<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1996
REGISTRATION NO. 333-02798
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PACIFIC GULF PROPERTIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 33-0577520
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
363 SAN MIGUEL
NEWPORT BEACH, CALIFORNIA 92660
(714) 721-2700
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GLENN L. CARPENTER
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
PACIFIC GULF PROPERTIES INC.
363 SAN MIGUEL
NEWPORT BEACH, CALIFORNIA 92660
(714) 721-2700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
SAMUEL H. GRUENBAUM, ESQ.
LEWIS G. FELDMAN, ESQ.
COX, CASTLE & NICHOLSON, LLP
2049 CENTURY PARK EAST, 28TH FLOOR
LOS ANGELES, CALIFORNIA 90067
(310) 277-4222
------------------------
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 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 of 1933, 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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
MAY 20, 1996
PRELIMINARY PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY , 1996)
2,800,000 SHARES
PACIFIC GULF PROPERTIES INC.
COMMON STOCK
------------------
Pacific Gulf Properties Inc. (the "Company"), a self-administered and
self-managed equity real estate investment trust, owns, operates, manages,
leases, acquires and rehabilitates multifamily and industrial properties. The
Company focuses on properties located in California and the Pacific Northwest,
with the largest concentration in Southern California. The Company owns and
operates 21 multifamily properties, containing 3,945 apartment units, and 11
industrial properties, containing an aggregate of 3,091,000 leasable square
feet.
Of the shares of common stock of the Company (the "Common Stock") offered
hereby, 2,015,581 shares are being sold by the Company, and 784,419 shares are
being sold by a stockholder (the "Selling Stockholder"). The net proceeds from
the sale of the Company's shares of Common Stock will be used to fund a portion
of the acquisition price of nine industrial properties.
To ensure that the Company maintains its qualification as a real estate
investment trust, ownership by any person, with certain exceptions, is limited
to 9.8% of the total number of shares of the Company's outstanding Common Stock
(including convertible securities of the Company). See "Description of Common
Stock" in the accompanying Prospectus.
The Common Stock is listed on the American Stock Exchange (the "ASE") under
the symbol "PAG." On May 3, 1996, the last reported sale price of the Common
Stock on the ASE was $17.25. The Company's current annualized distribution is
$1.60 per share. See "Price Range of Common Stock and Distributions."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THE ACCOMPANYING PROSPECTUS FOR
CERTAIN RISK FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<S> <C> <C> <C> <C>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2) SELLING STOCKHOLDER(2)
-------------------------------------------------------------------------------------------------------
Per Share....................... $ $ $ $
-------------------------------------------------------------------------------------------------------
Total(3)........................ $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting $782,000 in estimated expenses payable by the Company. The
Selling Stockholder is obligated to pay its own legal and other expenses,
including underwriting discounts and commissions relating to the sale of its
shares of Common Stock.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
420,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about May ,
1996.
ALEX. BROWN & SONS
INCORPORATED
OPPENHEIMER & CO., INC.
PRUDENTIAL SECURITIES INCORPORATED
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MAY , 1996
LOGO
<PAGE> 3
PACIFIC GULF BUSINESS PARK
Tukwila, Washington
ESCONDIDO BUSINESS CENTER
Escondio, California
(Proposed Acquisition)
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 4
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in,
or incorporated by reference into, this Prospectus Supplement and the
accompanying Prospectus. Unless indicated otherwise, the information contained
in this Prospectus Supplement assumes no exercise of the Underwriters' over-
allotment option. Unless the context otherwise requires, as used herein the term
"Company" includes Pacific Gulf Properties Inc. and its consolidated operating
partnership, PGP Inland Communities, L.P.
THE COMPANY
The Company, a self-administered and self-managed equity real estate
investment trust ("REIT"), owns, operates, manages, leases, acquires and
rehabilitates multifamily and industrial properties. The Company's properties
are located in California and the Pacific Northwest, with the largest
concentration in Southern California. The Company focuses on this geographic
region due to management's extensive experience in these markets and
management's belief that these markets present potential for long-term economic
growth. The Company currently owns a portfolio of 21 multifamily properties,
containing 3,945 apartment units (the "Multifamily Properties"), and 11
industrial properties, containing an aggregate of 3,091,000 leasable square feet
(the "Industrial Properties," and collectively with the Multifamily Properties,
the "Properties").
Management believes that focusing on two property types allows the Company
greater opportunities and flexibility than would be available by investing in
only one property type. Apartments have shorter term leases than industrial
properties and, hence, apartment rental income reacts more quickly to changes in
economic conditions. Lease income on industrial properties reacts more slowly to
changes in the economy due to longer term leases on such properties. The values
of these two property types and the opportunities they present for growth are
affected by the timing of these rental adjustments. This distinction, along with
other market factors that impact the demand for multifamily and industrial
properties differently, provides the Company with greater options in
implementing its investment, disposition and property management strategies.
The Company's objective is to increase shareholder value by improving net
operating income of existing properties and through acquisitions. Management
closely monitors rental operations and administrative expenses, utilizes new
technologies, periodically conducts contract reviews, and seeks opportunities to
maximize economies of scale in order to control costs, reduce tenant turnover
and assure that the Company is competitive in all aspects of its operations. The
Company also seeks to increase shareholder value through the acquisition of
properties that provide attractive initial returns and opportunities to increase
net operating income. Additionally, the Company seeks well-located properties in
strong markets where values have suffered due to poor management or maintenance
and that can be acquired at less than replacement cost. See "Risk Factors" in
the accompanying Prospectus.
Mr. Glenn L. Carpenter, the Company's Chairman and Chief Executive Officer,
and his five member senior management team have an average of 17 years real
estate experience within the Company's markets. The Company employs
approximately 135 persons, of whom 110 are on-site or property related.
THE ACQUISITION PROPERTIES
Management believes that while attractive investment opportunities exist
for both multifamily and industrial properties, the most attractive
opportunities currently exist within the industrial sector. Management believes
that the Southern California industrial property market is poised for recovery
based upon an increasing level of leasing interest and a limited supply of new
product. As evidence of this, the Company has observed recent increases in the
prices for industrial properties and tenant requests for longer term leases.
S-3
<PAGE> 5
The Company has entered into agreements to purchase nine industrial
properties (collectively, the "Acquisition Properties") located in California
containing an aggregate of 1,352,000 leasable square feet. The aggregate
consideration for the Acquisition Properties will be $54.1 million, which will
be funded primarily with the Company's proceeds from this Offering. Such
proceeds, after deducting underwriting discounts and commissions and estimated
expenses of this Offering, will be approximately $32.0 million ($38.8 million if
the Underwriters' over-allotment option is exercised in full), assuming an
offering price of $17.25. The balance will be funded with the Company's short-
term acquisition line of credit. Management believes that long-term financing,
which has not as yet been secured, will be secured prior to expiration of the
acquisition line of credit. The purchases are expected to close shortly after
completion of the Offering. Management believes it is acquiring these
Acquisition Properties at less than their estimated replacement cost based upon
management's analysis of the size, location and other amenities of the
Acquisition Properties, data pertaining to sales of vacant land similar to the
land on which the Acquisition Properties are located, published industry
development costs and management's experience with industrial properties. These
acquisitions will also further the Company's objective of increasing its
presence in certain of its markets and expanding into new markets, both of which
offer attractive opportunities.
RECENT DEVELOPMENTS
Portfolio Acquisition. In 1995, the Company formed a limited partnership
using a DOWNREIT structure that acquired 11 multifamily communities with 1,368
apartment units in Southern California at an agreed value of approximately $71.5
million. The Company obtained a minimum 78% equity interest in, and full
management and control of, the operating partnership and the right to 100% of
cash flow until certain thresholds are achieved. To finance this portfolio
acquisition, the partnership used $12.8 million that was contributed to it by
the Company from its line of credit, issued approximately 225,000 limited
partnership units to the prior owners, and assumed $55.1 million of existing
indebtedness encumbering the properties. The Company has implemented its systems
and procedures for management, cost efficiencies and re-tenanting at these
properties, and has begun rehabilitation and new marketing programs. These
efforts have already resulted in increases in the net operating income produced
by these properties, and further increases are expected as the Company's
programs are fully implemented.
Disposition of Texas Portfolio. In 1995, the Company sold its Texas
portfolio of 1,085 apartment units for approximately $31.1 million, at a
substantial economic gain and at a time when, in the Company's view, market
values of these properties had appreciated substantially. The Company used the
net proceeds from the sale to acquire one multifamily property at a purchase
price of $12.5 million and one industrial property at a purchase price of $17.3
million; both properties are located in the Greater Seattle area. The Company
believes these new properties were acquired at prices below their replacement
cost and have rents generally at or below current market rates, providing a
greater potential for future growth. Also, by having narrowed its geographic
focus, the Company is better able to concentrate the efforts of its management
personnel.
Entry into "Active Senior" Housing Market. In 1994, the Company acquired a
138-unit apartment community in Laguna Hills, California, at a purchase price of
$7.8 million, of which $4.8 million was funded by the Company's line of credit
and $3.0 million by the assumption of existing indebtedness encumbering the
properties. The Company expanded this property in 1995 to include substantial
recreational facilities and other amenities and facilities aimed at the special
needs of seniors. In 1995, the Company acquired three senior apartment
communities, consisting of 308 apartment units in Southern California as part of
the portfolio acquisition described above. The agreed value for these properties
was $12.9 million, all of which was funded by the assumption of existing
indebtedness encumbering the properties.
Increases in Distributions. In December 1995, the Company declared an
increase in its quarterly distribution, from $0.39 per share to $0.40 per share,
representing an annualized
S-4
<PAGE> 6
distribution of $1.60 per share of Common Stock. The percentage increase in the
Company's quarterly distribution was less than the percentage increase in the
Company's Fund from Operations, consistent with the Company's goal of decreasing
its payout ratio in order to retain and reinvest additional funds while
increasing its distributions.
First Quarter 1996 Results. Revenues for the first quarter of 1996 were
$10.8 million compared with $8.4 million for the first quarter of 1995. Funds
from Operations (as defined under "Summary Financial Information") for the first
quarter of 1996 were $2.1 million compared with $1.9 million for the first
quarter of 1995. Net operating income for the Company's 2,209 multifamily units
that were owned by the Company in the first quarters of both 1995 and 1996
increased to $2.4 million for the first quarter of 1996, compared with $2.2
million for the first quarter of 1995, a 9% increase. Occupancy for these
properties increased from 91% in the first quarter of 1995 to 94% in the first
quarter of 1996. Multifamily rental income for the period ended March 31, 1996
totaled $7.1 million and included $3.1 million generated by leased properties
acquired during 1995 and $4.0 million from existing Multifamily Properties. For
industrial space, effective rents on space renewed in the first quarter of 1996
remained consistent with existing rental rates on expiring leases. Industrial
rental income for the period ended March 31, 1996 totaled $3.8 million and
included $0.8 million generated by two industrial parks acquired in late 1995
and in 1996 and $3.0 million from existing Industrial Properties. Overall
occupancy for the multifamily and industrial portfolios was 93% and 95%,
respectively, as of March 31, 1996.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by Company............................. 2,015,581 shares
Common Stock offered by Selling Stockholder................. 784,419 shares
Common Stock to be outstanding after the Offering........... 6,875,860 shares (1)
Use of Proceeds from Company Offering....................... To fund the purchase of
the Acquisition Properties
ASE Symbol.................................................. PAG
</TABLE>
---------------
(1) Assumes the Underwriters' over-allotment option is not exercised. Excludes
286,404 shares of Common Stock reserved for issuance under the Company's
1993 Share Option Plan (636,404 shares if the proposed amendment to increase
the shares covered by the 1993 Share Option Plan is approved at the May 8,
1996, Annual Meeting of Shareholders), and 249,074 shares of Common Stock
reserved for issuance under the Company's Dividend Reinvestment Plan. Also
excludes an aggregate of 225,452 shares of Common Stock which the Company
will have the right, but not the obligation, to issue if the holders of the
limited partnership interests ("OP Units") in the Company's subsidiary
operating partnership, PGP Inland Communities, L.P., exercise their right
commencing approximately September 1997 to require the operating partnership
to purchase their OP Units.
S-5
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary historical and pro forma financial
information for the Company and the multifamily and industrial operations
acquired from Santa Anita Realty Enterprises, Inc. (the "Predecessor"). The
following summary financial information should be read in conjunction with
"Selected Financial and Operating Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the pro forma condensed
consolidated financial information and notes thereto contained in this
Prospectus Supplement, and the consolidated and combined financial statements
and related notes incorporated by reference in the accompanying Prospectus.
For the year ended December 31, 1995, the pro forma operating information
is presented as if the following transactions occurred as of the beginning of
the period: (i) the purchase and disposition of certain multifamily and
industrial properties completed by the Company during 1995 and 1996, as more
fully described in the pro forma condensed consolidated financial statements,
(ii) the purchase of the Acquisition Properties and (iii) the completion of this
Offering, the establishment of the acquisition line of credit (see "Business and
Properties -- Acquisition Line of Credit") and the application of the net
proceeds thereof as described in this Prospectus Supplement. For the three
months ended March 31, 1996, the pro forma operating information is presented as
if the following transactions occurred as of the beginning of the period: (i)
the purchase of an industrial property in 1996, as more fully described in the
pro forma condensed consolidated financial statements, (ii) the purchase of the
Acquisition Properties and (iii) the completion of this Offering, the
establishment of the acquisition line of credit and the application of the net
proceeds thereof as described in this Prospectus Supplement. Pro forma balance
sheet information is presented as if the Acquisition Properties were acquired
and this Offering were consummated on March 31, 1996. The estimated net proceeds
of this Offering have been calculated based on an assumed offering price of
$17.25 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company. The pro
forma operating information incorporates certain assumptions that are included
in the notes to the pro forma condensed consolidated financial statements
included elsewhere in this Prospectus Supplement. The pro forma financial
information is not necessarily indicative of what the actual financial position
and results of operations of the Company would have been as of the dates or for
the periods indicated, nor does it purport to represent the financial position
and results of operations for any future period.
S-6
<PAGE> 8
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
PREDECESSOR COMPANY
---------------------------------- ----------------------------------------
HISTORICAL
---------------------------------------------------------------- PRO FORMA
1991 1992 1993 1994 (1) 1995 1995 (2)
-------- -------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Rental income...................... $ 8,392 $ 11,653 $ 16,152 $ 26,144 $ 37,091 $ 51,144
Rental property expenses........... 3,124 4,845 7,506 10,376 12,782 18,059
--------- --------- --------- ----------- ----------- -----------
Net rental property earnings....... 5,268 6,808 8,646 15,768 24,309 33,085
Income (loss) before gain on sale
of properties and extraordinary
item.............................. (1,207) (1,620) (12,036) 2,158 1,739 3,319
Net income (loss).................. (1,207) (1,620) (12,036) (832) 8,403 3,319
Net income (loss) per common
share............................. -- -- -- (.07)(3) 1.74 0.48
Weighted average common shares..... -- -- -- 4,273,337(3) 4,830,723 6,846,304
BALANCE SHEET DATA
Real Estate, net of accumulated
depreciation...................... $ 70,281 $ 95,914 $ 97,698 $ 193,457 $ 278,692 --
Total assets....................... 73,944 100,186 99,984 202,519 288,591 --
Senior debt........................ 52,824 78,613 88,740 69,480 149,847 --
Convertible subordinated
debentures........................ 55,526 55,659 --
Total equity....................... 22,112 23,200 9,501 70,860 71,980 --
PROPERTY DATA (end of period)
Total apartment properties......... 5 9 10 13 21 21
Total apartment units.............. 1,290 2,398 2,654 3,292 3,945 3,945
Apartment units occupied........... 95% 93% 92% 93% 92% 92%
Total industrial properties........ 3 3 3 9 10 20
Industrial leasable area (sq.
ft.).............................. 185,000 185,000 185,000 2,426,000 2,902,000 4,443,000
Industrial leasable area leased.... 89% 97% 95% 97% 96% 92%
SUPPLEMENTAL DATA
Funds From Operations -- New
Definition (4).................... $ 480 $ 662 $ 1,572 $ 5,879 $ 7,820 $ 11,170
Cash flow information:
Operating......................... (367) (348) 1,307 3,950 7,138 --
Investing......................... (18,084) (27,660) (15,323) (99,504) (84,480) --
Financing......................... 18,398 28,318 13,798 98,649 76,674 --
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------
COMPANY
----------------------------------------
HISTORICAL
------------------------- PRO FORMA
1995 1996 1996 (2)
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING DATA
Rental income...................... $ 8,428 $ 10,835 $ 12,852
Rental property expenses........... 2,955 3,734 4,279
----------- ----------- -----------
Net rental property earnings....... 5,473 7,101 8,573
Income (loss) before gain on sale
of properties and extraordinary
item.............................. 544 293 999
Net income (loss).................. 544 293 999
Net income (loss) per common
share............................. .11 .06 .15
Weighted average common shares..... 4,796,729 4,864,044 6,879,625
BALANCE SHEET DATA
Real Estate, net of accumulated
depreciation...................... $ 199,942 $ 284,970 $ 337,305
Total assets....................... 208,777 294,390 348,490
Senior debt........................ 77,609 157,606 179,719
Convertible subordinated
debentures........................ 55,558 55,649 55,649
Total equity....................... 69,542 70,409 102,396
PROPERTY DATA (end of period)
Total apartment properties......... 13 21 21
Total apartment units.............. 3,292 3,945 3,945
Apartment units occupied........... 92% 93% 93%
Total industrial properties........ 9 11 20
Industrial leasable area (sq.
ft.).............................. 2,426,000 3,091,000 4,443,000
Industrial leasable area leased.... 97% 95% 94%
SUPPLEMENTAL DATA
Funds From Operations -- New
Definition (4).................... $ 1,944 $ 2,128 $ 3,061
Cash flow information:
Operating......................... 615 1,849 --
Investing......................... (7,840) (8,049) --
Financing......................... 6,259 5,819 --
</TABLE>
---------------
(1) Includes the combined historical operations of the Company (from February 18
through December 31, 1994) and the Predecessor's multifamily and industrial
operations (prior to February 18, 1994).
(2) See notes to pro forma condensed consolidated financial statements included
elsewhere in this Prospectus Supplement.
(3) Per share data for 1994 was based on the weighted average common shares
outstanding for the period February 18, 1994 (the closing date of the
Company's initial public offering) through December 31, 1994 and the
Company's net loss for that period.
(4) Funds From Operations ("FFO") is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") to mean net income, computed in
accordance with generally accepted accounting principles ("GAAP"), excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Management generally considers Funds From
Operations to be a useful measure of the operating performance of an equity
REIT because, together with net income and cash flows, FFO provides
investors with an additional basis to evaluate the ability of a REIT to
incur and service debt and to fund acquisitions and other capital
expenditures. FFO does not represent cash flow from operations as defined by
generally accepted accounting principles, should not be considered as an
alternative to net income as an indicator of the Company's operating
performance and is not indicative of cash available to fund all cash flow
needs. FFO does not measure whether cash flow is sufficient to fund all of
the Company's cash needs including principal amortization, capital
improvements and distributions to stockholders. FFO also does not represent
cash flows generated from operating, investing or financing activities as
defined by GAAP. Further, FFO as disclosed by other REITs may not be
comparable to the Company's calculation of FFO. On March 3, 1995, NAREIT
modified the calculation of FFO to, among other things, eliminate
amortization of deferred financing costs and depreciation of non-real estate
assets as items added back to net income when computing FFO. See "Selected
Financial and Operating Data".
S-7
<PAGE> 9
THE COMPANY
Pacific Gulf Properties Inc., a self-administered and self-managed equity
REIT, owns, operates, manages, leases, acquires and rehabilitates multifamily
and industrial properties. The Company currently owns a portfolio of 21
Multifamily Properties, containing 3,945 units, and 11 Industrial Properties,
containing 3,091,000 leasable square feet. As of March 31, 1996, the Multifamily
Properties and the Industrial Properties were 93% and 95% occupied,
respectively.
The Company focuses on properties located in California and the Pacific
Northwest, with the largest concentration in Southern California. Management has
extensive experience in these markets and believes that these markets present
potential for long-term economic growth because of their proximity to Pacific
Rim and NAFTA trading partners, access to ports and other facilities,
anticipated growth in population and employment, and desirable climates and
recreational environments.
The Company concentrates on middle-market apartment communities, with
emphasis on family-style apartments and active senior living for those ages 55
and older. The Company has emphasized these middle-market communities because
they are favored by current demographic and economic trends and, thus management
believes that these types of communities will provide attractive long-term
returns. In addition, management believes that active senior housing typically
has lower operating and management costs due to lower tenant turnover.
The Company also focuses on multi-tenant business parks and mid-size
warehouse/distribution facilities. By emphasizing these types of industrial
properties, the Company attempts to limit its risk from any single tenant or
property. Whenever possible, the Company seeks a significant market share in its
principal submarkets so that it can accommodate its tenants as their needs
change and have an influence on trends in market rents.
Management believes that focusing on two property types allows the Company
greater opportunities and flexibility than would be available by investing only
in one property type. Apartments have shorter leases than industrial properties
and, hence, apartment rental income reacts more quickly to changes in economic
conditions. Lease income on industrial properties reacts more slowly to changes
in the economy due to longer term leases on such properties. The values of these
two property types and the opportunities they present for growth are affected by
the timing of these rental adjustments. This distinction, along with other
market factors that impact the demand for multifamily and industrial properties
differently, provides the Company with greater options in implementing its
investment, disposition and property management strategies.
The Company also may pursue development of active senior housing or
multi-tenant industrial properties on a limited basis where management believes
such development would provide the Company with satisfactory returns on a
risk-adjusted basis, after taking into account returns available through
acquisition opportunities.
The Company's objective is to increase shareholder value by continuing to
grow its Funds from Operations by improving net operating income of existing
properties and through acquisitions. Management closely monitors rental
operations and administrative expenses, utilizes new technologies, periodically
conducts contract reviews, and seeks opportunities to maximize economies of
scale in order to control costs, reduce tenant turnover and assure that the
Company is competitive in all aspects of its operations. The Company also seeks
to increase shareholder value through the acquisition of properties that provide
attractive initial returns and opportunities to increase Funds from Operations.
Additionally, the Company seeks well-located properties in strong markets where
values have suffered due to poor management or maintenance and that can be
acquired at less than replacement cost.
The Company's executive offices are located at 363 San Miguel Drive,
Newport Beach, California 92660. The telephone number is (714) 721-2700. The
Company was incorporated in Maryland in August 1993.
S-8
<PAGE> 10
USE OF PROCEEDS
The net proceeds from the sale of the Company's shares of the Common Stock
offered hereby, after deducting underwriting discounts and commissions and
estimated expenses of this Offering, are approximately $32.0 million ($38.8
million if the Underwriters' over-allotment option is exercised in full),
assuming an offering price of $17.25. The Company intends to use the net
proceeds to fund a portion of the purchase of the Acquisition Properties, all of
which will be acquired from unaffiliated third parties. The balance of the
purchase price of the Acquisition Properties will be financed with the Company's
acquisition line of credit. See "Business and Properties -- Acquisition Line of
Credit." To the extent the net proceeds are not used to fund the acquisition of
the Acquisition Properties, they will be used for working capital purposes,
including potential funding of additional acquisitions not yet identified, and
to repay Company debt (although repayment of such debt is not expected to be
material).
If the Underwriters' over-allotment option is exercised in whole or in
part, any balance of the net proceeds will be used to repay Company debt and for
working capital purposes.
The Company will not receive any portion of the proceeds from the sale of
Common Stock of the Selling Stockholder.
SELLING STOCKHOLDER
In connection with the Company's initial public offering and related
transactions, the Company issued to Santa Anita Realty Enterprises, Inc.
("Realty" or the "Selling Stockholder") an aggregate of 784,419 shares of Common
Stock. In keeping with the Selling Stockholder's previously announced strategy
of disposing of all non-core real-estate assets, the Selling Stockholder has
elected to dispose of its entire investment in the Company's Common Stock. The
Company will not receive any portion of the proceeds from the sale of the
Selling Stockholder's shares of Common Stock. The Company and the Selling
Stockholder have agreed to indemnify each other for certain liabilities in
connection with the Offering.
S-9
<PAGE> 11
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
The Common Stock of the Company began trading on the American Stock
Exchange ("ASE") under the symbol "PAG" following its initial public offering on
February 10, 1994. The following sets forth the high and low closing prices for
the Common Stock on the ASE and the distributions declared for the periods
indicated:
<TABLE>
<CAPTION>
DISTRIBUTIONS
HIGH LOW DECLARED
---- ---- -------------
<S> <C> <C> <C>
1994
1st Quarter.................................................. $18 1/2 $17 1/4 $ .18
2nd Quarter.................................................. 17 7/8 16 1/8 .39
3rd Quarter.................................................. 17 1/2 15 1/2 .39
4th Quarter.................................................. 16 7/8 12 3/4 .39
1995
1st Quarter.................................................. 16 1/4 14 5/8 .39
2nd Quarter.................................................. 16 1/4 14 1/2 .39
3rd Quarter.................................................. 16 5/8 14 5/8 .39
4th Quarter.................................................. 16 3/4 13 .40
1996
1st Quarter.................................................. 18 3/4 16 1/8 .40
2nd Quarter (through
May 3, 1996)................................................. 18 1/4 17 --
</TABLE>
The closing price of the Common Stock on the ASE on May 3, 1996 was $17 1/4
per share. The Company's current annualized distribution is $1.60 per share.
Since the initial public offering, the Company has declared regular
quarterly distributions to its stockholders. Federal income tax law requires
that a REIT distribute annually at least 95% of its REIT taxable income -- for
the Company, approximately $2.5 million and $2.3 million in 1994 and 1995 ($.58
and $.48, respectively, per share of Common Stock). See "Federal Income Tax
Considerations -- Annual Distribution Requirements." Future distributions by the
Company will be at the discretion of the Board of Directors and will depend upon
the actual Funds from Operations of the Company, its financial condition,
capital requirements, the annual distribution requirements under the REIT
provisions of the Internal Revenue Code, applicable legal restrictions and such
other factors as the Board of Directors deems relevant. Although the Company
intends to continue to make quarterly distributions to its stockholders, no
assurances can be given as to the amount of distributions, if any, distributed
in the future.
The Company anticipates that cash available for distribution will be
greater than earnings and profits due to non-cash expenses, primarily
depreciation and amortization, incurred by the Company. Distributions by the
Company to the extent of its current accumulated earnings and profits for
federal income tax purposes will be taxable to shareholders as ordinary dividend
income. Distributions in excess of earnings and profits generally will be
treated as non-taxable return of capital. Such distributions have the effect of
deferring taxation until the sale of a shareholder's Common Stock. In order to
maintain its qualification as a REIT, the Company could be required to make
distributions in excess of cash available for distribution. The Company
estimates that 35% and 68% of the distributions paid in 1994 and 1995,
respectively, were a return on capital for federal income tax purposes.
During 1995, the Company implemented a Dividend Reinvestment and Stock
Purchase Plan, which permits shareholders to acquire additional shares of Common
Stock by automatically reinvesting cash distributions and making optional cash
purchases without payment of any broker commissions or service charges.
Shareholders who do not participate in such Plan continue to receive cash
distributions as paid.
S-10
<PAGE> 12
CAPITALIZATION
The following table sets forth the historical and pro forma capitalization
of the Company as of March 31, 1996. The pro forma capitalization reflects the
receipt of the net proceeds from the sale of 2,015,581 shares of Common Stock by
the Company pursuant to this Offering, the establishment of the acquisition line
of credit, the incurrence of debt to acquire the Acquisition Properties, and the
use of the net proceeds thereof as described in "Use of Proceeds". The
information set forth in the following table should be read in conjunction with
the pro forma consolidated financial statements and related notes thereto
appearing elsewhere in this Prospectus Supplement, the consolidated and combined
financial statements and notes thereto incorporated by reference in the
accompanying Prospectus, and the discussion set forth in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------
HISTORICAL PRO FORMA(1)
---------- ------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Debt:
Loans payable............................................... $ 157,606 $157,606
Acquisition line of credit.................................. -- 22,113
8.375% Convertible Subordinated Debentures.................. 55,649 55,649
-------- --------
Total debt.......................................... 213,255 235,368
-------- --------
Shareholders' equity:
Preferred shares, $.01 par value; 5,000,000 shares
authorized; no shares outstanding........................ -- --
Common shares, $.01 par value; 25,000,000 shares authorized;
4,859,767 shares issued and outstanding; 6,875,348 shares
issued and outstanding, on a pro forma basis (2)......... 49 69
Excess shares, $.01 par value; 30,000,000 shares authorized;
no shares outstanding.................................... -- --
Outstanding restricted stock................................ (638) (638)
Additional paid-in capital.................................. 78,028 109,995
Distributions in excess of earnings......................... (7,030) (7,030)
-------- --------
Total shareholders' equity.................................. 70,409 102,396
-------- --------
Total capitalization................................ $ 283,664 $337,764
======== ========
</TABLE>
---------------
(1) See notes to pro forma condensed consolidated financial statements included
elsewhere in this Prospectus Supplement.
(2) Excludes 286,404 shares of Common Stock reserved for issuance under the
Company's 1993 Share Option Plan (636,404 shares if the proposed amendment
to increase the shares covered by the 1993 Share Option Plan is approved at
the May 8, 1996, Annual Meeting of Shareholders), and 249,074 shares of
Common Stock reserved for issuance under the Company's Dividend Reinvestment
Plan. Also excludes an aggregate of 225,452 shares of Common Stock which the
Company will have the right, but not the obligation, to issue to the holders
of the limited partnership interests ("OP Units") in the Company's
subsidiary operating partnership, PGP Inland Communities, L.P., if such
holders exercise their right in the future to require the operating
partnership to purchase their OP Units.
S-11
<PAGE> 13
BUSINESS AND PROPERTIES
GENERAL
The tables below set forth certain information relating to the Company's
Multifamily and Industrial Properties by location and type as of March 31, 1996.
For the quarter ended March 31, 1996, approximately 60% and 40% of Company's net
operating income was derived from its Multifamily and Industrial Properties,
respectively. These tables do not include the Acquisition Properties.
Multifamily
<TABLE>
<CAPTION>
PERCENT
NUMBER OF NET
OF OPERATING
PROPERTIES UNITS INCOME(1) OCCUPANCY
---------- ----- --------- ---------
<S> <C> <C> <C> <C>
California
Inland Empire(2)............................. 11 1,368 35% 93%
Orange County................................ 3 742 21 93
Pacific Northwest
Seattle, WA.................................. 6 1,556 37 94
Portland, OR................................. 1 279 7 94
-- ----- ---
Total or Weighted Average...................... 21 3,945 100% 93
== ===== ===
</TABLE>
Industrial
<TABLE>
<CAPTION>
PERCENT
NUMBER LEASABLE OF NET
OF SQUARE OPERATING
PROPERTIES FEET INCOME(1) OCCUPANCY
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
California
Inland Empire(2)............................. 3 1,009,214 26% 97%
San Diego.................................... 1 356,800 12 97
Orange County................................ 2 441,453 8 80(3)
Los Angeles.................................. 1 623,261 29 100
Pacific Northwest
Seattle, WA.................................. 4 660,666 25 95
-- --------- ---
Total or Weighted Average...................... 11 3,091,394 100% 95
== ========= ===
</TABLE>
---------------
(1) Rental revenue less rental expenses and real estate taxes for the three
months ended March 31, 1996.
(2) Includes the eastern portion of Los Angeles County adjacent to the
Riverside/San Bernardino metropolitan area.
(3) Includes a 189,526 square foot business park acquired in March 1996 that is
currently undergoing rehabilitation by the Company.
The information in the following sections is forward looking and involves
risks and uncertainties that could significantly impact the Company's Funds from
Operations in the short and long term. Higher than expected acquisition, rental
and/or rehabilitation costs, delays in the rehabilitation of properties, a
downturn in the local economies and/or the lack of growth of such economies
could reduce the Company's Funds from Operations.
S-12
<PAGE> 14
MULTIFAMILY PROPERTIES
The Company invests primarily in two types of multifamily apartment
communities: communities oriented to family-style living and communities for
active seniors ages 55 and older.
The Company focuses on family-style apartment communities with greater
concentrations of two- and three-bedroom units with rents affordable by middle
income families. The Company believes that there is a strong demand among middle
income families for affordable rental housing such as that offered by the
Company.
The Company also focuses on active senior housing for individuals ages 55
and older, where seniors can be involved in activities, social gatherings and
other types of entertainment with residents of their own age group. The Company
offers no assisted living or related services; the Company's properties are
oriented to those seniors interested in renting versus owning and who are able
to care for themselves. The Company believes that the senior population will
continue to grow and that the market for rental housing for active seniors will
be strong. In addition, management believes that active senior housing typically
has lower operating and management costs due to lower tenant turnover.
Each of the Multifamily Properties provides tenants with attractive
amenities, including a swimming pool (except Inn at Laguna Hills) and clubhouse,
and many include jacuzzis, tennis courts, sports courts and saunas. Many offer
additional features such as vaulted ceilings, fireplaces, washers and dryers,
cable television and limited access gates. None of the Multifamily Properties
currently are subject to rent control or rent stabilization regulations.
However, certain of these properties are subject to restrictions based upon
tax-exempt loan requirements. There can be no assurances that rent control or
rent stabilization regulations will not be imposed in the future.
The following table presents information concerning the Multifamily
Properties, including average gross scheduled rents per unit and percentage of
units occupied as of March 31, 1996:
<TABLE>
<CAPTION>
AVERAGE
UNIT AVERAGE
YEAR SIZE RENT
PROPERTY LOCATION COMPLETED UNITS (SQ FT) PER UNIT OCCUPANCY
------------------------------------ ---------------- --------- ------ ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Applewood(1)........................ Santa Ana, CA 1972 406 801 $ 695 92%
Park Place.......................... Santa Ana, CA 1990 196 799 632 94
Inn at Laguna Hills(2).............. Laguna Hills, CA 1994 140 500 600 94
Daisy 5(1)(3)....................... Covina, CA 1977 38 897 706 95
Daisy 7(1)(3)....................... Diamond Bar, CA 1978 204 950 779 99
Daisy 12(1)(3)...................... San Dimas, CA 1979 102 952 691 98
Daisy 16(1)(3)...................... West Covina, CA 1981 250 986 717 90
Daisy 17(1)(3)...................... San Dimas, CA 1981 156 962 694 93
Lariat(1)(3)........................ San Dimas, CA 1981 30 970 759 93
Daisy 19(1)(3)...................... Ontario, CA 1983 125 1,019 725 92
Daisy 20(1)(3)...................... Ontario, CA 1982 155 1,000 665 89
Sunnyside I(1)(2)(3)................ San Dimas, CA 1984 164 495 515 93
Sunnyside II(1)(2)(3)............... Ontario, CA 1983 60 493 506 87
Sunnyside III(1)(2)(3).............. Ontario, CA 1985 84 504 516 89
Fulton's Landing.................... Everett, WA 1988 248 745 507 91
Fulton's Crossing................... Everett, WA 1986 256 803 529 93
Lora Lakes.......................... Burien, WA 1987 234 907 606 96
Holly Ridge......................... Burien, WA 1987 146 946 631 99
Hampton Bay......................... Kent, WA 1987 304 884 617 95
Heatherwood(1)...................... Federal Way, WA 1985 368 741 527 93
Waterhouse.......................... Beaverton, OR 1990 279 937 649 94
------
Total or Weighted Average........... 3,945 93
=====
</TABLE>
---------------
(1) Under rehabilitation.
(2) Properties serving active senior tenants (individuals ages 55 and older).
(3) Owned by PGP Inland Communities, L.P., a limited partnership in which the
Company has a minimum 78% equity interest, full management and control, and
the right to 100% of cash flow until certain net operating income levels are
achieved.
S-13
<PAGE> 15
INDUSTRIAL PROPERTIES
The Company focuses on multi-tenant business parks and mid-size
warehouse/distribution facilities. Whenever possible, the Company seeks a
significant market share in its principal markets so that it can accommodate its
tenants as their needs change and have an influence on trends in market rents.
The Company also seeks properties that are well-located and offer convenient
access to major distribution points, such as shipping ports, major airports and
major freeways.
Management believes that the Southern California industrial property market
is poised for recovery based upon an increasing level of leasing interest and a
limited supply of new product. As evidence of this, the Company already has
observed recent increases in the prices for industrial properties and tenant
requests for longer term leases. With over 70% of its industrial leases expiring
during the next three years, the Company believes it is in a good position to
capitalize on anticipated rental rate increases. The Company's industrial
properties are currently occupied by over 400 tenants, and no one tenant
accounts for more than 2.5% of the Company's total rental revenues.
The Company generally offers industrial leases in the one- to five-year
range. Lease terms include, in most cases, annual adjustments based on changes
in the consumer price index and from one to three months' free rent. The
standard lease also includes some refurbishing and tenant improvement allowance
with the amount varying depending upon the length of the lease, the size of the
space leased and the use. The Company seeks tenants primarily involved in
warehouse, distribution, assembly and light manufacturing activities.
The following table presents information concerning the Industrial
Properties, including the actual average rent per square foot and percentage of
the leasable square footage leased and occupied by tenants as of March 31, 1996:
<TABLE>
<CAPTION>
LEASABLE NUMBER AVERAGE BASE
DATE SQUARE OF RENT PER
PROPERTY LOCATION COMPLETED FOOTAGE TENANTS SQ. FT. OCCUPANCY
------------------------------- ----------------------- --------- ---------- ------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Seattle I...................... Seattle, WA 1968 42,240 2 $.40 100%
Seattle II..................... Seattle, WA 1981 64,077 10 .57 96
Seattle III.................... Seattle, WA 1981 78,720 14 .49 94
Pacific Gulf Business Tukwila, WA 1975-79 475,629 188 .50 95
Park(1)......................
Etiwanda....................... Ontario, CA 1991 576,327 3 .29 100
Golden West.................... Rancho Cucamonga, CA 1990 296,821 86 .37 91
Vista.......................... Vista, CA 1990 356,800 11 .38 97
Baldwin Industrial Park........ Baldwin Park, CA 1986 623,261 17 .38 100
Pacific Gulf Business Garden Grove, CA 1986 189,526 76 .63 68
Park(1)......................
Garden Grove Industrial Park... Garden Grove, CA 1979 251,927 11 .39 89
Crescent Business Center....... Rancho Cucamonga, CA 1981 136,066 24 .40 97
---------- ------
Total or Weighted Average...... 3,091,394 442 95
========= =======
</TABLE>
---------------
(1) Under rehabilitation.
S-14
<PAGE> 16
The following table shows scheduled lease expirations for all leases for
the Industrial Properties as of March 31, 1996.
<TABLE>
<CAPTION>
ANNUAL PERCENTAGE
NUMBER GLA OF BASE RENT PERCENTAGE ANNUAL
OF LEASES EXPIRING OF EXPIRING OF GLA BASE RENT
EXPIRING LEASES LEASES EXPIRING EXPIRING
--------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996........................ 164 1,020,000 $ 4,818,000 35% 35%
1997........................ 126 533,000 2,559,000 18 19
1998........................ 93 487,000 2,611,000 17 19
1999........................ 35 279,000 1,359,000 10 10
2000........................ 15 47,000 268,000 2 2
2001........................ 4 71,000 307,000 2 2
2002........................ 1 302,000 1,015,000 10 7
2003........................ 2 61,000 328,000 2 2
2004........................ 1 90,000 469,000 3 3
2005 and thereafter......... 1 12,000 58,000 1 1
--- --------- ----------- ---- ----
Totals...................... 442 2,902,000 $13,792,000 100% 100%
=== ========= =========== ==== ====
</TABLE>
ACQUISITION PROPERTIES
Management believes that an attractive opportunity exists to acquire
well-located industrial properties at prices below replacement cost in markets
where rents are expected to increase in the near term. The Company has entered
into agreements to acquire the nine Acquisition Properties located in California
and containing an aggregate of 1,352,000 leasable square feet, for an aggregate
purchase price of $54.1 million, including budgeted capital expenditures of
approximately $1.7 million. The Company will finance the Acquisition Properties
with the net proceeds of this Offering, and its acquisition line of credit. See
"-- Acquisition Line of Credit."
The Company expects to close the purchases of the Acquisition Properties
shortly after completion of this Offering. The Company has satisfied itself as
to major matters, such as title, condition and environmental matters, and the
purchases remain subject to satisfaction of other customary conditions for
similar transactions in the real estate industry, such as non-occurrence of
unexpected events prior to closing, funding and issuance of satisfactory title
insurance policies.
The Company's acquisition of the Acquisition Properties continues the
Company's efforts of building its influence and diversification in its target
markets so as to better enable it to meet the changing needs of its tenants, be
a factor in affecting market rents and offer a diversity of product to a greater
portion of the tenant market.
S-15
<PAGE> 17
The following table presents information regarding the Acquisition
Properties as of March 31, 1996.
<TABLE>
<CAPTION>
AVERAGE
BASE
DATE LEASABLE NUMBER RENT
COM- PURCHASE SQUARE OF PER SQ.
PROPERTY LOCATION PLETED PRICE(1) FOOTAGE TENANTS FT.(2) OCCUPANCY(2)
----------------------- --------------------- ------- ----------- --------- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Eden Landing Commerce
Park................. Hayward, CA 1972-74 $ 7,950,000 193,358 104 $.63 88%
San Marcos Commerce
Center............... San Marcos, CA 1985 2,900,000 72,100 15 .38 94
Bay San Marcos
Industrial Center.... San Marcos, CA 1988 4,790,000 121,768 7 .41 90
Escondido Business
Center............... Escondido, CA 1988-92 10,610,000 251,464 64 .48 94
Bell Ranch Industrial
Park................. Santa Fe Springs, CA 1981 3,850,000 128,640 2 .27 100
La Mirada Business
Center............... La Mirada, CA 1975 3,750,000 82,010 48 .61 88
Pacific Park........... Aliso Viejo, CA 1988 7,050,000 99,622 39 .94 92
North County Business
Park................. Yorba Linda, CA 1987-89 6,550,000 105,516 13 .57 94
Riverview Industrial
Park................. San Bernardino, CA 1980 6,650,000 297,180 8 .25 87
----------- --------- ---
Total or Weighted
Average.............. $54,100,000 1,351,658 300 91
=========== ========= ===
</TABLE>
---------------
(1) Includes budgeted capital expenditures of approximately $1.7 million.
(2) Based upon March 1996 rent rolls.
Eden Landing Commerce Park. This business park is located in Hayward near
Interstate 880, a major East Bay transportation corridor and contains a total of
approximately 193,000 leasable square feet. This business park is the Company's
first investment in Northern California. The Company intends to locate a
regional manager at this site and expects to acquire additional properties in
this region in the future.
San Marcos Commerce Center, Bay San Marcos Industrial Center and Escondido
Business Center. These business parks, consisting of an aggregate of 445,000
leasable square feet, are located in the same market as the Company's Vista
Distribution Center. Combined with the 357,000 leasable square feet at Vista,
the Company will have a significant presence in the North San Diego County
market and will have a wide variety of space available to meet tenant demands
for premises ranging in size from 500 to 50,000 leasable square feet.
San Marcos Commerce Center contains approximately 72,000 leasable square
feet of industrial/warehouse space in six single story multi-tenant buildings.
Each building has 16 foot ceiling clearance and ground-level loading doors. The
property is located off Highway 78 between Interstates 5 and 15. Management
believes that it can improve this property's performance by addressing deferred
maintenance and utilizing its own management personnel.
Bay San Marcos Industrial Center contains approximately 122,000 leasable
square feet of warehouse and distribution space in two single story multi-tenant
buildings. One of the buildings has 12 dock-high and 14 ground-level loading
doors, while the other has 14 dock-high loading doors. Both buildings have 22 to
24 feet ceiling clearances and truck staging and loading areas. The property is
located off Highway 78, between Interstates 5 and 15.
Escondido Business Center contains approximately 251,000 leasable square
feet of multi-tenant industrial space in 13 buildings. The property consists of
three phases, providing tenants with a variety of premises from 500 square feet
multi-tenant space to 20,000 square feet single tenant buildings with both
dock-high and ground-level loading doors and 16 feet ceiling clearances. This
S-16
<PAGE> 18
property is located at the junction of Highway 78 and Interstate 15. The Company
intends to locate a regional manager at this location, who will have
responsibility for the Company's approximately 802,000 leasable square feet in
North San Diego County.
Bell Ranch Industrial Park, La Mirada Business Center, Pacific Park and
North County Business Park. These business parks, consisting of an aggregate of
approximately 416,000 leasable square feet, are located in the same market as
the Company's Garden Grove Industrial Center and Pacific Gulf Business Center.
Combined with the 441,000 leasable square feet at these existing properties, the
Company will have a significant presence in the Orange County market and will
have a variety of space available to meet tenant demands for premises ranging in
size from 500 to 73,000 leasable square feet.
Bell Ranch Industrial Park contains approximately 129,000 leasable square
feet of warehouse space in one multi-tenant building. The Property is located in
an excellent industrial area between Interstates 5 and 605 in the City of Santa
Fe Springs. The tenants currently occupying this property have leases at rental
rates significantly below current market rates.
La Mirada Business Center contains approximately 82,000 leasable square
feet in six free-standing buildings. The six buildings are designed for and
utilized by a variety of small office or light industrial users seeking premises
between 500 to 2,000 leasable square feet. This property is located in the
triangle of highways created by Interstates 5 and 605 and Highway 91, providing
its tenants with superior access to Los Angeles, Orange County and the Inland
Empire. This property is being purchased from a financial institution.
Management believes that it can improve this property's financial performance by
addressing deferred maintenance and improving management.
Pacific Park is an approximately 100,000 leasable square foot business park
consisting of six multi-tenant buildings. The warehouse portion of each building
has a rear grade-level truck door and 16 feet ceiling clearances. Management
believes that the desirability of this property will be enhanced upon the
completion of the nearby San Joaquin Hills Tollway, which is expected in late
1996.
North County Business Park, which contains approximately 106,000 leasable
square feet, is a business park in a master planned business development. This
property consists of four buildings near Highway 91 in Northern Orange County.
The Company believes it will be able to improve this property's financial
performance by replacing existing absentee management with the Company's own
management personnel.
Riverview Industrial Park. This property consists of approximately 297,000
square feet of multi-tenant industrial/warehouse space with five buildings, and
is located in the same market as the Company's Etiwanda, Golden West and
Crescent business parks. Combined with the approximately 1,009,000 leasable
square feet located at these existing properties, the Company will have an
aggregate of approximately 1,306,000 leasable square feet in the Inland Empire.
The property is located near the junction of Interstates 10 and 215, major
transportation corridors for the Inland Empire. The buildings have a mix of
dock-high and grade-level loading doors and 20 to 22 feet ceiling clearances.
The Company is acquiring this property from an insurance company, which had
foreclosed on the property, and expects to improve the property's financial
performance by addressing deferred maintenance items and managing the property
from its existing regional office located at its Golden West property.
S-17
<PAGE> 19
Lease Expirations
The following table shows scheduled lease expirations for the Acquisition
Properties based upon the current rent rolls for each Acquisition Property.
<TABLE>
<CAPTION>
AVERAGE
NUMBER OF GLA OF ANNUAL BASE PERCENTAGE RENT OF
LEASES EXPIRING RENT OF EXPIRING OF GLA EXPIRING
EXPIRING LEASES LEASES EXPIRING LEASES
--------- --------- ---------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1996.............................. 151 416,000 $2,623,000 34% 38%
1997.............................. 81 259,000 1,630,000 21 24
1998.............................. 32 131,000 857,000 11 12
1999.............................. 21 183,000 887,000 15 13
2000.............................. 12 225,000 819,000 18 12
2001.............................. 2 13,000 66,000 1 1
2002.............................. -- -- -- -- --
2003.............................. 1 4,000 27,000 -- --
2004.............................. -- -- -- -- --
2005 and thereafter............... -- -- -- -- --
--- --------- ---------- --- ----
Totals............................ 300 1,231,000 $6,909,000 100% 100%
=== ========= ========== === ====
</TABLE>
ACQUISITION LINE OF CREDIT
The Company has received a commitment for an unsecured short-term line of
credit from Bank of America (the "Bank") to provide a portion of the funds
necessary to close the purchase of the Acquisition Properties. Subject to
successful completion of this Offering and the Bank's completion of normal due
diligence relating to these acquisitions, the Bank will provide up to $33.0
million for the Company that will be used together with the proceeds of this
Offering to acquire the Acquisition Properties. The Company currently expects
that the interest rate on this line of credit will be 2% over either the 30, 60
or 90 day LIBOR, subject to entering into definitive agreements therefor. If the
acquisition line of credit is not obtained, the Company will have to seek
alternative financing sources to satisfy its contractual obligations to purchase
the Acquisition Properties; however, no assurance can be given that the Company
will be successful in doing so.
The acquisition line of credit will have a term of up to five months, at
which time the Acquisition Properties will, at the Company's option, either be
added to the Company's existing line of credit collateral pool or the Company
will obtain real estate financings to repay the acquisition line of credit. The
Company anticipates that any real estate financings would have a term in excess
of seven years, bear interest at a rate of approximately 8% (based upon current
market conditions) and provide for principal amortization over a 25 year term.
In connection with the foregoing, the Company is finalizing arrangements
for an amendment to its existing line of credit agreement, including an increase
in the amount of the line to $68.0 million and the revision of certain covenant
provisions. The existing line of credit had an outstanding balance of $19.2
million as of March 31, 1996. This debt bears interest at 1.75% over the 30 day
LIBOR. The weighted average interest rate on the existing line of credit for the
three months ended March 31, 1996 was 7.41%.
S-18
<PAGE> 20
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected historical and pro forma financial
and operating data of the Company and the multifamily and industrial operations
acquired from Santa Anita Realty Enterprises, Inc. (the "Predecessor"). The
following summary financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the pro forma condensed consolidated financial information and
notes thereto contained in this Prospectus Supplement, and the consolidated and
combined financial statements and related notes incorporated by reference in the
accompanying Prospectus.
For the year ended December 31, 1995, the pro forma operating information is
presented as if the following transactions occurred as of the beginning of the
period: (i) the purchase and disposition of certain multifamily and industrial
properties completed by the Company during 1995 and 1996, as more fully
described in the pro forma condensed consolidated financial statements, (ii) the
purchase of the Acquisition Properties and (iii) the completion of this
Offering, the establishment of the acquisition line of credit (see "Business and
Properties -- Acquisition Line of Credit") and the application of the net
proceeds thereof as described in this Prospectus Supplement. For the three
months ended March 31, 1996, the pro forma operating information is presented as
if the following transactions occurred as of the beginning of the period: (i)
the purchase of an industrial property in 1996, as more fully described in the
pro forma condensed consolidated financial statements (ii) the purchase of the
Acquisition Properties and (iii) the completion of this Offering, the
establishment of the acquisition line of credit and the application of the net
proceeds thereof as described in this Prospectus Supplement. Pro forma balance
sheet information is presented as if the Acquisition Properties were acquired
and this Offering were consummated on March 31, 1996. The estimated net proceeds
of this Offering have been calculated based on an assumed offering price of
$17.25 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company. The pro
forma operating information incorporates certain assumptions that are included
in the notes to the pro forma condensed consolidated financial statements
included elsewhere in this Prospectus Supplement. The pro forma financial
information is not necessarily indicative of what the actual financial position
and results of operations of the Company would have been as of the dates or for
the periods indicated, nor does it purport to represent the financial position
and results of operations for any future period.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------- ---------------------------------
PREDECESSOR COMPANY COMPANY
----------------------------- ------------------------------------- ---------------------------------
HISTORICAL HISTORICAL
--------------------------------------------------------- PRO FORMA --------------------- PRO FORMA
1991 1992 1993 1994(1) 1995 1995(2) 1995 1996 1996(2)
------- -------- -------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Rental income:
Multifamily.......... $ 7,607 $ 10,768 $ 15,150 $ 18,937 $ 24,898 $ 27,846 $ 5,466 $ 7,051 $ 7,051
Industrial........... 785 885 1,002 7,207 12,193 23,298 2,962 3,784 5,801
------- ------- ------- --------- --------- --------- --------- --------- ---------
8,392 11,653 16,152 26,144 37,091 51,144 8,428 10,835 12,852
------- ------- ------- --------- --------- --------- --------- --------- ---------
Rental property
expenses:
Multifamily.......... 2,905 4,639 7,261 8,835 10,215 11,691 2,331 2,786 2,786
Industrial........... 219 206 245 1,541 2,567 6,368 624 948 1,493
------- ------- ------- --------- --------- --------- --------- --------- ---------
3,124 4,845 7,506 10,376 12,782 18,059 2,955 3,734 4,279
Depreciation........... 1,687 2,282 2,634 3,721 6,081 7,805 1,400 1,835 2,062
Interest (including
amortization of
financing costs)..... 4,180 5,398 6,028 8,164 14,066 19,538 3,002 4,326 4,865
General and
administrative....... 1,286 1,394 1,538 1,725 2,423 2,423 527 647 647
Minority interest in
losses of combined
partnerships......... (678) (646) (492) -- -- -- -- -- --
Reduction in carrying
value of Predecessor
properties........... -- -- 10,974 -- -- -- -- -- --
------- ------- ------- --------- --------- --------- --------- --------- ---------
9,599 13,273 28,188 23,986 35,352 47,825 7,884 10,542 11,853
------- ------- ------- --------- --------- --------- --------- --------- ---------
Income (loss) before
gain on sale of
properties and
extraordinary item... (1,207) (1,620) (12,036) 2,158 1,739 3,319 544 293 999
Gain on sale of real
estate............... -- -- -- -- 6,664 -- -- -- --
Extraordinary item..... -- -- -- (2,990) -- -- -- -- --
------- ------- ------- --------- --------- --------- --------- --------- ---------
Net income (loss)...... (1,207) (1,620) (12,036) (832) 8,403 3,319 544 293 999
======= ======= ======= ========= ========= ========= ========= ========= =========
Net income (loss) per
common share......... (.07)(3) 1.74 0.48 .11 .06 .15
========= ========= ========= ========= ========= =========
Weighted average common
shares............... 4,273,337(3) 4,830,723 6,846,304 4,796,729 4,864,044 6,879,625
</TABLE>
S-19
<PAGE> 21
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------- ---------------------------------
PREDECESSOR COMPANY COMPANY
----------------------------- ------------------------------------- ---------------------------------
HISTORICAL HISTORICAL
--------------------------------------------------------- PRO FORMA --------------------- PRO FORMA
1991 1992 1993 1994(1) 1995 1995(2) 1995 1996 1996(2)
------- -------- -------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate, net of
accumulated
depreciation:
Multifamily.......... $62,811 $ 88,519 $ 90,375 $ 113,706 $ 175,879 -- $ 113,542 $ 175,460 $175,460
Industrial........... 7,470 7,395 7,323 79,751 102,813 -- 86,400 109,510 161,845
------- ------- ------- --------- --------- --------- --------- ---------
Total real estate...... 70,281 95,914 97,698 193,457 278,692 -- 199,942 284,970 337,305
Total assets........... 73,944 100,186 99,984 202,519 288,591 -- 208,777 294,390 348,490
Senior debt............ 52,824 78,613 88,740 69,480 149,847 -- 77,609 157,606 179,719
Convertible
subordinated
debentures........... -- -- -- 55,526 55,659 -- 55,558 55,649 55,649
Total equity........... 22,112 23,200 9,501 70,860 71,980 -- 69,542 70,409 102,396
PROPERTY DATA (end of
period)
Total apartment
properties........... 5 9 10 13 21 21 13 21 21
Total apartment
units................ 1,290 2,398 2,654 3,292 3,945 3,945 3,292 3,945 3,945
Apartment units
occupied............. 95% 93% 92% 93% 92% 92 % 92% 93% 93 %
Total industrial
properties........... 3 3 3 9 10 20 9 11 20
Industrial leasable
area
(sq. ft.)............ 185,000 185,000 185,000 2,426,000 2,902,000 4,443,000 2,426,000 3,091,000 4,443,000
Industrial leasable
area leased.......... 89% 97% 95% 97% 96% 92 % 97% 95% 94 %
SUPPLEMENTAL DATA
Funds from
operations -- New
Definition(4)........ $ 480 $ 662 $ 1,572 $ 5,879 $ 7,820 $ 11,170 $ 1,944 $ 2,128 $ 3,061
Cash flow information:
Operating............ (367) (348) 1,307 3,950 7,138 -- 615 1,849 --
Investing............ (18,084) (27,660) (15,323) (99,504) (84,480) -- (7,840) (8,049) --
Financing............ 18,398 28,318 13,798 98,649 76,674 -- 6,259 5,819 --
</TABLE>
---------------
(1) Includes the combined historical operations of the Company (from February 18
through December 31, 1994) and the Predecessor's multifamily and industrial
operations (prior to February 18, 1994).
(2) See notes to pro forma condensed consolidated financial statements included
elsewhere in this Prospectus Supplement.
(3) Per share data for 1994 was based on the weighted average common shares
outstanding for the period February 18, 1994 (the closing date of the
Company's initial public offering) through December 31, 1994 and the
Company's net loss for that period.
(Footnotes continued on the following page)
S-20
<PAGE> 22
(4) Funds From Operations ("FFO") is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") to mean net income, computed in
accordance with generally accepted accounting principles ("GAAP"), excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Management generally considers Funds From
Operations to be a useful financial performance measure of the operating
performance of an equity REIT because, together with net income and cash
flows, FFO provides investors with an additional basis to evaluate the
ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. FFO does not represent cash flow from operations
as defined by generally accepted accounting principles, should not be
considered as an alternative to net income as an indicator of the Company's
operating performance and is not indicative of cash available to fund all
cash flow needs. FFO does not measure whether cash flow is sufficient to
fund all of the Company's cash needs, including principal amortization,
capital improvements and distributions to stockholders. FFO also does not
represent cash flows generated from operating, investing or financing
activities as defined by GAAP. Further, FFO as disclosed by other REITs may
not be comparable to the Company's calculation of FFO. On March 3, 1995,
NAREIT modified the calculation of FFO to, among other things, eliminate
amortization of deferred financing costs and depreciation of non-real estate
assets as items added back to net income when computing FFO. Presented below
is the calculation of FFO consistent with the methodology historically used
by the Company (the "Old Definition") reconciled to the revised calculation
adopted by NAREIT (the "New Definition") which the Company adopted as of
January 1, 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------- --------------------------------
PREDECESSOR COMPANY COMPANY
------------------------------ ------------------------------ --------------------------------
HISTORICAL HISTORICAL
--------------------------------------------------- PRO FORMA ------------------ PRO FORMA
1991 1992 1993 1994(1) 1995 1995 1995 1996 1996
------- ------- -------- ------ ------- --------- ------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss).......... $(1,207) $(1,620) $(12,036) $ (832) $8,403 $ 3,319 $ 544 $ 293 $ 999
Depreciation and
amortization............. 1,727 2,325 2,719 4,344 7,090 8,917 1,603 2,112 2,347
Nonrecurring and
extraordinary items...... -- -- 10,974 2,990 (6,664 ) -- -- -- --
------- -------- -------- ------ ------- ------- ------ ------ ------
Funds From
Operations -- Old
Definition............... 520 705 1,657 6,502 8,829 12,236 2,147 2,405 3,346
Amortization:
Debenture discount and
costs.................. -- -- -- (464) (552 ) (552) (139) (142) (142)
Costs related to
financing assumed from
Predecessor and line of
credit costs........... (40) (43) (85) (159) (302 ) (302) (57) (86) (86)
Long-term financing
costs.................. -- -- -- -- (155 ) (212) (7) (49) (57)
------- -------- -------- ------ ------- ------- ------ ------ ------
Funds From
Operations -- New
Definition............... $ 480 $ 662 $ 1,572 $5,879 $7,820 $11,170 $ 1,944 $ 2,128 $3,061
======= ======== ======== ====== ======= ======= ====== ====== ======
</TABLE>
S-21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with "Selected
Financial And Operating Data" and the financial statements and notes thereto of
the Company and the Predecessor incorporated by reference in the accompanying
Prospectus. Such financial statements and information have been prepared to
reflect the Company's initial period of operations and its financial condition
together with the combined historical financial statements of the Predecessor's
properties, for periods prior to the consummation of the Company's initial
public offering in February 1994.
The combined historical financial statements are comprised of the Company
and the operations, assets and liabilities of certain properties which prior to
the initial public offering were owned and operated by Santa Anita Realty
Enterprises, Inc ("Realty"). These properties were acquired by the Company in
February 1994 in connection with consummation of the initial public offering and
related formation transactions.
The comparability of the financial information discussed below is impacted
by the following: the acquisition of one industrial property containing 189,000
leasable square feet acquired by the Company in March 1996; the acquisition of
12 multifamily properties containing 1,736 apartment units, the acquisition of
one industrial property containing approximately 476,000 square feet, and the
disposition of four multifamily properties consisting of 1,085 apartment units
during 1995; the initial public offering and other acquisition transactions
during 1994, including the acquisition of three multifamily properties
containing 638 apartment units and three industrial properties containing
2,241,000 square feet; the acquisition of one multifamily property containing
256 apartment units in 1993; and four multifamily properties containing an
aggregate of 1,108 apartment units during the last eight months of 1992. The
changes in operating results from period to period discussed below are primarily
the result of increases in the number of multifamily properties and related
apartment units and in the leased square footage of additional industrial
properties acquired.
RESULTS OF OPERATIONS
For comparison purposes, the Company's operating results for the period
February 18, 1994 through December 31, 1994 have been added to the operating
results of the Predecessor for the period January 1, 1994 through February 17,
1994 to present the results of operations for the year ended December 31, 1994
used in the following comparisons.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 TO THREE MONTHS ENDED
MARCH 31, 1995
Multifamily rental income increased by $1,585,000 or 29%, from $5,466,000
in 1995 to $7,051,000 in 1996. This increase was primarily attributable to the
acquisition of 12 multifamily properties containing 1,736 apartment units in
1995 offset by the disposition of four multifamily properties containing 1,085
apartment units during the last quarter of 1995. Industrial rental income
increased by $822,000 or 28%, from $2,962,000 in 1995 to $3,784,000 in 1996.
This increase was primarily attributable to the recent acquisition of two
industrial parks containing approximately 665,000 square feet of space. As a
result of these changes, total revenues increased by $2,407,000, or 29% from
$8,428,000 in 1995 to $10,835,000 in 1996.
Multifamily rental income for the period ended March 31, 1996 totaled
$7,051,000 and included $3,099,000 related to 12 multifamily properties acquired
during 1995.
Industrial rental income for the period ended March 31, 1996 totaled
$3,784,000 and included $837,000 related to the recent acquisition of two
industrial parks.
Multifamily rental property expenses increased by $455,000, or 20% from
$2,331,000 in 1995 to $2,786,000 in 1996. This increase was primarily
attributable to the acquisition of 12 multifamily properties containing 1,736
apartment units in 1995. Industrial rental property expenses increased
S-22
<PAGE> 24
by $324,000, or 52%, from $624,000 in 1995 to $948,000 in 1996. This increase
was primarily attributable to the recent acquisition of two industrial parks.
Multifamily rental property expenses for the period ended March 31, 1996
totaled $2,786,000 and included $1,237,000 related to 12 multifamily properties
acquired during 1995.
Industrial rental property expenses for the period ended March 31, 1996
totaled $948,000 and included $282,000 related to the recent acquisition of two
industrial parks.
Depreciation increased by $435,000, or 31%, from $1,400,000 in 1995 to
$1,835,000 in 1996. This increase was primarily attributable to additional
depreciation relating to the acquisition of 12 multifamily properties in late
1995, two recently acquired industrial parks, and capital improvements made to
rehabilitate existing properties.
Interest expense (including amortization of financing costs) increased by
$1,324,000, or 44%, from $3,002,000 in 1995 to $4,326,000 in 1996. This increase
was attributable to increased borrowings outstanding during 1996, as compared to
1995, pursuant to new borrowings of $63,517,000 relating to the acquisition of
12 multifamily properties and two industrial parks during 1995 and 1996 and
$24,850,000 of tax-exempt mortgage indebtedness assumed with the Company's 1995
acquisitions. Interest resulting from the amortization of financing costs
increased by $74,000, or 36%, from $203,000 in 1995 to $277,000 in 1996. This
increase is attributable primarily to the amortization of debenture discount and
costs and of loan fees associated with borrowings used to finance the
acquisition of Multifamily and Industrial Properties in late 1995.
General and administrative expenses increased by $120,000, or 23%, from
$527,000 in 1995 to $647,000 in 1996. This increase was primarily attributable
to personnel increases related to the 1995 acquisitions made during the second
half of 1995, and to the accrual of estimated bonuses in 1996 (no similar
accrual was made in 1995 first quarter).
For the three months ended March 31, 1996, the Company generated net income
of $293,000 compared to net income of $544,000 in 1995. These results are
attributable to the foregoing.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31,
1994
Multifamily rental income increased by $5,961,000, or 31%, from $18,937,000
in 1994 to $24,898,000 in 1995. This increase was primarily attributable to the
acquisition of 12 multifamily properties containing 1,736 apartment units in
1995 offset by the disposition of four multifamily properties containing 1,085
apartment units during the last quarter of 1995. Industrial rental income
increased by $4,986,000, or 69%, from $7,207,000 in 1994 to $12,193,000 in 1995.
This increase was primarily attributable to the acquisition of three industrial
parks during the last half of 1994 containing approximately 1,011,000 square
feet of space. As a result of these changes, total revenues increased by
$10,947,000, or 42%, from $26,144,000 to $37,091,000 in 1995.
Multifamily rental income for the year ended December 31, 1995 totaled
$24,898,000 and included $3,990,000 related to 12 multifamily properties
acquired during 1995 and $5,987,000 related to the four multifamily properties
sold during the last quarter of 1995.
Industrial rental income for the year ended December 31, 1995 totaled
$12,193,000 and included $192,000 related to the two industrial properties
acquired during 1995.
Multifamily rental property expenses increased by $1,380,000, or 16%, from
$8,835,000 in 1994 to $10,215,000 in 1995. This increase was primarily
attributable to the acquisition of 12 multifamily properties containing 1,736
apartment units in 1995. Industrial rental property expenses increased by
$1,026,000, or 67%, from $1,541,000 in 1994 to $2,567,000 in 1995. This increase
was primarily attributable to the acquisition of three industrial parks during
the last half of 1994.
S-23
<PAGE> 25
Multifamily rental property expenses for the year ended December 31, 1995
totaled $10,215,000 and included $1,779,000 related to 12 multifamily properties
acquired during 1995 and $2,403,000 related to the four multifamily properties
sold during the last quarter of 1995.
Industrial rental property expenses for the year ended December 31, 1995
totaled $2,567,000 and included $25,000 related to the industrial properties
acquired during 1995.
Depreciation increased by $2,360,000, or 63%, from $3,721,000 in 1994 to
6,081,000 in 1995 as a result of the acquisition of 12 multifamily properties in
1995, the three industrial properties acquired in late 1994, and the capital
improvements made to rehabilitate existing properties.
Interest expense (including amortization of financing costs) increased by
$5,902,000, or 72%, from $8,164,000 in 1994 to $14,066,000 in 1995. This
increase was attributable to increased borrowings outstanding during 1995, as
compared to 1994, pursuant to new borrowings of $55,517,000 relating to the
acquisition of 12 multifamily properties and one industrial park during the last
half of 1995 and $24,850,000 of tax-exempt mortgage indebtedness assumed with
the Company's recent acquisitions. Interest resulting from the amortization of
financing costs increased by $386,000, or 62%, from $623,000 in 1994 to
$1,009,000 in 1995. This increase is attributable primarily to the additional
amortization relating to the convertible subordinated debentures issued on
February 18, 1994, outstanding for the entire year in 1995, and amortization of
loan fees associated with borrowings used to finance acquisitions completed in
late 1994 and during 1995.
General and administrative expenses increased by $698,000, or 40%, from
$1,725,000 in 1994 to $2,423,000 in 1995. This increase was primarily
attributable to personnel increases related to the 1994 and 1995 acquisitions
made during the second half of each year, respectively.
For the year ended December 31, 1995, the Company incurred net income of
$8,403,000 compared to a net loss of $832,000 in 1994. These improved results
are attributable to the foregoing, and are offset partially by a $6,664,000 net
gain from the sale of the Texas multifamily portfolio in 1995 and a $2,990,000
loss from the extinguishment of debt in 1994 relating to the acquisition of
certain of the properties from Realty.
COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO THE YEAR ENDED DECEMBER 31, 1993
Multifamily rental income increased by $3,787,000, or 25%, from $15,150,000
in 1993 to $18,937,000 in 1994. The increase was primarily attributable to the
acquisition of three multifamily properties containing 638 apartment units in
1994. Industrial rental income increased by $6,205,000, or 619%, from $1,002,000
in 1993 to $7,207,000 in 1994. This increase was primarily attributable to the
acquisition of six industrial parks containing approximately 2,241,000 square
feet of space. As a result of these changes, total revenues increased by
$9,992,000, or 62%, from $16,152,000 in 1993 to $26,144,000 in 1994.
Multifamily rental income for the year ended December 31, 1994 totaled
$18,937,000 and included $2,389,000 related to three multifamily properties
acquired during 1994.
Industrial rental income for the year ended December 31, 1994 totaled
$7,207,000 and included $4,912,000 related to six industrial properties acquired
during 1994.
Multifamily rental property expenses increased by $1,574,000, or 22%, from
$7,261,000 in 1993 to $8,835,000 in 1994. This increase was primarily
attributable to the acquisitions of three multifamily properties in 1994.
Industrial rental property expenses increased by $1,296,000, or 529%, from
$245,000 in 1993 to $1,541,000 in 1994. This increase was primarily attributable
to the acquisition of six industrial parks.
Multifamily rental property expenses for the year ended December 31, 1994
totaled $8,835,000 and included $1,250,000 related to the multifamily properties
acquired during 1994.
S-24
<PAGE> 26
Industrial rental property expenses for the year ended December 31, 1994
totaled $1,541,000 and included $909,000 related to the industrial properties
acquired during 1994.
Depreciation increased by $1,087,000, or 41%, from $2,634,000 in 1993 to
$3,721,000 in 1994 as a result of the acquisition of three multifamily
properties and six industrial properties in 1994, and capital improvements made
to rehabilitate existing properties.
Interest expense (including amortization of financing costs) increased by
$2,136,000, or 35%, from $6,028,000 in 1993 to $8,164,000 in 1994. This increase
was attributable to increased borrowings outstanding during 1994, as compared to
1993, resulting from changes in the Predecessor Multifamily and Industrial
Operations and the Company's debt structure. Such changes in 1994 included the
issuance of $56.5 million principal amount of convertible subordinated
debentures (net of debenture discount), borrowings of $39,100,000 under the
Company's new variable rate revolving credit facility, new mortgage notes of
$15,200,000 relating to the acquisition of one multifamily property and two
industrial parks during 1994, offset by the repayment of $73,300,000 of the
Predecessor's indebtedness using proceeds from the Offerings. In addition, the
increase in interest expense was attributable to a higher borrowing rate in the
Company's variable rate credit facility during 1994 as compared to 1993, which
resulted from overall increases in the prime rate and LIBOR rates. Interest
resulting from the amortization of financing costs increased by $538,000, or
633%, from $85,000 in 1993 to $623,000 in 1994. This increase is primarily
attributable to the issuance of convertible subordinated debentures on February
18, 1994 and the amortization of the debenture discount and costs.
General and administrative expenses increased by $187,000, or 12%, from
$1,538,000 in 1993 to $1,725,000 in 1994. This was primarily attributable to the
growth related to the 1994 acquisitions.
For the year ended December 31, 1994, the Company incurred a net loss of
$832,000, compared to a net loss of $12,036,000 in 1993. These improved results
are attributable to the foregoing, the nonrecurring loss of $10,974,000
recognized in 1993 by Realty as a result of the formation transactions which
reduced the carrying value of the Predecessor's properties, and are partially
offset by a $2,990,000 extraordinary loss from the extinguishment of debt in
1994.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1993 TO THE YEAR ENDED DECEMBER 31,
1992
Multifamily rental income increased by $4,382,000, or 41%, from $10,768,000
in 1992 to $15,150,000 in 1993. This increase was primarily attributable to
rental revenues from the five multifamily properties acquired during 1992 and
1993. Industrial rental income (rent from the Seattle Industrial Buildings)
increased $117,000, or 13%, from $885,000 in 1992 to $1,002,000 in 1993. This
increase was primarily attributable to increases in rental rates. As a result of
the above changes, total revenues increased by $4,499,000, or 39%, from
$11,653,000 in 1992 to $16,152,000 in 1993.
Multifamily rental income for the year ended December 31, 1993 totaled
$15,150,000 and included $6,465,000 related five multifamily properties acquired
during 1993.
Multifamily rental property expenses increased by $2,622,000, or 57%, from
$4,639,000 in 1992 to $7,261,000 in 1993. This increase was primarily
attributable to the acquisition of five multifamily properties during 1992 and
1993.
Multifamily rental property expenses for the year ended December 31, 1993
totaled $7,261,000 and included $3,332,000 related the multifamily properties
acquired during 1993.
Depreciation increased by $394,000, or 17%, from $2,325,000 in 1992 to
$2,719,000 in 1993. This increase was primarily attributable to additional
depreciation relating to the additional multifamily properties acquired during
1993 and late 1992.
S-25
<PAGE> 27
Interest expense (including amortization of financing costs) increased by
$630,000, or 12%, from $5,398,000 in 1992 to $6,028,000 in 1993. This increase
was primarily attributable to increased borrowings relating to the acquisition
of five multifamily properties during 1992 and 1993. Interest resulting from the
amortization of financing costs increased by $42,000 or 98% to $85,000 in 1993
from $43,000 in 1992 related primarily to transfer amortization associated with
additional borrowings in early 1993.
General and administrative expenses increased by $144,000, or 10%, from
$1,394,000 in 1992 to $1,538,000 in 1993. This was primarily the result of
increased accounting, professional and director fees.
For the year ended December 31, 1993, a net loss of $12,036,000, including
a non-recurring loss of $10,974,000 resulting from the formation transactions
which was recognized by Realty in 1993, was incurred, compared to a net loss of
$1,620,000 in 1992. Excluding the non-recurring loss, the Predecessor incurred a
loss of $1,062,000 for the year ended December 31, 1993, compared to a net loss
of $1,620,000 in 1992. These improved results are attributable to the foregoing.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had $2,466,000 of cash to meet its immediate
short-term liquidity requirements. Future short-term liquidity requirements are
anticipated to be met through net cash flow from operations, existing working
capital and, if necessary, funding from the Company's revolving line of credit.
The Company has a secured revolving line of credit from Bank of America for a
maximum amount of $35,000,000 which expires in June 1997. As of March 31, 1996,
the Company had borrowed $19,169,000 under the revolving line of credit.
During the first quarter of 1996, the Company borrowed $8,000,000 from a
life insurance company for a ten-year term at an interest rate of 7.3%. This
loan is secured by a 304-unit apartment community located in Kent, Washington.
The proceeds of this loan were used, in part, to acquire a 189,526 square foot
industrial park located in Garden Grove, California.
In March of 1996, the Company extended four letters of credit which secure
a portion of the Company's tax-exempt mortgage debt to December 31, 1996.
The Company has received a commitment for an unsecured short-term
acquisition line of credit with Bank of America National Trust and Savings
Association (the "Bank") to provide the funds necessary to close the purchase of
the Acquisition Properties. Subject to successful completion of this Offering
and the Bank's completion of normal due diligence relating to these
acquisitions, the Bank will provide up to $33,000,000 for the Company that will
be used together with the proceeds of the Offering to acquire the Acquisition
Properties. If the acquisition line of credit is not obtained, the Company will
have to seek alternative funding sources to complete the purchases of the
Acquisition Properties; however, no assurance can be given that the Company will
be successful in doing so.
The acquisition line of credit will have a term of up to five months, at
which time the properties will either be added to the Company's existing line of
credit collateral pool or the Company will obtain real estate financing repay
the acquisition line of credit. The Company anticipates that any real estate
financings would have a term in excess of seven years, bear interest at a rate
of approximately 8% (under current market conditions) and provide for principal
amortization over a 25 year term. In conjunction with the acquisition line of
credit certain terms and conditions of the company's existing line of credit
agreement have been amended, including an increase in the amount of the line to
$68,000,000 and the revision of certain covenant provisions.
Cash provided by operating activities increased from $615,000 for the three
months ended March 31, 1995 to $1,849,000 for the same period in 1996 due to the
full effect of rental income from acquisitions completed by the Company during
1995 and 1996.
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Cash used in investing activities increased from $7,840,000 for the three
months ended March 31, 1995 to $8,049,000 for the same period in 1996. The
increase is due to additional improvements made at the Company's properties in
1996 over expenditures in 1995.
Cash provided by financing activities decreased from $6,259,000 for the
three months ended March 31, 1995 to $5,819,000 for the three months ended March
31, 1996. The decrease resulted from a decrease in net borrowings in 1996 as
compared to the prior period.
Cash provided by operating activities increased from $1,307,000 for the
year ended December 31, 1993 to $3,950,000 for the year ended December 31, 1994
and $7,138,000 for the year ended December 31, 1995. The primary reason for
these increases related to the additional rental income contributed by
properties acquired during 1994 and 1995.
Cash used in investing activities increased from $15,323,000 for the year
ended December 31, 1993 to $99,504,000 of the year ended December 31, 1994 and
then decreased to $84,480,000 for the year ended December 31, 1995 primarily as
a result of acquisitions which increased from $15,323,000 in 1993 to $99,504,000
in 1994 and to $113,663,000 in 1995, net of $29,183,000 of proceeds from the
sale of the Texas apartment portfolio in 1995.
Cash provided by financing activities increased from $13,798,000 for the
year ended December 31, 1993 to $98,649,000 for the year ended December 31, 1994
and then decreased to $76,674,000 for the year ended December 31, 1995 primarily
as a result of the issuance of $124,098,000 of common stock and debentures, the
formation transactions pursuant to the initial public offering in February 1994,
and borrowings of $54,336,000 and $116,370,000 in 1994 and 1995, respectively.
The Company intends to acquire additional properties and may seek to fund
these acquisitions through a combination of equity offerings and debt financing.
The Company anticipates that adequate cash will be available to fund its
operating and administrative expenses, continuing debt service obligations and
the payment of dividends in accordance with REIT requirements in the foreseeable
future.
The information in the immediately preceding paragraph is forward looking
and involves risk and uncertainties that could significantly impact the
Company's expected liquidity requirements in the short and long term. While it
is impossible to itemize the many factors and specific events that could affect
the Company's outlook for its liquidity requirements, such factors would include
the actual timing of and costs associated with the Company's acquisitions, the
actual capital expenditures associated therewith, and the strength of the local
economies of the submarkets in which the Company operates. Higher than expected
acquisition, rental and/or rehabilitation costs, delays in the rehabilitation of
properties, a downturn in the local economies and/or the lack of growth of such
economies could reduce the Company's revenues and increase its expenses,
resulting in a greater burden on the Company's liquidity than that which the
Company has described above.
In order to qualify as a REIT for federal income tax purposes, the Company
is required to make distributions to its stockholders of at least 95% of REIT
taxable income. The Company expects to use its cash flow from operating
activities for distributions to stockholders and for payment of other
expenditures. The Company intends to invest amounts accumulated for distribution
in short-term investments.
CAPITAL EXPENDITURES
The Company capitalizes the direct and indirect cost of expenditures for
the acquisition or rehabilitation of its multifamily and industrial properties.
The Company also capitalizes the direct cost of capital expenditures which are
considered revenue producing ("Revenue Producing") and other expenditures which
increase the service life of the Company's properties ("Restorations").
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Revenue Producing expenditures are improvements which significantly
increase the revenue-producing capability of the asset including tenant
improvements at industrial properties, installation of washers and dryers at
multifamily properties, and other value-added additions.
Rehabilitation expenditures are costs the Company determines are necessary
during the due diligence phase immediately preceding the acquisition of a
property. At newly acquired properties, the Company often finds it necessary to
upgrade the physical appearance of such properties and to complete the
maintenance and repair work which had been deferred by prior owners.
Restorations are nonrevenue-producing capital expenditures which recur on a
regular basis, and have estimated useful lives of more than one year.
Make ready costs incurred after a property's rehabilitation, such as carpet
and appliance replacement, interior painting and window coverings are expensed.
The following table summarizes capital expenditures incurred by the Company
(excluding costs incurred related to the Texas multifamily portfolio sold in
1995) for the years ended December 31, 1995 and 1994 and for the three months
ended March 31, 1996 and 1995 (all amounts are in thousands):
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------ -------------------
1995 1994 1996 1995
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Multifamily
Acquisitions..................................... $ 85,726 $28,375 $ -- $ --
Revenue-producing................................ 272 -- 34 --
Rehabilitation................................... 1,514 1,115 527 269
Restoration...................................... 58 19 12 299
-------- ------- -------- --------
87,570 29,509 573 568
-------- ------- -------- --------
Industrial
Acquisitions..................................... 24,591 69,667 6,800 7,157
Revenue producing................................ 865 226 550 115
Rehabilitation................................... 162 -- 126 --
Restorations..................................... 99 -- -- --
-------- ------- -------- --------
25,717 69,893 7,476 7,272
-------- ------- -------- --------
$113,287 $99,402 $ 8,049 $ 7,840
======== ======= ======== ========
</TABLE>
The Company anticipates incurring similar capital expenditures in the
remainder of 1996. The Company expects such expenditures will be funded from
available cash balances, revolving lines of credit and proceeds from
refinancings.
ECONOMIC CONDITIONS
All of the Company's leases on its Multifamily Properties are for a period
of one year or less. The Company's leases on its Industrial Properties generally
have terms ranging from one to five years and contain provisions providing for
rental increases based either on fixed increase or on increases in the Consumer
Price Index. Management believes the nature of its multifamily leases and the
provisions contained in its industrial leases provide for increases in the
tenants' base rent and tend to mitigate the adverse impact of inflation.
Many regions of the United States, including regions in which the Company
owns properties, have in the past experienced an economic recession. Adverse
changes in general or local economic conditions could result in the inability of
some existing tenants to the Company to meet their lease obligations and could
adversely affect the Company's ability to attract or retain tenants.
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MANAGEMENT
The directors, executive officers and key employees of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------------------- --- -------------------------------------
<S> <C> <C>
Glenn L. Carpenter............................. 53 Chairman of the Board, President and
Chief Executive Officer
Donald G. Herrman.............................. 39 Executive Vice President, Chief
Financial Officer and Secretary
Lonnie P. Nadal................................ 40 Vice President of Acquisitions
Robert A. Dewey................................ 36 Vice President of Industrial
Operations
Kimberly G. Brown.............................. 40 Vice President of Apartment
Operations
Angela M. Wixted............................... 41 Treasurer/Controller
Stewart W. Bowie............................... 71 Director
Peter L. Eppinga............................... 54 Director
John F. Kooken................................. 64 Director
Royce B. McKinley.............................. 75 Director
Robert E. Morgan............................... 76 Director
Keith W. Renken................................ 60 Director
</TABLE>
The following is a biographical summary of experience for the executive
officers, key employees and directors of the Company.
Glenn L. Carpenter has been President, Chief Executive Officer and a
director of the Company since its formation in 1993. Mr. Carpenter served as
Chief Executive Officer of Realty from January 1992 until February 1994, and
served in various officer positions from 1979. Mr. Carpenter has been a member
of NAREIT since 1980 and served on NAREIT's Board of Governors.
Donald G. Herrman has been Executive Vice President since May 1995, and
Secretary and Chief Financial Officer of the Company since its formation in
1993. From the Company's formation through May 1995, Mr. Herrman also served as
Senior Vice President of the Company. Mr. Herrman served as Vice
President-Finance for Realty from January 1992 to February 1994 and served in
various officer positions at Realty from 1985. Mr. Herrman is a certified public
accountant in California.
Lonnie P. Nadal has been Vice President of Acquisitions of the Company
since its formation in 1993. Mr. Nadal served as Vice President-Acquisitions of
Realty from January 1992 to February 1994, and as a Director of Operations from
August 1991 until February 1994. From 1983 until 1991, Mr. Nadal was a partner
of Lincoln Property Company, a real estate development and property management
company.
Robert A. Dewey has served as Vice President of Industrial Operations of
the Company since January 1995, and had served as Vice President of Operations
of the Company from its formation in 1993 until January 1995. Mr. Dewey served
as Director of Asset Management for Realty from 1992 until February 1994. From
1991 to 1992, he was oversight manager of the Newport Beach office of the
Resolution Trust Corporation. From 1988 to 1990, Mr. Dewey was a Commercial
Manager for a real estate development company.
Kimberly G. Brown has served as Vice President of Apartment Operations of
the Company since January 1, 1996, and had served as Director of Apartment
Operations and Regional Manager for the Pacific Northwest apartment communities
owned by the Company from August 1993 until December 1995. From 1991 to August
of 1993, Ms. Brown served as a district manager for Lexford Properties, Irving,
Texas.
Angela M. Wixted has served as Treasurer and Controller of the Company
since October 1994. Ms. Wixted served as a financial consultant for various
clients from 1993 to 1994. During 1992,
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<PAGE> 31
Ms. Wixted was controller for O'Donnell Property Services. From 1986 to 1992,
Ms. Wixted served as CFO/Controller of SDC Investments, Inc. Ms. Wixted is a
certified public accountant in California.
Stewart Bowie has served as a Director of the Company since 1994. Mr. Bowie
is retired, having previously served as Chief Executive Officer of SDC, Inc., a
real estate development firm, and was Chairman of the California Business
Properties Association. Mr. Bowie currently serves on the Board of Oak Grove Oil
Company.
Peter L. Eppinga has served as a Director of the Company since 1994. Mr.
Eppinga is a practicing attorney and business consultant. He previously served
as President of Laguna Hills Properties, a company established by Sears Savings
Bank to deal with certain non-performing loans and as Senior Vice President of
Sears Savings Bank and as Chairman of Sears Savings Bank's Problem Loan
Committee.
John F. Kooken has served as a Director of the Company since 1994. Mr.
Kooken is retired, having previously served as Vice Chairman from 1987 to 1992
and as Chief Financial Officer from 1984 until 1992 of Security Pacific
Corporation. Mr. Kooken currently serves on the Boards of Directors of US
Facilities Corp., Glendale Federal Bank, Southern California Healthcare Systems
and Huntington Memorial Hospital.
Royce B. McKinley has served as a Director of the Company since 1994. Mr.
McKinley is retired, having previously served as Chairman and Chief Executive
Officer of Realty from 1989 to 1991, as President and Chief Executive Officer of
Realty from 1979 to 1989 and as director of Realty and Santa Anita Operating
Company from 1979 to 1993. Mr. McKinley is a past president of NAREIT.
Robert E. Morgan has served as a Director of the Company since 1994. Mr.
Morgan is retired, having previously served as President and Chief Executive
Officer of Coldwell Banker First Newport Corporation, a real estate investment
trust, and as President of Coldwell Banker Real Estate Finance Services. Mr.
Morgan currently serves on the Boards of Directors of Meridian Industrial Trust,
Meridian Point Realty Trust 83 and Bixby Ranch Company.
Keith W. Renken has served as a Director of the Company since 1994. Mr.
Renken is the retired Managing Partner of the Los Angeles office of Deloitte &
Touche and was with the firm from 1959 through 1992. He is currently teaching at
the University of Southern California's School of Accounting in the "Executive
in Residence" program. Mr. Renken serves on the Board of Directors of Coast
Federal Bank and several other privately-owned companies.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the material federal income tax considerations
regarding the Offering is based on current law, is for general information only
and is not tax advice. This discussion does not purport to deal with all aspects
of taxation that may be relevant to particular shareholders in light of their
personal investment or tax circumstances, or to certain types of shareholders
including insurance companies, tax-exempt organizations or retirement accounts
(except to the extent discussed under the heading "-- Taxation of Tax-Exempt
Shareholders"), financial institutions or broker-dealers, foreign corporations
and persons who are not citizens or residents of the United States (except to
the extent discussed under the heading "-- Taxation of Non-U.S. Shareholders"),
which are subject to special treatment under the federal income tax laws.
EACH PROSPECTIVE PURCHASER OF COMMON SHARES IS URGED TO CONSULT WITH ITS
OWN TAX ADVISOR TO DETERMINE THE IMPACT OF SUCH PROSPECTIVE PURCHASER'S PERSONAL
TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
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<PAGE> 32
TAXATION OF THE COMPANY
General. The Company has made an election to be taxed as a REIT under
Sections 856 through 860 of the Code, commencing with its taxable year ended
December 31, 1994. The Company believes that it has been organized and has
operated in such a manner as to qualify for taxation as a REIT under the Code,
and the Company intends to continue to operate in such a manner, but no
assurance can be given that it has operated or will operate in a manner so as to
qualify or remain qualified.
The sections of the Code and Treasury Regulations governing REITs are
highly technical and complex. The following sets forth the material aspects of
the sections that govern the federal income tax treatment of a REIT and its
shareholders. This summary is qualified in its entirety by the applicable Code
provisions, Treasury Regulations and rules promulgated thereunder, and
administrative and judicial interpretations thereof.
In the opinion of Cox, Castle & Nicholson, LLP, counsel to the Company,
commencing with the Company's taxable year ended December 31, 1994, the Company
was organized in conformity with the requirements for qualification as a REIT,
and its method of operation has enabled, and its proposed method of operation
will enable, it to continue to meet the requirements under the Code for
qualification and taxation as a REIT. It must be emphasized that this opinion is
based on various assumptions and is conditioned upon the accuracy of certain
representations made by the Company as to factual matters relating to the
Company's organization, operations, income, assets, distributions and stock
ownership. The Company's qualification as a REIT depends on the Company having
met and continuing to meet -- through actual operating results, distribution
levels and diversity of stock ownership -- the various qualification tests
imposed under the Code and discussed below, the results of which will not be
reviewed by Cox, Castle & Nicholson, LLP. Accordingly, no assurance can be given
that the actual results of the Company's operations for any particular taxable
year have satisfied or will satisfy such requirements. An opinion of counsel is
not binding on the IRS or the courts, and no assurance can be given that the IRS
will not challenge the Company's eligibility for taxation as a REIT. Further,
the anticipated federal income tax treatment described in this Prospectus may be
changed, perhaps retroactively, by legislative, administrative or judicial
action at any time. See "-- Failure to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) of income that generally
results from an investment in a regular corporation. However, the Company will
be subject to federal income tax as follows: First, the Company will be taxed at
regular corporate rates on any undistributed "REIT taxable income" (as defined
below), including undistributed net capital gains. Second, under certain
circumstances the Company may be subject to the "alternative minimum tax" as a
consequence of its items of tax preference to the extent that tax exceeds its
regular tax. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" (generally, property acquired by reason of
default on indebtedness held by the Company) that is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of
business, other than foreclosure property), such income will be subject to a
100% tax. Fifth, if the Company should fail to satisfy the 75% gross income test
or the 95% gross income test (as discussed below), but has nonetheless
maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on an amount equal to (a) the greater
of the amount by which the Company fails the 75% or 95% test, multiplied by (b)
a fraction intended to reflect the Company's profitability. Sixth, if the
Company should fail to distribute during each calendar year at least the sum (i)
85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain
net income for such year, and (iii) any
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<PAGE> 33
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, with respect to any asset (a "Built-in Gain
Asset") acquired by the Company from a corporation which is or has been a C
corporation (i.e., generally a corporation subject to full corporate-level tax)
in certain transactions in which the basis of the Built-in Gain Asset in the
hands of the Company is determined by reference to the basis of the asset in the
hands of the C corporation, if the Company recognizes gain on the disposition of
such asset during the 10-year period (the "Recognition Period") beginning on the
date on which such asset was acquired by the Company, then, to the extent of the
Built-in Gain (i.e., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
regular corporate rate pursuant to IRS regulations that have not yet been
promulgated.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) that would be taxable
as a domestic corporation but for Sections 856 through 859 of the Code; (iv)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) the beneficial ownership of which is held by
100 or more persons; (vi) in which during the last half of each taxable year not
more than 50% in value of its outstanding stock is owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) to (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) will not apply until after the first taxable year for
which an election is made to be taxed as a REIT.
The Company believes that it has issued sufficient shares to allow it to
satisfy conditions (v) and (vi). In addition, the Company's Charter provides for
restrictions regarding the transfer and ownership of shares, which restrictions
are intended to assist the Company in continuing to satisfy the share ownership
requirements described in (v) and (vi) above. Such transfer and ownership
restrictions are described in the accompanying Prospectus. These restrictions
may not ensure that the Company will, in all cases, be able to satisfy the share
ownership requirements described above. If the Company fails to satisfy such
share ownership requirements, the Company's status as a REIT will terminate. See
"Failure to Qualify."
To monitor the Company's compliance with the share ownership requirements,
the Company is required to maintain records regarding the actual ownership of
its shares. To do so, the Company must demand written statements each year from
the record holders of certain percentages of its shares of stock in which the
record holders are to disclose the actual owners of the shares (i.e., the
persons required to include in gross income the REIT dividends). A REIT with
2,000 or more record shareholders must demand statements from record holders of
5% or more of its shares, one with less than 2,000, but more than 200 record
shareholders must demand statements from record holders of 1% or more of the
shares, while a REIT with 200 or fewer record shareholders must demand
statements from record holders of 0.5% or more of the shares. A list of those
persons failing or refusing to comply with this demand must be maintained as
part of the Company's records. A shareholder who fails or refuses to comply with
the demand must submit a statement with its tax return disclosing the actual
ownership of the shares and certain other information.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and the assets tests, discussed below. Thus,
the Company's proportionate share of the assets,
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<PAGE> 34
liabilities and items of income of PGP Inland Communities, L.P., the Company's
subsidiary operating partnership (the "Operating Partnership"), are treated as
assets, liabilities and items of income of the Company for purposes of applying
the requirements described herein. The Company controls the Operating
Partnership and believes it has operated the Operating Partnership in a manner
consistent with the requirements for qualification as a REIT, and intends to
continue to operate the Operating Partnership in such a manner. However, there
can be no assurance that the Company has operated or will actually operate the
Operating Partnership in a manner that has enabled or will enable the Company to
continue to satisfy the REIT provisions of the Code.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from certain sales of real
property held primarily for sale) for each taxable year must be derived directly
or indirectly from investments relating to real property or mortgages on real
property (including "rents from real property" and, in certain circumstances,
interest) or from certain types of temporary investments. Second, at least 95%
of the Company's gross income (excluding gross income from certain sales of real
property held primarily for sale) for each taxable year must be derived from
items of income that qualify under the 75% test, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, gain from the sale or other disposition of stock or
securities held for less than one year, gain from certain sales of real property
held primarily for sale and gain from the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the Company's
gross income for each taxable year.
Rents received by the Company qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income test if the Company,
or an owner of 10% or more of the Company, actually or constructively owns 10%
or more of such tenant (a "Related Party Tenant"). Third, if rent attributable
to personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the Company generally must not operate or manage the property or furnish or
render services to the tenants of such property, other than through an
independent contractor from whom the Company derives no revenue, provided,
however, the Company may directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and not otherwise considered "rendered to the occupant" of the property. The
Company regularly monitors its activities to ensure that the foregoing tests are
satisfied.
The Company receives fees in exchange for management services rendered to
the Operating Partnership. Although the percentage of those fees exceeding the
Company's capital interest in the Operating Partnership will not qualify under
the 75% or 95% gross income tests, the Company believes that the aggregate
amount of such income (together with any other nonqualifying income) in any
taxable year has not exceeded and will not exceed the limits on nonqualifying
income under the gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if (i) the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches to its return for that year a schedule of the nature and amount
of each item of its income and (iii) any incorrect information on the schedule
was not due to fraud with intent to evade tax. However, in the event the Company
does not meet these tests, the Company would not be
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<PAGE> 35
entitled to the benefit of these relief provisions. If these relief provisions
are inapplicable to a particular set of circumstances involving the Company, the
Company will not qualify as a REIT. As discussed above in "-- General," even if
these relief provisions apply, a tax would be imposed with respect to the excess
nonqualifying income. There are no comparable relief provisions which could
mitigate the consequences of a failure to satisfy the 30% gross income test.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets, stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Company, cash, cash items and government securities.
Second, not more than 25% of Company's total assets may be represented by
securities other than those included in the 75% asset test. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets and the Company may not own more than 10% of any one issuer's
outstanding voting securities. In applying these tests, the Company will be
deemed to own a proportionate share of any assets owned, directly or indirectly,
by the Operating Partnership based on its capital interest in the Operating
Partnership.
The Company believes that it has complied and will continue to comply with
the asset tests. Substantially all of the Company's investments represent
qualifying real estate assets, including the Company's share of the assets of
the Operating Partnership.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. "REIT taxable income" for any year means the taxable
income of the Company for such year (excluding any net income derived either
from property held primarily for sale to customers or from foreclosure
property), subject to certain adjustments provided in the REIT provisions of the
Code. In addition, if the Company disposes of any Built-in Gain Asset during
such asset's Recognition Period, the Company will be required, pursuant to IRS
regulations which have not yet been promulgated, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before the Company timely files its
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. The Company intends to make, and to cause the
Operating Partnership to make, timely distributions sufficient to satisfy these
annual distribution requirements. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its REIT taxable income, as adjusted, it will be subject to tax
thereon at regular capital gain and ordinary corporate tax rates.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the distribution requirements described
above due to timing differences between the actual receipt of income and actual
payment of deductible expenses and the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company, or if nondeductible
capital expenditures such as principal amortization or capital expenditures
exceed the amount of noncash deductions. In the event that such timing
differences occur, in order to meet the distribution requirements, the Company
may find it necessary to arrange, or to cause the Operating Partnership to
arrange, for short-term or long-term borrowing, to sell assets, or to pay
dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the above distribution requirements for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. The Company will,
however, be required to pay interest based upon the amount of any deduction
taken for deficiency dividends.
S-34
<PAGE> 36
Furthermore, if the Company should fail to distribute each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain income for such year and (iii) any undistributed taxable
income from prior periods, the Company will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed. Any
REIT taxable income and capital gains on which tax is imposed for any year is
treated as an amount distributed during that year for purposes of this excise
tax.
FAILURE TO QUALIFY
If the Company should fail to qualify for taxation as a REIT in any taxable
year, and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
rates applicable to regular C corporations. Distributions to shareholders in any
year in which the Company fails to qualify as a REIT will not be deductible by
the Company nor will they be required to be made. As a result, the Company's
failure to qualify as a REIT will reduce the cash available for distribution by
the Company to shareholders. In addition, if the Company fails to qualify as a
REIT, all distributions to shareholders will be taxable as ordinary income to
the extent of the Company's current and accumulated earnings and profits, and,
subject to certain limitations in the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company will also be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
the Company would be entitled to such statutory relief. In addition, a recent
federal budget proposal contains language which, if enacted, would result in the
immediate taxation of all gain inherent in a C corporation's assets upon an
election by the corporation to become a REIT, and thus would effectively
preclude the Company from re-electing REIT status following a termination of its
REIT qualification.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic shareholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are properly designated
by the Company as capital gain dividends will be taxed as long-term capital gain
(to the extent they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which the shareholder has held
its shares. However, corporate shareholders may be required to treat up to 20%
of certain capital gain dividends as ordinary income. Distributions (not
designated as capital gain dividends) in excess of current and accumulated
earnings and profits will be treated as tax-free returns of capital to the
extent of the shareholder's basis in the shares, and will reduce the adjusted
basis of such shares (but not below zero). To the extent distributions in excess
of current and accumulated earnings and profits exceed the basis of a
shareholder's shares they will be included in income as long-term capital gain
(or short-term capital gain if the shares have been held for one year or less),
assuming the shares are a capital asset in the hands of the shareholder. In
addition, any dividend declared by the Company in October, November or December
of any year payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by the Company and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid by the Company during January of the following calendar year. Shareholders
may not include in their individual income tax returns any net operating losses
or capital losses of the Company.
Upon any sale or other disposition of shares, a domestic shareholder will
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares for tax purposes. In general, provided the shares
were held as a capital asset, any gain or loss realized on a taxable disposition
of shares will be treated as long-term
S-35
<PAGE> 37
capital gain or loss if the shares have been held for more than 12 months and
otherwise as short-term capital gain or loss. However, any loss upon a sale or
exchange of shares by a shareholder who has held such shares for six months or
less (after applying certain holding period rules) will be treated as a
long-term capital loss to the extent of distributions from the Company required
to be treated by such shareholder as long-term capital gain.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company reports to its domestic shareholders and the IRS the amount of
dividends paid with respect to each calendar year, and the amount of tax
withheld therefrom, if any. Under the backup withholding rules, a shareholder
may be subject to backup withholding at a rate of 31% with respect to dividends
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Company with its
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount withheld under the backup withholding rules will be
creditable against the shareholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions made
to any shareholders who fail to certify to their non-foreign status to the
Company. See "-- Taxation of Non-U.S. Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
The IRS has ruled that amounts distributed as dividends by a REIT do not
constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, dividend income from the Company should
not, subject to certain exceptions described below, be UBTI to a qualified plan,
IRA or other tax-exempt entity (a "Tax-Exempt Shareholder") provided the
Tax-Exempt Shareholder has not held its shares as "debt financed property"
within the meaning of Section 514 of the Code and the shares are not otherwise
used in an unrelated trade or business of the Tax-Exempt Shareholder. Similarly,
income from the sale of Common Stock should not, subject to certain exceptions
described below, constitute UBTI unless the Tax-Exempt Shareholder has held such
Common Stock as a dealer (under Section 512(b)(5)(B) of the Code) or as
"debt-financed property."
For Tax-Exempt Shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code, respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their tax advisors concerning these
"set-aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by the
Company shall be treated as UBTI to certain trusts if the Company is treated as
a "pension held REIT." A trust will be subject to this rule if it (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section 501(a)
of the Code and (iii) holds more than 10% (by value) of the interests in the
REIT. Tax-exempt pension funds that are described in Section 401(a) of the Code
are referred to below as "qualified trusts."
The Company will be treated as a "pension held REIT" if (i) it would not
have qualified as a REIT but for the fact that Section 856(h)(3) of the Code
provides that stock owned by qualified trusts shall be treated, for purposes of
the "five or fewer" shareholder requirement (discussed above), as owned by the
beneficiaries of the trust (rather than by the trust itself) and (ii) either (a)
at least one such qualified trust holds more than 25% (by value) of the
interests in the Company or (b) one or more such qualified trusts, each of whom
owns more than 10% (by value) of the
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<PAGE> 38
interests in the Company, hold in the aggregate more than 50% (by value) of the
interests in the Company. The Company believes that it has not been, and is not,
a "pension held REIT."
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Shareholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
federal income tax law and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S. Shareholder in light of its
particular circumstances. In addition, this discussion is based on current law,
which is subject to change, and assumes that the Company qualifies for taxation
as a REIT. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of federal, state, local and foreign income and
other tax laws with regard to an investment in Common Stock, including any
reporting requirements.
Distributions. Distributions by the Company to a Non-U.S. Shareholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of the
Company. Such distributions generally will be subject to withholding of United
States federal income tax at a 30% rate on the total amount distributed unless
an applicable income tax treaty reduces or eliminates that tax. However,
dividends that are "effectively connected" with the conduct of a trade or
business by the Non-U.S. Shareholder will be subject to tax on a net basis at
graduated rates, in the same manner as domestic shareholders are taxed with
respect to such dividends, and are generally not subject to withholding. Any
such "effectively connected" dividends received by a Non-U.S. Shareholder that
is a corporation may also be subject to an additional branch profits tax at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of ascertaining the requirement of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations not currently in effect, however, a Non-U.S.
Shareholder who seeks to claim the benefit of an applicable treaty rate would be
required to satisfy certain certification and other requirements. Under certain
treaties, lower withholding rates generally applicable to dividends do not apply
to dividends from a REIT, such as the Company. A Non-U.S. Shareholder must file
a properly completed and executed IRS Form 4224 (or, under proposed regulations
not currently in effect, IRS Form W-8) with the Company's withholding agent
certifying that the investment to which the distribution relates is effectively
connected with the conduct of a United States trade or business of such Non-U.S.
Shareholder in order to qualify for the exemption from withholding under the
effectively connected income exemption discussed above.
Distributions that are neither attributable to gain from sales or exchanges
by the Company of United States real property interests nor designated by the
Company as capital gains dividends and that are in excess of current or
accumulated earnings and profits of the Company will not be taxable to a
Non-U.S. Shareholder to the extent that they do not exceed the adjusted basis of
the shareholder's Common Stock, but rather will reduce the adjusted basis of
such Common Stock. To the extent such distributions in excess of the Company's
current and accumulated earnings and profits exceed the adjusted basis of a
Non-U.S. Shareholder's Common Stock, they will give rise to gain from the sale
or exchange of the Common Stock, the tax treatment of which is described below.
Under current Treasury Regulations, if it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current or accumulated earnings and profits, the entire distribution will
generally be treated as a dividend subject to withholding. However, amounts thus
withheld are generally refundable if it is subsequently determined that such
distribution was, in
S-37
<PAGE> 39
fact, in excess of current or accumulated earnings and profits of the Company.
Under proposed regulations not currently in effect, the Company may, at its
option, make a reasonable estimate of the portion of a distribution that is out
of current or accumulated earnings and profits and withhold only with respect to
such portion, although any such determination would not affect the Non-U.S.
Shareholder's liability for the 30% tax on the amount ultimately determined to
have been distributed out of the Company's current or accumulated earnings and
profits.
Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those
attributable to gain from sales or exchanges by the Company of United States
real property interests) generally will not be subject to United States federal
income taxation unless (i) the investment in the Common Shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business, in
which case the Non-U.S. Shareholder will be subject to the same treatment as
domestic shareholders with respect to such gain (except that a shareholder that
is a foreign corporation may also be subject to the 30% branch profits tax, as
discussed above) or (ii) the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and either has a "tax home" in the United States or sold his shares
under circumstances where the sale is attributable to a U.S. office, in which
case the nonresident alien individual will be subject a 30% tax on the
individual's capital gains.
Distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
be treated as income that is effectively connected with a United States trade or
business of the Non-U.S. Shareholder. Non-U.S. Shareholders would thus generally
be taxed on such distributions at the same rates applicable to domestic
shareholders (subject to a special alternative minimum tax in the case of
nonresident alien individuals). Also, such gain may be subject to a 30% branch
profits tax in the hands of a corporate Non-U.S. Shareholder that is not
entitled to a treaty exemption or rate reduction. The Company is required to
withhold 35% of any such distribution, and the withheld amount is creditable
against the Non-U.S. Shareholder's United States federal income tax liability.
Sale of Common Shares. Gain recognized by a Non-U.S. Shareholder upon a
sale or other disposition of Common Shares generally will not be subject to
United States federal income tax unless (i) the Company is not a "domestically
controlled REIT," or (ii) the investment in the Common Shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business or
(iii) in the case of a Non-U.S. Shareholder who is a nonresident alien
individual, the individual is present in the United States for 183 days or more
during the taxable year and either has a "tax home" in the United States or sold
his shares under circumstances where the sale is attributable to a U.S. office.
A domestically controlled REIT is defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by foreign persons. The Company currently believes
that it is a domestically controlled REIT. However, because the Common Stock
will be publicly traded, no assurance can be given that the Company is or will
continue to be a domestically-controlled REIT. In the circumstances described
above in clauses (i) and (ii), the Non-U.S. Shareholders will generally be
subject to the same treatment as domestic shareholders with respect to such gain
(subject to a special alternative minimum tax in the case of nonresident alien
individuals in the circumstances described above in clause (i) and, in the case
of foreign corporations, subject to the possible application of the 30% branch
profits tax, discussed above). In the circumstances described above in clause
(iii), the nonresident alien individual will be subject to a 30% tax on the
individual's capital gain.
Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each Non-U.S. Shareholder the amount of distributions
subject to withholding as described above and the tax withheld with respect to
such distributions, regardless of whether withholding is actually required.
Copies of the information returns reporting such distributions and withholding
may also be made available to the tax authorities in the country in which the
Non-U.S. Shareholder resides under the provisions of an applicable income tax
treaty. Additional issues may
S-38
<PAGE> 40
arise pertaining to information reporting and backup withholding for Non-U.S.
Shareholders. Non-U.S. Shareholders should consult their tax advisors with
regard to U.S. information reporting and backup withholding.
TAX RISKS ASSOCIATED WITH OWNING AN INTEREST IN THE OPERATING PARTNERSHIP
The Company owns an interest in the Operating Partnership. The ownership of
an interest in the Operating Partnership may involve special tax risks,
including the possible challenge by the IRS of (i) allocations of income and
expense items, which could affect the computation of taxable income of the
Company and (ii) the status of the Operating Partnership as a partnership (as
opposed to an association taxable as a corporation) for federal income tax
purposes. If the Operating Partnership is treated as an association taxable as a
corporation for federal income tax purposes, the Operating Partnership would be
treated as a taxable entity. In addition, in such a situation, (i) if the
Company owned more than 10% of the outstanding voting securities of the
Operating Partnership, or the value of such securities exceeded 5% of the value
of the Company's assets, the Company would fail to satisfy the asset tests
described above and would therefore fail to qualify as a REIT, (ii)
distributions from the Operating Partnership to the Company would be treated as
dividends, which are not taken into account in satisfying the 75% gross income
test described above and would, therefore, preclude the Company from satisfying
such test, (iii) the interest in the Operating Partnership held by the Company
would not qualify as a "real estate asset," which could preclude the Company
from meeting the 75% asset test described above and (iv) the Company would not
be able to deduct its share of any losses generated by the Operating Partnership
in computing its taxable income. See "-- Failure to Qualify" for a discussion of
the effect of the Company's failure to meet such tests for a taxable year.
Although the Company believes it will be so treated, the Operating
Partnership has not requested, and does not intend to request, a ruling from the
IRS that it will be treated as a partnership for federal income tax purposes.
Instead, Cox, Castle & Nicholson, LLP has delivered its opinion that based on
the provisions of the agreement of the Operating Partnership, certain factual
assumptions and representations as to factual matters, the Operating Partnership
will be treated as a partnership for federal income tax purposes rather than an
association or publicly traded partnership taxable as a corporation. Unlike a
private letter ruling, an opinion of counsel is not binding on the IRS, and no
assurance can be given that the IRS will not challenge the status of the
Operating Partnership as a partnership for federal income tax purposes. If such
a challenge were sustained by a court, the Operating Partnership could be
treated as a corporation for federal income tax purposes.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
S-39
<PAGE> 41
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Oppenheimer & Co., Inc. and Prudential
Securities Incorporated have severally agreed to purchase from the Company and
the Selling Stockholder the following respective number of shares of Common
Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus Supplement.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------------- ---------
<S> <C>
Alex. Brown & Sons Incorporated.................................................
Oppenheimer & Co., Inc. ........................................................
Prudential Securities Incorporated..............................................
---------
Total................................................................. 2,800,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
such shares are purchased.
The Company and the Selling Stockholder have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus Supplement and to certain dealers at such
price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of
$ per share to certain other dealers. After the Offering, the Offering
price and the other selling terms may be changed by the Representatives of the
Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus Supplement, to purchase up
to 420,000 additional shares of Common Stock at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus Supplement. To the extent that the Underwriters exercise such option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage thereof that the number of shares of Common Stock to be
purchased by it shown in the above table bears to 2,800,000 and the Company will
be obligated, pursuant to the option, to sell such shares to the Underwriters.
The Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of Common Stock offered hereby. If
purchased, the Underwriters will offer such additional shares on the same terms
as those on which the 2,800,000 shares are being offered hereby.
S-40
<PAGE> 42
The Company has agreed to pay Alex. Brown & Sons Incorporated a financial
advisory fee of up to approximately $125,000 for advisory services rendered in
connection with the evaluation, analysis and structuring of the Company
offering.
Certain of the Underwriters have provided various investment banking
services to the Company from time to time, for which they have received
customary compensation.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters, as well as one-another, against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, or to contribute to
payments the Underwriters may be required to make in respect thereof.
The Company and each of its executive officers and directors have agreed
not to offer, sell, contract to sell or otherwise issue or dispose of any shares
of Common Stock or options to purchase shares of Common Stock (except for
issuances by the Company pursuant to the Company's 1993 Share Option Plan and
the Dividend Reinvestment Plan) for a period of 90 days after the date of this
Prospectus Supplement without the prior written consent of Alex. Brown & Sons
Incorporated.
LEGAL MATTERS
Certain legal matters, including certain tax matters as described under
"Federal Income Tax Considerations," will be passed upon for the Company by Cox,
Castle & Nicholson, LLP. Certain legal matters will be passed upon for the
Underwriters by Gibson, Dunn & Crutcher LLP. Cox, Castle & Nicholson, LLP and
Gibson, Dunn & Crutcher LLP will rely as to all matters of Maryland law,
including the legality of the Common Stock, on the opinions of Piper & Marbury
LLP, Baltimore, Maryland.
S-41
<PAGE> 43
PACIFIC GULF PROPERTIES INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996................. F-3
Pro Forma Condensed Consolidated Statement of Operations
for the Three Months Ended March 31, 1996........................................ F-4
Pro Forma Condensed Consolidated Statement of Operations
for the Year ended December 31, 1995............................................. F-5
Notes to Pro Forma Condensed Consolidated Financial Statements...................... F-6
BAY SAN MARCOS INDUSTRIAL PARK
Report of Independent Auditors...................................................... F-10
Statement of Revenues and Certain Expenses for the Year Ended December 31, 1995 and
the Three Months Ended March 31, 1996 (Unaudited)................................ F-11
Notes to Statement of Revenues and Certain Expenses................................. F-12
ESCONDIDO BUSINESS CENTER
Report of Independent Certified Public Accountants.................................. F-14
Statement of Revenues and Certain Expenses for the Year Ended December 31, 1995
and the Three Months Ended March 31, 1996 (Unaudited)............................ F-15
Notes to Statement of Revenues and Certain Expenses................................. F-16
EDEN LANDING COMMERCE PARK
Report of Independent Auditors...................................................... F-18
Statement of Revenue and Expenses for the Year Ended December 31, 1995 and the Three
Months Ended March 31, 1996 (Unaudited).......................................... F-19
Notes to Statement of Revenues and Certain Expenses................................. F-20
RIVERVIEW INDUSTRIAL PARK
Report of Independent Auditors...................................................... F-22
Statement of Revenue and Certain Expenses for the Year Ended December 31, 1995 and
the Three Months Ended March 31, 1996 (Unaudited)................................ F-23
Notes to Statement of Revenues and Certain Expenses................................. F-24
PACIFIC PARK
Report of Independent Auditors...................................................... F-26
Statement of Revenue and Certain Expenses for the Year Ended December 31, 1995 and
the Three Months Ended March 31, 1996 (Unaudited)................................ F-27
Notes to Statement of Revenues and Certain Expenses................................. F-28
</TABLE>
F-1
<PAGE> 44
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
Pacific Gulf Properties Inc. (the "Company") was formed in 1993 and
completed its initial public offering in February 1994. Subsequent to the
completion of this offering of 2,015,581 shares of Common Stock (the
"Offering"), it is anticipated that the Company will acquire nine additional
industrial properties containing approximately 1,352,000 leasable square feet
located in California as more fully described in this Prospectus Supplement (the
"Acquisition Properties").
The following unaudited Pro Forma Condensed Consolidated Balance Sheet as
of March 31, 1996 is based on the unaudited historical financial statements of
the Company and has been prepared as if each of the following transactions had
occurred as of March 31, 1996: (i) the completion of this Offering, the
establishment of the Company's acquisition line of credit and the application of
the net proceeds thereof as described in this Prospectus Supplement, and (ii)
the purchase of the Acquisition Properties. The following unaudited Pro Forma
Condensed Consolidated Statement of Operations for the year ended December 31,
1995 is based on the historical financial statements of the Company and has been
prepared as if each of the following transactions had occurred as of the
beginning of the period presented: (i) the purchases completed by the Company
during 1995 consisting of 12 multifamily properties and one industrial property
containing approximately 475,000 leasable square feet located in Seattle,
Washington, (ii) the sale of the Company's four multifamily properties located
in Texas, (iii) the purchase completed by the Company in March 1996 of an
industrial property containing approximately 189,000 leasable square feet
located in Garden Grove, California, (iv) the purchase of the Acquisition
Properties, and (v) the completion of the Offering, the establishment of the
Company's acquisition line of credit and the application of the net proceeds
thereof as described in this Prospectus Supplement. The unaudited pro forma
condensed consolidated statement of operations for the three months ended March
31, 1996 is based on the historical financial statements of the Company and has
been prepared as if each of the following transactions had occurred as of the
beginning of the period presented: (i) the purchase completed by the Company in
March 1996 of an industrial property containing approximately 189,000 leasable
square feet located in Garden Grove, California, (ii) the purchase of the
Acquisition Properties, and (iii) the completion of the Offering, the
establishment of the Company's acquisition line of credit and the application of
the net proceeds thereof as described in this Prospectus Supplement.
The following pro forma information is not necessarily indicative of what
the Company's financial position or results of operations would have been
assuming the completion of the described transactions as of the beginning of the
periods indicated, nor does it purport to project the Company's financial
position or results of operations at any future date or for any future period.
In addition, the historical operating results for the three months ended March
31, 1996 are not necessarily indicative of the results to be obtained by the
Company for the year ending December 31, 1996. The following information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and all of the financial statements and
notes thereto contained elsewhere in this Prospectus Supplement, the
accompanying Prospectus or incorporated therein by reference.
F-2
<PAGE> 45
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ISSUANCE OF BEFORE
COMPANY COMMON ACQUISITION ACQUISITION COMPANY
HISTORICAL SHARES PROPERTIES PROPERTIES PRO FORMA
---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate, net........... $ 284,970 $ -- $ 284,970 $ 52,335(B) $337,305
Cash and cash
equivalents.............. 2,466 31,987(A) 34,453 (30,222)(B) 4,231
Accounts receivable........ 857 -- 857 -- 857
Other assets............... 6,097 -- 6,097 -- 6,097
-------- ------- -------- -------- --------
$ 294,390 $31,987 $ 326,377 $ 22,113 $348,490
======== ======= ======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Loans payable.............. $ 157,606 $ -- $ 157,606 $ -- $157,606
Acquisition line of
credit................... -- -- -- 22,113(B) 22,113
Accounts payable and
accrued liabilities...... 5,264 -- 5,264 -- 5,264
Dividends payable.......... 1,944 -- 1,944 -- 1,944
Convertible subordinated
debentures............... 55,649 -- 55,649 -- 55,649
-------- ------- -------- -------- --------
220,463 220,463 22,113 242,576
Minority interest in
consolidated
partnership.............. 3,518 -- 3,518 3,518
Shareholders' Equity
Common shares............ 49 20(A) 69 -- 69
Outstanding restricted
stock................. (638) -- (638) -- (638 )
Additional paid in
capital............... 78,028 31,967(A) 109,995 -- 109,995
Distributions in excess
of earnings........... (7,030) -- (7,030) -- (7,030 )
-------- ------- -------- -------- --------
70,409 31,987 102,396 -- 102,396
-------- ------- -------- -------- --------
$ 294,390 $31,987 $ 326,377 $ 22,113 $348,490
======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
F-3
<PAGE> 46
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
BEFORE
COMPANY PRO FORMA ACQUISITION ACQUISITION COMPANY
HISTORICAL ADJUSTMENTS PROPERTIES PROPERTIES(I) PRO FORMA
------------- ----------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income
Multifamily............... $ 7,051 $ -- $ 7,051 $ -- $ 7,051
Industrial................ 3,784 195(C) 3,979 1,822 5,801
--------- ---- ------- ------ ---------
10,835 195 11,030 1,822 12,852
EXPENSES
Rental property expenses
Multifamily............... 2,786 -- 2,786 -- 2,786
Industrial................ 948 72(C) 1,020 473 1,493
--------- ---- ------- ------ ---------
3,734 72 3,806 473 4,279
Depreciation................. 1,835 16(D) 1,851 211 2,062
Interest (including
amortization of financing
costs).................... 4,326 124(E) 4,450 415 4,865
General and administrative... 647 -- 647 -- 647
--------- ---- ------- ------ ---------
10,542 212 10,754 1,099 11,853
--------- ---- ------- ------ ---------
NET INCOME..................... $ 293 $ (17) $ 276 $ 723 $ 999
========= ==== ======= ====== =========
WEIGHTED AVERAGE COMMON
SHARES(I)(J)................. 4,864,044 6,879,625
========= =========
NET INCOME PER COMMON SHARE.... $.06 $.15
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
F-4
<PAGE> 47
PACIFIC GULF PROPERTIES INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
BEFORE
COMPANY PRO FORMA ACQUISITION ACQUISITION COMPANY
HISTORICAL ADJUSTMENTS PROPERTIES PROPERTIES(I) PRO FORMA
---------- ----------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income
Multifamily.............. $ 24,898 $ 2,948(F) $27,846 $-- $ 27,846
Industrial............... 12,193 3,996(F) 16,189 7,109 23,298
--------- ------- ------- ------ ---------
37,091 6,944 44,035 7,109 51,144
EXPENSES
Rental property expenses
Multifamily.............. 10,215 1,476(F) 11,691 -- 11,691
Industrial............... 2,567 1,695(F) 4,262 2,106 6,368
--------- ------- ------- ------ ---------
12,782 3,171 15,953 2,106 18,059
Depreciation................ 6,081 881(G) 6,962 843 7,805
Interest (including
amortization of financing
costs)................... 14,066 3,800(H) 17,866 1,672 19,538
General and
administrative........... 2,423 -- 2,423 -- 2,423
--------- ------- ------- ------ ---------
35,352 7,852 43,204 4,621 47,825
--------- ------- ------- ------ ---------
INCOME BEFORE GAIN ON SALE OF
PROPERTIES(L)............... $ 1,739 $ (908) $ 831 $ 2,488 $ 3,319
========= ======= ======= ====== =========
WEIGHTED AVERAGE
COMMON SHARES((J)(K)........ 4,830,723 6,846,304
========= =========
INCOME BEFORE GAIN ON SALES OF
PROPERTIES PER COMMON
SHARE....................... $.36 $.48
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
F-5
<PAGE> 48
PACIFIC GULF PROPERTIES INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
(A) Reflects the issuance of 2,015,581 additional shares of Common Stock of the
Company at an assumed offering price of $17.25 per share and the
application of the net proceeds from the Offering as follows:
<TABLE>
<S> <C>
Common stock issued at $.01 par value per share.............................. $ 20
Capital in excess of par value............................................... 34,749
-------
Gross proceeds from the Offering............................................. 34,769
Less: offering costs......................................................... (2,782)
-------
Net proceeds from the Offering available for purchase of the Acquisition
Properties and planned capital improvements................................ $31,987
=======
</TABLE>
(B) Reflects the purchase of the Acquisition Properties as follows:
<TABLE>
<CAPTION>
PROPERTY LOCATION PURCHASE PRICE
------------------------------------------------ ---------------------- --------------
<S> <C> <C>
Bay San Marcos Industrial Park San Marcos, CA $ 4,678
Escondido Business Center Escondido, CA 10,372
Bell Ranch Road Santa Fe Springs, CA 3,750
Riverview Industrial Park San Bernardino, CA 6,425
Pacific Center Aliso Viejo, CA 6,900
Eden Landing Commerce Center Hayward, CA 7,550
North County Yorba Linda, CA 6,350
San Marcos Commerce Center San Marcos, CA 2,710
La Mirada Business Center La Mirada, CA 3,600
-------
$ 52,335
=======
</TABLE>
The Acquisition Properties are being purchased from third parties and have
been reflected at their purchase price. The Company plans expending $1,765
for capital improvements relating to the Acquisition Properties subsequent
to their purchase. In conjunction with the purchase of the Acquisition
Properties, the Company anticipates borrowing $22,113 under its Acquisition
Line of Credit to fund a portion of such acquisitions with the remainder of
the purchase price funded from proceeds of the Offering. Net proceeds from
the Offering remaining after these acquisitions will be used to fund the
Company's planned capital improvements to the Acquisition Properties.
(C) The pro forma adjustments for the three months ended March 31, 1996 include
the actual revenues and certain expenses of a 189,000 square foot
industrial property acquired by the Company during March 1996 for the
period prior to its purchase, adjusted to reflect increased property taxes
based on the properties' acquisition cost and current property tax rates.
(D) Depreciation on the industrial property acquired by the Company during
1996, for the period prior to its acquisition, is computed utilizing the
estimated remaining useful life of approximately 40 years and the
depreciable cost basis of the property as follows:
<TABLE>
<CAPTION>
PRO FORMA
DATE OF PURCHASE DEPRECIABLE DEPRECIATION
PROPERTY ACQUISITION PRICE BASIS EXPENSE
------------------------------- -------------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Pacific Gulf Business Park..... March 16, 1996 $6,800 $ 3,009 $ 16
</TABLE>
F-6
<PAGE> 49
(E) Interest expense associated with the borrowing used to finance the purchase
of the industrial property acquired by the Company during 1996, for the
period prior to its acquisition, was calculated based on the actual
interest rate of the specific new borrowing as follows:
<TABLE>
<CAPTION>
PRO FORMA
INTEREST INTEREST
PROPERTY DEBT RATE EXPENSE
-------------------------------------------------------- ------ -------- ---------
<S> <C> <C> <C>
Pacific Gulf Business Park.............................. $8,000 7.3% $ 122
Amortization of loan fees and financing costs on related
borrowings financing the acquisition.................. 2
----
$ 124
====
</TABLE>
The Company borrowed $8,000 of new debt related to this acquisition
collateralized by another property. Of the borrowing, $6,800 was used to
purchase the property. The remaining proceeds will be used to rehabilitate
the Property.
(F) The pro forma adjustments for the year ended December 31, 1995 include the
actual revenues and certain expenses of multifamily and industrial
properties for the period prior to their acquisition or disposal by the
Company as follows:
<TABLE>
<CAPTION>
1995 TEXAS 1996
ACQUISITIONS DISPOSITIONS ACQUISITION TOTAL
------------ ------------ ----------- ------
<S> <C> <C> <C> <C>
Rental income
Multifamily.............................. $ 8,426 $ (5,478) $ -- $2,948
Industrial............................... 3,272 -- 724 3,996
------- ------- ---- ------
11,698 (5,478) 724 6,944
------- ------- ---- ------
Rental property expenses
Multifamily.............................. 3,878 (2,402) -- 1,476
Industrial............................... 1,317 -- 378 1,695
------- ------- ---- ------
5,195 (2,402) 378 3,171
------- ------- ---- ------
$ 6,503 $ (3,076) $ 346 $3,773
======= ======= ==== ======
</TABLE>
F-7
<PAGE> 50
(G) Reflects additional depreciation expense of $1,414 relating to the
multifamily and industrial properties acquired by the Company, net of the
reduction in depreciation due to the sale of the Company's Texas apartment
portfolio of $533, which represents the actual depreciation relating to the
Texas apartment portfolio for the three month period ended March 31, 1996.
The additional depreciation expense on the multifamily and industrial
properties acquired by the Company during 1995 and 1996, for the period
prior to their acquisition, was computed utilizing the estimated remaining
useful lives and depreciable cost basis of the properties as follows:
<TABLE>
<CAPTION>
DEPRECIABLE PRO FORMA
DATE OF PURCHASE BASIS DEPRECIATION
PROPERTY ACQUISITION PRICE (EXCLUDING LAND) EXPENSE
------------------------- ------------------ -------- ---------------- ------------
<S> <C> <C> <C> <C>
40 Year Life Property:
Konwiser Acquisition
Properties.......... August 16, 1995 $71,469 $ 52,281 $ 817
Heatherwood
Apartments.......... November 21, 1995 12,500 10,000 222
Tukwila Business Park.. December 15, 1995 17,250 11,019 264
Pacific Gulf Business
Park................ March 16, 1996 6,800 3,009 75
5 Year Life Property:
Personal Property...... August 16, 1995 289 289 36
------ ------
$1,414
======
</TABLE>
(H) Reflects additional interest expense of $4,546 relating to the multifamily
and industrial properties acquired by the Company, net of the reduction in
interest due to the sale of the Company's Texas apartment portfolio of
$746, which represents the actual interest relating to the Texas apartment
portfolio for the year ended December 31, 1995. The additional interest
expense associated with the borrowings used to finance the purchase of the
multifamily and industrial properties acquired by the Company during 1995
and 1996, for the period prior to their acquisition, was calculated based
on existing rates for assumed debt and the specific interest rates on new
borrowings follows:
<TABLE>
<CAPTION>
PRO FORMA
INTEREST INTEREST
PROPERTY DEBT RATE EXPENSE
------------------------------------------------------ ------- -------- ---------
<S> <C> <C> <C>
Konwiser Acquisition Properties....................... $30,263 8.0% $ 1,513
13,000 8.0% 650
24,850 5.7% 885
Tukwila Business Park................................. 11,765 7.4% 838
Pacific Gulf Business Park............................ 8,000 7.3% 584
Amortization of loan fees and financing costs on
related borrowings financing the acquisitions....... 76
---------
$ 4,546
=========
</TABLE>
F-8
<PAGE> 51
(I) Reflects the actual revenues and certain expenses of the Acquisition
Properties for the period indicated, adjusted to reflect increased property
taxes based on the properties' acquisition cost and current property tax
rates.
Depreciation relating to the Acquisition Properties is computed utilizing
the remaining estimated useful lives of approximately 40 years and the
depreciable cost basis of the properties as follows:
<TABLE>
<CAPTION>
PRO FORMA DEPRECIATION EXPENSE
DEPRECIABLE --------------------------------------
PURCHASE BASIS THREE MONTHS ENDED YEAR ENDED
PROPERTY PRICE (EXCLUDING LAND) MARCH 31, 1996 DECEMBER 31, 1995
-------------------- -------- ---------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Eden Landing........ $ 7,550 $ 5,460 $ 34 $ 137
Riverview........... 6,425 5,281 33 132
Essex Portfolio..... 15,050 9,465 59 237
Bell Ranch.......... 3,750 3,000 19 75
North County........ 6,350 3,169 20 79
San Marcos
Commerce.......... 2,710 1,871 12 47
Koll Pacific Park... 6,900 3,001 19 75
La Mirada........... 3,600 2,453 15 61
------- ------- ---- ----
$52,335 $ 33,700 $211 $ 843
======= ======= ==== ====
</TABLE>
The additional interest expense is associated with the planned borrowings
under the Company's acquisition line of credit which will be used, in part,
to finance such acquisitions. The additional interest is calculated for the
period indicated based on an interest rate of LIBOR plus 2%, the expected
actual rate on the date of the borrowings. A .125% change in the interest
rate of the acquisition line of credit would change the Company's pro forma
interest expense by $13,000 for the three months ended March 31, 1996 and
$52,000 for the year ended December 31, 1995.
Interest expense relating to the Acquisition Properties is calculated as
follows:
<TABLE>
<CAPTION>
PRO FORMA INTEREST EXPENSE
---------------------------
THREE MONTHS
ENDED YEAR ENDED
INTEREST MARCH 31, DECEMBER 31,
PROPERTY DEBT RATE 1996 1995
--------------------------------------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Acquisition Properties................. $22,113 7.4% $409 $1,636
Amortization of loan fees and financing
costs on related borrowing financing
the acquisitions..................... 6 36
------ ------------
$415 $1,672
============ ===========
</TABLE>
(J) Represents the weighted average of common shares and common stock
equivalents outstanding during the period indicated. Common Stock
equivalents include stock options which are considered dilutive for
purposes of computing primary earnings per share.
(K) Pro forma weighted average common shares include 2,015,581 shares of Common
Stock to be issued as part of this Offering.
(L) Excludes the nonrecurring gain from the sale of the Texas apartment
portfolio in November 1995 of $6,664.
F-9
<PAGE> 52
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Pacific Gulf Properties Inc.
We have audited the accompanying statement of revenues and certain expenses
of Bay San Marcos Industrial Park for the year ended December 31, 1995. The
statement is the responsibility of management. Our responsibility is to express
an opinion on the statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statement. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission (for
inclusion in a Registration Statement on Form S-3 of Pacific Gulf Properties
Inc.) as described in Note 2 to the statement and is not intended to be a
complete presentation of the revenues and expenses of Bay San Marcos Industrial
Park.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenues and certain expenses, as defined above, of Bay
San Marcos Industrial Park for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Newport Beach, California
April 25, 1996
F-10
<PAGE> 53
BAY SAN MARCOS INDUSTRIAL PARK
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental and other income....................................... $637,000 $148,000
CERTAIN EXPENSES
Property operating and maintenance............................ 101,000 30,000
Real estate taxes............................................. 93,000 23,000
Management fees............................................... 26,000 6,000
-------- --------
220,000 59,000
-------- --------
REVENUES IN EXCESS OF CERTAIN EXPENSES.......................... $417,000 $ 89,000
======== ========
</TABLE>
See accompanying notes.
F-11
<PAGE> 54
BAY SAN MARCOS INDUSTRIAL PARK
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
1. ORGANIZATION
Bay San Marcos Industrial Park (the "Property") contains 121,768 leasable
square feet of industrial space and is located in San Marcos, California.
Pacific Gulf Properties Inc. (the "Company") has contracted to acquire the
Property.
2. BASIS OF PRESENTATION
The statement of revenues and certain expenses presents the operations of
the Property for the year ended December 31, 1995 and for the three months ended
March 31, 1996 (unaudited) and has been prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in a Registration Statement on Form S-3 of the Company).
Certain expenses that are dependent on the particular owner and the
carrying value of the Property have been excluded from the statement. The
excluded expenses consist primarily of depreciation, interest, and amortization
of loan fees. Consequently, the revenues in excess of certain expenses as
presented is not intended to be a complete presentation of the Property's
revenues and expenses nor is it intended to be comparable to the proposed future
operations of the Property.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Property is generally leased to tenants under lease terms that are
greater than a year and are accounted for as operating leases. Revenues from
leases are recognized on a straight-line basis over the term of the related
leases. Cost recoveries from tenants are recognized as income in the period the
related costs are accrued.
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. Major
replacements and betterments are capitalized.
Use of Estimates
The preparation of the statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the statement. Actual results could differ from
these estimates in the near term.
Tenant Concentration
At December 31, 1995 three tenants leased 68% of the Property's leaseable
square footage. The rental revenue earned from each of these tenants totaled
$170,000, $105,000 and $90,000 during the year ended December 31, 1995.
F-12
<PAGE> 55
BAY SAN MARCOS INDUSTRIAL PARK
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES -- (CONTINUED)
4. FUTURE MINIMUM LEASE PAYMENTS
The Property is leased to tenants under leases expiring at various dates
through the year 2000. These leases contain provisions for rent increases based
on cost-of-living indices and certain leases contain renewal options. The
minimum future lease payments to be received under the terms of these operating
leases for each of the next five years ending December 31, are as follows:
<TABLE>
<S> <C>
1996..................................................... $ 436,000
1997..................................................... 339,000
1998..................................................... 254,000
1999..................................................... 89,000
2000..................................................... 15,000
</TABLE>
F-13
<PAGE> 56
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Pacific Gulf Properties, Inc.
We have audited the accompanying statement of revenues and certain expenses
of Escondido Business Center for the year ended December 31, 1995. The statement
is the responsibility of management. Our responsibility is to express an opinion
on the statement based on our audit.
We conducted our audit in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statement. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission (for
inclusion in a Registration Statement on Form S-3 of Pacific Gulf Properties,
Inc.) as described in Note 2 to the statement and is not intended to be a
complete presentation of the revenues and expenses of Escondido Business Center.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenues and certain expenses, as defined above, of
Escondido Business Center for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
West Palm Beach, Florida
April 25, 1996
F-14
<PAGE> 57
ESCONDIDO BUSINESS CENTER
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental and other income...................................... $1,233,000 $ 339,000
---------- --------
CERTAIN EXPENSES
Property operating and maintenance........................... 307,000 66,000
Real estate taxes............................................ 118,000 22,000
Management fees.............................................. 42,000 12,000
---------- --------
467,000 100,000
---------- --------
REVENUES IN EXCESS OF CERTAIN EXPENSES......................... $ 766,000 $ 239,000
========== ========
</TABLE>
See accompanying notes.
F-15
<PAGE> 58
ESCONDIDO BUSINESS CENTER
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
1. ORGANIZATION
Escondido Business Center (the "Property") contains 251,464 leasable square
feet of industrial space and is located in Escondido, California. Pacific Gulf
Properties Inc. (the "Company") has contracted to acquire the Property.
2. BASIS OF PRESENTATION
The statement of revenues and certain expenses presents the operations of
the Property for the year ended December 31, 1995 and the three months ended
March 31, 1996 (unaudited), and has been prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in a Registration Statement on Form S-3 of the Company).
Certain expenses that are dependent on the particular owner and the
carrying value of the Property have been excluded from the statement. The
excluded expenses consist primarily of depreciation, amortization, interest and
selected professional fees. Consequently, the revenues in excess of certain
expenses as presented is not intended to be a complete presentation of the
Property's revenues and expenses nor is it intended to be comparable to the
proposed future operations of the Property.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Property is generally leased to tenants under lease terms that are
greater than one year and are accounted for as operating leases. Revenues from
leases are recognized on a straight-line basis over the term of the related
leases. Cost recoveries from tenants are recognized as income in the period the
related costs are accrued.
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. Major
replacements and betterments are capitalized.
Use of Estimates
The preparation of the statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the statement. Actual results could differ from
these estimates in the near term.
Tenant Concentration
At December 31, 1995, one tenant leased 8% of the Property's leasable
square footage. The rental revenue earned from this tenant totaled $121,000
during the year ended December 31, 1995.
4. MANAGEMENT FEES
The Property is subject to an agreement with MIG Management Services of
California, Inc., a property management company affiliated with the current
owner of the Property, to maintain and manage the operations of the Property.
Management fees are based on 3.5% of total collected income, as defined, from
the Property.
F-16
<PAGE> 59
ESCONDIDO BUSINESS CENTER
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES -- (CONTINUED)
5. FUTURE MINIMUM LEASE PAYMENTS
The Property is leased to tenants under leases expiring at various dates
through the year 2001. These leases contain provisions for rent increased based
on cost-of-living indices and certain leases contain renewal options. The
minimum future lease payments to be received under the terms of these operating
leases for each of the next five years ending December 31 and thereafter, are as
follows:
<TABLE>
<S> <C>
1996............................................................ $1,023,000
1997............................................................ 724,000
1998............................................................ 281,000
1999............................................................ 133,000
2000............................................................ 108,000
Thereafter...................................................... 9,000
</TABLE>
F-17
<PAGE> 60
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Pacific Gulf Properties Inc.
We have audited the accompanying statement of revenues and certain expenses
of Eden Landing Commerce Park for the year ended December 31, 1995. The
statement is the responsibility of management. Our responsibility is to express
an opinion on the statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statement. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission (for
inclusion in a Registration Statement on Form S-3 of Pacific Gulf Properties
Inc.) as described in Note 2 to the statement and is not intended to be a
complete presentation of the revenues and expenses of Eden Landing Commerce
Park.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenues and certain expenses, as defined above, of Eden
Landing Commerce Park for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Newport Beach, California
May 20, 1996
F-18
<PAGE> 61
EDEN LANDING COMMERCE PARK
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental and other income....................................... $1,270,000 $326,000
CERTAIN EXPENSES
Property operating and maintenance............................ 471,000 100,000
Real estate taxes............................................. 54,000 14,000
Management fees............................................... 57,000 15,000
-------- --------
582,000 129,000
-------- --------
REVENUES IN EXCESS OF CERTAIN EXPENSES.......................... $ 688,000 $197,000
======== ========
</TABLE>
See accompanying notes.
F-19
<PAGE> 62
EDEN LANDING COMMERCE PARK
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
1. ORGANIZATION
Eden Landing Commerce Park (the "Property") contains 193,358 leasable
square feet of industrial space and is located in Hayward, California. Pacific
Gulf Properties Inc. (the "Company") has contracted to acquire the Property.
2. BASIS OF PRESENTATION
The statement of revenues and certain expenses presents the operations of
the Property for the year ended December 31, 1995 and for the three months ended
March 31, 1996 (unaudited) and has been prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in a Registration Statement on Form S-3 of the Company).
Certain expenses that are dependent on the particular owner and the
carrying value of the Property have been excluded from the statement. The
excluded expenses consist primarily of depreciation, interest, and amortization
of loan fees. Consequently, the revenues in excess of certain expenses as
presented is not intended to be a complete presentation of the Property's
revenues and expenses nor is it intended to be comparable to the proposed future
operations of the Property.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Property is generally leased to tenants under lease terms that are
greater than a year and are accounted for as operating leases. Revenues from
leases are recognized on a straight-line basis over the term of the related
leases. Cost recoveries from tenants are recognized as income in the period the
related costs are accrued.
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. Major
replacements and betterments are capitalized.
Use of Estimates
The preparation of the statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the statement. Actual results could differ from
these estimates in the near term.
4. MANAGEMENT FEES
The Property is subject to an agreement with R&B Realty Group, a property
management company, to maintain and manage the operations of the Property.
Management fees are based on 4.5% of total collected income, as defined, from
the Property.
F-20
<PAGE> 63
EDEN LANDING COMMERCE PARK
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES -- (CONTINUED)
5. FUTURE MINIMUM LEASE PAYMENTS
The Property is leased to tenants under leases expiring at various dates
through the year . These leases contain provisions for rent increases based
on cost-of-living indices and certain leases contain renewal options. The
minimum future lease payments to be received under the terms of these operating
leases for each of the next five years ending December 31, are as follows:
<TABLE>
<S> <C>
1996..................................................... 715,000
1997..................................................... 334,000
1998..................................................... 165,000
1999..................................................... 80,000
2000..................................................... 33,000
</TABLE>
F-21
<PAGE> 64
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Pacific Gulf Properties Inc.
We have audited the accompanying statement of revenues and certain expenses
of Riverview Industrial Park for the year ended December 31, 1995. The statement
is the responsibility of management. Our responsibility is to express an opinion
on the statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statement. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission (for
inclusion in a Registration Statement on Form S-3 of Pacific Gulf Properties
Inc.) as described in Note 2 to the statement and is not intended to be a
complete presentation of the revenues and expenses of Riverview Industrial Park.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenues and certain expenses, as defined above, of
Riverview Industrial Park for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Newport Beach, California
May 20, 1996
F-22
<PAGE> 65
RIVERVIEW INDUSTRIAL PARK
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental and other income....................................... $ 938,000 $228,000
CERTAIN EXPENSES
Property operating and maintenance............................ 183,000 37,000
Real estate taxes............................................. 104,000 27,000
Management fees............................................... 68,000 17,000
-------- --------
355,000 81,000
-------- --------
REVENUES IN EXCESS OF CERTAIN EXPENSES.......................... $ 583,000 $147,000
======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE> 66
RIVERVIEW INDUSTRIAL PARK
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
1. ORGANIZATION
Riverview Industrial Park (the "Property") contains 297,180 leasable square
feet of industrial space and is located in San Bernardino, California. Pacific
Gulf Properties Inc. (the "Company") has contracted to acquire the Property.
2. BASIS OF PRESENTATION
The statement of revenues and certain expenses presents the operations of
the Property for the year ended December 31, 1995 and for the three months ended
March 31, 1996 (unaudited) and has been prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in a Registration Statement on Form S-3 of the Company).
Certain expenses that are dependent on the particular owner and the
carrying value of the Property have been excluded from the statement. The
excluded expenses consist primarily of depreciation, interest, and amortization
of loan fees. Consequently, the revenues in excess of certain expenses as
presented is not intended to be a complete presentation of the Property's
revenues and expenses nor is it intended to be comparable to the proposed future
operations of the Property.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Property is generally leased to tenants under lease terms that are
greater than a year and are accounted for as operating leases. Revenues from
leases are recognized on a straight-line basis over the term of the related
leases. Cost recoveries from tenants are recognized as income in the period the
related costs are accrued.
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. Major
replacements and betterments are capitalized.
Use of Estimates
The preparation of the statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the statement. Actual results could differ from
these estimates in the near term.
Tenant Concentration
At December 31, 1995 two tenants leased 60% of the Property's leasable
square footage. The rental revenue earned from each of these two tenants totaled
$400,000 and $260,000, for the year ended December 31, 1995.
4. MANAGEMENT FEES
The Property is subject to an agreement with Ares Realty Capital, Inc., a
property management company, to maintain and manage the operations of the
Property. Management fees are based on a monthly payment of $2,843 plus an
amount equal to the greater of $2,800 or 3% of monthly gross collections, as
defined, from the Property.
F-24
<PAGE> 67
RIVERVIEW INDUSTRIAL PARK
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES -- (CONTINUED)
5. FUTURE MINIMUM LEASE PAYMENTS
The Property is leased to tenants under leases expiring at various dates
through the year . These leases contain provisions for rent increases based
on cost-of-living indices and certain leases contain renewal options. The
minimum future lease payments to be received under the terms of these operating
leases for each of the next five years ending December 31, are as follows:
<TABLE>
<S> <C>
1996..................................................... 728,000
1997..................................................... 712,000
1998..................................................... 678,000
1999..................................................... 592,000
2000..................................................... 346,000
</TABLE>
F-25
<PAGE> 68
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Pacific Gulf Properties Inc.
We have audited the accompanying statement of revenues and certain expenses
of Pacific Park for the year ended December 31, 1995. The statement is the
responsibility of management. Our responsibility is to express an opinion on the
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statement. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission (for
inclusion in a Registration Statement on Form S-3 of Pacific Gulf Properties
Inc.) as described in Note 2 to the statement and is not intended to be a
complete presentation of the revenues and expenses of Pacific Park.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenues and certain expenses, as defined above, of
Pacific Park for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Newport Beach, California
May 20, 1996
F-26
<PAGE> 69
PACIFIC PARK
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental and other income....................................... $ 985,000 $250,000
CERTAIN EXPENSES
Property operating and maintenance............................ 179,000 37,000
Real estate taxes............................................. 88,000 19,000
Management fees............................................... 95,000 17,000
-------- --------
362,000 73,000
-------- --------
REVENUES IN EXCESS OF CERTAIN EXPENSES.......................... $ 623,000 $177,000
======== ========
</TABLE>
See accompanying notes.
F-27
<PAGE> 70
PACIFIC PARK
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
1. ORGANIZATION
Pacific Park (the "Property") contains 99,622 leasable square feet of
industrial space and is located in Aliso Viejo, California. Pacific Gulf
Properties Inc. (the "Company") has contracted to acquire the Property.
2. BASIS OF PRESENTATION
The statement of revenues and certain expenses presents the operations of
the Property for the year ended December 31, 1995 and for the three months ended
March 31, 1996 (unaudited) and has been prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in a Registration Statement on Form S-3 of the Company).
Certain expenses that are dependent on the particular owner and the
carrying value of the Property have been excluded from the statement. The
excluded expenses consist primarily of depreciation, interest, and amortization
of loan fees. Consequently, the revenues in excess of certain expenses as
presented is not intended to be a complete presentation of the Property's
revenues and expenses nor is it intended to be comparable to the proposed future
operations of the Property.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Property is generally leased to tenants under lease terms that are
greater than a year and are accounted for as operating leases. Revenues from
leases are recognized on a straight-line basis over the term of the related
leases. Cost recoveries from tenants are recognized as income in the period the
related costs are accrued.
Capitalization Policy
Recurring repair and maintenance costs are expensed as incurred. Major
replacements and betterments are capitalized.
Use of Estimates
The preparation of the statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the statement. Actual results could differ from
these estimates in the near term.
4. MANAGEMENT FEES
The Property is subject to an agreement with Koll Management Services, a
property management company to maintain and manage the operations of the
Property. Management fees are based on 3% of total rental income, as defined,
from the Property.
F-28
<PAGE> 71
PACIFIC PARK
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES -- (CONTINUED)
5. FUTURE MINIMUM LEASE PAYMENTS
The Property is leased to tenants under leases expiring at various dates
through the year . These leases contain provisions for rent increases based
on cost-of-living indices and certain leases contain renewal options. The
minimum future lease payments to be received under the terms of these operating
leases for each of the next five years ending December 31, are as follows:
<TABLE>
<S> <C>
1996..................................................... 804,000
1997..................................................... 503,000
1998..................................................... 287,000
1999..................................................... 172,000
2000..................................................... 17,000
</TABLE>
F-29
<PAGE> 72
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
DATED MAY 20, 1996
PROSPECTUS
[LOGO] PACIFIC GULF PROPERTIES INC.
$110,390,196
COMMON STOCK AND PREFERRED STOCK BY THE COMPANY
AND
784,419 SHARES OF COMMON STOCK BY THE SELLING STOCKHOLDER
------------------------
Pacific Gulf Properties Inc. (the "Company") may from time to time offer
and sell shares of its common stock, par value $.01 per share (the "Common
Stock"), and shares of its preferred stock, par value $.01 per share (the
"Preferred Stock," and together with the Common Stock, the "Company Offered
Securities"), with an aggregate public offering price not to exceed $110,390,196
in Company Offered Securities, and 784,419 shares of the Company's Common Stock
offered hereby by Santa Anita Realty Enterprises, Inc. ("Realty" or the "Selling
Stockholder"). The Selling Stockholder may offer and sell from time to time an
aggregate of 784,419 shares of the Company's Common Stock (the "Selling
Stockholder Offered Securities"). The Company will not receive any of the
proceeds from the sale of any Common Stock by the Selling Stockholder. See "Use
of Proceeds" and "Plan of Distribution." The Company Offered Securities and the
Selling Stockholder Offered Securities are collectively referred to herein as
the "Offered Securities." The Offered Securities may be offered separately or
together, in separate series, in amounts and at prices and terms to be set forth
in one or more supplements to this Prospectus (each a "Prospectus Supplement").
The terms of the Preferred Stock, including the specific designation and
stated value per share, any dividend, liquidation, redemption, conversion,
voting and other rights, preferences, privileges and restrictions of the
Preferred Stock will be set forth in the applicable Prospectus Supplement. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Offered Securities, in each case
as may be appropriate to preserve the status of the Company as a real estate
investment trust ("REIT") for Federal income tax purposes. The specific number
of shares of Common Stock and issuance price per share will be set forth in the
applicable Prospectus Supplement.
The applicable Prospectus Supplement will also contain information about
all material Federal income tax considerations relating to, and any listing on a
securities exchange of, the Offered Securities covered by such Prospectus
Supplement.
The Company and the Selling Stockholder may sell all or a portion of any
offering of its securities directly, through agents designated from time to
time, or to or through underwriters or dealers. If any agents or underwriters
are involved in the sale of any of the Offered Securities, their names, and any
applicable purchase price, fee, commission or discount arrangement between or
among them, will be set forth, or will be calculable from the information set
forth, in the applicable Prospectus Supplement. No Offered Securities may be
sold without delivery of the applicable Prospectus Supplement describing the
method and terms of the offering of such Offered Securities.
SEE "RISK FACTORS" BEGINNING AT PAGE 7 OF THIS PROSPECTUS FOR CERTAIN RISK
FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK OR THE PREFERRED STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
------------------------
The date of this Prospectus is May , 1996
<PAGE> 73
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement"), of which this Prospectus is a part, under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Offered Securities.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of the
contract or other document filed as an exhibit to the Registration Statement,
each statement being qualified in all respects by that reference and the
exhibits to the Registration Statement. For further information regarding the
Company and the Offered Securities, reference is hereby made to the Registration
Statement, the exhibits to the Registration Statement, and the documents
incorporated by reference into the Registration Statement, which may be obtained
from the Commission at its principal office in Washington, D.C., upon payment of
fees prescribed by the Commission.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Commission. These reports, proxy and information statements, and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at 13th Floor, 7 World
Trade Center, New York, New York 10048, and at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock is
traded on the American Stock Exchange, Inc. ("ASE"). The reports, proxy and
information statements and other information can also be inspected at the
offices ASE, 86 Trinity Place, New York, New York 10006-1881.
2
<PAGE> 74
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference the following documents
heretofore filed by the Company under the Exchange Act with the Commission.
<TABLE>
<C> <S>
(a) The Company's Current Report on Form 8-K, dated August 30, 1995;
(b) The Company's Current Report on Form 8-K/A, dated October 27, 1995;
(c) The Company's Current Report on Form 8-K/A, dated May 7, 1996, amending the
Company's Current Report on Form 8-K/A, dated October 27, 1995;
(d) The Company's Current Report on Form 8-K/A, dated May 20, 1996, amending the
Company's Current Report on Form 8-K/A, dated May 7, 1996, amending the Company's
Current Report on Form 8-K/A, dated October 27, 1995;
(e) The Company's Current Report on Form 8-K, dated November 28, 1995;
(f) The Company's Current Report on Form 8-K/A, dated May 7, 1996, amending the
Company's Current Report on Form 8-K, dated November 28, 1995;
(g) The Company's Annual Report on Form 10-K, dated March 21, 1996;
(h) The Company's Annual Report on Form 10-K/A for the fiscal year ended December 31,
1995, dated May 7, 1996, amending the Company's Annual Report on Form 10-K, dated
March 21, 1996;
(i) The Company's Annual Report on Form 10-K/A for the fiscal year December 31, 1995,
amending the Company's Annual Report on Form 10-K/A, dated May 7, 1996.
(j) The Company's Quarterly Report on Form 10-Q, dated May 1, 1996;
(k) The Company's Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1996,
dated May 7, 1996, amending the Company's Quarterly Report on Form 10-Q, dated May
1, 1996;
(l) The Company's Current Report on Form 8-K, dated May 7, 1996;
(m) The Company's Current Report on Form 8-K/A, dated May 20, 1996, amending the
Company's Current Report on Form 8-K, dated May 7, 1996; and
(n) The description of the Company's Common Stock and 8.375% Convertible Subordinated
Debentures Due 2001 contained in its Registration Statement on Form 8-A/A filed
with the Commission, on January 25, 1994 (file no. 1-12546).
</TABLE>
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereby shall be deemed to be incorporated
by reference into this Prospectus, and to be a part hereof from the date of
filing such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of the Registration Statement, this Prospectus, and any
applicable Prospectus Supplement to the extent that a statement contained in the
Registration Statement, this Prospectus, any applicable Prospectus or any other
subsequently filed document that is also incorporated by reference herein
modifies or supersedes that statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a Prospectus and accompanying Prospectus
Supplement is delivered, upon written or oral request of that person, a copy of
any document incorporated herein by reference (other than exhibits to those
documents unless the exhibits are specifically incorporated by reference into
the documents that this Prospectus incorporates by reference). Written or oral
requests should be directed to Shareholder Relations, Pacific Gulf Properties
Inc., 363 San Miguel Drive, Newport Beach, California 92660; telephone (714)
721-2700.
3
<PAGE> 75
THE COMPANY
Pacific Gulf Properties Inc., a self-administered and self-managed equity
REIT, owns, operates, manages, leases, acquires and rehabilitates multifamily
and industrial properties. At March 31, 1996, the Company owned a portfolio of
21 multifamily properties, containing 3,945 units, and 11 industrial properties,
containing 3,091,000 leasable square feet.
The Company focuses on properties located in California and the Pacific
Northwest, with the largest concentration in Southern California. Management has
extensive experience in these markets, and believes that these markets present
potential for long-term economic growth because of their proximity to Pacific
Rim and NAFTA trading partners, access to ports and other facilities,
anticipated growth in population and employment, and desirable climate and
recreational environment.
Management believes that focusing on two property types allows the Company
greater opportunities and flexibility than would be available by investing only
in one property type. Multifamily and industrial property values move
differently within real estate cycles. Apartments have shorter leases than
industrial properties and, hence, apartment rental income reacts more quickly to
changes in economic conditions. Lease income on industrial properties lags
changes in the real estate market due to longer term leases on such properties.
The values of these properties and the potential they present for growth are
affected by the timing of these rental adjustments.
The Company's objective is to increase shareholder value by continuing to
grow its Funds from Operations by improving net operating income of existing
properties and through acquisitions. Management closely monitors rental
operations and administrative expenses, utilizes new technologies, periodically
conducts contract reviews, and seeks opportunities to maximize economies of
scale in order to control costs, reduce tenant turnover and assure that the
Company is competitive in all aspects of its operations. The Company also seeks
to increase shareholder value through the acquisition of properties that provide
attractive initial returns and opportunities to increase Funds from Operations.
Additionally, the Company seeks well-located properties in strong markets where
values have suffered due to poor management or maintenance and that can be
acquired at less than replacement cost.
The Company's Common Stock is listed on the American Stock Exchange under
the symbol "PAG." The Company's executive offices are located at 363 San Miguel
Drive, Newport Beach, California, 92660. The telephone number is (714) 721-2700.
The Company was incorporated in Maryland in August of 1993.
USE OF PROCEEDS
Unless otherwise described in the Prospectus Supplement which accompanies
this Prospectus, the Company intends to use the net proceeds from the sale of
the Company Offered Securities for general corporate purposes, which may include
acquiring additional industrial or multifamily properties or interests in
entities owning industrial or multifamily properties as suitable opportunities
arise, making improvements to properties, repaying certain then-outstanding
secured or unsecured indebtedness and for working capital. Pending use for the
foregoing purposes, such proceeds may be invested in short-term,
interest-bearing time or demand deposits with financial institutions, cash items
or qualified government securities.
The Company will not receive any proceeds from the sale of any Common Stock
by the Selling Stockholder.
4
<PAGE> 76
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges for
the Company and for the predecessor to the Company prior to February 18, 1994.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------- MARCH 31,
1995 1994 1993 1992 1991 1996
------ ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges........ 1.12x 1.26x .74x .58x .55x 1.07x
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of net earnings before income taxes, extraordinary items,
minority/predecessor interest income and fixed charges. Fixed charges consist of
interest expense, capitalized interest and amortization of deferred financing
costs.
Prior to completion of the Company's initial public offering in February
1994, the predecessor of the Company operated in a highly leveraged manner. As a
result, although the Company and the predecessor have historically generated
positive net cash flow, the financial statements of the predecessor show net
losses for the periods prior to February 1994. Consequently, the computation of
the ratio of earnings to fixed charges for such periods indicate that earnings
were inadequate to cover fixed charges by approximately $1.6 million, $2.3
million and $1.9 million for the years ended December 31, 1993, 1992 and 1991
respectively.
SELLING STOCKHOLDER
Upon completion of its initial public offering in February 1994, the
Company purchased the multifamily and industrial operations of Realty. In
connection with such acquisition the Company issued 149,900 shares of its Common
Stock to Realty. Additionally, in October 1994, the Company acquired Realty's
interest in the partnership that owned Baldwin Industrial Park, which contains
623,000 leasable square feet of industrial space, for 559,748 shares of Common
Stock, and issued 74,671 shares of Common Stock to Realty as payment for the
Company's corporate offices and certain other assets. The aggregate of 784,419
shares so issued to Realty constitute the Selling Stockholder Offered Securities
which are covered by the Registration Statement of which this Prospectus is a
part.
The Prospectus Supplement relating to any shares of Common Stock offered by
the Selling Stockholder will set forth the number of shares of such Common Stock
offered, as well as the number of shares of Common Stock and percentage of such
class owned by the Selling Stockholder upon completion of such offering. In the
event that any offering by the Selling Stockholder is underwritten, the Company
will have the right to select the managing underwriter or underwriters, subject
to approval by the Selling Stockholder. Additionally, if an offering by the
Selling Stockholder is made in conjunction with an offering by the Company of
Company Offered Securities, the Selling Stockholder must sell its Common Stock
to the underwriter selected by the Company on the same terms and conditions as
are applicable to the Company, unless otherwise stated in an applicable
Prospectus Supplement. The Selling Stockholder may also elect to sell all or a
portion of its shares of Common Stock pursuant to an exemption from
registration. Under the terms of an agreement between the Company and the
Selling Stockholder dated November 15, 1993, the Selling Stockholder must also
comply with various terms and conditions in selling its shares of Common Stock.
PLAN OF DISTRIBUTION
The Company and the Selling Stockholder may sell the Offered Securities
through one or more underwriters or dealers, directly to one or more purchasers,
through agents, or through a combination of any such methods of sale. Any such
underwriter or agent involved in the offer and sale of the Offered Securities
will be named in the applicable Prospectus Supplement. Sales of Offered
Securities pursuant to any applicable Prospectus Supplement may be effected from
time to time in one or more transactions at a fixed price or prices which may be
changed, at prices related to the prevailing market prices at the
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time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents or the Selling
Stockholder's agents to offer and sell the Offered Securities upon the terms and
conditions as are set forth in the applicable Prospectus Supplement. In
connection with the sale of the Offered Securities, underwriters may be deemed
to have received compensation from the Company or the Selling Stockholder in the
form of underwriting discounts or commissions and may also receive commissions
from purchasers of the Offered Securities for whom they may act as agent.
Underwriters may sell the Offered Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company or the Selling
Stockholder to underwriters or agents in connection with the offering of the
Offered Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Offered Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Offered Securities may be deemed to be underwriting discounts and
commissions under the Securities Act. Underwriters, dealers, and agents may be
entitled, under agreements entered into with the Company, to indemnification
against and contribution toward certain civil liabilities, including liabilities
under the Securities Act. Underwriters, dealers and agents may engage in
transactions with, or perform services for, or be customers of, the Company in
the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Company or the
Selling Stockholder, as the case may be, will authorize dealers acting as the
Company's or the Selling Stockholder's agents to solicit offers by certain
institutions to purchase the Offered Securities from the Company or the Selling
Stockholder at the public offering price set forth in such Prospectus Supplement
pursuant to Delayed Delivery Contracts ("Contracts") providing for payment and
delivery on the date or dates stated in such Prospectus Supplement. Each
Contract will be for an amount not less than, and the aggregate amount of the
Offered Securities sold pursuant to Contracts shall be not less nor more than,
the respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to the approval of the Company. Contracts will not
be subject to any conditions except: (i) the purchase by an institution of the
Offered Securities covered by its Contracts shall not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which such
institution is subject; and (ii) if the Offered Securities are being sold to
underwriters, the Company or the Selling Stockholder shall have sold to such
underwriters the total amount of the Offered Securities less the amount thereof
covered by the Contracts.
Unless otherwise specified in the related Prospectus Supplement, each
series of Company Offered Securities will be a new issue with no established
trading market, other than the Common Stock which is listed on the American
Stock Exchange. Any shares of Common Stock sold by the Company pursuant to a
Prospectus Supplement will be listed on such exchange, subject to official
notice of issuance; the shares of Common Stock comprising the Selling
Stockholder Offered Securities have previously been listed on the American Stock
Exchange. The Company may elect to list any series of Preferred Stock on any
exchange, but is not obligated to do so. It is possible that one or more
underwriters may make a market in a series of Offered Securities, but will not
be obligated to do so and may discontinue any market making at any time without
notice. Therefore, no assurance can be given as to the liquidity of the trading
market of the Offered Securities.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.
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RISK FACTORS
Prospective investors should carefully consider the following information
in conjunction with the other information contained in this Prospectus and the
applicable Prospectus Supplement before purchasing Offered Securities.
DEBT FINANCING; RISK OF RISING INTEREST RATES
The Company is subject to the risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest, that the Company will not
be able to refinance existing indebtedness on its properties, or that the terms
of such refinancing will not be as favorable as the terms of existing
indebtedness. As of December 31, 1995, the Company had outstanding approximately
$150 million of indebtedness secured by certain of its properties.
If prevailing interest rates or other factors at the time of refinancing
result in higher interest rates on refinancing, the Company's interest expense
would increase, which would adversely affect the Company's cash provided by
operating activities and its ability to make distributions or payments to
holders of its securities. In addition, in the event the Company were unable to
secure refinancing of such indebtedness on acceptable terms, the Company might
be forced to dispose of properties upon disadvantageous terms, which might
result in losses to the Company and might adversely affect the Company's funds
from operations. In addition, if a property or properties are mortgaged to
secure payment of indebtedness and the Company is unable to meet mortgage
payments, the property could be foreclosed upon by or otherwise transferred to
the mortgagee with a consequent loss of income and asset value to the Company.
RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES
The Company intends to actively continue to acquire industrial and
multifamily residential properties. Acquisitions of such properties entail risks
that investments will fail to perform in accordance with expectations. Estimates
of the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate. In addition, there are general real estate investment risks
associated with any new real estate investment.
The Company may also pursue industrial and multi-family residential
property development projects, although it has not heretofore done so. Such
projects generally require various governmental and other approvals, the receipt
of which cannot be assured. Such development activities will entail certain
risks, including the expenditure of funds on and devotion of management's time
to projects which may not come to fruition; the risk that construction costs of
a project may exceed original estimates, possibly making the project not
economical; the risk that occupancy rates and rents at a completed project will
be less than anticipated; and the risk that expenses at a completed development
will be higher than anticipated. These risks may result in a development project
causing a reduction in funds from operations or the funds available for
distribution.
GENERAL REAL ESTATE INVESTMENT RISKS
Real property investments are subject to a variety of risks. The yields
available from equity investments in real estate depend on the amount of income
generated and expenses incurred. If the Company's properties do not generate
sufficient income to meet operating expenses, including debt service and capital
expenditures, the Company's cash flow and ability to make distributions to its
stockholders will be adversely affected. The performance of the economy in each
of the areas in which the Company's properties are located affects occupancy,
market rental rates and expenses and, consequently, has an impact on the income
from the Company's properties and their underlying values. The financial results
of major local employers may have an impact on the cash flow and value of
certain of the Company's properties.
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LACK OF GEOGRAPHIC DIVERSIFICATION
The Company's properties are located in California and the Pacific
Northwest, with the largest concentration in Southern California. Income from
the Company's properties may be adversely affected by the general economic
climate, local economic conditions in which the Properties are located, such as
an oversupply of space or a reduction in demand for rental space, the
attractiveness of the Company's properties to tenants, competition from other
available space, the ability of the Company to provide the adequate maintenance
and insurance and increased operating expenses. There is also the risk that as
leases on the Company's properties expire, tenants will enter into new leases on
terms that are less favorable to the Company. Income and real estate values may
also be adversely affected by such factors as applicable laws (e.g., ADA and tax
laws), interest rate levels and the availability of financing. In addition, real
estate investments are relatively illiquid and, therefore, will tend to limit
the ability of the Company to vary its portfolio promptly in response to changes
in economic or other conditions.
AFFORDABLE HOUSING LAWS
Certain of the Company's multi-family properties are, and will be in the
future, subject to federal, state and local statutes or other restrictions
requiring that a percentage of apartment homes be made available to residents
whose incomes do not exceed a certain percentage of the local median. These laws
and regulations, as well as any changes thereto making it more difficult to meet
such requirements, or a reduction in or elimination of certain financing
advantages available to those persons satisfying such requirements, could
adversely affect the Company's profitability and its ability to develop certain
communities in the future.
COMPETITION
Numerous industrial and residential properties compete with the Company's
properties in attracting tenants to lease space. Some of these competing
properties are newer, better located or better capitalized than the Company's
properties. The number of competitive properties in a particular area could have
a material effect on the Company's ability to lease space in its properties or
at newly developed or acquired properties and on the rents charged.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's or operator's
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs or removal or remediation of
such substances at a disposal or treatment facility, whether or not such
facility is owned or operated by such person. In connection with the ownership
(direct or indirect), operation, management and development of real properties,
the Company may be considered an owner or operator of such properties or as
having arranged for the disposal or treatment of hazardous or toxic substances
and, therefore, may be potentially liable for removal or remediation costs, as
well as certain other costs, including governmental fines and injuries to
persons and property.
Certain environmental laws impose liability for any release of
asbestos-containing materials ("ACMs") into the air. In addition, third parties
may seek recovery from owners or operators of real properties for personal
injury associated with exposure to ACMs released from such properties. Limited
quantities of ACMs are present in various building materials such as floor
coverings, ceiling texture material, acoustical tiles and decorative treatments
located at certain of the Company's properties. The ACMs present at such
properties are generally in good condition, and possess low probabilities for
unintentional disturbance. The Company has implemented operations and mainte-
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nance plans for properties where ACMs are present or reasonably suspected. It is
the Company's policy that generally ACMs will be removed by the Company in the
ordinary course of renovation and construction.
There may also be potential liability associated with lead-based paint
arising from lawsuits alleging personal injury and related claims. Typically,
the existence of lead paint is more of a concern in residential units than in
commercial properties. A structure built prior to 1978 may contain lead-based
paint and thus may present a potential for exposure to lead. Structures built
after 1978 are not likely to contain lead-based paint. The Company's existing
multifamily properties have not been tested for lead-based paint; because most
were constructed before 1978, they may contain lead-based paint, and thus could
pose a potential health risk caused by exposure to lead.
The existence of electric transmission lines near the Company's properties
were not searched for. Electric transmission lines are one of many sources of
electro-magnetic fields ("EMFs") to which people may be exposed. Research into
potential health impacts associated with exposure to EMFs has produced
inconclusive results. Notwithstanding the lack of conclusive scientific
evidence, some states now regulate the strength of electric and magnetic fields
emanating from electric transmission lines, while others have required
transmission facilities to measure for levels of EMFs. In addition, the Company
understands that lawsuits have, on occasion, been filed (primarily against
electric utilities) alleging personal injuries resulting from exposure as well
as fear of adverse health effects. In addition, fear of adverse health effects
from transmission lines has been a factor considered in determining property
values in obtaining financing and in condemnation proceedings. Therefore, there
is a potential for the value of the Company's properties to be affected as a
result of proximity to a transmission line and for the Company to be exposed to
damage claims by persons exposed to EMFs.
Each of the Company's properties has been subjected to a Phase I or similar
environmental assessment (which involves general inspections without soil
sampling or groundwater analysis and generally without radon testing) completed
by licensed and qualified independent environmental consultant companies. Some
of the properties have been subject to a limited subsurface investigation. These
environmental assessments have not revealed any environmental liability, nor is
the Company aware of any environmental liability, that the Company's management
believes would have a material adverse effect on the company's business, assets
or results of operations.
No assurance can be given that existing environmental assessments with
respect to any of the Properties would reveal all environmental liabilities,
that any prior owner of any of the Company's properties did not create any
material environmental condition not known to the Company, or that a material
environmental condition does not otherwise exist as to any one or more of the
Company's properties.
GENERAL UNINSURED LOSSES
The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance for each of its properties, with policy
specifications, limits and deductibles customarily carried for similar
properties. There are, however, certain types of extraordinary losses which are
either uninsurable or not economically insurable. Further, all of the Company's
properties are located in areas that are subject to earthquake activity.
Although the Company has obtained certain limited earthquake insurance policies,
should one or more of the Company's properties sustain damage as a result of an
earthquake, the Company may sustain losses due to insurance deductibles,
co-payments on insured losses or uninsured losses.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Tax Liabilities Upon Failure to Qualify as a REIT. The Company made the
election to be treated for federal income tax purposes as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). No assurance can be
given that the Company will operate in a manner enabling it to remain so
qualified. Qualification as a REIT involves the application of highly technical
and complex Code provisions which have only a limited number of judicial or
administra-
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tive interpretations, and the determination of various factual matters and
circumstances not entirely within the Company's control may impact its ability
to qualify as a REIT. In addition, no assurance can be given that new
legislation, regulations, administrative interpretations or court decisions will
not significantly change the tax laws with respect to the qualification as a
REIT or the federal income tax consequences of such qualification.
If in any taxable year the Company does not qualify as a REIT, it would be
taxed as a regular corporation and distributions to the holders of the Common
Stock would not be deductible by the Company in computing its taxable income. In
addition, unless entitled to relief under certain statutory provisions, the
Company will also be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost. This treatment
would significantly reduce the funds from operations available for investment or
distribution or payment to holders of the securities because of the additional
tax liability to the Company for the year or years involved. In addition, the
Company would no longer be required by the Code to make any distributions.
To qualify as a REIT, the Company is required to distribute at least 95% of
its taxable income to its shareholders each year. Possible timing differences
between receipt of income and payment of expenses, and the inclusion and
deduction of such amounts in determining taxable income, could require the
Company to reduce its dividends below the level necessary to maintain its
qualification as a REIT, which would have material adverse tax consequences.
QUALIFICATION OF THE OPERATING PARTNERSHIP AS A PARTNERSHIP FOR FEDERAL INCOME
TAX PURPOSES; IMPACT ON REIT STATUS
PGP Inland Communities, L.P., the Company's subsidiary operating
partnership (the "Operating Partnership"), is intended to be treated as a
partnership for federal income tax purposes. If the IRS were to challenge
successfully the status of the Operating Partnership as a partnership for
federal income tax purposes, the Operating Partnership would be treated as an
association taxable as a corporation. In such event, for federal income tax
purposes the character of the Company's assets and income pertaining to its
interest in the Operating Partnership would change, and could cause the Company
to fail to meet the requirements for taxation as a REIT for federal income tax
purposes and therefore to be taxed as a regular corporation. The imposition of a
corporate tax on the Company and the Operating Partnership would significantly
reduce the funds from operations available for investment or distribution or
payment to holders of the securities.
Other REIT Taxes. Although qualified to be taxed as a REIT, certain
transactions or other events could lead to the Company being taxed at rates
ranging from 4% to 100% on certain income or gains.
DEPENDENCE ON KEY PERSONNEL
The Company's management has substantial experience in acquiring, managing
and financing multifamily and industrial properties. The Company believes that
its success will depend in significant part upon the efforts of such persons and
that it may be difficult to replace such persons with individuals having
comparable experience.
ISSUANCE OF SHARES MAY ADVERSELY AFFECT MARKET PRICE OF COMMON STOCK AND DILUTE
PER SHARE AMOUNTS AVAILABLE FOR DISTRIBUTION
Future issuances of substantial amounts of Common Stock upon conversion of
the Company's 8.375% Convertible Subordinated Debentures (the "Debentures")
could adversely affect the market price for the Common Stock and dilute per
share amounts available for distribution to shareholders. An aggregate of
$56,551,000 in principal amount of Debentures, convertible into an aggregate of
3,036,710 additional shares of Common Stock, was issued by the Company in
February 1994. The Debentures are convertible at any time at the election of the
holders.
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DESCRIPTION OF COMMON STOCK
The summary of the terms of the Company's Common Stock set forth below does
not purport to be complete and is subject to and qualified in its entirety by
reference to the Articles of Incorporation and Bylaws of the Company.
GENERAL
The Articles of Incorporation of the Company provide that the Company may
issue up to 60,000,000 shares of capital stock, consisting of 25,000,000 shares
of common stock, par value $.01 per share (the "Common Stock"), 30,000,000
shares of excess stock, par value $.01 per share (the "Excess Shares"), and
5,000,000 shares of preferred stock, par value $.01 per share (the "Preferred
Stock"). As of March 15, 1996, 4,857,351 shares of Common Stock and no shares of
Preferred Stock or Excess Shares were issued and outstanding. Under Maryland
law, shareholders generally are not liable for the corporation's debts or
obligations.
TERMS
All shares of Common Stock offered hereby by the Company will be upon
issuance and delivery against payment, and all shares of Common Stock offered
hereby by the Selling Stockholder are, duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares or series
of capital stock and to the provisions of the Company's Articles of
Incorporation regarding Excess Shares, holders of Common Stock will be entitled
to receive distributions on such shares if, as and when authorized and declared
by the Board of Directors of the Company out of assets legally available
therefor, and to share ratably in the assets of the Company legally available
for distribution to its shareholders in the event of its liquidation,
dissolution or winding-up after payment of, or adequate provision for, all known
debts and liabilities of the Company.
The Company commenced quarterly distributions on its Common Stock on April
15, 1994, and intends to continue making quarterly distributions on the
outstanding shares of Common Stock.
Subject to the provisions of the Company's Articles of Incorporation,
regarding Excess Shares and to the matters discussed under "Certain Provisions
of Maryland Law and of the Company's Articles of Incorporation and
Bylaws -- Control Share Acquisitions," each outstanding share of Common Stock
entitles the holder to one vote on all matters submitted to a vote of
shareholders, including the election of directors, and, except as otherwise
required by law or except as provided with respect to any other class or series
of stock, the holders of such Common Stock will possess the exclusive voting
power. There is no cumulative voting in the election of directors, which means
that the holders of all plurality of the outstanding Common Stock can elect all
of the directors then standing for election and the holders of the remaining
Common Stock will not be able to elect any directors.
Holders of Common Stock have no conversion, sinking fund, redemption rights
or preemptive rights to subscribe for any securities of the Company.
Subject to the provisions of the Company's Articles of Incorporation,
regarding Excess Shares, all Common Stock will have equal dividend,
distribution, liquidation and other rights, and will have no preference,
appraisal or exchange rights.
Pursuant to the Maryland General Corporation Law (the "MGCL"), a
corporation generally cannot dissolve, amend its Articles of Incorporation,
merge, transfer all or substantially all of its assets, engage in a share
exchange or engage in certain similar fundamental transactions unless
recommended by the Board of Directors and approved by the affirmative vote of
shareholders holding at least two-thirds of the shares entitled to vote on the
matter unless a lesser percentage (but not less than a majority of all of the
votes entitled to be cast on the matter) is set forth in the corporation's
Articles of Incorporation. The Company's Articles of Incorporation require the
affirmative vote of shareholders holding at least a majority of all the votes
entitled to be cast on such
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matters. In addition, a number of other provisions of the MGCL could have a
significant effect on the Common Stock and the rights and obligations of holders
thereof. See "Certain Provisions of Maryland Law of the Company's Articles of
Incorporation and Bylaws."
The transfer agent and registrar for the Common Stock is Harris Trust
Company of California.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The following description of terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Stock offered by any Prospectus Supplement will be described in such
Prospectus Supplement. The description of certain provisions of the Preferred
Stock set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Company's Articles of Incorporation and the Board of Directors' resolution or
resolutions relating to each series of the Preferred Stock which will be filed
with the Commission and incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part at or prior to the
time of the issuance of such series of Preferred Stock.
Subject to limitations prescribed by the MGCL and the Articles of
Incorporation, the Board of Directors is authorized to issue shares of Preferred
Stock in one or more series, to establish from time to time the number of shares
of Preferred Stock to be included in any such series and to fix for any such
series the designation and any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption. The Company is authorized to issue five million shares
of Preferred Stock, of which no shares are currently outstanding.
The Preferred Stock shall have the dividend, liquidation, redemption and
voting rights set forth below, unless otherwise provided in a Prospectus
Supplement relating to a particular series of the Preferred Stock. Reference is
made to the Prospectus Supplement relating to the particular series of the
Preferred Stock offered thereby for specific terms, including: (i) the
designation and stated value per share of such Preferred Stock and the number of
shares offered; (ii) the amount of liquidation preference per share; (iii) the
initial public offering price at which such Preferred Stock will be issued; (iv)
the dividend rate (or method of calculation), the dates on which dividends shall
be payable and the dates from which dividends shall commence to cumulate, if
any; (v) any redemption or sinking fund provisions; (vi) any conversion right;
(vii) any listing of the Preferred Stock on any securities exchange; (viii) any
additional voting, dividend, liquidation, redemption, sinking fund and other
rights, preferences, privileges, limitations and restrictions not in conflict
with the Articles of Incorporation or the MGCL; (ix) a discussion of Federal
income tax considerations applicable to the Preferred Stock; (x) the relative
ranking and preferences of the Preferred Stock as to dividends and rights upon
liquidation; and (xi) any limitations on direct or beneficial ownership and
restrictions on transfer. The Preferred Stock will, when issued for lawful
consideration therefor, be fully paid and nonassessable and will have no
preemptive rights.
Unless otherwise indicated in a Prospectus Supplement relating thereto,
Harris Trust Company of California will be the transfer agent and registrar for
shares of each series of Preferred Stock.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights upon liquidation, dissolution or
winding up of the Company, rank: (i) senior to all classes or series of Common
Stock and to all equity securities ranking junior to such Preferred Stock; (ii)
on a parity with all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank on a parity with the
Preferred Stock; and (iii) junior to all equity securities issued by the Company
the terms of which specifically provide
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that such equity securities rank senior to the Preferred Stock. The rights of
the holders of each series of Preferred Stock will be subordinate to those of
the Company's general creditors.
DIVIDENDS
Holders of each series of Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of assets of the Company
legally available for payment, cash dividends at such rates and on such dates as
will be set forth in the applicable Prospectus Supplement. Such rate may be
fixed or variable or both. Each such dividend shall be payable to holders of
record as they appear on the share transfer books of the Company on such record
dates as shall be fixed by the Board of Directors, as specified in the
Prospectus Supplement relating to such series of Preferred Stock.
Dividends on any series of Preferred Stock may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors fails to declare a
dividend payable on a dividend payment date on any series of Preferred Stock for
which dividends are noncumulative, then the holders of such series of Preferred
Stock will have no right to receive a dividend in respect of the dividend period
ending on such dividend payment date, and the Company will have no obligation to
pay the dividend accrued for such period, whether or not dividends on such
series are declared payable on any future dividend payment date. Dividends on
shares of each series of Preferred Stock for which dividends are cumulative will
accrue from the date on which the Company initially issues shares of such
series.
So long as any series of Preferred Stock shall be outstanding, unless: (i)
full dividends (including, if such dividends are cumulative, dividends for prior
dividend periods) shall have been paid or declared and set apart for payment on
all outstanding shares of Preferred Stock of such series and all other classes
and series of Preferred Stock (other than "Junior Stock," as defined below; and
(ii) the repurchase or other mandatory retirement of, or with respect to any
sinking or other analogous fund for, any shares of Preferred Stock of such
series or any other Preferred Stock of any class or series (other than Junior
Stock), the Company may not declare any dividends on any Common Stock or any
other equity securities of the Company ranking as to dividends or distributions
of assets junior to such series of Preferred Stock (the Common Stock and any
such other equity securities being herein referred to as "Junior Stock"), or
make any payment on account of, or set apart money for the purchase, redemption
of other retirement of or for a sinking or other analogous fund, for any Junior
Stock or make any distribution in respect thereof, whether in cash or property
or in obligations or equity securities of the Company, other than shares of
Junior Stock which are neither convertible into, nor exchangeable or exercisable
for, any securities of the Company other than shares of Junior Stock.
Any dividend payment made on a series of Preferred Stock shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remains payable.
REDEMPTION
A series of Preferred Stock may be redeemable in whole or in part, from
time to time, at the option of the Company, or may be subject to mandatory
redemption pursuant to a sinking fund or otherwise, in each case upon the terms,
at the times and at the redemption prices set forth in the Prospectus Supplement
related to such series. Shares of Preferred Stock redeemed by the Company will
be restored to the status of authorized but unissued Preferred Stock of the
Company.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall
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not, if such Preferred Stock does not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of equity securities of the Company, the terms of such
series of Preferred Stock may provide that, if no such equity securities shall
have been issued or, to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Stock shall automatically and mandatorily be converted into the
applicable equity securities of the Company pursuant to conversion provisions
specified in the applicable Prospectus Supplement.
So long as any dividends on shares of any series of Preferred Stock or any
other series of Preferred Stock of the Company ranking on a parity as to
dividends and distribution of assets with such series of Preferred Stock are in
arrears, no shares of any such series of Preferred Stock or such other series of
Preferred Stock of the Company will be redeemed (whether by mandatory or
optional redemption) unless all such shares are simultaneously redeemed, and the
Company will not purchase or otherwise acquire any such shares; provided,
however, that the foregoing will not prevent the purchase or acquisition of such
shares pursuant to a purchase or exchange offer made on the same terms to
holders of all such shares outstanding.
In the event that fewer than all of the outstanding shares of a series of
Preferred Stock are to be redeemed, whether by mandatory or optional redemption,
the number of shares to be redeemed will be determined by lot or pro rata
(subject to rounding to avoid fractional shares) as may be determined by the
Company or by any other method as may be determined by the Company in its sole
discretion to be equitable. From and after the redemption date (unless default
shall be made by the Company in providing for the payment of the redemption
price plus accumulated and unpaid dividends, if any), dividends shall cease to
accumulate on the shares of Preferred Stock called for redemption and all rights
of the holders thereof (except the right to receive the redemption price plus
accumulated and unpaid dividends, if any) shall cease.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Junior Stock, the holders of each series of Preferred
Stock shall be entitled to receive out of assets of the Company legally
available for distribution to stockholders, liquidating distributions in the
amount of the liquidation preference per share (set forth in the applicable
Prospectus Supplement), plus an amount equal to all dividends accrued and unpaid
thereon (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such Preferred Stock does not have a cumulative
dividend). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Stock will have no right or
claim to any of the remaining assets of the Company. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Company are insufficient to pay the amount of the
liquidating distributions on all outstanding Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of equity
securities of the Company ranking on a parity with the Preferred Stock in the
distribution of assets, then the holders of the Preferred Stock and all other
such classes or series of equity securities shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of shares of Junior Stock, according to their respective rights and
preferences and in each case according to their respective number of shares. For
such purposes, the consolidation or merger of the Company with or into any other
corporation, or the sale, lease or conveyance of all or substantially all of the
assets or business
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<PAGE> 86
of the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
VOTING RIGHTS
Except as indicated below or in a Prospectus Supplement relating to a
particular series of Preferred Stock, or except as required by applicable law,
holders of the Preferred Stock will not be entitled to vote for any purpose.
So long as any series of Preferred Stock remains outstanding, the consent
or the affirmative vote of the holders of at least a majority of the votes
entitled to be cast with respect to the then outstanding shares of such series
of Preferred Stock together with any "Other Preferred Stock" (as defined below),
voting as one class, either expressed in writing or at a meeting called for that
purpose, will be necessary: (i) to permit, effect or validate the authorization,
or any increase in the authorized amount, of any class or series of equity
securities of the Company ranking prior to Preferred Stock of such series as to
dividends, voting or upon distribution of assets; and (ii) to repeal, amend or
otherwise change any of the provisions applicable to the Preferred Stock of such
series in any manner which adversely affects the powers, preferences, voting
power or other rights or privileges of such series of Preferred Stock. In case
any series of Preferred Stock would be so affected by any such action referred
to in clause (ii) above in a different manner than one or more series of Other
Preferred Stock which will be similarly affected, the holders of the Preferred
Stock of such series, together with any series of Other Preferred Stock which
will be similarly affected, will be entitled to be cast with respect to each
such series of Preferred Stock and Other Preferred Stock then outstanding, in
lieu of the consent or affirmative vote hereinafter otherwise required.
With respect to any matter as to which the Preferred Stock of any series is
entitled to vote, holders of the Preferred Stock of such series and any other
series of Preferred Stock ranking on a parity with such series of Preferred
Stock as to dividends and distributions of assets and which by its terms
provides for similar voting rights (the "Other Preferred Stock") will be
entitled to cast the number of votes set forth in the Prospectus Supplement with
respect to that series of Preferred Stock. As a result of the provisions
described in the preceding paragraph requiring the holders of shares of a series
of Preferred Stock to vote together as a class with the holders of shares of one
or more series of Other Preferred Stock, it is possible that the holders of such
shares of Other Preferred Stock could approve action that would adversely affect
such series of Preferred Stock, including the creation of a class of shares of
beneficial interest ranking prior to such shares of Preferred Stock as to
dividends, voting or distributions of assets.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
the provisions as to whether conversion will be at the option of the holders of
the Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and the provisions affecting conversion.
RESTRICTIONS ON OWNERSHIP
See "Restrictions on Transfer of Capital Stock" for a discussion of the
restrictions on transfers of shares of capital stock necessary for the Company
to qualify as a REIT under the Internal Revenue Code of 1986, as amended.
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<PAGE> 87
RESTRICTIONS ON TRANSFER OF CAPITAL STOCK
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its issued and
outstanding capital stock may be owned, directly or constructively, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year, and the shares of issued and outstanding
capital stock of the Company must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of twelve months (or during a
proportionate part of a shorter taxable year). Because the Board of Directors
believes it is essential for the Company to qualify as a REIT, the Board of
Directors has included certain provisions in the Articles of Incorporation
restricting the acquisition of the Company's capital stock, including Common
Stock.
The provision setting forth the Ownership Limit provides that, subject to
certain exceptions, no shareholder (other than Realty) may own, or be deemed to
own by virtue of the constructive ownership provisions of the Code, more than
the Ownership Limit, which is equal to 9.8% in value or in number, whichever is
more restrictive, of the issued and outstanding capital stock of the Company.
The constructive ownership rules are complex and may cause Common Stock owned
directly or constructively by a group of related individuals or entities to be
constructively owned by one individual or entity. As a result, the acquisition
of less than 9.8% in value or in number of shares of the Common Stock (or the
acquisition of an interest in an entity which owns Common Shares) by an
individual or entity could cause that individual or entity (or another
individual or entity) to constructively own in excess of 9.8% in value or in
number of the issued and outstanding capital stock of the Company, and thus
subject such Common Stock to the Ownership Limit. In addition, for these
purposes, Common Stock that may be acquired upon conversion of the 8.375%
Convertible Subordinated Debentures Due 2001 previously issued by the Company
(the "Debentures") owned or deemed owned by an investor, but not Common Stock
issuable with respect to Debentures held by others, are deemed to be owned by
the investor and outstanding prior to conversion, for purposes of determining
the percentage of ownership of Common Stock owned by that investor.
The Board of Directors may waive the Ownership Limit with respect to a
particular shareholder if evidence satisfactory to the Board of Directors and
the Company's tax counsel is presented that such ownership will not then or in
the future jeopardize the Company's status as a REIT. As a condition of such
waiver, the Board of Directors may require opinions of counsel satisfactory to
it and an undertaking from the applicant with respect to preserving the REIT
status of the Company. If shares of Common Stock are issued or transferred to
any person, which would result in a violation of the Ownership Limit, or which
would cause the Company to be beneficially owned by fewer than 100 persons, such
issuance or transfer shall be null and void ab initio, and the intended
transferee will acquire no rights to, or economic interest in, the Common Stock.
The Articles of Incorporation provide that a transfer or other event that
results in a person owning Common Stock in excess of the Ownership Limit is null
and void ab initio as to the intended transferee or purported owner, and the
intended transferee or purported owner acquires or retains no rights or economic
interest in those shares of Common Stock. Common Stock purportedly owned, or
deemed to be owned, or transferred to a person in excess of the Ownership Limit,
will automatically be exchanged for shares of a separate class of stock ("Excess
Shares") that will be transferred, by operation of law, to a trust for the
exclusive benefit of the transferee or transferees to whom the Common Stock may
ultimately be transferred (without violating the Ownership Limit). While held in
trust, the Excess Shares will not be entitled to vote, will not be considered
outstanding for purposes of any shareholder vote or the determination of a
quorum for such vote, and will not be entitled to participate in any
distributions made by the Company. Any dividend or distribution paid to a
proposed transferree or owner on Excess Shares prior to the discovery by the
Company that such shares have become directly or constructively owned in
violation of the Company's Articles of Incorporation shall be repaid to the
Company upon demand. The intended transferree or owner may, at any time the
Excess Shares are held by the Company in trust, transfer the Excess Shares at a
price not to exceed the price paid by the intended transferee or owner to any
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<PAGE> 88
person whose ownership of such Excess Shares would be permitted under the
Ownership Limit, at which time the Excess Shares will automatically be exchanged
for shares of Common Stock. In addition, the Company would have the right, for a
period of 90 days during the time the Excess Shares are held by the Company in
trust, to purchase all or any portion of the Excess Shares from the intended
transferee or owner at a price equal to the lesser of the price paid for the
shares of Common Stock by the intended transferee or owner and the closing
market price for the shares of Common Stock on the date the Company exercises
its option to purchase the Common Stock. This period commences on the date of
the violative transfer of ownership if the intended transferee or owner gives
notice of the transfer to the Company, or the date the Board of Directors
determines that a violative transfer has occurred with no notices provided.
The Ownership Limit will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the Board of Directors and the shareholders of
the Company determine that it is no longer in the best interest of the Company
to attempt to qualify, or to continue to qualify, as a REIT. Except as otherwise
described above, any change of the Ownership Limit would require an amendment to
the Articles of Incorporation. Amendments to the Articles of Incorporation
require recommendation by the Board of Directors and the affirmative vote of
shareholders holding at least a majority of all the votes entitled to be cast on
the matter. In addition to preserving the Company's status as a REIT, the
Ownership Limit may have the effect of precluding an acquisition of control of
the REIT without the approval of the Board of Directors.
All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.
All persons who own a specified percentage (or more) of outstanding Common
Stock must file an affidavit with the Company containing information regarding
their ownership of Common Stock, as set forth in the Treasury Regulations. Under
current Treasury Regulations, the percentage will be set between one-half of one
percent and five percent, depending on the number of record holders of Common
Stock. In addition, each shareholder shall upon demand by the Company be
required to disclose to the Company in writing such information with respect to
the direct, indirect and constructive ownership of shares as the Board of
Directors deems necessary to comply with the provisions of the Code applicable
to a REIT or to comply with the requirements of any taxing authority or
government agency.
The ownership limitations could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of Common Stock
might receive a premium for their shares over the then prevailing market price
or which such holders might believe to be otherwise in their best interest.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
the Company's Articles of Incorporation and Bylaws. The summary does not purport
to be complete and is subject to and qualified in its entirety by reference to
the Company's Articles of Incorporation and Bylaws, copies of which are exhibits
to the Registration Statement of which this Prospectus is a part, as described
in "Additional Information," and to Maryland law.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Articles of Incorporation provide that the number of
directors of the Company may be established by the Board of Directors, but may
not be fewer than three nor more than eleven. Any vacancy will be filled, at any
regular meeting or at any special meeting called for that purpose, by a majority
of the remaining directors, except that a vacancy resulting from an increase in
the
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<PAGE> 89
number of directors will be filled by a majority of the entire Board of
Directors. Pursuant to the terms of the Articles of Incorporation, the directors
are divided into three classes -- i.e., Class I, Class II, and Class III.
Presently, one class will hold office for a term expiring at the annual meeting
of shareholders to be held in 1996 (i.e., Class II), another class will hold
office for a term expiring at the annual meeting of shareholders to be held in
1997 (i.e., Class III), and another class will hold office for a term expiring
at the annual meeting of shareholders to be held in 1998 (i.e., Class I). As the
term of each class expires, directors in that class will be elected for a term
of three years or until their successors are duly elected and qualify. The
Company believes that classification of the Board of Directors will help to
assure the continuity and stability of the Company's business strategies and
policies as determined by the Board of Directors.
The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its shareholders. At least two annual meetings of
shareholders, instead of one, will generally be required to effect a change in a
majority of the Board of Directors. Thus, the classified board provision could
increase the likelihood that incumbent directors will retain their positions.
Holders of Common Stock will have no right to cumulative voting in the election
of directors. Consequently, at each annual meeting of shareholders, the holders
of a plurality of Common Stock will be able to elect all of the successors of
the class of directors whose term expires at that meeting.
REMOVAL OF DIRECTORS
The Articles of Incorporation provide that a director may be removed only
for cause and only by the affirmative vote of shareholders holding at least
two-thirds of all the votes entitled to be cast in the election of directors.
This provision, when coupled with the provision in the Bylaws authorizing the
Board of Directors to fill vacant directorships, precludes shareholders from
removing incumbent directors except upon a substantial affirmative vote and upon
a finding of cause and filling the vacancies created by such removal with their
own nominees.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation limit the liability of the
Company's directors and officers to the Company and its shareholders to the
fullest extent permitted from time to time by Maryland law. Maryland law
presently permits the liability of directors and officers to a corporation or
its shareholders for money damages to be limited, except (i) to the extent that
it is proved that the director or officer actually received an improper benefit
or profit, or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceedings. This provision
does not limit the ability of the Company or its shareholders to obtain other
relief, such as an injunction or rescission.
The Company's Bylaws require the Company to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by Maryland law. The MGCL permits a corporation to indemnify its directors,
officers and certain other parties 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 to
or at the request of the corporation, unless it is established that the act or
omission of the indemnified party was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) the indemnified party actually received an improper
personal benefit, or (iii) in the case of any criminal proceeding, the
indemnified party had reasonable cause to believe that the act or omission was
unlawful. Indemnification may be made against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by the director or officer
in connection with the proceeding; provided, however, that if the proceeding is
one by or in the right
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<PAGE> 90
of the corporation, indemnification may not be made with respect to any
proceeding in which the director or officer has been adjudged to be liable on
the basis that personal benefit was improperly received. The termination of any
proceeding by conviction, or upon a plea of nolo contendere or its equivalent,
or an entry of any order of probation prior to judgment, creates a rebuttable
presumption that the director or officer did not meet the requisite standard of
conduct required for indemnification to be permitted. It is the position of the
Securities and Exchange Commission that indemnification of directors and
officers for liabilities arising under the Securities Act is against public
policy and is unenforceable pursuant to Section 14 of the Securities Act.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange, or in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting stock of the corporation (an "Interested Stockholder") or an
affiliate thereof are prohibited for five years after the most recent date on
which the Interested Stockholder became an Interested Stockholder. Thereafter,
any such business combination must be recommended by the Board of Directors of
such corporation and approved by the affirmative vote of at least (a) 80% of the
votes entitled to be cast by holders of outstanding voting shares of the
corporation voting together as a single voting group, and (b) two-thirds of the
votes entitled to be cast by holders of voting shares other than shares held by
the Interested Stockholder with whom the business combination is to be effected,
unless, among other things, the corporation's shareholders receive a fair price
(as defined in the MGCL) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its shares. These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by the Board of Directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. As permitted by Maryland law, the Articles of
Incorporation of the Company include a provision exempting all future business
combinations involving the Company from the operation of the business
combination statute.
CONTROL SHARE ACQUISITIONS
The Company's Bylaws currently contain a provision exempting from the
control share acquisition statute described below any and all acquisitions by
any person of shares of capital stock of the Company, specifically including
Realty. The current or future directors of the Company may decide to eliminate
or amend this provision, although no such change is currently contemplated.
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are employees of the corporation. "Control shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
such person, or in respect of which such person is able to exercise or direct
the exercise of voting power, would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting power:
(i) one-fifth or more but less than one-third; (ii) one-third or more but less
than a majority; or (iii) a majority of all voting power. Control shares do not
include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Directors to call a special meeting of shareholders to
be held within 50 days of demand to consider the voting
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rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for control shares, as of the date of the last control share
acquisition or, if a meeting of shareholders is held where the voting rights of
such shares are considered and not approved, as of the date of the meeting. If
voting rights for control shares are approved at a shareholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other shareholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid in the control share acquisition, and certain
limitations and restrictions otherwise applicable to the exercise of dissenters'
rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the Company is a party to the
transaction and such transaction is otherwise effected under the provision of
the MGCL; or to acquisitions approved or exempted by the Articles of
Incorporation or Bylaws of the Company.
AMENDMENT TO THE ARTICLES OF INCORPORATION
The Company's Articles of Incorporation, including its provisions on
classification of the Board of Directors and removal of directors, may be
amended only with the recommendation of the Board of Directors and by the
affirmative vote of shareholders holding at least a majority of all the votes
entitled to be cast on the matter.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote of
shareholders holding at least a majority of all the votes entitled to be cast or
the written consent of all shares entitled to vote on this matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (a) with respect to an annual
meeting of shareholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by shareholders may be
made only (i) pursuant to the Company's notice of the meeting, (ii) by the Board
of Directors, or (iii) by a shareholder who is entitled to vote at the meeting
and who has complied with the advance notice procedures set forth in the Bylaws,
and (b) with respect to special meetings of shareholders, only the business
specified in the Company's notice of the meeting may be brought before the
meeting of shareholders, and nominations of persons for election to the Board of
Directors may be made only (i) pursuant to the Company's notice of meeting, (ii)
by the Board of Directors, or (iii) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by a shareholder who
is entitled to vote at the meeting and who has complied with the advance notice
provisions set forth in the Bylaws.
The provisions in the Articles of Incorporation on classification of the
Board of Directors and removal of directors, the business combination and, if
the applicable provision in the Company's Bylaws is rescinded, control share
acquisition provisions of the MGCL, and the advance notice provisions of the
Bylaws could have the effect of discouraging a takeover or other transaction in
which holders of some, or a majority, of the Common Stock might receive a
premium for their Common Stock over the then prevailing market price or which
such holders might believe to be otherwise in their best interests.
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FEDERAL INCOME TAX CONSIDERATIONS
The Company believes it has operated, and the Company intends to continue
to operate, in such a manner as to qualify as a REIT under the Code, but no
assurance can be given that it will at all times so qualify.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern the federal income tax treatment of the Company and its
stockholders. For the particular provisions that govern the federal income tax
treatment of the Company and its stockholders, reference is made to Sections 856
through 860 of the Code and the regulations thereunder. The following summary is
qualified in its entirety by such reference.
Under the Code, if certain requirements are met in a taxable year, a REIT
generally will not be subject to federal income tax with respect to income that
it distributes to its stockholders. If the Company fails to qualify during any
taxable year as a REIT, unless certain relief provisions are available, it will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates, which could have a material adverse
effect upon its stockholders.
In any year in which the Company qualifies to be taxed as a REIT,
distributions made to its stockholders out of current or accumulated earnings
and profits will be taxed to stockholders as ordinary income except that
distributions of net capital gains designated by the company as capital gain
dividends will be taxed as long-term capital gain income to the stockholders. To
the extent that distributions exceed current or accumulated earnings and
profits, they will constitute a return of capital, rather than dividend or
capital gain income, and will reduce the basis for the stockholder's securities
with respect to which the distribution is paid or, to the extent that they
exceed such basis, will be taxed in the same manner as gain from the sale of
those securities.
Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the Offered Securities and with respect to
the tax consequences arising under federal law and the laws of any state,
municipality or other taxing jurisdiction, including tax consequences resulting
from such investor's own tax characteristics. In particular, foreign investors
should consult their own tax advisors concerning tax consequences of an
investment in the Company, including the possibility of United States income tax
withholding on Company distributions.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Cox, Castle &
Nicholson, LLP, Los Angeles, California, and the legality of the Offered
Securities will be passed upon for the Company and the Selling Stockholder by
Piper & Marbury LLP, Baltimore, Maryland.
EXPERTS
The financial statements for Pacific Gulf Properties Inc. and the
Predecessor Multifamily and Industrial Operations included in the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1995 and
incorporated by reference in this Prospectus have been audited by Ernst & Young
LLP, independent auditors, as stated in their report appearing therein and has
been so included in reliance upon the report given upon their authority as
experts in accounting and auditing.
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NORTH COUNTY BUSINESS PARK
Yorba Linda, California
(Proposed Acquisition)
BELL RANCH INDUSTRIAL PARK
Santa Fe Springs, California
(Proposed Acquisition)
EDEN LANDING COMMERCE PARK
Hayward, California
(Proposed Acquisition)
SAN MARCOS INDUSTRIAL CENTER
San Marcos, California
(Proposed Acquisition)
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR THE ACCOMPANYING PROSPECTUS
SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER,
AGENT, OR DEALER. THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING PROSPECTUS SUPPLEMENT, NOR ANY SALE OF SECURITIES
BEING OFFERED PURSUANT TO THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS
SUPPLEMENT SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Supplement Summary................ S-3
Summary Financial Information................ S-6
The Company.................................. S-8
Use of Proceeds.............................. S-9
Selling Stockholder.......................... S-9
Price Range of Common Stock and
Distributions.............................. S-10
Capitalization............................... S-11
Business and Properties...................... S-12
Selected Financial and Operating Data........ S-19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. S-22
Management................................... S-29
Federal Income Tax Considerations............ S-30
Underwriting................................. S-40
Legal Matters................................ S-41
Index to Financial Statements................ F-1
PROSPECTUS
Available Information........................ 2
Incorporation of Certain Documents
by Reference............................... 3
The Company.................................. 4
Use of Proceeds.............................. 4
Ratio of Earnings to Fixed Charges........... 5
Selling Stockholder.......................... 5
Plan of Distribution......................... 5
Risk Factors................................. 7
Description of Common Stock.................. 11
Description of Preferred Stock............... 12
Restrictions on Transfer of Capital Stock.... 16
Certain Provisions of Maryland Law
and of the Company's Articles of
Incorporation and Bylaws................... 17
Federal Income Tax Considerations............ 21
Legal Matters................................ 21
Experts...................................... 21
</TABLE>
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2,800,000 SHARES
[LOGO]
PACIFIC GULF
PROPERTIES INC.
COMMON STOCK
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PROSPECTUS SUPPLEMENT
---------------------------------------
ALEX. BROWN & SONS
INCORPORATED
OPPENHEIMER & CO., INC.
PRUDENTIAL SECURITIES INCORPORATED
May , 1996
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<PAGE> 96
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses expected to be paid by the Company in connection
with the issuance and distribution of the securities being registered are as
follows:
<TABLE>
<S> <C>
SEC registration fee............................................................. $ 43,103
AMEX listing fee................................................................. 17,500
Legal fees and expenses.......................................................... 150,000
Accountant's fees and expenses................................................... 250,000
Blue Sky fees and expenses (including legal fees)................................ 15,000
Printing fees.................................................................... 200,000
Miscellaneous expenses........................................................... 106,397
Total............................................................................ $782,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation limits the liability of the
Company's directors and officers to the Company and its stockholders to the
fullest extent permitted from time to time by Maryland law. Maryland law
presently permits the liability of directors and officers to a corporation or
its stockholders for money damages to be limited, except (i) to the extent that
it is proved that the director or officer actually received an improper benefit
or profit, or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of the Company or its stockholders to obtain other
relief, such as an injunction or rescission.
The Company's bylaws require the Company to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by Maryland law. The MGCL permits a corporation to indemnify its directors,
officers and certain other parties 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 to
or at the request of the corporation, unless it is established that the act or
omission of the indemnified party was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) the indemnified party actually received an improper
personal benefit, or (iii) in the case of any criminal proceeding, the
indemnified party had reasonable cause to believe that the act or omission was
unlawful. Indemnification may be made against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by the director or officer
in connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made with
respect to any proceeding in which the director or officer has been adjudged to
be liable to the corporation. In addition, a director or officer may not be
indemnified with respect to any proceeding charging improper personal benefit to
the director or officer in which the director or officer was adjudged to be
liable on the basis that personal benefit was improperly received. The
termination of any proceeding by conviction, or upon a plea of nolo contendere
or its equivalent, or an entry of any order of probation prior to judgment,
creates a rebuttal presumption that the director or officer did not meet the
requisite standard of conduct required for indemnification to be permitted. It
is the position of the SEC that indemnification of directors and officers for
liabilities arising under the Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities Act.
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<PAGE> 97
The Company maintains an insurance policy which provides liability coverage
for directors and officers of the Company.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
**4.1 Amended and Restated Articles of Incorporation
**4.2 Bylaws
**4.3 Specimen Certificate for Common Stock
*4.4 Form of Certificate of Articles Supplementary for additional series of
Preferred Stock
+5.1 Opinion of Piper & Marbury L.L.P. regarding the legality of the securities
5.2 Opinion of Piper & Marbury L.L.P. regarding legality of certain securities.
+8.1 Opinion of Cox, Castle & Nicholson, LLP regarding certain tax matters
10.1 Acquisition Agreement (Bay San Marcos Industrial Center and Escondido Business
Center)
10.2 Acquisition Agreement (Bell Ranch Industrial Park)
10.3 Acquisition Agreement (Riverview Industrial Park)
10.4 Acquisition Agreement (North County Business Park)
10.5 Acquisition Agreement (San Marcos Commerce Center)
10.6 Acquisition Agreement (Eden Landing Commerce Park)
10.7 Acquisition Agreement (Pacific Park)
10.8 Acquisition Agreement (La Mirada Business Center)
10.9 Form of Financial Advisory Fee Agreement by and between the Registrant and
Alex. Brown & Sons Incorporated
+12.1 Calculation of Ratios of Earnings to Fixed Charges
23.1 Consent of Ernst & Young LLP
+23.2 Consent of Piper & Marbury L.L.P. (included as part of Exhibit 5.1)
+23.3 Consent of Cox, Castle & Nicholson, LLP (included as part of Exhibit 8.1)
23.4 Consent of Piper & Marbury L.L.P. (included as part of Exhibit 5.2)
***24.1 Power of Attorney (included on page II-4)
</TABLE>
---------------
<TABLE>
<C> <S>
* To be filed by amendment or incorporated by reference in connection with the offering
of the applicable offered securities.
** Previously filed as an exhibit to Registrant's Registration Statement on Form S-11
(Registration No. 33-69382) declared effective on February 10, 1994 and incorporated
herein by reference.
*** Previously filed as an exhibit to the Registrant's Registration Statement on Form S-3
(Registration No. 333-02798) and incorporated herein by reference.
+ Previously filed as an exhibit to Amendment No. 1 to Registrant's Registration
Statement on Form S-3 (Registration No. 333-02798) and incorporated herein by
reference.
Filed herewith.
</TABLE>
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:
II-2
<PAGE> 98
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(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 end 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 a 20% 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 Company
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934, 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.
(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.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) 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.
(b) The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provision,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for
II-3
<PAGE> 1
EXHIBIT 1.1
2,800,000 Shares
Pacific Gulf Properties Inc.
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
May __, 1996
Alex. Brown & Sons Incorporated
Oppenheimer & Co., Inc.
Prudential Securities Incorporated
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Gentlemen and Ladies:
Pacific Gulf Properties Inc., a Maryland corporation (the "Company"),
and a certain shareholder of the Company propose to sell to the several
underwriters (the "Underwriters") named in Schedule I hereto for whom you are
acting as representatives (the "Representatives") an aggregate of 2,800,000
shares of the Company's Common Stock, $.01 par value (the "Firm Shares"), of
which 2,015,581 shares will be sold by the Company and 784,419 shares will be
sold by Santa Anita Realty Enterprises, Inc., a Delaware corporation (the
"Selling Shareholder"). The respective amounts of the Firm Shares to be so
purchased by the several Underwriters are set forth opposite their names in
Schedule I hereto. The Company and the Selling Shareholder are sometimes
referred to herein collectively as the "Sellers." The Company also proposes to
sell at the Underwriters' option an aggregate of up to 420,000 additional shares
of the Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company and the Selling
Shareholder (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I, plus their pro
rata portion of the Option Shares if you elect to exercise the Over-allotment
option in whole or in part for the accounts of the several Underwriters. The
Firm Shares and the Option Shares (to the extent the aforementioned option is
exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
<PAGE> 2
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDER.
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form S-3 (File No. 333-2798) with
respect to the Shares has been carefully prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"),
and the Rules and Regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder and has been filed with
the Commission. The Company has complied with the conditions for the use of
Form S-3 or any failure to comply with such conditions has been waived by the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules
and Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by
the Company to you. Such registration statement, together with any
registration statement filed by the Company pursuant to Rule 462(b) of the Act,
herein referred to as the "Registration Statement," which shall be deemed to
include all information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, has become effective under the
Act and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. "Prospectus" means (a) the form of
prospectus and/or prospectus supplement first filed with the Commission
pursuant to Rule 424(b) or (b) the last preliminary prospectus and/or
preliminary prospectus supplement included in the Registration Statement filed
prior to the time it becomes effective or filed pursuant to Rule 424(a) under
the Act that is delivered by the Company to the Underwriters for delivery to
purchasers of the Shares, together with the term sheet or abbreviated term
sheet filed with the Commission pursuant to Rule 424(b)(7) under the Act. Each
preliminary prospectus and/or preliminary prospectus supplement included in the
Registration Statement prior to the time it becomes effective is herein
referred to as a "Preliminary Prospectus." Any reference herein to the
Registration Statement, any Preliminary Prospectus or to the Prospectus shall
be deemed to refer to and include any documents incorporated by reference
therein, and, in the case of any reference herein to any Prospectus, also shall
be deemed to include any documents incorporated by reference therein, and any
supplements or amendments thereto, filed with the Commission after the date of
filing of the Prospectus under Rules 424(b) or 430A, and prior to the
termination of the offering of the Shares by the Underwriters.
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Maryland, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. PGP Inland Communities,
L.P., a Delaware limited partnership (the "Partnership"), has been duly formed
and is validly existing as a limited partnership in good standing under the
laws of the jurisdiction of its organization, with partnership power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement. The Partnership is the only subsidiary, direct
or indirect, of the Company. The Company and the Partnership are duly
qualified to transact business in
2
<PAGE> 3
all jurisdictions in which the conduct of their business requires such
qualification. The outstanding partnership interests of the Partnership have
been duly authorized and validly issued, are fully paid and non-assessable and
to the extent shown in Exhibit A hereto are owned by the Company free and clear
of all liens, encumbrances and equities and claims; and no options, warrants or
other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into ownership interests in the Partnership
are outstanding.
(iii) The outstanding shares of Common Stock of the Company, including
all shares to be sold by the Selling Shareholder, have been duly authorized and
validly issued and are fully paid and non-assessable; the portion of the Shares
to be issued and sold by the Company have been duly authorized and when issued
and paid for as contemplated herein will be validly issued, fully paid and non-
assessable; and no preemptive rights of stockholders exist with respect to any
of the Shares or the issue and sale thereof. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated
by this Agreement gives rise to any rights, other than those which have been
waived or satisfied, for or relating to the registration of any shares of
Common Stock.
(iv) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of the jurisdiction
of the Company's incorporation.
(v) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform to, the
requirements of the Act and the Rules and Regulations. The documents
incorporated by reference in the Prospectus, at the time filed with the
Commission conformed, in all respects to the requirements of the Securities
Exchange Act of 1934 or the Act, as applicable, and the rules and regulations
of the Commission thereunder. The Registration Statement and any amendment
thereto do not contain, and will not contain, any untrue statement of a
material fact and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. The Prospectus and any amendments and supplements thereto do not
contain, and will not contain, any untrue statement of material fact; and do
not omit, and will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company makes no representations or warranties as to information
contained in or omitted from the Registration Statement or the Prospectus, or
any such amendment or supplement, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any Underwriter
through the Representatives, specifically for use in the preparation thereof.
3
<PAGE> 4
(vi) The consolidated financial statements of the Company and the
Partnership, together with related notes and schedules as set forth or
incorporated by reference in the Registration Statement, present fairly the
financial position and the results of operations and cash flows of the Company
and the consolidated Partnership, at the indicated dates and for the indicated
periods. Such financial statements and related schedules have been prepared in
accordance with generally accepted principles of accounting, consistently
applied throughout the periods involved, except as disclosed herein or in the
Registration Statement, and all adjustments necessary for a fair presentation
of results for such periods have been made. The summary financial and
statistical data included or incorporated by reference in the Registration
Statement presents fairly the information shown therein and such data has been
compiled on a basis consistent with the financial statements presented therein
and the books and records of the company. The pro forma financial statements
and other pro forma financial information included in the Registration
Statement and the Prospectus present fairly the information shown therein, have
been prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements, have been properly compiled on the
pro forma bases described therein, and, in the opinion of the Company, the
assumptions used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(vii) Ernst & Young LLP, who have certified certain of the financial
statements filed with the Commission as part of, or incorporated by reference
in, the Registration Statement, are independent public accountants as required
by the Act and the Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or, to
the knowledge of the Company, threatened against the Company, the Partnership
or any properties owned by the Company or the Partnership before any court or
administrative agency or otherwise which if determined adversely to the Company
or the Partnership might result in any material adverse change in the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and of the Partnership
taken as a whole or to prevent the consummation of the transactions
contemplated hereby, except as set forth in the Registration Statement.
(ix) The Company and/or the Partnership have good and marketable title
to all of the properties and assets reflected in the financial statements (or
as described in the Registration Statement) hereinabove described, subject to
no lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as described in the Registration
Statement) or which are not material in amount. Neither the Company nor the
Partnership lease any properties.
(x) The Company and the Partnership have filed all Federal, State,
local and foreign income tax returns which have been required to be filed and
have paid all taxes indicated by said returns and all assessments received by
them or any of them to the extent that such taxes have become due. All tax
liabilities have been adequately provided for in the financial statements of
the Company.
4
<PAGE> 5
(xi) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise), or
prospects of the Company and the Partnership taken as a whole, whether or not
occurring in the ordinary course of business, and there has not been any
material transaction entered into or any material transaction that is probable
of being entered into by the Company or the Partnership, other than
transactions in the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or supplemented.
The Company and the Partnership have no material contingent obligations which
are not disclosed in the Company's financial statements which are included in
the Registration Statement.
(xii) Neither the Company nor the Partnership is, or with the giving
of notice or lapse of time or both, will be, in violation of or in default
under its Charter or By-Laws or applicable partnership agreement or under any
agreement, lease, contract, indenture or other instrument or obligation to
which it is a party or by which it, or any of its properties, is bound and
which default is of material significance in respect of the condition,
financial or otherwise of the Company and the Partnership taken as a whole or
the business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and the Partnership taken
as a whole. The execution and delivery of this Agreement and the Purchase
Agreements (as defined below) and the consummation of the transactions herein
and therein contemplated and the fulfillment of the terms hereof and thereof
will not conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust or
other agreement or instrument to which the Company or the Partnership is a
party, or of the Charter or by-laws of the Company or any order, rule or
regulation applicable to the Company or the Partnership of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by
the Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the
Commission, the National Association of Securities Dealers, Inc. (the "NASD")
or such additional steps as may be necessary to qualify the Shares for public
offering by the Underwriters under state securities or Blue Sky laws) has been
obtained or made and is in full force and effect.
(xiv) The Company and the Partnership hold all material licenses,
certificates and permits from governmental authorities which are necessary to
the conduct of their businesses; and neither the Company nor the Partnership
has infringed any patents, patent rights, trade names, trademarks or
copyrights, which infringement is material to the business of the Company and
the Partnership taken as a whole. The Company knows of no material
infringement by others of patents, patent rights, trade names, trademarks or
copyrights owned by or licensed to the Company.
5
<PAGE> 6
(xv) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
(xvi) Neither the Company nor the Partnership is an "investment
company" within the meaning of such term under the Investment Company Act of
1940 and the rules and regulations of the Commission thereunder.
(xvii) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xviii) The Company and the Partnership carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(xix) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan" for
which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
(xx) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
an Act Relating to Disclosure of doing Business with Cuba, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported or incorporated by
reference in the Prospectus, if any, concerning the Company's business with
Cuba or with
6
<PAGE> 7
any person or affiliate located in Cuba changes in any material way, the
Company will provide the Department notice of such business or change, as
appropriate, in a form acceptable to the Department.
(xxi) The Purchase Agreements pursuant to which the Company will
acquire the Acquisition Properties (as such term is defined in the Registration
Statement) (the "Purchase Agreements"), have been duly authorized, executed and
delivered by the parties thereto and give the Company the right, upon payment
of the purchase prices specified therein and satisfaction of the other
conditions specified therein, to acquire the Acquisition Properties. The
Purchase Agreements and all deeds and other documents delivered to or to be
delivered in connection therewith are legally sufficient to effect the sale to
the Company of all right, title and interest in and to the Properties upon
payment of the purchase price therefor. The sellers of the Acquisition
Properties have, and, upon the closing of the sale of the Acquisition
Properties to the Company, the Company will have, good and marketable title to
each of the items of real and personal property reflected in the Pro Forma
Balance Sheet of the Company as of March 31, 1996 or referred to in the
Registration Statement or Prospectus as being owned by the Company and valid
and enforceable leasehold interests in each of the items of material personal
property which are leased by it, in each case free and clear of all liens,
mortgages, pledges, charges or encumbrances of any kind except in the case of
real properties, those identified in the preliminary title reports issued with
respect to each of the real properties and with respect to any real property or
personal property those that would not materially impair the ownership or use
thereof.
(xxii) Each of the Purchase Agreements was duly authorized by the
parties thereto, executed and delivered by the parties thereto and constitutes
the valid agreements of the parties thereto, enforceable in accordance with its
terms, except as limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and general equitable principles. The execution,
delivery and performance of each of the Purchase Agreements did not, at the
time of such execution and delivery, and do not constitute a breach of, or
default under, the charter or by-laws of the parties thereto or any material
contract, lease or other instrument to which any of the Company or such other
parties is a party or by which any of them or any of their properties may be
bound or any law, administrative regulation or administrative or court decree,
except for breaches and defaults for which valid consents have been obtained or
valid waivers given; and provided that to the extent valid consents or valid
waivers have not been obtained, such breaches and defaults will not have a
material adverse effect on the condition, financial or otherwise, or on the
earnings, business affairs or business prospects of the Company and the
Partnership taken as a whole.
(xxiii) The Company is organized in conformity with the requirements
for qualification as a real estate investment trust (a "REIT") under Sections
856 through 860 of the Code and the rules and regulations thereunder and the
Company's proposed method of operation will enable it to meet the requirements
for taxation as a real estate investment trust under the Code.
7
<PAGE> 8
(xxiv) The execution and delivery of, and the performance by the
Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding
agreement of the Company, enforceable against the Company in accordance with
its terms, except as rights to indemnity and contribution hereunder may be
limited by federal or state securities laws and except that the enforceability
of this Agreement may be limited by the effect of bankruptcy, insolvency,
reorganization or other similar laws now or hereafter in effect relating to or
affecting the rights and remedies of creditors generally and by general
principles of equity, whether such enforcement is considered in a proceeding in
equity or at law, and by the discretion of the court before which any
proceeding therefor may be brought.
(xxv) The Shares have been approved for listing upon official notice
of issuance on the American Stock Exchange.
(b) The Selling Shareholder represents and warrants as follows:
(i) The Selling Shareholder now has and at the Closing Date
(as such date is hereinafter defined) will have good and marketable
title to the Firm Shares to be sold by such Selling Shareholder, free
and clear of any liens, encumbrances, equities and claims, and full
right, power and authority to effect the sale and delivery of such Firm
Shares; and upon the delivery of, against payment for, such Firm Shares
pursuant to this Agreement, the Underwriters will acquire good and
marketable title thereto, free and clear of any liens, encumbrances,
equities and claims.
(ii) The Selling Shareholder has full right, power and
authority to execute and deliver this Agreement, the Power of Attorney,
and the Custodian Agreement referred to below and to perform its
obligations under such Agreements. The execution and delivery of this
Agreement and the consummation by the Selling Shareholder of the
transactions herein contemplated and the fulfillment by the Selling
Shareholder of the terms hereof will not require any consent, approval,
authorization, or other order of any court, regulatory body,
administrative agency or other governmental body (except as may be
required under the Act, state securities laws or Blue Sky laws) and
will not result in a breach of any of the terms and provisions of, or
constitute a default under, organizational documents of the Selling
Shareholder, if not an individual, or any indenture, mortgage, deed of
trust or other agreement or instrument to which the Selling Shareholder
is a party, or of any order, rule or regulation applicable to the
Selling Shareholder of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(iii) The Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of the Common Stock
of the Company and, other than as permitted by the
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<PAGE> 9
Act, the Selling Shareholder will not distribute any prospectus or
other offering material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently the
accuracy or completeness of either the representations and warranties
of the Company contained herein or the information contained in the
Registration Statement, the Selling Shareholder has no reason to
believe that the representations and warranties of the Company
contained in this Section 1 are not true and correct, is familiar with
the Registration Statement and has no knowledge of any material fact,
condition or information not disclosed in the Registration Statement
which has adversely affected or may adversely affect the business of
the Company or the Partnership; and the sale of the Firm Shares by the
Selling Shareholder pursuant hereto is not prompted by any information
concerning the Company or the Partnership which is not set forth in the
Registration Statement or the documents incorporated by reference
therein. The information pertaining to the Selling Shareholder under
the captions "Selling Stockholder" in the Prospectus does not contain
an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Sellers
agree to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_____ [NET PRICE] per share, the
number of Firm Shares set forth opposite the name of each Underwriter in
Schedule I hereof, subject to adjustments in accordance with Section 9 hereof.
The number of Firm Shares to be purchased by each Underwriter from each Seller
shall be as nearly as practicable in the same proportion to the total number of
Firm Shares being sold by each Seller as the number of Firm Shares being
purchased by each Underwriter bears to the total number of Firm Shares to be
sold hereunder. The obligations of the Company and of the Selling Shareholder
shall be several and not joint.
(b) Certificates in negotiable form for the total number of the Shares
to be sold hereunder by the Selling Shareholder have been placed in custody
with Harris Trust Company of California as custodian (the "Custodian") pursuant
to the Custodian Agreement executed by the Selling Shareholder for delivery of
all Firm Shares to be sold hereunder by the Selling Shareholder. The Selling
Shareholder specifically agrees that the Firm Shares represented by the
certificates held in custody for the Selling Shareholder under the Custodian
Agreement are subject to the interests of the Underwriters hereunder, that the
arrangements made by the Selling Shareholder for such custody are to that
extent irrevocable, and that the obligations of the Selling Shareholder
hereunder shall not be terminable by any act or deed of the Selling Shareholder
(or by any other person, firm or corporation including the Company, the
Custodian or the Underwriters) or by operation of law (including the death of
an individual Selling Shareholder or the dissolution of a corporate Selling
Shareholder) or by the occurrence of any other event or events, except
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<PAGE> 10
as set forth in the Custodian Agreement. If any such event should occur prior
to the delivery to the Underwriters of the Firm Shares hereunder, certificates
for the Firm Shares shall be delivered by the Custodian in accordance with the
terms and conditions of this Agreement as if such event has not occurred. The
Custodian is authorized to receive and acknowledge receipt of the proceeds of
sale of the Shares held by it against delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be made in
same day funds by wire transfer payable to the order of the Company for the
shares to be sold by it and to the order of Harris Trust Company of California
"as Custodian" for the shares to be sold by the Selling Shareholder, in each
case against delivery of certificates therefor to the Representatives for the
several accounts of the Underwriters. Such payment and delivery are to be made
at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street,
Baltimore, Maryland, at 10:00 a.m., Baltimore time, on the third business day
after the date of this Agreement or at such other time and date not later than
five business days thereafter as you and the Company shall agree upon, such
time and date being herein referred to as the "Closing Date." (As used herein,
"business day" means a day on which the New York Stock Exchange is open for
trading and on which banks in New York are open for business and not permitted
by law or executive order to be closed.) The certificates for the Firm Shares
will be delivered in such denominations and in such registrations as the
Representatives request in writing not later than the second full business day
prior to the Closing Date, and will be made available for inspection by the
Representatives at least one business day prior to the Closing Date.
(d) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of
this Section 2. The option granted hereby may be exercised in whole or in part
by giving written notice (i) at any time before the Closing Date and (ii) only
once thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company, setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option, the names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to be
delivered. The time and date at which certificates for Option Shares are to be
delivered shall be determined by the Representatives but shall not be earlier
than three nor later than 10 full business days after the exercise of such
option, nor in any event prior to the Closing Date (such time and date being
herein referred to as the "Option Closing Date"). If the date of exercise of
the option is three or more days before the Closing Date, the notice of
exercise shall set the Closing Date as the Option Closing Date. The number of
Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number
of Firm Shares being purchased by such Underwriter bears to the total number of
Firm Shares, adjusted by you in such manner as to avoid fractional shares. The
option with respect to the Option Shares granted hereunder may be exercised
only to cover over-allotments in the sale of the Firm Shares by the
Underwriters. You, as Representatives of the several Underwriters, may cancel
such option at any time prior to its expiration by
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<PAGE> 11
giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, payment for the Option Shares shall be made
on the Option Closing Date in New York Clearing House funds by certified or
bank cashier's check drawn to the order of the Company against delivery of
certificates therefor at the offices of Alex. Brown & Sons Incorporated, 135
East Baltimore Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the
initial public offering price set forth in the Prospectus. The Representatives
may from time to time thereafter change the public offering price and other
selling terms. To the extent, if at all, that any Option Shares are purchased
pursuant to Section 2 hereof, the Underwriters will offer them to the public on
the foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDER.
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a
form approved by the Representatives containing information previously omitted
at the time of effectiveness of the Registration Statement in reliance on Rule
430A of the Rules and Regulations, (B) not file any amendment to the
Registration Statement or supplement to the Prospectus or document incorporated
by reference therein of which the Representatives shall not previously have
been advised and furnished with a copy or to which the Representatives shall
have reasonably objected in writing or which is not in compliance with the
Rules and Regulations and (C) file on a timely basis all reports and any
definitive proxy or information statements required to be filed by the Company
with the Commission subsequent to the date of the Prospectus and prior to the
termination of the offering of the Shares by the Underwriters.
(ii) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or
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<PAGE> 12
suspending the use of the Prospectus and to obtain as soon
as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction where it is not now
so qualified or required to file such a consent. The Company will, from time
to time, prepare and file such statements, reports, and other documents, as are
or may be required to continue such qualifications in effect for so long a
period as the Representatives may reasonably request for distribution of the
Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives during the period when
delivery of a Prospectus is required under the Act, as many copies of the
Prospectus in final form, or as thereafter amended or supplemented, as the
Representatives may reasonably request. The Company will deliver to the
Representatives at or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto including all exhibits filed
therewith, and will deliver to the Representatives such number of copies of the
Registration Statement (including such number of copies of the exhibits filed
therewith that may reasonably be requested), including documents incorporated
by reference therein, and of all amendments thereto, as the Representatives may
reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934 (the "Exchange Act"), and
the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
existing at the time the Prospectus is delivered to a purchaser, not
misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will either (i) prepare
and file with the Commission an appropriate amendment to the Registration
Statement or supplement to the Prospectus or (ii) prepare and file with the
Commission an appropriate filing under the Securities Exchange Act of 1934
which shall be incorporated by reference in the Prospectus so that the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with the law.
(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date
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<PAGE> 13
of the Registration Statement, an earning statement (which need not be audited)
in reasonable detail, covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which earning
statement shall satisfy the requirements of Section 11(a) of the Act and Rule
158 of the Rules and Regulations and will advise you in writing when such
statement has been so made available.
(vii) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Securities
Exchange Act of 1934, as amended. The Company will deliver to the
Representatives similar reports with respect to significant subsidiaries, as
that term is defined in the Rules and Regulations, which are not consolidated
in the Company's financial statements.
(viii) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of
Common Stock (or agreement for such) will be made for a period of 90 days
after the date of this Agreement, directly or indirectly, by the Company
otherwise than hereunder or with the prior written consent of Alex. Brown &
Sons Incorporated, except that the Company may, without such consent, issue
shares of Common Stock upon the exercise of options granted under the Company's
Non-Employee Director Stock Plan and issue shares of stock pursuant to the
Company's Dividend Reinvestment Plan.
(ix) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the American Stock Exchange.
(x) The Company has caused each executive officer and director of the
Company to furnish to you, on or prior to the date of this agreement, a letter
or letters, in form and substance satisfactory to the Underwriters, pursuant to
which each such person shall agree not to offer, sell, sell short or otherwise
dispose of any shares of Common Stock of the Company or other capital stock of
the Company, or any other securities convertible, exchangeable or exercisable
for Common Shares or derivative of Common Shares owned by such person or
request the registration for the offer or sale of any of the foregoing (or as
to which such person has the right to direct the disposition of) for a period
of 90 days after the date of this Agreement, directly or indirectly, except
with the prior written consent of Alex. Brown & Sons Incorporated ("Lockup
Agreements").
(xi) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the
Act.
(xii) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company or
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<PAGE> 14
the Partnership to register as an investment company under the Investment
Company Act of 1940, as amended (the "1940 Act").
(xiii) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(xiv) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
(b) The Selling Shareholder covenants and agrees with the several
Underwriters that:
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other capital stock of the
Company or other securities convertible, exchangeable or exercisable
for Common Stock or derivative of Common Stock owned by the Selling
Shareholder or request the registration for the offer or sale of any of
the foregoing (or as to which the Selling Shareholder has the right to
direct the disposition of) will be made for a period of 90 days after
the date of this Agreement, directly or indirectly, by such Selling
Shareholder otherwise than hereunder or with the prior written consent
of Alex. Brown & Sons Incorporated.
(ii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax Compliance
Act of 1983 with respect to the transactions herein contemplated, the
Selling Shareholder agrees to deliver to you prior to or at the Closing
Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
(iii) The Selling Shareholder will not take, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities of the
Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the Company; the
cost of printing and delivering to, or as requested by, the Underwriters copies
of the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation
Letter, the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
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<PAGE> 15
expenses (including legal fees and disbursements) incident to securing any
required review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Shares; the Listing Fee of the American
Stock Exchange; and the expenses, including the fees and disbursements of
counsel for the Underwriters, incurred in connection with the qualification of
the Shares under State securities or Blue Sky laws. To the extent, if at all,
that the Selling Shareholder engages legal counsel or any other advisors or
persons to represent, counsel or advise it in connection with this offering,
the fees and expenses of such counsel or any other advisors or persons shall be
borne by the Selling Shareholder. Any transfer taxes imposed on the sale of
the Shares to the several Underwriters will be paid by the Sellers pro rata.
The Sellers shall not, however, be required to pay for any of the Underwriters
expenses (other than those related to qualification under NASD regulation and
State securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to
[Section 11] hereof, or by reason of any failure, refusal or inability on the
part of the Company or the Selling Shareholder to perform any undertaking or
satisfy any condition of this Agreement or to comply with any of the terms
hereof on their part to be performed, unless such failure to satisfy said
condition or to comply with said terms be due to the default or omission of any
Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing
to market the Shares or in contemplation of performing their obligations
hereunder; but the Company and the Selling Shareholder shall not in any event
be liable to any of the several Underwriters for damages on account of loss of
anticipated profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Shares
on the Closing Date and the Option Shares, if any, on the Option Closing Date
are subject to the accuracy, as of the Closing Date or the Option Closing Date,
as the case may be, of the representations and warranties of the Company and
the Selling Shareholder contained herein, and to the performance by the Company
and the Selling Shareholder of their covenants and obligations hereunder and to
the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule
424 and Rule 430A of the Rules and Regulations shall have been made, and any
request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company or the Selling
Shareholder, shall be contemplated by the Commission and no injunction,
restraining order, or order of any nature by a Federal or state court of
competent jurisdiction shall have been issued as of the Closing Date which
would prevent the issuance of the Shares.
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<PAGE> 16
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Cox, Castle &
Nicholson, LLP, counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and stating
that it may be relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Maryland, with corporate power and authority to own, lease and
operate its properties and conduct its business as described in the
Registration Statement; the Partnership has been duly formed and is
validly existing as a limited partnership in good standing under the
laws of the jurisdiction of its organization, with partnership power
and authority to own or lease its properties and conduct its business
as described in the Registration Statement; the Company and the
Partnership are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification, or in which the failure to qualify would have a
materially adverse effect upon the business of the Company and the
Partnership taken as a whole; and all of the partnership interests of
the Partnership have been duly authorized and validly issued and are
fully paid and to the extent shown on Exhibit A are owned by the
Company; and, to the best of such counsel's knowledge, the partnership
interests in the Partnership owned by the Company are owned free and
clear of all liens, encumbrances and equities and claims, and no
options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into
any ownership interests in the Partnership are outstanding.
(ii) The Company has authorized and outstanding capital stock
as set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly
authorized; the outstanding shares of the Company's Common Stock,
including the Shares to be sold by the Selling Shareholder, have been
duly authorized and validly issued and are fully paid and
non-assessable; all of the Shares conform to the description thereof
contained in the Prospectus; the certificates for the Shares, assuming
they are in the form filed with the Commission, are in due and proper
form; the shares of Common Stock, including the Option Shares, if any,
to be sold by the Company pursuant to this Agreement have been duly
authorized and will be validly issued, fully paid and non-assessable
when issued and paid for as contemplated by this Agreement; and no
preemptive rights of stockholders exist with respect to any of the
Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the best knowledge of such counsel, there are no
outstanding securities of the Company convertible or exchangeable
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<PAGE> 17
into or evidencing the right to purchase or subscribe for any shares of
capital stock of the Company and there are no outstanding or authorized
options, warrants or rights of any character obligating the Company to
issue any shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or subscribe for
any shares of such stock; and except as described in the Prospectus, to
the best knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise,
which has not been satisfied or effectively waived, to cause the
Company to sell or otherwise issue to them, or to permit them to
underwrite the sale of, any of the Shares or the right to have any
Common Shares or other securities of the Company included in the
Registration Statement or the right, as a result of the filing of the
Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under
the Act and, to the best of the knowledge of such counsel, no stop
order proceedings with respect thereto have been instituted or are
pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto and document incorporated by reference
therein comply as to form in all material respects with the
requirements of the Act or the Securities Exchange Act of 1934, as
applicable, and the applicable rules and regulations thereunder (except
that such counsel need express no opinion as to the financial
statements and related schedules or incorporated by reference therein).
The conditions for the use of Form S-3, set forth in the General
Instructions thereto, have been satisfied.
(vi) The statements under the captions "Restrictions on
Transfer of Capital Stock," "Certain Provisions of Maryland Law and of
the Company's Articles and Bylaws," and "Description of Common Stock"
in the Prospectus, insofar as such statements constitute a summary of
documents referred to therein or matters of law, fairly summarize in
all material respects the information called for with respect to such
documents and matters.
(vii) To such counsel's best knowledge there are no contracts
or documents required to be filed as exhibits to or incorporated by
reference in the Registration Statement or described in the
Registration Statement or the Prospectus which are no so filed,
incorporated by reference or described as required, and such contracts
and documents as are summarized in the Registration Statement or the
Prospectus are fairly summarized in all material respects.
(viii) To such counsel's best knowledge there are no material
legal or governmental proceedings pending or threatened against the
Company or the Partnership except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will
not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Charter or by-laws of
the Company, or any agreement or instrument known to
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<PAGE> 18
such counsel to which the Company or the Partnership is a party or by
which the Company or the Partnership may be bound.
(x) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company, and has been duly executed
and delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution
and delivery of this Agreement and the consummation of the transactions
herein contemplated (other than as may be required by the NASD or as
required by State securities and Blue Sky laws as to which such counsel
need express no opinion) except such as have been obtained or made,
specifying the same.
(xii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement,
and application of the net proceeds therefrom as described in the
Prospectus, required to register as an investment company under the
1940 Act.
(xiii) The Purchase Agreements were duly authorized by the
parties, executed and delivered by the parties thereto and constitutes
the legally valid and binding agreement of the parties thereto,
enforceable in accordance with its terms, except as limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally
and general equitable principles. The execution, delivery and
performance of the Purchase Agreements did not, at the time of such
execution and delivery, and will not conflict with, result in a breach
by the Company of, or constitute a default under, the Articles of
Incorporation, Bylaws of the Company, the terms of any of the
agreements, instruments or contracts identified to such counsel in an
officer's certificate of the Company as agreements, instruments or
contracts binding on the Company or the Partnership or the terms of any
of the agreements, contracts or instruments filed as exhibits to, or
incorporated by reference in, the Registration Statement, the breach of
or default under or a conflict with which would have a material adverse
effect on the Company and the Partnership taken as a whole, any court
decree or order identified to such counsel in an officer's certificate
of the Company or any law, rule or regulation applicable to the Company
or the Partnership of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
In rendering such opinion Cox, Castle & Nicholson, LLP may rely as to
matters governed by the laws of the State of Maryland on Piper & Marbury LLP
and as to matters governed by the laws of states other than California or
Maryland or Federal laws on other local counsel in such jurisdictions, provided
that in each case Cox, Castle & Nicholson, LLP shall state that they believe
that they and the Underwriters are justified in relying on such other counsel.
In addition to the matters set forth above, such opinion shall also
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<PAGE> 19
include a statement to the effect that nothing has come to the attention of
such counsel which leads them to believe that (i) the Registration Statement,
at the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (ii) the Prospectus, or any supplement thereto, on the date it
was filed pursuant to the Rules and Regulations and as of the Closing Date or
the Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make
the statements, in the light of the circumstances under which they are made,
not misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to
such statement, Cox, Castle & Nicholson, LLP may state that their belief is
based upon the procedures set forth therein, but is without independent check
and verification.
(c) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of O'Melveny & Myers,
counsel for the Selling Shareholder, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and stating
that it may be relied upon by counsel to the Underwriters) to the effect that:
(i) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Shareholder.
(ii) The Selling Shareholder has the corporate power and
corporate authority, and no approval of any court or governmental
agency or body is required on the part of Selling Shareholder (other
than as obtained under the Act or as required by State securities and
Blue Sky laws as to which such counsel need express no opinion), to
sell, assign, transfer and deliver the portion of the Shares to be sold
by such Selling Shareholder.
(iii) The Custodian Agreement executed and delivered by the
Selling Shareholder is legally valid and binding.
(iv) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code) have
acquired good and marketable title to the Shares being sold by the
Selling Shareholder on the Closing Date free and clear of all liens,
encumbrances, equities and claims.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of
such counsel which leads them to believe that (i) the Registration Statement,
at the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material
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<PAGE> 20
fact required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the Prospectus, or any supplement thereto, on the date
it was filed pursuant to the Rules and Regulations and as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements, in the light of the circumstances under which they are
made, not misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein). With
respect to such statement, O'Melveny & Myers may state that their belief is
based upon the procedures set forth therein, but is without independent check
and verification.
(d) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Cox, Castle &
Nicholson, LLP, tax counsel for the Company, dated the Closing Date or the
Option Closing Date, as the case may be, addressed to the Underwriters (and
stating that it may be relied upon by counsel to the Underwriters) to the
effect that:
(i) The Company has been organized in conformity with the
requirements for qualification as a REIT under the Code, and its method
of operation has at all times enabled, and its proposed method of
operation as described in the Prospectus and as represented by
management will enable, it to meet the requirements for taxation as a
REIT under the Code; and
(ii) The information in the Prospectus under "Federal Income
Tax Considerations," to the extent that it constitutes matters of law,
summaries of legal matters, documents, proceedings or legal
conclusions, has been reviewed by such counsel and is correct in all
material respects.
(e) The Representatives shall have received from Gibson, Dunn &
Crutcher LLP, counsel for the Underwriters, an opinion dated the Closing Date or
the Option Closing Date, as the case may be, substantially to the effect
specified in subparagraphs (ii), (iii), (iv), and (ix) of Paragraph (b) of this
Section 6, and that the Company is a duly incorporated and validly existing
corporation under the laws of the State of Maryland. In rendering such opinion
Gibson, Dunn & Crutcher LLP may rely as to all matters governed by the laws of
the State of Maryland on Piper & Marbury LLP and as to matters governed other
than by the laws of the State of California or Maryland or Federal laws on the
opinion of counsel referred to in Paragraph (b) of this Section 6. In addition
to the matters set forth above, such opinion shall also include a statement to
the effect that nothing has come to the attention of such counsel which leads
them to believe that (i) the Registration Statement, or any amendment thereto,
as of the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) as of
the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact,
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<PAGE> 21
necessary in order to make the statements, in the light of the circumstances
under which they are made, not misleading (except that such counsel need express
no view as to financial statements, schedules and statistical information
therein). With respect to such statement, Gibson, Dunn & Crutcher LLP may state
that their belief is based upon the procedures set forth therein, but is without
independent check and verification.
(f) The Representatives shall have received at or prior to the Closing
Date from Gibson, Dunn & Crutcher LLP a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Shares under the
State securities or Blue Sky laws of such jurisdictions as the Representatives
may reasonably have designated to the Company.
(g) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the date
hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to you, of Ernst & Young LLP confirming that
they are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(h) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registrations
Statement has been issued, and no proceedings for such purpose have
been taken or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing
Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made;
(iv) He or she has carefully examined the Registration
Statement and the Prospectus and, in his or her opinion, as of the
effective date of the Registration Statement, the statements contained
in the Registration Statement were true and
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<PAGE> 22
correct, and such Registration Statement and Prospectus did not omit to
state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and since the
effective date of the Registration Statement, no event has occurred
which should have been set forth in a supplement to or an amendment of
the Prospectus which has not been so set forth in such supplement or
amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been
any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or
otherwise, of the Company and the Partnership taken as a whole or the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and the
Partnership taken as a whole, whether or not arising in the ordinary
course of business.
(i) The Company and the Selling Shareholder shall have furnished to
the Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein and
related matters as the Representatives may reasonably have requested.
(j) The Lockup Agreements described in Section 4(x) are in full force
and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Gibson, Dunn &
Crutcher LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Shareholder of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Selling Shareholder, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
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8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse each Underwriter
and each such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage or
liability, action or proceeding or in responding to a subpoena or governmental
inquiry related to the offering of the Shares, whether or not such Underwriter
or controlling person is a party to any action or proceeding; provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement, or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or such amendment or supplement, in reliance upon and in conformity
with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) The Selling Shareholder agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to which
such Underwriter or any such controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse each Underwriter
and each such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage or
liability, action or proceeding or in responding to a subpoena or governmental
inquiry related to the offering of the Shares, whether or not such Underwriter
or controlling person is a party to any action or proceeding, to the extent,
but only to the extent, that any such loss, claim, damage or liability arises
out of or is based upon any such untrue statement or alleged untrue statement
or omission or alleged omission relating to the Selling Shareholder made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information relating to the Selling Shareholder
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<PAGE> 24
furnished to the Company by the Selling Shareholder expressly for use in the
preparation thereof. In no event, however, shall the liability of the Selling
Shareholder for indemnification under this Section 8(b) exceed the proceeds
received by such Selling Shareholder from the Underwriters in the offering.
This indemnity agreement will be in addition to any liability which the Selling
Shareholder may otherwise have.
(c) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, the Selling Shareholder, and each person, if
any, who controls the Company or the Selling Shareholder within the meaning of
the Act, against any losses, claims, damages or liabilities to which the
Company or any such director, officer, Selling Shareholder or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company
or any such director, officer, Selling Shareholder or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that each Underwriter will
be liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a), (b) or (c) shall be available to any party who shall fail to give notice
as provided in this Section 8(d) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution
or otherwise than on account of the provisions of Section 8(a), (b) or (c). In
case any such proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its
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<PAGE> 25
own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred (or within 30 days of presentation)
the fees and expenses of the counsel retained by the indemnified party in the
event (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them or (iii) the indemnifying party shall have failed to assume the
defense and employ counsel acceptable to the indemnified party within a
reasonable period of time after notice of commencement of the action. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by you in the
case of parties indemnified pursuant to Section 8(a) or (b) and by the Company
and the Selling Shareholder in the case of parties indemnified pursuant to
Section 8(c). The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party
is an actual or potential party to such claim, action or proceeding) unless
such settlement, compromise or consent includes an unconditional release of
each indemnified party from all liability arising out of such claim, action or
proceeding.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Selling Shareholder on the one hand and the Underwriters on the other from
the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and the
Selling Shareholder on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Shareholder on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by
the Company and the Selling Shareholder bear to the total underwriting
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<PAGE> 26
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Shareholder on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company, the Selling Shareholder and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 8(e)
were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 8(e). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to above in this Section 8(e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts
and commissions applicable to the Shares purchased by such Underwriter, (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation, and (iii) the Selling Shareholder
shall not be required to contribute any amount in excess of the proceeds
received by the Selling Shareholder from the Underwriters in the offering. The
Underwriters' obligations in this Section 8(e) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its
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<PAGE> 27
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or the
Selling Shareholder), you, as Representatives of the Underwriters, shall use
your reasonable efforts to procure within 36 hours thereafter one or more of
the other Underwriters, or any others, to purchase from the Company and the
Selling Shareholder such amounts as may be agreed upon and upon the terms set
forth herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company and
the Selling Shareholder or you as the Representatives of the Underwriters will
have the right, by written notice given within the next 36-hour period to the
parties to this Agreement, to terminate this Agreement without liability on the
part of the non-defaulting Underwriters or of the Company or of the Selling
Shareholder except to the extent provided in Section 8 hereof. In the event of
a default by any Underwriter or Underwriters, as set forth in this Section 9,
the Closing Date or Option Closing Date, as the case may be, may be postponed
for such period, not exceeding seven days, as you, as Representatives, may
determine in order that the required changes in the Registration Statement or
in the Prospectus or in any other documents or arrangements may be effected.
The term "Underwriter" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention:
William G. Byrnes; with a copy to Alex.
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Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland
21202, Attention: General Counsel; if to the Company, to: Pacific Gulf
Properties Inc., 363 San Miguel Drive, Suite 100, Newport Beach, California
92660-7805, Attention: Glenn L. Carpenter; if to the Selling Shareholder, to:
Santa Anita Realty Enterprises, Inc., 285 W. Huntington Drive, Arcadia,
California 91066-0808, Attention: ___________________.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Sellers as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company and the Partnership taken
as a whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
the Partnership taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable to market the Shares or to enforce contracts for the sale of the
Shares, or (iii) suspension of trading in securities generally on the New York
Stock Exchange or the American Stock Exchange or limitation on prices (other
than limitations on hours or numbers of days of trading) for securities on
either such Exchange, (iv) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects
or may materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or New York
State authorities, (vi) any downgrading in the rating of the Company's debt
securities by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Exchange Act); (vii) the
suspension of trading of the Company's common stock by the Commission on the
American Stock Exchange or (viii) the taking of any action by any governmental
body or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets in
the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
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12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Shareholder and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS AND SELLING SHAREHOLDER.
The Company, the Selling Shareholder and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by (i) any
Underwriter to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph on the
front cover page (insofar as such information relates to the Underwriters),
legends required by Item 502(d) of Regulation S-K under the Act and the
information under the caption "Underwriting" in the Prospectus and (ii) the
Selling Shareholder to the Company for inclusion in any Prospectus or the
Registration Statement consists of the information set forth under the captions
"Selling Stockholder."
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants
in this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of
any Underwriter or controlling person thereof, or by or on behalf of the
Company or its directors or officers and (c) delivery of and payment for the
Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Shareholder, the
Company and the several Underwriters in accordance with its terms.
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Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Shareholder represents by so doing that he has been duly
appointed as Attorney-in-Fact by such Selling Shareholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-Fact
to take such action.
Very truly yours,
PACIFIC GULF PROPERTIES INC.
By:_____________________________________
Glenn L. Carpenter
Chief Executive Officer & President
SANTA ANITA REALTY ENTERPRISES, INC.
By:____________________________________
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
________________________________
As Representatives of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By:_________________________________
Authorized Officer
30
<PAGE> 31
EXHIBIT A
[Ownership of PGP Inland Communities, L.P.]
31
<PAGE> 32
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
----------------- ---------------------
Alex. Brown & Sons Incorporated
Oppenheimer & Co., Inc.
Prudential Securities Incorporated
_________
Total 2,800,000
=========
32
<PAGE> 1
EXHIBIT 5.2
[PIPER & MARBURY L.L.P. LETTERHEAD]
MAY , 1996
Pacific Gulf Properties, Inc.
363 San Miguel Drive
Suite 100
Newport Beach, California 92660
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as Maryland counsel to Pacific Gulf Properties, Inc., a
Maryland corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-3 (the "Registration Statement") and the
Prospectus Supplement relating thereto (the "Prospectus") filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the registration by
the Company of (i) 2,015,581 shares of common stock of the Company, $.01 par
value per share (the "Common Stock"), and (ii) 784,419 shares of Common Stock
offered by Santa Anita Realty Enterprises, Inc., a shareholder of the Company
(the "Selling Shareholder Shares").
In this capacity, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary for the purpose of rendering this opinion. In addition, this opinion
is based upon the assumption that the Registration Statement, the Prospectus,
and any required post-effective amendments thereto have become effective under
the Securities Act. In such examination, we have assumed, without independent
investigation, the genuineness of all signatures, the legal capacity of all
individuals who have executed any of the aforesaid documents, the authenticity
of all documents submitted to us as originals and the conformity with originals
of all documents submitted to us as copies.
<PAGE> 2
[LETTERHEAD OF PIPER & MARBURY L.L.P.]
Pacific Gulf Properties, Inc.
May __, 1996
Page 2
Based upon the foregoing, and limited in all respects to applicable
Maryland law, we are of the opinion and advise you that:
1. The Company has been duly incorporated and is validly existing in
good standing as a corporation under the laws of the State of Maryland.
2. The Common Stock has been duly and properly authorized for issuance
and upon payment of the consideration specified in the Registration Statement
and the Prospectus and delivery of such shares in accordance with the terms
therein, the Common Stock will be validly issued, fully paid and nonassessable.
3. The Selling Shareholder Shares have been duly and properly
authorized for issuance and are validly issued, fully paid and nonassessable.
We are members of the Bar of the State of Maryland and express no
opinion as to the laws of any other jurisdiction. The opinions expressed herein
are solely for the benefit of the persons to whom this opinion is addressed and,
without our prior written consent, may not be quoted in whole or in part or
otherwise referred to in any legal opinion, document, or other report, and may
not be furnished to any person or entity, except that Cox, Castle & Nicholson,
LLP is authorized to rely on this opinion in rendering any opinion to the
Company which is to be filed as an exhibit to the Registration Statement. In
addition, we hereby consent to the filing of this opinion as Exhibits 5.2 and
23.4 to the Registration Statement and to the reference to our firm in the
Registration Statement and the related Prospectus. These opinions are delivered
as of the date hereof and we disclaim any responsibility to update these
opinions at any time following the date hereof.
Very truly yours,
/s/ PIPER & MARBURY L.L.P.
--------------------------
PIPER & MARBURY L.L.P.
<PAGE> 1
EXHIBIT 10.1
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT, dated as of the 29th day of April, 1996 ("Effective
Date"), is made by and between BAY SAN MARCOS LIMITED PARTNERSHIP, a Delaware
limited partnership and ESCONDIDO BUSINESS CENTER LIMITED PARTNERSHIP, a
Delaware limited partnership (collectively the "Seller"), with an office at 250
Australian Avenue South, Suite 400, West Palm Beach, Florida 33401, and PACIFIC
GULF PROPERTIES, INC., a R.E.I.T. organized as Maryland corporation (the
"Purchaser"),
RECITALS:
The Seller desires to sell and transfer certain improved real property
known as Bay San Marcos, San Marcos, California and Escondido Business Center,
Escondido, California, along with certain related personal property, and the
Purchaser desires to purchase and acquire such real and personal property.
The two (2) properties comprise approximately 373,232 square feet of
industrial space located respectively at Bay San Marcos, 133-155 Mata Way, San
Marcos, California, and Escondido Business Center, 912 Andreasen, Suite 103,
Escondido, California 92029.
On or about March 14, 1996, the Seller received from the Purchaser a
letter of intent (the "Letter of Intent") for the purchase and sale of such real
property, the terms of which shall be deemed superseded by this Agreement.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
covenants, promises and undertakings set forth herein, and for good and valuable
consideration, receipt and sufficiency of which is hereby acknowledged, the
Seller and the Purchaser hereby agree as follows:
ARTICLE I.
THE PROPERTY
A. Subject to all the terms, conditions and provisions of this
Agreement, and for the consideration herein set forth, the Seller agrees to sell
and transfer, and the Purchaser agrees to purchase and acquire, all of the
Seller's right, title and interest in and to the following:
1. That certain real estate located respectively in San
Marcos, San Diego County, California and Escondido, San Diego
County, California, and more specifically described in Exhibit "A"
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<PAGE> 2
which is attached hereto and incorporated herein by reference (the "Land");
2. The buildings, parking areas, fixtures and
improvements now situated on the Land (the "Improvements");
3. All furniture and equipment currently used in the
operation, repair and maintenance of the Land and Improvements and situated
thereon (collectively, the "Personal Property"), listed on the inventory
attached hereto as Exhibit "B" and incorporated herein by reference. The
Personal Property to be conveyed is subject to depletions, replacements and
additions in the ordinary course of the Seller's business;
4. All easements, tenements and appurtenances belonging
to or inuring to the benefit of the Seller and pertaining to the Land and
Improvements, if any;
5. All leases of the Land and the Improvements (the
"Leases"), and all security deposits actually paid to or received by the Seller
(and not returned or forfeited by the tenants thereunder), as hereinafter
provided, and
6. All intangible property (the "Intangible Property")
now or hereafter owned or held by the Seller in connection with the Land, the
Improvements, the Personal Property, the Leases or the business as now or
hereafter conducted thereon, or with the use thereof, including but not limited
to, all trade names, permits, contracts, warranties, guarantees, and books and
records, to the extent transferable.
All of the above is hereinafter referred to as (the
"Property").
B. Except as specifically set forth in this Agreement, the
Property is being sold in an "AS IS" condition as of the date of this Agreement.
The Purchaser acknowledges that except as specifically set forth in this
Agreement, no representations or warranties have been made or are made and no
responsibility has been or os assumed by the Seller or by any partner, officer,
person, firm, agent or representative acting or purporting to act on behalf of
the Seller as to the condition or repair of the Property or the value, expense
of operation, or income potential thereof or as to any other fact or condition
which has or might affect the Property or the condition, repair, value, expense
of operation or income potential of the Property or any portion thereof. The
parties agree that all understandings and agreements heretofore made between
them or their respective agents or representatives are merged in this Agreement
and the Exhibits hereto annexed, which alone fully and completely express their
agreement, and that this Agreement has been entered into after full
investigation, neither party relying upon any statement or
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<PAGE> 3
representation by the other unless such statement or representation is
specifically embodied in this Agreement or the Exhibits annexed hereto. Further,
to the extent that the Seller has provided to the Purchaser information from any
inspection, engineering or environmental reports concerning the condition of the
Property, the Seller makes no representations or warranties with respect to the
accuracy or completeness of same or otherwise concerning the contents of such
reports. The Purchaser acknowledges that the Seller has requested the Purchaser
to inspect fully the Property and all portions thereof and to rely solely upon
the results of the Purchaser's own inspections or other information obtained or
otherwise available to the Purchaser, rather than any information that may have
been provided by the Seller.
C. The Seller agrees to convey, and the Purchaser agrees to
accept, title to the Land by Grant Deed in the condition described in Article I,
paragraphs A. and B. above and Article VIII, paragraph B.1. below, and title to
the Personal Property, by bill of sale, with a special warranty as to the title
of such personalty, in each case in a form to be mutually acceptable to the
Seller and the Purchaser. The Seller and the Purchaser agree that the Grant Deed
described above shall not include the amount of the state transfer tax thereon,
and in accordance with Section 11932 of the California Revenue and Taxation
Code, declare the amount of said transfer tax in a separate statement not being
recorded with the Grant Deed.
ARTICLE II.
PURCHASE PRICE
A. The purchase price (the "Purchase Price") which the Seller
agrees to accept and the Purchaser agrees to pay for the Property is FIFTEEN
MILLION AND NO/100 DOLLARS ($15,000,000). The Purchase Price is to be paid in
cash, as follows:
1. (a) Within three (3) days following the execution of
this Agreement by the Seller and the Purchaser, the Purchaser shall make an
earnest money deposit in the amount of ONE HUNDRED THOUSAND AND NO/100 DOLLARS
($100,000) (the "Initial Deposit").
(b) On or before the expiration of the Inspection
Period (as defined herein), the Purchaser shall make an additional deposit in
the amount of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000) (the
"Additional Deposit") (collectively, the Initial Deposit and the Additional
Deposit with accrued interest thereon shall be referred to hereinafter as the
"Deposit.") Subject to the Purchaser's right to terminate this Agreement as
provided herein, the Deposit shall be non-refundable in the event of the
Purchaser's default hereunder, unless the Seller is proven to have defaulted
hereunder.
- 3 -
<PAGE> 4
(c) The Deposit, as installments of same are paid,
will be placed and held in escrow by Chicago Title Insurance Company (the "Title
Company") in an interest bearing account at a mutually acceptable banking
institution. Any interest earned by the Deposit shall be considered as part of
the Deposit. Except as otherwise provided in this Agreement, the Deposit will be
applied to the Purchase Price at the Closing (as defined herein). In the event
the transaction is not closed, the Deposit shall be disbursed in accordance with
the provisions of this Agreement.
2. At the Closing (as defined herein), the Purchase
shall pay the Seller the balance of the Purchase Price, subject to adjustments
and prorations provided for herein, payable in cash or immediately available
funds to the Title Company, for delivery to the Seller as the Seller may direct
to a bank account designated by the Seller via wire transfer in immediately
available funds.
B. The consummation of the sale and purchase of the Property
pursuant to this Agreement (the "Closing") shall occur thirty (30) days after
the end of the Inspection Period, (as defined herein), on or before June 28,
1996 ("Closing Date").
ARTICLE III.
PRIOR TO CLOSING
A. Until the Closing, the Seller or the Seller's agent shall:
1. Keep the Property insured in accordance with the
Seller's current practices against fire end other hazards, covered by extended
coverage endorsement in the full amount of replacement cost and comprehensive
public liability insurance against claims for bodily injury, death and property
damage occurring in, on or about the Property.
2. Operate and maintain the Property substantially in
accordance with the Seller's current practices, and make any and all repairs and
replacements reasonably required, in accordance with the Seller's current
practices, and deliver the Property to the Purchaser at Closing in its present
condition, normal wear and tear excepted, provided that in the event of any loss
or damage to the Property covered by Article VI., the Seller shall have an
obligation to the Purchaser to repair the Property only if the Seller so elects
and then shall be obligated only to the extent of available insurance proceeds.
The Seller shall not make any material alterations or improvements to the
Property without the Purchaser's prior written approval.
3. Maintain, and discharge when due all of its
obligations under the service, management, supply and maintenance agreements
relating to the Property which are listed on Exhibit "C" attached hereto and
incorporated herein as referenced (the
- 4 -
<PAGE> 5
"Contracts"), and enter into any service and other contracts only if such
contracts shall be cancelable, without premium or penalty, on thirty (30) days'
written notice, or with the Purchaser's prior written approval. Copies of any
such new service and other contracts will be provided to the Purchaser after
execution of the same.
4. Continue its present rental program and efforts at
the Property to rent vacant space, provided that the Seller shall not terminate,
modify, extend, amend or renew any lease or enter into any new lease without the
Purchaser's prior written approval. If any lease, executed after the Effective
Date, requires the expenditure of capital or tenant improvement expenditures by
the Seller prior to Closing, such funds expended will be reimbursed to the
Seller by the Purchaser at Closing, subject to the Purchaser's prior review and
approval of such lease. All other expenditures of capital or tenant improvement
expenditures by the Seller prior to Closing shall be borne by the Seller and be
nonreimbursable.
5. Furnish the Purchaser with a copy of all written
notices received by the Seller of violation of laws or municipal ordinances,
regulations, orders or requirements of departments of building, fire, labor,
health, or other state, city or municipal departments or other governmental
authorities affecting the Property or the use or operation thereof.
6. Furnish the Purchaser with written notice of any
material adverse change in the physical condition of the Property.
7. Not encumber the Property, or otherwise transfer any
of the Property or any interest therein.
8. Not remove any item of Personal Property unless
replaced by a comparable item, with the exception of usage and depletion in the
ordinary course of operations.
B. The Seller has delivered, or will deliver within three
(3) days after the Effective Date, to the Purchaser the following Items:
1. Current rent roll (certified rent roll to be
provided prior to Closing).
2. Monthly operating statements for the current month,
year-to-date, and previous two (2) calendar years.
3. To the extent available in the Seller's or its
property manager's possession, environmental
studies and structural engineering reports.
- 5 -
<PAGE> 6
4. Copies of the Contracts and other service contracts,
in the Seller's or its properly manager's possession.
5. List of utilities and utility company name.
6. Real estate and personal property tax bills for the
previous three (3) years showing assessed values,
millage rates and due dates, in the Seller's
possession.
7. Project description - age, number of buildings, site
area, interior and exterior construction materials,
number of stories, clubhouse, landscaping, number of
parking spaces, etc.
8. Personal Properly inventory.
9. Existing title insurance policy.
10. Existing survey.
11. Copies of all permits, certificates of occupancy' end
other development rights (whether evidenced by
contract or otherwise), if any, to the extent in the
Seller's or its property manager's possession.
12. Copies of all Leases, including all amendments
thereto.
Copies of all plans and specifications relating either to the
Properly or the Leases, if any, to the extent in the Seller's or its property
manager's possession will be made available for review on-site at the respective
Property. Proof of insurance coverage as referenced in Article III. paragraph
A.1. will be made available for review on-site at the respective Property.
C. The Seller shall provide to the Purchaser, within ten (10)
calendar days after the Effective Date, a preliminary title report and legible
copies of all recorded documents referred to therein (collectively the Title
Report) from the Title Company, covering the Land and Improvements. The
Purchaser may obtain a survey (the "Survey") of the Property at the Purchaser's
sole costs and expense, and the Purchaser will provide the Seller with a copy of
the Survey upon the Seller's written request, (subject to the reasonable
reimbursement to the Purchaser for one-half (1/2) of the cost of such survey).
D. The Purchaser shall commence due diligence with respect to the
Properly on the Effective Date of this Agreement and the Inspection Period shall
expire thirty (30) days thereafter on May 29, 1996 (the "Inspection Period").
During the Inspection
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<PAGE> 7
Period the Purchaser shall complete its physical inspection, review of title,
survey, leases, and all other due diligence items including, but not limited to,
its environmental and engineering studies. In addition, the Purchaser shall have
until the end of the Inspection Period to review and approve, in the Purchaser's
sole discretion, the books and records for the Property and all other relevant
documents in the Seller's possession on-site during normal business hours in the
offices of the Seller at the respective Property. The Purchaser shall give the
Seller at least one (1) day advance notice for any such review, shall conduct
such review in the manner and at such times as to minimize the interference with
the Seller's business operations, and shall maintain all the information
obtained by the Purchaser as a result thereof as confidential until the Closing.
In addition, the Purchaser and its accountants shall be entitled to audit all
books and records in the Seller's possession on-site relating to the Property.
E. The Seller agrees to allow the Purchaser or the Purchaser's
agent or representative reasonable access to the Property (during business
hours) for purposes of analysis or other tests and inspections which may be
deemed necessary or desirable by the Purchaser. The Seller agrees to cooperate
with the Purchaser in enabling the Purchaser to carry out such tests and
inspections (subject to the rights of tenants). The Purchaser shall not
materially alter the physical condition of the Property without notifying the
Seller of its requested tests and obtaining the written consent of the Seller to
any such physical alteration of the Property. The Purchaser agrees that, in
making any inspections of, or conducting any testing of, on or under the
Property, the Purchaser or the Purchaser's agents will carry adequate liability
insurance and, will provide the Seller with written evidence of same, will not
interfere with the activity of tenants or any persons providing service at the
Property, will not reveal to any third party, other than the parties referenced
in Article X., paragraph F., not approved by the Seller, the results of its
inspections or tests, and will restore promptly the Property to its condition
prior to such inspection or test and repair any physical damage caused by the
inspections or tests. The Purchaser shall give the Seller reasonable prior
notice of its intention to conduct any inspections or tests, and the Seller
reserves the right to have a representative present. The Purchaser agrees to
provide the Seller with a copy of any third party inspection or test report upon
the Seller's written request (subject to the reasonable reimbursement to the
Purchaser for one-half (1/2) of the cost of such report, the aggregate cost for
the Seller for such reports and the survey referenced in paragraph C above shall
not exceed $7,500). Upon termination of this Agreement, the Purchaser shall
return to the Seller all due diligence materials referenced at Article III.,
paragraph B and any other copies of documents, books or records provided to the
Purchaser by the Seller or the properly manager in connection with this
transaction. The Purchaser agrees
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<PAGE> 8
(which agreement shall survive Closing or termination of this Agreement) to
indemnify, defend, and hold the Seller free and harmless from and shall be
responsible for any loss, injury, damage, claim, lien, cost or expense,
including attorney's fees and costs, resulting from the inspection and testing
of the Property. Any inspections and testing shall be at the Purchaser's
expense.
F. The Purchaser may elect to terminate this Agreement by giving
the Seller notice, in writing, not later than the end of the Inspection Period
that it elects to terminate this Agreement. Provided the Purchaser has complied
with the requirements of Article III., paragraph E., the Seller shall direct the
Title Company to return the Deposit to the Purchaser and neither party shall
have any liability to the other except for the obligations of the Purchaser set
out in Article III., paragraph E. above. The Purchaser shall approve or
disapprove the results of its investigation in the exercise of the Purchaser's
sole discretion. After conducting the aforesaid inspections, in the event that
such notice is not given to terminate this Agreement it shall be deemed
disapproved. In the event that the Purchaser gives notice of its election to
proceed, the parties shall proceed to Closing in accordance with the terms
hereof.
G. If the Purchaser or the Seller does not erect to terminate
this Agreement as contemplated herein, the Property shall be conveyed to the
Purchaser at Closing subject to (i) those items set forth in the Title Report
which the Seller and the Purchaser have approved; (ii) the lien for taxes nd yet
delinquent in the fiscal year of Closing; (iii) any and all liens and
encumbrances (including mechanic's and materialman's liens) relating to the
Property and created (whether or not voluntarily or solely) by, through or under
the Purchaser, its agents, employees or contractors, whether as a result of such
party's actions or omissions; and (iv) the rights of tenants under all Leases
(recorded or unrecorded) that have been approved by the Purchaser, existing as
of the Closing as listed on the updated copy of the rent roll described in
Article III., paragraph B. The foregoing items III.G. (i) through (iv) shall
constitute Permitted Exceptions (the "Permitted Exceptions").
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
A. The Seller represents and warrants to the Purchaser to the
Seller's actual (not implied or constructive) knowledge that:
1. The Seller entities are both limited partnerships
duly organized, and validly existing under the laws of the State of Delaware,
and authorized to do business in the State of California, and have the power and
authority to sell and convey the Property as provided in this Agreement and to
carry out the Seller's obligations hereunder.
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<PAGE> 9
2. The execution of this Agreement by the Seller, the
delivery by the Seller to the Purchaser, the Seller's performance hereof and the
transactions contemplated hereby have been duly authorized by the requisite
action on the part of the Seller and no other authorization or consent is
required for the execution and performance hereof.
3. The Seller has not granted to any other party any
unrecorded easement or rights of possession in and to the Property, subject to
the interests of the tenants under the Leases.
4. Attached hereto is a complete and correct list of all
the Leases listed as Exhibit "D" and the Contracts listed as Exhibit "C"
relating to the Property. To the Seller's actual knowledge, none of the Leases
has been modified in any respect, except as set forth in any amendments listed
for each Lease as described on Exhibit "D" attached hereto.
5. The Seller has not received written notice of any
condemnation or violation of any applicable law, regulation or other
governmental requirement.
6. The Seller is not a "Foreign Person" within the
meaning of the Internal Revenue Code Section 1445(f)(3).
7. No petition in bankruptcy (voluntary or otherwise),
assignment for the benefit of creditors, or petition seeking reorganization or
arrangement or other action under Federal or State bankruptcy laws is pending
against or contemplated by the Seller.
8. There are no suits, actions, proceedings, claims or
investigations pending or threatened against or involving the Seller which could
materially adversely affect the Seller's ability to perform its obligations
hereunder, or the Property before any court, arbitrator or administrative or
governmental body, except as set forth in Exhibit "E".
9. Neither this Agreement nor anything provided to be
done hereunder, including but nd limited to, the transfer, assignment and sale
of the Property, violates or shall violate any material contract, agreement or
instrument to which the Seller is a party or which affects the Property or any
part thereof.
10. The Seller is not in default in respect of any of
its material obligations or liabilities pertaining to the Property. To the
knowledge of the Seller, the Seller is not in default with respect to any diner
agreements, obligations or liabilities which could materially adversely affect
the Seller's ability to perform its obligations hereunder.
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<PAGE> 10
The terms "to the Seller's actual knowledge" or "knowledge" or "known"
as they are used in this Article IV., paragraph A. shall mean the actual
knowledge of Charles J. Stone, an officer of the Seller, as distinguished from
implied, imputed and constructive knowledge, without inquiry.
B. The Purchaser represents and warrants to the Seller that:
1. The Purchaser is a corporation duly organized and
validly existing under the laws of the State of Maryland, is authorized to do
business in the State of California, has duly authorized the execution and
performance of this Agreement, and has the power and authority to purchase the
Properly as provided in this Agreement and to carry out the Purchaser's
obligations hereunder.
2. No petition in bankruptcy (voluntary or otherwise),
assignment for the benefit of creditors, or petition seeking reorganization or
arrangement or other action under federal or state bankruptcy laws is pending
against or contemplated by the Purchaser.
3. The Purchaser will have had the opportunity to
inspect the Property fully and completely at its expense not later than the
expiration of the Inspection Period, and will have ascertained to its
satisfaction by that date whether the Property complies with applicable zoning,
building, environmental, health and safety and all other laws, codes and
regulations.
4. The Purchaser will have had the opportunity to review
during the Inspection Period the Leases, Contracts, expenses and other matters
relating to the Property and, except as otherwise provided in this Agreement,
the Purchaser shall assume the Seller's obligations thereunder as of the Closing
Date.
C. Each of the Seller and the Purchaser represents to the other
that there are no other brokers included in this transaction except Burrel
Magnusson/Essex Realty Management (the "Broker"). The Seller will be responsible
for the commission due to Broker, pursuant to the terms and conditions of a
separate agreement between the Seller and Broker. The Seller and the Purchaser
will indemnify, defend and hold the other harmless from and against any and all
claims, losses, costs, expenses and fees claimed against such party by any other
real estate brokers or other parties prior to or subsequent to Closing claiming
a commission by, through or under the other party. The terms and provisions of
this paragraph shall survive the Closing or termination hereunder.
D. The representations and warranties shall not be deemed to be
merged into or waived by the instruments of Closing, but shall survive for a
period of twelve (12) months from the Closing Date, and the Seller and the
Purchaser shall have the right to bring an
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<PAGE> 11
action therein only if the Seller or the Purchaser, as the case may be, has
given the party against whom recovery is sought hereunder (the party seeking to
bring an action being the "warrantee") written notice within such twelve-month
(12) period in accordance with the provisions of this paragraph. Any such notice
shall include a description of the circumstances giving rise to the alleged
breach, together with supporting documentation, an estimate of tho alleged
damage actually incurred by the warrantee with respect thereto, the basis for
determination that such circumstances constitute a breach, and a description of
the action requested to cure such breach. The warrantee shall give prompt notice
to the warrantor of the assertion of any claim, or the commencement of any suit,
action or proceeding by any party, in respect of which damages may be sought
hereunder specifying with reasonable particularity the basis therefor and giving
the warrantor such information with respect thereto as the warrantor may
reasonably request.
ARTICLE V.
COSTS
A. The Purchaser will pay the following costs of closing this
transaction:
1. The fees and disbursements of its counsel, inspecting
architect and engineer;
2. The cost of any special endorsements or any other
special requirements of the Purchaser and any additional premium charge for
extended coverage, endorsements and/or deletion of exception items issued in
this transaction pursuant to the Title Report and any other title costs beyond
those paid by the Seller under paragraph B.2.;
3. The cost of any survey required by the Title Company;
4. Any recording fees;
5. Any other expenses incurred by the Purchaser or its
representatives in inspecting or evaluating the Property or closing
this transaction; and
6. One-half (1/2) of any escrow fees.
B. The Seller will pay the following costs of closing this
transaction:
1. The fees and disbursements of its counsel;
2. Any real estate transfer, stamp or documentary
taxes, or intangible taxes, if any;
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<PAGE> 12
3. Any sales or use taxes relating to the transfer of
the Personal Property to the Purchaser, prorated as of the date of Closing;
4. The cost of a standard CLTA owner's policy of title
insurance issued in this transaction pursuant to the Title Report (including the
cost of obtaining and recording any corrective instruments);
5. The Broker's commission to the extent any such fee
is payable.
6. One-half (1/2) of any escrow fees.
C. Rents (including tenants proportionate share of building
operating costs, finish allowances, and other amounts due under the Leases),
personal property taxes, installment payments of special assessment liens, sewer
charges and operating or utility charges actually collected, billed or paid as
of the Closing Date shall be prorated as of the Closing Date and be adjusted
against the Purchase Price due at the Closing, provided that within thirty (30)
days after the Closing, the Purchaser and the Seller will make a further
adjustment for such rents, taxes or charges which may have accrued or been
incurred prior to the date of Closing, but not billed or paid at that date. Rent
and all other sums which are due and payable to the Seller by any tenant but
uncollected as of the Closing shall not be prorated at the Closing. With respect
to delinquent rentals, the Purchaser shall make a reasonable attempt to collect
the same for the Seller's benefit after the Closing in the usual course of the
operation of the Property, and such collection, if any, shall be remitted to the
Seller promptly upon receipt by the Purchaser, less a prorate deduction for
costs, including reasonable attorney's fees, incurred in collecting same, and
less tho Purchaser's prorate share of any rentals applicable to a period after
the Closing. Nothing contained herein shall operate to require the Purchaser to
institute any lawsuit or other collection procedure to collect such delinquent
rentals. The Purchaser and the Seller agree that any sums received by the
Purchaser from any tenants owing delinquent rentals shall first be applied to
delinquent rentals owed to the Purchaser, second to any rentals owed to the
Purchaser for the month in which such sums are received by the Purchaser and
finally to any delinquent rentals owed to the Seller, regardless of the
designation of such sums by the tenant. For amounts due the Seller not collected
within three (3) months after Closing, the Seller shall have the right to sue to
collect only the monetary claim for such delinquent rents. The Purchaser will
cooperate with the Seller in all reasonable efforts to collect such rent and
other amounts due. At Closing, the Seller shall deliver to the Purchaser a
schedule of all such past due uncollected rent and other sums owed by tenants.
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D. General real estate taxes payable during the then current year
and special taxes or assessments, if any, relating to the Property shall be
prorated as of the Closing Date. If Closing shall occur before the actual taxes
payable during the then current year are known, the apportionment of taxes shall
be upon the basis of taxes for the Property payable during the immediately
preceding year, provided that, if the taxes payable during the current year are
thereafter determined to be more or less than the taxes payable during the
preceding year (after any appeal of the assessed valuation thereof is
concluded), the Seller and the Purchaser, upon request of either party promptly
(but no later then thirty (30) days after the issuance of the 1996 tax bill,
except in the case of an ongoing tax protest) shall adjust the proration of such
taxes and the Seller or the Purchaser, as the case may be, shall pay to the
other any amount required as a result of such adjustment and this covenant shall
not merge with the deed delivered hereunder but shall survive the Closing.
E. Customarily proratable expenses, including but not limited to
water, sewer, gas, electricity, trash removal and fire protection service, and
any Contracts or agreements for services to the Property to be transferred to
and assumed by the Purchaser, to the extent paid for by the Seller with respect
to a period either in whole or in part after Closing, or required to be paid for
by the Purchaser with respect to a period either in whole or in part prior to
Closing, shall be prorated as of the Closing Date. The Seller shall use its best
efforts to have all utility meters read immediately prior to Closing.
F. Any amounts payable to or incurred by the Seller under any
permit and/or inspection fees (calculated on the basis of the period covered),
insurance premiums (as to those policies, if any, that the Purchaser continues
after the Closing), and liability for other Property operation and maintenance
expenses and other recurring costs shall be prorated between the parties and
appropriate credits given.
G. At the Closing, the Seller shall credit the Purchaser against
the Purchase Price the amount of security deposits actually paid to or received
by the Seller under the Leases (and not as of the Closing Date returned to or
forfeited by tenants under Leases) and of any prepaid rentals actually paid to
or received by the Seller for periods subsequent to the Closing, provided that
such credits shall be consistent with the estoppel certificate.
H. Any other costs or charges of Closing this transaction not
specifically mentioned in this Agreement shall be shared by the parties and paid
in accordance with local custom in San Diego County, California.
I. Except as expressly provided herein, the purpose and intent as
to the provisions of prorations and apportionments set
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<PAGE> 14
forth in this Article V. and elsewhere in this Agreement is that the Seller
shall bear all expenses of ownership and operation of the Property and shall
receive all income therefrom accruing through midnight at the end of the day
preceding the Closing and the Purchaser shall bear all such expenses and receive
all such income accruing thereafter.
J. Common area maintenance charges will be separately reconciled
and prorated under each Lease on the basis of the lease year set forth in each
Lease for the payment of common area maintenance charges. All such common area
maintenance charges for the lease year including the Closing received by either
party, whether before or after Closing, shall be retained by such party until
determination of the proration of the respective year. Within ninety (90) days
following December 31, 1996, each party shall report to the other the amount of
common area maintenance charges received under each Lease and the Seller and the
Purchaser shall reconcile periodic estimates with the actual amounts collected
and adjust between themselves amounts owed for each lease year on account of
common area maintenance charges, based on a fraction, the numerator of which is
the number of days in such lease year prior to Closing and the denominator of
which is the total number of days in such lease year. By applying said fraction
to the total percentage received by both parties, the party which has received
more than its share shall forthwith pay over the difference to the other party.
K. Commissions of leasing and rental agents for any Lease entered
into before the date of Closing shall be paid by the Seller prior to Closing,
and reimbursed to the Seller at Closing from the Purchaser only for a Lease
entered into after the Effective Date, provided such Lease is approved in
writing by the Purchaser.
L. At Closing, the amount of prorations and adjustments as
aforesaid shall be determined or estimated to the extent practicable, and
monetary adjustments shall be made between the Seller and the Purchaser. As the
amounts of the respective items become finally ascertained, further adjustment
shall be promptly made between the parties in cash.
ARTICLE VI.
DESTRUCTION OR CONDEMNATION OF PROPERTY
A. If, prior to the Closing Date, condemnation proceedings are
commenced, the Seller shall notify the Purchaser of such proceedings. During the
term of this Agreement, the Seller shall notify the Purchaser of material
developments in such condemnation proceedings and consult with the Purchaser
regarding major decisions by the Seller in such proceedings.
1. If, prior to the Closing Date, condemnation
proceedings are commenced against any material portion of the
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<PAGE> 15
Property and the Seller, at its option, is unable to cure any material defect
caused by such condemnation within a reasonable period of time, and this
Agreement has not terminated pursuant to Article III., paragraph F. hereof, then
in such event the Purchaser may, at its option, elect to terminate this
Agreement by written notice to the Seller within ten (10) days after the
Seller's notification to the Purchaser of the commencement of such condemnation
proceedings and the Seller's failure to cure same, or at the Closing (which may
be extended by the Seller for a reasonable amount of time), whichever is
earlier, in which case the Deposit shall be refunded to the Purchaser subject to
the Purchaser's obligations under Article III., paragraph E., and neither party
shall have any further rights or obligations hereunder, other than as set forth
herein with respect to rights and obligations which survive termination. If the
Purchaser does not make its election to terminate this Agreement then, subject
to the Seller's approval, the Closing shall take place as provided herein
without reduction of the Purchase Price, and at Closing the Seller shall assign
to the Purchaser its interest in and to any condemnation award, less any
reasonable out-of-pocket costs or expenses of the Seller for which the Seller
shall be reimbursed.
2. If, prior to the Closing Date, condemnation
proceedings are commenced against less than a material portion of the Property,
then in any such event neither the Purchaser nor the Seller shall have any right
to terminate its obligations under this Agreement, and the Seller shall assign
to the Purchaser its interest in and to any condemnation award, less any
reasonable out-of-pocket costs or expenses of the Seller for which the Seller
shall be reimbursed, at the Closing which shall take place as provided herein
without reduction of the Purchase Price.
3. For the purposes of Article VI., paragraph A.,
"material portion" of the Property shall mean a portion of the Property, the
value of which would represent $250,000 or more of the market value of the
Property, as determined by a licensed appraiser approved by the Purchaser and
the Seller.
B. The Seller agrees to give the Purchaser prompt notice of any
fire or other casualty affecting the Land, the Improvements or the Personal
Property between the date of this Agreement and the Closing.
1. If prior to the Closing the Property is materially
damaged or destroyed by fire or other casualty which would cost TWO HUNDRED
FIFTY-THOUSAND AND NO/100 DOLLARS ($250,000) or more to repair and the Seller,
at its option, is unable to cure such damage within a reasonable period of time,
then in any such event the Purchaser may, at its option, elect to terminate this
Agreement by written notice to the Seller within ten (10) days after the date of
the Seller's notice to the Purchaser of such damage or destruction (accompanied
by information regarding the amount and payment of
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<PAGE> 16
insurance) and the Seller's failure to cure same or at the Closing (which may be
extended by the Seller for a reasonable amount of time), whichever is earlier,
in which case the Deposit shall be refunded to the Purchaser subject to the
Purchaser's obligations under Article III., paragraph E., and neither party
shall have any further rights or obligations hereunder other than as set forth
herein with respect to rights and obligations which survive termination. If the
Purchaser does not timely make its election to terminate this Agreement then,
subject to the Seller's approval, the Closing shall take place as provided
herein without reduction of the Purchase Price except for a credit to the
Purchaser equal to the amount of the deductible to be paid by the Seller and
there shall be assigned to the Purchaser at the Closing all interest of the
Seller in and to any casualty insurance proceeds, specifically excluding the
proceeds of any loss of rental insurance for the period prior to Closing.
2. If prior to the Closing there shall occur damage to
the Property caused by fire or other casualty which would cost less than TWO
HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($250,000) to repair, then in any such
event the Purchaser shall have no right to terminate is obligations under this
Agreement, but there shall be assigned to the Purchaser at Closing all interest
of the Seller in and to any casualty insurance proceeds which may be payable to
the Seller on account of any such occurrence, specifically excluding the
proceeds of any loss of rental insurance for the period prior to Closing and the
Closing shall take place as provided herein, without reduction of the Purchase
Price, except for a credit to the Purchaser equal to the amount of the
deductible to be paid by the Seller.
3. The Seller and the Purchaser both agree to use the
Seller's insurance adjuster's assessment to determine the amount of damages.
ARTICLE VII.
NOTICES
All notices, requests and other communications under this Agreement
shall be in writing and shall be sent by certified or registered mail, return
receipt requested, by overnight courier or delivered by facsimile telecopy
(effective if such facsimile is received by 12:00 noon Pacific Standard Time) or
may be personally delivered to the following addresses:
If to Seller: Bay San Marcos Limited Partnership
Escondido Business Center Limited
Partnership
250 Australian Avenue South, Suite 400
West Palm Beach, FL 33401
Attn: Charles J. Stone
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<PAGE> 17
phone no. (407) 820-1300
fax no. (407) 832-1622
with a copy to: Robert A. D'Amore, Esq.
Robert A. D'Amore, P.A.
250 Australian Avenue South, Suite 301
West Palm Beach, FL 33401
phone no. (407) 820-1331
fax no. (407) 833-2854
If to Purchaser: Pacific Gulf Properties
363 San Miguel Drive, Suite 100
Newport Beach, CA 92660-7805
Attn: Lonnie P. Nadal
phone no. (714) 721-2700
fax no. (714) 721-2713
with a copy to: Mark P. McClanathan, Esq.
Cox, Castle & Nicholson, LLP
19800 MacArthur Boulevard, Suite 600
Irvine, California 92715
phone no. (714) 260-4630
fax no. (714) 476-0256
If to Title Company: Chicago Title Insurance Company
16969 Von Karman
Irvine, California 92714
Attention: Joy Eaton
phone no. (714) 263-0126
fax no. (714) 263-0356
or such other address of which the Seller, the Purchaser or Title Company shall
have given notice as herein provided. All such notices, requests and other
communications shall be deemed to have been sufficiently given for all purposes
on the date of receipt, provided, however, that a delivery to the attorneys of
the respective parties listed above shall not be deemed proper notice, but is
only for convenience of the parties.
ARTICLE VIII.
CLOSING AND ESCROW
A. Upon execution of this Agreement, the parties hereto shall
deposit an executed counterpart of this Agreement with the Title Company and
this instrument shall serve as the instructions to the Title Company as the
escrow holder for the consummation of the transaction contemplated herein. The
Seller and the Purchaser agree to execute such additional and supplementary
escrow
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<PAGE> 18
instructions as may be appropriate to enable the Title Company to comply with
the terms of this Agreement.
B. The Seller shall deliver at Closing or make available at
the Property the following documents, each executed and acknowledged (as
appropriate):
1. A Grant Deed to convey title to the Property
conveying title in fee simple to the Land and Improvements subject to the
Permitted Exceptions in a form approved by the Purchaser and the Seller.
2. A bill of sale conveying the Personal Property, with
special warranty of the in a form approved by the Purchaser and the Seller, with
an updated Exhibit "B" listing of Personal Property.
3. (i) The Leases currently encumbering the Property,
which Leases are listed on Exhibit "D" attached hereto and incorporated herein
by reference; (ii) a current listing of any tenant security deposits and prepaid
rents held by the Seller with respect to the Property; and (iii) an assignment
of such Leases, deposits, and prepaid rents by way of an assignment and
assumption agreement in form and substance reasonably acceptable to the
Purchaser and the Seller. The Purchaser shall assume all of landlord's
obligations under the Leases relating to the period commencing on and following
the Closing Date, and the Purchaser shall indemnify, defend and hold the Seller
harmless from all claims of tenants under the Leases arising from and after the
Closing Date or relating to any security deposits which are paid over and
delivered to the Purchaser at the Closing, and the Seller shall indemnify,
defend and hold the Purchaser harmless from all claims of tenants under the
Leases arising prior to the Closing Date or relating to any security deposits
which are not paid over and delivered to the Purchaser at the Closing.
4. (i) Copies of all Contracts relating to the Property,
and (ii) an assignment of such Contracts to the Purchaser by way of an
assignment and assumption agreement in form and substance reasonably acceptable
to the Purchaser and the Seller. The Purchaser shall indemnify, defend and hold
the Seller harmless against any liability under the Contracts arising from and
after the Closing Date. The Seller shall indemnify, defend and hold the
Purchaser harmless against any liability under the Contracts arising prior to
the Closing Date. The Seller shall terminate prior to the Closing, at no cost or
expense to the Purchaser, any and all management agreements and such other
service contracts affecting the Property which the Seller and the Purchaser
shall agree upon prior to the end of the Inspection Period.
5. An assignment to the Purchaser of the Seller's right,
title and interest, if any, in all trade names, including
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<PAGE> 19
without limitation in the names Bay San Marcos and Escondido Business Center,
respectively.
6. An assignment to all transferable permits, warranties
and guarantees and all other Intangible Property then in effect, if any, with
respect to the Property or any repairs or renovations to such Property, in form
and substance reasonably acceptable to the Seller and the Purchaser.
7. All books and records in the Seller's or its property
manager's possession at the Property held by or for the account of the Seller,
as available.
8. A non-foreign affidavit as permitted by Section
1445(a), Internal Revenue Code for 1986, as amended, and a California Form 590,
withholding exemption certificate.
9. Evidence of its capacity and authority for the
closing of this transaction as reasonably required by the Title Company.
10. All keys for the Property.
11. A certified rent roll, executed as of the Closing
Date by a duly authorized officer of the Seller, to such officer's actual
knowledge, setting forth that the rent roll is a true, correct and complete
listing of the Leases, including the premises covered thereby, the name of the
tenant, the rental and other payables thereunder, and the amount of each
security deposit, if any, received by the Seller from each tenant.
12. A delinquency report including amounts past due from
tenants.
The documents referred to in Article VIII., paragraphs B.3.(i), 4.(i),
7. and 10. shall be made available to the Purchaser at the Properly.
Originals or copies of the foregoing Contracts, assignments and other documents
shall be furnished by the Seller or the Purchaser (as required) in the form to
be executed or delivered at Closing, approximately two (2) days prior to the
Closing Date, with the actual original documents delivered at Closing.
C. At the Closing, the Purchaser shall (i) pay the Seller the
Purchase Price; (ii) provide evidence of its capacity and authority for the
closing of this transaction as reasonably required by the Title Company, and
(iii) execute the agreements referred to in Article VIII., paragraphs B. 3.(iii)
and 4.(ii), and all other documents as required by the Title Company reasonably
necessary to close this transaction.
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<PAGE> 20
D. The Seller shall terminate its policies of insurance as of
5:00 p.m. on the date of Closing and the Purchaser shall be responsible for
obtaining its own insurance thereafter.
E. The Seller shall be entitled to the return of any deposit(s)
posted by it with any utility company and the Seller shall notify each utility
company serving the Property to terminate the Seller's account.
F. The Seller shall deliver possession of the Property to the
Purchaser at Closing, subject to the Leases and the Permitted Exceptions;
G. In addition to the foregoing items, the Seller shall obtain
and deliver to the Purchaser, at least three (3) business days prior to the end
of the Inspection Period, an estoppel certificate, in substantially the form
attached hereto as Exhibit "F", (the "Estoppel Certificate") from the tenants
representing up to seventy-five percent (75%) of the income of the Property. In
the event the Seller has not delivered Estoppel Certificates from tenants
representing at least (75%) of the income of the Property at least three (3)
business days prior to the expiration of the Inspection Period, then the
Inspection Period shall be extended one (1) day for each day of the Seller's
delay in providing the Estoppel Certificates from such tenants for up to fifteen
(15) days. If the Seller has obtained Estoppel Certificates from tenants
representing at least 75% of the income of the Property but is unable to obtain
Estoppel Certificates from the remaining tenants, then the Seller shall issue on
or before three (3) Business Days prior to expiration of the Inspection Period
as extended above, a landlord estoppel certificate with respect to each of such
remaining tenants containing substantially the same information as the form of
Estoppel Certificates. It the Seller (despite its diligent efforts) is unable to
obtain Estoppel Certificates from tenant representing 75% of the income from the
Property on or before three (3) Business Days prior to the expiration of the
Inspection Period as extended above, then the Purchaser's sole remedy shall be
to either (i) terminate this Agreement in accordance with the provisions of
paragraph III.F.; or (ii) proceed to close without such Estoppel Certificates
and accept the Seller's own estoppel certificate with respect to the tenancy for
which the Seller fails to procure an Estoppel Certificate from the relevant
tenant. Estoppel Certificates supplied by the Seller shall be specifically
limited to the Seller's actual knowledge. The representations and warranties of
the Seller contained in the landlord estoppels shall survive the Closing for a
period of twelve (12) months, in accordance with the survival of other
representations and warranties as set forth in Article IV, Paragraph D.
H. The Seller agrees to timely cooperate with the Purchaser to provide
proper notification to all tenants of the sale of the
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<PAGE> 21
Property to the Purchaser to be delivered to all such tenants one (1) day before
the Closing Date.
I. Conditions Precedent.
1. Conditions to Obligations of the Purchaser. The close
of escrow and the Purchaser's obligation to purchase the Properly is subject to
the satisfaction, on or before the Closing Date, of all of the following
conditions, each of which is for the benefit of the Purchaser and may be waived
in writing by the Purchaser in its sole discretion.
a. Delivery of Items into Escrow. The Seller
shall have executed and delivered into escrow all of the items required of the
Seller hereunder.
b. Representations and Warranties. All of the
representations and warranties of the Seller set forth in this Agreement shall
be true and correct in all material respects as of the Closing Date.
c. Title Policy. Title Company is ready and
willing to issue a standard coverage CLTA Owner's Policy of Title Insurance (the
"CLTA Policy") from Title Company, with liability in the amount of the Purchase
Price, insuring that fee title to the Real Property vests in the Purchaser
subject only to the Permitted Exceptions.
d. Executive Committee Approval. As evidenced
by the Purchaser's notice of approval pursuant to Article III, Paragraph F, the
Executive Committee of the Board of Directors of the Purchaser shall have
approved the acquisition of the Property pursuant to this Agreement on or before
the expiration of the Inspection Period.
e. Operation Prior to Closing. Seller's
satisfaction in all material respects of the covenants regarding the interim
operation of the Property as set forth in Article III, paragraph A.
2. Conditions to Obligations of the Seller. The
obligation of the Seller to sell, convey, assign, transfer and deliver the
Property to the Purchaser is subject to the satisfaction, on or before the
Closing Date, of all of the following conditions, each of which is for the
benefit of the Seller and may be waived by the Seller in its sole discretion.
a. Deposits. The Purchaser shall have timely
delivered to Title Company the Purchaser's Deposits.
b. Delivery of Items into Escrow. The Purchaser
shall have executed and delivered into escrow all of the items
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<PAGE> 22
(including the balance of Purchase Price), required of the Purchaser hereunder.
c. Representations and Warranties. All of the
representations and warranties of the Purchaser set forth in this Agreement
shall be true and correct in all material respects as of the Closing Date.
3. Close of Escrow. In the event all of the conditions
set forth in Paragraph 1. and 2. above are timely satisfied (or waived in
writing by the Purchaser and/or the Seller, as the case may be), the Seller and
the Purchaser shall take all such actions as may be required to cause the
purchase and sale of the Property to be effectuated on or before the Closing
Date, in accordance with the terms and conditions of this Agreement.
4. Failure of Conditions to Close of Escrow. In the
event one or more of the conditions to the close of escrow described in
Paragraph 1. above are not satisfied or waived on or before the Closing Date,
and the failure of such conditions to be satisfied is not a result of a default
by the Seller or the Purchaser, then the Purchaser shall have the right to
terminate this Agreement and the escrow by giving written notice of termination
to the Seller and Title Company. In the event one or more of the conditions to
the close of escrow described in Paragraph 2. above are not satisfied or waived
on or before the Closing Date, and the failure of such conditions to be
satisfied is not a result of a default by the Seller or the Purchaser, then the
Seller shall have the right to terminate this Agreement and the escrow by giving
written notice of termination to the Purchaser and Title Company. Within five
(5) calendar days after receipt of any such written notice of termination by
either the Seller or the Purchaser, Title Company shall cause to be paid and
distributed to the Seller the amount of the Deposit. In the event either party
elects to terminate this Agreement and the escrow for the reasons and in
accordance with the procedures set forth in this Paragraph 4., this Agreement
shall automatically terminate and the Seller and the Purchaser agree to execute
such escrow cancellation instructions as may be necessary to effectuate the
cancellation of the escrow. Any escrow cancellation, title cancellation and
other cancellation charges shall be borne equally by the Seller and the
Purchaser. Subject to the parties' obligations which expressly survive the
termination of this Agreement, upon the satisfaction by the Seller and the
Purchaser of each of their respective obligations set forth in this Paragraph
4., neither the Seller nor the Purchaser shall have any further rights or
obligations to each other.
ARTICLE IX.
DEFAULT
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<PAGE> 23
A. IF THE PURCHASER FAILS TO COMPLETE THE PURCHASE OF THE
PROPERTY IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS AGREEMENT (OTHER
THAN AS A RESULT OF THE PURCHASER'S ELECTION TO TERMINATE AS PROVIDED IN THIS
AGREEMENT, OR AS A RESULT OF THE SELLER'S DEFAULT UNDER THIS AGREEMENT) BY
REASON OF THE DEFAULT OF THE PURCHASER, THE DEPOSIT SHALL BE RETAINED BY THE
SELLER AS LIQUIDATED DAMAGES, AND BOTH PARTIES SHALL BE RELIEVED OF AND RELEASED
FROM ANY FURTHER LIABILITY HEREUNDER, EXCEPT FOR THE OBLIGATIONS OF THE
PURCHASER SET OUT IN ARTICLE III, PARAGRAPH E. ABOVE. THE SELLER AND THE
PURCHASER AGREE THAT THE DEPOSIT IS A FAIR AND REASONABLE AMOUNT TO BE RETAINED
BY THE SELLER AS AGREED AND LIQUIDATED DAMAGES IN LIGHT OF THE SELLER'S REMOVAL
OF THE PROPERTY FROM THE MARKET AND THE COSTS INCURRED BY THE SELLER AND SHALL
NOT CONSTITUTE A PENALTY OR A FORFEITURE. THEREFORE, BY PLACING THEIR INITIALS
BELOW, THE PARTIES ACKNOWLEDGE THAT THE DEPOSIT HAS BEEN AGREED UPON, AFTER
NEGOTIATION, AS THE PARTIES' REASONABLE ESTIMATE OF THE SELLER'S DAMAGES AND AS
THE SELLER'S EXCLUSIVE REMEDY AGAINST THE PURCHASER, AT LAW OR IN EQUITY, IN THE
EVENT OF A DEFAULT UNDER THIS AGREEMENT ON THE PART OF THE PURCHASER. IN
ADDITION, THE PARTIES AGREE THAT THE DAMAGE DUE TO SUCH A DEFAULT WOULD BE
DIFFICULT AND IMPOSSIBLE TO ACCURATELY ESTIMATE.
INITIALS: Seller _______ Purchaser _______
B. It the Seller shall refuse or fail to convey the Properly as
herein provided, or shall default under this Agreement and such default by the
Seller hereunder that has not been cured on or before the Closing Date, then the
Purchaser's sole remedies hereunder shall be to terminate this Agreement and
recover the non-refundable Deposit, subject to the Purchaser's obligations under
Article III, paragraph E., or bring an action, to specifically enforce the
Seller's obligation to sell the Property to the Purchaser as provided herein,
subject to the following: (i) the Purchaser shall have deposited the entire
Purchase Price into escrow; (ii) the Purchaser shall have delivered to the
Seller and Title Company a written waiver of all conditions to the Purchaser's
obligations to close escrow; and (iii) the Seller fails to deposit the Grant
Deed into escrow within five (5) Business Days after the foregoing conditions
are satisfied. In the event the Purchaser has deposited any funds into escrow,
the parties agree that the Title Company is hereby irrevocably instructed to
return all said deposits to Purchaser after expiration of the above referenced
five (5) day period pending resolution of Purchaser's specific performance
action, unless otherwise required by law. It is agreed that the rights granted
to the Purchaser hereunder are of a special and unique kind and character and
that, if there is a breach by the Seller of any material provision of this
Agreement, the Purchaser would not have any adequate remedy at law. It is
expressly agreed, therefore, that the rights of the Purchaser hereunder may be
enforced by an action for specific performance and
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<PAGE> 24
such other equitable relief as is provided under the laws of the State of
California.
C. Notwithstanding anything to the contrary in this Agreement,
each party shall be entitled to three (3) Business Days after receipt of written
notice of default under this Agreement, within which to cure such default, and
any closing or other deadline shall be extended for that period of cure.
ARTICLE X.
MISCELLANEOUS
A. Entire Agreement -- This Agreement is the entire Agreement
between the parties with respect to the subject matter hereof, and no
alteration, modification or interpretation hereof shall be binding unless in
writing and signed by both parties.
B. Severability -- If any provision of this Agreement or
application to any party or circumstances shall be determined by any court of
competent jurisdiction to be invalid and unenforceable to any extent and if the
deletion of such provision would not materially change the benefit of this
bargain between the parties, the remainder of this Agreement or the application
of such provision to such person or circumstances, other than those as to which
it is so determined invalid or unenforceable, shall not be affected thereby, and
each provision hereof shall be valid and shall be enforced to the fullest extent
permitted by law.
C. Applicable Law -- This Agreement shall be construed and
enforced in accordance with the laws of the State of California.
D. Assignability -- If the Purchaser requests the Seller's
written consent to any assignment, the Purchaser shall (1) notify the Seller in
writing of the proposed assignment; (2) provide the Seller with the name and
address of the proposed assignee; (3) provide the Seller with financial
information including financial statements of the proposed assignee; and (4)
provide the Seller with a copy of the proposed assignment. Assignment of this
Agreement shall only be to an entity owned or controlled by the Purchaser.
E. Successors Bound -- This Agreement shall be binding upon and
inure to the benefit of the Purchaser and the Seller and their successors and
permitted assigns.
F. No Public Disclosure -- The Purchaser shall make no public
disclosure of the terms of this transaction without the prior written consent of
the Seller, except that the Purchaser may discuss the transaction in confidence
with its legal counsel, consultants and representatives, investment bankers,
underwriters, proposed join/venturers or prospective mortgagees. Nothing in this
paragraph shall prevent either the Purchaser or the Seller from
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<PAGE> 25
disclosing or accessing any information otherwise deemed confidential under this
paragraph, (i) in connection with that party's enforcement of its rights
hereunder; (ii) pursuant to any legal requirement, and statutory reporting
requirement or any accounting or auditing disclosure requirement; (iii) in
connection with performance by either party of its obligations under this
Agreement (including, but not limited to, the delivery and recordation of
instruments, notices or other documents required hereunder); or (iv) to
potential investors, participants or assignees (and their respective legal
counsel and representatives) in or of the transaction contemplated by this
Agreement or such party's rights therein;
G. Captions -- The captions in this Agreement are inserted only
as a matter of convenience and for reference and in no way define, limit or
describe the scope of this Agreement or the scope or content of any of its
provisions.
H. Attorney's Fees -- In the event of any litigation arising out
of this Agreement, the prevailing party shall be entitled to reasonable
attorney's fees and costs at trial and through all appeals.
I. No Partnership -- Nothing contained in this Agreement shall be
construed to create a partnership or joint venture between the parties or their
successors in interest.
J. Time -- Time is of the essence in this Agreement.
K. Counterparts -- This Agreement may be executed and delivered
in any number of counterparts, each of which so executed and delivered shall be
deemed to be an original and all of which shall constitute one and the same
instrument.
L. Recordation -- The Purchaser and the Seller agree not to
record this Agreement or any memorandum thereof.
M. Tax Report -- The Title Company shall be deemed the
"responsible party" for closing this transaction, for the purpose of compliance
with Section 6045(e) of the Internal Revenue Code of 1986. Upon Closing, the
Title Company shall be responsible for submission of appropriate forms to the
Internal Revenue Service, with copies provided to the Purchaser and the Seller.
N. Ad Valorem Tax Protest -- If the Seller has filed a protest of
filing real property taxes, then the Purchaser agrees to remit to the Seller any
refund issued to the Purchaser as a result of such action.
O. Removal From Market -- From the end of the Inspection Period,
until the earlier of Closing or the termination of this Agreement, the Seller
shall not accept any offers for the sale of
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<PAGE> 26
the Property with any third party, however, until expiration of the Inspection
Period, the Seller may negotiate "back-up" contracts with third parties subject
to the Purchaser's rights under this Agreement.
P. Proper Execution -- The submission by the Seller to the
Purchaser of this Agreement in unsigned form shall be deemed to be a submission
solely for the Purchaser's consideration and not for acceptance and execution.
Such submission shall have no binding force and effect, shall not constitute an
option, and shall not confer any rights or impose any obligations upon the
Purchaser, irrespective of any reliance thereon, change of position or partial
performance. The submission by the Seller of this Agreement for execution by the
Purchaser and the actual execution and delivery thereof by the Purchaser to the
Seller shall similarly have no binding force and effect on the Seller unless and
until the Seller shall have executed this Agreement and the Initial Deposit
shall have been received by the Title Company and a counterpart thereof shall
have been delivered to the Purchaser.
Q. Exculpation -- This Agreement is being executed by and on
behalf of the Seller and the Purchaser. No present or future owner, director,
employee, trustee, affiliate or agent of the Seller or the Purchaser or of any
partner or management company of the Seller or the Purchaser shall have any
personal liability, directly or indirectly, and recourse shall not be had
against any such officer, director, employee, trustee, affiliate or agent, under
or in connection with this Agreement or any other document or instrument
heretofore or hereafter executed in connection with this Agreement. The Seller
and the Purchaser hereby waives and releases any and all such personal liability
and recourse. The limitations of liability provided in this paragraph are in
addition to, and not in limitation of, any limitation on liability applicable to
the Seller or the Purchaser provided by law or in any other contract, agreement
or Instrument.
R. Business Days -- In the computation of any period of time
provided for in this Agreement or by law, the day or event from which said
period of time runs shall be excluded, and the last day of such period shall be
included, unless it is a Saturday, Sunday or legal holiday, in which case the
period shall be deemed to run until the end of the next day which is not a
Saturday, Sunday or legal holiday.
S. REIT Status -- The Purchaser hereby advises the Seller that
the Purchaser is qualified as a real estate investment trust under the
provisions of the Internal Revenue Code of 1986, as amended, and that, by reason
thereof, the maintaining of such status and the avoiding of any activity which
might cause a penalty tax to be applied is of material concern to the Purchaser.
Accordingly, the Seller agrees to make any modifications or amendments to this
Agreement reasonably requested by the Purchaser
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<PAGE> 27
that may be necessary for the Purchaser to maintain its status as a real estate
investment trust or in order for it to avoid a penalty tax; provided, however,
that the Seller shall have no obligation to enter into any such modification or
amendment that would materially alter or affect, in the Seller's sole judgment,
the Seller's rights, duties or obligations under this Agreement. If the Seller
declines to modify or amend this Agreement for any reason in a manner which the
Purchaser determines, in the good faith exercise of its reasonable business
judgment, is necessary to maintain its status as a real estate investment trust,
upon receipt of written notice of such delineation by the Seller the Purchaser
shall have the right to terminate this Agreement upon written notice to the
Seller prior to the end of the Inspection Period. In the event the Purchaser
exercises such termination right, neither party shall have any further rights or
obligations hereunder, with the exception of obligations which expressly survive
the termination of this Agreement and all funds (including, without limitation,
the Deposit and documents deposited in escrow shall be resumed to the party
depositing the same.
T. Agreement Void -- This Agreement shall be void if one fully
executed copy is not received by the Seller, along with confirmation that the
Deposit has been received by the Title Company on or before 5:00 p.m. E.S.T. on
May 7, 1996.
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<PAGE> 28
IN WITNESS WHEREOF, the Purchaser and the Seller have executed this
Agreement on the date set forth below, effective as of the date set forth above.
ATTEST: SELLER:
BAY SAN MARCOS UNITED PARTNERSHIP,
A DELAWARE UNITED PARTNERSHIP
BY: MIG/BAY SAN MARCOS, INC.,
A FLORIDA CORPORATION,
GENERAL PARTNER
BY:_________________________________
Charles J. Stone, Vice President
DATE:_______________________________
ESCONDIDO BUSINESS CENTER UNITED
PARTNERSHIP, A DELAWARE UNITED PARTNERSHIP
BY: MIG MANAGEMENT SERVICES, INC.,
A DELAWARE CORPORATION,
BY:_________________________________
Charles J. Stone, Vice President
DATE:_______________________________
PURCHASER:
PACIFIC GULF PROPERTIES, INC., A R.E.I.T.,
ORGANIZED AS A MARYLAND CORPORATION
BY:______________________________________
BY:______________________________________
DATE:____________________________________
An original, fully executed copy of this Agreement, together with the
Deposit, has been received by the Title Company's agent
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<PAGE> 29
this ____ day of ___________________, 1996, and by execution hereof the Title
Company's agent hereby covenants and agrees to be bound by the terms of this
Agreement.
BY:________________________
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<PAGE> 1
EXHIBIT 10.2
AGREEMENT OF PURCHASE AND SALE AND ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND ESCROW INSTRUCTIONS (this
"Agreement"), dated April 29, 1996 for reference purposes, is entered into by
and between PACIFIC GULF PROPERTIES INC., a Maryland corporation ("Buyer"), and
PARHAM MINOO, SUSAN MINOO, SAID PAKRAVAN and DANNY PAKRAVAN (collectively,
"Seller"), with reference to the following facts:
A. Seller is the owner of that certain "Property" (hereinafter
described) located in the City of Santa Fe Springs, State of California commonly
known as 9770 Bell Ranch Drive, Santa Fe Springs.
B. Buyer desires to buy, and Seller desires to sell, the Property upon
the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the foregoing recitals, and the
mutual covenants contained herein, Buyer and Seller hereby agree as follows:
1. Property. Seller hereby agrees to sell and convey to Buyer, and
Buyer hereby agrees to purchase from Seller, subject to the terms and conditions
set forth herein, the following:
(a) that certain real property, more particularly described in
Schedule 1 to the "Deed" (as hereinafter defined) attached hereto as Exhibit A
(the "Land");
(b) all rights, privileges and easements appurtenant to the Land and
owned by Seller (collectively, the "Appurtenances");
(c) all improvements and, to the extent owned by Seller, fixtures
affixed to the Land and Appurtenances and, to the extent owned by Seller, all
apparatus, equipment and appliances affixed to the Land and Appurtenances
(collectively, the "Improvements", and together with the Land and Appurtenances,
the "Real Property"); and
(d) any intangible personal property now or hereafter owned by
Seller and used in the ownership, use or operation or development of the Real
Property and (to the extent approved by Buyer pursuant to this Agreement) any
contract rights, and any lease rights (including, without limitation, the
lessor's interest in and to all leases, subleases and tenancies, including all
amendments, modifications, agreements, records, and other documents affecting in
any way a right to occupy any portion of the Real Property (individually and
collectively, the "Leases"), and Seller's interest in all security deposits and
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Seller Initials Buyer Initials
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prepaid rent, if any, under the Leases and any and all guaranties of the Leases,
and utility contracts or other agreements or rights relating to the ownership,
use and operation of the Real Property or Tangible Personal Property
(collectively, the "Intangible Property").
All of the items referred to in Subparagraphs (a), (b), (c) and (d)
above are collectively referred to herein as the "Property".
2. Purchase Price.
(a) The purchase (the "Purchase Price") for the Property shall be
Three Million Seven Hundred Thousand Dollars ($3,700,000).
(b) The Purchase Price shall be paid through "Escrow" (as
hereinafter defined) as follows:
(i) Concurrently with the execution and delivery of this
Agreement by Buyer and Seller, an escrow in connection herewith (the "Escrow")
shall be opened at Chicago Title Insurance Company (the "Escrow Holder"). Within
two (2) days after the execution and delivery of this Agreement by both Buyer
and Seller (the "Execution Date") Buyer shall deposit into Escrow cash in the
amount of $150,000 (the "Deposit"). If Buyer fails to so place the Deposit into
Escrow on or before said date, for any reason whatsoever, this Agreement shall
terminate immediately, automatically and unconditionally, without limiting
Buyer's liability, and Seller shall thereupon have no further obligation to
Buyer. The Deposit shall be held by Escrow Holder in an interest-bearing account
for Buyer's benefit. The Deposit and all interest earned thereon shall be
applied towards the Purchase Price at Closing.
(ii) Prior to Closing, if this Agreement has not been earlier
terminated, Buyer shall deposit into Escrow cash or other immediately available
funds in the amount of the balance of the Purchase Price, adjusted for the
prorations and any other adjustments provided elsewhere in this Agreement (the
"Closing Amount").
3. Due Diligence Material. Seller shall deliver the following materials
to Buyer:
(a) a true, complete and accurate copy of that certain Landscape
Service Agreement dated September 8, 1995 between Seller and Eagle Maintenance
Co., which includes that certain Sweeping Service Agreement also dated September
8, 1995 between Seller and Steve's Landscape and Sweeping Co. (collectively, the
"Landscape Agreement");
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Seller Initials Buyer Initials
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<PAGE> 3
(b) true, complete and accurate copies of all existing leases,
subleases, rental agreements and other agreements for occupancy of space in the
Improvements and all supplements, modifications and amendments thereto
(collectively "Leases") and lease files, if any, and a rent roll (the "Rent
Roll") attached hereto as Exhibit D;
(c) that certain report entitled Phase II Environmental Site
Investigation of "Rimini Property", Job No. 8164, dated November 10, 1989
prepared by American Environmental Management Corporation;
(d) Seller's existing policies of casualty and liability insurance
with respect to the property;
(e) statements of operations for the Property for the calendar year
1995 and the first calendar quarter of 1996; and
(f) true, complete and accurate copies of the 1995/96 property tax
bills for the Property.
The date on which all of the foregoing materials have been delivered to
Buyer is called the "Delivery Date." It shall be Buyer's responsibility, at
Buyer's sole cost and expense, to obtain and review such title and survey
information with respect to the Property as Buyer shall deem appropriate.
4. Title to the Property.
(a) At the "Closing" (hereafter defined), Seller shall convey to
Buyer fee simple title to the Real Property and Improvements, by a duly executed
and acknowledged grant deed substantially in the form attached hereto as Exhibit
E (the "Deed").
(b) At the Closing (i) Seller shall transfer title to the Intangible
Property, the Landscape Agreement (unless Buyer has elected to have Seller
terminate the Landscape Agreement at the Closing) and all permits and approvals
relating to the Property (collectively, the "Permits") by an assignment of
intangible property in the form attached hereto as Exhibit F (the "Assignment of
Intangible Property") and (ii) Seller shall transfer title to the Leases by an
assignment of Leases in the form attached hereto as Exhibit G (the "Assignment
of Leases"), such title in each case to be free of any liens, encumbrances or
interests.
(c) Anything contained herein to the contrary notwithstanding and
notwithstanding any approval or consent given by Buyer hereunder, except for
real estate taxes not yet due or payable, Seller shall cause the deed of trust
and any other security documents held by "Seller's Lender" (as hereinafter
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Seller Initials Buyer Initials
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<PAGE> 4
defined) to be released and reconveyed from the Property on or prior to the
Closing. Seller shall also cause all other mortgages, deeds of trust and other
monetary encumbrances, including without limitation all mechanics' liens, to be
released and reconveyed from the Property on or prior to the Closing; provided,
however, that if any such lien or encumbrance cannot be cleared solely by the
payment of money and after reasonable efforts Seller is unable to clear such
lien or encumbrance on or before the Closing Date, Buyer's sole recourse shall
be to terminate this transaction on or before the Closing Date, and Seller shall
have no liability to Buyer in connection therewith.
5. Contingencies.
(a) Seller's Lender's Consent. Seller's obligations under this
Agreement are contingent, at Seller's option, upon Seller obtaining the consent
of Berkeley Federal ("Seller's Lender") indicating that Seller's Lender has
approved the sale of the Property pursuant to this Agreement and is committed to
release the Property from the lien of all of its security documents upon the
payment to it of an amount agreed to by Seller (the "Seller's Lender's
Consent"). Seller agrees to use its commercially reasonable efforts to obtain
the Seller's Lender's Consent prior to 5:00 p.m. on the date which is fourteen
(14) calendar days from and after the Due Diligence Commencement Date (the
"Seller's Lender's Consent Period"). In the event Seller does not obtain the
Seller's Lender's Consent prior to the expiration of the Seller's Lender's
Consent Period, Seller shall have the right to terminate this transaction by
written notice to Buyer given prior to the expiration of the Seller's Lender's
Consent Period (the "Seller's Notice of Termination"). If Seller so terminates
this transaction, Escrow Holder shall return to Buyer the Deposit and Seller and
Buyer shall thereupon be immediately, automatically and unconditionally
discharged from any further responsibility or liability to the other arising
from this Agreement (except with respect to provisions of this Agreement which
recite that they survive termination and except for Seller's obligation to
reimburse Buyer as hereinafter provided). In the event Seller so terminates this
transaction, Seller shall pay Buyer in cash all amounts paid or incurred by
Buyer prior to receiving such notice to third parties (including without
limitation, the Title Company, surveyors, engineers, environmental consultants
and attorneys) in connection with Buyer's inspections and investigations of the
Property, which payment shall be made from Seller to Buyer upon presentation of
invoices or other reasonable evidence of such obligations, and which payment
shall not exceed $5,000. If Seller fails to deliver Seller's Notice of
Termination to Buyer prior to the expiration of the Seller's Lender's Consent
Period, then Seller shall be deemed conclusive, irrevocably and unconditionally
to have waived this contingency.
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Seller Initials Buyer Initials
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<PAGE> 5
(b) Buyer's Contingencies. The later to occur of the Execution Date
and the Delivery Date shall be the "Due Diligence Commencement Date." Buyer
shall have the right to review and approve the condition of the Property,
including without limitation the Property's physical, environmental, legal
and/or regulatory condition, and the condition of title thereto until 5:00 p.m.
on the date which is the later of fourteen (14) calendar days from and after the
Due Diligence Commencement Date and five (5) calendar days from and after the
date the last "Seller Disclosure" (as hereinafter defined) is delivered by
Seller to Buyer (the "Investigation Period"). During the Investigation Period,
Buyer may, at its sole risk, responsibility, cost and expense, enter onto the
Property to perform such reasonable feasibility studies, engineering studies,
soils tests, and other investigations as may be reasonably necessary to its
evaluation of the Property. After any such entry onto the Property, Buyer shall
promptly restore the Property to its prior condition, if such condition was
changed by the entry. On or before the expiration of the Investigation Period,
if Buyer disapproves of the Property, Buyer shall have the right in its sole and
absolute discretion to terminate this transaction, by delivering to Seller,
within the Investigation Period, written notice of termination ("Buyer's Notice
of Termination"). Buyer's expenditures of time and resources and possible loss
of opportunity by Buyer constitute adequate consideration for Seller's remaining
bound by this Agreement during the Investigation Period, notwithstanding the
termination rights granted to Buyer herein. Notwithstanding a failure by Buyer
to deliver a Buyer's Notice of Termination subject to the remaining conditions
set forth in this Agreement, Seller must comply with all of Seller's other
obligations and duties under this Agreement. If Buyer fails to deliver Buyer's
Notice of Termination to Seller prior to the expiration of the Investigation
Period, then Buyer shall be deemed conclusively and unconditionally to have
approved of the Property under this Paragraph. Subject only to the provisions of
Paragraph 4(c), above, it is understood that Seller shall have no obligation to
cure or remedy any objection and that in the event of disapproval, Buyer's sole
right shall be to terminate this transaction. If Buyer so terminates this
transaction, Escrow Holder shall return to Buyer the Deposit and Seller and
Buyer shall thereupon be immediately, automatically, and unconditionally
discharged from any further responsibility or liability to the other arising
from this Agreement (except with respect to provisions of this Agreement which
recite that they survive termination) and the parties further agree as follows:
(i) Buyer shall indemnify, defend and hold harmless Seller from and against any
claim, liability, loss, cost or expense (including without limitation attorneys'
fees and costs) arising from any damage or injury to persons or property caused
by Buyer or its authorized representatives during their entry and investigations
prior to Closing, provided that this indemnity shall expire one (1) year
following the completion of Buyer's
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Seller Initials Buyer Initials
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physical inspections or termination of this Agreement, whichever is earlier;
(ii) if Buyer does not acquire the Property for any reason whatsoever, Buyer
shall deliver to Seller, upon Seller's request, all reports, studies, approvals,
and other documents pertaining to the Property prepared by third parties,
provided Seller reimburses Buyer for its out of pocket costs for such reports,
studies, approvals and other documents. Buyer shall not be obligated to deliver
privileged information or Buyer's work product.
6. No Warranties. Buyer hereby acknowledges that, except as
specifically set forth in this Agreement, Seller has not made, and shall not
make, any representation or warranty whatsoever concerning the Property or any
aspect thereof including, but not limited to, the Property's legal, regulatory,
environmental or physical condition, or condition of title thereto, or
otherwise. Buyer shall buy the Property "as is" and "with all faults" and,
except as specifically set forth in this Agreement, shall be deemed to have
relied solely on its own investigations and inspections, and, except as
specifically set forth in this Agreement, Seller shall have no liability to
Buyer following the Close of Escrow.
7. Conditions Precedent to Closing. The following are conditions
precedent to Buyer's obligation to purchase the Property (the "Conditions
Precedent"). The Conditions Precedent are intended solely for the benefit of
Buyer and may be waived only by Buyer in writing. In the event any condition
precedent is not satisfied, Buyer may, in its sole and absolute discretion,
terminate this Agreement and all obligations of Buyer and Seller hereunder
(except provisions of this Agreement which recite that they survive termination)
shall terminate and be of no further force or effect.
(a) Buyer's inspection, review and approval, within the
Investigation Period, of all aspects of the Property that Buyer deems necessary
or appropriate.
(b) The issuance by Chicago Title Insurance Company (the "Title
Company") to Buyer of a CLTA Owner's Policy of Title Insurance in the amount of
the Purchase Price, insuring fee simple title to the Real Property and
Improvements in Buyer, subject only to the "Permitted Exceptions" (as
hereinafter defined) (the "Title Policy"). At the Buyer's election, but not as a
condition to closing, a survey of the Property (the "Survey") may be prepared
and the Title Policy may be issued in ALTA form with CLTA endorsements 101.4,
103.7, 116.1, 116.4 and 116.7 (the "Endorsements"). "Permitted Exceptions" shall
mean (i) non-delinquent real property taxes and assessments; and (ii) except for
liens held by the Seller's Lender and other liens and encumbrances which Seller
is obligated to remove, all matters of record disclosed by a preliminary title
report reviewed by Buyer during the Investigation Period.
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Seller Initials Buyer Initials
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(c) All of Seller's representations and warranties contained in or
made pursuant to this Agreement shall have been true and correct when made and
shall be true and correct as of the "Closing Date" (hereafter defined).
(d) Seller shall have fully complied with all of Seller's duties and
obligations contained in this Agreement.
(e) Subject to Paragraph 19 below, the physical condition of the
Property shall be substantially the same on the day of Closing as on the date of
Buyer's execution of this Agreement, reasonable wear and tear excepted.
(f) As of the Closing Date, there shall be no litigation or
administrative agency or other governmental proceeding of any kind whatsoever
pending which would reasonably be expected to materially adversely affect the
value of the Property or the ability of Buyer to operate the Property in the
manner in which it is currently being operated, and no proceedings shall be
pending which would cause the redesignation or other modification of the zoning
classification of, or of any building or environmental code requirements
applicable to, any of the Property in a way which would materially adversely
affect the value of the Property or the ability of Buyer to operate the Property
in the manner in which it is currently being operated.
(g) Seller shall have provided Buyer with an updated Rent Roll three
(3) business days prior to Closing, which updated Rent Roll must not indicate
any material adverse change from the Rent Roll last approved by Buyer.
(h) If requested by Buyer to do so, Seller shall give thirty (30)
days notice of termination prior to the Closing, at no cost or expense to Buyer,
of the Landscape Agreement.
(i) Buyer's review and approval of tenant estoppel certificates from
all tenants and subtenants within the Property. Seller shall use good faith
efforts to obtain and deliver to Buyer tenant estoppel certificates in the form
attached hereto as Exhibit H. Such estoppel certificates shall be modified to
address specific reasonable concerns arising as a result of Buyer's review of
the Leases; provided that Buyer identifies any such concerns within three (3)
business days following Buyer's receipt of complete and accurate copies of the
Leases. For any tenant that Seller is not able to deliver a tenant estoppel
certificate Buyer may elect to accept, and for any subtenant that Seller is not
able to deliver a tenant estoppel certificate Buyer shall accept, an estoppel
certificate from Seller (a "Seller Estoppel Certificate") in lieu thereof,
addressing those items which would otherwise have been addressed in the tenant
estoppel certificate. Said certificates shall be dated no earlier than fifteen
(15) days prior to the Closing Date.
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(j) Notwithstanding anything to the contrary contained in this
Agreement, Buyer's obligation to purchase the Property is conditioned upon the
approval by Buyer's Executive Committee during the Investigation Period of the
transactions contemplated by this Agreement.
8. Liquidated Damages. IN THE EVENT THE SALE OF THE PROPERTY IS NOT
CONSUMMATED BECAUSE OF THE FAILURE OF ANY CONDITION OR ANY OTHER REASON WHICH
OCCURS PRIOR TO ANY DEFAULT UNDER THIS AGREEMENT ON THE PART OF BUYER, THE
DEPOSIT PLUS INTEREST ACCRUED THEREON SHALL IMMEDIATELY BE RETURNED TO BUYER. IF
SAID SALE IS NOT CONSUMMATED BECAUSE OF A DEFAULT UNDER THIS AGREEMENT ON THE
PART OF BUYER, THEN SELLER SHALL BE IMMEDIATELY, AUTOMATICALLY AND
UNCONDITIONALLY RELEASED FROM ITS OBLIGATIONS UNDER THIS AGREEMENT, AND THE
DEPOSIT (BUT NOT THE INTEREST ACCRUED THEREON) SHALL BE PAID TO AND RETAINED BY
SELLER AS LIQUIDATED DAMAGES (WITH ANY ACCRUED INTEREST THEREON TO BE PAID TO
BUYER). THE PARTIES HAVE AGREED THAT SELLER'S ACTUAL DAMAGES, IN THE EVENT OF A
DEFAULT BY BUYER, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE.
THEREFORE, BY PLACING THEIR INITIALS BELOW, THE PARTIES ACKNOWLEDGE THAT THE
DEPOSIT HAS BEEN AGREED UPON, AFTER NEGOTIATION, AS THE PARTIES' REASONABLE
ESTIMATE OF SELLER'S DAMAGES AND AS SELLER'S SOLE AND EXCLUSIVE REMEDY AGAINST
BUYER, AT LAW OR IN EQUITY, IN THE EVENT OF A DEFAULT UNDER THIS AGREEMENT ON
THE PART OF BUYER; PROVIDED, HOWEVER, THAT BUYER'S INDEMNITIES IN FAVOR OF
SELLER SET FORTH IN CLAUSE (i) OF PARAGRAPH 5(b) ABOVE, AND PARAGRAPH 20 BELOW,
SHALL BE IN ADDITION TO SUCH LIQUIDATED DAMAGES. SELLER HEREBY WAIVES ANY AND
ALL BENEFITS IT MAY HAVE UNDER CALIFORNIA CIVIL CODE SECTION 3389.
INITIALS: Seller _________ Buyer __________
9. Escrow; Closing.
(a) Escrow Instructions. Upon mutual execution of this Agreement,
the parties hereto shall deposit an executed counterpart of this Agreement with
Escrow Holder and this Agreement shall serve as instructions to Escrow Holder
for consummation of the purchase and sale contemplated hereby. Seller and Buyer
shall execute such supplemental Escrow instructions as may be appropriate to
enable Escrow Holder to comply with the terms of this Agreement, provided such
supplemental Escrow instructions are not in conflict with this Agreement as it
may be amended in writing from time to time. In the event of any conflict
between the provisions of this Agreement and any supplementary Escrow
instructions signed by Buyer and Seller, the terms of this Agreement shall
control.
(b) Closing. The recordation of the Deed and the delivery of the
other documents and funds contemplated hereby (the "Closing") shall take place
on a date mutually reasonably agreed upon by the parties but must, in any event,
occur within
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twenty-eight (28) days following the Due Diligence Commencement Date. The date
on which the Closing occurs is herein referred to as the "Closing Date". In the
event the Closing does not occur on or before the date which is twenty-eight
(28) days following the Due Diligence Commencement Date, Escrow Holder shall,
unless it is notified by either party to the contrary, proceed to close this
Escrow as soon as practicable thereafter.
(c) Seller Deliveries. At or before the Closing, Seller shall
deliver to Escrow Holder or Buyer the following:
(i) a duly executed and acknowledged Deed;
(ii) originals of all Leases and tenant files and a duly
executed and acknowledged Assignment of Leases;
(iii) original (if available) of the Landscape Agreement or
evidence of its termination if so elected by Buyer;
(iv) a duly executed Assignment of Intangible Property;
(v) notices to the tenants of the occurrence of the sale of
the Property in a form reasonably designated by Buyer and reasonably approved by
Seller;
(vi) a duly executed affidavit that Seller is not a "foreign
person" within the meaning of Section 1445(e)(3) of the Internal Revenue Code of
1986 in the form attached hereto as Exhibit I together with a duly executed
California Franchise Tax Board Form 590;
(vii) a full release and reconveyance of all monetary
encumbrances affecting the Property and any mechanics' liens (subject to the
provisions of Paragraph 4(c) above);
(viii) a closing statement in form and content reasonably
satisfactory to Buyer and Seller (the "Closing Statement") duly executed by
Seller;
(ix) all keys to the Property;
(x) reasonable and customary documents or agreements required
by the Title Company to issue the Title Policy in the CLTA form required by this
Agreement, provided, however, that, except for Seller's obligation pursuant to
Paragraph 4(c), Seller shall be at no cost or expense in connection therewith;
and
(xi) duly executed Tenant Estoppel Certificates and/or Seller
Estoppel Certificates, as applicable.
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Buyer may waive compliance on Seller's part under any of the foregoing items by
an instrument in writing.
(d) Buyer Deliveries. At or before the Closing, Buyer shall deliver
to Escrow Holder or Seller the following:
(i) The Closing Amount;
(ii) A duly executed Assignment of Leases;
(iii) A duly executed Assignment of Intangible Property;
(iv) the Closing Statement, duly executed by Buyer; and
(v) a copy of the corporate resolution adopted by Buyer
authorizing this transaction.
(e) Additional Documents. Seller and Buyer shall each deposit such
other instruments as are reasonably required by Escrow Holder or otherwise
required to Close the Escrow and consummate the purchase of the Property in
accordance with the terms hereof.
(f) Prorations. The following are to be apportioned as of the Closing
Date, with Buyer receiving credit for the entire day of the Closing, as follows:
(i) Rent. Rent under the Leases shall be apportioned as of the
Closing Date, regardless of whether or not such rent has been received by
Seller. With respect to any rent arrearages arising under the Leases, after
Closing, Buyer shall pay to Seller any rent actually collected which is
applicable to the period preceding the Closing Date; provided, however, that all
rent collected by Buyer shall be applied first to all unpaid rent accruing after
the Closing Date, and then to unpaid rent accruing prior to the Closing Date.
Buyer shall not be obligated to take any steps to recover any rent arrearages.
Seller shall take no steps to attempt to collect any delinquent rent following
the Closing.
(ii) Leasing Costs. Seller shall pay as of the Closing, or
Buyer shall receive a credit for, all leasing commission and tenant improvement
costs, if any, in connection with the current term (exclusive of unexercised
options) of any Lease executed on or before the Closing that are or will become
due and payable as of the Closing. Buyer shall be entitled to a credit against
the Purchase Price for any such unpaid commissions or costs due after the
Closing but incurred in connection with the current term (exclusive of
unexercised options) of any Lease executed on or before the Closing.
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(iii) Security Deposits. Buyer shall be enti- tled to a credit
against the Purchase Price for the total sum of all security and other deposits
paid to Seller by tenants under any Leases, and any interest earned thereon
which by law or the terms of the Leases could be required to be refunded to
tenants.
(iv) Free Rent, Abatements or Other Unexpired Concessions.
Buyer shall be entitled to a credit against the Purchase Price for any free
rent, abatements, or other unexpired concessions under any Leases to the extent
they apply to any period after the Closing.
(v) Utility Charges. Seller shall cause all the utility
meters to be read on the Closing Date, and will be responsible for the cost of
all utilities used prior to the Closing Date, except to the extent such utility
charges are billed to and paid by tenants directly.
(vi) Real Estate Taxes and Special Assessments. General real
estate taxes and special assessments payable for the fiscal year in which the
Closing occurs shall be prorated by Seller and Buyer as of the Closing Date.
(vii) Other Apportionments. Amounts payable under the Landscape
Agreement, annual or periodic permit and/or inspection fees (calculated on the
basis of the period covered), and liability for other Property operation and
maintenance expenses and other recurring costs shall be apportioned as of the
Closing Date.
(viii) Preliminary Closing Statement. Seller and Buyer shall
jointly prepare and approve a preliminary Closing Statement on the basis of the
Leases and other sources of income and expenses, and shall deliver such
computation to Escrow Holder prior to Closing.
(ix) Post-Closing Reconciliation. If any of the aforesaid
prorations cannot be definitely calculated on the Closing Date, then they shall
be estimated at the Closing and definitely calculated as soon after the Closing
Date as feasible. As soon as the necessary information is available, Buyer shall
conduct a post-Closing audit to determine the accuracy of all prorations made to
the Purchase Price (the "Post-Closing Audit"). Either party owing the other
party a sum of money based on such subsequent proration(s) or the Post-Closing
Audit shall promptly pay said sum to the other party, together with interest
thereon at the rate of two percent over the "prime rate" (as announced from time
to time in the Wall Street Journal) per annum from the Closing Date to the date
of payment if payment is not made within ten (10) days after delivery of a bill
therefor.
(g) Closing Costs. Seller shall pay any transfer taxes applicable to
the sale. In addition, Seller shall be
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liable for any prepayment fee or other charge payable in connection with any
payoff of monetary encumbrances. Buyer shall pay the cost of the Title Policy,
the cost of the Endorsements or any other endorsements Buyer may obtain, the
Survey and the recording fee for the Deed. Any escrow fees shall be paid fifty
percent (50%) by Buyer and fifty percent (50%) by Seller. All other costs and
charges of the Escrow not otherwise provided for in this Agreement shall be
allocated in accordance with the closing customs for the County where the
Property is located. Buyer and Seller shall each be responsible for their
respective legal fees to negotiate and execute this Agreement.
(h) Reporting Requirements. The Escrow Holder shall comply with all
applicable federal, state and local reporting and withholding requirements
relating to the close of the transactions contemplated herein. Without limiting
the generality of the foregoing, to the extent the transactions contemplated by
this Agreement involve a real estate transaction within the purview of Section
6045 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"), Escrow Holder shall have sole responsibility to comply with the
requirements of Section 6045 of the Internal Revenue Code (and any similar
requirements imposed by state or local law), which in part requires Escrow
Holder to report real estate transactions closing after December 31, 1986 by,
among other things, preparing and causing to be filed Internal Revenue Service
Form 1099-B and any applicable additional statements in connection therewith.
For purposes hereof, Seller's tax identification (social security) numbers are:
PARHAM MINOO ###-##-####
SUSAN MINOO ###-##-####
DANNY PAKRAVAN ###-##-####
SAID PAKRAVAN ###-##-####
Escrow Holder shall hold Buyer, Seller and their counsel free and harmless from
and against any and all liability, claims, demands, damages and costs, including
reasonable attorney's fees and other litigation expenses, arising or resulting
from the failure or refusal of Escrow Holder to comply with such reporting
requirements.
10. Representations, Warranties and Covenants of Seller. Except as
Seller may otherwise inform Buyer in writing during the Investigation Period (a
"Seller Disclosure") and subject to, and except for, such matters and
information as are discovered or are reasonably discoverable by Buyer during the
Investigation Period, Seller represents and warrants to, and covenants with,
Buyer, as of the date hereof and again as of Closing, as follows, which
representations, warranties and covenants shall survive for a period of one (1)
year after the Closing:
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<PAGE> 13
(a) To Seller's actual knowledge without investigation, Seller has
received no written notice that (i) any license, permit, variance, easement or
approval, including without limitation final certificates of occupancy (or the
equivalent) necessary for the current use, operation and occupancy of the
Property have not been issued or are not in effect, (ii) the Property or its
current use and operation are not in compliance with applicable laws, rules,
permits and regulations as well as private covenants, conditions and
restrictions or (iii) the Property is dependent on any other property for
compliance with parking regulations.
(b) The documents described in Paragraph 3 above are all documents
related to the Property in Seller's possession or control. Seller has provided
to Buyer true, complete and accurate copies of all of the documents described in
Paragraph 3 above.
(c) To Seller's actual knowledge without investigation, there are no
(i) condemnation, environmental, zoning or other land-use proceedings,
instituted against the Property, (ii) special assessment proceedings affecting
the Property, or (iii) unrecorded easements, covenants, restrictions, agreements
or other documents which affect title to the Property.
(d) To Seller's actual knowledge without investigation, on the
Closing Date there will be no outstanding written or oral contracts related to
the Property except for those documents described in Paragraph 3 above.
(e) To Seller's actual knowledge without investigation (i) during
Seller's period of ownership no hazardous or toxic substance, waste or material
(including without limitation PCB's, petroleum, petroleum products and fractions
thereof) has been disposed of or released from on or under the Property or on or
under any property adjacent to the Property except in compliance with applicable
laws, orders, rules and regulations; and (ii) no underground storage tanks
(whether existing or abandoned) currently exist, nor during Seller's period of
ownership existed, on or under the Property or on or under any property adjacent
to the Property. Seller has informed Buyer that one or more tenants at the
Property may use or have used clarifiers which may indicate the presence of
hazardous or toxic substances, waste or materials.
(f) Neither Seller nor, to Seller's actual knowledge without
investigation, any tenant of the Property has either filed or been the subject
of any filing of a petition under any federal or state bankruptcy or insolvency
laws.
(g) The most current Rent Roll provided to Buyer is a complete and
accurate list of all Leases. Seller has provided to Buyer complete and accurate
copies of all Leases.
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(h) To Seller's actual knowledge without investigation, there exists
no defaults or events which, with the giving of notice or passage of time, or
both, would constitute a default by any of the tenants or other parties under
any of the Leases or the Landscape Agreement.
(i) To Seller's actual knowledge without investigation, there exists
no defaults or events which, with the giving of notice or passage of time, or
both, would constitute a default by Seller under any of the Leases or the
Landscape Agreement.
(j) This Agreement and all documents executed by Seller and
delivered to Buyer pursuant to this Agreement are and will be duly executed and
delivered by Seller, are and will be legal, valid and binding obligations of
Seller enforceable against Seller in accordance with their respective terms, and
do not and will not violate any provision of any agreement or judicial order to
which Seller or the Property is subject. Subject to obtaining the Seller's
Lender's Consent, and except as otherwise provided in this Agreement, Seller has
obtained all necessary authorizations, approvals and consents to the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby.
(k) Seller is not a "foreign person" within the meaning of Internal
Revenue Code Section 1445(f)(3).
(l) Seller has not granted any option or right of first refusal or
first opportunity to any party to acquire any interest in any of the Property
which currently has any force or effect.
11. Representations and Warranties of Buyer. Buyer hereby represents and
warrants to Seller as follows: Buyer is a corporation duly organized and validly
existing and in good standing under the laws of the State of Maryland and in
good standing under the laws of the State of California; this Agreement and all
documents executed by Buyer pursuant to this Agreement are or will be duly
authorized, executed and delivered by Buyer, and are or will be legal, valid and
binding obligations of Buyer, and do not and will not violate any provisions of
any agreement or judicial order to which Buyer is subject. Subject to obtaining
the approval of Buyer's Executive Committee, Buyer has obtained all necessary
authorizations, approvals and consents to the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
12. INTENTIONALLY OMITTED.
13. Maintenance of the Property and Property Personnel. Between Seller's
execution of this Agreement and the Closing, Seller shall maintain the Property
in the order,
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<PAGE> 15
condition and repair in which it existed on the date of this Agreement,
reasonable wear and tear and, subject to Paragraph 19 below, damage by casualty
excepted, shall perform all work required to be performed by the landlord under
the terms of any Lease, and shall make all repairs, maintenance and replacements
of the Improvements otherwise operate the Property in the same manner as before
the making of this Agreement, as if Seller were retaining the Property. After
full execution of this Agreement and until the Closing, Seller shall maintain
all existing personnel on the Property in their current employment positions at
not less than their current rate of compensation. Without limiting the
effectiveness of the foregoing provisions or the other provisions of this
Agreement with respect to the Landscape Agreement, in the event of the Closing
of the purchase of the Property, Buyer shall not retain the existing employees
and management agents of Seller for the Property, and, accordingly, on the
Closing, Seller shall (i) cause all employment and management agreements
respecting the Property to be terminated, and deliver evidence of such
termination to Buyer, and (ii) remove all employees and management personnel
from the Property.
14. Leasing; Buyer's Consent to New Contracts Affecting the Property;
Termination of Existing Contracts. Seller shall not, after the date of Seller's
execution of this Agreement, enter into any lease or contract affecting the
Property, or any amendment thereof, or, except as required by the express terms
and provisions of any Lease, permit any tenant to enter into any sublease,
assignment or agreement pertaining to the Property, or waive, compromise or
settle any rights of Seller under any contract or Lease, or agree to return any
security deposit, or modify, amend, or terminate Lease or the Landscape
Agreement, without in each case obtaining Buyer's prior written consent thereto,
which consent shall not be unreasonably withheld, conditioned or delayed by
Buyer (and such consent shall be deemed granted in the event Buyer fails to
notify Seller that such consent has not been granted within five (5) calendar
days after Buyer's receipt of Seller's request for such consent). Seller shall
terminate prior to the Closing, at no cost or expense to Buyer, any and all
agreements and contracts affecting the Property other than the Leases, and other
than the Landscape Agreement if Buyer has not elected its termination as well.
15. Insurance. Through the Closing Date, Seller shall maintain or cause
to be maintained, at Seller's sole cost and expense the policy or policies of
insurance currently maintained by Seller with respect to the Property.
16. Cooperation with Buyer. Seller hereby irrevocably authorizes Buyer
and its agents to make all inquiries with and applications to any third party,
including any governmental authority, as Buyer may reasonably require to
complete its due diligence; provided, however, Buyer shall not request, apply
for
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<PAGE> 16
or initiate any change in zoning or other regulatory scheme of the Property
unless and until the Closing has occurred.
17. Publicity and Confidentiality. The parties each agree that the terms
of the transaction contemplated by this Agreement, the identity of Buyer and
Seller and all information made available in connection with the transaction
contemplated herein, shall be maintained in strict confidence and no disclosure
of such information will be made prior to Closing or earlier termination of this
Agreement, except to such attorneys, accountants, investment advisors, lenders
and others as are reasonably required to evaluate and consummate that
transaction. Nothing in this Paragraph shall prevent Buyer, Seller or the Escrow
Holder from disclosing or accessing any information otherwise deemed
confidential under this Paragraph (a) in connection with that party's
enforcement of its rights hereunder; (b) pursuant to any legal requirement, any
statutory reporting requirement or any accounting or auditing disclosure
requirement; (c) in connection with performance by either party of its
obligations under this Agreement (including, but not limited to, the delivery
and recordation of instruments, notices or other documents required hereunder);
or (d) to potential investors, participants or assignees in or of the
transaction contemplated by this Agreement or such party's rights therein.
18. Eminent Domain.
(a) In the event a governmental entity commences eminent domain
proceedings to take any material (in Buyer's reasonable) portion of the Property
after the date hereof and prior to the Closing Date, then Buyer shall have the
option to terminate this Agreement by written notice to Seller within ten (10)
business days after Buyer first learns of such commencement. In the event of any
such termination, the Deposit, together with all interest accrued thereon, shall
be returned to Buyer, Buyer and Seller shall each be liable for one-half of any
escrow fees or charges, and neither party shall have any further liability or
obligation under this Agreement.
(b) In the event a governmental entity commences eminent domain
proceedings to take any part of the Property after the date hereof and prior to
the Closing Date and this Agreement is not terminated pursuant to subparagraph
(a), above, as a result thereof, then the Closing Date shall occur as scheduled
notwithstanding such proceeding; provided, however, that Seller's interest in
all awards arising out of such proceedings shall be assigned to Buyer as of the
Closing Date or credited to Buyer if previously received by Seller.
19. Casualty.
(a) In the event any of the Property is damaged and/or destroyed by
fire or other casualty prior to the Closing
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Date, and the cost to repair and/or restore such damage and/or destruction
(which cost, for purposes of this Paragraph 19, shall be deemed to include
reasonably anticipated post-Closing rental loss through to completion of such
repair and/or restoration) exceeds One Hundred Thousand Dollars ($100,000), then
Buyer shall have the right to terminate this Agreement by written notice to
Seller within three (3) business days after Buyer's first learning of the
occurrence of such casualty and the cost of such repair and/or restoration. In
the event of any such termination, the Deposit, together with all interest
accrued thereon, shall be returned to Buyer, Buyer and Seller shall each be
liable for one-half of any escrow fees or charges, and neither party shall have
any further liability or obligation under this Agreement.
(b) In the event any of the Property is damaged or destroyed by fire
or other casualty prior to the Closing Date where (i) the cost to repair and/or
restore such damage and/or destruction does not exceed One Hundred Thousand
Dollars ($100,000.00), or (ii) the cost to repair and/or restore such damage
and/or destruction exceeds One Hundred Thousand Dollars ($100,000.00) but this
Agreement is not terminated pursuant to Paragraph 19(a) above as a result
thereof, then the Closing Date shall occur as scheduled notwithstanding such
damage; provided, however, that Seller's interest in all proceeds of insurance
payable by reason of such casualty shall be assigned to Buyer as of the Closing
Date or credited to Buyer if previously received by Seller, and Seller shall be
responsible for any cost of repair not covered by such insurance (whether by
reason of insurance deductible, uninsured casualty or otherwise and whether
payable before or after Closing) up to a maximum of $100,000, and Buyer shall
receive a credit toward the Purchase Price therefor.
20. Commission. Except for a real estate brokerage commission of four
and one-half percent (4.5%) of the Purchase Price to be paid by Seller (1.125%
to Lee & Associates-Orange, 2.25% to Lee & Associates-Industry and 1.125% to
Inco Commercial Brokerage) upon Close of Escrow, neither Seller nor Buyer is
aware of any other real estate broker involved in this transaction. Except as
provided in the preceding sentence, in the event of any claim of a commission or
finder's fee based upon any contact, dealings or communication, the party
through whom the broker or finder makes its claim shall be responsible for said
commission or fee and all costs and expenses (including, without limitation,
reasonable attorneys' fees) incurred by the other party in defending against the
same. The party through whom any such broker or finder makes a claim shall hold
harmless, indemnify and defend the other party hereto, its successors and
assigns, agents, employees, officers and directors, and the Property from and
against any and all obligations, liabilities, claims, demands, liens,
encumbrances and losses (including, without limitation, attorneys' fees),
whether direct, contingent or consequential, arising out of, based on, or
incurred as a
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result of such claim. The provisions of this Paragraph shall survive the
termination of this Agreement.
21. Miscellaneous Provisions.
(a) Risk of Loss. Seller shall deliver to Buyer possession of the
Property upon the Close of Escrow. From and after the Close of Escrow, Buyer
shall bear any and all risk of casualty loss to the Property.
(b) Attorneys' Fees. In the event that either Buyer or Seller brings
any suit or other proceeding with respect to this Agreement, the prevailing
party in such action or proceeding shall, in addition to such other relief as
may be awarded, recover its actual attorneys' fees, expenses and costs incurred
in such action or proceeding from the other party. If Seller is the prevailing
party, such recovery of attorneys' fees, expenses and costs incurred, shall be
in addition to any liquidated damages to which Seller may be entitled under this
Agreement. In addition to the foregoing award of attorneys' fees to the
prevailing party, the prevailing party in any lawsuit on this Agreement shall be
entitled to its attorneys' fees incurred in any post judgment proceedings to
collect or enforce the judgment. This provision is separate and several and
shall survive the merger of this Agreement into any judgment on this Agreement.
(c) Time is of the Essence. Time is of the essence of this
Agreement, and each of its provisions. For purposes of this Agreement "business
day" shall mean any day other than a Saturday, Sunday, California State or
national holiday.
(d) Entire Agreement. This Agreement, and any additional escrow
instructions to Escrow Holder to be executed in accordance herewith, constitute
the entire agreement between the parties hereto with respect to the Property,
and supersede any and all prior agreements, understandings, representations, and
warranties. This Agreement may not be modified or altered except in a written
agreement executed by the parties hereto.
(e) Successors and Assigns. This Agreement is personal to and may
not be assigned by either Buyer or Seller; provided, however, that Buyer shall
have the right, with no less than seven (7) days prior written notice to Seller,
to assign this Agreement without the consent or approval of Seller to a person
or entity which owns a majority of, is majority owned by or is under common
majority ownership with Buyer; provided further, however, that in the event of
any such assignment Buyer shall not be released from any liability hereunder.
This Agreement shall be binding upon, and inure to the benefit of, the parties
hereto and their respective successors, heirs, administrators and permitted
assigns.
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(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
(g) Severability. If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force and effect.
(h) Counterparts. This Agreement, and any document executed in
connection with this Agreement, may be executed in any number of counterparts
each of which shall be deemed an original and all of which shall constitute one
and the same agreement with the same effect as if all parties had signed the
same signature page. It shall not be necessary that the signatures of, or on
behalf of, each party, or that the signatures of all persons required to bind
any party, appear on a single counterpart, but it shall be sufficient that the
signature of, or on behalf of, each party, appear on one or more of the
counterparts. Any signature page of this Agreement, and any document executed in
connection with this Agreement, may be detached from any counterpart of this
Agreement or such other document and reattached to any other counterpart of this
Agreement or such other document identical in form hereto or thereto but having
attached to it one or more additional signature pages. This Agreement, and any
document executed in connection with this Agreement, shall be deemed executed
and delivered upon each party's delivery of executed signature pages of this
Agreement or such other document, which signature pages may be delivered by
facsimile with the same effect as delivery of the originals.
(i) No Waiver. No delay or failure on the part of any party hereto
in exercising any right, power or privilege under this Agreement or under any
other instrument or document given in connection with or pursuant to this
Agreement shall impair any such right, power or privilege or be construed as a
waiver of any default or any acquiescence therein. No single or partial exercise
of any such right, power or privilege shall preclude the further exercise of
such right, power or privilege. No waiver shall be valid against any party
hereto unless made in writing and signed by the party against whom enforcement
of such waiver is sought and then only to the extent expressly specified herein.
(j) Legal Representation. Each party has been represented by legal
counsel in connection with the negotiation of the transactions herein
contemplated and the drafting and negotiation of this Agreement.
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(k) Notices. Any notice of communication required or permitted to be
given under this Agreement shall be in writing, and shall be personally
delivered or delivered by facsimile transmission, sent by first-class registered
or certified mail, prepaid, return receipt requested or sent by an overnight
delivery service. If mailed, any notice shall be deemed "delivered" seventy-two
hours after deposit of same in the United States mail, addressed to the
addressee as set forth below, or such other address as a party may specify upon
giving written notice as provided in this paragraph to the other party. If
personally delivered or delivered by facsimile transmission, notices shall be
deemed "delivered" upon delivery to the address of the addressee. If delivered
by overnight courier, one business day after being deposited with the overnight
courier service or facsimile transmission. The following shall be the addresses
of the parties for purposes of this paragraph:
If to Seller: Mr. Paul Minoo
6270 South Boyle Avenue
Vernon, California 90058
Phone: (213) 583-2020
Fax: (213) 587-4952
With a copy to: Hamid Nahai, Esq.
10100 Santa Monica Boulevard
Suite 1095
Los Angeles, California 90067
Phone: (310) 201-6800
Fax: (310) 201-6811
If to Buyer: Pacific Gulf Properties Inc.
363 San Miguel Drive, Suite 100
Newport Beach, CA 92660-7805
Attention: Mr. Lonnie Nadal
Phone: (714) 721-2700
Fax: (714) 721-2701
With a copy to: Cox, Castle & Nicholson
2049 Century Park East, Suite 2800
Los Angeles, California 90067
Attention: John H. Kuhl, Esq.
Phone: (310) 284-2267
Fax: (310) 277-7889
If to Escrow
Holder: Chicago Title Insurance Company
16969 Von Karman
Irvine, California 92714
Attention: Ms. Margie Wheeler
Phone: (714) 263-2556 or 2557
Fax: (714) 752-8043
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<PAGE> 21
(l) Exhibits. All exhibits attached hereto are incorporated herein
as though fully set forth herein.
(m) Joint Liability. All entities constituting "Seller" hereunder
shall be jointly liable for the faithful performance of the terms and conditions
hereof, and of any other document executed in connection herewith, to be
performed by Seller.
22. REIT. Buyer hereby advises Seller that Buyer is qualified as a real
estate investment trust under the provisions of the Internal Revenue Code of
1986, as amended, and that, by reason thereof, the maintaining of such status
and the avoiding of any activity which might cause a penalty tax to be applied
is of material concern to Buyer. Accordingly, prior to the expiration of the
Investigation Period, Buyer may request that Seller agree to make modifications
or amendments to this Agreement requested by Buyer prior to the expiration of
the Investigation Period that may be necessary for Buyer to maintain its status
as a real estate investment trust or in order for it to avoid a penalty tax;
provided that any such modification or amendment would not alter or affect
Seller's rights, duties, or obligations under this Agreement. Seller shall have
no obligation of any kind whatsoever to consider or accept any such requested
modification or amendment and if Seller declines to modify or amend this
Agreement for any reason or for no reason (it being understood that Seller may
reject any such requested modification or amendment in Seller's sole and
absolute discretion), in a manner which is necessary to maintain its status as a
real estate investment trust, Buyer shall have the right to terminate this
Agreement by written notice delivered to Seller prior to the expiration of the
Investigation Period. In the event Buyer exercises such termination right,
neither party shall have any further rights or obligations hereunder (except
with respect to provisions of this Agreement which recite that they survive
termination), and all funds (including, without
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Seller Initials Buyer Initials
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<PAGE> 22
limitation, the Deposit and all interest accrued thereon) and documents
deposited in escrow shall be returned to the party depositing the same.
IN WITNESS WHEREOF, Buyer and Seller have executed this Agreement as of
the date first set forth above.
BUYER:
PACIFIC GULF PROPERTIES INC.,
a Maryland corporation
By:________________________________________
________________________________________
(Print Name and Title)
SELLER:
___________________________________________
SAID PAKRAVAN
___________________________________________
DANNY PAKRAVAN
___________________________________________
SUSAN MINOO
___________________________________________
PARHAM MINOO
[BUYER AND SELLER TO INITIAL PARAGRAPH 8]
Chicago Title Insurance Company agrees to act as Escrow Holder in accordance
with the terms of this Agreement.
CHICAGO TITLE INSURANCE COMPANY
By:________________________________________
________________________________________
(Print Name and Title)
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Seller Initials Buyer Initials
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EXHIBIT 10.3
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made and entered into
and is effective as of the 7th day of May, 1996 (the "Effective Date"), by and
between THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, a New York corporation
("Seller"), and PACIFIC GULF PROPERTIES INC., a Maryland corporation
("Purchaser").
Recitals
A. Seller is the owner of the Property (as defined below).
B. Upon the satisfaction of, and subject to, the terms and conditions
set forth in this Agreement, Seller has agreed to sell the Property to
Purchaser, and Purchaser has agreed to purchase the Property from Seller.
Agreement
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants set forth in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Purchaser and Seller hereby agree as set forth below.
1. Purchase and Sale of the Property. Subject to and in accordance with
the terms and conditions contained in this Agreement, Seller agrees to sell,
assign, convey, and transfer to Purchaser the following real and all Seller's
right, title and interest in and to personal property (collectively referred to
herein as the "Property"), and Purchaser hereby agrees to purchase and accept
the Property:
(a) Land. Subject to nondelinquent general and special real estate
taxes and assessments, and all matters of record or apparent from an inspection
or survey which were not objected to pursuant to Section 5(c) of this Agreement,
fee title to that certain real property located at 1805, 1811, 1817, 1833 and
1905 Riverview Drive, in the City of San Bernardino, State of California, which
real property is more particularly described in Exhibit "A" (the "Land").
(b) Improvements. Those certain fixtures and improvements located on
the Land and generally described on Exhibit "B" hereto and all equipment and
facilities used in connection therewith (collectively, the "Improvements"), it
being understood and agreed, however, that Purchaser shall not have the right,
pursuant to this Agreement, to purchase any of such fixtures and improvements as
shall be the property of the tenants of the Property (the "Tenants") under the
Leases (as defined below).
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(c) Personalty. That certain personal property of Seller which is
located on or in the Land or the Improvements and which is described on Exhibit
"B" attached hereto (collectively, the "Personalty"), it being understood and
agreed that Purchaser shall not have the right, pursuant to this Agreement, to
purchase any personal property on the Improvements which is the personal
property of the Tenants pursuant to the Leases.
(d) Appurtenances. All rights, privileges and easements appurtenant
to the Land, all development rights and air rights relating to the Land and any
and all easements, rights-of-way and other appurtenances used in connection with
the beneficial use and enjoyment of the Land.
(e) Leases. All leases, subleases, licenses, concessions, and other
forms of agreement, granting to any party or parties the right of use or
occupancy of any portion of the Land and/or Improvements, and all renewals,
modifications, amendments, guarantees, and other agreements affecting the same
(together the "Leases").
(f) Awards. All right, title and interest to any unpaid awards for
damages to the Land and/or Improvements resulting from any taking in eminent
domain or by reason of change of grade of any street accruing after closing of
the purchase and sale pursuant to this Agreement.
(g) Intangible Property. Except the name of the Seller or affiliated
entities, all of the interest of Seller in any intangible property now or
hereafter owned by Seller and used or designed for use in connection with the
Land, Improvements and/or Personalty, and any contract or lease rights,
licenses, permits, certificates of occupancy, franchises, agreements, utility
contracts, unexpired claims, warranties, guaranties and sureties belonging to
Seller, or other rights relating to the ownership, development, construction,
design, use and operation of the Land and/or Improvements (together "Intangible
Property"), so long as and to the extent that said Intangible Property may be
transferred or assigned, and excluding, however, any refunds of taxes paid by
Seller or Seller's predecessor-in-interest, prior to close of the purchase and
sale pursuant hereto (without regard to when such refunds are received).
2. Opening of Escrow and Deposit.
(a) Concurrently with its execution of this Agreement, Purchaser
shall open an escrow (the "Escrow") with First American Title Insurance Company
("Escrow Agent") by delivering to Escrow (with a copy to Seller), an executed
copy of this Agreement, and a deposit in the form of cash in the amount of One
Hundred Thousand Dollars ($100,000.00). Upon the satisfaction or waiver by
Purchaser of the contingencies set forth in Section 5 of the Agreement,
Purchaser shall deposit into
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Escrow in the form of cash an additional amount of One Hundred Thousand Dollars
($100,000.00) (such deposits, together with all interest accrued thereon, are
collectively referred to herein as the "Deposit"). Escrow Agent shall retain
possession of the Deposit until delivery or return thereof is permitted or
required under this Agreement. The Deposit shall be deposited by Escrow Agent in
an interest-bearing account with the interest thereon to be disbursed to Buyer.
Seller and Purchaser shall execute, if requested by Escrow Agent, additional
escrow instructions not inconsistent with the provisions of this Agreement, and
upon execution thereof by both Seller and Purchaser, such escrow instructions
shall be deemed to be a material part of this Agreement.
(b) Purchaser understands, acknowledges and agrees that, upon
expiration of the Investigation Period (as defined below) without cancellation
of the Escrow by Purchaser, the Deposit shall immediately become non-refundable
(except upon Default by Seller or the failure of any of Purchaser's conditions),
shall immediately be deemed to have been fully earned by Seller (except upon
Default by Seller or the failure of any of Purchaser's conditions), and shall be
immediately delivered by Escrow Agent to Seller if Purchaser shall fail to close
hereunder on or before the Outside Closing Date (as defined below for any reason
other than a Default by Seller or a failure of any of Purchaser's conditions).
If Purchaser provides written notice to Seller, during the Investigation Period,
of Purchaser's cancellation of the Escrow, then Escrow Agent shall return the
Deposit to Purchaser upon receipt of written verification from Seller that
Purchaser has complied with its obligations hereunder with respect to
cancellation of Escrow during the Investigation Period (which Seller hereby
covenants to promptly provide if such is the case), and net only of Purchaser's
share of the costs and expenses of Escrow. If the purchase and sale shall close
pursuant to this Agreement, the Deposit shall be credited against the Purchase
Price (as defined below) at the close of Escrow.
(c) The Escrow shall close, as evidenced by recordation of a Grant
Deed in accordance herewith (the "Closing"), on or before the earlier of (i) the
date which is fifteen (15) days after the satisfaction or waiver by Purchaser of
the contingencies set forth in Section 5 of this Agreement, or (ii) the date
which is forty-five (45) days after the date that Escrow is opened (with the
last day of such forty-five (45) day period being referred to as, the "Outside
Closing Date"). If Purchaser does not cancel the Escrow during the Investigation
Period, and Escrow thereafter fails to close on or before the expiration of the
Outside Closing Date, for any reason, then (i) this Agreement shall terminate
and, except for provisions which expressly survive a termination, neither party
shall have any further obligation to the other hereunder; and (ii) Escrow shall
be canceled and the Deposit shall be distributed to Seller; provided, however,
that if Escrow fails to close on or before the Outside Closing Date due solely
to a default by Seller or the
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failure of any of Purchaser's conditions, then the Deposit shall be distributed
to Purchaser.
3. Purchase Price. The "Purchase Price" for the Property shall be Six
Million Three Hundred Seventy-Five Thousand and 00/100 Dollars ($6,375,000.00),
payable all cash and in immediately available funds, and otherwise in accordance
with the terms and conditions contained in this Agreement.
4. Prorations. The following items shall be prorated as of the date of
Closing (the "Closing Date") and such prorations shall be reflected on the
settlement statements prepared by Escrow Agent on the Closing Date and shall
serve to adjust the Purchase Price. Such prorations shall be made on the basis
of a 365-day year, as of 12:01 a.m. on the Closing Date.
(a) Revenues. All rentals, receipts and other revenues from the
Property which have been actually received by Seller and which are allocable to
the period from and after the Closing Date shall be credited to Purchaser.
Purchaser shall be entitled to collect all rentals, receipts and other revenues
from the Property which are delinquent or due on or after the Closing Date and
Seller shall take no action in connection therewith except to the extent
permitted in Section 3, of the Bill of Sale as defined in Section 8(b). All
rentals, receipts, and other revenues from the Property collected by Purchaser
shall be credited first to currently due charges and then to delinquent charges
in the inverse order of their maturity. Any such delinquent rentals, receipts,
and other revenues from the Property which, based on such order of allocation,
relate in whole or part to any period prior to the Closing Date shall be
remitted by Purchaser to Seller when collected by Purchaser (net only of
Purchaser's proportionate share of any reasonable collection expenses actually
incurred by Purchaser).
(b) Property Taxes. All real property taxes for the year in which
the Closing Date falls ("Closing Year") which are due and payable on or before
the Closing Date and all real property taxes for years prior thereto shall be
paid by Seller on or before the Closing Date, and prorated as of the Closing
Date (on the basis of the portion of the Closing Year which falls after the
Closing Date, and based upon the most recent assessment and levy). The real
property taxes for the Closing Year shall be adjusted between Seller and
Purchaser promptly upon receipt by Purchaser of the actual bills for such taxes.
Seller shall be entitled to retain for its own account any and all refunds
(whenever received) of taxes and assessments paid by Seller which relate to the
period prior to the Closing Date, and Purchaser shall be entitled to retain for
its own account any and all refunds (whenever received) on account of taxes or
assessments which relate to the period on or after Closing Date, including
without limitation, any of the same that shall result from pending property tax
appeals relating to the Property or the personalty associated therewith.
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(c) Assessments. All assessments, special assessments and other like
charges imposed against the Property, or any part thereof, by reason of
roadways, utility lines, streets, alleys or other improvements in existence,
under construction or planned as of the Closing Date shall be prorated to such
date. All such assessments, special assessments and other charges affecting the
Property and payable after the Closing Date shall be the sole responsibility of
Purchaser. All pending refunds of assessments paid by Seller prior to the
Closing Date shall be retained by Seller except to the extent credited to Seller
through these prorations, in which case they shall be retained by Purchaser.
(d) Security Deposits. All security and other deposits, if any,
including any accrued interest thereon if such interest is required to be
remitted to tenants pursuant to their respective leases, held by Seller on the
Closing Date on behalf of any tenant under any Leases shall be credited to
Purchaser, and Escrow shall deliver a notice to the Tenants, in the form of
Exhibit "C" attached hereto, advising Tenants that: (1) Purchaser has purchased
the Property, (ii) the security deposit, if any, has been delivered to Purchaser
in connection with such sale, and (iii) Seller is relieved of any and all
liability for any such security deposit.
(e) Utility Charges. Prepaid water, sewer, and other utility charges
allocable to the period from and after the Closing Date shall be credited to
Seller, and accrued water, sewer, and other utility charges shall be credited to
Purchaser.
(f) Service Contracts. Prepaid charges in connection with any
Service Contracts (as defined below) which Purchaser assumes pursuant hereto,
and any licenses or permits issued in connection with the Property shall be
credited to Seller. Accrued charges in connection with such Service Contracts,
licenses or permits shall be credited to Purchaser.
If any of the prorations described in this Section 4 cannot be
calculated accurately on the Closing Date, then the same shall be calculated as
soon as reasonably possible thereafter and either party owing the other party a
sum of money based on such subsequent prorations shall promptly pay said sum to
the other party. If either party owing funds to the other after the Closing Date
pursuant to this Section does not remit them within thirty (30) days after
demand therefor (which demand shall also include invoices or other appropriate
documentation in support thereof), such funds shall thereafter bear interest at
a "Default Rate" equal to five percent (5%) above the highest rate as announced
from time to time by Chase Manhattan Bank, N.A. at its principal office in New
York City as its "prime rate," as the same shall fluctuate from day to day, or,
if lesser, the maximum rate permitted by law.
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5. Due Diligence Investigation Period.
(a) Due Diligence Materials. Within three (3) days after the opening
of Escrow, without any representation or warranty as to accuracy or completeness
except as expressly set forth herein, and only to the extent within the physical
possession of Seller, Seller shall, at its option, deliver to Purchaser or make
available for inspection (and copying) by Purchaser, at the Property and/or the
offices of Seller, the following items:
(i) A current ALTA preliminary title report or commitment
issued by First American Title Insurance Company ("Title Company"), together
with all documents which constitute the exceptions to tide as described in the
preliminary title report (the "Preliminary Report").
(ii) Operating statements for the property, identifying all
income collected and operating expenses paid for the past 12-month period.
(iii) Rent roll for the property for the preceding 12-month
period.
(iv) Copies of real and personal property tax bills for the
preceding 12-month period.
(v) Copies of all utility bills for the preceding 12-month
period.
(vi) Copies of available plans and specifications as used for
the construction of the project.
(vii) Copies of all "Service Contracts" (hereinafter defined)
and employment contracts.
(viii) All tenant leases and amendments or modifications thereof
in effect, and any records of tenant financial statements, credit reports, and
other financial information, and tenant lease files.
(ix) Summary of all tenant leases, financial statements,
insurance policies and related materials including lease terms, rental rates,
CPI increases, renewal options, expense stops, all deposits, tenant names, unit
numbers and dates of execution of leases.
(x) A form of estoppel certificate for all leases.
(xi) The existing ALTA survey of the Property.
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(xii) Copies of all existing environmental, structural, soil,
and other reports covering the Property.
(xiii) Copies of all permits, licenses, variances, certificates
of occupancy and other governmental authorizations affecting the Property.
(xiv) Any offsite improvement or utility bonds related to the
Property.
(xv) Copies of all primary insurance policies covering the
Property and the claims history.
(xvi) All pleadings in the case described in Section 3(b) of
the Bill of Sale.
(b) Investigation Period. During the first thirty (30) days after
the opening of Escrow, and terminating as of 5:00 p.m. on such thirtieth (30th)
day (the "Investigation Period"), Purchaser may, subject to the conditions set
forth in this Agreement, investigate any and all aspects of the Property. During
the Investigation Period, Seller, at no cost or expense, shall reasonably
cooperate with Purchaser to the extent Seller's cooperation is required for
Purchaser to obtain public information pertaining to the Property from
governmental agencies. If, in Purchaser's sole discretion, Purchaser disapproves
of any aspect of the Property during the Investigation Period, Purchaser may
cancel the Escrow by Notice to Seller delivered to Seller and effective on or
before the last day of the Investigation Period. If Purchaser does not cancel
Escrow during the Investigation Period, Purchaser shall be unconditionally
obligated to purchase the Property without any contingencies except for the
Purchaser's conditions set forth below. Upon the termination of the
Investigation Period without cancellation by Purchaser as permitted under the
Agreement, the Deposit shall be non-refundable in favor of Seller except in the
case of a Seller's Default or failure of a Purchaser's condition. If Escrow is
canceled during the Investigation Period in accordance herewith, Purchaser shall
deliver to Seller, for retention by Seller, all information, studies, reports
obtained or made by Purchaser or its agents relating to the Property, to the
extent Purchaser is reimbursed therefor by Seller, and Escrow Agent shall refund
the Deposit to Purchaser, net only of Purchaser's share of costs and expenses of
the Escrow.
(c) Title. Not later than the fifth (5th) day prior to the end of
the Investigation Period, Purchaser may provide Notice to Seller that Purchaser
disapproves of one or more matters affecting title to the Property and request
that Seller correct such deficiency. All matters affecting title to the Property
which are not disapproved by Purchaser on or before such fifth (5th) day prior
to the end of the Investigation Period shall be deemed to be "Permitted
Exceptions" for the purposes of this Agreement. In the event Seller receives no
such Notice, all
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matters affecting title to the Property shall be deemed Permitted Exceptions if
Purchaser fails to cancel Escrow on or before the expiration of the
Investigation Period. If Purchaser timely objects to a title matter, Seller
shall, in the exercise of its sole discretion, at least three (3) days prior to
the end of the Investigation Period, advise Purchaser whether Seller intends to
correct the title objection or provide endorsement coverage with respect thereto
prior to the close of Escrow. If Seller elects not to correct the deficiency, or
if Seller provides no Notice to Purchaser (in which event Seller shall be deemed
to have elected not to correct the deficiency), Purchaser shall be required, to
either waive its objection or cancel Escrow on or before the expiration of the
Investigation Period. Subject to any deficiency which Seller has agreed to
correct prior to the close of Escrow, if Purchaser does not cancel Escrow during
the Investigation Period, Purchaser shall be deemed to have waived its previous
objections to matters affecting title to the Property, and such objections shall
thereafter be deemed included in the "Permitted Exceptions." Anything contained
herein to the contrary notwithstanding and notwithstanding any failure to object
or deemed approval by Purchaser hereunder, except for real estate taxes not yet
due or payable, Seller shall cause all mortgages, deeds of trust and other
monetary encumbrances (collectively, "Liens"), including without limitation all
mechanics' liens, to be released and reconveyed from the Property on or prior to
the Closing. Provided, however, Seller shall not cause to be released or
reconveyed any Liens disputed in good faith by Seller in which case Seller shall
cause First American to insure over the Lien.
(d) Purchaser's Right of Entry. Purchaser shall have the right to
enter the Property during the Investigation Period to conduct, at Purchaser's
cost, expense and liability, the following studies or inspections: (i) a market
and neighborhood analysis; (ii) a complete financial analysis of the Property;
(iii) subject to the rights of Tenants, physical inspections and structural
analysis of the Improvements; (iv) soils, geology and environmental studies
(subject to the restrictions set forth in the Entry Permit); (iv) an
architectural inspection of the Property; and (v) such other studies or
inspections as Purchaser may desire. Prior to entering the Property for any
purpose or at any time, Purchaser shall execute and deliver to Seller an Entry
Permit in the form of Exhibit "D" attached hereto, and shall first make
arrangements with Seller as to the purpose of the requested entry onto the
Property, and a mutually convenient date and time. Seller will arrange for
Purchaser's representatives to have reasonable access to the Property, as well
as cooperate in notifying Tenants of Purchaser's inspection thereof. Without
limiting the provisions of the Entry Permit attached hereto, Purchaser hereby
agrees to defend, indemnify, and hold harmless Seller from and against any and
all losses, liabilities, damages, liens, claims, demands, costs and expenses
arising out of or related to Purchaser's activities on the Property. Purchaser's
maximum liability under
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this indemnity with respect to property damage (the "Property Indemnity"),
excluding bodily injury in which no limitation on time or amounts shall apply,
shall be $1,000,000.00 and the Property Indemnity shall terminate eighteen (18)
months after the Closing or the termination of this Agreement, whichever is
first.
(e) ALTA Survey. Purchaser may cause to be prepared a current ALTA
survey; provided, however, that if Purchaser cannot obtain the survey prior to
the expiration of the Investigation Period, Purchaser must either cancel Escrow,
or proceed to purchase the Property with a general survey exception in
Purchaser's ALTA title insurance. In the event Purchaser elects to cause a
survey to be prepared, Purchaser shall deliver a full-sized, blue-line copy of
the survey to Seller. The cost of any survey shall be borne by Purchaser.
6. Leases and Contracts.
(a) Schedule of Leases and Service Contracts. Seller represents and
warrants that the Rent Roll attached hereto as Exhibit "E-1" (the "Rent Roll")
correctly shows as of the date set forth therein, all of the Leases and the
rental currently required to be paid with respect thereto. Seller represents and
warrants that, to Seller's knowledge, the Service Contract schedule attached as
Exhibit "E-2" lists all Service Contracts (as defined below) entered into by
Seller with respect to the Property, and not heretofore terminated. During the
Escrow, Seller shall maintain the Property in accordance with its obligations as
the landlord under the current Leases of the Property.
(b) Bill of Sale and Assignment Agreement. On the Closing Date,
Seller shall assign to Purchaser, the Personalty and the Intangible Property,
and Seller shall assign to Purchaser and Purchaser shall assume, all of Seller's
rights and obligations under the Leases and Service Contracts pursuant to the
Bill of Sale and Assignment (as defined below) and under the Service Contracts.
(c) Limitation on Leasing. Seller shall not modify any of the Leases
or enter into any new Leases after the date of this Agreement without the prior
written consent of Purchaser, which shall not be unreasonably withheld. If any
commission or tenant improvement cost or allowance remains outstanding or unpaid
at the Closing on account of any Lease shown on the Rent Roll (including but not
limited to the lease to the County of San Bernardino for Suite "D" at 1833
Riverview Drive dated February 28, 1996 and all expansions and renewal thereof
(collectively, the "County Lease")), Seller shall either pay such commission or
tenant improvement cost or allowance or provide Purchaser with a credit toward
the Purchase Price therefor; provided, however, that Purchaser shall pay the
cost of tenant improvements, including but not limited to the general contractor
and construction management fees, which shall be paid
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to ARES, Inc., design fees and any leasing commission due to an outside broker
in connection with the County Lease, but not any such amounts due Seller, ARES,
Inc., or any affiliate of either of them in excess of market. At the Closing,
any tenant improvement allowance or commissions, in connection with any lease
(other than the County Lease) entered into with a tenant when the tenant's rent
increases the amount of total rent shown on the Rent Roll shall be prorated so
that Purchaser pays or is charged with the Reimbursement Amount and Seller pays
or is charged with the balance. The Reimbursement Amount due at Closing shall
equal the total commissions and tenant improvements paid multiplied by the
number of months remaining on the term of the lease and divided by the total
term of the lease, in each case exclusive of any unexercised options to renew or
extend the term, and multiplied by a fraction, the numerator of which is the
portion of such rent which so represents an increase in the total rent shown on
the Rent Roll and the denominator of which is the total rent under such lease.
Purchaser's consent shall be conclusively presumed to be granted ten (10)
business days after a copy of such proposed new lease or Lease modification is
delivered to Purchaser, unless Purchaser objects in writing listing the
specific, and reasonable basis, for such objection within such ten (10) day
period.
(d) Contracts. Seller shall not, after the date of Seller's
execution of this Agreement, enter into any Service Contract affecting the
Property, or any amendment thereof, or waive, compromise or settle any rights of
Seller under any Service Contract, or terminate any Service Contract, without in
each case obtaining Purchaser's prior written consent thereto. Seller shall
terminate prior to Closing, at no cost or expense to Purchaser, any Service
contract disapproved by Purchaser during the Investigation Period, including
without limitation all property management and listing agreements; provided,
however, that with respect to any contract which is terminable on 30 days or
less notice, Seller's duty shall be limited to giving notice of termination as
far as in advance of Closing as is practical after the end of the Investigation
Period.
(e) Maintenance of the Property and Property Personnel. Between
Seller's execution of this Agreement and the Closing, Seller shall maintain the
Property in good order, condition and repair, reasonable wear and tear and,
subject to Paragraph 13 below, damage due to casualty excepted, shall perform
all work required to be performed by the landlord under the terms of any Lease,
and shall make all repairs, maintenance and replacements of the Improvements and
Personal Property and otherwise operate the Property in the same manner as
before the making of this Agreement, as if Seller were retaining the Property.
After full execution of this Agreement and until the Closing, Seller shall
maintain all existing personnel on the Property in their current employment
positions at not less than their current rate of compensation.
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(f) Management. Without limiting the effectiveness of the foregoing
provisions or the other provisions of this Agreement with respect to such
Service Contracts, in the event of the Closing of the purchase of the Property,
Purchaser shall not retain the existing employees and management agents of
Seller for the Property, and, accordingly, on the Closing, Seller shall (i)
cause all employment and management agreements respecting the Property to be
terminated, and deliver evidence of such termination to Purchaser, and (ii)
remove all employees and management personnel from the Property.
7. Conditions Precedent to Closing.
(a) Purchaser's Conditions. The closing of the purchase of the
Property on the Closing Date and Purchaser's obligation to acquire the Property
shall, in addition to any other conditions set forth herein, be conditional and
contingent upon satisfaction, or waiver by Purchaser, of each and all of the
below listed conditions (collectively the "Purchaser's Conditions"):
(i) Title. Title Company shall be unconditionally obligated to
deliver to Purchaser, at Seller's expense, an ALTA extended owner's policy of
title insurance Form B (10/17/70) (the "Title Policy") dated as of the Closing
Date in the amount of the Purchase Price showing fee title to the Land vested in
Purchaser, subject only to the Permitted Exceptions with such endorsements as
Purchaser may reasonably require (the "Endorsements") during the Investigation
Period. In no event, however, shall the failure to obtain a survey which may be
required to obtain the Title Policy delay the Closing and Purchaser agrees to
accept the Title Policy with all exceptions required by First American in the
absence of a survey.
(ii) Personal Property. The Property shall include those items
described on Exhibit "B" hereto, subject only to changes relative to use and
consumption thereof during the ordinary course of business while this Agreement
is in effect.
(iii) Compliance with Agreement. Seller shall have substantially
performed and complied with all of its covenants and conditions contained in
this Agreement.
(iv) Accuracy of Representations and Warranties. The
representations and warranties of Seller set forth in this Agreement shall be
confirmed as true and correct to the best of Seller's knowledge, information and
belief, as of the Closing Date.
(v) Condition. The physical condition of the Property shall be
substantially the same on the day of Closing as on the date of Purchaser's
execution of this Agreement, reasonable wear and tear and loss by casualty
(subject to the provisions of Paragraph 13 below) excepted.
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(vi) Litigation. As of the Closing Date, there shall be no
litigation or administrative agency or other governmental proceeding of any kind
whatsoever, pending which after Closing would materially adversely affect the
value of the Property or the ability of Purchaser to operate the Property in the
manner in which it is currently being operated, and no proceedings shall be
pending which could or would cause the redesignation or other modification of
the zoning classification of, or of any building or environmental code
requirements applicable to, any of the Property.
(vii) Rent Roll. Seller shall have provided Purchaser with an
updated Rent Roll three (3) business days prior to Closing, which updated Rent
Roll must not indicate any material adverse change from the Rent Roll last
approved by Purchaser. Seller shall specifically identify any changes from the
most recently approved Rent Roll, and Purchaser shall have performed a closing
audit which confirms the updated Rent Roll; provided however such audit may not
delay the Closing.
(viii) No Change in Information. There shall have been no
material adverse change in or addition to the information or items reviewed and
approved by Purchaser during the Investigation Period.
(ix) Estoppels. Purchaser's review and approval of estoppel
certificates covering all rentable space within the Property. Seller shall use
good faith efforts to obtain and deliver to Purchaser tenant estoppel
certificates in form and substance satisfactory to Purchaser from any and all
tenants occupying any portion of the Property (collectively, "Tenants").
Certificates substantially in the form attached hereto as Exhibit "G" shall be
deemed acceptable to Purchaser. Said certificates shall be delivered at least
five (5) days prior to Closing and shall be dated no earlier than fifteen (15)
days prior to the Closing Date. For any tenant that Seller is not able to
deliver a tenant estoppel certificate, Seller shall deliver to Buyer a
landlord's estoppel certificate addressing those items in the missing tenant's
estoppel; provided, however, that Buyer shall not be obligated to accept or
approve any estoppel provided by Seller if Buyer has reason to believe any
statement contained therein would be disputed or denied by the applicable
Tenant; and provided further, however, that a Seller's estoppel shall not be
acceptable for Rogers Binding, Inc. or for tenants representing more than twenty
percent (20%) in the aggregate, of the rental income of the property.
(b) Seller's Conditions. The closing of the purchase of the Property
on the Closing Date and Seller's obligation to sell and convey the Property
shall, in addition to any other conditions set forth herein, be conditional and
contingent upon satisfaction, or waiver by Seller, of each and all of the below
listed conditions (collectively the "Seller's Conditions"):
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(i) Title. The Title Company is prepared to issue, as of the
Closing Date, a standard coverage policy of title insurance in the amount of the
Purchase Price showing fee title to the Land vested in Purchaser, subject only
to the Permitted Exceptions.
(ii) Compliance with Agreement. Purchaser shall have
substantially performed and complied with all of its covenants and conditions
contained in this Agreement.
(iii) Accuracy of Representations and Warranties. All
representations and warranties of Purchaser contained in or made pursuant to
this Agreement shall be confirmed as true and correct to the best of Purchaser's
knowledge, information and belief, as of the Closing Date.
8. Closing Documents. On or before the Closing Date, Seller shall
deliver to Escrow Holder the following fully- executed documents and/or items,
acknowledged where appropriate (together referred to herein as the "Closing
Documents"):
(a) Deed. A Grant Deed, in the form attached as Exhibit "I" (the
"Deed"), conveying title to the Land and Improvements to Purchaser, subject to
general and special real estate taxes and assessments, and all matters of record
or apparent from an inspection or survey;
(b) Bill of Sale, Assignment and Assumption. A Bill of Sale,
Assignment and Assumption agreement in the form attached as Exhibit "J" (the
"Bill of Sale and Assignment") (I) conveying title to the Personalty to
Purchaser, (ii) assigning to Purchaser Seller's interest in all Leases and an
assumption thereof by Purchaser, (iii) assigning to Purchaser, Seller's interest
in all written or oral service, maintenance, construction, parking, brokerage,
leasing commission, advertising, employment, operating or other contracts,
arrangements or agreements affecting the Property, including any management
agreements, and any agreements pursuant to which goods, services, supplies or
any other items whatsoever are furnished and/or to be furnished in connection
with the Property, or the repair, maintenance or operation of the Property or
any portion or component thereof ("Service Contracts") not disapproved by
Purchaser during the Investigation Period, and providing for assumption thereof
by Purchaser, and (iv) assigning to Purchaser all of Seller's interest in the
Intangible Property, if any, together with originals of all Intangible Property
(if applicable) in each case without representation by Seller as to
assignability or other matters (except to the extent expressly represented and
warranted by Seller herein in Section 10 below);
(c) Non-Foreign Status Affidavit. An Affidavit of Non-Foreign Status
in the form of Exhibit "K" attached hereto and a California Form 590;
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(d) Other Documents. All other documents necessary to transfer or
assign the Property to Purchaser as provided herein to the extent in Seller's
possession or control;
(e) Tenant Leases. Originals of all leases and copies of all tenant
files, all Service Contracts assumed by Purchaser and evidence of termination of
Service Contracts not assumed by Purchaser;
(f) Building Documents. Originals of the building permits and
certificates of occupancy for the improvements and all tenant-occupied space
included within the improvements to the extent in Seller's possession or
control;
(g) Notices to Tenants. Notices to tenants of the occurrence of the
sale of the Property in a form designated by Buyer and reasonably approved by
Seller;
(h) Keys. All keys to the Property;
(i) Documents Required by Title Company. Any documents or agreements
required by the title company to issue the title policy in the form required by
this Agreement to the extent in Seller's possession or control;
(j) Tenant Estoppel. The duly-executed Tenant Estoppel Certificates
in the form attached as Exhibit "L" to the extent in Seller's possession or
control;
(k) Closing Statement. A closing statement in form and content
satisfactory to Buyer and Seller (the "Closing Statement") duly executed by
Seller.
(l) Releases. A full release and reconveyance of all monetary
encumbrances affecting the Property and any mechanics' liens in accordance with
Section 5(c).
9. Closing.
(a) Closing Date. The Closing Date shall be on a business day as
agreed to by Seller and Purchaser, but in all events shall be on a date no later
than the Outside Closing Date, unless this date is mutually extended in writing
by Seller and Purchaser.
(b) Time and Place. The Closing shall take place through Escrow on
the Closing Date at the offices of Escrow Agent.
(c) Payment of Purchase Price. Purchaser shall deliver to Escrow on
or before the Closing Date immediately available funds in the amount of the
Purchase Price and the Reimbursement Amount as defined in Section 6(c) plus any
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prorations, costs and expenses hereunder payable by Purchaser, and less the
amount of the Deposit and any prorations, costs and expenses hereunder credited
to Purchaser. The amount of the Deposit shall be paid to Seller and credited
against the Purchase Price upon Closing.
(d) Possession. Possession of the Property shall be delivered to
Purchaser on the Closing Date, subject only to the rights of Tenants under the
Leases and matters of record or apparent by inspection or survey of the
Property.
(e) Closing Costs. Seller shall pay at Closing the premium for a
standard coverage policy of title insurance, documentary transfer fees and
one-half of the escrow and recording fees. Purchaser shall pay for the ALTA
Survey, the premium increase for the extended coverage policy of title
insurance, the cost of the Endorsements and one-half of the escrow and recording
fees. Seller and Purchaser shall each be responsible for paying their respective
attorneys' fees and costs, if any.
(f) Settlement Statement and Disbursement Ledger. Escrow Agent shall
prepare and deliver to the parties on the Closing Date a correct Settlement
Statement and Cash Receipts and Disbursements Ledger.
(g) Title Policy. Title Company shall deliver the Title Policy to
Purchaser within fifteen (15) business days following the Closing Date.
10. Representation and Warranties of Seller. Seller represents and
warrants to Purchaser as follows:
(a) Status of and Execution by Seller. Seller is now and on the
Closing Date will be: (i) in good standing and validly existing as a New York
corporation; (ii) duly authorized, qualified, and licensed to do all things
required of it under or in connection with this Agreement. Seller is duly
authorized to execute and deliver this Agreement, and all agreements,
instruments, and documents herein provided to be executed by Seller will be duly
executed by and binding upon Seller as of the Closing Date.
(b) Leases. The Leases are not, to the Seller's actual knowledge, in
default as of the date of this Agreement except as set forth in the books and
records of the Properties, and Seller has provided to Purchaser true and
accurate copies of the Leases.
(c) Service Contracts. The Service Contracts listed on Exhibit "E-2"
attached hereto constitute all of the Service Contracts entered into by Seller
in connection with the Property. Seller has provided to Purchaser true and
accurate copies of all Service Contracts.
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<PAGE> 16
(d) Mechanics Liens. To Seller's knowledge, there are no mechanics
liens outstanding with respect to the Property as a result of work performed
thereon by Seller, or contractors or agents of Seller.
(e) Documents. All documents delivered by Seller to Buyer, or made
available to Buyer for review, including without limitation the Due Diligence
Materials, are true and complete copies of all documents related to the Property
in Seller's possession or control. All of Seller's books, files and records
related to the Property were delivered to or made available to Buyer for Buyer's
review.
(f) Litigation. To Seller's actual knowledge, there are no
litigation, arbitration or reference proceedings pending against Seller or the
Property.
(g) Contracts. On the Closing Date there will be no outstanding
written or oral contracts made for any improvements to the Property, or for
offsite improvements related to the Property, which have not been fully
completed and paid for which have not been consented to by Purchaser. Seller
shall cause to be discharged all mechanics' and materialmen's liens arising from
any labor or materials furnished to the Property prior to the Close of Escrow.
(h) No Defaults Under Lease. To Seller's actual knowledge, there
exists no defaults or events which, with the giving of notice or passage of
time, or both, would constitute a default by Seller under any of the leases.
(i) No Defaults Under Service Contracts. To Seller's actual
knowledge, there exists no defaults or events which, with the giving of notice
or passage of time, or both, would constitute a default by Seller or any of the
other parties to the Service Contracts.
(j) Status of Seller. Seller is not a "foreign person" within the
meaning of Internal Revenue Code Section 1445.
(k) No Violations. This Agreement and all agreements, instruments
and documents herein provided to be executed or to be caused to be executed by
Seller are (or will be) duly executed by and binding upon Seller, and do not and
will not violate any provision of any agreement, law, regulation or judicial
order to which Seller is a party or by which it is bound.
(l) Files. Seller has no knowledge of any material fact affecting
the Property except as set forth in files made available to Purchaser during the
Investigation Period (the "Files"). All files relating to the Property except
for files located in Seller's offices in Stamford, Connecticut, Teaneck, New
Jersey or New York, New York concerning the placement and
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<PAGE> 17
negotiation of the loan by Seller on the Property (the foreclosure of which the
Seller acquired the Property), have been made available for Purchaser's review
and inspection.
(m) Options. Seller has not granted any option or right of first
refusal or first opportunity to any party to acquire any interest in any of the
Property except as disclosed in the Files.
Seller shall not have any liability if, as of the Closing Date, the
representations and warranties set forth above shall not be true, if Purchaser
had knowledge of such facts prior to the expiration of the Investigation Period
and proceeds to close Escrow notwithstanding such facts. Seller shall be
entitled to state in writing prior to expiration of the Investigation Period
exceptions to the representations, warranties, and covenants set forth above,
which were inadvertently omitted or of which Seller was not aware at the time
this Agreement was executed in which case Purchaser may (i) terminate this
Agreement if such exceptions are not reasonably acceptable and the Deposit shall
be returned to Purchaser or (ii) elect to close Escrow notwithstanding such
exceptions. In either event, Seller shall have no further obligation or
liability to Purchaser. All representations, warranties and covenants by the
respective parties contained herein or made in writing pursuant to this
Agreement are intended to and shall be deemed made as of the date of this
Agreement or such writing and again at the Closing, shall be deemed to be
material, and unless expressly provided to the contrary shall survive the
execution and delivery of this Agreement, the Deed and the Closing.
Notwithstanding the immediately-preceding sentence, the representations and
warranties of Seller shall only survive for a period of one (1) year after the
Closing (the "Survival Period").
11. Representations and Warranties of Purchaser. Purchaser represents
and warrants to Seller as follows:
(a) Status of and Execution by Purchaser. Purchaser is now and on
the Closing Date will be: (i) duly formed and validly existing as a Maryland
corporation; (ii) authorized under the laws of the State of California to
conduct business and to acquire the Property; and, (iii) duly authorized to do
all things required of it under or in connection with this Agreement. Purchaser
has duly authorized and executed this Agreement, and all agreements,
instruments, and documents herein provided to be executed by Purchaser will be
duly executed by and binding upon Purchaser as of the Closing Date.
(b) No Violations. This Agreement and all agreements, instruments
and documents herein provided to be executed or to be caused to be executed by
Purchaser are (or will be) duly executed by and binding upon Purchaser, and do
not and will not violate any provision of any agreement, law, regulation
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or judicial order to which Purchaser is a party or by which it is bound.
The representations and warranties contained in Section 11 shall survive
for one (1) year after the close of Escrow.
12. Condition of the Property.
(a) As-Is. Purchaser acknowledges that Seller is selling, and
Purchaser shall accept, the Property in an "AS IS" condition without any
representation or warranty whatsoever by Seller relating to the Property, with
the exception of the express, limited representations and warranties set forth
in this Agreement. Purchaser acknowledges that it is a sophisticated real estate
investor who shall have had, as of the Closing Date, open access to, and
sufficient time to review, all information, documents, agreements, studies and
tests relating to the Property that Purchaser elects to conduct, and conduct a
complete and thorough inspection, analysis and evaluation of the Property,
including but not limited to environmental issues, if any, and shall conduct
such tests, prior to the Closing Date, and receive and review such information
as Purchaser shall require in the course of its investigation. Purchaser shall
endeavor to undertake such investigation as shall be required to make Purchaser
fully aware of the condition of the Property as well as all facts, circumstances
and information which may affect the use and operation of the Property, and
Purchaser covenants and warrants to Seller that, with the exception of Seller's
representations set forth herein, Purchaser shall rely solely on Purchaser's own
due diligence investigation in determining to purchase the Property.
(b) Release. Except for (i) the breach of an express representation
or warranty contained in this Agreement, (ii) the breach of any covenant to be
performed after the Closing, and (iii) the breach of any statutory duty of
notice or disclosure, effective as of the Closing, and only as of the Closing,
each party, on behalf of itself, its officers, directors and its and their
respective successors, shall, and by the execution of this Agreement, hereby
does, forever release the other party, its officers, directors, agents and
employees, and its and their respective successors, of and from any and all
losses, liabilities, damages, claims, demands, causes of action, costs and
expenses, whether known or unknown, arising out of or in any way, the condition
of title to the Property and the environmental and structural condition of the
Property as disclosed by the Files or due diligence performed by Purchaser.
Except for (i) the breach of an express representation or warranty contained in
this Agreement, (ii) the breach of any covenant to be performed after the
Closing, and (iii) the breach of any statutory duty of notice or disclosure,
each party shall, upon the Closing, and only as of the Closing, and, by the
execution of this Agreement, hereby does, forever release the
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other party of and from any environmental claims and causes of action existing
now or hereafter created or enacted, whether at common law or by federal, state,
county, or municipal law or ordinance. Each party agrees never to commence, aid
in any way, or prosecute against the other party, its officers, directors,
agents and employees and its and their respective successors, any action or
other proceeding based upon any losses, liabilities, damages, claims, demands,
causes of action, costs and expenses, covered in this paragraph.
(c) Waiver. Each party expressly waives any rights or benefits
available to it with respect to the foregoing release under any provision of
applicable law which generally provides that a general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time the release is agreed to, which, if known to such creditor, would
materially affect a settlement. Each party, by the execution of this Agreement,
acknowledges that it fully understands the foregoing, and with this
understanding, nonetheless elects to and does assume all risk for claims known
or unknown, described in this Section 12. Without limiting the generality of the
foregoing:
THE UNDERSIGNED ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY LEGAL COUNSEL
AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION
1542, WHICH PROVIDES AS FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT THE DEBTOR."
THE UNDERSIGNED, BEING AWARE OF THIS CODE SECTION, HEREBY EXPRESSLY
WAIVE ANY RIGHTS IT MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER
STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.
Purchaser's Initials:_______ Seller's Initials:________
13. Casualty or Condemnation. If prior to the Closing Date, the
Property shall be destroyed or substantially damaged such that the cost to
repair exceeds Five Hundred Thousand Dollars ($500,000.00), or shall become the
subject of any proceedings, judicial, administrative, or otherwise, with respect
to a Five Hundred Thousand Dollar ($500,000.00) or more taking by eminent
domain, condemnation or otherwise, Seller shall promptly notify Purchaser
thereof and Purchaser, at its option, may within fifteen (15) days after receipt
of such notice elect to terminate this Agreement by giving Seller written notice
thereof in which event the parties hereto shall be relieved and released of and
from any further duties, obligations, rights, or liabilities hereunder and the
Deposit shall be returned to Purchaser. If the
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Closing Date is within the aforesaid fifteen (15) day period, then the Closing
shall be extended to the next business day following the end of said fifteen
(15) day period. If (i) less than the above amounts of the Property is destroyed
or substantially damaged or subject to taking, or (ii) Purchaser elects to
complete the transactions contemplated herein as provided above, this Agreement
shall remain in full force and effect and the purchase contemplated herein, less
any portion of the Property taken by eminent domain or condemnation, shall be
consummated and at the Closing Seller shall assign, transfer, and set over to
Purchaser all the right, title, and interest of Seller in and to any insurance
proceeds resulting from any casualty or any awards that have been or may
thereafter be made for any taking or condemnation and Buyer shall receive a
credit toward the Purchase Price for any cost of repair not covered by such
insurance (whether by reason of insurance deductible, uninsured casualty or
otherwise and whether payable before or after Closing).
14. Default and Remedies.
IF (i) PURCHASER IS IN DEFAULT OF THIS AGREEMENT PRIOR TO THE
CLOSING, (ii) PURCHASER FAILS TO CURE SUCH DEFAULT ON OR BEFORE THE DATE WHICH
IS THREE (3) DAYS AFTER NOTICE THEREOF FROM SELLER (OR, IF EARLIER, ON OR BEFORE
THE OUTSIDE CLOSING DATE), AND (iii) SELLER ELECTS TO TERMINATE THIS AGREEMENT
DUE TO PURCHASER'S DEFAULT, THE DEPOSIT OR $200,000.00, WHICHEVER IS GREATER,
SHALL BE FORFEITED OR PAID BY PURCHASER AND RETAINED ON BEHALF OF SELLER, AND
BOTH PARTIES SHALL THEREAFTER BE RELEASED FROM ALL FURTHER OBLIGATIONS UNDER
THIS AGREEMENT. IF (i) SELLER IS IN DEFAULT OF THIS AGREEMENT PRIOR TO THE
CLOSING, (ii) SELLER FAILS TO CURE SUCH DEFAULT ON OR BEFORE THE DATE WHICH IS
THREE (3) DAYS AFTER NOTICE THEREOF FROM PURCHASER (OR, IF EARLIER, ON OR BEFORE
THE OUTSIDE CLOSING DATE), AND (iii) PURCHASER ELECTS TO TERMINATE THIS
AGREEMENT DUE TO SELLER'S DEFAULT, PURCHASER SHALL BE ENTITLED TO OBTAIN A
RELEASE OF THE DEPOSIT, AND IN LIEU OF ALL OTHER REMEDIES AND DAMAGES, PURCHASER
SHALL BE ENTITLED TO PAYMENT BY SELLER OF TWO HUNDRED THOUSAND DOLLARS
($200,000) AS LIQUIDATED DAMAGES, AND BOTH PARTIES SHALL THEREAFTER BE RELEASED
FROM ALL FURTHER OBLIGATIONS HEREUNDER.
PURCHASER AND SELLER ACKNOWLEDGE THAT PURCHASER'S AND SELLER'S
DAMAGES WOULD BE DIFFICULT OR IMPOSSIBLE TO DETERMINE IN THE EVENT,
RESPECTIVELY, OF PURCHASER'S OR SELLER'S FAILURE TO PERFORM ITS OBLIGATIONS
UNDER THIS AGREEMENT AND THAT THE DEPOSIT AND SUCH LIQUIDATED RECOVERY ARE A
REASONABLE ESTIMATE OF SUCH DAMAGES. THE DEPOSIT AND SUCH OTHER PAYMENT SHALL,
THEREFORE, BE LIQUIDATED DAMAGES TO, RESPECTIVELY, SELLER AND PURCHASER, AND
RETENTION THEREOF OR RECEIPT THEREOF SHALL BE, RESPECTIVELY, SELLER'S AND
PURCHASER'S SOLE AND EXCLUSIVE, EXCEPT FOR SPECIFIC PERFORMANCE AS PROVIDED
ABOVE, REMEDY FOR THE OTHER PARTY'S FAILURE TO PERFORM ITS OBLIGATIONS UNDER
THIS AGREEMENT IN THE EVENT THE NON-DEFAULTING PARTY ELECTS TO TERMINATE THIS
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AGREEMENT. SELLER AND PURCHASER EACH EXPRESSLY WAIVE THE REMEDIES AND ADDITIONAL
DAMAGES IN EXCESS OF LIQUIDATED AMOUNT. SELLER AND PURCHASER EACH FURTHER
ACKNOWLEDGES BY ITS INITIALS BELOW THAT WAIVER OF ITS RIGHTS PURSUANT TO THIS
SECTION 14 IS MATERIAL CONSIDERATION FOR THE OTHER TO ENTER INTO THIS AGREEMENT.
PURCHASER'S INITIALS:_______ SELLER'S INITIALS:________
15. Brokerage Commissions. Each party hereby represents and warrants to
the other that it has not incurred, and shall not have incurred as of the
Closing Date, any liability for the payment of any brokerage fee or commission
in connection with the transaction contemplated in this Agreement, except for
the commission due Grubb & Ellis and CB Commercial. Seller shall be solely
responsible for payment of a commission to Grubb & Ellis and CB Commercial which
total commission for both shall not exceed One Hundred Seventy-Two Thousand One
Hundred Twenty-Five Dollars ($172,125.00). Each party hereby agrees to defend,
indemnify and hold harmless the other from and against any and all claims of any
other person claiming a brokerage fee or commission through such party.
16. Miscellaneous.
(a) No Exchange. Seller shall not participate in, or accommodate
Purchaser in connection with, a Section 1031 exchange.
(b) Entire Agreement. This Agreement supersedes all prior
discussions, agreements and understandings between Seller and Purchaser and
constitutes the entire agreement between Seller and Purchaser with respect to
the transaction herein contemplated. This Agreement may be amended or modified
only by a written instrument executed by Seller and Purchaser.
(c) Waiver. Each party hereto may waive any breach by the other
party of any of the provisions contained in this Agreement or any default by
such other party in the observance or performance of any covenant or condition
required to be observed or performed by it contained herein; provided, however,
that such waiver or waivers shall be in writing, shall not be construed as a
continuing waiver, and shall not extend to or be taken in any manner whatsoever
to affect any subsequent breach, act or omission or default or affect each
party's rights resulting therefrom. No waiver will be implied from any delay or
failure by either party to take action on account of any default by the other
party. No extension of time for performance of any obligations or acts shall be
deemed an extension of the time for performance of any other obligations or
acts.
(d) Further Assurances. Each party hereto shall do such further acts
and execute and deliver such further
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agreements and assurances as the other party may reasonably require to give full
effect and meaning to this Agreement.
(e) Notices. All notices and demands, given or required to be given
by any party hereto to any other party ("Notices") shall be in writing and shall
be deemed to have been properly given if and when delivered in person, sent by
telegram (with verification of receipt), by telecopy with electronic
confirmation of receipt thereof and with concurrent mailing by U.S. Postal
Service delivery, or three (3) business days after having been deposited in any
post office, branch post office, or mail depository maintained by the U S.
Postal Service and sent by registered or certified mail, postage prepaid,
addressed as follows (or sent to such other address as any party shall specify
to the other party pursuant to the provisions of this Section):
TO SELLER:
The Mutual Life Insurance Company of New York
19712 MacArthur Boulevard, Suite 200
Irvine, California 92715
Attention: Stuart J. Simon
Telephone (714) 622-8880
Facsimile (714) 622-8888
TO PURCHASER:
Pacific Gulf Properties Inc.
363 San Miguel Drive, Suite 100
Newport Beach, California 92660-7805
Attention: Lonnie Nadal
Telephone (714) 721-2700
Facsimile (714) 721-2713
And copy to:
Cox, Castle & Nicholson, LLP
2049 Century Park East
28th Floor
Los Angeles, California 90067-3284
Attention: John Kuhl, Esq.
Telephone (310) 284-2267
Facsimile (310) 277-7889
TO ESCROW:
Betty Hollenbeck
First American Title Company
200 E. Sandpointe, #600
Santa Ana, California 92707
Telephone (714) 557 4444
Facsimile (714) 444-5767
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(f) Successors and Assigns; Survival. This Agreement shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors, heirs, administrators and assigns, provided, however,
that Purchaser may not assign this Agreement without the written consent of
Seller.
(g) Governing Law and Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of California and the venue
shall be in Orange County.
(h) No Third Parties Benefitted. The parties do not intend to confer
any benefit on any person, firm, or corporation other than the parties to this
Agreement, except as and to the extent otherwise expressly provided herein.
(i) Attorneys' Fees. In the event either party hereto fails to
perform any of its obligations under this Agreement or in the event a dispute
arises concerning the meaning or interpretation of any provision of this
Agreement, the defaulting party or the party not prevailing in such dispute, as
the case may be, shall pay any and all costs and expenses incurred by the other
party in enforcing or establishing its rights hereunder, including, without
limitation, court costs and reasonable attorneys' fees.
(j) Construction. The section titles or captions in this Agreement
are for convenience only and shall not be deemed to be part of this Agreement.
All pronouns and any variations of pronouns shall be deemed to refer to the
masculine, feminine, or neuter, singular or plural, as the identity of the
parties may require. Whenever the terms referred to herein are singular, the
same shall be deemed to mean the plural, as the context indicates, and vice
versa. This Agreement shall not be construed as if it had been prepared only by
Purchaser or Seller but rather as if both Purchaser and Seller had prepared the
same. If any term, covenant, condition, or provision of this Agreement or the
application thereof to any person or circumstance shall, at any time or to any
extent, be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other than
those to which it is held invalid or unenforceable, shall not be affected
thereby, and each provision of this Agreement shall be valid and shall be
enforced to the fullest extent permitted by law.
(k) Time of Essence. Time is of the essence of this Agreement and
each and every term and provision hereof.
(l) Confidentiality and Indemnification. Purchaser covenants and
agrees that: (i) all information provided to it by Seller in connection with the
Property or resulting from Purchaser's inspections of the Property and review of
relevant materials will be held in strict confidence by it, its agents and
employees prior to Closing, except to such attorneys, accountants, investment
advisors, lenders, underwriters and
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others (A) as are reasonably required to evaluate and consummate that
transaction, (B) in connection with Purchaser's enforcement of its rights
hereunder; (C) pursuant to any legal requirement, any statutory reporting
requirement or any accounting or auditing disclosure requirement; or (D) to
existing or potential officers, directors, investors or stockholders in
Purchaser; (ii) Purchaser will return all such information to Seller in the
event the transaction contemplated by this Agreement is not consummated, and
(iii) Purchaser will conduct Purchaser's own due diligence inquiry with respect
to the Property. Purchaser further agrees to indemnify and hold Seller harmless
from and against any and all claims or damages, including reasonable attorneys'
fees, resulting from Purchaser's breach of the covenant contained in this
paragraph and/or from its or its agents' entrance onto the Property to the
extent provided in 5(d). The indemnification contained herein shall, without
limitation, survive the termination of this Agreement.
(m) Consents and Approvals. Both Seller and Purchaser represent and
warrant to the other that each have obtained all requisite consents and
approvals, whether required by internal operating procedures or otherwise, for
entering into this Agreement and closing the transaction contemplated hereby;
provided, however Buyer's Executive Committee approval will be obtained during
the Investigation Period.
(n) No Other Agreements. After the Effective Date and until the
earlier of the termination of this Agreement or the expiration of the
Investigation Period, Seller shall not enter into any written agreement with any
other person or entity for the sale of the Property; provided, however, that
Seller may accept back-up offers with respect to purchase of the Property.
(o) Exhibits. All of the Exhibits referenced in this Agreement are
incorporated herein by reference.
(p) Not an Offer. This Agreement does not constitute an offer for
either party to the other. Until fully executed this Agreement shall not bind
either party hereto nor shall it impose any obligations thereon.
(q) Real Estate Investment Trust. Purchaser hereby advises Seller
that Purchaser is qualified as a real estate investment trust under the
provisions of the Internal Revenue Code of 1986, as amended, and that, by reason
thereof, the maintaining of such status and the avoiding of any activity which
might cause a penalty tax to be applied is of material concern to Purchaser.
Accordingly, Seller agrees to make any modifications or amendments to this
Agreement requested by Purchaser prior to the expiration of the Investigation
Period that may be necessary for Purchaser to maintain its status as a real
estate investment trust or in order for it to avoid a penalty tax; provided,
however, that Seller shall have no obligation to enter into any such
modification or amendment that
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<PAGE> 25
would materially adversely affect, in Seller's.sole judgment, Seller's rights,
duties, or obligations under this Agreement. If Seller declines to modify or
amend this Agreement for any reason, Purchaser shall have the right to terminate
this Agreement by written notice delivered to Seller prior to the expiration of
the Inspection Period. In the event Purchaser exercises such termination right,
neither party shall have any further rights or obligations hereunder (except
with respect to provisions of this Agreement which recite that they survive
termination), the Deposit shall be returned to Purchaser and all other funds and
documents deposited in escrow shall be returned to the party depositing the
same.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
PURCHASER:
PACIFIC GULF PROPERTIES INC.,
a Maryland corporation
By:_____________________________
Its:____________________________
By:_____________________________
Its:____________________________
SELLER:
THE MUTUAL LIFE INSURANCE
COMPANY OF NEW YORK,
a New York corporation
By:_____________________________
Kenneth M. Levine,
Executive Vice President
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<PAGE> 1
EXHIBIT 10.4
STANDARD OFFER, AGREEMENT AND ESCROW
INSTRUCTIONS FOR PURCHASE OF REAL ESTATE
(Non-Residential)
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
As of April 30, 1996
(Date for Reference Purposes)
1. BUYER.
1.1 Pacific Gulf Properties Inc. or Nominee, (the "Buyer") hereby
offers to purchase the real property, hereinafter described, from the owner
thereof (the "Seller") (collectively, the "Parties" or individually, a "Party"),
through an escrow (the "Escrow") to close on or before 45 days after the Date of
Agreement (the "Expected Closing Date") to be held by First American Title
Insurance Company ESCROW #9667473 (the "Escrow Holder") whose address is 114 E.
Fifth Street, Santa Ana, CA 92701, Phone No. _______, Facsimile No. ___________
upon the terms and conditions set forth in this agreement (the "Agreement").
Buyer shall have the right to assign Buyer's rights hereunder, but any such
assignment shall not relieve Buyer of Buyer's obligations herein unless the
Seller expressly releases Buyer.
1.2 The term "Date of Agreement" as used herein shall be the date when
by execution and delivery (as defined in paragraph 17.1) of this document, Buyer
and Seller have reached agreement in writing whereby Seller agrees to sell and
Buyer agrees to purchase, the Property upon terms accepted by both Parties. The
Escrow Holder shall provide written (via telecopy) notice to Seller and Buyer
identifying the Date of Agreement on the occurrence of the same.
2. PROPERTY.
2.1 The real property (the "Property") that is the subject of this
offer consists of approximately 105,930 square feet of office/warehouse space,
referred to as North County Business Park, described on Exhibit A attached
hereto, is located in the City of Yorba Linda, County of Orange, State of
California, is commonly known by the street address of 22601-22699 Old Canal
Road and is legally described as: A.P.N. 352-114-09.
2.2 If the legal description of the Property is not complete or is
inaccurate, this Agreement shall not be invalid and the legal description shall
be completed or corrected to meet the requirements of First American Title
Insurance Company (the "Title Company"), which Title Company shall issue the
title policy hereinafter described.
2.3 The Property includes, at no additional cost to Buyer, the
permanent improvements thereon, including those items which the law of the state
in which the Property is located provides is
<PAGE> 2
part of the Property, as well as the following items, if any, owned by Seller
and presently located on the Property: electrical distribution systems (power
panels, buss ducting, conduits, disconnects, lighting fixtures), telephone
distribution systems (lines, jacks and connections), space heaters, air
conditioning equipment, air lines, fire sprinkler systems, security systems,
carpets, window coverings, wall coverings, and the "Property" shall also include
(a) all tangible personal property owned by Seller located on or in or used in
connection with the Property as of the date hereof and as of closing (the
"Tangible Personal Property"); (b) all intangible personal property now or
hereafter owned by Seller in connection with the Property, including, without
limitation, the right to use the name "North County Business Park" and any other
trade name now used in connection with the Property (the "Intangible Personal
Property"); (c) all leases, rental agreements and other agreements for the use
or occupancy of the Property or any portion thereof (the "Leases"); and (d) to
the extent approved by Buyer, all service, utility and other agreements and
contracts relating to the use and operation of the Property (the "Assigned
Contracts"). The Tangible Personal Property, Intangible Personal Property,
Leases and Assigned Contracts are collectively referred to as the "Personal
Property"(collectively, the "Improvements).
2.4 If the Property is located in the State of California, the
Broker(s) is/are required under the Alquist-Priolo Special Studies Zones Act, to
disclose to a prospective purchaser of real property whether the property being
purchased is located within a delineated special studies zone (a zone that
encompasses a potentially or recently active trace of an earthquake fault that
is deemed by the State Geologist to be sufficiently active and well-defined
enough to constitute a potential hazard to structures from surface faulting or
fault (creep). If the Property is located within such a special studies zone,
its development may require a geologic report from a state registered geologist.
In accordance with such law, the Broker(s) hereby inform(s) Buyer that the
Property
/X/ (a) is not within such a special studies zone.
/ / (b) is within such a special studies zone.
2.5 If (1) the Property is located in the State of California, (2)
the improvements were constructed prior to 1975, and (3) the Improvements
include structures with (i) pre-cast (e.g., tilt-up) concrete or reinforced
masonry walls together with wood frame floors or roofs or (ii) unreinforced
masonry walls, California law requires that Seller or Seller's Broker provide
Buyer with a copy of The Commercial Property Owner's Guide to Earthquake Safety
(the "Booklet") published by the California Seismic Safety Commission. Seller
and Seller's Broker hereby inform Buyer that the Property:
/X/(a) meets the foregoing requirements, and Seller and Seller's Broker
are required to provide Buyer with a
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<PAGE> 3
copy of the Booklet. Seller or Seller's Broker shall, within
five (5) business days of the Date of Agreement, deliver to
Buyer a copy of the Booklet and a completed "Commercial Property
Earthquake Weakness Disclosure Report" contained in the Booklet
duly executed by Seller. Within five (5) business days of
Buyer's receipt of said Disclosure Report, Buyer shall deliver a
duly countersigned copy of the same to Escrow Holder with a copy
to Seller and Seller's Broker. Escrow Holder is hereby
instructed that the Escrow shall not close unless and until
Escrow Holder has received the Disclosure Report duly signed by
both Seller and Buyer.
/ /(b) does not meet the foregoing requirements requiring the delivery
of the Booklet.
3. PURCHASE PRICE.
3.1 The purchase price (the "Purchase Price") to be paid by Buyer to
Seller for the Property shall be $6,300,000.00, payable as follows:
<TABLE>
<S> <C>
All cash transaction, the
Purchase Price): $6,300,000.00
Total Purchase Price $6,300,000.00
=============
</TABLE>
3.2 INTENTIONALLY DELETED
4. DEPOSITS.
4.1 Buyer hereby delivers a check in the sum of $50,000, payable to
First American Title Insurance Company, to be held uncashed until the Date of
Agreement, the check shall be applied toward the Purchase Price of the Property
at the Closing, as defined in paragraph 8.3 or returned (together with all
interest thereon) to buyer in accordance with the terms of this Agreement.
4.2 Within five (5) business days after the Date of Agreement, Buyer
shall deposit with Escrow Holder the additional sum of $50,000 to be applied to
the Purchase Price at the Closing.
4.3 The funds deposited with Escrow Holder b or on behalf of Buyer
under paragraphs 4.1 and 4.2 above (collectively the "Deposit"), shall be held
by Escrow Holder in such interest-bearing account or accounts pursuant to
Buyer's separate written instructions, and appropriate and consistent with the
timing requirements of this transaction. The interest therefrom shall accrue to
the benefit of Buyer, who hereby acknowledges that there may be penalties or
interest forfeitures if the applicable instrument is redeemed prior to its
specified maturity. Buyer's Federal Tax Identification Number is __________.
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<PAGE> 4
5. INTENTIONALLY DELETED.
6. INTENTIONALLY DELETED.
7. REAL ESTATE BROKERS.
7.1 The following real estate broker(s) (collectively, the "Brokers")
and brokerage relationships exist in this transaction and are consented to by
the parties:
/ / N/A represents Seller exclusively ("SELLER'S BROKER")
/ / Voit Commercial Brokerage represents Buyer exclusively ("BUYER'S
BROKER"); or
/ / N/A represents both Seller and Buyer ("DUAL AGENCY"). (Also see
Paragraph 26.)
(the "Broker(s)"), all such named Broker(s) being the procuring cause(s) of this
Agreement. See paragraph 26 for Disclosures Regarding the Nature of a Real
Estate Agency Relationship. Buyer shall use the services of Buyer's Broker
exclusively in connection with any and all negotiations and offers with respect
to the property described in paragraph 2.1 for a period of one year from the
date above.
7.2 Buyer and Seller each represent and warrant to the other that
he/she/it has had no dealings with any person, firm, broker or finder in
connection with the negotiation of this Agreement and/or the consummation of the
purchase and sale contemplated herein, other than the Broker(s) named in
paragraph 7.1, and no broker or other person, firm or entity, other than said
Broker(s) is/are entitled to any commission or finder's fee in connection with
this transaction as the result of any dealings or acts of such Party. Buyer and
Seller do each hereby agree to indemnify, defend, protect and hold the other and
their successors and assigns and the Property harmless from and against any
costs, losses, expenses or liability arising out of such claim by any broker,
finder or other similar party other than said named Broker(s) by reason of any
dealings or act (actual or alleged) of the indemnifying Party (including,
without limitation, reasonable attorneys' fees and costs). All commissions and
fees payable to the Broker shall be paid by Seller only.
8. ESCROW AND CLOSING.
8.1 This Agreement shall constitute not only the agreement of purchase
and sale between Buyer and Seller, but also instructions to Escrow Holder for
the consummation of the Agreement through the Escrow. Escrow Holder shall not
prepare any further escrow instructions restating or amending this Agreement
unless specifically so instructed by the Parties of a Broker herein. Escrow
Holder shall provide, and the Seller and Buyer shall approve, each in their
reasonable discretion, a Closing Statement.
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<PAGE> 5
8.2 Escrow Holder is hereby authorized and instructed to conduct the
Escrow in accordance with this Agreement, applicable law, custom and practice of
the community in which Escrow Holder is located, including any reporting
requirements of the Internal Revenue Code. In the event of a conflict between
the law of the state where the Property is located and the law of the state
where the Escrow Holder is located, the law of the state where the Property is
located shall prevail.
8.3 Subject to satisfaction of the contingencies herein described,
Escrow Holder shall close the escrow (the "Closing" or "Close of Escrow") by
recording the grant deed and other documents required to be recorded and by
disbursing the funds and documents in accordance with this Agreement, and the
separate written instructions of Buyer that are not inconsistent herewith.
8.4 If this transaction is terminated for non-satisfaction and
non-waiver of a Buyer's Contingency, as defined in paragraph 9.4 then neither of
the Parties shall thereafter have any liability to the other under this
Agreement, except to the extent of the breach of any affirmative covenant or
warranty in this Agreement that may have been involved. In the event of such
termination, Buyer shall be promptly refunded all funds deposited by or on
behalf of Buyer with a Broker, Escrow Holder or Seller including all interest
accrued thereon. Title Company and Escrow Holder cancellation fees and costs and
shall be equally shared by Buyer and Seller herewith.
8.5 The Closing shall occur on the Expected Closing Date, or as soon
thereafter as the Escrow is in condition for Closing, provided, however, that if
the Closing does not occur by the Expected Closing Date and the Expected Closing
Date is not extended by mutual instructions of the Parties, a Party hereto not
then in default under this Agreement may notify the other Party, Escrow Holder,
and Broker(s), in writing that, unless the Closing occurs within five (5)
business days following said notice, the Escrow and this Agreement shall be
deemed terminated without further notice or instructions.
8.6 Should the Closing not occur during said five (5) day period, this
Agreement and Escrow shall be deemed terminated and Escrow Holder shall
forthwith return all monies including all interest accrued thereon and documents
to the Party who deposited them. However, no refunds or documents shall be
returned to a party claimed by written notice to Escrow Holder to be in default
under this Agreement.
8.7 Except as otherwise provided herein, the termination of Escrow and
this Agreement and/or the return of deposited funds or documents shall not
relieve or release either Buyer or Seller from any obligation to pay Escrow
Holder's fees and costs or constitute a waiver, release or discharge of any
breach or default that has occurred in the performance of the obligations,
agreements, covenants or warranties contained herein.
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<PAGE> 6
8.8 If this Agreement terminates for any reason other than Seller's
breach or default, then at Seller's request, and as a condition to the return of
Buyer's deposit, Buyer shall within five (5) days after written request deliver
to Seller, copies of all surveys, engineering studies, soil reports, maps,
master plans, feasibility studies and other similar items prepared by or for
Buyer that pertain to the Property, provided that Seller shall pay or reimburse
Buyer for the cost therefor.
8.9 If the transaction is terminated due to Seller's breach or default,
the Deposit including all interest accrued thereon, shall promptly be returned
to Buyer.
9. CONTINGENCIES TO CLOSING. Notwithstanding anything to the contrary,
specifically in Item #9 "Contingencies to Closing," Buyer shall have 30 days
from the Date of Agreement to approve/waive or disapprove the contingencies
specified in Item #9. Any disapproval within the 30-day contingency period by
Buyer shall be at its sole and absolute discretion. In the event any condition
precedent is not satisfied, Buyer may, in its sole and absolute discretion,
terminate this Agreement, whereupon escrow holder is hereby irrevocably
instructed to return to Buyer all funds previously deposited and all interest
thereon, and the parties shall have no further rights or obligations to each
other.
9.1 The Closing of this transaction is contingent upon the satisfaction
or waiver of the following contingencies (See Addendum).
(a) Disclosure. Buyer's receipt and written approval within thirty
(30) days after delivery to Buyer, of a completed Property Information Sheet
(the "Property Information Sheet"), concerning the Property, duly executed by or
on behalf of Seller in the current form or equivalent to that published by the
American Industrial Real Estate Association (the "AIR") Seller shall provide
Buyer with the Property Information Sheet within ten (10) days following the
Date of Agreement. See also paragraph 2.5 for possible additional disclosure and
contingency regarding a "Commercial Property Earthquake Weakness Disclosure
Report."
(b) Physical Inspection. Buyer's written approval within thirty
(30) days following the later of the Date of Agreement or receipt by Buyer of
the Property Information Sheet, of an inspection by Buyer, at Buyer's expense,
of the physical aspects of the Property. Seller hereby grants permission for
Buyer to talk with Seller's contractors, tenants and governmental agencies
regarding the Property. Seller shall allow Buyer to enter the Property at all
reasonable times for the purpose of conducting inspections, tests, studies and
surveys. Buyer shall have the right to inspect books and records regarding, but
not limited to, income and expenses.
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<PAGE> 7
(c) Hazardous Substance Conditions Report. Buyer's written approval
within thirty (30) days following the later of the Date of Agreement or receipt
by Buyer of the Property Information Sheet, of a Hazardous Substance Conditions
Report concerning the Property and relevant adjoining properties. Such report
will be obtained at Buyer's direction and expense. A "Hazardous Substance" for
purposes of this Agreement is defined as any substance whose nature and/or
quantity of existence, use, manufacture, disposal or effect, render it subject
to Federal, state or local regulation, investigation, remediation or removal as
potentially injurious to public health or welfare. A "Hazardous Substance
Condition" for purposes of this Agreement is defined as the existence on, under
or relevantly adjacent to the Property of a Hazardous Substance that would
require remediation and/or removal under applicable Federal, state or local law.
(d) Soil Inspection. Buyer's written approval, within thirty (30)
days after the later of the Date of Agreement or receipt by Buyer of the
Property Information Sheet, of a soil test report concerning the Property. Said
report shall be obtained at Buyer's direction and expense. Seller shall promptly
provide to Buyer copies of any existing soils reports that Seller may have.
(e) Governmental Approvals. Buyer's review, within thirty (30) days
of the Date of Agreement, of all approvals and permits from governmental
agencies or departments which have or may have jurisdiction over the Property
which Buyer deems necessary or desirable in connection with its intended use of
the Property, including, but not limited to, permits and approvals required with
respect to zoning, planning, building and safety, fire, police, handicapped
access, transportation and environmental matters.
(f) Condition of Title. Buyer's written approval of a current ALTA
extended coverage preliminary title report concerning the Property (the "PTR")
issued by the Title Company, as well as all documents (the "Underlying
Documents") referred to in the PTR, and the issuance by the Title Company of the
title policy described in 10.1. Seller shall cause the PTR and all Underlying
Documents to be delivered to Buyer promptly after the Date of Agreement. Buyer's
approval is to be given within thirty (30) days after receipt of said PTR and
legible copies of all Underlying Documents. The disapproval by Buyer of any
monetary encumbrance, which by the terms of this Agreement is not to remain
against the Property after the Closing, shall not be considered a failure of
this condition, as Seller shall have the obligation, at Seller's expense, to
satisfy and remove such disapproved monetary encumbrance at or before the
Closing.
(g) Survey. Buyer's written approval, within thirty (30) days after
receipt of the PTR and Underlying Documents, of an ALTA title supplement based
upon a survey prepared to American Land Title Association (the "ALTA") standards
for an owner's
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<PAGE> 8
policy by a licensed surveyor, showing the legal description and boundary lines
of the Property, any easements of record, and any improvements, poles,
structures and things located within ten (10) feet either side of the Property
boundary lines. The survey shall be prepared at Buyer's direction and expense.
Buyer elects to have an ALTA extended coverage owner's form of title policy and
Buyer shall pay any additional premium attributable thereto.
(h) Existing Leases and Tenancy Statements. Buyer's written
approval, within thirty (30) days after receipt of legible copies of all leases,
subleases or rental arrangements (collectively the "Existing Leases") affecting
the Property, and a statement (the "Tenancy Statement") in the form provided by
Buyer, executed by Seller and each tenant and subtenant of the Property. Seller
shall provide Buyer with said Existing Leases and Tenancy Statements promptly
after the Date of Agreement.
(i) Other Agreements. Buyer's written approval, within thirty (30)
days after receipt, of a copy of any other agreements ("Other Agreements") known
to Seller that will affect the Property beyond the Closing. Seller shall cause
said copies to be delivered to Buyer promptly after the Date of Agreement.
(j) Intentionally Deleted.
(k) Intentionally Deleted.
(l) Destruction, Damage or Loss. There shall not have occurred
prior to the Closing, a destruction of , or damage or loss to, the Property or
any portion thereof, from any cause whatsoever, which would cost more than
$10,000.00 to repair or cure or any taking by eminent domain. If the cost of
repair or cure is $10,000.00 or less, Seller shall repair or cure the loss prior
to the Closing. Buyer shall have the option, within ten (10) days after receipt
of written notice of a loss costing more than $10,000.00 to repair or cure, to
either terminate this transaction or to purchase the Property notwithstanding
such loss, but without deduction or offset against the Purchase Price. If Buyer
does not elect to terminate this transaction, Buyer shall be entitled to any
insurance proceeds applicable to such loss plus an amount equal to any
deductible. Unless otherwise notified in writing by either Party or Broker,
Escrow Holder shall assume no destruction, damage or loss has occurred prior to
Closing.
(m) Material Change. No Material Change, as hereinafter defined,
shall have occurred with respect to the Property that has not been approved in
writing by Buyer. For purposes of this Agreement, a "Material Change" shall be a
change in the status of the use, occupancy, tenants, or condition of the
Property as reasonably expected by the Buyer, that occurs after the date of this
offer and prior to the Closing. Buyer shall have ten (10) days following receipt
of written notice from any source of any such Material Change within which to
approve or
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<PAGE> 9
disapprove same and terminate this transaction. Unless otherwise notified in
writing by either Party or Broker, Escrow Holder shall assume that no Material
Change has occurred prior to the Closing.
(n) Performance. The delivery of all documents and the due
performance by Seller of each and every undertaking and agreement to be
performed by Seller under this Agreement.
(o) Breach of Warranty. That each representation and warranty of
Seller herein be true and correct as of the Closing.
(p) In addition, the following are conditions precedent to Buyer's
obligation to purchase the Property:
(i) At least three (3) and no more than five (5) business
days prior to closing, Seller shall provide (and Seller hereby covenants to
provide) to Buyer an updated Rent Roll which updated Rent Roll must not indicate
any material adverse change from the Rent Roll last approved by Buyer. Buyer
shall have the right to perform a closing audit which confirms the updated Rent
Roll, although the performance of such audit shall not be a condition to
Closing. Seller shall certify (to the actual knowledge of Seller) the Rent Roll
as true and complete and shall identify any events which with the passage of
time and/or the giving of notice would constitute a tenant default.
(ii) Seller shall have terminated prior to the closing, at no
cost or expense to Buyer, any and all contracts affecting the Property that are
not approved by Buyer, provided the same are terminable without penalty on not
more than thirty (30) days notice.
(iii) Receipt by Buyer of a certificate from the California
Secretary of State indicating that, as of the closing, there are no filings
against Seller or any of the Personal Property under the California Uniform
Commercial Code which would be a lien on any of the Personal Property following
the closing or, to the extent any such liens exist, Seller shall cause the same
to be released and reconveyed at Seller's sole cost and expense.
(q) Seller shall provide the following additional due diligence
items to Buyer within ten (10) days of the Date of Agreement:
(i) All presently effective warranties or guaranties relating
to the Property or any portion thereof, to the extent in Seller's possession or
control.
(ii) A list of all Personal Property included within the
Property, if any.
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<PAGE> 10
(iii) A copy of the Property budget for the current year.
(iv) A current rent roll certified by the Seller to be
accurate and complete in form and content reasonably satisfactory to Buyer.
(v) All licenses, permits, variances and other governmental
authorizations relating to the use or occupancy of the Property, to the extent
in the Seller's possession or control.
(vi) Annual statements of operations for the Property for 1994
and 1995. Buyer shall have the right to audit Seller's records for these
periods.
(vii) A copy of any survey of the Property in Seller's
possession.
9.2 All of the contingencies specified in sub-paragraphs (a) through
(p) of paragraph 9.1 are for the benefit of, and may be waived by, Buyer, and
may be elsewhere herein referred to as "Buyer Contingencies."
9.3 If Buyer shall fail, within the applicable time specified, to
approve or disapprove in writing to Escrow Holder, Seller, any item, matter or
document subject to Buyer's approval under the terms of this Agreement, it shall
be conclusively presumed that Buyer has disapproved such item, matter or
document. Buyer's conditional approval shall constitute a disapproval, unless
provision is made by the Seller within the time specified therefor by the Buyer
in the conditional approval or by this Agreement, whichever is later, for the
satisfaction of the condition imposed by the Buyer.
9.4 If any Buyer's Contingency is not satisfied or if Buyer disapproves
any matter subject to its approval within the time period applicable thereto
("Disapproved Item"), Seller shall have the right within five (5) days following
the expiration of the time period applicable to such Buyer Contingency or
receipt of notice of Buyer's disapproval, as the case may be, to elect to cure
such Disapproved Item prior to the Expected Closing Date ("Seller's Election")
by written notice to Buyer including reasonable detail regarding the manner in
which Seller shall cause such removal or satisfaction of Buyer's conditions to
acceptance of each Disapproved Item. Seller's failure to give to Buyer within
said five (5) day period, written notice of Seller's commitment to cure such
Disapproved Item on or before the Expected Closing Date shall be conclusively
presumed to be Seller's Election not to cure such Disapproved Item; provided,
however, that, whether or not objected to by Buyer, Seller must comply with all
of Seller's other obligations and duties under this Agreement. If Seller elects,
either by written notice or failure to give written notice, not to cure a
Disapproved Item,
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<PAGE> 11
Buyer shall have the election, within ten (10) days after Seller's Election to
either accept title to the Property subject to that Disapproved Item, or to
terminate this transaction. Buyer's failure to elect termination by written
notice to Seller within said ten (10) day period shall constitute Buyer's
election to terminate this transaction. Unless expressly provided otherwise
herein, Seller's right to cure shall not apply to Hazardous Substance Conditions
referenced in paragraph 9.1(c). Unless the parties mutually instruct otherwise,
if the time periods for the satisfaction of contingencies or for Seller's and
Buyer's said Elections would expire on a date after the Expected Closing Date,
the Expected Closing Date shall be deemed extended to coincide with the
expiration of three (3) business days following the expiration of: (a) the
applicable contingency period(s), (b) the period within which the Seller may
elect to cure the Disapproved Item, or (c) if Seller elects not to cure, the
period within which Buyer may elect to terminate this transaction, whichever is
later.
9.5 Buyer understands and agrees that until such time as all Buyer's
contingencies have been satisfied or waived, Seller and/or its agents may
solicit, entertain and/or accept back-up offers to purchase the subject Property
in the event the transaction covered by this Agreement is not consummated.
9.6 As defined in subparagraph 9.1(c), Buyer and Seller acknowledge
that extensive local, state and Federal legislation establish broad liability
upon owners and/or users of real property for the investigation and remediation
of a Hazardous Substance Condition. The determination of the existence of a
Hazardous Substance Condition and the evaluation of the impact of such a
condition are highly technical and beyond the expertise of Broker(s). Buyer and
Seller acknowledge that they have been advised by Broker(s) to consult their own
technical and legal experts with respect to the possible Hazardous Substance
Condition aspects of this Property or adjoining properties, and Buyer and Seller
are not relying upon any investigation by or statement of Broker(s) with respect
thereto. Buyer and Seller hereby assume all responsibility for the impact of
such Hazardous Substance Conditions upon their respective interests herein.
10. DOCUMENTS REQUIRED AT CLOSING:
10.1 The issuance by the Title Company to the Buyer of an ALTA Extended
Coverage Owner's Policy of Title Insurance (Form B, revised 10/17/70, with
Endorsement Form 1 Coverage) in the amount of the Purchase Price insuring fee
simple title to the Property in Buyer, subject only to such exceptions as Buyer
shall have approved and containing such endorsements as Buyer may specify prior
to the expiration of the Contingency Period.
"IMPORTANT: IN A PURCHASE OR EXCHANGE OF REAL PROPERTY, IT MAY BE ADVISABLE TO
OBTAIN TITLE INSURANCE IN CONNECTION WITH THE CLOSE OF ESCROW SINCE THERE MAY BE
PRIOR RECORDED LIENS AND
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<PAGE> 12
ENCUMBRANCES WHICH AFFECT YOUR INTEREST IN THE PROPERTY BEING ACQUIRED. A NEW
POLICY OF TITLE INSURANCE SHOULD BE OBTAINED IN ORDER TO ENSURE YOUR INTEREST IN
THE PROPERTY THAT YOU ARE ACQUIRING."
10.2 Seller shall deliver or cause to be delivered to Escrow Holder at
least one (1) business day prior to Closing, an original ink signed
(a) Grant deed, duly executed and in recordable form, conveying fee
title to the Property to Buyer.
(b) Intentionally Deleted.
(c) To the extent in Seller's possession or control, Existing
Leases and Other Agreements and all Lease files and keys to the Property, and
copies of all Leases and other Agreements certified by Seller to be true and
correct, to the extent the originals of any Leases or other Agreements are not
in Seller's possession or control. Seller shall deliver an assignment and
assumption of leases and notices to tenants, duly executed by Seller.
(d) The Tenancy Statements executed by Seller and the Tenant(s) of
the Property.
(e) An affidavit executed by Seller to the effect that Seller is
not a foreign person within the meaning of Internal Revenue Code Section 1445 or
successor statutes. If Seller does not provide such affidavit in form reasonably
satisfactory to Buyer at least three (3) business days prior to the Closing,
Escrow Holder shall at the Closing deduct from Seller's proceeds and remit to
Internal Revenue Service such sum as is required by applicable Federal law with
respect to purchases from foreign sellers.
(f) Licenses, permits, variances, and certificates of occupancy.
(g) a bill of sale and an assignment of intangible property. The
documents listed at (a), (c), (d), (e) and (f) are collectively the "Closing
Documents").
10.3 Buyer shall deliver or cause to be delivered to Seller through
escrow:
(a) The Assignment of intangible property and the cash portion of
the Purchase Price and such additional sums as are required of Buyer under this
Agreement for prorations, expenses and adjustments. The balance of the cash
portion of the Purchase Price, including Buyer's portion of escrow charges and
other cash charges, if any, shall be deposited by Buyer with Escrow Holder, by
cashier's check drawn upon a local major banking institution, federal funds wire
transfer, or any other
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method acceptable to Escrow Holder as immediately collectable funds no later
than 11:00 o'clock A.M. on the business day prior to the Expected Closing Date.
(b) Intentionally Deleted.
(c) The Assignment and Assumption of Lessor's Interest in Lease
form specified in paragraph 10.2(c), above, duly executed by Buyer with respect
to the obligations of the Lessor accruing after the Closing as to each Existing
Lease.
(d) Assumptions duly executed by Buyer of the obligations of Seller
that accrue after Closing under any Other Agreements.
(e) Intentionally Deleted.
11. PRORATIONS, EXPENSES AND ADJUSTMENTS. The following are to be
apportioned as of the close of escrow, as follows:
(a) Rent. Rent under the Leases shall be apportioned as of the
close of escrow, regardless of whether or not such rent has been received by
Seller. With respect to any rent arrearages arising under the Leases, after
closing, Buyer shall pay to Seller any rent actually collected which is
applicable to the period preceding the close of escrow; provided, however, that
all rent collected by Buyer shall be applied first to all unpaid rent accruing
after the close of escrow, and then to unpaid rent accruing prior to the close
of escrow. Buyer shall use reasonable efforts consistent with its business
practice to recover rent arrearages. Seller shall take no steps to attempt to
collect any delinquent rent following the closing.
(b) Leasing Costs. Seller shall pay as of the closing all leasing
commission and tenant improvement costs, if any, in connection with any Lease
executed on or before the closing that are or will become due and payable as of
the closing. Buyer shall be entitled to a credit against the Purchase Price for
any such unpaid commissions or costs due after the closing but incurred in
connection with any lease executed on or before the closing.
(c) Security Deposits. Buyer shall be entitled to a credit against
the Purchase Price for the total sum of all security and other deposits paid to
Seller by tenants under any Leases, and any interest earned thereon which by law
or the terms of the Leases could be required to be refunded to tenants.
(d) Utility Charges. Seller shall cause all the utility meters to
be read on the close of escrow, and will be responsible for the cost of all
utilities used prior to the close of escrow, except to the extent such utility
charges are billed to and paid by tenants directly.
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(e) Real Estate Taxes and Special Assessments. General real estate
taxes and assessments payable for the fiscal year in which the closing occurs
shall be prorated by Seller and Buyer as of the close of escrow.
(f) Other Apportionments. Amounts payable under the Assigned
Contracts, annual or periodic permit and/or inspection fees (calculated on the
basis of the period covered), and liability for other Property operation and
maintenance expenses and other recurring costs shall be apportioned as of the
close of escrow.
(g) Preliminary Closing Statement. Seller and Buyer shall jointly
prepare and approve a preliminary Closing Statement on the basis of the Leases
and other sources of income and expenses, and shall deliver such computation to
Escrow Holder prior to closing.
(h) Post-Closing Reconciliation. If any of the aforesaid prorations
cannot be definitely calculated on the close of escrow, then they shall be
estimated at the closing and definitely calculated as soon after the close of
escrow as feasible. As soon as the necessary information is available, Buyer
shall conduct a post-closing review to determine the accuracy of all prorations
made to the Purchase Price (the "Post- Closing Review"). The Post-Closing Review
shall be provided to Seller for Seller's reasonable approval. Either party owing
the other party a sum of money based on such subsequent proration(s) or the
Post-Closing Review shall promptly pay said sum to the other party, together
with interest thereon at the rate of two percent over the "prime rate" (as
announced from time to time in the Wall Street Journal) per annum from the close
of escrow to the date of payment if payment is not made within ten (10) days
after delivery of a bill therefor.
11.1-11.7 Intentionally Deleted.
11.8 Escrow Costs and Fees. Buyer and Seller shall each pay one-half of
the Escrow Holder's charges and Seller shall pay the usual recording fees and
any required documentary transfer taxes. Seller shall pay the premium for a
standard coverage owner's or joint protection policy of title insurance.
12. REPRESENTATION AND WARRANTIES OF SELLER AND DISCLAIMER.
12.1 Seller's warranties and representations shall survive the Closing
and delivery of the deed, and, unless otherwise noted herein, are true, material
and relied upon by Buyer and Broker(s) in all respects, both as of the Date of
Agreement, and as of the date of Closing. Seller hereby makes the following
warranties and representations to Buyer and Broker(s).
(a) Authority of Seller. Seller is the owner of the Property and/or
has the full right, power and authority to sell,
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convey and transfer the Property to Buyer as provided herein, and to perform
Seller's obligations hereunder.
(b) Maintenance During Escrow and Equipment Condition At Closing.
Except as otherwise provided in paragraph 9.1(l) hereof dealing with
destruction, damage or loss, Seller shall maintain the Property until the
Closing in its present condition, ordinary wear and tear excepted. The heating,
ventilating, air conditioning, plumbing, elevators, loading doors and electrical
systems shall be in good operating order and condition at the time of Closing.
Seller is unaware of any material defect in the Property and Personal Property.
(c) Hazardous Substances/Storage Tanks. Seller has no knowledge,
except as otherwise disclosed to Buyer in writing, of the existence or prior
existence on the Property of any Hazardous Substance (as defined in paragraph
9.1(c), nor of the existence or prior existence of any above or below ground
storage tank or tanks.
(d) Compliance. Seller has no knowledge of any aspect or condition
of the Property which violates applicable laws, rules, regulations, codes, or
covenants, conditions or restrictions ("Laws") or of improvements or alterations
made to the Property with a permit where one was required, or of any unfulfilled
order or directive of any applicable governmental agency or casualty insurance
company that any work of investigation, remediation, repair, maintenance or
improvement is to be performed on the Property, and to Seller's knowledge all
aspects and conditions of the Property comply in all material respects with all
laws.
(e) Changes in Agreements. Prior to the Closing, Seller will not
violate or modify, orally or in writing, any Existing Lease or Other Agreement,
or create any new leases or other agreements affecting the Property, without
Buyer's written approval, which approval will not be unreasonably withheld.
(f) Possessory Rights. Seller has no knowledge that anyone will, at
the Closing, have any right to possession of the Property, except as disclosed
by this Agreement or otherwise in writing to Buyer.
(g) Mechanics' Liens. There are no unsatisfied mechanic's or
materialman's lien rights concerning the Property.
(h) Actions, Suits or Proceedings. Seller has no knowledge or any
actions, suits or proceedings pending or threatened before any commission,
board, bureau, agency, instrumentality, arbitrator(s) court or tribunal that
would affect the Property or the right to occupy or utilize same.
(i) Notice of Changes. Seller will promptly notify Buyer and
Broker(s) in writing of any Material Change (as defined
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in paragraph 9.1(m) affecting the Property that becomes known to Seller prior to
the Closing.
(j) No Tenant Bankruptcy Proceedings. Seller has no notice or
knowledge that any tenant of the Property is the subject of a bankruptcy or
insolvency proceeding. No tenant is in default under its lease.
(k) No Tenant Bankruptcy Proceedings. Seller is not the subject of
a bankruptcy, insolvency or probate proceeding. See Addendum.
(l) All documents delivered by Seller to Buyer or made available to
Buyer for review, including without limitation the items described in Paragraph
9 of the Contract as supplemented hereby, are true and complete copies of all
documents relating to the Property in Seller's possession or control. All of
Seller's books, files and records related to the Property were delivered to or
made available to Buyer for Buyer's review.
(m) At the closing, there will be no outstanding written or oral
contracts made for any improvements to the Property (including without
limitation tenant improvements), or for offsite improvements related to the
Property, which have not been fully completed and paid for. Seller shall cause
to be discharged all mechanics' and materialmen's liens arising from any labor
or materials furnished to the Property prior to the close of escrow. At the
closing there will be no unpaid leasing costs or obligations, including without
limitation broker's commissions and costs in connection with tenant
improvements, remodeling and renovation and Seller shall cause to be discharged
any and all such costs and obligations with respect to all Leases executed prior
to Closing.
(n) The most current Rent Roll provided to Buyer is a complete and
accurate list of all Leases. Except as set forth in the Rent Roll, there are no
(1) free rent, operating expense abatements, incomplete tenant improvements,
rebates, allowances, or other unexpired concessions (collectively referred to as
"Offsets"), (2) rights of first refusal or rights to purchase the Property, or
(3) rights of termination, extension, cancellation or expansion, under any Lease
except as specifically set forth on the most current Rent Roll. Seller has
provided to Buyer complete and accurate copies of all Leases. To the best of
Seller's actual knowledge, there exists no defaults or events which, with the
giving of notice or passage of time, or both, would constitute a default by
Seller or any tenant under any Leases.
(o) Seller has provided to Buyer complete and accurate copies of
all contracts, bonds and other agreements affecting the Property. To the best of
Seller's actual knowledge, there exists no defaults or events which, with the
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giving of notice or passage of time, or both, would constitute a default by
Seller or any of the other parties to such contracts, bonds or agreements.
All representations, warranties and covenants contained in this
Agreement or made in writing pursuant to this Agreement are intended to and
shall be deemed made as of the date of this Agreement and again at the close of
escrow and shall survive the Closing for a period of six (6) months (the
"Survival Period"). Notwithstanding the foregoing, for matters as to which Buyer
has given Seller written notice within the Survival Period, the representation,
warranties and covenant of Seller that are related to the matters in such
written notice shall survive until all liabilities arising out of the matters
described in such written notice have been satisfied.
12.2 Buyer hereby acknowledges that, except as otherwise stated in this
Agreement, Buyer is purchasing the Property in its existing condition and will,
by the time called for herein, make or have waived all inspections of the
Property Buyer believes are necessary to protect its own interest in, and its
contemplated use of, the Property. The Parties acknowledge that, except as
otherwise stated in this Agreement, no representations, inducements, promises,
agreements, assurances, oral or written, concerning the Property, or any aspect
of the Occupational Safety and Health Act, hazardous substance laws, or any
other act, ordinance or law, have been made by either Party or Broker, or relied
upon by either Party hereto.
13. POSSESSION.
13.1 Possession of the Property shall be given to Buyer at the Closing
subject to the rights of tenants under Existing Leases.
14. BUYER'S ENTRY.
14.1 At any time during the Escrow period, Buyer, and its agents and
representatives, shall have the right at reasonable times and subject to rights
of tenants under Existing leases, to enter upon the Property for the purpose of
making inspections and tests specified in this Agreement Following any such
entry or work, unless otherwise directed in writing by Seller, Buyer shall
return the Property to the condition it was in prior to such entry or work,
including the recompaction or removal of any disrupted soil or material as
Seller may reasonably direct. All such inspections and tests and any other work
conducted or materials furnished with respect to the Property by or for Buyer
shall be paid for by Buyer as and when due and Buyer shall indemnify, defend,
protect and hold harmless Seller and the Property of and from any and all
claims, liabilities, demands, losses, costs, expenses (including reasonable
attorney's fees), damages or recoveries, including those for injury to person or
property, arising out of or relating to any such work or
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materials or the acts or omissions of Buyer, its agents or employees in
connection therewith. This indemnity shall expire sixty (60) days following the
completion of Buyer's physical inspections or termination of this Agreement,
whichever is earlier.
15. FURTHER DOCUMENTS AND ASSURANCES.
15.1 Buyer and Seller shall each, diligently and in good faith,
undertake all actions and procedures reasonably required to place the Escrow in
condition for Closing as and when required by this Agreement. Buyer and Seller
agree to provide all further information, and to execute and deliver all further
documents and instruments, reasonably required by Escrow Holder or the Title
Company.
16. ATTORNEYS FEES.
16.1 In the event of any litigation between the Buyer, Seller, or
concerning this transaction, the prevailing party shall be entitled to all costs
and expenses including, without limitation, reasonable attorney's fees and
costs. The attorneys fees award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys fees
reasonably incurred in good faith. See Addendum.
17. PRIOR AGREEMENTS/AMENDMENTS.
17.1 The contract in effect as of the Date of Agreement supersedes any
and all prior agreements between Seller and Buyer regarding the Property.
17.2 Amendments to this Agreement are effective only if made in writing
and executed by Buyer and Seller.
18. INTENTIONALLY DELETED.
19. NOTICES.
19.1 Whenever any Party hereto, Escrow Holder or Broker(s) herein shall
desire to give or serve any notice, demand, request, approval or other
communication, each such communication shall be in writing and shall be
delivered personally, by messenger or by mail, postage prepaid, addressed as set
forth adjacent to that party's or Broker's signature on this Agreement or by
telecopy with receipt confirmed by confirmation of telecopy connection. Service
of any such communication shall be deemed made on the date of actual receipt at
such address.
19.2 Any Party or Broker hereto may from time to time, by notice in
writing served upon the other Party as aforesaid, designate a different address
to which, or a different person or additional persons to whom, all
communications are thereafter to be made.
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20. DURATION OF OFFER.
20.1 Intentionally Deleted.
20.2 The agreement between the Parties as described in paragraph 1.2,
shall be deemed made upon delivery to the other Party or Escrow Holder herein of
a fully executed writing original of this Agreement.
21. LIQUIDATED DAMAGES. (This Liquidated Damages paragraph is applicable
only if initiated by both parties.)
21.1 THE PARTIES AGREE THAT IT WOULD BE IMPRACTICABLE OR EXTREMELY
DIFFICULT TO FIX, PRIOR TO SIGNING THIS AGREEMENT, THE ACTUAL DAMAGES WHICH
WOULD BE SUFFERED BY SELLER IF BUYER FAILS TO PERFORM ITS OBLIGATIONS UNDER THIS
AGREEMENT. THEREFORE, IF, AFTER THE SATISFACTION OR WAIVER OF ALL CONTINGENCIES
PROVIDED FOR THE BUYER'S BENEFIT, BUYER BREACHES THIS AGREEMENT, SELLER SHALL BE
ENTITLED TO LIQUIDATED DAMAGES IN THE AMOUNT OF $100,000 PLUS INTEREST, IF ANY,
ACCRUED THEREON. UPON PAYMENT OF SAID SUM TO SELLER, BUYER SHALL BE RELEASED
FROM ANY FURTHER LIABILITY TO SELLER, AND ANY ESCROW CANCELLATION FEES AND TITLE
COMPANY CHARGES SHALL BE PAID BY SELLER.
______________ _______________
Buyer Initials Seller Initials
22. INTENTIONALLY DELETED.
23. APPLICABLE LAW.
23.1 This Agreement shall be governed by, and paragraph 22.3 amended to
refer to, the laws of the state in which the Property is located.
24. TIME OF ESSENCE.
24.1 Time is of the essence of this Agreement.
25. COUNTERPARTS.
25.1 This Agreement may be executed by Buyer and Seller in counterparts,
each of which shall be deemed an original, and al of which together shall
constitute one and the same instrument. Escrow Holder, after verifying that the
counterparts are identical except for the signatures, is authorized and
instructed to combine the signed signature pages on one of the counterparts,
which shall then constitute the Agreement.
26. DISCLOSURES REGARDING THE NATURE OF A REAL ESTATE AGENCY RELATIONSHIP.
26.1 The Parties and Broker(s) agree that their relationship(s) shall be
governed by the principles set forth in
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California Civil Code, Section 2375, as summarized in the following paragraph
26.2.
26.2 When entering into a discussion with a real estate agent regarding
a real estate transaction, a Buyer or Seller should from the outset understand
what type of agency relationship or representation it has with the agent or
agents in the transaction. Buyer and Seller acknowledge being advised by the
Broker(s) in this transaction, as follows:
(a) Seller's Agent. A Seller's agent under a listing agreement with
the Seller acts as the agent for the Seller only. A Seller's agent or subagent
has the following affirmative obligations: (1) To the Seller: A fiduciary duty
of utmost care, integrity, honesty, and loyalty in dealings with the Seller. (2)
To the Buyer and the Seller: a Diligent exercise of reasonable skill and care in
performance of the agent's duties. b. A duty of honest and fair dealing and good
faith. c. A duty to disclose all facts known to the agent materially affecting
the value of desirability of the property that are not known to, or within the
diligent attention and observation of, the Parties. An agent is not obligated to
reveal to either Party and confidential information obtained from the other
Party which does not involve the affirmative duties set forth above.
(b) Buyer's Agent. A selling agent can, with a Buyer's consent,
agree to act as agent for the Buyer only. In these situations, the agent is not
the Seller's agent, even if by agreement the agent may receive compensation for
services rendered, either in full or in part from the Seller. An agent acting
only for a Buyer has the following affirmative obligations: (1) To the Buyer: A
fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with
the Buyer. (2) To the Buyer and the Seller: a Diligent exercise of reasonable
skill and care in performance of the agent's duties. b. A duty of honest and
fair dealing and good faith. c. A duty to disclose all facts known to the agent
materially affecting the value or desirability of the property that are not
known to, or within the diligent attention and observation of, the Parties. An
agent is not obligated to reveal to either Party any confidential information
obtained from the other Party which does not involve the affirmative duties set
forth above.
(c) Agent Representing Both Seller and Buyer. A real estate agent,
either acting directly or through one or more associate licenses, can legally be
the agent of both the Seller and the Buyer in a transaction, but only with the
knowledge and consent of both the Seller and the Buyer. (1) In a dual agency
situation, the agent has the following affirmative obligations to both the
Seller and the Buyer: A fiduciary duty of utmost care, integrity, honesty and
loyalty in the dealings with either Seller or the Buyer. b. Other duties to the
Seller and the Buyer as stated above in their respective sections (a) or (b) of
this paragraph 26.2. (2) In representing both Seller and Buyer, the
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agent may not without the express permission of the respective Party, disclose
to the other Party that the Seller will accept a price less than the listing
price or that the Buyer will pay a price greater than the price offered. (3) The
above duties of the agent in a real estate transaction do not relieve a Seller
or Buyer from the responsibility to protect their own interests. Buyer and
Seller should carefully read all agreements to assure that they adequately
express their understanding of the transaction. A real estate agent is a person
qualified to advise about real estate. If legal or tax advise is desired,
consult a competent professional.
(d) Further Disclosures. Throughout this transaction Buyer and
Seller may receive more than one disclosure, depending upon the number of agents
assisting in the transaction. Buyer and Seller should each read its contents
each time it is presented, considering the relationship between them and the
real estate agent in this transaction and that disclosure.
26.3 Intentionally Deleted.
27. ADDITIONAL PROVISIONS:
Additional provisions of this offer, if any, are as follows or are
attached hereto by an addendum consisting of paragraphs __________ through
__________. (It will be presumed no other provisions are included unless
specified here.)
28. RELEASE OF LIENS:
Anything contained in the Agreement to the contrary notwithstanding, and
notwithstanding any approval or consent by Buyer hereunder, Seller shall cause
all mortgages, deeds of trust and other monetary encumbrances, including without
limitation all mechanics' liens, to be released and reconveyed from the Property
on or prior to the close of escrow.
29. INDEMNITY:
(a) Seller shall hold harmless, indemnify and defend Buyer, its
successors and assigns and their respective agents, employees, officers and
directors, and the Property from and against any and all liability, claims,
demands, damages and costs (including, without limitation, reasonable attorneys'
fees and expenses), and no matter how arising ("Liabilities"), in any way (i)
related to the Property and arising or occurring prior to the close of escrow
and during the time Seller owns the Property; (ii) related to or arising from
any act, conduct, omission, contract or commitment of Seller; or (iii) resulting
from any breach of representation or warranty by Seller or resulting from any
breach or default by Seller under this Agreement.
(b) Except for Liabilities arising directly or indirectly from a breach
of any of Seller's representations or warranties,
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or which shall have arisen out of any aspect of the Property, its management or
operations with respect to the period prior to the close of escrow, Buyer shall
hold harmless, indemnify and defend Seller, its successors and assigns and their
respective agents, employees, officers, directors and partners, from and against
any and all Liabilities in any way (i) related to the Property and arising or
occurring after the close of escrow and during such time as the Buyer owns the
Property; (ii) related to or arising from any act, conduct, omission, contract
or commitment of Buyer; or (iii) resulting from any breach of representation or
warranty by Buyer or resulting from any breach or default by Buyer under this
Agreement.
30. MAINTENANCE OF THE PROPERTY AND PROPERTY PERSONNEL:
Between the date of this Agreement and the close of escrow, Seller shall
maintain the Property in good order, condition and repair, reasonable wear and
tear excepted, shall perform all work required to be performed by the landlord
pursuant to the terms of any Lease, and shall make all repairs, maintenance and
replacements of the Property and otherwise operate the Property in the same
manner as before the making of this Agreement, as if Seller were retaining the
Property. After full execution of this Agreement and until the close of escrow,
Seller shall maintain all existing personnel on the Property in their current
employment positions at not less than their current rate of compensation.
Without limiting the effectiveness of the foregoing provisions or the other
provisions of this Agreement with respect to such contracts, unless Buyer
specifically provides Seller with "written notice to the contrary" (as
hereinafter defined), Buyer shall not retain the existing employees and
management agents of Seller for the Property, and, accordingly, at the close of
escrow, Seller shall cause all employment and management agreements respecting
the Property to be terminated, and deliver evidence of such termination to Buyer
and remove all employees and management personnel from the Property. Buyer's
"written notice to the contrary" pursuant hereto shall be made only by delivery
to Seller of a copy of a written agreement, lease or letter of employment with
or to such employee and/or management agent executed by Buyer.
31. LEASING; BUYER'S CONSENT TO NEW CONTRACTS AFFECTING THE PROPERTY;
TERMINATION OF EXISTING CONTRACTS:
Notwithstanding Paragraph 12.1(e), Seller shall use commercially
reasonable efforts until closing to lease any vacant space, or space becoming
vacant, in the Property to tenants utilizing criteria provided to Seller by
Buyer. Seller shall not, after the date of this Agreement, enter into any lease
(other than a lease in accordance with the immediately preceding sentence) or
contract affecting the Property, or any amendment thereof, or permit any tenant
to enter into any sublease, assignment or agreement pertaining to the Property,
or waive, compromise or settle any rights of Seller under any contract or
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Lease, or agree to return any security deposit, or modify, amend, or terminate
any Assigned Contract, without in each case obtaining Buyer's prior written
consent thereto, which shall not be unreasonably withheld. Seller shall
terminate prior to the closing, at no cost or expense to Buyer, any and all
agreements and contracts affecting the Property that are not approved by Buyer
during the Due Diligence Period, provided the same are terminable without
penalty upon notice of thirty (30) days or less. Buyer acknowledges that Seller
has informed Buyer that Data Processing Design has given notice of termination
of its Lease, effective November 30, 1996.
32. INSURANCE:
Through the close of escrow, Seller shall maintain or cause to be
maintained, at Seller's sole cost and expense:
(a) a policy or policies of insurance in amounts equal to the full
replacement value of the improvements and personal property included in the
Property (subject only to commercially reasonable deductibles) insuring against
all insurable risks, including, without limitation, fire, vandalism, malicious
mischief, lightning, windstorm, water, earthquake and other perils customarily
covered by casualty insurance and the costs of demolition and debris removal;
and
(b) a policy or policies of workers' compensation and employers'
liability insurance, commercial general liability insurance, and automobile
liability insurance, each in the amount and form maintained by Seller prior to
the date of this Agreement.
33. MARKETING:
Seller agrees not to market or show the Property to, or solicit offers
from, any other prospective purchasers after the expiration of the 30-day
contingency period and approval of Buyer's Executive Committee, provided this
Agreement has not been sooner terminated.
34. PUBLICITY AND CONFIDENTIALITY:
Seller and the Escrow Holder each agree that the terms of the
transaction contemplated by this Agreement, the identity of Buyer and all
information made available by Buyer to Seller or the Escrow Holder or in any way
relating to the Buyer's interest in that transaction, shall be maintained in
strict confidence and no disclosure of such information will be made by Seller
or the Escrow Holder, whether or not the transaction contemplated by this
Agreement shall close, except to such attorneys, accountants, investment
advisors, lenders and others as are reasonably required to evaluate and
consummate that transaction.
35. REIT DISCLOSURE:
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Buyer and Seller each hereby advise the other that each is qualified as
a real estate investment trust under the provisions of the Internal Revenue Code
of 1986, as amended, and that, by reason thereof, the maintaining of such status
and the avoiding of any activity which might cause a penalty tax to be applied
is of material concern to each. Accordingly, prior to the expiration of thirty
(30) days after the Date of Agreement, Seller and Buyer each agree to make any
modifications or amendments to this Agreement requested by the other that may be
necessary for each to maintain its status as a real estate investment trust or
in order to avoid a penalty tax; provided, however, that neither Seller nor
Buyer shall have any obligation to enter into any such modification or amendment
that would materially alter or affect, in either's sole judgment, its rights,
duties, or obligations under this Agreement. If either party declines to modify
or amend this Agreement for any reason in a manner which, in the good faith
exercise of its reasonable business judgment, is necessary to maintain its
status as a real estate investment trust, the party so impacted shall have the
right to terminate this Agreement. In the event either party exercises such
termination right, neither party shall have any further rights or obligations
hereunder, and all funds (including, without limitation, the Deposit and all
interest accrued thereon) and documents deposited in escrow shall be returned to
the party depositing the same.
36. Notwithstanding anything to the contrary contained in the Contract,
Buyer's obligation to purchase and Seller's obligation to sell the Property is
conditioned upon the approval by Buyer's Executive Committee and Seller's Board
of Trustees on or prior to the date that is thirty (30) days following the Date
of Agreement.
37. Notwithstanding anything to the contrary contained in the Contract,
Buyer shall be deemed to disapprove any provision of the Contract requiring
Buyer to approve or disapprove a matter, unless written approval of such matter
is made by Buyer to Seller within the time period specified for such approval or
disapproval in the Contract.
38. The Contract is personal to and may not be assigned by either Buyer or
Seller; provided, however, that Buyer shall have the right to assign this
Agreement without the consent or approval of Seller to a person or entity
affiliated with Buyer; provided further, however, that in the event of any such
assignment Buyer shall not be released from any liability hereunder. This
Agreement shall be binding upon, and inure to the benefit of, the parties hereto
and their respective successors, heirs, administrators and permitted assigns.
39. The following "AS IS" clause shall supersede anything to the contrary
within this Agreement. Buyer is aware that Seller, Value Property Trust,
acquired the Property by way of foreclosure, and that Seller is selling and
Buyer is purchasing
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<PAGE> 25
the Property in an "AS IS" CONDITION WITHOUT REPRESENTATIONS OR WARRANTIES OF
ANY KIND OR NATURE EXCEPT AS STATED IN THE AGREEMENT. Buyer acknowledges for
Buyer and its successors, heirs and assignees, that Buyer has been given a
reasonable opportunity to investigate and inspect the Property and all
improvements thereon, either independently or through agents of the Buyer's
choosing, and that in purchasing the Property Buyer is not relying on the Seller
or the Seller's representatives or employees as to the condition of the Property
and/or any improvements thereon, including, but not necessarily limited to
electrical, plumbing, heating, sewage, roof, foundation, soils and geology, lot
size or suitability of the Property and/or its improvements for any particular
purposes, or that any appliances, if any, plumbing and/or utilities are in
working order, and/or that the improvements are structurally sound and/or in
compliance with any City, County, State and/or Federal statutes, codes or
ordinances except as stated in the Agreement. The closing of this transaction
shall constitute an acknowledgement by the Buyer that THE PREMISES WERE ACCEPTED
WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND BUT IN AN "AS IS" CONDITION BASED
SOLELY ON THE BUYER'S OWN INSPECTION EXCEPT AS STATED IN THE AGREEMENT.
40. This Agreement is being executed by an officer and/or trustee in his
capacity as such officer and/or trustee on behalf of Buyer, and by an officer
and/or trustee in his capacity as such officer and/or trustee on behalf of
Seller. No present or future officer, director, employee, trustee, attorney or
agent of Buyer or Seller shall have any personal liability, directly or
indirectly, and recourse shall not be had against any such person under or in
connection with this Agreement or any other document or instrument heretofore or
hereafter executed in connection with this Agreement. Seller and Buyer each
hereby waive and release any and all such personal liability and recourse.
41. The Contract may be executed by Buyer and Seller in counterparts, each
of which shall be deemed an original, and all of which together shall constitute
one and the same instrument. Escrow Holder, after verifying that the
counterparts are identical except for the signatures, is authorized and
instructed to combine the signed signature pages on one of the counterparts,
which shall then constitute the Contract.
BUYER AND SELLER HEREBY ACKNOWLEDGE THAT THEY HAVE BEEN AND ARE NOW ADVISED BY
THE BROKER(S) TO CONSULT AND RETAIN THEIR OWN EXPERTS TO ADVISE AND REPRESENT
THEM CONCERNING THE LEGAL AND INCOME TAX EFFECTS OF THIS AGREEMENT, AS WELL AS
THE CONDITION AND/OR LEGALITY OF THE PROPERTY, THE IMPROVEMENTS AND EQUIPMENT
THEREIN, THE SOIL THEREOF, THE CONDITION OF TITLE THERETO, THE SURVEY THEREOF,
THE ENVIRONMENTAL ASPECTS THEREOF, THE INTENDED AND/OR PERMITTED USAGE THEREOF,
THE EXISTENCE AND NATURE OF TENANCIES THEREIN, THE OUTSTANDING OTHER AGREEMENTS,
IF ANY, WITH RESPECT THERETO, AND THE EXISTING OR CONTEMPLATED FINANCING
THEREOF, AND THAT THE BROKER(S) IS/ARE NOT TO BE RESPONSIBLE FOR
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<PAGE> 26
PURSUING THE INVESTIGATION OF ANY SUCH MATTERS UNLESS EXPRESSLY OTHERWISE AGREED
TO IN WRITING BY BROKER(S) AND BUYER OR SELLER.
THIS FORM IS NOT FOR USE IN CONNECTION
WITH THE SALE OF RESIDENTIAL PROPERTY
IF THIS AGREEMENT HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS AGREEMENT OR THE
TRANSACTION INVOLVED HEREIN. THE UNDERSIGNED BUYER OFFERS AND AGREES TO BUY THE
PROPERTY ON THE TERMS AND CONDITIONS STATED AND ACKNOWLEDGES RECEIPT OF A COPY
HEREOF.
BROKER BUYER:
PACIFIC GULF PROPERTIES, INC.
---------------------------
BY /Date By /Date
------------- ----- --------------- -------
--------------------------- -----------------------------
Name printed Name printed
Title: Title:
-------------------- ----------------------
--------------------------- 363 San Miguel Drive, Ste 100
Address Newport Beach, CA 92660
-----------------------------
--------------------------- Address
714/721-2700 714/721-2713
--------------------------- -----------------------------
Telephone Facsimile No. Telephone Facsimile No.
ACCEPTANCE.
Seller accepts the foregoing offer to purchase the Property and hereby
agrees to sell the Property to Buyer on the terms and conditions therein
specified.
Seller acknowledges that Broker(s) has/have been retained to locate a
Buyer and is/are the procuring cause of the entire purchase and sale of the
Property set forth in this Agreement. In consideration of real estate brokerage
service rendered by Broker(s), Seller agrees to pay Broker(s) a real estate
brokerage fee in a sum equal to _________% of the Purchase Price (the "Broker(s)
Fee") divided equally in such shares as said Broker(s) shall direct in writing.
This Agreement shall serve as an irrevocable instruction to Escrow Holder to pay
such brokerage fee to Broker(s) out of the proceeds accruing to the account of
Seller at the Closing.
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<PAGE> 27
Seller acknowledges receipt of a copy hereof and authorizes the
Broker(s) to deliver a signed copy to Buyer.
NOTE: A PROPERTY INFORMATION SHEET IS REQUIRED TO BE DELIVERED TO BUYER BY
SELLER UNDER THIS AGREEMENT.
BROKER: SELLER:
VALUE PROPERTY TRUST, a
---------------------------- Maryland real estate
investment trust
By /Date By /Date
------------ --------- ------------ -------
Name Printed Name printed
---------------- --------------
Title: Title:
--------------------- -------------------
120 Albany Street Plaza,
---------------------------- 8th Floor
New Brunswick, N.J. 08901
---------------------------- -------------------------
Address Address
/ 908/296-3080 908/296-3090
-------------- ------------- ------------ -------------
Telephone Facsimile No. Telephone Facsimile No.
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<PAGE> 1
EXHIBIT 10.5
AGREEMENT OF PURCHASE AND SALE AND ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND ESCROW INSTRUCTIONS (this
"Agreement"), dated as of April 30, 1996 for reference purposes, is entered into
by and between PACIFIC GULF PROPERTIES INC., a Maryland corporation ("Buyer"),
and 550 ASSOCIATES, a California limited partnership ("Seller"), with reference
to the following facts:
A. Seller is the owner of that certain "Property" (hereinafter
described) located in the City of San Marcos, State of California, consisting of
an approximately 72,050 square foot business park commonly known as San Marcos
Commerce Center, located at 540-550 South Pacific Avenue, San Marcos,
California.
B. Buyer desires to buy, and Seller desires to sell, the Property upon
the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the foregoing recitals, and the
mutual covenants contained herein, Buyer and Seller hereby agree as follows:
1. Property. Seller hereby agrees to sell and convey to Buyer, and Buyer
hereby agrees to purchase from Seller, subject to the terms and conditions set
forth herein, the following:
(a) that certain real property, more particularly described in
Schedule 1 to the "Deed" (as hereinafter defined) attached hereto as Exhibit A
(the "Land");
(b) all rights, privileges and easements appurtenant to the Land
and owned by Seller (collectively, the "Appurtenances"), if any;
(c) all improvements and fixtures affixed to the Land and
Appurtenances and all apparatus, equipment and appliances affixed to the Land
and Appurtenances, if any (collectively, the "Improvements", and together with
the Land and Appurtenances, the "Real Property"); and
(d) all tangible personal property, if any, owned by Seller located
on or in or used in connection with the Real Property as of the date hereof and
as of the "Closing Date" (as hereinafter defined) pursuant to the "Bill of Sale"
(as hereinafter defined) attached hereto as Exhibit B (collectively, the
"Tangible Personal Property"). Buyer acknowledges that Seller has informed Buyer
that there is no Tangible Personal Property; and
(e) any intangible personal property now or hereafter owned by
Seller and used in the ownership, use or
<PAGE> 2
operation or development of the Real Property and, to the extent approved by
Buyer pursuant to this Agreement, any lease rights (including, without
limitation, the lessor's interest in and to all leases, subleases and tenancies,
including all amendments, modifications, agreements, records, and other
documents affecting in any way a right to occupy any portion of the Real
Property (individually and collectively, the "Leases"), and Seller's interest in
all security deposits and prepaid rent, if any, under the Leases and any and all
guaranties of the Leases, and all other agreements or rights relating to the
ownership, use and operation of the Real Property or Tangible Personal Property
(collectively, the "Intangible Property"). As provided in the "Assignment of
Leases" (hereinafter defined), at Closing, Buyer will assume all of the Leases
and perform the obligations of the landlord thereunder arising after the Closing
Date.
All of the items referred to in Subparagraphs (a), (b), (c) and (d)
above are collectively referred to herein as the "Property".
2. Purchase Price.
(a) The purchase (the "Purchase Price") for the Property shall be Two
Million Six Hundred Sixty Thousand Dollars ($2,660,000).
(b) The Purchase Price shall be paid through "Escrow" (as hereinafter
defined) as follows:
(i) Escrow in connection herewith (the "Escrow") has been opened
with Chicago Title Insurance Company, 16969 Von Karman, Irvine, California 92714
Attention: Joy Eaton ("Escrow Holder"). Concurrently with the delivery of this
Agreement to Escrow, fully executed by Buyer and Seller (the "Execution Date"),
Buyer will deposit into Escrow by certified, cashiers or guaranteed check the
amount of $50,000 (the "Deposit").
(ii) The Deposit shall be held by Escrow Holder in an
interest-bearing account for Buyer's benefit. The Deposit and all interest
earned thereon shall be applied towards the Purchase Price at Closing.
(iii) On or before the Closing, if this Agreement has not been
earlier terminated, Buyer shall deposit into Escrow by wire transfer funds in
the amount of the balance of the Purchase Price, adjusted for the prorations and
any other adjustments provided elsewhere in this Agreement (the "Closing
Amount").
3. Due Diligence Material. Seller shall deliver or cause to be delivered
the following materials to Buyer at Seller's cost (excluding reasonable charges
for photocopies and
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<PAGE> 3
delivery, if any, which shall be paid by Buyer upon approval of an invoice
therefor) within three days after the Execution Date:
(a) true, complete and accurate copies of all existing leases,
subleases, rental agreements and other agreements for occupancy of space in the
Improvements and all supplements, modifications and amendments thereto
(collectively "Leases") and lease files, if any, and a rent roll (the "Rent
Roll") attached hereto as Exhibit C;
(b) all reports in Seller's possession or control relating to the
environmental condition of the Property (the "Environmental Reports");
(c) the existing survey of the Property;
(d) Seller's existing policies of casualty and liability insurance
with respect to the Property and a history of all claims made under such
policies. Seller has represented and warranted to Buyer that prior to the date
hereof, that no claims have arisen under such policies regarding the Property.
Seller has further informed Buyer, and Buyer acknowledges, that such policies
are not transferrable to Buyer at Closing;
(e) annual statements of operations for the Property (which may
include statements of operations for Seller's property located in San Diego in
addition to the Property) for 1995 and a statement for the first quarter of 1996
for the Property;
(f) copies of 1995 utility bills for the Property;
(g) true, complete and accurate copies of the 1995/96 property tax
bills for the Property;
(h) all books, records, legal documents and other information
relating to the Property. Seller has represented and warranted to Buyer that,
other than items delivered by Seller to Buyer prior to the date hereof (and
governmental licenses, permits and approvals), no such books, records, legal
documents or other information relating to the Property exist; and
(i) a copy of the plans for the Improvements (which plans shall be
made available to Buyer in Seller's Los Angeles office, but shall not be
delivered to Buyer unless and until Closing occurs); and
(j) a copy of Seller's Title Policy of Insurance dated as of the date
Seller acquired title to the Property and copies of any documents, if any, known
to Seller which affect title to the Property and which are not disclosed by the
such title policy.
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<PAGE> 4
Seller represents and warrants that, prior to the date hereof, Seller
has delivered true and complete copies of all of the foregoing (Paragraphs
3(a)-3(j) hereof) to Buyer, and Buyer acknowledges receipt of the documents
specified above prior to the date of this Agreement.
Buyer shall receive from the Title Company a current extended coverage
preliminary title report for the Real Property issued by Chicago Title Insurance
Company (the "Title Company"), accompanied by copies of all documents referred
to in the report. Buyer shall also receive a current ALTA survey ("Survey") of
the Property.
Buyer shall also deliver such other information relating to the Property
that is requested by Buyer of Seller in writing during the Investigation Period
to the extent such information is in the possession or control of Seller.
4. Title to the Property.
(a) At the "Closing" (hereafter defined), Seller shall convey to
Buyer fee simple title to the Real Property and Improvements, by a duly executed
and acknowledged grant deed substantially in the form attached hereto as Exhibit
D (the "Deed").
(b) At the Closing (i) Seller shall transfer title to the Tangible
Personal Property by a bill of sale in the form attached hereto as Exhibit B
(the "Bill of Sale"), such title to be free of any liens, encumbrances or
interests, (ii) Seller shall transfer title to the Intangible Property, and all
permits and approvals relating to the Property (collectively, the "Permits") by
an assignment of intangible property in the form attached hereto as Exhibit E
(the "Assignment of Intangible Property") and (iii) Seller shall transfer title
to the Leases by an assignment of Leases in the form attached hereto as Exhibit
F (the "Assignment of Leases"), such title in each case to be free of any liens,
encumbrances or interests.
(c) Anything contained herein to the contrary notwithstanding and
notwithstanding any approval or consent given by Buyer hereunder, except for
real estate taxes not yet due or payable, Seller shall cause all mortgages,
deeds of trust and other monetary encumbrances, including without limitation all
mechanics' liens, to be released and reconveyed from the Property on or prior to
the Closing.
5. Buyer's Contingencies. Buyer shall have the right to review and
approve the condition of the Property, including the Property's physical,
environmental, legal and/or regulatory condition, and the condition of title
thereto and all items listed in Paragraph 4, above, until the date which is
thirty (30) calendar days from and after the Execution Date (the "Investigation
Period"). During the Investigation Period, Buyer
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<PAGE> 5
may, at its sole risk, responsibility, cost and expense, enter onto the Property
to perform such reasonable feasibility studies, engineering studies, soils
tests, and other investigations as may be reasonably necessary to its evaluation
of the Property. After any such entry onto the Property, Buyer shall promptly
restore the Property to its prior condition, if such condition was changed by
the entry. During the Investigation Period, Seller will cooperate with, and will
provide Buyer with such access and information as is reasonably required by
Buyer to enable Buyer, at Buyer's sole cost and expense, to conduct an audit of
the operation of the Property, including, without limitation, to audit the 1995
operating statements and the first quarter operating statements for 1996. On or
before the expiration of the Investigation Period, if Buyer disapproves of the
Property, Buyer shall have the right in its sole and absolute discretion to
terminate this transaction, by delivering to Seller, within the Investigation
Period, written notice of termination ("Buyer's Notice of Termination"). In the
event this Agreement is terminated by Buyer pursuant to this Paragraph, Seller
shall not be responsible for any costs in connection with obtaining the title
report from the Title Company. Buyer's expenditures of time and resources and
possible loss of opportunity by Buyer constitute adequate consideration for
Seller's remaining bound by this Agreement during the Investigation Period,
notwithstanding the termination rights granted to Buyer herein. Seller must
comply with all of Seller's other obligations and duties under this Agreement
until Buyer provides notice of termination within the time periods provided to
Buyer in this Agreement or if this Agreement is not terminated, then until
Closing. If Buyer fails to deliver Buyer's Termination Notice to Seller prior to
the expiration of the Investigation Period, then Buyer shall be deemed
conclusively and unconditionally to have approved of the Property. Subject to
the provisions of Paragraph 4(c), above, it is understood that Seller shall have
no obligation to cure or remedy any objection and that in the event of
disapproval, Buyer's sole right (in its sole discretion ) shall be to waive such
objection and continue this Agreement or to terminate this transaction. Seller
shall have five (5) days after receipt of Buyer's Notice of Termination to give
Buyer: (i) evidence satisfactory to Buyer of the removal of such objectionable
condition or that such objectionable condition will be removed or Buyer's
conditions to its acceptance satisfied on or before the Closing Date (including
reasonable detail regarding the manner in which Seller will cause such removal
or satisfaction of Buyer's conditions to acceptance of each objectionable
condition); or (ii) notice that Seller elects not to cause such objectionable
condition to be removed or conditions to acceptance satisfied; provided,
however, that, whether or not objected to by Buyer, Seller must comply with all
of Seller's other obligations and duties under this Agreement. If Seller fails
to give Buyer notice pursuant to the prior sentence, or if Seller gives Buyer
notice under clause (ii), Buyer shall have the right in its sole discretion
either to waive in writing the objectionable condition and proceed with the
purchase or terminate this Agreement. If
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<PAGE> 6
Buyer shall fail to give Seller notice of its election pursuant to the preceding
sentence within five (5) days after delivery of Buyer's Notice of Termination,
Buyer shall be deemed to have elected to terminate this Agreement. If Seller
shall give notice pursuant to clause (i) and shall fail to remove or otherwise
satisfy the objectionable condition in the manner specified in Seller's notice,
and Buyer is unwilling to waive such condition, Seller shall be in default under
this Agreement. If Buyer terminates this Agreement pursuant to this paragraph 5,
the Deposit, together with all interest accrued thereon, shall be returned to
Buyer.
6. No Warranties. Buyer hereby acknowledges that, except as specifically
set forth in this Agreement, Seller has not made, and shall not make, any
representation or warranty whatsoever concerning the Property or any aspect
thereof including, but not limited to, the Property's legal, regulatory,
environmental or physical condition, or condition of title thereto, or
otherwise. Buyer shall buy the Property "as is" and "with all faults" and,
except as specifically set forth in this Agreement, shall be deemed to have
relied solely on its own investigations and inspections, and, except as
specifically set forth in this Agreement, Seller shall have no liability to
Buyer following the Close of Escrow.
7. Conditions Precedent to Closing. The following are conditions
precedent to Buyer's obligation to purchase the Property (the "Conditions
Precedent"). The Conditions Precedent are intended solely for the benefit of
Buyer and may be waived only by Buyer in writing. In the event any condition
precedent is not satisfied, Buyer may, in its sole and absolute discretion,
terminate this Agreement and all obligations of Buyer and Seller hereunder
(except provisions of this Agreement which recite that they survive termination)
shall terminate and be of no further force or effect.
(a) Buyer's inspection, review and approval, within the Investigation
Period, of all aspects of the Property that Buyer deems necessary or
appropriate.
(b) The issuance by the Title Company to Buyer of an ALTA extended
coverage Owner's Policy of Title Insurance (Form B, rev. 10/17/70 with
Endorsement Form 1 coverage) in the amount of the Purchase Price, insuring fee
simple title to the Real Property and Improvements in Buyer, subject only to the
"Permitted Exceptions" (as hereinafter defined) (the "Title Policy"). The Title
Policy shall contain the CLTA 101.4, 103.7, 116.1, 116.4 and 116.7 endorsements
(the "Endorsements"). "Permitted Exceptions" shall mean (i) non-delinquent real
property taxes and assessments; (ii) the rights of the tenants and subtenants
under the Leases (but not a general exception for parties in possession); (iii)
matters disclosed by the ALTA Survey Buyer obtains (but not a general survey
exception unless Buyer elects not to obtain a survey); and (iv) all matters of
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<PAGE> 7
record except liens and encumbrances which Seller is obligated to remove.
(c) All of Seller's representations and warranties contained in or
made pursuant to this Agreement shall have been true and correct when made and
shall be true and correct as of the Closing Date.
(d) Seller shall have fully complied with all of Seller's duties and
obligations contained in this Agreement.
(e) Subject to Paragraph 19 below, the physical condition of the
Property shall be substantially the same on the day of Closing as on the date of
Buyer's execution of this Agreement, reasonable wear and tear excepted.
(f) As of the Closing Date, there shall be no litigation or
administrative agency or other governmental proceeding of any kind whatsoever
pending which would reasonably be expected to materially adversely affect the
value of the Property or the ability of Buyer to operate the Property in the
manner in which it is currently being operated, and no proceedings shall be
pending which would cause the redesignation or other modification of the zoning
classification of, or of any building or environmental code requirements
applicable to, any of the Property in a way which would materially adversely
affect the value of the Property or the ability of Buyer to operate the Property
in the manner in which it is currently being operated.
(g) Seller shall have provided Buyer with an updated Rent Roll three
(3) business days prior to Closing, which updated Rent Roll must not indicate
any material adverse change from the Rent Roll last approved by Buyer.
(h) Seller shall terminate prior to the Closing, at no cost or
expense to Buyer, any contracts affecting the Property.
(i) Buyer's review and approval of tenant estoppel certificates from
all tenants within the Property. Seller shall use good faith efforts to obtain
and deliver to Buyer tenant estoppel certificates in the form attached hereto as
Exhibit G (as modified to address specific reasonable concerns arising as a
result of Buyer's review of the Leases). For any tenant that Seller is not able
to deliver a tenant estoppel certificate, Buyer may elect to accept an estoppel
certificate from Seller (a "Seller Estoppel Certificate") in lieu thereof,
addressing those items which would otherwise have been addressed in the tenant
estoppel certificate. Said certificates shall be dated no earlier than fifteen
(15) days prior to the Closing Date.
(j) Notwithstanding anything to the contrary contained in this
Agreement, (1) Buyer's obligation to purchase
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<PAGE> 8
the Property is conditioned upon the approval by Buyer's Executive Committee
during the Investigation Period of the transactions contemplated by this
Agreement, and (2) Seller's obligation to sell the Property is conditioned upon
the approval by Seller's Board during the Investigation Period of the
transactions contemplated by this Agreement.
8. Liquidated Damages. IN THE EVENT THE SALE OF THE PROPERTY IS NOT
CONSUMMATED BECAUSE OF THE FAILURE OF ANY CONDITION OR ANY OTHER REASON WHICH
OCCURS PRIOR TO ANY DEFAULT UNDER THIS AGREEMENT ON THE PART OF BUYER, THE
DEPOSIT PLUS INTEREST ACCRUED THEREON SHALL IMMEDIATELY BE RETURNED TO BUYER. IF
SAID SALE IS NOT CONSUMMATED BECAUSE OF A DEFAULT UNDER THIS AGREEMENT ON THE
PART OF BUYER WHICH OCCURS PRIOR TO A FAILURE OF ANY CONDITION OR OTHER REASON
TO TERMINATE THIS TRANSACTION, THEN SELLER SHALL BE IMMEDIATELY, AUTOMATICALLY
AND UNCONDITIONALLY RELEASED FROM ITS OBLIGATIONS UNDER THIS AGREEMENT, AND THE
DEPOSIT (BUT NOT THE INTEREST ACCRUED THEREON) SHALL BE PAID TO AND RETAINED BY
SELLER AS LIQUIDATED DAMAGES (WITH ANY ACCRUED INTEREST THEREON TO BE PAID TO
BUYER). THE PARTIES HAVE AGREED THAT SELLER'S ACTUAL DAMAGES, IN THE EVENT OF A
DEFAULT BY BUYER, WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO DETERMINE.
THEREFORE, BY PLACING THEIR INITIALS BELOW, THE PARTIES ACKNOWLEDGE THAT THE
DEPOSIT HAS BEEN AGREED UPON, AFTER NEGOTIATION, AS THE PARTIES' REASONABLE
ESTIMATE OF SELLER'S DAMAGES AND AS SELLER'S SOLE AND EXCLUSIVE REMEDY AGAINST
BUYER, AT LAW OR IN EQUITY, IN THE EVENT OF A DEFAULT UNDER THIS AGREEMENT ON
THE PART OF BUYER. SELLER HEREBY WAIVES ANY AND ALL BENEFITS IT MAY HAVE UNDER
CALIFORNIA CIVIL CODE SECTION 3389.
INITIALS: Seller _________ Buyer __________
9. Escrow; Closing.
(a) Escrow Instructions. Upon mutual execution of this Agreement, the
parties hereto shall deposit an executed counterpart of this Agreement with
Escrow Holder and this Agreement shall serve as instructions to Escrow Holder
for consummation of the purchase and sale contemplated hereby. Seller and Buyer
shall execute such supplemental Escrow instructions as may be appropriate to
enable Escrow Holder to comply with the terms of this Agreement, provided such
supplemental Escrow instructions are not in conflict with this Agreement as it
may be amended in writing from time to time. In the event of any conflict
between the provisions of this Agreement and any supplementary Escrow
instructions signed by Buyer and Seller, the terms of this Agreement shall
control.
(b) Closing. The recordation of the Deed and the delivery of the
other documents and funds contemplated hereby (the "Closing") shall take place
on a date mutually reasonably agreed upon by the parties and shall occur within
forty five days following the Execution Date. The date on which the Closing
occurs is herein referred to as the "Closing Date". Subject to
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<PAGE> 9
the provisions of Paragraph 8, above, and Buyer's rights at law or in equity, in
the event the Closing does not occur on or before the date which is forty five
(45) days following the Execution Date, this Agreement shall terminate, the
Deposit and all interest thereon shall be returned to Buyer, and all obligations
of Buyer and Seller hereunder (except the provisions of this Agreement which
recite that they survive termination) shall terminate and be of no further force
or effect.
(c) Seller Deliveries. At or before the Closing, Seller shall deliver
to Escrow Holder or Buyer the following:
(i) a duly executed and acknowledged Deed;
(ii) originals of all Leases and tenant files and a duly
executed and acknowledged Assignment of Leases;
(iii) evidence of the termination of any contract affecting the
Property;
(iv) a duly executed Bill of Sale;
(v) a duly executed Assignment of Intangible Property;
(vi) notices to the tenants of the occurrence of the sale of
the Property in a form designated by Buyer and reasonably approved by Seller;
(vii) a duly executed affidavit that Seller is not a "foreign
person" within the meaning of Section 1445(e)(3) of the Internal Revenue Code of
1986 in the form attached hereto as Exhibit H together with a duly executed
California Franchise Tax Board Form 590;
(viii) a full release and reconveyance of all monetary
encumbrances affecting the Property and any mechanics' liens;
(ix) a closing statement in form and content satisfactory to
Buyer and Seller (the "Closing Statement") duly executed by Seller;
(x) reasonable and customary documents or agreements required
by the Title Company to issue the Title Policy in the form required by this
Agreement, provided, however, that, except for Seller's obligation pursuant to
Paragraph 4(c), Seller shall be at no cost or expense in connection therewith;
(xi) if any agreement for leasing commissions and/or locator
fees payable on any Lease shows a commission or locator fee which would be due
or payable after the Closing Date which is on account of the current term
(exclusive of any unexercised extensions) of any existing Lease, an executed
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<PAGE> 10
release from the broker or finder releasing Buyer and its successors and assigns
from any obligation to pay such commission or locator fee and agreeing to look
solely to Seller for payment; and
(xii) duly executed Tenant Estoppel Certificates and/or Seller
Estoppel Certificates, as applicable; and
(xiii) the plans for the Improvements made available to Buyer
pursuant to paragraph 4(i).
Buyer may waive compliance on Seller's part under any of the foregoing items by
an instrument in writing.
(d) Buyer Deliveries. At or before the Closing, Buyer shall deliver
to Escrow Holder or Seller the following:
(i) The Closing Amount;
(ii) The duly executed Assignment of Leases, in the form
attached hereto;
(iii) The duly executed Assignment of Intangible Property, in the
form attached hereto;
(iv) the Closing Statement, duly executed by Buyer; and
(v) a copy of the corporate resolution adopted by Buyer
authorizing this transaction.
(e) Additional Documents. Seller and Buyer shall each deposit such
other instruments as are reasonably required by Escrow Holder or otherwise
required to Close the Escrow and consummate the purchase of the Property in
accordance with the terms hereof.
(f) Prorations. The following are to be apportioned as of the Closing
Date, with Buyer receiving credit for the entire day of the Closing, as follows:
(i) Rent. Rent actually collected under the Leases shall be
apportioned as of the Closing Date. With respect to any rent arrearages arising
under the Leases, after Closing, Buyer shall pay to Seller any rent actually
collected which is applicable to the period preceding the Closing Date;
provided, however, that all rent collected by Buyer shall be applied first to
all unpaid rent accruing after the Closing Date, and then to unpaid rent
accruing prior to the Closing Date. Buyer shall not be obligated to take any
steps to recover any rent arrearages. Seller shall be permitted to pursue its
remedy for collection of any rent arrearages applicable to the period prior to
the Closing Date, provided that Buyer shall incur no cost or expense in
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connection therewith, but Seller shall not be permitted to enforce any other
legal or equitable remedies specifically including commencing eviction
procedures.
(ii) Leasing Costs. Seller shall pay as of the Closing all
leasing commission and tenant improvement costs, if any, in connection with the
current term (exclusive of unexercised options) of any Lease executed on or
before the Execution Date that are or will become due and payable as of the
Closing. Buyer shall be entitled to a credit against the Purchase Price for any
such unpaid commissions or costs due after the Closing but incurred in
connection with the current term (exclusive of unexercised options) of any Lease
executed on or before the Execution Date.
Notwithstanding the foregoing, in the event the lease currently
being negotiated by Seller of suite D-101 at the Property to Square, Inc.
("Square, Inc.") is executed prior to Closing (subject to Buyer's approval of
the terms and provisions thereof as provided in Paragraph 14), then the leasing
commissions and tenant improvement costs in connection with such lease ("Square,
Inc. Costs") shall be prorated as of Closing, with Seller receiving a credit at
Closing equal to (a) all Square, Inc. Costs paid by Seller, multiplied by (ii) a
fraction, the numerator of which is the length of the post-Closing remaining
term of the Square, Inc. Lease, and the denominator of which is the length of
the entire term of the Square, Inc. Lease (excluding extension options). Buyer
shall receive a credit at Closing equal to (a) all Square, Inc. Costs remaining
(i.e., unpaid as of the Closing), multiplied by (ii) a fraction, the numerator
of which is the length of the pre-Closing term of the Square, Inc. Lease, and
the denominator of which is the length of the entire term of the Square, Inc.
Lease (excluding extension options). By way of example, assuming the Square,
Inc. Lease has a term of 5 years, which commenced one month prior to Closing,
and that Seller, prior to Closing, paid tenant improvement and leasing costs
totalling $13,750. In such event, pursuant to the foregoing formula, Seller
would receive a credit against the Purchase Price at Closing equal to $13,750
multiplied by the quotient obtained by dividing 59 months (the remaining post-
Closing term) by 60 months (the entire Lease term). As a result, Seller would
receive a credit of $13,520.83.
Tenant improvement costs and leasing commissions payable in
connection with any new leases executed after the Execution Date and in
compliance with the provisions of Paragraph 14, below, shall be prorated using
the above formula for each such new lease. Any tenant improvement costs or
leasing commissions arising under new leases executed after the Execution Date
but in violation of the provisions of Paragraph 14, shall be paid by Seller
prior to Closing.
(iii) C Enterprises Credit. Pursuant to the existing Lease of
suite F-100 to C Enterprises, in the event C
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Enterprises does not exercise its extension option, but instead terminates its
Lease, then C Enterprises is obligated by the terms of its Lease to reimburse
Seller Eight Thousand Four Hundred Dollars ($8,400) for unamortized tenant
improvement costs. Buyer has agreed that, provided the Lease to C Enterprises
remains in full force and effect at Closing, Seller shall be entitled to a
credit at Closing in the amount of Eight Thousand Four Hundred Dollars ($8,400).
Seller shall not be entitled to, and shall have no claim for, any other or
additional reimbursement of unamortized tenant improvement costs or cancellation
fees in connection with the C Enterprises Lease.
(iv) Security Deposits. Buyer shall be enti- tled to a credit
against the Purchase Price for the total sum of all security and other deposits
paid to Seller by tenants under any Leases, and any interest earned thereon
which by law or the terms of the Leases could be required to be refunded to
tenants.
(v) Utility Charges. Seller shall cause all the utility meters
to be read on the Closing Date, and will be responsible for the cost of all
utilities used prior to the Closing Date, except to the extent such utility
charges are billed to and paid by tenants directly.
(vi) Real Estate Taxes and Special Assessments. General real
estate taxes and special assessments payable for the fiscal year in which the
Closing occurs shall be prorated by Seller and Buyer as of the Closing Date.
(vii) Other Apportionments. Annual or periodic permit and/or
inspection fees (calculated on the basis of the period covered), and liability
for other Property operation and maintenance expenses and other recurring costs
shall be apportioned as of the Closing Date.
(viii) Preliminary Closing Statement. Seller and Buyer shall
jointly prepare and approve a preliminary Closing Statement on the basis of the
Leases and other sources of income and expenses, and shall deliver such
computation to Escrow Holder prior to Closing.
(ix) Post-Closing Reconciliation. If any of the aforesaid
prorations cannot be definitely calculated on the Closing Date, then they shall
be estimated at the Closing and definitely calculated as soon after the Closing
Date as feasible. As soon as the necessary information is available, Buyer shall
conduct a post-Closing audit to determine the accuracy of all prorations made to
the Purchase Price (the "Post-Closing Audit"). Either party owing the other
party a sum of money based on such subsequent proration(s) or the Post-Closing
Audit shall promptly pay said sum to the other party, together with interest
thereon at the rate of two percent over the "prime rate" (as announced from time
to time in the Wall Street Journal) per annum from the
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Closing Date to the date of payment if payment is not made within ten (10) days
after delivery of a bill therefor.
(g) Closing Costs. Seller shall pay for the portion of the premium
for the Title Policy which would be necessary to obtain CLTA coverage and any
transfer taxes applicable to the sale. In addition, Seller shall be liable for
any prepayment fee or other charge payable in connection with any payoff of
monetary encumbrances. Buyer shall pay the cost of increasing the Title Policy
to ALTA coverage, the cost of the Endorsements or any other endorsements Buyer
may obtain, the ALTA Survey and the recording fee for the Deed. Any escrow fees
shall be paid fifty percent (50%) by Buyer and fifty percent (50%) by Seller.
All other costs and charges of the Escrow not otherwise provided for in this
Agreement shall be allocated in accordance with the closing customs for the
County where the Property is located. Buyer and Seller shall each be responsible
for their respective legal fees to negotiate and execute this Agreement.
(h) Reporting Requirements. The Escrow Holder shall comply with all
applicable federal, state and local reporting and withholding requirements
relating to the close of the transactions contemplated herein. Without limiting
the generality of the foregoing, to the extent the transactions contemplated by
this Agreement involve a real estate transaction within the purview of Section
6045 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"), Escrow Holder shall have sole responsibility to comply with the
requirements of Section 6045 of the Internal Revenue Code (and any similar
requirements imposed by state or local law), which in part requires Escrow
Holder to report real estate transactions closing after December 31, 1986 by,
among other things, preparing and causing to be filed Internal Revenue Service
Form 1099-B and any applicable additional statements in connection therewith.
For purposes hereof, Seller's tax identification number is 95- 4081050. Escrow
Holder shall hold Buyer, Seller and their counsel free and harmless from and
against any and all liability, claims, demands, damages and costs, including
reasonable attorney's fees and other litigation expenses, arising or resulting
from the failure or refusal of Escrow Holder to comply with such reporting
requirements.
10. Representations, Warranties and Covenants of Seller. As of the date
hereof and again as of Closing, Seller represents and warrants to, and covenants
with, Buyer as follows, which representations, warranties and covenants shall
survive the Closing:
(a) To Seller's actual knowledge without investigation, (i) there
are no material physical or mechanical defects in, or shortage or deficiency in
utilities supplied to, the Property, and (ii) the Property and its current use
and operation are in compliance with applicable laws, rules, permits
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and regulations as well as private covenants, conditions and restrictions.
(b) Seller has received no written notice that (i) any license,
permit, variance, easement or approval, including without limitation final
certificates of occupancy (or the equivalent) necessary for the current use,
operation and occupancy of the Property have not been issued or are not in
effect, or (ii) the Property is dependent on any other property for compliance
with zoning or other land use regulations.
(c) The documents described in Paragraph 3 above are all the
documents related to the Property in Seller's possession or control. Seller does
not have possession of any keys to the Property. Seller has provided to Buyer
true, complete and accurate copies of all of the documents described in
Paragraph 3 above.
(d) To Seller's actual knowledge without investigation, there are no
(i) condemnation, environmental, zoning or other land-use proceedings,
instituted against the Property, (ii) special assessment proceedings affecting
the Property, or (iii) unrecorded easements, covenants, restrictions, agreements
or other documents which affect title to the Property.
(e) To Seller's actual knowledge without investigation there are no
litigation, arbitration or reference proceedings pending against Seller or the
Property.
(f) On the Closing Date there will be no outstanding written or oral
contracts related to the Property, other than the Leases.
(g) To Seller's actual knowledge without investigation (i) no
hazardous or toxic substance, waste or material (including without limitation
PCB's, petroleum, petroleum products and fractions thereof) has existed or
currently exists in, on or under, or has been disposed of or released from, the
Property or any property adjacent to the Property except in compliance with
applicable laws, orders, rules and regulations; and (ii) no underground storage
tanks (whether existing or abandoned) exist on or under the Property or on or
under any property adjacent to the Property.
(h) Neither Seller nor, to Seller's actual knowledge without
investigation, any tenant of the Property has either filed or been the subject
of any filing of a petition under any federal or state bankruptcy or insolvency
laws.
(i) The most current Rent Roll provided to Buyer is a complete and
accurate list of all Leases. Seller has provided to Buyer complete and accurate
copies of all Leases.
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(j) To Seller's actual knowledge without investigation, there exists
no defaults or events which, with the giving of notice or passage of time, or
both, would constitute a default by any of the tenants.
(k) There exists no defaults or events which, with the giving of
notice or passage of time, or both, would constitute a default by Seller under
any of the Leases.
(l) To Seller's actual knowledge, no free rent, abatements, or other
unexpired concessions exist under any Leases which apply to any period after the
Closing.
(m) This Agreement and all documents executed by Seller and
delivered to Buyer pursuant to this Agreement are and will be duly executed and
delivered by Seller, are and will be legal, valid and binding obligations of
Seller enforceable against Seller in accordance with their respective terms, and
do not and will not violate any provision of any agreement or judicial order to
which Seller or the Property is subject. Seller has obtained all necessary
authorizations, approvals and consents to the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
(n) Seller is not a "foreign person" within the meaning of Internal
Revenue Code Section 1445(f)(3).
(o) Seller has not granted any option or right of first refusal or
first opportunity to any party to acquire any interest in any of the Property,
except the right of first refusal to purchase the space occupied by the lessee
of Suite F- 100 in the event the Property is sold as condominiums.
11. Representations and Warranties of Buyer. Buyer hereby represents and
warrants to Seller as follows: Buyer is a corporation duly organized and validly
existing and in good standing under the laws of the State of Maryland and in
good standing under the laws of the State of California; this Agreement and all
documents executed by Buyer pursuant to this Agreement are or will be duly
authorized, executed and delivered by Buyer, and are or will be legal, valid and
binding obligations of Buyer, and do not and will not violate any provisions of
any agreement or judicial order to which Buyer is subject.
12. Indemnity.
(a) Except for "Liabilities" (hereafter defined) arising directly or
indirectly from a breach of any of Buyer's representations or warranties, or
which shall have arisen out of any aspect of the Property, its management or
operations with respect to the period after Closing, Seller shall hold harmless,
indemnify and defend Buyer, its successors and assigns and their respective
agents, employees, officers, directors and partners, and the Property from and
against any and all liabilities,
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claims, demands, damages and costs, whether direct, contingent or consequential
and no matter how arising, excluding attorneys' fees associated therewith
("Liabilities") in any way (i) related to or arising from any personal injury or
property damage arising or occurring on or about the Property prior to the
Closing and during such time as Seller owned the Property; (ii) related to or
arising from any breach of contract or duty by Seller related to the Property
and arising or occurring prior to the Closing; or (iii) resulting from any
breach of representation or warranty by Seller contained in this written
Agreement or resulting from any breach or default by Seller under this
Agreement.
(b) Except for Liabilities arising directly or indirectly from a
breach of any of Seller's representations or warranties, or which shall have
arisen out of any aspect of the Property, its management or operations with
respect to the period prior to Closing, Buyer shall hold harmless, indemnify and
defend Seller, its successors and assigns and their respective agents,
employees, officers and partners, from and against any and all Liabilities,
excluding attorneys' fees associated therewith in any way (i) related to or
arising from any personal injury or property damage arising or occurring on or
about the Property after the Closing and during such time as Buyer owns the
Property; (ii) related to or arising from any breach of contract or duty by
Buyer related to the Property and arising or occurring after the Closing; or
(iii) resulting from any breach of representation or warranty by Buyer contained
in this Agreement or resulting from any breach or default by Buyer under this
Agreement.
13. Maintenance of the Property and Property Personnel. Between Seller's
execution of this Agreement and the Closing, Seller shall maintain the Property
in the order, condition and repair in which it existed on the date of this
Agreement, reasonable wear and tear and, subject to Paragraph 19 below, damage
by casualty excepted, shall perform all work required to be performed by the
landlord under the terms of any Lease, and shall make all repairs, maintenance
and replacements of the Improvements otherwise operate the Property in the same
manner as before the making of this Agreement, as if Seller were retaining the
Property. After full execution of this Agreement and until the Closing, Seller
shall maintain all existing personnel on the Property in their current
employment positions at not less than their current rate of compensation.
Without limiting the effectiveness of the foregoing provisions or the other
provisions of this Agreement, in the event of the Closing of the purchase of the
Property, Buyer shall not retain the existing employees and management agents of
Seller for the Property, and, accordingly, on the Closing, Seller shall (i)
cause all employment and management agreements respecting the Property to be
terminated, and deliver evidence of such termination to Buyer, and (ii) remove
all employees and management personnel from the Property.
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14. Leasing; Buyer's Consent to New Contracts Affecting the Property;
Termination of Existing Contracts. Seller shall not, after the date of Seller's
execution of this Agreement, enter into any lease or contract affecting the
Property, or any amendment thereof, or, except as required by the express terms
and provisions of any Lease, permit any tenant to enter into any sublease,
assignment or agreement pertaining to the Property, or waive, compromise or
settle any rights of Seller under any contract or Lease, or agree to return any
security deposit, or modify, amend, or terminate any Lease (all of the foregoing
sometimes referred to herein as a "new lease"), without obtaining Buyer's prior
written consent thereto, which shall not be unreasonably withheld. Seller shall
terminate prior to the Closing, at no cost or expense to Buyer, any and all
agreements and contracts affecting the Property other than the Leases.
15. Insurance. Through the Closing Date, Seller shall maintain or cause
to be maintained, at Seller's sole cost and expense the policy or policies of
insurance currently maintained by Seller with respect to the Property.
16. Cooperation with Buyer. Seller hereby irrevocably authorizes Buyer
and its agents to make all inquiries with and applications to any third party,
including any governmental authority, as Buyer may reasonably require to
complete its due diligence; provided, however, Buyer shall not request, apply
for or initiate any change in zoning or other regulatory scheme of the Property
unless and until the Closing has occurred. Notwithstanding the foregoing, Buyer
shall not contact any existing tenants of the Property without Seller's prior
approval, which shall not be unreasonably withheld or delayed.
17. Marketing. Seller agrees not to market or show the Property to, or
solicit offers from, any other prospective purchasers after the expiration of
the Investigation Period.
18. Publicity and Confidentiality. The parties each agree that the terms
of the transaction contemplated by this Agreement, the identity of Buyer and
Seller and all information made available in connection with the transaction
contemplated herein, shall be maintained in strict confidence and no disclosure
of such information will be made, whether or not the transaction contemplated by
this Agreement shall Close, except to such attorneys, accountants, investment
advisors, lenders and others as are reasonably required to evaluate and
consummate that transaction. Nothing in this Paragraph shall prevent Buyer,
Seller or the Escrow Holder from disclosing or accessing any information
otherwise deemed confidential under this Paragraph (a) in connection with that
party's enforcement of its rights hereunder; (b) pursuant to any legal
requirement, any statutory reporting requirement or any accounting or auditing
disclosure requirement; (c) in connection with performance by either party of
its obligations under this Agreement (including, but not limited to, the
delivery and recordation of instruments, notices
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or other documents required hereunder); or (d) to potential investors,
participants or assignees in or of the transaction contemplated by this
Agreement or such party's rights therein.
19. Eminent Domain.
(a) In the event a governmental entity commences eminent domain
proceedings to take any material (in Buyer's reasonable) portion of the Property
after the date hereof and prior to the Closing Date, then Buyer shall have the
option to terminate this Agreement by written notice to Seller within ten (10)
business days after Buyer first learns of such commencement. In the event of any
such termination, the Deposit, together with all interest accrued thereon, shall
be returned to Buyer, Buyer and Seller shall each be liable for one-half of any
escrow fees or charges, and neither party shall have any further liability or
obligation under this Agreement.
(b) In the event a governmental entity commences eminent domain
proceedings to take any part of the Property after the date hereof and prior to
the Closing Date and this Agreement is not terminated pursuant to subparagraph
(a), above, as a result thereof, then the Closing Date shall occur as scheduled
notwithstanding such proceeding; provided, however, that Seller's interest in
all awards arising out of such proceedings shall be assigned to Buyer as of the
Closing Date or credited to Buyer if previously received by Seller.
20. Casualty.
(a) In the event any of the Property is damaged and/or destroyed by
fire or other casualty prior to the Closing Date, and the cost to repair and/or
restore such damage and/or destruction (which cost, for purposes of this
Paragraph 19, shall be deemed to include reasonably anticipated post-Closing
rental loss through to completion of such repair and/or restoration) exceeds One
Hundred Thousand Dollars ($100,000), then Buyer shall have the right to
terminate this Agreement by written notice to Seller within three (3) business
days after Buyer's first learning of the occurrence of such casualty and the
cost of such repair and/or restoration. In the event of any such termination,
the Deposit, together with all interest accrued thereon, shall be returned to
Buyer, Buyer and Seller shall each be liable for one-half of any escrow fees or
charges, and neither party shall have any further liability or obligation under
this Agreement.
(b) In the event any of the Property is damaged or destroyed by fire
or other casualty prior to the Closing Date where (i) the cost to repair and/or
restore such damage and/or destruction does not exceed One Hundred Thousand
Dollars ($100,000.00), or (ii) the cost to repair and/or restore such damage
and/or destruction exceeds One Hundred Thousand Dollars ($100,000.00) but this
Agreement is not terminated pursuant to Paragraph 19(a) above as a result
thereof, then the Closing Date
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shall occur as scheduled notwithstanding such damage; provided, however, that
Seller's interest in all proceeds of insurance payable by reason of such
casualty shall be assigned to Buyer as of the Closing Date or credited to Buyer
if previously received by Seller, and Seller shall be responsible for any cost
of repair not covered by such insurance (whether by reason of insurance
deductible, uninsured casualty or otherwise and whether payable before or after
Closing), and Buyer shall receive a credit toward the Purchase Price therefor.
21. Commission. Except for a real estate brokerage commission to be paid
by Seller to Kent Moore of Lee & Associates upon Close of Escrow, neither Seller
nor Buyer is aware of any other real estate broker involved in this transaction.
Except as provided in the preceding sentence, in the event of any claim of a
commission or finder's fee based upon any contact, dealings or communication,
the party through whom the broker or finder makes its claim shall be responsible
for said commission or fee and all costs and expenses (including, without
limitation, reasonable attorneys' fees) incurred by the other party in defending
against the same. The party through whom any such broker or finder makes a claim
shall hold harmless, indemnify and defend the other party hereto, its successors
and assigns, agents, employees, officers and directors, and the Property from
and against any and all obligations, liabilities, claims, demands, liens,
encumbrances and losses (including, without limitation, attorneys' fees),
whether direct, contingent or consequential, arising out of, based on, or
incurred as a result of such claim. The provisions of this Paragraph shall
survive the termination of this Agreement.
22. REIT Disclosure. Buyer hereby advises Seller that Buyer is qualified
as a real estate investment trust under the provisions of the Internal Revenue
Code of 1986, as amended, and that, by reason thereof, the maintaining of such
status and the avoiding of any activity which might cause a penalty tax to be
applied is of material concern to Buyer. Accordingly, Seller agrees to make any
modifications or amendments to this Agreement requested by Buyer that may be
necessary for Buyer to maintain its status as a real estate investment trust or
in order for it to avoid a penalty tax; provided, however, that Seller shall
have no obligation to enter into any such modification or amendment that would
materially alter or affect, in Seller's sole judgment, Seller's rights, duties,
or obligations under this Agreement. If Seller declines to modify or amend this
Agreement for any reason in a manner which Buyer determines, in the good faith
exercise of its reasonable business judgment, is necessary to maintain its
status as a real estate investment trust, Buyer shall have the right to
terminate this Agreement. In the event Buyer exercises such termination right,
neither party shall have any further rights or obligations hereunder, and all
funds (including, without limitation, the Deposit and all interest accrued
thereon) and documents deposited in escrow shall be returned to the party
depositing the same.
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23. Miscellaneous Provisions.
(a) Risk of Loss. Seller shall deliver to Buyer possession of the
Property upon the Close of Escrow. From and after the Close of Escrow, Buyer
shall bear any and all risk of casualty loss to the Property.
(b) Attorneys' Fees. In the event that either Buyer or Seller brings
any suit or other proceeding with respect to this Agreement, the prevailing
party in such action or proceeding shall, in addition to such other relief as
may be awarded, recover its actual attorneys' fees, expenses and costs incurred
in such action or proceeding from the other party. If Seller is the prevailing
party, such recovery of attorneys' fees, expenses and costs incurred, shall be
in addition to any liquidated damages to which Seller may be entitled under this
Agreement. In addition to the foregoing award of attorneys' fees to the
prevailing party, the prevailing party in any lawsuit on this Agreement shall be
entitled to its attorneys' fees incurred in any post judgment proceedings to
collect or enforce the judgment. This provision is separate and several and
shall survive the merger of this Agreement into any judgment on this Agreement.
(c) Time is of the Essence. Time is of the essence of this
Agreement, and each of its provisions. For purposes of this Agreement "business
day" shall mean any day other than a Saturday, Sunday, California State or
national holiday or other day on which commercial bankers in California are
generally not open for business.
(d) Entire Agreement. This Agreement, and any additional escrow
instructions to Escrow Holder to be executed in accordance herewith, constitute
the entire agreement between the parties hereto with respect to the Property,
and supersede any and all prior agreements, understandings, representations, and
warranties. This Agreement may not be modified or altered except in a written
agreement executed by the parties hereto.
(e) Successors and Assigns. This Agreement is personal to and may
not be assigned by either Buyer or Seller; provided, however, that Buyer shall
have the right to assign this Agreement without the consent or approval of
Seller to a person or entity affiliated with Buyer; provided further, however,
that in the event of any such assignment Buyer shall not be released from any
liability hereunder. This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors, heirs,
administrators and permitted assigns.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
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(g) Severability. If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force and effect.
(h) Counterparts. This Agreement, and any document executed in
connection with this Agreement, may be executed in any number of counterparts
each of which shall be deemed an original and all of which shall constitute one
and the same agreement with the same effect as if all parties had signed the
same signature page. It shall not be necessary that the signatures of, or on
behalf of, each party, or that the signatures of all persons required to bind
any party, appear on a single counterpart, but it shall be sufficient that the
signature of, or on behalf of, each party, appear on one or more of the
counterparts. Any signature page of this Agreement, and any document executed in
connection with this Agreement, may be detached from any counterpart of this
Agreement or such other document and reattached to any other counterpart of this
Agreement or such other document identical in form hereto or thereto but having
attached to it one or more additional signature pages. This Agreement, and any
document executed in connection with this Agreement, shall be deemed executed
and delivered upon each party's delivery of executed signature pages of this
Agreement or such other document, which signature pages may be delivered by
facsimile with the same effect as delivery of the originals.
(i) No Waiver. No delay or failure on the part of any party hereto
in exercising any right, power or privilege under this Agreement or under any
other instrument or document given in connection with or pursuant to this
Agreement shall impair any such right, power or privilege or be construed as a
waiver of any default or any acquiescence therein. No single or partial exercise
of any such right, power or privilege shall preclude the further exercise of
such right, power or privilege. No waiver shall be valid against any party
hereto unless made in writing and signed by the party against whom enforcement
of such waiver is sought and then only to the extent expressly specified herein.
(j) Legal Representation. Each party has been represented by legal
counsel in connection with the negotiation of the transactions herein
contemplated and the drafting and negotiation of this Agreement.
(k) Notices. Any notice of communication required or permitted to be
given under this Agreement shall be in writing, and shall be personally
delivered or delivered by facsimile transmission, sent by first-class registered
or certified mail, prepaid, return receipt requested or sent by an overnight
delivery service. If mailed, any notice shall be
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deemed "delivered" seventy-two hours after deposit of same in the United States
mail, addressed to the addressee as set forth below, or such other address as a
party may specify upon giving written notice as provided in this paragraph to
the other party. If personally delivered or delivered by facsimile transmission,
notices shall be deemed "delivered" upon delivery to the address of the
addressee. If delivered by overnight courier, one business day after being
deposited with the overnight courier service or facsimile transmission. The
following shall be the addresses of the parties for purposes of this paragraph:
If to Seller: 550 Associates
73-241 Highway 111
Suite 4C West
Palm Desert, California 92260
Phone: (619) 340-9392
Fax: (619) 779-1047
With a copy to: Mark Finfer
173 North Anita Avenue
Los Angeles, California 90049
Phone: (310) 472-6655
Fax: (310) 472-8455
If to Buyer: Pacific Gulf Properties Inc.
363 San Miguel Drive, Suite 100
Newport Beach, CA 92660-7805
Attention: Mr. Lonnie Nadal
Phone: (714) 721-2700
Fax: (714) 721-2701
With a copy to: Cox, Castle & Nicholson, LLP
2049 Century Park East, Suite 2800
Los Angeles, California 90067
Attention: Amy H. Wells, Esq.
Phone: (310) 284-2233
Fax: (310) 277-7889
If to Escrow
Holder: Chicago Title Insurance Company
16969 Von Karman
Irvine, California 92714
Attention: Joy Eaton
Phone: (714) 263-0126
Fax: (714) 263-0344
(l) Exhibits. All exhibits attached hereto are incorporated herein
as though fully set forth herein.
(m) Joint Liability. All entities constituting "Seller" hereunder
shall be jointly liable for the faithful performance of the terms and conditions
hereof, and of any other
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document executed in connection herewith, to be performed by Seller.
24. Principal of Seller Licensed Real Estate Broker. Buyer acknowledges
that Seller has made Buyer aware that one or more of the principals of Seller
are California licensed real estate brokers.
25. Tax Deferred Exchange. Buyer agrees to cooperate reasonably with
Seller (at no cost or risk to Buyer) in the manner of transferring title to the
Property, provided however, in no event shall the Closing be postponed or
delayed. Such cooperation by Buyer shall include Buyer paying the Purchase Price
at Closing to an accommodation party named by Seller but shall not include
Buyer's acquiring title to any property other than the Property or otherwise
becoming involved in any transaction with a third party. Notwithstanding
anything to the contrary contained herein, Buyer is not to incur any, and Seller
shall reimburse, indemnify and hold Buyer harmless from, any and all costs,
expenses and liabilities incurred solely from Buyer's accommodation of such tax
deferred exchange, including, without limitation, reasonable attorneys' fees,
and any title or escrow fees or expenses.
IN WITNESS WHEREOF, Buyer and Seller have executed this Agreement as of
the date first set forth above.
BUYER:
PACIFIC GULF PROPERTIES INC.,
a Maryland corporation
By:________________________________
________________________________
(Print Name and Title)
SELLER:
550 ASSOCIATES, a California
limited partnership
By: Compass Properties, Inc.,
its general partner
By: ___________________________
___________________________
(Print Name and Title)
[BUYER AND SELLER TO INITIAL PARAGRAPH 8]
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Chicago Title Insurance Company agrees to act as Escrow Holder in accordance
with the terms of this Agreement.
CHICAGO TITLE INSURANCE COMPANY
By:________________________________
________________________________
(Print Name and Title)
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<PAGE> 1
Exhibit 10.6
05-02-96/PRL-57439/BRL
ESCROW HOLDER: TITLE COMPANY:
Chicago Title Chicago Title
700 South Flower Street 700 South Flower Street
Los Angeles, California 90017 Los Angeles, California 90017
Attn: Ms. Rose Martinez Attn: Ms. Joanne Jones
(phone) (213) 488-4353 (phone) (213) 488-4317
(FAX) (213) 488-4384 (FAX) (213) 488-4388
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
This Purchase and Sale Agreement and Joint Escrow Instructions (the
"Agreement") is dated for references purposes only as of April 19, 1996 by and
between EDEN LANDING ASSOCIATES, a California general partnership ("Seller"),
and PACIFIC GULF PROPERTIES, INC., a Maryland corporation ("Buyer").
RECITALS
A. Seller is the owner of that certain land located in the City of
Hayward, County of Alameda, State of California, consisting of approximately
11.3 acres and legally described in Exhibit "A" attached hereto (the "Land").
The Land is currently improved by 10 light industrial and office buildings
containing approximately 193,358 rentable square fee of space (collectively,
the "Buildings"). The Land, the Buildings and all other improvements and
fixtures on the Land are sometimes collectively referred to herein as the "Real
Property." The Real Property is commonly known as R&B Commerce Park - Eden
Landing.
B. Buyer wishes to purchase from Seller, and Seller wishes to sell to
Buyer, the Real Property and the other Property described in Section 1 below
pursuant to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants, promises and
undertakings set forth in this Agreement, Buyer and Seller agree as follows:
1. Purchase and Sale. Upon and subject to the terms and conditions set
forth in this Agreement, Seller hereby agrees to sell to Buyer and Buyer hereby
agrees to buy the following:
(a) the Real Property, together with all easements,
hereditaments and appurtenances thereto;
(b) all of Seller's right, title and interest in and to all
tangible personal property and equipment (the "Personal Property") located
on and used in the operation of the Real Property including, without
limitation, all office equipment, computers, copiers, file cabinets, office
furniture and other items listed in Exhibit "J" attached hereto; and
(c) all of Seller's right, title and interest in and to all
intangible property (the "Intangible Property") that is appurtenant to the
ownership of the
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Real Property or necessary to the operation thereof, including, but not
limited to (i) all of the Leases and Contracts (as defined in Section 6.1),
(ii) all governmental permits and certificates of occupancy, and (iii) all
existing architectural drawings, plans and specifications, site plans,
interior design layouts and surveys in Seller's possession.
The Real Property, the Personal Property and the Intangible Property are
collectively referred to herein as the "Property".
2. Purchase Price. The purchase price for the Property (the "Purchase
Price") shall be Seven Million Five Hundred Thousand and No/100 Dollars
($7,500,000).
3. Method of Payment of Purchase Price. The Purchase Price shall be
payable by Buyer to Seller as follows:
3.1 Deposit. Good Funds in the amount of One Hundred Thousand and
No/100 Dollars ($100,000) (the "Deposit") shall be deposited by Buyer into the
Escrow (as defined in Section 4.1) concurrently with the full execution and
delivery of this Agreement. Immediately upon receipt of the Deposit, Escrow
Holder shall invest the same in insured money market funds or other investments
of a type and duration mutually approved by Buyer and Seller. Unless the Escrow
has been cancelled in accordance with this Agreement, the entire Deposit shall
become nonrefundable to Buyer on the date immediately following the Contingency
Date (as defined in Section 11 hereof), except in the event of a Seller Default
(as defined in Section 4l.7(a). Buyer shall receive a credit in the amount of
the Deposit against the Purchase Price in the event that the recordation of the
Grant Deed (the "Closing") takes place. All interest earned on the Deposit shall
in all events be returned to Buyer.
3.2 Payment of Balance of Purchase Price. The entire $7,400,000.00
balance of the Purchase Price shall be paid in good funds by Buyer to Seller at
the Closing. As used in this Agreement, the term "good funds" means immediately
available U.S. funds transferred by certified check or wire transfer.
4. Escrow.
4.1 Opening; Joint Instructions. The purchase and sale of the Property
shall be completed through an escrow (the "Escrow") at the office of the escrow
holder identified on page 1 hereof ("Escrow Holder"), This Agreement shall
constitute joint escrow instructions to the Escrow Holder. The Escrow shall be
deemed to be "opened" as of the date (the "Opening of Escrow") upon which the
Escrow Holder first holds the Deposit and counterparts of this Agreement, fully
executed by Buyer and Seller. Escrow Holder shall promptly notify Buyer and
Seller of the date which constitutes the Opening of Escrow.
4.2 Additional Instructions. Buyer and Seller hereby agree to execute
such additional instructions not inconsistent with this Agreement as may
reasonably be required by the Escrow Holder.
4.3 Closing Deadline. As used herein, the "Closing Deadline" shall mean
the date which is 45 days following the Opening of Escrow. The Closing shall
occur on a date reasonably acceptable to Buyer and Seller as soon as possible
after the satisfaction of all of the conditions contained in this Agreement,
but in no event later than the Closing Deadline. Time is specifically of the
essence as to the Closing Deadline. The Closing Deadline shall not be extended
except by the mutual written agreement of Buyer and Seller.
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4.4 Seller's Deliveries Prior to Closing. Seller shall deliver to the
Escrow Holder, at least one business day prior to the Closing Deadline (unless
a different time frame is specified below), the following documents and funds:
(a) a grant deed to the Property, in the form attached hereto as
Exhibit "F", duly executed and acknowledged by Seller and in recordable
form (the "Grant Deed");
(b) a bill of sale in the form attached hereto as Exhibit "B,"
executed by Seller (the "Bill of Sale");
(c) three executed original counterparts of an assignment and
assumption of contracts and warranties in the form attached hereto as
Exhibit "C", executed by Seller (the "Assignment of Contracts and
Warranties");
(d) three executed original counterparts of an assignment and
assumption of leases in the form attached hereto as Exhibit "D", executed
by Seller (the "Assignment of Leases");
(e) federal and state non-foreign seller affidavits in the forms
attached hereto as Exhibits "E-1" and "E-2", respectively, executed by
Seller (collectively, the "Affidavits");
(f) a statement of documentary transfer tax due and request that
the tax declaration not be made a part of the permanent record, in the form
attached hereto as Exhibit "G" (the "Transfer Tax Statement");
(g) not less than 10 days prior to the Closing Deadline,
originals of estoppel certificates in substantially the form of Exhibit "H"
hereto executed by tenants under Leases representing at least 80% of the
income for the Property (collectively, the "Tenant Estoppels"). Seller's
inability to obtain one or more of the Tenant Estoppels shall not
constitute a default by Seller. For any Leases (over and above those Leases
required to meet the "80% of income" test referenced above) which Seller is
unable to obtain a Tenant Estoppel executed by the actual tenant, Seller
shall execute such Tenant Estoppel certifying, to Seller's current actual
knowledge, the matters set forth therein and deliver the same to Escrow
Holder;
(h) if and to the extent they are in Seller's possession,
originals of the building permits and certificates of occupancy for the
Improvements and all tenant-occupied space included within the
Improvements;
(i) notices to the tenants of the occurrence of the sale of the
Property in a form designated by Buyer and reasonably approved by Seller;
(j) a closing statement in form and content satisfactory to
Buyer and Seller (the "Closing Statement") duly executed by Seller;
(k) all keys to the Property;
(l) evidence of termination of any Contracts that have not been
approved by Buyer; and
(m) all other sums and documents reasonably required of Seller
by Escrow Holder to carry out and close the Escrow pursuant to this
Agreement.
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4.5 Buyer's Deliveries Prior to Closing. Buyer shall deliver to the
Escrow Holder, prior to the Closing, the entire Purchase Price (adjusted to
take into account the prorations and other adjustments called for under this
Agreement) in good funds and the following documents:
(a) three executed original counterparts of the Assignment of
Contracts and Warranties;
(b) three executed original counterparts of the Assignment of
Leases;
(c) the Closing Statement duly executed by Buyer; and
(d) all other sums and documents reasonably required of Buyer by
Escrow Holder to carry out and close this Escrow pursuant to this
Agreement.
4.6 Actions at Closing. At the Closing, the Escrow Holder shall do the
following;
(a) cause the Grant Deed to be recorded in the Official Records
of Alameda County, California (the "Official Records"), and cause the
Transfer Tax Statement to be delivered to the recorder's office with
instructions to attach the Transfer Tax Statement to the Grant Deed
following recordation of the Grant Deed;
(b) cause the original Bill of Sale, complete original
counterparts of the Assignment of Contracts and Warranties, complete
original counterparts of the Assignment of Leases, the Affidavits and the
Tenant Estoppels to be delivered to Buyer along with an owner's policy of
title insurance or commitment therefor in the form specified by Section 5.4
hereof; and
(c) deliver to Seller complete original counterparts of the
Assignment of Contracts and Warranties, complete original counterparts of
the Assignment of Leases, and the Purchase Price (less costs and expenses
to be paid by Seller under Section 4.8).
4.7 Cancellation of Escrow/Treatment of Deposit. This Section 4.7 shall
survive termination of this Agreement.
(a) The Deposit shall be applied toward the Purchase Price at
Closing.
(b) In the event that the Closing does not occur at the time and
in the manner provided in this Agreement due to the material failure of
Seller to comply with any of its obligations under this Agreement ("Seller
Default"), Buyer shall have the right to cancel the Escrow by written
notice to Seller and the Escrow Holder. Upon such cancellation, all costs
of the Escrow, including without limitation the cost of the preliminary
title report or commitment furnished to Buyer pursuant to Section 5.1
(collectively, the "Cancellation Costs") shall be paid by Seller, and the
Escrow Holder shall promptly return the Deposit and all interest earned
thereon to Buyer without further instruction or joinder by Seller.
(c) In the event that the Closing does not occur at the time and
in the manner provided in this Agreement due to the material failure of
Buyer to comply with any of its obligations under this Agreement ("Buyer
Default"), Seller shall have the right to cancel the Escrow by written
notice to Buyer and the Escrow Holder. Upon such cancellation, the
Cancellation Costs shall be
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paid by Buyer, and the Escrow Holder shall promptly deliver the Deposit
(but not the interest earned thereon) to Seller, and all interest earned on
the Deposit shall be delivered to Buyer, without further instruction or
joinder by Buyer.
(d) In the event that the Closing does not occur at the time and
in the manner provided in this Agreement for any reason other than a Buyer
Default or Seller Default, either Buyer or Seller may cancel the Escrow by
written notice to the other and to the Escrow Holder. Upon such
cancellation, the Cancellation Costs shall be divided equally between Buyer
and Seller, and the Escrow Holder shall promptly return the Deposit and all
interest earned thereon to Buyer without further instruction or joinder by
Seller.
(e) Upon any cancellation of the Escrow, all instruments and
documents deposited with the Escrow Holder shall be returned to the parties
who deposited the same.
(f) The rights and remedies set forth in this Section 4.7 shall
not be exclusive of any other rights or remedies which Buyer or Seller may
have by law or in equity in the event of breach of this Agreement, subject,
however, to the liquidated damages provisions contained in Section 16 of
this Agreement.
(g) Notwithstanding anything to the contrary contained in this
Agreement, Buyer shall have the right, in its sole and absolute discretion,
to terminate the Escrow at any time on or prior to the Contingency Date. In
such event, the Deposit and all interest earned thereon shall be returned
to Buyer without further instruction or joinder by Seller.
4.8 Fees, Closing Costs and Prorations. In the event the Closing
occurs, the costs incidental to the Closing shall be paid as follows:
(a) Seller shall pay: (i) the premium for a CLTA standard
coverage owner's policy of title insurance issued pursuant to Section 5.4;
(ii) the cost of the Existing Survey and the Updated Survey; and (iii) any
Alameda County documentary transfer tax (and one-half of any transfer tax
imposed by the City of Hayward) payable in connection with the recordation
of the Grant Deed as set forth in the Transfer Tax Statement.
(b) Buyer shall pay: (i) the cost of all title insurance
endorsements requested by Buyer and the additional cost of an ALTA extended
coverage owner's policy of title insurance over a CLTA standard coverage
owner's policy; (ii) the cost of recording the Grant Deed; (iii) one-half
of any transfer tax imposed by the City of Hayward payable in connection
with the recordation of the Grant Deed as set forth in the Transfer Tax
Statement; and (iv) all of the Escrow Holder's escrow fees.
(c) Buyer and Seller shall each pay their own legal fees and
other incidental expenses incurred in connection with the transaction
contemplated by this Agreement.
(d) Rents which have actually been received by Seller for the
month ("Current Month") in which the Closing occurs shall be prorated as of
the Closing. All unpaid rents or charges due prior to the Current Month and
Seller's pro rata share of any unpaid rent for the Current Month
(collectively referred to herein as "Pre-Closing Unpaid Rent") shall be the
property of Seller, and Buyer
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shall have no rights with respect to such Pre-Closing Unpaid Rent. Buyer
shall promptly pay to Seller any Pre-Closing Unpaid Rent which is received
by Buyer after the Closing; provided, however that all rent collected by
Buyer with respect to a particular Lease shall be applied first to unpaid
rent owed and accruing under such Lease after the Closing Date, and then to
Pre-Closing Unpaid Rent owed under such Lease. Buyer shall not be obligated
to take any steps to recover any Pre-Closing Unpaid Rent. Seller shall be
permitted to pursue tenants in an effort to recover Pre-Closing Unpaid
Rent, provided that Buyer shall incur no costs or expense in connection
therewith. However, Seller shall not be permitted to commence eviction
proceedings against any tenant as part of Seller's effort to collect
Pre-Closing Unpaid Rent. Buyer shall be entitled to a credit against the
Purchase Price for any free rent periods, rent abatements, or other
unexpired concessions under any Leases to the extent they apply to any
period after the Closing. All security deposits or other deposits (if any)
of tenants actually being held by Seller under the Leases (and all such
deposits required to be returned to tenants under the terms of the Leases,
whether or not actually held by Seller) shall either be delivered by Seller
to Buyer at the Closing or credited to Buyer at the Closing.
(e) If Seller performs, pays or contracts for any tenant
improvement work or leasing commissions under any Lease which is entered
into after the Opening of Escrow, then such payments, expenses and/or
commissions shall be prorated between Seller and Buyer as of the Closing.
The Seller shall receive a credit at Closing in an amount equal to (i) all
tenant improvement costs and leasing commissions paid by Seller under any
Lease which is entered into after the Opening of Escrow, multiplied by (ii)
a fraction, the numerator of which is the length of the post-Closing
remaining term of such Lease and the denominator of which is the length of
the entire term of such Lease (excluding extension options). If any Lease
(herein, a "Straddle Lease") is entered into after the Opening of Escrow
and has a term commencing prior to the Closing, and if such Straddle Lease
obligates the landlord to perform or pay for tenant improvement work or
leasing commissions, and provided that Seller does not in fact perform or
pay for any such tenant improvement work or leasing commissions, then the
amount of such payments, expenses and/or commissions required to be paid or
performed by the landlord shall be prorated between Seller and Buyer as of
the Closing. The Buyer shall receive a credit at Closing in an amount equal
to (i) all tenant improvement costs and leasing commissions required to be
paid by the landlord (and not actually paid by Seller) under any Straddle
Lease, multiplied by (ii) a fraction, the numerator of which is the length
of the pre-Closing term of the Straddle Lease and the denominator of which
is the length of the entire term of the Straddle Lease (excluding extension
options).
(f) All utility charges, maintenance and repair expenses, taxes,
assessments, insurance premiums, amounts payable under the assigned
Contracts, and all other operating expenses or recurring costs which are
the landlord's responsibility under the Leases shall be prorated as of the
Closing based upon the latest available information. To the extent that
such items are required to be paid directly by the tenants under the
Leases, they shall not be prorated. Otherwise, such items shall be
prorated, taking into account any reimbursements received by Seller. If
supplemental real property taxes are the landlord's responsibility under
the Leases, then Seller agrees that, after the Closing and upon receipt
of
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a Supplemental Tax Bill from the Alameda County Tax Assessor's Office by
Seller or Buyer, Seller will meet with Buyer to determine the amount of any
Supplemental Taxes affecting the Property. Seller shall pay to Buyer the
portion of the Supplemental Taxes which the parties agree is attributable
to the period of time prior to the Closing.
(g) Any other costs or expenses in connection with the
transaction contemplated by this Agreement shall be apportioned in the
manner customary in the County in which the Property is located.
(h) Seller and Buyer shall jointly prepare and approve a
preliminary Closing Statement on the basis of the Leases and all other
sources of income and expense to be allocated and prorated under this
Section 4.8, and shall deliver such preliminary Closing Statement to Escrow
Holder prior to Closing.
4.9 Preliminary Closing Statement. Seller and Buyer shall jointly
prepare and approve a preliminary Closing Statement on the basis of the Leases
and other sources of income and expenses, and shall deliver such preliminary
Closing Statement to Escrow Holder at least two business days prior to Closing.
4.10 Post-Closing Reconciliation. If any of the aforesaid prorations
cannot be definitely calculated as of the Closing, then they shall be estimated
at the Closing and definitely calculated as soon after the Closing as feasible.
As soon as the necessary information is available, Buyer shall conduct a
post-Closing audit to determine the accuracy of all prorations made to the
Purchase Price (the "Post-Closing Audit"), and shall deliver the results of the
Post-Closing Audit to Seller for Seller's review and approval (which approval
shall not be unreasonably withheld). Once the results of the Post-Closing Audit
have been approved by Buyer and Seller, either party owing the other party a
sum of money based on the Post-Closing Audit shall promptly pay said sum to
the other party, together with interest thereon at the rate of two percent
over the "prime rate" (as announced from time to time in the Wall Street
Journal) per annum from the Closing to the date of payment if payment is not
made within ten (10) days after delivery of a bill therefor.
5. Title.
5.1 Preliminary Title Report. Seller shall deliver to Buyer, concurrent
with the Opening of Escrow (i) a preliminary title report or title commitment
pertaining to the Property prepared by the Title Company (the "Preliminary
Title Report"), and (ii) copies of all underlying documents referenced in the
Preliminary Title Report.
5.2 ALTA Survey. Seller shall deliver to Buyer, concurrent with the
Opening of Escrow, a copy of the November 1989 ALTA Survey of the Property
prepared by Pugh-Nolte & Associates (the "Existing Survey"). Seller shall also
deliver to Buyer, within ten (10) business days following the Opening of
Escrow, an updated ALTA survey (the "Updated Survey") certified to Buyer and
the Title Company, which certification shall be in a commercially reasonable
form.
5.3 Permitted Exceptions. Seller shall convey to Buyer fee simple title
to the Property, subject only to the following (referred to collectively herein
as the "Permitted Exceptions"):
(a) The Title Company's printed exceptions and exclusions on its
standard form ALTA extended coverage
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owner's policy of title insurance (Form B, Rev. 10/17/70 with Endorsement
Form 1 coverage);
(b) The rights of parties in possession under the Leases;
(c) General and special taxes and assessments not then
delinquent.
(d) Any additional documents which are recorded with the mutual
approval of Buyer and Seller; and
(e) All other covenants, conditions, restrictions, exceptions,
reservations, rights, rights of way, easements and other matters affecting
title and approved (or deemed approved) by Buyer in accordance with Section
11 hereof.
5.4 Title Insurance. At the Closing, the Escrow Holder shall deliver to
Buyer an ALTA extended coverage owner's policy of title insurance (Form B, Rev.
10/17/70 with Endorsement Form 1 coverage) with liability in the amount of the
Purchase Price, issued by the Title Company (or a commitment by the Title
Company to issue such owner's policy, showing title to the Property to be
vested in Buyer subject only to the Permitted Exceptions. Such title policy or
commitment shall also contain such title insurance endorsements as the Buyer
may require, provided that (i) the Title Company is willing to issue such
requested endorsements, and (ii) Buyer pays all costs associated with the
issuance of such endorsements.
5.5 ALTA Title Policy. Buyer hereby elects to receive an American Land
Title Association extended coverage owner's policy of title insurance ("ALTA").
Buyer shall pay the excess premium of an ALTA extended coverage owner's policy
(Form B, Rev. 10/17/70 with Endorsement Form 1 coverage) over the premium for a
CLTA standard coverage owner's policy. The issuance of the ALTA extended
coverage policy (Form B, Rev. 10/17/70 with Endorsement Form 1 coverage) shall
constitute a condition to the Closing.
6. Leases and Contracts.
6.1 Delivery of Leases and Contracts. Seller shall make available at
the Property for inspection by Buyer, from and after the Opening of Escrow, the
originals or true and correct copies of (i) all leases, rental agreements and
other agreements (including all modifications and amendments) whereby any
person or entity is given any right to occupy, possess or use the Property or
any portion thereof (collectively, the "Leases") and Seller's on-site files
containing correspondence and other relevant documentation pertaining to the
Leases, and (ii) all service contracts, warranties and agreements pertaining
to the ownership, operation, management, maintenance and use of the Property
(collectively, the "Contracts").
6.2 Performance of Leases and Contracts. From and after the Opening of
Escrow until the Closing, Seller agrees that it will continue to perform all of
its obligations under the Leases and Contracts.
6.3 Rent Roll and Lease Form. Seller shall deliver to Buyer, concurrent
with the Opening of Escrow, a sample of the form(s) of lease being used by
Seller for the Property. Attached hereto as Exhibit "I" is the most recent rent
roll for the Property (the "Rent Roll"). Seller shall also deliver to Buyer (i)
no later than 3 business days prior to the Contingency Date, and (ii) not later
than 3 business days prior to the Closing Deadline, updated Rent Rolls, in each
case
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certified by Seller to be true and correct to Seller's then current actual
knowledge.
6.4 Originals at Closing. At the Closing, Seller shall deliver to Buyer
outside of Escrow the executed originals of each of the Contracts and Leases
(including any amendments thereto) in Seller's possession. If Seller does not
possess the originals, then Seller shall provide copies which are certified by
Seller to be true, complete and accurate.
6.5 New Leases or Contracts and Modification of Leases or Contracts
After Opening of Escrow. Seller shall not execute any new Contract or Lease
which will survive the Closing, or modify any existing Contract or Lease which
will survive the Closing, after the Opening of Escrow without first obtaining
Buyer's approval, which approval shall not be unreasonably withheld or delayed.
Unless Buyer notifies seller of Buyer's objection within two days after (i)
Seller notifies Buyer of Seller's desire to enter into a new Lease or Contract
or modify an existing Lease or Contract, and (ii) Seller provides Buyer with a
copy of the basic business terms of such proposed new Lease or Contract (or
modification of an existing Lease or Contract) and all financial statements or
other documentation in Seller's possession regarding the financial condition
and credit strength of any proposed new tenant, then Buyer shall be deemed to
have conclusively approved such proposed action by Seller.
7. Other Due Diligence Materials/Delivery. Seller shall use its best
efforts to deliver to Buyer concurrent with the Opening of Escrow, but in any
event shall deliver to Buyer within five (5) business days after the Opening of
Escrow, the following additional due diligence materials: (i) 1995 and
year-to-date 1996 operating statements showing all income and expenses for the
Property, (ii) plans and specifications for the Buildings (to the extent the
same are in Seller's possession), (iii) copies of all utility bills paid by
Seller with respect to the Property for 1995 and year-to-date 1996, (iv) copies
of the real property tax bills for the current and immediately prior year for
the Property, (v) a copy of the Phase 1 environmental site assessment prepared
by Pickering Environmental Consultants, Inc. dated September 6, 1989, including
as asbestos survey (if such asbestos survey is in Seller's possession), (vi)
copies of all building permits and occupancy permits pertaining to the Property
and in Seller's possession, (vii) a list of all personal property (if any) to
be conveyed to Buyer, and (viii) a copy of the ADA compliance survey dated
August 12, 1993 and prepared by Dubose and Associates.
8. Buyer's Inspection. Buyer and Buyer's agents are hereby granted a
license, from the Opening of Escrow though the Closing (or earlier termination
of the Escrow), subject to Seller's reasonable approval and upon adequate
advance notice to Seller, to enter upon and inspect the Property and all
improvements, fixtures, equipment and personal property located thereon or
affixed thereto, together with all lease files and maintenance records
pertaining to the Property. Such entry and inspection shall be conducted during
normal business hours. Seller agrees to cooperate with Buyer and Buyer's agents
(at no expense to Seller) in connection with such inspection, and to make
available for Buyer's inspection and copying (any copying to be at Buyer's
expense) all of Seller's records and documents pertaining to the Property.
Buyer shall be permitted to conduct (at Buyers sole cost and expense) such
audits of Seller's Lease files and other books and records (including, without
limitation, operating statements pertaining to the Property) as Buyer may
reasonably require. Buyer shall also be permitted to conduct such engineering,
feasibility, environmental and other studies regarding the condition of the
Property as it considers prudent. Buyer shall obtain Seller's
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prior written consent before conducting any soils or groundwater testing. Among
other things, Buyer shall be allowed to review and approve the Property's
compliance with all zoning, land use, Americans with Disabilities Act (ADA),
California Title 24 and other governmental regulations, laws, permits and
approvals. Neither Buyer nor Buyer's agents or representatives shall contact any
governmental agency or governmental authority (other than Alameda County, the
City of Hayward and their various departments and divisions) to make any
inquiries concerning the Property without first notifying Seller of such
proposed inquiry and obtaining Seller's express approval thereof, which
approval shall not be unreasonably withheld.
9. Buyer's Indemnification. In connection with Buyer's inspection and
investigation, Buyer shall repair any damage to the Property, and shall defend,
indemnify and hold Seller and Seller's constituent partners and their
respective shareholders, directors, officers, employees and agents harmless
from and against any and all claims, suits, judgments, losses, damages or
liabilities of any nature (including without limitation attorneys fees and
costs of suit) arising from or in any way related to the entry upon the
Property by Buyer, its employees, agents, independent contractors and
consultants.
10. Buyer's Approval of Market for Property: Market Contingency Date.
This Agreement and each of Buyer's obligations in connection herewith are
expressly conditioned upon Buyer's approval (which approval may be granted or
withheld in Buyer's sole and absolute discretion), on or before the date (the
"Market Contingency Date") which is 15 days following the Opening of Escrow, of
the market in which the Property is located. During such 15-day period, Buyer
will conduct such market surveys and analysis as Buyer deems prudent in
assessing the applicable market for the Property. If Buyer fails to give
written notice to Seller of Buyer's disapproval of the market for the Property
on or before the Market Contingency Date, Buyer shall be deemed to have
approved such market. If Buyer disapproves the market for the Property, then
the Escrow shall terminate on the date immediately following the Market
Contingency Date, in which event Section 4.7(d) shall apply and the Deposit
shall be returned to Buyer.
11. Buyer's Approval of Other Due Diligence Items; Contingency Date.
This Agreement and each of Buyer's obligations in connection herewith are
expressly conditioned upon Buyer's approval (which approval may be granted or
withheld at Buyer's sole and absolute discretion), on or before the date (the
"Contingency Date") which is 30 days following the Opening of Escrow, of each
of the following items (other than the market for the Property, which must be
approved or disapproved by the Market Contingency Date pursuant to Section 10,
above):
(a) the Rent Roll (as updated per Section 6.3) and all Leases;
(b) all Contracts;
(c) the Existing Survey and the Updated Survey, the Preliminary
Title Report and all underlying title documents;
(d) the status and condition of the Property and any
improvements, fixtures, appurtenances and equipment located thereon or
affixed thereto, including without limitation all zoning, environmental
review and soils investigation; and
(e) all other aspects of the Property.
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<PAGE> 11
If Buyer shall fail to give written notice to Seller of Buyer's disapproval of
any of the foregoing items on or prior to the Contingency Date, Buyer shall be
deemed to have approved such matters and such conditions shall be deemed
satisfied. If Buyer disapproves any of such matters and Seller and Buyer have
not agreed in writing upon a suitable cure on or prior to the Contingency Date,
than the Escrow shall terminate on the date immediately following the
Contingency Date, in which event Section 4.7(d) shall apply and the Deposit and
interest earned thereon shall be refunded to Buyer.
12. Representations and Warranties.
12.1 Seller's Representations and Warranties. Any of the
representations and warranties of Seller in this Section 12.1 which are based
on Seller's "current actual knowledge" shall mean the current actual knowledge
of Fran Gurriere, Nanci Stanley and Karen Stromme-Crouch (collectively, the
"Designated Persons"), who are representatives of Seller who have participated
in and/or supervised the management or operation of the Property and who would,
in the ordinary course of their responsibilities as representatives of Seller,
receive notice from other agents or employees of Seller or from other persons
or entities of any of the matters described in the representations and
warranties of Seller. Seller has undertaken to determine the Designated
Persons' current actual knowledge with respect to the matters covered by such
representations and warranties by providing a copy of this Section 12.1 to such
Designated Persons, who have each confirmed to Seller the accuracy of such
representations and warranties to the best of their knowledge, but the
Designated Persons have not made any independent inquiry or investigation of
such matters. Seller shall have no further obligation to investigate or confirm
the accuracy of such representations and warranties. The Designated Persons
shall not be personally liable for any inaccurate or incomplete statement or
information concerning such representations and warranties. Seller hereby makes
the following representations and warranties to Buyer:
(a) Seller is a general partnership, duly organized and validly
existing under the laws of the State of California. Seller has the
requisite right, power, legal capacity and authority to enter into and
fully perform each and all of its obligations under this Agreement. The
individuals executing this Agreement on behalf of Seller have the
requisite right, power, legal capacity and authority to execute and
enter into this Agreement on behalf of Seller, to legally bind Seller to
the terms and provisions of this Agreement and to execute all other
documents and take all other actions as may reasonably be necessary to
perform each and all of Seller's obligations under this Agreement.
(b) The closing of the transaction contemplated by this
Agreement will not constitute or result in any default or event which,
with or without notice or lapse of time, or both, would result in a
breach of any agreement, instrument or arrangement by which Seller or
the Property or any portion thereof is bound.
(c) To Seller's current actual knowledge, Seller has not
received any notice claiming or asserting that the Property fails to
comply with any applicable laws, rules, permits or regulations
(including, without limitation, zoning and environmental laws).
(d) To Seller's current actual knowledge, there are no (i)
condemnations, environmental, zoning or other land-use proceedings which
have been instituted against the Property, (ii) special assessment
proceedings affecting the Property (other than as may be disclosed in
the Preliminary Title
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<PAGE> 12
Report), (iii) litigation (other than the litigation referenced in
Exhibit "D" hereto), arbitration or reference proceedings pending or
threatened against Seller or the Property.
(e) Neither Seller nor, to Seller's current actual
knowledge, any tenant of the Property, has either filed or been the
subject of any filing of a petition under any federal or state
bankruptcy or insolvency laws.
(f) Seller is not a "foreign person" within the meaning of
Internal Revenue Code Section 1445(f)(3).
(g) Seller has not granted any option or any right of first
refusal or first opportunity to any party to acquire the Property.
(h) All statements contained in any certificate delivered
at any time by Seller to its agents in conjunction with the
transactions contemplated hereby shall constitute representations and
warranties hereunder.
(i) To Seller's current actual knowledge, all documents
delivered by Seller to Buyer, or made available to Buyer for review,
including without limitation the due diligence materials, are true
and complete copies of all documents related to the Property in
Seller's possession or control.
(j) As of the Closing, there will be no outstanding
written or oral contracts made for any improvements to the Property,
or for offsite improvements related to the Property, other than those
which have been made available to Buyer by Seller prior to the
Contingency Date.
(k) Seller shall not, at any time after the Contingency
Date and before the Closing, record or consent to the recordation
of any new monetary liens or encumbrances without first obtaining
Buyer's written consent.
12.2 Buyer's Representations and Warranties. Buyer hereby
makes the following representations and warranties:
(a) Buyer is a corporation, duly organized and validly
existing under the laws of the State of Maryland. Buyer has the
requisite right, power, legal capacity and authority to enter into
and fully perform each and all of its obligations under this
Agreement. The individuals executing this Agreement on behalf of Buyer
have the requisite right, power, legal capacity and authority to
execute and enter into this Agreement on behalf of Buyer, to legally
bind Buyer to the terms and provisions of this Agreement and to
execute all other documents and take all other actions as may
reasonably be necessary to perform each and all of Buyer's
obligations under this Agreement.
(b) The closing of the transaction contemplated by this
Agreement will not constitute or result in any default or event which,
with or without notice or lapse of time, or both, would result in a
breach of any agreement, instrument or arrangement by which Buyer
is bound.
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<PAGE> 13
12.3 Limited Survival of Representations and Warranties. All
representations and warranties by the respective parties contained herein or
made in writing pursuant to this Agreement are intended to and shall be deemed
to be made as of the date of this Agreement or such writing and again as of the
Closing, shall be deemed to be material, and unless expressly provided to the
contrary shall survive the execution and delivery of this Agreement and the
Closing. Notwithstanding the foregoing, any claim arising out of an alleged
breach of representation, warranty or indemnity made or given by Seller or
Buyer either in this Agreement or in any other document connected with this
transaction must be brought within twelve (12) months after the Closing
Deadline. All such representations, warranties and indemnities of Seller or
Buyer (other than matters for which written notice has been received by the
other party within such twelve (12) month period which shall survive until all
liabilities related to the matters referenced in such written notice have been
satisfied) shall expire on the date which is twelve (12) months after the
Closing.
13. As-Is Purchase.
(a) Buyer's Investigation. Buyer is, or prior to Closing will
be, familiar with the Property and has or will make such independent
investigations as it deems necessary or appropriate concerning the Property,
including but not limited to (i) any desired investigation or analysis of the
economic value of the Property or the feasibility of marketing the Property for
the purposes intended by Buyer; (ii) soils reports and hazardous waste and
toxic materials studies; (iii) the physical condition of the Property; (iv) the
use of the Property for Buyer's intended purpose; (v) the size, dimensions,
location or topography of the Property; (vi) the adequacy of water, sewage or
any other utilities serving the Property; (vii) the financial strength of
existing tenants of the Property; (vii) the applicable zoning and other
ordinances and regulations pertaining to the Property; and (ix) all other
matters concerning the use, development, operation or sale of the Property.
(b) No Reliance. Except for Seller's express representations
and warranties contained in Section 12.1 hereof, Buyer is relying solely upon
its own inspection, investigation and analysis of the foregoing matters in
purchasing the Property and is not relying in any way upon any representations,
cost information, statements, agreements, warranties, studies, reports,
descriptions, guidelines or other information or material furnished by Seller
or its representatives, whether oral or written, express or implied, of
any nature whatsoever regarding any of the foregoing matters.
(c) "AS-IS". Buyer acknowledges that it is a sophisticated
purchaser who has owned and operated many industrial/commercial projects
similar to the Property. Buyer is acquiring the Property "AS-IS," without
representation by Seller or its representatives as to any matter except as
specifically set forth in Section 12.1 of this Agreement.
14. No Assignment by Buyer. Buyer shall not be allowed to assign
Buyer's rights or delegate Buyer's obligations hereunder without the prior
written consent of Seller, which consent may be granted or withheld in Seller's
sole and absolute discretion.
15. Conditions Precedent to Closing. The following are conditions
precedent to Buyer's obligation to purchase the Property. The conditions
precedent are intended solely for the benefit of Buyer and may be waived only
by Buyer in writing. In the event any condition precedent is not satisfied,
Buyer
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<PAGE> 14
may, in its sole and absolute discretion, terminate this Agreement, and all
obligations of Buyer and Seller hereunder (except provisions of this Agreement
which recite that they survive termination) shall terminate and be of no
further force or effect.
15.1 Title Policy. The issuance by the Title Company to Buyer of the
Title Policy in the form approved by Buyer pursuant to this Agreement.
15.2 Seller's Representations and Warranties. All of Seller's
representations and warranties contained in or made pursuant to this Agreement
shall have been true and correct when made and shall be true and correct as of
the Closing.
15.3 Compliance With Seller's Obligations. Seller shall have fully
complied with all of Seller's duties and obligations contained in this
Agreement.
15.4 Physical Condition of Property. The physical condition of the
Property shall be substantially the same on the day of Closing as on the
Contingency Date, reasonable wear and tear and loss by casualty (subject to
the provisions of Paragraph 17 below) excepted.
15.5 Updated Rent Roll-No Material Adverse Change. Seller shall have
provided Buyer with a final updated Rent Roll not less than three (3) business
days prior to the Closing Deadline, certified by Seller to be true and correct
to Seller's then current actual knowledge, which final updated Rent Roll shall
show (as reasonably determined by Buyer) no material adverse changes to the
rental income generated by the Property from the updated Rent Roll delivered to
Buyer prior to the Contingency Date per Section 6.3 hereof.
15.6 No Pending Litigation. As of the Closing, there shall be no
pending litigation or administrative agency or other governmental proceeding
pending against Seller or the Property which after Closing would, in Buyer's
reasonable discretion, materially adversely affect the value of the Property or
the ability of Buyer to operate the Property in the manner in which it is
currently being operated.
15.7 Termination of Contracts. Seller shall have terminated prior to
Closing, at no cost or expense to Buyer, any and all Contracts or other
documents affecting the Property that are not being assigned and transferred to
Buyer.
15.8 Tenant Estoppels. The Tenant Estoppels delivered by Seller under
Section 4.4(g) hereof shall not contain qualifications or exceptions which
Buyer reasonably determines, in the aggregate, materially and adversely impact
the value of the Property.
16. Liquidated Damages to Seller. BUYER AND SELLER HEREBY ACKNOWLEDGE
AND AGREE THAT, IN THE EVENT THE CLOSING DOES NOT OCCUR FOR ANY REASON OTHER
THAN A SELLER DEFAULT (HEREIN A "BUYER DEFAULT"), SELLER WILL SUFFER DAMAGES IN
AN AMOUNT WHICH WILL, DUE TO THE SPECIAL NATURE OF THE TRANSACTION CONTEMPLATED
BY THIS AGREEMENT AND THE SPECIAL NATURE OF THE NEGOTIATIONS WHICH PRECEDED
THIS AGREEMENT, BE IMPRACTICAL OR EXTREMELY DIFFICULT TO ASCERTAIN. IN
ADDITION, BUYER WISHES TO HAVE A LIMITATION PLACED UPON THE POTENTIAL LIABILITY
OF BUYER TO SELLER IN THE EVENT OF A BUYER DEFAULT, AND WISHES TO INDUCE SELLER
TO WAIVE OTHER REMEDIES WHICH SELLER MAY HAVE IN THE EVENT OF A BUYER DEFAULT.
BUYER AND SELLER, AFTER DUE NEGOTIATION, HEREBY ACKNOWLEDGE AND AGREE THAT THE
AMOUNT OF THE DEPOSIT (AS THE SAME EXISTS FROM TIME TO TIME UNDER THIS
AGREEMENT) REPRESENTS A REASONABLE ESTIMATE OF THE DAMAGES WHICH SELLER WILL
SUSTAIN IN THE EVENT OF SUCH BUYER DEFAULT.
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<PAGE> 15
BUYER AND SELLER HEREBY AGREE THAT SELLER MAY, IN THE EVENT OF A BUYER DEFAULT,
TERMINATE THIS AGREEMENT BY WRITTEN NOTICE TO BUYER AND ESCROW HOLDER, CANCEL
THE ESCROW AND RETAIN THE DEPOSIT AS LIQUIDATED DAMAGES. SUCH RETENTION OF THE
DEPOSIT BY SELLER IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER
PURSUANT TO SECTIONS 1671, 1676 AND 1677 OF THE CALIFORNIA CIVIL CODE, AND
SHALL NOT BE DEEMED TO CONSTITUTE A FORFEITURE OR PENALTY WITHIN THE MEANING OF
SECTION 3175 OR SECTION 3369 OF THE CALIFORNIA CIVIL CODE, OR ANY SIMILAR
PROVISION. FOLLOWING TERMINATION OF THIS AGREEMENT, CANCELLATION OF THE ESCROW
AND RETENTION OF THE DEPOSIT AS LIQUIDATED DAMAGES PURSUANT TO THIS SECTION 16,
ALL OF THE RIGHTS AND OBLIGATIONS OF BUYER AND SELLER UNDER THIS AGREEMENT
SHALL BE TERMINATED (OTHER THAN RIGHTS AND OBLIGATIONS CONTAINED IN PROVISIONS
THAT EXPRESSLY RECITE THEY SHALL SURVIVE TERMINATION OF THIS AGREEMENT).
BUYER AND SELLER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE
PROVISIONS OF THIS SECTION 16 AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO
BE BOUND BY ITS TERMS.
"Seller": "Buyer":
---------------------------- -------------------------------
17. Risk of Loss.
17.1 Damage or Destruction. In the event of damage or
destruction to the Property or any portion thereof exceeding Two Hundred Fifty
Thousand Dollars ($250,000.00) prior to the Closing, Buyer may elect to cancel
the Escrow and receive the Deposit or to proceed with the transaction and
receive (i) the insurance proceeds, if any, resulting from such damage or
destruction, and (ii) the amount of any applicable insurance deductible. Such
election shall be made within ten (10) business days of Buyer's receipt of
notice thereof. In the event of damage or destruction to the property or any
portion thereof not exceeding Two Hundred Fifty Thousand Dollars ($250,000.00)
prior to the Closing, Buyer shall be entitled to receive the insurance
proceeds, if any, resulting from such damage or destruction, but the Purchase
Price shall remain unchanged and Buyer shall not be permitted to cancel the
Escrow solely as a result of such damage or destruction.
17.2 Eminent Domain. If a governmental entity commences (prior
to the Closing) an eminent domain proceeding to take greater than ten percent
(10%) of the rentable square footage of the improvements located on the
Property, or such other portions of the Property reasonably considered by Buyer
to be necessary for the operation of the Property in the manner currently
operated, then Buyer shall be permitted to terminate this Agreement and cancel
the Escrow by written notice to Seller within ten (10) business days after Buyer
first learns of the commencement of such eminent domain proceeding. Following
any such termination by Buyer, the Cancellation Costs shall be divided equally
between Seller and Buyer, the Deposit and interest earned thereon shall be
returned to Buyer without further instruction or joinder by Seller, and neither
party shall have any further liability or obligation under this Agreement. If
Buyer does not so elect to terminate this Agreement and cancel the Escrow, then
the Closing shall occur as scheduled notwithstanding the existence of such
eminent domain proceeding, and Seller's entire interest in awards arising out of
such proceeding shall be assigned to Buyer as of the Closing (or credited to
Buyer at the Closing if previously received by Seller).
18. Brokers. Buyer and Seller each represent and warrant to each
other that it has not engaged or dealt with any broker,
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<PAGE> 16
finder or other agent in connection with this Agreement or the transactions
contemplated hereby other than Union Property Capital, Inc. (the "Broker").
Seller shall pay at and conditioned upon completion of the Closing, pursuant to
a separate agreement, a real estate commission to the Broker. In the event any
other broker or finder claims a commission or finder's fee in connection with
the sale contemplated hereby, the party through whom such broker or finder makes
its claim (herein, the "Indemnifying Party") hereby agrees to indemnify and hold
the other party (herein, the "Indemnified Party") harmless from and against all
costs, expenses or liabilities (including without limitation attorneys fees and
court costs, whether or not taxable and whether or not any action is prosecuted
to judgment) incurred by the Indemnified Party in connection with any claim or
demand by a person or entity for any broker's, finder's or other commission or
fee in connection with the Indemnifying Party's entry into this Agreement and
the transactions contemplated hereby.
19. Seller's Right to Continue Marketing Property. Buyer
acknowledges that, until such time as Buyer has approved all due diligence
items and removed all contingencies to Closing, Seller and its agent shall have
the right to continue to market the Property and solicit backup offers from
other parties who may be interested in acquiring the Property.
20. Miscellaneous.
20.1 Notices. All notices, approvals, disapprovals or
elections required or permitted to be given under this Agreement shall be in
writing and shall be (i) delivered personally, (ii) sent via Federal Express
(or another comparable overnight messenger service), or (iii) mailed, certified
or registered mail, return receipt requested, to the parties at the following
addresses:
If to Seller:
Eden Landing Associates
c/o R&B Realty Group, Inc.
2222 Corinth Avenue
Los Angeles, California 90064
Attention: Ms. Maria Stamolis
With a copy to:
Sheppard, Mullin, Richter & Hampton LLP
4695 MacArthur Court, Seventh Floor
Newport Beach, California 92660-1862
Attention: Brent R. Liljestrom, Esquire
If to Buyer:
Pacific Gulf Properties, Inc.
363 San Miguel Drive, Suite 100
Newport Beach, California 92660-7805
Attention: Mr. Lonnie P. Nadal
With a copy to:
Cox, Castle & Nicholson
2049 Century Park East, 28th Floor
Los Angeles, California 90067
Attention: Amy H. Wells, Esquire
Any notices given to the Title Company or the Escrow Holder shall be given to
them at their addresses set forth on the first page of this Agreement.
Personally delivered notices shall be deemed given upon actual personal
delivery to the intended recipient. Notices sent via Federal Express (or
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<PAGE> 17
another comparable overnight messenger service) shall be deemed given the
immediately following business day. Mailed notices shall be deemed given upon
the earlier of three (3) business days after deposit into the United States
mail, registered or certified, with postage fully prepaid, or the date of
actual receipt as evidenced by the return receipt.
20.2 Attorneys' Fees. In the event of any action between Buyer and
Seller for enforcement of any of the terms or conditions of this Agreement or
the Exhibits hereto or any other document executed in connection herewith, the
prevailing party in such action shall be entitled to recover its reasonable
costs and expenses, including without limitation taxable court costs and
attorneys' fees, as awarded by a court of competent jurisdiction. This Section
20.2 shall survive Closing or termination of this Agreement and cancellation of
the Escrow.
20.3 Entire Agreement. This Agreement, together with the documents
described and referred to herein, contains all of the agreements of Buyer and
Seller with regard to the transactions contemplated hereby, and supersedes all
prior agreements, understandings and negotiations, whether written or oral.
20.4 Amendment. This Agreement shall not be modified or amended
except by an instrument in writing duly executed by both Buyer and Seller.
20.5. Binding on Successors. The provisions of this Agreement shall
be binding upon and shall inure to the benefit of the permitted successors in
interest and assigns of Buyer and Seller.
20.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
20.7 Headings. The paragraph headings and captions in this Agreement
are for convenience only and shall not limit or define the contents of this
Agreement.
20.8 Time. Time is of the essence of this Agreement, it being
understood that the time for performance of each obligation, including without
limitation the Closing Deadline, has been the subject of negotiation by the
parties.
20.9 Business Days. As used herein, "business days" shall mean and
include every day other than Saturdays, Sundays or legal holidays under the
laws of the State of California.
20.10 Further Assurances. Seller and Buyer agree that they will, at
any time and from time to time after the Closing, upon the request of the other
party, execute, acknowledge and deliver all such further deeds, assignments,
transfers, conveyances and assurances as may be reasonably required for the
effective assignment, transferring, granting or conveying of any or all of the
assets or property to be assigned to them as provided herein, at the cost of
the requesting party.
20.11 Exhibits. All Exhibits referred to herein and attached hereto
are incorporated hereon by this reference.
20.12 Counterparts. This Agreement may be executed in any number of
counterparts all of which, taken together shall constitute but one and the same
document.
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<PAGE> 18
21. Maintenance of Insurance. Up to the Closing, Seller shall
maintain or cause to be maintained, at Seller's sole cost and expense, such
policies of insurance as are maintained by Seller at the Opening of Escrow
insuring the Improvements and the Personal Property.
IN WITNESS WHEREOF, this Agreement has been executed as of the day
and year first above written.
"Seller":
EDEN LANDING ASSOCIATES, a California
general partnership
By: Almo Investments, a California
limited partnership, its general
partner
By:
-----------------------------
-----------------------------
[Printed Name and Title]
By: The Howard F. Ruby Trust, u/A
dated September 5, 1978, its
general partner
Howard F. Ruby, Trustee
By:
-----------------------------
Darby T. Keen, under power
of attorney
By:
-----------------------------
Guinevere Lyster, under
power of attorney
"Buyer":
PACIFIC GULF PROPERTIES, INC., a
Maryland corporation
By:
---------------------------------
---------------------------------
[Printed Name and Title]
By:
---------------------------------
---------------------------------
[Printed Name and Title]
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<PAGE> 1
EXHIBIT 10.7
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
TO: Chicago Title lnsurance Company Escrow No. NE 154298
16969 Von Karman Escrow Officer: Joy Eaton
Irvine, California 92714 (714) 263-0126
("Escrow Holder") Fax No.: (714) 263-0344
Title Order No. 006016144 M07
Title Officer: Susie A. Jacobsen
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("Agreement") is made and entered into as of this __ day of May, 1996, and
constitutes an agreement by which SCTF PACIFIC PARK II, INC., a Connecticut
corporation ("Seller"), agrees to sell, and PACIFIC GULF PROPERTIES INC., a
Maryland corporation ("Purchaser"), agrees to purchase:
(a) that certain real property located at 8-92 Argonaut in Aliso Viejo,
Orange County, California more particularly described in Exhibit "A" attached
hereto (the "Land"), together with all buildings and improvements situated
thereon, including, without limitation, buildings constituting approximately
99,618 rentable square foot, and all of Seller's right, title and interest in
and to all apparatus, equipment, fixtures and appliances used in connection with
the operation or occupancy of said Land and improvements (collectively, the
"Improvements") and all rights, privileges and easements owned by Seller
appurtenant to the Land, together with all of Seller's right, title and interest
in and to any and all roads, easements, rights of way and alleys adjoining or
servicing the Land (collectively, the "Appurtenances" and, together with the
Land and the Improvements, the "Real Property");
(b) All tangible personal property owned by Seller located on or in or
used in connection with the Real Property as of the date hereof and as of the
"Close of Escrow" (as hereinafter defined), excepting therefore all furniture,
computers, equipment and other tangible personal property in the property
management office located in the Real Property (the property included herein as
being conveyed referred to, collectively, as the "Tangible Personal Property");
and
(c) All lease rights, including, without limitation, the Seller's
interest as lessor or otherwise in and to all leases, subleases and tenancies
affecting in any way a right to occupy any portion of the Real Property
(individually and collectively, the "Leases"), and Seller's interest in all
security deposits and prepaid rent, if any, under the Leases, and any and all
guaranties of any of the Leases, all of Seller's right, title and interest in
and to any intangible personal property now or hereafter owned by Seller and
used in the ownership, use or operation or development of the Real Property and
Tangible Personal Property, but not including the right to use the name "Koll"
(which name Seller does not have the right to transfer) (collectively, the
"Intangible Property", and together with the Tangible Personal Property, the
"Personal Property").
<PAGE> 2
All of the items referred to in Subparagraphs (a), (b) and (c) above
are collectively referred to herein as the "Property".
The terms and conditions of this Agreement and the instructions to
Chicago Title Insurance Company ("Escrow Holder") with regard to the escrow
("Escrow") created pursuant hereto are as follows:
1. Purchase and Sale. For valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller agrees to sell the Property
to Purchaser, and Purchaser agrees to purchase the Property from Seller, upon
the terms and conditions herein set forth.
2. Purchase Price. The purchase price ("Purchase Price") for the
Property shall be SIX MILLION EIGHT HUNDRED FIFTY THOUSAND DOLLARS
($6,850,000.00).
3. Payment of Purchase Price. The Purchase Price for the Property shall
be payable by Purchaser as follows:
(a) On the date hereof Purchaser shall deposit, or cause to be
deposited with Escrow Holder in cash or by certified or bank cashier's check
made payable to Escrow Holder or a confirmed wire transfer of funds, One Hundred
Thousand Dollars ($100,000.00).
(b) On or before thirty (30) days after the Opening Escrow Date (as
defined below), not counting in said 30 days the Opening Escrow Date (said 30th
day following the Opening Escrow Date being the "Review Period End Date"),
Purchaser shall deposit, or cause to be deposited with Escrow Holder in cash or
by certified or bank cashier's check made payable to Escrow Holder or a
confirmed wire transfer of funds, the sum of One Hundred Thousand Dollars
($100,000.00). If the Deposit under this paragraph (b) is not timely made,
Seller shall have the right to terminate this Agreement, exercisable at any time
after such failure unless and until the Deposit is so made prior to said
termination, and upon such a termination the Deposit made under paragraph (a)
shall be returned to Purchaser and all further rights and obligations under this
Agreement shall be null and void. The amounts deposited under this paragraph (b)
and under paragraph (a) above, along with any interest thereon as provided in
paragraph (c) below, is herein referred to as the "Deposit".
(c) The Deposit shall be invested by Escrow Holder in an interest
bearing account at a FDIC insured commercial bank acceptable to Purchaser with
all interest accruing thereon being part of the Deposit. The Deposit shall be
applied to the Purchase Price or returned to the Purchaser in accordance with
the other provisions of this Agreement.
(d) Purchaser's deposit of the Deposit to be made under paragraph
(b) above with Escrow Holder shall be deemed to constitute Purchaser's complete
satisfaction with the Property and its condition and suitability for Purchaser's
intended use thereof and a
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<PAGE> 3
waiver of Purchaser's rights to terminate this Agreement during the Review
Period under Section 7(a)(i) and (x).
(e) On or before the Close of Escrow, Purchaser shall deposit or
cause to be deposited with Escrow Holder, in cash or by a confirmed wire
transfer of funds, the balance of the Purchase Price (viz. $6,650,000), plus or
minus, as the case may be, Escrow Holder's estimate of Purchaser's share of
closing costs, prorations and charges payable pursuant to this Agreement.
4. Escrow.
(a) Opening of Escrow. For purposes of this Agreement, the Escrow
shall be deemed opened (the "Opening Escrow Date") on the date Escrow Holder
shall have received the Deposit from Purchaser and an executed counterpart of
this Agreement from both Purchaser and Seller. Escrow Holder shall notify
Purchaser and Seller, in writing, of the date Escrow is opened. In addition,
Purchaser and Seller agree to execute, deliver and be bound by any reasonable or
customary supplemental escrow instructions of Escrow Holder or other instruments
as may reasonably be required by Escrow Holder in order to consummate the
transaction contemplated by this Agreement. Any such supplemental instructions
shall not conflict with, amend or supersede any portions of this Agreement. If
there is any inconsistency between such supplemental instructions and this
Agreement, this Agreement shall control.
(b) Close of Escrow. For purposes of this Agreement, the "Close of
Escrow" shall be defined as the date that the Grant Deed (as defined below)
conveying the Property to Purchaser is recorded in the Official Records of
Orange County, California. This Escrow shall close on or before the fifteenth
day after the earlier to occur of the Review Period End Date or the date
Purchaser made the Deposit under Paragraph 3(b) above, or if such fifteenth day
is not a business day on which commercial banks in California are open, on the
first business day after said fifteenth day, except as such may be extended as
provided in Paragraph 5 below (as it may be so extended, alternatively, either
the "Closing Date" or the "Close of Escrow Date").
5. Condition of Title. It shall be a condition to the Close of Escrow
that title to the Property be conveyed to Purchaser by Seller by the Grant Deed
subject only to the following conditions of title ("Approved Condition of
Title"):
(a) a lien to secure payment of real estate taxes and assessments,
not delinquent;
(b) the lien of supplemental taxes assessed pursuant to Chapter 3.5,
commencing with Section 75 of the California Revenue and Taxation Code;
(c) applicable zoning ordinances and subdivisions and building
regulations and requirements applicable to the Property;
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(d) all rights of lessees under the Leases ("Lessees") and any other
parties having rights in the Property by or through the Leases;
(e) matters affecting the Approved Condition of Title created by or
with the written consent of Purchaser;
(f) all matters which would be disclosed by an inspection of the
Property and all matters disclosed by an "as-built" ALTA/ACSM survey (the
"Survey") of the Real Property, prepared by a surveyor or civil engineer
licensed in the State of California, certified to Purchaser and Title Company,
reasonably acceptable to Purchaser and in sufficient detail to provide the basis
for the required Title Policy without boundary, encroachment or survey
exceptions; and
(g) all exceptions which are disclosed by the standard preliminary
title report (the "Report") issued with respect to the Property by Chicago Title
Insurance Company, together with copies of the instruments underlying any
exceptions referred to in the Report. Seller has provided Purchaser with the
Report, a copy of which is attached hereto as Exhibit "B", and with copies of
such underlying documents, and Purchaser acknowledges its receipt of the Report
and the underlying documents. Anything contained herein to the contrary
notwithstanding, except for real estate taxes and assessments not yet due or
payable, Seller shall cause all mortgages, deeds of trust and other monetary
encumbrances, including without limitation all mechanics' liens, to be released
and reconveyed from the Property on or prior to the Close of Escrow, except that
Seller shall not be obligated to expend more than $10,000 to remove any
mechanics' lien (in which event Purchaser may terminate this Agreement and the
Deposit shall be refunded to Purchaser and all further rights and obligations
between Seller and Purchaser under this Agreement shall be null and void).
Further, Seller may bond any mechanics' lien of under $10,000 in a manner
sufficient for the Title Company to provide to Purchaser affirmative insurance
over any such lien.
If Seller shall be unable to give title in accordance with the
provisions hereof or to make conveyance, or to deliver possession of the
Property, all as herein stipulated, or if at the time of the Close of Escrow the
Property does not conform with the provisions hereof (all without breach or
default by Seller of its covenants contained in this Agreement), then Seller
shall use reasonable efforts (but not including expenditures in excess of $
10,000) to remove any defects in title, or to deliver possession as provided
herein or to make the said Property conform to the provisions hereof, as the
case may be, and thereupon the Close of Escrow shall be extended for a period of
thirty (30) days. If at the expiration of the extended time set forth above
Seller, having used its efforts as aforesaid, shall have failed so to remove any
defects in title, deliver possession, or make the Property conform, as the case
may be, all as herein agreed, and without the required existence or
non-existence of any such condition occurring as a result of a breach or default
by Seller of its covenants contained in this Agreement, then Purchaser shall
have the right, as its sole remedy, by notice to Seller and Escrow Holder sent
at any time thereafter but prior to the curing by Seller of such failure, to
cancel and terminate this Agreement, and thereupon the Deposit shall be returned
to Purchaser by Escrow Holder, and this Agreement shall be void without recourse
to the
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parties hereto except as to those matters specifically provided herein to
survive any termination of this Agreement.
6. Title Policy. Title shall be evidenced by the willingness of the
Title Company to issue its ALTA extended coverage Owner's Policy of Title
Insurance (Form B, rev. October 17, 1970 with Endorsement Form 1 coverage) in
the amount of the Purchase Price, insuring fee simple title to the Real Property
and Improvements in Purchaser, subject only to the Approved Condition of Title
(the "Title Policy"). The Title Policy shall provide full coverage against
mechanics' and materialmen's liens and shall contain the CLTA 100 (modified for
an owner), 101.4, 103.7, 116, 116.1, 116.4, 116.7 endorsements (the
"Endorsements"). The availability of the above-noted form of the Policy of Title
Insurance and of the above identified endorsements must be confirmed by the
Title Company to Purchaser and Seller on or before the Review Period End Date.
If not so confirmed and if Purchaser has not terminated this Agreement as of the
Review Period End Date, then it shall not be a condition to the Closing that the
form of policy or the specified endorsements are available except to the extent
the Title Company has confirmed any such availability prior to the Review Period
End Date.
7. Conditions to Close of Escrow.
(a) Conditions to Purchaser's Obligations. Purchaser's obligation to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction of the following conditions for Purchaser's benefit on or prior to
the dates designated below for the satisfaction of such conditions (or
Purchaser's waiver thereof, it being agreed that Purchaser may waive any and all
of such conditions, and by its not having terminated this Agreement on or before
the Review Period End Date Purchaser shall be deemed to have waived any
condition in clauses (i) and (x) below):
(i) Purchaser's Review of the Property. Purchaser shall have
until the Review Period End Date (the "Review Period") to satisfy itself as to
all matters with respect to the Property, including the Survey and the Report.
If Seller does not receive on or before the Review Period End Date a written
notice from Purchaser terminating this Agreement as a result of Purchaser's
review of the Property, then Purchaser shall be conclusively deemed to have
approved of the Property and its condition and suitability for Purchaser's
intended use thereof and all other matters relating to the Property and
Purchaser shall no longer have the right to terminate this Agreement pursuant to
this Paragraph 7(a)(i). All costs and expenses incurred in Purchaser's review of
title and all other matters as to the Property, including, without limitation,
any surveys, environmental assessments, engineering reports, etc., shall be
solely at Purchaser's cost and expense. Purchaser shall have the right to so
terminate this Agreement during the Review Period for any reason or for no
reason.
During the Review Period, Purchaser, its agents, contractors and subcontractors
shall have the right, subject to the rights of any Lessees and other occupants
in the Property and after prior notice to Seller, to enter upon the Property, at
reasonable times during ordinary business hours to make any and all inspections
and tests as Purchaser deems desirable and which may be accomplished without
causing any alteration or damage to the Property. Seller
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shall make available, or cause to be made available, to Purchaser at (by
Seller's election) the Property or at the office of Seller's property manager in
Orange County, or at such other location as may be mutually agreed upon by
Seller and Purchaser, Seller's property management files, and such other
documents and/or contracts relating to the Property as are in Seller's
possession or control.
Within five (5) business days of the date of this Agreement, Seller shall
deliver or cause to be delivered to Purchaser all of the following
(collectively, the "Due Diligence Materials") at Seller's sole cost and expense
to the extent, and only to the extent, such information either is in the
possession of or control of Seller:
A. Survey. Any existing survey of the Property.
B. Tax Bills. Copies of the most recent property tax bills and
assessments for the Property.
C. Contracts. Copies of all service contracts, utility contracts,
maintenance contracts, management contracts, leasing contracts, equipment
leases, and brokerage and leasing commission agreements related to the Property,
and a list of all deposits and bonds posted by Seller with utility providers,
sureties, governmental agencies or others in connection with the Properties.
D. Plans. Copies of any as-built plans and specifications for the
Improvements.
E. Insurance. Certificates of insurance and/or copies of insurance
policies for the current year, and a history of any insurance claims for
casualty damage to all or any portion of the Real Property during the current
year and for the previous three (3) calendar years.
F. Reports. All reports relating to the Property, including
environmental reports, soils reports, engineering reports and structural
calculations.
G. Inventory. A complete inventory of all Tangible Personal
Property, if any, used at or in connection with the Property, which inventory
shall become an Exhibit to the "Bill of Sale" (as hereinafter defined).
H. Operating Statements. All income and expense statements for the
two (2) most recent calendar years prior to the current calendar year and
monthly operating statements, to the extent available, for the current year.
I. Rent Roll. A current rent roll in the form attached hereto as
Exhibit H (the "Rent Roll"), including a schedule with a description of any
uncured defaults by a tenant or by Seller as landlord under any Lease.
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J. Leases. (i) copies of all existing and pending Leases; (ii) a
schedule of leasing commissions which are or may become due in the future (e.g.,
for renewals, extensions, etc.) on a space by space basis which are to be
assumed by Purchaser, as further described in Paragraph 11(e) below; and (iii) a
copy of the current standard lease form. Seller shall also make available to
Purchaser, for its review and, at Purchaser's expense, copying, all Lease files
and financial statements, if any, for any Lessees.
K. Permits. All governmental permits and approvals relating to the
construction, operation, use or occupancy of the Property, including without
limitation, all building permits, certificates of completion, certificates of
occupancy, environmental permits and licenses and sip permits (individually and
collectively "Permits").
Seller's obligations under this Paragraph 7(a)(i) are to made a reasonable
search of its files and records and to request Seller's property manager to make
a reasonable search of its files and records for any of the above items.
All of the aforesaid activities and any activities undertaken by Purchaser
pursuant hereto shall be undertaken in such a manner as to not unreasonably
interfere with the conduct of business by Seller and the Lessees and other
occupants of the Property. Purchaser shall repair and/or restore any damage or
disturbance to the Property caused by Purchaser in performing any of said
activities promptly after the completion of them or, if this Agreement shall
sooner terminate, promptly upon such termination. Purchaser hereby indemnifies
and holds Seller, Seller's property manager, the Lessees and all of their
respective employees and agents and the Property harmless from any and all costs
loss, damages or expenses, of any kind or nature, arising out of or resulting
from such entry and/or activities upon the Property by Purchaser, its employees,
agents, contractors and/or subcontractors. The provisions of the preceding two
sentences shall survive the Closing or other termination of this Agreement.
Seller shall not be responsible to make or pay for any improvements to the
Property required by the Americans with Disabilities Act or any environmental or
other similar laws, rules or regulations, all of which, however, shall remain
subject to Purchaser's review and approval during the Review Period.
If in the course of its review of information as to the Property, whether during
or after the Review Period, if Purchaser discovers any inconsistencies in any
material provided or make available to it (e.g., without limitation, information
in the Rent Roll being different from that contained in the Leases), Purchaser
shall inform Seller of such inconsistencies and Seller shall be entitled to
correct such materials as are necessary to resolve the inconsistencies. Whether
or not Purchaser so informs Seller, Seller shall not be liable for any
representation, warranty or for any information provided by or on its behalf if
Purchaser has actual knowledge of any such inconsistencies on the Closing Date.
(ii) Seller's Obligations. As of the Close of Escrow, Seller
shall have performed all of the obligations required to be performed by Seller
under this Agreement.
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(iii) Seller's Representations. All representations and
warranties made or to be made by Seller to Purchaser in this Agreement shall be
true and correct as of the Close of Escrow.
(iv) UCC Search. Receipt by Purchaser of a Certificate from
the California Secretary of State indicting that, as of the Close of Escrow,
there are no filings against Seller under the California Uniform Commercial Code
which would be a lien on any of the Personal Property (other than any filings as
to which Purchaser is given satisfactory evidence that such filings are being
released as of the Close of Escrow).
(v) Litigation. As of the Close of Escrow, there shall be no
litigation or administrative agency or other governmental proceeding of any kind
against or involving Seller or the Property which would materially adversely
affect the value of the Property or its operation.
(vi) Updated Rent Roll. Seller shall have provided Purchase
with an updated Rent Roll three (3) business days prior to Close of Escrow,
which updated Rent Roll must not indicate any material adverse change from the
Rent Roll provided pursuant clause I of to subparagraph (i) above. Purchaser
shall have the right to conduct a pre-closing review to confirm the updated Rent
Roll. It is agreed that arrearages in the aforesaid Rent Roll for all months
(excluding the arrearages of Ballet Conservatory and Video Conference, and also
excluding the tenant improvement receivable of Sternschuppe) not exceeding
$15,000 in the aggregate shall not constitute a material adverse change
hereunder. Said arrearages shall be calculated as of the last day of the month
preceding the month in which the Close of Escrow occurs if the Close of Escrow
occurs prior to the 20th day of a month, and said arrearages shall be calculated
as of the date on the Rent Roll delivered pursuant to this clause (vi) if the
Close of Escrow occurs on or after the 20th day of the month.
(vii) Contract Terminations. Seller shall terminate prior to
the Close of Escrow, at no cost or expense to Purchaser, any and all contracts
and commission agreements related to the operation, maintenance, repair,
improvement and/or leasing of the Property, except that Seller need not
terminate, and Purchaser shall assume, any contracts as to the leasing
commissions, if any, due after the Close of Escrow to the extent such are
identified in, and includible under, clause J(ii) of subparagraph (i) above.
(viii) No Changes. There shall have been no change in or
addition to the information or items reviewed and approved by Purchaser during
the Review Period which change would have a material adverse affect on the
ownership, operation, maintenance, repair or financial condition of the
Property.
(ix) Estoppel Certificates. Purchaser's review and approval of
estoppel certificates covering all rentable space within the Property. Seller
shall use good faith efforts to obtain and deliver to Purchaser Lessee estoppel
certificates from any and all Lessees occupying any portion of the Property in
form and substance reasonably satisfactory to Purchaser. For any Lessee that
Seller is not able to deliver a Lessee estoppel certificate, Seller shall
deliver to Purchaser a landlord's estoppel certificate covering the information
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which would otherwise been included in the Lessee's estoppel certificate (with
actual knowledge limitations as to defaults), provided, however, Purchaser shall
not be obligated to accept or approval estoppels provided by Seller as to Leases
representing more than twenty-five percent (25%) of the leasable area in the
Property. Said certificates shall be delivered at least five (5) days prior to
the Close of Escrow and shall be dated no earlier than thirty (30) days prior to
the Close of Escrow. Purchaser shall provide Seller with its proposed form of
estoppel certificate within five (5) days after the Opening Escrow Date.
Estoppel certificates, whether from Lessees or the Seller, shall not be
unsatisfactory if they show rent arrearages so long as the aggregate of such
arrearages does not exceed the amount allowable under subparagraph (vi) above,
plus as to the Ballet Conservatory, its arrearage, and as to Sternschuppe, its
tenant improvement arrearage.
(x) Purchaser Approvals. Purchaser's obligation to purchase the
Property is conditioned upon the approval by Purchaser's Executive Committee
during the Review Period of the transactions contemplated by this Agreement.
(xi) Seller's Personal Property. Prior to the Close of Escrow,
Seller shall have removed the personal property in the property management
office in the Real Property which is not being conveyed by Seller to Purchaser.
(b) Conditions to Seller's Obligations. For the benefit of Seller,
the Close of Escrow shall be conditioned upon the occurrence and/or satisfaction
of each of the following conditions (or Seller's waiver thereof, it being agreed
that Seller may waive any or all of such conditions):
(i) Purchaser's Obligations. Purchaser shall have timely
performed all of the obligations required by the terms of this Agreement to be
performed by Purchaser.
(ii) Purchaser's Representations. All representations and
warranties made or to be made by Purchaser to Seller in this Agreement shall be
true and correct as of the Close of Escrow.
8. Deposits by Seller. On or before the Close of Escrow, Seller shall
deposit or cause to be deposited with Escrow Holder the following documents and
instruments:
(a) Grant Deed. The Grant Deed conveying the Property to Purchaser
duty executed by Seller, acknowledged and in recordable form in the form
attached hereto as Exhibit "C".
(b) Leases. The original Leases.
(c) Assignment of Leases. A counterpart of an Assignment and
Assumption of Leases ("Assignment of Leases"), duly executed by Seller, the form
of which is attached hereto as Exhibit "D", pursuant to which Seller assigns to
Purchaser Seller's right, title and interest in and to the Leases.
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(d) Contracts. Any original contracts as to any leasing commissions
to be assumed by Purchaser as otherwise provided in this Agreement ("Continuing
Contracts"),
(e) Assignment of Contracts. A counterpart of an Assignment and
Assumption of Contracts ("Assignment of Contracts"), duly executed by Seller,
the form of which is attached hereto as Exhibit "E", pursuant to which Seller
assigns to Purchaser Seller's right, title and interest in and to the Continuing
Contracts.
(f) Rent Roll. The Rent Roll, updated to the Closing Date, certified
as to its accuracy (except as provided in the last paragraph of Paragraph
7(a)(i) above), and executed by the Seller, together with a Schedule of any
Lessee whose rent and other charges is past due as of said date, and the amount
of such past due sums.
(g) Bill of Sale. A Bill of Sale ("Bill of Sale"), duly executed by
Seller, the form of which is attached hereto as Exhibit "F", conveying Seller's
right, title and interest in and to any and all personal property appurtenant to
the property.
(h) Seller's Certificate. A certificate of non-foreign status duly
executed by Seller, in the form attached hereto as Exhibit "G", and a California
Franchise Tax Board Form 590, duly executed by Seller, (collectively, the
"Seller's Certificate").
(i) Permits. To the extent in Seller's possession or control,
originals of the building permits and certificates of occupancy for the
Improvements and all tenant-occupied space included within the Improvements.
(j) Lessee Notices. Notices to the Lessees of the occurrence of the
sale of the Property in a form designated by Purchaser and reasonably approved
by Seller.
(k) Closing Statement. A closing statement in form and content
satisfactory to Purchaser and Seller (the "Close of Escrow Statement"), duly
executed by Seller.
(l) Keys. All keys to the Property.
9. Deposits by Purchaser. Purchaser shall deposit or cause to be
deposited with Escrow Holder the funds which are to be applied towards the
payment of the Purchase Price in the amounts and at the times designated in
Paragraph 3 above. In addition, at least one (1) business day prior to the Close
of Escrow, Purchaser shall deposit with Escrow Holder the following documents
and instruments:
(a) Assignment of Leases. A counterpart of the Assignment of Leases
duly executed by Purchaser.
(b) Assignment of Contracts. A counterpart of the Assignment of
Contracts, duly executed by Purchaser.
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(c) Close of Escrow Statement. A counterpart of the Close of Escrow
Statement, duly executed by Purchaser.
10. Costs and Expenses. The cost and expense of the Title Policy shall
be paid by Seller unless Purchaser elects to obtain ALTA extended coverage, in
which event the premium and any additional costs for such ALTA extended coverage
additional to the premium for CLTA coverage shall be paid by Purchaser. The
escrow fee of Escrow Holder shall be shared equally by Seller and Purchaser.
Seller shall pay all document transfer taxes payable in connection with the
recordation of the Grant Deed. Purchaser and Seller shall pay, respectively, the
Escrow Holder's customary charges to buyers and sellers for recording and
miscellaneous charges. If, as a result of no fault of Purchaser or Seller,
Escrow fails to close, Purchaser and Seller shall share equally all of Escrow
Holder's fees and charges.
11. Prorations. The following prorations shall be made between Seller
and Purchaser on the Closing Date, computed as of the Closing Date:
(a) Taxes. Real and personal property taxes and assessments on the
Property shall be prorated on the basis that Seller is responsible for (i) all
such taxes for the fiscal year of the applicable taxing authorities occurring
prior to the "Current Tax Period", and (ii) that portion of such taxes for the
Current Tax Period determined on the basis of the number of days which have
elapsed from the first day of the Current Tax Period to the Closing Date,
inclusive, whether or not the same shall be payable prior to the Closing Date.
The phrase "Current Tax Period" refers to the fiscal year of the applicable
taxing authority in which the Closing Date occurs. In the event that as of the
Closing Date the actual tax bills for the year or years in question are not
available and the amount of taxes to be prorated as aforesaid cannot be
ascertained, then rates, millages and assessed valuation of the previous year,
with known changes, shall be used, and when the actual amount of taxes and
assessments for the year or years in question shall be determinable, then such
taxes and assessments will be prorated between the parties to reflect the actual
amount of such taxes and assessments.
Any rights to tax abatements with respect to periods prior to the
Closing Date shall belong to Seller, and any rights to tax abatements with
respect to periods subsequent to the Closing Date shall belong to Purchaser. Net
proceeds of tax abatements covering a tax period during which both Purchaser and
Seller own the Property shall be prorated as of the Closing Date based upon the
actual number of days of ownership of each of Purchaser and Seller during such
period.
(b) Rentals. Rentals and other payments (other than operating cost
and other pass-throughs) payable by Lessees, licensees, concessionaires and
other persons using or occupying the Property or any part thereof, for or in
connection with such use or occupancy, prorated as of 12:01 a.m. on the Close of
Escrow Date if the funds are received in escrow by the Title Company by 12:01
p.m. on the Close of Escrow Date, otherwise as of 12:01 a.m. on the next day,
based upon the actual number of days of ownership by each of Purchaser and
Seller during the applicable period. However, Purchaser shall not be obligated
to make any payment or give any credit to Seller on account of, or by reason of,
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any rental or other payments which are unpaid as of the Close of Escrow Date,
but shall be required merely to turn over to Seller its share of the same if, as
and when received by Purchaser. All payments (including any operating cost and
other pass-throughs) received by Purchaser from a Lessee, licensee,
concessionaire or other person shall be applied against the most recently
accrued obligation or obligations of the payor. Any rental payments received by
Seller following the Closing Date shall be paid over to Purchaser unless the
tenant has specified in writing that such payment relates to a rental period
occurring prior to the Closing Date.
(c) Security Deposits. Purchaser shall be credited and Seller shall
be charged with any security deposits and advanced rentals in the nature of
security deposits made by the Lessees under the Leases, and to all interest on
any thereof to which any Lessee is entitled to under its Lease.
(d) Utilities; Other Expenses; Pass-Throughs. Gas, water,
electricity, heat, fuel sewer and other utilities and the operating expenses
relating to the Property shall be prorated as of the Closing Date. If the
parties are unable to obtain final meter readings as of the Closing Date, such
expenses shall be estimated as of the Closing Date on the basis of the prior
operating history of the Property, and shall be readjusted when the actual
amounts thereof are known. Payments from Lessee and others as reimbursements or
"pass-throughs" for operating expenses and other reimbursable expenditures shall
be adjusted by Purchaser as appropriate for each Lease as soon after the end of
the applicable adjustment year for each such item under each Lease in which the
Close of Escrow Date occurs, based upon the portion of each such year that the
Property was owned by Seller and Purchaser. Purchaser shall provide a reasonably
detailed statement to Seller as to the amount of all relevant receipts and
expenditures and whether the amounts collected by Seller for reimbursements or
as pass-throughs exceeds or were less than Seller's share of expenses and other
reimbursable expenditures, and the excess, if any, shall be paid by Seller to
Purchaser or, as the case may be, the deficit, to the extent actually collected,
shall be paid by Purchaser to Seller, in either case within ten (10) business
days after receipt of said statement by Seller or the sending of such statement
by Purchaser, if Purchaser owes any amount. Seller shall have the right, at its
expense, to audit the books and records of the Property to determine the
accuracy of the statement given by Purchaser, provided that request for such
audit shall be made within a reasonable time after receipt by Seller of the
statement, and such audit right shall not affect the timing of the any payment
due from Seller, absent manifest error.
(e) Leasing Costs. Seller shall pay or assume payment as of the
Close of Escrow for all leasing commissions and tenant improvement costs and
allowances, if any, in connection with any Lease or any renewal, extension or
other modification of a Lease executed on or before the Opening Escrow Date.
Leasing commissions and tenant improvement costs (i) for any renewals,
extensions, expansions and similar matters in existing Leases pursuant to a
right exercisable by a Lessee which is exercised after the Opening Escrow Date,
and (ii) for any extension, renewal or other modification of an existing Lease
and for any new leases executed after the Opening Escrow Date (all of such
modifications and new leases being subject to Purchaser's approval pursuant to
Paragraph 26)
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shall be assumed by and paid by Purchaser if the Closing occurs, but not
including in this sentence any such commissions payable to Seller or any of its
affiliates.
In the event any prorations, apportionments or computations made under
this Paragraph 11 shall require further adjustment, then the parties shall make
the appropriate adjustments promptly when accurate information becomes available
and either party shall be entitled to an adjustment to correct the same,
provided that it makes written demand on the party from whom it is entitled to
such adjustment within one (1) year after the Closing Date. Any corrected
adjustment or proration shall be paid in cash to the party entitled thereto.
12. Disbursements and Other Actions by Escrow Holder. Upon the Close of
Escrow, the Escrow Holder shall promptly undertake all of the following in the
manner indicated:
(a) Prorations. Prorate all matters referenced in Paragraph 11 based
upon the Close of Escrow Statement delivered into Escrow signed by the parties.
(b) Recording. Cause the Grant Deed and any other documents which
the parties hereto may mutually direct, to be recorded in the Official Records
of Orange County, California in the order set forth by the parties. Escrow
Holder is instructed not to affix the amount of documentary transfer tax on the
face of the Deed, but to supply same by separate affidavit.
(c) Funds. Disburse from funds deposited by Purchaser with Escrow
Holder towards payment of all items chargeable to the account of Purchaser
pursuant hereto in payment of such costs, including, without limitation, the
payment of the Purchase Price to Seller, and disburse the balance of such funds,
if any, to Purchaser.
(d) Documents to Seller. Deliver a counterpart of the Assignment of
Leases, the Assignment of Contracts and the Close of Escrow Statement, executed
by Purchaser to Seller.
(e) Documents to Purchaser. Deliver the Leases, Bill of Sale,
Seller's Certificate, a counterpart of the Assignment of Leases, the Assignment
of Contracts and the Close of Escrow Statement, all as executed by Seller, the
other items described in Paragraph 8, and, when issued, the Title Policy, to
Purchaser.
(f) Title Policy. Direct the Title Company to issue the Title Policy
to Purchaser.
13. Seller's Representations and Warranties; Certain Waivers by
Purchaser. It is expressly understood and agreed that subject to the right of
Purchaser to terminate at or prior to the expiration of the Review Period,
Purchaser is acquiring the Property "As Is" and "Where Is", except as otherwise
expressly provided in this Agreement or in the Conveyance Documents (as
hereinafter defined), and that Seller has not made and does not make and will
not make any representations or warranties, expressed or implied, with respect
to the quality,
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<PAGE> 14
physical condition, expenses, past use, or suitability for intended use, value
of the Property, improvements thereon, or any other matter or thing affecting or
related in any way to the Property (including without limitation, warranties of
habitability, warranties of merchantability and/or fitness for a particular
purpose), which might be pertinent in considering whether to purchase the
Property or enter into this Agreement, and Purchaser does hereby expressly
acknowledge that no such representations or warranties have been made, and, to
the extent permitted by applicable law, Purchaser hereby waives any and all
implied warranties to which it might otherwise be entitled. Seller is not liable
or bound in any manner by any warranties, either expressed or implied,
guarantees, promisees, statements, representations, or information pertaining to
the Property or the value thereof made or furnished by any broker, agent,
employee, servant or other person representing or purporting to represent
Seller, except as otherwise expressly provided in this Agreement or in the
Conveyance Documents (as hereinafter defined).
Notwithstanding the foregoing, Seller makes the following (and only the
following) representations to Purchaser, with the representations under clauses
(d) through (j) being made only as of the Close of Escrow:
(a) Seller is a duly organized and validly existing corporation in
good standing under the laws of the State of Connecticut, and is qualified to do
business in the State of California.
(b) Except as provided in the penultimate paragraph of this
Paragraph 13, Seller has the legal right, power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby, and the
execution, delivery and performance of this Agreement have been duly authorized
and, as of the Closing, the execution of the Grant Deed, the Assignment of
Leases, the Assignment of Contracts, the Bill of Sale, the Sellees Statement and
the Close of Escrow Statement (collectively, the "Conveyance Documents") will
have been duly authorized, and no other action by Seller is requisite to the
valid and binding execution, delivery and performance of this Agreement, and, as
of the Closing, the Conveyance Documents.
(c) There are no actions, suits or proceedings pending against or,
to Seller's actual knowledge, threatened or affecting the Property or the Leases
on the Property, in law or equity.
(d) Except as provided in the penultimate paragraph of this
Paragraph 13, no consents or waivers of or by any third party are necessary to
permit the consummation by Seller of the transactions contemplated by this
Agreement.
(e) To Seller's actual knowledge, there are no material physical or
mechanical defects in the Property.
(f) All documents delivered by Seller to Purchaser or made available
to Purchaser for its review are, to Seller's actual knowledge, true and complete
copies of such documents in Seller's possession or control. To Seller's actual
knowledge, all of Seller's
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<PAGE> 15
property management files and other documents and/or contracts related to the
Property as are in Seller's possession or control were delivered to or made
available to Purchaser for review.
(g) To Seller's actual knowledge, on the Close of Escrow there will
be no outstanding written or oral contracts made by Seller for any improvements
to the Property or for offsite improvements related to the Property, which have
not been fully completed and paid for.
(h) Except as provided in the last paragraph of Paragraph 7(a)(i)
above, the Rent Roll provided to Purchaser under Paragraph 8(f) is a complete
and accurate list of all Leases. To Seller's actual knowledge, Seller has
provided Purchaser with complete and accurate copies of all Leases. There are no
rights of first refusal as to the sale of, or rights to purchase, the Property.
(i) To Seller's actual knowledge, except as provided in the Schedule
attached to the Rent Roll, there exist no defaults or events which, with the
giving of notice or passage of time, or both, would constitute a default by
Seller or any Lessee under any of the Leases.
(j) No contracts or commission agreements affecting the operation,
maintenance, repair improvements and/or leasing of the Property will survive the
Close of Escrow other than the Continuing Contracts. To Seller's actual
knowledge, Seller has provided to Purchaser complete and accurate copies of all
Continuing Contracts.
(k) To Seller's actual knowledge, Seller has not granted any option
or right of first refusal or first opportunity to any party to acquire any of
Seller's interest in any of the Property.
(l) To Seller's actual knowledge, it has not received written notice
(i) that the Property or its current use and operation are not in compliance
with applicable laws, rules, permits and regulations or private covenants,
conditions and restrictions, or (ii) that any licenses, permits, variances,
easements and approvals, including without limitation, final certificates of
occupancy (or the equivalent necessary for the current use, operation and
occupancy of the Property) have not been issued or are not in effect.
(m) Except as may be disclosed in reports, studies and other
materials provided to Purchaser by Seller, to Seller's actual knowledge, it has
not received written notice (i) that any hazardous or toxic substance, waste or
material (including without limitation PCB'S, petroleum, petroleum products and
fractions thereof) currently exist in, on or under, or is being disposed of or
released from, the Property or any property adjacent to the Property except such
as are in compliance with applicable laws, orders, rules and regulations; nor
(ii) that any underground storage tanks (whether existing or abandoned) exist on
or under the Property or on or under any property adjacent to the Property.
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<PAGE> 16
Prior to the Close of Escrow, Seller and Purchaser shall agree on a
schedule of reports, studies and other material which Seller desires to exclude
any information therein from the provisions of clause (m) above.
"Seller's actual knowledge" or the "actual knowledge of Seller" shall in
either case, mean the actual knowledge of John Molloy or Brian Raczyski,
officers of Seller's shareholder's Investment Manager, who are the individuals
primarily responsible to and for Seller as to the Property, and such phrases
shall not include the constructive or imputed knowledge of either of said
individuals nor of Seller, Hart Advisers, Inc., Seller's direct or indirect
shareholders, or its property manager, nor the actual, constructive or imputed
knowledge of any employee, officer, director, agent, independent contractor or
any other person of any of the above.
The representations and warranties of Seller set forth in this Agreement
shall be true on and as of the Close of Escrow as if those representations and
warranties were made on and as of such time.
Seller's authority to enter into this Agreement is subject to the
approval of certain direct and indirect shareholders in Seller. Purchaser
understands that Seller will endeavor to obtain such authorization and approvals
but Seller makes no representation or warranty as to whether or not such
approvals may be obtained. Any sums expended or other efforts made by Purchaser
pursuant hereto shall be solely at Purchaser's risk in the event any such
authorizations or approvals are for any reason whatsoever not obtained.
Seller agrees to notify Purchaser promptly upon authorization being
granted or authorization not being granted, provided that if such notice has not
been given to Purchaser within ten (10) business days after the date hereof,
then Purchaser may terminate this Agreement at any time thereafter unless and
until such notice is given. In the event of termination by Purchaser hereunder,
the Deposit shall be returned to Purchaser and neither Purchaser nor Seller
shall any further rights or obligations hereunder to the other.
14. Purchaser's Representations and Warranties. Purchaser makes the
following (and only the following) representations to Seller:
(a) Purchaser is a duly organized and validly existing corporation
in good standing under the laws of the State of Maryland.
(b) Except as provided in Paragraph 7(a)(x), Purchaser has the legal
right, power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby, and the execution, delivery and performance of
this Agreement have been duly authorized and, as of the Closing, the execution
of the Assignment of Leases, Assignment of Contracts and the Close of Escrow
Statement will have been duly authorized, and no other action by Purchaser is
requisite to the valid and binding execution, delivery and performance of this
Agreement, and, as of the Closing, the Conveyance Documents to be executed by
Purchaser.
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<PAGE> 17
(c) Except for the express representations and warranties of Seller
contained in Paragraph 13 above or in the Conveyance Documents, Purchaser is
acquiring the Property "as is" and without any warranty of Seller, express or
implied, as to the nature or condition of or title to the Property or its
fitness for Purchaser's intended use of same. Purchaser is, or as of the
expiration of the Review Period will be, familiar with the Property. Purchaser
is a sophisticated owner, investor and operator of real estate and, except for
the express representations and warranties of Seller contained in Paragraph 13
above or in the Conveyance Documents, is relying solely upon, and as of the
expiration of the Review Period will have conducted its own, independent
inspection, investigation and analysis of the Property as it deems necessary or
appropriate in so acquiring the Property from Seller (including, without
limitation, any and all matters concerning the condition, use, sale, development
or suitability for development of the Property). Purchaser is not relying in any
way upon any representations, statements, agreements, warranties, studies,
plans, reports, descriptions, guidelines or other information or material
furnished by Seller or its representatives, whether oral or written, express or
implied, of any nature whatsoever regarding any of the foregoing matters, except
for the express representations and warranties of Seller contained in Paragraph
13 above or in the Conveyance Documents.
The representations and warranties of Purchaser set forth in this
Agreement shall be true on and as of the Close of Escrow as if those
representations and warranties were made on and as of such time.
15. FAILURE TO CLOSE: LIQUIDATED DAMAGES. (a) IF PURCHASER DEFAULTS
HEREUNDER, THEN SELLER UNILATERALLY AND AT ITS OPTION MAY TERMINATE THIS
AGREEMENT AND ESCROW BY GIVING WRITTEN DEMAND TO PURCHASER AND ESCROW HOLDER.
THEREUPON, SELLER SHALL BE RELIEVED OF ANY OBLIGATION TO SELL THE PROPERTY TO
PURCHASER, SELLER SHALL BE ENTITLED, AS ITS SOLE REMEDY, TO THE DEPOSIT AS
LIQUIDATED DAMAGES, ESCROW HOLDER SHALL RETURN ALL DOCUMENTS AND INSTRUMENTS TO
THE PARTIES WHO DEPOSITED THE SAME, AND ALL TITLE AND ESCROW CANCELLATION
CHARGES SHALL BE CHARGED TO PURCHASER. IN ADDITION, IF ALL OR ANY PORTION OF THE
DEPOSIT REMAINS IN ESCROW AT THE TIME OF SUCH DEFAULT BY PURCHASER, ESCROW
HOLDER IS IRREVOCABLY INSTRUCTED BY PURCHASER AND SELLER TO DISBURSE TO SELLER
ALL SUCH SUMS UPON DEMAND OF SELLER ALONE AS LIQUIDATED DAMAGES FOR PURCHASER'S
DEFAULT HEREUNDER, PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671 AND 1677.
IN THE EVENT OF A DEFAULT BY PURCHASER AS AFORESAID UNDER THIS
AGREEMENT, PURCHASER SHALL HAVE NO RIGHT TO SEEK OR OBTAIN SPECIFIC ENFORCEMENT
OF THIS AGREEMENT.
PURCHASER AND SELLER AGREE THAT IT WOULD BE EXTREMELY PRACTICAL AND
DIFFICULT TO ESTIMATE THE AMOUNT OF DAMAGES SELLER MIGHT SUFFER IN THE EVENT OF
PURCHASER'S DEFAULT HEREUNDER. THE
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<PAGE> 18
PARTIES HEREBY AGREE THAT THE DELIVERY OF THE DEPOSIT AND ACCRUED INTEREST TO
SELLER IN THE EVENT OF PURCHASER'S DEFAULT REPRESENTS A FAIR AND REASONABLE
ESTIMATE OF SAID DAMAGES.
__________________________ ___________________________
Seller's Initials Purchaser's Initials
(b) If Seller shall default in its obligations to close, then
Purchaser shall have the right, at its option, either (i) to a refund of the
Deposit and the termination of this Agreement without any further rights or
obligations of either party hereto, or (ii) specific enforcement of this
Agreement, such rights being exclusive and, as elected by Purchaser, its sole
remedy against Seller pursuant to this Agreement in the event of a default by
Seller hereunder. Nothing herein shall be deemed to limit Purchaser's rights as
a result of a misrepresentation by Seller under Paragraph 13 above in the event
Purchaser acquires the Property pursuant to this Agreement.
16. WAIVER OF RIGHT TO RECORD LIS PENDENS. AS PARTIAL CONSIDERATION FOR
SELLER ENTERING INTO THIS AGREEMENT, PURCHASER EXPRESSLY WAIVES ANY RIGHT UNDER
CALIFORNIA CODE OF CIVIL PROCEDURE, PART II, TITLE 4.5 (SECTIONS 409 - 409.8) OR
AT COMMON LAW OR OTHERWISE TO RECORD OR FILE A LIS PENDENS OR A NOTICE OF
PENDENCY OF ACTION OR SIMILAR NOTICE AGAINST ALL OR ANY PORTION OF THE PROPERTY
IN CONNECTION WITH ANY ALLEGED DEFAULT BY SELLER HEREUNDER UNLESS SUCH LIS
PENDENS OR OTHER NOTICE IS FILED ON OR AFTER, AND DURING THE PENDENCY OF THE
COMMENCEMENT OF A LEGAL PROCEEDING BY PURCHASER SEEKING SPECIFIC ENFORCEMENT OF
THIS AGREEMENT. PURCHASER AND SELLER HEREBY EVIDENCE THEIR SPECIFIC AGREEMENT TO
THE TERMS OF THIS WAIVER BY PLACING THEIR INITIALS IN THE PLACE PROVIDED
HEREINAFTER.
__________________________ ___________________________
Seller's Initials Purchaser's Initials
17. Damage or Condemnation Prior to Closing. Seller shall promptly
notify Purchaser of any casualty to the Property or any condemnation proceeding
commenced prior to the Close of Escrow. If any such damage or proceeding relates
to or may result in the loss of any material portion of the Property (i.e., a
loss of $10,000 or more) or such loss is uninsured or results in the abatement
of rent under any Lease or the right of a Lessee to terminate its Lease, either
Seller or Purchaser may, at their option, elect to terminate this Agreement, in
which event all funds deposited into Escrow by Purchaser shall be returned to
Purchaser and neither party shall have any further rights or obligations
hereunder. If this Agreement is not so terminated and continues in effect, then
upon the Close of the Escrow, Purchaser shall be entitled to any compensation,
awards, or other payments or relief resulting from such casualty or condemnation
proceeding and a credit against the Purchase Price for the lesser of (x) the
cost of such repair to the extent not covered by insurance, condemnation
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<PAGE> 19
or other proceeds, (y) Seller's deductible under its applicable insurance
policy, or (z) $10,000.
18. Notices. All notices or other communications required or permitted
hereunder shall be in writing, and shall be personally delivered or sent by
registered or certified mail, postage prepaid, return receipt requested,
telegraphed, delivered or sent by telex, telecopy or cable and shall be deemed
received upon the earlier of (i) if personally delivered, the date of delivery
to the address of the person to receive such notice, (ii) if mailed, four (4)
business days after the date of posting by the United States post office, (iii)
if given by telegraph or cable, when delivered to the telegraph company with
charges prepaid, or (iv) if given by telex or telecopy, when sent. Any notice,
request, demand, direction or other communication sent by cable, telex or
telecopy must be confirmed within forty-eight (48) hours by letter mailed or
delivered in accordance with the foregoing.
To Purchaser: Pacific Gulf Properties, Inc.
263 San Miguel Drive
Suite 100
Newport Beach, California 92660-7905
Attention: Lonnie P. Nadal
Telephone No.: (714) 721-2700
Fax No.: (714) 721-2713
with a copy to:
Cox, Castle & Nicholson, LLP
2049 Century Park East 28th Floor
Los Angeles, California 90067
Attention: John Kuhl, Esquire
Telephone No.: (310) 284-2267
Fax No.: (310) 277-7389
To Seller: Hart Adviser, Inc.
One Pond Mill Lane
Simsbury, Connecticut 06070
Attention: John Molloy
Telephone No.: (860) 651-4000
Fax No.: (860) 651-4016
with a copy to: Goulston & Storrs, P.C.
400 Atlantic Avenue
Boston, Massachusetts 02110-3333
Attention: Robert S. Towsner, Esquire
Telephone No.: (617) 482-1776
Fax No.: (617) 574-4112
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<PAGE> 20
To Escrow Holder: Chicago Title Insurance Company
16969 Von Karman
Irvine, California 92714
Attention: Joy Easton
Telephone No.: (714) 263-0126
Fax No.: (714) 263-0344
Notice of change of address shall be given by written notice in the manner
detailed in this Paragraph. Rejection or other refusal to accept or the
inability to deliver because of changed address of which no notice was given
shall be deemed to constitute receipt of the notice, demand, request or
communication sent.
19. Brokers. Upon the Close of Escrow, Seller shall pay a real estate
brokerage commission to CB Commercial Real Estate Group, Inc. ("CB") with
respect to this transaction in accordance with Seller's separate agreement with
broker(s) and Seller hereby agrees to indemnify and hold Seller free and
harmless from such commission obligation. Other than CB, each of Purchaser and
Seller hereby represent to the other that it dealt with no other broker, finder
or agent in connection with the transaction described herein, and Purchaser and
Seller each indemnify the other for any claims brought by any other agent,
broker or finder in connection with this transaction with whom Purchase and
Seller has dealt. Seller acknowledges that Hart Advisers, Inc. is the Investment
Manager for Seller's shareholder and that in no event shall Purchaser be
responsible for any payments of any kind to Hart Advisers, Inc. as a result of
the transactions contemplated by this Agreement. The provision of this paragraph
shall service the Close of Escrow.
20. Legal Fees. In the event of the bringing of any action or suit by a
party hereto against another party hereunder by reason of any breach of any of
the covenants or agreements or any inaccuracies in any of the representations
and warranties on the part of the other party arising out of this Agreement, or
as to any matter under any instrument executed by any party hereto in connection
with the transactions contemplated by this Agreement, then in any such event,
the prevailing party in such action or dispute, whether by final judgment, or
out of court settlement shall be entitled to have and recover of and from the
other party all costs and expenses of suit, including actual, reasonable
attorneys' fees.
21. Assignment. Purchaser shall not assign, transfer or convey its
rights and/or obligations under this Agreement and/or with respect to the
Property without the prior written consent of Seller, which consent Seller may
withhold in its absolute discretion, Any attempted assignment without the prior
written consent of Seller shall be void and Purchaser shall be deemed in default
hereunder. Any permitted assignments shall not relieve the assigning party from
its liabilities and obligations under this Agreement.
22. Indemnification of Escrow Holder.
(a) If this Agreement or any matter relating hereto shall become the
subject of any litigation or controversy, Purchaser and Seller agree, jointly
and severally, to hold
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<PAGE> 21
Escrow Holder free and harmless from any loss or expense, including attorneys'
fees, that may be suffered by it by reason thereof except for losses or expenses
as may arise from Escrow Holder's negligent or willful misconduct. If
conflicting demands are made or notices served upon Escrow holder with respect
to this Agreement, the parties expressly agree that Escrow Holder shall be
entitled to file a suit in interpleader and obtain an order from the court
requiring the parties to interpleas and litigate their several claims and rights
among themselves. Upon the filing of the action in interpleader, Escrow Holder
shall be fully released and discharged from any obligations imposed upon it by
this Agreement.
(b) Escrow Holder shall not be liable for the sufficiency or
correctness as to form manner, execution or validity of any instrument deposited
with it, nor as to the identity, authority or rights of any person executing
such instrument, nor for failure of Purchaser or Seller to comply with any of
the provisions of any agreement, contract or other instrument filed with Escrow
Holder or referred to herein. Escrow Holder's duties hereunder shall be limited
to the safekeeping of all monies, instruments or other documents received by it
as Escrow Holder, and for their disposition in accordance with the terms of this
Agreement.
23. Reporting Requirement. The Escrow Holder shall comply with all
applicable federal, state and local reporting and withholding requirements
relating to the closing of the transactions contemplated herein. Without
limiting the generality of the foregoing, to the extent the transactions
contemplated by this Agreement involve a real estate transaction with the
purview of Section 6045 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), Escrow Holder shall have sole responsibility to comply
with the requirements of Section 6045 of the Internal Revenue Code (and any
similar requirements imposed by state or local law), which in part requires
Escrow Holder to report real estate transactions closing after December 31, 1986
by, among other things, preparing and causing to be filed Internal Revenue
Service Form 1099-B and any applicable additional statements in connection
therewith. Seller's tax identification number has been provided in a separate
letter to Escrow Holder, receipt of which is hereby acknowledged by Escrow
Holder. Escrow Holder shall hold Purchaser, Seller and their counsel free and
harmless from and against any and liability, claims, demands, damages and costs,
including reasonable attorney's fees and other litigation expenses, arising or
resulting from the failure or refusal of Escrow Holder to comply with such
reporting requirements.
24. Possession and Authorization. Possession of the Property shall be
delivered to Purchaser by Seller on the Close of Escrow. Seller authorizes
Purchaser and its agents to make all inquiries with any third party, including
any governmental authority, as Purchaser may reasonably require to complete its
due diligence.
25. Maintenance of the Property and Property Personnel. Between Seller's
execution of this Agreement and the Close of Escrow, Seller shall maintain and
operate the Property in the same manner as it currently maintains and operates
the Property, and Seller shall (i) cause all employment and management
agreements respecting the Property to be terminated, and deliver evidence of
such termination to Purchaser, and (ii) remove or cause to be removed all
employees and management personnel from the Property.
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<PAGE> 22
26. Leasing; Purchaser's Consent to New Contracts Affecting the
Property; Termination of Existing Contracts. Seller shall use commercially
reasonable efforts until Close of Escrow to lease any vacant space, or space
becoming vacant, in the Real Property. However, Seller shall not, after the date
of Seller's execution of this Agreement, enter into any lease or contract
affecting the Property, or any amendment thereof, or permit any Lessee to enter
into any sublease, assignment or agreement pertaining to the Property (except as
expressly authorized by its Lease), or waive, compromise or settle any rights of
Seller under any Lease as to amounts exceeding $2,500 as to any Lease, other
than the ballet school, or $10,000 in the aggregate, not including the ballet
school, and in any event as to any amounts which would accrue after the Close of
Escrow Date, or agree to return any security deposit (except as may be required
under any Lease), or modify, amend, or terminate any Continuing Contract,
without in each case obtaining Purchaser's prior written consent thereto, which
consent will be made or withheld in a commercially reasonable manner based upon
the assumption that the use and leasing of the Property will continue in the
same manner as the Property is now being used and leased manner. Any leasing
commissions and tenant improvement costs payable as to any new Lease or any
modification of a Lease approved pursuant to this Paragraph 26 shall be paid by
Purchaser, except as to any leasing commissions payable to Seller or any of its
affiliates, which amounts shall be paid by Seller. Any such approval or
disapproval shall be made by Purchaser within five (5) business days after
receipt of any request from Seller or its agents or independent contractors, and
if not so timely made, such item shall be deemed approved. In the event of any
disapproval, Purchaser shall specify its reasons therefor.
27. Insurance. Through the Close of Escrow, Seller shall maintain or
cause to be maintained, at Seller's sole cost and expense, such policy or
policies of insurance, if any, as it currently carries on the Property with
respect to damage or destruction of the Improvements and the Tangible Personal
Property, worker's compensation and employer's liability insurance, commercial
general liability insurance, and automobile liability insurance, each in the
amount and form maintained by Seller prior to the date of this Agreement.
28. Miscellaneous.
(a) Survival of Covenants. The covenants, representations and
warranties of both Purchaser and Seller set forth in this Agreement shall
survive the recordation of the Grant Deed and the Close of Escrow for a period
of one (1) year from such date, except in the case of fraud or willful
misrepresentation, in which case such representations and warranties shall
survive independent of this limitation; provided, however, that for matters as
to which Purchaser has given Seller written notice within such one (1) year
period that Purchaser reasonably believes that has been a misrepresentation by
Seller, said notice specifying in detail the reason for such belief, then such
representation and warranties of Seller that are so noted in such written notice
shall survive until all liabilities arising out of the matters so described in
such written notice have been satisfied, provided that Purchaser shall in any
such event have commenced judicial proceedings against Seller as to any such
noticed matters within fifteen (15) months after the Close of Escrow.
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<PAGE> 23
(b) Required Actions of Purchaser and Seller. Purchaser and Seller
agree to execute such instruments and documents and to diligently undertake such
actions as may be required in order to consummate the purchase and sale herein
contemplated and shall use their best efforts to accomplish the Close of Escrow
in accordance with the provisions hereof.
(c) Time of Essence. Time is of the essence of each and every term,
condition, obligation and provision hereof.
(d) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument. This Agreement shall be
deemed executed and delivered upon each party's delivery of executed signature
pages of this Agreement or such other document, which signature pages may be
delivered by facsimile with the same effect as delivery of the originals.
(e) Captions. Any captions to, or headings of, the paragraphs or
subparagraphs of this Agreement are solely for the convenience of the parties
hereto, are not a part of this Agreement, and shall not be used for the
interpretation or determination of the validity of this Agreement or any
provision hereof.
(f) No Obligations to Third Parties. Except as otherwise expressly
provided herein, the execution and delivery of this Agreement shall not be
deemed to confer any rights upon, nor obligate any of the parties thereto, to
any person or entity other than the parties hereto.
(g) Exhibits. The Exhibits attached hereto are hereby incorporated
herein by this reference.
(h) Amendment to this Agreement. The terms of this Agreement may not
be modified or amended except by an instrument in writing executed by each of
the parties hereto.
(i) Waiver. The waiver or failure to enforce any provision of this
Agreement shall not operate as a waiver of any future breach of any such
provision or any other provision hereof.
(j) Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(k) Fees and Other Licenses. Except as otherwise provided herein,
each of the parties shall pay its own fees and expenses in connection with this
Agreement.
(l) Confidentiality. Unless and until the Closing, Purchase shall
keep all information regarding the Property confidential, except for such
attorneys, accountants, investment advisors, underwriters, lenders and others as
are reasonably required to evaluate and consummate the transactions contemplated
hereby. Nothing in this paragraph shall
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<PAGE> 24
prevent Purchaser from disclosing or accessing any information otherwise deemed
confidential under this paragraph (i) in connection with the Purchaser's
enforcement of its rights hereunder; or (ii) pursuant to any legal requirement,
any statutory reporting requirements or any accounting or auditing disclosure
requirement.
(m) Entire Agreement. This Agreement supersedes any prior
agreements, negotiations and communications, oral or written, and contains the
entire agreement between Purchaser and Seller as to the subject matter hereof.
No subsequent agreement, representation, or promise made by either party hereto,
or by or to an employee, officer, agent or representative of either party shall
be of any effect unless it is in writing and executed by the party to be bound
thereby.
(n) Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the successors and assigns of the parties hereto.
[Page Ends Here]
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<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first-above written.
"Purchaser" Pacific Gulf Properties Inc., a
Maryland corporation
By:______________________________________
Its:_________________________________
By:______________________________________
Its:_________________________________
"Seller" SCTF Pacific Park II, Inc., a Connecticut
corporation
By:______________________________________
Its:_________________________________
Acceptance by Escrow Holder
Chicago Title Insurance Company hereby acknowledges that it has received
a fully executed counterpart of the foregoing Agreement of Purchase and Sale and
Joint Escrow Instructions and agrees to act as Escrow Holder thereunder and to
be bound by and perform the terms thereof as such terms apply to Escrow Holder.
Dated: May 15, 1996 Chicago Title Insurance Company
By:______________________________________
Its:__________________________________
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<PAGE> 1
EXHIBIT 10.8
PURCHASE AND SALE AGREEMENT
BETWEEN
WELLS FARGO BANK, N.A., AS SUCCESSOR TRUSTEE TO
FIRST INTERSTATE BANK, TRUSTEE OF TRUST NO. 84000012-000
(SELLER)
AND
PACIFIC GULF PROPERTIES INC.
(BUYER)
May 7, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE I PROPERTY....................................... 1
1.1 Land.................................................... 1
1.2 Improvements............................................ 1
1.3 Personal Property....................................... 1
1.4 Service Contracts....................................... 1
1.5 Leases.................................................. 1
1.6 Intangible Property..................................... 2
1.7 "Property" and "Real Property" Defined.................. 2
ARTICLE II PURCHASE PRICE................................. 2
2.1 Purchase Price.......................................... 2
2.2 Payment of Purchase Price............................... 2
2.3 Investment of Deposit; Timeliness of Deposit............ 3
2.4 Deposit as Liquidated Damages........................... 3
ARTICLE III "AS IS" SALE; INSPECTION....................... 4
3.1 "As-Is" Sale............................................ 4
3.2 Release of Seller....................................... 4
ARTICLE IV TITLE TO PROPERTY.............................. 9
4.1 Title................................................... 9
4.2 Title to Personal Property, Contracts and Leases........ 9
ARTICLE V BUYER'S CONDITIONS TO CLOSING........................... 9
5.1 Approval of Title....................................... 9
5.2 Review of Other Matters................................. 10
5.3 Review of Estoppels..................................... 12
5.4 Intentionally Omitted................................... 13
5.5 Compliance by Seller.................................... 13
5.6 No Material Change in the Physical Condition............ 13
5.7 No Litigation........................................... 13
5.8 New Rent Rolls.......................................... 13
5.9 No Material Adverse Change.............................. 13
5.10 Title Policy............................................ 13
5.11 No Personal Property Liens.............................. 13
5.12 Right To Terminate...................................... 13
5.13 Seller's Representations and Warranties................. 14
5.14 Satisfaction or Waiver of Condition..................... 14
ARTICLE VI SELLER'S CONDITIONS TO CLOSING................. 14
6.1 Compliance by Buyer..................................... 14
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VII CLOSING........................................ 14
7.1 Deposit with Escrow Holder.............................. 14
7.2 Closing................................................. 14
7.3 Delivery by Seller...................................... 15
7.4 Delivery by Buyer....................................... 15
7.5 Other Instruments....................................... 16
7.6 Close of Escrow......................................... 16
7.7 Prorations and Apportionments........................... 17
7.8 Computation of Certain Prorations....................... 18
7.9 Payment of Adjustments to Prorations.................... 18
7.10 Costs and Expenses...................................... 18
7.11 Insurance; Utilities.................................... 19
ARTICLE VIII REPRESENTATIONS, WARRANTIES AND COVENANTS...... 19
8.1 Buyer's Representations................................. 19
8.2 Seller's Representations................................ 20
8.3 Limitation on Liability................................. 21
ARTICLE IX POSSESSION..................................... 21
ARTICLE X OPERATION OF THE PROPERTY...................... 22
ARTICLE XI LOSS BY FIRE OR OTHER CASUALTY; CONDEMNATION... 22
11.1 Damage or Destruction................................... 22
11.2 Condemnation............................................ 23
ARTICLE XII MISCELLANEOUS.................................. 24
12.1 Notices................................................. 24
12.2 Brokers and Finders..................................... 25
12.3 Successors and Assigns.................................. 25
12.4 Amendments.............................................. 26
12.5 Interpretation.......................................... 26
12.6 Governing Law........................................... 26
12.7 Merger of Prior Agreements.............................. 26
12.8 Attorneys' Fees......................................... 26
12.9 Time of the Essence..................................... 26
12.10 Confidentiality......................................... 26
12.11 No Waiver............................................... 27
12.12 Further Acts............................................ 27
12.13 Agreement Not to Benefit Third Parties.................. 27
12.14 Severability............................................ 27
12.15 Damages................................................. 27
12.16 Counterparts............................................ 28
12.17 Survival of Representations and Warranties.............. 28
12.18 Form 1099-S............................................. 28
</TABLE>
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<PAGE> 4
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (the "Agreement") is made as of ____
day of May, 1996, by and between WELLS FARGO BANK, N.A., AS SUCCESSOR TRUSTEE TO
FIRST INTERSTATE BANK, TRUSTEE OF TRUST NO. 84000012-000 ("Seller") and PACIFIC
GULF PROPERTIES INC., a corporation ("Buyer"), with reference to the following
facts:
A. Seller is the owner of certain property more particularly described
herein.
B. Buyer desires to purchase from Seller and Seller desires to sell to
Buyer such property on the terms and conditions set forth herein.
NOW, THEREFORE, IN CONSIDERATION of the foregoing and the mutual
agreements herein set forth, and other valuable consideration, receipt of which
is hereby acknowledged, Seller and Buyer agree as follows:
ARTICLE I
PROPERTY
Seller hereby agrees to sell and convey to Buyer, and Buyer hereby
agrees to purchase from Seller, subject to the terms and conditions set forth
herein, the following:
1.1 Land. That certain land (the "Land") described in the form of Grant
Deed attached as Exhibit A hereto (the "Deed") and all rights, privileges and
easements owned by Seller and appurtenant thereto;
1.2 Improvements. All improvements and fixtures located on the Land
(all of which are collectively referred to as the "Improvements");
1.3 Personal Property. All items of personal property owned by Seller
(together with the "Intangible Property" hereinafter defined (the "Personal
Property") described in the form of Bill of Sale attached as Exhibit B hereto
(the "Bill of Sale");
1.4 Service Contracts. Subject to Buyer's review and approval thereof,
pursuant to Article V hereof, all of the agreements and contracts (the "Service
Contracts") described in the form of Assignment and Assumption of Service
Contracts attached as Exhibit C hereto (the "Assignment of Contracts"); and
1.5 Leases. All of the right, title and interest of Seller as landlord
in and to the rental agreements and other leases of space in the Improvements,
including any lease guaranties and all
<PAGE> 5
security deposits and advance payments of rent, (the "Leases") in effect on the
Closing Date pursuant to an assignment in the form of Exhibit D hereto (the
"Assignment of Leases").
1.6 Intangible Property. Any intangible property owned by Seller and
used in connection with the Land, Improvements, Personal Property, Service
Contracts or Leases, including, without limitation, the right to use all trade
names, marks and symbols now used in connection therewith, all utility contracts
and other agreements or rights relating to the ownership, use and operation
thereof, all warranties and guarantees to the extent assignable for all or any
portion thereof, and all governmental permits and approvals relating to the
construction, operation, use or occupancy thereof(collectively, the "Intangible
Property"), pursuant to an assignment in the form of Exhibit G hereto (the
"Assignment of Intangibles").
1.7 "Property" and "Real Property" Defined. All of the items described
in Sections 1.1, 1.2, 1.3, 1.4, 1.5 and 1.6 above are hereinafter collectively
referred to as the ("Property"). The items described in Sections 1.1, 1.2 and
1.5 are hereinafter referred to as (the "Real Property").
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price. The purchase price (the "Purchase Price") for the
Property shall be the sum of $3,550,000.00.
2.2 Payment of Purchase Price. The Purchase Price shall be paid as
follows:
(a) Immediately upon the execution and delivery of this Agreement,
Buyer shall deliver to
Chicago Title Insurance Company
16969 Von Karmen
Irvine, CA 92714
Attn: Joy Eaton
Telephone: (714) 263-0126
Facsimile: (714) 263-0344
Escrow No: NE 154286
("Escrow Holder"), the sum of $50,000.00 as a deposit towards the Purchase Price
(the "Deposit"). Buyer and Seller acknowledge that Escrow Holder has been
selected by Buyer. Such amount shall be paid by wire transfer or cashier's or
certified check drawn upon a bank whose main office is within the continental
United States.
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<PAGE> 6
(b) On the Closing Date, a sum equal to the Purchase Price,
adjusted by prorations and costs of escrow as provided in Sections 7.7, 7.8, 7.9
and 7.10 will be paid by Buyer by wire transfer into escrow in immediately
available Federal funds as set forth in Section 7.6. Said sum shall include the
Deposit.
2.3 Investment of Deposit; Timeliness of Deposit. The Deposit shall be
invested in accordance with instructions from Buyer. All interest on the Deposit
shall accrue for the benefit of Buyer except that on and after the Closing Date
(as defined in Section 7.2), or on and after a termination of this Agreement due
to Buyer's default, all further interest on the Deposit shall accrue for the
benefit of Seller. The failure of Buyer to timely deliver any Deposit hereunder
shall be a material default, and shall entitle Seller, at Seller's sole option,
to terminate this Agreement immediately.
2.4 Deposit as Liquidated Damages. FROM AND AFTER THE DATE HEREOF, IN
THE EVENT THE SALE OF THE PROPERTY AS CONTEMPLATED HEREUNDER IS NOT CONSUMMATED
DUE TO A DEFAULT UNDER THIS AGREEMENT ON THE PART OF BUYER, THE DEPOSIT
(INCLUDING ALL INTEREST EARNED FROM THE INVESTMENT THEREOF AFTER A TERMINATION
OF THIS AGREEMENT DUE TO BUYER'S DEFAULT) SHALL BE PAID TO AND RETAINED BY
SELLER AS LIQUIDATED DAMAGES. THE PARTIES ACKNOWLEDGE THAT SELLER'S ACTUAL
DAMAGES IN THE EVENT THAT THE SALE IS NOT CONSUMMATED WOULD BE EXTREMELY
DIFFICULT OR IMPRACTICABLE TO DETERMINE. THEREFORE, BY SEPARATELY EXECUTING THIS
SECTION 2.4 BELOW, THE PARTIES ACKNOWLEDGE THAT THE DEPOSIT HAS BEEN AGREED
UPON, AFTER NEGOTIATION, AS THE PARTIES' REASONABLE ESTIMATE OF SELLER'S DAMAGES
AND AS SELLER'S EXCLUSIVE REMEDY AGAINST BUYER IN THE EVENT THE CLOSING (AS
DEFINED IN SECTION 7.2 HEREIN) DOES NOT OCCUR AS A RESULT OF BUYER'S DEFAULT AND
AS SELLER'S SOLE AND EXCLUSIVE REMEDY AGAINST BUYER ARISING FROM SUCH FAILURE OF
THE SALE TO CLOSE. NOTWITHSTANDING THE FOREGOING, IN NO EVENT SHALL THIS SECTION
2.4 LIMIT THE DAMAGES RECOVERABLE BY EITHER PARTY AGAINST THE OTHER PARTY DUE TO
(A) THE OTHER PARTY'S OBLIGATION TO INDEMNIFY SUCH PARTY IN ACCORDANCE WITH THIS
AGREEMENT, OR (B) THIRD PARTY CLAIMS. IN ADDITION, (i) THE DEFAULTING PARTY
SHALL PAY ALL TITLE AND ESCROW CANCELLATION CHARGES, AND (ii) BUYER SHALL PAY
ALL SURVEY COSTS. BY THEIR SEPARATELY EXECUTING THIS SECTION 2.4 BELOW, BUYER
AND SELLER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTOOD THE ABOVE PROVISION
COVERING LIQUIDATED DAMAGES, AND THAT EACH PARTY WAS REPRESENTED BY COUNSEL WHO
EXPLAINED THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION AT THE TIME THIS
AGREEMENT WAS EXECUTED.
Wells Fargo Bank, N.A., As Successor
Trustee To First Interstate Bank,
Trustee Of Trust No. 84000012-000
By:_________________________________
Title:______________________________
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<PAGE> 7
Pacific Gulf Properties Inc., a
corporation
By:_________________________________
Title:______________________________
ARTICLE III
"AS IS" SALE; INSPECTION
3.1 "As-Is" Sale. Buyer acknowledges that prior to the "Close of
Escrow", it or its agents will have inspected the Property and observed the
physical characteristics and condition of the Property. Except as set forth in
this Agreement, and except for any breach of an express representation or
warranty set forth herein, and except for any breach of an express
representation or warranty set forth herein, upon acceptance of the delivery of
the Deed Buyer shall be deemed to have waived (with respect to Seller) any and
all defects in the physical characteristics and condition of the Property. Buyer
further acknowledges that, except as expressly set forth herein, neither Seller
nor any of Seller's employees, agents, representatives or contractors have made
any representations, warranties or agreements, express or implied, by or on
behalf of Seller as to any matters concerning the Property including, without
limitation, compliance with any laws, rules or regulations including seismic
regulations e.g., building structural and interior improvements, energy
conservation, e.g., Title 24, or employee access, e.g., The Americans With
Disability Acts. Buyer acknowledges and agrees that, except as expressly set
forth herein, the Property is to be purchased, conveyed and accepted by Buyer in
its present condition "AS IS" and that, except as expressly set forth herein, no
patent or latent defect in condition of the Property, whether or not known or
discovered, shall affect the rights of either party hereto. Any documents
furnished to Buyer by Seller relating to the Property, including, without
limitation, maps, surveys and other information shall be deemed furnished as a
courtesy to Buyer but without warranty from Seller, except as expressly set
forth herein. All work done in connection with preparing the Property for the
uses intended by Buyer including any and all fees, studies, reports, approvals,
plans, surveys, permits, and any expenses whatsoever necessary or desirable in
connection with Buyer's acquiring, developing, using and/or operating the
Property shall be obtained and paid for by, and shall be the sole responsibility
of Buyer.
3.2 Release of Seller. Buyer hereby irrevocably and unconditionally
releases and forever discharges Seller, both in its capacity as Trustee of Trust
No. 84000012-000 (the "Trust") and otherwise, the Trust, its trustors, and each
of their respective predecessors (but not, unaffiliated predecessors in title
except as set forth above), and their respective officers,
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<PAGE> 8
directors, employees, agents, and contractors, successors, assigns, executors
and administrators, agents, employees, representatives, attorneys, affiliates
and all persons acting by, through, under or in concert with any of them (the
"Releasees") from all obligations, liabilities, claims, demands, damages,
judgments, losses, costs, and expenses, including attorneys' fees, of any nature
whatsoever, known or unknown, suspected or unsuspected, fixed or contingent,
which the claimant now has, owns or holds, or claims to have, own or hold, or at
any time heretofore had owned, held, or claimed to have had, owned or held,
against the Releasees (collectively "Claims"), arising out of or related to (i)
the physical condition of the Property, including, without limitation, the
presence, generation, treatment or disposition of Hazardous Materials
(hereinafter defined in this Section 3.2) on, under or at the Property or any
part thereof; (ii) any governmental laws and regulations, including, but not
limited to, Environmental Laws (hereinafter defined) zoning and land use laws
and regulations to which the Property may be subject; and (iii) Buyer's
contemplated use and/or development of the Property. "Claims" shall not include
any damages, liabilities or losses that Buyer incurs as a result of Seller's
failure to disclose any matter that Seller is obligated to disclose pursuant to
the terms hereof.
Without limiting the generality of the foregoing, each party
specifically releases the other party from any liabilities, obligations and
responsibilities of any kind with respect to the following:
(i) The content or accuracy of any report, study, opinion or
conclusion of any soils, toxic, environmental or other engineer or other person
or entity who has examined the Property or any aspect thereof;
(ii) The content or accuracy of any information released to Buyer by
an engineer or planner in connection with the, development of the Property;
(iii) The availability of building or other permits or approvals for
the Property by any state or local governmental bodies with jurisdiction over
the Property;
(iv) Any of the items delivered to Buyer pursuant to Buyer's review of
the condition of the Property, other than Seller's Documents that have been
prepared by Seller; and
(v) The content or accuracy of any other development or construction
cost, projection, financial or marketing analysis or other information given to
Buyer by Seller or reviewed by Buyer with respect to the Property.
BUYER EXPRESSLY WAIVES ANY OF ITS RIGHTS GRANTED UNDER CALIFORNIA CIVIL
CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES
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<PAGE> 9
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OR EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
As used herein, the term "Hazardous Materials" shall include any
substance, chemical or mixture which is (or which contains any substance,
chemical, compound, or mixture which is):
(i) a "Hazardous Substance," "Hazardous Material, "Hazardous Waste,"
or "Toxic Substance" under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. section 9601, et seq., the
Hazardous Materials Transportation Act, 49 U.S.C. section 1801, et seq. or the
Solid Waste Disposal Act, 42 U.S.C. section 6901, et seq., including any
regulations promulgated thereunder as any of the foregoing may be amended;
(ii) an "Acutely Hazardous Waste," "Extremely Hazardous Waste", under
section 25110.02, 25115, 25117 or 25122.7 of the California Health and Safety
Code, or is listed pursuant to section 25140 of the California Health and Safety
Code, as any of the foregoing may be amended;
(iii) a "Hazardous Material", "Hazardous Substance" or "Hazardous
Waste" under section 25281, 25316, 25501, or 25501.1 of the California Health
and Safety Code, as any of the foregoing may be amended;
(iv) "Oil" or a "Hazardous Substance" under section 311 of the
Federal Water Pollution Control Act, 33 U.S.C. section 1321, as may be amended,
as well as any other hydrocarbonic substance, fraction, distillate or
by-product;
(v) defined, identified or listed as an "Acutely Hazardous Waste,"
"Extremely Hazardous Material", "Extremely Hazardous Water", "Hazardous
Constituents", or "Toxic Waste" pursuant to Division 4.5, Chapters 10 or 11 of
Title 22 of the California Code of Regulations, as may be amended;
(vi) listed by the State of California as a chemical known by the
State to cause cancer or reproductive toxicity pursuant to Section 25249.8 of
the California Health and Safety Code, as may be amended;
(vii) a "Biohazardous Waste", "Medical Waste", or "Mixed Waste" under
Section 25020.5, 25023.2 of the California Health and Safety Code, as may be
amended;
(viii) a material which, due to its characteristics or interaction with
one or more other substances, wastes, chemicals, compounds or mixtures, damages
or threatens to damage health, safety, or the environment or is required by any
law or public entity to be remediated, including remediation which such law or
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<PAGE> 10
public agency requires in order for the property to be put to any lawful
purpose;
(ix) regulated by any other federal, state or local statute, ordinance,
code, rule, regulations, order or decree regulating, relating to, or imposing
liability or standards of conduct concerning any hazardous, toxic or dangerous
waste, substance or material, or asbestos, as now or at any time hereinafter in
effect or any other hazardous, toxic or dangerous waste, substance or material;
or
(x) hazardous, toxic, ignitable, radioactive, corrosive, or reactive
and which is regulated by any public entity or under any law.
As used herein, the term "Environmental Laws" shall mean any and all
present and future federal, state and local law (whether under common law,
statute, rule, ordinance, agreement, regulation or otherwise), requirement under
any permit issued with respect thereto, and other requirements of Agencies
having jurisdiction thereunder relating to the protection of human health or the
environment, or the Hazardous Materials including, without limitation, the use,
handling, transportation, production, disposal, treatment, discharge or storage
thereof, including (without limitation) the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. Sections 136, et seq.; [sic] the Toxic Substances
Control Act, 15 U.S.C. Sections 2601 et seq.; Federal Asbestos Hazard Emergency
Response Act, 15 U.S.C. Sections 2641 et seq.; California Health & Safety Code
Section 25915 et seq. (the "Connelly Act"); California. Health & Safety Code
Section 25359.7; California Health & Safety Code Sections 2595 et seq.;
California Labor Code Sections 6501.5 et seq.; the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601, et
seq.), as heretofore or hereafter amended; the Resource Conservation and
Recovery Act, 42 U.S.C. Sections 6901 et seq. the. Federal Water Pollution
Prevention and Control Act, 33 U.S.C. Sections 1251 et seq.; the California
Hazardous Waste Control Act, Health & Safety Code Sections 25100 et seq.; the
California Hazardous Substance Account Act, California Health & Safety Code
Sections 25300 et seq.; the California Safe Drinking Water and Toxic Enforcement
Act, California Health & Safety Code Sections 25249.5, et seq. ("Proposition
65"); the California Hazardous Waste Management Act, California Health & Safety
Code Sections 25170.1 et seq.; the California Health & Safety Code Sections
25501 et seq. (Hazardous Materials Response Plans and Inventory); the California
Porter- Cologne Water Control Act, Water Code Sections 13,000 et seq.; the
California Health & Safety Code Sections 25280, et seq. (Underground Storage of
Hazardous Substances), the Hazardous Materials Transportation Act, 49 U.S.C.
Sections 1801, et seq.; the Solid Waste Disposal Act, 42 U.S.C. Sections 6901,
et seq.; the Federal Water Pollution Control Act, 33 U.S.C. Sections 1321; 42
U.S.C. Sections 7401 et seq. (the "Clean Air Act") and Title 22 of the
California Code of Regulations.
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<PAGE> 11
3.3 Inspection. Seller hereby grants to Buyer and its representatives
(including architects, surveyors and engineers) a license to enter upon, survey
and conduct non-invasive inspections of the Property, but such inspections and
tests shall not damage the Property in any respect and shall be conducted only
after giving 24 hours prior notice to Seller and providing evidence satisfactory
to Seller of the availability of adequate public liability and other insurance.
Any entry by Buyer onto the Property shall be subject to and conducted in
accordance with any leases affecting the Property and in such a manner as to
minimize interference with the operation and occupancy of the Property. Buyer
shall promptly restore the Property to its condition prior to any such
inspections and/or tests. Seller reserves the right to accompany Buyer during
any inspection of the Property. To the extent permitted by law, Buyer shall
protect, defend and indemnify Seller and hold Seller harmless against any and
all liability, claims, loss, cost, damage or expense (including attorneys, fees)
which Seller may sustain or incur by reason of or in connection with any such
entry, inspections or tests. If this Agreement is terminated, Buyer shall
deliver to Seller, and Seller shall reimburse Buyer for the cost thereof, the
results and copies of any and all surveys, reports, tests or studies made by or
for Buyer with respect to the Property. Seller and Buyer agrees that prior to
the Closing, Seller shall make all legally required notifications to government
agencies concerning the Property and Buyer will not disclose information
concerning the Property to government agencies or public officials except to the
extent legally required to do so or reasonably necessary for Buyer to conduct
its investigation of the Property or if required by judicial order or in
connection with an enforceable request for information from a government agency.
If Buyer, its agents, representatives or employees intend to drill boring holes,
undertake any disturbance of the soil or conduct any tests which in Seller's
judgment are or may be destructive, Buyer shall be permitted to do so only in
accordance with a license agreement executed by and in form and substance
satisfactory to Buyer and Seller.
3.4 Permits and Entitlements. Buyer acknowledges that it is responsible
for obtaining all permits, approvals, zone clearance certificates or other
authorizations or entitlements required by any federal, state or local
government for Buyer's use of the Property.
3.5 Exculpatory Clause. It is understood and agreed between the parties
hereto that Wells Fargo Bank, N.A., is entering into this sale solely in its
fiduciary capacity as Trustee and not in its individual or corporate capacity.
Buyer acknowledges and agrees that any claims Buyer may have that arise out of
this transaction shall be claims solely against the Trust estate represented
herein, and hot against Wells Fargo Bank, N.A. except in its capacity as trustee
of the Trust.
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<PAGE> 12
ARTICLE IV
TITLE TO PROPERTY
4.1 Title. At the Closing, Seller shall convey to Buyer fee simple
title to the Land and the Improvements, by execution and delivery of the Deed.
Evidence of delivery of fee simple title shall be the issuance by Chicago Title
Insurance Company (the "Title Company") of an ALTA Extended Coverage Owner's
Policy of Title Insurance Form B, rev. 10/17/70, with Endorsement Form 1
coverage) with liability in the amount of the Purchase Price (the "Title
Policy"), insuring fee simple title to the Land and the Improvements in Buyer,
subject only to those exceptions to title approved by Buyer pursuant to Section
5.1 below. The Title Policy shall provide full coverage against mechanics, and
materialmen's liens and shall contain, to the extent required by Buyer, the CLTA
100 (modified for an owner), 101.4, 103.7, 116, 116.1, 116.4, 116.7 and such
other special endorsements as Buyer may reasonably require, including, without
limitation, any endorsements required to cure any title objection pursuant to
Section 5.1 below.
4.2 Title to Personal Property, Contracts and Leases. At the Closing,
Seller shall transfer all of its right, title and interest in and to (a) the
Personal Property pursuant to the Bill of Sale, (b) the Service Contracts
pursuant to the Assignment of Contracts, and (c) the Leases pursuant to the
Assignment of Leases, and (d) the Intangible Property pursuant to the Assignment
of Intangibles.
ARTICLE V
BUYER'S CONDITIONS TO CLOSING
The following conditions are conditions precedent to Buyer's obligation
to purchase the Property, each of which may be waived by Buyer in writing in its
sole discretion:
5.1 Approval of Title. Buyer shall have until the 30th day after the
date of this Agreement (the "Approval Date") to review and approve the
following:
(a) a current preliminary ALTA title report on the Real Property
(the "Preliminary Report"), accompanied by copies of all documents referred to
in the report other than encumbrances to be discharged by Seller on or before
the Closing;
(b) copies of the most recent property tax bills and assignments
for the Property; and
(c) an ALTA/ACSM "Urban" survey of the Real Property by licensed
surveyor or engineer hired by Buyer.
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Seller will cause to be delivered to Buyer a CLTA preliminary
report, together with copies of title exceptions shown in Schedule B thereto,
within 3 business days of the date of this Agreement. Buyer shall notify Seller
as of the Approval Date what exceptions to title, if any, will not be accepted
by Buyer. Buyer's approval or disapproval shall be in Buyer's sole and absolute
discretion. In addition, anything contained herein to the contrary
notwithstanding and notwithstanding any failure by Buyer to object thereto,
except for real estate taxes and assessment not yet due or payable, Seller shall
cause all mortgages, deeds of trust and other monetary encumbrances other than
special assessments, including without limitation all mechanics' liens, to be
released and reconvened from the Property on or prior to the Closing. If Buyer
fails to notify Seller of its disapproval of any of the aforesaid items by the
Approval Date, Buyer shall be deemed to have approved the condition of title to
the Real Property. If Buyer objects to any exceptions to title, Seller shall
have five (5) days after receipt of Buyer's objections to notify Buyer: (i) that
Seller will remove any objectionable exceptions from title and provide Buyer
with evidence reasonably satisfactory to Buyer of such removal, or provide Buyer
with evidence reasonably satisfactory to Buyer that said exceptions will be
removed on or before the Closing (in either of which event, Seller may extend
the Closing Date for such period as shall be required to effect such cure, but
not beyond thirty (30) days); or (ii) that Seller elects not to cause such
exceptions to be removed. Except for monetary encumbrances which Seller is
obligated to cause to be released and reconveyed, and subject in any event to
Buyer's reasonable approval, the procurement by Seller of a commitment for the
issuance of the Title Policy or an endorsement thereto insuring Buyer against
any title exception which was disapproved pursuant to this Section 5.1 shall be
deemed a cure by Seller of such disapproval. If Seller gives Buyer notice under
clause (ii), Buyer shall have three (3) days in which to notify Seller that
Buyer will nevertheless proceed with the purchase and take title to the Property
subject to such exceptions, or that Buyer will terminate this Agreement. If this
Agreement is terminated pursuant to the foregoing provisions of this paragraph,
then neither party shall have any further rights or obligations hereunder
(except for any indemnity obligations of either party pursuant to the other
provisions of this Agreement), the Deposit shall be. returned to Buyer and each
party shall bear its own costs incurred hereunder. If Buyer shall fail to notify
Seller of its election within said three-day period, Buyer shall be deemed to
have elected to proceed with the purchase and take title to the Property subject
to such exceptions.
5.2 Review of Other Matters. Buyer shall have until the Approval Date
to review and approve the physical condition of the Property, as determined by
inspections and tests performed by Buyer and its consultants in accordance with
Section 3.2 herein, to review and approve Seller's Documents, and to review and
approve any and all other aspects of the Property, its ownership,
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<PAGE> 14
use and operation. Within 3 business days of the date of this Agreement. Seller
shall provide Buyer with the following documents relating to the ownership,
operation and management of the Property in accordance with this Section 5.2.
Seller shall make available for inspection by Buyer its files, and the files of
its property manager at the offices of its property manager, Moreland
Management, located at 444 S. Flower, Suite 500, Los Angeles, CA, 90017,
relating to the ownership, operation and management of the Property including,
without limitation, to the extent existent, annual statements of operations for
the Property for 1994, 1995 and year-to-date, the current year's budget, the
Leases, a detailed rent roll (the "Rent Roll"), the Service Contracts,
maintenance records, an inventory of all furnishings, fixtures, equipment and
other personal property constituting a part of the Property, certificates of
occupancy, variances and use permits, (the "Building Permits"), architectural
renderings, "as-built" plans and specifications, engineering plans,
environmental studies and reports, floor plans and other similar plans, diagrams
and studies, if any, all presently effective warranties or guaranties from any
contractors, suppliers, or servicemen in connection with any of the Property,
insurance claims history for the 3 most current years and the year-to-date, and
a list of any deposits or bonds posted by Seller with utility providers,
governmental agencies or others in connection with the Property (the "Sellers
Deposits") (but excluding therefrom, at Seller's option, any valuations,
business plans, projections prepared by or for Seller and any internal memoranda
or other confidential communications). Buyer shall have the right upon
reasonable notice to Seller and at Buyer's cost, to audit Seller's records of
income and expenses for the Property for these time periods. Seller shall permit
Buyer to use the photocopy equipment located at its offices and the offices of
its property manager, if any, in connection with Buyer's review of such files.
In addition, during the Investigation Period, Seller shall provide. Buyer with
reasonable access to Gail Dennis, Asset Manager, an employee of Seller, Seller's
consultants who have prepared reports relating to the Property and to the
property manager for the Property to obtain information that may be in their
files. All documents and information reviewed or obtained by Buyer from Seller
or any of its affiliates and subsidiaries and any of their respective officers,
directors, participants, employees, contractors, consultants, representatives,
property management companies and agents (the "Seller's Representatives")
relating to the Property are hereinafter collectively referred to as the
"Seller's Documents". Buyer acknowledges that the Seller's Documents may not
constitute all documents in the actual or constructive possession of Seller,
though Seller shall make a diligent search for its files, documents and records
that relate to the ownership, operation and management of the Property. Seller's
Documents shall, however, include a current rent roll for the Property, copies
of leases, service contracts, permits and other governmental approvals in
Seller's possession and any recent reports of the condition of the Property.
Buyer shall confirm its receipt of copies of
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Seller's Documents by executing and delivering to Seller a written receipt
therefor. Providing Buyer with access to Seller's Documents is solely an
accommodation to Buyer and shall not create or give rise to any liability of, or
against, Seller and/or any of Seller's Representatives, except as expressly set
forth herein. Documents or other information relating to the Property or the
matters set forth in Seller's Documents may be located in files in a number of
other locations maintained by. Seller and/or Seller's Representatives, and
Seller shall make good faith efforts to locate and assemble, at the offices
located above, all of Seller's Documents located by Seller. Other than as set
forth in Section 8.2(d), Buyer acknowledges and agrees that Seller's Documents
are provided without any representation or warranty of Seller or any of Seller's
Representatives, of any kind, either express or implied. Without limiting the
foregoing, other than with respect to those of Seller's Documents that have been
prepared by Seller in connection with the transaction contemplated by this
Agreement, (a) neither Seller nor any of Seller's Representatives have reviewed
Seller's Documents for completeness or accuracy, (b) Buyer acknowledges that
Seller's Documents may be incomplete or inaccurate, and (c) neither Seller nor
any of Seller's Representatives represents or warrants the accuracy or
completeness of Seller's Documents or any matter contained therein, other than
with respect to Leases or Contracts entered into by Seller which are to be
assigned to Buyer.
If Buyer fails to notify Seller as of Approval Date that Buyer
disapproves of the physical condition of the Property or of any of the items
specified above, or any other aspect of the Property, Buyer shall be deemed to
have approved the same. if Buyer disapproves any item, then this Agreement shall
be terminated and neither party shall have any further rights or obligations
hereunder (except for any indemnity obligations of either party pursuant to the
other provisions of this Agreement), the Deposit shall be returned to Buyer and
each party shall bear its own costs incurred hereunder. Buyer's approval or
disapproval shall be in Buyer's sole and absolute discretion.
5.3 Review of Estoppels. Seller shall deliver to each tenant of the
property an estoppel certificate in the form of Exhibit E attached hereto (the
"Estoppel Certificates"), and shall request that the tenants complete and sign
the Estoppel Certificates and return them to Seller. Seller shall deliver copies
of the completed Estoppel Certificates to Buyer as Seller receives them. In the
event that either (i) Seller fails to deliver an Estoppel Certificate for each
tenant of the Property, or (ii) Buyer in its sole and absolute discretion
disapproves any Estoppel Certificate, Buyer shall have until 10:00 A.M. on the
day prior to the Closing Date to terminate this Agreement by written notice to
Seller. If this Agreement is terminated pursuant to the foregoing provisions of
this paragraph, then neither party shall have any further rights or obligations
hereunder (except for any indemnity obligations of either party pursuant to the
other provisions of this Agreement), the Deposit
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shall be returned to Buyer and each party shall bear its own costs incurred
hereunder.
5.4 Intentionally Omitted.
5.5 Compliance by Seller. Seller shall have complied with each and
every condition of this Agreement to be kept or complied with by Seller.
5.6 No Material Change in the Physical Condition. The physical
condition of the Property shall be substantially the same on the Closing Date as
on the date of Buyer's execution of this Agreement, reasonable wear and tear and
loss by casualty (subject to the provisions of Section below) excepted.
5.7 No Litigation. As of the Closing Date, there shall be no
litigation or administrative agency or other governmental proceeding, pending or
threatened, which after Closing would materially adversely affect the Property
or the ownership, use or operation thereof.
5.8 New Rent Rolls. Seller shall have provided Buyer with an updated
Rent Roll three (3) business days prior to Closing, which updated Rent Roll must
not indicate any material adverse change from the Rent Roll last approved by
Buyer. Seller shall specifically identify any changes from the most recently
approved Rent Rolls and Buyer shall have performed a closing audit which
confirms the updated Rent Roll.
5.9 No Material Adverse Change. There shall have been no material
adverse change in or addition to the information or items reviewed and approved
by Buyer prior to the Approval Date.
5.10 Title Policy. The issuance of the Title Policy.
5.11 No Personal Property Liens. Receipt by Buyer of a Certificate from
the California Secretary of State indicating that, as of the Closing Date, there
are no filings against Seller under the California Uniform Commercial Code which
would be a lien on any of the Personal Property (other than any filings as to
which Buyer is given satisfactory evidence that such filings are being released
as the Closing).
5.12 Right To Terminate. To induce Buyer to enter into this Agreement
and to expend the time and resources necessary to evaluate the Property and
possibly forego other opportunities while doing so, Seller hereby grants to
Buyer the rights to terminate this Agreement provided herein. Such expenditures
of time and resources and possible loss of opportunity by Buyer constitute
adequate consideration for Seller's remaining bound by this Agreement
notwithstanding such termination rights in Buyer. If this Agreement is
terminated pursuant to the provisions of this Article V, then neither party
shall have any further rights or obligations hereunder (except for any indemnity
obligations of
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either party pursuant to the other provisions of this Agreement), the Deposit
shall be returned to Buyer and each party shall bear its own costs incurred
hereunder.
5.13 Seller's Representations and Warranties. All of Seller's
representations and warranties contained in or made pursuant to this Agreement
shall have been true and correct when made and shall be true and correct as of
the Closing Date.
5.14 Satisfaction or Waiver of Condition. In the event that this
Agreement is not terminated pursuant to the terms of this Article V, in the
event of a default hereunder by Buyer, the Deposit shall be non-refundable to
Buyer and shall belong to Seller as liquidated damages pursuant to Section 2.4.
ARTICLE VI
SELLER'S CONDITIONS TO CLOSING
The following conditions are conditions precedent to Seller's
obligation to sell the Property:
6.1 Compliance by Buyer. Buyer shall have complied with each and every
condition of this Agreement to be kept or complied with by Buyer.
ARTICLE VII
CLOSING
7.1 Deposit with Escrow Holder. This instrument shall serve as the
instructions to Escrow Holder with respect to the Deposit. Seller and Buyer
agree (i) to cause the Escrow Holder to comply with the terms of this Agreement
with respect to the Deposit, and (ii) to execute such additional and
supplementary escrow instructions as may be reasonably appropriate to enable the
Escrow Holder to comply with the terms of this Agreement.
7.2 Closing. The closing hereunder (the "Closing") shall be held and
delivery of all items to be made at the Closing under the terms of this
Agreement shall be made at the offices of the Title Company. The execution and
exchange of documents shall take place at the Closing on the 14th day after the
end of the Approval Period, subject to the recording of documents and
disbursement of funds on the following business day (the "Closing Date"). All
documents shall be deemed delivered on the date the Deed is recorded. The
Closing may occur on such earlier date as Buyer and Seller may agree but such
dates may not be extended without the written approval of both Seller and Buyer,
except as otherwise expressly provided herein. To the extent possible, the
Closing may be effected by mail.
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7.3 Delivery by Seller. At the Closing, Seller shall deliver the
following to Escrow Holder:
(a) The Deed, duly executed and acknowledged by Seller, in
recordable form, and ready for recordation on the Closing Date;
(b) Four (4) counterparts of the Bill of Sale, duly executed by
Seller;
(c) The Service Contracts and four (4) counterparts of the
Assignment of Contracts, duly executed by Seller;
(d) The Leases, the Tenant files and five (5) counterparts of the
Assignment Leases duly executed and acknowledged by Seller in recordable form
and ready for recordation on the Closing Date;
(e) Notices to the tenants of the Property in the form of Exhibit F
hereto (the "Tenant Notices") duly executed by Seller;
(f) An affidavit executed by Seller which satisfies the
requirements of Section 1445 of the United States Internal Revenue Code of 1986,
as amended, and a California FTB Form 590 executed by Seller (the "Transferor
Certificates"); and
(g) Four (4) counterparts of the Assignment of Intangibles, duly
executed by Seller;
(h) Originals of the Building Permits if in Seller's possession;
(i) All keys to the Property; and
(j) Any other documents or instruments called for hereunder which
have not previously been delivered.
Notwithstanding anything to the contrary elsewhere in this
Agreement, Buyer, in its sole discretion, may waive Seller's obligation to
deliver at the Closing any of the items described above in this Section 7.3, but
such waiver shall only be effective if it is in writing, executed by Buyer, and
delivered to Seller at or prior to the Closing.
7.4 Delivery by Buyer. On or before the Closing Date, Buyer shall
deliver to Escrow Holder the Purchase Price, as adjusted pursuant to Sections
7.6, 7.7, 7.8 and 7.9 to close escrow. Prior to the Closing Date, Buyer shall
further deposit with Escrow Holder the following:
(a) Four (4) counterparts of the Bill of Sale, duly executed by
Buyer;
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(b) Four (4) counterparts of the Assignment of Contracts, duly
executed by Buyer;
(c) Five (5) counterparts of the Assignment of Leases duly executed
and acknowledged by Buyer, in recordable form and ready for recordation on the
Closing Date;
(d) Four (4) counterparts of the Assignment of Intangibles duly
executed by Buyer;
(e) Intentionally omitted; and
(f) Any other documents or instruments called for hereunder which
have not been previously delivered.
Notwithstanding anything to the contrary elsewhere in this Agreement,
Seller, in its sole discretion, may waive Buyer's obligation to deliver at the
Closing any of the items described above in this Section 7.3, but such waiver
shall only be effective if it is in writing, executed by Seller, and delivered
to Buyer at or prior to the Closing.
7.5 Other Instruments. Seller and Buyer shall each deposit such other
instruments as are reasonably required by Escrow Holder or otherwise required to
close the escrow and consummate the purchase of the Property in accordance with
the terms hereof.
7.6 Close of Escrow. Provided that Buyer and Seller deliver to Escrow
Holder the documents and funds described in Sections 7.3, 7.4 and 7.5 hereof,
and further provided that the Title Company has issued or is unconditionally and
irrevocably committed to issue to Buyer the Title Policy, the parties shall
instruct Escrow Holder at 8:00 a.m. on the Closing Date to:
(a) Deliver the Purchase Price (adjusted by prorations and costs of
escrow as set forth herein) to Seller by wire transfer to the bank account or
accounts to be designated by Seller, and advise Seller by telephone of the
Federal Reserve System wire transfer number or numbers;
(b) Record the Deed and the Assignment of Leases with the Los
Angeles County Recorder;
(c) Assemble and deliver two (2) fully executed counterparts of the
Bill of Sale, the Assignment of contracts and the Assignment of Leases and the
Assignment of Intangibles to both Buyer and Seller; and
(d) Deliver the Tenant Notices and a conformed copy of the Deed to
Buyer.
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7.7 Prorations and Apportionments.
(a) All revenues and all expenses of the Property shall be prorated
and apportioned as of 12:01 a.m. on the Closing Date, so that Seller bears all
expenses with respect to the Property and shall have the benefit of all income
with respect to the Property through and including the period preceding the
Closing Date. Any revenue or expense amount which cannot be ascertained with
certainty as of Closing shall be prorated on the basis of the parties'
reasonable estimates of such amount, and shall be the subject of a final
proration sixty (60) days after Closing or as soon thereafter as the precise
amounts can be ascertained. A statement setting forth such agreed prorations
shall be delivered to Escrow Holder. Escrow Holder shall not be required to
calculate any prorations.
(b) Prepaid rents under the Leases shall be credited to Buyer. With
respect to any rent arrearages existing at Closing, after Closing, Buyer shall
pay to Seller any rent actually collected which is applicable to the period
preceding the Closing Date; provided, however, that all rent collected by Buyer
shall be applied first to all unpaid rent accruing after the Closing Date, and
then to unpaid rent accruing prior to the Closing Date. Buyer shall make a
reasonable attempt to recover any rent arrearages; provided, that Buyer shall
not be obligated to commence legal action or incur any expense in doing so.
Seller shall be entitled to sue, but not evict, to collect any pre-closing
delinquent rent following the Closing.
(c) Expenses to be prorated shall include taxes (including personal
property taxes on Personal Property), water rates and sewer rents, if any,
payments under any service contracts assumed by Buyer, gas, electricity and
other utility charges, any unfixed meter charges (apportioned on the basis of
the last meter reading), license and permit fees and other. expenses customarily
prorated.
(d) Buyer shall be entitled to a credit against the Purchase Price
for any unpaid commissions and tenant improvement costs incurred in connection
with any Lease executed on or before the date of this Agreement that are or will
become due and payable after the Closing. With respect to unpaid commissions or
costs due after the Closing but incurred in connection with any lease executed
after the date of this Agreement and prior to Closing and which has been
approved by Buyer pursuant to Article X, such commissions and costs shall be
prorated between Buyer and Seller based on the percentage of the lease term
which extends beyond the Closing and the percentage of the lease term that is
prior to the Closing, respectively, in each case without including any
unexercised rights of renewal or extension.
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7.8 Computation of Certain Prorations.
(a) Final proration of percentage rents, operating cost
pass-throughs, additional rents, rent escalations and similar apportionable
items which are dependent for their calculation upon the economic performance of
the Property (or a portion thereof) over a specified interval of time shall be
accomplished as follows: the parties shall await the expiration of the specified
interval to determine the gross rents, gross receipts and other economic
performance over the entire interval and then prorate the item by allocating to
Seller the product of the rents or other similar apportionable item for the
entire interval multiplied by a fraction, the numerator of which is the number
of days within the specified interval which occur before the Closing Date and
the denominator of which is the number of days in the specified interval. The
amount so payable to Seller shall be decreased by any estimated payments
previously received on account thereof, and Seller shall pay to Buyer any amount
by which such estimated payments exceed the amount allocated to Seller.
(b) Expenses incurred in connection with a particular tenant of the
Property and for which payment or reimbursement from such tenant is due shall
not be prorated hereunder. Buyer shall accept title subject to any of such
unpaid expenses and Buyer shall look solely to the tenant responsible therefor
for the of same. If Seller shall have paid any of such expenses on behalf of any
tenant and Seller shall not have been reimbursed therefor by the time of
Closing, then Buyer shall pay to Seller any expenses actually collected which
are due Seller; provided, however, that all expenses collected by Buyer shall be
applied first to all such amounts due Buyer accruing after the Closing Date, and
then to unpaid expenses due Seller accruing prior to the Closing Date. Buyer
shall make a reasonable attempt to recover any expense arrearages; provided,
that Buyer shall not be obligated to commence legal action or incur any expense
in doing so. Seller shall be entitled to sue, but not evict, to collect any
pre-closing delinquent expenses following the Closing.
7.9 Payment of Adjustments to Prorations. Either party owing the other
party a sum of money based on adjustments made to prorations after the Closing
Date shall promptly pay that sum to the other party, together with interest
thereon at the rate of the prime rate established by Wells Fargo Bank, N.A.,
plus two percent (2%) per annum (but in no event greater than the maximum rate
then permitted by law to be contracted for by the parties) from the date of
demand therefor to the date of payment, if payment is not made within ten (10)
days after delivery of a statement therefor.
7.10 Costs and Expenses. Buyer shall receive a credit against the
Purchase Price for the total sum of all security deposits under all Leases,
including any interest earned thereon. Seller shall pay the premium for the
Title Policy (to the extent
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it does not exceed the cost of a CLTA policy) and any documentary transfer
taxes. Buyer shall pay for all of its own costs of surveying and inspecting the
Property, fees and costs related to any financing obtained by Buyer in
connection with the purchase, the cost of any transfer taxes (other than
documentary transfer taxes) applicable to the sale and the premium for the Title
Policy to the extent it exceeds the cost of a CLTA policy and the cost of all
endorsements to the Title Policy. Except as set forth in Section 2.4 herein,
Buyer and Seller shall share equally all recording and filing charges, the
Escrow Holder's fee, and all other costs and charges of the escrow for the sale;
provided, however that Buyer and Seller shall each pay their own legal
(including attorneys fees and costs) and accounting fees.
7.11 Insurance; Utilities. Buyer acknowledges that Seller will cause its
policies of casualty and liability insurance to be terminated as of the Closing
Date, and Buyer shall be responsible for obtaining its own insurance as of the
Closing Date and thereafter. Any deposits for utilities made by Seller shall be
refunded to Seller and Buyer shall arrange for any required replacements
thereof.
ARTICLE VIII
REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 Buyer's Representations. Buyer represents and warrants to Seller as
follows:
(a) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland and is qualified to do
business in the State of California, with full power and authority to enter into
and comply with the terms of this Agreement;
(b) Subject to Section 5.4, this Agreement and all documents
executed by Buyer which are to be delivered to Seller at the Closing are or at
the time of Closing will be duly authorized, executed, and delivered by Buyer,
are or at the time of Closing will be legal, valid, and binding obligations of
Buyer, and do not and at the time of Closing will not violate any provisions of
any agreement or judicial order to which Buyer is a party or to which it is
subject;
(c) Except as modified in Section 5.4, neither Buyer's execution
and delivery of this Agreement nor Buyer's performance of all obligations
hereunder require the consent or approval of any person other than Buyer. Such
execution, delivery and performance will not result in a breach of or constitute
a default under any indenture, loan or credit agreement, deed of trust, mortgage
or other agreement; and
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8.2 Seller's Representations. Seller represents and warrants to Buyer
as follows:
(a) Seller is a corporation duly organized and validly existing, is
in good standing and has the authority to own and convey the Property;
(b) Subject to Section 6.1, this Agreement and all documents
executed by Seller which are to be delivered to Buyer at the Closing are or at
the time of Closing will be duly authorized, executed, and delivered by Seller,
are or at the time of Closing will be legal, valid, and binding obligations of
Seller, and do not and at the time of Closing will not violate any provisions of
any agreement or judicial order to which Seller is a party or to which Seller or
the Property is subject;
(c) Neither Seller's execution and delivery of this Agreement nor
Seller's performance of all obligations hereunder require the consent or
approval of any person other than Seller. Such execution, delivery and
performance will not result in a breach of or constitute a default under any
indenture, loan or credit agreement, deed of trust, mortgage or other agreement.
(d) Seller has made good faith efforts to locate all books,
records, files, and documents which, if provided to Buyer, would constitute
Seller's Documents, and has made all books records, files, and documents which,
if provided to Buyer would constitute Seller's Documents, available to Buyer for
Buyer's inspection and copying as set forth in Section 5.2.
(e) To Seller's knowledge, there exists no defaults or events
which, with the giving of notice or passage of time, or both, would constitute a
default by Seller or any of the tenants under any of the Leases.
(f) To Seller's knowledge, there exists no defaults or events
which, with the giving of notice or passage of time, or both, would constitute a
default by Seller or any of the other parties to the Contracts under the Service
Contracts.
(g) To Seller's knowledge, Seller has not granted any option or
right of first refusal or first opportunity to any party to acquire any interest
in any of the Property.
Seller, and Seller's knowledge, as used in subsections 8.2(e), (f)
and (g), shall mean the current actual knowledge of Gail Dennis, an individual,
an employee of Seller, and are given in her capacity as an employee of said
Bank, and not in her individual capacity, and are based solely on a review of
the files of the Bank which she hat been able to locate after a good faith
search therefor, and no other investigation.
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8.3 Limitation on Liability.
(a) Buyer and Seller each acknowledge and agree that if prior to
the Closing Date it discovers or, in the case of Buyer has discovered through
its investigation and due diligence, any information relating to the Property
which is not consistent with the representations and warranties made by Seller
under this Article VIII, then it shall immediately disclose such information to
the other in writing. Buyer shall not be entitled to rely on any representations
or warranties which are inconsistent with such information. If Buyer discovers
or receives from Seller such information prior to the Closing Date, it may
terminate this Agreement as set forth in Section 5.12.
(b) If Buyer closes the purchase of the Property in accordance with
this Agreement, Buyer shall be deemed to have waived any rights or claims as
against Seller for any reason related to the Property or Buyer's purchase
thereof except for the representations and warranties contained in Section 8.2
above. Buyer further waives any rights or claims arising out of any inaccuracy
in the representations and warranties contained in this Article VIII and in any
closing documents as to which Buyer has not given written notification to Seller
of an asserted breach one hundred and eighty (180) days after the Closing, which
notification must describe with specificity the nature of the asserted breach
and the amount of the claim. Seller shall have no liability to Buyer for any
breach of such representations and warranties except to the extent of the amount
that the aggregate amount of all claims under this Agreement exceeds Fifty
Thousand Dollars ($50,000), and in no event shall Seller's liability hereunder
or in connection with the purchase and sale contemplated hereby exceed Three
Hundred Fifty Thousand Dollars ($350,000). Buyer agrees to first seek
reimbursement pursuant to any insurance policies (to the extent they provide
coverage therefor), Service Contracts and Leases prior to seeking recovery from
Seller. Seller shall not be liable hereunder if Seller causes Buyer's claim to
be satisfied pursuant to any insurance policy, or pursuant to any of the Service
Contracts or from any tenant or tenants pursuant to operating expense
pass-through clauses in any Leases or otherwise.
ARTICLE IX
POSSESSION
Possession of the Property shall be delivered to Buyer on the Closing
Date, subject to the rights of tenants listed on the Rent Roll delivered
pursuant to Section 5.8.
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ARTICLE X
OPERATION OF THE PROPERTY
Seller shall not, after the date hereof and prior to the Closing Date or
any earlier termination of this Agreement, enter into or terminate any lease or
contract or amendment of lease or contract pertaining to the Property or consent
to any sublease or lease assignment to which Seller is not required by the
applicable lease to consent without in each case obtaining Buyer's prior written
consent thereto, which consent Buyer shall not unreasonably withhold or delay
and which shall be deemed given unless denied in writing within five (5)
business days after request therefor. Between Seller's execution of this
Agreement and the Closing, Seller shall maintain the Property in the manner
which it has been maintained prior to the Agreement Date. Without limiting the
effectiveness of the foregoing provisions or the other provisions of this
Agreement with respect to such Service Contracts, unless Buyer specifically
provides Seller with "written notice to the contrary" (as hereinafter defined),
in the event of the Closing of the purchase of the Property, Buyer shall not
retain the existing employees and management agents of Seller for the Property,
and, accordingly, on the Closing, Seller shall (i) cause all management
agreements respecting the Property to be terminated, and deliver evidence of
such termination to Buyer, and (ii) remove all employees and management
personnel from the Property. Buyer's "written notice to the contrary" pursuant
hereto shall be made only by delivery to Seller of a copy of a written
agreement, lease or letter of employment with or to such employee and/or
management agent executed by Buyer. Through the Closing Date, Seller shall
maintain or cause to be maintained, at Seller's sole cost and expense, all
policies of insurance in amounts currently maintained by Seller with respect to
the Property.
ARTICLE XI
LOSS BY FIRE OR OTHER CASUALTY; CONDEMNATION
11.1 Damage or Destruction.
(a) In the event that the Improvements are damaged or destroyed by
fire or other casualty prior to the Closing Date and such damage or destruction
is estimated to cost $250,000 or less in the aggregate to repair or replace (as
verified by an architect or contractor reasonably selected by Seller and
reasonably approved by Buyer), then the Closing Date shall occur as scheduled
without any reduction in the Purchase Price notwithstanding such damage or
destruction, and all proceeds of insurance payable to Seller by reason of such
damage or destruction shall be paid or assigned to Buyer, and Buyer shall be
entitled to a credit towards the Purchase Price for any cost of repair not
covered by such insurance (whether by reason of
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insurance deductible, coinsurance, uninsured casualty or otherwise). It is
agreed that in such event Seller shall have no obligation to repair or restore
the Property.
(b) In the event that any of the Improvements are damaged or
destroyed by fire or other casualty prior to the Closing Date, and such damage
or destruction is estimated to cost more than $250,000 in the aggregate to
repair or replace (as verified by an architect or contractor reasonably selected
by Seller and reasonably approved by Buyer), then Buyer shall have the option to
terminate this Agreement by written notice to Seller within five (5) days after
the occurrence of the damage or destruction. In the event of such termination,
then neither Buyer nor Seller shall thereafter have any obligations or
liabilities hereunder, and the Deposit shall be returned to Buyer. In the event
Buyer does not terminate this Agreement in accordance with this Section 11.1(b),
the Closing Date shall occur as scheduled without any reduction in the Purchase
Price notwithstanding such damage or destruction, and all proceeds of insurance
payable to Seller by reason of such damage or destruction shall be paid or
assigned to Buyer.* It is agreed that in such event Seller shall have no
obligation to repair or restore the Property.
11.2 Condemnation. In the event that prior to the Closing Date, a
governmental entity shall commence any eminent domain proceeding to take any
material portion of the Property, then Buyer shall have the option to elect
either of the following:
(a) Terminate this Agreement by written notice to Seller within
five (5) days after its receiving notice of such action of condemnation, in
which event, neither Buyer nor Seller shall thereafter have any obligations or
liabilities hereunder, and the Deposit shall be returned to Buyer. All escrow
cancellation charges shall be paid by Buyer and Seller equally; or and Buyer
shall be entitled to a credit towards the Purchase Price for any cost of repair
not covered by such insurance (whether by reason of insurance deductible,
co-insurance, uninsured casualty, or otherwise).
(b) Elect to proceed with the transaction, in which case the
Purchase Price shall not be reduced and Buyer shall be entitled to the net award
paid to Seller for such taking, if any, and Seller shall assign and transfer to
Buyer all right, title and interest in and to any awards, it being expressly
agreed that in such event Seller shall have no obligation to repair or restore
the Property or any portion thereof.
--------
* and Buyer shall be entitled to a credit towards the Purchase Price for any
cost of repair not covered by such insurance (whether by reason of insurance
deductible, co-insurance, uninsured casualty, or otherwise).
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<PAGE> 27
11.3 REIT. Buyer hereby advises Seller that Buyer is qualified as a real
estate investment trust under the provisions of the Internal Revenue Code of
1986, as amended, and that, by reason thereof, the maintaining of such status
and the avoiding of any activity which might cause a penalty tax to be applied
is of material concern to Buyer. Accordingly, Buyer may request prior to
Closing, that Seller modify this Agreement as may be necessary for Buyer to
maintain its status as a rear estate investment trust or in order for it to
avoid a penalty tax; provided, however, that Seller shall have no obligation to
enter into any such modification or amendment that would materially after or
affect, in Seller's sole judgment, Seller's rights, duties, or obligations under
this Agreement. If Seller declines to modify or amend this Agreement for any
reason in a manner which Buyer determines, in the good faith exercise of its
reasonable business judgment, is necessary to maintain its status as a real
estate investment trust, Buyer shall have the right to terminate this Agreement
by written notice delivered to Seller prior to Closing. In the event Buyer
exercises such termination right, neither party shall have any further rights or
obligations hereunder, or liability to the other, (except with respect to
provisions of this Agreement which recite that they survive termination), the
Deposit shall be returned to Buyer and all other funds and documents deposited
in escrow shall be returned to the party depositing the same.
ARTICLE XII
MISCELLANEOUS
12.1 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed given upon delivery (or
refusal to accept delivery) as indicated on the return receipt, when sent by a
recognized private courier company or by United States registered or certified
mail, postage prepaid, return receipt requested, or upon sending by facsimile,
if so sent by facsimile, and addressed as follows:
If to Seller: c/o Wells Fargo Bank, N.A.
707 Wilshire Blvd., W7-22
Los Angeles, CA 90017
Attention: Gail Dennis
(213) 614-4353
(213) 614-4018 (facsimile)
with copies to: c/o Wells Fargo Bank, N.A.
707 Wilshire Blvd., W7-22
Los Angeles, CA 90017
Attention: Elyse Weise
(213) 614-3126
(213) 614-3009 (facsimile)
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<PAGE> 28
with copies to: Washburn, Briscoe and McCarthy
55 Francisco St., Suite 600
San Francisco, CA 94133
Attention: Richard Rosenthal, Esq.
(415) 421-3200
(415) 421-5044 (facsimile)
If to Buyer: Pacific Gulf Properties Inc.
363 San Miguel Dr.
Newport Beach, CA
Attention: Lonnie P. Nadal
(714) 721-2700
(714) 721-2713
with copies to: Cox, castle and Nicholson LLP
2049 Century Park East, 28th Fl.
Los Angeles, CA 90067
Attention: John Kuhl, Esq.
(310) 284-2267
(310) 277-7889 (facsimile)
or such other address as either party may from time to time specify in writing
to the other in the manner aforesaid.
12.2 Brokers and Finders. In connection with the transaction
contemplated by this Agreement, Seller has agreed to pay a brokerage commission
to R.B. Allen Commercial (the "Broker"), 695 Town Center Dr., Suite 110, Costa
Mesa, CA, 92626. In the event of a claim for broker's fee, finder's fee,
commission or other similar compensation in connection herewith other than as
set forth above, Buyer, if such claim is based upon any agreement alleged to
have been made by Buyer, hereby agrees to protect and indemnify Seller against
and hold Seller harmless from any and all damages, liabilities, costs, expenses
and losses (including, without limitation, reasonable attorneys' fees and costs)
which Seller may sustain or incur by reason of such claim, and Seller, if such
claim is based upon any agreement alleged to have been made by Seller, hereby
agrees to protect and indemnify Buyer against and hold Buyer harmless from any
and all damages, liabilities, costs, expenses and losses (including, without
limitation, reasonable attorneys' fees and costs) which Buyer may sustain or
incur by reason of such claim. The Broker represents both the Buyer and the
Seller.
12.3 Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors,
heirs, administrators and assigns, except that Buyer's interest under this
Agreement may not be assigned, encumbered or otherwise transferred, whether
voluntarily, involuntarily, by operation of law or otherwise,
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<PAGE> 29
without the prior written consent of Seller, which Seller may give or deny in
its sole discretion; provided, however, that Buyer shall have the right to
assign this Agreement without the consent or approval of Seller to a person or
entity which own a majority of, is majority owned by or is under common majority
ownership with Buyer.
12.4 Amendments. This Agreement may be amended or modified only by a
written instrument executed by the party asserted to be bound thereby.
12.5 Interpretation. Words used in the singular number shall include
the plural, and vice-versa, and any gender shall be deemed to include each other
gender. The captions and headings of the Articles and Sections of this Agreement
are for convenience of reference only, and shall not be deemed to define or
limit the provisions hereof.
12.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
12.7 Merger of Prior Agreements. This Agreement and the exhibits hereto
constitute the entire agreement between the parties with respect to the purchase
and sale of the Property and supersedes all prior and contemporaneous agreements
and understandings between the parties hereto relating to the subject matter
hereof, including without limitation the letter dated April 8, 1996, from Seller
to Buyer with respect to the Property.
12.8 Attorneys' Fees. In the event either Buyer or Seller brings any
suit or other proceeding with respect to the subject matter or enforcement of
this Agreement or any other agreement or document executed in connection with
this Agreement, the prevailing party (as determined by the court, agency or
other authority before which such suit or proceeding is commenced) shall, in
addition to such other relief as may be awarded, be entitled to recover
attorneys' fees, expenses and costs of investigation as actually incurred
(including, without limitation, attorneys, fees, expenses and costs of
investigation incurred in appellate proceedings, costs incurred in establishing
the right to indemnification, or in any action or participation in, or in
connection with, any case or proceeding under Chapter 7, 11 or 13 of the
Bankruptcy Code, 11 United States Code Sections 101 et seq., or any successor
statutes and costs of enforcing any judgment).
12.9 Time of the Essence. Time is of the essence of this Agreement.
12.10 Confidentiality. Except for such attorneys, accountants,
investment advisors, underwriters, lenders and others as are reasonably required
to evaluate and consummate the transaction contemplated by this Agreement,
unless, and to the extent, required by law, all information, studies and reports
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<PAGE> 30
relating to the property obtained by Buyer, either by the observations and
examinations of its agents and representatives or as disclosed to it by Seller,
shall remain confidential and if the transaction contemplated herein fails to
close for any reason, Buyer shall deliver to Seller, and Seller shall reimburse
Buyer for the cost thereof, all such information, reports and studies, and Buyer
shall make no further distributions or disclosures of any such information,
reports and studies. Except to the extent legally required, Buyer and Seller
agree that, to the extent reasonably practical, they shall keep the contents of
this Agreement confidential and that no publicity or press release to the
general public with respect to this transaction shall be made by either party
without the prior written consent of the other party. Nothing in this Paragraph
12.10 shall prevent Buyer from disclosing or accessing any information otherwise
deemed confidential under this paragraph, (a) in connection with Buyer's
enforcement of its rights hereunder, or (b) pursuant to any legal requirement,
any statutory reporting requirement or any accounting or auditing disclosure
requirement.
12.11 No Waiver. No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute, a waiver of any other provision, whether
or not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the waiver.
12.12 Further Acts. Each party shall, at the request of the other,
execute, acknowledge (if appropriate) and deliver whatever additional documents,
and do such other acts, as may be reasonably required in order to accomplish the
intent and purposes of this Agreement.
12.13 Agreement Not to Benefit Third Parties. This Agreement is made for
the sole benefit of Seller and Buyer, and no other person shall be deemed to
have any privity of contract under this Agreement nor any right to rely on this
Agreement to any extent for any purpose whatsoever, nor have any right of action
of any kind on this Agreement nor be deemed to be a third party beneficiary
under this Agreement.
12.14 Severability. If any provision of this Agreement or its
application to any person or circumstance shall be invalid or unenforceable to
any extent, the remainder of this Agreement and the application of such
provisions to other persons or circumstances, other than those to which it is
held invalid, shall not be affected thereby and shall be enforced to the
furthest extent permitted by law; provided that the invalidity of such provision
does not materially adversely affect the benefits accruing to any party
hereunder.
12.15 Damages. In no event shall Section 2.4 of this Agreement limit the
damages recoverable by either party against the other party due to (a) the other
party's obligation to
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<PAGE> 31
indemnify such party in accordance with this Agreement, or (b) third party
claims.
12.16 Counterparts. This Agreement and all documents and agreements
executed in connection herewith may be executed simultaneously or in any number
of counterparts, each of which shall be deemed an original as to the party whose
signature it bears, but all of which together shall constitute one and the same
Agreement.
12.17 Survival of Representations and Warranties. All indemnifications,
representations and warranties of Buyer and Seller under this Agreement and in
any documents, certificates or statements delivered pursuant hereto shall
survive the execution and delivery of the Deed and the transfer of title, or the
termination of this Agreement.
12.18 Form 1099-S. For the purpose of complying with Section 6045 of
the Internal Revenue Code of 1996, as amended, Escrow Holder shall be deemed the
"person responsible for closing the transaction," and shall be responsible for
obtaining information necessary to file with the Internal Revenue Service Form
1099-S (Statement for Recipients of Proceeds From Real Estate, Broker and Barter
Exchange Transactions).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Seller: WELLS FARGO BANK, N.A., AS SUCCESSOR
TRUSTEE TO FIRST INTERSTATE BANK,
TRUSTEE OF TRUST NO. 84000012-000
By: ______________________________
Its: _____________________________
Buyer: PACIFIC GULF PROPERTIES INC., a
corporation
By: ______________________________
Its: _____________________________
By: ______________________________
Its: _____________________________
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<PAGE> 1
EXHIBIT 10.9
FINANCIAL ADVISORY FEE AGREEMENT
THIS FINANCIAL ADVISORY FEE AGREEMENT (this "Agreement") is entered into as
of May __, 1996 by and between ALEX. BROWN & SONS INCORPORATED ("Alex. Brown" or
the "Advisor") and PACIFIC GULF PROPERTIES INC., a Maryland corporation (the
"Company").
WHEREAS, Alex. Brown has provided financial advisory services to the
Company in connection with the evaluation, analysis and structuring of the
Company's proposed public offering of shares of common stock of the Company (the
"Offering") and the transactions related thereto, and the Company desires to
compensate the Advisor for these services.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties hereto agree as
follows:
1. In consideration of the financial advisory services provided by the
Advisor to the Company in connection with the evaluation, analysis and
structuring of the Offering and the transactions related thereto, the Company
shall pay (or cause to be paid) to the Advisor, at the closing of the Offering
and in immediately available funds, an aggregate fee of $125,000.
2. The Company agrees to indemnify and hold harmless the Advisor and each
of its directors, officers, agents, employees and controlling persons (within
the meaning of the Securities Act of 1933, as amended) from and against any
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) (collectively "Liabilities") related to or arising out of the services
provided to the Company hereunder, and will reimburse the Advisor and each other
person indemnified hereunder for all reasonable legal and other expenses as
incurred in connection with investigating or defending any such Liabilities
whether or not in connection with pending or threatened litigation in which the
Advisor or any of its directors, officers, agents, employees and controlling
persons is a party; provided, however, that the Company will not be liable in
any such case (except cases arising out of the use of information provided by
the Company) for Liabilities that a court of competent jurisdiction shall have
found in a final judgment to have arisen primarily from the gross negligence or
willful misconduct of the Advisor or the party claiming a right to
indemnification.
In case any proceeding shall be instituted involving any person in respect
of whom indemnity may be sought, such person (the "indemnified party") shall
promptly notify the Company and the Company, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified Party to represent the indemnified party and any others the Company
may designate in such proceeding and shall pay, as they are incurred, the fees
and expenses of such counsel related to such proceedings. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel at its own expense, except that the Company shall pay, as they are
incurred, the fees and expenses of counsel retained by the indemnified party if
(i) the Company and the indemnified party shall have mutually agreed to the
retention of such counsel or, (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Company and the indemnified
party and representation of both parties by the same
<PAGE> 2
counsel would be inappropriate, in the reasonable opinion of the indemnified
party, due to actual or potential differing interests between them.
The Company shall not be liable for any settlement of any action or
proceeding effected without its prior consent but if settled with such consent
or if there be a final judgment for the plaintiff, the Company agrees to
indemnify the indemnified parties to the extent set forth herein. In addition,
the Company will not, without the prior written consent of the Advisor, settle
or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not the Advisor or any indemnified party is
an actual or potential party to such claim, action, suit or proceeding) unless
such settlement, compromise or consent includes an unconditional release of the
Advisor and each other indemnified party hereunder from all liability arising
out of such claim, action, suit or proceeding.
If a claim for indemnification hereunder is determined to be unenforceable
by a final judgment of a court of competent jurisdiction, then the Company shall
contribute to the aggregate losses, claims, damages or liabilities to which the
Advisor or their officers, directors, agents, employees or controlling persons
may be subject in such amount as is appropriate to reflect the relative benefits
received by each of the Company and the party seeking contribution on the one
hand, and the relative faults of the Company and the party seeking contribution
on the other, as well as any other relevant equitable considerations, provided,
however, that in no event shall the aggregate amount contributed by all
indemnified parties exceed the amount of fees actually received by the Advisor
pursuant to this Agreement. The relative benefits received or sought to be
received by the Company on the one hand and the indemnified parties on the other
shall be deemed to be in the same proportion as (a) the total value of the
transactions with respect to which the Advisor have provided services hereunder
bears to (b) the fees paid or payable to the Advisor hereunder.
The indemnification provided herein shall survive closing of the Offering
and shall be binding upon any successors or assigns of the Company.
3. Nothing contained in this Agreement shall limit in any way any rights
or obligations of the parties hereto under any other agreement.
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed on their behalf as of the date first set forth above.
ALEX. BROWN & SONS INCORPORATED
By:
--------------------------------
William G. Byrnes
Managing Director
PACIFIC GULF PROPERTIES INC.
By:
--------------------------------
Glenn L. Carpenter
Chairman, President and
Chief Executive Officer
3
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-02798) and related Prospectus of
Pacific Gulf Properties Inc. for the registration of $125,000,000 of common and
preferred stock. We also consent to the incorporation by reference of the
following into the Prospectus related to the Registration Statement (Form S-3
No. 333-02798), Amendments No. 1 and No. 2 to the Registration Statement (Form
S-3 No. 333-02798), and the related Preliminary Prospectus Supplement dated May
20, 1996 for the registration of 2,800,000 shares of common stock: our reports;
(a) dated February 9, 1996, with respect to the consolidated and combined
financial statements and related financial statement schedule of Pacific Gulf
Properties Inc. included in the Pacific Gulf Properties Inc. Annual Report (Form
10-K/A) for the year ended December 31, 1995, (b) dated April 30, 1996, with
respect to the statement of revenues and certain expenses of Tukwila Business
Park included in the Pacific Gulf Properties Inc. Current Report on Form 8-K
dated May 7, 1996, (c) dated April 12, 1996, with respect to the combined
statement of revenues and certain expenses of the Konwiser Acquisition
Properties included in its Current Report on Form 8-K dated May 7, 1996, and (d)
dated July 28, 1995, with respect to the combined statement of revenues and
certain expenses of the Konwiser Acquisition Properties included in the Pacific
Gulf Properties Inc. Current Report on Form 8-K/A dated May 7, 1996, all of
which have been filed with the Securities and Exchange Commission.
We also consent to the use of our reports; (a) dated April 25, 1996, with
respect to the statement of revenues and certain expenses of Bay San Marcos
Industrial Park, (b) dated April 25, 1996, with respect to the statement of
revenues and certain expenses of Escondido Business Center, (c) dated May 20,
1996, with respect to the statement of revenue and certain expenses of Eden
Landing Commerce Park, (d) dated May 20, 1996, with respect to the statement of
revenue and certain expenses of Riverview Industrial Park, and (e) dated May 20,
1996, with respect to the statement of revenue and certain expenses of Pacific
Park, in Amendment No. 2 to the Registration Statement referred to above and
related Preliminary Prospectus Supplement dated May 20, 1996.
ERNST & YOUNG LLP
Newport Beach, California
May 20, 1996
