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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FOR 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): May 27, 1997
PACIFIC GULF PROPERTIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Maryland 1-12546 33-0577520
(STATE OR OTHER (COMMISSION FILE (I.R.S. EMPLOYER
JURISDICTION OF NUMBER IDENTIFICATION NO.)
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4220 Von Karman Avenue, Second Floor, Newport Beach, California 92660-2002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 223-5000
363 San Miguel Drive, Newport Beach, California 92660-7805
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 5. OTHER EVENTS.
On May 27, 1997, Pacific Gulf Properties Inc. (the "Company")
entered into an agreement to issue 1,411,765 shares of Class B Senior
Cumulative Convertible Preferred Stock (the "Class B Preferred Shares") to Five
Arrows Realty Securities L.L.C. ("Five Arrows") at a price of $21.25 per
share. The Company is obligated to issue the Class B Preferred Shares over
the course of 1997 in a maximum of three separate issuances, the timing of
which may be specified by the Company. Upon each issuance of Class B Preferred
Shares, the Company is required to pay a transaction fee of $0.75 per share
being issued. As a part of this transaction, Five Arrows agreed to waive
certain availability fees that were charged to the Company if all of the shares
of Class A Senior Cumulative Convertible Preferred Stock (the "Class A
Preferred Shares") were not issued before July 1, 1997. Additionally, Five
Arrows agreed that it would not transfer any shares of Class A Preferred Shares
or Class B Preferred Shares, or any shares of Common Stock into which such
shares of Preferred Stock have been converted, until June 30, 1998. Management
believes the issuance of the Class B Preferred Shares will provide the Company
with ready access to additional capital in order to complete additional
acquisitions or to provide additional working capital.
The terms of the Class B Preferred Shares are substantially
similar to those of the Class A Preferred Shares, except that (i) the
liquidation preference of the Class B Preferred Shares is $21.25 per share
(plus accumulated, accrued and unpaid dividends) and (ii) Five Arrows will not
be entitled to designate any additional representatives to the Company's Board
of Directors while it owns both the Class A Preferred Shares and the Class B
Preferred Shares.
On June 16, 1997, the Company moved its principal executive
offices from 363 San Miguel Drive, Newport Beach, California 92660-7805 to 4220
Von Karman Avenue, Second Floor, Newport Beach, California 92660-2002. Its new
telephone number is (714) 223-5000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
99.1 Investment Agreement, dated as of May 27, 1997, between
the Company and Five Arrows.
99.2 Articles Supplementary Classifying 1,411,765 Shares of
the Company's Preferred Stock as Class B Senior Cumulative Convertible
Preferred Stock.
99.3 Form of Operating Agreement, between the Company and Five
Arrows, to be entered into upon the first issuance of Class B Preferred Shares.
99.4 Form of Amended and Restated Agreement and Waiver, between
the Company and Five Arrows, to be entered into upon the first issuance of Class
B Preferred Shares.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
PACIFIC GULF PROPERTIES INC., a
Maryland corporation
By: /s/ DONALD G. HERRMAN
----------------------------
Name: Donald G. Herrman
Title: Chief Financial Officer
June 26, 1997
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INVESTMENT AGREEMENT
BETWEEN
PACIFIC GULF PROPERTIES INC.
AND
FIVE ARROWS REALTY SECURITIES L.L.C.
----------------------
DATED AS OF MAY 27, 1997
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TABLE OF CONTENTS
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ARTICLE 1 DEFINED TERMS
Section 1.1 Defined Terms...............................................................1
Section 1.2 Terms Defined Herein........................................................6
ARTICLE 2 SALE AND PURCHASE OF PREFERRED SHARES
Section 2.1 Sale of Preferred Shares....................................................6
Section 2.2 Payment for the Preferred Shares............................................7
Section 2.3 Transfer Taxes..............................................................7
ARTICLE 3 CLOSINGS
Section 3.1 Closings....................................................................7
Section 3.2 Closing Dates...............................................................7
Section 3.3 Cancellation of Subsequent Closings.........................................7
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Due Incorporation and Status of the Company.................................8
Section 4.2 Authority...................................................................8
Section 4.3 Valid Agreement of the Company..............................................8
Section 4.4 No Default..................................................................8
Section 4.5 No Required Consents........................................................9
Section 4.6 Reservation of Shares.......................................................9
Section 4.7 Validity of Preferred Shares................................................9
Section 4.8 Transferability.............................................................9
Section 4.9 Disclosure..................................................................9
Section 4.10 Capitalization............................................................10
Section 4.11 Litigation................................................................10
Section 4.12 ERISA.....................................................................11
Section 4.13 Environmental Matters.....................................................11
Section 4.14 Investment Company........................................................12
Section 4.15 Taxes.....................................................................12
Section 4.16 Insurance.................................................................13
Section 4.17 Affiliated Transactions...................................................13
Section 4.18 Liabilities...............................................................13
Section 4.19 Agreement and Waiver......................................................13
Section 4.20 No Event of Default.......................................................13
Section 4.21 No Brokers................................................................14
Section 4.22 Bear, Stearns & Co. Inc...................................................14
Section 4.23 Full Disclosure...........................................................14
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
Section 5.1 Organization...............................................................14
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Section 5.2 Accredited Investor........................................................14
Section 5.3 Valid Agreements of the Investor...........................................14
Section 5.4 No Default.................................................................15
Section 5.5 Opportunity for Inquiry....................................................15
Section 5.6 Purchase Entirely for Own Account..........................................15
Section 5.7 Materials..................................................................15
Section 5.8 Knowledge and Experience...................................................15
Section 5.9 No Brokers.................................................................15
Section 5.10 Investment Company........................................................15
ARTICLE 6 COVENANTS AND UNDERTAKINGS
Section 6.1 Closings...................................................................16
Section 6.2 Transaction Fee............................................................16
Section 6.3 Expenses of Rothschild Realty Inc..........................................16
Section 6.4 Fees and Expenses of Schulte Roth & Zabel LLP..............................16
ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE INVESTOR TO CLOSE
Section 7.1 Representations and Covenants..............................................17
Section 7.2 Good Standing Certificates.................................................17
Section 7.3 Governmental Permits and Approvals.........................................17
Section 7.4 Legislation................................................................17
Section 7.5 Legal Proceedings..........................................................18
Section 7.6 Third Party Consents.......................................................18
Section 7.7 Stock Certificates.........................................................18
Section 7.8 Approval of Counsel to the Investor........................................18
Section 7.9 Appointment of Director....................................................18
Section 7.10 Certificate of Designation................................................19
Section 7.11 Operating Agreement.......................................................19
Section 7.12 Opinions of Counsel.......................................................19
Section 7.13 No Stop Order.............................................................19
Section 7.14 Listing of Common Stock...................................................19
Section 7.15 Expenses of Rothschild Realty Inc.........................................19
Section 7.16 Fees and Expenses of Schulte Roth & Zabel LLP.............................19
Section 7.17 Agreement and Waiver......................................................19
Section 7.18 Dividends on Preferred Shares.............................................19
Section 7.19 Transaction Fee...........................................................19
ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO CLOSE
Section 8.1 Representations and Covenants..............................................20
Section 8.2 Governmental Permits and Approvals.........................................20
Section 8.3 Legal Proceedings..........................................................20
Section 8.4 Third Party Consents.......................................................20
Section 8.5 Purchase Price.............................................................20
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Section 8.6 Approval of Counsel to the Company.........................................20
Section 8.7 No Stop Order..............................................................21
Section 8.8 Opinion of Investor's Counsel..............................................21
ARTICLE 9 ASSIGNMENT
Section 9.1 Assignability by Investor..................................................21
Section 9.2 Assignability by the Company...............................................21
Section 9.3 Binding Agreement..........................................................21
ARTICLE 10 MISCELLANEOUS
Section 10.1 Applicable Law............................................................21
Section 10.2 Notices...................................................................21
Section 10.3 Entire Agreement; Amendments..............................................22
Section 10.4 Remedies for Breaches of This Agreement...................................22
Section 10.5 Confidentiality...........................................................24
Section 10.6 Standstill................................................................24
Section 10.7 Lock-Up...................................................................25
Section 10.8 Class A Waiver............................................................25
Section 10.9 Company Waiver............................................................25
Section 10.10 Availability Fee Waiver..................................................25
Section 10.11 Termination..............................................................25
Section 10.12 Counterparts..............................................................27
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INVESTMENT AGREEMENT
INVESTMENT AGREEMENT dated as of May 27, 1997 between Pacific
Gulf Properties Inc., a corporation organized under the laws of the State of
Maryland (the "Company") and Five Arrows Realty Securities L.L.C., a limited
liability company organized under the laws of the State of Delaware (the
"Investor").
WHEREAS, the Company wishes to issue the Preferred Shares (as
defined herein) to the Investor, and the Investor wishes to purchase, acquire
and accept the Preferred Shares from the Company (the "Investment").
NOW THEREFORE, in consideration of the promises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE 1 DEFINED TERMS.
Section 1.1 Defined Terms. The following terms shall, unless the
context otherwise requires, have the meanings set forth in this Section 1.1.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
disbursements.
"Affiliate" means, with respect to any Person, (a) any member of
the Immediate Family of such Person or a trust established for the benefit of
such member, (b) any beneficiary of a trust described in (a), (c) any Entity
which, directly or indirectly though one or more intermediaries, is deemed to be
the beneficial owner of 25% or more of the voting equity of the Person for the
purposes of Section 13(d) of the Exchange Act, (d) any officer of the Person or
any member of the Board of Directors of the Person, or (e) any Entity which,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person, including such
Person or Persons referred to in the preceding clauses (a) or (d); provided,
however, that none of the Investor, Rothschild or their respective Affiliates
nor any of their respective officers, directors, partners, members or Affiliates
nor any Preferred Director (as such term is defined in the Certificate of
Designation) shall be considered an Affiliate of the Company or its Subsidiaries
for purposes of this Agreement.
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"Agreement" means this Investment Agreement, as originally
executed and as hereafter from time to time supplemented, amended and restated.
"Agreement and Waiver" means the Agreement and Waiver, dated as
of the date of the initial Closing, between the Company and the Investor in the
form of Exhibit A attached hereto.
"Benefit Plan" means a defined benefit plan as defined in Section
3(35) of ERISA that is subject to Title IV of ERISA (other than a Multiemployer
Plan) and in respect of which the Company or any ERISA Affiliate is or within
the immediately preceding six (6) years was an "employer" as defined in Section
3(5) of ERISA.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or
Friday which is not a day in which banking institutions in New York City are
authorized or obligated by law or executive order to close.
"Certificate of Designation" means the Articles Supplementary
classifying 1,411,765 shares of preferred stock as Class B Senior Cumulative
Convertible Preferred Stock of the Company in the form of Exhibit B attached
hereto.
"Charter" means the Articles of Amendment and Restatement of the
Company as currently in effect and as amended in the future in a manner that is
not inconsistent with the terms of the Operative Instruments.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time or any successor statute thereto.
"Common Stock" means the shares of the common stock, par value
$.01 per share, of the Company.
"Confidential Information" means the identity of the Company in
the context of the Investment, the existence and contents of discussions
regarding the Investment and information concerning the assets, operations,
business, records, projections and prospects of the Company; provided, however,
that the term "Confidential Information" does not include information that (i)
is or becomes available to the public other than as a result of disclosure by
any of the Investor or Rothschild or any of their respective representatives,
(ii) was available to the Investor or Rothschild or was within the Investor's or
Rothschild's knowledge prior to its disclosure by the Company to the Investor or
Rothschild, or (iii) becomes available to the Investor or Rothschild from a
source other than the Company, provided that such source is not known by the
Investor or Rothschild to be bound by a confidentiality agreement with the
Company or its representative.
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"Entity" means any general partnership, limited partnership,
corporation, joint venture, trust, business trust, real estate investment trust,
limited liability company, cooperative or association.
"Environmental Claim" means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter or other communication from any
governmental agency, department, bureau, office or other authority, or any third
party alleging violations of Environmental Laws or Releases of Hazardous
Materials.
"Environmental Laws" means the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601 et seq., as
amended; the Resource Conservation and Recovery Act ("RCRA), 42 U.S.C. 6901 et
seq., as amended; the Clean Air Act ("CAA"), 42 U.S.C. 7401 et seq., as amended;
the Clean Water Act ("CWA"), 33 U.S.C. 1251 et seq., as amended; and any other
federal, state, local or municipal laws, statutes, regulations, rules or
ordinances imposing liability or establishing standards of conduct for
protection of the environment.
"Environmental Liabilities" means any monetary obligations,
losses, liabilities (including strict liability), damages, punitive damages,
treble damages, costs and expenses (including all reasonable out-of-pocket fees,
disbursements and expenses of counsel, reasonable out-of-pocket expert and
consulting fees and reasonable out-of-pocket costs for environmental site
assessments, remedial investigation and feasibility studies), fines, penalties,
sanctions and interest incurred as a result of any Environmental Claim filed by
any governmental authority or any third party against the Company or its
Subsidiaries or any predecessors in interest which relate to any violations of
Environmental Laws, Remedial Actions, Releases or threatened Releases of
Hazardous Materials from or onto (i) any assets, properties or businesses
presently or formerly owned by the Company, its Subsidiaries or a predecessor in
interest, or (ii) any facility which received Hazardous Materials generated by
the Company, its Subsidiaries or a predecessor in interest.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, and regulations
thereunder, in each case as in effect from time to time. References to sections
of ERISA shall be construed also to refer to any successor sections.
"ERISA Affiliate" means any (i) corporation which is a member of
the same controlled group of corporations (within the meaning of Section 414(b)
of the Code) as the Company, (ii) partnership or other trade or business
(whether or not incorporated) under common control (within the meaning of
Section 414(c) of the Code) with the Company, or (iii) member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
the Company, any corporation described in clause (i) above or any partnership or
trade or business described in clause (ii) above.
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means United States Generally Accepted Accounting
Principles, as in effect from time to time.
"Hazardous Materials" include (a) any element, compound, or
chemical that is defined, listed or otherwise classified as a contaminant,
pollutant, toxic pollutant, toxic or hazardous substances, extremely hazardous
substance or chemical, hazardous waste, medical waste, biohazardous or
infectious waste, special waste, or solid waste under Environmental Laws; (b)
petroleum, petroleum-based or petroleum-derived products; (c) electrical
equipment containing polychlorinated biphenyls at a level greater than 50 ppm;
and (d) asbestos-containing materials.
"Immediate Family" means, with respect to any Person, such
Person's spouse, parents, parents-in-law, descendants, nephews, nieces,
brothers, sisters, brothers-in-law, sisters-in-law, stepchildren, sons-in-law
and daughters-in-law.
"Lien" means and includes any lien, security interest, pledge,
charge, option, right of first refusal, claim, mortgage, lease, easement or any
other encumbrance whatsoever.
"Material Adverse Effect," when used with reference to events,
acts, failures or omissions to act, or conduct of a specified Person, means that
such events, acts, failures or omissions to act, or conduct would have a
material adverse effect on (i) the condition (financial or otherwise), earnings,
business affairs or business prospects of such Person and its consolidated
subsidiaries, considered as one enterprise, or (ii) the ability of such Person
to perform its obligations under the Operative Instruments.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA and subject to Title IV of ERISA which is, or within
the immediately preceding six (6) years was, contributed to by the Company or
any ERISA Affiliate.
"Operating Agreement" means the Operating Agreement, dated as of
the initial Closing Date, between the Company and the Investor, in the form of
Exhibit C attached hereto.
"Operative Instruments" means this Agreement, the Certificate
of Designation, and the Operating Agreement.
"Permit" means a permit, license, consent, order or approval by
any federal, state or local governmental agency.
"Person" means any individual or Entity.
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"Plan" means an employee benefit plan defined in Section 3(3) of
ERISA in respect of which the Company or any ERISA Affiliate is, or within the
immediately preceding six (6) years was, an "employer" as defined in Section
3(5) of ERISA.
"Preferred Shares" means the shares of the Company designated in
the Certificate of Designation as Class B Senior Cumulative Convertible
Preferred Stock.
"Registration Statement" means the registration statement of
the Company on Form S-3 (Registration No. 333-23611) filed with the SEC pursuant
to the Securities Act.
"REIT" means a real estate investment trust described in Code
Section 856.
"Release" means any spilling, leaking, pumping, emitting,
emptying, discharging, injecting, escaping, leaching, migrating, dumping, or
disposing of Hazardous Materials (including the abandonment or discarding of
barrels, containers or other closed receptacles containing Hazardous Materials)
into the environment.
"Remedial Action" means all actions taken to (i) clean up,
remove, remediate, contain, treat, monitor, assess, evaluate or in any other way
address Hazardous Materials in the environment as required by Environmental
Laws; (ii) prevent or minimize a Release or threatened Release of Hazardous
Materials so they do not migrate to cause substantial danger to public health or
welfare or the environment as required by 42 U.S.C. 9601; (iii) perform
pre-remedial studies and investigations and post-remedial operation and
maintenance activities as required by 42 U.S.C. 9601; or (iv) any other actions
authorized by 42 U.S.C.
9601.
"Reportable Event" means any of the events described in Section
4043(b) of ERISA (other than events for which the notice requirements have been
waived).
"Representatives" means, with respect to any Person, the
directors, officers, employees, Affiliates, representatives (including, but not
limited to, financial advisors, attorneys and accountants), agents or potential
sources of financing of such person.
"Rothschild" means Rothschild Realty Inc.
"SDAT" means the State Department of Assessment and Taxation of
Maryland.
"SEC" means the Securities and Exchange Commission or any
successor regulatory authority.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" of any Person or Entity means an Entity in which
such Person or Entity has the ability, whether by the direct or indirect
ownership of shares or other equity interests, by contract or otherwise, to
elect a majority of the directors of a corporation or the
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trustees of a real estate investment trust, to select the managing partner of a
partnership, or otherwise to select, or have the power to remove and then
select, a majority of those persons exercising governing authority over such
Entity. In the case of a limited partnership, the sole general partner, all of
the general partners to the extent each has equal management control and
authority, or the managing general partner or managing general partners thereof
shall be deemed to have control of such partnership and, in the case of a trust
other than a real estate investment trust, any trustee thereof or any Person
having the right to select any such trustee shall be deemed to have control of
such trust.
"Termination Event" means (i) a Reportable Event with respect to
any Benefit Plan (with respect to which the 30 day notice requirement has not
been waived); (ii) the withdrawal of the Company or any ERISA Affiliate from a
Benefit Plan during a plan year in which the Company or any ERISA Affiliate was
a "substantial employer" as defined in Section 4001(a)(2) of ERISA; (iii)
providing a written notice of intent to terminate a Benefit Plan to affected
parties of a distress termination described in Section 4041(c) of ERISA; or (iv)
the institution by the PBGC of proceedings to terminate a Benefit Plan.
Section 1.2 Terms Defined Herein. In addition to the terms
defined in Section 1.1 above, the following terms shall, unless the context
otherwise requires, have the meanings set forth in this Agreement in the section
set forth next to such term.
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Defined Term Section
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Accredited Investor.......................................5.2
Breach....................................................4.20
Closing...................................................2.1
Excess Stock..............................................4.10
Indemnified Party.........................................10.4.3
Indemnifying Party........................................10.4.3
Liabilities...............................................4.18
1996 10-K.................................................4.2
1997 Proxy Statement......................................4.9
Preferred Stock...........................................4.10
Purchase Price............................................2.1
Third Party Claim.........................................10.4.3
Transaction Fee...........................................6.2
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ARTICLE 2 SALE AND PURCHASE OF PREFERRED SHARES.
Section 2.1 Sale of Preferred Shares. At the closings provided
for in Article 3 hereof (each a "Closing"): (i) the Company shall issue and sell
an aggregate of 1,411,765
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Preferred Shares to the Investor, and shall deliver to the Investor a stock
certificate or certificates representing all of the Preferred Shares, registered
in the Investor's or its nominee's name; and (ii) the Investor shall purchase,
acquire and accept such Preferred Shares for $21.25 per share (the "Purchase
Price") or an aggregate of approximately thirty million dollars
($30,000,000.00).
Section 2.2 Payment for the Preferred Shares.
At the Closings and in accordance with the provisions set forth
in Article 3, the Purchase Price shall be paid by the Investor to the Company in
United States dollars by wire transfer of funds immediately available in New
York City to such account(s) as the Company shall designate in a written notice
delivered to the Investor not less than five (5) Business Days prior to the
applicable Closing Date.
Section 2.3 Transfer Taxes. The Company shall pay all stock
transfer taxes, recording fees and other sales, transfer, use, purchase or
similar taxes resulting from the Investment.
ARTICLE 3 CLOSINGS.
Section 3.1 Closings. The Company shall be entitled to
designate up to three Closings, the first two of which shall provide for at
least 235,294 Preferred Shares each, and the last of which shall provide for the
remaining Preferred Shares. Each Closing of the sale and purchase of the
Preferred Shares shall take place at the offices of Schulte Roth & Zabel LLP,
900 Third Avenue, New York, New York 10022 at 10:00 a.m. New York City time.
Section 3.2 Closing Dates. Each Closing shall occur on such
date as the Company notifies the Investor on not less than ten (10) Business
Days notice or at such other time as the Company and the Investor mutually agree
in writing (each, a "Closing Date"); provided, however, that if the sale of all
of the Preferred Shares as provided for herein shall not have occurred before
December 31, 1997, the Closing for such Preferred Shares as shall not have
previously been so sold shall occur on December 31, 1997.
Section 3.3 Cancellation of Subsequent Closings. In the event
that a Change of Control or a Put Event (each as defined in the Certificate of
Designation) occurs after any Closing Date, but prior to the sale by the Company
to the Investor of all 1,411,765 Preferred Shares to be sold pursuant to this
Agreement, and the Investor notifies the Company that it will tender into the
Put Offer (as defined in the Certificate of Designation) any further Closings
shall be canceled and the Company shall immediately pay to the Investor by wire
transfer in immediately available funds an amount equal to the product of (i)
$0.425 and (ii) the difference between (x) 1,411,765 and (y) the number of
Preferred Shares which the Company has sold to the Investor pursuant to this
Agreement prior to the occurrence of such Change of Control.
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Investor as
follows:
Section 4.1 Due Incorporation and Status of the Company.
Section 4.1.1 Due Incorporation. The Company and each of
its Subsidiaries has been duly incorporated and is validly existing and in good
standing under the laws of the state of their respective organization and are
qualified or licensed, and in good standing, as a foreign corporation authorized
to do business in each other jurisdiction in which its ownership of properties
or its conduct of business requires such qualification or licensing, except
where the failure to be so qualified or licensed, or in good standing, as a
foreign corporation would not have a Material Adverse Effect on the Company.
Section 4.1.2 REIT Status. As of the date hereof, the
Company qualifies as a REIT under the Code and has taken no action or omitted to
take any action, the effect of which reasonably could be expected to disqualify
the Company as a REIT under the Code.
Section 4.2 Authority. The Company has the power and authority to
own, lease and operate its properties, directly or indirectly, and to conduct
its business as presently conducted and as contemplated by the Annual Report on
Form 10-K, as amended, as filed by the Company under the Exchange Act for the
year ended December 31, 1996 (the "1996 10-K").
Section 4.3 Valid Agreement of the Company. The execution,
delivery and performance of this Agreement, the Operating Agreement and the
Agreement and Waiver have each been duly authorized by the Company. This
Agreement has been, and the Operating Agreement and Agreement and Waiver, upon
the Closing, will be executed and delivered by the Company. This Agreement
represents and the Operating Agreement and Agreement and Waiver, upon the
Closing will represent, the valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
enforcement is sought by proceedings in equity or at law).
Section 4.4 No Default. The execution and delivery of the
Operative Instruments by the Company and the performance by the Company of its
obligations do not (or if not yet executed, upon the execution and delivery
thereof will not) (a) violate the Charter or By-Laws of the Company; (b) violate
or constitute a breach of or default under any mortgage, indenture, loan
agreement, promissory note or other agreement to which the Company or any of its
Subsidiaries is a party, or by which any of them is bound, or to which any
property of the Company or any of its Subsidiaries is subject; or (c) conflict
with or violate any law or any regulation, rule, order or decree of any
governmental body, court or administrative agency having jurisdiction over the
Company or any of its Subsidiaries or the properties of any of them; except, in
the case of clauses (b) and (c) above, for such breaches, defaults, conflicts or
violations
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which would not, individually or in the aggregate, have a Material Adverse
Effect on the Company or on the ability of the Company to consummate the
transactions contemplated hereby.
Section 4.5 No Required Consents. The execution and delivery of
the Operative Instruments by the Company and the performance by the Company of
its obligations to be performed at or prior to the related Closing do not
require any filing or registration with, or the receipt of any consent by, any
governmental or regulatory authority by the Company or its Subsidiaries other
than (a) any which have already been obtained or waived and (b) such consents as
may be required under the Securities Act, the regulations promulgated thereunder
or applicable state securities laws.
Section 4.6 Reservation of Shares . The Company has duly reserved
solely for purposes of issuance upon conversion of the Preferred Shares the
shares of Common Stock into which the Preferred Shares may be converted from
time to time.
Section 4.7 Validity of Preferred Shares. The Company has duly
authorized the issuance and delivery of 1,411,765 shares of Preferred Stock
pursuant to this Agreement and, upon delivery thereof and receipt by the Company
of the Purchase Price therefor, such shares of Preferred Stock will be duly
authorized, validly issued, fully paid and nonassessable. The Preferred Shares
have the dividend, conversion, voting and other terms set forth in the
Certificate of Designation and, to the extent not inconsistent therewith, as set
forth in the Charter and By-Laws of the Company and the Maryland General
Corporation Law.
Section 4.8 Transferability. Upon the issuance and sale of the
Preferred Shares by the Company to the Investor pursuant to this Agreement, the
Preferred Shares shall be fully-registered shares under the Securities Act.
Except to the extent that the Investor is deemed to be an affiliate (as defined
in the Exchange Act), upon such issuance and sale and subject to the
restrictions on transfer set forth in the Certificate of Designation (as
modified by the Agreement and Waiver) such Preferred Shares shall be freely
transferable by the Investor without the requirement that (i) such Preferred
Shares be registered or qualified pursuant to any federal law or (ii) the
Investor comply with the prospectus delivery requirements of the Securities Act.
Upon the conversion of the Preferred Shares into shares of Common Stock,
pursuant to the provisions of the Certificate of Designation, such shares of
Common Stock shall be fully-registered shares under the Securities Act. Upon
such conversion, and subject to the restrictions on transferability set forth in
the Charter, such shares of Common Stock shall be freely transferable by the
Investor without the requirement that (i) such shares of Common Stock be
registered or qualified pursuant to any federal law or (ii) the Investor comply
with the prospectus delivery requirements of the Securities Act.
Section 4.9 Disclosure. The Company has heretofore delivered to
the Investor the Proxy Statement relating to its 1997 Annual Meeting of
Shareholders (the "1997 Proxy Statement") and the 1996 10-K.
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Section 4.9.1 No Misstatement or Omission. At the time
of filing, the 1997 Proxy Statement and the 1996 10-K complied in all material
respects with the requirements of the Exchange Act and the rules and regulations
promulgated by the SEC thereunder. The 1997 Proxy Statement and the 1996 10-K do
not, as of their respective dates, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made, in light of the circumstances under which
they were made, not misleading.
Section 4.9.2 Financial Statements. The financial
statements, including the notes thereto, and supporting schedules included in
the 1996 10-K have been prepared in conformity with GAAP applied on a consistent
basis (except as otherwise noted therein) and present fairly the financial
position of the Company and its Subsidiaries as of the dates indicated and the
results of their operations for the periods shown.
Section 4.9.3 Subsequent Events. Since the respective
dates as of which information is given in the 1996 10-K, except as otherwise
stated therein, in any Current Report on Form 8-K filed by the Company or in the
press releases listed on Schedule 4.9.3 hereto and other than changes in general
economic conditions or industry conditions, there has not been any change in the
condition (financial or otherwise) or in the earnings, business affairs or
business prospects of the Company and its Subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business which
would have a Material Adverse Effect on the Company.
Section 4.10 Capitalization. The authorized capital stock of the
Company consists of: (i) 25,000,000 shares of Common Stock; (ii) 5,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock"); and
(iii) 30,000,000 shares of excess stock, par value $.01 per share (the "Excess
Stock"). As of May 8, 1997, (i) 12,129,753, 270,270, and 0 shares of the Common
Stock, the Preferred Stock and the Excess Stock, respectively, were validly
issued and outstanding, fully paid and nonassessable; and (ii) 3,149,797,
1,081,081, and 0 shares of the Common Stock, the Preferred Stock and the Excess
Stock, respectively, were reserved for issuance as set forth on Schedule 4.10
hereto. Except as contemplated by clauses (i) through (ii) of this Section 4.10
or as set forth on Schedule 4.10 hereto, there are no other shares of capital
stock of the Company outstanding and no other outstanding options, warrants,
convertible or exchangeable securities, subscriptions, rights (including
preemptive rights), stock appreciation rights, calls or commitments of any
character whatsoever to which the Company is a party or may be bound requiring
the issuance or sale of shares of any capital stock of the Company, and there
are no contracts or other agreements by which the Company is or may become bound
to issue additional shares of its capital stock or any options, warrants,
convertible or exchangeable securities, subscriptions, rights (including
preemptive rights), stock appreciation rights, calls or commitments of any
character whatsoever relating to such shares.
Section 4.11 Litigation. Except as set forth on Schedule 4.11 or
in the 1996 10-K, the Company has not received any notice of any outstanding
judgments, rulings, orders,
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writs, injunctions, awards or decrees of any court or any foreign, federal,
state, county or local government or any other governmental, regulatory or
administrative agency or authority or arbitral tribunal against or involving the
Company or any of its Subsidiaries which is currently in effect. Neither the
Company nor any of its Subsidiaries is a party to, or to the knowledge of the
Company, threatened with, any litigation or judicial, governmental, regulatory,
administrative or arbitration proceeding which, if decided adversely to their
respective interests could have an adverse effect upon the transactions
contemplated hereby or that could reasonably be expected to have a Material
Adverse Effect on the Company.
Section 4.12 ERISA. (i) Each Plan is in substantial compliance
with the applicable provisions of ERISA and the Code, (ii) no Termination Event
has occurred nor is reasonably expected to occur with respect to any Benefit
Plan, (iii) the most recent annual report (Form 5500 Series) with respect to
each Plan, including Schedule B (Actuarial Information) thereto, copies of which
have been filed with the Internal Revenue Service, is complete and correct in
all material respects and fairly presents the funding status of such Benefit
Plan, and since the date of such report there has been no material adverse
change in such funding status, (iv) no Benefit Plan had an accumulated (whether
or not waived) funding deficiency or permitted decreases which would create a
deficiency in its funding standard account within the meaning of Section 412 of
the Code at any time during the previous 60 months, and (v) no Lien imposed
under the Code or ERISA exists or is likely to arise on account of any Benefit
Plan within the meaning of Section 412 of the Code. Neither the Company nor any
of its ERISA Affiliates has incurred any withdrawal liability under ERISA with
respect to any Multiemployer Plan, and the Company is not aware of any facts
indicating that the Company or any of its ERISA Affiliates may in the future
incur any such withdrawal liability. Except as required by Section 4980B of the
Code, the Company does not maintain a welfare plan (as defined in Section 3(1)
of ERISA) which provides benefits or coverage after a participant's termination
of employment. Neither the Company nor any of its ERISA Affiliates have incurred
any liability under the Worker Adjustment and Retraining Notification Act. All
Plans in existence on the Closing Date are set forth on Schedule 4.12 hereto.
Section 4.13 Environmental Matters. Except as set forth in
Schedule 4.13 hereto, to the best knowledge of the Company and its Subsidiaries:
(a) The operations and properties of the Company and its
Subsidiaries are in full compliance with Environmental Laws except to the extent
that any failure to comply is not reasonably expected to have a Material Adverse
Effect on the business of the Company or its Subsidiaries taken as a whole or
any predecessor in interest;
(b) There has been no Release (i) at any assets, properties or
businesses currently owned or operated by the Company, any of its Subsidiaries
or any predecessor in interest; (ii) from adjoining properties or businesses; or
(iii) from or onto any facilities which received Hazardous Materials generated
by the Company, any of its Subsidiaries or any predecessor in interest that
would result in any Environmental Liabilities except to the extent that any such
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Release is not reasonably expected to have a Material Adverse Effect on the
business of the Company or its Subsidiaries taken as a whole or any predecessor
in interest;
(c) No Environmental Claims have been asserted against the
Company, any of its Subsidiaries or any predecessor in interest nor does the
Company or any of its Subsidiaries have knowledge or notice of any threatened or
pending Environmental Claims except to the extent that any such Environmental
Claims are not reasonably expected to have a Material Adverse Effect on the
business of the Company or its Subsidiaries taken as a whole or any predecessor
in interest;
(d) No Environmental Claims have been asserted against any
facilities that may have received Hazardous Materials generated by the Company,
any of its Subsidiaries or any predecessor in interest except to the extent that
any such Environmental Claims are not reasonably expected to have a Material
Adverse Effect on the business of the Company or its Subsidiaries taken as a
whole or any predecessor in interest;
(e) The Company has delivered to the Investor true and correct
copies of all Phase I Environmental Assessments, material environmental reports,
studies or investigations in their possession regarding any Environmental
Liabilities at the assets, properties or businesses of the Company or any of its
Subsidiaries; and
(f) To the extent that any of the assets, properties or
businesses owned or operated by the Company or any of its Subsidiaries are
located in "wetlands" regulated under Environmental Laws the Company and its
Subsidiaries are in compliance with Environmental Laws regulating those
"wetlands" except to the extent that any such failure to comply is not
reasonably expected to have a Material Adverse Effect on the business of the
Company or its Subsidiaries taken as a whole or any predecessor in interest.
Section 4.14 Investment Company. The Company is not, and upon the
issuance and sale of the Preferred Shares as herein contemplated will not be, an
"investment company" or an Entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended.
Section 4.15 Taxes. The Company has filed all federal, state,
local or foreign tax returns that are required to be filed or has duly requested
extensions thereof and has paid all taxes required to be paid by it and any
related assessments, fines or penalties, except for any such tax, assessment,
fine or penalty that is being contested in good faith and by appropriate
proceedings or where the failure to make any such filing or payment would not be
reasonably expected to have a Material Adverse Effect on the Company; and
adequate charges, accruals and reserves have been provided for in the financial
statements of the Company in respect of all material federal, state, local and
foreign taxes for all periods as to which the tax liability of the Company has
not been finally determined or remains open to examination by applicable taxing
authorities. The Company is not currently under review by any federal or state
taxing authority.
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Section 4.16 Insurance. The Company carries or is entitled to the
benefits of insurance in such amounts and covering such risks as is reasonably
sufficient under the circumstances and is consistent with comparable businesses
and all such insurance is in full force and effect.
Section 4.17 Affiliated Transactions. Except as set forth on
Schedule 4.17 or as disclosed in the 1996 10-K or the 1997 Proxy Statement
describe all transactions with, or payments to, any Affiliate in excess of
$60,000 in the aggregate (other than reimbursement of expenses and compensation
payable to employees or officers or directors' fees payable to the Company's
directors). Neither the Company, nor any officer or director of the Company, nor
any of its Subsidiaries, or any Affiliate of any of the foregoing, or any member
of the Immediate Family of any of the foregoing: (i) owns, directly or
indirectly, any interest in (excepting not more than five (5) percent stock
holdings held solely for investment purposes in securities of any Person which
are listed on any national securities exchange or regularly traded in the
over-the-counter market) or is an owner, sole proprietor, shareholder, partner,
director, officer, employee, consultant or agent of any person which is a
competitor, lessor, lessee, customer or supplier of the Company or any of its
Subsidiaries; (ii) owns, directly or indirectly, in whole or in part, any
property, patent, trademark, service mark, trade name, copyright, franchise,
invention, permit, license or secret or confidential information which the
Company or any of its Subsidiaries is using or the use of which is necessary for
the business of the Company or any of its Subsidiaries; or (iii) has any cause
of action or other suit, action or claim whatsoever against, or owes any amount
to, the Company or any of its Subsidiaries, in each case (i) through (iii)
except for those in the ordinary course of business.
Section 4.18 Liabilities. Except as set forth on Schedule 4.18,
the Company and its Subsidiaries do not have any material direct or indirect
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, subordinated or unsubordinated, matured or
unmatured, accrued, absolute, contingent or otherwise, including, without
limitation, liabilities on account of taxes, other governmental, regulatory or
administrative charges or lawsuits brought, whether or not of a kind required by
GAAP to be set forth on a financial statement (collectively, "Liabilities"),
that were not fully and adequately reflected or reserved against on the Balance
Sheet of the Company (less Liabilities that have been discharged in the ordinary
course of business since the date of the Balance Sheet of the Company).
Section 4.19 Agreement and Waiver. The Board of Directors of the
Company has approved the provisions of the Agreement and Waiver.
Section 4.20 No Event of Default. No event has occurred and is
continuing and no condition exists which constitutes a breach, an event of
default, or otherwise gives any other party the rights to accelerate or require
payment of any obligation, or with the passage of time would constitute such an
event (a "Breach"), under any agreement or instrument to which the Company or
any of its Subsidiaries is a party that could reasonably be expected to have a
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Material Adverse Effect on the Company. Neither the Company nor any of its
Subsidiaries has received any notice that an event has occurred and is
continuing or that a condition exists which constitutes a Breach under any
agreement or instrument to which the Company or any of its Subsidiaries is a
party that could reasonably be expected to have a Material Adverse Effect on the
Company.
Section 4.21 No Brokers. In connection with the Investment, the
Company has not retained or become obligated to any broker or finder other than
Bear, Stearns & Co.
Inc.
Section 4.22 Bear, Stearns & Co. Inc. The Company agrees that
Bear, Stearns & Co. Inc. has acted on behalf of the Company in connection with
the issuance and sale of Preferred Shares by the Company to the Investor and the
Company shall be solely responsible for any payments to Bear, Stearns & Co. Inc.
in connection therewith.
Section 4.23 Full Disclosure. All documents and other papers
delivered to the Investor by or on behalf of the Company in connection with this
Agreement and the transactions contemplated hereby are true, complete, accurate
and authentic and, when taken together with the Company's representations and
warranties set forth in this Agreement, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
In order to induce the Company to enter into this Agreement and
to consummate the transactions contemplated hereby, the Investor hereby
represents and warrants to, and covenants with, the Company as follows:
Section 5.1 Organization. The Investor has been duly organized
and is validly existing and in good standing under the laws of the State of
Delaware, and has all requisite power and authority under such laws to carry on
its business as now conducted.
Section 5.2 Accredited Investor. The Investor is an "Accredited
Investor," as such term is defined in Rule 501(a) of Regulation D promulgated
under the Securities Act.
Section 5.3 Valid Agreements of the Investor. The Investor has
all right, power and authority to enter into this Agreement and the Operating
Agreement and to consummate the transactions contemplated hereby and thereby.
All action on the part of the Investor, its officers, managers and members
necessary for the authorization, execution and delivery of the Operative
Agreements and the performance of all obligations of the Investor hereunder have
been taken or will be taken prior to the Closing. Each of the Operative
Instruments to which the Investor is a party has each been duly authorized,
executed and delivered by the Investor, and constitutes a legal, valid and
binding obligation of the Investor,
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enforceable against the Investor in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
enforcement is sought by proceedings in equity or at law).
Section 5.4 No Default. The execution and delivery of this
Agreement and the Operating Agreement by the Investor and the performance by the
Investor of its obligations thereunder do not (or if not yet executed, upon the
execution and delivery thereof will not) (a) violate the organizational
documents of the Investor; (b) violate or constitute a breach of or default
under any mortgage, indenture, loan agreement, promissory note or other
agreement to which the Investor is a party, or by which the Investor is bound,
or to which any property of the Investor is subject; or (c) conflict with or
violate any law or any regulation, rule, order or decree of any governmental
body, court or administrative agency having jurisdiction over the Investor or
its properties except with respect to clauses (b) and (c) where such conflict,
breach, default or violation would not reasonably be expected to have a Material
Adverse Effect on the Investor.
Section 5.5 Opportunity for Inquiry. The Investor has had a
reasonable opportunity to ask questions of and receive answers from
representatives of the Company regarding the business, management and financial
affairs of the Company; it being understood that no inquiry or investigation
shall affect the Investor's ability to rely on any representation or warranty of
the Company or the conditions to the obligations of the Investor under this
Agreement.
Section 5.6 Purchase Entirely for Own Account. The Preferred
Shares will be acquired for investment for the Investor's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the Securities Act.
Section 5.7 Materials. The Investor acknowledges that all
documents, agreements, instruments, records, and books that it has requested
pertaining to the Company and its businesses and financial affairs, have been
made available to the Investor and the Investor's attorneys, accountants and
advisors for inspection.
Section 5.8 Knowledge and Experience. The Investor has such
knowledge and experience in financial and business matters that the Investor is
capable of evaluating the merits and risks involved in connection with the
Investment.
Section 5.9 No Brokers. In connection with the Investment, the
Investor has not retained or become obligated to any broker or finder.
Section 5.10 Investment Company. The Investor is not, and upon
the purchase of the Preferred Shares as herein contemplated, will not be, an
"investment company" or an Entity "controlled" by and "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended.
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ARTICLE 6 COVENANTS AND UNDERTAKINGS.
Section 6.1 Closings. The Company shall use its best efforts to
comply with all conditions precedent to the Closings, including, without
limiting the foregoing, the Company shall cause the Certificate of Designation
to have been adopted, filed with the SDAT and become effective.
Section 6.2 Transaction Fee. The Company agrees to pay to
Rothschild at each Closing a transaction fee of $0.75 per Preferred Share issued
at such Closing (the "Transaction Fee"). The Transaction Fee payable at each
Closing pursuant to this Section 6.2 shall be paid by wire transfer of funds
immediately available to such account(s) as Rothschild shall designate in a
written notice delivered to the Company not less than two Business Days prior to
such Closing Date; provided, however, that the Investor, on behalf of the
Company, may directly pay the Transaction Fee out of the Purchase Price payable
hereunder at each Closing.
Section 6.3 Expenses of Rothschild Realty Inc. Except as set
forth in Section 6.4, the Company agrees to reimburse Rothschild at each Closing
for its reasonable out-of-pocket expenses documented to the reasonable
satisfaction of the Company. All such amounts paid pursuant to this Section 6.3
shall be paid by wire transfer of funds immediately available in New York City
to such account(s) as Rothschild shall designate in a written notice delivered
to the Company not less than two Business Days prior to the initial Closing
Date; provided, however, that the Investor, on behalf of the Company, may
directly pay out of the Purchase Price payable hereunder such fees and expenses
to Rothschild; provided, further, that the aggregate of all such expenses
including, without limitation, the fees and expenses of Schulte Roth & Zabel LLP
provided for in Section 6.4 hereof, shall not exceed $35,000 through the initial
Closing Date and $20,000 (plus any amount of the $35,000 remaining) through any
subsequent Closing Dates, if applicable (such limitation shall not apply to the
fees and expenses of the Investor, including the fees and expenses of Schulte
Roth & Zabel LLP, in connection with any amendments or supplements to the
Operative Instruments, the reasonable costs and expenses of which shall be paid
by the Company).
Section 6.4 Fees and Expenses of Schulte Roth & Zabel LLP.
Subject to the limitation set forth in Section 6.3, the Company agrees to pay to
Schulte Roth & Zabel LLP, counsel to the Investor, at each Closing reasonable
fees and expenses in connection with services rendered and expenses incurred in
connection with the issuance and sale of Preferred Shares to the Investor. All
such amounts paid pursuant to this Section 6.4 shall be paid by wire transfer of
funds immediately available in New York City to such account(s) as Schulte Roth
& Zabel LLP shall designate in a written notice delivered to the Company not
less than two Business Days prior to each Closing Date; provided, however, that
the Investor, on behalf of the Company, may directly pay out of the Purchase
Price hereunder such fees and expenses to Schulte Roth & Zabel LLP.
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ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATION
OF THE INVESTOR TO CLOSE
The obligation of the Investor to complete each Closing is subject, at
its option, to the fulfillment on or prior to the related Closing Date (unless
otherwise provided) the following conditions, any one (1) or more of which may
be waived by it in its sole discretion:
Section 7.1 Representations and Covenants. The representations
and warranties of the Company contained in this Agreement shall be true,
complete and accurate in all material respects on and as of the related Closing
Date with the same force and effect as though made on and as of the related
Closing Date, except for changes contemplated or permitted by this Agreement and
except to the extent that any representation or warranty is made as of a
specified date, in which case, such representation and warranty shall be true
and correct in all material respects as of such date. The Company shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by the
Company on or prior to the related Closing Date. The Company shall have
delivered to the Investor a certificate, dated the related Closing Date and
signed by the President and Chief Financial Officer of the Company, to the
foregoing effect and stating that all conditions to the Investor's obligations
hereunder have been satisfied.
Section 7.2 Good Standing Certificates. The Company shall have
delivered to the Investor: (i) copies of its Charter, including all amendments
thereto, certified by the SDAT; (ii) a certificate from the SDAT to the effect
that the Company is in good standing and subsisting in such jurisdiction and
listing all charter documents of the Company on file in such state; (iii) a
certificate from the Secretary of State or other appropriate official in each
State in which the Company is qualified to do business to the effect that the
Company is in good standing in such State; and (iv) a certificate as to the Tax
status of the Company from the appropriate official in its Maryland and each
State in which the Company is qualified to do business, in each case, dated as
of a date within reasonable proximity to the related Closing Date.
Section 7.3 Governmental Permits and Approvals. Any and all
Permits necessary for the consummation of the transactions contemplated hereby
shall have been obtained and a copy thereof shall have been delivered to the
Investor; except for (a) notice requirements which may be fulfilled subsequent
to the Closing Date and (b) consents, permits, approvals, authorizations,
filings and declarations the failure to obtain or to undertake which will not
adversely affect the ability of the Company to perform its obligations under the
Operative Agreements or any agreement executed in accordance therewith or would
not have a Material Adverse Effect on the Company or its Subsidiaries.
Section 7.4 Legislation. No legislation shall have been proposed,
and approved by a legislative committee, or enacted, and no statute, law,
ordinance, code, rule or regulation shall have been adopted, revised or
interpreted, by any foreign, federal, state, county or local government or any
other governmental, regulatory or administrative agency or authority,
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which would require, upon or as a condition to the acquisition of the Preferred
Shares by the Investor, the divestiture or cessation of the conduct of any
business presently conducted by the Company, on the one hand, or by the
Investor, on the other hand, or which, in the good faith judgment of the
Investor, may, individually or in the aggregate, have a Material Adverse Effect
on it or on the Company in the event that the transactions contemplated hereby
are consummated.
Section 7.5 Legal Proceedings. No suit, action, claim,
proceeding or investigation shall have been instituted or threatened by or
before any court or any foreign, federal, state, county or local government or
any other governmental, regulatory or administrative agency or authority seeking
to restrain, prohibit or invalidate the issuance or sale of the Preferred Shares
to the Investor hereunder or the consummation of the transactions contemplated
hereby or to seek damages in connection with such transactions.
Section 7.6 Third Party Consents. All consents, waivers,
licenses, variances, exemptions, franchises, permits, approvals and
authorizations from parties to any contracts and other agreements (including any
amendments and modifications thereto) with the Company which may be required in
connection with the performance by the Company of its obligations under this
Agreement or to assure such contracts and other agreements continue in full
force and effect after the consummation of the transactions contemplated hereby
(without any Breach by the Company or any of its Subsidiaries) shall have been
obtained.
Section 7.7 Stock Certificates. The Company shall have
tendered to the Investor the stock certificate or certificates representing the
Preferred Shares to be purchased on such Closing Date in accordance with Section
3.1 hereof, registered in the Investor's name.
Section 7.8 Approval of Counsel to the Investor. The Company
shall furnish to counsel for the Investor such certificates and documents as may
reasonably be requested by counsel to the Investor to enable such counsel to
pass on or evaluate the satisfaction of the conditions set forth in this Article
7. All actions and proceedings hereunder and all documents and other papers
required to be delivered by the Company hereunder or in connection with the
consummation of the transactions contemplated hereby, and all other related
matters, shall have been reasonably approved by Schulte Roth & Zabel LLP,
counsel to the Investor, as to their form and substance.
Section 7.9 Appointment of Director. Prior to or concurrent
with the initial Closing, the nominee designated by the Investor as a director
of the Company shall have been elected and qualified to become a member of the
Board of Directors of the Company (or be continuing to serve as a member of the
Board of Directors of the Company pursuant to the Investment Agreement dated
December 31, 1996 between the Company and the Investor), and prior to and
concurrent with any second Closing or third Closing, the nominee designated by
the Investor as a director of the Company shall be continuing to serve as a
member of the Board of Directors of the Company; provided, however, that the
Company shall have the right to approve any such nominee designated by the
Investor in its reasonable discretion, it being agreed that
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John D. McGurk, James E. Quigley 3rd, Matthew W. Kaplan, and D. Pike Aloian
shall be deemed to have been approved by the Company for all purposes hereunder.
Section 7.10 Certificate of Designation. The Certificate of
Designation shall be effective.
Section 7.11 Operating Agreement. The Company shall have
executed and delivered to the Investor the Operating Agreement.
Section 7.12 Opinions of Counsel. The Investor shall have
received favorable opinion letters, dated as of the related Closing Date, from
Gibson, Dunn & Crutcher LLP and Piper & Marbury L.L.P. to the effect of the
matters contained in Exhibit D and Exhibit E, respectively.
Section 7.13 No Stop Order. On the related Closing Date, no
stop order suspending the effectiveness of the Company's Registration Statement
shall have been issued under the Securities Act or proceedings therefor
initiated or threatened by the SEC.
Section 7.14 Listing of Common Stock. The Common Stock issuable
upon conversion of the Preferred Shares shall have been approved for listing on
the New York Stock Exchange.
Section 7.15 Expenses of Rothschild Realty Inc. Rothschild
shall have been reimbursed for the expenses to be paid by the Company as
described under Section 6.3.
Section 7.16 Fees and Expenses of Schulte Roth & Zabel LLP.
Provided that Schulte Roth & Zabel LLP shall have provided to the Company a copy
of its invoice and daily activity log for services rendered and expenses
incurred at least three (3) days prior to the related Closing, Schulte Roth &
Zabel LLP shall have received the fees and disbursements to be paid by the
Company as described under Section 6.4.
Section 7.17 Agreement and Waiver. The Company shall have
executed and delivered to the Investor the Agreement and Waiver.
Section 7.18 Dividends on Preferred Shares. All accrued and
unpaid dividends, whether or not declared, have been paid to, or made available
for payment to, the holders of the Preferred Shares.
Section 7.19 Transaction Fee. Rothschild shall have been paid
the Transaction Fee to be paid by the Company as described under Section 6.2.
-19-
<PAGE> 24
ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATION OF
THE COMPANY TO CLOSE
The obligation of the Company to complete each Closing is subject, at
its option, to the fulfillment on or prior to the related Closing Date of the
following conditions, any one (1) or more of which may be waived it in its sole
discretion:
Section 8.1 Representations and Covenants. The representations
and warranties of the Investor contained in this Agreement shall be true,
complete and accurate in all material respects on and as of the related Closing
Date with the same force and effect as though made on and as of the related
Closing Date, except for changes contemplated or permitted by this Agreement and
except to the extent that any representation or warranty is made as of a
specified date, in which case, such representation and warranty shall be true,
complete and accurate in all material respects as of such date. The Investor
shall have performed and complied in all material respects with all covenants
and agreements required by this Agreement to be performed or complied with by it
on or prior to the related Closing Date. The Investor shall have delivered to
the Company a certificate, dated the related Closing Date and signed by an
officer of the Investor to the foregoing effect and stating that all conditions
to the Company's obligations hereunder have been satisfied.
Section 8.2 Governmental Permits and Approvals. Any and all
Permits necessary for the consummation of the transactions contemplated hereby
shall have been obtained.
Section 8.3 Legal Proceedings. No suit, action, claim, proceeding
or investigation shall have been instituted or threatened before any court or
any foreign, federal, state, county or local government or any other
governmental, regulatory or administrative agency or authority seeking to
restrain, prohibit or invalidate the sale of the Preferred Shares to the
Investor hereunder or the consummation of the transactions contemplated hereby
or to seek damages in connection with such transactions.
Section 8.4 Third Party Consents. All consents, waivers,
licenses, variances, exemptions, franchises, permits, approvals and
authorizations from parties to any contracts and other agreements (including any
amendments and modifications thereto) with the Investor which may be required in
connection with the performance by the Investor of its obligations under this
Agreement shall have been obtained.
Section 8.5 Purchase Price. The Investor shall have tendered
payment for the Preferred Shares in the amount and in the manner specified in
Section 3.1 hereof.
Section 8.6 Approval of Counsel to the Company. The Investor
shall furnish to counsel for the Company such certificates and documents as may
reasonably be requested by counsel to the Company to enable such counsel to pass
on or evaluate the satisfaction of the conditions set forth in this Article 8.
All actions and proceedings hereunder and all documents or
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<PAGE> 25
other papers required to be delivered by the Investor hereunder or in connection
with the consummation of the transactions contemplated hereby, and all other
related matters, shall be subject to the reasonable approval of Gibson, Dunn &
Crutcher LLP, counsel to the Company, as to their form and substance.
Section 8.7 No Stop Order. On the Closing Date, no stop order
suspending the effectiveness of the Company's Registration Statement shall have
been issued under the Securities Act or proceedings therefor initiated or
threatened by the SEC.
Section 8.8 Opinion of Investor's Counsel. The Company shall
have received from Schulte Roth & Zabel LLP, counsel for the Investor, an
opinion dated the Closing Date, in substantially the form of Exhibit F hereto.
ARTICLE 9 ASSIGNMENT.
Section 9.1 Assignability by Investor. Subject to the terms of
the Agreement and Waiver, the Investor may, without the consent or approval of
the Company, assign its rights and obligations under this Agreement to a Person
to whom the Investor assigns its interest in the Preferred Shares, pro rata
based upon the percentage of Preferred Shares transferred, provided that such
assignee agrees in writing to be bound by the terms of this Agreement.
Section 9.2 Assignability by the Company. Without the prior
written consent of the Investor, in the sole and absolute discretion of the
Investor, the Company may not assign or delegate its rights or obligations
hereunder.
Section 9.3 Binding Agreement. Subject to the provisions of
Sections 9.1 and 9.2, this Agreement shall be binding upon the heirs, successors
and assigns of the parties.
ARTICLE 10 MISCELLANEOUS.
Section 10.1 Applicable Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York as applied
between residents of that State entering into contracts to be performed wholly
within that State.
Section 10.2 Notices. All notices hereunder shall be in writing
and shall be given: (a) if to the Company, at 363 San Miguel Drive, Newport
Beach, California 92660-7805, Attention: President, or such other address or
addresses of which the Investor shall have been given notice, with copies to
Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, California
90071-3197, Attention: Dhiya El-Saden, Esq., or such other address of which the
Investor shall have been given notice; and (b) if to the Investor, at Rothschild
Realty Inc., 1251 Avenue of the Americas, New York, New York 10020, Attn:
Matthew Kaplan, or such other address of which the Company shall have been given
notice, with copies to Schulte
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<PAGE> 26
Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022, Attention: Andre
Weiss, Esq., or such other address of which the Company shall have been given
notice. Any notice shall be deemed to have been given if personally delivered or
sent by United States mail or by commercial courier or delivery service or by
telegram or telex and shall be deemed received, unless earlier received, (i) if
sent by certified or registered mail, return receipt requested, three business
days after deposit in the mail, postage prepaid, (ii) if sent by United States
Express Mail or by commercial courier or delivery service, one Business Day
after delivery to a United States Post Office or delivery service, postage
prepaid, (iii) if sent by telegram, telex or facsimile transmission, when
receipt is acknowledged by answerback, and (iv) if delivered by hand, on the
date of receipt.
Section 10.3 Entire Agreement; Amendments. This Agreement and
other agreements referred to herein set forth the entire understanding of the
parties hereto, and this Agreement shall not be amended except by an instrument
in writing executed by the Company and the Investor.
Section 10.4 Remedies for Breaches of This Agreement.
Section 10.4.1 Survival of Certain Provisions. All of
the representations and warranties of the Company contained in Article 4 above
and all of the covenants and undertakings of the Company contained in Article 6
above, shall survive the Closings hereunder and continue in full force and
effect until the first anniversary of each Closing (subject to any applicable
statutes of limitations).
Section 10.4.2 Indemnification Provisions. In the
event that either the Company or the Investor breaches any of its
representations, warranties, and covenants contained herein, provided that the
non-breaching party makes a written claim for indemnification against the
breaching party pursuant to Section 10.2, then the breaching party agrees to
indemnify the non-breaching party from and against the entirety of any Adverse
Consequences the non-breaching party may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences the
non-breaching party, its members or shareholders may suffer after the end of any
applicable survival period) resulting from, arising out of, relating to, in the
nature of, or caused by such breach. In addition to the indemnification rights
provided for herein, the non-breaching party shall also have the right to all
such remedies to which it is entitled as a matter of law or equity.
-22-
<PAGE> 27
Section 10.4.3 Matters Involving Third Parties.
(i) If any third party shall notify any party
entitled to be indemnified hereunder (the "Indemnified Party") with
respect to any matter (a "Third Party Claim") which may give rise to a
claim for indemnification against the Company or the Investor (the
"Indemnifying Party") under this Section 10.4, then the Indemnified
Party shall promptly notify each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party
from any obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to
assume the defense of the Third Party Claim with counsel of his or its
choice reasonably satisfactory to the Indemnified Party at any time
within 15 days after the Indemnified Party has given notice of the Third
Party Claim; provided, however, that the Indemnifying Party must conduct
the defense of the Third Party Claim actively and diligently thereafter
in order to preserve its rights in this regard; and provided further
that the Indemnified Party may retain separate co-counsel at its sole
cost and expense and participate in the defense of the Third Party
Claim.
(iii) So long as the Indemnifying Party has assumed and
is conducting the defense of the Third Party Claim in accordance with
Section 10.4.3(ii) above, the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably) unless the judgment or proposed
settlement involves only the payment of money damages by one or more of
the Indemnifying Parties and does not impose an injunction or other
equitable relief upon the Indemnified Party.
(iv) So long as the Indemnifying Party has assumed and
is conducting the defense of the Third Party Claim in accordance with
Section 10.4.3(ii) above, the Indemnified Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnifying
Party (not to be withheld unreasonably).
(v) In the event none of the Indemnifying Parties
assumes and conducts the defense of the Third Party Claim in accordance
with Section 10.4.3(ii) above, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner he or it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in
connection therewith) and (B) the Indemnifying Parties will remain
responsible for any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to,
-23-
<PAGE> 28
in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Section 10.4.
Section 10.5 Confidentiality. The Investor agrees not to use any
Confidential Information for any purpose other than evaluating the Investment
and the Investor will not divulge, furnish or make available to any other person
or entity other than the Investor's legal counsel, accountants and designated
advisors, and a limited number of the Investor's officers and employees and the
officers and employees of any member of the Investor, solely to the extent
necessary in connection with the evaluation and consummation of the Investment;
such persons and entities shall be informed by the Investor of the confidential
nature of the Confidential Information and shall be directed to treat such
Confidential Information confidentially. Except as required by law, without the
prior written consent of the other party or until such time as a mutually
agreeable public announcement is made, no party hereto will disclose to any
Person other than its Affiliates, attorneys, accountants and other advisors
either the fact that discussion or negotiations are taking place concerning the
Investment or any of the terms, conditions or other facts with respect to the
Investment, including status or that the Confidential Information has been made
available to the Investor and its Representatives.
In the event that the Investor is requested or required (by oral
questions, interrogatories, requests for information or documents, subpoena,
civil investigative demand or similar process) to disclose any of the
Confidential Information, the Investor will provide the Company with prompt
notice of such request or requirements, and the Investor shall cooperate with
the Company in seeking to legally avoid such disclosure. If, in the absence of a
protective order, the Investor is legally compelled, in the opinion of its
counsel, to disclose any of the information, the Company shall either seek and
obtain appropriate protective orders against such disclosure or shall hereby be
deemed to waive the Investor's compliance with the provisions of this Agreement
to the extent necessary to satisfy such request or requirement.
Section 10.6 Standstill. Subject to the provisions of the
sentence next following, the Investor agrees that until January 1, 1999 it and
its Affiliates shall not (a) acquire, offer to acquire, or agree to acquire,
directly or indirectly, by purchase or otherwise, any voting securities, direct
or indirect rights or options to acquire any voting securities, direct or
indirect rights or options to acquire any voting securities, or securities or
instruments convertible into voting securities, of the Company, (b) make, or in
any way participate, directly or indirectly, in any "solicitation" of "proxies"
to vote (as such terms are used in the proxy rules of the SEC) securities of the
Company, or seek to advise or influence any person or entity with respect to any
voting of any securities of the Company, (c) form, join or in any way
participate in a "group" within the meaning of Section 13(d)(3) of the Exchange
Act, with respect to any voting securities of the Company, (d) make any public
announcement with respect to or make or submit a proposal or offer (with or
without conditions) for the securities or assets of the Company or any
extraordinary transaction involving the Company or any of its Subsidiaries, (e)
submit or effect any filing or application, or seek to obtain any permit,
consent or agreement, approval or other action, required by or from any
regulatory agency with respect to an acquisition of the Company
-24-
<PAGE> 29
or any of its securities or assets, (f) otherwise act alone or in concert with
others to seek to control the management, board of directors or policies of the
Company; or (g) propose any of the foregoing unless and until such proposal is
specifically invited by the Company. Based on the representations of Rothschild
to the Company that Affiliates of Rothschild (which representation Rothschild
hereby reaffirms) not under control of Rothschild have no access to any of the
internal information or files of Rothschild and receive no information,
recommendations or advice from Rothschild, the Company agrees that the
prohibitions of the preceding sentence shall not apply to any Affiliates of
Rothschild that are not under the control of Rothschild and are engaged in the
regular business of trading in publicly-traded securities, so long as such
affiliates have not received, or been given access to, any of the Confidential
Information and have not received any instructions, recommendations or advice
pertaining to an investment in or control of the Company from any party having
access to any of the Confidential Information.
Section 10.7 Lock-Up. The Investor agrees that until June 30,
1998, it shall not sell transfer, convey, assign, pledge or hypothecate any of
the Preferred Shares, any shares of Class A Senior Cumulative Convertible
Preferred Stock of the Company (the "Class A Preferred Stock"), or any shares of
Common Stock obtained upon conversion of any Preferred Shares or the Class A
Preferred Stock.
Section 10.8 Class A Waiver. The Investor, as the holder of all
of the outstanding shares of Class A Preferred Stock, hereby consents (i)
pursuant to Section 4(m) of the Articles Supplementary Classifying 1,351,351
Shares of Preferred Stock as Class A Senior Cumulative Convertible Preferred
Stock, and (ii) pursuant to Section 11.2(b) of the Operating Agreement dated as
of April 1, 1997 between the Company and the Investor, to (i) the issuance by
the Company of the Preferred Shares, (ii) the Company entering into this
Agreement, and (iii) the Company entering into the Operating Agreement.
Section 10.9 Company Waiver. The Company hereby waives the
provisions of Section 10.6 of the Investment Agreement, dated as of December 31,
1996, between the Company and the Investor, for the sole purpose of allowing the
Investor to purchase the Preferred Shares from the Company as provided herein.
Section 10.10 Availability Fee Waiver. The Investor hereby
waives the payment by the Company of all fees payable to the Investor pursuant
to Section 3.4 of the Investment Agreement dated as of December 31, 1996,
between the Investor and the Company.
Section 10.11 Termination. This Agreement may be terminated at
any time prior to the date which all of the Preferred Shares have been sold
hereunder:
(a) by the mutual written consent of the Investor and the
Company;
(b) by the Company or the Investor if the entire amount of
Preferred Shares to be sold by the Company to the Investor hereto have not been
sold on or prior to December 31, 1997; provided that the party attempting to
terminate this Agreement is not in material breach of
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<PAGE> 30
any of its representations, warranties, covenants or agreements contained in
this Agreement. In the event of termination by the Company or the Investor
pursuant to this Section 10.11, written notice thereof shall forthwith be
delivered to the other party;
(c) by the Investor, if there is a material breach of any
material representation or warranty set forth in Article 4 hereof or any
covenant or agreement to be complied with or performed by the Investor pursuant
to the terms of this Agreement, provided that the Investor may not terminate
this Agreement prior to the Closing unless the Company has not cured such
failure after 10 days notice thereof; or
(d) by the Company, if there is a material breach of any
material representation or warranty set forth in Article 5 hereof or any
covenant or agreement to be complied with or performed by the Investor pursuant
to the terms of this Agreement, provided that the Company may not terminate this
Agreement prior to the Closing unless the Investor has cured such failure after
10 days notice thereof.
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<PAGE> 31
Section 10.12 Counterparts. This Agreement may be executed in
more than one counterpart, each of which may be executed by fewer than all the
parties, with the same effect as if the parties executed one counterpart as of
the day and year first above written.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals as of the day and year first above written.
PACIFIC GULF PROPERTIES INC.
By: ___________________________________
Name: Glenn L. Carpenter
Title: Chairman, Chief Executive Officer
and President
FIVE ARROWS REALTY SECURITIES L.L.C.
By: ___________________________________
Name: Matthew W. Kaplan
Title: Manager
The undersigned hereby acknowledges the terms hereof and hereby
agrees to be bound by the following sections hereof: Sections 10.5, 10.6 and
10.7.
ROTHSCHILD REALTY INC.
By: ___________________________________
Name: Matthew W. Kaplan
Title: Senior Vice President
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<PAGE> 32
SCHEDULE 4.9.3
NONE
<PAGE> 33
SCHEDULE 4.10
Common Stock reserved for issuance, as of May 8, 1997:
- 704,045 shares issuable upon conversion of Debentures
- 847,904 shares issuable upon the exercise of options awarded or to be
awarded under the Company's stock incentive plan
- 246,497 shares issuable under the Company's dividend reinvestment plan
- 1,351,351 shares issuable upon conversion of the Class A Senior
Cumulative Convertible Preferred Stock of the Company
Preferred Stock reserved for issuance, as of May 8, 1997:
- 1,081,081 shares of the Company's Class A Senior Cumulative
Convertible Preferred Stock
<PAGE> 34
SCHEDULE 4.11
NONE
<PAGE> 35
SCHEDULE 4.12
Pacific Gulf Properties Inc. Retirement Plan (defined benefit retirement income
plan)
Pacific Gulf Properties Inc. Thrift Plan (401(k) plan)
Pacific Gulf Properties Inc. Share Option Plan (to the extent, if any, subject
to ERISA)
<PAGE> 36
SCHEDULE 4.13
NONE
<PAGE> 37
SCHEDULE 4.17
NONE
<PAGE> 38
SCHEDULE 4.18
NONE
<PAGE> 39
EXHIBIT A
FORM OF AGREEMENT AND WAIVER
<PAGE> 40
EXHIBIT B
FORM OF CERTIFICATE OF DESIGNATION
<PAGE> 41
EXHIBIT C
FORM OF OPERATING AGREEMENT
<PAGE> 42
EXHIBIT D
FORM OF OPINION LETTER OF GIBSON, DUNN & CRUTCHER LLP
We are of the opinion that:
1. The Company is qualified as a foreign corporation and is in
good standing in the State of California.
2. The Investment Agreement, the Operating Agreement and
Agreement and Waiver have been executed and delivered by the Company.
The Investment Agreement, the Operating Agreement and Agreement and
Waiver represent the valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective
terms.
3. The execution and delivery of the Operative Instruments by
the Company and the performance by the Company of its obligations
thereunder do not (a) violate or constitute a breach of or default under
any agreement that is listed as a material agreement on the Company's
Annual Report on Form 10-K for the year ended December 31, 1996; or (b)
conflict with or violate any law or any regulation, rule, order or
decree of any governmental body, court or administrative agency having
jurisdiction over the Company or any of its Subsidiaries or the
properties of any of them; except for such breaches, defaults, conflicts
or violations which would not, individually or in the aggregate have a
Material Adverse Effect on the Company or on the ability of the Company
to consummate the transactions contemplated thereby.
4. Except such filings or consents as are required under the
Securities Act, the execution and delivery of the Operative Instruments
by the Company and the performance by the Company of its obligations to
be performed at or prior to the related Closing do not require any
filing or registration with, or the receipt of any consent by, any
governmental or regulatory authority by the Company or its Subsidiaries
other than any which have already been obtained or waived.
5. The Company's Registration Statement on Form S-3 (File No.
333-23611) (the "Shelf Registration Statement") has been declared
effective by the Securities and Exchange Commission (the "Commission")
and the issuance of the Preferred Shares is covered thereby. Except to
the extent that the Investor is deemed to be an affiliate (as defined in
Rule 144 promulgated under the Securities Act) of the Company and
subject to the restrictions on transfer set forth in the Certificate of
Designation (as modified by the Agreement and Waiver) the Preferred
Shares are freely transferable by the Investor without the requirement
that (i) such Preferred Shares be registered or qualified pursuant to
any federal securities law or (ii) the Investor comply with the
prospectus delivery
D-1
<PAGE> 43
requirements of the Securities Act. The issuance of shares of Common
Stock upon the conversion of the Preferred Shares, pursuant to the
provisions of the Certificate of Designation has been registered under
the Securities Act. Upon such conversion, and except to the extent that
the Investor is deemed to be an affiliate (as defined in Rule 144
promulgated under the Securities Act) of the Company and subject to the
restrictions on transferability set forth in the Charter, such shares of
Common Stock shall be freely transferable by the Investor without the
requirement that (i) such shares of Common Stock be registered or
qualified pursuant to any federal securities law or (ii) the Investor
comply with the prospectus delivery requirements of the Securities Act.
6. Except as set forth in the 1996 10-K, to such counsel's
knowledge, the Company has not received any notice of any outstanding
judgments, rulings, orders, writs, injunctions, awards or decrees of any
court or any foreign, federal, state, county or local government or any
other governmental, regulatory or administrative agency or authority or
arbitral tribunal against or involving the Company or any of its
Subsidiaries which is currently in effect. Neither the Company nor any
of its Subsidiaries is a party to, or to the knowledge of such counsel,
threatened with, any litigation or judicial, governmental, regulatory,
administrative or arbitration proceeding which, if decided adversely to
their respective interests could have an adverse effect upon the
transactions contemplated hereby or that could reasonably be expected to
have a Material Adverse Effect on the Company.
7. The Company is not, and upon the issuance and sale of the
Preferred Shares as herein contemplated will not be, an "investment
company" or an Entity "controlled" by an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended.
D-2
<PAGE> 44
EXHIBIT E
FORM OF OPINION LETTER OF PIPER & MARBURY L.L.P.
We are of the opinion that:
1. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Maryland.
2. The execution, delivery and performance of the Investment
Agreement, the Operating Agreement and the Agreement and Waiver have
each been duly authorized by all necessary corporate action on the part
of the Company and by virtue of such authorization in respect of the
Agreement and Waiver, and subject to the terms and conditions set forth
therein, the Board of Directors of the Company has exempted the Investor
from the restrictions on ownership of capital stock set forth in the
Charter of the Company, including subparagraphs D.4(b)(i) and (ii) of
Article V of the Charter of the Company.
3. The Company has duly reserved solely for purposes of
issuance upon conversion of the Preferred Shares the shares of Common
Stock into which the Preferred Shares are initially convertible.
4. The Company has duly authorized, by all necessary corporate
action on the party of the Company, the issuance and delivery of
1,411,765 shares of Preferred Stock pursuant to the Investment Agreement
and, upon delivery thereof and receipt by the Company of the Purchase
Price therefor, such shares of Preferred Stock will be duly authorized,
validly issued, fully paid and nonassessable. The Certificate of
Designation has been duly authorized by all necessary corporate action
on the part of the Company.
5. The authorized capital stock of the Company consists of: (i)
25,000,000 shares of Common Stock; (ii) 5,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"); and (iii)
30,000,000 shares of excess stock, par value $.01 per share (the "Excess
Stock").
6. The Company has the corporate power and authority to own,
lease and operate its properties, directly or indirectly, and to conduct
its business as presently conducted and as contemplated by the Annual
Report on Form 10-K, as amended, as filed by the Company under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") for the
year ended December 31, 1996 (the "1996 10-K").
7. The execution and delivery of the Operative Instruments by
the Company and the performance by the Company of its obligations
thereunder do not violate the Charter or By-Laws of the Company.
E-1
<PAGE> 45
8. The filing of the Certificate of Designation, the issuance
pursuant to the Investment Agreement of the Preferred Shares pursuant to
the Certificate of Designation and the terms of the Certificate of
Designation, do not conflict with the terms of the Class A Preferred
Stock or the Articles Supplementary Classifying the Class A Preferred
Stock, and the terms of the Class A Preferred Stock and the Articles
Supplementary Classifying the Class A Preferred Stock do not conflict
with the terms of the Preferred Shares or the Certificate of
Designation.
D-2
<PAGE> 46
EXHIBIT F
FORM OF OPINION LETTER OF SCHULTE ROTH & ZABEL LLP
[LETTERHEAD OF SCHULTE ROTH & ZABEL LLP]
We are of the opinion that:
1. The Investor has been duly organized and is validly existing and
in good standing under the laws of the State of Delaware.
2. The execution and delivery by the Investor of the Investment
Agreement, the Operating Agreement and the Agreement and Waiver
and the performance by the Investor of its obligations thereunder
do not (i) violate the Investor's Operating Agreement, (ii)
violate or constitute a breach of or default under any mortgage,
indenture, loan agreement, promissory note or other agreement to
which the Investor is a party and which the Investor has
identified to us as being material to the Investor; or (iii)
conflict with or violate any law or any regulation, rule, order
or decree, known to us to be generally applicable to the
Investor, of any governmental body, court or administrative
agency having jurisdiction over the Investor; except for such
breaches, defaults, conflicts or violations which would not,
individually or in the aggregate have a Material Adverse Effect
on the Investor or on the ability of the Investor to consummate
the transactions contemplated thereby.
3. The Investor has the requisite company power and authority to
enter into the Investment Agreement, the Operating Agreement and
the Agreement and Waiver, and to consummate the transactions
contemplated thereby. Each of the Investment Agreement, the
Operating Agreement and the Agreement and Waiver has been duly
authorized, executed and delivered by the Investor, and
constitutes the legal, valid and binding obligation of the
Investor, enforceable against the Investor in accordance with its
terms, except to the extent that (a) the enforceability thereof
may be limited by: (i) applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws
from time to time in effect affecting generally the enforcement
of creditors' rights and remedies; and (ii) general principles of
equity, including, without limitation, principles of
reasonableness, good faith and fair dealing (regardless of
whether enforcement is sought in equity or at law); and (b) we
express no opinion regarding the validity, binding effect or
enforceability of any provision relating to: (i) choice of
governing law to the extent that such validity, binding effect or
enforceability is to be determined by any court other than a
court of the State of New York; or (ii) indemnification or
contribution.
F-1
<PAGE> 1
ARTICLES SUPPLEMENTARY
CLASSIFYING 1,411,765 SHARES OF PREFERRED STOCK AS CLASS B
SENIOR CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
PACIFIC GULF PROPERTIES INC.
Pursuant to Section 2-105 of the Maryland General Corporation Law
(the "M.G.C.L."), Pacific Gulf Properties Inc., a corporation organized and
existing under the M.G.C.L. (the "Corporation"), and having its principal office
in the State of Maryland located at c/o CT Corporation System, 32 South Street,
Baltimore, Maryland 21202,
DOES HEREBY CERTIFY TO THE STATE DEPARTMENT OF ASSESSMENT AND TAXATION OF
MARYLAND THAT:
FIRST: Pursuant to authority granted to and vested in the Board
of Directors of the Corporation (the "Board") by the Charter of the Corporation
(the "Charter"), and pursuant to the provisions of Section 2-105 of the
M.G.C.L., the Board, at a meeting duly convened and held on May 7, 1997,
regarding the possible sale and issuance by the Corporation of convertible
preferred stock, adopted resolutions duly classifying 1,411,765 shares of
Preferred Stock of the Corporation into a single series of Preferred Stock to be
designated as "Class B Senior Cumulative Convertible Preferred Stock, par value
$.01 per share," and has provided for the issuance of such shares;
SECOND: The terms of the "Class B Senior Cumulative Convertible
Preferred Stock," as set forth by the Board, including the preferences,
conversion or other rights, voting powers, limitations as to dividends,
qualifications and terms and conditions of redemption of each such series, are
as follows (capitalized terms not otherwise defined shall have the meanings
ascribed to them in the Charter):
Section 1. Preferred Shares -- Designation, Amount and Rank. The
shares of such class of Preferred Stock shall be designated as "Class B Senior
Cumulative Convertible Preferred Stock" and the number of shares constituting
the series so designated shall be 1,411,765 (the "Preferred Shares"). The
Preferred Shares, as to dividends and upon liquidation, dissolution and winding
up, rank equal to and on a parity with the Class A Senior Cumulative Convertible
Preferred Stock (the "Class A Preferred Stock") and any other equity securities
issued by the corporation, the terms of which specifically provide that such
equity securities rank equal to and on a parity with the Preferred Shares as to
dividends and upon liquidation, dissolution and winding up.
<PAGE> 2
Section 2. Preferred Shares -- Dividend Rights.
(a) General. Subject to Section 9, and in addition to any other
dividends provided for herein, the Corporation shall pay in cash, when, as and
if declared by the Board, out of funds legally available therefor as provided by
the M.G.C.L. (the "Legally Available Funds"), dividends at the quarterly rate
equal to the Applicable Dividend Rate (as defined below) per issued and
outstanding Preferred Share, per quarter. Such dividends shall be cumulative and
payable (if declared) quarterly on each February 15, May 15, August 15 and
November 15, with respect to the prior quarter, commencing August 15, 1997
(except that if such date is not a Business Day (as defined below), then such
dividend will be payable on the next succeeding Business Day) to the holders of
record at the close of business on the date specified by the Board at the time
such dividend is declared no more than thirty (30) days prior to the date fixed
for payment thereof; provided, however, that the Corporation shall have the
right to declare and pay dividends on the Preferred Shares at any time.
Dividends on any Preferred Shares shall accrue and be cumulative as provided in
Section 2(b) from the date of issuance of such Preferred Shares to and including
the first to occur of (i) the date on which the Liquidation Value (as defined
herein) of such Preferred Shares or Put Payment (plus all accrued and unpaid
dividends thereon whether or not declared) is paid to the holder thereof in
connection with the liquidation of the Corporation or the redemption of such
Preferred Shares by the Corporation, (ii) the last day of the quarter preceding
the quarter in which such Preferred Shares are converted into shares of Common
Stock hereunder if such date is after the record date for the Regular Quarterly
Dividend (as defined herein) on the Common Stock for the quarter in which such
conversion takes place, (iii) the last day of the quarter second preceding the
quarter in which such Preferred Shares are converted into shares of Common Stock
hereunder if such date is prior to the record date for the Regular Quarterly
Dividend on the Common Stock for the quarter in which such conversion takes
place, or (iv) the date on which such share is otherwise acquired and paid for
by the Corporation.
(b) Cumulative Dividends. Any accrued dividend that is not paid,
or made available for payment, on the date set forth in Section 2(a) above shall
accrue dividends at a rate of (i) 2% per fiscal quarter for any quarter which
ends on or prior to December 31, 1997 and (ii) for any subsequent fiscal quarter
the greater of (x) 2% per quarter and (y) the product of 1.04 and the per share
quarterly dividend paid in that quarter in respect of the common stock, par
value $.01 per share, of the Corporation (the "Common Stock"), divided by
$21.25, per quarter until such amount has been paid. Any dividend payment with
respect to the Preferred Shares shall first be credited against any prior
accrued and unpaid dividend. No dividends shall be set apart for or paid upon
the Common Stock or any other shares of stock ranking junior to the Preferred
Shares unless all such cumulative dividends on the Preferred Shares have been
paid.
(c) Applicable Dividend Rate. With respect to any Preferred Share
then issued and outstanding the "Applicable Dividend Rate" shall be (i) $0.425
per Preferred Share, per fiscal quarter for any quarter which ends on or prior
to December 31, 1997 and (ii) for any subsequent fiscal quarter the greater of
(x) $0.425 per Preferred Share, per quarter, and (y) the product of 1.04 and the
per share quarterly dividend paid in that quarter in respect of the Common
Stock, per fiscal quarter. If any of the events described under Section 7
requiring the
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<PAGE> 3
adjustment of the Conversion Price (as defined herein) occurs, such dividends
payable thereafter on the Common Stock shall be calculated for purposes of the
foregoing clause (y) so as to reverse the effect of such events. The Applicable
Dividend Rate shall be pro rated for the actual number of days in any partial
quarter.
(d) Pro Rata Distribution. All dividends paid with respect to
Preferred Shares pursuant to this Section 2 shall be paid pro rata in respect of
each Preferred Share entitled thereto. In the event that the Legally Available
Funds available for the payment of dividends shall be insufficient for the
payment of the entire amount of dividends payable with respect to Preferred
Shares on any date on which the Board has declared the payment of a dividend or
otherwise, the amount of any available surplus shall be allocated for the
payment of dividends with respect to the Preferred Shares and any other shares
of capital stock that are pari passu as to dividends pro rata based upon the
amount of accrued and unpaid dividends of such shares of capital stock.
(e) Business Day. For purposes hereof, the term "Business Day"
shall mean any Monday, Tuesday, Wednesday, Thursday or Friday which is not a day
on which banking institutions in New York City are authorized or obligated by
law or executive order to close.
Section 3. Preferred Shares -- Certain Restrictions.
(a) Dividends on Other Securities. Unless the dividends on the
Preferred Shares (including accrued and unpaid dividends in arrears whether or
not declared) described above in Section 2, which pursuant to their terms should
have been paid, have been paid in full or declared and set apart for payment,
the Corporation shall be prohibited from paying dividends on, making any other
distributions on, or redeeming or purchasing or otherwise acquiring for
consideration any capital stock of the Corporation (without regard to its rank,
either as to dividends or upon liquidation, dissolution or winding up).
(b) Purchases of Securities. The Corporation shall not permit any
subsidiary or subpartnership of the Corporation to purchase or otherwise acquire
for consideration or make any payment with respect to any shares of capital
stock of the Corporation if the Corporation is prohibited from purchasing or
otherwise acquiring for consideration or making any payment with respect to such
shares at such time and in such manner pursuant to Section 3(a), provided,
however, that the Corporation shall not be prohibited from making a capital
contribution of capital stock of the Corporation to any of its subsidiaries or
subpartnerships.
Section 4. Preferred Shares -- Voting Rights.
(a) General. Except as limited by law the holders of the
Preferred Shares shall be entitled to vote or consent on all matters submitted
to the holders of Common Stock together with the holders of the Common Stock as
a single class.
(b) Calculation of Votes. For the purposes of calculating the
votes cast for a particular matter when voting or consenting pursuant to Section
4(a), each Preferred Share will entitle the holder thereof to one vote for each
share of Common Stock into which such Preferred
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<PAGE> 4
Share is convertible as provided in Section 7(c) herein as of the record date
for such vote or consent or, if no record date is specified, as of the date of
such vote or consent.
(c) Section 4(c) Directors.
(i) In addition to the other voting rights described
herein, until Five Arrows Realty Securities L.L.C., Rothschild Realty Inc. or
the ninety-nine percent (99%) member of Five Arrows Realty Securities L.L.C.
ceases to own either (A) all of the outstanding Preferred Shares or (B) an
amount of voting securities of the Corporation which, if converted into shares
of Common Stock, would exceed 10% of the outstanding Common Stock on a fully
diluted basis (determined on the basis of then convertible, exercisable or
exchangeable securities, warrants or options issued by the Corporation (such
amount as set forth in clauses (A) and (B) above, the "Minimum Threshold") the
number of directors constituting the Board shall be automatically increased by
one (1) member, subject to the provisions of Section 4(e)(iv) below.
(ii) In addition, as long as the Minimum Threshold is
satisfied, upon the first to occur, and from time to time following the
Dividend/Earnings Cure (as defined herein), upon the first to occur, of (A) the
Corporation's failure to pay the Regular Quarterly Dividend on the Common Stock
for any quarter in an amount of at least $.40 per share (adjusted to reverse the
effect of any event set forth in Section 7 that would require an adjustment to
the Conversion Price (the "Dividend Reduction Default"), (B) the Corporation's
financial results reflecting that the ratio of its Combined EBITDA to its
reported interest expense (as described in clause (2) under the definition of
Combined EBITDA below) for each of three consecutive fiscal quarters is less
than 1.25 to 1.00 (the "Earnings Default"), or (C) the Corporation's failure to
pay in full the quarterly dividend payable hereunder (whether or not declared)
at any time in respect of the Preferred Shares (the "Dividend Payment Default"),
the Board shall be automatically increased by an additional one (1) member for
an aggregate maximum increase pursuant hereto of two directors, subject to the
provisions of Section 4(e)(iv) below.
(iii) The position on the Board established pursuant to
Section 4(c)(i) shall remain available until the Minimum Threshold is no longer
satisfied. The position on the Board established pursuant to Section 4(c)(ii)
shall remain available until the first to occur of such time as (A) the Minimum
Threshold fails to be satisfied and (B) the Dividend/Earnings Cure (as defined
herein) following the occurrence of any of the events described in Section
4(c)(ii).
(iv) Any director elected pursuant to Section 4(c) shall be
deemed to have resigned upon the position created thereby not being available.
(v) The term "Regular Quarterly Dividend" means any cash
dividend or dividends paid in any calendar quarter that do not in the aggregate
exceed the Corporation's reported Funds From Operations (as defined by the
National Association of Real Estate Investment Trusts prior to 1996) for the
quarter relating to such dividend.
(vi) The term "Combined EBITDA" means the combined net
income of the Corporation (before extraordinary income or gains) as reported in
its Quarterly Report on Form 10-Q under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or otherwise
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<PAGE> 5
furnished to holders of Preferred Shares pursuant to Section 4(j) increased (to
the extent deducted in determining consolidated net income) by the sum of the
following (without duplication):
(A) all income and state franchise taxes paid or accrued
according to generally accepted accounting principals in the
United States ("GAAP") for such period (other than income taxes
attributable to extraordinary, unusual or non-recurring gains or
losses except to the extent that such gains were not included in
Combined EBITDA),
(B) all interest expense paid or accrued in accordance
with GAAP for such period (including financing fees and
amortization of deferred financing fees and amortization of
original issue discount),
(C) depreciation and depletion reflected in such reported
net income,
(D) amortization reflected in such reported net income
including, without limitation, amortization of capitalized debt
issuance costs (only to the extent that such amounts have not
been previously included in the amount of Combined EBITDA
pursuant to clause (2) above), and
(5) any other non-cash charges to the extent deducted from
combined net income (including, but not limited to, income
allocated to minority interests, non-recurring or one-time GAAP
non-cash income, gains, expenses or losses).
(d) Section 4(d) Directors.
(i) In addition to the other voting rights described herein,
at any time after the Minimum Threshold ceases to be satisfied and a Dividend
Payment Default occurs for three consecutive fiscal quarters, the number of
directors constituting the Board shall be automatically increased by a maximum
of two (2) members, subject to the provisions of Section 4(e)(iv) below.
(ii) The position on the Board created pursuant to this Section
4(d) shall continue to be available until the earlier to occur of such time as
(A) there are no Preferred Shares of the Corporation outstanding and (B) the
Dividend Payment Cure (as defined herein).
(iii) Any director elected pursuant to this Section 4(d) shall
be deemed to have resigned upon the position created hereby not being available.
(e) Election of Preferred Directors.
(i) The holders of the Preferred Shares shall have the special
right, voting separately as a single class, to elect as soon as practical after
the creation of any position under Section 4(c) or Section 4(d), a director to
fill each vacancy created pursuant to Section 4(c) or 4(d) and to elect their
respective successors at each succeeding annual meeting of the Corporation
thereafter at which such successor is to be elected.
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<PAGE> 6
(ii) The director so elected from time to time in respect of
Section 4(c)(i) shall be referred to herein as the "Section 4(c)(i) Director."
The director so elected from time to time in respect of Section 4(c)(ii) shall
be referred to herein as the "Section 4(c)(ii) Director." The directors so
elected from time to time in respect of Section 4(d) shall be referred to herein
as the "Section 4(d) Directors." As used herein, the term "Preferred Director"
shall refer to each of the Section 4(c)(i) Director, the Section 4(c)(ii)
Director or a Section 4(d) Director, as appropriate, and the term "Preferred
Directors" shall refer to all such directors.
(iii) At no time shall there be more than two Preferred
Directors on the Board.
(iv) (A) Sections 4(c) through 4(l), inclusive, hereunder
shall not be applicable (1) for as long as all of the outstanding Preferred
Shares and all of the outstanding shares of Class A Preferred Stock are held by
the same beneficial owner, and (2) if all outstanding shares of the Class A
Preferred Stock and all of the Preferred Shares are not voted in favor of a
proposal to, in effect, combine the Class A Preferred Stock and the Preferred
Shares into one class of preferred stock of the Corporation having a blended
liquidation rate and other terms provided for in the Articles Supplementary
Classifying the Class A Preferred Stock.
(B) Prior to June 30, 1998, the holders of the
Preferred Shares will not be entitled to the Preferred Directors positions
created or maintained under Section 4(c) or Section 4(d) if the "Preferred
Director" or the "Preferred Directors" under Section 4(c) or Section 4(d) of the
Articles Supplementary Classifying 1,351,351 Shares of Preferred Stock as Class
A Preferred Stock, have been elected and are serving as such. In addition, prior
to June 30, 1998, any Preferred Director positions maintained pursuant to
Section 4(c) or Section 4(d) hereunder shall cease to be available at such time
as any "Preferred Directors" under Section 4(c) or Section 4(d) of the Articles
Supplementary Classifying 1,351,351 Shares of Preferred Stock as Class A
Preferred Stock, have been elected and are serving as such.
(f) Classification of Board. Each vacancy created upon the
Board from time to time pursuant to Section 4(c) or Section 4(d), as the case
may be, shall be apportioned among the classes of directors, if any, so that the
number of directors in each of the classes of directors is as nearly equal in
number as possible. The Preferred Directors shall be classified accordingly.
(g) Cure. Upon the occurrence of a Dividend Reduction
Default or an Earnings Default, the same shall be deemed to continue to exist
until such time as (the "Dividend/Earnings Cure") (i) the Regular Quarterly
Dividend paid in the immediately preceding quarter on the Common Stock shall be
greater than $.40 per share (adjusted to reverse the effect of any event set
forth in Section 7 that would require an adjustment to the Conversion Price),
(ii) the Corporation reports for the prior three consecutive fiscal quarters
that the ratio of its Combined EBITDA to its reported interest expense (as
described in clause (2) under the definition of Combined EBITDA above) for each
such quarter was greater than 1.25 to 1.00, and (iii) all dividends, and all
other accrued and unpaid dividends whether or not declared, on the Preferred
Shares have been paid or made available for payment. Upon the occurrence of the
Dividend Payment Default, the same shall be deemed to continue and exist until
(the "Dividend Payment Cure") such time as the earlier to occur of (i) none of
the Preferred Shares shall remain
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<PAGE> 7
outstanding or (ii) all accrued and unpaid dividends on the Preferred Shares,
whether or not declared, have been paid or made available for payment.
(h) Board Committees. The 4(c)(i) Director shall be designated
as a member of every committee of the Board, other than two committees, such two
committees to be specified by such 4(c)(i) Director. During such period of time
as a 4(c)(ii) Director shall be a member of the Board, such 4(c)(ii) Director
shall be designated as a member of each committee of the Board on which the
4(c)(i) Director is not a member.
(i) Voting Procedures. At each meeting of the stockholders of
the Corporation at which the holders of the Preferred Shares shall have the
right to vote as a single class, as provided in this Section 4, the presence in
person or by proxy of the holders of record of a majority of the total number of
Preferred Shares then outstanding shall be necessary and sufficient to
constitute a quorum of such class for such election by such stockholders as a
class. At any such meeting or adjournment thereof the absence of a quorum of
such holders of Preferred Shares shall not prevent the election of directors
other than the Preferred Directors, and the absence of a quorum of the holders
of any other class or series of stock for the election of such other directors
shall not prevent the election of any Preferred Directors by the holders of the
Preferred Shares.
(j) Vacancy. In case any vacancy shall occur among the directors
elected by the holders of the Preferred Shares such vacancy shall be filled by
the vote of holders of the Preferred Shares, voting as a single class, at a
special meeting of such stockholders called for that purpose.
(k) Written Consent. Notwithstanding the foregoing, any action
required or permitted to be taken by holders of Preferred Shares at any meeting
of stockholders may be taken without a meeting, without prior notice and without
a vote, if a unanimous consent, in writing, setting forth the action so taken,
shall be signed by each of the holders of Preferred Shares and shall be executed
and delivered to the Secretary of the Corporation for placement among the
minutes of proceedings of the stockholders of the Corporation.
(l) Approval by the Corporation. The Corporation acting through
a majority of its Directors shall have the right to approve the nomination of
any Section 4(c)(i) Director or Section 4(c)(ii) Director, such approval not to
be unreasonably withheld; provided, however, that such right shall not apply to
any of John D. McGurk, James E. Quigley 3rd, Matthew W. Kaplan, and D. Pike
Aloian.
(m) Restrictions. So long as Preferred Shares of the Corporation
are outstanding, without the consent of the holders of at least the majority of
the Preferred Shares at the time outstanding, given in person or by proxy, at a
meeting called for that purpose at which the holders of the Preferred Shares
shall vote separately as a class, or by the unanimous consent in writing of all
of the holders of the Preferred Shares (in addition to any other vote or consent
of stockholders required by law or by the Charter), the Corporation may not (i)
effect or validate the amendment, alteration or repeal of any provision of these
Articles Supplementary, (ii) effect or validate the amendment, alteration or
repeal of any provision of the Charter of the Corporation
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<PAGE> 8
which would adversely effect the rights of the holders of the Preferred Shares
as such, (iii) effect or validate the amendment, alteration or repeal of any
provision of the Charter of the Corporation which would increase in any respect
the restrictions or limitations on ownership applicable to the Preferred Shares
pursuant thereto, (iv) effect or validate the amendment, alteration or repeal of
any provision of the Charter of the Corporation or By-Laws of the Corporation so
as to limit the right to indemnification provided to any present or future
member or members of the Board elected by the holders of the Preferred Shares,
(v) other than the 1,411,765 Preferred Shares authorized herein, issue Preferred
Shares (or a series of preferred stock that would vote as a class with the
Preferred Shares with respect to the election of any Preferred Director) or
shares of stock ranking senior or equal to the Preferred Shares (as to dividends
or upon liquidation, dissolution or winding up), or (vi) effect or validate the
amendment, alteration or repeal of any provision of the Charter of the
Corporation or By-Laws of the Corporation so as to increase the number of
members of the Board beyond ten (10) members (not including any Preferred
Directors). Nothing in this Section 4(m) shall prevent the Corporation from
issuing any shares of stock of the Corporation which rank junior (as to
dividends and upon liquidation, dissolution or winding up) to the Preferred
Shares upon such terms as the Board shall authorize from time to time.
(n) Reports. The Corporation shall mail to each holder of record
of Preferred Shares, at such holder's address in the records of the Corporation,
within 45 days after the end of the first three fiscal quarters of each fiscal
year and within 90 days after the end of each fiscal year, its financial reports
for such fiscal period in such form and containing such independent accountants
report as set forth under the rules of the Securities and Exchange Commission
(together with the report of the Corporation's independent accountants with
respect to such fiscal period) irrespective of whether the Corporation is then
required to file reports under such rules.
Section 5. Preferred Share --Redemption Rights.
(a) General. The Corporation may, at its option, to the extent it
shall have Legally Available Funds therefor, redeem all or any portion (on a pro
rata basis) of the outstanding Preferred Shares, at any time on or after April
1, 2002.
(b) Notice. The option of the Corporation to redeem the Preferred
Shares pursuant to this Section 5 shall be exercised by mailing of a written
notice of election (a "Redemption Notice") by the Corporation to the holders of
the Preferred Shares at such holder's address appearing on the records of the
Corporation, which notice shall be mailed at least 30 days prior to the date
specified therein for the redemption of the Preferred Shares. Such notice shall
state, at a minimum, the amount of Preferred Shares to be redeemed, the date on
which such redemption shall occur and the last date on which such holder can
exercise the conversion rights provided for in Section 7 herein (the "Final
Conversion Date"). Any notice which was mailed in the manner herein provided
shall be conclusively presumed to have been given on the date mailed whether or
not the holder receives such notice.
(c) Conversion. During the period beginning on the date on which
the Corporation mailed to each holder of the Preferred Shares a written notice
of election pursuant to
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<PAGE> 9
subsection (b) above and ending on the thirtieth day following the date of such
mailing, each holder of the Preferred Shares may continue to exercise its rights
pursuant to Section 7 herein.
(d) Redemption Price. Upon the thirtieth day following the
mailing to the holder of the Preferred Shares of a written notice of election
pursuant to subsection (b) above, the Corporation shall be required, unless such
holder of Preferred Shares has exercised its rights pursuant to subsection (c)
above, to purchase from such holder of Preferred Shares (upon surrender by such
holder at the Corporation's principal office of the certificate representing
such Share), such Preferred Shares specified in the Redemption Notice, at a
price equal to the product of (i) $21.25 per share plus accrued and unpaid
dividends (whether or not declared and accrued through the date of payment for
redemption or the date payment is made available for payment to the holder
thereof) plus a premium equal to the following percentage of $21.25:
<TABLE>
<CAPTION>
Redemption Occurs
On or After But Prior to % Premium
- ----------- ------------ ---------
<S> <C> <C>
April 1, 2002 December 31, 2002 6.0
December 31, 2002 December 31, 2003 5.0
December 31, 2003 December 31, 2004 4.0
December 31, 2004 December 31, 2005 3.0
December 31, 2005 December 31, 2006 2.5
December 31, 2006 December 31, 2007 2.0
December 31, 2007 December 31, 2008 1.5
December 31, 2008 December 31, 2009 1.0
December 31, 2009 0.0
</TABLE>
and (ii) the number of Preferred Shares to be redeemed as provided in the
Redemption Notice (the "Redemption Price").
(e) Dividends. No Preferred Share is entitled to any dividends
accruing thereon after the date on which the payments provided by and in
accordance with Section 5(d) are paid or made available for payment to the
holder thereof. On such date all rights of the holder of such Preferred Share
shall cease, and such Preferred Share shall not be deemed to be outstanding.
Section 6. Preferred Shares -- Liquidation Rights.
(a) Liquidation Payment. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
then out of the assets of the Corporation before any distribution or payment to
the holders of shares of capital stock of the Corporation ranking junior to the
Preferred Shares (as to dividends or upon liquidation, dissolution or winding
up), the holders of the Preferred Shares shall be entitled to be paid $21.25 per
share (the "Liquidation Value") plus accrued and unpaid dividends whether or not
declared, if any, (or a pro rata portion thereof with respect to fractional
shares), to the date of final distribution or the distribution is made
available; provided, however, that if such liquidation, dissolution or winding
up of the Corporation occurs in connection with or subsequent to a
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<PAGE> 10
Change of Control (as defined in Section 8(e)), then the holders of the
Preferred Shares shall be entitled to be paid the Put Payment (as defined
herein). Except as provided in this Section 6, the holders of the Preferred
Shares shall be entitled to no other or further distribution in connection with
such liquidation, dissolution or winding up.
(b) Pro Rata Distribution. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to the holders of Preferred Shares shall be
insufficient to permit payment in full to such holders the sums which such
holders are entitled to receive in such case, then all of the assets available
for distribution to the holders of the Preferred Shares shall be distributed
among and paid to the holders of Preferred Shares and any other shares of
capital stock of the Corporation that are pari passu as to liquidation,
dissolution or winding up, ratably in proportion to the respective amounts that
would be payable to such holders if such assets were sufficient to permit
payment in full.
Section 7. Preferred Shares--Conversion.
(a) Conversion Rights. Subject to and upon compliance with the
provisions of this Section 7, a holder of Preferred Shares shall have the right,
at such holder's option, at any time to convert all or a portion of such shares
into the number of fully paid and non-assessable shares of Common Stock obtained
by dividing the number of Preferred Shares being converted by the Conversion
Ratio (as defined below and as in effect at the time and on the date provided
for in this Section 7(b)(iv)) by surrendering such Preferred Shares to be
converted. Such surrender shall be made in the manner provided in Section 7,
paragraph (b); provided, however, that the right to convert any Preferred Shares
called for redemption pursuant to Section 5 shall terminate at the close of
business on the Final Conversion Date, unless the Corporation shall default in
making payment of any cash payable upon such redemption under Section 5 hereof.
The "Conversion Ratio" with respect to any Preferred Shares will initially be
equal to 1, subject to adjustment as described below.
(b) Manner of Conversion.
(i) In order to exercise the conversion right, the
holder of each Preferred Share to be converted shall surrender to the
Corporation the certificate representing such share, duly endorsed or assigned
to the Corporation or in blank, accompanied by written notice to the Corporation
that the holder thereof elects to convert Such Preferred Shares. Unless the
shares of Common Stock issuable on conversion are to be issued in the same name
as the name in which such Preferred Shares are registered, each Preferred Share
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder or such
holder's duly authorized attorney and an amount sufficient to pay any transfer
or similar tax (or evidence reasonably satisfactory to the Corporation
demonstrating that such taxes have been paid).
(ii) As promptly as practicable after the surrender of
certificates of Preferred Shares as aforesaid, the Corporation shall issue and
shall deliver at such office to such holder, or on such holder's written order,
a certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such Preferred Shares in accordance with the
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<PAGE> 11
provisions of this Section 7, and any fractional interest in respect of a share
of Common Stock arising upon such conversion shall be settled as provided in
paragraph (c) of this Section 7.
(iii) Each conversion shall be deemed to have been
effected immediately prior to the close of business on the date on which
certificates for Preferred Shares have been surrendered and such notice received
by the Corporation as aforesaid, and the person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby at such time on such date
and such conversion shall be at the Conversion Ratio in effect at such time on
such date unless the stock transfer books of the Corporation shall be closed on
that date, in which event such conversion shall have been deemed to have been
effected and such person or persons shall be deemed to have become the holder or
holders of record at the close of business on the next succeeding day on which
such stock transfer books are open, but such conversion shall be at the
Conversion Ratio in effect on the date on which such shares shall have been
surrendered and such notice received by the Corporation.
(c) Fractional Shares. No fractional shares or scrip
representing fractions of shares of Common Stock shall be issued upon conversion
of the Preferred Shares. Instead of any fractional interest in a share of Common
Stock that would otherwise be deliverable upon the conversion of Preferred
Shares, the Corporation shall pay to the holder of such share an amount in cash
based upon the Current Market Price of Common Stock on the Trading Day
immediately preceding the date of conversion. If more than one Preferred Share
shall be surrendered for conversion at one time by the share holder, the number
of full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of Preferred Shares so
surrendered.
(d) Adjustment of Conversion Ratio. The Conversion Ratio
shall be adjusted from time to time as follows:
(i) If the Corporation shall, while any Preferred
Shares are outstanding, (A) pay a dividend or make a distribution with respect
to its capital stock in shares of its Common Stock, (B) subdivide its
outstanding Common Stock into a greater number of shares, (C) combine its
outstanding Common Stock into a smaller number of shares or (D) issue any shares
of capital stock by reclassification of its Common Stock, the Conversion Ratio
in effect at the opening of business on the day next following the date fixed
for the determination of shareholders entitled to receive such dividend or
distribution or at the opening of business on the day following the day on which
such subdivision, combination or reclassification becomes effective, as the case
may be, shall be adjusted so that the holder of any Preferred Shares thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock that such holder would have owned or have been entitled to receive
after the happening of any of the events described above had such Preferred
Shares been converted immediately prior to the record date in the case of a
dividend or distribution or the effective date in the case of a subdivision,
combination or reclassification. An adjustment made pursuant to this
subparagraph (i) shall become effective immediately after the opening of
business on the day next following the record date (except as provided in
paragraph (h) below) in the case of a
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<PAGE> 12
dividend or distribution and shall become effective immediately after the
opening of business on the day next following the effective date in the case of
a subdivision, combination or reclassification.
(ii) If the Corporation shall, while any Preferred
Shares are outstanding, issue rights, options or warrants to all holders of
Common Stock entitling them (for a period expiring within 45 days after the
record date mentioned below) to subscribe for or purchase Common Stock at a
price per share less than the Current Market Price per share of Common Stock on
the record date for the determination of shareholders entitled to receive such
rights or warrants, then the Conversion Ratio in effect at the opening of
business on the day next following such record date shall be adjusted to equal
the ratio determined by multiplying (I) the Conversion Ratio in effect
immediately prior to the opening of business on the day next following the date
fixed for such determination by (II) a fraction, the numerator of which shall be
the sum of (A) the number of shares of Common Stock outstanding on the close of
business on the date fixed for such determination and (B) the number of shares
that the aggregate proceeds to the Corporation from the exercise of such rights
or warrants for Common Stock would purchase at such Current Market Price, and
the denominator of which shall be the sum of (A) the number of Shares of Common
Stock outstanding on the close of business on the date fixed for such
determination and (B) the number of additional shares of Common Stock offered
for subscription or purchase pursuant to such rights or warrants. Such
adjustment shall become effective immediately after the opening of business on
the day next following such record date (except as provided in paragraph (h)
below). In determining whether any rights or warrants entitle the holders of
Common Stock to subscribe for or purchase shares of Common Stock at less than
such Current Market Price, there shall be taken into account any consideration
received by the Corporation upon issuance and upon exercise of such rights or
warrants, the value of such consideration, if other than cash, to be determined
by the Board of Directors.
(iii) If the Corporation shall distribute to all holders
of its Common Stock any shares of capital stock of the Corporation (other than
Common Stock) or evidence of its indebtedness or assets (excluding Regular
Quarterly Dividends) or rights or warrants to subscribe for or purchase any of
its securities (excluding those rights and warrants issued to all holders of
Common Stock entitling them for a period expiring within 45 days after the
record date referred to in subparagraph (ii) above to subscribe for or purchase
Common Stock, which rights and warrants are referred to in and treated under
subparagraph (ii) above) (any of the foregoing being hereinafter in this
subparagraph (iii) called the "Securities"), then in each such case each holder
of Preferred Shares shall receive concurrently with the receipt by holders of
the Common Stock the kind and amount of such Securities that it would have owned
or been entitled to receive had such Preferred Shares been converted immediately
prior to such distribution or related record date, as the case may be.
(iv) Distribution of Cash. In case the Corporation shall
pay or make a dividend or other distribution on its Common Stock exclusively in
cash (excluding Regular Quarterly Dividends), each holder of Preferred Shares
shall receive concurrently with the receipt by holders of the Common Stock the
kind and amount of any such distribution that it would have
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<PAGE> 13
owned or been entitled to receive had such Preferred Shares been converted
immediately prior to such distribution or related record date, as the case may
be.
(v) No adjustment in the Conversion Ratio shall be
required unless such adjustment would require a cumulative increase or decrease
of at least 1%; provided, however, that any adjustments that by reason of this
subparagraph (v) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment until made. Notwithstanding any other
provisions of this Section 7, the Corporation shall not be required to make any
adjustment of the Conversion Ratio for (x) the issuance of any shares of Common
Stock pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Corporation and the investment of
additional optional amounts in shares of Common Stock pursuant to any plan
providing for the reinvestment of dividends or interest payable on securities of
the Corporation and the investment of additional optional amounts in shares of
Common Stock under such plan, (y) the issuance of contingent rights issued
pursuant to a stockholders' rights plan adopted by the Corporation pursuant to
which the acquisition by any third party of a specified percentage of Common
Stock triggers the exercisability of such rights to purchase Common Stock, for
so long as no event has occurred triggering such rights to exercise, and (z) the
issuance of Common Stock or options to purchase Common Stock pursuant to an
employee benefit plan. All calculations under this Section 7 shall be made to
the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth
of a share (with .05 of a share being rounded upward), as the case may be.
Anything in this paragraph (d) to the contrary notwithstanding, the Corporation
shall be entitled, to the extent permitted by law, to make such reductions in
the Conversion Ratio, in addition to those required by this paragraph (d), as it
in its discretion shall determine to be advisable in order that any stock
dividends, subdivision of shares, reclassification or combination of shares,
distribution of rights or warrants to purchase stock or securities, or a
distribution of other assets (other than cash dividends) hereafter made by the
Corporation to its shareholders shall not be taxable, or if that is not
possible, to diminish any income taxes that are otherwise payable because of
such event.
(e) Adjustment of Conversion Ratio Upon Certain Transactions.
If the Corporation shall be a party to any transaction (including, without
limitation, a merger, consolidation, statutory share exchange, self tender offer
for all or substantially all shares of Common Stock, sale of all or
substantially all of the Corporation's assets or recapitalization of the Common
Stock and excluding any transaction as to which subparagraph (d)(i) of this
Section 7 applies) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which shares of Common Stock shall
be converted into the right to receive stock, securities or other property
(including cash or any combination thereof), each Preferred Share that is not
converted into the right to receive stock, securities or other property in
connection with such Transaction shall thereafter be convertible into the kind
and amount of shares of stock, securities and other property (including cash or
any combination thereof) receivable upon the consummation of such Transaction by
a holder of that number of shares of Common Stock into which one Preferred Share
was convertible immediately prior to such Transaction, assuming such holder of
Common Stock (i) is not a person with which the Corporation consolidated or into
which the Corporation merged or which merged into the Corporation or to which
such sale or transfer was made, as the case may be (a "Constituent Person"), or
an affiliate of a Constituent
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<PAGE> 14
Person or (ii) failed to exercise his or her rights of election, if any, as to
the kind or amount of stock, securities and other property (including cash)
receivable upon such Transaction (provided that if the kind or amount of stock,
securities and other property (including cash) receivable upon such Transaction
is not the same for each share of Common Stock of the Corporation held
immediately prior to such Transaction by other than a Constituent Person or an
affiliate thereof and in respect of which such rights of election shall not have
been exercised ("Non-electing Share"), then for the purpose of this paragraph
(e) the kind and amount of stock, securities and other property (including cash)
receivable upon such Transaction by each Non-electing Share shall be deemed to
be the kind and amount so receivable per share by a plurality of the
Non-electing Shares). The Corporation shall not be a party to any Transaction
unless the terms of such Transaction are consistent with the provisions of this
paragraph (e), and it shall not consent or agree to the occurrence of any
Transaction until the Corporation has entered into an agreement with the
successor or purchasing entity, as the case may be, for the benefit of the
holders of the Preferred Shares that will contain provisions enabling the
holders of the Preferred Shares that remain outstanding after such Transaction
to convert into the consideration received by holders of Common Stock at the
Conversion Ratio in effect immediately prior to such Transaction. The provisions
of this paragraph (e) shall similarly apply to successive Transactions.
(f) Notice of Certain Events. If:
(i) the Corporation shall declare a dividend (or any
other distribution) on the Common Stock (other than the Regular Quarterly
Dividend); or
(ii) the Corporation shall authorize the granting to all
holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of any class or any other rights or warrants; or
(iii) there shall be any reclassification of the Common
Stock (other than any event to which subparagraph (d)(i) of this Section 7
applies) or any consolidation or merger to which the Corporation is a party and
for which approval of any shareholders of the Corporation is required, or a
statutory share exchange, or self tender offer by the Corporation for all or
substantially all of its outstanding shares of Common Stock or the sale or
transfer of all or substantially all of the assets of the Corporation as an
entity (other than the Corporation's current exchange offer with respect to its
outstanding 8.375% Convertible Subordinated Debentures due 2001); or
(iv) there shall occur the involuntary or voluntary
liquidation, dissolution or winding up of the Corporation,
then the Corporation shall cause to be mailed to the holders of Preferred
Shares, at the address as shown on the stock records of the Corporation, as
promptly as possible, but at least 15 Business Days prior to the applicable date
hereinafter specified, a notice stating (A) the date on which a record is to be
taken for the purpose of such dividend, distribution or rights or warrants, or,
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution or rights or warrants
are to be determined or (B) the date on which such reclassification,
consolidation, merger, statutory share exchange, sale, transfer, liquidation,
dissolution or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock shall be entitled to exchange
their shares of Common Stock for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, statutory share
exchange, sale, transfer,
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<PAGE> 15
liquidation, dissolution or winding up. Failure to give or receive such notice
or any defect therein shall not affect the legality or validity of the
proceedings described in this Section 7.
(g) Notice of Adjustment of Conversion Ratio. Whenever the
Conversion Ratio is adjusted as herein provided, the Corporation shall prepare a
notice of such adjustment of the Conversion Ratio setting forth the adjusted
Conversion Ratio and the effective date of such adjustment and shall mail such
notice of such adjustment of the Conversion Ratio to the holders of the
Preferred Shares at such holders' last address as shown on the stock records of
the Corporation.
(h) Timing of Adjustment. In any case in which paragraph (d) of
this Section 7 provides that an adjustment shall become effective on the day
next following the record date for an event, the Corporation may defer until the
occurrence of such event (A) issuing to the holder of Preferred Shares converted
after such record date and before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon such
conversion before (giving effect to such adjustment and (B) paying to Such
holder any amount of cash in lieu of any fraction pursuant to paragraph (c) of
this Section 7.
(i) No Duplication of Adjustments. There shall be no adjustment
of the Conversion Ratio in case of the issuance of any stock of the Corporation
in a reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 7. If any action or transaction would
require adjustment of the Conversion Ratio pursuant to more than one paragraph
of this Section 7, only one adjustment shall be made and such adjustment shall
be the amount of adjustment that has the highest absolute value.
(j) Other Adjustments to Conversion Ratio. If the Corporation
shall take any action affecting the Common Stock, other than action described in
this Section 7, that would materially adversely affect the conversion rights of
the holders of the Preferred Shares or the value of such conversion rights, the
Conversion Ratio for the Preferred Shares may be adjusted, to the extent
permitted by law, in such manner, if any, and at such time, as the Board of
Directors, in its sole discretion, may determine to be equitable in the
circumstances.
(k) Reservation, Validity, Listing and Securities Law Compliance
With Respect to Shares of Common Stock.
(i) The Corporation covenants that it will at all
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued shares of Common Stock for the purpose
of effecting conversion of the Preferred Shares, the full number of shares of
Common Stock deliverable upon the conversion of all outstanding Preferred Shares
not therefore converted. Before taking any action which would cause an
adjustment in the Conversion Ratio such that Common Stock issuable upon the
conversion of Preferred Shares
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<PAGE> 16
would be issued below par value of the Common Stock, the Corporation will take
any corporate action which may, in the opinion of its counsel, be reasonably
necessary in order that the Corporation may validly and legally issue fully-paid
and nonassessable shares of Common Stock at such adjusted Conversion Ratio.
(ii) The Corporation covenants that any shares of Common
Stock issued upon the conversion of the Preferred Shares shall be validly
issued, fully paid and non-assessable.
(iii) The Corporation shall endeavor to list the shares
of Common Stock required to be delivered upon conversion of the Preferred
Shares, prior to such delivery, upon each national securities exchange, if any,
upon which the outstanding Common Stock is listed at the time of such delivery.
(iv) Prior to the delivery of any securities that the
Corporation shall be obligated to deliver upon conversion of the Preferred
Shares, the Corporation shall endeavor to comply with all federal and state laws
and regulations thereunder requiring the registration of such securities with,
or any approval of or consent to the delivery thereof, by any governmental
authority.
(l) Transfer Taxes. The Corporation will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock or other securities or property on
conversion of the Preferred Shares pursuant hereto; provided, however, that the
Corporation shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issue or delivery of shares of Common Stock or
other securities or property in a name other than that of the holder of the
Preferred Shares to be converted, and no such issue or delivery shall be made
unless and until the person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or established, to the reasonable
satisfaction of the Corporation, that such tax has been paid.
(m) Certain Defined Terms. The following definitions shall
apply to terms used in this Section 7:
(1) Current Market Price. For the purpose of any computation
under this Section 7, the Current Market Price per share of
Common Stock on any date in question shall be deemed to be the
average of the daily closing prices for the five consecutive
Trading Days preceding such date in question; provided, however,
that if another event occurs that would require an adjustment
pursuant to subsection (f) through (j), inclusive, the Board may
make such adjustments to the closing prices during such five
Trading Day period as it deems appropriate to effectuate the
intent of the adjustments in this Section 7, in which case any
such determination by the Board shall be set forth in a
resolution of the Board and shall be conclusive.
(2) "Trading Day" shall mean a day on which Preferred Shares
are traded on the national Preferred Shares exchange or
quotation system used to determine the Closing Price.
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<PAGE> 17
Section 8. Preferred Shares -- Change of Control and Put Option.
(a) Subject to the last sentence of this Section 8(a), if a
Change of Control or Put Event occurs, in either case as a result of the
voluntary (and not legally compelled) act, omission or participation of the
Corporation, which act, omission or participation the Corporation had the
discretion under existing laws and regulations to refrain from, then each holder
of Preferred Shares will have the right to require that the Corporation, to the
extent it shall have Legally Available Funds therefor, to redeem such holder's
Preferred Shares at a redemption price payable in cash in an amount equal to
102% of the Liquidation Value thereof, plus accrued and unpaid dividends whether
or not declared, if any (the "Put Payment"), to the date of purchase or the date
payment is made available (the "Put Date") pursuant to the offer described in
subsection (b) below (the "Put Offer"). If a Change of Control or Put Event
occurs that is not the result of such voluntary act, omission or participation
of the Corporation, the Corporation may elect not to make the foregoing Put
Payment by not commencing the Put Offer on the Put Date, in which event the
Conversion Ratio shall be revised to the greater of (i) 75% of the then current
Conversion Ratio so that each Preferred Share will be convertible into 133% of
the number of shares of Common Stock into which it would otherwise have been
convertible and (ii) a fraction the numerator of which is 75% of the Current
Market Price (as defined in Section 7 hereof) and the denominator of which is
$21.25. Notwithstanding the foregoing, if the Securities and Exchange Commission
or its staff (collectively, the "SEC"), by written communication to the
Corporation, indicates that the provisions of the first sentence of this Section
8(a) would preclude the Corporation from treating the Preferred Shares as equity
on its financial statements, then those events constituting either a Change of
Control Event or Put Event for which the SEC objects to the holder of Preferred
Shares having a cash redemption right shall, instead, be covered by the
Conversion Ratio revision alternative set forth in the second sentence of this
Section 8(a).
(b) Within 15 days following the Company becoming aware that an
event has occurred that has resulted in any Change of Control or Put Event, the
Corporation shall mail a notice to each holder of Preferred Shares, at such
holder's address appearing in the records of the Corporation, stating (i) that a
Change of Control or Put Event, as applicable, has occurred and that such holder
has the right to require the Corporation to redeem such holder's Preferred
Shares in cash, (ii) the date of redemption (which shall be a Business Day, no
earlier than 30 days and no later than 60 days from the date such notice is
mailed, or such later date as may be necessary to comply with the requirements
of applicable law including the Exchange Act), (iii) the redemption price for
the redemption, and (iv) the instructions determined by the Corporation,
consistent with this subsection, that a holder must follow in order to have its
Preferred Shares redeemed.
(c) On the Put Date, the Corporation will, to the extent lawful,
accept for payment Preferred Shares or portions thereof tendered pursuant to the
Put Offer and pay an amount equal to the Put Payment in respect of all Preferred
Shares or portions thereof so tendered. The Corporation shall promptly mail to
each holder of Preferred Shares to be redeemed the Put Payment for such
Preferred Shares.
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<PAGE> 18
(d) Notwithstanding anything else herein, to the extent they are
applicable to any Change of Control Offer, the Corporation will comply with
Section 14 of the Exchange Act and the provisions of Regulation 14D and 14E and
any other tender offer rules under the Exchange Act and any other federal and
state securities laws, rules and regulations and all-time periods and
requirements shall be adjusted accordingly.
(e) "Change of Control" means each occurrence of any of the
following: (i) the acquisition, directly or indirectly, by any individual or
entity or group (as such term is used in Section 13(d)(3) of the Exchange Act of
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act, except
that such individual or entity shall be deemed to have beneficial ownership of
all shares that any such individual or entity has the right to acquire, whether
such right is exercisable immediately or only after passage of time) of more
than 25% of the aggregate outstanding voting power of capital stock of the
Corporation; (ii) other than with respect to the election, resignation or
replacement of the Preferred Directors, during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Corporation (together with any new directors whose election by
such Board of Directors or whose nomination for election by the shareholders of
the Corporation was approved by a vote of 66 2/3% of the directors of the
Corporation (excluding Preferred Directors) then still in office who were either
directors at the beginning of such period, or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Corporation then in office; and (iii)
(A) the Corporation consolidates with or merges into another entity (the "Merger
Entity) or conveys, transfers or leases all or substantially all of its
respective assets (including, but not limited to, real property investments) to
any individual or entity (the "Acquiring Entity", and, together with the Merger
Entity, the "Successor Entity"), or (B) any corporation consolidates with or
merges into the Corporation, which in either event (A) or (B) is pursuant to a
transaction in which the outstanding voting capital stock of the Corporation is
reclassified or changed into or exchanged for cash, securities or other property
(unless the holders of the voting capital stock of the Corporation immediately
prior to such transaction hold immediately after such transaction more than 50%
of the outstanding voting capital stock of the Successor Entity.
(f) "Put Event" means each occurrence of any of (i) the
Corporation fails to qualify as a real estate investment trust as described in
Section 856 of the Internal Revenue Code of 1986, as amended, other than as a
result of any action, or unreasonable failure to act, by any holder of Preferred
Shares; (ii) the Corporation becomes a "Pension-held REIT" as defined in Section
856(h)(3)(D) of the Internal Revenue Code of 1986, as amended, other than as a
result of any action, or unreasonable failure to act, by the holders of
Preferred Shares; or (iii) the Corporation ceases to be engaged primarily in the
business of owning and managing multi-family properties and/or industrial
properties directly, or through subsidiaries, as carried on as of the date
hereof and described in the Corporation's Annual Report on Form 10-K, as
amended, as filed with the Securities and Exchange Commission for the year ended
December 31, 1996.
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<PAGE> 19
Section 9. Preferred Shares -- Restrictions on Ownership
Transfer to Preserve Tax Benefit.
(a) The Preferred Shares shall be governed by the restrictions
on ownership and transfer set forth in subsection (D)(4) of Article V of the
Charter.
(b) So long as Preferred Shares are outstanding, without the
consent of the holders of at least a majority of the Preferred Shares at the
time outstanding, given in person or by proxy, at a meeting called for that
purpose at which the holders of the Preferred Shares shall vote separately as a
class, or by unanimous written consent in writing of all holders of the
Preferred Shares, the Corporation will not effect or validate any amendment,
alteration or repeal of any Section of the Charter, so as to increase in any
respect the restrictions or limitations on ownership applicable to the Preferred
Shares pursuant thereto.
Section 10. Preferred Shares--Conversion and Exchange for
Excess Stock. Preferred Shares exchanged for Excess Stock pursuant to
subsection(D)(4)(c) of the Charter shall be governed by Article V.E. of the
Charter.
Section 11. Miscellaneous.
(a) Exchange or Market Transactions. Nothing in Section 9,
Section 10 or this Section 11 shall preclude the settlement of any transaction
entered into through the facilities of the NYSE or any other national securities
exchange or automated inter-dealer quotation system. However, as set forth in
Section 9, Section 10 or this Section 11, certain transactions may be settled by
providing shares of Excess Stock.
(b) Severability. If any provision of Section 9, Section 10 or
this Section 11 or any application of any such provision is determined to be
invalid by any federal or state court having jurisdiction over the issues, the
validity of the remaining provisions shall not be affected and other
applications of such provisions shall be affected only to the extent necessary
to comply with the determination of such court.
(c) Mailings. All mailings shall be made by overnight United
States mail or by another overnight courier service.
(d) Reacquired Shares. Any Preferred Shares purchased or
otherwise acquired by the Corporation in any matter whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be classified again and reissued as part of a new series or class of
Preferred Stock to be created by the Board pursuant to its power contained in
the Charter, subject to conditions and restrictions on issuance set forth
herein.
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<PAGE> 20
IN WITNESS WHEREOF, PACIFIC GULF PROPERTIES INC. has caused its
corporate seal to be hereunto affixed and these Articles Supplementary to be
signed by its Chairman, Chief Executive Officer and President, Glenn L.
Carpenter, and attested by its Secretary, Donald G. Herrman this __th day of
May, 1997.
PACIFIC GULF PROPERTIES INC.
By: ____________________________
Name: Glenn L. Carpenter
Title: Chairman, Chief Executive
Officer and President
THE UNDERSIGNED, Secretary of Pacific Gulf Properties Inc. who
executed on behalf of said corporation the foregoing Articles Supplementary, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said corporation, the foregoing Articles Supplementary to be the
corporate act of said corporation and further certify that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof or otherwise required to be verified under oath
are true in all material respects, under the penalties of perjury.
By: ______________________
Name: Donald G. Herrman
Title: Secretary
Corporate Seal
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<PAGE> 1
OPERATING AGREEMENT
OPERATING AGREEMENT, dated as of May __, 1997, between Pacific
Gulf Properties Inc., a Maryland corporation (the "Company"), and Five Arrows
Realty Securities L.L.C., a limited liability company organized under the laws
of the State of Delaware (the "Investor"), for the benefit of the Investor.
This Agreement is executed pursuant to the Investment Agreement,
dated as of May 27, 1997, between the Company and the Investor (the "Investment
Agreement"). In order to induce the Investor to enter into the Investment
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement.
The parties hereby agree as follows:
1. DEFINITIONS. The following terms shall have the meanings set forth
below:
"Affiliate" means, with respect to any Person, (a) any member of
the Immediate Family of such Person or a trust established for the
benefit of such member, (b) any beneficiary of a trust described in (a),
(c) any Entity which, directly or indirectly though one or more
intermediaries, is deemed to be the beneficial owner of 25% or more of
the voting equity of the Person for the purposes of Section 13(d) of the
Exchange Act, (d) any officer of the Person or any member of the Board
of Directors of the Company, or (e) any Entity which, directly or
indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with, such Person, including such Person
or Persons referred to in the preceding clauses (a) or (d); provided,
however, that none of the Investor, Rothschild Realty Inc. or their
respective Affiliates, nor any of their respective officers, directors,
partners or members nor a Preferred Director (as such term is defined in
the Certificate of Designation) shall be considered an Affiliate of the
Company or any of its Subsidiaries for the purposes of this Agreement.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or
Friday which is not a day on which banking institutions in New York City
are authorized or obligated by law or executive order to close.
"Certificate of Designation" means the Articles Supplementary
classifying 1,411,765 shares of preferred stock as Class B Senior
Cumulative Convertible Preferred Stock of the Company.
"Class A Preferred Shares" means the Class A Senior Cumulative
Convertible Preferred Stock of the Company.
"Commission" means the Securities and Exchange Commission.
<PAGE> 2
"Common Stock" means the Common Stock, par value $.01 per share,
of the Company.
"Demand Requesting Holders" means any Holder or Holders holding
an aggregate of not less than 30% of the Registrable Securities then
outstanding. For purposes of calculating such percentage, shares of
Common Stock constituting Registrable Securities shall be deemed to
equal the number of shares of converted Preferred Stock in respect of
which such shares of Common Stock were issued.
"Entity" means any general partnership, limited partnership,
corporation, joint venture, trust, business trust, real estate
investment trust, limited liability company, cooperative or association.
"equity security" includes common stock, preferred stock and any
other security that is treated as an equity security either under the
Exchange Act or under generally accepted accounting principles by the
issuer thereof or any other security convertible into, or exchangeable
for any equity security and any other instrument, such as an equity
swap, the value of which is based, at least in part, on the value of
such equity security.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Governmental Body" means any foreign, federal, state, municipal
or other government, or any department, commission, investigative body,
board, bureau, agency, public authority or instrumentality thereof or
any court, mediator, arbitrator or other tribunal.
"Holder" means any person that owns or has the right to acquire
Registrable Securities or Piggyback Registrable Securities, as
applicable, constituting more than 3% of the outstanding shares of such
class of Registrable Securities or Piggyback Registrable Securities, as
applicable.
"Immediate Family" means, with respect to any Person, such
Person's spouse, parents, parents-in-law, descendants, nephews, nieces,
brothers, sisters, brothers-in-law, sisters-in-law, stepchildren,
sons-in-law and daughters-in-law.
"Majority Holders" means (a) the Investor, so long as (i) the
Investor holds at least 25% of the outstanding Registrable Securities
and (ii) no underwritten Demand Registration or Piggyback Registration
has been consummated by the Company pursuant to Section 3 of this
Agreement, or (b) otherwise, the holder or holders at the relevant time
(excluding the Company or any of its Subsidiaries) of more than 50% of
the Preferred Shares or Registrable Securities then outstanding. For
purposes of calculating such percentage, shares of Common Stock
constituting Registrable Securities shall be deemed to equal the number
of shares of converted Preferred Stock in respect of which such shares
of Common Stock were issued.
"Person" means any individual or Entity.
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"Piggyback Registrable Securities" means Registrable Securities
of the same class and series as the securities the Company proposes to
register under the Securities Act in a transaction giving rise to
Piggyback Registration rights under Section 4 hereof, except that in the
case of a shelf registration statement, all Registrable Securities shall
be deemed to be Piggyback Registrable Securities.
"Preferred Shares" means the Class B Senior Cumulative
Convertible Preferred Stock of the Company.
"Prospectus" means the Prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference in such
Prospectus.
"Registrable Securities" means (i) all Preferred Shares and all
shares of Common Stock that have been issued, or are issuable on
conversion, in respect of the Preferred Shares pursuant to the
provisions of Section 7 of the Certificate of Designation of the
Company, dated the date hereof, (ii) any other securities that are
received by the Holders pursuant to Section 7 of the Certificate of
Designation, (iii) any other capital stock of the Company, the holders
of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and (iv) any other securities into which or for
which any of the securities described in clauses (i) through (iii) above
may be or have been converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise,
until such time as (a) they have been effectively registered under the
Securities Act for resale and sold thereunder, (b) they are distributed
to the public pursuant to Rule 144 (or any similar provisions then in
force) under the Securities Act, (c) they shall have been otherwise
transferred, new certificates therefor not bearing a legend restricting
further transfer shall have been issued by the Company and subsequent
disposition thereof shall not require registration under the Securities
Act, or (d) they shall have ceased to be outstanding.
"Registration Statement" means any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective
amendments, all exhibits and all material incorporated by reference in
such Registration Statement.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Shareholder Approval" means the affirmative vote of holders of a
majority of the shares of Voting Capital Stock of the Company
represented in person or by proxy at a duly held meeting of such
shareholders at which a quorum was present or the written
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consent of holders of a majority of all outstanding shares of Voting
Capital Stock of the Company; provided, however, that if the outstanding
shares of Voting Capital Stock having varying votes per share, the
foregoing references in this sentence to holders of a majority of shares
shall be deemed to mean holders of shares entitled to cast a majority of
votes.
"Underwriters Maximum Number" means for any underwritten
registration, that number of shares of securities to which such
registration should, in the written opinion of the managing underwriter
or underwriters of such registration in light of market factors, be
limited.
"underwritten registration" or "underwritten offering" means a
registration in which securities of the Company are sold to an
underwriter for reoffering to the public.
"Voting Capital Stock" means equity securities of the Company
entitled to vote generally in the election of directors of the Company.
2. COVENANTS AND UNDERTAKINGS
2.1 Reservation of Shares. The Company will maintain as reserved
those shares of Common Stock reserved in accordance with Section 4.6 of the
Investment Agreement and shall take all such action as may be required from time
to time in order that it may validly and legally issue fully paid and
non-assessable shares of Common Stock in accordance herewith and therewith.
2.2 No Partial Redemption. Notwithstanding its ability to effect
partial redemptions of the Preferred Shares pursuant to Section 5 of the
Certificate of Designation, if the Company shall elect to redeem any Preferred
Shares or any Class A Preferred Shares held by the Investor, Rothschild Realty
Inc., an Affiliate of either of them or one of their respective members or
partners, the Company shall redeem all of such Preferred Shares and all of the
Class A Preferred Shares held by such persons, simultaneously and on the same
terms.
2.3 Affiliate Transactions. So long as the Investor or an
Affiliate of the Investor, or one of their respective members or partners, is
the holder of either (A) all of the outstanding Preferred Shares or (B) an
amount of the Company's Voting Capital Stock which, if converted into shares of
Common Stock, would exceed 10% of the outstanding Common Stock on a fully
diluted basis (determined on the basis of then convertible, exercisable or
exchangeable securities, warrants or options issued by the Company), the Company
will not, and will not permit any of their respective Subsidiaries to, directly
or indirectly, consummate any transaction or series of transactions (including,
without limitation, the sale, purchase, exchange or lease of any assets or
properties or the rendering of any services) with any Affiliate (other than
among the Company or its Subsidiaries) (an "Affiliate Transaction") unless (i)
such transaction or series of related transactions is on terms that are no less
favorable to the Company or its Subsidiaries, as the case may be, than would be
available in a comparable transaction in arm's-length dealings with an unrelated
third party and (ii) with respect to any one transaction or series of related
transactions involving aggregate payments in excess of $1,000,000, the Company
delivers a
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certificate, certified by an officer of the Company, to the Investor certifying
that such transaction or series of related transaction complies with clause (i)
above and such transaction or series of related transactions has received the
approval of a majority of the disinterested members of the Board of Directors of
the Company; provided, however, that this Section 2.3 shall not apply to any
transaction (i) arising out of any agreement existing on the date hereof or any
transaction in which all holders of any class or series of outstanding capital
stock of the Company have the right to participate on a pro rata basis or (ii)
that has received Shareholder Approval.
2.4 Inspection Rights. So long as the Investor or an Affiliate
of the Investor, or one of their respective members or partners, is the holder
of either (A) all of the Preferred Shares outstanding or (B) an amount of the
Company's Voting Capital Stock which, if converted into shares of Common Stock,
would exceed 10% of the Common Stock on a fully diluted basis (determined on the
basis of then convertible, exercisable or exchangeable securities, warrants or
options issued by the Company), the Company shall permit, and cause its
Subsidiaries to permit, the Investor or any agents or representatives thereof to
examine and inspect the books and records of the Company and take copies and
extracts therefrom on reasonable prior notice and at reasonable times and during
normal business hours; provided, however, that the Company shall have the right
to require, as a condition to such examination, inspection or taking of copies
or extracts therefrom, that the Investor and such agents and representatives
execute a confidentiality and standstill agreement substantially in the form of
the letter agreement dated September 30, 1996 between the Company and Rothschild
Realty Inc., for itself and as agent for the Investor.
2.5 Insurance for Directors. So long as the Investor or an
Affiliate of the Investor, or one of their respective members or partners, is
the holder of either (A) all of the Preferred Shares outstanding or (B) an
amount of the Company's Voting Capital Stock which if converted into shares of
Common Stock would exceed 10% of the Common Stock on a fully diluted basis
(determined on the basis of then convertible, exercisable or exchangeable
securities, warrants or options issued by the Company), the Company shall obtain
and maintain directors' and officers' reimbursement and liability insurance in
the name of each Preferred Director (as such term is defined in the Certificate
of Designation) in an amount not less than the amount provided to other outside
directors of the Company or less than the amount of the current policy therefor;
provided, however, that (i) such directors supply the information required by
the Company's insurance carrier and meet the qualifications established by such
carrier, if any, which shall not be more burdensome than those of the Company's
current policy, (ii) if such insurance is a claims based or equivalent policy,
each such Preferred Director shall be entitled to such insurance for an
additional six years and (iii) in no event shall the Company be required to
obtain and maintain such insurance in an amount such that the annual premiums
exceed 300% of the annual premiums currently being paid for such insurance.
2.6 Accrued and Unpaid Dividends. Notwithstanding anything in
the Certificate of Designation to the contrary, on the date of conversion of any
Preferred Shares pursuant to Section 7 of the Certificate of Designation by the
Investor, Rothschild Realty Inc., an Affiliate of either of them or one of their
respective members or partners, the Company shall pay such holder of such
Preferred Shares all accrued and unpaid dividends in respect of such Preferred
Shares as provided for in Section 2 of the Certificate of Designation.
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2.7 Fees and Expenses. In the event that the Company shall
request that the Investor consent to any action by the Company that is otherwise
prohibited by, or amend any of, the Operative Instruments, the Company shall pay
all reasonable legal fees and expenses reasonably incurred by the Investor in
connection with the Investor's review of such request.
2.8 Board of Directors. For so long as each of the Preferred
Shares and the Class A Preferred Shares are outstanding, the Company shall not
increase the number of members of the Board of Directors of the Company beyond
seven members other than Preferred Directors serving pursuant to the terms of
the Certificate of Designation or the Articles Supplementary Classifying
1,351,351 Shares of Preferred Stock as Class A Senior Cumulative Convertible
Preferred Stock.
3. DEMAND REGISTRATION
3.1 Right to Demand Registration. (a) Subject to Section 3.5, at any
time following the earlier of June 1, 1998 or the date of the 1998 Annual
Meeting of Shareholders of the Company, Demand Requesting Holders may make a
written request to the Company for registration with the Commission (a "Demand
Registration") under and in accordance with the provisions of the Securities Act
of all or part of its Registrable Securities; provided, however, that the
Company (i) shall be required to effect no more than one such Demand
Registration pursuant to this Section 3 (other than the "shelf" registration
provided for under Section 3.1(c)), (ii) shall not be required to effect a
Demand Registration if less than $10 million in market value of Registrable
Securities would be registered and (iii) shall not be required to provide any
such Demand Registration if the Investor shall have received a favorable opinion
letter from counsel to the Company, in form and substance satisfactory in the
reasonable judgment of counsel to the Investor that (x) subject to the
restrictions on transfer set forth in the Certificate of Designation, the
Preferred Shares were, when issued to the Investor, fully registered under the
Securities Act and shall be freely transferable by the Investor without the
requirement that such Preferred Shares be registered or qualified pursuant to
any federal securities law or the Investor comply with the prospectus delivery
requirements of the Securities Act or Rule 144(e) under the Securities Act and
(y) subject to the restrictions on transfer set forth in the Charter, any Common
Stock held by the Investor as a result of the conversion of any Preferred Shares
pursuant to the provisions of the Certificate of Designation were, when the
Preferred Shares were issued to the Investor, registered under the Securities
Act and shall be freely transferable by the Investor without the requirement
that such Common Stock be registered or qualified pursuant to any federal
securities law or the Investor comply with the prospectus delivery requirements
of the Securities Act or Rule 144(e) under the Securities Act.
(b) The Demand Registration shall be in the form of a firmly
underwritten offering managed by an underwriter or underwriters selected by the
Company pursuant to Section 3.4.
(c) At the election of the Majority Holders (in their sole
discretion), but in no event prior to the earlier of June 1, 1998 or the date of
the 1998 Annual Meeting of Shareholders of the Company, the Company shall
promptly file with the Commission a "shelf" registration
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<PAGE> 7
statement with respect to all of their Registrable Shares, on an appropriate
Form, pursuant to Rule 415 under the Securities Act or any similar rule that may
be adopted by the Commission (the "Shelf Registration"). The Company shall use
its best efforts to have the Shelf Registration declared effective as soon as
practicable after such filing and, notwithstanding anything to the contrary
herein, shall use best efforts to keep the Shelf Registration continuously
effective until the earlier of (i) the second anniversary (plus the term of any
Blackout Period, as defined in Section 3.5) of the date such Shelf Registration
is declared effective and (ii) the date on which all shares registered on such
"shelf" registration statement have been sold. Such "shelf" registration shall
provide for distributions other than through underwritten offerings and shall
not qualify as the Demand Registration to which the Holders are entitled. Any
Holder shall be required to comply with the rules of the New York Stock Exchange
or any other stock exchange on which the Common Stock is then listed. The
Company shall not be required to effect more than one such Shelf Registration
pursuant to this Section 3 and shall not be required to effect any such Shelf
Registration if the Investor shall have received a favorable opinion letter from
counsel to the Company, in form and substance satisfactory in the reasonable
judgment of counsel to the Investor that (x) subject to the restrictions on
transfer set forth in the Certificate of Designation, the Preferred Shares were,
when issued to the Investor, fully registered under the Securities Act and shall
be freely transferable by the Investor without the requirement that such
Preferred Shares be registered or qualified pursuant to any federal securities
law or the Investor comply with the prospectus delivery requirements of the
Securities Act or Rule 144(e) under the Securities Act and (y) subject to the
restrictions on transfer set forth in the Charter, any Common Stock held by the
Investor as a result of the conversion of any Preferred Shares pursuant to the
provisions of the Certificate of Designation were, when the Preferred Shares
were issued to the Investor, registered under the Securities Act and shall be
freely transferable by the Investor without the requirement that such Common
Stock be registered or qualified pursuant to any federal securities law or the
Investor comply with the prospectus delivery requirements of the Securities Act
or Rule 144(e) under the Securities Act.
(d) Within ten days after receipt of any request by the Demand
Requesting Holders under Section 3.1(a) or the Majority Holders under Section
3.1(c), the Company will give written notice (the "Other Holders Notice") of
such registration request to all other Holders, if any, and, subject to Section
3.3, shall include in such registration all Registrable Securities with respect
to which the Company has received written requests for inclusion therein from
the Holders thereof within 15 days after such notice by the Company.
3.2 Effective Registration and Expenses. A registration will qualify
as a Demand Registration or a Shelf Registration when it has become effective;
provided, however, that (i) if the Demand Requesting Holders with regard to a
Demand Registration, or the Majority Holders with regard to a Shelf
Registration, withdraw their Registrable Securities after the filing with the
Commission of the initial Registration Statement related thereto, such demand
will count as a Demand Registration or a Shelf Registration unless such Demand
Requesting Holders or Majority Holders, as the case may be, agree severally to
pay all of the Registration Expenses of the Company and all other out of pocket
expenses of the Company contemplated by Section 7 hereof, incurred through the
date that notice of such withdrawal is given and (ii) an effective Demand
Registration will not count as the sole Demand Registration if the Demand
Requesting
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Holders have not been permitted to register and sell all of the Registrable
Securities requested to be included in such registration by such Demand
Requesting Holders.
3.3 Priority on Underwritten Demand Registrations. Subject to the
rights granted pursuant to the agreements set forth on Schedule 11.2, if the
managing underwriter or underwriters of any underwritten Demand Registration
advise the Company and the Holders in writing of an Underwriters Maximum Number,
the Company will be obligated and required to include in such registration (i)
first, the Registrable Securities requested to be included in such Demand
Registration by the Holders, pro rata in proportion to the number of Registrable
Securities requested to be included in such registration by each of them until
all such Registrable Securities have been so included, (ii) second, the
securities requested to be included in such Demand Registration by the Company
and other Persons having contractual rights thereto, in accordance with the
priorities that exist among them, and (iii) third, any other securities of the
Company to be registered on behalf of any other Person, including the Company.
Neither the Company nor any of its securityholders (other than Holders of
Registrable Securities) shall be entitled to include any securities in any
Demand Registration unless the Company or such securityholders (as the case may
be) shall have irrevocably agreed in writing to sell such securities on the same
terms and conditions as shall apply to the Registrable Securities to be included
in such Demand Registration.
3.4 Selection of Underwriters. The managing underwriter and any
additional investment bankers and managers for use in connection with any
underwritten Demand Registration will be selected by the Company from a list of
five choices provided by the Majority Holders; provided, that the Majority
Holders shall be required to select such five firms from the list attached
hereto as Schedule 3.4.
3.5 Limitations Regarding Registration at the Request of Holders. (a)
The Company shall not be required to effect a Demand Registration or a Shelf
Registration under Section 3.1 and the Holders of Registrable Securities will
discontinue the disposition of their securities covered by a Shelf Registration
during any Blackout Period (as defined below) (i) if the Board of Directors of
the Company determines in good faith that effecting such a registration or
continuing such disposition at such time would have a material adverse effect
upon a proposed sale of all (or substantially all) of the assets of the Company
or a merger, reorganization, recapitalization or similar current transaction
materially affecting the capital structure or equity ownership of the Company,
(ii) if the Company is in possession of material information which the Board of
Directors of the Company determines in good faith is not in the best interests
of the Company to disclose in a registration statement at such time, or (iii) if
the Company has delivered a notice pursuant to Section 4.1 that it is
undertaking an underwritten offering in which the Holders will be entitled to
exercise their Piggyback Registration rights; provided, however, that the
Company may (i) only delay a Demand Registration pursuant to this Section 3.5 by
delivery of a Blackout Notice (as defined below) within thirty (30) days of
delivery of the notice requesting a Demand Registration and only for a period
not exceeding three (3) months (or until such earlier time as such transaction
is consummated or no longer proposed or the material information has been made
public); and (ii) require, by delivery of a Blackout Notice, that the Holders of
Registrable Securities discontinue from time to time, the disposition of their
securities
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<PAGE> 9
covered by a Shelf Registration for an aggregate period not to exceed
six (6) months (each period as described in (i) and (ii) above, a "Blackout
Period") .
(b) The Company shall promptly notify the Holders in writing (a
"Blackout Notice") of any decision not to effect a Demand Registration or a
Shelf Registration or to discontinue sales of Registrable Securities pursuant to
this Section 3.5, which notice shall set forth the reason for such decision (but
not disclosing any nonpublic material information unless expressly requested by
Holders) and shall include an undertaking by the Company promptly to notify the
Holders as soon as a Demand Registration or a Shelf Registration may be effected
or sales may resume.
(c) The Company shall not be required to effect a Demand
Registration or Shelf Registration under Section 3.1 during any period the
Company is restricted from filing a registration statement or from making any
public sale or distribution of its equity securities pursuant to any agreement
on Schedule 11.2.
4. PIGGYBACK REGISTRATION
4.1 Right to Include Registrable Securities. Subject to Section 4.3,
if the Company or any other issuer of Registrable Securities at any time or from
time to time proposes to register shares of its equity securities or Registrable
Securities under the Securities Act (other than in a registration on Form S-4 or
S-8 or any successor form to such forms or in connection with an exchange offer
or an offering of securities solely to the existing stockholders or employees of
the Company), whether or not for sale for its own account, the Company shall
deliver prompt written notice to all Holders of Registrable Securities of its
intention to undertake such registration and of such Holders' rights to
participate in such registration to the extent of their holdings of Piggyback
Registrable Securities under this Section 4 as hereinafter provided. The Company
shall use its reasonable best efforts to effect the registration under the
Securities Act of all Piggyback Registrable Securities with respect to which the
Company receives a request for registration from the Holders thereof by written
notice to the Company within 15 Business Days after the date of the Company's
notice to such Holders of its intended registration (which notice by Holders
shall specify the amount of such Piggyback Registrable Securities to be
registered, which amount for each Holder must equal or exceed the lesser of (i)
half of all Piggyback Registrable Securities that such Holder either owns or has
the right to acquire or (ii) 10,000 shares), to the extent necessary to permit
their disposition in accordance with the Company's intended methods thereof of
all such Piggyback Registrable Securities by including such Piggyback
Registrable Securities in the registration statement pursuant to which the
Company proposes to register the securities (a "Piggyback Registration");
provided, however, that if such registration involves an underwritten offering,
all Holders requesting inclusion in the registration shall be required to sell
such Piggyback Registrable Securities to the underwriters selected by the
Company at the same price and on the same terms of underwriting applicable to
the Company and any other Persons selling securities. Holders desiring to
participate in a Piggyback Registration shall be bound by the Company's intended
method of disposition of shares thereunder. The Holders requesting inclusion in
a registration pursuant to this Section 4 may, at any time prior to the
effective date of the registration statement relating to such registration,
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revoke such request by delivering written notice to the Company revoking such
requested inclusion. All requests for Piggyback Registration under this Section
4 shall be without prejudice to the rights of the Holders to request, and shall
not be counted as, the sole Demand Registration or Shelf Registration under
Section 3 above.
4.2 Priority in Piggyback Registration. If any of the Piggyback
Registrable Securities registered pursuant to any Piggyback Registration are to
be sold in one or more firm commitment underwritten offerings, and the managing
underwriters advise in writing the Company and the Holders of such Piggyback
Registrable Securities of an Underwriters Maximum Number, or, in the case of a
Piggyback Registration not being underwritten, the Company shall reasonably
determine (and notify the Holders of Piggyback Registrable Securities of such
determination), after consultation with an investment banker of nationally
recognized standing, that the number of shares of securities proposed to be sold
in such offering exceeds the number of shares which can be sold in such offering
within a price range acceptable to the Company, the Company shall include in
such registration only such number of shares (including Piggyback Registrable
Securities) which in the opinion of such underwriter or underwriters or the
Company, as the case may be, can be sold within such price range, selected in
the following order of priority: (i) first, all of the shares that the Company
proposes to register (but solely to the extent that the proceeds thereof shall
not be used to purchase Common Stock or other securities of the Company), and
the shares requested by any other Person having demand registration rights and
having made demand for the subject registration, and (ii) second, the Piggyback
Registrable Securities requested to be included in such registration by Holders
that have requested their Piggyback Registrable Securities to be included
therein, pro rata in proportion to the number of Piggyback Registrable
Securities requested to be included in such registration by each of them.
4.3 Limitations Regarding Piggyback Registrations. If the Company, at
any time after giving written notice under Section 4.1 of its intention to
register Common Stock and prior to the effectiveness of the registration
statement filed in connection with such registration, determines for any reason
either not to effect such registration or to delay such registration, the
Company may, at its election, by the delivery of written notice to each Holder,
(i) in the case of a determination not to effect registration, relieve itself of
its obligation to register the Piggyback Registrable Securities in connection
with such registration, or (ii) in the case of a determination to delay the
registration, delay the registration of such Piggyback Registrable Securities
for the same period as the delay in the registration of such other shares of
Common Stock.
4.4 Agreement of Holders. As a condition precedent to permitting any
Holder to participate in a Piggyback Registration, the Company shall have the
right to require such Holder to execute an agreement in form and substance
satisfactory to the Company to the effect that such Holder agrees to be bound
by, and to comply with, all of the obligations of a Holder under this Agreement.
5. HOLD-BACK AGREEMENTS
5.1 Restrictions on Public Sale by Holder of Registrable Securities.
(a) Each Holder of Registrable Securities agrees, if requested by the managing
underwriter or underwriters in an
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underwritten offering of any Registrable Securities, not to effect any public
sale or distribution or any other sale pursuant to the exemption from the
registration requirements of the Securities Act available for private
placements, of its remaining equity securities of the Company, including a sale
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act (except as part of such underwritten registration), during the
14-day period prior to, and during the 90-day period (or such shorter period as
may be agreed to by the parties hereto) beginning on, the effective date of such
Registration Statement, to the extent timely notified in writing by the Company
or the managing underwriter or underwriters, unless the underwriters managing
the registered offering and the Company otherwise agree.
(b) Each Holder of Registrable Securities agrees by acquisition
of such Registrable Securities not to effect any public sale or distribution or
any other sale pursuant to the exemption from the registration requirements of
the Securities Act available for private placements, of its remaining equity
securities of the Company, including a sale pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act (except as part of such
underwritten registration), during the period that a holder of securities
registrable under any of the agreements set forth on Schedule 11.2 is prohibited
from making any such sale or distribution as a result of a underwritten public
offering pursuant to such agreement.
5.2 Restriction on Public Sale by the Company and Others. The Company
agrees (i) not to effect any public sale or distribution of any of its equity
securities during the 14-day period prior to, and during the 90-day period
beginning on, the effective date of a Demand Registration Statement filed
pursuant to Section 3 or such longer periods as may be required in the
reasonable judgment of the managing underwriter or underwriters (except as part
of such underwritten registration or pursuant to registrations on Forms S-4 or
S-8 or any successor form to such forms or in connection with an exchange offer
or an offering of securities solely to the existing stockholders or employees of
the Company), and (ii) that it will cause each holder of equity securities of
the Company purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) who as a result of such
purchase, owns more than 5% of the Common Stock on a fully diluted basis, to
agree not to effect any public sale or distribution or any other sale pursuant
to the exemption from the registration requirements of the Securities Act
available for private placements, of any such securities during such period,
including a sale pursuant to Rule 144 under the Securities Act (except as part
of such underwritten registration, if permitted).
6. REGISTRATION PROCEDURES
Upon the Company incurring registration obligations under Section
3 or Section 4 and subject thereto (including, without limitation, the Company's
unfettered right to terminate or withdraw a registration under Section 4 for any
or no reason), the Company will use its reasonable best efforts to effect such
registrations to permit the sale of such Registrable Securities in accordance
with the intended method or methods of distribution thereof, and pursuant
thereto the Company will, at its expense, as expeditiously as reasonably
possible:
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(a) prepare and file with the Commission a Registration
Statement relating to such registration on any appropriate form under the
Securities Act, which form shall be available for the sale of the Registrable
Securities by the Holders thereof in accordance with the intended method or
methods of distribution thereof, and use its reasonable best efforts to cause
such Registration Statement to become effective; provided, however, that before
filing a Registration Statement or Prospectus or any amendments or supplements
thereto, including documents incorporated by reference after the initial filing
of any Registration Statement, the Company will furnish to the Holders of the
Registrable Securities covered by such Registration Statement, their counsel and
the underwriters, if any, copies of all such documents proposed to be filed
sufficiently in advance of filing to provide them with a reasonable opportunity
to review such documents and comment thereon;
(b) prepare and file with the Commission such amendments and
post-effective amendments to a Registration Statement as may be necessary to
keep such Registration Statement effective for a period of not less than 180
days (or such shorter period which shall terminate when all Registrable
Securities covered by such Registration Statement have been sold or withdrawn,
but not prior to the expiration of the 90-day period referred to in Section 4(3)
of the Securities Act and Rule 174 thereunder, if applicable); cause the related
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act applicable to it with respect
to the disposition of all securities covered by such Registration Statement
during the applicable Period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration Statement or
supplement to such Prospectus;
(c) notify each Holder of Registrable Securities included in the
Registration Statement, their counsel and the managing underwriters, if any, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, promptly, and (if requested by any such Person) confirm such
notice in writing, (1) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(2) of any request by the Commission for amendments or supplements to a
Registration Statement or related Prospectus or for additional information, (3)
of the issuance by the Commission of any stop order suspending the effectiveness
of a Registration Statement or the initiation of any proceedings for that
purpose, (4) if at any time the representations and warranties of the Company
contained in agreements contemplated by Section 6(n) cease to be true and
correct, (5) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, (6) of the happening of any event as a result of which the
Prospectus included in the Registration Statement (as then in effect) contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein (in
the case of the Prospectus or any preliminary Prospectus, in light of the
circumstances under which they were made) not misleading and (7) of the
Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate or that there exist circumstances
not yet disclosed to the public
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<PAGE> 13
which make further sales under such Registration Statement inadvisable pending
such disclosure and post-effective amendment;
(d) at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, upon the occurrence of any event
contemplated by Section 6(c)(2)-(7), prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities being
sold thereunder, which Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(e) use reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement, or the lifting
of any suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction required pursuant to Section 6(i), as soon as
reasonably possible;
(f) if requested by a managing underwriter or any Holder of
Registrable Securities, immediately incorporate in a prospectus supplement or
post-effective amendment such information concerning such Holder of Registrable
Securities, the managing underwriter or underwriters or the intended method of
distribution as the managing underwriter or underwriters or the Holder of
Registrable Securities reasonably requests to be included therein and as is
appropriate in the reasonable judgment of the Company, including, without
limitation, information with respect to the number of shares of the Registrable
Securities being sold to such underwriter or underwriters, the purchase price
being paid therefor by such underwriter or underwriters and with respect to any
other terms of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; make all required filings of
such Prospectus supplement or post-effective amendment as soon as notified of
the matters to be incorporated in such Prospectus supplement or post-effective
amendment; and supplement or make amendments to any Registration Statement if
requested by a managing underwriter of such Registrable Securities;
(g) furnish to each Holder of Registrable Securities included in
such Registration Statement and each managing underwriter, if any, without
charge, one manually-signed copy of the Registration Statement and any
post-effective amendments thereto, including financial statements and schedules,
and, upon request, all documents incorporated therein by reference and all
exhibits (including those incorporated by reference);
(h) deliver to each Holder of Registrable Securities included in
such Registration Statement, their counsel and the underwriters, if any, without
charge, as many copies of the Prospectus or Prospectuses (including each
preliminary Prospectus) and any amendment or supplement thereto as such Persons
may reasonably request; the Company consents to the use of such Prospectus or
any amendment or supplement thereto by each Holder of Registrable Securities
included in the Registration Statement and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus or any amendment or supplement thereto;
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<PAGE> 14
(i) prior to any public offering of Registrable Securities use
its reasonable best efforts to register or qualify, or cooperate with the
Holders of Registrable Securities included in the Registration Statement, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification of, such Registrable Securities for offer and sale
under the securities or blue sky laws of such jurisdictions as any Holder or
underwriter reasonably requests in writing; use its reasonable best efforts to
keep each such registration or qualification effective, including through new
filings or amendments or renewals, during the period such Registration Statement
is required to be kept effective and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the applicable Registration Statement;
provided, however, that the Company will not be required to qualify to do
business or take any action that would subject it to taxation or general service
of process in any jurisdiction where it is not then so qualified or subject;
(j) cooperate with the Holders of Registrable Securities included
in the Registration Statement and the managing underwriter or underwriters, if
any, to facilitate (x) the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing Registrable Securities to be sold
under the Registration Statement or (y) the timely transfer of beneficial
ownership of such Registrable Securities in machine book-entry fashion under the
auspices of The Depository Trust Company or other similar organization; and
cause such Registrable Securities to be in such denominations and registered in
such names as the managing underwriter or underwriters, if any, or such Holders
may request at least two business days prior to any sale of Registrable
Securities;
(k) use its reasonable best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such Governmental Bodies consistent with the provisions of Section
6(i) as may be necessary to enable the seller or sellers thereof or the managing
underwriter or underwriters, if any, to consummate the disposition of such
Registrable Securities;
(l) cause all Registrable Securities included in such
Registration Statement to be (1) listed, by the date of first sale of
Registrable Securities pursuant to such Registration Statement, on each
securities exchange on which shares of the same class and series have previously
been, or are concurrently to be, listed, if any, or (2) if the Registrable
Securities to be included in such Registration Statement are to be distributed
in an underwritten offering, quoted on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or the National Market System of
NASDAQ if the Common Stock is then quoted thereon and such Registrable
Securities qualify for inclusion thereon;
(m) provide a transfer agent and registrar for the
Registrable Securities not later than the effective date of such Registration
Statement;
(n) enter into such agreements and take all such other reasonable
actions in connection therewith in order to expedite or facilitate the
disposition of such Registrable Securities and in such connection, in the case
of an underwritten offering, enter into an
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<PAGE> 15
underwriting agreement in form, scope and substance as is customary in
underwritten offerings and use its best efforts to comply with and satisfy the
covenants and conditions of such underwriting agreement, including, without
limitation, providing opinions of counsel to the Company, indemnifications, and
"comfort" letters from the Company's independent certified public accountants;
(o) make available for inspection by a representative of the
Holders of Registrable Securities included in the Registration Statement, any
underwriter participating in any disposition pursuant to such Registration
Statement and any lawyer, accountant or other advisors retained by such selling
Holders or underwriter, all pertinent financial and other records, pertinent
corporate documents and properties of the Company as they may reasonably
request, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, underwriter,
lawyer, accountant or other advisors in connection with such Registration
Statement, provided, however, that any records, information or documents that
are furnished by the Company and that are non-public shall be used only in
connection with such registration and shall be kept confidential by such Persons
except to the extent disclosure of such records, information or documents is
required by law; and
(p) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make generally available to its
security holders earnings statements satisfying the provisions of Section 11(a)
of the Securities Act, no later than 90 days after the end of any 12-month
period commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firmly underwritten offering.
Each Holder of Registrable Securities as to which any
registration is being effected shall furnish promptly to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing.
Each Holder of Registrable Securities (i) shall sell its
securities covered by any Registration Statement in accordance with the plan of
distribution provided for therein and (ii) upon receipt of any notice from the
Company of the happening of any event of the kind described in Section
6(c)(2)-(7), shall forthwith discontinue disposition of Registrable Securities
covered by such Registration Statement or Prospectus until such Holder's receipt
of the copies of the supplemented or amended Prospectus contemplated by Section
6(d), or until it is advised in writing by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any additional
or supplemental filings which are incorporated by reference in such Prospectus,
and, if so directed by the Company, such Holder will, or will request the
managing underwriter or underwriters, if any, to, deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such securities current at the
time of receipt of such notice. In the event the Company shall give any such
notice, the time period mentioned in Section 6(b) during which a Registration
Statement is required to be kept effective shall be extended by the number of
days during the time period from and including the date of the giving of such
notice pursuant to Section 6(c) to and including the earlier of (x) the date
when each seller of Registrable Securities covered by such Registration
Statement shall have received the copies of the supplemented or
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<PAGE> 16
amended Prospectus contemplated by Section 6(d), or (y) the date when each such
seller is notified by the Company that it may resume use of the Prospectus as
then in effect. The Company shall be obligated to use its best efforts to cause
such Registration Statement and Prospectus to conform to all legal requirements
and to notify the Holders that the use of the applicable Prospectus may be
resumed. Nothing in this paragraph shall limit the obligations of the Company
under Section 3.5 of this Agreement.
7. REGISTRATION EXPENSES
All expenses incident to the Company's performance of or
compliance with this Agreement, including, without limitation, all registration
and filing fees, fees and expense of compliance with state securities or blue
sky laws, including reasonable fees and disbursements of counsel for the
underwriters in connection with blue sky qualifications of the Registrable
Securities under the laws of such jurisdictions as the managing underwriter or
underwriters may reasonably designate, printing expenses, messenger, telephone
and delivery expenses, and fees and disbursements of counsel for the Company and
of all independent certified public accountants of the Company (including the
expenses of any special audit and "cold comfort" letters required by or incident
to such performance), and of underwriters, any liability insurance and fees and
expenses of other Persons retained by the Company (all such expenses being
herein called "Registration Expenses") will be borne by the Company whether or
not the Registration Statement becomes effective. The Company will also pay its
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit, the fees and expenses incurred in connection with the
listing of the securities to be registered on any securities exchange on which
similar securities issued by the Company are then listed and the fees and
expenses of any Person, including special experts, retained by the Company. None
of the following expenses shall be paid by the Company: transfer taxes,
discounts, commissions or fees of underwriters, selling brokers, dealer managers
or similar securities industry professionals relating to the distribution of the
Registrable Securities and the legal fees and disbursements of counsel to the
Holders.
8. INDEMNIFICATION
8.1 Indemnification by the Company. The Company agrees to indemnify,
defend, exonerate and hold harmless, to the full extent permitted by law, each
Holder of Registrable Securities registered pursuant to any registration
hereunder and each of its Affiliates or partners, each of their respective
members, officers, directors, employees, agents, representatives, successors and
assigns and each Person who controls such Holder, Affiliate or partner (within
the meaning of the Securities Act) against any and all actions, causes of
action, suits, losses, liabilities, obligations, damages, deficiencies, demands,
claims, judgments, taxes, assessments, settlement costs, court costs and other
costs and expenses, including, without limitation, interest, penalties, fines,
costs of investigation, discovery, case preparation, defense or appeal, expert
witness fees and expenses and reasonable attorneys' and paralegal fees and
disbursements (collectively, "Losses") incurred by any such Person in any
capacity and caused by any untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary Prospectus or any omission to
state therein a material fact required to be stated therein or
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<PAGE> 17
necessary to make the statements therein (in the case of a Prospectus or any
preliminary Prospectus, in the light of the circumstances under which they were
made) not misleading, except insofar as the same are caused by or contained in
any information furnished in writing to the Company by such Holder or its
representative expressly for use therein; provided, however, that such
indemnification with respect to any preliminary prospectus shall not be
applicable if a copy of the Prospectus was not sent or given by or on behalf of
such Holder on the initial sale, if such is required by law, at or prior to the
written confirmation of the sale and if the Prospectus (as amended or
supplemented) would have cured the defect giving rise to such Losses.
8.2 Indemnification by Holders. In connection with any registration
hereunder, each Holder participating in such registration will promptly furnish
to the Company in writing such information and affidavits with respect to such
Holder as the Company reasonably requests for use in connection with any
Registration Statement or Prospectus and agrees to indemnify, defend, exonerate
and hold harmless, to the full extent permitted by law, the Company, its
directors, officers, agents and representatives and each Person who controls the
Company (within the meaning of the Securities Act) against any Losses incurred
by any such Person in any capacity and caused by any untrue statement of a
material fact or any omission of a material fact required to be stated in any
Registration Statement or Prospectus or preliminary Prospectus or necessary to
make the statements therein (in the case of a Prospectus, in the light of the
circumstances under which they were made) not misleading, to the extent, but
only to the extent, that such untrue statement or omission is contained in any
information or affidavit with respect to such Holder so furnished in writing by
such Holder or its representatives to the Company specifically for inclusion in
such Registration Statement or Prospectus; provided, however, that such
indemnification with respect to any preliminary prospectus shall not be
applicable if a copy of the Prospectus was not sent or given by or on behalf of
the Company on the initial sale, if such is required by law, at or prior to the
written confirmation of the sale and if the Prospectus (as amended or
supplemented) would have cured the defect giving rise to such Losses. In no
event shall the liability of any selling Holder hereunder be greater in amount
than the net dollar amount of the proceeds received by such Holder upon the sale
of the Registrable Securities giving rise to such indemnification obligation.
The Company shall be entitled to receive indemnities from underwriters to the
same extent as provided above with respect to information so furnished in
writing by such persons or their representatives to the Company specifically for
inclusion in any Prospectus or Registration Statement.
8.3 Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. Notwithstanding the
foregoing, any Person entitled to indemnification hereunder shall have the right
to employ separate counsel and to participate in the defense of such claim, but
the reasonable fees and expenses of such counsel shall be at the expense of such
Person unless (a) the indemnifying party has agreed in writing to pay such fees
or expenses, (b) the indemnifying party shall have failed to assume the defense
of such claim and employ counsel reasonably satisfactory to such Person or (c) a
conflict of interest may exist between such Person and the indemnifying party
(it being understood that (x) in the case of each of (a), (b) and (c) above, the
reasonable fees and expenses
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<PAGE> 18
of such separate counsel to such Person shall be paid by the indemnifying party
and (y) in the case of (c) above, if the Person notifies the indemnifying party
in writing that such Person elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party shall not have the right to
assume the defense of such claim on behalf of such Person). If such defense is
not assumed by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its consent (but such
consent will not be unreasonably withheld or delayed). No indemnifying party
will be required to consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to the indemnified party of a release from all
liability in respect to such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the reasonable fees and expenses of more than one counsel for
all parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of such additional counsel
or counsels. The Company may not enter into any settlement of any claim relating
to the offer and sale of Registrable Securities that does not provide for the
complete and unconditional release of such Person.
8.4 Contribution. If the indemnification provided for in this Section
8 from the indemnifying party is unavailable to an indemnified party hereunder
in respect of any losses, claims, damages, liabilities or expense referred to
therein, then the indemnifying party in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action; provided,
however, that in no event shall the liability of any selling Holder hereunder be
greater in amount than the difference between the dollar amount of the proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such contribution obligation and all amounts previously contributed by such
Holder with respect to such losses, claims, damages, liabilities and expenses.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 8.4 were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately paragraph. No person
guilty of fraudulent misrepresentation (within the meaning of
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Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
9. RULE 144
The Company agrees that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder, to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any Holder of Registrable Securities, the
Company will deliver to such Holder a written statement as to whether it has
complied with such information and requirements.
10. EFFECTIVENESS. This Agreement shall be effective upon the execution and
delivery of a counterpart by each of the parties hereto.
11. MISCELLANEOUS
11.1 No Adequate Remedy at Law. In the event of a breach by the
Company of its obligations under this Agreement, each Holder, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate. The
failure to file a Registration Statement within 60 days of a written request
delivered under Section 3.1 shall constitute, in the absence of an injunction or
a Blackout Period having been imposed, a breach thereof entitling the Holders to
remedies hereunder.
11.2 No Inconsistent Agreement. (a) Except for the registration
rights contained in the agreements set forth on Schedule 11.2 hereto, the
Company has not previously entered into any agreement with respect to its
capital stock granting any registration rights to any Person.
(b) The Company will not on or after the date of this Agreement
enter into any agreement with respect to its securities, (i) which grants
registration rights to anyone on a preferred or pari passu position to the
Holders or (ii) which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof.
11.3 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of the
Majority Holders. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter which relates exclusively to
the rights of Holders of Registrable Securities whose securities are being sold
pursuant to a
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Registration Statement and which does not directly or indirectly affect the
rights of other Holders may be given by Holders owning a majority of the shares
of the Registrable Securities being sold by such Holders, provided that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
11.4 Notices. Any notice or other communication required or permitted
hereunder shall be deemed to be delivered if in writing (or in the form of a
telecopy) addressed as provided below and if either (a) actually delivered or
telecopied to said address, (b) in the case of overnight delivery of a notice,
the next business day after properly posted with postage prepaid, or (c) in the
case of a letter, 3 business days shall have elapsed after the same shall have
been deposited in the United States mails, postage prepaid and registered or
certified:
If to the Company, then to Pacific Gulf Properties Inc., 363 San
Miguel Drive, Newport Beach, California 92660-7805, Attention:
President, or such other address or addresses of which the Investor
shall have been given notice, with concurrent copies to Gibson, Dunn &
Crutcher LLP, 333 South Grand Avenue, Los Angeles, California
90071-3197, Attention: Dhiya El-Saden, Esq., or such other address of
which the Investor shall have been given notice.
If to any Holder of Registrable Securities, to it at its address
set forth on the books and records of the Company.
11.5 Counterparts. This Agreement and any amendments, waivers,
consents or supplements may be executed in two or more counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same instrument. This Agreement shall become effective upon the
execution of a counterpart by each of the parties hereto.
11.6 Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
11.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such State.
11.8 Consent to Jurisdiction; Waiver of Jury Trial. (a) Any action,
suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby may be instituted in any federal court of the
Southern District of New York or any state court located in New York County,
State of New York, and each party agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim that it
is not subject personally to the jurisdiction of such court, that the action,
suit or proceeding is brought in an inconvenient forum, that the venue of the
action, suit or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court. The parties irrevocably
submit to the exclusive jurisdiction of such court in any such action, suit or
proceeding. Any and all service of process and any other notice in any such
action, suit or
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<PAGE> 21
proceeding shall be effective against any party if given personally or by
registered or certified mail, return receipt requested, or by any other means of
mail that requires a signed receipt, postage prepaid, mailed to such party as
herein provided. Nothing herein contained shall be deemed to affect the right of
any party to serve process in any manner permitted by law or to commence legal
proceedings or otherwise proceed against any other party in any other
jurisdiction to enforce judgments obtained in any action, suit or proceeding
brought pursuant to this Section 11.8.
(b) Each of the parties hereby irrevocably waives trial by jury
in any action, suit, proceeding or counterclaim, whether at law or equity,
brought by either of them in connection with this Agreement or the transactions
contemplated hereby.
11.9 Severability. The invalidity, illegality or unenforceability in
any jurisdiction of any provision in or obligation under this Agreement shall
not affect or impair the validity, legality and enforceability of the remaining
provisions or obligations under this Agreement or of such provision or
obligation in any other jurisdiction.
11.10 Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein, other than the provisions of any other
documents specifically referred to herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
11.11 Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to its reasonable costs and expenses and
any other available remedy.
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11.12 Construction. The Company and the Investor acknowledge that each
of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by the Company and the
Investor.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
PACIFIC GULF PROPERTIES INC.
By: ______________________________________
Name: Glenn L. Carpenter
Title: Chairman, Chief Executive Officer
and President
FIVE ARROWS REALTY SECURITIES L.L.C.
By: ______________________________________
Name: Matthew W. Kaplan
Title: Manager
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<PAGE> 23
SCHEDULE 3.4
LIST OF UNDERWRITER CHOICES
AG Edwards
Alex. Brown & Sons
Bankers Trust
Bear Stearns & Co. Inc.
CS First Boston Corporation
Dean Witter Reynolds Inc.
Donaldson Lufkin Jenrette Securities Corporation
Furman Selz Incorporated
Goldman Sachs & Co.
JP Morgan Securities
Lehman Brothers
Merrill Lynch
Montgomery Securities
Morgan Stanley Co. Incorporated
NatWest Securities
Nomura Securities
Oppenheimer Securities
Paine Webber
Prudential Securities
Robinson Humphrey
Robertson Stephens
Salomon Brothers
Smith Barney
<PAGE> 24
SCHEDULE 11.2
REGISTRATION RIGHTS AGREEMENTS
Registration Rights Agreement dated August 15, 1995 by and between
Pacific Gulf Properties Inc., a Maryland Corporation, and certain holders of
units of limited partnership interest in PGP Inland Communities, L.P., a
Delaware limited partnership.
Operating Agreement, dated as of April 1, 1997, between Pacific Gulf
Properties Inc., a Maryland corporation, and Five Arrows Realty Securities
L.L.C., a limited liability company organized under the laws of the State of
Delaware.
<PAGE> 1
AMENDED AND RESTATED AGREEMENT AND WAIVER
AMENDED AND RESTATED AGREEMENT AND WAIVER (the "Waiver"), dated
as of May __, 1997, between Pacific Gulf Properties Inc., a Maryland corporation
(the "Corporation" or the "Company"), and Five Arrows Realty Securities L.L.C.,
a Delaware limited liability company (the "Investor"). Terms used herein and not
otherwise defined herein shall have the meanings set forth in the Corporation's
Articles of Incorporation, as amended through and on the date hereof (the
"Charter"), the Articles Supplementary (the "Articles Supplementary")
classifying an aggregate 1,411,765 shares of the Corporation's Class B Senior
Cumulative Convertible Preferred Stock (the "Class B Preferred Shares") and the
Articles Supplementary with respect to the Class A Preferred Shares (as defined
below).
WHEREAS, on December 31, 1996, the Corporation and Investor
entered into an Investment Agreement, pursuant to which the Corporation agreed
to sell and the Investor agreed to buy, 1,351,351 shares of the Corporation's
Class A Senior Cumulative Convertible Preferred Stock (the "Class A Preferred
Shares" and, collectively with the Class B Preferred Shares, the "Preferred
Shares") and, in connection therewith, the Corporation and Investor executed an
Agreement and Waiver dated as of April 1, 1997;
WHEREAS, the Corporation intends to issue and sell to the
Investor, and the Investor intends to purchase from the Corporation, the Class B
Preferred Shares;
WHEREAS, the Charter and the Articles Supplementary set forth
certain restrictions with respect to the ownership of the Corporation's capital
stock;
WHEREAS, the Corporation desires to waive certain of those
restrictions in connection with the sale to the Investor of the Class B
Preferred Shares and to restate the terms of the Agreement and Waiver in
connection with the sale of Class A Preferred Shares to the Investor; and
WHEREAS, the Corporation's Board of Directors has approved the
provisions of this Waiver.
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The
Corporation hereby represents and warrants to the Investor as follows:
(a) No individual (as determined for purposes of Section
856(h) of the Code but including "qualified trusts" (as defined
in Section 856(h)(3)(E) of the Code)), Beneficially Owns more
than 9.8% of the number of shares of the outstanding Common Stock
and, to the knowledge of the Corporation, no such individual
Beneficially Owns more than 5% of such Common Stock.
<PAGE> 2
(b) (i) Attached hereto as Exhibit A is a true and
complete list of the Tenants which are not individuals and which
have leases which provide for the payment of annual "rents from
real property" to the Company (as such term is defined in Section
856(d) of the Code, and giving effect to the provisions of
Treasury Regulation Section 1.856-3(g)) in an amount, determined
solely with reference to the amount required to be included in
the gross income of the Company for purposes of applying Section
856(c) of the Code, in excess of $500,000 (a "Major Lease") (it
being understood that at any time and from time to time the
Corporation may, pursuant to Section 3(b) hereof, notify the
Investor that there has been an addition to or a change in
Tenants and supply to the Investor a revised Exhibit A, which
shall become Exhibit A hereto as of and after the date of receipt
by the Investor of such revised Exhibit A), (ii) the Corporation
does not own, directly or indirectly (after applying the
constructive ownership rules of Section 856(d)(5) of the Code)
any stock or other equity interest in any such Tenant (as
determined for purposes of applying Section 856(d)(2)(B) of the
Code) (the representation in this clause (ii) is sometimes
hereinafter referred to as a "Tenant Representation") and (iii)
for purposes of Section 856(c)(2) of the Code, at least 98% of
the gross income of the Corporation for the calendar year ending
December 31, 1996, determined without regard to the Investor's
acquisition of the Preferred Shares, will be derived from the
sources specified in Section 856(c)(2) of the Code. For purposes
of this Agreement, the term "Tenant" refers to any corporation,
partnership, limited liability company, joint venture,
unincorporated organization, estate, trust, or any other entity
that pays or is expected to pay "rents from real property" (as
such term is defined in Section 856(d) of the Code) to the
Corporation or to any entity all or part of the income of which
would be attributed to the Company for purposes of applying
Sections 856(c)(2) and 856(c)(3) of the Code.
(c) Under current law, the only basis upon which the
Investor could cause the Corporation to fail to qualify as a REIT
solely by reason of the ownership by the Investor of the
Preferred Shares or shares of Common Stock into which the
Preferred Shares have been converted (such Preferred Shares or
shares of Common Stock, hereinafter, the "Subject Shares") (it
being understood that this representation does not apply to
failure to qualify as a result of any action, inaction or event,
including but not limited to the provision of any service or the
institution of any legal proceeding, by any person, including but
not limited to the Investor, that could affect the Company's
status as a REIT), is by (i) the Investor owning, actually or
Beneficially, shares of Capital Stock to the extent that such
actual or Beneficial Ownership of Capital Stock would result in
the Corporation being "closely-held" within the meaning Section
856(h) of the Code or (ii) actual or constructive ownership of an
interest in the Company that, after application of the
constructive ownership rules of Section 856(d)(5) of the Code,
would result in the Corporation being deemed to own, after
application of such rules, an interest in a Tenant that would
cause the Corporation to own or be deemed to own, for purposes of
applying Section 856(d)(2)(B) of the Code, 10%
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<PAGE> 3
or more of the voting power, number of shares, or interests in
assets or net profits, as applicable, in such Tenant and the
income derived by the Corporation from such Tenants, when
combined with other income that is both (i) required to be taken
into account by the Company for purposes of applying Section
856(c) of the Code and (ii) not described in Sections
856(c)(2)(A) through (H) or Sections 856(c)(3)(A) through (I) of
the Code, as applicable, would cause the Corporation to fail to
satisfy any of the gross income requirements of Section 856(c) of
the Code.
2. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
(a) Relying upon and assuming the accuracy of the
representations and warranties given by the Corporation set forth
in Section 1, the ownership by the Investor and The Public
Employees Retirement System of Ohio ("OPERS") of the Subject
Shares and any Additional Shares (as defined herein) will not
result in the Corporation being "closely-held" within the meaning
of Section 856(h) of the Code and will not result in the
Corporation otherwise failing to qualify as a REIT.
(b) Attached hereto as Exhibit B is a true and complete
list of the persons owning a capital or profits interest in the
Investor, the interest owned in the Investor, the persons owning
beneficial interests in the entities (other than OPERS) owning a
capital or profits interest in the Investor and the interest
owned.
(c) OPERS is a "qualified trust" as that term is defined
in Section 856(h)(3)(E) of the Code except to the extent that it
not being a "qualified trust" would not result in the Corporation
being "closely-held" within the meaning of Section 856(h) of the
Code or would not result in the Corporation otherwise failing to
qualify as a REIT.
(d) The Investor and those persons owning a direct or
indirect interest in the Investor collectively own, directly or
indirectly, no more than 5% of the value of the Corporation, not
including the Subject Shares.
(e) No person has a beneficial interest in OPERS with a
value of more than 0.2% of the total value of all beneficial
interests in OPERS.
(f) (i) The Investor directly owns no stock or other
equity interest in a Tenant identified on Exhibit A (as the same
may be amended from time to time), and (ii) no Person owns a
stock or other equity interest (as determined for purposes of
applying Section 856(d)(2)(B) of the Code) in a Tenant identified
on Exhibit A (as the same may be amended from time to time) that
would both (A) be attributable to Investor by operation of
Section 318 of the Code, as modified by Section 856(d)(5) of the
Code and (B) result in the Investor being deemed to own, pursuant
to such section as so modified, in excess of 4.9% of such stock
or other equity interests in such Tenant.
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<PAGE> 4
(g) For purposes of applying Section 856(h) of the Code,
no individual (as determined for purposes of applying Section
856(h) but including "qualified trusts" other than OPERS) is or
will be deemed to own more than 0.2% of the value or number of
shares, whichever is greater, of the outstanding Capital Stock by
virtue of the Investor's or OPERS' ownership of the Subject
Shares and any Additional Shares, except for the direct or
indirect individual members of Rothschild Realty Investors II
L.L.C., no one of whom, following such acquisition, will be
deemed to own (for purposes of applying such section), more than
9.8% of the value or the number of shares, whichever is greater,
of the Capital Stock.
3. UNDERTAKINGS OF THE CORPORATION.
(a) Other than the waiver provided pursuant to this
Waiver, the Corporation will not grant any waiver of the
Ownership Limit in the Charter or the Articles Supplementary if
such waiver would cause the Corporation to be "closely-held" or a
"pension-held REIT," both within the meaning of Section 856(h) of
the Code.
(b) Before the Corporation, or any entity, all or part of
the income of which would be attributed to the Company for
purposes of applying Sections 856(c)(2) and 856(c)(3) of the
Code, enters into a Major Lease, the Corporation will provide the
name of the proposed Tenant to the Investor and will represent to
Investor the Tenant Representation contained in 1(b)(ii) hereof.
The Corporation will not enter (or cause such entity to enter)
into such Major Lease unless Investor shall inform (or be treated
as informing pursuant to Section 4(b) hereof) the Corporation
that the Investor does not own and is not deemed to own, for
purposes of Section 856(d)(2)(B), more than a 4.9% interest in
the proposed tenant.
(c) Except as provided in this Waiver, the Corporation
will not take any action or fail to take any reasonable action
that it knows (or reasonably should know) would reasonably be
expected to result in (other than (i) any action or failure to
take action required to preserve the Corporation's status as a
REIT or (ii) any action or failure to take action in reliance
upon the representations and warranties of the Investor in
Section 2 or the undertakings of the Investor in Section 4), (x)
the Investor owning, actually or Beneficially, shares of Capital
Stock to the extent that such actual or Beneficial Ownership of
Capital Stock would result in the Corporation being
"closely-held" within the meaning of Section 856(h) of the Code
or would result in the Corporation otherwise failing to qualify
as a REIT, in either case solely by reason of the actual or
Beneficial Ownership of the Subject Shares and any Additional
Shares by the Investor and OPERS, or (y) less than 97% of the
gross income of the Corporation for any year (for purposes of
Section 856(c)(2)) being derived from the sources specified in
Section 856(c)(2) (it being understood that, absent actual
knowledge to the
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<PAGE> 5
contrary or the failure of the Company to comply with Section
1(b) and 3(b) hereof, the Company shall be entitled to assume for
this purpose that it does not own and is not deemed to own any
interest in a Tenant described in Section 856(d)(2)(B) by reason
of the ownership of the Subject Shares or any Additional Shares
by the Investor, OPERS or any transferee that executes a
Successor Waiver Agreement (as defined in Section 6)).
4. UNDERTAKINGS OF THE INVESTOR.
(a) The Investor and those persons identified on Exhibit B
or who, following the date hereof, acquire a direct or indirect
capital or profits interest in the Investor (the "Investor
Group") will not take any action or fail to take any reasonable
action that the Investor or any such Person knows (or reasonably
should know) would reasonably be expected to cause: (i) the
Investor to be an individual for purposes of Section 542(a)(2) of
the Code as modified by Section 856(h) of the Code, (ii) OPERS to
fail to qualify as a "qualified trust" as that term is defined in
Section 856(h)(3)(E) of the Code, (iii) any individual (as
determined for purposes of applying Section 856(h) but including
"qualified trusts" other than OPERS), except for the direct or
indirect individual members of Rothschild Realty Investors II
L.L.C., to be deemed to own more than 0.2% of the value or number
of shares, whichever is greater, of the outstanding Capital Stock
by virtue of the Investor's or OPERS' ownership of the Subject
Shares or any Additional Shares, (iv) a direct or indirect
individual member of Rothschild Realty Investors II L.L.C. to be
deemed to own (for purposes of applying such section), more than
9.8% of the value or number of shares, whichever is greater, of
the Capital Stock, (v) any person to have a beneficial interest
in OPERS with a value of more than 0.2% of the total value of all
beneficial interests in OPERS, (vi) Investor to directly acquire
a stock or other equity interest in a Tenant identified on
Exhibit A (as the same may be amended from time to time)
following the date hereof, and (vii) any Person to acquire a
stock or other equity interest (as determined for purposes of
applying Section 856(d)(2)(B) of the Code) in a Tenant identified
on Exhibit A, following the receipt of such Exhibit A (as the
same may be amended from time to time), that would both (A) be
attributable to Investor by operation of Section 318 of the Code,
as modified by Section 856(d)(5) of the Code and (B) result in
the Investor being deemed to own, pursuant to such section as so
modified, in excess of 4.9% of such stock or other equity
interests in such Tenant.
(b) The Investor shall inform the Corporation, within 10
business days of receiving any notice from the Corporation set
forth in Section 3(b) hereof, if the Investor or any person
having a direct or indirect ownership interest in the Investor
owns or is deemed to own, for purposes of applying Section
856(d)(2)(B) of the Code, more than a 4.9% ownership interest in
such proposed Tenant and the nature of such ownership (any such
failure to notify the Corporation within such 10 business day
period will for all purposes be deemed to be an affirmative
statement by the Investor to the Corporation that neither the
Investor nor any
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<PAGE> 6
person having a direct or indirect ownership interest in the
Investor owns or is deemed to own, for purposes of applying such
section, more than a 4.9% ownership interest in such proposed
Tenant).
5. WAIVER. On the basis of the accuracy of the
representations and warranties of the Investor contained in Section 2 and the
undertakings in Section 4, the Corporation, pursuant to subparagraph D.4(i), and
subject to subparagraph D.4(b)(iii) and (iv), of Article V of the Charter,
hereby exempts the Investor from the restrictions on ownership of Capital Stock
set forth in the Charter (the "Ownership Restrictions"), including subparagraphs
D.4(b)(i) and (ii) of Article V of the Charter; such exemption to be effective
(i) only to the extent necessary to enable Investor and OPERS to Beneficially
Own, collectively, the Subject Shares and an additional 350,000 shares of Common
Stock (subject to adjustment in the event of a stock dividend, stock split or
similar subdivison or combination of Common Stock) (such additional shares up to
350,000 shares referred to herein as "Additional Shares"), and no other Capital
Stock, and (ii) only to the extent it does not result in any individual (as
determined for purposes of 856(h) of the Code but excluding OPERS and any
qualified trusts as defined in Section 856(h)(3)(E) of the Code) Beneficially
Owning more than 9.8% of the value or number of Shares, whichever is greater, of
the Company's outstanding Capital Stock.
6. TRANSFER OF SUBJECT SHARES: RIGHT OF FIRST REFUSAL. The
provisions of this Section 6 apply in the event the Investor seeks to transfer
Subject Shares in a manner that, but for this Section 6, would result in a
violation of the Ownership Restrictions.
(a) Subject to the provisions of this Section 7, the
Corporation hereby waives the Ownership Restrictions to the
extent necessary to enable the Investor to transfer ownership of
Subject Shares to another Person, provided such transfer is not
effected using the facilities of the NYSE (or any other stock
exchange) or through an underwriter or person acting in a similar
capacity.
(b) The waiver described in paragraph (a) shall not become
effective until the right of first refusal period with respect to
the Subject Shares that the Investor seeks to transfer in excess
of the number of Subject Shares that the intended transferee (the
"Intended Transferee") may acquire without violating the
Ownership Restrictions (the "Extra Subject Shares") has expired
or otherwise terminated without the Corporation having exercised
its right to purchase such Extra Subject Shares.
(c) The waiver described in paragraph (a) shall be
conditioned on the accuracy of the statement of Capital Stock
owned by the Intended Transferee described in Section 7(b) hereof
and on obtaining from the Intended Transferee representations and
undertakings reasonably requested by the Corporation in order to
ensure that (i) no individual (as determined for purposes of
Section 856(h) of the Code but excluding "qualified trusts" as
defined in Section 856(h)(3)(B) of the Code) will Beneficially
Own more than 9.8% of the value or number of shares, whichever is
greater, of the outstanding Capital Stock following the Intended
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<PAGE> 7
Transferee's acquisition of the Subject Shares, and (ii)
ownership of the Extra Subject Shares by the Intended Transferee
will not give rise to more than $750,000 of income not described
in Sections 856(c)(2) of the Code. The parties agree that the
phrase "representations and undertakings reasonably requested"
includes, but is not limited to, representations and undertakings
similar to those set forth in Section 2 and 4 hereof (but as
modified by this Section 6). Such representations and
undertakings shall be included in an agreement between the
Corporation and the Intended Transferee consistent with the terms
of this Waiver (a "Successor Waiver Agreement").
(d) In no event will a Person be entitled to any waiver of
the Ownership Restrictions based on Beneficial Ownership of
Capital Stock arising as a result of a transfer or issuance of an
interest in the Investor or a transfer or issuance of any direct
or indirect interest in any member of the Investor.
(e) The waiver described in paragraph (a) shall apply only
to the actual or Beneficial Ownership by the Intended Transferee
of Subject Shares and an additional number of Common Shares equal
to the number of Additional Shares, and all such Shares shall be
taken into account in applying the Ownership Restrictions to any
other shares of Capital Stock owned by the Intended Transferee or
any other person.
7. RIGHT OF FIRST REFUSAL. For purposes of this Section 7,
the following terms have the following meanings:
"Transfer" shall mean any direct or indirect disposition of an
interest whether by sale, exchange, merger, consolidation, transfer, assignment,
conveyance, distribution, pledge, inheritance, gift, mortgage, the creation of
any security interest in, or lien or encumbrance upon, any other disposition of
any kind and in any manner, by operation of law or otherwise, of Subject Shares
or any other transfer or agreement which would result in a change in the
percentage of the Subject Shares actually or Beneficially Owned by the Investor.
(a) Restrictions. The Investor agrees that it will not
Transfer any Extra Subject Shares (or any direct or indirect
interest therein) or any stock certificate representing the same,
now or hereafter at any time owned by it, except to current
partners of the Investor and as required or permitted by this
Section 7.
(b) Bona Fide Offers. (a) If the Investor desires to
Transfer any Extra Subject Shares and such Investor shall have
received a bona fide written offer (a "Bona Fide Offer") that it
intends to accept from a Person (the "Outside Party") for the
Transfer of such Extra Subject Shares, the Investor shall give
written notice (the "Option Notice") to the Corporation setting
forth such desire, which notice shall set forth at least the name
and address of the Outside Party and the price and terms of the
Bona Fide Offer and shall be accompanied by a copy of the Bona
Fide Offer, a statement executed by the Outside Party setting
forth the number of shares and type of Capital Stock beneficially
owned (for purposes of
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<PAGE> 8
applying Section 13(d)(3) of the Securities Exchange Act of 1934)
by such Intended Transferee and any Affiliate thereof, and
evidence reasonably demonstrating the Outside Party's ability to
consummate such offer. Upon the giving of such Option Notice, the
Corporation shall have the option to purchase for cash, at the
price offered by the Outside Party in the Bona Fide Offer, all,
but not less than all, of the Extra Subject Shares specified in
the Option Notice, said option to be exercised within ten (10)
business days following the giving of such Option Notice, by
giving a counter-notice (a "Counter-Notice") to the Investor. In
the event that a determination must be made (as described below)
as to the fair market value of non-cash consideration, the ten
(10) business day period referred to in the immediately preceding
sentence shall be extended to such greater period of time, not to
exceed twenty (20) business days after said option Notice,
specified in good faith by the majority of the disinterested
members of the Board. In the event that the Bona Fide Offer
provides, in whole or in part, for non-cash consideration, the
"price" offered by the Outside Party shall be deemed to be the
amount of cash, if any, provided in the Bona Fide offer plus the
fair market value of the non-cash consideration as initially
determined in good faith by the majority of the disinterested
members of the Board, which determination may be challenged by
the Investor.
(c) Subject to paragraph (d), in the event that the
Corporation elects to purchase Extra Subject Shares pursuant to
Section 7(a), the Corporation will be obligated to purchase, and
the Investor shall be obligated to sell, such Extra Subject
Shares at a closing (which shall be the closing for all Extra
Subject Shares being purchased in connection with such Option
Notice) to be held on the thirtieth business day after the
delivery of the Corporation's counter-notice to such Investor at
the principal executive offices of the Corporation, or at such
other time and place as may be mutually acceptable to the
Corporation and the Investor. The closing of any such purchase by
the Corporation may, at the election of the Corporation, be
delayed up to thirty (30) business days in order to permit such
acquisition of such Extra Subject Shares to made in conformity
with applicable laws.
(d) If the Corporation elects not to purchase all of the
Extra Subject Shares subject to the Bona Fide Offer within the
time limits specified above, then the offer to sell any of the
Extra Subject Shares to the Corporation shall be deemed revoked
and the Investor, at any time within a period of thirty-five (35)
business days following the expiration of such time limits, may
Transfer all (but not less than all) of such Extra Subject Shares
to the Outside Party at no lower price than set forth in the Bona
Fide Offer and on substantially the same economic terms contained
in the Bona Fide Offer; provided, however, that in the event the
Investor has not so Transferred said Extra Subject Shares to the
Outside Party within said thirty-five (35) day period, then said
Extra Subject Shares thereafter shall continue to be subject to
all of the restrictions contained in this Waiver as though no
Option Notice had ever been given.
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<PAGE> 9
(e) At the closing of any purchase of Extra Subject Shares
pursuant to this Section 7, the Investor shall deliver
certificates representing such Extra Subject Shares duly endorsed
for transfer and accompanied by all requisite stock transfer
taxes to the extent required by the Bona Fide Offer to be paid by
the Investor. Any Extra Subject Shares purchased pursuant to this
Section 7 shall be free and clear of any and all liens, claims,
options, charges, encumbrances, voting trusts, irrevocable
proxies or other rights of any kind or nature and at the closing
of the purchase the Investor shall represent and warrant to such
effect and to the effect that the Investor is the beneficial
owner of such Extra Subject Shares.
(f) If, in any instance, the Corporation elects not to
exercise its rights hereunder or elects to waive such rights,
such election shall not constitute a waiver of such the
Corporation's rights to receive an Option Notice in the case of
any Transfer subsequently proposed by the Investor.
8. VIOLATION.
(a) In the event of any breach of a representation or
warranty given by the Investor in Section 2 (other than as a
result of a breach of the representations or warranties given by
the Corporation in Section 1) or a violation of any of the
undertakings set forth in Section 4 (other than as a result of a
violation by the Corporation of the representations of the
Corporation set forth in Section 1 or the undertakings of the
Corporation set forth in Section 3), in addition to all rights
provided in this Waiver, in the Charter or the Articles
Supplementary, or granted by law (including recovery of damages),
the Waiver set forth in Section 5 hereof shall, to the extent
reasonably determined by the Board to be necessary in order for
the Corporation to qualify for taxation as a REIT, be void ab
initio and shall result in a conversion of all or a portion (as
reasonably determined by the Board to be necessary) of the
Subject Shares and any Additional Shares into Excess Stock or, if
an IRS Ruling Satisfactory to the Corporation has not been
obtained, shall to such extent cause the issuance or acquisition
of all or a portion of the Subject Shares and any Additional
Shares to be void ab initio, in either case to the same extent as
if the Waiver in Section 5 hereof had never been granted, and to
be subject to the ownership limits and related provisions set
forth in the Charter and the Articles Supplementary.
(b) In addition to and not in limitation of the provisions
of paragraph (a), to the extent the Investor or OPERS purports to
acquire Beneficial Ownership of Capital Stock that would result
in Beneficial Ownership of Capital Stock by the Investor and
OPERS, collectively, in excess of the Subject Shares and any
Additional Shares, or that would result in any individual (other
than OPERS or any other "qualified trust") Beneficially Owning in
excess of 9.8% of the value or number of shares, whichever is
greater, of Capital Stock, such purported acquisition shall be
void ab initio and shall result in a conversion of such excess
Capital Stock into Excess Stock, or if an IRS Ruling Satisfactory
to the
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<PAGE> 10
Corporation has not been obtained, shall cause the issuance or
acquisition of such excess Capital Stock to be void ab initio.
(c) In the event the Corporation breaches any of the
representations and warranties given by the Corporation in
Section 1 or any of the undertakings in Section 3 and such breach
results in shares of Common Stock issued upon conversion of the
Preferred Shares or Preferred Shares being exchanged for Excess
Stock or automatic repurchase in accordance with subparagraph
D.4(c)(ii) of Article V of the Charter, the Investor shall be
entitled to exercise all rights provided herein or granted by law
(including recovery of damages) or in equity.
9. CHANGE IN LAW. In the event that there is a change in law
or in the interpretation of the law of which the Corporation or the Investor has
knowledge that may cause or has caused any Subject Shares held by the Investor
to be exchanged for Excess Stock or to be void ab initio, the Corporation and
the Investor shall communicate such knowledge to the other party and shall use
reasonable efforts (a) to prevent such occurrence or circumstance, (b) to amend
the documents and instruments with respect to the Subject Shares held by the
Investor to mitigate the effect of such change (provided, however, that in
effecting such amendment, the Corporation shall in no event be required to (i)
materially disproportionately disadvantage any other security holder of the
Corporation, (ii) provide the Investor as a holder of the Subject Shares with
better terms, on a whole, than existed with respect to such Preferred Shares or
Common Stock prior to such amendment or (iii) repurchase any securities of the
Corporation owned, directly or indirectly, by the Investor), and (c) unless
required by the Charter or the Articles Supplementary or in order to preserve
the Corporation's status as a REIT, to not disproportionately disadvantage the
Investor with respect to other security holders of the Corporation in
determining, if the Corporation is permitted to make such a determination, which
shares of the Corporation's Capital Stock shall be void ab initio or exchanged
for Excess Stock or repurchased.
10. ASSIGNMENT. Except to the extent provided herein, no
party hereto may assign (by operation of law or otherwise) either this Waiver or
any if its rights, interests, or obligations hereunder without the prior written
consent of the other party in its sole and absolute discretion.
11. AMENDMENTS. The provisions of this Waiver, including the
provisions of this sentence (but excluding Exhibit A, which may be amended in
accordance with Section 1), may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless each of the parties hereto consents in writing to such amendment,
modification, supplement or waiver. Each such consent or waiver shall be
effective only in the specific instance and for the specific purpose for which
given.
12. NOTICE. All notices hereunder shall be in writing and
shall be given: (a) if to the Company, at 363 San Miguel Drive, Newport Beach,
California 92660-7805, Attention: President, or such other address or addresses
of which the Investor shall have been given notice, with copies to Gibson, Dunn
& Crutcher LLP, 333 South Grand Avenue, Los Angeles,
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California 90071-3197, Attention: Dhiya El-Saden, Esq., or such other address of
which the Investor shall have been given notice; and (b) if to the Investor, at
Rothschild Realty Inc., 1251 Avenue of the Americas, New York, New York 10020,
Attn: Matthew Kaplan, or such other address of which the Company shall have been
given notice, with copies to Schulte Roth & Zabel LLP, 900 Third Avenue, New
York, New York 10022, Attn: Andre Weiss, Esq., or such other address of which
the Company shall have been given notice. Any notice shall be deemed to have
been given if personally delivered or sent by United States mail or by
commercial courier or delivery service or by telegram or telex and shall be
deemed received, unless earlier received, (i) if sent by certified or registered
mail, return receipt requested, three business days after deposit in the mail,
postage prepaid, (ii) if sent by United States Express Mail or by commercial
courier or delivery service, one Business Day after delivery to a United States
Post Office of delivery service, postage prepaid, (iii) if sent by telegram,
telex or facsimile transmission, when receipt is acknowledged by answerback, and
(iv) if delivered by hand, on the date of receipt.
13. SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
14. HEADINGS. The headings in this Waiver are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
15. GOVERNING LAW. This Waiver shall be governed by and
construed in accordance with the laws of the State of Maryland as applied
between residents of that State entering into contracts wholly to be performed
in that State.
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16. COUNTERPARTS. This Waiver may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
* * * * * *
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Waiver as of the date first written above.
PACIFIC GULF PROPERTIES INC.,
a Maryland corporation
By:____________________________________
Name: Glenn L. Carpenter
Title: Chairman, Chief Executive
Officer and President
FIVE ARROWS REALTY SECURITIES L.L.C.,
a Delaware limited liability company
By:____________________________________
Name: Matthew W. Kaplan
Title: Manager
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EXHIBIT A
PACIFIC GULF PROPERTIES INC
INDUSTRIAL TENANTS PAYING $500,000 OR MORE IN ANNUAL RENTS
TENANT NAME PROJECT
----------- -------
VANS VISTA
USCO ETIWANDA
N.A.L.S (MARS) ETIWANDA
DYNACRAFT ALGONA
STEL INDUSTRIES ALGONA
JAMES RIVER WOODLAND
<PAGE> 14
EXHIBIT B
FIVE ARROWS REALTY SECURITIES L.L.C. -- OWNERSHIP SCHEDULE
Capital Interest
99% Capital Interest - Public Employees Retirement System of Ohio
1% Capital Interest - Rothschild Realty Investors II L.L.C.
100% Capital Interest - Rothschild Realty Group Inc., a 100%
owned subsidiary of Rothschild North America Inc.
Interest in Profits
100% Profits Interest - Public Employees Retirement System of Ohio until
Internal Rate of Return is 10%
80% Profits Interest - Public Employees Retirement System of Ohio after Internal
Rate of Return reaches 10%
20% Profits Interest - Rothschild Realty Investors II L.L.C. after Internal Rate
of Return reaches 10%
Interest in profits of Rothschild Realty Investors II L.L.C.
68% Profits Interest - Rothschild Realty Group Inc.
32% Profits Interest - four individuals own 8% each
