is not responsible to
repay distributions that have been paid with respect to any prior period.
Notwithstanding the specific duration and expected real estate cycle of the
JV, either CalPERS or Burnham OP may terminate early the JV upon giving
specified advance notice. Subject to certain limitations, either party may
also cause the JV to sell any particular property. Also
14
<PAGE>
subject to certain limitations, CalPERS may elect to convert its JV interest
in one or more designated properties into up to an aggregate of 9.8% of the
number of shares of common stock of the Company then outstanding, with the
number of shares to be issued to be determined pursuant to a formula based
upon a number of factors including the net operating income of the properties
involved, debt to market capitalization, weighted cost of debt and the
Company's recent stock price at the time of the conversion.
Under the JV agreement, Burnham OP is obligated to observe a number of
policies established by CalPERS with respect to its investments generally, to
consult regularly with CalPERS relative to its policies for real estate
investments particularly, to establish an annual business plan for the JV
that is subject to CalPERS' approval, to advise CalPERS concerning major
developments, and to obtain CalPERS' approval before taking specified major
activities with respect to the properties. The fair market value of each
property will be determined annually by an independent appraiser selected by
CalPERS. CalPERS has the right to terminate Burnham OP as the manager of the
JV and as property manager of the JV properties at any time, in which event
both parties have the unilateral right to terminate the JV.
The Company expects to account for Burnham OP's investment in the JV on the
equity method.
It is management's intention that the Company have access to the capital
resources necessary to expand and develop its business. Accordingly, the
Company may seek to obtain funds through additional borrowings and public
offerings, private placements of debt and equity securities and proceeds from
sales of non-strategic assets. At September 30, 1998, the Company had
effective shelf registration statements on file with the Securities and
Exchange Commission relating to an aggregate of $202,144,000 of registered
and unissued debt and equity securities.
YEAR 2000 READINESS
The statements under this caption include "Year 2000 readiness disclosure" as
defined in the Year 2000 Information and Readiness Disclosure Act.
The Company continues to identify its Year 2000 issues. Currently, the
Company is approximately halfway through its evaluation process. The
Company's approach to becoming Year 2000 ready includes a standard set of
methods and tools, including taking inventory, renovating if necessary, and
testing. The Company does not believe that the costs associated with becoming
Year 2000 ready will be material. The manufacturer of the accounting software
that the Company is using has indicated that their software is materially
Year 2000 compliant and a version of the software which is fully Year 2000
compliant will be available during the fourth quarter of 1998. Depending on
the timing of the availability of this updated software, the Company plans to
install it in the fourth quarter of 1998 or the first quarter of 1999. The
Company believes that the hardware used to run the Company's software is Year
2000 compliant.
The Company is currently completing an inventory of the Year 2000 compliance
status of the computer hardware and software used to run the property
operating systems (i.e., security, energy, elevator and safety) at its
properties. Once this inventory is complete, the Company will test the
time-sensitive systems that have been represented to be Year 2000 compliant
and reprogram or replace the systems found not to be Year 2000 compliant.
15
<PAGE>
The Company's ability to complete the Year 2000 modifications outlined above
prior to any anticipated impact on its operating systems is based on numerous
assumptions of future events and is dependent upon numerous factors,
including the ability of third party software and hardware manufacturers to
make necessary modifications to current versions of their products, the
availability of resources to install and test the modified systems and other
factors. Accordingly, there can be no guarantee that these modifications will
be successful.
Even if all of the Company's own systems are Year 2000 compliant, disruptions
to the Company's business and operations could still occur if its tenants,
business partners, suppliers and other parties are not ready. The Company is
currently surveying material vendors and tenants regarding the Year 2000
compliance status of their computer hardware and software. The Company will
review the results of this survey, assess the impact of the results on its
operations and take whatever action is deemed necessary. Testing may be
required for several, but not all, third parties. Test strategies and
schedules will be unique to each situation once the Company understands the
respective requirements and readiness levels.
Among other parties whose own failure to be Year 2000 compliant that could
have an impact on the Company's business and operations are the governmental
units and utility companies that provide services to the Company's properties
and their respective tenants and customers. In addition to its significant
tenants, the Company is seeking to ascertain the Year 2000 readiness of each
utility company servicing each property and of each city, town, county or
other governmental unit providing police, fire, traffic control and other
governmental services relevant to the efficient operation of the property.
Depending upon its assessment of potential problems that the Company may face
resulting from Year 2000 non-readiness of other parties, following completion
of its survey of such other parties, the Company intends to determine if any
contingency plans will be needed to deal with the non-readiness of others. At
the present time, management does not believe that Year 2000 non-readiness of
tenants is likely to have any significant effect on the Company and its
operations (although significant non-readiness of an anchor tenant could
conceivably adversely affect the business of such tenant to such an extent
that not only might its ability to pay rent be adversely affected, but also
that customer traffic and the business of other tenants at a particular
property might be affected). Accordingly, management does not anticipate that
the need to formulate contingency plans to deal with tenant non-readiness
will be likely. Rather, management considers that any need to develop
contingency plans will more likely arise with respect to the need to provide
alternative service arrangements, which would probably be needed only for a
relatively short period of time, for the continued operation of one or more
individual properties in communities whose suppliers of services necessary
for the efficient operation of the property are not expected to be fully Year
2000 compliant by January 1, 2000.
16
<PAGE>
FORWARD LOOKING STATEMENTS
The preceding comments in this Form 10-Q contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Reference is made to the
Company's Form 10-K Report for the year ended December 31, 1997 under the
caption "Risk Factors" for a discussion of certain factors which could cause
the Company's actual results to differ materially from those set forth in the
forward-looking statements.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
The Company was not a party to any material legal proceedings during the
period covered by this report or subsequently.
ITEM 2. CHANGES IN SECURITIES:
During the three months ended September 30, 1998, the Operating Partnership
of which the Company is the general partner, issued 15,987 limited
partnership units in connection with the acquisition of land to be used in
the development of a retail shopping center. Each such limited partnership
unit is redeemable under certain circumstances for a share of the Company's
Common Stock. No registration statement was necessary as the issuance did
not involve a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
Not Applicable.
ITEM 5. OTHER INFORMATION:
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) The following Exhibits are part of this report:
10.1 Operating Agreement of BPP Retail, LLC dated August 31, 1998. This
document constitutes the joint venture agreement between the State of
California Public Employees' Retirement System and Burnham Pacific
Operating Partnership, L.P. Omitted from the filing are exhibits that
have no economic impact on the Company or Operating Partnership.
27.0 Financial Data Schedule.
(b) There were no reports on Form 8-K filed during or with respect to
matters occurring within the period covered by this report.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BURNHAM PACIFIC PROPERTIES, INC.
Date: //11-16-98// By: //J. David Martin//
-------------------------- ----------------------------------------
J. David Martin, Chief Executive Officer
Date: //11-16-98// By: //Daniel B. Platt//
-------------------------- ----------------------------------------
Daniel B. Platt, Chief Financial Officer
18
<PAGE>
OPERATING AGREEMENT
OF
BPP RETAIL, LLC,
a Delaware limited liability company
between
STATE OF CALIFORNIA
PUBLIC EMPLOYEES' RETIREMENT SYSTEM,
and
BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
DATED: August 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PAGE
----
ARTICLE I DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II FORMATION, NAME, PLACE OF BUSINESS, PURPOSE, AND TERM . . . . . . . . . . . . . . .19
Section 2.1. Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.2. Name and Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Section 2.3. Other Acts/Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Section 2.4. Purpose and Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Section 2.5. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
ARTICLE III PERCENTAGE INTERESTS AND CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . .20
Section 3.1. Initial Capital Contributions. . . . . . . . . . . . . . . . . . . . . . . . .20
Section 3.2. Additional Capital Contributions . . . . . . . . . . . . . . . . . . . . . . .23
Section 3.3. Percentage Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Section 3.4. Capital of the Company; Capital Accounts . . . . . . . . . . . . . . . . . . .26
Section 3.5. Special Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Section 3.6. Curative Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Section 3.7. Tax Allocations: Code Section 704(c). . . . . . . . . . . . . . . . . . . . .31
Section 3.8. Allocations to Transferred Membership Interests. . . . . . . . . . . . . . . .31
Section 3.9. Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Section 3.10. Calculation of Incentive Distribution. . . . . . . . . . . . . . . . . . . . .34
Section 3.11. Liability of Members and Others; Indemnification . . . . . . . . . . . . . . .36
ARTICLE IV MANAGEMENT OF THE COMPANY; POWERS OF THE MANAGER. . . . . . . . . . . . . . . . . .37
Section 4.1. Management By Manager. . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Section 4.2. Property Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Section 4.3. Investment Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Section 4.4. Scope of Members' Authority. . . . . . . . . . . . . . . . . . . . . . . . . .44
Section 4.5. Title to Company Property. . . . . . . . . . . . . . . . . . . . . . . . . . .45
Section 4.6. Budgets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Section 4.7. Removal of Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Section 4.8. Compensation and Reimbursement of Members and their Affiliates . . . . . . . .47
Section 4.9. Representations, Warranties and Covenants of the Members . . . . . . . . . . .47
Section 4.10. Right to Sell Project. . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
ARTICLE V WITHDRAWAL OF MEMBER; EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . .49
Section 5.1. Limitation on Voluntary Withdrawal . . . . . . . . . . . . . . . . . . . . . .49
Section 5.2. Events of Default by Members . . . . . . . . . . . . . . . . . . . . . . . . .50
ARTICLE VI DISSOLUTION AND LIQUIDATION OF THE COMPANY. . . . . . . . . . . . . . . . . . . . .50
Section 6.1. Events Causing Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . .50
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<PAGE>
Section 6.2. Liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Section 6.3. Distribution in Kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Section 6.4. Certificate of Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . .53
ARTICLE VII BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS, ETC. . . . . . . . . . . . .53
Section 7.1. Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Section 7.2. Accounting Basis and Fiscal Year . . . . . . . . . . . . . . . . . . . . . . .53
Section 7.3. Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Section 7.4. Periodic Reports to CalPERS. . . . . . . . . . . . . . . . . . . . . . . . . .54
Section 7.5. Independent Audit or Review. . . . . . . . . . . . . . . . . . . . . . . . . .55
Section 7.6. Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Section 7.7. Tax Elections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Section 7.8. Designation of Tax Matters Member. . . . . . . . . . . . . . . . . . . . . . .56
Section 7.9. Avoidance of Unrelated Business Income Tax . . . . . . . . . . . . . . . . . .57
Section 7.10. Required Exculpatory Provisions. . . . . . . . . . . . . . . . . . . . . . . .57
Section 7.11. Compliance With Applicable Policies. . . . . . . . . . . . . . . . . . . . . .57
Section 7.12. Manager Personnel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Section 7.13. Fair Political Practices Laws. . . . . . . . . . . . . . . . . . . . . . . . .58
Section 7.14. Notice of Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Section 7.15. Notice of Affiliate Benefits . . . . . . . . . . . . . . . . . . . . . . . . .59
Section 7.16. Disabled Veterans Businesses Enterprises/Responsible Contracting Program . . .59
Section 7.17. No Affiliate Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Section 7.18. Contractor Disclosure Statement. . . . . . . . . . . . . . . . . . . . . . . .59
Section 7.19. Environmental and Industrial Hygiene Compliance. . . . . . . . . . . . . . . .60
Section 7.20. Gifts and Prohibited Political Contributions and Solicitations;
Required Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
ARTICLE VIII TRANSFER OF MEMBERSHIP INTERESTS. . . . . . . . . . . . . . . . . . . . . . . . . .61
Section 8.1. General Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
ARTICLE IX MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Section 9.1. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Section 9.2. Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Section 9.3. No Partition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Section 9.4. Binding Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Section 9.5. Complete Agreement: Amendment . . . . . . . . . . . . . . . . . . . . . . . .62
Section 9.6. Confidentiality and Nondisclosure. . . . . . . . . . . . . . . . . . . . . . .62
Section 9.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Section 9.8. Fees and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Section 9.9. Execution of Other Documents . . . . . . . . . . . . . . . . . . . . . . . . .63
Section 9.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Section 9.11. Survival of Indemnity Obligations. . . . . . . . . . . . . . . . . . . . . . .63
Section 9.12. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Section 9.13. Terminology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Section 9.14. Appraisal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
ii
<PAGE>
Section 9.15. Equitable Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Section 9.16. Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Section 9.17. Representation of Authority. . . . . . . . . . . . . . . . . . . . . . . . . .64
Section 9.18. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Section 9.19. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
ARTICLE X CONVERSION OF CalPERS' INTEREST INTO BPPI COMMON STOCK. . . . . . . . . . . . . . .66
Section 10.1. Conversion into BPPI Shares. . . . . . . . . . . . . . . . . . . . . . . . . .66
Section 10.2. Non-Convertible Projects . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Section 10.3. Limit on Ownership of BPPI Capital Stock . . . . . . . . . . . . . . . . . . .70
Section 10.4. Obligations of BPPI With Respect to Conversion BPPI Shares . . . . . . . . . .70
Section 10.5. Unregistered Securities; Registration Rights Agreement . . . . . . . . . . . .71
Section 10.6. Additional Provisions Relative to Conversion Notice. . . . . . . . . . . . . .72
</TABLE>
iii
<PAGE>
OPERATING AGREEMENT
OF
BPP RETAIL, LLC,
a Delaware limited liability company
THIS OPERATING AGREEMENT is dated as of August 31, 1998, by and between
STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM, a unit of the State and
Consumer Services Agency of the State of California ("CalPERS"), with offices at
400 P Street, Sacramento, California 95814, and BURNHAM PACIFIC OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership (either "BPOP" or the
"Manager"), with offices at 610 West Ash Street, Suite 1600, San Diego,
California 92101.
RECITALS:
A. Pursuant to California Government Code Sections 9354.1, 20171, 20190,
20210, 50953 and 75105, the exclusive control of the administration
and investment of various retirement funds (hereafter collectively
"the Fund") is vested in CalPERS' Board of Administration (the
"Board").
B. Pursuant to California Government Code Section 20190, CalPERS is
authorized to invest, except as otherwise restricted by the California
Constitution and by law, the assets of the Fund through the purchase,
holding, or sale thereof of any investment, financial instrument or
financial transaction when the investment, financial instrument, or
financial transaction is prudent in the informed opinion of the Board.
C. Pursuant to California Government Code Section 20206, the Board is
authorized to contract with qualified investment managers to render
services in connection with the investment programs of the Board. In
furtherance of this statutory provision, the Board has entered into
contracts with numerous such investment managers, and has delegated to
them defined discretionary investment authority pursuant to CalPERS'
Investment Objectives and Policies (as defined below).
D. Pursuant to California Government Code Section 20210, CalPERS is
authorized and required to retain at least two investment managers to
render services in connection with CalPERS' investment programs.
E. Pursuant to Article XVI, Section 17 of the California Constitution,
the Board is granted plenary authority and sole discretion over the
investment decisions and administration of CalPERS; and through
Resolution No. 92-04B, the Board exercises its constitutional
responsibility and control over the process for the procurement of
goods and services for CalPERS.
<PAGE>
F. Pursuant to the above authority, CalPERS solicited proposals from
firms with expertise in real estate investment management services for
Non-regional Mall Retail under Request for Proposal (RFP) No. 97-321,
dated June 23, 1997 (the "RFP"). Burnham Pacific Properties, Inc., a
Maryland corporation ("BPPI") responded to the RFP. BPPI is the
general partner of BPOP.
G. CalPERS has concluded that BPPI and BPOP meet the qualifications as
set forth in the RFP and now wishes to enter into this Agreement with
BPOP for the purpose of forming a limited liability company to
acquire, own, maintain, operate and sell certain "non-regional mall
retail properties" in the Western United States (as defined below)
consistent with CalPERS Investment Objectives and Policies and the
Program Guidelines (as defined below).
H. BPPI is a real estate investment trust ("REIT") under the Code. To
maintain its status as a REIT, BPPI and BPOP must conform to certain
requirements of the Code with respect to sales of properties and types
of income. Among other things, the investment objectives of the
Company are to acquire Projects for long term investment.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE I
DEFINED TERMS
SECTION 1.1. DEFINITIONS. The following terms used in this Agreement,
unless the context otherwise requires, shall have the meanings specified in this
SECTION 1.1:
"ACCOUNTANT" means the firm of independent certified public accountants
selected by the Manager from the list of such accountants Approved by CalPERS
for the purpose of preparing the tax returns and financial reports for the
Company. CalPERS hereby approves the accounting firm of Deloitte & Touche on
such list.
"ACT" means the Delaware Limited Liability Company Act, codified in
Delaware Code Annotated, Title 6 Chapter 18, Sections 18 through 101, et seq.,
as the same may be amended from time to time.
"ADDITIONAL CAPITAL CONTRIBUTIONS" means contributions of cash to the
capital of the Company which may be required from time to time to be made by the
Members as provided in SECTION 3.2 hereof.
"AFFILIATE" or "AFFILIATED PERSON" means, when used with reference to a
specified Person, (a) any Person that directly or indirectly through one or more
intermediaries controls or is controlled by or is under common control with the
specified Person, (b) any Person that is an executive officer or board member
of, general partner in or trustee of, or serves in a similar capacity with
respect to, the specified Person or of which the specified Person is an officer,
general partner or
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<PAGE>
trustee, or with respect to which the specified Person serves in a similar
capacity, (c) any Person that, directly or indirectly, is the beneficial
owner of 20% or more of all voting classes of equity securities of the
specified Person or of which the specified Person is directly or indirectly
the owner of 20% or more of all voting classes of equity securities, or (d)
any trust established by the specified Person for the benefit of any such
relative or spouse of such Person. "Affiliate" or "Affiliated Person" of the
Company or the Members does not include a Person who is a partner in a
partnership or a joint venture with the Company or any other Affiliated
Person if such Person is not otherwise an Affiliate or Affiliated Person of
the Company or the Members.
"AGREEMENT" means this Operating Agreement as originally executed and as
amended in writing from time to time.
"ANNUAL INVESTMENT PLAN" shall have the meaning set forth in
SECTION 4.1(d)(i).
"APPLICABLE NCREIF INDEX" shall mean the time weighted NCREIF retail
sub-index of the NCREIF Property Index for the Western United States to be
determined by the National Council of Real Estate Investment Fiduciaries
("NCREIF") (after excluding the effect of those Company Projects reported to
NCREIF) on the date which most immediately precedes the applicable
Calculation Date and which is applicable to the time period which most
closely approximates the time period from the date of the first Cash Outflow
or Cash Inflow during the applicable Calculation Period to the applicable
Calculation Date. For periods in excess of one year, this index expresses
rates of return on an annualized return-per-year basis. The Applicable
NCREIF Index shall be an index specially produced by NCREIF for the Company
in the same manner that NCREIF produces the NCREIF Property Index. If the
sample size for the Applicable NCREIF Index consists of less than 60
properties or if the NCREIF Index ceases to exist, then CalPERS and the
Manager shall agree on an alternate index. The Manager and CalPERS
acknowledge that the Applicable NCREIF Index consists primarily of Existing
Shopping Center Projects (excluding those Company Projects reported to
NCREIF), and that if that composition changes over time such that the
characteristics of the properties, on the whole, are no longer comparable to
the Projects of the Company, the parties shall endeavor to agree on any
adjustments that may be necessary to the Applicable NCREIF Index or the
Project-Type Premium added thereto for purposes of calculating the Incentive
Distribution.
"APPLICABLE PERCENTAGE" shall mean the percentage to be multiplied by an
Incentive Portfolio's NCREIF Adjusted Tentative Incentive Distribution as of a
given Calculation Date pursuant to SECTION 3.10(9) of the Agreement. The
Applicable Percentage as of the Final Calculation Date shall be 100%. The
Applicable Percentage as of any other Calculation Date can be found using the
table below. For example, if the Calculation Date falls at the end of the third
year of a relevant Calculation Period, the Applicable Percentage to be used
shall be 15%. For this purpose, the first year of the first Calculation Period
shall begin on the Effective Date of the Agreement and shall end on December 31,
1999 (the first Calculation Date
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under this Agreement). The second year of the first Calculation Period shall
end twelve months later on December 31, 2000, and so on. In the first and
second years of this and other Calculation Periods, the Applicable
Percentages are 5% and 10%, respectively, provided that either of the
Calculation Dates do not coincide with the Final Calculation Date.
<TABLE>
<CAPTION>
CALCULATION PERIOD YEAR APPLICABLE PERCENTAGE
----------------------- ---------------------
<S> <C>
1 5
2 10
3 15
4 22
5 30
6 39
7 49
8 60
9 75
10 83
11 91
12 100
</TABLE>
"APPROVED BY THE MEMBERS" or "APPROVED BY CalPERS" means those matters
or decisions set forth in this Agreement that have been approved by Members
owning a majority of the Membership Interests or by CalPERS, as applicable.
Unless expressly provided otherwise herein, all approvals under this
Agreement required of the Members or CalPERS, as the case may be, shall not
be unreasonably withheld or delayed. A matter that is neither approved nor
disapproved within 30 days after the Manager submits the matter for approval
in writing shall be deemed approved by the non-responding party; provided,
that the matters to be approved under SECTIONS 4.1(e)(i), 4.1(e)(ii),
4.1(e)(iii), 4.1(e)(iv), 4.1(e)(viii), 4.1(e)(ix), 4.1(e)(x), 4.1(e)(xi),
4.2, 4.3, 4.6(a) and 4.8(c) shall be deemed approved if the party whose
approval is sought fails to respond within 10 business days.
"BANKRUPTCY" means, with reference to any Member or Manager:
(a) the entry of an order for relief (or similar court order)
against such Member which authorizes a case brought under Chapter 7, 11 or 13 of
Title 11 of the United States Code (or successors to such Chapters and Title) to
proceed;
(b) the commencement of a federal, state or foreign bankruptcy,
insolvency, reorganization, arrangement or liquidation proceeding by such Member
or Manager;
(c) the commencement of a federal, state or foreign bankruptcy,
insolvency, reorganization, arrangement or liquidation proceeding against such
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<PAGE>
Member or Manager if such proceeding is not dismissed within 120 days after the
commencement thereof;
(d) the entry of a court decree or court order which remains
unstayed and in effect for a period of 120 consecutive days:
(i) adjudging such Member or Manager insolvent under any
federal, state or foreign law relating to bankruptcy, insolvency,
reorganization, arrangement, liquidation, receivership or the like;
(ii) approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of, or in respect of,
such Member or Manager or its properties under any federal, state or foreign law
relating to insolvency, reorganization, arrangement, liquidation, receivership
or the like;
(iii) appointing a receiver, liquidator, assignee, trustee,
conservator, or sequester (or other similar official) of such Member or Manager,
or of all, or of a substantial part, of such Member's or Manager's properties;
or
(iv) ordering the winding up, dissolution or liquidation of
the affairs of such Member or Manager;
(e) the Consent by such Member or Manager to the institution
against it of any proceeding of the type described in subsection (a), (b), (c)
and (d);
(f) the Consent by such Member or Manager to the appointment of a
receiver, liquidator, assignee, trustee, conservator or sequester (or other
similar official) of such Member or Manager, or of all, or of a substantial
part, of its properties;
(g) the making by such Member or Manager of an assignment for the
benefit of creditors; or
(h) the admission in writing by such Member or Manager of its
inability to pay its debts generally as they come due.
"BUDGET" means a statement setting forth the estimated receipts and
expenditures (capital, operating and other) of the Company for the period
covered by such statement prepared in accordance with a format Approved by
CalPERS. A separate budget shall be prepared individually for each Project and
for the portfolio of Projects on a consolidated basis. A copy of each budget
shall be provided to CalPERS for information purposes only and need not be
Approved by CalPERS except for those matters set forth in SECTION 4.6 hereof.
"BUDGET YEAR" means the 12-month period commencing January 1 and ending
December 31.
"BUILD-TO-SUIT SHOPPING CENTER DEVELOPMENT PROJECT" shall have the meaning
set forth in EXHIBIT B.
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"CALCULATION DATE" means either (i) the last day of the Company's Fiscal
Year, with the first occurring on December 31, 1999, or (ii) the Final
Calculation Date.
"CALCULATION PERIOD" means, with respect to each Incentive Portfolio,
the 12-year period of time over which the cumulative performance of the
Projects included in each such Incentive Portfolio and the resultant returns
to the Members is measured for the purpose of determining the Manager's right
to receive Incentive Distributions under SECTION 3.10. The Calculation
Period for an Incentive Portfolio may be less than 12 years if, before the
end of the twelfth year, the last Project included in such Incentive
Portfolio is sold, exchanged or otherwise transferred to a third party or to
BPOP under ARTICLE X of this Agreement, or if the Company is dissolved.
The Calculation Period for the first Incentive Portfolio shall commence
on the Effective Date and shall end on the earlier of December 31, 2010, or
the Final Calculation Date. The Calculation Period for the second Incentive
Portfolio shall commence at the beginning of the tenth year of the first
Incentive Portfolio's Calculation Period which is January 1, 2008, and shall
end on the earlier of December 31, 2019, or the Final Calculation Date. The
Calculation Period for the third Incentive Portfolio shall commence at the
beginning of the tenth year of the second Incentive Portfolio's Calculation
Period which is on January 1, 2017, and shall end on the earlier of December
31, 2028, or the Final Calculation Date, ETC.
"CalPERS APPROVED FORM" shall have the meaning set forth in SECTION 4.2.
"CalPERS' CONTRIBUTED PROJECTS" shall have the meaning set forth in
SECTION 3.1(a).
"CAPITAL ACCOUNT" means, with respect to a Member, such Member's total
Capital Contributions, increased or decreased as provided in SECTION 3.4
hereof.
"CAPITAL CONTRIBUTIONS" means, with respect to any Member, the total
amount of money and the Net Asset Value at the time of contribution of any
property (other than money) contributed to the Company by such Member
pursuant to the terms of this Agreement, including, without limitation, such
Member's Initial Capital Contribution and any Additional Capital
Contributions, which amounts shall be set forth in a schedule to be prepared
and updated by the Manager as Capital Contributions are made by the Members.
"CAPITAL EXPENDITURES" means hard and soft costs for repairs or
improvements to a Project undertaken by the Company that should be
capitalized under generally accepted accounting principles.
"CAPITAL TRANSACTION" means the sale, exchange or disposition of a
Project, or the conversion of a Project pursuant to ARTICLE X, or casualty
damage to or condemnation of a Project or any part thereof.
"CASH AVAILABLE FOR DISTRIBUTION" means, for any monthly period during
the Term, Revenues (excluding Distributable Proceeds from Capital
Transactions and/or
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Distributable Proceeds from Financings) for such period in excess of
Operating Expenses for such period.
"CASH OUTFLOWS" and "CASH INFLOWS" - "Cash Outflows" shall be deemed to be
all Capital Contributions funded by the Members pursuant to this Agreement on or
prior to the Calculation Date, including, without limitation: (i) the Net Asset
Value of the CalPERS Contributed Projects and Manager's Projects contributed to
the Company; and (ii) any Additional Capital Contributions made to the Company.
"Cash Inflows" shall be deemed to be (i) all Distributions actually
received by the Members pursuant to this Agreement during the Calculation
Period, BUT excluding Incentive Distributions paid to the Manager, unless
otherwise specifically directed in SECTION 3.10, plus (ii) a deemed Distribution
of NAV from Unrealized Projects as of the Calculation Date.
For purposes of determining Incentive Distributions under SECTION
3.10, Cash Inflows and Cash Outflows shall be accounted for separately with
respect to those Projects comprising each Incentive Portfolio. At the end of
each 12-year Calculation Period for such Incentive Portfolio, provided that
such date does not coincide with the Final Calculation Date, each Unrealized
Project then included in such Incentive Portfolio shall be transferred to the
next Incentive Portfolio at its Net Asset Value at the time of the transfer.
The Net Asset Value for each transferred Unrealized Project shall be treated
as a Cash Outflow for the Incentive Portfolio to which such Unrealized
Project is being transferred.
"CERTIFICATE" shall have the meaning set forth in SECTION 2.1 hereof.
"CLAIMS" shall have the meaning set forth in SECTION 3.11 hereof.
"CODE" means the Internal Revenue Code of 1986, as amended (or any
corresponding provision of any succeeding law).
"COMPANY" means BPP Retail, LLC, a Delaware limited liability company.
"COMPANY DEBT" means any indebtedness for borrowed money incurred by the
Company from third party creditors.
"COMPANY MINIMUM GAIN" means the amount determined by computing with
respect to each Nonrecourse Liability of the Company the amount of income or
gain, if any, that would be realized by the Company if it disposed of the
property securing such Nonrecourse Liability in full satisfaction thereof and
by then aggregating the amount so computed, as provided in Treasury
Regulations Section 1.704-2(d).
"CONSENT" means a prior written consent, which shall not be unreasonably
withheld unless expressly provided for in this Agreement.
"CONTRIBUTING MEMBER" shall have the meaning set forth in SECTION 3.2(b).
"CONTRIBUTION DEFICIENCY" shall have the meaning set forth in
SECTION 3.2(d)(ii).
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<PAGE>
"CONTRIBUTION LOAN" shall have the meaning set forth in SECTION 3.2(b).
"DISTRIBUTABLE PROCEEDS FROM CAPITAL TRANSACTIONS" means all cash receipts
to the Company arising from a Capital Transaction less (a) the amount of cash
paid or to be paid by the Company in connection with expenses associated with
such Capital Transaction (which shall include, with regard to damage recoveries
or insurance or condemnation proceeds, cash paid or to be paid in connection
with repairs, replacements or renewals, relating to damage to or partial
condemnation of the Project); (b) the amount of cash required by any lender or
creditor to be applied to the payment of debts and obligations of the Company
arising from or otherwise related to such Capital Transaction or to which the
Project is subject or which are otherwise then due; (c) the normal and
reasonable costs and expenses arising from such transactions including, without
limitation, escrow fees, title insurance fees, professional fees, brokerage
commissions and Disposition Fees (as defined in EXHIBIT H); and (d) the amount
considered appropriate by the Manager to retain as Reserves.
"DISTRIBUTABLE PROCEEDS FROM FINANCINGS" means all cash receipts to the
Company arising from a Financing (reduced by the portion of such cash receipts
used to repay Company Debt), less (a) the amount of cash paid or to be paid by
the Company for expenses in connection with such Financing, including, without
limitation, all commitment fees, appraisal fees, title insurance premiums,
survey costs, broker's commissions and attorneys' fees, and for payment, to the
extent required by any lender or creditor, of debts and obligations of the
Company then due; (b) the amount considered appropriate by the Manager to retain
as Reserves; (c) all amounts paid to purchase or improve a Project or for any
other purpose in order to satisfy conditions to or established in connection
with such Financing; and (d) any amounts the Manager approves to pay interest,
principal, premium and fees (including without limitation modification fees and
escrow costs) under any Company Debt.
"DISTRIBUTION" means, when used with reference to a Member, any cash
payment or the Fair Market Value of any property distributed by the Company to
such Member on account of its Membership Interest (net of any liabilities that
such Member is deemed to have assumed or taken subject to, pursuant to
Section 752 of the Code), regardless of the source of the funds used for such
payments. Without limiting the foregoing and for purposes of the distribution
priorities set forth in SECTION 3.9 and the determination of the Incentive
Distribution under SECTION 3.10, CalPERS shall be deemed to have received a
Distribution under ARTICLE X of the Agreement in amount equal to the Conversion
Amount attributable to each Converted Project for which CalPERS has received
Conversion BPPI Shares pursuant to this Agreement, and BPOP shall be deemed to
have received a Distribution in an amount equal to its proportionate interest of
the Conversion Value of each Converted Project conveyed to BPOP by the Company.
"EFFECTIVE DATE" means the date of this Agreement, or if later, the date
the Company was formed pursuant to the filing of the Articles of Organization
with the Secretary of State of Delaware.
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<PAGE>
"EVENT OF DEFAULT" shall have the meaning set forth in SECTION 5.2 hereof.
"EXCESS AMOUNT" means, with respect to each Incentive Portfolio, the
hypothetical aggregate reduction, if any, in the Members' Cash Inflows which is
made in the calculation of such Incentive Portfolio's Threshold Amount for the
relevant Calculation Period.
"EXCESS CAPITAL" shall have the meaning set forth in SECTION 3.9(g) hereof.
"EXCLUDED PROJECTS" shall have the meaning set forth in SECTION 3.1(b)
hereof.
"EXISTING SHOPPING CENTER PROJECT" shall have the meaning as set forth in
EXHIBIT B.
"EXTRAORDINARY CASH FLOW" means any Distributable Proceeds from Capital
Transactions and/or Distributable Proceeds from Financings.
"FAIR MARKET VALUE" means as to any Project, the value of such Project
determined pursuant to CalPERS' Statement of Equity Real Estate Appraisal and
Valuation Policy, a copy of which is attached as EXHIBIT Q and incorporated
herein by reference (except references to CalPERS' "interest" in such policy
shall mean, for purposes hereof, the collective interests of the Members or the
interest of the Company in such Project). For purposes of this Agreement, any
changes to said policy that may be adopted by CalPERS in the future shall not be
binding on the Members without the written agreement of all Members in their
sole and absolute discretion.
"FINAL CALCULATION DATE" shall be the earliest to occur of the following:
(a) The date of the Sale of the last Project held by the Company.
(b) The date of the early termination of the Company by CalPERS or the
Manager, or the effective date of the withdrawal, resignation or removal of
CalPERS or the Manager.
(c) The expiration of the Term of the Company.
"FINANCING" means any secured or unsecured financing or borrowing or
assumption of debt, including any refinancing of existing debt, by the Company
and containing terms equal or better than the financing guidelines Approved by
CalPERS from time to time. Attached hereto as EXHIBIT C are the initial
financing guidelines. Any changes in the financing guidelines shall not affect
any pending loan obtained by the Company for which the Company has a written
commitment or term sheet to lend.
"FISCAL MONTH" means each of the calendar months comprising the Company's
Fiscal Year.
"FISCAL QUARTER" means each of the calendar quarters comprising the
Company's Fiscal Year.
"FISCAL YEAR" means the fiscal year of the Company commencing January 1 and
ending on December 31.
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"FOR CAUSE REMOVAL EVENT" shall have the meaning set forth in
SECTION 4.7(a).
"FUTURE VALUE OF EACH PRIOR INCENTIVE DISTRIBUTION" shall be calculated as
follows with respect to each Incentive Portfolio and for any Incentive
Distribution paid to the Manager prior to the relevant Calculation Date:
FV = PV(1+i)^n
PV = the amount of the Incentive Distribution previously
paid
i = average annual Nominal Return Benchmark over the period of time
commencing on the date of payment of the Incentive Distribution
and ending on the relevant Calculation Date converted to a
quarterly rate by the following formula: (1 + Nominal Return
Benchmark)^0.25 - 1
n = quarters between the date of payment of the Incentive
Distribution and the Calculation Date
"HAZARDOUS MATERIALS" shall have the meaning set forth in SECTION 7.19.
"IMPROVEMENTS" means the buildings, parking areas and other amenities and
improvements constructed on the land at a particular Project.
"INCENTIVE DISTRIBUTION" means the priority distribution payable to the
Manager, as determined under SECTION 3.10.
"INCENTIVE PORTFOLIO" means, for purposes of determining the Incentive
Distribution under SECTION 3.10, the portfolio of Projects acquired by the
Company on or after the first day of the applicable Calculation Period, or any
Project owned by the Company, prior to the last day of the ninth year of such
Calculation Period, including Projects in the process of being developed,
redeveloped, re-leased or re-positioned by the Company. Any New Projects
acquired after the last day of the ninth year of a relevant Calculation Period
shall be excluded from such Incentive Portfolio and shall be included in the
subsequent Incentive Portfolio. Each Unrealized Project owned by the Company at
the end of a 12-year Calculation Period for an Incentive Portfolio shall be
transferred to the subsequent Incentive Portfolio at its Net Asset Value as of
the date of transfer and shall be included in the subsequent Incentive Portfolio
as of the first day of the fourth year of the Calculation Period for such
subsequent Incentive Portfolio.
"INCOME" or "LOSS" shall mean for purposes of this Agreement the taxable
income or taxable loss of the Company for each Fiscal Year or other relevant
period, as determined for federal income tax purposes except as modified below,
but excluding items allocated pursuant to SECTION 3.5 hereof. In addition,
Income or Loss shall include income that is exempt from federal income tax and
expenditures of the Company which are neither deductible from nor properly
chargeable to the Capital Accounts under Section 705(a)(2)(B) of the Code (or
treated as such expenditures). To the extent that Treasury Regulation
Section 1.704-1(b)(2)(iv)(m) requires that any adjustment to the tax basis of
any of the Company's Projects be
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taken into account in determining Capital Accounts, the amount of such
adjustment shall be included in Income or Loss, as appropriate. Income shall
include both Income from a Capital Transaction and Income (other than Income
from a Capital Transaction).
"INDEMNITEES" shall have the meaning set forth in SECTION 3.11 hereof.
"INFLATION RATE" means the annualized rate based on the change in the
Consumer Price Index - U (United States all items) (1982-84=100) (the "Index"),
as published by the United States Department of Labor, Bureau of Labor
Statistics, during the Calculation Period. If at any time the Index is
discontinued, the Manager and CalPERS shall mutually agree on a substitute index
which is nearly equivalent thereto. The Inflation Rate shall be calculated in
accordance with the following formula:
(((CPI n / CPI o) ^(1/n)) ^4) - 1
Where:
CPI n = Consumer Price Index at the end of the period
CPI o = Consumer Price Index at the start of the period
n = Number of quarters
"INITIAL CAPITAL CONTRIBUTIONS" means the contributions of cash and
property to the capital of the Company made by the Members and which is being
credited as Capital Contributions of the Members as provided in SECTION 3.1.
"INVESTMENT OBJECTIVES AND POLICIES" means the Statement of Investment
Objectives and Policies for the Retail Properties Portfolio approved or to be
approved by CalPERS Board, as may be amended from time to time in CalPERS' sole
discretion. CalPERS reserves the right to amend, change, and modify its
Investment Objectives and Policies at any time; provided that any such
amendment, change or modification shall not affect any transaction to be entered
into by the Company for which the Company has made a binding commitment to
undertake or for which there is an executed letter of intent or similar
document. A copy of the current draft Investment Objectives and Policies is
attached hereto as EXHIBIT A.
"IRS" shall have the meaning set forth in SECTION 7.8(b).
"LAND" shall have the meaning set forth in EXHIBIT B.
"LEVERAGE PREMIUM" means the additional minimum return required by CalPERS
for leveraging the Company's Projects. The Leverage Premium is used in
computing the Real Return Benchmark. As of each Calculation Date for Incentive
Distributions, a Leverage Premium is calculated for the portfolio of Projects in
each Incentive Portfolio. If there are two concurrent Incentive Portfolios, a
Leverage Premium will be established for each Incentive Portfolio. To
calculate the Leverage Premium of an Incentive Portfolio as of a given
Calculation Date, the following calculations shall be made:
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1. In each quarter, calculate the average of the beginning and ending
Company Debt attributable to each of the Projects in the Incentive Portfolio
for the period beginning with the first Cash Outflow or Cash Inflow for such
Incentive Portfolio in the Calculation Period through the relevant
Calculation Date.
2. In each quarter, calculate the average of the beginning and ending
Fair Market Values for each of the Projects in the portfolio over the same
time period.
3. Next, in each quarter, calculate the sum of the amounts calculated
for each of the Projects in the Incentive Portfolio that was figured in the
first step.
4. Also, for each quarter, separately calculate the sum of the amounts
calculated for each of the Projects in the Incentive Portfolio that was
figured in the second step.
5. Next, for the period beginning with the first Cash Outflow or Cash
Inflow for the portfolio in the Calculation Period through the relevant
Calculation Date, calculate the sum of the quarterly amounts calculated in
step three.
6. Also, calculate the sum of the quarterly amounts calculated in step
four over the time period referenced in the previous step.
7. Divide the amount calculated in step five by the amount calculated
in step six. This amount represents the average percentage leverage employed
by the Incentive Portfolio over the relevant time period. Using the table
below, find the corresponding Leverage Premium. This Leverage Premium should
be used in calculating the Real Return Benchmark for the Incentive Portfolio
as of the relevant Calculation Date.
<TABLE>
<CAPTION>
AVG. LEVERAGE LEVERAGE PREMIUM (BP)
---------------------- ---------------------
<S> <C>
0 - 10% 0
GREATER THAN 10% - 15% 12
GREATER THAN 15% - 20% 18
GREATER THAN 20% - 25% 24
GREATER THAN 25% - 30% 30
GREATER THAN 30% - 35% 38
GREATER THAN 35% - 40% 47
GREATER THAN 40% - 45% 60
</TABLE>
"LIQUIDATING SHARE" means in the case of the dissolution of the Company,
the total amount of money a Member would receive if all of the Company's
Projects were sold at their Fair Market Value, all of the Company's
liabilities were paid, and Distributions were made to the Members in
accordance with the provisions of SECTION 6.2(b), as of the close of business
on the effective date of such dissolution.
"LIQUIDATOR" shall have the meaning set forth in SECTION 6.2(a) hereof.
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"MAJOR REHABILITATION SHOPPING CENTER" shall have the meaning set forth
in EXHIBIT B.
"MANAGEMENT AGREEMENT" shall have the meaning set forth in SECTION 4.2.
"MANAGER" shall mean BPOP in its capacity as manager of the Company and
any additional or successor manager appointed pursuant to this Agreement.
"MANAGER'S PREFERRED RETURN" shall mean an amount equal to 25% of the
Preferred Return actually distributed to CalPERS in the current and prior
Fiscal Years of the Company; provided, however, that if the Percentage
Interest of CalPERS and the Manager do not equal 80% and 20%, respectively,
then the 25% percentage shall be adjusted to equal the percentage equivalent
of a fraction found by dividing the Manager's Percentage Interest by CalPERS'
Percentage Interest. For example, if the Manager's Percentage Interest is
adjusted to equal 18% because it fails to fund a Capital Contribution and
CalPERS elects to adjust Percentage Interests under SECTION 3.2(d)(ii), then
the Manager may be entitled to receive a Manager's Preferred Return in an
amount equal to 21.95% (i.e., 18/82) of the Preferred Return actually
distributed to CalPERS from and after the date of the adjustment of the
Members' Percentage Interests.
"MANAGER'S PROJECTS" shall mean those Projects owned by the Manager and
listed on EXHIBIT D-1 that CalPERS may elect before October 1, 1998, to cause
the Manager to contribute to the Company as all or part of the Manager's
Initial Capital Contribution under SECTION 3.1(b).
"MANAGING AGENT" shall have the meaning set forth in SECTION 4.2.
"MANDATORY CONTRIBUTION DATE" shall have the meaning set forth in
SECTION 3.1(b).
"MEMBER NONRECOURSE DEBT" means debt of the Company within the meaning
of Treasury Regulations Section 1.704-2(b)(4).
"MEMBER NONRECOURSE DEDUCTIONS" means any and all items of loss,
deduction or expenditure (described in Section 705(a)(2)(B) of the Code)
that, in accordance with the principles of Treasury Regulations Section
1.704-2(i)(2), are attributable to a Member Nonrecourse Debt.
"MEMBERS" means, collectively, BPOP and CalPERS. Reference to a
"Member" shall be to either one of the Members.
"MEMBERSHIP INTEREST" means the entire interest of a Member in the
Company at any particular time, including the right of such Member to any and
all benefits to which a Member may be entitled as provided in this Agreement,
together with the obligations of such Member to comply with all the terms and
provisions of this Agreement.
"MINIMUM GAIN ATTRIBUTABLE TO MEMBER NONRECOURSE DEBT" means that amount
determined in accordance with the principles of Treasury Regulations Section
1.704-2(i)(3), (4) and (5).
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"NAV FROM UNREALIZED PROJECTS" means the Net Asset Value of the
Company's Unrealized Projects as of the relevant measurement date. For
purposes of determining the Incentive Distribution, the NAV from Unrealized
Projects shall be separately determined for the portfolio of Projects in each
Incentive Portfolio as of the relevant Calculation Date.
"NCREIF ADJUSTMENT" means the lesser of the number one or a fraction
found by dividing (i) the number of basis points by which the Unleveraged
Incentive Portfolio Return exceeds the Applicable NCREIF Index, by (ii) the
number of basis points by which the NCREIF Benchmark exceeds the Applicable
NCREIF Index.
"NCREIF ADJUSTED TENTATIVE INCENTIVE DISTRIBUTION" shall have the
meaning set forth in SECTION 3.10(8).
"NCREIF BENCHMARK" means, with respect to each Incentive Portfolio, the
sum of the Applicable NCREIF Index PLUS the Project-Type Premium, determined
quarterly and then expressed as an annual percentage, over the period
commencing with the beginning of the Calculation Period to the relevant
Calculation Date.
"NET ASSET VALUE" means, for a particular Project at a point in time,
the excess, if any, of the Fair Market Value of the Project, plus all other
assets of the Project, over the amount of liabilities encumbering the
Project, plus an amount of unsecured Company Debt, if any, allocated to such
Project based on the Fair Market Value of such Project relative to the Fair
Market Value of all of the Company's Projects.
"NEW PROJECTS" shall have the meaning set forth in SECTION 3.2(a).
"NOMINAL RETURN BENCHMARK" means the percentage calculated as follows:
[(1 + Real Return Benchmark) x (1 + Inflation Rate)] - 1
"NON-CONTRIBUTING MEMBER" shall have the meaning set forth in SECTION
3.2(b).
"NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Treasury
Regulations Section 1.704-2(b)(1).
"NONRECOURSE LIABILITY" means any liability of the Company treated as a
nonrecourse liability under Treasury Regulations Section 1.704-2(b)(3).
"NOTIFICATION" means a written notice or any other receipt, containing
the information required by this Agreement to be communicated to any
authorized Person, sent by registered or certified mail, postage prepaid, or
by overnight courier or telecopy (provided a telecopy is followed (by no
later than the next business day) by confirmation that the telecopy
transmission was "good" by one of the other methods specified herein for
Notification) or by delivery to such Person at the last known address of such
Person or by hand delivery and shall be deemed given three days following the
date of mailing if by certified or registered mail, the next business
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day after it is marked if by overnight courier and concurrently upon receipt
of a telecopy transmission so long as the confirmation specified above is
timely given.
"OPERATING EXPENSES" means the sum of the following cash expenditures
of, or reserves established by, the Company relating to the operation of the
Projects: (a) all costs incurred in the ownership, maintenance, development,
repair, leasing, management and operation of the Projects; (b) all other
operating expenses permitted under this Agreement or Approved by CalPERS; (c)
regularly scheduled payments of interest and/or principal under any Company
Debt; and (d) the Reserves established by the Manager to meet the anticipated
current and future operating needs of the Company.
"PERCENTAGE INTEREST" shall mean 20% in the case of BPOP, and 80% in the
case of CalPERS, each subject to adjustment as provided in this Agreement.
"PERSON" means any individual, partnership, limited liability company,
corporation, cooperative, trust, estate, government (or any branch or agency
thereof) or other entity.
"PREFERRED RETURN" shall mean the cumulative Distributions required to
be received by CalPERS from the inception of the Company to the date of a
Distribution so that CalPERS achieves a cumulative return (compounded
monthly) on (and not a "return of") its Unreturned Capital Contributions at a
rate equal to the Real Return Benchmark.
"PRIME RATE" means the rate announced from time to time by Citibank,
N.A., New York, New York (or any successor thereto), as its "prime rate".
"PROGRAM GUIDELINES" means the agreed-upon parameters of the Manager's
discretion to acquire, develop and sell one or more Projects on behalf of the
Company without the requirement to obtain CalPERS' Consent, as may be amended
from time-to-time by CalPERS after consultation with and Notification to
BPOP; provided that any such amendment shall not affect any transaction to be
entered into by the Company for which the Company has made a binding
commitment to undertake or has executed a letter of intent or similar
document. Conversely, decisions regarding the acquisition, development and
sale outside of the Program Guidelines require CalPERS' Consent. The initial
Program Guidelines are attached hereto as EXHIBIT B.
"PROJECT" means the Company's leasehold or ownership interest in real
property, the primary use of which is "non-regional mall retail" (e.g.,
grocery store/drug store, neighborhood shopping center) including Land,
together with all Improvements thereon and all real and personal property
rights associated therewith, either owned by the Company, or to be owned by
the Company, that meets the requirements of CalPERS' Investment Objectives
and Policies and the Program Guidelines (or met them on the date the Company
made a binding commitment to acquire or develop such property) or has
otherwise been approved by CalPERS in accordance with this Agreement. If so
dictated by transfer, income and/or property tax or other considerations,
ownership of a Project may also be held
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indirectly by the Company through ownership interests in partnerships,
limited liability companies, corporations or another legal entity that owns
property meeting the above criteria, or by BPOP and/or CalPERS directly as
nominee for the Company. The term "Project" does not include any publicly
traded debt or equity securities, such as a share in a real estate investment
trust.
"PROJECT-TYPE PREMIUM" means the additional minimum return required by
CalPERS for risk associated with various investment strategies pursued by
BPOP in managing the Company's Projects. The Project-Type Premium is used in
computing the Real Return Benchmark and the NCREIF Benchmark for each
Incentive Portfolio. As of each Calculation Date for Incentive
Distributions, a Project-Type Premium is calculated for the entire portfolio
of Projects in each Incentive Portfolio. If there are two concurrent
Incentive Portfolios, a Project-Type Premium shall be established for each
Incentive Portfolio. To calculate the Project-Type Premium as of a given
Calculation Date, the following calculations shall be made:
1. In each quarter, for the period beginning with the first Cash
Outflow or Cash Inflow for the Incentive Portfolio in the Calculation Period
through the relevant Calculation Date, select the Project-Type adjustment
from the table below that corresponds to the classification of each of the
Projects in the portfolio as of the 45th day of the quarter. If a Project
was not included as part of the Incentive Portfolio until after the 45th day
of the quarter, or the Project exited the portfolio during the quarter, but
before the 45th day, the Project-Type Premium for these Projects for the
quarter in which they entered or exited the portfolio shall be the same as
Existing Shopping Center Projects or 50 basis points.
2. In each quarter, calculate the average of the beginning and ending
Fair Market Values for each of the Projects in the Incentive Portfolio over
the same time period as in step one.
3. Multiply the Project-Type Premium selected in step one by the
average of the Fair Market Values calculated in step two for each Project in
the Incentive Portfolio for each quarter.
4. Next, in each quarter, separately calculate the sum of the amounts
calculated for each of the Projects in the Incentive Portfolio that was
calculated in step two.
5. Also, for each quarter, separately calculate the sum of the amounts
calculated for each of the Projects in the Incentive Portfolio that was
calculated in step three.
6. Next, for the period beginning with the first Cash Outflow or Cash
Inflow for the Incentive Portfolio in the Calculation Period through the
relevant Calculation Date, calculate the sum of the quarterly amounts
calculated in step four.
7. Also, calculate the sum of the quarterly amounts calculated in step
five over the same time period referenced in the previous step.
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8. Divide the amount calculated in step seven by the amount calculated
in step six. This amount represents the Project-Type Premium for the
particular Incentive Portfolio over the relevant time period that should be
used in calculating the Real Return Benchmark and the NCREIF Benchmark for
such Incentive Portfolio as of the relevant Calculation Date.
The following table indicates the Project-type adjustments for each
Project type, subject to any adjustments described in step one above:
<TABLE>
<CAPTION>
PROJECT TYPE ADJUSTMENT (BP)
------------ ---------------
<S> <C>
Existing Shopping Center Project 50
Build-to-Suit Shopping Center Development Project 75
Value-Added Shopping Center Project 75
Major Rehabilitation Shopping Center Project 150
Speculative Development Project 200
Land 300
</TABLE>
"QUALIFYING OPPORTUNITY" shall have the meaning set forth in SECTION 4.3.
"REAL INTERNAL RATE OF RETURN" means, with respect to each Incentive
Portfolio, the Total Return to the Members over the relevant Calculation
Period adjusted to take into account the impact of the Inflation Rate on the
Members' Cash Inflows and Cash Outflows and is determined using the following
formula:
__ __
| |
| (1 + Total Return) |
Real Internal Rate of Return = |-----------------------| - 1
| (1 + Inflation Rate) |
|__ __|
"REAL RETURN BENCHMARK" means the minimum risk-adjusted Real Internal
Rate of Return to be earned by the Members from their investment in the
Projects comprising each Incentive Portfolio over the relevant Calculation
Period before the Manager may become eligible for payment of an Incentive
Distribution. For purposes of this Agreement, the Real Return Benchmark for
each Incentive Portfolio as of the relevant Calculation Date shall equal the
sum of (i) 5% plus (ii) the sum of the Project-Type Premium and the Leverage
Premium calculated from the quarter in which the first Cash Inflow or Cash
Outflow for the Incentive Portfolio occurs in the Calculation Period, through
the relevant Calculation Date.
"REGULATORY ALLOCATIONS" shall have the meaning set forth in SECTION 3.6
hereof.
"RESERVES" means the amount of funds set aside for, or amounts allocated
during any period to, reasonable reserves for Operating Expenses, contingent
liabilities, working capital (not to exceed $100,000), and to pay taxes,
insurance, debt service, or extraordinary or unanticipated operating costs or
expenses incident to the ownership, maintenance, development, repair,
leasing, tenant improvements, management or operation of the Project(s)
established pursuant to the Management
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Agreement(s) or otherwise required by any mortgagee or deemed reasonably
necessary by the Manager to meet the current or anticipated future operating
needs of the Company.
"REVENUES" means revenues and receipts of every kind including, but not
limited to, revenue and receipts (from both cash and credit transactions)
from rental of space of every kind; license, lease and concession fees and
rentals (not including gross receipts of licensees, lessees and
concessionaires); and proceeds, if any, from business interruption or other
loss of income insurance; but excluding (a) any payments received as deposits
until such funds are actually applied as part of the rentals, fees or charges
due and (b) Distributable Proceeds from Capital Transactions or Distributable
Proceeds from Financings.
"SALE" means any sale, conveyance, exchange, or other transfer or
alienation of a Project in a commercially reasonable, arm's-length
transaction with any party which is not an Affiliate of the Manager.
"SPECIAL ALLOCATIONS" shall have the meaning set forth in SECTION 3.5.
"SPECULATIVE SHOPPING CENTER DEVELOPMENT PROJECT" shall have the meaning
set forth in EXHIBIT B.
"TAX MATTERS MEMBER" shall have the meaning set forth in SECTION 7.8
hereof.
"TAX YEAR" shall mean the Fiscal Year.
"TENTATIVE INCENTIVE DISTRIBUTION" shall have the meaning set forth in
Section 3.10(7).
"TERM" shall have the meaning set forth in SECTION 2.5 hereof.
"TERMINATION" means, when used with reference to a Member, the death,
insanity, disability, incapacity, Bankruptcy, liquidation or dissolution of
such Member; unless in connection with the liquidation or dissolution of such
Member as part of a merger or consolidation of such Member and the surviving
Person assumes all of the obligations of the liquidating or dissolving Member
in writing delivered to CalPERS.
"THRESHOLD AMOUNT" means, with respect to each Incentive Portfolio, the
hypothetical aggregate Distribution required to be received by the Members
(or the hypothetical aggregate reduction of Cash Inflows to the Members) as
of the relevant Calculation Date after considering all prior Cash Outflows
and Cash Inflows since the date of the initial Cash Outflow or Cash Inflow
during such Calculation Period to the relevant Calculation Date in order for
the Members to receive Distributions from the Projects in such Incentive
Portfolio in the amount necessary to cause the Incentive Portfolio's Real
Internal Rate of Return to equal the Incentive Portfolio's Real Return
Benchmark.
"TOTAL RETURN" means, with respect to each Incentive Portfolio, the
annualized nominal discount rate which equates all of the Members' Cash
Inflows to Cash Outflows measured from the date of the first Cash Outflow
or Cash Inflow
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during the Calculation Period to the relevant Calculation Date. The Total
Return shall be calculated quarterly based on Cash Inflows and Cash Outflows
received in each quarter. For purposes of such calculation, the Total Return
shall be calculated after the payment of all fees paid to the Manager or its
Affiliates (excluding any previous Incentive Distributions paid or payable to
the Manager during the relevant Calculation Period) and by assuming that all
Cash Inflows and Cash Outflows during such quarter were received by or paid
to the Members on the last day of such quarter. The quarterly calculation of
the Total Return shall be annualized using the following formula:
Total Return = ((1 + quarterly Total Return)^4) - 1
"TRANSFER" shall have the meaning set forth in SECTION 8.1 hereof.
"UNLEVERAGED INCENTIVE PORTFOLIO RETURN" means the average annual time
weighted return achieved by the Members by reason of their respective
investments in an Incentive Portfolio from inception of the Portfolio to the
relevant Calculation Date, adjusted to eliminate the impact of Company Debt
in achieving such return and computed in a manner that is consistent with
NCREIF standards for before-fee investment level returns.
"UNREALIZED PROJECTS" means Projects owned by the Company on the
Calculation Date.
"UNRETURNED CAPITAL CONTRIBUTION" shall mean, with respect to a Member,
the amount by which such Member's total Capital Contributions exceed the
total amount of Distributions of Extraordinary Cash Flow made to such Member
constituting a return of Capital Contributions.
"VALUE-ADDED SHOPPING CENTER PROJECT" shall have the meaning set forth
in EXHIBIT B.
"WESTERN UNITED STATES" shall mean the States of Washington, Oregon,
California, Idaho, Montana, Wyoming, Colorado, Utah, Arizona, New Mexico,
Texas, Alaska, Hawaii, Arkansas, Louisiana, Oklahoma and Nevada.
"WITHOUT CAUSE REMOVAL EVENT" shall have the meaning set forth in
SECTION 4.7(b).
ARTICLE II
FORMATION, NAME, PLACE OF BUSINESS,
PURPOSE, AND TERM
SECTION 2.1. FORMATION. The Company shall be formed upon the filing of
its Certificate of Formation (the "CERTIFICATE") in the office of the
Secretary of State of Delaware. If the Certificate has not been previously
filed, the Members shall cause the same to be filed immediately. The Company
shall constitute a limited liability company formed pursuant to the Act and
shall be governed by and operated in accordance with this Agreement.
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SECTION 2.2. NAME AND OFFICES. The name of the Company shall be BPP
Retail, LLC and the business of the Company shall be conducted solely under such
name. The business address of the Company shall be 610 West Ash Street,
Suite 1600, San Diego, California 92101, or at such other place or places as the
Manager may from time to time designate. The address of the registered office
of the Company in the State of Delaware shall be c/o CT Corporations System, and
the registered agent in charge thereof shall be CT Corporations System, each of
which may be changed by the Manager.
SECTION 2.3. OTHER ACTS/FILINGS. The Members after filing the Certificate
shall from time to time execute or cause to be executed all such certificates
and other documents, and do or cause to be done all such filings, recordings,
publishing and other acts, as are necessary to comply with the requirements of
law for the formation and operation of the Company in any jurisdiction in which
the Company does business.
SECTION 2.4. PURPOSE AND SCOPE. The purposes of this Company are to
acquire for long-term investment, own, develop, manage, lease, finance and
ultimately dispose of the CalPERS' Contributed Projects to be contributed to the
Company by CalPERS and the Manager's Projects to be contributed to the Company
by BPOP, if any, and to acquire, own, develop, manage, lease, finance,
construct, develop and ultimately dispose of New Projects in the Western United
States, each in accordance with the Investment Objectives and Policies, the
Program Guidelines, the Annual Investment Plan and this Agreement. The Company
shall do any and all things necessary or incidental to any of the foregoing to
carry out and further the business of the Company as contemplated by this
Agreement. The Company shall not engage in any business or activity not
expressly authorized by this Agreement.
SECTION 2.5. TERM. The term of the Company ("TERM") shall commence upon
the Effective Date and shall continue in full force and effect until
December 31, 2028, or until dissolution prior thereto pursuant to the provisions
of Article VI, unless otherwise extended by the mutual written agreement of the
Members.
ARTICLE III
PERCENTAGE INTERESTS AND CAPITAL
SECTION 3.1. INITIAL CAPITAL CONTRIBUTIONS.
(a) CalPERS INITIAL CAPITAL CONTRIBUTIONS. CalPERS hereby offers to
contribute as its initial capital contribution to the Company those Projects
listed on EXHIBIT D ("CalPERS' CONTRIBUTED PROJECTS"). CalPERS' offered Net
Asset Value for each of the CalPERS' Contributed Projects shall be established
by an appraisal of each of the CalPERS' Contributed Projects performed by
CalPERS as of June 30, 1998, which appraisal shall be finalized only after the
Manager has had an opportunity to make comments thereon.
(1) On or before October 1, 1998, CalPERS shall contribute or
cause to be contributed all right and beneficial ownership of each CalPERS
Contributed
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Project to the Company in which the Manager and CalPERS agree on Net
Asset Value.
(2) If the Manager and CalPERS cannot agree upon the Net Asset
Value of a particular CalPERS Contributed Project, then the following process
shall be followed:
(i) The Manager, at its option, shall submit to CalPERS
a sealed bid for the CalPERS Contributed Project no later than October 1, 1998;
(ii) CalPERS shall direct its present advisor for the
CalPERS Contributed Project to market the Project for sale until December 1,
1998;
(iii) CalPERS shall compare the all cash price of the
highest third-party bid received to the sealed bid from the Manager;
(iv) If the third-party all cash bid (minus commissions
and other closing costs typically paid by a seller of real property) is higher
than the Manager's sealed bid (less costs payable by CalPERS under this
Agreement in connection with the contribution of such CalPERS Contributed
Project to the Company), CalPERS shall be permitted to sell the CalPERS
Contributed Project to the third party; provided, however, that if the
third-party bid is contingent on the performance of due diligence or any other
matters, and if CalPERS subsequently negotiates any reduction in the net
economic value of such transaction, then CalPERS shall not be permitted to sell
the CalPERS Contributed Project to such third party unless the modified
agreement (minus commissions and other closing costs typically paid by a seller
of real property) is higher than the Manager's sealed bid (less costs payable by
CalPERS under this Agreement in connection with the contribution of such CalPERS
Contributed Project to the Company) and the Manager remains willing to abide by
the price in its sealed bid.
(v) If the Manager's sealed bid is higher than the
third-party bid, CalPERS shall contribute the CalPERS Contributed Project to the
Company for a Net Asset Value equal to the Net Asset Value in the Manager's
sealed bid.
Terms relating to the Manager's due diligence requirements, CalPERS'
representations and warranties with respect to the CalPERS' Contributed Projects
and the closing of the contribution of the CalPERS' Contributed Projects to the
Company are further described in EXHIBIT F.
The Net Asset Value of the CalPERS' Contributed Projects shall be
adjusted for the cost of those Capital Expenditures listed on EXHIBIT N.
Subject to Manager's Consent, title to the CalPERS' Contributed Projects may be
held by CalPERS directly as nominee for the Company. If legal title to one or
more of the CalPERS' Contributed Projects is to be held by CalPERS as nominee,
CalPERS shall convey all right and beneficial interest in the CalPERS'
Contributed Projects pursuant to the terms set forth on EXHIBIT E. Revenues and
expenses associated with the CalPERS' Contributed Projects shall be prorated
between CalPERS and the
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Company as of the date the CalPERS' Contributed Projects are contributed to
the Company in the manner described in EXHIBIT F.
BPOP acknowledges that it has been afforded the opportunity, among
other things, to review CalPERS' files (including those of CalPERS' existing
asset managers) and to conduct a complete inspection of the physical condition
of the CalPERS' Contributed Projects, to review title and survey matters and to
analyze the operating performance of the CalPERS' Contributed Projects. CalPERS
alone shall assume financial responsibility and liability for all claims, costs
and liabilities associated with the CalPERS' Contributed Projects, and shall
indemnify, defend and hold BPOP harmless from same, that may arise out of events
occurring prior to the date the CalPERS' Contributed Projects are contributed to
the Company, including, without limitation, any environmental liabilities. BPOP
further acknowledges that the CalPERS' Contributed Projects shall be contributed
to the Company in their "as-is" condition, without any representation or
warranty, either express or implied, except for the representations set forth in
EXHIBIT F, attached hereto, or elsewhere in this Agreement.
Attached hereto as EXHIBIT D-2 is a list of certain properties
presently owned by CalPERS that are not anticipated to be contributed to the
Company (the "EXCLUDED PROJECTS"). CalPERS anticipates that the Excluded
Projects will be marketed for sale in due course outside of the Company.
(b) BPOP'S INITIAL CAPITAL CONTRIBUTION. Either concurrently with
CalPERS' contribution of the CalPERS' Contributed Projects to the capital of the
Company on October 1, 1998, or such reasonable period of time thereafter as the
parties may agree (but not to exceed beyond October 31 unless Approved by
CalPERS), BPOP shall make an Initial Capital Contribution to the Company in an
amount equal to 20% of the combined Initial Capital Contributions to be made by
both of the Members. For example, if CalPERS contributes CalPERS' Contributed
Projects with a Net Asset Value of $200 Million, then BPOP's Initial Capital
Contribution shall equal $50 Million, or 20% of the combined Initial Capital
Contributions to be made.
At CalPERS' option, BPOP's Initial Capital Contribution may be in the
form of Manager's Projects or cash. By August 15, 1998, BPOP shall submit a
list of Manager's Projects for CalPERS' consideration. The Net Asset Value of
each such Manager's Projects shall be established by reference to an appraisal
performed by an MAI appraiser selected by BPOP and reasonably satisfactory to
CalPERS. CalPERS shall then determine whether the valuation in such appraisal
is supported by the opinion of an independent fiduciary retained by CalPERS.
With respect to those Manager's Projects ultimately contributed to the Company,
BPOP shall pay for the cost of the appraisal (or reimburse CalPERS for the cost
of same); otherwise the cost of such appraisal shall be paid by CalPERS.
CalPERS shall pay the cost of the fiduciary's opinion. If, and only if, BPOP
and CalPERS are in agreement on the Net Asset Value of one or more of the
Manager's Projects (in their sole discretion), CalPERS may exercise its option
to cause BPOP to contribute one or more of the Manager's Projects by delivery of
written notice within 10 business days after the
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date CalPERS completed the appraisal process. If CalPERS exercises its
option, BPOP shall contribute all right and beneficial ownership of each
Manager's Project to the Company on the earlier of October 1, 1998, or 15
business days after CalPERS exercises its option. To the extent the Net
Asset Value of the Manager's Projects contributed to the Company is less than
BPOP's Initial Capital Contribution requirement, the difference shall be
contributed by the Manager in cash. If there are no Manager's Projects
acceptable to CalPERS, the Manager shall make its Initial Capital
Contribution entirely in cash on October 1, 1998.
Terms relating to CalPERS' due diligence requirements, BPOP's
representations and warranties with respect to the Manager's Projects and the
closing of the contribution of the Manager's Projects to the Company are further
described in EXHIBIT F.
The Net Asset Value of the Manager's Projects shall be adjusted for
the cost of those Capital Expenditures listed on EXHIBIT N-1. Subject to
CalPERS' Consent, title to the Manager's Projects may be held by Manager or an
Affiliate thereof as nominee for the Company. If legal title to one or more of
the Manager's Projects is to be held by Manager as nominee, Manager shall convey
all right and beneficial interest in the Manager's Projects pursuant to the same
terms set forth on EXHIBIT E when CalPERS holds title as nominee for the
Company. Revenues and expenses associated with the Manager's Projects shall be
prorated between BPOP and the Company as of the date the Manager's Projects are
contributed to the Company in the manner described in EXHIBIT F.
CalPERS acknowledges that it has been afforded the opportunity, among
other things, to review BPOP's files and to conduct a complete inspection of the
physical condition of the Manager's Projects, to review title and survey matters
and to analyze the operating performance of the Manager's Projects. BPOP alone
shall assume financial responsibility and liability for all claims, costs and
liabilities associated with the Manager's Projects, and shall indemnify, defend
and hold CalPERS harmless from same, that may arise out of events occurring
prior to the date the Manager's Projects are contributed to the Company,
including, without limitation, any environmental liabilities. CalPERS further
acknowledges that the Manager's Projects shall be contributed to the Company in
their "as-is" condition, without any representation or warranty, either express
or implied, except for the representations set forth in EXHIBIT F, attached
hereto, or elsewhere in this Agreement.
SECTION 3.2. ADDITIONAL CAPITAL CONTRIBUTIONS.
(a) To the extent the Company has insufficient capital from operations,
the Manager may call for Additional Capital Contributions by written
Notification to the Members from time to time for any purpose permitted under
this Agreement, including, without limitation, operating deficits, Incentive
Distributions (if and when payable under SECTION 3.9 of the Agreement) and the
acquisition, development or redevelopment of new Projects by the Company ("NEW
PROJECTS") or for emergency needs. Subject to any limitations contained in this
SECTION 3.2(a), such Additional
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Capital Contributions shall be contributed by the Members in accordance with
their respective Percentage Interests. CalPERS shall not be required to make
Additional Capital Contributions in excess of the amount to be contributed by
CalPERS under the approved Annual Investment Plan then in effect unless
CalPERS shall increase such commitment in writing; provided, however, that
CalPERS and Manager shall remain obligated to make Additional Capital
Contributions to fund the following: (i) emergency needs; (ii) sums payable
under previously executed construction agreements, architectural agreements
and other documents relating to the development, redevelopment or
construction of Projects; and (iii) amounts payable in connection with the
acquisition of New Projects pursuant to a binding agreement or letter of
intent (unless under the letter of intent the acquisition is not expected to
close within 90 days) (collectively, "COMMITTED FUNDINGS"); provided, that
the Manager shall use reasonable efforts to monitor items under (ii) and
(iii) so as to minimize the possibility that CalPERS' Additional Capital
Contributions will exceed the amount committed under the Annual Investment
Plan. CalPERS hereby agrees to commit to the Company the amount of the
Additional Capital Contributions to be contributed by CalPERS included in the
Annual Investment Plan Approved by CalPERS, a copy of the first of which is
attached hereto as EXHIBIT G, along with the template for future Annual
Investment Plans attached hereto as EXHIBIT G-1. The proceeds of any
unsecured Financings or Financings secured by one or more of the Company's
Projects shall also be available for recontribution (to the extent the
proceeds have been previously distributed to the Members) for investment in
New Projects. At all times during the Term, each Member shall be obligated
to fund its share of Additional Capital Contributions for Committed Fundings;
provided, however, that subject to the foregoing, at any time upon
Notification to the Manager, CalPERS may elect to reduce or eliminate its
capital commitment to acquire New Projects, other than to fund Committed
Fundings.
In addition to cash, BPOP shall be permitted to make Additional Capital
Contributions in the form of issuance of BPOP units to sellers of New Projects
that are acquired by the Company (or portions of such New Projects acquired by
BPOP for BPOP units); provided that CalPERS shall have 10 business days to
disapprove the amount to be credited to BPOP's Capital Account by reason of the
issuance of such BPOP units if CalPERS objects to the value of the BPOP units in
such transaction within 10 business days after receipt of a copy of the purchase
agreement. Unless CalPERS affirmatively objects to such valuation in writing
within such 10-day period or the parties otherwise agree on an alternative
valuation, for purposes of crediting BPOP's Capital Account the BPOP units shall
be valued in the amount of such BPOP units set forth in the applicable purchase
agreement.
With CalPERS' Consent, BPOP may contribute Additional Capital Contributions
in the form of contributions of Manager's Projects or other properties acquired
or to be acquired by BPOP. With respect to each such proposed contribution, the
Net Asset Value (and the value of BPOP's contribution) of each such Manager's
Projects or other property shall be established by reference to an appraisal
performed by an MAI appraiser selected by CalPERS or such other amount as the
parties may otherwise agree. CalPERS may determine whether the valuation in
such appraisal is
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supported by the opinion of an independent fiduciary retained by CalPERS.
With respect to those Manager's Projects or other properties BPOP proposes to
contribute, BPOP shall pay for the cost of the appraisal (or reimburse
CalPERS for the cost of same). CalPERS shall pay the cost of the fiduciary's
opinion, if any. Within 10 business days of receipt of all relevant
information concerning the proposed contribution of property, CalPERS shall
approve or disapprove the proposed contribution in its sole discretion. If
so approved by CalPERS, Additional Capital Contributions made in the form of
Manager's Projects or other properties are not required to be made
concurrently with Additional Capital Contributions made by CalPERS in the
form of cash so long as such BPOP Additional Capital Contributions are made
within 60 days of CalPERS' Additional Capital Contributions.
(b) In the event any Member ("NON-CONTRIBUTING MEMBER") shall fail to
make its portion of any such Additional Capital Contribution (but only when
such Member has an unfunded commitment to the Company under SECTION 3.2(a))
within the time period specified in the Notification (which shall not be less
than 10 days after such Member's receipt of such Notification from the
Manager), then the other Member (the "CONTRIBUTING MEMBER") shall have the
right, but not the obligation, to advance directly to the Company the funds
required from the Non-Contributing Member as a loan to the Company (the
"CONTRIBUTION LOAN") in accordance with the provisions of SECTION 3.2(c). At
the option of the Contributing Member and unless prohibited by a Financing,
repayment of a Contribution Loan may be secured by the Non-Contributing
Member's interest in the equity of one or more of the Company's Projects so
that the Contribution Loan qualifies as a "real estate asset" within the
meaning of Section 856(c)(5)(B) of the Code.
(c) In the event the Contributing Member elects to make a Contribution
Loan, then the Contribution Loan shall bear interest at a rate equal to the
lesser of (i) the Prime Rate plus 5% per annum, compounded monthly, or (ii) the
maximum rate of interest then permitted by law, compounded monthly, and, except
as set forth in SECTION 3.2(d), shall be repaid out of any subsequent
Distributions made pursuant to this Agreement otherwise payable to the
Non-Contributing Member, which amounts shall be applied first to interest and
then to principal, until the Contribution Loan is paid in full.
(d) In the event any Contribution Loan has not been repaid in full
within 45 days after the date the Contribution Loan is made, then, at any time
thereafter the Contributing Member may elect to take any of the following
actions:
(i) allow the Contribution Loan to remain outstanding, in which
event the Contribution Loan shall continue to bear interest and be repaid as
provided in SECTION 3.2(c) above; or
(ii) treat the outstanding principal balance of the Contribution
Loan and any accrued and unpaid interest thereon (the "CONTRIBUTION DEFICIENCY")
as an Additional Capital Contribution by the Contributing Member, and the
Percentage Interest of each Member shall thereupon be recalculated as of the
effective date of the Notification of such election as follows: The
Contributing
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Member's Percentage Interest shall be increased, and the Non-Contributing
Member's Percentage Interest shall be decreased, by the percentage equivalent
of a fraction in which the numerator is 105% of the Contribution Deficiency
and the denominator is the amount of the Capital Contributions of the Members
plus 105% of the Contribution Deficiency. For example, assume the Percentage
Interests of BPOP and CalPERS are 20% and 80%, respectively, and the Capital
Contributions of BPOP and CalPERS are $62.5 Million and $250 Million,
respectively, and that CalPERS makes its share of a total $50 Million
Additional Capital Contribution call but BPOP does not so that the
Contribution Deficiency equals $10 Million. In this case, if CalPERS so
elects, then the Percentage Interest of BPOP would be reduced, and CalPERS'
Percentage Interest would be increased, by 2.89256% ($10,500,000 /
($352,500,000 + $10,500,000)); or
(iii) the Contributing Member may treat the failure to repay the
current Contribution Loan as an Event of Default under this Agreement upon the
giving of written notice to the Non-Contributing Member and the expiration of
30 days without such Contribution Loan being repaid, in which event the
Contributing Member shall be entitled to exercise all of the remedies upon an
Event of Default as are set forth in ARTICLE V.
(e) The right of the Manager to require any Additional Capital
Contributions under the terms of this Agreement shall not be construed as
conferring any rights or benefits to or upon any Person not a party to this
Agreement, including, but not limited to, any creditor of the Company.
SECTION 3.3. PERCENTAGE INTERESTS. The Percentage Interest of CalPERS
shall be equal to 80%, and the Percentage Interest of BPOP shall be equal 20%,
subject to possible adjustment as provided in this Agreement.
SECTION 3.4. CAPITAL OF THE COMPANY; CAPITAL ACCOUNTS.
(a) CAPITAL ACCOUNT. Each Member shall have a Capital Account. Each
Member's Capital Account shall be credited with the amount of its Initial
Capital Contribution.
(b) ADJUSTMENTS TO CAPITAL ACCOUNT. Without limiting the generality of
the foregoing, the Capital Account of each Member shall be increased hereafter
by, INTER ALIA, (i) the amount of any Additional Capital Contributions by the
Member to the Company, and (ii) allocations to the Member of Income (or items
thereof pursuant to SECTION 3.4(e) hereof), including income and gain exempt
from tax and income and gain described in Treasury Regulations
Section 1.704-1(b)(2)(iv)(g), but excluding income and gain described in
Treasury Regulations Section 1.704-1(b)(4)(i), and the Capital Account of each
Member shall be reduced by INTER ALIA, (x) the amount of any Distribution to
such Member, (y) expenditures described in Section 705(a)(2)(B) of the Code and
(z) the Member's share of Loss (or items thereof pursuant to SECTION 3.4(f)
hereof), including loss and deduction described in Treasury Regulations
Section 1.704-1(b)(2)(iv)(g), but excluding items of loss and
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deduction described in clause (y) above and items of loss and deduction
described in Treasury Regulations Section 1.704-1(b)(4)(i) and (iii).
(c) COMPLIANCE WITH TREASURY REGULATIONS. The foregoing provisions and
the other provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Treasury Regulations Section 1.704-1(b),
and shall be interpreted and applied in a manner consistent with such
regulations. In the event the Manager shall determine that it is prudent to
modify the manner in which the Capital Accounts, or any debits or credits
thereto (including, without limitations, debits or credits relating to
liabilities which are secured by contributions or distributed property or which
are assumed by the Company or the Members), are computed in order to comply with
such regulations, the Manager, with Approval of the Members, may make such
modification, provided that it is not likely to have a material effect on the
amounts distributed to any Member pursuant to ARTICLE VI hereof upon the
dissolution of the Company. The Manager, with Approval of the Members, also
shall (i) make any adjustments that are necessary or appropriate to maintain
equality between the Capital Accounts of the Members and the amount of Company
capital reflected on the Company's balance sheet, as computed for book purposes,
in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g), and
(ii) make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Treasury Regulations
Section 1.704-1(b).
(d) MEMBERS' RIGHTS AND OBLIGATIONS REGARDING CAPITAL CONTRIBUTIONS. No
interest shall be paid by the Company on any Capital Contribution except as
specifically provided herein. Except as provided in SECTION 3.2(d)(ii), loans
to the Company by any Member shall not be considered Capital Contributions. A
Member shall not be entitled to demand the return of, or to withdraw, any part
of its Capital Contribution or its Capital Account, or to receive any
Distribution, except as provided in this Agreement. Except as specifically
provided herein or by separate agreement, no Member shall be liable for the
return of the Capital Contribution of any other Member or the payment of
interest thereon. No Member shall be obligated to make any contributions to the
capital of the Company other than the Capital Contributions provided for in this
ARTICLE 3.
(e) ALLOCATION OF INCOME. After giving effect to the Special
Allocations set forth in SECTION 3.5, and except as provided in SECTION 3.6,
Income of the Company for any period shall be allocated among the Members as
follows:
(i) To the Members, in proportion to the Loss previously
allocated to one Member as to the aggregate Loss previously allocated to both
Members up to the amount of Loss previously allocated to such Member reduced
by allocations of Income under this SECTION 3.4 (e)(i);
(ii) To CalPERS, up to the amount of the accrued Preferred Return
to the extent that the Company has distributed the Preferred Return to
CalPERS, less prior allocations of Income under this SECTION 3.4(e)(ii);
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(iii) To Manager, up to the amount of the accrued Manager's
Preferred Return to the extent that the Company has distributed the Manager's
Preferred Return to the Manager, less prior allocations of Income under this
SECTION 3.4(e)(iii);
(iv) To the Manager, up to the amount of the Manager's Incentive
Distribution to the extent that the Company has distributed the Manager's
Incentive Distribution to the Manager, less prior allocations of Income under
this SECTION 3.4(e)(iv); and
(v) To the Members, in proportion to their respective Percentage
Interests.
Notwithstanding the above, in the event that SECTION 3.9(c)(iv)(B)
applies with respect to any Distributions, Income from a Capital Transaction
which would otherwise be allocated pursuant to SECTION 3.4(e)(v) shall be
allocated to Manager to the extent of the cash or property actually distributed
to Manager pursuant to SECTION 3.9(c)(iv) (not including any "catch up"
distributions of Unreturned Capital Contributions provided for in
SECTION 3.9(c)(iv)(A) or (B))
(f) ALLOCATION OF LOSS. After giving effect to the Special Allocations
set forth in SECTION 3.5, and except as provided in SECTION 3.6, Loss of the
Company for any period shall be allocated to the Members in proportion to their
respective Percentage Interests.
Notwithstanding the above, Loss from a Capital Transaction with respect to
a sale of a Project shall be allocated first to Manager to the extent of
Manager's Unreturned Capital Contributions with respect to such Project after
reflecting any distributions of Unreturned Capital Contributions resulting from
such sale under SECTION 3.9(c), second to CalPERS to the extent of CalPERS'
Unreturned Capital Contributions with respect to such Project after reflecting
any distributions of Unreturned Capital Contributions resulting from such sale
under SECTION 3.9(c) and third to the Members in proportion to their respective
Percentage Interests. Furthermore, Loss from a Capital Transaction upon the
Liquidation of the Company shall be allocated first to Manager to the extent of
Manager's Unreturned Capital Contributions after reflecting any distributions of
Unreturned Capital Contributions resulting from such Liquidation pursuant to
SECTION 3.9(c), second to CalPERS to the extent of CalPERS' Unreturned Capital
Contributions after reflecting any distributions of Unreturned Capital
Contributions resulting from such Liquidation pursuant to SECTIONS 3.9(c)
and (e), and third to the Members in proportion to their respective Percentage
Interests.
(g) TAX CREDITS. Except to the extent otherwise provided in Treasury
Regulations Section 1.704-1(b)(4)(ii), any tax credits or tax credit recapture
for any Fiscal Year shall be allocated among the Members in accordance with each
Member's Percentage Interest as of the time such tax credit was claimed.
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SECTION 3.5. SPECIAL ALLOCATIONS. Notwithstanding any provision of
SECTION 3.4, the following special allocations (the "SPECIAL ALLOCATIONS")
shall be made for each Fiscal Year in the following order of descending
priority:
(a) COMPANY MINIMUM GAIN. Except as otherwise provided in Treasury
Regulations Section 1.704-2(f), if there is a net decrease in Company Minimum
Gain during any Company Fiscal Year, each Member shall be specially allocated
items of Company income and gain for such Fiscal Year (and, if necessary,
subsequent Fiscal Years) in proportion to and to the extent of, an amount
equal to the portion of such Member's share of the net decrease in Company
Minimum Gain, determined in accordance with Treasury Regulations Section
1.704-2(g). This SECTION 3.5(a) is intended to comply with the chargeback of
items of income and gain requirement in Treasury Regulations Section
1.704-2(f) and shall be interpreted consistently therewith.
(b) MINIMUM GAIN ATTRIBUTABLE TO MEMBER NONRECOURSE DEBT. Except as
otherwise provided in Treasury Regulations Section 1.704-2(i), if there is a
net decrease in Minimum Gain Attributable to Member Nonrecourse Debt during
any Company Fiscal Year, each Member with a share of Minimum Gain
Attributable to Member Nonrecourse Debt shall be specially allocated items of
Company income and gain for such Fiscal Year (and, if necessary, subsequent
Fiscal Years) in proportion to, and to the extent of, an amount equal to the
portion of such Member's share of the net decrease in the Minimum Gain
Attributable to Member Nonrecourse Debt, determined in accordance with
Treasury Regulations Section 1.704-2(i)(4). This SECTION 3.5(b) is intended
to comply with the chargeback of items of income and gain requirement in
Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(c) QUALIFIED INCOME OFFSET. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company
income and gain shall be specially allocated to such Member in an amount and
manner sufficient to eliminate, to the extent required by the Treasury
Regulations, such adjusted Capital Account deficit of such Member as quickly
as possible, provided that an allocation pursuant to this SECTION 3.5(c)
shall be made only if and to the extent that such Member would have a Capital
Account deficit (determined after the adjustments set forth in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d) and after adjusting such Member's
Capital Account upward for any obligation to restore pursuant to Treasury
Regulations Sections 1.704-1(b)(2)(ii)(c), 1.704-2(g)(1) and 1.704-2(i)(5))
after all other allocations provided for in this SECTION 3.5 have been
tentatively made as if this SECTION 3.5(c) were not in this Agreement.
(d) GROSS INCOME ALLOCATION. In the event a Member has a deficit
Capital Account at the end of any Company Fiscal Year which is in excess of
the sum of (i) the amount such Member is obligated to restore pursuant to any
provision of this Agreement, and (ii) the amount such Member is deemed to be
obligated to restore pursuant to the penultimate sentences of Treasury
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), such Member shall be
specially allocated items of Company income
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and gain in the amount of such excess as quickly as possible, provided that
an allocation pursuant to this SECTION 3.5(d) shall be made only if and to
the extent that Company would have a deficit Capital Account in excess of
such sum after all other allocations provided for in this SECTION 3.5 have
been made as if SECTION 3.5(c) and this SECTION 3.5(d) were not in this
Agreement.
(e) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any Company
Fiscal Year shall be allocated among the Members in proportion to the
Percentage Interests held by them during such Fiscal Year in accordance with
Treasury Regulations Section 1.704-2(b)(1). If the Manager determines in its
good faith discretion that the Nonrecourse Deductions must be allocated in a
different ratio to satisfy the safe harbor requirements of the Treasury
Regulations promulgated under Section 704(b) of the Code, the Manager is
authorized, if Approved by the Members, to revise the prescribed ratio to the
numerically closest ratio that does satisfy such requirements.
(f) MEMBER NONRECOURSE DEDUCTIONS. Member Nonrecourse Deductions for
any taxable period shall be allocated 100% to the Member that bears the
economic risk of loss (as defined in Treasury Regulations Section 1.704-2(b)
with respect to the Member Nonrecourse Debt to which such Member Nonrecourse
Deductions are attributable in accordance with Treasury Regulations Section
1.704-2(i)). If more than one Member bears the economic risk of loss with
respect to a Member Nonrecourse Debt, such Member Nonrecourse Deductions
attributable thereto shall be allocated between or among such Members in
accordance with the ratios in which they share such economic risk of loss.
(g) CODE SECTION 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(m)(2) or Treasury Regulations Section
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to the Members in complete
liquidation of its interest in the Company, the amount of such adjustment to
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis) and such gain or loss shall be specially allocated to the Members in
accordance with their respective Percentage Interests in the Company in the
event that Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or
to the Member to whom such distribution was made in the event that Treasury
Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(h) ALLOCATIONS TO COMPLY WITH SECTION 514(c)(9)(E) OF THE CODE.
Notwithstanding anything to the contrary contained in this ARTICLE III, all
of the allocations hereunder shall be made only to the extent that, and shall
be adjusted insofar as may be required (whether or not such allocations would
otherwise have, or be deemed to have, substantial economic effect) so that,
the Company's allocations satisfy the requirements of Section 514(c)(9)(E)
of the Code, Treasury Regulations Section 1.514(c)-2, applicable Treasury
Regulations, or other applicable
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guidance provided by the Treasury Department. Any such adjustments shall be
made in a manner that does not have an adverse economic effect on the Manager.
SECTION 3.6. CURATIVE ALLOCATIONS. The allocations set forth in
SECTIONS 3.5(a) through (g) above (the "REGULATORY ALLOCATIONS") are
intended to comply with certain requirements of Treasury Regulations Sections
1.704-1(b) and 1.704-2(b). Notwithstanding any other provisions of this
ARTICLE III (other than the Regulatory Allocations and allocations under
SECTION 3.5(h) hereof), the Regulatory Allocations shall be taken into
account in allocating other items of income, gain, loss, and deduction among
the Members so that, to the extent possible, the net amount of such
allocations of other items and the Regulatory Allocations to each Member
shall be equal to the net amount that would have been allocated to such
Member if the Regulatory Allocations had not occurred. In determining the
allocations under this SECTION 3.6, consideration shall be given to future
allocations under SECTIONS 3.5(a) and 3.5(b) that, although not yet made or
required, are likely to offset allocations under SECTIONS 3.5(c) and 3.5(d).
In addition, if Distributions are made or are anticipated to be made pursuant
to SECTION 3.9(e), then items of income, gain, loss and deduction shall be
allocated among the Members as appropriate to ensure that the Members' share
of liquidating distributions (if such distributions were to be made in
accordance with Capital Accounts) would be identical to the Members' rights
to Distributions pursuant to SECTION 3.9(e).
SECTION 3.7. TAX ALLOCATIONS: CODE SECTION 704(c). In accordance with
Code Section 704(c) and the Treasury Regulations thereunder and Treasury
Regulations Section 1.704-1(b)(4)(i), income, gain, loss and deduction (as
computed for tax purposes) with respect to any property contributed to the
capital of the Company or otherwise revalued on the books of the Company
shall, solely for tax purposes, be allocated among the Members to take into
account any variation between the adjusted basis of such property to the
Company for federal income tax purposes and its Fair Market Value at the time
of the contribution or revaluation. In addition, if any gain (as computed
for tax purposes) on the sale or other disposition of Company property shall
constitute recapture of depreciation under Sections 291, 1245 or 1250 of the
Code or any similar provision, such gain shall (to the extent possible) be
divided among the Members in proportion to the depreciation deductions
previously claimed by them (or their predecessor in interest) giving rise to
such recapture.
Any elections or other decisions relating to such allocations shall be
made by the Tax Matters Member in any manner that reasonably reflects the
purpose and intention of this Agreement. The Members acknowledge that the
traditional method as described in Treasury Regulation Section 1.704-3(b)
will be used with respect to the Manager's Properties, if any, and that the
remedial allocation method as described in Treasury Regulation Section
1.704-3(d) will be used for the CalPERS' Contributed Projects.
SECTION 3.8. ALLOCATIONS TO TRANSFERRED MEMBERSHIP INTERESTS. In the
event of a transfer of any Membership Interest, regardless of whether the
transferee becomes a Member, all items of income, gain, loss, deduction and
credit for the Fiscal Year in
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which the transfer occurs shall be allocated for federal income tax purposes
between the transferor and the transferee on the basis of the ownership of
the Membership Interest at the time the particular item is taken into account
by the Company for federal income tax purposes, except to the extent
otherwise required by Section 706(d) of the Code. Distributions made on or
after the effective date of transfer shall be made to the transferee,
regardless of when such distributions accrued on the books of the Company.
The effective date of the transfer shall be (a) in the case of a voluntary
transfer, the date on which the Manager receives Notification of the
transfer, or (b) in the case of an involuntary transfer, the date of the
operative event.
SECTION 3.9. DISTRIBUTIONS.
(a) The Manager shall determine each month whether cash or property is
available for Distribution to the Members.
(b) Cash or other property of the Company available for Distribution
upon the dissolution or liquidation of the Company (including cash received
upon the sale or other disposition of assets in anticipation of liquidation)
shall be distributed as provided in accordance with the provisions of SECTION
6.2 or SECTION 6.3, as applicable.
(c) The Company shall make Distributions of Cash Available for
Distribution monthly and Distributions of Extraordinary Cash Flow (including,
without limitation, any proceeds from the sale of a Project) within 30 days
of the event resulting in such Extraordinary Cash Flow. Such Distributions
of Cash Available for Distribution and Distributions of Extraordinary Cash
Flow shall be made (unless otherwise expressly stated in this subsection (c))
to the Members in the following order:
(i) To CalPERS, until CalPERS has been distributed an amount
equal to the undistributed Preferred Return;
(ii) To the Manager, until the Manager has been distributed an
amount equal to the undistributed Manager's Preferred Return;
(iii) To the Manager, until the Manager has been distributed an
amount equal to the Incentive Distribution distributable to the Manager under
SECTION 3.10, below; and
(iv) To the Members, in proportion to their respective Percentage
Interests on the date of the distribution.
Notwithstanding the distribution order contemplated above:
(A) If a Distribution of Extraordinary Cash Flow
constitutes proceeds from the sale of a Project, CalPERS shall receive a
priority Distribution (after any Distributions have been made under SECTION
3.9(c)(i) above) to the extent of its Unreturned Capital Contributions with
respect to such Project before any Distributions are made under SECTIONS
3.9(c)(ii), (iii) or (iv). Any amounts
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distributed to CalPERS under the preceding sentence shall be taken into
account when Distributions are made to the Members under SECTION 3.9(c)(iv),
and the Manager shall be entitled to receive "catch-up" Distributions from
the next Distribution. For example, if upon the sale of a Project the
Company has $95 Million of Extraordinary Cash Flow to distribute and the
Unreturned Capital Contributions of CalPERS and the Manager with respect to
such Project are $80 Million and $20 Million, respectively, then (assuming no
Distributions of Preferred Return to CalPERS are payable), the first $80
Million of Extraordinary Cash Flow would be distributed to CalPERS and the
remaining $15 Million would be available for distribution to the Manager.
The Manager's "catch-up" Distribution is $5 Million.
(B) As of the last day of each Fiscal Year, the Manager
shall determine the accrued and unpaid Preferred Return, the aggregate
Unreturned Capital Contributions of CalPERS and the aggregate NAV from
Unrealized Projects. If the accrued and unpaid Preferred Return PLUS the
aggregate Unreturned Capital Contributions of CalPERS exceeds 80% of the
aggregate NAV from Unrealized Projects, then Distributions of Extraordinary
Cash Flow in the subsequent Fiscal Year under SECTION 3.9(c)(iv) shall be
distributed to CalPERS before any Distributions are made to the Manager under
SECTIONS 3.9(c)(ii), (iii) or (iv), if, and to the extent, after giving
effect to any distribution to the Manager under SECTIONS 3.9(c)(ii), (iii) or
(iv), CalPERS' Unreturned Capital Contributions would be greater than 80% of
the NAV from Unrealized Projects then owned by the Company after the
Distribution. Any priority amounts distributed to CalPERS under the
preceding sentence shall be taken into account when subsequent Distributions
are made to the Members under SECTIONS 3.9(c)(ii), (iii) and (iv) and the
Manager shall be entitled to receive "catch-up" Distributions from the next
Distribution so long as there is sufficient NAV from Unrealized Projects at
the time of the Distribution. For example, assume that as of December 31,
1999, the accrued and unpaid Preferred Return is $8 Million (the Manager's
Preferred Return is $2 Million), CalPERS' Unreturned Capital Contributions
are equal to $80 Million, and the NAV from Unrealized Projects is equal to
$90 Million. Since the total of CalPERS accrued and unpaid Preferred Return
and Unreturned Capital Contributions ($8 + $80 = $88) exceeds 80% of the NAV
from Unrealized Projects (80% x $90 = $72), then CalPERS may be entitled to a
priority Distribution of Extraordinary Cash Flow under SECTION 3.9(c)(iv) in
the subsequent Fiscal Year under this subparagraph. Using the above example,
further assume Projects are sold in January, 2000, with respect to which
CalPERS has $30 Million of Unreturned Capital Contributions, the Manager has
$7.5 Million of Unreturned Capital Contributions and the Company has cash of
$50 Million to distribute. Under subparagraph (A) above, the first $8
Million would be distributed to CalPERS as Preferred Return and the next $30
Million would be distributed to CalPERS as Unreturned Capital Contributions.
Assuming that no Incentive Distribution is due, the remaining $12 Million
would ordinarily be distributed $2 Million to the Manager as Preferred
Return, $7.5 Million to the Manager as a "catch-up" of the $30 Million return
of capital to CalPERS, and the balance of $2.5 Million would be distributed
in accordance with Percentage Interests ($2 Million to
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CalPERS and $.5 Million to the Manager). However, after the sale and
distribution, the NAV from Unrealized Projects then owned by the Company is
equal to $40 Million based on the most recent annual appraisal of the
Projects. If a distribution of the $10 Million remaining after distribution
of the Manager's Preferred Return is made as a catch-up distribution and then
in accordance with Percentage Interests, then CalPERS' Unreturned Capital
Contributions would be equal to $48 Million ($80 -$30 - $2), which exceeds
80% of the NAV of Unrealized Projects then owned by the Company by $16
Million ($48 - ($40 x 80%)). Thus, of the $10 Million that would otherwise
be available to be distributed to the Members in accordance with Percentage
Interests under SECTION 3.9(c)(iv) (including the "catch-up"), CalPERS would
be entitled to the entire further distribution of $10 Million since after
giving effect to the Distribution, CalPERS Unreturned Capital Contributions
of $40 Million ($80 - $30 - $10) still exceeds $32 Million, or 80% of NAV
from Unrealized Projects.
(d) Intentionally omitted.
(e) If upon Liquidation of the Company CalPERS has not received
cumulative Distributions from the inception of the Company in an amount equal
to CalPERS' Preferred Return and CalPERS' Unreturned Capital Contributions,
then CalPERS shall receive a priority Distribution (after any Distributions
have been made under SECTION 3.9(c)(i) above) to the extent of its Unreturned
Capital Contributions before any Distributions are made under SECTIONS
3.9(c)(ii), (iii) or (iv).
(f) If the Manager determines that the Company has excess capital which
can be returned to the Members ("EXCESS CAPITAL"), the Company may from time
to time make Distributions of such Excess Capital in such amounts and at such
times as may be determined by the Manager in the priority set out in SECTION
3.9(c). After any such Distribution of Excess Capital is made, the Capital
Account and Unreturned Capital Contributions of each Member shall be reduced
by the amount of the Distribution received by each such Member.
SECTION 3.10. CALCULATION OF INCENTIVE DISTRIBUTION.
The Incentive Distribution payable to the Manager on any Calculation
Date, including the Final Calculation Date, shall be calculated as follows.
If there is more than one Incentive Portfolio as of a Calculation Date, the
calculations described below shall be performed separately for each Incentive
Portfolio.
(1) Calculate the Unleveraged Incentive Portfolio Return from
the inception of the Calculation Period through the Calculation Date and
compare to the Applicable NCREIF Index calculated over the same time period:
(a) If the Unleveraged Incentive Portfolio Return is equal
to or less than the Applicable NCREIF Index, then no Incentive Distribution
shall be payable for such Incentive Portfolio.
(b) If the Unleveraged Incentive Portfolio Return is
greater than the Applicable NCREIF Index, then proceed to step (2), below.
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(2) Calculate the Total Return from the inception of the
Calculation Period to the Calculation Date.
(3) Calculate the Real Internal Rate of Return over the
Calculation Period to the Calculation Date given Total Return determined under
step (2) above.
(4) Calculate the Real Return Benchmark from the inception of
the Calculation Period to the Calculation Date.
(5) Compare the Real Internal Rate of Return (step (3) above)
against the Real Return Benchmark (step (4) above).
(a) If the Real Internal Rate of Return is less than or
equal to the Real Return Benchmark, no Incentive Distribution is payable as
of the Calculation Date for such Incentive Portfolio.
(b) If the Real Internal Rate of Return is greater than the
Real Return Benchmark, proceed to step (6) below.
(6) Calculate the Excess Amount given Cash Inflows and Cash
Outflows over the Calculation Period through the Calculation Date.
(7) Calculate the Tentative Incentive Distribution, which shall
be equal to the Excess Amount multiplied by 25%.
(8) Calculate the NCREIF Adjusted Tentative Incentive
Distribution, which shall be equal to the Tentative Incentive Distribution
multiplied by the NCREIF Adjustment.
(9) Multiply the NCREIF Adjusted Tentative Incentive
Distribution by the Applicable Percentage.
(10) Calculate the aggregate sum of the Future Value of each
Prior Incentive Distribution actually distributed to the Manager in relation
to the Incentive Portfolio from the time beginning with the inception of the
Calculation Period through the Calculation Date for such Incentive Portfolio.
(11) Determine the Incentive Distribution distributable under
SECTION 3.9(c)(iii), if and as follows:
(a) If the NCREIF Adjusted Tentative Incentive Distribution
in step (9) exceeds the aggregate sum of the Future Value of each Prior
Incentive Distribution in step (10), then the difference shall be available
for distribution to the Manager by the Company as an Incentive Distribution
pursuant to SECTION 3.9(c)(iii). No further calculations are required.
(b) If the NCREIF Adjusted Tentative Incentive Distribution
in step (9) is less than or equal to the aggregate sum of the Future Value of
each Prior Incentive Distribution in step (10), then no Incentive
Distribution shall be available for distribution under SECTION 3.9(c)(iii) by
the Company to the Manager as of the Calculation Date. No further
calculations are required.
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Attached hereto are models showing the calculation of the Incentive
Distribution using hypothetical numbers and portfolios of Projects.
SECTION 3.11. LIABILITY OF MEMBERS AND OTHERS; INDEMNIFICATION.
(a) Except as otherwise provided in the Act or this Agreement, the
Members shall not be liable for the debts, liabilities, contracts or any
other obligations of the Company. The Members shall be liable only to make
their respective Capital Contributions and may, but shall not be required to,
lend to the Company.
(b) No Member or Manager (or any partner, director, shareholder,
officer or employee of any Member, direct or indirect) shall be liable to the
other Members or to the Company for any act or omission performed or omitted
by it in respect of this Agreement or the Company unless such action or
omission constitutes gross negligence, fraud or willful misconduct or a
breach of such Member's or Manager's obligations under this Agreement.
(c) The Company shall defend, protect, indemnify and hold harmless each
Member or Manager and their respective partners, officers, directors,
shareholders, agents and employees (collectively, "INDEMNITEES") harmless
from and against any third party claims, demands, losses, damages,
liabilities or costs and expenses, including, without limitation, attorneys'
fees and court costs (collectively, "CLAIMS") suffered or incurred by any of
them by reason of their actions or omissions pursuant to this Agreement or by
reason of their being a Member in or Manager of the Company, other than those
suffered or incurred by reason of such Indemnitee's willful misconduct,
fraud, gross negligence or breach of such Member's or Manager's obligations
under this Agreement. If an Indemnitee shall be made, or is threatened to be
made, a party to any claim, action or proceeding arising out of conduct by
such Indemnitee on behalf of the Company following the Effective Date, such
Indemnitee shall immediately give the other Member(s) written notice of such
claim, action or proceeding, and the other Member(s) shall have the right to
join the resisting and defending of such claim, action or proceeding. The
Company shall, for all Claims indemnifiable by the Company under this SECTION
3.11(c), pay all attorneys' fees and other expenses incurred by the
indemnified party so long as such party provides to the Company a reasonably
satisfactory undertaking to reimburse the Company in the event the Claim at
issue turns out not to be a Claim indemnifiable by the Company under this
SECTION 3.11(c). Each Member shall cooperate, and shall cause its
Indemnitees to cooperate, in connection with the defense of any claim, action
or proceeding involving an Indemnitee which is indemnifiable under this
SECTION 3.11(c). Any indemnification pursuant to this SECTION 3.11(c) shall
be made only from the assets of the Company.
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ARTICLE IV
MANAGEMENT OF THE COMPANY;
POWERS OF THE MANAGER
SECTION 4.1. MANAGEMENT BY MANAGER.
(a) The overall management and control of the business and affairs of
the Company shall be vested in the Manager. Except for those matters
expressly required under this Agreement to be Approved by the Members or
CalPERS, all decisions with respect to the management of the Company made by
the Manager shall be binding on the Company and each of the Members. BPOP is
hereby appointed Manager of the Company and in that capacity, BPOP, on behalf
of the Company, shall conduct or cause to be conducted the ordinary and usual
business and affairs of the Company as required, and as limited, by this
Agreement, including taking the following actions:
(i) cause the Company to acquire, manage and sell Projects and
arrange Financings, in accordance with the Investment Objectives and
Policies, the Program Guidelines, the Annual Investment Plan and this
Agreement. Subject to any limitations set forth in this Agreement and the
financing guidelines in EXHIBIT C, the Manager shall, in its sole discretion,
be permitted to obtain the maximum Company Debt for the Projects at all times;
(ii) coordinate with each Managing Agent in the performance of
the Managing Agent's duties under the Management Agreement for a Project,
including implementing the Budget with respect to such Project;
(iii) protect and preserve the interest of the Company with
respect to each Project and other assets owned by the Company and use
diligent efforts to comply with all applicable laws and regulations and any
agreements of the Company;
(iv) keep all books of account and other records of the Company;
(v) to the extent not coordinated by a Managing Agent,
coordinate the services of all supervisors, architects, engineers,
accountants, attorneys and other persons necessary or appropriate to carry
out the business of the Company;
(vi) maintain all funds of the Company in a Company account in a
bank or banks;
(vii) make Distributions periodically to the Members in accordance
with the provisions of this Agreement;
(viii) comply with all policies of insurance insuring the Company
in accordance with CalPERS' policies and procedures;
(ix) institute or defend litigation; provided that CalPERS shall
be apprised of any matter in which the amount in controversy exceeds $50,000;
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(x) perform other normal business functions and otherwise
operate and manage the business affairs of the Company in accordance with and
as limited by this Agreement;
(xi) in connection with the acquisition or Financing of any
Project, in good faith use reasonable efforts to obtain appropriate consents
from any third party to the effect that the conversion of such Project in
accordance with ARTICLE X will not violate any material covenant to any third
party or trigger any acceleration of or penalty payment with respect to any
mortgage or deed of trust secured by the Project, or upon the closing of any
Conversion of the Project all material representations, warranties,
indemnities or similar provisions benefiting the Company in any agreement of
the Company with respect to such Project would succeed to the benefit of the
transferee of such Project; and
(xii) perform all other obligations provided elsewhere in this
Agreement to be performed by the Manager.
(b) BPOP shall devote to the Company such time and personnel as may be
necessary for the proper performance of its duties hereunder. BPOP shall
send Notification to CalPERS if any officer of BPOP or BPPI no longer holds
office. CalPERS shall be permitted to review (but not copy) the Manager's
compensation policy and the total compensation paid by BPOP to its officers.
The officers of BPOP and BPPI shall have no personal rights in this Agreement
and are not intended to be third-party beneficiaries of any party to this
Agreement.
(c) Manager acknowledges that in the performance of its services under
this Agreement, in its fiduciary capacity, Manager shall at all times
discharge its obligations under this Agreement strictly in accordance with
the standards of conduct applicable to a plan fiduciary as set forth in
California Constitution Article XVI, section 17 and California Government
Code section 20151, and to the extent applicable, as contemplated by section
3(21)(A) of the Employee Retirement Income Security Act of 1974.
(d) In accord with the Investment Objectives and Policies and Program
Guidelines, the Manager shall undertake the following specific
responsibilities, subject to any approvals that may be required by CalPERS or
the Members as expressly required by this Agreement:
(i) No earlier than 60 days but no later than 30 days prior to
the beginning of the Company's Fiscal Year, prepare an annual strategic plan
with a 3-year forecast of operating performance, hold/sell analyses and
competitive market update for the Company's Projects in a format approved by
CalPERS. No earlier than 60 days but no later than 30 days prior to the
beginning of the Company's Fiscal Year, prepare and present to CalPERS an
annual investment plan ("ANNUAL INVESTMENT PLAN") which identifies attractive
investment markets and describes how the Manager will endeavor to obtain the
investment return objectives based upon the established Investment Objectives
and Policies. The Annual Investment Plan will also identify types of new
Project investment opportunities or
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development and construction of new Projects that are consistent with the
Investment Objectives and Policies and specify the amount of Capital
Contributions that may be required from the Members (including CalPERS'
share) to invest in such opportunities. Representatives of CalPERS will then
review the Annual Investment Plan and meet with representatives of the
Manager to discuss it. Thereafter, CalPERS will then either approve the
Annual Investment Plan or request that the Manager revise it for CalPERS
subsequent review and approval. If the Annual Investment Plan has not been
approved by the commencement of the Company's Fiscal Year, then the Annual
Investment Plan for the prior Fiscal Year shall remain in effect until the
new Annual Investment Plan is approved.
(ii) If the Manager desires to present a Project investment
proposal which falls outside the established Investment Objectives and
Policies or Program Guidelines, then Manager shall prepare and package an
investment proposal, in a format consistent within agreed specifications, for
presentation to CalPERS for review and for the approval of CalPERS within 10
business days after submission (however, if the matter requires CalPERS
Investment Committee approval, then the matter may require 30 days for
CalPERS' approval). If a Project investment proposal falls within the
Investment Objectives and Policies and the Program Guidelines but outside the
Annual Investment Plan, CalPERS shall receive Notification of such proposal.
(iii) Select, underwrite, negotiate and coordinate closing and
funding of investment opportunities in New Projects consistent with the
Annual Investment Plan and Program Guidelines or later approvals. This
includes processing of the necessary documentation with CalPERS' Staff in
order to process investment claims within the Investment Office to fund the
acquisition of the Project, including without limitation, providing to
CalPERS' Staff an acquisition summary for each Project (in the form of
EXHIBIT O attached hereto) to be acquired by the Company at least ten days
prior to the closing of the acquisition such Project. For information
purposes only, the Manager shall also concurrently provide CalPERS Staff with
a copy of all reports and information presented to the Manager's investment
committee when such investment committee is considering a New Project for
investment. Bi-monthly the Manager shall submit to CalPERS a "pipeline"
report in form acceptable to both CalPERS and the Manager; provided that
CalPERS shall hold such report in confidence and shall not disclose such
report to any third parties.
(iv) Provide various asset management services for the Projects
with discretion to execute leasing decisions, capital expenditure programs
and selection of property management and leasing agents. The Manager shall
assist CalPERS Staff in developing and executing efficient monitoring
processes for the Company's Projects consistent with the to-be-developed
CalPERS Annual CORE Monitoring Policy.
(v) Comply with CalPERS' periodic performance reporting and
accounting requirements set forth in SECTION 7.3.
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(vi) Periodically review and monitor the Projects to determine
sales opportunities and timing of such sales for properties within the
portfolio. Once a Project has been determined by the Manager to be a sales
candidate, the Manager shall have responsibility to market and sell the
designated Project based upon the Investment Objectives and Policies and
Program Guidelines. The listing broker, if a non-Affiliate of the Manager,
must be included in a list of brokerage companies Approved by CalPERS. As
further provided in SECTION 4.10 but subject to the limitations in SECTION
4.10, the Manager may be required to market and sell a Project at any time at
the sole discretion and determination CalPERS.
(vii) Attend periodic meetings with CalPERS' Staff to discuss
investment opportunities in New Projects, performance monitoring of
individual Projects and/or the portfolio of Projects, the status of asset
management by the Managing Agents, and the research material generated within
the Manager's own firm or research materials obtained from third party
research and marketing firms. Reporting functions may include submission by
hard-copy and computer disk files utilizing software acceptable and
compatible to those utilized by CalPERS' Staff, which shall initially be
Argus software.
(viii) Conduct in-depth analysis, financial reviews, background
checks, and due diligence reviews on prospective Projects, Project
developers, general partners, co-investment structures, and on any
development/construction Projects that the Manager determines the Company
should consider for investment.
(ix) Prepare industry/market analyses as requested and directed
by CalPERS. If the Manager reasonably determines that it does not have the
expertise to perform the analyses with its existing personnel, it may hire a
third-party consultant with the prior Consent of CalPERS. The cost of such
consultant shall be paid by CalPERS.
(x) Use all reasonable efforts to ensure that the Company's
purchase and sale agreements comply with the legal issue guidelines attached
hereto as EXHIBIT J. The Manager may depart from the legal guidelines in a
particular transaction using its reasonable judgment. To the extent the
Manager elects to proceed with a particular transaction that materially
departs from the legal issue guidelines, then the Manager shall notify
CalPERS' Staff and CalPERS-assigned outside contract legal counsel and
provide a recommended course of action. CalPERS' Staff and counsel may
reasonably object to the Manager's course of action within 72 hours of the
receipt of such notice. The cost of CalPERS' in-house legal counsel and
CalPERS-assigned outside contract counsel shall be paid by CalPERS. The
Company shall use CalPERS' risk management services, including its insurance
and environmental risk management policies.
(xi) Undertake other duties and services as may be reasonably
required by CalPERS that are consistent with and contemplated by the
foregoing, included, but not limited to, special projects, so long as such
duties and services are consistent with the normal asset management
obligations of first-class managers of comparable projects owned by
institutional investors. If the Manager reasonably
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determines that it does not have the expertise to perform the duties and
services and projects with its existing personnel or if such duties or
services may affect its status as a REIT, it may hire a third-party
consultant (or, in the case of activities inconsistent with REIT status, an
Affiliate of the Manager) with the prior Consent of CalPERS. The cost of
such consultant shall be paid by CalPERS.
(xii) Comply with all laws applicable to Manager given its
relationship to CalPERS, including those laws applicable to it specifically
because of its relationship to the Board (including without limitation
Government Code Sections 16640, et seq. and Government Code Section 20151).
(xiii) Keep CalPERS informed of all facts, information, projections
or other Project specific matters which could be reasonably expected to have
a material adverse impact, (such as a condemnation, casualty, emergency
repair, environmental, deviations from a Budget, etc.) upon the operations or
development of a Project, or on the economic interests of the Company. For
purposes of the preceding sentence "material" shall mean any matter which is
likely to result in a cost or loss of more than $100,000, unless such matter
is specifically contained in the current Budget for the operation of the
applicable Project. The Manager further agrees to provide to the Members all
information relating to the Company which any Member reasonably requests.
(e) Notwithstanding anything to the contrary contained in this
Agreement, a Management Agreement or the Certificate, no act shall be taken
or sum expended or obligation incurred by the Company or any Manager or
Member, or anyone on their behalf, with respect to any of the following
matters, unless such matter has been Approved by CalPERS:
(i) obtaining any Financing, or any increase in or extension of
such Financing, including the approval of the documents evidencing any such
Financing (which approval shall be determined within five business days in
the case of any proposed loan assumptions or seller financings in connection
with the acquisitions of New Projects), or selecting the lender or lenders
providing such Financing, all except as provided in the Financing Guidelines
attached hereto as EXHIBIT C;
(ii) causing the sale, exchange or other voluntary transfer of
one or more Projects if such sale would cause the Net Asset Value of the
Company's remaining Projects to be less than the minimum portfolio size to be
maintained by the Company, as set forth in the Annual Investment Plan;
(iii) commencing any new construction or capital improvement on a
Project with respect to an uninsured loss costing in excess of the greater of
1.5% of the Fair Market Value of such Project or $250,000 not otherwise
contained in the Budget;
(iv) entering into any material contract or other agreement
relating to goods or services to be provided to a Project that cannot be
canceled on less than
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90 days notice without penalty to the Company (excluding construction
contracts and architectural contracts);
(v) approving the admission of a new Member to the Company or
the appointment of a successor or an additional Manager;
(vi) doing any act in contravention of this Agreement or the
Certificate or using any Company property for other than a purpose of the
Company as set forth in SECTION 2.4 above;
(vii) terminating or dissolving the Company except in accordance
with ARTICLE VI below;
(viii) entering into any contract or transaction with an Affiliate
not otherwise specifically permitted in this Agreement (excluding the
issuance of limited partnership units in the Manager);
(ix) selecting or changing any attorneys, environmental
consultants, structural engineers or the Accountant, except from those
included on a list of such professionals Approved by CalPERS or selected by
CalPERS; provided that such professionals shall be required to comply with
any policies or procedures mandated by CalPERS' legal office, if CalPERS so
elects;
(x) instituting any legal action involving a claim in excess of
$250,000 (excluding unlawful detainer actions or rent collection cases);
settling any legal action which involves an uninsured expense in excess of
$250,000 or confessing a judgment against the Company;
(xi) entering into a joint venture or other co-ownership
relationship with respect to the ownership of a Project;
(xii) causing the sale, exchange or other voluntary transfer of
one of the Company's Projects if the consideration to be received from the
transferee constitutes in whole or in part, equity or debt securities; or
(xiii) taking any other action or making any other decision which
is to be Approved by the Members or CalPERS pursuant to an express provision
of this Agreement and not otherwise provided above.
(f) In the exercise of its fiduciary obligations under this Agreement,
BPOP shall not be required to take or fail to take any action, or cause the
Company to take or fail to take any action, inconsistent with BPPI's REIT
status. Subject to SECTION 4.10, BPOP shall not be required to cause the
Company to take any action that would constitute a "prohibited transaction"
within the meaning of Section 857(6)(B)(iii) of the Code or manage the
Company's properties in a manner that would cause rent from such properties
to fail to qualify as "rents from real property" within the meaning of
Section 856(d) of the Code. BPOP shall notify CalPERS of any such actions
that it did not undertake or was prohibited from undertaking because of the
provisions of this SECTION 4.1(f) and BPPI's status as a REIT.
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SECTION 4.2. PROPERTY MANAGEMENT. The Company, with the Manager's
approval, may hire an independent contractor to manage a Project pursuant to a
Management Agreement between the Company and such third party (the "MANAGING
AGENT"). The Managing Agent's obligations to render management services with
respect to a Project shall be governed by and be derived solely from the
Managing Agent's obligations, as set forth in the form of Management Agreement
attached hereto as EXHIBIT K ("CalPERS APPROVED FORM"), and the relationship of
the Managing Agent to the Company (to the extent of the Managing Agent's
activities as manager of the Property) shall be that of independent contractor.
The Members acknowledge that the Managing Agent for all of the Company's
Projects shall be an Affiliate of BPOP, unless the Manager elects to use another
Managing Agent. If the Manager elects to use a Managing Agent that is not an
Affiliate of BPOP, then the form of property management agreement need not be
CalPERS Approved Form so long as the terms thereof are not less favorable to the
Company. Any material changes to the term of the CalPERS Approved Form
(regardless of whether such Management Agreement is with an Affiliate of BPOP or
a third party manager) shall require the prior Consent of CalPERS. CalPERS may
cause the Company to terminate the Managing Agent (or the property manager for a
specific Project) of a Project upon the occurrence of an event constituting a
For Cause Removal Event under SUBSECTIONS 4.7(a)(i), (v), (vi), (vii) or (viii)
with respect to such Project or if CalPERS determines that another event has
occurred with respect to such Project or Managing Agent that has or could have a
material adverse effect upon the performance, reputation or value of such
Project or the reputation of such Managing Agent and the Manager has not
undertaken corrective measures to the reasonable satisfaction of CalPERS within
90 days after Notification by CalPERS of such event, or if such Project has
materially under-performed (based on net operating income per rentable square
foot) relative to comparable retail projects in the Project's market during the
preceding 12-month period; provided that the termination of the Managing Agent
(when an BPOP Affiliate) from 25% or more of the Company's Projects shall be
deemed an effective termination of BPOP as Manager under SECTION 4.7(a).
SECTION 4.3. INVESTMENT OPPORTUNITIES. The Manager shall have a fiduciary
obligation with respect to the Company and to the Members concerning any and all
opportunities to acquire ownership of Projects in the Western United States that
satisfy the Investment Objectives and Policies and the Program Guidelines (a
"QUALIFYING OPPORTUNITY"). The provisions of this SECTION 4.3 shall NOT apply
(i) to any merger or consolidation opportunities of BPPI that involve the
acquisition or issuance of equity securities, (ii) to those potential
transactions listed on EXHIBIT S for which BPPI, BPOP or an Affiliate of either
of them has signed a letter of intent or purchase agreement, (iii) to any
Qualifying Opportunity arising after one of the events set forth in SECTION 5.1
occurs, or (iv) to any Qualifying Opportunity if the cost to acquire such
Qualifying Opportunity exceeds CalPERS' uninvested Additional Capital
Contributions available in the then-approved Annual Investment Plan
(collectively, "EXCLUDED OPPORTUNITIES"). The Manager (or BPPI) may undertake
the Qualifying Opportunity on its own account or on behalf of
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another client of the Manager or BPPI only if it first complies with the
requirements of this SECTION 4.3. When a Qualifying Opportunity is
consistent with the investment objectives of other clients, partners or
co-venturers of the Manager (or BPPI), the Manager shall offer it to the
Company and to such other clients, partners or co-venturers pursuant to the
standardized allocation policy Approved by CalPERS that, among other things,
requires that such opportunities be offered to competing accounts on a
rotating basis; provided, however, that no more than two other clients,
partners or co-venturers of BPOP or BPPI shall be included in such allocation
policy without the Consent of CalPERS, which may be withheld in CalPERS' sole
discretion. For each Qualifying Opportunity so undertaken by another client,
partner or co-venturer of the Manager or BPPI, the Manager shall disclose to
CalPERS the location of the Qualifying Opportunity, the identity of the
client, partner or co-venturer by code such that the identity remains
confidential, the number of square feet, the size of the purchase price in
dollars, the projected rate of return to the client, partner or co-venturer
and for the subsequent three-year period thereafter, the actual returns
earned by the client, partner or co-venturer. Each Qualifying Opportunity
that the Manager (or BPPI) proposes to undertake solely for its own account
(excluding, however, Excluded Opportunities) shall first be offered to the
Company. Such Qualifying Opportunity shall be presented to CalPERS' Staff
for CalPERS' consideration before the Manager (or BPPI) undertakes such
Qualifying Opportunity. Only if CalPERS rejects the Qualifying Opportunity
in writing after full disclosure of the information mentioned above shall
Manager (or BPPI) be permitted to undertake the Qualifying Opportunity for
its own account. CalPERS shall respond to such requests within ten business
days from actual receipt. CalPERS' failure to respond shall be deemed a
rejection. Notwithstanding the foregoing, CalPERS and Manager may, directly
or indirectly, invest in other specialized non-core debt or equity programs
(as described in EXHIBIT A) that involve a secured or ownership interest in
other retail projects that may compete with the Company's Projects, such as
specialized funds (e.g., a fund devoted to Speculative Shopping Center
Development Projects only). If CalPERS is presented with a Qualifying
Opportunity by a third-party other than BPOP, then CalPERS shall present such
Qualifying Opportunity to the Company for underwriting by BPOP for possible
acquisition by the Company. BPOP shall also have the first opportunity to
provide all services contemplated in such transaction. CalPERS shall not
acquire any Qualifying Opportunity unless the Manager rejects such Qualifying
Opportunity.
SECTION 4.4. SCOPE OF MEMBERS' AUTHORITY. Except as otherwise expressly
and specifically provided in this Agreement, no Member shall have any authority
to bind or act for, or assume any obligations or responsibility on behalf of,
the Company or any other Member. Neither the Company nor any Member shall by
virtue of executing this Agreement be responsible or liable for any indebtedness
or obligation of, or claim against, any other Member. Neither the Company nor
BPOP shall be responsible or liable for any indebtedness or obligation of
CalPERS relating to the CalPERS' Contributed Projects incurred or arising prior
to the contribution of the CalPERS' Contributed Projects to the Company, except
as to those
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responsibilities, liabilities, indebtedness, or obligations expressly assumed
by the Company or incurred after the date the Company acquires the CalPERS'
Contributed Projects pursuant to this Agreement. Nothing herein contained
shall be considered to constitute any Member as the agent of the other
Member, except as specifically authorized and provided for herein.
SECTION 4.5. TITLE TO COMPANY PROPERTY. All property owned by the
Company, whether real or personal, tangible or intangible, shall be deemed to be
owned by the Company as an entity, and no Member, individually, shall have any
ownership of such property. The Company may hold any of its assets in its own
name or in the name of its nominee, which nominee may be one or more
partnerships, limited liability companies, corporations, co-tenancies, trusts or
in the individual names of a Member.
SECTION 4.6. BUDGETS. Each year in conjunction with the preparation of
the strategic plan, the Manager shall prepare and submit a Budget to CalPERS for
informational purposes only, except that a proposed Budget shall be Approved by
CalPERS if the proposed Budget reflects an adverse material variance of 10% or
more from the amount of net operating income anticipated to be received by the
Company (using only the same Projects owned in the prior year) compared to the
higher of (i) the actual net operating income received from those same Projects
in the prior year, or (ii) the budgeted net operating income for those same
Projects, as reflected in the prior Budget. The Manager shall also provide
CalPERS with a comparison of the mid-year results of the Company's operations
versus the Budget for such six-month period. The Manager shall implement the
Budget and shall be authorized, without the need for further approval by the
Members, to make the expenditures and incur the obligations provided for in the
Budget, EXCEPT that the following matters shall be Approved by CalPERS:
(a) With respect to a Capital Expenditure (limited for purposes hereof to
mean major renovations, expansions or unanticipated events not included in the
Budget, and excluding tenant improvements and leasing commissions) costing
greater than the lesser of $1 Million or 10% of the Fair Market Value of such
Project, a negative variance of 10% or more from the amount in the Budget for
such Capital Expenditure (the contingency in the original Budget shall not
exceed 5% of the total costs of the Capital Expenditure); or
(b) An adverse material variance of 10% or more from the amount of the net
operating income to the Company budgeted for all Projects in the current year's
Budget. The Manager shall notify CalPERS and provide detailed reasons for such
variance and the Manager's recommendations for corrective action to be Approved
by CalPERS.
SECTION 4.7. REMOVAL OF MANAGER.
(a) In addition to all other rights in law or in equity, CalPERS may elect
to remove the Manager upon the occurrence of any one of the following events (a
"FOR CAUSE REMOVAL EVENT"):
(i) The Bankruptcy of the Manager;
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(ii) The failure of the Manager (or an Affiliate thereof, if the
Affiliate is a Member) to make any capital contribution required by the terms of
this Agreement, which is not paid within 30 days after its due date;
(iii) Any attempt of the Manager to assign its rights or obligations
under this Agreement in violation of this Agreement;
(iv) The material breach or violation of any material
representation or warranty by the Manager contained in this Agreement that is
not cured within 30 days after Notification from CalPERS;
(v) The misappropriation of Company funds by the Manager or one of
its Affiliates and their respective employees, unless such funds are immediately
restored upon the discovery thereof;
(vi) Any fraudulent act by the Manager or one of its Affiliates and
their respective employees affecting the Company or its assets that is not
promptly dealt with in a manner satisfactory to CalPERS;
(vii) The gross negligence or willful misconduct of the Manager with
respect to its material duties or obligations to the Company; and
(viii) Any other material default by the Manager in the performance
of any of its material agreements or obligations under this Agreement, unless
such default is cured within 30 days after written notice of such default is
given to the Manager, or, if not curable within 30 days, commenced within such
30 days and diligently prosecuted to completion.
(b) CalPERS may also elect to remove the Manager without cause upon at
least 90 days advance written notice (a "WITHOUT CAUSE REMOVAL EVENT"). The
notice shall specify the date the Manager's services will be terminated.
(c) If CalPERS elects to remove the Manager as the result of a For Cause
Removal Event, the Manager's management authority shall be immediately suspended
at the discretion of CalPERS. If CalPERS elects to remove the Manager as the
result of a Without Cause Removal Event, the Manager's management authority
shall cease on the effective date of the termination. In either case, at
CalPERS' election to be made within 45 days, the Company shall either (i) be
dissolved and the assets of the Company shall be distributed in kind to the
Members in accordance with the procedures described in SECTION 6.3, or
(ii) CalPERS may continue the business of the Company and certain of the assets
of the Company shall be distributed in kind to BPOP in liquidation of its
Membership Interest in accordance with the procedures described in SECTION 6.3.
If the Manager is removed due to a For Cause Removal Event, any actual damages
caused by the Manager may be deducted or offset against the value of the assets
distributable to BPOP. The Manager shall be paid all accrued fees payable to it
on the effective date of the Manager's termination. The assets of the Company
shall also be valued as of the effective date of the Manager's termination.
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SECTION 4.8. COMPENSATION AND REIMBURSEMENT OF MEMBERS AND THEIR
AFFILIATES. Except as may be expressly provided in this SECTION 4.8 or
elsewhere in this Agreement, no Member nor any of their Affiliates shall
receive, or shall be entitled to receive, any compensation, salaries,
commissions (including, without limitation, for any sale or refinancing of the
Projects), fees, profits, reimbursements or Distributions from the Company.
(a) If the Manager or an Affiliate of the Manager is the Managing
Agent(s), then such party shall receive the fees and compensation set forth in
the CalPERS Approved Form and EXHIBIT H. The Manager shall be entitled to the
various fees set forth in EXHIBIT H.
(b) The Manager shall be entitled to reimbursement for reasonable
out-of-pocket third party due diligence and negotiation costs incurred with
respect to projects not acquired by the Company to the extent such projects are
not acquired by BPOP or an Affiliate thereof. A budget of the third party due
diligence costs expected to be incurred shall be submitted to CalPERS within a
reasonable period of time after BPOP's portfolio manager approves the budget.
CalPERS shall be reimbursed by the Company for the reasonable cost of meals
incurred by CalPERS' staff in furtherance of the Company's business or on
CalPERS' oversight and review thereof.
(c) Each Member shall be responsible for the initial costs and expenses
for professional fees and expenses incurred by such Member in connection with
negotiating this Agreement. Unless expressly authorized for reimbursement under
this Agreement or otherwise Approved by CalPERS, all other fees and expenses
incurred by the Members in connection with carrying out of its obligations under
this Agreement shall be paid by the Members on their own account and shall not
be reimbursed to the Members or treated as Capital Contributions by them.
SECTION 4.9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE MEMBERS.
(a) CalPERS hereby represents and warrants to BPOP that the following are
true and correct as of the date hereof:
(i) CalPERS is duly organized and validly existing under the laws
of the State of California;
(ii) This Agreement (A) has been duly authorized, executed and
delivered by CalPERS, (B) upon execution by CalPERS, shall be the legal, valid
and binding obligation of CalPERS and (C) does not violate any provisions of
CalPERS' organizational documents or any document or agreement to which CalPERS
is a party or by which it is bound; and
(iii) CalPERS has the power and authority to perform the obligations
to be performed by it hereunder and no consents, authorizations or approvals are
required for the performance of the obligations to be performed by CalPERS under
this Agreement, except those as have been obtained.
(b) BPOP hereby represents and warrants to CalPERS that the following are
true and correct as of the date hereof:
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(i) BPOP is a limited partnership which has been duly formed and
is validly existing under the laws of the State of Delaware; and is duly
qualified to transact business in any jurisdiction required in order to carry
out its duties hereunder;
(ii) This Agreement (A) has been duly authorized, executed and
delivered by BPOP, (B) upon execution by BPOP, this Agreement shall be the
legal, valid and binding obligation of BPOP, and (C) does not violate any
provisions of BPOP's organizational documents or any document or agreement to
which BPOP is a party or by which any is bound; and
(iii) BPOP has the power and authority to perform the obligations to
be performed by it hereunder and no consents, authorizations or approvals are
required for the performance of the obligations to be performed by BPOP under
this Agreement except those as have been obtained.
SECTION 4.10. RIGHT TO SELL PROJECT. CalPERS, in its sole and absolute
discretion, shall have the right to cause the Company to sell any Project;
provided, however, that if the Project is an Existing Shopping Center Project
and such Existing Shopping Center Project is no longer 85% leased with a
weighted average lease term of at least five years due to (i) the loss of one or
more anchor tenants, or (ii) such Project is scheduled to be renovated or
repositioned as a Value-Added Shopping Center Project or Builds-To-Suit Shopping
Center Development Project, then the Manager shall have up to 12 months from the
date of CalPERS sales notice to improve occupancy above the 85% leasing
requirement before CalPERS can force a sale of such Project. CalPERS shall give
notice to the Manager of its decision to cause the Company to sell a Project.
Within 60 days of such notice to the Manager, the Manager shall have the right
to purchase the Project for its Fair Market Value prior to the Company placing
the Project for sale to unrelated third parties if the sale by the Company would
jeopardize the Manager's REIT status (as determined by an opinion of qualified
tax counsel to the Manager) or subject the Manager to additional federal income
tax liabilities because of excessive turnover of the Manager's portfolio. If
the Manager exercises its option to acquire the Project, the Manager shall pay
to the Company in cash the Fair Market Value of the Project within 120 days of
the date that CalPERS gave notice to the Manager of its decision to cause the
Company to sell the Project. If the Manager elects not to purchase the Project
at its Fair Market Value, then the Manager shall have a right of first refusal
to purchase the Project at the highest price offered by an unrelated third party
after the Project has been marketed for at least a 90-day period if such price
is less than Fair Market Value. If the price offered by the unrelated third
party is greater than the Project's Fair Market Value, then the Manager shall
not have a right of first refusal with respect to such Project. As partial
consideration for the sale of the Project to the Manager, the Manager shall
indemnify, defend and hold the Company and CalPERS harmless from any claim, cost
(including attorneys fees and costs of settlement), liability, loss or damage
arising from or in connection with the Manager's exercise of its right to
purchase the Project and in any way related to or connected with the Manager's
or its Affiliate's status as a REIT.
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ARTICLE V
WITHDRAWAL OF MEMBER;
EVENTS OF DEFAULT
SECTION 5.1. LIMITATION ON VOLUNTARY WITHDRAWAL.
(a) BPOP, in its sole discretion, may voluntarily retire, withdraw or
resign as a Member of the Company so long as BPOP provides to CalPERS at
least 180 days' prior written Notification of the effective date of BPOP's
withdrawal. Upon the effective date of such withdrawal, or such earlier date
at CalPERS' option if CalPERS has located a replacement Manager, BPOP shall
also resign as Manager and the Company shall be terminated unless a new
Member and/or Manager is admitted to the Company before or upon withdrawal of
BPOP and CalPERS elects to continue the Company in accordance with SECTION
6.1(b) hereof. Upon the effective date of such retirement, withdrawal or
resignation, the Company shall, at CalPERS election to be made within 45
days, either (i) be dissolved and the assets of the Company shall be
distributed in kind to the Members in accordance with the procedures
described in SECTION 6.3, or (ii) if CalPERS has elected to continue the
business of the Company, then certain of the assets of the Company shall be
distributed in kind to BPOP in liquidation of its Membership Interest in
accordance with the procedures described in SECTION 6.3. The date of
valuation for determining the value of the Company's assets for purposes of
SECTION 6.3 shall be the earlier of (i) the date a new Manager is appointed
to replace BPOP, or (ii) 120 days after the date of BPOP's Notification of
its intent to retire, withdraw or resign.
(b) In the event of a violation of SECTION 5.1(a) (i.e., early withdrawal
before the expiration of the notice period or no notice of withdrawal), the
voting rights associated with BPOP's Membership Interest and rights as Manager
shall terminate and BPOP shall be liable to CalPERS for all actual damages and
losses arising therefrom. Such termination shall occur automatically upon such
a withdrawal in violation of this SECTION 5.1 without further action by the
Company. Following such termination, BPOP shall have none of the management
rights associated with its Membership Interest, including any voting rights,
claims, or actions in or with respect to the Company.
(c) CalPERS shall not voluntarily retire, withdraw or resign as a Member
of the Company unless CalPERS provides to BPOP at least 90 days prior written
Notification of the effective date of CalPERS withdrawal. Upon the effective
date of such retirement, withdrawal or resignation, the Company shall either
(i) be dissolved and the assets of the Company shall be distributed in kind to
the Members in accordance with the procedures described in SECTION 6.3, or
(ii) if BPOP elects to continue the business of the Company, then certain of the
assets of the Company shall be distributed in kind to CalPERS in liquidation of
its Membership Interest in accordance with the procedures described in
SECTION 6.3. The date of valuation for determining the value of the Company's
assets for purposes of SECTION 6.3 shall be the effective date of CalPERS'
retirement, withdrawal or resignation.
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SECTION 5.2. EVENTS OF DEFAULT BY MEMBERS.
(a) The occurrence of any of the following events with respect to a Member
shall constitute an event of default ("EVENT OF DEFAULT") under this Agreement
on the part of such Member:
(i) the making by such Member of a warranty or representation
under this Agreement which was false in any material respect when made, as a
result of which the Company and the other Member, or either of them was or may
be materially and adversely affected, and if such Member fails to cure such
breach within 30 days after receipt of Notification thereof from the Manager;
(ii) failure of such Member to make any Additional Capital
Contributions to the Company required pursuant to SECTION 3.2;
(iii) any breach by such Member of the terms of this Agreement
applicable to such Member and failure to cure such breach within 30 days after
receipt of Notification thereof from the Manager, or if the breach is not
susceptible of cure within such 30 days, fails to institute prompt action and
prosecute to completion with diligence and continuity the curing of the breach;
(iv) any Transfer in violation of ARTICLE VIII.
(b) Upon the occurrence of an Event of Default by a Member which continues
beyond any applicable cure period, the non-defaulting Member shall, in addition
to all other rights and remedies available at law or in equity, require that the
Company either (i) dissolve and distribute the assets of the Company in kind to
the Members in accordance with the procedures described in SECTION 6.3, or
(ii) distribute in kind certain of the Company's assets to the defaulting Member
in liquidation of its Membership Interest (less any actual damages caused to the
Company by the defaulting Member's default), each in accordance with the
procedures described in SECTION 6.3. The value of the Company's assets shall be
determined as of the date of such Event of Default.
ARTICLE VI
DISSOLUTION AND LIQUIDATION OF THE COMPANY
SECTION 6.1. EVENTS CAUSING DISSOLUTION.
(a) The Company shall be dissolved upon the happening of any of the
following events:
(i) the termination, removal or withdrawal of any Member;
(ii) the sale or other disposition of all or substantially all of
the assets of the Company (subject to SECTION 4.1(e)(ii));
(iii) the agreement of the Members that the Company should be
dissolved; or
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(iv) the expiration of the Term of the Company set forth in
SECTION 2.5.
If the Company is not continued pursuant to SECTION 6.1(b) below,
dissolution of the Company shall be effective on the day on which the event
giving rise to the dissolution occurs. Immediately upon dissolution, the
Members shall proceed to wind up the affairs of the Company, and, upon
completion of such winding up, liquidate the Company's assets as provided in
SECTION 6.2 and SECTION 6.3; provided that if the Company dissolves because of
the events described in SECTIONS 6.1(a)(iii) or (iv), CalPERS may elect to
continue the Company and distribute in kind certain of the Company's assets to
BPOP in liquidation of its Membership Interest. Notwithstanding the dissolution
of the Company prior to the winding up of the affairs of the Company, as
aforesaid, the business of the Company and the affairs of the Members as such,
shall continue to be governed by this Agreement.
(b) Notwithstanding the occurrence of an event specified in
SECTION 6.1(a)(i) by or against BPOP, the Company shall not be dissolved and its
business and affairs shall not be discontinued, and the Company shall remain in
existence as a limited liability company under the Act, if CalPERS elects within
180 days after such occurrence to continue the Company and the Company business
and elects a successor Manager, if necessary.
SECTION 6.2. LIQUIDATION.
(a) Upon the dissolution of the Company, BPOP shall be appointed to act as
liquidator (the "LIQUIDATOR") to wind up the affairs of the Company, unless the
dissolution has been caused by the termination, removal or withdrawal of BPOP,
in which case CalPERS shall be the Liquidator. The Liquidator shall be required
to agree not to resign at any time without 15 days' prior written notice and may
be removed at any time, with or without cause, by notice of removal approved by
the other Member. Upon the resignation or removal of the Liquidator, a
successor and substitute Liquidator (who shall have and succeed to all rights,
powers and obligations of the original Liquidator) shall, within 30 days
thereafter, be appointed. Except as expressly provided in this SECTION 6.2, the
Liquidator approved in the manner provided herein shall have and may exercise,
without further authorization or approval of any of the parties hereto, all of
the powers conferred upon the Manager under the terms of this Agreement
(provided that the Liquidator shall be subject to all applicable limitations,
contractual and otherwise, upon the exercise of such powers) to the extent
appropriate or necessary in the reasonable and good faith judgment of the
Liquidator to carry out the duties and functions of the Liquidator hereunder for
and during such period of time as shall be reasonably required to complete the
winding-up and of the Company as provided for herein. The management of the
Company shall continue to be governed by the provisions of ARTICLE IV while the
Liquidator winds up the Company.
(b) After the allocation of Income or Loss under ARTICLE III, the proceeds
of liquidation shall be paid in the following order:
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(i) To the payment of any Company Debt, the expenses of
liquidation, and the establishment of such reserves as the Liquidator may
reasonably deem necessary for potential or contingent liabilities of the
Company; and
(ii) To the Members in accordance with the priorities set forth in
SECTION 3.9(c) (but subject to the provisions of SECTION 3.9(e)).
Any distributions under this ARTICLE VI to Members upon liquidation
(whether in cash, cash equivalents, or in kind) shall be made by the end of the
taxable year, in which the liquidation of the Company occurs (or, if later,
within 90 days after the date of such liquidation).
SECTION 6.3. DISTRIBUTION IN KIND. Upon the dissolution of the Company or
if a Member's Membership Interest is to be liquidated for whatever reason under
this Agreement, the assets of the Company shall be distributed in kind to the
Members in accordance with the procedure described below. Any unrealized gain
or loss with respect to such assets shall be allocated among the Members in
accordance with the provisions of ARTICLE III). Distribution of any assets in
kind to a Member shall be considered for purposes of SECTION 6.2 a distribution
of an amount equal to such sum specified below for such asset. Allocated
Projects shall be distributed to all Members if the Company is being dissolved
and liquidated, or to only one of the Members if only one of the Member's
Membership Interest is to be liquidated in accordance with the following
paragraph.
Within 30 days of the valuation date (i.e., the date triggering the
dissolution of the Company or the liquidation of a Member's Membership
Interest), BPOP shall list all of the Company's Projects and assign a Net
Asset Value to each of them, as determined by BPOP. BPOP shall also describe
in narrative format all material information concerning each Project that
should ordinarily be disclosed to a buyer of real property in California and
the basis for the Net Asset Value assigned to such Project. For a 45-day
period thereafter, BPOP shall make available to CalPERS or its consultants
any information it may have concerning the Company's Projects, and CalPERS
shall be permitted to obtain appraisals or other opinions of a fiduciary
concerning the Company's Projects as it deems necessary. After the
expiration of such 60-day period, CalPERS shall then have 15 business days to
identify those Projects it wishes to receive in kind until the aggregate Net
Asset Value of the Projects it has selected would result in CalPERS having
been allocated Projects having an aggregate Net Asset Value in an amount
approximately equal to the amount CalPERS would be entitled to receive on the
liquidation of its Membership Interest. To the extent the Net Asset Value of
the identified Projects is in excess of the amount CalPERS would be entitled
to receive on the liquidation of its Membership Interest, the overage will be
paid in cash to BPOP by CalPERS. All remaining Projects shall be allocated
to BPOP and distributed to it in kind. In no event shall partial interests
in a Project be distributed in kind to a Member. All transfer costs, title
insurance premiums, and other similar items incurred in connection with the
transfer of each Project shall be paid by the Member who receives each such
Project. The transfer of a Project to a Member shall include a
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transfer of all personal property and intangible contracts and rights owned
by the Company in connection with such Project.
SECTION 6.4. CERTIFICATE OF CANCELLATION. Upon the completion of the
distribution of Company assets as provided in this ARTICLE VI, the Company shall
be terminated, and the person acting as Liquidator (or the Members, if
necessary) shall cause a Certificate of Cancellation to be filed in the office
of the Secretary of State of Delaware, and shall take such other actions as may
be necessary or appropriate to terminate and wind up the Company.
ARTICLE VII
BOOKS AND RECORDS, ACCOUNTING,
REPORTS, TAX ELECTIONS, ETC.
SECTION 7.1. BOOKS AND RECORDS. The Manager shall keep just and true
books of account with respect to the operations of the Company. The books and
records of the Company shall be maintained at the principal office of the
Company and/or such other locations as may be designated by the Manager, and
shall be available for examination and copying at all times by the Members
during ordinary business hours.
SECTION 7.2. ACCOUNTING BASIS AND FISCAL YEAR. The Company's books and
records shall be closed and balanced at the end of each Fiscal Year. For
financial reporting purposes, the books and records of the Company shall be kept
on the accrual method of accounting and applied in a consistent manner as
decided by CalPERS (and which shall be consistent with generally accepted
accounting principles) and shall reflect all transactions of the Company and be
appropriate and adequate for the purposes of the Company. The accrual method
of accounting shall be used for both Company and tax accounting purposes. The
Fiscal Year of the Company shall be the 12-month period ending December 31.
SECTION 7.3. REPORTS.
(a) Within 15 business days after the end of each month, the Manager shall
have prepared and shall deliver to the Members such monthly reports as CalPERS
may reasonably request, which may include unaudited operating statements for
each of the Company's Projects.
(b) Within 45 days after the end of each Fiscal Quarter, the Manager shall
have prepared and shall deliver to the Members such quarterly reports as CalPERS
may reasonably request, which may include a balance sheet and operating
statements for each Project and for the Company, together with a written
analysis of operations of each of the Projects and a reasonably detailed
estimate of Cash Available for Distribution and a summary of all Distributions
during such Fiscal Quarter.
(c) Within 90 days after the end of each Fiscal Year, the Manager shall
send to the Members such tax information with respect to such year as shall be
necessary for inclusion by the Members in their Federal income tax returns and
required state
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income and other tax returns. Such information shall include a copy of the
Company's Form 1065 (or any successor form) and an EXHIBIT K-1 (or any
successor schedule) with respect to the Member's share of Company items. The
Manager shall also provide such additional information as may be required for
CalPERS to comply with state law.
(d) Within 90 days after the end of each Fiscal Year, the Manager shall
send to the Members (i) the balance sheet of the Company as of the end of such
year and statement of income (loss), Members' equity and statement of cash flow
of the Company for such year, and (ii) a statement of Cash Available for
Distribution and actual cash distributions for such year, all of which shall be
audited by the Accountant.
(e) The Manager shall, within 10 days after the Manager receives knowledge
of the following matters, give notice to the Members of (i) any default under
any Financing or breach of or default under any other material agreement of
which the Company is a party, (ii) nonpayment of property taxes with respect to
a Project, or (iii) any matter which will likely result in a substantial and
material loss (i.e., greater than $250,000) to the Company.
(f) For each business day that any of the above-mentioned reports to
CalPERS is late, the Manager shall pay to CalPERS a late fee of $100 per day.
Furthermore, the Manager shall reimburse CalPERS (outside of the Company) for
the actual costs incurred by CalPERS from its outside consultants in correcting
any error in the reports and financial information submitted to CalPERS under
this Agreement.
(g) The Manager represents and warrants to CalPERS fault-free performance
in processing of date and date-related data (including, but not limited to
calculating, comparing and sequencing) by all hardware, software and firmware
products used by the Manager to deliver services and other reports and
information under this Agreement, individually and in combination. Fault-free
includes manipulation of this data with dates prior to, through, and beyond
January 1, 2000, and shall be transparent to the user. The Manager will verify,
through appropriate testing and analysis, that the services and other reports
and information provided by the Manager under this Agreement are year 2000
compliant in accordance with the above, and shall use reasonable efforts to
ensure that services and other reports and other information provided by third
parties to the Company are year 2000 compliant. The foregoing shall not apply
to CalPERS Yardi reporting system or other vendors and systems approved by
CalPERS.
SECTION 7.4. PERIODIC REPORTS TO CalPERS. The Manager shall cause to
be prepared (at Company's expense) and furnish to CalPERS such periodic
reports as CalPERS may reasonably require, as such reporting requirements may
reasonably be adjusted from time to time. The Manager shall use its best
efforts, to provide promptly to the Members (at Company's expense) any
additional information concerning the Company, the Company's Projects that
any Member may reasonably request so long as such efforts are consistent with
the customary asset management
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services provided by first-class managers of comparable projects owned by
institutional investors; if the efforts demanded by CalPERS exceed such
customary asset management services, then the additional cost of providing
such services shall be paid by CalPERS outside of the Company.
SECTION 7.5. INDEPENDENT AUDIT OR REVIEW.
(a) At Company expense, the Manager shall cause the Accountant to conduct
an annual audit of the Company's financial statements in accordance with
generally accepted accounting principles, consistently applied (unless otherwise
required by this Agreement). A copy of the audit report and the accompanying
financial statements shall be provided to the Members.
(b) CalPERS shall have the absolute right to undertake a periodic audit
review of the Company or its Projects, the fees payable hereunder to the Manager
and the Manager's compliance with the provisions of this Agreement, including
the Investment Objectives and Policies. Such audit review may be undertaken
directly by CalPERS or by third parties engaged by CalPERS, including
accountants, consultants and appraisers. The Manager shall cooperate fully with
CalPERS or any such third party in connection with such audit review. All
adjustments, payments and reimbursements determined by CalPERS or its
representatives to be necessary by such audit review shall be effected promptly
by the Manager; provided, however, that if the Manager disputes any of such
adjustments, payments or reimbursements, then the matters in dispute shall be
submitted to a mutually acceptable firm of nationally recognized independent
certified public accountants, who shall determine which party's determination is
correct and whose decision shall be binding. If the audit for any given annual
period discloses that aggregate adjustments, payments and reimbursements in
favor of the Company exceed either a percentage in excess of 2% of the total
distributions made to the Members in the year under audit or (with respect to
the Manager's fees only) in an adjustment in excess of 2% of the fees payable to
the Manager, the cost of such audit shall be paid by the Manager out of its own
funds. Otherwise, the cost of the audit shall be paid by CalPERS from its own
funds. In addition, the Manager shall be subject to the examination and audit
by the Auditor General for a period of three years after the termination of the
Company in accordance with Government Code Section 10532. Such examination and
audit shall be confined to those matters connected with the performance of this
Agreement.
SECTION 7.6. BANK ACCOUNTS. Management of cash shall be the
responsibility of the Manager and the Manager agrees to manage cash in
accordance with such cash management procedures and policies established by
CalPERS. The Manager shall be responsible for causing one or more bank accounts
of the Company to be maintained in an FDIC-insured bank (or banks), which
accounts shall be used for the payment of the expenditures incurred in
connection with the business of the Company. All deposits and funds shall be
swept daily to Company accounts maintained by CalPERS as part of CalPERS' cash
management system with First Chicago Bank; subject to any lock-box requirements
imposed by lenders owning debt secured by one or more Projects and prior
Notification of such arrangements to
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CalPERS. On a monthly basis, the Manager shall request that CalPERS remit to
BPOP its portion of Cash Available for Distribution. CalPERS shall credit
BPOP monthly with interest at the same rate earned by CalPERS on the funds
invested in CalPERS' cash management system. All amounts in Company accounts
(including funds in CalPERS' cash management system) shall be and remain the
property of the Company, and shall be received, held and disbursed for the
purposes specified in this Agreement.
SECTION 7.7. TAX ELECTIONS. The Tax Matters Member (as hereinafter
defined) may make such tax elections in any Fiscal Year, including any election
under Section 754 of the Code or an election out of installment sale treatment
under Section 453 of the Code. If CalPERS requests that the Tax Matters Member
make an election under Section 754 of the Code, the Tax Matters Member shall
make this election promptly after receiving notice from CalPERS of CalPERS'
request.
SECTION 7.8. DESIGNATION OF TAX MATTERS MEMBER.
(a) The Manager shall act as the "TAX MATTERS MEMBER" of the Company, as
provided in regulations pursuant to Section 6231 of the Code and is authorized
to qualify as such. All Members hereby Consent to such designation and agree to
execute, certify, acknowledge, deliver, swear to, file and record at the
appropriate public offices such documents as may be deemed necessary or
appropriate to evidence such Consent.
(b) To the extent and in the manner provided by applicable Code sections
and regulations thereunder, the Tax Matters Member shall furnish the name,
address, profits, interest and taxpayer identification number of the Members to
the Internal Revenue Service ("IRS").
(c) To the extent and in the manner provided by applicable Code sections
and regulations thereunder, the Tax Matters Member shall inform each Member of
administrative or judicial proceedings for the adjustment of Company items
required to be taken into account by a Member for income tax purposes (such
administrative proceedings being referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review").
(d) The Tax Matters Member may take no action unless Approved by CalPERS
that would result in a material effect on the Company, the Members or the
Company's assets or operations (including, but not limited to, the settlement of
any tax audit or judicial review).
(e) The Tax Matters Member shall obtain the approval of CalPERS before
(a) voluntarily (unless required to do so by law after notice to CalPERS)
providing information to the IRS or Franchise Tax Board ("FTB"); or (b) taking
any action that would adversely affect any item such taxing agency is auditing
or seeking to adjust in a Company income tax return. In addition, the Manager
shall promptly inform the Members of the status of (i) any audit of the Company
by the IRS and FTB; (ii) any appeal of any determination by the IRS or FTB
concerning the Company;
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and (iii) any court proceeding in connection with disputing a determination
of the IRS or FTB concerning the Company.
SECTION 7.9. AVOIDANCE OF UNRELATED BUSINESS INCOME TAX. CalPERS is a
governmental entity which is exempt from the tax on unrelated business taxable
income ("UBTI") under Section 511 of the Code pursuant to Section 115 of the
Code. Nevertheless, as a matter of policy, CalPERS generally attempts to
minimize income to it which could be characterized as UBTI under Section 512 of
the Code. Therefore, in negotiating changes or modifications to the approved
manner by which the Company may structure an acquisition of an ownership
interest in a Project (as described in such definition), the Manager shall use
commercially reasonable efforts to avoid changes or modifications that would
significantly increase the possibility of income to CalPERS being characterized
as UBTI if CalPERS were a qualified nongovernmental pension plan. CalPERS will
respond to reasonable requests by the Manager for guidance on whether any
proposed change or modification violates this standard, and unless CalPERS
responds within 10 business days of such request, then the Manager shall be
deemed to have used its best efforts as required by this SECTION 7.9.
SECTION 7.10. REQUIRED EXCULPATORY PROVISIONS. All material written
contracts, mortgages, partnership agreements and other instruments or agreements
which may impose an obligation on the Company shall contain a provision
satisfactory to CalPERS and BPOP that the obligee under such contract will not
seek a personal judgment against CalPERS or BPOP for any default of the Company
in the performance or observance of any of the terms or conditions of such
contract, it being the intent of such a provision that no such obligee shall
have any right to seek any recourse against CalPERS or BPOP except to the extent
of the interests of CalPERS or BPOP, as the case may be, in the assets of the
Company and the income generated therefrom.
SECTION 7.11. COMPLIANCE WITH APPLICABLE POLICIES.
(a) During the term of this Agreement, neither the Manager nor any of
its subsidiaries, employees or agents shall unlawfully discriminate against
any employee or applicant for employment because of race, religion, color,
national origin, ancestry, physical handicap, medical condition, marital
status, age (over 40) or sex. The Manager and its subsidiaries, employees
and agents shall assure that the evaluation and treatment of their employees
and applicants for employment are free of such discrimination. In connection
with Company activities, the Manager and its subsidiaries, employees and
agents shall comply with the provisions of the California Fair Employment and
Housing Act (Section 12900 ET SEQ. of the California Government Code) and the
applicable regulations promulgated thereunder (California Code of
Regulations, Title 2, Division 4, Chapter 1, Section 7285.0 ET SEQ.). The
applicable regulations of the Fair Employment and Housing Commission
implementing Government Code Section 12990, set forth in Chapter 5 of
Division 4 of Title 2 of the California Code of Regulations are incorporated
herein by this reference and are made a part hereof as if set forth herein in
full. In connection with Company activities, the Manager and its
subsidiaries, employees and agents
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shall give written notice of their obligations under this clause to labor
organizations with which they have a collective bargaining or other
agreement. The Manager shall include the foregoing nondiscrimination
compliance provisions in all written contracts to perform work or provide
services under or pursuant to this Agreement. During the term of this
Agreement, the Manager, its subsidiaries, employees and agents shall conduct
their respective activities in connection with Company activities in
accordance with Title VI of the Civil Rights Act of 1964 and the rules and
regulations promulgated thereunder.
(b) The Manager hereby certifies, and shall at CalPERS' request certify
annually, that no more than one, final, unappealable finding of contempt of
court by a federal court has been issued against it within any preceding
two-year period because of the Manager's failure to comply with an order of a
federal court which orders the Manager to comply with an order of the National
Labor Relations Board. Such certification shall be given under penalty of
perjury.
(c) The Manager hereby certifies, and shall at CalPERS' request certify
annually, that the Manager has, unless exempted, complied with the
nondiscrimination program requirements of Section 12990 of the California
Government Code and all regulations promulgated thereunder. Such certification
shall be given under penalty of perjury.
SECTION 7.12. MANAGER PERSONNEL. The Manager shall promptly notify
CalPERS of any material change in those employees of the Manager who, by their
membership on Manager's Board, exercise investment discretion with respect to
the Company's Projects.
SECTION 7.13. FAIR POLITICAL PRACTICES LAWS. The Manager shall not
directly or indirectly receive any benefit from Projects (other than the fees
and distributions contemplated by this Agreement) and shall disclose to CalPERS
any personal investment or economic interest of the Manager which may be
enhanced by the Company's investment in a Project. The Manager acknowledges
that CalPERS is subject to the provisions of the Fair Political Practices laws
of California (Government Code Section 81000, ET SEQ., and all regulations
adopted thereunder, including but not limited to California Code of Regulations
Title 2, Division 6, Chapter 7, Article 1, Section 18700) and the Manager shall
comply promptly with any requirement thereunder. To the extent required by law,
the Manager shall require its management personnel to file Statements of
Economic Interests in compliance with CalPERS Conflict of Interest Code
(California Code of Regulations, Title 5, Division 3, Chapter 1, Section 22000,
ET SEQ.). All such reports shall be filed simultaneously with CalPERS.
SECTION 7.14. NOTICE OF PROCEEDINGS. The Manager shall promptly advise
CalPERS in writing of any investigation, examination or other proceeding
involving the Manager commenced by any regulatory agency which is not conducted
in the ordinary course of the Manager's business.
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SECTION 7.15. NOTICE OF AFFILIATE BENEFITS. The Manager shall, on an
annual basis, disclose to CalPERS in writing any and all contributions
(political or otherwise), gifts, reimbursement of any expenses or any other
personal benefits exceeding ONE HUNDRED DOLLARS ($100) in the aggregate which
to the Manager's knowledge are provided by the Manager, its directors,
officers and employees or their respective Affiliates to any person
affiliated with CalPERS and which could reasonably be expected to influence
the provision of any material benefits to the Manager. Persons affiliated
with CalPERS shall include, without limitation: any fiduciary of CalPERS; any
investment counsel to CalPERS; any investment advisor to CalPERS; any regular
or alternate members of CalPERS' Board; any officer or employee of CalPERS,
CalPERS' Board or staff; any person or organization providing services to
CalPERS; an employer, any of whose employees are members of CalPERS; an
employee organization, any of whose members are members of or retired from
CalPERS; an organization formed for the exclusive purpose of raising funds
for any of the foregoing persons; a spouse, ancestor, lineal descendent, or
spouse of a lineal descendent of any of the foregoing persons; or a director,
officer, employee, or a 10% or more beneficial owner of any of the foregoing
persons.
SECTION 7.16. DISABLED VETERANS BUSINESSES ENTERPRISES/RESPONSIBLE
CONTRACTING PROGRAM. The Manager, in contracting for goods and services on
behalf of the Company, shall make good faith efforts to comply with CalPERS'
objectives and then current policies regarding disabled veterans enterprises.
The Manager shall also comply, and the Manager shall also use reasonable
efforts to ensure that the Managing Agent of each Project and/or the
developer/contractor of a Project under development or substantial
rehabilitation complies, with CalPERS' objectives and then current policies
regarding the selection of responsible contractors. A copy of CalPERS'
current objectives and policies regarding responsible contractors is attached
hereto as EXHIBIT L and incorporated herein by reference. In each instance,
such compliance shall include, but not be limited to, complying with CalPERS'
reporting requirements regarding such efforts.
SECTION 7.17. NO AFFILIATE BENEFITS. Without the prior Consent of
CalPERS, neither the Manager nor BPPI or any of their respective general
partners, officers, agents or employees shall directly or indirectly receive
any benefit from any Project other than as contemplated by this Agreement. A
certification to this effect from the Manager shall be required with respect
to each Project on an annual basis, at the time of the initial funding of a
new Investment, and as otherwise requested by CalPERS. Notwithstanding the
foregoing, neither the Manager nor its Affiliates shall be precluded from
receiving compensation, fees or reimbursements pursuant to separate contracts
for property management or other services expressly approved by CalPERS.
SECTION 7.18. CONTRACTOR DISCLOSURE STATEMENT. By signing this
Agreement, the Manager agrees to comply with CalPERS' Disclosure Program, as
described in the materials attached hereto as EXHIBIT M.
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SECTION 7.19. ENVIRONMENTAL AND INDUSTRIAL HYGIENE COMPLIANCE. The
Manager shall not knowingly commit to, without full disclosure to CalPERS,
acquisitions of any Project (i) which is in violation of any federal, state
or local law, ordinance or regulation relating to industrial hygiene or to
the environmental condition on, under or about such properties including, but
not limited to, soil and ground water condition, or (ii) with respect to
which any person has used, generated, manufactured, stored or disposed of any
flammable explosive, radioactive materials, hazardous wastes, toxic
substances or related materials (collectively "HAZARDOUS MATERIALS")
otherwise than in accordance with applicable law. For purposes hereof,
Hazardous Materials shall include, but not be limited to, asbestos and all
other substances defined as "hazardous substances," "hazardous materials," or
"toxic substances" in the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 ET SEQ.; the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 ET SEQ.; the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ.; and
those substances defined as "hazardous wastes" in Section 25117 of the
California Health & Safety Code or as "hazardous substances" in Section 25316
of the California Health & Safety Code; and in the regulations adopted and
publications promulgated pursuant to said laws.
SECTION 7.20. GIFTS AND PROHIBITED POLITICAL CONTRIBUTIONS AND
SOLICITATIONS; REQUIRED DISCLOSURE
(a) For purposes of this provision, the following definitions apply:
(i) "CalPERS fiduciary" means the list of individuals provided
in EXHIBIT U. CalPERS reserves the right to amend this list, upon notice to
the Manager, and without amending this agreement.
(ii) "Manager" includes the Manager, as well as its directors,
general partners, officers, and agents; "agent" means any entity or person
authorized to act for the Manager or person with regard to its relationship
with CalPERS, during the term of this Agreement.
(iii) "Gift" means anything for which no corresponding
consideration has been given, with a value over $10.
(iv) "Political contribution" means a "contribution" as defined
by the Political Reform Act (Cal. Gov. Code sec. 81000 et seq., sec. 82015),
or any contribution made in connection with a CalPERS Board member election
(Cal. Gov. Code sec. 20090(g).)
(b) During the term of this Agreement, the Manager may not make
political contributions to CalPERS fiduciaries.
(c) By January 31 of each year, the Manager, on behalf of itself and
its directors, general partners, officers, and agents, shall disclose in
writing to the CalPERS Chief Executive Officer whether the Manager provided,
or was requested to provide, during the previous calendar year, any gifts or
political or other
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contributions to a CalPERS fiduciary, or to a candidate for California State
Treasurer or Controller. For solicitations, the disclosure shall include the
following information: the date of the solicitation; the name of the
individual who made the solicitation; the amount solicited; the manner of
solicitation; and the purpose of the solicitation. For gifts and
contributions provided, the disclosure shall include: the nature of the item
provided (gift or type of contribution); a brief description of the item
provided; the approximate value; the date provided; and the recipient.
(d) If CalPERS determines that the Manager knowingly made a
contribution prohibited by this provision, CalPERS has the option, at its
sole discretion, to terminate the contract. Termination for this reason is
in addition to the termination provisions at SECTION 5.2. Additionally, if
the Manager breaches any part of this provision, CalPERS may pursue all
remedies available at law.
ARTICLE VIII
TRANSFER OF MEMBERSHIP INTERESTS
SECTION 8.1. GENERAL RESTRICTIONS.
(a) No Member may sell, assign, transfer, pledge or otherwise encumber
(for purposes of this ARTICLE VIII, the foregoing may be collectively
referred to as a "TRANSFER") any of its rights or interests in the Company,
including its Membership Interest and its interest in Company allocations or
distributions, except (i) to an Affiliate, (ii) as a pledge for security for
a loan, so long as the other Member receives Notification of such pledge and
is provided with a copy of such pledge agreement (in no event shall the
Manager pledge its management rights), or (iii) in connection with a merger
or consolidation in which such Member is the surviving entity. Any attempted
Transfer in violation of this ARTICLE VIII shall be void AB INITIO and shall
constitute an Event of Default hereunder; provided that nothing herein shall
prohibit a Transfer to an Affiliate thereof or a Transfer by any partner of
to a trust for the benefit of such partner's family, or in the event of such
partner's death, a Transfer by will or intestacy to a member of such
partner's family or trust(s) for their benefit, or a Transfer to a Person who
is then employed by the Manager or any Transfer resulting from the sale of
BPPI stock or the transfer of limited partnership units in BPOP.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1. APPLICABLE LAW. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware applicable to
agreements to be performed solely within the State of Delaware.
SECTION 9.2. ATTORNEYS' FEES. Should any litigation be commenced
between the parties hereto or their representatives or should any party
institute any proceeding in a bankruptcy or similar court which has
jurisdiction over any other party hereto or any or all of such party's or
parties' property or assets concerning any provision of this Agreement or the
rights and duties of any person or entity in relation thereto, the party or
parties prevailing in such litigation shall be entitled, in
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addition to such other relief as may be granted, to such party's or parties'
reasonable attorneys' fees and court costs in such litigation which shall be
determined by the court in such litigation or in a separate action brought
for that purpose.
SECTION 9.3. NO PARTITION. No Member shall have the right to partition
any of the Company's Projects or interests in any Project nor shall a Member
make application to any court or authority to commence or prosecute any
action or proceeding for a partition thereof, and upon any breach of the
provisions of this Article by a Member, the other Members shall be entitled
to a decree or order restraining or enjoining such application, actions, or
proceedings in addition to all other rights and remedies afforded by law or
equity.
SECTION 9.4. BINDING PROVISIONS. The covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
successors and assigns of the respective parties hereto.
SECTION 9.5. COMPLETE AGREEMENT: AMENDMENT. This Agreement constitutes
the entire agreement between the parties and supersedes all agreements,
representations, warranties, statements, promises and understandings, whether
oral or written, with respect to the subject matter hereof, and neither party
hereto shall be bound by nor charged with any oral or written agreements,
representations, warranties, statements, promises or understandings not
specifically set forth in this Agreement or the exhibits hereto. This
Agreement may not be amended, altered or modified except by a writing signed
by all of the Members.
SECTION 9.6. CONFIDENTIALITY AND NONDISCLOSURE. All information which
shall have been furnished or disclosed by a Member to any other Member
pursuant to this Agreement or the negotiations leading to this Agreement that
has been furnished prior to the execution of this Agreement or is hereafter
furnished shall be held in confidence and shall not be disclosed to any
Person other than their respective employees, directors, legal counsel,
accountants or financial advisers with a need to have access to such
information, except as reasonably necessary to comply with any disclosure
obligations under any federal or state securities laws or as otherwise
required by law. The obligations of this section do not apply to information
that (a) is or becomes part of the public domain, (b) is disclosed by the
disclosing party to third parties without restrictions on disclosure or (c)
is received by the receiving party from a third party without breach of a
nondisclosure obligation.
SECTION 9.7. COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all the parties have not signed the
same counterpart.
SECTION 9.8. FEES AND COMMISSIONS. Except as may be separately
disclosed in writing to the other Member, each Member hereby represents and
warrants that, as of the date of this Agreement there are no known claims for
brokerage or other commissions or finder's or other similar fees in
connection with the transactions
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covered by this Agreement insofar as such claims shall be based on actions,
arrangements or agreements taken or made by or on such Member's behalf, and
each Member hereby agrees to indemnify and hold harmless the other Members
from and against any liabilities, costs, damages and expenses from any party
making any such claims through such Member.
SECTION 9.9. EXECUTION OF OTHER DOCUMENTS. Each party hereto agrees to
do all acts and things and to make, execute and deliver such written
instruments, as shall from time to time be reasonably required to carry out
the terms and provisions of this Agreement.
SECTION 9.10. SEVERABILITY. Each provision of this Agreement shall be
considered separable and if for any reason any provision or provisions hereof
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of, or affect, those portions of
this Agreement which are valid.
SECTION 9.11. SURVIVAL OF INDEMNITY OBLIGATIONS. Except as expressly
limited in this Agreement, any and all indemnity obligations of any party
hereto shall survive any termination of the Company or a Member's interest
therein.
SECTION 9.12. WAIVER. No consent or waiver, express or implied, by a
Member to or of any breach or default by the other Member in the performance
by such other Member of its obligations hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach or default in
the performance by such Member of the same or any other obligations of such
other Member hereunder. Failure on the part of a Member to complain of any
act or failure to act of the other Member or to declare the other Member in
default, irrespective of how long such failure continues, shall not
constitute a waiver by such Member of its rights hereunder. The giving of
Consent by a Member in any one instance shall not limit or waive the
necessity to obtain such Member's Consent in any future instance.
SECTION 9.13. TERMINOLOGY. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders; and the singular shall include the plural and vice
versa. Titles of Articles and Sections are for convenience only, and neither
limit nor amplify the provisions of this Agreement itself. The use herein of
the word "including," when following any general statement, term or matter,
shall not be construed to limit such statement, term or matter to the
specific items or matters set forth immediately following such word or to
similar items or matters, whether or not non-limiting language (such as
"without limitation," or "but not limited to," or words of similar import) is
used with reference thereto, but rather shall be deemed to refer to all other
items or matters that could reasonably fall within the broadest possible
scope of such general statement, term or matter.
SECTION 9.14. APPRAISAL. In the course of the administration of its
assets, and at its own expense, CalPERS shall have the right to have an
independent appraiser selected by CalPERS annually appraise the Projects of
the Company to determine
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their Fair Market Value. Such appraisal shall be the sole and separate
property of CalPERS. Any such appraisal shall be made subject to the
procedures described in the definition of Fair Market Value in Article I of
this Agreement. Valuation of all of the other assets of the Company shall be
performed when and as required under generally accepted industry standards.
SECTION 9.15. EQUITABLE REMEDIES. Any Member hereto shall, in addition
to all other rights provided herein or as may be provided by law, and subject
to the limitations set forth herein, be entitled to all equitable remedies,
including those of specific performance and injunction, to enforce such
Member's rights hereunder.
SECTION 9.16. REMEDIES CUMULATIVE. Each right, power, and remedy
provided for herein or now or hereafter existing at law, in equity, by
statute, or otherwise shall be cumulative and concurrent and shall be in
addition to every other right, power, or remedy provided for herein or now or
hereafter existing at law, in equity, by statute, or otherwise, and the
exercise or beginning of the exercise or the forbearance of exercise by any
party of any one or more of such rights, powers, or remedies shall not
preclude the simultaneous or later exercise by such party of any or all of
such other rights, powers, or remedies.
SECTION 9.17. REPRESENTATION OF AUTHORITY. Each individual executing
this Agreement on behalf of a corporation or partnership, as the case may be,
represents and warrants that such individual is duly authorized to execute
and deliver this Agreement on behalf of said entity in accordance with such
entity's corporate bylaws, statement of partnership, or certificate of
Membership, as the case may be, and that this Agreement is binding upon said
entity in accordance with its terms. Any party hereto, at its option, may
require a copy of such written authorization from the other party hereto to
enter into this Agreement. The failure of a party hereto to deliver the same
to the requesting party within 10 days of the latter party's request therefor
shall be deemed a default under this Agreement.
SECTION 9.18. CONSTRUCTION. This Agreement has been negotiated at
arm's length and between persons sophisticated and knowledgeable in the
matters dealt with in this Agreement. In addition, each party has been
represented by experienced and knowledgeable legal counsel. Accordingly, any
rule of law (including California Civil Code Section 1654) or legal decision
that would require interpretation of any ambiguities in this Agreement
against the party that has drafted it is not applicable and is waived. The
provisions of this Agreement shall be interpreted in a reasonable manner to
effect the purpose of the parties.
SECTION 9.19. EXHIBITS. The following exhibits are attached hereto and
incorporated herein:
EXHIBIT A (omitted)
EXHIBIT B Program Guidelines
EXHIBIT C Financing Guidelines
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EXHIBIT D Schedule of CalPERS' Contributed Projects
EXHIBIT D-1 (omitted)
EXHIBIT D-2 (omitted)
EXHIBIT E (omitted)
EXHIBIT F (omitted)
EXHIBIT G Initial Annual Investment Plan
EXHIBIT G-1 (omitted)
EXHIBIT H Fees to Manager or Affiliates
EXHIBIT I (omitted)
EXHIBIT J (omitted)
EXHIBIT K (omitted)
EXHIBIT L (omitted)
EXHIBIT M (omitted)
EXHIBIT N Required Capital Expenditures for CalPERS' Contributed
Projects
EXHIBIT N-1 (omitted)
EXHIBIT O Form of Acquisition Summary
EXHIBIT P (omitted)
EXHIBIT Q (omitted)
EXHIBIT R Example of FIRST CALL Earnings Estimates Summary for BPPI
EXHIBIT R-1 Calculation of Number of BPPI Conversion Shares
EXHIBIT S (omitted)
EXHIBIT T Form of Registration Rights Agreement
EXHIBIT U (omitted)
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ARTICLE X
CONVERSION OF CalPERS' INTEREST INTO BPPI COMMON STOCK
SECTION 10.1. CONVERSION INTO BPPI SHARES.
(a) So long as CalPERS and BPOP each is a Member of the Company,
CalPERS may elect, by notice (the "CONVERSION NOTICE") to the Company, BPOP
and BPPI, to convert its interest in one or more specific Projects (each
Project that is the subject of such election a "CONVERTED PROJECT") into a
number of shares (the "CONVERSION BPPI SHARES") of Common Stock, $.01 par
value, of BPPI ("BPPI COMMON STOCK"), subject to and in accordance with the
terms and conditions of this ARTICLE X.
(b) The number of Conversion BPPI Shares issuable upon any
conversion described in this SECTION 10.1 ("CONVERSION") shall be determined
as set forth in this SUBSECTION 10.1(b), an illustration of which
determination is set forth in EXHIBIT R-1 hereto, with all determinations to
be made as of the last business day (the "MEASUREMENT DATE") of the month
next preceding the date on which CalPERS gives the Conversion Notice:
(A) Determine the sum of the Current Mean "FIRST CALL
Consensus Statistics" for the four calendar quarters commencing
nearest to the Measurement Date contained in the most recently published
"FIRST CALL Earnings Estimates Summary for BPP" (the copy of such
Summary as "Last Updated 10 - Jun - 98" being attached hereto as
EXHIBIT R, and the parties agreeing, for purposes of illustration only,
that the Current Mean Consensus Statistics of the estimates of earnings
(actually of "New Basis FFO" as defined in EXHIBIT R) for 1998 Q3 and Q4
and 1999 Q1 and Q2 are $0.36, $0.38, $0.37 and $0.38, respectively, for a
sum of $1.49). The amount determined pursuant to this subparagraph (A) is
referred to in subparagraph (C) below as the "Consensus FFO."
(B) Determine the average (to the nearest one-hundredth of
one cent) of the closing prices for a share of BPPI Common Stock
reported on the New York Stock Exchange composite transactions during
the three consecutive months ended on the Measurement Date ("AVERAGE
BPPI CLOSING PRICE").
(C) Divide the Consensus FFO by the Average BPPI Closing
Price to determine the "Applicable FFO Yield" (A DIVIDED BY B)
(D) Compute BPPI's "Weighted Average Cost of Capital," which
is the sum of the Weighted Cost of Debt Capital (as determined in
subparagraph (i) below) and the Weighted Yield on Equity Capital (as
determined in subparagraph (ii) below).
(i) The "Weighted Cost of Debt Capital" is the product
obtained by multiplying (I) weighted average cost of all debt of BPPI on a
consolidated basis ("TOTAL BPPI DEBT") by (II) the Leverage Ratio, where
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the "Leverage Ratio" is the quotient, expressed as a percentage, obtained
by dividing (a) Total BPPI Debt, by (b) BPPI's Fully Diluted Market
Capitalization, where "BPPI's Fully Diluted Market Capitalization" is the
sum of (p) Total BPPI Debt plus (q) the "Fully Diluted Equity Capital,"
which is the product of (y) the number of all shares of Common Stock of
BPPI that would be outstanding if all Preferred and Common Units of BPOP
(and of each other subsidiary partnership of BPPI or BPOP whose units are
ultimately exchangeable for BPPI Common Stock) were converted and
exchanged (at the applicable conversion and exchange price) into or for
BPPI Common Stock and all outstanding options for BPPI Common Stock were
exercised multiplied by (z) the Average BPPI Closing Price determined in
paragraph (B) above. For example, if the Weighted Average Cost of Total
BPPI Debt is 7.61% and the Leverage Ratio is 45%, then the Weighted Cost of
Debt Capital is 3.425%.
(ii) The "Weighted Yield on Equity Capital" is the
product obtained by multiplying (I) the Applicable FFO Yield (determined
in paragraph C above) by (II) the "Equity Factor," which is 100% less
the Leverage Ratio. For example, if the Applicable FFO Yield is 9.933%
and the Leverage Ratio is 45% such that the Equity Factor is therefore
55%, then the Weighted Yield on Equity Capital is 5.463%.
(iii) Using the examples contained in the final
sentences of the immediately preceding subparagraphs (D)(i) and (D)(ii),
BPPI's Weighted Average Cost of Capital would be the sum of the Weighted
Cost of Debt Capital, 3.425%, plus the Weighted Yield on Equity Capital,
5.463%, or 8.888%.
(E) For each Converted Project that is the subject of the
Conversion Notice, determine the "Conversion Value" of such Converted
Project, which shall be the lesser of:
(i) (1) the quotient determined by dividing (a) the
stabilized unleveraged annual net operating income (excluding free rent)
of the Converted Project determined consistently with the methodology used
in the determination of stabilized annual net operating income of the
Converted Project for purposes of the annual Budget and strategic plan (if
any) prepared by BPOP with respect to such Converted Project but after
giving effect to any changes in income or expense occurring or to occur as
a result of the Conversion (such as, for example, change in real estate
taxes as a result of reassessment following conveyance of the Converted
Project), by (b) BPPI's Weighted Average Cost of Capital (determined in
paragraph (D) above), less (2) any unpaid leasing commissions, tenant
improvement allowances or free rent under any leases which rentals were
used in the calculation of the stabilized net operating income of the
Converted Project; or
(ii) the Fair Market Value of the Converted Project.
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(F) Multiply the Conversion Value by CalPERS' Percentage
Interest to obtain the "Pre-Closing Cost Conversion Amount."
(G) Determine the "Conversion Amount" by subtracting from the
Pre-Closing Conversion Amount any direct out-of-pocket expenses to be
incurred by BPPI or BPOP to the extent that such expenses customarily
would be paid by the seller of real property in the locality in which the
Converted Project is located, and BPOP's Percentage Interest of any
direct out-of-pocket expenses to be paid by the Company, as a result of
the Conversion (such as, without limitation, closing costs, title
insurance premiums, transfer taxes, loan assumption or loan prepayment
fees which only shall include such expenses as customarily would be paid
by the seller of real estate in the locality in which the Converted
Project is located).
(H) Divide the Conversion Amount by the Average BPPI Closing
Price to determine the number of Conversion BPPI Shares to be issued to
CalPERS.
(I) The number of Conversion BPPI Shares to be issued to CalPERS
shall be equitably adjusted to reflect the effect of any stock
split, stock dividend or stock distribution with respect to BPPI Common
Stock or any other subdivision or combination of BPPI Common Stock into
a greater or smaller number of shares which shall have become effective
subsequent to the Measurement Date and prior to the closing of the
Conversion.
(c) The closing of the Conversion shall occur as promptly as
practicable following determination of the number of Conversion BPPI Shares
to be issued in connection therewith and upon receipt of any consents,
waivers or releases necessary in order that none of the parties hereto will
be in default of or subject to any penalties under any agreement, order,
decree, license or similar restriction in connection with either the
conveyance of the Converted Project or the issuance of the Conversion BPPI
Shares. Upon such closing:
(i) The Company (or the appropriate nominee holder of title to
the Project) will deliver a quitclaim or grant deed and other
appropriate instruments of conveyance and assignment conveying the same
title as held by (or for) the Company, with the benefit of any continuing
representations, warranties and covenants of any predecessor owners
(including CalPERS if applicable) of the Converted Project, to BPOP or its
nominee (BPPI being deemed to contribute the Project to BPOP as required
by the applicable partnership agreement of BPOP); and the provisions of
EXHIBIT F relating to conveyancing and assignment documents and
certifications, title insurance, Project records and closing and
post-closing adjustments and prorations will also apply to the conveyance
and assignment of the Converted Project as fully as if the Company were the
"Contributing Member" (as such term is used in EXHIBIT F) and as if BPOP
were the Company.
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(ii) BPPI will issue to CalPERS an appropriate share
certificate representing the Conversion BPPI Shares.
(iii) BPOP will, in consideration of the conveyance to it of
the Converted Project (and consistent with the applicable partnership
agreement of BPOP), issue to BPPI a number of limited partner units of BPOP
equal to the number of Conversion BPPI Shares issued by BPPI to CalPERS.
(iv) CalPERS will deliver to BPPI its agreement to pay to
BPPI, promptly after CalPERS' receipt of its first distribution with
respect to the Conversion BPPI Shares, an amount equal to the amount of
such distribution less such portion of such amount as is determined by
multiplying such amount by a fraction, the denominator of which is the
number of days in the period between the record date for such distribution
and the record date for the immediately prior distribution and the
numerator of which is the number of days in the same period that CalPERS
was not the owner of the Conversion BPPI Shares.
SECTION 10.2. NON-CONVERTIBLE PROJECTS. Notwithstanding any provision
of SECTION 10.1, CalPERS shall not have the right to elect to convert its
interest in any Project: (i) as to which the Company has entered into an
agreement or letter of intent to sell such Project or as to which CalPERS has
given notice that it wishes to sell pursuant to SECTION 4.10, but if the
Manager gives notice pursuant to SECTION 4.10 that it wishes to purchase such
Project for cash, CalPERS may not later than 10 days thereafter give a
Conversion Notice with respect to such Project, in which case the provisions
of SECTION 10.1 shall prevail over the provisions of SECTION 4.10; or (ii)
which is subject to any mortgage or deed of trust that will not be prepaid
and discharged as to such Project prior to or concurrently with the closing
of the Conversion, with any prepayment, acceleration or yield maintenance fee
or cost having been paid in full by CalPERS; or (iii) the Conversion of which
would violate any material covenant to any third party or result in BPPI (or
BPOP) following the Conversion not succeeding to the benefit of any material
representation, warranty, indemnity or similar provision benefiting the
Company in any agreement of the Company with respect to the Conversion
Project, unless either (A) BPOP as Manager shall not have satisfied its
obligations under SECTION 4.1(a)(xi) with respect to such covenant,
representation, warranty, indemnity or similar provision, or (B) CalPERS
agrees independently to provide such representation, warranty, indemnity or
similar provision directly to BPPI (and BPOP) to the extent that BPPI (or
BPOP) will not succeed to the benefit of such representation, warranty,
indemnity or similar provision by reason of the conversion; or (iv) following
notice by any party hereto of the proposed withdrawal of such party as a
Member of the Company; or (v) following the happening of any event described
in SECTION 6.1(a); or (vi) following the election by CalPERS to remove the
Manager pursuant to SECTION 4.7(a) or SECTION 4.7(b); or (vi) which was
contributed to the Company by BPOP if the Conversion would occur prior to the
seventh anniversary of such contribution and cause gain; or (viii) which is a
Non-Performing Project (as defined in the following sentence. A
"Non-Performing Project" is any Project that possesses
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any of the following characteristics: (A) the Project is not 85% or more
leased to tenants who are in occupancy of their premises, who are paying rent
currently, and who have weighted average lease terms of at least five years,
(B) the Project is subject to a material environmental problem that was not
known to the Company as of the date of acquisition of the Project, or the
environmental problem was known to the Company as of the date of acquisition
of the Project but the cost of remediating the problem will exceed the
Company's original estimate by more than $100,000, (C) a Project in which a
tenant is the subject of a bankruptcy or insolvency proceeding against such
tenant and the absence of such tenant would cause the Project not to satisfy
the requirements of clause (A) above, (D) a Project for which the strategic
plan prepared in accordance with SECTION 4.1(d)(i) and the Budget contemplate
a renovation with total costs of 10% or more of the undepreciated book value
of the Project during the following three-year period, (E) a Project which is
not currently managed by BPPI or BPOP.
SECTION 10.3. LIMIT ON OWNERSHIP OF BPPI CAPITAL STOCK. The number or
value of shares of BPPI capital stock owned or to be owned by CalPERS
immediately following a Conversion pursuant to SECTION 10.1 will not exceed
the "Ownership Limit" or the "Common Stock Ownership Limit," each as defined
in SECTION 7.1 of the Charter of BPPI, at the time of such Conversion. BPPI
will have no obligation to issue any Conversion BPPI Shares which would
exceed either such limit.
So long as shares of BPPI's Series 1997-A Convertible Preferred Stock
("1997-A PREFERRED") remain outstanding, BPPI shall have no obligation to
issue any Conversion BPPI Shares to CalPERS at a price which is less than
$11.01 per share (the determination of such price to be consistent with
avoiding any adjustment of the Conversion Price of 1997-A Preferred to a
price of $11.00 or below pursuant to the provisions of SECTION 5(e)(viii) of
the Articles Supplementary dated December 31, 1998, relating to the 1997-A
Preferred. This restriction shall not apply if the holders of 1997-A
Preferred shall have waived the application of SECTION 5(c)(viii), or such
SECTION 5(e)(viii) otherwise is inapplicable, to any such issuance of
Conversion BPPI Shares.
SECTION 10.4. OBLIGATIONS OF BPPI WITH RESPECT TO CONVERSION BPPI
SHARES. BPPI will use commercially reasonable efforts to be in a position
legally to issue the appropriate number of Conversion BPPI Shares to CalPERS
upon the receipt of a Conversion Notice, and shall issue such number of
Conversion BPPI Shares, if it is then legally able to do so, subject to
receipt of the Converted Project. To facilitate such issuance, BPPI shall:
(a) Use commercially reasonable efforts to obtain in writing and
deliver to CalPERS as soon as is reasonably practicable after the date of
this Agreement written confirmation of the waiver or lack of the
applicability of certain "First Offer Rights" held by Westbrook Burnham
Holdings, L.L.C., Westbrook Burnham Co-Holdings, L.L.C., Blackacre SMC
Holdings, L.P., and Blackacre SMC II Holdings LLC, sufficient to permit the
issuance of BPPI Common Stock to CalPERS pursuant to this ARTICLE X.
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<PAGE>
(b) Reserve and keep available, free of preemptive rights, out
of its authorized but unissued BPPI Common Stock a number of shares
reasonably estimated from time to time to be the maximum number of Conversion
BPPI Shares which it may be obligated to issue to CalPERS pursuant to this
ARTICLE X;
(c) Provide to CalPERS, promptly following the filing of any
report, proxy statement or other material with the Securities and Exchange
Commission ("SEC") or the delivery to the holders of BPPI Common Stock
generally of any report, proxy statement or communication, a copy of each
such report, proxy statement, material or other communication;
(d) Generally make available to CalPERS such information as
CalPERS may reasonably request in determining whether to make a Conversion of
BPPI Common Stock;
(e) Upon receipt of a Conversion Notice, promptly take all
appropriate steps to list on the New York Stock Exchange, subject to official
notice of issuance, the appropriate number of Conversion BPPI Shares (unless
previously listed); and
(f) Unless there is, at the time of the issuance of Conversion
BPPI Shares, a registration statement in effect under the Securities Act of
1933, as amended ("SECURITIES ACT") which covers the issuance by BPPI of the
Conversion BPPI Shares and, if necessary legally to permit such resale, also
covers the resale of such Conversion BPPI Shares by CalPERS to the public, or
unless BPPI and CalPERS have previously entered into a registration rights
agreement covering such resale, upon request of CalPERS at or after the first
Conversion, enter into a registration rights agreement with CalPERS that will
permit CalPERS legally to resell the Conversion BPPI Shares to the public in
conformity with the Securities Act, which registration rights agreement will
contain substantially the substantive terms set forth in the form of
Registration Rights Agreement set forth as EXHIBIT S hereto or such other
substantive terms as BPPI and CalPERS mutually agree are appropriate to
permit CalPERS' public resale of Conversion BPPI Shares under the Securities
Act and applicable rules and regulations of the SEC as then in effect.
SECTION 10.5. UNREGISTERED SECURITIES; REGISTRATION RIGHTS AGREEMENT.
CalPERS acknowledges that it may not be practical for there to be an
effective registration statement under the Securities Act at the time that it
may deliver a Conversion Notice or at the time of the issuance of Conversion
BPPI Shares pursuant to such a Conversion Notice. Accordingly, the delivery
of such a Conversion Notice shall constitute a representation to BPPI that
CalPERS will be acquiring the Conversion BPPI Shares, without the benefit of
an effective registration statement under the Securities Act, for its own
account and without any current intention to distribute any of conversion
BPPI Shares in a transaction for which a registration statement is required
to be in effect under the Act. Nevertheless, CalPERS reserves the right to
sell its property, including Conversion BPPI Shares, at any time (but this
reservation shall not affect its other obligations under any of the other
provisions of this Agreement). BPPI will honor its
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<PAGE>
obligations to enter into a registration rights agreement as provided in
SECTION 10.4(f). Each certificate representing Conversion BPPI Shares may
bear an appropriate legend noting that the transfer of any shares represented
by such certificate is subject to future compliance with the Securities Act.
SECTION 10.6. ADDITIONAL PROVISIONS RELATIVE TO CONVERSION NOTICE. To
be effective (unless waived by BPPI), each Conversion Notice will contain a
representation by CalPERS of the number of shares of BPPI Common Stock (and
of any other equity securities of BPPI) beneficially owned or constructively
owned (within the defined meaning set forth in SECTION 7.1 of BPPI's Charter)
as of the date of such Conversion Notice. CalPERS promptly will notify BPPI
of any purchase or sale by CalPERS of any shares of BPPI Common Stock (or of
any other equity securities of BPPI) which purchase or sale takes place
subsequent to the date of the Conversion Notice and prior to the date of the
closing of the Conversion.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
MANAGER:
BURNHAM PACIFIC OPERATING
PARTNERSHIP, L.P.,
a Delaware limited partnership
By: BURNHAM PACIFIC PROPERTIES,
INC., a Maryland corporation, its
general partner
By:
-----------------------------
Its:
-----------------------------
MEMBERS:
STATE OF CALIFORNIA PUBLIC
EMPLOYEES' RETIREMENT SYSTEM,
an agency of the State of California
By:
----------------------------------
Its:
----------------------------------
--AND--
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<PAGE>
BURNHAM PACIFIC OPERATING
PARTNERSHIP, L.P.,
a Delaware limited partnership
By: BURNHAM PACIFIC PROPERTIES,
INC., a Maryland corporation, its
general partner
By:
----------------------------------
Its:
---------------------------------
AS TO ARTICLE X ONLY:
BURNHAM PACIFIC PROPERTIES, INC.,
a Maryland corporation
By:
----------------------------------
Its:
----------------------------------
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<PAGE>
EXHIBIT B
PROGRAM GUIDELINES
The following program guidelines comprise the "discretionary box" pursuant to
which Burnham Pacific will acquire or dispose of Shopping Center Projects for
the Company.
PORTFOLIO DOLLAR ALLOCATION
The Senior Real Estate Investment Officer will provide, through approval of
the Annual Investment Plan, CalPERS' dollar allocation to Burnham Pacific for
management of shopping center properties (expressed in terms of a minimum and
maximum portfolio size).
MINIMUM AND MAXIMUM PORTFOLIO SIZE
In no event shall Burnham Pacific, unless otherwise instructed by CalPERS
through its annual disposition or acquisition of properties, allow the
shopping center portfolio, under its management, to fall outside the range of
portfolio value expressly provided for in the Annual Investment Plan. This
range may be subject to review on a quarterly basis.
PROPERTY TYPE
Burnham Pacific will invest, on behalf of the Company, in exterior entrance
retail properties (shopping centers) which are representative of the local
market and generally conforming to the NCREIF definitions of property:
Neighborhood, Community, Power and Specialty Centers.
PROPERTY CLASSIFICATION
PROPERTY CLASSIFICATION - All Projects shall be examined and reclassified by
the Manager pursuant to the reclassification criteria contained in this
Exhibit B. If a Project has met the reclassification conditions within the
first half of the Fiscal Quarter, then the relevant Project Type Premium
shall be adjusted as of the first day of such Fiscal Quarter. If the Project
has met the reclassification conditions within the second half of the Fiscal
Quarter, than the relevant Project Type Premium shall be adjusted as of the
first day of the subsequent Fiscal Quarter.
EXISTING SHOPPING CENTER - An operating shopping center that upon acquisition
is at least 85% leased with a weighted average lease term of at least five
years. The property must not be older than 20 years since the time of
original construction or substantial renovation. Minimum investment size is
$5 million. An original Speculative Shopping Center Development Project,
original Build-to-Suit Shopping Center Development Project or an original
Value-Added Shopping Center Project will be reclassified to an Existing
Shopping Center Project upon the occurrence of each of the following: (i) the
project is 85% leased with a weighted average lease
<PAGE>
term of at least five years, (ii) receipt of a Certificate of Occupancy for
the Project, and (iii) 90% of the project work is complete.
VALUE ADDED SHOPPING CENTER - An operating shopping center property for which
a redevelopment, re-leasing or re-positioning is actually in progress and
under construction with the objective of yielding higher total returns than
an Existing Shopping Center project. A Value-Added Shopping Center project
is a shopping center property that upon acquisition is greater than 75%, but
less than 85% leased with a weighted average lease term of at least five
years. A Value-Added Shopping Center Project shall be reclassified to an
Existing Shopping Center Project upon the occurrence of each of the
following: (x) the project is 85% leased with a weighted average lease term
of at least five years, (y) receipt of a Certificate of Occupancy for the
Project, and (z) 90% of the Value-Added Shopping Center Project redevelopment
work for the Project is complete. An Existing Shopping Center Project shall
be reclassified as a Value Added Shopping Center Project as of the date of
commencement of construction referenced above.
BUILD-TO-SUIT SHOPPING CENTER DEVELOPMENT - A Build-to-Suit Development
Project is a property to be developed for and leased to one or more tenants
that upon commencement of construction is at least 75% pre-leased with a
weighted average lease term of at least five years. A Build-to-Suit
Development Project will be reclassified as an Existing Shopping Center
Project upon the occurrence of each of the following: (i) the project is 85%
leased with a weighted average lease term of at least five years, (ii)
receipt of a Certificate of Occupancy for the Project, and (iii) 90% of the
Project work is complete.
MAJOR REHABILITATION SHOPPING CENTER - An operating shopping center property
for which a redevelopment, re-leasing or re-positioning is actually in
progress and under construction with the objective of yielding higher total
returns than an Existing Shopping Center project. A Major Rehabilitation
Shopping Center project is either (i) a shopping center property that upon
acquisition is less than 75% leased or has a weighted average lease term of
less than five years; or, (ii) any shopping center project, (excluding
Existing Shopping Center projects, except as provided below) for which a
redevelopment or repositioning is in progress and under construction and the
budget for the same is equal to 20% or more of either: (a) the Fair Market
Value (as defined in the Agreement) of the Project, excluding land; or, (b)
the cost of the project (excluding land, tenant improvements and leasing
commissions), if the project has been held for less than one year (such
redevelopment shall be referred to as a "Qualifying Redevelopment Project").
A Major Rehabilitation Shopping Center Project shall be reclassified to an
Existing Shopping Center Project upon the occurrence of each of the
following: (x) the project is 85% leased with a weighted average lease term
of at least five years, (y) receipt of a Certificate of Occupancy for the
Project, and (z) 90% of the Major Rehabilitation Shopping Center Project
redevelopment work for the Project is complete. An Existing Shopping Center
Project shall be reclassified as a Major Rehabilitation Center Project as of
the date of commencement of construction of any Qualifying Redevelopment
Project.
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<PAGE>
SPECULATIVE SHOPPING CENTER DEVELOPMENT - A shopping center property to be
developed for and leased to one or more tenants that upon commencement of
construction is less than is 75% pre-leased with a weighted average lease
term of five years. A Speculative Shopping Center Development Project will
be reclassified as an Existing Shopping Center Project upon the occurrence of
each of the following: (i) the project is 85% leased with a weighted average
lease term of five years, (ii) receipt of a Certificate of Occupancy for the
Project, and (iii) 90% of the Project work is complete.
LAND - Undeveloped, vacant land intended for development of shopping center
buildings and ancillary related uses (e.g. restaurants). The location of
such Projects shall be in selected supply constrained markets, strategic
in-fill locations or within the submarkets of existing assets to accommodate
growth. With regard to entitlements, land must be: (i) zoned for shopping
center development, (ii) free of governmental restrictions to shopping center
development (including, but not limited to, no-growth initiatives, building
moratoriums and conflicts with general plan amendments), and (iii) reasonably
expected to receive site plant approval in the ordinary course of business.
A satisfactory Phase I environmental report must be completed prior to land
acquisition. Land shall be reclassified as a Speculative Development Project
upon commencement of construction; or, Land shall be reclassified as a
Build-to-Suit Development Project upon the occurrence of each of the
following: (i) the Project is at least 75% pre-leased with a weighted average
lease term of at least five years, and (ii) commencement of construction.
PROPERTIES NOT SUITABLE FOR INVESTMENT- Properties which are functionally,
locationally or physically obsolete (and cannot be brought into compliance)
and properties which are in material non-compliance with environmental laws
against which conditions there exists no mitigating indemnification or
feasible remediation.
LEASING - For Project classification purposes, leasing tests shall be applied
or determined on a weighted average leasing basis. For purposes of Project
classification, a requirement that Project must be a certain percentage
"leased" means that such leases have been signed, but such requirement does
not require tenant occupancy in the case of Build to Suit Shopping Center
Development and Speculative Shopping Center Development. In the case of an
Existing Shopping Center, Value Added Shopping Center and Major
Rehabilitation Shopping Center, such space shall not be considered "leased"
until the date a lease is signed and the tenant is expected to take occupancy
of the premises within 90 days of such date.
INVESTMENT PARAMETERS
The following table reflects the AFTER FEE (excluding incentive fees)
unleveraged cash flow and IRR return expectations, and target allocation for
each type of shopping center project. Acquisitions that fail to (i) meet the
minimum return requirements or (ii) fall outside the minimum and maximum
price and project size parameters, require CalPERS approval.
-3-
<PAGE>
PORTFOLIO PARAMETERS
<TABLE>
<CAPTION>
Build to Suit Value Added Major Speculative
Description: Existing Development Development Rehab. Development Land
- ------------ -------- ------------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Allocation Ranges 75-90% 0-20% 0-20% (2) 0-10% (2) 0-10% (1) 0 - 5% (1)
(% of total value)
2. Minimum Average 6.00% 6.50% 6.50% 7.5% 8.50% n/a
Stabilized Cash on
Cash Returns for
5 years
3. Minimum 3.00% 3.50% 3.50% 4.50% 5.00% 6.00%
5 year IRR over 5 year over 5 year over 5 year over 5 year over 5 year over 5 year
Treasuries Treasuries Treasuries Treasuries Treasuries Treasuries
</TABLE>
(1) The combined total allocation of Speculative Shopping Center Development
and Land shall not exceed 10%.
(2) The combined total allocation of Value Added Shopping Center and
Major Rehabilitation Shopping Center Development shall not exceed 20%.
GEOGRAPHIC AREA
Burnham Pacific is assigned the Western Region as defined by state:
Alaska Idaho Oregon
Arizona Louisiana Texas
Arkansas Montana Utah
California Nevada Washington
Colorado New Mexico Wyoming
Hawaii Oklahoma
- - The portfolio will be geographically diversified across the Western
Region with no more than 30% of the portfolio value located in any single
Metropolitan Statistical Area
- - Target markets can be selected from any of the Western Region's
Consolidated Metropolitan Statistical Areas (CMSA's), Primary
Metropolitan Statistical Areas (PMSA's), or any Metropolitan Statistical
Area (MSA).
-4-
<PAGE>
EXHIBIT C
FINANCING GUIDELINES
PRINCIPAL AMOUNT Not to exceed 25% LTV of CalPERS' Western Region
Non-Regional Mall portfolio including all types of
financing without limitation, property specific
debt, tax exempt bond financing (excluding special
assessment districts), construction financing, and
portfolio level financing.
EXPANSION OF PRINCIPAL
AMOUNT Permitted up to 25% LTV of CalPERS Western Region
and with permission of the Senior Real Estate
Officer, the unused portion of the 25% allocation
of CalPERS Retail Portfolio.
USE OF PROCEEDS Governed by the Annual Investment Plan.
MAXIMUM LEVERAGE If total borrowings exceed 25% LTV or that amount
approved by the Senior Real Estate Officer,
Manager shall have a maximum cure period of one
year to comply with the 25% LTV limit. In no
event shall LTV exceed 35% unless specifically
approved by the Senior Real Estate Investment
Officer.
COLLATERAL Any or all of the Western Region Non-Regional Mall
retail properties of the Company or its
subsidiaries.
RECOURSE PROVISIONS Any unsecured portfolio level financing, defined
as fully recourse to the Company's assets, will be
reviewed and approved by CalPERS.
ORIGINATION COSTS Not to exceed 1.5% (inclusive of any third-party
fee) without the approval of the members. A
mortgage broker fee may be paid to an unaffiliated
third-party. An Affiliate of the Manager shall be
permitted to perform investment banking services
so long as: (a) other unaffiliated third parties
are not excluded from providing such services; (b)
the cost of such services is at market rates; and,
(c) Notification is sent to CalPERS of the use of
such services and the terms thereof.
TERM Not to exceed 30 years for conventional; and, not
to exceed 40 years for tax-exempt and/or Fannie Mae.
<PAGE>
FINANCING GUIDELINES
CONTINUED
RATE STRUCTURES - Fixed or Variable
- Amortizing or interest only
- Variable interest rates may be hedged by swaps,
caps and/or collars
- Fixed or hedged variable debt preferred over
variable
- Maximum of 25% of total borrowings can have
unhedged/variable interest rates so long as
such debt does not contain prepayment
provisions containing lock in and yield
maintenance.
MINIMUM DEBT
SERVICE COVERAGE 1.75:1 for portfolio level debt and 1.25:1 for
project level debt.
PREPAYMENT PROVISIONS Substitution/release of collateral subject to loan
covenants preferred over lock in and yield
maintenance provisions.
CalPERS FINANCING CalPERS' senior real estate investment officer is
exploring the possibility of obtaining a credit
facility that may be secured in part by its
interests in the Partnership or the Company's
Projects. CalPERS will keep BPOP reasonably
informed regarding its financing plans. If the
credit facility is ultimately obtained, then the
Manager may, without any obligation to do so, draw
upon the pro rata share of CalPERS' credit
facility on behalf of the Company, subject to
compliance with this EXHIBIT C and CalPERS'
Statement of Equity Real Estate Leverage Policy,
as such policy may be amended from time to time.
If CalPERS has not negotiated the terms of the
credit facility within six months from the
Effective Date (and if such negotiations are not
ongoing at the end of such six-month period), then
the Manager will be able to obtain Financings on
behalf of the Company; however, all Financings
shall be Approved by CalPERS, as provided in
SECTION 4.1(e) of the Agreement. If and when
CalPERS' credit facility is obtained, CalPERS
shall provide to the Manager the pertinent terms
of CalPERS' credit agreements and the Manager shall
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<PAGE>
be permitted to undertake further Financings
on behalf of the Partnership so long as such
Financings do not violate or breach the terms of
CalPERS' credit agreements and such Financings are
in compliance with this EXHIBIT C and CalPERS'
Statement of Equity Real Estate Leverage Policy,
as such policy may be amended from time to time.
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<PAGE>
EXHIBIT D
SCHEDULE OF CalPERS' CONTRIBUTED PROJECTS
PROPERTY LOCATION (MSA, STATE) NET ASSET VALUE (1)
-------- --------------------- -------------------
Clackamas Promenade Portland, OR
Cherrywood Square Denver, CO
Ralston Square Denver, CO
Villa Monaco Denver, CO
Sunset Valley Marketfair Austin, TX
-------------
Total
-------------
-------------
(1) To be determined based on June 30, 1998 Fair Market Value (FMV), plus or
minus the net assets and liabilities associated with the CalPERS'
Contributed Projects as of June 30, 1998.
<PAGE>
EXHIBIT G
INITIAL ANNUAL INVESTMENT PLAN
It is agreed that the minimum equity commitment shall be $250 million and
that the maximum equity commitment shall be $400 million (plus financing
proceeds, if any) through the period ending December 31, 1999.
On the formation of the Company, it is acknowledged that the Company will not
achieve the minimum equity commitment referred to above, although it is
anticipated that the Manager shall use reasonable efforts to acquire New
Projects as soon as prudently possible in order to reach the minimum equity
commitment.
<PAGE>
EXHIBIT H
FEES TO MANAGER OR AFFILIATES
This Exhibit describes the various fees payable by the Company to the
Manager and/or an Affiliate of the Manager for certain services undertaken on
behalf of the Company. All of the following fees shall be an expense of the
Company (subject to the capitalization of certain of these fees for tax and
financial reporting purposes as determined by the Manager).
1. ACQUISITION FEE. BPOP shall be reimbursed for all out-of-pocket
third-party costs incurred in connection with the acquisition of a New
Project plus a fee equal to .50% of the purchase price of the New Project.
The Acquisition Fee shall not be payable in connection with the contribution
of the CalPERS Contributed Projects to the Company by CalPERS or the
Manager's Projects by BPOP.
2. ASSET MANAGEMENT FEE. The Asset Management Fee shall be an amount
equal to .40% per annum of the aggregate Fair Market Value of the Company's
Projects over the preceding Fiscal Quarter. The Asset Management Fee shall
be payable in arrears in quarterly installments within 30 days after the end
of the preceding Fiscal Quarter.
3. PROPERTY MANAGEMENT FEES. For each Project managed by an Affiliate
of the Manager, which shall be effective July 1, 1998, said Affiliate shall
be entitled to a monthly fee ("Property Management Fee") equal to 3% of
monthly Collections (as defined in the CalPERS Approved Form).
4. CONSTRUCTION SUPERVISION FEE. The Manager (or an Affiliate
thereof) shall be entitled to a construction supervision fee ("Construction
Supervision Fee") for each Capital Expenditure, provided that such Capital
Expenditure is considered a major renovation, expansion or capital project
(defined as costing in excess of $100,000). The fee shall be equal to 2% of
the cost of such Capital Expenditures. The Construction Supervision Fee
shall not be payable in connection with Capital Expenditures incurred on any
Project in which the Manager is receiving or is entitled to a Development Fee
and excludes tenant improvements and leasing commissions.
5. DEVELOPMENT FEE. The Manager shall be paid a development fee
("Development Fee") equal to 3% of all development costs (including, without
limitation, hard and soft costs) incurred by the Company in the development
of a Build-to-Suit, Value-Added or Speculative Development Project. No
Development Fee shall be paid on the cost of acquiring the land on which such
Build-to-Suit, Value-Added or Speculative Development Project is to be
constructed. The Development Fee shall be paid monthly as development costs
are incurred, preferably out of the draw of any construction loan obtained by
the Company, if any.
6. DISPOSITION FEE. When the Company does not use a third-party
broker, the Manager (or an Affiliate thereof) shall be entitled to a
disposition fee
<PAGE>
("Disposition Fee") on the closing of a sale, exchange or other transfer of
each Project owned by the Company to a third-party purchaser in an amount
equal to .50% of the sales price obtained by the Company. If a Disposition
Fee is paid to the Manager, all marketing costs (excluding third-party
brokerage fees) incurred in connection with the promotion of the sale of the
Project shall either be paid by the Manager directly or offset against the
Disposition Fee payable hereunder. The Manager (or its Affiliate) shall
comply with all licensing requirements that may apply under local law in
order to earn the Disposition Fee.
7. LEASING COMMISSIONS. The Manager (or an Affiliate thereof) shall
be entitled to a leasing fee ("Leasing Fee") in an amount equal to 75% of the
then-current market commission in the area in which the Project is located in
connection with those leases arranged by the Manager (or an Affiliate
thereof) on behalf of the Company. The market rate leasing commission for
each market area in which the Company owns a Project will be determined in
accordance with the following procedure. The Company will retain three
nationally recognized brokerage firms mutually acceptable to both parties
(two of which are initially agreed to be CB Richard Ellis and Grubb & Ellis)
to separately survey those markets in which the Company has Projects and to
independently determine the market rate leasing commission in each such
market. For purposes of this Agreement, the "then current market commission"
in Project market area shall be the average market rate as determined by the
brokers' surveys. The cost of the surveys shall be shared equally by the
Manager and CalPERS. At any time after December 31, 1999, either the Manager
or CalPERS may request (no more often than every 12 months) that the surveys
be conducted again to redetermine the "then current market commission" for
each Project market area. If the Company utilizes a third-party broker to
represent its interests in connection with such a lease or if the tenant is
represented by a broker, those third-party brokers shall each be entitled to
receive from the Company a leasing commission of up to 100% of the
then-current market rate commissions for such lease. If the Manager (or an
Affiliate thereof) is acting as the broker on behalf of the Company, all
marketing costs incurred in connection with the promotion of the lease shall
either be paid by the Manager (or an Affiliate) directly or offset against
the Leasing Fee payable hereunder. The Manager (or an Affiliate thereof)
shall comply with all licensing requirements that may apply under local law
in order to earn the Leasing Fee.
-2-
<PAGE>
EXHIBIT N
REQUIRED CAPITAL EXPENDITURES FOR CalPERS' CONTRIBUTED PROJECTS
The following is a summary of the Required Capital Expenditures by
Project. The detail for each property is contained on the following pages.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PROPERTY NAME TOTAL REQUIRED CAPITAL PAGE NOTES
EXPENDITURES NO.
- -------------------------------------------------------------------------------
<C> <S> <S> <S>
Cherrywood Square $ 51,000(1) 1 Primarily site work
and disabled access
- -------------------------------------------------------------------------------
Clackamas Promenade 247,000(2) 3 Primarily site
work, structural and
roofing
- -------------------------------------------------------------------------------
Ralston Square 50,500(3) 6 Primarily site work
and disabled access
- -------------------------------------------------------------------------------
Sunset Valley 168,875 8 Primarily site work
- -------------------------------------------------------------------------------
Villa Monaco 410,025(4) 10 Primarily roofing
and site work
- -------------------------------------------------------------------------------
Total: $927,400.00
- -------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) An additional $18,000 is required to upgrade the onsite dry cleaner
and monitor the Texaco cleanup.
(2) County counsel in Clackamas alleges that the detention ponds on
this property are inadequate for purposes of the City's local ordinance.
Costs to investigage and resolve this matter have not been quantified.
(3) This figure does not include the costs of investigation and
resolution of potential environmental issues associated with suspected
release of PCE by onsite dry cleaner. A preliminary investigation is
scheduled to proceed next week at an estimated cost of $30,000.
(4) An additional $5,000 is required to provide an asbestos O&M plan
and secondary containment.
<PAGE>
EXHIBIT N-1
REQUIRED CAPITAL EXPENDITURES FOR MANAGER'S PROJECTS
[Proposed list of Capital Expenditures to be supplied by CalPERS by
September 30, 1998. The Manager may elect, by notice to CalPERS on or before
October 30, 1998 to have an engineer or consultant retained by the Manager
review the necessity or appropriateness of items of work/correction listed on
Exhibit N-1 and the estimated costs thereof. If elected by the Manager, the
Members will thereafter meet, discuss and resolve the treatment of any such
items.]
<PAGE>
EXHIBIT R
EXAMPLE OF FIRST CALL EARNINGS ESTIMATES SUMMARY FOR BPPI
<TABLE>
<CAPTION>
FIRST CALL Earnings Estimates Summary for BPP
Burnham Pacific Properties
Fiscal Year Ending Dec Last Updated: 10-Jun-98 10:42 am
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Q1 Q2 Q3 Q4 Fisc Yr Num Cal Yr Num
Ending Mar Jun Sep Dec Annual Brok Annual Brok
1999 0.37 0.38 0.40 0.42 1.56 4 1.56 4
1998 0.33A 0.34 0.36 0.36 1.40 5 1.40 5
1997 0.29A 0.31A 0.33A 0.33A 1.27A 6 1.27A 6
1996 0.32A 0.31A 0.29A 0.28A 1.20A 3 1.20A 3
- ----------------------------------------------------------------------------------------------------------------------------------
Consensus Recommendation: 1.4 Secular Growth Rate: 8%
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FIRST CALL Earnings Estimates for BPP
Fiscal Year Ending Dec 1999 Last Updated: 10-Jun-98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Q1 Q2 Q3 Q4 Annual Last Confirmed/
Brokers Mar-99 Jun-99 Sep-99 Dec-99 Revised/Orig.
EVEREN Sec.: 0.38 0.39 0.41 0.42 1.60 6-May-98
Previous: 0.40 0.40 0.40 0.41 1.61 27-Apr-98
Lehman Brothers: -- -- -- -- 1.55 10-Jun-98
Previous: -- -- -- -- 1.60 6-May-98
Merrill Lynch: -- -- -- -- 1.55 1-Jun-98
Previous: -- -- -- -- 1.56 17-Apr-98
MorganStanleyDW: 0.36 0.37 0.39 0.41 1.53 10-Jun-98
Previous: -- -- -- -- 1.58 22-Apr-98
FIRST CALL Consensus Statistics
# Brokers 2 2 2 2 4
Current Mean: 0.37 0.38 0.40 0.42 1.56 10-Jun-98
Previous Mean: 0.38 0.39 0.41 0.41 1.25 8-May-98
Std. Deviation: 0.01 0.01 0.01 0.01 0.03
Report Date: 05/05A
Earn. Surprise: -- -- -- -- -- 10-Jun-98
</TABLE>
*** MISCELLANEOUS ***
All figures are "New Basis" FFO.
For "Old Basis" FFO see BPP.BE.
FFO = Net Income - Depreciation + Amortization - Reat Estate Gains.
"Old Basis" FFO includes financing cost authorization in add-backs.
"New Basis" FFO excludes financing cost authorization in add-backs.
REITs must adopt "New Basis" FFO by 1Q96.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FIRST CALL Earnings Estimates for BPP
Fiscal Year Ending Dec 1998 Last Updated: 10-Jun-98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Q1 Q2 Q3 Q4 Annual Last Confirmed/
Brokers Mar-98 Jun-98 Sep-98 Dec-98 Revised/Orig.
EVEREN Sec.: 0.33A 0.34 0.37 0.38 1.42 6-May-98
Previous: 0.33 0.37 -- -- 1.48 27-Apr-98
Lehman Brothers: 0.33A 0.34 0.37 0.38 1.42 10-Jun-98
Previous: 0.36 0.36 0.38 0.37 1.49 6-May-98
Merrill Lynch: 0.33A 0.34 -- -- 1.40 1-Jun-98
Previous: 0.33 -- -- -- 1.45 17-Apr-98
MorganStanleyDW: 0.33A 0.34 0.35 0.37 1.39 10-Jun-98
Previous: 0.33 0.36 0.36 0.38 1.45 22-Apr-98
Sutro & Co.: 0.33A 0.33 0.35 0.37 1.38 1-Jun-98
Previous: -- 0.00 0.00 0.00 1.44 7-May-98
FIRST CALL Consensus Statistics
# Brokers 5 1 4 4 5
Current Mean: 0.33A 0.34 0.36 0.38 1.40 10-Jun-98
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Previous Mean: 0.34 1.27 0.29 0.30 1.41 11-May-98
Std. Deviation: 0.01 1.00 0.01 0.01 0.02
Report Date: 05/05A 01/31W 10/30W 01/18W
01/18W
Earn. Surprise: -2.94% -- -- -- -- 10-Jun-98
</TABLE>
*** MISCELLANEOUS ***
05-Jan-98 announced sale of Pacific West Outlet Center to Horizon
Group Inc.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FIRST CALL Earnings Estimates for BPP
Fiscal Year Ending Dec 1997 Last Updated: 9-Feb-98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Q1 Q2 Q3 Q4 Annual Last Confirmed/
Brokers Mar-97 Jun-97 Sep-97 Dec-97 Revised/Orig.
BT Alex Brown: 0.29A 0.31A 0.33A 0.33A 1.27A 2-Feb-98
Previous: -- 0.31 0.33 0.34 1.27 29-Jul-97
EVEREN Sec.: 0.29A 0.31A 0.33A 0.33A 1.27A 6-Nov-97
Previous: 0.29 0.31 0.33 0.35 1.27 5-Jun-97
Lehman Brothers: 0.29A 0.31A 0.33A 0.33A 1.27A 6-Jan-98
Previous: -- 0.31 0.33 0.35 1.28 10-Dec-97
Merrill Lynch: 0.29A 0.31A 0.33A 0.33A 1.27A 28-Jan-98
Previous: -- -- 0.33 0.34 1.27 13-Aug-97
MorganStanleyDW: 0.29A 0.31A 0.33A 0.33A 1.27A 12-Jan-98
Previous: -- 0.31 0.33 0.34 1.27 9-May-97
Sutro & Co.: 0.29A 0.31A 0.33A 0.33A 1.27A 9-Feb-98
Previous: -- -- 0.32 0.35 1.28 6-Nov-97
FIRST CALL Consensus Statistics
# Brokers 6 6 6 6 6
Current Mean: 0.29A 0.31A 0.33A 0.33A 1.27A 9-Feb-98
Previous Mean: 0.30 0.31 0.33 0.35 1.27 10-Dec-97
Std. Deviation: 0.01 0.00 0.00 0.01 0.01
Report Date: 04/02A 07/31A 10/30A 01/20A
Earn. Surprise: -3.33% 0.00% 0.00% -5.71% 0.00% 5-Feb-98
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FIRST CALL Earnings Estimates for BPP
Fiscal Year Ending Dec 1996 Last Updated: 13-Jan-97
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Q1 Q2 Q3 Q4 Annual Last Confirmed/
Brokers Mar-96 Jun-96 Sep-96 Dec-96 Revised/Orig.
BT Alex Brown: 0.32A 0.31A 0.29A 0.28A 1.20A 13-Jan-97
Previous: -- -- -- 0.27 1.19 10-Jan-97
EVEREN Sec.: 0.32A 0.32A 0.29A 0.28A 1.20A 27-Nov-96
Previous: -- -- -- 0.29 1.21 27-Nov-96
Tucker Anthony: 0.32A 0.31A 0.29A 0.28A 1.20A 6-Nov-96
Previous: 0.31 0.30 0.28 0.30 1.22 6-Nov-96
FIRST CALL Consensus Statistics
# Brokers 3 3 3 3 3
Current Mean: 0.32A 0.31A 0.29A 0.28A 1.20A 13-Jun-97
Previous Mean: 0.30 1.32 0.29 0.29 1.21 10-Jan-97
Std. Deviation: 0.01 0.01 0.01 0.01 0.01
Report Date: 04/02A 07/31A 10/07A 01/10A
Earn. Surprise: 6.67% -3.13% 0.07% -3.45% -0.83% 13-Jun-97
</TABLE>
- --------------------------- End of Earnings Report ----------------------------
<PAGE>
EXHIBIT R-1
CALCULATION OF NUMBER OF BPPI CONVERSION SHARES
EXAMPLE OF CALCULATION OF NUMBER OF CONVERSION BPPI SHARES
TO BE ISSUED UPON CalPERS CONVERSION UNDER SECTION 10.1
(References are to Paragraph numbers in Section 10.1(b))
A. Applicable FIRST CALL "Consensus FFO":
assume $1.49 (as per Exhibit R actual at 6/10/98)
B. Applicable "Average BPPI Closing Price": assume $15.0000
C. Applicable FFO Yield (A DIVIDED BY B): 9.933%
D. BPPI's Weighted Average Cost of Capital: THE SUM OF (i) and (ii)
(i) "Weighted Cost of Debt Capital"
I. Total BPPI Debt: assume 7.61%
X II. Leverage Ratio: assume x 45%
------
3.425%
PLUS (ii) "Weighted Yield on Equity Capital
I. Applicable FFO Yield (C): 9.933%
II. Equity Factor (100%-45%): x 55%
------
5.463%
------
EQUALS (iii) 8.888%
E. "Conversion Value": THE LESSER OF (i) or (ii) below:
(i) (I) (a) stabilized annual NOI: assume $900,000
DIVIDED BY (b) BPPI's Wtd. Av. Cost Capital (D) DIVIDED BY 8.88%
EQUALS $10,135,135
LESS (II) Unpaid leasing commns, TIs, etc.: assume __________0
$10,135,135
(ii) "Fair Market Value": assume same as (i)
F. "Pre-Closing Cost Conversion Amount"
Conversion Value: $10,135,135
X CalPERS Percentage Interest x 80%
-----
$8,108,108
G. Conversion Amount
Pre-Closing Cost Conversion Amount $8,108,108
LESS Closing cost adjusts. per G: assume 158,158
-------
$7,950,000
H. Number of Conversion BPPI Shares to be issued
Conversion Amount $7,950,000
DIVIDED BY: Average BPPI Closing Price (B) DIVIDED BY $15,000
------------------
Conversion BPPI Shares 530,000
-------
-------
<PAGE>
EXHIBIT T
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT T
Registration Rights Agreement
This Registration Rights Agreement (this "Agreement") is entered into as
of__________, by and between Burnham Pacific Properties, Inc., a Maryland
corporation (the "Company") and the State of California Public Employees'
Retirement System ("CalPERS" or the "Holder").
WHEREAS pursuant to Article X of Operating Agreement dated September __,
1998 of BPP Retail, LLC between CalPERS and Burnham Pacific Operating
Partnership. L.P. (of which the Company is the sole general partner), CalPERS
has the right under certain circumstances to acquire Common Stock of the
Company, and pursuant to that right and in accordance with the provisions of
said Article X has acquired __________ shares of Conversion BPPI Shares (as
defined in said Article X) which are shares of the Company's Common Stock,
$.01 par value ("Common Stock") in a transaction for which no registration
statement was in effect under the Securities Act of 1933 as amended (the
"Securities Act");
WHEREAS, pursuant to said Article X, the Company has agreed to enter
into this registration rights agreement in order that CalPERS may legally
resell Conversion BPPI Shares to the public under the Securities Act,
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. REGISTRATION.
(a) REGISTRABLE SHARES. As used herein, the term "Registrable Shares"
means shares of the Common Stock of the Company that are Conversion BPPI
Shares, but shares shall CEASE to be "Registrable Shares" hereunder when
either (i) a Registration Statement with respect to such shares shall have
become effective under the Securities Act and such shares shall have been
disposed of in accordance with such Registration Statement or (ii) all such
shares shall have been sold by the Holder pursuant to Rule 144 under the
Securities Act (or any successor rule or provision under which it is no
longer necessary to have an effective registration statement under the
Securities Act in order to effect a sale to the public without registration)
(the "Registrable Shares Cessation Date").
(b) DEMAND/PIGGYBACK REGISTRATION. The Holder shall have the right to cause
the Company to register the Registrable Shares pursuant to a "Demand
Registration Statement" or a "Piggyback Registration Statement" in conformity
with the provisions of the following Subsections 1(b)(i) and (ii). As used in
this Agreement, 'Registration Statement" shall include a Demand Registration
Statement, a Piggyback Registration Statement, any other registration
statement under the Securities Act pursuant to which the Holder may effect a
sale of Registrable Shares to the public, or any or all of them, as
applicable.
<PAGE>
(i) DEMAND REGISTRATION . If at any time after the date hereof the
Holder holds Registrable Shares and the Company is not then obligated to
register Registrable Shares pursuant to the Piggyback Registration
provisions of Subsection 1 (b)(ii), then the Holder shall have the right to
request the Company to file a registration statement (a "Demand
Registration Statement") under the Securities Act relating to the salt by
the Holder of any or all of its Registrable Shares. Subject to
circumstances beyond its reasonable control, the Company shall thereupon
file such Demand Registration Statement and cause the same to be declared
effective by the Commission for all Registrable Shares which the Company
has been requested to register as soon as practicable thereafter; provided,
however, that the Company shall not be obligated to file more than one
Demand Registration Statement under this Subsection 1(b)(i) and comparable
sections of any other registration rights agreement between the Company and
the Holder in any twelve (12) month period. The Company, subject to
circumstances beyond its reasonable control, agrees to keep the Demand
Registration Statement continuously effective until the earlier to occur
of (A) the sale of all of the Registrable Shares registered pursuant
thereto (Holder to promptly notify the Company of such) and (B) the
Registrable Shares Cessation Date. If the Holder intends to distribute the
Registrable Shares covered by its request by means of an underwritten
public offering, it shall so advise the Company as a part of its request
made Pursuant to this section 1(b)(i). If the Demand Registration is for an
underwritten offering on behalf of the Holder and the managing underwriter
advises the Holder and the Company that the total number of shares of
Common Stock requested to be included in such registration exceeds the
number of shares of Common Stock which can be sold in such offering, the
Company will include shares in such registration in the following priority:
(i) first, all shares of Common Stock that the Holder proposes to sell;
(ii) second, shares of Common Stock proposed to be sold by the Company, and
(iii) third, shares of Common Stock proposed to be sold by any other
stockholder or stockholders of the Company.
(ii) PIGGYBACK REGISTRATION . If at any time after the date hereof
the Holder holds Registrable Shares and the Company is not then obligated
to file a Demand Registration Statement because of a request made pursuant
to Subsection 1 (b)(i), the Company proposes to file a registration
statement under the Securities Act with respect to an offering of Common
Stock solely for cash (other than a registration statement (i) on Form S-8
or any successor form or in connection with any employee or director
welfare, benefit or compensation plan, (ii) on Form S-4 or any successor
form or in connection with an exchange offer, (iii) in connection with a
rights offering exclusively to existing holders of Common Stock, (iv) in
connection with an offering solely to employees of the Company or its
affiliates, (v) relating to a transaction pursuant to Rule 145 of the
Securities Act, or (vi) a shelf registration on Form S-3 or any successor
form) for its own account (a "Piggyback Registration Statement"), the
Company shall give written notice of such proposed filing at least ten (10)
business days before filing to the Holder. The notice referred to in the
preceding sentence shall offer the Holder the opportunity to register such
amount of Registrable Shares as the Holder may request (a "Piggyback
Registration"). Subject to the provisions of this Subsection 1(b)(ii) and
of Section 2 below, the Company shall include in such Piggyback
Registration Statement all Registrable Shares for which the
2
<PAGE>
Company has received written request for inclusion therein within five (5)
business days after the notice referred to above has been given by the
Company to the Holder. The Holder of Registrable Shares shall be permitted
to withdraw all or pan of the Registrable Shares from a Piggyback
Registration at any time prior to the effective date of such Piggyback
Registration Statement. If a Piggyback Registration is for an underwritten
offering on behalf of the Company and the managing underwriter advises the
Company that the total number of shares of Common Stock requested to be
included in such registration exceeds the number of shares of Common Stock
which can be sold in such offering, the Company will include shares in such
registration in the following priority: (i) first, all shares of Common
Stock the Company proposes to sell and (ii) second, up to the full number
of applicable Registrable Shares requested to be included in such
registration and, which in the opinion of such managing underwriter, can be
sold without adversely affecting the price range or probability of success
of such offering. which shall be allocated among the Holder and all other
stockholders requesting registration on a pro rata basis based on the
number of shares requested to be included in such offering by the Holder
and all other stockholders having comparable "piggyback" or incidental
registration rights. No Registrable Securities or other shares of Common
Stock requested to be included in a registration pursuant to demand
registration rights shall be excluded from the underwriting unless all
securities other than such securities are first excluded.
(c) FILINGS UNDER SECURITIES LAWS. Subject to circumstances beyond its
reasonable control, the Company agrees, at all times until the Registrable
Shares Cessation Date, timely to make all filings under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder necessary for the Company to satisfy the Registrant
Requirements for eligibility by the Company to use Form S-3 (or other
applicable form) for the Registration Statement and to satisfy the current
public information requirements of paragraph (c)(1) of Rule 144 of the
General Rules and Regulations promulgated under the Securities Act ("Rule
144"). If such filings do not constitute an earnings statement made available
to security holders covering the period of at least twelve months beginning
with the first day of the Company's first full calendar quarter after the
effective date of the Registration Statement for purposes of Section 11(a)
of the Securities Act and Rule 158 thereunder (a "Section 11(a) Earnings
Statement"), the Company shall take such additional action as soon as is
reasonably practicable to have made a Section 11 (a) Earnings Statement
available to security holders. If at any time the Company is not required to
file reports in compliance with Section 13 or Section 15(d) of the Exchange
Act, the Company will, at its expense, forthwith upon the written request of
Holder make available adequate current public information with respect to
the Company within the meaning of paragraph (c)(2) of Rule 144.
2. Registration Procedures
(a) The Company shall notify the Holder of the effectiveness of the
Registration Statement and shall furnish to the Holder such number of copies
of the Registration Statement (including any amendments, supplements and
exhibits), the prospectus contained therein (including each preliminary
prospectus and any applicable prospectus supplement), any documents
3
<PAGE>
incorporated by reference in the Registration Statement and such other
documents as the Holder may reasonably request in order to facilitate its
sale of the Registrable Shares in the manner described in the Registration
Statement.
(b) The Company shall prepare and file with the SEC from time to time
such amendments and supplements to the Registration Statement and prospectus
used in connection therewith as may be necessary to keep the Registration
Statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all the Registrable Shares until the
earlier of (i) such time as all of the Registrable Shares have been issued or
disposed of in accordance with the intended methods of disposition by the
Holder as set forth in the Registration Statement or (ii) the date on which
the Registration Statement ceases to be effective in accordance with the
terms of Section 1. Upon ten (10) business days' notice, the Company shall
file any supplement or post-effective amendment to the Registration Statement
with respect to the Holder's interests in or plan of distribution of
Registrable Shares that is reasonably necessary to permit the sale of the
Holder's Registrable Shares pursuant to the Registration Statement and the
Company shall file any necessary listing applications or amendments to the
existing applications to cause the shares to be then listed or quoted on the
primary exchange or quotation system on which the Common Stock is then listed
or quoted.
(c) The Company shall promptly notify the Holder of, and confirm in
writing, any request by the SEC for amendments or supplements to the
Registration Statement or the prospectus related thereto or for additional
information. In addition, the Company shall promptly notify the Holder of,
and confirm in writing, the filing of the Registration Statement any
prospectus supplement related thereto or any post-effective amendment to the
Registration statement and the effectiveness of any post-effective amendment.
(d) The Company shall promptly notify the Holder, at any time when a
prospectus relating to the Registration Statement is required to be delivered
under the Securities Act, of the happening of any event as a result of which
the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. In such event and subject to Section 7 of this Agreement, the
Company shall promptly prepare and furnish to the Holder a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of Registrable
Shares, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact. required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading.
(e) Upon receipt of reasonable notice from the Holder that the Holder
intends to sell Registrable Shares pursuant to the Registration Statement,
the Company shall cooperate with the Holder, including giving appropriate
instructions to the Transfer Agent and the Registrar for its Common Stock to
facilitate the timely preparation and delivery of certificates representing
4
<PAGE>
Registrable Shares to be sold and not bearing any restrictive legends other
than as provided in the Company's charter or as required by Maryland law.
(f) In connection with the preparation and filing of the Registration
Statement under the Securities Act, the Company will give Holder, its
underwriters, if any, and their respective counsel, the opportunity to
participate in the preparation of such Registration Statement, each
prospectus included therein or filed with the Commission, and each amendment
thereof or supplement thereto, and will give each of them such access to its
books and records and such opportunities to discuss the business of the
Company with its officers, its counsel and the independent public accountants
who have certified its financial statements as shall be necessary, in the
opinion of Holder's and such underwriters' respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.
(g) If so requested by the managing underwriter in correction with any
registration requested pursuant to Section 1(b)(i), the Company shall cause
such officers and other representatives of the Company as the managing
underwriter may reasonably designate to participate, at the Company's expense
(unless such expenses are paid by the underwriters), in "road show" or
similar meetings of the type customarily conducted for such offerings, such
meetings to be held at such times and places as the managing underwriter may
reasonably designate; provided, however, that the designation of the Company
officers and of the times and places of meetings shall reasonably accommodate
the schedules and other requirements and commitments of the individuals
involved and this Section 2(g) shall not require the Company to incur any
costs or expenses not customarily paid by the issuer in connection with "road
shows" or similar meetings. In no event shall any of the costs or expenses of
such "road show" or similar meetings be paid by the Holder.
3. STATE SECURITIES LAWS. Subject to the conditions set forth in this
Agreement, the Company shall at its expense, promptly upon the filing of a
Registration Statement including Registrable Shares, file such documents as
may be necessary to register or qualify the Registrable Shares under the
securities or "Blue Sky" laws of such states as the Holder may reasonably
request, and, subject to circumstances beyond its reasonable control, the
Company shall cause such filings to become effective if registration or
qualification in such states is necessary to permit the Holder legally to
sell the Registrable Shares in such states; provided, however, that the
Company shall not be obligated to qualify as a foreign corporation to do
business under the laws of any such state in which it is not then qualified
or to file any general consent to service of process in any such state. Once
effective, subject to circumstances beyond its reasonable control, the
Company shall at its expense keep such filings effective until the earlier of
(a) such time as all of the Registrable Shares have been disposed of in
accordance with the intended methods of disposition by the Holder as set
forth in the Registration Statement, (b) in the case of a particular state.
the Holder has notified the Company that it no longer requires effective
filing in such state in accordance with its original request for filing or
(c) the date on which the Registration Statement ceases to be effective. The
Company shall promptly notify the Holder of, and confirm in writing, the
receipt by the Company of any notification with respect to the suspension of
the qualification
5
<PAGE>
of the Registrable shares for sale under the securities or "Blue Sky" laws of
any jurisdiction or the initiation or threat of any proceeding for such
purpose.
4. CERTAIN UNDERWRITTEN OFFERINGS.
If the registration requested pursuant to Section 1(b)(i) is to be an
underwritten offering, the managing underwriter shall be selected by the
Holder, shall be a "major bracket" underwriter, and shall be reasonably
acceptable to the Company. Morgan Stanley Dean Witter Discover, Donaldson,
Lufkin & Jenrette and Lehman Brothers. and their respective successors, are
designated as acceptable underwriters by the company. If requested by the
underwriters for any underwritten offerings by Holder under a registration
requested pursuant to Section 1(b)(i), the Company will enter into a
customary underwriting agreement with such underwriters for such offering, to
contain such representations and warranties by the Company and such other
terms as are customarily contained in agreements of this type, including
indemnities to the effect and to the extent provided in Section 6. Holder
shall be a party to such underwriting agreement and may, at its option,
require that any or all of the conditions precedent to the obligations of
such underwriter & under such underwriting agreement be conditions precedent
to the obligations of Holder. Holder shall not be required to make any
representations or warranties to or agreement with the Company or the
underwriters other than representations, warranties or agreements regarding
Holder and Holder's intended method of distribution and any other
representation or warranty required by law. Neither the Company nor Holders
shall be required to enter a "lockup" or similar agreement restricting the
offer or sale of shares of Common Stock of the Company other than during the
15-day period prior to, and the 60-day period beginning on, the date of
pricing of such underwritten offering.
5. EXPENSES. The Company shall bear all expenses incurred in
connection with the registration of the Registrable Shares pursuant to
Section 1 of this Agreement (other than underwriting discounts, brokerage
commissions incurred and transfer taxes with respect to any disposition, sale
or transfer or Registrable Shares by the Holder), including, without
limitation all registration, filing and qualification fees (including,
without limitation, fees imposed by the SEC, imposed by the securities or
"Blue Sky" authority of any state, the New York Stock Exchange and any other
stock exchange on which the shares of Common Stock may then be listed, and
the National Association of Securities Dealers. Inc.), all printing, legal
and accounting expenses incurred by the Company, costs of appraisals and
other reports, the reasonable fees and disbursements of one counsel for
Holder, and the expenses, if any, to be paid by the Company pursuant to
Section 2(g).
6. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
the Holder and its respective officers, directors, employees, partners,
agents, representatives and affiliates, and each person or entity, if any,
that controls the Holder within the meaning of the Securities Act, and each
other person or entity, if any, subject to liability because of his, her or
its connection with the Holder, and any underwriter and any person who
controls the underwriter within the meaning of the Securities Act (an
"Indemnitee") against any and all losses, claims, damages, actions,
liabilities, costs and expenses (including without limitation reasonable
attorneys'
6
<PAGE>
fees, expenses and disbursements documented in writing), joint or several,
arising out of or based upon any untrue or alleged untrue statement of
material fact contained in the Registration Statement or any prospectus
contained therein, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except insofar as and to the extent that such statement or
omission arose out of or was based upon information regarding the Indemnitee
or its plan of distribution which was furnished to the Company by the
Indemnitee in writing for use therein, provided, further that the Company
shall not be liable to any person who participates as an underwriter in the
offering or sale of Registrable Shares or any other person, if any, who
controls such underwriter within the meaning of the Securities Act, in any
such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon (i) an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with information furnished to the Company in
writing for use in connection with the Registration Statement or the
prospectus contained therein by such Indemnitee or (ii) such indemnitiese's
failure to send or give a copy of the final prospectus furnished to it by the
Company at or prior to the time such action is required by the Securities Act
to the person claiming an untrue statement or alleged untrue statement or
omission or alleged omission if such statement or omission was corrected in
such final prospectus. The obligations of the Company under this Section 6
shall survive the completion of any offering of Registrable Shares pursuant
to a Registration Statement under this Agreement or otherwise and shall
survive the termination of this Agreement.
7. COVENANTS OF THE HOLDER. The Holder hereby agrees (a) to cooperate
with THE Company and to furnish to the Company all such information in
connection with the preparation of the Registration Statement and any filings
with any state securities commissions as the Company may reasonably request,
(b) to deliver or cause delivery of the prospectus contained in the
Registration Statement to any purchaser of the shares covered by the
Registration Statement from the Holder to the extent required by applicable
law, (e) to notify the Company of any sale of Registrable Shares by the
Holder and (d) to indemnify the Company, its officers, directors, employees,
agents, representatives and affiliates, and each person, if any, who controls
the Company within the meaning of the Securities Act, and each other person,
if any, subject to liability because of his connection with the Company,
against any and all losses, claims, damages, actions, liabilities, costs and
expenses arising out of or based upon (i) any untrue statement or alleged
untrue statement of material fact contained in either the Registration
Statement or the prospectus contained therein, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, if and to the extent that such
statement or omission arose out of or was based upon information regarding
the Holder or its plan of distribution which was furnished to the Company by
the Holder for use therein, or (ii) the failure by the Holder to deliver or
cause to be delivered the prospectus contained in the Registration Statement
(as amended or supplemented, if applicable) furnished by the Company to the
Holder to any purchaser of the shares covered by the Registration Statement
from the Holder.
7
<PAGE>
Notwithstanding the foregoing, (i) in no event will the Holder have any
obligation under this Section 7 for amounts the Company pays in settlement of
any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder (which consent shall not be
unreasonably withheld) and (ii) the total amount for which the Holder shall
be liable under this Section 7 shall not in any event exceed the
aggregate proceeds received by it from the sale of the Holder's Registrable
Shares in such registration The obligations of the Holder under this Section
7 shall survive the completion of any offering of Registrable Shares pursuant
to a Registration Statement under this Agreement or otherwise and shall
survive the termination of this Agreement.
8. SUSPENSION OF REGISTRATION REQUIREMENT.
(a) The Company shall promptly notify the Holder of, and confirm in
writing, the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
Proceedings for that purpose. The Company take such steps as are commercially
reasonable to obtain the withdrawal of any order suspending the effectiveness
of the Registration Statement at the earliest possible moment.
(b) Subject to the provisions of Section 8(d), notwithstanding anything
to the contrary set forth in this Agreement, the Company's obligation under
this Agreement to cause the Registration Statement and any filings with any
state securities commission to be made or to become effective or to amend or
supplement the Registration Statement shall be suspended in the event and
during such period pending negotiations relating to, or consummation of, a
transaction or the occurrence of an event that would require additional
disclosure of material information by the Company in the Registration
Statement or such filing (such circumstances being hereinafter referred to as
a "Suspension Event") that would make it impractical or unadvisable to cause
the Registration Statement or such filings to be made or to become effective
or to amend or supplement the Resignation Statement, but such suspension
shall continue only for so long as such event or its effect is continuing
but in no event will that suspension exceed sixty (60) days. The Company
shall notify the Holder of the existence of any Suspension Event.
(b) Subject to the provisions of Section 8(d), the Holder of
Registrable Shares whose Registrable Shares are covered by a Registration
Statement filed pursuant to Section 1 hereof agrees, if requested by the
managing underwriter or underwriters in an underwritten offering, not to
effect any public sale or distribution of any of the securities of the
Company of any class included in such underwritten offering, including a sale
pursuant to Rule 144 or Rule 144A under the Securities Act (except as part of
such underwritten offering), during the 15-day period prior to, and during
the 60-day period beginning on, the date of pricing of such offering, to the
extent timely notified in writing by the Company or the managing underwriters.
(d) Sections 8(b), 8(c) and 9 shall not operate to preclude the Holder
from selling Registrable Shares pursuant to the Registration Statement for
more than an aggregate of 120 days during any 365 day period.
8
<PAGE>
9. BLACK-OUT PERIOD. Subject to the provisions and time limitations
of Section 8 of this Agreement, following the effectiveness of the
Registration Statement and the filings with any state securities commissions,
the Holder agrees that it will not effect any sales of the Registrable Shares
pursuant to the Registration Statement or any such filings at any time after
it has received notice from the Company to suspend sales as a result of the
occurrence or existence of any Suspension Event, daring any Offering, or so
that the Company may correct or update the Registration Statement or such
filing pursuant to Section 2(c) or 2(d). Subject to the provisions and time
limitations of Section 8 of this Agreement, the Holder may recommence
effecting sales of the Registrable Shares pursuant to the Registration
Statement or such filings following farther notice to such effect from the
Company, which notice shall be given by the Company not later the five (5)
business days after the conclusion of any such Suspension Event or Offering.
10. ADDITIONAL SHARES. Subject to the cutback provisions contained in
Section 1(b)(i) and (ii), the Company, at its option, may register, under any
Registration Statement and any filings with any state securities commissions
filed pursuant to this Agreement, any number of unissued shares of Common
Stock or any shares of common Stock, owned by any other stockholder or
stockholders of the Company.
11. CONTRIBUTION. If the indemnification provided for in Sections 6
and 7 is unavailable to an indemnified parry with respect to any losses,
claims, damages, actions, liabilities, costs or expenses referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, actions, liabilities, costs or
expenses in such proportion as is appropriate to reflect the relative fault
of the Company, on the one hand, and the Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, actions, liabilities, costs or expenses as well as any other
relevant equitable considerations. The relative fault of the Company, on the
one hand, and of the Holder, on the other hand, shall be determined by
reference to, among other factors, whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or by the Holder
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; PROVIDED,
HOWEVER, that in no event shall the obligation of any indemnifying party to
contribute under this Section 11 exceed the amount that such indemnifying
party would have been obligated to pay by way of indemnification if the
indemnification provided for under Sections 6 or 7 hereof had been available
under the circumstances.
The Company and the Holder agree that it would not be just and equitable
if contribution pursuant to this Section 11 were determined by PRO RATA
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding
paragraph.
No indemnified party guilty of fraudulent misrepresentation (within the
meaning of Section 11 (f) of the Securities Act) shall be entitled to
contribution from any indemnifying party who was not guilty of such
fraudulent misrepresentation.
9
<PAGE>
12. NO OTHER OBLIGATION TO REGISTER. Except as otherwise expressly
provided in this Agreement, the Company shall have no obligation to the
Holder to register the Registrable Shares under the Securities Act.
13, AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented without the prior written consent of the
Company and the Holder.
14. NOTICES. Except as set forth below, all notices and other
communications provided for or permitted hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
telex or telecopier, registered or certified mail return receipt requested),
postage prepaid or courier or overnight delivery service to the Company and
the Holder at the following respective address (or at such other address for
any party as shall be specified by like notice, provided that NOTICES OF a
change of address shall be effective only upon receipt thereof):
If to the Company: Burnham Pacific Properties, Inc.
[To be completed]
If to the Holder: State of California Public Employees' Retirement System
[To be completed]
In addition to the manner of notice permitted above, notices given
pursuant to Sections 1, 8 and 9 hereof may be effected telephonically and
confirmed in writing thereafter in the manner described above.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their RESPECTIVE successors.
Each party hereto shall be permitted to assign any of its rights hereunder to
any third party, provided that (i) Holder shall remain the agent for all
third party assignees with respect to the registration and other rights as
set forth herein, (ii) such transfer is effected in accordance with
applicable federal and state securities laws, (iii) such assignee becomes a
parry to this Agreement or agrees in writing to be subject to the terms
hereof, and (iv) the Company is given written notice by the Holder of said
transfer stating the NAME and address of said assignee and identifying the
securities with respect to which such registration rights are being assigned.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
17. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to
contracts made and to be performed wholly within said State.
10
<PAGE>
18. SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any
way impaired thereby, it being intended that all of the rights and privileges
of the parties hereto shall be enforceable to the fullest extent permitted by
law.
19. ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions.
promises, warranties or undertakings, other than those set forth or referred
to herein, with respect to such subject matter. This Agreement supersedes a
prior agreements and understandings between the parties with respect to such
subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
Burnham Pacific Properties, Inc.
By: _________________________________
Name:
Title:
State of California Public Employees'
Retirement System
By: _________________________________
Name:
Title:
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 13,471<F1>
<SECURITIES> 0
<RECEIVABLES> 7,138
<ALLOWANCES> 1,584
<INVENTORY> 0
<CURRENT-ASSETS> 36,422<F2><F3>
<PP&E> 1,132,408
<DEPRECIATION> 74,564
<TOTAL-ASSETS> 1,094,266
<CURRENT-LIABILITIES> 24,839
<BONDS> 576,808
0
68,894
<COMMON> 456,325
<OTHER-SE> (103,154)
<TOTAL-LIABILITY-AND-EQUITY> 1,094,266<F4><F5>
<SALES> 95,898
<TOTAL-REVENUES> 96,531
<CGS> 25,703
<TOTAL-COSTS> 25,703
<OTHER-EXPENSES> 24,880
<LOSS-PROVISION> 519
<INTEREST-EXPENSE> 26,195
<INCOME-PRETAX> 11,542
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,542<F6><F7><F8>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,542
<EPS-PRIMARY> .40
<EPS-DILUTED> .39
<FN>
<F1>Includes 8,908 of Restricted Cash
<F2>Includes 3,683 of Investment in Unconsolidated Subsidiaries.
<F3>Also includes 13,714 of Other Assets and 5,554 of Receivables-Net.
<F4>Includes 524,872 of Paid in Capital in Excess of Par.
<F5>Also includes 70,554 of Minority Interest.
<F6>Includes 4,200 Dividends Paid to Preferred Stockholders.
<F7>Also includes 3,652 Minority Interest.
<F8>Also includes 160 of Income from Unconsolidated Subsidiaries.
</FN>
</TABLE>
