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As filed with the Securities and Exchange Commission on August 13, 1999
REGISTRATION STATEMENT NO. 333-69957
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 5 TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BURNHAM PACIFIC PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 33-0204162
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
610 WEST ASH STREET, SUITE 1600
SAN DIEGO, CALIFORNIA 92101
(619) 652-4700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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J. DAVID MARTIN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
DANIEL B. PLATT, CHIEF ADMINISTRATIVE OFFICER AND CHIEF FINANCIAL OFFICER
610 WEST ASH STREET, SUITE 1600
SAN DIEGO, CALIFORNIA 92101
(619) 652-4700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
WILLIAM B. KING, P.C.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
(617) 570-1000
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Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion. Dated August 13, 1999.
PROSPECTUS
BURNHAM PACIFIC PROPERTIES, INC.
2,000,000 SHARES OF SERIES 1997-A CONVERTIBLE PREFERRED STOCK,
3,252,033 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF
AND 1,769,488 OTHER SHARES OF COMMON STOCK
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This prospectus covers shares of our preferred stock and common
stock (including the rights attached thereto pursuant to a Shareholders
Rights Agreement dated June 19, 1999) that we may issue to holders of
preferred and common units, respectively, of Burnham Pacific Operating
Partnership, L.P. upon the holders' exercise of their rights to have us
redeem their units.
Our common stock trades on the New York Stock Exchange under the symbol
"BPP." There is no public market for our preferred stock. The common and
preferred stock are subject to restrictions on ownership and transfer designed
to assist us in maintaining our status as a real estate investment trust for
federal income tax purposes. See "Description of Securities--Common
stock--Restrictions on transfer."
SEE "RISK FACTORS" BEGINNING ON PAGE 4 TO READ ABOUT SEVERAL FACTORS
YOU SHOULD CONSIDER BEFORE EXCHANGING THE SECURITIES YOU HOLD FOR THE SECURITIES
COVERED BY THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is August __, 1999.
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PROSPECTUS SUMMARY
THIS SUMMARY ONLY HIGHLIGHTS THE MORE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE. AS THIS IS A
SUMMARY, IT MAY NOT CONTAIN ALL INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD
READ THIS ENTIRE PROSPECTUS CAREFULLY BEFORE DECIDING WHETHER TO PURCHASE SHARES
OR TO REDEEM YOUR COMMON OR PREFERRED UNITS.
SOME IMPORTANT TERMS
ALTHOUGH BURNHAM PACIFIC PROPERTIES, INC., BURNHAM PACIFIC OPERATING
PARTNERSHIP, L.P. AND THEIR SUBSIDIARIES AND AFFILIATES ARE SEPARATE LEGAL
ENTITIES, FOR EASE OF REFERENCE, THE TERMS "WE," "US," AND "OUR" REFER TO THE
BUSINESS AND PROPERTIES OF ALL OF THESE ENTITIES, UNLESS THE CONTEXT INDICATES
OTHERWISE. FOR EASE OF REFERENCE AND CLARITY, WE SOMETIMES REFER TO BURNHAM
PACIFIC PROPERTIES, INC. AND ITS PREDECESSOR, SUBSIDIARIES AND AFFILIATES AS
"BURNHAM" AND BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P. AND ITS SUBSIDIARIES
AND AFFILIATES AS THE "OPERATING PARTNERSHIP."
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THE COMPANY
We are a real estate operating company that acquires, rehabilitates,
develops, owns and oversees the management of retail properties. Our properties
are primarily neighborhood and community shopping centers located in major
metropolitan areas, primarily in the western part of the United
States. We focus on shopping centers in areas with a limited supply of vacant
land and with established consumer shopping patterns, characteristics that help
limit competition. We own our properties and conduct most of our business
through the operating partnership. Burnham is the sole general partner of the
operating partnership and owns a large majority of the economic interests in the
operating partnership.
The operating partnership is also the manager and minority owner of
a joint venture vehicle, BPP Retail, LLC, formed with the State of California
Public Employees' Retirement System ("CalPERS") to acquire and own community
shopping centers. In March 1999, the joint venture entered into agreements
under which the joint venture will purchase several shopping center
properties throughout the United States from AMB Property Corporation. The
joint venture has consummated some of those acquisitions with others currently
scheduled to close in the fourth quarter of 1999.
Following the decision to acquire the properties from AMB Property
Corporation and an evaluation of whether we should expand our internal
property management capabilities, we have decided to outsource the management
of our existing properties as a long term strategy. Although we outsource
day-to-day management of our individual properties to third parties, we
oversee the activities of those managers, and we will continue to make
acquisition, disposition, retenanting, redevelopment, leasing and other value
added and strategic management decisions about our portfolios.
SECURITIES THAT MAY BE OFFERED
This prospectus relates to the offer and sale from time to time of the
following securities:
o up to 2,000,000 shares of preferred stock that Burnham may issue
upon redemption of preferred units of the operating partnership;
o up to 3,252,033 shares of common stock that Burnham may issue upon
conversion of the preferred stock, based upon the current
conversion rate of approximately 1.626 shares of common stock for
each share of preferred stock;
o up to an additional 1,769,488 shares of common stock that Burnham
may issue upon redemption of common units of the operating
partnership; and
o an indeterminate number of additional shares of common stock that
Burnham may issue as a result of provisions of the preferred stock
which entitle holders of preferred stock to additional equity in
Burnham if events occur that would otherwise dilute their
ownership interests.
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We may issue the preferred stock that we are registering upon
redemption of preferred units that were previously issued by the operating
partnership when it acquired properties on December 31, 1997.
We may issue the shares of common stock that we are registering in
connection with:
o the conversion of shares of preferred stock, whether currently
outstanding or issuable upon redemption of preferred units; and
o the redemption of common units issued by the operating partnership
as a part of the purchase price for various shopping centers
acquired through June 30, 1998.
We are registering the securities covered by this prospectus to satisfy
our obligations under registration rights agreements with holders of preferred
and common units.
Neither Burnham nor the operating partnership will receive any cash
proceeds from the issuance of any common stock or preferred stock offered under
this prospectus. With each issuance of common stock or preferred stock as a
result of a redemption of partnership units, however, Burnham's economic
interest in the operating partnership will increase.
TAX STATUS OF BURNHAM
Burnham has elected to qualify as a real estate investment trust,
commonly referred to as a "REIT," under Sections 856 through 860 of the Internal
Revenue Code of 1986, in each year since 1987. As long as we qualify for
taxation as a REIT, we generally will not be subject to federal income tax on
the portion of our ordinary income and capital gains that is currently
distributed to our stockholders. Even if we qualify for taxation as a REIT, we
may be required to pay state and local taxes on our income and property and
federal income and excise taxes on our undistributed income. See "Risk
Factors--We could incur unanticipated expenses if we fail to qualify as a REIT"
and "Federal Income Tax Considerations" for a more detailed explanation.
Our corporate office is located at 610 West Ash Street, Suite 1600, San
Diego, California 92101. Our telephone number is (619) 652-4700.
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RISK FACTORS
BECAUSE THIS PROSPECTUS COVERS SECURITIES THAT WE MAY ISSUE TO YOU
AFTER YOU HAVE DECIDED TO PRESENT YOUR PARTNERSHIP UNITS FOR REDEMPTION, WE
POINT OUT LIKELY CONSEQUENCES OF SUCH DECISION. IN ADDITION, THERE ARE RISKS
INHERENT IN BEING AN INVESTOR IN OUR BUSINESS TO WHICH YOU MAY ALREADY BE
EXPOSED. WE HAVE DESCRIBED THE MATERIAL RISK FACTORS THAT YOU SHOULD CONSIDER
CAREFULLY, TOGETHER WITH ALL OF THE INFORMATION INCLUDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, BEFORE MAKING YOUR DECISION TO REDEEM. THIS
SECTION INCLUDES OR REFERS TO FORWARD-LOOKING STATEMENTS. WE URGE YOU TO READ
THE EXPLANATION OF THE QUALIFICATIONS AND LIMITATIONS ON FORWARD-LOOKING
STATEMENTS UNDER THE SECTION "FORWARD LOOKING INFORMATION."
RISK FACTORS RELATING TO THE REDEMPTION OF PARTNERSHIP UNITS
REDEEMING PARTNERSHIP UNITS WILL CREATE TAX LIABILITIES FOR YOU.
If you redeem your partnership units in exchange for either cash or
stock, your redemption will be treated as a sale for tax purposes. The
redemption will be fully taxable to you, and you will be taxed on an amount
equal to the sum of (a) the cash you receive or the value of the capital
stock you receive plus (b) the amount of any liabilities of the operating
partnership allocable to the exchanged partnership units at the time of the
redemption or exchange less (c) your adjusted basis in your partnership
units. The amount of gain recognized or even the tax liability resulting from
that gain could exceed the amount of cash and the value of stock you would
receive in the redemption. In addition, you may not be able to sell your
stock in order to raise cash to pay your tax liabilities associated with the
redemption of partnership units as a result of fluctuations in the market
price of our common stock or the value of our preferred stock or as a result
of there being no organized public market for preferred stock.
If we do not acquire the partnership units you tender for redemption in
exchange for our capital stock and the operating partnership redeems the
partnership units for cash, the tax consequences may differ. See "Description of
units and redemption of units of operating partnership -- Tax consequences of
redemption."
REDEEMING PARTNERSHIP UNITS MAY CAUSE YOUR ORIGINAL ACQUISITION OF PARTNERSHIP
UNITS TO BE SUBJECT TO TAX.
The original transaction in which you exchanged property for
partnership units may be treated as a taxable sale under the disguised sale
rules of the Internal Revenue Code if you redeem your partnership units.
Although there are several exceptions, the tax law generally provides that a
partner's contribution of property to a partnership and a simultaneous or
subsequent transfer of money or other consideration from the partnership to the
partner will be presumed to be a taxable sale if the two transactions happen
within a two-year time period. The presumption may be overcome if the facts and
circumstances clearly establish that the transfers are not a sale. On the other
hand, if two years have passed between the original contribution of property and
the transfer of money or other consideration, the transactions will not be
presumed to be a taxable sale unless the facts and circumstances clearly
establish that they should be. You should consult your own tax advisor regarding
your personal situation prior to tendering partnership units for redemption and
regarding any reporting requirements.
REDEEMING PARTNERSHIP UNITS WILL CHANGE YOUR INVESTMENT.
If you hold partnership units, you may redeem some or all of them for
cash. However, we may elect to give you common stock in exchange for your common
units or preferred stock in exchange for your preferred units instead of cash.
Your decision to redeem may not result in your receipt of cash, even if you
desire to receive cash, because it is our choice to give you stock instead. If
you receive cash, you will no longer have any interest in the operating
partnership except to the extent that you still retain some
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partnership units. As a result, you will not benefit from any subsequent
increases in our share price and you will not receive any future
distributions from us unless you retain or acquire partnership units or
additional shares of capital stock in the future. If you receive capital
stock, you will become a stockholder of Burnham Pacific Properties, Inc.
rather than a holder of partnership units in Burnham Pacific Operating
Partnership, L.P. and as such will have different economic and corporate
governance rights from those you had as a holder of partnership units.
IT MAY BE DIFFICULT OR IMPOSSIBLE FOR YOU TO SELL OUR PREFERRED STOCK.
At the present time, there is no trading market for the preferred
stock. In addition, the limited number of shares of preferred stock, even if all
of them were issued, would likely inhibit the development of an organized public
market. A stockholder's ability to sell preferred stock will depend upon a
variety of factors including the amount available for sale, the terms under
which they are available to purchasers and the objectives of potential investors
in Burnham.
IF BURNHAM'S OPERATING PARTNERSHIP FAILS TO MAKE DISTRIBUTIONS, BURNHAM MAY NOT
BE ABLE TO PAY DIVIDENDS ON ITS STOCK.
The operating partnership owns our properties and conducts our
business. Accordingly, we pay all of our dividends from distributions we receive
from the operating partnership. We receive distributions as both general partner
and a limited partner owning preferred units and common units of the operating
partnership. Although Burnham, as sole general partner of the operating
partnership, intends to cause the operating partnership to make distributions in
amounts sufficient to enable Burnham to pay dividends to the holders of its
capital stock, if the operating partnership fails to make distributions at any
time, Burnham's ability to pay dividends would be impaired.
THE REGISTRATION AND OTHER RIGHTS OF THE CAPITAL STOCK MAY LOWER THE MARKET
PRICE OF THE SHARES.
We have given holders of outstanding preferred stock of Burnham and
holders of preferred units and common units of the operating partnership
registration rights with respect to the following shares of capital stock that
are the subject of this prospectus:
o up to 2,000,000 shares of preferred stock which we may issue upon
redemption of preferred units;
o up to 3,252,033 shares of common stock which we may issue upon
conversion of the preferred stock; and
o up to 1,769,488 shares of common stock which we may issue upon
redemption of currently outstanding common units that were issued
in connection with various acquisitions, plus an additional
undetermined number of additional common units that may be
issuable pursuant to an "earn-out" provision of an acquisition
but that are not being registered for sale under this prospectus.
In addition, we have issued 2,800,000 shares of preferred stock in
connection with a financing transaction. The holders of those shares have
registration rights with respect to the preferred stock and the common stock
that may be issued in exchange for their preferred stock, but those shares
are not being registered for sale under this prospectus. In addition, the
operating partnership has invested in other real estate partnerships and
limited liability companies and has issued common units to a contributor of
another property. The common units issued in exchange for that property are
not being registered for sale under this prospectus. Partners in those other
limited partnerships and limited liability companies and the
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holder of those common units have the right to have their interests in the
partnerships and limited liability companies redeemed for cash or, at our
option, for shares of our common stock. These partners also have registration
rights with respect to the shares of our common stock that may be issued in
exchange for their limited partnership, limited liability company or
operating partnership interests. All of the registration rights discussed
above could lower the market price for our capital stock.
Holders of preferred stock also have rights of first offer to purchase
shares of our capital stock which we may offer in the future. These rights of
first offer could lower the market price for our capital stock.
A RECENT UNSOLICITED ACQUISITION PROPOSAL MAY AFFECT OUR ABILITY TO CARRY OUT
OUR BUSINESS PLAN, RESULT IN UNANTICIPATED COSTS AND DISTRACT MANAGEMENT.
On June 7, 1999, we received an unsolicited proposal from
Schottenstein Stores Corporation to negotiate a business combination in which
Burnham would be merged into an acquisition affiliate of Schottenstein
Stores Corporation, and Burnham's stockholders would receive $13 per share. On
July 12, 1999 Schottenstein Stores Corporation increased the proposed price
to $13.50. On July 23, 1999, after detailed consideration of the proposal by
the board of directors, we notified Schottenstein Stores Corporation that we
were not interested in pursuing discussions concerning its unsolicited and
contingent proposal. Nevertheless, so long as this proposal is outstanding,
we will be uncertain about our ability to implement our current business plan
and about our future generally. This uncertainty may harm our business and
may result in the loss of business opportunities we would otherwise pursue.
Our management team may be distracted from the day-to-day operations of our
business as a result of such uncertainty and some may decide to leave their
employment with us. The loss of their services and their distraction could
harm our operations. In addition, we are incurring significant costs for
financial advisory, legal and other consulting services expended in
evaluating and responding to this proposal and its consequences.
RISK FACTORS RELATING TO OUR BUSINESS AS A REAL ESTATE INVESTMENT TRUST
AS A REAL ESTATE COMPANY, OUR ABILITY TO GENERATE REVENUES AND PAY DISTRIBUTIONS
TO OUR STOCKHOLDERS IS AFFECTED BY THE RISKS INHERENT IN OWNING REAL PROPERTY
INVESTMENTS.
We derive most of our revenue from investments in real property. Real
property investments are subject to different types and degrees of risk that may
reduce the value of our assets and our ability to generate revenues. The factors
that may reduce our revenues, net income and cash available for distributions to
stockholders include the following:
o local conditions, such as an oversupply of space or a reduction in
demand for real estate in an area;
o competition from other available space;
o the ability of the owner to provide adequate maintenance;
o insurance and variable operating costs;
o government regulations;
o changes in interest rate levels;
o the availability of financing;
o potential liability due to changes in environmental and other
laws; and
o changes in the general economic climate.
WE MAY NOT BE ABLE TO SELL OUR ASSETS IF WE NEED TO DO SO.
Real estate investments are relatively illiquid, and therefore we may
not be able to sell one or more of our properties in order to respond promptly
to changes in economic or other conditions. In addition, the Internal Revenue
Code limits a REIT's ability to sell properties held for fewer than four years.
Our inability to sell one or more of our properties could harm our performance
and ultimately our ability to make distributions to our stockholders.
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WE COULD HAVE FINANCIAL DIFFICULTIES AS A RESULT OF REGIONAL ECONOMIC PROBLEMS.
Our properties presently are primarily located in the western United
States, with the substantial majority in the State of California, primarily in
the San Diego County, greater Los Angeles and San Francisco Bay areas. Economic
problems in these specific areas would harm us more than if our properties were
in diverse locations. The performance of the economy in each locality affects
occupancy, market rental rates and expenses and could lower our revenues and the
underlying values of our properties. Moreover, the financial conditions of major
local employers may have an impact on our revenues and the value of some of our
properties. If there is a downturn in the economy of the western region in
general or of any of these local economies, our results of operations could
suffer and we could be unable to make distributions to our stockholders. In that
regard, we have properties in areas that have been in the past and could be in
the future harmed by the following:
o reductions in defense spending;
o conditions in the high technology industries; and
o natural disasters, including earthquakes and floods. See "--Our
insurance coverage is limited."
WE COULD HAVE FINANCIAL DIFFICULTIES AS A RESULT OF A DOWNTURN IN THE RETAIL
SEGMENT OF THE REAL ESTATE INDUSTRY.
Our current strategy is to acquire interests only in retail shopping
centers and other properties that are related to retail shopping centers. If
there is a downturn in the retail industry, we will be in a worse position to
make distributions to our stockholders than if we diversified our portfolio by
investing in other types of properties.
Our performance is linked to economic conditions in the market for
retail space generally. The market for retail space has been and could in the
future be harmed by:
o the volatile nature of the retail business;
o ongoing consolidation among retailing companies;
o over expansion of chains in a general market area resulting in
competition among a tenant's own stores;
o weak financial condition of large major retailers;
o excess amount of retail space in some markets;
o increasing consumer purchases through catalogues or the Internet;
and
o changes in consumer preferences.
These conditions and similar ones may result in tenant failures or changes in
physical requirements, which we may have to accommodate to retain or attract
tenants. Moreover, because many anchor tenants have negotiating power to
demand the exclusive right to sell some types of products in a shopping
center, they could impair our ability to lease space to retailers of
potentially competing products. To the extent that these conditions impact
the market rents for retail space, we could experience a reduction of
revenues, and resulting value, of our properties.
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WE COULD LOSE TENANTS OR INVESTMENT OPPORTUNITIES TO OUR COMPETITORS.
Many retail properties compete with our properties in attracting
tenants to lease space. Some of these properties are newer and better located or
designed and may offer lower expenses or be better capitalized than our
properties. We may find it difficult to lease space at our properties or at
newly developed or acquired properties and at rents currently charged as a
result of competitive commercial properties in a particular area. Additionally,
we compete for investment opportunities with entities that have greater
financial resources than ours. These entities may be able to accept more risk
than we can prudently manage. Competition may generally reduce the number of
suitable investment opportunities offered to us and increase the bargaining
power of property owners seeking to sell.
WE COULD HAVE FINANCIAL PROBLEMS AS A RESULT OF OUR TENANTS' FINANCIAL
DIFFICULTY.
At any time, any of our tenants may seek the protection of the
bankruptcy laws. Under the bankruptcy laws, that tenant's lease could be
rejected and terminated, which would cause us to lose rental income. In
addition, a tenant from time to time may experience a downturn in its business
which may weaken its financial condition and result in its failure to make
rental payments when due. A tenant's failure to affirm its lease following
bankruptcy or a weakening of its financial condition could impair our results of
operations and ability to make distributions to our stockholders.
OUR ACQUISITION AND DEVELOPMENT OF REAL ESTATE COULD COST MORE THAN WE
ANTICIPATE.
We intend to acquire existing retail commercial properties to the
extent we can acquire these properties on acceptable terms. We could incur
higher than anticipated costs for improvements to these properties to conform
them to standards established for the intended market position. Once improved,
the properties may not perform as expected.
We also intend to pursue commercial property development projects.
Developing properties generally carries more risk than acquiring existing
properties. For example, development projects usually require governmental and
other approvals, which we may not be able to obtain. Furthermore, approvals
frequently require the improvement of public infrastructure or other activities
to mitigate the effects of the proposed development, which may cost more than we
anticipate. Our development activities will also entail other risks, including:
o that we will devote financial and management resources to projects
which may not come to fruition;
o that we will not complete a development project as scheduled;
o that we will incur higher construction costs than anticipated;
o that occupancy rates and rents at a completed project will be less
than anticipated; and
o that expenses at a completed development will be higher than
anticipated.
The happening of these events could harm our results of operations and impair
our ability to make distributions to our stockholders.
Our failure to integrate newly acquired or developed properties into
our operations efficiently could cause us financial harm and impair our ability
to make distributions to our stockholders.
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OUR OPERATIONS WOULD BE AFFECTED IF WE LOST KEY PERSONNEL.
We depend on the efforts of our management team, particularly
executive officers, J. David Martin, our President and Chief Executive
Officer, Joseph Wm. Byrne, our Executive Vice President and Chief Operating
Officer, Daniel B. Platt, our Executive Vice President, Chief Financial
Officer and Chief Administrative Officer, James W. Gaube, our Executive Vice
President and Chief Investment Officer and Scott C. Verges, our Secretary and
General Counsel. Loss of their services could harm our operations. We have an
employment agreement with Mr. Martin, but that agreement may be terminated by
either party at will. Moreover, in the event that Burnham sought to enforce
the terms of that agreement in the future, a court may determine that it is
unenforceable in whole or in part.
OUR DEVELOPMENT OF PROPERTIES ACQUIRED FROM J. DAVID MARTIN, OUR CHIEF EXECUTIVE
OFFICER, COULD CREATE CONFLICTS OF INTEREST.
We are currently developing one property and are in the process of
leasing two prior development properties, which we acquired from entities
directly or indirectly controlled by Mr. Martin concurrently with his
appointment as President and Chief Executive Officer in 1995. Mr. Martin
personally has an interest in these development projects, and there could be a
conflict between his duty to act on behalf of Burnham and his personal interest.
Mr. Martin continues to own an equity interest in each of the
partnerships that own those properties. Burnham is the general partner of those
partnerships. Mr. Martin may receive additional equity in each partnership when
each of the development projects is completed and begins to generate rental
income. The amount of additional equity which Mr. Martin may receive will depend
upon factors that we cannot predict, including the actual cost of each project.
We have adopted procedures such as Mr. Martin's absence from
discussions of our board of directors that relate to the relevant properties.
However, conflicts of interest could arise despite our efforts to avoid them.
WE COULD INCUR UNANTICIPATED EXPENSES IF WE FAIL TO QUALIFY AS A REIT.
Burnham has elected to qualify as a real estate investment trust under
the Internal Revenue Code. We believe that since 1987 we have satisfied the REIT
qualification requirements. However, the IRS could challenge our REIT
qualification for taxable years still subject to audit. Moreover, we may fail to
qualify as a REIT in future years. Qualification as a REIT involves the
application of highly technical and complex Internal Revenue Code provisions for
which there are only limited judicial or administrative interpretations. For
example, in order to qualify as a REIT, we must derive at least 95% of our gross
income in any year from qualifying sources, and we must distribute annually to
stockholders 95% of our REIT taxable income, excluding net capital gains. In
addition, REIT qualification involves the determination of factual matters and
circumstances not entirely within our control.
Under its partnership agreement, the operating partnership is
obligated to make available to Burnham funds needed to pay Burnham's tax
liabilities. If we were to operate in a manner that prevented Burnham from
qualifying as a REIT, or if Burnham were to fail to qualify for any reason, a
number of adverse consequences would result. If in any taxable year we fail
to qualify as a REIT, we would not be allowed to deduct distributions to
stockholders in computing our taxable income. Furthermore, we would be
subject to federal income tax on our taxable income at regular corporate
rates. Unless entitled to statutory relief, we would also be disqualified
from treatment as a REIT for the four taxable years following the year during
which qualification was lost. As a result, the funds available for
distribution to our stockholders would be reduced for each of the years
involved. Although we currently intend to operate as a qualified REIT, future
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economic, market, legal, tax or other considerations may impair our REIT
qualification or may cause our board of directors to revoke the REIT
election. See "Federal Income Tax Considerations."
WE COULD INCUR COSTS FROM ENVIRONMENTAL PROBLEMS EVEN THOUGH WE DID NOT
CAUSE, CONTRIBUTE TO OR KNOW ABOUT THEM.
Because we own, operate, develop and supervise the management of real
estate, for liability purposes we may be considered under the law to be an owner
or operator of those properties or as having arranged for the disposal or
treatment of hazardous or toxic substances. As a result, we could have to pay
removal or remediation costs. Federal, state and local laws often impose
liability regardless of whether the owner or operator knew of, or was
responsible for, the presence of the hazardous or toxic substances. The presence
of those substances, or the failure to properly remediate them, may impair the
owner's or operator's ability to sell or rent the property or to borrow using
the property as collateral. A person who arranges for the disposal or treatment
of hazardous or toxic substances may also be liable for the costs of removing or
remediating the substances at a disposal or treatment facility, whether or not
that person owns or operates the facility. Furthermore, environmental laws
impose liability for release of asbestos-containing materials into the air. If
we were ever held responsible for releasing asbestos-containing materials, third
parties could seek recovery from us for personal injuries. Thus, we might have
to pay other costs, including governmental fines and costs related to personal
injuries and property damage, resulting from the environmental condition of our
properties, regardless of whether we actually had knowledge of or contributed to
those conditions.
WE COULD ENCOUNTER PROBLEMS AS A RESULT OF USING DEBT TO FINANCE ACQUISITIONS.
We borrow money to pay for the acquisition, development and operation
of properties and for other general corporate purposes. By borrowing money, we
expose ourselves to several problems, including the following:
o inability to repay debt when due;
o reduced access to additional debt; and
o loss of our property securing any defaulted debt.
We currently have a line of credit facility that has both secured and
unsecured portions and another line of credit facility that is unsecured. We may
borrow up to $205 million under one credit facility of which $135 million is to
be secured by individual properties and $70 million is unsecured. This credit
facility bears interest at rates of LIBOR (London Inter-Bank Offer Rate) plus
1.4% for secured borrowings and LIBOR plus 1.5% for unsecured borrowings. We may
borrow up to $5 million under our other unsecured revolving credit facility.
This credit facility bears interest at the rate of either LIBOR plus 2.0% or the
prime lending rate. At December 31, 1998, approximately 35.3% of our total
outstanding debt was variable rate debt and most of it reprices on a monthly
basis. Although provisions contained in the credit facilities limit the amount
of additional indebtedness we may incur, we may incur indebtedness well beyond
our current level. Our charter and bylaws do not limit the amount of
indebtedness that we may incur.
Our credit facilities require that we comply with covenants relating
to our financial condition. In addition, we have pledged some of our
properties as collateral to secure loans, including borrowings made under one
of our credit facilities. We may not be able to meet our debt service
obligations, including as a result of higher interest rates affecting our
variable rate debt, or to comply with the terms of our debt instruments. As a
result, our lenders may be entitled to demand immediate repayment of the
related indebtedness and to commence foreclosure proceedings against the
property securing the indebtedness.
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Some of our debt is cross collateralized and cross defaulted. If we
default on a cross collateralized loan, the holder of the debt may be able to
foreclose not only on the properties which secure that loan but on other
properties as well. A default on a cross defaulted loan will be automatically
deemed a default under other loans. Defaults on cross collateralized and cross
defaulted loans could cause us to lose some or all of our assets and limit our
ability to generate revenues and pay distributions to our stockholders. Cross
collateralization and cross default provisions create the possibility that our
inability to make payments on one loan may affect other loans, including loans
for which we are meeting our payment obligation.
Furthermore, a downturn in the economy could make it difficult for us
to borrow money on favorable terms. If we were unable to borrow, we might need
to sell some of our assets at unfavorable prices to enable us to repay some of
our loans. We could encounter several problems, including:
o insufficient cash flow necessary to meet required payments of
principal and interest;
o an increase of variable interest rates on indebtedness; and
o the inability to refinance existing indebtedness on favorable
terms or at all.
Other than indebtedness under our credit facilities, our mortgage indebtedness
is generally nonrecourse to us. However, even with respect to nonrecourse
mortgage indebtedness, we could be obligated to pay our lenders for deficiencies
resulting, among other things, from fraud, misapplication of funds and
environmental liabilities.
We need to replace our line of credit facilities, which matures in
November 1999. We may be unable to repay our debt under these credit
facilities or refinance it on favorable terms. In addition, the current
lender of our $205 million secured and unsecured credit facility has advised
us that it is reducing the amount of credit it provides in the real estate
industry and, accordingly, will not renew our existing credit facility
following its maturity. As a result, we may be unable to find additional
sources of financing to replace our current ones. If we are unable to repay
our debt or to locate new sources of financing, we may need to liquidate one
or more investments in properties on terms which may not permit us to realize
the maximum return on our investments.
OUR JOINT VENTURE ACTIVITY LIMITS OUR ABILITY TO CONTROL AND PROFIT FROM SOME OF
OUR INVESTMENTS.
We may from time to time acquire interests in joint ventures formed to
own or develop real property or interests in real property, including the
CalPERS and the CUIP joint ventures described below. We may acquire minority
interests in joint ventures and also may acquire interests as a passive investor
without rights to actively participate in management of the joint ventures.
Investments in joint ventures involve additional risks, including the
possibility:
o that the other participants may have economic or other business
interests or goals inconsistent with our interests;
o that we will be unable to direct the management and policies of
the joint ventures;
o that other participants may take action contrary to our
instructions or requests or our policies and objectives or that
could jeopardize our ability to maintain qualification as a REIT;
and
o that, if the other participants become bankrupt or suffer
financial difficulties, the other participants may not be able to
perform their undertakings with respect to the joint venture.
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These investments may also result in impasse on decisions, such as a
sale, because no single entity has full control over the joint ventures. We
will, however, seek to maintain sufficient control of these joint ventures to
achieve our business objectives and to preserve our status as a REIT, although
we may not be successful in doing so. If we are not successful, our business and
operations will be impaired, and we may not be able to make distributions to our
stockholders. There is no limitation under our organizational documents as to
the amount of available funds that we may invest in joint ventures.
CALPERS. On August 31, 1998, we entered into a joint venture agreement
with the State of California Public Employees' Retirement System ("CalPERS").
The agreement contemplates generally that CalPERS will have an 80% interest and
the operating partnership will have a 20% interest in the joint venture. The
purpose of the joint venture is to serve as the vehicle through which we and
CalPERS expect to invest in neighborhood, community, promotional and specialty
retail centers. Although the operating partnership is the manager of the joint
venture, CalPERS is entitled to take some actions that may be inconsistent with
our interests. CalPERS is entitled to a priority return on its investment in the
joint venture before any return is paid to the operating partnership. The
priority return is equal to a 5.00% annual rate of return (adjusted for
inflation) plus a premium which could raise the priority return substantially.
Also, CalPERS may elect to convert its joint venture interest in one or more
properties held by the joint venture into shares of our common stock (up to an
aggregate of 9.8% of the number of outstanding shares of our common stock). In
addition, under the joint venture agreement, the operating partnership must:
o observe several policies established by CalPERS with respect to
its investments generally;
o consult regularly with CalPERS about its policies for real estate
investments;
o establish an annual business plan for the joint venture that is
subject to the approval of CalPERS;
o advise CalPERS concerning major developments; and
o obtain the approval of CalPERS before engaging in specified major
activities with respect to the properties owned by the joint
venture.
As of October 1, 1998, CalPERS made an initial contribution to this new
joint venture of five retail properties in Colorado, Texas and Oregon, valued at
approximately $80,000,000. CalPERS previously had been the sole owner under
arrangements with previous advisors. In addition, during the fourth quarter of
1998, the joint venture purchased interests in five additional retail shopping
centers for an aggregate purchase price of approximately $32,261,000. We have
contributed properties owned directly by our operating partnership as our
initial contribution. The joint venture agreement initially contemplated an
aggregate $400 million investment by CalPERS and $100 million investment by us
through the period ending December 31, 1999 and provided for up to $165 million
of leverage through mortgage or line of credit borrowings by the joint venture.
We have since agreed with CalPERS to increase the aggregate amount of
indebtedness that the joint venture might incur through the period ending
December 31, 1999 to approximately $450 million. Until we and CalPERS have
satisfied our respective investment obligations to the joint venture, we must
offer qualifying investment opportunities to the joint venture before making
the investments for our own direct account. Moreover, there is a possibility
that the investment goals of the joint venture may not be satisfied or that we
may agree with CalPERS to expand those goals or to vary our respective 80/20%
participation in the joint venture.
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CUIP. In addition, we have agreements with an institutional
investor, California Urban Investment Partners ("CUIP"), relating to our
joint ownership of two shopping center properties, Margarita Plaza and Ladera
Center, each acquired in 1996. Each property is owned by a separate limited
liability company, of which both CUIP and the operating partnership are
managing members. We own a 25% interest and CUIP owns a 75% interest in each
joint venture. The principal investor in CUIP is CalPERS.
WE COULD SUFFER FINANCIAL LOSSES AND PHYSICAL HARM TO OUR PROPERTIES IF OUR
OUTSIDE PROPERTY MANAGERS PERFORM INADEQUATELY.
We have decided to expand our use of third party property managers
and reduce our internal property management resources. As a result, we have
recently retained property management firms in the markets where our
properties, including properties owned by our joint venture, are located. If
those third party managers perform inadequately, we could suffer financial harm
resulting from unsatisfactory maintenance of our properties, dissatisfied
tenants, and the expenditure of financial and management resources to remedy
any problems and to locate and transition to new property managers.
BANKRUPTCY REMOTE ENTITIES MAY LIMIT OUR ABILITY TO AVAIL OURSELVES OF THE
PROTECTION OF BANKRUPTCY AND INSOLVENCY LAWS.
Many of our properties are held in subsidiaries that are bankruptcy
remote entities. When we refer to "bankruptcy remote entities," we mean that
these subsidiaries have governance provisions that prohibit or restrict
Burnham's ability to cause them to file proceedings under bankruptcy and
insolvency laws. In the event of a default by a bankruptcy remote subsidiary of
the subsidiary's obligations to its creditors, Burnham may not be able to use
the protection of bankruptcy or insolvency laws to keep creditors from realizing
on collateral or collecting the obligations owed by the subsidiary to the
creditors.
OUR INSURANCE COVERAGE IS LIMITED AND MAY NOT COVER LOSSES THAT WE SUFFER.
We have comprehensive general liability coverage and umbrella liability
coverage on all of our properties. We believe that our properties are adequately
insured against liability claims and the cost of defending those claims. Our
coverage is subject to deductibles and subject to the limitations described
below on insurance for losses caused by earthquake or flood. Similarly, we
believe that our properties are adequately insured on a replacement cost basis,
subject to deductibles, against direct physical damage for costs incurred to
repair or rebuild each property, including loss of rental income during the
reconstruction period. Some types of extraordinary losses, however, either are
not insurable or are not economically insurable. Should any uninsured loss
occur, we could lose our investment in, and anticipated revenues from, a
property. An uninsured loss could harm our business and operations and our
ability to make distributions to our stockholders. Currently we also insure some
of our properties for loss caused by earthquake in the aggregate amount of $50
million, subject to deductibles, and six of our properties for loss caused by
flood. Because of the high cost of this type of insurance coverage and the wide
fluctuations in price and availability, we have determined that the risk of loss
due to earthquake and flood does not justify the cost to increase this coverage
any further under current market conditions. However, we could suffer material
harm if an earthquake, flood or other natural disaster occurs.
YEAR 2000 ISSUES MAY RESULT IN A DISRUPTION OF OUR OPERATIONS AND THE ABILITY OF
OUR TENANTS AND SUPPLIERS TO MEET THEIR OBLIGATIONS.
We continue to identify our Year 2000 issues. Currently, we have
substantially completed our evaluation process. Our approach to becoming
Year 2000 ready includes a standard set of methods and tools, including taking
inventory, renovating if necessary and testing. We do not believe that the costs
associated with becoming Year 2000 ready will exceed $250,000. The manufacturer
of the accounting
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software that we use has indicated that its software is materially Year
2000 ready. A version of the software that is fully Year 2000 ready has been
installed. We believe that the hardware used to run our software is Year 2000
ready.
We have substantially completed an inventory of the Year 2000 readiness
status of the computer hardware and software used to run the property operating
systems such as security, energy, elevator and safety systems at our properties.
Once this inventory is complete, we will test the time-sensitive systems that we
have been informed are Year 2000 ready. We will reprogram or replace the systems
found not to be Year 2000 ready.
Our ability to complete the Year 2000 modifications outlined above
prior to any anticipated impact on our operating systems is based on many
assumptions of future events and depends upon 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, these modifications may not
be successful.
Even if all of our own systems are Year 2000 ready, our business could
still be disrupted if our tenants, business partners, suppliers and other
parties are not ready. We are currently surveying material vendors and tenants
regarding the Year 2000 readiness status of their computer hardware and
software. We will review the results of this survey, assess the impact of the
results on our operations and take whatever action we deem necessary. Testing
may be required for several, but not all, third parties. Test strategies and
schedules will be unique to each situation once we understand the respective
requirements and readiness levels.
Our business could be harmed if other entities, including the
governmental units and utility companies that provide services to our properties
and their respective tenants and customers fail to be Year 2000 ready. In
addition to our significant tenants, we are seeking to ascertain the Year 2000
readiness of:
o each utility company servicing each property; and
o 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.
After we survey the Year 2000 readiness of other parties, we intend to
determine if we will need any contingency plans to deal with the non-readiness
of others. At the present time, we do not believe that Year 2000 non-readiness
of tenants is likely to have any significant effect on us and our operations.
However, if a major tenant of any of our properties is not Year 2000 ready, its
business could suffer, which in turn could result in:
o that tenant's inability to pay rent; and
o decrease in customer traffic and business of other tenants at that
property.
We do not anticipate that we will need contingency plans to deal with
tenant non-readiness. However, we recognize that we may need to develop
contingency plans to provide for the continued operation of one or more
individual properties whose suppliers of services necessary for the efficient
operation of the property may not be fully Year 2000 ready by January 1, 2000.
We believe that the most reasonable worst-case year 2000 scenario that may
affect our business would be a prolonged failure of a supplier of these
services, particularly utility services, that may harm operations of one or
several of our tenants.
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PROVISIONS OF OUR ORGANIZATIONAL DOCUMENTS MAY DISCOURAGE ACQUISITION PROPOSALS.
CHARTER AND BYLAWS. Provisions contained in our charter and bylaws may
discourage third parties from making proposals to acquire us, even if some of
our stockholders consider the proposal to be in their best interest. These
provisions include the following:
o Our bylaws provide that a special meeting of stockholders may be
called by stockholders only when called by stockholders who hold
shares representing a majority of votes entitled to be cast at the
meeting. This provision could make it difficult for a stockholder
to call a meeting for the purpose of approving a change of control
without the support of the board of directors.
o Our charter authorizes the board of directors to reclassify
Burnham's authorized capital stock without approval of the common
stockholders generally. This may allow the directors to increase
the number of shares of preferred stock presently authorized by a
large amount and to establish the preferences and rights of any
class or series issued. As a result, the board of directors could
issue a class or series of preferred stock that would discourage
or delay a tender offer or change in control.
o Our charter generally limits any holder from acquiring more than
9.8% of the value of our capital stock or number of shares of our
outstanding common stock. This may limit the opportunity for
stockholders to receive a premium for their shares of common stock
that might otherwise exist if an investor were attempting to
assemble a block of shares in excess of 9.8% of the outstanding
shares of common stock or otherwise effect a change in control. We
have partially waived this restriction for the benefit of the
current holders of preferred stock of Burnham and preferred units
of the operating partnership.
o Our Articles Supplementary prohibit us from taking some actions,
including the merger or consolidation of Burnham or the operating
partnership, without the approval of the holders of our preferred
stock if the value of our common stock after those actions would
be $15.375 per share or lower.
OPERATING PARTNERSHIP AGREEMENT. We conduct most of our business
through our operating partnership. We are the sole general partner of the
operating partnership and generally have exclusive management power over its
business and affairs. Furthermore, we may not be removed as general partner of
the operating partnership, with or without cause, by the holders of limited
partnership units. As a result of this structure, a third party may be deterred
from making an acquisition proposal that it might otherwise make.
OUR RECENTLY ADOPTED SHAREHOLDERS RIGHTS AGREEMENT MAY DELAY OR DISCOURAGE
ACQUISITION PROPOSALS PROVIDED THAT PENDING LITIGATION DOES NOT RENDER IT
INEFFECTIVE.
On June 19, 1999, following the unsolicited offer by Schottenstein
Stores Corporation to acquire all of our outstanding common stock, we adopted
a shareholder rights agreement. That agreement may discourage Schottenstein
Stores Corporation from pursuing its offer and may discourage other
acquisition proposals in the future, even if some of our stockholders
consider the proposals to be in their best interest. Under the terms of the
shareholders rights agreement, our board of directors can in effect delay or
prevent a person or group from acquiring more than 10% of the outstanding
shares of our common stock. This is because, unless our board approves of
that person's purchase, after that person acquires more than 10% of our
outstanding common stock, all other stockholders will have the right to
purchase securities from us at a price that is less than their then fair
market value. These purchases by the other stockholders would substantially
reduce the value and influence of the shares of our common stock owned by the
acquiring person. Our board of directors, however, can prevent the
shareholder rights agreement from operating in this manner. Thus, our board
has significant discretion to approve or disapprove a person's efforts to
acquire a large interest in us.
On June 23, 1999, a class action lawsuit was filed in the Superior
Court of the State of California, County of San Diego, against us and against
our directors. The action is purportedly brought on behalf of the public
stockholders of Burnham. The complaint alleges that our directors violated
their fiduciary duties to our shareholders because they adopted a shareholder
rights agreement designed to halt the acquisition attempt by Schottenstein
Stores Corporation and deter other unsolicited takeover attempts. The
plaintiff seeks to enjoin the adoption of the shareholders rights agreement.
On August 3, 1999, the plaintiff requested permission from the court to
collect evidence from us earlier than is permitted under usual court rules.
The plaintiff also requested that the court order us to show why the
shareholder rights agreement should not be suspended during the litigation.
The court decided that we do not need to make that showing but scheduled a
September 17 hearing to make the plaintiff show why the shareholder rights
agreement should be suspended during that time period. In addition, the court
permitted the plaintiff to proceed on an accelerated schedule for collecting
some of the documentary evidence that the plaintiff seeks. Although we intend
to vigorously defend the lawsuit, we may not be successful in doing so. If we
do not prevail, the suit could render our shareholder rights plan
ineffective, thereby making us more vulnerable to unsolicited acquisition
proposals and increasing the possibility that we will have to allocate
material amounts of financial and management resources to protect the company
from unwanted takeover attempts that may not maximize shareholder value.
RISK FACTORS RELATING TO THE PREFERENTIAL RIGHTS OF THE HOLDERS OF PREFERRED
STOCK TO WHICH THE HOLDERS OF COMMON STOCK ARE SUBJECT.
ANTI-DILUTION PROVISIONS OF THE PREFERRED STOCK MAY LEAD TO SUBSTANTIAL DILUTION
OF THE HOLDERS OF COMMON STOCK.
Each share of preferred stock is convertible, at the option of the
holder, into a number of shares of common stock determined by applying a
formula set forth in Burnham's Articles Supplementary that describe the
rights of the preferred stock. This formula may be adjusted in order to
protect holders of preferred stock against dilution of their ownership
interest in Burnham. Any adjustment of the conversion formula entitling
holders of preferred stock to more common stock than they otherwise would
have received would dilute the proportionate ownership, voting power and
earnings per share of the holders of common
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stock. This, in turn, could lower the market price of the shares offered by
this prospectus. See "Description of Securities--Preferred stock--Conversion
right."
HOLDERS OF THE PREFERRED STOCK MAY CAUSE BURNHAM TO TAKE ACTION DETRIMENTAL TO
THE HOLDERS OF COMMON STOCK.
The holders of shares of preferred stock have the right to vote on all
matters on which the holders of common stock are entitled to vote. For purposes
of determining voting results, their shares of preferred stock will be treated
as if they had been converted into common stock and as though part of the same
class of common stock. Upon conversion of all of the preferred stock outstanding
as of December 31, 1998 or which may be issued upon redemption of all of the
preferred units outstanding as of December 31, 1998 into shares of common stock,
the holders of preferred stock would hold approximately 18.8% of all outstanding
shares of common stock, assuming that all of these shares of preferred stock
were fully convertible on that date. Consequently, if this occurred, the holders
of preferred stock would be the largest stockholders in Burnham and could have
much influence as the holders of common stock with respect to the election of
directors and the approval or disapproval of important corporate actions. See
"Description of Securities--Preferred stock" for a description of the rights of
the holders of preferred stock and the holders of preferred units, and the
obligations of Burnham in connection therewith.
You should note that interests of the holders of the preferred stock do
not necessarily coincide with those of the holders of the common stock.
Therefore, actions by the holders of the preferred stock may conflict with and
will not necessarily be in the best interests of the holders of common stock.
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ABOUT THIS PROSPECTUS AND WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of the registration statement that we filed
with the Securities and Exchange Commission to register the shares of stock
offered in this offering. It does not repeat important information that you can
find in our registration statement or in the annual, quarterly and special
reports, proxy statements and other documents that we file with the Securities
and Exchange Commission. Our Securities and Exchange Commission file number is
001-09524.
We file annual, quarterly and special reports, proxy statements and
other information electronically with the Securities and Exchange Commission.
You may read and copy any document we file at the Securities and Exchange
Commission's public reference rooms at Mail Stop 1-2, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or you may obtain them from the Securities and Exchange
Commission by mail at the prescribed rates. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the public
reference rooms or on how to receive our filings by mail. Our SEC filings are
also available from the New York Stock Exchange, located at 20 Broad Street, New
York, New York 10005 and at the Securities and Exchange Commission's website at
http://www.sec.gov.
The Securities and Exchange Commission allows us to incorporate by
reference the information we file with it. Incorporation by reference means that
we can disclose important information to you by referring you to those
documents. The information incorporated by reference is an important part of
this prospectus, and information that we file later with the Securities and
Exchange Commission will automatically update and supersede this information. We
incorporate by reference the documents that we have filed listed below, and any
future filings that we make with the Securities and Exchange Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended:
o our annual report on Form 10-K 405 for the fiscal year ended
December 31, 1998, as amended on April 30 and June 11, 1999;
o our quarterly report on Form 10-Q for the quarter ended March
31, 1999, as amended on August 13, 1999;
o our current report on Form 8-K dated June 7, 1999;
o our current report on Form 8-K dated June 19, 1999;
o our current report on Form 8-K dated June 24, 1999;
o our current report on Form 8-K dated July 30, 1999;
o our current report on Form 8-K dated August 9, 1999;
o our registration statement on Form 8-A filed on June 22, 1999;
o our proxy statement dated March 26, 1999 with respect to our
annual meeting of stockholders on May 11, 1999; and
o the description of our common stock contained or incorporated by
reference in our Registration Statement on Form 8-B filed on June
2, 1997, including amendments thereto.
WE WILL PROVIDE, WITHOUT CHARGE, AT THE WRITTEN OR ORAL REQUEST OF
ANYONE TO WHOM THIS PROSPECTUS IS DELIVERED, COPIES OF THE DOCUMENTS
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, OTHER THAN AN EXHIBIT TO A FILING
UNLESS THAT EXHIBIT IS SPECIFICALLY INCORPORATED BY REFERENCE INTO THAT FILING.
YOU SHOULD DIRECT YOUR WRITTEN REQUESTS TO BURNHAM PACIFIC PROPERTIES, INC., 610
WEST ASH STREET, SUITE 1600, SAN DIEGO, CALIFORNIA 92101, ATTENTION: CHIEF
FINANCIAL OFFICER. YOU SHOULD DIRECT YOUR TELEPHONE REQUESTS TO (619) 652-4700.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone to provide you with
different information. Any statement contained in this prospectus or in a
document incorporated by reference in this prospectus shall be deemed to be
modified or superseded to the extent that a statement contained in any of the
following modify or supersede the statement:
o this prospectus, with respect to a statement in a previously filed
document incorporated by reference herein;
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o any applicable prospectus supplement; or
o any other subsequently filed document that also is incorporated by
reference herein.
The statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus or any
accompanying prospectus supplement. Subject to the foregoing, all information
appearing in this prospectus and each accompanying prospectus supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.
We are not making an offer of the securities offered by this prospectus
in any state where the offer is not permitted. You should not assume that the
information in this prospectus, in any prospectus supplement or in any document
incorporated by reference herein or in a prospectus supplement is accurate as of
any date other than the date on the front of those documents.
Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete; and, in each instance,
reference is made to the copy of the contract or document filed as an exhibit to
the registration statement or as an exhibit to another filing, each statement
being qualified in all respects by the reference and the exhibits and schedules
thereto.
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THE COMPANY
We are a real estate operating company which acquires,
rehabilitates, develops, owns and oversees the management of retail
properties. Burnham began operations through a predecessor in 1963, became a
real estate investment trust ("REIT") in 1987 and today is one of the largest
public owners and operators of non-mall retail properties in the western
region of the United States. Although our properties are primarily located in
the western region of the United States, BPP Retail, LLC, a joint venture
formed with the State of California Public Employee Retirement System
("CalPERS"), has entered into an agreement to acquire several properties
located throughout the United States from AMB Property Corporation. The joint
venture has consummated some of these acquisitions with others currently
scheduled to close in the fourth quarter of 1999. Our properties
are primarily neighborhood and community shopping centers located in major
metropolitan areas. We focus on shopping centers in areas with a limited
supply of vacant land and with established consumer shopping patterns. These
characteristics help limit potential future competition in a trade area. We
also own four office and industrial properties, which we consider
non-strategic and which we may sell as suitable opportunities arise. Title to
our properties is held by or for the benefit of the operating partnership or
subsidiaries of the operating partnership.
We own our properties and conduct most of our business through the
operating partnership, of which Burnham is the sole general partner. Burnham
owns a large majority of the economic interests in the operating partnership.
Other limited partners of the operating partnership have contributed interests
in properties to the operating partnership in exchange for limited partnership
units. Those transactions have enabled us to reduce the amount of cash paid for
the acquired properties while also providing the contributors the opportunity to
defer recognition of federal income taxes on their disposition of those
properties. Holders, other than Burnham, of partnership units issued on those
acquisitions generally have the right, after a specified period of time, to
cause the operating partnership to redeem their partnership units for cash. In
lieu of redemption for cash, Burnham may exchange a like number of shares of its
capital stock for the partnership units being redeemed.
The following are among the properties that we have acquired in which
units of the operating partnership were issued as part of the acquisition price:
o On December 31, 1997, we acquired Simi Valley Plaza shopping
center in Simi Valley, California from Simi Valley Plaza LLC. The
operating partnership issued 574,483 common units as part of the
payment for the acquisition.
o On December 31, 1997, we acquired a portfolio of 20 California
shopping centers from investment funds affiliated with Blackacre
Capital Group, L.P. and individuals affiliated with Highridge
Partners (collectively "Blackacre") pursuant to a contribution
agreement. For ease of reference, we later refer to that group of
properties as the "Golden State Properties Portfolio." The
operating partnership issued 2,000,000 preferred units to members
of Blackacre, and undertook to issue additional common units
and/or cash as a part of an earn-out provision in the Golden State
Properties Portfolio contribution agreement. Burnham contributed
additional funds to enable the operating partnership to acquire
these properties. These funds included the proceeds from Burnham's
issuance of 2,800,000 shares of preferred stock. Concurrently with
Burnham's issuance of these shares of preferred stock, the
operating partnership issued to Burnham 2,800,000 preferred units.
The distribution and other economic terms of such units mirror the
distribution and other economic terms of the preferred stock.
o On May 27, 1998, we acquired Lake Arrowhead Village shopping
center from Arrowhead Village LLC. The operating partnership
issued 725,491 common units as payment for the acquisition.
o On June 2, 1998 and June 3, 1998, we acquired Keizer Creekside,
Cruces Norte and Park Manor shopping centers from Park Manor
Associates and Powell-River Road Investments and various
individuals affiliated therewith. The operating partnership
issued 283,398 common units as payment for the acquisition.
o On June 12, 1998, we acquired Plaza de Monterey, Mission Plaza
and Palms to Pines shopping centers from Mission Hills Associates,
a California limited partnership, and Palms to Pines Partnership.
The operating partnership issued 227,234 common units as payment
for the acquisition, of which 186,116 remain outstanding.
See "Description of partnership units and redemption of partnership units of
operating partnership" for a description of the common units and preferred units
that were issued in those transactions.
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In August 1998, the operating partnership and CalPERS entered into a
joint venture agreement for the acquisition of neighborhood, community,
promotional and specialty retail centers in the western region of the United
States. The entity formed by the joint venture agreement for this purpose is BPP
Retail, LLC, a limited liability company, of which we and CalPERS are the
members, with us, through the operating partnership as the manager. The joint
venture agreement initially contemplated an aggregate $400 million investment by
CalPERS and $100 million investment by us through the period ending December 31,
1999 and provided for up to $165 million of leverage through mortgage or line of
credit borrowings by the joint venture. We have since agreed with CalPERS to
increase the aggregate amount of indebtedness that the joint venture might incur
through the period ending December 31, 1999 to approximately $450 million. Until
we and CalPERS have satisfied our respective investment obligations to the joint
venture, we must offer qualifying investment opportunities to the joint venture
before making the investments for our own direct account. Moreover, there is a
possibility that the investment goals of the joint venture may not be satisfied
or that we may agree with CalPERS to expand those goals or to vary our
respective 80/20% participation in the joint venture. See "Risk Factors--Our
joint venture activity limits our ability to control and profit from some of our
investments."
In March 1999, the joint venture entered into agreements under which
the joint venture will purchase several shopping center properties throughout
the United States from AMB Property Corporation. The joint venture has
consummated some of those acquisitions with others currently scheduled to
close in the fourth quarter of 1999. Following an evaluation of our property
management options in the context of the nationwide operations following the
acquisition of the AMB properties, in April 1999 we announced our plans to
outsource the management of our existing properties to third party managers
as a long term strategy. This decision resulted in a one time charge of
approximately $1.5 million in the first quarter of 1999. The transition to
outside managers has been completed. Although we outsource day-to-day
management of our individual properties to third parties, we oversee the
activities of those managers and we will continue to make acquisition,
disposition, retenanting, redevelopment, leasing and other value added and
strategic management decisions about our portfolios.
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FORWARD LOOKING INFORMATION
Some of the statements made in the "Risk Factors" section or under the
caption "The Company" and elsewhere in this prospectus, or incorporated by
reference into this prospectus, are "forward-looking statements."
Forward-looking statements may include, without limitation, statements relating
to acquisitions, including financial information, and other business development
activities, future capital expenditures, financing sources and availability and
the effects of regulations, including environmental regulation, and competition.
When we use the words "anticipate," "assume," "believe," "estimate,"
"expect," "intend" and other similar expressions, they are generally
forward-looking statements. You should be cautious in interpreting and relying
on forward-looking statements because they involve known and unknown risks,
uncertainties and other factors that are, in some cases, beyond our control and
could materially change our actual results, performance or achievements.
Factors that could cause our actual results, performance or
achievements to differ materially from those expressed or implied by the
forward-looking statements include, but are not limited to, the following:
o we are subject to general risks affecting the real estate
industry, including the need to enter into new leases or renew
leases on favorable terms to generate rental revenues and
dependence on our tenants' financial condition;
o we may fail to identify, acquire, construct or develop additional
properties; we may develop properties that do not generate desired
returns; or we may fail to effectively integrate acquisitions of
properties or portfolios of properties;
o financing may not be available or may not be available on
favorable terms;
o we need to make distributions to our stockholders for us to
qualify as a REIT, and if we need to borrow the funds to make
distributions, the borrowings may not be available on favorable
terms;
o we depend on the primary markets where our properties are located,
and these markets may be harmed by local economic and market
conditions that are beyond our control;
o we are subject to potential environmental liabilities;
o we are subject to complex regulations relating to our status as a
REIT and would be harmed if we failed to qualify as a REIT; and
o market interest rates could harm the market prices for our common
stock and our performance and cash flow.
In general, we and our business are subject to the matters described in
the "Risk Factors" section of this prospectus.
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RATIOS OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the historical ratios of earnings to
combined fixed charges and preferred stock dividends of Burnham for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
--------------------------------------- --------------------------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
2.08:1 - 1.65:1 1.42:1 1.27:1 1.18:1
</TABLE>
For purposes of computing these ratios, earnings before fixed charges
have been calculated by adding fixed charges, excluding capitalized interest,
to income before income taxes and extraordinary items. Fixed charges consist
of interest costs, whether expensed or capitalized, amortization of debt issue
costs and preferred stock dividends.
The ratio of earnings to combined fixed charges and dividends on our
preferred stock is not determinable for the fiscal year ended December 31,
1995 because nonrecurring impairments and writedown of assets resulted in a
loss for that year of approximately $14,951,000. Excluding nonrecurring
impairments and writedowns of assets that contributed to the loss, the ratio
would have been 1.61:1.
DESCRIPTION OF SECURITIES
THE DESCRIPTION OF BURNHAM'S CAPITAL STOCK SET FORTH BELOW DOES NOT
PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
BURNHAM'S CHARTER AND BYLAWS, EACH AS AMENDED AND RESTATED, COPIES OF WHICH ARE
EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. SEE
"ABOUT THIS PROSPECTUS AND WHERE YOU CAN FIND MORE INFORMATION."
GENERAL
Under its charter, Burnham has authority to issue up to 100 million
shares of stock, consisting of 75 million shares of common stock, five million
shares of preferred stock and 20 million shares of "excess stock," each with a
par value of $.01 per share. As of December 31, 1998, Burnham had 31,954,008
shares of common stock and 2,800,000 shares of preferred stock issued and
outstanding. In addition, as of December 31, 1998, the operating partnership had
2,000,000 preferred units and 1,785,474 common units outstanding not including
those held by Burnham. If presented to the operating partnership for redemption,
the partnership units held by persons other than Burnham may be exchanged for
shares of preferred stock or common stock, as the case may be, on a one-for-one
basis at the option of Burnham. This exchange is subject to the expiration of
"lock-out" periods specified in agreements relating to the issuance of those
partnership units and subject to adjustments to prevent dilution and limitations
imposed to protect Burnham's status as a REIT.
PREFERRED STOCK
As part of the financing for Burnham's acquisition of a portfolio of
the Golden State Properties Portfolio, which was completed on December 31, 1997,
Burnham issued 2,800,000 shares of its preferred stock in a privately negotiated
sale. The preferred stock is the only series of Burnham's preferred stock that
is outstanding as of the date of this prospectus. The preferred stock ranks
senior to the common stock with respect to dividend rights and distributions
upon liquidation, dissolution and winding up of Burnham. The principal terms of
the preferred stock are summarized below. This summary is not complete and is
qualified by the complete text of the Articles Supplementary to Burnham's
charter filed as an exhibit to Burnham's Report on Form 8-K dated January 14,
1998, which is incorporated by reference herein.
STATED VALUE AND LIQUIDATION PREFERENCE
The preferred stock has a stated value of $25 per share. Upon the
distribution of assets on the liquidation, dissolution or winding up of Burnham,
each share of preferred stock is entitled to a payment equal to the stated value
plus any accrued and unpaid dividends prior to the payment of any amount with
respect to shares of the common stock.
Burnham will not make any payment to holders of common stock upon the
liquidation, dissolution or winding up of Burnham until the holders of preferred
stock have received their payment in full. If, upon liquidation, dissolution or
winding up, the assets of Burnham, or the proceeds thereof, are insufficient to
pay the holders of preferred stock the amounts owed to them, then Burnham's
assets, or the proceeds thereof, will be distributed pro rata to the holders of
shares of the preferred stock and any shares of stock which are on parity with
the preferred stock as to distributions on liquidation in accordance with their
respective holdings.
Neither a consolidation or merger of Burnham with another corporation,
nor a sale or transfer of all or any part of Burnham's assets for cash or
securities, will be considered a liquidation, dissolution or winding up of
Burnham.
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DIVIDENDS AND DISTRIBUTIONS
Each share of preferred stock is entitled to receive cumulative
quarterly cash dividends equal to the greater of (1) 2.00% of the per share
stated value and (2) the amount of dividends payable on the number of shares of
common stock into which the share of preferred stock is then convertible. The
dividends will accrue daily and will, to the extent not paid in full on the
applicable dividend payment date, together with accruals thereon, accrue at the
compounded quarterly rate of 2.00% from that date until payment is made, whether
or not Burnham has earnings or surplus.
Unless and until all accrued dividends have been paid on the preferred
stock through the most recent dividend payment date, Burnham may not:
o declare or pay any dividend, make any distribution other than
those payable solely in shares of common stock, or set aside any
funds or assets for payment or distribution with regard to any
common stock or any other stock junior to the preferred stock;
o redeem or purchase or set aside any funds or other assets for the
redemption or purchase of, any shares of stock ranking junior to
the preferred stock; or
o authorize, take or cause to be taken any action as general partner
of the operating partnership that will result in (A) the
declaration or payment by the operating partnership of any
distribution to its partners (other than distributions made
concurrently with distributions payable to Burnham in respect of
its partnership interest or preferred units in each case that will
be used by Burnham to fund the payment of dividends), or set aside
any funds or assets for payment of any distributions (other than
authorized distributions) or (B) the redemption or purchase, or
the setting aside of any funds or other assets for the redemption
or purchase of, any partnership interests in the operating
partnership.
While any shares of preferred stock are outstanding, Burnham may not
pay any dividend on any shares of any class or series of stock of Burnham which
ranks on a parity with the preferred stock as to payment of dividends unless at
least a proportionate payment is made with regard to all accrued dividends on
the preferred stock through the most recent preceding dividend payment date.
CONVERSION RIGHT
Each share of preferred stock is convertible into the number of shares
of common stock obtained by dividing the stated value per share by the
conversion price. As of December 31, 1998, each share of preferred stock was
convertible into approximately 1.626 shares of common stock. The conversion
price will be adjusted if Burnham:
o pays a dividend or makes a distribution on its common stock in
shares of its common stock;
o subdivides its outstanding common stock into a greater number of
shares;
o combines its outstanding common stock into a smaller number of
shares;
o issues rights or warrants to the holders of its common stock as a
class entitling them to purchase common stock at a price per share
less than the then conversion price; or
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o distributes to the holders of its common stock as a class any
shares of stock of Burnham, other than common stock or evidences
of indebtedness or assets other than those referred to in the
previous clause, to purchase any of its securities.
Furthermore, in the event (1) Burnham issues or sells common stock or
securities exercisable for or convertible into common stock at a purchase or
exercise price, as applicable, of less than $14.375 per share and (2) that
issuance would trigger a reduction in the conversion price of at least 1.0%
under the formula set forth in the Articles Supplementary, then the conversion
price will be reduced pursuant to a formula based upon the proportion of the
value of common stock issuable at less than the conversion price to the value of
all common stock to be outstanding following the issuance.
If, however, any shares of common stock are issued or issuable at or
less than $11.00 per share, then the conversion price will be fully reduced to
that lower price. This type of reduction in the conversion price would likely
dilute the ownership interests of the holders of common stock significantly as a
result of both the initial dilutive transaction and the impact of the
antidilution provisions of the preferred stock triggered by the transaction. The
conversion right is exercisable by a holder of preferred stock with respect to
25% of the shares held of record by that holder on and after each of December
31, 1998, March 31, 1999, June 30, 1999 and September 30, 1999. The conversion
may be exercisable at an earlier time in the event of a change of control or
other events set forth in the Articles Supplementary.
On and after January 1, 2003, Burnham may give notice of mandatory
conversion of all of the outstanding preferred stock if (1) the overall average
of the daily average prices, weighted by volume, of the common stock on the
twenty trading days immediately prior to the notice of mandatory conversion and
(2) the daily average prices, weighted by volume, of the common stock on the
trading day immediately prior to the notice of mandatory conversion and the
trading day immediately prior to the date of the intended conversion exceed the
conversion price. Following that notice, all outstanding shares will be
mandatorily converted into common stock. However, each holder of preferred stock
may, prior to the date established for mandatory conversion, instead cause
Burnham to redeem his or her preferred stock at its stated value plus an amount
equal to 105% of accrued dividends to the redemption date if the redemption date
is prior to December 31, 2003. That percentage of accrued dividends decreases by
1% each year thereafter, but does not fall below 100% after December 31, 2007.
VOTING RIGHTS
The holders of shares of preferred stock have the right to vote on all
matters on which the holders of common stock are entitled to vote, on an as
converted basis, with holders of shares of the common stock, as though part of
the same class as holders of common stock.
While any shares of preferred stock are outstanding, Burnham may not,
without approval of holders of at least a majority of the outstanding shares of
preferred stock voting separately as a class, take any of several actions
described in the Articles Supplementary that would, among other things:
o diminish the rights of the holders of preferred stock;
o result in Burnham's transfer of its general partnership interest
in the operating partnership;
o result in a merger or consolidation of assets that would result in
the common stock having a value of less than $15.375 per share, or
the termination of Burnham's qualification as a real estate
investment trust, or a change of control as defined in Burnham's
Articles Supplementary.
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The holders of the preferred stock have the right to submit a
recommendation to the nominating committee of the board of directors of a
candidate for election as a director at each annual meeting of stockholders.
This right will continue until the number of outstanding shares of preferred
stock is significantly reduced. In addition, if Burnham fails to pay the full
amount of the preferred stock preferential dividend for four consecutive
quarters or if Burnham does not fulfill some of its other obligations with
respect to the preferred stock, the holders of the preferred stock will have the
right, as a class, to elect two additional directors of Burnham, until those
defaults are cured. See "Risk Factors--Anti-dilution provisions of the preferred
stock may lead to substantial dilution of the holders of common stock."
If Burnham is entitled or requested to act in its capacity as a holder
of preferred units of the operating partnership, it will do so by voting or
otherwise acting with respect to all of its preferred units solely in accordance
with instructions received from a majority of the holders of preferred stock.
REGISTRATION RIGHTS
Burnham has entered into registration rights agreements with the
holders of preferred stock and preferred units. These agreements require
Burnham, under some circumstances, to register under the Securities Act shares
of preferred stock which are (a) currently issued and outstanding and (b)
issuable upon redemption of preferred units and shares of common stock issuable
upon conversion of preferred stock. These registration rights agreements give
the holders of the applicable securities both "demand" and "piggyback"
registration rights.
COMMON STOCK
DISTRIBUTION RIGHTS
Holders of common stock are entitled to receive distributions on their
shares if, as and when the board of directors authorizes and declares
distributions, subject to the provisions of Burnham's charter regarding excess
stock. A description of excess stock may be found below under the heading
"--Excess stock."
LIQUIDATION/DISSOLUTION RIGHTS
In a liquidation or dissolution of Burnham, each share of common stock
entitles its holder to share in any assets that remain after Burnham pays its
liabilities and any preferential distributions owed to the holders of preferred
stock and any other series of preferred stock issued in the future. Each holder
of common stock will receive a share of those assets based on the percentage of
shares of common stock which he or she holds.
VOTING RIGHTS
Subject to the provisions of Burnham's charter regarding excess stock,
each outstanding share of common stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors. Except as otherwise required by law or except as provided with
respect to any other class or series of preferred stock issued in the future,
the holders of common stock and the holders of preferred stock possess exclusive
voting power. The holders of preferred stock have the right to vote on all
matters submitted to a vote of the holders of common stock on an as converted
basis. There is no cumulative voting in the election of directors, which means
that the holders of a majority of the votes cast for directors can, subject
to the rights of holders of preferred stock, elect all of the directors then
standing for election.
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RESTRICTIONS ON TRANSFER
See "--Excess stock" below for a description of some of the provisions
in Burnham's charter designed to preserve Burnham's status as a qualified REIT.
These provisions limit the transfer of, and provide Burnham with a right to
redeem, shares of capital stock and that also provide for the conversion of that
stock into excess stock, in some circumstances.
OTHER TERMS
Subject to the provisions of Burnham's charter regarding excess stock,
all shares of common stock have equal dividend, distribution, liquidation and
other rights, which rights are, however, subject to preferential rights of
shares of preferred stock and any other series of preferred stock that may be
outstanding. Holders of shares of common stock have no preference, conversion,
sinking fund, redemption or exchange rights or preemptive rights. A conversion
feature gives a stockholder the option to convert his shares to a different
security, such as debt or preferred stock. A sinking fund or redemption right
gives a stockholder the right to redeem his shares for cash or other securities
at some point in the future. Sometimes a redemption right is paired with an
obligation of Burnham to create an account into which Burnham must deposit money
to fund redemption, much like a sinking fund. Preemptive rights are rights
granted to stockholders to subscribe for a percentage of any other securities we
offer in the future based on the percentage of shares owned.
REGISTRATION RIGHTS
Burnham has entered into registration rights agreements with holders of
common units. These agreements may require Burnham to register under the
Securities Act shares of common stock issuable upon redemption of the common
units and upon conversion of preferred stock. These registration rights
agreements give the holders of the applicable securities both "demand" and
"piggyback" registration rights.
INFORMATION
Burnham furnishes its stockholders with annual reports containing
audited consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm and quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information.
EXTRAORDINARY TRANSACTIONS
Pursuant to Maryland law and Burnham's charter, Burnham generally
cannot dissolve, amend its charter, merge, sell most or all of its assets,
engage in a share exchange or engage in similar transactions outside the
ordinary course of business unless approved by the affirmative vote of holders
of shares entitled to cast a majority of all the votes entitled to be cast. In
addition, a number of other provisions of Maryland law could significantly
affect the shares of common stock and the rights and obligations of its holders.
See "--Maryland law."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is First Chicago
Trust Company of New York, a division of EquiServe, 525 Washington Boulevard,
Jersey City, New Jersey 07303.
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POWER TO ISSUE ADDITIONAL SHARES OF STOCK
The charter grants the board of directors the power to authorize the
issuance of additional authorized but unissued shares of common stock and
preferred stock. The board of directors may also classify or reclassify unissued
shares of common stock or preferred stock or excess stock and authorize the
issuance of these classified or reclassified shares of stock. Under Maryland law
and the charter, the board of directors is required to fix the terms and
conditions for each class or series, subject to the provisions of the charter
regarding excess stock, prior to the issuance of the shares of each class or
series of stock. These terms and conditions include preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption.
This power provides the board of directors with increased flexibility
in structuring possible future financings and acquisitions and in meeting other
needs of Burnham that might arise. Unless stockholder action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which Burnham's securities may be listed or traded, the additional classes or
series, as well as the common stock, will generally be available for issuance
without further action by stockholders. However, the issuance of additional
series of preferred stock with rights senior to the currently issued preferred
stock must be approved by the holders of the currently issued preferred stock.
Although the board of directors does not intend to do so at the present time, it
could authorize the issuance of a class or series that could delay, defer or
prevent a change of control or other transaction that holders of common stock
might believe to be in their best interests or in which holders of some, or a
majority of, the common stock might receive a premium for their shares over the
then-current market price.
SHAREHOLDER RIGHTS AGREEMENT
We adopted a shareholder rights agreement on June 19, 1999 to help
ensure that our stockholders receive fair and equal treatment in the event of
any proposed acquisition of Burnham. The rights agreement may delay, defer
or prevent a change of control of Burnham and, therefore, could adversely
affect stockholders' ability to realize a premium over the then-prevailing
market price for our common stock in connection with such a transaction. The
following summary description of the rights agreement does not purport to be
complete and is qualified in its entirety by reference to the rights
agreement, which was previously filed with the SEC on June 22, 1999 as an
exhibit to our registration statement on Form 8-A
In connection with the adoption of the rights agreement, our board of
directors declared a dividend distribution of one preferred stock purchase
right for each outstanding share of common stock to stockholders of record as
of the close of business on the record date, July 1, 1999. Each right
entitles its registered holder to purchase from us a unit consisting of one
ten-thousandth of a share of Burnham Pacific Properties Series B Junior
Participating Cumulative Preferred Stock, par value $0.01 per share, at a
cash exercise price of $45.00 per unit, subject to adjustment.
The rights are currently not exercisable and are attached to and trade
with all shares of common stock outstanding as of, and issued subsequent to,
the record date. The rights will separate from the common stock and will
become exercisable upon the earlier of one of the following distribution
events:
o the close of business on the tenth calendar day following the first
public announcement that a person or group of affiliated or associated
persons, referred to as an "acquiring person," has acquired beneficial
ownership of 10% or more of the outstanding shares of common stock; or
o the close of business on the tenth business day following the
commencement of a tender offer or exchange offer that could result
upon its completion in a person or group becoming the beneficial owner
of 10% or more of the outstanding shares of common stock.
Stockholders who, with their affiliates and associates
beneficially owned 10% or more of our outstanding shares of common stock at
8:15 a.m. on June 21, 1999 are referred to in the rights agreement as
"grandfathered persons." The only grandfathered persons of whom we are aware
are (1) a group consisting of Westbrook Burnham Holdings, L.L.C. and
Westbrook Burnham Co-Holdings, L.L.C. and (2) a group consisting of Morgan
Stanley Dean Witter & Co., Morgan Stanley Dean Witter Advisors, Van Kampen
and Morgan Stanley Dean Witter Investment Management, Inc. In the case of a
grandfathered person the rights will separate from the common stock and will
become exercisable upon the earlier of the two events described above, provided
that for this purpose the applicable percentage for that grandfathered person
is not 10% but is instead the percentage ownership for the outstanding common
stock owned by that person as of 8:15 a.m. on June 21, 1999. In addition, a
grandfathered person will not be an acquiring person unless it acquires
additional shares of our common stock after 8:15 a.m. on June 21, 1999.
If a person becomes an acquiring person, the shareholder rights plan
provides that as of the close of business ten calendar days after the first
public announcement of that event, each holder of a right will be entitled to
receive, upon payment of the exercise price, shares of preferred stock of our
company having a market value of twice the exercise price of the right. If
our company is acquired in a merger or similar transaction, the shareholder
rights plan provides that as of the close of business ten calendar days
following the first public announcement of that event, each holder of a
right will be entitled to receive, upon payment of the exercise price, shares
of common stock of the acquiring company having a market value of twice the
exercise price of the right.
If our board of directors approves a transaction that it has
determined is in the best interest of our stockholders but that otherwise
would cause one of the above distribution events under the rights agreement,
our board may, in connection with that approval, redeem the rights for a
nominal price. Once the rights are redeemed, the transaction can proceed
without causing the distribution event. The rights agreement could make it
more difficult for a third party to acquire, and could discourage a third
party from acquiring or seeking to acquire, our company or a large block of
its common stock.
EXCESS STOCK
GENERAL. As a protective measure, Burnham's charter provides for the
issuance of a separate class of stock, referred to as "excess stock," to people
who attempt to acquire stock in an amount that may endanger Burnham's REIT
qualification. The terms of excess stock and the conditions giving rise to its
issuance are described in more detail below.
OWNERSHIP LIMIT. To qualify as a REIT, Burnham must comply with several
complicated rules under the Internal Revenue Code.
Under these rules:
o no more than 50% in value of Burnham's outstanding capital stock
may be owned, directly or indirectly by five or fewer
"individuals" (which includes tax-exempt entities) during the last
half of its taxable year, and
o Burnham's capital stock must be beneficially owned by 100 or more
persons during at least 335 days of each taxable year.
In order to meet these requirements, Burnham's charter limits the
amount of its capital stock that any one party may hold. The charter prohibits
any holder from owning:
o more than 9.8% in value of Burnham's outstanding capital stock; or
o more than 9.8% (in value or in number of shares, whichever is more
restrictive) of the outstanding shares of common stock, including
shares of common stock issuable upon conversion of any other
outstanding shares of capital stock of Burnham.
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The charter deems holders to own all stock that they (1) actually own,
(2) constructively own after applying the attribution rules specified in the
Internal Revenue Code and (3) have the right to acquire upon exercise of any
rights, options or warrants or conversion of any convertible securities. These
ownership limitations apply to natural persons, corporations, estates, trusts,
partnerships or other entities. The fact that affiliated entities, such as
separate mutual funds advised by the same investment adviser, may own more than
9.8% of the value of all outstanding capital stock in the aggregate will not of
itself result in the ownership limit being exceeded, even though that investment
advisor may be considered to be the beneficial owner of the stock for purposes
of Section 13(g) of the Exchange Act.
VIOLATION OF OWNERSHIP LIMIT. The charter provides that any attempted
transfer of capital stock is null and void if it would result in a violation of
the ownership limit or the disqualification of Burnham as a REIT. In the event
of an attempted transfer, the intended transferee will acquire no rights to the
capital stock. Instead, the stock will automatically be exchanged for shares of
excess stock, and these shares of excess stock will automatically be transferred
to a trustee for the benefit of one or more beneficiaries designated by Burnham,
except to the extent described below. The trustee must be unaffiliated with
Burnham and the intended transferee.
RIGHTS OF EXCESS STOCK. The excess stock held in trust will receive
distributions declared by Burnham and may be voted by the trustee for the
benefit of the beneficiary. The charter requires the intended transferee to
repay to Burnham any dividend or distribution that it receives prior to the
discovery that capital stock was transferred in violation of the ownership
limit. Burnham would then transfer the amount of the repayment to the trustee.
The charter also retroactively nullifies any votes cast by that person prior to
the discovery that a transfer of stock to him or her violated the ownership
limit. This provision will not harm the rights of any third party who relied in
good faith upon the vote and its consequences.
TRANSFERABILITY OF EXCESS STOCK. A stockholder generally may not
transfer excess stock. Subject to Burnham's redemption right described below,
the trustee may transfer the excess stock to a purchaser who could own those
shares without violating the ownership limit. When sold, the shares of excess
stock would automatically convert back into shares of the class or series of
capital stock or convertible security from which they were originally converted.
The person who attempted to acquire the shares but was not permitted to
do so would then receive from the proceeds of the sale, the lesser of (a) the
price paid by that prohibited owner for the shares and (b) the price per share
received by the trustee from the sale of the shares. If the prohibited owner
received the excess stock by gift, devise or otherwise without paying for it,
then he or she would receive the lesser of (a) the market price of the shares on
the day of the event causing the shares to be held in trust, as determined in
the manner set forth in the charter, and (b) the price per share received by the
trustee from the sale of the shares. Any remaining sales proceeds in excess of
the amount payable to the prohibited owner shall be immediately paid to the
charitable beneficiary.
REDEMPTION RIGHT. In addition to the transfer restrictions described
above, Burnham may purchase any portion of the excess stock from the trustee for
a period of 90 days after receiving written notice of the prohibited transfer or
other event resulting in the exchange of capital stock for excess stock. Upon
any purchase by Burnham, the trustee must distribute the sale proceeds to the
prohibited owner.
ADDITIONAL CHARTER PROVISIONS REGARDING THE OWNERSHIP LIMIT. The
ownership limit will not preclude settlement of transactions on a stock
exchange, but the provisions of the charter shall remain applicable to the
transferee and to any shares transferred. If the board of directors determines
that it is no longer in the best interests of Burnham to continue to qualify as
a REIT, then these restrictions on transferability and ownership will cease.
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<PAGE>
Upon demand by Burnham, each stockholder and each proposed transferee
of capital stock must disclose any information about his or her stock ownership
necessary for Burnham to comply with provisions of the Internal Revenue Code
applicable to REITs or the requirements of any governmental agency.
EXCEPTIONS TO OWNERSHIP LIMIT. The board of directors may waive the
ownership limit if it determines that doing so will not jeopardize Burnham's
status as a REIT and would be in Burnham's best interest. Based upon
representations of Blackacre and the Westbrook entities that their agreements
with Burnham would not result in any individual, after applying the rules of the
Internal Revenue Code, owning more than 9.8% of the common stock or of the value
of all of the capital stock of Burnham, and on other representations and
agreements, the board of directors has partially waived the ownership limits for
those two entities.
The ownership limit does not apply to shares of capital stock acquired
for cash in a tender offer for all outstanding shares of capital stock if both
of the following conditions are met:
o At least two-thirds of the outstanding shares of capital stock are
tendered and accepted pursuant to the tender offer. The securities
held by the purchaser are not included in determining whether the
two-thirds threshold has been met.
o The purchaser commits, if the offer is accepted by holders of
two-thirds of the outstanding stock, to give any non-tendering
stockholders a reasonable opportunity to put their capital stock
to the purchaser at a price not less than that paid in the tender
offer.
MARYLAND LAW
MARYLAND BUSINESS COMBINATION STATUTE
Maryland law prohibits many transactions between a Maryland corporation
and any person or entity that owns 10% or more of the voting power of the
corporation's stock. This prohibition exists for five years after the person or
entity most recently became a ten percent owner. Thereafter, any business
combination must be approved by at least 80% of the votes entitled to be cast on
the matter. The person with whom the business combination is to be effected may
not vote on the transaction. Maryland law provides an exception to this rule
depending upon the amount paid to the stockholders and the form of payment.
These restrictions do not apply to transactions with a ten percent owner that
are approved by the board of directors of the corporation before that ten
percent owner becomes a ten percent owner.
Burnham's board of directors has adopted a resolution rendering these
provisions of Maryland law inapplicable to Burnham. However, the board of
directors may revoke their resolution if doing so is in the best interest of
Burnham and our stockholders.
MARYLAND CONTROL SHARE ACQUISITION STATUTE
Maryland law provides that control shares of a Maryland corporation
have no voting rights except to the extent approved by two-thirds of the votes
eligible to be cast on that matter by stockholders. When we use the term
"control shares," we mean voting shares that, once acquired, would entitle the
holder to exercise one-fifth more of the voting power in electing directors.
Control shares do not include shares the acquiring person may vote as a
result of having obtained stockholder approval.
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<PAGE>
If voting rights are not approved at a stockholder meeting or if the
acquiring person does not otherwise comply with Maryland law, the corporation
may redeem any or all of the control shares for fair value. If voting rights are
approved and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights.
Burnham's bylaws contain a provision that exempts the acquisition of
Burnham's capital stock from these restrictions. However, the board of
directors, may repeal this exemption either before or after an acquisition of
control shares if it determines that doing so is in the best interest of our
stockholders. The board of directors may do this without stockholder approval.
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<PAGE>
DESCRIPTION OF UNITS AND REDEMPTION OF UNITS OF OPERATING PARTNERSHIP
THE FOLLOWING DESCRIPTION OF THE OPERATING PARTNERSHIP AGREEMENT, AND
OF THE FIRST AMENDMENT THERETO THAT WAS ENTERED INTO CONCURRENTLY WITH THE
ACQUISITION OF THE GOLDEN STATE PROPERTIES PORTFOLIO ON DECEMBER 31, 1997, IS
QUALIFIED BY THE PROVISIONS OF THE OPERATING PARTNERSHIP AND OF THE FIRST
AMENDMENT FILED AS EXHIBITS TO BURNHAM'S REPORTS ON FORM 8-K DATED DECEMBER 16,
1997 AND JANUARY 14, 1998, RESPECTIVELY, AND OF SCHEDULE C TO THE FIRST
AMENDMENT FILED AS AN EXHIBIT TO BURNHAM'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1997. THOSE EXHIBITS ARE HEREBY INCORPORATED BY
REFERENCE HEREIN.
COMMON UNITS.
The operating partnership agreement provides that the operating
partnership will make distributions to holders of common units and to the
general partner in proportion to their respective partnership interests. Burnham
will hold as many common units as there are shares of common stock of Burnham
outstanding from time to time. Burnham, as general partner of the operating
partnership, contemplates making quarterly distributions to the holders of
common units concurrently with and in the same amounts as dividends paid by
Burnham on its common stock. This amount is currently at the quarterly rate of
$0.2625 per unit.
In addition, the operating partnership agreement provides that on
December 31 or June 30 following the first anniversary of the issuance of common
units, or earlier in the event of some types of transactions, holders of common
units may redeem each of their common units for cash equal to the market value
of a share of common stock. Burnham may assume the redemption obligation of the
operating partnership and pay the redemption in the form of registered shares of
its common stock.
PREFERRED UNITS.
Under the first amendment to the operating partnership agreement,
Burnham, as general partner of the operating partnership, established a series
of 4,800,000 preferred units of limited partnership interest designated as
"Series 1997-A Preferred Limited Partner Units" and issued 2,000,000 preferred
units to the contributors of the Golden State Properties Portfolio and 2,800,000
preferred units to Burnham. The economic rights of holders of preferred units,
with respect to distributions and liquidation, are identical to the rights of
holders of preferred stock. Distributions by the operating partnership with
respect to preferred units held by Burnham will provide the funds to enable
Burnham to make its distributions to the holders of the preferred stock. Holders
of preferred units, other than Burnham, may redeem each of their preferred units
for $25 in cash or the value of the amount of common stock into which a share of
preferred stock could be exchanged. In lieu of delivering cash, however, Burnham
may, at its option, choose to acquire preferred units by issuing shares of
preferred stock in exchange. If this occurs, the number of preferred units held
by Burnham will increase so that Burnham will always hold a number of preferred
units equal to the number of outstanding shares of preferred stock.
In general, the terms of the first amendment that define the economic
rights of holders of preferred units other than Burnham are largely identical to
the provisions of the Articles Supplementary that define the economic rights of
the holders of preferred stock. See "Description of Securities--Preferred stock"
above.
TAX CONSEQUENCES OF REDEMPTION.
The following discussion summarizes federal income tax considerations
that may be relevant to a unitholder who redeems its partnership units.
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<PAGE>
TAX TREATMENT OF EXCHANGE OR REDEMPTION OF UNITS
Burnham may elect to purchase units presented to its operating
partnership for redemption. If Burnham so elects, the transaction will be
treated as a sale of partnership units by the unitholder to Burnham at the time
of the redemption. The sale will be fully taxable to the redeeming unitholder.
The determination of the amount and character of gain or loss is discussed
below. See "--Computation and character of gain or loss" below.
If Burnham does not elect to purchase a unitholder's partnership units
and the operating partnership redeems the partnership units for cash that
Burnham contributes to the operating partnership to effect the redemption, the
redemption likely would be treated for tax purposes as a sale of the partnership
units to Burnham in a fully taxable transaction. In that event, the tax
consequences would be the same as if Burnham elected to purchase the partnership
units directly, as described above.
If Burnham does not elect to purchase the partnership units and the
operating partnership redeems all of a unitholder's partnership units for cash
that is not contributed by Burnham to effect the redemption, the tax
consequences would likely be the same as described in the previous paragraph. If
the operating partnership redeems less than all of a unitholder's units,
however, the unitholder would not be permitted to recognize any loss occurring
on the transaction and would recognize taxable gain only to the extent that the
cash, plus the amount of any operating partnership liabilities allocable to the
redeemed partnership units, exceeded the unitholder's adjusted basis in all of
the unitholder's units immediately before the redemption. This result may differ
if the redemption is treated as a disguised sale. See "--Potential application
of the disguised sale regulations to a redemption of units" below.
If Burnham contributes cash to the operating partnership to effect a
partial redemption of a unitholder's units and the redemption is treated as a
redemption by the operating partnership rather than a sale to Burnham, the
income tax consequences to a unitholder would be the same as described in the
preceding paragraph.
COMPUTATION AND CHARACTER OF GAIN OR LOSS
The gain or loss from any transaction treated as a sale of units will
be based on the difference between the amount realized for tax purposes and the
tax basis in the units. See "--Basis of units" below. Upon the sale of
partnership units, the amount realized will be measured by the sum of the cash
and fair market value of the capital stock received plus the amount of any
operating partnership liabilities allocable to the partnership units sold. To
the extent that the cash or property received plus the allocable share of any
operating partnership liabilities exceeds the unitholder's basis for the
partnership units, the unitholder will recognize gain. The amount of gain
recognized or even the tax liability resulting from that gain could exceed the
amount of cash and/or the value of any capital stock received.
In general, any gain from a sale or other disposition of partnership
units will be treated as gain resulting from the sale or disposition of a
capital asset. To the extent, however, that the amount realized upon the sale of
a unit attributable to a unitholder's share of unrealized receivables of the
operating partnership, as defined in Section 751 of the Internal Revenue Code,
exceeds the basis attributed to those assets, the excess will be treated as
ordinary income. Unrealized receivables include, to the extent not previously
included in operating partnership income, any rights to payment for services
rendered or to be rendered. Unrealized receivables also include amounts that
would be subject to recapture as ordinary income if the operating partnership
had sold its assets at their fair market value at the time of the transfer of a
unit.
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<PAGE>
BASIS OF UNITS
In general, a unitholder who acquired partnership units by contribution
of property and/or money to the operating partnership had an initial tax basis
in these partnership units equal to the sum of (a) the amount of money
contributed, (b) his or her adjusted tax basis in any other property contributed
in exchange for the partnership units and (c) his or her share of the operating
partnership's liabilities, less (d) the amount of any liabilities assumed by the
operating partnership and any money distributed in connection with the
acquisition of the partnership units. The initial basis of partnership units
acquired by other means would have been determined under the general rules of
the Internal Revenue Code, including the partnership provisions, governing the
determination of tax basis. Other rules, including the disguised sale rules
discussed below, also may affect initial basis. Unitholders should consult their
own tax advisors regarding their initial basis. A unitholder's initial basis in
partnership units generally is increased by his or her share of the (a)
operating partnership taxable and tax-exempt income and (b) increases in
liabilities of the operating partnership. Generally, a unitholder's basis in his
or her partnership units is decreased by his or her share of the (a) operating
partnership distributions, (b) decreases in liabilities of the operating
partnership, (c) losses of the operating partnership and (d) nondeductible
expenditures of the operating partnership that are not chargeable to his or her
capital account. A unitholder's basis in units cannot be less than zero.
POTENTIAL APPLICATION OF THE DISGUISED SALE REGULATIONS TO A
REDEMPTION OF UNITS
A redemption of partnership units originally issued in exchange for a
contribution of property to the operating partnership may cause the original
transfer of property to be treated as a disguised sale of property. Section 707
of the Internal Revenue Code and the Treasury Regulations thereunder generally
provide that, unless one of the prescribed exceptions is applicable, a partner's
contribution of property to a partnership and a simultaneous or subsequent
transfer of money or other consideration, including the assumption of a
liability, from the partnership to the partner will be presumed to be a sale of
the property by the partner to the partnership if the two transactions occur
within a two-year time period. This presumption may be overcome if the facts and
circumstances clearly establish that the transfers do not constitute a sale.
Nonetheless, if the transactions occur within a two-year period, the partner may
need to report them to the IRS. The disguised sale regulations also provide that
if two years have passed between the transfer of money or other consideration
and the contribution of property, the transactions will be presumed not to be a
sale unless the facts and circumstances clearly establish that the transfers
constitute a sale.
Accordingly, if a unitholder who received units in exchange for a
contribution of property to the operating partnership presents units for
redemption, the IRS could contend that the original contribution of property was
taxable as a disguised sale. Any gain recognized may be eligible for installment
reporting under Section 453 of the Internal Revenue Code, subject to
limitations. In addition, a portion of the proceeds received by a redeeming
unitholder could be characterized as original issue discount on a deferred
obligation. This original issue discount would be taxable as interest income
under Section 1272 of the Internal Revenue Code. Each unitholder should consult
its own tax advisors to determine whether redemption of its partnership units
could be subject to the disguised sale regulations.
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<PAGE>
COMPARISON OF OWNERSHIP OF PARTNERSHIP UNITS AND COMMON STOCK
An investment in Burnham's preferred stock or common stock is generally
economically equivalent to an investment in preferred units or common units, as
the case may be, in the operating partnership. A holder of a share of capital
stock receives the same distribution that a holder of the equivalent class of
partnership units receives. Furthermore, stockholders and unitholders generally
share in the risks and rewards of ownership in the same enterprise. There are,
however, differences between ownership of partnership units and ownership of
capital stock, some of which may be material to investors.
The information below highlights a number of important differences
between the operating partnership and Burnham relating to, among other things,
form of organization, permitted investments, policies and restrictions,
management structure, compensation and fees, investor rights and federal income
taxation. The information also compares rights associated with being a partner
in the operating partnership and being a stockholder of Burnham, respectively.
These comparisons are summary in nature and intended to assist unitholders in
understanding how their investment will be changed if their partnership units
are acquired for capital stock.
<TABLE>
<CAPTION>
THE OPERATING PARTNERSHIP THE COMPANY
<S> <C>
FORM OF ORGANIZATION AND ASSETS OWNED
The operating partnership is a Delaware limited Burnham is a Maryland corporation that has
partnership and is the entity through which elected to be taxed as a REIT under the Internal
Burnham conducts most of its business and owns Revenue Code and intends to maintain its
most of its assets. The board of directors of qualifications as a REIT. Burnham is the sole
Burnham manages the affairs of the operating general partner of the operating partnership and
partnership by directing the affairs of Burnham. holds both preferred and common limited
partnership units in the operating partnership. As
a result, Burnham has an indirect investment in the properties
and other assets owned by the operating partnership.
LENGTH OF INVESTMENT
The operating partnership has a termination date Burnham has a perpetual term and intends to
of December 31, 2095, although it may be continue its operations indefinitely.
terminated earlier under some circumstances.
NATURE OF INVESTMENT IN PREFERRED EQUITY AND DISTRIBUTION RIGHTS
The preferred units constitute equity interests The preferred stock constitutes an equity interest in
entitling each holder to his or her pro rata share Burnham. Burnham is entitled to receive any operating
of the distributions made to the preferred cash flow and capital cash flow remaining
unitholders of the operating partnership. In general, after the holders of preferred units and common
the preferred unitholders will receive distributions units have been paid their distributions. Each
on their preferred units equal to the dividend for stockholder will be entitled to his or her pro rata
the same period on a share of preferred stock of Burnham. share of any dividends or distributions paid with
respect to preferred stock. The dividends payable
to the holders of preferred stock are
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
THE OPERATING PARTNERSHIP THE COMPANY
<S> <C>
As a partnership, the operating partnership is not cumulative and not fixed in amount, but are only paid
subject to federal income taxation. In determining if, when and as declared by the board of directors.
their federal income tax, partners of the In order to qualify as a REIT, Burnham must distribute
operating partnership, including preferred at least 95% of its taxable income, excluding capital
unitholders, must take into account their gains; and any taxable income, including capital
allocable share of partnership income, gain, gains, not distributed will be subject to corporate
deduction and loss, regardless of whether income tax.
distributed, and otherwise are subject to the
rules governing the taxation of partnerships and
partners. By contrast, preferred unitholders who
receive preferred stock upon exercise of their
redemption rights will be taxed on these
investments in accordance with the rules governing
REITs. See "Federal Income Tax Considerations."
NATURE OF INVESTMENT IN COMMON EQUITY AND DISTRIBUTION RIGHTS
The common units constitute equity interests The common stock constitutes an equity interest
entitling each common unitholder to his or her pro in Burnham. Burnham is entitled to receive any
rata share of the distributions made to the common operating cash flow and capital cash flow
unitholders of the operating partnership. In remaining after the holders of preferred units
general, the common unitholders will receive and common units have been paid their
distributions on their common units equal in distributions. Each stockholder will be
amount to the dividend for the same period on a entitled to his or her pro rata share of any
share of common stock of Burnham. dividends or distributions paid with respect to
common stock after the payment of dividends on
As a partnership, the operating partnership is not outstanding preferred stock. The dividends
subject to federal income taxation. In determining payable on common stock are not fixed in amount
their federal income tax, partners of the and are only paid if, when and as declared by
operating partnership, including common the board of directors. In order to qualify as
unitholders, must take into account their a REIT, Burnham must distribute at least 95% of
allocable share of partnership income, gain, its taxable income, excluding capital gains;
deduction and loss, regardless of whether and any taxable income, including capital
distributed, and otherwise are subject to the gains, not distributed will be subject to
rules governing the taxation of partnerships and corporate income tax.
partners. By contrast, common unitholders who
receive common stock upon exercise of their
redemption rights will be taxed on their
investment in accordance with the rules governing
REITs. See "Federal Income Tax Considerations."
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
THE OPERATING PARTNERSHIP THE COMPANY
<S> <C>
ISSUANCE OF ADDITIONAL EQUITY
The operating partnership may issue additional The board of directors of Burnham may issue, in
partnership units, including partnership interests its discretion, additional equity securities
of different series or classes that may be senior to consisting of common stock or any other series
common units. However, the operating partnership may of capital stock so long as the total number of
not issue partnership interests senior to or on shares issued does not exceed the authorized
parity with the preferred units without consent of number of shares of capital stock set forth in
holders of at least a majority of the preferred Burnham's charter. Burnham may not issue
units. Subject to restrictions that relate to the additional equity securities that would impair
rights of preferred units, the relative rights, the rights of the preferred stock without
powers and duties of any additional partnership consent of holders of at least a majority of
units or other interests will be determined by the preferred stock. The issuance of additional
Burnham in its sole discretion. The operating equity securities may dilute the interests of
partnership may issue partnership interests to existing stockholders. The operating
Burnham, as long as Burnham issues a corresponding partnership agreement contemplates that Burnham
amount of stock, the proceeds of which are will contribute the proceeds of any additional
contributed to the operating partnership. The equity securities to the operating partnership.
issuance of additional partnership units or other Each time Burnham issues additional shares of
similar partnership interests may dilute the common stock, the number of common units held
interests of the existing unitholders. by Burnham will increase so that Burnham will
always hold the same number of common units as
there are shares of common stock outstanding.
Similarly, there will be an increase in the
number of preferred units held by Burnham to
correspond with an increase in the number of
outstanding shares of preferred stock.
LIQUIDITY OF COMMON EQUITY
Subject to some restrictions, a common unitholder Burnham's common stock is freely transferable
may transfer all or any portion of his or her common subject to the requirements of the Securities
units without the consent of the general partner. Act. The common stock is listed on the New York
However, the general partner's consent is required Stock Exchange. The breadth and strength of
where a transfer (1) would affect the treatment of this market will depend, among other things,
Burnham or the operating partnership under state or upon the number of shares outstanding,
federal law or (2) would impose legal obligations on Burnham's financial status, the general
Burnham or the operating partnership. interest in Burnham's and other real estate
investments and Burnham's dividend yield
Subject to conditions, including the expiration of compared to that of other debt and equity
specified lock-out periods, common unitholders may securities.
redeem their common units with the operating
partnership. Upon redemption, the unitholder will
receive, at Burnham's election, either common stock
or its cash equivalent.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
THE OPERATING PARTNERSHIP THE COMPANY
<S> <C>
LIQUIDITY OF PREFERRED EQUITY
Subject to some restrictions, a preferred Burnham's preferred stock is freely
unitholder may transfer all or any portion of his transferable subject to the requirements of the
or her preferred units without the consent of the Securities Act. The preferred stock is not
general partner. However, the general partner's listed on an exchange and is not publicly
consent is required where a transfer (1) would traded.
affect the treatment of Burnham or the operating
partnership under state or federal law, On and after December 31, 1998, March 31, 1999,
particularly with respect to tax, partnership, and June 30, 1999, and September 30, 1999, each
securities laws, or (2) would impose legal holder of shares of preferred stock may convert
obligations on Burnham or the operating 25% of his or her preferred stock into shares
partnership. of common stock. Upon conversion, each holder
of preferred stock will be entitled to receive
Subject to conditions, including the expiration of for each share of preferred stock a number of
specified lock-out periods, preferred unitholders shares of common stock equal to the stated
may redeem their common units with the operating value plus accrued and due dividends, divided
partnership. Upon redemption, the unitholder will by a conversion price of $15.375. This
receive, at Burnham's election, either preferred conversion price is subject to antidilution
stock or cash equal to the greater of the stated adjustments.
value plus accrued and due dividends or the value
of shares of common stock into which the preferred
stock is convertible.
PURPOSE AND PERMITTED INVESTMENTS
The operating partnership's purpose is to conduct Under its charter, Burnham may engage in any
any business permitted by Delaware limited activity permitted under Maryland law.
partnership law. The operating partnership
agreement requires the business to be conducted in Neither Burnham's charter nor its bylaws impose
a manner that permits Burnham to be classified as a any restrictions upon the types of investments
REIT for federal income tax purposes and avoids any made by Burnham.
federal income or excise tax liability. Subject to
the foregoing limitation, the operating partnership
may invest or enter into partnerships, joint
ventures or similar arrangements, own interests in
any other entity, lend operating partnership funds,
or reinvest the operating partnership's cash flow
and net sale or refinancing proceeds.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
THE OPERATING PARTNERSHIP THE COMPANY
<S> <C>
BORROWING POLICIES
The operating partnership has no restrictions on Burnham is not restricted under its
borrowings, except that it may not enter into a organizational documents from borrowing money.
financing relationship with Burnham or an affiliate
of Burnham.
MANAGEMENT CONTROL
Burnham manages the business and affairs of the The board of directors has exclusive control
operating partnership. No other unitholder of the over Burnham's business and affairs subject
operating partnership may participate in the only to the restrictions in its charter and
management of the operating partnership. The bylaws. The stockholders of Burnham elect the
operating partnership agreement provides that board of directors at each annual meeting of
Burnham shall be reimbursed for all expenses stockholders. The policies adopted by the board
incurred by it relating to the management of the of directors may be altered or eliminated
operating partnership. without advice of the stockholders.
Accordingly, except for their vote in the
elections of Directors, stockholders have no
control over the ordinary business policies of
Burnham.
MANAGEMENT LIABILITY AND INDEMNIFICATION
The operating partnership agreement generally Maryland law requires Burnham to indemnify a
provides that the general partner and any person director or officer who has been successful in
acting on its behalf will not be liable to the the defense of any proceeding to which he or
operating partnership or any unitholder for any act she is made a party by reason of service as an
or omission within the scope of the general officer or director. Maryland law permits
partner's authorities unless: Burnham to indemnify present and former
directors and officers against judgments,
o the general partner acted in bad faith and penalties, fines, settlements and reasonable
expenses incurred by them in connection with
o the act or omission was material to the matter any proceeding to which they are made a party
giving rise to the liability. by reason of their service, among other things,
as an officer or director, unless it is
The operating partnership agreement also provides established that:
for the indemnification of the general partner and
its affiliates and any individual acting on their o the act or omission of the director or
behalf from any loss, damage, claim or liability, officer was material to the matter giving rise
including, but not limited to, reasonable to the proceeding and (1) was committed in bad
attorneys' fees and expenses, incurred by them by faith or (2) was the result of active and
reason of any act performed by them unless: deliberate dishonesty;
o the act or omission was committed in bad faith or o the director or officer actually received an
with deliberate dishonesty; improper personal benefit in money, property or
services; or
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
THE OPERATING PARTNERSHIP THE COMPANY
<S> <C>
o the person committing the act or omission o in the case of any criminal proceeding, the
received improper benefit from the director or officer had reasonable cause to
conduct; or believe that the act or omission was unlawful.
o in the case of a criminal proceeding, the Burnham's charter and bylaws eliminate, to the
person had reason to believe the conduct fullest extent permitted under Maryland law,
was unlawful in accordance with the the personal liability of a director or officer
standards set forth above or in enforcing for monetary damages resulting from a breach of
the provisions of this indemnity. that person's duty of care or other duties as a
director or officer. Furthermore, Burnham and
the operating partnership have entered into
individual indemnification agreements with each
officer and director of Burnham providing the
maximum indemnification permitted under
Maryland law. The effect of these agreements
and the relevant provisions of our charter and
bylaws is generally to eliminate the rights of
Burnham and its stockholders to recover
monetary damages against a director or officer
for breach of the fiduciary duty of care,
including breaches resulting from negligent or
grossly negligent behavior. This does not limit
or eliminate the rights of Burnham or any
stockholder to seek non-monetary relief such as
an injunction or recision in the event of a
breach of a director's or officer's duty of
care nor does it alter the liability of a
director or officer under federal securities
laws.
ANTITAKEOVER PROVISIONS
Except in limited circumstances, the general Burnham's charter and bylaws and shareholder
partner has exclusive management power over the rights agreement and Maryland law contain
business and affairs of the operating partnership. provisions that may delay or discourage an
The general partner may not be removed by the unsolicited proposal to acquire Burnham or remove
unitholders with or without cause. incumbent management. See "Risk Factors--Provisions
of our organizational documents may discourage
acquisition proposals" and "Description of securities-
Shareholder rights plan"
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
THE OPERATING PARTNERSHIP THE COMPANY
<S> <C>
VOTING RIGHTS
Holders of common units may not elect or remove The board of directors directs Burnham's
Burnham as the general partner of the operating business and affairs. Stockholders elect the
partnership. Under the operating partnership board of directors at annual meetings. All
agreement, Burnham as general partner may take any shares of common stock have one vote per share.
action that it reasonably believes to be in the The charter permits the board of directors to
best interests of its stockholders or complies with classify and issue preferred stock in one or
the REIT requirements for Burnham. Burnham's more series having voting power that may differ
ability to amend the operating partnership from that of the common stock; and holders of
agreement is limited to the extent described below. preferred stock have the right to vote on a
fully converted basis with the holders of
common stock, as well as to vote as a separate
class on some specified matters.
Stockholders of Burnham have the right to vote,
among other things, on a merger or sale of most
or all of Burnham's assets, some amendments to
the charter and the dissolution of Burnham.
Under Maryland law and the charter, the sale of
most or all of the assets of Burnham or any
merger or consolidation of Burnham requires the
approval of the board of directors and holders
of a majority of the outstanding shares of
stock entitled to vote on the matter. Approval
of the stockholders is not required for the
sale of less than substantially all of
Burnham's assets. Under Maryland law and
Burnham's charter and bylaws, the board of
directors must obtain approval of holders of a
majority of the votes entitled to be cast at a
meeting of stockholders in order to dissolve
Burnham.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
THE OPERATING PARTNERSHIP THE COMPANY
<S> <C>
AMENDMENT OF THE PARTNERSHIP AGREEMENT OR BURNHAM'S CHARTER
The general partner, in many cases, may amend the Amendments to the charter must be approved by
operating partnership agreement without the consent the board of directors and generally by the
of the other holders of limited partnership units. vote of a majority of the votes entitled to be
However, some amendments set forth in the operating cast at a meeting of stockholders except as
partnership agreement require consent of otherwise provided by law. Burnham may not
unitholders holding a majority-in-interest of the amend the charter in a manner that would impair
outstanding limited partnership units. This the term of the preferred stock without
excludes limited partnership units which may be approval of holders of at least a majority of
voted by the general partner. Furthermore, the outstanding shares of preferred stock, voting
general partner may not amend the operating separately as a class.
partnership agreement in any manner affecting the
terms and conditions of, or the rights or
preferences of, the preferred units without
approval of (1) holders of at least a majority of
outstanding shares of preferred stock, voting
separately as a class, and (2) holders of at least
a majority of the outstanding preferred units.
COMPENSATION, FEES AND DISTRIBUTIONS
The general partner is not entitled to receive The directors receive capital stock of Burnham
compensation for its services as general partner of as compensation for their services. The
the operating partnership. As a partner in the operating partnership pays the compensation of
operating partnership, however, the general partner the officers of Burnham.
has the same right to allocations and distributions
as other partners of the operating partnership. In
addition, the operating partnership will reimburse
the general partner for administrative expenses
relating to the operation of Burnham and other
expenses arising in connection with its role as
general partner. All officers of Burnham are
employees of the operating partnership.
LIABILITY OF INVESTORS
Under the operating partnership agreement and Under Maryland law, stockholders generally are
Delaware law, the limited partners of the operating not personally liable for the debts or
partnership are liable for its debts and obligations of Burnham.
obligations but only to the extent of their
investment in the operating partnership, together
with any interest in any undistributed income.
</TABLE>
41
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
To qualify for the favorable tax treatment afforded to REITs, Burnham
must comply with highly technical and complex requirements under the Internal
Revenue Code. The following discussion summarizes these requirements and their
effect on Burnham and its stockholders. This discussion is for general
information only and is not an exhaustive list of all tax considerations that
may be material. For example, this discussion does not address any state, local
or foreign tax considerations. Also, this discussion does not address issues
that arise as a result of your, or any other investor's, special circumstances
or special status under the Internal Revenue Code. The summary is qualified in
its entirety by, and you should refer to, Sections 856 through 860 of the
Internal Revenue Code and the related Treasury regulations, which set forth the
particular provisions applicable to REITs.
This discussion is not intended to be, nor should you construe it as,
tax advice. You should consult your own tax advisor to determine the impact of
owning Burnham's stock on your own personal situation, including tax
consequences arising under the laws of any state, municipality or other taxing
jurisdiction. In particular, foreign investors should consult their own tax
advisors concerning the tax consequences of an investment in Burnham, including
the possibility of United States income tax withholding on company
distributions.
GENERAL
Under the Internal Revenue Code, if applicable requirements are met in
a taxable year, including the requirement that the REIT distribute to its
stockholders at least 95% of its real estate investment trust taxable income for
the taxable year, a REIT generally will not be subject to federal income tax
with respect to income that it distributes to its stockholders. However, Burnham
may be subject to federal income tax under some circumstances. As discussed
below, stockholders may be credited for all or a portion of the taxes paid by
Burnham on its retained net capital gains. If Burnham fails to qualify during
any taxable year as a REIT, unless statutory relief is available, it will be
subject to tax on its taxable income at regular corporate rates. Stockholders
could be harmed if Burnham's taxable income were taxed at regular corporate
rates.
BURNHAM BELIEVES BUT CANNOT GUARANTEE THAT IT QUALIFIES AS A REIT
Burnham has elected to qualify as a REIT under the Internal Revenue
Code. In the opinion of Goodwin, Procter & Hoar LLP, Burnham has been organized
in conformity with the requirements for qualification as a REIT under the
Internal Revenue Code, and its manner of operation has met and will continue to
meet the requirements for qualification and taxation as a REIT under the
Internal Revenue Code. This opinion is based on various assumptions and is
conditioned upon representations made by Burnham as to factual matters and the
continuation of those factual matters. You should be aware, moreover, that
opinions of counsel are not binding upon the IRS or any court. In addition,
Burnham must meet several requirements of the Internal Revenue Code each tax
year in order to be taxed as a REIT. Burnham's compliance with these
requirements will not be reviewed by Goodwin, Procter & Hoar LLP. Accordingly,
Burnham may not satisfy all of the requirements to qualify for taxation as a
REIT for any particular tax year. Likewise, although Burnham believes that it
has operated in a manner that satisfies the REIT qualification requirements
under the Internal Revenue Code since 1987, Burnham's qualification as a REIT
could be challenged by the IRS for taxable years still subject to audit.
UNDISTRIBUTED LONG-TERM CAPITAL GAINS
Burnham may elect to retain and pay income tax on its net long-term
capital gains received during the taxable year. If Burnham so elects for a
taxable year, the stockholders would include in income as long-term
42
<PAGE>
capital gains their proportionate share of the portion of Burnham's
undistributed long-term capital gains for the taxable year that Burnham
designates. A stockholder would be deemed to have paid his or her share of
the tax paid by Burnham on the undistributed capital gains, and the tax paid
would be credited or refunded to the stockholder. The stockholder's basis in
his or her stock would be increased by the amount of undistributed long-term
capital gains included in the stockholder's long-term capital gains, less the
stockholder's share of the capital gains tax paid by Burnham. As discussed
below, stockholders should note that the IRS has issued Notice 97-64, which
provides interim guidance on the proper treatment of capital gains dividends
and undistributed capital gains for individuals, estates and some types of
trusts.
ORDINARY DIVIDENDS
As long as Burnham qualifies as a REIT, distributions made to its
taxable U.S. stockholders out of current or accumulated earnings and profits,
and not designated as a capital gain dividends, will be taken into account by
U.S. stockholders as ordinary income and will not be eligible for the dividends
received deduction generally available to corporations. For purposes of
determining whether distributions on Burnham's stock are out of current or
accumulated earnings and profits, Burnham's earnings and profits will be
allocated first to the outstanding preferred stock and then to Burnham's common
stock.
When we refer to a "U.S. stockholder," we mean a holder of common or
preferred stock that for United States federal income tax purposes is not an
entity that has a special status under the Internal Revenue Code, such as a
tax-exempt organization or dealer in securities, and the holder is:
o a citizen or resident of the United States;
o a corporation, partnership or other entity created or organized in
or under the laws of the United States or any political
subdivision thereof;
o an estate, the income of which is subject to United States federal
income taxation regardless of its source; or
o a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one
or more United States persons have the authority to control all
substantial decisions of the trust.
CAPITAL GAIN DIVIDENDS
To the extent that Burnham has net capital gain for a taxable year,
dividends either paid or deemed to be paid during the year that are properly
designated as long-term capital gains will be treated as such for the taxable
year regardless of the period for which the stockholder has held his stock.
However, corporate stockholders may be required to treat up to 20% of some
capital gain dividends as ordinary income. Capital gain dividends are not
eligible for the dividends-received deduction for corporations.
OTHER DIVIDENDS
Distributions, other than capital gain dividends, in excess of
Burnham's current and accumulated earnings and profits will not be taxable to
a stockholder to the extent that the distributions do not exceed the adjusted
basis of the stockholder's stock, but rather will reduce the adjusted basis
of the stock. To the extent that distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a stockholder's
stock, the distribution will be treated as long-term capital gain or loss if
the shares of stock have been held for more than 12 months and otherwise as
short-term capital gain or loss, assuming the stock is a capital asset in the
hands of the stockholder. In addition, any dividend declared by Burnham in
43
<PAGE>
October, November or December of any year and payable to stockholders of
record on a specified date in those months shall be treated as both paid by
Burnham and received by the stockholder on December 31 of that year, provided
that the distribution is actually paid by Burnham during January of the
following calendar year.
CONVERSION OF PREFERRED STOCK TO COMMON STOCK
No gain or loss generally will be recognized upon conversion of
preferred stock into common stock except with respect to any cash paid in lieu
of fractional shares of common stock. The tax basis of the common stock received
upon conversion will be equal to the tax basis of the preferred stock converted,
and, provided the preferred stock is held as a capital asset, the holding period
of the common stock will include the holding period of the preferred stock
converted. Additionally, if a conversion takes place when there is a dividend
arrearage on the preferred stock and the fair market value of the common stock
exceeds the issue price of the preferred stock, a portion of the common stock
received might be treated as a dividend distribution taxable as ordinary income.
ADJUSTMENT OF CONVERSION PRICE
When the conversion price of convertible preferred stock is adjusted to
reflect certain taxable distributions with respect to the stock into which it is
convertible, regulations under Section 305 of the Internal Revenue Code treat
the adjustment as a constructive distribution by the issuer, taxable as a
dividend to the extent of the issuer's current or accumulated earnings and
profits. Accordingly, an adjustment to the conversion price of the preferred
stock may give rise to a deemed taxable dividend to the holders of the stock,
whether or not they exercise their conversion privilege. In addition, the
failure to fully adjust the conversion price of the preferred stock under some
circumstances may give rise to a deemed taxable dividend to the holders of
common stock.
NO PROCEEDS TO BURNHAM
Neither Burnham nor the operating partnership will receive any cash
proceeds from the issuance of any shares of common stock or preferred stock
offered under this prospectus. With each issuance of shares of common stock or
preferred stock as a result of a redemption of partnership units, however,
Burnham's economic interest in the operating partnership will increase.
PLAN OF DISTRIBUTION
This prospectus relates to the offer and sale from time to time of:
o up to 2,000,000 shares of our preferred stock that we may issue
upon redemption of preferred units of the operating partnership,
o up to 3,252,033 shares of our common stock that we may issue upon
conversion of the above referenced preferred stock at the initial
conversion ratio of approximately 1.626 shares of common stock for
each share of preferred stock,
o up to an additional 1,769,488 shares of our common stock that we
may issue upon redemption of common units of the operating
partnership, and
44
<PAGE>
o an indeterminate number of additional shares of our common stock
that we may issue as a result of the anti-dilution provisions of
the preferred stock.
We are filing the registration statement of which this prospectus is a
part to fulfill our contractual obligations to the holders of the preferred
units and common units and to provide them with freely tradable securities.
Registration of the shares does not necessarily mean that we will issue all or
any portion of the shares.
We will not receive any proceeds from the issuance of the securities
offered hereby. We have agreed to bear some expenses of registration of the
securities offered under this prospectus under federal and state securities
laws.
LEGAL MATTERS
Legal matters, including the legality of the shares of preferred stock
and common stock offered hereby, will be passed upon for Burnham by Goodwin,
Procter & Hoar LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements and the related financial
statement schedule incorporated in this prospectus by reference from Burnham
Pacific Properties, Inc.'s Annual Report on Form 10-K 405, as amended on
April 30, 1999 and June 11, 1999 for the year ended December 31, 1998, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
45
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus,
incorporated herein by reference or contained in a prospectus supplement. We
have not authorized anyone else to provide you with different or additional
information. Neither we nor the selling stockholders named herein are making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus or information
incorporated in this prospectus by reference or contained or incorporated by
reference in any prospectus supplement is accurate as of any date other than the
date on the front of the document containing such information.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary..................................2
Risk Factors........................................4
About This Prospectus and Where You
Can Find More Information.......................17
The Company........................................19
Forward Looking Information........................21
Description of Securities..........................22
Description of Units and Redemption
of Units of Operating Partnership...............31
Federal Income Tax Considerations..................42
No Proceeds to Burnham.............................44
Plan of Distribution...............................44
Legal Matters......................................45
Experts............................................45
</TABLE>
------------------
2,000,000 SHARES
SERIES 1997-A CONVERTIBLE
PREFERRED STOCK
AND
3,252,033 SHARES
COMMON STOCK ISSUABLE UPON
CONVERSION THEREOF
AND
1,769,488 OTHER SHARES
COMMON STOCK
BURNHAM PACIFIC PROPERTIES, INC.
--------------------
Prospectus
--------------------
August , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
46
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of the fees
and expenses (other than underwriting commissions and discounts) anticipated to
be paid by Burnham in connection with the issuance and distribution of the
Securities.
<TABLE>
<S> <C>
SEC Registration fee $ 35,127
Legal fees and expenses 150,000
Accounting fees and expenses 5,000
Printing fees and expenses 5,000
Transfer and Agency fees 1,000
Miscellaneous 3,873
--------
TOTAL $200,000
--------
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Maryland General Corporation Law ("MGCL") permits a Maryland
corporation to include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders for money damages
except for liability resulting from (i) actual receipt of an improper benefit or
profit in money, property or services or (ii) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
charter of Burnham Pacific Properties, Inc. ("Burnham") contains such a
provision which eliminates such liability to the maximum extent permitted by
Maryland law.
The charter of Burnham authorizes it, to the maximum extent permitted
by Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (i) any
individual who is a present or former director, officer, employee or agent of
Burnham or of its predecessor, Burnham Pacific Properties, Inc., a California
corporation (the "Predecessor Corporation") or (ii) any individual who, while a
director of Burnham or Predecessor Corporation and at the request of Burnham or
Predecessor Corporation, serves or has served as a director, officer, partner or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise. The bylaws of Burnham obligate it, to the
maximum extent permitted by Maryland law, to indemnify (a) any individual who is
a present or former director, officer, employee or agent of Burnham or
Predecessor Corporation or (b) any individual who, while a director of Burnham
or Predecessor Corporation and at the request of Burnham or Predecessor
Corporation, serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
officer, partner or trustee.
The MGCL requires a corporation (unless its charter provides otherwise,
which Burnham's charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (i) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (a) was
committed in bad faith or (b) was the result of active and deliberate
dishonesty, (ii) the director or officer actually received an improper personal
benefit in money, property or services or (iii) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation. In
addition, the MGCL allows a corporation to advance expenses to a director or
officer, provided that, as a condition to advancing expenses, the corporation
obtains (x) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the corporation as authorized by the bylaws and (y) a written statement by or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
4.1 Charter of Burnham, as Amended and Restated May 6, 1997,
incorporated by reference to pages B-1 through B-13 of Burnham's
Proxy Statement for its 1997 Annual Meeting, filed March 31, 1997.
4.2 Articles Supplementary Designating 4,800,000 shares of preferred
stock as 4,800,000 shares of Series 1997-A Convertible preferred
stock, incorporated by reference to Exhibit 3.1.2 to Burnham's
Current Report on Form 8-K dated January 14, 1998.
4.3 Bylaws of Burnham, as amended November 19, 1997, incorporated by
reference to Exhibit 3.2 of Burnham's Current Report on Form 8-K,
filed December 16, 1997.
4.4.1 Form of common stock certificate of Burnham, incorporated by
reference to Exhibit 4.0 of Burnham's registration statement No.
33-20489 and subsequently overprinted to state "THE CORPORATION IS
NOW INCORPORATED IN THE STATE OF MARYLAND WITH $0.01 PAR VALUE PER
SHARE."
*4.4.2 Form of Series 1997-A Convertible Preferred Stock Certificate of
Burnham.
4.5 Agreement of Limited Partnership of Burnham Pacific Operating
Partnership, L.P. dated as of November 14, 1997, incorporated by
reference to Exhibit 10.1.1 of Burnham's Current Report on
Form 8-K dated November 7, 1997.
4.6 First Amendment to Agreement of Limited Partnership of Burnham
Pacific Operating Partnership, L.P. dated as of December 31, 1997,
incorporated by reference to Exhibit 10.1 of Burnham's Report on
Form 8-K dated December 31, 1997, and, with respect to Exhibit C
thereto ("Rights of Preferred Units and Common Units"), to Exhibit
10.1.3 of Burnham's 1997 Annual Report on Form 10-K filed March
20, 1998.
4.7 Third Amendment to the Agreement of Limited Partnership of Burnham
Pacific Operating Partnership, L.P. incorporated by reference to
Exhibit 10.1 of Burnham's Current Report on Form 8-K dated June 1,
1998.
4.8 Articles Supplementary Designating Series B Junior Participating
Preferred Stock of Burnham, incorporated by reference to Exhibit 3.1
to Burnham's Registration Statement on Form 8-A dated June 19,
1999.
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being registered.
*8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
10.1.1 Operating Agreement of BPP Retail, LLC between State of California
Public Employees' Retirement System and Burnham Pacific Operating
Partnership, L.P., dated August 31, 1998 (being the joint venture
agreement with CalPERS), incorporated by reference to Exhibit 10.1
of Burnham's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
**10.1.2 First Amendment, dated as of June 1, 1999, to Operating
Agreement of BPP Retail LLC.
**10.1.3 Assignment, dated as of June 1, 1999, of Membership Interest of
Burnham Pacific Operating Partnership, L.P. in BPP Retail LLC
to Burnham Pacific Employees LLC.
**10.1.4 Limited Liability Company Agreement of Burnham Pacific
Employees LLC dated as of June 1, 1999.
10.2 Agreement to Contribute among Burnham Pacific Properties, Inc.,
Burnham Pacific Operating Partnership, L.P. and the Contributors
and Existing Partners Listed on Exhibit A-1 thereto, incorporated
by reference to Exhibit 10.2 to Burnham's Current Report on Form
8-K dated November 7, 1997.
10.3 Stock Purchase Agreement dated as of December 5, 1997 by and among
Burnham Pacific Properties, Inc., Burnham Pacific Operating
Partnership, L.P., Westbrook Burnham Holdings, L.L.C. and
Westbrook Burnham Co-Holdings, L.L.C. incorporated by reference to
Exhibit 4.1 of Burnham's Current Report on Form 8-K dated
January 14, 1998.
*10.4 Form of Indemnification Agreement between Burnham Pacific Properties,
Inc. and Burnham Pacific Operating Partnership, L.P. as indemnitors
and their Directors and Officers as indemnitees.
*10.5 Form of Property Management Agreement between BPP Retail, LLC
and each property manager.
*10.6 Form of Property Management Agreement between owners of real property
affiliated with Burnham (other than BPP Retail, LLC) and each property
manager.
10.7 Shareholder Rights Agreement, dated as of June 19, 1999, between
Burnham and First Chicago Trust Company of New York, as Rights Agent,
incorporated by reference as Exhibit 4.1 to Burnham's Registration
Statement on Form 8-A dated June 19, 1999.
*12.1 Calculation of ratio of earnings to combined fixed charges and
preferred stock dividends.
**23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibits 5.1
and 8.1 hereto).
*24.1 Powers of Attorney.
99.1 Registration Rights Agreement dated as of December 31, 1997 by and
among Burnham, Westbrook Burnham Holdings, L.L.C. and Westbrook
Burnham Co-Holdings, L.L.C., incorporated by reference to Exhibit
4.2.1 of Burnham's Current Report on Form 8-K dated December 31,
1997.
99.2 Registration Rights Agreement dated as of December 31, 1997 by and
among Burnham, Westbrook Burnham Holdings, L.L.C. and each of the
Existing Partners Listed on Exhibit A-1 thereto, incorporated by
reference to Exhibit 4.2.2 of Burnham's Current Report on Form 8-K
dated December 31, 1997.
</TABLE>
- ----------
* Previously filed.
** Filed herewith.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended (the "Securities Act")
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the undersigned registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
that are incorporated by reference in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of
the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions
described under Item 15 above, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange
Commission (the "Commission") such indemnification is against
public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Pre-Effective Amendment No. 5 to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California on August 13, 1999.
BURNHAM PACIFIC PROPERTIES, INC.
By: /s/ J. David Martin
--------------------------------
J. David Martin, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 5 to the registration statement has been signed
by the following persons in the capacities and on August 13, 1999.
Name Title
/s/ J. David Martin President, Chief Executive
- ---------------------- Officer (Principal Executive Officer)
J. David Martin and Director
* Chief Financial Officer (Principal
- ---------------------- Financial Officer)
Daniel B. Platt
* Vice President Finance and Treasurer
- ---------------------- (Principal Accounting Officer)
Marc A. Artino
* Director
- ----------------------
Malin Burnham
* Director
- ----------------------
James D. Harper, Jr.
* Director
- ----------------------
James D. Klingbeil
* Director
- ----------------------
Nina B. Matis
* Director
- ----------------------
Donne P. Moen
* Director
- ----------------------
Philip S. Schlein
Director
- ----------------------
Robin Wolaner
*By:/s/ J. David Martin
- ----------------------
J. David Martin,
as attorney-in-fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
4.1 Charter of Burnham, as Amended and Restated May 6, 1997,
incorporated by reference to pages B-1 through B-13 of Burnham's
Proxy Statement for its 1997 Annual Meeting, filed March 31, 1997.
4.2 Articles Supplementary Designating 4,800,000 shares of preferred
stock as 4,800,000 shares of Series 1997-A Convertible preferred
stock, incorporated by reference to Exhibit 3.1.2 to Burnham's
Current Report on Form 8-K dated January 14, 1998.
4.3 Bylaws of Burnham, as amended November 19, 1997, incorporated by
reference to Exhibit 3.2 of Burnham's Current Report on Form 8-K,
filed December 16, 1997.
4.4.1 Form of common stock certificate of Burnham, incorporated by
reference to Exhibit 4.0 of Burnham's registration statement No.
33-20489 and subsequently overprinted to state "THE CORPORATION IS
NOW INCORPORATED IN THE STATE OF MARYLAND WITH $0.01 PAR VALUE PER
SHARE."
*4.4.2 Form of Series 1997-A Convertible Preferred Stock Certificate of
Burnham.
4.5 Agreement of Limited Partnership of Burnham Pacific Operating
Partnership, L.P. dated as of November 14, 1997, incorporated by
reference to Exhibit 10.1.1 of Burnham's Current Report on
Form 8-K dated November 7, 1997.
4.6 First Amendment to Agreement of Limited Partnership of Burnham
Pacific Operating Partnership, L.P. dated as of December 31, 1997,
incorporated by reference to Exhibit 10.1 of Burnham's Report on
Form 8-K dated December 31, 1997, and, with respect to Exhibit C
thereto ("Rights of Preferred Units and Common Units"), to Exhibit
10.1.3 of Burnham's 1997 Annual Report on Form 10-K filed March
20, 1998.
4.7 Third Amendment to the Agreement of Limited Partnership of Burnham
Pacific Operating Partnership, L.P. incorporated by reference to
Exhibit 10.1 of Burnham's Current Report on Form 8-K dated June 1,
1998.
4.8 Articles Supplementary Designating Series B Junior Participating
Preferred Stock of Burnham, incorporated by reference to Exhibit 3.1
to Burnham's Registration Statement on Form 8-A dated June 19,
1999.
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being registered.
*8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
10.1.1 Operating Agreement of BPP Retail, LLC between State of California
Public Employees' Retirement System and Burnham Pacific Operating
Partnership, L.P., dated August 31, 1998 (being the joint venture
agreement with CalPERS), incorporated by reference to Exhibit 10.1
of Burnham's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
**10.1.2 First Amendment, dated as of June 1, 1999, to Operating
Agreement of BPP Retail LLC.
**10.1.3 Assignment, dated as of June 1, 1999, of Membership Interest of
Burnham Pacific Operating Partnership, L.P. in BPP Retail LLC
to Burnham Pacific Employees LLC.
**10.1.4 Limited Liability Company Agreement of Burnham Pacific
Employees LLC dated as of June 1, 1999.
10.2 Agreement to Contribute among Burnham Pacific Properties, Inc.,
Burnham Pacific Operating Partnership, L.P. and the Contributors
and Existing Partners Listed on Exhibit A-1 thereto, incorporated
by reference to Exhibit 10.2 to Burnham's Current Report on Form
8-K dated November 7, 1997.
10.3 Stock Purchase Agreement dated as of December 5, 1997 by and among
Burnham Pacific Properties, Inc., Burnham Pacific Operating
Partnership, L.P., Westbrook Burnham Holdings, L.L.C. and
Westbrook Burnham Co-Holdings, L.L.C. incorporated by reference to
Exhibit 4.1 of Burnham's Current Report on Form 8-K dated
January 14, 1998.
*10.4 Form of Indemnification Agreement between Burnham Pacific Properties,
Inc. and Burnham Pacific Operating Partnership, L.P. as indemnitors
and their Directors and Officers as indemnitees.
*10.5 Form of Property Management Agreement between BPP Retail, LLC
and each property manager.
*10.6 Form of Property Management Agreement between owners of real property
affiliated with Burnham (other than BPP Retail, LLC) and each property
manager.
10.7 Shareholder Rights Agreement, dated as of June 19, 1999, between
Burnham and First Chicago Trust Company of New York, as Rights Agent,
incorporated by reference as Exhibit 4.1 to Burnham's Registration
Statement on Form 8-A dated June 19, 1999.
*12.1 Calculation of ratio of earnings to combined fixed charges and
preferred stock dividends.
**23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibits 5.1
and 8.1 hereto).
*24.1 Powers of Attorney.
99.1 Registration Rights Agreement dated as of December 31, 1997 by and
among Burnham, Westbrook Burnham Holdings, L.L.C. and Westbrook
Burnham Co-Holdings, L.L.C., incorporated by reference to Exhibit
4.2.1 of Burnham's Current Report on Form 8-K dated December 31,
1997.
99.2 Registration Rights Agreement dated as of December 31, 1997 by and
among Burnham, Westbrook Burnham Holdings, L.L.C. and each of the
Existing Partners Listed on Exhibit A-1 thereto, incorporated by
reference to Exhibit 4.2.2 of Burnham's Current Report on Form 8-K
dated December 31, 1997.
</TABLE>
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* Previously filed.
** Filed herewith.
II-5
<PAGE>
Exhibit 10.1.2
FIRST AMENDMENT TO OPERATING AGREEMENT
OF
BPP RETAIL, LLC,
a Delaware limited liability company
THIS FIRST AMENDMENT TO OPERATING AGREEMENT (the "Amendment") is dated
as of June 1, 1999, 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. BPP Retail, LLC, a Delaware limited liability company (the
"Company") was formed by the filing of a Certificate of Formation with the
Secretary of State of the State of Delaware on September 15, 1998. The
management and operation of the Company is governed by the terms of that certain
Operating Agreement dated August 31, 1998, by and between CalPERS, as a member
of the Company, and BPOP, as a member and as the manager of the Company (the
"Agreement").
B. CalPERS and BPOP now wish to amend the Agreement.
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:
1. DEFINED TERMS. Capitalized terms used herein and not defined shall
have the same meaning as ascribed thereto in the Agreement. In addition to the
terms defined in the Agreement, the following terms shall have the following
meanings when used in this Amendment and the Agreement:
"SECURED LOAN FACILITY" means one or more loan or other credit
facilities extended to the Company from time to time pursuant to that certain
Credit Agreement among the Company as Borrower and the lenders specified therein
and The Chase Manhattan Bank as administrative agent currently being negotiated
and expected to be executed and dated on or about June 14, 1999 (as amended,
supplemented or otherwise modified from time to time) in an aggregate principal
amount not to exceed $171,000,000 at any time outstanding, secured or purported
to be secured in whole or in part by obligations of the Members to contribute
capital to the Company.
<PAGE>
"SECURED LOAN LENDER" means, collectively, any lender or
lenders from time to time providing the Secured Loan Facility and any agents or
other representatives acting on behalf of such lender or lenders.
"SECURED LOAN OBLIGATIONS" means all obligations and
liabilities of every nature of the Company now existing or hereafter arising
under or in connection with the Secured Loan Facility.
"UNSECURED LOAN FACILITY" means that certain senior unsecured
revolving credit and term loan facility for the Company and BPAC Texas, L.P., a
Delaware limited partnership ("BPAC Texas"), in an aggregate principal amount of
up to $270,000,000 to be arranged and syndicated by Chase Securities Inc.
("CSI"), as more fully described in the commitment letter dated May 18, 1999 to
the Company and BPAC Texas from The Chase Manhattan Bank.
2. CALPERS' APPROVAL OF PENDING TRANSACTIONS.
2.1 ACQUISITION TRANSACTION. Pursuant to Article IV of the
Agreement, CalPERS hereby approves the transactions entered into by the Company
pursuant to (i) that certain Agreement for Purchase and Exchange dated March 9,
1999, by and among AMB Property, L.P., a Delaware limited partnership ("AMBLP"),
AMB Property II, L.P., a Delaware limited partnership ("AMBII"), and Long Gate,
L.L.C., a Delaware limited liability company, as sellers with respect to the
properties listed on EXHIBIT A-1, attached hereto, and as exchangors with
respect to the properties listed on EXHIBIT A-2, attached hereto, and the
Company, as buyer (the "Phase I Contract"); (ii) that certain Agreement for
Purchase and Exchange dated March 9, 1999, by and between AMBLP and AMBII, as
sellers with respect to the properties listed on EXHIBIT B-1, attached hereto,
and as exchangors with respect to the properties listed on EXHIBIT B-2, attached
hereto, and the Company, as buyer (the "Phase II Contract"); and (iii) that
certain Agreement for Purchase and Exchange dated March 9, 1999, by and between
AMBLP and AMBII, as sellers with respect to the properties listed on EXHIBIT
C-1, attached hereto, and as exchangors with respect to the properties listed on
EXHIBIT C-2, attached hereto, and the Company, as buyer (the "Phase III
Contract"). The Phase I Contract, Phase II Contract and Phase III Contract are
collectively called the "Acquisition Documents" and the transactions they
describe are collectively called the "AMB Deal." Such transactions shall be
deemed Committed Transactions as defined in the Agreement.
2.2 LOANS. Each Member hereby authorizes the Company to enter
into the Secured Loan Facility and the Unsecured Loan Facility and to borrow or
otherwise obtain credit thereunder and to perform in accordance with the terms
thereof; PROVIDED that nothing contained in this Section shall authorize the
Company to enter into any other Financing not otherwise authorized under the
Agreement.
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<PAGE>
2.3 PERFORMANCE REPRESENTATION. The execution, delivery and
performance of the obligations under the Acquisition Documents and the
documentation of the Secured Loan Facility and the Unsecured Loan Facility will
not violate the Agreement or any other formation document, binding final policy
or guideline of the Company or its members, or any law or regulation applicable
to any of them.
2.4 PROVISIONS TO ACCOMMODATE SECURED LOAN FACILITY. The
Agreement is hereby amended to add the following as Section 3.12 of the
Agreement, which Section 3.12 shall remain in effect only so long as any
commitment shall be outstanding under the Secured Loan Facility or any Secured
Loan Obligation shall be outstanding:
3.12 SECURED LOAN FACILITY. Notwithstanding anything to the
contrary contained in this Agreement (including but not limited to anything to
the contrary contained in Sections 3.2 and 4.1 of this Agreement), so long as
any commitment shall be outstanding under the Secured Loan Facility or any
Secured Loan Obligation shall be outstanding:
(a) in order to pay amounts due under the Secured
Loan Facility (and assuming the Company has insufficient cash flow from
operations to pay such amounts when due, or that such cash flow is unavailable
or not used, for any reason, for payment of such amounts), each Member of the
Company shall be irrevocably committed, whether or not such Member remains a
member of the Company and regardless of the status of the Company, from June 15,
1999 through March 31, 2001, to fund Additional Capital Contributions to the
Company in the respective aggregate amounts set forth below:
<TABLE>
<CAPTION>
Member Additional Capital Contribution Obligation
------ ------------------------------------------
<S> <C>
BPOP US $ 42,750,000.00
CalPERS US $171,000,000.00
</TABLE>
(b) subject to Section 3.12(g)(i), each Additional
Capital Contribution to be made by the Members referred to in Section 3.12(a)
shall, when called as provided in this Agreement, be funded by each of them in
proportion (subject to Section 3.12(g)(i) below) to the Members' relative
obligation to fund Additional Capital Contributions under such Section. CalPERS
Additional Capital Contribution shall be made in immediately available funds,
while BPOP's Additional Capital Contribution shall be made in immediately
available funds, or real property, if the contribution of such property is
Approved by CalPERS as provided in the Agreement. Additional Capital
Contributions shall be used solely for the repayment of the Secured Loan
Obligations.
(c) each Additional Capital Contribution referred to
in Section 3.12(a) shall be payable within ten (10) business days after written
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<PAGE>
notice of call therefor is made by the Manager to the Member(s), and the giving
of such notice shall be the only condition to the obligation of the applicable
Member(s) to fund such call so long as the notice states that the purpose of the
capital call is the payment of any or all of the Secured Loan Obligations.
However, in the event that any amount is due and payable pursuant to the terms
of the Secured Loan Facility, no notice of the Additional Capital Contribution
shall be necessary or a condition to each Member's obligation to pay such
Additional Capital Contribution and such obligation shall be automatic and
unconditional;
(d) the Company may pledge to the Secured Loan
Lender, and grant to the Secured Loan Lender a continuing perfected security
interest in, all rights of the Company to call, enforce and receive all
Additional Capital Contributions referred to in Section 3.12(a) and all proceeds
thereof to secure and be applied to the repayment of the Secured Loan
Obligations;
(e) the Manager may pledge to the Secured Loan
Lender, and grant to the Secured Loan Lender a continuing perfected security
interest in, all rights of the Manager to call, enforce and receive all
Additional Capital Contributions referred to in Section 3.12(a) and all proceeds
thereof to secure and be applied to the repayment of the Secured Loan
Obligations, which right the Secured Loan Lender may exercise only after
expiration of the period provided in Section 2.19(b)(vi) of the Credit Agreement
and only while any "Event of Default" (as defined in the Secured Loan Facility)
shall be continuing under the Secured Loan Facility. Any calls for Additional
Capital Contributions made by the Secured Loan Lender shall have the force and
effect as if such calls were made by the Company or the Manager;
(f) in connection with the pledges and security
interests referred to in Sections 3.12(d) and (e), each Member agrees to
cooperate with the Company, the Manager and the Secured Loan Lender and execute
and deliver such documents and instruments as may be reasonably requested to
create, grant and perfect a security interest in its obligation to make
Additional Capital Contributions referred to in Section 3.12(a) or to evidence
or confirm such obligation;
(g) each Member agrees to fund its Additional Capital
Contributions, referred to in Section 3.12(a) without defense, offset or
counterclaim of any kind, including without limitation: (i) the failure of any
other Member to fund all or a portion of its Additional Capital Contribution (in
which event the non-defaulting Member shall be obligated to fund up to the
aggregate amount of such non-defaulting Member's Additional Capital Contribution
referred to in Section 3.12(a), including but not limited to, any subsequent
calls; provided, however, that the making of such Additional Capital
Contributions shall be made without limiting any rights the non-defaulting
Member may have against the
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<PAGE>
defaulting Member under the Agreement), (ii) any conditions other than a call to
fund Additional Capital Contributions, (iii) ERISA, Bank Holding Company Act,
Investment Company Act of 1940, or similar or other state or federal statutory
or regulatory laws or regulations, and (iv) any provisions of this Agreement, if
any, that would otherwise permit any Member to capitalize any distributable
amounts and apply them against or otherwise reduce Additional Capital
Contributions;
(h) if and after the maturity of any loan made under
the Secured Loan Facility has been accelerated due to an "Event of Default" (as
defined in the Secured Loan Facility) payment of the Asset Management Fee
referred to in Exhibit H and payment of all indemnity obligations of the Company
to the Members and the Manager shall be subordinated to the prior payment in
full in cash of the Secured Loan Obligations;
(i) each Member represents and warrants that the
Agreement (as amended hereby) constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its provisions, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and to general principles of equity;
(j) in the event that the Company and the Secured
Loan Lender agree that payments of Additional Capital Contributions shall be
made to a particular place or account, or, if, while any Event of Default as
defined in the Secured Loan Facility is continuing, the Secured Loan Lender in
its discretion designates any such place or account, (i) each Member receiving
written notice of such place or account shall pay its Additional Capital
Contributions to such place or account, (ii) any such account and all amounts
credited thereto from time to time may be pledged to the Secured Loan Lender,
and the Secured Loan Lender may be granted a continuing perfected security
interest therein, to secure the Secured Loan Obligations, and (iii) any payments
by the Member to any other place or account shall not satisfy its obligation to
make Additional Capital Contributions;
(k) any payment made by a Member to the Secured Loan
Lender in satisfaction of its obligation to contribute capital to the Company
under this Section 3.12 shall be deemed an Additional Capital Contribution made
by such Member to the Company.
(l) the Secured Loan Lender shall be an intended
third party beneficiary of this Section 3.12 of the Agreement, including but not
limited to the provisions hereof relating to calling, enforcing and receiving
Additional Capital Contributions, which provisions shall be enforceable by the
Secured Loan Lender while any "Event of Default" (as defined in the Secured Loan
Facility) shall be continuing under the Secured Loan Facility.
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<PAGE>
(m) repayment by the Company of any Contributing
Loans made by a Member pursuant to Section 3.2(b) of the Agreement shall be
subordinated to the prior payment in full of the Secured Loan Obligations and
the payments due under the Unsecured Loan Facility.
(n) the Member(s) described below agree(s) to deliver
or make available to any Secured Loan Lender:
(i) as to BPOP and BPE: (aa) within ninety
(90) days after the end of their fiscal years, their balance sheet as of the end
of such fiscal year and the related statements of operations and changes in
retained earnings and cash flows for such fiscal year reported on by independent
public accountants of nationally recognized standing, and (bb) within sixty (60)
days after the end of each fiscal quarter other than the fourth quarter of their
fiscal years, their balance sheet as of the end of such fiscal quarter and the
related statements of operations and changes in retained earnings and cash flows
for such fiscal quarter, certified by a senior officer of the general partner of
their managers;
(ii) and, as to CalPERS, such financial
statements of CalPERS as and when they are made available to the public;
(iii) and, as to each Member, from time to
time upon the request of the Secured Loan Lenders, a certificate setting forth
the remaining amount of their Unpaid Capital Obligation (as defined in the
Secured Loan Facility) and stating whether, to their knowledge, any Event of
Default exists under the Agreement (and if so, describing such Event of Default
in reasonable detail).
3. ANNUAL INVESTMENT PLAN. Notwithstanding the Annual Investment Plan
set forth in Exhibit G to the Agreement, so long as the Secured Loan Facility or
the Unsecured Loan Facility (collectively, the "New Loans") remain in place,
CalPERS agrees that its Additional Capital Contribution shall exceed the Annual
Investment Plan for the period ending December 31, 1999, by One Hundred
Seventy-One Million Dollars ($171,000,000) and shall contribute that amount upon
written notice from the Manager. Furthermore, if the transactions for which the
New Loans have been arranged are delayed until the calendar year 2000, CalPERS
agrees that the Annual Investment Plan will be no less than One Hundred
Seventy-One Million Dollars ($171,000,000) for calendar year 2000. In connection
with CalPERS' agreement to exceed the limits of its Annual Investment Plan in
either 1999 or 2000, as provided herein, the Manager agrees to contribute
Forty-Two Million Seven Hundred Fifty Thousand Dollars ($42,750,000) as an
Additional Capital Contribution.
4. REPLACEMENT OF EXHIBITS D AND D-1. Exhibits D and D-1 to the
Agreement, regarding the schedules of CalPERS' Contributed Projects and the
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<PAGE>
Manager's Projects, respectively, are hereby deleted in their entirety and
replaced with EXHIBITS D and D-1 attached hereto. The projects identified
therein comply with the Agreement (including, without limitation, Exhibit F
thereto).
5. SCHEDULES AND EXHIBITS. The Members shall prepare and approve
Exhibits N and N-1 to the Agreement and Exhibit O to the Agreement on or before
August 3, 1999.
6. CALPERS' REJECTION OF QUALIFYING OPPORTUNITY. Pursuant to Section
4.3 of the Agreement, CalPERS hereby rejects the Qualifying Opportunity that
would otherwise permit it to cause the Company to purchase the properties which
are the subject of that certain Agreement for Purchase and Exchange dated March
9, 1999, by and between AMBLP and AMBII, as sellers with respect to the
properties listed on EXHIBIT E-1, attached hereto, and as exchangors with
respect to the properties listed on EXHIBIT E-2, attached hereto, and BPOP, as
buyer (the "Phase IV Contract"). CalPERS acknowledges that such rejection is
made based upon its receipt of full disclosure of the information set forth in
Section 4.3 with respect to the transaction contemplated by the Phase IV
Contract.
7. MANAGER'S TERRITORY. The Agreement is hereby amended to replace all
references to the Western United States or the Western Region, as the Manager's
authorized territory, with the entire United States territory. Accordingly, any
references to the "Western United States" or the "Western Region" contained in
the Agreement, including references in Recital G, in the definition of
"Applicable NCREIF Index", in Sections 2.4 and 4.3, in Exhibit B with respect to
"Geographic Area", and in Exhibit C with respect to Financing Guidelines are
hereby replaced with a reference to "the entire United States". Additionally,
the definition of "Western United States" in Article I of the Agreement is
hereby deleted.
8. FINANCING LIMITS AND GUIDELINES. Notwithstanding any Financing
limitations or guidelines contained in the Agreement (including Exhibit C
thereto) to the contrary, CalPERS hereby approves, without limitation, (i) the
Unsecured Loan Facility and (ii) the Secured Loan Facility. CalPERS acknowledges
that the Manager has provided such additional information regarding each of the
facilities as CalPERS may have requested. The lenders under the New Loans shall
be intended third party beneficiaries of this Section 8 of this Amendment.
9. SUBSTITUTION OF MANAGER. Pursuant to Section 5.1(a) of the
Agreement, effective June 1, 1999, BPOP withdraws as a Member and as Manager of
the Company, and Burnham Pacific Employees LLC, a Delaware limited liability
company ("BPE"), is substituted as to BPOP's interest as a Member and BPOP's
position as Manager pursuant to an Assignment of Membership Interest dated June
1, 1999 (the "Assignment"). In connection with the Assignment, CalPERS hereby
waives the 180-day notice requirement
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<PAGE>
contained in Section 5.1(a) of the Agreement and elects under Section 6.1(b) of
the Agreement to continue the Company. Effective June 1, 1999, all references to
BPOP in the Agreement and in this Amendment shall be deemed to refer to BPE. The
Assignment shall provide that BPOP shall not be released from any of its
obligations under the Agreement except from its duties to act as the Manager of
the Company. BPOP shall remain wholly subject to the Transfer prohibition in
Section 8.1 of the Agreement. BPE may not amend or modify its operating
agreement without CalPERS' Consent.
10. CONTRIBUTIONS TO DATE. Notwithstanding anything to the contrary
contained in the Agreement, CalPERS and BPOP hereby confirm and approve the
conveyance of CalPERS' Contributed Projects and Manager's Projects, on the dates
specified and with the Net Asset Values assigned thereto, all as set forth on
EXHIBIT F, attached hereto and agree that each such Project complies with the
Agreement.
11. NOMINEE PROJECTS. The parties acknowledge that Schedule 1 to
Exhibit E to the Agreement, a list of Nominee Projects, was not final at the
time the Agreement was executed. Schedule 1 to Exhibit E is hereby appended to
the Agreement as set forth on EXHIBIT G, attached hereto.
12. INDEPENDENT MANAGING AGENT. Where Manager elects to use an
independent entity as Managing Agent pursuant to Section 4.2 of the Agreement,
CalPERS hereby approves any and all deviations from the property management fees
set forth in Exhibit H to the Agreement in items No. 3 (Property Management Fee
not to exceed 3% of monthly Collections) and No. 4 (Construction Supervision Fee
not to exceed 2% of any Capital Expenditure) thereto, so long as (a) such fees
are substantially equivalent to market rates in the area in which each Project
is located; (b) the Company conducts surveys in the manner provided in Exhibit E
to the Agreement, Item No. 7 (regarding Leasing Fees), to determine such market
rates; and (c) such management fees are not payable to any entity affiliated
with the Manager.
13. VALUE OF INDIVIDUAL INVESTMENTS. Paragraph A.3. of Article IX of
Attachment A of the Operating Agreement refers to a minimum investment size of
generally no less than "$10 million." CalPERS agrees that as an exception to
such policy the Company may acquire Projects with a minimum Fair Market Value of
at least $5 million without the necessity of obtaining CalPERS' Consent.
14. MANAGEMENT AGREEMENT. Attached hereto as EXHIBIT H is the form of
the Management Agreement which has been agreed upon by CalPERS and BPOP in
connection with Section 4.2 of the Agreement.
15. ADDITIONAL CAPITAL CONTRIBUTIONS DEFAULT. A Member's failure to
make an Additional Capital Contribution if, as and when due pursuant to Section
3.12 or for the purpose of making payments if, as and when due pursuant to the
terms of the Unsecured Loan Facility (collectively "Loan Default")
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<PAGE>
shall be an Event of Default under the Agreement. In addition to the remedies
under Section 3.2 and specified in Section 5.2, the value of the assets
distributable to the defaulting Member on dissolution and distribution pursuant
to Sections 5.2 and 6.3 shall be reduced by two hundred percent (200%) of the
amount of the unpaid portion of the Member's required Additional Capital
Contribution with respect to the applicable Loan Default.
16. MAKE WHOLE. BPOP and BPE hereby agree to pay CalPERS a payment (the
"Make-Whole Payment") at the earlier of (i) the time all loans under the
Unsecured Loan Facility are paid in full or otherwise satisfied or released (ii)
the time BPOP or BPE make an Additional Capital Contribution of Forty-Two
Million, Seven Hundred Fifty Thousand Dollars ($42,750,000) which is not
required to be used to repay the Secured Loan Facility and is actually used for
the purpose of funding paydown or payoff of the Unsecured Loan Facility; or
(iii) the date of final dissolution and distribution of assets pursuant to
Section 5.2. The Make-Whole Payment shall be calculated as follows:
Apply the difference in the interest rates between the
Unsecured Loan Facility and the Secured Loan Facility from time to time (the
"Make-Whole Rate") to all amounts outstanding under the Unsecured Loan Facility,
commencing on the date of the first funding under the Unsecured Loan Facility
and ending on the date the Unsecured Loan Facility is paid in full or otherwise
satisfied and released. The Make-Whole Payment shall be equal to eighty percent
(80%) of the Make-Whole Rate applied to the first Forty-Two Million Seven
Hundred Fifty Thousand Dollars ($42,750,000) outstanding under the Unsecured
Loan Facility.
17. PROHIBITED CHANGE IN CONTROL TRANSFER/AMB DEAL. In the event of a
Transfer which is prohibited pursuant to Section 8.1 of the Agreement or of a
change in control in BPOP, BPE or any Affiliate of either which controls either,
(a "Change in Control"), CalPERS shall in addition to all other remedies and
elections provided in the Agreement, have the option to require that the Company
assign the AMB Deal and all assets (including all Projects) acquired by the
Company under the AMB Deal to CalPERS (the "AMB Election"). CalPERS may exercise
the AMB Election by doing any or all of the following:
(a) For a period of ninety (90) days after CalPERS receives
actual written notice of a prohibited Transfer or Change in Control, CalPERS
shall have the right, by written notice to the Company, to require that the
Company transfer to CalPERS:
(i) any or all Projects acquired by the Company
pursuant to the AMB Deal;
(ii) an irrevocable unconditional assignment of all
of the Company's rights with respect to the Acquisition Documents; and
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<PAGE>
(iii) on closing of each of such transfers, CalPERS
shall pay BPE a sum equal to twenty percent (20%) of the consideration
(including reasonable and customary closing costs actually paid to third parties
at each acquisition, but excluding due diligence costs, attorneys fees, any
Company overhead and costs and other "soft" costs) paid by the Company for the
Projects actually acquired pursuant to the AMB Deal and transferred to CalPERS.
(b) If a Transfer or Change in Control has occurred and CalPERS has not
exercised the AMB Election with respect to one or more Projects, then, until the
date which is one (1) year following close of the final acquisition by the
Company under the AMB Deal, CalPERS may elect, by written notice to the Company,
to require the Company to transfer to CalPERS any or all Projects acquired
pursuant to the AMB Deal in exchange for CalPERS' payment to BPE of twenty
percent (20%) of the consideration (including reasonable and customary closing
costs actually paid to third parties at each acquisition, but excluding due
diligence costs, attorneys fees, any Company overhead and costs and other "soft"
costs) paid by the Company for the Projects actually acquired pursuant to the
AMB Deal and subsequently transferred to CalPERS.
18. FEE SUBORDINATION/UNSECURED LOAN FACILITY. If and after the
maturity of any loan made under the Unsecured Loan Facility has been accelerated
due to an "Event of Default" (as defined in the Unsecured Loan Facility),
payment of the Asset Management Fee referred to in Exhibit H and payment of all
indemnity obligations of the Company to the Members and the Manager shall be
subordinated to the prior payment in full in cash of the obligations then
outstanding under the Unsecured Loan Facility. The Lenders under the Unsecured
Loan Facility shall be intended third party beneficiaries of this Section 18 of
this Amendment.
19. CONFIDENTIALITY. Section 9.6 of the Agreement is hereby amended to
permit the Company and its Members to make such disclosures as are reasonably
necessary to satisfy the reasonable business requests of Financing lenders and
their designees including making disclosures to all lenders, participants,
successors and assigns and applicable officers, directors, employees,
consultants and regulators of the lenders under the Secured Loan Facility and
Unsecured Loan Facility.
20. CONFLICTS. In the event of any conflicts or discrepancies between
this Amendment and the Agreement, the provisions of this Amendment shall
control. In all respects not specifically modified by this Amendment, the
Agreement shall remain unmodified and in full force and effect. This Amendment
is the first and sole amendment or modification to the Agreement. To the best of
each Member's knowledge, there are no existing Events of Default under the
Agreement.
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<PAGE>
21. RATIFICATION OF AGREEMENT. In all other respects, the Agreement is
hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
MANAGER:
BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By: BURNHAM PACIFIC PROPERTIES, INC.,
a Maryland corporation,
its general partner
By: /s/ Scott C. Verges
-------------------------------
Its: Secretary
-------------------------------
APPROVED:
BURNHAM PACIFIC EMPLOYEES LLC,
a Delaware limited liability company
By: BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P.
a Delaware limited partnership, its manager
By: BURNHAM PACIFIC PROPERTIES, INC.,
a Maryland corporation, its general partner
By: /s/ Scott C. Verges
-------------------------------
Its: Secretary
-------------------------------
MEMBERS:
STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM,
an agency of the State of California
By: /s/ Mike DiRe
-------------------------------
Its: MIS II
-------------------------------
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: /s/ Scott C. Verges
------------------------------
Its: Secretary
------------------------------
-12-
<PAGE>
EXHIBIT A-1
Phase 1 - Sale Properties
<TABLE>
<CAPTION>
Property Name Location
------------- --------
<S> <C>
Eastgate Plaza Seattle, WA
Granada Village Los Angeles, CA
Long Gate Shopping Center Baltimore, MD
Silverado Plaza San Francisco, CA
Twin Oaks Shopping Center Los Angeles, CA
Ygnacio Plaza Walnut Creek, CA
</TABLE>
<PAGE>
EXHIBIT A-2
Phase 1 - Exchange Properties
<TABLE>
<CAPTION>
Property Name Location
------------- --------
<S> <C>
Aurora Marketplace Seattle, WA
Bayhill Shopping Center San Francisco, CA
Corbins Corner Shopping Center Hartford, CT
</TABLE>
<PAGE>
EXHIBIT B-1
Phase 2 - Sale Properties
<TABLE>
<CAPTION>
Property Name Location
------------- --------
<S> <C>
Arapahoe Village Denver, CO
Brentwood Commons Chicago, IL
Civic Center Plaza Chicago, IL
</TABLE>
<PAGE>
EXHIBIT B-2
Phase 2 - Exchange Properties
<TABLE>
<CAPTION>
Property Name Location
------------- --------
<S> <C>
Applewood Village Denver, CO
Five Points Shopping Center Santa Barbara, CA
Pleasant Hill Shopping Center Pleasant Hill, CA
Randall's Austin Houston, TX
Randall's Dairy Houston, TX
Randall's Woodway Houston, TX
Rockford Road Plaza Minneapolis, MN
Riverview Plaza Chicago, IL
Southwest Pavilion Reno, NV
</TABLE>
<PAGE>
EXHIBIT C-1
Phase 3 - Sale Properties
<TABLE>
<CAPTION>
Property Name Location
------------- --------
<S> <C>
Randalls Commons Houston, TX
</TABLE>
<PAGE>
EXHIBIT C-2
Phase 3 - Exchange Properties
<TABLE>
<CAPTION>
Property Name Location
------------- --------
<S> <C>
Rancho San Diego Village San Diego, CA
Totem Lake Malls Kirkland, WA
Weslyan Plaza Houston, TX
</TABLE>
<PAGE>
EXHIBIT D
Schedule of CalPERS' Contributed Projects
<TABLE>
<CAPTION>
Property Name Location Contributor Net Asset Value
------------- -------- ----------- ---------------
<S> <C> <C> <C>
Clackamas Promenade Clackamas, OR CalPERS $39,000,000
Villa Monaco Denver, CO CalPERS $9,100,000
Cherrywood Square Littleton, CO CalPERS $6,400,000
Ralston Square Arvida, CO CalPERS $5,000,000
Sunset Valley Marketfair Sunset Valley, TX CalPERS $21,600,000
</TABLE>
<PAGE>
EXHIBIT D-1
Schedule of Manager's Contributed Projects
<TABLE>
<CAPTION>
Property Name Location Contributor Net Asset Value
------------- -------- ----------- ---------------
<S> <C> <C> <C>
Point Loma Plaza San Diego, CA Manager $27,700,000
Bell Gardens Marketplace Bell Gardens, CA Manager $9,340,000
Navajo Shopping Center San Diego, CA Manager $10,000,000
Meridian Shopping Center Bellingham, WA Manager $20,000,000
Auburn Village Auburn, CA Manager $15,900,000
Greenway Tigard, OR Manager $7,652,711
Young's Bay Warrenton, OR Manager $5,168,768
</TABLE>
<PAGE>
EXHIBIT E-1
Phase 4 - Sale Properties
<TABLE>
<CAPTION>
Property Name Location
------------- --------
<S> <C>
Around Lenox Shopping Center Atlanta, GA
La Jolla Village La Jolla, CA
Latham Farms Albany, NY
Woodlawn Point Shopping Center Atlanta, GA
</TABLE>
<PAGE>
EXHIBIT E-2
Phase 4 - Exchange Properties
<TABLE>
<CAPTION>
Property Name Location
------------- --------
<S> <C>
Lakeshore Plaza San Francisco, CA
Manhattan Village Manhattan Beach, CA
Manhattan - Fry's Manhattan Beach, CA
</TABLE>
<PAGE>
EXHIBIT F
Contributions to Date
<TABLE>
<CAPTION>
Property Name Location Contributor Contribution Date Net Asset Value
------------- -------- ----------- ----------------- ---------------
<S> <C> <C> <C> <C>
Clackamas Promenade Clackamas, OR CalPERS 10/1/98 $39,000,000
Villa Monaco Denver, CO CalPERS 10/1/98 $9,100,000
Cherrywood Square Littleton, CO CalPERS 10/1/98 $6,400,000
Ralston Square Arvida, CO CalPERS 10/1/98 $5,000,000
Sunset Valley Marketfair Sunset Valley, TX CalPERS 10/1/98 $21,600,000
Point Loma Plaza San Diego, CA Manager 12/22/99 $27,700,000
Bell Gardens Marketplace Bell Gardens, CA Manager 12/22/99 $9,340,000
Navajo Shopping Center San Diego, CA Manager 4/1/99 $10,000,000
Auburn Village Auburn, CA Manager 6/15/99 $15,900,000
Greenway Tigard, OR Manager 4/1/99 $7,652,711
Young's Bay Warrenton, OR Manager 4/1/99 $5,168,768
</TABLE>
<PAGE>
EXHIBIT G
Schedule 1 to Exhibit E
Nominee Projects
<TABLE>
<CAPTION>
Property Name Location Net Asset Value
------------- -------- ---------------
<S> <C> <C>
Point Loma Plaza San Diego, CA $27,700,000
Bell Gardens Marketplace Bell Gardens, CA $9,340,000
</TABLE>
<PAGE>
EXHIBIT H
PROPERTY MANAGEMENT AGREEMENT
by and between
BPP RETAIL, LLC,
(the "Owner")
and
BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P.
(the "Property Manager")
[NAME OF PROJECT]
--------------------
[CITY/STATE]
--------------------
, 19
------------ --
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RECITALS..........................................................................................................1
ARTICLE 1 DEFINITIONS.............................................................................................1
1.1 Definitions........................................................................................1
1.2 Additional Defined Terms...........................................................................2
ARTICLE 2 APPOINTMENT AND SERVICES OF PROPERTY MANAGER............................................................3
2.1 Appointment; Term..................................................................................3
2.2 Services of Property Manager.......................................................................3
2.2.1 Employees................................................................................3
2.2.2 Records and Budgets......................................................................3
2.2.3 Leasing..................................................................................5
2.2.4 Rent.....................................................................................5
2.2.5 Collections..............................................................................5
2.2.6 Maintenance..............................................................................5
2.2.7 Contracts................................................................................6
2.2.8 Purchases................................................................................6
2.2.9 Operating and Capital Expenses...........................................................6
2.2.10 Energy Management........................................................................7
2.2.11 Security.................................................................................7
2.2.12 Taxes....................................................................................7
2.2.13 Compliance with Owner's Obligations......................................................7
2.2.14 Licenses and Permits.....................................................................8
2.2.15 Notice and Cooperation in Legal Proceedings..............................................8
2.2.16 Construction Facilitation................................................................8
2.2.17 General..................................................................................8
2.3 Qualifications of Property Manager.................................................................9
ARTICLE 3 COMPENSATION AND EXPENSES OF PROPERTY MANAGER...........................................................9
3.1 Management Fee.....................................................................................9
3.2 Costs and Expenses to be Borne by Property Manager.................................................9
3.3 Costs and Expenses to be Borne by Owner...........................................................10
3.4 Noncustomary Services.............................................................................10
ARTICLE 4 PERSONNEL AND BONDING..................................................................................10
4.1 Stability of Management Team......................................................................10
4.2 Affiliates........................................................................................11
4.3 Bonding...........................................................................................11
ARTICLE 5 COMPLIANCE WITH LAWS...................................................................................11
5.1 Compliance........................................................................................11
5.2 Notice............................................................................................12
ARTICLE 6 ACCOUNTING AND FINANCIAL MATTERS.......................................................................12
6.1 Books and Records.................................................................................12
6.2 Reports and Reconciliation of Property Accounts...................................................12
6.2.1 Monthly Reports.........................................................................12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.2.2 Quarterly Reports.......................................................................13
6.2.3 Periodic Reports........................................................................13
6.3 Audit.............................................................................................13
6.4 Other Reports and Statements......................................................................13
6.5 Contracts and Other Agreements....................................................................13
6.6 Final Accounting..................................................................................14
6.7 Tax Returns.......................................................................................14
6.8 Certification.....................................................................................14
6.9 Inspections.......................................................................................14
ARTICLE 7 BANK ACCOUNTS..........................................................................................14
7.1 Property Lockbox Account..........................................................................14
7.2 Property Disbursement Account.....................................................................14
ARTICLE 8 INSURANCE AND INDEMNITY................................................................................15
8.1 Indemnification...................................................................................15
8.2 Property Manager's Insurance Responsibility.......................................................16
8.3 Contract Documents; Indemnity Provisions..........................................................17
8.4 Approval of Insurance Companies...................................................................18
8.5 Owner's Insurance Responsibility..................................................................18
8.6 Property Manager's Duties in Case of Loss.........................................................18
ARTICLE 9 RELATIONSHIP OF PARTIES................................................................................19
9.1 Representations and Warranties....................................................................19
9.1.1 Property Manager's Expertise............................................................19
9.1.2 Property Manager's Authority............................................................19
9.1.3 Owner's Authority.......................................................................19
9.1.4 Reliance................................................................................19
9.2 Nature of Relationship............................................................................19
9.3 Communications Between Parties....................................................................19
9.4 Relationship of Owner and Property Manager with Respect to Leasing................................20
9.5 Intentionally Omitted.............................................................................20
9.6 Confidentiality...................................................................................20
9.7 Property Manager Not to Pledge Owner's Credit.....................................................20
ARTICLE 10 TERMINATION...........................................................................................21
10.1 Termination by Owner Without Cause................................................................21
10.2 Termination by Owner for Cause....................................................................21
10.3 Termination by Property Manager...................................................................22
10.4 Termination on Sale...............................................................................23
10.5 Orderly Transition................................................................................23
10.6 Rights Which Survive Termination or Expiration....................................................23
10.7 Damages...........................................................................................23
ARTICLE 11 GENERAL...............................................................................................23
11.1 Notices...........................................................................................23
11.2 Entire Agreement..................................................................................24
11.3 Amendments and Waivers............................................................................24
11.4 Invalidity of Provision...........................................................................24
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
11.5 Governing Law.....................................................................................25
11.6 Time..............................................................................................25
11.7 Assignment........................................................................................25
11.8 Counterparts......................................................................................25
11.9 Exculpation.......................................................................................25
11.10 Attorneys' Fees...................................................................................25
11.11 Further Assurances................................................................................25
11.12 No Waiver.........................................................................................26
11.13 No Advertising....................................................................................26
11.14 Signs.............................................................................................26
11.15 Conflicts with Operating Agreement................................................................26
11.16 References........................................................................................26
11.17 Consent...........................................................................................26
</TABLE>
iii
<PAGE>
Exhibits
--------
EXHIBIT A - DESCRIPTION OF PROPERTY
EXHIBIT B - FAIR EMPLOYMENT PRACTICES ADDENDUM
iv
<PAGE>
PROPERTY MANAGEMENT AGREEMENT
THIS PROPERTY MANAGEMENT AGREEMENT ("AGREEMENT") IS MADE AS OF
_______________, 1998 ("EFFECTIVE DATE"), BY AND BETWEEN BPP RETAIL, LLC, A
DELAWARE LIMITED LIABILITY COMPANY ("OWNER"), AND BURNHAM PACIFIC OPERATING
PARTNERSHIP, L.P., A DELAWARE LIMITED PARTNERSHIP ("PROPERTY MANAGER").
RECITALS
A. OWNER IS THE OWNER OF THAT CERTAIN COMMERCIAL PROPERTY DESCRIBED IN
EXHIBIT A ATTACHED HERETO (THE "PROPERTY"). THE PROPERTY IS COMMONLY KNOWN AS
_____________________ AND IS LOCATED AT ______________________.
B. PROPERTY MANAGER IS EXPERIENCED IN THE MANAGEMENT, OPERATION AND
SUPERVISION OF SIMILAR COMMERCIAL PROPERTIES IN THE GEOGRAPHIC AREA WHERE THE
PROPERTY IS LOCATED AND IS THE MANAGER OF OWNER ("MANAGER"). MANAGER AND THE
CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM ("CALPERS") ARE PARTIES TO THAT
CERTAIN OPERATING AGREEMENT DATED AS OF AUGUST 31, 1998 (THE "OPERATING
AGREEMENT").
C. THE PARTIES DESIRE TO SET FORTH IN THIS AGREEMENT THE TERMS AND
CONDITIONS UNDER WHICH PROPERTY MANAGER SHALL ACT AS MANAGER OF THE PROPERTY, AS
PERMITTED UNDER THE OPERATING AGREEMENT.
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS HEREIN CONTAINED
AND OTHER GOOD AND VALUABLE CONSIDERATION, OWNER AND PROPERTY MANAGER AGREE AS
FOLLOWS:
ARTICLE 1 DEFINITIONS.
1.1 DEFINITIONS. As used in this Agreement, the following terms shall have
the respective meanings set forth in this Section 1.1:
1.1.1 AFFILIATE: The term "Affiliate" shall mean 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 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 Owner or the members thereof does not include a Person who is a
partner in a partnership or a joint venture with the Owner or any other
Affiliated Person if such Person is not otherwise an Affiliate or Affiliated
Person of the Owner or the members thereof. The term "Person" means any
individual, partnership, limited
-1-
<PAGE>
liability company, corporation, cooperative, trust, estate, government (or any
branch or agency thereof) or other entity.
1.1.2 APPROVED CAPITAL BUDGET. "Approved Capital Budget" shall
have the meaning set forth in Section 2.2.2.
1.1.3 APPROVED OPERATING BUDGET. "Approved Operating Budget"
shall have the meaning set forth in Section 2.2.2.
1.1.4 CALPERS. "CalPERS" shall mean the California Public
Employees' Retirement System, an agency of the State of California.
1.1.5 GROSS MONTHLY COLLECTIONS. The term "Gross Monthly
Collections" shall mean the total gross monthly collections received from the
Property, including, without limitation, base rents, percentage rents and
reimbursements or direct payments of taxes, insurance or other charges for which
a tenant is liable under its lease, payments in connection with the termination,
cancellation, expiration, renewal, extension or modification of a tenant's
lease, net receipts from the operation or rental of parking facilities and
business interruption and rental loss proceeds; provided, however, that any
payment of money by a tenant to Owner or Property Manager in consideration for
or in conjunction with a security, rental or other deposit (unless and until
actually applied as rent), property insurance loss proceeds, remodeling and
tenant improvement charge costs, condemnation proceeds or proceeds received by
Owner in connection with the sale of any portion of the Property or the
refinancing of any indebtedness secured by a lien on any portion of the Property
shall not be included in the Gross Monthly Collections. Any advance rental
payments (not to exceed 60 days in advance of their due date) shall be included
in Gross Monthly Collections when received.
1.1.6 MANAGER: The term "Manager" shall mean Burnham Pacific
Operating Partnership, a Delaware limited partnership, or any Owner-designated
successor thereto. Owner may change Managers at any time and for any reason, and
shall give Property Manager written notice of any such change.
1.1.7 PROPERTY: The term "Property" shall mean that certain
commercial real property described in Recital paragraph A.
1.1.8 RECORDS OFFICE: The term "Records Office" shall mean
Property Manager's offices located at ____________________________.
1.1.9 STAFF: The term "Staff" shall mean CalPERS' internal
management staff.
1.2 ADDITIONAL DEFINED TERMS. Initial-capitalized terms not defined in
Section 1.1 shall have the meanings otherwise ascribed to them in this
Agreement.
-2-
<PAGE>
ARTICLE 2 APPOINTMENT AND SERVICES OF PROPERTY MANAGER.
2.1 APPOINTMENT; TERM. Owner hereby appoints Property Manager as the
exclusive manager of the Property for a term beginning on the Effective Date.
Unless otherwise approved by CalPERS, this Agreement shall be deemed terminated
on the date of the effective date of the removal, termination or resignation of
Manager as the manager of Owner under the Operating Agreement. The period during
which this Agreement is in effect is referred to hereafter as the "Term."
2.2 SERVICES OF PROPERTY MANAGER. Subject to Owner providing sufficient
funds to Property Manager, Property Manager shall direct, supervise, manage,
operate, maintain and repair the Property and develop, institute and follow
programs and policies to facilitate the efficient operation of the Property on
as profitable a basis as reasonably possible and in compliance with this
Agreement and all directions of Manager. Property Manager acknowledges and
agrees that it shall be the role and duty of Manager to generally supervise the
operation and management of the Property, including, without limitation, the
performance of Property Manager under this Agreement. Property Manager shall
cooperate with Manager in performing Property Manager's duties and obligations
under this Agreement. Property Manager further acknowledges and agrees that
Owner and Manager shall set policy and establish objectives with respect to
management of the Property, and Property Manager shall perform all services
under this Agreement in accordance with such policies and objectives. Owner may
delegate any approval rights under this Agreement to Manager.
Without limiting the generality of the foregoing provisions of this
Section 2.2 and subject at all times to the procedures and directions set forth
in this Agreement (as may be revised or amended from time to time), Property
Manager shall do all of the following at Owner's cost (except as expressly
provided herein):
2.2.1 EMPLOYEES. Property Manager shall select, employ, pay,
supervise and discharge all employees and personnel necessary for the operation,
maintenance and protection of the Property (subject to the limitations set forth
in Section 4.1). All persons so employed by Property Manager shall be employees
or independent contractors of Property Manager and not of Owner. Property
Manager shall comply with all applicable laws, rules and regulations concerning
worker's compensation, social security, unemployment insurance, hours of labor,
wages, working conditions and other employer/employee-related subjects. Property
Manager shall comply with all provisions of the Fair Employment Practices
Addendum attached as EXHIBIT B.
2.2.2 RECORDS AND BUDGETS. Property Manager shall keep or
cause to be kept at the Records Office suitable books of control and account as
provided in this Agreement. Property Manager shall prepare and submit to Manager
such monthly, quarterly, annual or other operating and capital budgets for the
Property as may be required by Manager or Owner, including, without limitation,
those required to be delivered to CalPERS under the Operating Agreement. Without
limiting the generality of the foregoing, Property Manager shall prepare and
submit to Manager a proposed annual operating budget and a proposed annual
capital budget for the management and operation of the Property in sufficient
time so that Owner may deliver the same to CalPERS when called for under the
Operating Agreement. All payments to be made
-3-
<PAGE>
to Property Manager or an Affiliate thereof shall be separately itemized and
explained in the proposed annual operating budget and the proposed capital
budget. The proposed annual operating and capital budgets shall be in a form
approved by Manager. Manager will review the proposed budgets and if Manager
considers them acceptable, will present them to Owner for approval, and if
necessary under the Operating Agreement, to CalPERS for approval. If Manager
and/or CalPERS considers any proposed budget unacceptable, Manager shall specify
to Property Manager the reason(s) therefor and Property Manager shall revise and
resubmit the budget until it is accepted by Manager and approved by Owner and/or
CalPERS. The parties intend that an "Approved Operating Budget" and an "Approved
Capital Budget" for the following calendar year shall be in place for the
Property by January 1 of each year during the Term.
In the event an annual operating budget for the Property has not been
approved by Owner prior to the commencement of any calendar year during the
Term, the operating budget for each calendar month ("Current Month") until the
annual operating budget is approved shall be the amount of the most recent
Approved Operating Budget for the Property for the same calendar month ("Base
Month"), as adjusted to reflect (a) any increase or decrease between the Base
Month and the Current Month in the Consumer Price IndexBU.S. Cities Average
(base year 1982-84=100) published by the United States Department of Labor,
Bureau of Labor Statistics, and (b) any increase or decrease in the occupancy of
the Property between the Base Month and the Current Month. Property Manager
shall submit such adjusted monthly operating budget to Manager for review not
more than 10 days before the first day of the month for which it is proposed,
and such budget, after approval by Manager, shall be deemed an "Approved
Operating Budget" for purposes of this Agreement.
Property Manager shall have the right from time to time to submit proposed
revised budgets to Manager, and Manager shall recommend to Owner whether or not
such revised budgets should be approved by Owner. Property Manager shall use
diligence and all reasonable efforts to prevent the actual costs of maintaining
and operating the Property from exceeding the Approved Operating and Capital
Budgets.
All budgets shall be effective only when approved by Owner, or necessary
under the Operating Agreement, when approved by CalPERS. Owner may revoke its
approval of any budget at any time. Owner may amend its approval of any budget
and require the budget to be amended to conform to such approval at any time
and, in such event, only the budget as so amended shall be deemed approved.
After revoking or amending an Approved Budget, Owner shall have the right to
require Property Manager to terminate any agreements or void any actions which
are no longer consistent with an Approved Budget.
2.2.3 LEASING. Property Manager shall coordinate the leasing
activities of the Property.
2.2.4 RENT. Property Manager shall (a) use reasonable efforts
to ensure that all rents and other monies (including billings resulting from
tenant participation in operating expenses, taxes and common area maintenance
charges) payable under the leases are paid by tenants of the Property, either to
Property Manager directly, to the Property Lockbox Account (as defined in
Section 7.1) or to any lockbox required by the terms of a loan to Owner, as and
when such amounts become due and payable, (b) adjust rentals and other required
payments where
-4-
<PAGE>
adjustment is contemplated by the applicable leases, (c) notify Manager and
tenants of such adjustments, and (d) sign and serve in the name of Owner such
notices (except as limited by Section 2.2.5), including, without limitation,
letters demanding past-due and currently owing rents and other monies, as are
consistent with Owner's procedures. Property Manager shall identify and collect
any income due Owner from miscellaneous services provided to tenants or the
public, including, without limitation, parking, tenant storage and retail
income, if any. All monies so collected shall be deposited immediately in the
Property Lockbox Account or lender lockbox account.
2.2.5 COLLECTIONS. Property Manager shall undertake the
periodic billing of rents and monetary payments of every kind and form due from
tenants of the Property, and thereafter shall actively pursue collection of all
such rents and other payments. Property Manager shall not terminate any lease,
lock out any tenant, institute any suit for rent or for use and occupancy,
provide notice by legal service to pay rent or quit or institute proceedings for
recovery of possession without the prior approval of Manager. Only legal counsel
designated by Owner shall be retained in connection with any such suit or
proceeding, and Property Manager upon request shall recommend legal counsel and
furnish Manager with the estimated costs of legal services to be incurred in
bringing such suit or proceeding. In the event any tenant of the Property is
delinquent in any payment due to Owner or is otherwise in default under the
terms of its lease for a period of more than 30 days, Property Manager shall
immediately notify Manager and Manager shall have the right, but not the
obligation, to contact the tenant directly with respect to the delinquency or
default.
2.2.6 MAINTENANCE.
(a) At Owner's sole cost, Property Manager shall maintain or cause to
be maintained (to the extent not maintained by tenants) the Property and common
areas thereof, external and internal, in good and clean condition and repair as
a first-class commercial building, including, without limitation, all sidewalks,
signs, mechanical, electrical and other systems, parking lots and landscaping;
provided, however, that no maintenance expenses, repairs or alterations which
are not specifically identified in the Approved Operating Budget shall be
incurred or undertaken without the prior consent of Manager. If Owner so elects
in its sole and absolute discretion, all maintenance, repairs or alterations
requiring expenditures in excess of Two Hundred Thousand Dollars ($200,000)
shall be planned and supervised by an architect, designer, inspector, engineer,
construction manager or general contractor selected by Owner in its sole and
absolute discretion. If Manager requests, Property Manager shall recommend
qualified persons to provide such services.
(b) Notwithstanding anything to the contrary in this Agreement, in the
event of an emergency in which there is an immediate danger to persons or
property or in which action is required in order to avoid suspension of
services, Property Manager at Owner's sole cost shall take such action as is
reasonable and prudent under the circumstances. Property Manager shall be
reimbursed promptly for any reasonably necessary expenses incurred in such
action, even if not in an Approved Operating Budget or Approved Capital Budget,
so long as Property Manager attempts to consult with Manager in advance and, in
any event, notifies Manager within 48 hours of taking such action explaining the
reasons therefor.
-5-
<PAGE>
2.2.7 CONTRACTS. Property Manager shall negotiate and, with
Manager's prior approval, execute all necessary or desirable utility, supply,
service, vending and related contracts and equipment leases for the Property.
Property Manager shall not execute any contract or other agreement affecting the
Property without Manager's prior consent; provided, however, that Manager's
consent shall not be required with respect to any utility or service contract
which (a) is entered into in the usual course of business, (b) has a term of one
year or less, and (c) is specifically provided for in the Approved Operating
Budget. Without limiting the foregoing, each contract or agreement executed by
Property Manager pursuant to this Section 2.2.7 shall contain a 90-day (or
shorter) cancellation clause exercisable by Owner without cause and without
penalty or fee, unless otherwise approved in writing by Manager. All such
utility, supply, service, vending and related contracts and equipment leases
shall be in the name of Owner and executed by Property Manager as agent on
behalf of Owner.
2.2.8 PURCHASES. Property Manager shall, at Owner's sole cost,
supervise and purchase or arrange for the purchase of all reasonable
inventories, provisions, supplies and operating equipment which are provided for
in the Approved Operating Budget or otherwise specifically approved by Manager.
To the extent available, Property Manager shall turn over to or obtain for Owner
all volume purchasing benefits and discounts available to Property Manager,
Manager or properties of the size and class of the Property.
2.2.9 OPERATING AND CAPITAL EXPENSES.
(a) Property Manager shall pay from Owner's funds, in a commercially
reasonable manner, all normal operating expenses of the Property (and not paid
directly by tenants) with funds from the Property Disbursement Account (as
defined in Section 7.2).
(b) Property Manager shall recommend that Owner purchase major items of
new or replacement equipment when Property Manager believes such purchase to be
necessary or desirable. Owner may arrange to purchase and install such items
itself or may authorize Property Manager to do so (subject to any supervision
and specification requirements and conditions prescribed by Manager). Property
Manager shall obtain at least three written estimates from qualified bidders for
any capital improvement project if the cost of the project is reasonably
expected to exceed One Hundred Thousand Dollars ($100,000). If Owner so elects
in its sole and absolute discretion, any capital improvement project costing
more than Twenty-Five Thousand Dollars ($25,000) shall be planned and supervised
by an architect, designer, inspector, engineer, construction manager or general
contractor selected by Owner in its sole and absolute discretion. If Manager
requests, Property Manager shall recommend qualified persons to provide such
services. All payments for capital expenditures shall be approved in advance by
CalPERS if required under the Operating Agreement. Unless specifically included
in the Approved Capital Budget or permitted under subsection 2.2.6(b), all
capital expenditures must be authorized by Owner in advance.
2.2.10 ENERGY MANAGEMENT. At Owner's cost, Property Manager
shall provide proper energy management and utilize utility conservation
techniques.
2.2.11 SECURITY. At Owner's cost, Property Manager shall
maintain or cause to be maintained a security program designed to be adequate
for the needs of the Property as
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determined by Manager from time to time. Property Manager shall promptly notify
Manager of any incidents or conditions which reflect on or affect the adequacy
of the security provisions for the Property, and shall make recommendations to
Manager with respect to security matters.
2.2.12 TAXES. Property Manager shall obtain and verify bills
for real estate and personal property taxes, sales taxes on rental payments,
improvement assessments or bonds and other like charges which are or may become
liens against all or any part of the Property (collectively, "Taxes"). From
Owner's funds, Property Manager shall pay all bills for Taxes not less than 15
calendar days prior to delinquency. Alternatively, Manager may elect to pay some
or all bills for Taxes. In such event, Property Manager shall remit all bills
for Taxes to Manager not less than 30 calendar days prior to the date such Taxes
would become delinquent and shall pay only those tax bills designated by
Manager. If Owner elects to contest any Taxes, Manager or Owner shall notify
Property Manager and Property Manager shall not pay the Taxes until directed by
Owner or Manager.
2.2.13 COMPLIANCE WITH OWNER'S OBLIGATIONS. Property Manager
shall operate the Property in compliance with all terms and conditions of any
ground lease, space lease, mortgage, deed of trust or other security instrument
affecting the Property, if any, of which Property Manager has knowledge.
Property Manager shall not make payments on account of any ground lease, space
lease, mortgage, deed of trust or other security instrument affecting the
Property, if any, unless specifically instructed to do so by Owner in writing.
2.2.14 LICENSES AND PERMITS. Property Manager shall obtain, at
Owner's expense, all licenses, permits, certificates, consents, approvals or
other entitlements required for the operation of the Property (collectively,
"Licenses"). Property Manager shall provide Manager with copies of all completed
initial or renewal License applications for Manager's approval and Owner's
signature, if necessary, not less than 30 days prior to the date such
applications are due. All Licenses shall be obtained in Owner's name whenever
possible. Any Licenses obtained in the name of Property Manager shall be held on
behalf of Owner, and upon termination of this Agreement, Property Manager shall
transfer or assign all such Licenses to Owner or to such person as Owner may
direct at no cost to Owner.
2.2.15 NOTICE AND COOPERATION IN LEGAL PROCEEDINGS. Owner and
Property Manager each shall give prompt notice to the other of the commencement
of any action, suit or other legal proceeding against Owner or against Property
Manager with respect to the operations of the Property or otherwise affecting
the Property. Property Manager shall fully cooperate, and shall use reasonable
efforts to cause all its employees to fully cooperate, in connection with the
prosecution or defense of all legal proceedings affecting the Property.
2.2.16 CONSTRUCTION FACILITATION. Property Manager shall be
responsible for (a) coordinating and facilitating the planning, and (b)
facilitating the performance of all construction (including, without limitation,
all maintenance, repairs and alterations described in Section 2.2.6, capital
improvement projects described in Section 2.2.9, tenant improvements, tenant
refurbishments and common area refurbishments) required to be constructed by
Owner after the Effective Date (collectively, "Construction Projects"),
regardless of whether or not any such Construction Project arises out of a lease
executed prior to the Effective Date. Such coordination and facilitation
services shall include, for example and not by way of limitation,
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retaining at Owner's cost, architects, engineers or other consultants, assisting
in the development of repair, capital improvement or tenant space plans, cost
estimating, advising Owner with respect to the need for a general contractor,
construction manager or other consultant, posting (and recording if necessary or
desirable) appropriate notices of non-responsibility, providing notices of
construction to affected tenants and mitigating the effects of construction on
such tenants, and providing contractors, vendors and other Construction
Project-related personnel with access to the Property, parking and staging areas
and necessary utilities and services.
2.2.17 GENERAL. Property Manager shall provide such direction,
supervision, professional management and in-house consulting staff services as
may be necessary or desirable to operate the Property in a manner at least equal
to that which is customary and usual in the operation of other properties of
substantially comparable location, class, size and standing, and shall provide
such property management services for the Property as are consistent with the
Property's size and existing facilities. Subject only to those express
limitations set forth in this Agreement, Property Manager shall have control and
discretion in the management and operation of the Property and in the provision
of the services described in this Agreement.
2.3 QUALIFICATIONS OF PROPERTY MANAGER. Owner acknowledges that Property
Manager is not being retained (and does not have the skill or appropriate
Licenses) to perform services of the nature provided in connection with the
Property by insurance brokers, general contractors, subcontractors, suppliers,
designers, architects, engineers and related tradesmen. Property Manager
acknowledges that Owner shall rely on Property Manager's experience and due
diligence to arrange, coordinate and administer Owner's acquisition and
coordination of services to be provided by such contractors, suppliers and
consultants in connection with the Property.
ARTICLE 3 COMPENSATION AND EXPENSES OF PROPERTY MANAGER.
3.1 MANAGEMENT FEE. As full and complete compensation for all services to
be provided by Property Manager under this Agreement, Owner shall pay to
Property Manager a sum equal to 3% of the Gross Monthly Collections actually
collected for the Property during the Term (the "Management Fee"). The
Management Fee shall be payable monthly, one month in arrears, commencing upon
the last day of the first full month of the Term. The Gross Monthly Collections
for any partial month during the Term shall be prorated, and the Management Fee
shall be payable only upon that portion of the Gross Monthly Collections
allocable to that part of the month during the Term.
3.2 COSTS AND EXPENSES TO BE BORNE BY PROPERTY MANAGER. Except as
specifically provided in Section 3.3 below or in the Approved Operating Budget,
Property Manager shall bear all costs and expenses incurred in rendering all
overall supervisory, lease negotiation (exclusive of lease commissions, surveys,
environmental reports and attorneys' fees), rent and other collection (exclusive
of attorneys' fees and outside collection agency fees), lease enforcement
(exclusive of court costs and attorneys' fees), lease termination (exclusive of
attorneys' fees and payments), management (exclusive of real estate tax reviews,
CAM audits and percentage rent audits), construction oversight and facilitation
(unless third parties are hired), accounting, bookkeeping and recordkeeping, and
no such costs or expenses shall be charged to Owner. Owner shall not be
responsible for any of the following costs and expenses:
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3.2.1 All costs of gross salary and wages, payroll taxes,
insurance, worker's compensation and other costs of Property Manager's office
and executive personnel (other than full-time or part-time on-site personnel
whose positions and salaries are specifically authorized in the Approved
Operating Budget);
3.2.2 All out-of-pocket costs incurred as a result of Property
Manager's breach of this Agreement, the gross negligence or willful misconduct
of Property Manager or any of its Affiliates, employees, independent
contractors, agents or other representatives performing services in connection
with this Agreement. In the event that a third-party contractor is hired to
perform a specific task or service and Property Manager complies with its
obligations to (a) exercise reasonable care in selecting a qualified, competent
and trustworthy person or business entity to perform such tasks or services (as
set forth in Section 4.1.1), and (b) supervise the activities and performance of
such third-party contractor (as set forth in Sections 2.2.1 and 2.2.17),
Property Manager shall not be liable under this Section 3.2.2 for costs incurred
as a result of the negligence or willful misconduct of such third-party
contractor;
3.2.3 All costs of forms, accounting materials, administrative
materials, papers, ledgers and other office supplies and office equipment other
than those used in Property Manager's on-site office, all costs of Property
Manager's data processing equipment other than that located at Property
Manager's on-site office and all costs of data processing other than that
provided by computer service companies to Property Manager's on-site office;
3.2.4 All costs of Property Manager's bookkeeping and
accounting relating to the Property; and
3.2.5 All local transportation costs of Property Manager's
personnel.
3.3 COSTS AND EXPENSES TO BE BORNE BY OWNER. Except as set forth in
Section 3.2 or elsewhere in this Agreement, Owner shall be responsible for
leasing commissions, attorneys' fees and court costs and outside collection
agency fees incurred in connection with lease negotiation, enforcement and
termination and rent and other collection and litigation (subject to the
insurance and indemnity provisions of Article 8) and all other costs related to
the Property.
3.4 NONCUSTOMARY SERVICES. Notwithstanding anything in this Agreement to
the contrary, Property Manager shall not furnish or render services to the
tenants of the Property other than those services customarily furnished to
tenants of similar properties unless (a) Property Manager makes separate,
adequate charges to tenants for such services, (b) such charges are received and
retained by Property Manager, (c) Property Manager bears the cost of providing
such services, and (d) Property Manager first obtains Manager's consent. For
purposes of this Section 3.4, it is agreed that maintenance, trash collection,
janitorial services and cleaning services, the furnishing of water, heat, light,
air conditioning, public entrances and exits, guard or security services and
parking facilities are examples of services customarily furnished to the tenants
of similar properties.
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ARTICLE 4 PERSONNEL AND BONDING.
4.1 STABILITY OF MANAGEMENT TEAM. Owner and Property Manager recognize the
benefits inherent in promoting stability in the management team engaged in the
operation of the Property.
4.1.1 Property Manager shall use reasonable care to select
qualified, competent and trustworthy employees and independent contractors.
Subject to the provisions of this Section 4.1, Section 10.2.13 and EXHIBIT B,
the selection, terms of employment (including, without limitation, compensation
and duration of employment), supervision, training and assignment of duties of
all employees of Property Manager providing Property-related services shall be
the duty and responsibility of Property Manager. All personnel providing the
Property-related services described in this Agreement shall be the employees or
contractors of Property Manager.
4.1.2 Property Manager shall employ, at Property Manager's
sole cost and expense, at least the following personnel for the Property:
(a) A manager who works from the Records Office and manages the
Property; and
(b) An accountant, who shall be a part of Property Manager's in-house
staff and who may work from a central location.
4.2 AFFILIATES. Property Manager shall not contract for outside services
for the Property with any Affiliate of Property Manager without Owner's prior
written consent, which consent may be granted or withheld in Owner's sole and
absolute discretion.
4.3 BONDING. Property Manager, at Property Manager's sole cost and
expense, shall maintain at all times during the Term a bond or bonds covering
Property Manager and all persons who handle, have access to or are responsible
for Owner's monies, in an amount and form reasonably acceptable to Manager. Any
changes in such bond(s) must be approved in writing by Manager. Property Manager
hereby collaterally assigns to Owner all proceeds of the bond(s) as they relate
to the Property and agrees to execute such further collateral assignments and
notices thereof as may be required by Owner. Such bond(s) shall insure, among
other risks as determined by Owner, Property Manager's faithful performance of
its obligations under this Agreement. Property Manager shall provide Manager
with a certificate or other satisfactory documentation evidencing the existence
and terms of such bond(s) upon execution of this Agreement.
ARTICLE 5 COMPLIANCE WITH LAWS.
5.1 COMPLIANCE. Property Manager shall abide by and comply fully with all
laws, rules, regulations, requirements, orders, notices, determinations and
ordinances of any federal, state or municipal authority with jurisdiction over
Property Manager or the Property (collectively, "Applicable Laws"), including,
without limitation, the federal Occupational Safety and Health Act (OSHA)
statutes, rules and regulations, and all requirements of the insurers of the
Property and Owner's liabilities with regard thereto. If the cost of compliance
in any instance is not provided for in the Approved Operating or Capital Budget
and is reasonably anticipated to exceed One Hundred Thousand Dollars
($100,000.00), Property Manager shall notify Manager promptly and obtain
Manager's approval prior to making the expenditure.
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5.2 NOTICE. Property Manager shall notify Manager of any alleged violation
of any Applicable Law affecting the Property immediately upon becoming aware
thereof.
ARTICLE 6 ACCOUNTING AND FINANCIAL MATTERS.
6.1 BOOKS AND RECORDS. Subject to the Operating Agreement, Property
Manager shall keep accounts, books and records of the Property, pursuant to
methods and systems and in form and substance reasonably approved by Manager,
showing all receipts, expenditures and all other matters necessary or
appropriate for the recording of the results of the operation of the Property.
Such accounts, books and records shall be kept in a secure location at the
Records Office and shall be available for inspection and copying by Owner,
Manager and their representatives at any time. Upon the effective date of any
termination of this Agreement, all accounts, books and records shall be
delivered to Manager so as to ensure the orderly continuance of the management
and operation of the Property.
6.2 REPORTS AND RECONCILIATION OF PROPERTY ACCOUNTS. Subject to the
Operating Agreement, Property Manager shall provide the following reports:
6.2.1 MONTHLY REPORTS. On or before the 15th day of each
month, Property Manager shall provide such reports and data to Manager as Owner
or Manager may require from time to time. Without limiting the foregoing,
Property Manager shall provide Manager with a monthly report containing the
following information for the preceding calendar month:
(a) A detailed report of all monies collected (identified by tenant or
other source), including, without limitation, rents billed (including
escalations), rents collected (including escalations), vacancies, rents
delinquent, rents prepaid beyond the current month, security deposits collected,
and as to any percentage leases, tenant gross sales receipts;
(b) A detailed report of all expenses paid, including a schedule and
description of all amounts paid to Property Manager or an Affiliate thereof;
(c) A comparison of the current month and year-to-date account of
actual expenses to budgeted amounts, calculations of monthly and year-to-date
variances from the Approved Operating and Capital Budgets, appropriate
descriptions of any significant monthly or year-to-date variances and a revised
annualized projection of monies to be collected and expenses to be paid for the
balance of the calendar year;
(d) A written report describing any material changes in the Property
which occurred during the month or are anticipated to occur;
(e) A reconciliation of amounts receivable or due to Owner accompanied
by payment of same;
(f) A reconciliation of the Property Lockbox and Disbursement Accounts
as to funds received, expended and held for the Property; and
(g) Any other financial or operating information which may be required
from time to time by Manager or Owner.
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6.2.2 QUARTERLY REPORTS. Property Manager shall provide a
quarterly management report for the Property, which shall be submitted with the
applicable monthly financial statements and shall contain, without limitation,
the recommendations of Property Manager regarding the physical condition and
operation of the Property.
6.2.3 PERIODIC REPORTS. Property Manager shall furnish to
Manager periodically as reasonably requested:
(a) Market surveys and any other tenant information;
(b) Reports covering on-site physical inspections and operating
reviews; and
(c) A current inventory of all personal property and equipment used in
connection with the Property. The inventory shall be submitted to Manager no
later than 30 days prior to the end of each calendar year.
6.3 AUDIT. Owner shall have the right to conduct an audit of all or any
portion of the Property's operations at any time. Property Manager shall
promptly correct all accounting method deficiencies and errors disclosed by
Owner's audits, and shall timely inform Owner in writing of all corrective
actions taken. Owner's audit shall be at Owner's sole cost and expense unless an
error on the part of Property Manager or its accountant is discovered which
affects Owner adversely and is equal to or greater than 2% of the greater of
gross expenses or gross receipts of the Property for the period audited, in
which case Property Manager shall bear the full cost of the audit. Any
adjustments in amounts due and owing from Owner or Property Manager shall be
paid within 15 calendar days following Owner's receipt of the audit.
6.4 OTHER REPORTS AND STATEMENTS. Property Manager shall furnish to Owner
or Manager, as promptly as practicable, such other reports, statements or other
information with respect to the operation of the Property as Owner or Manager
may reasonably request from time to time. Property Manager shall submit to Owner
for submission to CalPERS its annual financial report, audited by an independent
certified public accountant, no later than 120 days after the end of Property
Manager's fiscal year.
6.5 CONTRACTS AND OTHER AGREEMENTS. Property Manager shall maintain at the
Records Office one original (or a copy, if no original is available) of all
contracts, occupancy leases, lease abstracts, equipment leases, maintenance
agreements and all other agreements relating to the Property. Duplicate
originals of all such documents shall be forwarded to Manager by Property
Manager immediately upon execution. If there is only one original of any such
document, it shall be delivered to and retained by Manager.
6.6 FINAL ACCOUNTING. Property Manager shall deliver a final accounting
for the Property to Manager within 30 days after the effective date of any
termination (whether or not for cause) of this Agreement. Such final accounting
shall set forth all current income, all current expenses and all other expenses
contracted for on Owner's behalf but not yet incurred in connection with the
Property, together with such other information as may be reasonably requested by
Owner or Manager.
6.7 TAX RETURNS. Property Manager shall file all tax returns for all sales
taxes, payroll taxes
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and other taxes directly related to the Property; excluding, however, all
federal, state and local income taxes of Owner.
6.8 CERTIFICATION. Property Manager shall certify that each financial
statement is true, correct and complete in all respects.
6.9 INSPECTIONS. Owner, Manager and their representatives reserve the
right to visit the Property at any time and to inspect and copy Property
Manager's records from time to time. Property Manager shall cooperate with
Owner, Manager and their representatives in exercising such rights.
ARTICLE 7 BANK ACCOUNTS.
7.1 PROPERTY LOCKBOX ACCOUNT. Subject to lender lockbox requirements, all
funds received by Property Manager derived from the operation of the Property
shall be immediately deposited in the following lockbox account (the "Property
Lockbox Account"):
[Name of Owner/Name of Project]
P. O. Box
[City]
[State]
Account Name: [Name of Owner] as
agent for [Name of Project]
Account No.: __________________
Owner may designate a different account in any bank or financial
institution as the Property Lockbox Account at any time and from time to time by
written notice to Property Manager. No other funds of Property Manager shall be
deposited or commingled with funds in the Property Lockbox Account.
7.2 PROPERTY DISBURSEMENT ACCOUNT.
7.2.1 Property Manager shall pay Property-related costs and
expenses in accordance with Section 7.2.2 by check from the following
disbursement checking account (the "Property Disbursement Account"):
First National Bank of Chicago
Account Name: [NAME OF MANAGER] as
agent for [NAME OF PROJECT]
Account No: _________________
Owner may designate a different account in any bank or financial institution as
the Property Disbursement Account at any time and from time to time by written
notice to Property Manager. Property Manager shall not under any circumstances
write a check payable to or in favor of Property Manager or any Affiliate of
Property Manager other than (a) to reimburse itself or an Affiliate for
expenditures made on behalf of Owner and approved in advance in writing by
Manager, or (b) to pay itself the Management Fee payable under Section 3.1;
provided, however, that within 15 days after paying itself any Management Fee,
Property Manager shall provide Manager with a statement setting forth the
calculations made in computing the Management Fee in detail reasonably
satisfactory to Manager. Only those personnel specifically authorized by
Property Manager and approved by Manager shall have authority to write checks
from the Property Disbursement Account. Property Manager shall not issue a check
for more than
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[______________ Dollars ($_________)] without the prior written authorization of
Manager. Property Manager shall not under any circumstances issue a check from
the Property Disbursement Account for more than [_____________ Dollars
($__________)].
7.2.2 EXPENSES PAID FROM PROPERTY DISBURSEMENT ACCOUNT. The
following costs shall be paid directly from the Property Disbursement Account:
(a) Any and all costs necessary for the management, operation and
maintenance of the Property, so long as such costs are provided for and are
within the limits of the Approved Operating Budget or are specifically
authorized in writing by Manager;
(b) Any and all capital expenditures, so long as such costs are
provided for and are within the limits of the Approved Capital Budget or are
specifically authorized in writing by Manager; and
(c) Any and all costs necessary to handle emergencies as described in
Section 2.2.6.
Except as may be necessary to handle an emergency as described in Section 2.2.6,
Property Manager shall not be obligated to make any advance to or for the
account of Owner or to pay any sums except out of funds in the Property
Disbursement Account.
ARTICLE 8 INSURANCE AND INDEMNITY.
8.1 INDEMNIFICATION.
8.1.1 To the maximum extent permitted by law, Property Manager
shall indemnify, hold harmless, protect and defend (with counsel acceptable to
Owner) Owner, Manager, the officers, directors, employees, agents, contractors
of each of them, and all others who could be liable for the obligations of any
of them, from and against any and all claims, demands, actions, fines,
penalties, liabilities, losses, taxes, damages (with such damages being limited
to actual damages and not consequential damages), injuries and expenses
(including, without limitation, actual attorneys', consultants' and expert
witness' fees and costs at the pre-trial, trial, and appellate levels)
(collectively, "Damages") in any manner related to, arising out of or resulting
from:
(a) any continuing default of Property Manager to perform its
obligations under this Agreement after notice and the expiration of any
applicable cure period;
(b) any acts of Property Manager beyond the scope of its authority
under this Agreement; or
(c) any gross negligence, willful misconduct or fraud of Property
Manager.
If the circumstances or events described in clauses (a) through (e) are covered
by Owner's commercial general liability insurance described in subsection
8.5.1(b), then Property Manager's obligations under this Section 8.1.1 shall
apply only to the extent Owner's Damages are not fully paid by Owner's
commercial general liability insurance. Notwithstanding any other provisions of
this Agreement to the contrary, Property Manager's obligations under this
Section 8.1 shall survive the expiration, termination or cancellation of this
Agreement.
8.1.2 To the maximum extent permitted by law, Owner shall
indemnify, hold harmless, protect and defend Property Manager and its officers,
directors, employees, agents, contractors and all others who could be liable for
the obligations of Property Manager from and
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against any and all Damages in any manner related to, arising out of or
resulting from Property Manager's performance of services which are (a) within
the scope of Property Manager's authority under this Agreement, and (b) not
within the scope of Property Manager's indemnity set forth in Section 8.1.1.
8.1.3 The rights and obligations of indemnity described in
this Section 8.1 shall not be exclusive and shall be in addition to such other
rights and obligations as may be otherwise available to either party at law or
in equity.
8.2 PROPERTY MANAGER'S INSURANCE RESPONSIBILITY.
8.2.1 Property Manager shall maintain the following insurance
coverages (with deductibles, if applicable, in amounts reasonably acceptable to
Owner) at all times during the Term:
(a) Worker's compensation insurance at no less than statutory
requirements, and employer's liability insurance with a limit of not less than
One Million Dollars ($1,000,000) per occurrence;
(b) Non-occupational disability insurance when required by law;
(c) Commercial general liability insurance with a minimum combined
bodily injury and property damage limit of Five Million Dollars ($5,000,000) per
occurrence, a products-completed operations aggregate limit of Five Million
Dollars ($5,000,000) and a general aggregate limit of Ten Million Dollars
($10,000,000) per location;
(d) Automobile liability insurance covering owned, hired and non-owned
vehicles, with separate coverage in an amount not less than One Million Dollars
($1,000,000) combined single limit for bodily injury and property damage; and
(e) Errors and omissions insurance coverage in an amount not less than
One Million Dollars ($1,000,000).
8.2.2 Property Manager shall deliver to Manager, within three
days after the Effective Date, certificates of insurance or other satisfactory
evidence (which shall include copies of the policies if Manager so requests)
that all required insurance is in full force and effect at all times. All
policies required under Section 8.2.1 shall provide that Manager be given not
less than 30 days' advance notice of any proposed cancellation or material
change. The liability policies required under subsections 8.2.1(c) and 8.2.1(d)
shall name Owner and Manager as additional insureds. All liability insurance
required under Section 8.2.1 shall be written to apply to all bodily injury,
property damage, personal injury and other covered loss, however occasioned,
which occurred or arose (or the onset of which occurred or arose) in whole or in
part during the policy period. Such liability policies also shall contain
endorsements which (a) delete any employee exclusion on personal injury
coverage, (b) include employees as additional insureds, and (c) contain
cross-liability, waiver of subrogation and such other provisions as Owner may
reasonably require. Such insurance also shall include broad form contractual
liability insurance coverage insuring all of Property Manager's indemnity
obligations to Owner pursuant to this Agreement. Property Manager shall be
permitted to maintain all insurance
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required herein under Property Manager's blanket insurance policy.
8.3 CONTRACT DOCUMENTS; INDEMNITY PROVISIONS. Property Manager shall use
all reasonable efforts to include provisions in all Property-related service and
supply contracts prepared or executed by Property Manager requiring the
third-party contractor, to the maximum extent permitted by law, to indemnify,
defend (with counsel reasonably acceptable to the respective indemnitees),
protect and hold Property Manager, Manager and Owner harmless from and against
any and all Damages in any manner related to, arising out of and/or resulting
from any damage to or injury to, or death of, persons or property caused or
occasioned by or in connection with or arising out of any acts or omissions of
the third-party contractor or its employees, agents or contractors.
8.4 APPROVAL OF INSURANCE COMPANIES. All insurance required to be carried
by Property Manager shall be written with companies having a policy holder and
asset rate, as circulated by Best's Insurance Reports, of A-:VIII or better.
8.5 OWNER'S INSURANCE RESPONSIBILITY.
8.5.1 Owner shall maintain during the Term all of the
following insurance coverages, each of which shall be primary and
non-contributory with any insurance carried by Property Manager:
(a) All-risk property damage insurance and loss of rents insurance
coverage on the Property; and
(b) Commercial general liability insurance coverage with a general
aggregate limit of not less than Fifty Million Dollars ($50,000,000). Property
Manager shall be insured under Owner's commercial general liability insurance
policy for actions within the scope of Property Manager's authority as set forth
in this Agreement. No other terms and conditions of this Agreement (including,
without limitation, the indemnification provisions of Section 8.1 and Property
Manager's obligation to maintain insurance described in Section 8.2) shall be
affected by this subsection 8.5.1(b).
8.5.2 Owner shall have the right, in its sole and absolute
discretion, to self-insure all or any part of the coverages required to be
carried by Owner. If Owner elects to self-insure, Property Manager shall be
insured under Owner's plan of self-insurance to the same extent Property Manager
would have been insured if Owner purchased the insurance policies described in
Section 8.5.1.
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8.6 PROPERTY MANAGER'S DUTIES IN CASE OF LOSS.
8.6.1 Property Manager shall notify Manager immediately of any
fire or other damage to any part of the Property. In the event of any serious
damage to any part of the Property, Property Manager shall telephone Manager so
that an insurance adjustor may view the damage before repairs are started.
Property Manager shall telephone Manager immediately if any hazardous substances
or other contaminants are released on, about, under or in the vicinity of the
Property. Property Manager shall not settle any losses, complete loss reports or
adjust losses on behalf of Owner or meet with any federal, state or local
regulatory agency without the prior consent of Owner.
8.6.2 Property Manager shall notify Manager promptly of any
personal injury or property damage occurring to or claimed by any tenant or
third party on or with respect to any part of the Property. Property Manager
shall forward to Manager immediately upon receipt copies of any summons,
subpoena or other like legal document served upon Property Manager relating to
actual or alleged potential liability of Owner, Property Manager or the
Property.
8.6.3 Property Manager acknowledges receipt of a copy of
Owner's Insurance Manual for Real Estate Managers and Property Managers
(effective _______________), and agrees to comply with the policies and
procedures set forth therein, as amended from time to time (so long as Property
Manager receives notice of such amendments), including, without limitation, that
Property Manager obtain current certificates of insurance from third-party
vendors of the Property.
ARTICLE 9 RELATIONSHIP OF PARTIES.
9.1 REPRESENTATIONS AND WARRANTIES.
9.1.1 PROPERTY MANAGER'S EXPERTISE. Property Manager
represents and warrants that it is a skilled, experienced and sophisticated
professional in the field of shopping center property management and leasing,
and that it has all the expertise necessary to perform its obligations under
this Agreement.
9.1.2 PROPERTY MANAGER'S AUTHORITY. Property Manager
represents and warrants that (a) Property Manager has full power, authority and
legal right to execute, deliver and perform this Agreement and to perform all of
its obligations hereunder, and (b) the execution, delivery and performance of
all or any portion of this Agreement do not and will not (i) require any consent
or approval from any governmental authority, (ii) violate any provisions of law
or any governmental order, or (iii) conflict with, result in a breach of, or
constitute a default under, the charter or bylaws of Property Manager or any
instrument to which Property Manager is a party or by which it or any of its
property is bound.
9.1.3 OWNER'S AUTHORITY. Owner represents and warrants that it
has full power, authority and legal right to execute, deliver and perform this
Agreement.
9.1.4 RELIANCE. Property Manager acknowledges and agrees that
Owner is relying upon the representations and warranties set forth in Sections
9.1.1 and 9.1.2 in entering into this Agreement, and Owner acknowledges and
agrees that Property Manager is relying upon
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the representations and warranties set forth in Section 9.1.3 in entering into
this Agreement.
9.2 NATURE OF RELATIONSHIP. In taking any action pursuant to this
Agreement, Property Manager shall be acting solely as an independent contractor
and nothing in this Agreement, express or implied, shall be construed as
creating a partnership, joint venture, employer-employee or principal-agent
relationship between Property Manager (or any person employed by Property
Manager) and Owner, or any other relationship between the parties hereto except
that of property owner and independent contractor.
9.3 COMMUNICATIONS BETWEEN PARTIES. Owner relies on Property Manager to
direct and control all operations at the Property; provided, however, that Owner
and Manager reserve the right to communicate directly with the Manager specified
in subsection 4.1.2(a), Property Manager's accountant(s) working on Property
matters, all tenants, tenants' representatives and prospective tenants, all
advertising, management, cleaning and servicing firms doing Property-related
work and all parties contracting with Owner or Property Manager with respect to
the Property.
9.4 RELATIONSHIP OF OWNER AND PROPERTY MANAGER WITH RESPECT TO LEASING.
9.4.1 Property Manager 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 Property is located in connection with those leases
arranged by the Property Manager (or an Affiliate thereof) on behalf of Owner.
The market rate leasing commission for the Property will be determined in
accordance with the following procedure. Owner 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
the market in which the Property is located and to independently determine the
market rate leasing commission in such market. For purposes of this Agreement,
the "then-current market commission" in the Property's market area shall be the
average market rate as determined by the brokers' surveys. 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 Property market area. If Owner
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 Owner a leasing commission of up to 100%
of the then-current market rate commissions for such lease. If Property Manager
(or an Affiliate thereof) is acting as the broker on behalf of Owner, all
marketing costs incurred in connection with the promotion of the lease shall
either be paid by the Property Manager (or an Affiliate) directly or offset
against the Leasing Fee payable hereunder. The Property Manager (or an Affiliate
thereof) shall comply with all licensing requirements that may apply under local
law in order to earn the Leasing Fee.
9.4.2 The parties intend that Property Manager shall be
obligated to give available space in the Property exposure at least equal to the
exposure Property Manager gives other available space in similar projects owned,
leased, managed or operated by Property Manager or an Affiliate. The parties
also intend that Property Manager shall be obligated to use reasonable efforts
to retain existing tenants in the Property.
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9.5 INTENTIONALLY OMITTED.
9.6 CONFIDENTIALITY. Except as may be otherwise provided in the Operating
Agreement, Property Manager, Owner and Manager shall maintain the
confidentiality of all matters pertaining to this Agreement and all operations
and transactions relating to the Property.
9.7 PROPERTY MANAGER NOT TO PLEDGE OWNER'S CREDIT. Property Manager shall
not pledge the credit of Owner without Owner's prior written consent. Property
Manager shall not, in the name or on behalf of Owner, borrow any money or
execute any promissory note, installment purchase agreement, bill of exchange or
other obligation.
ARTICLE 10 TERMINATION.
10.1 TERMINATION BY OWNER WITHOUT CAUSE. This Agreement may be terminated
by Owner (through CalPERS) without cause at any time upon 180 days' prior
written notice to Property Manager. In the event Owner so terminates this
Agreement, Property Manager shall be entitled, as its sole and exclusive remedy,
to receive all Management Fees earned and unpaid as of the date of termination
plus reimbursement for all expenses as permitted hereunder.
10.2 TERMINATION BY OWNER FOR CAUSE. This Agreement may be terminated by
CalPERS at any time during the Term upon written notice to Property Manager
effective immediately, or on such later date of termination as may be stated in
Owner's notice, for any of the causes set forth in this Section 10.2, or if
Manager is removed as the manager of Owner or otherwise withdraws as manager of
Owner under the Operating Agreement. In the event of such a termination,
Property Manager shall be entitled, as its sole and exclusive remedy, to receive
such earned and unpaid Management Fees as may remain, if any, plus reimbursement
for all expenses as permitted hereunder, after Owner has offset any damages or
other amounts owed to Owner by Property Manager. The following shall constitute
grounds for termination by Owner for cause:
10.2.1 If Property Manager, without the prior written consent
of Owner, directs a prospective tenant for the Property to another building
owned, managed or operated by Property Manager or an Affiliate of Property
Manager within a three-mile radius of the Property without also showing the
prospect the Property and, if requested by the prospect, making a specific lease
proposal to the prospect with respect to leasing space in the Property, whether
or not the tenant becomes a tenant of such other building;
10.2.2 If Property Manager, without the prior written consent
of Owner, (a) discusses with an existing tenant of the Property the possibility
of the tenant leasing space in another building owned, managed or operated by
Property Manager or an Affiliate of Property Manager within a three-mile radius
of the Property without giving Owner 10 days' prior notice of Property Manager's
intention to hold such discussions, or (b) makes a specific lease proposal to
the tenant with respect to leasing space in any such other building without
providing Owner with a reasonable prior opportunity to make a competing proposal
to the tenant with respect to keeping the tenant in the Property, whether or not
the tenant becomes a tenant of such other building;
10.2.3 If Property Manager commingles any Property-related
funds with any
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other funds of Property Manager, or uses any Property assets for purposes
unrelated to Property operations;
10.2.4 If Property Manager breaches its duty to Owner to
operate and manage the Property in Owner's best interest;
10.2.5 If Property Manager, subject to fire, earthquake, acts
of God and other events beyond the control of Property Manager (which shall not
include financial inability), and subject to the performance by tenants of their
obligations under their leases, fails to maintain the operating assets of the
Property in good working order or repair and to keep the Property properly clean
and free of debris, snow and ice;
10.2.6 If Property Manager suspends or discontinues business;
10.2.7 If a court enters a decree or order for relief in
respect of Property Manager in an involuntary case under the federal bankruptcy
laws, as now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or appoints a receiver, liquidator,
assignee, custodian, trustee, sequestrator or other similar official of Property
Manager or for any substantial part of Property Manager's property, or for the
winding-up or liquidation of Property Manager's affairs, and such decree or
order continues unstayed and in effect for a period of 60 consecutive days;
10.2.8 If Property Manager commences a voluntary case or
action under the federal bankruptcy laws, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency or other similar
law, or consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or other similar official
of Property Manager or for any substantial part of Property Manager's property,
or makes any assignment for the benefit of creditors, or fails generally to pay
its debts as such debts become due, or takes any action in furtherance of any of
the foregoing;
10.2.9 If Property Manager fails to observe or perform any of
its material obligations under this Agreement, and such failure continues for 20
days after written notice thereof has been given by Owner to Property Manager;
or
10.2.10 If any fraud is perpetrated by Property Manager, or if
any representation or warranty of Property Manager made in this Agreement or in
any proposal, application, financial statement or other writing delivered by
Property Manager at any time pursuant to this Agreement proves to have been
incorrect, incomplete or misleading in any material respect when made
10.3 TERMINATION BY PROPERTY MANAGER.
10.3.1 This Agreement may be terminated by Property Manager
without cause at any time on 180 days' prior written notice to Owner and
CalPERS; subject to CalPERS' right, in its sole and absolute discretion, to
unilaterally modify the termination date set forth in Property Manager's notice
if CalPERS locates a replacement property manager for the Property prior to the
end of such 180-day period.
10.3.2 Property Manager may terminate this Agreement upon the
occurrence of
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a default by Owner hereunder; provided, however, in the event of such default,
Property Manager first shall notify Owner in writing of the exact nature of the
default and Property Manager's intention to terminate this Agreement as a result
of the default. Owner shall have 20 days from receipt of such notice to cure the
default, provided Owner commences to cure such default within 20 days and
thereafter diligently prosecutes the cure to completion.
10.4 TERMINATION ON SALE. If the Property is sold, exchanged or otherwise
transferred by Owner at any time during the Term, (a) Owner shall provide
Property Manager with reasonable advance notice of the proposed transfer, (b)
this Agreement shall terminate as of the effective date of the transfer, and (c)
neither Owner nor Owner's successor shall have any further liability to Property
Manager under this Agreement except with respect to Management Fees earned and
unpaid as of the date of termination.
10.5 ORDERLY TRANSITION. In the event of any termination of this
Agreement, Property Manager shall (a) immediately (or at such later date as
Manager may designate in its sole discretion) deliver to Manager all files and
documents in Property Manager's possession relating to the Property and all
existing and prospective tenants of the Property, and (b) cooperate with Owner,
Manager and any replacement property manager designated by Owner to effect an
orderly transition of the management and operation of the Property to Property
Manager's replacement. The obligations set forth in this Section 10.5 shall
survive termination of this Agreement.
10.6 RIGHTS WHICH SURVIVE TERMINATION OR EXPIRATION. The termination of
this Agreement shall in no event terminate or prejudice (a) any right arising
out of or accruing in connection with the terms of this Agreement attributable
to events and circumstances occurring prior to termination, or (b) any rights or
obligations specified in this Agreement to survive termination.
10.7 DAMAGES. In the event it is determined by an arbitrator or court of
competent jurisdiction that Owner has terminated this Agreement in violation of
this Agreement or any Applicable Law, Property Manager shall be entitled, as its
sole and exclusive remedy for such termination, to recover only the amount of
its Direct Damages. For purposes of this Section 10.7, "Direct Damages" shall
mean all net profits Property Manager would have earned under this Agreement
from the date of such termination until the date Owner could have validly
terminated this Agreement. Owner and Property Manager expressly agree that
Direct Damages shall not include any punitive or consequential damages,
including, for example and not by way of limitation, any damages or losses
arising from or related to the effect of such termination on Property Manager's
overall operations.
ARTICLE 11 GENERAL.
11.1 NOTICES. Any notices relating to this Agreement shall be given in
writing and shall be deemed sufficiently given and served for all purposes (a)
when delivered, if (i) by receipt-confirmed facsimile transmission with the
original subsequently delivered by first-class United States mail or other means
described herein, (ii) in person, or (iii) by generally recognized overnight
courier service, or (b) five days after deposit in the United States mail,
certified or registered mail, return receipt requested, postage prepaid, to the
respective addresses set forth below, or to such other addresses as the parties
may designate from time to time.
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PROPERTY Burnham Pacific Operating Partnership
MANAGER:
Attn:
--------------------------------
Fax No.:
-----------------------------
OWNER: BPP Retail, LLC
-------------------------------------
-------------------------------------
Attn:
--------------------------------
Fax No.:
-----------------------------
MANAGER:
-------------------------------------
-------------------------------------
-------------------------------------
Attn:
--------------------------------
Fax No.:
-----------------------------
CalPERS: California Public Employees
Retirement System
-------------------------------------
-------------------------------------
Attn:
--------------------------------
Fax No.:
-----------------------------
11.2 ENTIRE AGREEMENT. The Operating Agreement and this Agreement,
together with all exhibits attached, is intended by the parties as the complete
and final expression of their agreement with respect to the subject matter
hereof and may not be contradicted by evidence of any prior or contemporaneous
agreement. Except to the extent modified by the Operating Agreement, this
Agreement specifically supersedes any prior written or oral agreements between
the parties with respect to the subject matter hereof. The language in all parts
of this Agreement shall be construed as a whole in accordance with its fair
meaning, and shall not be construed against any party solely by virtue of the
fact that such party or its counsel was primarily responsible for its
preparation.
11.3 AMENDMENTS AND WAIVERS. No modification of this Agreement shall be
effective unless set forth in a writing signed by the party against whom the
modification is sought to be enforced. The party benefited by any condition or
obligation may waive it, but any such waiver shall not be enforceable by the
other party unless made in writing and signed by the waiving party.
11.4 INVALIDITY OF PROVISION. If any provision of this Agreement as
applied to either party or to any circumstance shall be adjudged by an
arbitrator or court of competent jurisdiction to be void or unenforceable for
any reason, the same shall in no way affect (to the maximum extent permissible
by law) any other provision of this Agreement, the application of any such
provision under circumstances different from those adjudicated by the arbitrator
or court, or the validity or enforceability of this Agreement as a whole.
11.5 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California without giving effect to the conflict of laws principles of
such State.
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11.6 TIME. Time is of the essence in the performance of the parties'
respective obligations under this Agreement.
11.7 ASSIGNMENT. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Notwithstanding the foregoing, Property Manager shall not assign all or any
portion of its interest in this Agreement without Owner's prior written consent,
which consent may be granted or withheld in Owner's sole and absolute
discretion. In the event Owner consents to an assignment of this Agreement, no
further assignment shall be made without Owner's prior written consent, which
consent may be granted or withheld in Owner's sole and absolute discretion.
11.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.9 EXCULPATION. No trustee, officer, director, employee or agent of
Owner shall be personally liable for any of the obligations of Owner hereunder,
and Property Manager shall look solely to the Property for the enforcement of
any claims against Owner arising hereunder.
11.10 ATTORNEYS' FEES. In the event of any arbitration or other legal or
equitable proceeding for enforcement of any of the terms or conditions of this
Agreement, or any alleged disputes, breaches, defaults or misrepresentations in
connection with any provision of this Agreement, the prevailing party in such
proceeding, or the nondismissing party where the dismissal occurs other than by
reason of a settlement, shall be entitled to recover its reasonable costs and
expenses, including, without limitation, reasonable attorneys' fees and costs
paid or incurred in good faith at the arbitration, pre-trial, trial and
appellate levels, and in enforcing any award or judgment granted pursuant
thereto. Any award, judgment or order entered in any such proceeding shall
contain a specific provision providing for the recovery of attorneys' fees and
costs incurred in enforcing such award or judgment, including, without
limitation, (a) post-award or post-judgment motions, (b) contempt proceedings,
(c) garnishment, levy, and debtor and third party examinations, (d) discovery,
and (e) bankruptcy litigation. The "prevailing party," for purposes of this
Agreement, shall be deemed to be that party which obtains substantially the
result sought, whether by dismissal, award or judgment.
11.11 FURTHER ASSURANCES. Owner and Property Manager shall execute such
other documents and perform such other acts as may be reasonably necessary or
desirable to carry out the purposes of this Agreement.
11.12 NO WAIVER. The failure of either party to insist upon strict
performance of any of the terms and provisions of this Agreement or to exercise
any option, right or remedy herein contained shall not be construed as a waiver
or as a relinquishment for the future of such terms, provisions, options, rights
or remedies and the same shall continue and remain in full force and effect.
11.13 NO ADVERTISING. Except as may be required by Applicable Law, no
publication, announcement or other public advertisement of CalPERS' name in
connection with the Property shall be made by Property Manager without CalPERS'
prior consent, which consent may be granted or withheld in CalPERS' sole and
absolute discretion. Property Manager shall be
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permitted to publish, announce or make any other public advertisement in its own
name or in the name of Owner.
11.14 SIGNS. Owner hereby approves all signs and building directories
existing as of the Effective Date. Property Manager may place reasonable leasing
signs as required. Any signs must meet all requirements of local sign codes and
ordinances.
11.15 CONFLICTS WITH OPERATING AGREEMENT. In the event of any conflict
between the provisions of this Agreement and the Operating Agreement, the
Operating Agreement shall control.
11.16 REFERENCES. The headings used in this Agreement are provided for
convenience only and this Agreement shall be interpreted without reference to
any headings. The date of this Agreement is for reference purposes only and is
not necessarily the date on which it was entered into.
11.17 CONSENT. Unless otherwise expressly provided in this Agreement, when
a provision of this Agreement requires the consent of any party, such consent
shall not be unreasonably withheld, delayed or conditioned. If a party is
determined to have unreasonably withheld, delayed or conditioned its consent in
violation of this Agreement or any Applicable Law, the other party shall be
entitled, as its sole and exclusive remedy, to recover only the amount of its
actual direct damages, including reasonable attorneys' fees and costs, and shall
not be entitled to recover any punitive or consequential damages, including, for
example and not by way of limitation, any damages or losses arising from or
related to the effect of such unreasonably withheld, delayed or conditioned
consent on the overall operations of Owner or Property Manager.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
OWNER: BPP RETAIL, LLC, a Delaware limited liability company
By: BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P., a
Delaware limited partnership, Managing Member
By: BURNHAM PACIFIC PROPERTIES, INC.,
a Maryland corporation, General Partner
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
PROPERTY MANAGER:
BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P., a Delaware
limited partnership
By: BURNHAM PACIFIC PROPERTIES, INC.,
a Maryland corporation, General Partner
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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EXHIBIT A
DESCRIPTION OF PROPERTY
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EXHIBIT B
NONDISCRIMINATION CLAUSE
(OCP - 2)
[For California Properties]
1. During the performance of this Agreement, Property Manager and its
contractors and subcontractors shall not deny the benefits of this Agreement to
any person on the basis of religion, color, ethnic group identification, sex,
age, or physical or mental disability, nor shall they discriminate unlawfully
against any employee or applicant for employment because of race, religion,
color, national origin, ancestry, physical handicap, mental disability, medical
condition, marital status, age or sex. Property Manager shall ensure that the
evaluation and treatment of employees and applicants for employment are free of
such discrimination.
2. Property Manager shall comply with the provisions of the Fair
Employment and Housing Act (California Government Code Section 12900 ET SEQ.)
and the regulations promulgated thereunder (California Administrative Code,
Title 2, Section 7285.0 ET SEQ.), the provisions of Article 9.5, Chapter 1, Part
1, Division 3, Title 2 of the Government Code (Government Code Sections
11135-11139.5) and the regulations or standards adopted by Owner, if any, to
implement such article.
3. Property Manager and its contractors and subcontractors shall give
written notice of their obligations under this clause to labor organizations
with which they have a collective bargaining or other agreement.
4.Property Manager shall include the nondiscrimination and compliance
provisions of this clause in all subcontracts to perform work under this
Agreement.
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EXHIBIT B
NONDISCRIMINATION CLAUSE
[For Non-California Properties]
1. During the performance of this Agreement, Property Manager, its
contractors and subcontractors shall not deny the benefits of this Agreement to
any person on the basis of religion, color, ethnic group identification, sex,
age, or physical or mental disability, nor shall they discriminate unlawfully
against any employee or applicant for employment because of race, religion,
color, national origin, ancestry, physical handicap, mental disability, medical
condition, marital status, age or sex. Property Manager shall ensure that the
evaluation and treatment of employees and applicants for employment are free of
such discrimination.
2. Property Manager shall not discriminate in any manner against any
tenant, prospective tenant or entity making inquiry as to the availability of
space in the Property on the basis of race, religion, color, national origin,
ancestry, physical handicap, mental disability, medical condition, marital
status, age or sex.
3. Property Manager, its contractors and subcontractors shall give written
notice of their obligations under this clause to labor organizations with which
they have a collective bargaining or other agreement.
4. Property Manager shall include the nondiscrimination and compliance
provisions of this clause in all subcontracts to perform work under this
Agreement.
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Exhibit 10.1.3
ASSIGNMENT OF MEMBERSHIP INTEREST
THIS ASSIGNMENT OF MEMBERSHIP INTEREST (the "Assignment") is
made as of this 1st day of June, 1999, by BURNHAM PACIFIC OPERATING PARTNERSHIP,
L.P., a Delaware limited partnership ("Assignor") to BURNHAM PACIFIC EMPLOYEES
LLC, a Delaware limited liability company ("Assignee").
RECITALS:
This Assignment is made and delivered based upon the following
facts, understandings and intentions of the parties:
A. Assignor is the owner of a managing Membership Interest in,
and is the Manager of, BPP Retail, LLC, a Delaware limited liability company
(the "Company"). Each capitalized term used in this Assignment, but not defined
herein, shall have the meaning ascribed to it in the Operating Agreement (as
defined below).
B. Assignor desires to assign to Assignee its entire right,
title and interest in the Company (the "Interest"), to withdraw from the Company
and to resign as the Manager of the Company. Assignee desires to acquire the
Interest and to assume all of Assignor's obligations as a Member and Manager of
the Company, with Assignor remaining liable for such obligations as well.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and
agreements contained in this Assignment, Assignor and Assignee agree as follows:
1. SALE AND ASSIGNMENT. For valuable consideration, receipt of
which is hereby acknowledged, Assignor does hereby bargain, grant, sell,
transfer, assign and convey unto Assignee the Interest and the right to become a
Member and the Manager of the Company. Assignor hereby withdraws as a Member of
the Company, and resigns as the Manager. This Assignment shall not release
Assignor from any of its obligations under the operating agreement of the
Company (as amended, supplemented or otherwise modified from time to time, the
"Operating Agreement"), and Assignor shall remain liable for the performance of
all of Assignee's obligations as a Member and Manager of the Company. Assignor
and Assignee shall be jointly and severally liable to fund Assignor's Additional
Capital Contributions and any other economic obligations of Assignor under the
Operating Agreement (collectively, the "Obligations"). The Obligations shall be
enforceable against either or both of Assignor and Assignee and their respective
successors and assigns at any time or from time to time. Neither notice to nor
consent of Assignor shall be required for Assignee to modify the Operating
Agreement or any of the Obligations in any way (subject to any required consent
of any other Member of the Company or any other person whose consent may be
required for such modification), and Assignor shall continue to be liable for
the Obligations as so modified from time to time. Until all of Assignee's
Additional Capital Contributions and other Obligations are paid in full Assignor
(i) shall have no right of subrogation against Assignee by reason of
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Assignor performing any of the Obligations, and waives any defense arising out
of the absence, impairment or loss of any right to reimbursement or subrogation
or other right or remedy of Assignor against Assignee, (ii) hereby waives any
right to enforce any remedy which Assignor now or hereafter shall have against
Assignee by reason of Assignor performing any of the Obligations, and (iii)
shall subordinate any liability or indebtedness of Assignee now or hereafter
held by Assignor to the Obligations of Assignee under the Operating Agreement.
2. MISCELLANEOUS.
2.1. If any controversy, claim or dispute between the
parties arising out of or related to this Assignment, or the breach thereof,
results in litigation, the prevailing party shall be entitled to recover from
the non-prevailing party reasonable expenses, attorneys' fees and costs.
2.2. All negotiations and agreements heretofore had
by and between the parties, and their agents, with respect to the transactions
hereunder are merged into this Assignment, which completely sets forth the
obligations of the parties.
2.3. All of the terms and covenants contained in this
Assignment shall survive the close of the assignment transaction contemplated
herein.
2.4. The provisions of this Assignment shall be
construed as a whole according to their common meaning and not strictly for or
against any party, this Assignment having been negotiated at arms-length, with
both parties having had the opportunity to be represented by competent counsel,
and representing the product of that negotiation process.
2.5. The parties shall cooperate, take such actions
and execute, acknowledge where required, and deliver, such additional documents
or instruments as may be reasonably necessary under the circumstances to
effectuate the intent of the parties pursuant to this Assignment to consummate
the assignment transaction herein specified.
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2.6 This Assignment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Assignor has executed, acknowledged and
delivered this Assignment as of the day and year first above written.
"ASSIGNOR"
BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By: BURNHAM PACIFIC PROPERTIES, INC.,
a Maryland corporation,
its general partner
By: /s/ Joseph Wm. Byrne
-------------------------------
Its: Executive Vice President
-------------------------------
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ACCEPTANCE OF ASSIGNMENT
Assignee hereby accepts the foregoing assignment and sale of
the Interest from Assignor and hereby becomes a Member and Manager of the
Company and assumes and agrees to be bound by the terms, covenants, conditions
and obligations of Assignor under the Operating Agreement of the Company.
"ASSIGNEE"
BURNHAM PACIFIC EMPLOYEES LLC,
A Delaware limited liability company
By: BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
Its: Managing Member
By: BURNHAM PACIFIC PROPERTIES, INC.,
a Maryland corporation,
its general partner
By: /s/ Joseph Wm. Byrne
-------------------------------
Its: Executive Vice President
-------------------------------
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CONSENT TO ASSIGNMENT AND ACCEPTANCE
The undersigned Member of the Company hereby consents and agrees to the
foregoing assignment and sale of the Interest, to Assignee assuming all of
Assignor's obligations as a Member and Manager of the Company, including under
the Operating Agreement, and to Assignor remaining liable for such obligations.
STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM,
an agency of the State of California
By: ____________________________
Its: ____________________________
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Exhibit 10.1.4
BURNHAM PACIFIC EMPLOYEES LLC
LIMITED LIABILITY COMPANY AGREEMENT
June 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - DEFINITIONS 2
1.01 DEFINITIONS 2
ARTICLE II -ORGANIZATION AND POWERS 7
2.01 ORGANIZATION 7
2.02 PURPOSES AND POWERS 7
2.03 PRINCIPAL OFFICE IN DELAWARE 8
2.04 Fiscal Year. 8
2.05 QUALIFICATION IN OTHER JURISDICTIONS 8
ARTICLE III -MEMBERS 8
3.01 MEMBERS 8
3.02 COMPLIANCE WITH SECURITIES LAWS AND OTHER LAWS AND OBLIGATIONS 8
3.03 ADMISSION OF NEW MEMBERS 9
3.04 MEETINGS OF MEMBERS 9
3.05 ACTION WITHOUT A MEETING 10
3.06 VOTING RIGHTS 10
3.07 LIMITATION OF LIABILITY OF MEMBERS 10
3.08 AUTHORITY 11
3.09 NO RIGHT TO WITHDRAW 11
3.10 RIGHTS TO INFORMATION 11
3.11 REPORTS 11
ARTICLE IV -MANAGEMENT 12
4.01 MANAGING MEMBER 12
4.02 ELECTION AND QUALIFICATION 12
4.03 POWERS AND DUTIES OF THE MANAGING MEMBER 12
4.04 RELIANCE BY THIRD PARTIES 13
4.05 RESIGNATION 13
4.06 COMPENSATION 13
4.07 ACTIONS BY MANAGING MEMBER 13
4.08 LIMITATION OF LIABILITY OF MANAGING MEMBER 13
4.09 MANAGEMENT OF BPP RETAIL 14
ARTICLE V -INDEMNIFICATION 14
5.01 RIGHT TO INDEMNIFICATION 14
5.02 NON-EXCLUSIVITY 15
5.03 HEIRS, SUCCESSORS AND ASSIGNS 15
5.04 INSURANCE 15
5.05 EMPLOYEE BENEFIT PLAN 15
5.06 AMENDMENT 15
ARTICLE VI -CONFLICTS OF INTEREST; ETC. 16
6.01 TRANSACTIONS WITH INTERESTED PERSONS 16
6.02 OUTSIDE BUSINESSES 16
6.03 NO EMPLOYMENT OBLIGATION 16
ARTICLE VII - UNITS 16
7.01 ISSUANCE, ETC. 16
7.02 FORFEITURE 17
7.03 RETIREMENT, DISABILITY OR DEATH OF EMPLOYEE MEMBER 17
7.04 CHANGE IN CONTROL 18
ARTICLE VIII -CAPITAL ACCOUNTS AND CONTRIBUTIONS 18
8.01 CAPITAL ACCOUNTS 18
8.02 CONTRIBUTIONS 19
ARTICLE IX -ALLOCATION OF INCOME AND LOSS 19
9.01 ALLOCATION OF NET INCOME 19
9.02 ALLOCATION OF NET LOSS 19
9.03 SPECIAL INCOME ALLOCATION 20
9.04 QUALIFIED INCOME OFFSET 20
</TABLE>
(i)
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<TABLE>
<S> <C>
9.05 GROSS INCOME ALLOCATION 20
9.06 NONRECOURSE DEDUCTIONS 21
9.07 LLC MINIMUM GAIN CHARGEBACK 21
9.08 MEMBER NONRECOURSE DEBT 21
9.09 CURATIVE ALLOCATIONS 21
9.10 LOSS LIMITATION 22
9.11 DISTRIBUTIONS OF NONRECOURSE LIABILITY PROCEEDS 22
9.12 COMPLIANCE WITH CODE SECTION 704(B) 22
ARTICLE X -DISTRIBUTIONS 22
10.01 ORDINARY DISTRIBUTIONS 22
10.02 INCENTIVE DISTRIBUTION 22
10.03 DISTRIBUTIONS UPON LIQUIDATION 23
10.04 DISTRIBUTION OF BPP RETAIL INTEREST; LIQUIDATION OF BPP RETAIL 23
ARTICLE XI -TRANSFERS OF MEMBERSHIP INTERESTS 23
11.01 ASSIGNABILITY OF INTERESTS 23
11.02 TRANSFEREE EMPLOYEE MEMBERS 24
11.03 ADDITIONAL REQUIREMENTS 24
11.04 ALLOCATION OF DISTRIBUTIONS BETWEEN ASSIGNOR AND ASSIGNEE; SUCCESSOR TO CAPITAL ACCOUNTS 25
11.05 TRANSFERS OF MANAGING MEMBER INTEREST 25
ARTICLE XII -DISSOLUTION, LIQUIDATION, AND TERMINATION 25
12.01 DISSOLUTION 25
12.02 LIQUIDATION 25
12.03 CERTIFICATE OF CANCELLATION 26
ARTICLE XIII -GENERAL PROVISIONS 26
13.01 Offset. 26
13.02 NOTICES 26
13.03 ENTIRE AGREEMENT 26
13.04 LIMITATION OF LITIGATION; CONSENT TO JURISDICTION 27
13.05 AMENDMENT OR MODIFICATION 27
13.06 BINDING EFFECT 27
13.07 GOVERNING LAW; SEVERABILITY 27
13.08 FURTHER ASSURANCES 28
13.09 WAIVER OF CERTAIN RIGHTS 28
13.10 NOTICE TO MEMBERS OF PROVISIONS OF THIS AGREEMENT 28
13.11 THIRD-PARTY BENEFICIARIES 28
13.12 INTERPRETATION 28
13.13 COUNTERPARTS 29
13.14 TAXATION AS PARTNERSHIP 29
</TABLE>
(ii)
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BURNHAM PACIFIC EMPLOYEES LLC
LIMITED LIABILITY COMPANY AGREEMENT
This Limited Liability Company Agreement (the "Agreement") is made as
of June 1, 1999 by and among Burnham Pacific Operating Partnership, L.P., a
Delaware limited partnership (the "Managing Member") and the persons identified
on SCHEDULE A hereto (such persons, including the Managing Member, and their
respective assigns being hereinafter referred to collectively as the "Members").
All Members, other than the Managing Member, are hereinafter referred to
collectively as the "Employee Members").
WHEREAS, the Managing Member and the Employee Members wish to set out
fully their respective rights, obligations and duties regarding Burnham Pacific
Employees LLC (the "LLC") and its assets and liabilities from and after the
adoption of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants expressed
herein, the parties hereby agree as follows:
ARTICLE I - DEFINITIONS
1.01 DEFINITIONS. For purposes of this Agreement:
"ADJUSTED CAPITAL ACCOUNT" shall have the meaning set forth in Section
9.11.
"AFFILIATE" shall mean, with respect to any Person (herein the "first
party"), any other Person that directly or indirectly controls, or is controlled
by, or is under common control with, such first party. The term "control" as
used herein (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly, of the power to (a) vote
50% or more of the outstanding voting securities of such Person or (b) otherwise
direct the management or policies of such Person by contract or otherwise.
"AGREEMENT" shall mean this Limited Liability Company Agreement, as it
may from time to time be further amended, supplemented or restated.
"BOARD" shall mean the Board of Directors of Burnham Pacific.
"BOARD AUTHORIZATION" shall mean authorization by the Board (or the
Executive, Compensation or other Committee of the Board) on behalf of Burnham
Pacific in its capacity as the general partner of the Managing Member.
"BPP RETAIL" shall mean BPP Retail, LLC, a Delaware limited liability
company.
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"BURNHAM PACIFIC" shall mean Burnham Pacific Properties, Inc., a
Maryland corporation, and its successors.
"CAPITAL ACCOUNT" shall mean the capital account maintained by the LLC
with respect to each Member in accordance with the capital account rules
described in Section 8.01.
"CERTIFICATE OF ORGANIZATION" shall mean the Certificate of Limited
Liability required under the LLC Act, as such certificate may be amended or
restated from time to time.
"CHAIRMAN" shall mean the Chairman of the LLC, who shall be appointed
from time to time by the Managing Member.
"CHANGE IN CONTROL" shall mean the occurrence of any one of the
following:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (other than Burnham Pacific, any
Subsidiary, or any trustee, fiduciary or other person or entity holding
securities under any employee benefit plan or trust of Burnham Pacific or any
Subsidiary), together with all "affiliates" and "associates" (as such terms are
defined in Rule 12b-2 under the Act) of such person, shall become the
"beneficial owner" (as such term is defined in Rule 13d-3 under the Act)
directly or indirectly, of securities of Burnham Pacific representing 20% or
more of either (A) the combined voting power of Burnham Pacific's then
outstanding securities having the right to vote in an election of the Board
("voting securities") or (B) the then outstanding shares of Burnham Pacific's
Common Stock, par value $.01 per share (in either such case other than as a
result of an acquisition of securities directly from Burnham Pacific); or
(ii) persons who, as of the date of this Agreement, constitute the
Board (the "Incumbent Directors") cease for any reason, including, without
limitation, as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least seven-ninths (7/9ths) of the Board, provided
that any person becoming a member of the Board subsequent to the date of this
Agreement whose election or nomination for election was approved by a vote of at
least a majority of the Incumbent Directors shall, for purposes of this
Agreement, be considered an Incumbent Director; or
(iii) the shareholders of Burnham Pacific shall approve (A) any
consolidation or merger of Burnham Pacific or any Subsidiary where the
shareholders of Burnham Pacific, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger, beneficially
own (as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, shares representing in the aggregate 50% or more of the voting
securities of the corporation issuing cash or securities in the consolidation or
merger (or of its ultimate parent corporation, if any), (B) any sale, lease,
exchange
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or other transfer (in one transaction or a series of transaction contemplated or
arranged by any party as a single plan) of all or substantially all of the
assets of Burnham Pacific or (C) any plan or proposal for the liquidation or
dissolution of Burnham Pacific; or
(iv) any sale, lease, exchange or other transfer (in one transaction or
a series of transaction contemplated or arranged by any party as a single plan)
of all or substantially all of the assets of BPP Retail, or the dissolution of
BPP Retail.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by Burnham Pacific which, by reducing the
number of shares of Common Stock or other voting securities outstanding,
increases the proportionate number of shares beneficially owned by any person to
20% or more of the combined voting power of all then outstanding voting
securities; provided, however, that if any person referred to in this sentence
shall thereafter become the beneficial owner of any additional shares or other
voting securities (other than pursuant to a stock split, stock dividend, or
similar transaction), then a "Change in Control" shall be deemed to have
occurred for purposes of the foregoing clause (i). "Subsidiary" shall mean any
firm, partnership, corporation, limited liability company, association, trust,
joint venture, unincorporated organization or similar entity in which Burnham
Pacific, directly or indirectly, owns fifty percent (50%) or more of the
economic interest in the equity of such entity.
"CODE" AND "INTERNAL REVENUE CODE" shall each mean the United States
Internal Revenue Code of 1986, as in effect from time to time, and applicable
rules and regulations thereunder. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to any corresponding
provision of future law.
"CONTRIBUTION" shall mean, as to each Member, the amount of money
and/or the agreed fair market value of any property (net of any liabilities
encumbering such property that the LLC is considered to assume or take subject
to) contributed to the capital of the LLC by such Member.
"DISABILITY" shall mean certification by an independent medical doctor
(selected by Burnham Pacific's health or disability insurer), after consultation
with the Employee Member's physician and examination of the Employee Member,
that the Employee Member has for at least 120 consecutive days been disabled in
a manner which renders the Employee Member substantially unable to perform his
responsibilities as an employee of the Managing Member, Burnham Pacific, or any
of their Affiliates.
"EMPLOYEE MEMBER" shall mean each Person who is the legal or beneficial
owner of issued and outstanding Units of the LLC, and transferees of the
foregoing who have been admitted as Employee Members pursuant to Section 11.02.
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"EXPENSES" means all expenses, including attorneys' fees and
disbursements, actually and reasonably incurred in defense of a proceeding or in
seeking indemnification under Article V, and, except for proceedings by or in
the right of the LLC or alleging that a Member received an improper personal
benefit, any judgments, awards, fines, penalties and reasonable amounts paid in
settlement of a proceeding.
"FISCAL YEAR" shall have the meaning set forth in Section 2.04.
"GOVERNMENTAL AUTHORITY" shall mean any foreign, federal, state or
local court, governmental authority or regulatory body.
"INCENTIVE DISTRIBUTION" shall have the meaning set forth in Section
3.10 of the Operating Agreement of BPP Retail.
"IRS" shall mean the Internal Revenue Service of the United States
Department of the Treasury.
"LLC" shall mean Burnham Pacific Employees LLC.
"LLC ACT" or "ACT" shall mean the Delaware Limited Liability Company
Act, as it may be amended from time to time, and any successor to such Act.
"LLC MINIMUM GAIN" shall have the meaning set forth in Section 9.07.
"MAJORITY VOTE" shall mean the affirmative approval by vote or consent
of both (i) the Managing Member, acting with Board Authorization, and (ii) a
majority of the outstanding Units held by all Employee Members (other than those
held by any Non-Voting Member or by any other Employee Member who is expressly
prohibited from voting by the terms of this Agreement).
"MANAGING MEMBER" shall mean Burnham Pacific Operating Partnership,
L.P., a Delaware limited partnership, and any Person who becomes a successor or
assign as provided herein.
"MANAGING MEMBER INTEREST" shall mean the interest (including the
Capital Account) of the Managing Member in the LLC.
"MEMBER" shall mean any person or entity who is or becomes a Member
pursuant to the terms hereof, including the Managing Member and the Employee
Members.
"MEMBER NONRECOURSE DEBT" shall have the meaning set forth in Section
9.08.
"MEMBER NONRECOURSE DEBT MINIMUM GAIN" shall have the meaning set forth
in Section 9.08.
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"MEMBERSHIP INTERESTS" shall mean the Managing Member Interest and the
interests (including the Capital Accounts) of the Employee Members in the LLC.
The Membership Interests of each of the Employee Members are represented by
Units, as provided in Section 7.01.
"NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Section
9.06.
"NON-VOTING MEMBER" shall mean (i) a former Employee Member (or any
heir or executor of an Employee member) who continues to hold unforfeited Units
pursuant to the provisions of Section 7.03, (ii) an Employee Member who holds
fewer than 1% of the outstanding Units or (iii) the Managing Member, with
respect to any Units which the Managing Member may hold pursuant to the
provisions of Section 7.01.
"PERSON" shall mean any natural person, firm, partnership, corporation,
limited liability company, association, trust, joint venture, unincorporated
organization or any similar entity.
"PARTICIPATING INTERESTS" shall mean the managing member interests in
BPP Retail held by the LLC.
"REGULATORY ALLOCATIONS" shall have the meaning set forth in Section
9.09.
"RETIREMENT" shall mean the retirement of an Employee Member after
attaining age 65 from employment by the Managing Member, Burnham Pacific and
their Affiliates.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and
applicable rules and regulations thereunder.
"TRANSFER" shall have the meaning specified in Article XI.
"TREASURY REGULATIONS" shall mean the federal income tax and procedure
and administration regulations as promulgated by the U.S. Treasury Department,
as such regulations may be in effect from time to time. All references in this
Agreement to provisions of the Treasury Regulations shall be deemed to refer to
successor regulatory provisions to the extent appropriate in light of the
context herein in which such Treasury Regulations references are used.
"UNITS" shall have the meaning set forth in Section 7.01.
"VOTING EMPLOYEE MEMBER" shall mean any Employee Member who is not a
Non-Voting Employee Member.
In addition to the foregoing, other capitalized terms used in this
Agreement shall have the meaning ascribed thereto in the text of this Agreement.
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ARTICLE II - ORGANIZATION AND POWERS
2.01 ORGANIZATION. The LLC shall be formed by the filing of its
Certificate of Organization with the Delaware Secretary of State pursuant to the
LLC Act. If the Certificate of Organization has not been previously filed, the
Members shall cause it to be filed as soon as practicable hereafter. The
Certificate of Organization may be restated by the Managing Member as provided
in the LLC Act or amended by the Managing Member to change the address of the
office of the LLC in Delaware, the name and address of its resident agent in
Delaware, or the identity of the Managing Member, or to make corrections
required by the LLC Act. Other additions to or amendments of the Certificate of
Organization shall be authorized by the Members as provided in Section 3.06. The
Certificate of Organization as so amended from time to time, is referred to
herein as the "Certificate." The Managing Member shall deliver a copy of the
Certificate and any amendment thereto to any Member who so requests.
2.02 PURPOSES AND POWERS. The principal business activity and purposes
of the LLC shall initially be (i) to invest in, hold and dispose of one or more
Participating Interests in BPP Retail and all activities reasonably related
thereto, (ii) to make and perform all contracts and engage in all activities and
transactions and to do any and all things necessary or advisable to carry out
the foregoing purposes, and (iii) to engage in any other business related
thereto or useful in connection therewith. However, the business and purposes of
the LLC shall not be limited to its initial principal business activity and,
unless the Members otherwise agree in writing as provided in Section 13.05, the
LLC shall have authority to engage in any other lawful business, trade, purpose
or activity permitted by the Act, and it shall possess and may exercise all of
the powers and privileges granted by the Act, together with any powers
incidental thereto, so far as such powers or privileges are necessary or
convenient to the conduct, promotion or attainment of the business, purposes or
activities of the LLC, including without limitation the following powers:
(a) to conduct its business and operations in any state,
territory or possession of the United States or in any foreign country or
jurisdiction;
(b) to purchase, receive, take, lease or otherwise acquire,
own, hold, improve, maintain, use or otherwise deal in and with, sell, convey,
lease, exchange, transfer or otherwise dispose of, mortgage, pledge, encumber or
create a security interest in all or any of its real or personal property, or
any interest therein, wherever situated;
(c) to borrow or lend money or obtain or extend credit and
other financial accommodations, to invest and reinvest its funds in any type of
security or obligation of or interest in any public, private or governmental
entity, and to give and receive interests in real and personal property as
security for the payment of funds so borrowed, loaned or invested;
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(d) to make contracts, including contracts of insurance, incur
liabilities and give guaranties, whether or not such guaranties are in
furtherance of the business and purposes of the LLC, including without
limitation, guaranties of obligations of other Persons who are interested in the
LLC or in whom the LLC has an interest;
(e) to appoint the Managing Member of the LLC, to employ
officers, employees, agents and other Persons, to fix the compensation and
define the duties and obligations of such personnel, to establish and carry out
retirement, incentive and benefit plans for such personnel, and to indemnify
such personnel to the extent permitted by this Agreement and the Act;
(f) to make donations irrespective of benefit to the LLC for
the public welfare or for community, charitable, religious, educational,
scientific, civic or similar purposes; and
(g) to institute, prosecute, and defend any legal action or
arbitration proceeding involving the LLC, and to pay, adjust, compromise,
settle, or refer to arbitration any claim by or against the LLC or any of its
assets.
2.03 PRINCIPAL OFFICE IN DELAWARE. The principal office of the LLC in
the State of Delaware shall be c/o CT Corporation System. After giving notice to
the Members, the Managing Member may change the principal office of the LLC at
any time and may cause the LLC to establish other offices.
2.04 FISCAL YEAR. The fiscal year of the LLC shall be the period ending
on December 31 of each year, or such other fiscal year as the Managing Member
may designate or as may be required by the Code (the "Fiscal Year").
2.05 QUALIFICATION IN OTHER JURISDICTIONS. The Managing Member shall
cause the LLC to be qualified or registered under applicable laws of any
jurisdiction in which the LLC transacts business and shall be authorized to
execute, deliver and file any certificates and documents necessary to effect
such qualification or registration, including without limitation the appointment
of agents for service of process in such jurisdictions.
ARTICLE III - MEMBERS
3.01 MEMBERS. The initial Members of the LLC and their addresses are
listed on SCHEDULE A, and said schedule shall be amended from time to time by
the Managing Member to reflect the withdrawal of Members and the admission of
additional Members pursuant to this Agreement. The Members shall constitute a
single class or group of Members of the LLC for all purposes of the Act, except
as otherwise explicitly provided herein. The Managing Member shall notify the
Members of changes in SCHEDULE A, which shall constitute the record list of the
Members for all purposes of this Agreement.
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3.02 COMPLIANCE WITH SECURITIES LAWS AND OTHER LAWS AND OBLIGATIONS.
Each Member hereby represents and warrants to the LLC and acknowledges that (a)
it has such knowledge and experience in financial and business matters and is
capable of evaluating the merits and risks of an investment in the LLC and
making an informed investment decision with respect thereto, (b) it is able to
bear the economic and financial risk of an investment in the LLC for an
indefinite period of time and understands that in the event it elects to
withdraw as a Member of the LLC it shall not have a right to have its interest
repurchased by the LLC and may forfeit any interest which it has in the LLC, (c)
it is acquiring an interest in the LLC for investment only and not with a view
to, or for resale in connection with, any distribution to the public or public
offering thereof, (d) it understands that the equity interests in the LLC have
not been registered under the securities laws of any jurisdiction and cannot be
disposed of unless they are subsequently registered and/or qualified under
applicable securities laws and the provisions of this Agreement have been
complied with, and (e) if it is an entity, the execution, delivery and
performance of this Agreement do not require it to obtain any consent or
approval that has not been obtained and do not contravene or result in a default
under any provision of any existing law or regulation applicable to it, any
provision of its charter, by-laws or other governing documents (if applicable)
or any agreement or instrument to which it is a party or by which it is bound.
3.03 ADMISSION OF NEW MEMBERS. Additional Persons may be admitted to
the LLC as Members and may participate in the profits, losses, distributions,
allocations and capital contributions of the LLC upon such terms as are approved
by the Managing Member acting with Board Authorization in its sole discretion,
by amendment of this Agreement under Section 13.05. The Managing Member shall
admit as Employee Members only Persons who at the time of their admission are
officers, directors, employees or consultants of the Managing Member, Burnham
Pacific or any of their Affiliates. New Members shall be admitted at the time
when all conditions to their admission have been satisfied, as determined by the
Managing Member, and their identity, Membership Interests and Contributions (if
any) under Section 8.02 have been established by amendment of this Agreement,
SCHEDULE A and/or the Units Schedule. Existing Members shall have no preemptive
or similar right to subscribe to the purchase of new Membership Interests in the
LLC.
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3.04 MEETINGS OF MEMBERS.
(a) Meetings of Members may be called for any proper purpose
at any time by the Managing Member or the holders of a majority of the Units.
The Managing Member or the Members calling the meeting shall determine the date,
time and place of each meeting of Members, and written notice thereof shall be
given by the Managing Member to each Member not less than ten (10) days or more
than sixty (60) days prior to the date of the meeting. Notice shall be sent to
Members of record on the date when the meeting is called. The business of each
meeting of Members shall be limited to the purposes described in the notice. A
written waiver of notice, executed before or after a meeting by a Member or its
authorized attorney and delivered to the Managing Member shall be deemed
equivalent to notice of the meeting.
(b) Members holding a majority of the Units having voting
rights pursuant to Section 3.06 (and the Managing Member, in the case of any
matter which is not reserved for action exclusively by the Employee Members
under the terms of this Agreement), shall constitute a quorum for the
transaction of any business at a meeting of Members. Members may attend a
meeting in person or by proxy. Members may also participate in a meeting by
means of conference telephone or similar communications equipment that permits
all Members present to hear each other. If less than a quorum of the Members is
present, the meeting may be adjourned by the Chairman to a later date, time and
place, and the meeting may be held as adjourned without further notice. When an
adjourned meeting is reconvened, any business may be transacted that might have
been transacted at the original meeting.
(c) The LLC shall make available at any meeting of Members and
for a period of ten (10) days prior thereto a complete list of Members entitled
to vote at such meeting or any adjournment thereof. The list shall reflect the
current names and addresses of each Member and such other information as may be
required by the LLC Act, and shall be subject to inspection by the Member at the
meeting and during the ten-day period prior thereto at the principal office of
the LLC.
(d) The Chairman shall preside at all meetings of the Members.
The Chairman shall determine the order of business and the procedures to be
followed at each meeting of Members.
3.05 ACTION WITHOUT A MEETING. There is no requirement that the Members
hold a meeting in order to take action on any matter. Any action required or
permitted to be taken by the Members may be taken without a meeting if one or
more written consents to such action shall be signed by Members who hold the
Membership Interests or other interests in the LLC required to approve the
action being taken. Such written consents shall be delivered to the LLC at the
principal office of the LLC and unless otherwise specified shall be effective on
the date when the first consent is so delivered. The LLC shall give prompt
notice to all Members who did not consent to any action taken by written consent
of Members without a meeting.
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3.06 VOTING RIGHTS. Unless otherwise required by the LLC Act, and
except as to matters for which the Managing Member's action, approval or consent
is expressly required by the terms of this Agreement, all actions, approvals and
consents required to be taken or given by the Members under the LLC Act, this
Agreement or otherwise shall require a Majority Vote.
3.07 LIMITATION OF LIABILITY OF MEMBERS. Except as otherwise provided
in the LLC Act, no Member of the LLC shall be obligated personally for any debt,
obligation or liability of the LLC or of any other Member, whether arising in
contract, tort or otherwise, solely by reason of being a Member of the LLC. No
Member shall be liable to the LLC or any other Member for acting in good faith
reliance upon the provisions of this Agreement. No Member shall have any
responsibility to restore any negative balance in its Capital Account (as
defined in Section 8.01) or to contribute to or in respect of the liabilities or
obligations of the LLC or to return distributions made by the LLC except as
required by the LLC Act or other applicable law; provided, however, that Members
are responsible for their failure to make required Contributions (if any) under
Section 8.02. The failure of the LLC to observe any formalities or requirements
relating to the exercise of its powers or the management of its business or
affairs under this Agreement or the Act shall not be grounds for making its
Members responsible for the liabilities of the LLC.
3.08 AUTHORITY. Unless specifically authorized by the Managing Member,
no Member that is not the Managing Member or an officer of the LLC or delegate
of the Managing Member pursuant to paragraph 4.03(a) shall be an agent of the
LLC or have any right, power or authority to act for or to bind the LLC or to
undertake or assume any obligation or responsibility of the LLC or of any other
Member.
3.09 NO RIGHT TO WITHDRAW. No Member shall have any right to resign or
withdraw from the LLC without the consent of the other Members or to receive any
distribution or the repayment of its capital contribution, except as provided in
Section 10.04 and Article XII upon dissolution and liquidation of the LLC, and
except that any Employee Member may withdraw from the LLC by giving at least 30
days' prior written notice to the Managing Member, subject to forfeiture of such
Employee Member's entire interest in the LLC. No Member shall have any right to
have the fair value of its interest in the LLC appraised and paid out upon the
resignation or withdrawal of such Member or any other circumstances.
3.10 RIGHTS TO INFORMATION. Members shall have the right to receive
from the LLC upon request a copy of the Certificate and of this Agreement, as
amended from time to time, and such other information regarding the LLC as is
required by the LLC Act, subject to reasonable conditions and standards
established by the LLC, as permitted by the LLC Act, which may include, without
limitation, withholding or restrictions on the use of confidential information.
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3.11 REPORTS. Within 120 days after the end of each fiscal year of the
LLC, the LLC shall cause to be prepared and sent to all Members a financial
report of the LLC including a balance sheet, a profit and loss statement and,
unless the profit and loss statement is prepared on a cash basis, a statement of
changes in financial position. Within 90 days after the end of each fiscal year
the LLC shall furnish to all Members such information as may be needed to permit
Members to file their federal income tax returns and any required state and
local income tax returns. The cost of such reports shall be an expense of the
LLC.
ARTICLE IV - MANAGEMENT
4.01 MANAGING MEMBER. There shall be a sole Managing Member of the LLC,
who shall be the manager of the LLC within the meaning of the LLC Act, and who
shall be a Member. The name and address of the Managing Member shall be listed
on SCHEDULE A, and said schedule and the Certificate shall be amended from time
to time by the Managing Member to reflect the resignation or removal of the
Managing Member or the appointment of a new Managing Member pursuant to this
Agreement.
4.02 ELECTION AND QUALIFICATION. The Managing Member shall hold office
until a successor is chosen and qualified, or upon the Managing Member's earlier
resignation, or in the case of a Manager who is an individual, such individual's
death. The Managing Member shall devote such time to the business and affairs of
the LLC as is reasonably necessary for the performance of the Managing Member's
duties, but shall not be required to devote full time to the performance of such
duties and may delegate its responsibilities as provided in Section 4.03.
4.03 POWERS AND DUTIES OF THE MANAGING MEMBER. The business and affairs
of the LLC shall be conducted by or under the direction of the Managing Member,
who shall have and may exercise on behalf of the LLC all of its rights, powers,
duties and responsibilities under this Agreement (including without limitation
Section 2.02) or as provided by law, including without limitation the right and
authority:
(a) to manage the business and affairs of the LLC and for this
purpose to employ, retain or appoint any officers, employees, consultants,
agents, brokers, professionals or other Persons in any capacity for such
compensation and on such terms as deemed necessary or desirable and to delegate
to such Persons such of the Managing Member's duties and responsibilities as the
Managing Member shall determine; PROVIDED, HOWEVER, that no officer of the LLC
shall be held personally liable, by virtue of his or her status as an officer,
for any losses, debts or obligations of the LLC;
(b) to enter into, execute, deliver, acknowledge, make,
modify, supplement or amend any documents or instruments in the name of the LLC;
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(c) to borrow money or otherwise obtain credit and other
financial accommodations on behalf of the LLC on a secured or unsecured basis as
provided in Section 2.02(c), and to perform or cause to be performed all of the
LLC's obligations in respect of its indebtedness and any mortgage, lien or
security interest securing such indebtedness; and
(d) to make elections and prepare and file returns regarding
any federal, state or local tax obligations of the LLC, and to designate the
Managing Member to serve as the "Tax Matters Partner" of the LLC for purposes of
Section 6231(a)(7) of the Code, with power to manage and represent the LLC in
any administrative proceeding of the IRS.
Unless otherwise provided in this Agreement, any action taken by a Managing
Member or delegate of such Managing Member under Subpart (a) of this paragraph,
and the signature of a Managing Member or such delegate on any agreement,
contract, instrument or other document on behalf of the LLC, shall be sufficient
to bind the LLC and shall conclusively evidence the authority of that Managing
Member or such delegate and the LLC with respect thereto.
4.04 RELIANCE BY THIRD PARTIES. Any Person dealing with the LLC, the
Managing Member or any Member may rely upon a certificate signed by the Managing
Member as to (i) the identity of the Managing Member, Members, officers or other
delegates of such Managing Member under Section 4.03(a); (ii) any factual
matters relevant to the affairs of the LLC; (iii) the Persons who are authorized
to execute and deliver any document on behalf of the LLC; or (iv) any action
taken or omitted by the LLC, the Managing Member, any Member or any officers or
delegate of such Managing Member under Section 4.03(a).
4.05 RESIGNATION. The Managing Member may resign from the LLC upon at
least sixty (60) days notice to the Members (unless notice is waived by them).
Any vacancy in the office of the Managing Member shall be filled by the
remaining Members.
4.06 COMPENSATION. The Managing Member shall receive no compensation
for its services performed on behalf of the LLC or other benefits it provides to
the LLC, except that the Managing Member shall be entitled to reimbursement for
expenses incurred by it in managing and conducting the business and affairs of
the LLC.
4.07 ACTIONS BY MANAGING MEMBER. There is no requirement that the
Managing Member hold a meeting in order to take action on any matter which the
Managing Member is authorized to take in accordance with this Agreement.
4.08 LIMITATION OF LIABILITY OF MANAGING MEMBER. The Managing Member
shall not be obligated personally for any debt, obligation or liability of the
LLC or of any Member, whether arising in contract, tort or otherwise, solely by
reason of being or acting as Managing Member of the LLC. The Managing Member
shall not be personally liable
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to the LLC or to its Members for breach of any fiduciary or other duty that does
not involve (i) a breach of the duty of loyalty to the LLC or its Members, (ii)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, or (iii) a transaction from which the Managing Member
derived an improper personal benefit.
4.09 MANAGEMENT OF BPP RETAIL. The Managing Member is authorized to
exercise all consent, voting and other rights with respect to the Participating
Interests and any other securities held by the LLC. Nothing contained in this
Agreement will be deemed to give any Employee Member any voting, approval or
consent rights with respect to any interest in BPP Retail or any other right
with respect to the management or affairs of BPP Retail; provided, however, that
after a Change in Control, neither the LLC nor the Managing Member shall
authorize any amendment or modification to the Operating Agreement of BPP Retail
unless (i) approved by a Majority Vote or (ii) such amendment or modification
could not reasonably be expected to diminish the value to the LLC of the
Incentive Distribution or to affect adversely the rights, privileges or
interests of the LLC with respect to the Incentive Distribution.
ARTICLE V - INDEMNIFICATION
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5.01 RIGHT TO INDEMNIFICATION. Neither the Managing Member, nor any of
the directors, officers or Persons serving in a similar executive capacity
appointed by the Managing Member and exercising rights and duties delegated by
the Managing Member (including a Person serving at the request of the LLC as a
director, officer or other agent of another organization), employees, or Members
of the LLC or their Affiliates (the Managing Member and each such other Person
herein referred to as an "Indemnified Party") shall have any liability to the
LLC or to any Member for any loss suffered by the LLC which arises out of any
action or inaction of such Indemnified Party in its capacity as any of the
foregoing; PROVIDED, HOWEVER, that such course of conduct did not constitute
fraud, gross negligence, willful misconduct or a material breach of this
Agreement. Each such Indemnified Party shall be indemnified to the fullest
extent permitted by law by the LLC against any losses, judgments, liabilities,
Expenses and amounts paid in settlement of any claims sustained by any of them
in their capacity as an Indemnified Party in connection with the business or
operations of the LLC, or the exercise and performance of any Member's,
director's or officer's powers or duties in accordance with the terms of this
Agreement; provided the same was not the result of fraud, gross negligence,
willful misconduct, or a material breach of this Agreement, the Advisory
Agreement or any other agreement for the provision of Investment Management
Services. The indemnification authorized by this Section 5.01 shall include the
payment of reasonable attorneys' fees and other reasonable Expenses incurred in
settling or defending any claims, threatened actions or finally adjudicated
legal Proceedings. Prior to any final disposition of any claim or Proceeding
with respect to which an Indemnified Party may be entitled to indemnification
hereunder, the LLC shall pay to such Indemnified Party, as the case may be, in
advance of such final disposition, an amount equal to all reasonable
out-of-pocket Expenses of said Indemnified Party as incurred in defense of said
claim or Proceeding; provided that such advance payments shall be made only upon
the LLC's receipt of a written undertaking of said Indemnified Party to repay
the LLC the amount so advanced if it shall be finally determined that said
Indemnified Party was not entitled to indemnification hereunder.
5.02 NON-EXCLUSIVITY. The provisions of this Article shall not be
construed to limit the power of the LLC to indemnify its Managing Member,
Members, directors, officers, employees or agents to the full extent permitted
by law or to enter into specific agreements, commitments or arrangements for
indemnification permitted by law. The absence of any express provision for
indemnification herein shall not limit any right of indemnification existing
independently of this Article.
5.03 HEIRS, SUCCESSORS AND ASSIGNS. The indemnification rights provided
by this Article V shall also inure to the benefit of the heirs, executors,
administrators, successors and assigns of an Indemnified Party and any officers,
directors, partners, shareholders, employees and Affiliates of such Indemnified
Party (and any former officer, director, partner, shareholder or employee of
such Indemnified Party, if the Loss was incurred while such Person was an
officer, director, partner, shareholder or employee of such Indemnified Party).
The Managing Member may extend the indemnification called
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for by Section 5.01 to non-employee agents of the LLC or Affiliates of the
Managing Member.
5.04 INSURANCE. The LLC shall have power to purchase and maintain
insurance on behalf of the Managing Member or any director, officer, agent or
employee of the LLC or of the Managing Member against any liability or cost
incurred by such Person in any such capacity or arising out of its status as
such, whether or not the LLC would have power to indemnify against such
liability or cost.
5.05 EMPLOYEE BENEFIT PLAN. If the LLC or the Managing Member sponsors
or undertakes any responsibility as a fiduciary with respect to an employee
benefit plan, then for purposes of this Article (i) "Managing Member" shall be
deemed to include the Managing Member or any officer of the LLC who serves at
the request of the Managing Member in any capacity with respect to said plan,
(ii) the Managing Member or officer shall not be deemed to have failed to act in
good faith or in the reasonable belief that its action was in the best interests
of the LLC if the Managing Member or officer acted in good faith and in the
reasonable belief that its action was in the best interests of the participants
or beneficiaries of said plan, and (iii) "Expenses" shall be deemed to include
any taxes or penalties imposed upon the Managing Member or officer with respect
to said plan under applicable law.
5.06 AMENDMENT. The provisions of this Article may be amended or
repealed in accordance with Section 13.05; however, no amendment or repeal of
such provisions that adversely affects the rights of the Managing Member under
this Article with respect to its acts or omissions at any time prior to such
amendment or repeal, shall apply to the Managing Member without its consent.
ARTICLE VI - CONFLICTS OF INTEREST; ETC.
6.01 TRANSACTIONS WITH INTERESTED PERSONS. Unless entered into in bad
faith, no contract or transaction between the LLC and its Managing Member or
Members, or between the LLC and any other corporation, partnership, association
or other organization in which its Managing Member or Members have a financial
interest or are directors, partners, Managing Member or officers, shall be
voidable solely for this reason or solely because said Managing Member or Member
was present or participated in the authorization of such contract or transaction
if:
(a) the material facts as to the relationship or interest of
said Managing Member or Member and as to the contract or transaction were
disclosed or known to the other Members and the contract or transaction was
authorized by the disinterested Members; or
(b) the contract or transaction was fair to the LLC as of the
time it was authorized, approved or ratified by the disinterested Members;
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and no Managing Member or Member interested in such contract or transaction,
because of such interest, shall be considered to be in breach of this Agreement
or liable to the LLC, any other Member, or any other Person or organization for
any loss or expense incurred by reason of such contract or transaction or shall
be accountable for any gain or profit realized from such contract or
transaction.
6.02 OUTSIDE BUSINESSES. The Managing Member may engage or have an
interest in other business ventures which are similar to or competitive with the
business of the LLC, and the pursuit of such ventures, even if competitive,
shall not be deemed wrongful or improper or give the LLC or the other Members
any rights with respect thereto. The Managing Member shall not be obligated to
present an investment opportunity to the LLC even if it is similar to or
consistent with the business of the LLC, and the Managing Member shall have a
right to take for its own account or recommend to others any such investment
opportunity.
6.03 NO EMPLOYMENT OBLIGATION. Each Employee Member acknowledges that
this Agreement creates no obligation on the part of the Managing Member, Burnham
Pacific or any of their Affiliates to continue the employment of an Employee
Member with the Managing Member, Burnham Pacific or any of their Affiliates.
ARTICLE VII - UNITS
7.01 ISSUANCE, ETC.. The Membership Interests of the Employee Members
in the LLC are deemed to be represented by issued and outstanding units of
interest ("Units"). On the date hereof, there are 1000 Units, which are issued
and outstanding and held by Employee Members in the respective amounts set forth
on the signature pages hereto signed by each Employee Member. The Managing
Member shall maintain a schedule of all issued and outstanding Units (the "Units
Schedule"). Except as provided in Section 7.04, additional Units may be issued
to existing Employee Members or other Persons who are officers, directors,
employees and consultants of the Managing Member, Burnham Pacific or their
Affiliates, as the Managing Member, with Board Authorization, may determine in
its sole discretion. Each issued and outstanding Unit shall represent a fraction
of the aggregate Membership Interests of the Employee Members in the LLC with
respect to such class, the numerator of which is one (1) and the denominator of
which is the total number of Units which are then issued and outstanding. For
purposes of voting rights, as specified in Section 3.06 of the Agreement, each
issued and outstanding Unit held by a Voting Employee Member shall be entitled
to one vote.
7.02 FORFEITURE. Except as provided in Sections 7.03 and 7.04, and
notwithstanding any other provision of this Agreement, any Units held by an
Employee Member on the date which such Employee Member ceases to be employed or
retained as a consultant by the Managing Member, Burnham Pacific or any of their
Affiliates (regardless of the reasons for such termination of employment or
consultancy) shall, automatically and without any further action required on the
part of the Managing
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Member or the LLC, cease to be issued and outstanding for all purposes of this
Agreement, and the Person who held such Units shall henceforth cease to be
entitled to vote, hold, or transfer such Units or to have any interest in the
LLC with respect to such Units. All of such interest in the LLC shall be
forfeited to the LLC for no further consideration, and any Capital Account with
respect to such forfeited interest shall be reallocated to the then-remaining
Employee Members (in proportion to the Employee Members' Units, as provided in
Section 7.01). Notwithstanding the foregoing provisions of this Section 7.02,
the Managing Member, acting with Board Authorization, may elect to cause all or
any part of the interest in the LLC represented by any Units which have been
forfeited pursuant to this Section 7.02 or Section 7.03 to be reissued to itself
for no further consideration, in which case any Capital Account with respect to
such reissued interest shall be reallocated to the Managing Member. Any Units
which are held by the Managing Member as a result of the provisions of the
preceding sentence shall entitle the Managing Member to all of the rights of a
holder of such Units as if the Managing Member were an Employee Member,
including without limitation rights to allocations and distributions to be made
to the Employee Members pursuant to Articles IX and X of this Agreement, but not
including voting rights with respect to such Units.
7.03 RETIREMENT, DISABILITY OR DEATH OF EMPLOYEE MEMBER.
Notwithstanding the provisions of Section 7.02, upon an Employee Member's
Retirement, or in the event of an Employee Member's Disability or death, the
interest in the LLC held by the former Employee Member (or, in the case of a
deceased former Employee Member, by any heir, estate or personal representative
of the deceased former Employee Member) shall not be forfeited to the LLC and
the Managing Member shall cause the percentage of the total number of Units held
by the Employee Member at the time of his or her Retirement, Disability or death
(the "Percentage Interest") to be maintained, through the issuance of additional
Units or otherwise; provided, however, that the Person who holds such Units
shall henceforth cease to be entitled to vote any of such Units and the
Percentage Interest shall automatically and without any further action required
on the part of the Managing Member be adjusted as follows: (x) effective as of
the first day of the first Fiscal Year following the Fiscal Year in which such
Retirement, Disability or death occurred, to an amount equal to 50% of the
Percentage Interest, and (y) effective as of the first day of the second Fiscal
Year following the Fiscal Year in which such Retirement, Disability or death
occurred, to an amount equal to 25% of the Percentage Interest. Effective as of
the first day of the third Fiscal Year following the Fiscal Year in which such
Retirement, Disability or death occurred, all of such former Employee Member's
remaining interest in the LLC shall be forfeited to the LLC for no further
consideration, and any Capital Account with respect to such forfeited interest
shall be reallocated to the then-remaining Employee Members (in proportion to
the Employee Members' Units, as provided in Section 7.01).
7.04 CHANGE IN CONTROL. From and after the occurrence of a Change in
Control, (a) no additional Units shall be issued and (b) Units which are issued
and outstanding shall cease to be subject to any forfeiture pursuant to Section
7.02 or reduction pursuant to Section 7.03.
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ARTICLE VIII - CAPITAL ACCOUNTS AND CONTRIBUTIONS
8.01 CAPITAL ACCOUNTS. A separate capital account (a "Capital Account")
shall be maintained for each Member in accordance with Treasury Regulations
Section 1.704-1(b)(2)(iv), and this Section 8.01 shall be interpreted and
applied in a manner consistent with said Section of the Treasury Regulations.
The LLC may adjust the Capital Accounts of its Members to reflect revaluations
of the LLC property whenever it issues additional interests in the LLC
(including any interests with a zero initial Capital Account) or whenever the
adjustment otherwise would be permitted under Treasury Regulations Section
1.704-1(b)(2)(iv)(F). In the event that the Capital Accounts of the Members are
so adjusted, (i) the Capital Accounts of the Members shall be adjusted in
accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(G) for
allocations of depreciation, depletion, amortization and gain or loss, as
computed for book purposes, with respect to such property, (ii) the Members'
distributive shares of depreciation, depletion, amortization and gain or loss,
as computed for tax purposes, with respect to such property shall be determined
so as to take account of the variation between the adjusted tax basis and book
value of such property in the same manner as under Section 704(c) of the Code,
and (iii) the amount of upward and/or downward adjustments to the book value of
LLC property shall be treated as income, gain, deduction and/or loss for
purposes of applying the allocation provisions of Article IX. In the event that
Code Section 704(c) applies to LLC property, the Capital Accounts of the Members
shall be adjusted in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv)(G) for allocations of depreciation, depletion, amortization
and gain and loss, as computed for book purposes, with respect to such property.
8.02 CONTRIBUTIONS. The Managing Member has made a contribution to the
capital of the LLC with an agreed value equal to its initial capital account
reflected on SCHEDULE B hereto. The Managing Member shall make such additional
contributions to the capital of the LLC as necessary to enable the LLC to make
any required contribution to the capital of, or to fulfill any other present or
future obligation of the LLC to, BPP Retail. In addition, the Managing Member
may make any additional contributions to the capital of the LLC which the
Managing Member may deem necessary or desirable. Except as may be otherwise
agreed, no Employee Member shall be entitled or required to make any
contribution to the capital of the LLC; however, the LLC may borrow from its
Members as well as from banks or other lending institutions to finance its
working capital or the acquisition of assets upon such terms and conditions as
shall be approved by the Managing Member with Board Authorization, and any such
borrowing from Members shall not be considered Contributions or reflected in
their Capital Accounts. The value of all non-cash Contributions made by Members
shall be as agreed in writing by the Managing Member and such Member. No Member
shall be entitled to any interest or compensation with respect to its
Contribution or any services rendered on behalf of the LLC except as
specifically provided in this Agreement or approved by the Managing Member. No
Member shall have any liability for the repayment of the Contribution of
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any other Member and each Member shall look only to the assets of the LLC for
return of its Contribution.
ARTICLE IX - ALLOCATION OF INCOME AND LOSS
9.01 ALLOCATION OF NET INCOME. After giving effect to the special
allocations set forth in Sections 9.03 through 9.09, net income for any Fiscal
Year or portion thereof shall be allocated 100% to the Managing Member.
9.02 ALLOCATION OF NET LOSS. After giving effect to the special
allocations set forth in Sections 9.03 through 9.09 and subject to Section 9.10,
net loss shall be allocated 100% to the Managing Member.
9.03 SPECIAL INCOME ALLOCATION. After giving effect to the special
allocations set forth in Sections 9.04 through 9.09, the Employee Members shall
be specially allocated 100% of the net income of the LLC until the aggregate
amount of net income (including any gross items of income or gain allocated
under this 9.03) allocated to the Employee Members pursuant to this Section 9.03
in all Fiscal Years or portions thereof of the LLC is equal to the aggregate
amount of the distributions made to the Employee Members pursuant to Section
10.02(b). Such allocation to the Employee Members pursuant to this Section 9.03
shall be made to the Employee Members in proportion to excess of the aggregate
amount of the distributions to each such Employee Member pursuant to Section
10.02(b) in all Fiscal Years or portions thereof over the aggregate prior
allocations to such Employee Member pursuant to this Section 9.03 in all Fiscal
Years or portions thereof. If the LLC has insufficient net income to make the
allocation required by the preceding sentence, the LLC shall specially allocate
gross items of income and gain to the Employee Members to the extent of any such
shortfall.
For purposes of determining the amount of distributions made pursuant
to Section 10.02(b), all distributions made, or which will be made, pursuant to
Section 10.03 shall be treated as if made pursuant to Section 10.02(b) to the
extent of the amount that would have been made pursuant to Section 10.02(b) if
this Agreement did not contain Section 10.03. In addition, for purposes of
determining the amount of distributions pursuant to Section 10.02(b),
distributions shall only be taken into account if they are made prior to the
date which is the earlier of (i) the date on which the LLC files its federal
income tax return with respect to the fiscal year for which the allocation
pursuant to this Section 9.03 is being made, or (ii) the date prescribed by law
for the filing of such return (including extensions).
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9.04 QUALIFIED INCOME OFFSET. Any Member who unexpectedly receives an
adjustment, allocation or distribution described in Treasury Regulations Section
l.704-l(b)(2)(ii)(D)(4), (5) or (6) that causes or increases a deficit balance
in its Capital Account (in excess of any deemed deficit restoration obligation
pursuant to the penultimate sentences of Treasury Regulations Sections
1.704-2(g)(1) and (i)(5), and adjusted as provided in Treasury Regulations
Section 1.704-1(b)(2)(ii)(D)) shall be allocated items of income and gain in an
amount and manner sufficient to eliminate, to the extent required by the
Treasury Regulations, such deficit balance as quickly as possible. This Section
9.04 is intended to comply with the alternate test for economic effect set forth
in Treasury Regulations Section l.704-l(b)(2)(ii)(D) and shall be interpreted
and applied in a manner consistent therewith.
9.05 GROSS INCOME ALLOCATION. In the event any Member has a deficit
Capital Account at the end of any taxable 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), each such Member shall be specially allocated
items of LLC income and gain in the amount of such excess as quickly as
possible, provided that an allocation pursuant to this Section 9.05 shall be
made only if and to the extent that such Member would have a deficit Capital
Account in excess of such sum after all other allocations provided for in this
Article IX have been made as if Section 9.04 and this Section 9.05 were not in
the Agreement.
9.06 NONRECOURSE DEDUCTIONS. Nonrecourse Deductions shall be allocated
among the Members in accordance with Section 9.02. For purposes of this Section
9.06, the term "Nonrecourse Deductions" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(1).
9.07 LLC MINIMUM GAIN CHARGEBACK. Notwithstanding any other provisions
of this Agreement, in the event there is a net decrease in LLC Minimum Gain
during an LLC Fiscal Year, the Members shall be allocated items of income and
gain in accordance with Treasury Regulations Section 1.704-2(f). For purposes of
this Agreement, the term "LLC Minimum Gain" shall have the meaning for
partnership minimum gain set forth in Treasury Regulations Section
1.704-2(b)(2), and any Member's share of LLC Minimum Gain shall be determined in
accordance with Treasury Regulations Section 1.704-2(g)(1). This Section 9.07 is
intended to comply with the minimum gain chargeback requirement of Treasury
Regulations Section 1.704-2(f) and shall be interpreted and applied in a manner
consistent therewith.
9.08 MEMBER NONRECOURSE DEBT. Notwithstanding any other provisions of
this Agreement, to the extent required by Treasury Regulations Section
1.704-2(i), any items of income, gain, deduction, and loss of the LLC that are
attributable to a nonrecourse debt of the LLC that constitutes Member
Nonrecourse Debt (including chargebacks of Member Nonrecourse Debt Minimum Gain)
shall be allocated in accordance with the provisions of Treasury Regulations
Section 1.704-2(i). For purposes of this Agreement,
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the term "Member Nonrecourse Debt" shall have the meaning for partner
nonrecourse debt set forth in Treasury Regulations Section 1.704-2(b)(4), and
the term "Member Nonrecourse Debt Minimum Gain" shall have the meaning for
partner nonrecourse debt minimum gain set forth in Treasury Regulations Section
1.704-2(i)(2). This Section 9.08 is intended to satisfy the requirements of
Treasury Regulations Section 1.704-2(i) (including the partner nonrecourse debt
chargeback requirements) and shall be interpreted and applied in a manner
consistent therewith.
9.09 CURATIVE ALLOCATIONS. The allocations set forth in Sections 9.04,
9.05, 9.06, 9.07, 9.08, and 9.10 (the "Regulatory Allocations") are intended to
comply with the requirements of Treasury Regulations Sections 1.704-1(b) and
1.704-2. Notwithstanding any other provisions of this Article IX (other than the
Regulatory Allocations), the Regulatory Allocations shall be taken into account
in allocating other items of income, gain, deduction, and loss 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 each such Member if the Regulatory
Allocations had not occurred. This Section 9.09 shall be interpreted and applied
in such a manner and to such extent as is reasonably necessary to eliminate, as
quickly as possible, permanent economic distortions that would otherwise occur
as a consequence of the Regulatory Allocations in the absence of this Section
9.09.
9.10 LOSS LIMITATION. Net loss allocated pursuant to Section 9.02 shall
not exceed the maximum amount of net loss that can be allocated without causing
or increasing a deficit balance in any Member's Adjusted Capital Account. A
Member's "Adjusted Capital Account" balance shall mean such Member's Capital
Account balance increased by such Member's obligation to restore a deficit in
its Capital Account, including any deemed obligation pursuant to the penultimate
sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), and
decreased by the amounts described in Treasury Regulations Section
1.704-1(b)(2)(ii)(D)(4), (5), or (6). In the event some but not all of the
Members would have deficit balances in their Adjusted Capital Accounts as a
consequence of allocations of net loss pursuant to 9.02 in excess of the amount,
if any, permitted under the preceding sentence, the limitation set forth in this
Section 9.10 shall be applied on a Member by Member basis, and net loss not
allocable to any Member as a result of this limitation shall be allocated to the
other Members in proportion to the positive balances of such Members' Adjusted
Capital Accounts so as to allocate the maximum amount of net loss to each Member
under Treasury Regulations Section 1.704-1(b)(2)(ii)(D).
9.11 DISTRIBUTIONS OF NONRECOURSE LIABILITY PROCEEDS. If, during a
taxable year, the LLC makes a distribution to any Member that is allocable to
the proceeds of any nonrecourse liability of the LLC that is allocable to an
increase in LLC Minimum Gain pursuant to Treasury Regulations Section
1.704-2(h), then the LLC shall elect, to the extent permitted by Treasury
Regulations Section 1.704-2(h)(3), to treat such distribution as a distribution
that is not allocable to an increase in LLC Minimum Gain.
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9.12 COMPLIANCE WITH CODE SECTION 704(B). The allocation provisions
contained in this Article IX are intended to comply with Code Section 704(b) and
the Treasury Regulations promulgated thereunder and shall be interpreted and
applied in a manner consistent therewith.
ARTICLE X - DISTRIBUTIONS
10.01 ORDINARY DISTRIBUTIONS. Subject to Sections 10.02 through 10.04,
all funds and assets of the LLC which are determined by the Managing Member, in
its sole discretion, to be available for distribution shall be distributed 100%
to the Managing Member.
10.02 INCENTIVE DISTRIBUTION. Subject to Section 10.03, the LLC shall
make a distribution to the Members in an amount equal to the Incentive
Distribution derived from BPP Retail, LLC within thirty (30) days after the
receipt of such Incentive Distribution, as follows:
(a) 50% to the Managing Member; and
(b) 50% to the Employee Members (the "Aggregate Employee
Distribution").
Each Employee Member shall receive a portion of the Aggregate Employee
Distribution calculated by multiplying the Aggregate Employee Distribution by a
fraction, the numerator of which shall be the number of issued and outstanding
Units held by such Employee Member and the denominator of which shall be the
total number of issued and outstanding Units held by all Employee Members, both
as of the last day of the Fiscal Year with respect to which the Incentive
Distribution is made to the LLC.
10.03 DISTRIBUTIONS UPON LIQUIDATION OF LLC. Notwithstanding any other
provision of this Agreement to the contrary, in the event the LLC (or a Member's
interest therein) is "liquidated" within the meaning of Treasury Regulations
Section 1.704-1(b)(2)(ii)(G), then any distributions shall be made pursuant to
this Section 10.03 to the Members (or such Member, as appropriate) in accordance
with their positive Capital Accounts in compliance with Treasury Regulations
Section 1.704-1(b)(2)(ii)(B)(2).
10.04 DISTRIBUTION OF BPP RETAIL INTEREST; LIQUIDATION OF BPP RETAIL.
Except upon liquidation of the LLC as provided in Section 11.04, the LLC shall
make no distribution or other Transfer to the Employee Members of all or any
portion of any the membership interest held by the LLC in BPP Retail without (i)
prior to a Change in Control, the consent of the Managing Member, acting with
Board Authorization, or (ii) after a Change in Control, a Majority Vote. In the
event that BPP Retail is terminated or dissolved and its assets are distributed
in kind, then the Managing Member will make a cash contribution to the capital
of the LLC in the amount (if any) necessary to permit the
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LLC to make, and the LLC shall promptly make, the full amount of the Aggregate
Employee Distribution to the Employee Members in cash as if BPP Retail had made
an Incentive Distribution as of the date of such termination or dissolution
based on a sale of all of the assets of BPP Retail at their fair market value as
of such date.
ARTICLE XI - TRANSFERS OF MEMBERSHIP INTERESTS
11.01 ASSIGNABILITY OF INTERESTS. No Units of an Employee Member in the
LLC may be sold, assigned, transferred, pledged, hypothecated, gifted,
exchanged, optioned or encumbered (each, a "Transfer"), nor, in the case of any
Member which is a permitted assign of an Employee Member and which is not an
individual, may any Transfer of any interest in such Member be made, and no
Transfer shall be binding upon the LLC or any Member, unless it is expressly
permitted by this Article XI and the Managing Member receives an executed copy
of such assignment, which shall be in form and substance reasonably satisfactory
to the Managing Member. The assignee of such Units may become a substitute
Employee Member only upon the terms and conditions set forth in Section 11.02.
No Employee Member's Units may be Transferred except:
(a) to the Managing Member, with its consent;
(b) that, upon the death of an Employee Member, such Employee
Member's Units (subject to the provisions of reduction of Units set forth in
Section 7.03) may be Transferred by will or the laws of descent and
distribution; or
(c) to another Employee Member, with the prior written consent
of the Managing Member, which consent may be granted or withheld by the Managing
Member in its sole discretion.
For all purposes of this Agreement, any Transfers of Units shall be
deemed to occur as of the close of business on the last day of the calendar
month in which any such Transfer would otherwise have occurred.
11.02 TRANSFEREE EMPLOYEE MEMBERS. No transferee of the Units of an
Employee Member shall become a Member except in accordance with this Section
11.02. Any Person that acquires Units by Transfer from another Employee Member
in accordance with the provisions of Section 11.01 may be admitted as a
substituted Employee Member, but only with (i) the consent of the Managing
Member acting with Board Authorization, or (ii) if a Change in Control has
occurred, a Majority Vote (excluding the transferring Employee Member). The
admission of an assignee as an Employee Member shall in all events be
conditioned upon the execution of an instrument satisfactory to the Managing
Member whereby such assignee becomes a party to this Agreement as an Employee
Member. Upon such transferee's admission as an Employee Member, the Managing
Member shall make the appropriate revisions to SCHEDULE A hereto.
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11.03 ADDITIONAL REQUIREMENTS. As additional conditions to the validity
of (x) any Transfer of an Employee Member's Units (or, in the case of an
Employee Member which is not an individual, the interests of the direct and
indirect beneficial owners of such Employee Member) or (y) the issuance of
additional Units (pursuant to Section 7.01), such Transfer or issuance shall
not: (i) violate the registration provisions of the Securities Act or the
securities laws of any applicable jurisdiction, (ii) cause the LLC to become
subject to regulation as an "investment company" under the Investment Company
Act of 1940, as amended, and the applicable rules and regulations thereunder,
including by resulting in there being one hundred (100) or more beneficial
holders of interests in the LLC, (iii) result in the termination of any contract
to which the LLC is a party and which individually or in the aggregate with
other such contracts are material, or (iv) result in the treatment of the LLC as
an association taxable as a corporation or as a "publicly traded partnership"
for U.S. federal income tax purposes.
The Managing Member may require reasonable evidence as to the
foregoing, including, without limitation, a favorable opinion of counsel.
To the fullest extent permitted by law, any Transfer that violates the
conditions of this Section 11.03 shall be null and void AB INITIO.
11.04 ALLOCATION OF DISTRIBUTIONS BETWEEN ASSIGNOR AND ASSIGNEE;
SUCCESSOR TO CAPITAL ACCOUNTS. Upon the Transfer of Units pursuant to this
Article XI, distributions pursuant to Article X shall be made to the Person
owning the interest in the LLC at the date of distribution, unless the assignor
and assignee otherwise agree and so direct the Managing Member in a written
statement signed by both. In connection with a Transfer by a Member of Units,
the assignee shall succeed to a pro rata (based on the percentage of such
Person's Units transferred) portion of the assignor's Capital Account, unless
the assignor and assignee otherwise agree and so direct the Managing Member in a
written statement signed by both and consented to by the Managing Member.
11.05 TRANSFERS OF MANAGING MEMBER INTEREST. No approval or consent by
any Member shall be required for a Transfer of the Managing Member Interest.
ARTICLE XII - DISSOLUTION, LIQUIDATION, AND TERMINATION
12.01 DISSOLUTION. The LLC shall dissolve and its affairs shall be
wound up upon the first to occur of the following:
(a) the written consent of all of the Members;
(b) the bankruptcy of any Member; PROVIDED, HOWEVER, that the
LLC may be continued with the consent of not less than a "majority in interest"
(as defined in
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Revenue Procedure 94-46, 1994-2 C.B. 688) the remaining Members, such consent to
be given within ninety (90) days following such event;
(c) the entry of a decree of judicial dissolution under
Section 44 of the LLC Act;
(d) a consolidation or merger of the LLC in which the LLC is
not the resulting or surviving entity;
(e) prior to a Change in Control, by the Managing Member,
acting with Board Authorization, at any time, upon written notice to the other
Members; or
(f) after a Change in Control, by a Majority Vote.
The Managing Member shall promptly notify the Members of the
dissolution of the LLC.
12.02 LIQUIDATION. Upon dissolution of the LLC, the Managing Member
shall act as its liquidating trustee or the Managing Member may appoint one or
more Members as liquidating trustee. The liquidating trustee shall proceed
diligently to liquidate the LLC and wind up its affairs and shall dispose of the
assets of the LLC as follows:
First, to the payment of all debts and liabilities of the LLC,
including expenses of its liquidation;
Second, to the setting up of any reserves which the Managing Member or
the liquidating trustee may deem necessary for any contingent or unforeseen
liabilities or obligations of the LLC or of the Members arising out of or in
connection with the LLC; and
Third, to distribute the balance to the Members in accordance with
Article X.
Until final distribution, the liquidating trustee may continue to operate the
business and properties of the LLC with all of the power and authority of the
Managing Member. As promptly as possible after dissolution and again after final
liquidation, the liquidating trustee shall cause an accounting of the LLC's
assets, liabilities, operations and liquidating distributions to be given to the
Members.
12.03 CERTIFICATE OF CANCELLATION. Upon completion of the distribution
of LLC assets as provided herein, the LLC shall be terminated, and the Managing
Member (or such other Person or Persons as the Act may require or permit) shall
file a Certificate of Cancellation with the Secretary of State of Delaware under
the LLC Act, cancel any other filings made pursuant to Sections 2.01, 2.03 and
2.05, and take such other actions as may be necessary to terminate the existence
of the LLC.
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ARTICLE XIII - GENERAL PROVISIONS
13.01 OFFSET. Whenever the LLC is obligated to make a distribution or
payment to any Member, any amounts that Member owes the LLC may be deducted from
said distribution or payment by the LLC.
13.02 NOTICES. Except as expressly set forth to the contrary in this
Agreement, all notices, requests, or consents required or permitted to be given
under this Agreement must be in writing and shall be deemed to have been given
(i) three (3) days after the date mailed by registered or certified mail,
addressed to the recipient, with return receipt requested, (ii) upon delivery to
the recipient in person or by courier, or (iii) upon receipt of a facsimile
transmission by the recipient. Such notices, requests and consents shall be
given (x) to Members at their addresses on SCHEDULE A, or such other address as
a Member may specify by notice to the Managing Member, or (y) to the LLC or the
Managing Member at the address of the principal office of LLC specified in
Section 2.03. Whenever any notice is required to be given by law, the
Certificate or this Agreement, a written waiver thereof, signed by the Person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice.
13.03 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the Members and the Managing Member relating to the LLC and supersedes all
prior contracts or agreements with respect to the LLC, whether oral or written.
13.04 LIMITATION OF LITIGATION; CONSENT TO JURISDICTION. No Member
shall be entitled to initiate or participate in a class action on behalf of all
or any part of the Members against the LLC or any Member, and no Member shall be
entitled to initiate or participate in a derivative suit on behalf of the LLC
against any Member, unless in each case such action or suit has received prior
approval pursuant to a Majority Vote (exclusive of the vote of any Member who is
a defendant party to the proposed action or suit), or unless otherwise required
by law. A Member who initiates an action or suit in violation of this Agreement
shall be liable to the LLC and its Members who are defendant parties for all
damages and expenses which they incur as a result, including without limitation
reasonable fees and expenses of legal counsel and expert witnesses and court
costs. The parties to this Agreement hereby consent to the non-exclusive
jurisdiction of the courts of Massachusetts in connection with any matter or
dispute arising under this Agreement or between them regarding the affairs of
the LLC.
13.05 AMENDMENT OR MODIFICATION. This Agreement may be amended or
modified from time to time only by both (i) a written instrument signed by the
Managing Member, acting with Board Authorization, and (ii) a Majority Vote;
PROVIDED, HOWEVER, that (a) an amendment or modification reducing a Member's
outstanding Units or changing adversely the rights of a Member with respect to
distributions, allocations or voting, (other than to reflect the issuance of
additional Units, the admission of new Members or other changes otherwise
provided by this Agreement, or solely as a result of
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the termination of a Membership Interest in a transaction which does not result
in a Change in Control or a transaction of the kind described in Section 11.05)
shall be effective only with that Member's consent; (b) an amendment or
modification to reflect the admission of a new Member may be approved by the
Managing Member alone and shall not be subject to approval by Members; (c) an
amendment or modification increasing any liability of a Member to the LLC, to
the Managing Member or to the other Members, or adversely affecting the
limitation of the liability of a Member with respect to the LLC, shall be
effective only with that Member's consent; (e) an amendment or modification
reducing the required percentage of outstanding Units for any consent or vote in
this Agreement shall be effective only with the consent or vote of Members
having the percentage of outstanding Units theretofore required; (f) any
amendment or modification to this Agreement which would not reasonably be
expected to affect adversely the rights, privileges or interests of the Employee
Members may be made by a written instrument signed by the Managing Member alone;
and (g) an amendment of this section shall require the consent of all of the
Members.
13.06 BINDING EFFECT. Subject to the restrictions on transfers set
forth in this Agreement, this Agreement is binding on and inures to the benefit
of the parties and their respective heirs, legal representatives, successors and
assigns.
13.07 GOVERNING LAW; SEVERABILITY. This Agreement is governed by and
shall be construed in accordance with the law of the State of Delaware,
exclusive of its conflict-of-laws principles. In the event of a conflict between
the provisions of this Agreement and any provision of the Certificate or the
Act, the applicable provision of this Agreement shall control, to the extent
permitted by law. If any provision of this Agreement or the application thereof
to any Person or circumstance is held invalid or unenforceable to any extent,
the remainder of this Agreement and the application of that provision shall be
enforced to the fullest extent permitted by law.
13.08 FURTHER ASSURANCES. In connection with this Agreement and the
transactions contemplated hereby, each Member shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions, as requested by the Managing Member.
13.09 WAIVER OF CERTAIN RIGHTS. Each Member irrevocably waives any
right it may have to maintain any action for dissolution of the LLC or for
partition of the property of the LLC. The failure of any Member to insist upon
strict performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall not
be a waiver of such Member's right to demand strict compliance herewith in the
future. No consent or waiver, express or implied, to or of any breach or default
in the performance of any obligation hereunder, shall constitute a consent or
waiver to or of any other breach or default in the performance of the same or
any other obligation hereunder.
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13.10 NOTICE TO MEMBERS OF PROVISIONS OF THIS AGREEMENT. By executing
this Agreement, each Member acknowledges that such Member has actual notice of
(a) all of the provisions of this Agreement, including, without limitation, the
restrictions on the transfer of Membership Interests set forth in Article XI,
and (b) all of the provisions of the Certificate. Each Member hereby agrees that
this Agreement constitutes adequate notice of all such provisions, and each
Member hereby waives any requirement that any further notice thereunder be
given.
13.11 THIRD-PARTY BENEFICIARIES. Except as is expressly set forth in
this Agreement, the provisions of this Agreement are not intended to be for the
benefit of any creditor or other Person to whom any debts or obligations are
owed by, or who may have any claim against, the LLC or any of its Members or the
Managing Member, except for Members or the Managing Member in their capacities
as such. Notwithstanding any contrary provision of this Agreement, no such
creditor or Person shall obtain any rights under this Agreement or shall, by
reason of this Agreement, be permitted to make any claim against the LLC or any
Member or Managing Member.
13.12 INTERPRETATION. For the purposes of this Agreement, terms not
defined in this Agreement shall be defined as provided in the Act; and all
nouns, pronouns and verbs used in this Agreement shall be construed as
masculine, feminine, neuter, singular, or plural, whichever shall be applicable.
Titles or captions of Articles and Sections contained in this Agreement are
inserted as a matter of convenience and for reference, and in no way define,
limit, extend or describe the scope of this Agreement or the intent of any
provision hereof.
13.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if all parties had signed the same
document, and all counterparts shall be construed together and shall constitute
the same instrument.
13.14 TAXATION AS PARTNERSHIP. The LLC shall be treated as a
partnership for United States federal income tax purposes and the Members agree
not to take any action inconsistent with the LLC's classification as a
partnership for United States federal income tax purposes.
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Managing Member: BURNHAM PACIFIC
OPERATING PARTNERSHIP, L.P.
By: Burnham Pacific Properties, Inc.,
its General Partner
By: /s/ J. David Martin
-------------------------------
Name: J. David Martin
Title: Chief Executive Officer
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ J. David Martin
-------------------------------
Name: J. David Martin
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 200 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ Joseph Wm. Byrne
-------------------------------
Name: Joseph Wm. Byrne
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 100 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ Daniel B. Platt
-------------------------------
Name: Daniel B. Platt
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 100 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ James W. Gaube
-------------------------------
Name: James W. Gaube
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 100 Units
34
<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ Scott C. Verges
-------------------------------
Name: Scott C. Verges
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 100 Units
35
<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee
Member have executed this Limited Liability Company Agreement, dated as of
June 1, 1999, in counterparts as of the date thereof.
Employee Member:
/s/ Susan Rorison
-------------------------------
Name: Susan Rorison
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 20 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ Terry Tallen
-------------------------------
Name: Terry Tallen
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 20 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ Marc Artino
-------------------------------
Name: Marc Artino
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 40 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ Lindsey Adams
-------------------------------
Name: Lindsey Adams
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 60 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ Mark Mayer
-------------------------------
Name: Mark Mayer
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 15 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ Scott Beggs
-------------------------------
Name: Scott Beggs
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 15 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ John Waters
-------------------------------
Name: John Waters
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 20 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ John Reinholt
-------------------------------
Name: John Reinholt
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 20 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ James Kilcoyne
-------------------------------
Name: James Kilcoyne
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 20 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ Dean Isaacs
-------------------------------
Name: Dean Isaacs
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 20 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ Michael Rubin
-------------------------------
Name: Michael Rubin
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 10 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
/s/ Tony Cardoza
-------------------------------
Name: Tony Cardoza
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 10 Units
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<PAGE>
IN WITNESS WHEREOF, the Managing Member and each Employee Member have
executed this Limited Liability Company Agreement, dated as of June 1, 1999, in
counterparts as of the date thereof.
Employee Member:
BURNHAM PACIFIC OPERATING
PARTNERSHIP, L.P.
By: Burnham Pacific Properties, Inc.,
its General Partner
By: /s/ J. David Martin
---------------------------------
Name: J. David Martin
Title: Chief Executive Officer
Number of issued and outstanding Units held by the above
Employee Member upon adoption of the Agreement: 130 Units
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BURNHAM PACIFIC EMPLOYEES LLC
SCHEDULE A
NAME AND ADDRESS OF MANAGING MEMBER:
Burnham Pacific Operating Partnership, L.P.
610 West Ash Street
San Diego, CA 92101
NAMES AND ADDRESSES OF EMPLOYEE MEMBERS:
J. David Martin, 100 Bush St, Ste 2400, San Francisco, CA 94104
Joseph W. Byrne, 100 Bush St, Ste 2400, San Francisco, CA 94104
Daniel B. Platt, 610 W. Ash, Ste 1600, San Diego, CA 92101
James W. Gaube, 10135 SE Sunnyside Rd., Ste 250, Clackamas, OR 97015
Scott C. Verges, 100 Bush St, Ste 2400, San Francisco, CA 94104
Lindsey Adams, 100 Bush St, Ste 2400, San Francisco, CA 94104
Susan Rorison, 10780 Santa Monica Blvd., Ste 401, Los Angeles, CA 90025
Terry Tallen, 100 Bush St, Ste 2400, San Francisco, CA 94104
Marc Artino, 610 W. Ash, Ste 1600, San Diego, CA 92101
Mark Mayer, 610 W. Ash, Ste 1600, San Diego, CA 92101
Scott Beggs, 610 W. Ash, Ste 1600, San Diego, CA 92101
John Waters, 610 W. Ash, Ste 1600, San Diego, CA 92101
John Reinholt, 10135 SE Sunnyside Rd., Ste 250, Clackamas, OR 97015
James Kilcoyne, 610 W. Ash, Ste 1600, San Diego, CA 92101
Dean Isaacs, 100 Bush St, Ste 2400, San Francisco, CA 94104
Michael Rubin, 610 W. Ash, Ste 1600, San Diego, CA 92101
Tony Cardoza, 100 Bush St, Ste 2400, San Francisco, CA 94104
Burnham Pacific Operating Partnership, L.P. , 100 Bush St, Ste 2400,
San Francisco, CA 94104
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BURNHAM PACIFIC EMPLOYEES LLC
SCHEDULE B
to
Limited Liability Company Agreement
Members: Initial Capital Account:
MANAGING MEMBER:
Burnham Pacific Operating Partnership, L.P.
EMPLOYEE MEMBERS:
J. David Martin
Joseph W. Byrne
Daniel B. Platt
James W. Gaube
Scott Verges
Lindsey Adams
Susan Rorison
Terry Tallen
Marc Artino
Mark Mayer
Scott Beggs
John Waters
John Reinholt
James Kilcoyne
Dean Isaacs
Michael Rubin
Tony Cardoza
Burnham Pacific Operating Partnership, L.P.
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Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Amendment No. 5 to
Registration Statement No. 333-69957 of Burnham Pacific Properties, Inc. on
Form S-3 of our reports dated February 23, 1999 (March 9, 1999 as to
paragraph 4 of Note 18) appearing in the Annual Report on Form 10-K 405, as
amended on April 30, 1999 and June 11, 1999, of Burnham Pacific Properties,
Inc. for the year ended December 31, 1998, and to the reference to us under
the heading "Experts" in the Prospectus, which is part of such Registration
Statement.
/s/ Deloitte & Touche LLP
San Diego, California
August 10, 1999
